Fw: Investor's Eye: Pulse - Inflation at 9.78%; Update - Tata Chemicals; Viewpoint - Bajaj Electricals

 

 

Investor's Eye [September 14, 2011]  Sharekhan www.sharekhan.com

Summary of Content PULSE TRACK Inflation increases to 9.78% STOCK UPDATE Tata Chemicals    Cluster: Vulture's Pick Recommendation: Buy Price target: Rs400 Current market price: Rs329 Annual report review Key points FY2011 profitability affected by higher raw material prices: Tata Chemicals Ltd (TCL) posted a dreary financial performance in FY2011 with adjusted net profit declining by ~8% year on year (YoY) during the year. The sales for FY2011 grew by 15.9% to Rs11,060.2 crore on the back of an increase in the realisation of soda ash and sodium bicarbonate in India and Africa and a rise in the trading volume of traded fertiliser (DAP and MOP). During FY2011 the operating profit margin (OPM) declined to 16.8% from 19.3% in FY2010 because of an increase in the raw material and energy costs.  Debt-to-equity ratio maintained: The company has maintained its debt:equity ratio at 1.0, despite around Rs700-crore increase in the total debt during the fiscal 2011. The company's net debt as on March 31, 2011 stood at Rs3,906.8 crore as compared to Rs3,276.4 crore (an increase of Rs630 crore) as on March 31, 2010.  Operating cash flow declined: The net operating cash flow during FY2011 stood at Rs427 crore as compared to Rs843 crore in FY2010. The operating cash flow declined mainly due to an increase in debtors as well as inventories during the year. The inventory increased mainly due to a shutdown at the Haldia plant and an increase in the work in progress. The increase in debtors was in line with the sales. The operating cash flow as a percentage of EBIDTA declined to 15.9% from 34.7% during FY2011, which reflects TCL's inability to manage its working capital. Decline in return ratios: The company's return ratios decreased from the levels of FY2010 and remained southward during FY2011. The return on equity (RoE) stood at 12.0% while the return on capital employed (RoCE) stood at 13.3% during the year. Dividend pay-out increases to 37%: The dividend pay-out ratio for the company improved from 29.1% in FY2010 to 36.9% during FY2011. Going forward, TCL's revenue would grow at a compounded annual growth rate (CAGR) of 13% and adjusted profit after tax (PAT) will grow at a 20% CAGR. With its liberal dividend pay-out policy we expect TCL to maintain a 31% dividend pay-out over the next two years.  Outlook and valuation: Despite the input cost pressure and lower trading volumes in the fertiliser segment, TCL is expected to show a strong performance on the back of a relatively healthy demand for soda ash, fertilisers and other agri inputs. Consequently, we maintain our Buy recommendation on the stock with a price target of Rs400. We value TCL at 9x FY2013E earnings per share (EPS) and investment value of Rs41 per share. At the current market price the stock is trading at 9.9x and 8.7x its FY2012E and FY2013E respective earnings. VIEWPOINT Bajaj Electricals    Near term concerns persist in E&P; consumption story on track  We recently met the management of Bajaj Electricals Ltd (BEL), one of India's leading lighting and consumer appliances companies. BEL has six strategic business units -engineering and projects, appliances, fans, luminaries, lighting and Morphy Richards. The company has an extensive supply and distribution network of about 1,000 distributors, 4,000 authorised dealers, over 4 lakh retail outlets and over 282 customer care centers.  The management has denied any slowdown in its consumer durables segment's growth momentum. It also added that it would probably take a severe recession for the Indian consumption story to get dented. The margins are looking sustainable at the level of 8% in FY2012 if metal prices stabilise at the current levels. We feel that the company's E&P segment could throw some negative surprise in the coming quarters but the order inflow would be the key to long term growth. However, factoring in these concerns, the stock has fallen sharply in the last two months. Available at 8.3x FY2012 consensus estimates, the stock looks marginally cheaper than its peers like Havells and V-guard.  Click here to read report: Investor's Eye

Regards, The Sharekhan Research Team myaccount@sharekhan.com   www.sharekhan.com to manage your newsletter subscriptions