Alfa Laval: Promising gains

Shareholders will get 14.8 times CY07E earnings from the open offer via which Swedish parent will pick up 26% more.

The Swedish parent of Alfa Laval India has made an open offer for buying an additional 25.89 per cent stake in its Indian arm at Rs 875. The offer is at a premium of 4.5 per cent to the stock's average price 26 weeks before the offer announcement.

Indian shareholders will get 14.8 times estimated CY07 earnings through the open offer, while other MNC stocks (though not strictly in the same product portfolio) such as Cummins India trade at 18.75 times estimated FY08 earnings.

The Swedish parent holds 64.1 per cent stake in its Indian arm at the end of the December 2006 quarter, which will go up to 89.99 per cent in case the open offer succeeds completely.

The offer was made public on Monday, two days before its CY06 results and in the past two trading days, the stock has gained 6 per cent to Rs 865 on Tuesday, as investors now speculate that the open offer price may be revised.

Alfa Laval, a manufacturer of plants for alcohol, ethanol and dairies, has been grappling with rising raw material costs, especially of non-ferrous metals. Its operating profit margins declined marginally on a y-o-y basis to 19.8 per cent in the first nine months of CY06. Underperforming since May, the stock has lost over 30 per cent before the open offer news.

However, there are no signs of any weakening in demand for its plants from key user industries, and the company is expected to show strong growth going forward. With such a small premium, there is little reason for shareholders to tender their shares in the open offer.

Wockhardt: European prop

A key highlight of Wockhardt's December 2006 quarter results was its aggressive ramp-up in the European generics market, thanks largely to the acquisition of Ireland-based Pinewood Laboratories in October 2006. However, the company had to also grapple with rising operational costs in the last quarter.

As a result, Wockhardt's consolidated operating profit grew 43.6 per cent y-o-y to Rs 122.1 crore in the last quarter, which was broadly in line with its growth in revenue from operations, which amounted to Rs 526.4 crore. Operating profit margin was also steady on a y-o-y basis at 23.2 per cent in the December quarter.

In the last quarter, aggregate sales in the European market jumped a whopping 99 per cent y-o-y to Rs 291.9 crore and this market is the biggest contributor to its company's total sales.

Also, in the domestic market, Wockhardt's sales grew 22 per cent y-o-y to Rs 165.9 crore in the last quarter, helped by improved demand in segments such as diabetology and pain relievers.

In calendar 2006, operating profit margins were also steady on a y-o-y basis at 23.1 per cent. Going forward, the European market is expected to continue driving the company's growth over the next few quarters.

However, in the domestic market, the underlying fear is that the government may expand the list of drugs for which it wants price cuts and the resulting pressure on margins. Nevertheless, the stock trades at an attractive 11 times estimated CY07 earnings.

Crisil: Robust numbers

It was a bumper quarter at Crisil at the end of December 2006. Its consolidated operating profit jumped 117 per cent and net profit zoomed 179 per cent, y-o-y. All its three businesses "� ratings, advisory and research and information services "� did well, which led to a surge of 64 per cent, y-o-y, in consolidated income.

Its operating profit margin shot up 575 basis points to 23.66 per cent, buoyed by good profitability in advisory services and research and information services.

For the full year (ended December 2006), its operating profit margin was marginally lower at 28.05 per cent, but that was because of its Irevna acquisition in June 2005, which has been instrumental in doubling the company's research and information services income for the year.

Crisil's ratings business grew on the back of strong demand from the financial sector, which is seeing 30 per cent growth in credit, fund services and SME ratings.

In advisory services, its infrastructure division bagged business in Africa and Asia, and the gas strategies group did well as the sector is booming.

Irevna, its financial research outsourcing subsidiary, set up a delivery centre in Argentina, and its global analytical centre, the back office for its parent S&P, doubled in size.

The Crisil stock has gained nearly 80 per cent in the past year, and currently trades at 32 times its CY06 P/E, not surprising given that its earnings have surged over 80 per cent y-o-y.