WS Industries India
Cluster: Vulture's Pick
Recommendation: Buy
Price target: Rs86
Current market price: Rs49
Price target revised to Rs86
Result highlights
WS Industries' (WSI) Q1FY2009 results were in line with our estimates
on the revenue front, though the profit was lower than our estimates.
The net revenues of the company grew by 8.9% year on year (yoy) to
Rs51.9 crore as against our estimate of Rs52.4 crore.
The operating profit of the company declined by 17.1% to Rs5.9 crore
implying an operating profit margin (OPM) of 11.4%. The OPM
contracted by 355 basis points on the back of the increase in
commodity prices, mainly metals and crude oil.
The other income doubled to Rs0.4 crore. The interest cost was up by
11% to Rs1.9 crore while the depreciation charge rose by 8.1% to Rs1
crore.
The tax rate came in at 35.5%, sharply higher than 12.2% in the
corresponding quarter of the last year. The tax was higher than
estimated mainly due to higher deferred tax. Consequently the net
profit of the company declined by 50.4% to Rs2 crore.
The current order book of the company at the end of Q1FY2009 stood at
Rs180 crore, at the same level it was at the end of Q4FY2008. The
company also has order of Rs40 crore for its projects division.
The expansion on upcoming capacity of the company in the Andhra
Pradesh special economic zone (SEZ) is running on schedule and
expected to come on stream by mid FY2009. In our view this capacity
would be the growth driver for the company going forward.
We have revised our FY2009E and FY2010E earnings per share (EPS) by
5.5% and 2.4% to Rs7.1 and Rs9.7 per share respectively. The change
in the earnings is mainly to factor in the lower margin due to high
power & fuel cost and higher cost of raw materials.
We continue to value WSI on the sum-of-the-parts (SOTP) methodology,
valuing its core business at Rs58.5 per share and the real estate
subsidiary at Rs27.9 per share. Hence we arrive at a fair value to
Rs86 for the stock. At the current market price the stock trades at
6.9x and 5x our fully diluted earnings per share (FDEPS) estimates
for FY2009 and FY2010 respectively
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