Genus Overseas Electronics
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs270
Current market price: Rs204
A Rs75-crore order from RSEB
Key points
- With the recent order win of Rs75 crore from the Rajasthan State Electricity Board for the supply of single- and three-phase electronic energy meters (EEMs), the order book of Genus Overseas Electronics (Genus) has increased to Rs510 crore, which is approximately 2.2x its FY2006 sales.
- Genus is a leading manufacturer of tamper-proof EEMs, the demand for which is soaring because of the high transmission and distribution losses of the state electricity boards.
- We expect the company's revenues to grow at a CAGR of 39% during FY2006-08 on the back of the execution of its current order book.
- The order flow is expected to remain robust with the government's mission of "Power to all by 2012", and focus on 100% metering and replacement of old mechanical meters with EEMs fueling the growth.
Bajaj Auto
Cluster: Apple Green
Recommendation: Buy
Price target: Rs3,300
Current market price: Rs2,619
Pulsar 220cc launched in Pune
Key points
- Bajaj Auto Ltd (BAL) has launched Pulsar 220 DTS-Fi in Pune. The national roll-out would take place by February 2007. This premium segment offering, priced at Rs84,000 (ex-showroom Pune), will be sold through BAL's Probiking network.
- BAL is looking to reduce its dependence on the 100cc segment. The company has plans to revitalise its Pulsar brand by launching its upgraded versions and following the same up with the launch of a 200cc Pulsar model in Q4FY2007. This launch would be in line with the management's strategy of focusing on the executive and premium motorcycle segments, where profitability is higher as compared with the entry segment.
- BAL's profitability was affected in Q2FY2007 due to the price reduction of Platina, an entry-level model. The company derives a large part of its profits from the entry segment. Though subsequently the price of Platina has been increased twice, the company's performance may not improve much in Q3FY2007 due to the higher selling costs being incurred.
- Though the profit margins are likely to remain subdued for a couple of quarters, the volume growth is expected to remain strong. The management has claimed that the company is on its way to recording its highest ever quarterly volume during the October-December quarter.
- At the current market price of Rs2,619, the stock discounts its FY2008E earnings by 17.3x and quotes at an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBITDA) of 10.5x. Based on our sum-of-parts valuation we maintain our Buy recommendation on the stock with a price target of Rs3,300.