Ten stocks worth investing in – Part I

Aban Offshore

In light of rising global crude oil prices, drilling oil from the deep water has become an alternative and feasible option. This, however, has also led to increasing demand for offshore drilling services.
As a result of this, the day-rates for different offshore drilling equipment and services have gone up significantly and the availability of rigs has reduced drastically.

This is despite the fact the numbers of rigs added during FY09 were the highest. The favourable change in the industry has also meant better days for the companies in this space, like Aban Offshore, one of Asia's largest oil drilling equipment and services providers. The company operates about 16 jack-ups, three drill ships and one semi-submersible ship.

Apart from higher demand, the company will also benefit from re-pricing of its existing assets at higher day-rates as contracts come up for renewal, besides substantially ramping up of its asset base through organic and inorganic initiatives.
The company is estimated to maintain a strong revenue growth of about 70-80 per cent over the next two years. Analysts say that if its Singapore-based subsidiary, Aban Singapore gets listed, it would help the company raise some funds that may be used to reduce debt (on its own books) raised for the acquisition of Sinvest, and unlock value for its shareholders.
The stock is trading at attractive valuations viz. at a one-year forward PE of just 7 times its consolidated FY09 earnings.

Bharti Airtel

Bharti Airtel, which commands about 24 per cent market share of the Indian mobile industry, will be the key beneficiary of the fast growing subscriber base.
India's mobile subscriber base is expected to touch 500 million by FY10 from 300 million currently, translating into an annual growth of over 30 per cent, mainly on account of rising affordability.
Also, the company has amongst the most extensive networks in the country covering 71 per cent of the country's population, which Bharti aims to increase to 80-85 per cent by March 2009.
Besides the growth from its core business, the embedded value in the company's tower businesses is equally worth a mention. The combined value of the tower business of Bharti Infratel and Indus Towers is estimated at Rs 165-170 per share of Bharti.

Going forward, even as the core business continues to grow at a healthy pace, new offerings like DTH and IPTV (to be launched soon) and foray into markets including Sri Lanka, should boost growth rates further.
Analysts expect Bharti's consolidated topline and bottomline growth to range 25-30 per cent (annually) during FY09 and FY10. At Rs 748, the stock is trading at a PE of 17 times and 14 times its estimated FY09 and FY10 consolidated earnings, respectively.

HCC

Hindustan Construction Company , a leading construction company, has presence across diverse segments including transportation, hydro and nuclear power, irrigation and water supply, marine projects, utilities and urban infrastructure.
The company's diverse portfolio of projects along with higher spending towards infrastructure makes HCC one of the better investments among companies in this sector.
Also, diversification has not only helped in managing growth, it has also helped sustain high margins.
The rising contribution from the power, water and irrigation segments has helped the company to improve its operating margins from 9.1 per cent in FY07 to 11.9 per cent in FY08.
Besides, in real estate business, it plans to develop 186 million sq ft of land on 14,000 acres of land in Maharashtra. Out of this, the 12,500-acre Lavasa-based Township (near Pune) is HCC's flagship realty project, which will be developed in phases over 12 - 15 years.
However, considering the prevailing uncertainty in the realty market, the stock has been hammered down. Analysts believe that there is excessive negative sentiment built up in the stock price, which is why the stock is trading at discount to its fair value.
Fundamentally, rising infrastructure spending in the country should drive the growth in HCC's core business. A strong order book of Rs 9,560 crore, which is 3.1 times its FY08 revenues, provides visibility. Any improvement in the sentiment towards the real estate sector should provide further fillip to the stock.
On an SOTP basis, HCC's fair value is pegged at Rs 165 per share, comprising of core business at Rs 98-110 per share and Lavasa project at Rs 34-40 per share. Adjusted for Lavasa and other real estate projects, the stock trades at 9 times it's FY09 estimated earnings and 6 times FY10 earnings.

Hem Securities Views on Gujarat Fluorochemicals, United Spirits, Aban Offshore

Buy Gujarat Fluorochemicals - Target of Rs 300

Hem Securities has recommended a buy rating on Gujarat Fluorochemicals with a price target of Rs 300 in its June 11, 2008 research report. "The company has been a pioneer in the refrigerant business and is has also diversified into the power generation and carbon credits. The chemical complex commissioned in Dahej will strengthen the cost competitiveness of the company by making it amongst the most integrated manufacturers of these products and add longevity to the company’s refrigeration business. The growing demand for PTFE is also expected to take the company on higher rungs of success. The company’s top line and bottom-line has grown with a CAGR of 61.41 % and 92.92 % re-spectively from FY05 to FY08, indicating the robust growth in its business."

"Presently, the stock is trading at Rs 195 which is 7.05 times to its earnings and 2.28 times to its book value. Keeping in view the robust opportunities in the industry, capacity expansion of the company and the growth rate of Gujarat Fluorochemicals, we initiate a ‘BUY’ signal on the stock with a price target of Rs 300 in the long term investment horizon, expecting an appreciation of 54% from the current price of Rs 195" says Hem's research report.

Buy United Spirits - Target of Rs 1803

Hem Securities has initiated a buy signal on United Spirits with a target price of Rs 1803 in its August 7, 2008 research report. "United Spirits Ltd has announced outstanding results for Q1FY09. The company being the largest spirits company in the country had posted good results for the year ended March 2008. The Net sales grew by 16.75 per cent to Rs 31663 million in FY08, while the bottom line stood at Rs 3210.60 million with net profit margins scaling up to 10.14 per cent versus 8.55 per cent clocked in the previous year."

"Presently, the stock is trading at Rs 1342 which is at 38.34 times to its earnings and 6.06 times to its book value of Rs 221.31. Since the stock seems to offer extremely good investment opportunities, we initiate a ‘BUY’ signal on the stock with a target price of Rs 1803 in medium to long term investment horizon expecting an appreciation of about 34 % from the current level of Rs 1342," says Hem's research report.

Buy Aban Offshore - Target of Rs 5555

Hem Securities has initiated a buy rating on Aban Offshore with a target price of Rs 5555 in its August 6, 2008 research report. "The company posted excellent financial figures for the quarter ended June 2008. The net sales for the company gone up by 93.52% to Rs 2469.51 million for the Q1FY09 as against the net sales of Rs 1276.13 million for the Q1FY08. The net profit for the company rose to Rs 715.10 million for the Q1FY09 in comparison to net profit of Rs 283.75 million for the Q1FY08 with the growth rate of 152.02%."

"We initiate a ‘BUY’ signal on the stock at the current levels with a target of Rs 5555 in the medium to long-term investment horizon with an appreciation of 120.25%," says Hem's research report.

Karvy views on Ambuja Cements, Andhra Bank, Bank of India, Shree Cements, PVR

Buy PVR, target of Rs 260

Karvy Stock Broking has maintained its buy rating on PVR with a revised target price of Rs 260 in its August 8, 2008 research report. "PVR declared its 1Q FY09 results which were above our expectations. Net sales grew by 10.4% YoY as against our estimates of a 0.4% in 1Q FY09. This was majorly on account of higher than expected income from advertising and royalty. The net profit for 1Q FY09 declined by 35.3% YoY and grew by 43.7% QoQ as against our expectations of a decline of 61.7% YoY and decline of 14.8% QoQ."

"Considering the foray of PVR into new and promising businesses of production & distribution and lifestyle entertainment and subsequent de-risking of the exhibition business we believe that PVR will emerge as one of the better and stronger players in the multiplex industry. We have valued PVR at 13x FY10E earnings and 1.1x FY2010 sales. Subsequently, we have increased our price estimate on the company from Rs 230 to Rs 260 maintaining our BUY rating on the stock at current levels," says Karvy's research report.

Buy Shree Cements, target of Rs 733

Karvy Stock Broking has recommended a buy rating on Shree Cements with a target price of Rs 733 in its July 16, 2008 research report. "We expect net sales for the quarter ended June'08 would increase by 44.1% yoy to Rs 6.13bn driven by 26.6% growth in despatches and 11.2% growth in realization."

"SCL is currently trading at PER of 5.6x and EV/EBIDTA multiple of 3.3x on FY10E earnings. We had valued the ICL on 4x FY10E EV/EBIDTA and rate the company as BUY with price target of Rs 733," says Karvy's research report.

Buy Bank of India, target Rs 443

Karvy research has maintained buy rating on Bank of India with target price of Rs 443 in its July 17, 2008 report. "In 1st Q FY09, BoI's advances and deposits are expected to grow at 35% and 32% (Y-o-Y); the volume-led growth would result into 32% (Y-o-Y) jump in NII to Rs 12.5 billion. Estimated 24% growth in total other income on the back of fee-income growth and cost containment would lead to 36% growth in operating profit before provisions. Strain on net interest margin, significant de-growth treasury income and higher investment depreciation provisions of Rs 850 million would result in the bank's bottomline grow by 25% (Y-o-Y) to Rs 3.96 billion. The current stock price discounts FY2010 adjusted book value at 0.97x; we rate the stock as a BUY with a price target of Rs 443 at 1.88x adjusted book value FY2010" according to Karvy report.

Buy Andhra Bank, target Rs 108

Karvy research has maintained buy rating on Andhra Bank with target prie of Rs 108 in its July 17, 2008 report. "In 1st Q FY09, we assume that the Andhra Bank's advances and deposits would grow by 24% and 26.3% (Y-o-Y). The bank's net interest income (NII) would grow marginally by 2.5% (Y-o-Y) to Rs 3.7 billion and operating profit before provisions would grow by 6.3% (Y-o-Y) to Rs 2.37 billion. Higher depreciation provisions on investments of Rs 550 million would led to 18.8% (Y-o-Y) decline in net profit to 1.14 billion. Strain on net interest margin would be due to lower CASA share, higher cost of funds and lower yield on advances. We expect healthy growth in total fee income but treasury income could report degrowth. Total net income is expected to grow by 5.6% (Y-o-Y) to Rs 5.0 billion. At current market price, the stock is available at 0.65x ABV FY2010; we rate the stock as a BUY with a price target of Rs 108 at 1.34x adjusted book value FY2010" according to Karvy report.

Ambuja Cements an outperformer

Karvy Stock Broking has rated Ambuja Cements as an outperformer with a target price of Rs 101 in its July 16, 2008 research report. "For the quarter ending June 08, we expect the net sales would go up by 6.6% yoy to Rs 15.6 billion. Volume has shown a muted growth of 1.4% to 4.44 million tones due to export ban. Average realization would go up by 5.2% to Rs 3517 per tones."

"At the current market price of Rs 79 the company is trading at PER multiple of 10.2x and EV/EBIDTA multiple of 6.1x on CY09E earnings. We had valued the company on EV/EBIDTA multiple of 7.5x and rate the company as an outperformer with price target of Rs 101," says Karvy's research report.

KRChoksey views on PVR, DLF, Unitech

Buy PVR

KRChoksey Research has recommended a buy rating on PVR in its August 4, 2008 research report. "Net sales for the Q1FY09 were up by 10% Y-o-Y to Rs 60.2 crore. The growth of 10% was mainly driven by F&B income ( 10% Y-o-Y to Rs12.4 crore) and Advertisement & Royalty income (Y-o-Y 62% to Rs 9.0 crore)."

"At CMP of Rs 173, the stock is trading at 21.9x TTM EPS of Rs 7.9. We recommend investors to BUY the stock, with our price target under review," says KRChoksey's research report.


Buy DLF, target of Rs 615

KRChoksey Research has recommended a buy rating on DLF with a target price of Rs 615 in its August 4, 2008 research report. "Sales grew 24% y-o-y to Rs 3,810.6 crore in Q1FY09. There was a 12% decline in q-o-q sales due to the seasonal effect as sales in Q1 are historically sluggish. Operating margins were lower by 1020 basis points y-o-y on account of revenue from middle income segment. Net Profit was Rs 1,864 crore, a growth of 23% y-o-y but 14% lower on a q-o-q basis."

"We believe DLF’s strong balance sheet and its robust business model makes it one of the best investments in Indian Real Estate. We recommend a BUY with a target price of Rs 615. At the target price the stock would be valued at 12.1x FY09E EPS of Rs 50.65, implying an upside potential of 19.4%," says KRChoksey's research report.


Buy Unitech, target of Rs 191

KRChoksey Research has recommended a buy rating on Unitech with a target price of Rs 191 in its July 31, 2008 research report. "Top-line was mainly driven by sales from the residential properties which accounted for 70% of revenue. Sales in Q1FY09 were Rs 1,031.67 crore, an increase of 19.2% on a y-o-y and a decrease of 11.1% on q-o-q basis."

"We recommend a BUY with a target price of Rs 191. At the target price the stock would be valued at 14.05x FY09E EPS of Rs 13.59, implying an upside potential of 16.5%," says KRChoksey.

Take Your PICK: Part III - SMALLCAP STOCKS

IPCA Laboratories (CMP: Rs 540): The company’s focus on branded formulations business and emerging economies is expected to be its key growth driver. New products launches in domestic and UK markets coupled with supplies to new emerging economies and US markets should lead to a compounded annual growth rate (CAGR) of 17% in revenues and 22% in profits over next two years. It is expected to clock an earning per share (EPS) of Rs 69.7 and Rs 82.6 for FY09 and FY10, respectively. Currently, the stock is trading at 7.5x FY09 and 6.2x FY10 earning estimates.

Numeric Power Systems (CMP: Rs 601): The company, a leading manufacturer of uninterrupted power supply (UPS) systems and power conditioners in India, commands 60% share in IT and 82% share of the ATMs. The strong demand for company’s products (India has peak power deficit of 16.6%), increased focus on high margin equipment servicing and significant international presence make NPSL a fast-growing multinational in the power management solutions. The stock is attractively valued at 6.5x FY09 EPS of Rs 94.2.

Indian Overseas Bank (CMP: Rs 91): The company is a leading South Indiabased bank with a strong balance sheet. IOB has a healthy current and savings account (CASA) ratio of 33.5% and strong return ratios, with a return on assets (RoA) and return on earnings (RoE) of 1.3% and 28%, respectively. The net profit for FY09E and FY10E is expected to be Rs 12.42 billion and Rs 13.91 billion, respectively, resulting in an EPS of Rs 22.8 and Rs 25.5 for FY09E and FY10E, respectively.

LIC Housing Finance (CMP: Rs 306): The company is expected to continue to benefit from the growing demand for housing. A lower mortgage/GDP ratio of 6% offers huge potential. The company expects 22% year-on-year (yoy) business growth to Rs 268 billion and 20% yoy growth in net profit to Rs 4.61 billion for FY09. Improving asset quality and strong return ratios augur well for LICHF.

Bharat Electronics (Rs 1,154): The company is the premier defence contractor for the government. Over the years, the company has developed several competencies in the area of defence electronics. It is expected to benefit from the defence offset clause that the government mandates for import of defence equipment above Rs 3 billion. The order backlog is comfortable at Rs 94.5 billion and equivalent to over two years of FY08 revenues. The modernisation of the Indian defence sector is expected to throw significant opportunities for BEL.

Source: Kotak Securities

Take Your PICK: Part II - MID CAP STOCKS

GSK Consumer (CMP: Rs 620): The company has a leadership position in the malted beverages space, strong set of core brands (Horlicks & Boost) and rich parentage (new launches from global portfolio). These are expected to help GSK sustain robust growth. Moreover, surplus cash and investments of Rs 400 crore coupled with attractive valuations make it one of the best value plays in the consumer domain.

PVR (CMP: Rs 174): The company’s superior management bandwidth, integrated business model and strong set of properties (in terms of location) make it the most preferred play in the movie exhibition space. Moreover, its entry into new allied businesses such as food courts and bowling alleys coupled with recent dilution in its movie production business is likely to lead to re-rating of the stock.

Bartronics India (CMP: Rs 179): The company operates in the automatic identification and data capture (AIDC) solutions segment and is set to leverage the strong growth expected in the retail sector. It is the only smart cards manufacturer in India and this segment is expected to surge on strong demand from the telecom, banking and government sectors. In the wake of strong growth prospects of the company, the stock offers great value.

Jain Irrigation (CMP: Rs 464): The company is a proxy play on the increasing government focus on agriculture and micro irrigation and the booming infrastructure in the country. It would also benefit from the acquisitions it made over the last couple of years, which will be in addition to the company’s organic growth initiatives. Thus, the long-term prospects of the company are robust.

Piramal Healthcare (CMP: Rs 310): The company is an early entrant into the CRAMS space. Over the last couple of years, it has consolidated its presence in the segment, which now contributes 50% of its overall revenues. Considering its robust pipeline, the company is expected to post robust growth in the years to come.

This article is fron the research house of Angel Broking

Take Your PICK: Part I - LARGECAP STOCKS

Divis Laboratories (CMP: Rs 1,393): An established player in the generic active pharma ingredient (API) space and leader among Indian contract research and manufacturing services (CRAMS) players, the company has attained market leadership in several key products. It has 20 of the top 25 innovator companies as its client in CRAMS segment. It recently commissioned a nutraceutical facility for the $1 billion global market, which has high entry barrier in the form of complex chemistry skills.

Sun Pharma (CMP: Rs 1,414): With strong earnings visibility and industry-leading earnings before interest, taxation, depreciation and amortisation (EBITDA) margins, Sun Pharmaceuticals has one of the best business models among the peers. The company’s business in the US is also maturing, with windfall gains expected from 180 days exclusivities apart from a healthy product pipeline.

Aban Offshore (CMP: Rs 2,695): The largest offshore rig operator in India, the company is ideally placed to capitalise on exploration and production (E&P) boom. It renewed contracts with ONGC at a sizeable premium, boosting its top-line visibility. It will deliver four jack-up drilling rigs in FY09 and is set to expand its fleet to 21 vessels. The addition of drill ships will reduce dependence on jack-up rig operations and attract premium rates due to low availability.

Tata Steel (CMP: Rs 618): It is the world’s sixth largest steel company. In India, it has just raised its crude-steel capacity from 5 million tonnes per annum (tpa) to 6.8 million tpa, of which 60% is rolled into flat products and the rest sold as long products. It also sells ferro alloys, tubes, bearings and some mineral products. TSL India’s raw material security and operating efficiencies put it among the lowest-cost producers globally. Its focus on high-value products and branding helps it earn high EBITDA margins of 40%. It should benefit from the likely rise in domestic prices in August this year.

Reliance Industries (CMP: Rs 2,147): The company has interests in E&P, refining, petrochemicals, textiles, telecom, electricity, financial services and infrastructure. Its petrochemicals business is vertically integrated with an output of around 11 million tons. It also operates India’s largest and most complex refinery with a capacity of 33 million tons. It is expected to start RPL and KG Basin production from Q3 FY09, which is expected to drive growth for the company. Also, it plans to invest $7.5 billion on semiconductor and polysilicon facilities at Jamnagar. Looking at higher crude prices and strong gross refining margin (GRM), this company has strong future prospects.

This research is made by Religare Securities