Stock Views on Indiabulls Real Estate, OnMobile Global

Deutsche Securities on Indiabulls Real Estate - TARGET PRICE: RS 300

Deutsche Securities has initiated coverage on Indiabulls Real Estate with a ‘hold’rating as it feels the company has limited track record in execution. Weakness in the Mumbai office market for highend office properties, and a large free float — which allows much larger head-room for “borrowing” and selling short — are downsides for the stock. According to a Deutsche Bank note, Indiabulls’ revenue growth would be driven by volumes and stake sale of associate and/or subsidiaries. “We expect a revenue CAGR (compound annual growth rate) of 41% over FY08 to FY11 (estimated). We expect EBITDA margins to drop from 72% in FY08 to 55% in FY11 (estimated), mainly driven by higher costs (land, construction, employees, SG&A). Further, we expect the tax rate to increase from around 28% in FY08 to nearly 30% in FY11 (estimated). Thus, while we expect volume growth (around 40%), we expect PAT (profit after tax) to grow by only a 19% CAGR over FY08-11 (estimated),” the note to clients said. However, the Deutsche Bank note added that the demerging and listing of its forays in power and retailing would drive growth and shareholder value in the near term. Meanwhile, SEZs, townships and annuities from com-pleted projects will drive long-term growth, it added.

Citigroup Global on ONMOBILE GLOBAL - TARGET PRICE: RS 630

Citigroup Global Markets has initiated coverage on OnMobile Global with a ‘buy’ rating saying OnMobile Global is India’s largest VAS (valueadded services) operator (35% share) in a rapidly growing market [FY08-11 (estimated) CAGR at 51%. The estimated 36% EPS (earnings per share) CAGR over FY08-11 (estimated), was due to the company’s increasing international presence, said Citi. “Though it ap-pears high in the current environment, we believe our target PE (price to earning) of 25x Mar-10E is justified by OnMobile’s strong growth prospects and is in line with the multiple for comparable peers,” the note added. According to the Citi note, the domestic VAS has gradu-ated from being a glorified sub-set of p-to-p SMS to a well-demarcated segment.