ViJiT
Vijith Pujari
STOCK UPDATE
Maruti Udyog
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,050
Current market price: Rs941
Exports to rise
Maruti Udyog Ltd (MUL) has increased its investment outlay by Rs3,000 crore. It also plans to launch a new small car by 2008. We view these developments in positive light as the same reinforce Suzuki's focus on India and its endeavour to make it an outsourcing hub. As a result, we anticipate a surge in the company's exports in the coming years.
Satyam Computer Services
Cluster: Apple Green
Recommendation: Buy
Price target: Rs900
Current market price: Rs797
Growth on track
The management of Satyam was quite confident of maintaining the strong growth momentum shown in the past couple of years, due to the robust demand environment, strong positioning in fast growing enterprise solution business, incremental revenues from the large deals and tapping the emerging opportunity in newer service offerings (like BPO, infrastructure management and engineering services). The cost pressures would continue but the management has levers to cushion the impact on the overall profitability so that the margin stabilises going forward.
At the current price the stock trades at 19.4x FY2007 and 16x its FY2008 estimated earnings. We maintain our Buy recommendation with price target of Rs900.
NIIT Technologies
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs296
Current market price: Rs196
A joint venture with Adecco
NIIT Technologies Ltd (NTL) has announced a joint venture with Switzerland-based Adecco SA. The joint venture would be known as Adecco-NIIT Private Ltd and will be based in India. It would have an equity capital of $3 million with equal participation from both the partners (ie 50% holding each).
Adecco is a Fortune 500 company with annual revenues of around 18 billion euros. It is a global leader in human resource (HR) services that involves providing flexible staffing and career resources to a large client base across 70 countries globally.
Cipla
Cluster: Cannonball
Recommendation: Buy
Price target: Rs300
Current market price: Rs254
Highlights of AGM
With an implied growth in excess of 33%, Cipla continues its impressive performance. It has been a consistent performer with a sales compounded annual growth rate (CAGR) of over 26% and a net profit CAGR of over 40% over the past 3 years. The performance seems even more impressive as the growth has been purely organic, as the company has not resorted to any acquisitions and dilution of equity so far. With a large product portfolio and presence in over 170 markets across the world, Cipla is not hugely dependent on any one geographical area for its revenues. The company has a strong generic pipeline of over 75 products, a majority of which is yet to be commercialised. Cipla’s unique partnership model has enabled it to record a steady growth in a challenging and competitive environment.
Even though the management has guided towards a subdued growth of 15-18%, we believe that Cipla will surpass this and grow at 23-25% in FY2007. The company’s aggressive capex plans reinforces our stance. We maintain our positive outlook on the stock. At the current price of Rs254, Cipla is quoting at 26.0x FY2007E and 21.1x FY2008E estimated earnings. We maintain our Buy recommendation on the stock with a price target of Rs300.
Aditya Birla Nuvo
Cluster: Apple Green
Recommendation: Buy
Price target: Rs836
Current market price: Rs733
Idea stake sale detrimental to earnings
We believe the pruning of the stake in Idea Cellular is positive for the earnings performance and financial health of ABN in the short term and medium term.
1.
Every rise in proportionate stake sale has a positive impact on the earnings. For instance, earnings in FY2007E will grow by 0.8%, 1.6% and 2.4% in stake sale of 5%, 10% and 15% respectively (from base case). In FY2008E, the earnings will grow by 1.3%, 2.6% and 3.9% in stake sale of 5%, 10% and 15% respectively.
2.
Assuming that the proceeds of the stake sale will be utilised to repay debt in all scenarios, the debt/equity ratio will certainly drop to comfortable levels. For instance, the debt-equity ratio in FY2007E will come down to 1.8x, 1.6x, 1.3x considering a stake sale of 5%, 10% and 15% respectively. In FY2008E, the debt-equity ratio will come down to 1.7x, 1.4x, 1.2x considering a stake sale of 5%, 10% and 15% respectively.
3.
With a reducing debt burden and a subsequent drop in the interest cost, the coverage ratios will get stronger. The impact shall be higher on FY2008E earnings as we have considered only a 90-day benefit in FY2007E owing to the conclusion of the deal during December 2006.
Maruti Udyog
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,050
Current market price: Rs941
Exports to rise
Maruti Udyog Ltd (MUL) has increased its investment outlay by Rs3,000 crore. It also plans to launch a new small car by 2008. We view these developments in positive light as the same reinforce Suzuki's focus on India and its endeavour to make it an outsourcing hub. As a result, we anticipate a surge in the company's exports in the coming years.
Satyam Computer Services
Cluster: Apple Green
Recommendation: Buy
Price target: Rs900
Current market price: Rs797
Growth on track
The management of Satyam was quite confident of maintaining the strong growth momentum shown in the past couple of years, due to the robust demand environment, strong positioning in fast growing enterprise solution business, incremental revenues from the large deals and tapping the emerging opportunity in newer service offerings (like BPO, infrastructure management and engineering services). The cost pressures would continue but the management has levers to cushion the impact on the overall profitability so that the margin stabilises going forward.
At the current price the stock trades at 19.4x FY2007 and 16x its FY2008 estimated earnings. We maintain our Buy recommendation with price target of Rs900.
NIIT Technologies
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs296
Current market price: Rs196
A joint venture with Adecco
NIIT Technologies Ltd (NTL) has announced a joint venture with Switzerland-based Adecco SA. The joint venture would be known as Adecco-NIIT Private Ltd and will be based in India. It would have an equity capital of $3 million with equal participation from both the partners (ie 50% holding each).
Adecco is a Fortune 500 company with annual revenues of around 18 billion euros. It is a global leader in human resource (HR) services that involves providing flexible staffing and career resources to a large client base across 70 countries globally.
Cipla
Cluster: Cannonball
Recommendation: Buy
Price target: Rs300
Current market price: Rs254
Highlights of AGM
With an implied growth in excess of 33%, Cipla continues its impressive performance. It has been a consistent performer with a sales compounded annual growth rate (CAGR) of over 26% and a net profit CAGR of over 40% over the past 3 years. The performance seems even more impressive as the growth has been purely organic, as the company has not resorted to any acquisitions and dilution of equity so far. With a large product portfolio and presence in over 170 markets across the world, Cipla is not hugely dependent on any one geographical area for its revenues. The company has a strong generic pipeline of over 75 products, a majority of which is yet to be commercialised. Cipla’s unique partnership model has enabled it to record a steady growth in a challenging and competitive environment.
Even though the management has guided towards a subdued growth of 15-18%, we believe that Cipla will surpass this and grow at 23-25% in FY2007. The company’s aggressive capex plans reinforces our stance. We maintain our positive outlook on the stock. At the current price of Rs254, Cipla is quoting at 26.0x FY2007E and 21.1x FY2008E estimated earnings. We maintain our Buy recommendation on the stock with a price target of Rs300.
Aditya Birla Nuvo
Cluster: Apple Green
Recommendation: Buy
Price target: Rs836
Current market price: Rs733
Idea stake sale detrimental to earnings
We believe the pruning of the stake in Idea Cellular is positive for the earnings performance and financial health of ABN in the short term and medium term.
1.
Every rise in proportionate stake sale has a positive impact on the earnings. For instance, earnings in FY2007E will grow by 0.8%, 1.6% and 2.4% in stake sale of 5%, 10% and 15% respectively (from base case). In FY2008E, the earnings will grow by 1.3%, 2.6% and 3.9% in stake sale of 5%, 10% and 15% respectively.
2.
Assuming that the proceeds of the stake sale will be utilised to repay debt in all scenarios, the debt/equity ratio will certainly drop to comfortable levels. For instance, the debt-equity ratio in FY2007E will come down to 1.8x, 1.6x, 1.3x considering a stake sale of 5%, 10% and 15% respectively. In FY2008E, the debt-equity ratio will come down to 1.7x, 1.4x, 1.2x considering a stake sale of 5%, 10% and 15% respectively.
3.
With a reducing debt burden and a subsequent drop in the interest cost, the coverage ratios will get stronger. The impact shall be higher on FY2008E earnings as we have considered only a 90-day benefit in FY2007E owing to the conclusion of the deal during December 2006.