Sharekhan Investor's Eye dated July 31, 2008
Investor's Eye
[July 31, 2008] Sharekhan
www.sharekhan.com
Summary of Contents
STOCK UPDATE
Shiv-Vani Oil & Gas Exploration Services
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs725
Current market price: Rs552
Good results; order book zooms
Result highlights
a.. Shiv-Vani Oil and Gas Exploration Services' (Shiv-Vani) Q1FY2008 results were ahead of our expectations on the back of improved profitability. The consolidated top line grew by 104% to Rs188.5 crore in line with our estimates. The top line growth was on the back of incremental revenues from the coal bed methane (CBM) project and firm realisations.
b.. Higher realisations and increased efficiency led to a 280-basis-point year-on-year improvement in the operating margins to 40.2%. Consequently, the operating profits grew by 119.2% to Rs75.7 crore.
c.. Both the interest and depreciation charges rose in line with our expectations on the back of the capital expenditure (capex) incurred by the firm to acquire new assets. Consequently, the consolidated net profits rose by 110.2% to Rs36.3 crore.
d.. The company plans to spend close to Rs700 crore in FY2009. It has already taken up its fleet size to 29 rigs at present and plans to take the same to 40 rigs by the end of the fiscal.
e.. Shiv-Vani's order book has soared to Rs4,800 crore currently, as compared to Rs3,500 crore at the end of FY2008. The order book growth has mainly been driven by an excellent growth in the onshore drilling segment. Its strong order book executable over the next three years imparts great visibility to company's future earnings. Greater focus on onshore blocks in the New Exploration Licensing Policy VII would continue to drive strong growth for the company going forward.
f.. At the current market price, the stock trades at 15.2x FY2009 and 11.6x FY2010 estimated earnings. We maintain our Buy call on the stock with a price target of Rs725.
Sun Pharmaceutical Industries
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs1,640
Current market price: Rs1,410
Results beat expectations
Result highlights
a.. Sun Pharmaceuticals' (Sun Pharma) Q1FY2009 revenues grew by 66% to Rs1,041.8 crore. The revenues were in line with our estimates and were driven by strong growth in the base business and continued contribution from the generic Pantoprazole and the generic Ethyol exclusivities.
b.. Sun Pharma's domestic formulation revenues grew by 17.1% to Rs429.6 crore. Though the growth was relatively lower than the supernormal growth seen in the past, it was still way above the industry growth of 12-13%. We expect Sun Pharma's domestic formulation business to continue outpacing the industry.
c.. Caraco Pharmaceuticals (Caraco Pharma), Sun Pharma's US subsidiary, continued its impressive performance by registering a three-fold jump in the revenues to $108 million in Q1FY2009, in line with our estimates. The exceptional performance was driven by continued contributions from the generic Pantoprzole and the generic Ethyol exclusivities. We estimate Caraco Pharma to have recorded exclusivity revenues of ~$60 million in Q1FY2009. Caraco Pharma has guided for a 25% growth in FY2009 on the back of a strong pipeline of new launches, which we believe is fairly conservative, given the visibility of strong upsides from the Pantoprazole, Ethyol and the potential Effexor XR exclusivities.
d.. Sun Pharma has been awarded a 180-day exclusivity for generic Effexor XR, a blockbuster anti-depressant, with $2.6 billion in annual revenues. However, despite the expiration of the product patent on Effexor XR, the launch has been delayed as Osmotica Pharma, the other generic player, has filed a citizen petition with the US Food and Drug Administration (US FDA) in an attempt to stall Sun Pharma's launch of the product. We have not modeled the impact of the launch into our estimates. The US FDA ruling on the citizen petition and the subsequent launch of generic Effexor XR by Sun Pharma in the USA would be a trigger for an upgrade.
e.. Driven by substantial high-margin revenues from exclusivities and scale benefits, Sun Pharma's margins expanded by 1,740 basis points to 51.6% in Q1FY2009. The margin expansion caused the operating profit to increase by a whopping 150.4% to Rs537.9 crore. We expect the margins to start moderating in the coming quarters due to the expiration of the exclusivities.
f.. Sun Pharma's net profit grew by a stellar 120.7% to Rs501.5 crore during Q1FY2009 and was ahead of our estimates of Rs479.3 crore. The profit growth was restricted due to reduction in other income and increase in tax provision.
g.. Sun Pharma remains confident on closing the acquisition of Taro Pharmaceuticals (Taro Pharma), however it does expect to undergo a protracted legal battle with Taro Pharma and is a shareholder for the same, which could result in a delay in closing the acquisition. While the successful closure of the acquisition is strategically important for Sun Pharma, the failure to do so would not impact our estimates, as our estimates do not factor in the impact of Taro acquisition. The uncertainty around the acquisition of Taro Pharma could act as a sentimental overhang on the stock in the near term, while positive news flow on the acquisition would catalyse the stock's upward movement.
h.. At the current market price of Rs1,410, the stock is valued at 17.3x FY2009E and 17.2x FY2010E fully diluted earnings. We reiterate our Buy recommendation with a revised price target of Rs1,640 (20x FY2010E earnings).
Television Eighteen India
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs355
Current market price: Rs220
Price target revised to Rs355
Result highlights
a.. TV18's Q1FY2009 results were below our expectations with the revenues of the news and the internet businesses below the estimates. The operating revenue for the quarter grew by 36.5% year on year (yoy) to Rs93 crore, which was below our and street's expectations.
b.. The news business' revenues grew by only 30.1% yoy to Rs75.3 crore (as against our estimate of 48% revenue growth). The lower revenue growth for the segment can be attributed to seasonal weakness and slowdown in the financial sector that impacted the advertising revenues. The operating profit margin (OPM) for the segment was up 389 basis points to 33.1%.
c.. The revenue growth of Web18 was disappointing at 41.3% yoy to Rs13.2 crore. The revenues declined by 27.1% quarter on quarter (qoq) and points towards the impact of the stock market on the segment's revenues as ~70% of Web 18's revenues come from www.moneycontrol.com-the website catering to stock markets. In our preview, we had mentioned that Web18's revenue growth would be a key monitorable in the Q1FY2009 results. As the Q1FY2009 performance of Web 18 was lower than expectations, we have downgraded our revenue growth estimates for FY2009 and FY2010 to 35% and 30% respectively.
d.. The newswire business grew in line with our expectations to Rs4.5 crore, albeit on a low base. The operating expenditure of the business went up to Rs7.2 crore leading to an operating loss of Rs2.7 crore.
e.. The consolidated OPM of the company during the quarter stood at 18% against 15.2% in the corresponding quarter of the last year. The lower revenue growth in the news and web businesses (the increase in the expenditure is in line with estimates) led the actual OPM remain lower than the expected OPM of 20.8%. Thus the operating profit grew by 61.8% yoy to Rs16.7 crore on a low base of Q1FY2008.
f.. Consequent to a higher interest charge and an extraordinary expenditure (interest payable for acquisition of Infomedia India) of Rs6.48 crore, the company reported a net loss of Rs9 crore for the quarter.
g.. We have revised downwards our revenue and profit estimates for FY2009 and FY2010 to factor in the lower revenue growth for the web business, increased losses for the web and newswire businesses and the increase in the interest cost as a result of a higher debt. Consequently we are downgrading our price target on the stock to Rs355 based on our sum-of-the-parts valuation.
Ashok Leyland
Cluster: Ugly Duckling
Recommendation: Hold
Price target: Rs39
Current market price: Rs29
Price target revised to Rs39
Result highlights
a.. Ashok Leyland's results for Q1FY2009 were below expectations mainly on the profitability front.
b.. The net sales for Q1FY2009 grew by 16.2% year on year (yoy) to Rs1,884 crore. Despite a lower volume growth of only 1.4% the sales were boosted by higher sales of engines and spare parts and higher than expected price increase.
c.. The increase in the raw material cost led the operating profit margin (OPM) decline to 8% in Q1FY2009 from 9.5% in Q1FY2008. The decline in the OPM was higher than expectations and led the operating profit to
...
 |
|
|
No comments:
Post a Comment