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Wednesday, June 27, 2007

Ratnamani Metals, Cadila Healthcare


Ratnamani Metals and Tubes
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs1,215
Current market price: Rs917

Price target revised to Rs1,215

Result highlights

  • The Q4FY2007 results of Ratnamani Metals & Tubes Ltd (RMTL) are above our expectations.
  • The company reported strong quarterly results. Its revenues for the quarter grew by 95.3% to Rs172.6 crore.
  • The operating profit for the quarter grew by 78.3% to Rs34 crore. The operating profit margin (OPM) for the quarter declined by 240 basis points to 22.3% from 24.7% in Q4FY2006. The OPM declined due to a higher raw material cost as a percentage of sales. The raw material cost went up by 310 basis points to 62.9% from 59.8% in Q4FY2006. Other expenses as a percentage of sales also went up by 110 basis points to 12.4%.
  • The interest expense for the quarter increased by 111.4% to Rs4.9 crore, while the depreciation cost for the quarter increased by 309.6% to Rs6.2 crore.
  • The profit before tax grew by 80% to Rs27.7 crore. The net profit for the quarter grew by 39.4% to Rs17.6 crore due to a higher tax rate of 36.7% in this quarter compared with 17.8% in Q4FY2006.
  • For the full year, the net sales grew by 79% to Rs571 crore and the net profit grew by 91% to Rs64.2 crore.
  • The order book at the end of the quarter stood at Rs500 crore.

Cadila Healthcare
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs425
Current market price: Rs395

Cadila acquires Brazilian firm Nikkho

Key points

  • Cadila Healthcare (Cadila) has signed an agreement to acquire 100% stake in Quimica e Farmaceutica Nikkho do Brasil Ltda. (Nikkho) for a consideration of around $26 million (ie about 1x of Cadila's annual sales).
  • Nikkho had posted sales of US$ 26 million for CY2006. It currently markets 22 products under 13 different brands. It also has nearly 50 registered brands that are yet to be launched.
  • The acquisition is a strategic one for Cadila, as it would help the company to foray into the high-margin branded generic market of Brazil.
  • Anticipating 18% and 15% growth for Nikkho in FY2008 and FY2009 respectively, we estimate the latest acquisition would contribute about 5-6% of our estimated revenue in FY2009. Our back-of-the-envelop calculation shows that the acquisition would have a marginal positive impact on the earnings of Cadila during FY2008.
  • At the current market price of Rs395, Cadila is trading at 17.9x its estimated FY2008 earnings and 14.8x its estimated FY2009 earnings. Considering the strong growth momentum of the company, we maintain our Buy recommendation on the stock with a price target of Rs425.

Sharekhan Investor's Eye June 26, 2007