Brics PCG: 'Hold' Raymond; 'Buy' Omax

Brics PCG Research Report recommends 'Hold' Raymond at current price levels for a target of Rs 460.

Denim biz shifted to Belgian JV.

Raymond and UCO N.V., a Belgium-based denim market leader, had
recently entered into an agreement to merge their respective denim businesses into a 50:50 joint venture company called Raymond UCO Denim Private Ltd, to be headquartered in Belgium.

Accordingly, Raymond has transferred its denim division, while UCO NV has transferred its stake in its denim subsidiary to the joint venture company. The JV will have an aggregate installed capacity of 80 million metres per annum, with an expected turnover of Rs 1,200 crore, and manufacturing facilities in India, Belgium, Romania and the US. This would enable it to cater to customers in the US, Europe and Asia.

We believe this venture would help Raymond achieve economies of scale without any further capital expenditure and also allow the company to leverage on UCO's strength and presence. The brand equity of both players would also help the JV to emerge as a strong denim player internationally.

The stock is currently quoting at 18.7x and 15.1x on the FY06 and FY07E. After considering cash and cash equivalents of Rs 100 per share
for both the years, Raymond is quoting at 14.3x and 11.6x, respectively.

Brics PCG Research Report recommends 'Buy' Omax Auto at current price levels for a target of Rs 126.

Results below par.

Omax Auto's (OAL) Q1FY07 results have been below our estimates, though exports remain on track. Against our projected 23% growth in sales and an operating profit margin of 10.4%, the company has reported figures of 17% and 9.7% respectively.

OAL's net sales grew by 17.2% yoy and 12.8% qoq to Rs 1,600 crore. The sales growth has been slightly below our estimates owing to lower-than-expected offtake from Hero Honda and HMSI. Export growth remains in line with our forecast at 4% of net sales.

The operating profit margin declined 100 bps yoy to 9.7% in Q1FY07,
while improving 250 bps qoq. The year-on-year margin decline was on
account of higher employee cost and other expenses. Operating profit
grew by 6.5% yoy and 51.9% qoq to Rs 15.58 crore during the quarter.

Net profit rose 4.3% yoy and 49.6% qoq to Rs 5.61 crore, translating into an EPS of Rs 2.6. We maintain estimates on expected higher offtake. We have maintained our earnings estimates for FY07 and FY08 in view of higher offtake expected from major clients.

Accordingly, our EPS estimates for FY07E and FY08E stand at Rs 13.3 and Rs 16.8, respectively. At the current market price, the stock trades at 6.9x on FY07E earnings and at an EV/EBIDTA of 4.1x.