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Tuesday, July 24, 2007

RESEARCH CALLS: Sagar Cements, KPIT


Sagar Cements, a small-cap cement company, manufactures clinker and ordinary Portland cement, which is marketed under the Sagar Priya brand. It has three plants in Andhra Pradesh. The company has planned a capex of Rs 300 crore, which would be part financed by a debt of $ 19 million sourced from the World Bank.

This expansion will help the company to increase its clinker capacity from 0.65 tonne to 2.5 tonne in order to serve growing demand for cement in the southern states. The new capacity is expected to go onstream by June 2008.

The company achieved a top line growth of 48 per cent in FY07 over the past fiscal, while its bottom line grew by more than seven fold for the same period. At the current market price of Rs 161.9, the stock trades at 6.7 times its FY07 earnings.

Recommendation: Buy
Current market price: Rs 161.90
Target price: Rs 192
Upside (%): 18.50
Broking firm: ULJK Securities


KPIT Cummins
Recommendation: Outperformer
Current market price: Rs 137.05
Target price: Rs 172
Upside (%): 25.50
Broking firm: Prabhudas Lilladher


KPIT Cummins delivered good first quarter FY08 numbers. Its top line grew by 3.8 per cent q-o-q to Rs 135.3 crore, operating profit was also up by 4.4 per cent q-o-q.

However net profit declined by 10 per cent q-o-q largely due to low other income and high depreciation. Its BPO arm has entered into an arrangement with Cummins to provide finance and accounting services to its entities worldwide.

The management expects to generate revenues of $55 million (approximately Rs 223 crore) from this arrangement. The company’s offshore revenue mix has been increasing consistently from 32 per cent in FY2005, which drives its profitability higher.

In Q1 FY08, this was pegged at 51.3 per cent, as compared to 50.1 per cent during the previous quarter. At the recommendation price of Rs 135, the stock traded at 16 and 11.5 times its estimated FY08 and FY09 earnings, respectively.

ASHOK LEYLAND
Recommendation: Hold
Current market price: Rs 39.05
Target price: Rs 44
Upside (%): 12.8
Broking firm: Angel Broking


Although Ashok Leyland witnessed a decline in its volumes by 30.5 per cent to 20,121 vehicles in first quarter of FY08 due to higher interest rates. However, it strengthened its presence in the bus segment, where its sales volume grew by 6.6 per cent y-o-y.

Further, its realisations improved by 6.8 per cent y-o-y, which helped it grow its top line to Rs 1621 crore in Q1FY08 from 1424 crore for the same period last fiscal. Ashok Leyland’s operating margins improved by 250 basis points y-o-y on account of lower raw material cost to sales ratio.

Its net profit grew by 29 per cent to Rs 88.2 crore, and its net profit margin was higher at 5.4 per cent as against 4.7 per cent in Q1FY07. At Rs 39, the stock trades at a price earning multiple of 11.7 times and 10 times its estimated FY08 and FY09 earnings, respectively.

NIIT
Recommendation: Buy
Current market price: Rs 1142
Target price: Rs 1431
Upside (%): 25.3
Broking firm: Emkay Research


During FY07, the enrolments for NIIT’s GNIIT programme recorded a growth of 112% y-o-y. Further, it hiked the fees for the GNIIT programme by 24 per cent in June 2006, and another 15 per cent in June 2007, a positive impact of which could be seen in its numbers by the second quarter of FY08.

Emkay expects the capacity utilisation for NIIT from its individual training business to increase from 54 per cent in FY07 to 65 per cent by FY09. Emkay expects NIIT’s revenues to post a compounded annual growth of 29 per cent over FY07-FY09. Its operating margins too are expected to expand by 570 basis points to 15.4 per cent by FY09.

This would translate into a 72 per cent CAGR in its earning per share over FY07-FY09. For its estimated FY08 and FY09 earning per share of Rs 48 and Rs 74.4 respectively, at the recommendation price of Rs 1135 the stock was available at a price-earning ratio of 23.7 times (FY08E) and 15.3 times (FY09E)