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Saturday, October 15, 2005

Sharekhan - Investor Eye


ICICI Bank
Cluster: Apple Green
Recommendation: Buy
Price target: Rs650
Current market price: Rs525

Earnings momentum sustained 

Result highlights

  • ICICI Bank reported a strong 39.2% year on year (y o y) and a 12.0% quarter-on-quarter (q-o-q) growth in its net interest income (NII) on the back of a strong growth in its advances.
  • The strong growth momentum in the bank's fee income continued—during the quarter the fee income grew by a strong 31.0% yoy.
  • The operating profit for Q2FY2006 grew by 38.9% yoy to Rs1,044.1 crore. Notably the core operating profit grew by an even stronger 40.3% yoy.
  • The bank's board has given an approval for raising approximately Rs8,000 crore from the Indian as well as the overseas markets to fund the bank's growth and for the capitalisation of the bank's subsidiaries. We expect the issue to boost the FY2006E book value of the bank to Rs250 per share. However, the return on equity will take a marginal hit for a couple of years.
  • We maintain our Buy recommendation on the stock with a price target of Rs650.

Sintex Industries 
Cluster: Apple Green
Recommendation: Buy
Price target: Under Review
Current market price: Rs129

Wait and watch 

Result highlights

  • Sintex Industries Ltd's (SIL) revenues grew by a robust 35.4% in Q2FY2006 to Rs178.4 crore on the back of the strong performance of both the Textile and the Plastic divisions. 
  • The Plastic division reported a year-on-year (y-o-y) revenue growth of 31.5% in the quarter to Rs124.4 crore. The margins improved yoy by 140 basis points to 12.5%. 
  • The Textile division's performance was good with a 46.7% growth in the revenues to Rs57.0 crore. The sales to Canclini (a joint venture) continued its growth momentum. 
  • The fall in the operating margins at 17.8% in the quarter, down by only 40 basis points, was mainly triggered by the realisation pressure in the textile business. 
  • The profit after tax (PAT) growth was robust at 119.6% in the quarter to Rs16.3 crore, driven by the strong performance in both the businesses and the higher other income in the quarter at Rs6.0 crore. 
  • The earnings for the quarter stood at Rs1.8 per share, in line with our estimates.
  • SIL's board has approved a proposal of sub-division of one equity share of Rs10 paid-up into 5 equity shares of Rs2 each. The stock exchange has affected the stock split with effect from October 10, 2005.
  • The stock is reasonably valued at a PER of 14.0X FY2007E (considering the equity dilution of 13.8%) and EV/Ebidta of 7.7X FY2007E- considering that all the possible organic growth triggers are factored in our earnings estimates of FY2007E.

 

Tata Tea 
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,040
Current market price: Rs798

Too small a size 

Tata Tea's (TTL) subsidiary, Tetley US Holdings Ltd, has bought two US-based companies Good Earth Corporation (GEC) and FMALI Herb Inc (FHI). GEC owns the Good Earth brand, which is licenced to FMALI Herb Inc. GEC has a turnover of approximately $16 million (Rs70 crore) and the deal size is expected to be at two times the revenues at $32 million (Rs140 crore).