Investors with a three-five year perspective can consider buying the stock of IRB Infrastructure Developers. The company’s lucrative portfolio of 14 operational toll roads render superior earnings visibility compared with some of the infrastructure companies struggling to achieve financial closure or are strapped for funds to meet working capital requirements. Over the last year, the company has demonstrated its ability to not only achieve financial closure of its Surat-Dahisar project but also roped in private equity to contribute part of the equity capital for its special purpose vehicle.
At the current market price of Rs 104, the stock trades at 10 times its consolidated per share earnings expected for FY10. Given the volatility witnessed in the company’s stock, investor can consider buying the stock on declines linked to broader market.
As an early entrant in toll road operation, IRB has enjoyed certain privileges which include retaining the full share of revenues from toll roads, unlike recent public private partnership projects which come with a revenue sharing clause. This has resulted in the company enjoying operating profit margins of over 41 per cent, way beyond the infrastructure industry average of 10-14 per cent.
Order book of Rs 3,200 crore on the construction side, provide strong earnings visibility for the next couple of years. At the same time, high density traffic in Western highways such as the Mumbai Pune Expressway is likely to provide regular revenues.
Sunday, May 17, 2009
Elecon Engineering: Buy
Investors can consider buying the stock of Elecon Engineering.
At the current market price of Rs 54, the stock trades at about 10 times its likely FY-10 per share earnings. Investors can accumulate the stock in lots on declines, as it may take a couple of more quarters for the order flow scenario to improve for Elecon.
The company’s order book at end-March 09 quarter stood at about Rs 1,600 crore, registering a growth of over 27 per cent year-on year. It has since added over Rs 300 crore worth orders from different companies. But even as the order book cover lends healthy visibility to its revenue, what remains a concern is that the order booking has been very weak. While most companies in the capital goods space have also reported weak order inflows, for Elecon, the concern arises from delay in execution of a Rs 500-crore order included in the current order book.
This order, bagged in June 2008 from Bramhani Industries, was put on hold by the latter. This issue, however, may be addressed soon as the management expects the order to take off in the next quarters.
The company’s industrial gears division, which owes its fortunes to the increasing spends by its user industries, reported a 32 per cent decline in revenues for the March-09 quarter as against the same quarter last year.
The facility also clocked lower utilisation levels of about 23-30 per cent. This was also partly due to the deferment of some orders last quarter, which will most likely get reflected in its current quarter revenues. The division currently has an outstanding order book of about Rs 230 crore only.
For the year ended March 09, Elecon managed a revenue growth of over 18 per cent, helped primarily by the strong growth in its MHE division.
The material handling business now has a share of about 70 per cent from 55 per cent last year, while the industrial gears division’s contribution has fallen to 50 per cent. On the margin front, Elecon improved its performance by 1.4 percentage points to 16 per cent, helped by lower raw material prices.
The company is likely to sustain profit margins once it exhausts its current raw material inventory. Net profits, however, fell by 14 per cent. Higher interest outgo and depreciation, besides lower revenues, led to the decline in profits.
There has not been any material progress in Elecon’s entry into the windmills and windmill gearboxes business.
While the company had earlier begun prototyping for windmill gearboxes of about 2 MW range for its customer and installed six wind turbine generators in Gujarat and supplied four in Maharashtra, the development so far has not been impressive. This scenario may, however, change in the next few quarters as the management indicated that the issue of certification for its windmills has been resolved recently. The management expects to make Rs 55 crore revenue contribution from the windmill segment this year.
At the current market price of Rs 54, the stock trades at about 10 times its likely FY-10 per share earnings. Investors can accumulate the stock in lots on declines, as it may take a couple of more quarters for the order flow scenario to improve for Elecon.
The company’s order book at end-March 09 quarter stood at about Rs 1,600 crore, registering a growth of over 27 per cent year-on year. It has since added over Rs 300 crore worth orders from different companies. But even as the order book cover lends healthy visibility to its revenue, what remains a concern is that the order booking has been very weak. While most companies in the capital goods space have also reported weak order inflows, for Elecon, the concern arises from delay in execution of a Rs 500-crore order included in the current order book.
This order, bagged in June 2008 from Bramhani Industries, was put on hold by the latter. This issue, however, may be addressed soon as the management expects the order to take off in the next quarters.
The company’s industrial gears division, which owes its fortunes to the increasing spends by its user industries, reported a 32 per cent decline in revenues for the March-09 quarter as against the same quarter last year.
The facility also clocked lower utilisation levels of about 23-30 per cent. This was also partly due to the deferment of some orders last quarter, which will most likely get reflected in its current quarter revenues. The division currently has an outstanding order book of about Rs 230 crore only.
For the year ended March 09, Elecon managed a revenue growth of over 18 per cent, helped primarily by the strong growth in its MHE division.
The material handling business now has a share of about 70 per cent from 55 per cent last year, while the industrial gears division’s contribution has fallen to 50 per cent. On the margin front, Elecon improved its performance by 1.4 percentage points to 16 per cent, helped by lower raw material prices.
The company is likely to sustain profit margins once it exhausts its current raw material inventory. Net profits, however, fell by 14 per cent. Higher interest outgo and depreciation, besides lower revenues, led to the decline in profits.
There has not been any material progress in Elecon’s entry into the windmills and windmill gearboxes business.
While the company had earlier begun prototyping for windmill gearboxes of about 2 MW range for its customer and installed six wind turbine generators in Gujarat and supplied four in Maharashtra, the development so far has not been impressive. This scenario may, however, change in the next few quarters as the management indicated that the issue of certification for its windmills has been resolved recently. The management expects to make Rs 55 crore revenue contribution from the windmill segment this year.
Piramal Healthcare: Buy
Investors with a long-term perspective can consider accumulating the stock of Piramal Healthcare on declines related to the broader market. A well-entrenched presence in the domestic formulations business helped by a dedicated field force of over 5,000 and the strengthening position of its Indian custom manufacturing division lend stability to Piramal’s prospects, even as its overseas CRAMS assets may lower contributions.
At current market price of Rs 250, the stock trades at about 12 times it likely FY10 per share earnings. This appears reasonable, considering the company’s growth rate and its strong foothold in the domestic market.
For the year-ended March 09, Piramal’s contract manufacturing business clocked a growth of 5.5 per cent, of which revenues from its global assets fell by over 14 per cent. Slowed investments by big pharma companies, de-stocking of inventories and drying up of funding for smaller biotech firms pushed down the revenues from the global CRAMS business.
For the year, the segment’s revenues from facilities in India have grown by over 75 per cent. That said, it is the contribution from the company’s healthcare solutions (domestic formulations) that will lend stability in its overall growth.
Piramal reported a net sales growth of over 15 per cent last year, driven primarily by the strong performance put in by the domestic formulations business. Its revenues grew by about 23 per cent, outperforming even the market growth rate of 10.4 per cent.
That the company expanded its market share to 5 per cent this year from 3.2 per cent earlier also points to the strengthening position of Piramal in the domestic market.
The management looks towards a growth of 14-18 per cent for this segment.It, however, has lowered its revenue guidance for the global critical care segment (GCC) for the current fiscal to $55-65 million, as Minrad International Inc, which Piramal acquired recently, may not be able to launch Desflurane this year.
At current market price of Rs 250, the stock trades at about 12 times it likely FY10 per share earnings. This appears reasonable, considering the company’s growth rate and its strong foothold in the domestic market.
For the year-ended March 09, Piramal’s contract manufacturing business clocked a growth of 5.5 per cent, of which revenues from its global assets fell by over 14 per cent. Slowed investments by big pharma companies, de-stocking of inventories and drying up of funding for smaller biotech firms pushed down the revenues from the global CRAMS business.
For the year, the segment’s revenues from facilities in India have grown by over 75 per cent. That said, it is the contribution from the company’s healthcare solutions (domestic formulations) that will lend stability in its overall growth.
Piramal reported a net sales growth of over 15 per cent last year, driven primarily by the strong performance put in by the domestic formulations business. Its revenues grew by about 23 per cent, outperforming even the market growth rate of 10.4 per cent.
That the company expanded its market share to 5 per cent this year from 3.2 per cent earlier also points to the strengthening position of Piramal in the domestic market.
The management looks towards a growth of 14-18 per cent for this segment.It, however, has lowered its revenue guidance for the global critical care segment (GCC) for the current fiscal to $55-65 million, as Minrad International Inc, which Piramal acquired recently, may not be able to launch Desflurane this year.
Maruti Suzuki: Hold
With a 15 per cent return over the past year, the Maruti Suzuki stock has outperformed the BSE Auto index (18 per cent decline) and has turned out to be one of the best defensive picks. At Rs 842, the stock discounts its four quarter earnings by 15 times. Strong performance has pushed its valuation to a premium over the entire auto pack (about 14 times), limiting possible upside over the medium term. However, shareholders of the company can remain invested for its strong earnings visibility.
With value-for-money offerings in the sedan segment and price increases to offset input costs, the company’s top-line for 2008-09 registered a growth of 12 per cent, beating the automobile slowdown. However, net profits have disappointed, declining by 28 per cent due to higher material costs, a change in depreciation policy and forex losses. Easing margin pressures, as commodity price declines filter in, suggest that the company is on track to deliver better earnings performance.
Maruti’s key advantage lies in its focus on the passenger vehicle segment, which has weathered the slowdown better than commercial vehicle. Products at almost every price point — Alto, WagonR, Zen Estilo, Swift and A-Star — make the company a market leader in the hatchbacks (A3) segment. Intense competition and tight credit availability that prevailed for most of last year muted its sales growth in this space to 2.5 per cent. But with credit crunch easing out, this segment has shown better growth since the beginning of 2009 (11 per cent increase in sales between December 2008 and April 2009). Maruti has enlarged its market share in this segment to 60 per cent this year as against 53 per cent last year. Swift and the recently launched A-Star have helped these gains.
While the hatchback segment witnessed a slowdown last year, it is the sedan or the A2 segment that has delivered surprising growth for Maruti. Driven by launches of SX4 and Swift DZire (the sedan version of Swift), this segment has grown by 50.9 per cent.
Concerns however remain on Maruti’s entry-level models such as Maruti 1000 and Alto. Preferred by the urban middle-class, these cars may face challenges in 12 cities, including Delhi, Mumbai Kolkata and Chennai, after a change in emission norms to Bharat Stage IV mandated by October 2009.
With the on-road price differential (in Delhi) of about Rs 45,000-Rs 50,000 between Maruti’s entry-level models and Nano’s high-end version, competition from this source cannot be ruled out.
Domestic sales apart, exports too are seen as a key growth driver for Maruti over the next couple of years. Engineered to suit European standards, A-Star has lifted Maruti’s exports by 33 per cent for FY09. Exports accounted for 11 per cent of the company’s sales volumes in the last fiscal.
Maruti has a contract with Nissan to manufacture 45,000 of A-Star under the ‘Pixo’ label in Europe and a tie-up with Suzuki to ship 11,000 units of the car to Latin America, Algeria, Australia and some African nations.
Maruti has reached 39 per cent of its export target (two lakh units by fiscal year 2010-11) so far. The launch of Ritz, could also hold potential.
The year 2008-09 ended with a sales growth of 14 per cent, while total volumes grew by 3.6 per cent. High-cost pressures from some raw materials such as steel, aluminium alloys and rubber, and a change in product mix in favour of diesel variants , resulted in the operating profits declining by 45 per cent on a year-on-year basis. The net profits shrank by 32 per cent.
With initiatives to localise vendors, operating profits are expected to grow by 23-30 per cent in 2010-11. On a sequential basis, the company has seen 32 per cent increase in sales volume and a 20 per cent increase in net profits for the March 2009 quarter.
With value-for-money offerings in the sedan segment and price increases to offset input costs, the company’s top-line for 2008-09 registered a growth of 12 per cent, beating the automobile slowdown. However, net profits have disappointed, declining by 28 per cent due to higher material costs, a change in depreciation policy and forex losses. Easing margin pressures, as commodity price declines filter in, suggest that the company is on track to deliver better earnings performance.
Maruti’s key advantage lies in its focus on the passenger vehicle segment, which has weathered the slowdown better than commercial vehicle. Products at almost every price point — Alto, WagonR, Zen Estilo, Swift and A-Star — make the company a market leader in the hatchbacks (A3) segment. Intense competition and tight credit availability that prevailed for most of last year muted its sales growth in this space to 2.5 per cent. But with credit crunch easing out, this segment has shown better growth since the beginning of 2009 (11 per cent increase in sales between December 2008 and April 2009). Maruti has enlarged its market share in this segment to 60 per cent this year as against 53 per cent last year. Swift and the recently launched A-Star have helped these gains.
While the hatchback segment witnessed a slowdown last year, it is the sedan or the A2 segment that has delivered surprising growth for Maruti. Driven by launches of SX4 and Swift DZire (the sedan version of Swift), this segment has grown by 50.9 per cent.
Concerns however remain on Maruti’s entry-level models such as Maruti 1000 and Alto. Preferred by the urban middle-class, these cars may face challenges in 12 cities, including Delhi, Mumbai Kolkata and Chennai, after a change in emission norms to Bharat Stage IV mandated by October 2009.
With the on-road price differential (in Delhi) of about Rs 45,000-Rs 50,000 between Maruti’s entry-level models and Nano’s high-end version, competition from this source cannot be ruled out.
Domestic sales apart, exports too are seen as a key growth driver for Maruti over the next couple of years. Engineered to suit European standards, A-Star has lifted Maruti’s exports by 33 per cent for FY09. Exports accounted for 11 per cent of the company’s sales volumes in the last fiscal.
Maruti has a contract with Nissan to manufacture 45,000 of A-Star under the ‘Pixo’ label in Europe and a tie-up with Suzuki to ship 11,000 units of the car to Latin America, Algeria, Australia and some African nations.
Maruti has reached 39 per cent of its export target (two lakh units by fiscal year 2010-11) so far. The launch of Ritz, could also hold potential.
The year 2008-09 ended with a sales growth of 14 per cent, while total volumes grew by 3.6 per cent. High-cost pressures from some raw materials such as steel, aluminium alloys and rubber, and a change in product mix in favour of diesel variants , resulted in the operating profits declining by 45 per cent on a year-on-year basis. The net profits shrank by 32 per cent.
With initiatives to localise vendors, operating profits are expected to grow by 23-30 per cent in 2010-11. On a sequential basis, the company has seen 32 per cent increase in sales volume and a 20 per cent increase in net profits for the March 2009 quarter.
UltraTech Cement : Hold
UltraTech Cement continues to be preferred exposure within the cement sector due to the advantages of operating in the East, which is showing high demand growth, and relatively low new capacity additions in FY-10.
The company’s ability to expand margins by saving on fuel costs and additions to captive power capacity are the plus points. At Rs 577, enjoying seven times trailing earnings, the stock valuation remains reasonable and is at discount to ACC which trades at seven times.
Though all-India cement despatches have grown by a stronger-than-expected 9.2 per cent in FY-09, the bunching up of fresh capacities in 2009-10 make the current year a challenging one for the sector.
At 6.3 million tonnes, UltraTech’s sales volume recorded a robust 12 per cent growth in the March quarter.
Its peers, ACC and Ambuja Cements, saw a lower growth at 6.2 per cent and 6.8 per cent. Being positioned in the West, the company made the best out of the higher demand in this region in recent quarter.
Year-to-date till March, the western region has shown the highest growth in despatches at 12.74 per cent growth compared to the all-India average of 7.95 per cent.
Further, of all the pockets in the country, the West will be seeing the least capacity expansion in FY-10. Of the total 60 million tonne of capacity expected to be added in FY-10, over 85 per cent will be in the North and Southern pockets.
With the commissioning of two grinding units of 1.1 million tonnes per annum (mtpa) each in the March quarter, UltraTech’s capacity stands at 23.9 million tonnes. This is expected to rise to 24.1 million tonnes by June 2009, with the commissioning of a grinding unit, work for which has already begun. Interest expenditure in the March quarter stood higher by 61 per cent over the previous year on borrowings for the capex.
However, the interest coverage stands at a comfortable 15 times. Further, for the full year FY-09, cash profits were higher on higher depreciation (up 33 per cent) on additions to the cement and captive power capacity. Cash profit for FY-09 was Rs 1,581 crore against Rs 1,228 crore for FY-08.
But, however, this is much lower than the prices in the South where a 50 kg bag is sold at Rs 271-75; this could mean leeway for further increases.
In the March ‘09 quarter, however, the company’s overall realisations came down by Rs 8.6 per bag on substantial decrease in export realisations of clinker.
Saving in cost
The addition of 191 MW to the captive power capacity may lead to further savings in costs in the quarters to come. With this, UltraTech’s captive power would meet 81 per cent of its total requirements.
Also, the sharp decline in thermal coal prices in the international markets has already begun to reflect in the March quarter numbers with power-fuel expenses declining by 24 per cent sequentially and operating profit margins expanding by 210 basis points to 30 per cent.
Coal prices continue to hover at low levels. From $77 per tonne in December ($190 per tonne in 2008), prices have now fallen to $65 per tonne and there is scope for some further saving on fuel as sea freight rates also linger at low levels.
In the March ’09 quarter, UltraTech’s sales was up 15.6 per cent supported by strong despatches growth.
The company’s ability to expand margins by saving on fuel costs and additions to captive power capacity are the plus points. At Rs 577, enjoying seven times trailing earnings, the stock valuation remains reasonable and is at discount to ACC which trades at seven times.
Though all-India cement despatches have grown by a stronger-than-expected 9.2 per cent in FY-09, the bunching up of fresh capacities in 2009-10 make the current year a challenging one for the sector.
At 6.3 million tonnes, UltraTech’s sales volume recorded a robust 12 per cent growth in the March quarter.
Its peers, ACC and Ambuja Cements, saw a lower growth at 6.2 per cent and 6.8 per cent. Being positioned in the West, the company made the best out of the higher demand in this region in recent quarter.
Year-to-date till March, the western region has shown the highest growth in despatches at 12.74 per cent growth compared to the all-India average of 7.95 per cent.
Further, of all the pockets in the country, the West will be seeing the least capacity expansion in FY-10. Of the total 60 million tonne of capacity expected to be added in FY-10, over 85 per cent will be in the North and Southern pockets.
With the commissioning of two grinding units of 1.1 million tonnes per annum (mtpa) each in the March quarter, UltraTech’s capacity stands at 23.9 million tonnes. This is expected to rise to 24.1 million tonnes by June 2009, with the commissioning of a grinding unit, work for which has already begun. Interest expenditure in the March quarter stood higher by 61 per cent over the previous year on borrowings for the capex.
However, the interest coverage stands at a comfortable 15 times. Further, for the full year FY-09, cash profits were higher on higher depreciation (up 33 per cent) on additions to the cement and captive power capacity. Cash profit for FY-09 was Rs 1,581 crore against Rs 1,228 crore for FY-08.
But, however, this is much lower than the prices in the South where a 50 kg bag is sold at Rs 271-75; this could mean leeway for further increases.
In the March ‘09 quarter, however, the company’s overall realisations came down by Rs 8.6 per bag on substantial decrease in export realisations of clinker.
Saving in cost
The addition of 191 MW to the captive power capacity may lead to further savings in costs in the quarters to come. With this, UltraTech’s captive power would meet 81 per cent of its total requirements.
Also, the sharp decline in thermal coal prices in the international markets has already begun to reflect in the March quarter numbers with power-fuel expenses declining by 24 per cent sequentially and operating profit margins expanding by 210 basis points to 30 per cent.
Coal prices continue to hover at low levels. From $77 per tonne in December ($190 per tonne in 2008), prices have now fallen to $65 per tonne and there is scope for some further saving on fuel as sea freight rates also linger at low levels.
In the March ’09 quarter, UltraTech’s sales was up 15.6 per cent supported by strong despatches growth.
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