NSE BSE Recommendations

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

2007-10-03T16:50:00.001-09:00

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

2007-10-03T16:49:00.001-09:00

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

2007-10-03T16:48:00.001-09:00

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

2007-10-03T16:42:00.000-09:00

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

Bharti Airtel a very strong player

2007-04-27T08:44:00.000-09:00

PN Vijay, Investment Advisor is of the view that Bharti Airtel a very strong player.

Vijay told CBC-TV18, “Bharti Airtel has ramped up very substantially. They are clearly emerging as a very strong player and an exciting space, so the market is giving thumbs up generally to the stock. The big worry is, their ARPU which is internationally recognised norm for profitability and an ARPU of USD 10 from essentially a mobile operator is just a shame, its giving it away, its got probably 1/4th of what it is in UK or something. So to some extent when they grow the way they are going into rural areas and Aam Adami and all that, they are going to get hit on ARPUs and there is Vodafone waiting to come and there is Mr, Maran trying his best to make the telephone cheaper. So all these pressures are there, it is only growth that’s driving it but going forward profitability is a big issue. Having said all that Bharti is of course a blue chip, so one has to be careful though.”

Disclosure: Analyst holds the above mentioned stock.

Idea Cellular Q4FY07 results in line with Citigroup

2007-04-26T09:27:00.000-09:00

Citigroup Research is bullish on Idea Cellular and has recommended buy rating on the stock. The company's Q4 results were in-line with Citigroup expectations.

Citigroup Research report on Idea Cellular:

Results in-line

Idea Cellular's 4QFY07 EBITDA at Rs4,360m was in-line withexpectations on the back of strong revenue growth and modest margin gains.Net profit at Rs1,934m was, however, significantly ahead of expectations due tohigh other income and lower-than-expected depreciation.

Wireless growth on track

Wireless revenue growth at 14.1% qoq (est.) wasrobust, higher than in the immediate past. EBITDA margins at 33.3% improvedby 30bps qoq, after adjusting for certain flexible-pay provisions that inflated staffcosts in 3QFY07. Management indicated EBITDA margins in 8-old circles at38.7%.

KPIs under control despite new rollouts

ARPUs declined only 2% qoq as thenew launches did not have an adverse impact, implying rational pricing. Thedecline in rev/min was also moderate (Rs0.87 to Rs0.82), mainly on account ofroaming tariff cuts.

Captive NLD profitability, a small surprise

NLD revenues of Rs603m with anEBIT of Rs126 was a small surprise, but mainly on account of captive trafficbeing carried on leased lines. At this stage, therefore, it is more a tool to savecosts rather than a full-fledged business model. Management indicated they willtake a final decision on NLD business model by 1QFY08.

Surplus cash led to high other income

4QFY07 other income at Rs.326.4mwas higher than expected on account of treasury gains due to the surplus cashon from the IPO, and would trend down as it gets deployed in the rollout.

Valuation

We have set our 12-month target price at Rs112 based on Mar-08E DCF, which we think is an appropriate method due to the back-ended nature of free cash flows given the new circle roll-outs. Our DCF assumes a WACC of 10.8% at a target debt to capital of 50.0% and terminal growth rate of 4.0% (similar to Bharti). Our DCF is based on explicit forecasts for FY07-16E with a terminal year EBITDA margin at 37.1% (~200bps below Bharti) and capex/sales of ~10% (in line with Bharti). The target price imlies an EV/EBITDA of 11.6x, a slight premium to Bharti's target multiples (for the ex-towerco portion of Rs800), which we believe is supported by (1) higher EBITDA growth rates for Idea; (2) liquidity overflow from Bharti's foreign limit constraints; and (3) M&A possibilities in the long run given Idea's good fit for the potential suitors.

Source :- Moneycontrol

Buy HDFC Bank; target of Rs 1185: CLSA

2007-04-25T08:45:00.000-09:00

CLSA Research is bullish on HDFC Bank and has recommended buy rating on the stock with a 12-month target of Rs 1185. Research house believe that the HDFC Bank continues to be one of the prime quality plays on Indian banking sector owing to its dominant retail franchise and its strong earnings growth trajectory.

CLSA Research report on HDFC Bank:

HDFC Bank reported 30% YoY growth in profits during 4QFY07 despite the higher provisioning requirements. Profit growth was led by 50bps expansion in margins to 4.5% as it leveraged on higher CASA deposits. Asset quality remained healthy. We believe HDFC bank continues to be one of the prime quality plays on Indian banking sector owing to its dominant retail franchise and its strong earnings growth trajectory.

Margins surprised, fee income disappointed

4QFY07 net income grew 30% YoY, marginally higher than expectations, as stronger net interest income offset moderate growth in fee income and one time hit of Rs1.2bn. Core operating profit grew 48% YoY led by net interest income growth of 51% YoY as NIMs expanded 50bps yoy to 4.5%. Fee income grew <6%yoy,>

Higher rates and improved CASA

Margin expansion was led by i) increase in lending rates which improved spreads on higher CASA deposits which increased to 58% in 4Q as the bank added over 100 new branches during the quarter, ii) increasing proportion of high yielding unsecured loans, iii) recognition of Rs900m received as interest on CRR balance for FY07 during 4QFY07 and iv) the bank’s strategy to slow down asset growth and repay high cost deposits (loan growth was negative on QoQ basis). Margins are unlikely to sustain at these levels and are likely to stabilize around 4%.

Asset quality maintained

While HDFC bank continues to benefit from higher yields on its unsecured loan book, the bank has not seen the increase in gross NPL (maintained at 1.2% of advances) due to shift in the asset mix. The bank has also maintained its net NPLs at 0.4% by making adequate provisioning and an additional provision of Rs1.2bn on standard assets. Going forward, however, we expect loan loss provisioning to increase >35%p.a. Total CAR stood at 13.1%, Tier I CAR also improved marginally qoq to 8.6% due to moderation in credit growth.

Trades at 4.2x FY08CL book

At 4.2x FY08CL book, HDFC bank continues to trade near the higher end of the valuation range. However the bank’s ability to sustain its strong earnings growth trajectory across the interest rate cycle should help sustain valuations.

Source :- Moneycontrol

Buy Indian Overseas Bank: HDFC Sec

2007-04-24T10:18:00.000-09:00

Broking house, HDFC Securities is bullish on Indian Overseas Bank and has recommended buy rating on the stock.

HDFC Securities report on Indian Overseas Bank:

Indian Overseas Bank (IOB) reported 50% growth in interest income at Rs.17.45bn, on the back of 59% growth yoy in interest from advances

Deposit growth at the end of Q4 has been much above expectations at 36% yoy

A surprising expansion of net interest margin to 4.16% during Q4 has led to NII expansion of 42% yoy

The operating profit growth was 37% yoy

Net profit growth was 42% yoy to Rs.2.90bn from Rs.2.04bn

Outlook

NIM expansion and the higher target kept by the RBI for deposits and advances growth in the annual monetary policy announcement made today, have prompted us to revisit the projections for the bank for FY08 & FY09. We expect the bank to achieve a credit growth of 23% & 18% during FY08 & FY09, against our earlier expectation of 19% and 16%. The NIM is expected to decline to 3.58% and 3.55%, due to rising cost pressures through deposit re-pricing and delinquencies. The net profit growth is expected to be similar at 3.5% CAGR, compared to our earlier expectation of 4%, but would nevertheless be on a much higher net profit base than earlier expected by us. Hence, the decline in RoE is likely to be arrested at 20.3% and RoA is expected to reach 1.06% by FY09.

Valuation

With expected RoE of 20.3%, the cost of equity at 14.5% and terminal growth at 6%, we expect the stock to trade at a fair book value multiple of 1.68x. On the basis of FY08E, 75% adjusted book value of Rs.90, we value the stock at Rs.152, at a FY08E earnings multiple of 7.9x. The target price suggests an upside of 43% over the CMP of Rs.106. Hence, we upgrade our rating on the stock to Buy.

Source :- Moneycontrol

Bull's eye Recommendations :- 23rd April

2007-04-23T08:42:00.000-09:00

MATRIX LABORATORIES

RESEARCH: MERRILL LYNCH (APRIL 18, ’07)
RATINGS: BUY
CMP: RS 192 (FACE VALUE RS 2)

MATRIX’S significant 53% and 37% relative underperformance over the past year and six months respectively reflects the likely 55% earning de-growth in FY07E due to write-offs in the European generics business, revenue loss from certain contracts in European generics business (DocPharma), sharp increase in R&D spend, and rising interest cost. Merrill Lynch estimate Q4 net profit of Rs 13 crore, a sharp 63% decline over the previous corresponding quarter largely due to high R&D spend and lower margin in the DocPharma business. Based on the refreshed estimates Matrix is trading at 20x FY08 and 14x FY09 earnings. This is in line with the pharmaceutical sector average on FY08E earnings and about 15% discount to the sector average on FY09E EPS. On EV/EBITDA, Matrix trades at 15% discount to the sector average on FY08E estimates. The price target of Rs 229/share is based on 18x FY09E EPS, nearly in line with the stock’s six-month historical average, which reflects the period post announcement of acquisition by Mylan. Further, the stock’s current 40% discount to Mylan’s acquisition cost makes it an attractive candidate for a possible complete buyout by Mylan.

CAIRN INDIA

RESEARCH: GOLDMAN SACHS
RATINGS: NEUTRAL
CMP: RS 131 (FACE VALUE RS 10)

CAIRN India was formed in August ’06 by the acquisition of Indian assets from Cairn Energy Plc. It is a pure E&P play, the assets of which could be bifurcated into a development block and 12 exploration blocks. Prior to the initial public offering in ’06, Cairn India acquired the Indian upstream assets from Cairn UK Holdings (100% subsidiary of Cairn Energy Plc.) with consideration of cash and shares amounting to $6 billion. In the absence of information on the fair value of the assets acquired by Cairn India, Goldman Sachs have assigned book value to these assets based on consolidation of the statements of the three unlisted subsidiaries of Cairn Energy Plc which were holding them. The book value thus calculated works out to $213 million. This is low compared with $6 billion that Cairn India paid for these assets because the book value does not reflect the full reserve potential. Notably, Petronas Malaysia has taken 10% stake in Cairn India at Rs 160/share — in line with the $6 billion valuation. Cairn India’s valuation multiples in the near term appear stretched as benefits from monetization of the Rajasthan block will impact earnings only ’09E onwards. However, the current share price has value built in for the Rajasthan asset, as the company has announced the reserve size and production targets.

UTI BANK

RESEARCH: MACQUARIE (APRIL 17 ’07)
RATINGS: OUTPERFORM
CMP: RS 465 (FACE VALUE RS 10)

UTI Bank announced its 4QFY3/07 results. PAT was up 39% YoY to Rs 220 crore (20% ahead of the estimates) and NII was up 48% YoY to Rs460 crore. The key surprises were lower NPA provisions and lower tax rates. NPA provision was a major surprise and reduced 61% YoY to Rs 8.2 crore for the quarter (which was 40% below the estimates). According to the management, this reflects a dramatically improved performance on additional slippages in the current quarter. Additional general provision of Rs 45 crore in the current quarter was marginally below the estimates of Rs 52 crore. Another surprise was the effective tax rate which, adjusted for general provision, stood at 29% for Q4 compared to our estimate of 33.5%. Finally, wage costs were 11% below Q4 estimates due to a 22% QoQ fall. There seems to have been one-offs in Q3 on which we have not received details. Results for Q4 were a positive surprise to us. Over the long term, Macquarie continues to like the stock, as UTI Bank continues to ride deepening penetration to make rapid market share gains. As the branch network continues to expand rapidly, high growth is expected to be the key driver for the bank’s stock price performance and continue to retain the Outperform rating on the stock with a target price of Rs 621.

ACC

RESEARCH: CITIGROUP (APRIL 19, ’07)
RATINGS: BUY
CMP: RS 791 (FACE VALUE RS 10)

ACC’S net sales grew 25% YoY to Rs 1,670 crore, in line with expectations. However, both EBITDA and PAT came in about 10% below expectations at Rs 510 crore (+55% YoY) and Rs 360 crore (+55% YoY) due to higher costs than anticipated. Sales volumes declined 2% YoY to 4.9 million tonnes. ACC expects to add over 7million tpa of capacity with 3.1 millio expected in CY07, 1.4 million in CY08 and the balance 3 million tpa in CY09. Around 130MW of captive power is also being added. ACC’s board has approved the transfer of its ready mix business (sales Rs 300 crore in CY06) to a new wholly owned subsidiary. On its own and along with its group company, Gujarat Ambuja Cements, it enjoys a strong market presence in several key markets. Most of its capacity creation in ’06-08 is at a low capex. ACC has come a long way from its high debt equity of 1.64x in FY02. The combination of low-cost capex and strong cash flows in CY06 has resulted in ACC becoming a net cash company. Citigroup believe that EV/EBITDA is a better valuation parameter than P/E to get a proper perspective on valuation of Indian cement companies. Additionally, P/E is not so useful in ACC’s case, because in the past 12 years, ACC has made minimal profits or even losses on three occasions. ACC’s average EV/EBITDA over the past 11 years, which encompasses three cement cycles, has been 13x. Using a shorter time frame (seven years) gives an average of 11x. At the target price of Rs ,260 EV/EBITDA would trade at 10x, a discount to its 10-year average EV/EBITDA, justified keeping in mind the historic high in valuations.

ASHOK LEYLAND

RESEARCH: HSBC (APRIL 19, ’07)
RATINGS: UNDERWEIGHT
CMP: RS 38 (FACE VALUE RE 1)

ASHOK Leyland is the second largest manufacturer of medium and commercial vehicles in India, with 28% market share in FY07. In addition, it also manufactures engines for industrial, generator sets and marine applications. Its products range from 18-seater to 82-seater double-decker buses, to 7.5 tonnes to 49 tonnes haulage vehicles, to special application vehicles. Ashok Leyland’s earnings to remain flat in FY08e and decline by 15% in FY09e, following declines in volume and profit margin. The company is likely to benefit from reductions in tax paid on raw materials and components following the introduction of the value added tax regime and removal of turnover tax from January 2007 in the state of Tamil Nadu, where Ashok Leyland has its vehicle production units. It would also get tax benefits once it starts production in Uttaranchal, in April 2008. However, rising fixed costs as a percentage of sales following our forecast decline in sales is likely to lead to a decline in net profit margin in FY08e and FY09e. The fair value of Rs 30 is below the share price of Rs 38 on April 16, hence HSBC initiate coverage on Ashok Leyland with an Underweight rating. At the target price, the stock would trade at 5.8x FY08e EV/EBITDA, which is marginally lower than the last five year average of 6.0x one-year forward EV/EBITDA. Also, the FY08e price-to-book ratio of Ashok Leyland at the target price is likely to be 1.7x compared to the fiveyear average price to book ratio of 1.9x, based on actual book value per share of the last five years.

Source :- ET

Stay invested in M&M: Joshi

2007-04-20T09:05:00.000-09:00

Sharmila Joshi of Asit C Mehta is of the view that one should stay invested in Mahindra and Mahindra, M&M.

Joshi told CNBC-TV18, “The news of raising money by M&M for Chinese forging acquisition is also interesting against the background where we see that a lot of these companies are now increasingly trying to make a global footprint for themselves whether you have seen it happened with Tata Motors, now you are seeing with M&M, they have the Renault tie up, they have launched a new car Logan, they have made the domestic acquisition as well, they are looking at the forging business clearly with great interest because we have seen them do an acquisition in Europe as well, they are looking at exporting their models like the Scorpio etc to overseas markets.”

She further added, “So these kind of companies, for the next one to one and a half year, seems to have a lot of things going to happen and a lot of things in their pipeline. So keeping that in mind and the fact that we are seeing a good growth in the commercial vehicle space and now with the Punjab Tractor acquisition they have had that as an added play in the farming sector. Definitely, if your outlook for the stock is about a year, these are definitely stocks that you should stay invested in.”

Disclosure: Analyst does not hold the above stock.

Source :- Moneycontrol

ACC a market performer: HDFC Sec

2007-04-19T08:18:00.000-09:00

HDFC Securities has recommended market performer rating on Associated Cement Companies, ACC.

HDFC Securities report on ACC:

ACC reported Q1 CY07 numbers in line with our expectations. With sales volume taking a dip by 2.5% YoY, to 4.93 mn tonnes and realization improving by 32.9% YoY, to Rs. 164/50 kg bag, the Net Sales of the company was up 26.2% YoY, to Rs. 16748 mn. As a result, the EBITDA margins improved by 655 bps to 30.3% and the PAT was up by 54.5% to Rs. 3638 mn.

To address the need for incremental capacity, ACC has undertaken expansion plans. This will increase its capacity from the current 19.9 Mn TPA to 27.5 Mn TPA, by the end of CY09. Of this, 3.18 Mn TPA is expected to come on board in the current year CY07, 1.4 Mn TPA in CY08 and another 3.0 Mn TPA in CY09.

With no amicable settlement to the deadlock between the industry and the government, the latter’s recent move to withdraw the CVD and Special Additional Duty on import of cement, has further depressed the sentiment in the industry. With the industry still holding on to its stand of freezing cement prices for one year and the Rs. 10 per bag correction in cement prices expected in CY08 due to fresh capacities coming on board, we maintain our cautious stand on the sector.

As per our estimates, ACC is likely to do an EPS of Rs. 72.8 in CY07 and Rs. 65.8 in CY08, thereby showing a growth of 11.6% in CY07 and a de-growth of (9.7)% in CY08. The stock currently trades at a PE of 10.8x CY07 and 12.0x CY08 EPS estimates. EV/EBITDA works out to 6.8x CY07 and 6.9x CY08. The EV/tonne works out to USD 146 CY07 and USD 132 CY08 estimates, which in our opinion is fair, considering the current scenario. Therefore we rate the stock as a Market Performer.

Source :-Moneycontrol

Buy HCL Technologies: Edelweiss Research

2007-04-18T09:28:00.001-09:00

Edelweiss Research is bullish on HCL Technologies and has recommended buy rating on the stock.

Edelweiss Research report on HCL Technologies:

HCL Technologies’ (HCL Tech’s) Q3FY07 results were ahead of our expectations. Revenues for the quarter were Rs 15.7 bn, a growth of 7.6% Q-o-Q and 40.6% Y-o-Y. Reported net profit of Rs 3.3 bn (growth of 16.0% Q-o-Q and 72.0% Y-o-Y), does not take into account the ESOP and restricted stock units (RSU) charges. After providing for those charges, the net profit growth, at 16.0% Q-o-Q and 56.1% Y-o-Y, is encouraging. EBITDA margin increased by 120bps, with improved utilisation, SG&A scale benefits, and marginally better pricing. The BPO business’ strong performance, with 16.4% Q-o-Q growth and significantly improved EBITDA margins of 26.5%, is this quarter’s highlight. Further, with 49 clients under multi-service delivery deals (up from 45 in Q2FY07), we see HCL Tech garnering a higher share of these clients’ total spending.

The current quarter strongly indicates that HCL Tech is embarking on a higher-growth trajectory accompanied by improved profitability that seems sustainable. In our view, the independent business momentum in each of its three broad service lines (core IT software, infrastructure management, and BPO) serves to raise the consistency of delivering good quarterly growth performance, going forward. In addition, we like the fact that infrastructure management and BPO, currently contributing ~28% to revenues, are largely stable business lines. Moreover, the annuity-based revenues of these businesses are likely to minimise volatility in the company’s future quarterly performance.

Factoring in HCL Tech’s better-than-expected performance for the quarter and improved business outlook, we have revised our estimates; our revised EPS for FY07, FY08E, and FY09E estimates are Rs 16.6, Rs 20.5, and Rs 25.0 respectively (up 7.8%, 5.6% and 3.6% from our earlier FY07, FY08E and FY09E estimates, respectively). At CMP of Rs 302, the stock trades at a P/E of 14.7 and 12.1x for our FY08E and FY09E revised earnings, respectively. We see value in the stock at current levels and reiterate our ‘BUY’ recommendation.

Source :- Moneycontrol

Buy TCS; target of Rs 1440: Angel Broking

2007-04-17T08:48:00.000-09:00

Broking house, Angel Broking, is bullish on Tata Consultancy Services and has recommended buy rating on the stock with 12 months target of Rs 1440.

Angel Broking report on Tata Consultancy Services:

Performance Highlights

Strong topline growth driven by volumes, despite rupee appreciation

TCS grew its revenues at a decent pace of 5.9% QoQ during Q4FY2007. This was mainly a result of good volume growth to the extent of 6.4% QoQ, pricing-led improvements to the tune of 89bps and productivity improvements of 44bps. However, the rupee appreciation during the quarter led to an adverse impact of around 1.9% on the topline growth, thus leading to the growth in rupee terms being slower than the dollar growth, which was impressive at 8% QoQ. TCS continues to grow its global delivery model and revenues from its global delivery centres (GDCs) accounted for 4.6% of total revenues in Q4FY2007. The company now has delivery centres in places like China, Mexico, Brazil and Latin America and in opening a new development centre in Morocco, a clear testimony to the fact that it has by far the widest global network among all the top-tier software companies. This undoubtedly gives TCS an edge over its peers, serving as a competitive differentiator.

Productivity improvements aid margins

During Q4FY2007, TCS managed to maintain its EBITDA margins at the same level as was the case in the previous quarter, in fact, actually managing a marginal expansion of 1bp. The appreciating rupee had a negative impact of 57bps on the margins, which was effectively set off through improvements in productivity and higher utilisation rates (79.6% excluding trainees in Q4FY07 Vs 78.2% in Q3FY07). Thus, TCS has clearly shown its ability to manage margins even in the face of stiff headwinds such as volatile currency movements.

Higher other income enables decent bottomline growth

TCS saw a decent 6.2% QoQ growth in its bottomline for the quarter. Other income provided a strong fillip to the bottomline growth, growing at as much as 199.5% QoQ. Thus, this was the major factor that enabled the bottomline to grow at a faster pace than the topline, even as depreciation charges and tax payments rose at QoQ rates of 29.2% and 19.7% respectively.

Outlook and valuations

TCS has hit virtually bull’s eye on our topline estimates for FY2007. While we had estimated the company to hit Rs 18,634cr, the company managed to hit Rs 18,633cr. However, on the margins front, TCS saw further fall compared with what we had originally anticipated, witnessing a 48bps fall, as compared to our estimates of a 30bps fall. On the bottomline front, the company has slightly out-performed our estimates, hitting Rs 4,132cr, compared with our estimates of Rs 4,121cr.

Going forward, we expect TCS to record a 30.5% CAGR in topline between FY2007 and FY2009, while we expect the bottomline to clock a 24.5% CAGR in that period. We expect margins to fall by around 50bps each year, mainly due to continued wage inflation. The demand environment appears strong for TCS and the company, with its ‘full-services model’ and global delivery network, appears well-positioned to reap the benefits of the strong growth expected in the global offshoring industry. Nonetheless, we believe that headwinds such as higher attrition rates, wage inflation and currency appreciation could play spoilsport in future and greater-than-expected appreciation of the rupee against the US dollar would be a downside risk to our estimates.

At the CMP, the stock trades at 19.1x FY2009E EPS. We maintain a BUY on the stock with a 12-month target price of Rs 1440.

Source :- Moneycontrol

Buy Infosys; target of Rs 2400: Angel Broking

2007-04-16T09:08:00.000-09:00

Broking house, Angel Broking has recommended buy rating on Infosys Technologies with 12 months target of Rs 2400.

Angel Broking report on Infosys Technologies:

Performance Highlights

Rupee appreciation stymies topline growth, even as volume growth is sluggish

This has been one of the quietest quarters for Infosys in recent times. The company recorded a subdued 3.2% QoQ and a 43.8% YoY growth in its topline during Q4FY2007, which hit Rs 3,772cr. It is amply clear that the rupee appreciation during the quarter has had a negative impact on the topline. While IT service revenues in dollar terms grew at a decent 5.4% QoQ, the overall revenue growth was much slower. Volume growth was relatively subdued, with onsite volumes growing at 4.0% QoQ and offshore volumes clocking a 3.4% QoQ growth. Billing rates continue to witness an uptick (1.8% onsite and 1.4% offshore; 1.7% blended). However, the appreciating rupee played spoilsport.

Rupee movements, S&M costs subdue margins

During Q4FY2007, Infosys recorded a 99bps fall in its EBITDA margins. The appreciating rupee impacted this by as much as 100bps, apart from higher sales and marketing (S&M) costs. Expectations of scale benefits through SG&A leverage have not materialized during the quarter, leading to a mere 0.1% QoQ growth in the absolute EBITDA figure.

Higher other income enables the bottomline to grow at a faster pace than the topline, despite margin dilution

While on the face of it, Infosys appears to have recorded a blow-out 16.4% QoQ growth in its net profit during the quarter, this includes a one-time reversal of tax provisions of Rs 124cr. Excluding this, net profits grew at 3.8% QoQ. However, this is also a decent performance, given the fact that margins fell so significantly during the quarter. This was enabled by considerably higher other income (up by as much as 101.7% QoQ). A higher investible surplus, aided by higher yields on investments, led to this performance.

Full-year topline powered by volumes, billing rates

During fiscal FY2007, Infosys recorded a strong 45.9% YoY growth in its topline. This was enabled due to good volume growth in the IT services business. While onsite volumes grew at 40.9% YoY, offshore volumes clocked a 33.1% YoY growth. Billing rates, on the other hand, saw an upward trend, with average onsite rates witnessing a 4.4% YoY increase, while offshore rates grew at 2.7% YoY.

Onsite and offshore revenues in the IT services business witnessed a 42.1% YoY growth in dollar terms. This clearly signifies the fact that the company’s ‘new service lines’ have clocked an even faster pace of growth. New services (excluding ADM, re-engineering and products) have consistently increased their share in overall consolidated revenues over the past few years and in FY2007, accounted for 43.7% of total revenues (41.1% in FY2006). This clearly suggests that service lines such as package implementation, testing, consulting, BPO and engineering services have shown increasing traction over the past few years and is a testimony to Infosys’ superior execution skills, client-mining abilities and ever-improving breadth and depth of services.

Outlook and valuations

Infosys has slightly under-performed our estimates for FY2007. On the topline front, the company missed out estimates by 0.6%, while on the bottomline, the company’s net profits adjusted for extraordinary items has under-performed our estimates by just 0.4%. The company’s EBITDA margins have fallen at a sharper rate than what we had originally anticipated and stood at 31.6% (vis-à-vis our estimates of 32.0%). However, it must be noted that Infosys has, for the first time ever, missed its guidance for Q4FY2007 and consequently, for FY2007. The company had guided for revenues to hit a range of Rs 3,789cr to Rs 3,798cr in Q4, which it was unable to achieve (Rs 3,772cr topline). For FY2007, on the other hand, the management guidance of topline hitting Rs 13,910 Rs 13,919cr was also missed, with topline eventually hitting Rs 13,893cr. Thus, due to factors beyond its control (read rupee appreciation), the company has slipped on its guidance, resulting in the façade of invincibility being brought down.

Going forward, we expect Infosys to record a 31.9% CAGR in net sales from FY2007 to FY2009, and a 24.1% CAGR in EPS during the period, even as we expect margins to trend downwards each year by around 50bps. If we exclude the extraordinary item of the tax write back in FY2007 then net profits are expected to grow at a CAGR of 26.2% between FY2007 and FY2009. The trend of offshoring continues to play out unabated and we maintain our positive stance on the Indian Software Industry. Despite headwinds such as wage inflation, higher attrition rates and the possibility of adverse currency movements going forward, we believe that Infosys can maintain a 20% to 25% CAGR in earnings and we remain positive on the future prospects of the company.

At the CMP the stock trades at a P/E of 20.0x FY2009E EPS of Rs 104.3. We maintain our Buy recommendation on the stock with a 12-month target Price of Rs 2,400.

Source :- Moneycontrol

Buy Gujarat NRE Coke: IL&FS

2007-04-13T08:46:00.000-09:00

Broking house, IL&FS Investsmart is bullish on Gujarat NRE Coke and has recommended buy rating on the stock.

IL&FS Investsmart report on IL&FS Investsmart:

Key highlights of Gujarat NRE Coke (GNCL) analyst meet:

Q4FY07 performance growth triggered by sharp revival in coke prices

Coke prices expected to increase going forward; on the back of expectation of limited issue of export licenses

Fresh met coke capacity of 0.32mn tonne and 45MW waste heat-recovery based power plant to be operational by 2009

GNAL has commenced export of coking coal to India and is expected to mine 1mn tonne of coking coal in 2008 GNRN expects coking coal production of 1.5mn tonne by 2010

Valuation

We expect GNCL to report net profit of Rs 2.04 billion during FY08E (EPS of Rs8.4). At the current price, GNCL is trading at a P/E and EV/EBIDTA of 5.9x and 6.2x FY08E respectively. GNCL has cash of Rs700mn in its books as on March 2007. The company’s investment in Gujarat NRE Resources NL (GNRN), the listed entity, at the prevailing market price is worth Rs 3.5 per GNCL share.

Met coke business is highly volatile in nature. Hence, the risk profile of the company’s business is high. However, the current industry dynamics indicate further firming up of coke prices going forward. With the stock price likely to follow international coke price movements we believe that GNCL provides a good trading opportunity and hence recommend a ‘Buy’.

Source :- Moneycontrol

Bharti Airtel a rangebound stock

2007-04-11T09:41:00.000-09:00

Technical Analyst, Rajat Bose is of the view that Bharti Airtel is a rangebound counter.

Bose told CNBC-TV18, “From here, Bharti Airtel has to know if it were to remain bullish then it should actually cross Rs 805-825 range. If it were to do so convincingly then Bharti will move up otherwise Bharti is also a rangebound counter and pretty much volatile at that and so at this level, if it goes close to about Rs 790, there could be some selling unless of course it clears Rs 805, I would say that buying here is not really advisable.”

Disclosure: I do not own personally any of the stocks but some of the stocks that I have discussed; I might have given some recommendations for trading to my clients.

Source :- Moneycontrol

Buy BHEL: DSP Merrill Lynch

2007-04-04T08:27:00.000-09:00

DSP Merrill Lynch has recommended buy rating on Bharat Heavy Electricals.

DSP Merrill Lynch report on Bharat Heavy Electricals:

Robust FY07: Order book +47%YoY; Sales +29%; PAT +42%

An order book (Rs 550 billion/USD 13 billion) growth of 47%YoY, expanding margins and a PAT growth of 42%YoY, which was ahead of consensus though in line with MLe, characterize BHEL’s FY07 results. FY07 reinforces our stand on BHEL being the core beneficiary of the momentum in the power capex. Buy, PO of Rs2760.

Order Inflow +88%, drives Backlog to Rs 550 billion; Margins Up

Believe market should be reassured with 88%YoY growth in order intake to Rs356bn led by a flurry of new orders (Table 1). This led to a 47%YoY growth in backlog. Sales at Rs187bn (+29%YoY) and PAT at Rs23.8bn (+42%YoY), were in line with MLe but 3% ahead of consensus. Note that 4Q PAT was after making ~Rs700mn prov. for wage hike and ~Rs2.2bn for post-retirement medical benefits as per AS15R. Derived EBITDA margins look expanded to 24% in 4Q v/s 21.7%.

Guide for USD 10 billion revenues by FY12E - CAGR of 19%

BHEL guided for USD 10bn revenues by FY12E, harbinger to BHEL’s confidence despite increasing competition. To achieve this, it plans to raise capacity by 50% to 15GW p.a. by FY12E at a capex of Rs32bn in XI plan v/s 12bn in X plan.

A look beyond financials points to more exciting times ahead

With utilization at 83.5%, BHEL utility sets (200-500MW) performed very well – competitive advantage v/s Chinese; & B) Building a solid platform – R&D spend +58%, productivity (value added/employee) +30%, EVA +42%, Capex +16%.

Reiterate Buy on improving pipeline and competitiveness

We expect the stock to outperform as the company addresses key concerns on Chinese competition, super-critical orders (likely in 2007) and improved competitiveness through operating leverage – ~67% capacity expansion with <10% rise in labor.

Source :- Moneycontrol

Tata Power an outperformer; target of Rs 608: SSKI

2007-04-03T07:54:00.000-09:00

Broking house, SSKI Research has maintained outperformer rating on Tata Power with a target of Rs 608.

SSKI Research report Tata Power

Tata Power acquired 30% stake in two Indonesian coal mines namely PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia (Arutmin) and an associated trading company Enercorp Ltd. for US$1.1bn. The two mines produced sold 50mn tons of coal in CY06. TPC has contracted to buy 10mn tons of coal from the mines thereby meeting 50% of its total imported coal requirements over the next five years. TPC acquired these mines at 11x CY08 earnings or 7.9x CY08 EV/EBITDA, which is in line with other regional peers. The acquisition is being done through and offshore SPV, which is likely to have a gearing of 2-2.5x resulting in net equity requirement of Rs 15-18bn for TPC. TPC has cash of Rs18bn and investment in group companies of Rs16bn, which has a total market value of Rs75bn. As a result, TPC can easily fund the equity of Rs15-18bn of the SPV created for acquisition on its own strength. Overall, we believe the acquisition is likely to be earnings neutral as the prorata share of earnings of the coal mines would be broadly offset by the interest cost on the debt taken for funding the acquisition. However, the acquisition is a long term positive for TPC as it ties up the coal requirements for its 7000MW generating capacity addition over the next five years. We maintain our Outperformer rating on the stock with a target price of Rs 608 per share.

Source :-Moneycontrol

Buy Maruti Udyog: Citigroup

2007-04-02T08:35:00.000-09:00

Citigroup Research has recommended buy rating on Maruti Udyog.

Citigroup Research report on Maruti Udyog:

Buy: Mar Sales +14%YoY, Spurred by Exports

Moderate Growth

Domestic sales rose c6% YoY. Adjusting for the Feb/Mar distortion (on account of excise duty expectations), Feb/ Mar combined domestic sales rose 26.5%Y/Y. More importantly, despite a severe liquidity crunch, Mar domestic sales units rose c10% MoM, indicating that sales growth continues to be positive.

Exports

Rising c250% Y/Y, management had guided towards 40,000 units of exports over FY07, and achieved the target.

Segmental Analysis Indicates Richer Mix

Sales continue to be skewed to the A2 segment (69% of FY07 domestic sales, vs. 64% in FY06). This augurs well for profitability. Within this segment, three models (Alto, Wagon R and the new Zen) are on the same platform, implying greater ability to cut/manage costs

Healthy Market Share Gains

MUL's domestic market share has improved to 55% in MarFY07, vs. 49% at April '06 – buoyed by the launch of new models (the Swift diesel, and the Zen Estilo). A dealer check last week indicated both these models have three-month delivery periods; discounts were also minimal – except on the WagonR (petrol variant), which had discounts of ~4% of list price

New Model launches

Dealers indicated that the Baleno replacement (code named SX4) is to be launched in 1Q08

Retain Buy

Key downside risks: a) demand growth slowing due to rising interest rates; b) Margin pressures, due to escalating material costs

Source :- Moneycontrol

Buy Gujarat Gas: ICICI Securities

2007-03-30T10:55:00.000-09:00

Broking house, ICICI Securities has recommended buy rating on Gujarat Gas.

ICICI Securities report on Gujarat Gas:

The management of Gujarat Gas (GGCL) reiterated the positive outlook on future growth prospects based on the ramp-up in CNG sales and retail-industrial customers. The above prospects would be boosted further from the expected benign approach towards returns in the initial phase of regulation. Also, the price hike effected in February ’07 would offset the rise in blended gas cost, thereby reversing the margin hit in Q4CY06. Reiterate GGCL as our top pick in the gas sector due to healthy long-term prospects in the gas distribution business. BUY.

Growth drivers. GGCL expects to sustain its current thrust on higher margin retailindustrial & CNG segments. The management expects 30-40% growth in CNG and 20% in retail led by potential gas demand (substituting furnace oil) in industries located in the Jhagadia-Ankhleswar industrial corridor & new markets such as Vapi.

Improved visibility. GGCL would likely benefit from the new contracts signed with the Panna-Mukta-Tapti (PMT) consortium, which would provide an additional 0.8mmscmd gas Q3CY07 onwards. Also, the price increase, effected from February ’07, would offset the impact of increase in gas costs and improve margins versus Q4CY06. GGCL’s aggressive capex, at Rs4-4.5bn over the next three years, would increase its reach to industrial areas in Jhagadia, Ankleshwar and Vapi, as well as smaller centres along the Surat-Ankleshwar-Jhagadia industrial corridor.

Gas Policy positive for GGCL. The management expects the regulator to be benign towards investors and indicated that the recently-unveiled Gas Policy would restrict competition to customers using more than 50,000mmscmd gas, whereas GGCL’s sales come predominantly from customers using less than 50,000mmscmd gas. Moreover, GGCL’s customers have indicated a 94% satisfaction level, which would further deter competition.

Quality gas distribution stock. We believe GGCL offers an attractive gas distribution play based on: i) its growing footprint in Gujarat, India’s gas hub ii) competitiveness enjoyed by natural gas under rising oil prices and iii) best-in-class management. The stock looks undervalued as it is worth Rs1,723/share based on the sum-of-the-parts valuations, including the cogen business (Rs79/share). The stock has fallen 6% versus the 9.6% rise in the BSE-200 Index over the past one year, which prices in regulatory and competitive concerns.

ACC will be a better stock to get in

2007-03-29T09:20:00.000-09:00

Ketan Karani of Kotak Securities is of the view that from an investment angle Associated Cement Companies, ACC would definitely be a better stock to get in.

Karani told CNBC-TV18, “Cement has been in the news for almost all the wrong reasons and definitely since the January 2, since the import duty was zeroed on the cement imports, since then the entire cement sector has been in a negative trajectory. Recently, after the budget, the stocks have come down and are consolidating at current levels, if you look at the ground realities, the cement prices have not come down anywhere, that is a fact of life. We have done check on some of the sectors within the city of Bombay and other cities outside the state of Maharashtra also, which suggests that cement price have not come down anywhere and that is the positive sign as far as cement industry is concerned but what we see possibly is that there might be the thing, which is holding these stocks back or is not letting them participate them in the rally is that there is a possibility or a fear is there that some sort of a control might come on because it is leading to the inflation in a big way. So there needs to be a solution to this sector’s profitability as well as the requirement for controlling inflation but the fact is that the cement prices have not come down anywhere. So we do not see anything negative as far as the profitability or the profits are concerned for the immediate two-three quarters but having said that, the fear is that any sort of a control or any sort of pressure would be negative for this sector.”

He further added, “If you look at ACC in particular, the company has recently announced that it is going to increase the capacity from 20 million to 28 million in the next three year. They are putting 4,000 crore worth of investments and the growth of this country cannot be done without cements and steel and everybody has to be mature enough to see that the growth of the country is there and not only profit taking happens at one point of time. So amicable solution would be the best and that would lead the stock definitely higher from current levels.”

“Otherwise, at current levels, we see this stagnation phase continuing for sometime. But having said that, the stocks definitely would see profits and profitability growth going up at least in this quarter or probably next quarter unless and until the prices come down and as of date, the prices have not come down in reality anywhere. Even excise duty hike has been passed on; we would like to say that the price rise has been even higher to some extent in some areas than the excise duty rise. So definitely this looks a sector, which one should look at, a contrarian view would definitely be advisable at this level but going all out and investing in cement stocks at this level would not be a great thing to do but if someone is holding it from an investment angle definitely, cement stocks, particularly ACC would definitely be a better stock to be in.”

Disclosure: On the stocks, we have spoken; we would be definitely interested from the point of a trading advisory desk, which we had done.

Source :- Moneycontrol

ITC a market performer: Prabhudas Lilladher

2007-03-22T07:56:00.000-09:00

Broking house, Prabhudas Lilladher has recommended market performer rating on ITC.

Prabhudas Lilladher report on ITC:

“With the government proposing to remove tobacco from the list of declared goods to enable states to levy tax on cigarettes at more than 4% and state governments like West Bengal, Kerala and Bihar already proposing 12.5% VAT on tobacco, we believe that there is a high probability of VAT on tobacco to be levied at 12.5% of selling price. We thus have assumed a 12.5% VAT on cigarettes on the selling price and have therefore downgraded our EPS estimates for FY08 by 14% to Rs 7.49.”

“In view of the expected levy of 12.5% VAT on the selling price of cigarettes and the resultant impact on earnings, we are downgrading the stock to Market Performer from BUY.”

“At the CMP of Rs 141, the stock is trading at 18.8x FY08 earnings and at 16.2x FY09 earnings after the downward revision of earnings. The stock had seen a re-rating due to no duty increases by the government during FY03 & FY04 and a moderate tax policy during FY05 and FY06. During FY06, the stock has traded at a forward rolling PE of 24.3x. However with the expected imposition of VAT during FY08 and the adverse impact on earnings the stock has witnessed a de-rating. We believe that a major part of the de-rating has already been discounted in the stock price and therefore based on a rolling forward PE multiple of 18x FY09 earnings, we revise our rating on the stock to Market Performer from BUY with a price target of Rs 156.”

Source :- Moneycontrol

Hold Reliance Comm at current levels: Sinha

2007-03-21T07:51:00.001-09:00

Jayprakash Sinha Of Ambit Capital is of the view that one should continue to hold Reliance Communications at current levels.

Sinha told CNBC-TV18, “If I was holding Rel Comm, I will continue to hold and that is what my recommendation is. The sector is growing at a very rapid pace; R Comm which was so far only into CDMA is now looking to expand its nation wide reach in GSM technology. That is where most of the value would be further added. It is also looking to get listed its flag telecom, so that will unlock further value."

He further added, "But the sector, potential, penetration if you look at which is merely 14% is likely to go as high as 40% by 2010-2011. So that kind of potential, that kind of growth we are seeing, yes in terms of EBITDA margins, in terms of ARPU, in terms of most other parameters, we are not seeing substantial increase from the current level but the gap in terms of valuation between Airtel Bharti is likely to reduce which is currently at around 30%. My sense is that it will come down to as low as 10% or so but that gap will continue because if you look at Airtel model it is slightly better in terms of revenue etc, it is much better as compare to R Comm. So the premium will continue for Bharti but R Comm is likely to take faster route in terms of reaching there. So my sense is one should continue to hold R Comm at the current levels."

Disclosure: Personally I do not hold any of the stocks but we have recommended all these stocks to our clients and they might have long positions on that.

Ranbaxy may go upto Rs 370

2007-03-20T07:51:00.000-09:00

Technical Analyst, Rajat K Bose is of the view that Ranbaxy Laboratories may go up to Rs 370.

Bose told CNBC-TV18, “In the short term Ranbaxy Laboratories might well sustain, it may go upto something like Rs 370 odd levels if it were to continue moving up. Whether it is a right time to buy Ranbaxy or not is something we need to consider and the investor would be better off researching other sectors or maybe the same sector and other stocks."

He further added, "If it were to trade above Rs 370 then you will see some more buying coming in and the crucial hurdle for this stock could be then Rs 399-405, crossing that would be a tall order as far as Ranbaxy is concern. Technically it is not looking bad but not looking great either. So there is no compelling technical reason to buy other than taking a short-term position.”

Disclosure: Other than Nifty, I haven’t recommended any of the stocks that I have spoken of and since I advice on Nifty, any views that I expressed there I would be having some interest.

Buy Reliance Industries; target of Rs 1701: UBS

2007-03-19T09:05:00.000-09:00

Broking house, UBS Investment Research has recommended buy rating on Reliance Industries with a target of Rs 1701.

UBS Investment Research report on Reliance Industries:

IPCL merger to add value

IPCL to be merged with Reliance Industries (RIL)

Indian Petrochemicals Corporation Ltd's (IPCL) merger with RIL has been approved by the Board of Directors of both the companies. The proposed merger ratio is 1 share of RIL for every 5 shares of IPCL. It implies a 4.3% dilution in RIL's equity. RIL's associate companies hold 47.3% in IPCL.

RIL would benefit due to savings on sales tax

The merger would benefit RIL by reducing sales tax outgo on products supplied to IPCL. RIL supplies naphtha from its refinery for IPCL's Baroda cracker, gas from PMT (where RIL has a 30% stake) and PTA for the recently acquired polyester units. We believe tax benefits would be upward of Rs4000 mn p.a.

IPCL acquisition cost at lower end of regional valuations

RIL will be acquiring IPCL at EV/t of $2061/t of ethylene capacity, PE of 6.5x FY08E and EV/EBITDA of 4.2x FY08E. The acquisition cost of IPCL for RIL at $1.8 bn for 0.875 mmtpa of ethylene capacity compares favourably with new ethylene crackers being set up globally.

Valuation: Reiterate Buy 2 rating and Rs1,701 price target

We base our price target for RIL on a sum-of-the-parts valuation, including the potential upside in E&P and retail. We continue to value the existing businesses on regionalEV/E multiples. With only 4.3% equity dilution and ~12% addition to PAT in FY06 and FY07 we believe IPCL's merger will be earnings accretive for RIL.

Source :- Moneycontrol

Buy AztecSoft: P-Sec

2007-03-18T19:32:00.000-09:00

Broking house, P-Sec is bullish on AztecSoft and has recommended buy rating on the stock.

P-Sec report on Aztec Soft:

"Aztec’s Q3 numbers have been inline with our estimates with topline growing at 5% in sequential terms The PAT for the same period has seen a de -growth of 2.7% due to contraction in OPM. Aztecsoft is into outsourced software product development space and has a presence in all phases of the PDLC. It has now moved into expert services I.e., Performance engineering, Security engineering, System and Database Architectural Services etc. The stock has corrected sharply post the Q3 FY07 numbers and is available at valuations of 12 times and 8.6 times for FY07P and FY08P earnings. The employee addition has been muted for this quarter, however on an LTM basis the additions have been confidence infusing. We recommend investors to BUY the stock."

Bull's eye Recommendations :- 19th March

2007-03-18T19:21:00.000-09:00

MARUTI UDYOG

RESEARCH: CLSA (MARCH 15, ’07)
RATING: OUTPERFORMER
CMP: RS 779 (FACE VALUE RS 5)
12-MONTH PRICE TARGET: RS 980

TALKS with passenger car industry dealers have revealed that retail demand remains buoyant, unlike that in the two-wheeler industry. Led by this momentum, Maruti Udyug (MUL) is expected to register a robust 25% growth in its sales figures in February and March ’07. With the success of its recent launches, MUL’s market share has gone up to 57%. With its dominance of the car industry intact, the company remains well-placed to benefit from the rising domestic consumption theme. MUL’s expected March ’07 sales growth will be only 4% on account of high March ’06 base. However, after factoring this, (for the period February-March ’07) MUL’s volume growth rates will be robust at 25%. Dealers indicate that company's new launch, the Swift Diesel, is doing well. The model has a waiting period of more than three weeks. Post the correction from recent highs, MUL now trades at 13.6x FY08CL earnings, close to its historic average trading bands. The long-term growth prospects for the car industry remain intact, with car penetration at India at an inflexion point, considering robust GDP growth underway.

BIOCON

RESEARCH: MERRILL LYNCH (MARCH 14, ’07)
RATING: BUY
CMP: RS 469 (FACE VALUE RS 5)
12-MONTH PRICE TARGET: RS 500

BIOCON’S custom research subsidiary, Syngene has announced an R&D deal with BMS. It is estimated to generate $15 million in revenues in FY09E and scale up to about $25-28 million peak revenues by FY10E. This deal renders high visibility to Syngene's earnings stream. The BMS deal involves setting up of a dedicated R&D facility with 400 scientists for its discovery and early drug development needs involving about $20 million outlay. This could nearly double Syngene’s scientist strength by FY09E to 900 (from current 500). The $25-28 million revenue estimate in FY10E assumes $60-70,000 revenue/scientist. The target price of Rs 500 per share is based on 18x FY08E EPS, in line with the domestic pharmaceutical sector average. Biocon’s valuations, at 20x on FY07E and 16x on FY08E EPS, are currently at a slight discount to the sector average. Following are the risks to the target price: 1. Higher than expected price erosion for Simvastatin and Pravastatin supplies to the US market. 2. Lower than expected pick-up of insulin and immunosuppressant sales to non-regulated/regulated markets. 3. Risk of failure in research. 4. Severance of custom manufacturing tie-ups. 5. Regulatory delays.

GUJARAT AMBUJA CEMENTS

RESEARCH: JM MORGAN STANLEY (MARCH 12, ’07)
RATING: UNDERWEIGHT
CMP: RS 104 (FACE VALUE RS 2)
12-MONTH PRICE TARGET: RS 85

GUJARAT Ambuja Cements (GACL) is arguably the lowest-cost cement producer in India. Inclusive of its stake in Ambuja Cements India, it has an annual capacity of about 12.9 million tonnes. The Ambuja group has a strategic alliance with ACC through a 13.8% stake. Faced by the bleak scenario of a potential export ban, cement companies chose to accept the lesser evil of a pricing freeze for the next 12 months. Thus, the cement sector on March 9, ’07, gave a commitment to the commerce minister that they would “hold the price line” for the next 12 months, even if inputs (such as coal, power and freight) become dearer. The sector has also committed to pass on any cuts in excise duties to consumers. Thus, any duty cuts from the government (such as the roll-back of the higher excise duties in the latest Budget) will not benefit cement manufacturers. While advocating a positive stance for a six-month period on pricing power before the capacity led downturn (in FY09), the agreement between the sector and the government has ruled out any price increases — and thus potential upwards earnings revisions — for 12 months. The move to hold pricing has negated the increased pricing scenario that the market was starting to factor in. While stock prices had been moving up on potential EPS upgrades in FY08, given the strong pricing power in the sector, this move has resulted in a 5.6% decline in the EPS estimate for GACL for FY08 (CY07).

GREAT OFFSHORE

RESEARCH: ASK RAYMOND JAMES (MARCH 15, ’07)
RATING: BUY
CMP: RS 568 (FACE VALUE RS 10)
12-MONTH PRICE TARGET: RS 644

GREAT Offshore (GOFF) is India’s leading integrated offshore oilfield services provider (with a fleet size of 39 vessels) offering broad spectrum of services to upstream oil and gas majors to carry out offshore exploration and production (E&P) activities. With the recent heightened offshore exploration activities resulting in around $15-20 billion capex announced by upstream majors like RIL, ONGC and GSPC, GOFF is expected to be a key beneficiary, thus giving it a long-term visibility for sustained order flows. GOFF is attractively valued at 10.1x FY08E earnings and 9.3x FY09E earnings. With the diversified nature of fleet, largest fleet size, most of the terms committed till FY10E, 35% CAGR in earnings for FY07-10E (27% for FY07-09E) and low financial leverage, the stock is available at a very good risk-reward ratio. Based on peer comparison, GOFF is valued at 11x FY09E earnings, and the oneyear target price is Rs 644, offering an 18% upside from current levels with a ‘buy’ recommendation.

MAHINDRA & MAHINDRA

RESEARCH: EDELWEISS (MARCH 13, ’07)
RATING: BUY
CMP: RS 731 (FACE VALUE RS 10)
12-MONTH PRICE TARGET: NA

MAHINDRA and Mahindra (M&M) has agreed to acquire a 43.3% stake in Punjab Tractors (PTL) from Actis and the Burman family at Rs 360 per share in cash. M&M will make an open offer for another 20% as per regulations. The total cost of acquisition will be Rs 1,388 crore, including the open offer. M&M (along with its 100% subsidiary Mahindra Holding and Finance) will fund the acquisition through a combination of its own cash resources and some amount of debt. The deal, though prima facie expensive, is earnings accretive for M&M, and is good for both the companies as well as the industry. Edelweiss estimates the acquisition (at 63.3% stake) will be earnings accretive for M&M for FY08 up to a debt level of Rs 700 crore. In the long run, the biggest benefit from consolidation in the industry will come from market discipline in the face of a sales slowdown. Edelweiss reiterates 'buy' recommendation on M&M.

Source :- ET

Buy Reliance Industries: DSP Merrill Lynch

2007-01-03T19:43:00.000-09:00

Broking house, DSP Merrill Lynch has recommended buy rating on Reliance Industries.

DSP Merrill Lynch report on Reliance Industries:

Further upside to E&P valuation and FY09 earnings possible

There could be further upside to our valuation of USD 12.9 billion for RIL’s E&P assets and its FY09E earnings forecast. Factors that may boost valuation are valuation of oil discoveries being higher than accounted by us, higher gas price realization of USD 4-4.5/mmbtu for D6 gas production, further accretion of reserves in D6 and other blocks. Higher gas price realization itself could add USD 1.8-2.3 billion to our E&P valuation. Factors that could drive up FY09E earnings are higher gas production from D6 than assumed by us and oil production commencing in FY09E as indicated by Niko Resources (RIL’s partner in D6 block). We retain our Buy rating on Reliance Industries (RIL).

Valuation upside from higher gas price & reserve accretion

Niko has in a recent press release indicated that oil has been struck in the MA-2 well after the MA-1 oil discovery made in D6 in June 2006. Oil production from the MA field may begin in 2Q 2008. Our current valuation of oil discoveries is modest at USD 774m. Niko has also indicated that reserve estimates of the independent expert made in June 2006 do not include results of three discoveries (MA-1, MA-2 and P-1A). Upside is also possible from oil and gas discoveries made in two other KG basin blocks in the last 12 months. Higher gas price realization than the USD 3/mmbtu assumed by us for D6 gas could also boost valuation.

FY09E earnings upside from higher gas price and output

Niko has indicated that gas production from the D6 block may start in mid-2008, as against in December 2008 as assumed by us. Gas output at 30mmscmd for 225 days in FY09E could boost RIL’s earnings by Rs14bn (13%). Higher gas price of USD 4-4.5/mmbtu could boost FY09E earnings by another Rs 15-20 billion (14-19%).

Buy Bajaj Auto; target of Rs 3300: Sharekhan

2007-01-02T09:25:00.000-09:00

Broking house, Sharekhan is bullish on Bajaj Auto and has recommended buy rating on the stock with a price target of Rs 3300.

Sharekhan report on Bajaj Auto:

Key points

Bajaj Auto (BAL) has launched Pulsar 220 DTS-Fi in Pune. The national roll-out would take place by February 2007. This premium segment offering, priced at Rs 84,000 (ex-showroom Pune), will be sold through BAL's Probiking network.

BAL is looking to reduce its dependence on the 100cc segment. The company has plans to revitalise its Pulsar brand by launching its upgraded versions and following the same up with the launch of a 200cc Pulsar model in Q4FY2007. This launch would be in line with the management’s strategy of focusing on the executive and premium motorcycle segments, where profitability is higher as compared with the entry segment.

BAL's profitability was affected in Q2FY2007 due to the price reduction of Platina, an entry-level model. The company derives a large part of its profits from the entry segment. Though subsequently the price of Platina has been increased twice, the company's performance may not improve much in Q3FY2007 due to the higher selling costs being incurred.

Though the profit margins are likely to remain subdued for a couple of quarters, the volume growth is expected to remain strong. The management has claimed that the company is on its way to recording its highest ever quarterly volume during the October-December quarter.

At the current market price of Rs2,619, the stock discounts its FY2008E earnings by 17.3x and quotes at an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBITDA) of 10.5x. Based on our sum-of-parts valuation we maintain our Buy recommendation on the stock with a price target of Rs 3300.

Buy Bharti Airtel; target of Rs 790: Angel Broking

2006-12-30T07:28:00.000-09:00

Broking house, Angel Broking is bullish on Bharti Airtel and has recommended buy rating on the stock with a 12-month target price of Rs 790.

Angel Broking report on Bharti Airtel:

Consistent market leadership in a hyper-growth industry:

"Bharti Airtel has consistently ranked as the market leader in the Indian cellular industry over the past few years. From FY2001, Bharti has maintained its leadership in 5 out of the 6 years until FY2006, with Reliance managing to just about wrest the number one slot in FY2004. The companys strong execution of its business plans and continuous network roll-outs into all the 23 circles of India have enabled it to maintain market leadership in the fastest-growing telecom market in the world. In a 'commodity sector' with high operating leverage, we prefer the market leader with the highest operating margins, Bharti Airtel."

Clear business focus through pioneering outsourcing initiatives:

"Bharti Airtel's core business is focussing on branding and marketing of telecom services. As a result, all non-core activities have been outsourced. The company recently entered into a US$ 1 bn contract with Ericsson to design and install its network in 15 telecom circles. Bharti also entered into a contract worth USD 400 mn with Nokia to expand its network in 8 circles. These initiatives have enabled Bharti to focus on its core business, save costs and improve efficiency."

Scope for margin expansion:

"There is significant scope for Bharti to expand its EBITDA margins, aided by operating leverage gained from increased subscriber additions on the one hand, and a friendly regulatory environment on the other, which envisages a phased lowering of regulatory costs such as license fees and access deficit charges (ADC)."

Valuation

"At the CMP of Rs 630, the stock trades at a P/E of 16.0x FY2009E EPS of Rs 39.4 and an EV per subscriber of USD 332.9 on our FY2009E subscriber estimates. We Initiate Coverage on the stock with a 'Buy' recommendation and a 12-month target price of Rs 790."

Source :- Moneycontrol

Hold Lupin: Kotak Securities

2006-12-26T08:08:00.000-09:00

Kotak Securities is bullish on Lupin and has recommended a hold rating on the stock.

The Kotak Securities report on Lupin

Lupin is an integrated pharmaceutical company with strong R&D base. It has product portfolio of over 200 molecules skewed towards anti-TB, anti-infective and cardiovascular segment. It has been ranked as the 12th largest pharma company in domestic market with 8 brands among top 350 brands by ORG-IMS (MAT July-06). We expect revenues to grow at 15% CAGR during FY06-08E on the back of 14% and 17.5% compounded growth in sales in domestic and exports markets, respectively. Operating margin is expected to increase by 170bps to 18.2% over the next two years with improved product flow. The company has clocked a strong 88% earnings growth in FY06, and we expect the same to grow by 41% in FY07E and 31% in FY08E. We believe that existing products basket will continue to perform stably and generic Cefdinir would be big growth driver in FY08E.

The company, which is targeting US$1bn revenues by 2009, expects to achieve its goal by increasing the number of products, expanding into new therapeutic areas, entering new countries and making acquisitions. We are bullish on the prospects of Lupin Ltd, we recommend a HOLD with a target price of Rs.610. Any reaction in the price can be used as an opportunity to BUY at lower level. Business seems to be on a strong growth footing

Lupin has turned out a robust performance with excellent result in FY06. It has delivered on all fronts including research, formulations APIs, intermediates and branded generics across all markets globally. The key attributes for this result were meticulous planning, investment and execution in research, marketing and production over the last three years. Last year, the company has announced its goal to reach US$1 billion in sales by 2009 and based on the year’s performance, it is hoping to achieve this goal. However, we believe that company has set very tough target and to achieve this target it has to grow at a CAGR of 30% until 2009, which the company has planned.

The company is also looking for inorganic growth which makes good sense for the company if it provides a synergistic advantage, or helps in leapfrogging its growth. In a bid to capture such opportunity, it had raised US$100mn in Dec-05 through convertible bonds to finance acquisition and/or capital expenditures.

Strong growth in domestic formulation portfolio led by changing therapeutic mix. We expect domestic formulation sales to grow 20% to Rs7.28bn in FY07E and 15% to Rs8.37bn in FY08E led by shift in therapeutic focus, increase in number of combinations and delivery system based products. In FY06, it has clocked a growth of 23% to Rs6.07bn (despite a flat growth in top two segments) on the back of new products introduction and increased focus on chronic therapies like CVS, diabetic and Asthma which collectively grew by 78%. The company is optimistic about growth in domestic market for next few years and expects 20-25% revenue growth in FY07E and improvement in margins.

Source :- Moneycontrol

Buy Mahindra and Mahindra; target of Rs 1050: Sharekhan

2006-12-22T06:20:00.000-09:00

Broking house, Sharekhan has recommended buy rating on the Mahindra and Mahindra with a target of Rs 1050.

Sharekhan report on Mahindra and Mahindra:

Key points

"We are revising our price target for Mahindra and Mahindra (M&M) from Rs 870 to Rs 1,050 considering the continuing strong growth in its core businesses (mainly tractor) and the recent run-up in the prices of its subsidiaries, particularly Tech Mahindra."

"The growth in M&M's core business continues and shall be further fuelled by new launches like Ingenio and Shaan. Further, the launch of its new passenger car Logan next year, is not only a positive for its domestic business, but also opens further export possibilities."

"M&M's subsidiaries have been performing splendidly in the recent times. Tech Mahindra delivered a strong performance in the last quarter. Its robust order book should further drive up valuations. The plans for Systech are also on track with the management planning to make it a USD 1 billion company by FY2009."

"We maintain our Buy recommendation on the stock with a revised price target of Rs 1,050. At the current market price of Rs 848, the stock quotes at 12.7x its FY2008E consolidated earnings."

Valuations

"In view of the continuing growth in its core business, the improving product mix, the de-risked business model and the splendid performance of its subsidiaries, we are revising our price target for M&M to Rs 1050. At the current market price of Rs 848, the stock quotes at 12.7x its FY2008E consolidated earnings."

Source :- Moneycontrol

Buy Suzlon Energy: ASK Raymond James

2006-12-21T06:01:00.000-09:00

ASK Raymond James is bullish on Suzlon Energy and has recommended a buy rating on the stock.

The ASK Raymond James report on Suzlon Energy:

Armoring up for global conquest: Global wind energy demand is set to grow at 20% CAGR over 2005-10E. Suzlon is gearing up to grab larger share of the demand by strategically targeting growth markets globally. It is expanding its manufacturing operations in low cost locations such as India and China. We expect Suzlon to grow at 60% CAGR over FY06- 09E and outperform global growth rate. We expect Suzlon's market share to double to 13% by 2008E.

Vertical ly integrated model - key to success: In India, Suzlon along with its associate companies has moved from just a wind turbine manufacturer to an end-to-end solution provider. Suzlon has in-house production facilities for critical components of a wind turbine. To further integrate its operations, it has acquired gearbox manufacturer, Hansen Transmissions, Belgium and in India it is developing facilities for foundry, forging and machining of components.

Investment concerns

Regulatory policy risk: Changes in regulatory policies, which are currently in favour of wind energy, could impact demand. Non-extension of Production Tax Credit (PTC) in USA post-2008, withdrawal in the accelerated depreciation or reduction in depreciation rate in India, could result into a fall in the market due to depressed rate of return.

Valuation

Initiating coverage with Buy rating and price target of Rs1,688: We expect Suzlon’s revenues to record 60% CAGR for FY06-09E to Rs158 bn. We believe that Suzlon will trade at a significant premium to market due to its integrated business model, p resence in growth markets, manufacturing in low cost destinations, strong R&D capability and high return ratios. At a PE of 19.7x and EV/EBITDA at 14.2x FY08E and PEG at 0.7x, it is trading at a discount to its global peers, despite its superior profitability and robust growth outlook. Our DCF analysis, at 5% terminal growth and WACC of 11.7%, gives us a fair value of Rs1,688 for the stock. We initiate coverage on Suzlon with a Buy.

Source :- Moneycontrol

Hold ACC; target of Rs 1188: Emkay Research

2006-12-20T06:22:00.000-09:00

Broking house, Emkay Research has maintained hold rating on the Associated Cement Companies, ACC with a target of Rs 1188.

Emkay Research report on Associated Cement Companies:

ACC’s approval of capacity expansion by 3.0 million tonnes

ACC is the largest cement producer having a pan India presence with a total cement producing capacity of 19.91 million tonnes. Over the last 6 years the company has taken tremendous efforts in reducing its power cost by investments in captive power plants.

For the period Apr- Nov’06, ACC’s despatches increased by 5% to 12.05 million tonnes.

The company is looking for expanding cement capacities in the Eastern & Southern regions & aims to increase its capacity to 25.0 million tonnes in the next 2-3 years.

The company has announced projects for Lakheri expansion of capacity (by 0.90 million tonnes) with a 25 MW captive power plant and Bargarh expansion (by 1.18 million tonnes) with a 30 MW captive power plant. ACC will also pump in about Rs 5000 million to establish 50 new ready-mix concrete by 2010.

In keeping up with its expansion plans, ACC approved the capacity expansion by 3.0 million tonnes at New Wadi with a capital expenditure of Rs 14800 million. Currently, New Wadi has a cement manufacturing capacity of 2.60 million tonnes. The new plant is expected after CY08. Further details regarding the same are awaited.

We maintain our earlier estimates and target of Rs 1188 thereby recommending a HOLD.

Tata Motors a market performer: Prabhudas Lilladher

2006-12-19T07:14:00.000-09:00

Broking house, Prabhudas Lilladher has maintained market performer rating on the Tata Motors.

Prabhudas Lilladher report on Tata Motors:

Unlikely to race ahead

"Tata Motors and Fiat yesterday finally announced the shape of the alliance first propounded in September 2005. The alliance will invest over Rs 40bn in a 50:50 joint venture to manufacture cars and engines at a plant in Ranjangaon (located close to the TM’s present car plant). The plant will have an annual capacity of over 100,000 cars and 200,000 engines and transmissions. It is expected to commence production in Q4 FY08. Jointly managed, the facilities would be utilised by both the partners for mutual benefit."

The benefit to Fiat

"While allowing it to showcase Fiat’s technology in cars and powertrain, the JV would boost Fiat's competitive edge in India – at local costs, leveraging Tata Motors’ broad vendor base. TM’s wide market reach would act as a stepping-stone for Fiat to become a major player in the expanding Indian car market."

The advantage to TM

"For its next-generation cars, Tata Motors would have access to Fiat’s world-class powertrain (the famed 1.3 multi-jet SDE diesel engine, which received the “Diesel Engine of the Year 2005 Award” presented by UKIP Media and Events Automotive magazine). It will also use the manufacturing facilities, as it currently does, to paint body-shells."

Our Outlook

"We understand that the chief driver of the JV’s profitability would be the expectedly large volumes of Palio. The next driver would be the sales tax advantage the Ranjangaon plant enjoys from the Maharashtra government. However, as CST is soon to be abolished in the country (with the consequent full implementation of VAT), much of the benefit derived from the sales tax exemption would be eroded. Besides, emerging competition in small cars, the near failure of Palio in its first solo attempt and the high level of industry investment (Maruti setting up nearly same capacity for both assembly and powertrain at Rs 35bn) lead us to believe that this JV would take quite a while to break even. We maintain our MARKET PERFORMER rating, on a valuation of 15x FY08E EPS of Rs 57."

Source :- Moneycontrol

Accumulate Godrej Consumer: P-Sec

2006-12-18T07:33:00.000-09:00

Broking house, P-Sec has recommended accumulate rating on Godrej Consumer.

P-Sec report on Godrej Consumer:

"Steady volume growth in the toiletries business backed by healthy sales across all products - shaving cream, Snuggy diapers and talcum powder. Godrej Consumer, GCPL has in line with the industry announced price hike of around 5-8% in the toilet soap effective from Octobet’06. We expect the benefits of this to be seen in Q3FY07 and Q4FY07. With value accretive acquisition along with steady volume growth in the domestic markets, we expect a topline CAGR of 18% over FY06- 08P. While the price increase will offset the input cost pressure and enable some EBIDTA margin expansion in FY08P."

"At CMP of Rs 153, the stock trades at 23.5x its FY08P earnings; the stock is fairly priced at current valuations. However, strong earnings growth through organic and inorganic route remains the trigger. We recommend accumulate on declines."

Source :- Moneycontrol

Bull's eye Recommendations :- 18th Dec.

2006-12-17T18:49:00.000-09:00

RELIANCE INDUSTRIES

RESEARCH: ENAM BROKING
RATING : Outperformer
CMP: Rs 1,254 (Face Value Rs 10)
12-MONTH PRICE TARGET: Rs 1,500

RELIANCE Industries’ revised field development plan for KGD-6 asset reasserts that its E&P business remains grossly undervalued. The FDP submitted factors in cumulative production of 11 TCF gas over 14.5 years (or a recovery rate of 22% over a 3 P reserves + resource base of 50 TCF). As the consortium (RIL and Niko) intends to scale up gas-handling infrastructure capacity by almost 50% (to 120 mmscmd), it will lead to a significant increase in gas production. Netting of the ‘best case’ E&P valuations and investment portfolio from the current valuations translates into a payback of ~3.5 years for RIL’s core operations. Niko expects production from MA-1 field to begin by ’08. A plateau production rate of 60 kbpd for 20 years could translate into 2 P reserves of ~1.4 billion bbl. Thus, the enterprise value of the oil field could be estimated at $7.5bn (or Rs 245/share), based on ONGC’s EV/BoE multiple. At current valuations, assuming the ‘best case’ valuation scenario of E&P portfolio and market value of investment portfolio, RIL effectively trades at 3.5x FY07E EV/EBIDTA. This translates into a payback of ~3.5 years for the refining and petrochem assets, which are delivering value.

GUJARAT AMBUJA CEMENTS

RESEARCH: CLSA
RATING : Buy
CMP: Rs 140 (Face Value Rs 2)
12-MONTH PRICE TARGET: Rs 142

GUJARAT Ambuja plans to increase its capacity from 16 million mt currently to 21.5 million mt by December ’08 through a combination of greenfield expansions and blending of fly ash across seven locations. Increase in the ash content will account for 25% of capacity expansion. Since conclusion of the monsoon, cement prices have moved up by Rs 6- 8 per bag (3-4%) at the retail level and the news flow on this front will remain positive. Holcim has recently bought the stock from the market at about Rs 139 per share. As per a recent press interview with one of Holcim's directors, there are indications that the company may buy more stock. Gujarat Ambuja is the only large-cap cement stock without FII limit and remains one of CLSA's favourite picks in the sector.

IL&FS INVESTSMART

RESEARCH: CITIGROUP
RATING : Sell
CMP: Rs 207(Face Value Rs 10)
12-MONTH PRICE TARGET: Rs 161

THE regulatory ban on opening new depository accounts has been lifted, but it has hit Investsmart hard. Management changes and transition to E*Trade suggests that the core businesses may remain in flux over the near term. A fall in earnings reflects lower market volumes and market share, a shrunk margin book and slower investment banking. The worst is probably over, but the company does not appear positioned to benefit from any upswing yet. E*Trade, which has raised its stake to 38% and is offering to buy another 20%, now appears positioned as a dominant shareholder. Over the medium term, this may drive strategy, positioning and growth. But in the immediate term, this suggests transition. Citigroup believes the fundamental value is lower than the current price; supported by the expected open offer price of Rs 210. It recommends that investors should exit at the current price or during the offer period.

TATA CONSULTANCY SERVICE

RESEARCH: ASK-RAYMOND JAMES
RECOMMENDATION : Buy
CMP: Rs 1,156 (Face Value Rs 1)
12-MONTH PRICE TARGET: Rs 1,350

TATA Consultancy Services (TCS) has been on a deal-winning spree. It has closed $500-million deals in 40 days. The management had mentioned in its Q2 FY07 earnings call that the deal pipeline looked robust, with the company pursuing five contracts above $50 million and another five worth about $100 million. TCS is also in the final stages of five contracts above $50 million. Within a fiercely competitive environment, the company seems to have emerged as a winner in the large deals space. ASK-Raymond believes that there has been a structural change in the IT industry, with a marked polarisation towards larger players. The stock trades at 29.1 times FY07E earnings and 22.1 times FY08E earnings. ASK-Raymond is revising its target price upwards to Rs 1,350 (25x FY08E earnings), from its earlier target price of Rs 1,240 (24x FY08E earnings).

BOMBAY DYEING

RESEARCH: MOTILAL OSWAL
RECOMMENDATION : Buy
CMP: Rs 725 (Face Value Rs 10)
12-MONTH PRICE TARGET: Rs 850

MOTILAL Oswal is upgrading price target for Bombay Dyeing to Rs 850, based on positive developments with respect to unlocking of hidden value from its two plants at Dadar and Lower Parel, Mumbai. There has been a significant increase in expected value accretion in its real estate at Dadar and Lower Parel. Substantial changes in planned development have allowed the company to increase its developable area from 3.7 million sq ft at both its plants to 4.3 million sq ft —an increase of 16%. Bombay Contrary to its earlier plans of selling a majority of its developable area outright, the company now plans to sell only 0.4 million sq ft at Dadar, while commercially leasing the remaining 3.9 million sq ft. This will be more value-accretive for the company. Based on the SOTP valuations, Motilal Oswal arrives at the target price of Rs 850 per share, valuing the real estate rental business at Rs 615 per share, PV from sale of the Dadar property at Rs 101 share and its traditional businesses at Rs 134 per share.

NUCLEUS SOFTWARE

RESEARCH: SHAREKHAN
RECOMMENDATION : Buy
CMP: Rs 558 (Face Value Rs 10)
12-MONTH PRICE TARGET: Rs 680

NUCLEUS Software Exports is a niche player offering software products to companies in banking and financial service. It has established itself globally with a product installation base of over 250 application modules in more than 30 countries. The product business grew exponentially in FY06. It added 21 new clients and bagged orders for 38 new installations in FY06. In H1 FY07, it added 14 new clients; its order book stood at Rs 135 crore as on September ’06. Product revenues may grow at a CAGR of 67% over FY06-08. Alliances with global technology giants could result in higher-than-expected order bookings. At the current price, the stock trades at 11x its FY08 earnings, which is relatively cheaper than its peers.

Source :- ET

Hold Zee Telefims: Angel Broking

2006-12-15T06:40:00.000-09:00

Broking house, Angel Broking has recommended hold rating on the Zee Telefilms.

Angel Broking report on Zee Telefilms:

Investment Argument

Demerger to unlock shareholder value:

"India's largest vertically integrated media & entertainment company, Zee Telefilms (ZTL), has approved its demerger into 4 separate entities (discussed later). The key reason for this restructuring exercise is that the existing businesses would get more transparent and shareholders would be able to understand and assign better value to these. It must be noted that the present structure of ZTL was owing to various regulatory restrictions. Post the demerger, we expect significant efficiencies to creep in as the individual businesses chart their respective growth strategies."

Much more than just demerger:

"Zee Telefilms is a story not just about demerger but about the businesses it is into and the prospects of these respective businesses going forward. Zee Telefilms encompasses the content-to-consumer value chain; television content, broadcasting and cable networks. Apart from the domestic presence, Zee has been spreading its wings into Asia, UK, Australia and the US, which would help it not only in de-risking its revenue source but also in increasing its subscription revenues (~49% of operating revenues in FY2006)."

Concentrating on content:

"ZTL has been concentrating hard on the television content for its viewers. Since FY2006, it has witnessed significant improvement in its advertising yields, which are now way ahead of Sony, on the back of enhancement in quality of its content. This is evident from the fact that while it did not have a single program amongst the Top 50 Hindi Cable & Satellite (C&S) channels a year ago, currently, ZTL has 11-12 programmes in the Top 50, which has helped it improve its inventory realisations."

Valuations

"Zee Telefilms has been in the midst of an investment phase for its various businesses (broadcasting, content, cable and DTH), which has depressed its consolidated earnings. Thus, it would not be appropriate to judge the company on the basis of its current financials. However, on the basis of our sum of parts valuation for ZTL's various businesses, we have arrived at a combined fair value of Rs 379 per share and recommend a HOLD on the stock."

Source :- Moneycontrol

Bank of India an Outperformer: Karvy

2006-12-14T06:49:00.000-09:00

Karvy is bullish on Bank of India and has given an Outperformer rating on the stock with a target price of Rs 195.

Karvy report on Dena Bank

“Recently, Bank of India (BoI) has taken 76% stake in an Indonesian bank, P T Bank Swadesi Tbk at around Rs.1.12 billion. BoI would make open offer for the rest 24% stake later. BoI has presence in Indonesia for last three decades through representative office. The bank foresees strong growth potential in Indonesia and bilateral business with India. The acquisition is the part of international expansion to cash in on developing opportunities in international trade. This is the first overseas acquisition by BoI; the bank already has footprint in 12 countries through 24 branches and representative offices. The bank generates considerable chunk of business from international operations.”

“The Bank's international operation has been augmenting overall margins and spread. Over the period we witness improvement in spread. The bank has been selective in choosing the area of operation and offering whole gamut of financial products. The bank has been mainly targeting Indian Diaspora across globe.”

“PT Bank Swadesi Tbk is an Indonesia-based financial institution. The Bank's products and services include funding products, loans, foreign exchange transactions and other related services. The Bank is comprised of seven divisions: the Compliance, Research and Development division, the Personnel and General Affair division, the Information and Technology division, the Operation and Administration division, the Treasury division, the Marketing and Credit division and the International Banking division. Headquartered in Jakarta, Indonesia, the Bank is supported by four branch offices, five sub-branch offices and six cash offices and a mobile cash unit nationwide.”

“The initiative taken by the bank is quite encouraging and would add value to BoI's bottomline in long term. Recent RBI's decision to increase CRR (cash reserve ratio) by 50 basis points would impact the bank's bottomline by Rs.500 million (3.8% of FY08 PAT). We rate the stock as an OUTPERFORMER with a target price of Rs195 per share.”

Source :- Moneycontrol

Hold BHEL, says P Sec

2006-12-13T06:26:00.000-09:00

Broking house, P-Sec has recommended hold rating on the Bharat Heavy Electricals, BHEL.

P-Sec report on BHEL:

"BHEL is scouting for suitable companies with niche technology and are planning for takeovers in US and Europe. The estimated investment for the takeovers and the expansion plans is around Rs 10000 crore."

"For Q2FY07 the top line has grown by 33% y-o-y, as the Industry segment grew at a robust rate of 35% y-o-y, whereas Power segment grew at a lower rate of 29% y-o-y."

"The EBITDA margins for the quarter were under pressure as they dipped by 104bps y-o-y to 13.66%. The dip in margin can be ascribed to increase in raw material cost by 210bps (primarily due to high steel prices). On the bottomline company has reported a growth of 38% y-o-y, which can be attributed to rise in interest income causing the other income to increase by 60% y-o-y."

"The order book of the company stands at Rs 457 billion, which is 3.4x its FY06 sales."

Source:- Moneycontrol

Buy Larsen & Toubro: DSP Merrill Lynch

2006-12-12T05:38:00.000-09:00

Broking house, DSP Merrill Lynch is bullish on Larsen & Toubro and has recommended buy rating on the stock.

DSP Merrill Lynch report on Larsen & Toubro:

Wins largest order in its history; thanks to airport capex, Reiterate Buy

"L&T bagged the largest order in its history, at Rs 54 billion (USD 1.2 billion) 18.4% of its E&C order backlog from GMR-led consortium to design & build New Delhi airport. This order reinforces our theme of L&T being the key beneficiary of a) continued momentum in Infra spends, b) spreading of capex to new domains such as Airports and c) success of PPP model in India. This order could potentially create 6-9% upside to our FY08-10E consolidated earnings. Reiterate Buy with PO of Rs 1550."

L&T secures Rs 54 billion order from Delhi International Airport

"L&T won its third airport order and second from GMR in the last 2 years, which validates our theme of it being the key beneficiary of the spreading of India’s Infra capex to new domains such as Airports. L&T bagged a Rs 54 billion (USD 1.2billion) contract from the GMR-led Delhi International Airport Pvt. (DIAL) involving design & construction of passenger terminal (37mn pax), ‘air-side’/‘land-side’ works and one of Asia’s longest runways (4.43 kms). Besides, this order represents 19.3% of MLe FY07E order inflow of Rs 279 billion, and coupled with orders received YTD provides ~70% visibility."

Drivers of 31% earnings CAGR over FY06-08E & Buy rating:

"Acceleration in domestic/Middle East capex cycle driving its sales at 22% CAGR over FY06-08E. Likely improvement in margins on completion of low margin orders & achieving margin accounting threshold. Our PO of Rs 1550, based on a multi-pillar approach, is driven by higher S&AC valuations & rollover of target earnings. Risks: raw materials, competition & project execution."

Source :- Moneycontrol

Buy Dr Reddy's Laboratories: DSP Merrill Lynch

2006-12-11T05:59:00.000-09:00

Broking house, DSP Merrill Lynch is bullish on Dr Reddy's Laboratories and has maintained buy rating on the stock.

DSP Merrill Lynch report on Dr Reddy's Laboratories:

Take on impact of German healthcare reforms

"Aggressive price reduction adopted by key industry players effective July’06 has resulted in declining sales trend for most players (including Betapharm) over the past month. Further, an additional list of products have been brought under co-payment waiver from Nov.1st 2006."

"Possible list price cut of about10% in Jan’07 could well be compensated by the saving of the 10% mandatory discount scheme; hence the net impact from the next round of price cut could well be neutral."

"In our view, the recent declining sales trend is expected to rebound in the coming months driven by volume growth through enhanced generic usage and new launches. This could well result in Betapharm sustaining the 58% gross margin trend in 2Q for the coming quarters as well."

Four strategies to drive growth in Betapharm

* New launches (10 launches seen in last 12 months, 350 marketing authorizations)
* Alliances- Fentanyl patch co-promotion with Nycomed and agreement with Pliva for oncology/other products
* Cost optimization through leveraging of synergies
* Pipeline integration across markets.

Europe could become Reddy’s key market; Maintain Buy

"Reddy’s plans to leverage on the Betapharm platform in Germany to expand into four key markets – Spain (commenced operations), Italy, France and Portugal. This geographical expansion combined with its accelerated filing strategy could make Europe Reddy’s key market in the next few years. Maintain Buy."

Source :- Moneycontrol

Bull's eye Recommendations :- 11th Dec.

2006-12-10T18:11:00.000-09:00

Mangalam Cement

Research: Emkay
Recommendation: Buy
CMP: Rs 207 (Face Value Rs 10)
12-Month Price Target: Rs 306

MANGALAM Cement (MCL) is a Rajasthan-based cement player with an aggregate capacity of 1.5 million tonnes. MCL repaid its entire long-term debt as on October ’06 and plans to expand its cement capacity by 0.50 million tonnes, which will be commissioned by September ’07. It will also set up a 17.5-mw thermal-based captive power plant (to be commissioned by June ’07), which will result in savings in power cost to the tune of Rs 133 per tonne. Emkay expects cement prices to remain firm during FY07E and FY08E, since major capacity additions will come by end FY08E and early FY09E. This will drive MCL to report a 21% CAGR topline growth between FY06 and FY08, with EBITDA margins improving from 24% in FY06 to 29.7% in FY08E and PAT increasing at a CAGR of 30% during the period FY06-FY08E. With an expected CAGR of 30% in EPS over FY06-FY08E, Emkay expects RoCE and RoE levels to remain healthy at 28.5% and 36.0%, respectively, for FY07E, and 41.9% and 55.4%, respectively, for FY08E.

Biocon

Research: Anand Rahi
Recommendation: Buy
CMP: Rs 360 (Face Value Rs 5)
12-Month Price Target: Rs 400-460

BIOCON is a leading biopharmaceutical company with strong R&D capabilities in fermentation technology, biotechnology and drug discovery. The company is a pioneer and leader in production of biopharmaceuticals through the fermentation route. With focus on generics, bio-generics and drug discovery, the company is poised to grow exponentially in coming years. Its manufacturing capacity is set to rise four-fold. Moreover, with the commissioning of Biocon’s Biopark, volumes are likely to drive growth in coming years. The company’s mainstay continues to be bio-pharmaceuticals. The competition in bio-generics is much less and the opening up of the biggest bio-generics market (USA) will boost growth potential for Biocon significantly. In coming years, the company’s financials will improve, with sharp rise in volumes and wider range of products for the global generic markets. The long-term potential of the company lies in the success of its various R&D projects in drug discovery and drug delivery technologies. This stock is meant for smart players looking for small downside, a modest upside in the short to medium term and very good long-term gains in a quality large-cap stock. So, it’s a stock for all classes and all time periods.

Bharati Shipyard

Research: Angel Broking
Recommendation: Buy
CMP: Rs 320 (Face Value Rs 10)
12-Month Price Target: Rs 450

GLOBAL order book registered a 29% CAGR over the period ’03-06. Going forward, a similar trend is expected on the back of growth in demand for vessels, which is a result of replacement demand and capex boom in the offshore segment (leading to increasing demand for offshore vessels). India’s current market share in the world ship-building industry is around 0.3% in terms of dead weight tonne (DWT). It is set to gain market share on the back of cost competitiveness and availability of technically qualified manpower. India also has a locational advantage (a vast coastline of 7,516 km). Bharati’s order book has shown a robust CAGR of 135% over the past three years. The company currently has an order book size of Rs 2,335 crore, which will sustain growth through FY09. Completion of its Mangalore yard will further boost growth beyond FY09. The stock is currently trading at 17.8x FY07E earnings of Rs 17.9, 8.0x FY08E earnings of Rs 40.1 and 5.6x FY09E earnings of Rs 56.7. Angel initiates coverage on the stock with a ‘buy’ recommendation and a 12-month target price of Rs 450, giving a 41% upside from the current market price.

Sasken Communication

Research: Citigroup
Recommendation: Buy
CMP: Rs 492 (Face Value Rs 10)
12-Month Price Target: Rs 653

STRONG presence in offshore R&D services and a turnaround in the products business in FY08E should ensure strong earnings momentum for Sasken in FY06-09E. Growth in the services business is being driven by higher acceptance of offshoring in R&D services. The services business has marquee clients such as Nortel and Nokia. Citigroup expects the business to register revenue and EBITDA CAGR of 42% and 36%, respectively, over FY06-FY09. The Botnia acquisition has added further momentum to growth. Sasken has been making significant investment in creating software for mobile phones. It forecast a 52% revenue CAGR over FY06-09 and a turnaround in FY08 for this business, with shipments expected to start over the next few months. The loss-making products business has been a drag on overall profit. Hence, the stock looks expensive on P/E. Citigroup values the products business on a P/S basis and the services business on EV/EBITDA. Apart from sector risks, the products business has a high risk profile on the technology front and is exposed to delays in handset shipments.

Panama Petrochem

Research: Edelweiss
Recommendation: Buy
CMP: Rs 123 (Face Value Rs 10)
12-Month Price Target: NA

PANAMA Petrochem manufactures specialty petroleum products that serve as raw materials for various industries like inks and resins, textiles, rubber, pharmaceuticals, cosmetics, transformers and power cables. These industries are growing significantly on the back of strong demand growth for their manufactured goods, which in turn, is propelling Panama’s growth. Panama also has a well-diversified customer profile, eliminating risks of revenue concentration. Panama has tied up with Petronas, the Malaysian oil and gas (O&G) giant, to distribute Petronas’ high-end auto lubricant ‘Syntium’ in India. Petronas is keen on entering the Indian market in a big way and plans to launch more of its products here. Panama, the most likely medium for Petronas’ Indian foray, stands to benefit greatly, as the alliance will give Panama a foothold in the Rs 500-crore high-end auto lubes market in India. Depending on Syntium’s success, Panama will also start blending and packaging Petronas’ products at its Baddi plant in future. Edelweiss expects this division to generate Rs 1.2 crore revenue in FY07E with gross margins of ~12%. It estimates revenues and profits to grow at 25% and 26% CAGR, respectively, between FY07E and FY09E. At the current market price, the stock trades at 5.7x FY07E EPS of Rs 23.2 and 4x FY08E EPS of Rs 33.

Source :- Moneycontrol

Buy TCS with a target of Rs 1350: ASK Raymond

2006-12-08T06:09:00.000-09:00

Broking house, ASK Raymond James & Associates is bullish on Tata Consultancy Services and has maintained buy rating on the stock with a target of Rs 1350.

ASK Raymond James & Associates report on Tata Consultancy Services:

Tata Consultancy Services: Under the spotlight

"Tata Consultancy Services (TCS), of late, has been on a deal winning spree. It has closed about USD 500 million deals in just 40 days. Though the total deal value as seen in Exhibit 2 may seem small in the face of a large revenue base, it is a reiteration of the trend of winning large deals by TCS. The management had mentioned in 2Q FY07 earnings call that the deal pipeline looked robust with the company pursuing five contracts above USD 50 million and another five worth about USD 100 million. In addition to the above, the management had added that TCS was also in the final stages of five contracts above USD 50 million. Within a fiercely competitive environment, the company seems to have emerged as a winner in the large deals space."

"We are revising our FY07E earnings to Rs 40.9 (-1.3%) and FY08E earnings to Rs 54.0 (+4.4%) in view of the strong deal pipeline. We believe that there has been a structural change in the IT industry with a marked polarization towards larger players. The stock trades at 29.1x FY07E earnings and 22.1x FY08E earnings. Given the 34% CAGR in earnings over FY06-08E, we are increasing the exit PE multiple for TCS from 24x to 25x. We are revising our target price to Rs 1,350 (25x FY08E earnings) up from the earlier target price of Rs 1,240 (24x FY08E earnings). TCS continues to remain our top pick and the recent wins imparting further revenue visibility reinforce our optimistic view on the company. Maintain Buy."

Source :- Moneycontrol

Accumulate Lupin with a target of Rs 600: P-Sec

2006-12-08T06:08:00.000-09:00

Broking house, P-Sec has recommended accumulate Lupin on declines for a target price of Rs 600.

P-Sec report on Lupin

"Lupin has received DCGI approval to conduct Phase-III Clinical Trials for its Anti-Migraine compound LLL- 2011 (Amigra), a nasal spray for use in the prophylaxis of migraine. The results of the phase II study showed that LLL-2011 nasal spray is effective in the prophylactic treatment of migraine. The safety evaluation demonstrated that it was very safe and well tolerated."

"The Company intends to begin Phase-III clinical trials in at least 10 centres across the nation. The total market for Migraine is estimated to be more than USD 2 billion."

"At CMP of Rs 545, the stock is trading at 20x FY07E and 16.3x FY08E earnings. We recommend to accumulate the stock on declines for a target price of Rs 600."

Source :- Moneycontrol

Reliance Comm an outperformer: CLSA

2006-12-07T06:04:00.000-09:00

CLSA is bullish on Reliance Communications and has recommended an outperformer rating on the stock.

The CLSA report on Reliance Communications

Reliance Communications (Rcom) has seen a significant turnaround in operating metrics with the ramp-up in its mobile subscriber base. Even though Rcoms mobile Arpus remain at 20% discount to leading competitor, margins at 38.4% are nearly at par. From hereon we await managements strategy on the announced plans in the GSM segment after being the largest CDMA player in India. We believe this period of uncertainty and potential delays will limit Rcoms market-share expansion, limiting upside risk to our forecast. However even after a sharp 50% rise over last three months, Rcom stock trades at 16x FY09CL earnings, well supported by the robust 61% Ebitda Cagr over FY06-09CL.

Improvement in operating performance

Reliance Communications (Rcom) operating margins have expanded from 17% (2Q06) to 38% (2Q07), led primarily by a 15% savings in regulatory costs as captive traffic increases with rising mobile subscriber base. Also RComs core operating costs (at 36% of sales) are now about 80bps lower than Bharti. Following these gains, we see limited scope for further significant cost savings (estimated 300-400bps) unless the regulator (TRAI) cuts government levies such as access deficit charge and licence fees. Our FY08- 09CL forecasts factor in operating margins of 39-40% led by scale economies and operating leverage and we do not see significant upside risk to these forecasts.

Yet lags peers on mobile metrics

Despite improving operating efficiencies, Rcom continues to lag peers on key mobile metrics. Rcom mobile ARPUs and revenue per minute are at 22-24% discount to peers, which we believe reflects the combined impact of a) inclusion of fixed wireless subscribers in mobile division and b) high take-up of schemes like free me three where Arpus are significantly lower due to inbuilt free minutes. On the market-share front, while RComs inclusion of 3m fixed-wireless subscribers as mobile subscribers resulted in one-time boost to market share in Apr-06, since then RCom has lagged industry growth, losing 40bps in market-share to current 20.4%. We maintain our 36% subscriber Cagr forecast for RCom over FY06-09CL.

Challenges in GSM foray and valuations

RComs application for GSM spectrum remains pending with the Government. We maintain our ongoing concerns on RComs planned GSM foray, which we believe could pose execution challenges as well as involve higher investments. Notwithstanding this, we believe the stock remains a play on the Indian mobile growth. Valuations, at 16x FY09CL earnings, are well supported by the robust 61% Ebitda Cagr over FY06-09CL. Maintain O-PF.

Source:-MOneycontrol

Buy DS Kulkarni Developers with a target of Rs 584: P-Sec

2006-12-06T09:56:00.000-09:00

Broking house, P-Sec is bullish on DS Kulkarni Developers and has recommended buy rating on the stock with a target of Rs 584.

P-Sec report on DS Kulkarni Developers:

"DSK Developers ltd, a first generation enterprenual venture of Mr D.S Kulkarni, is Pune based real estate company incorporated in 1991. The company has its corporate office in Pune and branch offices at Mumbai and Bangalore. The company along with its group companies has constructed and handed-over more than 15,000 tenements ad measuring 12.5 msf of constructed area. The company targets NRIs through its representatives in USA, UK and the Middle East. After focusing on the Pune market for more than 20 years the company is now expanding to Mumbai and Bangalore in a bid to be a national player. DSK has recently floated a 100% subsidiary in USA, to take up residential projects in USA."

* The company has eight projects in the advance stages of construction, which are expected to be completed over the next 18 months. Since the company follows the completed contract method of revenue recognition the next six quarters are expected to be robust
* DSK is all set to reap in the benefits of strong demand in office space (direct) and residential space (derived) in Pune (A DSK stronghold) from IT and ITeS.
* The company debits its WIP account for the cost incurred in incomplete projects including land cost. This WIP forms part of the topline.
* Our DCF valuation with a zero terminal value gives us a one year forward fair value of Rs 551. We have taken zero terminal value due to lack of information on the future projects and related cash flows.
* The NPV value of the company based on SOTP valuation methodology yields a value of Rs 584. The group has a land bank of around 650 acres with 90% in and around Pune.
* The stock is trading at 23.7x FY07P EPS and 11.4x FY08P EPS and remains the only real estate pure play whose valuation is not looking stretched in terms of P.E.

"We are initiating coverage on the stock with a BUY recommendation and price target of Rs 584."

Buy Ranbaxy Labs with a target of Rs 558: Sharekhan

2006-12-05T08:02:00.000-09:00

Broking house, Sharekhan keeps buy rating on Ranbaxy Laboratories with a price target of Rs 558.

Sharekhan report on Ranbaxy Laboratories

Key Points

"Ranbaxy Laboratories (Ranbaxy) has acquired a 100% stake in Be-Tabs Pharmaceuticals Limited (Be-Tabs) of South Africa, for a total consideration of USD 70 million (500 million ZAR)."

"Be-Tabs is the fifth largest generic company in South Africa. It is the largest manufacturer of penicillin formulations and markets and manufactures a portfolio of ethical and over-the-counter (OTC) solid-oral and liquid formulations in South Africa. Be-Tabs has annual sales of approximately USD 30 million, with earnings before interest, tax, depreciation and amortisation (EBITDA) margin of about 13%."

"The acquisition of Be-tabs will complement Ranbaxy's existing business in South Africa. Ranbaxy currently derives USD 20-25 million of revenues from South Africa. The acquisition of Be-tabs will double Ranbaxy's South African business. With a combined turnover of USD 50-55 million, Ranbaxy will now enjoy a market share of 1.6% in South Africa."

"At USD 70 million, the deal is valued at 2.2x sales and 7.7x EBIDTA. Even though the deal appears cheap when compared to other acquisitions, the price seems fair when viewed in light of the relatively lower EBIDTA margin and growth rate of Be-Tabs."

"Based on the back-of-the-envelope calculations, we believe that Be-Tabs would add USD 2.4 million (approximately Rs11 crore) to Ranbaxy's bottom line in CY2007E. Due to Ranbaxy's large equity base, we believe that the impact on the earnings per share would be marginal."

"At the current market price of Rs 384, Ranbaxy is quoting at 20.8x its CY2007E estimated earnings, on a fully diluted basis. We maintain our Buy recommendation on Ranbaxy with a price target of Rs 558."

Valuation & view

"Ranbaxy's year-till-date performance has been below expectations primarily due to a slower-than-expected pickup in its revenues. Given the strong challenges for organic growth due to an absence of definite growth triggers, the company has been aggressively trying to grow inorganically. Ranbaxy has already announced four acquisitions in the current year in order to meet its growth targets. Given the company's comprehensive business model that includes aggressive new launches, in-licencing, strategic partnering, widening geographical presence etc, we maintain our confidence in Ranbaxy."

"At the current market price of Rs384, Ranbaxy is quoting at 20.8x its CY2007E estimated earnings, on a fully diluted basis. Our current sales and earnings estimates do not reflect the impact of the Be-Tabs acquisition. We are revising our estimates and will update them shortly. Meanwhile, we reiterate our Buy recommendation on Ranbaxy with a price target of Rs 558."

Source :- Moneycontrol

Hero Honda a market performer: Karvy

2006-12-04T06:01:00.000-09:00

Broking house, Karvy Stock Broking is bullish on Hero Honda and has recommended a market performer rating on the stock with a target of Rs 830.

Karvy Stock Broking report on Hero Honda:

Nov 2006: "Hero Honda recorded total sales of 2.8 lakhs against our expectation of 2.9 lakh sales. The motorcycle witnessed a growth of 9.3% to 2.74 lakh. The domestic sales witnessed a growth of 11% to 2.71 lakh. The dealer inventory is currently at 2.5 lakh units, higher than previous month. The scooter recorded sales of 5,603 units for the month."

Apr-Nov 06: "For the eight-month period, the total sales recorded a growth of 12% to 2.28 million units, drive by 12% growth to 2.15 million units. The domestic motorcycle sales showed a growth of 9% to 2.09 million units. The exports for the period recorded a growth of 17% to .076 million units. For the period scooters recorded a total sale of .06 million units."

"The company would launch new CD Dawn and CD Deluxe pricing is at Rs 31,900 and Rs 34,900 respectively in Q4 FY07. The company would also launch a variant of Karizma. While the variants would ensure product presence, it may not give stiff competition to Bajaj Auto and TVS Motor. For the full year we expect the motorcycle sales to be 3.42 million units and scooter sales of 0.073 million units, a total of 3.49 million units.

Bull's eye Recommendations :- 4th Dec.

2006-12-03T18:29:00.000-09:00

Voltas

Research: JM Morgan Stanley
Recommendation: Overweight
CMP: Rs 109 (Face Value Rs 1)
12-Month Price Target: Rs 130

VOLTAS is a market leader in the electromechanical projects and services segment with 25-30% market share. JM Morgan Stanley has forecast a revenue CAGR of 22% and earnings CAGR of 27% over FY06-09. Voltas’ operating margins were 5.7% in FY06, as the electro-mechanical business posted margins of 5.7%, while the unitary cooling product business registered losses due to excessive costs involved in the Hyderabad plant. The company closed the Hyderabad unit to cut costs and this could lead to a turnaround in the unitary cooling product business in FY07. The management also hopes to push overall operating margins to about 10% in the next few years by managing costs and increasing efficiency. The stock trades at 23.6x FY08E earnings and 18x FY09E earnings. The robust revenue growth and potential margin expansion will be key triggers for the stock. The Rs 130 target price for Voltas is based on a residual income model. Key downside risks include recurring losses in the unitary cooling product business and significant cost overruns in the electro-mechanical project business. Upside risks include a turnaround in the unitary cooling product business and improving margins in the electromechanical business.

Dr Reddy’s Laboratories

Research: ICICI Securities
Recommendation: Buy
CMP: Rs 770 (Face Value Rs 5)
12-Month Price Target: Rs 997

DR REDDY’S Laboratories’ H1 FY07 performance was significantly ahead of expectations, buoyed by higher than expected sales and margins from authorised generics versions of Zocor and Proscar, which contributed Rs 1,100 crore (33% to total revenues) in H1 FY07. Further, DRL recently raised $200 million through an ADR issue (7.5% dilution) to fund its capex and acquisition plans. Consequently, ICICI Securities has raised the EPS forecast by 33% and 6% for FY07E and FY08E, respectively, and raised the fair value estimate to Rs 997, which implies a potential upside of 36% over the next 12-15 months. The strong earnings momentum is likely to continue over the next 3-4 quarters on the back of a likely win of 180-day exclusivity for generic Zofran and robust growth in the core generics business. A likely 180-day exclusivity win for generic Zofran, full realisation of value-accretive acquisitions, a wave of new launches in the US, aggressive $100-million capex plan over the next 18 months and tighter cost control are expected to power DRL’s future performance. Also, potential positive news flow from NCE research (both from own pipeline, especially DRF2593 and Perlecan) could boost sentiment.

Hexaware Technologies

Research: ASK-Raymond
Recommendation: Buy
CMP: Rs 181 (Face Value Rs 2)
12-Month Price Target: Rs 197

HEXAWARE is a leader in the HR IT, PeopleSoft (PSFT) implementation and the airlines space. PSFT is the dominant practice of Hexaware, contributing about 30% of its revenues. Oracle (the acquirer of PSFT) has said it will provide ongoing enhancements to PSFT till ’10. The upgrades and the promise of maintenance till ’13 provide visibility with regards to the road map for PSFT and will help the company to win client confidence. The order book stands at over $225 million (excluding FocusFrame), to be executed over a period of 3-5 years, giving it fair visibility. ASK-Raymond has integrated the financials of FocusFrame from CY07E onwards and maintains its CY06E and CY07E earnings for Hexaware at Rs 9.7 and Rs 12.3 respectively, introducing CY08E earnings at Rs15.1. The stock currently trades at 14.8 times CY07E earnings and 12.1 times CY08E earnings.

Source:-ET

Buy Maruti Udyog: P-Sec

2006-12-01T07:50:00.000-09:00

Broking house, P-Sec is bullish on Maruti Udyog and has recommended buy rating on the stock.

P-Sec report on Maruti Udyog:

"Maruti has posted strong 16% volume growth in Nov`06 at 55033 units."

"Domestic sales have grown stronger by 21% to 52574 units while exports were down by 36% to 2459 units."

"B segment continues to be the growth driver for the company with 32% volume growth while M800 sales were down by 18% y-o-y."

"Esteem and Baleno sales were down by 14% while strong growth was witnessed from Omni and Versa models."

"We expect the company to continue its leadership and the growth momentum with better and stronger visibility for the Indian passenger car market."

"The stock trades at 15.3x its FY08P earnings, we maintain BUY."

Accumulate Reliance Industries: Edelweiss Research

2006-11-30T08:04:00.000-09:00

Broking house, Edelweiss Research has recommended accumulate rating on the Reliance Industries.

Edelweiss Research report on Reliance Industries

Excellent executor of large projects

"Reliance Industries Limited’s (RIL) strengths is in its ability to build businesses of global size and scale and execute complex, time-critical, and capital-intensive projects favourably in a highly regulated industry environment. The company has demonstrated its ability to tap high growth industries at early stages of their lifecycle like oil and gas (O&G), petrochemicals, financial services, telecom, and utilities. Sunrise sectors for the company now include organised retailing and SEZ infrastructure. RIL plans to invest USD 14.5 bn over a period of time. RIL has recently monetized its project execution capabilities by bringing RPL’s recent IPO at an early stage, front-ending value creation of USD 3.0 bn for RIL. Similar strategies are likely to be employed for the new growth areas."

Exploration and production business to drive RIL’s earnings growth

"RIL’s EBITDA is set to double by FY11E on account of the company’s growing exploration and production (E&P) business. Our estimated in-place reserves of 30.6 tcf natural gas (5.8 bn boe) implies a per-share value of INR 302 per RIL share. The in-place reserves may have to be increased to 18.6 bn boe (increase by 218%) and per share value to INR 850 per share, after accounting for all news-based upsides."

Core business of refining and chemicals to sustain cash flows till FY08E

"We expect the refining industry to sustain high margins till CY08E, as the incremental refining capacity is likely to just match the incremental demand for petroleum products till then. Increased differential between sweet and sour crude and dieselisation of the global economy puts middle distillates focussed refineries like RIL at an advantage. RIL has recently slowed its plans of expanding its petrochemicals capacity due to expected global over supply. The refining and chemicals segment is expected to maintain earnings till FY08E."

Valuation factors in current news flows; ‘ACCUMULATE’

"Using assumptions derived from company confirmed news flow and ‘sum-of-parts’ methodology, we estimate RIL’s fair value at INR 1,204 per share, 4.7% lower CMP of INR 1,263. Our estimated fair value does not incorporate the upsides based on possibilities of further positive news flow from the company on the E&P and SEZ businesses. If all unconfirmed news flow were to be considered, there is a possibility of ~45% upside from the current levels. RIL trades at 15.7x and 15.4x, our FY07E and FY08E EPS, respectively. We believe the CMP factors in potential upsides to a reasonable extent. We therefore initiate coverage on the stock with an ‘ACCUMULATE’ recommendation."

Source :- Moneycontrol

Buy Dr. Reddy’s: ICICI Securities

2006-11-30T08:02:00.000-09:00

ICICI Securities is bullish on Dr Reddy’s and has maintained buy rating on the stock.

ICICI Securities report on Dr. Reddy’s:

Dr. Reddy’s Laboratories’ (DRL) H1FY07 performance was significantly ahead of Street and our expectations, buoyed mainly by higher than expected sales and margins from authorised generics (AG) versions of Zocor and Proscar, which contributed Rs11bn (33% to total revenues) in H1FY07. Further, DRL has recently raised US$200mn through an ADR issue (7.5% dilution) to fund its capex and acquisition plans. Consequently, we have raised our EPS forecast by 33% & 6% for FY07E & FY08E respectively. We are also raising our fair value estimate to Rs997, which implies a potential upside of 36% over the next 12-15 months. We expect strong earnings momentum to continue over the next 3-4 quarters on the back of a likely win of 180-day exclusivity for generic Zofran and robust growth in core generics business. DRL remains our top pick in the sector. Scintillating show in H1FY07.

DRL registered a record performance in H1FY07, mainly on the back of AG versions of Zocor and Proscar, which contributed Rs11bn (or 33%) to total revenues and an estimated Rs1.68bn (40%) to consolidated net profits. EBITDA margin jumped 506bps to 21.6%. Recurring consolidated net profit leapfrogged over 3x to Rs4.2bn (US$92mn), significantly ahead of Street and our expectations. Further, earlier during the month, the company raised US$200mn through an ADR issue. Consequently, we have raised diluted EPS by 33% & 6% for FY07E & FY08E respectively.

Strong growth drivers for the next 3-4 quarters.

We believe that earnings momentum will likely be sustained (in spite of AG products’ license expiring in December ’06) on the back of generic Zofran’s likely 180-day exclusivity win, which is expected to begin in December ’06 – this could generate US$66mn sales and US$29mn profits during the exclusivity period. Besides, product launches in the US as well as robust performance of API and branded dosage form businesses would boost growth in FY08E. Further, monetisation of para IVs (such as the recent patent settlement deal for Imitrex) and NCEs would also boost earnings and the sentiment.

Remains the top large-cap BUY in the sector.

A likely 180-day exclusivity win for generic Zofran, full realisation of value-accretive acquisitions, a wave of new launches in the US, aggressive US$100mn capex plan over the next 18 months and tighter cost control are expected to power DRL’s future performance. Also, potential positive newsflow from NCE research (both from own pipeline, especially DRF2593, and Perlecan) could boost the sentiment. BUY.

Source :- Moneycontrol

Buy Raymond with a target of Rs 510: IDBI Capital

2006-11-29T06:24:00.000-09:00

Broking house, IDBI Capital Market has recommended buy rating on the Raymond with a target of Rs 510.

IDBI Capital Market report on Raymond:

"Raymond is one of the larger textile companies in the country with interests in worsted fabrics, denim, engineering tools and files, apparel retailing and garment manufacturing. The company has developed a de-risked business model to ensure that the fluctuating fortunes of any particular segment don’t upset its revenue and profit growth. The robustness of the model has been put to test with the domestic glut scenario in denim. Raymond India was hardly affected by this situation and saw almost no fall in realization while all other major players saw a 20-25% dip in realizations."

"All the divisions of the company have seen capacity addition and are witnessing good demand conditions. We expect the company to post revenue CAGR of 21% over the next 3 years driven by the contributions from its various high profile joint ventures and domestic retail presence. The stock is currently trading at 15x FY07E EPS of Rs.29 and 12x FY08E EPS of Rs.37. We believe the stock is the best bet in the textile space with its ability to capture both global and domestic growth and have a target of Rs 510 which is a 20% upside from current levels."

Source:-Moneycontrol

Bharti Airtel outperformer: Macquarie Research

2006-11-28T07:08:00.000-09:00

Macquarie Research is bullish on Bharti Airtel and has recommended an outperform rating on the stock.

The Macquarie Research report on Bharti

Target price raised to Rs750, upside of 20%:

"We are upgrading our revenue and EPS estimates for Bharti due to upward revision in our India subscriber forecast numbers as well as better-than-expected ARPU levels witnessed by Bharti in the past two quarters."

We expect the subscriber base to reach 400m by March 2010:

"Net-adds in India crossed the six million mark in September 2006. We believe the netadds rate is set to accelerate further in coming months on account of: 1) Aggressive coverage expansion by operators; 2) BSNL’s plan to increase capacity by 60m lines starting early 2007; and 3) Easing up of spectrum constraints by 2008."

Bharti likely to retain leadership of the Indian wireless space:

"We estimate 92.7m wireless subscribers for Bharti in March 2010 (compared to our earlier estimate of 80.5m), implying a CAGR of 47.5% and a 23.2% share of the Indian wireless market. We believe Bharti will remain the wireless revenue leader among Indian telcos well into FY10E riding on its pan-India presence, improving penetration, high ARPUs and execution excellence."

EBITDA margin is likely to expand significantly:

"We project EBITDA margin to increase to 41.4% in FY09E, led by higher top line growth, and to improve gradually every year going forward as economies of scale and network efficiencies are realised. The margin expansion will likely result from: 1) Lower access and interconnection charges due to higher proportion of onnetwork calls; 2) Revenue mix change in favour of high-margin wireless and enterprise services business; 3) Non-mobility businesses increasingly contributing to the bottom line; and 4) Improving capex" efficiencies."

Earnings revision

"Our EPS estimates stand revised upwards by 13.1% for FY07E, 24.9% for FY08E and 24% for FY09E to Rs21, Rs30.9 and Rs 41.2 respectively."

Price catalyst

"12-month price target: Rs750.00 based on a DCF methodology. Catalyst: 1) Completion of network expansion in all urban centres in the next 12 months; 2) Successful ramp-up of the fixed wireless phones business; 3) Sequential EBITDA margin improvements; and 4) Capex and opex savings from network infrastructure sharing."

Action and recommendation

"We retain our Outperform on Bharti: This is based on the solid earnings momentum in coming quarters. We strongly believe that Bharti will outperform its Asian peer group and the Indian broad market over the next 12 months. Bharti remains a high quality, low risk Indian wireless play."

Source:-Moneycontrol

Buy UltraTech Cement: target of Rs 1240: Finquest Research

2006-11-27T06:32:00.000-09:00

Broking house, Finquest Research is bullish on UltraTech Cement and has recommended buy rating on the stock with a target of Rs 1240.

Finquest Research report on UltraTech Cement:

"UltraTech Cement (UTCL) is a subsidiary of Grasim Industries UTCL is the second largest player,having 10% market share, in the Indian Cement Industry with installed capacity of 17mn tpa."

Investment Argument

"UTCL is gearing up to capture the boom in cement industry by increasing its cement capacity by 4mn tpa in Andhra Pradesh resulting in total capacity of 21mn tpa, which will be significant volume growth driver from December 2007 onwards. Further UTCL is determined to increase its blending ratio so as to reach industry average of 1.28x which will increase its effective cement capacity."

"UTCL is setting up a 92 MW power plant in Gujarat and 50 MW power plant in Chattisgarh, expected to be completed by the end of FY2008 which would result in significant savings of power cost of Rs 1.5bn pa from FY2009 onwards. UTCL is also setting up another 46 MW thermal power plant in Andhra Pradesh to be used for upcoming capacity expansion."

"UTCL enjoys significant savings on logistic front due to synergies with Grasim which is expected to result in savings of about Rs 1bn in the next two years. Also company's attempt of improving blending ratio will help reduce cost due to higher blending."

"UTCL is in the process of various efficiency improvements programmes, such as power & fuel efficiency, debottlenecking and ready mix concrete (RMC) plants involving capex of Rs 3bn, 2.2bn and 600mn respectively which will drive EBITDA margin up."

Valuations

"UTCL with cement capacity expansion plans, power cost savings plans, logistic benefits, higher belnding ratio plans and other operating efficiencies promises to be well positioned player in the long term. At the CMP, the stock trades at P/E of 16.5x FY2007E and 13.8x FY2008E on EPS of Rs 53.3 & 63.8 respectively. We Initiate Coverage on the stock with a Buy recommendation and 12-month Target Price of Rs 1240."

Source:-Monrycontrol

Bull's eye Recommendations :- 27th Nov

2006-11-26T18:31:00.000-09:00

Sterlite Industries

Research: Enam Securities
Recommendation: Outperformer
CMP: Rs 542 (Face Value Rs 2)
12-Month Price Target : Rs 725

STERLITE plans to raise Rs 12,500 crore mostly for its commercial power venture, Sterlite Energy. The company has also filed a F1/preliminary prospectus with the US SEC for raising $2 billion. The ADS proceeds will be used for the following: (a) A $41.9-billion investment in a 2,400-mw power project in Orissa through Sterlite Energy; (b) Acquisition of the government of India’s balance 26/29.5% stake in Hindustan Zinc — the value of which will be around $2.3 billion; and (c) Repay $50 million in debt. The entry into the commercial energy business will be based on Sterlite’s existing strength of running the captive coal-based power plant for its aluminium smelters and zinc refinery. The existing power capacity of the company is 1,040 mw. Sterlite Energy plans to build a 2,400-mw power plant in Orissa. Enam believes Sterlite is well-placed to benefit from additional funds that will be deployed for the new growth/high-return business — energy, with captive coal resources.

Apollo Tyres

Research: BRICS PCG
Recommendation: Buy
CMP: Rs 339 (Face Value Rs 10)
12-Month Price Target: Rs 475

APOLLO Tyres has set a target of becoming a $1-billion (Rs 4,600 crore) company by FY07-end from its current turnover of Rs 3,000 crore, and plans to grow into a $2-billion player by ’10. It has charted out an aggressive growth blueprint, involving an investment outlay of Rs 600 crore over the next four years. The management has set a target of doubling revenues to Rs 9,200 crore ($2 billion) by ’10. It is exploring organic and inorganic routes to achieve these objectives, and the recent acquisition of Dunlop Tyres, South Africa is in line with its strategy for growth. At the current market price, ATL is trading at 11.6 times EPS, 7.1 times cash earnings and 5.7 times EV/EBIDTA on 12-month forward basis. Dunlop Tyres, at 10x CY07E earnings, works out to Rs 390 crore or Rs 77 per share of ATL. Excluding the fair value of Dunlop, ATL is trading at FY07E multiples of 8.7x EPS, 5.3x cash earnings and 4.5x EV/EBIDTA, which is almost 30% discount to the industry average.

Cranes Software

Research: Angel Broking
Recommendation: Buy
CMP: Rs 109 (Face Value Rs 2)
12-Month Price Target: Rs 125

CRANES Software started off as a distributor of third-party mathematical/scientific software products, and has since evolved to become a niche provider of such products to the global scientific and engineering community. The company has achieved this through its strategy of ‘acquire, enhance and expand’. Through this evolution, Cranes now has a large addressable market in the region of around $40 billion, thus giving significant growth potential to the company going forward. Cranes enjoys one of the highest operating margins in the industry, at 54.5% (H1 FY07). This is because the proportion of proprietary products in total sales has increased. Products enjoy significant operating leverage, and after recovery of associated fixed costs, all additional revenues flow straight to the profit before tax (PBT).

Gateway Distriparks

Research: CLSA
Recommendation: Buy
CMP: Rs 186 (Face Value Rs 10)
12-Month Price Target: Rs 215

MARGINS at Gateway Distriparks’ (GDL) Mumbai facility seem to be bottoming out with the start of the third container terminal. Additionally, the company’s attempts to geographically diversify are already visible, with the volume share of the Mumbai unit already dropping to 75% from more than 96% in FY05. JNPT CFS volumes and margins have now stabilised. GDL’s container freight station (CFS) facility at Mumbai accounts for 90% of total profits and margins, and the facility has been under pressure due to competition from some of the new entrants. Margins dropped by nearly seven percentage points during Q4 FY06. However, with the commencement of the third container terminal at the port, H1 FY07 volumes at the port grew by 21% y-o-y. Further ramp-up in the operations of the third container terminal will gradually remove supply overhang, improving margins, initial signs of which are already visible.

Garware Offshore

Research: Darashaw Equity Research
Recommendation: Buy
CMP: Rs 149 (Face Value Rs 10)
12-Month Price Target: Rs 200

GARWARE Offshore Services (GOSL) is in the business of providing offshore support vessels on a lease basis to companies involved in oil and gas exploration. The company’s only two clients are ONGC and British Gas. Due to skyrocketing oil prices, oil and gas exploration activities across the globe have seen huge investments. India, too, is encouraging public and private participation under its NELP policies. Rise in exploration activities has made offshore industry very lucrative, with scaling demand for support leading to higher lease prices. GOSL is on an expansion spree. High debt-to-equity ratio is a growing concern. At the current price of Rs 133, the stock is trading at a forward P/E of 10x and 6x of CY07 and CY08 earnings. Despite EPS growing at a CAGR of 48% over next the two years, the stock should trade at a modest P/E range of 14-16 due to its high leverage buyouts. Over a 12-month investment horizon, the stock can give returns of 48% with a price target of Rs 200.

Ranbaxy

Research: CLSA
Recommendation: Underperform
CMP: Rs 385 (Face Value Rs 5)
12-Month Price Target: Rs 320

DRIVEN by poor organic profitability and a stretched balance sheet, Ranbaxy has underperformed the Sensex by 153% in the past two years. Cost-cutting initiatives and inorganic growth have contributed to a significant turnaround in profitability in CY06. Future cost-cutting opportunities will be limited and a stretched balance sheet does not leave much room for further acquisitions. With 45% of the business being commoditised, Ranbaxy faces challenges in organic revenue growth. Valuations on a price/sales basis may appear cheap at 2.3 times, but are not undemanding in comparison to global peers. Teva and Par Pharma trade at 2.7 times and 1.1 times respectively. Ranbaxy trades at a 50% P/E premium to Teva and valuations at 21.3x CY07CL are not cheap, given the low level of confidence in the company’s future earnings. Expensing the interest on $440-million FCCBs will impact reported CY07 profits by 13%. Based on historical stock price behaviour, CLSA believes valuations based on price/sales may provide support at Rs 350 and provide a trading opportunity to play on news flows.

Source:- ET

Angel Broking bullish on Wipro; target of Rs 645

2006-11-24T06:38:00.000-09:00

Broking house, Angel Broking is bullish on Wipro. It has recommended hold rating on the stock with a 12-month target price of Rs 645.

The Angel Broking report on Wipro:

About Company

“Wipro is India's third-largest software services exporter and has diversified business interests, which include IT services and solutions, hardware and consumer care and lighting. The company began its swift transformation from a predominantly hardware company to a software services company in FY99. Since then, the contribution of Wipro Technologies, Wipro's IT services business, has been consistently on the rise and has been the major driver of revenue and profit growth.”

“In FY2006, the share of Global IT services (Wipro Technologies) stood at 76% (57% in FY2001). The contribution of Indian and Asia Pacific IT services and products (Wipro Infotech) stood at 16%. Wipro's IT services portfolio includes a wide range of services like package implementation, systems integration, testing services, application development, R&D services and BPO.”

Investment Argument

Stringing together 'pearls'

“Wipro has embarked upon a clear acquisition strategy to fill up gaps in its service offerings. The strategy entails adding 'pearls' to the 'string' to create a 'String of Pearls', implying a complete set of services, technology and domain expertise that the company endeavors to build to offer to potential clients. It has acquired as many as 6 companies over the past year. Each of these companies operates in niche areas where Wipro did not earlier have a presence.”

More technology-intensive than peers

“Wipro provides services in the areas of embedded systems, product engineering, home networking, internet infrastructure, consumer and automotive electronics to telecom equipment manufacturers like Nortel, Cisco and Lucent. Wipro has also de-risked its business model in this space by focusing on the telecom service provider space. This business has significant potential, given favourable industry dynamics like increased competition and a focus on efficiency in the telecom sector.”

Moving 'high-end'

“Wipro is steadily increasing the revenue contribution from high-end services like IT consulting, systems integration, technology infrastructure services, package implementation and R&D services. The potential for growth in these areas is immense. To put it in numbers, in FY2002, these revenues totaled 14% of IT service revenues, while in FY2006, this figure was nearly 30%. These services have grown at a CAGR of 64% in this period (company average of 36% CAGR).”

Concerns

Effective integration of acquisitions

“Given the fact that Wipro has acquired numerous companies in the past year, and that it also plans to do so in future, the integration of the acquired entities could pose a risk, as is the case with most acquisitions. Retaining local talent, providing them with opportunities and integrating company cultures will be the issues that could take up critical management time. It should be noted that Wipro has been successful in the past in integrating acquired companies and this is just a risk to our assumptions. Given the fact that the acquired companies' manpower bases are not that large, this risk is minimal.”

Revenue concentration of the technology business

“Wipro derived around 37% of its revenues from the telecom R&D segment in FY06, where its clients were the worst affected due to the technology meltdown globally. It should bed noted that revenues from this space have been volatile over the past few years. Although there seems to be a recovery in the global telecom industry, in future, given the volatile nature of this business, Wipro's revenues from this segment face considerable risk.”

“The company is de-risking its business model by focusing on the telecom service provider segment rather than just equipment manufacturers, as also other verticals like financial services and service lines like BPO, testing and infrastructure management services, which is likely to pay off over a period of time. But in the interim, the risk of high dependence does exist.”

Valuation

At the CMP of Rs 582, the stock trades at a P/E of 22.5x FY2008E EPS of Rs 25.8. We recommend a 'Hold' on the stock with a 12-month target price of Rs 645.”

Source:-Moneycontrol

Hold Siemens: P-sec

2006-11-23T09:33:00.000-09:00

Broking house, P-sec has maintained hold rating on Siemens.

P-sec report on Siemens:

"The consortium of Siemens Ltd and Siemens AG, Germany has been awarded a contract worth Rs 40,000 million by the Qatar General Electricity and Water Corporation (KAHRAMAA) for development of Phase VII of the Electrical Grid in Qatar. Of these contracts, the Company has already commissioned Phase V and is currently executing Phase VI, which is on schedule. The Contract Value for Siemens Ltd is Rs 36,000 million, with an execution period of 22 months. For the Q4FY06 we expect a topline growth of 55% and a bottomline growth of 26%. The company has a robust order book of Rs 77.22 billion (2.12x its FY05 net sales), however at current levels the stock looks to be fairly valued, we recommend hold."

Buy ONGC with a target of Rs 930: CLSA

2006-11-22T06:04:00.000-09:00

Broking house, CLSA is bullish on Oil and Natural Gas Corporation, ONGC and has recommended buy rating on the stock with a target of Rs 930.

CLSA report on ONGC:

"With crude prices coming off by USD 20 per barrel, ONGC has underperformed the broader market by c.10ppt over the last three months. ONGC is a beneficiary of a softening crude price environment, however, as industry under-recoveries (which ONGC shares) will come off faster. After a flat USD 23-24 per barrel net realisation over FY05-07CL, we see unit realisations increasing in FY08CL even after we build in an adverse change in the subsidy sharing. In addition, ONGC’s 2-year 5.6% volume growth cagr will support a 14% earnings cagr over FY06-08CL. BUY."

ONGC has only marginally gained from rising crude in FY05-07CL

"Crude prices have risen by 50% over FY05-07CL with a leveraged impact on most E&P bottomlines. The subsidy burden on ONGC, however, has kept its gross realisations in the USD 43-45 per barrel range over the last six quarters. In fact, adjusted for the fixed and variable production taxes, net crude realisations have stayed at USD 23-24 per barrel over FY05-07CL. While higher crude prices have helped profitability in overseas assets (Sudan-GNOP) and for its VAP portfolio, ONGC’s 11% EPS cagr over the last two years has rested primarily on volume growth and the legacy gas price increase in FY06."

It stands to benefit from a falling crude price environment

"Falling crude prices, however, may lead to an uptick in ONGC’s realisations. With auto fuels priced at USD 60 per barrel, under-recoveries will disappear at this threshold and overall retail under-recoveries will come off by USD 7 billion YoY to USD 5.5 billion in FY08CL. Even after building in an increase in upstream subsidy sharing (from 33% to 50%) and an even larger burden for ONGC (from 87% to 95% of upstream share), we find that net ONGC realisations could actually improve USD 1.8 per barrel YoY even as Brent averages USD 7 per barrel lower from FY07 levels. A status quo on subsidy sharing norms will increase realisations by a further USD 5 per barrel creating room for a 15% earnings upgrade."

ONGC will stand out with steady earnings growth

"ONGC has underperformed the market by 10ppt in the last three months on the back of poor investor sentiment towards E&Ps as crude prices collapsed by USD 20 per barrel. This will start to change over the next few quarters as ONGC delivers steady growth even in a falling crude prices environment on the back of higher overseas volumes and a rebound in domestic production. With most other E&Ps at risk of earnings downgrades (consensus crude estimates are USD 5-6 per barrel above current prices), the differentiation should become stark."

ONGC is a value play

"At 9x PE and 4% dividend yield ONGC is one of the cheapest stocks in India and at USD 5/boe, one of the cheapest in the global upstream space. Our upgraded target price of Rs 930 per share indicates a 7% upside. BUY."

Source :- Moneycontrol

Accumulate ICICI Bank, says Edelweiss Sec

2006-11-21T06:21:00.000-09:00

Broking house, Edelweiss Securities is positive on ICICI Bank. It has recommended accumulate rating on the stock.

The Edelweiss Securities report on ICICI Bank:

“Fresh branch license is a positive development for ICICI Bank given its growth ambitions and rural strategy. On revised growth and cost of equity assumption due to higher business growth and greater business visibility, ICICI Bank’s share of life insurance comes to INR 138 per share (from INR 0 earlier). Unlocking of value in life Insurance subsidiary will be a trigger for the stock in the next 12-18 months.”

“We are satisfied with the stock’s performance and continue to remain positive on it, which currently trades at 2.3x FY08E book, 7.7x FY08E PPOP and 15.1x FY08E earnings (adjusting for subs). We are revising our rating from buy to accumulate as we expect 10-15% returns over the next 12 months.”

Source:-Moneycontrol

ICICI Sec bullish on ABB; target of Rs 3841

2006-11-20T08:04:00.000-09:00

Broking house, ICICI Securities is bullish on ABB. It has recommended buy rating on the stock with a target price of Rs 3,841.

The ICICI Securities report on ABB:

“We recently met the management of ABB to discuss strategic focus, execution and the medium-term growth outlook. The takeaways are very positive and underpin strong prospects for 40%+ earnings CAGR through to CY08E. Importantly, while the trajectory of power sector reform-related expenditure is expected to sustain at a robust clip (albeit without further acceleration), the triggers from moving up the value-added product chain and step-up in capex in metals and oil & gas sectors are likely to be exponential as they play out.”

“In fact, we would not be surprised if the current book-to-bill ratio at just below 1x expands to 1.2-1.3x without materially compromising the conversion cycle time. A quick analysis suggests that the stock is trading at CY08E P/E of sub 20x. Given the sustained domestic growth outlook, high RoCE, RoE and backed by an export fallback option in the event of any unforeseen domestic slippage, we would be comfortable with a 22x forward multiple implying a 12-month target price of Rs 3,841.”

Growth trajectory robust; targetting 33%+ revenue CAGR through to CY08E

“After a steep climb (doubling revenues over CY03-05), growth is likely to be maintained at about this pace over the medium term. While there is considerable debate over the target versus achievement gap in both Accelerated Power Development and reform programme, APDRP and Rajiv Gandhi Gramin Vidyutikaran Programme, RGGVP, the fact is that the quantum of execution is rapidly picking up.”

“Further, with policy & regulatory aspects well settled by GoI, some states (Tamil Nadu, Andhra Pradesh etc) have garnered socio-political consensus to implement these speedily. As the demonstration effect percolates to other states, the quantum of orders is expected to step-up over the next couple of years. In fact, at present the delivery schedule for transformers is tight with all large players including ABB operating at full capacity.”

Power sector rapidly catching up with target achievement

“As per the latest review by the Ministry of Power last week, the Xth five-year plan ending March ’07 is set to achieve 75% of the planned generation capacity addition; actual estimates are 30,642 MW (including 12,898 between November ’06 and March ’07). This compares very favourably to just 54% & 47% achievement in VIIIth (FY92-97) and IXth (FY98-02) Plans respectively. The target for XIth Plan (FY08-12) is fixed at 66,463 MW, of which 30,967MW is presently under construction. Also, over 29,000 villages would be electrified in the Xth Plan (double that in the previous plan).”

India assuming greater relative importance as a sourcing hub and now as an R&D base too

“Over the past few quarters, India has been the fastest growing operation in the ABB universe (nudging past China, albeit on a lower base). This coupled with global recognition – of the R&D centre in Bangalore, as the first country to implement SAP right down to the factory-floor, largest B2B web-based procurement network and the shortest time to market for new products – has catapulted India operations as a benchmark for systems integration and productivity in certain aspects.”

“Next in line is a Robotics Application Engineering Centre where the robot frame would be programmed and fitted with jigs & fixtures; this too could evolve as an export opportunity. All-in-all, India is now identified as one among the three countries in the ABB universe where significant capacity addition will be made – this is a key factor to keep the company two steps ahead in technology.”

Human resource initiatives – a B2M of sorts underway

“While the engineering industry per se is grappling with talent scarcity issues, particularly at the middle management level, ABB is finding itself in a sweet spot. A desire to put knowledge and skill sets to ‘real use’ as opposed to programming solutions is attracting talent back to manufacturing from the IT industry.”

“Being located in Bangalore and having an electrical-electronics focus too helps. Further, a unique internet-video process has enabled in doubling the intake of trainees this year. This has encouraged plans to expand global R&D base headcount five-fold to 1,000 in India.”

Expansion plans to be stepped up without impacting RoCE

“This is in line with the success over the past three years of topping up the organic growth of core streams by tapping opportunities through product innovation and extension of domain knowledge to new verticals. This has been evident in tapping the Delhi metro opportunity and addition of 22 products to the portfolio (for instance SCADA, CSS, RMU, breakers, actuators for T&D network upgrade involving short payback).”

“All this has been achieved with rapid scalability (Greenfield Haridwar unit set up in just eight months with the goal of achieving tight focus on productivity and cost apart from tighter working capital management; receivable days down to 96 from 146 and inventory to revenues halved at 8%).”

“Be that as it may, the manifold extension of the channel partner network and robust topline growth would necessitate commensurate rise in working capital. Hence, a view on returning cash (Rs107/share) to shareholders would need to wait. As regards capex, it would continue to be need based and with scalability in mind; unutilised land at Vadodara and Nashik facilities is sufficient to meet medium-term facilities expansion.”

Potential pipeline widening as more sectors enter mega investment phase

“Hitherto, most of the orders were driven (besides T&D) by modernisation and debottlenecking of capacities in metals, cement and automobile sectors. Over the next 2-3 years fresh capacity creation is set to unleash mega capex in these sectors. In addition, Oil & gas sector’s capex is set to surge both in production (at fields) and refining, as is textile sector’s. We understand that the highest automation content (ABB’s forte) as a percentage of total capex is in Oil&gas. This underpins our expectations of significant expansion in book-to-bill ratio.”

Our earnings estimates may be conservative

“While EBITDA margin in Q3CY07 were a tad lower QoQ, it was largely due to a transient shift in composition of the revenue pie and the trend should remain favourable going forward both on domestic and export fronts. This will likely be due to a positive surprise with regard to the topline and process-design reengineering, which will rationalise input costs even after factoring in reasonable increase in metal prices.”

Source :- Moneycontrol

Bull's eye Recommendations :- 20th Nov

2006-11-19T20:41:00.000-09:00

KPIT Cummins

Research: Prabhudas Lilladher
Recommendation: Outperformer
CMP: Rs 587 (Face Value Rs 5)
12-Month Price Target: Rs 650

THE company is set to achieve its targeted revenue of $100 million by FY07. From less than 10 customers a few years ago, to over 80 now, the company has done well in bagging some of the well-known names in the manufacturing and banking & financial services (BFS) verticals. It has also widened its scope in terms of service offerings — apart from IT solutions, it offers a variety of services such as consulting, engineering and business process outsourcing (BPO). The company’s revenue (at Rs 320 crore) and PAT (at Rs 32 crore) recorded a CAGR of 58.3% and 50.2%, respectively, between ’04 and ’06. According to the company’s FY07 guidance, it is set to post a 34-40% growth in revenue and 51-61% growth in profit. Revenue for FY07 will be in the range of Rs 9.8-10.2 crore, while PAT will be in the range of Rs 1.1-1.2 crore. Over the past eight quarters, the company has seen a 9% CQGR in revenue, primarily due to robust growth in volumes. Overall, the company’s future scenario appears to be fairly strong. At the current market price, the stock trades at 17.1 times and 11.6 times the expectations of its FY07 and FY08 earnings.

Provogue

Research: Karvy Stock Broking
Recommendation: Outperformer
CMP: Rs 380 (Face Value Rs 10)
12-Month Price Target: Rs 466

ESTABLISHED as a strong fashion brand, Provogue is now engaged in aggressively expanding its retail reach. Along with increasing its retail space, the company is increasing the number of store formats and product lines under the brand name ‘Provogue’. It has also entered into multi-brand large format retailing under the brand name ‘Promart’. Leveraging on its retail expertise, the company’s whollyowned subsidiary, Prozone, has adopted a business model to develop and actively manage malls. The company has signed up six malls in tier-II cities, which are likely to be operational over the next three years. Prozone intends to bridge the gap between traditional property developers and modern retailers. Liberty International, one of UK’s largest real estate companies with property investments of over £7.5bn, has entered into an agreement to take 25% stake in Prozone with an equity contribution of Rs 200 crore, thereby valuing Prozone at Rs 800 crore. The DCF value for Prozone is estimated at Rs 130 per share. Valuing Prozone at Rs 130 per share, the core business of the company is available to Karvy at Rs 250, which is 14.8x FY08E. Karvy expect 51% EPS growth over FY07 and FY08. Based on 20x FY08E, the value of the core business stands at Rs 336 and DCF value of Prozone stands at Rs 130.

Thermax

Research: Edelweiss
Recommendation: Buy
CMP: Rs 367 (Face Value Rs 2)
12-Month Price Target: NA

THERMAX’S Q2 FY07 results were in line with expectations in terms of revenues and above expectations in terms of profitability. On a consolidated basis, the company’s revenue grew by 21.2% yo-y to Rs 520 crore. Sales from the energy segment grew by ~81% y-o-y, contributing 84% to the sales of the standalone entity in Q2 FY07. EBITDA grew by ~140% y-o-y to Rs 72.1 crore, while net profit grew by ~147% y-o-y to Rs 53.7 crore on a consolidated basis for the quarter. The energy segment contributed ~90% and the environment segment contributed ~10% to the order book in the quarter. On a standalone basis, the order book backlog was ~Rs 2,700 crore for Q2 FY07, with a similar breakup between the energy and environment segments as in the consolidated entity. The consolidated order intake for the energy division was ~Rs 1,600 crore for the quarter, showing a growth of ~38% for Q2 FY07 and a strong growth ~179% for H1 FY07 y-o-y. With significant presence across various industry verticals, coupled with better operational efficiency than industry standards, Thermax remains one of Edelweiss’ top picks in the industrial machinery space.

3i Infotech

Research: Emkay
Recommendation: Buy
CMP: Rs 180 (Face Value Rs 10)
12-Month Price Target: Rs 232

3i INFOTECH has acquired 51% stake in US-based Professional Access for $12 million and will acquire the balance stake over two years. Professional Access specialises in the area of e-commerce for BFSI and retail segments. It has close to 500 employees with an offshore development centre in India. It is a profitable company with PAT margin of 10% and annual revenue of $24 million. This acquisition will benefit 3i Infotech in the following ways: (a) Enter and penetrate the US market; (b) Tap large base of marquee clients such as Citibank, JP Morgan, Goldman Sachs and Duke Energy; (c) Access to global delivery centres and (d) Increase deal ticket size in the range of $5 million. Rhyme’s acquisition will be EPS accretive for 3i Infotech from Q3 FY07 and Professional Access’ acquisition will be EPS accretive from Q4 FY07. With the continuation in growth, Emkay expects the company to post a CAGR of 60% in revenues and 60% in profit over FY06-08E. Emkay expects forward EPS of Rs 14.3 and Rs 21 for FY07E and FY08E respectively. At current market price, the stock is trading at 13.1x and 8.9x FY07E and FY08E EPS respectively.

Usha Martin

Research: India Infoline
Recommendation: Buy
CMP: Rs 174 (Face Value Rs 5)
12-Month Price Target: Rs 228

USHA Martin posted strong results for Q2 FY07 with its performance improving on a sequential basis, while registering robust growth on a y-o-y basis. The sequential earnings growth was led by margin improvement, while the y-o-y earnings growth was driven by flattish interest, depreciation and lower taxes. For H2 FY07, the company expects further improvement in operational performance with strong volumes and higher benefits from iron ore integration. The current FY07 valuations are similar to commodity steel makers like Tata Steel and SAIL, despite the company’s character of an alloy/special steel-maker, producing high value-added products like wires and wire ropes. India Infoline feels the key reason for this is the company’s relatively lower margins, with lesser backward integration. However, with increasing mineral integration over the next two years and relatively superior pricing power for its product portfolio, India Infoline expects significant upgrade in valuations. India Infoline believe the stock will trade at 7 times (factoring 0.5x multiple rerating) FY08E EPS. i.e. Rs 228 one-year forward, representing 34% appreciation from current levels.

Source :- ET

Pick of the week :- Hindalco Industries Ltd.

2006-11-17T18:21:00.000-09:00

Hindalco is expected to reap the benefits of turnaround in copper business along with accelerated profitability from aluminium division on the back of firm prices and volume expansion.

Background

Hindalco Industries Ltd, an Aditya Birla Group company, is the dominant player in each of its two main businesses – aluminium and copper. The company is the market leader with 41% market share in primary aluminium in India. Hindalco commenced operations in 1962, with a 20,000 tpa capacity for manufacturing primary aluminium. Its integrated complex at Renukoot in Uttar Pradesh houses an alumina refinery, aluminium smelter and facilities for producing semi-fabricated products. Power is sourced from the company's captive power plant at Renusagar, located at a distance of about 45 km from Renukoot. In May 2006, the company signed a MoU with the Madhya Pradesh government for setting up a green-field aluminum smelter and a captive power plant. The company also entered into a joint venture with Essar Power to develop and operate coalmines at Mahan, Madhya Pradesh. The joint venture will supply coal to the proposed aluminum smelter and power complex in Madhya Pradesh

Investment Rational

Positive demand and price outlook

The global aluminium demand-supply situation is expected to remain tight in CY2006 and could even out in CY2007, thereby keeping prices buoyant. Global demand is expected to sustain its pace of 7% this year with Asia witnessing a deficit of 4.9 million tonnes in 2006. This is expected to increase to 5.7 million tonnes by 2010 on accelerated spending in infrastructure and increased demand from transportation & power sector. Copper demand is also likely to remain steady, as the decline in usage from China will be offset by rising consumption in Japan & India, along with recovery in Europe.

Aluminium prices on the LME have surged by 42% y-o-y from $1,810/tonne to $2,565/tonne in the first half of FY07. Copper prices have more than doubled to an average $7,466/tonne against $3,579/tonne in first half of FY07. Aluminum prices are likely to firm up on buoyant demand while copper prices should remain steady on fears of disruption on the supply side.

Industry heavyweight

Hindalco is the largest integrated aluminium and copper player in the country with a market share of over 40% in both businesses. Its copper division is located in the coastal town of Dahej in Gujarat. It started with a capacity of 100,000 tpa in 1998 and steadily increased it to 500,000 tpa by FY06. It is now the largest single location custom smelter globally. The copper business contributes about 47% to top line. The company is likely to reap the maximum benefit from the firm outlook in both aluminium and copper prices due to its industry leader stature.

Turnaround in copper business

The copper business witnessed a turnaround this year and has started contributing to profitability. The company’s copper mines division went through a difficult period over the last few years, caused by longer- than-expected development phase resulting in higher costs and large accumulated losses. The company addressed the problem by commissioning the Nifty sulphide mines in Australia, one of the largest mines discoveries in past 10 years with a resource base of 685,000 tonnes and an expected life of 12 years. This helped the company turn around its copper business. The business is expected to contribute about 23-24% to the groups EBIT in FY07E against a negative contribution during the last three years.

Accelerated profitability from aluminium division

The aluminium business is expected to sustain its growth momentum and would do even better on the back of aggressive capacity expansion undertaken by it, which would boost sales volumes. Hindalco is expanding its Hirakut smelter from 65,000 tpa to 143,000 tpa and power capacity from 167.5 MW to 367.5 MW. Simultaneously, it is also setting up an alumina green-field project in Orissa with a refining capacity of 1500,000 tpa, smelter capacity of 325,000 tpa and power plant with a capacity 750 MW. This green-field project is likely to be commissioned over the next three years and has already received SEZ approval. These series of green-field projects would transform the company into a global sized player with a rated capacity of 1.5 million tonnes over the next 6 years.

Low-cost producer

Hindalco's cost competitiveness is mainly because of its integrated nature of operations and strategic control over key inputs such as access to bauxite reserves, coal and captive power generation. Its cost of manufacturing primary aluminium is $1100 per tonne, which ranks amongst the lowest in the world.

Focus towards high-value products

Hindalco's share of high-value added products to total volume is close to 70%. On an average, high-value added products command a premium of 36% over the base metal. Hindalco is a vertically integrated player from captive mines to final rolled products. The hot metal manufactured at its plants is utilized to manufacture rolled products, wire rods, extruded products and foils.The continued focus on value added products has helped the company command higher realizations thereby improving its margins as compared to its peers. For the quarter ended September 30, 2006, production volumes were higher y-o-y in rolled products by 10.6%, extrusions by 13.3%, foils by 20% and alloy wheels by 48.3%.

The detail analysis read here.

Provogue an outperformer, target of Rs 466: Karvy

2006-11-17T06:00:00.000-09:00

Broking house, Karvy Stock Broking is bullish on Provogue. It has recommended an outperformer rating on the stock with a target price of Rs 466.

The Karvy Stock Broking report on Provogue:

Established as a strong fashion brand, Provogue is now engaged in aggressively expanding its retail reach. Along with increasing its retail space, the company is also increasing the number of store formats and product lines. Further, leveraging on its retail expertise, the company's subsidiary Prozone has adopted a business model to develop and actively manage malls.

Expanding retail reach

With the company primarily focusing on increasing its retail area, we expect the company to increase its stores from the existing 90 Provogue studios to 110 by FY07 and 140 by FY08. The company owned Mega stores, which are currently 3 are also expected to double followed by an increase in the number of shop in shop locations at National Chain Stores. The company is also looking at increasing the number of store formats and has therefore entered multi brand large format retailing under the brand name of Promart. It is also increasing the number of product lines under the brand name of "Provogue"

Revenues to double

On the back of the fast-paced retail expansion as well as steady growth in export income, we expect revenues of the company to grow at 43% CAGR from Rs 1,541.4 million in FY06 to Rs 2,153 million in FY07 and Rs 3,133 million in FY08. Retail revenues are expected to increase at 54% CAGR while export revenues are expected to increase at 16% CAGR.

Retail Infrastructure subsidiary to enhance value

Leveraging on its retail knowledge, the company's wholly owned subsidiary, Prozone, has entered the business of designing, developing and actively managing malls. The company has signed up 6 malls in Tier II cities, which are likely to be operational over the next 3 years. Prozone intends to bridge the gap between traditional property developers and modern retailers. Liberty International, one of UK's largest real estate companies with property investments of over GBP7.5bn has entered into an agreement to take 25% stake in Prozone with an equity contribution of Rs 2 billion, thereby valuing Prozone at Rs 8 billion. Our DCF value for Prozone is estimated at Rs 130 per share.

Valuations attractive

Valuing Prozone at Rs 130 per share, the core business of the company is available to us at Rs 250, which is 14.8 x FY08E. We expect 51% EPS growth over FY07 and FY08. Based on 20 x FY08E, the value of the core business stands at Rs 336 and the DCF value of Prozone stands at Rs 130. Thereby giving us a price target of Rs 466. We rate the stock Outperformer.

Source:-Moneycontrol

Buy Tech Mahindra: DSP Merrill Lynch

2006-11-16T07:01:00.000-09:00

DSP Merrill Lynch is bullish on Tech Mahindra. It has maintained buy rating on the stock.

DSP Merrill Lynch reports on Tech Mahindra:

Initiating with a Buy, 20% upside to Rs1,280:

"Initiating coverage on Tech Mahindra (TML) with a Buy and a price objective (PO) of Rs1,280. We forecast strong 27% earnings CAGR over FY07-09E, driven by accelerating IT spend by top client BT (British Telecom) and rapid ramp by AT&T. Moreover, we expect accelerated IT offshoring by telecom service providers to benefit TML, the largest vendor in the space."

Top clients in rapid ramp-up mode:

"Over the last five years, revenue from BT has doubled to USD 400 million (2Q FY07 annualized) and revenue from AT&T quintupled to about USD 60 million per annum. Top client BT is spending aggressively on IT initiatives to address regulatory requirements, customer care and next generation network. Moreover, the growth potential from AT&T has grown multifold post its merger with SBC, Bell South and Cingular Wireless."

Telecom service providers step-up IT offshoring:

"Revenues for the telecom vertical offshore IT vendors has grown 40-50% in the last couple of years, as telcos strive to free up maintenance budgets in a liberalized environment and transform networks to offer customers converged data, voice and video on a single network."

Buy rated, FY08 MLe 7% ahead of street:

"Our PO is at 20 x rolling forward PE, in line with current levels and at an attractive target PEG of 0.8x. We believe it deserves a premium to mid-tier peers, given its domain focus, higher margin and returns. We see triggers from likely consensus upgrades (we are 7% higher than the street on FY08e) and possible upside from inorganic moves to close offerings gap. Vertical and client concentration pose key risks. Maintain buy rating."

Source:-Moneycontrol

Buy ONGC with a target of Rs 930: CLSA

2006-11-15T07:18:00.000-09:00

Broking house, CLSA is bulish on Oil and Natural Gas Corporation, ONGC and has recommended buy rating on the stock with a target price of Rs 930.

CLSA report on ONGC:

"With crude prices coming off by USD 20 per barrel, ONGC has underperformed the broader market by c.10ppt over the last three months. ONGC is a beneficiary of a softening crude price environment, however, as industry under-recoveries (which ONGC shares) will come off faster. After a flat USD 23-24/bbl net realisation over FY05-07CL, we see unit realisations increasing in FY08CL even after we build in an adverse change in the subsidy sharing. In addition, ONGC’s 2-year 5.6% volume growth cagr will support a 14% earnings cagr over FY06-08CL. BUY. "

ONGC has only marginally gained from rising crude in FY05-07CL

"Crude prices have risen by 50% over FY05-07CL with a leveraged impact on most E&P bottomlines. The subsidy burden on ONGC, however, has kept its gross realisations in the USD 43-45/bbl range over the last six quarters. In fact, adjusted for the fixed and variable production taxes, net crude realisations have stayed at USD 23-24/bbl over FY05-07CL. While higher crude prices have helped profitability in overseas assets (Sudan-GNOP) and for its VAP portfolio, ONGC’s 11% EPS cagr over the last two years has rested primarily on volume growth and the legacy gas price increase in FY06."

It stands to benefit from a falling crude price environment

"Falling crude prices, however, may lead to an uptick in ONGC’s realisations. With auto fuels priced at USD 60/bbl, under-recoveries will disappear at this threshold and overall retail under-recoveries will come off by USD 7 billion YoY to USD 5.5 billion in FY08CL. Even after building in an increase in upstream subsidy sharing (from 33% to 50%) and an even larger burden for ONGC (from 87% to 95% of upstream share), we find that net ONGC realisations could actually improve USD 1.8 per barrel YoY even as Brent averages USD 7 per barrel lower from FY07 levels. A status quo on subsidy sharing norms will increase realisations by a further USD 5 per barrel creating room for a 15% earnings upgrade."

ONGC will stand out with steady earnings growth

"ONGC has underperformed the market by 10ppt in the last three months on the back of poor investor sentiment towards E&Ps as crude prices collapsed by USD 20/bbl. This will start to change over the next few quarters as ONGC delivers steady growth even in a falling crude prices environment on the back of higher overseas volumes and a rebound in domestic production. With most other E&Ps at risk of earnings downgrades (consensus crude estimates are USD 5-6 per barrel above current prices), the differentiation should become stark."

ONGC is a value play

"At 9x PE and 4% dividend yield ONGC is one of the cheapest stocks in India and at USD 5/boe, one of the cheapest in the global upstream space. Our upgraded target price of Rs 930 per share indicates a 7% upside. BUY."

Source:-Moneycontrol

Zee Telefilms an outperformer: SSKI

2006-11-14T06:47:00.000-09:00

Broking house, SSKI is bullish on Zee Telefilms. It has reiterated an outperformer rating on the stock.

The SSKI report on Zee Telefilms:

Zee acquires 50% stake in Ten Sports

“Zee has acquired 50% stake in Taj TV, which owns Ten Sports, a dominant sports broadcasting property in subcontinent and Middle East. Ten Sports currently owns very strong properties across sports - cricket, tennis, hockey, WWE, etc. Ten Sports clocked revenue to the tune of USD 60 million, EBITDA of USD 15 million and PAT of USD 8.5 million in FY06 and is expected to earn average annual revenue of USD 50 million over the next three years.”

“While 40% of the revenues come through advertisement, 40% comes from pay revenues and remaining through syndication revenues. Ten Sports has distribution tie ups in Asia, Middle East and UK. We see this move as a major positive on account of strong sports property, synergy with Zee Sports and consolidation in the market and also attractive valuations.”

Strong sports properties – a synergy to existing channel

“Ten Sports has telecast rights for few of the key sports properties like cricket telecast rights from the cricket boards of Sri Lanka, Pakistan and West Indies (has 150 days of cricket rights for the next two years), the US Open, Men’s Hockey World Cup, UEFA Champions League, WWE, Motor GP, etc.”

“Zee for some time now has been trying to scale up its sports channel and for which has been bidding aggressively. Now that Zee has acquired Ten Sports, it can garner substantial content sharing (the way Sony and SAB did during the Champions Trophy), infrastructure sharing and other operational synergies. While in the near term Zee will not gain on distribution front, as Ten Sports continues to be a part of One Alliance bouquet, however, post 2008, Zee can bring in Ten Sports on Zee Turner Bouquet and garner the distribution benefits.”

Need not go overboard in new property acquisition

“Zee Sports, in pursuit to make a foothold in the sports genres has been very aggressive (has gone overboard) in acquiring cricket rights. In the process Zee has been acquiring rights at an unjustifiable price. Zee acquired rights for 25 day of ODI cricket to be played over next 5 years at the ICC Neutral Venue for USD 219 million. However, with acquisition of Ten Sports, Zee has readily got strong telecast rights on its side. This will ensure that Zee does not go overboard and can choose not to be a loss leader.”

Market Consolidation – dominate the Asian market

“Sports Broadcasting genre is set for consolidation, as Zee acquires Ten Sports and SET is not too keen to acquire newer cricket rights. If Zee Sports manages to acquire the ICC Cricket rights for next eight years (~250 days of cricket including 2 World Cups, 3 Champion Trophies and 20-20 Tournaments), Zee Group (including Ten Sports) will have the most attractive and relevant sports properties in the sub continent and largely eliminate the competition from ESPN–Star Sports. We see this as the biggest potential benefit.”

Attractive Valuations

“Besides, immense strategic value that the acquisition adds, we also like the fact that transaction is attractively valued. Zee has valued Ten Sports at USD 114 million, which is just over 2.2x forward revenues, 9x EBITDA and 13.4x earnings. The acquisition is earnings accretive at the very onset. The valuation is also highly attractive considering that Zee would have paid much higher price on right acquisition to garner USD 50 million of revenues.”

“With Zee making the right moves (content enhancement, investing in distribution business, and now acquisition of Ten Sports) and impending demerger, we continue to maintain our positive bias on Zee Telefilms. Reiterate Outperformer.”

Patel Engineering an outperformer: Macquarie Research

2006-11-13T06:31:00.000-09:00

Macquarie Research is bullish on Patel Engineering and has recommended an outperform rating on the stock.

The Macquarie Research report on Patel Engineering

"The company has disclosed that it has a land bank totalling ~200 acres spread mainly across Hyderabad, Bangalore and Mumbai.

Given the stronger-than-expected growth momentum in the core business, we have upgraded our earnings estimates. Factoring in the higher earnings estimates and potential value of land assets, we increase our target price to Rs500 from Rs276, a 26% upside from current levels, and upgrade our recommendation to Outperform from Neutral."

Impact

"We have valued the land bank conservatively as we await further details. For example, we have valued the Hyderabad land at Rs35m/acre, whereas recent land auctions by the government in the outskirts of Hyderabad have fetched prices in the range of Rs50–150m/acre. Our valuation of the Mumbai property located in Jogeshwari is derived from a 20% discount to the prevailing prices."

"We have valued the land holding at Rs7.6bn (Rs125 per share). This contributes 25% to our sum-of-parts valuation. The announcement of development plans could provide significant upside to our valuations."

"In addition, we have revised the valuation of the core business from Rs276 to Rs374, to account for revisions to our earnings estimates.

The core construction business is on a strong wicket. Standalone revenue in 1HFY07 has increased 48% YoY and profit has grown by 88% YoY. Strong order book position at Rs41bn (book-to-bill ratio of 4.5x) provides sufficient growth visibility."

"Continued traction in order inflows would help sustain the growth momentum. Hydropower orders worth Rs7bn are at L1 stage (financial bid win stage) and formal awards are expected in the next few months. Earnings revision

Given the stronger-than-expected growth momentum, we have revised our FY07 and FY08 earnings estimates upwards by 12% and 20%, respectively."

Price catalyst

12-month price target: Rs500.00 based on a Sum of Parts methodology.

Catalyst: Announcement of real estate development plans.

Action and recommendation

"Strong growth momentum in the core business should help maintain positive stock momentum. The announcement of real estate development plans in a few months could provide upside to our land bank valuation. We upgrade our recommendation to Outperform, with 26% upside from current levels."

Source:-Moneycontrol

Bull's eye Recommendations :-13th Nov.

2006-11-12T17:46:00.000-09:00

Reliance Industries

Research: Enam Securities
Recommendation: Outperformer
CMP: Rs 1,286.25 (Face Value Rs 10)
12-Month Price Target: Rs 1,400

RELIANCE Industries (RIL) has filed a revised development plan with the Director General of Hydrocarbon (DGH) for the key KG-D6 block. In the amended plan, RIL has sought approval for 80mmscmd of gas production and has proposed proportionate increase in the capex. Based on independent assessment, RIL expects the P2 (proved + probable) reserves at 11.3 TCF. This represents an almost 100% increase over earlier estimates. The management has not indicated the quantum of P1 reserves as of now, but it is expected to be around 6TCF (as per the filings of Niko Resources- RIL’s JV partner). The management is likely to share details once the revised plan is approved by DGH. Enam believes the filing of revised development plan for KG-D6 is a significant event and strengthens the outlook on RIL’s new business initiative. Going ahead, improving policy outlook on gas pricing and achievement of project milestones will align RIL’s E&P valuation multiples to its regional peers.

Mangalam Cement

Research: India Infoline
Recommendation: Buy
CMP: Rs 204 (Face Value Rs 10)
12-Month Price Target: Rs 297

MANGALAM Cement (MCL) has performed strongly, wiping out its accumulated losses in FY06. The strong demand for cement in the domestic market coupled with firm cement prices is expected to bring rich rewards for the company in the next 18 months. MCL is putting up a 17.5-mw captive power plant, which is expected to go on steam by June ’07. MCL is also adding 0.5 million tonnes of new cement capacity to take its total production capacity to 2 mt by September ’07. The stock is trading at EV/tonne of $70 of its FY08 capacity of 2 mt. On EV/EBIDTA basis, it is quoting at 3.9 times, while on an EPS basis, it is trading at 5.6 times. With improvement in the balance sheet and operational efficiencies, India Infoline feels the stock is undervalued and recommends a ‘buy’, with a target of Rs 297 within a year. The target price discounts estimated FY08 earnings by 8.0x and EV/EBIDTA by 5.5x.

KEI Industries

Research: ULJK Securities
Recommendation: Buy
CMP: Rs 361 (Face Value Rs 10)
12-Month Price Target: Rs 403

KEI’S REVENUE growth is strong for FY07, with an overall sales growth of 85%. Cables sales are expected to grow by 90%, stainless steel wire by 48%, winding flexible and house wire by 80% and others by 25%. Last year, KEI generated revenues worth Rs 23.5 crore through exports, of which Rs 10 crore accrued from the Gulf region. The company is in the process of integrating backwards by setting up an aluminum properzi and PVC compounding plant, which is likely to be operational in six months at a capex of Rs 7-10 crore. This will strengthen the operating margins by reducing the cost of the company by Rs. 4-5 crore. KEI plans to undertake a greenfield expansion with capex of Rs 180 crore in Uttaranchal in FY08. With the management’s above plan for capacity expansion and backward integration, KEI is set to enter higher growth orbit. ULJK estimates the fair value of the company at Rs 403 and expects the company will trade at a P/E of 7.9 times within 12 months.

KRBL

Research: BRICS PCG
Recommendation: Buy
CMP: Rs 143 (Face Value Rs 10)
12-Month Price Target: Rs 267

KRBL has posted a revenue growth of 28.4% y-o-y to Rs 230 crore during Q2 FY07 due to better volumes and higher realisations on both domestic and export sales. Higher sales led a 52.5% y-o-y rise in operating profit to Rs 31.46 crore, which expanded the operating margin to 13.8% compared to 11.6% in Q2 FY06. Net profit stood at Rs 15.12 crore, registering 88% growth. The company plans to launch its own brand of rice bran oil in consumer packs by December ’07. It commissioned a 12.5-mw wind farm in August ‘06 at Dhulia, Maharashtra, and is planning a 3.5-mw power plant in Ghaziabad for captive consumption. This will lead to power cost savings of around Rs 5 crore each year. BRICS maintains a ‘buy’ call on the scrip, but lowers its target price to Rs 267 from Rs 301 earlier, considering that the company’s integrated milling plant in Dhuri, Punjab commenced operations only in October ’06.

Taj GVK

Research: Pioneer Intermediaries
Recommendation: Buy
CMP: Rs 241 (Face Value Rs 2)
12-Month Price Target: Rs 325

TAJ GVK Hotels & Resorts (TAJGVK) reported a jump of 38% in revenues to Rs 57.9 crore in Q2 FY07, on the back of higher average room realisations (ARR) and steady occupancy rates (OR) in Hyderabad. The average ARR across the three hotels of the group in Hyderabad at Rs 7,635 was higher by 41% y-o-y, while ARR in Chandigarh was ~Rs 6,000. TAJGVK’s capital charges in Q2 FY07 remained stable y-o-y. While the interest burden stood at Rs 1crore in the quarter, against Rs 90 lakh last year, depreciation was static at Rs 3.2 crore. Net profit for the quarter rose to Rs 15.2 crore from Rs 9.4 crore in Q2 FY06 (+62% y-oy). TAJGVK has commenced work on its 200-room, greenfield property in Begumpet in Hyderabad and is set to commission its 215-room property in Chennai by June ’07. At the current market price, the stock is trading at a P/E of 19.1x its FY08 EPS of Rs 12.7. Pioneer Intermediaries makes its case for investment on the back of stability and visibility in the company’s earnings over the next 18-24 months, due to absence of significant room addition in Hyderabad and on account of potential upside in revenues from the Chandigarh property.

Spanco Telesystems

Research: Emkay Share
Recommendation: Buy
CMP: Rs 171 (Face Value Rs 10)
12-Month Price Target: Rs 217

SPANCO Telesystems announced a robust set of independent results after the demeger of Sparsh — its domestic call centre business. The results are not comparable as Sparsh was not part of company in Q207. The total revenues of the company in Q207 were Rs 121.7 crore. Telecom network integration business has surprised with total revenue of Rs 113.1 crore in Q207 compared to Rs 20.5 crore in Q206. EBIDTA for the quarter stood at Rs 16.6 crore, up 85% over the preceding quarter and PAT stood at Rs 9 crore. EPS for Q207 and H107 stands at Rs 5.7 and Rs 8.6, respectively. Emkay Share expects the company’s PAT to be Rs 37.4 crore for FY07 and Rs 66.7 crore for FY08. Emkay values the listed entity at 9x FY07E EPS of Rs 24 or 5.2x FY08E EPS of Rs 42 and put target of Rs 217. Sparsh will be listed in due course with an expected target of Rs 47 (12x FY07E EPS of Rs 4).

Source:-ET

Buy Glenmark Pharma; target of Rs 572: P-Sec

2006-11-11T18:28:00.000-09:00

Broking house, P-Sec is bullish on Glenmark Pharma and has maintained buy rating on the stock with a target price of Rs 572.

P-Sec report on Glenmark Pharma:

Recently Glenmark has concluded a deal with Merck for its GRC 8200 diabetic molecule and total deal size is EUR 190 million with expected upfront payment of EUR 25million. Upon launch of the product, Glenmark will supply API to Merck and will receive royalties on net sales. Milestone payment of USD 30million from forest labs was expected in Q2 FY07, but has been delayed and the company is expecting to receive it soon. The company is also expecting to conclude one more deal by the end of FY07, which will further upgrade the earnings of the company. We are using the sum of the parts valuation model for the stock."

"We are valuing the core base business of the company on P/E multiple basis at Rs 297 based on FY08 earnings. We have used DCF method for valuing GRC 3886 and GRC 8200 and present worth of the molecules are Rs160 and Rs 115 respectively. Any success and failure on NCE front shall lead to sharp and immediate effect on the stock price. We maintain buy on the stock with a target price of Rs 572."

Buy Lupin: Edelweiss Research

2006-11-10T06:28:00.000-09:00

Broking house, Edelweiss Research has maintained buy rating on Lupin.

Edelweiss Research report on Lupin:

"We met the management of Lupin and were more than convinced that the company is on a high growth trajectory and could very well surpass our estimates for FY08."

"Based on our discussions, we believe that the US generics business is likely to grow at a higher rate than our earlier estimate of 73% in FY08E. This is owing to the launch of major generic products—Statins, Cefdinir, and Quinapril. The other businesses consisting of API, developing market formulations and domestic formulations will continue to show good growth."

"We have, therefore, revised our FY08 revenue estimate upwards by 2% and EPS estimate upwards by 7%. Our FY07 earnings estimate remains unchanged. At CMP of INR 502, the stock trades at a P/E of 16.7x and 13.1x on our FY07E and FY08E, respectively. We reiterate our ‘Buy’ recommendation."

Buy Infosys Technologies: P-Sec

2006-11-09T06:35:00.000-09:00

Broking house, P-Sec is bullish on Infosys Technologies and has maintained buy rating on the stock.

P-Sec report on Infosys Technologies:

"9th to 17th November 2006 has been decided as the tendering dates for the third secondary ADS issue by the Infosys. The company shall be accepting a total of 30 million equity shares, which is 5.4% of the total float of the company. The premium on the ADS has been coming down over the years and as of date it is 10.2%. Our impact analysis indicates three possible impacts on the share prices for the short term."

1) Reduction in liquidity of the stock in the domestic market may result in temporary surge in the stock price.

2) As the float increases the ADS premium is expected to decline further and finally.

3) The opportunity of making arbitrage profit shall infuse buying in the stock.

"Though this issue does not impact the fundamentals of the the company as of now We believe Infosys shall qualify to be the part of NASDAQ 100 post this issue thereby increasing its brand appeal and visibility among its existing and prospective client. BUY maintained."

Buy Jindal Stainless: Pioneer Intermediaries

2006-11-08T06:49:00.000-09:00

Broking house, Pioneer Intermediaries is bullish on Jindal Stainless. It has maintained buy rating on the stock.

The Pioneer Intermediaries report on Jindal Stainless:

Jindal Stainless, JSL reported a healthy topline of Rs 12.4 billion in Q2FY07, a growth of 40% YoY and 31% QoQ mainly due to spurt in SS prices due to historical rise in global nickel prices.

Production volumes at 148k MT in Q2FY07 increased by 13% YoY and 17% QoQ. However, sales volumes lagged production volumes and were lower at 118k MT during the quarter, as export shipment of ~20-24k MT was stuck at ports, and has been spilled over to Q3FY07.

Export sales at 77k MT, were up by 32%YoY and 52% QoQ, on back of strong demand in overseas market, particularly of low nickel content-200 series. However, domestic sales continue to decline and were 41k MT (-43% YoY and -34% QoQ), as the company is shifting focus on exports markets, and high end products used in architecture building and industrial applications.

Net realisations, at Rs 97k / MT in Q2FY07, spurt by 57% YoY and 28% QoQ, as the company implemented a series of price hikes. Global SS prices have been on an upward trend since Feb06, tracking nickel prices. LME nickel prices averaged $29k/mt in Q2FY07, a rise of almost 100% YoY and 47% QoQ.

Operating profits more than doubled YoY to Rs 2.3 billion in Q2FY07. OPM increased (by 620 bps YoY and 390 bps QoQ) to 20.1% in Q2FY07, on back of surge in SS prices. Similarly, op. profit per ton surged to Rs 19.5k/MT in Q2FY07 (+127% YoY and +59% QoQ). However, part of the jump can be attributed to nonrecurring gains on nickel trading.

Despite high capital charges, due to capex at Hisar and Orissa, net profits of JSL jumped by 120% YoY to Rs 971 million in Q2FY07.

JSL made a promising comeback in H1FY07, after a disappointing performance in FY06. Also, considering buoyant stainless steel cycle and high nickel prices, JSL is expected to emerge as major beneficiary, Hence, we maintain our Buy recommendation.

IL&FS Investsmart bullish on Glenmark Pharmaceuticals

2006-11-07T06:50:00.000-09:00

Broking house, IL&FS Investsmart is bullish on Glenmark Pharmaceuticals. It has maintained buy rating on the stock.

The IL&FS Investsmart report on Glenmark Pharmaceuticals:

Formulation growth bolsters topline

“In Q2FY07, Glenmark Pharmaceuticals reported consolidated revenues (excluding licensing income) of Rs 2.5 billion, EBITDA margins of 24.3% (16.8% in 1Q FY07), and a PAT of Rs 402 million. Total formulation sales registered a growth of 60.4% to Rs 2.24 billion (Rs 1.3 billion in Q2FY06); this was primarily driven by an increase of sales in the US and Latin American markets by 460.5% YoY and 162.5% YoY respectively.”

“The growth in formulation sales was also supported by rest of world, ROW sales and API sales that increased by up 81.5% (to Rs 525 million) and 23% YoY respectively. Despite higher sales, the absolute value of the company's fixed expenses remained almost unchanged, enhancing its operating leverage; this led to a margin expansion of 989bps.”

“At the current price of Rs 432, the stock is trading at a P/E of 19.4x FY07E and 15x FY08E. We maintain a 'Buy' on the stock.”

Source:-Moneycotrol

Buy Bharti Airtel, says P-Sec

2006-11-06T06:46:00.000-09:00

Broking house, P-Sec is bullish on Bharti Airtel and has recommended buy rating on the stock with one year price target of Rs 625.

P-Sec report on Bharti Airtel:

"Bharti is reaping benefits of its aggressive capex to increase presence in the B and C circles (The bulk of the prepaid subscriber adds are coming from these circles). The average addition of 1.25 million subscribers in every month of Q2 FY07 substantiates our theory. This has also taken care the fall in ARPU on a y-o-y basis from Rs 441 to Rs 438 (Q2 FY07)."

"The numbers in H1 FY07 has been a positive surprise with topline growing at 57.4% y-o-y. We believe the stock shall witness consensus earnings upgrades in the coming quarters. We are attaching a P.E multiple of 25 times to FY08 earnings to arrive at a one year price target of Rs 625 for Bharti. We believe FY06- 08 EPS CAGR of 50.4%, ROCE of 23.7% and RONW of 30.3% justifies our target P.E multiple of 25. We recommend a BUY on the stock."

Source:-Moneycontrol

Bull's eye Recommendations :-5th Nov

2006-11-05T17:57:00.000-09:00

SBI

Research: Enam Broking
Recommendation: Outperformer
CMP : Rs 1,126 (Face Value Rs 10)
12-Month Price Target: NA

STATE Bank of India’s (SBI’s) net profit declined 2.5% y-o-y in Q2 FY07 largely due to the tax effect. Strong growth in fee income, lower operating expenses and a stable asset quality are the key highlights. Other income grew 11% y-o-y to Rs 1,430 crore against Rs 1,290 crore for the corresponding quarter last year. However, excluding treasury income, which fell to Rs 7.7 crore in Q2 FY07 (Rs 240 crore for Q2 FY06), the growth in other income was very strong at 36%, driven by 35% growth in commission and exchange, and 53% growth in miscellaneous income, including recoveries. Deposits grew 3.3% y-o-y, largely due to the base effect of IMDs redemption in FY06. Excluding IMDs, core deposits grew 10.8%. Credit growth, at ~23%, though lower than the system growth, has been maintained from Q1 levels. While margins for Q1 FY07 stood at 3.37%, implying a fall in Q2 FY07, the fall is largely on account of higher interest expense on borrowings (up 155% y-o-y) and other sundry interests (up 142% y-o-y). The reported PAT of both standalone SBI and SBI group are expected to show a decline in FY07 on account of ~Rs 2,200 crore one-time income in FY06. However, core operating profit of SBI is estimated to grow ~15% this fiscal. The stock quotes at 1.4 times FY07E BV.

Ashok Leyland

Research: Angel Broking
Recommendation : Buy
CMP: Rs 43 (Face Value Rs 1)
12-Month Price Target: Rs 55

IN OCTOBER ’06, the company’s wholly-owned foreign subsidiary, AVIA Ashok Leyland Motors sro, completed the acquisition of the truck business of AVIA in Czech Republic in pursuance of the framework agreement signed earlier. The subsidiary has begun its business operations, post-acquisition. AVIA specialises in the manufacture of D-Line trucks in the 6T to 9T GVW range. AVIA’s facility, at the heart of the Czech capital, with an annual production capacity of 20,000 vehicles, is supported by state-of-the-art R&D facilities. The company also has marketing footprints in Europe. The current sales volume of AVIA is around 2,000 units. Ashok Leyland (ALL) expects to increase this to 5,000 units in the current year and 10,000-15,000 in the next 2-3 years. For Q2 FY07, ALL reported net sales of Rs 1,675.7crore (Rs 1,249.2 crore) on the back of a 33% growth in sales volume, up from 14,895 units to 19,863 units. Going forward, volume is likely to grow by around 20% in FY07. ALL also stands to benefit from the price hikes effected in the next quarter. Angel Broking estimates ALL to clock an EPS of Rs 3.1 in FY07 and Rs 4.1 in FY08. At the current market price, the stock is trading at 14.2x FY07E and 10.7x FY08E EPS.

ITC

Research: SSKI
Recommendation: Outperformer
CMP : Rs 187 (Face Value Rs 1)
12-Month Price Target: NA

ITC reported stunning sales growth of 32% to Rs 2,890 crore in Q2 FY07, with all business segments witnessing sustained growth momentum. The non-cigarettes consumer business grew at 66%, hotels at 31% and the agri business at 87%. While margin profile in individual businesses has improved (except for agri), the changing business mix away from cigarettes has led to EBITDA margin shrinkage of 390 bps. SSKI is impressed by ITC’s dominance in the core cigarettes portfolio, no dearth of growthdrivers and risk-taking appetite. While all non-cigarettes businesses like foods, agri and hotels are growing at a brisk pace, SSKI believes that the foods and agri businesses offer the largest scale-up potential. While ITC’s deep pockets and distribution network make it the potent force in the foods and FMCG businesses, it is also investing heavily in the agri and hotel space. It intends to become an aggregator (e-choupal) and branded consumer play (Choupal Sagar); it currently has over 6,400 e-choupal kiosks and 11 Choupal Sagars. The build-up of a superior and impregnable business model, like the cigarettes business, continues to throw huge cash (over Rs 2,000 crore annually) and ITC has the appetite to redirect funds in long gestation businesses (expected annual capex of Rs 800 crore). Hence, ITC remains SSKI’s top pick in the sector.

Usha Martin

Research: Edelweiss
Recommendation: Buy
CMP: Rs 176 (Face Value Rs 5)
12-Month Price Target: NA

USHA Martin’s Q2 FY07 results were in line with expectations. The consolidated topline of the company grew 12% q-o-q to Rs 520 crore. EBITDA, at Rs 85.5 crore, is up 21% sequentially. Consolidated net profit grew 13% q-oq to Rs 30.9 crore. The company is expanding its steel capacity at Jamshedpur to capture a larger portion of the burgeoning automotive steel market. It plans to increase its capacity from the current 360,000 tpa to 600,000 tpa by Q2 FY09 and further to 1 million tpa by FY10. Major equipment orders have been placed for phase I of the expansion plan to increase capacity to 600,000 tpa. The company plans to obtain its entire iron ore requirement from captive sources by the end of the current fiscal. The coal mine acquisition is progressing as per schedule. It is also in the final stage of commissioning a wire rope plant in the US. The JV project with Joh Pengg of Austria, for specialty OT wires, is progressing on schedule and is expected to be completed by Q3 FY08. The capital expenditure plan for steel capacity expansion to 1 million tpa, as well as value-added product capacity enhancements, are progressing as per schedule. At the current market price, the stock trades at an EV/EBITDA of 4.2x and P/E of 6.0x FY07E and looks attractive.

Cadila Healthcare

Research: India Infoline
Recommendation : Buy
CMP: Rs 351 (Face Value Rs 5)
12-Month Price Target: Rs 392

CADILA Healthcare’s (CHL’s) Q2 FY07 results were better than expectations. Sales increased by 22.6% to Rs 475 crore, driven by 78% growth in exports to Rs 140 crore. Sales would have been higher, but for another quarter of lower-than-expected domestic formulations growth (Q2 FY07-8.8%, Q1 FY07-3.6%), mainly due to restructuring of field force and withdrawal of some products from the market. OPM grew by 200 bps to 23.1%, driven by increasing contribution from regulated markets. Profitability increased by 55% to Rs 72.6 crore, translating into an annualised EPS of Rs 23.1 CHL’s strategy for the US market is paying off well and the company is on track to achieve sales of $30 million for FY07. Zydus France is also recording consistent growth and is set to contribute to the profitability in H2 FY08. The CRAMS business is fast gaining pace, with CHL signing three more contracts for the quarter, taking the total number of contracts to 17, and having a peak revenue potential of $25 million. The potential acquisition of Mayne Pharma by Hospira is unlikely to have any negative impact on CHL. The JV for eight oncology products, starting FY09, may turn out to be a win-win situation for both companies. Hospira will gain access to a low-cost manufacturing base in India, while CHL’s products will be marketed globally.

Source:-ET

Hold Ranbaxy Laboratories: IDBI Capital

2006-11-03T08:35:00.000-09:00

Broking house, IDBI Capital is confident about Ranbaxy Laboratories. It has recommended hold rating on the stock.

The IDBI Capital report on Ranbaxy Laboratories:

“Ranbaxy’s Q3CY06 result present a mix bag; operationally it met our expectations reporting strong numbers but PAT was 25% lower than estimates hit by non-operating expenses of Rs 626 million. Consolidated revenues at Rs 16.4 billion (USD 354 million) is 13.5% QoQ and EBIDTA at Rs 2.9 billion is up 18.8% QoQ higher. This was on back of higher margins – both YoY and QoQ.”

“The performance continues to be largely boosted by 80mg Simvastatin (Zocor) sales in the 180days exclusive period. Going forward, we believe the Q4CY06 revenues are likely to decline QoQ on lower Simvastatin sales and no major product launch in US generics due to the review by FDA of the PontaSahib plant. We expect US sales to decline sequentially by almost 17% in Q4CY06 to USD 82 million, dragging down the overall growth.”

“Time is ticking for Ranbaxy on Pravastatin, where the company is hoping to get its exclusive 8mg ANDA approval before the expiry of the 180 day exclusivity of the 10/20/40 dosages generics. This in our view is the biggest near term setback for the company, with the USFDA still to grant clearance to the Paonta Sahib facility. To factor this and the non-recurring expenses in Q3CY06, we are downgrading our CY06 earnings by 17%. To factor in the delay of product launches in US spilling into the Q1CY07, we are also marginally downgrading our CY07 numbers.”

"The current price discounts our CY06E PAT of Rs 4.4 bilion i.e EPS of Rs 12 by 33.6x and CY07E PAT of Rs 5.9 billion i.e EPS of Rs.15.7 by 25x. We believe the spate of bad news will be a thing of the past for Ranbaxy. The stock while expensive, should bottom out at these levels. Longterm prospects remain positive. We upgrade our recommendation to ‘Hold’.”

Source:-Moneycontrol

IL&FS Investsmart bullish on Lupin

2006-11-02T06:43:00.000-09:00

Broking house, IL&FS Investsmart is bullish on Lupin. It has maintained buy rating on the stock.

IL&FS Investsmart report on Lupin:

"In Q2FY07, Lupin reported revenues of Rs 4.9 billion and net profits of Rs 583 milion, a sequential increase of 4.7% and 15.1% respectively. This growth was primarily driven by a 33% growth in formulation sales. Domestic formulation sales increased by 24% to Rs 2.13 billion (Rs 1.71 billion in Q2FY06) driven by higher sales of both, new and existing products. API sales from the regulated markets, however, declined 6% YoY; this is because ceftriaxone sales were higher in Q2FY06, when the drug was launched. Increase in high-margin exports to regulated markets and formulation sales in domestic markets expanded the company's operating profit margins by 150bps YoY and by 250bps QoQ."

"At the current price, the stock is trading at a PER of 13.6x FY08E. In our opinion, Lupin's increasing export contribution from the US and EU businesses, and out-licensing opportunities from its NCE's make it an attractive stock. Hence, we maintain a 'Buy' rating on the stock."

Source:-Moneycontrol

Buy Cadila Healthcare, says DSP ML

2006-11-01T08:38:00.000-09:00

Broking house, DSP Merill Lynch is bullish on Cadila Healthcare. It has maintained buy rating on the stock with a target price of Rs 391.

The DSP Merill Lynch report on Cadila Healthcare:

2Q beat MLe; Significant margin rise

“Cadila reported 2Q revenues of Rs 4.9 billion (25% growth YoY), 7% higher than Mle and net profit of Rs 705 million (47% growth YoY), about 23% higher than MLe due to a sharp 3.9% increase in EBITDA margin (21.7%) driven by overall improved product mix; higher contribution from international business, and better economies from shifting to own manufacturing (vs outsourcing earlier).”

Risk to earnings estimates; Maintain Buy

“Management remained upbeat about continuing robust growth in the coming quarters given completion of the gestation phase for its key businesses – US generics, French generics and contribution from custom manufacturing. Although R&D and SG&A spend is likely to be higher in the coming quarters, we believe there is a 6-8% upward risk to current 29% earnings CAGR (FY06-08E) estimates. Reiterate Buy with PO of Rs 391/share.”

Operational turnaround continues in 2Q

* US generic revenues of USD 6 million versus negligible in previous 2Q
* ANDA filing tally of over 40, of which over 25 are pending approval
* Reduced loss in French generics (Rs 34 million loss on revenues of Rs 263 million)
* Three new contract manufacturing deals, taking tally to 17 (with USD 26 million size)
* Growth bounce-back in API supply to Altana JV

Risks

International generics pricing pressure, slowdown in Altana JV revenue, regulatory delays and forex fluctuation.”

Source:-Moneycontrol

Accumulate Jindal Stainless: Edelweiss Research

2006-10-31T08:44:00.000-09:00

Broking house, Edelweiss Research is bullish on Jindal Stainless and has maintained accumulate rating on the stock.

Edelweiss Research report on Jindal Stainless:

"Jindal Stainless Ltd. (JSL) reported Q2FY07 results that were much above our expectations. Topline grew 42% YoY (34% QoQ) to INR 11.4 billion on the back of strong volumes and a sharp increase in realisations. Higher realisations and better operating efficiencies led to a 105% YoY (67% QoQ) rise in EBITDA at INR 2.3 billion; EBITDA margins improved 622 bps YoY (395bps QoQ) to 20.1% in the quarter, reaching the highest ever. Despite higher interest and depreciation charges, lower effective tax rate led to net profits surging 120% YoY (up 91% QoQ) to INR 971 million, much above our expectations."

"In view of a sharp improvement in operating environment (primarily driven by higher realisations due to high nickel prices), we are upgrading our EPS estimates for FY07E and FY08E by 59.5% and 7.8% respectively. At the same time, the stock has also moved by 34% since the last update, and at CMP of INR 126, it trades at an EV/EBITDA of 3.9x and PE of 5.7x FY08E revised fully dilluted earnings. The completion of the capacity expansion project at Hisar and the phasewise completion of backward integration project in Orissa in the near term will reduce the company’s cost structure and drive margin expansion. We maintain Accumulate."

Source:-Moneycontrol

Buy Bharti Airtel; target of Rs 645: DSP Merrill Lynch

2006-10-30T07:21:00.000-09:00

Broking house, DSP Merrill Lynch is bullish on Bharti Airtel and has recommended buy rating on the stock with a target of Rs 645.

DSP Merrill Lynch report on Bharti Airtel:

Strong 2Q FY07 results, well above expectations

"Bharti reported 2Q FY07 net profit at Rs 9.3 billion, up 79% YoY and 24% QoQ. Results were ahead of consensus & our expectations even after adjusting for some accounting changes. The positive surprise in 2Q was primarily driven by stronger top-line led by: 1) higher-than-expected wireless ARPU, and 2) strongerthan- expected long distance revenues. The fixed-line business disappointed."

Robust user profile key positive takeaway

Our key positive takeaway from the results is that mobile usage continues to be robust & is boosting overall top-line despite modest tariff pressures. In 2Q FY07, Bharti’s wireless traffic grew 20% QoQ vs 17% growth in the wireless sub base; wireless ARPU fell only 1% QoQ helped by 2% QoQ growth in MoUs (minutes of use). Similarly, overall long-distance traffic grew 24% QoQ. This robustness in user profile is a key positive for Bharti’s revenue outlook as it penetrates deeper into the market & suggests that market growth is far from scraping the bottom.

We have upgraded earnings and long-term assumptions

We have raised earnings by 9% for FY07E and 13% for FY08E. We have also raised our LT EBITDA margin assumptions for the wireless biz by ~100bps to 40%. Our upgrade reflects 3 key factors: 1) ARPU upgrade by 3% for FY07-08E & improvement in LT ARPUs by 8-9%; 2) higher long-distance revenues (+15% on an average); and 3) increase in our subscriber forecasts by ~6% over FY07-09E.

PO raised to Rs 645, Bharti remains our top pick

"We have raised our price target for Bharti to Rs 645 (up 26% versus earlier), placing it broadly on par with our DCF valuation, and at the higher-end of its historical trading range. Our PO pegs Bharti at a PE of 22x Mar ’08E and EV/EBITDA of 12x Mar ’08E versus its historical trading range of 18-24x on PE basis and 10-13x on EV/EBITDA basis. Reiterate Buy."

Source:-Moneycontrol

Bull's eye Recommendations :- 30th Oct.

2006-10-29T19:24:00.000-09:00

Larsen & Toubro

Research: Enam Securities
Recommendation: Outperformer
CMP: Rs 1,270 (Face Value Rs 2)
12-Month Price Target: Rs 1,350

LARSEN & Toubro’s (L&T) Q2FY07 performance on a standalone basis was disappointing, largely due to a delay in commencement of projects and significantly higher staff cost. On a standalone basis, L&T reported revenues of Rs 3,740 crore (up 10% YoY), EBIDTA of Rs 240 crore (up 26% YoY) and adjusted PAT of Rs 180 crore (up 26%). Stellar performance of L&T Infotech overshadowed quarterly aberrations of E&C business. The H1 FY07 consolidated revenues grew by 20% YoY to Rs 8,940 crore and adjusted profit grew by 60% to Rs 600 crore. Driven by favourable business mix towards hydrocarbon and industrial segments, EBIT margin of E&C business improved by 230 bps to 7.8% despite a flat 9% YoY growth in revenues. Higher realisation, operating efficiency and cost rationalisation led to margin expansion across businesses. Enam estimates FY07E staff cost to increase by ~150 bps on a standalone basis. L&T InfoTech clocked impressive performance. During H1 FY07, revenues grew by 80% YoY in to Rs 620 crore, profit grew by 234% to Rs 78 crore and EBIDTA margin grew by 17.5%. In view of a strong order backlog of Rs 30,700 crore, revenue traction in H2 FY07 may pick up. Further, the margin expansion witnessed in H1 FY07 is sustainable. At current market price, the stock trades at 13x FY07E and 10x FY08E EV/ EBIDTA.

Nitco Tiles

Research: Karvy Stock Broking
Recommendation: Outperformer
CMP: Rs 184 (Face Value Rs 10)
12-Month Price Target: Rs 222

NITCO Tiles Q2 FY07 revenues were in line with expectations and the net profit was better then the estimates due to improvement in operating margins and lower interest cost for the quarter. The company reported strong YoY growth in sales of 57.6% (QoQ growth of 10.6%) to Rs 109.3 crore against Karvy’s estimates of Rs 106.8 crore. The growth in sales was witnessed across all segments. The marble division witnessed a robust 155% growth in gross sales, followed by 53% growth in the vitrified division. Operating profits saw a YoY growth of 65% to Rs 17 crore. Net profit increased by 47% YoY to Rs 9 crore, against Rs 6.1 crore for Q2 FY06. Iinterest cost during the quarter was lower than Q2 FY06 on account of lower debt prevailing during the quarter. The effective tax rate during the quarter was on the higher side because of higher provision of deferred tax against writeback of deferred tax in the corresponding quarter in the previous year.

Nicholas Piramal

Research: India Infoline
Recommendation: Buy
CMP: Rs 230 (Face Value Rs 2)
12-Month Price Target: NA

A STRONG performance in the domestic formulations market and contribution from global CRAMS business were the main drivers of 79.3% growth in topline for Nicholas Piramal India. Operating profit margin remained flat at 17.4% due to lower contribution from Avecia & Morepeth, which made a combined profit of Rs 1.6 crore. Profitability failed to keep pace with sales growth, increasing by a modest 17.5% to Rs 53.7 crore. This translates into an annualised EPS of Rs 10.3. NPIL received Rs 17.8 crore in settlement of past claims from Boots PLC/Reckitt Benckiser India. Stripping this income and the prior period amount of Rs 10.2 crore, sales increased by 74.4%, while OPM declined by 260 bps to 15.1%. PAT grew 7.4% to Rs 49.1 crore, translating into an annualised EPS of Rs 9.4. Despite subdued profitability growth for Q2, global revenue will benefit from Pfizer’s Morpeth facility from Q3 onwards. At these valuations, the stock is trading at 23.5x FY07E EPS and 14.9x FY08E EPS.

HCL Technologies

Research: Citigroup
Recommendation: Buy
CMP: Rs 634 (Face Value Rs 2)
12-Month Price Target: Rs 680

HCL Tech’s revenue grew 10.3% QoQ, ahead of the estimate. Software Services grew 9.7%, Infrastructure Services +16.6% and BPO +5.4% QoQ. EBITDA margin declined 78 bps — gross profit margin improved ~20 bps QoQ, but an increase in SG&A (+100 bps QoQ) resulted in EBITDA margin declining ~80 bps QoQ. Software margin declined by ~90 bps due to wage increases in the quarter. Infrastructure services margins remained flat, while BPO services margins declined by ~50 bps QoQ. The management expects FY07 margins to remain at FY06 levels. HCL Tech added 3,776 employees during the quarter. Software saw a net addition of 1,611 employees, infrastructure business added 446 employees, while the BPO business added 1,769 employees during the quarter. Infrastructure services continues to be a star performer. HCL Tech trades at a 12% discount to Satyam and 35% discount to Infosys on FY08E.

Jyoti Structures

Research: Edelweiss
Recommendation: Buy
CMP: Rs 117 (Face Value Rs 2)
12-Month Price Target: NA

JYOTI Structures posted strong Q2 FY07 results, ahead of expectations in terms of revenue growth and profitability. Net revenues grew by 53% YoY to Rs 240 crore. Margins expanded by 130 bps YoY to 11.1% in Q2 FY07 on account of lower direct costs. Net profit grew by 117% YoY to Rs 11.5 crore. Net margin expanded by 140 bps to 4.7% in Q2 FY07 on account of lower tax rates. The order book backlog at the end of Q2 was ~Rs 1,400 crore. Exports constituted ~10% of the total sales. Edelweiss believes that robust investment scenario in the transmission and distribution space may translate into high order book growth and better margins for Jyoti Structures. The outlook in the power T&D space remains encouraging. On Edelweiss’ current EPS estimates of Rs 4.3 and Rs 5.6 in FY07E and FY08E, the stock trades at 27.7x and 21.1x times FY07E and FY08E earnings, respectively.

ICICI Bank

Research: Prabhudas Lillladher
Recommendation : Outperformer
CMP: Rs 758 (Face Value Rs 10)
12-Month Price Target: NA

ICICI Bank has reported strong 57% growth in deposits to Rs 1,89,500 crore though it is marginally less than the 61% growth reported in Q1 FY07. Overall healthy growth resulted in NII rising by 47% to Rs 1,577 crore. Fee income growth at 62% is stronger than the 50% growth in Q1. Treasury income has also been higher at Rs 287 crore in Q2 compared to Rs 87.5 crore in Q1. Despite higher amortisation and NPA provisioning, healthy NII growth and strong fee income have resulted in net profit going up by 30% to Rs 755 crore. ICICI Bank has raised a perpetual debt of $340 million abroad and Rs 783 crore in the domestic market, as well as Rs 1,255 crore as upper tier-II capital, resulting in capital adequacy increasing from 12.46% as on Q1 to 14.34% as on Q2. If Basel-II requirement is factored in, capital adequacy will increase to 14.9%. This will bring down any need for equity dilution in the near to medium term. The stock trades at 2.7x FY08ABV.

Source:-ET

Buy Maruti; target of Rs 1,115: Ask-Raymond James

2006-10-27T08:36:00.000-09:00

“Maruti's (MUL) 2Q FY07 results are in line with our expectations, with margins at 13.9% improving by 240 bps and adjusted net profit growth of 40% YoY. The company's volume growth for 2Q FY07 was strong at 12% YoY, mainly driven by WagonR (LPG), Swift and Alto.”

“The company has raised its investment outlay target from Rs60 bn to Rs90 bn over the next five years. It has entered into an alliance with Nissan Motors, whereby it will be manufacturing 100,000 small cars for Nissan. Further, its volume growth would be supported by new launches expected in the coming quarters.”

“We are revising upwards our volume estimates by 2.7% for both FY07E and FY08E. On our revised earning estimates, the stock trades at 17.9x FY07E earnings and 15.3x FY08E earnings. We maintain our Buy rating with a revised target price of Rs1,115 (18x FY08E earnings) from earlier Rs1,085.”

Source:-Moneycontrol

ICICI Bk outperformer, target of Rs 850: Macquarie

2006-10-26T11:13:00.000-09:00

Macquarie Research is bullish on ICICI Bank and has recommended an outperform rating on the stock with a target price of Rs 850.

The Macquarie Research report on ICICI Bank

"ICICI Bank announced strong 2Q FY03/07 results today. Net profit grew by 30% YoY to Rs7.6bn and beat consensus estimates by 15%."

Impact

"Margins remain resilient. After a blip in margins in 1Q, there was a bounceback in 2Q. While cost of deposits rose 28bp QoQ, rising loan yields (by 40bp) saw margins expand by 5bp QoQ. This is despite the low-margin international business continuing to grow faster than overall loans. We are forecasting stable NIM over the next three years, despite rising deposit costs, and that forecast holds after this result.

Fees and costs shine. Fees continued to grow strongly – 11% QoQ. This came with strong contribution from all three major streams – retail, wholesale and international. More importantly, the bank saw a QoQ decline in fees paid to retail loan distributors, despite an 11% growth in disbursements. Management mentioned on the earnings call that this is part of a conscious renegotiation of rates with distributors. It reinforces our call that ICICI Bank should balance growth and profitability in the domestic business better than in the past.

NPAs jump, as expected. NPAs rose sharply – gross NPAs were up by 13% QoQ, while net NPAs were up 19% QoQ. This is in line with our forecasts – for the full year, we are expecting a 58% rise in gross NPAs".

Earnings revision: "No change"

Price catalyst: "12-month price target: Rs850.00 based on a Gordon Growth / Sum of parts methodology. Catalyst: Above-consensus earnings expected in 3QFY03/07."

Action and recommendation: "These are strong results, no doubt boosted by treasury gains, but operationally robust nevertheless. Our above-consensus earnings forecasts stand and we maintain our Outperform rating on the stock with a target price of Rs850. The stock is our top pick among Indian banks."

Source:-Moneycontrol

Bull's eye Recommendations :- 23rd Oct.

2006-10-23T07:59:00.000-09:00

TCS

Research: Merrill Lynch
Recommendation: Buy
CMP: Rs 1,089 (Face Value Rs 1)
12-Month Price Target: Rs 1,360

MERRILL Lynch forecasts a 31% EPS CAGR over the next three years. TCS’ efforts to shift revenues offshore bore fruit this quarter, with margins moving up ~300bps after six quarters to 41%, with room to expand. Revenue mix also showed steady improvement with higher-margin international revenues up 300 bps to 92%. Q2 was also notable for cost efficiencies derived by scale and improvement in profitability of subsidiaries like Diligenta and large deals like ABN Amro. Management indicated that it was obtaining 3-5% from existing customers and 5-10% increases from new customers. The company is seeing strong volume demand from its existing and new client base, helped by its expanded range of services like business intelligence solutions, testing and BPO, and indicated it is close to clinching five deals worth over $50 million. Merrill Lynch sees triggers in upward revision of consensus earnings estimates and likely stronger sequential growth in the next two quarters of 13% CQGR in TCS EPS vs 6% for Infosys.

Jubilant Organosys

Research: India Infoline
Recommendation: Buy
CMP: Rs 219(Face Value Rs 1)
12-Month Price Target: Rs 273

JUBILANT Organosys’ Q2 FY07 results were in line with expectations. Sales increased by 41.4% to Rs 466 crore, driven by continued growth momentum in pharmaceuticals and life science division (PLSC), which comprises high-growth segments like CRAMS, APIs, drug discovery and formulations. Operating profit margin expanded by 393 bps to 17.2% on account of strong volume growth of all businesses, as well as favourable raw material cost scenario. Robust margin expansion has led to 131% growth in bottomline at Rs 54.4 crore, translating into an annualised EPS of Rs 11.9 on a fully diluted basis. PLSC, Jubilant’s main growth driver, is well placed to deliver revenue CAGR of 23% to Rs 2,280 crore over FY06-08. India Infoline estimates operating margins to expand by 490 bps to 19.4% over the next two years. Consequently, earnings are likely to witness CAGR of 50% to Rs 290 crore over FY06-08. Cash in hand of Rs 970 crore from unutilised FCCB proceeds, mainly for acquisitions, holds potential upside.

Bharat Forge

Research: Angel Broking
Recommendation: Buy
CMP: Rs 347 (Face Value Rs 2)
12-Month Price Target: Rs 415

BHARAT Forge (BFL) recorded a 19.7% YoY growth in net sales on standalone basis during Q2 FY07, largely on the back of 23% growth in exports. On the domestic front, the company reported 18% growth, where it is continuously consolidating its position. The company has benefited largely due to superior product mix with increased share of machined component. The company said at its analyst meet that it expects operating margins to improve further in the balance part of FY07, as it ramps up its expanded capacity further. BFL reported Q2 FY07 standalone net profit at Rs 62.2 crore — a growth of 20.1% YoY and slightly higher than the estimate of Rs 58.5 crore. Bharat Forge reported a consolidated net profit of Rs 74.2 crore, a growth of 21.4% YoY. Consolidated sales at Rs 970.9 crore grew 41.4%, but consolidated margins dropped to 18.5% (20.6% in Q2 FY06). At current market price, the stock is currently trading at 20.8 times FY07E and 17.1 times FY08E consolidated earnings.

Precision Wires

Research: Edelweiss
Recommendation: Buy
CMP: Rs 196 (Face Value Rs 10)
12-Month Price Target: NA

PRECISION Wires India (PWIL), a manufacturer of copper winding wires, caters to a wide spectrum of industries such as power, consumer durables and appliances, automotives, electronics, industrial equipment and lighting, agricultural equipment, and special purpose equipment. With the ongoing industrial capex and improved standard of living due to rapid urbanisation, demand for PWIL’s products is likely to remain buoyant for the next few years. To cater to the rising demand for copper winding wires, PWIL had earmarked Rs 70 crore for capacity expansion, out of which, Rs 40 crore has already been deployed. The company is adding ~7,000 tpa over the next two years. Edelweiss expects this trend of rising EBITDA per tonne to continue on account of better operating leverage. At current market price, the stock trades at 8.9 times FY07E EPS of Rs 20.3 and 6.2 times FY08E EPS of Rs 29.1 and an EV/EBITDA of 5 times FY07E and 3.7x FY08E.

IG Petrochemicals

Research: HDFC Securities
Recommendation: Buy
CMP: Rs 56 (Face Value Rs 10)
12-Month Price Target: NA

IG Petrochemicals (IGPL) is among the top three producers of Phthalic Anhydride in the world and the leading producer in India. Phthalic Anhydride is used to manufacture plasticisers, flexible PVC, varnish, paint, textile dyes and UPR (unsaturated polyester resin). Demand for products of IGPL is generated from construction and infrastructure industries. A plant similar to IGPL’s size could cost Rs 500 crore and hence, there are entry barriers to this business, at least domestically. No large new capacities are coming on stream internationally. While current indications suggest demand and supply to be matched and some operating leverage available to existing units, by ’10, demand could be larger than supply globally. For FY07, IGPL could get the advantage of better prices of its products and a much better conversion delta. Hence, it could report sales of Rs 512 crore and a PAT of Rs 29.8 crore, translating into an EPS of Rs 9.7 (versus a loss per share of Rs 8 in FY06). For FY08, IGPL could report sales of Rs 577 crore and PAT of Rs 34.3 crore, resulting in an EPS of Rs 11.1. At current price, IGPL is available at a FY07 P/E of 5.7. Investors could look at buying IGPL in the Rs 48-56 band to ride on the upmove, based on expected EPS expansion.

Crompton Greaves

Research: Prabhudas Lilladher
Recommendation: Outperformer
CMP: Rs 231 (Face Value Rs 2)
12-Month Price Target: NA

CROMPTON Greaves (CG) reported Q2 results as per expectations. Net sales rose 48.6% YoY to Rs 820 crore. Net profit jumped 25% YoY to Rs 40.7 crore. The EBIDTA margin was down 60 bps to 8.9%. Margin came under pressure due to the rising costs of raw materials such as CRGO, copper and transformer oil. The company’s tax rate, at 40%, has been higher, as it has utilised the benefits of past losses and accelerated depreciation. Net sales of the power systems division has risen by 68.6% YoY to Rs 450 crore, while those of the industrial systems division and the consumer products division have grown 36.8% and 33.3% YoY to Rs 226.1 crore and 225.3 crore, respectively. The company’s order book climbed 16.7% YoY to Rs 1,800 crore. For H1 FY07, the company has reported revenue and net profit of Rs 1,560 crore and Rs 77 crore, 45.6% and 21% higher, respectively. At current market price, the stock trades at 21.5x FY07E and 16.5x FY08E consolidated earnings.

Read more research reports on ETIntelligence.com

Source:-ET

Hold Reliance, target of Rs 1293: Angel Broking

2006-10-23T07:58:00.000-09:00

Broking house, Angel Broking is bullish on Reliance Industries. It has maintained hold rating on the stock with a target price of Rs 1,293.

The Angel Broking report on Reliance Industries:

Strong sales growth

“During Q2FY07, net sales were up 37% at Rs 28,474 crore (Rs 284.74 billion) on a higher base of Rs 20,717 crore (Rs 207.17 billion) in Q2FY06. This was a positive surprise despite highest ever crude prices and disturbance in operations due to floods in Gujarat.”

Operating margins subdued due to rise in raw material prices

“The raw material costs increased by 47% YoY at Rs 22,385 crore (Rs 223.85 billion). Raw material prices jacked up due to highest ever crude oil prices witnessed during this quarter. On an absolute basis operating profit went up by 23% to Rs 4,565 crore (Rs 45.65 billion).”

Softening of GRMs

“GRMs for Q2FY07 softened at USD 9.1 per barrel as against USD 10.4 per barrel in Q2FY06 and USD 12.4 per barrel in Q1FY07, mainly on account of higher crude oil prices.”

Petrochemicals margins up whereas refining margins down

“Petrochemicals margins improved significantly to 16.2% in Q2FY07 compared to 15.7% in Q2FY06 due to strong margins on polymer products and fibre intermediates. Refining margins declined to 6.4% in Q2FY07 compared to 8.2% in Q2FY06 primarily due to softening of GRMs.”

Other income down due to investment in RPL

“Other income plummeted by 90.1% YoY to Rs 22 crore (Rs 220 million) on account of investments of surplus funds in RPL.”

PAT up by 9%

“PAT surged by 9% at Rs 2,709 crore (Rs 27.09 billion) in Q2FY07 as against Rs 2,481 crore (Rs 24.81 billion) Q2FY06.”

Valuation

“We expect RIL to post YoY growth of 18.7% in its topline at Rs 98,528 crore (Rs 985.28 billion) with bottomline at Rs 10,008 crore (Rs 100.08 billion) in FY07E. The operating margins are likely to be at 17.1%. We maintain a hold with a price target of Rs 1,293.”

Source:-Moneycontrol

Buy Cipla with a target of Rs 302: India Infoline

2006-10-23T07:56:00.000-09:00

Broking house, India Infoline is bullish on Cipla. It has maintained buy rating on the stock with a target price of Rs 302.

The India Infoline report on Cipla:

“Cipla Q2 FY07 revenue growth was in line with expectations whereas earnings growth was a shade below expectations largely due to 100bps decline in operating margins and higher tax outgo.”

“Net sales increased by 33.3% to Rs 8.96 billion driven by a 37% growth in the exports market. Export formulations witnessed a growth of 12.9% to Rs 2.8 billion whereas API export sales jumped by 120% to Rs 1.6 billion. Two key products launched during the quarter-Sertraline (Zoloft) and Finasteride (Zocor) for which its partner Ivax (now Teva) had 180 exclusivity are the key drivers for growth in the exports market. Amongst the therapeutics, anti-retrovirals, anti-asthmatics, anti-depressants and cardiovascular segments have performed well. Exports account for 49.7% of total sales as compared to 43% in Q2 FY06 and 45.6% in Q1 FY06.”

“Domestic formulations recorded a growth of 22% to Rs 4.44 billion driven by growth from all major segments including anti-asthmatics, anti-aids, cardiovascular and anti-biotics/ bacterials.”

“Operating profit margin, OPM declined by 100bps to 25.4% on account of higher raw material cost due to change in product mix, higher staff cost and other expenditure as the company set up a wholly owned subsidiary in Jebel Ali Free Zone and a new EOU at Patalganga, which commenced operations in August.”

“Other income increased from Rs 10 million in Q2 FY06 to Rs 490 million for the quarter on account of forex gains and interest income earned out of unutilized GDR proceeds. Tax outgo increased by 22% yoy to Rs 402 million as compared to Rs 2 million in Q1 FY06, which restricted earnings growth. Profitability increased by 47% to Rs 1.8 billion translating into an annualized EPS of Rs 9.3.”
Outlook

“We continue to remain bullish on Cipla's partnership driven business model which has helped the company post robust performance in a challenging environment. The company has the best geographically diversified model amongst its peers which reduces dependence on a single market for growth. Cipla has one of the strongest generic pipelines with over 150 products in development. The company has a tie up with 8 partners for the US market and has launched 18 products in the US market. Its partners are looking at filing 35 ANDAs for FY07, one of the highest for any company.”

“The company is also looking at acquisitions in the biotech space or companies with specific technology from the proceeds of the GDR issue, which may be EPS accretive. Overall business prospects remain strong with healthy domestic growth, steady progress in the CFC inhaler market (around USD 3 billion in Europe) as well as expansion in operating margins due to a better product mix. We also believe that as consolidation gathers further space in the generics segment, Cipla could emerge as a strong takeover target for a global generic company. At Rs 261, the stock is trading at 27.7x FY07E EPS of Rs 9.4 and 21.6x FY08E EPS of Rs 12.1. We maintain 'Buy' on the stock with a target price of Rs 302 (25x FY08E) an upside of 15.7% from current levels.”

Buy J&K Bank; ICICI Securities

2006-10-22T20:23:00.000-09:00

Broking house, ICICI Securities is bullish on Jammu and Kashmir Bank and has recommended buy rating on the stock.

ICICI Securities report on Jammu and Kashmir Bank:

“Armed with a considerably improved liabilities’ profile and margins - a result of one year of incisive restructuring - J&K Bank is ready to embark on a path of strong loan and fee growth. Simultaneously, asset quality has improved from satisfactory to excellent, thereby adding to the balance sheet strength. We raise our earnings estimates - major expected inflection in profitability and attractive valuations are the key attractions. Stock illiquidity, as usual, is the deterrent.”

“Margins improve, restructuring ahead of schedule. Through an incisive restructuring process, involving changes in asset mix and shedding high-cost liabilities, loan yields and NIMs improved 112bps and 72bps YoY to 9.6% and 3.5% respectively in Q2FY07. CASA now stands at an enviable 41%. The restructuring has been completed well ahead of plan, partly due to the sector’s buoyancy.”

“Volume-led growth likely soon. Since restructuring is almost complete, the bank may move to a higher loan growth path - we expect the current 17-18% to improve to 23.5% by end-FY07E. The bank’s fee income still has immense potential - as against fees at 12-15% of total income and 40bps of assets for most PSU banks, J&K Bank’s figures are just 9% and 28bps respectively.”

“Strengthened asset quality offsets geographical concentration. J&K Bank’s asset quality has always been good, but it has strengthened recently. With gross and net NPLs at 2.63% and 0.75% respectively, and provision coverage up from 54.6% a year ago to 72.1%, the bank’s book is adequately cushioned to offset geographical concentration - half of the bank’s business comes from J&K state.”

“Major profitability swing coupled with solid capital adequacy. We are raising our earnings estimates by 2-9% in view of higher margins and better treasury outlook. We estimate RoE to improve from a low of 7.1% in FY05 to 16.5% in FY08E - better capital efficiency could be the added upside. We maintain BUY; the stock can possibly be re-rated, but for the low liquidity levels. "

Source:-Moneycontrol

Buy Reliance Industries: DSP Merrill Lynch

2006-10-20T10:34:00.000-09:00

Broking house, DSP Merrill Lynch is bullish on Reliance Industries and has recommended buy rating on the stock.

DSP Merrill Lynch report on Reliance Industries:

Strong operating performance but modest 2Q earnings rise

"Reliance Industries, RIL has achieved yet another strong operating performance in 2Q as reflected in the 23% YoY jump in EBITDA and 18% YoY rise in EBIT. The strong operating performance has been driven mainly by a 38% YoY jump in petrochemical EBIT. Strong petrochemical margins and volume growth boosted EBIT. Despite strong operating performance, 2Q net profit was up just 9% YoY due to a steep decline in other income and a sharp rise in depreciation, interest and income tax."

2Q earnings higher than MLe; surprise mainly in refining

"'RIL’s 2Q net profit growth at 9% YoY is higher than MLe and consensus by 5%. The earnings surprise is mainly attributable to refining EBIT being higher than expected. RIL has not accounted discount on sale of LPG and kerosene to oil PSUs of Rs 2.0 billion in 2Q as expected by us, which explains the higher EBIT."

2H outlook encouraging; news flow on E&P may be positive

"We are keeping our FY07E EPS forecast unchanged at Rs 77.5, which means a 19% YoY jump. This means that RIL’s 2H net profit will have to be 30% YoY higher. We believe that this is achievable. Gains of Rs 8.2 billion from the target plus export scheme expected to be accounted in 2H will mean that the balance of 2H profit will just have to be 10% YoY higher (see Table 4). This is achievable, in our view, given that we expect petrochemical margins to be YoY higher in 2H. Even refining profit is unlikely to be YoY lower in 2H FY07 given the lower base in 2H FY06 due to weak refining margins and refinery shutdown in 3Q FY06. Even news flow on E&P is likely to be positive in 2H with potential to boost RIL’s valuation. We retain Buy on RIL."

Source:-Moneycontrol

Buy Biocon; target of Rs 500: DSP Merrill Lynch

2006-10-19T08:22:00.000-09:00

Broking house, DSP Merrill Lynch is bullish on Biocon and has recommended buy rating on the stock with a target of Rs 500.

DSP Merrill Lynch report on Biocon

"Biocon reported 2Q net profit of Rs 450 million (2% growth YoY), about 11% ahead of MLe, while revenues came in at Rs 2.5 billion (24% growth YoY) 10% higher than MLe. In our view, 2Q marks a qualitative improvement in overall operations compared to the previous quarters and we expect this trend to continue in coming quarters. Biocon currently trades at a 55% discount to the sector average based on FY08E EPS. Maintain estimates and reiterate Buy with PO of Rs 500 per share."

Operational improvement to sustain in the coming quarters

"Despite a 250% increase in R&D spend (Rs 100 million) and Rs 20 million write-off relating to the Nobex acquisition, EBITDA margin was up 100bp sequentially, driven by licensing income, stabilization of statin prices and strong 50% growth in custom manufacturing. Going forward we expect the sequential EBITDA margin improvement to continue, noting (a) start of statin supplies to the US, (b) increased licensing income as insulin registrations scale-up further (c) continuing strong ~50% growth trend in custom manufacturing (about 50% EBITDA margin)."

Source:-Moneycontrol

Accumulate HDFC Bank: Edelweiss

2006-10-18T09:23:00.001-09:00

Broking house, Edelweiss Research is bullish on HDFC Bank and has recommended accumulate rating on the stock.

Edelweiss Research report on HDFC Bank:

"HDFC Bank came out with its Q2FY07 results, which was broadly in line with our estimates. The bank registered a profit growth of 32% Y-o-Y at Rs 2.63 billion and a NII growth of 38%. Key highlights of the quarter were 1) flat net interest margins at 4%, 2) slower pre–provisioning operating profit (PPOP) growth at 40%, 3) lower tax rate of 26.6%, 4) robust fee income with positive trading gains, and 5) high provisions for NPA."

"While we are raising our PPOP forecast for FY07E and FY08E by 3.8% and 3.6% respectively to reflect higher fee income and NII, we believe the bank would create higher NPA provisions to restrict earnings growth to 33% and 32%. We maintain our EPS estimates of Rs 37 in FY07 and Rs 48 in FY08."

"We expect the bank to generate 20% ROE and 32% EPS CAGR over FY06-08E. We believe that the current valuations are full and maintain ‘ACCUMULATE’ at 4.3x FY08E book and 21.0x FY08E earnings."

Accumulate HDFC Bank: Edelweiss

2006-10-18T09:23:00.000-09:00

Concor market performer, target of Rs 1980: Karvy

2006-10-17T08:16:00.000-09:00

Broking house, Karvy Stock Broking is bullish on Container Corporation of India. It has maintained market performer rating on the stock with a target price of Rs 1,980.

The Karvy Stock Broking report on Container Corporation of India:

“Container Corporation of India, Concor reported impressive revenue growth of 31.3% YoY to Rs 7.7 billion and net profit increase of 55% YoY to Rs 1.9 million during the Q2FY07. The revenue and profits are higher than our expectations.”

“The operating margins increased by 289 bps to 32.8% on account of lower other expenses. Operating profits grew by 44% to Rs 2,522 million. The company has almost zero debt on its balance sheet and interest cost remains negligible. Other income increased by 30% YoY to Rs 168 million with increase in interest income from surplus cash. The effective tax rate come down to 23% from 27% in Q2FY07 considering the tax deduction available under Section 80IA of the Income Tax Act 1961. Overall adjusted profits grew by 55% to Rs 1,895 million translating into EPS of Rs 29 as against our expectations of Rs 23.”

“Considering encouraging results in H1FY07, we are revising revenue and profit estimated upward. We now expect the revenue growth of 24.5% CAGR to Rs 37.8 billion in FY08 from previous estimates of Rs 36 billion.”

“We expect company's net profit to increase at a CAGR of 26.3% as against previous estimates of a CAGR of 22.2% to Rs 8 billion in FY08. At current levels of Rs 1,870, the stock is trading at 18.1x FY2007 and 15.1x FY2008 earnings and EV/EBIDTA it is trading at 11.6xFY07 and 9.2x FY08E. We are maintaining our valuation of 16x FY08 and revising target price to Rs 1,980 from Rs 1,850 with a market performer rating.”

Overweight on TCS, target of Rs 1325: JP Morgan

2006-10-17T08:12:00.000-09:00

Broking house, JP Morgan is bullish on Tata Consultancy Services, TCS. It has recommended overweight rating on the stock with a target price of Rs 1,325.

The JP Morgan report on Tata Consultancy Services:

Impressive quarter

“TCS reported a strong 2Q FY07, beating consensus and our expectations both on volumes and margins. Key metrics were

* 11% Q/Q volume growth
* Pricing up 1% Q/Q
* A 300 bp Q/Q margin improvement; and
* Significant increase in USD 50 million+ clients

Overall, revenues grew 8% Q/Q, EBIT grew 22%, and net profit grew 15% Q/Q.”

Key takeaways for TCS

“Despite Infosys reporting a blockbuster 2Q FY07, TCS has bettered it on most counts, with similar volume growth on a larger base and higher margin improvement. We believe this highlights the strong execution engine, management quality, and robust business model of TCS. We are increasing our above-consensus estimates given the sharp margin jump in 2Q FY07. We now estimate an FY06-08E 36% EPS CAGR, at the top end of consensus.”

Key takeaways for Indian IT industry

“Following Infosys’ strong 2Q FY07, TCS’s performance reaffirmed the strong offshore demand environment. This was further reinforced by positive management commentary on pricing, an indication of increased bargaining power for the industry and positive for margins. Lastly, industry-leading growth from the two largest players indicates substantial market share gains for large players, a trend we expect to continue.”

Investment view

“With the offshore demand strong and large players gaining market share, we remain fundamentally positive on TCS; it is one of our top sector picks. Our Dec-07 target price is Rs 1,325/share, 17% above the current level. We expect the share price to move up as consensus estimates move up and the P/E gap between TCS and Infosys (now 14%) narrows further.”

Source:-Moneycontrol

UTI Bank an outperformer; target of Rs 450: Macquarie

2006-10-16T07:51:00.000-09:00

Broking house, Macquarie Research is bullish on UTI Bank and has recommended outperform rating on the stock with a target price of Rs 450.

Macquarie Research report on UTI Bank:

Event

“UTI Bank announced its 2Q07 results. The key highlights were that: 1) PAT was up 30% YoY to Rs 1.42 billion (2% ahead of our estimates) and 2) NII was up 43% YoY to Rs 3.6 billion (0.5% ahead of our estimates).”

Impact

“NIM for 2QFY07 increased to 2.92% as compared to 2.80% for 1Q07, partly due to the marginal reduction in cost of funds at 5.42% from 5.45% for 1Q07 and rising asset yields in the current quarter.”

“Operating expenses (opex) increased by 50% YoY, mainly driven by continuous growth in workforce and branch expansion. We expect opex growth to slow during the year and are estimating opex growth of 39% for the year.”

“Management stated that aggressive recovery procedures adopted during the past year have enabled it to reduce its NPA provision by 50% YoY. Net NPA ratio at 30 September 2006 was at 0.74% (1.03% at 30 September 2005).”

“The capital adequacy ratio for the bank improved to11.52% from 10.28% at the end of 1Q07. While capital needs for 2007 would be met by perpetual debt and bonds (the bank raised Rs 2.1 billion of perpetual debt and USD 150 million of Upper Tier-II bonds in this quarter), we have factored in 10% equity dilution in FY2008E.”

Price catalyst

“12-month price target: Rs 450.00 based on a Gordon Growth Model methodology.”

Catalyst: 1) Continued momentum in asset growth; and 2) increasing branch distribution network.

Action and recommendation

“UTI Bank continues to make rapid market share gains, based on deepening penetration. Its franchise and brand are strengthening and we believe it is on a strong wicket. It is valued at a P/BV of 3.3x FY3/07 with ROE for FY3/07 at 19.8%. We retain our Outperform rating on the stock with a target price of Rs 450.”

Source:-Moneycontrol

Bull's eye Recommendations :- 16th Oct.

2006-10-15T18:10:00.000-09:00

Tech Mahindra

Research: Emkay Share
Recommendation: Buy
CMP: Rs 681 (Face Value Rs 10)
12-Month Price Target: Rs 852

TECH Mahindra (TML) is well positioned to benefit from incremental spending in the global telecom space, encompassing the entire value chain within the telecom vertical. With the acquisition of Axes Technologies in November ’05, TML has entered the high-spending telecom equipments manufacturers space, with big customers like Alcatel, which provides strong revenue visibility for the next 18-24 months. Tech Mahindra is still in the midst of a strong earnings growth upcycle and is less vulnerable to any slowdown in the US economy, as a major portion of the company’s revenues accrue from Europe. Offshore telecom outsourcing has now become a mainstream option and Emkay Share feels scale and scalability, along with an ability to move up the value chain, are the key criteria for successful offshore vendors. TML is well-positioned among domestic IT vendors, on account of its strong execution skills and brand positioning in the global telecom industry. The TML stock trades at a P/E of 16 times FY08E and its EPS is likely to grow at a CAGR of 37% estimated over FY06-08.

South East Asia Marine Engg

Research: Sharekhan
Recommendation : Buy
CMP: Rs 207 (Face Value Rs 10)
12-Month Price Target: Rs 270

WITH the surge in crude prices and drop in global spare production capacity for oil, exploration activity has picked up globally. The IEA estimates $3.6 trillion will be spent on oil and gas exploration over ’03-30. The day rates for offshore oil and gas drilling, and support assets, including MSVs, are skyrocketing due to this rise in the E&P spend. The company has entered into a long-term charter for its MSVs at high charter rates of $40,000-47,000 compared with $20,000 per day for the earlier contracts. SEAMEC has acquired a vessel, ‘Oceanic Princess’, which is being converted into a diving support vessel (DSV). This DSV and the three MSVs should help its revenues to grow at a CAGR of 70% over CY05-07E. With a strong revenue growth, debt-free status and tonnage tax scheme, EPS may grow at a CAGR of 126% to Rs 17.4 in CY06 and to Rs 29.2 in CY07. At current market price, the stock is trading at 6.5x CY07E earnings and 4.1x CY07E EV/EBIDTA. Compared with its global peers, SEAMEC is trading at a discount of 30%.

Mastek

Research: Edelweiss
Recommendation: Buy
CMP: Rs 352 (Face Value Rs 5)
12-Month Price Target: NA

MASTEK’S Q1 FY07 results were in line with expectations. Revenues, reported at Rs 200 crore, were up 3.7% QoQ and 30.1% YoY; net profit stood at Rs 21.2 crore, up 2.9% QoQ and 41.1% YoY. During the quarter, the company gave salary hikes of ~14% for offshore employees and ~4% for onsite employees, which resulted in EBITDA margins declining by 30 bps over the previous quarter. Although customer pipeline is strong, delay in addition of new clients has resulted in order book declining to Rs 360 crore from 380 crore. The company’s management, however, is confident of the order pipeline and has indicated an addition of $1.5-2 crore in the order book in the next quarter. The net profit margin from this JV declined from 8.6% in Q4 FY06 to just 2.7% in the current quarter. Edelweiss expects revenues to be flat for the next quarter. The decline in revenues from this JV in the recent past is on account of Deloitte’s focus on consulting instead of technology. At current market price, the stock trades at a P/E of 11.2x and 9.2x and EV/EBITDA of 6.5x and 4.6x for its FY07E and FY08E earnings respectively.

HLL

Research: Merrill Lynch
Recommendation: Sell
CMP: Rs 236 (Face Value Rs 1)
12-Month Price Target: NA

OVER the past two years, HLL’s business has turned around, buoyed by stronger topline growth, improvement in margins and higher fiscal benefits. Merrill Lynch is concerned about renewed competitive pressures and believes earnings growth will be below market expectations. Coupled with rich valuation, Merrill Lynch believes downside risks are high. The key trigger may be consensus earnings downgrades. HLL’s H106 profit grew 30% YoY. In the second half of the year, Merrill Lynch expects profit growth to slow to just 13% YoY. HLL’s topline has benefitted from volume rebound led by sharp price cuts and rising income levels. But HLL’s market share in most of its key categories is either flat or down, despite substantial jump in advertising costs over the past two years. Going forward, while P&G remains a latent risk, there will also be increasing risk from ITC’s likely launch of new FMCG products. Over the past two years, HLL has re-rated from its trough P/E of 20x to now 35xDec06E and 30xDec07E.

ANG Auto

Research: Angel Broking
Recommendation: Buy
CMP: Rs 343 (Face Value Rs 10)
12-Month Price Target: Rs 425

AUTOMOTIVE components company, ANG Auto, posted net sales of Rs 27.8 crore in Q2 FY07, against Rs 10.1 crore in the year-ago period. The figures posted in this quarter are not comparable to Q2 FY06 quarter due consolidation activity of its subsidiary, which took place in recent quarters. The company reported a net profit of Rs 5.7 crore compared to Rs 1.2 crore during same period last year. The company’s Nalgarh plant enjoys excise, sales and income tax benefits. Its Noida plant is also eligible for a 10-year tax holiday. The company may post a topline of Rs 125-150 crore in FY07 in its components business and Rs 40-45 crore in its tractor trailer business. Operating margins of the trailer business may improve to 15% when the second phase of the facility commences. At current market price, the stock is available at 16.6x FY07E and 9.9x FY08E. The valuation looks attractive. Angel Broking recommends ‘buy’ decision on the stock with a target price of Rs 425.

Shree Cement

Research: Pioneer Intermediaries
Recommendation: Buy
CMP: Rs 1,136 (Face Value Rs 10)
12-Month Price Target: NA

SHREE Cement (SCL) more than doubled its revenues to Rs 320 crore in Q2 FY07. This was on the back of volumes growth and improvement in cement realisations. Cement dispatches grew by 45% YoY to ~1.11 million mt in Q2 FY07. This was primarily due to commissioning of 1.5 million mt capacity at Ras village in February ’06, which expanded the company’s total capacity to 4.6 million mt. Interest costs in Q2 fell by 19% YoY to Rs 2.7 crore. Depreciation charges rose by 176% YoY to Rs 33.8 crore, due to commissioning of Unit-lll at Ras village. Net profit jumped by 108% to Rs 77.8 crore, despite higher tax provision of Rs 32.3 crore in Q2 FY07, compared to nil in Q2 FY06. At current market price of Rs 1,141, SCL is trading at a P/E of 11.6x, EV/EBIDTA of 7.5 and EV/ton of $157; discounting its FY07E earnings. With one of the highest EBIDTA/tonne in the industry, timely capacity expansions and scalability potential of the company, Pioneer Intermediaries has a positive view on long-term growth prospects of the company.

Source:-ET

Buy Apollo Tyres, says IDBI Capital

2006-10-13T08:19:00.000-09:00

Broking house, IDBI Capital is bullish on Apollo Tyres and has maintained buy rating on the stock.

IDBI Capital report on Apollo Tyres:

"Net sales at Rs 7,673 million grew by 21% on YoY basis. High input costs squeeze margins by 160bps to 7.8%. PAT at Rs 194 million posted a muted growth of 4% on YoY basis mainly on account of a sharp decline in Other Income. We maintain ‘Buy’."

Healthy sales growth

"Apollo Tyres has registered a healthy growth in sales for Q2FY07 primarily on account of a strong demand from OEMs, supported by a healthy replacement demand. The net sales for Q2FY07 at Rs.7,673 million posted a strong growth of 21% YoY when compared to Rs.6,327 million in the corresponding quarter of the previous year."

Undisputed leader in the truck and bus segment

"ATL is the market leader in the truck and bus segment with a 28% market share in April-July 2007, an increase of 200bps over the same period of the previous year."

"The company is leader in the rear tractor segment with a 23% market share in April-July 2006, 300bps higher over the same period of the previous year."

Improving performance in the passenger car tyre segment

"ATL ranks third in the PCR replacement segment after Bridgestone and MRF with 15% of the market (production basis). The company’s market share has increased from 6% in FY02 to ~16% in FY06 due to its greater emphasis on this segment."

Margins squeezed in Q2FY07

"The continued cost-push from the raw materials has impacted the operating margins. The operating margins declined by 160bps to 7.8% as against 9.4% in the corresponding quarter of the previous year."

Marginal growth in PAT

"The Profit after Tax (PAT) at Rs 194 million registered a muted growth of 4% on YoY basis when compared to Rs 187 million in the corresponding quarter of the previous year."

ATL to set up a Rs 520 crore plant near Chennai

"ATL has charted out plans to set up a manufacturing facility in Oragadam, near Chennai. The facility shall be used exclusively for the manufacture of high quality truck, bus and light truck radial tyres, along with high and ultra-high performance passenger car radial tyres for domestic and exports markets. The plant shall be set up FY09 and shall entail an investment to the tune of Rs 420 crore."

Source:-Moneycontrol

Buy Infosys with a target of Rs 2217: Brisc PCG

2006-10-12T09:21:00.000-09:00

Broking house, Brisc PCG has recommended buy rating on Infosys Technologies with a target of Rs 2217.

Brisc PCG report on Infosys Technologies :

Phenomenal performance yet again

"In a repeat of the first quarter's strong showing, Infosys has delivered an exceptional Q2FY07 performance, far surpassing our estimates. The company posted a growth of 14.5% in revenues and 17% in net profits during the quarter, which outstrips our growth projections of 10.9% and 5.3% respectively. This represents a YoY increase of 50.4% in revenues and 53.3% in net profits for the company. The bottomline expansion occurred despite a sharp decline in other income from Rs 1.3 billion in Q1FY07 to Rs 660mn on account of the flattish rupee-dollar exchange rate. The quarter witnessed an operating margin expansion of 265 bps along with strong volume growth of 11% and a 1.2% improvement in blended pricing over Q1FY07."

"Infosys' management has revised its FY07 guidance upwards for the second consecutive quarter. Accordingly, Infosys is expected to record revenues in the range of Rs 138.5 -139 billion. We are revising our revenue and EPS estimates upwards and are also hiking our target multiple for Infosys from 25x to 26x on one-year forward earnings, which gives us a target price of Rs 2,217. At this price the stock would trade at 32x as compared to the current 35.9x on the current price of Rs 1,981 on TTM basis. BUY ."

Source:-Moneycontrol

Shree Cements an outperformer; target of Rs 1275: Karvy

2006-10-11T08:09:00.000-09:00

Broking house, Karvy is bullish on Shree Cements and has maintained outperformer rating with a target price of Rs 1275 on the stock.

Karvy report on Shree Cements:

Strong topline growth:

"Shree Cements Q2FY07 results were almost in line with our expectation. The company reported net revenues of Rs 3.15 billion in Q2FY07, against our expectation of Rs 3.02 bilion, up 100% from Rs.1.6 billion recorded in Q2FY06 and 2.1% from Rs 3.09 billon recorded in Q1FY07. The growth in sales was driven by 46% increase in volumes and 40% growth in price realization. Additional capacity of 1.5 million tonnes commissioned by the company in February 2006 along with strong demand in North resulted in the volumes. Tight demand supply situation resulted in the price realizations being high by 40%.

EBITDA margins expand 12 percentage points:

"Strong realization and contained power and fuels costs resulted in the company’s margins expanding to 45.16% from 33.6% in Q2FY06 and 44.44% in Q1FY07. We were expecting the company to report margins of 44.7%. Shree Cement’s freight charges per ton of cement remained flat. This along with the realization growth helped the company’s EBITDA margin expansion.

Net profit doubles:

"Strong topline growth along with contained operational costs, helped the company’s profit before tax to grow 196% to Rs 1.1 bilion in Q2FY07 compared to Rs 374 million in Q2FY06. The company made a higher provisioning of tax during the quarter as a result of which the net profit growth was low at 100%. Net profit for Q2FY07 was Rs 778 million compared to Rs 374 million in Q2FY06. The company recorded EPS of Rs 22 for Q2FY07 compared to Rs 10.7 in Q2FY06 and Rs 18.2 in Q1FY07."

"We believe that the company would continue to perform well in the near future as no major capacity expansion is expected in next 12 months which coupled with strong demand would drive the company’s performance. We maintain our 12 month price target of Rs 1275."

Source:-Moneycontrol