ACC
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,250
Current market price: Rs1,100
Stupendous quarterly performance
Result highlights
- ACC put up an excellent performance for the fourth quarter clocking a 250% year-on-year (y-o-y) growth in the profit after tax (PAT) at Rs329 crore, ahead of our estimates.
- The top line grew by a healthy 51% year on year (yoy) to Rs1,619 crore on the back of a 42% y-o-y growth in the realisations and a 7% y-o-y growth in the volumes.
- The operating expenditure grew by 25.8% yoy to Rs1,151 crore driven by a 12.7% y-o-y rise in the power & fuel costs and a 19.7% rise in the freight costs.
- On account of the higher realisation growth, the operating profit witnessed a 197.5% y-o-y growth to Rs468 crore. The operating profit margin expanded by 1,420 basis points yoy and by 230 basis points quarter on quarter (qoq) to 28.9%.
- Consequently, the earnings before interest, tax, depreciation and amortisation (EBITDA) per tonne jumped three-fold to Rs975 per tonne on account of the company's high leverage to the cement prices.
- The interest cost fell by 80.1% yoy to Rs4.1 crore whereas the depreciation provision stood higher at Rs77.1 crore.
- The pre-exceptional profit stood at Rs329 crore translating into a y-o-y growth of 249.9%. Adjusting for the extraordinary items, the PAT was up 86.1% yoy at Rs358 crore.
- The company has declared a dividend of Rs15 per share for the year ending December 2006 implying a dividend payout of 27%.
- ACC is adding capacity of 0.9 million metric tonne (MMT) at Lakheri along with the setting up of a 25MW captive power plant (CPP). The company is also expanding the capacities at various other locations post which, its total capacity is expected to increase by 3.19MMT to 23.1MMT by December 2007. The company is also adding 1.18MMT capacity coupled with a 30MW CPP at its Bargah Cement unit (expected to be commissioned in the first quarter of CY2008) and is putting up a fresh 3MMT plant at Wadi, which is expected to be commissioned in the next 24-30 months.
- At the current market price of Rs1,100, the stock is discounting its CY2007E earnings by 15.7x and EBITDA by 9.2x. On an enterprise value (EV) per tonne basis, the stock is trading at USD198 per tonne. We believe the stock is very attractive considering its leverage to the cement prices, better cost structure as well as its improving financials. We thus maintain out Buy recommendation on the stock with a price target of Rs1,250.
Ashok Leyland
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs56
Current market price: Rs49.8
Spillover boosts January numbers
Key points
- Ashok Leyland has reported a magnificent growth in its January numbers. The higher than expected growth was a result of the spillover of sales from the previous month due to the implementation of the value-added tax in Tamil Nadu w.e.f January 1, 2007.
- The company reported an overall growth of 67% year on year (yoy) as its vehicle sales jumped to 9,650 units in the month. Its domestic sales grew by 62% while its exports rose by a whopping 228%.
- The medium-duty vehicle (MDV) goods segment (which accounts for the bulk of the company's sales) turned a brilliant performance, reporting a growth of 69.6% yoy with sales of 7,870 vehicles. The MDV passenger segment, where the company has been losing market share, is beginning to show signs of improvement grew by 56% in January.
- In January the sales of its light commercial vehicles stood at 28 units, marking a growth of 16.7% yoy.
- Looking at the year-till-date numbers, the company has reported an overall growth of 41.7% with the MDV goods segment growing by 61% yoy and the MDV passenger segment marking a decline of 4.7%.
w At the current market price of Rs49.8, the stock quotes at FY2008E PER of 12.4x and at an EV/ EBIDTA of 6.9x. We maintain our Buy recommendation on the stock with a price target of Rs56.
Sundaram Clayton
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,550
Current market price: Rs1,202
Higher efficiencies improve margins
Result highlights
- Sundaram Clayton Ltd's (SCL) Q3FY2007 results are in line with our expectations. The net sales for the quarter marked a growth of 29.5% to Rs204.7 crore, in line with our expectations. Both the air brakes and die-casting divisions performed well during the quarter registering revenue growth of 17% and 52% respectively.
- The operating margins have improved by 90 basis points year on year (yoy) to 15.6% because of increasing operating efficiencies. Consequently, the operating profit rose by 37.4% to Rs31.9 crore for the quarter.
- The other income was higher due to the accounting of the dividend income; while the interest cost has also risen due to the higher capital expenditure incurred by the company. Consequently, the profit after tax (PAT) for the quarter was up 17.3% at Rs24 crore.
- Due to a lower dividend income, and higher interest costs in the year-till-date period, we are lowering our FY2007 PAT estimates by 6%. However, we are very positive on the long-term prospectsof the company considering the continuing buoyancy in the commercial vehicle (CV) industry, strong outsourcing potential and a huge opportunity in anti-lock braking system (ABS).
- The value of SCL's total investment in the group companies works out to Rs660 per share. While computing SCL's value, we have assumed a 75% discount to the company's total investment. After adjusting for the same, the SCL stock is currently trading at 14.1x its stand-alone FY2008E earnings and at 11.5x its stand-alone FY2008E earnings before interest, depreciation, tax and amortisation (EBIDTA). We maintain our Buy recommendation on the stock with a price target of Rs1,550.