Srock Views on Pantaloon Retail, Bartronics, HDIL

MORGAN Stanley on Pantaloon Retail

MORGAN Stanley advises investors to accumulate Pantaloon Retail’s stock at current levels. The company reported stock selection guide (SSG) for value and lifestyle retailing at 14.1% and 8.2% year-on-year, respectively, in August. The average SSG for value retailing for the past three months is 12.2%, while for lifestyle retailing it is 11.5%. There were no store additions in home retail and SSG stood at 25.8% in August. Sales for the value and lifestyle retailing segments grew by 49% and 38% y-o-y, respectively. The ‘5 Din Mahabachat’ from August 13-17 generated sales of Rs 200 crore, and nearly 60 lakh footfalls were generated in Big Bazaar and Food Bazaar stores. The top six cities in revenue terms accounted for nearly 60% of the total ‘5 Din Mahabachat’ sales. The stock is trading at 14x FY09E earnings, adjusting for value of its subsidiaries Future Capital, Home Solutions, Future Media and Future Bazaar. Morgan Stanley expects Pantaloon to deliver an EPS CAGR of 56% for the next five years.

HDFC Securities on Bartronics

HDFC Securities initiates coverage on Bartronics India with a ‘buy’ rating. With 90% and 95% market share in smart card and radio frequency identification (RFID) segments, respectively, the company offers all automatic identification & data capture (AIDC) solutions under one roof. Its early entry into smart card manufacturing will help it to retain its dominance in the area. Bartronics is the only manufacturer of smart cards in the country. Its smart card capacity has already been booked for the next two years. It also has the capability to provide end-to-end AIDC solutions, which will help it to expand its order book and topline. The company’s revenues and profits are expected to witness a CAGR of 72% and 78% over FY08-FY10E. At the current market price, it is trading at 6.5x and 3.8x its FY09E and FY10E forward EPS, respectively. HDFC Securities has arrived at a discounted cash flow (DCF)-based target price of Rs 234 — an upside of 53% from current levels. While the bull case target price is Rs 339 (upside of 122%), the bear case target price is Rs 147 (downside of 4%) from current levels.

BNP Paribas on HDIL

BNP Paribas initiates coverage on Housing Development & Infrastructure (HDIL) with a counter-consensus ‘reduce’ rating. HDIL focuses on the lucrative Mumbai slum rehabilitation segment, which is characterised by high margins and high entry barriers. Slum rehabilitation projects account for 34.5% of its land bank. However, funding constraints and delays due to state elections next year are likely to slow its progress. The company’s target of rehabilitating 15,000 slum tenements annually starting in FY09 is ambitious, since the best it has done so far is 3,000 tenements annually. BNP Paribas’ channel checks with slum dwellers indicate that the company is likely to face several roadblocks, especially in the Mumbai airport slum redevelopment project. HDIL’s earnings stream is highly volatile and there are significant risks in achieving the estimates of the market, which is yet to factor in execution delays. BNP Paribas would like to gain more comfort on the company’s ability to scale up its operations and execution before turning positive.