Motilal Oswal recommends Neutral On Geometric Software @ 100 With Target Price 105
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Wednesday, October 05, 2005
Aarvee Denim and Exports
Aarvee Denim and Exports
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs206
Current market price: Rs135
Dressed to kill
Key points
- Globally denim capacities are shifting from the high-cost areas like the USA to the low-cost areas like India. Second, as a result of the removal of quotas garment manufacturing capacities are also coming up in the country.
- With its population of one billion India is a big market for Aarvee Denim and Exports as most of it is still untapped. What's more this market is growing at 10% per year with denim finding more uses (ladieswear, children wear, accessories like bags, belts, etc) and becoming a rage even in towns and villages due to its affordability.
- We expect Aarvee to benefit from these developments, as it is one of the lowest-cost manufacturers in the country and would consolidate its No 2 position by expanding its capacity by more than 50% from 47 million metre to 72 million metre per year.
- As a result of the softening of cotton prices due to a bumper cotton harvest and savings in power & fuel costs the company's earnings before interest, depreciation, tax and amortisation (EBIDTA) margin is expected to improve by 300 basis points from 21.7% in FY2005 to 24.7% in FY2007.
- At the current market price of Rs135 Aarvee is available at a price/earnings ratio (PER) of 8x FY2006E (5x FY2007E) and enterprise value (EV)/EBIDTA of 4.82x FY2006E (3.41x FY2007E). We believe the valuations are cheap and recommend a Buy on Aarvee with a price target of Rs206.
Tuesday, October 04, 2005
KSB Pumps
KSB Pumps
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs550
Current market price: Rs399
A profit pump
Key points
- KSB Pumps, a leading manufacturer of pumps and valves, is all set to reap the benefits of the huge investments being planned in the fluid-handling sectors, such as oil & gas production, oil & gas refining and marketing, petrochemicals, etc.
- KSB's boiler-feed water pumps are extensively used in the power sector and we expect the company to be the prime beneficiary of a four-fold increase in the investments (Rs500,000 crore in the 11th Plan as against Rs112,000 crore in the 9th Plan) being made in the sector.
- After the turn-around of the valve division the company's earnings before interest and tax (EBIT) margin jumped by a whopping 1,080 basis points to 21.1% in H1CY2005. The division would be a key driver of KSB's growth in future as it is doubling its manufacturing capacity to capitalise on the opportunities resulting from the buoyancy in the fluid-handling sectors.
- Driven by the sterling performance of the pump division and the expansion of the valve capacity, we expect KSB's earnings to grow at a compounded annual growth rate (CAGR) of 40% from Rs17.2 in CY2004 per share to Rs33.9 per share in CY2006.
- KSB has the strongest financials in the industry, as it is virtually a debt-free company with a very low debt/equity ratio of 0.06. Its return ratios are also impressive: return on capital employed (RoCE) of 42.1% and return on net worth (RoNW) of 22.5%.
- At the current market price of Rs399 the stock is discounting its CY2006E earnings by 11.8x. The average price/earnings ratio (PER) for the pump manufacturing companies is close to 29x while KSB is trading at 23x (both on a historical basis). We initiate coverage on KSB with a Buy recommendation and a twelve-month price target of Rs550.
Monday, October 03, 2005
Navneet Publications (India)
Navneet Publications (India)
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs405
Current market price: Rs286
Don't miss the bus
Recently we met the management of Navneet Publications to get an update on the progress of the programme of changing the syllabus in Maharashtra and here are the key takeaways from our meeting.
Sunday, October 02, 2005
AurionPro Solutions IPO - BusinessLine
aurionPro Solutions: Avoid
Krishnan Thiagarajan
INVESTORS could avoid the book-built public offer of aurionPro Solutions made at a price band of Rs 81-90 per share. Even at a lower end of the price band, the IPO is stiffly priced at a price -earnings multiple of 23 times its FY 05 earnings. The pricing may not leave adequate scope for capital appreciation in the medium term. Since aurionPro is expected to focus primarily on the products market for the banking segment, the flight to scale and intense competition in this space will be the principal challenges to growth. Over the past year, scale, size and reach have emerged as the key variables dictating growth in the banking products segment. The services business of aurionPro is aimed at complementing its product portfolio.
The recent acquisition of the Citigroup's equity stake by Oracle in i-flex solutions has raised the competitive bar and heralds the consolidation phase in the banking products space. Some of the mid /small-sized product players that are focussed on niches and competing with the likes of aurion have broad-based their products portfolio to focus on insurance, mutual funds and even ERP solutions to bring in greater predictability to their revenue stream. Moreover, the longer sales cycle (from the start to the closure of a product deal) and higher selling and marketing expenses, especially in penetrating the developed markets, such as the US, leave smaller - sized players more vulnerable to fluctuations in revenue and earnings stream.
aurionPro is coming out with this public offer to raise Rs 24-27 crores primarily to expand its facilities at a cost of Rs 7.8 crores, establish overseas offices at Rs 3.5 crore and finance an incremental working capital of Rs 4.2 crore. The remaining proceeds after public issue expenses are met will be retained for acquisitions. To part finance the project, the company has made a private placement of shares at Rs 150 per share with certain investors to the tune of Rs 3.14 crore.
On the products side, aurionPro is focussed on developing products in the area of cash management, treasury and risk management space for the domestic and overseas markets. It is also engaged in providing customised IT services and support to its clients in the banking arena. The consolidated revenues as of March 31, 2005 stood at Rs. 10.4 crore, with post-tax earnings of Rs 2.7 crore, with a significant jump in revenues in the latest financial year. It has 190 employees as of August 30, 2005.
Given the small revenue base, the scope for growth will be fairly high over the next year or so. However, considering the relative size of the company and its nascent presence in the developed markets, the ability of aurionPro to scale and establish its presence in these markets will present a serious challenge over the medium term. Besides, aurionPro's relatively niche focus on banking products may also pose a challenge as this market is moving away from the best-of-breed solutions towards an integrated solutions market with established global players. This is poised to increase the scope for vendor consolidation and open up greater opportunities for large product vendors to scale-up within banking clients in a modular fashion. Finally, the competition among niche vendors focussed on key areas such as cash management, treasury and risk management has also been growing in the past few years. This is likely to place pressure on margins in the coming years.
The book-built IPO opened on September 27 and closes on October 4. The stock is to be listed at NSE and BSE. The lead managers to this offer are Centrum Capital and Karvy Investor Services.
Paradyne Infotech - BusinessLine
Paradyne Infotech: Avoid
Suresh Krishnamurthy
AN INVESTMENT in the initial public offer of Paradyne Infotech need not be considered. The company's financial performance the past two years has been impressive. The valuation of the stock is also attractive.
Paradyne's market capitalisation, based on the offer price, works out to Rs 42 crore and the price-earnings multiple would be about 9. However, factors such as the lack of well-articulated strategy, excessive dependence on the domestic market for revenues, and the small size of the company increase the risks involved.
Paradyne does not appear to possess any distinct competitive advantage, which is essential for a software services company to sustain itself and grow.
Impressive growth
Paradyne's revenues increased from Rs 35 crore at the end of March 2003 to Rs 68.52 crore at the end of March 2005.
During the same period, profits rose from Rs 31 lakh to Rs 5 crore. The average return on net worth over the past three years is a healthy 35 per cent.
Annand Sarnaaik, a management graduate with no experience in software services, set up Paradyne Infotech in 1997.
The company is into systems integration, software services, managed services and recently entered BPO. Systems integration contributes a sizeable 75 per cent of the firm's revenues. Exports accounted for less than 10 per cent of total revenues. Growth in export sales has, however, been unimpressive.
The bulk of revenue may be generated from hardware sales. Though the company does not indicate the hardware component in the total sales, of the total 102 technical staff employed by Paradyne, 34 are hardware engineers.
Risky prospects
Nothing in the offer document suggests that Paradyne has a competitive edge over its competitors in the domestic software arena. The revenues from the latter are set to grow rapidly given that the Indian industry is expected to grow at 12 to15 per cent per annum in the next several years.
Without competitive advantage or size, Paradyne may find it difficult to take advantage of the growth prospects for domestic software services. Its management strategy is also not well articulated.
Paradyne sees itself as an integrated IT solutions provider. The company's size, however, makes such claims look lofty and suggests that it lacks a focussed strategy.
The offer document also does not clearly indicate what proportion of the profits is accounted for by systems integration, which is hardware intensive and the competition is quite intense in India.
There is also no mention of the company's performance in the quarter ended June. Paradyne has indicated that it has orders for Rs 12 crore as of end-September. This works out to a substantially small proportion of the total revenues for the year ended March. These risk factors considerably dilute the attractiveness of the offer.
Saturday, October 01, 2005
Friday, September 30, 2005
Thursday, September 29, 2005
Sharekhan Report
Emco
Cluster: Apple Green
Recommendation: Buy
Price target: Rs450
Current market price: Rs421
Healthy order book
At the current market price (CMP) of Rs421 Emco trades at 0.9x EV/order book. Going forward, we expect this trend to continue mainly on account of the huge investment lined up in upgrading the existing power infrastructure as well as in setting up new power facilities. We will review our recommendation and estimates at the time of Q2FY2006 results.
Thermax
Cluster: Emerging Star
Recommendation: Buy
Price target: Under review
Current market price: Rs797
Strong order book
We expect Thermax's earnings to grow at a compounded annual growth rate (CAGR) of 36.8% over FY2005-07, driven by a 20.5% CAGR in the revenues and a modest margin recovery. At the current market price the stock quotes at 1.0x EV/order book. We will review our recommendation and estimates upon receipt of Q2FY2006 results.
Sintex Industries
Cluster: Apple Green
Recommendation: Buy
Price target: Under review
Current market price: Rs690
Raising funds
Sintex Industries, a dominant player in the textiles and plastic businesses, has raised USD50 million (approximately Rs220 crore) through a zero coupon unsecured and un-rated 5-year foreign currency convertible bond (FCCB) issue, with a yield to maturity set at 6.85%..
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