Monday, July 03, 2006
Research: HSBC Global
CMP: Rs 1,130 (Face Value Rs 10)
12-Month Price Target: Rs 1,351
HDFC is among the rare Indian lenders that succeeded in preserving its spread in FY06. Lending rates were raised four times in the past six quarters. They will need to rise more if HDFC is to preserve its spread. Net interest margin (NIM) expanded for seven years while rates were falling to reach an estimated 296 bps for FY06.
HSBC forecasts assume that NIM could decline by 10 bps in the next three years. The fair value range is lowered to Rs 1,267-1,436 following revisions in the forecasts for growth, profitability and value of the associate businesses. The notional target price of Rs 1,351 includes Rs 336 per share for the associate businesses.
HSBC has upgraded the rating to 'overweight' from 'neutral' to reflect the 21% potential upside. Near-term triggers could arise from upward revision of lending rates and the passage of a resolution to increase the authorised capital to accommodate the possible conversion of convertible bonds, starting late August. Key risks are a larger rise in funding cost relative to loan yield and lower growth in capital gains.
Research: JM Morgan Stanley
CMP: Rs 1,108 (Face Value Rs 10)
12-Month Price Target: Rs 1,405
Apart from concerns regarding the subsidy burden and gas price decontrols, both of which are not in ONGC's hands, JM Moran Stanley believes the management is focusing on growth in an effort to enhance shareholders' value. It has also maintained its estimates and assigned 'overweight' rating to the stock.
The positive view on the stock is based on: (i) the expected growth rate of 8.7% per year of ONGC's production over FY06-8E; (ii) option value on gas, which is controlled by the government; (iii) ONGC's international acquisition strategy seems to be paying rich dividends; and (iv) attractive valuations.
ONGC has underperformed the market by 16.3% YTD, 3.89% in the last month and is the cheapest E&P stock in JM Morgan Stanley's Asian universe, trading at FY07E P/E of 8.1 times, dividend yield of 4.5%, EV/EBITDA of 3.5 times, an implied crude oil price of 29/bbl,and current EV/BOE of $4.73, which make valuations look attractive.
Research: Kotak Securities
CMP: Rs 122 (Face Value Rs 10)
12-Month Price Target: Rs 170
GHCL is one of the leading producers, as well as largest exporters of soda ash in India. The company is strengthening its position by adding capacity and has made overseas acquisitions. GHCL also has a presence in the textiles business and is expanding capacities in spinning, processing and weaving.
It has also set up a home textiles manufacturing unit at Vapi, Gujarat, and has acquired US textile major Dan River to gain access to the US home textiles market. Kotak Securities is positive on the growth prospects of GHCL and has recommended a 'buy' on the stock, with a 12-month price target of Rs 170, implying 60% upside from current level.
CMP: Rs 239 (Face Value Rs 10)
12-Month Price Target: NA
PSL revenues and profits for Q4FY06 were lower than expectations due to lower revenues from the pipe sales and lower margins due to higher proportion of pipe business booked during the quarter. Yearly revenues were higher by 4.3% due to higher volumes and realisation.
Going forward, Edelweiss is positive on order flows to pipe companies as the deadline for the companies to start production approaches. PSL will benefit from its low-cost and multi-location facility. Edelweiss believes that gas-producing companies like Reliance will have to take a decision on gas pipeline infrastructure before the end of FY07.
Moreover, increase in the recent gas reserves by Reliance will require more capacities in pipelines. Hence, Edelweiss maintains its FY07E and FY08E EPS numbers at Rs 20.7 and Rs 28.2 respectively. At the current market price, PSL trades at 11.1 times FY07E and 8.2 times FY08E EPS estimates.
Research: Religare Securities
CMP: Rs 153 (Face Value Rs 10)
12-Month Price Target: Rs 249
Mangalam Cement is expected to benefit from higher realisations and lower power cost due to commissioning of its power plant by June '07. This will result in expansion of margins. The cement industry grew at 11% during April '05-March '06. Religare expects demand to grow at 8-9% over the next couple of years, which will be in sync with the GDP growth of the country.
In the short term, stock inventory levels and pace of construction activities will drive prices. However, in the medium term, prices will be firm due to lack of fresh capacities and sustained demand growth.
At the current market price, the stock is trading at a P/E of 6.5 times FY06E, 5.6 times FY07E and 4.8 times FY08E earnings and EV/EBITDA of 5.5x FY06E, 4.7 times FY07E and 3.4 times FY08E.
EV/ton at $72 FY06E, $75 FY07E and $63 FY08E is below the industry average of $80. Factoring robust Q2 FY06 results, Religare has raised its profit estimates and consequently, raised the price target.
Andhra Pradesh Paper Mills
CMP: Rs 117 (Face Value Rs 10)
12-Month Price Target: Rs 224
Andhra Pradesh Paper Mills (APPM) posted 19.4% decline in net sales to Rs 96.5 crore, as expected. Revenues suffered on account of production loss (approx 12,000 mt) at the company's CP unit due to workers' strike, which lasted for 70 days during the quarter.
Nevertheless, EBITDA margins at 11.8% were higher by 140 bps (y-o-y) and lower by 230 bps (q-o-q). Due to higher other income, the company ended the quarter with 18.6% (y-o-y) growth in PAT to Rs 7.5 crore. For FY06, net sales remained flat at Rs 450 crore, while EBITDA margins improved by 60 bps to 14.1%, leading to 6% growth in PBT.
Due to higher share of other income, APPM's PAT increased by 38% to Rs 35 crore, resulting in EPS of Rs 14.7 for FY06. The company also recommended a dividend of Rs 2 per share. Emkay expects the company's net sales to grow at a CAGR of 23.3% and PAT at 38% by F08E. It has positive view on the company and recommends a 'buy' on the stock