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| Analysts' corner |
| S I Team / New Delhi Jan 18, 2010, 00:34 IST |
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PUNJ LLOYD
Reco price: Rs 222.90
Current market price: Rs 219.40
Target price: Rs 197
Downside:10.2 %
Brokerage: Citi Investment Research
The brokerage has revised earnings downwards and thus has cut the company’s 20010-12 EPS estimates by 8-11 per cent. This is primarily on account of 4-5 per cent lower sales growth and 28-40 basis point cut in EBITDA margins on potential write-offs in projects.
The report mentions that it changed its view from "Hold" earlier to "Sell" giving a price target of Rs 197 compared to Rs 228 earlier since at the recommended price the risk reward trade-off seems unfavourable. This is largely due to the risks that emerge on account of additional write offs. Like in the case of the Ensus bio ethanol project every month’s delay beyond December 12, 2009 will cost Simon Carves (Punj’s subsidiary) 5 million pounds.
Technically, Ensus can also claim liquidated damages on this project in the future. While in the case of the ONGC Heera project, according to the FY09 annual report, estimated revisions on the ONGC Heera project have resulted in costs and revenues on the project increasing by Rs 360 crore and Rs 150 crore respectively. The company has filed claims with ONGC amounting to Rs 510 crore against the increase in cost estimates. Pending acceptance, these claims have not been accounted for in the books. At recommended price, stock trades 16.3 times FY11 and 13 times FY12 estimates.
EXIDE INDUSTRIES
Reco price: Rs 122
Current market price: Rs 117.40
Target price: Rs 151
Upside: 29%
Brokerage: Enam Securities
Exides December quarter revenues have been a tad lower than expected on account of lower industrial sales, a higher Ebidta margin at 24 per cent helped by higher share in replacement market, has compensated for the decline. The company reported a 16 per cent y-o-y growth in the revenue at Rs 910 crore, however, sequentially growth was lower by 4 per cent due to lower industrial sales mainly inverters.
The auto segment demand was higher by 14-15 per cent on y-o-y basis. Net profits grew by 132 per cent to Rs 130 crore. On the capital expenditure front, the company will spend Rs 140 crore in FY10, out of this; it has already spent Rs 70 crore, and is planning to spend Rs 200 crore in FY11 towards capacity expansion. The company intends to increase capacity by 10 per cent and 15 per cent in FY10 and FY11 respectively. The brokerage estimates an EPS of Rs 6.7 in FY10 and Rs 8 in FY12. On a sum-of-the-parts basis, the brokerage values the stock at Rs 151 per share.
USHA MARTIN
Reco price: Rs 89
Current market price: Rs 90
Target price: Rs 118
Upside: 31.1%
Brokerage: India Infoline
Specialty steel and wire rope company, Usha Martin saw its December quarter topline decline by 9.4 per cent to Rs 440 crore on lower sales volumes and realisations. Average realisations were lower on q-o-q basis as long product prices remained weak and export sales continued to remain sluggish. The operating profit margins of the company expanded 617 bps to 22.3 per cent on higher captive consumption of sponge iron and power usage.
Raw material costs as a percentage of sales declined 1,125 bps q-o-q to 32.1 per cent as the company consumed its captive sponge iron for steel making instead of sourcing it. Decline in coking coal costs lead to a drop in raw material costs. Usha Martin’s net profits slid by 2 per cent to Rs 14.4 crore due to higher interest and tax outgo.
Margins are likely to expand over the next two years as the proportion of raw material integration increases and steel realisations are expected to improve in FY11. Expect earnings to grow at 47 per cent CAGR over the FY09-12 period. At the current market price, the scrip trades at a P/E and EV/Ebidta of 5 times and 3.8 times its estimated FY11 numbers which is at a huge discount the larger players.
JAIN IRRIGATION SYSTEMS
Reco price: Rs 841
Current market price: Rs 839
Target price: Rs 986
Upside: 17.5%
Brokerage: Edelweiss Securities
The brokerage believes that India is in dire need of technology to pave the way for agricultural growth. Government expenditure on agricultural subsidies for power and fertilisers has been consistently increasing. Also, yields of major crops in the country vary from 20 per cent to 50 per cent of those in developed countries. Micro irrigation, especially drip irrigation, provides solutions to most of these problems, believes the brokerage.
India is likely to have an additional 15 million hectare of agricultural land to be covered under micro irrigation over the next seven years from the existing 3.68 million hectare, translates into an opportunity of Rs 45,000 crore. Jain Irrigation (JISL) stands to gain the most, being the market leader in this space. Standalone sales of JISL’s micro irrigation systems segment have posted an annual growth of 68 per cent during 2005-09.
The brokerage expects the segment to continue to drive the company’s growth for a few more years, registering a 42 per cent annual growth over 2009-12. On a consolidated basis JISL is likely to post revenue growth of 24 per cent during 2009-12. At the recommended price, the stock is trading at 18.1 times and 13.8 times its PE for FY11E and FY12E, respectively.
KRBL
Fair value: Rs 340
Current market price: Rs 211.45
Fundamental Grading: 3/5
Valuation Grading: 5/5
Rated by: CRISIL Equities
KRBL is an integrated basmati rice producer with the world’s largest milling capacity of 195 metric tonnes per hour. It is involved in the entire basmati farming value chain, and is the world’s largest basmati rice exporter. KRBL has a strong management and established brands like ‘India Gate’. During 2000-01 to 2008-09, its revenues and net profits grew at a CAGR of 22.4 per cent and 23.8 per cent, respectively.
KRBL’s brands are present across all price segments (Rs 20-140 per kg), thus catering to price sensitive and premium consumers. KRBL is better positioned as compared to peers on account of strong brands, premium pricing in the export market, highest PAT margin and RoE.
CRISIL Equities expects KRBL’s revenues to register a two-year CAGR of 24.2 per cent to Rs 2,040 crore in 2010-11 due to increasing volumes and realisations; operating margin to expand by 89 basis points (bps), PAT margin to rise by 180 bps and RoE to increase by 650 bps to 23.2 per cent. As basmati paddy has to be stored for about one year, with increasing sales volumes, inventory levels are expected to rise.
Debt levels are hence expected to increase from Rs 600 crore to Rs 1,010 crore in 2010-11 (gearing to be comfortable at 1.5). KRBL’s fundamentals are ‘good’ relative to other listed securities. The valuation grade indicates ‘strong upside’ from Rs 222 level and, fair value is based on PE of 6 times 2010-11 estimated EPS of Rs 56.7.
Current market prices as on January 15, 2010
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