South Indian Bank, TCS, Thermax, TCI, Unichem Labs

South Indian Bank, TCS, Thermax, TCI, Unichem Labs

Ranbaxy, TCI

Ranbaxy, TCI

Thermax, TCI, Balaji Telefilms, BHEL

Thermax, TCI, Balaji Telefilms, BHEL

TCI, Balaji Telefilms

Transport Corporation of India
Cluster: Cannonball
Recommendation: Book Profit
Current market price: Rs130

Book profit

Result highlights

• For Q2FY2008, Transport Corporation of India's (TCI) profit after tax (PAT) declined by 26% year on year (yoy) to Rs4.8 crore on account of slack performance at operating level.
• The topline grew by a modest 10% yoy to Rs300.4 crore due to a slowdown in the transportation revenues and hiving off of the fuel stations.
• Following its performance trend in the previous quarters, the Express (XPS) division and the Supply Chain Division (SCD) division recorded a robust topline growth of 20.7% yoy and 358% yoy to Rs80 crore and Rs37.1 crore respectively.
• The margin of the transport division improved marginally by 10 basis points to 2.3% in the quarter. The margins of the XPS and the SCM division witnessed a sharp fall of 110 basis points and 40 basis points to 5.8% and 3.2% respectively. The margin of shipping division reduced drastically by 1,320 basis points to 7% as the company incurred higher expenditure towards the dry-docking of four ships. But on account of higher margin in the wind power division and hiving off of the lower-margin trading division, the overall earnings before interest and tax (EBIT) margin was reduced by 100 basis points to 4.5%. The EBIT grew by 9.6% yoy to Rs13.64 crore.
• The interest cost increased by 88% yoy to Rs4.4 crore as the company borrowed debt to finance its capital expenditure (capex). Whereas its depreciation provision increased by 47% yoy to Rs6.9 crore as the company added assets during the year.
• The tax provision stood much higher at 39.6%, which led the PAT decline by 26% yoy to Rs4.8 crore.
• The company placed Rs53 crore to Fidelity Investments International at Rs105 per share, whereas the next tranche is expected to be placed in the next couple of months. The capex will drive the revenues of the company going ahead.
• As the first-half performance of the company was much below our expectations, we are downgrading our profit estimate for FY2008 by 18% to Rs32 crore and that for FY2009 by 3.1% to Rs47.1 crore.
• As we know, TCI is transforming itself from a pure play transportation company to an integrated company in the logistics space. The company is incurring a capex of Rs440 crore over FY2007-10 to augment its warehouse capacity, to increase its truck fleet and to buy more ships. Currently the margins of its two new focus businesses—Express and Supply Chain—have not stabilised as the company is in the expansion phase. The courier business is still not profitable and is expected to break-even only in the next fiscal year. Therefore the numbers have been much lower than expected. At the current market price of Rs128, the stock trades at 29x its FY2008 earnings per share (EPS) and 21x its FY2009 EPS. We believe even after factoring the upside from real estate, the current valuations are expensive considering the historical price-earnings ratio (P/E) of the company. Thus taking cognisance of the steep valuations and lower than expected performance of the company, we recommend investors to book profits.

Balaji Telefilms
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs427
Current market price: Rs358

Price target revised to Rs427

Key points

• Balaji Motion Pictures Ltd (BMPL) delivered two blockbusters in 2007—Shootout at Lokhandwala and Bhool Bhulaiya. Buoyed by the success of this venture, the management aims to produce and/or distribute at least ten movies a year from FY2009 as against five movies in FY2008.
• While Balaji Telefilms Ltd (BTL) is adequately funded for further ramping up BMPL's movie business and though the management has not affirmed news reports of BTL divesting its stake in BMPL, there remains a strong possibility of BTL unlocking value in BMPL.
• As expected, with the launch of new channels in Hindi entertainment genre, BTL is scaling up its TV content business. Kahe naa kahe was launched on 9x in November 2007, Kuchh is tara and Kya dil mein hai are to be launched on Sony (from November 26) and 9x (in December 2007) respectively.
• We have revised our estimates for FY2008 and FY2009 to factor the new show launches and the management's aggressive plans for ramping up the movie business. Consequently, we are also revising our price target on the stock to Rs427 based on the sum-of-the-parts method and maintain our Buy recommendation on the stock.

Andhra Bank, TCI

Andhra Bank
Cluster: Cannonball
Recommendation: Buy
Price target: Rs117
Current market price: Rs85

Price target revised to Rs117

Result highlights

• For Q1FY2008 Andhra Bank (ANDB) reported a 21.2% year-on-year (y-o-y) growth in its net profit to Rs141.1 crore, driven by a modest operating performance coming on the back of a higher non-interest income and lower provisions.
• The net interest income (NII) was up 8% year on year (yoy) to Rs362.1 crore. The bank’s net interest margin (NIM) declined by 25 basis points on a y-o-y basis and by six basis points on a sequential basis (after adjusting for Rs25 crore of one-time income in Q4FY2007).
• The non-interest income increased by 33.4% yoy to Rs112.5 crore due to a higher treasury income component as the fee income growth remained flat.
• A 13.1% growth in the net income coupled with a moderate 9% y-o-y growth in the operating expenses helped the bank to report an 18.2% y-o-y growth in the operating profit to Rs223.4 crore; the core-operating profit (operating profit excluding treasury and amortisation) grew by 13.3% yoy to Rs227.5 crore.
• Provisions and contingencies showed a decline of 68.1% yoy to Rs9.3 crore from Rs29.1 crore, mainly due the absence of a one-time hit of Rs20 crore that the bank had taken during Q1FY2007 on transfer of securities.
• Business growth of the bank stood at 24.8% yoy with advances up 27.1% yoy and deposits up 23.3% yoy. Despite the strong growth in the advances the asset quality continues to remain among the best in the industry with the net non-performing assets (NPAs) at 0.19%.
• The NIM is expected to stabilise going forward and lead to an improvement in the operating performance. The capital adequacy levels are comfortable at 12.5% with the Tier-I capital adequacy ratio (CAR) at around 9%, which is not a constraint for growth, and asset quality continues to remain among the best in the industry. At the current market price of Rs85, the stock is quoting at 5.8x its FY2009E earnings per share (EPS), 3.2x pre-provision profits (PPP) and 1x book value. We have introduced our FY2009E numbers in this report. The bank is available at attractive valuations, given its low price to book multiple compared with its peers and an average return on equity of 18.5%. We maintain our Buy call on the stock with a revised price target of Rs117.

Transport Corporation of India
Cluster: Cannonball
Recommendation: Hold
Price target: Rs100
Current market price: Rs115

Put on hold

Key points

• Transport Corporation of India (TCI) has placed 7% of its equity with Fidelity Investments International for Rs53 crore. The placement was part of the company's fund raising plans to finance its scheduled capital expenditure (capex) of Rs440 crore. The shares have been placed at Rs105.25 per share at a premium of Rs103.25 to the face value of Rs2 per share. The placement will expand TCI's equity by Rs1 crore to Rs14.5 crore, resulting in an equity dilution of 7%.
• TCI has lined up a capex of Rs440 crore to be spent over FY2007-10; of the proposed capex it has already spent Rs100 crore in FY2007.The capex will entail the augmentation of its warehouse space, expansion of its truck fleet, acquisition of ships and setting up of wind power plants.
• The company achieved a turnover of Rs266 crore for Q1FY2008, growing at the rate of 9% year on year (yoy). The express cargo business grew by 30% yoy whereas the supply chain management (SCM) business grew by 27% yoy. The decline in the trading revenues affected the company's top line growth.
• The earnings before interest and tax (EBIT) grew by 16% yoy to Rs13.69 crore whereas the EBIT margin remained flat at 5% during the quarter. The SCM margin remained flat whereas the express cargo margin was lower by 100 basis points yoy. But sequentially, the express cargo margin expanded by 300 basis points whereas the SCM margin stabilised after an exceptional Q4FY2007.
• The company's interest cost almost doubled to Rs4.08 crore on account of higher borrowings whereas the depreciation provision was higher by 51.5% on account of addition to gross block.
• As the company's tax provision stood higher at 36.4% against 27% in the last year, the net profit witnessed a decline of 13.5% yoy to Rs5.69 crore.
• The complete phase-out of the central sales tax (CST) will augur well for the company as more companies start following the hub-and-spoke model of distribution, leading to complete outsourcing of their logistic needs to third party players. We believe that at the end of the capex plan by FY2010, TCI will be fully equipped to benefit from the opportunities in the third-party logistic (3PL) space. We expect the company's net profit to grow at a compounded annual growth rate (CAGR) of 27% over FY2007-09.
• As mentioned in the previous update, TCI is developing four properties, covering a total area of 12.5 acre, over the next five years. The net realisable value of these properties would be Rs200 crore which translates into a value of Rs26 per share on a diluted equity base of the company. We believe this would provide ample cushion to the company's stock price.
• The stock has witnessed a sharp run-up in the last four months and appreciated by 86% against an 18% rise in the Sensex in the same period. The stock is currently quoting at Rs115 per share. At the current market price TCI is discounting its FY2008E earnings by 23x and its FY2009E earnings by 18x. Considering its historical valuations we believe that the stock is fully valued at the current market price and thus offers little scope for appreciation in the near term. We thus put a Hold on the stock.

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VIEWPOINT

Novelis (subsidiary of Hindalco)

Overhang of fixed-price contracts
We attended the analyst meet of Novelis (the wholly owned subsidiary of Hindalco) to discuss the Q1FY2008 results. Presenting the key takeaways from the meet.

Andhra Bank, TCI

Sharekhan Investor's Eye dated June 08, 2007

ORG Informatics
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs184
Current market price: Rs105

Price target revised to Rs184

Result highlights

• ORG Informatics' performance was below expectations in Q4FY2007. Its revenues grew by 17% to Rs70.4 crore, below our expectations. The revenue growth was dented partly by the slippage of some revenues to Q1FY2008.
• The operating profit margin (OPM) declined sharply to 1.3% (as against 9.5% in the nine months ended December 2006) due to the cumulative impact of the higher contribution from low-margin hardware supply part of the MTNL order, expenses related to integration and restructuring of the recently acquired entities (United Technologies and DGIT) and a one-time write-off (around Rs1.3 crore related to provision for bad debts and stock adjustments).
• However, the steep jump in the other income and the write-back of tax provisions enabled the company to post a relatively higher growth of 24.7% in its consolidated earnings to Rs5.3 crore.
• On the full year basis, the consolidated revenues and earnings grew by 97.6% to Rs306.6 crore and 113.7% to Rs17.3 crore. The OPM declined by 110 basis points to 7.6% in FY2007.
• In terms of the outlook, the management expects to maintain the growth momentum on the back of a healthy order pipeline and the expected improvement in its margins as the high-margin maintenance revenues kick in from the MTNL contract. Moreover, the company would continue to actively scout for inorganic opportunities and has got the board approval to raise up to $30 million for the same.
• We have revised downwards the earnings estimate of FY2008 by 2.6% to factor in a higher tax rate. We maintain our Buy call on the stock with a price target of Rs184.

Transport Corporation of India
Cluster: Cannonball
Recommendation: Buy
Price target: Rs100
Current market price: Rs88

Price target revised to Rs100

Result highlights

• In Q4FY2007 the overall revenues of Transport Corporation of India (TCI) grew by 18.9% year on year (yoy) to Rs292.6 crore on the back of the better performance of both the XPS and the SCM division.
• The earnings before interest and tax (EBIT) of the company grew by 61% to Rs15.7 crore yoy whereas the margin improved by 300 basis points to 10% in the quarter, driven by the SCM division's margin of 12%.
• The interest cost doubled to Rs3.12 crore from Rs1.7 crore last year whereas the depreciation provision stood flat on a sequential basis at Rs5.45 crore but increased by 41% yoy, as the company added assets in the form of warehouses and trucks.
• On the back of a better performance at the operating level, the net profit more than doubled to Rs9.42 crore.
• As we have mentioned in our earlier update, TCI has drawn up a capital expenditure (capex) plan of Rs440 crore for the next two to three years. The funds would be utilised for buying ships, expanding the warehouses and augmenting its truck fleet.
• The company is also in the process of forming a 50:50 joint venture with Scan Trans Holding, Denmark to conduct shipping business. It is in the initial stages of forming the joint venture and we will update you on the same once we get more information.
• The company has identified four properties covering a total area of 12.5 acre for development. The value of these properties taken together translates into Rs26 per share on diluted equity. We believe this provides significant cushion to the company's stock price.
• At the current price of Rs88 per share, the stock is trading at 14.7x its FY2009 earnings estimate. Considering the bullish outlook for the company, we are upgrading our target price to Rs100 per share.

Sharekhan Investor's Eye dated June 08, 2007

Angel - PNB, Angel -TCI,B&K - Bharat Forge, B&K - Indus Ind Bank, B&K - Kalpataru Power Transmission

Angel recommends BUY on PNB

We expect the bank to maintain its margins on the back of a high level of CASA. The bank has already taken proactive steps for AS 15 provision for employees. Currently, PNB holds around 38% of its investment portfolio in the AFS category and we expect the share of AFS in the total portfolio to fall further in FY2008. We expect PNB to demonstrate stable performance in NII and Fee-based income, However, further deterioration in asset quality could warrant higher provision in FY2008. We maintain a Buy on the stock with a Target Price of Rs615.

Angel recommends HOLD on TCI

We expect TCI's revenues to grow at a CAGR of 14.8% to Rs1,433cr and earnings to grow at 29.3% CAGR of Rs51cr over FY2007-09E. Overall operating margin of the company is expected to improve from 6.4% in FY2007 to 8.5% in FY2009E on the back of higher margins of 5-7% clocked by the XPS and SCS Divisions compared to its core business of transportation, which enjoys low 2-3% margins. At the CMP, the stock trades at 12.1x FY2009E Earnings and 5x EV/EBITDA. Owing to a huge capital outlay, which will generate positive cash flows over a longer period of time, we have valued the company using the DCF model and have arrived at a 12-month Target Price of Rs77. We maintain a Hold on the stock.

B&K recommends BUY on Bharat Forge

Bharat Forge's (BHFC) results for the quarter were below our expectations as despite capacity ramp-up, margins contracted on a sequential basis. Another disappointment was the lower growth in exports. The lower proportion of dollar exports coupled with ramp-up in capacity utilisation should have led to better margins; however margin expansion continues to elude. Exports have been impacted by severe drop in exports to China. Despite good growth in exports to US, overall exports were only marginally up. At the consolidated level, China joint venture has incurred losses of Rs. 70 mn for April-December 2006 and management is aiming for break-even in the current year. Considering the disappointing performance during the year and lower growth in domestic and subsidiary operations, we are downward revising our FY08E and FY09E consolidated earnings by 7.5% and 2.5% to Rs. 17.9 and Rs. 23.8, respectively. The stock is currently trading at 18.4x and 13.8x our FY08E and FY09E consolidated earnings, maintain BUY.

B&K recommends SELL on IndusInd Bank

IndusInd Bank (hereinafter IIB) has reported a net profit of Rs. 214 mn in Q4FY07 as against a loss of Rs. 624 mn in the corresponding quarter last year. The results were below our estimates both at the top and bottom line due to lower than expected other income and higher operating expenditure. However after seven consecutive quarters of y-o-y de-growth, NII of the bank has shown marginal improvement during the quarter. Operating profits were also up by 50% y-o-y to Rs. 460 mn. However the concerns over business mix and asset quality still remains. Maintain Sell


B&K recommends BUY on Kalpataru Power Transmission

With impressive result for the quarter, Kalpataru Power closed FY07 with 140% jump in net profit, on the back of 81% growth in revenues. Growth was driven by good performance by transmission line segment, leading to strong volume growth and expansion in EBITDA margin (240 bps for the year). Its subsidiary JMC Projects also reported much-improved earnings growth during the year. With increasing share of exports and an order book of Rs. 23 bn, we believe Kalpataru is expected to post strong growth over the next two-three years. While growth in power transmission line continues to be robust, the company's growing presence in civil infrastructure business through JMC and foray into logistics business should provide long-term benefits to shareholders. We have raised EPS estimates for FY08E and FY09E by 3% and 8%, respectively, and maintain BUY with a revised target price of Rs. 1,686.

IDBI Capital - Transport Corporation of India

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