Saregama India
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs375
Current market price: Rs330
Price target revised to Rs375
Key highlights
- Saregama India Limited (SIL) reported sales of Rs31 crore in Q3FY2006, up 12.5% quarter on quarter (qoq) and up 15.2% year on year (yoy). The sales from music cassettes and CDs/VCDs increased by 6.8% yoy to Rs26.2 crore. However, the revenue from publishing increased by 101% yoy to Rs4.7 crore.
- In spite of a growth in sales, the operating profit declined by 6.4% qoq to Rs2.9 crore. An increase in the royalty expenses was the prime reason for the decline in the operating profit. The company acquired music rights of “Bluffmaster”, “Kalyug” and “Holiday” during the quarter that led to an increase in the royalty expense.
- The interest cost was down by 71% yoy to Rs0.19 crore as the proceeds of the rights issue were used for debt repayment.
- SIL's net profit grew by 41.7% yoy, but declined by 6.8% qoq to Rs2.77 crore.
Union Bank of India
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs150
Current market price: Rs125
IPO note
Key highlights
- Union Bank of India (UBI) will be coming out with a follow on public issue of 4.5 crore equity shares in the price range of Rs100-110, which we believe is attractively priced.
- With its pan-India presence, UBI has recorded a strong compounded annual growth rate (CAGR) of 24% in its advances over FY2001-05. We expect the loan book to grow at a CAGR of 22% over FY2005-07E.
- UBI’s net profit is likely to grow at a CAGR of 24% over FY2005-07E and the diluted earnings per share (EPS) are likely to grow at 19%.
- We expect the follow on issue to add Rs9-10 to UBI’s book value based on the issue price.
- At the current market price of Rs125, the stock is quoting at 1.0x its FY2007E book value and 5.3x its FY2007E EPS. We believe that the follow on offer of the bank with a price band of Rs100-110 is attractively priced looking at the fact that its fair price/book value works out to 1.3x based on its strong return on equity. We reiterate our Buy recommendation on the stock with a price target of Rs150.