ITC, Godawari Power, HDFC, AIA Engineering,

ITC

CMP: Rs 205.15
Target Price: Rs 225

Macquarie has ‘upgraded’ the target price of ITC by 12% to Rs 225 as it feels that the company has a potential for positive surprises after announcing ‘ahead of expectations’ numbers for the first two quarters of the current fiscal. “We believe that this is a testament to pricing power and inelasticity of demand,” says the report.

Further, the foreign brokerage adds that the growth in the volume of cigarette has been ‘above consensus’ and even after the hike in prices, the erosion in favour of substitutes has been minimal. “The past two quarterly results show that the erosion of share in favour of substitutes (bidis) is minimal despite a large hike in prices.

We believe income levels have reached the threshold where demand inelasticity is stronger than expected,” said the brokerage in a note to its clients. Macquarie is expecting a 7% volume growth and 6% price growth in cigarettes on a sustainable basis, while assuming a 5% growth in both cigarette excise duty and VAT every year.

However, the brokerage adds that historically, the stock tends to remain without direction in the run-up to the Union budget as investors stay on the sidelines due to lack of clarity on revision of tax rates.

Godawari Power

CMP: Rs 267.35
Target Price: Rs 320

Pinc Research has maintained a ‘buy’ rating on Godawari Power & Ispat with a 12-month price target of Rs 320 as it feels that the incremental production from enhanced capacities will propel the company’s profitability as realisations are expected to remain buoyant.

According to the report, the company has envisaged a Rs 2.4-billion capex plan for setting up an iron ore crushing unit, a beneficiation plant and a pelletisation plant. This will aid in extracting benefits of captive iron ore and also in utilising iron ore fines, thereby providing significant savings, feels the brokerage.

The brokerage is expecting the company to report net sales of Rs 7.7 billion and Rs 8.6 billion for FY08 and FY09, respectively.

HDFC

CMP: Rs 2,700
Target Price: Rs 3,288

Motilal Oswal Securities has maintained a ‘buy’ rating on HDFC while raising the target price to Rs 3,288. According to the brokerage, the company “deserves a premium valuation due to the continued traction in business and profitability, significant value unlocking from its various investments/ventures and supreme management capabilities.”

The brokerage feels that HDFC’s stronghold in the housing finance market has further strengthened with ICICI Bank and most state-owned banks going slow on mortgages. “In 2QFY08, ICICI Bank’s disbursements degrew 23% y-o-y whereas HDFC saw a 25% y-o-y growth.

HDFC is confident of maintaining its asset growth rate at the traditional 25-30% over the next couple of years,” says the report. The slowdown in the industry (mainly banks) is expected to result in higher market share for housing finance companies (HFCs), mainly the leader HDFC, it further adds.

The report also highlights the point that since HDFC need not maintain CRR, incremental spreads have widened.

AIA Engineering

CMP: Rs 1,482
Target Price: Rs 1,820

ASK Securities has maintained a ‘buy’ rating on AIA Engineering with a price target of Rs 1,820 on account of limited competition and low-cost advantage over peers. “We continue to like AIA given the immense growth prospects for high chrome mill internals and believe that the company is in a sweet spot being an end-to-end solutions provider,” says the report.

The brokerage is expecting the company to post a 40% CAGR in revenue and a 35% CAGR in profit over FY07-09E due to the growing demand globally and capacity expansion lined up. The report also adds that currently, the company has an order book of Rs 4.35 billion, of which 60% pertains to the domestic market.

“We expect the company to end FY08E with sales of 98,000 tonnes, with nearly 25,000 tonnes from the new facility. In addition, the next phase of new facility will get operational by (first quarter of) FY09E and take the overall capacity to 1.65 lakh tonne, the brokerage said in a note to its clients.