Broking house, Emkay Research is bullish on Assam company and has recommended buy rating on the stock with a target of Rs 36.

The Emkay Research report on Assam Company:

"Assam Company has reported 36.2% y-o-y increase in Q2CY06 sales with EBIDTA improving by 40.8% in absolute term and the EBITDA margin improved by 177 basis to 54.9%. APAT is up by 35.1% on y-o-y basis. Trial production from Amguri Oil and Gas Block has already started and the company expects the commercial production to start from Q4CY06. The company has also invested in Austin Exploration Ltd, which has two prospects in South Australia and two in the USA. The scrip is currently available at Rs 19, which is 13.7XCY06E earnings and 1.3XCY06E book value."

Key highlights

"Assam Company has reported a 36.2% y-o-y increase in Q2CY06 sales to Rs 249 million. The domestic sales have shown a growth of 18% on y-o-y basis for the same period. Exports sales have more than tripled from Rs 16.5 million in Q2CY05 to Rs 53.4 million in Q2CY06. Prominent customers for export sales include Taylors of Harrogate, UK, Schroeder & Haman, Germany, L Elinkchuurman, Netherland and Buenting & Thiele, Germany."

"The average realisation of tea has gone up by 16.7% from Rs 89.74 per kg in Q2CY05 to Rs 104.77 per kg in Q2CY06. The share of exports in value terms has increased from 9% in Q2CY05 to 21.5% in Q2CY06."

"EBITDA has improved by 40.8% in Q2CY06 to Rs 136 million. EBITDA margin is up by 177 bps to 54.9%. EBIT from exports rose from Rs 5.6 million in Q2CY05 to Rs 49.5 million in Q2CY06. The major reason for the rise was foreign exchange gain amounting to Rs 20.7 million in Q2CY06 as against a foreign exchange loss of Rs 5.9 million in Q2CY05. Apart from this, exports for the current quarter is mainly on direct sales basis which has saved cost of commission to intermediaries."

"Net profit for Q2CY06 was down by 12.3% to Rs 131 million. However, after adjusting for the extra ordinary income of profit from investment of Rs 54 million for Q2CY05, APAT for the  current quarter shows a decent growth of 35.1%. EPS for Q2CY06 is Rs 0.43 on equity  share of Re 1 face value." 

"The company has successfully commenced its trial production from its Amguri Oil and Gas Block. However, the company is charging the trial period revenue (on an average   Rs 10 million per month) to the capital expenditure till it starts commercial production. As per the management, the commercial production is likely to start from Q4CY06."  

"The company has also started exploring overseas opportunities. Its wholly owned subsidiary Duncan Macneil Natural Resources Ltd, UK holds 50% founder's stake in Austin Exploration Ltd which has two prospects in South Australia and two prospects in USA. The Company has invested a sum of GBP811000, equivalent to Rs 68.8 million, towards purchase of shares in Duncan Macneill Natural Resources Ltd. The company has also approved at its EGM plans to raise funds through FCCB, GDR, ADR, etc."

"The scrip is currently available at Rs 19, which is 13.7XCY06E earnings and 1.3XCY06E book value."