Buy Zee Entertainment; target of Rs 360: CLSA
Zee has renewed its focus on international markets where it licences its broadcasting rights. Although Zee broadcasts to over 120 countries, its key markets are Europe, the US, the Middle East and South Asia. Zee aims to improve its paid international reach – currently it is paid for 4.6m of the estimated 14.8m households that it reaches. Zee's renewed focus on improving its network distribution at home and abroad and its aim to be the leading generalentertainment channel provide upside potential to our 32% FY07-10CL earnings Cagr estimate. Maintain BUY.
Zee has renewed its focus on international markets where it licences its broadcasting rights. Although Zee broadcasts to over 120 countries, its key markets are Europe, the US, the Middle East and South Asia. Zee aims to improve its paid international reach – currently it is paid for 4.6m of the estimated 14.8m households that it reaches. Zee's renewed focus on improving its network distribution at home and abroad and its aim to be the leading generalentertainment channel provide upside potential to our 32% FY07-10CL earnings Cagr estimate. Maintain BUY.
Buy Tamilnadu Petro, target of Rs 28: ABN Amro
TPL is in advanced talks with a domestic investor who is willing to contribute up to 74% of the equity, based on which SEPC has written to Tuticorin Port Trust to restore the original land, expressing its willingness to pay the overdue lease rentals without arrears.
TPL has given a price breakout on a daily and weekly basis and the breakout has been accompanied with strong volumes signifying greater strength in the scrip.
CLSA bullish on Maruti Udyog; tgt Rs 980
CLSA has come out of a report on the Indian Auto market. The research firm has come up with a conclusion that a combination of lower penetration levels, improving affordability due to rising incomes and soaring aspiration levels point towards a higher volume growth trajectory for cars as compared to two-wheelers in coming years. CLSA has maintained positive view on four-wheelers as against the two-wheelers. Top pick of CLSA in the Indian auto sector remains Maruti on which they have recommended buy rating with target price of Rs 980.
Buy Ambuja Cement: UBS Investment
UBS Investment is bullish on Ambuja Cement and has maintained buy rating on the stock with target price of Rs 155.
Our price target is based on an EV/EBITDA multiple of 9x one-year forward – 10% lower than the current multiple. At our price target, Ambuja would trade at a PE multiple of 14.9x CY07E and 12.8x CY08E. Currently, GACM trades at EV/T of USD275 – a 60% premium to the Asian average.
UBS Investment is bullish on Ambuja Cement and has maintained buy rating on the stock with target price of Rs 155.
Our price target is based on an EV/EBITDA multiple of 9x one-year forward – 10% lower than the current multiple. At our price target, Ambuja would trade at a PE multiple of 14.9x CY07E and 12.8x CY08E. Currently, GACM trades at EV/T of USD275 – a 60% premium to the Asian average.
Hold Kirloskar Brothers with a target Rs 570: Emkay
We estimate FY08E and FY09E consolidated EPS at Rs 21.9 and Rs 30.7 respectively. With large scale of operation and fully integrated business model in infrastructure pumping space, we believe that KBL would continue to command premium valuation over its peers. The scrip discounts FY09E consolidated EPS (Rs 30.7) 16x. We are positive on the long term prospects of the company and give hold recommendation with the target price of Rs 570. At our target price the stock discounts 18.5x FY09E EPS.
We estimate FY08E and FY09E consolidated EPS at Rs 21.9 and Rs 30.7 respectively. With large scale of operation and fully integrated business model in infrastructure pumping space, we believe that KBL would continue to command premium valuation over its peers. The scrip discounts FY09E consolidated EPS (Rs 30.7) 16x. We are positive on the long term prospects of the company and give hold recommendation with the target price of Rs 570. At our target price the stock discounts 18.5x FY09E EPS.
HSBC underweight on ABB; target of Rs 1178
We have revised our EPS by 10.3% and 9.3% to INR25.2 and INR37.9 for 2007 and 2008 based on the change in revenue by 7% and 8% for the same period. We have also introduced the estimates for 2009. Our estimates are 11% and 13% higher than the consensus estimates for 2008 and 2009 respectively. Based on our new estimates (49% profit CAGR growth over 2006-09e), and roll over to June 2008, we have increased our target price to INR1178 (earlier INR853). ABB India is trading at 35.2x 1-year forward earnings. We feel that all the positive upsides (and also high expectation in terms of delivery) are captured in the current valuation. Hence, we are downgrading our rating to Underweight from Neutral. At our 12-month target price, ABB will be trading at 26x 1- year forward earnings. Key business risks are a slow down in the power sector reforms, rising competition, raw material prices, execution and manpower risk.
We have revised our EPS by 10.3% and 9.3% to INR25.2 and INR37.9 for 2007 and 2008 based on the change in revenue by 7% and 8% for the same period. We have also introduced the estimates for 2009. Our estimates are 11% and 13% higher than the consensus estimates for 2008 and 2009 respectively. Based on our new estimates (49% profit CAGR growth over 2006-09e), and roll over to June 2008, we have increased our target price to INR1178 (earlier INR853). ABB India is trading at 35.2x 1-year forward earnings. We feel that all the positive upsides (and also high expectation in terms of delivery) are captured in the current valuation. Hence, we are downgrading our rating to Underweight from Neutral. At our 12-month target price, ABB will be trading at 26x 1- year forward earnings. Key business risks are a slow down in the power sector reforms, rising competition, raw material prices, execution and manpower risk.
HSBC an underweight on MTNL; target of Rs 133
We are cutting our estimates to reflect the absence of core catalysts. We downgrade MTNL from Neutral to Underweight and reduce our DCF-based target price by 22% from INR171 to INR133. We cut our wireless revenue estimates by 10% and 15% for FY08e and FY09e and wire line estimates by 1% and 4% respectively to reflect spectrum constraints and falling LIS-fixed average revenue per user (ARPU). MTNL looks expensive compared to global and national peers with 15.2x 2009 PE, with a 10% decline in EPS, versus our implied 09 PE of 14x. We are cautious about the potential catalysts of spinning off real estate holdings and any potential merger with sister SOE BSNL. Political reform is a prerequisite for both and looks unlikely before elections in mid-2008.
We are cutting our estimates to reflect the absence of core catalysts. We downgrade MTNL from Neutral to Underweight and reduce our DCF-based target price by 22% from INR171 to INR133. We cut our wireless revenue estimates by 10% and 15% for FY08e and FY09e and wire line estimates by 1% and 4% respectively to reflect spectrum constraints and falling LIS-fixed average revenue per user (ARPU). MTNL looks expensive compared to global and national peers with 15.2x 2009 PE, with a 10% decline in EPS, versus our implied 09 PE of 14x. We are cautious about the potential catalysts of spinning off real estate holdings and any potential merger with sister SOE BSNL. Political reform is a prerequisite for both and looks unlikely before elections in mid-2008.
Buy ACC, target Rs 1300: UBS Investment
Over the longer term we believe ACC should be able to neutralise cost pressures due to enhanced captive power usage (from current c70% of total energy needed to 80-85% by CY2009). Logistics should improve further with completion of SAP implementation company-wide.
We value ACC on 1-year forward EV/EBITDA of 8.5x – in line with our valuation assumption for large cement companies. Over past 7 years ACC's EV/EBITDA has moved in a range of 5x to 15x. At our PT ACC would trade at PE of 13.5xCY08E (vs 13.2xCY07E today) and EV/T of USD201 (vs USD195 today).
Over the longer term we believe ACC should be able to neutralise cost pressures due to enhanced captive power usage (from current c70% of total energy needed to 80-85% by CY2009). Logistics should improve further with completion of SAP implementation company-wide.
We value ACC on 1-year forward EV/EBITDA of 8.5x – in line with our valuation assumption for large cement companies. Over past 7 years ACC's EV/EBITDA has moved in a range of 5x to 15x. At our PT ACC would trade at PE of 13.5xCY08E (vs 13.2xCY07E today) and EV/T of USD201 (vs USD195 today).
Pipe sector riding high on booming global demand - ICICI
Among pipe manufacturers, we prefer the companies that are diversified in terms of product offering, have higher RoNW and RoCE and whose stock is trading at a lower P/E multiple. Our picks are Jindal SAW, Man Industries, PSL and Maharashtra Seamless. Though Welspun Gujarat Stahl Rohren is also a diversified player, we perceive its equity dilution as a risk. Man Industries' capex is almost over and its capacity would have equal proportion of LSAW and HSAW pipes by December 2007. Jindal SAW is diversified in terms of product offering. Going forward, margins of Jindal SAW are likely to move up. Maharashtra Seamless offers a good long-term investment option with high RoNW of 27% and RoCE of 37% in FY09E. PSL is likely to move up with the demand of HSAW pipes, which is bullish in the short term.
Among pipe manufacturers, we prefer the companies that are diversified in terms of product offering, have higher RoNW and RoCE and whose stock is trading at a lower P/E multiple. Our picks are Jindal SAW, Man Industries, PSL and Maharashtra Seamless. Though Welspun Gujarat Stahl Rohren is also a diversified player, we perceive its equity dilution as a risk. Man Industries' capex is almost over and its capacity would have equal proportion of LSAW and HSAW pipes by December 2007. Jindal SAW is diversified in terms of product offering. Going forward, margins of Jindal SAW are likely to move up. Maharashtra Seamless offers a good long-term investment option with high RoNW of 27% and RoCE of 37% in FY09E. PSL is likely to move up with the demand of HSAW pipes, which is bullish in the short term.
Buy IVRCL, target Rs 473: Angel Broking
At Rs380, IVRCL's market cap works out to Rs4,928cr while its subsidiaries (IVR PUDL and HDO) would contribute Rs1,688cr and the BOT projects Rs378cr. Hence, IVRCL's market cap post adjusting for the subsidiaries and BOT projects works out to Rs2,862cr, which is 11x FY2009E Net Profit of Rs270cr. At these valuations, the stock trades at a discount to its peers HCC and NCC. Further, an experienced and competent management, high revenue visibility and good execution track record justifies our belief that the stock should be trading at par with its peers. We initiate coverage on the stock with a Buy recommendation and target price of Rs 473.
At Rs380, IVRCL's market cap works out to Rs4,928cr while its subsidiaries (IVR PUDL and HDO) would contribute Rs1,688cr and the BOT projects Rs378cr. Hence, IVRCL's market cap post adjusting for the subsidiaries and BOT projects works out to Rs2,862cr, which is 11x FY2009E Net Profit of Rs270cr. At these valuations, the stock trades at a discount to its peers HCC and NCC. Further, an experienced and competent management, high revenue visibility and good execution track record justifies our belief that the stock should be trading at par with its peers. We initiate coverage on the stock with a Buy recommendation and target price of Rs 473.
Buy Gayatri Projects: KJMC
At CMP of Rs 291.7, the stock is trading at a P/E of 12.5x on FY07 adjusted EPS. Considering the growth momentum, decent financial performance and future plans, we believe that GPL will generate decent returns for the shareholders riding on higher growth trajectory.
At CMP of Rs 291.7, the stock is trading at a P/E of 12.5x on FY07 adjusted EPS. Considering the growth momentum, decent financial performance and future plans, we believe that GPL will generate decent returns for the shareholders riding on higher growth trajectory.
Buy NDTV, target Rs 453: HDFC Securities
We expect news operations to report revenue CAGR of 23% for FY07- 09E. Earnings are expected to come into the green in FY08E, with profits of Rs.216 million, against a loss of Rs.147 million in FY07. We value news operations at 4x FY09E M-Cap/Sales and NDTV Networks at 70% of its pre-money capitalization value of D380 million. We maintain a 'Marketperformer' rating with a positive bias and a target price of Rs.453.
We expect news operations to report revenue CAGR of 23% for FY07- 09E. Earnings are expected to come into the green in FY08E, with profits of Rs.216 million, against a loss of Rs.147 million in FY07. We value news operations at 4x FY09E M-Cap/Sales and NDTV Networks at 70% of its pre-money capitalization value of D380 million. We maintain a 'Marketperformer' rating with a positive bias and a target price of Rs.453.
Buy Sterlite Industries, target Rs 949: Citigroup
Since April 2006, the stock has been substantially re-rated to a P/E range of 6- 8x due to the positive trends in all its three major businesses. We expect this rerating process to continue based on our robust outlook for zinc and steady profits in aluminium, with triggers coming from progress in acquiring the balance minority stakes from HZL and Balco. Our target price of Rs949 is arrived at by applying a P/E of 10x to FY09E earnings. This appears justified as Sterlite's earnings are substantially driven by zinc's robust outlook, and the sector re-rating following recent M&A activity. The stock has also crossed its 4- year average EV/EBITDA of 3.7x in the last few months, largely driven by zinc and lead prices. Based on our zinc outlook, we expect the EV/EBITDA upside to continue. At our target price, the stock would trade at an EV/EBITDA of 6.6x. We also examine the value for Sterlite using sum-of-the-parts by applying P/E ratios of 6x to 10x for FY09E for its various businesses. We also add to this value the book value of investments in Sterlite Energy at the end of FY09E. This method gives a value of Rs904 per share.
Since April 2006, the stock has been substantially re-rated to a P/E range of 6- 8x due to the positive trends in all its three major businesses. We expect this rerating process to continue based on our robust outlook for zinc and steady profits in aluminium, with triggers coming from progress in acquiring the balance minority stakes from HZL and Balco. Our target price of Rs949 is arrived at by applying a P/E of 10x to FY09E earnings. This appears justified as Sterlite's earnings are substantially driven by zinc's robust outlook, and the sector re-rating following recent M&A activity. The stock has also crossed its 4- year average EV/EBITDA of 3.7x in the last few months, largely driven by zinc and lead prices. Based on our zinc outlook, we expect the EV/EBITDA upside to continue. At our target price, the stock would trade at an EV/EBITDA of 6.6x. We also examine the value for Sterlite using sum-of-the-parts by applying P/E ratios of 6x to 10x for FY09E for its various businesses. We also add to this value the book value of investments in Sterlite Energy at the end of FY09E. This method gives a value of Rs904 per share.
Buy Cairn India, target Rs 184: ASK Securities
Based on CIL's successful track record in India, we are maintaining an upside potential of Rs73/share to its core asset value considering a higher recovery factor for the Rajasthan fields. This figure can go up significantly based on further reserve accretion due to new discoveries from other exploration blocks. Based on our revised fair value of Rs184 (core + other upsides), we are upgrading the stock to Buy, from Hold earlier; offering 17% upside from the current levels.
Based on CIL's successful track record in India, we are maintaining an upside potential of Rs73/share to its core asset value considering a higher recovery factor for the Rajasthan fields. This figure can go up significantly based on further reserve accretion due to new discoveries from other exploration blocks. Based on our revised fair value of Rs184 (core + other upsides), we are upgrading the stock to Buy, from Hold earlier; offering 17% upside from the current levels.
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