India Inc lines up $17-billion IPOs

THERE is always a lull before the storm. After a rather dull first eight months of 2008, the Indian capital markets are headed for a stormy session ahead. What’s in store for the last four months is more than thrice the amount of proceeds raised during the first eight months.

In fact, Indian companies are lined up to raise an estimated $17 bn from 56 public issues during the last four months of 2008, according to Thomson Reuters estimates.

Merchant bankers in India don’t rule out a possible IPO bubble burst, considering the huge amount of IPOs in the pipeline. Till now, companies have deferred their issues due to valuation concerns. They have been waiting in the hope that market sentiments will rationalise sooner rather than later. Now, they are slowly but surely resigning to the fate and starting to move ahead with the fund raising process, as there are genuine capital requirements, which cannot be put on hold beyond a certain timeline.

Analysts worry that the stampede, which is most likely to emerge in the last four months of 2008, would make it a difficult market for merchant bankers to complete deals. Probably, they’ll work on selective deals and after a hard look at what can sell in this market decide on the course of action. It will also be interesting to see whether the entire system is actually ready to manage the IPO rush, especially when too many competing deals will be flooding to be get done at the same time.

This follows the Securities & Exchange Board of India (Sebi) recently kicking off primary market reforms by amending the rules on collection of IPO money. As per the new guidelines, retail investors’ money will remain in their bank accounts till allotment. Also, it recently reduced the duration for a rights issue from 109 days to 43 days.

State-owned companies such as NHPC (Rs 1,670 crore), and Oil India Ltd (OIL Rs 1,400 crore) have already made their intentions clear by filing applications with the Sebi and are expected to set the tone for private companies to follow suit. Another state-run company, RITES (Rs 350 crore) has already got a SEBI approval for its public issue

This is the best time for the government to take the lead to revive the primary market. Divestments and offerings from PSUs at attractive prices can pull back investors easily. Once the momentum starts, the sentiments would improve. We have seen this happen in the past; it can happen again.

Capital markets to improve

WITH credentials not under question and with the right pricing, PSU IPOs can become the harbinger of good markets. The capital markets will only improve from here on. We expect the situation to improve significantly over the next twelve months. We, in fact, are already getting there. Earlier this year companies such as Wockhardt Hospitals and Emaar MGF had withdrawn their public offerings due to a lukewarm response. Surprisingly, despite the slowdown, India still managed to occupy the fifth slot in the $87-bn global IPO market, raising $4.3 bn from 32 deals so far this year. On the other hand, China ranks second, raising $15.6 billion from 94 IPOs.

Stock Views on Tata Steel, Idea Cellular, Tata Chemicals, Lupin, ONGC

CLSA on Tata Steel - RATING: OUTPERFORM



CLSA maintains ‘outperform’ rating on Tata Steel, but lowers its target price to Rs 745. Steel prices have recently corrected by $30-40/tonne across regions, with parallel declines in spot iron ore and scrap prices. A correction in steel prices in H2 CY08 was imminent, as the price hike had overshot the rise in costs. Prices have also weakened due to the seasonally weak period and rise in Chinese exports. Moreover, steel prices have remained strong, despite weak global macroeconomic indicators. While CLSA expects steel prices to decline against the backdrop of a weakening global economy, prices are unlikely to fall below $900/tonne, as marginal producers are currently operating at $850-950/tonne. CLSA’s regional steel team believes that the recent spike in Chinese exports was due to exploitation of export regulation loopholes by smaller mills. CLSA remains confident that the Chinese government will soon clamp down on exports, either by hiking export taxes, or by implementing a quota system, which should support steel prices. With 70% of its sales on a spot basis, Corus’ earnings are highly geared to spot European steel prices. Though Q1 FY09 results will benefit from the lag in re-pricing of raw material contracts, Q2 EBITDA/tonne faces a risk due to weakening steel prices, higher raw material costs and appreciation of the US dollar versus the pound and euro. While CLSA sees higher predictability for standalone earnings, Corus adds volatility in the near term for consolidated earnings, which will be reflected in the multiples. Global steel majors’ multiples have corrected since their May-June peaks.



MERRILL LYNCH on Idea Cellular - RATING: BUY



IDEA launched its mobile services in Mumbai last week. At its launch event, the company underscored Idea’s market leadership in Maharashtra and emphasised its brand values. There were no major references to pricing differentiation; the company said Idea is not a discount brand. Idea’s tariffs on launch seem broadly comparable with prevailing tariffs of other operators, barring some product innovations like unlimited on-net night speak, postpaid-cum-prepaid service etc. Potential delivery of strongerthan-consensus subscriber market share in a relatively mature market like Mumbai can boost investors’ sentiment on Idea, even though profits from its Mumbai operations can take longer to filter through. Idea aims to have ~0.8 million subscribers in Mumbai over the next 12 months and expects around 20% share of net additions in the circle. The company expects the Mumbai operations to break even in about four years and the capital expenditure (capex) for Mumbai is expected to total Rs 800 crore by March ’09. Idea’s Mumbai network encompasses 1,000 cell sites and has the capacity to accommodate 1.5 million subscribers (roughly 10% of Mumbai’s current wireless subscriber base). The company said its core network is 3Gready and has scalable IP-based transport. Ericsson is Idea’s equipment vendor for Mumbai. Merrill Lynch has a ‘buy’ rating on Idea due to the company’s improving competitive position in the domestic market and it feels Idea’s strategic efforts are in the right direction.



GOLDMAN SACHS on TATA CHEMICALS - RATING: BUY



CMP: Rs 311 GOLDMAN Sachs initiates a ‘buy’ recommendation on Tata Chemicals with a target price of Rs 435, implying 29% potential upside. With its soda ash assets spread across geographies serving key consumption regions and an improving regulatory environment in the fertiliser industry, the market has not yet fully factored in Tata Chemicals’ earnings capability. Goldman Sachs expects 49% EBITDA CAGR over FY08-FY10E, on the back of earnings accretion from its US soda ash facility and improving margins in the soda ash and fertiliser segments. Tata Chemicals is trading at 4.9x FY10E EV/EBITDA, against its historical trading band of 6-8x forward EV/EBITDA. The company’s key catalysts include: 1) Q2 FY09 results, which should provide insight into Tata Chemicals’ soda ash realisations across geographies; 2) Sustained strength in global urea and di-ammonium phosphate (DAP) prices that lead to improvement in fertiliser margins; and 3) Potential greenfield expansion plans in the urea segment. Goldman Sachs’ values Tata Chemicals’ core business using EV/EBITDA methodology and the investments in its group companies at 25% holding company discount to market value. Goldman Sachs values the fertiliser/soda ash/other chemical segments at 6x/5.5x/6x FY10E EV/EBITDA, respectively. The 12-month target price of Rs 435 implies FY10E EV/EBITDA of 6x.



CITIGROUP on Lupin - RATING: BUY



LUPIN’S deal to market Forest Labs’ AeroChamber Plus line of products to US paediatricians will allow it to leverage its branded field force and strengthen its franchise in the paediatrics segment. While the upside may not be on the same scale as Suprax, this will be accretive, given the lack of incremental spend on development or at the front end. Lupin has entered into a multiyear agreement with Forest to promote the latter’s value holding chamber (VHC) product AeroChamber Plus to paediatricians. AeroChamber Plus is the most prescribed holding chamber for use with inhaled asthma medications in the US. As per IMS ’07 data, two-thirds of all prescriptions for the product are written by paediatricians. Lupin’s 50-strong sales force in the US currently promotes only Suprax and has room to add two more products, thus implying no incremental spend for this deal. Lupin will make an undisclosed marketing margin up to a certain threshold level of sales, beyond which, the upside will increase. Citigroup expects margins to be in the range of 10-15% — while this is lower than Lupin’s core business margins, the lack of incremental regulatory, development or front-end spend makes this an accretive deal. Citigroup believes this deal — besides being a small step towards offsetting the impact of a potential generic threat to Suprax — highlights the scope for multiple growth drivers within Lupin’s business model.



MOTILAL OSWAL on ONGC - RATING: BUY



THE government had indicated that subsidy-sharing in FY09 will be fixed at Rs 45,000 crore for upstream companies (ONGC shares ~86%), Rs 20,000 crore for OMCs and oil bonds issuance at Rs 94,600 crore. Motilal Oswal estimates the net shortfall in under-recovery sharing (post upstream, OMC and oil bonds sharing) for FY09 to be below average Brent price of $118/bbl (Rs 42 per dollar). If oil prices remain below $118/bbl, the announced subsidy-sharing will sufficiently cover under-recoveries and thus, reduce the risk of higher sharing by ONGC. Brent price has fallen by 23% from its peak in July and if the trend continues, ONGC (with fixed subsidy burden) will be adversely affected. Assuming the subsidy burden at Rs 38,700 crore for FY09, ONGC’s EPS can reduce by 21% to Rs 98.2 if average FY09 Brent price declines from $110/bbl to $100/bbl. However, at fixed subsidy burden, ONGC’s EPS will rise by 21% to Rs 150 at Brent price of $120/bbl. The Chaturvedi committee has recommended capping ONGC’s realisation at $75/bbl (100% special oil tax on realisation above $75/bbl). The recommendations are unlikely to be fully implemented, given other harsh measures like frequent hike in retail fuel prices. Motilal Oswal remains positive on ONGC with a long-term perspective, as the bulk of its NELP acreage is yet to be explored, and thus, has huge potential for oil & gas discoveries. But in the near term, the stock performance will reflect movement in oil prices. At current oil prices, a movement either ways will pose a risk to earnings. The stock trades at 8.6x FY09E consolidated EPS of Rs 124.

Karvy views on Ambuja Cements, Andhra Bank, Bank of India, Shree Cements, PVR

Buy PVR, target of Rs 260

Karvy Stock Broking has maintained its buy rating on PVR with a revised target price of Rs 260 in its August 8, 2008 research report. "PVR declared its 1Q FY09 results which were above our expectations. Net sales grew by 10.4% YoY as against our estimates of a 0.4% in 1Q FY09. This was majorly on account of higher than expected income from advertising and royalty. The net profit for 1Q FY09 declined by 35.3% YoY and grew by 43.7% QoQ as against our expectations of a decline of 61.7% YoY and decline of 14.8% QoQ."

"Considering the foray of PVR into new and promising businesses of production & distribution and lifestyle entertainment and subsequent de-risking of the exhibition business we believe that PVR will emerge as one of the better and stronger players in the multiplex industry. We have valued PVR at 13x FY10E earnings and 1.1x FY2010 sales. Subsequently, we have increased our price estimate on the company from Rs 230 to Rs 260 maintaining our BUY rating on the stock at current levels," says Karvy's research report.

Buy Shree Cements, target of Rs 733

Karvy Stock Broking has recommended a buy rating on Shree Cements with a target price of Rs 733 in its July 16, 2008 research report. "We expect net sales for the quarter ended June'08 would increase by 44.1% yoy to Rs 6.13bn driven by 26.6% growth in despatches and 11.2% growth in realization."

"SCL is currently trading at PER of 5.6x and EV/EBIDTA multiple of 3.3x on FY10E earnings. We had valued the ICL on 4x FY10E EV/EBIDTA and rate the company as BUY with price target of Rs 733," says Karvy's research report.

Buy Bank of India, target Rs 443

Karvy research has maintained buy rating on Bank of India with target price of Rs 443 in its July 17, 2008 report. "In 1st Q FY09, BoI's advances and deposits are expected to grow at 35% and 32% (Y-o-Y); the volume-led growth would result into 32% (Y-o-Y) jump in NII to Rs 12.5 billion. Estimated 24% growth in total other income on the back of fee-income growth and cost containment would lead to 36% growth in operating profit before provisions. Strain on net interest margin, significant de-growth treasury income and higher investment depreciation provisions of Rs 850 million would result in the bank's bottomline grow by 25% (Y-o-Y) to Rs 3.96 billion. The current stock price discounts FY2010 adjusted book value at 0.97x; we rate the stock as a BUY with a price target of Rs 443 at 1.88x adjusted book value FY2010" according to Karvy report.

Buy Andhra Bank, target Rs 108

Karvy research has maintained buy rating on Andhra Bank with target prie of Rs 108 in its July 17, 2008 report. "In 1st Q FY09, we assume that the Andhra Bank's advances and deposits would grow by 24% and 26.3% (Y-o-Y). The bank's net interest income (NII) would grow marginally by 2.5% (Y-o-Y) to Rs 3.7 billion and operating profit before provisions would grow by 6.3% (Y-o-Y) to Rs 2.37 billion. Higher depreciation provisions on investments of Rs 550 million would led to 18.8% (Y-o-Y) decline in net profit to 1.14 billion. Strain on net interest margin would be due to lower CASA share, higher cost of funds and lower yield on advances. We expect healthy growth in total fee income but treasury income could report degrowth. Total net income is expected to grow by 5.6% (Y-o-Y) to Rs 5.0 billion. At current market price, the stock is available at 0.65x ABV FY2010; we rate the stock as a BUY with a price target of Rs 108 at 1.34x adjusted book value FY2010" according to Karvy report.

Ambuja Cements an outperformer

Karvy Stock Broking has rated Ambuja Cements as an outperformer with a target price of Rs 101 in its July 16, 2008 research report. "For the quarter ending June 08, we expect the net sales would go up by 6.6% yoy to Rs 15.6 billion. Volume has shown a muted growth of 1.4% to 4.44 million tones due to export ban. Average realization would go up by 5.2% to Rs 3517 per tones."

"At the current market price of Rs 79 the company is trading at PER multiple of 10.2x and EV/EBIDTA multiple of 6.1x on CY09E earnings. We had valued the company on EV/EBIDTA multiple of 7.5x and rate the company as an outperformer with price target of Rs 101," says Karvy's research report.

Angel Broking views on Jain Irrigation, Finolex, Tata Steel, Tanla Solutions, Amtek Auto

Buy Amtek Auto, target of Rs 300

Angel Broking has maintained its buy rating on Amtek Auto with a target price of Rs 300 in its July 31, 2008 research report. "For 4QFY2008, Amtek Auto (AAL) reported 2.1% growth in Net Sales to Rs 318.2 crore marginally better than our expectation of Rs 315 crore. Higher EOI of Rs 30.5 crore (profit on sale of Amtek India shares of Rs 53 crore and provision on account of loss on revalidation of outstanding forex loan Rs 23 crore) helped to restrict the fall in Bottom-line. AAL reported 17.6% yoy jump in Net Profit to Rs 75 crore (Rs 63.8 crore) on account of which NPM improved by 406bp yoy."

"We maintain a Buy on the stock, with a Target Price of Rs 300. We await further details of the merger of Amtek Auto and its subsidiaries. Hence, our numbers (Standalone and Consolidated) do not include effects of the merger. We will revisit our numbers on getting more details about the merger," says Angel's research report.

Buy Tanla Solutions, target of Rs 292

Angel Broking has maintained its buy rating on Tanla Solutions with a revised 12-month target price of Rs 292 in its July 15, 2008 research report. "Tanla Solutions recorded an impressive 16.2% qoq and an excellent 86.5% yoy growth in Top-line in 1QFY2009. In 1QFY2009, Tanla took several strategic initiatives to grow this business. It acquired Openbit, a Finland-based leading provider of global on-device payments for mobile applications. This company recorded Revenues of USD 15.9 million and EBITDA of USD 0.8 million for CY2007."

"At the CMP of Rs 206, the stock is trading at 7.1x FY2010E EPS. We believe these valuations are attractive, given the strong growth expected in EPS over the next few years. However, on account of the current poor market conditions, we have reduced our target P/E multiple for the stock from 12x to 10x. Consequently, we maintain a Buy on the stock, with a revised 12-month target price of Rs 292 (Rs 339)," says Angel's research report.

Buy Tata Steel, target of Rs 875

Angel Broking has maintained its buy rating on Tata Steel with a target price of Rs 875 in its August 1, 2008 research report. "In 1QFY2009, Tata Steel posted a yoy Standalone Topline growth of 47% to Rs 6,165 crore (Rs 4,198 crore), exceeding our expectations. Despite the hefty Topline growth, Net Profit increased by 22% yoy to Rs 1,488 crore (Rs 1,222 crore) during the quarter."

"At the CMP of Rs 681, Tata Steel is trading at a P/E of 6.0x and EV/EBIDTA of 4.1x FY2010E consolidated Earnings. We believe that the stock is quoting at attractive valuations considering Tata Steel being the most integrated player and Corus has been able to pass on the cost push to customers due to the strong prices in the European markets. We maintain a Buy on the stock, with a Target Price of Rs 875," says Angel's research report.

Buy Finolex Ind with target of Rs 80

Angel Broking has maintained a buy rating on Finolex Industries with a price target of Rs 80 in its August 1, 2008 research report."Finolex Industries registered a top-line growth of 73.2% yoy during 1QFY2009 to Rs 484.5 cr (Rs 279.7 cr) mainly driven by higher volumes and hike in product prices (which were hiked over last year on the back of an increase in raw material prices). Revenues, on a qoq basis, however declined on account of the additional discounts offered on the products by the company to counter competition and boost volumes."

"We maintain our FY2010E EV/EBITDA multiple for the stock at 5x. But, we are pruning our EBITDA estimate for FY2010E to Rs 194 cr (Rs 213 cr), which is primarily due to the reduction in our OPM estimates. We continue to include the value of the 14.5% stake held by the company in Finolex Cables at 25% discount to the current market value of that stock and estimated value of the Pune land, which the company plans to sell at Rs 400 cr. We maintain a buy on the stock, with a revised SOTP target price of Rs 80." Accroding to Angel Broking report.

Buy Jain Irrigation with target of Rs 679

Angel Broking has maintained a buy rating on Jain Irrigation with a price target of Rs 679 in its August 4, 2008 research report."Jain Irrigation (JISL) reported very good set of numbers for 1QFY2009 with revenues spurting 44.9% yoy to Rs 474.3 cr (Rs 327.4 cr) backed by healthy growth in Micro Irrigation (MI), PVC Pipes and Fruit Processing segments. The company has delivered a stellar performance for 1QFY2009 backed by volume growth in majority of its segments as well as higher realisations. Operational performance remained robust with OPMs expansions owing to successful passing on of the high raw material costs to consumers. The stock is currently trading at 13.0x FY2010E FDEPS of Rs 39.9 cr. We maintain a buy on the stock, with a target price of Rs 679." Accroding to Angel broking report.

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Stock Views on Indian Hotels, Tata Motors, Praj Industries, Infosys

INDIA Infoline on Indian Hotels - TARGET PRICE: RS 85

INDIA Infoline has maintained its ‘market performer’ rating on Indian Hotels Co with a reduced price target of Rs 85. The brokerage house expects the company’s volume expansion to come from its new properties and a stable revenue growth over the medium-term with the commissioning of its Ginger brand. “Since the company now operates in all major price points, it is cushioned against an adverse affect of a weakness in luxury market room rentals or any localised downturn,” the India Infoline note to clients said. “We expect the company to witness sales and earnings CAGR (compounded annual growth rate) of 15.1% and 26.6% respectively over the next two years. Valuations appear reasonable, with price to earning of 10.8 times and EV(enterprise value)/EBIDTA of 6.8 on FY10 (estimated) earnings,” it added.

HDFC Securities on Tata Motors - TARGET PRICE: RS 454

HDFC Securities has maintained its ‘sell’ rating on the stock with a revised target price of Rs.454 (from Rs.431 earlier). The brokerage believes due to uncertainties looming over the company’s Nano project at Singur and 24-35% equity dilution would cap the upside in the stock. Also the Jaguar-Land Rover (JLR) acquisition would continue to be an overhang on Tata Motors’ stock, the note added. “We are revising our earnings per share estimate upwards by 9% (Rs.29.9 earlier) mainly on account of lower equity dilution by reducing the amount of funds raised through the equity route. We value the company on an SOTP basis with the core business valued at Rs 293 per share and subsidiaries at Rs 161 per share,” the note to clients said

ULJK Group on Praj Industries - TARGET PRICE: RS 277

ULJK Group has assigned an ‘accumulate’ rating to Praj Industries as it expects the company to benefit from its operational presence in all major ethanol-producing countries. The firm believes that fuel ethanol production is seeing an uptrend on the back of the increase in crude oil prices and the company possesses process technology for the different types of feedstock for ethanol production. “We expect the order book to grow at a CAGR of approximately 37%, backed by the increase in demand for fuel ethanol, the note said. “The revenue of the company is expected to grow at a CAGR of approximately 31% during the period FY08-FY10 (estimated). The company is expected to deliver a net profit of Rs 1,694 million in FY09(estimated) and Rs 2268 million in FY10 (estimated), a CAGR of approximately 22%,” the note added.

Edelweiss Securities on Infosys - Rating: Accumulate

Broking firm Edelweiss Securities has maintained its ‘accumulate’ rating on the stock as it believes that the company’s recent acquisition of the Axon group would bolster the company’s presence in the consulting space. “The deal is earnings per share (EPS) neutral on standalone basis in FY09 (estimated), but EPS accretion in FY10 (estimated) depends on Axon’s growth and margin trajectory. Incorporating the financial impact of this acquisition, the stock trades at 16.5 times and 13.9 times FY09 and FY10 earnings respectively,” the note said. However, according to the brokerage firm, slowdown in US, significant increase in the salary hikes and attrition rate, reduction in the number of H1B visas granted by US, and incremental appreciation of rupee against US dollar, euro and GBP remain key concerns for the company.

PINC Stock Views on Firstsource Solutions, Garware Offshore, Rohit Ferro Tech, Visa Steel

Buy Visa Steel, target Rs 85

PINC has maintained buy rating on Visa Steel with taret price of Rs 85 in its June 11, 2008 report. "Visa Steel Ltd (VSL) registered excellent growth with revenue rising by 85% to Rs 2.6 billion. OPM expanded by 1,160bps to 17.8% while net profits surged by 30x to Rs 210 million. The key attribute to this robust performance was an overall buoyancy in realisations being witnessed in the commodities. At the CMP of Rs 52, the stock trades at a P/E of 3x and EV/EBITDA of 3.5x FY10 estimates. We see volume growth emanating post completion of the DRI unit in Q1FY09. This, coupled with lower power cost through captive power plant provide ample earnings visibility. We remain positive on the stock and reiterate our ‘BUY’ recommendation with a 12- month price target of Rs 85" accoreing to PINC report.

Buy Rohit Ferro Tech, target of Rs 190

PINC Research has maintained its buy rating on Rohit Ferro Tech with a 12-month target price of Rs 190 in its August 6, 2008 research report. "Rohit Ferro Tech Ltd’s (RFTL) net sales at Rs 3.1 billion for Q1FY09, exhibited a YoY growth of 210%. The primary drivers were volume growth and higher ferro alloy realisations."

"At the CMP of Rs 147, it trades at a P/E of 3x & EV/EBIDT of 3.1x discounting its FY10E earnings, which we believe are low considering the buoyant ferro alloy pricing and ongoing expansion. Hence, we maintain our ‘BUY’ rating with a 12-month price target of Rs 190," says PINC's research report.

Buy Garware Offshore, target of Rs 300

PINC Research has maintained its buy rating on Garware Offshore Services with a target price of Rs 300 in its August 5, 2008 research report. "Garware Offshore Services Ltd’s (GOSL) Q1FY09 results were in line with expectations as net sales rose 52% to Rs 294 million and net profits (excluding extraordinary item) grew by 92% to Rs 99 million."

"GOSL has capitalised on the buoyant uptrend in the offshore service space by timely expansion of its fleet. We are confident of the company achieving its targeted expansion, which should reflect in its performance from H2FY09 onwards. Thus, we maintain our ‘BUY’ recommendation with a 12-month price target of Rs 300," says PINC's research report.

Buy Firstsource Solutions, target of Rs 46

PINC Research has maintained its buy rating on Firstsource Solutions with a revised 12-month target price of Rs 46 in its August 5, 2008 research report. "Firstsource Solutions Ltd. (FSL) reported a better than expected quarter as net sales grew by 8.6% QoQ to Rs 4.0 billion while OPM dipped by 180bps to 14.8% due to wage hikes and higher operating costs. INR depreciation during the quarter led to a notional non cash loss of Rs 801 million linked to USD FCCBs. As a result, net profits were negative. Excluding this, net profits were at Rs 301 million."

"At the CMP of Rs 35, FSL is trading at a P/E of 13.1x and EV/EBIDT of 6.6x our FY09 estimates. Though FSL is operating in an uncertain environment and Q2 numbers would give clear visibility over its outlook, a better than expected Q1, near term revenue visibility and H2 performance historically being better provide positive indicators. Besides these factors, the outsourced BPO market remains underpenetrated and provides an opportunity to FSL to consistently expand earnings going forward. Hence, we maintain our ‘BUY’ recommendation with a revised 12 month price target of Rs 46," says PINC's research report.

Stock Views on Areva TD, ONGC, Aditya Birla Nuvo, Ultratech Cement, Allied Digital

CITIGROUP on AREVA T&D INDIA - TARGET PRICE: RS 1,809

CITIGROUP Global Markets has assigned a ‘hold’ rating to Areva saying despite the company’s strong fundamentals, the stock is fairly priced. “The stock trades at a P/E multiple of 19.7 times 2009 (estimated) earnings and provides limited upside to our target price of Rs 1,809. Our target price is based on a P/E multiple of 23 times December 2009 set at a 9.5% premium to historical average P/E multiples and in line with ABB,” the Citigroup note to clients said. Citigroup expects Areva’s earnings per share to grow at a compounded annual rate of 32% over 2007-10 (estimated), with a return of equity of around 40%. In comparison, ABB’s EPS is expected to grow at a compounded annual rate of 25% with a RoE of roughly 30%.


MACQUARIE Research on ONGC - TARGET PRICE: RS 995

MACQUARIE Research Equities has given a ‘neutral’ rating to ONGC, as it feels that attractive valuations are offset by lack of earnings growth. “ONGC is trading at undemanding valuations of 7.7 times FY3/09 (estimated), but it also lacks growth, as a corresponding rise in subsidy burden wipes out a bulk of its gain from a rise in oil price re-alisations,” the Macquarie note to clients said. Earlier this week, ONGC Videsh (OVL), the wholly-owned subsidiary of ONGC, had an-nounced a recommended preconditional cash offer to acquire Imperial Energy Corp, an oil E&P (exploration and production) company with assets in Russia and Kazakhstan for £1.4 billion.

Sharekhan on ADITYA BIRLA NUVO - TARGET PRICE: RS 2,035

BROKERAGE firm Sharekhan maintained its ‘buy’ rating on Aditya Birla Nuvo even though it feels that the firm may have overpaid for its acquisition of Apollo Sindhoori Capital investments Ltd. “We believe ABN has paid substantial premium for the buy, considering the valuations at which the listed peers are trading and the bleak near-term outlook for the broking industry. Nevertheless, the acquisition provides ABN entry into broking business and may hold value in the long term,” the Sharekhan note said. “We remain positive on ABN on account of its presence across diversified businesses. In the near term, the stock would have the trigger on account of the insurance bill that is expected to allow higher foreign direct investment in the sector,” it added.

CLSA on ULTRATECH CEMENT - TARGET PRICE: RS 791

CLSA has resumed coverage on UltraTech Cement with a ‘buy’ rating and price target of Rs 791. It feels that while domestic prices should drop over the next 9-18 months due to an adverse demandsupply regime, UltraTech’s improving sales mix should keep blended realisations flat over FY08-11CL. “EBIDTA margin is set to fall due to higher cost but it will be the most moderate decline. Its 9% volume CAGR over FY08-11CL should help drive a 4% cash-earnings CAGR. At 5.8 times price/cash flow, downside is limited,” said the CLSA note.

Alchemy Share on ALLIED DIGITAL - TARGET PRICE: RS 1050

Alchemy Share and Stock Brokers has rated Mahashtra Seamless a ‘buy’with a price target of Rs 873. “With increasing activity E&P (exploration & production) in the oil & gas sector in India, demand for seamless pipes is expected to rise over 10% in the next five years. MSL, being the leader, the company will be the major beneficiary of this demand,” the Alchemy note to clients said. “Further, implementation of city gas distribution network (CGD) in 200 cities as planned by Gail will improve the outlook for ERW pipes. MSL, being one the two key players in ERW segment, is set to benefit from increased demand,” the note added.

Stock Views on Larsen Toubro, Container Corp Of India, Areva TD, HCL Technologis, Ansal Properties

MORGAN STANLEY on LARSEN & TOUBRO - RATING: OVERWEIGHT


MORGAN Stanley believes that fears of the impact of a slowdown in the capex cycle in India on Larsen & Toubro (L&T) are exaggerated. It expects L&T to gain market share during the slowdown, so the risk-to-growth estimates will remain low. Morgan Stanley believes L&T is the lowest risk play in the sector and strongly recommends buying into any weakness. However, despite the upgrade, Morgan Stanley estimates a CAGR of 25% for L&T’s standalone earnings over FY08-10E against 57% over FY06-08E. L&T will be cushioned from the slowdown due to its propensity to gain market share in slowdowns, its entry into newer verticals and its exposure to the Middle East. On a bottom-up basis, healthy capex trends in verticals (E&P and metals) further increase the company’s ability to weather the slowdown.


JP MORGAN on CONTAINER CORP OF INDIA - RATING: OVERWEIGHT


JP Morgan has assigned an ‘overweight’ rating on Container Corporation of India (Concor) with a March ’09 price target of Rs 1,010. The price target implies a 16% potential share price upside from current levels. Concor is India’s largest railway container freight operator with an over 90% market share. By that estimate, Concor will have an earnings CAGR of 16% over FY08-10 driven by growth in containerised cargo traffic. Given sustained growth in India’s foreign trade, JP Morgan expects container traffic to grow at 14% over FY08-10E. It expects Concor to be a key beneficiary of this growth, given its unparalleled infrastructure network with 58 inland container depots (ICDs) and over 150 rakes and established customer relationship. The company’s revenue growth is likely to accelerate to 18% CAGR over FY08-10E (versus 10% in FY08), given a sharp increase in customer tariffs. The March ’09 price target is based on discounted cash flows (DCF) and implies 13x oneyear forward P/E on FY10E EPS (which is at a 10% discount to its average historical three-year multiple). The multiple looks justified, given rising competition and moderation in earnings growth. Downside risks to the price target and view are a challenging macro environment, given high crude oil prices and rising inflation, which can slow down India’s foreign trade; and a sharper-than-expected increase in competitive intensity.


CITIGROUP on AREVA T&D - RATING: HOLD


CITIGROUP has initiated a ‘hold’ recommendation on Areva T&D India with a target price of Rs 1,809. Areva T&D’s EPS has witnessed a CAGR of 117% over CY04-07 and expanded return on equity (RoE) from 11.4% to 46.5%, aided by a focus on higher-margin national grid/selected orders for the Accelerated Power Development and Reform Programme (APDRP) and growth off a lower base. Further, the company’s EPS is expected to witness a CAGR of 32% over CY07-10E, versus that of ABB at 25%, with higher RoEs of ~40% versus ABB at ~30%. Discussions with the management suggest that any foray into the nuclear power equipment business in India will be through a separate entity. Globally, Areva is at No 3 after ABB and Siemens in power T&D. ABB has historically been the market leader in India. However, Areva T&D India has edged past ABB in H1 CY08 with a market share of 22.4% vs 19% for ABB and 12% for Siemens. These are strong end markets and low-cost manufacturing centres. Areva T&D Global has a clear strategy of making these two countries global sourcing hubs. Currently, exports contribute 14% to Areva T&D India’s sales and are expected to jump to 25% by CY12E. The stock trades at a P/E of 19.7x CY09E and provides limited upside to the target price of Rs 1,809. The target price is based on a P/E of 23x December ’09 set at a 9.5% premium to historical average P/Es and is in line with that of ABB’s. Order inflow momentum, execution and commodity price movements can drive share price movements.


INDIABULLS SECURITIES on HCL TECHNOLOGIES - RATING: BUY


INDIABULLS Securities has maintained its ‘buy’ rating on the stock because the company witnessed a strong deal inflow during Q4 ’08 ($310 million) and signed a total contract worth $1 billion during the year. HCL Technologies reported strong results for the quarter and the year ended June ’08. Its topline recorded a sequential growth of 11.5% to Rs 2,170 crore, driven by an appreciating dollar and a modest volume growth. EBITDA margin increased by 117 bps q-o-q to 23.4%, led by an improved operational efficiency and a decrease in the cost of revenue, which helped offset the increase in SG&A expenses. Although in a weak macro-economic environment, pricing will continue to remain under pressure, Indiabulls expects the company’s revenues to grow at ~21.4% in dollar terms for FY09, driven by volumes. Besides, gain from the appreciating dollar against the rupee will also help improve revenues to grow at 27.2% in rupee terms for FY09E. Despite a slowdown, the US remained the highest revenue contributor and showed a decent growth throughout the year. Besides, the company steadily improved its utilisation rate from 69.2% in Q1 ’08 to 73.9% in Q4 ’08, which helped improve margins. Despite having stable fundamentals, the stock is trading at a discount of 29% to the average industry multiple. Moreover, valuation gives a fair value of Rs 316. The stock has an upside of around 37%.


MACQUARIE on ANSAL PROPERTIES - RATING: NEUTRAL


ANSAL Property and Infrastructure (APIL)’s leverage ratios are stretched. Its net debt-to-equity ratio (incorporating the impact of outstanding land payments) stands at 165%. This does not include any impact of off-balance sheet financing. APIL’s stretched balance sheet and the general scenario of tight liquidity are primary concerns. Macquarie has a limited visibility on sources of capital which will be used to generate profits from this land bank. Investors are unlikely to (and should not) attribute any value to profits earned over and above the replacement cost of the land bank. Macquarie has cut its NAV estimates to reflect this change in opinion. Its ~240 million sq ft of land in North India provides APIL the scale to enjoy preferred supplier relationships. Margins are likely to be supported by the low average cost of land acquisition (Rs 121/sq ft). Projects in North India account for 100% of APIL’s NAV and land bank. This concentrated land bank limits its ability to focus elsewhere if this market experiences a slowdown. North India has seen rapid price rises and even more rapid project launches in the past 2-3 years. Incrementally, this scenario is likely to be exacerbated by a surge in secondary market supply, as speculators try to exit properties bought in the past two years. The target price of Rs 100 based on a 25% discount on NAV remains unchanged. APIL is trading at a 24% discount to liquidation value and below its book value. This provides downside support. Nevertheless, Macquarie has downgraded the stock to ‘neutral’ from ‘outperform’ as the stock lacks triggers, which may keep the share price at depressed levels.

Top IT Stock Picks

Dollor is back at Rs 44, so whihc are the top IT picks??

Large Cap

• Infosys


• TCS

Mid Cap

• Rolta


• Mastek

Small Cap

• Tanla Solutions


• Bartronics

Defensive Stocks

• Noida Toll Bridge Company (NTBC)


• Cosmo Films - Second-largest manufacturer of biaxially oriented polypropylene (BOPP) films


• Bilcare - Leading players in the packaging industry


• Indraprastha Gas


• Max India - In the insurance segment, plastic packaging, hospitals, clinical research services and healthcare staffing services


• Apollo Hospitals

Stock Views on THERMAX, BHEL, BOMBAY RAYON

Kotak Securities on THERMAX - TARGET PRICE: RS 540

Kotak Securities has assigned an ‘accumulate’ rating to Thermax, saying that recent orders will drive the company’s revenue growth in FY10. “The company is witnessing robust order inflows from steel and sponge iron makers. Thermax has also expanded its prequalifications in refineries. The company indicated that orders have been trickling in from sugar distilleries and the polyester sector,” the Kotak note to clients said. “Thermax is currently trading at 17.9 times and 14 times FY09 and FY10 earnings, respectively," the note added, cautioning that near-term growth was likely to be subdued.

Citigroup on BHEL - TARGET PRICE: RS 2,025

Citigroup Global Markets has downgraded its rating on BHEL from ‘buy’ to ‘hold’, citing limited upsides from the current levels with re-spect to the new target price. Citi has revised the target price for BHEL to Rs 2,025 from Rs 1,642 earlier to factor in the increase in the earn-ings estimates over FY10E-12E by 8-9%. “BHEL has hiked its order inflow guidance to Rs 500 billion from Rs 40,000-50,000 crore earlier. It has bagged Rs 192 billion of orders so far in FY09E and is well on course to meet its full-year order inflow guidance,” the Citi note to clients said. It expects BHEL’s earnings per share (EPS) to grow at a com-pounded annual rate of 27% over FY08-11(estimated) with RoE (return on equity) at 28-31% levels.

Merrill Lynch on BOMBAY RAYON - TARGET PRICE: RS 450

Merrill Lynch has initiated coverage on Bombay Rayon Fashion with a ‘buy’ rating and price target of Rs 450 citing attractive valuations. “Valuations are inexpensive at 9 times FY10 (estimated) earnings, given strong growth outlook and high RoE at 24%,” the Merrill Lynch note to clients said.

Stock Views on LANCO INFRATECH, SATYAM COMPUTER, UNITECH, HERO HONDA

ICICI Securities on LANCO INFRATECH - TARGET PRICE: RS 564


BROKERAGE house ICICI Securities has maintained its ‘buy’ recommendation on Lanco Infratech with a price target of Rs 343, but has lowered earnings estimates for FY09 and FY10 by 34% and 42%, respectively, citing slowdown in the infrastructure space.


“Slowdown in realty has led to 15-20% downgrade in selling prices across projects and increased the cost of equity, cost of debt and cap rates 200 bps each, implying 43% downgrade in real estate NAV to Rs 22 billion or Rs 100/share,” said the ICICI Securities note to clients. “As per our funding analysis on Lanco (both debt and equity), we expect no funding risk for its upcoming power and realestate projects. Despite earnings downgrade, Lanco enjoys healthy growth in construction orderbook, discounted valuations of power portfolio, strong earnings momentum and robust business model,” the note added.


CLSA on SATYAM COMPUTER - TARGET PRICE: RS 430


BROKERAGE house CLSA has reaffirmed its ‘underperform’ rating on Satyam saying it does not expect any spectacular financial performance by the IT services major. “We continue to be surprised by the lack of any positive commentary or data points on demand even into mid-August, with only three months left before the next budgeting cycle,” the CLSA note to clients said.


According to CLSA, Satyam commented that in April, its “stretch target” for growth in FY09 would have been 30% year-on-year (guidance of 24-26% Y-o-Y). “But after the 1Q disappointment and continued demand uncertainty, this margin of safety has somewhat shrunk. Our revenue growth forecast is currently 27%. With no breakout performance (relative to peers) indicated by financials, we expect the stock to reflect sector sentiment hereon,” the note added.



HSBC Securities on UNITECH - TARGET PRICE: RS 158


HSBC Securities has retained its ‘underweight’ rating on Unitech with a price target of Rs 158, as it feels further returns from current levels could be limited in the absence of any catalysts. The brokerage feels property prices will have to come down if demand has to pick up. “Residential segment occupies around 79% of the total saleable area and roughly 46% of the gross asset value. Within the residential space, a few cities hold a large exposure, exposing Unitech to absorption and price risk in these markets,” the HSBC note to clients said.


“Agra and Varanasi would contribute around 35% of Unitech’s total retail development. Since these cities are currently too small to absorb such a large supply of retail space, we remain sceptical on the company’s retail plans in these two cities, the note added.


INDIA Infoline on HERO HONDA - TARGET PRICE: RS 785.10


INDIA Infoline has recommended a ‘sell’ on Hero Honda, as it feels high interest rates could affect the company’s sales. “Although, Hero Honda (HHL) has been outperforming in the past 4-5 months, as Bajaj Auto pulled out of the 100-cc segment and TVS delayed the launch of kFlamem, we expect the industry concerns to catch up with HHL too, in near to medium term,” the brokerage said in a note to clients. In order to improve asset quality and address problem of rising delinquencies, some key banks have discontinued or slowed down their auto loan business at the dealer end. With 60% of two-wheeler sales being financed, this move has seriously impacted industry fortunes.

Stock Views on VOLTAS, CORPORATION BANK, STERLITE INDUSTRIES, INDIA CEMENTS, IRB INFRASTRUCTURE

CITIGROUP on VOLTAS - RATING: SELL

CITIGROUP rates Voltas as ‘sell/medium risk’ with a target price of Rs 121. Voltas, a Tata group company, is the market leader in India’s heating, ventilation and air-conditioning (HVAC) segment, having 28% market share in electromechanical projects. But domestic demand is decelerating across all its divisions. Citigroup sees increased risk to the company’s earnings if the market environment worsens. It expects overall margins to be in the range of 7.5-8.3% over the next three years. Voltas’ target price is set at 15x September ’09E forward EPS and is supported by forecasts of 27% earnings CAGR for FY07-10E and 29-33% return on equity (RoE). At 15x September ’09E, Voltas will trade at a discount to power equipment stocks like Bhel and engineering & construction companies such as L&T. The 15x September 09E multiple is lower than the average one-year forward P/E of 22x over the past three years — reflecting reduced growth outlook. Key downside risks include: international projects risks, termination of principal agent relationships, increasing competition in domestic and international markets, manpower shortages and material prices. Key upside risks include: stronger-than-expected performance driven by the international business, and turnaround of the domestic operating environment.

INDIABULLS SECURITIES on CORPORATION BANK - RATING: BUY

INDIABULLS Securities reaffirms its ‘buy’ rating on Corporation Bank with a target price of Rs 335, which is 21% more than its current market price. The bank’s operating profit grew by a healthy 16.5% y-o-y in Q109. But net profit grew by merely 4.1%, primarily due to mark-to-market (MTM) losses during the quarter. While growth in net interest income (NII) was hit due to compression in net interest margin (NIM), other income, which grew at 14%, supported growth in operating profit. An increase in business productivity reduced operating expenses, further improving profitability. But pressure on NIM may ease in the next few quarters as the bank hiked its benchmark prime lending rate (BPLR) by 50 bps in August. Moreover, the CASA ratio has been improving consistently on the back of an aggressive increase in the number of branches. This should help maintain, if not increase, the bank’s NIM. There has been a sequential reduction in the bank’s net and gross NPAs. The bank is likely to maintain its asset quality, given that it is not aggressively focused on the priority sector.

MERRILL LYNCH on STERLITE INDUSTRIES - RATING: NEUTRAL

MERRILL Lynch remains ‘neutral’ on Sterlite Industries due to weak zinc outlook. The long-pending decision on the Lanjigarh bauxite mines in Orissa finally came through in Sterlite’s favour. This development is more positive for the parent company, Vedanta Resources, than for Sterlite. But it will have a positive impact on Sterlite too. The approval for the mine indicates the promoter group’s ability to execute growth projects in the country, where mining approvals are typically difficult to secure. Vedanta is setting up a 1.1-million tonne (mt) alumina refinery and 500-kt ally smelter in Orissa. Lanjigarh bauxite mines have estimated reserves of 77 mt and are located 5 km from the refinery. Sterlite will mine the bauxite and sell to Vedanta on a transfer pricing basis. The mine development is expected to take around nine months and will make Vedanta a fully integrated low-cost producer of ally. The benefit from this project is relatively small for Sterlite, since it has only a 29.5% stake in this project, and it will account for a mere 5% of Sterlite’s consolidated profit in FY10. Sterlite is trading at 11.1x FY09E. On MTM spot zinc price of $1,733/tonne, it is trading at 13x FY09E. Merrill Lynch believes the sharp year-to-date stock correction already factors in the zinc price crash. Given that zinc prices are now lower than the marginal cost of production, Merrill Lynch believes the probability of supply closures is rising. In addition, speculation on minority stake buyouts in the company’s zinc and aluminum subsidiaries is building up.

JM FINANCIAL on INDIA CEMENTS - RATING: HOLD

JM FINANCIAL recommends ‘hold’ rating on India Cements (ICL) and values the company at a target enterprise value/tonne of $100 to arrive at its June ’09 target price of Rs 168. JM Financial expects 20.3% and 13.2% yo-y growth in revenue for ICL in FY09E and FY10E, respectively. EBITDA is estimated at Rs 1,060 crore and Rs 1,070 crore in FY09E and FY10E, respectively, resulting in EBITDA margins of 29.0% and 25.7% in that order. ICL undertook corporate debt restructuring (CDR) in FY03, when the cement industry was passing through difficult times and ICL had debt:equity of 4.4x. As the cement sector’s prospects improved, ICL repaid most of its debt and its debt:equity stood at 0.5x in FY08. Subsequent to the CDR, the company has done equity issues that have led to a large capital base, thereby lowering sustainable return on capital employed (RoCE) at the corporate level to 11.8%. ICL is the key player in the South, where it enjoys higher realisations and consumption growth of 11.74%, compared to the all-India growth rate of 10% in FY08. ICL currently trades at 5.7x EV/EBITDA, P/E of 8.1x and EV/tonne of $98 for FY10.

LEHMAN BROTHERS on IRB INFRASTRUCTURE - RATING: OVERWEIGHT

LEHMAN Brothers initiates coverage on IRB Infrastructure Developers with an ‘overweight’ rating and a March ’09 price target of Rs 195. IRB is one of the largest road developers in India, and has 14 BOT road projects. The company’s key strength is its in-house construction capability that enables it to capture the entire economic value of road projects, and helps it to address execution risks. Historical projects have yielded substantially high-equity internal rate of return (IRR). IRB has strong cash flows and low leverage compared to other international road developers. Its operating cash flow is strong and will improve further after commissioning of the Bharuch-Surat and Surat-Dahisar stretches. Lehman estimates cash flows before capex at Rs 1,200 crore over FY09-11. The increase in cash flow is driven primarily by a rise in toll revenue. The net debt-to-equity ratio for IRB is only 0.9, and leverage is likely to remain comfortable at 1.3 in FY10. Lehman values IRB at: (1) Road concessions at Rs 129 per share; (2) Rs 36 per share as growth factor to account for potential new projects; (3) Construction business at Rs 26 per share based on a multiple of 10x FY10 earnings estimate of Rs 87 crore; and (4) Real estate at Rs 3 per share. The stock is currently trading at a multiple of 9.4x FY10 earnings estimate of Rs 520.5 crore and 2.1x FY10 book value of Rs 2,372 crore, and at a substantial discount to its global peers. The stock is currently trading at 1.08x concession portfolio NAV of Rs 4,293.8 crore, implying that not much value has been attributed to construction, real estate and future growth opportunities in road concessions.

KRChoksey vliews on Tata Motors, IVRCL Infrastructure, Wockhardt, Dishman Pharmaceuticals

Buy Dishman Pharmaceuticals, target of Rs 356

KRChoksey Research has maintained its buy rating on Dishman Pharmaceuticals & Chemicals with a target price of Rs 355.8 in its August 1, 2008 research report. "In Q1FY09, the company’s sales have increased by 40.4% on a y-o-y basis to Rs 235.9 crore. The net profit of the company rose by 28.7% y-o-y to Rs 27.7 crore against Rs 21.5 crore."

"At the CMP of Rs 298.7, the stock is trading at 19.9x TTM EPS of Rs 15.0 and 13.0x FY09E EPS of Rs 22.9. We maintain our BUY recommendation with a target price of Rs 355.8, implying an upside potential of 21%. At the target price, the stock would be valued at 15.5x FY09E EPS of Rs 22.9," says KRChoksey's research report.

Buy Wockhardt, target of Rs 250

KRChoksey Research has maintained its buy rating on Wockhardt with a target price of Rs 250 in its July 31, 2008 research report. "In Q2CY08, the company’s sales have increased by 48.3% on a y-o-y basis to Rs 935 crore. The net profit of the company rose merely by 4% y-o-y to Rs 106.3 crore against Rs 102.4 crore."

"At the CMP of Rs 187, the stock is trading at 5.3x FY07 EPS of Rs 35.25 and 4.8x FY08E EPS of Rs 39.1. We maintain our BUY recommendation with a target price of Rs 250, implying an upside potential of 33%. At the target price, the stock would be valued at 6.4x FY08E EPS of Rs 39.1," says KRChoksey's research report.

Buy IVRCL Infrastructure, target of Rs 381

KRChoksey Research has maintained its buy rating on IVRCL Infrastructure and Projects with a target price of Rs 381 in its July 31, 2008 research report. "We expect IVRCL to register strong growth in top-line as a result of robust order book position providing revenue visibility over the next 2-3 years. Moreover, central and state government’s urge to develop irrigation projects augurs well for IVRCL having order backlog of Rs 9,800 crore (66.2% of total order book). However we anticipate pressure on operating and net profit margins in the immediate future due to increase in raw material and interest expenses."

"We therefore downgrade our target price from Rs 526 to Rs 381, however, maintaining a BUY rating. At the target price the stock would be valued at 21.5x FY09E EPS of Rs 17.72, implying an upside potential of 26.2%," says KRChoksey's research report.

Buy Tata Motors, target of Rs 634

KRChoksey Research has recommended a buy rating on Tata Motors with a target price of Rs 634 in its August 1, 2008 research report. "Net sales grew by 14.4% y-o-y to Rs 6928.4 crore against Rs 6056.8 crore in Q1FY08. The sales growth was on the back of 3.65% y-o-y growth in volumes and strong growth in the realizations of 10% y-o-y."

"We recommend a BUY on the stock with a target of Rs 634 arrived through the SOTP process. At the target price the company would be trading at 11x its FY09E EPS of Rs 57.47 representing an upside potential of 60% from current levels. These calculations, however, do not take into account the recent JLR acquisition which we believe would be strongly EPS accretive, as we are awaiting the numbers for JLR to be disclosed by Tata Motors to evaluate it," says KRChoksey's research report.

Stock Views on Ranbaxy, Tanla Solutions, Zee Entertainment, Gammon India

Ranbaxy has 2-year target of Rs 700: Eastern Financiers

According to Eastern Financiers, Ranbaxy Laboratories with the change of ownership, Daiichi Sankyo Limited taking over from Malvinder Singh, we expect the company to grow aggressively and develop. So, the possibility of a de-listing of Ranbaxy stock in the future cannot be ruled out. A 2-year price target of Rs 700 looks possible. Settlement with Pfizer is an important catalyst going forward.

Buy Tanla Solutions, target of Rs 360: Prabhudas Lilladher

Prabhudas Lilladher has maintained its buy rating on Tanla Solutions with a target price of Rs 360 in its July 14, 2008 research report. "Tanla Solutions’ Q1FY09 numbers were above our estimates, especially topline, which grew at 16.2% sequentially to Rs 1,669 million. EBITDA for the quarter grew 15.7% sequentially to Rs 804 million, with margins sliding slightly (20bps) to 48.2%. Net profit grew by 12.8% QoQ to Rs 564 million."

"We expect Tanla to report revenue growth of 105.5% and 46.9% and earnings growth of 56.9% and 40.8% in FY09 and FY10 respectively. We maintain BUY rating on the stock with a target price of Rs 360 (10x FY10E earnings), implying 63.9% upside from current levels," says Lilladher's research report.

Add Zee Entertainment, target of Rs 216: IIFL

IIFL has initiated coverage on Zee Entertainment with an 'ADD' rating and a target price of Rs 216 in its July 16, 2008 research report. "Zee Entertainment is a well-entrenched No 2 in the Hindi general entertainment channel (GEC) space. We expect it to deliver 17% earnings CAGR over FY08-11 even after factoring in a slowdown in advertising spends in FY10. This earnings growth will be driven by: 1) strong growth in subscription revenues, driven by a revamp of the domestic cable distribution; 2) acceleration in DTH subscriber addition with entry of new players; and 3) demerger of Zee Next, which will boost FY10ii earnings by 10%. We initiate coverage with an ADD rating and a target price of Rs 216, based on 18x FY10ii EPS," says IIFL's research report.

Buy Gammon India, target of Rs 281: IIFL

IIFL has recommended a buy rating on Gammon India with a 12-months target price of Rs 281 in its August 4, 2008 research report. "Gammon 1QFY09 results disappointed our and street expectations and were much below management guidance in the 4QFY08 earnings call. Suspension of two projects in Kashmir and Assam resulted in tepid revenue growth. Margins contracted more than expected as the proportion of low margin captive projects in revenues increased."

"Gammon has merged its T&D contracting associate, ATSL with itself. Post downward revision in estimates of organic business and inclusion of ATSL financials, the stock is trading at adjusted FY10ii PE of 7.1x. The stock is cheapest among peers. However, consistent performance is required before the stock re-rates. Buy, 12-months target Rs 281," says IIFL's research report.

Religare Views on Axis Bank, Divis Labs, Deepak Fertilizers, PSL, Gujarat Industries Power

Buy Gujarat Industries Power Co, Target Rs 123

Religare Research has maintained its buy rating on Gujarat Industries Power Company with a target price of Rs 123 in its August 6, 2008 research report. "The company's revenue at Rs 2,624.5 million was above our estimate by 31.4% due to higher fuel prices for its gas based power plants at Baroda. The higher fuel cost being a pass-through increased the revenue by 22% YoY. The EBITDA of the company at Rs 554.5 million was down 21.4% YoY mainly due to the additional O&M expenditure incurred during the planned annual shutdown of its 250MW lignite based plant at Surat. The net profit of the company was also below our expectation by 8% at Rs 224.9 million, showing a negative growth of 40.5% YoY due to additional O&M expenditure and lower other income."

"We are revising our estimates to incorporate the higher fuel cost which is a pass-through and the delay in commissioning for its SLPP II project. The stock is currently trading at 1x its FY09 and FY10 book value, a considerable discount to its peers. We have revised our DCF assumptions for the risk-free rates to 9.3% from the earlier 8.4% to reflect the current interest rate scenario. Based on the weighted average of the DCF and P/BV methods, we arrive at the target price of 112 down from our earlier target price 123 maintaining our Buy recommendation," says Religare's research report.


Buy PSL, Target of Rs 500

Religare Research has maintained its buy rating on PSL with a target price of Rs 500 in its July 16, 2008 research report."Net sales increased by 59% YoY to Rs 6.5 billion on the back of strong volume growth (+32.8%) and Rs 600 million of additional revenue contribution from the sale of pipe manufacturing mill to the US subsidiary. EBITDA increased by 46.2% YoY and 24% QoQ to Rs 594 million. EBITDA margins expanded by 180bps QoQ to 9.1%. Adjusted PAT increased by 52% YoY and 41.1% QoQ to Rs 260 million. Adj. PAT margins expanded by 120 bps QoQ to 4%."

"At the CMP of 310, the stock trades at 9.0x FY09E diluted earnings. We maintain our Buy recommendation on the stock target of Rs 500," says Religare's research report.

Buy Deepak Fertilizers, target of Rs 183

Religare has maintained its buy rating on Deepak Fertilizers and Petrochemicals Corp with a price target of Rs 183 in its June 10, 2008 research report. "The company is expanding its diluted nitric acid capacity to 1,350MT/day from 900MT/day by June 2009 with a total investment of Rs 1.1 billion. This is expected to elevate its market share from 48% to 58%, while boosting the production of nitro phosphates and ammonium nitrate. The company has started to procure."

"0.2–0.3mmscmd of LNG from GAIL through its Dahej-Uran pipeline, which is expected to increase plant capacity utilisation. It also expects gas supply from the Reliance KG-basin to commence shortly. This apart, Ishanya will lend an added dimension to profitability. We maintain our Buy recommendation on the stock with a price target of Rs 183," says Religare's research report.

Buy Divis Labs, target of Rs 1833

Religare has maintained its buy rating on Divis Laboratories with a target price of Rs 1833 in its June 10, 2008 research report. "Divi's remains our preferred pick in the Indian CRAMS space, given its healthy relationship with top innovators amid a growing outsourcing trend. Through its focus on high-margin CCS, the company's EBITDA margin will remain amongst the highest in the CRAMS segment. Further, as Divi's emerges from its heavy capex phase, we expect return ratios to improve significantly. We estimate a PAT CAGR of 28% to Rs 6bn over FY08-FY10, and maintain Buy with a target price of Rs 1,833," says Religare's research report.

Buy Axis Bank, target of Rs 805

Religare Research has maintained its buy rating on Axis Bank with a revised target price of Rs 805 in its July 16, 2008 research report. "Axis Bank's Q1FY09 results have surpassed our estimates primarily on the strength of higher loan growth and robust non-interest income. NII expanded 93% YoY to Rs 8.1 billion, driven by increased asset growth as advances and deposits swelled 48% and 46% respectively. In another key positive, fee income surged 80% YoY during the quarter to Rs 4.8 billion, aiding net profit growth of 89% to Rs 3.3 billion.""The management expects to maintain the robust business growth momentum in the coming months. However, the weakening asset quality remains a concern. We have revisited our estimates for fee-based income to incorporate the strong growth during the quarter, while raising our estimate for provisioning expenses in FY09 and FY10 on account of higher non-performing assets and depreciation on investments. On a net basis, these changes have no impact on our profit targets. In light of the increased market risk, we have raised our DDM valuation assumptions for risk free rate to 9.1% and beta factor to 1.2. This gives us a revised target price of Rs 805 from Rs 984. We maintain a Buy on the stock," says Religare's research report.

KRChoksey views on PVR, DLF, Unitech

Buy PVR

KRChoksey Research has recommended a buy rating on PVR in its August 4, 2008 research report. "Net sales for the Q1FY09 were up by 10% Y-o-Y to Rs 60.2 crore. The growth of 10% was mainly driven by F&B income ( 10% Y-o-Y to Rs12.4 crore) and Advertisement & Royalty income (Y-o-Y 62% to Rs 9.0 crore)."

"At CMP of Rs 173, the stock is trading at 21.9x TTM EPS of Rs 7.9. We recommend investors to BUY the stock, with our price target under review," says KRChoksey's research report.


Buy DLF, target of Rs 615

KRChoksey Research has recommended a buy rating on DLF with a target price of Rs 615 in its August 4, 2008 research report. "Sales grew 24% y-o-y to Rs 3,810.6 crore in Q1FY09. There was a 12% decline in q-o-q sales due to the seasonal effect as sales in Q1 are historically sluggish. Operating margins were lower by 1020 basis points y-o-y on account of revenue from middle income segment. Net Profit was Rs 1,864 crore, a growth of 23% y-o-y but 14% lower on a q-o-q basis."

"We believe DLF’s strong balance sheet and its robust business model makes it one of the best investments in Indian Real Estate. We recommend a BUY with a target price of Rs 615. At the target price the stock would be valued at 12.1x FY09E EPS of Rs 50.65, implying an upside potential of 19.4%," says KRChoksey's research report.


Buy Unitech, target of Rs 191

KRChoksey Research has recommended a buy rating on Unitech with a target price of Rs 191 in its July 31, 2008 research report. "Top-line was mainly driven by sales from the residential properties which accounted for 70% of revenue. Sales in Q1FY09 were Rs 1,031.67 crore, an increase of 19.2% on a y-o-y and a decrease of 11.1% on q-o-q basis."

"We recommend a BUY with a target price of Rs 191. At the target price the stock would be valued at 14.05x FY09E EPS of Rs 13.59, implying an upside potential of 16.5%," says KRChoksey.

Stock Views on FUTURE CAP HOLDINGS, HCL INFOSYSTEMS

EDELWEISS on FUTURE CAP HOLDINGS

EDELWEISS has initiated coverage on Future Capital Holdings with an ‘accumulate’ rating as it feels that the company with its vertically-integrated model is likely to capture value across the chain in the high-growth consumption space. “The company is building a vertically integrated capital-cum-agency business model through its investment advisory, financing and financial products distribution businesses,” says the report. The company is a focused investment advisor with $1.5 billion funds under advice in consumption-related sectors, it adds. The brokerage expects its assets under management to grow to $5 billion by FY11E. It also expects the “company’s net revenues to grow seven-fold to Rs 7.7 billion in FY10E and profit after tax to grow to Rs 1.8 billion in FY10E”. The stock is trading at 12.6 times FY10E earnings and 2.5 times FY10E book, says the report. Edelweiss recommends investors to accumulate the stock at current levels from a long-term perspective (2-3 years).

CLSA on HCL INFOSYSTEMS - TARGET PRICE: RS 155

CLSA has maintained an ‘outperform’rating on HCL Infosystems while lowering the target price from Rs 230 to Rs 155 due to the further slowing down of PC sales. “HCL Infosystems’ sales are slowing down further and we now expect flat to negative year-on-year revenue growth in the segment in the June’08 quarter,” says the brokerage. About 30% of the company’s PC sales go to the retail segment, where the slowdown observed since late CY2007 has deepened, it says. Lower computer systems revenue assumptions are driving around 4-11% further cut in EPS estimates for FY08-10, it goes on to add. According to CLSA, the demand of PC seems to be waning due to “cost-led 5-7% price hikes passed on by vendors, plus the lower financing options available (higher interest rates plus cut back in new loans from financiers)”.

Stock Views on JSW Steel, HCL Tech, Tata Steel, HCC, Great Offshore

Tata Steel

Buy Target Rs 1083

Emkay Global Financial Services Ltd has recommended by rating on Tata Steel, with price target of Rs 1083, in its report dated 4th August, 2008.Tata Steel reported standalone 1QFY09 results, which are significantly ahead of our estimates. Net sales stood at Rs 61.65 billion (yoy up 46.9%, qoq up 7.5%), EBITDA stood at Rs 30.25 billion (yoy up 78%, qoq up 25.9%) and adjusted PAT stood at Rs 16.56 billion (yoy up 71.1%, qoq up 27.3%). The company reported Fx loss of Rs 3.03 billion. During the quarter, production volume declined by 6.4% on sequential basis to 1.19mt. The reduction in volumes was primarily on account of shutdown for 1.8mtpa expansion. Tata Steel expects 1.8mtpa expansion project to be ramped up by the end of 2QFY09. In 1QFY09, the company commenced “H” blast furnace having capacity of 2.5mtpa. For FY09, Tata Steel expects incremental hot metal production of 1mtpa. At CMP of Rs 681, the stock is trading at 6.3x FY09E FDEPS of Rs 108.3 and at 5.4x FY09E EV/EBITDA. We maintain BUY on the stock with target price of Rs 1,083.

HCL Tech

Accumulate Target Rs 297

Emkay Global Financial Services Ltd has recommended to accumulate HCL Technologies, with price target of Rs 297, in its report dated 4th August, 2008.We have revised our estimates and now build in (1) lower revenue growth (we expect FY09E US$ revenues growth at 19.4% now V/s 22.5% earlier, albeit see significantly lower/ negligible risk to these estimates), (2) lower employee addition (though compensated by an increase in utilization levels) and (3) exchange rate assumption set at Rs 42/$ and Rs 41/$ for FY09 and FY10 (in line with other peers). We now expect HCLT to report earnings of Rs 22.1 and Rs 24.8 for FY09 and FY10 respectively (highlight that sees low risk to these earnings estimates). With valuations looking extremely compelling at

JSW Steel

Buy Target Rs 1380

Emkay Global Financial Services Ltd has recommended buy rating on JSW Steel, with price target of Rs 1380, in its report dated 4th August, 2008. JSW Steel reported 1QFY09 results, which are significantly ahead of our estimates. Net sales stood at Rs 44.56 billion (yoy up 85.9%, qoq down 9.3%), EBITDA stood at Rs 8.15 billion. However, this includes forex loss of Rs 3.67 billion of which Rs 2.29 billion is on capital account translational loss. Adjusting for the notional Fx loss (including the impact on deferred tax on the same) EBITDA stood at Rs 10.4 billion (yoy up 46.5%, qoq down 1.5%) and APAT stood at Rs 4 billion (yoy up 35.7%, qoq up 30.1%). JSW reported Adjusted FDEPS of Rs 20. We believe a large part of this performance is attributable to the exports where we believe the realization is significantly higher as compared to the domestic markets. At CMP of Rs 797, the stock is trading at 8.6x FY09 and 5.7x our FY10 FDEPS estimate of Rs 93 and Rs 138 respectively. On EV/EBITDA, the stock currently trades at 5.7x and 4.3x FY09 and FY10 estimates. We maintain BUY on the stock with target price of Rs 1,380 which is 10x our FY10E consolidated FDEPS.

HCC

Buy Target Rs 125

Emkay Global Financial Services Ltd has recommended buy rating on Hindustan Construction Company, with price target of Rs 125, in its report dated 28th July, 2008. We continue to maintain our positive view on the company, as we believe that the company has one of the best quality orders, which should help it withstand the tough times ahead. The company’s real estate business is also shaping up well with two key projects of Lavasa and Vikhroli IT park expected to start generating revenues in the near term. The stock is currently trading at 13.1x FY09E EPS of Rs 4.3 and 8.5x FY10E EPS of Rs 6.8 (adjusting for value of non-contracting businesses). We value the construction business at Rs 87 per share base on 12.8x FY10E EPS. We assign our bear case valuation to the non-contracting businesses with real estate being valued at Rs 36 per share and the alone annuity BOT project valued at Rs 2 per share. We thus arrive at our target price of Rs 125 per share, which represents an upside of 30% from the current market price. We maintain our ‘BUY’ rating.

Great Offshore

Buy target of Rs 710

Emkay Global Financial Services has maintained its buy rating on Great Offshore with a target price of Rs 710 in its August 4, 2008 research report. "Great Offshore’s (GOFF) Q1FY2009 pre-exceptional net profit at Rs 356 million is below our expectation primarily because of lower revenue continuation from high margin offshore segment and higher than expected repairs & maintenance cost for the quarter.""We are not changing our earnings estimates for GOFF. The company has announced that it has called of its intention to acquire majority stake in Seadragon Offshore. Hence is absence of any near term upside from acquisition we are downgrading price target of GOFF to Rs 710. We have valued GOFF at 8X its FY2010 earnings of Rs 66 and added FY2010 estimated cash per share of Rs 180 on its book. Stock currently trades attractive valuations of 6.3X its FY2010 earnings and 3.74 X EV/EBIDTA. Maintain BUY," says Emkay Global Financial Services' research report.

Research by Emkay Global

Stock views on RELIANCE COMM, BANK OF INDIA, AEGIS LOGISTICS, M&M, YES BANK

CITIGROUP on RELIANCE COMM

TARGET PRICE: RS 530

CITIGROUP has downgraded Reliance Communications to ‘hold’, citing subdued first quarter and falling capital productivity. Its new target is Rs 530. Essentially, it has cut its FY09-10E EBITDA estimates by 13% and EPS by 14-18% to reflect a host of factors. Chief among them are lower revenue per minute in-line with peers, lower elasticity, staggered rollout of GSM and higher net debt. It notes that the company registered a weak first quarter EBITDA, as wireless was hit by continued lack of elasticity. It expects this trend of low CDMA elasticity to continue to dominate RCOM’s rations till GSM launch. It also says that the company’s $5.5 billion capex (FY09) and $4 billion (FY10) would lead to a net debt of Rs 170 billion in end-2009 (Rs 130 billion on June-2008). It signs off saying no triggers in the near term. “RCOM’s wholehearted participation in wireless growth is contingent on consumer mix change through the GSM foray, key for rerating, but some time away and not without risks,” said Citi in a note to its clients.

MACQUARIE on BANK OF INDIA

TARGET PRICE: RS 336

MACQUARIE believes that Bank of India’s strong results show its relative resilience among government-owned banks to the tough macro environment. The bank remains its top pick among state-owned banks and the broking house maintains ‘outperform’ rating with a revised target price of Rs 336 from the previous Rs 299. It says that the key earnings surprise was strong growth in fees to 58% Y-o-Y driving the 49% Y-o-Y growth in non-interest income. It infers that the bank has been aggressively pushing for fees business, focusing on products such as letters of credit and guarantees.

KR CHOKSEY on AEGIS LOGISTICS

TARGET PRICE: RS 207

KR CHOKSEY Shares & Securities has assigned a ‘buy’ on Aegis Logistics with a one-year price target of Rs 207, citing growing domestic consumption of the company’s services. Aegis Logistics mainly concentrates on port handling of liquid petroleum or chemicals and gas storage and distribution. “Given the growing domestic consumption of petroleum and gas in the recent years, Aegis Logistics (ALL) is well placed to grab the increasing opportunities in this sector. As a result of favourable cost, economics of auto gas over petrol and the increasing new entrants of LPG variants of cars in the market, the company is all set to scale up auto gas stations from the current 22 to 100 in the next two years,” the report said.

EDELWEISS Capital on M&M

EDELWEISS Capital has initiated coverage on Mahindra & Mahindra (M&M) with a ‘buy’ rating. The brokerage expects the operating divisions of M&M to perform well over the medium term, in terms of growth and profitability. “We expect significant expansion in M&M’s addressable market through its entry into the passenger car. The company has significant value embedded in its investments, covering information technology (Tech Mahindra), real estate & infrastructure (Mahindra Gesco), hospitality (Mahindra Holidays), financial services (Mahindra & Mahindra Financial Services), and auto-component (Mahindra Ugine Steel and Mahindra Forgings) sectors,” the report said.

IDBI Capital on YES BANK

IDBI Capital has maintained a ‘buy’ rating on YES Bank, on expectations of higher growth. happen. The brokerage expects the bank to log strong income growth in the long term. Despite mark-to-market (MTM) depreciation, net provisions have been lower owing to reversals equivalent to MTM depreciation done on investment provisions, the IDBI report noted. The bank has increased its lending and deposit rates recently.

Stock Views on RCOM, HPCL, OPTO CIRCUITS

RCOM

CMP: RS 442.25
TARGET PRICE: RS 501

Merrill Lynch has downgraded Reliance Communications from‘buy’ to ‘neutral’on lower than expected earnings due to weak revenues from its fixed wireless division. “The size of PCO (fixed wireless public call offices) revenues comes as a surprise to us,” says Merrill Lynch, adding that the topline and EBITDA was 8% and 11% below its expectations. The foreign brokerage has cut EBITDA forecasts by 10% for the current financial year and by 20% for FY10E “owing to unlikely pick-up in PCO revenues, continuing weak elasticity in mobile min-utes and lower global-biz EBITDA margins, post-Vanco acquisition.” In the first quarter of FY09, RCOM’s overall EBITDA fell 3% QoQ against 8% QoQ EBITDA growth for Bharti, says the report. According to ML, it would be difficult for RCOM to list its tower subsidiary (R-Infratel) and its global business (R-Globalcom) in the current volatile equity environment, owing to complex revenue forecasting and difficult valuation benchmarking. Merrill Lynch has lowered its target price from Rs 725 to Rs 501.


HPCL

ICICI Securities has maintained a ‘buy’ rating on HPCL even after the company reported a recurring loss of Rs 880 crore in the first quarter of the current financial year due to lower than expected subsidy sup-port from the government and upstream companies. The brokerage expects subsidy support to increase over the year as the government has not yet accounted for the Rs 40,000 crore unallocated burden. “Though we continue to believe that the stock may remain subdued in the short term till the government decides the final subsidy burden sharing formula, the company is trading at a significant discount to the replacement value of its asset,” says the report. The brokerage also highlights the fact that risks of further increase in interest costs along with expectations of a fall in refining margins could potentially impact earnings. Positive surprise, however, on higher subsidy sharing by upstream companies and oil bonds could be a boost to stock prices, it adds. Positive news on the E&P front and implementation of subsidy reforms recommended by the Rangarajan Committee could trigger re-rating in the stock, says the report.


OPTO CIRCUITS

CMP: RS 338.35
TARGET PRICE: RS 509

India Infoline has maintained a ‘buy’ rating on Opto Circuits after it reported better than expected results for the first quarter of the current financial year. According to the brokerage, the revenue of the company surpassed its estimate and grew 84% year-on-year. “Even better was the EBITDA margin expansion of 60bps YoY and 284bps QoQ, despite the inclusion of the significantly lower margin Criticare business,” says the report. This, it goes on to add, suggests that the management was able to realise synergies faster than expected. The brokerage has raised its FY09 earnings estimate by 10%. According to the brokerage, the international healthcare business of the company grew 97% in the first three months of the current financial year.

Take Your PICK: Part III - SMALLCAP STOCKS

IPCA Laboratories (CMP: Rs 540): The company’s focus on branded formulations business and emerging economies is expected to be its key growth driver. New products launches in domestic and UK markets coupled with supplies to new emerging economies and US markets should lead to a compounded annual growth rate (CAGR) of 17% in revenues and 22% in profits over next two years. It is expected to clock an earning per share (EPS) of Rs 69.7 and Rs 82.6 for FY09 and FY10, respectively. Currently, the stock is trading at 7.5x FY09 and 6.2x FY10 earning estimates.

Numeric Power Systems (CMP: Rs 601): The company, a leading manufacturer of uninterrupted power supply (UPS) systems and power conditioners in India, commands 60% share in IT and 82% share of the ATMs. The strong demand for company’s products (India has peak power deficit of 16.6%), increased focus on high margin equipment servicing and significant international presence make NPSL a fast-growing multinational in the power management solutions. The stock is attractively valued at 6.5x FY09 EPS of Rs 94.2.

Indian Overseas Bank (CMP: Rs 91): The company is a leading South Indiabased bank with a strong balance sheet. IOB has a healthy current and savings account (CASA) ratio of 33.5% and strong return ratios, with a return on assets (RoA) and return on earnings (RoE) of 1.3% and 28%, respectively. The net profit for FY09E and FY10E is expected to be Rs 12.42 billion and Rs 13.91 billion, respectively, resulting in an EPS of Rs 22.8 and Rs 25.5 for FY09E and FY10E, respectively.

LIC Housing Finance (CMP: Rs 306): The company is expected to continue to benefit from the growing demand for housing. A lower mortgage/GDP ratio of 6% offers huge potential. The company expects 22% year-on-year (yoy) business growth to Rs 268 billion and 20% yoy growth in net profit to Rs 4.61 billion for FY09. Improving asset quality and strong return ratios augur well for LICHF.

Bharat Electronics (Rs 1,154): The company is the premier defence contractor for the government. Over the years, the company has developed several competencies in the area of defence electronics. It is expected to benefit from the defence offset clause that the government mandates for import of defence equipment above Rs 3 billion. The order backlog is comfortable at Rs 94.5 billion and equivalent to over two years of FY08 revenues. The modernisation of the Indian defence sector is expected to throw significant opportunities for BEL.

Source: Kotak Securities

Take Your PICK: Part II - MID CAP STOCKS

GSK Consumer (CMP: Rs 620): The company has a leadership position in the malted beverages space, strong set of core brands (Horlicks & Boost) and rich parentage (new launches from global portfolio). These are expected to help GSK sustain robust growth. Moreover, surplus cash and investments of Rs 400 crore coupled with attractive valuations make it one of the best value plays in the consumer domain.

PVR (CMP: Rs 174): The company’s superior management bandwidth, integrated business model and strong set of properties (in terms of location) make it the most preferred play in the movie exhibition space. Moreover, its entry into new allied businesses such as food courts and bowling alleys coupled with recent dilution in its movie production business is likely to lead to re-rating of the stock.

Bartronics India (CMP: Rs 179): The company operates in the automatic identification and data capture (AIDC) solutions segment and is set to leverage the strong growth expected in the retail sector. It is the only smart cards manufacturer in India and this segment is expected to surge on strong demand from the telecom, banking and government sectors. In the wake of strong growth prospects of the company, the stock offers great value.

Jain Irrigation (CMP: Rs 464): The company is a proxy play on the increasing government focus on agriculture and micro irrigation and the booming infrastructure in the country. It would also benefit from the acquisitions it made over the last couple of years, which will be in addition to the company’s organic growth initiatives. Thus, the long-term prospects of the company are robust.

Piramal Healthcare (CMP: Rs 310): The company is an early entrant into the CRAMS space. Over the last couple of years, it has consolidated its presence in the segment, which now contributes 50% of its overall revenues. Considering its robust pipeline, the company is expected to post robust growth in the years to come.

This article is fron the research house of Angel Broking

Take Your PICK: Part I - LARGECAP STOCKS

Divis Laboratories (CMP: Rs 1,393): An established player in the generic active pharma ingredient (API) space and leader among Indian contract research and manufacturing services (CRAMS) players, the company has attained market leadership in several key products. It has 20 of the top 25 innovator companies as its client in CRAMS segment. It recently commissioned a nutraceutical facility for the $1 billion global market, which has high entry barrier in the form of complex chemistry skills.

Sun Pharma (CMP: Rs 1,414): With strong earnings visibility and industry-leading earnings before interest, taxation, depreciation and amortisation (EBITDA) margins, Sun Pharmaceuticals has one of the best business models among the peers. The company’s business in the US is also maturing, with windfall gains expected from 180 days exclusivities apart from a healthy product pipeline.

Aban Offshore (CMP: Rs 2,695): The largest offshore rig operator in India, the company is ideally placed to capitalise on exploration and production (E&P) boom. It renewed contracts with ONGC at a sizeable premium, boosting its top-line visibility. It will deliver four jack-up drilling rigs in FY09 and is set to expand its fleet to 21 vessels. The addition of drill ships will reduce dependence on jack-up rig operations and attract premium rates due to low availability.

Tata Steel (CMP: Rs 618): It is the world’s sixth largest steel company. In India, it has just raised its crude-steel capacity from 5 million tonnes per annum (tpa) to 6.8 million tpa, of which 60% is rolled into flat products and the rest sold as long products. It also sells ferro alloys, tubes, bearings and some mineral products. TSL India’s raw material security and operating efficiencies put it among the lowest-cost producers globally. Its focus on high-value products and branding helps it earn high EBITDA margins of 40%. It should benefit from the likely rise in domestic prices in August this year.

Reliance Industries (CMP: Rs 2,147): The company has interests in E&P, refining, petrochemicals, textiles, telecom, electricity, financial services and infrastructure. Its petrochemicals business is vertically integrated with an output of around 11 million tons. It also operates India’s largest and most complex refinery with a capacity of 33 million tons. It is expected to start RPL and KG Basin production from Q3 FY09, which is expected to drive growth for the company. Also, it plans to invest $7.5 billion on semiconductor and polysilicon facilities at Jamnagar. Looking at higher crude prices and strong gross refining margin (GRM), this company has strong future prospects.

This research is made by Religare Securities

Investment tips on HDFC BANK, ITC, UNITED SPIRITS, HINDUSTAN CONSTRUCTION, ADHUNIK METALIKS

GOLDMAN SACHS on HDFC BANK RATING: NEUTRAL

GOLDMAN Sachs maintains its ‘neutral’ rating on HDFC Bank with a target price of Rs 1,260. The bank reported 44% growth in net profit to Rs 460 crore in Q1 FY09, which was ahead of the consensus expectation of Rs 440 crore. Strong revenue growth, mainly NII growth, and a modest rise in credit costs are the key drivers of this positive surprise in consensus expectations. Sluggish growth in non-interest income will surprise expectations negatively. CASA deposits declined to 44.9% from 51.5% in Q1 FY08. But efficiency improvements in CBoP franchise should help HDFC Bank improve this ratio during the current financial year. The key metrics for asset quality have held steady, even after the merger of CBoP’s balance sheet with HDFC Bank, but the management continues to maintain a cautious stance. An upside to NII growth is likely, based on the reported performance, but non-interest income growth may remain sluggish. Goldman Sachs believes the upside to NII growth expectations may be offset by sluggish fee income growth. Realisation of benefit ahead of expectations presents the upside risk to the stock, while downside risks arise from delays in realising the merger synergies.

CLSA on ITC RATING: BUY

CLSA continues to remain positive on ITC and a potential weakness in the stock on the back of lower-than-expected earnings will present a ‘buy’ opportunity. For the first time, ITC reported a y-o-y decline of 4.4% in earnings during Q1 FY09. This 15% lower-than-expected profit was due to higher losses in the company’s new FMCG business, which is a cause for worry. Moreover, the company booked one-time expenses related to certain write offs, due to discontinuation of its non-filter cigarettes business, as well as additional point-of-purchase expenditure incurred in upgrading consumers to the filter category. On the positive side, ITC’s overall volume drop in the cigarette business was only 3%, driven by 20% volume growth in filter cigarette volumes, which was much better than expected. After a negative surprise in Q4 FY08, the losses recorded by ITC’s new FMCG business further increased to Rs 122 crore during Q1, against expectations of Rs 50 crore. This is attributable to a sharp rise in input costs and higher ad spend to support new product launches. The company will hike prices in Q2, but the impact of this will be felt only from Q3. The impact of higher losses in ITC’s FMCG business gets neutralised with its lower cigarette volume drop assumption. CLSA maintains its earnings forecast and positive view on the stock.

MERRILL LYNCH on UNITED SPIRITS RATING: BUY

UNITED Spirits’ standalone profit grew 34% in the June quarter to Rs 110 crore, led by stronger sales. Merrill Lynch maintains its full-year estimates on the stock, but acknowledges that there is upside risk if retail price hikes begin to come through. At P/E of 18x FY09E and 15x FY10E, the company’s valuations are attractive. Domestic sales grew 25-26% in Q1, led by volume growth of 19%. The company’s key premium brands grew 17%. The management expects key premium brands to grow 12-13% in FY09, but tactical moves to tap low price brands may lead to stronger volume growth. Some evidence of this was witnessed in Q1 as well. June quarter EBITDA grew 27%, while margins fell 90 bps, led by a 55% jump in ad spend. For the full year, the management expects to offset rising molasses and glass prices through price hikes, mix gains, buying power, light weighting of glass bottles and increased share of tetra-packs. Input costs are likely to be higher in the September quarter, but these may be offset by lower advertising costs relative to the June quarter. The company’s Q1 sales grew 40% and EBITDA grew 70%. The management reiterated its full-year EBITDA guidance of 15-20% growth and highlighted that scotch prices will remain strong.

RELIGARE on HINDUSTAN CONSTRUCTION RATING: BUY

RELIGARE retain its ‘buy’ rating on HCC with a target price of Rs 230. The company’s net sales increased by 18.8% y-o-y in Q1 FY09. About 37% of its revenue came from the power segment, 36% from the transport segment, 25% from the water segment and 2% from other segments. EBITDA increased by 15.6% y-o-y. HCC’s interest cost increased by 21% y-o-y, while depreciation rose by 11% y-o-y. Interest cost increased due to higher working capital requirements, capex and investments in real estate. Adjusted PAT rose by 37% y-o-y, mainly due to higher other income and lower tax rate. The company reported forex losses worth Rs 50.6 crore on account of overseas borrowings and a gain of Rs 61.9 crore from the transfer of land to its group company. At its CMP, the stock trades at a P/E of 24x FY09E diluted earnings. Religare is revising its target price downwards to Rs 230 from Rs 280, due to a downward revision in the valuation of Lavasa because of higher discounting rates. It had earlier valued Lavasa based on the discounted rate of 13%, which has now increased to 14.5%. The company is in advanced stages of finalising a stake sale of 5-10% in Lavasa to PE investors. This will set the benchmark for valuing Lavasa, which is the key trigger for the stock.

INDIA INFOLINE on ADHUNIK METALIKS RATING: BUY

INDIA Infoline recommends a ‘buy’ rating on Adhunik Metaliks (AML) with a target price of Rs 244 per share, implying an upside of 121.4%. In Q1 FY09, AML reported strong results. Its trading income fell 8.2% y-oy to Rs 56.3 crore from Rs 65.8 crore in Q1 FY08. The share of trading income to total sales in Q1 FY09 reduced to 15% from 29% in the corresponding quarter last year. The rise in PAT growth was curtailed by a jump in interest and depreciation costs. In the second half of FY08, the company had raised debt to fund its expansion plans. This pushed up its interest cost 77.4% y-o-y to Rs 22.5 crore. With the new steel melting shop operational in Q3 FY08, depreciation for the company increased 49.3% y-oy to Rs 7.4 crore. PAT stood at Rs 23.5 crore in Q1 FY09, compared to Rs 17.8 crore in Q1 FY08, and was a mere 7.5% higher than Rs 21.9 crore in Q4 FY08. During the past two years, AML has been in a major expansion phase. It is not only increasing its steel-making capacity, but is also going up the value chain. AML is doubling its sponge-iron and billet-making capacity. The expansion is being done in two phases. In the first phase, it is increasing its billet-making capacity to 0.45 mtpa, and setting up a rolling mill of 0.1 mtpa and a ferro-chrome plant of 37,760 tpa. India Infoline has valued AML based on the sum-of-parts method, which is primarily based on the EV/EBITDA multiple for its steel and mining business and discounted cash flow for its power business. Based on 4.5x FY10E EV/EBITDA for the Rs 680-crore steel and mining business, India Infoline has arrived at a fair value of Rs 209 per share.