| Analysts' corner | |
| S I Team / Mumbai July 06, 2009, 0:07 IST | |
IDEA CELLULAR
Reco price: Rs 71.00
Current market price: Rs 74.30
Target price: Rs 66.00
Downside: 11.2%
Brokerage: Ambit Capital
Idea Cellular is expected to launch services in seven circles by December 2009. Idea launched operations in Orissa and Tamil Nadu circles in the June quarter of FY10, Chennai operations are likely to be launched this month. The company aims to be a pan-India operator by the end of CY09.
Idea Cellular is expected to report 26 per cent CAGR over the next three years, margins and EPS are expected to remain subdued in the short-term owing to events such as launches in new circles, mobile number portability implementation and costs associated with the launch of 3G services if the company gets the licence.
Subdued quarterly results on the back of new launches, significantly higher cash outflow for 3G as well as MNP could dampen stock price performance. However, any M&A activity could provide a potential upside. The brokerage revised target price from Rs 52 to Rs 66, with core business valued at Rs 55 per share and Indus Tower at Rs 11. At 71, stock trades at 9.3 times its FY10 EV/EBITDA.
AREVA T&D INDIA
Reco price: Rs 363.00
Current market price: Rs 347.20
Target price: Rs 239.00
Downside: 31.2%
Brokerage: Angel Broking
The news that Areva's global Power Transmission & Distribution (Areva T&D) unit was up for sale saw a 7.9 per cent spurt in Areva T&D India stock price. Meanwhile, Areva group's supervisory board announced several steps to secure the group's long-term financial requirements and that it was deliberating various proposals, including opening of its equity to new strategic partners and its employees.
The brokerage feels that stock's reaction to the newsflow has been knee-jerk, as this news was doing the rounds for some time now along with names of potential suitors including Alstom, Siemens and Schneider etc. However, the brokerage believes that it is difficult to size up with regards to structure and timing of the deal.
Adding to the complexity is that it is not an India unit specific deal rather it covers the entire global T&D business of the Areva Group. Besides, if the deal materialises, though an open offer could be triggered, pricing of the same would largely depend on the timing of the deal.
At Rs 363, the stock trades at 33.3x and 27.3x its CY09E and CY10E EPS, respectively. The brokerage has downgraded the stock from reduce to sell.
PATEL ENGINEERING
Reco price: Rs 429.00
Current market price: Rs 465.35
Target price: Rs 475.00
Upside: 2.2%
Brokerage: Edelweiss Securities
Patel Engineering (PEL) posted a top line of Rs 960 crore (33 per cent y-o-y growth) in the March quarter of FY09. For the full year, revenues were Rs 2,460 crore, an increase of 33 per cent over last year. EBITDA margins for the quarter declined slightly (20 bps y-o-y) to touch 15.4 per cent. For the full year, EBITDA margins at 15.8 per cent were 160 bps higher vis-a-vis FY08. PEL also offset one-off claims with forex losses. PEL received Rs 80 crore interests on pending claims against clients. This offset the Rs 84.5 crore forex loss that the company suffered during the year.
PEL's FY09-end order book stood at Rs 7,200 crore. In addition, it is L1 in projects in excess of Rs 2,500 crore, indicating sufficient revenue visibility going forward. The order book is spread across hydel (45 per cent), irrigation (40 per cent) and the balance in roads and urban infra segments.
The brokerage is revising upwards the earnings estimates for FY10E and FY11E to factor in the anticipated growth in the company's business. At Rs 429, PEL is trading at 15.6x and 13.1x its FY10E and FY11E, respectively. The brokerage has downgraded the stock from buy to accumulate.
ORCHID CHEMICALS & PHARMA
Reco price: Rs 94.00
Current market price: Rs 96.00
Target price: Rs 163.00
Upside: 70%
Brokerage: ShareKhan
The FY09 results of Orchid Chemicals and Pharmaceuticals (Orchid) were below par on account of increasing pricing pressure in the cephalosporins space coupled with lack of product launches, delay in the approval of Tazo-Pip and high interest cost which strained profitability. Orchid's FY09 revenues declined by 2.3 per cent to Rs 1,211.3 crore (below estimates). The revenue growth was subdued largely due to absence of new product launches. The operating profit margin contracted by 430 basis points to 23.6 per cent due to a sharp increase in raw material costs.
However, margins are expected to improve in the coming quarters on the back of a weaker rupee and a ramp-up in the formulation sales to the regulated markets. The full-year impact of the Tazo-Pip launch in the EU and the impending launch of Tazo-Pip in the US after approval from the USFDA would also add to margin improvement. At net level, Orchid reported a loss of Rs 52.2 crore for 2009.
On account of lower-than-expected operating margin and higher interest cost, 2010 profit estimates for Orchid are downgraded by 43.5 per cent to Rs 80 crore while revenue estimates are unchanged. The brokerage expects Orchid's revenues to grow by 18.7 per cent in 2011. At Rs 94, Orchid trades at 5.8x its FY2011E earnings. Maintain buy.
TV 18
Reco price: Rs 120.00
Current market price: Rs 111.5
Target price: Rs NA
Brokerage: IDFC SSKI
During the March FY09 quarter, TV18 reported revenues of Rs 136 crore. Continued capital market turmoil in March FY09 and no Union Budget resulted in 36 per cent decline in revenues of news broadcasting business. The overall operating expenditure during the March quarter FY09 is up from Rs 140 crore in December FY09 quarter to Rs 260 crore.
For the full year, TV18's consolidated revenues were Rs 490 crore. In FY09, the absence of IPOs and drop in ad budgets by BFSI players, news broadcasting revenues declined by 13.5 per cent to Rs 290 crore. Infomedia18's revenues are estimated to be Rs 120 crore and its business has been significantly scaled down with a focus on business directory services on print, voice and web platforms.
TV18's balance sheet is stretched with debt/EBITDA in FY10 at 20x. Inability to internally fund the gestation losses in other businesses and a stretched balance sheet makes it pertinent for TV18 to scout for equity capital which is likely to come in the form a rights issue to the tune of around Rs 500 crore. Unlike in the past, the competitive risk is higher with the launch of ET Now and likely entry of Bloomberg TV. The brokerage has downgraded the stock from neutral to underperformer.
Current market price as on July 3, 2009
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