| Analysts' corner | |
| S I Team / Mumbai February 23, 2009, 0:38 IST | |
AVENTIS PHARMA
Reco price: Rs 859
Current market price: Rs 841.55
Target price: Rs 1,027
Upside: 22.04%
Brokerage: Angel Broking
Aventis Pharma posted net sales of Rs 269.9 crore registering a year-on-year (y-o-y) growth of 32.3 per cent on the back of strong traction in both, the domestic and export segments in Q4 CY08.
Operating margins expanded by 305 basis points (bps) to 17.3 per cent due to lower-than-expected growth in salary and other expenses. Robust growth in sales, rise in margins and higher other income led to 67.8 per cent increase in net profit to Rs 45.3 crore in Q4.
For CY08, Aventis posted domestic sales of Rs 773.1 crore, up 10 per cent y-o-y and contributed 78.6 per cent to overall sales. Exports, on the other hand, grew by 23.4 per cent to Rs 210.2 crore. However, its distribution agreement for the Rabipur vaccine (sales of Rs 117.9 crore in CY08) with Chiron Behring Vaccines Private Limited was discontinued from February 2009.
Thus, for CY08, the company clocked net sales of Rs 983.3 crore registering a y-o-y rise of 12.6 per cent. The brokerage has revised downwards its net sales and profit estimates by 4-6 per cent. At Rs 859, the stock is trading at 11.9x CY08 and 12.6x CY09E earnings. Maintain buy.
HEXAWARE TECHNOLOGIES
Reco price: Rs 31
Current market price: Rs 25.2
Target price: Rs NA
Brokerage: Edelweiss Securities
Hexaware’s Q4 CY08 results showed better operating performance with improvements in utilisation and cost management. Reported revenues aided by rupee depreciation were higher than expected, though they were in line in dollar terms. Revenues at Rs 310 crore were up 3.8 per cent and net profits at Rs 17.1 crore up 48.5 per cent on quarter-on-quarter (q-o-q) basis. EBITDA margins improved 460 bps to 18 per cent, aided by rupee depreciation and better SG&A cost management.
There are still pressures escalating on mid-tier enterprise IT companies in the current environment on the back of project cancellations, delays in new project ramp-ups, and completed projects not getting rolled over.
Hexaware’s substantial onsite revenue dependency (62 per cent of total) along with close to one-third of revenues from enterprise application services (30 per cent) makes it vulnerable to higher-than-industry decline in growth. The company’s Q1 CY09 revenue outlook indicates sequential decline of 14-20 per cent.
For CY09, expect Hexaware’s revenue growth to decline by 11 per cent, with a risk to further downside. EPS estimates for CY09 and CY10 are Rs 4.3 and 5.3, respectively. At Rs 31, the stock is trading at 7.2x and 5.9x for CY09E and CY10E. Maintain sell.
HINDUSTAN UNILEVER
Reco price: Rs 252
Current market price: Rs 249.2
Target price: Rs 280
Upside: 12.4%
Brokerage: Sharekhan
Hindustan Unilever’s (HUL) overall volume growth has shown a declining trend in the past few quarters because of price increases/grammage reductions effected, which were directed to protect its margins. The above measures were particularly steep in the soaps and detergents category (around 47 per cent of HUL’s sales and 44 per cent of profits).
As a result of the downtrading/grammage reductions and the rationalisation of consumption by consumers, HUL’s detergent volume growth has tapered steeply and soap sales have registered a y-o-y decline in volumes in the past few quarters.
Thus, the company reduced the prices and increased the grammage in select stock keeping units towards the end of January 2009, particularly aimed at boosting its volumes in these categories. These moves would let HUL pass on the benefits from declining raw material prices and its savings from recent reductions in excise duty announced in the stimulus package.
The brokerage believes that HUL’s FY10 top-line growth would be lower and largely volume driven, with the expectation of further rationalisation of prices to address the volume concerns. At Rs 252, the stock trades at 22.8x its FY2010E earnings. Maintain buy.
HINDALCO INDUSTRIES
Reco price: Rs 42
Current market price: Rs 39.35
Target price: Rs 46
Upside: 16.9%
Brokerage: India Infoline
Hindalco’s 100 per cent subsidiary, Novelis reported a loss of $1.8 billion for Q3 FY09, including a goodwill impairment of $1.3 billion; and a $405 million loss on derivatives contracts. Goodwill write-off will have no impact on cash-flows. Out of $405 million loss on derivative contracts, $160 million is actual loss with respect to can-price-ceiling contracts, while the rest is a hedging loss.
Shipments in Q3 declined across geographies; total shipments declined by 17 per cent to 663,000 tonnes. Outlook for demand remains weak, except in North America. Though costs are expected to come down in the quarters, owing to the fall in energy and transportation cost, weak demand and down trading to lower-value-added products remains the key concern.
The company is taking measures to cut costs, including plans to reduce workforce by over 10 per cent. As at the end of the quarter, Novelis had net debt of $2.7 billion (excluding SPV debt of $1 billion). The sharp fall in aluminium prices and stretched balance sheet are other key concerns. Further clarity on Hindalco’s proposed restructuring plans and accounting of derivatives losses at Novelis are awaited. Maintain reduce.
ZEE NEWS
Reco price: Rs 30.9
Current market price: Rs 29.75
Target price: Rs 42
Upside: 41.2%
Brokerage: Macquarie Research
ZEE News (ZNL) has three driver channels–Zee Marathi, Zee Bangla and Zee News, which make up around 70 per cent of its total ad revenues, and reduce the risk of overdependence on one channel property, unlike many other TV media companies in India.
ZNL’s advertising revenue composition is well balanced with regional genre contributing 60 per cent and balance coming from the news channels. The company expects advertising revenues (Rs 100-150 crore) to accrue to television channels in the June 2009 quarter from the upcoming elections and a majority of that spend will likely happen on news channels.
ZNL also remains confident to garner a decent share of Tamil regional TV advertising market (worth Rs 690 crore) in the next two years and expecting a likely break-even of Zee Tamil in 36–48 months.
Zee draws 21 per cent of its revenues from subscription and expects its share to grow to 30 per cent in the next three years. This will largely be led by the ramp up of DTH subscribers although one needs to monitor the trends on a quarterly basis. ZNL’s EPS growth is expected at 30.6 per cent during FY09-11. Maintain outperform.
Current market price as on February 20, 2009
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