Thursday, April 27, 2006
FUND buying was seen in Glenmark Pharma, Ashok Leyland, Colgate, Dabur India, Century Textile and Nalco. On the other hand ONGC, Arvind Mills, VSNL,
GE Shipping, BPCL, i-flex Solutions, Mahindra & Mahindra, Infosys and HCL Technologies witnessed fund selling.
Orient Paper and Industries
Cluster: Vulture's Pick
Price target: Rs675
Current market price: Rs425
Price target revised to Rs675
- The revenue of Orient Paper and Industries Ltd (OPIL) grew by 26.2% to Rs278.4 crore in Q4FY2006, aided by the good performance of the company's cement and paper divisions. The top line of the cement and paper divisions grew by 40.3% and 14.6% respectively during the quarter.
- The company's operating profit, however, increased by 243.3% to Rs50.1 crore in Q4FY2006 as compared with Rs14.6 crore in Q4FY2005. The operating profit margin (OPM) improved from 6.6% in Q4FY2005 to 18% in Q4FY2006. The margin improvement was driven by a substantial rise in the profitability of the cement business.
- The profit before tax and extraordinary items increased from Rs1.52 crore in Q4FY2005 to Rs38.02 crore in the quarter. The company accounted for the previous years' unprovided gratuity liability of about Rs18.47 crore in Q4FY2006. The reported net profit in Q4FY2006 therefore stood at Rs10.11 crore as compared with a loss of Rs1.5 crore in Q4FY2005.
- During FY2006, the company reported net sales of Rs857.6 crore, a growth of 18.4%. The operating profit increased by 71.5% to Rs107.4 crore during the quarter. The performance of the company would have been much better but for the maintenance shut-down it undertook for its cement and paper divisions in Q2FY2006.
- OPIL is a cost-efficient manufacturer of cement and will be one of the key beneficiaries of the uptrend in cement prices. We are revising our FY2007 estimates and introducing our FY2008 estimates for the company. We expect OPIL to report a net profit of Rs74.1 crore in FY2007 and that of Rs100.2 crore in FY2008. Its cement division is currently valued at FY2008 enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 4.9x as compared with the industry average of 10x. We are revising our price target for OPIL to Rs675. At our price target the stock will be trading at 10x FY2008 earnings and EV/EBIDTA of 4.3x.
Price target: Rs300
Current market price: Rs262
Blow out results
- The net sales of Cipla rose by 62.7% year on year (yoy) to Rs870.6 crore in Q4FY2006 due to the strong growth in the domestic market and the exports of bulk drugs.
- The earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 36.1% led by the strong sales growth and an increase in the other income, despite the continuing pricing pressure for the company's products.
- The tax saving due to the new plant at Baddi and the export oriented unit (EOU) status of its plants in Bangalore and Kurkumbh led to the profit after tax (PAT) increasing by 62% yoy to Rs171.1 crore.
- The company received insurance claims of Rs19.7 crore in the quarter for the damage to the goods during the Mumbai floods.
- At the current market price of Rs262 the stock is trading at 21.5x its FY2008 earnings estimate. We maintain our Buy recommendation on Cipla with the revised price target of Rs300.
Cluster: Ugly Duckling
Price target: Rs720
Current market price: Rs602
Price target revised to Rs720
We expect the strong growth in the investment banking and broking divisions of JM Financial Ltd (JMFL) to continue due to the buoyancy in the Indian capital market. We believe that at a valuation of 24.0x FY2006P earnings, JMFL is trading at a good discount to its peers. Even on a price/book value of 3.1x, JMFL is trading at a discount to its peers if one considers that the company proposes to make a preferential issue at Rs639 per share. We believe the preferential issue would be highly accretive to the book value. We are therefore revising our price target for JMFL to Rs720 per share.
Cluster: Apple Green
Price target: Rs634
Current market price: Rs538
Results in line with estimates
- The consolidated revenues of Marico for Q4FY2006 grew by 17.3% year on year (yoy) to Rs297.7 crore as compared to Q4FY2005, on the back of the robust performances from both its domestic and international businesses.
- Marico's high-margin portfolio witnessed a healthy volume growth of 17% yoy and a revenue growth of 26%, contributing 76% to the total turnover as against 71% in Q4FY2005.
- The operating profit for Q4FY2006 grew by 62.2% yoy to Rs36.4 crore. The operating profit margins (OPMs) expanded by 338 basis points to 12.2%, due to the reduction in the key raw material prices and the stable product prices.
- The profit after tax (PAT) for Q4FY2006 grew by 39.3% to Rs24 crore. The PAT could have grown at a faster rate but for the higher depreciation charge and the interest burden for the short-term loan taken for the acquisition of Nihar.
- We have factored the first phase of the company's fund raising programme through equity in our estimates for FY2007E and FY2008E. Accordingly, the company will raise a total sum of Rs250 crore at a price of Rs540 per share. Considering the 8.0% dilution in its equity, the earnings estimates stand at Rs17.9 (FY2007E) and Rs22.8 (FY2008E).
- The stock is trading at PER of 22.8x FY2008E and enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (Ebidta) of 13.8x FY2008E. We continue to remain bullish on Marico and maintain a Buy with a price target of Rs634.
Cluster: Ugly Duckling
Price target: Rs370
Current market price: Rs206
Get ready for a cool ride
- Play on huge growth plan of Maruti and Tata Motors: Subros is a strong play on the huge growth plan of two of the stalwarts of the domestic automobile industry, Maruti Udyog Ltd (MUL) and Tata Motors Ltd (TML). Both MUL and TML are expanding their capacities which augurs well for Subros, as the latter meets 65% of MUL's and 50% of TML's automobile air conditioning (AAC) system needs.
- Diversifying client base to de-risk portfolio: Subros intends to tap the huge potential of the AAC system market for commercial vehicles (CVs) and utility vehicles, thereby de-risking its client portfolio. It has already received an order from M&M to supply AAC systems for its new model, Scorpio. It has also received a letter of intent from Ashok Leyland Ltd (ALL) and Eicher Motors Ltd (EML).
- Expanding capacities to cater to future growth: The company has undertaken a Rs150-crore expansion plan to be implemented in two phases. In the first phase its installed capacity would be increased by 50% to 7.5 lakh units by April 2006. In the second phase the total capacity would be raised to 10 lakh units by 2008.
- Earnings to grow at 33.8% CAGR: We expect Subros' revenues to grow at a CAGR of 12%. This coupled with a 340-basis-point rise in the operating profit margin to 14.4% shall result in a 32% growth in the net profit over FY2006-08. Outsourcing orders from its collaborator, Denso Corporation, shall provide further upside.
- Buy with a price target of Rs370: At the current levels the stock is discounting its FY2008E earnings by 5.7x and its FY2008E EBIDTA by 2.8x. We believe its valuations are attractive compared with that of its peers, who are trading at 13.5x their FY2008E earnings. We recommend a Buy on Subros with a 12-month price target of Rs370, expecting an upside of 80% from the current levels.