Deepak Fertilizers, Banking Sector Update, GPIL, Himadri, Exide Industries

Deepak Fertilizers, Banking Sector Update, GPIL, Himadri, Exide Industries

Deepak Fertilisers and Petrochemicals - Q2FY08 Results Update 25Oct07

Deepak Fertilisers and Petrochemicals - Q2FY08 Results Update 25Oct07

Deepak Fertilizers, Simplex Infra, Syndicate Bank

Deepak Fertilizers, Simplex Infra, Syndicate Bank

Deepak Fertilizers, Opto Circuits

Deepak Fertilizers, Opto Circuits

Deepak Fertilizers

Deepak Fertilizers

Emkay - Deepak Fertilizers, SREI Infrastructure, Tata Chemicals

Emkay - Deepak Fertilizers, SREI Infrastructure, Tata Chemicals

Emkay - Deepak Fertilizers

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Edelweiss Reports

Bombay Rayon

Deepak Fertilizers

Dredging Corporation

Essel Propack

PVR

Sanghvi Motors

SKP Research - Deepak Fertilizers

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Stocks you can pick up this week

Marico
Research: India Infoline
Ratings: Outperformer
CMP: Rs 552 (Face Value Rs 10)
12-Month Price Target: NA

Marico has acquired a hair cream and hair gel brand – HairCode from Egypt’s Pyramids Group for an undisclosed consideration. The Pyramids group has agreed for a non-compete agreement in hair creams and hair gels segments with Marico. The brand enjoys ~23% market share of the pre- and post-wash hair care market in Egypt. In September ‘06, Marico had acquired a hair care brand called Fiancee, owned by the Ready Group of Egypt.

With both these acquisitions, Marico has now achieved a dominant market share of ~50% in the Rs1.7-bn pre- and post-wash hair care market in Egypt. Both these acquisitions are expected to contribute ~Rs 95 crore plus to Marico’s consolidated turnover in FY08.

Omax Auto
Research: Angel Broking
Ratings: Buy
CMP: Rs 86 (Face Value Rs 10)
12-Month Price Target: Rs 105

OMAX has been transforming itself from a strong player in the Indian auto component industry to a global manufacturer of sheet metal component. OMAX is aggressively targeting overseas market and has export orders of Rs 150 crore, which is to be executed in the next three years. The company secured orders from Tenneco, Supersporx, Lkea, Delphi, Cummins and Piaggio for supply of various components. OMAX’s export revenue is to grow at a CAGR of around 45% between FY06-FY09 from Rs 26.6 crore to Rs 80 crore.

It’s OPM was under pressure largely due to increase in raw material, power and staff costs. The margin is expected to expand further in the medium term on account of various cost control measures initiated by the company. At the current market price, the stock is trading at a P/E of 8.3x FY07E earning and 6.8x FY08E earnings. The stock has corrected very sharply in the recent past and appears very attractive at EV/EBIDTA of 4.4x and PEG ratio of 0.8 on FY07E earnings (less than 1 PEG ratio indicates that the stock is trading at a discount) and has potential upside of around 20%.

Asian Paints
Research: Edelweiss
Ratings: Buy
CMP: Rs 715 (Face Value Rs 10)
12-Month Price Target: NA

Asian Paints’ EBITDA margins to increase from 13.0% in FY06 to 14.7% in FY09 due to shift towards higher margin products, favourable raw material outlook, and operational leverage advantages. The recent decline in crude oil prices is likely to result in improved gross margins, as the impact of inflation has been already passed on through price hikes. The international operations, in which Asian Paints lacks pricing power, are expected to benefit more.

The product mix is expected to shift in favour of higher margin products such as emulsions and exterior paints, as they will grow at a higher rate. Operational leverage advantage from scaling up is expected to boost margins further. At the current market price, Asian Paints trades at 25.1 times FY07E earnings and 20.1 times FY08E earnings. EV/EBITDA for the stock is 14.8 and 11.9 times on FY07E and FY08E, respectively. An EPS growth of ~25% accompanied by ROE of ~30% makes it an attractive stock.

Deepak Fertilisers
Research: Anand Rathi
Ratings: Buy
CMP: Rs 87 (Face Value Rs 10)
12-Month Price Target: Rs 120

DFPL is the only domestic producer of isopropyl alcohol (IPA), which until recently was fully imported to cater to domestic demand. IPA will significantly add to the revenues and is likely to contribute around 20% of FY09 revenues. Real estate unlocking further de-risks the revenue model. DFPL has been fractionally unlocking large land bank it has at prime locations in Pune.

Ishanya, a specialty mall, is a unique venture by the company and will add some stability to its revenue base. Availability of gas is to ease raw-material pressures from FY08. Margins have been under pressure due to non availability of natural gas in required quantities, which is likely to ease post the completion of Dahej-Uran gas pipeline by H2FY08, leading to resurrection of margins enjoyed earlier. At the current market price, stock is trading at a P/E of 8.1x and 6.1x and EV/EBITDA of 3.8x and 2.8x FY07 and FY08 earnings respectively. Anand Rathi feels the fruits of the capex underway currently will be realised from FY08 onwards.

Raipur Alloys & Steel
Research: Networth Stock Broking
Ratings: Buy
CMP: Rs 133 (Face Value Rs 10)
12-Month Price Target: Rs 200

Raipur Alloys and Steel manufactures 2,10,000 MT of sponge iron and 1,40,000 MT of steel ingots with captive iron ore and power. It is undergoing a structural change with a merger of group companies. Moreover, aggressive plans for backward and forward integration will enhance operating margins going forward. At the current market price, the stock is trading at a P/E of 9.3x FY07E and 5.6x FY08E and EV/ EBITDA of 7.4x FY07E and 5.1x FY08E on a consolidated basis. Networth Stock Broking recommends a ‘Buy’ with a one-year price target of Rs.200, considering P/E of 8x and EV/EBITDA of 6.5x.


Omax Auto
Research: Angel Broking
Ratings: Buy
CMP: Rs 86 (Face Value Rs 10)
12-Month Price Target: Rs 105

OMAX has been transforming itself from a strong player in the Indian auto component industry to a global manufacturer of sheet metal component. OMAX is aggressively targeting overseas market and has export orders of Rs 150 crore, which is to be executed in the next three years. The company secured orders from Tenneco, Supersporx, Lkea, Delphi, Cummins and Piaggio for supply of various components. OMAX’s export revenue is to grow at a CAGR of around 45% between FY06-FY09 from Rs 26.6 crore to Rs 80 crore.

It’s OPM was under pressure largely due to increase in raw material, power and staff costs. The margin is expected to expand further in the medium term on account of various cost control measures initiated by the company. At the current market price, the stock is trading at a P/E of 8.3x FY07E earning and 6.8x FY08E earnings. The stock has corrected very sharply in the recent past and appears very attractive at EV/EBIDTA of 4.4x and PEG ratio of 0.8 on FY07E earnings (less than 1 PEG ratio indicates that the stock is trading at a discount) and has potential upside of around 20%.

NRB Bearings
Research: Buy
Ratings: ULJK Securities
CMP: Rs 493 (Face Value Rs 10)
12-Month Price Target: Rs 551

NRB Bearings with an 80% market share, growing at a CAGR of 18.15% in the last five years, is expected to grow further more on account of surging demand from OEMs and increase in exports. It is undertaking an expansion programme of Rs 100 crore, which is to be completed by end-‘07. It’s expanding its roller bearing segment from 2.045 crore to 2.615 crore, and needle roller from 272.9 crore to 350 crore.

NRB is also setting up a subsidiary company at Thailand for manufacturing activities, and to cater to the growing south-east Asian markets, which will all together help NRB to strenghthen its overseas presence. NRB also enjoys highest margins in the industry despite huge competition and price pressure, from peer companies and OEMs. The stock has a strong potential and to be an outperformer.

Asian Paints
Research: Edelweiss
Ratings: Buy
CMP: Rs 715 (Face Value Rs 10)
12-Month Price Target: NA

Asian Paints’ EBITDA margins to increase from 13.0% in FY06 to 14.7% in FY09 due to shift towards higher margin products, favourable raw material outlook, and operational leverage advantages. The recent decline in crude oil prices is likely to result in improved gross margins, as the impact of inflation has been already passed on through price hikes. The international operations, in which Asian Paints lacks pricing power, are expected to benefit more.

The product mix is expected to shift in favour of higher margin products such as emulsions and exterior paints, as they will grow at a higher rate. Operational leverage advantage from scaling up is expected to boost margins further. At the current market price, Asian Paints trades at 25.1 times FY07E earnings and 20.1 times FY08E earnings. EV/EBITDA for the stock is 14.8 and 11.9 times on FY07E and FY08E, respectively. An EPS growth of ~25% accompanied by ROE of ~30% makes it an attractive stock.

Various Research Calls

ABG Shipyard

Anand Rathi Securities has given a ‘buy’ recommendation on ABG Shipyard with a target price of Rs 320. The company had a healthy order book of Rs 2,360 crore as on November 15, 2006.

This is the highest amongst the private sector shipyards in India. These orders are expected to be executed by the end of FY09. The order book is expected to continue to remain strong in the coming years. ABG Shipyard’s new facility at Dahej is expected to be commissioned in FY09.

The facility will consist of two dry docks capable of accommodating eight bulk carriers up to a maximum weight of 1,20,000 Dead Weight Tonne (DWT). The closure of orders for the facility are expected to begin in FY08.The company is also expected to leverage this facility to build jack up rigs as there is demand in E&P activities worldwide.

The company is expected to operate at sustained operating margins of 28-30 per cent (including subsidy) in the future. This is on account of the company’s raw material policy, state of the art technology and repeat orders.

The government has initiated measures to promote the shipyard industry and make it internationally competitive. The government’s attitude is expected to remain favourable towards the industry.

Going forward ABG is likely to show a robust growth. At the current price of Rs 224, the stock trades at 6.2 times its expected FY08 earnings.

At the target price of Rs 320, the stock would be trading at a P/E of 8.8 times its expected FY08 earnings, thus providing an upside potential of 40 per cent from current levels.

ICICI Bank

Edelweiss Securities has given ‘accumulate’ rating on ICICI Bank on the back of the merger with Sangli Bank.

The merger will be of strategic benefit to ICICI Bank for increasing its presence in semi urban and rural areas and for aggressively embarking on its rural banking strategy as a key growth driver going forward. The deal valuation seems slightly on the higher side considering Sangli Bank’s ailing financial condition.

The swap ratio agreed upon by both the banks is 100 shares of ICICI Bank for every 925 shares held of Sangli Bank, valuing the deal at around Rs 300 crore. Consequently, 34 lakh additional shares will be issued by ICICI Bank, diluting its equity capital by 0.4 per cent.

This implies deal valuation at 3.7 times book value of Sangli Bank with each of its branch being valued, on an average, at Rs 1.53 crore. Sangli Bank’s branch network is primarily concentrated in the interiors of Maharashtra.

ICICI Bank will leverage on this wide rural network to distribute its rural and retail loan products and grow the asset base and productivity at Sangli Bank. The network in metros and urban areas will be tapped to garner retail low-cost deposits.

The proposed merger is not likely to have any material impact on the financials of ICICI Bank in the near term. The effect of merger on ICICI Bank’s earnings, book value, and asset size will be less than 1 per cent.

ICICI Bank, with adequate capital at its disposal, will be able to extract full potential of Sangli Bank’s distribution network to push its rural and retail products and possibly turnaround Sangli Bank.

Everest Kanto Cylinder

HDFC Securities has given a ‘buy’ recommendation on Everest Kanto Cylinder with a price target of Rs 970. The company is the market leader in high-pressure gas cylinders with over 90 per cent market share in CNG cylinders in India. The Supreme Court mandate for 28 cities to shift to CNG will benefit the company to a great extent.

Till date, only 15 cities have shifted to CNG, leaving ample scope for the remaining 13 cities. CNG consumption in Mumbai has risen over 374 per cent over the past three years. The demand for CNG cylinders has been growing exponentially at over 40 per cent per annum for the last three years.

The linking of additional cities through CNG pipeline will enhance the market for ONGC cylinders by over 3 lakh cylinder per annum, from 1.78 lakh sold in FY06. The company’s manufacturing facility at Dubai caters to the demand for CNG cylinders in other countries like Pakistan, Iran, CIS and Egypt. Everest Kanto enjoys economies of scale and hence is cost competitive compared to its peers.

On completion of expansion programs, Everest Kanto will become the second largest in the world next to Faber Industries, Italy. The topline is expected to grow at a CAGR of 43 per cent and the bottomline, at a CAGR of 59 per cent over the next three years.

Deepak Fertilizer

Anand Rathi Securities has recommended a ‘buy’ on Deepak Fertilizers and Petrochemicals Corporation with a price target of Rs 120. The stock’s current price is around Rs 78. The company remains the only domestic producer of isopropylalcohol (IPA), which until recently was fully imported to cater to domestic demand.

IPA is expected to add significantly to contribute around 20 per cent to FY09 revenues. The supply deficit of natural gas has hit the division hard, with capacity utilization lying low at around 24.5 per cent for FY06. This has also forced the company to use higher cost naphtha for reducing steam consequently causing a serious dent on the margins of the company.

However, the completion of the Dahej-Uran gas pipeline by H2FY08 could lead to resurrection of margins enjoyed earlier. The company has been fractionally unlocking large land bank it has at prime locations in Pune and Ishanya, a specialty mall, which is a unique venture by the company are expected to add some stability to its revenue base.

The stock is trading at P/E of 8.5 times and 6.4 times and EV/EBITDA of 3.8 times and 2.8 times for FY07 and FY08 earnings respectively.