Hindustan Sanitaryware & Industries - HSIL - Investment Opportunity
Wednesday, December 30, 2009
HSIL is a market leader in sanitaryware with a 40% market share and second largest player in container glass products in India both contributing equally to the top line. The sanitaryware market in India has grown rapidly during the last 5-6 years, with key players doubling their production capacities. India has emerged as a major bath and sanitaryware market in the Asia-Pacific region. The cost of producing sanitaryware in India is substantially lower as compared to developed countries.End-to-end service module helps HSIL remain ahead of competition. HSIL has launched the EVOK brand of specialty home fashion mega stores to provide a range of more than 12,500 home interior products under one roof in May 2008 through its wholly owned subsidiary Hindware Home Retail.
Going ahead, Capacity expansion in the container glass segment to drive growth backed by Growing food processing industry and rural consumption.
Financials:
HSIL reported a consolidated topline of Rs. 615.8 cr in FY09, registering a growth of 18.2% despite the economic slowdown. Operating margins expanded by 70 bps to 15.7%. PBIT margins increased from 15.7% in FY08 to 16.1% in FY09 in the Building products segment. Also, PBIT margins increased from 7.2% to 9.9% in the Container glass segment.
Expect HSIL to report topline growth of 20.2% and 23.7% in FY10 and FY11 respectively on the back of an enhanced product portfolio, increased demand and capacity utilization, increased reach via its EVOK outlets and new product launches. EBIDTA margins could stabilize in the 17-18% range.
At the current market price of Rs. 61.25, HSIL is trading at 8.2x its FY11 (E) EPS of Rs. 7.5. Based on a valuation of 10x forward earnings, a target price of Rs. 75 looks reasonable to this market leader. ADD or BUY on Correction or HOLD if invested.
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Published by Webmaster @ 5:19 PM IST.
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Everest Kanto Cylinder - Dubai Sales Uncertainity
Tuesday, December 29, 2009
For Everest Kanto Cylinder - EKC, the uncertainty over cylinder sales and realizations from the Dubai facility (44% of FY09 sales, Iran major market) to continue at least till FY10 end. Although domestic cylinder sales, particularly to the OEM segment, should grow over the next 6 m, this may not be enough to fill the gap from Dubai slowdown.
EKC benefitting from favorable regulatory changes in India and incremental gas supply from the KG - D6 basin remains intact, problems at the Dubai operations of the company will dominate earnings for the next 6-12 months.
Goldman Sachs in a report has cut FY11E and FY12E sales estimates by 15% - 28% due to lack of clarity on the time-frame over which cylinder volumes and realizations on sales from the Dubai facility (which caters to the Iran market) would improve.
Revised EPS estimates for EKC now stands at Rs 3.6 and Rs 11 for FY10 and FY11 respectively. Goldman has downgraded the stock to Neutral with a price target of Rs 173.
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Published by Webmaster @ 12:48 PM IST.
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Add Pidlite Industries - Re-Rating Game with Asian Paints
Saturday, December 26, 2009
HDFC Securities, first initiated coverage on Pidlite Industries 2 years ago. The performance of the stock has been in-line with second rung stocks in the FMCG counter since then. However, HDFC Securities is pitching it differently now - Product company and lower valuations compared to Asian Paints - a peer company catering to almost similar line of businesses.PIL operates under three major business segments viz branded consumer and bazaar/ craftsmen products, speciality chemical business & others. It is the brand leader in every segment it operates. Some of its well known and most re-callable brands are Fevicol, M-Seal, Fevigum, Fevistik,Fine Art, Colstar, Sargent Arts, Dr. Fixit & Roff, Pidivyl, Pidisar, Pidicryl, etc.
There is Gradual improvement being witnessed in subsidiaries' performance and it is looking out for growth opportunities through acquisitions. New manufacturing facility of synthetic elastomer - A major catalyst for future growth.
Pidilite Vs Asian Paints:
While PIL & Asian Paints are both broadly similar in terms of brand play & dependence on construction / real estate sector, the difference in valuation in terms of PE and Market-Cap to sales is relatively wider. PIL is trading at a P/E of 15.8 while asian Paints is trading at a P/E of 20. There is significant discount of 35% in terms of PE despite its large size, good brand image & consistency in growth. Hence, the probability of this discount narrowing down is high.
PIL is expected to report an EPS of Rs 11.8 and Rs 13.4 for FY10 and FY11 respectively. Existing investors can HOLD and ADD in the price band of Rs. 166-175 for a target price of Rs 240.
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Published by Webmaster @ 9:57 AM IST.
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Nagarjuna Construction + IVRCL Infra - The MidCap Saga on Street
Friday, December 25, 2009
The mid-cap construction space has underperformed the broader indices recently and is trading around 10x FY11E (adjusted for subs valuations) due to short-term irritants, despite we believe substantial growth opportunities beginning in FY11. Issues like the Dubai credit crisis and a separate statehood issue in Telangana have created a dampener on stock prices.We expect order inflow in the infra space to strongly rebound in FY11 as governments get their acts together on sectors like roads, ports and continued push in power.
Nagarjuna Construction:
NCC's strong order book position, focus on core operations (cash contracts, road BOT projects), 33% earnings CAGR over FY09-12e and attractive valuations makes it the top pick. NCC has re-focused on core strengths: cash-contracts and road BOT projects. It shelved two airport projects, capped further property investments and sold its stake in Gautami Power.
Earnings and Valuation - Macquarie expects an EPS of Rs 8.1 and 10.6 for FY10 and FY11 while Citi expects it to be Rs 7.7 and Rs 10 with SOTP valuation of Rs 195. Anand Rathi expects an EPS of Rs 9.3 and Rs 13.1 for FY10 and FY11 with a SOTP valuation of Rs231. All the Research estimates have Buy call.
Here is Motilal Oswal's coverage on Nagarjuna Constructions.
IVRCL Infra:
Out of a total order book (OB) of ~Rs170bn, Rs50bn of orders are from the Andhra Pradesh (AP) irrigation dept. Discussions with management suggest that execution of projects is on track so far, with payments being received on time. The execution of Rs18bn worth of projects may be delayed / stopped if Central funding is not available to the AP government for these projects. Revenue growth could come under pressure as execution of these projects may get delayed. On the balance sheet side, the company has Rs1.56bn as receivables from AP irrigation dept currently of which IVRCL's exposure is at Rs460mn.
However, in Long Term not all Analysts share the same saga. The Hindustan Dorr Oliver acquisition has proven value accretive for IVRCL: the former is better positioned in design engineering and complements the latter's civil and structural capabilities.
Also, the company is the lowest bidder in a further Rs44bn of new orders. The company is also looking to aggressively participate in the road sector with awards likely by the end of FY10.
Citi expects IVRCL Infra to earn an EPS of Rs 17.13 and Rs 20.25 for FY10 and FY11 with SOTP valuation at Rs 390 while Anand Rathi expects it to earn Rs 17.5 and Rs 24.5 for FY10 and FY11, with SOTP valuation of Rs 480 [post-restructuring of IVR prime and Hind Dorr Oliver Holdings] Macquarie quite bullish on this space also reports SOTP valuation on IVRCL Infra at Rs 453.
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Published by Webmaster @ 8:32 AM IST.
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Broadcast Media Recovery - Goldman Prefers Zee
Wednesday, December 23, 2009
Major Indian broadcasters such as Zee Entertainment and Sun TV Network have indicated plans to hike rates on flagship channels by 5%-15%, pointing to improving utilizations and signs of a broader recovery in advertising spend. Apart from this, the thesis of structural positives for the broadcasters from increased digitization is intact and strengthening as digital subscriber growth has continued to be robust.Investors must prefer established broadcasters as the best way to gain exposure to increasing penetration of digital distribution platforms (like DTH, digital cable)
In line with earlier view of 10%-12% sequential growth in advertising spend for 2H FY10E and argument for higher valuations for established broadcasters such as Zee. Goldman raises FY10E-12E EPS estimates by 1%-64% and target prices by 17%-29%.
Zee Entertainment:
Zee currently trades at 21.6X FY10E EPS and 17.3X FY11E EPS vs. its historical median 12-month forward P/E of 17X. On a 12-mo forward P/E basis, Zee is trading at a 14% discount to MSCI India vs. historical average premium of 16%. Goldman Sachs raises 12-month target price to Rs295 and base it on 20X FY11E EPS.
Sun TV Network:
Sun TV's unique business model - selling slots to independent producers on ad revenue-sharing basis - and consistently high market shares, have enabled it to deliver higher EBITDA margins than peers. Goldman has set a 12-month target price to Rs331 based on 22X FY11E EPS.
Update on 24/12/2009:
Nomura Securities uses DCF method to value SUN TV and arrive at our 12-month price target of INR 355.
For Zee Entertainment, a relative P/E multiple based valuation technique. Nomura's target multiple of 21x FY11 EPS of INR 13.9 is roughly a 30% premium to the broader market multiples, hence target price of Rs 292.
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Published by Webmaster @ 12:06 PM IST.
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eClerx Services - KPO Niche Player - A Buy
Friday, December 18, 2009
HDFC Insitutional Research has initiated coverage on eClerx Services - a niche player in the Knowledge Process Outsourcing market. The company survived through the bankruptcy of its key client and utilising the downturn to build up management bandwidth and infrastructure facilities, eClerx is comfortably placed to take advantage of increasing demand for offshoring.eClerx recorded a growth of 15% in revenues and 36% in earnings in Q2FY10 and won 2 large accounts after competing with established players. Expect a 21% CAGR growth in revenues over the next 3 years till Q4FY12 backed by eClerx's positioning in the data analytics segment and its ability to win new accounts.
eClerx currently has 4 development centres with a seating capacity of 1,900 people. Anticipating future growth, eClerx will be adding another 1,000-seat capacity in Pune in April 2010. Considering the cost per seat of US$4250, we expect, eClerx to spend close to Rs200m on the new capacity.
Margins are likely to come down from 41% in FY09 to 36.1% in FY12 largely due to salary hikes and currency appreciation that are factored in estimates, net profit growth will still be 19% over FY09 to FY12E.
eClerx is expected to report an EPS of Rs 36 , 49 and 55 for FY10, Fy11 and Fy12 respectively. HDFC REsearch values the stock on 10x FY11 EPS of Rs49.9
translating to a target price of Rs500. Initiate with BUY
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Published by Webmaster @ 12:17 PM IST.
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Reliance Infrastructure - Power and EPC Conglomerate
Thursday, December 17, 2009
Reliance Infrastructure's EPC division has a strong order backlog of cINR196bn and we expect robust order inflow from R-Power and other nonpower sources. We also expect lower commodity prices to drive a 90bp EBITDA margin improvement (earlier 40bp) in FY10. The profit contribution from distribution and transmission should grow on the back of additional capex in Mumbai and increasing its stake in the Delhi distribution business to 49% from 26%.Reliance Power Holding Value - R-Infra's 45% stake in R-Power is valued at INR695 per share, or 65% of the company's market cap. This comes to INR556 when we factor in our 20% discount to the current market value, this has been done only due to due to improved visibility on a number of R-Power's projects. There will be increased profit contribution from Mumbai and Delhi power businesses.
Reliance Infrastructure (RELI) has secured two road project contracts: 1) upgradation and maintenance of Gandhivaram - Mundra port stretch (71 km, US$220 mn); and 2) six-laning and maintenance of Pune-Satara section (140 km, US$380 mn), over the past two weeks through the Build-Own-Transfer route. RELI plans to complete both these projects by end-FY13E. R-Infra is the second largest Roads Developer in India after IRB Infra.
Reliance Infria EPS EStimates - Goldman Sachs estimates it to be Rs 62and Rs 72 for FY10 and FY11 respectively and has set a 12 months target of Rs 1340.
HSBC expects it to be Rs 68 for FY10 and Rs 66 for F11 [yes, de-growth] and has set a 12 months target of Rs 1140.
We will review more construction and EPC stocks tomorrow and hence you can take your call after that. We would only BUY on corrections.
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Published by Webmaster @ 2:43 PM IST.
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Adani Enterprises - Logistics + Energy Holdings
Monday, December 14, 2009
Adani Enterprises Limited (AEL) is the primary vehicle for the Adani Group's businesses, with execution being its key strength. It is India's largest coal trader and owns the country's highest-selling edible oil brand. The group also built India's largest private sector multi-product port [MSEZ - Mundra Port].
AEL expects to undertake contract mining for 1.7bn tonnes of coal over a 30-year period. Out of 70mtpa, it has signed contracts for 10mtpa, letters of intent (LOI) for 35mtpa and in-principle approvals for 25mtpa. AEL has taken a resolution to merge the promoter companies that hold the promoter stake in MSEZ with AEL. The valuations and merger ratio have not been decided yet.
Power Business - Merchant power tariffs and earnings momentum in power segment and Additional capacity in the power business will be the Key catalyst.
About 74% of its value will likely be derived from its listed subsidiaries (Adani Power Ltd and MSEZ). AEL will have substantial businesses in its parent entity and will continue to be a play on coal in particular - both contract mining and trading should contribute 17% of estimated value.
Sum of the Parts Valuation as per UBS estimates.
Adani Power Holding - Rs 370
Logistics - Rs 230
Others Edible Oil, Trading, Realty - Rs 70
10% discount for Holding company of Adani Power and Logistics (Mundra Port) = Rs 540
So sum of the parts valuation will be Rs 610 for Adani Enterprises Ltd as per recent UBS estimates.
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Published by Webmaster @ 9:53 PM IST.
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Cadila's Healthy Business - Worth a Look
Wednesday, December 09, 2009
Cadila Healthcare has created multiple platforms to ensure stable growth over the medium term. It is one of the largest companies in domestic formulations (3.6% market share) with expanding presence across a number of international markets.Revenues: CDH is targeting revenues of US$1 bn in FY2011E versus revenues of US$620 mn reported in FY2009. To achieve its sales target, CDH needs to grow revenues at a CAGR of 18% in Rupee terms over FY2009-11E. Expect domestic segment (c.60% of revenues) to grow steadily, export formulations will grow at an exponential pace on back of aggressive filings across geographies and strong ramp up in one of JVs (Hospira).
Exports growth ramp up has been the key contributor to Cadila healthcare's overall growth over last five years (35% cagr). We expect 28% cagr in exports revenue (incld JVs) over FY09 12. By acquiring small companies/assets, the company has ensured quicker turnaround to profitability and maintained healthy return ratios.
The company has delivered steady RoE of 25%+ over last three years.
Here are some Research views on the company, CLSA said,
With 29.4% net profit cagr over next three years and further potential for upgrades, we find Cadila attractive and initiate coverage with a BUY and a target of Rs 785 / share.Kotak in its report said,
We arrive at a 12-month price target of CDH at Rs 700/share based on SOTP calculation of its various businesses. Indian finished dosage remains the most important segment for CDH, accounting for over half of the target price. This is followed by the US market and consumer / animal healthcare business. At our targetBOFA-Merrill was the first one to initiate coverage on Dec-1st and here is what they say,
price, CDH will trade at 14.5X FY2012E
Despite a 78% stock rally in the past six months (versus the Sensex up 18%), Cadila still trades at 13.3x FY11E EPS, a 25% discount to its peers. We see upside risks to consensus forecasts (BofA-MLe 15% higher), on strong 33% earnings growth and high revenue visibility.EPS expectations are Rs30-33 for FY10 and Rs39-40 for FY11. Again Research follows, stock price rather than predicting it before hand. Do not BUY at current levels, maybe on correction.
Update:
ENAM in its report released just minutes ago on 18/12 says,
....raise our FY10E and FY11E EPS by 1% and 3% to Rs 33.8 and Rs 39.9 respectively. At CMP of Rs 647, the stock trades at a P/E of 19x FY10E and 16x FY11E EPS. We retain sector Outperformer, raising our target price to Rs 718.
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Published by Webmaster @ 6:36 PM IST.
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Indian Overseas Bank - Reduce
Monday, December 07, 2009
Kotak has downgraded Indian Overseas Bank (IOB) to REDUCE from ACCUMULATE earlier after its stock price has moved closer to target price. Although stock is currently quoting at 1.0x its FY11E adjusted book value its disappointing core performance and sharp deterioration in asset quality in last few quarters are likely be depress its valuation.
The bank's net interest income (NII) was flat at Rs.7.85 bn in Q2FY10 on back of increase in balance sheet liquidity. Its net profit declined 51.0% to Rs.1.76 bn in Q2FY10 from Rs.3.59 bn in Q2FY09 on account of sharp increase in operating expenses (50.7%) and Rs.0.82 bn provisions done to absorb one third of excess liabilities over assets arising from the acquisition of Shree Suvarna Sahakari bank.
The bank has been witnessing moderation in its business activities in-line with the industry trends.
In Q1FY10 also, it increased 21.5% due to Rs.3.0 bn NPA addition on account of merger of Shree Suvarna Sahakari bank. The gross NPA increased to 3.42% at the end of Q2FY10 from 2.47% at the end of Q2FY09.
Expect net profit for FY10E and FY11E to be Rs.10.68 bn and 12.20 bn, respectively. This would result into an EPS of Rs.19.6 and Rs.22.4 for FY10E and FY11E, respectively.
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Published by Webmaster @ 11:02 AM IST.
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Bajaj Auto - Sustainable Ride - Closing Gap with Hero Honda
Wednesday, December 02, 2009
Baja Auto is estimated to record 25% growth in FY10/FY11 (industry 20%/15%), as a market transition to user-related economy and premium segments is expected to favor Bajaj's Discover and Pulsar brands, respectively. We expect the company to sustain recent share gains in bikes, increasing to ~25%, up from the January trough of 15%, and 21% in H1.Going forward, there will be moderation in margins to ~20% by FY12, below peak levels of 22% achieved in Q2. This is due to (1) operating leverage, (2) better sales mix in favour of pricier economy, and premium models, and (2) higher price realization in African markets (~45% of sales), negating impact of weakening dollar.
Driven by an increase in stand-alone EPS forecasts by 35%/51% over FY10-11E, on the back of a revised volume outlook, especially for two-wheelers and exports. In future, expect the stock to trade at a narrower 10% discount to Hero Honda on an EV/EBITDA-based valuation, due to a closing market share differential.
BOFA Merrill expects Bajaj Auto to record an EPS of Rs 105 and 130 for fy10- and fy11 respectively.
Update:
Indian Market Mover and Shaker Goldman Sachs, just a while ago has upgraded Bajaj Auto to Buy from Neutral citing - Further evidence of strong demand upswing - based on channel checks, Rising utilization (from 55% in FY09 to >80% in FY11E) driven by strong demand and the company's successful new product strategy. Goldman expects Bajaj Auto to report EPS of Rs 112 and Rs 136 for FY10 and FY11. Bajaj Auto is currently trading at 12.3X FY11E P/E, on Goldman Sachs' 12-month target price of Rs2,175 is based on 16X FY11E P/E.
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Published by Webmaster @ 10:38 AM IST.
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