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Summary
of Contents
STOCK
UPDATE
Universal
Cables
Cluster: Ugly
Duckling
Recommendation: Buy
Price target:
Rs179
Current market price: Rs109
Ready with new power
Key points
-
The management of the company sounded very
upbeat on the growth prospects of the cable industry in general
and that of Universal Cables Limited (UCL) in particular.
-
The power, instrumentation and control cables
industry is likely to see a huge continued growth in demand backed
by the government's thrust on the power generation sector and
capital expansion plans of India Inc.
-
To take advantage of the same, UCL is
implementing a capital expansion plan of Rs64 crore, wherein it
will double its capacity of medium tension (MT) cables and put up
a new capacity of extra high tension (EHT) cables (>220 KV).
-
UCL will be the only player in India to produce
EHT cables after Cable Corporation of India. UCL will slowly
reduce its focus on the low-tension cable segment (<11 KV)
where there are too many players.
-
During FY2006, UCL merged one of its associate
companies, Optic Fibre Goa Limited (OFGL) with itself. The implied
consideration of the deal works out to Rs37 crore. UCL is
confident about extracting a good return on the investment from
this deal.
-
We expect substantial improvement in UCL's
operating profit margins and return ratios as it moves towards
higher end products and OFGL turns profitable.
-
At the current market price of Rs109, the stock
is quoting at 8.3x its FY2008E earnings per share and 4.4x its
FY2008E enterprise value (EV)/earnings before interest,
depreciation, tax and amortisation (EBIDTA). We reiterate our Buy
recommendation on the stock with a revised price target of Rs179.
The reduction in the price target is on account of the equity
dilution due to the amalgamation of OFGL where there is not much
clarity on the returns on the investment made.
SECTOR
UPDATE
Automobile
Revving up yet again
-
Bajaj Auto delivered a powerful performance in
September recording an overall growth of 37.5% year on year (yoy),
mainly driven by strong motorcycle sales.
-
TVS Motors reported another month of strong
performance as the overall sales marked an increase of 33.9% to
162,200 vehicles during September.
-
Maruti Udyog sold 59,420 vehicles in September
2006, marking a growth of 20.6%. The company sold 56,606 vehicles
in the domestic market while the exports for the month stood at
2,814 vehicles.
-
Tata Motors reported a 23.8% growth in its
overall sales (including exports) to 49,157 vehicles for the month
of September 2006.
-
M&M's utility vehicle (UV) sales were up by
5.8%, and the sales of the new Scorpio stood at 3,368, rising by
6.4% yoy. |
