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SHARETIPSINFO >>Research Reports >> HARIYANA SHIP BREAKERS LTD (09-08-2010)

 

LISTING
CMP
Rs 46.30
52 WEEK HIGH/LOW
Rs 53.90/Rs 37.85
FACE VALUE

Rs 10

PE RATIO

2.65

AVERAGE VOLUME
3,000
MARKETCAP
Rs 28 crore
P/BV

0.6

COMPANY OVERVIEW:
Company has been promoted by Shanti Sarup Reniwal in 1981. It is into ship breaking, manufacturing of sponge iron, trading, investment and money lending activity. The company commenced ship breaking activity in the year 1981 at Alang. The company has broken 21 ships so far including M V Chidambaram and Pacific Blue.


INDUSTRY OUTLOOK:
European Union proposed phase out of single hull (20,000 to 30,000 DWT). According to estimate there are 2,300 single- hull tankers that will have to be scrapped. These tankers will be withdrawn by 2010 and 2015 in accordance with the strict time table set by the European Commission.
This will see a hectic activity happening in the ship breaking industry in the coming years. The demand for steel from the construction and infrastructure will see the output being absorbed.

INVESTMENT RATIONAL:
Declining freight rate will make more ship available for breaking.
Growing demand for the scrap iron and increasing price will boost the margin.
Company has consistently paid dividend. At current market price the dividend yield is at 4.6%.
Book Value of the share is Rs 66.

Risk:
The environmental risk associated with the ship breaking industry is the major concern. Any regulation limiting the ship breaking activity will adversely affect the industry. However we don`t expect much change in the regulation as it is already operating under lots of government regulation.

SHAREHOLDING PATTERN:

 

NO. OF SHARE

% OF TOTAL

PROMOTERS

4529814

 

73.46%

INSTITUTION

0

 

0.00%

GENERAL PUBLIC

1636853

 

26.540%

GRAND TOTAL

6166667

 

100.00%

FINANCIAL:

 

 

31/03/07

31/03/08

31/03/09

31/03/10

TOTAL INCOME

153.08

148.25

177.49

135.38

EXPENDITURE

-140.29

-132.84

-159.23

-120.21

PBDITA

 

12.79

15.41

18.26

15.17

DEPRECIATION

-1.56

-1.58

-1.64

-1.73

PBIT

 

11.23

13.83

16.62

13.44

INTEREST

 

-6.31

-4.45

-5.21

-2.97

PBT

 

4.92

9.38

11.41

10.47

TAX

 

-1.96

-3.11

-4

-3.42

PAT

 

2.96

6.27

7.41

7.05

*Extra Ordinary Item is excluded from the calculation.

Key Highlights:
Total Income grew negatively at CAGR of -4%. The negative growth or flat growth in Total Income is because of the very cyclical nature of the industry and cap due to the environmental problem associated with the industry.
PBDITA grew at CAGR of 6% over the last four years. The better PBDITA performance is due to the increase in operational efficiency.
PAT grew at CAGR of 33% over the last four years. PAT showed stupendous growth on back of decline in the interest payment.

RATIOS:

 

31/03/07

31/03/08

31/03/09

31/03/10

EPS

4.79999974

10.16757

12.0162156

11.43243

PBDITA MARGIN

8.35510844

10.3946

10.2879035

11.2055

NPM

1.93362947

4.229342

4.17488309

5.207564

INTEREST COVER

1.77971474

3.107865

3.19001919

4.525253

Key Highlights:
EPS has grown from Rs 4.7 in FY07 to Rs 11.5 in FY10. The EPS grew at CAGR of 33% over the last four years.
PBDITA Margin improved from 8.3% in FY07 to 11.2% in FY10.
NPM improved from 1.9% in FY07 to 5.2% in FY10.
Interest cover has gone up from 1.7 in FY07 to 4.5 in FY10.

COMPARISION OF Q4FY2010 WITH Q4FY2009:

 

 

Q4FY09

% CHANGE

Q4FY10

TOTAL INCOME

33.26

-17.67889357

27.38

EXPENDITURE

-35.58

 

-23.42

PBDITA

 

-2.32

270.6896552

3.96

DEPRECIATION

-0.46

 

-0.43

PBIT

 

-2.78

 

3.53

INTEREST

 

-1.15

 

-0.7

PBT

 

-3.93

 

2.83

TAX

 

0

 

0

PAT

 

-3.93

172.0101781

2.83

Key Highlights:
Total Income in Q4FY10 was down by 17.7% Rs 27.4 crore.
PBDITA in Q4FY10 was up by 271% Rs 3.96 crore.
PAT in Q4FY10 surged by 172% Rs 2.83 crore.

VALUATION &OUTLOOK:
Investors should buy this stock at around  Rs 44 level, stock is trading at 3X to FY11E EPS. We expect EPS to grow by 30% in FY11 to Rs 15. The industry PE is 6.5X. If we value the company at 4.5X then the fair valuation comes at around Rs 67.50.
The downside risk in the stock is very limited as it is dividend paying company and the current dividend yield is 4.6%. Stock is also trading below the book value, the book value is around Rs 67 which makes it very attractive buy at this level.

CONCLUSION:
Investor with 6 to 8 months time horizon should take exposure on the counter. The risk reward ratio is very favorable.

 

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