PULSE TRACK
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Export growth back on track
STOCK UPDATE
Mahindra and Mahindra
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,050
Current market price: Rs848
Price target revised to Rs1,050
Key points
- We are revising our price target for Mahindra and Mahindra (M&M) from Rs870 to Rs1,050 considering the continuing strong growth in its core businesses (mainly tractor) and the recent run-up in the prices of its subsidiaries, particularly Tech Mahindra.
- The growth in M&M's core business continues and shall be further fuelled by new launches like Ingenio and Shaan. Further, the launch of its new passenger car Logan next year, is not only a positive for its domestic business, but also opens further export possibilities.
- M&M's subsidiaries have been performing splendidly in the recent times. Tech Mahindra delivered a strong performance in the last quarter. Its robust order book should further drive up valuations. The plans for Systech are also on track with the management planning to make it a US$1 billion company by FY2009.
- We maintain our Buy recommendation on the stock with a revised price target of Rs1,050. At the current market price of Rs848, the stock quotes at 12.7x its FY2008E consolidated earnings.
Marico
Cluster: Apple Green
Recommendation: Buy
Price target: Rs634
Current market price: Rs547
De-coding Egyptian market
Key points
- Marico has entered into a strategic alliance with Cairo-based Pyramids Group for the latter's Rs40-crore hair care brand, Hair Code. The Hair Code range includes hair creams, hair gels and gel creams. The brand has a market share of about 23% in the Rs170-crore pre- and post-wash hair care market in Egypt.
- With the acquisition of Hair Code, Marico will now have a dominant share (of about 50%) of the hair care market. It already has a strong presence in this market, thanks to its earlier acquisition of Fiancée.
- A back-of-the-envelope calculation shows that this deal will be earnings accretive, as it will add Rs0.1 or 0.6% to Marico's FY2007E earnings per share (EPS) and Rs0.5 or 2.2% to its FY2008E EPS.
- The stock is also trading at a price/earnings ratio (PER) of 21.8x FY2008E and enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 12.3x FY2008E. We continue to remain bullish on Marico and reiterate a Buy on the stock with a price target of Rs634.
SECTOR UPDATE
Information Technology
A technical snag
It is a tough quarter for the domestic information technology (IT) service companies. The performance in the third quarter would be severely dented by the double impact of lower number of working days and the appreciation of the rupee