Stocks you can pick up this week

Gail
CMP: RS 294
TARGET PRICE: RS 379

ASK Securities has rated Gail a ‘buy’ with a one-year price target of Rs 379. The recommendation is based on factors like doubling of pipeline capacity and a favourable supply environment. “Domestic natural gas supply scenario is expected to show a marked improvement over next 3-5 years as gas discoveries at KG basin by exploration majors Reliance Industries (RIL), GSPC and ONGC are likely to go on stream.

Gail has already entered into MoUs with RIL and ONGC for marketing and supply of natural gas,” notes the report. Further, the company has also announced a capex of Rs 180 billion to more than double its pipeline capacity.

According to the report, the new pipeline will lead to a cash flow of Rs 65/share to Gail's fair value, “making it an attractive long-term bet on the buoyant domestic gas sector”. However, on a different note, the report adds that there are some areas of concern in the form of subsidies, tariff regulation, delayed gas production and competition.

Amtek Auto
CMP: RS 422
TARGET PRICE: RS 510

Emkay Share and Stock Brokers has rated Amtek Auto a ‘buy’ after the company's acquisition of JL French Witham's assets for $35 million. The report notes that Amtek has acquired the foreign company at attractive valuations of 0.6 times sales and 5 times operating profit, and that “(JL French's) good existing customer base like Land Rover, Jaguar, Trellborg, Ford and PSA (Peugeot) in Europe would be served by AAL in near future”.

“JLF's assets would give AAL an incremental capacity of 20,000 MT to its existing aluminium foundry in Pune and the total installed capacity after addition of these lines would go up to 40,000 MT. Further, the company is sitting on a cash chest of Rs 13.5 billion (Rs 97 per share) that can be utilised for further inorganic growth and expansion opportunities,” the report added.

TNPL
CMP: RS 94.50
TARGET PRICE: RS 135

ICICI Direct has assigned an ‘outperformer’ rating to Tamil Nadu Newsprint and Paper (TNPL) after the company improved its operational efficiencies moderately during FY07. Despite raw material prices remaining firm, the company was able to improve its operating margins by 100 basis points. “Post the mill development programme, which is slated to come on stream by August 2007, we expect significant improvement in the margins in FY08,” says the report.

Meanwhile, the company has been shifting its revenue mix from lower-value products like newsprint to higher realisation products like copiers. “This strategy has benefited the company through increase in its average realisation by Rs 2,795 per tonne of paper,” the report adds. The company is also planning to foray into cement production and set up an IT park.

Welspun Gujarat
CMP: RS 178.60
TARGET PRICE: NA

Prabhudas Lilladher has rated Welspun Gujarat Stahl Rohren an ‘outperformer’ based on the company's growing order book and volume expansion. According to the brokerage, the company is gearing to meet the growing order book by capacity expansion at its Anjar plant coupled with backward integration by commissioning of 1 million tonnes per annum plate mill sometime in December 2007.

The company has an order book of Rs 4,000 crore as on April 1, 2007, to be executed over the next 12 months. “Almost 80% of orders are export orders, largely from the Middle East and USA. Domestic orders include those from Reliance Industries,” notes the report. The company has also entered into a 60:40 joint venture with the US-based Lone Star Technologies to set up 3,00,000 tonnes per annum saw pipe plant.

“This is a very good move, as it will give the foothold in highly lucrative US market,” says the report. Meanwhile, the plant is expected to start production by April 2008. However, the brokerage has also pointed out the fact that since about 80% of revenue comes from exports, rupee appreciation can have an adverse impact on the financials.