Infosys Technologies
Cluster: Evergreen
Recommendation: Buy
Price target: Rs2,430
Current market price: Rs2,126
Infosys plans third ADS issue
Infosys Technologies' third sponsored American depository share (ADS) issue of up to three crore equity shares would open on November 9 and close on November 17, 2006. As part of the offering, the ADSs would be placed with Japanese investors through a public offer without listing. At the prevailing price in the overseas markets, the total size of the issue works out to $1.55 billion.
TVS Motor Company
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs135
Current market price: Rs102
Expansion benefits yet to accrue
Result highlight
- TVS Motors' Q2FY2007 results are below our expectations mainly due to lower other income, higher interest costs and lower profit margins.
- The company has recorded a 36.6% growth in its net sales for the quarter, which stood at Rs1,077.9 crore mainly led by a volume growth of 28.8%. The realisation per vehicle grew by 6.1% year on year (yoy) due to higher contribution of high-end vehicles and a price hike affected in mid-September.
- The operating profits grew by 21.9% to Rs56 crore as the operating margins declined by 60 basis points to 5.2% but improved by 70 basis points on a sequential basis. The increased cost of raw materials like steel, aluminium, rubber etc continued to impact the margins of the company as the raw materials cost as a percentage of sales rose to 74.1% as compared to 71.9% in the corresponding period last year.
- The profit before tax (PBT) during the quarter was at Rs36.25 crore compared to Rs46.3 crore last year. However, the last year's PBT included a one-off Duty Export Promotion Benefit (DEPB) target plus an incentive of Rs9.7 crore. Adjusting for the same, the PBT has remained almost flat on a year-on-year (y-o-y) comparison while the profit after tax (PAT) has grown by 11.6% to Rs24.8 crore. The PAT after the one-off items declined by 22.3% to Rs24.8 crore for the quarter.
- The company's foray into the three-wheeler segment, the Himachal Pradesh plant and the Indonesian venture have been delayed and are expected to commence operations by Q1FY2008.
- We are positive on the volume growth sustaining and we expect the operating profit margin (OPM) to improve on a quarter-on-quarter (q-o-q) basis with higher volumes. However, considering the lower margins in H1FY2007, lower other income and higher interest cost we are downgrading our earnings for FY2007 by 40% to Rs4.8 and for FY2008 by 40% to Rs8.2.
- The company has strong brands across segments, is improving its product mix towards high-end bikes, is foraying into the three-wheeler space and setting up a plant in Himachal Pradesh where it will get excise and tax benefits. As a result we maintain our positive outlook for the stock. At the current market price of Rs100, the stock discounts its FY2008E earnings by 12.1x and FY2008E earnings before interest, depreciation, tax and amortisation (EBIDTA) by 6.7x. We maintain a BUY recommendation on the stock with a revised price target of Rs135.
New Delhi Television
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs260
Current market price: Rs233
Price target lowered to Rs260
Result highlight
- New Delhi Television (NDTV) reported an operating loss of Rs3.7 crore and a loss of Rs7.8 crore before interest and tax for the second quarter of FY2007. The results were below expectations.
- Driven by a slow revenue growth of 28.4% year on year (yoy) to Rs54.2 crore, and a 106% year-on-year (y-o-y) and 3.5% quarter-on-quarter (q-o-q) increase in the expenditure, NDTV reported an operating loss of Rs3.7 crore for Q2FY2007 compared with an operating profit of Rs3.0 crore in Q2FY2006.
- Adjusted for the one-time expenses of an employee stock option plan, the company reported a profit of Rs3.6 crore, but only with the help of a write-back of the deferred tax credit.
- NDTV has formed a new 100% subsidiary, NDTV Ventures, for its entry into the entertainment and lifestyle television segment. NDTV's general entertainment channel (GEC) will be launched under this company.
- We had mentioned earlier that the increased competition in the news channel sector has been inflating NDTV's marketing and distribution (M&D) cost. However, despite the increasing M&D cost the company has not been able to ramp up its ad revenue growth.
- That coupled with the expenditure to be incurred on the new entertainment and other channels is likely to bleed the consolidated financials of the company for at least the next 12-18 months.
- We have lowered our earnings estimates for the stock for FY2007 and FY2008 by 19% and 27% respectively on account of the above-mentioned reasons.
- At the current market price of Rs233, the stock is quoting at 29.2x its FY2008E earnings per share (EPS) and 17.8x FY2008E enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA). We reiterate our Buy recommendation on the stock with a lower price target of Rs260, based on sum-of-parts valuations.
Bajaj Auto
Cluster: Apple Green
Recommendation: Buy
rice target: Rs3,300
Current market price: Rs2,631
Price hike to ease margin pressure
Result highlight
- Bajaj Auto has hiked the prices of all its three-wheeler models and two of its two-wheeler models (ie Pulsar twins and Platina). With the high input prices, the price hikes affected should help to ease the pressure on its margins.
- The price of the upgraded Pulsar twins has been raised by Rs2,000-2,200 per vehicle, while the price of Platina has been raised by Rs500 per vehicle. The three-wheeler prices have been raised by Rs1,000 per unit.
- Bajaj Auto is looking to exit the 100cc segment in the next two-three years with the introduction of two new platforms next year, which are expected to be around the same price points. Further, the company also plans to revitalise its Pulsar brand through the recent launch of the upgraded versions and would follow it up with the launch of the higher displacement Pulsars (220cc) in Q4FY2007.
- The company has reported strong sales numbers during this year recording a year-till-date growth of 34%. Going forward, due to a high base effect, we expect the company to record a growth of 19.8% for H2FY2007.
- At the current market price of Rs2,631, the stock discounts its FY2008E earnings by 17.4x and quotes at an enterprise value/earnings before interest, depreciation, tax and amortisation of 14.3x. We maintain our Buy recommendation on the stock with a price target of Rs3,300.
Indian Hotels Company
Cluster: Apple Green
Recommendation: Buy
Price target: Rs170
Current market price: Rs150
Room for more upside
Result highlight
- The revenues of Indian Hotels Company Ltd (IHCL) increased by 27.8% year on year (yoy) to Rs266.7 crore in Q2FY2007 on the back of a 37.5% rise in room revenues, in line with our estimates. The food and beverages income (F&B) rose by 13.6% yoy, the other operating income increased by 31.0% yoy and the management fee saw a rise of 46.5% yoy.
- The occupancy rates (ORs) in Q2FY2007 increased by 200 basis points yoy at 66%, whereas the average room rate (ARR) grew by a robust 345% to Rs7,583, in line with our estimates.
- The operating profit margins (OPMs) expanded by 300 basis points to 21.8% on account of the healthy revenue growth and a continuous operating leverage that the company enjoys. Consequently the operating profits grew by a robust 48.2% yoy to Rs58.1 crore, marginally ahead of our estimates.
- The expansion in the OPMs, higher other income (up 52.0% yoy) and a reduction in the net interest costs (down 30.8% yoy) saw the net profit grow by a whopping 77.6% yoy to Rs46.5 crore, marginally ahead of our estimates.
- IHCL has executed a letter of intent with the owners of the Ritz Carlton Hotel, Boston for the outright purchase of the hotel for US$170 million. The sale and purchase agreement is scheduled to be executed in early November 2006 with the transaction closure targeted for early January 2007.
- The tight demand-supply scenario in the hotels industry lends a positive bias to the ARR in the short term and we expect IHCL, the largest hotel chain in India with its pedigree of hotels to be the key beneficiary of this uptrend. The ARR and ORs may come under pressure post H1FY2008, but till that time we believe that the investors should remain checked in. We like the performance of H1FY2007 and we are revising our consolidated earnings estimates for FY2007 and FY2008 by 1.4% and 16.3% respectively.
- We are valuing IHCL at 25x its FY2008 earnings and the revised price target now stands at Rs170. IHCL�s value of non-hotel investments on its books is around Rs20 per share and the same provides a margin of safety to our price target of Rs170. At the current market price (CMP) of Rs149.6 the stock provides an upside of 10.3%.