Analysts' corner

Sun TV, Apollo Tyres, ABG Shipyard, Indian Oil

Sun TV
Reco Price: Rs 407
Target Price: Rs 475 

The strong numbers reported by Sun TV for the fourth quarter as well as the full financial year 2009-10 (FY10) were in line with estimates. Standalone revenue for the quarter stood at Rs 390 crore, up 42 per cent year-on-year (y-o-y), while net profits grew 45 per cent. The advertisement (ad) revenue for FY10 grew 38 per cent to Rs 790 crore. The company has indicated 18 per cent growth for ad revenue in FY11. Sun TV continues to benefit from its dominant position in the southern market. Strong ad revenue growth, coupled with increased penetration of its direct-to-home services, will drive revenue growth. SUN TV’s earnings per share is expected to grow at a compounded annual growth rate of 22 per cent over FY10-FY12E (estimated). Maintain buy.

— Ambit Capital

Apollo Tyres
Reco Price: Rs 71
Target Price: Rs 84 

Apollo Tyres recorded better-than-expected performance during the March quarter, fuelled by high-margin expansion. Operating margins inched up 390 basis points y-o-y due to lower raw material cost as percentage to sales. The company is currently operating at its full capacity. The recently commenced capacity of 100 tonnes a day at its new plant in Chennai will add further volume growth from FY11. The company is expected to see a strong top line growth of 23.3 per cent for FY11. Going forward, the brokerage believes margins may decline on account of higher price for rubber and other raw materials. The stock is trading at 7.5x its FY11E and 6.9x FY12E consolidated earnings. Maintain buy.

— Sharekhan

ABG Shipyard
Reco Price: Rs 253
Target Price: Rs 327 

ABG Shipyard (ABG) reported lower-than-estimated numbers (adjusted for subsidy) during the March quarter on account of higher raw material cost. However, strong revenue growth of 40.6 per cent y-o-y (up 10.6 per cent sequentially) indicates pick-up in the pace of execution. The company delivered 17 vessels in FY10, as against six vessels in FY09. ABG’s order book stands at Rs 12,050 crore, of which the unexecuted portion is nearly Rs 8,500 crore, executable by FY14E. This translates into 5.2x FY10 sales, thus providing strong revenue visibility for the company. According to the management, ABG is expected to receive Rs 600 crore from Essar and Rs 75 crore in the form of subsidy in FY10. The pace of execution will pick up over the next two years, as clients start taking delivery. This should improve cash flow. Maintain buy.

— Angel Securities

Indian Oil Corporation
Reco Price: Rs 340
Target Price: Rs 392 

Indian Oil Corporation (IOC) reported results above estimates, primarily due to the budgetary support of Rs 10,600 crore provided by the govern-ment during the quarter. Revenues declined 16.9 per cent to Rs 78,500 crore. Interest cost was down 48 per cent to Rs 430 crore, as debt levels reduced significantly compared to last year. The company’s net profit declined 16 per cent y-o-y to Rs 550 crore. During the year, the company received budgetary support of Rs 15,100 crore from the government for the underrecovery of cooking fuel, which has been accounted for the year. Though there has been some clarity on sharing mechanism, more budgetary support from the government is needed to keep IOC in black. Maintain buy.

— Emkay Securities