India Cements

CHENNAI-BASED India Cements seems to have missed out the current rally on the Dalal Street. It gained just 27.5% since the beginning of March ’09, compared with a nearly 101% jump in the Sensex during this period.

India Cements is now one of the cheapest stocks under various valuation metrics — be it price-to-book value, price-to-earnings multiple. For instance, India Cements trades at just 1.2 times its book value. In contrast, Shree Cements with a focus on northern markets, trades at 4.6 times its book value, while UltraTech cement, which also has a presence in the south, trades at 2.85 times its book value. Also, the dividend yield of India Cements at 1.6%, is higher than that of Shree Cement and UltraTech cement.

The Street has been concerned that south-based players like India Cements could grapple with weakening price realisations in future. That’s because the cement capacity in the region is expected to rise from 78 million tonnes in FY 09 to nearly 120 million tonnes in FY 12, and demand growth is expected to be much slower. During the monsoon season there was strong price correction in some southern markets.

However, India Cements has been attempting to diversify its presence beyond the southern markets, and in April 09, it had brought on stream a one million tonne cement grinding unit capacity in Maharashtra. The company is expected to add nearly Rs 350 crore to its net sales in FY 10 from this plant. Long- term investors have recognised this shift in the strategy and there has been a steady increase in delivery trades.

CAPACITY& CAPEXPLANS:

India Cements’ installed capacity at the end of FY 09 was 12.95 million tonnes compared with 8.81 million tonnes a year earlier. As part of this expansion during FY 08, a grinding unit with a capacity of one million tonnes at Chennai was completed in August 2008.

In last two years, the company had invested nearly Rs 1,960 crore in capacity expansion. This expansion has been funded largely through internal accruals. India Cements is expected to end FY10 with a capacity of 14.3 million tones. In the first quarter, it commissioned additional grinding capacity at its Malkapur facility and is working on the upgradation of its kiln at Chilamakur, Andhra Pradesh. And despite this capex programme, its debt to equity ratio was at 0.68 at the end of FY 09, compared with 0.96 a year earlier. It had cash flows of Rs 706 crore in FY 09 and Rs 1,017 crore in FY 08. The company is also building two captive power plants of 50 MW each, at its facilities in Tamil Nadu and Andhra Pradesh, at a cost of nearly Rs 500 crore.

Recently, the company along with its wholly-owned subsidiary, ICL Financial Services, had launched an open offer for Indo Zinc, a loss-making zinc producer. Indo Zinc was implementing a project for setting up a cement plant in Rajasthan with a capacity of 1.5 million tonnes, but this project will now be implemented by India Cements. The cost of setting up this plant in the north along with captive power facilities, is estimated at Rs 600 crore. India Cements had recently raised Rs 592.5 crore via a QIP for its expansion plans. India Cements also owns an IPL team and has a presence in the shipping industry, with small vessels operating in the dry bulk segment. However, the contribution of the non–cement business was very small to its total net sales.

FINANCIALS:

During the June 09 quarter, India Cements operating profit margin declined 500 basis points y-o-y to 30.5% and that’s despite a 9.6% y-o-y growth in its net sales to Rs 960.25 crore. Pressure on its operating profit margins was due to its power & fuel costs that rose nearly 21.4 % y-o-y to Rs 1,011 per tonne, and it offset the 7.8 % growth in cement realisations on per tonne basis.

Stock views on Glenmark Pharma, Shree Cements, Bharat Electronics

Asit C. Mehta on Bharat Electronics - Target Rs 1037

Asit C. Mehta has initiated a buy rating on Bharat Electronics with a target price of Rs 1037 in its research report. "We have valued the stock using the price to book value multiple. Historically, the stock has traded at a discount of approximately 30% to the price to book value multiple of its foreign peers. This could be mainly due to the large size of its peers. Therefore we have assigned a Price /Book Value multiple of 1.8 (which is consistent with the valuation of its foreign peers) to the FY10 book value of Rs.579.5. We, therefore initiate coverage on Bharat Electronics Ltd with a “BUY” recommendation for a target price of Rs 1037," says Asit C. Mehta's research report.


SKP Securities on Shree Cements - Target Rs 900

SKP Securities has maintained its buy rating on Shree Cements with a target of Rs 900 in its research report. "Net sales were up by 25.6% to Rs 665.4 crores in Q3FY09 over Q3FY08. PAT up by 269% on y-o-y basis at Rs 129.3 crores in Q3FY09. We maintain our BUY recommendation on the stock with a target price of Rs 900 at 8x FY10E earnings in 12 months against the current valuation of 4.5x FY10E earnings," says SKP Securities' research report.


ULJK Securities on Glenmark Pharma - Target Rs 191

ULJK Securities has maintained its buy rating on Glenmark Pharma with a target of Rs 191 in its research report. "Net revenue of Rs 5813.9 million was 39% short of our estimate while EBITDA saw a sharp decline of 47% YoY mainly on account of sharp currency devaluation and delay in US product approvals. We believe that the company’s growth will be hampered because of global slowdown and increasing interest rate scenario. We cut our EPS target for FY10 by 27% and reiterate a Buy with a target price of Rs 191 (from Rs 430)," says ULJK Securities' research report

SKP Securities views on TIL, Shree Cements

TIL - Target Rs 300

SKP Securities has recommended a buy rating on TIL with a target price of Rs 300 in its October 29, 2008 research report. "Net sales were up by 49.69% for Q2FY09 at Rs 264.12 crores. PAT was up by 49.02% y-o-y at Rs 9.12 crores. At the current level of Rs 156.60, TIL is trading at 3.14 x FY10E earnings of Rs 49.91. We are revising our price target and recommend a BUY to the stock with a target price of Rs 300 at 6 x FY10E earnings, giving it an upside potential of 92%," says SKP Securities' research report.

Shree Cements - Target Rs 900

SKP Securities has recommended a buy rating on Shree Cements with a 6-month target price of Rs 900 in its October 22, 2008 research report. "Profit after Tax (PAT) is marginally up by 1.19% at Rs. 107.49 crores in Q2FY09 compared to the same period last year. The fall was largely due to increase in interest costs (up by 97.28%, due to the debt taken for capex). However, tax rate was lower to 21.10% in Q2FY09 from 30.59% in Q2FY08. This helped the company to to post a positive growth. We recommend a BUY on the stock with a 6 months target price of Rs 900 at 8x FY10E earnings, giving it an upside potential of 78%," says SKP Securities' research report.

Stock views on Shree Cements, Zuari Inds, Patel Engg

Angel Broking on Patel Engg - Target Rs 316

Angel Broking has recommended a buy rating on Patel Engineering, with price target of Rs 316, in its report dated October 17, 2008. "Patel Engineering (PE) registered steady growth for 2QFY2009. Consolidated Sales were in line with our expectations increasing by 30% yoy to Rs 442 crore (Rs 339 crore) on the back of a strong order book of Rs 6,301 crore. For 1HFY2009, growth was tad better at 33% to Rs 1,000 crore (Rs 754 crore). Patel Engineering posted a Net Profit growth of 20% for 2QFY2009 to Rs 42.6 crore (Rs 35.5 crore) in line with our estimates."

"We expect the company to grow at a CAGR of 25% over the next two years and it would be one of the few players to stand tall on the Margin front especially amidst the prevailing high commodity price and rising Interest rate regime. At the CMP of Rs 177, the stock is trading at 9.8x FY2009E and 6.9x FY2010E EPS of Rs 18 and Rs 25.5 respectively, on Standalone basis. We maintain a Buy on the stock, with a Target Price of Rs 316 (Rs 418)," says Angel Broking's report.

HDFC Securities on Zuari Inds - Target Rs 482

HDFC Securities has maintained its buy rating on Zuari Industries with a target of Rs 482 in its October 21, 2008 research report. "In H1FY09 Zuari’s profits increased 78% YoY to Rs 776 million. But, as the management was unavailable to comment, we haven’t revised our estimates for FY09E & FY10E. Valuations remain compelling."

"At the CMP, even if 60% of the profits are maintained in H2FY09, the standalone business is available at 4.3x FY09E EPS. Above this, for the full year, we expect Zuari’s JV Paradeep Phosphate (50% holding) to report a PBT of Rs 5 billion, which is equal to Zuari’s current market cap. We maintain BUY but with a modest price target of Rs 482 (adjusted for current market value of investments) from Rs 510 earlier," says HDFC Securities' research report.

HDFC Securities on Shree Cements - Target Rs 803

HDFC Securities has maintained its buy rating on Shree Cements (SCM) with a target of Rs 803 in its October 7, 2008. "We expect the earnings of SCM to grow at a CAGR of 17% over FY08 to FY10E. We have valued the company on 4x FY09E EV/EBITDA, which gives us a target price of Rs 803 per share, an upside of 62% over its CMP. At our target price of Rs 803, the stock will trade at 6.4x FY09E and 7.8x FY10E EPS. We maintain BUY rating on the stock," says HDFC Securities' research report.

Karvy views on Ambuja Cements, Andhra Bank, Bank of India, Shree Cements, PVR

Buy PVR, target of Rs 260

Karvy Stock Broking has maintained its buy rating on PVR with a revised target price of Rs 260 in its August 8, 2008 research report. "PVR declared its 1Q FY09 results which were above our expectations. Net sales grew by 10.4% YoY as against our estimates of a 0.4% in 1Q FY09. This was majorly on account of higher than expected income from advertising and royalty. The net profit for 1Q FY09 declined by 35.3% YoY and grew by 43.7% QoQ as against our expectations of a decline of 61.7% YoY and decline of 14.8% QoQ."

"Considering the foray of PVR into new and promising businesses of production & distribution and lifestyle entertainment and subsequent de-risking of the exhibition business we believe that PVR will emerge as one of the better and stronger players in the multiplex industry. We have valued PVR at 13x FY10E earnings and 1.1x FY2010 sales. Subsequently, we have increased our price estimate on the company from Rs 230 to Rs 260 maintaining our BUY rating on the stock at current levels," says Karvy's research report.

Buy Shree Cements, target of Rs 733

Karvy Stock Broking has recommended a buy rating on Shree Cements with a target price of Rs 733 in its July 16, 2008 research report. "We expect net sales for the quarter ended June'08 would increase by 44.1% yoy to Rs 6.13bn driven by 26.6% growth in despatches and 11.2% growth in realization."

"SCL is currently trading at PER of 5.6x and EV/EBIDTA multiple of 3.3x on FY10E earnings. We had valued the ICL on 4x FY10E EV/EBIDTA and rate the company as BUY with price target of Rs 733," says Karvy's research report.

Buy Bank of India, target Rs 443

Karvy research has maintained buy rating on Bank of India with target price of Rs 443 in its July 17, 2008 report. "In 1st Q FY09, BoI's advances and deposits are expected to grow at 35% and 32% (Y-o-Y); the volume-led growth would result into 32% (Y-o-Y) jump in NII to Rs 12.5 billion. Estimated 24% growth in total other income on the back of fee-income growth and cost containment would lead to 36% growth in operating profit before provisions. Strain on net interest margin, significant de-growth treasury income and higher investment depreciation provisions of Rs 850 million would result in the bank's bottomline grow by 25% (Y-o-Y) to Rs 3.96 billion. The current stock price discounts FY2010 adjusted book value at 0.97x; we rate the stock as a BUY with a price target of Rs 443 at 1.88x adjusted book value FY2010" according to Karvy report.

Buy Andhra Bank, target Rs 108

Karvy research has maintained buy rating on Andhra Bank with target prie of Rs 108 in its July 17, 2008 report. "In 1st Q FY09, we assume that the Andhra Bank's advances and deposits would grow by 24% and 26.3% (Y-o-Y). The bank's net interest income (NII) would grow marginally by 2.5% (Y-o-Y) to Rs 3.7 billion and operating profit before provisions would grow by 6.3% (Y-o-Y) to Rs 2.37 billion. Higher depreciation provisions on investments of Rs 550 million would led to 18.8% (Y-o-Y) decline in net profit to 1.14 billion. Strain on net interest margin would be due to lower CASA share, higher cost of funds and lower yield on advances. We expect healthy growth in total fee income but treasury income could report degrowth. Total net income is expected to grow by 5.6% (Y-o-Y) to Rs 5.0 billion. At current market price, the stock is available at 0.65x ABV FY2010; we rate the stock as a BUY with a price target of Rs 108 at 1.34x adjusted book value FY2010" according to Karvy report.

Ambuja Cements an outperformer

Karvy Stock Broking has rated Ambuja Cements as an outperformer with a target price of Rs 101 in its July 16, 2008 research report. "For the quarter ending June 08, we expect the net sales would go up by 6.6% yoy to Rs 15.6 billion. Volume has shown a muted growth of 1.4% to 4.44 million tones due to export ban. Average realization would go up by 5.2% to Rs 3517 per tones."

"At the current market price of Rs 79 the company is trading at PER multiple of 10.2x and EV/EBIDTA multiple of 6.1x on CY09E earnings. We had valued the company on EV/EBIDTA multiple of 7.5x and rate the company as an outperformer with price target of Rs 101," says Karvy's research report.