Star Paper Mills: high operational ability

ANALYSTS' CORNER

Kotak Securities, initiating coverage on Star Paper Mills, has recommended a 'Buy'. The report states that the company shows high operational efficiency. For FY05 the company's net profit margin of 11.1 per cent was among the highest in the industry.

The FY05 RoCE and RoE of 30.9 per cent and 20.1 per cent were better than those of peers like West Coast and TNPL. The company plans to boost capacity from 71,350 tpa now to 100,000 tpa by FY06.

With this, the topline is expected to grow at a 15 per cent CAGR over FY05-07. It is installing a 16 MW captive power plant to replace the current diesel generation set. The project will be complete by end of 2005, which will save Rs 5 crore per annum in costs from FY07 onwards. The stock trades at P/E of 7x and 4.7x the FY06E and FY07E earnings.

Raymond's: on a growth trajectory

Motilal Oswal Securities recommends a Buy on Raymond's. The report explains that the company's core worsted fabric business has hit a high growth trajectory.

The company is considered to be the best proxy for the booming domestic branded retail industry. It owns respected brands like Raymond's, Color Plus, Park Avenue, Parx and Mazoni and has a massive retail distribution network.

Moreover, earnings are expected to grow at a 47 per cent CAGR (FY05-07). With its sound business model, strong balance sheet and large cash holdings, Raymond is well placed to exploit the opportunities in the post-quota era.

The report believes that a host of catalysts could lead to a re-rating in the stock's valuations. The company's fabric division is likely to report a 11.3 per cent CAGR in sales over FY05-07.

Due to its vertically integrated model, Raymond has strong expertise and understanding of key issues across the value chain. The stock trades at 12x FY07E earnings.

Cadila: ramping up pipelines

Edelweiss Securities recommends a 'Value Buy' on Cadila. The report states that the company has signed a five-year agreement with Mallinckrodt (a division of Tyco group) to distribute generic formulations in the US.

It has filed 25 ANDAs and about 28 DMFs with the USFDA till date. Its management expects to introduce 4-5 products in FY06 and ramp it up to 20 products by the end of FY07.

This is expected to be a big growth driver, contributing to about eight per cent of the turnover in FY07 itself. In the EU, Cadila is focused on France, Italy, and Spain. With the acquisition of Alpharma's generic business, it already has a foothold in France.

It is now actively looking at acquisitions in Italy and Spain, which could possibly be completed in this financial year. The report adds that the Altana deal has peaked and would continue to remain at this level. The stock trades at 21.6x FY06E and 18.2x FY07E.