Sobha Developers: Bullish

The company's operating profit rose 89.8 per cent y-o-y to Rs 67 crore in the last quarter.

Real estate company Sobha Developers reported an improved performance in the June 2007 quarter thanks to strong growth in its higher-margin real estate business. Its contractual business, where its builds buildings for customers like Infosys, grew at a comparatively slower pace in the last quarter.

As a result, the company's operating profit rose an impressive 89.8 per cent y-o-y to Rs 67 crore in the last quarter, while its net sales improved 30.3 per cent to Rs 267.7 crore. Its operating profit margin also expanded 780 basis points y-o-y to 25 per cent in Q1 FY08.

Other large developers such as Unitech's standalone operating profit margin surged 2180 basis points y-o-y to 55.1 per cent in the June 2007 quarter.

Meanwhile, during the last quarter, Sobha's 13 projects (including two projects of 0.36 million sq ft) crossed the 25 per cent threshold and contributed to a 47.5 per cent y-o-y growth in segment revenues of the real estate business to Rs 153.3 crore.

Further, the company has 10 ongoing projects (with approximately 3.86 million sq ft) under construction, which are expected to cross the 25 per cent threshold in FY08, say analysts.

In its contractual business, Sobha currently has 34 ongoing projects (of which 26 are for Infosys) totalling approximately 8.69 million sq ft. Segment revenue of contractual business grew 12.7 per cent y-o-y in the last quarter to Rs 114.4 crore.

On Monday, Sobha announced that it signed an MoU with the Kerala government to set up a township on 400 acres in Thiruvananthapuram over the next eight to ten years. Besides, Sobha intends to complete and hand over seven projects totalling nearly 2 million sq ft by FY08.

Hanung Toys: Growth story

Hanung Toys and Textiles is weaving a successful growth story in both its businesses-toys and textiles. The company has bagged an export order worth ¤108 million (about Rs 600 crore) for its toys business from Ikea Sweden spread over four years starting September 2007.

In May 2007, the company had bagged an export order in home furnishings from the US worth $65 million spread over three years starting from July 2007.

The value of the Ikea contract is 15 million euros in the first year and rises gradually to 40 million euros in the fourth year. Both orders together will contribute an additional Rs 30-35 crore to Hanung's top line from the December 2007 quarter, which will rise further.

These new orders will contribute substantially to Hanung's top line""in June 2007, its sales were just Rs 85 crore. The company is scouting for a toymaker in China, and plans to fund this acquisition through a $50-million FCCB issue.

It is expanding its textile business, after which its revenue mix will increase to 55:45 between textiles and toys in FY08 end compared with the current 45:55 mix. Over the long-term, the company is targeting a 50:50 mix.

While textiles will give the much needed volume growth due to high demand in the international market and growing domestic retail industry, the toys business which yields comparatively better margins will support profit growth. Analysts are positive on the company as it is available at a reasonable valuation of 5.2 times for FY08 estimated earnings.

Essel Propack: Global push

Three years after acquiring UK-based Arista Tubes, Essel has closed Arista's manufacturing plant due to higher costs, and will source plastic seamless tubes from its global facilities. According to the company, Arista's US plant will continue operations and its facility in Poland will come up this quarter.

For the June 2007 quarter, Essel could not withstand cost pressures. Though consolidated sales grew an impressive 29 per cent y-o-y to Rs 298.7 crore, its operating profit remained flat at Rs 54.6 crore.

If it weren't for the rupee appreciation, the top line and profit growth would have been higher, as 66 per cent of its revenues come from overseas operations.

While its domestic sales grew 16.5 per cent y-o-y, Essel's US and European operations provided the top line push in its consolidated numbers.

The operating profit margin declined 510 basis points y-o-y to 18.3 per cent, as start-up costs, business development and costs pertaining to its new US plant impacted profit growth. Raw material costs, mainly of polymers, also went up 580 basis points y-o-y, which brought down profitability.

As the new plant becomes operational, other costs could come down, but raw material costs will determine the operating profit.

Essel has forayed into medical devices such as cardiovascular catheters and delivery systems, to diversify its revenues, and now account for nearly a fifth of its sales. At its current price, the stock trades at about 9 times estimated CY08 earnings.

With contributions from Amriteshwar Mathur and Priya Kansara