Monday, May 01, 2006
Newsletter Dated 30/04/2006 (MidCaps.In)
S.No. Scrips BSE Code Rate Target
1. Agro Dutch 519281 33.10 42.00
2. Dena Bank 532121 35.00 44.00
3. Hanil Era Textiles 500177 37.50 47.00
4. Rain Calcining 532153 43.10 54.00
5. Punjab Communications 500346 43.50 55.00
Newsletter dated 30/04/2006 (10Paisa.com)
S.No. Scrips Code Rate Target
1. JCT (FV Rs.2.50) 500223 12.10 16.00
2. Medicamen Biotech 531146 15.50 20.00
3. Gayatri Sugars 532183 16.80 21.00
4. Cheslind Textiles 521056 17.65 23.00
5. Fenoplast Ltd. 526689 28.00 35.00
CMP: Rs 3,097 (Face Value Rs 10)
12-Month Price Target: Rs 3,500
ABB's first quarter results were above expectations, as a 2.5ppt expansion in EBITDA margin drove net profit 87% higher, to Rs 51.3 crore. Since Q1 is seasonally weak, CLSA is not effecting any revisions at this stage.
However, there is potential for upgrades to revenue and profit estimates; ABB's market leading growth will help sustain its premium valuations. During Q1, ABB saw an order inflow of Rs 1,400 crore – a new record – buoyed by a large Rs 430 crore order for an enterprise-wide Supervisory Control and Data Acquisition (SCADA) system from E&P major ONGC and equipment orders from rural electrification projects.
Revenue growth, at 32% YoY, was in line with the expectations, but faster than that in Q42005. EBITDA margin expanded 254bps YoY, led by reduction in material cost/sales. ABB witnessed 2-4 pt expansion in EBITDA margin in three of its four key business segments, as gains from its initiatives on cost management and economies of scale kicked in.
New products also contributed positively to growth and profitability. Stronger growth in higher-margin standard products also boosted overall margin. With the order book up 68% YoY and buoyancy in investment in power T&D infrastructure as well as industrial projects, CLSA sees potential for acceleration in revenue growth.
Ongoing augmentation of capacity and product range will help ABB capture the opportunity. While rising prices of inputs such as copper and steel and the expanding wage bill (up 40% YoY in 1Q) are challenges, CLSA's current assumptions on margin expansion (180 bps) in '06 are well below that seen in Q1.
With 40% EPS growth forecast for CY2006, CY2007, ABB is near the top of CLSA's coverage universe; Q1 trends suggest further earnings upgrades. ABB's automation business (40% of revenues) is growing at 40% in terms of sales and 100% in terms of operating profit. In the longer term, exports and rising services income can help sustain high growth in revenues and earnings.
Research: JP Morgan
CMP: Rs 99 (Face Value Rs 10)
12-Month Price Target: Rs 130
High and sustainable earnings growth in line with its peers 10 years ago, improving profitability, the management team's experience and incentives to execute smoothly, and finally the attractiveness of the bank as a potential target post-'09 make JP Morgan believe that YES Bank is likely to trade at similar multiples enjoyed by HDFC Bank and ICICI Bank in their early stages.
As witnessed in these banks, the multiple is likely to normalise as YES Bank raises capital to meet growth requirements while maintaining profitability (measured by ROA). Despite the 58% appreciation since listing, the stock still has a lot to offer given the 57% earnings CAGR forecast over the next four years and a normalised ROE of 22.6%.
JP Morgan initiates coverage with an overweight rating and a price target of Rs130, representing a potential 36% upside. Despite the relative outperformance since listing, the stock trades at an attractive multiple of 2.6 times forward book.
JP Morgan uses the Gordon Growth Model to value the stock using a normalised RoE of 22.6% and a cost of capital of 13.4%, implying a fair P/B of 3.62 times.
At this multiple, the stock is valued at a 1.4% discount to HDFC Bank and a 4.5% discount to Centurion Bank. Though the implied value of growth at current prices is higher, it is justified given that the bank enjoys relatively higher growth prospects.
JP Morgan is factoring in close to 18% additional equity issuance in FY07E which would be sufficient to meet the capital requirements for the next couple of years as the bank continues to expand branches and grow its asset book. Excluding the capital infusion, the stock would trade at 3.9 times forward book.
Key potential drivers of ROA improvement beyond F08E are higher low-cost deposit and retail loan mix leading to higher margins, and an improvement in the cost-assets ratio as more branches and businesses break even. Finally, improving leverage driven by a ramp up in asset growth is likely to benefit RoE.
Aban Loyd Chiles Offshore
Research: UBS Investment
CMP: Rs 1,399 (Face Value Rs 2)
12-Month Price Target: Rs 1,750
UBS Investment believes robust demand growth, tight supply, lack of new discoveries and geopolitical issues will keep oil prices high, fuelling large exploration and production (E&P) capex—which it estimates will rise 50% in the next two years.
The increase should lead to higher demand for offshore services. In India, ONGC and private companies are ramping up E&P capex. Aban Loyd is well equipped to ride this strong upswing in global offshore E&P activity.
High oil prices, low spare capacity and ageing fields are forcing oil firms in the Middle East to increase exploration capex. Saudi Aramco alone needs to hire 15 rigs. On the supply side, new rigs will take time to come on stream, as the gestation period is 27-30 months.
Also, construction yards are facing capacity constraints because of equipment shortages. The tight demand-supply situation for offshore assets is leading to high rig utilisation and a sharp rise in operating rates. Aban Loyd is the largest Indian offshore service company, and its diversified fleet should benefit from the upswing in demand and rates.
A well-timed asset addition and its low-cost operation and strong relationship with E&P companies have put Aban Loyd in a strong position. Aban Loyd plans to add two more new assets and reprice day rates over the next two years. UBS Investment forecast 110%-plus EPS CAGR during FY06-09.
Research: Religare Securities
CMP: Rs 415 (Face Value Rs 10)
12-Month Price Target: Rs 531
Paper Products (PPL), one of India's leading consumer packaging players, offers a wide portfolio of packaging solutions that include flexible packaging, labeling and other decorative technologies and specialised packaging cartons.
All this is also supported by the packaging machine division to provide the customer with a total packaging solution. PPL is a joint venture with global packaging major Huhtamaki of Finland, which holds 59% stake in the company.
PPL has attained a 10% topline growth for the year ending CY05 after a difficult CY04 which saw an input price increase of 60%. The company has been able to achieve the same on the back of its strategic decisions that involves being innovative on the product front.
Over the years, it has been successful in the innovation path enabling it to cater to a huge base of leading FMCG players in the industry. A new production facility is being set up in North India that will enable PPL to cater to the growing demand from the FMCG industry.
PPL has two manufacturing units in the west and one in the south, thus the new facility will help cater to the north Indian market. Also, with many FMCG companies moving their production to the north, this new facility will enable the company to focus more on servicing clients.
The new facility will also enable it to avail of tax benefits. In the past few years, the company has proved proficient in keeping its balance sheet debt-free. It also has accumulated a decent amount of cash that has enabled it to fund its new expansion plans through the internal accruals route.
Religare expects the company to maintain its debt-free status over the years. PPL's revenues are expected to grow at a CAGR of 15% and net profit at a CAGR of 19% over CY06E-08E. The company is expected to grow on the wave of increased demand from the FMCG sector and the company's well received NASP initiatives and innovation policy.
At the current price, the stock is discounting CY07E and CY08E earnings of Rs 26.9 and Rs 32.4 at 16.1 times and 13.3 times respectively. It trades at an EV/EBIDTA of 7.1 times and 5.6 times for CY07E and CY08E respectively.
CMP as of April 28, '06
Research: Enam Securities
CMP: Rs 1,325.45 (Face Value Rs 10)
12-Month Price Target: Rs 1,700
Bharat Electronics' (BEL) FY06 results were largely in line with the expectations, with net sales up 10.8% at Rs 3,560 crore. EBIDTA rose 19% to Rs 840 crore, on the back of a 170bps improvement in EBIDTA margin, reflecting the company's sustained efforts at increasing indigenisation. Net profit rose 19.7% to Rs 580 crore in FY06.
BEL's order book at a robust Rs 660 crore (1.5x FY07E sales), as at end FY06, reversed the declining trend of the last two years. Increased contribution of indigenously manufactured products (up at 73% vs 60%) coupled with a reduction in wage costs resulted in a 170bps improvement in EBIDTA margins.
The company expects margins to remain stable, despite 10-15% expected upward revision in wages, which is due in January '07. In its civilian business, BEL bagged a major order (Rs 500 crore) from MTNL. BEL is exploring CDMA and GSM opportunities in telecom though consortium approach with OEMs.
It has created a separate SBU to improve its market share and expects its civil business to revert back to 20% of sales in FY07. Exports stood at Rs 61.1 crore (Rs 56.3 crore) and the company has set an ambitious target of Rs 110 crore in exports for FY07.
During the year, the company has been granted patent rights for electronic voting machines (EVMs) and solar traffic signaling systems.
BEL foresees export potential for EVMs. BEL's management has guided for Rs 4,200 crore, Rs 5,000 crore and Rs 10,000 crore revenues for FY07, FY08 and FY12 respectively.
Execution of orders from the army for upgraded versions of its existing radars coupled with anticipated orders for army guns will be a major revenue driver going forward. Enam is raising the earnings estimates by 2% for FY07E and FY08E.
At the current market price, the stock trades at an EV/EBIDTA of 8.5 times FY07E and 6.8 times FY08E, which is at a significant discount to industry average EV/EBIDTA of 16.5 times FY07E.%)
Price target: Under review
Current market price: Rs1,008
Q4FY2006 performance a positive surprise
- The Q4FY2006 net profit of Reliance Industries Ltd (RIL) grew by 9.2% year on year (yoy) to Rs2,502 crore, ahead of our expectations.
- The surprise was on account of the stronger-than-expected performance of the refining and marketing (R&M) business.
- During the quarter, the gross refining margins (GRMs) in the R&M business stood at a strong $10.4 per barrel (bbl), thereby outperforming the Singapore GRMs by $5.8/bbl.
- The petrochemical business also saw a strong momentum with the revenue and the profit before interest and tax (PBIT) growing by 17% and 51% respectively during the quarter.
- We believe that the R&M and petrochemical businesses are likely to see continued momentum over the next couple of years. The stock has well surpassed our price target of Rs870. We will review the same once we revise our numbers for FY2007 and take into account the numbers for FY2008.