25/03/2013

Buy Divis Laboratories Ltd For Target Rs.1,276 - Nirmal Bang

Buy Divis Laboratories Ltd For Target Rs.1,276

Attractive Entry Point For Investors; Retain Buy
Divis Laboratories (DLL) stock has shed 7% since its 3QFY13 results on concerns over high power costs at its Andhra Pradesh (AP) operations impacting margins. Our interaction with the company’s management leads us to believe that the market may be overestimating the impact of increased power costs and we believe the current valuation of 16xFY15E EPS (20% discount to its five-year average multiple) provides an attractive entry point for investors. We have factored in our revised inhouse call on the rupee-US dollar rate of Rs52.0/$ (from Rs55.5/$ earlier) in our estimates, leading to a 2% reduction in our FY14E EPS, but retained the Buy rating on DLL with a revised target price of Rs1,276 (from Rs1,302 earlier), valuing the stock at 21xFY14E EPS of Rs60.7 (from Rs62.0 earlier).
Power supply situation grim in AP, but the street overestimates its impact: DLL has witnessed a sharp rise in power costs (up ~160bps YoY as a percentage of sales in the 9MFY13 period), owing to which its margins declined by~200bps consecutively for the past two quarters. Factoring in higher power costs and forex losses, we had revised our FY13E margin assumption downwards by 200bps post 2QFY13 results. While the power supply situation continues to remain grim in AP, we believe our margin assumption of 36% for FY13E (36.5% margin in the 9MFY13 period) provides sufficient buffer from any further fall in margins due to power cost escalation. Further, with a favourable currency movement (average rupee-US dollar rate so far in 4QFY13 at Rs54.1/$ versus Rs50.1/$ in 4QFY12), there can be an upside to our assumptions. As per our estimates, DLL’s operating profit is expected to rise by ~5% for every 10% fall in the rupee.
FY14 may usher in upside in margins: Our interaction with the management indicates that DLL may have to bear escalated power costs in the current quarter, but the margins in FY14 should start improving as the company has already signed a long-term agreement for power supply. Further, with the likely ramp-up at its Vizag facility (post the US Food and Drug Administration or USFDA inspection scheduled in 1QFY14 and subsequent clearance thereof of remaining two blocks of the DSN unit), we believe there exists significant scope for improvement in margins (DSN facility is currently operating at ~45% of its capacity, which is expected to go up to 85% as supplies to the US begin).
Strong FY14 guidance: DLL’s management has reiterated its guidance of a 22%-25% (assuming rupee-US dollar rate of Rs52.5-Rs53.0/$) revenue growth in FY14 (expects to achieve the higher end of its guidance if the USFDA’s approval comes in 1HFY14, and the lower-end of its guidance otherwise), along with expansion in margins. We have factored in the lower end of the management’s guidance, with a 100bps expansion in margins, which we think is reasonable (as explained above). Rupee fall is an upside risk to our estimates.
Valuation: 4Q has historically been a very strong quarter for DLL and we expect the stock to rebound in the near term, given its steeply discounted valuation of 16xFY14E EPS. Further, with major capex activity nearing its end, we expect strong free cash flow generation over the next two years (Rs4.9bn versus Rs4.9bn over the past five years), which coupled with strong earnings growth (27% earnings growth likely in FY14E) and expansion in RoE/RoCE by 160bps/220bps, respectively, will support valuation. We have retained our Buy rating on DLL with a target price of Rs1, 276.

Buy Dhanuka Agritech Ltd For Target Rs.134.00 - Firstcall Research

Buy Dhanuka Agritech Ltd For Target Rs.134.00

Dhanuka Agritech Ltd is engaged in the businesses of Agro-Chemicals & Seeds under Dhanuka Agritech Ltd and Pharmaceutical Ingredients under Dhanuka Laboratories Ltd.
* The company’s net sales registered a 26.37% increase and stood at a record Rs. 1397.13 million from Rs. 1105.62 million over the corresponding quarter last year.
* The company’s net profit registered a 49.03% increase and stood at a record Rs. 116.81 million from Rs. 78.38 million over the corresponding quarter last year.
* The company has reported an EPS of Rs. 2.34 for Q3FY13 as against an EPS of Rs. 1.57 in the corresponding quarter of the previous year.
* Dhanuka Agritech Ltd has approved the payment of Interim Dividend to the shareholders @ 75% (Rs. 1.50/- per Equity Share having Face Value of Rs. 2/- each), for the FY2012-13.
* Dhanuka launches 4 new products “Brigade 8%SC” & “Bombard” is Insecticides, “Vitavax Ultra” is Fungicide &“Wetcit” is Surfactant, in technical association with African company.
* Net Sales & PAT of the company are expected to grow at a CAGR of 11% and 11% over 2011 to 2014E respectively.
Investment Highlights
Results updates- Q3 FY13,
Dhanuka Agritech Ltd group has emerged as the Chosen Partner for several Multi-National Companies doing business with India reported its financial results for the quarter ended 31 Dec, 2012. The third quarters witness a healthy increase in overall sales as well as profitability of the company.
The company’s net profit jumps to Rs.116.81 million against Rs.78.38 million in the corresponding quarter ending of previous year, an increase of 49.03%. Revenue for the quarter rose 26.37% to Rs.1397.13 million from Rs.1105.62 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.2.34 a share during the quarter, registering 49.03% increase over previous year period. Profit before interest, depreciation and tax is Rs.163.31 millions as against Rs.127.66 millions in the corresponding period of the previous year.
Outlook and Conclusion
* At the current market price of Rs.118.40, the stock P/E ratio is at 9.22 x FY13E and 8.38 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.12.84 and Rs.14.13 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 11% and 11% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 7.07 x for FY13E and 6.43 x for FY14E.
* Price to Book Value of the stock is expected to be at 2.23 x and 1.81 x respectively for FY13E and FY14E.
* We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.134.00 for Medium to Long term investment.

Buy DCW Ltd For Target Rs.16.00 - Firstcall Research

Buy DCW Ltd For Target Rs.16.00

DCW Ltd diversified & modernized it operations is a Public Ltd with a diversified range of products for supply to customers in both domestic & international markets.
* The company’s net sales registered a 15.88% increase and stood at a record Rs. 3635.01 million from Rs. 3136.87 million over the corresponding quarter last year.
* The company’s net profit registered a 574.48% increase and stood at a record Rs. 281.46 million from Rs. 41.73 million over the corresponding quarter last year.
* The company has reported an EPS of Rs. 1.34 for Q3FY13 as against an EPS of Rs. 0.21 in the corresponding quarter of the previous year.
* The Company exports were Rs. 255.82 crores compared to Rs. 153.19 crores in last year a 60% rise in exports on better realization of
Ilmenite coupled with higher tonnage.
* Net Sales and PAT of the company are expected to grow at a CAGR of 15% and 69% over 2011 to 2014E respectively.
* DCW signed Technology License agreement with Arkema France for putting up Chlorinated Poly Vinyl Chloride(C–PVC) Plant at Shupuram Facility in Tamil Nadu.
Investment Highlights
Results updates- Q3 FY13,
DCW Ltd a diversified range of products for supply to customers in both, domestic and international market, reported its financial results for the quarter ended 31st DEC, 2012. The THIRD quarter witnesses a healthy increase in overall sales as well as profitability of the company.
The company’s net profit jumps to Rs.281.46 million against Rs.41.73 million in the corresponding quarter ending of previous year, an increase of 574.48%. Revenue for the quarter rose 15.88% to Rs.3635.01 million from Rs.3136.87 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.1.34 a share during the quarter, registering 530.64% increase over previous year period. Profit before interest, depreciation and tax is Rs.672.13 millions as against Rs.288.55 millions in the corresponding period of the previous year.
Outlook and Conclusion
* At the current market price of Rs.14.00, the stock P/E ratio is at 2.52 x FY13E and 2.11 x FY14E respectively.
* Earnings per share (EPS) of the company for the earnings for FY13E and FY14E are seen at Rs.5.55 and Rs.6.64 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 15% and 69% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 2.47 x for FY13E and 2.20 x for FY14E.
* Price to Book Value of the stock is expected to be at 0.54 x and 0.43 x respectively for FY13E and FY14E.

* We expect that the company surplus scenario is likely to continue for the next years, will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.16.00 for Medium to Long term investment.

Capital Goods Sector Update

Capital Goods Sector Update Outlook

Production likely to remain under pressure but in the long term, expected revive...

Manufacturing sector creates major portion of demand for the capital industry. The industry is highly sensitive to economy, has primary importance for the growth of manufacturing in india, as it constitutes 12% of the total manufacturing activities. However, the share of manufacturing sector to GDP is still low when compared to the other developing countries reflecting a significant upside for manufacturing sector in the future, which positive for the capital goods industry.

However, the prevailing economic slowdown has impacted the domestic manufacturing activities and has lowered the industry output with slow order inflow. In the near term, the production of industry is expected ti remain under pressure because the recovery in industrial capital expenditure looks constrained and pointing towards the tough environment for order inflows to the Indian capital goods sector.

During the past few years, industry has been struggling with the high factor cost and low investment in research and technology leading to surge in capital goods import, which has become a concern for industrial production growth. However, in the long term, the industrial production is expected to increase with the implementation of 12th five year plan as it will focus on some critical issues of industry like R&D and supportive policies. Moreover, the increase in industrial output will also reduce the end user industries dependence on impo