Investor's Eye
[May 28, 2008] Please see the attachment for details | | |
| Summary of Contents STOCK UPDATE Crompton Greaves
Cluster: Apple Green
Recommendation: Buy
Price target: Rs367
Current market price: Rs230 Strong operating performance Result highlights -
In Q4FY2008, Crompton Greaves Ltd (CGL) reported a revenue growth of 17.1% in its standalone revenues on the back of a robust 27.3% growth in the revenues of the consumer products business. The operating profit of the company grew by 36.9% to Rs156.6 crore, while the operating profit margin (OPM) improved by 200 basis points year on year (yoy) to 13.5%. The net profit grew by 47.4% to Rs103.1 crore. -
On a consolidated basis, for FY2008 the CGL group reported an increase of 21.2% in the revenues, while the operating profit increased by 54.1% to Rs743.9 crore. Led by strong operating performance by Pauwels, the OPM on a consolidated basis improved by 230 basis points for the full year. The profit after tax (PAT) grew by 44.4% to Rs406.7 crore. -
The current order book the company stood at Rs5,120 crore of which Rs2,128 crore worth of orders are for the standalone entity, while the balance orders forms part of international subsidiaries. The management expects a strong order inflow for FY2009. -
The management has guided for a 20% growth in FY2009 in both its domestic and international subsidiaries. We expect CGL's revenue to grow a compounded annual growth rate (CAGR) of 20.4%, while the profits are expected to grow at a CAGR of 26.7% over FY2008-10E. -
Against the backdrop of a steep increase in commodity prices, the margins of the standalone entity are expected to remain under pressure during FY2009. We have factored the same in our estimates and have revised out FY2009 estimates downwards by 4.1% to Rs13.8 and FY2010 by 2.1% to Rs18 per share. -
The power transmission & distribution (T&D) space is expected to witness a strong order inflow and revenue growth over the next five years given the emphasis on power generation and T&D in the Eleventh Five Year Plan (2007-12). In our opinion, CGL, a key integrated player in the space with proven track record is all set to witness a robust growth, going forward. -
At the current market price the stock is trading at 16.6x and 12.8x FY2009E and FY2010E earnings. We believe the current valuations of the stock are extremely attractive and recommend a Buy on the stock with a price target of Rs367.
Mahindra & Mahindra
Cluster: Apple Green
Recommendation: Buy
Price target: Rs900
Current market price: Rs641
Q4FY2008 results: First-cut analysis Result highlights -
The Q4FY2008 results of Mahindra & Mahindra are a little lower than expectations due to higher than anticipated tax expenses. -
The net sales grew by 14.6% to Rs3,148.2 crore and were higher than our estimate due to a stronger performance of both the business divisions, automotive and farm equipment. -
The operating profit margin declined by 50 basis points year on year (yoy) and by 40 basis points sequentially to 10.9%, as the operating profit grew by 9.2% to Rs342.4 crore. -
Looking at the segmentals, the automotive revenues grew by 16% to Rs2,077.9 crore while the profit before interest and tax (PBIT) margin of this division remained almost flat yoy at 10%. The revenues of the farm equipment division grew by 9% while its margin improved by 270 basis points yoy and by 70 basis points sequentially to 14.5%. Tata Motors
Cluster: Apple Green
Recommendation: Buy
Price target: Under review
Current market price: Rs634 Q4FY2008 results: First-cut analysis Result highlights -
Tata Motors' performance for Q4FY2008 was in line with our expectation. The net sales for the quarter grew by 6.2% to Rs8,749.5 crore on the back of a 2.3% growth in volumes and a 3.8% growth in realisation. -
Higher raw material costs adversely affected the operating profit margin of the company, which was down by 410 basis points to 7.6%. However adjusting for the foreign exchange gain/loss, the OPM stood at 9.1% as against 11.4% for the same quarter last year. -
Higher other income, lower interest costs and stable depreciation charge led to a 7% drop in the reported net profit for the quarter to Rs536.3 crore. After accounting for the profit on the sale of shares in HV Axles of Rs73.8 crore, the adjusted net profit for the quarter declined by 19.8% to Rs462.5 crore. -
Looking at full-year numbers, the net revenue grew by 4.6% to Rs28,730 crore led by a 3.6% realisation growth, while the profit grew by 6% to Rs2,028.9 crore. Looking at the consolidated numbers, the net sales grew by 10.2% to Rs35,651.5 crore and the adjusted net profit remained more or less flat at Rs2,234.8 crore, growing by only 1.4%. -
In order to fund its Jaguar Land Rover acquisition, the company is also looking to raise Rs7,200 crore through three rights issues of the following securities: a) Rights issue of equity shares up to Rs2,200 crore; b) Rights issue of 'A' equity shares carrying differential voting rights (1 vote for every 10 'A' equity shares) up to Rs2,000 crore; c) Rights issue of five-year 0.5% convertible preference shares (CCPs) up to Rs3,000 crore, optionally convertible into 'A' equity shares after three years but before five years from the date of allotment. Further, on completion of the rights issues, the company has proposed to raise about $500/$600 million through an appropriate issue of securities in the foreign markets on terms to be decided at the time of issuance. -
The outlook for commercial vehicle industry remains weak, considering high interest rates and lower availability of finance in view of rising delinquencies. -
At the current levels, the stock trades at 12.9x its FY2009E consolidated earnings and is available at an enterprise value (EV)/earnings before interest, depreciation, tax, and amortisation (EBIDTA) of 6.6x. We would come out with our detailed result note soon while our target price on the stock is under review. ITC
Cluster: Apple Green
Recommendation: Buy
Price target: Rs247
Current market price: Rs222 Smokers to pay more
As was expected, ITC has increased the prices of select brands in its cigarette portfolio. It has raised the price of its Classic brand cigarettes by 10% to Rs88 for a pack of 20 cigarettes and that of Gold Flake Kings by 5.3% or Rs2 to Rs40 for a pack of 10 cigarettes. These 84mm cigarettes fall under the Kings category and contribute ~10% to ITC's total cigarette sales volume. We had factored in an overall hike of 7% for the category in our estimates. We expect ITC to follow this up with a hike in the prices of longs category (71-75mm) cigarettes in the near future.
SECTOR UPDATE Cement Government partially eases export ban
The government has partially relaxed the ban on cement exports that was imposed on April 11, 2008. According to a notification by the Directorate General of Foreign Trade, the government has allowed 2 million metric tonne of cement to be exported from Gujarat. This is a positive development for cement manufacturers in Gujarat as the region was already experiencing a slowdown in demand. The demand slowdown would have worsened during the monsoons, forcing the manufacturers to either cut down on production or sell cement at lower prices. | |
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