| Analysts' corner | |
| S I Team / Mumbai July 20, 2009, 0:58 IST | |
LARSEN & TOURBO
Reco price: Rs 1,378.00
Current market price: Rs 1,419.80
Target price: 1,527
Upside: 7.6%
Brokerage: Religare
Larsen & Toubro (L&T) reported a first-quarter revenue growth of 7 per cent y-o-y to Rs 7,360 crore on a standalone basis. The engineering & construction division which constitutes about 85 per cent of standalone revenue reported a growth of 18 per cent y-o-y, driven by strong execution and delivery capabilities. However, sales from the electrical & electronics division remained flat y-o-y whereas machinery & industrial products clocked a 31 per cent decline.
This apart, the company's exit from the ready mix concrete business in October 2008 meant one less revenue stream. Higher other income and margin improvement supported an adjusted PAT growth of 15 per cent y-o-y to Rs 580 crore. Order inflows declined 22 per cent y-o-y during the quarter and L&T's order book at the end of Q1 FY10 stands at Rs 71,600 crore.
The management has maintained its guidance of 25-35 per cent growth in order inflows for FY10, with top line growth of around 20 per cent. The stock is currently trading at 25.8x on FY10E and 23.2x on FY10E. The brokerage maintains that the stock would outperform the market given the strong earnings and robust order inflow guidance and has made a revision in target price from Rs 1,498 to Rs 1,527.
EXIDE INDUSTRIES
Reco price: Rs 71.00
Current market price: Rs 78.50
Target price: Rs 81.00
Upside: 3.2%
Brokerage: Angel Broking
Exide Industries clocked 0.3 per cent y-o-y decline in net sales to Rs 903.5 crore for Q1 FY2010, which was better than estimates. Although original equipment (OE) sales growth y-o-y was subdued, improving growth in replacement sales aided the company's auto battery segment that clocked better growth during the quarter. In addition, robust growth was also seen in industrial battery segment during the quarter. The company's bottom line grew by 48.9 per cent y-o-y to Rs 122.4 crore (above estimates).
The brokerage estimates the company to clock 9 per cent growth in volumes over FY 2009-11E. However, revenues and net profits are estimated to post a CAGR of 12.6 per cent and 29.7 per cent respectively.In spite of a slowdown in auto sector, Exide's better performance was due to higher growth in the industrial segment and better replacement demand on an increased base of OE sales in the last four to five years.
Lower reliance on imported raw materials coupled with an improved sales mix enabled the company to fully negate the adverse impact of a significant reduction in off-take from customers in the automobile segment. The brokerage has upgraded EPS estimates to Rs 5.5 (Rs 4.2 earlier) and Rs 6 (Rs 5.2 earlier) for FY2010E and FY2011E, respectively. The stock is quoting at 13x and 11.9x FY2010E and FY2011E estimates earnings, respectively.
NAGARJUNA CONSTRUCTION
Reco price: Rs 117.70
Current market price: Rs 134.15
Target price: Rs 121.00
Upside: NA
Brokerage: Macquarie Research
Nagarjuna Construction Company (NCC) has Rs 1,700 crore of debt on its standalone balance at the end of FY 2008-09. There is limited room to expand leverage, given that the net debt/equity ratio is now at 0.9x (vs 0.7x in 2007-08). NCC's total funding requirements over the next 12 months could be in the range of Rs 450 to Rs 500 crore. The company may resort to a stake sale in infrastructure subsidiaries or look at QIP to raise funds.
The working capital cycle has only marginally improved, down to 188 days from 193 days. However, cost overruns in few road projects lead to weaker margins in the last quarter. Concerns would remain if entire cost overruns on the existing order book is to be accounted for.
Given that 21 per cent of NCC's current order book of Rs 12,200 crore is from buildings, expect concerns on further cancellations like the one in Q4 FY09, when the Karnataka government cancelled a Rs 350 crore buildings order. The stock declined by 17 per cent in the past 2 weeks and is hovering around at the brokerage's 12-month target price of Rs121. The brokerage upgrades the stock to neutral as it is trading close to 1-year forward target multiple of 12x earnings.
IDBI BANK
Reco price: Rs 95.00
Current market price: Rs 98.85
Target price: Rs 169
Upside: 70.7%
Brokerage: Sharekhan
In Q1FY2010, IDBI Bank recorded an impressive growth in its core operating profit (up around 275 per cent y-o-y) on the back of marked improvement in various operating parameters like margins, cost-to-income, core fee income growth and advances growth.
However, the same did not trickle down to the bottom line on account of multi-fold increase in provisioning expenses during the quarter. Consequently, the net profit growth was limited to 7.6 per cent y-o-y. Gross NPAs also came off 20 basis points to 1.8 per cent.
During the quarter, the business growth remained healthy at 41.6 per cent y-o-y, led by a 59 per cent and 25.4 per cent growth in the deposits and the advances, respectively. The capital adequacy ratio stands at 12.3 per cent.
Though the risks related to the asset quality persist, the Q1 FY2010 results provide further evidence of the improvement in the core business. The potential capital infusion by the government would provide a major impetus to the bank's transformation efforts. Moreover, the bank should be able to lower its cost of funds further as its high-cost deposits get re-priced to lower rates.
At Rs 100, IDBI Bank trades at 5.4x FY2011E and 1.0x FY2011E price-adjusted book value. Maintain buy.
WELSPUN GUJARAT
Reco price: Rs 200
Current market price: Rs 195.90
Target price: Rs 218
Upside: 11.3%
Brokerage: ICICI direct
The June quarter results of Welspun Gujarat were ahead of estimates on higher order execution and high sales realisation. Sales grew at 72.4 per cent y-o-y to Rs 1,879.8 crore. The higher sales is due to the increase in pipe sales by 50 per cent (to around 2,17,000 MT) and plates sales volumes increase of 400 per cent (to around 28,000 MT). Welspun reported EBITDA margins of 16.1 per cent and its net profit jumped 94 per cent to Rs 138.2 crore.
Welpsun has planned to set up a new 3 lakh tonne spiral mill in South East India and new 3 lakh tonne LSAW mill would also be converted into non-SEZ area in Anjar.
The company added orders worth Rs 1,200 crore in Q1 FY10 and its order book stands at Rs 6,833 crore. Welspun Gujarat trades at EV/EBITDA of 5.7 times FY11E. The demand for pipes will improve in the coming quarters given the recovery in crude oil prices.
The Indian market also provides an opportunity where major projects are to be executed. The company is valued at EV/EBITDA of 6 times FY11E with a price target of Rs 218.
Current market price as on July 17, 2009
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