Summary
of Contents
STOCK
UPDATE
Omax
Autos Cluster: Apple Green Recommendation:
Buy Price target: Rs134 Current market price: Rs93
Margins improve
Result highlights
-
The Q3FY2007 results of Omax
Autos are ahead of our estimates due to higher margins during the
quarter.
- The net sales for the quarter
rose by 9% to Rs179.4 crore, led by a 7.9% growth in the domestic
revenues and a 32% growth in the export revenues.
- The operating profit for the
quarter rose by 52.8% to Rs18.5 crore mainly due to a
300-basis-point improvement in the operating profit margin (OPM)
to 10.3%. This is a result of various cost saving initiatives
implemented by the company in order to bring down its power,
personnel and other manufacturing costs.
- The other income is higher
than estimated at Rs2.72 crore. Aggressive capacity expansion
plans of the company have also led to higher interest and
depreciation costs. The profit after tax (PAT) for the quarter
stood at Rs6.66 crore, rising by 34.3%.
- The company has also
announced that it would set up a new manufacturing unit in Lucknow
to manufacture chassis for Tata Motors. The unit would be set up
with an initial capacity of 48,000 chassis and is expected to
deliver revenues of Rs120 crore by FY2009 and of about Rs225 crore
by FY2011.
- At the current market price
of Rs93, the stock discounts its FY2008E earnings by 6.3x and
quotes at an enterprise value (EV)/earnings before interest,
depreciation, tax and amortisation (EBIDTA) of 3.7x. We maintain
our Buy recommendation on the stock with a price target of
Rs134.
Bank of
India Cluster: Apple Green Recommendation:
Buy Price target: Rs220 Current market price: Rs196
Another excellent quarter
Result highlights
-
For Q3FY2007 Bank of India
(BOI) reported numbers well above the market?s and our
expectations. The growth in its net interest income (NII) and
other income was in line with the expectations of a good set of
numbers. What made the good results look even better was the
restrain the bank showed in case of operating
expenses.
- The NII grew by 26.9% to
Rs920 crore against our estimate of Rs936.3 crore. The 26.9%
growth in the NII was brought about by a 22.3% growth in the
assets and a 16-basis-point improvement in the global net interest
margin (NIM) year on year (yoy) to 3.18%.
- The other income reported a
22.8% growth with the trading income showing a very high growth of
144.5% yoy to Rs55.5 crore. The core fee income was up 22.6% yoy
while the recoveries declined by 49% to Rs14.9 crore.
- The operating expenses grew
by a sedate 15.3% to Rs627.9 crore as the staff expenses grew by
only 7.8% and the other expenses grew by 29.6% yoy.
- The operating profit was up
by 38.7% yoy to Rs614.4 crore and the core operating profit
excluding the treasury income was up 33% yoy to Rs558.9
crore.
- The provisions increased by
16.6% to Rs289.8 crore with the non-performing asset (NPA)
provisions up 55.6% to Rs190.9 crore. Lower taxes during the
quarter also helped the profit after tax (PAT) to report a 78%
year-on-year (y-o-y) growth while the profit before tax (PBT) grew
by 67% yoy.
- At the current market price
of Rs196, the stock is quoting at 8.1x its FY2008E earnings per
share, 3.3x its FY2008E pre-provisioning profits and 1.5x FY2008E
book value. We maintain our Buy recommendation on the stock with a
revised price target of Rs220.
Cadila
Healthcare Cluster: Emerging
Star Recommendation: Buy Price target: Rs425 Current market
price: Rs345
Extraordinary income boosts net profits
Result highlights
-
The net sales
of Cadila Healthcare (Cadila) increased by 24.7% year on year
(yoy) to Rs460.9 crore in Q3FY2007. The growth was driven by a
105.1% growth in the formulation exports and a 13.4% rise in the
exports of active pharmaceutical ingredients (APIs). The sales
growth was ahead of our expectations.
-
The 105.1%
jump in the formulation exports was driven by the improved
performance of the French business (a growth of 188.3% year on
year [yoy]) and US business (a growth of 105% yoy). New launches
in the USA and regulatory reforms in France led to the strong
growth of the US and French businesses respectively.
-
An 84.5% rise
in the company's generic research and development (R&D)
expenses, along with an increased advertising spend in the
consumer business, caused Cadila's operating profit margin (OPM)
to shrink by 200 basis points to 17.4% in Q3FY2007. However, in
view of the fact that the increased advertising spend for the
consumer business was a one-time charge, we expect the margin to
bounce back in the future quarters.
-
Consequently,
the operating profit (OP) of the company rose by 12.3% to
Rs82.3crore in the quarter.
-
Cadila's
adjusted net profit grew by a robust 66.4% to Rs65.9 crore, on the
back of a one-time extraordinary income of Rs19.6 crore from the
sale of the French branded business. The profit growth surpassed
our expectations. However, on excluding the extraordinary income,
the reported net profit stood at Rs46.3 crore, up by 12.9% yoy.
The earnings for the quarter stood at Rs3.7 per share.
-
The company
has signed three new contract manufacturing contracts during the
quarter with international companies, taking the cumulative number
of contracts to 20, with peak revenue potential of $27.5 million.
Cadila has also filed three abbreviated new drug applications
(ANDAs) in the quarter, taking the total number of filings to 44
ANDAs.
-
At the current
market price of Rs345, the company is quoting at 14.7x its FY2008
estimate earnings. We maintain our Buy recommendation on the
company with a price target of Rs425.
Bharti
Airtel Cluster: Apple Green Recommendation:
Buy Price target: Rs820 Current market price: Rs689
Price target revised to Rs820
Result highlights
-
Bharti Airtel
has announced a robust revenue growth of 12.8% quarter on quarter
(qoq) and 62.4% year on year (yoy) to Rs4,912.9 crore for
Q3FY2007. The sequential revenue growth was evenly driven by a
13.8% rise in the mobile revenues and a 12.4% growth in the
non-mobile businesses.
-
The company
has positively surprised on the margin front, with a
170-basis-point sequential improvement in the operating profit
margin (OPM) to 40.8%--one of the highest ever reported in any
quarter. Consequently, the operating profit grew by 17.7% qoq and
81% yoy to Rs2,005 crore.
-
In addition to
the healthy growth in the operating profit, the earnings growth
was also boosted by the foreign exchange fluctuation gains of
Rs219.2 crore on the forward hedges (as compared with a marginal
gain in Q2). Consequently, the consolidated earnings grew at an
exponential rate of 30.1% qoq and 122.9% yoy to Rs1,215 crore, way
ahead of the market expectations of around Rs1,070
crore.
-
The other key
highlights include the proposed acquisition of 100% stake in the
submarine cable network from India to Singapore for a
consideration of $110 million. The cable link is currently equally
owned by SingTel and one of the Bharti group companies.
-
The company
introduced call card for international calls from the USA to India
that would enable it to generate an alternate source of revenues
from the 2.5 million strong non-resident Indian (NRI) community
based in the USA. It also announced some new initiatives during
the quarter, including the approval to launch wireless mobile (2G
and 3G) services in Sri Lanka, a new venture to introduce
direct-to-home (DTH) broadcasting services and a possible launch
of (Internet Protocol) IP-based television channel distribution
(IPTV) system after a successful testing in the National Capital
Region (NCR).
-
To factor in
the better than expected performance, we have revised upwards our
earnings estimates by 17% and 7.1% for FY2007 an FY2008
respectively.
-
At the current
market price the stock trades at 31x FY2007 and 22.2x FY2008
estimated earnings. We maintain our Buy call on the stock with a
revised on -year price target of Rs820 (24x rolling four quarters
forward earnings).
State Bank of
India Cluster: Apple Green Recommendation:
Buy Price target: Rs1,380 Current market price: Rs1,174
Sequential growth disappoints
Result highlights
-
The Q3FY2007
results of State Bank of India (SBI) are below expectations with
the bank's profit after tax (PAT) reporting a decline of 4.5% to
Rs1,065 crore as against our estimate of Rs1,195
crore.
-
The reported
net interest income (NII) at Rs3,951 crore is slightly below our
estimate of Rs4,034 crore. However the total other income at
Rs1,811 crore is much above our expectation of Rs1,551 crore,
mainly due to a higher than expected "Others" component in the
"Other income" category. The operating expenses are in line with
our expectations; however the provisions have risen more than
expected, due to an unexpected investment depreciation. A higher
than expected growth in the other income has offset the more than
expected rise in the provisions to some extent, as it has actually
reduced the gap between the actual PAT and the estimated
PAT.
-
The reported
NII is down by 6.4% year on year (yoy) to Rs3,951.3 crore. However
the third quarter saw many one-time items adjusted for which the
NII growth stands at 33% yoy. But sequentially the NII has grown
by only 1.4%.
-
The other
income is marginally down by 1.6% to Rs1,811 crore, however
adjusted for the India Millennium Deposit (IMD) gains, the growth
is strong at 38.3%. The core fee income is up 22.9% yoy and the
trading income has risen by 139.3%; the same was expected as the
bank planned to make up for the low trading income of Rs7.7 crore
reported in Q2FY2007. Though the year-on-year (y-o-y) growth rates
are good, the core fee income has seen a sequential growth of only
1.9%.
-
The operating
expenses are down 16% yoy, however adjusting for the voluntary
retirement scheme (VRS), wage arrear and extra gratuity payments
made to the tune of Rs641 crore, the growth in the operating
expenses remains contained. The operating profit is up 9.8% yoy,
however the core operating profit is up 27.3% yoy and 1% quarter
on quarter (qoq).
-
The provisions
and contingencies are up 148.2% yoy and 71.2% qoq to Rs1,166.2
crore. The provision base was lower in Q3FY2006 as there was a
Rs102.6-crore write-back in the non-performing asset (NPA)
provisions during the quarter. This coupled with the unexpected
investment depreciation of around Rs158 crore in Q3FY2007 brought
about the sharp rise in the total provisions.
-
The adjusted
numbers reflect a good core income growth on a y-o-y basis,
however there has been no sequential improvement which is a cause
for concern. With the deposit costs rising steadily and another
interest rate hike looking imminent, the pressure on the margin
going forward remains the key issue. Hence, the scrip may remain
under pressure in the short term until there is more clarity on
how the Reserve Bank of India (RBI) wants to tackle inflation as
well as on the measures that the central bank may announce in the
latest review of the monetary policy scheduled on January 31,
2007.
Ceat Cluster: Ugly
Duckling Recommendation: Buy Price target: Rs190 Current
market price: Rs146
A brilliant performance
Result highlights
-
Ceat's
Q3FY2007 results are ahead of our expectations. The net sales have
risen by a brilliant 30.7% to Rs536.7 crore on the back of a 14%
tonnage growth and a very strong realisation growth. The sales to
original equipment manufacturers (OEMs) have marked a significant
improvement of 130% during the quarter whereas the replacement
sales have continued to grow at a handsome pace of 25%.
-
The operating
profit margin (OPM) has expanded by 250 basis points to 7.3% as a
result of a lower raw material cost during the quarter as well as
avings in the manpower cost and the other overheads. With several
price hikes effected in the last one year, the OEM business has
also become a lot more profitable, leading to further margin
improvement. As a result, the operating profit has grown by 98.3%
to Rs39 crore.
-
Stable
interest and depreciation costs have helped the company to report
a 665% growth in the net profit, which stands at Rs11.8
crore.
-
Though the
rising rubber prices are a concern, we are pretty confident of the
pricing power of the tyre industry and expect another price hike
from the tyre majors in the next two to three months.
-
At the current
market price of Rs146, the stock is trading at 9.4x its FY2008E
earnings and at an enterprise value (EV)/earnings before interest,
depreciation, tax and amortisation (EBIDTA) of 4.7x. We maintain
our Buy recommendation on the sock with a price target of
Rs190.
ORG
Informatics Cluster: Emerging Star Recom endation:
Buy Price target: Rs190 Current market price: Rs172
Maintains growth momentum
Result highlights
-
ORG Infomatics
(ORG) reported a 273.5% growth in its net revenues to Rs108.5
crore during the third quarter ended December 2006. The revenue
growth was driven by the execution of some its large orders,
especially the Mahanagar Telephone Nigam Ltd (MTNL)
order.
-
The operating
profit margin (OPM) declined by 190 basis points to 8.4% as the
initial part of the MTNL order involves low-margin hardware
supplies.
-
However, the
jump in the other income (that included a one-time gain of Rs0.8
crore from the sale of assets) aided the overall growth in the
earnings. Consequently, the consolidated earnings grew by 70.6% to
Rs5.2 crore during the quarter, which is ahead of our expectation
of Rs4.6 crore.
-
The fresh
order intake continues to be robust and the company has been able
to maintain the pending order position of around Rs600 crore
(marginally lower than Rs625 crore reported in September 2006).
The management also indicated that it is pursuing some more
large-sized orders and expects to close one to two large orders in
the coming months.
-
Along with the
results the company has also announced the acquisition of 100%
sake in the Bangalore-based TechUnified Pvt Ltd (UT) for a total
consideration of Rs49 crore (partly paid through issue of 8.93
lakh shares at a price of Rs181 per share). UT is a profitable
company at the net level and is expected to report net profit of
around Rs7 crore in the current fiscal. It offers wireless, speech
and e-Business solutions to financial companies and telecom
operators. This is the second acquisition in the month as the
company had recently announced the acquisition of a 100% stake in
DGIT Solutions.
-
At the current
market price the stock trades at 17x FY2007 and 11.7x FY2008
estimated earnings. The estimates do not include the impact of the
acquisitions as details of the same are awaited. However, the
equity dilution has already been factored in the calculation of
the earnings per share (EPS). We maintain our Buy recommendation
on the stock with a price target of Rs190 (10x rolling four
quarters forward earnings).
Universal
Cables Cluster: Ugly Duckling Recommendation:
Buy Price target: Rs179 Current market price: Rs115
Capacity expansion to drive revenue
growth
Result highlights
-
The net sales
of Universal Cables Ltd (UCL) grew by 25% and the growth is in
line with our expectations. However the net profit growth of 10.6%
is slightly below our expectations on account of a higher than
expected increase in the other expenses.
-
The net sales
for the quarter grew by 25% to Rs87.64 crore. The power cable
business grew by 22% to Rs81.66 crore, the capacitors business
grew by 9% to Rs3.41 crore and the telephone cable sales stood at
Rs2.60 crore against nil in the corresponding quarter of the
previous year.
-
The operating
profit margin (OPM) for the quarter declined by 211 basis points
to 9.32% as the other expenses to sales ratio increased to 17.09%
from 14.60% last year. Hence the operating profit for the quarter
grew by just 1.62% to Rs8.17 crore.
-
Going forward,
we expect the OPM to improve, as the company focuses on the
high-end products that have better margins and as its 100%
subsidiary, Optic Fibre Goa Ltd (OFGL), turns profitable. The
segmental losses from the telephone cable division stood at Rs0.33
crore in this quarter as against Rs0.79 crore in the previous
quarter.
-
The interest
expense for the quarter increased by 48% to Rs1.54 crore, while
the depreciation cost for the quarter increased by 81% to Rs1.92
crore.
-
Consequently
the net profit growth was lower at 10.6% to Rs5 crore.
-
At the current
market price of Rs115, the stock is quoting at 8.7x its FY2008E
earnings per share (EPS) and 5.2x its FY2008E enterprise value
(EV)/earnings before interest, depreciation, tax and amortisation
(EBIDTA). We maintain our Buy recommendation on the stock with a
price target of Rs179.
VIEWPOINT
Zee Entertainment
Enterprises
Blow-out performance Zee
Entertainment Enterprises Ltd (ZEEL) declared its first set of
quarterly numbers after its incorporation on demerger of the
erstwhile Zee Telefilms Ltd (ZTL). As of now ZEEL comprises ZTL?s
global broadcasting business and direct-to-home (DTH) business.
Post-formation of Dish TV India Ltd (Dish TV; likely to be listed in
February 2007) the DTH business will be allocated to the new
company, leaving ZEEL with the broadcasting operations. Thus the
results for Q3FY2007 include the performance of these two revenue
streams.
SECTOR
UPDATE
Cement
Import duty on cement slashed to
zero With the headline inflation crossing 6%,
the government has slashed the customs duty on cement, various raw
materials and capital goods to check inflationary pressures. The
changes in the duty structure would come into effect immediately.
The duty cut comes as no surprise for the cement sector as cement
prices have risen unabated in the last one year
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