Recommendation: Buy
CMP = Rs 525
Price target: Rs 600
- Emco's revenues for Q3FY2006 grew 67.0% year on year (yoy) to Rs 97.1 crore on the back of higher order booking of Rs 117 crore during the quarter. The operating margins were down 220 basis points yoy to 13.0% primarily on account of higher raw material prices (mainly copper). But on a quarter on- quarter (q-o-q) basis, the margins were maintained at 12.9-13.0% range.
- Emco's net profit grew to Rs 6.1 crore registering a y-o-y growth of 98.4%. The earnings for the quarter stood at Rs 7.9 per share.
- Emco's order backlog grew by Rs 20.0 crore (4.7% qoq) to Rs 445.0 crore, thus imparting a strong visibility to the revenues and the ensuing earnings.
- Considering the robust macro economic scenario, high revenue visibility, strong earnings momentum, strong balance sheet, improvement in return ratios and attractive valuations (PER of 10.4X FY2008E earnings and Ev/Ebidta of 7.0X FY2008E); I will initiate price target at Rs 600 discounting its FY2008E earnings at 12X.
Genus Overseas Electronics
Recommendation: Buy
CMP = Rs 147
Price target: Rs 180
- Genus Overseas has reported a net profit of Rs 1.68 crore for Q3FY2006, which is in line with our expectations.
- The net sales for the quarter stood at Rs 26.3 crore, down 32%, primarily because of a fire incident that resulted in some finished goods inventory loss and consequently restricted the dispatches of meters during the quarter.
- Further there was labour unrest at the company's plant in Jaipur, and there was a loss of production for 10-12 days during the quarter.
- In FY2005 Genus' product portfolio did not consist of 3-phase meters. However with its entry into the high margin low volume 3-phase energy meters, there is a change in the company's revenue mix. Consequently the operating profit margins have improved substantially from the earlier 11.7% to 18.3%.
- The operating profit for the quarter is up 15% to Rs 4.47 crore. The interest expenses for the quarter are up 56% and consequently the net profit for the quarter has not shown any growth and stood at Rs 1.68 crore.
- The total order book stands at Rs 414 crore, which at 2.7X its FY2005 revenues provides a strong earnings visibility.
Godrej Consumer Products
Recommendation: Buy
CMP = Rs 561
Price target: Rs 674
- The net sales of Godrej Consumer Products Ltd (GCPL) grew by 10.2% year on year (yoy) to Rs 169.1 crore, powered by a strong 16% year-on-year (y-o-y) growth in the branded portfolio. The sales of the Godrej brand of soaps grew by 11.5% yoy whereas the personal care business grew by 21.2% yoy.
- The profit before interest and tax (PBIT) margin of the soap segment stood at 7.7% (down 20 basis points yoy). The decline was mainly on account of a change in the product mix (which shifted towards lower-margin, high-volume products), and higher ad spend during the quarter (8.9% of sales).
- The net profit grew by 31.1% yoy on the back of the strong performance of the personal care business both on the revenue and margins fronts. The earnings for the quarter stood at Rs 6.0 per share as against Rs 4.6 per share a year ago.
- GCPL is currently trading at 19.5x its FY2008E stand-alone earnings and 16.7x its FY2008E consolidated earnings. We believe the valuations are attractive considering the strong growth momentum expected in its earnings over the next two years. I will maintain Buy recommendation with a price target of Rs 674.
