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| Analysts' corner |
| S I Team / New Delhi Nov 16, 2009, 00:23 IST |
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EDUCOMP SOLUTIONS
Reco price: Rs 782
Current market price: Rs 773.10
Target price: Rs 803
Upside: 3.4%
Brokerage: Angel Broking
Educomp Solutions’ consolidated top-line surged by 91.8 per cent year-on-year (y-o-y) to Rs 253.5 crore driven by the School Learning Solutions Business, comprising of Smart Class and ICT Solutions (ICT). The company implemented 309 new schools under the BOOT model of Smart Class Business, taking the total to 2,219. In ICT, Educomp signed in 671 schools, while its own schools’ initiative, K-12, grew by 46.6 per cent.
Educomp’s consolidated EBITDA margins fell sharply by 1,085 bps due to an increase in the cost of goods and selling, distribution and administration costs. Educomp’s consolidated bottom-line grew by a robust 301 per cent y-o-y in September quarter aided by higher net other income of Rs 81.7 crore (Rs 60 crore gain from hive-off of its vocational business).
With its impressive execution capabilities, Educomp has been witnessing outstanding growth rates. To support this robust growth, it will require huge capex. Going forward, revenues and profits should record a CAGR of 53 per cent and 51 per cent, respectively, over FY09-11—driven primarily by the Smart Class Business. At Rs 782, the stock is trading at a P/E of 24.3 times its estimated 2010-11 consolidated EPS as against its estimated fair value of Rs 803, implying limited upside. Thus, the brokerage is neutral on the stock.
ASHOK LEYLAND
Reco price: Rs 51
Current market price: Rs 52.35
Target price: Rs 64
Upside: 22.3%
Brokerage: Edelweiss Securities
With a strong macroeconomic recovery, the commercial vehicle (CV) cycle is on an uptrend. M&HCV volumes are expected to rise 10 per cent and 25 per cent in 2009-10 and 2010-11, respectively. The recovery is already visible in South and West India where Ashok Leyland (ALL) previously lagged. The recovery is likely to be further aided by an increase in bus volumes by virtue of the JNNURM scheme. ALL’s Uttaranchal plant, to be operational in by June 2010, will have an initial capacity of 30,000 units per annum (to be scaled up to 50,000 units) and localisation level of 65-70 per cent in the first year, offering ALL a benefit of Rs 60,000 per vehicle. Considering that Tata Motors (TTMT) does not have a plant in an excise-free zone, ALL may either improve margins or to push aggressively for market share gains.
The CV space has seen prices being raised by 7-8 per cent last year, whilst discounts have been on the decline. Considering cash flow concerns in case of TTMT, we expect pricing discipline to be maintained. This implies that the current high margin could sustain, despite a potential hike in raw material costs. The brokerage has upgraded its earnings’ estimates for ALL to Rs 2.8 and Rs 4.0 for 2009-10 and 2010-11, respectively and, has upgraded the stock from ‘reduce’ to ‘buy’.
SANGHVI MOVERS
Reco price: Rs 176
Current market price: Rs 176.95
Target price: Rs 222
Upside: 25.5%
Brokerage: Anand Rathi Research
Sanghvi Movers’ September 2009 quarter revenues slipped 17 per cent y-o-y to Rs 79.4 crore on lower capacity utilizations, now at 75 per cent as against 85-90 per cent in September 2008 quarter; earnings slid 25 per cent. However, demand should pick up from second half of 2009-10 on higher capex in the refinery and power sectors.
Earnings fell by 25 per cent y-o-y to Rs 21.5 crore, on a 122 bps contraction in the EBITDA margin and a 14 per cent rise in depreciation. The earnings drop was magnified by the high base in September 2008 quarter, when the company reported its best-ever quarterly performance.
The company plans to spend Rs160 crore as capex in 2009-10, which is significantly higher than the brokerage’s earlier estimate of Rs 23 crore. The higher capex demonstrates Sanghvi’s confidence in regard to the economic recovery. The brokerage has reduced its earnings estimates by 23 per cent and 20 per cent for 2009-10 and 2010-11, respectively, on lower capacity utilisation and higher interest cost. And, it has set a target price to Rs222, which is 9 times 2010-11 estimated EPS and maintain a ‘buy’ rating on the stock.
JSW STEEL
Reco price: Rs 849
Current market price: Rs 896.50
Target price: Rs 980
Upside: 9.3%
Brokerage: Ambit Capital
JSW Steel is expected to witness strong growth momentum over the next few years driven by the new 3 million tonne per annum (mtpa) crude steel capacity commissioned in April 2009 and 3.2 mtpa expansion expected by March 2011. Hence, its turnover is expected to grow by 26 per cent annually during FY09-12. Realisation is also expected to improve by 2 per cent due to better mix as the share of semi-products will come down from 25 per cent of total sales in FY10 to 10 per cent in FY11. Also, margins will improve marginally as a result of captive iron ore mines.
Thus, EBITDA would grow faster by 35 per cent over FY09-12. During the same period, adjusted net profits should register a healthy 37 per cent growth annually. Regarding its debt-equity, the brokerage says that JSW Steel is in negotiations with its lenders to obtain waivers for past covenant defaults and relax terms linked to its loans. Some lenders have already agreed. It expects the net debt- equity to fall from 2 times in FY09 to 1.8 times in FY11. The brokerage has a target price of Rs 980, which is based on forward EV/EBITDA multiple of 6 times.
GATEWAY DISTRIPARKS
Reco price: Rs 130
Current market price: Rs 127.70
Target price: Rs 154
Upside: 20.6%
Brokerage: Religare Capital Markets
Gateway Distriparks (GDL) is engaged in three lines of operations –Container Freight Station (CFS), rail haulage (through subsidiary, Gateway Rail Freight or GRFL) and cold storage (through subsidiary, Snowman Frozen Foods). In a recent development, it was announced that Blackstone GPV Capital Partners will be investing Rs 300 crore in GRFL through compulsory convertible preference shares entitling it to acquire a 37-50 per cent stake in GRFL.
GRFL will be repaying Rs 85 crore to GDL (CFS business) towards part payment of earlier advances. The remaining funds will be utilised for development of terminals (at Faridabad, Ludhiana, and Grahi) and rake addition, going ahead. The deal is value accretive for GDL and will aid its medium and long-term growth.
The deal values GRFL at Rs 600 crore (50 per cent stake for Rs 300 crore) at the lower end, and at Rs 810 crore (37 per cent stake for Rs 300 crore) at the upper end. The brokerage has upgraded GDL’s stock to ‘buy’ and factored in the fund infusion and relevant expansion plans. It has also increased the revenue estimates for GDL by 2.1 per cent and 6.9 per cent for FY10 and FY11, respectively.
Current prices as on November 13, 2009
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