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Tuesday, April 14, 2009

what should be done with these companies

1)Scripscan:KEC International
CMP: RS 185
Traded in:Nse-bse

Story:The company has reported sales growth of 25% y-o-y to Rs 870 crore in the quarter.EBITDA margin was lower by 625 bps at 8.2% due to forex losses of Rs 16.6 crore and high raw material cost. The company also reported 67% y-o-y increase in interest cost due to debt raised for capex and working capital. Due to working capital and capex requirements, KEC has increased debt to Rs 900 crore while depreciation is lower because part of its assets have been transferred to the books of developers and new assets will be capitalised in FY10E.The stock is trading at FY10E PE multiple of 7x. This compares with peer Jyoti Structures trading at 4.1x/1x and Kalpataru Power trading at 3.8x/0.7x. KEC has higher gearing and lower return ratios, which makes it more expensive than peers.Investors having it may exit the counter at present levels to buy at lower rates.

2)Scripscan:Info Edge India Ltd
cmp:512
Traded in:Nse-bse

Story:Revenue growth in Info Edge’s flagship recruitment solutions is down to 1.5% y-o-y from 30%+ at the start of the year as the slump in hiring across all industries has taken its toll. With the customary March quarter budget flush unlikely to happen this year, March 2009 outlook for Naukri looks even weaker.Meanwhile, Info Edge’s realty business continues to face headwinds from the slowing real estate market. A course correction in the matrimony space with establishment of brick and mortar Jeevansathi centres is still in the investment phase and any positive surprises on this front are unlikely in the near term.With over Rs 330 crore of cash and continued leadership of Naukri, Info Edge remains better positioned compared to competitors in a difficult environment. With the slowdown becoming homogeneous , online traffic from recruiters has gone down significantly and recruitment solutions grew only 1.5% y-o-y in the December 2008 quarter.Info Edge’s leadership position in the online recruitment segment and Rs 330 crore of cash pile should help it encounter the economic downturn better than competitors. Also, new initiatives in education and professional networking have long-term potential.However, Info Edge’s valuations (25x March 2009) cannot be defended with a 2.3% FY09-11 CL EPS CAGR. With visibility for even March 2009 severely constrained, risk to FY10 earnings is high.

3)IVRCL INFRASTRUCTURE
cmp:155
Traded in:nse-bse

Story:IVRCL reported a 22% topline growth but decline in PAT in 3Q09 results. Company reported 22% revenue growth thus translating into strong 39% y-o-y growth for 9MFY09. However, margins came in significantly lower by 230 points in the quarter and have now declined by 100 bps y-o-y in 9MFY09 driven by a higher mix of lower margin projects.PAT declined significantly by 27% y-o-y in the quarter driven partly by margins and partly by very high interest costs of Rs 41.9 crore versus Rs 17.7 crore last year. For 9MFY09, PAT growth has come in at 7% versus expectations of 4% growth for full year.Interest expense grew to Rs 41.9 crore in the quarter, highest ever for IVRCL, given that debt levels have increased to Rs 1500 crore, resulting in net debt/equity ratio of around 0.8x, which is on the higher side.IVRCL has an order book of Rs1,4300 crore at the end of 3Q09 which provides strong revenue visibility of 3-4 years, highest in the mid-cap construction space. The company has received robust order inflows of Rs 6600 crore in 9MFY09 (+100% y-o-y ).Valuations look stretched at present levels.Buy only at dips.

4)Scripscan: DLF Ltd
cmp:233
TRaded in:nse-bse

Story:I am bearish on dlf in view of an extremely weak physical property market, modest stock of on-going projects and, now, prospects of slow improvement in balance sheet (in view of the sharp fall in internal accruals).DLF’s construction starts across biz verticals in F9M09 total upto just 5-6 msf, which is a leading indicator of poor earnings trajectory ahead. Management believes that the current business environment is fluid and uncertain, and therefore, it targets to conserve capital and customize products to suit ongoing economic slowdown.Near term mid-income housing and scale up in rentals will be the areas of focus, whereas, luxury housing and commercial complexes will be slowed. To weather the current credit squeeze, DLF targets to change the maturity profile of its debt portfolio to long term by mid-2009,such that there will be no re-payment obligation for 24-36 months.Out of Rs14800 crore debt, Rs 9000 crore is already long term, with commitments for another Rs 3000 crore..DLF will restrict its sales to DAL to 12 msf (million square feet), of which 9.5 msf will be completed shortly. It targets to raise roughly $450 million PE capital to part fund the pending receivable (Rs 5400 crore).Valuations don’t appear inexpensive at roughly 1.9x F09 P/B with increasingly slower pace of value unlocking in the land bank.Stock had a recent rally and its quoting at a premium to its fy09 NAV.Exit the counter and move on to cheaper better bets.

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