Motilal Oswal Reports

SBI

Bank of India

Ultratech Cement

Poweryourtrade.com Multibaggers

20th-Jan-2006

Zensar Technologies Rajen Shah, Angel Broking


Zensar Technologies is into IT services and belongs to RPG Goenka group. It is a strong buy. Most of the mid size software companies are trading at a PE mutiple of 18-20, on the basis of that Zensar will trade at Rs 400. Even, a conservative PE Multiple of 15 is taken, Zensar's price will go to Rs 300, which is an upside of 15% from its current level of Rs 195. Having its presence across the world it has opened a world class development centre in Pune and a BPO centre in Hyderabad. The BPO centre will add to the company's topline and bottomline next year. Business is expected to grow by 30% plus in FY07. The company is expected to give a consolidated turnover of Rs 500 crore, profit of Rs 47 crore and EPS of Rs 20 in FY07.



Multibaggers 05th-Jan-2006


Upper Ganges Sugar

S.P.Tulsian, Investment Advisor

A cheapest sugar stock .
Introduction: - Upper Ganges Sugar Industries Ltd. is a KK Birla
Group company having two sugar units and one distellery. One sugar
mill is at Seohara in U P with 10,000 TCD and a Distellery of 55
KL/Day (capacity being enhanced to 100 KL/Day ) and second sugar
mill is at Sidhwalia in Bihar of 2,500 TCD (expandable to 5,000
TCD). The company is also setting up a Greenfield Sugar Mill at
Kushinagar in UP with capacity of 7,000 TCD, which will be
commissioned for sugar season 2006-07 (to be completed by Sept'06).
The company is also setting up 24 MW co-generation project to be
operational by Feb'07 with an outlay of Rs.100 crores. Total capex
plans of the company is in excess of Rs.350 crores which will
qualify the company for UP state subsidy scheme.
FY 05, Results: - The Company has recently extended its financial
year from June ending to December end and results for 18 months
ended 31.12.05 shall be presented very soon. However, during 15
months ending 30.9.05 (1.7.04 to 30.9.05) the total sales was Rs.422
crores while EBITDA was Rs.86.96 crores. Interest for the period was
Rs.20.29 crores while depreciation was Rs.9.69 crores. Profit before
exceptional items & tax was at Rs.56.98 crores. While all other
major sugar companies in UP have charged cane-arrear liability of
sugar seasons 96-97, 02-03 and 03-04 to Reserves and Surplus, this
company charged this liability of Rs.33.26 crores to the Profit &
Loss account.
Due to this, PBT for the period was placed at Rs.24.68 crores .
After providing tax liability of Rs.6.96 crores (including deferred
tax of Rs.3.03 crores) net profit was at Rs.17.72 crores translating
into an EPS of Rs.25.30 (annualised Rs.20.25).The company has
already declared and paid interim dividend of 40% for the year
04-05.
New Units in Bihar: - The Company has taken over a sugar mill in
Bihar from its group company New India Sugar Mill, with a capacity
of 2,500 TCD (expandable to 5,000 TCD) for which legal process has
been completed. With Mr.Nitish Kumar, assuming charge of Bihar as
CM, he is very keen to develop and revive sugar industry in Bihar.
At one time, Bihar and UP had almost equal sugar production , but
over a period (in last 25 years) Bihar now produces about 5% of
sugar produced in UP. So, an incentive package is assured by the CM
to Sugar Mills in Bihar to set up new units as also to improve the
productivity and increase sugar production. KK Birla Group is a
prominent player in Bihar with Oudh Sugar, another group company
also having its unit in Bihar. So, the earlier plan of Upper Ganges,
to shift unit from Bihar (of New India Sugar) to UP has been kept on
hold and the same is being made operational in Bihar. Even sugar
mills located in Eastern UP are keen to set up mills in Bihar, due
to its logistic advantage, as also access to Pakistan, which is a
big market in time to come.
Rights Issue: - To meet the finance requirement of capex plans of
Rs.350 crores, the Board of the company has in principle approved a
rights issue for which basis, price and terms have not yet been
approved. The net worth of the company as at 30.9.05 was about Rs.84
crores (equity of Rs.7 crores Free Reserves Rs.77 crores) while term
loan as at that date was about Rs.40 crores. Hence, the company may
meet its capex requirement by term loan and rights issue at a
premium, which will be investor friendly.
Sugar Season 04-05 working:-
Though the company has not yet released its accounts the summarised
working of the company for Sugar season 04-05 is assumed to be as
under :-
1) Opening Stock 1-07-04 11.28 lakh Qtl.@ Rs.11.95/kg
Rs.13484 lakhs
2) Production 04-05 16.07 lakh Qtl.@Rs.15/kg
Rs.24100 lakhs
27.35
lakh Qtl. Rs.37584 lakhs
3) Cost of goods sold in 04-05 23.60 lakh Qtl.
Rs.31800 lakhs
(upto 30.9.05 at selling price of approx
Rs.16.70/kg for Rs.394 crores)
4) Closing stock on 1.10.05 3.75 lakh Qtl. Valued @
Rs.15.40/kg Rs. 5784 lakhs


Season 05-06 working:-
Due to better crop availability and more crushing days available
Seohara is likely to produce 16 lakh Qtl. Sugar and Sidhwalia in
Bihar about 2.40 lakh Qtl. with aggregate sugar production of 18.40
lakh Qtl. in season 05-06. Due to reduction in the working capital,
interest burden is also likely to fall to about Rs.12 crores
annually. Interest burden has been falling quarter on quarter for
the last six quarters. Interest for 12 months ending 30.06.04 was
Rs.22.73 crores which fell to Rs.17.41 crores for 12 months ended
30.6.05. Interest for quarter ended 30.9.05 was Rs.2.89 crores.
Hence working for sugar season 05-06 is likely to improve vastly
because of reduction in interest, increased production and better
product realisation.
Financial Performance: - As stated, net profit for 15 months ending
30.9.05 was Rs.17.72 crores. If cane-arrear liability of Rs.33.26
crores is added back, this would have been Rs. 51 cores translating
in an EPS of Rs.72. However in next 12 months (1.10.05 to 30.9.06 )
the company is likely to have PBT of Rs.54 crores (excluding
interest of Rs.12 crores). After providing for tax of Rs.12 crores
PAT should be Rs.42 crores resulting in an EPS of Rs.60. However,
post expansion, post rights though equity will increase but
profitability will also improve.
Lowest Market cap per TCD:-
Upper Ganges probably has the lowest market Cap per MT crushing per
day, as revealed from the Table below: -
Sl. No Company Name Capacity TCD Equity Rs./Crores Share Price
Rs. Mkt Cap Rs./Crores Rs.Lakh Per TCD
1. Bajaj Hindustan54000 TCD 12.00 317 3800 7.04
2. Balrampur Chini48000 TCD 23.18 120 2780 5.80
3. Triveni Engg40000 TCD 25.80 81 2090 5.20
4. Dhampur Sugar 30000 TCD 34.85 213 750 2.50
5. Mawana Sugar18000 TCD 42.50 140 600 3.33
6. KCP Sugar 15000 TCD 11.34 595 675 5.87
7. Oudh Sugar 15000 TCD 18.18 119 216 1.44
8. Upper Ganges 12500 TCD 6.98 274 190 1.52

Conclusion: -
Since the company has not yet published its annual accounts as also
due to charging of cane arrears to P & L A/c. the results were not
understood correctly by the market . Also the company has
investments in listed stocks having market value of Rs.75 crores .
This translates into value per share at Rs. 107. Even giving
discount of 50 per cent to group company investment net value of
investment works out to above Rs.50. Current year EPS is likely to
be above Rs.60. Hence share at Rs. 275 is an excellent buy with a
potential to rise by 100 % in next 12 months.
Disclosure - Writer may deemed to be concerned or interested in this
investment.



Multibaggers 19th-Jan-2006


Reliance Industrial Infrastructure

S.P. Tulsian, Investment Advisor

Reliance Industrial Infrastructure - Rs.330.
An excellent Infrastructure Play.
Reliance Industrial Infrastructure Ltd. (RIIL) became Reliance
Industries Ltd.(RIL), (Mukesh Group) group company about a week
ago.
RIL holds 46.23 % stake while erstwhile promoters Mr.Satyapal Jain
(Brother of Mr.Anand Jain) holds 19.87% stake. Hence total
Promoters stake works out to 66.10%.
Total paid up equity capital of the company is Rs.15.10 crores and
book value as at 31.3.05 was Rs.62.10 per share (net off
Revaluation Reserve)
During FY05 the total income of the company was Rs.68.67 crores
while net profit was Rs.17.47 crores resulting in an EPS of
Rs.11.57 Dividend of 32% was declared for the year.
During H1 of FY 06 total income was Rs.38.05 crores while net
profit was Rs.8.88 crores resulting in an EPS of Rs.5.88 for the
period.
During FY 06 total income is expected to be Rs.80 crores and net
profit of Rs.20 crores giving an expected EPS of Rs.13.25.
Reliance Group is setting up Special Economic Zones (SEZ's) near
Navi Mumbai (Maharashtra) as also in Haryana and Andhra Pradesh on
land Area of approx. 25,000 Acres for each SEZ. This type of SEZ's
are also likely to come up in other states. All these SEZ's are
likely to be put up by this company which will improve the
business profile of the company.
Reliance Group is also foraying into Realty and Retail sector and
these business may also be taken up by this company.
After splitting up Telecom, Energy and Finance Business by Mukesh
Group to Anil Group, this remains the only company in Mukesh Group
after RIL (as IPCL is likely to be merged with RIL very soon)
which may take up infrastructure related projects.
KG Basin gas pipeline from east coast to west coast may also be
taken up by this company.
As RIL is holding entire Promoters stake, total funding for these
projects will come from RIL, which may also increase its stake in
the company beyond 51% to enable RIL to make the company as its
subsidiary. By this relationship, RIL shall be able to consolidate
the company's working in its financials.
FY07 EPS could be over Rs.20, and in view of huge discounting
enjoyed by peers (Mahindra Gesco P/E of above 100) the share can
touch four digit marks in next 12 months.
The Reliance Group's huge and massive plans in Infrastructure
Sector with Investments of over Rs.25,000 crores lined up in next
3 years, major flow of this will come to this company.
One can safely buy this share for over 100 % gain in next one
year. The share is presently available at forwarding earning
multiple of about 17 while peers command an average P/E of above
40 and Industry P/E of above 30.
S.P.TULSIAN
19.1.06.
Disclosure:- The writer may deemed to be concerned or interested in
this recommendation as he and his clients are invested in this
scrip.



Multibaggers 12th-Dec-2005


Crew B.O.S Products Ltd - In vogue

Nirmal Jain, India Infoline.

Crew B.O.S products is one of India's leading exporter of fashion
and home accessories. The company earns more than 95% of its
revenues from the US and the European market. Its clientele include
some of world's big retailers namely Next, GAP, Fossil, Chico,
Tesco, Laura Ashley and many others among its clientele.
The company has performed consistently in the past with revenue CAGR
of 46% and earnings CAGR of 44%over the last five years. Post its
recent GDR issue, the company is poised to expand its operations and
also enter the leather-finishing segment.
We expect the company to post revenue CAGR of 55% and earnings CAGR
of 60% during FY05-08. We initiate coverage on the company with a
buy rating with a 12-15 month horizon and a price target of Rs251.
This implies a potential upside of around 50% from the current
market price of Rs167


Courtesy : DP Visitor - Sarvar

Sharekhan Investor's Eye

State Bank of India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs950
Current market price: Rs884

Weak operating performance

Result highlights

• State Bank of India's (SBI) adjusted net interest income (NII) grew by only 0.6% year on year (yoy) in Q3FY2006 as the total earning assets (advances plus investments) declined due to the redemption of India Millennium Deposits (IMDs).
• The adjusted operating profit declined by 44.8% yoy due to the lower NII and the lower other income. Consequently the adjusted net profit also declined by 34.0% yoy.
• At the current market price of Rs884 the bank's stock is quoting at 7.5x its FY2007E stand-alone earnings per share (EPS) and 1.2x its consolidated book value. We maintain our Buy recommendation on SBI with a price target of Rs950.
  

Crompton Greaves

Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,008
Current market price: Rs880

Price target revised to Rs1,008

Result highlights

• The revenues of Crompton Greaves (Crompton) grew by 37.3% in Q3FY2006 to Rs647.9 crore. The growth was achieved on the back of the strong performance of power systems (revenues up 60.6%) and consumer products (revenues up 21.5%).
• The operating profit margin (OPM) improved by 90 basis points year on year (yoy) and by 140 basis points quarter on quarter (qoq) to 10.9%. The OPM improved owing to the benefit of operating leverage during the quarter.
• The power system and consumer product divisions were the key drivers of the company's good performance in Q3FY2006. The profit before interest and tax (PBIT) margin of these divisions improved by 250 basis points and 60 basis points yoy to 9.7% and 8.8% respectively.
• The net profit (before exceptional) of Crompton grew by 73.3% yoy in the quarter to Rs54.7 crore. There was an extraordinary expense of Rs11.5 crore on account of a voluntary retirement scheme (VRS). Adjusting for the same, the profit after tax (PAT) grew by 36.8% yoy to Rs43.2 crore, in line with our estimates.
• Its subsidiary, Pauwels, reported a strong performance in the quarter with a profit before tax (PBT) of Rs19.8 crore. Its PBT as a percentage of sales also increased sharply by 300 basis points to 4.3%.
• The current consolidated order backlog of Crompton stands at Rs2,950 crore (including Pauwels' order book of Rs1,450 crore) and is equivalent to 1x the FY2005 consolidated revenues.
• Crompton is currently trading at 14.0x FY2008E consolidated earnings. A healthy compounded annual growth of 44% in the earnings over the FY2005-08 period, the strong visibility of the earnings and the improving financial ratios of the company make the stock an attractive investment. We maintain our Buy recommendation on the stock and roll over our earnings multiple to FY2008E with a price target of Rs1,008, discounting the FY2008E consolidated earnings by 16x.
  

Orient Paper and Industries

Cluster: Vulture’s Pick
Recommendation: Buy
Price target: Rs335
Current market price: Rs250

Strong pick-up in cement and paper businesses

Result highlights

• Orient Paper and Industries Limited (OPIL) recorded revenues of Rs207.7 crore in Q3FY2006, a growth of 19.5% year on year (yoy), aided by the cement as well as paper divisions. The cement and paper divisions registered a top line growth of 28.1% and 8.1% respectively.
• The operating profit, however, increased by 112.2% to Rs24.3 crore due to margin expansion. The operating profit margin (OPM) improved from 6.6% in Q3FY2005 to 11.7% in Q3FY2006. The OPM was primarily driven by the improvement in the performance of the cement division which is back on its growth trajectory.
• The profit before tax (PBT) during the quarter increased by 425% to Rs9.8 crore yoy. However, the net profit increased by 72.9% in Q3FY2006 to Rs5.84 crore, primarily due to the deferred tax to the tune of Rs3.28 crore (as compared to the deferred tax write back of Rs1.5 crore in Q3FY2005). We, therefore, believe the numbers should be viewed on a PBT basis to get a clear picture about the performance of the company.
• OPIL has registered a PBT of Rs17.3 crore in M9FY2006, as compared to our FY2006 estimate of Rs25.7 crore. We expect the company to achieve our FY2006 numbers as we expect Q4FY2006 to be better than Q3FY2006.
• OPIL trades at 10.5x its FY2007 earnings and FY2007 enterprise value/earnings before interest, depreciation, tax and amortisation (EV/EBIDTA) of 7.8x. At the current market price, the cement business of the company is valued at US$59 per tonne, which is the cheapest in the cement sector. We maintain our sum-of-part valuation target of Rs335.
  

Ratnamani Metals and Tubes
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs375
Current market price: Rs333

All fired up

Result highlights

• The Q3FY2006 results of Ratnamani Metals and Tubes Ltd (RMTL) are above our expectations. Its revenues grew by 121.9% to Rs118.5 crore over last year. The massive growth in the top line was achieved on the back of a strong order book.
• The operating profit grew by 168.5% to Rs20 crore in Q3FY2006 year on year (yoy). The operating profit margin (OPM) improved by 293 basis points to 16.9% during the quarter. We had earlier stated that we expected the OPM to improve owing to the easing of the raw material prices going forward.
• RMTL's profit before tax (PBT) increased by 157% to Rs1,498 crore yoy. The net profit increased by 146% to Rs9.86 crore yoy. However the provision for tax for the quarter included the Rs1.73 crore paid for the previous year. Excluding this, the profit after tax (PAT) increased by 190% to Rs11.6 crore.
• RMTL has reported a net profit of Rs20.9 crore for M9FY2006 as compared with our FY2006 estimate of Rs24.5 crore. Given the company's robust order book position, we are upgrading our FY2006 and FY2007 estimates. We expect the company to earn a net profit of Rs26.3 crore and Rs36.1 crore in FY2006 and FY2007 respectively. The stock trades at 11.3x the FY2006 and 8.3x the FY2007 earnings estimates. We maintain our Buy recommendation on the stock with the price target of Rs375.
  

Surya Pharmaceuticals
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs205
Current market price: Rs147

Growing strongly

Result highlights

• Surya Pharma's net sales were up 31% year on year (yoy) in Q3FY2006 to Rs60.2 crore as against Rs45.9 crore in Q3FY2005 on the back of good contract manufacturing orders.
• The lower raw material costs as a percentage of the net sales resulted in the operating margins increasing by 203 basis points to 19.5%.
• The operating profit stood at Rs11.7 crore, an increase of 46% yoy.
• The net profit saw an increase of 67.2% yoy to Rs6.77 crore in Q3FY2006 as the net profit margin soared by 231 basis points on a year-on-year (y-o-y) basis. The quarterly earnings per share (EPS) stood at Rs6.11 in Q3FY2006 as against Rs3.87 in Q3FY2005.
• At the current market price of Rs147 the stock is trading at 5.8x its FY2007 earnings estimate. We maintain our Buy recommendation on Surya Pharma with a price target of Rs205.
  

Grasim Industries

Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,525
Current market price: Rs1,462

Cement comes to rescue

Result highlights

• Grasim Industries' Q3FY2006 stand-alone net profit of Rs162 crore is down by 25% year on year (yoy) and below our expectations. The dent in the net profit was caused by the poor performance of the sponge iron and viscose staple fibre (VSF) divisions. The company's net sales for the quarter grew by only 6%, driven by the good performance of the cement division.
• A 580-basis-point drop in the operating profit margin (OPM) to 19.4% resulted in a 19% decline in the operating profit to Rs319 crore. The earnings before interest, depreciation, tax and amortisation (EBIDTA) of the sponge iron business fell sharply by 97% yoy mainly due to a sharp fall in the volumes (down 50% yoy). The volumes were hurt by an inadequate supply of natural gas and higher input prices. On the other hand, despite an 18% year-on-year (y-o-y) growth in the VSF volumes, the EBIDTA of the VSF business fell by 23% basis points yoy due to a 10% y-o-y fall in the realisations.
• The cement division's performance improved significantly during the quarter. Higher volumes and realisations resulted in a 61% jump in its EBIDTA.
• Grasim's consolidated results are much better than its stand-alone results, primarily because of the excellent performance of the consolidated cement division. The consolidated revenues are up 7% whereas the consolidated net profit is down 5%.
• Grasim's Q3FY2006 results are below our expectations primarily because of the dismal performance of the sponge iron business. Consequently, we are downgrading our stand-alone FY2006 earnings estimates by 7.4% and the consolidated earnings estimates by 6.4%. Further we are downgrading our FY2007 earnings estimates by 4% to Rs120 per share. Our earnings downgrade reflects the deteriorating outlook for the company's sponge iron business and the rescheduling of the commissioning of captive power plant for UltraTech Cement from June 2007 to January 2008.
  

International Combustion (India)

Cluster: Cannonball
Recommendation: Buy
Price target: Rs450
Current market price: Rs355

Good results

Result highlights

• The revenues of International Combustion India Ltd (ICIL) grew by a robust 29.3% year on year (yoy) to Rs16.3 crore in Q3FY2006 on the back of the strong performance of the heavy engineering division (HED).
• The operating profit margin (OPM) of the company improved by 620 basis points yoy to 16.9% in Q3FY2006 mainly on account of the lower material cost and the leverage effect coming into play.
• The robust performance on the operating profit front was reflected in the bottom line as the net profit grew 110.4% yoy to Rs1.4 crore. The earnings for the quarter stood at Rs6.5 per share, in line with our estimates.
• The HED continued with its growth momentum in the quarter registering a strong revenue growth of 41.2% yoy to Rs12.9 crore. But the PBIT margins saw a marginal fall of 170 basis points yoy to 26.1% primarily on account of the change in the product mix.
• ICIL has a healthy order book of Rs50 crore which is 1.1x its FY2005 revenues, thus imparting a strong visibility to its earnings. The order book grew by 56.0% on a quarter-on-quarter (q-o-q) basis.
• We expect the company to report earnings of Rs22.9 per share in FY2006E and of Rs42.5 per share in FY2007E. ICIL is currently trading at a PER of 8.3X its FY2007E earnings and 4.9X its FY2007E enterprise value/earnings before interest, depreciation, tax and amortisation (EV/EBIDTA). We maintain our Buy recommendation on the stock with a price target of Rs450.

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Sharekhan Investor's Eye

Union Bank of India
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs150
Current market price: Rs125

Strong operating performance

Result highlights

• The net interest income (NII) of Union Bank of India (UBI) grew by a strong 20.7% year on year (yoy) on the back of a 35% growth in its advances. However the net interest margin (NIM) was down by 11 basis points.
• The bank's core operating profit grew by a strong 21.2% as the operating expenses were kept under control during the quarter.
• The bank's Q3FY2006 results are not strictly comparable with that of Q3FY2005 due to a provisioning done in that quarter on account of the transfer of securities from the available for sale (AFS) and held for trading (HFT) portfolios to the held till maturity (HTM) portfolio.
• At the current market price of Rs125, UBI is quoting at 5.0x its FY2007E earnings per share (EPS) and 0.9x its FY2007E book value. The bank is expected to generate an average return on equity (RoE) of 21.2% over FY2005-07E despite a 10% dilution. We reiterate our Buy recommendation on the stock with a price target of Rs150.
  

MRO-TEK

Cluster: Apple Green
Recommendation: Buy
Price target: Rs113
Current market price: Rs88

Meeting expectations

Result highlights

• The net revenues of MRO-TEK grew by 1.3% quarter on quarter (qoq) and by 39.6% year on year (yoy) to Rs36.8 crore in Q3FY2006. The healthy quarterly revenue run rate of over Rs35 crore is much higher than the average of below Rs30 crore reported in the last fiscal.
• The operating profit margin (OPM) was flat at 17.8% on an annual comparison basis but declined by 90 basis points as compared with that in the previous quarter. The sequential decline was largely due to a 15.2% jump in the selling, general & admin (SG&A) expenses.
• On an annual comparison, the 19.3% growth in the profit before tax (PBT) was relatively lower than the revenue growth due to an increase in the interest outgo and depreciation charges during the quarter.
• The net profit, before the extraordinary items and prior year adjustments, stood at Rs4.55 crore, in line with our estimates. However, prior adjustments of Rs0.29 crore boosted the earnings to Rs4.8 crore. On an annual basis, the figures are not comparable due to the one-time write-off of Rs6.5 crore taken in the third quarter of the previous year. The company had reported a net loss of Rs0.8 crore in Q3FY2005.
• The company announced its maiden interim dividend of 25% (or Rs1.25 per share) during the quarter. Given the fact that all of its term loans have been repaid and there isn't any requirement for substantial capital expenditure (capex) in the near future, the dividend policy is likely to be more liberal going forward.
• We maintain our Buy call on the stock with the one-year price target of Rs113.
  

Alphageo India

Cluster: Emerging Star
Recommendation: Buy
Price target: Rs135
Current market price: Rs100

Results below expectations

Result highlights

• Alphageo India Ltd (AIL) has reported a net loss of Rs31 lakh for Q3FY2006 against our expectations. The net loss was a result of a higher-than-expected interest outgo of Rs69 lakh during the quarter. The interest charge in turn was higher on account of the Rs30 crore debt that the company has taken to set up its two 3-D seismic survey crews.
• The revenues for the quarter stood at Rs160 lakh, down 77% over last year. The results are not comparable on a year-on-year (y-o-y) basis, as the two 2-D crews did not operate in the third quarter. Consequently the company did only data analysis job during the quarter.
• Till November 2005, severe weather conditions prevailed in Arunachal Pradesh and Mizoram, where AIL is executing two contracts for Oil India Ltd (OIL) and Oil and Natural Gas Corporation (ONGC) respectively. Since then, the company has resumed operations on the ONGC contract. However work on the OIL contract has not resumed yet, as OIL has postponed the operations in Arunachal Pradesh.
• AIL has bagged an order worth Rs4 crore from HOEC for a 2-D contract. The crew that was to work on the OIL contract will now commence survey for the HOEC contract. The company intends to finish the survey by the end of this fiscal. We had not factored in the revenue from this new contract in our FY2006 estimates.
• The fourth quarter will see all the company crews (ie two 2-D crews and the two new 3-D crews) in full operation. Hence its revenues would increase from Q4FY2006 onwards. We believe that the revenues and earnings would begin to grow exponentially on a y-o-y basis from Q1FY2007.
  

Orchid Chemicals & Pharmaceuticals

Cluster: Emerging Star
Recommendation: Buy
Price target: Rs355
Current market price: Rs260

Early launch of cefoxitin

Key points

• Orchid Chemicals and Pharmaceuticals has received the US Food and Drug Administration's (USFDA) approval for 1 gm/vial and 2 gm/vial of Cefoxitin, a second-generation cephalosporin having a market size of US$45.million. Orchid is launching this product in the USA exclusively through Apotex from January28, 2006.
• Limited competition due to technology barrier and a good marketing network through Apotex are expected to prevent price erosion and result in large Orchid's share in the Cefoxitin market.
• The launch of Cefoxitin earlier than expected is a positive surprise. At the current market price of Rs260, Orchid is trading at 7.7x its FY2007E cash earnings per share (EPS). We reiterate our Buy recommendation on Orchid with the price target of Rs355.

Market Commentary

Sensex touches life-time high of 9714

Impressive gains in L&T, ICICI Bank and HDFC among others saw the index close at a new high at 9686.
Appreciating further over its last close, the market today was in a belligerent mood through the trading session and in the process crossed
the 9700 mark for the first time during intra-day trades. After resuming 30 points higher at 9580, the index immediately edged past the 9600 mark and kept surging ahead as the trading progressed. While the market was in the midst of a strong bull run, the index scaled past the 9700 mark in noon trades on firm buying in blue-chip stocks and touched a new intra-day high of 9714. A late bout of profit-taking in select counters saw the Sensex shed some gains and still end at a new closing high of 9686, up 1.42% or 136 points. The Nifty, too, ended on an upbeat note with gains of 32 points at 2940.

Surprisingly, the broader market was negative. Of the 2,589 stocks traded on the BSE, 1,536 stocks declined, 988 stocks advanced and 65 stocks ended unchanged. All the sectoral indices ended on a higher note. Among the major gainers, the BSE CG index moved up by 2.83%, the BSE FMCG index added 2% and the BSE HC index was up nearly 1%.

Driving the rally L&T soared 4.95% at Rs2,038, ICICI Bank advanced 4.52% at Rs597, HDFC moved up 3.99% at Rs1,281 and ONGC rose 2.33% at Rs1,276. Among other gainers HLL shot up by 3.45% at Rs195, Hero Honda added 2.61% at Rs859, Dr Reddy's gained 3.80% at Rs1,083, Tata Motors jumped by 1.82% at Rs676 and Wipro was up 2.20% at Rs504. On the other hand select counters ended weak on profit-taking. SBI dropped 1.78% at Rs885, Grasim was down nearly 1% at Rs1,416 on disappointing Q3 numbers and NTPC ended lower at Rs113.

Capital goods stocks were in the limelight. Alfa Laval zoomed 10.18% at Rs1,175, Jyoti Structures flared up 9.63% at Rs385, Bharat Electronics advanced 7.32% at Rs1,193 and Esab India gained 6.16% at Rs464. KEC International, Batliboi, Asian Electronics, Honeywell Automation and Reliance Industrial Infrastructure were up 5% each.

ABB at Rs2,595, Bannari Amman Sugars at Rs1,400, Bharat Electronics at Rs1,204, BHEL at Rs1,685, Esab India at Rs489, Goodlass Nerolac at Rs885, GHCL at Rs135 and Himadri Chemicals & Industries at Rs181 touched new intra-day highs on the BSE.

Amar Raja Batteries at Rs217.10, Asian Electronics at Rs414.90, Honeywell Automation at Rs1,348.95, Shrenuj & Company at Rs37.80 and Reliance Industrial Infrastructure at Rs474.95 were frozen at the upper limit of the circuit breaker on the BSE.

Over 59.92 lakh LML shares changed hands on the BSE followed by PBA Infrastructure (41.68 lakh shares), Triveni Engineering & Industries (39.39 lakh shares), Reliance Industries (38.34 lakh shares) and Radha Madhav Corporation (30.20 lakh shares).

Reliance Industries registered a turnover of Rs265 crore followed by ICICI Bank (Rs159 crore), SBI (Rs148 crore), Bajaj Hindusthan (Rs92 crore) and PBA Infrastructure (Rs73 crore).

Motilal Oswal Reports

Shasun Chemicals

Himatsinga Seide

Godrej Consumer

Geometric Software

Stock Ideas

25 Jan 2006		Aplab	126	12 Month	380
23 Jan 2006	501343	Motor and general finance	27.75	6 Month	80

INOX Leisure - IPO

Multiplying its presence

Having tested success, it wants to grow fast

Inox Leisure is one of India’s larger multiplex cinema operators. It has eight operational multiplexes, with 32 screens across seven cities: Mumbai, Pune, Vadodara, Goa, Jaipur, Kolkata (two multiplexes) and Bangalore.

While consolidating its position in the exhibition business, Inox Leisure has entered the film distribution business, acquiring the distribution rights for certain Hindi film titles in select distribution circuits. It had invested Rs 7.5 crore in financing the film, "The Rising’.

Inox Leisure’s present IPO is to raise finance its expansion. The company is setting up around 11 multiplexes in locations like Hyderabad, Vishakapatnam, Jaipur, Kolkata, and Bangalore at an estimated cost of Rs112.82 crore.

Strengths

• Inox Leisure has developed a strong patronage in the last couple of years. Over 2003-05, the number of patrons has shown a robust CAGR of 52% to 38,88,547 and in the half-year ended September 2005, it touched 80% of the numbers in FY 2005, at 31,25,801.

• The revenue has shown a impressive CAGR of 57% to Rs 61.48 crore over 2003-2005 and touched Rs 50.25 crore in the six months ended September 2005, which was 80% of the full year sales of FY 2005. OPM has grown steadily to 33.6% end FY 2005, from 28.7% in FY 2003. In six months ended September 2005, it stood even better at 40.3%. The bottom line grew from mere Rs 9 lakh in FY 2003 to Rs 8.24 crore in FY 2005. In the six months ended September 2005, the profit after tax was Rs 9.73 crore.

• The Indian multiplex industry is on a high growth trajectory, with its increasing share of the overall box office collections. The growth of multiplexes is fuelled by a rise in disposable incomes, a boom in organised retail, entertainment tax benefits given by several state governments and the corporatisation of the Indian film industry.

Weaknesses

• The promoter of the Inox Leisure, Gujarat Fluorochemicals (GFL), is not related to the film industry and is reducing its stake through offer for sale in the present IPO. About 10% of the total funds raised will go to GFL, and not to the company.

• Over 75% of the revenue comes from box-office collections. The poor success rate of Hindi films, inadequate enforcement of anti-piracy laws in India and increasing home viewing options such as DVD and cable TV may constrain the growth in the number of cinema patrons.

• The multiplex business enjoys relatively low breakeven due to higher ticket rates and entertainment tax benefits. However, tax benefits are for a limited period and ticket rates can be regulated by the states.

Valuation

The nearest comparable companies are PVR Cinema, Adlabs and Shringar Cinemas. PVR Cinemas, which is the largest multiplex cinema operator by number of screens, recently completed its IPO and is trading around 169 times its FY 2005 EPS, Adlabs is trading at a PE of around 60 times its FY 2005 EPS. Shringar Cinemas, which has yet to report profit, is trading around Rs 80.

On an expanded equity of Rs 60 crore, FY 2005 EPS of Inox Leisure works out to Rs 1.26. Based on this, PE stands at 79.4 and 95.2 at the price band of Rs 100 and Rs 120. In the first half, the company has already crossed the FY 2005 net profit. However, first half is the main season and one cannot annualise the figures. Nevertheless, one can expect over 100% growth in net profit in FY 2006, bringing down the PE to below 50.

Sharekhan Investor's Eye

Godrej Consumer Products
Cluster: Apple Green
Recommendation: Buy
Price target: Rs674
Current market price: Rs561

Q3 results meet expectations

Result highlights

• The net sales of Godrej Consumer Products Ltd (GCPL) grew by 10.2% year on year (yoy) to Rs169.1 crore, powered by a strong 16% year-on-year (y-o-y) growth in the branded portfolio. The sales of the Godrej brand of soaps grew by 11.5% yoy whereas the personal care business grew by 21.2% yoy.
• The profit before interest and tax (PBIT) margin of the soap segment stood at 7.7% (down 20 basis points yoy). The decline was mainly on account of a change in the product mix (which shifted towards lower-margin, high-volume products), and higher ad spend during the quarter (8.9% of sales).
• The PBIT margin of the personal care business improved by 400 basis points yoy to 45.2% in Q3FY2006. The margin improved owing to the price hike effected by the company in its hair colour products in Q1FY2006.
• The net profit grew by 31.1% yoy on the back of the strong performance of the personal care business both on the revenue and margins fronts. The earnings for the quarter stood at Rs6.0 per share as against Rs4.6 per share a year ago.
• GCPL is currently trading at 19.5x its FY2008E stand-alone earnings and 16.7x its FY2008E consolidated earnings. We believe the valuations are attractive considering the strong growth momentum expected in its earnings over the next two years. We maintain our Buy recommendation with a price target of Rs674.
  

Nicholas Piramal India

Cluster: Apple Green
Recommendation: Buy
Price target: Rs325
Current market price: Rs240

Price target revised to Rs325

Result highlights

• Nicholas Piramal's consolidated net sales for Q3FY2006 were up 17.3% year on year (yoy) to Rs402.6 crore due to additional revenues from the acquisition of Avecia and Rhodia.
• The earnings before interest, depreciation, tax and research (EBIDTR) stood at Rs62.2 crore. The EBIDTR fell by 12.5% yoy due to higher selling (promotional) costs, foreign exchange (forex) losses and lower revenues from the high-margin products like Phensedyl.
• The research and development (R&D) expense increased by 10.3%, causing the earnings before interest, tax, depreciation and amortisation (EBITDA) margin to decline from 17.1% in Q2FY2006 to 11.8%. The profit before tax saw a decline of 30.9% yoy to Rs28.7 crore from Rs41.6 crore in Q3FY2005 aided by increased depreciation costs.
• The adjusted profit after tax (PAT) stood at Rs23.4 crore, down 7.6% yoy. The company spent Rs13.7 crore on due diligence for its acquisitions in this quarter.
• At the current market price of Rs240, the stock is trading at 18.9x FY2007 earnings estimate. We maintain our Buy recommendation on Nicholas Piramal with the revised price target of Rs325.
  

Indian Hotel Company
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,474
Current market price: Rs1,244

Price target revised to Rs1,474

Result highlights

• The revenues of Indian Hotel Company Ltd (IHCL) increased by 27.4% year on year (yoy) to Rs317.5 crore in Q3FY2006. The growth was powered by a sharp rise in the average room rates (ARRs). The revenue growth was in line with expectations.
• The occupancy rates (ORs) in Q3FY2006 remained flat yoy at 75%, whereas the ARRs grew by a whopping 34.7% to Rs8,150. The ORs were flat mainly on account of a delay in the market's realignment with a 30% hike in the room rates in the prime properties.
• On the back of the strong revenue growth and the benefits of operating leverage (typical to the hotel industry), the operating profit margin (OPM) improved by 600 basis points yoy to 32.9% in the quarter.
• IHCL's profit after tax (PAT) increased by 76.2% yoy to Rs61.5 crore in Q3FY2006. The growth was in line with expectations. The earnings for the quarter stood at Rs11.1 per share.
• We have revised our estimates for FY2006 and FY2007. The stand-alone net profit estimate has been revised upwards by 15.6% to Rs166.7 crore for FY2006 and by 37.6% Rs256.4 crore for FY2007. The consolidated net profit estimate has been revised upwards by 7.3% to Rs190.8 crore for FY2006 and by 36.0% to Rs318.6 crore for FY2007.
• Considering the bright prospects for the company's business and the fact that its stock trades at an 11% discount to its replacement cost of Rs1,400, we maintain our Buy recommendation on the stock. We revise our price target to Rs1,474.0 (ie a target multiple of 27x, as the stock typically trades at 25-27x its one-year forward earnings), expecting an upside of 18.5% from the current levels.
  

ITC
Cluster: Apple Green
Recommendation: Buy
Price target: Rs170
Current market price: Rs152

Grand numbers

Result highlights

• ITC's net revenues grew by a robust 42.4% year on year (yoy) in Q3FY2006 to Rs2,556 crore, powered by a strong growth in all the business segments.
• All the businesses reported a high double-digit growth for Q3FY2006 with the main business of cigarettes growing at 19%, the highest growth ever in the last fifteen quarters.
• The adjusted operating profit grew at a slower pace of 30% yoy to Rs878.3 crore for Q3FY2006 as the operating profit margin (OPM) fell by 330 basis points yoy to 34.3%. The margin dropped on account of a margin contraction in the agri business.
• ITC's adjusted profit after tax (PAT) increased by 26.3% to Rs567.1 crore.
• To take into account the splendid performance of Q3FY2006, we have upgraded our numbers for FY2006 and consequently for FY2007. At the current market price of Rs152, the stock is attractively quoting at 21.7x its FY2007E earnings. We maintain our Buy recommendation on ITC with a price target of Rs170.
  

Hyderabad Industries
Cluster: Apple Green
Recommendation: Buy
Price target: Rs700
Current market price: Rs500

Production problem affects results

Result highlights

• Hyderabad Industries Ltd (HIL) reported a 5.2% increase in its net sales in Q3FY2006 to Rs95.4 crore. However, on a like-to-like basis, the building product division's revenue grew by 18.8%.
• Despite a 5.2% increase in the top line, HIL reported a flat growth in the operating profit. The operating profit margin (OPM) declined by 59 basis points to 11.6%. The decline in the OPM was primarily due to an increase in the raw material cost. The raw material cost as a percentage of sales increased from 43% in Q3FY2005 to 48.2% in Q3FY2006.
• HIL is utilising its strong cash flows from operations to pay a large portion of its debt. The reduction in the debt lowered its interest cost by 61.2% to Rs0.9 crore in Q3FY2006.
• The company has reported a net profit growth of 22.5% for Q3FY2006 to Rs5.7 crore. However, the numbers are below our expectation and we are downgrading our FY2006 and FY2007 estimates. We expect the company to report a net profit of Rs42.9 crore in FY2006 and of Rs46.5 crore in FY2007. (Our earlier net profit estimates for FY2006 and FY2007 were Rs46.6 crore and Rs50.2 crore respectively).
  

UltraTech Cement
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs620
Current market price: Rs507

Price target revised to Rs620

Result highlights

• The Q3FY2006 results of UltraTech Cement Ltd (UTCL) are above our expectations at the operating profit level but below our expectations at the net profit level primarily because of a higher tax outgo during the quarter.
• UTCL's net sales for the quarter grew by 5% year on year (yoy) to Rs783 crore (after adjusting the freight and trading sales impact). The growth was driven by a 12.8% increase in cement realisation.
• Cement volumes were down 6.9% owing to floods in the southern region, which restricted production in the southern plants. As a result, the utilisation of UTCL's cement capacity fell to 87% during Q3FY2006 compared with 97% in Q3FY2005.
• The operating profits stood at Rs110.4 crore, up 108% yoy. The operating profit margin (OPM) during the quarter improved by 610 basis points to 14.1%, primarily because of a flat other expenditure. The improvement in the OPM could have been higher, but for an 18.7% jump in the per-tonne cost of power and fuel, and a 58% rise in the freight cost per tonne during the quarter.
• The tax outgo of Rs19.2 crore (at a tax rate of 44.6%) restricted the net profit to Rs24 crore.
  

3i Infotech
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs244
Current market price: Rs187

Product play

Result highlights

• The consolidated revenues of 3i Infotech have grown by 15% quarter on quarter (qoq) and by 47.2% year on year (yoy) to Rs112 crore. The sequential revenue growth was aided by the incremental revenues of Rs6.7 crore accrued from the three acquisitions made during the last quarter. The organic growth stood at 8.2% on a sequential basis.
• The operating profit margin (OPM) improved by 40 basis points qoq and by 170 basis points yoy to 20.9% in the third quarter. The increased contribution from the high-margin product business and the positive impact of the rupee depreciation are the key reasons for the improvement in the company's overall profitability.
• At Rs16.3 the earnings grew at 22% sequentially and at 56.5% when compared with the growth rate in the third quarter of the previous year. The earnings growth was boosted by a healthy jump in the other income component from Rs1 crore in Q2 to Rs2.4 crore. The company reported a positive impact of Rs1.6 crore from the foreign exchange fluctuations witnessed in the last quarter.
• Given the robust performance reported during the first nine months, the management has revised the revenue growth guidance from 25-30% to 40-45% for the current year. Earnings have been guided in the range of Rs9.2-9.6 per share as compared with the earlier indications of Rs8.5-9.5 per share.
• We maintain our Buy call on the stock with the one-year price target of Rs244.