What's in my Portfolio

• Tamilnadu Newspaper
• UTV Software
• Zee News
• Triveni Engineering
• Deep Industries
• Pantaloon Retail
• Mphasis
• Tech Mahindra
• Canara Bank
• Bihar Tubes
• Banswara Syntex

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Monthly Call

NTPC

Current Market price: 158
Target 1: 174
Target 2: 179

Current Quote of NTPC

NTPC reported a 20% revenue growth for the quarter ended June 30, 2007 to Rs 8,969.7crore. Net profit surged by an impressive 53% to Rs 2,369.9 crore. The main driver for the sharp increase in bottom line was the fall in interest expenses on the back of Forex gain. Operational performance has also improved. Power generated increased 12% Y-o-Y to 52,019 MU. The company’s coal-based plant boasts a high PLF of 93.9% against 87.8%. In FY07, the company 3,155 MW of capacity and in the first quarter of FY08, it has further enhanced it by an additional 500 MW. Currently, the company’s total power generation capacity is 26,850 MW and under joint ventures 1,054 MW. NTPC plans to increase its power generation capacity to 50,000 MW by FY12 and 75,000 MW by FY17. Its current installed capacity of the country’s overall coal-based, gas-based and JV capacities is 82%, 14% and 4% respectively. The company also plans to increase its trading volume from 2.66 BUs to 10 BUs by 2011-12 and to 25 BUs by 2016-17. It plans to have a distribution capacity of 1,000 MW in FY12 and 2000 MW in FY17. To secure its fuel linkages, the company will have a coal mining capacity of 15 million tpa by FY12 and 47 million tpa by FY17.

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Six Month Call

Cadila Healthcare

Current Market price: 317
Target 1: 430
Target 2: 462

Current Quote of Cadila Healthcare

Cadila's restructuring initiative on its domestic formulations (54% of business revenues) has started paying off and will enable momentum going ahead and its generics seeing less focus going forward. The company's revenue traction in US markets will be strong going forward. The company is confident of crossing USD 50 million revenues in the current year. The French business has finally turned profitable and got 11 site variations in the last quarter taking the total to 17 till date. The French business clocked operating profits of EUR 85000 for the first time.

Site variation will improve the viability of the French business. The Pantaprazole intermediate business will face decline from FY 09 with patent expiries across markets in CY 2009 and US patent expiry in CY10. The company's Zydus Mayne venture will kick off from April 2008 and would compensate the profits lost due to Altana venture. The international formulations business is also gaining traction with revenues going to grow by CAGR of 28 % in FY 07-09E to Rs 6.1 billion. The main drivers in this business is expected to US, French markets which will grow from Rs 1.4billion to Rs 2.4 billion and from Rs 1.26 billion to Rs 2.14 billion respectively by FY 09E. The API export business has also turned around and is expected to contribute going ahead.

Valuation

The traction in US, France and ROW formulations markets, API markets and branded formulations markets is firmly on track. Increased US revenues and domestic API revenues are estimated while factored in marginal decline in margins on account of higher raw material cost. With a revenue and earnings CAGR of 18 % and 26 % in the FY07-09 period rating for the stock as a Outperformer with a price target of Rs 462 based on 17.5x FY 2009E.

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Target-A-Year

Bharat Forge Limited (BFL)

Current Market price: 260
Target 1: 379
Target 2: 410

Current Quote of Bharat Forge

BFL reported 17.7% rise in net sales with strong 21.3% rise in net profit for the quarter ended 4FY07. For FY07, net sales grew 18.2% in line with projected revenues and net profit by 6.4%. On consolidated basis, BFL reported 38.4% rise in net sales and 16% rise in net profit. Improving performance of subsidiaries supported the excellent performance on consolidated basis. Earning estimates are pretty positive for coming years on the back improving performance in domestic market, increasing utilization of domestic as well as acquired companies, improvement in Chinese operations and increasing contribution from non-automotive business (high value, high margin business) post capex.

FY07 Key highlights (Standalone)

Net sales spur 18.2%

BGL reported 18.2% rise in net sales to Rs1, 864.4 crore on the back of strong 21.7% increase in sales from domestic market to Rs1, 269.2 crore. Exports grew 14.6% to Rs751.3 crore. Domestic forging capacity utilization improved marginally to 76% (73%) and machining capacity is at 84%.

EBITDA margins improved

Improvement in raw material to sales ratio helped BFL to improve EBITDA margins 40 bps to 25.1%. EBITDA improved 20% to Rs 467.6 crore.

Net profit up 16.4%

The company has raised funds through FCCB and GDR to finance its acquisition and expansion project. Unutilized funds have been parked in fixed deposits and other short term investments, which generated other income of Rs 69.6 crore in full year, up 52.3%. Higher other incomes and savings in effective tax rate at 33% (34.3%) despite higher depreciation due to capital expenditure supported 16.4% rise in net profit to Rs 245.3 crore, translating into EPS of Rs10.8.

Q4FY07 performance highlights

• The 30.1% rise in domestic sales brought 17.7% rises in net sales for the period. Exports were subdued reporting marginal growth of 4.6%
• Improvement in raw material costs helped mitigate the impact of higher operational costs, EBITDA margins remained flat at 24%
• Other income improved 54% to Rs22.2 crore, however, borrowings resulted into higher interest outgo, up 50.9%
• Lower effective tax rate of 33.8%, aided net profit expansion by 21.3%, net margins improved 40 bps to 12.5%

Consolidated FY07 performance highlights

• Net sales surged 38.4% to Rs 4,178.3 crore from Rs 3,018.9 crore; revenues crossed $1 billion mark
• Higher raw material and staff costs brought EBITDA margins under pressure, dipped 200 bps to 15.2%
• BFL accounted extraordinary expenses of Rs 12.1 crore of which Rs 6.8 crore was towards reversal of export incentives and Rs 5.4 crore establishment expenses for Chinese operations
• Higher interest charges and depreciation provisions due to ongoing capex, mitigated the positive impact of higher other income, net profit margin declined to 6.8% from 8.3%. Net profit grew 16% to Rs 291.4 crore, translating into consolidated EPS of Rs 13.1. Adjusting for above mentioned extraordinary expenses, net profit grew 16.3%.
• Revenues from subsidiary companies other than Chinese joint venture – FAW Bharat Forge, soared 49.6% to Rs 2,155.2 crore. EBITDA margins were at 9.4% as against 10.1%, due to higher operating expenses
• Comparatively lower effective tax of 34% as against 43.8%, helped net profit of subsidiary companies to rise 50.4% to Rs 65.6 crore
• Chinese operations were operating at 40% of their capacity utilization and reported loss of Rs16.4 crore on revenue of around Rs 162.7 crore

Valuations

At CMP of Rs 260, the stock is trading at 31.1x and 21.7x its standalone FY08E and FY09E EPS and 22x and 15.9x its FY08E and FY09E consolidated EPS. Higher domestic capacity utilization, turnaround in various global operations and improving contribution from high margin non auto component business are key growth triggers for the company. The stock is an Outperformer with target price of Rs 410 (20x con.FY09E EPS).

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