Motilal Oswal - Banking

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GIPCL - FPO

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Sharekhan - Investor Eye

ICICI Bank
Cluster: Apple Green
Recommendation: Buy
Price target: Rs650
Current market price: Rs525

Earnings momentum sustained 

Result highlights

• ICICI Bank reported a strong 39.2% year on year (y o y) and a 12.0% quarter-on-quarter (q-o-q) growth in its net interest income (NII) on the back of a strong growth in its advances.
• The strong growth momentum in the bank's fee income continued—during the quarter the fee income grew by a strong 31.0% yoy.
• The operating profit for Q2FY2006 grew by 38.9% yoy to Rs1,044.1 crore. Notably the core operating profit grew by an even stronger 40.3% yoy.
• The bank's board has given an approval for raising approximately Rs8,000 crore from the Indian as well as the overseas markets to fund the bank's growth and for the capitalisation of the bank's subsidiaries. We expect the issue to boost the FY2006E book value of the bank to Rs250 per share. However, the return on equity will take a marginal hit for a couple of years.
• We maintain our Buy recommendation on the stock with a price target of Rs650.

Sintex Industries 
Cluster: Apple Green
Recommendation: Buy
Price target: Under Review
Current market price: Rs129

Wait and watch 

Result highlights

• Sintex Industries Ltd's (SIL) revenues grew by a robust 35.4% in Q2FY2006 to Rs178.4 crore on the back of the strong performance of both the Textile and the Plastic divisions. 
• The Plastic division reported a year-on-year (y-o-y) revenue growth of 31.5% in the quarter to Rs124.4 crore. The margins improved yoy by 140 basis points to 12.5%. 
• The Textile division's performance was good with a 46.7% growth in the revenues to Rs57.0 crore. The sales to Canclini (a joint venture) continued its growth momentum. 
• The fall in the operating margins at 17.8% in the quarter, down by only 40 basis points, was mainly triggered by the realisation pressure in the textile business. 
• The profit after tax (PAT) growth was robust at 119.6% in the quarter to Rs16.3 crore, driven by the strong performance in both the businesses and the higher other income in the quarter at Rs6.0 crore. 
• The earnings for the quarter stood at Rs1.8 per share, in line with our estimates.
• SIL's board has approved a proposal of sub-division of one equity share of Rs10 paid-up into 5 equity shares of Rs2 each. The stock exchange has affected the stock split with effect from October 10, 2005.
• The stock is reasonably valued at a PER of 14.0X FY2007E (considering the equity dilution of 13.8%) and EV/Ebidta of 7.7X FY2007E- considering that all the possible organic growth triggers are factored in our earnings estimates of FY2007E.

 

Tata Tea 
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,040
Current market price: Rs798

Too small a size 

Tata Tea's (TTL) subsidiary, Tetley US Holdings Ltd, has bought two US-based companies Good Earth Corporation (GEC) and FMALI Herb Inc (FHI). GEC owns the Good Earth brand, which is licenced to FMALI Herb Inc. GEC has a turnover of approximately $16 million (Rs70 crore) and the deal size is expected to be at two times the revenues at $32 million (Rs140 crore).

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Motilal Oswal Recommends Sell On Ranbaxy Labarotories @ 458

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Motilal Oswal - Infosys

Motilal Oswal Recommends Buy On Infosys @ 2684 With Target Price 2930

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Shree Renuka Sugars - IPO

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IPO - Shree Renuka Sugars

Not so sweet

 

Financials boosted by acquisition of unit on lease and processing of imported raw sugar

Shri Renuka Sugars, promoted by Narendra Murukumbi and his family members, is a fully integrated sugar company. Co-products like power generation and ethanol are additional sources of revenue, besides sugar. The company has currently two units, one in Munoli (Karnatka) and another in Ajara (Maharashtra). The Munoli unit, equipped with a 2,500-tonne crushing per day (TCD) capacity, also processes raw sugar. The Ajara unit, too, has a 2,500-TCD capacity. It was acquired on lease for two years, starting from FY 2004.

Shri Renuka Sugars has a track record of acquiring units, either on ownership or on lease. It claims to be the largest raw sugar refiner in India (with a capacity of 1,000 TPD). The company has leased a co-operative sugar mill at Sangli (Mahrashtra) for six year, starting from FY 2006.

The debut issue is proposed to finance the expansion of the cane-crushing capacity at Munoli, from the existing 2,500 TCD to 7,500 TCD; increasing the distilling capacity to 120 kilo litres per day (KLPD), from 60 KLPD, at Munoli; setting up a new 120-KLPD unit at Sangli, taking the distilling capacity to 240 KLPD; putting up a 15-MW co-generation power plant at Sangli; increasing the co-generation capacity to 35.5 MW; and repayment of existing debt of Rs 9.86 crore.

The total project costs is estimated at Rs 138.36 crore, of which Rs 38.36 crore will be financed through internal accruals and the remaining through the present issue.

The commercial production at the Munoli expansion is expected to start from December 2006. Commercial production of the ethanol expansion is scheduled to start from October 2006. The 120-KLPD distillery at Sangli will run from December 2006 and co-gen power at the same location is scheduled to start from November 2006.

Strengths

Shri Renuka Sugars has a fully integrated sugar plant at Munoli, which gives value addition to the bottom line. The company has been able to secure 10.2% and 11.4% recovery at its Muloni and Ajara units in the current season as compared to the industry average of around 10.1%.

In the recent past, the company has been aggressively acquiring existing units and, in a short span, it has enhanced its capacities substantially. The acquisition strategy may result in an accelerated growth in revenue — specially when sugar prices are high.

Most of the sales of the company are institutional and, therefore, insulated from temporary fluctuations in domestic prices.

The company consumes around 50% of its co-generated power at its plants and, therefore, has considerable exportable surplus. This also provides an opportunity to earn carbon credits. (It has got approval for the same, and can get maximum 22,000 CER/year.)

Weaknesses

Shri Renuka Sugars owns only one unit at Munoli. The another unit at Ajara was acquired on lease in 2004 for two years. The unit at Sangli will be operated on lease for six years.

The company is dependent on refining raw sugar imported under advance licence. International raw sugar prices have been firm this year and can adversely affect the margin. Moreover, next year, the company will have to export large quantity under export obligation (in return for the import of raw sugar effected last year) and international conditions will play a major role in its performance.

The company has not entered into contract with plant/machinery providers for most of its expansion program, delaying the schedule of implementation.

The Uttar Pradesh government has been encouraging substantial capacity expansion in the state by large units by giving various subsidies. This will put units in other states at a disadvantage.

Sugar is a politically-sensitive commodity and subject to whimsical changes in government policies.

The sugar price upcycle has already run most of its course. Though no major fall is expected, no major rise is also expected.

Valuation

Shri Renuka Sugars earned Rs 442.78 crore of sales revenue in the nine months ended June 2005 as compared to Rs 198.01 crore in the corresponding previous period, representing an impressive growth of 125%. The profit before tax and the profit after tax zoomed by 190% and 225% to Rs 37.1 crore and Rs 32.11 crore, respectively, in this period. The growth was mainly powered by the operations of the leasehold sugar unit at Ajara and increased processing of imported raw sugar.

On post-issue equity, EPS on an annualised basis for FY ending September 2005 works out to Rs 17.5 and Rs 18.1 depending on the final issue price and assuming that the green-shoe option is exercised. At the lower price band of Rs 250, the P/E ratio works out to 14.3, and at the higher band of Rs 300, it comes to 16.6. The industry average P/E stands around 13.9. Shri Renuka Sugars's acquisition-led growth model is riskier and its relatively high export obligation on account of raw sugar import is also an irritant

Banks: Lost the 'Midas' touch!

As the indices continued to defy the laws of gravity until a couple of days back, certain select sectors made hay. Banking stocks were amongst those that stole significant limelight, as they remained the least affected by rising crude prices. Benign inflation, surplus liquidity and relatively softer interest rates also kept sentiments buoyant towards the sector. Not to mention, the government and the RBI's renewed focus on reforms for the financial (read banking) sector, also aided the momentum. Resultantly, the sector that was under performing the Sensex over the past few quarters, caught up to the investor fancy.

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Sharekhan Valueline - Oct 2005

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Motilal Oswal Midcaps

Midcap Quarterly Review

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Motilal Oswal - Most Value

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Sharekhan - Aban Loyd

Aban Loyd Chiles Offshore 
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs740
Current market price: Rs580

The Rita effect
Aban Loyd Chiles Offshore has recently entered into a contract with Hindustan Oil Exploration Ltd (HOEL) for its newly acquired rig Rowan Texas (Aban VII). Rig Rowan Texas is a cantilever jack-up, and has been sent for some upgradation and refurbishment, following which it would be able to drill deeper. The rig would commence its eight-month drilling operations by January 2006 on the Pondicherry East coast. We believe that the day rates for this contract could be at a premium to the spot rates, which are hovering around the US$65,000-70,000 range. This is much higher than what the company got for Aban VI.