Hold Jindal Saw, Sobha Developers: ICICIdirect.com
Brokerage house ICICIdirect.com has recommended a hold rating on Jindal Saw and Sobha Developers with a target price of Rs 47 and Rs 326/share respectively, in its November 2013 research reports.
November 07, 2013 / 15:01 IST
ICICIdirect.com research report
Jindal Saw"Jindal Saw reported a muted set of Q2FY14 numbers wherein the topline came in lower than our expectation on the back of subdued pipe sales volumes. For the quarter under review, pipes sales volumes came in at ~1.96 lakh tonne (lt) vs. our expectation of ~2.4 lt. The company reported a standalone net operating income of Rs 1229.4 crore, higher by 1.9 percent QoQ but lower by 24.9 percent YoY and below our estimate of Rs 1450.7 crore. The EBITDA margin came in at 12.1 percent, higher by 30 bps QoQ and flattish YoY and broadly in line with our estimate of 11.6 percent. The subsequent EBITDA stood at Rs 148.2 crore, higher by 4.1 percent QoQ but lower by 25.1 percent YoY (our estimate: Rs 167.9 crore). The consequent PAT came in at Rs 22.0 crore (our estimate: Rs 55.9 crore), higher by 44.4 percent QoQ but lower by 64.1 percent YoY. The company incurred a forex loss amounting to Rs 33.1 during the quarter. The company has taken steps to achieve backward integration by setting up a coke oven facility and captive power plant, which is likely to result in better operational efficiencies, going forward.""The pipe industry is currently undergoing challenging times on the back of a muted demand scenario both domestically as well as globally. Furthermore, on a consolidated basis, debt gearing has increased from ~1 (debt: equity) in FY12 to ~1.4 (debt: equity) in FY13. We have modelled pipe sales volume of 0.9 million tonne (MT) and 1.1 MT in FY14E and FY15E, respectively. We have a cautious view on the stock and continue to value the company at 5x FY15E EV/EBITDA, thereby maintaining our HOLD rating on the stock with a target price of Rs 47."Sobha Developers"Sobha Developers' (Sobha) Q2FY14 net profit at Rs 56.6 crore was in line with our estimate of Rs 57.8 crore despite a superior topline impacted by the lower margin of 26.4 percent vs. 30 percent in Q1FY13 due to revenue mix (lower margins and manufacturing segment formed ~31.5 percent of the total revenues vs. 24.5 percent in Q1FY13). Sales volumes grew 6 percent YoY to 1 mn sq ft on a higher base aided mainly by robust volumes at Bengaluru (0.67 mn sq ft), which is only key market to remain resilient. While Sobha is doing well on operating parameters, we maintain our HOLD rating on the stock as we await ramp up in cash collection in order to support its strategy to grow into new geographies and investment in commercial market.""We highlight that while Sobha's sales volume has been healthy, the free cash flow has remained negative in the last couple of quarters given its higher construction outgo, capex and land payments. While Sobha is doing well on operating parameters, we maintain our HOLD recommendation on the stock with a target price of Rs 326/share as we await ramp up in cash collection in order to support its strategy to grow into new geographies and investment in commercial market."Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
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