| Summary of Contents STOCK UPDATE Ranbaxy Laboratories
Cluster: Apple Green
Recommendation: Buy
Price target: Rs500
Current market price: Rs367 Q4CY2007 results: First-cut analysis Result highlights -
Ranbaxy Laboratories reported a 5.1% revenue growth to Rs1,784.5 crore during Q4CY2007, against our expectation of Rs1,729.3 crore. As expected, the growth was affected by the appreciation in the rupee, as the growth in dollar terms was more robust at 19%. -
The growth was driven by a 24% increase in the sales to the emerging markets. India, the Commonwealth of Independent States, Romania, South Africa and Brazil were the key drivers of the growth in the emerging markets. The US business declined by 3.7% (on a high-base of Q4CY2006 when the company had recorded substantial revenues from exclusivity opportunities) to $104 million during the quarter. However, the base business (excluding the impact of the exclusivity revenues) grew by 8%. -
The operating profit margin remained under pressure during the quarter and declined by 90 basis points year on year (yoy). The decline in the margins was largely due to the increase in the material cost (due to the impact of the rising rupee, which reduced the realisations, and the high base of Q4CY2006, when the company had recorded revenues from the Simvastatin exclusivity). Consequently, the operating profit of the company declined by 3.8% yoy to Rs179.9 crore in Q4CY2007. -
The company recorded an extraordinary income of Rs4.4 crore during the quarter on account of sale of land and buildings, which boosted the net profit after extraordinary items. The pre-exceptional net profit stood at Rs183.5 crore, down by 1.3% yoy. The same was ahead of our estimate of Rs164.7 crore. -
For CY2007, Ranbaxy Laboratories' consolidated revenues grew by 20% to $1,607 million. However, due to the impact of the appreciating rupee, the growth in rupee terms was more moderate at 9.5% to Rs6, 590.4 crore. The sales reported by the company were ahead of our estimates. The net profit for CY2007 stood at Rs790.1 crore, up by 53.3% yoy. Excluding the impact of the foreign exchange gains, the net profit stood at Rs606.9 crore, a growth of 15% yoy. -
The management has guided towards a 18-20% top line growth in CY2008 and an expansion of earnings before interest, depreciation, tax and amortisation (EBIDTA) margin from 16.6% in CY2007 to 17.5-18% in CY2008, resulting in a net profit growth of 20-25% in CY2008. -
At the current market price of Rs367, the stock is discounting its estimated CY2008 earnings by 20.8x. We maintain our Buy recommendation on the stock with a price target of Rs500. Jaiprakash Associates
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs484
Current market price: Rs424 Price target revised to Rs484 Result highlights -
Jaiprakash Associates' (JP Associates) net sales for Q3FY2008 stood at Rs900 crore, down 0.2% on year-on-year (y-o-y) basis. -
Operating profit margin (OPM) for the quarter was at 24.8% against 26.8% during the same quarter last year. The OPM contracted mainly due to lower revenues and higher total expenditure, which went up 2.6% year on year (yoy). -
Other income shot up by 251.7% yoy to Rs102 crore mainly on account of dividend received from Jaiprakash Hydro Power Ltd. -
Profit after tax (PAT) was up 53% yoy at Rs156 crore on account of higher other income and lower tax rate, which was 20% for Q3FY2008 compared with 35% for the corresponding period last year. -
At the current market price the stock is trading at 75x its estimated FY2008 earnings and 74x its estimated FY2009 earnings. Though this appears to be over stretched, it should be noted that the company has huge value in its subsidiaries, investments and large build, operate and transfer (BOT) projects. We are revising our price target to Rs484. The revision is driven by the higher than expected valuations of its power generation subsidiary, Jaiprakash Power Venture Limited (JPVL) including the value of JP Associates' holding in Jaypee Hotels and Malvika Steel. We maintain our Buy call on the stock with a revised sum-of-the-parts (S-O-T-P) based fair value of Rs484. HCL Technologies
Cluster: Apple Green
Recommendation: Buy
Price target: Rs354
Current market price: Rs274 Price target revised to Rs354 Result highlights -
HCL Technologies (HCLT) has reported a revenue growth of 6.3% quarter on quarter (qoq) and 24% year on year (yoy) to Rs1,816.6 crore for the second quarter ended December 2007. In dollar terms, it has reported a sequential growth of 7.4% in its consolidated revenues to $461 million. The sequential growth in the revenues was driven by a 6.6% growth in the volumes, a 1.6% improvement in the blended realisations and a 1.3% gain from hedging. On the flip side, the revenue growth was adversely impacted by 1.1% due to lesser number of working days in Q2, by 0.8% due to the offshore shift and by 0.2% due to lower effort based pricing revenues during the quarter. -
The operating profit margin (OPM) improved by 10 basis points to 21.4% on a sequential basis due to the cumulative positive impact of higher realisations (123 basis points), hedging gains (100 basis points) and efficiency gains (69 basis points). This positive affect was however partially offset by higher overheads cost (89 basis points due to global customer meet), rupee appreciation (107 basis points) and lower working days (83 basis points). -
The healthy growth of 34.9% in the other income and lower effective tax rate resulted in an earnings growth of 7.9% qoq to Rs332.9 crore, which is ahead of the street expectations. The company realised treasury gains of $12.3 million in Q2 (as compared with $9 million in Q1). It has around $20.3 million of unrealised treasury gains on its books. In terms of accounting treatment for foreign exchange (forex) cover, the company realised net gains of $9 million in Q2, of which
$7 million was accounted for in the revenues. It has around $63 million of unrealised forex gains on its books as on December 2007. -
In terms of operational highlights, the company has signed two large deals (multi-million, multi-year) during the quarter, including a $300-million deal (the fourth deal of over $200 million in the past 24 months). The company added 2,312 employees in Q2 (5,937 in H1) and the attrition rate in the software services business declined to 15.5% (declining for the fourth consecutive quarter). It reported robust sequential growth in revenues from US geography (7.9%) and financial services vertical (14.1%) during the quarter. -
HCLT sounded more confident about the demand environment as compared with some of its peers. The management, as per its assessment, believes that the weak economic environment could put pressure on the discretionary Information technology (IT) spending in USA. But the focus is more on investing in IT solutions to improve the overall organisational efficiencies and cope up with the challenging environment (rather than cut cost as seen post the dotcom bubble bust in 2001). In fact, the management believes that certain pockets would witness an increase in discretionary IT spending due to tough economic conditions such as enterprise solutions (ERP and CRM). This is clearly reflected in the record license sales by SAP during the last quarter. -
To factor in the change in accounting for forward covers, we have fine-tuned our estimates. At the current market price the stock trades at 14.8x FY2008 and 11.6x FY2009 estimated earnings. We maintain our Buy recommendation on the stock with a revised price target of Rs354 (15x FY2009E earnings). | |
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