Sharekhan Investor's Eye

Aban Loyd Chiles Offshore  
Cluster: Emerging Star
Recommendation: Buy 
Price target: Rs1,760
Current market price: Rs1,170

Lining up another acquisition
Aban Loyd Chiles Offshore has commenced negotiations to acquire a 51.97% stake in PT Apexindo Pratama Duta Tbk (Apexindo), an Indonesian oil drilling company. The investment would be strategic in nature and the negotiations will be carried out as per the advice of the company's financial advisor. The terms and conditions of the acquisition, including the price, the rights and obligations of the parties, and the procedures for completion of the acquisition would also be discussed during the negotiations. 

Deepak Fertilisers & Petrochemicals Corporation 
Cluster: Ugly Duckling
Recommendation: Buy 
Price target: Rs126
Current market price: Rs92

A year of aberration 

Result highlights 

• The Q4FY2006 and FY2006 results of Deepak Fertilisers and Petrochemicals Corporation Ltd (DFPCL) are below our expectations. That is because the company's performance was affected due to a lower availability of gas and floods in FY2006.
• The net sales for Q4FY2006 grew by 17.7% year on year (yoy) to Rs170.2 crore. The revenue growth was driven by an 82% rise in the sales of the traded goods yoy. The sales of the manufactured goods declined marginally by 4.3% due to the lower availability of gas in Q4FY2006 as compared with Q4FY2005.
• The Q4FY2006 operating profit declined by 48.5% yoy on account of two reasons. One, the contribution margins on the manufactured products declined. Two, the other expenditure almost doubled on account of extraordinary expenses. Adjusted for the extraordinary expenses, the decline in the operating profit was 27%.
• The fall in the adjusted net profit was lower at 20.0% in Q4FY2006 due to a higher other income and the insurance claims for the damage caused to its machinery as well as the loss of profit on account of the floods in Q2FY2006.
• For FY2006, the consolidated net sales were up by 15.6% to Rs609 crore owing to the higher sales of the traded goods. The adjusted operating profit was lower by 12.5% to Rs117 crore against our estimate of Rs137 crore.
• The adjusted consolidated net profit was lower by 3.1% at Rs76.9 crore against our expectation of Rs72.9 crore. The fall in the net profit was lower primarily because of the higher other income.
• At the current market price of Rs92, the stock trades at 5.4x its FY2007E earnings per share (EPS). 
• We shall revise our estimates for DFPCL after achieving more clarity from the management on the company's new businesses. We believe that the profitability of the new businesses would be lower than our expectation, as the commercial commencement of both the isopropyl alcohol (IPA) plant and the Ishanya shopping mall would be delayed by a quarter. However, looking at the stock's cheap valuations and its dividend yield of 3.25%, we maintain our Buy recommendation on DFPCL.

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SECTOR UPDATE

Information Technology  

Beaten but not out
There are no untouchables in a falling market. The free-fall on the bourses has left its mark even on the best of the stocks and the front-line information technology (IT) companies were no exceptions. However, the extent of damage varied considerably. The extent of decline has been more profound in case of Satyam Computers and HCL Technologies with a respective loss of 26.4% and 28.7% from their 52-week high level. This is much higher than the 13.5% correction witnessed in the Sensex. On the other hand, industry leaders like Infosys Technologies and Tata Consultancy Services (TCS) have managed to comfortably outperform the overall market.