Analysts' corner

Godawari Power & Ispat, Greaves Cotton, ONGC, ARSS Infrastructure Projects

Godawari Power & Ispat
Reco Price: Rs 165,
Target Price: Rs 247
Godawari Power & Ispat (GPIL)’s net sales increased by 13.2 per cent yoy to Rs 229 crore in Q3-FY11, while net profit grew by 55.6 per cent yoy to Rs 21 crore. Sales growth was driven by increased pellet sales volumes and higher realisations across product categories. During the quarter, sponge iron realisation increased by 38 per cent yoy to Rs 16,988/tonne and billet realisation increased by 19.1 per cent yoy to Rs 25,331/tonne. Despite other expenses as a percentage of net revenue increasing to 16.7 per cent from 9.7 per cent in Q3-FY10 on account of higher fuel consumption, lower raw-material cost resulted in a 728bp yoy Ebitda margin expansion to 23 per cent. Maintain buy.

— Angel Broking

Greaves Cotton
Reco Price: Rs 91,
Target Price: Rs 108
Bajaj Greaves Cotton (GRV)'s engine revenue grew 10 per cent q-o-q at Rs 350 crore led by robust demand from Piaggio; infrastructure segment revenue inching up toward Rs 50 crore . The strong demand for Piaggio will help GRV maintain strong growth in the engine segment in the rest of FY11. In addition to this, the recently announced 10-year engine supply contract for 0.5-MT Tata Motors mini-truck ACE Zip would also add to growth momentum of the engine segment of GRV in the next few quarters. GRV is planning to increase its automotive engine capacity by almost 40 per cent to 0.52 mn by FY12-end for Rs 100 crore to meet potential demand growth momentum in the LCV engine segment. Operating margin returned to four-year high of 17 per cent with infrastructure segment turning EBIT-positive first time in eight quarters. Brokerages expect the infrastructure segment to attain 10-12 per cent EBIT margin levels on the back of rising segmental revenue.Maintain buy.

— Reliance Securities

Oil & Natural Gas Corp
Reco Price: Rs 1,191,
Target Price: Rs 1,360
Oil & Natural Gas Corpn Ltd (OILNAT) ’s earnings will be positively correlated to the increase in crude prices, as an increasing proportion of its international revenues (through OVL in a deregulated environment) will lead to higher realisations on crude. Also, OVL will be the major driver for volumes in the future and is also currently scaling up its production assets aggressively. Significant APM gas price hike at one go is definitely positive for ONGC and will support the substantial capital investments by it. However, till clear subsidy sharing mechanism emerges, uncertainty may prevail. Analysts' outlook on ONGC has improved due to increase in gross crude realisation and recent correction in stock price. The stock is currently trading at a P/E of 11.3 times FY11 earnings. Maintain buy.

—Edelweiss Securities

ARSS Infrastructure Projects
Current price: Rs 919,
Fair value: Rs 638.80
ARSS is an Orissa-based infrastructure development company engaged in EPC projects across diverse segments such as railways, roads and water sewerage. ARSS’ healthy order book of Rs 3400 crore (3.4x FY10 revenues) provides revenue visibility for the next three years. ARSS’ higher inventory days strain its financials as the company needs to raise debt to fund its working capital requirements and execution delay in recently bagged bus terminal contract. CRISIL Equities expects ARSS’ revenues to grow at a three-year CAGR of 28 per cent to Rs 210 crore in FY13 backed by a healthy order book. EPS is expected to double from Rs 60.7 in FY10 to Rs 115 in FY13.

— Crisil Equities