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| Analysts' corner | | RESEARCH CALLS |
| SI Team / Mumbai Jun 08, 2009, 00:49 IST |
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MADRAS CEMENTS
Reco price: Rs 115
Current market price: Rs 113.20
Target price: 128
Downside: 13.1%
Brokerage: Sharekhan
For March 2009 quarter, Madras Cement’s revenues grew by 20 per cent year-on-year (y-o-y) driven by 12.6 per cent increase in cement realisation to Rs 4,027 per tonne; volumes grew by 7 per cent to 1.6 million tonne. The operating profit margin contracted by 437 basis points (bps) to 26.4 per cent due to higher power and fuel costs, as the supply of power from the captive windmill declined sharply during the quarter. The adjusted net profit declined by 3.4 per cent, and is in line with expectations.
Accounting for a higher than expected volume growth in the cement division (commissioning of two million tonne capacity at Ariyalur) and expectations of higher spending by the new government on infrastructure, the brokerage has upgraded its earnings estimate for 2009-10 by 3 per cent to Rs 14.7. It has introduced EPS estimates of Rs 13.50 for 2010-11.
At Rs 115, the stock trades at 7.8x and 8.5x its estimated 2009-10 and 2010-11 earnings, respectively and an enterprise value (EV)/EBIDTA of 5.1x for 2010-11. The price target of Rs 128 is based on 5.5x EV/EBITDA (and EV/tonne of $60). Maintain hold as cement stocks could underperform in the short term.
BAJAJ AUTO
Reco price: Rs 370.40
Current market price: Rs 356.05
Target price: 369
Downside: NA
Brokerage: Citi Investment Research
Aided by a benign West Bengal Electricity Regulatory Commission and its reasonable tariff orders, CESC’s power business continues to create value. The power business has turned around from losses of Rs 130 crore in 1998-99 to profits of Rs 410 crore in 2008-09. CESC is currently evaluating projects to expand into an electric utility with national footprint. This includes the 1,300 mw Haldia Phase – II project, 1,000 mw Jharkand project and 1,000 mw Orissa project. CESC expects to spend Rs 450 crore by FY11 to enhance its transmission capacity and Rs 300 crore of annual maintenance capex in the next three years.
CESC extended loans of Rs 250 crore to Spencer’s retail in 2007-08. The brokerage estimates another Rs 550 crore and Rs 800 crore will be extended in 2008-09 and FY10-12, respectively. In the absence of Rs 800 crore of investments over FY10E-12E, CESC would be worth Rs 58 per share. CESC’s retail business will be a drag on any upside in the power business. A look at CESC alone shows that it is trading at an inexpensive PE multiple of 10.3x 2009-10E. However, considering the retail business losses, it looks expensive at 17.9 times. While hiking its target price to Rs 369 from Rs 290 earlier, the brokerage recommends a sell.
MAHINDRA & MAHINDRA
Reco price: Rs 698.00
Current market price: Rs 689.75
Target price: 633.00
Downside: 8.2%
Brokerage: Religare Hichens, Harrison
Mahindra & Mahindra’s (M&M) March 2009 quarter results were ahead of expectations due to the consolidation of Punjab Tractor’s (PTL) financials. Its automotive revenues increased by 5.1 per cent y-o-y to Rs 2,190 crore, driven by an 8 per cent growth in utility vehicle (UV) volumes. The PTL amalgamation helped the farm equipment segment to grow by 47 per cent y-o-y to Rs 1,450 crore.
For 2008-09, key businesses like farm equipment, Tech Mahindra, M&M Financial Services drove consolidated topline by 10 per cent. Net profits (down by 10.5 per cent) were hurt largely due to margin pressures in the automotive and auto ancillary businesses.
M&M would be a play on the rural India story as both UVs and tractors enjoy the strongest demand in rural areas. The brokerage forecasts a volume growth of 8 per cent growth in UVs and 4 per cent in tractors and expects M&M’s recent outperformance in UVs to be sustained; EBITDA margins could improve by 110 bps in 2009-10. The core business and subsidiary holdings are valued at Rs 422 and Rs 211, respectively with a target price of Rs 633. Due to expensive valuations, the stock has been downgraded from hold to sell.
PVR
Reco price: Rs 133.00
Current market price: Rs 135.25
Target price: NA
Brokerage: Angel Broking
For March 2009 quarter, PVR declared muted top line growth of a mere 6.2 per cent on a standalone basis impacted by lower occupancies leading to 2.5 per cent y-o-y growth in footfalls to 3.8 million. Average ticket price (ATP) and spend per head continued to register modest growth of 6 per cent to Rs 140 and Rs 36 respectively, driven by higher ATPs across newly opened PVR Premiere properties. PVR’s standalone operating margins declined by 297 bps y-o-y to 10.1 per cent. For the quarter, the company reported a net loss of Rs 1.1 crore (versus a profit of Rs 2.7 crore in March 2008 quarter) owing to margin contraction and interest costs.
No new properties were added during the quarter. Thus, PVR currently operates a network of 108 screens located at 26 locations across 14 cities. The brokerage has revised its top-line estimates downwards by 19 per cent for 2009-10 and expects margins to dip by 67 bps. It expects 15.6 per cent growth in top-line over FY2009-11E. The screen count is seen increasing to 153 screens in 2010-11. At Rs 130, the stock is trading at 10.2x its estimated 2010-11 EPS of Rs 12.8. Maintain neutral.
NAGARJUNA CONSTRUCTION
Reco price: Rs 139.10
Current market price: Rs 137.55
Target price: 121
Downside: 12%
Brokerage: Macquarie Research
For March 2009 quarter, net revenues for Nagarjuna Construction Company (NCC) came in at Rs 4,150 crore (below expectations) - a decline of 12 per cent y-o-y. The topline was dented by order cancellations from Bharat Oman Refineries and Karnataka government. The slowdown in the real estate market also negatively affected revenues. The March quarter and full-year EBITDA margin stood at 7.6 per cent (the lowest in the last four years) and 9.0 per cent, respectively. After considering the cancelled oil and gas order, the order inflows stood at Rs 5,370 crore (down 29 per cent y-o-y). The management guided for Rs 6,500 crore of new orders in 2009-10.
The brokerage expects revenue growth to hover around 10–15 per cent and margins at around 9 per cent in the next couple of years. NCC requires Rs 450–500 crore of funding in the next 12 months and may resort to a stake sale in infrastructure subsidiaries or look at QIP to raise funds. The debt-equity levels are manageable at 0.7x, but there is limited room to expand. The brokerage has reduced its standalone 2009-10 and 2010-11 earnings estimates by 19 per cent and 20 per cent, respectively. The stock has been downgraded to underperform with a 12-month target of Rs 121 (earlier Rs 85). Current market price as on June 4, 2009
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