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Thursday, April 06, 2006
Reliance Petro fixes IPO Price
Reliance Petroleum (RPL) has fixed the price band for its forthcoming initial public offer (IPO) at Rs 57-62 per share, valuing the Mukesh Ambani company at Rs 27,900 crore at the upper end of the price band. The issue, closely watched by retail and institutional investors alike, is scheduled to open for subscription on April 13 and close on April 20. RPL, a unit of Reliance Industries (RIL), one of India's largest private companies, plans to use the funds from the issue to part-finance its proposed Rs 27,000-crore export-oriented refinery in the special economic zone at Jamnagar in Gujarat. In its draft red herring prospectus filed recently, RPL had initially proposed to offer 180 crore shares. However, in a pre-IPO private placement last week, RPL offered 45 crore equity shares to foreign institutional investors, financial institutions and banks at Rs 60 a share, raising Rs 2,700 crore. The shares offered in the private placement are locked in for one year from the date of allotment of the shares in the IPO. Also, in the IPO of 135 crore shares, parent RIL is scheduled to subscribe to 90 crore shares at the issue price. According to a statement issued by RPL on Wednesday, RIL is scheduled to make a payment of Rs 62 per share on the 90 crore shares, amounting to Rs 5,580 crore. RIL shares rose 0.2% to Rs 839.55 on Wednesday, giving the company a market capitalisation of Rs 64,346 crore. The net size of the IPO to the public is 45 crore shares, with retail investors having the option of paying only Rs 16 per share on application. Retail investors can apply for a minimum 100 shares and a maximum of 1,600 shares. At 100 shares, an individual investor will have to fork out Rs 1,600 on application and Rs 5,700 on allotment, assuming that he or she applies at the lower end of the band. At 1,600 shares, an investor will have to spend Rs 25,600 on application and Rs 91,200, assuming he or she gets allotment. RPL's export-oriented refinery will have a capacity to process 580,000 barrels per stream, making it the sixth-largest refinery in the world. As a part of this project, RPL is also setting up a 900,000-tonne per annum polypropylene plant. The project is expected to go on stream by December '08.
Sharekhan - Investor's Eye
Marico Industries
Cluster: Apple Green
Recommendation: Buy
Price target: Rs635
Current market price: Rs569
Price target revised to Rs635
We are revising our price target on Marico to Rs635, at which price the stock will discount its FY2008E earnings by 25x, which is still at a 17% discount to HLL's PER of 30x FY2008E.
Godrej Consumer Products
Cluster: Apple Green
Recommendation: Buy
Price target: Rs912
Current market price: Rs760
Price target revised to Rs912
The visibility in the revenues and earnings has been the strongest in the recent years for the fast moving consumer goods (FMCG) industry in general and for Godrej Consumer Products in particular. The demand outlook is strong in view of the new breed of consumers ie semi-urban and rural consumers who have joined the consumption fray and have given the much needed spark to the industry. Given these vital fundamental changes, the valuations are fast changing. Comparable companies in the FMCG sector are already commanding higher valuations with the 2-year average industry price/earnings (P/E) multiple reaching +24-25x. GCPL, which trades at P/E multiple of 20.8x FY2008E consolidated earnings is still available at a discount of 20% to the average industry P/E. Considering the significant room for growth within the core businesses (hair care and toiletries businesses) and the entry in the international space through Keyline Brands, we have confidence in GCPL's long-term growth prospects. We are revising our price target for GCPL to Rs912, at which price the stock will discount its FY2008E consolidated earnings by 25x, in line with the industry.
UltraTech Cement
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs850
Current market price: Rs704
Price target revised to Rs850
At the current market price of Rs704, UltraTech Cement is discounting its FY2008 earnings by 26.8x and 11.8x its FY2008 earnings before interest, depreciation, tax and amortisation (EBIDTA). On an EV/tonne basis the stock is trading at an attractive valuation of US$118 per tonne of cement. This is a huge discount to its peers like ACC and Gujarat Ambuja that are trading at valuations in excess of US$150 per tonne of cement. We believe the valuations are very attractive considering the company's high leverage to the prices of cement. Consequently, we are revising our price target for the stock to Rs850, at which it will be trading at US$140 per tonne of cement, which is still a discount to the valuations commanded by its peers.
Jaiprakash Associates
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs650
Current market price: Rs480
Price target revised to Rs650
At the current market price of Rs480, Jaiprakash Associates is discounting its FY2007 earnings by 21.1x and its FY2007 EBIDTA by 7.6x. We have valued the company on the sum-of-parts basis. We have valued the cement business at the rate of US$140 per tonne of cement and the Engineering & Construction business at a multiple of 7 on FY2008 EBIDTA. Consequently we are revising our target for JAL to Rs650.
Madras Cement
Cluster: Cannonball
Recommendation: Buy
Price target: Rs3,250
Current market price: Rs2,388
Price target revised to Rs3,250
We are upgrading our FY2007 earnings of Madras Cement by 6% from the earlier Rs104 to Rs110.6. Further we are introducing our FY2008 earnings for MCL, and the same stand at Rs152. At the current market price of Rs2,388 the stock is discounting its F2007 earnings by 21x and its FY2008 earnings by 15.7x. The stock is trading at attractive valuations on EV/tonne basis with a value of US$116 for FY2007 and of US$109 for FY2008. We are upgrading our price target for MCL to Rs3,250. At our price target the stock will be discounting its FY2008 EBIDTA by 11x and will be trading at EV/tonne of US$146.
McDowell & Company
Cluster: Apple Green
Price target: Book profit
Current market price: Rs878
Book profit
We had initiated coverage on McDowell & Company on December 30, 2005 at Rs471. The stock has appreciated by 86% since then and achieved our price target of Rs750. We recommend investors to book profit.
Container Corporation of India
Cluster: Apple Green
Price target: Book profit
Current market price: Rs1,413
Book profit
We had initiated coverage on Container Corporation of India on August 11, 2005 at Rs1,100. The stock has appreciated by 28% since then and close to our price target of Rs1,450. We recommend investors to book profit.
Emco
Cluster: Apple Green
Price target: Book profit
Current market price: Rs800
Book profit
We had initiated coverage on Emco on December 30, 2005 at Rs345. The stock has appreciated by 131.8% since then and achieved our price target of Rs600. We recommend investors to book profit.
SECTOR UPDATE
Cement
Cement majors post strong dispatch numbers
The cement majors have declared impressive dispatch figures for the month of March 2006. GACL with a dispatches growth of 12.7% tops the chart followed by ACC with a growth of 11.5% year on year (yoy). For the full year the AV Birla group tops the chart with a dispatches growth of almost 11% followed by ACC, which recorded a growth of 9%. For the January-March 2006 quarter too, the AV Birla group recorded the highest growth of 13.3% yoy. GACL too gave a stellar performance recording a growth of 13.2% in the same period. Further, the uptrend in the cement prices is expected to continue with the news that the cement manufactures are mulling a fresh Rs3-5 per bag hike in Mumbai and a Rs10 per bag hike in Chennai. This would be the second hike in Mumbai in the last 20 odd days.
Automobile
Revival in commercial vehicles continues
Tata Motors
The sales volumes for the month of March are better than estimates.
Mahindra & Mahindra
The sales of Scorpio grew by 44% for March at 2,949 units and by 18% for FY2006 at 31,661 units. The jump in the growth in March sales was due to the launch of the new version of Scorpio with additional features at no extra price
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