Overweight on HDFC Bank - HSBC + Deutsche
Wednesday, February 27, 2008
With the mega merger of HDFC Bank [HDBK] and Centurion Bank of Punjab, HSBC Equity research & Deutsche have maintained a BUY on HDFC Bank.
The share swap ratio of 1:29 translates into a 10% dilution on an expanded capital base of 361 million shares (of the merged entity) and values CBoP at INR9.97bn. Post merger, HDBK's loan book will be bigger by 20%, its branch network larger by 52% and its employee base higher by 35%. Apart from having a pan India presence, the branch network of CboP should give HDBK a strong regional flavour, with more than 150 branches in Punjab and the northern belt of the country alone.
HSBC expects the new entity to report an EPS of Rs 62.96 while Deutsche Bank pegs it at Rs 56.00 for FY2009. HSBC has followed 10 years of semi-explicit forecasts, assuming 25% loan CAGR and 25.0% dividend payout. HSBC has set a target price of Rs 1,800 and Deutsche has set a Target price of Rs 2,300 on an EPS of Rs 76.00 for FY 2010.
We feel that HSBC estimates are slightly higher and hence existing investors can HOLD on and any big fresh exposure can be considered only on corrections or after a clear picture emerges.
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Published by DalalStreet Business @ 8:56 AM IST.
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What does HDFC Bank + Centurion deal mean to you ?
Monday, February 25, 2008
This transaction is biased toward the strategic; scale - branch (45%+) and assets (19%+), a clear number two positioning in the market (50% larger than Axis), widening its geographic segment /customer spread (deep penetration in West and South India, more consumer credit and SME), and an enhanced platform to support its relatively increased growth momentum. Acquisition provides growth (8-12 months), branches (45% - but lower quality) and deeper market positioning - but is not transformational.Swap ratio not yet announced, but on market pricing - appears expensive. Expect 6-7% earnings dilution. HDFC Bank paying high price, significant premium to its own high valuations, expensive on branch matrix too.
Centurion Bank of Punjab Shareholders are the winners:
CBOP facing fundamental pressures - of scale, franchise and profitability. Asset quality strain in key loan segments. Little bogged down by recent LKB acquisition.
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Published by DalalStreet Business @ 7:59 AM IST.
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Kalpataru Power + Crompton Greaves
Thursday, February 21, 2008
HSBC in a report has retained OUTPERFORM rating on Kalpataru Power, while IndiaInfoline recommends a HOLD on Crompton Greaves.
Kalpataru Power:
Kalpataru Power management has a solid history of execution and growth in engineering, procurement and construction (EPC) transmission towers. It has built its strong position in civil construction through JMC Projects and in pipeline laying business. Kalpataru holds a 52% stake in JMC Projects, which has an order backlog of INR21bn. We introduce our consolidated forecasts.
Expect margins in transmission lines to ease off in FY08e and in the pipeline laying business, in FY09e. Therefore EBITDA stands reduced with margin outlook and cut our stand-alone EPS forecasts by 10%/27% to INR62.7/INR70.4 respectively for FY08e/09e.
What is the Trigger for OUTPERFORM ?
The catalyst for the stock to perform well could be order flows in the pipeline business or progress in new business initiatives (power distribution franchise, logistics). Risks include failure of build-own-operate / build own operate transfer infrastructure projects, which could lead to de-rating.
New target price of INR1,565 is the mid-point of DCF value of INR 1,595 (down from INR 1,810 due to lower growth and margins) and PE value of INR1,535 (down from INR1,836).
Crompton Greaves:
Crompton Greaves is set to benefit from an expanded product portfolio in one of the fastest growing sectors power T&D. Operating leverage in the domestic business and turnaround of overseas acquisitions would drive margin expansion. Entry into distribution asset owning business opens up future growth opportunities.
Crompton's large portfolio of industrial motors would enable it to exploit the upsurge in industrial capex, which we estimate will rise by 175% over FY07-12. Increasing urbanisation, rural electrification and continued growth in housing would translate into strong growth for the consumer division.
EBITDA margins will expand from 8.6% in FY07 to 10.8% in FY10ii, driven by operating leverage in the domestic business and turnaround of recent overseas acquisitions.
Crompton is expected to report an EPS of Rs 10.3 for FY08 and Rs 14.7 for FY09. Existing investors can hold the stock for a target price of Rs 380.
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Published by DalalStreet Business @ 11:08 PM IST.
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Shri Lakshmi Cotsyn - SBI Caps
Tuesday, February 19, 2008
SBI caps has initiated coverage on Shri Lakshmi Cotsyn Ltd [SLCL] with a BUY rating.
SLCL is a multiproduct company involved in the manufacturing of denim, terry towel, bottom weight, home furnishing, nylon and wearable apparels. SLCL is aggressively building capacity in the textile industry with a committed capex of Rs 457 crore in two phases in the last two years. SLCL has planned a CAPEX of Rs 310 crore in the current year.
SLCL is planning to enter into retailing through by opening around 500 retail outlets in 3 years through dealers and distribution network, franchise outlets and exclusive brand outlets.
SLCL is expected to benefit immensely from newer capacity foray into retail in JV with Armet Armoured vehicles UK. SBICaps expects the company to grow at 34% CAGR over the next 2 years. SLCL is trading at P/E of 5.4 and 3.5 for FY08 and FY09 earnings of Rs 26.04 and Rs 40.34. SBI Caps recommends a BUY on Shri Lakshmi Cotsyn with a Rs 242target price in 12 month trading at 5x FY09 earnings.
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Published by DalalStreet Business @ 1:53 PM IST.
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Amtek Auto + Bharat Forge - Edelweiss
Edelweiss had a site visit to Bharat Forge and Amtek Auto. Here is the key takeaway after talks with the management of both the companies.
Amtek Auto:
Amtek's Sanaswadi plant was commissioned in Q1FY08 with a machining capacity of 1 mn units, primarily for crankshafts. It also has a capacity for machining 50,000 units p.a. of front axle beams. A second shed is being made for the Amtek VCST JV that is 70% complete. Delivery of machining capacity for this JV is expected by March 2008; the JV's trial production is likely to start by June end.
There is a huge interest in auto component outsourcing by global OEMs due to slow auto growth in the developed economies and continuous pressure to reduce costs. India has already established its prowess as a high-quality manufacturing location for forgings and castings.
CMP of INR 307, the stock is currently trading at a P/E of 11.3x and 8.6x our fully diluted EPS of INR 27.2 and INR 35.7 for FY08E and FY09E, respectively. Edelweiss maintains a BUY on Amtek Auto.
Bharat Forge Ltd - BFL:
BFL is optimistic about the domestic commercial vehicle (CV) market and expects the CV demand to grow almost 10% in FY09E. In exports, its sales to the US CV sector (the company's key export market) declined ~40%. The company has, however, managed to offset this impact by moving into the US passenger car market and other geographies in Europe. It is expecting a revival in sales to the US CV market from Q3FY09E.
BFL is hopeful of improving operating margins of its overseas subsidiaries by 100bps, to ~9% over the next year, with efforts like product and process rationalization constantly underway at every plant. Over the next three years, the company is targeting subsidiary EBITDA margins of ~12%.
The company has also signed an MoU with National Thermal Power Corporation (NTPC) for investing in a new joint venture facility for manufacture of components for power plants. This is a 51:49 JV, investments and execution timelines for which are yet to be decided.
At CMP the stock is trading at a P/E of 17.5x and 14.3x our FY09 and FY10 EPS estimates of INR 15.5 and INR 18.9 respectively. Edelweiss maintains an ACCUMULATE recommendation on the stock.
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Published by DalalStreet Business @ 1:35 PM IST.
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Siemens Premium Unjustified - Reduce
Monday, February 18, 2008
Siemens India's Annual Report clearly highlights shift of revenue mix to project execution higher proportion of bought out items, also explain lower margins. Projects are being executed with high proportion of bought out components reflecting in lower margins that Siemens has reported in the y/e September 2007 (particularly in the power segment where execution of Qatar orders contributed to strong revenue growth).Siemens' annual report highlights that it maintains significant net sell position through forward contracts in US Dollar and Qatari Riyal to hedge its likely exports revenues in these two currencies. Significant exchange gains/losses are adjusted in other costs adding volatility to the reported operating margins in the core business.
Commissions its first power transformer factory with a capex of US$50 mn, may have revenue potential of about Rs6 bn. 1Q results highlighted sedate growth in power segment - margins expanded across segments.
Standalone revenue projection to Rs94 bn and Rs117 bn for y/e September 2008E and 2009E, respectively, from Rs105 bn and Rs132 bn earlier.EPS estimates to Rs46.5 and Rs61.4 for the y/e September 2008E and 2009E.
Investors holding the stock can REDUCE due to re-rating that will wipe off the premium that it currently commands. Low order book visibility with lower margins triggered this rating. Also Siemens India derives 20% of its revenues from IT/Software operations where USD is under tremendous pressure. 12 Month Target Rs 1,720.
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Published by DalalStreet Business @ 2:55 PM IST.
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Merill Lynch Investor Conference - Takeaway
Wednesday, February 13, 2008
DSP Merill Lynch a while ago concluded Investors conference in Mumbai. Key takeaway from the conference is as below.Asian Paints: Volume growth of 15% plus appears sustainable. Mix upgrade is supporting margin expansion in decoratives. Increasing focus on industrials to de-risk portfolio. Forecast FY08 EPS to grow 38.5% to Rs41.3. Valuations appear reasonable at P/E of 23xFY09E and 19xFY10E for a business with strong brand name, structural growth drivers and high ROE.
Axis Bank:Non-banking initiatives underway with PE (infrastructure) fund, AMC with offshore advisory focus and also wealth management focus for Indian diaspora besides expanding international presence. Axis bank is increasingly focusing on deriving its income from non-fund based sources (from 20% in FY04 to 34% in 9MFY08). This has so far been largely driven by retail banking and corporate banking, which over a period of time is also expected to be complemented by SME banking.
Biocon:Recently announced Axicorp acquisition in Germany for EUR30mn (includes US$15mn cash) is largely to gain access to distribution reach in German markets. Likely oral insulin out licensing deal in FY09. Biocon currently trades at 17.1x FY08E EPS and 13.1x FY09E EPS. Maintain Buy with a PO of Rs600 (upside potential of 50%+).
Dabur: New products would be a key focus area for FY09. A good hit rate should help accelerate topline growth in FY09. Distribution synergies from integration of foods should help offset higher gestation costs for new products. Dabur is on track to grow 20% in FY09. Excluding retail gestation costs, EPS growth should be stronger at 25% and the stock is trading at 20xFY09E, implying effective PEG of <1x.>DLF: DLF should trade 1.3x NAV due to ability of DLF to identify and purchase advantageously located land, strong probability of land accretions in Maharashtra with Nakheel and in Gurgaon for the SEZ and value creation in hospitality joint ventures. We maintain Buy with a PO of Rs1,160/share (based on 30% premium to our NAV of Rs890/share) implying an upside potential of 46%. DalalStreet .Biz Opinion: We do not think that DLF should command any premium and maintain a target price of Rs 900-950.
HDFC Bank: As the bank leverages from the investments made in the retail banking infrastructure over the last few years, the contribution of retail in bank's bottom line is likely to increase. Expect HDFC Standard Life's total premium income (APE including renewal premium) to grow at 40% CAGR over next five years to an estimated Rs225bn in 2013 (Rs43bn in FY08E). ML values HDFC Standard Life's Life insurance business at US$4.3bn in FY10E, on basis of a 23x multiple to its estimated NBAP of US$190mn (Rs7.6bn) for FY10E. Accordingly we arrive at a value of US$3.2bn for HDFC's 74% stake in the company, which translates into Rs457/share of HDFC.
DalalStreet .Biz Opinion: HDFC Bank is an excellent company to own. But the valuations at Rs 1,500 appear rich for a new investor to enter the stock. If you are holding, ride the boom. We do not recommend investors to enter the stock at Rs 1,500+ levels as the Sum of the Parts Valuation theory is over-optimistic.
Reliance Communication: highlighted that its cost per minute on GSM will be much lower than other operators due to shared use of a large part of its existing CDMA network. RCom is seriously working towards providing "converged" services. In addition to its wireless capex, the Co is spending aggressively on its non-wireless businesses. PO of Rs810/sh for Reliance Communication factors 1) ~Rs725/sh for RCom's core telecom biz supported by DCF & implying an EV/EBITDA of ~11x FY10E; 2) ~Rs70/sh for external tenants on RCom's tower subsidiary (RTIL) & 3) ~Rs15/sh towards land for which RCom has received SEZ approval.
DalalStreet .Biz Opinion: Don't factor the SEZ in RCom and hence we set a PO of Rs 795
Tata Steel: Acquisition synergies plus production cost improvements at Corus, should help offset higher raw material costs. Tata's stock price is already discounting Corus's lack of raw material integration, but it is ignoring the potential upsides from synergy benefits and continuous cost improvements at Corus. We believe valuation at P/E of 7xFY09E offers an attractive risk reward opportunity.
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Published by DalalStreet Business @ 10:36 PM IST.
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Kemrock Industries and Exports - SBI Caps
Tuesday, February 12, 2008
SBI Caps has initiated coverage on Kemrock Industries & Exports with a BUY rating. Kemrock is the world's most integrated and comprehensive thermoset reinforced polymer composite solution provider. Kemrock high technology profile has been acquired by mastering multi fold technology processes and the ability of its technocrat promoters.Kemrock has multifold processes - pultrusion, moulded, filament winding, centrifugal casting, pull winding, Resin Ttansfer Moulding and expanding process strategy in the
future - SMC, Vaccum assisted resin transfer moulding, VaccumBagging and Vaccuminfusion.
Kemrock specialize/use their own process technology (usually one type) and buy raw materials (resin, glass fibers, etc.) to make composites. Internationally, companies do not integrate backward to resin manufacture and do not have multi fold processes.
Kemrock's CAPEX,
FY08 - Rs 150 crore
FY09 - Rs 1,012 crore
FY10 - Rs 100 crore
The company's aggressive expansion plans will put the company amongst the top international competitors and improve profile via - Economy of scale benefit via multi processes. Various products and projects - capability to respond to
market needs.
Valuations and Recommendations:
Kemrock is expected to report a fully diluted EPS of Rs 42.3, 63.6 for FY08 and FY09 respectively. The Book Value Per Share is expected to be Rs 213 and Rs 592 at the end of FY08 and FY09.
The stock has corrected in the recent past. The stock is attractive at a P/E of 8.4x (FY09E). Rolling forward to FY10 EPS estimates, SBI Caps pegs the figure at Rs 176. We recommend really long term investors with a horizon of more than 24 months to make FRESH Purchase in Kemrock. Investors already holding the stock should also hold it for the next 18-24 months and then can consider booking profits.
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Published by DalalStreet Business @ 4:11 PM IST.
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Puravankara Projects - Lehman initiates coverage
Thursday, February 07, 2008
Lehman Brothers equity research has initiated coverage on Puravankara Projects with an OVERWEIGHT rating. Puravankara Projects Ltd (PPRO) is a high-quality real estate group exposed to the rapid economic growth of South Indian cities such as Bangalore,Chennai, and Kochi.Puravankara has a high-quality landbank of 107m sq ft, and most of it is close to the economic hubs of cities. Average cost of acquisition is only INR 97 psf.Strong in-house construction skills give the company an edge in execution since 60-70% of the space is developed in-house.
More than 80% of Puravankara's landbank is in two metro cities - Bangalore and Chennai. These areas are driven by the IT/ITES industry, which witnessed a CAGR of 35% over the past three years. possession. Almost the entire landbank has been fully paid for, with just INR 630m outstanding (6% of total cost). High clarity on title to the property is ensured as about 80% of the land is owned directly by Puravankara. Most of Puravankara's landbank in Bangalore is located within 20km of the centre of the city, which results in easy accessibility. A number of its projects in the south and east Bangalore are located close to the IT hubs of Electronic City and Whitefield.
Valuation of Purvankara:
The company is expected to report an EPS of Rs 9.5 for FY08 and Rs22 for FY09 on revenues of Rs 547 crore and Rs 1,175 crore. Valuing the existing landbank through the NAV route, primarily capturing the build-out of most of the landbank over 2008-2020.
NAV / Share Rs 454.
Terminal Value / Share Rs 77
Intermediate NA / Share Rs 79
Lehman has set a Target Price Rs 610 on Puravankara Projects
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Published by DalalStreet Business @ 9:20 PM IST.
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KEC International - Outperformer
Wednesday, February 06, 2008
KEC International reported a net profit of Rs526mn for the merged entity (inclusive of RPG transmission and NITEL) for the quarter, while the adjusted net profit (standalone KEC) was at Rs448mn (17% yoy), in line with our estimates. KEC's revenues grew by 8% yoy to Rs6.2bn, while margins expanded by 60bps to 14.7% yoy led by execution of higher margin orders and execution of value added component of contracts.
On a consolidated basis (inclusive of RPG transmission) KEC has an order backlog of Rs50bn.The pipeline of international orders is extremely robust mainly driven by huge capex in Middle East (led by firm oil prices - 30% of international order backlog) and African countries (led by multilateral agency funding - 20% of international order backlog).Operating margins improved by 60bps yoy to 14.7% in 3QFY08. The margin expansion was led by execution of
high value add contracts (lower tower sales) during the quarter. Moreover, the new orders are being booked (over the last 12 months) at higher margins (+100-150 bps) compared to the earlier orders, which further led to margin expansion during the quarter.
KEC international has announced the merger of RPG transmission and NITEL with itself. As per the merger ratios (based on the closing prices at the time of announcement of merger), RPG transmission has been valued at Rs4.1bn. On the other hand, NITEL has been valued at Rs2.8bn, which is fair considering the strong growth opportunity in the telecom tower business as well as the winning of USO fund projects for 384 cell sites (telecom towers).
For FY09 expect KEC to report an EPS between Rs 48 to Rs 49. HSBC has a stock target of Rs 870 while IDFC SSKI has set a target of Rs 890. One can hold the stock or accumulate at Rs 650 levels.
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Published by DalalStreet Business @ 2:35 PM IST.
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Motherson Sumi Systems - Accumulate
Sunday, February 03, 2008
Motherson Sumi's EBITDA margin declined as it scaled up operation in line with its key customer Hyundai Motor India’s upcoming new factory. Delay in commissioning of Hyundai's Motor's new factory in India from Oct 07 to Feb 08 has contributed to increase in staff and other expenditures and hence impacted Q3 FY08 margin.With Cehnnai shedding the image of IT capital to become the Detroit of India, expect more action in Automobile industry. Doubling of capacity at Hyundai India, which is facing severe capacity constraint, is likely to drive stronger revenue growth and margin expansion from Q4FY08 onwards.Motherson Sumi is also expected to see stronger growth in non-automotive business from Q1FY09 onwards as it had signed up new customers. Expect the company to report Rs621mn net profit in Q4FY08, implying a growth of 43%.
Motherson Sumi is expected to report an EPs of Rs 4.33 for Fy08 and Rs 5.46 in FY09. Accumulate the stock below Rs 81 for a price target of Rs 120.
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Published by DalalStreet Business @ 11:17 PM IST.
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