Stock Market Update on GSPL for 4QFY2011

Stock Market Update on GSPL for 4QFY2011 with an Accumulate recommendation and a Target Price of `105 (12 months).

For 4QFY2011, GSPL reported strong set of numbers on the bottom-line front, despite lower volumes and a marginal increase in realisation on a yoy basis on account of change in depreciation rate (from 4.75% to 3.17% w.e.f.
April 1, 2010) adopted by the company during the quarter. Thus, the bottom line surged by robust 39.7% yoy to `150.6cr (`107.9cr). We recommend Accumulate on the stock.

Transmission volume flat, realisation higher: In 4QFY2011, GSPL recorded a marginal 1.1% yoy decrease in revenue to `255cr (`258cr) on account of a 2.4% yoy dip in volumes transmitted, which stood at 3,200mmscm (3,278mmscm). However, average transmission realisation increased by 1.3% on a yoy basis to `797/’000scm (`787/’000scm).

Outlook and valuation: Although GSPL is a leveraged play on increasing gas demand in Gujarat (the country’s hydrocarbon capital), slower ramp-up in domestic production from the KG-D6 field and expensive spot LNG are taking a toll on the company’s volume visibility in the near term. This has resulted in the stock’s under performance in the recent past. However, limited downside risk on the tariff front and successful winning of three inter-state pipelines provide support to valuations. We have valued GSPL at 7x FY2013E EBITDA, which provides a target price of `105 for the stock, implying an upside of 6.1% from the current level. Hence, we recommend an Accumulate rating on the stock.

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Stock Market Update on Ashok Leyland for 4QFY2011

Stock Market Update on Ashok Leyland for 4QFY2011 with a Buy recommendation and a Target Price of `64 (12 months).

For 4QFY2011, Ashok Leyland (ALL) registered 30.3% yoy growth in net sales, aided by 15% growth in volumes. Net average realisation increased by 13.2% yoy due to change in product mix. EBITDA margin came in substantially higher than our expectation at 13.3%. Net profit registered a substantial increase of 33.9%. We recommend Buy on the stock.

Strong volumes support top-line growth; OPM surprises on the upside: For 4QFY2011, ALL reported 30.3% yoy growth in net sales to `3,829cr (`2,939cr), which was 4.3% above our expectation. Sales growth came on the back of a 15% yoy increase in volumes. Net average realisation for the quarter registered a 13.2% jump yoy to `1,289,980 (`1,138,854). During 4QFY2011, ALL witnessed a 44p yoy increase in EBITDA margin mainly due to lower other expenditure.
Net profit increased by 33.9% yoy to `298cr (`223cr).

Outlook and valuation: The overall outlook for the domestic CV industry is positive, which is in its mid-cycle, with volumes expected to register a ~10% CAGR over FY2011–13E. Most of the factors that drive freight demand and consequently M&HCV demand are positive and CV manufacturers are benefiting from the economic recovery. At `50, ALL is trading at 12.4x FY2011E and 11.2x FY2013E EPS. We recommend Buy on ALL with a target price of `64.

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