DB Corp Ltd
INVESTMENT RATIONALE
DB Corp incorporated in 1958, is part of Bhaskar Group, which currently owns 88% stake in the company. Bhaskar group, is a diversified business conglomerate with interests in Media & Entertainment, Information Technology, Power, Agro processing, Textiles, FMCG, Real Estate & SEZ and Amusement parks. Population growth of Tier-II and Tier-III cities with higher market share of regional dailies in print advertisement pie provides excellent business opportunity for companies operating in regional space.
DB Corp, which is one of the predominant players, is likely to benefit from increasing advertising spends and higher GDP growth in states like Gujarat, Chhattisgarh, Madhya Pradesh and Chandigarh, where it has a strong presence. Currently, 16 out of total 48 editions are in its emerging stage (less than 4 years of operation) and have incurred Profit before tax (PBT) loss of Rs 58 crore in FY09. We believe major loss making editions like Ratlam, Amristar & Jalandhar would breakeven by FY11. Emerging editions turning profitable, would led to a) Huge cash flows & b) lesser impact on financials while entering into new markets.
Key Developments
DB Corp sees strong debut
DB Corp had fixed the issue price at Rs 212 per share, at the top end of the Rs 185-212 per share price band. Retail investors were given a discount of Rs 2 per equity share over the issue price. The initial public offer (IPO) of DB Corp, which remained open between 11 and 15 December 2009, was subscribed 39.54 times. The IPO received bids for 58.92 crore shares as against 1.49 crore shares on offer. The qualified institutional buyers (QIBs) category was oversubscribed by a staggering
68.52 times. The non-institutional investor's category was oversubscribed 26.17 times and the retail investors category was oversubscribed 3.42 times. The stock debuted at Rs 250, a 17.90% premium over the initial public offer (IPO) price. So far the stock hit a high of Rs 273.90 and a low of Rs 235.50. The counter clocked a volume 20.22 lakh shares on the BSE.
Valuations
According to FICCI-PWC report 2008, Print industry is expected to register 5 year CAGR of 9.0% to Rs 26,600 crore. The growth would be driven by advertising segment which contributes ~65% to overall print industry revenue and rest by circulation. Advertising revenue expected to register 5 year CAGR of 10% to Rs 17,430 crore and circulation revenue of 7% to Rs 9,170. The growth drivers for the industry would be increasing literacy rate; low media penetration and low advertising spend as % of GDP. In Q2FY10, company had posted robust double digit growth on back of its innovative strategy which led them to increase their market share in key
areas. We expect sectors like Financial services, Banking, Real estate will pick up in H2FY10, this would led the industry advertising revenue to grow by ~15%. In FY10, we expect company to post a growth of 18% in advertising and 12% in circulation revenue (4% from volume and rest from better realization). At CMP Rs 254, company is trading at forward multiple of 23.0x FY10 EPS of Rs 11.0 and P/BV of 5.6 FY10 BV of Rs 45. However, Jagran Prakashan nearest listed peers is trading forward multiple of 22x and P/BV of 6.2. We recommend "Buy" recommendation with 12- month target price of Rs 305, representing upside potential of 20%.
Ratnamani Metals Ltd
INVESTMENT RATIONALE
investment Rationale:-
Deferred shipments hit sales but profits inline
Delay in shipments for few orders hit sales volume of the company during the quater as it reported 10% sequential decline in sales at Rs 161 crores, but as the deferred volumes are expected to be executed in Q4FY10, the fall will be compensated. Sales volumes remained flat sequentially, with stainless steel pipes showing marginal increase of 1% and carbon steel posting 3% decline. EBITDA for the quarter stood
at Rs 35 crores, 56% jump over last year on account of lower raw material costs and 14% fall in other expenditure. On sequential basis EBITDA declined by 15% as company had reported some one time gains during Q2FY10. PAT for the quarter stood at Rs 17 crores, a decline of 22% sequentially but 162% jump over last year.
Order Book
As of December 31, Ratnamani's order book stood at Rs 350 crores, consisting of orders worth Rs 200 crores in carbon steel and Rs 150 crores in stainless steel segments. Order book declined from Rs 465 crores at the end of Q2FY10 and remains a concern; however with crude oil stabilizing above US$ 75 per barrel, and improvement in GRMs expected in next few quarters, we believe that order book
position of the company will improve going forward. In the stainless steel segment, company is expecting orders from MRPL and Paradip refinery projects; while in carbon steel segment, it's expecting some GAIL orders as almost 4-4.5 lac tonnes orders will be open for bidding in next 2-3 months.
Liquidity position
As at quarter ending, gross borrowings of the company stood at Rs 228 crores, while cash n cash equivalent stood at Rs 69 crores, equivalent to cash per share of Rs 15.
Outlook & Valuation
While company disappointed on volumes front during the quarter, going forward we expect company to post better numbers in Q4FY10 as Q3 deferred shipments will be executed. We believe that Ratnamani's leadership position in stainless segment will help it benefit from huge investments expected in Indian power and refining
sectors; while low gas pipeline penetration combined with gas finds in KG basin makes carbon steel pipe a huge business opportunity.Good mix of job related and standard orders (50-50 in current order book), helps company maintain better operating margins than its other pipeline peers.
Valuations:
At CMP of Rs 100, stock is currently trading at P/E multiple of 5.8x and 4.7x its FY10E and FY11E EPS. We recommend BUY with target price of Rs 148 with a 12 months view giving upside of 48%.
Astral Polytechnik Ltd
INESTMENT RATIONALE
Astral Polytechnik Ltd., promoted by the Engineer and Dalal Famly, was established in 1999 to provide plumbing systems to both residential and industrial applications. Today, Astral enjoys a 70% market share in Indian PVC/ CPVC pipes. Astral has an equity venture with Specialty Process LLC of USA to incorporate latest technology and
quality control programs which are widely accepted at global level and to develop CPVC plumbing systems as per Indian plumbing market. It also has a technical collaboration with Lubrizol Inc. a fortune 500 company of USA to manufacture Flowguard and Corzan CPVC plumbing system for Hot and Cold water distribution as well as industrial applications.
Astral maintains a strong distribution network spread across India with 250 distributors and 3000 dealers. Astral is in process of introducing fire splinkler system to its wide range of product portfolio, it also intends to set up a maufacturing facility in
Nairobi in the near future.
Key Developments
Astral has recently launched its SWR Pipes & Fittings, ABS pipes & fittings, Foam Core pipes and is in the process of introducing Blazemaster Fire Sprinkler System in Indian Market, which will result in higher margin for the company in the future.
Q3FY10 Financials:
Sales up 51.78% y-o-y to Rs.67.81 crore. Sales increased on account of increased goods demand from the real estate sector and increase in capacity . EBITDA at Rs. 10.98 crore, up 60.73% y-o-y. OPM up by 90bps to 16.2% on account of reduction in employee cost as a % to sales.
PAT is up 343.32% y-o-y to Rs. 6.27 crore on account of decrease in interest expense & increase in other income. NPM increased by 608bps to 9.25%.
Valuations
At current price of Rs 168 the stock is trading at 13.3x FY09 EPS of Rs. 12.63.
We recommend a "BUY" on the stock with a 12 month target price of Rs. 205.
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