BASF India
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs300
Current market price: Rs273
Q4FY2007 results: First-cut analysis
Result highlights
- BASF reported decent results for the fourth quarter of FY2007. Its top line grew by 10.7% to Rs160.7 crore. There was an extraordinary item pertaining to a voluntary retirement scheme (VRS) expenditure of Rs3.92 crore during the quarter. Adjusting for the same, the operating profit margin (OPM) grew by 40 basis points to 7.6% and the profits grew by 52.4% to Rs7.6 crore.
- Since BASF's business is seasonal in nature, it is more prudent to look at the yearly numbers of the company. Further, since the company transferred its plastic business to a subsidiary called BASF Polyurethanes India, it makes more sense to look at the consolidated numbers reported by the company. Its consolidated sales rose by 24% to Rs846.6 crore in FY2007. The OPM after adjusting for the VRS expenditures stood at 11.5% against 13.4% in FY2006. The margins were under pressure due to a high raw material cost, which rose from 50.5% in FY2006 to 53.5% in FY2007 as a percentage of sales. The net profit grew by 20.8% to Rs57.1 crore. For the current year, the exports rose by a strong 27% to Rs32 crore.
- All the segments of the company showed considerable improvement, with the agricultural product division reporting a growth of 16.1% mainly due to higher realisations and rationalisation measures undertaken during the year. The margins appear to be down because of the extraordinary item of the VRS expenditure, which was related to this segment. Adjusting for the same, the profit before interest and tax margin stood at 19.4% as against 17.5% in FY2006. The performance product division grew by 19.3% as the capacity utilisation in all the segments of the division improved during the year. The plastic division's top line grew by 44.9% during the year; its margin however declined to 6.6% from 9.6% in the previous year.
- The company has declared a dividend of 70% for the current fiscal. We are pretty positive on the prospects of the company considering the ongoing consumption boom in its user sectors, eg white goods, home furnishings, paper, construction and automobiles. We believe that this strong growth momentum in the user segments is sustainable, making the prospects very bright for a company like BASF. To cater to the resulting demand, BASF is also expanding its capacities in key products like expandable polystyrene and polymer dispersion, which are used in user segments like white goods and paper. Further, it also has access to the wide product portfolio of its parent company in various segments. Considering its growth prospects, we believe the company is trading at attractive valuations of 13.3x FY2007 earnings and 9.5x FY2008E earnings. We maintain our Buy recommendation on the stock with a price target of Rs300.
Television Eighteen India
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs967
Current market price: Rs813
Price target revised to Rs967
Result Highlights
- TV18 India (TV-18) reported good results for Q4FY2007 with revenues of Rs80.4 crore and adjusted net profit (pre-ESOP amortisation and extraordinary items) of Rs22.8 crore.
- During the quarter its top line grew by 50.2% and bottom line increased by 23.7% on a year-on-year (y-o-y) basis. Sequentially, its revenues increased by 24.1% whereas its net profit grew by 19.7%. However, the results are not strictly comparable with those of Q4FY2006, as the numbers of "Awaaz" were included (post-restructuring) in the reported results from Q2FY2007 onwards.
- The operating profit grew by a meagre 10.8% year on year (yoy) to Rs31.7 crore. The growth in the bottom line was lower than that in the top line on account of a drop in the operating profit margin (OPM). The OPM dropped by 1,400 basis points yoy and 590 basis points quarter on quarter (qoq). It declined because of the lower profitability of "Awaaz", which is still at a nascent stage, and the operating loss of Web-18, which is building up new growth avenues and investing in enhancing its existing offerings.
- With the depreciation charge increasing by 53% to Rs5.5 crore, the interest cost more than doubling to Rs2.0 crore and the tax outgo decreasing, the net profit (pre-ESOP charge) grew by 23.7% yoy in Q4FY2007.
- After acquiring CRISIL Market Wire and announcing its foray in the booming stock broking business with Ambit Capital and Centurion Bank of Punjab in Q3FY2007, TV18 acquired a majority stake in Bigtree Entertainment, a movie and entertainment ticketing company, in Q4FY2007. It also entered into a 50:50 joint venture with the business process outsourcing (BPO) division of Infosys Technologies to provide media process outsourcing services under the brand "Source 18".
- TV-18 raised Rs200 crore during the quarter through a qualified institutional placement (QIP) to fund its organic and inorganic growth plans in the media, television and Internet space.
- At the current market price of Rs813, the stock quotes at 36.4x its FY2009E earnings per share (EPS) of Rs22.3 and 20.9x FY2009 enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA). We maintain our Buy recommendation on the stock with our some-of-the-parts (SOTP) price target of Rs967 per share.
MUTUAL FUNDS: WHAT'S IN--WHAT'S OUT
Fund Analysis: June 2007
An analysis has been undertaken on equity and mid-cap funds' portfolios, indicating the favourite picks of fund managers
for the month of May 2007. Equity funds comprise of all diversified, index, sector and tax planning funds, whereas midcap funds include a universe of 18 funds such as Reliance Growth, Franklin India Prima Fund, HDFC Capital Builder, Birla Mid-cap Fund etc.
MUTUAL FUND: INDUSTRY UPDATE
Growth in equity AUMs overtakes the rise in the market
The AUM for equity funds rose by 5.9% to Rs156,577 crore in May 2007. The rise in the AUM was above the market movement of 4.8%.