Nicholas Piramal India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs393
Current market price: Rs265
Annual report review
From being a formulation player in the domestic market, NIPL has emerged as a leader in the custom manufacturing space. Through strategic acquisitions and expansions, the company has achieved a good growth. Simultaneously, it has also maintained its focus on building its innovative pipeline of molecules. The company's strength in the R&D field is vindicated through its recent drug development deal with global pharma major, Eli Lilly.
Through steady growth in the branded formulation segment, ramp-up in the custom manufacturing contracts, the expansion of the path lab business and a ramp-up in the capacity utilisation at Morpeth and NPIL UK, NIPL is well-positioned to exhibit strong growth both in the domestic market and internationally. Further, with the operations of Avecia, turning profitable and the Rhodia business having been shifted to India, the margins of the company should show improvement.
Considering the strong revenue flows and enhanced profitability picture for the coming years, we remain positive on the company. At the current market price of Rs265, NIPL is quoting at 15.7x estimated FY2008 earnings. We maintain our Buy recommendation on the stock with a price target of Rs393.
Shree Cement
Cluster: Cannonball
Recommendation: Buy
Price target: Rs1,500
Current market price: Rs1,187
Price target revised to Rs1,500
Result highlights
- Shree Cement's top line grew by a robust 68% year on year (yoy) to Rs378 crore in Q4FY2007. The growth was achieved on the back of a robust 36% growth in volumes and a 24% rise in realisations over last year.
- The operating expenditure grew by 67% yoy to Rs226.97 crore on account of higher power& fuel expenditure and employee cost.
- Consequently, the operating profit grew by 69% yoy to Rs151 crore whereas the operating profit margin (OPM) stood flat at 40% yoy.
- The company claimed an additional depreciation of Rs114 crore on its new unit (the fourth one) at Ras in the fourth quarter. This resulted in an overall depreciation cost of Rs134 crore. The interest cost reduced from Rs2.3 crore in Q4FY2006 to Rs1.64 crore in the quarter.
- The tax provision remained very low at Rs0.3 crore, thanks to a higher depreciation provision. On the back of high depreciation provision, the net profit remained low at Rs24 crore.
- With additional capacity of 4MMT coming up over the next two years, Shree Cement will witness a robust year-on-year (y-o-y) volume growth of 19% in FY2008 and of 26% in FY2009.
- In view of the high volume growth and strict control measures, we expect the company's profits to grow by 22% yoy in FY2008 and by 9% in FY2009, resulting in a compounded annual growth of 15% over FY2007-09.
- At the current market price of Rs1,187, the stock is trading at 9.4x its FY2008 earnings per share (EPS) and 8.7x its FY2009 EPS. On an enterprise value (EV)/per tonne basis the stock trades at USD84. Keeping our bullish view on the stock, we maintain our Buy recommendation with a price target of Rs1,500 per share.