PULSE TRACK
-
Economic Survey 2006-07
STOCK UPDATE
Aban Offshore
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs2,387
Current market price: Rs1,855
Price target revised to Rs2,387
Key points
- Aban Offshore Ltd (AOL) has successfully increased its stake in Sinvest ASA to 97% through the completion of the mandatory open offer. With a majority control in Sinvest, AOL would have control over 28 assets (including the six under construction) and has emerged as one of the Top 10 offshore drilling companies globally.
- The acquisition of the additional 57% stake in Sinvest for around $775 million will be earnings accretive. It would boost the earnings by $41.8 million in FY2008 and by $70 million in FY2009. Moreover, AOL would get access to the huge cash flows of around $750-800 million expected to be generated by Sinvest over the next three years.
- We maintain our Buy call on the stock with a one-year revised price target of Rs2,387 (8x FY2009E earnings which is at a slight premium to the valuations of the other comparable global players due to the company's strong cash flows and a relatively higher return on equity [RoE]).
SKF India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs406
Current market price: Rs327
Expansion to drive growth
Result highlights
- SKF India's Q4CY2006 net sales stood at Rs379.3 crore, marking a growth of 52.25% year on year (yoy). The company had increased the capacity at its Bangalore and Pune units during Q3CY2006. The combined capacity has been enhanced to 100 million ball bearings per year from 74 million ball bearings and the company is increasing its taper roller bearing capacity to 20 million units per year.
- The operating profit margin (OPM) for the fourth quarter declined by 70 basis points to 13.5% on a like-to-like basis. However, on a sequential basis, the margin marked a significant improvement of 210 basis points. The operating profit for the quarter increased by 45.5% yoy to Rs51.4 crore.
- The pre-exceptional net profit stood at Rs31.7 crore against Rs10.3 crore in the fourth quarter of last year. However, the last year's numbers had contained two extraordinary items of Rs10.2 crore, relating to the cost of traded goods for the previous quarters, and a Rs4-crore contribution to the superannuation fund due to a change in the accounting practices. Hence, the adjusted profit after tax (PAT) for Q4CY2006 grew by 29% yoy to Rs31.7 crore.
- For CY2006 the sales have grown by 71.8% to Rs1,342 crore. The OPM for the year is down to 12.8% from 14.8% in CY2005. The CY2006 sales and profit margin numbers are not exactly comparable with those of CY2005 due to a change in the method of accounting for indenting business as commission income to the direct customer delivery model in this year. The PAT for CY2006 is at Rs102 crore, a growth of 62%.
- We maintain our positive outlook on SKF India in view of the strong demand and expansion in the company's user segments like automobiles and industry. We are introducing our estimates for CY2008. At the current market price of Rs327 the stock is discounting its CY2008 earnings estimate by 9.8x and its earnings before interest, depreciation, tax and amortisation (EBIDTA) estimate by 5.1x. We maintain our Buy recommendation on the stock with a price target of Rs406.
Deepak Fertilisers & Petrochemicals Corporation
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs126
Current market price: Rs95
Strong profits in the pipeline
Result highlights
- The revenues of Deepak Fertilisers and Petrochemical Ltd (DFPCL) grew by 69.7% year on year (yoy) to Rs243.3 crore in Q3FY2007 driven by the strong performance of both its chemicals and fertilisers divisions. The robust growth in manufactured chemicals due to the isopropyl alcohol (IPA) plant becoming operational drove the growth in the revenues in the chemicals business, while the fertiliser segment witnessed a surge in its revenues from traded goods. The sales last year were lower due to lack of availability of gas and the floods, which further gives a positive bias to the year-on-year (y-o-y) growth figures.
- The operating profit grew by 47.3% yoy to Rs40.6 crore due to the firm naphtha prices & higher revenues from traded goods. The profit before interest and tax (PBIT) margin of the chemicals division declined by 300 basis points while the fertilisers business continued to make losses having a PBIT margin of -16%.
- The net profit for Q3FY2007 grew by 55.4% yoy, due to lower tax provisioning compared to the last year. The net profit was up 55.4% in spite of a higher depreciation charge, higher interest cost and lower other income.
- Ishanya, DFPCL's specialty mall coming up in Pune will stabilise its operations from April 2007. Around 76% of the leasable area has already been leased out for Ishanya and after making the changes required by the new clients the mall is likely to be launched in a phased manner by April 2007.
- The progress on the ammonium nitrate (AN) plant in Orissa is on schedule and the plant is set to begin production in Q1FY2009.
- We believe that DFPCL's valuations at 6.3x FY2008E earnings per share (EPS) are attractive, given the fact that the company has undertaken capital expenditure (capex) of Rs700 crore without diluting its equity and return on equity (RoE). We maintain our Buy recommendation on the stock with a price target of Rs126.