Sharekhan Investor's Eye dated May 31, 2007

Sanghvi Movers
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs1,050
Current market price: Rs818

Results in line with estimates

Result highlights

• The Q4FY2007 results of Sanghvi Movers Ltd (SML) are in line with our expectations. The company's revenues increased by 23.6% to Rs52.1 crore and the net profit grew by 70% to Rs15.1 crore year on year (yoy).
• We had mentioned in our previous update that the Q3FY2007 performance was not up to the mark because of the high base effect. The company had got an additional order of around Rs20 crore from Reliance Industries in Q3FY2006 due to a shutdown in the latter's refinery; this boosted the base of the previous year. The fourth quarter's splendid performance after the subdued Q3FY2007 numbers reaffirms our faith in the company. On a sequential basis, the revenues grew by 34% and the net profit grew by 80%.
• The operating profit margin (OPM) for the quarter improved by 680 basis points to 75.5% against 68.6% in Q3FY2006 yoy and by 330 basis points on a sequential basis. The operating profit for the quarter grew by 36% to Rs39.3 crore.
• The interest expense for the quarter increased by 43% to Rs6.3 crore, while the depreciation cost for the quarter declined by 3.8% to Rs10 crore.
• For the full year, the net revenue grew 19.8% to Rs170 crore and the net profit rose by 99.8% to Rs64.3 crore. Adjusting for the extraordinary item to the tune of Rs17.1 crore (on account of a change in the deprecation policy) in the current financial year, the net profit grew by 46.6%.
• The company has announced a stock split in the ratio of five equity shares of Rs2 each for every existing equity share of Rs10.
• The company did a capital expenditure (capex) of Rs70 crore during this quarter and of Rs189 crore in the full year. It now plans to add more cranes worth Rs150 crore in FY2008.
• The company added 21 new cranes and a total of 42 cranes in this year. What's more, it has already placed order for 15 new cranes to be added in FY2008.

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Edelweiss - Sanghvi Motors

Edelweiss on Sanghvi Motors say,

To manage higher growth with the ongoing investment in infrastructure sector, the
company incurred a total capex of INR 1.9 bn in FY07 and ended the year with a gross
block of INR 5.6 bn. Going forward, it plans to add cranes worth INR 1.5-1.6 bn. Based
on the continuous capacity expansion, we expect the company’s revenues to register a
CAGR of 26% (to reach INR 3.0 bn) and EPS CAGR of 37.2% (to reach INR 797 mn)
during FY06-09. On our EPS of INR 78 and INR 101.7, the stock trades at a PE of 10.5x
and 8.1x our estimates for FY08E and FY09E, respectively. We maintain our ‘BUY’
recommendation on the stock.

Sanghvi Movers: Buy

Investors with a one to two-year perspective can consider taking an exposure in Sanghvi Movers, one of the largest crane-hiring companies in India. At current market price, the stock trades at about 12 times its likely FY08 earnings per share.

With a market share of more than 50 per cent in the crane-hiring market in India, Sanghvi Movers is likely to be a leading beneficiary of the robust demand environment for such services.

This apart, an expansion in capacities and market presence also point to strong earnings growth. Sanghvi derives a significant portion of its revenues from windmill manufacturers, mainly Suzlon Energy. A robust order-book for Suzlon and the increase in sops and tax rebates for wind power generation could translate into strong order flow for Sanghvi. Though the company's recent earnings performance has been unimpressive, this is unlikely to be the trend over the next few quarters. For the quarter ended December 2006, revenues dipped by about 12 per cent in comparison to the corresponding quarter last year and profits declined by about 31 per cent.

The blip in sales can be explained by a base effect caused by the shutdown of Reliance's Jamnagar refinery in the third quarter of last year.

This generated additional sales for Sanghvi. Apart from lower revenues, earnings were impacted by a change in depreciation method and higher interest costs. Though these charges could continue to expand costs, we expect this to be offset by strong volume growth.

In an effort to increase it market presence, Sanghvi has lined up a capex of Rs 330 crore for FY08. Margins are also likely to get a boost from the proposed merger of its group company, Sanghvi Projects with itself. This apart, the recent acquisition of land in Mumbai-Pune highway could also contribute to savings on transportation cost for equipment.

The risks to business arise from the capital-intensive nature of this business; Sanghvi's ability to manage the overall utilization of its cranes is crucial. This apart, high dependence on the wind power segments for earnings, is also a risk as any slowdown in this segment could pressure performance.

ICICIDirect : Research Report - Sanghvi Movers (Buy: Rs 640, Target: Rs 837)

Sanghvi Movers (SANMOV)

Price: Rs 640 Target: Rs 837

OUTPERFORMER

Sanghvi Movers, India's largest crane-hiring company, is a proxy on the industrial and infrastructure boom in the country. Its aggressive ramp- up in crane capacity has coincided with a severe shortage of cranes globally, which should lead to robust growth in revenue and profits over the next few years. We initiate coverage on the company with an OUTPERFORMER rating.



Thrust on infrastructure to spur demand for cranes: Cranes are an essential component for infrastructure building. The government has unveiled several initiatives to boost infrastructure and investment amounting to Rs 1,400,000 crore have been planned over FY07-12E. We believe this will create huge demand for cranes and Sanghvi Movers will be a major beneficiary.

Dominant player in the crane-hiring business: Sanghvi enjoys a leadership position in the domestic crane-hiring market with an almost 50% market share. It is India's largest crane operator and among the top 5 largest crane hiring companies in Asia. It is ranked 15th globally by Cranes International, a UK based leading magazine tracking the global crane
providers.


Aggressive ramp up in crane capacity: To capitalise on the rising demand, the company has been adding capacities and ramping-up its fleet size. It has lined up capex of Rs 330 crore for FY07-08E, to further boost its fleet by another 60-65 cranes. Of this it has completed expansion of Rs 180 crore in FY07.

Valuations: At the current price of Rs 640, the stock is trading at a P/E multiple of 12.5x its FY07E EPS of Rs 50.9 and 10.7x its FY08E EPS of Rs 59.7. On an EV/EBIDTA basis, the stock is available at 6.3x FY07E earnings and 5.4x FY08E earnings. Given the company's dominant position in the crane-hiring market and the capex boom in India, we believe that the stock
is undervalued. We rate the stock an OUTPERFORMER with a 12-month price target of Rs 837, at 14x FY08E earnings, an upside potential of 40%.

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Sanghvi Motors

Sharekhan Investor's Eye dated November 21, 2006

Infosys Technologies Cluster: Evergreen Recommendation: Buy Price target: Rs2,430 Current market price: Rs2,252

ADS issue priced at $53.5
The sponsored American depository shares (ADSs) issue by Infosys Technologies have been priced at $53.5 each excluding the underwriting discounts and commissions. The aggregate size of the ADS issue works out to $1.6 billion, taking the total market capitalisation of Infosys' overseas float to over $5.5 billion. Consequently, Infosys is likely to get included in the Nasdaq-100 index in the forthcoming review of the index constituents in December.

Sanghvi Movers
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs1,150
Current market price: Rs763

Oozing confidence
At its board meeting held on November 17, 2006 Sanghvi Movers decided to allot up to 880,000 equity shares of face value Rs10 each to Goldpeak. (Goldpeak is a wholly-owned subsidiary of Aria Investment Partners III, LP). The proposed allotment would be carried out as per the pricing formula recommended by the Securities and Exchange Board of India or at Rs825 per equity share, whichever is higher.

By way of this allotment the company proposes to raise Rs72.6 crore, which will go towards funding its enhanced capital expenditure (capex) requirements. We had earlier estimated the company's capex needs at Rs150 crore this year; the estimate has now been revised upwards to Rs200 crore, as per management's guidance.

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Sharekhan Investor's Eye - Oct 31

JK Cement
Cluster: Cannonball
Recommendation: Buy
Price target: Rs295
Current market price: Rs190

Whopper results

Result highlight

• JK Cement reported a pre-exceptional net profit of Rs30 crore for Q2FY2007, much higher than expected. The same was better than expected because of higher-than-expected cement volume and realisation. Also its white cement business delivered a good performance during the quarter.
• Impressed by JK Cement's Q2FY2007 results we are upgrading our earnings estimates for FY2007 and FY2008 by 59% and 49% respectively. Our earnings per share (EPS) estimates now stand at Rs21.3 for FY2007 and Rs31 for FY2008.
• The revenues for Q2FY2007 grew by a healthy 30% year on year (yoy) to Rs268 crore driven by a growth of 36.6% in the cement realisation. Overall cement volume declined by 4.6% because of excessive rains and floods in Rajasthan and Gujarat.
• The grey cement volume declined by 6.4% whereas its realisation grew by a massive 37%. On the other hand, the white cement volume and realisation grew by 29.6% and 9% respectively yoy.
• The company's leverage to cement prices led to a massive 125% jump in its operating profit to Rs63.5 crore whereas the operating profit margin (OPM) expanded by 10% points to 23.7%. The earnings before interest, tax, depreciation and amortisation (EBITDA)/tonne more than doubled to Rs726 from Rs308 in the same quarter last year.
• The net interest cost stood at Rs9.2 crore whereas the depreciation charge stood at Rs8.1 crore, in line with our expectations.
• The pre-exceptional net profit for the quarter stood at Rs30 crore, up a whopping 512% yoy. The quarter included a one-time extraordinary other income of Rs4 crore in the form of a refund given by the Rajasthan State Electricity Board (RSEB) towards a waiver on electricity duty pertaining to an earlier period. We have treated this as an extraordinary item and accounted for it below the line. The reported net profit grew by 594%.
  

Sanghvi Movers
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs1,150
Current market price: Rs762

Strong operational performance

Result highlight

• The Q2FY2007 net profit of Sanghvi Movers Ltd (SML) grew by 90.1% year on year (yoy) to Rs13.1 crore, ahead of our expectations of Rs11.4 crore.
• The net revenues grew by 37.1% yoy to Rs47.3 crore driven by the addition of cranes worth Rs80 crore during H1FY2007 and a utilisation rate of 43%, which was higher than that of 40% achieved in Q1FY2007.
• The operating profit grew by 52.3% yoy driven by an 820-basis-point expansion in the operating profit margin (OPM). The OPM expanded by 170 basis points sequentially.
• Despite the addition of the new cranes, the depreciation charge was down 9.7% yoy to Rs8.5 crore, reflecting the effect of the change in the company's accounting policy for depreciation of new assets (bought after April 1, 2005), effected in Q3FY2006. The company has shifted from the written-down value (WDV) method to the straight-line method (SLM). Also it has changed the depreciation method for all assets (bought between April 1, 2002 and March 31, 2005) in the current quarter.
• Driven by the strong operational performance and aided by the lower depreciation the net profit grew by a robust 90.1% yoy to Rs13.1 crore.
• We have upgraded our estimates of earnings per share (EPS) for FY2007 and FY2008 by 4.1% and 5.2% to Rs63.7 and Rs82.9 respectively to take into account the better-than-expected OPM and the revenue growth that is in line with our estimates.
• At the current market price of Rs762, the stock is trading at 9.2x its FY2008E EPS, 6.2x FY2008E cash EPS (CEPS) and 5.0x FY2008E enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA). We reiterate our Buy recommendation on the stock with a price target of Rs1,150.
  

Hindustan Lever
Cluster: Apple Green
Recommendation: Buy
Price target: Rs280
Current market price: Rs234

Price target revised to Rs280

Result highlight

• The Q3CY2006 net profit of Hindustan Lever Ltd (HLL) grew by 17.5% year on year (yoy) to Rs383.0 crore, in line with our expectations.
• The net revenues grew by 12.2% yoy on the back of a 14% year-on-year (y-o-y) growth in the home and personal care (HPC) segment, which comprises the soap and detergent, and personal care businesses. Adjusted for Nihar (a brand sold by HLL to Marico Industries) the growth in the revenues stood at 12.8%.
• The profit before interest and tax (PBIT) grew by 15.3% yoy as the PBIT margin expanded by 44 basis points yoy to 16.2%.
• The expansion in the PBIT margin was partly a result of an improvement in the margins of the ice cream business and exports. Another reason was the turnaround in the process foods business, which had made losses in Q3CY2005.
• The PBIT margin in the soap and detergent, and personal product businesses contracted by 76 basis points and 136 basis points respectively despite price increases, as the sales and promotion expenses of these businesses went up substantially.
• We have lowered our earnings per share (EPS) estimates for CY2006 and CY2007 by 5% and 6.6% to Rs7.1 and Rs8.5 respectively to take into account the slower-than-expected expansion in the margin of the HPC segment.
• At the current market price of Rs234, the stock is quoting at 26.8x its CY2007E EPS and 24.6x CY2007E enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA). We reiterate our Buy recommendation on the stock with a revised price target of Rs280.
  

Subros
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs370
Current market price: Rs250

Cool gains

Result highlight

• Subros' Q2FY2007 net profit at Rs7.8 crore is sharply ahead of our expectation, primarily because of a higher-than-expected revenue growth and a better operating profit margin (OPM).
• We are upgrading our earnings estimates for Subros by 17% for FY2007 and 13% for FY2008. Our earnings per share (EPS) estimates now stand at Rs28.1 for FY2007 and Rs40.5 for FY2008.
• The revenues for the quarter at Rs166 crore grew by 27% year on year (yoy), driven by an impressive growth in the volumes of its key clients, Maruti Udyog Ltd (MUL) and Tata Motors (TAMO), which are currently reaping the benefits of an 8% reduction in the excise duty on small cars. The total automotive air-conditioning system (AAS) volumes grew by a handsome 41% to 125,756 units and, as expected, the realisation came down by 10%.
• The volume growth (41%) reported by Subros is higher than that reported by its key clients MUL (13%) and TAMO (21%). This means it has been able to increase its combined supply share for these two auto majors from 47% a year ago to 58% in Q2FY2007.
• Driven by a slight improvement in the raw material cost and a strict control on the other operating costs, the OPM for the quarter improved by 240 basis points yoy to 11.1%. Hence the operating profit for the quarter grew by 61.5% yoy to Rs18.3 crore.
• With the commissioning of some of the capacities set up as part of the first phase of the capacity expansion programme, depreciation for the quarter inched up by 10.3% and the interest charge doubled to Rs1.71 crore.
• The net profit for the quarter grew by a handsome 93% to Rs7.8 crore.
  

Ashok Leyland
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs53
Current market price: Rs44

Higher truck sales impact margins

Result highlight

• Ashok Leyland's (ALL) Q2FY2007 results are in line with our expectations, though the margins have been slightly lower than our expectations.
• The net sales for the quarter grew by 34% to Rs1,675.7 crore led by a volume growth of 33%.
• The operating margins have declined by 80 basis points to 8.2% as a result of higher raw material costs, particularly rubber and non-ferrous metals. Consequently, the operating profits (after adjusting for the foreign exchange [forex] gain/loss) for the quarter rose by 22% to Rs138 crore.
• With a price hike of 2.5% with effect from November and a higher contribution from the defence and bus segments in the second half, the margins should improve.
• Higher other income, lower interest costs and stable depreciation aided the company in posting a 27.1% growth in the reported net profits to Rs95.4 crore.
• At the current market price (CMP) of Rs44, the stock quotes at 11.6x its FY2008E earnings. We maintain our Buy recommendation on the stock with a price target of Rs53.
  

Punjab National Bank
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs600
Current market price: Rs520

Core operating numbers look promising

Result highlight

• Punjab National Bank's results are slightly below our expectations with the profit after tax (PAT) reporting a growth of 19.7% to Rs505 crore compared to our estimates of a PAT of Rs532 crore.
• The net interest income (NII) was up by 14.4% compared to our estimates of 20.5%. The reported net interest margins (NIMs) for H1FY2007 at 4.16% have improved by 16 basis points year on year (yoy). The bank's CASA ratio at 49% is among the best in the industry.
• The other income decreased by 9.1% to Rs284 crore mainly due to the lower trading income as the fee income growth remained robust at 17.6%.
• The core operating profit was up 33.5% while the operating profit was up 30% with the provisions up from Rs9.4 crore to Rs101 crore mainly due to the higher non-performing assets (NPAs) and standard assets provisioning. We expect that the bank must have utilised the write-back in the excess depreciation due to a fall in the bond yields, booked during Q1FY2007 to make higher NPA related provisions during Q2FY2007.
• The advances growth has been at 28.9% yoy as on September 2006 compared to 37.4% yoy as on June 2006. The moderation in the advances growth is welcome with the high yielding advances like retail growing by 47.7% yoy as on September 2006.
• We have revised our earnings per share (EPS) estimates for FY2007 and FY2008 from Rs51.8 and Rs 65.2 to Rs56.1 and Rs 70.7 respectively mainly on account of the improving core banking performance on the back of improving margins and selective credit growth along with a high 49% CASA which protects the cost of deposits during a rising interest scenario. However, the scrip remains exposed to some amount of interest rate risk if the bond yields move up significantly beyond 8% from the current levels.
• At the current market price of Rs520, the stock is quoting at 7.4x its FY2008E EPS, 4.2x pre-provision profits (PPP) and 1.3x book value. The bank is available at attractive valuations given its improving operating performance and asset quality that is one of the best in the industry. We maintain our Buy call on the stock with a price target of Rs600.
  

Tata Motors
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,004
Current market price: Rs828

Margins dip, just a blip

Result highlight

• Tata Motors� Q2 results are below our expectations due to a marginal drop in the operating margins and higher interest and product development costs.
• The net sales for the quarter are in line with our expectations, marking a growth of 37.4% to Rs6,571.8 crore.
• The operating margins (excluding forex gain/loss and some non-incurring employee expenses) for the quarter have declined by 60 basis points to 11.8%. The margins have been affected due to the higher consumption of steel and rubber in commerical vehicles. Consequently, the operating profits for the quarter have grown by 30.8% to Rs777.9 crore.
• Higher interest and product development costs led to a net profit growth of 30.4% to Rs441.9 crore.
• The company is in talks with Fiat to expand the terms of its joint venture agreement across product categories and markets.
• In view of the favourable domestic market, increasing international dimension (soaring exports, acquisitions & tie-ups) and an aggressive growth strategy, we believe Tata Motors is set to assert itself as a globally competitive auto major.
• Considering the decline in the operating profit margins we are marginally downgrading our estimates by 7% from Rs58.0 to Rs53.9 for FY2007 and by 5% for FY2008 from Rs70.6 to Rs67.4. At the current market price of Rs828, the stock quotes at 12.4x its consolidated FY2008E earnings and 7.9x its FY2008E earnings before interest, depreciation, tax and amortisation. We maintain our Buy recommendation on the stock with a price target of Rs1,004

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