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Sunday, July 31, 2005

Sharekhan - Stock Updates


Cipla
Cluster: Cannonball
Recommendation: Buy
Price target: Rs375
Current market price: Rs342

Robust growth

Result highlights

  • Cipla's Q1FY2006 revenue was Rs662.8 crore as compared to Rs533.4 crore in Q1FY2005 (an increase of 24.2%) primarily because of the increase in exports.
  • The operating profit grew by 40.4% over Q1FY2005 and stood at Rs149.9 crore. This was due to increasing operational efficiency as the total expenditure increased by only 20.2% compared to a 24.2% increase in the net sales. 
  • The profit before tax rose by 37.5% year on year (yoy) at a slower pace than the growth in the operating profit. The slowdown was due to the decrease in the other income that decreased to Rs8.36 crore as against Rs11.9 crore in Q1FY2005.
  • The profit after tax (PAT) increased by 40.6% over Q1FY2005 to Rs111.4 crore. This was helped by a decrease of 166 basis points in the effective tax rate, which stood at 22.3%.
  • At the current market price of Rs342, the stock is trading at 22 x FY2006E earnings.



Genus Overseas Electronics
 
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs150
Current market price: Rs115

Profit meter on a roll

Result highlights

  • Genus Overseas Electronics' net sales for Q1FY2006 increased by 24.7% year on year (yoy) to Rs41.52 crore on the back of a strong order backlog of Rs100 crore.
  • Its operating profit margin (OPM) for the quarter declined by 50 basis points as the other expenditure increased by 68% yoy. The increase was primarily because of an advertising campaign launched in April 2005 to promote Genus' products like inverters and settop boxes.
  • The operating profits for the quarter stood at Rs3.86 crore, up 18.5% yoy. 
  • The company's interest expenses for the quarter declined by 9% and depreciation increased BY 10.8%; consequently the profit before tax (PBT) for the quarter stood at Rs2.54 crore, registering a growth of 33.8%.
  • The net profit for the quarter stood at Rs2.1 crore as against Rs1.52 crore in Q1FY2005, marking an increase of 38.3% yoy.
  • The order inflow during the quarter maintained a strong momentum with Rs65 crore worth of order inflow.



Indian Petrochemicals Corporation
Cluster: Apple Green
Recommendation: Book profit
Current market price: Rs189

Book profit

Result highlights

  • Indian Petrochemicals Corporation Ltd's (IPCL) net sales for Q1FY2006 were higher by 9.6% compared to that in the corresponding quarter last year. However, the volume growth for the quarter was limited to 2%.
  • The operating profit for the quarter grew by 27.5% as the operating profit margin (OPM) expanded by 300 basis points.
  • IPCL's profit before tax grew by 62.6% for Q1FY2006 to Rs317 crore, aided by higher other income and lower interest cost.
  • The net profit for the quarter was at Rs225 crore, up by 83% due to the lower tax rate.
  • The volume growth for the quarter was at just 2%. The cracker margins for ethylene-based derivatives have also shown a steep decline. Hence we recommend investors to book profit on the stock.



Maruti Udyog

 
Cluster: Apple Green
Recommendation: Buy
Price target: Rs636
Current market price: Rs465

Strong growth continues

Result highlights

  • Maruti Udyog Ltd (MUL) registered a 5.9% year-on-year (y-o-y) growth in Q1FY2006, despite a decline in the volumes by 1.4% year on year (yoy). 
  • The contribution margin expanded by 60 basis points yoy to 21.7%, while the operating profit margin (OPM) remained flat at 12.4%. 
  • The net profit registered a strong growth of 32.5% yoy to Rs226.5 crore. 
  • MUL's Q1FY2006 results are in line with our estimates. At the current market price of Rs465 the stock is discounting its FY2006E earnings by 12.1 times. We reiterate our Buy call on MUL with a price target of Rs636. 



Sintex Industries 
Cluster: Apple Green
Recommendation: Buy
Price target: Rs650
Current market price: Rs595

Powering ahead

Result highlights

  • Sintex Industries Ltd's (SIL) revenues grew by a robust 44.7% in Q1FY2006 to Rs146.7 crore on the back of the strong performance of both the Textile and Plastic divisions. 
  • The Plastic division reported a year-on-year (y-o-y) revenue growth of 39.2% in the quarter to Rs100.5 crore. The margins improved sequentially by 310 basis points to 10.5%. 
  • The Textile division's performance was good with a 52.4% growth in the revenue to Rs47.3 crore. A higher offtake by Canclini (a joint venture) led to the better performance of the division. 
  • The operating profit margin (OPM) was maintained at 17.2% in the quarter compared to the same period last year. However the OPM was down by 70 basis points on a sequential basis primarily on account of the lower realisation in Canclini's business. 
  • The profit after tax (PAT) growth was robust at 144.5% in the quarter to Rs14.5 crore, partly driven by the strong performance in both the businesses and partly due to the deferred tax write back of Rs3.5 crore in the quarter.
  • The earnings for the quarter stood at Rs7.8 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 paid-up.
  • SIL trades at an enterprise value (EV)/earnings before depreciation, interest, tax and amortisation (EBDITA) of 7.1 x FY2007E and price/earnings ratio (PER) of 12.8 x FY2007E. We maintain our Buy call with a price target of Rs650 with an investment horizon of 12 months.


State Bank of India  
Cluster: Apple Green
Recommendation: Buy
Price target: Rs950
Current market price: Rs801

Results ahead of expectations

Result highlights

  • State Bank of India (SBI) reported a strong growth of 19.9% in its net interest income (NII) for Q1FY2006.
  • The growth in the NII came on the back of a 32.5% growth in advances year on year (yoy). The deposits grew by 13% yoy.
  • SBI's core operating profit grew by a strong 22% yoy as the expenses were under control.
  • The net profit grew by a slower 15.6% yoy to Rs1,222.8 crore for the quarter as the provision for the amortisation of the premium on investments lying in the Held-till-maturity (HTM) portfolio shot up significantly.
  • At the current market price of Rs800.8 the stock is quoting at 1.1x its FY2007E consolidated book value. We maintain our Buy rating on the stock with a revised price target of Rs950.


Union Bank of India  
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs150
Current market price: Rs128

Bank on track

Result highlights

  • The net interest income of Union Bank of India (UBI) grew by 14.6% year on year (yoy) in Q1FY2006.
  • The advances were up by 28.2% while the deposits grew by 18.7% yoy.
  • The operating profit of the bank was down 10.2% yoy.
  • The net profit increased by 14.3% yoy. 
  • At the current market price of Rs128, the stock is discounting its FY2006E earnings by 8.2 times and FY2006E adjusted book value by 1.3 times. We reiterate our Buy call on UBI with a price target of Rs150