Buy Lloyd Electric & Engg for target of Rs 238: Angel

Angel Stock Broking has initiated coverage on Lloyd Electric & Engineering with a buy recommendation for 12-month price target of Rs 238.

"We expect the company's net profit to grow at compounded annual growth rate of 34 per cent on the back of 28 per cent CAGR growth in net sales. At Rs 184, the stock trades at 10.9 times and 7.7 times 2007-08 (Apr-Mar) estimate and 2008-09 earnings," the brokerage says in its Sep 22 report.

Lloyd Electric manufactures air conditioner coils. It also assembles ACs on contract manufacturing basis for OEMs and supplies cooling units to Indian Railways for its coaches.

"The company is currently working on increasing its revenues from assembling of ACs, returns on which are relatively better than coil manufacturing. We expect the contribution of ACs to revenues to improve from around 35 per cent in 2006-07 to around 44 per cent in 2008-09. Also, with the supplies of packaged ACs set to increase going forward, it is expected to improve the company's margins as this segment enjoys operating margins close to 30 per cent," the report adds.

Lloyd Electric is looking at making an acquisition in Europe or US. This acquisition could act as a major catalyst in boosting its topline and bottomline.

Bull's Eye

REL CMP: Rs 1,087.45 Target Price: Rs 510 Citigroup has rated Reliance Energy (REL) a ‘sell’, with a price target of Rs 510 as it feels that the current price ignores execution risks involved in the company’s proposed projects. “REL shares have rallied up 118% over the past five months on expectations of blue-sky scenario through capacity additions, EPC (engineering, procurement and construction) order wins and the value of CBM (coalbed methane) blocks,” the investment bank said in a note to clients. “At Rs 1,106.50, the implicit value of net cash/share is 3.5 times book value, which in our view completely ignores execution risks,” the note added. Redington CMP: Rs 309.90 Target Price: Rs 440 Kotak Securities’ private client group has initiated coverage on Redington with a ‘buy’ and a 12-month price target of Rs 440, citing positive growth prospects as a key reason. “We expect the company to achieve an EPS (earnings per share) of Rs 17.8 in FY08E (estimates) and Rs 25.2 in FY09E,” the retail brokerage said in a note to clients. “Redington is looking to expand aggressively in other African markets and has already identified CIS and Vietnam as next potential geographies,” it added. Peninsula Land CMP: Rs 560.15 Target Price: NA ICICI Securities has maintained its ‘buy’ rating on Peninsula Land while upgrading its net asset value (NAV) estimates. “We are upgrading Peninsula Land’s (PLL) NAV estimates 23% to Rs 34.5 billion or Rs 732/share from Rs 28 billion or Rs 596/share primarily due to an increase in FSI (floor space index) of the Dawn Mill property from one to two, implying a rise in saleable area from 0.6 million sq ft to 1.2 million sq ft, leading to Rs 98/share upside,” the domestic brokerage said in a note. “We have also increased the value of PLL’s special economic zone (SEZ) and township projects after further clarity on prices, execution timelines and payment of land costs,” the note added. TCS CMP: Rs 1,002.15 Target Price: Rs 1,233 IDBI Capital Markets has initiated coverage on TCS with a ‘buy’ and 6 to 12-month price target of Rs 1,233 on positive growth outlook. “We argue that a robust demand environment, healthy pipeline, significant employee additions and persistent large deal wins should help the company sustain a 26% revenue CAGR (compounded annual growth rate) for FY07-10E (estimates),” the local brokerage said in a note to clients. IDBI Cap estimates the software major’s 2007-08 earnings per share (EPS) at Rs 54 against Rs 42 reported in 2006-07. In 2008-09, its EPS is expected at Rs 66. UCO Bank CMP: Rs 45.90 Target Price: Rs 55 ALMONDZ Research has rated UCO Bank a ‘buy’, with a price target of Rs 55, citing positives emanating from its capital restructuring exercise as one of the key reasons. “Capital restructuring exercise would improve UCO Bank’s shareholders’ value as their earnings per share would increase significantly with the reduction in equity base,” the domestic brokerage said. “The government holds 75% in UCO Bank leaving enough room for a follow-on public offer in the future for financing its future growth plans,” it added.

Capital goods sector: The star performer

Capital Goods continue to be the star performers on the bourses, as companies have put up a robust performance and witness continued rise in order books. Sales and profit growth for the capital goods sector during the quarter ended June ’07 stood at 40% and 48%, respectively.

Over a longer horizon, the sector has seen a growth of 26% in sales and 64% in profit since the current uptrend in economic cycle in ’03. This is much better than the corresponding growth rates of 19% and 48% for the aggregate manufacturing sector.

The performance of the capital goods sector is reflected in the stock market, with the BSE Capital Goods index generating a six-month return of 65%, against 36% for the BSE500.

Moreover, the former has generated 750% returns over the past four years, compared to about 280% for the BSE500 and the Sensex. The major growth driver for capital goods is the investment taking place in the power sector, which contributes the maximum to major engineering companies’ revenues.

The power sector accounts for about 70% of the revenues of the largest engineering company, Bharat Heavy Electricals (BHEL). It also accounts for 60% of the revenues of ABB, another large company, which has 8% weightage in the BSE Capital Goods index.

The other driver for the capital goods sector is investments in roads and the construction space since the beginning of FY03. The engineering sector has benefited due to increased demand for material handling and other equipment, which comprises 25-30% of the total cost in these projects.

Exports and industrial capacity expansion are other drivers for engineering companies. While the past performance has been robust, the outlook for capital goods companies is equally strong, backed by continued rise in order backlog. Order intake and order backlog continues to increase by 40-60% for most companies.

Source : ET

Bull's Eye Recos

Reliance Energy
CMP: Rs 1,349.40
Target Price: NA

SSKI has upgraded Reliance Energy (REL) to outperformer on account of the expected value unlocking through the public offer of its 50% subsidiary, Reliance Power (RPL). Incidentally, the board of REL has already given its approval for the IPO of Reliance Power. RPL holds all the new power generation assets of REL such as Dadri (7,480 MW), Rosa (1,200 MW), Shahpur (4,000 MW) and Sasan UMPP (4,000 MW) among others.

The total power capacity being set up by RPL is around 25,000 MW. According to reports, the IPO is likely to raise around Rs 80-100 billion at a dilution of 15-20%, implying a valuation of Rs 400-667 billion for RPL. “We believe the IPO is positive for REL shareholders as it unlocks the value for its power assets. The capex of power assets is funded through the IPO funds as well”, said the report in a note to its clients.

Overall, we like REL’s strategy of backward integration of its distribution business by setting up generating capacity across various fuels such as gas, coal and hydel, it adds. Fifty per cent of RPL is held by REL and the balance 50% is held by ADAG.

Arvind Mills
CMP: Rs 63
Target Price: NA

Merrill Lynch has maintained a sell rating on Arvind Mills as it feels that the valuations are expensive and the near-term earnings outlook remains extremely weak. “We have cut our earnings estimates by 28-29% over FY’08-09 to factor in a deteriorating second half with costs set to escalate further. We have also factored in slower than expected growth from the garment exports business on the back of a rising rupee”, says the report.

Further, cotton prices are likely to rise at least 10-15% by the time the company runs out of low-cost inventory. Power cost is also set to shoot up November onwards when the gas contract for captive power generation expires. A hardening rupee is making matters worse, with the company having to put on hold its jeans capacity expansion, notes the report.

Meanwhile, the company has issued 50.6 million warrants to promoters, convertible into equity shares at Rs 52 per share over a period of 18 months. This will result in a 24% increase in share capital and the promoter holding will rise from 33.9% to 46.8%. “We assume the funds, aggregating to Rs 2.6 billion, will be utilised for debt repayments over FY’08-10. As a result, we estimate the gearing will fall to 1.2 times in FY’08 and 1 time in FY’09”, says the foreign brokerage.

Yes Bank
CMP: Rs 211.30
Target Price: Rs 230

Citi has initiated coverage on YES BANK with a buy rating due to the bank’s focused asset portfolio, apart from a strong treasury and advisory income businesses. The brokerage has set a price target of Rs 230 for the country’s youngest private sector bank.

According to the foreign brokerage, the key catalysts for the stock’s medium-term performance are likely to ease domestic interest rate and liquidity environment that will provide a respite to margins and bolster quarterly performance over the next two to three quarters, along with fresh capital and strong growth in investment banking fees.

“We expect YES BANK to grow significantly more than peers, in part, due to its smaller absolute size, with advances and total assets estimated to grow at 70% and 64% CAGR, respectively, over FY’08-10 estimates. We also estimate earnings to increase 56% and profits by 61%, driven by strong loan growth, continued momentum in fee incomes (51% CAGR), and relatively lower (though increasing) provisioning charges”, adds the report.

Ennore Foundries
CMP: Rs 181.60
Target Price: Rs 480

ICICI Securities has initiated coverage on Ennore Foundries with an 18-month price target of Rs 480, factoring in the high-growth trajectory and capacity expansion that, according to the brokerage, will make it the largest foundry in Asia.

“Ennore Foundries has embarked on an aggressive capex plan of Rs 3.5 billion over the next three years. This would treble its capacity to 210 TPA from 75 TPA in FY’07. Post completion of its capex, EFL would emerge as the largest foundry in Asia”, notes the report. Meanwhile, the company staged a smart turnaround FY’04 onwards by registering a 29.8% revenue CAGR and 430 basis points EBITDA margin improvement over FY’04-07.

“We believe the company will be on a high-growth trajectory through FY’08-11 (estimates), clocking in 34.8% revenue CAGR and 73.4% recurring net profit CAGR after a subdued FY’08 due to high depreciation and interest charges”, says the report. The company is also aggressively exploring inorganic growth avenue for expanding global footprint.

Source : ET