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Tuesday, October 02, 2007

Broker Recommendations


Bharati Shipyard
Reco price: Rs 579
Current price: Rs 589.90
Target price: Rs 798
Brokerage: Anand Rathi
The booming shipbuilding industry, along with government subsidy of 30 per cent for the industry has brought the sector to centre stage.
Globally, orderbooks for shipbuilders are pegged at an estimated $118.7 billion, and India has less than 1 per cent market share, since Indian shipbuilders can build vessels less than 100,000 DWT. Indian shipbuilders are therefore expanding capacities to grab a greater share of the pie.
Bharati Shipyard has planned a greenfield capacity in Mangalore to build six 60,000 DWT vessels, investing about Rs 450 crore. At full capacity, this capacity can generate a turnover of Rs 1400-1500 crore, according to Anand Rathi.
This facility would turn operational from Q2 FY08; however peak sales would come at full utilization in 2010. It has been awarded SEZ status; hence, it would benefit from the five-year tax holiday.
Overall, Bharati Shipyard scores well on the profitability front. The operating margin, at 18 per cent, is expected to be consistent (excluding the subsidy).
In offshore supply vessels and rigs, the operating margin is as high as 18.5 per cent whereas it is 17 per cent in the cargo segment. The company’s present order book amounts to Rs 4,000 crore, with the unexecuted portion to be around Rs 3,300 crore, providing a fair visibility of earnings.
The brokerage expects Bharati Shipyard’s bottom line to grow by 39 per cent in FY08 and 61 per cent in FY09. At Rs 579, the stock traded at 15 times estimated FY09 earnings, and the brokerage recommended a “buy” with a target price of Rs 798.
Housing Development & Infrastructure (HDIL)
Reco price: Rs 609
Current price: Rs 626.55
Target price: Rs 760
Brokerage: PINC
HDIL has built huge competence in the niche of Slum Rehabilitation and Development. It has developed 2 million sq ft of rehabilitation housing area and another 5.5 million sq ft of slum rehabilitation development is underway.
The company has a land bank of nearly 112 million sq ft to be developed over the next five years. It now plans to foray into other geographies such as Kochi and Hyderabad.
Its land holding in the Mumbai Bandra Kurla Complex (1.1 million sq ft) has high monetising potential (approximately Rs 20,000 per sq ft).
Besides, the significant opportunity being presented by redevelopment of Dharavi and slums around the Mumbai airport, have the potential of propelling HDIL’s financial and operational parameters.
On the commercial real estate front, HDIL has focussed mainly on medium-sized projects targeted at financial and service sector companies. Currently, it has around 19 million sq ft of retail space under construction to be completed by FY12. It also has plans to build multiplexes, either as stand-alone structures or within malls.
Recently, the company has also incorporated a wholly-owned subsidiary known as HDIL Entertainment for its multiplex business, which could provide value unlocking going forward.
PINC expects HDIL’s net sales to grow by 76 per cent to Rs 2,120 crore in FY08 and by 80 per cent to Rs 3820 crore in FY09. At Rs 609, the stock traded at 7.5 times estimated FY09 earnings.
Kirloskar Electric Company
Reco price: Rs 262
Current price: Rs 270.70
Target price: Rs 361
Brokerage: IndiaInfoline
Kirloskar Electric underwent a turnaround in FY06 via restructuring, transfer of certain assets and liabilities to a subsidiary and relocation of manufacturing facility.
The company’s new transformer unit in Mysore is likely to help capitalise on robust demand expected over the next five years. Average realizations for transformers and motors divisions, which contribute majority of the revenues, witnessed an improvement of 45.6 per cent and 32 per cent respectively in FY07.
Strong demand arising out of government and private sector capex should further improve Kirloskar Electric’s realizations. IndiaInfoline expects the company to witness a strong revenue growth at a compounded annual rate of 38 per cent between FY07 and FY09, owing to the sharp focus on core operations.
The growth in the bottom line is expected to outdo the top line growth at a compounded annual rate of 53 per cent over FY07-FY09, as a result of improving margins due to higher realizations.
At Rs 262, the stock traded at 14.6 times and 10.9 times estimated FY08 and FY09 earning per share of Rs 18 and Rs 24.1, respectively. IndiaInfoline recommends a “buy” with a one year price target of Rs 361, an upside of 38 per cent.