Ahmednagar Forgings
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs300
Current market price: Rs222
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs300
Current market price: Rs222
Price target revised to Rs300
Key points
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Ahmednagar Forgings Ltd (AFL), a subsidiary of Amtek Auto, manufactures small- and medium-sized forged components such as connecting rods, gear blanks, shafts, transmission components, flanges and hubs. AFL is a tier-1 supplier to large domestic original equipment manufacturers (OEMs) like Tata Motors, Ashok Leyland, Eicher Motors, Force Motors, Bajaj Auto and Maruti Suzuki.
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In Q4FY2007 AFL's sales grew by 52.7% to Rs150.7 crore, which was below our expectations. The profit after tax (PAT) grew by 61.9% to Rs16.6 crore in the same quarter. The profit growth was lower mainly due to the slowdown in the domestic market and the impact of the strengthening rupee on its exports.
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For the fiscal ended June 2007, the company has reported a 59.9% growth in its net sales to Rs600.3 crore and a 75.3% growth in its net profit to Rs68.2 crore against our expectations of Rs67.5 crore of PAT.
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Though the company has a strong order book, we would like to take a cautious view on the domestic sales in FY2008 in light of the slowdown in the OEM segment. The outlook on the exports remains bullish with the commencement of the additional lines and increase in the utilisation levels. However, the margins may be hit due to rupee appreciation as around 40% of its exports are in US dollar terms.
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Considering the slowdown in the domestic market and the delay in commencement of the export lines, we are downgrading our FY2008 earnings per share (EPS) estimate by 30% from Rs36.5 to Rs25.3 and introducing our EPS estimate for FY2009 at Rs32.2. At the current market price of Rs222, the stock trades at attractive valuations of 6.9x its FY2009E earnings and an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 4.4x. We maintain our Buy recommendation on the stock with a slightly reduced price target of Rs300.
Ahmednagar Forgings Ltd (AFL), a subsidiary of Amtek Auto, manufactures small- and medium-sized forged components such as connecting rods, gear blanks, shafts, transmission components, flanges and hubs. AFL is a tier-1 supplier to large domestic original equipment manufacturers (OEMs) like Tata Motors, Ashok Leyland, Eicher Motors, Force Motors, Bajaj Auto and Maruti Suzuki.
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In Q4FY2007 AFL's sales grew by 52.7% to Rs150.7 crore, which was below our expectations. The profit after tax (PAT) grew by 61.9% to Rs16.6 crore in the same quarter. The profit growth was lower mainly due to the slowdown in the domestic market and the impact of the strengthening rupee on its exports.
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For the fiscal ended June 2007, the company has reported a 59.9% growth in its net sales to Rs600.3 crore and a 75.3% growth in its net profit to Rs68.2 crore against our expectations of Rs67.5 crore of PAT.
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Though the company has a strong order book, we would like to take a cautious view on the domestic sales in FY2008 in light of the slowdown in the OEM segment. The outlook on the exports remains bullish with the commencement of the additional lines and increase in the utilisation levels. However, the margins may be hit due to rupee appreciation as around 40% of its exports are in US dollar terms.
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Considering the slowdown in the domestic market and the delay in commencement of the export lines, we are downgrading our FY2008 earnings per share (EPS) estimate by 30% from Rs36.5 to Rs25.3 and introducing our EPS estimate for FY2009 at Rs32.2. At the current market price of Rs222, the stock trades at attractive valuations of 6.9x its FY2009E earnings and an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 4.4x. We maintain our Buy recommendation on the stock with a slightly reduced price target of Rs300.
Federal-Mogul Goetze (India)
Cluster: Emerging Star
Recommendation: Book Out
Current market price: Rs148
Cluster: Emerging Star
Recommendation: Book Out
Current market price: Rs148
Book out
Key points
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Federal Mogul Goetze Ltd's (FMGI) performance was much below our expectations. For H1CY2007, the sales grew by 34% to Rs296 crore, however the profit was below our expectations. Despite the fact that the company made a turn around from a loss making company to a profit making company, the profit margin was much below our expectations.
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There was a substantial delay in the ramp up of the exports to the parent company. The export profitability has also been affected by rupee appreciation.
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FMGI has high exposure to the medium and heavy commercial vehicle (M&HCV) and the two-wheeler segments. The two segments were hit the most due to a slowdown in the domestic market as a consequence of the high base of last year and due to the rise in the interest rates.
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Higher costs of raw materials such as aluminium and nickel affected the earnings before interest, tax, depreciation and amortisation (EBITDA) margin. The company was unable to pass on the rising raw material cost to the full extent due to a slowdown in the domestic vehicle sales.
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The rights issue was to help the company to improve its capital structure and financial gearing has been delayed by more than six months. The price band of the proposed rights issue has been revised downwards leading to a 25-30% higher equity dilution than our estimates. Consequently, the profits have been affected by a higher interest cost. The higher dilution will impact the earnings.
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The company's management has revised its guidance downwards for 2008E. The profit before tax (PBT) guidance has been revised down to Rs30 crore in June 2007 from Rs100 crore in September 2006, in a span of just nine months for the reasons discussed above.
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In view of all the above-mentioned disappointing factors, we advise investors to book out of the stock.
Federal Mogul Goetze Ltd's (FMGI) performance was much below our expectations. For H1CY2007, the sales grew by 34% to Rs296 crore, however the profit was below our expectations. Despite the fact that the company made a turn around from a loss making company to a profit making company, the profit margin was much below our expectations.
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There was a substantial delay in the ramp up of the exports to the parent company. The export profitability has also been affected by rupee appreciation.
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FMGI has high exposure to the medium and heavy commercial vehicle (M&HCV) and the two-wheeler segments. The two segments were hit the most due to a slowdown in the domestic market as a consequence of the high base of last year and due to the rise in the interest rates.
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Higher costs of raw materials such as aluminium and nickel affected the earnings before interest, tax, depreciation and amortisation (EBITDA) margin. The company was unable to pass on the rising raw material cost to the full extent due to a slowdown in the domestic vehicle sales.
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The rights issue was to help the company to improve its capital structure and financial gearing has been delayed by more than six months. The price band of the proposed rights issue has been revised downwards leading to a 25-30% higher equity dilution than our estimates. Consequently, the profits have been affected by a higher interest cost. The higher dilution will impact the earnings.
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The company's management has revised its guidance downwards for 2008E. The profit before tax (PBT) guidance has been revised down to Rs30 crore in June 2007 from Rs100 crore in September 2006, in a span of just nine months for the reasons discussed above.
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In view of all the above-mentioned disappointing factors, we advise investors to book out of the stock.
Network 18 Fincap
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs651
Current market price: Rs411
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs651
Current market price: Rs411
Files amended rights issue document
Key points
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After the transfer of Studio18's business to Viacom18, Network18 has filed the amended draft offer document for its rights issue. The old draft document stated the earlier objects of the issue to raise a part of the funds for film projects under Studio18.
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We maintain our valuation of the right issue at Rs133.6 per share.
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Network18 proposes to use a part of the rights issue proceeds towards capex on television content production. We believe, the investment in content production business will cater to the content requirements of the forthcoming channels of Viacom18.
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HomeShop18 is going great guns with business spreading over 2000, towns and cities across India, and with average sales of approximately 20 lakh per day just a few months after its launch. A full-fledged home shopping channel is in the offing.
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Issue of preferential warrants in TV18 and GBN will lead to increase in Network18's holding in TV18 to 53.3% and in GBN to 45.1%.
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We maintain our buy recommendation on the stock based on our sum-of-the-parts price target of Rs651.
After the transfer of Studio18's business to Viacom18, Network18 has filed the amended draft offer document for its rights issue. The old draft document stated the earlier objects of the issue to raise a part of the funds for film projects under Studio18.
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We maintain our valuation of the right issue at Rs133.6 per share.
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Network18 proposes to use a part of the rights issue proceeds towards capex on television content production. We believe, the investment in content production business will cater to the content requirements of the forthcoming channels of Viacom18.
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HomeShop18 is going great guns with business spreading over 2000, towns and cities across India, and with average sales of approximately 20 lakh per day just a few months after its launch. A full-fledged home shopping channel is in the offing.
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Issue of preferential warrants in TV18 and GBN will lead to increase in Network18's holding in TV18 to 53.3% and in GBN to 45.1%.
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We maintain our buy recommendation on the stock based on our sum-of-the-parts price target of Rs651.
Apollo Tyres
Cluster: Apple Green
Recommendation: Buy
Price target: Rs47
Current market price: Rs39
Cluster: Apple Green
Recommendation: Buy
Price target: Rs47
Current market price: Rs39
Price target revised to Rs47
Key points
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A strong demand for tyre replacement in the commercial vehicle (CV) segment is triggering a healthy growth for Apollo Tyres, which is the market leader in this segment.
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We expect Apollo Tyres to be one of the top performers in the coming Q2FY2008 results. We expect the revenues of the company to grow by 8.5% and the profit to rise by 99.4% for the forthcoming quarter.
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With improved performance of its subsidiary Dunlop as a result of better utilisation, price hikes and debt restructuring the consolidated picture for the company looks even better.
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We maintain our positive outlook on the company considering strong growth potential and sustainable margins. We are revising upwards our earnings estimates for the company by 5.3% for FY2008 and by 10.5% for FY2009. We maintain our Buy recommendation on the stock with a revised price target of Rs47.
A strong demand for tyre replacement in the commercial vehicle (CV) segment is triggering a healthy growth for Apollo Tyres, which is the market leader in this segment.
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We expect Apollo Tyres to be one of the top performers in the coming Q2FY2008 results. We expect the revenues of the company to grow by 8.5% and the profit to rise by 99.4% for the forthcoming quarter.
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With improved performance of its subsidiary Dunlop as a result of better utilisation, price hikes and debt restructuring the consolidated picture for the company looks even better.
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We maintain our positive outlook on the company considering strong growth potential and sustainable margins. We are revising upwards our earnings estimates for the company by 5.3% for FY2008 and by 10.5% for FY2009. We maintain our Buy recommendation on the stock with a revised price target of Rs47.
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