Rajasthan Spinning: impressive capex plans

ANALYSTS' CORNER

Emkay Research, initiating coverage on Rajasthan Spinning & Weaving Mills, recommends 'Accumulate' on the company.

The company is a leading player in the synthetic textile spinning and has recently invested Rs 200 crore in expanding, modernising and acquiring yarn capacities, which should drive volumes as well as margin growth in the coming years.

The report adds that expansion into 100 per cent cotton yarn will de-risk the product portfolio by reducing dependence on the synthetic chain. Acquisition of processing unit and foray into garmenting will further strengthen its position and provide strong control in the critical areas of textile chain.

With these expansions and investments, it will be able to grow its turnover and operating earnings at a CAGR of 21.4 per cent and 38.5 per cent, respectively over FY05-07. Margins are expected to get stronger with shift towards cotton yarn.

Post FY07, as revenues from the terry towels business start flowing in, return ratios are expected to improve with the increase in the share of higher margin and asset turnover businesses. The stock trades at 13x and 10x its FY06E and FY07E earnings, respectively.

Nectar Lifesciences: a safe bet

Prabhudas Lilladher recommends a 'Buy' on Nectar Lifesciences. The report states that the company is transforming to a high-end cephalosporin player, in both the regulated and domestic markets, from having been an API player in cephalosporins in non-regulated markets.

In the next two years the report expects a CAGR of 25 per cent in sales and 36.7 per cent in earnings (though growth in net profit, at 59 per cent, would be higher) in view of the company's capacity expansion for sterile cephalosporins and dosages (for which it concluded its recent public issue). It would be the key driver for earnings' growth.

Moreover, the company will diversify by shifting to non-antibiotics in the CVS and anti-histamine segment. It will forward integrate by moving into dosages and plans to move into the regulated markets of the US and is building its new facilities in line with FDA norms. The stock trades at a P/R of 10.9x FY06 estimates and 7.0x those of FY07.

MRPL: unprecedented growth

Khandwala Research recommends a 'Long-term Buy' on MRPL. The report states that after ONGC acquired MRPL's management control in March 2003, the company wiped out its entire accumulated losses of Rs 1185 crore in just two years.

This was due to the company's sustained concentration to avail improved crude mix, optimise capacity utilisation, reduce cost of debt, reduction in fuel losses and focus on healthy refining margins through better end-product mix, depending on international markets.

The long-term loan sanctioned by ONGC under the debt restructuring plan, carrying an interest rate of six per cent. as against its previous interest rate of 9.15 per cent, resulted in savings of Rs 82 crore per annum. MRPL has been aggressively investing for product quality improvement, value addition and de-bottlenecking.