Motilal Oswal - Value Investing - August

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Motilal Oswal - SBI

Motilal Oswal recommends BUY on SBI

Target >> 900

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Cheating at IOC Outlet

This happened today - Aug 7th 2005. I wanted to fill some petrol and had gone to the IOC Outlet at Airport Road - Bangalore. I asked to fill up for 200 rupees.

When I was paying money to the other person there, I just turned away for a moment. Meanwhile, the guy who fills up the petrol - says - he filled up for 50 rupees - the LCD showing 50 rupees. I clearly saw that he hadn't filled up - he just says - he heard for 50 rupees and says - he will fill for 150 rupees. I told him I saw that no petrol was put in. He sheepishly didn't even argue and filled up for 200 rupees.

Actually, the same thing happened the last time I went to fill up the petrol at the same outlet - the exact same thing happened except that I did not notice whether he had filled up petrol for 50 rupees.

I posted a complaint at the IOC website. Keep a watch when you get your fuel filled next time.

IPOs in Pipeline

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Sharekhan Valueline

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HT Media - AVOID - Way2Wealth

Way2Wealth recommends AVOID on HT Media

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Hindustan Times - (Unknown Analysis)

IPO & Size

HTM, one of India's leading print media company, is making public offer of 76,91,000 equity shares (FV Rs.10), comprising Fresh Issue of 46,40,000 equity shares, offer for sale of 23,55,000 shares by HPC, Mauritius and 6,96,000 shares by Hindustan Times by way of Green Shoe option. At Price Band of Rs.445-Rs.530, HTM is garnering Rs.206.48 crore–Rs.245.92 crore. Post Issue equity will rise to Rs.47.09 crore fully diluted and promoters' holding will come down to 68.37% (77.11%). Proceeds of issue will be deployed for expansion of printing operations at Noida and Mumbai, augmenting of sales and marketing especially for establishing brand in Mumbai and entering into providing FM radio services subject to regulatory approvals.


About HTM

HTM is India's second largest print media company in terms of circulation of daily newspapers. It publishes two daily newspapers – Hindustan Times in English and Hindustan in Hindi, apart from a couple of magazines. As part of its strategy to grow the newspaper' national presence, company has launched Hindustan Times in Mumbai.

Investment Positives

Ø "Hindustan Times" has the largest circulation among English dailies in Delhi (25% lead over its nearest competitor) and neighbouring areas of Chandigarh, Ludhiana etc. Being one of the leading media brands in India, "Hindustan Times" attracts higher ad-spend, better rates and more attractive business arrangements than many of its competitors. On the other hand, HTM's Hindi publishing is also going to be one of the growth drivers as company's earlier investments in high growth markets in Hindi belt will now add to sales and profitability as these markets have turned around.

Ø HMT's foray into Mumbai market, which has the largest share of print media advertising expenditure in India, is a key step to grow company's national footprint and exploit the most lucrative advertising market in India. Entry of "Hindustan Times" in Mumbai (which is currently dominated only by a single newspaper) will provide advertisers and readers with greater visibility and a compelling alternative. Moreover, attractive subscription offers from the new entrant may bring it a significant number of readers leading to expansion of Mumbai market. Company is investing a substantial amount for launching and sustained visibility of its brand in Mumbai. Thus, by combining its leading presence in Delhi and other key markets with its Mumbai edition, HTM has an opportunity to capture a greater share of national ad-spend.

Ø The Indian economic scenario presents promising growth opportunity for the industry. Out of advertising pie of Rs.11,800 crore (In 2004), Print media contributed 46% of ad spend, while TV media contributed 41%. With increase in GDP, literacy, purchasing power and ad-spend., advertisement pie continues to experience double digit growth. While print segment is growing at 15%, TV segment is growing at 13%. Readership of print media is growing at 18% in Hindi and 14% in English.

Ø HTM is improving its operating efficiency through enhancement of revenue generation efficiency, streamlining its manpower over past two years, and reducing newsprint cost (constitutes 50% revenue) through better sourcing and lowering of waste. Moreover, for better asset utilization, company will be undertaking third party printing jobs from Q3 FY06.


Ø Company is selectively considering entering into complementary newspaper and print media businesses, where it can either leverage its brands, its existing advertising customer base or both. It is also considering launching business/financial newspaper and other English editions in key high-growth markets in southern India. In addition, to further its goal to develop into a leading media business, HTM is exploring other opportunities in Indian media sector, such as FM radio, internet etc.

Ø In Q1 FY2006, company has reported total revenue of Rs.181.77 crore. There has been improvement in advertisement revenue to Rs.147.38 crore due to increase in advertisement rates in May 2005. Reduction in competitive pressure in Delhi market has enabled HTM to reduce its sales and marketing expenditure. Operating margins stand at 21.4%. Company's PAT for the quarter stood at Rs.9.8 crore.


Investment Negatives

Ø Mumbai venture will have a negative impact for at least next two years and till then it could act as a drag on HT Media's earnings. Market scenario in Mumbai remains challenging owing to aggressive competition.

Ø Business is heavily dependant on advertising revenue and a downturn in the economy may adversely affect company's revenues.

Ø A spurt in newsprint cost in near term is another cause of concern.

Valuation

At IPO band of Rs 445-530 per share, stock is offered at 61-73 times its FY 2005 fully diluted adjusted earnings of Rs.7.25 and at 51-61 times FY 2006 expected fully diluted earnings of Rs.8.7. Not withstanding positives, though there may be moderate listing gains, we recommend "AVOIDING" the issue, in view of very steep pricing.

Motilal Oswal - PNB

Motilal Oswal recommends Buy On Punjab National Bank @ 435 With Target Price 530

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Motilal Oswal - M&M

Motilal Oswal Recommends Buy On Mahindra & Mahindra @ 678 With Target Price 748

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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.
• Powered by the improvement in the margins the earnings growth was robust at 27.8% to Rs3.7 per share in the quarter.
• 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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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