Jagran Prakashan gains on fixing record date for bonus shares

Jagran Prakashan surged 2.34%, to Rs 297.80, after fixing 3 November 2006, as record date for issuing bonus shares. The stock spurted 16.3%, to Rs 236.50, on 19 July after it said its board will meet on 29 July 2006, to consider a bonus issue. After a consolidation in the stock over the next few days, it jumped 20%, to Rs 279 on 31 July, after the board announced a 1:5 bonus issue and reported strong Q1 June 2006 numbers. After hitting a high of Rs 312.70 on 2 August, it cooled down to Rs 288.25 by 1 September 2006. Thereafter, the stock remained range-bound, moving between Rs 280 - Rs 305.

At the current market price of Rs 297.80, Jagran Prakashan trades at 16.31 times its Q1 June 2006 annualized EPS of Rs 18.25.

Jagran Prakashan is finalising a plan to launch another brand. The company had recently agreed to publish the facsimile edition of the Independent, (International Edition) from New Delhi. It recently launched its 31st edition in Amritsar, Punjab.

Ireland's Independent News & Media had in August approached Sebi to raise its stake in Jagran Prakashan by up to 3%. If Independent News & Media raises its stake further, it will hardly leave any room for further FII buying in the scrip, which may cap the upside in the stock. Independent News & Media, a strategic partner in Jagran Prakashan, currently holds 20.8%. A maximum of 26% holding of FIIs/FDI is permitted in the print media. The FII-holding in the company at end March 2006, was 2.06%.

Jagran Group plans to sell 20% stake in its radio arm to the Independent Group.

In February 2006, the company raised the price from 50 paise to Re 1 per copy, for most editions of Dainik Jagran.

Jagran Prakashan registered a net profit growth of 433.80%, to Rs 22.90 crore (Rs 4.29 crore) for Q1 June 2006. Net sales rose 19.80%, to Rs 136.68 crore (Rs 114.06 crore).

Acquisitions enhance value : BUY : Target Price : Rs 289

We initiate coverage on Crompton Greaves Ltd. (CGL) with a BUY and a target price of Rs.289, an upside of 17%. CGL is utilizing its expertise in turning around companies to become one of the largest transformer manufacturers in the world. The € 61 mn acquisitions are expected to double the CGLs consolidated revenue and EBITDA by FY2008e to Rs. 82.89 bn. and Rs. 7.00 bn. respectively. These acquisitions have enhanced its geographical reach, its product and solutions portfolio, along with providing CGL with a ready clientele base. From the current levels, CGLs EBITDA margins are expected to expand by 50 bps by FY2008e. At the current market price of Rs. 246 CGL trades at a PER of 14.2x FY2008e earnings.

Global footprint

In two successive years, CGL has taken into its fold the Pauwels group and the Ganz group. The FY2006 Pauwels acquisition doubled CGLs topline and increased its consolidated net profits by a phenomenal 162%. Together these acquisitions give CGL a global footprint with manufacturing operations in 7 countries and a sales and service network in over 135 countries. We expect the consolidated revenues to further double by FY2008e, to Rs. 82.89 bn and a 36% CAGR increase in net profits to Rs. 4.54 bn.

Acquisitions enhances the product range

CGL now offers a complete range of transformer products to suit diverse requirements. CGL as a stand-alone entity specialized in transformers of up to 400 kV. Its Belgium based acquisition added medium rating (up to 500 kV) transformers to its product range, while the Ganz group brings with it  the skill sets to manufacture up to 750 kV or high rating transformers. These acquisitions have enabled CGL to bridge the technological gap and offer an enhanced product range to its customers. It now also has the expertise to offer complete turnkey solutions, including erection and maintenance of mobile substations and larger power equipment projects. We anticipate that the CGL would now be able to bid for big ticket orders and be in a position to achieve greater size and scale.

Power Sector to bring growth

Power sector reforms in India are at an inflection point, with clear focus on the each segment of the power sector value chain. Over Rs. 105.44 bn is expected to be invested in the transmission and distribution sector to increase the transmission capacity by 20.7 GW by 2012, carry out distribution reforms including reducing AT&C losses, improving the power quality and reliability, and for the rural electrification programme.

The EU is expected to spend $544 bn. between now and 2030 in the transmission and distribution sector to upgrade obsolete systems, and to increase the transmission capacity in the erstwhile eastern economy countries.

Attractive Valuations

There would be no equity dilution as these acquisitions have been made in all-cash deals. We estimate that CGLs EPS would increase at a CAGR of 36% to Rs, 17.3 in FY2008e. At the current market price the FY2008e earnings are discounted 14.2x.

Source: Emkay

BUY for Good 54% returns in Mid term

We believe GMM Pfaudler Limited (GMMPL) to be a compelling value and growth play, as it enjoys market leadership in the domestic corrosion resistant glass lined equipment market, finding applications mainly in the Pharmaceutical, Speciality Chemicals and Agro Chemicals segments. GMMPL is presently the largest domestic player controlling over 50% of the domestic market and enjoys the best speed to market ability, long standing relationships with large customers but more importantly is a subsidiary of Pfaudler Inc USA (51% equity held by Pfaudler USA) a global leader in Glass Lined Reactors and process control equipment, enabling GMMPL to get easy access to the latest technology and new product launches making it a premium supplier of process control equipment to domestic customers. With an expected CAGR of 30% YoY in net profits over FY06-FY08E, we expect ROCE and ROE levels to remain healthy at 20.5% and 22% respectively as on FY07E.

Investment Highlights

Strong Order Book Pipeline to drive topline growth – GMMPL is a Tier I supplier to large domestic customers like Hoechst, Bayer, Cipla, Sun Pharma, Glaxo, Clariant, Micro Inks, Colour Chem, GE Plastics, Unichem, Novartis, Rallis and United Phosphorous. Segment wise the Pharmacuetical segment is the largest customer for GMMPL, followed by the Speciality Chemicals and Agro Chemicals business space. Strong buoyancy witnessed in consuming sectors like Pharmacueticals, Specilaity Chemicals and Agro Chemicals during FY06A resulted in a sharp rise in capex spending here, which pushed up demand significantly for GMMPL's products. We expect the business momentum to remain strong for GMMPL considering the sharp rise in the unexecuted order book pipeline currently placed at Rs 736 mn (As on July 06) from Rs 348 mn in the same period last year, and with demand from these consuming sectors continuing to look good, the capex spend will further gather momentum, with several large domestic pharma and Speciality Chemicals players like Glaxo, Sun Pharma, Novartis, Micro Inks, already planning large capacity expansions over the next 18-24 months. Hence we expect this to positively impact GMMPL's revenue and profitability growth over the next 12-24 months.

Exports offer GMMPL a strong outsourcing opportunity in future – In the Export arena, GMMPL has been exporting to customers like Shinko Pantec Japan, Glaxo UK, Roche Pharma China and Purolite International UK. Exports during FY06A totaled Rs 67.9 mn accounting for 6.6% of total revenues and were mainly to markets like Japan, South Africa, UK and the Middle East. What is more noteworthy to know is that having developed strong technical skill sets in its product domain, the price differential enjoyed by GMMPL is three times lower as compared to what Pfaudlers Inc US, other counterparts in Europe manufacture. Hence going ahead outsourcing to Pfaudler In USA and its subsidiaries in Europe, China and South East Asia can throw open a large business opportunity for GMMPL.

Large free cash generation ahead –GMMPL has moderate capex lined up over the next two years. Barring further reduction in residual debt in FY07E and further gains from tight working capital management, we expect it to generate operational cash flows of Rs. 250mn in FY08E.The build of cash in the balance sheet by Mar08 would result in a cash/Investments balance of Rs315.mn,equal to (Rs108 per share(FV: Rs.10).

 

Risk & Concerns –

The prime business risk is that certain orders with long manufacturing cycle time may be exposed to the risk of material price increase.

 Valuation –

We expect GMMPL to consolidate and improve its market position aided by the strong market buoyancy coming in from both the Pharmaceuticals & Speciality Chemicals segments. With GMMPL having adequate capacity in place and low capex requirements, we believe it is bound to benefit significantly over the next 12-18 months.

 GMMPL will generate large free cash flows over the next two years enabling it to step up dividend payouts as well. GMMPL's ROCE and ROE for FY07E are very attractive at 21.0% & 22.0% and  reflect the underlying health of the business. The GMMPL stock trades at 12x and 10.x FY07E  and FY08E and 11.x FY07E and 9x FY08E cash earnings which look attractive. Recently the management has decided to split the FV to Rs 2 each from Rs 10 earlier which should improve

overall liquidity and the investor sentiment for the GMMPL stock.

 We believe that GMMPL will see strong demand both from domestic and export market in glass lined division and Alloy mixing division. With an EPS CAGR growth of 30% estimated over FY06-08 & EV/EBIDTA of 7x FY08E makes us believe that the present valuations 9x FY08E looks attractive. We recommend a BUY on the stock with a target price of Rs. 1046 based on the DCF approach.

At our target price the stock will be valued at a P/E of 15x and 13x Cash P/E FY08E. On EV/EBITA basis the stock will trade at a target EV/EBITA multiple of 9x based on FY08E.

Source: Emkay