Hindustan Zinc, Oberoi Realty, Hindustan Constructions

Hindustan Zinc, Oberoi Realty, Hindustan Constructions

HDFC Bank, Hindustan Unilever, JSW Steel, Dr. Reddy's Laboratories, Marico,Hindustan Construction

HDFC Bank, Hindustan Unilever, JSW Steel, Dr. Reddy's Laboratories, Marico,Hindustan Construction

HCC - Lavasa Visit

HCC - Lavasa Visit

Hindustan Construction

We recommend a sell in Hindustan Construction Company from a short-term trading perspective. After recording a 52-week low at Rs 28.8 on March 12, the stock reversed direction and began to move north. However, around Rs 125, the stock encountered resistance and started to lose momentum. Triggered by the negative divergence in the daily RSI , the stock started declining. On June 8, it dived 9 per cent followed by a 7-per cent decline on June 12. The weekly RSI is declining from the overbought levels. The daily moving average convergence and divergence indicator is signalling a sell. Our price target is Rs 94. Traders with short-term perspective can sell the stock while maintaining a stop-loss at Rs 112.

via BL

Hindustan Construction

Hindustan Construction

Hindustan Constructions

Hindustan Constructions

Hindustan Construction

Hindustan Construction

Hindustan Constructions, Reliance Industries, Maruti Udyog,

Hindustan Constructions, Reliance Industries, Maruti Udyog,

Cairn India, ITC, Hindustan Constructions,

Cairn India, ITC, Hindustan Constructions,

Motilal Oswal - Hindustan Constructions

Motilal Oswal - Hindustan Constructions

House Chitter Chatter - May 29 2007

UBS on Suzlon Energy

We estimate the payment over three years of the estimated acquisition cost of Rs52bn would enable Suzlon Energy (SUEL) to sustain its ROIC over next three years even after Suzlon's estimated capex of Rs36bn over 2008-10E. This is despite, at full acquisition cost, the acquisition could yield a 7.1% EBITDA ROIC in FY09E and 11.6% in FY10E.

We increase our price target from Rs1,100 (on 18x FY09E EPS) to Rs1,250 (which is based on 19x our 12m forward EPS), to reflect a 5% discount to BHEL's price target. We maintain our Reduce 2 rating.


SSKI on IVRCL

IVRCL's 4QFY07 net profit was above our estimates at Rs732mn (+67% yoy) primarily due to higher than estimated revenues and operating margins. The operating margins expanded by 140bps to 10.8% during the quarter led by execution of higher margin orders during the quarter. Moreover, IVRCL has provided tax during FY07 accounting for 80IA tax benefits mainly to preserve its claims with IT Tribunal. We have upgraded 8.8% and by 6.6% for FY08 and FY09 respectively (after factoring a tax rate of 34%) led by higher than estimated operating margins. Going forward, IVRCL is planning to unlock value in its real estate business by listing the real estate subsidiary (IVR Prime- IPUD) over the next 2 months. We have valued the 2300 acres land bank of IVRCL¿s 80% subsidiary IPUD at Rs168/share. The stock is currently trading at 9.9x on FY09E earnings (adjusted for BOT, real estate and HDOL value of Rs201/share). We believe the stock is attractively valued considering its strong order book, healthy balance sheet and strong earnings growth coupled with the likely trigger of value unlocking in its real estate business. We maintain our Outperformer rating on the stock.

SSKI on Nagarjuna Constructions

Nagarjuna Construction Company (NCC) reported 4QFY07 results higher than our estimates led by higher than estimated other income and lower tax rate. Revenues grew by 36% yoy to Rs8.7bn, while operating margins improved marginally by 10bps to 8.4% during the quarter led by higher margin real estate division revenues. As a
result, net profit grew by 43% yoy to Rs499mn in 4QFY07. The order backlog grew by 34% yoy to Rs73bn driven by order booking of Rs11.4bn (+4% yoy) during the quarter. However, we have downgraded our earnings estimate by 2% and 4% for FY08 and FY09 respectively led by lower than estimated operating margins. The stock is currently trading at 10.9x FY09E earnings (net of BOT and real estate valuation of Rs41/share), which we believe is attractive considering its strong order book and resultant visibility of strong earnings growth over FY07-09. We maintain our Outperformer rating on the stock.

SSKI on Unitech

Unitech reported a 308% yoy growth in Q4FY07 standalone revenues to Rs8.5bn, marginally below estimates. EBITDA increased by 766% yoy to Rs5.1bn, led by strong realisations in the company's key markets in the NCR. Consequently, EBITDA margins improved to 60.1% in the current quarter from 28.3% in Q4FY06. For FY07, Unitech reported a 168% yoy growth in consolidated revenues to Rs32.8bn, driven by strong realisations across key markets like NCR and Kolkata. The strong realisations and sale of stake in IT parks to Unitech Corporate Parks also resulted in a strong 1087% yoy growth in EBITDA to Rs20bn. We are not changing our FY08 earnings estimates and expect Unitech's profits to rise by 118%yoy to Rs27.4bn. We like Unitech's strategy of pan India presence, focus on residential development and outright sale / exit from non-residential properties, which improves its capital utilisation and enables it to grow its land bank rapidly. We maintain our Outperformer rating on the stock.

SSKI on Jain Irrigation

Taking a big leap in its pursuit to increase presence in the key MIS markets globally (India, US, Israel and Africa), Jain Irrigation has acquired majority stake (50% + 1 share) in Israel based irrigation company - NaanDan for US $ 21.5m. This is the largest acquisition by Jain Irrigation. NaanDan (a co-operative) enjoys a strong equity in the Israel market and does revenue of around US $ 75m annually. We see immense merit in the deal, as JISL gets a foothold into one of the largest MIS markets (Israel), opportunity to introduce its sprinklers systems in Israel, access to NaanDan's manufacturing and distribution network in USA, Africa, Europe, Latin America and Australia and attractive valuations of less than 0.6x revenues (Plastro, Israel was sold at 1x revenues to John Deere). We continue to maintain our positive stance on JISL, given the high growth traction in the existing operations and appetite to operate in global market through inorganic route. Reiterate Outperformer.


SSKI on HDFC

HDFC has announced a preferential allotment of 18m equity shares at Rs1,730 per share (aggregating Rs31.14bn) to the Carlyle group and Citigroup Strategic Holdings Mauritius Ltd . Post the transaction, Carlyle would own a 5.6% stake in HDFC while Citigroup's holding would be maintained at 12.3%. The capital is being raised primarily to finance the rapid expansion of HDFC Bank and HDFC Standard Life Insurance Company. To factor in the equity dilution, we are downgrading our EPS estimates for HDFC by 4.2% and 3.8% for FY08 and FY09 respectively (while upgrading profit estimates by ~ 3% for FY08 and FY09). Considering the significant infusion in the life insurance venture, we are revising our value of life insurance subsidiary from Rs273 per share for FY09 to Rs297 per share. Adjusting for the strategic investment valuation of Rs570 per share for FY09, the stock is available at 2.75x FY09E adjusted book value (diluted basis). We reiterate Outperformer with a revised price target of Rs2,200 after factoring in the impact of equity dilution.

Motilal Oswal on United Spirits

We estimate that Whyte & MacKay will contribute £0.6m (before exceptional one-time costs of £7m-£10m) and £13m to the consolidated profits after interest payments in FY08 and FY09 respectively. We expect United Spirits to pay back debt taken in the SPV up to £200m from the sale of treasury stock after the merger of Shaw Wallace which can result in profits and EPS being higher than our estimates. We maintain Buy.

Motilal Oswal on PNB

While higher delinquencies is concerning and would require higher provisions going forward, a high CASA of 46%, would result in stable margins for PNB. Growing fee income at a strong rate is commendable. Going forward, we expect consistent trend in NII coupled with a lower risk on the bond portfolio. The stock trades at 1.2x FY09E BV and 6.7x FY09E EPS. Maintain Buy.

Man Financial maintains Neutral on BPCL

Citigroup on Nifty

The index opened on a strong note but was unable to hold onto its opening trade gains. It posted an intra-day high at 4296 then drifted down through the entire trading session to end the day up 5 points.

The index has support around the 10dma at 4222 and 4200 -(62% retracement of the past two trading sessions' gains from a low of 4141 to a high of 4296. Intra-day dips should find support in the 4222- 4200 band.

The index faces resistance at 4291 (high of 23 May 07),while consolidation in the 4291 and 4200 band can be expected until it1 remains below 4291 on a closing basis.

Expect intra-day range-bound movement in the 4191-4222 band.


EQM on P&G

At the current price of Rs 760, the stock trades at a price-to-earnings multiple of 18.4 times its trailing 12-month earnings. Capitalizing on the opportunity existing in the hygiene segment, PGHH is likely to benefit from the same going forward. It is now a focused two-product company, with both these brands in the lifestyle segment. The move to divest the low margin segment of contract manufacturing has also paid off and will contribute to the margin expansion. However, increasing competition will continue to remain a cause for concern.

EQM on ITC

At the current price of Rs 168, the stock is trading at a price to earnings multiple of 23.4 times its 12-months trailing earnings. The strong performance of the non-cigarette business is positive for the company. With duties on cigarettes increasing, the volumes could be impacted to a certain extent. Hence, lower dependence on this segment would benefit the company in the long term. We derive comfort from the fact that the company has been able to run its other businesses rather successfully and are positive on the company from a long-term perspective. Valuations from a medium term perspective though, look stretched.


Geojit on Usha Martin

At current market price of Rs. 244.75, the share (Rs. 5/- paid up) is trading at 9.3 times FY 2007 consolidated EPS of Rs. 26.3 and 6.2 times FY 2008 expected consolidated earnings of Rs. 40/-; Company¿s earnings will receive major boost with progress / completion of above expansion plans. In view of excellent prospects, we recommend to 'BUY' the share at CMP.

Hindustan Construction: Sell

Hindustan Construction's revenue and profit numbers continued to disappoint on the back of start-up and execution delays and mounting losses from the Bandra-Worli project.

The company's balance-sheet also faces the pressure of fresh capital for the various projects in its core business and real-estate ventures. HCC's strong order backlog therefore does not provide much visibility in the near term.

Investors can consider switching to other infrastructure stocks to prevent any opportunity loss given the bright prospects for the sector. Hindustan Construction's performance over the next couple of years may provide direction for fresh investments

At the current market price, the stock trades at about 32 times its expected earnings for FY-08 on a diluted basis. This valuation is at a premium to a number of peers and also appears to have captured earnings the potential of its real-estate ventures. But we believe this to be a bit premature, given the long-term nature of real-estate projects, and HCC's ventures being at a preliminary stage. We would be comfortable valuing the real-estate projects once the realisations trickle in.

Huge orders, less comfort

While Hindustan Construction's order backlog of Rs 9,300 crore provides optimism, the execution has not been smooth to provide the much-needed visibility to earnings growth. Apart from natural hazards, such as heavy rain and snowfall that have delayed projects, the company has been facing delays due to non-completion of land acquisition by clients.

This apart, the above order backlog includes Rs 1940-crore worth of HCC's share of the Sawalkote hydel project, which is subject to the decision of High Court. The company has also decided to remove Rs 151 crore of the Icha Dam project, as there is no development on that front though the order award stands. Our concern on the delays stems from the fact that apart from delaying revenue flows, such projects may become unviable or less profitable by the time the execution begins.

Power projects account for 48 per cent of the current order backlog. While this is a positive (as the segment provides relatively lucrative margins), hydel power projects typically have a long gestation period and require fresh capital investments.

Profitability

The company continued to book losses from the Bandra-Worli Sea Link project and expects to book another Rs 110 crore of losses. The losses arose, as the Maharashtra State Road Development Corporation did not accept some price variations apart from new additions to the project work not bargained for initially.

While there is some optimism in receiving claim for the latter issue, the rest is subject to arbitration. Any positive ruling in HCC's favour may well see improvement in margins. For now, the losses are expected to be booked up to 2008 and would continue to drag the margins over the next few quarters.

There was a steep rise in HCC's staff and interest costs. The interest coverage ratio for FY-07, though comfortable at 2.9 times the profits, has nevertheless declined from over four in FY-06. We do not expect the interest cost to ease as the debt component can only go up, with the company tying up with banks for partly funding the real-estate projects.

A positive feature is that the company has managed to maintain its OPM in the 9 per cent range as raw material and construction costs remained under control. As power projects now form a larger chunk of the order book, the OPM may improve once these projects start yielding returns.

On the removal of Section 80 IA benefits, the company had to effect only accounting treatment and did not have any cash outflows as it had either paid taxes and made claims or created provisions for the same. Hence, the net profits have not been affected as much as other peers on account of this issue.

Real-estate Investments

The company has so far invested Rs 550 crore in the Lavasa Project and would require additional investments of Rs 300 crore over the next couple of years. While the company plans to launch the first phase in the market in October 2007, the 12,500-acre project is a long-drawn one and may see revenue flows in a phased manner.

Investors need to watch the development in this project before factoring any income from the company's real-estate venture. Further, that the company has shelved plans for a township in Navi Mumbai and decided to convert its Vikhroli (a Mumbai suburb) project into a corporate park instead of an IT Park planned earlier appears to reflect lack of clear strategy and foresight for these projects.

While real-estate is a natural extension for an infrastructure player and a number of companies have ventured into this space, our caution stems from the following: HCC's project portfolio have traditionally been long-term in nature. Its foray into real-estate has been made with the over 10-year-old Lavasa project. A long-term pay-back period, possible dilution in earnings as a result of huge capital necessitated by the nature of projects and execution risks do not augur well for this otherwise established company's earnings visibility in the medium term.

If the pace of execution of the company's core and real-estate business improves and arbitration issues get sorted quickly, the medium-term picture may turn positive. This possibility remains the principal risk to our recommendation.

Indiainfoline Result Reports

Bank of India

Ceat

Garware Offshore

Godrej Consumer

HDFC Bank

Hexaware

Hindustan Construction

Hindustan Zinc

India Cements

KEC International

Maruti Udyog

NALCO

Reliance Industries

Satyam Computers

Wipro

Zensar Technologies

Indiainfoline - Hindustan Construction Company Ltd.

BUY

CMP: Rs168

Hindustan Construction Company Ltd (HCC) expected to witness a CAGR of 42.2% between FY06 and FY08 backed by a burgeoning order book position, which leaped by 79.7% yoy in FY06 and is presently at Rs91.4bn, 4.6x its FY06 turnover. The average execution period stands at 3.5 years. The order intake at 2.9x its execution in FY06 has been the highest in the last five years, giving an indication of higher growth to come. HCC’s track record and proven capabilities leaves little room for concerns on the execution front. Further, HCC’s strategy of executing fewer contracts (25 odd currently) and focusing on large ticket orders will help timely completion and
leaves resources in hand for further scale up.

We expect the Lavasa project to add significantly to HCC’s valuations post
completion of phase-I, expected by March 2007. We value HCC’s equity holding of 60.5% at Rs24.1 per share (18.9% of CMP), based on the market price of the recent sale of land (Rs4mn per acre), post a 25% discount. As part of its other real estate plans, the company has development plans for its nine acres land (TDR at Rs400mn) in Vikhroli (W), Mumbai and is scouting for land bank to acquire 1,000 acres by March 2007.

HCC is awarded its maiden annuity and toll based projects in roads for Rs2,720mn and Rs280mn respectively, helping it test waters in the BOT format. The company
is prepared to pitch for more BOTs in future. HCC is also planning a foray into the EPC space in the hydropower segment, which commands high margins. It has received intimation for 1,200 MW valued at Rs43.1bn; HCC’s share being Rs19.4bn.