Aban Loyd Chiles Offshore
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs1,200
Current market price: Rs800
Price target revised to Rs1,200
At the current market price (CMP) of Rs800 the stock is discounting its FY2008 earnings by 13.4x and its earnings before interest, depreciation, tax and amortisation (EBIDTA) by 6.1x. However, as the rig day rates are expected to continue the uptrend and the favourable outlook for the re-pricing of all of Aban's rigs by FY2009, we believe FY2009 earnings are the correct earnings to value Aban. As mentioned earlier, we expect its earnings to register a CAGR of 80% with a net profit of Rs513.4 crore and an EPS of Rs135 in FY2009. Hence the stock is discounting its FY2009 earnings by only 5.9x and its cash earnings per share (CEPS) by 3.9x. Also the valuations are extremely attractive on EV/EBIDTA basis with a value of only 3.3x its FY2009 EBIDTA.
Given the favourable outlook for the re-pricing of Aban's rigs in FY2009, its strong cash generation and its continued appetite for growth through organic or inorganic routes, we see an increasing amount of earnings visibility for the company at least till FY2009. We are revising our price target to Rs1,200. We have arrived at our price target by discounting Aban's FY2009 earnings of Rs135.5 by 10x and bringing it to its present value by discounting it by the company's cost of capital of 12.8%.
Wockhardt
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs552
Current market price: Rs480
Price target revised to Rs552
Result highlights
- Wockhardt's net sales for Q4CY2005 were up 5.4% year on year (yoy) on a consolidated basis to Rs365.9 crore as against Rs347.1 crore in Q4CY2004.
- The earnings before interest, depreciation, tax and research (EBIDTR) margins were maintained at 27.7% during the quarter. A decrease in the research and development (R&D) expense by Rs4.8 crore helped in bumping the operating margins which rose by close to 200 basis points.
- A decrease in the other income contributed to the fall in the earnings before interest, depreciation, tax and amortisation (EBIDTA) that stood at Rs87.8 crore. The profit after tax stood at Rs62.9 crore, showing a rise of 9.4% yoy on an adjusted basis. The net profit margin increased by 116 basis points yoy.
- At the current market of Rs480, the stock is trading at 17.4x its CY2007 earnings estimate. We reiterate our Buy recommendation on Wockhardt with the revised price target of Rs552.