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Saturday, November 17, 2007
Wkly Mkt Review: Sensex gains 791pts
The stock markets registered heavy gains during the week ended November 16 with the main index of the Bombay Stock Exchange (BSE), the Sensex, surging 4.18% on positive economic and political news after a 10% correction in the preceding week.
Bulls made heavy purchases in bluechips on Wednesday taking the Sensex to its biggest-ever single session gain of 893.58 points on November 14.
The market, however, trimmed gains due to weak global cues, and the index ended the week at 19,698.36, a net rise of 790.76 points over last weekend's close of 18,907.60.
The S&P CNX Nifty of the National Stock Exchange (NSE) surged 243.60 points (4.3%) to close the week at 5,906.85 from last weekend's close of 5,663.25.
Activity picked up mid-week with operators turning active on indications of a softening stance of Left parties on the Indo-US civilian nulcear deal.
Market players continue to be optimistic as hedge funds have been showing keen interest in registering as foreign institutional investors (FIIs) with Sebi rather than pulling out from the market after the restrictions imposed on participatory notes.
Kolte-Patil Developers IPO
Good financials sprout ahead of IPO
Promoted by Rajesh Patil and Milind Kolte, Kolte-Patil Developers is one of the leading Pune- based realty player. The company has also developed couple of projects in Bangalore. Apart from these two cities, it plans to expand operations to Chennai and Hyderabad and locations such as Nasik, Goa, Nagpur, Aurangabad and Mysore in due course.
Kolte-Patil Developers has entered into joint venture (JV) with ICICI Venture Fund Management (ICICI Venture), a real-estate private equity fund in India, for three of its larger projects. For these projects, the company has identified and acquired land, designed and conceptualised the project, and developed and managed the project apart from contributing to the equity capital. ICICI Venture has provided equity and equity-linked financing.
Similarly, Kolte-Patil Developers has entered into a JV agreement with K2 Property (a subsidiary of Yatra Capital, a Jersey-based real-estate fund) for the development of some of its properties. The company plans to enter into the hospitality sector through a JV with Arora International Hotels, a UK-based hotelier, for development of at least two hotel properties. It has signed a term sheet outlining development of one hotel each in Pune and Bangalore.
To finance the acquisition of development rights, for construction and development of current and forthcoming projects, and to meet general corporate expenses, Kolte-Patil Developers is coming out with an IPO.
Strengths
Good reputation and credibility for quality and timely delivery built over 16 years of operation in the Pune realty market.
Developed and constructed 25 projects (22 in Pune and three in Bangalore) covering approximately 4.01 million square feet of saleable area end September 2007. Of these, completed 16 residential and four commercial complexes, two IT parks and three mixed-use (residential and commercial) properties.
Also, owned, held development rights for or had signed memoranda of understanding to acquire or develop 21.58 million square feet of saleable area on 32.88 million square feet of land area. end September 2007. Had 28 projects in different stages of development including 24 in Pune and four in Bangalore. Of these, 19 got construction commencement certificates from local government agencies and are in various stages of construction covering an aggregate saleable area of 5.48 million square feet. This includes three IT parks, eight commercial complexes, seven residential complexes and one service apartment. Commencement certificate is pending for nine projects including two IT parks, and three commercial, three residential as well as one integrated township projects. The saleable area of these nine projects amounts to 12.32 million square feet.
Weaknesses
Of the land parcels aggregating 54.50 million square feet in Pune and Bangalore, just about 0.51 million square feet of land is owned. This translates into just around 1% of the total land reserves. Sole development rights vested on approximately 27.39 million square feet or approximately 50% of the total land reserves. Around 26.34 million square feet or about 48%, of total land reserves consists of land subject to memoranda of understanding, agreements to acquire or letters of acceptance and also involve subsidiaries and/or group companies.
Geographically, operation is strong in and around the Pune realty market with marginal presence in Bangalore and thus vulnerable to supply glut and downturn in the Pune realty market.
Follows project completed contract method of accounting. This method is susceptible to wide swings in reported profit, not only quarterly but even on a yearly basis as projects typically take more than a year to complete. Under this method revenue and expenses on long-term project are recognised in the period in which the project is completed. The loss, however, is recognised in the year of occurrence. When the project runs over a number of accounting periods, revenue earned in a given period is recognised on the basis of possession given to the buyer.
The year ending March 2007 (FY 2007) seems to be an exceptional year, with impressive surge in revenue, margin and profit: Rs 106.40 crore were realised from sale of IT space at Giga Space IT Park and Rs 61.77 crore from sale of land to the special purpose vehicle (SPV) formed for the JV with Yatra Capital. Ability to sustain such high growth in view of changing market dynamics in select micro markets is a constraint.
Only two projects are eligible for benefits under Section 80IB of Income-Tax Act, 1961, which provides tax benefits for projects approved before March 2007. But eligible for Section 80 IA benefits for IT parks developed. Nevertheless, tax incidence can go up.
Valuation
The offer price of the issue is Rs 125-Rs 145. On the basis of FY 2007 earning on diluted equity (Rs 9.1), P/E works out to 13.7-15.9 at the lower and upper price band. Pune-based D.S. Kulkarni Developers trades at FY 2009 P/E of 16.5.
Renaissance Jewellery IPO Analysis
Promoted by Niranjan Shah and his family, Renaissance Jewellery manufactures and sells studded gold, platinum and silver jewellery and is primarily focused on international markets with 96% of revenue accruing from the US. The company also markets studded jewellery products through retail stores operated through its 100% subsidiary Renaissance Retail Venture Pvt Ltd (RRVPL). RRVPL has eight retail outlets (five in Mumbai, one in Pune, one in Lucknow and one in Gurgaon) and 16 shops in shops. The retail products are sold under the brand name, Lucera. It also commenced exports of loose diamonds from its facility situated at Opera House in Mumbai in July 2007.
Two of its three manufacturing units are located at the Santacruz Electronics Processing Zone’s (Seepz) special economic zone (SEZ) in Mumbai. The other is a 100% export-oriented unit (EOU) at Bhavnagar in Gujarat. The 100% subsidiary RRVPL has a manufacturing facility at MIDC, Andheri, Mumbai, to cater to the domestic retail market. Another 100% subsidiary Verigold Fine Jewellery Pvt Ltd (VFJPL) has a manufacturing facility for studded jewellery at Seepz-SEZ in Mumbai.
Renaissance Jewelry New York Inc. (RJNY), another 100% subsidiary, caters to independent mid-range retailers in the US, accounting for 56.9% of the US market.
A talent base of about 40 designers develops about 500 new designs every month, resulting in over 30,000 designs. There were about 2,000 employees at the manufacturing facilities end September 2007.
Strengths
- The installed capacity will increase to 3,250 kg in the year ending March 2008 (FY 2008) from 2,250 kg in FY 2007. Capacity utilization is increasing: from 64.07% in FY 2004 to 81.33% in FY 2007. The consolidated capacity would increase to 4,000 kg in FY 2010.
- RRVPL plans to increase the number of retail outlets in India from eight to more than 250 in the coming five years after examining the performance of the existing outlets.
Weaknesses
- Dependent on a few customers. Top customer accounted for 40.93% and 42.35% of consolidated revenue in FY 2006 and FY 2007, respectively. Top five customers accounted for 99.03% and 95.98% of consolidated revenue, respectively. Top two customers and top five customers accounted for 82.62% and 99.68% of consolidated revenue, respectively, in the three months ended June 2007.
- A substantial portion of total turnover is from exports in US dollars. Any fluctuation in the exchange rate will impact profit. Though imports and working capital funding in US dollars is a natural hedge, this may not be able to effectively mitigate the adverse impact of currency fluctuations on operating results.
- Rising gold prices could impact demand for ornaments. Also, the dependence on US may affect demand if there is slowdown in that country’s economy.
Valuation
Sales grew at a CAGR of 37.6% and profit after tax (PAT) at a CAGR of 94.7% between FY 2003 and FY 2007. At the price band of Rs 125 – Rs 150 on post-issue equity (of Rs 21.02 crore) including conversion of warrants, consolidated FY 2007 EPS works out to Rs 12.1 and P/E 10.3-12.4. On quarterly annualised EPS of Rs 13.8, P/E is 9.1 – 10.9. However, of the PAT of Rs 7.23 crore in Q1 (ending June 2007) of FY 2008, translation gain on forex fluctuation stood at Rs 5.14 crore. One detachable warrant will be issued along with two equity shares which can be optionally converted at 25% premium to the IPO price between 16th to 18th month from date of allotment.
Jyothy Laboratories IPO Analysis
Exit route for institutional shareholders
Promoted by first generation entrepreneur M.P. Ramachandran, Jyothy Laboratories’ key brands are Ujala, Maxo, Exo, Jeeva and Maya. The product line of Ujala consists of fabric whitener, fabric stiffener and washing powder. Maxo’s product line consists of mosquito repellent coils, liquid vapourisers and aerosol sprays, while Exo’s product line includes dish wash bars and liquid with an anti-bacterial agent, dish wash powder and dish scrubbers. The company produces personal-care products under the Jeeva brand and markets air-freshening incense sticks or agarbatti under the Maya brands. It has also entered into joint ventures to market and distribute coffee and spiritual dhoops.
Ujala fabric whitener and Maxo mosquito repellent coils occupy leading position and have significant market shares in their respective product segments. Ujala fabric whitener enjoyed a market share of 68.9% by value and 53.5% by volume, while Maxo coils had a market share of 19.7% by value and 22.1% by volume in India in the year ended June 2007(FY 2007). Exo dishwashing bar captured market share of 15.5% by value and 15.2% by volume in south India in this period.
Jyothy Laboratories manufactures its products through 21 manufacturing facilities in 14 locations in India. Eight of these are tax-efficient units. The company is going to establish new tax-efficient manufacturing facilities in Uttaranchal. It is also going to invest Rs 17 crore in its two plants in Jammu and Guwahati to produce Maxo products currently outsourced.
The initial public offering (IPO) is of 44,30,260 equity shares of Rs 5 each through an offer for sale for cash. The price is to be decided through a 100% book-building process at the price band fixed between Rs 620 and Rs 690 per equity share. This will reduce the institutional shareholding from 30.52% to zero, while public shareholding will increase from 1% to 31.52%. Promoters’ shareholding will remain intact at 68.48%. There will be no change in equity capital of the company after the IPO.
Strengths
Well-recognised brands, tax efficient production units and significant rural presence.
Has approximately 2,500 distributors and has a direct reach of approximately one million retail outlets. This distribution leverage can help in faster product launches and distribution of other non-competitor company’s products.
Weakness
Highly competitive industry.
Recent performance has not been encouraging. Sales were up 20% to Rs 361.89 crore but adjusted net profit increased only 3% to Rs 48.14 crore in FY 2007.
Valuation
The price band is set at Rs 620 to Rs 690 per equity share of Rs 5 face value. At the lower band of Rs 620 per share P/E would be 18.7x times and at the upper price band of Rs 690 per share P/E would be 20.8x times the EPS of Rs 33.2 in FY 2007. In the FMCG industry, comparable companies such as Godrej Consumer Products and Emami have TTM P/E of around 20.6 and 26.4, respectively. Even HLL is available at TTM P/E of 26 times.
Kaushalya Infrastructure Development Corporation
Kaushalya Infrastructure Development Corporation (Kidco) is a Kolkata-based small construction company promoted by the Mehras. The company specialises in the construction and maintenance of roads and highways and bridges, erection of transmission lines, electrification projects as well as commercial and residential complexes. It also operates a hotel in Jhargram, West Bengal.
Originally incorporated in 1992 as RMS Exim, Kidco got into construction in 2001 and executed around 32 projects in its last six years of active presence in the construction sector. The company is strongly focused on the eastern part of the country with most of its construction happening in West Bengal. The company subsequently extended its operations to other eastern states such as Jharkhand, Sikkim and then to Chhattisgarh. It undertakes contracts both as a primary contractor as well as a sub-contractor providing services to various government, semi government organisations, and public sector undertakings. Its clients includes AMR Construction., Punj Lloyd., Engineering Projects (India), Power and Energy Department of the government of Sikkim, Tantia Construction, Balasore Alloys, Allied Infrastructure and Projects, Purulia Zilla Parishad, PMGSY, and National Projects Construction Corporation.
For its realty foray Kidco acquired land either directly or through its subsidiaries and proposes to buy more land and development rights. These are in various stages of identification and acquisition. For the projects undertaken by its subsidiaries or joint ventures (JVs), the company will undertake development of land parcel including construction activity.
On 23 March 2006, Kidco entered into a memorandum of understanding (MOU) with West Bengal Housing Board (WBHB) to develop housing and related infrastructure in Bengal. For this, the company has incorporated a JV with WBHB, Bengal KDC Housing Development. The subsidiary had bid for an expression of interest for development of residential complexes in Himachal Vihar, Siliguri, issued by the Siliguri Jalpaiguri Development Authority, on 11 October 2006. The area of the project is four acres to be given on a 30-year lease (renewable) to the successful bidder. The project involves construction of residential complex. The estimated cost of the project would be Rs 20 crore. After completion, the successful bidder will sell/ lease/ give on rent the project to various parties. The project, to be completed in three years, is to be executed on build-operate-transfer basis.
To further consolidate its position in infrastructure development, the housing and real-estate sector, Kidco has entered into/executed a JV agreement /MoU with various government and private bodies like the West Bengal Small Industries Development Corporation, Santech Communication and Rose Land and SSNNLL Corporation, an IIIinois (US)-based company.
Kidco is tapping the capital markets to fund its plan of1) purchasing construction and infrastructure equipment for execution of projects amounting to Rs 5.01 crore; 2) acquisition of land and land development rights and realty development amounting to Rs 17.50 crore; 3) Investment in BOT/ build-own-operate-transfer (BOOT) projects and JV amounting to Rs 12 crore; and 4) meeting long-term working capital requirement of Rs 12.04 crore and corporate expenses.
Strengths
Unexecuted part of the order book stood at Rs 76.01 crore end June 2007. Though order backlog seems small compared with the other listed peers, the completion of all the orders by June 20’08 gives strong revenue visibility.
Presently owns 28.39 acres of freehold land close to Hyderabad at Hothi Village, Zaheerabad, Medak District, Andhra Pradesh. This is close to the industrial belt. Subsidiaries have acquired 4.004 acres of land at Rajarhat, West Bengal, which is fast emerging as IT hub of Kolkata. Entered into either an agreement for purchase or MoU for further 8.016 acres of land at Rajarhat, West Bengal.
Weakness
Continues to claim benefits under Section 80IA of the Income-Tax Act, 1961 in spite of the recent clarification stating these benefits are applicable only to infrastructure developers. If the litigation seeking clarity brought by the construction industry against the income-tax department fails, adjustment will have to be made to liabilities over the years against general reserve, affecting net worth apart from hitting the margin factored in current orders.
About 61% of the unexecuted part of the order book accounted by two packages/orders from Sipat Super Thermal Power Project. Hence, any delay in completing the project will adversely affect performance in the coming quarters.
Has little experience in real estate development
Is yet to undertake large-ticket orders (in excess of Rs 50 crore). Moreover, the execution track record in road space largely comprises rural and district roads. Capability to scale up either on own and or in consortium is yet to be seen in highly competitive National Housing Authority of India (NHAI) or state road-sector projects.
Valuation
On adjusted net profit in the year ending March 2007 (FY 2007), the EPS works out Rs 2 on post-issue equity capital. At the price brand of Rs 50 –Rs 60, P/E works out to 25 times on the lower band and 30 times on the upper band. In comparison peers such as MSK Projects and Roman Tarmat are available at a P/E of 19.8 and 16.7 times.
Kaushalya Infrastructure IPO Analysis
Kaushalya Infrastructure Development Corporation is entering the capital market on 20th November, 2007 with a public issue of 85 lakh equity shares of Rs.10 each in the band of Rs.50 to Rs.60 per share.
The company is a small contracting company executing work for leading construction companies like Punj Lloyds, Engineering Projects, Tantia Construction etc. for the last 6 years. The volume of work executed by the company is quite low compared to its net worth. For FY 07, inspite of a net worth of Rs.14.71 crores, total income of the company was at Rs.55 crores on which PAT was just Rs.3.82 crores. This has resulted in an EPS of Rs.3.45. The company has been executing more of petty jobs where payment cycle is also of longer duration. Due to this, whatever margin enjoyed by the company is more on account of blocking working capital. The company has less than 4 cycles of its net worth, every year.
To improve its bottomline, the company thought of venturing into various activities of real estate development, investment in BOT/BOOT Project and for working capital. The proposed issue would be able to mobilize between Rs.42 crores and Rs.51 crores, at the lower and upper band. Rs.6 crore has been mobilized via pre-IPO placement.
However, such a small amount of Rs.50 crores is allocated on too many heads, thus having a very small allocation on each of them. The company is planning to develop about 12 acres of land at Rajarhat in Kolkatta and also at other places for which Rs.17.50 crores has been allocated. In Rajarhat, big developers like DLF and Unitech are developing integrated township and hence the projects of the company would always have lower realization of its properties. Even Rs.12 crore earmarked for BOT/BOOT projects are very small sum, which may not enable the company to take stake in 2 projects also.
Return on net worth of the company is very low at about 18% for FY 07. The post issue equity of Rs.19.60 crores would also be huge and shall pose difficulty for the company to service. Additional fund from IPO of about Rs.50 crore would improve the performance marginally.
Still it would remain a very small player with no significant presence in any of the segment and hence would also remain languishing at the levels of issue price. Hence, investment is not advised even at the lower band.
SP Tulsian
Sensex gains in the week
The stock markets registered heavy gains during the week ended November 16 with the main index of the Bombay Stock Exchange (BSE), the Sensex, surging 4.18% on positive economic and political news after a 10% correction in the preceding week.
Bulls made heavy purchases in bluechips on Wednesday taking the Sensex to its biggest-ever single session gain of 893.58 points on November 14.
The market, however, trimmed gains due to weak global cues, and the index ended the week at 19,698.36, a net rise of 790.76 points over last weekend's close of 18,907.60.
The S&P CNX Nifty of the National Stock Exchange (NSE) surged 243.60 points (4.3%) to close the week at 5,906.85 from last weekend's close of 5,663.25.
Activity picked up mid-week with operators turning active on indications of a softening stance of Left parties on the Indo-US civilian nulcear deal.
Market players continue to be optimistic as hedge funds have been showing keen interest in registering as foreign institutional investors (FIIs) with Sebi rather than pulling out from the market after the restrictions imposed on participatory notes.
INVESTMENT STRATEGY
Going by Friday's session, when the bulls managed to shrug off weak global indicators, chances of a sharp correction appear quite slim. In addition, FII inflows in the past couple of sessions have improved. This should be seen as good news as there were concerns that the P-Note restrictions could cap fresh investments from overseas funds. The slowdown in FII inflows but proved to be short lived. If the positive trend in FII inflows continues, the market will hold up even in the face of a savage fall across global markets.
In addition, the renewed warmth in relations between the Government and the Left would also add to the optimism. However, one should be careful as the advance from late August has been pretty shift. As a result, some consolidation is bound to happen. On the whole, things do not look that bad. One could resume buying at lower levels but the same should not be too aggressive. The fact that the Indian market did not fall quite as sharply as some of the regional peers augers well for the bulls. IT and cement counters may be in flavor for the coming week.
Govt unveils number portability, 3G norms
In a major consumer friendly move, Telecom Minister A. Raja announced that the Government will introduce mobile number portability in the four metros in a phased manner. This will provide customers the facility to retain the same number while switching over from one operator to another within the same service area. This facility is likely to be available to the mobile subscribers by the fourth quarter of 2008. Introduction of MNP in A circle will be reviewed in April 2008 and TRAI will issue relevant regulations in this regard.
Reliance Communications Chairman Anil Ambani and AUSPI, the lobby group for CDMA operators, welcomed the move. On the other hand, COAI, which represents GSM mobile players, accused the Government of favouring a particular CDMA company by announcing the launch of number portability. Bharti Airtel Chairman Sunil Mittal said margins would not be hit by the introduction of number portability. Mittal also said that he favoured extending the facility nationwide.
The Government also announced the guidelines for 3G services and Broadband Wireless Access service. It also said that all radio frequencies offering 3G services would be offered via an auction.
Separately, some members of the COAI said they were willing to go for an open auction of 2G spectrum beyond 10 MHz. Till today, COAI had vehemently opposed auction for 2G spectrum. But, the Telecom Minister ruled out the possibility of selling or auctioning 2G spectrum. He reiterated that the allotment of new telecom licenses will be done on first-come-first-serve basis.
In a related development, GSM operators also said that since RCOM’s request for launching services using dual technology was approved on October 18, its applications for GSM spectrum should be processed only after the ones that came before October 1. The DoT had received 575 applications from about 45 companies before October 1.
Industrial production slips again
After a brief revival in August, India's industrial production fell yet again in September, fueling worries that higher interest rates and a stronger currency was hurting demand in Asia's fourth largest economy. This may spur fresh calls for a reduction in interest rates and steps to check the relentless rise in the rupee. The Index of Industrial Production (IIP) grew by just 6.4% in September as against 12% in the same month last year, the Commerce & Industry Minister said. This was the lowest growth rate in IIP in the past 11 months and came well below consensus estimates of around 9%.
IIP had expanded by 10.7% in August after an upwardly revised growth rate of 7.5% in July which had led to concerns that a high base effect, rising borrowing costs and a strengthening rupee was taking its toll on the Indian economy. Growth in the manufacturing sector declined in September to 6.6% from 12.7% in the corresponding month a year earlier while that in electricity was also lower at 4.5% versus 11.3% in September 2006. Mining output expansion improved to 6% as against 4.3% in the year-ago period. On a cumulative basis (April-September 2007-08), the industrial output was at 9.2% versus 11.1% in the first six months of the last fiscal year.
As many as 15 of the 17 industry groups showed a positive growth during September. 'Wood & Wood Products’ clocked the highest growth of 72.5%, followed by a 27.1% growth rate in ‘Other Manufacturing Industries’ and 14% in ‘Basic Metal & Alloy Industries’. On the other hand, ‘Transport Equipment & Parts’ showed a negative growth of 1.6% followed by 1.5% in ‘Food Products’. Sectoral growth rate in Basic Goods, Intermediate Goods and Capital Goods was at 6.7%, 9.3% and 18.6%, respectively. Consumer Durable and Consumer Non-durable recorded growth of (-) 7.6% and 2.2%, respectively, with the overall growth in Consumer Goods being (-) 0.6%.
The slowdown was mainly due to weaker performance of the manufacturing sector, especially the consumer durable segment as the RBI continued to tighten its monetary policy to counter the flood of dollar inflows and currency appreciation. Industry chambers like CII and ASSOCHAM have been clamouring for reduction in rates to revive consumer demand for new homes, cars, bikes and electronics. Top bankers like K.V. Kamath have also sought rate cuts as credit offtake has decelerated to around 23-24% from over 30% last year.
But, given the spike in money supply growth and the dollar deluge, the RBI is unlikely to oblige. But, one thing's sure that rates have peaked out and they can only fall from here. Also, the busy season actually starts from October due to a slew of key festivals and harvesting of kharif crop. As a result one would have to wait for the IIP data for the next couple of months to arrive at any firm conclusion as to how deep and serious is the industrial slowdown.
Weekly Stock Ideas
Buy Escorts
Buy Nagarjuna Fertilizers
Buy Orient Bank of Commerce
Buy Sterlite Industries
Buy Tata Chemical
Buy Gujarat Ambuja CementsITC, 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.
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