Hold Tata Communications - Indiabulls
Monday, March 31, 2008
Tata Communications Limited (TCL), in third quarter revived out of the sequential drop witnessed in Q2'08. The key highlights of the quarter were: 9.8% qoq increase in sales to Rs. 10.4 bn on the back of robust revenue growth of 31.7% of Enterprise and carrier data services. EBITDA rose marginally by 0.9% qoq to Rs. 1,535 mn due to a hike of 107 bps in operating costs and 58 bps in network costs. Enterprise and data services touched EBITDA margin of 91% for the first time.
Voice business continues to show disappointing performance due to pricing pressure and movement of voice traffic to captive networks like Bharti and RCom. As a result TCL's market shares in both National Long Distance (NLD) and International Long Distance (ILD) has declined to 19.6%. Enterprise & Carrier business holds the key as the sector is expected to grow at a CAGR of 30% for next four years driven by bandwidth demand from IT/ITeS companies in India.
At the current price of Rs. 528.1, the stock is trading at a forward P/E of 47.1x FY08E and 45.2x FY09E. TCL's Land at Rs. 190 per share and 15.61% stake in Tata Tele Services Ltd. (TTSL) at Rs. 135 per share. Based on the DCF valuation, Indiabulls has valued the core business at Rs. 132 per share. Sum-of-the-parts valuation of the stock suggests a target price of Rs. 520.
Read the full article
Published by Webmaster @ 1:22 PM IST.
,
Motilal Oswal Picks from Large + Mid Caps
Sunday, March 23, 2008
Here are the top picks from Motilal Oswal In large Cap, MidCap and Small Cap.
Large Cap:
Tata Steel: Banking on rising steel prices. Trading at EV/EBITDA of 4.4 and P/E of 5.8 for FY09.
Bharti Airtel:Undisputed leader in Indian wireless. Trading at EV/EBITDA 10.7 and a P/E of 19 for FY09 earnings.
HDFC: Value Unlocking proposition + lowest NPAs in the Industry and consistent profitability track record even in recessions.
Mid Caps:
Sintex Industries: Strong brand name benefiting from construction and urbanization. Stock trading at 17x on FY09 earnings. Warburg Pincus holds stake in this comnpany.
LIC Housing: Stock Trades at 1x FY09 earnings book value. P/E of 4.7 on FY09.
IVRCL: Available at P/E of 15x on FY09 and 11x on FY10E.
Read the full article
Published by Webmaster @ 5:33 PM IST.
,
Gujarat Ambuja Exports - Kotak
Tuesday, March 18, 2008
Kotak Sec has initiated coverage on Gujarat Ambuja Exports Ltd [GAEL] with a BUY rating.
GAEL used to sell its entire oil in bulk form to other people who were packing it in small quantities and sell it as their own brand. A couple of years back GAEL started doing 20% branded sales while the rest used to go as bulk sales. Today, the company has already achieved almost 65% branded sales.
The company's solvent extraction plant at Pithampur is the only plant which does not have facilities for refining oil. Thus, to bridge this gap to capture the entire value chain of refining, packing, and selling as branded product the company is setting up 200 TPD oil refinery at Pithampur. It is likely to incur a capex of Rs.150 mn
The prices of de-oiled cakes have been steadily going up. Current deals are happening at around $425 per MT, which recently were around $380 per MT. Last year, they were about $275 per MT.
Till last year the company used to procure almost 90% of its seeds from agents. However, now the company has got its license to procure it directly from mandis which results in 2% cost saving.
The company is in advanced stages of setting up a 500 TPD maize crushing capacity plant in Uttarakhand. The first phase of the plant with 300 TPD capacities has already commenced trial runs. The commercial operations are expected by first week of April 2008.
Financials
At Rs.42, the stock trades at 1.5x for FY08E, 1.2x FY09E to book value. It discounts FY08E and FY09E earnings at 6.4x, and 4.9x, respectively. Kotak recommends a BUY with a target price of Rs 85.
Read the full article
Published by Webmaster @ 1:18 PM IST.
,
HSBC Underweight on Indian Utilities
Monday, March 17, 2008
In a report by HSBC released just a while ago, they have reiterated their UNDERWEIGHT rating on Indian utilities. The report says, there is downside from current levels even after the recent correction. Execution delays, non-availability of fuel linkages and power evacuation yet to be discounted by the market.
NTPC:
Given NTPC's project execution skills and operational efficiency, we expect the company to earn more than the guaranteed returns. HSBC forecast earnings to increase at a CAGR of 19% over FY07-12 as its regulated power should grow exponentially in the next 5 years. Based on a terminal growth rate of 5.0% and nominal capital expenditure in the terminal year, HSBC's DCF valuation of the company is INR186 per share.
Tata Power:
Tata Power is planning to expand capacity to 12.8GW by FY14. The company has indicated 2,700MW group captive capacity to be developed for Tata Steel by its subsidiary Integrated Energy Ltd, where it holds a 74% stake. HSBC maintains target price at INR1198 (INR1190), which is the average of our two valuation methods: a DCF analysis of INR1559 (using a cost of equity of 12.7%, beta of 0.91 and a terminal growth rate of 5.0%) and a sum-of-the-parts valuation of INR837. Retain UNDERWEIGHT rating.
Reliance Energy:
Target price at INR639 per share, which is the average of our two valuation methods: a DCF analysis of INR653 (using a cost of equity of 13.1%, a terminal growth rate of 5.0%, and a beta of 0.95) and a sum-of-the-parts valuation of INR625. Target is equivalent to 14.3x FY08e earnings. Retain UNDERWEIGHT rating.
Read the full article
Published by Webmaster @ 3:26 PM IST.
,
Enam on Motherson Sumi Systems
Friday, March 14, 2008
ENAM Securities continues to rate Motherson Sumi Systems [MSSL] as an OUTPERFORMER but with realistic returns expectations. MSSL has dominated the domestic wiring harness market with a ~65% market share. Long standing relationships with most OEMs and backward integration for critical components will ensure MSSL's dominance. Increasing complexity of cars to leading to greater value addition, and higher realizations for MSSL.
Sumitomo wiring systems (SWS) has identified India as a "focused frontier" where they expect growth. India/ Sharjah likely to emerge as a significant sourcing base for Sumitomo over the next 3-4 years.
MSSL has invested significantly in Polymer & Rubber components (now accounts for ~35% of revenues) to increase its supply of "content per car". MSSL has built capabilities in design, tooling, testing and logistics to leverage this trend and now offers one-stop solutions. MSSL is globalising its operations - MSSL expects that> 50% of its customers by 2010 will be outside India, mainly in Europe.
Valuations:
Expect earnings to grow at a CAGR of ~36% through FY07 - FY10E through increased supply of "content per car". MSSL to trade at a premium to its peers on account of management track record and strong commitment of its partner - Sumitomo. Also we expect an increased contribution from new businesses by FY10. The stock trades at 16.6x and 12.2x FY09E and FY10E FDEPS of Rs 6.1 and Rs 8.3 respectively.
ENAM sets a Target price of Rs 125 is based on 15x FY10 EPS and we re-iterate sector Outperformer.
Read the full article
Published by Webmaster @ 3:55 PM IST.
,
Kotak Mahindra Bank Downgraded - Morgan
Monday, March 10, 2008
Kotak Mahindra Bank's heavy exposure to Capital markets for income has led it to a downgrade by Morgan Stanley. Market turnover in India is down 55% from peak levels. Kotak has multiple leverage to markets with both earnings and multiples, which are, dependent on the strength of the equity markets. Even now it is trading at 25x F2009E earnings (which could be revised down further if markets remain weak). Morgan expects 10% decline in F2009 earnings of Kotak Bank. On a YoY basis, it is still 59% above F2007 levels. [See price Chart above]. Morgan revises Kotak's earnings and multiples and rates it at UNDERWEIGHT and expects it to be an underperformer.
Kotak is expected to see a fall in FY2009 EPS to Rs 25.0 from Rs 27.1 for FY2008. Morgan Stanley sets a target price of Rs 450 on Kotak Bank.
Just before the sub-prime crisis, Deutsche bank came with a report on the Indian banking sector and had set a Target price of Rs 1,550 on Kotak Bank [Probably, a Bull Case]. However, with markets likely to move sideways to consolidate, Base Case estimates look relevant.
If you are holding to the stock, don't panic and SELL. Instead add below Rs 500 levels. Fresh exposure can be taken in HDFC Bank rather than Kotak, with a long term view.
Read the full article
Published by Webmaster @ 10:57 AM IST.
,
Exit Suzlon Energy - Citi
Thursday, March 06, 2008
Citigroup in a report released just minutes ago has pushed the "EXIT" button on the stock. Citi analyst underestimated the cost that Suzlon would have to pay in executing its strategy to become the top 3 WTG manufacturers in each market it operates and the pressures that it would put on management bandwidth in managing so many moving parts of a complex supply chain.Adding to Suzlon's woes are - (1) Supply delays, (2) tower shortages, (3) key component shortages, (4) negative forex movements, and (5) nacelle custom duty changes in the US.
Citi cut earnings to factor in retrofit program delaying shipment schedules in 4QFY08E and 1HFY09, lower incremental order wins and execution, provisions of Rs1.19bn in FY08E and higher incremental provisions for warranties & guarantees.
Suzlon is set a target price of Rs 241 at 20x its FY2009 earnings, a 24% discount to BHEL. Citi recently cut target price of BHEL to Rs 2529 from Rs 2,900.
Read the full article
Published by Webmaster @ 11:23 PM IST.
,
HSBC Downgrades TV18
Wednesday, March 05, 2008
HSBC in a report released just a while ago has downgraded Television Eighteen to Neutral from OVERWEIGHT. TV18 runs India's worst Business News Channel - CNBC TV18. Revenues have grown at a steady clip, expenses have grown in line. HSBC expected operating expenses to increase by 20% y-o-y but while staff costs and other production expenses have increased by 23% and 21% respectively, increase in marketing expenses by 373% has resulted in the overall expenditure increasing in line with revenues.More clarity is awaited on its venture with Jagran. Web 18, a subsidiary of TV 18 operates over 15 websites most of which are in the ramp up stage. Starts up expenses continue to depress profits and break even is expected next year.
The sum of the parts valuation is as follows,
Broadcasting Business Rs 332
17.5% stake in GBN Rs 33
70% stake in Web 18 Rs 97
HSBC downgraded the stock and has set a 12 month target price of Rs 462
Read the full article
Published by Webmaster @ 12:13 PM IST.
,
GlaxoSmithKline Pharma- Accumulate
Sunday, March 02, 2008
Morgan Stanley is bullish on the prospects of Glaxo Smithkline Pharma after the meeting with the management. GSK management team guided to early-single-digit sales growth in 2008 and 2009 (Morgan expcts 14-15% EPS growth) and re-iterated its business plan to launch new "exclusive" drugs in 2008. These launches have multi-year visibility, with Cervarix, in-licensed critical-care drug, allermist and Infanrix Hexa planned for 2009, and eltrombopag and synflorix planned for 2010.Simultaneously, the company has planned new initiatives to grow its matured portfolio - focus on hospitals and rural penetration, re-organization of field force and contract field force for non-promoted drugs.
In addition, the company is planning to launch other "non-exclusive" products (such as Welbutrin XR, Seretide) from parent’s portfolio. It has Rs14.7 billion in cash (Dec '07, 16% of market cap), which gives it significant leeway to fortify portfolio by brand acquisition.
Stock is trading at 18.5x C08 and 16x C09 EPSe. GSK's current valuations are at the lower end of its last 2-3 years’ trading history (see inside) in terms of forward P/E multiple (22-33x), PEG (1.5-3), and sector premium (at par with 40% premium). Morgan has set a price target of Rs 1,280.
If you are holding to the stock, you can continue to HOLD and one can accumulate at lower levels only.
Read the full article
Published by Webmaster @ 7:34 PM IST.
,
Budget 2009 - Sectoral Views
Saturday, March 01, 2008
We have covered some immediate views about the Budget here - Part-1, and Part-2.
We are now analyzing the impact of Budget-09 on each and every Individual Sector of the Indian Economy.
Automobile:
Overall Expected Budget Impact: Positive
Reduction in Cenvat to be applicable for Commercial vehicles (trucks, light vehicles) can be retained to absorb increase in raw material prices - Positive for Tata Motors and Ashok Leyland.
Reduction in Excise duty for small cars, two and three wheelers, buses and bus body chassis to be largely passed on, but could result in higher demand - Positive for Maruti, Bajaj Auto, TVS Motors and Hero Honda in that order
Banking Sector:
Overall Expected Budget Impact: Neutral.
Neutral / Positive: ICICI Bank, HDFC Ltd (due to abolition of DDT on holding co structures) Govt banks if govt bears loan waiver hit.
Cement:
Overall Budget Impact: Negative
Excise duty on bulk cement revised to 14% ad-valorem or Rs400/ton, whichever is higher. Earlier, bulk cement attracted a flat duty of Rs400/ton. Excise duty on clinker hiked to Rs450/ton versus Rs350/ton earlier.
Consumer Sector:
Overall Expected Budget Impact: Neutral
Excise on non filter cigarettes has increased 142% in the Plains category and 392% in the Micros category. Excise Duty on prepared foods obtained by swelling or roasting of cereals reduced from 16% to 8%.
Other consumer products - Reduction in excise duty from 16% to 14%.
Infrastructure sector:
Overall Expected Budget Impact: Positive
Stocks: BHEL, L&T, ABB, JPA, IVRC, NJCC, GMR Infra
Withdrawal of 4% additional customs duty exemption on non-mega power generation, transmission & distribution equipments. This would increase the protection to domestic power equipment producers such as BHEL v/s Chinese competition in non-mega (300 & 600MW sets) segment.
Offshore IT and BPO services:
Overall Expected Budget Impact: Positive for education; Higher offset business opportunity arising from increased defense spend; Neutral for generic IT services.
Stocks Affected: Educomp, Rolta, Infotech
Pharmaceuticals:
Overall Expected Budget Impact: Positive
Reduction in excise duty on all pharmaceuticals from 16 per cent to 8 per cent as well as total exemption from excise duty for the anti AIDS drug, Atazanavir.
Increase in budget allocation for polio elimination program (Rs10.42bn) and for AIDS control program (Rs9.93bn) which could be positive for companies like Panacea, Matrix, Ranbaxy, Cipla. Further allocation for the health sector has been increased by 15% to Rs165.3bn.
Grant of five year tax holiday to encourage hospitals to be set up anywhere in India, except certain notified areas in tier-2 and tier-3 towns (for period April 1, 2008 to March 31, 2013)
No Major Impact on Real Estate, Media, Metals and Minings and Oil-Gas Petroleum.
Read the full article
Published by Webmaster @ 1:15 AM IST.
,