Recommendation: Buy
CMP = Rs 265
Price target: Rs330
- The net revenues of KEI Industries Ltd (KIL) for Q3FY2006 grew by 38% to Rs76 crore. The cable division led the growth in the revenues, growing by a strong 32.1% year on year (yoy). A lower effective rate of excise duty during the quarter also aided the revenue growth.
- The operating profit margin (OPM) grew by 310 basis points to 14.2% and this led to a whopping growth of 76.5% in the operating profit to Rs10.8 crore.
- The net profit of the company grew at an even higher rate of 140.6% yoy to Rs7.5 crore as the effective tax rate came down from 26.9% in Q3FY2005 to 22.9% in Q2FY2006.
- Against earlier full-year earnings estimate (diluted) of Rs21 per share, KIL has already reported earnings of Rs17.7 per share for M9FY2006. The ramp-up at the Silvassa plant has been much higher than expectations. Also the high-tension cable plant is expected to come up in March 2006. Taking note of these developments, earnings per share (EPS) estimate for FY2006 by 16% and that for FY2007 by 7.2%.
- At the current market price of Rs265, the stock quotes at 7.7x its FY2007E EPS and 5.2x its enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA). I maintain Buy recommendation on KIL with the price target of Rs330.
Recommendation: Buy
CMP = Rs 845
Price target: Rs1,130
- Lupin's net sales for Q3FY2006 stood at Rs426.9 crore as against Rs279.6 crore in Q3FY2005, an increase 52.7% year on year (yoy) backed by the doubling of revenues from the domestic bulk market and a five times increase in the sales of formulations in the export market.
- The operating margins increased by 322 basis points on a year-on-year (y-o-y) basis at 13.49% as the operating profit doubled to Rs57.6 crore. The pre-R&D expenditure included a non-recurring forex loss of close to Rs12 crore without which the operating margin for the quarter would have been even higher.
- The interest and depreciation costs increased to a lesser extent but lower other income resulted in a net profit of Rs44.2 crore in Q3FY2006 as against Rs24.5 crore in Q3FY2005, an increase of 80.4% on a y-o-y basis.
- At the current market price of Rs845, the stock is trading at 13.6x its FY2007 earnings estimate. Estimates for FY2006 and FY2007 are revised upwards and maintain Buy recommendation on Lupin with a target price of Rs1,130.
