Stock views on Colgate Palmolive, Welspun Gujarat Stahl Roh, Rolta India

Hem Securities on Rolta India - Target Rs 255

Hem Securities has recommended a buy rating on Rolta India with a target price of Rs 255 in its research report.

"The company’s future prospects are becoming brighter with the various orders in hand and improving yearly and quarterly performance. Presently, the company is running at a P/B multiple of 2.02x to it’s FY09 book value of Rs.88.42 while the P/E multiple of the company is running at 9.77x to its FY09 EPS of Rs.18.25. However, the industry is running at a P/E multiple of 19.30x which leaves the stock with a significant upside potential. Hence, we recommend 'BUY' on the stock with a medium term price target of Rs.255.00," says Hem Securities' research report.


SKP Securities on Welspun Gujarat Stahl Roh - Target Rs 362

SKP Securities has recommended a buy rating on Welspun Gujarat Stahl Roh with a target price of Rs 362 in its research report.

"Welspun has the strong order book position of Rs 68.4 billion, executable within 12-15 months, of which 80% are export orders and rest are domestic. We recommend Buy rating on the stock with a target price of Rs 362/- in 18 months implying a P/E multiple of 14x of FY11E earnings," says SKP Securities' report.


KRChoksey on Colgate Palmolive - Target Rs 703

KRChoksey has recommended a buy rating on Colgate Palmolive (India) with a target price of Rs 703 in its research report.

"CPIL continues to sustain its leadership position in the Rs. 4,000 crore Indian Oral care industry, with a dominant market share of 50%. CPIL - managed by professionals, having concentrated business model, good cash generation from operations, zero debt and surplus cash bank balance is attractive in the Indian FMCG space. Strong brand loyalty, low penetration level, increased hygiene awareness and increasing contribution from rural India are the growth drivers for the company. We initiate our coverage on the stock with a ‘BUY’ recommendation with a target price of Rs. 703, giving an upside potential of 16%. We have valued the company at a P/E multiple of 20x FY11E EPS of Rs. 30.3," says KRChoksey's research report.

Stock views on Opto Circuits, GMR Infrastructure, Network 18

Karvy Stock Broking on Opto Circuits - Target Rs 244

Karvy Stock Broking has recommended a buy rating on Opto Circuits India with a target price of Rs 244 in its research report.

"We have increased our target price from Rs 243 on 16x FY10E estimated earnings to Rs 244 on 13x FY11E estimated earnings. The stock is currently trading at a P/E of 12.3x FY10E diluted EPS of Rs 15.4 and 10x FY11E diluted EPS of Rs 18.8. We maintain our recommendation on the stock as a BUY," says Karvy's research report.

Hem Securities on GMR Infra - Target Rs 214

Hem Securities has maintained its buy rating on GMR Infrastructure with a target price of Rs 214 in its research report.


"The company has performed very well although constrain on the margin, which we expect to be on track in the near future. The future growth is expected to come from power and airports. Lower naphtha prices and higher gas availability is further likely to benefit the company. The biggest growth driver is going to be the airport business. The company’s efforts to add new airlines, increase the user development fee and other aero charges will increase revenue. The roads projects help the company to improve their margins, as the margin from roads projects is highest. We are very positive on the long term business prospects of the company and financial performance. We reiterate “BUY” on the stock with target price of Rs 214.00 with a medium to long term investment horizon," says Hem Securities' research report.


Sharekhan on Network 18 - Target Rs 143

Sharekhan has maintained its buy rating on Network 18 Media & Investments with a target of Rs 143 in its research report.

"For the Network18 group FY2009 was a year of severe pressure in terms of both operations and fund availability. In our opinion, things are unlikely to get any worse. With the advertising market showing nascent signs of recovery on the back of considerable easing of the growth concerns among corporate India, Network18’s properties are likely to bounce back. Thus, with Network 18 sufficiently funded to take care of the gestation period of its ventures and the funding requirements of its businesses (especially for Viacom 18), being the holding company of the group it would create significant value for equity holders in the longer term. We maintain our 'Buy' recommendation on the stock with a sum-of-the-parts price target of Rs 143," says Sharekhan's research report.

Stock views on Pidilite Industries, Hero Honda, Punj Lloyd

Bonanza on Pidilite Industries - Target Rs 195

Bonanza has recommended a buy rating on Pidilite Industries, with price target of Rs 195, in its report.

"Pidilite Industries is a dominant player in the adhesive and sealant market in India. The company cleared all the highcost inventory of raw materials, the low-cost inventory of raw materials together with price increases boosted OPM 510 bps to 23.3% in Q1 of FY 2010. Thus, strong brands enable the company to generate better sales and margin, baring short-term aberration. Going ahead with crude derivatve still priced lower, we expect the company to post better OPM for FY10. The company is about to start off its manufacturing operations at Bangladesh and African plants by later this. We have projected sales from these facilities with a lag effect of six months. We have projected that the company would post an EPS of 9.93, which is a conservative estimate in view of Q1FY10 EPS of 3.3. At this EPS the company is trading at an earning multiple of 14.1x. We recommend investors to buy the counter in 135-145 range with a target of Rs 195 in medium term," says Bonanza's report.

Motilal Oswal on Hero Honda - Target Rs 1762

Motilal Oswal has maintained its buy rating on Hero Honda Motors, with price target of Rs 1762, in its report.

"We like Hero Honda due to its dominant position in the two-wheeler market, multiple earnings drivers, 31% EPS CAGR (FY09-11) and strong balance sheet with net cash of Rs 257 per share in FY10 and Rs 342 per share in FY11. We maintain FY10 earnings estimates at Rs 100 (56% growth) and for FY11 at Rs 110.2 (10% growth). The stock trades at 15.1x FY10E EPS and 13.7x FY11E EPS. Maintain Buy with target price of Rs 1,762 (16x FY11E EPS)," says Motilal Oswal's report.


Bonanza on Punj Lloyd - Target Rs 300

Bonanza has recommended a buy rating on Punj Lloyd with a target price of Rs 300 in its research report.

"Punj Lloyd provides services to develop infrastructure for a host of industries. It lays down pipelines, tanks and terminals, refineries, power and civil infrastructure projects etc. The company had tough period in later half of FY2009. As global sentiments have turned positive, better performance is expected in FY10. It is likely to report a consolidated EPS of Rs.20/Share. At CMP Rs.255, it trades at 12.6 PE on forward earnings. Investors may BUY in range of Rs.245- 255 for a target of Rs.300 i.e. about 15PE on FY 10 estimates," says Bonanza's research report

Stock views on Unity Infraprojects, IRB Infrastructure, Torrent Pharma

Sharekhan on Unity Infraprojects - Target Rs 430

Sharekhan has maintained its buy rating on Unity Infraprojects, with price target of Rs 430, in its report.

"We have not factored in any dilution from the likely QIP in our estimates due to lack of clarity on the QIP. In view of the company’s ability to bag big-ticket orders and the order inflow of Rs 400 crore seen by the company in the financial year till date (28% of our FY2010 order inflow), we remain positive on Unity Infraprojects. We maintain our Buy recommendation on the stock with a price target of Rs 430. At the current market price, the stock is trading at attractive valuations of 6.4x FY2010 earnings estimate and 6.0x FY2011 earnings estimate," says Sharekhan's report.


India Capital Markets on IRB Infra - Target Rs 260

India Capital Markets has recommended a buy rating on IRB Infrastructure Developers with a target of Rs 260 in its research report.

"We have valued the company on an SOTP. The BOT road project at Rs 154.4 (FY11E NPV basis) and Core Construction Business at Rs 74.0 (12x on FY11 earnings), NAV of the Real Estate valued at Rs 10.3, Wind Mills at Rs 3.2 and Cash in holding Co at 17.8 per share. Thus aggregation to Rs 259.7/ per share. Hence, we recommend clients to “BUY” the stock for a long term basis on the back of key surprises & development expected on the order book front. We initiate the coverage with the target price of Rs 260," says India Capital Markets' report.

Karvy Stock Broking on Torrent Pharma - Target Rs 330

Karvy Stock Broking has maintained its buy rating on Torrent Pharmaceuticals with a target price of Rs 330 in its research report.

"We maintain our FY2010 and FY2011 revenue and earnings estimates. The stock is currently quoting at 9x FY2010E and 7.7x FY2011E. In lieu of the current re-rating in the stock we upgrade our multiple from 8.1 x to 10 x We revise our price target upwards by 22% to Rs 330 based on 10x FY2011E. We maintain our 'BUY' rating on the stock," says Karvy's research report.

Motilal Oswal views on Simplex Infrastructure, Nagarjuna Construction, IVRCL Infrastructure

Motilal Oswal on Simplex Infra - Target Rs 512

Motilal Oswal has maintained its buy rating on Simplex Infrastructure, with price target of Rs 512, in its report.

"We believe that changing geographic mix has contributed to the improvement in working capital. Middle East has lower working capital cycle as compared to India; where the revenue proportion has increased to 29% in FY09 as against 16.9% in FY08. We believe that further improvement looks challenging. We expect FY10 EPS at Rs 34 (up 28%YoY) and FY11 EPS of Rs 43 (up 25%YoY). At CMP, the stock is trading at PER of 13.4xFY10 and 10.7xFY11. Maintain Buy with a price target of Rs 512/sh (based on 12x FY11 earnings)," says Motilal Oswal's report.


Motilal Oswal on Nagarjuna Construction - Target Rs 164

Motilal Oswal has maintained its buy rating on Nagarjuna Construction Company, (NCC) with price target of Rs 164, in its report.

"NCC's international business through its subsidiaries in Middle East has achieved critical scale. During FY09, international business revenue stood at Rs 5.9 billion (+243% YoY) and net profit at Rs 249 million (+183% YoY). Currently, international operations contribute 27% (Rs 33 billion including Dubai real estate project cost of Rs 9 billion) of the total order backlog (Rs 122 billion). During FY09, international order book has grown by 36%, while the domestic order book has declined by 1%. We expect NCC to reports earnings CAGR of 24% during FY09-11. Our SOTP based target price is Rs 164. Maintain Buy," says Motilal Oswal's report.

Motilal Oswal on IVRCL Infra - Target Rs 372

Motilal Oswal has maintained its buy rating on IVRCL Infrastructure, with price target of Rs 372, in its report.

"We expect earning CAGR of 15% during FY09-FY11E (27% assuming full tax rate for FY09). At CMP, the stock quotes at P/E of 19.1x FY10E and 16.2x FY11E. Maintain Buy with a price target of Rs 372/share. We have valued core business at Rs 317/share (14x FY11E EPS), BOT projects at Rs 31/share (P/B of 1.5x) and other subsidiaries at Rs 24/share (based on CMP)," says Motilal Oswal's report.

Stock views on Bank of India, Gillette India, Wipro

KRChoksey on Bank of India - Target Rs 390

KRChoksey has recommended a buy rating on Bank of India with a price target of Rs 390, in its report. "We reiterate our Buy on Bank of India and increase our price target to Rs 390. We believe the recent underperformance of the stock provides an attractive entry point for investors given our expectation of earnings rebound in FY11 on back of pickup in net interest margins, higher fee income and lower credit costs," says KRChoksey's report.

HDFC Securities on Gillette India - Target Rs 1036-1080

HDFC Securities has recommended a buy rating on Gillette India with a a price target of Rs 1,036-1,080 in its research report.

"Looking at its future growth potential we feel, GIL could also trade at 24-25x FY June 10E EPS, which gives us a price target of Rs. 1,036-1,080. Hence we recommend investors to buy this scrip at the current price & average it on dips in the price band of Rs. 800-860 for the above mentioned price target over the next two to three quarters," says HDFC Securities' report.


IIFL on Wipro - Target Rs 600

IIFL has recommended a buy rating on Wipro with a target price of Rs 600 in research report.

"Wipro has outperformed TCS and Infosys in the past one month as well as YTD. Wipro’s continued outperformance over its peers reflects improved operational performance, cost optimisation efforts yielding results, and recent order wins translating into better revenue visibility. Wipro has won a number of new deals from BPO, Fosters, GE, Unitech Wireless, Lavasa etc. These deals address investor concerns on revenues from technology and telecom divisions. We expect Wipro to trade on a par with Infosys, implying a further 5-10% outperformance. BUY, target of Rs 600," says IIFL's research report.

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Stock Views on BHEL, Yes Bank, Balrampur Chini

Karvy Stock Broking on BHEL - Target Rs 2653

Karvy Stock Broking has recommended an outperformer rating on Bharat Heavy Electricals (BHEL), with price target of Rs 2653, in its report.

"Bharat Heavy Electricals (BHEL) is a leading power equipment manufacturer in India and a play on India's increasing power generation requirement. The capacity addition of 10,000 MW (100% of existing) by FY12 is expected to improve execution capability and drive the revenue at a CAGR of 22.3%. The net profits are expected to boost up from 540 bps margin improvement mainly on account of cost control and are expected to increase at a CAGR of 30% to Rs 68.99 bn by FY12. We believe BHEL will be outperformer considering strong revenue visibility and earnings growth along with attractive return ratios (28% for FY10-FY12). We initiate our coverage with target price of Rs 2,653 over 12 month period," says Karvy Stock Broking's report.


Hem Securities on Yes Bank - Target Rs 244

Hem Securities has recommended a buy rating on Yes Bank with a price target of Rs 244 in its report.

"Yes bank has registered a compounded growth rate of around 60% since it interception. We expect the bank to continue to grow at a high rate. We are very positive on the long term business prospects of the company and financial performance. At Current Market Price of Rs 165.05 the stock is trading at a PE of 16.15x. With expected EPS for FY10 and FY11 of Rs 17.73 and Rs 19.32 respectively, the stock is trading at a PE of 9.7x and 8.9x respectively. The price of the stock is undervalued at current level of Rs 165.05. We reiterate “BUY” on the stock with target price of Rs 244 with a medium term investment horizon. The Upside for the stock is Rs 79," says Hem Securities' report.

SKP Securities on Balrampur Chini - Target Rs 157

SKP Securities has recommended a buy rating on Balrampur Chini Mills, with price target of Rs 157, in its report.

"With the festive season round the corner, the demand for sugar is expected to go up. As the consumption is about to outweigh demand, the domestic sugar prices have already touched a 30 year high, and is projected to move up even further. BCML is well poised to substantially gain from the price rise, on account of lower contracted import cost, improved margins and better realizations. We recommend a 'BUY' on the stock with a 12 month target price of Rs 157 at 10x FY10E earnings, giving it an upside potential of 39%," says SKP Securities' report.

Stock Views on Bajaj Auto, Power Grid, Welspun Gujarat

Bonanza on Welspun Gujarat - Target Rs 240


Bonanza has recommneded a buy rating on Welspun Gujarat with target price of Rs 240 in its research report.

"The quarter started with the order book of approximately Rs 7500 crore and added Rs 1200 crore. The company gets orders from both domestic and overseas buyer. The company’s five year CAGR of consolidated revenue is 53.3% and profit is 58.3%. The company’s operating margin will extensively go up in FY 10 due to fall in price of raw materials as well as selling price. The company is trading at the one year Forward PE of 7.4X. The new investors can 'BUY' at CMP of Rs 201 with the target of Rs 240, " says Bonanza's report.

Hem Securities on Power Grid - Target Rs 144

Hem Securities has initiated a buy rating on Power Grid Corporation of India with a target price of Rs 144 in its research report.

"The company posted financial figures for the quarter ended March 2009 more than expectations. The net sales for the company gone up by 44.30% to Rs 22498.90 million for the Q4FY09 as against the net sales of Rs 15591.80 million for the Q4FY08. The stock at the current market price of Rs 110.10 will trade 27.38 times to its earnings of Rs 4.02 and 3.16 times to its book value of Rs 34.74 and is expected to provide huge upside potential in medium to long – term. We initiate a ‘BUY’ signal on the stock at the current levels with a target of Rs 144 in the medium term investment horizon (5- 6 months) with an appreciation of about 30%," says Hem's research report.


Hem Securities on Bajaj Auto - Target Rs 1430

Hem Securities has initiated a buy rating on Bajaj Auto with a price target of Rs 1430 in its report.

"Bajaj Auto limited is one of the largest two wheeler manufacturing company in India. The company posted excellent financial figures for the quarter ended June 2009. The net sales for the company remain flat at Rs 23384.70 million for the Q1FY10 as against the net sales of Rs 23107.60 million for the Q1FY09. The company posted the operating profits of Rs 4314.00 million for the Q1FY10 as against the operating profits of Rs 2667.80 million for the Q1FY09 with the growth rate of 61.71%. The company plans six new launches in 2009 and on back of these launches the company is planning to almost double its sales in India by the second half of 2009-10. We initiate a ‘BUY’ signal on the stock at the current levels with a target of Rs 1430 in the medium term investment horizon (4- 5 months) with an appreciation of about 24%,“ says Hem Securities' report.

Stock Ves on Voltamp Transformers, Infosys Technologies , Wipro

Angel on Wipro - Target Rs 487

Angel Broking has upgraded its rating on Wipro to accumulate with a target price of Rs 487 in its research report.

"For 1QFY2010, Wipro recorded a 1.7% qoq decline in top-line. Combined IT Service Revenues clocked a 2.2% qoq decline. On the other hand, in US Dollar terms, IT Service Revenues dipped 1.3% qoq (USD 1,032.6 million v/s USD 1,046 million in 4QFY2009). Valuations are not too demanding and given an expected recovery in the global economic environment in 2HFY2010 and particularly FY2011, we believe that the Indian IT Sector will benefit significantly from such an economic up-turn. Wipro, being a top-tier Indian IT company is expected to be a key beneficiary. Thus, we upgrade the stock to 'Accumulate' with a target price of Rs 487, assigning a P/E of 16x FY2011E EPS," says Angel's research report.

Hem Securities on Infosys - Target Rs 2350

Hem Securities has recommended a buy rating on Infosys Technologies with a target price of Rs 2350 in its research report.

"Infosys Technologies Ltd has posted great figures for Q1FY10. The revenues of the company have gone up from Rs.48540 million in Q1FY09 to Rs.54720 million in Q1FY10 showing an increase of 12.73%. Presently the company is running at a P/E multiple of 18.33x to its FY09 EPS of Rs.104.69. Based on the robust financial performance reported by the company, we recommend 'BUY' on the stock with a medium term price target of Rs 2350.00," says Hem Securities' research report.

India Capital Markets on Voltamp Transformers - Targets Rs 1015

India Capital Markets has recommended a buy rating on Voltamp Transformers with a target price of Rs 1015 in its research report.

"Voltamp Transformers Limited is among the top 3 players in building application transformers in the organised market and commands 20% market share in the industrial application transformers, with large installation base of more than 37000 transformers. We expect volumes to grow at a CAGR of 14.5% over FY09-11 and expect revenues to grow at a CAGR of 8.5% over the same period. Despite likely moderation in its FY10 earnings, any revival in order inflow in the current financial year on account of amplified focus on infrastructure development from the newly formed government will provide earnings upside in FY11. At the current market price, the stock trades at 8.05x its FY 10E earnings of Rs 94.60 and 6.75x its FY 11E earnings of Rs 112.84. We recommend 'BUY' with a target price of Rs 1015 based on the P/E Multiple method (9x its FY11E earnings), i.e. a potential upside of 33% from its current levels. We believe the company offers decent opportunity to play on the India T&D sector story," India Capital Markets' research report.

Stock Views on Yes Bank, Hindustan Zinc

KRChoksey on Hindustan Zinc - Target Rs 754

KRChoksey has recommended a buy rating on Hindustan Zinc, with price target of Rs 754, in its report.

"FY10 and FY11 EV/EBITDA is at 5.2 and 3.5 respectively. We value the firm at FY10E EV/EBITDA of 6.5 which gives us a value of Rs 754 per share and recommend a ‘buy’ on the stock," says KRChoksey's report.


ULJK Securities on Yes Bank - Target Rs 165

ULJK Securities has recommended a hold rating on Yes Bank with a target price of Rs 165 in its research report.

"Yes Bank has reported a better than expected performance for the Q1FY10. The net profit for the quarter stands at Rs 1000 million, a YoY growth of 84% and a QoQ growth of 24.9%. We recommend a hold on the stock with a target price of Rs.165. At our target price, the stock will discount the FY10E book value by 2.5 P/BV and the FY11E adjusted book value by 2.15P/ABV," says ULJK's research report.

ICICIdirect.com on Yes Bank - Target Rs 162

ICICIdirect.com has recommended a hold rating on Yes Bank with a target price of Rs 162 in its research report.

"Yes bank’s Q1FY10 results were ahead of our and street estimates. The bank registered loan book and investment book growth of 26% YoY to Rs 12671 crore and Rs 6409 crore respectively; deposits went up by 22% YoY to Rs 15342 crore (de growth of 5.1% QoQ) which lead to balance sheet growth of 25% YoY to Rs 21669 crore. The bank is likely to maintain RoA of above 1.5%, RoE of above 20% and NIM’s of 3-3.1% for FY11E. So we value the bank at 2x FY11E ABV and arrive at fair value of Rs 162 and rate the stock as hold," says ICICIdirect.com's research report.

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Stock Views on CESC, Emco, ICICI Bank

Angel on ICICI Bank - Target Rs 888

Angel Broking has maintained its buy rating on ICICI Bank with a target price of Rs 888 in its research report.

"The Bank’s Balance Sheet contraction continued, with advances declining by 9% and deposits by 4%, sequentially. Moreover, the Bank’s NIMs declined sequentially by 20bp, which the management explained was partly on account of low-yielding priority sector loans contracted towards the end of 4QFY2009, and partly on account of investments in low-yielding assets during 1QFY2010. We maintain a 'Buy' on the stock, with a target price of Rs 888, implying an upside of 17%," says Angel's research report


India Capital Markets on Emco - Target Rs 108

India Capital Markets has recommended a buy rating on Emco with a target price of Rs 108 in its research report. "Emco Limited registered a growth of 5.1% in revenues during Q1FY10 to Rs 1926 million as against Rs 1833 million in the same quarter last year. Emco Limited’s Q1FY 10 results were below our expectations in terms of revenue and profitability. We introduce our FY 11 numbers. The current order book position of the company provides decent visibility for the entire current financial year, also the government emphasis on the power sector as a whole will help provide decent revenue and earnings opportunity for the company in the near future and therefore we upgrade our rating and recommend 'BUY' rating to the stock with a target price of Rs 108 (9x its FY 11E earnings) i.e. a potential upside of 20% from the current price levels," says India Capital Markets' research report.

Angel on CESC - Target Rs 449

Angel Broking has maintained its buy rating on CESC with a target price of Rs 449 in its research report.

"CESC grew its net revenue by 4.7% yoy to Rs 820 crore (Rs 783 crore) in 1QFY2010, which was in line with our estimates. We expect CESC to record a CAGR of 13.9% in its top-line over FY2009-11, while the bottom-line would post a CAGR of 5% in the mentioned period. We have also assigned a FY2011E P/BV multiple to the company’s existing Power business at 1.25x, which is lower than its peers. Hence, we have arrived at a sum-of-the-part (SOTP) target price of Rs 449. Therefore, considering that the company is inexpensive on FY2011E P/BV basis, we maintain a 'Buy' on the stock," says Angel's research report.

Stock views on South Indian Bank, Cipla, Hero Honda

IIFL on Hero Honda - Target Rs 1730

IIFL has maintained its add rating on Hero Honda Motors with a target price of Rs 1730 in its research report.

"Hero Honda’s 1QFY10 results were in line with our expectation. EBITDA margin expanded 500bps YoY and 100bps QoQ to 17%, thanks largely to lower raw-material costs (down 400bps YoY), better realisations (price hike and model mix) and increased production at Haridwar. Going forward, we expect margins to decline 100bps as the company purchases raw materials on spot basis (prices of key raw materials, steel and aluminium, have risen in the last few months). We raise our FY10 and FY11 earnings estimates by 15% and 18% respectively, as we revise our FY10 volume growth estimate to 20% from 12% earlier. We maintain ADD with a revised target price of Rs 1,730," says IIFL's research report.


KRChoksey on Cipla - Target Rs 286

KRChoksey has recommended a hold rating on Cipla with a target price of Rs 286 in its research report.

"The topline of the company is inline with our expectation and posted a turnover growth of 14% Y-o-Y backed by better performance from both its domestic as well as exports business. The domestic sale of the company has shown an increase of about 11.3% whereas Export sales grew by 14.3%. We believe the sales of the company were mainly driven by good performance from its domestic as well as exports business. The net profit of the company was impacted by an increase in interest cost (an increase of 186%). 'Hold', target of Rs 286," says KRChoksey's research report.


Angel on South Indian Bank - Target Rs 135


Angel Broking has recommended a buy rating on South Indian Bank with a target price of Rs 135 in its research report.

"South Indian Bank (SIB) is one of the better-performing old private sector banks. Largely concentrated in the semi-urban areas of the Southern states of India, SIB's profitable, cost-efficient and technologically up-to-date network constitutes a reasonably attractive standalone franchise. The Bank's Deposit franchise includes a niche NRI customer base that contributes a meaningful 17% of deposits and gives it a distinguishing cost advantage over several of its peers. At the same time, the Bank is trading at the cheapest valuations among peers. We value the stock at 0.9x FY2011E ABV to arrive at a target price of Rs 135, implying an upside of 26% from current levels. We Initiate Coverage on the stock with a 'Buy' recommendation," says Angel's research report.

Stock Views on Sun Pharmaceutical Industries, Lupin, HDIL

Prabhudas Lilladher on HDIL - Target Rs 280

Prabhudas Lilladher has maintained its accumulate rating on Housing Development and Infrastructure (HDIL) with a target of Rs 280 in its research report.

"HDIL reported revenues to the tune of Rs 2,954 million, a decline of 48% YoY. Revenues were largely led by sales of TDRs. The company sold 1.8 million TDRs during the quarter at an average rate of Rs 1,500/sq.ft. HDIL generated approximately 2 million sq.ft of TDRs during the quarter and currently has 0.5 million sq.ft of TDRs in its inventory. The company reported strong EBITDA margins of 83% due to the large proportion of TDR sales which led to profits increasing by 73.6% QoQ. We have estimated HDIL’s NAV at Rs 312/share. We are valuing the company at 10% discount to NAV which translates to Rs 280. We maintain ‘Accumulate’ rating on the stock," says Prabhudas Lilladher's research report.


Sharekhan on Lupin - Target Rs 978

Sharekhan has recommended a buy rating on Lupin with a target price of Rs 978 in its research report.

"Lupin’s performance in Q1FY2010 was ahead of our expectations. The consolidated revenues grew by a healthy 25.9% to Rs 1,085.6 crore in Q1FY2010. The revenue growth was driven by a strong traction across advanced formulation sales (up 40.4%), a healthy growth in the domestic formulation business (up 21.5%) and higher revenues from the Japanese market (up 42.1%). We maintain our 'Buy' recommendation on the stock with a price target of Rs 978," says Sharekhan's research report.

Sharekhan on Sun Pharma - Target Rs 1217

Sharekhan has maintained its buy rating on Sun Pharmaceutical Industries with a target price of Rs 1217 in its research report.

"Sun Pharmaceutical Industries (Sun Pharma)’ Q1FY2010 performance is well below our expectations. The revenues for the quarter declined due to lower sales in the US market (as against the high base of the non-recurring sales of Pantaprazole in Q1FY2009), a decline in Caraco Pharmaceutical (Caraco)’s revenues due to seizure of inventory by the US Food and Drug Administration (USFDA) and a staggered domestic performance. We maintain our 'Buy' recommendation on the stock with a price target of Rs 1,217 (14x its FY2011 earnings)," says Sharekhan's research report.

Stock Views on Allahabad Bank, Unitech, Torrent Power

Karvy on Torrent Power - Target Rs 270

Karvy Stock Broking has recommended a buy rating on Torrent Power with a target price of Rs 270 in its research report.

"Revenues for the quarter were up by 23.2 % to Rs 4810 million. Domestic formulations continue to outperform the industry with growth rate of 15.4 % for the quarter to Rs 1987 million. We increase our operating margins estimates from 17.6 % and 17.9 % on account of better gross margins and lower overheads in majority of the markets to 19.1 % and 19.2 % respectively for FY 10E and FY 11E respectively. We increase our EPS estimates for FY 2010 by 12.4 % to Rs 28.8 and by 13.6 % to Rs 33.3 for FY 2011E. On account of upgrade in EPS we upgrade our price target by 15 % to Rs 270 based on 8.1x FY 2011E. We continue to rate the stock as 'BUY'," says Karvy's research report.

IIFL on Unitech - Target Rs 102

IIFL has maintained its add rating on Unitech with a price target of Rs 102 in its report.

"Unitech reported revenue growth of 33.5% QoQ in 1QFY10, ahead of our estimate. PAT came in at Rs1.6 billion, after operating losses in 4QFY09. Unitech has sold 6.9m sq ft since March for a total consideration of Rs27 billion. Even more creditable is the mix of its sales—Rs18 billion from residential (5,000 apartments) and Rs9bn from commercial verticals. It has cut debt by Rs 20 billion from the proceeds of the two QIPs, asset sales and promoter warrants. It has tripled the execution staff in its pre-sold projects to accelerate deliveries. It is also rolling back prices for existing buyers in Grande in Noida and Nirvana Floors in Gurgaon; this, we believe, will boost customer goodwill. We have upgraded revenue and PAT estimates for FY10 by 13% and 12% respectively, to account for better-than-anticipated ramp-up in execution. We maintain ADD with a target price of Rs102/share, at 5% discount to 1-year forward NAV," says IIFL's report.


Bonanza on Allahabad Bank - Target of Rs 116

Bonanza has recommended a buy rating on Allahabad Bank with a price target of Rs 116 in its report.

"Allahabad Bank has shown good results in Q1 FY10. Bank’s total interest income has increased by 18%, whereas Interest Costs have gone up by 11.6%. Bank’s Gross NPA has marginally increased from Rs 1078 crore in Q4 FY09 to Rs 1093 crore in Q1 FY10. Net NPA are down from Rs 419 crore in Q4 FY09 to Rs 220 crore, as bank has recovered NPAs. Its GNPA are at 1.79% in Q1 FY10 down from 2% in Q1 FY09 and Net NPA are at 0.37% down from 0.8% in Q1FY09. The need for provisioning may go down in future. Allahabad Bank has given good results in Q1 FY10. We revise our earlier EPS estimates from Rs 23/Share to Rs 29/Share. At CMP Rs 86, it trades at 2.9 PE. Investors may 'BUY' at CMP, for a target of Rs 116 i.e. about conservative 4 PE on FY10 estimates, “ says Bonanza's research report.

Stock Views on Bank Of India, PNB, Orchid Chemicals

KRChoksey on Bank Of India - Target Rs 380

KRChoksey has recommended a buy rating on Bank Of India with a target price of Rs 380 in its research report.

"Bank of India’s operational results were broadly in line with our expectations with headline profit numbers increasing 4% y-o-y to Rs 584.3 crores. Net Interest Income came under pressure as bank remained cautious on increasing advances (yoy advances growth up 23% yoy and 2.1% sequentially). We recommend a 'Buy' on Bank of India with a target of Rs 380," says KRChoksey's research report.


KRChoksey on PNB - Target Rs 780

KRChoksey has maintained its buy rating on Punjab National Bank with a target price of Rs 780 in its research report.

"PNB reported better than expected headline profit at Rs 832 crore (up 62.4% y-o-y) on back of higher trading gains. Net Interest Income held up better compared to peers as the bank was able to withstand margin pressures better. We maintain a 'Buy' on PNB with a target of Rs 780," says KRChoksey's research report.

Angel Broking on Orchid Chemicals - Target Rs 110

Angel Broking has maintained its buy rating on Orchid Chemicals and Pharmaceuticals with a target price of Rs 110 in its research report.

"For 1QFY2010, Orchid’s net sales increased 8% to Rs 305.8 crore (Rs 282.6 crore) driven by launch of the high-Margin Tazo-Pip in Europe. At current levels, the stock is trading at 6.1x FY2011E Adjusted Earnings and 1.3x FY2011E EV/Sales which we believe adequately factors in the concerns on the debt front and delays in getting approval for its high-Margin products. We maintain a 'Buy' on the stock, with a target price of Rs 110," says Angel's research report.

Stock Views Patel Engineering, Federal Bank, Unity Infra

Sushil Finance on Patel Engineering - Target Rs 572

Sushil Finance has maintained its buy rating on Patel Engineering with price target of Rs 572, in its report.

“Patel Engineering has continued its strong performance on quarterly basis and we are confident that it would be able to deliver a strong growth going forward. However, rising interest rates and depreciation expense has slowed down its bottom-line growth.”

FinQuest Securities on Federal Bank - Target Rs 300

FinQuest Securities has maintained its buy rating on Federal Bank, with price target of Rs 300, in its report.

"We expect Fed Banks' profits to grow at a CAGR of 19% over FY09-FY11E leading to ROE of 14% by FY11E. Management has indicated that the merger with CSB (Catholic Syrian Bank) bank will materialise in next six months. We maintain 'Buy' rating with a target price of Rs 300 (1x FY11E ABV)," says FinQuest Securities' report.

Sharekhan on Unity Infra - Target Rs 430

Sharekhan has maintained its buy rating on Unity Infraprojects with a target price of Rs 430 in its research report.

"Unity Infraprojects (Unity)’s Q1FY2010 revenues grew by 24.6% year on year (yoy) to Rs 278.6 crore, which is in line with our expectation. We maintain our 'Buy' recommendation on the stock with the revised price target of Rs 430. At the current market price, the stock is trading at attractive valuation of 6.2x FY2010 and 5.8x FY2011 earnings estimates and 0.8x FY2011 P/BV," says Sharekhan's research report.

Stock Views on JMC Projects, Supreme Industries, SBI

Sushil Finance on JMC Projects - Target Rs 260

Sushil Finance has recommended a buy rating on JMC Projects with a revised price target of Rs 260 in its report.

"After incorporating its FY09’s performance and based on our interaction with the management, we have revised our FY2010 numbers and introduce our FY2011 estimates. We expect the company to deliver EPS of Rs 19.5 and Rs 26 in FY10 & FY11 respectively (on expanded equity post the proposed rights issue). We retain our “BUY” rating on the stock with a revised price target of Rs 260 (10x FY11E EPS)," says Sushil Finance research report.


Sushil Finance on Supreme Industries - Target Rs 395

Sushil Finance has maintained its buy rating on Supreme Industries with a target price of Rs 395 in its report.

"Supreme Industries, SIL has delivered strong business growth & is well on its way to deliver strong growth in the coming years. After incorporating its FY09’s performance and based on our interaction with the management, we have revised our FY2010 numbers and introduce our FY2011 estimates. We now expect its FY2010 & FY2011 EPS to be Rs 40 & Rs.46 respectively. We retain ‘BUY’ rating on the stock with an increased target price of Rs 395 (8x its FY10E Earnings plus value of Andheri property at Rs. 75 per share)," says Sushil Finance's research report.

KRChoksey on SBI - Target Rs 2054

KRChoksey has maintained its buy rating on State Bank of India (SBI) with a price target of Rs 2054 in its report.

"With its surplus liquidity and balance sheet size, we believe SBI will be a major beneficiary of pickup in credit demand. SBI’s non banking subsidiaries (SBI Capital Markets, SBI Mutual Fund and SBI Life Insurance) will benefit from uptick in capital markets and corporate activity. We maintain a Buy on SBI with a target of Rs 2054, giving an upside potential of 12% from the current levels," says KRChoksey's report.

Stock vews on Suzlon, Dishman Pharma, 3i infotech

Prabhudas Lilladher on Suzlon - Target Rs 113

Prabhudas Lilladher has maintained its accumulate rating on Suzlon Energy with a target price of Rs 113 in its research report.

"Suzlon Wind (excl. Hansen & REPower) de-grew by 44%% YoY to Rs 11.6 billion in Q1FY10 as it sold only 123MW as against 338MW in Q1FY09. Since Suzlon is actively looking to sell in part or the entire stake in Hansen, we have done a SOTP, wherein we have assigned a value of Rs 23 per share (20% discount to market price) for its entire Hansen stake. Also, the target P/E of 10x FY11E earnings for the consolidated entity (Suzlon Wind and REPower) gives us a target price of Rs 113. We maintain an ‘Accumulate’ on decline rating," says P Lilladher's research report.


Reliance Money on Dishman Pharma - Target Rs 221

Reliance Money has maintained its buy rating on Dishman Pharmaceuticals & Chemicals Ltd with a price target of Rs 221 in its report.

"Dishman Pharmaceuticals reported below expected revenues by declaring 4% fall to Rs 2281 million primarily due to lower take-off of Eprosartan (which normally contributes around 17% of total revenue) by Solvay as it was undergoing a inventory rationalization (that resulted in 40% fall in Dishman’s domestic CRAMS operation).With a stronger operational and financial outlook, we maintain our positive stance on Dishman."


Sushil Finance on 3i infotech - Target Rs 116

Sushil Finance has recommended a buy rating on 3i infotech with a target of Rs 116 in its report.

"Given the current uncertain and challenging environment, 3i infotech has delivered a muted performance during Q1FY10. However, the Company is much better placed as compared to many of its peers and it has a good business balance in terms of geographical spread & portfolio of offerings. The recent acquisition of JP Morgan Treasury Services’ National Retail Lockbox Business (NRLB) by its subsidiary, Regulus Group is also a strategic move and expected to help 3i achieve operational efficiencies and drive value within its Transaction Services Revenue chain."

VOLTAS

VOLTAS IS a major engineering service provider whose operations is organised into four independent strategic business units. Under the engineering products and services segment, the company designs and manufacturers, machine tools, mining & construction equipment and sells textile machinery. About 80% of the revenues from this segment comes from manufacturing of forklift, trucks, cranes, warehousing equipment and construction equipment and sale of accessories, spare parts and maintenance services, while the rest 20% comes from commission income.

The company provides electrical, mechanical, HVAC and refrigeration solutions under the EM projects and services division.

Water treatment and management is also a part of this business, which contribute the most to the total revenues and profits.

Cooling appliances and commercial refrigeration products are manufactured and marketed under unitary cooling products division. The company is also in chemicals trading business, but it contributes less than 1% to the top line. Voltas earns 5% of its revenues from its foreign operations, which mainly include execution of projects in Middle East, Far East and South East Asia.

FINANCIALS

The company posted a 29% growth in revenue during December 2008. In comparison, total operating expenditure during the quarter was up by 33% YoY. This resulted in contraction in its operating margin which hit its bottom line. On expense side, the employee cost rose over 40% in year ended December 2008.

GROWTH STRATEGY

In last few years, it has changed its business strategy to emerge as a one stop solution provider rather than a manufacturer. The strategy has paidit handsomely. At the end of September ‘08, its domestic order book in EM projects and services segment stood at Rs 1,000 crore, while international order book stood at Rs 4,500 crore with an average completion cycle of 24-30 months. For the domestic market, the company has formed industrial verticals in order to focus on areas like airports, power and steel, which are likely to have sustained growth.

RISKS

Historically, Volta’s tends to sit on higher inventories, which depressed its cash flows. In last few years, it has cleaned up its act but, its cash flows from operations continues to be erratic. The company is a big importer of equipment and cooling products. The recent depreciation in the rupee raised the cost imported goods which hurt its profitability. Bulk of Voltas’ overseas business is in West Asia especially UAE and Qatar. The global credit crisis and falling crude oil prices has hit these economies hard leading to a slowdown in construction activities. This will have an adverse impact on Voltas’s earnings in next few quarters.

TO SUM IT UP

Volta’s is expected to take a hit on its earnings and profitability thanks to its high exposure to the gulf countries as well as slowing construction and engineering activities in domestic market. The company earns substantial non-operating other income from recurring rental income and investment of surplus funds. However, this segment is likely to hit due to a gloomy realty sector and fall in yields across asset classes. It doesn’t have a track record of higher dividend pay. However, with a higher beta, the company could turn out a well fit for risk-loving investors.

Beta: 0.94
Institutional Holding: 26.54%*
Current dividend Yield: 3.34%
Current P/E 5.45
Current m-cap: Rs1337 cr

TATA STEEL

Beta: 1.25

Institutional Holding: 40.15%

Dividend Yield: 7.5%

P/E: 1.5

M-Cap: Rs 16,000 cr

AFTER the acquisition of Corus in ’07, Tata Steel has become the sixth-largest steel producer in the world. Currently, its total production capacity stands at around 28 million tonnes (mt). The company sells its products across different geographies including Europe, America and Asia. In the long term, the company wants to secure its raw materials (iron ore, coking coal and limestone) requirements. To fulfill this need, the company has acquired mines in different parts of the world, including Mozambique, Ivory Coast and Oman. Currently, its Indian operations are self-sufficient in raw materials, while the European one (Tata Steel UK) depends on external suppliers.

FINANCIALS:

Tata Steel’s Indian and overseas operations, especially Tata Steel UK, have different operating efficiencies. The Indian operations are highly integrated and have an operating margin of more than 40%. On the other hand, the European operations produce high value-added products without any backward integration and have an operating margin of 10-12%. Overall, the company’s consolidated operating margin has improved significantly in the past few quarters. Its consolidated operating margin for the September ’08 quarter stood at 18%, compared to 14% during the year-ago period. The company has taken huge debt to finance its Corus acquisition. Its debt-equity ratio (DER) is close to 1.3 and interest coverage ratio (ICR) is around 8, indicating the company’s ability to service its debt.

GROWTH POTENTIAL:

The company’s growth strategy will be different for various geographies. In India, Tata Steel is on track to expand its capacity in Jamshedpur to around 10 mt and has no plans to cut production. Given the pro-active measures taken by the Indian government to counter the effect of a slowdown, the company may not see significant volume drop in coming quarters. But it will go in for a production cut of around 30% in geographies like Europe, where the impact of the global slowdown is more severe. But the European operations will continue to gain due to an improvement in performance. The company has already achieved around $262 millionon account of this in the current fiscal so far, and has a target of $600 million for FY09, which will roughly account for slightly over one-third of the operating profit of Tata Steel UK.

RISKS:

Tata Steel’s European operations may witness volatility in earnings on account of falling steel and raw material prices. Tata Steel UK has so far managed to pass on the high cost of raw materials to its end customers. However, during a market slowdown, if the sales realisation falls more than the decline in raw material prices, the company’s operating profit will be severely affected. Considering Tata Steel’s high leverage, the overall impact on its consolidated profit may be significant.

TO SUM IT UP:

Tata Steel may not witness high growth during the second half of FY09 due to the sharp fall in steel prices. For valuation purposes, we have assumed a conservative steel price of $450/tonne and lower EBITDA margin (9% for Tata Steel UK and 45% for the Indian operations) for the second half of FY09. The diluted earnings per share (EPS) for FY09 is estimated at around Rs 140, which translates into a forward priceearnings (P/E) multiple of 1.35. At the current price level, the enterprise value (EV) is around three times the estimated EBITDA for FY09. According to Bloomberg data, most international steel producers like Nippon Steel and Posco are currently trading at trailing EV/EBITDA multiples of more than 4. All these factors indicate that Tata Steel is reasonably valued and is a very good bet for risk-loving investors. The stock not only provides price appreciation opportunity, but is also likely to generate handsome dividend returns in future.

SUN PHARMACEUTICAL

Sun Pharma has achieved a very good trade-off between its risks and returns. It is a safe bet for investors looking for the right mix of risk, growth and dividends
Beta: 0.29
Institutional Holding: 25.3%
Dividend Yield: 0.97%
P/E: 10.7
M-Cap: Rs 22,874 cr

SUN PHARMACEUTICAL — the largest and currently the most valuable domestic pharma company on the bourses — is a safe bet for investors looking for the right mix of risk, growth and dividends. The stock has depreciated by 9% during the year till date, compared to a 55% fall in the BSE Sensex.

BUSINESS:

Sun Pharma has established itself as a niche player in the chronic super-specialty therapeutic segments with a focus on the US and Indian generics market. Nearly 40% of the company’s total revenues are contributed by the US generics market and a similar proportion is accounted for by the domestic market.

The company has always followed a strategy of differentiation, which has paid rich dividends in the past. Be it venturing into neuro-psychiatry, acquiring US companies with manufacturing facilities, staying out of European markets or hiving off innovative research & development (R&D) into a separate company, Sun Pharma’s business model has proved to be superior to that of its peers.

The company earns around 55% of its revenues from its international businesses, with the US being its largest market. In the US, it is an integrated generic manufacturer with flexibility to manufacture onshore/offshore. The company’s strategy is to manufacture technically complex generics and it attempts to be the first to market these products. Taking calculated risks, the company has made several ‘at risk’ launches in the US market. As of end of September ’08, it had abbreviated new drug applications (ANDAs) for 96 products pending.

The company has a dominant presence in the domestic branded generics market. It is among the top three players for nearly half of the branded generics products in India. Despite this, Sun Pharma’s top 10 brands in the domestic market account for a modest 21% of its domestic sales.

GROWTH STRATEGY:

The company has largely grown organically, making 11 acquisitions till date, five of them being cross-border. It intends to achieve cost leadership through vertical integration from manufacturing active pharmaceutical ingredients (APIs) and finished dosages to marketing them. Sun Pharma’s acquisitions have been made to further this objective. It has been quite successful in turning around loss-making companies — be it US-based Caraco or yet-to-be-acquired Israeli company Taro.

Sun Pharma is now eyeing the key generic markets in Europe and is working on complex generic products, including injectibles. Its strategy is to use India as a manufacturing base for drugs approved in Europe.

The company is also developing strength in yet another niche area of controlled substances. In ’05, Sun Pharma acquired a facility in Hungary authorised to make controlled substance APIs, starting from the initial stage, i.e. poppy farming. In the same year, the company acquired a brand new manufacturing site in New Jersey, equipped with special suites for the manufacture of controlled substances finished dosages.

Last week, the company acquired a US-based registered narcotic API importer and producer. All these acquired units together will help the company to increase its presence in controlled substances due to vertical integration and help it to become an active player in the pain management segment in the US.

FINANCIALS:

The company’s net sales and profits have tripled in the past four years since FY05. Net sales have witnessed a compound annual growth rate (CAGR) of 27% to Rs 3,356.5 crore during the past five years. Likewise, the company’s profit has recorded a much faster CAGR of 43%.

The company, on an average, has distributed around 23% of its net profits as dividends in the past five years. The 36% growth in dividends has been lower than the growth in profits since FY03. Sun Pharma is in a growth phase and hence, prefers to maintain its payout ratio at around 25% of its profits.

While most pharma companies have been reeling under the pressure of foreign exchange losses on account of their forex borrowings in recent quarters, Sun Pharma has minimal exposure to forex derivatives and does not have any forex borrowings. Hence, it has managed to keep such extraordinary items out of its books. Rather, the company has been enjoying super-normal profits and profit margins of more than 40% since the past year due to 180-day marketing exclusivities on its products in the US.

VALUATIONS:

On a consolidated basis, the company is trading at a priceearnings (P/E) multiple of 10.7. This is attractive considering the valuations of its peers and the company’s historical growth in revenues and profits. Sun Pharma has achieved a very good tradeoff between its risks and returns. Even if the company registers normal growth in profit for FY09, it is still a safe and attractive bet for investors, who can consider picking up this stock on dips.

WELLNESS QUOTIENT

Sun Pharma has established itself as a niche player in the chronic super-specialty therapeutic segments with a focus on the US and Indian generics market The company has always followed a strategy of differentiation, which has paid rich dividends in the past It earns around 55% of its revenues from its international businesses, with the US being its largest market The company’s strategy is to manufacture technically complex generics and it attempts to be the first to market these products Sun Pharma is among the top three players for nearly half of the branded generics products in India It is now eyeing the key generic markets in Europe and is working on complex generic products, including injectibles The company is also developing strength in yet another niche area of controlled substances Its net sales and profits have tripled in the past four years since FY05

Bank of Baroda

Bank of Baroda is likely to emerge as a much stronger player. Investors can invest in the stock with a long-term perspective

Beta: 1.06
Institutional holding: 38.0%
Current dividend yield: 2.9%
Current P/E: 6.5
Current m-cap: Rs 10,035.6 cr

WITH A network of over 2,800 branches across the country, Bank of Baroda (BoB) is one of the largest public sector banks in India. The bank has been growing rapidly in the last few years, and it closed FY '08 with 46 branches in abroad—a mark that very few banks have achieved. BoB's wide base has helped it to tap all the resources-in rural, semi urban and the metro markets-to grow its balance sheet and revenues. BoB's international advances grew by more than 30% in FY '08, as a result of its wide presence in overseas markets.

BUSINESS

BoB's balance sheet has grown at a compounded average growth rate (CAGR) of 25.9% per annum in '06-'08. And, in terms of the growth trajectory, BoB has joined the fray of the top PSU banks, like, Punjab National Bank (PNB) and Bank of India (BoI).

The turnaround actually started becoming visible in the FY '06, when for the first time in the current decade the balance sheet expanded by close to 20%. Since, FY '06, the bank's loan book has been increasing at a rate in excess of 25%, but the deposits have been growing at a bit slower rate. This has helped it in improving the credit-deposit ratio i.e. a higher portion of deposits is extended as advances.

However, BoB's net interest margin (NIM) has been under pressure as it has come down from 3.4% in FY '05 to 2.9% in FY '08. One may get an impression that this has happened because the bank has not been able to pass on the increase in cost of deposit to its customers. However, this is because the bank had to step up its deposit mobilisation in the last two years in order to maintain high credit growth. This resulted in higher interest payments on account of higher deposits, thereby, compressing the net interest income, which ultimately led to fall in NIM. This shows that there was a trade off between BoB's shrinking NIM and growth in its advances. And, it has paid off, as the bank's profit grew at a CAGR of 30.8% in last three financial years.

The non-interest part of BoB's revenue has not been growing as fast as the fund-based revenue. The bank needs to improve its performance on this parameter. In the six months ending September '08, the bank's profit has grown by 16.5% on a year-on-year basis, propelled by 32.5% growth in its advances. It must be noted that the growth in advances took place in a sluggish business environment.

The NIM was also under pressure in the first half of the current financial period. This is visible as the interest expenses grew by a higher percentage than interest income. However, BoB rationalised its other expenses, and this helped in boosting its profit growth.

The asset quality is very high as the net NPAs formed just 0.43% of net advances at the end of September '08 quarter and on this count the bank's performance is as good as a top private bank. Its capital adequacy ratio stands at 13% and it shows that it is well capitalised.

VALUATION

The stock is trading at a multiple of 6.5 times the trailing twelve months' earnings. The low valuations do not justify the earnings growth, which is much higher. Moreover, the stock is trading at a discount to its book value (Rs 301 per share). A fundamentally sound stock, trading at less than its book value, is often the first to rise when the market starts moving up. Investors are advised to invest in the stock with long-term horizon.

STERLITE INDUSTRIES

Beta 1.21
Institutional Holding 13.6%
Dividend Yield 1.4%
P/E 14.3
M Cap Rs 19,355 cr.

Sterlite Industries is the most diversified non-ferrous conglomerate in India. Its subsidiary, Hindustan Zinc, which is also a listed entity, is the largest domestic integrated zinc producer. It has an annual zinc production capacity of more than half million tonnes. In fact, it is one of the lowest cost producers of zinc in the world. Besides zinc, the company also has other lines of business, which includes aluminium, copper and energy among others. In aluminium, it is partially integrated and has a production capacity of 0.36 million tonnes per annum. The company has taken a number of steps to increase its aluminium production and make it more integrated. In copper, it makes most of the profit from treatment and refining (TC/RC) margins. This is why copper contributes only 10-15% towards the operating profit even if its contribution towards the top line is more than 50%.

FINANCIALS

The company's net sales more than tripled over last three years to Rs 26,400 crore. The net profit increased by seven times during the same period. Like its other peers, including Hindalco, it has not made a loss during the last fourteen years. Zinc & lead is the most profitable business segment of the company and accounts for around half of the operating profit. Even after the sharp fall in zinc prices (it has more than halved to year-ago levels), the operating margin in zinc & lead business is still a whopping 50-55%. Aluminium is the second-most profitable business and contributes around 20% to the company's net sales. It has an operating margin of around 25% in aluminium business. This would further go up once the company starts getting its raw material (bauxite) from the newly allotted mines. Copper is the least profitable of all the three and has an operating margin of around 15%. The company's overall operating margin stands at around 25%, slightly better than its peers. The company has adopted both inorganic and organic route for its growth. However, the company has not leveraged itself so much for such growth plans. Its consolidated debt-equity ratio stands at a comfortable level of 0.23.

RISK

The company's diversified product portfolio within non-ferrous metals space reduces its business risk. However, it is subject to the overall risk related to commodity cycle. Further, its lower debt-equity ratio and high liquid investments (of around Rs 7,000 crore) relatively insulates it from the current credit crisis.

GROWTH POTENTIAL

The company is planning to increase its zinc and aluminium production capacity significantly. In zinc, its capacity would increase to one million tonne by 2010. In aluminium, smelting capacity in Korba will expand by 0.32 million tonnes, almost doubling the current capacity. Post expansion, the aluminium production capacity at Jharsuguda and Lanjigarh, which falls under Vedanta Alumina (VAL) would also increase by 1.25 million tonnes. Sterlite Industries hold 29.5% in VAL and would benefit to that extent. Its parent company, Vedanta Resources has recently got the clearance for mining the bauxite reserve in Orissa and that would help it lower the cost of aluminium production. Another growth driver for the company would come from commercial power generation business. The first phase of a 2,400-MW power plant is expected to get commissioned by the end of calendar year 2009-10.

To Sum It Up

Sterlite Industries has a diversified portfolio and two of its business segments (zinc and aluminium) are extremely profitable. It has successfully acquired and managed some of the government owned companies. Its lower debt position, higher liquid investment, integrated expansion plan and diversified portfolio makes it an attractive bet for the riskaverse investors.

Jhunjhunwala Vanaspati

Jhunjhunwala Vanaspati is an attractive investment bet, considering its strong fundamentals, growth prospects in the edible oil business and foray into fertilisers & real estate segments

Beta: 0.27
Institutional Holding: 0.1%
Dividend Yield: 2.8%
P/E: 1.5
M-Cap: Rs 54.1 cr

A BEARISH market occasionally provides an opportunity to unearth some value stocks, which have been battered below their intrinsic worth. Jhunjhunwala Vanaspati (JVL) is one such stock (which figured in the lead story titled ‘Cheaper By The Dozen’ in our edition dated December 1, ’08) whose market value is now lower than cash and other liquid investments net of long-term debt on its books. Considering the company’s strong fundamentals and growth prospects, the stock is a good value pick for investors interested in the small-cap space.

BUSINESS:

Varanasi-based JVL is principally engaged in the manufacture of vanaspati and refined edible oil. Vanaspati accounts for more than 58% of the company’s revenue, while the remainder comes from other oils like soya, palm and mustard oil. The company is in the high-turnover, low-margin business of solvent extraction. It markets its products under the ‘Jhoola’ brand, which is the market leader in Uttar Pradesh and Bihar, enjoying 35-40% share each. The brand commands 5-10% premium over its competitors and is predominant in rural markets. On one hand, the company imports crude edible oil, while on the other hand, it exports de-oiled cakes to markets in South-East Asia. JVL has also entered into deals to import crude palm oil and soya bean oil directly from plantation owners in Malaysia, Indonesia, Argentina and Brazil. The company has recently acquired a sick fertiliser company in Bihar, thus foraying into the fertiliser segment. It has also acquired 260 acres of land bank as part of the deal. The company has proposed real estate development of 333 acres in Varanasi, and plans to develop this into a multi-services SEZ.

GROWTH OPPORTUNITIES:

India imports nearly 50% of its edible oil requirements. So, there are significant growth prospects for solvent extraction units. To take advantage of this, the company has expanded capacities at its existing facilities and planned new units in Bihar and West Bengal. JVL aims to expand its total installed capacity from 2,67,000 tonnes per annum (tpa) in ’08 to 9,56,000 tpa by ’10. It plans to invest more than Rs 200-250 crore in capex via accruals and debt over the next three fiscal years. The company is decreasing its dependence on vanaspati by increasing manufacturing capacities of other refined oils. Given the decreasing consumption of vanaspati, JVL intends to rationalise the proportion of vanaspati in its revenue to around 30% over the next two years. The company is looking at leveraging the strength of its brand to increase its market share in Bihar and penetrate new markets like Jharkhand, West Bengal, Orissa, MP and the North East.

FINANCIALS:

JVL’s net sales have seen a CAGR of 20.4% over the past five years to Rs 1,154.8 crore in FY08. Its net profit has posted a CAGR of 35% during the same period to Rs 23.6 crore in FY08. The company has seen rapid growth in the past three fiscal years, coinciding with the bull run in the edible oil market. JVL has been paying dividends since the past four fiscal years at an average payout ratio of 9% of its profit. It expects to hike its dividends in line with its growth. Despite volatility in raw material prices, the company’s operating and net profit margins have improved over the past one year. A cut in import duty on oil and the rupee’s appreciation also made it possible for the company to control input costs, which account for over 80-85% of its total manufacturing cost. JVL commissioned a 3-mw agrobased captive turbine in FY07, which has helped it to reduce power costs. This has also enabled it to apply for sale of carbon credits.

VALUATIONS:

At its current valuations, JVL is one of the most attractive stocks among listed players in the solvent extraction business. Considering its growth prospects in the edible oil business, along with its foray into fertilisers and real estate, the company is an attractive investment bet in its segment.

Simplex Infrastructure

Simplex Infrastructure is well-diversified across the construction space and it is reasonably valued too. However, there are some caveats which need to be looked at

OVER THE past one year, construction companies, especially in the midcap space, have been hammered on the bourses. The stocks have lost between 65-75% in value triggered by fears of slowing down of orders and also high interest costs affecting the profitability of the companies.

However, in the last one month, most stocks in the segment have gained 30-50%. The two stimulus packages announced by the government are likely to have a positive rub off on the sector. Mid-cap companies are also likely to gain, especially those with a diversified portfolio. Simplex Infrastructure fits the bill perfectly. The company looks undervalued compared to its peers and is a good buy for long-term investors.

BUSINESS

Simplex Infrastructure is an eighty-four-year-old company which started off with piling (ground engineering) operations in 1924. It has added various businesses and successfully diversified into industrial construction, building and housing, urban infrastructure, power, marine and transport (roads, railways and bridges).

The company was also planning to venture into oil rigs and real estate business in a big way. It entered into a two-year contract in mid 2007 with Oil India for leasing a 1,500 HP rig at $16,000 per day for on-shore exploration. However, with the fall in crude oil prices and consequent decline in the day rates and also the downturn in the real estate market, the company has held back the plans.

STRONG ORDER BASE

The company provides strong revenue visibility with an order backlog of Rs 10,600 crore; nearly three times its trailing four quarter revenues. Going forward, the company plans to focus on highgrowth segments like power, marine, railways, bridges and urban infrastructure. According to the company, it is pre-qualified for projects worth Rs 28,000 crore while Rs 7,000 worth of orders are in the L1 stage (short-listing pending after bidding). The company's strike rate is around 20%.

FINANCIALS

In the trailing four quarters, net sales leaped by 70%, while growth in operating profit and net profit trailed at 61% and 65%, respectively. In the December '08 quarter, we expect the company to report 45% growth in revenues to Rs 1019.2 crore. Operating profit margins are expected to decline marginally by about 40 basis points to 9.6%. About 92% of its contracts are on a variable basis and any savings in costs are likely to be passed on to customers. Net profit is expected to grow at a slower 30% to Rs 28.5 crore due to higher fixed costs (read interest and depreciation) and taxes.

KEY CONCERNS

Investors need to keep a watch on future order inflows, which could get affected due to the economic slowdown and credit crunch. Also, the buildings and housing segment that constitute 28% of the total order book, could witness some pressure.

Another concern is the relatively high debt to equity ratio of over 1 in FY '08, which is expected to rise further to 1.5 by the end of FY '09. The company has raised Rs 220 crore through issue of 5.5 million warrants in FY ‘08, which are convertible into equity at Rs 401 per share by end of FY '09. With the stock currently trading at Rs 172, cancellation of conversion cannot be ruled out, in which case debt and interest costs could rise further.

The company also has a poor interest coverage ratio of around two in FY '08 as compared to over 3-3.5 times for IVRCL and Nagarjuna Construction. The company's operating cash flow has been negative for three financial years prior to FY '08. Cash flow may come under pressure due to the economic slowdown, delays in the projects/payments and higher interest costs.

VALUATION

At its current price, the stock is trading at around 6.4 times its earning for trailing four quarters ending September ‘08. This is much lower than the valuations of its nearest peers namely Nagarjuna Construction (7.9 times). It trades at 5.6 times and 3.8 times its estimated earnings for FY '09 and FY '10 (diluted) respectively. This provides an attractive opportunity for investors to accumulate stocks at dips.

SHIPPING Corporation of India (SCI)

Beta: 0.38
Institutional Holding: 15.08%
Dividend Yield: 10.01%
P/E: 3.67
M-Cap: Rs 3,597 cr

SHIPPING Corporation of India (SCI) is the country’s largest shipping company and is 80.1% government-owned. It had a fleet size of 79 vessels at the start of August ’08 and a capacity of 4.76 million dead weight tonnes (dwt). Around 56.3% of its capacity is utilised for transporting crude products, while 30.8% is used for the dry bulk segment. But a concern related to SCI’s fleet is the rapid ageing of its vessels, which limits its ability to quickly deploy its vessels, especially in the dry bulk segment. For instance, in the dry bulk segment, SCI’s 20 bulk carriers are 19 years old on an average. In fact, SCI has admitted in its annual report for FY08 that 12 out of its 15 Handymax vessels in the dry bulk segment are 20 years old.

As a result, the deployment of such vessels has come down considerably, with customers preferring vessels that are less than 15 years old. In the tanker segment too, SCI has several vessels that are over 15 years old, but the demand for transporting imported crude to the country by oil marketing companies has spurred the utilisation of these vessels. The aging fleet of SCI has resulted in the company reporting mediocre growth in topline, even during the boom phase of the shipping industry between FY06 and FY08. Another symptom of this aging fleet is that operational costs tend to be higher, which puts pressure on operating profit margins (OPM). Meanwhile, SCI’s capacity on a spot basis is pegged at 33% of its total fleet as of end FY08.

FINANCIALS:

SCI reported a lacklustre growth in net sales during the three years ended FY08, with its core operational income rising just 5.5% during the period to reach Rs 3,726.8 crore in FY08. In addition, its OPM declined by over 550 bps during the period to 25.5% in FY08. Pressure on OPM has been due to a rising cost structure — for instance, repairs & maintenance cost as a percentage of net sales stood at 9.6% in FY08, compared to 8.35% in FY06. SCI’s bunker cost as a percentage of net sales was 18% in FY08, compared to 13.3% in FY06. To the company’s credit, it maintained a conservative debt-equity ratio of 0.3 in FY08, which is identical to the level reported in FY06. Meanwhile, during the September ’08 quarter, SCI’s OPM fell 160 bps y-o-y to 24.8%, which was once again due to rising operational costs.

GROWTH PLANS:

SCI plans to add 28 vessels over the next 2-3 years at a cost of $2 billion (Rs 10,000 crore). Despite the current weakness in spot freight rates, this strategy is optimal in a bid to reverse the ageing nature of its fleet. The company’s cash and bank balance as of end FY08 was Rs 2,019.2 crore. Analysts expect a rise in its debt-equity ratio in the medium term due to its expansion plans.

VALUATIONS:

At Friday’s closing price of Rs 85, the stock trades at 2.7 times its estimated FY09 earnings and we are neutral on the stock. Investors keen on taking exposure in the shipping sector can consider investing in private sector players.

SAIL

Beta: 1.13
Institutional Holding: 11.4%
Dividend Yield: 4.7%
P/E: 4.1
M-Cap: Rs 33,000 cr

STEEL Authority of India (SAIL) is the second-largest steel producer in the country, next only to Tata Steel. Unlike the latter, SAIL has grown organically and has a current annual capacity of 13 mt. The company mainly focuses on the domestic market. It is completely integrated for its iron ore requirements. However, it depends on external suppliers for its coking coal requirements. SAIL imports more than 70% of its coking coal requirements from countries like Australia and New Zealand.

The company has paid back a significant portion of its debt over the past five years. This is evident from the fact that its debt was seven times its equity in ’02, whereas currently, its debt accounts for only 16% of its equity. And this has been made possible due to the company’s strong operating cash flows since the past several years.

FINANCIALS:

SAIL’s net sales have almost doubled over the past four years to around Rs 40,000 crore. It has significantly improved its operating margin from 17% to 28% during the same period. At a time when companies are grappling with the credit crisis, SAIL has one of the lowest DER of 0.12 within the industry. High operating profit and low interest expenses have kept the company’s ICR at a very high level of more than 50. The company has also generated good returns on capital employed (RoCE), which have been more than 45% for the past three years. SAIL’s operating margin has come down to around 25% in recent quarters from the earlier 30%. This decline is mainly on account of higher salary expenses arising out of the Sixth Pay Commission recommendations.

GROWTH POTENTIAL:

The company plans to increase its saleable steel production capacity by around 80% in the next 2-3 years to 23 mt. It also plans to set up manufacturing facilities to produce more value-added products like galvanised coils, auto grade cold-rolled products, rails and rail wheels, among others. However, the company will maintain its current raw material strategy of being self-sufficient in iron ore and importing coking coal. The total investment for all these expansion activities is estimated at Rs 54,000 crore, which will be financed such that the company’s overall DER will remain at 1:1. SAIL has cash and cash-equivalents of around Rs 14,000 crore, which can be used for such investment.

RISKS:

The company has not expanded its capacity much during the last commodity boom cycle and is also less leveraged. The fact that its main market for selling its products is India — where the impact of the slowdown is less than that seen in developed countries — makes it less risky. SAIL also has huge cash reserves of around Rs 14,000 crore. The company’s only concern is the import of coking coal as a raw material. The price of this input has not declined as much as steel prices. Overall, the company bears less risk than many of its peers.

TO SUM IT UP:

The above-mentioned factors (less debt, cash reserves and domestic focus) make the stock relatively less risky. However, the second half of FY09 will be challenging for the company. The estimated EPS for FY09 works out to slightly above Rs 17 and translates into a P/E of 4.6. Though it doesn’t provide much upside in the short term, there doesn’t seem to be much downside either from the current level. The stock is a safe bet in the steel sector for risk-averse investors.

Titan Industries

The consistent growth model of Titan Industries makes it a good long-term buy in the consumer goods space. The stock can be bought on dips

Beta: 0.09
Institutional Holding: 6.57*
Current dividend Yield: 0.88
Current P/E 19.21
Current m-cap: Rs 4,047 cr

THE economic slowdown in India is expected to affect the sales and profitability of the consumer goods companies. However, Titan Industries, with strong branding and wide retail presence, is less likely to be beaten down by the same. Titan Industries is India’s leading manufacturer of watches and jewellery and world’s sixth-largest manufacturer of branded watches. It dominates the domestic watch and the organised jewellery markets with a market share of 60% and 40% respectively.

BUSINESS

The Bangalore-based company designs, manufactures as well as retails watches, jewellery, sunglasses, clocks in Indian and international markets. Watches are sold under four main brands, namely Titan, Sonata, Fastrack, Xylus as well as a range of sub-brands like Raga, Edge, Octane, and many others. The company has a strong retail presence with a network of 260 ‘World of Titan’ showrooms and nearly 750 service centres. In 1995, the company forayed into the organised jewellery market with its brand ‘Tanshiq’. It is now India’s largest and fastest growing jewellery brand with 120 boutiques. The company ventured into mass jewellery through ‘Gold Plus’ brand that sells plain gold jewellery at its 30 showrooms. Titan has diversified into fashion eyewear by launching Fastrack eye-gear, sunglasses as well as prescription eyewear, sold through its 50 stores under Titan Eye+ brand. In 2003, the company ventured into precision engineering and machine building. The division supplies precision components to the avionics and the automotive industries. Titan is the OEM (original equipment manufacturer) of dashboard clocks and is a supplier of the same to car manufacturers in Europe and America.

FINANCIALS

Titan Industries’ topline has been growing consistently. It has clocked a compounded annual growth rate (CAGR) of 33% in the last five years ending March 2008. Operating profit during the same period grew by a CAGR of 23%, while net profit galloped at the rate of 90% per annum. In the last four quarters, the jewellery business contributed 70% to the company’s total revenues, whereas watches business accounted for around 27%. While the jewellery segment dominated the topline, watch segment accounted for nearly 60% of company’s profit before interest and tax in FY08. In the September ‘08 quarter, the company’s operating margin rose to its highest level, in more than seven quarters, as gold prices breached through a key $600 an ounce.

GROWTH DRIVERS

The company plans to take advantage of its strong brand positioning by launching innovative and theme-based products in both the watches and jewellery segments to drive up sales. So far, it has managed to show a steady growth in its retail expansion in FY09 with the launches of new showrooms for brands Tanishq, World of Titan, and Goldplus in line with its growth targets. The expansion plan for the eyewear segment, Titan Eye+ that right now contributes little to the topline is also on track with an addition of nearly 40 stores this financial year. The company has also signed distribution and marketing deals with Tommy Hilfiger and Hugo Boss for their range of watches and eye wear products.

RISKS / CONCERNS

The company’s considerable size of inventories is leading to a sharp rise in working capital requirement. In the last four financial years, net cash flow from operations declined by a CAGR of 3% against a rise in cash profit by a CAGR of 53%. In the same period, the inventories grew at a CAGR of 98%, which is very significant. While we believe that this rise, in recent quarters, could be to shield against volatile gold prices, it can put pressure on profitability. The company also needs to revive its eyewear and precession-engineering businesses, which contribute less than 3% to its revenues. However, they are still making losses.

VALUATIONS

In the past one year, while the Sensex has lost more than 50% of its m-cap, Titan Industries lost about 35%. On the other hand, since 2003, its m-cap has increased 10 times against a fourfold increase of the Sensex. At the current market price, the P/E is down 60% from its five-year average of 49. Considering that P/E could tick towards the lower side of its last twomonth range, of 17-21, the stock can be bought on dips. The consistent growth model of the company makes it a good long-term buy in the consumer goods space.

TICKING UP

In the last six quarters, Titan saw an average growth of 11% in net sales, 32% rise in operating profit and 35% in net profit

In the last four quarters, the jewellery business contributed 70% to the company’s total revenues, whereas, watches business accounted for around 27%

Plans to launch innovative and theme based products in both jewellery and watches segments

There has been a steady growth in retail expansion of showrooms for all brands in FY09

In last five years Titan’s mcap increased ten times outperforming a four fold increase in Sensex m-cap.

At the current market price, the P/E is down 60% from its five-year average of 49, making it a good pick

Titan showed a steady growth in its retail expansion in FY2009 with the launches of new showrooms for brands Tanishq and World of Titan Titan Eye+ contributes little to the top line is also on track by adding nearly 40 stores in the fiscal

Rallis India

With demand for pesticides rising, the agrochemicals product manufacturer is expected to record a better bottom line in the future

Beta 0.47
Institutional Holding (%) 26.11
Dividend Yield (%) 4.72
P/E 5.9
Mcap (Rs crore) 406

IF STABILITY in growth and fundamental strength were considered as the most important virtues in the current turbulent times, Rallis India can be an attractive option for long-term investors. The agrochemicals product manufacturer is likely to maintain the growth momentum visible in the last four years. The valuations and dividend yield appear attractive for long-term investors.

BUSINESS:

Rallis India is predominantly an agrochemicals manufacturer, which also sells other farm inputs such as hybrid seeds and specialty fertilisers. The company undertakes manufacturing work on contract for leading agrochemical majors. This ensures that its plants works at higher capacity utilisation levels throughout the year besides providing a consistent cash flow. Apart from innovating agrochemicals business, Rallies India is also exploring new areas for growth.

Through its contract manufacturing agreement with US-based Cytec Engineers, the company has emerged as the sole manufacturer of specialty polymer PEKK (poly ether ketone ketone), mainly used in aerospace industry, in the world.

Last year, the company launched an enterprise value-creation programme — Disha — aiming at bringing in improvements in manufacturing and procurement, through plant modernisation, capacity de-bottlenecking, process improvements and cost reduction.

Its efforts towards targeted growth in its international business are also paying off well. Following the success of Disha phase 1, the company has initiated Disha phase 2 for creating value in sales and marketing.

Revenues from the new products were 30% for the financial year 2008 and Rallies India is taking conscious efforts to maintain the proportion. It plans to set up additional manufacturing facilities at Dahej in Gujarat.

GROWTH DRIVERS:

The global agriculture industry is facing challenges to improve productivity to cater to the food as well as the energy requirements of the ever-increasing population. This coupled with higher agro-commodity prices, is likely to maintain a healthy demand for pesticides in the coming years.

Rallies India has recently closed down its plant at Patancheru in Andhra Pradesh to unlock value in the land bank. Meanwhile, it is also setting up agrochemical plants in Dahej and Jammu, which will commence production in 2010. At Dahej, the company has secured land in special economic zone (SEZ) and notified chemicals zone (NCZ) and it also plans to spend over Rs 150 crore in two phases there. Besides, another captive power plant at Ankleshwar will also developed by the company.

Rallies India’s focus on specialty products is helping it earn better margins. The company is expected to continue its new product launches to keep its innovative sales above 30% of its total revenues.

FINANCIALS:

Rallis India, which was making operating losses till FY2004, has made a strong turnaround and posted PAT of Rs 125 crore in FY08. As part of the turnaround strategy, the company has liquidated several assets raising Rs 244 crore in the last five years, including Rs 87 crore of profit on sale of land in FY08.

It has consistently reduced its debt-equity ratio over the last five years to 0.15 by the end of FY08, while the return on employed capital has jumped to 23.7%. The company’s operating margins grew strongly last year.

For the 12-month period ended December 2008, the company reported a 21% growth in sales to Rs 813 crore. Its operating profit margins rose by 350 basis points, resulting in 73% spurt in PBT to Rs 103 crore. However, the extraordinary income of Rs 87 crore on sale of land in the previous year makes the current PAT at 45% lower.

The company no longer has the benefit of carry forward losses and started paying tax at full rate applicable to corporates from the December 2008 quarter. Once its plants in Dahej and Jammu become operational, the effective tax rate may decline.

VALUATIONS:

Rallis India has outperformed broader market and has maintained its price-toearnings ratio (P/E) intact over the last one year. We expect the company to finish FY09 with EPS of Rs 59.5 and FY10 with EPS of Rs 71.3 excluding any extraordinary income. At the current market price, the scrip is trading at 5.7 times its expected net profits for FY09 and 4.8 times its estimated FY10 earnings. It paid Rs 16 per share as dividend in FY08 and is likely to maintain it in future. At its current price, the dividend yield works out to 4.7%, making it a safe bet for risk adverse investors.

Max India

Though Max India’s insurance business is yet to mature, it is an attractive pick for the long term considering its earnings potential

THE fairly recession-proof insurance sector is not well represented in the Indian financial markets, but for a few listed companies. Among these, Max India seems to be a promising bet. The company has diverse business interests in insurance, healthcare, packaging and clinical research. Considering the growth clocked by its insurance business and its expected capital infusion, Max India is seen to be an attractive pick for the long term.

BUSINESS:

The Rs-3,250 crore group is diversified into insurance, healthcare, specialty packaging business and clinical research. Earlier, Max India group had a presence in telecom, pharmaceuticals and medical transcription businesses. At present, insurance business accounts for more than 80% of the company’s revenue, while each of specialty and hospitals business contributes 8%. The remaining revenue is contributed by the company’s clinical research business.

Max India is operating in the life insurance segment through its subsidiary, Max New York Life, which has New York Life as its foreign partner. The company is among the top three private insurance players in the northern and western India. It has a conservation ratio of 80% that represents a high policy renewal rate. Nearly 60% of its revenue is contributed through agency channels and the rest through alternate channels. The company has outperformed the industry since the beginning of the current fiscal. For instance, during the quarter ended December 2008, the company posted a growth of 9% in its business, while the industry registered a 13% drop.

With assets under management of Rs 4,800 crore, the insurance arm of the company is still under losses that rose on account of significant expansion undertaken by the company in the life insurance business. Max India expects to achieve a break-even by FY12.

The company, through its subsidiary Max Healthcare, operates a network of eight hospitals in the NCR region with an average of 714 beds. The average revenue per occupied-bed stands at around Rs 19,464 and its average occupancy rate stood 63%. While the business generates cash profits, a net profit breakeven is expected by FY11.

The company’s specialty packaging business is growing at an average EBITDA rate of 15% per annum and returns 18-20% on capital. The company is into a niche segment of manufacturing BOPP films and also provides packaging service to FMCG companies.

The company, in July 2008, made its foray into the health insurance sector through a joint venture with UK-based international health insurer Bupa group. The venture has potential synergies with its existing life insurance, healthcare and clinical research businesses.

GROWTH STRATEGY:

Max India is quite aggressive on its insurance business with an intention of turning it into a profitable one by FY12. However, the company has revised its plans due to the financial slowdown and lowered its growth targets. The company now intends to open 100 sales offices every year with the total number of offices exceeding 1,000 by FY12. Agency strength is also slated to grow from current 72,000 to 2,00,000 agents during that period. The company aims to maintain a 15-20% lead over the market’s performance.

In order to strengthen its distribution channels further, the company has entered into a tie-up with Barclays Finance, one of the leading NBFCs with 119 branches. The company has tie-ups with various domestic and international distributing companies.

Max India is also in the process of setting up five new hospitals, one in Dehradun and the rest in NCR. This will help double its bed capacity to 1,500 beds in the next 2-3 years. The company’s health insurance business is likely to gain traction in revenues soon. However, it will start contributing to the group’s income in another 4-5 years.

FINANCIALS:

Max India’s consolidated net sales have increased at a compound average growth rate (CAGR) of 55% to Rs 3,241.4 crore over the last five years. On a consolidated basis, the company has been reporting losses as it has warranted a significant investment in its insurance business.

The company’s performance has been affected during the quarter ended December 2008 as it posted a 32% drop in case rate per agent and a 23% drop in the average case size. Besides, the drop in crude oil prices has adversely impacted the earnings and revenues of the company’s packaging business in the short term due to downgrading of inventory costs. The company’s healthcare business has logged profits, albeit on a marginal y-oy increase in revenues. The life insurance business has been capitalised at Rs 1,782 crore, and the company intends to raise a Rs 1,000 crore through its proposed rights issue.

VALUATIONS:

The company is valued at nearly half of its investments or assets under management in line with its peers. While its insurance business is making losses, the company has the potential of being a profitable company. The company is currently in its growth phase – with most of its businesses still achieving the traction required for reporting profits. Investor can look at investing in this stock with a horizon of at least three years.

One-year beta: 0.56
Institutional holding: 39.4%*
Current dividend yield: 0