Buy Guj Ambuja Exports; target of Rs 42: Kotak

Guj Amb Exports BSE | NSE 31/05/12 Are Mutual Funds betting on Guj Amb Exports?

Kotak Securities has recommended buy rating on Gujarat Ambuja Exports with a target of Rs 42.

 

Kotak Securities report on Gujarat Ambuja Exports:

 

Result slightly below expectations on the profitability side. Maintain FY08E earnings estimates and continue to recommend BUY with unchanged price target of Rs. 42 (40% upside).

 

Net Sales for Q4 FY07 was at Rs 3.6 bn up by 1.1% on yoy basis largely due capacity addition in the maize processing and cotton yarn business, which grew by 3.1% and 22.0% respectively. However the net sales were down 9.6% on sequential basis as the company was unable to import the crude palm oil due to high prices prevailing in the global markets, which resulted in lower net sales by approximately Rs. 1 bn.

 

For FY07 the company reported net sales of Rs. 14.1 bn thereby registering 9% yoy growth.

 

EBIDTA margin during Q4 FY07 was up by 20 bps at 5.4% on yoy basis. This was primarily due to improvement in the margins of cotton yarn business of the company. Also the raw material to sales ratio declined from 85.3% in Q4FY06 to 81.9% in Q4FY07 mainly due to higher price realizations and better capacity utilisation of the cotton yarn plant. However the EBIDTA margins are down on sequential basis due to higher cotton and corn prices, which resulted in higher raw materials to sales ratio.

 

For FY07 the company reported EBIDTA margin of 7.3% as against 5.9% in FY06. n The depreciation is down 51.3% on sequential basis to Rs. 37.7 mn as it is on single shift basis for the solvent extraction plants.

 

Interest cost declined substantially to Rs. 1.3 mn in Q4 FY07 as the company got reimbursement of Rs. 15 mn towards the TUF loans taken by the company for the expansions in the cotton yarn business. Also the interest on the new Uttaranchal plant of Rs. 19 mn is capitalized leading to lower interest being charged in the P&L account.

 

PAT for the Q4 FY07 was up by 72.8% on yoy basis to Rs 112.1 mn translating into a quarterly EPS of Rs. 0.8 and quarterly CEPS of Rs. 1.1.

 

PAT for the FY07 was up by 53.0% to Rs 463.8 mn translating into full year EPS of Rs. 3.3 and CEPS of Rs. 5.2.

 

Recommendation and Valuation

 

We maintain our earnings estimates for FY08E and expect the company to report EPS of Rs. 5.4.

 

At Rs. 30, the stock trades at 1.4x for FY07 and 1.1x FY08E to book value.

 

It discounts FY07 and FY08E earnings at 9.0x and 5.6x, respectively.

 

The stock looks very attractive on cash earnings basis. It discounts FY07 and FY08E cash earnings at 5.7x and just 3.7x, respectively.

 

We remain positive and reiterate our BUY on GAEL with unchanged price target of Rs. 42, which provides upside potential of 40% form the current level. We recommend BUY.