MRO-TEK
Cluster: Apple Green
Recommendation: Buy
Price target: Rs113
Current market price: Rs87
Steady performance
Result highlights
- MRO-TEK reported a tepid growth of 5.8% in its net sales to Rs31.3 crore during the fourth quarter ended March 2006. The delay in procurement by some of its key clients resulted in a lower-than-expected growth in the revenues.
- However, the continued improvement in its profitability resulted in a 26.7% growth in its operating profit to Rs6.1 crore. The operating profit margin (OPM) has improved by 320 basis points to 19.6% as compared to the corresponding quarter last fiscal.
- The decline in the depreciation charges and the tax rate also aided its earnings growth with the bottom line growing by 123.7% to Rs5.1 crore. After including the prior period adjustments, the net profit grew by 95.5% to Rs4.7 crore.
- On a full year basis, the net sales grew by 21.5% to Rs139.8 crore and the earnings (before extraordinary items and adjustments) grew by 43.4% to Rs17.6 crore. The OPM has improved by 4.7% to a healthy level of 17.7% in FY2006.
- For the full year, the company has given a total dividend of 45% or Rs2.25 per share (including the interim dividend of 25% and the final dividend of 20%) as compared to 25% given in FY2005.
- At the current price the stock trades at 8.3x its FY2007E and 6.6x its FY2008E earnings. We maintain our Buy call on the stock with a price target of Rs113.
Shree Cement
Cluster: Cannonball
Recommendation: Buy
Price target: Rs1,400
Current market price: Rs1,050
Outstanding results
Result highlights
- Shree Cement's Q4FY2006 results are way ahead of our expectations primarily because of a higher-than-expected realisation and a lower-than-expected increase in its costs.
- The net sales for the quarter grew by a smart 38% to Rs225 crore, primarily driven by a huge 22.6% growth in the cement realisation. With the commissioning of its new 1.2-million-tonne cement plant, the company's cement volumes registered a growth of 12.6% to 9.3 lakh tonne.
- The operating profit margin (OPM) for the quarter improved by a staggering 1,000 basis points to 39.6%. Consequently the operating profit (adjusted for the one-time charges borne in both the quarters) grew by a whopping 86% to almost Rs90 crore in Q4.
- The earnings before interest, depreciation, tax and amortisation (EBIDTA)/tonne for the quarter jumped by a whopping 95% year on year (yoy) and by 28% quarter on quarter (qoq) to Rs961. The same is the highest in the industry.
- With the repayment of its debts, the company's interest cost declined by 52%. Consequently its pre-exceptional net profit jumped by a staggering 123%. The reported net profit trebled to Rs60 crore from Rs20 crore in Q4FY2005.
- In view of its recently announced capex plan, we are introducing our FY2009 earnings estimate for Shree Cement: Rs111 per share. At the current market price of Rs1,050, the stock is discounting its FY2008E by 11.8x and its FY2008E EBIDTA by 8.2x. It trades at an enterprise value of US$156 per tonne of cement for FY2008. However with a capacity of 8 million tonne in FY2009, the EV/tonne works out to a very attractive US$103. For a company that generates an EBIDTA of Rs960 per tonne (the highest in the industry), such valuations are attractive. We maintain our Buy recommendation on the stock with a revised price target of Rs1,400. We have valued Shree Cement's FY2009 cement capacity of 8 million tonne @ US$160 per tonne and discounted the same back to arrive at our one-year price target