Torrent Power: Electric start

Torrents' expansion is welltimed given the power deficit at peak times in Gujarat

Torrent Power, which was formed from the amalgamation of Torrent Power SEC, Torrent Power Generation and Torrent Power AEC, got listed on the bourses on Tuesday.

Torrent Power received regulatory approval in July 2006 and this amalgamation is effective from April 2005. The Torrent Power stock ended at Rs 70.7 on Tuesday.

Shareholders of the Torrent Power AEC, have received 5.5 shares of Torrent Power for every share held of the erstwhile company, while Torrent Power SEC shareholders have got 11.75 shares and the Torrent Power Generation shareholder has received one share of Torrent Power for every four shares.

This amalgamation will also bring down the promoters' stake in Torrent Power from 99 per cent to 54.67 per cent.

Torrent Power's current capacity is 500 MW, which will get ramped up to 1600 MW, on completion of its 1100 MW gas-based Sugen power project over 12 to 15 months. This expansion is well-timed given the deficit of electricity at peak times in Gujarat, estimated at 2173 MW.

Torrent Power has only provided financial data for the 18-month ended September 2006, with an operating profit of Rs 578 crore on a total income from operations of Rs 3787.1 crore.

The company's total electricity sales, included those purchased, was 10 billion units. Its realisations per unit were estimated at Rs 3.8 per unit.

Torrent Power's operating profit margin was 15.3 per cent during this compared with Tata Power's operating margin of 18.6 per cent for FY06.

Clearly, investor interest for the power sector has been strong, which has resulted in Torrent Power trading at an expensive 28 times its annualised 18-month EPS for FY06, while Tata Power gets a discounting of 22.4 times FY06 earnings.

IVRCL Infra: Sound footing

Even on a day when the markets declined 1.25 per cent, the IVRCL Infrastructure stock gained 0.55 per cent as the company announced that it bagged irrigation projects amounting to Rs 388 crore from the Andhra Pradesh government. It is no surprise then that the stock has doubled in the past four months and is up 44 per cent in the past month.

Current order book is four times FY06 consolidated revenues and about three times estimated FY07 sales. In May 2006, it had pending orders of Rs 6,687 crore, which went up marginally to Rs 7000 crore at the end of Q2.

Since mid-October, the order flow has improved substantially as the company has bagged orders amounting to Rs 1060 crore (including the AP projects).

Irrigation projects account for over half of IVRCL's order book, and roads and bridges account for over a quarter, with the rest comprising buildings and power.

In the September quarter, its standalone sales increased 48 per cent y-o-y and its operating profit went up 50 per cent. Operating profit margin improved 45 basis points to 8.46 per cent.

With a strong order book inflow in recent times given the state governments' interest in irrigation projects, IVRCL is poised to do well.

Plus, there will be some gains as its real estate subsidiary IVRCL Prime, which has a land bank of about 2000 acres, gets listed.

IVRCL Prime is developing a mall and an IT park with a total space of 2.2 million sq ft in Hyderabad and 2.8 million sq ft of housing in Noida. The IVRCL stock trades at 28 times estimated FY07 EPS and 18 times FY08 EPS.

Sun pharma: Right dosage

Sun Pharma's September 2006 quarter results have been adversely affected owing to surging R&D expenses, coupled with fixed costs incurred related to its earlier acquisitions, point out analysts.

As a result, the company has grown its consolidated operating profit by 27.2 per cent y-o-y to Rs 170.8 crore in the September 2006 quarter compared with 29.2 per cent growth in adjusted net sales to Rs 522.9 crore.

Operating profit margin also fell by 45 basis points y-o-y to 32.7 per cent in the last quarter. In contrast, generics players Ranbaxy and Dr Reddy's saw their operating profit margin rise in the September 2006 quarter, helped by their respective acquisitions earlier.

Meanwhile, Sun Pharma's domestic formulation sales grew 15 per cent y-o-y in the last quarter, as sales in segments such as gastroenterology and diabetology improved.

In export markets, total sales were up 46.5 per cent to Rs 252.8 crore in the last quarter, helped by formulation sales, which grew 49 per cent, while low margin APIs grew 41 per cent.

Analysts point out that this surge in Sun's API sales in the last quarter was a one-off phenomenon and they are expected to come down in the next few quarters.

The company had to also grapple with staff costs rising 40 per cent to Rs 61.5 crore in the last quarter, coupled with R&D costs rising 64.9 per cent.

Going forward, Sun is expected to focus on deriving greater synergies from its recent acquisitions. Earlier, the company board had decided to de-merge its innovative R&D business (comprising new drug development systems) with effect from April 1, 2006 to Sun Pharma Advanced Research Company.

With the stock trading at about 32 times estimated FY07 earnings, (excluding the impact of the de-merger of its R&D business), it appears expensive.