| |
| Summary of Contents STOCK UPDATE Apollo Tyres
Recommendation: Buy
Price target: Rs210
Current market price: Rs172 Results operationally in line with estimates; maintain Buy Key points - In Q1FY2015 Apollo Tyres (Apollo) reported a strong operational performance in the domestic operations with an expansion in the GPM on both Y-o-Y and sequential bases. The OPM for the European operations contracted sequentially because of a price reduction taken and partly due to seasonality, but it remained higher than the long-term average. Additionally, due to an increase in the other income and a fall in the interest expense the net profit rose by 37.4% YoY to Rs228 crore.
- Going forward, we expect growth of the Indian operations to move to a higher trajectory from mid single digits to low double digits with a pick-up in demand and increase in supplies to the European operations. The outlook for the European operations continues to improve with further recovery in the European economy. Since natural rubber prices are expected to remain subdued we expect the OPM to remain at elevated levels.
- With the large capital expenditure the company has undertaken the gross debt level is expected to rise from the current level. However, despite an increase in the debt level, the net debt/equity ratio is expected to remain comfortable below 0.3x. We broadly maintain our earnings estimates for FY2015 and FY2016, and reiterate our Buy recommendation on the stock with an unchanged price target of Rs210.
Gateway Distriparks
Recommendation: Buy
Price target: Rs280
Current market price: Rs240 Rail division's robust performance boosts earnings, price target revised to Rs280 Key points - Gateway Distriparks Ltd (GDL)'s Q1FY2015 operating performance was boosted by the rail division, which continued to show a robust performance (EBITDA up 46% YoY and net profit up 2.4x). On the other hand, the CFS division posted a weak operating performance (EBITDA margin down 256BPS YoY and net profit down 11% YoY). Consequently, the consolidated operating profit grew by 22% YoY. Higher depreciation (due to a change in the accounting methodology) and higher interest (up 35% YoY) led the consolidated net profit before minority interest to grow by 15% YoY. A lower minority charge led the consolidated net profit after minority interest to grow at 23% YoY.
- Snowman Logistics, its cold chain subsidiary, reported a healthy growth in the revenues (up 43%) due to capacity additions. The margin of the cold chain business declined by 302BPS while higher interest and depreciation costs dented the growth in the earnings (down 65%). The company is expecting its IPO to hit the street by the end of September 2014 which is a positive trigger in terms of unlocking of the value in its subsidiaries.
- GDL continues to struggle to sustain its margins, though the demand has recovered in its CFS business (especially at JNPT). However, the uptick in Kochi and the commissioning of the Faridabad ICD facility would aid the recovery in the stand-alone operations. The management also expects the improving trend in the rail freight and cold chain subsidiaries to sustain. GDL is our preferred pick in the logistics sector (owing to a range of services, leadership position in the CFS and rail businesses, and a healthy balance sheet). Thus, we maintain our Buy rating with a revised price target of Rs280.
JB Chemicals & Pharmaceuticals
Recommendation: Buy
Price target: Rs251
Current market price: Rs196 Margin expands in Q1; we revise price target to Rs251; maintain Buy Key points - JB Chemicals & Pharmaceuticals Ltd (JBCPL) reported a 12% rise in net sales on the back of a healthy 19% growth in the Indian formulation business while the OPM expanded by 124BPS YoY to 18.4% in Q1FY2015. However, higher depreciation and taxation restricted the adjusted net profit growth to 9%.
- During the quarter, the businesses in Russia and CIS were transferred to the Dubai-based wholly-owned subsidiary. Therefore, the stand-alone Q1 results are not strictly comparable YoY. On a like-to-like basis too the company registered a healthy growth in the operating profit. The management has planned a capex of Rs140 crore for expansion of the formulation and bulk drugs facility which will help sustain the growth in the long term.
- We revise our earnings estimates upwards by 5% and 6% for FY2015 and FY2016 respectively. We also revise our price target to Rs251, which includes Rs191 for the core business (11x FY2016EPS; excluding interest income on free cash) and Rs60 for its cash value. We maintain our Buy rating on the stock.
VIEWPOINT Essel Propack
Current market price: Rs106
View: Positive International operations to boost performance; accumulate Key points - For Q1FY2015 Essel Propack Ltd (EPL) has reported a 14% revenue growth on account of a strong performance of AMESA and European operations while the OPM contracted by 150BPS YoY due to a higher raw material cost. The net profit (after adjusting for a Rs1.1-crore forex loss) grew by 19% YoY to Rs28 crore (due to a lower interest expense). During Q1FY2015, EPL improved its working capital by Rs38 crore while the net debt declined by Rs25.6 crore.
- The company is targeting a 15% revenue growth and maintained an 18% OPM guidance for FY2015. The management is confident of achieving a higher margin growth (despite the contraction in the OPM in Q1FY2015) with an improvement in the product mix, an increasing share of non-oral care category, and a turnaround in international business (strong acceleration in Poland and Mexico units). The Russian operations are expected to remain depressed due to local issues. We have conservatively estimated the OPM at 17.1% for FY2015.
- In recent times, the stock has appreciated by 23% (and touched a high of Rs118) since our Viewpoint report on the company on June 3, 2014. We remain optimistic about the company's ability to turn around its international operations, and constant efforts to deleverage the balance sheet and improve the working capital. Moreover, accelerating pace in pharma industry (India, China and Egypt) by offering laminated tubes would further support revenue growth. We expect revenues and earnings to grow at 15% and 33% CAGR over FY2014-16 respectively. The recent correction in the stock price provides an entry point to investors to accumulate the stock at the current level for 18-20% returns (rough target of Rs125-130).
| | | Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. | |
| Regards,
The Sharekhan Research Team |
This e-mail message may contain information, which is confidential, proprietary, legally privileged or subject to copyright. It is intended for use only by the individual or entity to which it is addressed. If you are not the intended recipient or it appears that this mail has been forwarded to you without proper authority, you are not authorized to access, read, disclose, copy, use or otherwise deal with it and any such actions are prohibited and may be unlawful. The recipient acknowledges that Sharekhan Limited or its subsidiaries, (collectively "Sharekhan "), are unable to exercise control or ensure or guarantee the integrity of/over the contents of the information contained in e-mail transmissions and further acknowledges that any views expressed in this message are those of the individual sender and no binding nature of the message shall be implied or assumed unless the sender does so expressly with due authority of Sharekhan . Sharekhan does not accept liability for any errors, omissions, viruses or computer problems experienced as a result of this email. Before opening any attachments please check them for viruses and defects. If you have received this e-mail in error, please notify us immediately at mail to: mailadmin@sharekhan.com and delete this mail from your records.
No comments:
Post a Comment