3i Infotech
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs244
Current market price: Rs187
On an acquisition binge
3i Infotech has announced an agreement to acquire a 51% stake in the US-based Professional Access with an understanding to acquire the remaining 49% stake over a period of time. Professional Access specialises in the area of providing e-commerce services and solutions to leading banks and financial institutions globally. The company has an impressive customer base that includes reputed names like Goldman Sachs, JP Morgan and CitiBank. It also has presence in the retail vertical.
Jaiprakash Associates
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs800
Current market price: Rs666
Up on expressway
Key points
- The Uttar Pradesh (UP) state cabinet has cleared the Taj Expressway project without any changes and allotted the project to Jaiprakash Associates (JAL).
- JAL will construct a 165km 6-lane access control expressway between Agra and Noida at a cost of Rs6,000 crore. We expect that JAL is likely to fund the project at a debt-equity ratio of 3:1, which implies an equity funding of Rs1,500 crore for the project.
- The construction period will be 5-6 years depending on the land acquisition. The concession period will be for 36 years.
- Around 6,050 acres of land across five locations will be given to JAL by the UP state government on a 90-year lease as the project sweetener. Each location will have 1,200–1,250 acres of land.
- JAL already has 600 acres of land in its possession out of the total 1,200 acres of land to be allotted in Noida. The balance land is expected to be alloted to JAL in next 12-18 months. We believe that out of the 1,200 acres of land at Noida, JAL will sell 300 acres of land to raise the equity component of the project. Consequently, the residual value attributable to the equity shareholders would be from the balance 900 acres of land at Noida.
- We have valued the 900 acres of land at Rs5.5 crore/acre as per the last auction price in Noida, which was won by Unitech in June 2006. JAL’s expressway land at Noida is diagonally opposite this land that Unitech won. Hence, the minimum value of the land would be Rs4,950 crore or Rs210/share of JAL. This is only the value of the land at Noida. We have not valued the entire Taj Expressway project on account of unclarity of traffic projections.
- We have valued JAL on the sum-of-the-parts (SOTP) measure. Factoring in the value of the land at Noida at Rs210/share, the revised SOTP price target works out to Rs800 per share. With a strong order backlog of Rs7,200 crore coupled with the sharp rise in the prices of cement we expect JAL’s consolidated earnings to grow at a compounded annual growth rate (CAGR) of 30% over FY2006-08. At the current levels JAL is trading at 22x its FY2008 consolidated earnings and 10x its FY2008 consolidated earnings before interest, depreciation, tax and amortisation (EBIDTA). We maintain our Buy recommendation on the stock with a revised price target of Rs800.
SECTOR UPDATE
Telecom
Bharti rings the loudest
The upswing in the Indian wireless telephony service industry continues with the addition of a brilliant 6.6 million new users during October (a growth of 5.1% over October 2006). The total user base now stands at 133.1 million. The falling tariffs and lucrative offers by the service providers continue to attract new mobile customers. Both the GSM and the CDMA segment rendered strong performances in the month.
INDUSTRY UPDATE
Strong fund flows strengthen equity AUM
The assets under management (AUM) for equity funds increased by 4.9% to Rs127,943 crore in October 2006. The strong fund flows arising out of new fund offering (NFO) collections aided the equity AUM.
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