Sunidhi calls a ‘Buy’ on AGC Networks
CMP: Rs. 217 Target Rs. 320
AGC Networks was incepted as Tata Telecom in 1986 to cater to the emerging EPABX market in India. Lucent Technologies then invested in this listed company promoted by India’s leading conglomerate Tata Sons and formed a joint venture with both parties holding 25.5% equity. In the year 2000, Lucent spun off its enterprise business into a separate company, i.e. Avaya Inc., which later acquired Tata Son’s stake and the company was rechristened ‘Avaya Global Connect Ltd’.
Acquisition of AGCL by Essar Group: In April 2010, the name was changed to AGC Networks following the takeover by Aegis of the Essar Group. Along with the Indian operations of AGC Networks, Essar is also bought the Australian and New Zealand businesses of the company. The group paid Rs206crore to buy 59.1% stake of Avaya Global in the 14.2 crore. equity capital, thus valuing a company at about Rs350 crore. It also came out with an open offer to buy additional 20% of shares.
Valuation & Recommendation: With the shifts in industry & customer requirements, AGCNL has already moved into a space where it is an end-to-end IT services provider. In 2012, it plans to fully integrate its business applications team thereby being able to offer solutions from partners like SAP, Siebel, Oracle, JD etc to its customers.
In addition to it, its top 3 priorities in 2012 would be to expand into at least 4 geographies outside India, maintain its market leadership as a Solution Integrator in the collaboration space and continue the focus on increasing the addressable market by expanding the solution portfolio. AGCNL’s growth rate for this fiscal has been extremely encouraging and much higher than other players in its industry. It has been able to maintain its dominance in the collaboration space while rapidly gaining market share in networking, Information Security, Storage, virtualization & SMB. AGCNL aspires to be a world class solutions integrator in the Enterprise Communication space. Its solutions help organizations accelerate revenue growth, increase market penetration, optimize operating costs and improve employee productivity, by embedding communication in their business processes. At the CMP of Rs214 the share is trading at a P/E of 4.0x on FY13E and 3.3x on FY14E. We recommend BUY with a target price of Rs 320 in the medium-to long term.
Ventura calls a ‘Buy’ on Vivimed Lab
CMP: Rs. 409 Target Rs. 486
Outlook: Vivimed backed by its strong product portfolio and successful integration of the recent acquisitions is likely to register robust growth in the next two to three years. The company being a net exporter is unlikely to be impacted negatively by the current currency depreciation. At a CMP of Rs 399, Vivimed trades at a PE multiple of 8.1x and 7.0x FY13 & FY14 earnings estimates. We remain positive on the stock and recommend a BUY with the revised target price of Rs 486.
Key Takeaways: On the back of acquisitions, Vivimed Lab’s Q4FY12 revenues increased by 109.7% yoy to Rs 251.1crore v/s Rs 119.7crore in the previous corresponding quarter. For the fiscal year, revenues jumped by 60.7% to Rs 668.3 crore. Recently acquired Uquifa contributed ~ Rs 130-140 crore to revenue while the branded formulation business contributed Rs 14-15crore.
Specialty Chemical Business de-grew by 6% to Rs 81.4 crore v/s Rs 86.4 crore in the previous corresponding quarter. The de growth on specialty chemical business was majorly on account of delays on supplies and certain other regulatory and environmental hurdles. The company’s tie up with ISP for accelerated growth hit hurdles and delays on account of the recent acquisition of ISP by Ashland.
Pharma Business stood at Rs 170.6 crore, up 411% on the back of integration of the recently acquired Uquifa, Klar Sehens, Occttanis Nobel Labs Pvt. Ltd. The management plans to use Uquifa acquisition to establish a presence in branded formulations business. In the long term, the company would be looking to exit low margin contract manufacturing business.
EBITDA for the quarter rose by 117.3% yoy to Rs 47.2 crore, primarily due to better product mix as compared to the previous corresponding quarter. The EBITDA margins for the quarter stood at 18.7%, up 70 bps. However, sequentially, the margins declined by 90 bps due to increasing contribution from low margin API business of Uquifa. The margins have come in line with our estimates. We expect, the margins to see slight correction on account of shifting of the product mix in favour of low margin API business.
The net profit grew by 83.1% to Rs 22.3 crore, slightly better than our estimates. The net profit margins stood at 8.8% for the quarter ended.
Vivimed has spent Rs 140 crore on capex in FY12. Out of it, Rs 50 crore in spent on land acquisitions for the SEZ while rest Rs 80 crore is spent for asset creation at existing facilities.