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Stock Idea - Selan Exploration Technology

Recommendation: Hold

CMP = Rs 158

Result highlights:

  • For Q3FY2008, Selan Exploration Technology (Selan) has reported a growth of 44.4% in its revenues to Rs 7.8 crore. However, the revenues declined by 12.5% sequentially. The sequential growth was dented by a 21.9% drop in the volumes (barrel of crude oil) sold, which is lower than our expectations. This was partially mitigated by a 12.6% sequential improvement in the average realisation (per barrel) during the quarter. In Q3, the production volume was dented by seasonality factor. The third quarter has lower number of working days due to festive season. Moreover, some of the wells were partially shut down for testing and maintenance.
  • The operating profit margin (OPM) at 62% in Q3FY2008 was lower than 64.1% reported in Q2FY2008. The OPM declined largely due to additional cost incurred on maintenance and higher overhead cost as percentage of sales. The operating profit grew by 77.9% yoy and declined 15.3% quarter on quarter to Rs 4.8 crore. However, the earnings grew at a healthy rate of 14.7% sequentially and 109.7% yoy to Rs 3.9 crore. The earning growth was boosted by the lower effective tax rate during the quarter.
  • For the nine-month period ended December 2007, the revenues and the earnings have grown by 37.9% and 44.6% respectively. The OPM at 64% is higher than 61.4% reported in the corresponding period last fiscal.
  • To factor in the lower than expected production volumes in Q3FY2008, we are revising downwards our earnings estimates by 2.6% for FY2008 and 4.5% for FY2009 respectively. I am factoring a volume growth of 25.3% CAGR over FY2007-09 (lower than the management guidance of 30-40% CAGR over the two-year period).
  • At the current market price, the stock trades at 16.1x FY2008 and 11.8x FY2009 estimated earnings. I maintain Hold recommendation on the stock.

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Stock Idea - Jindal Saw

Recommendation: Buy

CMP = Rs 904

Price target: Rs 1,302

Result highlights:

  • Jindal Saw Ltd's (JSL) Q5FY2007 numbers were ahead of expectations on the back of higher topline and improved margins. The net revenues marked a growth of 35.1% yoy to Rs 1,611.7 crore due to high growth witnessed in the submerged arc welded (SAW) pipe and the ductile iron (DI) pipe segments.
  • The US division, which contributed Rs 535 crore to the topline during the quarter, has been hived off. Since the US division was operating at lesser margins of about 8-9%, its hiving off would result into an expansion in the company's profit margins. On the back of a favourable product mix, lesser contribution of the US division, and greater efficiencies, the operating profit margin expanded by 100 basis points yoy and 50 basis points sequentially to 12.4%. Consequently, the operating profits surged by 46.3% to Rs 199.8 crore. Lower taxes led the profit before extraordinaries to grow by 83.1% to Rs 110.1 crore.
  • JSL's order book at the end of the quarter stood at $1 billion executable by January 2009, with more than 65% contribution coming from international markets. Of this, $775 million orders were for SAW pipes, while the remaining orders were for DI and seamless pipes. The company has announced new initiatives and has identified opportunities in new areas of infrastructure, transportation and fabrication industry, all through wholly owned subsidiary Jindal ITF. In all, the capex of Rs 1,800 crore is planned to be spent on these businesses with 25% equity contribution. 
  • To fund these plans, the company would also be issuing 26 lakh warrants and 27.3 lakh convertible debentures to the promoters, convertible at Rs 819 per share. I maintain positive outlook on the company considering strong scope for its core business and margin expansion.
  • I maintain Buy recommendation on the stock with a price target of Rs 1,302.

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In some point of time in our life, we face financial troubles. Sometimes we find ourselves in deep monetary losses so much so that we turn to heavy borrowing / credits, and then face another trouble of mounting debts. It also carries a risk of going bankrupt. I know that going bankrupt is a touch decision. It means you can walk away from all your debts, but you'll lose your house in most cases - and possibly other assets too. So if you are worried you could be made bankrupt, and you are scared or your life on that thought of losing all your assets, then look no further than ClearDebt.

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  • An IVA will freeze the interest you pay
  • An IVA will legally prevent creditors taking action against you.
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Stock Idea - Unity Infraprojects

Recommendation: Buy

CMP = Rs 692

Price target: Rs 970

Key points:

  • Unity Infraprojects (Unity) is a leading construction company with well-diversified expertise across the projects. The strong growth in real estate sector will trickle down to construction companies, which would lead to strong order inflows for these companies. The growth in real estate sector coupled with government thrust on infrastructure spending would lead to over 20% compounded annual growth rate (CAGR) growth in Unity's order inflows during the period FY2007-2010.
  • Unity has strong order book of approximately Rs 2,450 crore, which is 4.8x its FY2007 revenues. The robust order book coupled with growth in order inflows would lead to a strong financial performance. Consequently, we expect Unity's revenues and earnings to grow at a CAGR of 37.1% and 31.8% respectively during the period FY2007-2010.
  • Unity has forayed into real estate sector through a wholly owned subsidiary, Unity Realty and Developers Limited (URDL). The real estate projects include those at Nagpur, Pune, and Goa, which are on the build-operate-transfer (BOT) basis. Beside this, the company plans to develop 15 million square feet (mn sq ft) in Kolkata. In line with this, the company has acquired 150 acre of land for Rs 100 crore in Kolkata. To fund these projects, the company plans to dilute its stake in URDL, which will unlock value for Unity's shareholders.
  • I initiate Buy recommendation on Unity with a price target of Rs 970 over next 6 months.
 

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