Accumulate Ge Shipping Company For Target Rs.286
Earnings buoyed by offshore market and prudent sale of assets
GESCO has reported net profit of Rs 972 mn (+239% YoY) slightly below our expectation of Rs 1.02 bn. On the back of increased demand of crude and petroleum products, freight rates for crude tankers and product carriers remained firm throughout the quarter. This was also supported by slow steaming of vessels and increase in long haul shipments. But steady fleet growth capped any significant spurt in the freight rates. Chinese New Year holidays, weather related issues in key exporting ports of Brazil & Australia and increase in new building deliveries kept the bulk market weak. The offshore segment was strong in the quarter with crude prices firming in the quarter. The share of Greatship India Limited (GIL), the offshore subsidiary has increased to ~45% in the total revenues (from 35% QoQ). The company continues to be net seller of the ships in the market and currently has a small fleet of 33 vessels or 2.60 mn dwt. Consequently consolidated revenues have remained flat YoY amidst decreasing fleet size, stable tanker market and weak bulk segment. Profit was aided by profit on sale of ships of Rs 652 mn and reversing of Rs 294 mn from finance cost. Earnings for shipping companies' continue to be very volatile. We expect the cyclical weakness in the shipping market to continue for another two quarters. We expect the shipping segment of GESCO to report flattish/declining numbers YoY amidst declining fleet of the company as the company continues to discard old ships. However we expect the offshore subsidiary, GIL in which the parent is incurring heavy capex to show healthy growth of 20% CAGR over the next 2 years in revenues and profitability. Overall we expect the company to report 6% CAGR in revenues and 12% CAGR in profitability over FY12 to FY14E with subdued return ratios. We value the consolidated entity at 35% discount to NAV of Rs 440/ per share, which comes to around Rs 286 with an ACCMULATE rating. We estimate the asset prices to remain stable in near term for shipping companies. Downside risk could be: 1) Fall in crude prices, 2) Deterioration of global trade.
Valuation and recommendation:
We like GESCO's strategy of discarding old and single hull vessels judiciously which enabled it to realize substantially greater asset price, which multiplied its profit generating potential over years. The balance sheet position of the company is also very healthy with current net debt to equity at a comfortable 1.0 x. With oil price above $100 per barrel, the offshore segment (GIL) is expected to add significant value to the consolidated entity. Company is making significant capex of $210mn for GIL in FY13E.
Historically GESCO has traded at a discount of 30% to its Net Asset Value or Asset Replacement Cost. Using NAV (35% discount - assigning higher discount), we value the consolidated entity at 35% discount to NAV of Rs 440/ per share, which comes to around Rs 286 per share. We re-iterate Accumulate rating on GESCO with a price target of Rs 286. We estimate the asset prices to remain stable in near term for
shipping companies. Downside risk could be: 1) Fall in crude prices, 2) Deterioration of global trade
Buy Hexaware For Target Rs.120
Hexaware's 4QCY12 results were in line with our estimates. Revenues were USD92m (v/s est of USD92.4m), down 0.4% QoQ due to a project cancellation in top client. EBIT margin declined 480bp QoQ to 15.1% (v/s est of 430bp QoQ decline). PAT was at INR637m, adjusting for the tax write-back (in-line).
* For CY13, company guided for "double digit" USD revenue growth. This still implies a 4% CQGR over 2Q-4Q, considering 1Q revenues at the midpoint of USD94-95m guided band (1.7-2.8% QoQ). On the back of cost levers, it guided for 150-200bp QoQ recovery in margins in 1QCY13.
* HEXW cited recovery in a top account despite a blip in 4Q (down 21.3% QoQ to USD10.8m). The account is expected to grow YoY in CY13 and top 10 clients should continue to contribute over half of the revenues. Oracle is expected to release its new version of Peoplesoft in CY13. However, revenues from upgrades are anticipated to accrue to HEXW largely from CY14.
* We have lowered CY13E EBITDA margin estimate by 140bp to 18.3% as the margin slide in 4Q is expected to be recovered only gradually. Lower margin estimate in CY13E drives 9.7% cut in EPS estimate for CY13E. We model conservatively and estimate CY13E USD revenue growth of 8.5%.
Valuation and view: We expect HEXW to post USD revenues at a CAGR of 10% over CY12-14E and EPS CAGR of 7%. Lower CAGR is on account of 120bp decline in EBITDA margin estimate in CY14E (19.7%) over CY12. Guidance of 4%+ revenue growth over 2Q-4Q, growth in top account and likely revenue uptick from Peoplesoft are positive cues on growth. However, failure to close large deals and high client concentration are key risks. With utilization at significantly low levels, we expect HEXW to be able to drive better margins, going forward. From valuation perspective, the healthy cash pile, board's decision to stick to ~50% payout policy and 25%+ return ratios are positives. Our target price of INR120 discounts CY14E EPS by 10x. Buy.
Buy Hindustan Media Ventures Limited For Target Rs.161.00
Hindustan Media Ventures Limited (HMVL) is one of the leading print media companies engaged in the printing and publishing of
‘Hindustan’, the third largest newspaper daily of India.
* HMVL has a strong leadership position in Bihar with a readership share of 68%.
* During the quarter, the robust growth of Net Profit of HMVL is increased by 92.33% to Rs. 208.10 millions.
* During the quarter, revenue of HMVL rose 14.24% to Rs.1621.70 millions from Rs.1419.60 millions, when compared with the prior year period.
* Overall India the average readership grows of the company at 12.21 million; growth of 2.0% over IRS Q3 2011.
* HMVL is No. 1 in Jharkhand market with a readership of 1.72 million, reflecting a readership share of 47%.
* HMVL plans to improvement in advertising yields on the back of continuing readership growth.
-* Net Sales and PAT of the company are expected to grow at a CAGR of 11% and 22% over 2011 to 2014E respectively.
Investment Highlights
Results updates- Q3 FY13,
Hindustan Media Ventures Limited (HMVL) is one of the leading print media companies engaged in theprinting and publishing of ‘Hindustan’, the third largest newspaper daily of India, reported its financial results for the quarter ended 31st DEC, 2012.
The company’s net profit decreased to Rs.208.10 million against Rs.108.20 millions in the corresponding quarter ending of previous year, a decrease of 92.33%. Revenue for the quarter rose 14.24% to Rs.1621.70 millions from Rs.1419.60 millions, when compared with the prior year period. Reported earnings per share of the company stood at Rs.2.84 a share during the quarter, registering 92.33% decrease over previous year period. Profit before interest, depreciation and tax is Rs.349.60 millions as against Rs.208.60 millions in the corresponding period of the previous year.
Outlook and Conclusion
* At the current market price of Rs.144.00, the stock P/E ratio is at 12.43 x FY13E and 10.73 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.11.58 and Rs.13.42 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 11% and 22% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 7.26 x for FY13E and 6.29 x for FY14E.
* Price to Book Value of the stock is expected to be at 2.04 x and 1.71 x respectively for FY13E and FY14E.
* We recommend ‘BUY’ in this particular scrip with a target price of Rs.161.00 for Medium to Long term investment.
Buy Kopran Limited For Target Rs.18.00
Kopran is an integrated Pharmaceutical Company which manufactures both Active Pharmaceutical Ingredients and Finished Dosage Forms.
* During the December quarter, Kopran shown the robust growth in the Net Profit and the profit increased by 18.32% to Rs. 22.60 million.
* During the quarter, Revenue for the company rose 15.87% to Rs.577.50 millions from Rs.498.40 millions, when compared with the prior year period.
* Kopran has launched new products in the acute segments like Oncology and Penems including the Chronic and CNS groups.
* Kopran launched new products in the acute segments like Oncology, Penems including the Chronic & CNS groups during FY12.
* Ratio of Domestic and International sales revenue amounted to the ratio of 27:73.
* Net Sales & PAT of the company are expected to grow at a CAGR of 11% and 38% over 2011 to 2014E respectively.
Investment Highlights
Results updates- Q3 FY13,
Kopran is currently an integrated Pharmaceutical Company manufacturing a large range of products. It manufactures both API and Finished Dosage Forms has reported its financial results for the quarter ended 31st DEC, 2012.
The company’s net profit jumps to Rs.22.60 millions against Rs.19.10 millions in the corresponding quarter ending of previous year, an increase of 18.32%. Revenue for the quarter rose 15.87% to Rs.577.50 millions from Rs.498.40 millions, when compared with the prior year period. Reported earnings per share of the company stood at Rs.0.58 a share during the quarter, registering 18.32% increase over previous year period. Profit before interest, depreciation and tax is Rs.81.50 millions as against Rs.66.80 millions in the corresponding period of the
previous year.
Outlook and Conclusion
* At the current market price of Rs.15.50, the stock P/E ratio is at 5.48 x FY13E and 4.28 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.2.83 and Rs.3.62 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 11% and 38% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 1.76 x for FY13E and 1.52 x for FY14E.
* Price to Book Value of the stock is expected to be at 0.51 x and 0.46 x respectively for FY13E and FY14E.
* We recommend ‘BUY’ in this particular scrip with a target price of Rs.18.00 for Medium to Long term investment.
parsadam stock market park
owner and partner
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