January, 2007 | Dalal Street

Buy Cadila HealthCare – ASK Raymond James

January 26, 20071 min read

ASK Raymond James has maintained its BUY recommendation on Cadila Healthcare Ltd with a price target of Rs 450.

Cadila Healthcare posted 15% YoY growth in consolidated profits (adjusted) at Rs426 mn in 3Q FY07, lower than its expectation of Rs519 mn. Profits have been primarily impacted by 85% YoY increase in R&D cost at Rs294 mn, higher A&P spent on consumer healthcare business and lower sales in Altana JV. A 25% YoY growth in consolidated sales is primarily driven by US and French generics markets, which grew 147% at Rs928 mn (20% of sales).

The management indicated 20% growth over the next few years driven by generics markets and pick up in APIs. The stock trades at 20.0x FY07E earnings and 15.2x FY08E earnings and trades at 14.4x FY07E EV/EBITDA and 11.3x FY08E EV/EBITDA. ASKRJ, maintain Buy rating on the stock with a target price of Rs450 (14x FY08E EV/EBITDA).

Sales and EPS expectations for FY2008 are – Rs 2140 crore and Rs 23.6 respectively.

Equity Research

Castrol, India Cement, BOI – Investment Update by ABN Amro

January 24, 20072 min read

ABN Amro’s investment views on the following stocks after quarterly results.

India Cements: IC
IC’s results were exactly in line with our expectations. The macro environment for the cement business in India (and South India) remains positive on volumes and pricing, and the real threat (if any) to pricing seems clearly from 2HFY09. IC is contemplating a greenfield capacity in North India to address growth beyond FY09. It remains the cheapest stock on all key parameters in the top-five cement companies. We continue to like the stock and re-iterate Buy. Sales growth of 36% driven by 28% realisation growth and 7% volume growth.

Bank of India: BOI
Net profit increased 78% yoy, led by a 47.6% increase in pre-provision operating income. However, there has been a slippage in three large accounts, leading to an increase in provisioning; hence, the improvement in asset quality is not significant compared to the recent past. Tax rate was lower at 21.5% in 3QFY07, vs 26.4% a year ago. Maintain Buy rating. BOI trades at 9.5x FY08F earnings and 1.5x FY08F adjusted book, after writing off 100% pre-tax net NPAs. Our estimates include equity dilution of 100m shares in FY08.

Castrol India:
Castrol has maintained its bottom line despite large spikes in base oil prices. This proves the strength of brand and raises earning growth potential as base oil prices weaken and volumes grow. Reommended to Buy and with a target price of Rs300.

Castrol’s 2007 EPS is expected to grow 40% to Rs16.20, giving a return on equity of 46%. Earnings are likely to grow 64% over 2007-09 on the back of lower base oil prices and volume growth. We believe a potential share price trigger is a decline in LOBS prices, which we expect to come through by 2Q07. Meanwhile, the 2007F dividend yield of 4.7% should provide downside support.

Tags: Dalal Street, Bank of India, India Cements, Indian Stocks

India IPO Reviews and Updates

Cinemax IPO is Expensive

January 24, 20072 min read

I had a closer look at Cinemax IPO just last night and I am personally not subscribing to the issue though investors with the ability to take some risk can apply and SELL on allotment.

Background & Business: Lifestyle and Leisure space is changing rapidly in India. Multiplex entertainment is seeing wider acceptance among large cities. Cinemax is a leader in the western markets and has an ambitious plan to quadraple its seats from 9,000 to 36,000 by 2009.
Mumbai accounts for 15% of all box office collections and Cinemax being a leader in this market, it helps them. Some analysts wrote about the promoters family being into Real Estate which will also help [Yes everybody wanst to be a Realty king now, just like IT in 1999-2000]

Post IPO Equity – Rs 28 crore or 2.8 crore equity shares of Rs 10 each [None of the folks mention this. This is very important as all your future EPS figures are based on fully diluted equity]

Financials:
Cinemax had a Total Income of 15.4 [2005] 43.8 [2006] and 34.7 [First Half 2007]
Cinemax had a PAT of 4.698 [2005], 12.1 [2006] and 3.1 [First Half 2007]
-All figures in Rs crore

It is hard to understand how Cinemax will outperform in another 3 months [Read Income from Screening 60% and F&B 30% in RHP], anyway, even on an optimistic basis if its profits stand at Rs 12.1 crore, then one can expect an EPS of mere Rs 4.3 for FY2007.

At IPO price band of Rs 135 – Rs 155, it translates into P/E of 31.3 to 36.3. This implies it is fully priced. [Broker manipulation is a separate story] However, the growth of Multiplex entertainment is pegged at mere 14% for the next 4 years and valuations look stretched. Cinemax also trails behind PVR, Adlabs, and Inox in the total number of screens and seats.

Always remember, stick to the market leader in any particular growth segment and you will make money. When I can get Adlabs at similar valuations, would rather BUY it than Cinemax.

Tags:IPO India, India Mall , India Entertainment, Emerging Market

Economy, Markets and Macro Views

Bharti Airtel upbeat after Q3 results

January 23, 20071 min read

The stock also hit a life high of Rs 700.80. As many as 1.9 lakh shares changed hands in the counter on BSE.

The stock had firmed up in the run up to the results. From Rs 613.10 on 10 January 2007, it surged to lifetime closing high of Rs 682.05 on 19 January 2007, only to ease the next day to Rs 676.35.

Bharti Airtel’s consolidated net profit as per US GAAP, jumped 122.8% to Rs 1215.13 crore (Rs 545.30 crore), beating market expectations. Four brokerages had forecast 87.6% to 99.2% growth in Bharti’s net profit.

Consolidated revenue rose 62.3% to Rs 4913 crore (Rs 3025.60 crore). Topline growth was within analysts’ expectations.

The board of Bharti Airtel today approved transfer of its towers for mobile communications and related infrastructure, to a wholly-owned subsidiary, Bharti Infratel, for better operational efficiency.

The company also announced commencement of Direct-To-Home (DTH) services to address the fast-growing home entertainment segment through Bharti Telemedia, another wholly-owned subsidiary.

The board also approved acquisition of a submarine network cable system from Network i2i (jointly owned by Singtel and a Bharti group company) for an overall consideration of $ 110 million.

Economy, Markets and Macro Views

BUY HCL Technologies – ASK Raymond James

January 19, 20071 min read

ASK Raymond James has upgradded HCL Technologies Ltd to BUY with a 12 month price target of Rs 740 from current levels of Rs 640.

After reviewing Q3 results, ASK analysts believe that HCL Tech is one of the cheapest stocks in the large-cap universe.

Strong volume growth: Revenue growth was driven by a strong growth in volumes of 7.1% sequentially and improved price realization (+1.3%) in core software services (IT & Infrastructure). Infrastructure services (+11.8% QoQ), Engineering services (+7.1% QoQ), BFSI (+26.7% QoQ) and Life Sciences, though on a smaller base, (+21.4% QoQ) surpassed the company growth rates.

Margins increase by 47 bps: Margins increased by 47 bps to 22.1% mainly due to higher utilization (+120 bps) and improved price realization (+140 bps). This was offset to a certain extent by rupee appreciation (-150 bps) and increased SG&A (-90 bps) as there was a customer summit held during the quarter. The management noted that the large deals, in contrary to the belief are proving to be margin accretive for them.

Maintain Buy at a price target of Rs 740: In view of the quarterly results, we have revised our FY07E earnings marginally to Rs32.6 (+1.4%). However, we are maintaining our FY08E earnings at Rs39.1.

Tags: Invest India, Dalal Street, Indian IT Stocks, Outsourcing

Equity Research

Madhucon Projects – Investment Recommendation – Motilal Oswal

January 18, 20072 min read

Motilal Oswal has initiated coverage on Madhucon Projects with a BUY rating and a Target price of RS 387. CMP Rs 311.

Madhucon is mainly into infrastructure projects and is likely to be a major beneficiary of huge spending in Roads and Irrigation projects. The road sector is likely to see an investment of Rs2,200b through FY2012. Further, the Andhra Pradesh (AP) government will spend Rs260b on irrigation projects through FY2010. Madhucon will be a major beneficiary of this, given its timely completion of more than 350km of Golden Quadrilateral and proven ability in irrigation projects.

Healthy Margins: Madhucon’s margins are superior to its peers. Madhucon’s 14% TTM EBITDA margin is above the average peer group margin of 10%. The main reasons for Madhucon’s superior margins are: (1) big-ticket orders enabling overhead efficiencies, (2) own mines for aggregates (25% of road project cost), and (3) sub-contracting of only low-value activities. Madhucon will maintain at least 13% EBITDA margin going forward.

Order Books: Madhucon has a strong revenue visibility with an order book of about Rs42.9b (10x TTM revenue) – 68% road projects (both direct and BOT), 25% irrigation projects, and balance real estate and railway projects. Only 65% execution through FY 2009E may happen, implying potential upside.

Motilal Oswal expects an EPS os Rs 11.9, Rs 19.9 and Rs 31.9 on sales of Rs 547 crore, Rs 985 crore and Rs 1477 crore for Fy07, 08 and 09 respectively.

Tags: Dalal Street, Madhucon Projects, Infrastructure Stocks, Emerging Market

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