Vardhman Textiles: Expansion spree

ANALYSTS' CORNER

Motilal Oswal Securities recommends a "buy" on Vardhman Textiles. For Q4 FY06, recurring PAT at Rs 49.2 crore was higher than expectations. Adjusted PAT stood at Rs 76.2 crore, buoyed by extraordinary items of Rs 27 crore.

Revenues increased marginally by four per cent y-o-y to Rs 490 crore. EBITDA margins improved by around 90 bps to 16.9 per cent, owing to better performance of the yarn segment, which accounted for around 67 per cent of total revenues.

The company's brownfield capex has increased its fabric capacity to 40-42 million meters in FY06, from 25 million meters in FY05.

The company is further embarking on a Rs 190 crore greenfield project that would expand its fabric capacity substantially by December 2007.

It has already acquired land in Madhya Pradesh for the purpose. It intends to increase its fabric weaving and processing capacity from 42 million meters to 85 million meters.

Nestle: Buoyant demand

Prabhudas Lilladher maintains its "outperformer" rating on Nestle. The report states that in Q1 2006 prepared dishes & cooking aids and chocolate & confectionery drove sales.

Sales of beverages were affected owing to declining exports to Russia, while higher raw material prices impacted margins.

With price cuts in noodles and low-unit packs in chocolate & confectionery, revenue growth is likely to accelerate, even as rise in key raw material prices could put pressure on margins in 2006.

The commencement of Pantnagar plant by July 2006 would lower effective tax outgo. The stock trades at 29.8x 2006E EPS of Rs 37.9 and at 24.1x 2007E EPS of Rs 47.

Better performance expected from the company in the context of buoyant consumer demand and deeper penetration.

Its sales are expected to grow at an accelerated pace, following strong demand in consumer products mainly owing to escalating income levels and the company's initiatives to increase penetration.

Indraprastha Gas: Volume growth

Edelweiss Capital recommends a "buy" on Indraprastha Gas. The report states that the company's Q4 FY06 results were below expectations.

Delay in the LCV conversions, higher employee costs and lower than expected growth in the transportation fleet were responsible for the same.

However, revenues grew 16 per cent y-o-y. The growth in PNG sales volumes was higher at 53 per cent, while that in CNG volumes was lower at six per cent.

The report has reduced its FY07E EPS estimates from Rs 11.9 to Rs 10.4 to account for the increased employee expenses and delay in LCV conversions.

The key highlight of the Q4 results was the sustained high growth in the PNG segment. This has resulted in the sales volume share of PNG to increase from 4.6 per cent in Q4 FY05 to 6.4 per cent in Q4 FY06.