Buy Bhagyanagar India; target of Rs 65: Karvy

Karvy Broking firm is bullish on Bhagyanagar India and has maintained buying rating on the stock with a target price of Rs 65.

Karvy Research report on Bhagyanagar India: 

Bhagyanagar India showed excellent Q4 FY 07 results due to extensive real estate and infrastructure sales. The topline showed a YoY growth of66.7% and a QoQ growth of 90.02%. The operating margins got a boost from the increasing share of the realty business into the company's earnings. The company showed operating margins of 62.97% as against 20%-25% in the previous quarters. Consequently, the net profit jumped to Rs 487.86 million showing a YoY growth of 442.19% and a QoQ growth of609.31% in Q4 FY07.On a consolidated basis, BIL showed a YoY growth of 35.96% in the net sales in FY2007. The bottom line showed a YoY growth of nearly 170%on the back of the company investing in the high margin businesses.

Real Estate & Infrastructure Division:

The real estate & infrastructure showed an impressive YoY growth of 452.68% in its topline inFY2007. BIL is concentrating on the more profitable business segment which is shown by the real estate and infrastructure division accounting for over 58% of the company's topline in Q4 FY07.On a consolidated level, this division contributed 28% to the topline and nearly 76% to the PBIT of the company in FY2007. The share of this division is expected to grow in the next couple of years with the sales coming from various real estate development projects of the company including Gachibowli integrated residential complex, AP Housing board project in Vizag. The company is also keen on selling some of its unused land bank for which it is getting handsome price and subsequently investing that amount in development projects.

Copper Division:

The copper division showed a YoY growth of 48.42% in its topline in FY2007. The company management is planning for a capex of around Rs 20 million in the copper division for machinery purchases for manufacturing the assembly of solar water heaters. The company expects this new segment to add nearly Rs 70-80 million to the top line of the company in FY08 with healthy margins of 25-30%. The company also plans to manufacture copper bus bars and expects Rs 100 million to add to the top line of the company in FY08 with margins in the range of 8-10%.

Telecom Division:

The telecom division showed a decline in sales of nearly 73% in FY2007. The sales are showing adown trend in line with the industry demand for the jelly filled telecom cables (JFTC). BIL manufactures and supplies these to BSNL, MTNL and the railways who are the largest consumers of these cables. But now days, with the wireless technology being widely successful, the future of JFTC market appears bleak.

Valuation: