DLF, Kotak Mahindra

Emkay puts 'hold' on DLF; target Rs 868

MUMBAI: Emkay Share and Stock Brokers has recommended ‘hold’ on DLF for a target price of Rs 868.

DLF has entered into 50:50 joint venture with Adrian Zech, founder & chairman of Aman Resorts, to acquire controlling interest in Aman Resorts. The deal has been valued at an enterprise value of $400 million, including debt of $150 million

Aman Resorts presently operates 22 luxury hotels in 12 countries. It is expected to report revenues of $120 million and an EBITDA of $26 million in 2007. Management expects margins to remain at current level and expects 20 per cent annual growth.

Emkay believes DLF has entered into the agreement at very attractive valuations with EV/EBITDA at 15.6 times, EV/Revenue of 3.3 times 2007 estimate and EV/room at $357,000 (Rs 14 million).

Prabhudas puts ‘outperformer’ on Kotak Mahindra

Prabhudas Lilladher has rated Kotak Mahindra Bank an ‘outperformer’. The brokerage has valued Kotak Mahindra on SOTP methodology and arrived at a fair value of Rs 1,381 per share, implying a 21 per cent upside over the current market price. Of this, 66 per cent of the value accrues from non-banking business.

Kotak Mahindra plans to invest $400 billion in next five years and will be focusing on strengthening asset the management and insurance business.

The brokerage has valued the banking business at 4.5 times 2008-09 at the adjusted book value. On this basis, Prabhudas has arrived at fair value of Rs 464 per share for the banking business.

Broking firms are currently trading at 25-30 times 2008-09 estimate earnings. Considering the huge market share of Kotak Mahindra, and vast branch network, the brokerage believe it should trade at higher end of the band. Prabhudas values Kotak's broking business at Rs 406 per share, which is 30 times 2008-09 estimate.

The brokerage expects mutual fund AUM to grow 4 times over FY07-09 and total AUM to grow by 3 times over the same period. Alternate assets and offshore funds have a 2:20 structure and therefore gives a higher valuation of 8 per cent of AUM compared to 6 per cent in case of mutual fund. This values the total assets under management at Rs 3.97crore, deriving a per share value of Rs 116.

Considering NBAP margin of 19 per cent, the brokerage has valued life insurance business at Rs122 per share and car finance business at 3 times. On this basis, Prabhudas has arrived at a fair value of Rs 56 per share.

Kotak Mahindra Bank started operations in 2002-03. Its share in the CV segment, which was as high as 59 per cent in 2003-04, has come down to 24 per cent in July-September quarter. While the share of home loans has gone up from 4 per cent in 2003-04 to 16 per cent in second quarter of 2007-08. Similarly, personal loans and corporate loans too have seen significant jump in the last few years.

Kotak Mahindra Bank has higher margin compared to its peers, which is due to lower leverage of the bank facility and high yielding assets. Despite lower share of CASA deposits compared to leading peers, it is able to maintain higher margin. Citing opportunities in the retail segment the bank has increased its network to 856 outlets with presence in 309 cities compared to 660 outlets in 2005-06.

Kotak Mahindra Asset Management has a total corpus of Rs 222 billion as of Oct 2007, representing 4 per cent of the industry. During April-September the industry grew by 65.4 per cent, while Kotak's assets have more than doubled to Rs 189 billion.