[August 08, 2006]

[ViJiT]

STOCK UPDATE

Aban Loyd Chiles Offshore
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs1,760
Current market price: Rs1,028

Another shot in the arm
Aban Loyd Chiles Offshore has informed that it has received a Notification of Award (NOA) of contract from ONGC Videsh for hiring the Aban VII rig for the development at Offshore Qatar for a period of approximately four months. The total revenue under this contract would be approximately Rs100 crore, implying a day rate of USD185,000. The operations under this new contract are expected to commence by March 2007, after the completion of the contract with Hindustan Oil Exploration Company (HOEC). The above-mentioned rig is about to commence operations for HOEC for a period of four to five months at a day rate of approximately USD70,000.




Corporation Bank
Cluster: Apple Green
Recommendation: Buy
Price target: Rs380
Current market price: Rs276

Results ahead of estimates

Result highlights

* Corporation Bank's Q1FY2007 net profit grew by 16.8% year on year (yoy) to Rs144.3 crore. The growth was ahead of our expectations.
* The bank's net income for Q1FY2007 grew by 13.7% yoy as its net interest income (NII) grew by 15.6% yoy and the fee income grew by 19.8% yoy.
* The NII grew by 15.6% yoy to Rs324.8 crore on the back of a 37.4% year-on-year (y-o-y) growth in the advances. However, the net interest margin (NIM) declined by five basis points yoy. The same expanded by 24 basis points sequentially.
* The operating profit grew by 17% yoy to Rs245 crore as the operating expenses remained under check growing at 8.5% yoy.
* The net non-performing assets (NPAs) as a percentage of net advances came down substantially during the quarter—from 1.15% in Q1FY2006 to 0.55% in Q1FY2007.
* Albeit Corporation Bank's NIMs surprised positively in Q1FY2007 as they fell less than what we expected, we believe that the NIMs will remain under pressure as the proportion of the high-yield retail advances and the low-cost demand deposits shall remain lower in future.
* We have lowered our earnings per share (EPS) estimates for the bank for FY2007 and FY2008 from Rs37.2 and Rs44.3 to Rs35.1 and Rs43.1 respectively to take the lower NIM into account.
* At the current market price of Rs276, the stock is quoting at 6.4x its FY2008E earnings per share (EPS) and 0.9x its FY2008E book value (BV). We reiterate our Buy recommendation on the stock with price target of Rs380.




Aditya Birla Nuvo
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,031
Current market price: Rs733

Impressive performance by value businesses

Result highlights

*
The consolidated revenues of Aditya Birla Nuvo (ABN) in Q1FY2007 grew by 88.6% year on year (yoy) to Rs1,459.1 crore, in line with our estimate. The growth was driven by (1) a strong double-digit growth in its value businesses; (2) the addition of the fertiliser and finance businesses due to the merger of Indo Gulf and Birla Global; (3) a higher share in the telecom business at 20.7% during the quarter as well as a partial effect of the 15% stake in Idea Cellular acquired from the Tatas; and (4) the continued momentum in its growth businesses.
*
The share of high-growth businesses (garments, life insurance, business process outsourcing [BPO], software and telecom) improved to 57% of sales in Q1FY2007 as compared to 51% in the same period last year.
*
A sharp margin expansion was witnessed in all the businesses except insurance, BPO and telecom. The margin expansion yoy was of 360 basis points in the garment business, 850 basis points in the software business, 300 basis points in the carbon black business, 190 basis points in the insulator business and 130 basis points in the textile business.
*
The insurance business rebounded this quarter with the revenues growing by 98.7% to Rs358.5 crore, on the back of a 91% growth yoy in the new business premium to Rs149.8 crore. The loss at the profit before interest and tax (PBIT) level grew to Rs18.1 crore against a loss of Rs3.8 crore in Q1FY2006.
*
Driven by the good performance of the key business segments and the addition of new businesses, the operating profit margin (OPM) saw an expansion of 240 basis points yoy to 13.7%. Consequently the operating profit grew by a robust 128.7% yoy to Rs199.8 crore. Even the net profit grew by a strong 100.1% yoy to Rs67.5 crore.
*
Given the diverse businesses of ABN, the company is best valued using the sum-of-parts method. Based on the sum-of-parts valuation of the merged entity, we estimate the fair value of ABN to be Rs1,031 per share. The stock is available at a 28.8% discount to its fair value and we maintain a Buy recommendation on ABN with a 12-month price target of Rs1,031.