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Saturday, August 13, 2005

Sharekhan Special - Logon to Logistics


Log on to logistics

We believe companies like Container Corporation of India, Gateway Distriparks and Balmer Lawrie, three dominant players in the CFS and ICD business, are potential beneficiaries of the growth in the containerised cargo business. We are initiating coverage on all three companies and their respective earnings and valuation details are given in the following exhibit.


STOCK IDEA

Balmer Lawrie & Company
Cluster: Cannonball
Recommendation: Buy
Price target: Rs481
Current market price: Rs400

Taking long strides
Balmer Lawrie is a public sector undertaking (PSU) with a history spanning over 75 years. It has a diverse business portfolio, which spans both manufacturing and service businesses. But it is the company's service business that accounts for the dominant share (of 62.0%) of its revenue. Improved financial health and the robust performance of the logistic SBU are the key triggers for the re-rating of the stock. Balmer Lawrie's consolidated earnings will grow at a strong CAGR of 36.2% between FY2005 and FY2007, with consolidated earnings per share (EPS) of Rs47.3 in FY2007E. Considering the company's improving return ratios and strong earnings growth prospects, the stock is trading cheap at a price/earnings ratio (PER) of 8.5x FY2007E.


Container Corporation of India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,450
Current market price: Rs1,100

On fast track
Container Corporation of India (Concor) moves international containerised cargo from ports to its inland container terminals (ICDs) throughout India in wagons, which are transported via the rail network owned by the Indian Railways (IR). In the light of Concor's sustainable business model coupled with stable earnings growth and high earnings visibility, we believe the valuations are fairly attractive and provide decent upside from current levels.


Gateway Distriparks
Cluster: Cannonball
Recommendation: Buy
Price target: Rs240
Current market price: Rs190

Gateway to growth
Gateway Distriparks Ltd (GDL) is the largest private sector player in the business of port related logistic support and services. GDL's new facility (covering 50 acre of land) will commence operations in Q3FY2007 and will be fully operational in FY2008 (when JNPT is likely to commence its fourth terminal). The new facility could handle around 240,000TEUs per annum which will take GDL's TEU handling capacity to 560,000TEUs, ie 1.75x its FY2007 capacity. Hence with this kind of capacity in place GDL's growth trajectory is likely to maintain its upward momentum. We believe the stock's valuations are attractive and recommend a Buy on GDL with a price target of Rs240.

Sharekhan - Tata Tea


Tata Tea
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,040
Current market price: Rs789

Nicely brewed

  • Tata Tea Ltd (TTL) is transforming itself from just a bulk tea player to a branded/packaged tea player.
  • With various TTL brands acquiring strong recognition and respectable market share, we believe that the transformation strategy adopted by TTL is well on track.
  • TTL is further derisking its business model by exiting/restructuring its bulk tea manufacturing portfolio.
  • Though the transformation strategy is not reflected in the company's profit numbers, the company's profitability in the future will be driven by the better revenue mix, cost cutting and lower interest burden.
  • The derisked business model makes us believe that the stock's current valuation is cheap compared to that of its peers in the branded fast moving consumer goods (FMCG) business.
  • At the current market price of Rs789 the stock is trading at 13.2x its FY2007E earnings per share (EPS) and at 8.0x its FY2007E enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA). We recommend a Buy on the stock with a price target of Rs1,040

Indiainfoline - Capital Hotels & Developers


IndiaInfoline recommends BUY on Capital Hotels & Developers

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