Brokerage Recomendations

Buy Alembic, target of Rs 95: Karvy

 

With majority of its revenue engines operating at full throttle driven by considerable ramp up expected in Contract Manufacturing, US and Contract Research, the company is all set to de-risk its revenue composition in terms of greater emphasis on exports segment. Even in the domestic segment acquisition of the non-oncology Dabur business will enable the company to shore up revenues in the fast growing chronic segment. With a revenue and earnings growth of 23% and 22.5% respectively in the period FY07-09E, we believe the company is a BUY with a price target of Rs 95 based 11.4x FY 2009E.

 

 

 

Buy Hindustan Dorr Oliver, tgt Rs 181; Kotak Sec

 

At the current price, HDO is trading at 21.8x and 14.1x FY08 and FY09 earnings estimate, respectively. On an EV/EBITDA basis, the stock is trading at 15x one-year forward. The balance sheet remains strong with low levels of leverage. We initiate buy with a price target of Rs.181 over one year timeframe. At our exit price, the stock will trade at 18.7x FY09 earnings.

 

 

 

Buy Cairn India; target of Rs 186: Merrill Lynch

 

The main potential share price drivers are further reserve accretion, acquisition by strategic investor and attractive 2010E PE and P/CF. Reserve accretion in the Rajasthan block is likely from three potential sources. Clarity on some of these is likely in 3Q 2007, 1Q 2008 and others in 2008-2009. The possibility of a strategic investor acquiring CIL has now improved. CIL is trading at 4.3-5.0x 2010E PE and P/CF. We expect attractive valuation to emerge as a share price driver from 2009.

 

 

 

HDFC a market outperformer: P Lilladher

 

The company has impressive return ratios. Its recent issue to Carlyle Group and Citigroup reduces the ROE to 24.1% in FY08E. However we believe, this is a temporary phenomenon and ROE will improve gradually in next two years. We believe HDFC will continue to grow its disbursements by 27% CAGR over FY07-09E with opportunities unfolding in the mortgage space.

 

HDFC's investment in other financial areas like life & general insurance, asset management and the real estate fund would be key value drivers in the times to come. All investments put together contribute Rs.826 per share.

 

 

 

Hold Tata Power: KJMC

 

At CMP of Rs.715, stock is trading at P/E of 20.3x on FY07 EPS of Rs.35.2. Tata Power Ltd. has outperformed Nifty since past6 months, giving a return of 44.25%. Considering the huge expansion plans envisaged by the company, combining with the robust financial performance, we believe that the company will continue to generate good returns for the shareholders and thus recommend a 'HOLD' on the stock from long-term growth perspective.

 

 

 

Morgan Stanley maintains equal-weight on HUL

 

Our target price of Rs 211 is based on a 15% discount to intrinsic value as we believe cost and competitive pressures will likely limit margin improvement. We retain our Equal-weight rating

 

 

 

M Stanley overweight on Reliance Capital

 

Implying 23% upside potential from current levels. RCAP is one of the fastest-growing player across its businesses – life insurance, general insurance, AMC, brokerage and distribution of financial products. We believe that it will be one of the top three players across these businesses in the next two to three years.

 

 

 

Buy Grasim Industries, target Rs 3745; UBS

 

We upgrade our earnings estimates (FY09E EPS: 329.67) and price target (to Rs3745 from Rs3535) primarily based on expected stronger volume growth in cements business (11% & 10% yoy in FY08/09) and improved price realisation in the VSF segment (Rs97-100/kg in FY08-09E). Even though costs are rising in both cement and VSF we believe strong pricing environment should enable Grasim to maintain margins in both businesses in medium term.

 

 

 

Buy Gateway Distriparks: CLSA

 

The delay in launch of container train service has eroded GDPL's RoE. Returns are likely to improve with commencement of train service by 4QFY08. This coupled with strong volume growth in container volumes should drive 19% earnings cagr over FY07-10. We believe at current levels the risk reward is favourable for investors.

 

Our 12mth target price is based on 17x FY09CL EPS. Gateway entered into an agreement with Punjab State Container & Warehousing Corporation Limited (CONWARE) to operate their facility at JNPT for 15 years starting from Feb 2007.

 

As per the agreement, Gateway has made an upfront payment of Rs350m and will pay quarterly fee of Rs25 million during the period of operation. As a result, although Conware will lead to volume growth in FY08, significant contribution to bottomline will be visible only by FY09.

 

Apart from the existing facilities, Gateway is expanding its presence in the northern hinterland by developing ICDs at Faridabad (66 acres) and Ludhiana (40acres). The company is also setting up a CFS at Kochi (20 acres).

 

 

 

Hotel Leela Venture an underperformer: CLSA

 

Leela is trading at 12.6x FY08CL, a discount of 25% to Indian Hotels. During FY08 any decline in rates in Bangalore would be cushioned by tariff increases in other cities. Further the Indian hotel industry has recently started the practice of single rupee tariff (earlier practice of a rupee and a USD tariff), which will help it to counteract the pressures from a strong rupee. While valuations appear attractive, earnings do not factor the economic costs of FCCBs of USD170 million and given the headwinds in Bangalore, we expect the stock to underperformer.

 

 

 

Buy Tata Motors, target 1029: Citigroup

 

Our 12-month target price of Rs1,029 is based on a sum-of-parts valuation methodology, which we believes captures the value embedded in subsidiaries and group holdings. Management has indicated its intent to unlock value, (to the benefit of Tamo's existing shareholders), for either / both HV Transmissions Ltd. and HV Axles Ltd., through an IPO or strategic sale to outside parties. We value Tata Motors' core business at Rs 827 / share, which is based on 9.2x FY08E EBITDA, at the lower end of the recent trading band, and which should be comfortably supported by a 25% CAGR in EBITDA over FY06-08E. Over the past fiscal, the EV / EBITDA multiple has ranged between 6.2-11.4x. We value the subsidiaries at Rs201 / share.

 

 

 

Buy L&T, target Rs 2765: Citigroup

 

Using a comps-based P/E of 26x FY09E, we get a core business value of Rs2,326 for L&T's core business. We also believe that the parent numbers do not capture the value inherent in the subsidiaries of L&T. We use a sum-of-the parts (SOTP) methodology to value the L&T group, resulting in a target price of Rs2,765. We value L&T's subsidiaries at Rs439 with L&T Infotech at Rs222 (16x FY09E EPS, in-line with second-tier peers) and L&T IDPL at Rs79 (a 20% premium to private equity valuations, because a number of projects will be commissioned over the next couple of years).