Sintex Industries (Sintex) has reported disappointing Q1 FY09 numbers due to lower volumes in the base transfusion (BT) shelter business and below-expected textiles revenues.
The BT shelter segment was hit by delays in the erection of towers by telecom majors, which restricted the growth in standalone prefabricated revenues to two per cent YoY (year-on-year) at Rs 160 crore in Q1 FY09.
While net sales increased 108 per cent YoY to Rs 714.8 crore, this was spurred by overseas acquisitions rather than growth in core operations.
Higher employee costs and other expenditure on account of overseas acquisition shaved 590 bps off the EBITDA margin to 11 per cent. Increased interest and depreciation charges offset the positive impact of other income of Rs 38 crore from prefab construction, causing Sintex's net profit to grow much below expectations at 68 per cent YoY to Rs 56.7 crore.
The company's monolithic construction order book totalled about Rs 1,500 crore at the end of the quarter with an execution period of two years.
Further, the acquisition of Digvijay Communication during Q1 FY09 will expand Sintex's geographical reach and product offerings in the telecom infrastructure sector. The brokerage has revised its one year target for the stock from Rs 587 to Rs 503, in view of the below-expected quarterly results, tight market conditions and higher cotton and crude oil prices.
Exide Industries
Reco price: Rs 60
Current market price: Rs 64.75
Target price: Rs 88
Upside: 35.9%
Brokerage: Emkay Global Financial Services
Exide Industries (Exide) is India's largest manufacturer of automotive batteries with 72 per cent market share in the original equipment manufacturers (OEM) battery segment and 80 per cent market share in passenger vehicles market in India. The strong growth in high margin industrial battery segment is a key driver for the company going forward.
The industrial segment is expected to grow by 22.1 per cent CAGR for FY07-FY10E on the back of huge demand and capex/investment in telecom, power and railway. The company is likely to retain, if not increase, its market share on the back of strong brand and wide-spread sales and distribution network (over 8,000 dealer outlets and 100 Exide Care shops).
The recent acquisition of lead smelting company, Leadage Alloys India Ltd, will help Exide to reduce its dependence on imported lead and thus giving boost to its margins. Exide is expected to report strong growth in revenues and earnings at CAGR 27 per cent and 35 per cent, respectively, during FY07-FY10E. The stock is currently trading at 16.2x FY09E earnings and 9.4x FY09E on a stand alone basis. Maintain Buy on the stock at sum-of-total-parts (SOTP) target price of Rs 88.
Marico
Reco price: Rs 50
Current market price: Rs 52.50
Target price: Rs 77
Upside: 46.7%
Brokerage: Sharekhan
Marico's net sales increased by 22.5 per cent YoY to Rs 1,906.7 crore in FY08 on the back of a strong volume growth of 13 per cent, a price hike of 5 per cent and an inorganic growth of 4.5 per cent. Lower depreciation charge and tax incidence led to a hefty growth of 57.3 per cent YoY in the adjusted net profit to Rs 160.6 crore. Marico is aiming at rationalising its portfolio to focus on its beauty and wellness business. It divested its processed food business operated under the brand Sil to Scandic Food India Pvt Ltd, the Indian subsidiary of Good Food A/S, for a profit of Rs 10.6 crore in FY08.
In the Middle East, the company's focused marketing efforts for Parachute Cream yielded good results as the brand's market share improved from 19 per cent in FY07 to 22 per cent in FY08. The brand has achieved no.1 position in the UAE and is close to securing leadership in the Gulf Cooperation Council (GCC) countries.
The company's top line is expected to grow by a healthy 18.8 per cent in FY09, but the bottom line is expected to grow by a modest 9.9 per cent to Rs 185.8 crore on account of rising input cost and higher marketing spends. At Rs 50, the stock trades at 16.2x its FY09E earnings.
Patel Engineering
Reco price: Rs 343
Current market price: Rs 367.80
Target price: Rs 447
Upside: 21.5%
Brokerage: Motilal Oswal Securities
Patel Engineering is one of the oldest and largest construction companies in India and has strong presence in the hydropower sector, with a market share of 22 per cent.
It possesses niche technologies (via subsidiaries) like RCC dam construction and micro tunnelling, lake water tapping, etc. It has recently acquired Michigan Engineers to leverage its skill in micro tunnelling to cater to urban infrastructure projects.
For Q1FY09, the company reported consolidated revenues of Rs 558.4 crore (up 34.5 per cent YoY), EBITDA of Rs 78.6 crore (up 69.9 per cent YoY) and net profit after minority interest of Rs 35 crore (up 34.7 per cent YoY).
Revenues of Michigan Engineering were Rs 40 crore (NPM of 4 per cent), US subsidiaries Rs 76 crore (NPM of 4 per cent) and joint venture generated Rs 46.2 crore.
The company's order book at the end of June 2008 stood at over Rs 6,000 crore, 3.2x FY08 earnings. The stock is trading at 16.1x FY09E and 13.2x FY10E EPS. The brokerage has reduced its target multiple for the core business from 14x FY10 to 12x FY10 to factor in the higher cost of capital. Based on SOTP methodology, they have arrived at a target price of Rs 447.
Zee Entertainment Enterprises
Reco price: Rs 189
Current market price: Rs 185.60
Target price: Rs 216
Upside: 16.4%
Brokerage: India Infoline
Zee Entertainment Enterprises (Zee) is a well-entrenched No 2 player in the Hindi general entertainment channel (GEC) space. The company has narrowed the gross rating points (GRP) gap between itself and leader Star Plus to about 100, from 400 two years ago.
On the other hand, the GRP gap between Zee and the number 3 channel has widened from less than 70 to over 120.
New channels are unlikely to have any significant impact on Zee's ad rates, as: 1) Zee's weekly GRPs are almost twice as much as those of the number 3 Hindi GEC; and 2) new GECs are yet to make a mark in the top 100 programmes. Meanwhile, Zee Cinema, Zee's other key channel, retains its No 1 position in its genre.
Zee is likely to deliver 17 per cent earnings CAGR over FY08-11E even after factoring in a slowdown in advertising spends in FY10. This earnings growth will be driven by: 1) strong growth in subscription revenues, driven by a revamp of the domestic cable distribution; 2) acceleration in DTH subscriber addition with entry of new players; and 3) demerger of Zee Next, which will boost FY10E earnings by about 10 per cent. The stock is currently trading at a P/E of 18.9x and 15.7x its FY09E and FY10E earnings respectively.
(Prices as on July 17, 2008.)
