date 16/04/2014
Buy Engineers India Limited For Target Rs.320.1
We believe that the conscious decision of Engineers India Ltd (EIL) to diversify its markets beyond the horizons of the sub continent has started paying dividends. The recent order wins are testimony to the same. Given its strong domain expertise in the hydrocarbon and petrochemical verticals and its experience with consultancy and turnkey assignments, augurs well for winning large ticket orders in the global arena.
As on December 2013, EIL has an order book of ~`3700 crore (with an order mix of 65:35 for PMC and LSTK respectively). Over the period FY14-16E, we expect revenue to grow at a CAGR of 16.5% at `2,549.5 crore, while earnings are expected to grow at a robust CAGR of 23.3% to `770.4 crore by FY16E. The faster growth in earnings is due to the skewing of the order book in favour of the high margin consultancy business. In addition the strong balance sheet and regular dividend paying track record is an added attraction.
We initiate coverage on EIL with BUY for a target price of `320.1 (14x FY16 earnings) representing a potential upside of ~36.8% over a period of 18 months. At CMP of `233.8 the stock is trading at an attractive valuation of 13.0x and 10.2x on FY15E & FY16E earnings respectively.
* Strong overseas order book to spearhead performance
EIL’s strategy to diversify globally has started paying dividends. This should not only help in boosting the order book but also improve its revenues and profitability. Accordingly, we expect the order book to grow to `4,765.6 crore by FY16 from current ~`3,700 crore.
Further, the skewing of revenues in favour of high margin consultancy services should help improve profitability in the long term. We are particularly enthused by the recent large consultancy orders that the company has bagged in Nigeria ($139 mn to set up a refinery and polypropylene plant) and Oman ($43 mn to set up a new petrochemical complex) and that too against stiff competition.
In a number of international projects for which EIL has tendered, it has emerged as an L1 bidder. Based on the above, we expect significant order flows to be booked over and above our estimates, representing a significant upside risk to the stock price movement. We believe that the global markets offer a significant opportunity for the company to emerge as a major global player, aided by its domain expertise and competitive pricing.
* Valuation
We initiate coverage on EIL as a BUY with a target price of `320.1, representing a potential upside of ~36.8% over a period of 18 months. At the CMP of `233.8 the stock is trading at an attractive valuation of 13.0x and 10.2x on its FY15E and FY16E EPS of `18.0 and `22.9, respectively and on an EV/EBITDA basis, the stock is trading at a multiple of 3.1x for FY15E and 2.4x for FY16E.
Buy Mahindra & Mahindra (M&M) For Target Rs.1,211
M&M, the flagship company of the Mahindra Group, operates in the automobiles and the tractor space. In the automotive segment, the company is the market leader in the Utility Vehicle (UV) segment. Currently under pressure, we expect the company's auto sales to post moderate recovery in FY15 and strong growth beyond- led by new products and improved macro situation. In the tractor industry, M&M is the market leader and a dominant force with 40% domestic market share.
Tractor volumes in FY14 grew at a robust pace and we expect the growth to continue in FY15 - though the rate is expected to moderate. In FY14, strong growth in tractor segment helped M&M counter slowdown in the automotive segment. Moving into FY15, we expect both the automotive and tractor division to contribute to growth. As new products start coming in CY15, growth beyond FY15 is expected to be led by the automotive segment. We are optimistic on the long term growth prospects of M&M and initiate coverage on the company with a BUY rating and SOTP based price target of Rs1,211 (valued on FY16E earnings)
Buy Merck Ltd For Target Rs.720.00
Merck Limited was set up in India as Merck’s first Asian subsidiary in 1967. The Company operates both its pharmaceuticals & chemicals businesses in the country.
* During the quarter ended 31st December 2013, the Company posted Net Profit of Rs. 94.42 million and EBDITA or operating profit of Rs. 205.63 million against Rs. 312.25 million in the corresponding quarter of the previous year.
* Revenue for the quarter rose 20.70% to Rs.2022.49 million from Rs.1675.66 million, when compared with the prior year period.
* Earning Per Share of the company stood at Rs. 5.69 in the current December quarter against Rs. 12.08 in the corresponding quarter of the previous year.
* The company stands debt free with no long term and short term borrowings.
* The company has recommended a dividend of Rs. 8.50 per share for the year ended 31st December 2013.
* Evion, Neurobion, Polybion, Concor, Carbophage, and Livogen are popular products of the company.
* Pharmaceutical division revenues rose by 28% YOY at Rs. 1395.47 million in Q4 CY13. Net Sales of the company is expected to grow at a CAGR of 13% over 2012 to 2015E respectively.
QUARTERLY HIGHLIGHTS (STANDALONE)
Results updates- Q4 CY13
Merck Ltd, reported its financial results for the quarter ended 31st December, 2013. Merck is a leading company for innovative and top-quality high-tech products in the pharmaceutical and chemical sectors.
The company’s net profit declined by 53% at Rs. 94.42 million against Rs.200.53 million in the corresponding quarter of previous year. Revenue for the quarter rose 20.70% to Rs.2022.49 million from Rs.1675.66 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.5.69 a share during the quarter, registering 53% decrease over previous year period. Profit before interest, depreciation and tax was Rs.205.63 million against Rs.312.25 millions in the corresponding period of the previous year.
OUTLOOK AND CONCLUSION
* At the current market price of Rs. 677.25, the stock P/E ratio is at 16.65 x CY14E and 15.66 x CY15E respectively.
* Earning per share (EPS) of the company for the earnings for CY14E and CY15E is seen at Rs.40.68 and Rs.43.24 respectively.
* Net Sales is expected to grow at a CAGR of 13% over 2012 to 2015E respectively.
* On the basis of EV/EBITDA, the stock trades at 8.07 x for CY14E and 7.43 x for CY15E.
* Price to Book Value of the stock is expected to be at 1.90 x and 1.70 x respectively for CY14E and CY15E.
* We recommend ‘BUY’ in this particular scrip with a target price of Rs.720.00 for Medium to Long term investment.
Buy Engineers India Limited For Target Rs.320.1 We believe that the conscious decision of Engineers India Ltd (EIL) to diversify its markets beyond the horizons of the sub continent has started paying dividends. The recent order wins are testimony to the same. Given its strong domain expertise in the hydrocarbon and petrochemical verticals and its experience with consultancy and turnkey assignments, augurs well for winning large ticket orders in the global arena.
As on December 2013, EIL has an order book of ~`3700 crore (with an order mix of 65:35 for PMC and LSTK respectively). Over the period FY14-16E, we expect revenue to grow at a CAGR of 16.5% at `2,549.5 crore, while earnings are expected to grow at a robust CAGR of 23.3% to `770.4 crore by FY16E. The faster growth in earnings is due to the skewing of the order book in favour of the high margin consultancy business. In addition the strong balance sheet and regular dividend paying track record is an added attraction.
We initiate coverage on EIL with BUY for a target price of `320.1 (14x FY16 earnings) representing a potential upside of ~36.8% over a period of 18 months. At CMP of `233.8 the stock is trading at an attractive valuation of 13.0x and 10.2x on FY15E & FY16E earnings respectively.
* Strong overseas order book to spearhead performance
EIL’s strategy to diversify globally has started paying dividends. This should not only help in boosting the order book but also improve its revenues and profitability. Accordingly, we expect the order book to grow to `4,765.6 crore by FY16 from current ~`3,700 crore.
Further, the skewing of revenues in favour of high margin consultancy services should help improve profitability in the long term. We are particularly enthused by the recent large consultancy orders that the company has bagged in Nigeria ($139 mn to set up a refinery and polypropylene plant) and Oman ($43 mn to set up a new petrochemical complex) and that too against stiff competition.
In a number of international projects for which EIL has tendered, it has emerged as an L1 bidder. Based on the above, we expect significant order flows to be booked over and above our estimates, representing a significant upside risk to the stock price movement. We believe that the global markets offer a significant opportunity for the company to emerge as a major global player, aided by its domain expertise and competitive pricing.
* Valuation
We initiate coverage on EIL as a BUY with a target price of `320.1, representing a potential upside of ~36.8% over a period of 18 months. At the CMP of `233.8 the stock is trading at an attractive valuation of 13.0x and 10.2x on its FY15E and FY16E EPS of `18.0 and `22.9, respectively and on an EV/EBITDA basis, the stock is trading at a multiple of 3.1x for FY15E and 2.4x for FY16E.
Buy Mahindra & Mahindra (M&M) For Target Rs.1,211M&M, the flagship company of the Mahindra Group, operates in the automobiles and the tractor space. In the automotive segment, the company is the market leader in the Utility Vehicle (UV) segment. Currently under pressure, we expect the company's auto sales to post moderate recovery in FY15 and strong growth beyond- led by new products and improved macro situation. In the tractor industry, M&M is the market leader and a dominant force with 40% domestic market share.
Tractor volumes in FY14 grew at a robust pace and we expect the growth to continue in FY15 - though the rate is expected to moderate. In FY14, strong growth in tractor segment helped M&M counter slowdown in the automotive segment. Moving into FY15, we expect both the automotive and tractor division to contribute to growth. As new products start coming in CY15, growth beyond FY15 is expected to be led by the automotive segment. We are optimistic on the long term growth prospects of M&M and initiate coverage on the company with a BUY rating and SOTP based price target of Rs1,211 (valued on FY16E earnings)
Buy Merck Ltd For Target Rs.720.00Merck Limited was set up in India as Merck’s first Asian subsidiary in 1967. The Company operates both its pharmaceuticals & chemicals businesses in the country.
* During the quarter ended 31st December 2013, the Company posted Net Profit of Rs. 94.42 million and EBDITA or operating profit of Rs. 205.63 million against Rs. 312.25 million in the corresponding quarter of the previous year.
* Revenue for the quarter rose 20.70% to Rs.2022.49 million from Rs.1675.66 million, when compared with the prior year period.
* Earning Per Share of the company stood at Rs. 5.69 in the current December quarter against Rs. 12.08 in the corresponding quarter of the previous year.
* The company stands debt free with no long term and short term borrowings.
* The company has recommended a dividend of Rs. 8.50 per share for the year ended 31st December 2013.
* Evion, Neurobion, Polybion, Concor, Carbophage, and Livogen are popular products of the company.
* Pharmaceutical division revenues rose by 28% YOY at Rs. 1395.47 million in Q4 CY13. Net Sales of the company is expected to grow at a CAGR of 13% over 2012 to 2015E respectively.
QUARTERLY HIGHLIGHTS (STANDALONE)
Results updates- Q4 CY13
Merck Ltd, reported its financial results for the quarter ended 31st December, 2013. Merck is a leading company for innovative and top-quality high-tech products in the pharmaceutical and chemical sectors.
The company’s net profit declined by 53% at Rs. 94.42 million against Rs.200.53 million in the corresponding quarter of previous year. Revenue for the quarter rose 20.70% to Rs.2022.49 million from Rs.1675.66 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.5.69 a share during the quarter, registering 53% decrease over previous year period. Profit before interest, depreciation and tax was Rs.205.63 million against Rs.312.25 millions in the corresponding period of the previous year.
OUTLOOK AND CONCLUSION
* At the current market price of Rs. 677.25, the stock P/E ratio is at 16.65 x CY14E and 15.66 x CY15E respectively.
* Earning per share (EPS) of the company for the earnings for CY14E and CY15E is seen at Rs.40.68 and Rs.43.24 respectively.
* Net Sales is expected to grow at a CAGR of 13% over 2012 to 2015E respectively.
* On the basis of EV/EBITDA, the stock trades at 8.07 x for CY14E and 7.43 x for CY15E.
* Price to Book Value of the stock is expected to be at 1.90 x and 1.70 x respectively for CY14E and CY15E.
* We recommend ‘BUY’ in this particular scrip with a target price of Rs.720.00 for Medium to Long term investment.
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