Search Now


Friday, September 22, 2006

Sharekhan Investor's Eye - Sept 22

Omax Auto
Cluster: Apple Green
Recommendation: Buy
Price target: Rs178
Current market price: Rs97

Annual report review

The key highlights from the latest Omax Auto's annual report are mentioned below.

  • FY2006 performance: Omax Auto registered a good top line and exports growth, but the profitability declined due to a rise in the employee and power costs and higher interest cost.
  • Efforts to increase efficiencies: The company plans to undertake a number of measures in order to increase its operational efficiencies. The use of low-cost fuel, captive material consumption and increased automation and productivity are expected to achieve the same and aid in improving its margins going forward.
  • Export expected to surge: The management has an export target of Rs50 crore for FY2007 as against exports of Rs26.6 crore in FY2006. The current export order book of the company is to the tune of Rs150 crore, which is to be executed within the next three years.
  • Capex plans: Omax has aggressive plans to expand capacities across all its units including the units at Dharuhera, Binola and Bangalore. For the current fiscal, the estimated capital expenditure is Rs61 crore.
  • Reiterate Buy: At the current levels, the stock discounts its FY2008E earnings by 4.7x and enterprise value (EV) by 3.5x. The stock appears to be attractive at these levels and we maintain our Buy recommendation on the stock with a price target of Rs178.

Reliance Industries
Cluster: Evergreen
Recommendation: Buy
Price target: Rs1,250
Current market price: Rs1,155

It is solid, not gas
Recently there have been several news reports on Reliance Industries stating that the gas reserves in place in its KG-D6 block could be as high as 50 trillion cubic feet (tcf), almost three times the existing reserves as reported to the directorate of hydrocarbons.

We have revised our price target on the stock to take into account the earnings of the company for FY2008 and the value of Reliance Retail. We believe that with newer and exciting businesses lined for investment, RIL is set to enter another era of strong growth for itself over the next five years. We maintain our Buy recommendation on the stock with a price target of Rs1,250.


Educomp Solutions

Growing exponentially
Educomp is well positioned to tap the huge potential in the education segment, both in the private and public schools, due to the investments made in developing the digital content. We expect the consolidated revenues and earnings to grow at a CAGR of 82% and 80% respectively over the two-year period FY2006-08. However, the positives appear to be fully priced in with the stock trading at 27.5x its FY2008 estimated earnings of Rs25 per share (on a diluted equity base).

Movers & Shakers

  • Harrisons Malayalam surged following the company's decision to sell its rubber estate in Kerala for Rs53 crore.
  • Everest Kanto Cylinder inched up on reports that the company would raise Rs92 crore by issuing shares to Brightwill.
  • JB Chemicals & Pharmaceuticals slipped despite getting a licence to manufacture and distribute a generic version of tenofovir disoproxil fumarate.
  • NTPC eased despite reports that the company has signed a memorandum of agreement with the government of Arunachal Pradesh for setting up two hydroelectric power projects.
  • Orchid Chemicals & Pharmaceuticals fell despite getting the USFDA nod to market Cefadroxil in the US market.
  • Four Soft ended in the red despite winning an order worth Rs70 lakh from Panasonic.
  • GE Shipping ended weak despite reports that the company has taken the delivery of a new built offshore supply vessel from Bharati Shipyard.

Trading Calls

Buy Tulip IT at Rs 283-277. Stop Loss at Rs 273

Buy Bajaj Auto at Rs 2915-2880. Stop Loss at Rs 2860. Target of Rs 3009 and Rs 3179

Trading Calls

Buy Datamatics around Rs 55 with a stop loss of Rs 53

Buy Tata Consultancy Services with a stop loss of Rs 1020 for a target of Rs 1110

Buy Federal Bank with a stop loss of Rs 198 for a target of Rs 240

Buy ICSA with a stop loss of Rs 701 for a short-term target of 900

Buy Dalmia Cement with a stop loss of Rs 325 for a short-term target of Rs 418

Buy Gujarat Ambuja Cements (Rs 115.95) with a stop loss below Rs 113.75 for a target of Rs 121-124

Buy ONGC (Rs 1198) with a stop loss below Rs 1190 for a target of Rs 1215

Sharekhan Eagle Eye (equities) for September 22, 2006

Download here

Sharekhan Investor's Eye dated September 21, 2006

Selan Exploration Technology
Cluster: Ugly Duckling
Recommendation: Buy 
Price target: Rs94
Current market price: Rs67

Development efforts yield results

We attended the annual general meeting of Selan Exploration Technology Ltd (SETL). The key takeaways from the same are given below.

  • Recent efforts to develop oil assets bear fruits: SETL has discovered significant amount of recoverable oil deposits from the four wells drilled at its Bakrol oil field. It has already commercialised two of the oil wells and hopes to enhance the oil production volume by 35-40% during the current fiscal.
  • Future plans chalked out: Under the next phase of development of its oil assets, the company has already organised services (like drilling and cementing) to drill four more wells. Given the encouraging findings of the data collected from the development work, SETL plans to induct a strategic partner to generate resources needed for further development of oil assets and also acquire the required technical expertise.



Rain drain

Key points

  • The incessant floods in the states of Maharashtra, Gujarat, Rajasthan, Andhra Pradesh and Madhya Pradesh slowed down the growth in cement the dispatches to 4.35% in August. 
  • A higher base of August 2005 also subdued the growth figures. Last year the floods had affected the cement dispatch figures for July 2005. As a result, the dispatches that had lagged in July 2005 had picked up significantly in August 2005.
  • Despite the severe rainfall and floods in the country this year, cement prices remained firm at around Rs205 per bag, up by a very handsome 30%. The southern and western regions registered a very high rise in cement prices on a year-on-year (y-o-y) basis. 
  • Going forward, we expect the cement dispatches to regain their momentum on the back of a pick-up in the construction activity post-monsoon. Cement prices may rise by Rs5-8 per bag during November 2006.
  • This will be extremely positive for cement companies, as their earnings would receive a tremendous boost owing to the double impact of rising volumes and the substantially higher cement realisation.

Download here