Wockhardt
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs552
Current market price: Rs406
Annual report review
Wockhardt has set a target of achieving sales of $1 billion by 2009. The company believes that it would benefit from the market potential of India's population of over one billion, the projected boom in health insurance (an area in which the country is currently woefully underdeveloped) and new government initiatives to enable the majority of the population to access the life saving drugs. On the other hand, the company's outlook for regulated markets like the EU and USA is robust. Both the organic and inorganic initiatives would drive the growth of the company in the regulated markets.
However, the company has already given a revenue guidance of $1 billion for 2009; out of this $700 million will come through organic growth while $300 million will come as contribution from the inorganic initiatives. For CY2007, the company is targeting to cross sales of $500 million and maintain the net margin in the range of 16-18%.
Universal Cables
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs179
Current market price: Rs95
Q4 results beat expectations
Result highlights
- Universal Cables Ltd's (UCL) Q4FY2007 results are ahead of our expectations.
- UCL's net sales grew by 51% to Rs129 crore; and the net profit grew by 77% to Rs6.2 crore as against our expectation of Rs5 crore.
- The operating profit margin (OPM) for the quarter improved by 137 basis points to 10.84% on account of operational efficiencies as the other expenses to sales ratio declined to 10.78% from 14.43% last year. The operating profit for the quarter grew by just 74% to Rs12.2 crore.
- We had mentioned in our previous update that we expect the OPM to improve, as the company focuses on the high-end products that have better margins and as its 100% subsidiary Optic Fibre Goa Ltd (OFGL) turns profitable. On a full year basis this optic fibre business recorded a turnover of Rs15 crore, growing by 100% over the last year. Its PBIT stood at Rs1.4 crore as against the loss of Rs1.6 crore in the previous year.
- The interest expense for the quarter increased by 50% to Rs1.79 crore and the depreciation cost for the quarter increased by 94% to Rs2.25 crore. The interest and depreciation charges increased because the first phase of the technological upgradation-cum-expansion project was commissioned and commenced commercial production during the quarter ended March 31, 2007. The project uses Vertical Continuous Vulcanization (VCV) process for manufacture of XLPE Power Cables.
- For the full year ended March 31, 2007, the net sales grew by 27% to Rs377 crore and the net profit grew by 33% to Rs22 crore.
- The company has recommended a payment of dividend for the year @ Rs2.40 per share (ie 24%), thus the stock also offers good dividend yield.
- At the current market price of Rs95, the stock is quoting at 7.2x its FY2008E earnings per share (EPS) and 5x its FY2008E enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA). We maintain our Buy recommendation on the stock with price target of Rs179.
Punjab National Bank
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs578
Current market price: Rs535
Higher one-time provisions affect numbers
Result highlights
- The Q4FY2007 results of Punjab National Bank (PNB) are much below our expectations with the profit after tax (PAT) reporting a decline of 17.7% year on year (yoy) to Rs237 crore compared with our estimate of Rs460 crore. The PAT declined mainly due to higher than expected staff expenses (Rs300 crore of one-time AS-15 related prudential provisions) and higher marked-to-market (MTM) investment depreciation.
- The reported net interest income (NII) was up 20.6% yoy but down by 1.6% quarter on quarter (qoq) to Rs1,423 crore. However, adjusted for a one-time cash reserve ratio (CRR) interest income of around Rs56 crore the NII was up 15.8% yoy and down 5.5% qoq. Our calculations suggest that the net interest margin (NIM) of the bank has declined on a sequential basis by 36 basis points due to a decline in the asset yields (as interest on investments declined) combined with an increase in the cost of funds.
- The non-interest income was up 23% yoy. The 29.5% yoy growth in the core fee income was one of the highlights of the current quarterly results.
- Provisions for the quarter were high at Rs613 crore, of which Rs330 crore was on account of the MTM losses on the bond portfolio.
- The asset quality of the bank has shown some deterioration with the net non-performing asset (NPA) in percentage terms at 0.76% in March 2007 compared with 0.42% in December 2006 and 0.29% in March 2006. However, the gross NPA stood at 3.45% compared with 3.65% in December 2006. This was largely due to a higher advance base because in absolute terms the gross NPA increased to Rs3,391 crore from Rs3,268 crore in December 2006.
- We have reduced our earnings estimate for FY2008 by 6% to Rs1,971 crore mainly due to higher NPA related provisions. Despite the decline in the NIM on a sequential basis the bank's NIM still continues to be among the highest in the industry. We expect the NIM to stabilise going forward and improve the profitability of the bank. At the current market price of Rs535, the stock is quoting at 8.6x its FY2008E earnings and 1.4x FY2008E book value. We maintain our Buy call on the stock with a price target of Rs578.