Karvy Broking has recommended market outperformer rating on Sical Logistics with upgraded target price of Rs 301 from Rs 252.

Karvy Broking report on Sical Logistics:

Developments during the quarter

The company has own the contract for the operations and maintenance (O&M) of Oil and Natural Gas Ltd (ONGC) for the fifth successive time valued at Rs 1.27 billion and is for a duration of three years, extendable by two six-month periods. Sical Logistics Ltd has sold Vanagaram Refractories Works Industries Ltd (VRW) engaged in the business of manufacturing refractory bricks to a key entrepreneur in the real estate industry in Tamil Nadu. The sale was completed for a consideration of Rs 407.9 million for an area of 8.68 acres. The company has decided to issue equity shares on preferential basis under private placement basis not exceeding Rs 1.03 billion to M/s Credit Suisse Singapore Limited and M/s Macquarie Bank Limited (Equity Shares of 2.05 million each). To seek shareholders approval for the issue of equity shares on preferential basis, Extra-ordinary General Meeting is scheduled on 9th July, 2007. The approval of preferential issue will increase the outstanding equity by 11.4% to 39.5 million.

For Q4FY07 (standalone), Sical reported revenue growth of 17.3% YoY (QoQ growth of 40.6%) to Rs 3.15 billion on back of strong growth of 22.8% YoY to Rs 2.12 billion in logistics segment. Non logistics business grew by 7.3% YoY to Rs 1.03 billion. Revenue was higher by 36% than our estimate of Rs 2.3 billion

The company reported loss of Rs 121 million at operating level due to higher cost of services. Cost of services as a percentage of sales increased from 49% in Q4FY06 to 64.5% in Q4FY07. The net Interest income was Rs 51.8 million during the quarter as against interest cost of Rs 15.3 million in Q4FY06. Other income and tax credit of Rs 158.7 million and Rs 78.6 million respectively, helped the company to report profits of Rs 158.6 million. Adjusted EPS was Rs 5.3 as against expectations of Rs 4.5. The company has exceptional loss of Rs 115.9 million on account of disposal of non logistics business (refractories, Agri-bio products, flexible shafts, palm oil).

For FY07 (Consolidated), revenue increased by 6.5% to Rs 10.5 billion while net profit declined by 53.6% to Rs 341 million. We expect consolidated net profit to increase at a CAGR of 30% to Rs 763 million in FY09 on back of business restructuring and growth in offshore business. At current market price of Rs 280, the stock is trading at 17x FY08 and 13x FY09 earnings. Based on EV/EBIDTA it is trading at 12.9x FY08E and 8.9x FY09E. We have valued the company at 14xFY09E (previous 14xFY08E) with target price of Rs 301 (previous Rs 252).