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Kotak Inititates Coverage on Sobha Developers

Monday, April 30, 2007

Kotak Securities has initiated coverage on Sobha Developers Ltd. For the first time, I am very impressed by the way Kotak has covered the company. Kotak sets a price target of Rs 940 on Sobha Developers.

Kotak forward estimates Sobha's Real Estate Business at Rs 855 / share and value of contractual business at Rs 85 / share. Sobha has a total Land Bank of 3,624 acres and a Land Arrangement of 3,558 acres. Bangalore's IT & ITeS will be the key driver for Sobha's growth. Interest Rate and decline in Real Estate prices can hurt Sobha's prospects. Sobha is mainly dependant on Infosys for contractual work.

Read the entire report here.[PDF]

Sobha Developers Land Bank.
Sobha Developers IPO Coverage.

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Agro Tech Foods - Recommendation

Saturday, April 28, 2007

ConAgra Foods Inc of USA, the world’s third largest foods company, holds a majority stake of 48.3% in Agro Tech Foods, through CAG Tech Holdings, Mauritius.

Agro Tech Foods operates in two business segments: branded foods, and bulk and processed commodities. The company has two very successful foods brands: Sundrop edible oil and ACT II, the No 1 popcorn brand in the world. Some other brands include Crystal and Rath vanaspati oil. The company has stopped its non-profitable brands of chips and atta, and has developed a strategy of focusing only on products with a gross margin above 20%.

Bulk and processed commodities include oils and grains procured, processed and distributed; and seed buying operation. This segment is not the focus of the company.

Earlier, Agro Tech Foods was a group company of ITC and had its manufacturing plant at Mantralayam in Andhra Pradesh. Subsequently, the plant was sold to ITC and was leased back for 99 years to the company for Rs 16 crore. Subsequent to ConAgra taking a majority stake, the parent found this arrangement totally unviable as reflected in the poor margin and losses.After a long conflict between the company and ITC, a London court passed an order of settlement: the company had to pay Rs 43 crore to ITC in phases (as reflected in extraordinary items over the past few years).

Presently, Agro Tech Foods has no manufacturing plant. Manufacturing is outsourced to unorganised players under its quality control. Hence, there is no need for any capex or any other significant investment to increase volume.

Sundrop normally contributes nearly one-third of the total turnover of Agro Tech Foods. The brand continues to grow at 10%. The company is operating this brand at a gross profit margin of around 15%, which it intends to increase to 20% with deeper penetration and promotion. With growing consumption and income level, the shift towards premium quality will sustain the profitable growth of this brand.

Currently, ACT II brand is available at over 120 locations across the country, where hot, fresh and tasty popcorn is served. The target market for vending popcorn is cinema theatres, amusement parks, shopping malls, coffee parlors, college canteens or even railway stations and bus stands. Over the next 12 months, Agro Tech Foods plans to increase the availability of ACT 11 vending operations in more than 400 locations across the top 14 towns. The company’s ACT II ready-to-eat brand, launched six months ago, has also received a very positive response.

The ACT II brand contributes nearly Rs 25 crore to the top line, with a gross margin of around 30%. Going forward, this brand has scope for almost doubling sales every year from both the vending popcorn as well as from the ready-to-eat segments, considering the huge untapped rural and urban markets with hardly any competition.

Agro Tech Foods is expected to register EPS of Rs 5.3 in FY 2007 and Rs 6.6 in FY 2008. At the current market price of Rs 75, the scrip trades at 14.2 times its FY 2007 earning and 11.4 times its estimated FY 2008 earning. This discounting is very low compared to Nestle and other MNC Dairy companies in India.

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J P Morgan Overweight on Tech Mahindra

Friday, April 27, 2007

J P Morgan initiates coverage on Tech Mahindra with Overweight rating and a Dec-07 price target of Rs1,700, implying 13% upside.

JPM expects a 42% revenue CAGR and 38% EPS CAGR in FY07-09 led by: (1) strong growth of two largest clients—BT and AT&T; (2) diversifying customer base; (3) strong offshoring trend in TSP space; and (4) widening service offering. JPM expects a 37% revenue CAGR from British Telecom (TM’s largest customer with~60% of revenues) due to BT’s aggressive offshoring drive and recently signed US$1B deal with BT Global Services. JPM expects a 45% revenue CAGR from AT&T (second-largest client) due to offshore vendor consolidation, stake in TM, and low base.

JPM is expecting Tech Mahindra to report an EPS of Rs 72.0 for FY08 and Rs 102 for FY09. At these EPS' JP Morgan target is slightly on the lower side because of strong management and better than expected growth story.

We at DalalStreet.Biz continue to be bullish on the prospects of Tech Mahindra and rate it as an aggressive BUY with a Price target of Rs 1,900. Tech Mahindra will enter the big league software companies in FY08 and will see a re-rating for its stock.

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Clutch Auto - Outperformer ICICI Research

Thursday, April 26, 2007

ICICI in its research report released jus ta while ago has said that Clutch Auto will be an outperformer with a price target of Rs 260 [ 99%] appreciation from current levels.

Clutch Auto Ltd reported a splendid performance for the year ended March 31, 2007 (FY07), exceeding our estimates. Net sales surged 56.8% to Rs 235.5 crore against Rs 150.2 crore in FY06. This was much above our estimate of Rs 214.2 crore. Though contribution from exports were below from our estimates of Rs 97.5 crore, the 81.3% surge in domestic revenues more than made up for the shortfall.

At the current price of Rs 130, the stock trades at 5.1x its FY08E EPS. The stock underperformed the BSE Sensex mainly due to the company's poor performance on the export front. The margin pressure would continue and this is the major cause of concern. However, ICICI continues to remain bullish on the company. Read the entire report here.

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Biocon Limited - Outperformer, Merrill Lynch

Wednesday, April 25, 2007

Merill Lynch has put an outperform rating on Biocon Limited. Merrill raised price target on Biocon to Rs600/share (from Rs500/share) as it remains upbeat on
New Price Target is based on target multiple of 20x on FY09E earnings. EPS Growth is expected to be 26% and 18% FY08E and FY09E respectively. Biocon’s 4Q net profit of Rs600mn (27% growth YoY), about 18% ahead of MLe while revenues were 16% ahead of MLe. Higher than expected 260bp increase in EBITDA margin was driven by statin supplies to US and better product-mix.

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Citi Downgrades Shoppers Strop

Sunday, April 22, 2007

Citigroup in its research report released just a while ago has downgraded Shoppers Stop to SELL with a price target of Rs 412, potential downside of 33%. This downgrade comes after we reported of the first Retail Downgrades in India coming from Merill Lynch on March-29th.

Shoppers Stop growth story is leveraged to rapidly growing high-end urban consumption. However, at 43x FY08E P/E valuations are steep and seem to be building unfeasible expectations from HyperCity. As such, the stock has underperformed the Sensex by 9% and Citi expects valuation roadblocks to continue. Shoppers Stops positioning has also been at the premium end, with a strategy focusing on product assortment and quality, rather than discounts, driving sales. It is also expanding in the specialty format, focusing on food, cosmetics, books and apparel.

Sum of Parts Valuation:
Sum of parts valuations returns a target price of Rs421 per share, valuing the parent company at Rs376 and the HyperCity stake at Rs45 per share. Citi values the parent Shoppers Stop based on 27x FY08E P/E, for a target price of Rs376. Shoppers Stop could trade at 10% premium to its regional peers given its superior earnings growth profile. We expect two-year EPS CAGR of 36% vs. a 30% CAGR for our Asian retail universe. A 10% valuation discount for Shopper’s Stop to our Pantaloon target valuation, due to limited growth opportunities. Shoppers Stop is expected to report an EPS of RS 13.9 for FY2008.
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Published by Webmaster @ 8:19 AM IST. ,

Merill Lynch Bullish on UTI Bank

Saturday, April 21, 2007

UTI Bank posted better than expected results during Q4 of FY07. UTI Bank’s 4QFY07 net income grew 40%yoy to Rs2.1bn, higher than estimates, led by strong operating profit growth (+63%yoy). Top line grew 48%yoy as loan growth sustained at +65%yoy led by corporate credit demand. Key highlights of results were a) margin expansion of 6bps qoq to 3.06% driven by increasing share of CASA and b) 59%yoy growth in fee income led by both retail (distribution of life insurance products, credit cards and rising client base) and corporate fees.

Merill Lynch forecasts earnings growth at 30% CAGR through FY09 (changed by <1%). Hence one year from now it could trade at 3.3x FY09E adj book, underpinning our PO of Rs600.

Fully Diluted EPS estimates for FY2008 and FY2009 are Rs 31.16 and Rs 39.90.
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HSBC Bullish on HCL-Technologies

Friday, April 20, 2007

HCL Technologies is now being re-rated by several research houses. HSBC upgraded the stock to BUY with a price target of Rs 350.

HCLT reported a better than expected Mar2007 quarter. HSBC raised revenue estimates for FY07-09, performance at EBIT level has been largely in line with estimates for 9mFY2007. Higher other income due to Fx gains drives better than expected net income in Mar2007 quarter.

Mar07 results: Revenues at INR15.7bn (+7.6%q-o-q, +40.6%y-o-y) were higher than expected. EBIT was at INR2.8bn (+15.3%q-o-q, +51% y-o-y) with EBIT margins at 17.9% (+119bps q-o-q,+ 126bps y-o-y). Higher other income due to Fx gains helped net profits at INR3.1bn (+16.3%q-o-q,+71.4%y-o-y) adjusting for the charge on stock grants to employees. HCLT has a forward cover of over USD900m (at INR44-45), which is the highest as a proportion of its revenues in the industry.

HSBC expects HCL Tech to grow revenues and profits at CAGRs of 27% and 20% for FY2007-09 with Infrastructure and BPO business growing faster than the company average. Though margins for HCLT have recovered, it continues to grow slower than large companies with significantly lower profitability despite its smaller revenue base.
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Infosys Technologies - Outperformer says ICICI

Thursday, April 19, 2007

ICICI Research has put an outperform rating on Infosys Technologies. Infy reported a 3.2% growth in top line to Rs 3,772 (our estimates: Rs 3,860 crore) and a 16.4% growth in bottom line to Rs 1144 crore (Rs 1,005 crore) as compared to the previous quarter. The fourth quarter has historically been a sluggish for Infosys. This time the company was impacted by a strong rupee (173bps impact during the quarter) and compensated by higher other income (no gain from hedges during current quarter: higher income from dividend and mutual funds).

The larger growth in bottom line was on account of a write-back of tax provisions to the extent of Rs 124 crore and higher other income at Rs 119 crore. However, the management reiterated its view of a strong business environment highlighting a 16.31% growth of the top 5 clients during the quarter. The company's dollar guidance for FY08 revenues was also quite positive indicating a 28% to 30% year-on-year growth. ICICI maintains OUTPERFORMER rating on the stock with a price target to Rs 2,718 over a 15-18 month. Read the report here.
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iGate Global Outperformer - ICICI Research

Thursday, April 12, 2007

iGate Global reported a flat topline at Rs 210.1 crore as compared to the previous quarter on account of financial closures in the US market coupled with a 210 bps Rupee impact and higher offshoring. However EBIDTA margins were a big positive surprise expanding by 268 bps as compared to the previous quarter (15.3% vs our estimates of 13.9% for the current quarter) on account of higher offshoring (onshore : offshore effort at 25:75 in Q4 vs 27:73 in Q3), lower direct costs and SG&A (Selling, General & Administration expenses).

The company's ITES business accounting for 10% of its revenues was hit by the slowdown in the sub-prime mortgage market in the US (ITES witnessed a 5.3% decline in revenues during the quarter), and the management indicated a possibility of sluggishness in revenues during the first quarter of FY08E. This is a temporary aberration that could rebound during the second quarter of FY08E and continue to be bullish on the stock going forward with the margin expansion story intact. ICICI reiterates a BUY with a price target of Rs 610 achievable over the next 15 to 18 months. Download the report here.
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Published by Webmaster @ 10:03 PM IST. ,

Hercules Hoists

Tuesday, April 10, 2007

A Shekhar Bajaj group (promoter stake 70%) company, Hercules Hoists produces chain-pulley block, electric hoists, trolleys and cranes in technical tie-up with Heinrich De Fries, GmbH, Germany. Hercules Hoists’s manufacturing facility is equipped with CNC, gear cutting and broaching machines. The combined installed capacity is 29,250 numbers per annum. The company is also developing a new range of wire-rope electric hoists jointly with Bull S.r.l., Italy. It holds a 40% market share in the chain-pulley-block market, 20% market share in wire-rope electric hoists, and a massive 90% in CEM.

The enviable set of customers include automobile manufacturers Tata Motors, Mahindra & Mahindra, Maruti Udyog, New Holland, Escorts, Premier Auto, Bajaj Auto, Kinetic, Ford India, Daewoo Motors, Ashok Leyland and Punjab Tractors. In the steel industry, the company caters to Tata Steel, Bokaro Steel Plant, Rourkela Steel Plant, Sail, Mukund, and Jindal. In the cement sector, the users are Ultratech, Ambuja Cements, ACC and Birla Cement. The state electricity boards include MPEB, RSEB, MSEB and BSES.

Hercules Hoist has invested Rs 12.50 crore to produce 2.5-MW wind energy, a new business. The company further invested Rs 6.25 crore in a 1.25-MW windmill in FY 2006 and started producing from the expanded capacity in March, 2006. It put in another Rs 6.25 crore for another 1.25-MW wind mill in FY 2007.

Net sales of Hercules Hoists registered a solid rise of 24% to Rs 22.31 crore and net profit 61% to Rs 4.12 crore in the December 2006 quarter,.

Sales rose 40% to Rs 62.32 crore, and profit after tax (PAT) shot up by 107% to Rs 12.90 crore in the nine months ended December 2006.

The handsome increase in revenue was due to the introduction of a range of higher capacity hoists in various models. Another reason for the rise in sales was market demand, aggressive marketing, wider product range, competitive product prices, and faster deliveries. Cost cutting and various operational restructuring have resulted in improved profitability.

Pick-up in capital expenditure across various industries including speciality steel, mining, power and automobile, and investment in infrastructure have lifted the demand for material-handling equipment. To cope with the rising demand, Hercules Hoists has planned an investment of Rs 5 crore in a new factory to enhance capacity. Approximately six acres of land have been purchased to put up the new factory in Village Dhamani at Khopoli, in district Raigad of Maharashtra.

Interestingly, Hercules Hoists has 83,694 shares of Bajaj Auto bought at Rs 73 lakh — a purchase price of just Rs 87 per share. At current rates, these shares are valued at a huge Rs 21.04 crore — a potential cash per share of Rs 131.5 of Hercules Hoists.

Hercules Hoists is expected to register sales of Rs 84.24 crore in the FY 2007. Net profit can be projected at Rs 16.77 crore. On an equity of Rs 1.60 crore and face value of Rs 10 per share, EPS works out to Rs 104.8. Book value can touch Rs 280. The company can register EPS of Rs 129.8 in FY 2008. The share trades at Rs 1320. This discounts our FY 2008 projected EPS only 10 times.
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Published by Webmaster @ 2:39 PM IST. ,

ML Bullish on BHEL

Monday, April 02, 2007

Merill Lynch is bullish on the state owned PSU giant, BHEL. In a research report published today, ML reiterated BUY with a price target of Rs 2,760. Merill expects BHEL to report an EPS of Rs 115.35 for FY08 and Rs 142.22 for FY09.

ML analysts met the management of BHEL and raised FY08E & FY09E earnings estimates by 4.2% & 14.6% respectively, as they are double sure of continued strong order pipeline. Following a series of orders from NTPC & SEBs to BHEL, ML expects a historic order intake Rs310bn +64%YoY & backlog of ~Rs500bn +35%YoY in FY07. This announcement on April 3rd should reassure market, which has been worried on new orders due to competition. Our view is that in power market which is likely to more than double in FY08-12E, BHEL would grow volumes at mid/high teens, while it may lose a few basis points of share to cheaper supplies (China/Russia).
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Published by Webmaster @ 11:24 PM IST. ,