Sharekhan - Investor's Eye

ITC 
Cluster: Apple Green
Recommendation: Buy 
Price target: Rs220
Current market price: Rs193

Price target revised to Rs220
We have been frequently mentioning that we like the way ITC has successfully channelised the strong cash flows generated from its cigarette business into new businesses of non-cigarette fast moving consumer goods (FMCG), hotels, paper and paperboard, and agri-products. Despite being capital intensive and having a long gestation period, all these businesses are highly profitable over a long period. We expect ITC's capital expenditure in these businesses to continue over the next couple of years. With timely investment in these businesses, we expect ITC's revenues to grow at a compounded annual growth rate (CAGR) of 17.3% over FY2006-08E. The company's net profit should grow at a CAGR of 22% over the same period. We are revising our price target to Rs220 based on the sum-of-parts valuation method, which discounts ITC's FY2008E earnings per share (EPS) by 25.6x. 

Infosys Technologies 
Cluster: Evergreen
Recommendation: Buy 
Price target: Rs3,325
Current market price: Rs2,882

Citigroup may divest stake in Progeon
According to a media report, Infosys Technologies could buy out Citigroup's stake in its business process outsourcing subsidiary, Progeon. The business is valued at around $600 million as per the news report. Thus, the Citigroup's stake of over 26% can fetch around $160 million. This amounts to astronomical returns for the Citigoup that had invested $20 million (or Rs93.8 crore) for 8,750,000 cumulative convertible preference shares (issued in two tranches of 4,375,000 each in June 2002 and March 2004). The preference shares were converted into 87.5 lakh equity shares in June 2005.