Gammon India
Reco price: Rs 202
Current market price: Rs 214.55
Target price: Rs 281
Upside: 31%
Brokerage: India Infoline
Gammon India’s (Gammon) Q1 FY09 revenue grew by only 8.3 per cent year-on-year (y-o-y) to Rs 585.2 crore, much lower than market expectations and way below management guidance of 35-40 per cent.
Suspension of two projects in Kashmir and Assam resulted in tepid revenue growth. EBITDA margins contracted 228 basis points (bps) y-o-y to 8.4 per cent, as the proportion of low margin captive projects in revenues increased. Adjusted PAT declined by a substantial 51.3 per cent y-o-y to Rs 13.9 crore and the net profit margins thereby declined 291 bps y-o-y to 2.4 per cent.
Gammon has merged its transmission and distribution contracting associate and the fourth largest power transmission company, Associated Transrail Structures Ltd (ATSL) with itself by offering 2 shares of Gammon for every share of ATSL held. The merger would result in 29 per cent dilution to Gammon’s equity. However, FY09 profits are likely to receive a 76 per cent boost, thereby making the merger value accretive for Gammon.
Post downward revision in estimates of organic business and inclusion of ATSL financials, Gammon is trading at a P/E of 8.7x FY09E and 7.1x FY10E earnings, making it the cheapest stock among peers. Inconsistent performance and negative surprises have resulted in its relative discount, despite its long execution history and wide-ranging capabilities. Consistent delivery over next 2-3 quarters is required for a re-rating of the stock.
Automotive Axles
Reco price: Rs 271
Current market price: Rs 304.60
Target price: Rs 350
Upside: 14.9%
Brokerage: Angel Broking
Kalyani group promoted Automotive Axles Ltd (AAL) is the largest independent manufacturer of rear drive axle assemblies in India. The company’s Q3 FY08 numbers were above expectations, clocking 54.2 per cent y-o-y growth in revenues to Rs 227.4 crore and 61.4 per cent y-o-y growth in earnings to Rs 19.4 crore. While the topline displayed robust growth on the back of strong domestic and export demand; passing on of escalating raw material cost to customers, rupee depreciation and lower interest cost aided growth of bottomline. AAL is now expanding its axle capacity from 168,000 axles per annum (pa) to 240,000 axles pa and its gear sets’ capacity from 170,000 units pa to 320,000 units pa, at a capex of Rs 112 crore. The company is currently operating at utilisation rate of 95 per cent.
AAL’s prospects are derived from demand arising in the Commercial Vehicle (CV) industry. Currently, industry valuations are subdued as earnings are under pressure, due to the sluggish demand for CVs and high raw material cost pressure. The brokerage has revised its EPS estimates marginally upwards for FY08 and FY09 to Rs 41.2 (Rs 39 earlier) and Rs 47.7 (Rs 44.5 earlier), respectively. At Rs 271, the stock is quoting at 6.6x FY08E and 5.7x FY09E earnings, which is much lower than its historical P/E band of 18-20x. Maintain Buy.
NDTV
Reco price: Rs 385
Current market price: Rs 373.75
Target price: Rs 267
Downside: 28.6%
Brokerage: MF Global Sify Securities India
New Delhi Television Ltd (NDTV) reported a consolidated cash operating loss of Rs 104.4 crore in Q1 FY09, after posting a consolidated cash operating loss of Rs 106.9 crore in Q4 FY08. Consolidated revenues grew to Rs 119.4 crore on the back of NDTV Imagine.
Revenues are expected to be higher in the coming quarters, as NDTV Imagine programmes have improved ratings in the past month, with Ramayan making it to the Top-50 programmes in Hindi general entertainment channels.
But, performance on ratings although impressive, needs viewing in the context of expenses incurred for the same; revenue from NDTV Imagine unlikely to exceed Rs 210 crore in CY09, but the company has spent Rs 88.2 crore in marketing the channel in H1 CY08.
The company has decided to utilise the funding from NBC Universal's 26 per cent stake purchase to set up art infrastructure and further other growth plans. On the core operations, the company would continue to find it difficult to monetise its supposedly higher quality viewership.
Significant ad-rate gaps already exist in the English news space. The company's positioning is weak in the Hindi news and business news space as well. The company's growth plans are rather aggressive, considering that the company lacks a cash cow to finance these. Maintain Sell with a target price of Rs 267.
Voltamp Transformers
Reco price: Rs 764
Current market price: Rs 824.15
Target price: Rs 1,025
Upside: 24.4%
Brokerage: ULJK Securities
Vadodara-based Voltamp Transformers Ltd (VTL) has carved a niche for itself in the transformers’ space because of the experience of over four decades in the industry. It has outperformed its competitors in customizing application transformers, which find their uses in various industries, construction space and power zones.
VTL caters to varied industrial clients, the major ones being ABB Ltd, Siemens, L&T, etc. Company enjoys a good grab in dry type transformers segment, with a market share of 40 per cent. This segment has high margins compared to the power and distribution transformers segment.
VTL, which currently operates at 9,000 mega volt ampere (MVA), is relocating its manufacturing facility for oil-filled distribution transformers and dry type transformers. This will take up manufacturing levels to 13,000 MVA in FY10.
Capacity expansion plans of Rs 35 crore are funded through internal accruals. The company also has robust order book position of Rs 450 crore and negligible debt on its book. At Rs 764, the stock trades at 7.4x and 6.1x its FY09E and FY10E earnings, respectively. Maintain Buy.
ICICI Bank
Reco price: Rs 694
Current market price: Rs 708.50
Target price: Rs 939
Upside: 32.5%
Brokerage: Kotak Securities
ICICI Bank’s (ICICI) loan growth slowed to 13.0 per cent y-o-y in Q1FY09 on the back of muted growth in the retail segment. Total deposits grew only 1.6 per cent y-o-y to Rs 2,34,460 crore in Q1 FY09. However, its low cost deposits (current and savings accounts) improved 500 bps from 22.4 per cent in Q1FY08 to 27.4 per cent in Q1FY09. This helped net interest income to grow by 41.3 per cent y-o-y to Rs 2,090 crore in Q1FY09.
Net profit declined 6.1 per cent y-o-y to Rs 728 crore in Q1FY09, partly on account of treasury loss of Rs 590 crore and increase in net NPA (1.74 per cent in Q1FY09 vis-à-vis 1.33 per cent in Q1FY08).
Its subsidiaries, namely ICICI Prudential Life Insurance, ICICI Lombard General Insurance, ICICI Securities, Prudential ICICI AMC and ICICI Venture Fund Management continue to be dominant forces in their respective fields and are adding significant value to ICICI’s stock.
At Rs 694, the stock is trading at 16.1x FY10E earnings and 1.6x its FY10E adjusted book value. Due to increase in net NPA, the brokerage has revised its earnings estimates, resulting in an EPS of Rs 34.4 and Rs 43.1 for FY09E and FY10E, respectively. Valuing the subsidiaries at Rs 348 (20 per cent discount to their combined fair value of Rs 435), the SOTP price target for the stock comes to Rs 939 (lower than earlier target of Rs 1,095).
Current market price as on August 7, 2008
