GSPL

THE Gujarat government-controlled Gujarat State Petronet (GSPL) has outperformed the benchmark Sensex by more than three times since mid-July 2009. The scrip is up 75.7% in the past three months compared to the 25% rise in the Sensex during the period. The company is currently valued at 19.2 times its profits for the past 12 months.

This better-than-expected performance has been attributed to a spurt in GSPL’s financial numbers following the commissioning of new pipelines and new supply contracts. The company registered a 147% jump in its June 2009 quarter profit and a growth of 288% in the September 2009 quarter. The company doubled its revenues in this period on the back of doubling its gas volumes. This performance is expected to be repeated in the second half of FY10 also.

Particularly so, as the company had witnessed a fall in natural gas volumes in the corresponding period of last year due to the crash in naphtha prices.

GSPL’s board of directors as well as its shareholders had approved a contribution of 30% of its pre-tax profits to the Gujarat Socio Economic Development Society in FY09. However, the company did not make any provisions as no project was identified. The society also could not obtain a registration with income-tax authorities. The possibility of such a contribution will continue to remain a major concern for the company’s shareholders in future.

GSPL’s recently-published results for the September 2009 quarter were remarkable as its operating margins nearly doubled during the period. However, the spurt was mainly on account of writeback of excess provisions for salary hikes and hence, such high level of margins appear unsustainable.

The company, which currently operates 1,280 km of gas pipelines, plans to double its network to connect all 25 districts of Gujarat in coming few years. Low debt level, strong operating margins and high cash generation capacity are big positives. However, the distribution of 30% of its pre-tax profits for social services could play spoilsport.

KRChoksey on Tata Steel, Gujarat State Petronet, Patel Engineering

KRChoksey on Tata Steel - Target Rs 280


KRChoksey has maintained its buy rating on Tata Steel with a target price of Rs 280, in its research report. "Tata steel has recorded decline in sales by 3.9% in Q3FY09 to Rs 4,735.6 crore compared to Rs 4,928.2 Crore in Q3FY08. Top line has declined due to fall in the volumes by 13.8% YoY. PAT was mainly impacted due to increase in the raw material cost. Raw material cost has increased at Rs 1,611.2 crore from Rs 902.3 crore. Various measures have been taken by government to protect steel industry from cheap imports from china and other countries. These measures will help the steel producers in the medium term. However, the major concern will come from Corus operations. We maintain a BUY recommendation on stock with a target price of Rs 280," says KRChoksey's report.


KRChoksey on GSPL - Target Rs 36

KRChoksey has maintained its buy rating on Gujarat State Petronet (GSPL) with a target of Rs 36 in its research report. "GSPL reported net sales of Rs 110.6 crore, up 6.2% y-o-y & -1.0% q-o-q. PAT was down 9.7% y-o-y and 2.6% q-o-q due to lower operating p rofit and other income. We maintain a BUY on the stock with target price of Rs 36, giving an upside potential of 20%. At the target price the stock would be valued at 4.2x its FY10E CEPS of Rs 7.1, and 1.5x P/BV," says KRChoksey's research report.


KRChoksey on Patel Engineering - Target Rs 182

KRChoksey is bullish on Patel Engineering and has recommended buy rating on the stock with a target price of Rs 182, in its report. We anticipate company to report a healthy growth in Q4 it is generally the strongest quarter. However going forward in FY10 we expect company’s sales to remain muted due to slowdown in order inflow and delays in project execution owing to liquidity crunch. On the margin front we expect the company to sustain the current margins mainly due to fall in raw material prices. However, we expect the net profit margins to improve marginally from H2FY10, due to reduction in cost of debt."

"At the CMP of Rs145 the stock is trading at a 5.2x its TTM EPS of Rs 28 and 4.3x its FY10 EPS of Rs.33.9. Due to lack of clarity on the execution of real estate projects we have valued PEL’s land bank at cost of Rs 200 crore, which gives us a value of Rs 33.3per share. We recommend a BUY on the stock with a target price of Rs 182. At the target price of 182, the stock will be trading at 5.4x FY010E EPS," says KRChoksey research report.

Stock views on KEC International, Nagarjuna Construction, Gujarat State Petronet

LKP Shares on Gujarat State Petronet - Target Rs 42

LKP Shares has recommended a buy rating on Gujarat State Petronet (GSPL) with a price target of Rs 42 in its research report.

"GSPL reported net sales of Rs 110.6 crore, up 6.2% year on year (YoY). Its operating profit of Rs 101.6 crore was up by 4.6% YoY," LKP said in its report.

"Higher staff and O&M expenses reduced the profit margin by 128 bps. Net profit growth of 10% YoY for Q309 was driven by good realizations, a growth of 51% YoY. Fixed capacity utilization charges — take-or-pay clause — were triggered on some of the contracts in this quarter, which led to increase in realizations."

"As per the priority set out by the new gas utilization policy, other sectors have been listed out prior to Refineries in the order of gas supply. This, we believe, shall lead to further delay of gas flowing from GSPL’s network to RIL’s refinery at Jamnagar to Q3’10. Also, many contracts are renewed at the higher tariff price starting January 1’09, which shall bolster the revenue earnings of the company. We recommend a BUY on the stock with a price target of Rs 42 for a medium term horizon," the research report said.


Angel Broking on Nagarjuna Construction - Target Rs 96


Angel Broking has maintained its buy rating on Nagarjuna Construction Co. with a target price of Rs 96 in its research report.

"The Government of Andhra Pradesh has cancelled order worth Rs 1,000 crore awarded to Nagarjuna Construction Company (NCC). The cancelled order was for Andhra Pradesh International Centre project, a multi-utility complex at the AP Bhavan premises in New Delhi and was proposed to be taken up through the PPP mode on a Build-Operate-Transfer basis. The work order scope envisaged to set up an international convention centre, guesthouse, residential quarters, hostel and dormitory facilities for government use, and service apartments on 19.84 acres at AP Bhavan. The order was canceled citing failure to execute the development agreement (DA) as well as licence agreement (LA) even after expiry of the 75-day deadline. NCC consortium also failed to submit performance security of Rs 100 crore before the execution of DA and LA."


"The consortium was also required to pay Rs 25 crore towards project development expenses but had paid only Rs 5 crore even after timeline extension by 60 days. As per the order agreement the developer was required to pay an annual minimum guarantee amount of Rs 45 crore during the first 10 years from commercial operation, Rs 60 crore during the next 10 years and Rs 75 crore during the last 10 years of the 30-year licence period. The order cancellation takes the outstanding order book of NCC to Rs 12,131crore which is 3.5x its FY2008 revenues. We maintain a Buy on the stock with a target price of Rs 96," says Angel Broking's research report.

IIFL on KEC International - Target Rs 160

IIFL has recommended an add rating on KEC International with a price target of Rs 160 in its research report.

"In our recent meeting with KEC International, management said it expects the company to achieve stable revenue growth in FY10 on the back of the current order book and likely order inflows from Middle East and Africa. However, increasing competition-especially in the domestic market-could play spoilsport for both new project wins and EBITDA margins. We estimate FY10-11 EBITDA margins at 9%, against management expectation of 10%."

"The company would continue to have forex gains/losses on mobilisation advances for international projects, as these are not hedged. Management hinted at a possible change in accounting policy for amortisation of reserves created due to the merger of RPG Transmission and NITEL in FY08. This change would result in 9M FY09 profits being lower by Rs 90 million. We incorporate this accounting change in our current estimates resulting FY09-10ii earnings estimates being lower by 8%. Add, price target of Rs 160," says IIFL's research report.

Stock views on FAG Bearing, Gujarat State Petronet, CEAT

Angel Broking on CEAT - Target Rs 40
Angel Broking has downgraded its rating on CEAT from buy to accumulate with a price target of Rs 40, in its research report. "Ceat clocked a low 4% yoy growth in turnover to Rs 584.2 cr (Rs 561.8 cr) during 3QFY2009. The company registered Net Loss for the third quarter in a row. Its 3QFY2009 Net Losses stood at Rs 21.6 cr (Profit of Rs 19.2 cr). The Tyre industry, which reeled under high input costs in the last two quarters, is set to benefit from the major decline in the prices of raw materials."

"We have revised our EPS estimates downwards for FY2009E and FY2010E by Rs 17.3 & Rs 1.1 respectively, on account of the Margin and Volume pressure. At the CMP, the stock is trading at 3.7x FY2010E Earnings and 0.3x FY2010E BV. Angel Broking downgrade the stock from Buy to Accumulate with a target price of Rs 40," says Angel Broking's report.


KRChoksey on GSPL - Target Rs 36

KRChoksey has maintained its buy rating on Gujarat State Petronet (GSPL) with a target of Rs 36 in its research report. "GSPL reported net sales of Rs 110.6 crore, up 6.2% y-o-y & -1.0% q-o-q. PAT was down 9.7% y-o-y and 2.6% q-o-q due to lower operating p rofit and other income. We maintain a BUY on the stock with target price of Rs 36, giving an upside potential of 20%. At the target price the stock would be valued at 4.2x its FY10E CEPS of Rs 7.1, and 1.5x P/BV," says KRChoksey's research report.


Angel Broking on FAG Bearing - Target Rs 350

Angel Broking is bullish on FAG Bearing and has recommended buy rating on the stock with a target of Rs 350, in its report. "FAG Bearings’ prospects are derived from demand arising in the Capital Goods and Automobile industry. We believe industry valuations are likely to remain subdued in the near term due to overall slowdown in the sector. The company posted CAGR of 14% and around 30% in Revenue and Profit over the last five years, respectively. Going ahead, over CY2008-10E, we conservatively model, volumes to record a CAGR of 7-8%, which will drive around 9-10% growth in Revenues and around 10% growth in Net Profit in the mentioned period. We believe Revenue growth will be largely driven by higher contribution from new products."

"We bank on the company’s strong fundamentals of consistently recording high RoE and RoCE. Further, its debt free status would help it post better Bottom-line growth amidst a high Interest Rates regime. At the CMP of Rs 261, the stock is quoting at 4.5x CY2009E Earnings, which is much lower than its historical P/E of around 14x. We maintain a Buy on the stock, with a Target Price of Rs 350 owing to its debt free status and strong Balance Sheet, which would act as a cushion in overall industrial slowdown," says Angel Broking's research report.

Invest Shoppe Views on Indraprastha Gas , Gujarat State Petronet

Crude oil prices have come down to a level of $41 a barrel from a high of $146 a barrel last year. Consequently, upstream oil companies lost, but downstream companies gained. In terms of share price appreciation, downstream companies have outperformed the broader index, the Sensex.

Invest Shoppe on GUJARAT STATE PETRONET

GSPL owns and operates the second largest natural gas (NG) transmission network in India. The availability of natural gas is set to jump three-fold in the next four years. Moreover, its long-term contracts with Torrent Power and Reliance Industries (RIL) for transmission of natural gas are likely to be-come effective in the March 2009.

Invest Shoppe on INDRAPRASTHA GAS

Indraprastha Gas has maintained its consistent performance. The company has firm cash reserves of more than Rs 400 crore. It has already built the gas distribution infrastructure in Delhi, which connects more than 95,000 customers. The order of Supreme Court to states like Haryana and UP to set up CNG stations will help its business to grow.

Stock Views on CIPLA, Gujarat State Petronet, Praj Industries, Jaiprakash Associates,

BRICS Securities on CIPLA

BRICS Securities has initiated coverage on Cipla with a ‘buy’ rating. The brokerage expects Cipla to maintain its leadership position in the Indian formulation market in coming quarters. “Thirdquarter results came in as a positive surprise. Revenue (up 22% Y-o-Y) was in line and recurring net profits (up 28% Y-o-Y) were above our expectations, led by falling raw material prices. This, coupled with growing presence in export markets, should enable the company to report a 16% earnings growth in the next fiscal,” a Brics Securities report said. Amidst concerns like reclusive management and volatile past earnings, Cipla’s continues to perform well. The company is the top-most player in this segment, and has a strong portfolio in the chronic therapy segment. Given its strong domestic share and continued strength in overseas generics business, we recommend a buy on the stock, the report added.

BNP Paribas on GUJARAT STATE PETRO

BNP Paribas has assigned a ‘buy’ rating on Gujarat State Petronet on expectations of an upside in gas transmission volumes and higher return on capital employed (RoCE) as a result of new new tariff regulations. “We believe that GSPL is a long-term play on rising natural gas supplies, with the next fiscal (FY11) being the inflexion year. We expect Gujarat State Petronet’s gas volumes to increase 26.8% between FY08 and FY11 driven by its contracts with RIL and Torrent Power,” a BNP Paribas report said. Petroleum and Natural Gas Regulatory Board’s (PNGRB) new tariff regulations prescribe a pre-tax RoCE of 18.2% for gas transmission utilities. Factoring in the impact of these regulations into our estimates, we expect adjusted pre-tax RoCE to improve to 21.6% in the next fiscal, the report added.

Indiabulls Securities on JAIPRAKASH ASSO

Indiabulls Securities has downgraded Jaiprakash Associates with a ‘sell’ rating, citing weak business environment and highly-leveraged business module. Around 80% of the company’s sales come from businesses that have been adversely impacted by the credit crunch. “The cement, construction, real estate, and hotels segments are facing strong headwinds, as demand has slowed down tremendously and credit availability remains weak. We believe the situation is not likely to improve in the near-to-medium term,” a report said. Considering the current balance sheet position of the company and the funding arrangement related to ongoing expansion plans, the brokerage expects the debtto-equity ratio to increase in coming quarters. Meanwhile, the possibility of further negative news flow cannot be ruled out in coming quarters, especially with regard to real estate, cement, and construction sectors, the report added.

Finquest Securities on PRAJ INDUSTRIES

Finquest Securities believes that Praj Industries could immensely benefit from the mandate adopted by EU Parliament of 10% bio-fuels blending in all transport fuels by 2020. Such a move by the European Union will entail additional 12-14 billion litres capacity for ethanol, a Finquest report said. The brokerage has rated Praj Industries an ‘outperformer’. “The US has preponed its renewable fuel targets of 11 billion gallons from 2012 to 2009. This move is expected to support capacity build-ups. We expect net revenue to grow by 10% in FY10 as a result of the demand from European Union and the US,” the report added. Amongst key negatives, the order book of Praj Industries declined by 19% Q-o-Q, due to delay in decision-making and credit problems at the clients end as well as some previous orders turning non-executable.

Angel Broking Views on Gujarat State Petronet, Gujarat Gas Company

Angel Broking on Gujarat State Petronet - Target price Rs 133

Angel Broking has maintained buy rating on Gujarat State Petronet with target price of Rs 133 in its May 09, 2008 research report. "GSPL is likely to be one of the prime beneficiaries of the increased gas availability from the KG basin as well as from the West Coast. Pipeline expansion is expected to drive future growth for the company. Strategic stakes in CGD ventures are likely to add value over the next couple of years. We have valued GSPL using DCF methodology, Cost of Equity - 15.6%, WACC - 10.1% and Terminal growth rate - 2.5%. Due to higher volatility we have assigned higher risk premium to the company and subsequently downgraded our Target Price. We remain positive over the prospects of GSPL and maintain a Buy, with a Target Price of Rs107 (Rs133)" according to Angel Broking report.

Angel Broking on Gujarat Gas Company - Target price Rs 340

Angel Broking has maintained its buy rating on Gujarat Gas Company with a revised target price of Rs 340 in its May 9, 2008 research report. "We believe CY2008 will be a challenging year for Gujarat Gas as gas supplies would continue to be a concern. However, we expect Guj gas to secure supplies of about 0.5-1.0mmscmd from different sources like the RIL KG basin gas, Petronet Spot LNG and incremental volumes from PMT fields. Gujgas' parent British Gas is actively seeking Spot LNG for Gujarat Gas, which we believe will ease out the concerns about gas supplies. Demand remains robust in current operational areas and expansion into newer territories will provide further impetus to gas sales."

He further added, "The stock has recently corrected significantly on the bourses over concerns about the CGD Regulations and gas supplies. CGD regulations are not likely to impact Gujgas' performance and the company has successfully tied up supplies with GAIL. Owing to these developments, we have revised our numbers and assigned the stock a lower multiple. The stock is available at 9.2x CY2009E EPS of Rs 28.4. We are positive on the company's growth prospects and maintain a Buy on the stock, with a revised target price of Rs 340 (Rs 396), says Angel's report.