Dead Presidents! - India Equity Research: Man Financial

Showing posts with label Man Financial. Show all posts

Wednesday, June 20, 2007

Man Financial - ICICI Bank FPO

Man Financial in their report on ICICI Bank FPO

We recommend a Subscribe to the issue at the lower end of the price band. Our fair valuation works out to Rs 968 on a SOTP basis. Key upside risks to our target price remain in the form of the difference between market-implied valuation and our valuation of ICICI Financial services (Rs 53/share incorporating a holding company discount of 20%) and in case of a higher P/BV multiple being ascribed to ICICI Bank by the market on account of its impressive track record.

Saturday, June 02, 2007

Havell's India, Mahindra & Mahindra, HPCL

HSBC in their report on Havell's India

We lower sales expectations on volatile copper prices; cut standalone EPS forecast by 11% and 20% for FY08e and FY09e to INR26.3 (+38% y-o-y) and INR32.1 (+22.4%)
Sylvania acquisition should be earnings-accretive even at 10% equity dilution; consolidated EPS for FY08e and FY09e estimated at INR34.4 and INR39.4, 31% and 23% higher than standalone, respectively Await more information on the acquisition; retain Overweight (V) rating and revise target price to INR631 from INR635

HSBC in their report on Mahindra & Mahindra say,

PAT for core auto and farm equipment business up 11.6% y-o-y, and for the remaining divisions, up 147% for FY07 We estimate contribution of non-auto and tractor business to total EPS is likely to go up to 57.5% in FY08 from 48.6%
currently Maintain Overweight with sum-of-parts valuation based target price of INR950/share. Restructuring of auto-parts business and potential IPO of hospitality division should help off-set lower value of auto and tractor divisions

Man Financial in their report on Mahindra & Mahindra

Mahindra and Mahindra's (M&M) Q4FY07 results were in line with our estimates, both on the top-line and bottom-line front. However, operating margins were under pressure and fell 50bps YoY to 11.4%, below expectations. M&M stock is down by about 24% from its peak in January 2007, turning the valuations attractive. We continue to believe that M&M is one of the best plays on the growing Indian automotive industry from a long-term perspective. Maintain BUY with target of Rs 1060, based on SOTP valuation.

Merrill Lynch in their report on HPCL

Attractive dividend yield, P/BV of 0.99; retain Buy
HPCL's FY07 EPS, at Rs46.4, is almost 4x FY06 EPS of Rs12. Quality of FY07 earnings is admittedly poor as it is entirely attributable to oil bonds. There is also uncertainty on FY08E earnings. However, recent government decisions suggest bond issue may be generous even in FY08. HPCL's dividend yield is attractive - 6.5% for FY07 and 5.4% for FY08E. It is also cheaper than peers on PE and is trading marginally below estimated NAV. We retain our Buy rating on HPCL.

Omax Auto, IVRCL, VSNL, HPCL, India Strategy,Crompton Greaves

Man Financial on IVRCL

IVRCL's Q4FY07 numbers are much above our expectations with sales growth at 67.5% against expectations of 40.2% growth and margins increased to 10.6% as against expectations of 9.5%. With a healthy outlook for the core business and value creation from its real estate ventures, four special purpose vehicles (SPVs), and a strong performing subsidiary, Hindustan Dorr Oliver (HDO), we increase our target price to Rs 448 and maintain BUY.

Man Financial - Crompton Greaves

We expect consolidated eps of Rs 10.2 and Rs 12.5 (excluding upsides from Ganz and newly acquired Microsol) in FY08E and FY09E respectively. CG trades at a PER of of 23x FY08E and EV/EBITDA of 13x FY08E. We currently have a Outperformer rating on the stock. The rating is under review.

Man Financial on HPCL

* HPCL's quarterly results were above estimates as there was marketing over-recovery for Q4FY07 due to higher-than-expected subsidy-sharing by upstream companies.
* Although the refining margins recovered in this quarter, they were slightly disappointing as they lagged industry trends.
* We maintain our Neutral rating with a price target of Rs 315

JP Morgan on VSNL

Valuations and stock view. We maintain neutral rating on VSNL stock with Jun-08 SOP price target of Rs500 (Rs475 previously). Our SOP includes Rs235 from the India business, which we have valued using DCF (implied FY08E EV/EBITDA is 6.0x). Stock is likely to remain in a trading range and we would consider buying around Rs400/share level.

Risks to our view. Downside risks are competition, adverse regulatory changes (regulation of access to cable landing stations) and delay in cash breakeven of TGN. Upside may come from unlocking of surplus land value. Furthermore, listing of RCOM's cable assets (FLAG) could also boost investor outlook on the value of TGN submarine cable system.

JP Morgan on India Strategy

Earnings expectations lowered. Over May, consensus earnings estimates for FY08E & FY09E were revised down by 1.2% and 1.6% respectively. The trend in terms of breadth also remained weak - 29 out of 67 stocks in the MSCI India saw upward revisions, while earnings for 36 stocks were revised down for FY08.
· Consumer, healthcare and financials lead downward revisions. Earnings estimates for the metals, industrials and energy sectors were revised up, while for consumers, healthcare and financial sectors were reduced.
· Earnings expectations and index performance. An analysis of changes in historic and forward EPS expectations vs stock prices indicates significantly higher correlation in the case of materials, financials and consumer discretionary and relatively weaker relationship in the case of IT services, healthcare, telecoms and industrials.
· Key consensus earnings and recommendation changes. Among the stocks mentioned, we have Overweight rating on Jet Airways and Underweight on Bajaj Hindusthan and Arvind Mills

SSKI on Omax Auto

Omax's Q4FY07 revenue and profits have been in line with our expectations, though operating margins were below our expectations. Q4FY07 net sales growth was strong at 27.6%yoy (Rs1.81bn), though operating margins were lower by 130bps qoq (higher 90bps yoy) at 9.1%. Operating profit grew by 42.6%yoy to Rs163m and net profit grew by 10.3%yoy to Rs54.6m, impacted by higher depreciation and interest charges.
The company has trimmed its export target for FY08 to ~Rs400-Rs500m against its earlier target of Rs500-Rs600m. The company's margins which had improved in the first nine months of FY07 due to the company's cost saving initiatives have surprised us negatively in Q4FY07 with an increase in overheads and conversion costs. Further, Omax Auto is not likely to derive any significant cost benefit in its steel procurement from Omax steel as the company's steel production and rolling mill project has not scaled up as planned and the company is now also considering an option of divesting part of its stake in Omax Steel (76% at present). In view of these factors we have lowered our revenue estimates by 4.7% in FY08 and 3.1% in FY09 and also lowered our margin estimates by ~70bps for FY08 and ~30bps for FY09. This has led to a sharp downgrade of 15.8% in earnings for FY08 and 5.3% for FY09. Notwithstanding the sharp earnings downgrade in FY08, valuations at PER of 6.0x and EV/EBIDTA of 4.2x FY09 estimates appear attractive. Maintain Outperformer with revised price target of Rs122 based on PER of 8.0x FY09.

Tuesday, May 29, 2007

ITC, Thermax, Gokaldas, IGL, Patni

UBS on ITC

ITC's FY07 cigarette growth, at 7%, was in line with our estimate, and cigarette segmental revenue growth was 13.3%, aided by an estimated 2-2.5% of weighted price increase and 3-3.5% mix improvements. Gross revenue grew 20.2%, and net revenue grew 26.3%. FY07 operating profits rose 19% YoY. PBT was up 20% but a higher tax rate caused PAT to grow by a little less (18.4%).

Our price target of Rs160 is benchmarked against 18x FY08E earnings, which is the mid-point of ITC's long-term trading band. We maintain our Neutral 2 rating.

Prabhudas Lilladher on Gokaldas Exports

Based on the revised earnings estimates of Rs 24.3 and Rs 31.0, the stock is trading at PER of 9.1x and 7.1x FY08E and FY09E respectively. We maintain our BUY rating on the stock given the attractive valuations and set a 12-month price target of Rs 291 (12.0x FY08E EPS) giving an upward return of 32%.

Man Financial on IGL

Indraprastha Gas Ltd.’s (IGL) Q4FY07 results were much ahead of our expectations with positive surprise in sales volume
• Net sales were up by 21.1% at Rs 1,643mn while net profit was up by 35.6% YoY at Rs 401mn.
• Increase in CNG and PNG volumes by 11.6% and 44.4%, respectively, boosted revenue and net profit growth
• We maintain our Buy rating on the stock and a target price of 135

Citigroup on Patni Computers

Significant outperformance — After outperforming the BSE IT index by 50% in the past 2 months, we downgrade Patni to Sell/Medium Risk. High valuations, coupled with execution risks, tilt the risk-reward profile to the downside.

Why we had upgraded the stock? — We had upgraded Patni based on thefollowing: (a) cheap valuations; and (b) it being an M&A candidate with its cheap valuations and decent size.

Target price at Rs565 — The apparent M&A premium in the current valuations,putting the stock on a par with Satyam, is difficult to justify, in our view. An upside risk remains potential M&A announcements. Our new target price is Rs565, based on a 15% discount to Satyam.

Citigroup on Thermax

Strong recurring PAT growth — Thermax reported Q407 consolidated recurring PAT of Rs668mn, up 74% YoY and 35% ahead of our expectations. Higherthan- expected revenues, EBITDA margins, other income and lower-thanexpected taxes helped boost recurring PAT growth.

Order backlog up 66% YoY, guidance positive — Thermax FY07 end order backlog was Rs36.72bn, up 66% YoY. Management has guided for more than 40% revenue growth in FY08. We await further details in the conference call to be held on May 30.

Maintain Buy (1L) — Thermax remains one of our top picks in the Electrical E quipment and Engineering space. TARGET of Rs 562

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.

Monday, May 28, 2007

Ramakrishna Forgings, EKC, Centurion Bank of Punjab, BPCL, Offshore Service Providers

Man Financial says Ramakrishna Forgings's topline is higher than
expectations, but faced pressures in the bottom line due to higher
depreciation and tax provisioning. They maintain a BUY with a target of
197

ICICIDirect recommends a BOOK PROFITS on EKC. At the current price of Rs
1063, the stock is richly valued at 20.79x its FY09E earnings per share of Rs 51.12. They believe that investors should book profits.

SSKI recommends OUTPERFORMER on Centurion Bank of Punjab

CBoP has reported Rs280m net profit (9% yoy growth) for Q4FY07 in line with our expectation of Rs282m. Higher standard asset provisioning led by one time hit of Rs198m (as expected) largely offset the benefits of the continued momentum in core income streams . Given its inherent duration mismatch, the bank was vulnerable to rising deposit rates leading to pressure on margins. CASA ratio also declined to 31% (decline of 300 bps QoQ ) considering the rapid balance growth . A latent significant operating leverage continues to be the key attractions of the bank. We have marginally downgraded numbers by 2.5% and 1% in FY08 and FY09 to reflect the higher provisioning. Going forward, we expect 46% CAGR in CBoP's earnings over FY07-09E. Though valuations of 4.2x FY08E and 3.8FY09E Adj P/BV appear expensive, they do not price in the high RoE generating capacity of the retail focused business model and low market cap/assets vis-à-vis peers . Maintain Outperformer.

SSKI Recommends OUTPERFORMER on BPCL

Bharat Petroleum Corporation's (BPCL) Q4FY07 results ¿ net profit of Rs 6.7 bn ¿were in line with our estimates of Rs 6bn. During the quarter, BPCL received Rs 9 bn in the form of oil bonds and Rs 11.84bn as upstream share that more than compensated for the negative impact of total under recoveries of ~Rs18.5bn. We upgrade the stock to Outperformer to factor in an expected improvement in fuel marketing margins driven by lower crude prices. Reiterate outperformer with a price target of Rs431.

Emkay recommends investing in Offshore Service Providers

We believe that fundamentals for offshore service providers remain extremely strong. Adding icing on the cake is the long term nature of contracts, which we believe provides unprecedented visibility of future earnings. We believe that the Indian offshore oil field services are very attractively valued with the group trading at an average two year forward P/E multiple of 8X. We believe a confluence of strong fundamentals, high earnings visibility, attractive valuation and strong possibility of re-rating should ensure superior stock performances by the entire pack of Indian offshore oilfield service providers. We initiate coverage on the sector with a positive view and BUY ratings on all the companies under coverage. Our top picks in the sector remain Aban, Great Offshore and Garware Offshore.

Sharekhan Recommends Aurobhindo Pharma

At the current market price of Rs684, Aurobindo is trading at 14.9x its FY2008E and 12.0x its FY2009E earnings. We initiate coverage on Aurobindo with a Buy recommendation and a one-year price target of Rs914 (an upside of 34% from the current levels). The price target discounts the FY2009E earnings by 16x.

Sunday, May 27, 2007

House Chitter Chatter

ISEC recommends BUY on BPCL at 371 with a 12 month target of 540-566.BPCL seems attractive on current valuations given the robust outlook on refining margins and benign Government policy on under-recovery sharing. Proposed reforms on CST, octroi and a possible fuel price increase post the Uttar Pradesh elections would provide further impetus.

ISEC recommends BUY on Mahindra & Mahindra at Rs.735.EBITDA margin expansion is likely to drive net profit growth of 28.8% YoY.

ISEC recommends BUY on Indraprastha Gas at Rs.110. Net income expected to surge 20.7% YoY to Rs360mn. CNG, PNG volumes and depreciation are the key factors to watch for

KR Choksey says Patel Engineering is the cheapest stock amongs its peers
and can deliver good returns.

CLSA recommends RCOM with a price target of 514

Prabhudas Lilladher recommends Dabur at CMP of Rs 98 which is trading at
25.2x FY08 earnings and at 21.5x FY09 earnings. They continue to remain positive on the company and believe that Dabur would be able to sustain its premium valuations in view of its strong growth appetite. Therefore maintain an Outperformer on the stock at the current levels.

Man Financial upgrades NIIT Tech to BUY with a target of 660 which is
12x FY09E earnings.

SSKI recomends OUTPERFORMER on BPCL with a price target of 431

SSKI recommends Centurion Bank of Punjab with a OUTPERFORMER