EDUCOMP SOLUTIONS
Reco price: Rs 4,065
Current market price: Rs 4,107.5
Target price: NA
Brokerage: IDFC-SSKI
Educomp Solutions reported a better than expected performance for June 2009 quarter with consolidated revenue growing 125 per cent year-on-year (y-o-y) to Rs 194 crore, EBITDA growing 100 per cent to Rs 82.1 crore and PAT growing 97 per cent to Rs 35.4 crore.
The company restructured its business segments. The Smart Class and ICT business segments have been merged into a single segment called School Learning Solutions (SLS). Further, the Professional Development segment has been merged into the Higher Learning Solutions (HLS) business segment. During the quarter, SLS and HLS segments reported revenue growth of 151 per cent and 12 per cent, respectively.
Under its JV with Raffles Education, Educomp opened one institute each in Delhi and Bangalore. The management expects to add four more colleges, taking the total to six for 2009-10. At the end of the quarter, gross debt stood at Rs 935 crore while the cash position was at Rs 745 crore.
The past couple of months have seen sharp expectations being built into ‘education’ as a business and Educomp as a stock, leading to a near 70 per cent rise in the stock – it now trades at 37 times and 24 times estimated 2009-10 and 2010-11 earnings, respectively. At current prices, the execution success is already being built in. Maintain neutral.
TATA TEA
Reco price: Rs 822
Current market price: Rs 848.95
Target price: Rs 939
Upside: 10.6%
Brokerage: Sharekhan
Tata Tea’s June 2009 quarter results were ahead of expectation. Its consolidated net sales grew by 15.9 per cent y-o-y to Rs 1,296 crore. During the quarter, the company had taken price hikes in its strong brands in the domestic as well the international markets to offset the higher cost of inputs. The standalone business and Tata Coffee registered a robust y-o-y sales growth of 33.2 per cent and 25.5 per cent, respectively. However, Tata Tetley’s top-line declined by around six per cent y-o-y for the quarter.
Despite the sharp increase in the raw material cost, the operating profit margin improved by 47 bps y-o-y due to control on advertisement and other expenses. An exceptional item of Rs 122.6 crore resulted in a reported loss of Rs 19.5 crore as against a reported PAT of Rs 75.7 crore in June 2008 quarter.
With domestic and international raw tea prices expected to remain firm, it could exert pressure on the margins. However, savings on costs could help protect the margins to some extent, going ahead. The stock trades at 12.8 times and 11.1 times its estimated 2009-10 and 2010-11 earnings, respectively. Maintain buy.
HDIL
Reco price: Rs 268
Current market price: Rs 277
Target price: Rs 268
Downside: 3.3%
Brokerage: Ambit Capital
Housing Development & Infrastructure (HDIL)’s June 2009 quarter results reflected improvement in demand as TDR rates increased from Rs 950 per sq. ft to Rs 1500 per sq. ft. Though revenues declined quarter-on-quarter (q-o-q) to Rs 290 crore, EBITDA margins improved from 27 per cent to 39 per cent. HDIL recently raised $350 million through a QIP, which has mitigated cash flows concerns and halved its net debt-equity ratio to 0.4. Further, rescheduling of debt would reduce near-term pressure on cash flow. However, the QIP offering and warrants issued to promoters would imply dilution of equity.
The management expects the property prices to be range bound in the next one year after having declined by 20-40 per cent. While volumes have improved relative to December 2008-January 2009, it is still approximately 70 per cent below April-July 2009 levels. The brokerage expects a
U-shaped recovery in prices and has upgraded the target price primarily driven by an increase in TDR rates and shift of base year from 2009-10 to 2010-11. At 268, the stock traded at 22 times and 11 times its estimated 2009-10 and 2010-11 earnings, respectively. Maintain neutral.
TATA MOTORS
Reco price: Rs 375
Current market price: Rs 421.55
Target price: Rs 351
Downside: 16.7%
Brokerage: Angel Broking
Tata Motors (TML) reported a 7.6 per cent y-o-y decline in standalone net sales to Rs 6,405 crore (above expectations) for June 2009 quarter. The top-line was impacted by decline in volumes and net average realisation per vehicle. Its EBITDA margins spiked 420 basis points (bps) y-o-y, owing to lower raw material costs. The net profit was higher at Rs 514 crore owing to significant improvement in operating profit margins and other income.
TML reported a 6.5 per cent y-o-y decline in total volumes. However, the rate of decline in volumes is coming down with every passing month, and could signal an impending recovery in volumes. The standalone business could see a recovery in 2010. A drop in auto finance rates would also drive volume growth.
However, losses at JLR would be a drag on TML’s consolidated performance in 2009-10. Additionally, a high level of debt could keep TML’s cash flow under pressure for the next couple of years. TML is estimated to record net loss of Rs 450 crore in 2009-10 and profits in 2010-11, on a consolidated basis. At Rs 375, the stock is trading at 13.9 times its revised estimated EPS of Rs 27 for 2010-11. Maintain reduce.
RANBAXY LABORATORIES
Reco price: Rs 279.65
Current market price: Rs 280.1
Target price: Rs 230
Downside: 17.9%
Brokerage: Macquarie Research
After three quarters in the red, Ranbaxy reported sales of Rs 1,790 crore (down 2 per cent y-o-y) in June 2009 quarter. Emerging markets that constitute 57 per cent fared better compared to developed markets. The API segment contributed around nine per cent to sales.
Ranbaxy returned to profits at the operational level, however a cost revenue mismatch due to ongoing import alerts in the US continues to impact margins. The US operations have not been restructured in the near-term, and investors are anticipating a resolution.
The PAT stood at Rs 690 crore. After adjusting for a translational forex gain on FCCBs and the AS-30 adoption effect, the recurring PAT was Rs 63.3 crore. The appreciating rupee has eased a major overhang related to hedges.
Ranbaxy has submitted a corrective action operating plan to which the FDA is expected to provide feedback on before starting a third-party independent audit of applications associated with the Ponta Sahib facility. Ranbaxy is also asking for its Dewas facility to be inspected again. While AIP is unlikely to be resolved soon for Ponta, lifting the import alert from Dewas is the key trigger. The brokerage raised its target price. Expanding sector multiples, easing forex risk, change in top management and improving visibility on possible resolution at Dewas has helped the stock rally. Maintain underperform.
Prices as on July 31, 2009
