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Buy Sobha Developers: ICICI Securities
Thursday, August 16, 2007
Sobha Developers’ Q1FY08 results were impressive, though marginally below our expectations. The company’s revenues and PAT stood at Rs 2.7 billion and Rs 408 million, up 31% YoY and 141% YoY respectively. Fully-diluted EPS stood at Rs 5.6 in Q1FY08 against Rs 2.3 in Q1FY07 and Rs 8.35 in Q4FY07. Revenues and PAT were 18.7% and 8.4% below our expectations respectively as Sobha realised sales on only 4.5 mn sqft from its ongoing projects of 11.5 mn sqft, with the remaining projects not reaching 25% construction completion benchmark. EBITDA margin was strong at 25%, implying higher realisation per sqft. We remain positive on the strong earnings growth potential (46% CAGR over FY08E- 10E) and robustness of Sobha’s business model; reiterate BUY.
Revenue break-up
In Q1FY08, Sobha’s revenue contribution from real estate and contractual segments stood at Rs1.5bn and Rs 1.1 billion, up 48% YoY and 9% YoY respectively.
Improved margins
Sobha has shown significant improvement in its EBITDA margin at 25% against 20% in FY07. EBITDA margin for real estate and contractual business stood at 46% and 18% respectively. Sobha has been able to hike prices of its projects, with 70% of its ongoing projects in Bangalore already sold-out.
Real estate project pipeline
Till date, Sobha has completed 7mn sqft of real estate development. It has 30 ongoing projects (11.5 mn sqft) with sales value of Rs 30.1 billion (realisation of Rs 2,611/sqft) – of which Rs 24.6 billion will be booked FY08 onwards. Sobha will likely add another 9.3mn sqft of property development to its pipeline. The company is also mulling developing a high-end mall and hotel in central Bangalore.
Trissur project
Sobha has launched the phase-I of integrated township project in Trissur, spread over 57 acres with an estimated investment of Rs 8.5 billion over five years. The company is initially developing villas and apartments – it booked Rs 570 million from Trissur in Q1FY08.
Contractual business
Till date, Sobha has completed 10.1mn sqft of contractual development. The company is currently developing 34 projects aggregating 8.7mn sqft with contract value of Rs 8.2 billion, of which Rs 5.6 billion will be billed in the coming quarters based on percentage completion. Apart from this, Sobha has 16 projects in its pipeline, which aggregates to 3.2mn sqft, valued at Rs 2.2 billion. 85% of the contractual income for the quarter was contributed by Infosys against 90% in FY07.
Land bank status
Sobha’s total land bank is at 3,573.5 acres, excluding 162 acres allocated to ongoing projects. The overall cost of land bank is Rs 22.1 billion with Rs 11.8 billion already paid. The company’s land acquisition cost is attractively priced at Rs142/sqft.
Further developments
Sobha is launching a product line consisting of office furniture and household furniture in the retail market and is also exploring expansion into high-end value-added building material products. Sobha has obtained an in-principle approval from the state government of Kerala for development of the high tech city at Kochi. The company is expanding to new locations such as Coimbatore, Pune, Chennai and Mysore to increase volumes.
Outlook
In FY08E, we expect Sobha’s revenues and PAT at Rs 19.5 billion and Rs 2.6 billion respectively. The stock currently trades at FY08E and FY09E P/E of 22.1x and 16.6x with EPS estimates of Rs 36 and Rs 47.8 respectively. Our fair value estimate of Sobha’s NPV stands at Rs 96.5 billion or Rs 1,324/share. We expect the company’s PAT to grow at 46% CAGR through the next three years. Given the strong earnings momentum and discount to NAV, we reiterate BUY.
Buy HCL Technologies: ICICI Securities
ICICI Securities report on HCL Technologies:
HCL Technologies sustained its outperforming trend with another quarter of high revenue growth of 9.2% QoQ to USD 395.7 million (i-SEC estimates: USD389.5mn) in Q4FY07. Also, HCL Tech surpassed our as well as street expectations registering 46.7% QoQ growth in PAT (before ESOP charges) to Rs 4.87 billion (i-SEC estimates: Rs 3.86 billion) largely driven by higher forex gain of Rs 2.5 billion (i-SEC estimates: Rs 1.61 billion). HCL Tech registered 170bps QoQ EBITDA margin decline, lower than our estimate of 200bps QoQ. The outstanding Q4FY07 performance was driven by growth across verticals, geographies and service lines (excluding Enterprise Application Services, which registered 0.7% decline in US dollar terms).
The company has been consistently winning more of multi-service large deals, with Q4FY07 witnessing seven new deal wins. Overall, we reiterate our positive outlook on HCL Tech on the back of a total integrated services portfolio with leverage on the global delivery model, resulting in higher wallet share with clients and robust client mining. At the current market price, based on our earlier EPS (after ESOP charges) estimates (before Q4FY07 results), HCL Tech is trading at FY08E and FY09E P/E of 17.6x and 14.5x respectively, which is lower than Satyam’s FY08E P/E of 18.8x, despite traction across service lines in HCL Tech’s diversified business. We reiterate BUY.
Seven large multi-service deal wins across verticals in Q4FY07
HCL Tech has announced seven multi-service, multi-year, multi-million dollar deal wins across verticals, reassuring our belief of being a promising contender for total IT outsourcing with traction across service lines (refer our report on the technology sector: ‘Still a dazzler’, dated July 09, ’07). Table 1 indicates details of the deals bagged in Q4FY07, as per our interaction with the company.
Further, we believe that HCL Tech has bagged a multi-year, multi-million dollar dealfrom another big client in aero space, in competition with leading global and Indian IT vendors. We feel that within IT services also, HCL Tech is demonstrating its capability of winning deals across services lines (including high domain-driven complex services as well as niche IT services such as Engineering Design and R&D), verticals and geographies, further assuring us of improving predictability of revenues for HCL Tech going forward.
Conservative management expectations
With consistent large deal wins QoQ, we believe that management expectation of 30% US dollar revenue growth for FY08 is conservative. We estimate US dollar revenue growth of >35% in FY08E on the back of high growth service line IMS, IT services through total IT outsourcing deal wins and improved client mining. We believe the company would surpass expectations based on its guidance of gross addition of 25,000 employees in FY08E (similar to FY07 gross addition where US dollar revenue growth was as high as 42.4%) and expectations of increase in Non-Effort based revenues, which would contribute 35-40% in FY10 from current insignificant contribution.
EBITDA performance higher than i-SEC estimates; hedging cover further increased
HCL Tech registered EBITDA of Rs 3.5 billion versus i-SEC estimates of Rs 3.4 billion. Margin decline was lower than expected at 170bps QoQ versus our estimate of 200bps, largely due to 120bps higher SG&A as well as rupee appreciation. However, the management has indicated that margin decline through rupee appreciation is fully compensated by high forex gain (Rs 2.5 billion versus Rs 0.42 billion in Q3FY07).
The company has USD 1.16 billion worth of hedging cover as on June 30, ’07 (increased from USD 900 million as at end Q3FY07), which has increased till date. As a result, HCL Tech is now covered for the next six quarters on net forex inflows. The management is mulling to address the rupee appreciation by increasing hedging cover without compromising on investment in SG&A and operations for future growth.
Emkay - L&T, Morning Notes, ICICI - Sterlite, India update, P-Sec - Firstsource Solutions
Monday, June 25, 2007
Catagories Daily morning brief, Emkay, ICICI, P-Sec, Research Reports
ICICI BANK FPO
Friday, June 15, 2007
Follow on Public offer of ICICI
ICICI BANK FPO
ICICI - Adhunik Metalik
Tuesday, June 5, 2007
RESULTS HIGHLIGHTS
During the quarter, the company posted a marginal jump in net sales to Rs 188 crore as trading sales were lower at Rs 53.23 crore compared to Rs 65.60 crore in the corresponding quarter last year. Manufacturing sales rose from Rs 119 crore to Rs 133 crore during the same period.
The company posted a jump of 8% in steel volumes for FY07 at 228,505 tonnes against 211,207 tonnes in FY06. This along with an improved product mix towards value-added products such as rolled product and higher realizations helped it log a 74% jump in sales to Rs 735.75 crore (Rs 423.78 crore).
EBIDTA margins were flat at 17.56% (17.34%) during FY07 due to higher other expenses on account of conversion and additional freight expenses of Rs 13.18 crore and Rs 5.92 crore along with LC charges of Rs 1.67 crore, provision of Rs 2.5 crore. We expect the company to save these conversion charges after its rolling mill goes onstream in FY08.
The company doubled its net profit during the year to Rs 77.46 crore (Rs 33.70 crore) due to an improved product mix from sponge & pig Iron and billets to rolled products that offer much higher margin.
Revenue mix to improve
We expect company’s revenue to grow at a CAGR of 40.33% during FY06-09E to Rs 1171.14 crore on the back of higher contribution from high value-added products such as rolled products
and stainless steel. These products are expected to contribute 44% and 40% to top line respectively.
OTHER HIGHLIGHTS
Adhunik Metaliks has acquired 100% stake in Orissa Manganese & Minerals Private Ltd, which
has the mining rights for reserves of 15 million tonnes for manganese ore and 35 million tones for iron ore. Manganese production is expected to commence during Q2FY08 and iron ore production during Q4FY08. We expect the company to sell additional manganese & iron ore after meeting captive requirement, the full benefits of which would be realized in FY09. However, we have not included them in our estimates due to non-availability of data.
Unistar Galvanisers & Fabricators Private Ltd, a wholly-owned subsidiary of the company bagged an order worth Rs 53 crore for the manufacture and supply of complete telecommunication towers. Here also, we have have not factored in the benefits in our estimates due to lack of data, but we remain bullish on the growth prospects of the company.
VALUATIONS
We expect the company to more than double its top line and quadruple its bottom line during FY06-09E on the back of capacity expansion into high-margin, value-added products along with backward integration into critical raw material such as iron ore and coal. We believe these initiatives would result in significant de-risking of its business model. The stock has bridged the valuation differential to certain extent, but still does not capture the entire benefits from backward and forward integration.
We still find the stock very attractive at the current price of Rs 55, which trades at 3.66x FY09E EPS of Rs 15.02 and an EV/EBIDTA of 3.66x FY09E, which we feel is at the lower end of the P/E multiple band. We are upgrading our target price to Rs 75 taking a multiple of 5x its FY09 EPS, which given us an upside potential of 36% from current levels.
ICICI's - Gateway Distriparks (Pick of the Week)
Gateway Distriparks (GDL) is a one of the major private players in handling, transport and storage of containers, warehousing of cargo and various value added services provided in relation to import and export of cargo in containers. GDL is an Indo- Singapore joint venture and has been promoted by Prism International Pte Ltd. Windmill International Pte Ltd and Thakral Corporation.
The company has modern Container Freight Station's (CFS's) at Dronagiri (about 9 kms from the Jawaharlal Nehru Port), Navi Mumbai and New Manali, Chennai besides an Inland Container Depot (ICD) at Garhi Harsaru (near Delhi ), Haryana and a newly commissioned CFS at Vishakapatam (a joint venture with Suri Group).
In March 2005 the company raised Rs 79.2 crores by way of initial public offer (IPO). GDL offered 1.1 crore shares of Rs 10 each at a premium of Rs 62. In December 2005, GDL raised Rs 384.6 crore by way Global Depository Receipts (GDR) at a price of Rs 230.87 per share.
The company has recently proposed a bonus issue in ratio of 1:4.
Investment Rational
Container Freight industry to grow at a rapid pace
India container freight business is expected to grow by 4 times in the next 6-8 years to 20,000,000 Twenty Foot Equivalent Units (TEU). To capitalize on the growth opportunity, GDL has enhanced its presence by establishing Container Freight Stations (CFS) and Inland Container Depots (ICD) at strategic locations like Navi Mumbai, Vizag, Chennai, Gurgaon, Faridabad , Haryana, Ludhiana and Kochi . These CFSs and ICDs provide GDL with access to 90% of Container Freight Corridors of India and would enable it to ramp up its revenues going ahead.
Entry into cold storage to derisk business
GDL has acquired 50.1% stake in Snowman Frozen Foods Ltd (SFFL) for Rs 48 crore. The acquisition would enable GDL to forward integrate into the cold storage business and become an integrated logistics player. The acquisition would help GDL to diversify and de-risk its business by providing an additional revenue stream. GDL can also look at exploring business opportunities with other stakeholders like Mitsubishi Logistics Corporation and Nichirei Logistics Group Inc. who hold the balance stake in SFFL.
JV with Concor to transition GDL into an end-to-end rail transportation service provider
The rail freight business was recently opened to the private sector. GDL formed a subsidiary Gateway Rail Freight Pvt Ltd (GRFPL) and acquired an all India operating license from the Indian Railway for an upfront payment of Rs 50 crore. It formed a joint venture with Container Corporation (Concor) to construct and operate a rail linked ICD at Garhi, Harsaru, Gurgaon, which will connect the North Central Region (NCR) with the western ports. GRFPL will hold 51% in the joint venture while remaining 49% will be held by Concor. GDL and Concor will share the rail operations for movement of rakes from the Garhi ICD to ports equally. The joint venture would enable GDL to run rakes from the ICD, which as not allowed under the earlier agreement with Concor. The integrated services from the ICD would enable a strong growth in volumes and help GDL to become an end-to-end container rail transportation service provider. Additionally, GDL will also earn lease rentals from the land leased out to the joint venture. The improved infrastructure and decongestion of the ports would enable GDL to capitalize on the opportunity.
Better infrastructure and policy initiatives
The Government’s impetus on promoting FDI for construction of small ports at various locations will provide an impetus toExport-Import trade volumes and thus provide a boost to the container freight segment. India’s two major ports JNPT anChennai, which control 80% of the container freight business are constructing new terminals to decongest the ports. Theimproved infrastructure and decongestion of the ports would enable GDL to capitalize on the opportunity.
Concerns
Low entry barrier
The container freight business is characterized by low barrier to entry. Any player with significant investment capacity can enter the business.
Idle cash balance
The company has Rs 157 crores of fixed deposits. GDL earns an interest of 8.5% on the same.
The company has kept this cash balance to finance future acquisitions. GDL’s Return on equity will be impacted till the cash balance is not utilized.
Financials:
GDL is expected to benefit from improving infrastructure and policy initiatives like entry of private players in the rail freight business. It has also moved up the value chain through acquisitions in the cold storage business and become an integrated logistics solution provider. We expect GDL’s consolidated sales to grow from Rs 160.99 crore to Rs 240 crore and net profit
to post a 28% growth to Rs 99 crore in Fy08E. For FY09E, we expect the company to report sales of Rs 300 crore and a net profit of Rs 124 crore.
Valuations
GDL with pan-India presence and good connectivity with the major ports is well poised to take advantage of the strong growth in the container freight industry. It would be able to ramp up its volume by entering into newer areas like cold storage and rail transportation services. In addition, the company is actively scouting companies for acquisition, which would trigger further
upside in the stock. At the current price of Rs 182 the stock trades at a P/E of 16.3x FY09E EPS of 11.13 (on post bonus dilued equity of Rs 115 crore), which is at 22% discount to the average industry P/E of 20. Given the huge business potential and derisked business model we rate the stock an OUTPERFORMER with a price target of Rs 220, an upside potential of 20% in the next 6 months.
Technical Outlook
The stock has formed a long-term support at Rs 173,levels. Stock is currently trading above its 200 days moving average . On the weekly charts stock has formed the double bottom formation pattern. The MACD indicators are in the oversold zone and have a bullish crossover. On the weekly charts average volume have increase 6 times compared to the pervious week, which indicate the strong buying was witness at around 179 levels. The RSI indicators have also gained strength and remain in neutral territory. Short Term Averages are on the verge of a positive crossover. Once the stock move above Rs 187 levels, we can see it could further move up to Rs198 levels, closing above this level can further move up the stock to Rs 213 levels very soon. Medium term and long term resistances remain at Rs 193 and Rs 213 levels.
Sangam India - ICICI
During Q4FY07, EBIDTA declined to 15.16% against 20.98% in Q4FY06. SIL’s performance has been impacted due to the increase in prices of key raw materials. The company expects to pass on the cost pressure to customers and get higher realizations in the coming quarters. Margins are likely to be under pressure in the short-term due to rise in raw material prices and higher power cost. We expect margins to improve after the commissioning of the 21-MW captive power plant in July 2007. We continue to maintain our Outperformer rating as we believe that commissioning of new capacities and the power plant would enable the company report a better financial performance in FY08.
RESULTS HIGHLIGHTS
Net sales registered a growth of 51.4% y-o-y to Rs 163.34 crore and 16.4% q-o-q due to addition of new capacities, which has enabled the company to achieve accelerated growth in sales volumes.
EBIDTA margin declined by 582 bps y-o-y from 20.98% to 15.16%. A surge in the raw material-to-sales ratio from 56.58% in Q4FY06 to 62.1% in Q4FY07 and increase in power cost to sales ratio from 6.6% to 9.2% has dented the EBIDTA margin.
Interest cost has risen by 338% to Rs 6.53 crore, while depreciation has increased by 77.4% to Rs 9.95 crore respectively.
Decline in EBIDTA margins and surge in interest and depreciation charges have resulted in a de-growth of 47.2% in net profit to Rs 7.65 crore.
Short-term pressure on margins
An increase in VSF prices by 4% to Rs 93 per kg in Q4FY07 has resulted in SIL’s raw material cost-to-sales ratio increasing to 62.1% from 56.6% in Q4FY06. Power cost has increased by 109% to Rs 14.95 crore. We expect VSF prices to remain firm in the near term and the power cost to remain high for Q1FY08. Subsequently in Q2FY08, we expect power cost to come down with the commissioning of the 21-MW captive thermal power plant in July 2007. The full benefit
of the reduction in power cost would be felt in the second half of FY08, which would help the company improve its margins.
Expansions on track
SIL is implementing an expansion and diversification plan with a capital outlay of Rs 707 crore. The plan includes installation of 147,552 spindles, 140 weaving machines, 12 knitting machines, captive power plant of 21 MW and a process house. Out of the above projects, 66,912 spindles, 90 weaving machines, and 12 Knitting machines have been installed till March 31, 2007. The captive thermal power plant is expected to start in July 2007. Impact of the new additional capacities installed will be reflected in SIL’s FY08 financials.
VALUATIONS
The stock trades at a P/E of 4.6x its FY08E earnings. We are positive about the long-term prospects of the company due to timely expansions, enabling volume growth in sales, strong customer relationships and improving realizations. We believe that the company will be able to improve upon its operating margin with the commissioning of its 21 MW thermal power plant. We reaffirm our Outperformer rating on the stock and expect it to generate a return to the tune of 75% over the next 12 months with a target price of Rs 120.
Daily Calls
Friday, June 1, 2007
Margin :BUY IDBI CMP 97 Target 99.5 and 100.8 StopLoss 95.85
Margin :BUY RELCOM (RELIANCE COMMUNICATION) CMP 512.5 Target 518.8 and 522.8 StopLoss 508.1
BUY Finolex Industries - ICICI
Sunday, May 27, 2007
Demand-supply mismatch for PVC
During 2001-2006, capacity addition grew at a miniscule CAGR of 2%, whereas demand continued to surge in double digits at a CAGR of 11%. This has resulted in firm PVC prices and high capacity utilisation rates for domestic manufacturers.
Robust demand for PVC pipes
Finolex is the leader in PVC pipes with a 20% market share in the domestic organised market. PVC pipes are used for irrigation as well as in sanitation and plumbing systems in the construction sector.
Timely capacity expansions, cost reduction initiatives
Finolex has doubled its PVC resin capacity from 130,000 to 260,000 tpa in 2006 by setting up a VCM (vinyl chloride monomer)-based new facility
ICICI expects the company to report net sales of Rs 1282.50 crore in FY08 and net profit of Rs 78 crore, translating into an EPS of Rs 6.29. At the current price of Rs 78, the stock trades at a P/E multiple of 13.8x its FY07 earnings of Rs 5.64 and 12.4x its FY08E EPS of 6.29. On an EV/EBIDTA basis, the stock is available at 6.7x FY08E earnings. ICICI believes that the stock is attractively valued and set a price target of Rs 93.6, for 3-6 months, an up-side potential of a 20%
ICICIdirect Calls-24-05-2007
Thursday, May 24, 2007
Margin BUY IFCI CMP 47.55 Target 48.5 and 49.1 StopLoss 46.9
Margin :BUY UNITECH CMP 563 Target 573.5 and 578.8 StopLoss 558.1
Margin :BUY IDECEL (IDEA CELLULAR) CMP 120.5 Target 122 and 123.5 StopLoss 119.95.
ICICI Derivatives - 24-05-2007
BANK OF BARODA
Sell Bank of Baroda (BANBAR) May Futures at or Below Rs 274.15
Target 1: Rs 275
Target 2: Rs 269.75
Stop Loss : Rs 266.50
Market Lot: 1400
View:Bearish
Strategy: Short Futures
NIFTY
Buy Nifty (NIFTY) May 4200 Put at or Above Rs 33
Target 1: Rs 38.50
Target 2: Rs 42
Stop Loss: Rs 32.50
Market Lot: 50
View: Bearish
Strategy: Long Put
ICICI - Real estate sector (94 page report)
Tuesday, May 22, 2007
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ICICI - Real estate sector (94 page report)
F&O Stretagies (16-05-2007) - ICICI
Wednesday, May 16, 2007
JSW STEEL
Buy JSW STEEL May Futures at or Above Rs 613.50
Target 1: Rs 616.20
Target 2: Rs 619.50
Stop Loss : Rs 612.50
Market Lot: 550
View: Bullish
Strategy: Long Futures
RELIANCE PETROLEUM
Buy RPL May 95 Call at or Above Rs 2.90
Target 1: Rs 3.60
Target 2: Rs 4.20
Stop Loss: Rs 2.75
Market Lot: 3350
View: BullishStrategy: Long Call
ENAM - Sterlite Industries, ICICI - GAIL, Hero Honda
Thursday, May 10, 2007
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ENAM-Sterlite Industries
ICICI-GAIL, Hero Honda
KRC_Glaxo, ICICI BRIT_Asian_Paints
Wednesday, May 9, 2007
KRC_Glaxo, ICICI BRIT_Asian_Paints
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ICICI Derivative Daily, Subros
Tuesday, May 8, 2007
ICICI Derivative Daily, Subros
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Edelweiss - Oil Gas monthly update, EMKAY - Morning Meeting Notes, ICICI - (Indraprast, Wockhardt, Colgate)
Friday, May 4, 2007
Edelweiss - Oil Gas monthly update, EMKAY - Morning Meeting Notes, ICICI - (Indraprast, Wockhardt, Colgate)
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Catagories Daily Digest, Edelweiss, Emerging Markets, ICICI, Research Reports
ICICI - Indraprastha gas, ILFS - Allcargo, ILFS - I-Flex
ICICI - Indraprastha gas, ILFS - Allcargo, ILFS - I-Flex
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ICICI - Cipla, Bongaigaon Refinery, Reliance
Monday, April 30, 2007
ICICI - Cipla, Bongaigaon Refinery, Reliance
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ICICI - Clutch Auto, India Update, Man HDFC_bank, RIL Q4 FY 2006-07[1] Media Release
Thursday, April 26, 2007
Catagories ICICI, Man financial, Press Release, Research Reports
