Sharekhan Investor's Eye dated May 08, 2008

Investor's Eye [May 08, 2008] Please see the attachment for details Sharekhan www.sharekhan.com

Summary of Contents STOCK UPDATE Shiv-Vani Oil & Gas Exploration Services  Cluster: Ugly Duckling Recommendation: Buy Price target: Rs725 Current market price: Rs630 Price target revised to Rs725 Result highlights Shiv-Vani Oil & Gas Exploration (Shiv-Vani) has reported an excellent top line growth of 63.3% in its consolidated revenues to Rs178.5 crore for Q5FY2008. The growth was achieved on the back of strong realisation and higher revenue contribution of the coal bed methane project.  The operating profit margin (OPM) improved by 330 basis points year on year (yoy) to 39.1% primarily due to the improvement in the realisation and more efficient fleet utilisation. Consequently, the operating profit grew by an astounding 147% to Rs69.9 crore. However, on a sequential basis, the margin dipped by 230 basis points to 39.1% because of higher other expenses, which included some one-time items of foreign exchange (forex) losses. Both interest and depreciation charges have risen on the back of increased capital expenditure (capex) incurred by the company. However, the lower taxes led to a brilliant 165% growth in the net profits to Rs31.8 crore.  The company plans to spend close to Rs650 crore in FY2009 as it looks to add six more rigs by July 2008, taking the total number of rigs to 32. Further, the number would be increased to 40 rigs by the end of the year.  The company's order book remains healthy at Rs3,500 crore. We have fine-tuned our numbers a little in line with the company' s capex plan. We marginally upgrade our FY2009 profit estimate by 1.3% to Rs161 crore and upgrade our FY2010 profit estimate by 15% to Rs241.2 crore, as majority of the new rigs would start to contribute to the top line. At the current market price the stock trades at 19.5x FY2009 and 13x FY2010 estimated earnings. We maintain our Buy call on the stock with a revised price target of Rs725. Jaiprakash Associates Cluster: Ugly Duckling Recommendation: Buy Price target: Rs390 Current market price: Rs269 Results above expectations Result highlights Jaiprakash Associates Ltd (JAL) Q4FY2008 results were above our estimates. On a standalone basis the company reported a top line growth of 44.5% year on year (yoy) to Rs1,280 crore. This was on account of a 45.7% year-on-year (y-o-y) growth in the revenues from the construction division to Rs475 crore. The higher revenue was also aided by the revenue from the real estate division, which stood at Rs256 crore against nil during the corresponding period last year.  The operating profit margin (OPM) on a standalone basis for the quarter improved by 140 basis points yoy to 31.1%. This was mainly on account of higher earning before interest and tax (EBIT) margin of the construction division, which reported an increase of 950 basis points to 25.5%. The real estate division reported an EBIT margin of 31.6%, while the cement division reported a negligible improvement of 30 basis points in EBIT margin to 35.3%. However the hotel and hospitality division reported a decline of 1,190 basis points in the EBIT margin to 16.7%. Consequently the operating profit jumped by 51.3% to Rs398 crore. On a standalone basis, the company reported a net profit after tax (PAT) of Rs211 crore, up by 61.1% yoy. The growth in the net profit was mainly because of an increase in the other income by 120% to Rs66 crore. For the year ended March 2008, on a standalone basis the net sales increased 14.6% yoy to Rs3,985 crore and the PAT stood at Rs610 crore, up 47% yoy. On a consolidated basis, the net sales increased by 6.8% to Rs4,201 crore and the adjusted PAT stood at Rs627 core, an increase of 21.2% yoy. We have upgraded our FY2009 earnings per share (EPS) estimate by 10.9% to Rs6 and have also introduced FY2010 estimates. The estimated PAT for FY2010 stands at Rs947.9 crore, implying a growth of 26.4% over FY2009E. At the current market price of Rs269, the stock is trading at 45x its FY2009E EPS and 35x its FY2010E EPS. We maintain a Buy on the stock with a price target of Rs390 based on our sum-of-the-parts valuation. SECTOR UPDATE Information Technology Cognizant caps front tech stock valuation in near term Front tech Indian IT stocks witnessed resurgence in the last couple of months on the back of the extension of STPI benefits, the stabilisation of rupee against the dollar and the guidance announcements in line with street expectations. The front tech IT stocks have grown in the range of 13%-25% from April 1, 2008.

Regards, The Sharekhan Research Team myaccount@sharekhan.com

 

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