Month: September 2007

ICICI has revised the ratings for Clutch Auto Ltd and Bharat Forge Ltd to outperform.

Clutch Auto Ltd: [CAL]
CAL had decided on exports as a major thrust area, had to focus on domestic market due to the delay in exports orders and integration of clutch business acquired from Pioneer Inc into its business model. However, by focusing on the domestic market where volumes were rising at robust pace, the company managed to meet revenue and profit estimates for FY07.

Domestic volume was subdued in the first quarter, which is expected to pick up in coming quarters supporting volume and value growth. The company is trying to enter into A and B segment vehicles.During the quarter, the company acquired the assets of Gurukripa Founders & Engineers (GKF). GKF is engaged in the production of castings used in clutch manufacturing. It is now in the process of augmenting its capacity to 1,200 tonne per month from 750 tonne.

At the current price of Rs 105, the stock trades at 4.1x its FY08E EPS. ICICI remains bullish on the company and maintain earnings estimates for FY08 [Rs 25 EPS]. Reiterate outperformer rating on the stock with a price target to Rs 205.

Bharat Forge Ltd: [BFL]
BFL reported a 18.1% growth in revenue during Q1FY08, strongly backed by a 31.5% growth in exports. It reported net sales of Rs 496.9 crore against Rs 420.6 crore in the corresponding quarter the previous year. Exports to Europe was key growth driver and sales doubled to Rs 93.3 crore. However, a slowdown in demand from the commercial vehicle segment in the US and an appreciation of the rupee against dollar, restricted revenue growth from the US to only 4.3%.

The company has been successful in implementing a hedge policy and had dollarized its loan profile to gain benefit from dollar depreciation. This strategy helped it to record a one-time foreign exchange gain of Rs 33.3 crore on its loan portfolio. The company managed to mitigate the impact of higher interest and depreciation provision by reporting a 129.4% growth in other income, supporting bottom line growth of 15.8% to Rs 64.8 crore against a decline of 5% in EBITDA.

Going forward, higher capacity utilization and increasing focus on European and Asia-Pacific countries, where demand is rising, would mitigate the impact of de-growth in the USA. At the current price of Rs 282, the stock is trading at 18.1x and 13.1x its consolidated FY08E and FY09E EPS of Rs 15 and Rs 20.7 respectively. ICICI reiterates an outperformer rating with a price target of Rs 416.

Indian Hotels [Taj Group] acquired 10% stake in Orient Hotels in the US. Citigroup’s US lodging analyst forecasts revenue growth of 18% to US$603m and healthy EPS growth of 30% to US$1.40 for CY2007E, on REVPAR growth of 8.5% and occupancy of 62%.

The acquisition ties-in with the company’s strategy to grow overseas. While it looks to form an alliance and leverage on OEH’s luxury brand and global network, OEH’s management board has denied interest in entering into strategic discussions with Indian Hotels. If this alliance goes through, it would help the company diversify and manage downturn in India (86% of revenues) better. However, this large investment could dampen return ratios and stock sentiment in the near term. Citi maintains a BUY on Indian Hotels with a price target of Rs 187.

Meeting with the management of Glenmark Pharmaceuticals indicates that the next few months would be critical on the R&D front. It is awaiting the US FDA’s response on Oglemilast, even as it continues outlicensing discussions on GRC-6211. Besides, 2 more NCEs are set to enter the clinic over the next 2 months. Citi reiterates Glenmark as the best innovative R&D play in Indian pharma. Glenmark reiterated that it will conclude 2 R&D deals by end FY08. Glenmark is expected to report an EPS of Rs 20.27 and Rs 25.42 for FY2008 and FY2009 respectively. Citi has a BUY rating on Glenmark with a price objective of Rs 427.