ITC: an outperformer

ANALYST'S CORNER

SSKI has maintained an Outperformer on ITC at Rs 1,734. According to SSKI, ITC has strong growth drivers in place and is headed in the right direction. Considering that the company's consumer portfolio is on an incline, SSKI feels the stock should be valued as a pure consumer monolith.

At a price-earnings ratio of 16.3 times and EV/EBITDA of 10.3x FY07E earnings, valuations remain appealing, says the research report. ITC has posted strong growth numbers for the June quarter.

With every business growing in double digits, ITC's Q1FY06 net sales increased by 28 per cent year-on-year (y-o-y) to Rs 2270 crore, while net profit grew 20.8 per cent to Rs 560 crore.

"More than the numbers, what excites us is the broad-based business momentum. Every business segment is driving growth and offers significant upside potential. ITC has shown the appetite to scale up businesses and grow through organic as well as inorganic routes.

With this intent, the company has entered newer segments and launched more FMCG products. The company has recently acquired Wimco, the biggest competitor in safety matches business.

There is significant investment lined up for scaling agri, hotels and paper businesses. While the cigarettes business is generating significant cash annually, ITC intents to redirect funds towards building long-term growth drivers," an SSKI analyst reckons.

Ruchi Soya: robust growth

SSKI has maintained its outperformed rating on Ruchi Soya. At Rs 265, the the stock trades at commodity valuations of 8x FY07E earnings and EV/EBITDA of 4.6x.

According to SSKI, Ruchi Soya continues to move on a robust growth trajectory with net sales growing at 17.7 per cent y-o-y to Rs 940 crore. This can be largely attributed to a 43 per cent increase in oil business as the newly commissioned Nagpur and Patalganga units became fully operational.

As branded sales and operational efficiencies contribute to the incline, operating margins have expanded by 37 basis points to 2.4 per cent, resulting in an operating profit upsurge of 39 per cent at Rs 228 million.

Net profit grew by 30 per cent to Rs 78 million. "Share of branded sales (currently 26 per cent) is on a rise, which would subsequently lead to stronger value growth and higher operating margins.

Besides, the company is in an investment phase and is adding capacity to match the growth trajectory. In the coming years, higher operating efficiencies and improving sales mix will boost operating margins.

The shift towards branded oil and soya & palm oil is visible, as the consumer is getting more health conscious. We firmly believe that Ruchi's integrated business operations and improving brand presence will enable it to capitalise on the growing opportunity," says SSKI.

Bharat Forge: value buy

Edelweiss Securities has maintained a Value Buy on Bharat Forge. According to the research report, the Q1FY06 numbers were in line with expectations. On a standalone basis, revenues increased by 42 per cent y-o-y to Rs 360 crore.

This was driven by a 62 per cent increase in exports and 30 per cent rise in domestic sales. Net profit increased 44 per cent y-o-y to Rs 48.9 crore. On a consolidated basis, sales and profit increased by 45 per cent and 60 per cent y-o-y, respectively.

"BFL continues to impressively execute its globalisation strategy by acquiring the manufacturing capacities of Federal Forge in the last quarter.

The stock trades at a PE of 20.4x on FY07E consolidated EPS of Rs 16. We believe that BFL will likely double its existing 5 per cent market share in the next few years" said the report.