Analysts' Corner

Welspun India Target price: NA Reco price: Rs 60 Current price: Rs 61.85 Broking firm: IL&FS

Welspun India reported robust results for Q1FY08 despite various odds arising from rupee appreciation and rising cotton prices.

The company’s topline grew by 33 per cent, while PAT grew by 22 per YoY during the quarter. Operating margins (excluding a reversal of provision of Rs 18 crore) was higher than expected. Better realisation in the sheeting fabric, and DEPB benefits enabled Welspun to maintain margins. Utilisation in sheeting fabrics is expected to rise further with higher volume growth during the latter half of the year and further integration of operation with Christy, the company is expected to continue the growth momentum. The stock at recommended price is attractively valued at 6.5 times FY08EPS.

Great Offshore Target price: Rs 984 Current price: Rs 794 Broking firm: India Infoline

Great Offshore (GOL) is India’s most integrated offshore oilfield services provider offering a variety of services to upstream oil and gas producers to carry out offshore E&P activities. With huge opportunities in the domestic upstream sector, GOL is increasing its fleet size from 39 currently to 42 by FY10. Also, the company has plans to enter the offshore construction space in a big manner. The company is expected to witness 29.8 per cent CAGR in revenues and 41.2 per cent CAGR in PAT between FY07 and FY09. Being one of the largest and most diversified players in the Indian offshore industry, the stock price of the company should command higher valuations compared to its domestic peers. India Infoline puts a target price of Rs 984 per share, which is based on estimated 14 times FY09 earnings of Rs 70.3 per share

Lanco Infratech Target price: Rs 369 Current price: Rs 276 Broking firm: Emkay Share

Lanco Infratech (LITL) has 518MW of power projects in operation and 9,035MW in various stages of development. It is also executing two toll-based BOT projects and developing three real estate projects. The company enjoys higher operating profit margins by being an integrated player executing its own projects. This ensures that savings in construction and procurement is captured within its own operations. LITL’s consolidated revenue is expected to grow at 126 per cent CAGR over FY07-09E to Rs 81.7 billion. The company is also expected to show 23-25 per cent of EBITDA margins. The net profit (after deducting the minorities interest) would grow to Rs 5.3 billion, a CAGR of 68 per cent, over the same period. Based on SOTP, the target price works out to Rs 369 per share. At the recommended price, the stock trades at 10.7 times its estimated consolidated FY09E EPS of Rs 24.2.

MIC Electronics Target price: NA Broking firm: Edelweiss Reco price: Rs 367 Current price: Rs 362

The emerging scope for LED (light emitting diodes) applications globally will benefit MIC and it will emerge as a leader in the LED display and lighting space over the next three to five years. Edelweiss expects to see re-rating of the stock on the back of large order additions and their successful execution. Its media division is expected to grow at a CAGR of 70 per cent over FY07-09E to Rs 230.5 crore which will drive total revenue CAGR of 17 per cent to Rs 330.2 crore in FY09E. Overall, net profit is likely to see an increase at a 44 per cent CAGR. The stock trades at 15.3 times and 11.1 times its FY08 and FY09 estimated earnings.

Gujarat Industries Power Company Target price: Rs 95 Current price: Rs 60 Broking firm: Angel broking

Gujarat Industries Power Company (GIPCL) is well placed to derive benefits from the favourable power sector dynamics. It trades at an attractive 0.7 times estimated FY2009 price to book value while most of its peers trade at 1.5-2 times estimated FY2009 price to book value. Further, the company has its own captive mines, which would ensure high Plant Load Factor (PLF) for its ongoing expansion programmes as well. At recommended price, the stock trades at 6.3 times estimated FY2008 and 6.1 times estimated FY2009 earnings of Rs 9.8 and Rs10.2 respectively. With 18-month target price of Rs 95 per share, Angel Broking puts a buy recommendation on the stock.

IDFC Current price: Rs 124.5 Target price: Rs 155 Broking firm: Prabhudas Lilladher

IDFC is emerging as one of the key beneficiaries of the infrastructure financing opportunity in the country. The company has exposure to some of the high growth sectors such as energy, transportation, telecom and information & technology. Along with robust growth in lending business, the asset management business currently manages a corpus of $650 million and is expected to grow 4 times over FY07-09E to $3 billion post the deal with Citigroup, Blackstone and IIFC.

IDFC has recently raised Rs 2,100 crore through a QIP, reducing the leverage to a comfortable level of 2.95 times. This leads to an increase in lending capability to a single borrower and leaves more room for expansion going ahead. Its lending business is valued at Rs 112 per share, which is 3 times its FY09EP/BV. While it’s non-lending businesses contribute Rs 42.2 to the valuation. The broker re-iterates ‘Outperformer’ rating based on the sum of part valuation target price of Rs 155.

Punjab National Bank Broking firm: ICICI Direct Target Price: Rs 647 Current price: Rs 497

PNB has got an extensive branch net work of 4,563 branches, with 50 per cent in rural areas giving it an unparalleled advantage of higher CASA (at 46 per cent) and consequent lower cost of funds. ICICI Direct expects that PNB will be able to sustain its net interest margins (NIMs) at 3.75 per cent levels, higher than its peers. Further net NPAs are expected to stay at 0.7–0.9 per cent levels and return on assets and return on equities are expected to rise from 1 per cent in FY07 to 1.1 per cent levels in FY09 with return on equity (RoE) improving from 15.6 per cent to 17.4 per cent. PNB is trading at 1.2x its estimated FY09E ABV which is quite attractive.

MindTree Consulting Target price: Rs 510 Current price: Rs 579 Broking firm: SSKI

MindTree Consulting (MindTree), a mid-sized Information & Technolofy (IT) and Research & Development services company, has strong management bandwidth. It services marquee clients like Volvo, AIG, LSILogic, United Technologies, Symantec, Avis and Unilever. However, a high share of development services in revenues creates a project-based business profile, which lowers sales productivity, hurts utilisation and leads to poor client mining. Thus, contrary to street expectations of an expansion, the company is expected to show declining margins by 170 basis point over FY07-09 due to rupee appreciation and salary inflation. The management has cut its FY08 earnings guidance after the first quarter FY08 results, but SSKI expects further risk to consensus estimates for FY09. While the stock price has fallen 23 per cent in just one month, further downside is likely at valuations of 19.8 times estimated FY09 earnings (19.2 times for Infosys). Considering these factors, the stock is rated as underperformer with a downward price target of Rs 510 per share