Edelweiss on Thermax

Edelweiss maintains `Buy’ recommendation on Thermax. Thermax has announced a joint venture with Babcock and Wilcox (B&W) for manufacturing super critical boilers. While Thermax’s share in the JV will be 51% that of B&W will be 49%. The plant’s annual capacity is planned at 3 GW and is slated to commence operations by end-FY12. The debt:equity ratio for the JV is estimated at 1x, implying an investment of Rs 175 crore in the project by Thermax over the next two years. While the working capital requirement in this business is likely to be higher and margins lower in initial years, which in turn is likely to lead to lower return ratios in the future, the growth that can accrue from this diversification may negate the downward profile of return ratios in future years. Edelweiss expects the JV to turn profitable in FY13E, contributing Rs 29.2 crore to the consolidated bottomline. At the current estimate, the stock is trading at a P/E of 21.9x and 17.2x for FY11E and FY12E respectively. Further upsides are likely from higher growth in cash flows beyond FY12 driven by the diversification in the utility business.

Jindal Steel And Power

With order intake going up, Thermax’s FY11 and FY12 sales and net profit estimates are upgraded with FY11 EPS and FY12 EPS pegged at Rs 31.6 and Rs 38.4, respectively
Macquarie commodities team raised forecasts of world average steel export prices by 19 per cent, 4 per cent and 2 per cent for FY10, FY11 and FY12, respectively to $563/tonne, $598/tonne and $617/tonne.

Given its unique technology and flexible product mix, JSPL's steel business has consistently clocked 40 per cent Ebidta margins. JSPL has already provided Rs 590 crore for the pending coking coal quantity last year, which none of its peers have done.

The additional 1,350MW of power capacity, of which 70–90 per cent was available for surplus sale, would boost margins further. JSPL's merchant power subsidiary recorded a realisation of Rs 6.2/KWH in Q1.

The brokerage is building in cumulative capex of $2.8 billion for FY10 and FY11, but the debt/equity still remains at just 0.8x for both the fiscal years.It is believed that its low cost operations, first mover advantage in merchant power, sizable resource base and strong growth pipeline make it a compelling investment idea.

Given the high earnings upgrade potential, valuations remain undemanding at 13x FY11E earnings. Maintain outperform.

Thermax

Edelweiss on Thermax - target price Rs 694

Edelweiss has maintained its Buy rating on Thermax with a target price of Rs 694 - an upside of 21%.

A report released said: Our current order inflows estimate for FY10 at the standalone level is at INR 37.7 bn, which we revise upwards to INR 42.9 bn. This implies additional order inflow of INR 8.9 bn in the balance part of FY10. Earlier, management had expressed confidence that orders are likely to come from chemicals, petrochemicals, and pharmaceutical industries even as those from the ferrous vertical are likely to decline. Please note that our implied incremental required order inflow numbers for FY10 may be overstated, as the company does not announce small ticket size orders during the quarter, which essentially understates actual YTD order inflow.

Upgrades to FY10 order inflow estimates lead to upwards revision in our FY11 and FY12 sales and net profit estimates. For FY11, our consolidated EPS estimate now stands at INR 32.3, higher by 2.1%, significantly ahead of consensus. The consensus EPS estimate (BB) for FY11 is at INR 27.5. For FY12, we revise our EPS estimate up by 5.7% to INR 40.6."We are upgrading our one year DCF value for TMX to INR 694 (higher by 6%), implying a 21.5% upside from current price levels.

We have upgraded our one year target price due to higher growth in cash flows in explicit forecast period driven by increase in order inflow. Historically, the stock has traded at one year forward P/E band between 15x and 20x. At our target price of INR 694, the implied P/E is 21.5x and 17.1x for FY11E and FY12E, respectively. At our current estimates, the stock is trading at P/E of 24.8x, 17.7x, and 14.1x for FY10E, FY11E, and FY12E, respectively. We maintain our ‘BUY’ recommendation on the stock.

Stock views on Exide Industries, LIC Housing Finance, Thermax

Sharekhan on Thermax - Target Rs 422

Sharekhan has recommended a buy rating on Thermax, with a price target of Rs 422, in its report.

"Thermax has been witnessing slower order inflow on account of a significant cut in the capital expenditure (capex) of India Inc. Recent data shows that cement and metal sectors will be relatively much stable business environment. The revival of capex plans in these two industries in particular could strengthen the order inflows for the company in the future. Thermax' leadership in the captive power generation equipment space and its agreement for utility boiler could also provide a significant boost to its order inflows. We maintain our Buy recommendation on the stock with a revised price target of Rs 422 (12x FY2011E EPS). At the current market price the stock discounts our FY2010E EPS 13.3x and enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 6.6x," says Sharekhan's report.

FinQuest Securities on LIC Housing Fin - Target of Rs 512

FinQuest Securities has recommended a buy rating on LIC Housing Finance with a target price of Rs 512 in its research report.

"Post interest rate cuts and correction in property prices (especially in big cities), the demand for housing loans is picking up. Last two months (March and April) the disbursements grew by 42% and 34% respectively for the company which indicates strong trend. Further correction in property prices coupled with easing of interest rates will boost the demand. We expect disbursemnts to grow at a CAGR of 22% for the company over FY09-11E."

"We expect company's loan book to grow at CAGR% of 22% over FY09-FY11E led by drop in the interest rates and correction in property prices. Net interest margins are expected to remain stable at 3% despite lending rate cuts. Current valuations of 1.1x FY11 BV is attractive considering higher RoE's (26% & 27% for FY10, FY11), better asset quality and huge growth potential in the housing finance segment. We have a target price of INR 512 for the stock which is 1.3xFY11 BV. We recommend 'Buy' on the stock," says FinQuest Securities' research report.

Parag Parikh on Exide Industries - Target of Rs 72.6

Parag Parikh Financial Advisory Services has maintained its buy rating on Exide Industries with a target price of Rs 72.6 in its research report.

"Exide Industries (EIL) has reported a flat top-line growth of 1% for Q409. Net Revenues for the company stood at Rs 7,983 million v/s Rs 7,913 million for Q4 '08. With a surge in taxation, PAT for the company stood 13.6% higher at Rs 2,844 millio for FY09 v/s Rs 2,503 millio for FY08. Exide Industries had recently acquired two lead smelting plants (Tandon Metals and Leadage Alloys) which now contribute 28% of total lead requirement for the company. This captive sourcing of lead and lead alloys will have a positive impact on the company's overall margins. Maintain 'BUY' on the stock with a target price of Rs 72.6/- (16x FY10E earnings and Rs 6.3/- value of investment in ING Vysya Life Insurance)," Parag Parikh Financial Advisory Services' research report.

Stock views on KEC International, Thermax, Info Edge, IVRCL Infrastructure, DLF

HSBC on KEC International

HSBC maintains its `underweight’ rating on KEC International with a target price of Rs 130. The company has reported sales growth of 25% y-o-y to Rs 870 crore in the quarter. EBITDA margin was lower by 625 bps at 8.2% due to forex losses of Rs 16.6 crore and high raw material cost. The company also reported 67% y-o-y increase in interest cost due to debt raised for capex and working capital. Due to working capital and capex requirements, KEC has increased debt to Rs 900 crore while depreciation is lower because part of its assets have been transferred to the books of developers and new assets will be capitalised in FY10E. The stock is trading at FY10E PE multiple of 4.4x and PB of 1x. This compares with peer Jyoti Structures trading at 4.1x/1x and Kalpataru Power trading at 3.8x/0.7x. KEC has higher gearing and lower return ratios, which makes it more expensive than peers. The target price of Rs 130 is the mid-point of a PE fair value of Rs 125 and a PB fair value of Rs 135.


Citigroup on Thermax


Thermax’s revenues declined by 6% y-o-y, led by a decline of 9% y-o-y in the energy segment. Environment segment grew by 14% y-o-y. Margins (adjusted for forex loss) have improved by 137 bps, driven by cost-cutting initiatives. Order book of Rs 4,100 crore is up 40% y-o-y; however, the pace of order book growth has moderated. Management suggested there is “substantial resistance” from clients to finalise orders, especially large-size projects. Some clients have cancelled/slowed execution. According to Thermax, cement and metals sectors’ capex is expected to slow down while the power sector will continue to invest, albeit at a lower level than before. But there are some positives -
1) While risks to order inflows remain, increased power sector exposure should help provide some support to growth.
2) Management has been ahead of the curve and seems geared to handle the downturn; ~293 bps margin improvement for 9MFY09 is commendable, especially since it was against the backdrop of rising input costs and no pass through clauses.
3) The company has no debt and one of the highest RoEs in the sector. Citigroup cuts the target price to Rs 211 from Rs 480 based on 8x FY10E (15x Dec09E earlier). Historically, Thermax has traded on par with BHEL, but in the recent past, has been trading at a widening discount.


CLSA on Info Edge

Revenue growth in Info Edge’s flagship recruitment solutions is down to 1.5% y-o-y from 30%+ at the start of the year as the slump in hiring across all industries has taken its toll. With the customary March quarter budget flush unlikely to happen this year, March 2009 outlook for Naukri looks even weaker. Meanwhile, Info Edge’s realty business continues to face headwinds from the slowing real estate market. A course correction in the matrimony space with establishment of brick and mortar Jeevansathi centres is still in the investment phase and any positive surprises on this front are unlikely in the near term. With over Rs 330 crore of cash and continued leadership of Naukri, Info Edge remains better positioned compared to competitors in a difficult environment. With the slowdown becoming homogeneous, online traffic from recruiters has gone down significantly and recruitment solutions grew only 1.5% y-o-y in the December 2008 quarter. Info Edge’s leadership position in the online recruitment segment and Rs 330 crore of cash pile should help it encounter the economic downturn better than competitors. Also, new initiatives in education and professional networking have long-term potential. However, Info Edge’s valuations (21.5x March 2009) cannot be defended with a 2.3% FY09-11CL EPS CAGR. With visibility for even March 2009 severely constrained, risk to FY10 earnings is high.


Maquarie on IVRCL Infrastructure

IVRCL reported a 22% topline growth but decline in PAT in 3Q09 results. Company reported 22% revenue growth thus translating into strong 39% y-o-y growth for 9MFY09. However, margins came in significantly lower by 230 points in the quarter and have now declined by 100 bps y-o-y in 9MFY09 driven by a higher mix of lower margin projects. PAT declined significantly by 27% y-o-y in the quarter driven partly by margins and partly by very high interest costs of Rs 41.9 crore versus Rs 17.7 crore last year. For 9MFY09, PAT growth has come in at 7% versus our expectations of 4% growth for full year. Interest expense grew to Rs 41.9 crore in the quarter, highest ever for IVRCL, given that debt levels have increased to Rs 1500 crore, resulting in net debt/equity ratio of around 0.8x, which is on the higher side. IVRCL has an order book of Rs1,4300 crore at the end of 3Q09 which provides strong revenue visibility of 3-4 years, highest in the mid-cap construction space. The company has received robust order inflows of Rs 6600 crore in 9MFY09 (+100% y-o-y). Maquarie estimates are at the lowend of the management’s guidance with a 35% topline growth in FY09 and a lower net income growth of 4% due to interest cost pressures.


Morgan Stanley on DLF


Morgan Stanley maintains `underweight’ rating on DLF in view of an extremely weak physical property market, modest stock of on-going projects and, now, prospects of slow improvement in balance sheet (in view of the sharp fall in internal accruals). DLF’s construction starts across biz verticals in F9M09 total upto just 5-6 msf, which is a leading indicator of poor earnings trajectory ahead. Management believes that the current business environment is fluid and uncertain, and therefore, it targets to conserve capital and customize products to suit ongoing economic slowdown. Near term mid-income housing and scale up in rentals will be the areas of focus, whereas, luxury housing and commercial complexes will be slowed. To weather the current credit squeeze, DLF targets to change the maturity profile of its debt portfolio to long term by mid-2009, such that there will be no re-payment obligation for 24-36 months. Out of Rs14800 crore debt, Rs 9000 crore is already long term, with commitments for another Rs 3000 crore.. DLF will restrict its sales to DAL to 12 msf (million square feet), of which 9.5 msf will be completed shortly. It targets to raise roughly $450 million PE capital to part fund the pending receivable (Rs 5400 crore). Valuations don’t appear inexpensive at roughly 1.1x F09 P/B with increasingly slower pace of value unlocking in the land bank. Stock is at a 40% discount to the F09NAV

How should retail investors approach the market? - Part I

Religare Securities

RECOMMENDATIONS HDIL, Chennai Petroleum, SBI, L&T and Thermax

Small retail investors should analyse their portfolios closely. They should put their money in companies that satisfy three of the following four conditions - companies with positive free cash flows, good operating cash flows, low debt-equity ratio or high dividend yield

RECOMMENDATIONS Tata Steel, Castrol, Bayer Cropscience, Aventis Pharma, Nestle and HLL

Networth Stock Brocking

We’re taking a contrarian call on commodity stocks now. The global base metals index has been trading 5-7% over the past few trading sessions. From what we see, there could be a bounceback in commodities. Our advice to investors is to buy steel, metals and mining stocks. On pure fundamental basis, certain MNC stocks are good buys in these times. Companies like Castrol or Bayer Cropscience have good operating cashflows and very less of debt on the their balance sheets.”

Angel Broking

RECOMMENDATIONS Axis Bank, HDFC Bank, Bharti Airtel, Infosys and Satyam.

Investors should keep investing in markets in small lots. We like banking stocks, especially after the recent rate cuts.

Ten stocks worth investing in – Part III

Opto Circuits India

Opto Circuits, too, is seen as a good investment, with the stock having fallen by over 45 per cent since it high in January 2008, thereby rendering its valuations attractive at 13 times FY09 estimated earnings and 9 times FY10 earnings.

The company manufactures healthcare products in the invasive and non-invasive segments. Historically, the company has been growing at 47 per cent during the last five years ending FY08, mainly on account of a series of organic and inorganic initiatives.

Given the strong growth across segments, the company is expected to grow at about 57 per cent during FY08-10, while its net profits could grow at a 45 per cent.

A part of this growth will come from by its subsidiary EuroCor, which is engaged in the design and manufacture of cardiac and peripheral stents. The estimated size of the global market for its products is pegged at $8 billion, and growing 15 per cent annually.

Opto's other business segments include medical electronic and monitoring products such as optical sensors, electro-medical equipment, security systems and pulse oxymeters manufactured.

The company's unique chip design capabilities, USFDA approved products and strong relationship with customers, have led to a 51 per cent revenue growth in the past.

Also, the company recently acquired US-based Criticare Inc for $70 million to strengthen its position in the non-invasive space. Along with this, the analysts also estimate that its invasive business would grow at 55 per cent during FY08-10, on the back of a strong product portfolio as well as a series of products to be launched in the near future.

Besides good fundamentals, the research houses like its business model, where the company is a niche player in the medical equipments commanding high margins along with high entry barriers.

Sintex Industries

Sintex is a strong play on the domestic consumption story. The company's popularity improved sharply after its foray into the plastic water-tank segment. While it is still a leader in the business, it has also moved into and emerged as a leader in many value-added plastic-based products.

These include new concepts like prefab and monolithic construction, which notably are growing at a fast clip. Analysts expect these businesses to grow at about 70 per cent, driven by strong order book of Rs 1,500 crore (65% of FY08 sales) and growing demand for quick and affordable mass housing solutions.

Additionally, the company has also emerged as a strong player in the auto and electric plastics product segment, after making several acquisitions in these businesses in FY08. The full impact of these acquisitions will be visible from FY09 and is expected to contribute about 27 per cent of consolidated revenues.

Driven by larger product portfolio, geographical diversification, higher domestic demand and benefits of its acquisitions, the company is estimated to grow over 50 per cent in consolidated earnings. At Rs 291, the stock is trading at attractive valuations of 10 times and 6 times estimated FY09 and FY10 consolidated earnings, respectively.

Thermax

Thermax was among the stocks that have fallen sharply due to the slow down in the industrial capex seen recently. High input cost also impacted sentiment, leading to a 60 per cent fall in its share price where valuations at 13 times its FY09 estimated earnings and 11 times FY10 earnings are proving to be attractive.

Importantly, except for these short-term blips, the company's fundamentals continue to hold ground. The company's order book of Rs 2,637 crore (Rs 26.37 billion) provides revenue visibility of about two years.

The company has also taken several initiatives, which should help sustain growth in years come. Thermax operates in a specialised segment within the engineering sector, catering to the needs of a number of industries. Also, the company is leader in small and medium-sized industrial boilers, heaters, and captive power plants in the energy sector.

Notably, the company will gain from its entry into higher capacity boilers, which are used by power utilities. It recently signed a 15-year agreement for sub-critical boilers up to 800MW with Babcock and Wilcox. The company has already completed the first phase of 3,000MW boiler facility at Baroda and the second phase is expected to be complete by October 2008.

In this direction, the company has already announced its largest order win ever, valued at Rs 820 crore (RS 8.2 billion) for the supply of a coal fired boiler to a captive cogeneration plant of a refinery.

While the margins may remain under pressure as 70-75 per cent of its order backlog is on a fixed price basis, these are already reflecting in the share price. Such issues are being taken care off with the company immediately securing inputs for new orders.

TV18

Stocks from the media sector are finding favour among many research houses post the market correction. Television Eighteen India (TV18) is India's premier 'Business News' broadcaster and leading content provider in the electronic media space. It owns and operates business channels CNBC TV18 and CNBC Awaaz and has several strategic investments in the internet business such as moneycontrol.com, which is among Asia's largest financial portals and commoditiescontrol.com.

The company's existing businesses have been doing well; news operations has witnessed a CAGR of over 54 per cent for the last three years, while the web and news wire business are currently in an investment phase.

Its internet subsidiary, Web18, operates different businesses like travel, technology, movie bookings and financial news. While TV18 holds 85 per cent in Web18, revenues are still small, but offer good scope for growth over the longer term.

On the existing and new businesses, the company's revenues are expected to grow at over 37 per cent over the next 2-years. However, its ability to replicate its success in its foray into print and digital media needs to be watched.

The company has already started the process and is acquiring 53 per cent stake in Infomedia. The acquisition will provide the company access to the yellow pages directory business and, several special interest magazine segments.

In the medium to long run, benefits would also accrue from its JV with Forbes (English business magazine), Jagran Prakashan (Hindi business daily) and global media giant Viacom for a strategic alliance across television, film and digital media.

Emkay Global views on MRO-TEK, Tech Mahindra, Thermax, Jindal Saw

Buy MRO-TEK - Target of Rs 92
Emkay Global Financial Services has maintained its buy rating on MRO-TEK with a target price of Rs 92 in its August 5, 2008 research report. "MRO-Tek Ltd ended the first quarter with 29.6% YoY increase in revenues to Rs 314.4 million on account of about 10% revenue contribution from the company’s own manufactured products. During the quarter, PAT declined by 12.5% YoY and 63.8% QoQ to Rs 19.4 million on account of Rs 11.6 million loss on exchange fluctuation."

"At current market price of Rs 52 , MRO-Tek discounts its FY09E and FY10E EPS by 5.8x and 3.8x respectively and thus available at an attractive valuation. But based on the overall macro scenario and the PE contraction taking place across large cap scrips, we follow a cautious and conservative approach in assigning a PE multiple to the scrip. After taking into account the earning downgrades and PE contraction, we maintain our BUY recommendation on the scrip with downgraded target price of Rs 92 (from Rs 128). At our target price, the scrip discounts FY09E and FY10E EPS by 10.3x and 6.6x respectively," says Emkay Global Financial Services' research report.

Buy Tech Mahindra - Target Rs 990

Emaky research has maintained buy ratng on Tech Mahindra with target price of Rs 990 in its June 11, 2008 report. "We note that post the 20%+ steep correction in Tech M’s stock price over the past 3 weeks , the valuations on stock have become extremely compelling with the stock now trading at 11x FY09 adjusted earnings of Rs 66 and less than 10x FY10 adjusted earnings and hence upgrade our rating on the stock from ‘HOLD’ to ‘BUY’ with a revised target price of Rs 990, based on 13x adjusted FY10E earnings of Rs 76.1. We have also revised our FY09 and FY10 revenue estimates by 5-6% and FY09E arnings by 4.4%. (our earnings estimates based at Rs 41/USD for FY09 and Rs 40/USD for FY10) on account of greater clarity emerging on the revenue front" according to Emkay report.

Buy Thermax - Target Rs 546

Emkay report has maintained buy rating on Thermax with target price of Rs 546 in its June 10, 2008 report. "We have cut our earnings estimates by 10.8% and 15.0% for FY2009E and FY2010E respectively. At the CMP of Rs420, the current valuations are 14.5X FY2009E and 11.8X FY2010E earnings. We believe that, current valuations are factoring investor concerns i.e. (1) low order backlogs (2) lowest visibility in revenues during last 5 years and (3) concerns on operating margins due to fluctuation in raw material prices. Further, the current 1-year forward valuations are closer to (1) valuations at the start of secular uptrend in the Capital & Engineering Sector (FY2003) and (2) the restructuring phase (FY2001) - approximately 13-14X. We believe that, there is very little downside from current levels" according to Emkay report.

Buy Jindal Saw - Target of Rs 941

Emkay Global Financial Services has maintained its buy rating on Jindal Saw with a target price Rs 941 in its August 6, 2008 research report. "In Q2CY08, JSL reported 34.76% growth in the net sales from Indian operations on year on year basis. In Q2CY08, it reported the net turnover of Rs 10.175 billion as against Rs 12.855 billion in Q3FY07 (the comparable quarter which includes Rs 7.55 billion from Indian operation and Rs 5.3 billion from USA operations which has been sold off last year) in the corresponding quarter of last year."

"We have maintained BUY on the scrip with revised target price of Rs 941 based on SOTP valuation method. We have taken conservative approach in assigning the target price on the scrip. The target price includes Rs 145 per share as value of quoted investment (at 50% discount to its market value) and Rs 796 as one year forward DCF value of the pipe business. At our target price, the scrip discounts CY09E EPS of Rs 79 by 11.9x," says Emkay Global Financial Services' research report.

Stock Views on THERMAX, BHEL, BOMBAY RAYON

Kotak Securities on THERMAX - TARGET PRICE: RS 540

Kotak Securities has assigned an ‘accumulate’ rating to Thermax, saying that recent orders will drive the company’s revenue growth in FY10. “The company is witnessing robust order inflows from steel and sponge iron makers. Thermax has also expanded its prequalifications in refineries. The company indicated that orders have been trickling in from sugar distilleries and the polyester sector,” the Kotak note to clients said. “Thermax is currently trading at 17.9 times and 14 times FY09 and FY10 earnings, respectively," the note added, cautioning that near-term growth was likely to be subdued.

Citigroup on BHEL - TARGET PRICE: RS 2,025

Citigroup Global Markets has downgraded its rating on BHEL from ‘buy’ to ‘hold’, citing limited upsides from the current levels with re-spect to the new target price. Citi has revised the target price for BHEL to Rs 2,025 from Rs 1,642 earlier to factor in the increase in the earn-ings estimates over FY10E-12E by 8-9%. “BHEL has hiked its order inflow guidance to Rs 500 billion from Rs 40,000-50,000 crore earlier. It has bagged Rs 192 billion of orders so far in FY09E and is well on course to meet its full-year order inflow guidance,” the Citi note to clients said. It expects BHEL’s earnings per share (EPS) to grow at a com-pounded annual rate of 27% over FY08-11(estimated) with RoE (return on equity) at 28-31% levels.

Merrill Lynch on BOMBAY RAYON - TARGET PRICE: RS 450

Merrill Lynch has initiated coverage on Bombay Rayon Fashion with a ‘buy’ rating and price target of Rs 450 citing attractive valuations. “Valuations are inexpensive at 9 times FY10 (estimated) earnings, given strong growth outlook and high RoE at 24%,” the Merrill Lynch note to clients said.