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FINANCIAL HIGHLIGHTS
■ CAGR growth (FY05 - FY09), Top Line - 62% & Bottom Line - 166%.
■ Segment Revenue - Vanaspati Division around 98% and rest 2% comes from Power Segment.
■ Q2 FY10 - Net Profit Rs 50.18 Cr (Up by 19% YoY), Net Sales Rs 946.52 Cr (surged by 26% YoY.)
■ Interest cost & Depreciation also surged by 98% & 1.20% respectively on account of land acquisition in Indonesia
To read the full report: K S OILS
■ Ease of NBFC funding and Infra-led demand to improve volumes: Demand for equipments related to infrastructure is expected to see a considerable pick-up on the back of NBFC funding being available now and the on-going infra-related spending. Products like Mobile cranes, Backhoe loaders, Crawler cranes and Tandem rollers are expected to see increased volumes. But at the same time demand from the real estate sector (for fixed tower cranes, mobile cranes) might have bottomed out but still hasn’t gathered any momentum. Even on conservative volume estimates (15-25% lower than management guidance) for FY11 and FY12, we expect the company’s revenue to grow at a CAGR of close to 30%.
Asian countries (China, Japan, South Korea, Asian emerging countries) are currently forced to shore up the dollar's exchange rate and to prevent an excessively sharp appreciation of their currencies, mainly for two reasons:
− the dollar's role as a currency of global trade, particularly in Asia;
− the weight of the United States in Asian countries’ exports and output, once we take into account the segmentation of the production process between Asian countries, which increases intra-Asian trade, but in a way that is related to Asian final exports to the rest of the world.
Asia will not lose interest in the dollar until Asian demand accounts for a major part of Asian output. We will try to estimate the time needed for this to occur.
Once Asia’s economic independence has become sufficient enough, the financial links with the United States will be broken: Asian central banks will stop shoring up the dollar, the United States will have to rebalance its foreign trade with Asia, and Asian savings will be lent (invested) in Asia instead of being lent to the United States, which will accelerate Asia’s financial development. Of course, this will also require a financial modernisation of many Asian countries. The amount of global trade denominated in dollars will probably also shrink.
To read the full report: DOLLAR
Asbestos Cement Fibre Sheet (CFS) is an oligopoly market with the top four players collectively controlling ~60% of the market. The industry has witnessed a volume CAGR of 12% in the last 10 years. CFS being predominantly a rural product has its fortunes closely linked with the rural economy. Branding and distribution reach are key parameters in the business. However, ability to pass on raw material inflation by increasing realizations is limited on account of the affordability constraint of rural India for the product. The players are exposed to forex risk as imports account for ~50% of total raw material cost. To leverage on existing brand and distribution reach coupled with an increased focus to diversify and de-risk the revenue stream, players have started focusing on allied products used in “Green Buildings” as well as non allied industrial products. The key players generally generate positive cash flows.
The industry underwent a phase of turbulence due to a demand supply disequilibrium which has been addressed and is now expected to maintain the top line growth of ~20% coupled with stabilization in the margins for next couple of years. CFS industry is cyclical in nature with June quarter is the best quarter for the industry historically. We believe, the industry should be re-rated on PER on account of improved visibility, diversification of revenue
stream, expansion in margins and cash flows positive status of the players.
Our preferred bet is Hyderabad Industries (BUY- 135% Upside) followed by Visaka Industries (BUY –55% Upside) and Everest Industries (BUY - 43% Upside).
Hyderabad Industries
Hyderabad Industries Ltd (HIL) is the market leader (Capacity - 764500 Tons) with a share of ~18% in the Roofing industry (Asbestos Cement Fibre Sheet-CFS) with an experience of over six decades. Large capacity, Brand superiority of “Charminar” and Strong distribution network places HIL in the pole position by garnering largest market share with price leadership and provides volume strength. It helps to capitalize on the strong thrust of Government on Rural Housing. Increased focus on allied building products and Thermal Insulation business are expected to further boost sales growth and margins. We expect the company to clock revenue CAGR of ~16% between FY09 and FY11E with stable margins and return ratios. At CMP, the stock trades 4.7x its FY10E earning of Rs.97.7 and 4.2x its FY11E earnings of Rs.109. We recommend a BUY on the stock with the price target of Rs.1091 at which it discounts its FY11E earnings by 10x.
Everest Industries
Everest Industries has been the pioneer and the 2nd largest player (Capacity - 710000 Tons) in the Asbestos Cement Fibre Sheet (CFS) Industry with a presence of over seven decades with a market share of ~13%. The company is one of the leading brands and has transformed into a complete “Building Solutions” Company with its roofing to flooring range of solutions. The new unit at Roorkee has boosted EIL’s presence in the lucrative Northern region. Everest has also forayed into the Steel Building business to cater to the industrial segment. We expect the company to clock a revenue CAGR of 24% between FY09 and FY11E with stable margins and return ratios. At CMP, the stock trades 9x its FY10E earning of Rs.18 and 6.3x its FY11E earnings of Rs.25.7. We recommend a BUY on the stock with the price target of Rs.231 at which it discounts its FY11E earnings by 9x.
Visaka Industries
Visaka Industries (VIL) is the 3rd largest player (Capacity - 544000 Tons) in the Asbestos Cement Fibre (CFS) industry with a 15% market share. It has a prominent presence in the Southern markets and has a well established brand. Visaka plans to increase its CFS capacity over the next couple of years and has also forayed into the value added cement products segment thereby moving up the value chain. VIL is also one of the leading yarn producers with a presence in the overseas markets as well. This segment contributes ~20% to the top line and enjoys EBIT margin of ~9%. We expect VIL to clock a revenue growth of 11% between FY09 and FY11E with EBIDTA margin estimated to stabilize at 15% and PAT margin at 8%. At CMP, the stock trades 4.2x its FY10E earning of Rs.31.3 and 3.9x its FY11E earnings of Rs.34. We recommend a BUY with a target price of Rs.204 which discounts its FY11E EPS by 6x.
To read the full report: ROOFING INDUSTRY
