GODREJ CONSUMER PRODUCTS
Reco price: Rs 281
Current market price: Rs 282.65
Target price: Rs 299
Upside: 5.8%
Brokerage: Emkay Research
Godrej Consumer Products (GCPL) entered into an agreement to acquire PT. Megasari Makmur Group and its distribution company in Indonesia. The Megasari group manufactures and distributes a wide range of products like household insecticides, wet tissues, air fresheners and baby care products. The key brands are Hit, Mitu Baby and Stella, which contribute about 72 per cent of revenues. Megasari group has witnessed 3-year CAGR of 25 per cent in revenues and 54 per cent in EBITDA.
Megasari is GCPL’s 6th acquisition. GCPL’s underlying growth strategy is to participate in the growth potential of emerging countries – especially in Asia, Africa and Latin America. The acquisition is attractively priced at 2.2 times enterprise value to Sales and, is both earnings and value accretive in short-term and long-run.
Megasari will add approximately 25 per cent each to GCPL’s 2009-10 estimated consolidated revenues (now pegged at Rs 2,590 crore) and EBITDA (Rs 480 crore). Emkay has revised the target price upwards to Rs 295 and maintains accumulate on the stock.
DHANUKA AGRITECH
Fair price: Rs 283
Market price: Rs 284
Fundamental grading: 3/5
Valuation grading: 3/5
Research house: CRISIL Equities
Dhanuka Agritech, a three-decade old pesticide formulations manufacturer, is well-placed to maintain its 3 per cent market share in the growing pesticides industry. CRISIL Equities expect the Rs 10,000-12,000 crore pesticides industry to grow at a 9 per cent CAGR over the next 5 years. The company’s products command a good brand recall due to innovative marketing campaigns and tie-ups with established MNC players for superior quality specialty molecules.
The assigned grade is tempered by the growth constraints faced by Dhanuka due to the absence of backward integration into technicals. This makes Dhanuka dependent on sales of formulations only in the domestic market. Further, the company has identified sales through its own line of retail outlets and real estate development as avenues for growth, in which it is relatively inexperienced. CRISIL Equities expects Dhanuka’s revenues from pesticides to grow at a 12.1 per cent CAGR to Rs 480 crore in 2011-12; EBITDA margins to remain flat at 14.6 per cent. Over 2008-09, PAT margin is expected to improve due to savings in interest cost and, EPS to rise by 73 per cent to Rs 43.8 in 2011-12. The valuation grade of 3/5 indicates that the current market price of Rs 271 is aligned with its fundamental value of Rs 283 based on the discounted cash flow method.
JUBILANT ORGANOSYS
Reco price: Rs 340
Current market price: Rs 347.20
Target price: Rs 450
Upside: 29.6%
Brokerage: Macquarie Research
Jubilant Organosys raised $85 million through a QIP recently at Rs 344.50 per share. The proceeds will be used to repay high-cost (interest rate of 10 per cent) rupee debt of Rs 400 crore.
Its CRAMS business (order book of 2 times 2009-10 sales) is well poised for growth with custom manufacturing operations (CMO) and pyridine being the primary growth levers. Jubilant’s CMO business has strong presence in the niche sterile injectables space with an order book of $550 million (4 times of sales). New contracts and the ramp up of existing ones should help drive the earnings momentum with capacity peaking only by 2011-12 as current utilisation is at just 60 per cent.
Unmatched integration in pyridine provides a strong entry barrier for competition along with pricing power to Jubilant. Also, the company is putting up large vitamin B3 capacity (about 40 per cent of the current world capacity) as part of forward integration into niche nutritional business. Momentum in the speciality pharma, which was restrained by the shortage of nuclear isotopes, is expected to ease by first quart of 2010-11. With its focus on strengthening the balance sheet, expect further re-rating in the coming quarters. Macquarie believes that Jubilant is one of the best proxies to participate in the global pharma outsourcing opportunity.
MPHASIS
Reco price: Rs 633
Current market price: Rs 642.45
Target price: Rs 890
Upside: 38.5%
Brokerage: Anand Rathi Research
MphasiS is to acquire Fortify Infrastructure Services, an offshore-based remote IT operations and management (ROM) services provider, through an all-cash deal. MphasiS would be paying $15.5million (upfront consideration) plus earn-outs (over a period of two and a half years if certain financials are attained).
Fortify Infra Services operates in India and the US. It had $20 million in revenue in 2008-09, gross margins of 22 per cent and its acquisition would be EPS accretive for MphasiS. In November 2009, it had acquired UCA Services and in April 2009 WAMS. Fortify has a wide range of ROM offerings, which include data centre operations, systems and application infrastructure management, managed security services, network monitoring and management, and virtualisation services.The acquisition should provide MphasiS access to Fortify’s accounts, an experienced management team and a platform to proffer ROM services. Through this acquisition, MphasiS would be able to increase its share from outcome-based services (currently, FPP stands at 13.4 per cent, the lowest of the top-five Indian IT companies). At Rs 890, MphasiS trades at 17 time average 2009-10 estimated earnings. Fortify would contribute only around 1.8 per cent to Mphasis 2009-10 revenue.
UNITECH
Reco price: Rs 76
Current market price: Rs 75.95
Target price: Rs 101
Upside: 33%
Brokerage: Religare Institutional Research
Unitech’s plans to spin off its non-core businesses and focus on real estate. The proposed non-core entity would comprise the company’s 40 per cent stake in Unitech Corporate Park (UCP), 50 per cent stake in Unitech Amusement Park, 32.5 per cent holding in Uninor Wireless (telecom), and the in-house construction and power transmission divisions.
The company has six properties (five SEZs and one IT park) in the NCR region and Kolkata. UCP is a debt-free company with cash of £48.3 million as of December 2009. Knight Frank has valued the company’s six assets at £517.7 million. Accordingly, the value of Unitech’s 40 per cent stake stands at Rs 1,400 crore. Unitech’s stake in the amusement park company, which owns one park in Noida and Rohini (Delhi), is worth Rs 500 crore, while its stake in Uninor Wireless is valued at Rs 2,960 crore. The construction business is valued at 4 times market cap to EBITDA (around Rs 100 crore) and power at Rs 100 crore.
Including subsidiaries and JVs, the de-merged entity’s value stands at Rs 19.5 per share in the best case and Rs 12.9 per share in the bear case scenario. Religare expects the spin-off to unlock value for investors. However, rising interest rates and escalating realty prices that could affect volumes are concerns.
No comments:
Post a Comment