Sundaram Clayton, Genus Power, JM Financial

Sundaram Clayton
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,350
Current market price: Rs835

A subdued quarter

Result highlights

• Sundaram Clayton Ltd's (SCL) Q1FY2008 results were below expectations because of a slower than expected growth in the top line. The net sales grew by just 6.1% year on year (yoy) to Rs201.4 crore, mainly due to a slower growth in its domestic brake business.
• The company was able to maintain its operating profit margin (OPM) despite cost pressures, primarily because of its excellent cost management and continuous efforts to save costs. Consequently, the OPM rose by 60 basis points yoy to 15.2% as the operating profit rose by 10.1% to Rs30.6 crore.
• Higher interest and depreciation charges due to the capital expenditure (capex) incurred by the company during the quarter led to a marginal 1.4% growth in the profit to Rs18.2 crore.
• The company had also recently announced its de-merger and would be spinning off its brake division into a subsidiary. The new entity will be called WABCO-TVS and will be listed on stock exchanges. We believe that the demerger would help both the companies to focus on their core areas and benefit SCL in the long run.
• The performance of SCL is largely dependent on the performance of its key clients in the commercial vehicle (CV) sector. Considering the buoyancy in the economy, the long-term outlook for the CV industry remains positive. We view the current slowdown as just an aberration and expect the demand to pick up in the second half of the fiscal, with the start of the festive season. Consequently, we expect the next quarter to be subdued but growth should pick up from the third quarter of the fiscal.
• However, due to the current slowdown and the lacklustre performance of the first quarter, we are downgrading our sales estimates for FY2008 and FY2009 by 7.8% and 1.8% respectively. Consequently, we are reducing our earnings estimate for FY2008 by 9.8% to Rs53.3 and that for FY2009 by 1.2% to Rs73.6.
• At the current market price, the stock is trading at 11.4x its FY2009 earnings and an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 8.7x. We maintain our Buy recommendation with a price target of Rs1,350.

Genus Power Infrastructures
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs450
Current market price: Rs370

Price target revised to Rs450

Result highlights

• Genus Power Infrastructures has announced its Q1FY2008 results. The net sales for the quarter grew by 63.7% to Rs83.5 crore with revenues kicking in from the new facility in Uttranchal. The net earnings grew by 86.5% to Rs6.9 crore.
• The operating profit for the quarter grew by 67.1% to Rs13.2 crore, the operating profit margin (OPM) for the quarter improved by 30 basis points to 15.8% as against 15.5% in Q1FY2007.
• The interest expense for the quarter increased by 57.7% to Rs4.1 crore
• The order book of the company stood at around Rs370 crore at the end of the first quarter.
• With effect from March 31, 2007 the company's name has been changed to Genus Power Infrastructures Ltd (GPIL).
• GPIL, a leading manufacturer of tamper proof electronic energy meters (EEMs), has been growing at a robust pace. The healthy growth is expected to continue on the back of the large investments being made in the transmission and distribution sector, and the replacement of old meters with new EEMs by various state electricity boards (SEBs).
• At the current market price of Rs370 the company is discounting its FY2008E earnings by 9.8x. We maintain our Buy recommendation on the stock with a revised price target of Rs450, keeping the target multiple of 12x FY2008E earnings.

JM Financial
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs1,352
Current market price: Rs1,080

Price target revised to Rs1,352

Key points

• Morgan Stanley (MS), the world's second largest securities broker and investment bank, has decided to set up its own shop in India and hence it has decided to end its current joint venture with the JM Financial (JMF).
• MS and JMF operated in all the spheres of the capital market through two unlisted private companies named JM Morgan Stanley Pvt Ltd (JMMP) and JM Morgan Stanley Securities Pvt Ltd (JMMSP).
• JMF will sell its 49% holding in JMMSP (engaged in institutional broking, largely foreign institutional investor [FII] business) to MS for $445 million (Rs1,970 crore). Simultaneously, MS will also sell its 49% holding in JMMP (engaged in investment banking [IB] business) for $20 million (Rs90 crore) to JMF. This will make MS the 100% owner of the securities business and JMF the 100% owner of the IB business.
• Some regulatory approvals have been pending and the finalisation of the deal is expected by mid-July 2007. The beauty of this deal lies in the fact that Nimesh Kampani has been able to sell the institutional broking business at a cost far higher than what he had paid for the IB business. However the profit contributions from both the businesses were roughly similar in the previous fiscal. The securities business contributed about 48% while the IB and retail brokerage businesses together contributed 51% of JMF's consolidated earnings in FY2007.
• JMF has adopted the strategy of growing both organically and inorganically to expand its current businesses. The same, we feel, is a well thoughtout policy that would compensate for the loss in the revenues (after the split with MS) and make proper utilisation of the huge cash pool that would be available at JMF's disposal post-sale.
• JMF has already acquired a 60% stake in ASK Securities, which is engaged in institutional equity broking business, for Rs58 crore and is looking at buying a stake in a global boutique investment bank, which will offer advisory services for global mergers and acquisitions (M&As).
• We feel JMF would need some time to restructure its operations; hence we have not based our valuation on FY2008E earnings but looked at FY2009E earnings, which we feel would reflect the earnings potential of the company in a much better way as the exit of MS is bound to have its implications on the FY2008E revenues.
• We feel tie-ups with investment banks having global reach would help to bridge the gap created after MS' exit. The retail broking and distribution business should continue to grow with its thrust on expanding the retail branch network. The margin funding and IPO funding business is expected to double with its huge pool of cash and increased reach. Other nascent businesses like the commodities, private equity and mutual funds businesses are expected to contribute to the consolidated PAT going forward. Considering the above developments our 12-month price target—based on the FY2009E earnings using the sum-of-the-parts (SOTP) model—works out to Rs1,352. At its current market price the stock is trading at 25.2x FY2009E earnings per share (EPS) and 1.2x FY2009E consolidated book value (BV) which provide a decent 25% upside from the current price of Rs1,080. At our target price the company would trade at 32x FY2009E EPS and 1.5x FY2009E consolidated BV. The price/earnings (P/E) multiple looks a bit on the higher side mainly due to the negative contribution from some of the nascent businesses. The valuations are attractive from the BV perspective.

Sundaram Clayton, Genus Power, JM Financial

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

Sharekhan Investor's Eye - Feb 6 2007

ACC
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,250
Current market price: Rs1,100

Stupendous quarterly performance

Result highlights

• ACC put up an excellent performance for the fourth quarter clocking a 250% year-on-year (y-o-y) growth in the profit after tax (PAT) at Rs329 crore, ahead of our estimates.
• The top line grew by a healthy 51% year on year (yoy) to Rs1,619 crore on the back of a 42% y-o-y growth in the realisations and a 7% y-o-y growth in the volumes.
• The operating expenditure grew by 25.8% yoy to Rs1,151 crore driven by a 12.7% y-o-y rise in the power & fuel costs and a 19.7% rise in the freight costs.
• On account of the higher realisation growth, the operating profit witnessed a 197.5% y-o-y growth to Rs468 crore. The operating profit margin expanded by 1,420 basis points yoy and by 230 basis points quarter on quarter (qoq) to 28.9%.
• Consequently, the earnings before interest, tax, depreciation and amortisation (EBITDA) per tonne jumped three-fold to Rs975 per tonne on account of the company's high leverage to the cement prices.
• The interest cost fell by 80.1% yoy to Rs4.1 crore whereas the depreciation provision stood higher at Rs77.1 crore.
• The pre-exceptional profit stood at Rs329 crore translating into a y-o-y growth of 249.9%. Adjusting for the extraordinary items, the PAT was up 86.1% yoy at Rs358 crore.
• The company has declared a dividend of Rs15 per share for the year ending December 2006 implying a dividend payout of 27%.
• ACC is adding capacity of 0.9 million metric tonne (MMT) at Lakheri along with the setting up of a 25MW captive power plant (CPP). The company is also expanding the capacities at various other locations post which, its total capacity is expected to increase by 3.19MMT to 23.1MMT by December 2007. The company is also adding 1.18MMT capacity coupled with a 30MW CPP at its Bargah Cement unit (expected to be commissioned in the first quarter of CY2008) and is putting up a fresh 3MMT plant at Wadi, which is expected to be commissioned in the next 24-30 months.
• At the current market price of Rs1,100, the stock is discounting its CY2007E earnings by 15.7x and EBITDA by 9.2x. On an enterprise value (EV) per tonne basis, the stock is trading at USD198 per tonne. We believe the stock is very attractive considering its leverage to the cement prices, better cost structure as well as its improving financials. We thus maintain out Buy recommendation on the stock with a price target of Rs1,250.

Ashok Leyland
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs56
Current market price: Rs49.8

Spillover boosts January numbers

Key points

• Ashok Leyland has reported a magnificent growth in its January numbers. The higher than expected growth was a result of the spillover of sales  from the previous month due to the implementation of the value-added tax in Tamil Nadu w.e.f January 1, 2007.
• The company reported an overall growth of 67% year on year (yoy) as its vehicle sales jumped to 9,650 units in the month. Its domestic sales grew by 62% while its exports rose by a whopping 228%.
• The medium-duty vehicle (MDV) goods segment (which accounts for the bulk of the company's sales) turned a brilliant performance, reporting a growth of 69.6% yoy with sales of 7,870 vehicles. The MDV passenger segment, where the company has been losing market share, is beginning to show signs of improvement grew by 56% in January.
• In January the sales of its light commercial vehicles stood at 28 units, marking a growth of 16.7% yoy.
• Looking at the year-till-date numbers, the company has reported an overall growth of 41.7% with the MDV goods segment growing by 61% yoy and the MDV passenger segment marking a decline of 4.7%.
  w At the current market price of Rs49.8, the stock quotes at FY2008E PER of 12.4x and at an EV/ EBIDTA of 6.9x. We maintain our Buy recommendation on the stock with a price target of Rs56.

Sundaram Clayton
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,550
Current market price: Rs1,202

Higher efficiencies improve margins

Result highlights

• Sundaram Clayton Ltd's (SCL) Q3FY2007 results are in line with our expectations. The net sales for the quarter marked a growth of 29.5% to Rs204.7 crore, in line with our expectations. Both the air brakes and die-casting divisions performed well during the quarter registering revenue growth of 17% and 52% respectively.
• The operating margins have improved by 90 basis points year on year (yoy) to 15.6% because of increasing operating efficiencies. Consequently, the operating profit rose by 37.4% to Rs31.9 crore for the quarter.
• The other income was higher due to the accounting of the dividend income; while the interest cost has also risen due to the higher capital expenditure incurred by the company. Consequently, the profit after tax (PAT) for the quarter was up 17.3% at Rs24 crore.
• Due to a lower dividend income, and higher interest costs in the year-till-date period, we are lowering our FY2007 PAT estimates by 6%. However, we are very positive on the long-term prospectsof the company considering the continuing buoyancy in the commercial vehicle (CV) industry, strong outsourcing potential and a huge opportunity in anti-lock braking system (ABS).
• The value of SCL's total investment in the group companies works out to Rs660 per share. While computing SCL's value, we have assumed a 75% discount to the company's total investment. After adjusting for the same, the SCL stock is currently trading at 14.1x its stand-alone FY2008E earnings and at 11.5x its stand-alone FY2008E earnings before interest, depreciation, tax and amortisation (EBIDTA). We maintain our Buy recommendation on the stock with a price target of Rs1,550.

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Sharekhan Stock Idea - Sundaram Clayton

Company details

• Price target: Rs1,550
• Market cap: Rs 2,280 cr
• 52 week high/low: Rs1,373/770
• NSE volume: 2,415
  (No of shares)
• BSE code: 520056
• NSE code: SUNDRMCLAY
• Sharekhan code: SUNCLA
• Free float: 0.38 cr
  (No of shares)

Result highlights

• The Q2FY2007 results of Sundaram Clayton Ltd (SCL) are slightly below our expectations due to a marginal fall in the company’s operating profit margin (OPM) owing to high raw material prices.
• The net sales for the quarter rose by 34.1% to Rs203.4 crore. The revenue growth of both the air-brake and the die-casting divisions remained strong during the quarter.
• The OPM declined by 100 basis points to 14.6% primarily due to a rise in the price of the raw materials, particularly non-ferrous metals. Consequently, the operating profit grew by 25.6% to Rs29.6 crore for the quarter.
• The other income, as expected, was higher at Rs13.8 crore due to the dividend income received from the subsidiaries. Stable depreciation charge and taxes led to a 58.3% growth in the net profit to Rs23 crore.
• The value of SCL''s total investment in the group companies works out to Rs950 per share. While computing SCL''s value, we have assumed a 75% discount to the company''s total investment. After adjusting for the same, the SCL stock is currently trading at around 12.6x its stand-alone FY2008E earnings and at 10.2x its stand-alone FY2008E earnings before interest, depreciation, tax and amortisation (EBIDTA). We maintain our Buy recommendation on the stock with a price target of Rs1,550.

Strong top line growth
The net sales for the quarter exceeded our expectations, growing at 34.1% to Rs203.4 crore. The growth in both the air-brake and die-casting divisions remained strong for the quarter. The revenues from the air-brake division stood at Rs114.8 crore as against Rs99.7 crore in Q2FY2006, marking a growth of 15.1% year on year (yoy). The die-casting division continued to perform brilliantly as its revenues increased by 70.3% from Rs52.0 crore to Rs88.6 crore this quarter.

The company continued its strong growth in exports with the export revenues reaching Rs38.4 crore (rising by 75.2% yoy). During this year, the company had won an export contract from the global automobile major Volvo for the supply of engine and transmission castings for trucks. The revenues from this order are expected to touch Rs60 crore in the next two years.

SCL continues to be on the look-out for newer clients. Last quarter it added a new customer, Asia Motor Works, to its air-brake division. At the moment, it has a strong client list with orders from automobile majors like Tata Motors, Ashok Leyland, Honda Siel Cars, Sona Koyo Steering, Tata Holset, Ford India and Visteon.

Higher input costs affect margins
The OPM declined by 100 basis points yoy to 14.6% and was stable on a sequential basis. The margins were affected as a result of a rise in the raw material cost, which rose from 48.6% to 54.4% as a percentage of sales. However, the sharp rise in the input cost was offset by the savings on the employee cost and other operational efficiencies.

The other income at Rs13.8 crore was higher for the quarter compared with Rs7.2 crore last year, as the dividend income was accounted for during the quarter. Stable interest and depreciation charges helped the company to register a growth of 58.3% in its net profit to Rs23 crore.

Looking at the first-half numbers, the margins have remained stable at 14.6% in comparison with last year. However, we expect the margins to improve further in the subsequent quarters because of (a) price hike due from its original equipment manufacturer customers, particularly Tata Motors; and (b) higher exports contribution.

Capacity expansion plans for the year
For FY2007, SCL has lined up a capital expenditure (capex) plan under which Rs48.63 crore has been earmarked for the air-brake division and Rs75 crore for the die-casting division. The capex would be used for capacity expansion and new product development. SCL plans to increase its casting capacity to 50,000 tonne from the current 24,000 tonne. The company has increased its capex in both the divisions, which has increased its interest cost.

ABS—a huge opportunity
The regulations regarding the usage of anti-lock braking system (ABS) in commercial vehicles (CVs) are expected to be implemented soon. We are of the view that this should trigger a huge replacement demand in case the usage of ABS is made mandatory in CVs. SCL has already given samples of the product to CV majors, Ashok Leyland and Tata Motors. The cost differential between an ABS and an air brake is in the range of Rs30,000-35,000 per vehicle since the margins in the ABS are higher than those in the conventional braking systems. This should further help the company to post better margins going forward.

Outlook and valuations
We believe that SCL would benefit from the buoyancy in the country''s CV industry. The shift from hydraulic brakes to air brakes that is expected to take place in the CV industry augurs well for SCL. Also, there is a huge outsourcing potential considering that WABCO is looking for a low-cost producer of brakes. Considering all these factors we maintain our positive outlook on the company.

We are marginally increasing our sales estimates for FY2007 due to higher-than-expected revenue growth from the domestic air brakes sales and strong sales registered by the die casting division. However, the gains from the same would be offset by slightly lower margins and higher interest costs as a result of increased capex during the year.

SCL has a huge investment portfolio with an investment value of Rs950 per share. It holds 56.8% in TVS Motors (8.8% directly and 48% indirectly through its 100% subsidiary Anusha Investments. In valuing the company we have assumed a 75% discount to the total investment value per share. After adjusting for the investments, the stock is currently trading at around 12.6x its stand-alone FY2008E earnings. We maintain our Buy recommendation on the stock with a price target of Rs1,550.