Moser Baer
Research: JP Morgan
Rating: Underweight
CMP: Rs 274.70
JP Morgan rates Moser Baer as 'underweight'. Moser Baer reported muted Q2 FY08 results with 5% QoQ decline in revenue and 70 bps drop in EBITDA margins. This was despite the fact that Moser benefited from a refund of duties in Europe, excluding which, sales declined 8% QoQ and EBITDA margins fell 3% QoQ. Optical media volumes fell 8% QoQ with 8% QoQ decline in average selling price (ASP). Overall, net profit fell 66% QoQ to Rs 3.3 crore. The management expects a volume pick-up in H2 FY08, but expects subdued pricing especially in DVDR as Philips has cancelled licenses for major optical media manufacturers. JP Morgan expects margins to remain weak. During the quarter, the photovoltaic (PV) business generated revenues of $12 million with net level break-even. The management expects PV revenues of $80-100 million and margins may improve through the year, stabilising at ~20%. By adding the entertainment business to the estimates, JP Morgan expects decent 80+% volume CAGR over the next 2-3 years with sharp margin improvement. However, Moser will take at least three years to recover its initial investment of $100 million.
Ranbaxy Laboratories
Research: Merrill Lynch
Rating: Buy
CMP: Rs 411.70
Merrill Lynch maintains 'buy' rating on Ranbaxy Labs. Last week, the company announced it has settled the patent infringement suit with Astellas/Boehringer Ingelheim on generic Flomax, which allows launch of the generic in March '10 with 180-day exclusivity. Merrill Lynch views this development as a significant positive and estimates over $200 million revenues and $120 million one-off profits during the six-month period. This implies Rs 20 NPV per share, assuming limited 40% discount, delayed authorised generic entry and 50% market share for Ranbaxy. The company expects to continue pursuing this strategy of monetising on its pipeline of first-to file (FTF) opportunities. Based on this, Merrill Lynch sees visibility on several FTF launches for the next three years. These include: (a) Possible Para IV launch/settlement in '08 (not yet announced); (b) Generic Valtrex in '09 (Rs 18-20 NPV); and (c) Generic Lipitor in the US in '10 (Rs 30-35 NPV). Merrill Lynch estimates robust core earnings growth of 40.5% in CY07E and 20.5% in CY08E (Rs 22.7), driven by higher growth and EBITDA margins from the US and emerging markets. There is possibility of 30%+ EPS upside in CY08E from generic Lipitor launch in Canada and possible R&D milestones from GSK.
Gitanjali Gems
Research: Morgan Stanley
Rating: Overweight
CMP: Rs 375.30
Morgan Stanley initiates coverage on Gitanjali Gems with an 'overweight' rating. The company is a pioneer in branded jewellery and is leveraging its brand equity to drive growth in the retail market. On excluding the value of the company's real estate business from its CMP, standalone jewellery valuation looks cheap at 9x FY09E earnings, given 80%+ growth (FY06-07) in branded jewellery. The company is set to benefit from a shift in consumer buying patterns towards branded and diamond jewellery. Morgan Stanley expects jewellery retail and exports to grow by 46% and 40%, respectively, at the top line and by 78% and 43%, respectively, at the operating profit level over FY07-FY10. The company is likely to deliver 51% growth in earnings during FY07-10. Morgan Stanley values the jewellery business at Rs 417/share and the real estate business at Rs 130/share.
Maruti Suzuki
Research: CLSA
Rating: Buy
CMP: Rs 1,049.45
CLSA assigns 'buy' rating on Maruti Suzuki. The company believes the domestic car market will continue to see strong secular growth in coming years at ~15% CAGR and will hit 2 million units by '10. Maruti will launch two new compact segment cars in Q3 FY09. These will include the recently unveiled small car 'Splash' and a new small car called 'A Star'. The 'A Star' has been designed for the export markets. 50,000 units of the 'A Star' will be contract manufactured for Nissan, while another 100,000 units will be exported to Europe under the Suzuki badge. 'A Star' will also be launched in India. These launches, together with the expected launch of the 'Swift' sedan, will drive volume growth for Maruti in FY09-10. With this, Maruti's export volumes will hit 200,000 units in FY10 from 55,000 units in FY08. However, margins on these exports will be lower than existing export margins. Maruti aims to transform itself into a complete pan-segment car manufacturer in coming years and new launches in future will reflect this. Maruti and Suzuki plan to invest $2.2 billion to increase capacities over the next three years. Diesel engine capacity, as well as capacity at the second car plant, will increase to 300,000 units each by '10. Maruti also plans to set up a new engine plant and upgrade its Gurgaon facilities.
ABG Shipyard
Research: Citigroup
Rating: Buy
CMP: Rs 807.65
Citigroup maintains 'buy' rating on ABG Shipyard, aided by an order book cover of 6.7x FY08E sales and 59% FY08-10E EPS CAGR. It has increased the company's price target primarily on the back of changes to margin estimates after better-than-expected margin performance in the past two quarters. ABG reported strong EBITDA (ex-subsidy) margins of 23% each in Q1 and Q2. While margins may not be sustainable at such high levels, Citigroup believes that its earlier 17-18% margin assumptions over FY08-10E were conservative, given that a combination of new orders at higher prices and operational efficiencies may result in sustained margin improvement from historical levels (18% in FY07). This reflects Citigroup's new operating margin (ex-subsidy) assumptions of 21-22%, which the company is expected to achieve over the forecast horizon, though unexpected raw material (primarily steel) price increases pose a risk to these estimates.
Indraprastha Gas
Research: ABN Amro
Rating: Buy
CMP: Rs 154.60
Indraprastha Gas (IGL) is a joint venture of Gail, BPCL and the government of the National Capital Territory (NCT) of Delhi. Over the years, IGL has set up 153 CNG stations, including 67 mother stations, 42 online stations, 38 daughter booster stations and six daughter stations. IGL supplies piped natural gas (PNG) to homes and commercial/industrial establishments such as hotels, hospitals, embassies, restaurants etc. As on March '07, IGL had provided PNG connections to over 75,000 domestic and 300 commercial customers. The company also supplies regasified liquefied natural gas (R-LNG) to industrial consumers in NCT. During FY07, the company's net sales grew by 17% YoY to Rs 614 crore and net profit increased by 30% YoY to Rs 138 crore. In H1 FY08, IGL's net sales grew by 16% YoY to Rs 336 crore, while net profit grew 30% YoY to Rs 81.3 crore. Demand for CNG is expected to rise with introduction of CNG-based cars and LCVs, besides incremental demand generated from new users such as the Northern Railways and introduction of radio taxis & high capacity buses for the Commonwealth Games. Hike in fuel prices will lead to more consumers converting their vehicles to CNG. Innovations such as 'Mobile CNG Dispensing Schemes' along highways will also encourage CNG conversions.
Research: JP Morgan
Rating: Underweight
CMP: Rs 274.70
JP Morgan rates Moser Baer as 'underweight'. Moser Baer reported muted Q2 FY08 results with 5% QoQ decline in revenue and 70 bps drop in EBITDA margins. This was despite the fact that Moser benefited from a refund of duties in Europe, excluding which, sales declined 8% QoQ and EBITDA margins fell 3% QoQ. Optical media volumes fell 8% QoQ with 8% QoQ decline in average selling price (ASP). Overall, net profit fell 66% QoQ to Rs 3.3 crore. The management expects a volume pick-up in H2 FY08, but expects subdued pricing especially in DVDR as Philips has cancelled licenses for major optical media manufacturers. JP Morgan expects margins to remain weak. During the quarter, the photovoltaic (PV) business generated revenues of $12 million with net level break-even. The management expects PV revenues of $80-100 million and margins may improve through the year, stabilising at ~20%. By adding the entertainment business to the estimates, JP Morgan expects decent 80+% volume CAGR over the next 2-3 years with sharp margin improvement. However, Moser will take at least three years to recover its initial investment of $100 million.
Ranbaxy Laboratories
Research: Merrill Lynch
Rating: Buy
CMP: Rs 411.70
Merrill Lynch maintains 'buy' rating on Ranbaxy Labs. Last week, the company announced it has settled the patent infringement suit with Astellas/Boehringer Ingelheim on generic Flomax, which allows launch of the generic in March '10 with 180-day exclusivity. Merrill Lynch views this development as a significant positive and estimates over $200 million revenues and $120 million one-off profits during the six-month period. This implies Rs 20 NPV per share, assuming limited 40% discount, delayed authorised generic entry and 50% market share for Ranbaxy. The company expects to continue pursuing this strategy of monetising on its pipeline of first-to file (FTF) opportunities. Based on this, Merrill Lynch sees visibility on several FTF launches for the next three years. These include: (a) Possible Para IV launch/settlement in '08 (not yet announced); (b) Generic Valtrex in '09 (Rs 18-20 NPV); and (c) Generic Lipitor in the US in '10 (Rs 30-35 NPV). Merrill Lynch estimates robust core earnings growth of 40.5% in CY07E and 20.5% in CY08E (Rs 22.7), driven by higher growth and EBITDA margins from the US and emerging markets. There is possibility of 30%+ EPS upside in CY08E from generic Lipitor launch in Canada and possible R&D milestones from GSK.
Gitanjali Gems
Research: Morgan Stanley
Rating: Overweight
CMP: Rs 375.30
Morgan Stanley initiates coverage on Gitanjali Gems with an 'overweight' rating. The company is a pioneer in branded jewellery and is leveraging its brand equity to drive growth in the retail market. On excluding the value of the company's real estate business from its CMP, standalone jewellery valuation looks cheap at 9x FY09E earnings, given 80%+ growth (FY06-07) in branded jewellery. The company is set to benefit from a shift in consumer buying patterns towards branded and diamond jewellery. Morgan Stanley expects jewellery retail and exports to grow by 46% and 40%, respectively, at the top line and by 78% and 43%, respectively, at the operating profit level over FY07-FY10. The company is likely to deliver 51% growth in earnings during FY07-10. Morgan Stanley values the jewellery business at Rs 417/share and the real estate business at Rs 130/share.
Maruti Suzuki
Research: CLSA
Rating: Buy
CMP: Rs 1,049.45
CLSA assigns 'buy' rating on Maruti Suzuki. The company believes the domestic car market will continue to see strong secular growth in coming years at ~15% CAGR and will hit 2 million units by '10. Maruti will launch two new compact segment cars in Q3 FY09. These will include the recently unveiled small car 'Splash' and a new small car called 'A Star'. The 'A Star' has been designed for the export markets. 50,000 units of the 'A Star' will be contract manufactured for Nissan, while another 100,000 units will be exported to Europe under the Suzuki badge. 'A Star' will also be launched in India. These launches, together with the expected launch of the 'Swift' sedan, will drive volume growth for Maruti in FY09-10. With this, Maruti's export volumes will hit 200,000 units in FY10 from 55,000 units in FY08. However, margins on these exports will be lower than existing export margins. Maruti aims to transform itself into a complete pan-segment car manufacturer in coming years and new launches in future will reflect this. Maruti and Suzuki plan to invest $2.2 billion to increase capacities over the next three years. Diesel engine capacity, as well as capacity at the second car plant, will increase to 300,000 units each by '10. Maruti also plans to set up a new engine plant and upgrade its Gurgaon facilities.
ABG Shipyard
Research: Citigroup
Rating: Buy
CMP: Rs 807.65
Citigroup maintains 'buy' rating on ABG Shipyard, aided by an order book cover of 6.7x FY08E sales and 59% FY08-10E EPS CAGR. It has increased the company's price target primarily on the back of changes to margin estimates after better-than-expected margin performance in the past two quarters. ABG reported strong EBITDA (ex-subsidy) margins of 23% each in Q1 and Q2. While margins may not be sustainable at such high levels, Citigroup believes that its earlier 17-18% margin assumptions over FY08-10E were conservative, given that a combination of new orders at higher prices and operational efficiencies may result in sustained margin improvement from historical levels (18% in FY07). This reflects Citigroup's new operating margin (ex-subsidy) assumptions of 21-22%, which the company is expected to achieve over the forecast horizon, though unexpected raw material (primarily steel) price increases pose a risk to these estimates.
Indraprastha Gas
Research: ABN Amro
Rating: Buy
CMP: Rs 154.60
Indraprastha Gas (IGL) is a joint venture of Gail, BPCL and the government of the National Capital Territory (NCT) of Delhi. Over the years, IGL has set up 153 CNG stations, including 67 mother stations, 42 online stations, 38 daughter booster stations and six daughter stations. IGL supplies piped natural gas (PNG) to homes and commercial/industrial establishments such as hotels, hospitals, embassies, restaurants etc. As on March '07, IGL had provided PNG connections to over 75,000 domestic and 300 commercial customers. The company also supplies regasified liquefied natural gas (R-LNG) to industrial consumers in NCT. During FY07, the company's net sales grew by 17% YoY to Rs 614 crore and net profit increased by 30% YoY to Rs 138 crore. In H1 FY08, IGL's net sales grew by 16% YoY to Rs 336 crore, while net profit grew 30% YoY to Rs 81.3 crore. Demand for CNG is expected to rise with introduction of CNG-based cars and LCVs, besides incremental demand generated from new users such as the Northern Railways and introduction of radio taxis & high capacity buses for the Commonwealth Games. Hike in fuel prices will lead to more consumers converting their vehicles to CNG. Innovations such as 'Mobile CNG Dispensing Schemes' along highways will also encourage CNG conversions.
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