The company is expanding its generation capacity by adding 250 MW (2×125 MW) lignite based power plant at Surat, Gujarat with captive lignite mine. The new capacity would be operational in two phases by December 2008 and March 2009 and would strengthen FY09E & FY10E financials.
The power generated from the new plant would be sold under power purchase agreement with State Electricity Board of Gujarat. It further plans to set up another 500 MW lignite based power plant at Surat. Thus the installed capacity of the company would increase from 555 MW at current level to 805 MW by FY2009 and 1305 MW by 2012.
The company expects its plants to run at above 85 per cent plant load factor. Emkay estimates the topline and EBITDA of the company to grow at a CAGR of 16.8 per cent and 24.1 per cent respectively during FY07A-10A. The scrip currently discounts FY09E BVPS of Rs 98.6 by 1x, thus available at a discount to most of its peers which are trading at one year forward P/BV of 1.5x to 2.5x. At the target price the scrip will be trading at one year forward P/BV of 1.32x.
Emkay has maintained ‘buy’ on the stock and has revised the price target to Rs 529 from Rs 343, an upside of 29 per cent from current level, based on 11x FY10E estimated earnings. Tata Chemicals is now world’s 2nd largest soda ash manufacturer with total installed capacity of 5.5 million metric tonne (12% of world production) and 3rd largest producer of soda ash through natural process commanding 22 per cent of world’s share.
Emkay believes, TCL to benefit significantly from recent rally in soda ash prices and that price increase in soda ash is more than to cover cost increase and should result in incremental EBITDA per metric tonne of approximately $ 15 per metric tonne.
In spot market, soda ash prices are up by approximately 70-80 per cent and quoting close to $ 400 / mt+. Emkay expects soda ash prices to remain firm in global market in medium term on account of tight demand supply scenario. The brokerage believes that TCL is ready to benefit from sharp rally in soda ash prices which may continue for next 2-3 years on account of tight demand supply scenario in global market.
Emkay has maintained ‘buy’ on the stock for a target price of Rs 2330. BHEL declared its Jan-Mar 2007-08 results with net sales of Rs 7,200 crore and net profit at Rs 1,110 crore. However the same is below the brokerage expectations.
The net sales growth of barely 4.1 per cent clearly shows execution problems with the company. Severe shortage of engineers and other skilled workers, coupled with shortage of contractors and BOP equipment has hampered BHEL execution pace and led to delay in execution of its orders. Jan-Mar 2007-08 EBIDTA at Rs 1,363 crore declined by 14.1 per cent year on year, on account of 29 per cent year on year increase in staff cost and 45.4 per cent year on year increase in other expenditure.
The Jan-Mar 2007-08 staff cost however includes provision for wage hike on account of 6th pay commission recommendations. The net profit at Rs 1,110 crore declined by 3.4 per cent year on year. The order book position is at Rs 8,550 crore which was ahead of expectations. To factor in slower pace of execution, higher raw material prices and higher employee cost, the brokerage has downgraded their earnings estimate by 20 per cent.
Emkay’s EPS estimates now stands at Rs 75.2 for 2008-09 and Rs 103.7
for 2009-10. In order to factor in a lower earnings growth, Emkay has downgraded their price target, which is based on 22.5X its FY2010 earnings. At the market price of Rs 1,655, BHEL is trading at 16X its FY2010 earnings and 10.4X its FY2010 EBIDTA, which is near the lower range of its trading band.
Emkay believes that BHEL is taking steps in right direction to address issue of supercritical order, increasing pace of execution and expanding capacity. Faster execution of delayed order shall also improve near-term earnings growth, says the brokerage.