Fw: Investor's Eye: Pulse - Inflation at 7.48%; Update - GAIL (Lower KG D-6 output not to affect GAIL's gas transmission volume), Sintex (Durha acquisition strengthens execution capability)

Investor's Eye [December 14, 2010]  Sharekhan www.sharekhan.com Summary of Contents PULSE TRACK Inflation moderated in November STOCK UPDATE  GAIL India Cluster: Apple Green Recommendation: Buy Price target: Rs585 Current market price: Rs504 Lower KG D-6 output not to affect GAIL?s gas transmission volume Media reports suggesting a decline in the gas production at KG D-6 to 46 million standard cubic meter per day (mmscmd) have raised concerns regarding the gas supply scenario in India, as KG D-6 is a major contributor to incremental supply of gas in India. Hence, the market is expecting that GAIL may have to take a significant hit on its gas transmission volumes.  From our initiation price of Rs476, GAIL has outperformed the broader market indices (GAIL?s share price up by 5.9% versus Sensex? decline of 1.3%). We continue to believe that GAIL is the key beneficiary of the dynamic change in the gas supply scenario in India on the back of its huge investment plans in gas pipeline network (capital expenditure plans of Rs30,000 crore to double its gas transmission capacity to 300mmscmd in the next four to five years). We maintain our Buy recommendation on GAIL with a price target of Rs585 based on SOTP valuation translating into an upside of 16% from the current level. At the current market price, the stock trades at a price/earnings ratio of 15.3x and enterprise value (EV)/earnings before interest, tax, depreciation and amortisation (EBITDA) of 9.9x based on our FY2012 estimates.   Sintex Industries Cluster: Apple Green Recommendation: Buy Price target: Rs233 Current market price: Rs194 Durha acquisition strengthens execution capability Sintex Industries (Sintex) has entered into a definitive agreement to acquire a 30% minority stake in a privately held construction company called Durha Construction Pvt Ltd (Durha), which is engaged in civil and power projects. Sintex has paid Rs42 crore for the 30% stake, which is divided between fresh issue of the shares and a stake sale by the promoter. Of the Rs42 crore, Rs35 crore would be infused in the company via the issue of new shares and Rs7 crore would be paid to the promoter. Going forward, by FY2011 Sintex aims to enhance its stake in Durha to 51% for which the terms of the deal have been finalised. The Durha acquisition is in line with the company?s strategy of increasing its geographic execution capabilities and the company had earlier indicated on various forums that it was evaluating such a transaction. Against the backdrop of the stupendous growth seen by Sintex in its monolithic business, we view this acquisition as positive and expect it to have a synergistic effect on Sintex. It will help the company grow and strengthen its monolithic and prefab businesses, and expand its building product offerings to the infrastructure and industrial space. Further it would help Sintex to increase its geographical spread, as Durha has orders spread across the north east and the northern parts of India (Punjab, Uttar Pradesh). Further, Durha offers strong revenue visibility with an order book of Rs750 crore (5x FY2010 revenues) spread across various infrastructure sub-sectors. According to the Sintex management, there is visibility that the order book would grow to Rs1,000 crore by March 2011. We maintain our bullish stance on Sintex in view of the strong visibility of its revenues and the expansion in its margin in the wake of the strong growth in its building material (monolithic as well as prefabs) and custom moulding divisions as well as the stable performance of its textile business. We value the company at 12.7x FY2012E fully diluted earnings of Rs18.5 and thus maintain our bullish stance on its stock with a Buy recommendation and a price target of Rs233. At the current market price the stock is trading at 14.3x and 10.6x its FY2011E and FY2012E earnings respectively.   Click here to read report: Investor's Eye   Regards, The Sharekhan Research Team myaccount@sharekhan.com  Manage your newsletter subscriptions

Fwd: BUY AMBIKA COTTON MILLS(531978) TARGET 350 BY S P TULSIAN

 

 

INDIA'S ONE THE BEST ANALYST MR. S P TULSIAN HAS GIVEN BUY CALL ON AMBIKA COTTON MILLS FOR TARGET 350.   AGGRESIVELY BUY FOR DECENT GAINS IN VERY SHORT TERM.   By SP Tulsian and Geetanjali Kedia   ·         Ambika Cotton Mills manufactures specialised quality cotton yarn and has manufacturing facilities located in Dindigul district of Tamil Nadu, mainly focussed on compact spinning.   ·         The company enjoys one of the highest profit per spindle of cotton yarn in India. During FY10, it produced 11,270 tonnes of cotton yarn and 110 tonnes of cotton cloth.   ·         Significant quantum of its production is exported to customers in Taiwan, Hong Kong, China, Korea, Singapore, Italy, Germany, Turkey, Israel and Egypt. Exports accounting for 58% of its turnover in H1FY11.   ·         Additionally, as on date, the company has 27.4 MW capacity windmills which meets all the captive power requirement of the spinning division, thereby enabling seamless production. Also, excess power of about 1.5 MW is sold to Tamil Nadu Electricity Board.   ·         The equity of the company is very low at Rs. 5.88 crore (FV Rs. 10 each), on which dividend of Rs. 3 per share was paid in FY10.   ·         Promoters have increased their stake in the company to 40% as of 30th September 2010, from 36.2% a year ago. Presently, institutional investors hold 9.12% while balance 50.88% stake is held by Indian public.   ·         For FY10, the company reported revenue of Rs. 223 crore and earned net profit of Rs. 18 crore, resulting in net profit margin of 7.9%.  On  59 lakh outstanding equity shares, this leads to an EPS of Rs. 31.50. After adjusting for depreciation of Rs. 21 crore, cash EPS is Rs. 67.   ·         During the first six months of FY11, like other textile players, the company also reported excellent financial performance. Sales increased to Rs. 143 crore while net profit for the half year was Rs. 16.4 crore, expanding its net profit margin by 360 bps, to 11.5%. EPS for H1FY11 was Rs. 28 while cash EPS was Rs. 47.   ·         The company's networth, as on 30th September 2010, stood at Rs. 153 crore. At the current share price of Rs. 260, this leads to a market capitalization of Rs. 154 crore. Thus the share is ruling at a PBV ratio of 1:1. Net debt as on 30.09.10 was Rs. 255 crore.   ·         For FY11 the company is expected to report a topline of close to Rs. 320 crore and bottomline of Rs. 37 crore, resulting in an EPS of about Rs. 63 and cash EPS of about Rs. 100. This results in a PE multiple of 4.1 times, based on the current year earnings and 2.6 times based on cash earnings.   ·         Share, at 263, qualifies a safe bet with potential to touch Rs. 350 in the next six months.   BSE Code: 531978 NSE Symbol: AMBIKCO

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