Bhel
Research: ASK Securities (June 18, '07)
Rating: Hold
CMP: Rs 1,440.2 (Face Value Rs 10)
Bhel had a strong outstanding order book of Rs 55,000 crore by the end of FY07, resulting in strong earnings visibility until FY09E. ASK Securities expects the order inflow and backlog to grow further on orders worth 31,000 mw, which are yet to be placed in FY08-09 for the 11th Plan period.
This is likely to help Bhel bag more orders worth Rs 50,000 crore in the power sector alone (Rs 29,000 crore in FY08E and Rs 21,000 crore in FY09E). Further, Bhel will continue to enjoy the legacy of 10% purchase preference up to March '08. Bhel's equipment are technologically superior to those supplied by its Chinese counterparts in the 100/110/125 mw segment. This keeps Bhel ahead of competition.
Also, capacity constraints have been alleviated due to swing capacities/enhancement from 6,000 mw/year to 10,000 mw/year in FY08E and 15,000 mw/year by FY10E. This positions Bhel to exploit impending growth opportunities. The stock trades at 22.9x FY08E EPS and 17.4x FY09E EPS. ASK Securities has advised investors to accumulate the stock below Rs 1,300.
ONGC
Research: Kotak Securities (June 18, '07)
Rating: Buy
CMP: Rs 908.7 (Face Value Rs 10)
ONGC has made several oil and gas discoveries in the domestic market, as well as abroad, over FY07. It added proven reserves of 65.6 million tonnes oil equivalents (MTOE) in contrast to production of 48.28 MTOE during FY07, resulting in a reserve replenishment ratio of 1.36:1.
The new discoveries of 18 MTOE at 5x EV/BOE (enterprise value/barrel oil equivalent) add $0.6 billion to the EV. The company's gas in-place reserves of 5-10 trillion cubic feet (tcf) in the Mahanadi basin will add $1.2 billion to the EV, once it's approved by the Director General of Hydrocarbons (DGH). With new discoveries in FY07, ONGC's proven reserves are expected to be close to 1,000 MTOE.
For FY08, ONGC is expected to clock higher production and realisation for oil and gas. However, ONGC's discount compared to its global peers has risen, due to increased subsidy burden in FY07 to 33% from 28% in FY06. At 30% gross under-recoveries, FY08 subsidy losses are expected to be $11.9/bl compared to $17.2/bl in FY07.
Hindustan Construction
Research: Motilal Oswal (June 11, '07)
Rating: Buy
CMP: Rs 114.6 (Face Value Rs 1)
HCC's FY07 performance was impacted by lower-than-expected revenues (Rs 2,360 crore versus expectations of Rs 2,500 crore), loss of Rs 71 crore on the Bandra-Worli Sealink, mismatch in terms of revenues and costs, and projects not crossing the margin recognition threshold.
As several hydro-power projects were awarded during FY06, they required quick mobilisation in terms of equipment and manpower, which in turn, increased operational, depreciation and interest costs. HCC's order book as in March '07 stood at Rs 9,310 crore, v/s Rs 9,670 crore during March '06.
It has submitted tenders for nine bids, valued at Rs 4,510 crore and plans to bid for 24 new projects worth Rs 17,900 crore in the near future. It has submitted pre-qualification bids for nine projects worth Rs 3,800 crore. Motilal Oswal expects HCC to report a net profit of Rs 100 crore for FY08 (up 77.3% YoY) and Rs 180 crore for FY09 (up 74.8% YoY).
Inox Leisure
Research: Edelweiss (June 18, '07)
Rating: Accumulate
CMP: Rs 131.7 (Face Value Rs 10)
Inox posted a 29.3% YoY growth in net revenues to Rs 33.2 crore in Q407. The growth was driven by an increase in the number of seats under operations. EBITDA margins declined on account of higher entertainment tax and lease rentals.
But, the decline in PAT margins was lower due to higher other income and lower interest expense. For FY07, net revenues grew 38.2% to Rs 140 crore, while PAT grew 41.3% to Rs 24.8 crore. During the quarter, Inox opened one multiplex each in Chennai and Jaipur. At the end of FY07, Inox had a total of 58 screens, including seven screens from the CCPL acquisition.
However, like other players in the multiplex and retail space, Inox is also facing considerable delays in setting up new multiplexes due to delay in handover of properties by developers. Against the expectation of 103 screens by the end of March '08, Inox is likely to set up 92 screens.
This figure is expected to rise to 127 screens by March '09. To factor in this delay, Edelweiss has revised the FY08 PAT estimates downwards to Rs 31.3 crore. It estimates that Inox will have EPS of Rs 5.1 and Rs 6.7 in FY08 and FY09, respectively. The stock trades at a P/E of 19.1x FY09E.
Ambuja Cement
Research: Enam Securities (June 19, '07)
Rating: Outperformer
CMP: Rs 113.4 (Face Value Rs 2)
Enam Securities has covered Ambuja Cements with an outperformer rating, stating Holcim's consolidation as a trigger for a further upswing in the share price. A 20% reduction in minority holdings of Ambuja boosts Holcim's earnings by 3%. Enam expects Ambuja to become a key element in the overall business growth of Holcim.
Ambuja Cements is cash-rich. This will support volume growth in future through brownfield expansion. It is also highly profitable on account of cost competitiveness and retail market focus. Enam expects Ambuja's cement volumes to rise from 16 million tonnes in FY06 to 20 million tonnes in FY08. Realisations are expected to increase from Rs 2,878 per tonne to Rs 3,021 per tonne.
Reliance Communications
Research: Citigroup (June 20, '07)
Rating: Buy
CMP: Rs 513.1 (Face Value Rs 5)
Reliance Communications is an integrated player and the second-largest player in the mobile segment. The company has an 80,000-km-long India-wide optic fibre network and owns the FLAG submarine cable network. It plans to launch IPTV and retail broadband in FY08. Citigroup recommends the scrip as it believes the company will be able to capture its due market share and profitability, which will be a recurring theme.
Despite lower revenue yields, the wireless business has maintained its returns. Most regulatory approvals are also in place and the company is yet to realise the benefit of full utilisation of its network infrastructure.
Reliance Communications' accelerated tower roll-out target (20,000 in FY08) — despite lack of clarity on GSM spectrum — could be due to growing realisation of the 'first mover' advantage in a nascent industry likely to be dominated by 1-2 mega tower companies. Hence, Citigroup has undertaken tower company valuation for Reliance Communications, estimated at $6 billion (Rs 60/share). The scrip trades at a P/E of 21.8x and 17x its FY08 and FY09 earnings, respectively.
Jet Airways
Research: ICICI Securities (June 19, '07)
Rating: Buy
CMP: Rs 810 (Face Value Rs 5)
ICICI Securities has revised Jet Airways' earnings upwards on the back of emerging clarity on the cost structure for US routes and alignment of aviation turbine fuel (ATF) price assumption with current price (corresponding to crude price of $68-70/bbl).
Also, the improving load factor trend is likely to boost international earnings on the back of increasing product acceptance. Jet will be the only private domestic operator to fly the Gulf route beginning CY08, when routes are opened to private airlines.
Further, with the culmination of two mega consolidations in the domestic circuit, ICICI Securities believes the sector will witness the return of pricing power. On EV/sales multiple and greater chances of an early turnaround, it finds that Jet's acquisition of Air Sahara (now JetLite) is relatively cheaper compared to Kingfisher's valuation of Air Deccan.
Research: ASK Securities (June 18, '07)
Rating: Hold
CMP: Rs 1,440.2 (Face Value Rs 10)
Bhel had a strong outstanding order book of Rs 55,000 crore by the end of FY07, resulting in strong earnings visibility until FY09E. ASK Securities expects the order inflow and backlog to grow further on orders worth 31,000 mw, which are yet to be placed in FY08-09 for the 11th Plan period.
This is likely to help Bhel bag more orders worth Rs 50,000 crore in the power sector alone (Rs 29,000 crore in FY08E and Rs 21,000 crore in FY09E). Further, Bhel will continue to enjoy the legacy of 10% purchase preference up to March '08. Bhel's equipment are technologically superior to those supplied by its Chinese counterparts in the 100/110/125 mw segment. This keeps Bhel ahead of competition.
Also, capacity constraints have been alleviated due to swing capacities/enhancement from 6,000 mw/year to 10,000 mw/year in FY08E and 15,000 mw/year by FY10E. This positions Bhel to exploit impending growth opportunities. The stock trades at 22.9x FY08E EPS and 17.4x FY09E EPS. ASK Securities has advised investors to accumulate the stock below Rs 1,300.
ONGC
Research: Kotak Securities (June 18, '07)
Rating: Buy
CMP: Rs 908.7 (Face Value Rs 10)
ONGC has made several oil and gas discoveries in the domestic market, as well as abroad, over FY07. It added proven reserves of 65.6 million tonnes oil equivalents (MTOE) in contrast to production of 48.28 MTOE during FY07, resulting in a reserve replenishment ratio of 1.36:1.
The new discoveries of 18 MTOE at 5x EV/BOE (enterprise value/barrel oil equivalent) add $0.6 billion to the EV. The company's gas in-place reserves of 5-10 trillion cubic feet (tcf) in the Mahanadi basin will add $1.2 billion to the EV, once it's approved by the Director General of Hydrocarbons (DGH). With new discoveries in FY07, ONGC's proven reserves are expected to be close to 1,000 MTOE.
For FY08, ONGC is expected to clock higher production and realisation for oil and gas. However, ONGC's discount compared to its global peers has risen, due to increased subsidy burden in FY07 to 33% from 28% in FY06. At 30% gross under-recoveries, FY08 subsidy losses are expected to be $11.9/bl compared to $17.2/bl in FY07.
Hindustan Construction
Research: Motilal Oswal (June 11, '07)
Rating: Buy
CMP: Rs 114.6 (Face Value Rs 1)
HCC's FY07 performance was impacted by lower-than-expected revenues (Rs 2,360 crore versus expectations of Rs 2,500 crore), loss of Rs 71 crore on the Bandra-Worli Sealink, mismatch in terms of revenues and costs, and projects not crossing the margin recognition threshold.
As several hydro-power projects were awarded during FY06, they required quick mobilisation in terms of equipment and manpower, which in turn, increased operational, depreciation and interest costs. HCC's order book as in March '07 stood at Rs 9,310 crore, v/s Rs 9,670 crore during March '06.
It has submitted tenders for nine bids, valued at Rs 4,510 crore and plans to bid for 24 new projects worth Rs 17,900 crore in the near future. It has submitted pre-qualification bids for nine projects worth Rs 3,800 crore. Motilal Oswal expects HCC to report a net profit of Rs 100 crore for FY08 (up 77.3% YoY) and Rs 180 crore for FY09 (up 74.8% YoY).
Inox Leisure
Research: Edelweiss (June 18, '07)
Rating: Accumulate
CMP: Rs 131.7 (Face Value Rs 10)
Inox posted a 29.3% YoY growth in net revenues to Rs 33.2 crore in Q407. The growth was driven by an increase in the number of seats under operations. EBITDA margins declined on account of higher entertainment tax and lease rentals.
But, the decline in PAT margins was lower due to higher other income and lower interest expense. For FY07, net revenues grew 38.2% to Rs 140 crore, while PAT grew 41.3% to Rs 24.8 crore. During the quarter, Inox opened one multiplex each in Chennai and Jaipur. At the end of FY07, Inox had a total of 58 screens, including seven screens from the CCPL acquisition.
However, like other players in the multiplex and retail space, Inox is also facing considerable delays in setting up new multiplexes due to delay in handover of properties by developers. Against the expectation of 103 screens by the end of March '08, Inox is likely to set up 92 screens.
This figure is expected to rise to 127 screens by March '09. To factor in this delay, Edelweiss has revised the FY08 PAT estimates downwards to Rs 31.3 crore. It estimates that Inox will have EPS of Rs 5.1 and Rs 6.7 in FY08 and FY09, respectively. The stock trades at a P/E of 19.1x FY09E.
Ambuja Cement
Research: Enam Securities (June 19, '07)
Rating: Outperformer
CMP: Rs 113.4 (Face Value Rs 2)
Enam Securities has covered Ambuja Cements with an outperformer rating, stating Holcim's consolidation as a trigger for a further upswing in the share price. A 20% reduction in minority holdings of Ambuja boosts Holcim's earnings by 3%. Enam expects Ambuja to become a key element in the overall business growth of Holcim.
Ambuja Cements is cash-rich. This will support volume growth in future through brownfield expansion. It is also highly profitable on account of cost competitiveness and retail market focus. Enam expects Ambuja's cement volumes to rise from 16 million tonnes in FY06 to 20 million tonnes in FY08. Realisations are expected to increase from Rs 2,878 per tonne to Rs 3,021 per tonne.
Reliance Communications
Research: Citigroup (June 20, '07)
Rating: Buy
CMP: Rs 513.1 (Face Value Rs 5)
Reliance Communications is an integrated player and the second-largest player in the mobile segment. The company has an 80,000-km-long India-wide optic fibre network and owns the FLAG submarine cable network. It plans to launch IPTV and retail broadband in FY08. Citigroup recommends the scrip as it believes the company will be able to capture its due market share and profitability, which will be a recurring theme.
Despite lower revenue yields, the wireless business has maintained its returns. Most regulatory approvals are also in place and the company is yet to realise the benefit of full utilisation of its network infrastructure.
Reliance Communications' accelerated tower roll-out target (20,000 in FY08) — despite lack of clarity on GSM spectrum — could be due to growing realisation of the 'first mover' advantage in a nascent industry likely to be dominated by 1-2 mega tower companies. Hence, Citigroup has undertaken tower company valuation for Reliance Communications, estimated at $6 billion (Rs 60/share). The scrip trades at a P/E of 21.8x and 17x its FY08 and FY09 earnings, respectively.
Jet Airways
Research: ICICI Securities (June 19, '07)
Rating: Buy
CMP: Rs 810 (Face Value Rs 5)
ICICI Securities has revised Jet Airways' earnings upwards on the back of emerging clarity on the cost structure for US routes and alignment of aviation turbine fuel (ATF) price assumption with current price (corresponding to crude price of $68-70/bbl).
Also, the improving load factor trend is likely to boost international earnings on the back of increasing product acceptance. Jet will be the only private domestic operator to fly the Gulf route beginning CY08, when routes are opened to private airlines.
Further, with the culmination of two mega consolidations in the domestic circuit, ICICI Securities believes the sector will witness the return of pricing power. On EV/sales multiple and greater chances of an early turnaround, it finds that Jet's acquisition of Air Sahara (now JetLite) is relatively cheaper compared to Kingfisher's valuation of Air Deccan.
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