Stock views on Nava Bharat Ventures, Godawari Power and Ispat, Deccan Chronicle

Sushil Finance on Nava Bharat Ventures - Target Rs 517

Sushil Finance is bullish on Nava Bharat Ventures and has recommended buy rating on the stock with a target of Rs 517, in its research report.

“Nava Bharat Ventures, NBVL is an evolving Power utility, with 237 MW of operational capacity (including 9 MW bagasse based power plant). It has strategically aligned itself to downsize its Ferro alloys business which is highly cyclical in nature. The Company sells most of its power on merchant basis and has potential to generate and sustain strong ROE with the future projects like coal & manganese mining and foray into real estate. One of the major risks to our assumption would be downward pressure on the merchant rates which could hamper its margins."

"However, with the economy on the revival mode aided by rise in industrial production and persisting power deficit scenario, the merchant tariffs are expected to be stay in the range of Rs. 5 – 7 for next few years. NBVL has a strong balance sheet with very low leverage. With strong operational cash flows it is in a strong position to fund its future projects. At CMP of Rs.379, the stock is trading 1.5x FY11E BVPS & 1.2x FY12E BVPS and PE of 6.9x FY11E and 5.8x FY12E . We believe that it is at a significant discount to its intrinsic value & thus we initiate coverage with a BUY rating on the Company with a target price of Rs.517 (based on 1.7x its FY12E BVPS of Rs. 304.2),” says Sushil Finance research report.


Angel Broking on Deccan Chronicle - Target Rs 216

Angel Broking is bullish on Deccan Chronicle and has recommended buy rating on the chat with a target of Rs 216, in its research report.

“In our note dated September 22, 2009 (Deccan Chronicle: Charged up for second innings), we had outlined our positive stance on Deccan's IPL team stating, 'We remain optimistic on IPL's money-making prospects and any news flow on the stake sale front will trigger a re-rating in the DCHL stock'. Further, we had stated that, 'The next IPL team auction in 2011 is expected to set a benchmark post which DCHL might reconsider its position to dilute stake'. With IPL's recent announcement of auction (slated for January 19, 2010) of two new franchises for the 2011 edition at a base price of US$ 225 million, we believe that the floor is set for DCHL's stock to get re-rated. In our 2QFY2010 result note, we had valued DCHL on a consolidated basis at 12x FY2011E EPS of Rs 12.4 and arrived at a target price of Rs 149. Post this development and roll-over to FY2012E, we upgrade Deccan Chronicle Holdings, DCHL to a Buy, with a revised target price of Rs 216," says Angel Broking research report.

Emkay Global Financial Services on Godawari Power - Target of Rs 261

Emkay Global Financial Services has recommended a buy rating on Godawari Power and Ispat, with price target of Rs 261, in its report dated December 17, 2009. The stock closed at Rs 182.15
"Godawari Power and Ispat has embarked upon backward integration program with 0.6mtpa pelletization plant, 14mt captive iron ore mines and setting up additional 20MW captive power plant. The pellet plant is expected to be operational by Dec ’09 end helping GPIL to increase sponge iron capacity utilization and also to increase the topline and bottomline with the surplus pellet sales in the market. GPIL had already commenced Ari Dongri (Chhattisgarh) iron ore mine, having reserves of 7mt", says Emkay.

The report also says, "The company is also under the process of commencing Borai Tibbu (Chhattisgarh) iron ore mine, having reserves of 7mt, in next 3-4 months. This will lead to significant reduction in cost of production, generating savings of around Rs 2,000/t of sponge iron. Additonal 20MW captive power plant, which will be operational by Dec ’09, will be available for selling in merchant market, generating incremental margins. GPIL is expected to report earning CAGR of 60% for the period FY09-FY11E."

"Overall, the recent management meeting further supported our positive view on the stock, which is being supplimented by the current attractive valuations. At the CMP of Rs 170, the stock is trading at 13.8x FY10E EPS of Rs 12.3 and at 3x FY11E EPS of Rs 56.1. On EV/EBITDA basis, the stock is trading at 7.4x FY10E EV/EBITDA and at 2.9x FY11E EV/EBITDA; while on P/B basis, the stock is trading at 1x FY10E book value and at 0.8x FY11E book value. We maintain BUY on the stock with revised target price of Rs 261 (4x FY11E EV/EBITDA)," says Emkay Global Financial Services report.

Godawari Power and Ispat

Profits from its iron-ore mines and the pelletisation plant provide significant upside potential for GPIL

THE upsurge in stock markets saw the prices of many frontline metal stocks more than treble in the past nine months. However,quite a few stocks in the small-cap space have failed to fire the street. Godawari Power & Ispat (GPIL) is one such case which suffered badly in early 2009 from lower steel prices and economic slowdown. However, the commissioning of its long-pending iron-ore mines and pelletisation plant in curent fiscal, along with the surge in spot iron-ore prices, is expected to boost earnings significantly.

The stock looks undervalued and provides upside potential in the near term. Investors looking to invest in small-cap metal space may consider this stock with an investment horizon of around two years.

BUSINESS

GPIL manufactures mild steel wire, which is used as binding wire and barbed wire. It has a current annual capacity of 1.2 lakh tonne of steel wire. The company has stopped producing steel billets, which is used as a raw material in wiremaking and available at a very low price in the open market. In turn, it has started selling its surplus power, otherwise used in billet making.

GROWTH DRIVER

The company has been allotted two iron-ore mines, with an estimated reserve of 15 million tonne, in the state of Chhattisgarh. The first one was commissioned in May and the second one will be commissioned at the end of 2009. Annual production from both the mines is expected to be in the range of 6-8 lakh tonne from FY ’11 onwards. The company is also setting up a pelletisation plant of 6 lakh tonne capacity, which is expected to get commissioned in October. The captive mines and pelletisation plant will bring down the cost of iron ore to almost one-third last year’s level.

FINANCIALS

The company’s revenue has more than quadrupled in the past three years to Rs 1,100 crore. Its operating margin contracted by 300 basis points, on a year-on-year basis, to 14.6% in the Jun ’09 quarter. However, its profitability is expected to improve in the coming quarters and the operating margin will increase to a little more than 20% in the current financial year, largely due to the captive iron-ore mines.

VALUATION

The company will save around Rs 3,000 per tonne of iron-ore consumed. As per the current plan, it will receive around 3.5 lakh tonne of iron ore, for sponge iron production, from captive mines in FY ‘10. This figure is expected to double in FY ‘11. The savings arising out of this would improve the earning per share by Rs 28 and Rs 55 in FY ’10 and FY ’11 respectively. At the current price level, it translates into a price-earning multiple of 2.8 and 1.8 for FY ’10 and FY ’11, respectively. This provides significant upside potential considering the fact that the stock has historically traded at a price earning multiple range of 7-12. Investors with a short to medium term horizon can consider adding this stock to their portfolio.

Sector View on Indian Steel Industry

KRChoksey Shares & Securities on TATA STEEL

The company’s EBITDA has increased by 43.68% Y-o-Y from Rs 2,733.4 cr to Rs 3,075.9 cr. While PAT has increased to 50.13% from Rs 1,488.4 cr to Rs 1787.8 cr. Other income has also increased by 152.72% which has led to increase in the profit margins. We recommend a buy on the stock despite the growth concerns purely on the basis of attractive valuations.

KRChoksey Shares & Securities on SAIL

SAIL’s net sales increased 34% Y-o-Y to Rs 12,238.59 crore in Q2FY09 as against Rs 916 3.49 crore during Q2Y08. EBITDAof the company registered a growth of 17% Y-o-Y to Rs 3,433.92 crore & PAT rose by 18% Y-o-Y to Rs 2,009.6 crore. The second half of FY09 is expected to present significant challenges in the metals sector, though the long term fundamentals of the company remains strong.

Geojit Financial Services on JSW STEEL

The company is among the largest Indian steel companies. It has now tied up with UK based Severfield Rowen to float an equal stake joint venture company for manufacturing construction steel. The net profit of the company has grown 44.72% from the June quarter to this September quarter. The P/E of the stock is 3.43 and the EPS (TTM) is at 70.89.

Geojit Financial Services on WELSPUN GUJARAT STAHL

Welspun Gujarat Stahl Rohren is the flagship company of Welspun Group. It is all set to be positioned as the world’s largest pipe company with an increase in capacity from 1 million ton pa to 1.75 million ton by March 2009. The debt-equity ratio at 1.21 shows that most of the assets are financed and it must set aside more money to pay the cost of borrowed money.

Emkay Global Financial Services on HEG

HEG will become number one manufacturer of graphite electrodes in India after its expansion from 60000 tpa to 80000 tpa by Q4FY09. We expect topline and PAT to have CAGR of 37% and 25% respectively for next two years. It is trading at 5.9x FY09E FDEPS of Rs21.2 and at 2.6x FY10E FDEPS of Rs48.8.

Emkay Global Financial Services on GODAWARI POWER AND ISPAT

Godawari Power’s iron ore pelletisation will commence in 2HFY10 while the iron ore mining will start from Q4FY09 which will translate into tremendous savings. PAT is expected to grow at CAGR of 47% GPIL trading at 1.6x FY09E FDEPS of Rs40.2 and at 0.8x FY10E FDEPS of Rs76.6, while on EV/EBITDA basis it is trading at 2.4x FY09E EV/EBITDA and at 1.2x FY10E EV/EBITDA.

Stock Views on Lupin, Godawari Power & Ispat, Crompton Greaves

Emkay Global on Lupin- Target Rs 980

Emkay Global Financial Services has maintained its buy rating on Lupin, with price target of Rs 980, in its report dated.

"Since this is a sub-judice matter, it is difficult to take a call which way the judgment goes? However, by the spirit of the matter taken up by the EU authorities and chronology of events leading to out of court settlement raises an iota of doubt about the intention of settlement between innovator (Servier) and Lupin. At the moment, we can not estimate the exact loss; therefore impact on financials can not be assessed. In worst case scenario, this event will lead to one time charges, which could be as high as Rs 3.7 billion (10% of FY09 revenue). Hence, we continue to maintain our Buy rating with a target of Rs 980," says Emkay Global Financial Services' research report.

Karvy Stock Broking on Godawari Power & Ispat - Target Rs 128

Karvy Stock Broking has recommended a buy rating on Godawari Power & Ispat, with price target of Rs 128, in its report.

"The stock is trading at 0.6x its FY09 & 0.55x its FY10 BV. We revise FY10 earning estimates by 6% on account of change in MAT rate. However, we retain our valuation of 0.8x FY10 BV and target price of Rs 128/share. However, due to recent correction in stock price, we revise our rating from out performer to 'BUY'," says Karvy Stock Broking's report.

Sharekhan on Crompton Greaves - Target Rs 308

Sharekhan has recommended a buy rating on Crompton Greaves, with price target of Rs 308, in its report.

"We like Crompton Greaves for its consistent performance at the operating level. Moreover, its ability to improve its working capital management in a tough environment (most other companies have indicated a stretched working capital cycle) is quite impressive. We reiterate our bullish stance on the company and maintain our Buy recommendation on the stock. At the current market price the stock is discounting its FY2010 and FY2011 earnings estimates by 16.3x and 14.8x respectively, target of Rs 308," says Sharekhan's research report.