Dead Presidents! - India Equity Research

Wednesday, August 03, 2005

Motilal Oswal - TISCO

Motilal Oswal recommends Buy On TISCO @ 373 With Target Price 502

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Sharekhan Stock Update

Grasim Industries
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,430
Current market price: Rs1,178

Subdued performance

Result highlights

Grasim Industries' net sales (stand-alone) for Q1FY2006 stood at Rs1,553 crore, registering a 2.4% growth on a year-on-year (y-o-y) basis.

The operating profit margin (OPM) at 24.1% declined by 430 basis points primarily on account of lower margins in the viscose staple fibre (VSF) and sponge iron businesses.

The operating profit stood at Rs374.4 crore, registering a decline of 13% yoy.

The interest expenses fell by 19% yoy to Rs26.5 crore primarily due to the restructuring of debt and higher cash on books, while the other income grew by 24% yoy to Rs20.1 crore.

The pre-exceptional net profit stood at Rs205.6 crore, down 6.2% yoy. The net profit after the exceptional items stood at Rs251 crore, recording a growth of 14.5% yoy.

On a consolidated basis the company's net sales for the quarter grew by 8.4% to Rs2,495 crore primarily driven by the improved performance of UltraTech Cement Company and its subsidiaries.

Pre-exceptional consolidated net profit grew 20% to Rs251 crores.

Hyderabad Industries
Cluster: Apple Green
Recommendation: Buy
Price target: Rs500
Current market price: Rs419

Another spectacular quarter

Result highlights

Hyderabad Industries Ltd's (HIL) net sales in Q1FY2006 went up by 11.4% to Rs131.8 crore. While the building product business contributed Rs121.5 crore, the heavy engineering division (HED) contributed Rs5.48 crore to the company's top line.

The operating profit growth of 90.7% to Rs28.35 crore was primarily driven by strong asbestos prices and lower losses in the HED.

The interest cost came down by 52% to Rs1.42 crore as strong cash flows led to loan repayments. We expect the interest cost to further come down in the coming quarters.

The reported net profit (after the write-off of the expenses on account of a voluntary retirement scheme or VRS) increased by 129.7% to Rs15.07 crore in Q1FY2006. However the net profit before extraordinary items increased by 169.5% to Rs17.68 crore in Q1FY2006.

The HED was transferred to Titagarh Wagons Limited on July 8, 2005. The HED registered losses to the tune of Rs3.77 crore in Q1FY2006 the negative impact of which will not be felt in the future.

Reliance Industries

Cluster: Evergreen
Recommendation: Buy
Price target: Rs800
Current market price: Rs741

Results above expectation

Result highlights

Reliance Industries Ltd's (RIL) revenue for Q1FY2006 grew by 24.5% year on year (yoy) to Rs17,784 crore on the back of the buoyancy in its refining business.

The refining margins remained robust during the quarter and continued to command a premium over the regional margins in Asia because of a superior crude mix. However the petrochemical business faced pressure in terms of pricing as well as volumes.

The operating profit was up by 27.1% yoy to Rs3,546 crore owing to a strong expansion in the company's refining margins.

The net profit was up by 60.8% to Rs2,310 crore due to operational efficiencies, lower interest outgo and lower depreciation.

Television Eighteen India

Cluster: Emerging Star
Recommendation: Buy
Price target: Rs350
Current market price: Rs343

Results in line with expectations

Result highlights

Television Eighteen India's (TV18) overall results for Q1FY2006 are in line with our expectations.

Its top line grew by a good 57% during the quarter led by the advertisement revenue, which grew by 58% in Q1FY2006.

With the operating costs remaining under check the operating profit margin (OPM) improved by 40 basis points.

The net profit improved by 28.5% to Rs8.0 crore during the quarter.

At the current market price of Rs343 the stock is quoting at 12.1x FY2007E earnings and 6.5x its EV/EBITDA.

We maintain our Buy call on the stock.

ICICI Bank
Cluster: Apple Green
Recommendation: Buy
Price target: Rs650
Current market price: Rs520

Earnings momentum sustained

Result highlights

ICICI Bank reported a strong 35% year-on-year (y-o-y) and 7.7% quarter-on-quarter (q-o-q) growth in its net interest income (NII) on the back of a strong growth in its advances.

The strong growth momentum in the bank's fee income continued-during the quarter the fee income grew by a strong 57.4% year on year (yoy).

The operating profit for Q1FY2006 grew by 74.7% yoy to Rs970.8 crore. Notably the core operating profit grew by even a stronger 100.5% yoy.

However the net profit growth was restricted to 23% yoy as the company used the strong operating performance to make higher provisions for the amortisation of the premium on its "held till maturity" (HTM) investment portfolio.

We maintain our Buy recommendation on the stock with a revised price target of Rs650.

Thermax
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs780
Current market price: Rs655

Robust growth in revenue

Result highlights

Thermax' revenue saw a robust year-on-year (y-o-y) growth of 79.7% to Rs226.5 crore in the quarter. The growth came on the back of a strong volume growth in its key business segments: energy and environment.

The energy segment grew by 87.6% to Rs 152.5 crore and the environment segment grew by 68.5% to Rs83.9 crore in the quarter.

The company's operating profit margin (OPM) increased by 330 basis points to 8.8% in the quarter, reflecting the gains arising on account of economies of scale and falling input prices as a percentage of revenues.

The net profit reported a y-o-y growth of 137.1% to Rs13.3 crore in the quarter, mainly driven by a strong revenue growth resulting from a robust order book.

The stand-alone order backlog stood at Rs810 crore in Q1FY2006 as against Rs770.0 crore in Q4FY2005. The consolidated order backlog stood at Rs1,150 crore at Q1FY2006 as against Rs1,130 crore in Q4FY2005.

The earnings in the quarter stood at Rs5.6 per share on a stand-alone basis and at Rs3.2 per share on a consolidated basis.

Considering that the company's strong order book shall impart visibility to its earnings and that the outlook for the company's key business segments is robust, we believe that the stock is trading at attractive valuations of price/earnings ratio (PER) of 12.4x FY2007 and enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 6.5x FY2007E. We maintain our Buy call on Thermax with a price target of Rs780.

Omax Auto

Cluster: Apple Green
Recommendation: Buy
Price target: Rs178
Current market price: Rs138

Reiterate a Buy

Result highlights

The net sales of Omax Auto Ltd (OAL) grew by an impressive 25.0% year on year (yoy) to Rs144 crore in Q1FY2006.

The operating profit margin declined by 60 basis points yoy to 10.2% leading to a 17.4% yoy growth in the operating profit.

The net profit growth was muted and was up 1.9% yoy due to higher interest and depreciation charges.

Sun Pharmaceutical Industries

Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs650
Current market price: Rs615

Formulation sales rise

Result highlights

Sun Pharmaceuticals' net revenue was Rs385.9 crore during Q1FY2006 as compared to Rs278.9 crore in Q1FY2005 (an increase of 38.3%) primarily because of an increase in its formulation sales.

The operating profit grew by 33.1% over Q1FY2005, at a mildly lower pace compared to the growth in the net revenue, and stood at Rs135.2 crore, as the company faced pricing pressure in USA and other foreign markets.

The profit before tax (PBT) rose by 48.3% year on year (yoy). This was due to an increase in the interest income (Rs16.2 crore for Q1FY2006) from the return on excess funds obtained from the issue of foreign currency convertible bonds (FCCBs).

The profit after tax (PAT) increased by 54.2% over Q1FY2006 to Rs136.3 crore helped by a 13% reduction in the total tax over Q1FY2005.

At the current market price of Rs615 the stock is trading at 22x FY2006E earnings.

Gujarat Ambuja Cement

Cluster: Apple Green
Recommendation: Book Profit
Current market price: Rs67.4

Book profit

Result highlights

The net sales of Gujarat Ambuja Cement (GACL) for Q4FY2005 stood at Rs720.5 crore, registering an impressive 21% year-on-year (y-o-y) growth, driven by a 16% volume growth and a 4.4% growth in realisations.

The volume growth was mainly driven by the commissioning of the new 1-million-tonne capacity grinding unit at Ropar, Punjab and the merger with Ambuja Cement Rajasthan Ltd.

The operating profit margin (OPM) for the quarter declined by 80 basis points primarily because of a 19% increase in the power & fuel cost. However for FY2005 the OPM improved by 160 basis points.

The operating profit for the quarter grew by 18% to Rs227.1 crore year on year (yoy). For FY2005 the operating profit registered a growth of 40%.

The pre-exceptional net profit for the quarter grew 1% to Rs145.2 crore yoy. However the post-exceptional net profit jumped by 24% to Rs145.2 crore yoy.

Bajaj Electricals

Cluster: Ugly Duckling
Recommendation: Book Profit
Current market price: Rs354

Book your profits

Result highlights

Bajaj Electricals Ltd's (BEL) revenue grew by 26.3% in Q1FY2006 to Rs137.4 crore on the back of the strong performance of the company's lighting and consumer durable businesses.

The lighting business continued its growth momentum in the quarter, registering a year-on-year (y-o-y) growth of 31.1% with revenue of Rs56.3 crore. Even the consumer durable business clocked a y-o-y growth of 30.4% with revenue of Rs65.9 crore in the quarter.

The operating profit margin (OPM) improved by 390 basis points in the quarter to 7.4% as compared to 3.5% in the same period last year, driven mainly by lower raw material costs as a percentage of its revenue.

The company's key business segments registered a sharp improvement in the profit before interest and tax (PBIT) margins. The lighting segment's PBIT margin improved from 5.3% in Q1FY2005 to 8.9% in Q1FY2006 while that of the consumer durable segment improved from 1.4% in Q1FY2005 to 3.9% in Q1FY2006.

The company reported a profit after tax (PAT) of Rs1.6 crore in the quarter against a loss of Rs2.0 crore in the same period last year, in line with estimates.

The extraordinary income in the quarter stood at Rs3.5 crore (on account of discontinued operations) while the PAT (after extraordinary expenses) stood at Rs5.1 crore in the quarter against Rs0.7 crore in the same period last year.

We believe that at the current levels BEL's valuation factors in all possible positives. Thus in the absence of any fresh triggers and considering the rich valuations of the stock currently-price/earnings ratio (PER) of 11.6x FY2007E and enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 6.1x FY2007E—we advise booking profits.

Punjab National Bank

Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs500
Current market price: Rs435

Results in line with expectation

Result highlights

Punjab National Bank (PNB) reported a strong growth of 14.1% in its core operating profit for Q1FY2006 on a year-on-year (y-o-y) basis. However the bank's overall operating profit declined by 8.6% year on year (yoy) as the treasury income was much lower this quarter.

The growth came on the back of a 16.3% y-o-y growth in the net interest income (NII) and a 19.2% growth in the fee income.

The net profit grew by 11.0% yoy as the bank wrote back Rs36.2 crore of its non-performing asset (NPA) provisions.

The capital adequacy ratio (CAR) at the end of the quarter was at 15.5%, higher than Q1FY2005's 12.7% due to the public offering (PO) done in Q4FY2005.

At the current market price of Rs435 the stock is quoting at 1.4x its FY2006E expected book value. We maintain our Buy recommendation on the stock with a price target of Rs500.

Marico Industries

Cluster: Apple Green
Recommendation: Buy
Price target: Rs300
Current market price: Rs291

Growth momentum sustained

Result highlights

Marico Industries reported an 11.8% growth in its revenue and a 33.9% rise in its operating profit in Q1FY2006, thus maintaining the growth momentum of the past quarters.

The growth was powered by a volume growth of 6.0% in the consumer product business whose key brands showed a robust volume growth.

The high-margin consumer product portfolio saw a healthy volume growth of 9.0% in the quarter, contributing 71.0% of the consumer product revenue.

The operating profit margin (OPM) improved by 178 basis points in the quarter to 10.8%, primarily because there was no revision in Parachute prices despite the fall in the company's raw material costs.

The company announced an interim dividend of Rs1.2 per share in Q1FY2006.

The stock trades at a price/earnings ratio (PER) of 15.7x FY2007E and enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 11.1x FY2007E. Looking at the healthy growth prospects for the company we maintain our Buy call on the stock with a price target of Rs300.

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Monday, August 01, 2005

Hindu Businessline Recommendations

BUY     >> Maharashtra Seamless, Cipla
SELL    >> TVS Motors
HOLD   >> Britannia, India Cements,

Updates

For visitors who wanted to know about Vardhaman Textiles and Vijaya Bank

Here are the details

Vardhaman - BUY - Target - Rs 505
Vijaya Bank - BUY - Target - Rs 85

Sunday, July 31, 2005

Sharekhan - Stock Updates

Cipla
Cluster: Cannonball
Recommendation: Buy
Price target: Rs375
Current market price: Rs342

Robust growth

Result highlights

Cipla's Q1FY2006 revenue was Rs662.8 crore as compared to Rs533.4 crore in Q1FY2005 (an increase of 24.2%) primarily because of the increase in exports.
The operating profit grew by 40.4% over Q1FY2005 and stood at Rs149.9 crore. This was due to increasing operational efficiency as the total expenditure increased by only 20.2% compared to a 24.2% increase in the net sales.
The profit before tax rose by 37.5% year on year (yoy) at a slower pace than the growth in the operating profit. The slowdown was due to the decrease in the other income that decreased to Rs8.36 crore as against Rs11.9 crore in Q1FY2005.
The profit after tax (PAT) increased by 40.6% over Q1FY2005 to Rs111.4 crore. This was helped by a decrease of 166 basis points in the effective tax rate, which stood at 22.3%.
At the current market price of Rs342, the stock is trading at 22 x FY2006E earnings.

Genus Overseas Electronics
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs150
Current market price: Rs115

Profit meter on a roll

Result highlights

Genus Overseas Electronics' net sales for Q1FY2006 increased by 24.7% year on year (yoy) to Rs41.52 crore on the back of a strong order backlog of Rs100 crore.

Its operating profit margin (OPM) for the quarter declined by 50 basis points as the other expenditure increased by 68% yoy. The increase was primarily because of an advertising campaign launched in April 2005 to promote Genus' products like inverters and settop boxes.

The operating profits for the quarter stood at Rs3.86 crore, up 18.5% yoy.

The company's interest expenses for the quarter declined by 9% and depreciation increased BY 10.8%; consequently the profit before tax (PBT) for the quarter stood at Rs2.54 crore, registering a growth of 33.8%.

The net profit for the quarter stood at Rs2.1 crore as against Rs1.52 crore in Q1FY2005, marking an increase of 38.3% yoy.

The order inflow during the quarter maintained a strong momentum with Rs65 crore worth of order inflow.

Indian Petrochemicals Corporation
Cluster: Apple Green
Recommendation: Book profit
Current market price: Rs189

Book profit

Result highlights

Indian Petrochemicals Corporation Ltd's (IPCL) net sales for Q1FY2006 were higher by 9.6% compared to that in the corresponding quarter last year. However, the volume growth for the quarter was limited to 2%.

The operating profit for the quarter grew by 27.5% as the operating profit margin (OPM) expanded by 300 basis points.

IPCL's profit before tax grew by 62.6% for Q1FY2006 to Rs317 crore, aided by higher other income and lower interest cost.

The net profit for the quarter was at Rs225 crore, up by 83% due to the lower tax rate.

The volume growth for the quarter was at just 2%. The cracker margins for ethylene-based derivatives have also shown a steep decline. Hence we recommend investors to book profit on the stock.

Maruti Udyog

Cluster: Apple Green
Recommendation: Buy
Price target: Rs636
Current market price: Rs465

Strong growth continues

Result highlights

Maruti Udyog Ltd (MUL) registered a 5.9% year-on-year (y-o-y) growth in Q1FY2006, despite a decline in the volumes by 1.4% year on year (yoy).

The contribution margin expanded by 60 basis points yoy to 21.7%, while the operating profit margin (OPM) remained flat at 12.4%.

The net profit registered a strong growth of 32.5% yoy to Rs226.5 crore.

MUL's Q1FY2006 results are in line with our estimates. At the current market price of Rs465 the stock is discounting its FY2006E earnings by 12.1 times. We reiterate our Buy call on MUL with a price target of Rs636.

Sintex Industries
Cluster: Apple Green
Recommendation: Buy
Price target: Rs650
Current market price: Rs595

Powering ahead

Result highlights

Sintex Industries Ltd's (SIL) revenues grew by a robust 44.7% in Q1FY2006 to Rs146.7 crore on the back of the strong performance of both the Textile and Plastic divisions.

The Plastic division reported a year-on-year (y-o-y) revenue growth of 39.2% in the quarter to Rs100.5 crore. The margins improved sequentially by 310 basis points to 10.5%.

The Textile division's performance was good with a 52.4% growth in the revenue to Rs47.3 crore. A higher offtake by Canclini (a joint venture) led to the better performance of the division.

The operating profit margin (OPM) was maintained at 17.2% in the quarter compared to the same period last year. However the OPM was down by 70 basis points on a sequential basis primarily on account of the lower realisation in Canclini's business.

The profit after tax (PAT) growth was robust at 144.5% in the quarter to Rs14.5 crore, partly driven by the strong performance in both the businesses and partly due to the deferred tax write back of Rs3.5 crore in the quarter.

The earnings for the quarter stood at Rs7.8 per share, in line with our estimates.

SIL's board has approved a proposal of sub-division of one equity share of Rs10 paid-up into 5 equity shares of Rs2 paid-up.

SIL trades at an enterprise value (EV)/earnings before depreciation, interest, tax and amortisation (EBDITA) of 7.1 x FY2007E and price/earnings ratio (PER) of 12.8 x FY2007E. We maintain our Buy call with a price target of Rs650 with an investment horizon of 12 months.

State Bank of India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs950
Current market price: Rs801

Results ahead of expectations

Result highlights

State Bank of India (SBI) reported a strong growth of 19.9% in its net interest income (NII) for Q1FY2006.

The growth in the NII came on the back of a 32.5% growth in advances year on year (yoy). The deposits grew by 13% yoy.

SBI's core operating profit grew by a strong 22% yoy as the expenses were under control.

The net profit grew by a slower 15.6% yoy to Rs1,222.8 crore for the quarter as the provision for the amortisation of the premium on investments lying in the Held-till-maturity (HTM) portfolio shot up significantly.

At the current market price of Rs800.8 the stock is quoting at 1.1x its FY2007E consolidated book value. We maintain our Buy rating on the stock with a revised price target of Rs950.

Union Bank of India
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs150
Current market price: Rs128

Bank on track

Result highlights

The net interest income of Union Bank of India (UBI) grew by 14.6% year on year (yoy) in Q1FY2006.

The advances were up by 28.2% while the deposits grew by 18.7% yoy.

The operating profit of the bank was down 10.2% yoy.

The net profit increased by 14.3% yoy.

At the current market price of Rs128, the stock is discounting its FY2006E earnings by 8.2 times and FY2006E adjusted book value by 1.3 times. We reiterate our Buy call on UBI with a price target of Rs150

Saturday, July 30, 2005

Sharekhan - Jaiprakash Associates

Jaiprakash Associates
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs291
Current market price: Rs246

Price target revised

Result highlights

Jaiprakash Associates Ltd's (JAL) net revenues grew by 12% year on year (yoy) in Q1FY2006 to Rs817 crore.

Its cement revenues grew by 25% driven by a volume growth of 23% and a realisation growth of 2% during the quarter.

The construction revenues grew by 5.6% yoy to Rs548 crore driven by a strong order backlog of Rs6,800 crore as on June 30, 2005.

The operating profit margin (OPM) rose by 100 basis points to 19% during the quarter. The growth was driven by the strong volume growth in the cement business and savings in power costs.

The profit before tax (PBT) increased to Rs96 crore, up 19% quarter on quarter (qoq), while the profit after tax (PAT) increased to Rs54 crore. The PAT saw a marginal growth of 4% primarily because of a higher tax outgo.

During the quarter the company sold off its 36.6% stake in Jaiprakash Hydro Power Ltd (JHPL) and realised a profit of Rs360 crore.