Sizzling Stocks - Allcargo, ABG Shipyard:: Business Line

Hold ABG Shipyard; Target : Rs 427 ::ICICI Securities, pdf link

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C o r e   E B I T D A   m a r g i n ,  o r d e r   b o o k   q u a l i t y
i m p r o v i n g …
ABG Shipyard (ABG) reported a better-than-expected performance in
Q3FY12 on the topline front while net profit was marginally lower than
our estimates. ABG reported revenues of | 619.3 crore vs. our
expectation of | 609 crore and net profit of | 46.5 crore (I-direct estimate:
| 51.6 crore) for Q3FY12. EBITDA margin (including subsidy) improved by
75 bps QoQ and was higher than our  estimate of 23.5% at 24.6%. The
heartening factor in ABG’s performance is the improvement in the core
EBITDA margin (excluding subsidy), which has improved by 100 bps on a
QoQ basis to 23.5%. However, higher depreciation (up by 5% QoQ) and
interest cost (up by 18% QoQ) continue to dampen the net profit. Over
Q1FY12 to Q3FY12, ABG’s core EBITDA margin has risen by 430 bps
signifying an improvement in the  core operational performance. With
execution also picking up gradually, profitability is expected to see
accelerated growth in FY13.
ƒ Order book quality improving
ABG’s total order book stands at ~ | 15500 crore, of which the
unexecuted order book is at ~ | 10500 crore. Though more than 20% of
the order book comprises orders placed by ABG’s group companies,
recently, the heartening factor has been ABG’s ability to bag prestigious
orders. During Q1FY12, the company had secured an order of | 970
crore for construction of two cadet training ships for the Indian Navy. In
January 2012, ABG bagged an order worth | 500 crore from Shipping
Corporation of India for construction of six anchor handling tugs cum
supply vessels (AHTS). These orders from top notch Indian PSU clients
bode well for potential order inflows from these marquee clients and
provides strong revenue visibility, going ahead.
V a l u a t i o n
At the CMP of | 434, the stock is trading at 8.8x FY13E EPS of | 49.1 and
1.32x FY13E book value of | 328. Considering the improvement in core
EBITDA margin and order book quality, we have valued the stock at 1.3x
FY13E book value (Q1FY12: 1.1x) to arrive at a price target of | 427 and
recommend a HOLD rating. Existing investors can also continue to hold
the stock

Hold ABG Shipyard; Target :Rs 373 :: ICICI Securities

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U p t i c k   i n   e x e c u t i o n ;   b e t t er   o p e r a t i n g   p e r f o r m a n c e …
ABG Shipyard (ABG) reported a better-than-expected performance for
Q2FY12 on the topline front while  net profit was in line with our
estimates. ABG reported revenues of | 581.6 crore as against our
expectation of | 558.5 crore and net profit of | 48.4 crore (I-direct
estimate: | 47.8 crore) for Q2FY12.  EBITDA margin (including subsidy)
improved by 162 bps QoQ and was higher than our estimate of 23% at
23.8%. EBITDA margin excluding subsidy stood at 22.5% for the quarter.
Though depreciation (up 6%) and interest cost (up 19%) were higher,
ABG was able to report a QoQ growth of 21% in net profit to | 48.4 crore.
Revenues reported for Q2FY12 have  been the highest ever quarterly
revenue recorded by ABG. The pick-up in execution has been brought
about by higher utilisation of expanded yard capacity.
ƒ Order book status
ABG’s total order book stands at ~ | 15000 crore, of which the
unexecuted order book is at ~ | 10000 crore. During Q1FY12, the
company had secured an order of  | 970 crore for construction of two
cadet training ships for the Indian Navy. ABG’s order book provides
revenue visibility of 5x FY11 revenues, which is significant in the current
scenario of weak new order flow for shipyards across the globe. Though
the order book seems to be substantial and provides revenue visibility till
FY16, we remain cautious over the quality and execution of the order
book. On the execution front, the construction of jack-up rigs for Essar
Shipping is behind schedule by almost a year while on the quality front,
more than 20% of the order book comprises orders placed by ABG’s
group companies. We consider execution pick-up during Q2FY12 as a
positive, which should enable the company to speed up the order book
execution.
V a l u a t i o n
At the CMP of | 388, the stock is trading at 7.5x FY13E EPS of | 51.6 and
1.1x FY13E book value of | 339. Considering the pick-up in execution, we
have valued the stock at 1.1x FY13E book value (Q1FY12: 1x) to arrive at
a price target of | 373 and recommend a HOLD rating. Existing investors
can also continue to hold the stock.

Hold ABG SHIPYARD; Target : Rs 338 :ICICI Securities,

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M u t e d   p e r f o r m a n c e …
ABG Shipyard (ABG) reported a lower-than-expected performance on the
topline and net profit front in Q1FY12. The company reported revenues of
| 522 crore as against our expectation of | 584 crore and net profit of |
40.1 crore against our expectation of | 61 crore. Though revenues on a
YoY basis have increased by 16%, lately ABG’s pace of execution has not
picked up and is a cause for concern. EBITDA margin (including subsidy)
has declined by 550 bps YoY to 22.2% on account of other expenses to
sales ratio increasing from 13.6% in Q1FY11 to 18.6% in Q1FY12. The
company has booked a subsidy of ~ | 19 crore for Q1FY12 against | 21.7
crore in Q1FY11. Lower subsidy has further contributed to EBITDA
(including subsidy) being lower YoY. During Q1FY12, ABG received an
order from the Indian navy for construction of two cadet training ships
worth | 970 crore. This has strengthened the gross order book to | 14500
crore. The order book pending execution stands at ~ | 11,000 crore.
Though the order book  seems to be substantial and provides revenue
visibility till FY16, we are concerned over the quality and execution of the
order book. On the execution front,  the construction of jack-up rigs for
Essar Shipping is behind schedule by almost a year while on the quality
front, more than 20% of the order book comprises orders placed by
ABG’s group companies.
ƒ Higher depreciation keeps net profit growth muted
ABG delivered 16% YoY growth in revenues against our expectation of
29% growth. The lower than expected performance has been mainly due
to a slower execution of order book and a 550 bps decline in EBITDA
margin YoY to 22.2% with EBITDA declining by 7% to  | 115.9 crore.
Though interest charges have declined by 13%, higher depreciation (up
by 68%) has kept the net profit growth muted at 4%. Thus, the company
has been able to report a net profit of | 40.1 crore.
V a l u a t i o n
At the CMP of | 341, the stock is trading at 6.7x FY13E EPS of | 44.7 and
1.01x FY13E book value of | 338. We have valued the stock at 1.0x FY13E
book value to arrive at price target of | 338 and recommend a  HOLD
rating. Existing investors should also continue to hold the stock.

Sell ABG Shipyard -Expensive valuations…Target : 293: ICICI Securities

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ABG Shipyard -Expensive valuations…
ABG Shipyard (ABG) has reported a steady performance with stable
operating and net margins although the order execution pace has
slowed down. The construction of jack-up rigs for Essar Shipping is
behind schedule by almost a year, which is a cause for concern despite
the strong order book. ABG has received an order for two jack-up rigs
worth | 2000 crore in Q3FY11. This has strengthened the gross order
book to | 14470 crore. However, we remain cautious as the order was
placed by ABG’s group company Drilling and Offshore Pte Ltd. With
this the orders placed by ABG’s group companies constitute 22.2% of
the gross order book. The order placed by Pacific First Shipping, which
is a group company of ABG Shipyard, constitutes 8.37% of the order
book while Drilling and Offshore constitutes 13.8% of the order book.

ABG Shipyard – 3QFY2011 Result Update:: Angel Broking

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  ABG Shipyard – 3QFY2011 Result Update

Angel Broking maintains a Neutral on ABG Shipyard.

For 3QFY2011 (consolidated), ABG Shipyard (ABG) reported subdued

performance, with cost pressures weighing on margins. During the quarter, ABG

witnessed revival in order inflow (~`2,370cr in 3QFY2011) compared to a listless

FY2010. The company’s unexecuted order book (OB) stands at ~`7,600cr and

executable by FY2014. Following ramp up at the Dahej yard, ABG’s execution

has been healthy and it delivered ten vessels during 9MFY2011. ABG’s current

net debt has increased to ~`2,200cr (D:E - 1.8x) in 3QFY2011 compared to

~`1,825cr in 2QFY2011 (D:E - 1.5x). Moreover, headwinds like increase in input

costs continue to dog the industry and uncertainties of the subsidy scheme persist.

At current levels, the stock trades at fair valuations in line with its global peers.

We remain Neutral on the stock.

Result Reviews – 3QFY2011 M&M, MOIL, ABG Shipyard

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Result Reviews – 3QFY2011
Mahindra and Mahindra
Mahindra and Mahindra (M&M) reported strong 36.1% yoy (12.6% qoq) top-line growth to
`6,121cr, which was in line with our expectation and aided by a robust 32.5% yoy (11.8%
qoq) jump in overall volumes and a 2.3% yoy (2.3% qoq) increase in average net realisation.
Further, a substantial increase in other operating income at `47cr (`18cr in 3QFY2010)
supported strong growth in the top line. M&M’s total market share in the UV segment and
tractor segment during 3QFY2011 stood at 62.2% and 43.3%, respectively. The company’s
EBITDA margins for 3QFY2011 came in 29bp ahead of our estimate at 15.1%, a jump of
20bp yoy; however, it fell by 138bp qoq. Margin expansion was supported by the decline in
raw-material cost as a percentage of net sales to 62.7% v/s 64.6% in 3QFY2010. However,
raw-material cost for the quarter increased by almost 58bp qoq. Better product mix along
with higher commercial vehicle volumes, improved operating leverage and cost-control
initiatives also helped the company to save on staff costs and other expenses. M&M reported
adjusted net profit growth of 49.2% yoy to `617cr (`414cr in 3QFY2010), as against our
estimate of `611cr, aided by improved operating performance and higher other income,
which increased by 72% yoy to `41.9cr (`24.4cr in 3QFY2010).

We broadly maintain our volume and earnings estimates for the company. At `654, M&M is
trading at 15.1x FY2011E and 13.8x FY2012E standalone earnings. Owing to the recent
correction in the stock price, we recommend Buy on the stock. Our SOTP Target Price for
M&M works out to `794, wherein its core business fetches `592/share and the value of its
investments works out to `202/share.

ABG Shipyard – 2QFY2011 Result Update -Angel Broking

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ABG Shipyard – 2QFY2011 Result Update

Angel Broking recommends a Neutral on ABG Shipyard.

ABG Shipyard (ABG) reported strong 2QFY2011 results, ahead of our estimates

on the back of revenue booking from the recent orders. ABG has seen revival in

fresh order additions (~`2,700cr in FY2011 till date) as compared to a listless

FY2010. The company’s unexecuted order book (OB) stands at ~`10,500cr and

executable by FY2014. Execution has also been healthy following ramp up at the

Dahej yard, and in 1HFY2011 ABG delivered seven vessels. The company’s net

debt has improved with the D/E ratio at 1.8x for 1HFY2011 v/s 3.1x for FY2010.

Nonetheless, owing to the recent sharp rally, at current levels the stock is trading

at fair valuations. Hence, we recommend Neutral on the stock.

Research Views with Emkay; 16 November, 2010

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n        Research Views

ABG Shipyard Q2FY11 Result – First Cut Analysis

Above estimates

n    ABG Shipyard (ABGS) delivered strong performance during Q2FY11 was above estimates.

n    Revenues (including subsidy income) grew by 38% yoy to Rs5555 mn – above estimates.

n    Operating margins (including subsidy income) declined 100 bps yoy to 26.2% - though above estimates. Expansion in operating margins was due to higher raw material costs. Consequently growth in operating profits was lower at 33% yoy to Rs1454 mn – marginally above estimates.

n    Led by strong operational performance, adjusted net profits increased 39% yoy to Rs637 mn – above estimates. After accounting for losses on sale of investments of Rs74 mn, ABGS reported net profit of Rs563 mn

n    At CMP, the stock is trading at 10.2X FY11E and 9.5X FY12E earnings of Rs44.4 and Rs47.5 per share respectively.

Inflation eases by 4bps to 8.58%, core inflation inches up to 5.1%

n    Headline inflation for the month of October eased marginally by 4bps to 8.58%.

n    Primary articles inflation has eased to 16.7%, driven mainly by the presence of a high base.

n    Inflation in primary articles showed a broad based increase on a MoM basis, led by price increases in potatoes (9.4% MoM), onions (24.2% MoM), fruits (4.7% MoM) and fibres (8.5% MoM).

n    Fuel inflation saw a drop by 10bps, but also saw the price of petrol increase by 1.7% MoM.

n    Manufactured products inflation inched up to 4.8% in the month of October from 4.6% last month.

n    Core inflation that has been trending downwards has made a slight northward move to 5.1% from 4.9% last month.

n    With YTD inflation for FY11 at 4.3%, the broad downtrend in inflation would probably stay unaffected.

n    The month of November is likely to see primary articles inflation easing considerably owing to a favourable base effect. This in turn would bring about a significant drop in headline inflation.

n        Research Update Included

Lupin Pharma Q2FY11 Result Update; Robust earnings; Revise target price upwards; Accumulate; Target: Rs496

n    Strong operating performance largely driven by robust growth momentum in US, Europe, Japan and India coupled with favorable product mix

n    US branded business grew at 24% (adjusted for one time impact of change in accounting treatment for rebates) and India formulations at 22% (adjusted for inventory correction)

n    Both existing and new prescriptions seeing growth in Antara; OC launches in US in Q312 will aid long term revenue visibility

n    On account of improved performance, revise earning estimates and raise target to Rs496; Maintain Accumulate, owing to limited upside

HPCL Q2FY11 Result Update; Results above expectation, Maintain BUY; Target: Rs.515

n    HPCL reported results which were above our estimates at EBIDTA and PAT Level, primarily due to issuance of oil bonds/Cash receivables during the quarter

n    EBIDTA at Rs.24.8bn, against Rs1.7bn, YoY, mainly due to inventory Gain and issuance of oil bonds/cash receivables from the government of India

n    Average gross refining margin for 1H FY11 was at $3.2/bbl as compared to $3.8/bbl (decline by 18% YoY) below our expectation of $3.7/bbl.

n    Valuations look attractive at 1x FY12E ABV, mainly due to recent change in reforms, Continue BUY rating with TP of Rs.515

Glenmark Pharma Q2FY11 Result Update; On a comeback trail; Upgrade to Accumulate; Target: Rs381

n    Adjusted PAT growth of 27% was in-line driven by a) 23% growth in sales at Rs7.4bn (est. of Rs7bn) and b) 11% growth in EBITDA at Rs1.87bn (est. Rs1.77bn)

n    Revenue growth was driven by a) 19% growth in Speciality business (55% contribution to top line) and b) 27% growth in Generics business (45% contribution to top line)

n    Managements conscious effort to clean the balance sheet is a welcome move; further improvement in working capital situation can lead to expansion in valuation

n    Positive Ph-III trials a step forward for Crofelemer launch

n    Tweak earning estimates; raise target price to Rs381 (Rs308 earlier); upgrade to Accumulate from Hold

IOCL Q2FY11 Result Update; Results above expectation, ACCUMULATE; Target: Rs.458

n    IOCL reported results which were above our estimates at EBIDTA and PAT Level, primarily due to inventory gain and issuance of oil bonds/Cash receivables during the quarter

n    EBIDTA at Rs.68.9bn, against Rs.6.1bn a year ago, mainly due to Inventory gain and issuance of oil bonds/cash receivables from the government of India

n    Average gross refining margin for 1H FY11 was at $4.7/bbl as compared to $5.4/bbl (declined by 13% YoY) above our expectation of $3.5/bbl.

n    Valuations look attractive at 1.4x FY12E ABV, mainly due to recent change in reforms, Accumulate rating with TP of Rs.458

Tata Steel Q2FY11 Result Update; Getting fit for future; Accumulate; Target: Rs 712

n    Higher volume in Indian operations and slightly higher realization in European operation helped revenue growth of 5% to Rs 286.5 bn, in line with our expectations

n    Higher raw material costs (up ~20% QoQ) weighed on the EBITDA margin, which fell 348 bps QoQ to 12.8%. EBITDA/ tonne for Tata Steel Europe remained at ~US$60

n    Higher other income due to stake sales in Tata Motors and Tata Power helped consolidated PAT to grow 8.4% on QoQ to Rs 19.8 bn

n    Revising up our earnings estimates for FY11E and FY12E to Rs 81.4 and Rs 97.8 respectively. We assign Accumulate on the stock

IVRCL Infrastructure Q2FY11 Result Update; Earnings continue to disappoint; Hold; Target: Rs160

n    Q2FY11 PAT at Rs 233 mn sharply below estimates (Rs434 mn) led by revenue decline of 16%. Execution impacted by delays in financial closure of own BOT projects & extended  monsoons

n    EBITDA at Rs 706 mn down 41% margins at 6.7%, contracted 287 bps – as slow execution rate led to poor overhead absorption –impacting margins to an extent of 230 bps

n    Mgmt revenue guidance of ~Rs6.75 bn, lowered to Rs 6.5 bn still implying a steep H2FY11E revenue growth of 42% & EBIDTA growth of 47%

n    We believe IVRCL will continue to face execution headwinds as ~ 40% of order backlog remains slow moving. We cut FY11E/12E EPS by 19.5%/16.5%. Maintain  HOLD - cut target to Rs160

Mahindra Satyam Q2FY11 Result Update;  ‘Growth+ cost’ pangs= Margin pressures; REDUCE; Target Price: Rs 70

n    Mahindra Satyam’s result continue to indicate the ‘Hard toil’ faced by the company as Sep’10 qtr revenues decline by ~2% QoQ, margins falling by ~380 bps QoQ to 5.9%

n    Result vindicate our negative stance on the company as it faces stiff challenges from both weaker competitive positioning in erstwhile areas of strength

n    Cut our FY11E/12E/13E margins to 8.4%/14%/14.7% (V//s 15.2%/17.1%/17% earlier) driving a 48%/24%/19% in EPS to Rs 2.7/4.9/6(V/s Rs 5.1/6.4/7.5 earlier)

n    Maintain REDUCE rating with a revised March’12 DCF based TP of Rs 70(V/s Rs 81 earlier, implying ~12.5x 1 yr forward P/E)

Research Views-- Emkay; 15 Nov, 2010

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n        Research Views

ABG Shipyard Q2FY11E Result Estimates

Expect strong operational performance by ABG Shipyard in Q2FY11E on the back of a healthy order backlog.

n    Robust revenue growth at 38% YoY to Rs4.9 bn.

n    EBITDA margins to improve by 270 bps YoY aided by lower input costs. Consequently, expect EBITDA growth to be strong at 59% YoY to Rs1.0 bn.

ABG SHIPYARD (BUY): tip by Indiabulls research

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ABG SHIPYARD (BUY)
Particulars Rs.
CMP 360.40
Target Price 364/370/375
Stop Loss 352
Support-Resistance 336/380
Comment
􀂃 RSI is at 81 overbought territory showing positive
crossover indicating uptrend.
􀂃 Stochastic is hovering in overbought showing positive
crossover suggesting downside.
􀂃 Stock already crossed 34 Day EWMA and expecting to
rise further.
􀂃 MACD showing positive divergence.

Sell ABG Shipyard: target Rs 241, says ICICI Sec

Banking on order book…
ABG Shipyard Ltd (ABG) has performed extremely well in the last one
year with 28.3% revenue growth and 27.4% PAT growth. With the
ramp-up in yard capacities at Dahej and Surat, ABG has increased the
pace of order execution in the last one year. This has helped the
company to book higher revenues in FY10. ABG is expected to maintain
its growth pace over the next two years as incremental capacity gets
added and order execution gains pace.
The order book pending execution is almost 4x FY10 sales. This
provides comfort and would also ensure revenue growth over the next
two years on the back of stable order execution. However, globally
oversupply of vessels has resulted in a drying up of new build orders for
shipyards globally. ABG has also received marginal orders in the last 1.5
years. This reduces the earnings visibility for the company over the
long-term as revenues are expected to peak in FY12. However, post that
a steady decline is expected in both topline and bottomline.
Operating performance expected to be stable
ABG Shipyard has a sizeable order book and its execution would ensure
steady revenue growth over next two years. We expect revenues to rise
from | 1812 crore in FY10 to | 2299 crore in FY11 and further to | 2613
crore in FY12. However, the operating margin is likely to moderate from
26% in FY10 to 21% in FY12 on account of a rise in raw material costs.
The company has almost completed its capex spend at the Dahej and
Surat yards. As debt repayments get under way, we expect the debtequity
ratio to improve from 1.9 to 1.3 over the next two years.
Valuation
We have valued ABG Shipyard at 0.80x FY12E P/BV to arrive at a price
target of | 241. We maintain our REDUCE rating on the stock.