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STOCK UPDATE Shiv-Vani Oil & Gas Exploration Services
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs520
Current market price: Rs432 Results well above estimates Result highlights -
Results above expectation: Shiv-Vani Oil & Gas Exploration Services (Shiv-Vani)?s Q1FY2011 results were well above our as well as street?s expectations. The impressive performance was mainly on the back of higher than expected revenues and lower than anticipated income tax rate during the quarter. The strong Q1FY2011 performance increases our confidence with regards the company achieving its full year net income guidance of Rs250 crore. -
Strong top line growth, well above our estimate: The net sales grew by a robust 41.2% year on year (yoy) to Rs397 crore, which was well above our estimate of Rs306 crore. The growth in the net sales was led by the addition of new rigs in its portfolio. -
Healthy OPM; PAT well above estimate: The operating profit margin (OPM) stood healthy at 43.7% (a 194 basis points year- on- year improvement). The adjusted profit after tax (PAT) grew by 36% yoy to Rs62.3 crore led by higher revenues and margin expansion. The PAT was well above our estimate of Rs40.7 crore. However, higher depreciation and interest expenses limited the growth in the adjusted net income. -
Raised USD80 million through FCCBs; points towards potential new orders: The company recently raised USD80 million through an issue of foreign currency convertible bonds (FCCBs), which in our view could lead to an acquisition of four-five new rigs. We highlight in this note that the company has also bid for four new orders of the size of Rs300-600 crore each. We expect the company to win some large orders given its strong track record. The fact that the company has raised funds also hints towards it winning new orders. -
Strong outlook, largely maintain estimates: The company has guided for a net income of Rs250 crore and a healthy OPM of 44% in FY2011. Given the strong Q1FY2011 performance, we believe that the company would be able to achieve its guidance comfortably. We highlight in this note that the revenues from seismic activities are likely to be weak in Q2FY2011 as the survey work is less during the period due to the monsoon season. We have increased the interest burden for FY2011 and FY2012 as the company will pay fixed coupon rate of 5% on the funds raised through FCCBs, which is being offset by higher other income (as the money raised is currently parked with bank as fixed deposit). Hence, we largely maintain our estimates. -
Maintain Buy with price target of Rs520: In our view, Shiv-Vani is an excellent bet in the oilfield service sector given its strong order book of Rs3200 crore (2.6x FY2010 revenues) and high probability of winning new orders. At the current market price, the stock is available at 6.4x its FY2012E earnings and an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 5.2x. We maintain our Buy recommendation and a price target of Rs520 on the stock. Shree Cement
Cluster: Cannonball
Recommendation: Hold
Price target: Rs1,980
Current market price: Rs1,805 Price target revised to Rs1,980 Result highlights -
Higher than expected cost pressure and interest charges result in lower than expected earnings: Shree Cement has posted disappointing earnings for Q1FY2011. The adjusted net profit of the company declined by 63.8% year on year (yoy) to Rs106.7 crore, which is below our as well as the Street?s estimate. The earnings were lower than expected mainly on account of higher than expected cost pressure (mainly the power & fuel cost and the employee cost) and interest charges. -
Revenue in line with estimates, healthy revenue growth in power division: The total revenue of the company increased by 2.4% yoy to Rs944.5 crore (which is almost in line with our expectation). On a segmental basis, the revenue from the cement division declined by 8.1% yoy to Rs813.8 crore mainly on account of a 4.7% fall yoy in the volume to 2.43 million tonne and a 3.6% drop yoy in the average blended realisation to Rs3,350 per tonne. On the other hand, the revenue from its power business increased by over 2.5x to Rs130.7 crore, which was supported by the sale of surplus power units (14.3 crore units) and entering into power trading activity. -
Margin contraction led by higher pet coke prices and employee cost: On the margin front, the operating profit margin (OPM) stood at 30.6% as against 46.2% in the year-ago quarter. The sharp contraction in the OPM was on account of (a) an increase in the power & fuel cost (up by 46.1% on per tonne basis); (b) a 35.8% rise yoy in the employee cost to Rs47.8 crore; and (c) a decrease in the profitability of the power division as the power trading business has lower margins. -
Sharp increase in interest and depreciation due to capacity addition: The depreciation charge increased by 55.1% to Rs150.9 crore and there was a sharp increase in the interest cost by over 6x to Rs30.2 crore, which is ahead of our estimate of Rs20 crore. The interest cost was higher than expected on account of the commissioning of new cement capacities in Rajasthan and Uttrakhand, and increased captive power generation capacity. -
Downgrading earnings estimates for FY2011 and FY2012: We have revisited our earnings estimates for FY2011 and FY2012 and are downgrading both mainly to incorporate the higher than expected power & fuel cost and depreciation charge. The revised earnings per share (EPS) estimates work out to Rs179.1 and Rs186.3 for FY2011 and FY2012 respectively. -
Maintain Hold with revised price target of Rs1,980: We believe the profitability of the company will deteriorate in the coming quarter as the recent hike in the pet coke prices will be reflected fully in the coming quarter in the form of a higher power & fuel cost. Further, the cement realisation fell during Q1FY2011 and is likely to remain under pressure going ahead on account of the oversupply scenario. This will also dent the margin of the company. The present cement realisation is lower by 3-4% compared to the average of Q1FY21011. Hence, we maintain our Hold recommendation with a revised price target of Rs1,980 (valued at enterprise value [EV]/earnings before depreciation, interest, tax and amortisation [EBDITA] of 4.5x its FY2012E). At the current market price the stock trades at a price/earnings ratio (PER) of 9.7x and an EV/EBIDTA of 4.1x on FY2012 earnings estimates.
VIEWPOINT Simplex Infrastructure Results below expectations Result highlights -
Poor overseas sale muted the revenue growth: Simplex Infrastructure?s consolidated net sales for Q1FY2011 grew by just 6.3% year on year (yoy) to Rs1,202 crore, which is below our expectations. The growth in the sales was muted due to poor contribution from the overseas business. The international revenues fell by 44% yoy due to slower order booking in the overseas markets in FY2010. However, the domestic revenues grew by 29% yoy to Rs982 crore. -
PAT below estimate: The consolidated net profit grew by 33% yoy to Rs37 crore, which is much below our expectations. The growth in the net profit was subdued due to lower than expected sales and other income. The operating profit margin dipped by 60 basis points to 10.2% on account of higher staff cost and other expenditure despite a lower raw material cost. -
Robust order book: The order book at the end of Q1FY2011 stood at Rs12,262 crore, showing a growth of 22.5% yoy. It is spread across urban infra (14%), piling (5%), marine/others (2%), roads/railways (2%), bridges (11%), buildings (22%), industrial (19%) and power (25%). The order book is 2.7x its FY2010 revenues and provides a strong revenue visibility going ahead. Even international orders have started picking up over the last few months. In fact, the order intake during the quarter stood at Rs1,861 crore, which translates into a growth of 73% yoy. Of these about 32% are international orders. The company is further the lowest bidder for projects worth Rs400 crore mainly in the building, industrial and power segments. -
Concession agreement signed for its first BOT project: Simplex Infrastructure has signed a concession agreement in August this year for its first road build-own-transfer (BOT) project that it has won in consortium with Srei Infrastructure and Galfar. The project is a six-laning of the Bhubaneshwar-Jagatpur-Chandikhol section on National Highway-5 and involves a project cost of about Rs1,300-1400 crore for a 67km stretch. The company holds a 34% stake in the project. -
Valuation: Over the last two quarters the company has seen a strong order inflow, in both the domestic and international markets. This is likely to translate into a strong momentum in execution going forward. Thus, the management expects a better H2FY2011 and has maintained its full-year revenue growth guidance at 15-20%. At the current market price, the stock trades at 14.4x and 12.5x its FY2011 and FY2012 estimated earnings respectively. We feel the improvement in the outlook for its business is already factored in the stock price and leaves limited upside for the investors. | | 
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