HERO HONDA MOTORS
Reco price: Rs 834
Current market price: Rs 846.80
Target price: Rs 1,060
Upside: 25.2%
Brokerage: Motilal Oswal Securities
Hero Honda’s revenues grew by 4.8 per cent year-on-year (y-o-y) in Q3, FY09 to Rs 2,870 crore, driven by 9 per cent higher realisations. While reported volumes declined by 4 per cent y-o-y, retail sales grew by 3.5 per cent. Improvement in realisations is driven by price increases taken in H1, FY09 and part retention of excise duty cut in announced in December 2008.
The company’s EBITDA (earnings before interest, tax, depreciation and amortisation) margins expanded by 40 bps (basis points; 100 bps is one percentage point) y-o-y to 14.3 per cent, reflecting lower raw material costs.
There has been decline of 240 bps q-o-q (sequentially) in raw material cost driven by significant decline in commodity prices. There would be further benefits as it is yet to get benefits of certain commodities (carbon steel, alloy wheels, etc) in Q4, FY09. This coupled with ramp-up at its Haridwar plant would drive margin expansion of 100 bps q-o-q in Q4, FY09.
However, the margins in the present quarter would have been higher, but for inventory loss of Rs 17-19 crore due to excise duty cut, which was accounted for in Q3, FY09. Lower other income and higher tax provisioning has restricted PAT (profit after tax) growth to 9.2 per cent y-o-y to Rs 300 crore.
The brokerage has revised its FY09 estimates upward by 2.4 per cent to Rs 60.9. The stock trades at 13.8x FY09E earnings and 11.1x FY10E.
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PETRONET LNG
Reco price: Rs 36
Current market price: Rs 33.50
Target price: Rs 52
Upside: 55.2%
Brokerage: Angel Broking
Petronet LNG’s (Petronet) R-LNG volumes increased 6 per cent y-o-y to 85.1 TBTUs (Thousand British Thermal Units) in Q3, FY09; they were up by 13.4 per cent q-o-q. The jump in volumes sequentially is on the back of re-start of one of the non-functioning pumps and higher spot volumes in Q3. Revenues increased 56.4 per cent y-o-y to Rs 2,473 crore in Q3, boosted by increase in volume as well as depreciation of Indian rupee by 23 per cent.
To meet volume commitment given to Ratnagiri Gas & Power (RGPPL), the company procured gas at higher cost, which was not fully passed on to RGPPL and thus, resulted in lower average netback of Rs 25.32 per TBTU on a sequential basis (against Rs 28.45 per TBTU).
The company’s EBITDA margins declined by 717 bps y-o-y to 7.5 per cent, on account of robust sales growth and lower average netback. However, management has stated this to be a one-off event and netbacks per TBTUs would increase in ensuing quarters.
The brokerage has reduced its FY09 sales estimate from Rs 8,605 crore to Rs 8,077 crore and increased its FY10E sales estimates to Rs 12,028 crore from Rs 10,320 crore. At Rs 52, the stock is trading at 8x FY10E earnings.
ULTRATECH CEMENT
Reco price: Rs 380
Current market price: Rs 395.20
Target price: Rs 435
Upside: 10.1%
Brokerage: Emkay Global Financial Services
The net revenues of Ultratech Cement (UTCL) increased by 18 per cent y-o-y in Q3, FY09 to Rs 1,417 crore, fuelled by an improvement of 6 per cent in volumes and 12 per cent in realisations. The increase in volumes was on account of ramp in the grinding unit at Ginigeria (Karnataka) and Tadipatri (Andhra Pradesh).
The company experienced the highest ever growth in power and fuel cost at Rs 1,154 per ton, up nearly 54 per cent y-o-y, leading to EBIDTA declining by 7.7 per cent to Rs 450 crore. Net profit was at Rs 238 crore (above estimates) on the back of higher than expected cement realisations.
Interest cost for the quarter more than doubled on account of commissioning of grinding unit and expansion at Tadipatri during Q2, FY09; depreciation also increased by 38 per cent y-o-y.
UTCL has capex plans of Rs 1,000 crore. The brokerage has upgraded its FY09 earnings estimate for UTCL by 2.5 per cent and for FY10 by 12.5 per cent. The oversupply of cement on back of capacity addition and the resultant weakening of pricing power of cement producers is factored in the valuation of FY10 PE ratio of 5.6x and EV of $49 for UTCL. Maintain accumulate.
ROLTA INDIA
Reco price: Rs 88
Current market price: Rs 73.60
Target price: Rs 163
Upside: 121.5%
Brokerage: ULJK Securities
Rolta India Limited (RIL) enjoys a 90 per cent market share in the Indian Engineering Design Automation (EDA) market and 95 per cent market share in geospatial-based operations and intelligence solutions (GIS) for the Indian armed forces. Overall, RIL has a 70 per cent share of the Indian GIS market.
The company has shown a higher growth rate (120 per cent) in the e-solutions segment in FY08. This segment is also improving its share in the revenues, which has increased from 9 per cent to 18 per cent in the last three years. Simultaneously, the share of the GIS/EDA businesses in the revenues has reduced from 90 per cent to 80 per cent in the last four years.
The acquisition of Piocon Technologies would provide access to their template-based solution, which caters to the critical operational needs of refineries in the oil and gas sector. The market for these solutions is estimated to be nearly $1 billion.
The company’s top line grew at a 36 per cent CAGR in the last 4 years. At Rs 88, the stock discounts FY09E and FY10E earnings by 8.03x and 5.53x, respectively. Maintain buy.
HINDUSTAN CONSTRUCTION COMPANY
Reco price: Rs 43
Current market price: Rs 41.05
Target price: Rs 38
Downside: 7.4%
Brokerage: India Infoline
The revenues of Hindustan Construction Company (HCC) increased 9.3 per cent y-o-y in Q3, FY09 to Rs 820 crore. Revenue growth has been subdued because of disruptions in projects in Jammu & Kashmir and road projects in Uttar Pradesh. Interest costs have been increasing sharply and stood at Rs 57.3 crore, up 16 per cent q-o-q and 40 per cent y-o-y, significantly higher than expected. Accrued interest costs would be higher with the inclusion of interest on outstanding FCCBs.
HCC had changed its accounting policy for forex losses related to FCCBs during Q2, FY09. The change in accounting policy has resulted in net profit being higher by Rs 24.58 crore in Q3, FY09. If the company had not changed its accounting policy, it would have reported a loss in Q3.
HCC’s debt stood at Rs 2,500 crore, translating into a debt-equity ratio of 2.2 times (highest among mid-cap peers). Investment commitments in the core construction business and road BOT assets mean that the ratio would likely deteriorate further in FY10. Its net profit declined 7.4 per cent y-o-y to Rs 23.2 crore.
Net profit was boosted by a tax provision write-back of Rs 8.96 crore. The company’s management has indicated that it expects an order book of Rs 17,000 crore by the end of FY09. The brokerage has cut its FY09 and FY10 earnings estimates by about 7 per cent each. Maintain reduce.
Current market price as on January 23, 2009