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Summary
of Contents
PULSE TRACK
-
February 2007 IIP
in line with market estimates
SHAREKHAN SPECIAL
Q4FY2007 FMCG earnings preview
Key points
-
Backed by a
pick-up in rural demand, the fast moving consumer goods (FMCG)
sector has seen the volume growth getting better every quarter.
The revenue growth for the current quarter is likely to be driven
by volume growth as well as improved pricing power.
-
Rising input
prices is a concern for the industry. Palm oil prices have
increased by around 20% in the last three months but LAB prices
continue to remain steady. Price increases as well as cost savings
would help the companies to maintain their margins.
-
We expect the
profit of Hindustan Lever Ltd (HLL), the market leader in the
segment, to grow by 18.8% year on year (yoy) backed by a strong
growth in the home and personal care (HPC) segment and price
increases in key products. We expect the margin to improve from
11.8% in Q1CY2006 to 12.8% in Q1CY2007, which would be primarily
due to the price hikes taken in many of its products as well as
improved product mix.
-
ITC's profits
are expected to grow by a strong 24% yoy. We expect the growth to
be broad-based with the magnitude of losses in the non-FMCG
business coming down. The imposition of the value-added tax (VAT)
is having a dampening effect but we believe any decline is a good
opportunity to buy.
-
The long-term
potential of this sector appears favourable with higher disposable
incomes and increased spending. We believe with strong free cash
flows, high return on capital employed (RoCE) and sustainable
growth the sector still looks attractive.
STOCK UPDATE
Bharat Heavy Electricals
Cluster:
Apple Green
Recommendation: Buy
Price target:
Rs2,650
Current market price: Rs2,470
NTPC capex plan
augurs well for BHEL
Key points
-
The near-term
order flow for Bharat Heavy Electricals (BHEL) is expected to be
robust in view of the ambitious capacity addition plans of the
power utilities, especially National Thermal Power Corporation
(NTPC). NTPC has announced its provisional results and plan for
the next ten years where it plans to increase its capacity by
22,000 megawatt (MW) during the 11th Five-Year Plan and by
25,000MW in the 12th Five-Year Plan, taking its total capacity to
over 75,000MW from 27,404MW at present. NTPC, which had awarded
contracts for 3,600MW last year, has already placed orders for
projects with aggregate capacity of about
11,300MW.
-
More
importantly, NTPC's capital expenditure (capex) budget of Rs12,792
crore for this fiscal is 63% higher than last year's Rs7,820
crore. Four straight years of 100% realisation on its billing has
clearly improved its cash flows and strengthened its finances
considerably. NTPC had free cash of about Rs12,000 crore as on
December 31, 2006, hence the capex budget looks quite
achievable.
-
Furthermore,
over the next 18-24 months, we expect the other power utilities to
award projects worth around Rs76,000 crore for around 38,000MW of
capacity.
-
Over half of
the total orders to be awarded in the next 18-24 months are in the
category of 250/500MW units, where BHEL is extremely competitive.
So far BHEL has not lost a single 500MW project in India, despite
competition from Russian, Korean and Chinese companies. NTPC as
well as the state utilities award many of the 500MW orders to BHEL
on a negotiated basis. Thus, it is highly likely that BHEL may bag
around 19,500MW, or Rs39,550 crore, worth of new
orders. |
