Sharekhan Investor's Eye

ICICI Bank
Cluster: Apple Green
Recommendation: Buy
Price target: Rs750
Current market price: Rs575

Price target revised to Rs750

Result highlights

• ICICI Bank reported a strong 59.1% year-on-year (y-o-y) and a 22.4% quarter-on-quarter (q-o-q) growth in its net interest income (NII) in Q3FY2006. The growth in the NII was achieved on the back of a strong growth in the advances.
• The strong growth momentum in the bank's fee income continued--during the quarter the fee income grew by a strong 51.6% year on year (yoy).
• The operating profit for Q3FY2006 grew by 55% yoy to Rs1,194.5 crore with the core operating profit growing at even a stronger rate of 67.8% yoy.
• A higher provisioning and other adjustments pulled down the net profit growth rate to 23.7%. However, the adjusted profit after tax (PAT) grew by 17.9% yoy.
• The asset quality improved dramatically as the net non-performing assets (NPAs) stood at 0.8% of customer assets in Q3FY2006 against 2.29% in Q3FY2005.
• The capital adequacy ratio (CAR) improved to 14.5%, with the Tier I CAR at 10.5% after the recent equity issue by the bank.
• At the current market price of Rs575, the stock is trading at 2.3x its FY2007E book value. The valuation looks attractive if one considers the value of the bank's subsidiaries which works out to Rs150 per share of the bank. It also trades at substantial discount to its peers in the sector like HDFC Bank which is trading at 3.8x its FY2007E book value. We maintain our Buy recommendation on the stock with a revised price target of Rs750 at which it discounts its FY2007E book value by 2.5x.
  

ORG Informatics
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs194
Current market price: Rs160

Earnings grow exponentially

Result highlights

• The consolidated net revenues of ORG Informatics declined by 40% quarter on quarter (qoq) and by 3.7% year on year (yoy) to Rs29 crore in Q3FY2006. The sequential drop was largely due to the higher base effect resulting from the completion of a large system integration project in the previous quarter.
• However, the operating profit margin (OPM) zoomed up to 10.3% from 4.5% in Q2FY2006 and 3.9% in the corresponding quarter of the previous year. The higher contribution from the high-margin telecom business boosted the overall profitability.
• At Rs3 crore the earnings grew exponentially, by 867% yoy and by 301% on a sequential basis. The earnings were slightly ahead of our expectations due to a lower tax outgo during the quarter. Given the accumulated losses and the unabsorbed depreciation, the company created a deferred tax asset in the last quarter. The lower interest and depreciation charges also boosted its earnings growth.
• For the nine-month period, the earnings have grown at 619% to Rs4.3 crore. The performance is in line with our full-year estimates of Rs7.1 crore.
• We maintain our Buy call on the stock with a one-year price target of Rs194.
  

Maruti Udyog
Cluster: Apple Green
Recommendation: Buy
Price target: Rs850
Current market price: Rs699

Price target revised to Rs850

Result highlights

• Maruti Udyog Ltd's (MUL) reported better than expected numbers for Q3FY2006. Income from operations grew by 8% yoy on back of a 7% growth in volumes and a 1.1% improvement in realizations.
• The operating profit margins improved by 258 bps to 15% due to control on costs mainly on the raw material front and other expenditure.
• 77% reduction in interest cost and 35% lower depreciation lead to the Profit after tax for the quarter growing by 41% to Rs 339 cr.
• At the current market price of Rs 699, the stock is quoting at 15x on its FY2007E earnings per share (EPS) and 9x on EV/EBIDTA basis. We reiterate our Buy recommendation on the stock with a revised price target of Rs850.
  

Orchid Chemicals & Pharmaceuticals
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs355
Current market price: Rs260

Net profit zooms

Result highlights

• Orchid Chemicals' net sales for Q3FY2006 were up 37.9% year on year (yoy) to Rs237.6 crore due to high revenues from ceftriaxone sales in the USA.
• The operating profit was up 67.7% yoy to Rs69.26 crore as the operating profit margin (OPM) went up by over 500 basis points to 29.1%.
• The profit after tax (PAT) saw an increase of over 400% from Rs5.76 crore in Q3FY2005 to Rs28.97 crore in Q3FY2006. The net profit margin jumped by close to 900 basis points to 12.2% during the quarter.
• The company had earnings per share (EPS) of Rs4.1 in Q3FY2006. At the current market price of Rs260, the stock is trading at 12.5x FY2007 earnings estimate. We maintain our Buy recommendation on Orchid with a price target of Rs355.
  

Emco
Cluster: Apple Green
Recommendation: Buy
Price target: Rs600
Current market price: Rs525

Price target revised to Rs600

Result highlights

• Emco's revenues for Q3FY2006 grew 67.0% year on year (yoy) to Rs97.1 crore on the back of higher order booking of Rs117 crore during the quarter.
• The operating margins were down 220 basis points yoy to 13.0% primarily on account of higher raw material prices (mainly copper). But on a quarter on- quarter (q-o-q) basis, the margins were maintained at 12.9-13.0% range.
• Emco's interest cost in Q3FY2006 came down by 14.4% yoy to Rs3.4 crore, conforming our assumption of interest cost saving in FY2006-08E.
• The net profit grew to Rs6.1 crore registering a y-o-y growth of 98.4%. The earnings for the quarter stood at Rs7.9 per share.
• Emco's order backlog grew by Rs20.0 crore (4.7% qoq) to Rs445.0 crore, thus imparting a strong visibility to the revenues and the ensuing earnings.
• We have revised our FY2008 revenue estimates by 12% to Rs600.9 Crore and net profit estimates by 15% to Rs39.8 Crore.
• Considering the robust macro economic scenario, high revenue visibility, strong earnings momentum, strong balance sheet, improvement in return ratios and attractive valuations (PER of 10.4X FY2008E earnings and Ev/Ebidta of 7.0X FY2008E); we revise our price target to Rs600 discounting its FY2008E earnings at 12X.

Jagran Prakashan

Indiainfoline - Download

Motilal Oswal Reports 24/01/2006

ICICI Bank

Vijaya Bank

Jagran Prakashan IPO

Leadership not backed by financials


The financial track record does not justify the high asking price. But strategic expansion in a favourable economic environment can produce strong growth

Jagran Prakashan publishes Dainik Jagran, the leading Hindi daily with the highest circulation and readership in any newspaper category worldwide. The newspaper has a readership of approximately 21.2 million readers per day as per NRS 2005 survey and had net paid sales of approximately 2.4 million copies per day in January-June 2005 as per ABC certified figures.

Promoted by the Gupta family, Dainik Jagran was first published in 1942. It is now published in 28 editions in 10 states.

Jagran Prakashan also publishes Sakhi, a monthly magazine targeted at women, Jagran Varshiki, an annual general knowledge digest, and various national and state statistical compilations. The company has 25 printing facilities in India with an installed capacity of approximately 1.32 million copies per hour.

Ireland-based Independent News and Media (INM) PLC, through its wholly owned subsidiary INMIL, acquired 3,212,486 equity Shares in Jagran Prakashan for Rs 150 crore in June 2005. Of this, Rs 110 crore was paid for 2,355,716 newly issued equity shares and Rs 40 crore to the promoter’s family shareholders to acquire 856,770 equity shares from them.

The objective of the issue is to raise finances for a capital expenditure of Rs 274.33 crore required to enhance its printing and publishing capabilities, to consolidate its infrastructure including printing facility and the editorial, marketing and administrative departments and launch a second brand. In addition to this, Jagran Prakashan also intends to use around Rs 43.39 crore from the public offer for acquisitions and investments in order to build a strong competitive force in its area of operation. Besides, there are plans to spend Rs 40 crore to expand its outdoor advertising business.

Strengths

• Despite a number of broad-page English and Hindi dailies such as the Times of India, Hindustan Times, Dainik Bhaskar and Navbharat Times. Dainik Jagran has maintained its leadership, commanding a readership of 21.2 million per day. Readership of Dainik Jagran increased by 120.8%, from 9.6 million as per NRS 2000 to 21.2 million as per NRS 2005. This increase in readership was more than the combined growth of readership in the next four of the top five newspapers and was more than three times the growth in readership of the top six English daily newspapers. The growth in the readership and circulation reflected in the top line of the company, which shows a CAGR of 19% in the last five years to Rs 371.46 crore in FY 2005.

• More than 60% of the revenue in FY 2005 and six months ended September 2005 comes from advertising, which is the mainstream of revenue for any company in the print media industry. Ad-spends in India, as a percentage of GDP, is only 0.34%, which is very low compared to countries like Thailand (1.43%), China (0.54%), and Mexico (0.52%). Along with the fast growing GDP, India’s ad-spend as percentage to GDP is also expected to increase to 0.54% of GDP by 2015. Print media accounts for around 46% of the total advertisement spend. As Dainik Jagran has a pan-India presence and its expansion initiatives on various fronts are likely to strengthen its position, it can expect to grasp a larger share of ad-spend in India.

• Expanding printing capacity, particularly colour capacity, and modernising and upgrading existing printing centres in Noida are in addition to installing computer to plate (CTP) printing at some printing centres. The new modern printing facility will increase the ability to print color copies by fourfold. With this, ad rates are expected to go up. As colour advertisement is at a 70% premium to black-and-white ads, margin will be higher.

Weaknesses

• On its strong foothold in the vernacular segment, Dainik Jagran’s revenue has shown a robust CAGR of around 19% in the last five years to Rs 371.46 crore in FY 2005. However, in the same period, Jagran Prakashan’s bottom line has shown a negative CAGR of around 31% to Rs 1.54 crore mainly on high prices of newsprint, which is the main raw material for the company. The operating margin has kept fluctuating in the last five years, witnessing a low of 1.6% in FY 2002. According to BMO Financial Group Commodity Price Index, the international newsprint prices are forecast to move up to $645 per tonne by 2007, from $609 per tonne in 2005.

• The capital expenditure plans are likely to be commissioned only between March 2007 and March 2008 and yield benefits from FY 2008 onwards.

• Jagran Prakashan intends to venture into outdoor advertising and also launch a second brand, a Hindi tabloid in line with the Times of India's recent English tabloid, Mumbai Mirror. Around Rs 43 crore and Rs 40 crore from the issue proceeds will be invested in launching the tabloid and expanding the outdoor advertising business, respectively. Looking at the existing players in these businesses, Jagran Prakashan will have to face tough weather, at least in the initial years of operation, till the time the new businesses find acceptability in the market.

Valuation

FY 2005 was one of worst years for Jagran Prakashan as its operating profit margin (OPM) crashed by 720 basis points (bps) to 5.6%. Net profit was just measly Rs 1.54 crore on sales of Rs 371.54 crore. However, financial performance has improved, with the six months ended September 2005 OPM up by around 600 bps to 11.5%, leading to improved net profit of Rs 11.97 crore. Annualised six-month EPS on post-issue equity works out to Rs 4.6.The offer price band of Rs 270-324 discounts this 58 to 70 times. On the other hand, HT Media, which has revenue almost double the revenue of Jagran Prakashan, with better profitability margin, trades at a PE of around 62 times its annualised half-yearly EPS of Rs 7.6. Another listed player, Deccan Chronicle, trades at a PE of 27 times the first-half annualised EPS.

Notably, INM had acquired a pre-issue 26% equity stake at Rs 144 per share (adjusted for bonus) in June 2005, which is at a 50% discount to the current offer price band. Post-issue, INM will hold a 20% stake, leaving scope for only another 6% foreign stake as the cap for foreign stake in the print media is 26%.

Entertainment Network (India)

Radio Mirchi going public

Well positioned to capitalise on the growth prospects of the FM business in the new licensing regime

Entertainment Network (India) (ENIL), operating FM channel Radio Mirchi, is issuing 120 lakh equity shares with a greenshoe option of an additional 12 lakh shares. The funds will be utilised to participate in the bidding for FM channels in new cities (seven bagged by January 2006) and finance the migration fee to shift to the new licensing regime in the seven cities (Mumbai, Delhi, Chennai, Kolkata, Ahmedabad, Pune and Indore),where it already operates FM channels. About Rs 10 crore will be invested in its 100% subsidiary in the business of event management and out-of-home media business. The ascertained project cost of Rs 230 crore will have a debt component of Rs 100 crore.

Due to the stiff licence fee, ENIL could not make profit since the past five years. After a new liberal policy, effective in the current year, the company’s licence fee obligation has come down drastically. It made a turnaround in the first half of FY 2006. Accumulated losses of over Rs 100 crore have been written off against equity and share premium account.

Before coming to the public, ENIL incorporated a 100% subsidiary, Times Innovative Media Private Limited (TIMPL), to take over the event management and out-of-home media business from the promoter company, Time Infotainment Media Company Limited (TIML). Bennett and Coleman Company (BCCL), the other promoter, had a 97% stake in TIML.

Strengths

*As compared to other developed and developing countries, advertising on radio has not been popular in our country. However, as consumerism in the country is on the rise, this medium can increase its advertisement share faster than other media as it is the cheapest mode of advertising and has a low base.

*As opposed to the old licensing policy, which had a provision of a flat 15% escalation of license fee per annum, the new policy provides for performance-based revenue sharing. This provides good opportunity for ENIL to expand rapidly to capitalise on its first mover advantage.

*ENIL has the largest radio network in the country: seven major cities including four metropolitan cities. The company operates in the same 93.5 MHz frequency band in all the four metros, giving it an advantageous position among frequently traveling listeners. Also, by having a pan-India presence, ENIL enjoys the advantage of providing greater advertising coverage to its clients. The brand, Radio Mirchi, is well recognized in the market, with 95% and 100% brand awareness in Mumbai and Delhi, respectively.

*The Times group enjoys rich patronage from advertisers due to its deep presence in the media and publication business, giving ENIL an edge compared to its competitors.

Weaknesses

*The entertainment and media industry is very much people-centric. Attrition rate will increase with the entry of many players after the new liberal licensing policy. This may put tremendous uncertainty on the listener-hold of existing channels.

*A substantial portion of the issue proceeds will go to bid for new stations. The revenue and profit from such new ventures is subject to uncertainty and gestation periods of varying degrees.

*ENIL is involved in a host of litigations relating to the sources of its contents. Any ruling against the company can have material financial implications.

*The 100% subsidiary of ENIL is engaged in event management and out-of-home business, where many unorganised players have a good presence, raising uncertainty on growth and profitability.

Valuation

In the half-year ended September 2005, ENIL reported sales of Rs 48.37 crore and net profit of Rs 11.05 crore. The company earns higher revenue and profit in the second half of the financial year due to the festive season. However, in the half year, it has not provided for around Rs 4 crore of amortisation charges related to one-time fee payable to shift to the new licensing regime. Its debtors amount to Rs 37 crore. As ENIL will be spending above Rs 70 crore for acquiring new licenses, it will have to take further hit on amortising these charges, as the new cities will take time to bring revenue. So one can not expect big EPS numbers in the short to medium term and P/Es will be high. Being the only listed player (at least for some time) in this field will stand it in good stead post-listing.

Motilal Oswal Reports - 23/01/2006 (continued...)

IPCL

Ranbaxy

Shree Cement

ITC

Wipro

HDFC

Reliance Energy

Syndicate Bank

Maruti Udyog

Vijaya Bank

Motilal Oswal Reports - 23/01/2006

Infotech Enterprises

Larsen & Tourbo

Satyam Computers

Gujarat State Petronet

See here

Jagran Prakashan IPO

Avoid - See here

Entertainment Network

See here

Sharekhan Pre-Market Watch

Rising crude prices could dent market

Following gains of over 250 points in the last two sessions, the mood is likely to remain optimistic on expectations of good quarterly numbers going further. However, rising crude oil prices in the international market could make investors jittery from taking any fresh positions. The market may open weak as major Asian indices have fallen over 1% each.

The benchmark indices, the Nifty could test its recent high of 2927 on the upside while it has likely supports at 2867 and 2848 on the downside. The Sensex has a likely support at 9466 and could test resistance at 9556.

Disappointing numbers from General Electric and Citigroup followed with a 2% surge in the crude oil prices due to prevailing tensions over Iran's nuclear plans had a telling effect on the US indices. On Friday, the Dow Jones tanked 1.96% or 213 points at 10667 while the Nasdaq tumbled 2.35% or 54 points to close at 2248.

Except Dr Reddy's and VSNL, other Indian floats took a sharp hammering on the US bourses. Rediff led the slump with a loss of 6%. Among other major losers Satyam dropped nearly 6%, Wipro shed 3% and Infosys declined 2%. Tata Motors, ICICI Bank, HDFC Bank, Patni Computers and MTNL were down around 1-2% each.

Crude oil prices continued moving upwards over Iran's nuclear issue and Nigeria's oil facilities facing militant attacks. As a result, the Nymex light crude oil for February delivery rose $1.29 to settle at $68.48 a barrel, while the London Brent crude moved up by $1.20 at $66.43 per barrel. In the commodity segment, the Comex gold dropped $5 to close at $554 an ounce.

ITC declared its Q3 numbers after market hours on Friday. The company reported a 15% rise in its net profit at Rs536.83 crore for the third quarter ended December 31, 2005 as against Rs466.70 crore recorded during the same period last fiscal. The total income rose 36% to Rs2,604.92 crore in Q3FY2006 from Rs1,911.12 crore reported during Q3FY2005.

Stocks to watch
Reliance Industries is planning a capex of Rs5,000 crore for starting commercial gas production from coal bed methane blocks by mid-2008.

Bajaj Hindusthan is planning an investment of Rs700 crore and will raise funds through GDRs and FCCBs comprising Rs299.65 lakh shares.

Micro Inks may witness action on reports of signing a supply agreement with Hannanprint NSW for Australian $39 million.

Motilal Oswal - Biocon

Download here

Reliance Industrial Infrastructure - SP Tulsian

One can safely buy this share for over 100 % gain in next one year. The share is presently available at forwarding earning multiple of about 17 while peers command an average P/E of above 40 and Industry P/E of above 30.

Gujarat State Petronet

Get Set Go

Gujarat State Petronet (GSPL), promoted by Gujarat State Petroleum Corporation (GSPC), transmits natural gas. The company currently owns and operates 433 km of natural gas pipeline, from Hazira to Kalol, catering seven of the 25 districts in Gujarat, This is the second largest natural gas transmission network in India. GSPL is the first company in India to transport natural gas on an ‘open access’ basis: the company makes its gas transmission capacity available to any shipper on a non-discriminatory basis. It does not trade in natural gas and is not directly affected due to its fluctuating prices.

GSPL will establish another 742 km of natural gas pipeline, covering seven more districts of Gujarat, with an estimated capital expenditure of Rs. 1400 crore. The company hopes to mobilise around Rs. 370 crore from the present IPO. It has tied up with a consortium of banks/FIs for loans of Rs. 758 crore. The balance is to be financed by internal accruals. This expansion, which is expected to complete by July 2007, will enable GSPL to reach new customers in Vapi, Saurashtra, Mehsana and Himmatnagar among other markets.

The 18 customers of GSPL are mainly from the fertilizer and power sectors, including GPEC, Essar Steel, Essar Power, Iffco, AEC, GNFC, GSFC, and Arvind Mills. The expansion will allow the company to service even medium-sized companies and varied industries such as ceramics and chemicals. Currently, its pipeline transport 13 million metric standard cubic meters per day (mmscmd)) of natural gas of various suppliers, including Cairn Energy, GSPC – Niko, Hazira LNG, Petronet LNG, and PMT Gas. The existing pipeline is capable of transporting around 40 mmscmd of natural gas. The utilisation is expected to double to 26 mmscmd in three years.

The tariff structure is based on the distance as against fixed tariff of Gail (India). Nearly 90% of these charges are based on capacity booked. GSPL operates on a 15-day billing cycle. The next two billing cycles are insured.

Strengths

• GSPL enjoys the first-mover advantage in the new pipeline that it is establishing and is expected to enjoy near-monopoly for an extended period of time in future.
• Global demand for natural gas is expected to grow at an average rate of 2.3% in the next 20 years, while the Indian demand for natural gas is expected to go up at around 5.4% per annum to 400 mmscmd, from the present 150 mmscmd in the same period. The weightage of natural gas in the energy basket of India is expected to increase from the present 8% to 20% by 2025. In fact, supply, and not demand, is a constraint.
• Gujarat, where GSPL is located, produces nearly 65% of the total natural gas production of India. The state hosts the only two LNG terminals in India. Also, of the 55 oil and gas exploration blocks offered under the upcoming sixth round of New Exploration Policy. majority are expected to be in the Krishna Godavari (KG) basin. So supply of gas will increase significantly, though timing and quantity is not ascertainable.
• Bulk buyers favour the "open access" system adopted by GSPL as it allows them the flexibility to choose the supplier for natural gas.

Weaknesses

• Impending government policies on regulating natural gas production and transmission may affect prospects. However, since GSPL is already operating on "open access" basis, which is one of the major motives behind the policy regulations, it is not expected to suffer heavily. These policies may put a cap on the maximum tariff chargeable.
• GSPL is establishing a pipeline infrastructure in anticipation of increasing availability of natural gas at reasonable prices in the future. Major contracts for import of LNG in India are expected to be functional from 2008/09 onwards, until then the natural gas supplies will depend mainly on existing contracts and domestic production. Thus, a shortage of natural gas may hamper the company’s growth targets in the short term.
• The process of acquiring land, rights of use (RoU) and rights of ways (RoW) for laying pipeline is prone to litigation and, therefore, highly time consuming.

Valuation:

*GSPL has set a price band of Rs. 23 to Rs. 27, which translates into a PE of 24 x to 28.2x annualised EPS in the half-year ended September 2005 on post-issue equity

*Gail (India) and Gujarat Gas (GGCL) are the only two companies operating in a business similar to that of GSPL. These companies are presently trading at PE multiples of 9.1 and 16.7, respectively, on their half-year annualised EPS. However, growth rates for GSPL are likely to be higher.

*GSPL is considering reducing the depreciation rate on pipelines from 8.33% to 3.17% in line with the new depreciation policy recognised by the Ministry of Company Affairs. Gail has adopted the new rate from the current year. The new rate will significantly boost net profit.

Motilal Oswal Reports - 20/01/2006

Ugar Sugar

Jaiprakash Associates

Jubliant Organosys

Era Constructions