Stocks you can pick up this week

Marico
Research: India Infoline
Ratings: Outperformer
CMP: Rs 552 (Face Value Rs 10)
12-Month Price Target: NA

Marico has acquired a hair cream and hair gel brand – HairCode from Egypt’s Pyramids Group for an undisclosed consideration. The Pyramids group has agreed for a non-compete agreement in hair creams and hair gels segments with Marico. The brand enjoys ~23% market share of the pre- and post-wash hair care market in Egypt. In September ‘06, Marico had acquired a hair care brand called Fiancee, owned by the Ready Group of Egypt.

With both these acquisitions, Marico has now achieved a dominant market share of ~50% in the Rs1.7-bn pre- and post-wash hair care market in Egypt. Both these acquisitions are expected to contribute ~Rs 95 crore plus to Marico’s consolidated turnover in FY08.

Omax Auto
Research: Angel Broking
Ratings: Buy
CMP: Rs 86 (Face Value Rs 10)
12-Month Price Target: Rs 105

OMAX has been transforming itself from a strong player in the Indian auto component industry to a global manufacturer of sheet metal component. OMAX is aggressively targeting overseas market and has export orders of Rs 150 crore, which is to be executed in the next three years. The company secured orders from Tenneco, Supersporx, Lkea, Delphi, Cummins and Piaggio for supply of various components. OMAX’s export revenue is to grow at a CAGR of around 45% between FY06-FY09 from Rs 26.6 crore to Rs 80 crore.

It’s OPM was under pressure largely due to increase in raw material, power and staff costs. The margin is expected to expand further in the medium term on account of various cost control measures initiated by the company. At the current market price, the stock is trading at a P/E of 8.3x FY07E earning and 6.8x FY08E earnings. The stock has corrected very sharply in the recent past and appears very attractive at EV/EBIDTA of 4.4x and PEG ratio of 0.8 on FY07E earnings (less than 1 PEG ratio indicates that the stock is trading at a discount) and has potential upside of around 20%.

Asian Paints
Research: Edelweiss
Ratings: Buy
CMP: Rs 715 (Face Value Rs 10)
12-Month Price Target: NA

Asian Paints’ EBITDA margins to increase from 13.0% in FY06 to 14.7% in FY09 due to shift towards higher margin products, favourable raw material outlook, and operational leverage advantages. The recent decline in crude oil prices is likely to result in improved gross margins, as the impact of inflation has been already passed on through price hikes. The international operations, in which Asian Paints lacks pricing power, are expected to benefit more.

The product mix is expected to shift in favour of higher margin products such as emulsions and exterior paints, as they will grow at a higher rate. Operational leverage advantage from scaling up is expected to boost margins further. At the current market price, Asian Paints trades at 25.1 times FY07E earnings and 20.1 times FY08E earnings. EV/EBITDA for the stock is 14.8 and 11.9 times on FY07E and FY08E, respectively. An EPS growth of ~25% accompanied by ROE of ~30% makes it an attractive stock.

Deepak Fertilisers
Research: Anand Rathi
Ratings: Buy
CMP: Rs 87 (Face Value Rs 10)
12-Month Price Target: Rs 120

DFPL is the only domestic producer of isopropyl alcohol (IPA), which until recently was fully imported to cater to domestic demand. IPA will significantly add to the revenues and is likely to contribute around 20% of FY09 revenues. Real estate unlocking further de-risks the revenue model. DFPL has been fractionally unlocking large land bank it has at prime locations in Pune.

Ishanya, a specialty mall, is a unique venture by the company and will add some stability to its revenue base. Availability of gas is to ease raw-material pressures from FY08. Margins have been under pressure due to non availability of natural gas in required quantities, which is likely to ease post the completion of Dahej-Uran gas pipeline by H2FY08, leading to resurrection of margins enjoyed earlier. At the current market price, stock is trading at a P/E of 8.1x and 6.1x and EV/EBITDA of 3.8x and 2.8x FY07 and FY08 earnings respectively. Anand Rathi feels the fruits of the capex underway currently will be realised from FY08 onwards.

Raipur Alloys & Steel
Research: Networth Stock Broking
Ratings: Buy
CMP: Rs 133 (Face Value Rs 10)
12-Month Price Target: Rs 200

Raipur Alloys and Steel manufactures 2,10,000 MT of sponge iron and 1,40,000 MT of steel ingots with captive iron ore and power. It is undergoing a structural change with a merger of group companies. Moreover, aggressive plans for backward and forward integration will enhance operating margins going forward. At the current market price, the stock is trading at a P/E of 9.3x FY07E and 5.6x FY08E and EV/ EBITDA of 7.4x FY07E and 5.1x FY08E on a consolidated basis. Networth Stock Broking recommends a ‘Buy’ with a one-year price target of Rs.200, considering P/E of 8x and EV/EBITDA of 6.5x.


Omax Auto
Research: Angel Broking
Ratings: Buy
CMP: Rs 86 (Face Value Rs 10)
12-Month Price Target: Rs 105

OMAX has been transforming itself from a strong player in the Indian auto component industry to a global manufacturer of sheet metal component. OMAX is aggressively targeting overseas market and has export orders of Rs 150 crore, which is to be executed in the next three years. The company secured orders from Tenneco, Supersporx, Lkea, Delphi, Cummins and Piaggio for supply of various components. OMAX’s export revenue is to grow at a CAGR of around 45% between FY06-FY09 from Rs 26.6 crore to Rs 80 crore.

It’s OPM was under pressure largely due to increase in raw material, power and staff costs. The margin is expected to expand further in the medium term on account of various cost control measures initiated by the company. At the current market price, the stock is trading at a P/E of 8.3x FY07E earning and 6.8x FY08E earnings. The stock has corrected very sharply in the recent past and appears very attractive at EV/EBIDTA of 4.4x and PEG ratio of 0.8 on FY07E earnings (less than 1 PEG ratio indicates that the stock is trading at a discount) and has potential upside of around 20%.

NRB Bearings
Research: Buy
Ratings: ULJK Securities
CMP: Rs 493 (Face Value Rs 10)
12-Month Price Target: Rs 551

NRB Bearings with an 80% market share, growing at a CAGR of 18.15% in the last five years, is expected to grow further more on account of surging demand from OEMs and increase in exports. It is undertaking an expansion programme of Rs 100 crore, which is to be completed by end-‘07. It’s expanding its roller bearing segment from 2.045 crore to 2.615 crore, and needle roller from 272.9 crore to 350 crore.

NRB is also setting up a subsidiary company at Thailand for manufacturing activities, and to cater to the growing south-east Asian markets, which will all together help NRB to strenghthen its overseas presence. NRB also enjoys highest margins in the industry despite huge competition and price pressure, from peer companies and OEMs. The stock has a strong potential and to be an outperformer.

Asian Paints
Research: Edelweiss
Ratings: Buy
CMP: Rs 715 (Face Value Rs 10)
12-Month Price Target: NA

Asian Paints’ EBITDA margins to increase from 13.0% in FY06 to 14.7% in FY09 due to shift towards higher margin products, favourable raw material outlook, and operational leverage advantages. The recent decline in crude oil prices is likely to result in improved gross margins, as the impact of inflation has been already passed on through price hikes. The international operations, in which Asian Paints lacks pricing power, are expected to benefit more.

The product mix is expected to shift in favour of higher margin products such as emulsions and exterior paints, as they will grow at a higher rate. Operational leverage advantage from scaling up is expected to boost margins further. At the current market price, Asian Paints trades at 25.1 times FY07E earnings and 20.1 times FY08E earnings. EV/EBITDA for the stock is 14.8 and 11.9 times on FY07E and FY08E, respectively. An EPS growth of ~25% accompanied by ROE of ~30% makes it an attractive stock.