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Summary
of Contents
PULSE TRACK
STOCK
UPDATE
Aban
Offshore
Cluster: Emerging Star
Recommendation:
Buy
Price target: Rs2,387
Current market price: Rs1,855
Price target revised to Rs2,387
Key points
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Aban Offshore Ltd (AOL) has successfully
increased its stake in Sinvest ASA to 97% through the completion
of the mandatory open offer. With a majority control in Sinvest,
AOL would have control over 28 assets (including the six under
construction) and has emerged as one of the Top 10 offshore
drilling companies globally.
-
The acquisition of the additional 57% stake in
Sinvest for around $775 million will be earnings accretive. It
would boost the earnings by $41.8 million in FY2008 and by $70
million in FY2009. Moreover, AOL would get access to the huge cash
flows of around $750-800 million expected to be generated by
Sinvest over the next three years.
-
We maintain our Buy call on the stock with a
one-year revised price target of Rs2,387 (8x FY2009E earnings
which is at a slight premium to the valuations of the other
comparable global players due to the company's strong cash flows
and a relatively higher return on equity [RoE]).
SKF
India
Cluster: Apple Green
Recommendation:
Buy
Price target: Rs406
Current market price: Rs327
Expansion to drive growth
Result highlights
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SKF India's Q4CY2006 net sales stood at Rs379.3
crore, marking a growth of 52.25% year on year (yoy). The company
had increased the capacity at its Bangalore and Pune units during
Q3CY2006. The combined capacity has been enhanced to 100 million
ball bearings per year from 74 million ball bearings and the
company is increasing its taper roller bearing capacity to 20
million units per year.
-
The operating profit margin (OPM) for the
fourth quarter declined by 70 basis points to 13.5% on a
like-to-like basis. However, on a sequential basis, the margin
marked a significant improvement of 210 basis points. The
operating profit for the quarter increased by 45.5% yoy to Rs51.4
crore.
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The pre-exceptional net profit stood at Rs31.7
crore against Rs10.3 crore in the fourth quarter of last year.
However, the last year's numbers had contained two extraordinary
items of Rs10.2 crore, relating to the cost of traded goods for
the previous quarters, and a Rs4-crore contribution to the
superannuation fund due to a change in the accounting practices.
Hence, the adjusted profit after tax (PAT) for Q4CY2006 grew by
29% yoy to Rs31.7 crore.
-
For CY2006 the sales have grown by 71.8% to
Rs1,342 crore. The OPM for the year is down to 12.8% from 14.8% in
CY2005. The CY2006 sales and profit margin numbers are not exactly
comparable with those of CY2005 due to a change in the method of
accounting for indenting business as commission income to the
direct customer delivery model in this year. The PAT for CY2006 is
at Rs102 crore, a growth of 62%.
-
We maintain our positive outlook on SKF India
in view of the strong demand and expansion in the company's user
segments like automobiles and industry. We are introducing our
estimates for CY2008. At the current market price of Rs327 the
stock is discounting its CY2008 earnings estimate by 9.8x and its
earnings before interest, depreciation, tax and amortisation
(EBIDTA) estimate by 5.1x. We maintain our Buy recommendation on
the stock with a price target of Rs406.
Deepak Fertilisers &
Petrochemicals Corporation
Cluster: Ugly
Duckling
Recommendation: Buy
Price target: Rs126
Current
market price: Rs95
Strong profits in the pipeline
Result highlights
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The revenues of Deepak Fertilisers and
Petrochemical Ltd (DFPCL) grew by 69.7% year on year (yoy) to
Rs243.3 crore in Q3FY2007 driven by the strong performance of both
its chemicals and fertilisers divisions. The robust growth in
manufactured chemicals due to the isopropyl alcohol (IPA) plant
becoming operational drove the growth in the revenues in the
chemicals business, while the fertiliser segment witnessed a surge
in its revenues from traded goods. The sales last year were lower
due to lack of availability of gas and the floods, which further
gives a positive bias to the year-on-year (y-o-y) growth figures.
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The operating profit grew by 47.3% yoy to
Rs40.6 crore due to the firm naphtha prices & higher revenues
from traded goods. The profit before interest and tax (PBIT)
margin of the chemicals division declined by 300 basis points
while the fertilisers business continued to make losses having a
PBIT margin of -16%.
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The net profit for Q3FY2007 grew by 55.4% yoy,
due to lower tax provisioning compared to the last year. The net
profit was up 55.4% in spite of a higher depreciation charge,
higher interest cost and lower other income.
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Ishanya, DFPCL's specialty mall coming
up in Pune will stabilise its operations from April 2007. Around
76% of the leasable area has already been leased out for
Ishanya and after making the changes required by the new
clients the mall is likely to be launched in a phased manner by
April 2007.
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The progress on the ammonium nitrate (AN) plant
in Orissa is on schedule and the plant is set to begin production
in Q1FY2009.
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We believe that DFPCL's valuations at 6.3x
FY2008E earnings per share (EPS) are attractive, given the fact
that the company has undertaken capital expenditure (capex) of
Rs700 crore without diluting its equity and return on equity
(RoE). We maintain our Buy recommendation on the stock with a
price target of Rs126.
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