Ten stocks worth investing in – Part II

IDFC

The country's infrastructure needs should only rise as the economy grows bigger. Even at current projections, the opportunity is huge. The proof: the Eleventh Five Year Plan indicates that $500 billion worth of investment will be required for creation of new infrastructure space, which in turn is positive for companies like Infrastructure Development Finance Company, a leading infrastructure financing institution.
The company's infrastructure lending business is expected to grow at CAGR of 37 per cent during FY08-FY10. While interest spreads could see some pressure, better fund management should help offset some of this.
Additionally, non-interest income should continue to contribute about 47 per cent of total income during FY08-FY10, driven by consistent increase in asset management fee, income from its principle investment book and growth in IDFC-SSKI (broking and investment banking) business.
IDFC has also entered into an agreement to acquire 100 per cent stake in Standard Chartered AMC.
Overall, the net interest income is expected to grow at CAGR of 28 per cent during FY08-FY10, with net interest margin expected to hover at 3 per cent.
Looking at its business growth and expertise in infrastructure financing, we believe the stock is undervalued and provides an investment opportunity for decent return in medium term.
At Rs 105, the stock is trading at 16 times its FY09 estimated earnings and 12.5 times FY10 earnings. The research house has puts a price target of Rs 160 per share.

L&T

Thanks to the slower growth in industrial production and capital goods output in the recent past, Larsen & Toubro (L&T), too, has seen its share price being hammered down. This offers an opportunity to buy into the country's largest engineering and construction player, which is among the best plays on India's infrastructure and industrial capital expenditure (capex) boom.
Also, the benefits of its diversification into power equipment, shipbuilding, defence equipment and railways are yet to pay, and help sustain growth in the long-run.
Flush with cash flows from high oil prices, the Middle East region is likely to achieve infrastructure spend of $1,000 billion. L&T has not fully exploited the opportunity in the region due to constraints of resources. In case of slowdown in India, the company can derive more growth in Middle East.
These factors and a strong order book of Rs 52,700 crore, the company is expected to maintain its growth at about 35 per cent over the next two years. Any value unlocking from its IT and Finance subsidiaries (expected to be listed separately) would further add to the shareholders wealth.
Regards valuation, at Rs 2,357, the stock is trading at 22 times its estimated FY09 consolidated earnings and 17 times FY10 earnings, which is not very expensive historically.
On SOTP basis (factoring valuations of different businesses and subsidiaries), analysts have estimated a fair value of Rs 3,000-3,200 per share.

Maruti Suzuki

India's leading passenger car company, Maruti Suzuki is available at half the price compared to its 52-week high of Rs 1,252 per share seen in October 2007.
Historically, the share price of Maruti has been trading in the PE band of 13-17 times. But, thanks to the market turmoil, it is now trading at just eight times its FY09 estimated earnings.
The correction was partly on account of concerns over the rising input cost (for the company) and, high crude oil prices and interest rates (for its customers).
Analysts believe that though concerns remain in the near term, the stock should get rerated in the long run on account of benefit accruing from new launches, including WagonR Duo, Zen Estilo, Diesel Swift and SX4.
Also, with the ongoing expansion at Manesar plant, exports are expected to go up. The company will manufacture small cars for supply to its parent's customers in global markets.
Estimates indicate that Maruti will be exporting about 100,000 units to its parent, Suzuki Motor Company of Japan, while another 50,000 units would be supplied to Nissan Motor Company. The expansion of its capacities should also help company to maintain its margins, helped by economies of scale.
Along with the benefits of new launches and the expansion, the company's target of selling one million cars in the domestic market by FY2011, translates into a volume growth (for domestic market) of 12 per cent over next three years.
Overall, the company is expected to grow at decent pace. Investors can use the current market conditions to gain from the stock's re-rating once the macro concerns ease out in the future.