Amtek: Tough terrain

Amtek's ability to manage input costs would be play an important role

On Thursday, Amtek India raised around Rs 400 crore through a preferential issue to FIIs and promoters to fund its capex to capitalise on the ongoing boom in the automobile industry.

Amtek, which derives nearly 40 per cent of its revenues from Maruti, is scaling up its casting capacity at its Bhiwadi facility in Rajasthan from 30,000 tonne to 165,000 tonne by December 2007.

Rising input costs of raw materials, have more or less kept pace with the strong demand from auto companies for Amtek India's repertoire of casting products in the September 2006 quarter.

As a result, the company has seen its operating profit grow 47.8 per cent y-o-y to Rs 40.9 crore in the last quarter, broadly in tune with its growth in net sales to Rs 149.2 crore.

Operating profit margin was also flat at 27.4 per cent in Q2 FY07. Raw material costs as a percentage of net sales grew 170 basis points y-o-y to 62.2 per cent in the last quarter, largely owing to higher cost of pig iron and scrap, say analysts.

Of course, going forward, the company's ability to manage its input costs would also play an important role. Though the stock has gained around 70 per cent over the past six months, it is trading at 12.5 times estimated FY07 earnings, there seems some room for further upside.

Global markets: On a high

If it's December, it must be time for the Santa Claus rally. Or that is what the global stock markets are indicating. It is not just India which is making new highs this December, countries across the world are seeing their stock markets either at an all-time high or nearly there.

Argentina, Canada and even Australia are at or near their all-time highs. Many global markets have surpassed their May 2005 high and the June decline seems forgotten.

Oil prices are not as high as those seen earlier this year, and US interest rates are likely to stay benign going forward.

The BRICS markets have posted exceptional growth-India is up 56 per cent from its 2006 low in June.

China, which had not fallen as much as India in June, is up 42 per cent since then.

Brazil is up 31 per cent, and even Russia is up nearly 40 per cent. In the US, even the S&P 500 is at its 2006 high and quite close to its 2000 high. Now, the question is how long will this euphoria last?

TNPL: Operational blues

TNPL's September 2006 quarter results were affected by rising costs, which more or less offset improved price realisations.

The company has seen its operating profit grow by 19.5 per cent y-o-y to Rs 49.3 crore in the last quarter, broadly in tune with its growth in net sales to Rs 235.45 crore. Operating profit margin was also steady at 21 per cent in the last quarter.

In contrast, Ballarpur Industries had seen its operating profit margin decline by 146 basis points y-o-y to 24.82 per cent in the last quarter.

TNPL's paper production was 59,644 tonne in Q2 FY07 compared with 57,179 tonne a year earlier. Its price realisations were estimated to have grown 14.5 per cent y-o-y to Rs 39,475 per tonne in the last quarter.

However, the company had to grapple with higher operational costs "" for instance, power, fuel and water charges jumped 84 per cent y-o-y to Rs 46.8 crore in the last quarter.

The TNPL stock has substantially under-performed over the past three months "" it has fallen 7 per cent compared with 18 per cent rise in the Sensex.

The company is expected to complete its mill development plan involving a capex of Rs 565 crore by June 2007.

This involves increasing its captive pulp capacity from 520 tonne per day to 800 tonne per day, coupled with growing its paper production capacity from 230,000 tonne to 245,000 tonne.

Analysts point out that this strategy is expected to help lower TNPL's operational costs and also leverage strong demand conditions for paper. The stock trades at a reasonable 6 times estimated FY07 earnings.