KEI Industries

KEI Industries

KEI Industries, Rajesh Exports, Edelweiss Capital, TV Today

KEI Industries, Rajesh Exports, Edelweiss Capital, TV Today

KEI Industries

KEI Industries

PVR, Gammon Infrastructure, ENIL, HCC, Voltas, ACE, KEI Industries

PVR, Gammon Infrastructure, ENIL, HCC, Voltas, ACE, KEI Industries

KEI Industries

KEI Industries

Prabhudas Lilladher - Tata Motors, KEI Industries, JB Chemicals

Tata Motors

KEI Industries

JB Chemicals

Sharekhan Investor's Eye dated May 21, 2007

KEI Industries
Cluster: Ugly Ducking
Recommendation: Buy
Price target: Rs140
Current market price: Rs75

Q4FY2007 results: First-cut analysis

Result highlights

• KEI Industries' (KEI) net sales grew by 123% to Rs207.4 crore in Q4FY2007, in line with our expectations. However the net profit grew by 37.3% to Rs11.4 crore and the growth was below our expectations on account of rising raw material prices and a higher interest cost.
• The power cable segment's revenues grew by a robust 125% to Rs208 crore while the stainless steel wire segment's revenues grew by 97% to Rs25 crore.
• The operating profit margin (OPM) for the quarter declined by 490 basis points to 12.1% due to a rise in raw material prices. The raw material cost as a percentage of sales increased to 76.6% from 63.9% in Q4FY2006.
• The operating profit for the quarter grew by 59% to Rs25.1 crore.
• The interest expense for the quarter increased by 148% to Rs7.5 crore due to a rise in the interest rates and also because the company availed of higher working capital loans since the business is growing at a rapid pace. The depreciation cost for the quarter increased by 31% to Rs1.2 crore.
• For the full year, the net sales grew by 99% to Rs681.5 crore and the net profit grew by 54.3% to Rs40.1 crore.
• At the current market price of Rs75, the stock is quoting at around 11x its FY2007 earnings per share and 6.6x its FY2007 enterprise value/earnings before interest, depreciation, tax and amortisation. We maintain our Buy recommendation on the stock with a price target of Rs140. We shall be upgrading our FY2008 earnings estimates after analysing the annual report of the company. Watch this space.

Allahabad Bank
Cluster: Cannonball
Recommendation: Buy
Price target: Rs101
Current market price: Rs89

Growth at the cost of margins

Result highlights

• Allahabad Bank's net profit for Q4FY2007 declined by 16.5% year on year (yoy) to Rs125.7 crore. The same was lower than our estimate of Rs143.8 crore mainly due to a higher than expected tax liability of the bank during the quarter.
• During the quarter the bank's adjusted net interest income (NII) marginally declined by 1% yoy. Adjustment has been made for the one-time cash reserve ratio (CRR) interest income of Rs31 crore received during the quarter. The net interest margin (NIM) adjusted for the one-off item has decreased on year-on-year (y-o-y) and sequential bases. A significant increase in the cost of funds unmatched by a commensurate increase in the asset yields has resulted in a 73-basis-point
  y-o-y decline and a four-basis-point sequential decline in the NIM. The bank's aggressive loan growth policy funded by high-cost bulk deposits is taking a huge toll on its margins.
• The bank had booked Rs49.5 crore (credit balances in sundry accounts) as other income in FY2006. However, on Reserve Bank of India's (RBI) direction it reversed the entry during this quarter. Thus adjusted for the same the non-interest income was up by 19.9% yoy to Rs174.7 crore.
• The operating performance was not exciting despite a sedate 6.3% y-o-y rise in the operating expenses. The operating profit was up only 2.2% yoy with the core operating profit (excluding treasury) up by 9.2% on a y-o-y basis.
• Although provisions and contingencies declined by 23.4% yoy, yet tax provisions increased by 395% during the quarter. This resulted in a 16.5% y-o-y decline in the profit after tax (PAT) as against a 17.6% y-o-y rise at the profit before tax level.
• At the current market price of Rs89, the stock is quoting at 4.7x its FY2008E earnings per share, 2.8x pre-provision profits and 0.9x book value. The bank is available at attractive valuations compared with its peers, given its low price to book multiple and high return on equity. We maintain our Buy call on the stock with a price target of Rs101.

Bajaj Auto
Cluster: Apple Green
Recommendation: Buy
Price target: Rs2,500
Current market price: Rs2,248

Bruised by demerger, disclosures

Result highlights

• The Q4FY2007 results of Bajaj Auto Ltd (BAL) are in line with our expectations. The net sales grew by 6.8% to Rs2,313.6 crore.
• The operating profit of the company declined by 23.2% to Rs326.3 crore as the operating profit margin (OPM) declined by 550 basis points to 14.1%. However, the margins are stable on a sequential basis. The net profit before extraordinary items for the quarter declined by 3.9% to Rs320.75 crore.
• The company announced its long pending demerger, through which two new companies would be created, namely Bajaj Auto Ltd (BAL; new), comprising the manufacturing business, and Bajaj Finserv Ltd (BFL), comprising the insurance, auto finance and wind power businesses. The existing company would be renamed as Bajaj Holdings and Investment Ltd (BHIL). The shareholders would hold 70% in the new companies directly, while 30% of their holding would be routed through the holding company BHIL. We view this process as a negative, as the listed holding company would suffer from a holding company discount.
• For every one share held in the existing BAL (future BHIL), the shareholders would continue to hold one share in BHIL, get one share of the new BAL of Rs10 each and one share of BFL of Rs5 each.
• In another disclosure, BAL has also declared that Allianz has a call option to raise its stake in the life insurance business to 74% from the current 26% at a nominal pre-determined price till 2016. In all likelihood, the foreign direct investment (FDI) norms for insurance are expected to get relaxed till then and hence BAL's stake is likely to get reduced.
• We are downgrading our sum-of-the-parts (SOTP) target on BAL to Rs2,500, valuing the new BAL at Rs1,254 per share and BFL at Rs449 per share. Taking into account the cash and investment portfolio of BAL and also BHIL's stake in the two new companies, we value BHIL at Rs835. We maintain our Buy call on the stock.

Sundaram Clayton
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,350
Current market price: Rs941

Spinning off its brake division

Result highlights

• Sundaram Clayton has finally decided to spin off its brake division into a subsidiary. The new entity will be called WABCO-TVS and will be listed on the stock exchange.
• We believe that the demerger would help both the companies to focus on their core areas. WABCO would control the brake division while the TVS group would run the casting division. The higher control of WABCO in the brake division is in line with WABCO's strategy and may open new outsourcing opportunities for the brakes company as WABCO is scouting for a low-cost producer of brakes.
• For FY2008, Sundaram Clayton has raised its capex plans to Rs200 crore, out of which Rs90 crore would be spent on the brake business and Rs110 crore on the die-casting business.
• We are introducing our FY2009 estimates for Sundaram Clayton. We expect the company to record a revenue growth of 17% and a profit growth of 26% during the year. We expect its earnings to reach Rs74.5 in FY2009.

Sun Pharmaceutical Industries
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs1,297
Current market price: Rs1,064

Q4 first-cut analysis and acquisition highlights

Result highlights

• The consolidated net sales of Sun Pharmaceutical Industries (Sun Pharma) grew by 33.8% year on year (yoy) to Rs544.2 crore in Q4FY2007. The strong growth was driven by an increase of 43.4% in the domestic business and a 22.4% growth in the exports.
• Its US subsidiary, Caraco Pharma (Caraco), continued its growth momentum. Caraco's sales grew by 32% yoy to $32.7 million in Q4FY2007 and by 41% to $117 million in FY2007.
• Sun Pharma's operating profit margin (OPM) expanded by 610 basis points on a lower base to 28.3%, resulting in a 70% spike in its operating profit to Rs154.5 crore.
• Sun Pharma's other income was higher by 24.2% to Rs94.2 crore, which was more than double of our estimate of Rs42.7 crore for the quarter.
• With an impressive revenue growth in both domestic formulation and export businesses, a 610-basis-point expansion in the OPM and a higher than expected other income, Sun Pharma's net profit for Q4FY2007 stood at Rs212.1 crore, up 48.4% yoy. The net profit was ahead of our estimate of Rs184.4 crore.
• For the full year, the company's sales were up 30% at Rs2,132.1 crore and the OPM expanded by 190 basis points to 31.9%, resulting in a net profit of Rs774.1 crore (up 35%). The full-year net profit was above our expectations of Rs737.2 crore.
• Between Sun Pharma and its US subsidiary Caraco 34 abbreviated new drug applications (ANDAs) are now approved compared with 22 at the end of 2006. A total of 16 ANDAs have been filed during the fourth quarter (eight each by Sun Pharma and Caraco). With this, 77 ANDAs await the approval of the US Food and Drug Administration (USFDA) including seven tentative approvals.
• The company has guided for a conservative 15-18% consolidated revenue growth for FY2008 (which is less than our estimate of a 30% growth) whereas Caraco has guided to a growth of 30% during the year. Sun Pharma expects to maintain the OPM in FY2008.

Sharekhan Investor's Eye dated May 21, 2007

PLIndia - KEI Industries

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Prabhudas Lilladher: Outperformer - KEI Industries

According to the brokerage house, KEI Industries is trading at 9.9x FY07E and 8.1x FY08E earnings estimates at the CMP. Given the recent rise in the stock price and current valuations we revise our rating on the stock to Outperformer with a 12-month price target of Rs.530.

"Both RoE and RoCE are expected to drop sharply in FY08E due to high debt and equity infusion but will bounce back in FY09E once benefits from the new capacity start flowing in."

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Stocks you can pick up this week

Reliance Industries
Research: Enam Securities
Recommendation: Outperformer
CMP: Rs 1,286.25 (Face Value Rs 10)
12-Month Price Target: Rs 1,400

Reliance Industries (RIL) has filed a revised development plan with the Director General of Hydrocarbon (DGH) for the key KG-D6 block. In the amended plan, RIL has sought approval for 80mmscmd of gas production and has proposed proportionate increase in the capex.

Based on independent assessment, RIL expects the P2 (proved + probable) reserves at 11.3 TCF. This represents an almost 100% increase over earlier estimates. The management has not indicated the quantum of P1 reserves as of now, but it is expected to be around 6TCF (as per the filings of Niko Resources- RIL’s JV partner).

The management is likely to share details once the revised plan is approved by DGH. Enam believes the filing of revised development plan for KG-D6 is a significant event and strengthens the outlook on RIL’s new business initiative. Going ahead, improving policy outlook on gas pricing and achievement of project milestones will align RIL’s E&P valuation multiples to its regional peers.

Mangalam Cement
Research: India Infoline
Recommendation: Buy
CMP: Rs 204 (Face Value Rs 10)
12-Month Price Target: Rs 297

Mangalam Cement (MCL) has performed strongly, wiping out its accumulated losses in FY06. The strong demand for cement in the domestic market coupled with firm cement prices is expected to bring rich rewards for the company in the next 18 months. MCL is putting up a 17.5-mw captive power plant, which is expected to go on steam by June ’07.

MCL is also adding 0.5 million tonnes of new cement capacity to take its total production capacity to 2 mt by September ’07. The stock is trading at EV/tonne of $70 of its FY08 capacity of 2 mt. On EV/EBIDTA basis, it is quoting at 3.9 times, while on an EPS basis, it is trading at 5.6 times.

With improvement in the balance sheet and operational efficiencies, India Infoline feels the stock is undervalued and recommends a ‘buy’, with a target of Rs 297 within a year. The target price discounts estimated FY08 earnings by 8.0x and EV/EBIDTA by 5.5x.

KEI Industries
Research: ULJK Securities
Recommendation: Buy
CMP: Rs 361 (Face Value Rs 10)
12-Month Price Target: Rs 403

Kei’s revenue growth is strong for FY07, with an overall sales growth of 85%. Cables sales are expected to grow by 90%, stainless steel wire by 48%, winding flexible and house wire by 80% and others by 25%. Last year, KEI generated revenues worth Rs 23.5 crore through exports, of which Rs 10 crore accrued from the Gulf region.

The company is in the process of integrating backwards by setting up an aluminum properzi and PVC compounding plant, which is likely to be operational in six months at a capex of Rs 7-10 crore. This will strengthen the operating margins by reducing the cost of the company by Rs. 4-5 crore.

KEI plans to undertake a greenfield expansion with capex of Rs 180 crore in Uttaranchal in FY08. With the management’s above plan for capacity expansion and backward integration, KEI is set to enter higher growth orbit. ULJK estimates the fair value of the company at Rs 403 and expects the company will trade at a P/E of 7.9 times within 12 months.

KRBL
Research: BRICS PCG
Recommendation: Buy
CMP: Rs 143 (Face Value Rs 10)
12-Month Price Target: Rs 267

KRBL has posted a revenue growth of 28.4% y-o-y to Rs 230 crore during Q2 FY07 due to better volumes and higher realisations on both domestic and export sales. Higher sales led a 52.5% y-o-y rise in operating profit to Rs 31.46 crore, which expanded the operating margin to 13.8% compared to 11.6% in Q2 FY06.

Net profit stood at Rs 15.12 crore, registering 88% growth. The company plans to launch its own brand of rice bran oil in consumer packs by December ’07. It commissioned a 12.5-mw wind farm in August ‘06 at Dhulia, Maharashtra, and is planning a 3.5-mw power plant in Ghaziabad for captive consumption.

This will lead to power cost savings of around Rs 5 crore each year. BRICS maintains a ‘buy’ call on the scrip, but lowers its target price to Rs 267 from Rs 301 earlier, considering that the company’s integrated milling plant in Dhuri, Punjab commenced operations only in October ’06.

Taj GVK
Research: Pioneer Intermediaries
Recommendation: Buy
CMP: Rs 241 (Face Value Rs 2)
12-Month Price Target: Rs 325

Taj GVK Hotels & Resorts (TAJGVK) reported a jump of 38% in revenues to Rs 57.9 crore in Q2 FY07, on the back of higher average room realisations (ARR) and steady occupancy rates (OR) in Hyderabad. The average ARR across the three hotels of the group in Hyderabad at Rs 7,635 was higher by 41% y-o-y, while ARR in Chandigarh was ~Rs 6,000.

TAJGVK’s capital charges in Q2 FY07 remained stable y-o-y. While the interest burden stood at Rs 1crore in the quarter, against Rs 90 lakh last year, depreciation was static at Rs 3.2 crore. Net profit for the quarter rose to Rs 15.2 crore from Rs 9.4 crore in Q2 FY06 (+62% y-o-y). TAJGVK has commenced work on its 200-room, greenfield property in Begumpet in Hyderabad and is set to commission its 215-room property in Chennai by June ’07.

At the current market price, the stock is trading at a P/E of 19.1x its FY08 EPS of Rs 12.7. Pioneer Intermediaries makes its case for investment on the back of stability and visibility in the company’s earnings over the next 18-24 months, due to absence of significant room addition in Hyderabad and on account of potential upside in revenues from the Chandigarh property.

Spanco Telesystems
Research: Emkay Share
Recommendation: Buy
CMP: Rs 171 (Face Value Rs 10)
12-Month Price Target: Rs 217

Spanco Telesystems announced a robust set of independent results after the demerger of Sparsh — its domestic call centre business. The results are not comparable as Sparsh was not part of company in Q207. The total revenues of the company in Q207 were Rs 121.7 crore.

Telecom network integration business has surprised with total revenue of Rs 113.1 crore in Q207 compared to Rs 20.5 crore in Q206. EBIDTA for the quarter stood at Rs 16.6 crore, up 85% over the preceding quarter and PAT stood at Rs 9 crore. EPS for Q207 and H107 stands at Rs 5.7 and Rs 8.6, respectively.

Emkay Share expects the company’s PAT to be Rs 37.4 crore for FY07 and Rs 66.7 crore for FY08. Emkay values the listed entity at 9x FY07E EPS of Rs 24 or 5.2x FY08E EPS of Rs 42 and put target of Rs 217. Sparsh will be listed in due course with an expected target of Rs 47 (12x FY07E EPS of Rs 4).

Sharekhan Investor's Eye - Oct 16

KEI Industries
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs500
Current market price: Rs361

Power packed performance

Result highlight

• In Q2FY2007 KEI Industries (KEI) recorded a robust growth of 96% year on year (yoy) in its net profit to Rs10.1 crore. The growth was in line with our expectations.
• KEI's net sales for the quarter rose to Rs136.8 crore, up 108.6% yoy and by 37.7% quarter on quarter (qoq). The revenues from the cable segment grew by 105.3% yoy and by 35.6% qoq on the back of expanded capacities.
• The operating profit grew by 142.5% yoy and by 45.2% qoq as the operating profit margin (OPM) expanded by 225 basis points yoy and by 83 basis points qoq.
• However, the pressure on the raw material cost continued as the raw material consumed (RMC)/sales ratio increased by 100 basis points to 70.1% during the quarter.
• The profit before tax (PBT) increased by 137% yoy and by 39.5% qoq. However, the net profit grew by a lower 95.8% yoy and by 33.2% qoq because of a higher effective tax rate.
• KEI is planning a foreign currency convertible bond (FCCB) issue of $35 million (Rs150 crore) to fund its expansion at Uttaranchal. The funds would be raised over the next three to four weeks. The promoters are ready to dilute their stake up to 10% which means the issue may be priced at Rs440-450 per share.
• At the current market price of Rs361, the stock quotes at 7.4x its FY2008E earnings per share (EPS) and 4.5x its enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA). We maintain our Buy recommendation on KEI with a price target of Rs500.
  

Crompton Greaves
Cluster: Apple Green
Recommendation: Buy
Price target: Under review
Current market price: Rs240

Margins under pressure

Result highlight

• Crompton Greaves' revenues grew by 48.6% year on year (yoy) in Q2FY2007 to Rs824.0 crore, beating our expectations. Although all its three divisions reported a strong performance, the power system division led the pack with a revenue growth of 68.7% yoy to Rs449.7 crore. The revenue of the consumer product division grew by 33.3% yoy to Rs225.3 crore and that of the industrial system division grew by 36.8% yoy to Rs226.1 crore.
• The raw material cost/sales ratio spiked to 75.6% in Q2FY2007 from 69.5% in Q2FY2006 largely due to an increase in the prices of the base metals like copper and steel, and the inability of the company to pass on the same to its customers. However, lower employee and other expenses muted the impact of the same. Consequently, the operating profit margin (OPM) reduced by 60 basis points yoy to 8.9% and the operating profit for the quarter grew by 39.1% to Rs73.6 crore.
• The profit before interest and tax margin of the power system division declined by 50 basis points to 8.0% during the period. The high-margin businesses maintained their margins (the consumer product division's margin was up 10 basis points to 9.7% and the industrial system division's margin was up 20 basis points to 13.6%).
• Crompton Greaves moved out of the ambit of the minimum alternate tax (MAT) in Q3FY2006 and hence paid tax at the full tax rate in Q2FY2007 as against at the MAT rate in Q2FY2006. Also, it provided for deferred tax to the tune of Rs7.5 crore. The increased tax provisioning led to a slower growth of 25.0% yoy to Rs40.7 crore in the profit after tax. But the growth was still in line with our expectations.
• The top line and PBT of its Belgium subsidiary, Pauwels, stood at Rs595.38 crore and Rs21.3. crore respectively during the quarter.
• The stand-alone order book grew by 0.6% sequentially and by 20.0% yoy to Rs1,800.0 crore in Q2FY2007. The consolidated order book stood at Rs3,739.0 crore.
• The board has announced a bonus of two shares for every five shares held.
• The stock is currently hovering around our price target of Rs239. Although the top line performance of Crompton Greaves in H12007 has beaten our estimates, yet there is a severe threat to the OPM going forward and the same poses a risk to our call. We are in the process of revising our estimates and may revise our price target as well.
• At the current market price of Rs240, Crompton Greaves is trading at 28.4x its FY2008E stand-alone earnings and 19.1x it's FY2008E consolidated earnings.
  

UltraTech Cement
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs1,000
Current market price: Rs886

Results below expectations

Result highlight

• UltraTech Cement Ltd (UCL) has announced a net profit of Rs127.4 crore for Q2FY2007 and the same is below our expectations, primarily because of higher-than-expected power & fuel cost and other expenditure.
• The company's revenue for the quarter grew by a healthy 58.3% to Rs1,004 crore driven by a 17% rise in its cement volume and a 35.2% increase in its cement realisation.
• The operating profit for the quarter grew by 291.8% to Rs254.5 crore as the operating profit margin (OPM) expanded by 15.1 percentage points to 25.3%. The same was however below our expectations primarily because of higher-than-expected power & fuel cost and other expenditure.
• During the quarter UCL�s jetty situated at its Gujarat plant was non-operational for about 15 days. Hence the company not only lost some export volumes but also had to incur an additional expense of Rs15-20 crore on its repairs. Also the packing cost has gone up by Rs10 crore. This in turn increased the other expenditure per tonne by 30% yoy. Had these costs not been there, the company would have easily met our estimates.
• During the quarter UCL's cost per tonne of cement increased by 12.5% against a 35% rise in realisation per tonne. Hence its earnings before interest, tax, depreciation and amortisation (EBITDA) per tonne in the quarter stood at Rs691 against Rs206 per tonne in Q2FY2006.
• On the back of flat interest cost and depreciation charge, the net profit for the quarter registered a quantum jump to Rs127.4 crore during the quarter.
  

Tata Consultancy Services
Cluster: Evergreen
Recommendation: Buy
Price target: Rs1,325
Current market price: Rs1,130

Margins firm up

Result highlight

• For Q2FY2007 Tata Consultancy Services (TCS) has reported a growth of 8.2% quarter on quarter (qoq) and of 42% year on year (yoy) in its consolidated revenues to Rs4,482.2 crore. The sequential revenue growth was largely driven by a 10.8% quarter-on-quarter (q-o-q) growth in the international business with the domestic revenues declining by 14.3% on a sequential basis. The international business witnessed a strong volume growth of 11.33% sequentially.
• The earnings before interest and tax (EBIT) margins improved sharply by 294 basis points to 25.3% on a sequential basis. Apart from the impact of lower visa cost, the margins were boosted by an offshore shift (67 basis points), gains from foreign exchange (forex) movement (50 basis points) and an overall improvement in the employee productivity (driven by better realisations and operational efficiencies). The EBIT margins were also positively impacted by the write back of Rs46.8 crore worth of provisions (made for the provident fund earlier) and lower provisioning for bad debts during the last quarter. The operating profit grew by 21.4% qoq to Rs1,229.4 crore.
• Consequently, despite the sharp decline in the other income to Rs7.7 crore (down from Rs66.8 crore reported in Q1), the consolidated earnings grew by 15% qoq and by 43.7% yoy to Rs991.5 crore (higher than the consensus estimate of around Rs835 crore).
  w In terms of outlook, the company does not provide any specific growth guidance. However, the management reiterated that the demand environment is quite favourable. It is also confident of maintaining the EBIT margins at around the 25.8% level (on the full year basis) in line with FY2006. This implies a significant improvement in the EBIT margins in the second half as the margins stood at 23.9% during the first half ended September 2006.
• The company has announced an interim dividend of Rs3 per share.
• At the current market price the stock trades at 27.8x FY2007 and 22.1x FY2008 revised earning estimates. We maintain our Buy call on the stock with a price target of Rs1,325.

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