Maruti Udyog
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,050
Current market price: Rs898
Upgrading estimates
Result highlights
- Maruti Udyog (MUL) reported better than expected numbers for Q4FY2006, mainly on account of better profitability. The income from its operations grew by 8% year on year (yoy) on the back of a 5% growth in the volumes and a 2% improvement in the realisations.
- The operating profit margins (OPMs) improved by 120 basis points to 14.9% due to the cost-cutting measures undertaken by the company, the improvement in productivity and lower export sales. A 66% reduction in the interest cost and 35% lower depreciation led to the profit after tax (PAT) for the quarter improving by 39% to Rs360.92 crore.
- For FY2006 the sales grew by 10% to Rs12,052 crore and the earnings before interest, depreciation, tax and amortisation (EBIDTA) margins improved by 90 basis points. The PAT for FY2006 surged by 56% to Rs1,189 crore. The company has recommended a dividend of 70% for FY2006 (Rs3.5/share) from 40% (Rs 2/share) in FY2005.
- MUL, expected to be the biggest beneficiary of the excise duty cut on small cars, has been impacted due to the rising interest rates and higher road tax rates in some states. The merger of Maruti Suzuki Automobiles India (MSAIL) with MUL will add value for the shareholders and eliminate all potential issues relating to inter-company transactions.
- MUL's earnings are expected to grow at a compounded annual growth rate (CAGR) of 23% over FY2006-08, driven by a 13% CAGR in the volumes over the same period. At Rs898, the stock trades at 8.9x its FY2008E enterprise value (EV)/EBIDTA and 14.6x its earnings. We reiterate our Buy recommendation on the stock and revise our price target to Rs1,050.
Godrej Consumer Products
Cluster: Apple Green
Recommendation: Buy
Price target: Rs912
Current market price: Rs723
Results in line with estimates
Result highlights
- The revenues of Godrej Consumer Products Ltd (GCPL) grew by a strong 18.5% year on year (yoy) to Rs164.1 crore in Q4FY2006. The growth, driven by a 20% rise in the company's branded business, was in line with our estimate.
- GCPL's operating profit (OP) grew by a whopping 50.6% yoy to Rs35.6 crore in the quarter, with the operating profit margin (OPM) expanding by 460 basis points to 21.7%. The margin improvement too was in keeping with our estimate.
- The soap business reported a revenue growth of 15.7% yoy to Rs101.6 crore, with its profit before interest and tax (PBIT) margin expanding by 120 basis points to 12.9%.
- The personal care business grew by 23.3% yoy to Rs62.5 crore aided by a strong growth in hair colour, hair dye, talc powder etc. The PBIT margin of this business stood at 41.1%, up by 440 basis points.
- Driven by the good performance of the soap and personal care businesses, the company's profit after tax (PAT) grew by 36.3% yoy to Rs30.2 crore. The earnings for the quarter stood at Rs5.3 per share as against Rs3.9 per share a year ago. The growth in the earnings was on expected lines.
- GCPL is currently trading at 23x FY2008E stand-alone earnings and enterprise value/earnings before interest, depreciation, tax and amortisation (EV/EBITDA) of 19.7x FY2008E. We maintain our Buy recommendation on the stock with a price target of Rs912.
Wockhardt
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs552
Current market price: Rs450
Adjusted PAT up 36%
Result highlights
- Wockhardt's Q1CY2006 net sales (on a consolidated basis) grew by 13.4% year on year (yoy) led by a 51% growth in its domestic sales during the quarter.
- The operating profit margin (OPM) showed a small increase of 30 basis points yoy to 19.6% due to lower raw material prices.
- The earnings before interest, depreciation, tax and amortisation (EBIDTA) however rose by just 4.8% yoy due a lower other income, which fell from Rs9.1 crore in Q1CY2005 to Rs3.3 crore this quarter.
- The adjusted profit after tax (PAT) showed an increase of 36% yoy to Rs56.7 crore.
- The company had a one-time extraordinary expense of Rs60.4 crore this quarter which included merger and acquisition (M&A) expenses of Rs22.8 crore and a write-off of Rs37.6 crore for the US business.
- At the current market price of Rs450, the stock is trading at 16.3x CY2007 earnings estimate. We reiterate our Buy recommendation on Wockhardt with a price target of Rs552.
Nicholas Piramal India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs325
Current market price: Rs237
Back into the black
Result highlights
- Nicholas Piramal's net sales in Q4FY2006 on a consolidated basis grew by 83% year on year (yoy) due to an increase in the demand for domestic formulations.
- The earnings before interest, tax, depreciation and research (EBITDR) margins increased to 15% this quarter as against –9% in Q4FY2005.
- The research and development expense showed a marked increase of 124% yoy, thus pulling down the operating margin to 7.9%.
- The adjusted profit after tax stood at Rs18.1 crore as against a loss of Rs42.7 crore in the same quarter last year.
- At the current market price of Rs237, the stock is trading at 15x its FY2008 earnings estimate. We maintain our Buy recommendation on Nicholas Piramal with a price target of Rs325.
Hyderabad Industries
Cluster: Apple Green
Recommendation: Buy
Price target: Rs700
Current market price: Rs450
Results slightly below expectation
Result highlights
- Hyderabad Industries Limited's (HIL) revenues during Q4FY2006 declined by 1.65% year on year (yoy). However, on a like-to-like comparison, the revenues of the building division increased by 13.1% yoy to Rs107.32 crore.
- The weak prices of asbestos cement and the strike at one of the company's plants affected the profitability during the quarter. The operating profit declined by 16.2% to Rs11.7 crore. The building products division reported a profit before interest and tax (PBIT) of Rs14.88 crore during Q4FY2006 as compared to Rs18.29 crore in Q4FY2005. Typically, the March-July period generates strong demand for asbestos. The company has also announced a price hike of 10% in the beginning of April. We, therefore, expect a strong Q1FY2007.
- The heavy engineering division (HED) has been hived off. However, the company reported a loss of Rs9.69 crore due to the discontinued operations of the HED.
- HIL is utilising its strong cash flows from its operations to prepay a large portion of its debt. The reduction in the debt has impacted the interest cost, which has declined by 70% to Rs0.78 crore in Q4FY2006.
- The company has reported a profit after tax (PAT) of Rs37.6 crore in FY2006 as compared to a net profit of Rs9.06 crore in FY2005. However, the FY2005 numbers include a one-time extraordinary write-off of Rs16.04 crore. We expect the company to report a net profit of Rs46.5 crore in FY2007 and of Rs52.9 crore in FY2008. The stock trades at 7.6x its FY2007 and 6.7x its FY2008 earnings. We maintain a Buy on the stock with a price target of Rs700.
Selan Exploration Technology
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Under review
Current market price: Rs95
Riding the oil boom
Result highlights
- During the fourth quarter, Selan Exploration Technology (SETL) showed a 28% growth in its net sales to Rs4.4 crore as compared to Rs3.4 crore reported in the corresponding period last fiscal.
- The operating profit margin (OPM) at 43.7% was much higher than 5.2% reported in Q4FY2005 but has declined sharply as compared to 62% shown in Q3FY2006. The sequential decline in the margin was largely due to the development expenditure of Rs1.34 crore written off during the fourth quarter. Excluding the development expenses, the OPM stood at 67.9%.
- However, the company received sales tax reimbursements of Rs1.9 crore from the government nominee, Indian Oil Corporation (IOC), which boosted the other income component to Rs2.2 crore. Consequently, the earnings stood at Rs3.3 crore as compared to Rs1.6 crore in Q3FY2006 and a marginal net loss in Q4FY2005.
- On a full year basis, the net sales have grown by 68.4% to Rs18.7 crore and the earnings have zoomed by 630% to Rs8.7 crore.
- At the current price the scrip trades at 7.8x its FY2008 estimated earnings and enterprise value (EV)/oil reserves (proven) of $1.2 per barrel of oil and oil equivalent (boe). We had recommended the stock at Rs58 with a price target of Rs94, which has been achieved. We will revise the target price based on more clarity in terms of the progress in the development of its oil assets.