Nandan Denim – Long-term value drivers intact

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Nandan Denim (NDL) reported decent numbers in the quarter gone by despite marginal decline in its margins. Our view on the stock has been positive on account of some fundamentally strong factors that were elaborated in our coverage initiation article. We reiterate our stance, notwithstanding some minor hiccups in the latest earnings report.

Result Performance

 

Quarter at a glance

From a year-on-year (YoY) perspective, completion of capacity expansions at the denim fabric, shirting fabric, and yarn manufacturing units in FY17 led to a significant increase in NDL’s top-line, gross profit, and EBITDA during the quarter ended June 2017. However, an uptick in average realisation per metre (from Rs 131.6 in FY17 to nearly Rs 140 in Q1FY18) was offset by higher cotton procurement costs and a rise in operating expenses, thereby impacting the company’s operating margins. Conclusion of the capex resulted in higher depreciation and finance costs too, eventually taking a toll on the final profit margin.

Outlook

NDL is likely to reduce its Rs 475-crore debt (as on June 30, 2017) by Rs 55-60 crore every year from its regular cash flows. The capacity utilisation rate at the company’s denim manufacturing facility is expected to scale up from 85 percent in the recently-concluded quarter to 90 percent by FY18-end, thereby supporting higher volume-driven sales growth in the long-run.

Though headwinds such as Gujarat floods and pink bollworm attack on cotton fields in the state may lead to higher raw material prices, NDL’s management didn’t sound too worried. The company has 47-60 days of cotton inventory and is reasonably confident of adequate supplies as the pan-India cotton acreage has improved substantially. In the worst case scenario of supply declining, the Government has an option to resort to cotton imports too. Therefore, going forward, the company doesn’t expect margin compression attributable to raw material costs.

Valuation

Model

We have not revised our estimates post the earnings. We feel the stock, at 8.3x FY19 projected earnings, looks reasonably valued. Investors with a long-term investment horizon should consider accumulation.

Petron Engineering up 3% on order win of Rs 60 crore

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Shares of Petron Engineering Construction gained nearly 3 percent intraday Monday on the back of order worth Rs 60 crore.

The company has received letter of intent from JSW Cement for an approximately value of Rs 60 crore.

The order includes civil & structural work for 1.2 MTPA cement grinding plant at Jajpur, Orissa.

Earlier in this month the company has received work order for civil and mechanical works from The Ramco Cements, Chennai for Line-II project at Kolghat Grinding Unit, West Bengal for an approximately value of Rs 62 crore.

At 13:22 hrs Petron Engineering Construction was quoting at Rs 132.55, up Rs 2.10, or 1.61 percent on the BSE.

The share touched its 52-week high Rs 217.15 and 52-week low Rs 119.50 on 03 May, 2017 and 11 August, 2017, respectively.

Margin will be in double-digit by end of year, says Tech Mahindra

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Tech Mahindra posted a big beat on the margins and profit in this quarter led by a positive impact from cross-currency tailwinds.

In an interview to CNBC-TV18, Vineet Nayyar, VC of Tech Mahindra spoke about the latest happenings and how the rest of FY18 will pan out.

Fairly positive that there will be an accretion in margin going ahead, said Nayyar.

Speaking about Infosys, he said Infosys has always been a trailblazer for the industry.

Hope Infosys will continue to do business as it is, he added.

On business front, he said margin will be in double-digit by end of year.

Post note ban, separatists, Reds feel ‘fund-starved’, says Arun Jaitley

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Union Finance Minister Arun Jaitley today said demonetisation left Maoists in many parts of India and separatists in Jammu and Kashmir “fund starved”.

He said it greatly reduced the number of protesters taking part in stone-pelting in the militancy-hit state.

“Stone pelters used to gather in thousands on the streets of Kashmir before demonetisation was announced, but now not even 25 come together for such agitations,” he said.

“After demonetisation, separatists in Jammu and Kashmir and also Maoists in states like Chhattisgarh have become fund starved,” the minister said.

Jaitley was speaking at a function organised by Mumbai BJP president Ashish Shelar. He spoke on the topic ‘New India Pledge’.

Maharashtra Chief Minister Devendra Fadnavis was also present on the occasion.

Elaborating on benefits of the move to scrap high-value notes in November 2016, Jaitley said money which was earlier getting circulated outside the economy had come into the formal banking system.

On the BJP’s vision of building a ‘New India’, he said, “We want to spend funds on defence, rural development and infrastructure.”

“We should have world-class public institutions so that shameful incidents such as the Gorakhpur tragedy do not recur,”

The finance minister said the Modi government was not satisfied with a 7-7.5 per cent GDP growth rate.

To accelerate the growth rate, the government would continue to take tough decisions in the interest of the nation as it had done since coming into power in 2014, he said.

Among them, he spoke about the GST rollout, notes ban, the insolvency and bankruptcy code, amendment to laws related to benami transactions, fair allocation of spectrum and natural resources and double taxation avoidance treaties signed with various countries.

NABARD sanctions Rs 1,350-cr loan to Rajasthan govt

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The National Bank of Agriculture and Rural Development (NABARD) has sanctioned a loan assistance of Rs 1,349.55 crore to the Rajasthan government for creation of rural infrastructure in the state under the Rural Infrastructure Development Fund (RIDF).

The sanction includes assistance for construction of two rural drinking water supply projects, strengthening/ rehabilitation of 1,614 rural roads and modernisation of three major irrigation projects, a NABARD spokesperson said.

An amount of Rs 599.84 crore has been sanctioned for rehabilitation of 1,614 roads, covering all 33 districts of Rajasthan, Rs 469.54 crore for providing potable water to population of 419 villages of Jalore district and Rs 280.17 crore for rehabilitation and modernisation of 3 major irrigation projects located in Udaipur, Banswara and Dungarpur districts, the spokesperson said.