Alok Industries - Buy from Citi
Wednesday, April 30, 2008
Citi continues to retain a BUY recommendation on Alok Industries. 4QFY08 revenues grew 26% YoY with EBITDA growing 37% YoY on margin increase by 190bps to 24.9%. Recurring net profit excluding forex gain/loss (loss of Rs110m in 4QFY08) increased 24% YoY. For FY08, revenues increased 18% and net profit grew 22%, in-line with estimates. 4QFY08 exports grew 50% YoY to Rs3.9bn. In FY08 total exports grew 60% to Rs10.3bn accounting for 47.5% of total sales compared with 35% in FY07. Share of exports to USA has declined to ~34% in FY08 from ~50% in FY07.
Citi values Alok's 0.6m sq ft commercial space at Lower Parel and 183-acre textile SEZ at Silvassa at Rs25/share. New projects still to be factored in valuations include: 1) MOU with NTC for redevelopment of 2 mills at Mumbai and Aurangabad; 2) 50% JV for 7 acre commercial project at Nahur in Mumbai; 2) 50% JV for 100-acre integrated township at Vapi; 3) Acquisition of 220 acres at Velugam, Silvassa and 130 acres at Panvel (50% JV) for development of township/SEZ.
Alok Industries is expected to report a fully diluted EPS of Rs 12 for FY09. Citi has set a target price or Rs 121.
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Published by Webmaster @ 4:44 PM IST.
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Castrol - ABN Amro Overweight
Tuesday, April 29, 2008
Castrol's 1Q08 net profit of Rs728m (up 76% yoy and 28% qoq) was 45% higher than expected, mainly due to higher sales and lower-than-expected costs.Castrol managed to show exceptional performance on volumes and realisations. It reduced its inventory and debtor days to 37 and 24, respectively (from 46 and 34 the previous year). At the same time it increased its creditors days, thus managing negative working capital with a cash balance of Rs27 per share. Base oil margins have dropped to record lows, but the crude oil price doesn't show any signs of weakening.
Bike Zone Retail:
Castrol has launched more than 95 BikeZone retail outlets across 18 cities. It has adopted a strategy of building a strong model and testing it before rolling it out aggressively. Management has guided that it will be in a position to firm up its expansion plans prior to 2H08.
ABN Amro expects Castrol to deliver 2008 EPS of Rs21.5, representing growth of 21.6% yoy and ROE of 52%. Expect it to declare a dividend of Rs16 in 2008, resulting in a potential dividend yield of 5.8%. Buy with a target price of Rs 340.
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Published by Webmaster @ 10:23 PM IST.
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Hexaware + KPIT Cummins downgraded by Citi
Tier-II Software Companies, Hexaware Technologies and KPIT Cummins Infosystems have been downgraded by Citi to a SELL.
Hexaware:
Hexaware reported revenue of US$67m (exp. of US$69m). Lower SG&A spend led to net profit of Rs209m (exp. of Rs211m). Out of the last 5 quarters, headcount has declined in 3; even next quarter hiring outlook is muted - this does not inspire confidence on the outlook for rest of the year. New order booking during Q1 was US$42m (~US$70m in 4Q and US$270m+ in CY07).
Hexaware has guided to $310-315m revenue in CY08. Consensus estimates are ~15-20% higher than CIR estimates despite cuts over last few quarters. There is a clear risk to consensus estimates. Citi has reduced CY08/CY09 estimates by ~13% on account of: (1) Weak 1Q; (2) Impact of vendor, consolidation/lower IT spend by top few clients; (3) Weak order bookings; (4) No recovery in Peoplesoft related revenues; and (5) Challenging macro environment. Citi maintains a SELL with a target price of Rs 70.
KPIT Cummins Infosystems:
In its last quarterly conference call, management had indicated that it had forex hedges of ~US$20m for FY08 but did not mention these cross-currency hedges. The M2M loss of Rs893m is ~32% of company's net worth (as at the end of last quarter) and ~1.6x FY08E net profit.
Management has not yet finalized the accounting treatment for the loss. If M2M losses are accounted for in FY08 earnings, they may not materially impact future year's earnings. Management has indicated that it has not closed these transactions; hence, there could be potential upside/downside.
Citi is cutting our target P/E to 10x from 12x and downgrade the stock to Sell/High Risk with a price target of Rs 92.
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Published by Webmaster @ 12:37 PM IST.
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Buy Sesa Goa - Kotak
Monday, April 28, 2008
Sesa Goa managed by Anil Aggarwal of vedanta is India's largest private sector exporter of iron ore with mining activities in Goa, Karnataka and Orissa and also owns a prospecting license in Jharkand. Kotak has initiated coverage with a BUY recommendation ahead of the Bonus and Stock split.
Expect company to double the annual iron ore sales to 25MMT in next five years while rising 20% to 15MMT in FY09E from the 12.4MMT in FY08. Sesa Goa should be able to negotiate additional mining contract agreements in the coming years.World's largest iron ore producer, Brazil's Vale, has already secured 65-71 percent hike for its iron ore fines for the financial year FY08-09.
China steel industry led (~ 90% of global iron-ore trade demand growth) global iron-ore sea trade demand is expected to remain robust for coming few years. Constraint of significantly large supply is limited to the next two or three years, post which the number of large projects from all the three top mining giants would start coming online over late 2010-2013.
Kotak recommends a BUY rating with a 9-12 month target price of Rs.5335/share (offers 52% upside) based on 6x FY09E EV/EBITDA. Expected EPS for FY09 is Rs 531 and Rs 720 for FY10.
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Published by Webmaster @ 10:45 AM IST.
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Unity Infrastructure Projects - Religare
Thursday, April 24, 2008
Unity Infa has a strong track record spanning two decades with quality certifications in civil design and construction enable the company to pre-qualify and also garner repeat orders from large clients like the Maharashtra Municipality, Indiabulls, MIAL, Delhi Development Authority, and several state governments. The company has a healthy order book of Rs 25.6bn (3.3x FY08E sales) which is to be executed within 28-30 months, signifying strong revenue visibility. Orders largely comprise civil construction, irrigation, water supply and transportation projects, and are diversified across 12 states. Robust trend in order accretion to continue with company being the lowest (L1) bidder for civil engineering projects worth Rs 2bn.Foray into realty development through 100% owned subsidiary, Unity Realty Developers (URDL), which is likely to unlock value for shareholders in the long run. URDL currently has projects across 4mn sq ft in Nagpur, Goa and Pune, and is eying different locations to expand in this segment. Increasing capex on equipment will raise operating efficiency by reducing sub-contracting expenses and equipment hire charges. This efficiency will enable the company to sustain its operating margin above 13% in spite of increased raw material costs.
SOTP Valuation:
Rs 759 for the core construction business based on 9x FY10E EPS
Rs 128 for the three realty projects in Nagpur, Goa and Pune
Rs 10 for the Ulhasnagar BOT project
Religare recommends a BUY with a Target Price of Rs 890.
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Published by Webmaster @ 11:27 AM IST.
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Overweight on Jain Irrigation - Morgan Stanley
Wednesday, April 23, 2008
Micro Irrigation (MIS) growth continues to remain robust driven by strong demand and its current under-penetration as a percentage of total irrigated area in India. With central government focus on improving agriculture productivity, increasing number of state government driving MIS programs and geographical expansion by Jain Irrigation - JISL.
Jain irrigation had a good Q4 for FY08. JISL is well positioned as industry leader in MIS business and could benefit from high growth potential AP business in the long term. Expect the growth to remain strong and with estimated margin expansion over the next 2-3 years, earnings growth to lead revenue growth.
DalalStreet.Biz comment:
The stock appears to be little expensive at Rs 653 27x FY09 earnings. However MS has set a target price of Rs 789. Existing investors can hold and fresh postions maybe considered on correction.
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Published by Webmaster @ 1:04 PM IST.
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Sasken - More Challenges Ahead
Merill Lynch [ML] in a report has retained a Sell on Sasken despite strong Q4 given likely risk to FY09 guidance as macro environment amongst two of its segments - semiconductor and telecom OEMs (62% revs) - remains challenging and we see downside risk to management's margin target of 300-500bps improvement in margins.4Q revenues grew by 11% qoq, 7% ahead of MLe, driven by robust 103% yoy growth in product business. EBITDA margins improved by 772bps driven by 318bps improvement in services margins and 38% EBITDA margins in product business. FY09 revenue guidance as business flows remain lumpy, as reflected in FY08, where revenue and margins came in lower than guidance.
Valuation at 10x FY09E looks rich, compared to peers such as MphasiS, KPIT,
Tech Mahindra which are trading at 12x for higher visibility and return ratios. Sasken is expected to report an EPS of Rs 19 for FY09. ML retains a SELL though BUY-Back of shares may extend some relief in the short term.
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Published by Webmaster @ 12:55 PM IST.
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TCS Downgraded to Equal Weight
Tuesday, April 22, 2008
Morgan Stanley [MS] just a while ago has downgraded Tata Consultancy Services to Equal-Weight. While Credit Suisse already maintains a Neutral rating on the same.
Lower profitability of large deals and slower than expected ramp-ups could affect profitability over the coming quarter, in MS's view.
TCS reported lower-than-expected revenues and profits for March 08 quarter due to client specific delays in US and Chile. Revenues at Rs60.9 bn (+3% qoq, +18% yoy) were below our and consensus' estimates. EBIT at Rs13.9 bn (-3% qoq, +5.5% yoy) with EBIT margins at 22.8% (-136bps qoq, -279bps yoy) were below estimates. Net profit at Rs12.6 bn (-5.6% qoq, +7% yoy) was below Street expectations.
TCS's performance has been below peers' in times of weak environment. This could lead to weaker-than-peers' growth in FY3/09, which could limit absolute performance. TCS's high exposure to financial services was a cause of concern to us, as weak credit conditions led to pressure on financial institutions.
MS Expects TCS to report an EPS of Rs 58.4 for FY09 and Rs 65.5 for FY10 and has set a 12 month price target of Rs 1,080. Credit Suisse has set a target price of Rs 1,050 on EPS forecast of Rs 59.5.
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Published by Webmaster @ 12:51 PM IST.
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Tata Chemicals + Zurai Industries - HDFC Sec
Monday, April 21, 2008
Tata Chemicals:TCL's fertilizer business, which comprises urea (32% of fertilizer revenues) and complex fertilizers (68%), should benefit from favourable policy pronouncements. The latest $1 bn acquisition of a 100% stake in GCIP at 2.4x EV/Sales and 7.6x EV/Ebitda is definitely much more competitive than its earlier acquisition of Brunner Mond at similar valuations. Spot prices of Phosphoric acid are hovering around $1400/Mt against IMACID's contracted price of $566/Mt, which are due for renewal later this month. The profits for IMACID to rise by 30% & 22% in FY09E and FY10E mainly led by firm prices and increase in capacity from 0.36 Mtpa to 0.45 Mtpa. Led by firm soda ash prices and repaying of high cost debt, we expect adjusted profits for BMGL to rise by 57% and 35% in FY09E and FY10E.TCL being more leveraged to soda ash and given the firm outlook on soda ash prices over the next 2 years we expect it to benefit the most.On FY09E valuation TCL trades at 8.3x PER, 5.6x EV/Ebitda & 1.4x EV/Sales. HDFC maintains a BUY with a price target of Rs 444.
Zuari Industries Ltd:Zuari Industries Ltd (Zuari) is a major player in phosphatics fertilisers. We expect the fertiliser division's operating margins to expand by about 90bps to 4.8% in FY09E. It has a number of investments in non-fertilizers business (about 7% of revenues), where the earnings are expected to grow by 74% during FY07-09E.
Paradeep Phosphate is expected to account for 35% of consolidated profits in FY08E. The accounts for PPL are closely held and we did not have access to their Q3FY08 numbers. (Stake holders: 20% Govt of India, 40% Zuari & 40% OCP, Morocco).
While the development on centre scrapping the SEZ proposal could be sentimentally negative, it doesn't affect earnings estimate. An excellent 38% CAGR in profits, undemanding valuations at 3.1x FY09E and 0.4x EV/Sales FY09E. Buy with a target price of Rs 520.
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Published by Webmaster @ 2:16 PM IST.
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Wipro results inline - Citi, Kotak
Wipro's results for Q4FY08 were in line with expectations. Global IT services & products revenues grew 6% in INR terms. This was mostly volume-led.EBIDTA margins in the global IT business were lower predominantly due to on-site salary hikes. The management has re-iterated continuing traction with marginal impact of the US sub-prime issue, as yet. This indicates flat to marginally higher client budgets but increasing traction and preference for offshoring.The current uncertainties relating to budget allocations will keep near term
growth muted but expect growth to pick up in H2FY09. Kotak expects PAT to grow to about Rs.39.5 bn in FY09; an EPS of about Rs.27. The rupee has been assumed to appreciate to Rs.38.50 per US dollar by FY09 end. Kotak recommends a BUY on Wipro with a price target of Rs.522,implying a P/E of 19.5x on our FY09E earnings estimates.
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Published by Webmaster @ 12:44 PM IST.
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JP Morgan neutral on Aztecsoft
Saturday, April 19, 2008
Revenues grew 8% Q/Q in US$ terms with a 4.6% Q/Q increase in EBITDA margins from a low base in 3Q FY08. However, Aztecsoft reported a foreign exchange loss of Rs42MM during the quarter leading to net profit of Rs32MM, below our expectations.
Management indicated a 25-28% Y/Y US$ revenue growth in FY09 led by a strong rampup in newly added clients. JP Morgan revenue estimates in line with management guidance, and now expect a 25% revenue CAGR over FY08-FY10E as against 30% earlier.On margins, expect better EBITDA margins of 14-15% leading to an EPS CAGR of 32% over FY08-FY10E (an increase of 8-9% in FY09/FY10E).
JPM has set a DCF-based Dec-08 price target at Rs70. Aztecsoft Tech is expected to report an EPS of Rs 6.6 in FY2009.
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Published by Webmaster @ 11:48 AM IST.
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HCL Technologies - In-Line 3Q Numbers
Tuesday, April 15, 2008
HCL Tech reported Q3 revenues of $485m (+5.2% qoq; our exp: $488m). EBITDA margins expanded ~90 bps (our exp: flat margins). Net profits at Rs3.2b came in higher than our expectation of Rs3b.IT services revenues increased 6.5% qoq - good performance in challenging times. BPO had another sluggish quarter – with revenue growth of ~2% sequentially. Infrastructure services revenues were affected due to hardware related revenues declining 26% qoq; services revenues increased ~11.5% qoq.
Headcount declined marginally in IT services; management indicated that it was due to strong hiring at the end of Q2. However, management maintained its guidance of 35% yoy growth - implying only ~3% revenue growth in Q4.
Even though Citi maintains a BUY with a target price of Rs 340 and an EPS of Rs 18.02 and Rs 20 for FY08 and 09, we are don't recommend the scrip and ask investors to stay invested in Capital Goods Sector and other Growth Stories.
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Published by Webmaster @ 2:59 PM IST.
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Lehman Upgrades HDFC to Overweight
Friday, April 11, 2008
Struggling American FII, Lehman Brothers Equity Research has upgraded Asia's best housing finance company HDFC to Overweight from Equal weight. Lehman in the note said, Because of its highly stable business model, HDFC has historically been a good opportunity in times of heightened risk perception. This will continue to be the case this time as well. However, in the past two weeks, the stock has corrected by 13%, which we believe provides an attractive entry opportunity.
The stock has historically been an outperformer during periods of market corrections. The stock's premium to the market is now at historical lows, providing an attractive entry opportunity. HDFC will continue to report 25% growth in disbursements in spite of current weakness in the mortgage market.
HDFC is expected to report an EPS of Rs 72.9 for FY09 and Rs 91 for F2010. Lehman has set a target price of Rs 2,900.
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Published by Webmaster @ 2:45 PM IST.
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Citi's coverage on GMR + GVK
Thursday, April 10, 2008
Citigroup in a report releases just a while ago is placing its bet on GMR Infrastructure and GVK Power and Infrastructure.
GMR Infrastructure:
GMR is one of the leading infrastructure developers in India with a portfolio of assets including three airports (Hyderabad, Delhi and Sabiha Gokcen International Airport in Turkey), 11 power plants, and six roads. Citi estimate airports and related real estate comprise 47% of GMR's value, other real estate 19%, power plants 18%, and roads 5%. GMR also has ~$1bn cash.
GMR's earnings is expected to grow at 51% CAGR over FY08E-11E on the back of a 37% growth in revenues. The company is expected to report an EPS of Rs 2.2. However Citi is valuing the scrip on the basis of SOTP and arrives at a figure of Rs 93 / share from Airports and other Construction operations + Assets under development and poer projects contribute Rs 72 / share while cash on books contribute Rs 22 / share thus leading to a target price of Rs 187.
GVK Power and Infrastructure
GVKPIL is one of the leading infrastructure developers in India with a portfolio of assets including the Mumbai Airport, Jaipur-Kishengarh Expressway, six power plants, one coal mine and one SEZ.
Mumbai Airport is the busiest in India, handling over 22% of India's air traffic. With upside from aero revenues limited, non-aero revenues and real estate development of 20mn sqft are key value drivers for the airport.
GVK intends to upfront a portion of the real estate rentals on airport land in the form of deposits to fund airport capex. A similar structure at the Delhi Airport has come under some debate as AAI would lose revenue share on deposits. While it is still unclear as to what structure will be adopted, we assume that GVK would take 25% in the form of upfront deposits in line with our assumption for GMR.
Citi initiates coverage with a Buy / Medium Risk (1M) rating and a target price of Rs56. Post the ~54% correction from the peak, the stock offers an upside of 44% from current levels to our target price. Citi estimate Mumbai Airport forms 48% of value, power plants 23%, roads 14% and others 16%.
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Published by Webmaster @ 12:03 PM IST.
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Mcleod Russel India - Cheapest Agri Stock
Monday, April 07, 2008
McLeod Russel is the largest bulk tea producer in the world. Tea prices are on an upward run and McLeod offers an excellent leverage given its scale and high fixed operating costs. McLeod's EPS is expected to grow 5x over FY08-10 on surge in tea prices.
Tea prices likely to surge as supplies tighten. We expect tea prices to rise 24% over FY08-10 following a production slump in Kenya in Jan-March'08 and low pipeline stocks in India. Perhaps the best stock to play the tea price rise McLeod accounts for 8% of India's tea production. It has among the best quality tea gardens in the world located in Assam - known for its high quality tea. It has very high operating leverage - a 1% change in tea price impacts FY09 EPS by 6.6%.
Tea prices, wage cost, stronger Re The stock is trading at an imputed PE of 6.4x FY09E and 4.3x FY10E adjusting for market value of treasury shares - 25% of shares capital. This is a substantial discount to global food commodity / plantation companies and Indian sugar stocks trading in the range of 10-15x 1-yr fwd PER Target Price of Rs 120 is based on 7.5x FY10E imputed PER adjusting for the market value of treasury stock.
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Published by Webmaster @ 11:53 AM IST.
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Anand Rathi - Quick Pick Bartronics
Thursday, April 03, 2008
Bartronics India Ltd - BIL offers tailor-made AIDC [automatic identification and data collection] and RFID(radio frequency Identification)-based systems. The company also provides business and technology strategy, systems design and architecture, applications implementation, network and systems integration in this field. The US subsidiary of the company has recently got a US Patent for - non-reusable RF based temper proof Wrist Band; which can be used as Identity proof as well as for cashless payment. This product will have wide ranging applications. The market for RFID tags is growing fast and will grow from $1.5 bn in 2005 to $6.1 bn in 2010. The AIDC or smart cards will also grow to around 150 million units soon, growing at a CAGR of around 45%. In the first phase of expansion plan a new state-of-the-art Smartcards Manufacturing facility has been set up near Hyderabad. The 80 million cards per annum facility is one of the largest facilities for manufacture of smart cards in South Asia, where production started from July'07. The second phase is a backward integration project, where the Company intends manufacturing chip modules required for the production of smart cards, which is likely to go on stream in July'08.
One can buy the stock with stop loss of Rs 140 and look for a reversal in trend. If prices turn up then in short to medium term one can look for target of Rs 180 and on crossing that it may even touch Rs 210.
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Published by Webmaster @ 3:07 PM IST.
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Buy Viceroy Hotels - ICICI
Wednesday, April 02, 2008
Viceroy Hotels, which currently owns a single property in Hyderabad, Hyderabad Marriott, plans to quadruple its room count from the current 355 to 1,405, by FY10. Apart from increasing its room base in Hyderabad, it also plans to expand its reach to Chennai and Bangalore under the Marriott brand.
Having established four strong brands under two of its wholly-owned subsidiaries, Viceroy Hotels plans to expand its F&B (Food & Beverage) business to more cities. It currently operates 11 outlets which it plans to increase to 19 by FY09E and further to 35 by FY10E. We believe this aggressive expansion in the F&B space would be earnings accretive.
Viceroy Hotels has followed a strategy of keeping its ARR (average room rate) competitive and sustained improvement in occupancy levels year-on year. We expect the hotel to boost operating margins in FY08 to 31% and further to 35.2% in FY09 on the back of strong ARRs and firm occupancy levels on a higher room base.
The hotel appeals with its robust business with sales growth expected at 56% with bottom line surging at 49% during FY07-10E. ICICI rates the stock an OUTPERFORMER and we arrive at a price target of Rs 116 through a DCF valuation. Expected EPS for FY09 is Rs 3.5 and for FY10 is Rs 9.15.
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Published by Webmaster @ 2:18 PM IST.
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Citi doawngrades Jaiprakash Associates
Tuesday, April 01, 2008
Citigroup research has cut the target price estimate for Jaiprakash Associates. After a 50%-plus correction, the stock is close to stress-case value of Rs196. Indeed this is a very bold and conservative move because Citi values JP Associates on business valuations and not private-equity valuations, which is evident from the fact that we value (1) Jaypee Power Ventures at a ~60% discount to P/E valuations, and (2) Jaypee Infratech at a ~37% discount to P/E valuations.
The new target price of Rs300, down from Rs462 factors in - an EV/EBITDA of 12.0x (16.0x previously) for Construction; an EV/ton of US$120 (US$160 earlier) for Cement; Jaypee Power at a 60% discount to P/E valuations as we no longer value projects in the initial planning stages; and a 14% cut in realizations/sq ft for Jaypee Infratech.
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Published by Webmaster @ 4:21 PM IST.
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