Stocks you can pick up this week

Indraprastha Gas
Research: India Infoline
Ratings: Buy
CMP: Rs 116 (Face Value Rs 10)
12-Month Price Target: Rs 162

Mandatory sources such as DTC buses, taxis and auto rickshaws, generate approximately 92% of the revenues for the CNG segment of Indraprastha Gas (IGL). The client profile is now broadening with private cars realising the advantages of CNG over petrol or diesel.

The increased awareness along with widespread infrastructure set up by IGL will translate into increased conversions of private vehicles. Recent statistics indicate that 2,000-2,500 conversions are happening every month. The company is likely to witness a CAGR of 12.8% in revenues from sale of CNG between FY06-FY09.

As only around 8% of CNG volumes arise from discretionary sources, the business risk with IGL is very low. Further, there is a strong visibility for revenue and profitability growth over the next few years as the mandatory sources cannot shift back to other fuels and the cost dynamics will continue to attract private cars towards conversion to CNG.

With features of pressurised natural gas (PNG) also making it an attractive fuel in comparison to LPG, the growth in PNG customers is sustainable. India Infoline feels that the stock can continue to trade at 12 times one year forward earnings or 6 times EV/EBIDTA. Assigning a P/E multiple of 12x to FY09 EPS of Rs13.6 our target price works out to Rs162.7 providing an upside of 42.6%.

Cadila Healthcare
Research: Angel Broking
Ratings: Buy
CMP: Rs 351 (Face Value Rs 5)
12-Month Price Target: Rs 430

Over the past three years the company has taken initiatives to enhance presence in the regulated markets. New product launches in Europe (France) and US, will aid the robust export growth.

During its first year of operations (FY2006), company grossed sales of Rs 50 crore, which is a good performance given that the company has been a late entrant in this region, in comparison to its peers.

Going forward, with a robust product pipeline (till date company has filed 41 ANDAs, with 24 pending approval, it is expected that the company would clock robust 53.3% CAGR during FY2007-09.

The company’s JV with Altana Pharmaceutical for contract manufacturing is currently the most profitable one in the Indian space. While earlier confined to one client, the company is diversifying its client risk.

During FY2006, the company entered into two 50% JVs, namely Mayne (Now Hospira for manufacturing of eight anti-cancer drugs) and Bharat Serums & Vaccines (for developing and manufacturing an NDDS anti-cancer drug). These JVs are likely to start contributing from FY2009. Currently, we have not factored in any upsides from the same.

Apart from these two JVs, till date the company has added 17 clients, having peak sales potential of $ 25.5 million. At current market price, the stock trades at 15.2 times FY2008E and 12 times FY2009E earnings, at a discount to its peers.

Poly Medicure
Research: Edelweiss
Ratings: Buy
CMP: Rs 153 (Face Value Rs 10)
12-Month Price Target: NA

The Indian medical disposables market is valued at ~Rs 2,000 crore and is growing at a CAGR of 18-20%, compared to the $40 billion global medical disposables industry, which has been growing at a CAGR of ~10%.

Hike in healthcare expenditure, opening up of new hospitals, and preference for private medical care has led to increase in demand for quality healthcare products. Poly Medicure (Poly) is augmenting its capacity by 47% to 190 million pieces by FY08.

The capacity expansion is being done through automation at the Faridabad plant and a new plant at Haridwar. This will not only boost revenues by 29% CAGR from FY06-09E, but also expand its product portfolio by addition of five-six new products. In an attempt to reduce costs, Poly Medicure is integrating backwards for production of needles, which are used in IV cannula and blood bags.

The needle capacity will be 100 million pieces p.a. This backward integration will not only lead to lower costs, but will also enable control over product quality. Edelweiss estimates Poly Medicure’s revenues and profits to grow at 29% CAGR respectively, between FY06 and FY09E.

At the current market price, the stock trades at 8.7 times FY07E EPS of Rs 15.6 and at 6.2 times FY08E EPS of Rs 22.1. With capacity expansion, entry in the US market, decent valuations and healthy return ratios, Edelweiss initiates a ‘BUY’ recommendation on the stock.

Subhash Project
Research: Prabhudas Lilladher
Ratings: Buy
CMP: Rs 252 (Face Value Rs 2)
12-Month Price Target: NA

Subhash Projects, started in 1981, is a pioneer in executing water-related projects in India. Even today it gets over 50% of its revenues from water projects (largely end-to-end turnkey). It is also a significant player in the power sector, which contributes about 40% of revenues. It gets its remaining 10% revenues from roads, environment etc.

Subhash Projects has an unexecuted order book of about Rs 2,600 crore and L1 status in Rs 800 crore worth of projects. Its order book to sales ratio of 4.4x (based on H1 annualised revenues).

The momentum of order flows remains quite strong with the company likely to bid for Rs 2,000 crore worth of projects in the coming weeks. The management expects the order book to stand at about Rs 4,000-4,500 crore by December next year. Prabhudas expect Subhash Projects to grow its revenues by 104%, 73% and 46% in FY07, ‘08 and ‘09 respectively.

The company also expects margins to improve leading to higher profit growth. PAT is likely to grow by 114%, 78% and 54% in FY07, ’08 and ‘09 respectively. Assuming a dilution of 8 million shares, Subhash is quoting at 11.6 times FY08 and 7.5 times FY09 earnings.