Stock Views on Bartronics, Onmobile Global, PG CIL, HDFC

HDFC Securities on BARTRONICS INDIA - Target RS 234
HDFC Securities has initiated coverage on the stock with a ‘buy’rating saying the fast growing AIDC (Automatic Identification and Data Capture) technology in India will further boost the company’s order book and topline. “The company’s market share of around 90-95% in smart card and RFID (radiofrequency identification) segments offers all AIDC solutions under one roof. The company’s early entry into smart card manufacturing, will help retain its dominance in the area,” said HDFC in a note to its clients. It expects the revenues and profits of the company to grow at CAGR of 72% and 78% over FY08 to FY10E (estimated). “The stock is trading at 6.5 times and 3.8 times its FY09 (estimated) and FY10 (estimated) FDEPS (fully diluted earnings per share),” said the note.

MACQUARIE Research on Onmobile Global - TARGET PRICE: RS 650

MACQUARIE Research has initiated coverage on OnMobile Global with an ‘outperform’ rating saying the stock has a 42% upside from current levels. “We are excited about the opportunities in the Indian mobile value-added service (VAS) sector as well as in emerging markets. OnMobile is India’s No 1 mobile VAS provider, with around 30% share of India’s VAS market (ex-SMS),” said Macquarie in a note to its clients. The brokerage expects a 2 year FY3/08–10E EPS CAGR of 42.5% for the company, led by topline CAGR of 58%, marginally offset by one-time dip in margin in FY3/09E. According to Macquarie, recent M&A transactions have opened the door for OnMobile to tap the potential offered by the international VAS market. “OnMobile’s international revenues are likely to grow at a faster pace (FY3/08–13E CAGR of 63%) than growth of its domestic revenue (35.5%),” said the note. The brokerage feels that change in business model and large premiums for future acquisitions could result in value destruction for On-Mobile.

CITIGROUP on PG CIL - TARGET PRICE: RS 86

CITIGROUP Global Markets has initiated coverage on the stock with a ‘sell’ rating saying PGCIL will be FCF (free cash flow) negative until FY12E (and potentially beyond) and will not offer much dividend yield. “Investors consider dividend yield as a reason to invest in utilities with regulated earnings streams. We think PGCIL would be very compelling the day growth capex stops,” said Citi in a note to its clients. Citigroup expects PGCIL’s earnings to grow at a 15% CAGR over FY08-11E with RoE of 13-15%. If compared with the peers, PGCIL has traded at a premium to NTPC post listing, says Citi. “We note that PGCIL’s listing happened prior to the Reliance Power IPO and the associated lofty valuations for all Indian Electric Utility stocks during that time, and thus its valuations have been further propped up. And we feel the premium is not sustainable,” the note said. Citigroup has set its target price for PGCIL at a P/BV (price to book value) of 2.2x FY10E, which is at a around 10% discount to the implied ‘ceiling’ multiple for NTPC.

CLSA Research on HDFC - TARGET PRICE: RS 2,330

CLSA Research has maintained a ‘buy’ rating on the stock saying HDFC has not seen deterioration in asset quality due to rise in rates and its plans to list a couple of subsidiaries in CY09 may act as a catalyst. “HDFC expects its growth to sustain at +20% for next three years, as housing affordability remains high and it continues to gain market share from banks. Spreads might contract in short term due to liquidity crunch, however estimated to remain around 2.2%,” said CLSA in a note to its clients. According to CLSA, most of HDFC subsidiaries continue to scale up with better profitability amongst their competitors. “HDFC standard life (HDFC’s life insurance subsidiary) has a persistency rate of +85% which is the highest amongst all players; HDFC Mutual funds have much higher net margins than any other asset manager in India (2nd largest player) and HDFC bank is the most profitable banking franchise in India,” the note said. “Adjusting for the value of subsidiaries, HDFC is trading at 4.2x FY09CL (calendar year), with an estimated ROE of 25% in FY09CL,” the note added.

Stock Views on Indiabulls Real Estate, OnMobile Global

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

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

Citigroup Global on ONMOBILE GLOBAL - TARGET PRICE: RS 630

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