HDFC Sec - Balaji Telefilms

HDFC Securities report on Balaji Telefilms:

Balaji Telefilms, BTL is India’s largest TV content producer. It clocked ~1800 programming hours during FY07. It has a presence on all major General Entertainment Channels (GEC) in the country and offers content in Hindi, Tamil, Kannada, Malayalam, and Telugu. With strong quality content, BTL is the best play in the domestic content production story.

BTL formed a 51:49 JV with Star TV in FY07. This JV will launch regional GEC channels in south Indian markets of TN, Karnataka, AP and Kerala. We expect ~1150 programming hours from this JV during FY09E, resulting in revenues of Rs 196 million for BTL.

We expect BTL to post a CAGR of 20% in revenues between FY07-09E and 19% in earnings. With the company reducing its exposure in sponsored programming (low margin), its JV with Star TV for regional programs and venture into international markets such as the Middle East, Sri Lanka and Indonesia, makes us believe the prospects of BTL are positive. At the CMP of Rs 223, the stock trades at a PER of 15x and 13x our FY08E and FY09E EPS estimates of Rs 15.26 and Rs.17.18. We have a price target of Rs 275. At our target price, the stock would trade at a PER of 16x our FY09E estimates. We initiate coverage with a “BUY” rating.

HDFC Sec - Jain Irrigation

HDFC Securities report on Jain Irrigation:

Continuing its acquisitions in the MIRS space, Jain Irrigation’s acquisition of NaanDan makes it the second largest player, next to Netafim of Israel ($325 mn revenue size). NaanDan gives Jain access to 50 countries in Europe and Latin America, apart from the US, Australia and Israel.

The PVC and PE pipes segments are both growing by 10-12%. With Reliance & GAIL as possible clients in the PE pipes segment, JISL is set to show consistent growth. The EBDITA margin is 6-8% in PVC pipes and 12-14% in PE pipes.

PVC Sheets: This segment has been growing 30% for the past 3 years and is expected to grow at 10%-14% in the next 2 years. The EBDITA margin is 18% in this segment.

Jain’s MIRS/SIS business is expected to grow by 70% next year and Pipes and sheets together are expected to grow by 30%. Hence overall, the company is expected to grow by 40% in the next 18 months. The fair price of the Equity Portion of the company comes to Rs533 per share, which discounts its FY08E EPS 23.2 times and FY09E EPS 16.9 times. The upside potential for the stock is 8.5% from the current levels.

HDFC Sec - Asian Hotels

HDFC Securities report on Asian Hotels:

Asian Hotels, AHL reported a turnover of Rs 4134 Mn in FY07 and a PAT of Rs 915 Mn, which were 26% and 61% higher yoy. For the quarter ended March 07, the turnover of Rs 1324 Mn and PAT of Rs 344 Mn were higher by 27% and 51% yoy, respectively. The topline growth was aided by 35% rise in ARRs and marginal increase in occupancy.

The strength in ARRs with an inconsequent increase in costs lead to OPMs surge 811 bps (much better than expected) and 600 bps for the quarter and year ended FY07 to 51.5% and 44.3% respectively. Though it slid below our topline estimate, it positively surprised on the margins front.

The board of AHL has decided to demerge the company and form three separate listed entities. Though the modalities of the restructuring still remain unclear, we have outlined the procedure, in brief ahead. On a rough cut basis, the fair value of the assets are assessed at Rs 20 bn against the market cap of Rs 17bn, an 18% upside. However, with limited information, taking into account strong earnings growth (ARRs to compound 7.5%) and constructive restructuring possibility, we reiterate its fair price at Rs 890 (in line with the AHL’s independent valuation estimate), offering an upside of 18% to the CMP. The fair price has been valued by assigning weights to three key parameters viz., PEG, EV/Room and DCF.

The stock quotes on FY07 basis at 4.6x its P/BV, EV/Ebitda of 9.2x, and offers 1.3% dividend yield. We reiterate “OUTPERFORMER”.

HDFC Sec - Royal Orchid Hotels

HDFC Securities report on Royal Orchid Hotels:

Royal Orchid Hotels, ROHL reported a turnover of Rs 811 million in FY07 and a PAT of Rs 339 million, which were 37% and 58% higher yoy. The healthy topline growth was led by 27% rise in ARRs (Rs 9060) and marginal dip in occupancies.

For the quarter ended March 07, the turnover of Rs 240 million and PAT of Rs 106 million were higher by 25% and 35% yoy, respectively. The topline growth was aided by 25% rise in ARRs (Rs 10,000) without a dip in occupancy.

The consolidated top line rose by 36.2% to Rs. 1137 million, against our estimate of Rs 1101 million, a gap of 3.3%. The net profit stood at Rs 352.57 million, a growth of 53.2% against our estimate of Rs 305 million. Against our EPS estimate of Rs 11.21, the actual EPS stood at Rs 12.95.

ROHL would be managing close to 1000 rooms by Q1FY08 (existing room inventory is 700 rooms) across segments and cities except for Bangalore, thus de-risking the revenue profile. Its asset light approach has helped it attain faster growth and maximize ROE in the industry, which we expect to continue. A balanced capex, strategically positioned “Business Hotels” in growth markets and the strategy of reining in costs (OPMs maintained for 2 years at ~ 50% are the best in the industry) will help it earn rich dividends going forward.

For the reasons discussed below and attractive valuations of - 13.7x & 12.3x FY08E & FY09E, 3% dividend yield and 2.3x P/BV, we re-iterate our OUTPERFORMER rating and value its target price at Rs 245, offering 18% upside from current levels.

HDFC Securities - Praj Industries

HDFC Securities report on Praj Industries:

Key Positives

We see PRAJ transforming itself into a “Global provider” of end-to-end Ethanol distillation equipment and technology. In this process, we see the company exploring newer territories (Europe and Brazil, to be specific), which would tend to significantly improve our Conviction levels on PRAJ’s business growth. We built our opinion on PRAJ’s success in the last few years (Mainly in tapping the US markets).

We expect PRAJ to post >67% earnings growth on a CAGR basis over FY07-09E. We expect exports to increase further, as the company recognizes its US orders as revenues and garners increased business from other export markets, mainly European.

On the long term demand for fuel ethanol (production expected to cross 24 billion gallons by 2010 against 15.5 billion gallons currently), we remain bullish. We expect PRAJ to tap growth opportunities, going forward as it intends to gain a share in key markets including the US, Europe and Brazil, where it plans to enter soon. We believe PRAJ’s European and Brazilian forays will be the catalyst to propel the company, going forward. Our argument is based on the premise that these nations (mainly the US, Europe and Brazil), account for >80% of the current global ethanol production.

PRAJ recently inked a JV in Europe with Aker Kvaerner called BioCnergy Europe B.V. PRAJ owns 60% in the JV and Aker Kvaerner the balance 40%. We believe this JV is strategically advantageous for PRAJ, as this would help it tap the European bio-ethanol market as well.

Outlook & Valuation

We retain our conviction levels on PRAJ’s business growth, especially its strategy of focusing on inorganic and organic expansion initiatives. We believe this would help the company answer its growing business needs. We also believe, PRAJ’s nature of business provides an early mover advantage, in terms of entering newer territories and improving the confidence of the clients in its ability to execute projects. On a PE multiple of 27X & 20X its FY08E & FY09E earnings, we see PRAJ to be an OUTPERFORMER.

HDFC Sec - JSW Steel

HDFC Securities believes that JSW Steel is set to outperform its peers as it can weather any downturn in steel prices due to the strong volume growth. Broking house, has given target price of Rs 670 over the next 9-12 months.

HDFC Securities report on JSW Steel:

JSW Steel is set to outperform its peers as it can weather any downturn in steel prices due to the strong volume growth. It is expanding capacity from 3.8 million tonnes in FY07 to 6.8mn tonne in FY10. It will further enhance it to 10mn tonnes in FY12. JSW currently trades at 5.7x and 5.1x its FY08E and FY09E EPS of Rs97.8 per share and Rs108.1 per share, which is at a discount to its peers. SAIL and Tata Steel trade at 7.3x and 6.9x its FY08E EPS of Rs17.6 per share and 87.7 per share. We, therefore, have a target price of Rs 670 over the next 9-12 months.

Other Key Highlights

JSW plans to issue an FCCB of an aggregate value not exceeding USD 325 million, which is being issued at a conversion rate of Rs 953.4 per share for a tenure of 5 years and 1 day. The yield to maturity stands at 7.25% per annum calculated on a semi annual basis, if not converted into shares during the tenure of the bond. The issue is likely to be closed on June 27, 2007 and would be listed on the Singapore Stock Exchange.

HDFC Sec bullish on Fortis IPO

The Ranbaxy Labs promoter group company Fortis Healthcare Limited is entering the capital market with an Initial Public Offering opening tomorrow and the leading brokerage firms are bullish on the fortunes of the company in view of growth in the sector both spread in infrastructure and gradual increase in spending on healthcare.

Fortis Healthcare has fixed a price band of Rs 92 to Rs 110 against the pre-IPO placement at an average price of Rs 144 thus giving an opportunity to investors for a handsome appreciation in the share price.

FHL, which is positioned as a world-class integrated healthcare delivery system entailing the finest medical skills combined with compassionate patient care, is well positioned in the current scenario wherein the healthcare sector is riding on the growth of infrastructure, shifting demographics and the gradual spend on healthcare insurance amongst Indian population.

Analysts from HDFC Securities said in their report that "the tremendous scope in the healthcare industry is yet to trickle down to the micro level due to the peculiarities of the Indian market. It would be anybody's guess as to the speed with which this will happen going forward."

After clothes and food, big industrial players are perking up the retail health segment by providing round-the-clock healthcare, including counselling and out-patient services, they observed.

Fortis has a strong portfolio in specialties such as cardiac care, orthopaedics, neuro-sciences, renal care, oncology, gastroenterology, diabetology, pulmonology and mother and child care.

HDFC Sec Morning Reports

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HDFC Sec - Construction/Infrastructure

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HDFC Sec: Subscribe to ICRA IPO

HDFC Secutiries Retail Research, in a research report released on March 15, has asked investors to apply for listing gains.

The report said: "At a price band of Rs 275– 330, the stock is offered at 15.2x–18.2x FY07 fully diluted EPS. Given the steady economic growth, visibility in revenues on account of consolidation and widening of services, one could see continued growth in topline and bottomline of the company.


"The new segments like the information technology services and outsourcing services could bring in large contracts from the IT sector thus giving a thrust to margins going forward apart from diversifying revenue streams. Any move in future by Moody’s to hike its stake in the company from the current 28.1% (Post issue) could be a further trigger.


"Selling shareholders of ICRA are offering shares at 15.2x – 18.2x FY07 EPS (Post issue). This is cheap compared to the valuation at which its large competitor, CRISIL, quotes. Although CRISIL is much larger in terms of size/services offered and S&P holds 55% of CRISIL’s equity, the IPO of ICRA offers scope for gains due to expected narrowing of the valuation difference unless the valuation of CRISIL itself falls dramatically by the time ICRA’s shares are listed. One could apply in this issue for listing gains."

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HDFC Sec - Power Transmission

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Thanks Vishesh