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Weekly Review
1. Weekly Review
August 21, 2010
Markets retain positive momentum FII activity
(Rs crore)
Markets ended positive during the week amidst volatility, with the Sensex Cash Futures Net
As on (Equity) Activity
and Nifty ending higher by 1.3% and 1.4%, respectively. BSE mid-cap and
Aug 13 717 410 1,127
small-cap indices continued to outperform their large-cap counterparts,
Aug 16 558 (442) 116
growing further by 2.3% and 1.7%, respectively, during the week. Factors Aug 17 516 35 551
such as food and fuel inflation tapering down to 10.4% (11.4%) and 12.6% Aug 18 2,655 711 3,366
(12.7%), respectively; marginal decline in WPI index to 9.97% (10%); healthy Aug 19 - 754 754
FII flows resulting in increased liquidity in the markets; and mixed cues from Net 4,447 1,468 5,915
global markets weighed on investor sentiments during the week. On the
sectoral front, all the sectoral indices ended in green, with the BSE FMCG Mutual Fund activity (Equity)
index and BSE Bankex gaining the maximum by 2.9% and 2.7%, respectively. (Rs crore)
As on Purchases Sales Net Activity
BSE FMCG index outperforms Sensex
Aug 13 885 895 (10)
Overall, good 1QFY2011 results and the flavoir for defensives helped the Aug 16 411 745 (334)
BSE FMCG index gain 2.9%, outperforming the Sensex, which gained 1.3%. Aug 17 565 735 (170)
Gains in the FMCG index were largely driven by heavyweights ITC and Aug 18 782 850 (68)
HUL. While ITC increased 4.4% on improving fundamentals and robust Aug 19 740 721 19
outlook for cigarette volumes, HUL gained 1.2% after its management Net 3,383 3,946 (563)
announced August 23 as the commencement date for the buyback of its
shares. Amongst others, Godrej Consumer gained 6.8% on consolidation Global Indices
of its recent acquisitions and Marico moved up 8% aided by the news of its
Indices Aug. Aug. Weekly YTD
acquisition of Ingwe in South Africa. During the week, Asian Paints, Dabur 13, 10 21, 10 (% chg)
and Nestle were up 2-4% owing to improving fundamentals and strong
BSE 30 18,167 18,402 1.3 5.4
defensive buying. However, with most FMCG stocks trading at peak
NSE 5452 5531 1.4 6.3
valuations, we are underweight on the sector.
Nasdaq 2,173 2,180 0.3 (3.9)
Inside This Weekly DOW 10,303 10,214 (0.9) (2.1)
Nikkei 9,253 9,179 (0.8) (13.0)
Cairn India - Event Update: Cairn Energy Plc has entered into an agreement
with Vedanta Resources Plc for sale of 40-51% stake in Cairn India. The HangSeng 21,072 20,982 (0.4) (4.1)
all-cash deal is being executed at Rs405/share, wherein Rs355/share will Straits Times 2,940 2,936 (0.1) 1.3
be towards the sale and purchase agreement and the balance Rs50/share Shanghai Composite 2,607 2,642 1.4 (19.4)
constituting the non-compete fee. Thus, the open offer to the minorities will KLSE Composite 1,360 1,395 2.6 9.6
be at the lower price of Rs355/share. We recommend Neutral on the stock. Jakarta Composite 3,053 3,118 2.1 23.0
KOSPI Composite 1,746 1,776 1.7 5.5
Sesa Goa - Event Update: Vedanta Resources Plc, along with Sesa Goa,
has entered into an agreement with Cairn Energy Plc to acquire a 51-60%
stake in its Indian subsidiary, Cairn India. Vedanta, along with Sesa Goa, Sectoral Watch
will make the 20% mandatory open offer to other shareholders of Cairn Indices Aug. Aug. Weekly YTD
13, 10 21, 10 (% chg)
India at Rs355 per share; Sesa Goa will make a strategic investment of 20%
in Cairn India. We maintain our Neutral view on the stock. BANKEX 12,196 12,527 2.7 24.9
BSE AUTO 8,776 8,875 1.1 19.3
Gujarat Pipavav Port - IPO Note: Gujarat Pipavav Port (GPPL) is coming out
Port
BSE IT 5,514 5,517 0.1 6.4
with IPO for Rs500cr through fresh issue of 10.4-11.9cr shares in the price
BSE PSU 9,675 9,707 0.3 1.8
band of Rs42-48/share. GPPL also expects to retire high-cost debt utilising
Rs300cr from the issue proceeds resulting in reduction in interest expenses
from Rs115cr in CY2009 to Rs92cr in CY2011E. Consequently, we expect
GPPL to report profit from CY2011E onwards. Hence, we recommend
long-term
Subscribe to the IPO at the lower price band with a long-term perspective.
Note: Stock Prices are as on Report release date; Refer all Detailed Reports on Angel website.
Please refer to important disclosures at the end of this report
2. Fundamental Focus | August 21, 2010
Focus
Cairn India - Neutral Price - Rs333
Event Update
Vedanta buys majority stake in Cairn India Under both scenarios, at our target price for the stock, we believe
that there are limited upsides from current levels in case one
Deal details: Cairn Energy Plc has entered into an agreement
decides to tender the shares. Thus, one should be indifferent
with Vedanta Resources Plc for sale of 40-51% stake in Cairn
between tendering the shares in the open offer or retaining
India. The success of the 20% mandatory open offer to minorities
them. However, the given the speculation associated with the
will determine the extent of stake sale by Cairn Energy Plc. The
revision of the open offer price to Rs405/share in line with the
all-cash deal is being executed at Rs405/share, wherein Rs355/
price paid to Cairn Energy Plc, there could be decent upsides
share will be towards the sale and purchase agreement and
from current levels. However, chances of the same happening
the balance Rs50/share constituting the non-compete fee. Thus,
appear slim. As per the SEBI regulation, a promoter is entitled
the open offer to the minorities will be at the lower price of
up to 25% of the deal price as the non-compete fees. However,
Rs355/share, which is at 6.7% premium to the close price. Thus,
we believe higher price in form of non-compete fees only to
the minority shareholders are at a disadvantage. The offer is
Cairn Energy Plc is unjustified.
subject to the government approval. The open offer will be
made through Sesa Goa. Post the transaction, Sesa Goa will Outlook and Valuation
hold 20% in Cairn India, with Vedanta holding 31- 40%. We believe the transfer of the ownership of Cairn India from
Acceptance ratio contingent on Petronas stance: If Petronas
Petronas Cairn Energy Plc to Vedanta Resources Plc is unlikely to impact
tenders its share, the acceptance ratio in case of 100% tendering, the company's financials. However, the key risk is Vedanta's
will be 53%. However, if Petronas does not tender its share, the lack of experience in managing the E&P asset portfolio being a
acceptance ratio would be higher at 88%. Under both scenarios, new player in the segment. Further, we believe that returns to
at our target price for the stock, we believe that there are limited investors will be quite similar in case of tendering the share in
upsides from current levels in case one decides to tender the the open offer or otherwise. Our NAV-based Fair Value of Rs315
shares. Thus, one should be indifferent between tendering the assumes long-term crude oil price of US $75/bbl, whereas the
shares in the open offer or retaining them. current stock price is discounting long-term average crude price
of US $79.1/bbl. Thus, upsides from current levels are limited.
How does the open offer math stack up?
We recommend Neutral on the stock.
The open offer dynamics would continue to hinge on the
acceptance ratio, which in turn is dependent on the action of Key Financials (Consolidated)
Petronas (14.94% stakeholder in Cairn India). We outline below Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
our working of the acceptance ratio (% of shares likely to Net Sales 1,433 1,623 7,863 14,761
accepted in the open offer) under the various scenario and the % chg 41.5 13.3 384.5 87.7
breakeven point at current levels. We also gauge the sensitivity
Profits
Net Profits 803 1,051 4,392 8,752
analysis of the likely returns depending on where the stock price
settles post the open offer. OPM (%) 60.5 60.4 81.2 83.9
EPS (Rs) 4.2 5.5 23.2 46.1
Scenario - I: If Petronas does not tender its share in the open
offer: In such a scenario, we believe there is likely to be a healthy P/E (x) 78.6 60.1 14.4 7.2
acceptance ratio of 88.3% assuming all the shareholders agree P/BV (x) 1.9 1.9 1.7 1.6
to tender their shares. RoE (%) 2.7 3.2 12.4 23.0
Scenario - II: If Petronas does tender its share in open offer: In RoCE (%) 1.3 1.7 13.9 25.9
such a scenario, we believe there is likely to be a acceptance EV/Sales (x) 45.8 37.8 7.6 4.0
ratio of 53.3% assuming all the shareholders agree to tender
EV/EBITDA (x) 75.7 62.5 9.4 4.7
their shares.
Source: Company, Angel Research, Price as on August 16, 2010
Research Analyst - Deepak Pareek/Amit Vora
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3. Fundamental Focus | August 21, 2010
Focus
Sesa Goa - Neutral Price - Rs323
Event Update
Strategic investment in Cairn India risk on account of the ban on sale of iron ore from Karnataka
Deal structure: Vedanta Resources Plc, along with Sesa Goa, and disturbances in Orissa owing to the illegal mining issue. In
has entered into an agreement with Cairn Energy Plc to acquire 1QFY2011, Sesa's iron ore sales volume ex-Dempo stood lower
a 51-60% stake in its Indian subsidiary, Cairn India, at a price at 11.7% yoy.
of Rs405 per share. While Rs355per share is being paid towards Our take: Anil Agarwal, Chairman, Vedanta Group, has an
the sale and purchase of the agreement, the balance Rs50 per exemplary track record of acquiring assets and turning them
share is being paid as non-compete fee. The non-compete fee around (eg. Hindustan Zinc, Balco and Sesa Goa). However,
will be paid in consideration for Cairn Energy agreeing not to Sesa Goa's diversification into an unrelated business to utilise
engage in the business of oil or gas extraction in India, Sri its excess cash raises concerns regards the growth prospects of
Lanka, Pakistan and Bhutan, or any other business that competes its core iron ore business and the stock could take a hit in the
with the business of Cairn India and its subsidiaries, for a period short term. While management has reiterated that it expects to
of three years. Vedanta, along with Sesa Goa, will make the increase its iron ore sales volume to 50mn tonnes by FY2014E
20% mandatory open offer to other shareholders (except Cairn and the deal to be EPS accretive from FY2011E, we believe
Energy Plc) of Cairn India at Rs355 per share; Sesa Goa will that with the cushion of excess cash now not available, the
make a strategic investment of 20% in Cairn India. The 20% company would have to leverage its balance sheet for any
stake will be acquired through a combination of share purchase potential acquisitions in its iron ore business going ahead. Also,
from Vedanta (at a price of Rs405 per share) less the number cash which was 80% of its FY2010 balance sheet, will be
of Cairn India's shares acquired under the open offer (at a replaced by a strategic investment in Cairn India. As the deal is
price of Rs355 per share). still subject to regulatory approvals and requires a special
resolution to be passed by Sesa Goa's shareholders, we
Cash outflow based on open offer acceptance
Share via open 0% 5% 10% 11% 15% 20% maintain our Neutral view on the stock.
offer by Sesa Goa (Rs cr)
Outflow from
Sesa Goa 15,552 15,072 14,592 14,496 14,112 13,632
Outflow from Vedanta 24,106 24,106 24,106 24,106 27,216 31,104
Total outflow 39,658 39,178 38,698 38,602 41,328 44,736
Key Financials (Consolidated)
Source: Company, Angel Research Y/E March (Rs cr) FY2009 FY2010 FY2011E FY2012E
Vedanta and Cairn have also agreed to a break-fee Net sales 4,959 5,858 9,711 10,586
arrangement of 1% of Cairn India's market capitalisation in % chg 29.7 18.1 65.8 9.0
case a) approval from Cairn Energy's shareholders is not Net profit 1,988 2,629 4,567 4,403
received by October 30, 2010, and b) Cairn Energy breaches
% chg 28.4 32.2 73.7 (3.6)
the non-solicitation provisions.
FDEPS (Rs) 25.3 29.2 50.7 48.9
Iron ore volume growth at risk: As on 1QFY2011, Sesa Goa's
OPM (%) 51.3 53.7 54.8 53.5
cash position stood at Rs9,054cr including the inter-corporate
deposit given to Vedanta Aluminium. We estimate the company P/E (x) 12.8 11.1 6.4 6.6
to have cash and cash equivalents of Rs11,402cr and P/BV (x) 5.4 3.4 2.2 1.7
Rs14,697cr at the end of FY2011 and FY2012, respectively. In RoE (%) 51.9 41.6 45.9 31.5
the current deal with the cash outflow expected to be in the
RoCE (%) 63.9 41.7 43.7 34.7
range of Rs13,632-15,552cr, we believe the company will have
to leverage its balance sheet for future acquisitions, if any, in its EV/Sales (x) 4.3 3.6 1.8 1.3
iron ore business. Further, we believe that management EV/EBITDA (x) 8.4 6.6 3.3 2.5
guidance of 20-25% iron ore volume growth for the fiscal is at Source: Company, Angel Research; Price as on August 16, 2010
Research Analyst - Paresh Jain/Pooja Jain
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4. Fundamental Focus | August 21, 2010
Focus
NTPC - BHEL JV to foray into EPC-BoP segment
Event Update
Entry into EPC-BoP segment to ease capacity constraints: The
EPC-BoP April 30, 2010, stood at ~ Rs450cr and the company expects
formation of NTPC-BHEL Power Projects Private Limited (NBPPL), to close FY2011 with an order backlog of ~ Rs7,000cr.
the 50:50 joint venture (JV) between India's largest power Presently, NBPPL is executing the BoP package (including civil
producer NTPC and India's largest power equipment maker and structural works) for the 100MW Namrup Power Station,
BHEL, is expected to significantly increase the domestic Assam and the 726MW CCPP-Palatana gas-based power
manufacturing capacities in the Balance of Plant (BoP) segment. project of ONGC Tripura Power Corporation. Both the promoter
At present, the limited number of BoP vendors in India may not companies have recently signed a Memorandum of
be able to effectively support the 100GW capacity additions Understanding (MoU) with NBPPL for FY2010-11, under which
planned over the next 6 - 7 years. Most of the BoP vendors are key projects have been transferred to NBPPL.
essentially system integrators and source their requirements from Our Take
relatively smaller manufacturers with limited capacity and
Though the primary objective of setting up NBPPL is to undertake
capability to expand on technology, engineering and
EPC contracts for power plants and manufacture power
manufacturing. We believe that the scheduled commencement
equipment, we understand that NBPPL would initially focus on
of operations at NBPPL's manufacturing facilities from FY2014
setting up its BoP manufacturing facilities, especially coal and
would help in mitigating the anticipated shortage in the BoP
ash handling plants. Recent press articles suggest that NBPPL is
segment.
actively scouting for a global technology provider to support
Leveraging core competencies: Both the promoters, NTPC and the coal and ash handling segments of the BoP-EPC projects to
BHEL, are expected to effectively harness their complementary be taken up by it. The foreign technology partner may also be
strengths, common ownership and the shared legacy for the offered a minority stake in NBPPL.
development of the Indian Power Sector. Phase I of the JV
Once selection of the foreign technology partner is finalised
includes the setting up of the EPC and BoP manufacturing
and clarity emerges regarding the commercial operation date
facilities by FY2013. The manufacturing facilities for boilers,
(COD), we expect increasing number of BoP -EPC projects
turbines and generator (BTG) would be completed by FY2015
attributable to NTPC and BHEL being awarded to NBPPL. While
as part of Phase II. We do not expect NBPPL to set up in-house
the above developments may help in alleviating the perceived
manufacturing facilities for BTG, as the same can be sourced
shortage of BoP vendors, it has the potential to intensify
from BHEL itself. However, the setting up of manufacturing
competition in the BoP space leading to loss of pricing power
facilities for BoP components would enable both the promoter
for the existing and aspiring BoP players such as BGR Energy,
companies to leverage their core strengths and supplement their
Mcnally Bharat, Sunil Hitech and TRF .
EPC and equipment manufacturing capacities.
We would await more clarity and monitor NBPPL's progress on
Order inflows and executions have commenced: Even as
the timely completion of its manufacturing facilities and order
NBPPL's manufacturing facilities are in the process of being set
accretion from BHEL and NTPC before revisiting our revenue
up at Chittoor (AP), the company has been getting contracts
and earnings estimates. Hence, we maintain our current ratings
from power utilities as an EPC contractor. Order book, as on
on the respective stocks.
Valuation Summary
Company
ompany Reco CMP Price
Tgt Price Upside P/BV
P/BV (x) P/E (x) FY10-12E EPS RoCE (%) RoE (%)
(Rs) (Rs) (%) FY11E FY12E FY11E FY12E CAGR
CAGR (%) FY11E FY12E FY11E FY12E
NTPC Buy 195 230 17.9 2.3 2.2 20.0 17.6 1.8 10.9 11.6 12.0 12.8
BHEL Neutral 2,473 - - 6.1 4.9 22.6 19.0 21.5 31.8 30.4 30.0 28.6
BGR Energy Neutral 826 - - 6.6 5.1 21.3 17.2 31.0 18.2 17.7 34.7 33.6
Mcnally Bharat Buy 283 486 71.7 2.4 1.9 10.3 8.2 28.8 31.0 30.3 28.0 26.1
Source: Company, Angel Research, Price as on August 18, 2010
Research Analyst - John Perinchery/Hemang Thaker
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5. Fundamental Focus | August 21, 2010
Focus
Gujarat Pipavav Port - Subscribe (at lower price band)
IPO Note - Land Ahoy - Turnaround in sight
IPO details: Gujarat Pipavav Port (GPPL) is coming out with its railway transportation for ~ 35.0% of the cargo going through
IPO for Rs500cr through fresh issue of 10.4-11.9cr shares in the Port. We expect penalty charges to PRCL to fade away with
the price band of Rs42-48/share. The issue proceeds would be growing traffic which will further enhance margins.
utilised for prepayment of loans, capital expenditure, purchase Expensive valuations but underpinned with substantial growth
of capital equipment and general corporate purpose. Besides, potential: At the lower band of Rs42, GPPL trades at a premium
The Infrastructure Fund of India, LLC and The India Infrastructure to its global peers at 2.5x CY2011E P/BV v/s 2.0x respectively.
Fund have offered to partially sell their stakes to the tune of We agree that GPPL comes off a low base compared to some
7,601,248 and 4,106,121 shares respectively, through the IPO. established ports and to that extent the growth should command
Investment Arguments a premium. On the domestic front, the company is trading at a
Location advantages and quality infrastructure: GPPL is a private substantial discount to the Mundra port, which trades at 5.9x
port in proximity to the north-western region which handles FY2012E P/BV. We believe that GPPL's discount to Mundra port
around 65% of the container cargo in India. It is strategically is justified given the latter's larger scale of operations, revenue
located (at the mouth of the Gulf of Khambhat) in Gujarat. It contribution from its SEZ and higher profitability growth.
provides a convenient international trade gateway to Europe, However, given GPPL's high growth potential we believe that
Africa, America and the Middle East. Further it can accept vessels the 57% discount is unwarranted. Consider, over the last couple
up to 14.5 metre draught, which can handle bulk vessels of ~ of years, GPPL has exhibited strong growth rates at the operating
81,600 MT and container vessels of 6,200 TEU capacity, one level following an improvement in utilisation levels and growing
of the largest container ship presently calling at Indian ports. traffic. GPPL also expects to retire high-cost debt utilising Rs300cr
The port is also well connected to the rail and road network. from the issue proceeds resulting in reduction in interest
expenses from Rs115cr in CY2009 to Rs92cr in CY2011E.
No regulatory hurdles to set tariffs: GPPL is not a major port
Consequently, we expect GPPL to report profit from CY2011E
and hence is not covered under the purview of the Tariff Authority
onwards. Hence, we recommend Subscribe to the IPO at the
for Major Ports. Thus, GPPL is free to set its own tariffs making
long-term
lower price band with a long-term perspective.
it possible for it to be nimble and respond to changes in market
dynamics. In order to attract volumes and combat with global Key Financials
recession, GPPL had reduced tariff in CY2009. However, Y/E Dec (Rs cr) CY08 CY09 CY10E CY11E CY12E
management has indicated to hike its container tariff by ~25%
Net Sales 167.3 219.1 264.9 360.3 447.7
from CY2010 onwards following improvement in the economy.
% chg 10.4 31.0 20.9 36.0 24.3
Margins to improve with increase in utilisation rates: During
Profit
Net Profit (67.6) (117.7) (78.4) 7.6 55.1
CY2009 company experienced margin expansion of ~13% due
to better capacity utilization. Going ahead, we believe with % chg - - - - 621.7
favorable industry dynamics (15% container and 8% cargo traffic EBITDA Margin (%) 7.6 20.1 31.0 40.0 45.0
CAGR over FY2010-15E) and economy back on track this trend FDEPS (Rs) (1.6) (2.7) (1.8) 0.2 1.3
to continue and company to enjoy operating leverage leading
P/E (x) - - - 238.8 33.1
to enhancement in margins. We have penciled in ~25% margin
P/BV (x) 3.8 4.3 2.5 2.5 2.3
expansion to 45%, (Mundra clocks EBITDA margins of 70%
and management has guided margins at ~60-70%) over next RoE (%) - - - 1.0 7.1
three years. GPPL is bound to transport minimum guaranteed RoCE (%) - - - 5.7 9.0
traffic of 3mn tonnes through Pipavav Rail Corporation Ltd EV/Sales (x) 12.1 10.4 9.1 6.8 5.5
(PRCL). GPPL paid around Rs 108cr and 30cr in CY2008 and
EV/EBITDA (x) 159.0 51.5 29.3 17.1 12.3
CY2009 respectively as penalty charges due to non-fulfillment Source: Company, Angel Research; Detailed IPO Note to released shortly.
of the Minimum Guaranteed Quantity. PRCL currently provides Note: Above ratios are on lower price band
Research Analyst - Param Desai/Mihir Salot
For Private Circulation Only | Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP00000154 6 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE: INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946 5
6. Fundamental Focus | August 21, 2010
Focus
JK Tyre - Buy Price - Rs163
Target Price - R238
1QFY2011 Result Update
Performance Highlights position to fully utilise its enhanced capacity at higher realisations
(75% of India's total truck/bus radial tyre production).
Y/E March 1QFY11 1QFY10 % chg Angel % Diff
(Rs cr) (yoy) Est. Tornel's acquisition turns profitable: The buyout of Tornel could
Net Sales 1,168 901 29.7 1,102 6.0
act as an upside trigger for JK Tyre's stock. The acquisition has
Operating Profit 73 107 (31.4) 60 21.4
already turned profitable in FY2010, reporting net profit of
OPM (%) 6.3 12 (558)bp 5.5 80bp
Reported PAT 20 41 (52.1) 16 22 Rs60cr in FY2010 from net loss of Rs39.9cr in FY2009, aided
Source: Company, Angel Research by the ongoing restructuring exercise implemented by the
company.
Top line up 29.7%: JK Tyre reported 29.7% yoy growth in net
sales to Rs1,168cr (Rs900.7cr) in 1QFY2011. In tonnage terms, Outlook and valuation
the company registered ~15.7% yoy growth in volume, while Attractive valuations: We broadly maintain our earnings
net sales realisation grew ~13% during 1QFY2011. JK Tyre estimates for FY2011-12E. We estimate the company to post
hiked the prices of its products by ~4% in 1QFY2011 to pass EPS of Rs39.6 in FY2011E and Rs47.6 in FY2012E. At current
through the raw-material cost increases. On the utilisation front, levels, the stock is available at attractive valuations of 4.1x and
JK Tyre operated at higher utilisation levels of ~95%. 3.4x FY2011E and FY2012E EPS, respectively. We maintain a
OPM contracts 558bp due to increased raw-material cost: The
raw-material Target Price
Buy on the stock with a Target Price of Rs238, at which level
company's operating profit declined 31.4% yoy to Rs73.1cr the stock would trade at 5x, 3.3x and 0.8x FY2012E EPS, EV/EPS,
(Rs106.6cr), which was ahead of our estimates. The margin EBITDA P/BV respectively.
EBITDA and P/BV, respectively.
declined by 558bp yoy and 170bp qoq primarily on account
of the 780bp yoy jump in raw-material cost. Despite the increase
in product prices, the company could not fully recover the
increase in rubber costs. The average procurement price of
rubber for the company in 1QFY2011 stood at Rs158/kg
compared to Rs148/kg in 4QFY2011 and Rs100/kg in Key Financials (Consolidated)
1QFY2010. The company has hiked prices by ~11% in Y/E March (Rs cr) FY2009* FY2010 FY2011E FY2012E
4QFY2010 and 1QFY2011 and has guided subsequent price
Net Sales (incl otr. op. inc.) 5,523
otr. 4,571 5,611 6,310
hikes in the event of increasing rubber prices.
% chg 97.6 (17.2) 22.8 12.5
Net profit at Rs19.5cr, down 52.1%: JK Tyre recorded a 52.1%
Rs19.5cr,
Profit
Net Profit (108.0) 219.7 162.5 195.6
yoy decrease in net profit to Rs19.5cr (Rs40.8cr) during the
% chg - - (26.1) 20.4
quarter, primarily on account of margin contraction. However,
the bottom line came in ahead of our expectations. The drop in OPM (%) 3.0 11.0 8.9 9.5
net profit growth was restricted due to a decline in interest EPS (Rs) (26.3) 53.5 39.6 47.6
expense, which was down 19.4% during the quarter. P/E (x) (6.2) 3.1 4.1 3.4
Investment Arguments P/BV (x) 1.0 0.8 0.7 0.6
Favourable product mix: The commissioning of its new T&B RoE (%) 12.8 6.6 9.7 16.6
radial capacity in October 2009 (up from 0.4mn to 0.8mn RoCE (%) 3.9 18.6 15.7 15.9
tyres), expansion of the PCR capacity by 10% to 5mn tyres for
EV/Sales (x) 0.3 0.4 0.3 0.3
FY2011E and the planned increases in the OTR segment for
EV/EBITDA (x) 11.7 3.3 3.9 2.8
FY2010E are working in favour of JK Tyre. Given the shortage
Source: Company, Angel Research; Note: *FY2009 numbers are for the
of radial tyres in the T&B segment, the company is in a pole 18-month period, Price as on August 16, 2010
Research Analyst - Vaishali Jajoo/Yaresh Kothari
For Private Circulation Only | Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP00000154 6 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE: INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946 6
7. Fundamental Focus | August 21, 2010
Focus
Shiv-Vani Oil & Gas - Buy Price - Rs461
Target Price - R539
1QFY2011 Result Update
Performance Highlights depreciation and interest expenditure during the quarter.
Y/E March 1QFY11 4QFY10 % chg 1QFY10 % chg However, effective tax rate during the quarter fell by 994bp yoy
(Rs cr) (yoy) (yoy) to 18% (27.9%). As a result, PAT margins expanded by 100bp
Net Sales 399 299 33.3 277 43.8 yoy to 16.2% (15.2%) during the quarter.
EBITDA 176 152 15.9 114 54.5
EBITDA Margin (%) 44.0 50.6 (6.6) 41.0 3.0 Outlook and Valuation
PAT 65 47 37.3 42 53.4
SOGES is a visible play on the huge upcoming investments in
Source: Company, Angel Research
the Indian E&P segment. Strong order book of Rs3,200cr (2.0x
Top-line registers robust 43.8% growth: SOGES registered
op-line FY2011E Sales) and potential order accretion, imparts visibility
robust top-line growth of 43.8% yoy for 1QFY2011 to Rs399cr over the next few years. We expect SOGES to record a CAGR of
(Rs277cr) driven by newer asset deployment, largely on account 24.4% and 14.5% in top-line and bottom-line respectively, over
of deployment of additional two rigs during the quarter and all FY2009-12E. At Rs461, the stock is trading at 8.5x FY2012E
10 seismic crews being operational during the quarter. In EPS. We have marginally tweaked our numbers coupled with
1QFY2011, 34 out of 40 rigs were operational, with five working revising our EPS estimates downwards to account for newer
on spot basis and one large rig is expected to commence work FCCB issue. However, we increase our Target P/E multiple for
soon. Such robust top-line growth came in despite the 6.5% the company owing to improving earnings visibility,
yoy appreciation in the rupee during the quarter. SOGES's 40- diversification moves by the company and higher liquidity
50% of contracts are denominated in US dollar and thus the premium. We maintain a Buy on the stock with a revised Target
Target
rupee appreciation restricts its top-line growth. Price of Rs539 (Rs510).
EBITDA margin expands by 302bp: OPM during the quarter
EBITDA
expanded by 302bp yoy. Excluding the impact of forex
fluctuations, OPM increased by 381bp yoy, driven by
deployment of high-end rigs, benefits of operating leverage
and increased contribution of the integrated projects in the
company's revenue mix. Benefits of operating leverage are Key Financials (Consolidated)
visible as other expenditure fell, as a % of sales, by 53bp yoy. Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
Staff costs, as a % of sales, also declined by 50bp yoy during
Net Sales 871 1,252 1,562 1,676
the quarter. SOGES reported 54.5% yoy growth in operating
% chg 51.6 43.7 24.8 7.3
profit during the quarter to Rs176cr (Rs114cr). On a qoq basis,
OPM contracted by 662bp from the high of 50.6% registered Profit
Net Profit 192.7 203.2 254.4 289.3
in 4QFY2010. High other expenditure was primarily responsible % chg 108.9 5.5 25.2 13.7
for the same, which as a % of sales, increased by 119bp. OPM (%) 40.4 44.7 43.7 44.5
Depreciation, interest expenditure increase: On account of FDEPS (Rs) 35.9 37.8 47.4 53.9
capitalisation of newer assets, depreciation and interest P/E (x) 12.8 12.2 9.7 8.5
expenditure increased during the quarter. Depreciation surged
P/BV (x) 2.4 1.8 1.5 1.3
79% yoy to Rs39cr (Rs22cr), while interest expenditure grew
RoE (%) 23.9 19.4 19.4 18.4
68% yoy to Rs58cr (Rs35cr).
RoCE (%) 13.3 14.0 13.9 14.0
PAT grows by healthy 53.4%: Bottom-line during the quarter
EV/Sales (x) 4.7 3.4 2.5 2.1
registered an increase of 53.4% yoy to Rs65cr (Rs42cr). Bottom-
line recorded robust growth despite the significant increase in EV/EBITDA (x) 11.7 7.6 5.7 4.8
Source: Company, Angel Research; Price as on August 18, 2010
Research Analyst - Deepak Pareek/Amit Vora
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8. Technical Picks | August 21, 2010
Bulls in cruise control
Sensex (18402) / Nifty (5531)
In our previous Weekly report, we had mentioned that the indices Exhibit 1: Sensex Weekly chart
were stuck in a range of 17840 / 5350 on the downside, and 3
5 weeks consolidation
1 2
18300 / 5480 on the upside, but looking at the positively
placement of the momentum oscillators we had expected high
Channel
probability of the indices to trade and close above 18315 /
5480 levels. The week began on a pessimistic note, but the
upside momentum intensified towards the latter half of the week,
with the indices registering a new 52-week high of
18475 / 5547.
The Sensex ended with net gains of 1.3%, whereas the Nifty
Source: Falcon
gained 1.4% vis-à-vis the previous week.
Pattern Formation
On the Weekly chart the indices have closed well above
chart,
the 78.6% retracement levels (18315 / 5480) of the preceding
down-move that started from 21000 to 7697 / 6357 to 2252
levels. Further, the trend following indicator, viz. the ADX is
positively poised. This suggests further upside momentum.
On the Weekly chart as seen in the Channel pattern, the
chart,
market has shown a corrective move within 3 weeks after testing
the upper trendline of the Channel. However, this time the
market has consolidated gains in a sideways pattern spanning
over the past 5 weeks. This itself indicates strength of the uptrend
and high probability of upside going forward (refer Exhibit 1).
Future Outlook
In view of the placement of the momentum indicator, viz. the
ADX, on the weekly chart, and a breakout from the weekly
sideways consolidation pattern, we are of the opinion that the
upside momentum is likely to continue in the coming week. On
the upside, indices are likely to test 18900 - 19050 / 5700 -
5750 levels once they trade and close above 18475 / 5547
levels. However, on the downside,18232 - 18000 / 5470 -
5400 levels may act a support for the week. Stock specific and
sector rotation activity is likely to continue going ahead.
Traders are advised to go long only on declines in the range of
5470 - 5400 levels with a STRICT stop loss of 5340 level for a
target of 5700 - 5750 levels.
For Private Circulation Only | Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP00000154 6 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE: INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946 8
