Long term Strategies
Finolex Cables: Buy
Improved capacity utilisation, presence in high-margin business and strong financials add visibility to the earnings growth of Finolex Cables. At the current market price, the stock trades at 16 times its expected earnings for FY07. Investors can consider this exposure with a medium term perspective.
Finolex Cables is a maker of power cables that have applications across residential, industrial and commercial sectors. Electrical and communication cables are the major contributors to the company's revenue.
Although domestic demand for network solutions in the country continues to be robust, the requirements have undergone a change. In the light of tapering demand for jelly-filled telecom cables (JFTC), Finolex Cables has converted a part of the JFTC capacity into power cables, thus achieving better capacity utilisation. Any further conversion may help improve margins given the robust demand for power cables.
Finolex Cables enjoys a presence in high-end products such as automobile and battery cables, which command high margins.
Presence of fewer players gives an edge to the company to expand volumes in this premium segment. It has also initiated plans to launch other high-margin products such as switches, compact fluorescent lamps and circuit breakers. These products will complement the cable business and enable the company to be an integrated player in the electrical space.
Construction activity in the residential and commercial space is likely to ensure steady revenue flows for the company. A 60-per-cent increase in revenues and doubling of profits for the fourth-quarter ended March 2006 shows that the company has started capitalising on the realty boom.
Operating margins for Q4 increased by more than 200 basis points to 12.5 per cent. Surge in volumes coupled with ability to pass on price increases attributable to hike in raw material costs has enabled an expansion in margin. Copper, the key input, continues to demonstrate firm price trends; inability to pass further price hikes would dent OPMs and that remains a principal risk to our recommendation.
Bajaj Auto: Buy
Helped by the success of recent launches, Bajaj Auto continues to outperform the growth rate in the motorcycle segment. The cash chest and the controlling stake in the insurance business are major positives from an investment perspective. These factors make Bajaj Auto a top pick in the two-wheeler space.
The sustained growth in the demand for Pulsar and the success of the recently-launched Discover have helped Bajaj Auto record robust growth in motorcycle sales. After the launch of Discover (125CC engine), the company followed it up with another variant with a 110CC engine. This has resulted in an improvement in product mix in favour of higher value products, which would have a positive impact on profitability.
The entry-level Bajaj CT 100 and its variants continue to do well despite the competition from TVS StaR and Hero Honda CD-Deluxe.
The recovery in the three-wheeler segment is another positive owing to higher profitability associated with this product segment. Bajaj Auto continues to record robust growth in sales volume, registering a 36 per cent jump in motorcycles and a 21 per cent improvement in three-wheelers in April 2006.
The company has launched a new 100 CC model, Platina. The pricing and the features indicate that this model would deliver returns for Bajaj Auto. This could help the company garner market share in the 100-CC market where the CT 100 model is facing competition from TVS Motor's StaR City and Hero Honda's CD-Deluxe. Bajaj Auto is planning to launch a motorcycle sporting multi-point fuel injection (MPFI) technology. Though the concept may be in a nascent stage in India, this technology is widely accepted in the developed market.
The success of this proposed model would have an impact on the company's prospects. On balance, Bajaj Auto appears on track to a steady robust growth in motorcycle market. Long- term investors may include this stock in the portfolio.
Sintex Industries: Buy
Investors may consider taking fresh exposures in the Sintex Industries stock that trades at 23 times its FY-06 earnings. Though valuations appear stretched, growth opportunities in textiles, prefabricated buildings and fibre reinforced plastic tanks augur well for the medium term. The company plans to expand its prefabricated structures business in India and abroad. Sintex has earmarked about Rs 450 crore for an acquisition.
The textiles division, which contributes about 30 per cent of its revenues, is on a growth path. Sintex is among the larger manufacturers of structured fabrics and has a strong presence in the corduroys segment. Though the revenue growth appears to have slowed in the second half of FY-06 the division maintained a double-digit growth rate.
Its clientele include leading European brands. Its tie-up with Canclini Tessile of Italy, which has given it a foothold in the European market, is working in its favour. Sintex plans to tap opportunities in the domestic and international markets by increasing its loom capacity by 33 per cent to 24 million meters. It also plans to tap the women's apparel segment, which is a relatively un-exploited.
Improved capacity utilisation, presence in high-margin business and strong financials add visibility to the earnings growth of Finolex Cables. At the current market price, the stock trades at 16 times its expected earnings for FY07. Investors can consider this exposure with a medium term perspective.
Finolex Cables is a maker of power cables that have applications across residential, industrial and commercial sectors. Electrical and communication cables are the major contributors to the company's revenue.
Although domestic demand for network solutions in the country continues to be robust, the requirements have undergone a change. In the light of tapering demand for jelly-filled telecom cables (JFTC), Finolex Cables has converted a part of the JFTC capacity into power cables, thus achieving better capacity utilisation. Any further conversion may help improve margins given the robust demand for power cables.
Finolex Cables enjoys a presence in high-end products such as automobile and battery cables, which command high margins.
Presence of fewer players gives an edge to the company to expand volumes in this premium segment. It has also initiated plans to launch other high-margin products such as switches, compact fluorescent lamps and circuit breakers. These products will complement the cable business and enable the company to be an integrated player in the electrical space.
Construction activity in the residential and commercial space is likely to ensure steady revenue flows for the company. A 60-per-cent increase in revenues and doubling of profits for the fourth-quarter ended March 2006 shows that the company has started capitalising on the realty boom.
Operating margins for Q4 increased by more than 200 basis points to 12.5 per cent. Surge in volumes coupled with ability to pass on price increases attributable to hike in raw material costs has enabled an expansion in margin. Copper, the key input, continues to demonstrate firm price trends; inability to pass further price hikes would dent OPMs and that remains a principal risk to our recommendation.
Bajaj Auto: Buy
Helped by the success of recent launches, Bajaj Auto continues to outperform the growth rate in the motorcycle segment. The cash chest and the controlling stake in the insurance business are major positives from an investment perspective. These factors make Bajaj Auto a top pick in the two-wheeler space.
The sustained growth in the demand for Pulsar and the success of the recently-launched Discover have helped Bajaj Auto record robust growth in motorcycle sales. After the launch of Discover (125CC engine), the company followed it up with another variant with a 110CC engine. This has resulted in an improvement in product mix in favour of higher value products, which would have a positive impact on profitability.
The entry-level Bajaj CT 100 and its variants continue to do well despite the competition from TVS StaR and Hero Honda CD-Deluxe.
The recovery in the three-wheeler segment is another positive owing to higher profitability associated with this product segment. Bajaj Auto continues to record robust growth in sales volume, registering a 36 per cent jump in motorcycles and a 21 per cent improvement in three-wheelers in April 2006.
The company has launched a new 100 CC model, Platina. The pricing and the features indicate that this model would deliver returns for Bajaj Auto. This could help the company garner market share in the 100-CC market where the CT 100 model is facing competition from TVS Motor's StaR City and Hero Honda's CD-Deluxe. Bajaj Auto is planning to launch a motorcycle sporting multi-point fuel injection (MPFI) technology. Though the concept may be in a nascent stage in India, this technology is widely accepted in the developed market.
The success of this proposed model would have an impact on the company's prospects. On balance, Bajaj Auto appears on track to a steady robust growth in motorcycle market. Long- term investors may include this stock in the portfolio.
Sintex Industries: Buy
Investors may consider taking fresh exposures in the Sintex Industries stock that trades at 23 times its FY-06 earnings. Though valuations appear stretched, growth opportunities in textiles, prefabricated buildings and fibre reinforced plastic tanks augur well for the medium term. The company plans to expand its prefabricated structures business in India and abroad. Sintex has earmarked about Rs 450 crore for an acquisition.
The textiles division, which contributes about 30 per cent of its revenues, is on a growth path. Sintex is among the larger manufacturers of structured fabrics and has a strong presence in the corduroys segment. Though the revenue growth appears to have slowed in the second half of FY-06 the division maintained a double-digit growth rate.
Its clientele include leading European brands. Its tie-up with Canclini Tessile of Italy, which has given it a foothold in the European market, is working in its favour. Sintex plans to tap opportunities in the domestic and international markets by increasing its loom capacity by 33 per cent to 24 million meters. It also plans to tap the women's apparel segment, which is a relatively un-exploited.
posted by Unknown | 11:31 PM
2 Comments:
Hai. I really like your ideas. Can you give me your email id. So that I can keep in touch with you and share good ideas. Thank you - Raghu
my email id: raghuraman.ss@gmail.com. Thanks. - Raghu
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