Analysts' Corner

Oil India, Jubilant FoodWorks, GE Shipping & Elecon Engineering Company

OIL INDIA
Reco price: Rs 1,376
Target price: Rs 1,370
Oil India is likely to register a compounded annual growth rate of 11 per cent for gas production over the next five years, with a new petrochemical/power project being set up by a joint venture of PSUs (OIL, GAIL, ONGC). At two per cent, oil production growth is likely to be moderate. If OIL can overcome these technical challenges at its Rajasthan block, production growth has the potential to surprise positively. However, the core business is likely to register stable growth. OIL had a net cash equivalent of Rs 10,200 crore on its books for 2010-11. Its utilisation for a major acquisition or exploration thrust could substantially improve valuations and return ratios. Analysts expect OIL to make some acquisition in 2011-12. With under-recoveries at Rs 72,900 crore in 2010-11 and oil marketing companies unable to bear more than Rs 7,300 crore (or 10 per cent of the total under-recovery) and GoI’s share at 50 per cent, there are concerns the share of upstream companies could be higher than the 33 per cent norm. Importantly, continued uncertainty over future sharing is also impacting valuations significantly. Initiate with hold.

— JM Financial

JUBILANT FOODWORKS
Reco price: Rs 708
Target price: Rs 725
At Rs 19 crore, Jubilant FoodWorks’ fourth-quarter adjusted net profit was below the expected Rs 20 crore, led by lower then expected Ebitda margins (17 per cent). JFL targets to add 80 new stores in FY12 — 11 per cent higher then 72 stores in FY11. It also expects continued momentum in same-store sales growth (up 33 per cent y-o-y). Ebitda margin expansion at 150 bps y-o-y to 17 per cent was below expectations. The revenue of Rs 190 crore was in line with expectations. The Dominos model has generated an operating cashflow of Rs170 crore and repaid outstanding debt of Rs 80 crore with surplus liquid funds of Rs 40 crore in last two years. Brokerages remain convinced about the ability of the Dominos model to generate surplus cash after incurring growth expenditure and build 110 bps expansion in Ebitda margins in the FY11-13 period from 17.7 per cent in FY11 to 18.8 per cent in FY13. Upgrade FY12 and FY13 earnings estimates by 6.4 per cent and 10.3 per cent to Rs 16.1 a share and Rs 23.4 a share. Maintain accumulate.

— Emkay Global Financial Services

GREAT EASTERN SHIPPING
Reco price: Rs 285
Target price: Rs 425
Great Eastern (GE) Shipping is a triple play on dry bulk shipping, tankers and offshore services. While dry bulk and tanker rates are under pressure because of a global supply glut, offshore services have a strong tailwind of a hardening crude price that could soon begin to influence tanker demand as well. Transport volumes of iron ore are expected to pick up and tanker rates are starting to move up. On the offshore side, rates had not plunged as much (practically no spot market) and have still remained reasonably healthy. GE Shipping has a long record of successfully riding wildly volatile freight cycles. The company is trading at the bottom quartile of its P/BVPS trading band. Initiate coverage with buy.

— IIFL

ELECON ENGINEERING COMPANY
Current Market Price: Rs 68.5
Current Intrinsic Value: Rs 98
CARE Equity Research assigns a fundamental grade of 4 on 5 to Elecon Engineering Company Limited, indicating ‘very good fundamentals’. EECL is among the few large Indian companies in the material handling equipment (MHE) industry and the market leader in the domestic industrial gear industry. Both these segments cater to the core sectors of the economy. This places EECL in a sweet spot, as outlook for the growth in core sector remains buoyant. EECL has a revenue visibility of around two years in case of the MHE business and three quarters in the gear business, with a buoyant order-book pipeline. Being a part of the Elecon group, which largely focuses on the engineering sector, adds to the operational strength of EECL. Acquisition of the Benzlers-Radicon group for £18.4 million (Rs 130–135 crore) is also expected to open up opportunities for EECL in the American and European markets.

— CARE Equity Research