Recommendation: BUY
CMP: Rs 402.05
Target Price: Under Review
- Tata Steel is Asia’s first and India’s largest integrated private sector steel company and among the lowest cost producer of steel in the world. In Q3FY06, on a year-on-year basis the company registered a decline in sales by 1.4 per cent and PAT by 15.4 per cent.
- Steel prices have started stabilizing in the international market after falling continuously for several months globally. The company believes that its lowest cost structure and backward integration will result in cash flows, which will help to fund the expansion plan of its production capacity.
3i-INFOTECH
Recommendation: BUY
CMP: Rs 175.45
Target Price: Rs 274
- Promoted as the back office of the ICICI Group in 1993, 3i Infotech is now a global technology company providing solutions and products in banking, insurance, manufacturing, etc.
- In Q3FY06, revenues grew by 15 per cent on a quarter on quarter basis and profits by 22.6 per cent during the same period. Contribution from products to revenues is improving and is expected to move up further to approximately 50 per cent which would result in better margins.
- The stock at 10x FY08E EPS of Rs.18 looks attractive.
AARVEE DENIM
Recommendation: BUY
CMP: Rs 125
Target Price: Rs 181
- The Q3FY2006 results of Aarvee Denim & Exports (Aarvee) are in line with our expectations. The company's net sales grew by 20.7% from Rs60.16 crore in Q3FY2005 to Rs72.63 crore in Q3FY2006 led by a healthy 33% growth in the domestic sales.
- The domestic sales grew from Rs51.73 crore in Q3FY2005 to Rs68.81 crore in Q3FY2006. The operating profit grew by 58.4% from Rs11.92 crore in Q3FY2005 to Rs18.88 crore in Q3FY2006 on account of an increase in the operating profit margin (OPM) from 19.8% to 26% in Q3FY2006 year on year (yoy).
- The company's profit before tax (PBT) grew by 74.1% from Rs8.95 crore in Q3FY2005 to Rs15.59 crore in Q3FY2006. However, as a result of a higher tax provisioning, the profit after tax (PAT) grew by 52% from Rs6.43 crore in Q3FY2005 to Rs9.77 crore in FY2006.
- Hence, the revised price target is Rs 181 from Rs 206 earlier. This price target discounts the 2007E earnings per share (EPS) of 19.3 by nine times.
ABAN LYOD CHILES OFFSHORE
Recommendation: BUYCMP: Rs 588
Target Price: Rs 740
- At Rs18.4 crore the Q3FY2006 net profit of Aban Loyd Chiles Offshore is below our expectation of Rs21 crore. The net profit was lower primarily on account of a higher loss incurred by the wind energy division and a lower other income.
- The net sales for the quarter rose by 110.5% to Rs120.7. The growth was caused by the deployment of all of the company's rig aquistion in FY2005 and that too at higher day rates. Similarly the net profit on a year-on-year (y-o-y) basis is up 82%. However as there has been no change in the fleet size quarter on quarter (qoq), it will be better to look at the results on a quarter-on-quarter (q-o-q) basis.
- The PBT margin for the drilling division improved by 260 basis points on a sequential basis. This was primarily because of a lower other expenditure of the drilling division.
The net profit sequentially was lower by Rs 4.5 crore and stood at Rs 18.4 crore, which was below our estimates. Further there could be some delay in the deployment of its new rig, Aban-VII. - The delay in starting operations of one of the rigs shall result in a revenue loss of Rs 8-10 crore. As a result of this and the higher losses incurred by the wind energy division, the earnings estimates for FY2006 would be downgraded by 9% from the earlier Rs 102 crore to Rs 93.2 crore.
