Weekly Report - Dec 24 2007

Weekly Report - Dec 24 2007

Rolta India: Hold

Investors can retain their holdings in Rolta India with a 12-18 month horizon, considering its fair growth prospects. At the current market price (Rs 677), the stock appears richly valued at 25 times and 20 times its estimated current year and 2008-09 earnings respectively.

This is close to the valuations enjoyed by KLG Systel and Infotech Enterprises (not strictly comparable), but at a significant premium to most Tier-II players in the IT space.

Investors can retain holdings and consider fresh exposures only on a substantial dip in stock prices. Amidst an uncertain environment for Tier-II IT companies, in general, the company has managed strong growth on the back of a domestic focus and niche areas of business. This has helped the stock deliver strong gains in recent months.

Rolta provides geo-spatial information systems (GIS) services such as digital mapping and photo-grammetry. Engineering design services is another area of operation.

Rolta also offers traditional IT services in partnership with Computer Associates and Enterprise Application Services with Oracle.
Business Drivers

Government orders and domestic theme: Rolta provides GIS services to a wide range of customers. This involves interpretation of satellite images, remote sensing and geo-spatial data modelling, which are delivered to agencies such as the Ministry of Defence, National Remote Sensing Agency, Survey of India, Airports Authority of India, as well as to a few non-government clients.

By the very nature of their operations, these organisations require constant upgrade and maintenance of imaging data. Rolta appears well-placed to tap potential repeat business, given its significant presence in this space and execution track record.

The telecom angle: Rolta also works with telecom companies in Europe and North America for enabling provision of geographic information/digital mapping services on mobile phones.

This is a feature that may help provide information about hotspots, traffic information, hotels and the like, which have high levels of usage in those countries. This constitutes another revenue stream.

This apart, as and when 3G services are commenced in India, Rolta, which works with BSNL as well, may be well-positioned to extend this service to Indian operators as well.

Engineering design and automation: This is another area where Rolta has been able to piggyback on India’s domestic infrastructure spend.

Its engineering design services cater to engineering, power, refinery and the shipping industries. Rolta’s services here cater to a good part of the engineering services value chain.

These are high growth sectors and Rolta has clients in such areas in India, West Asia and the US as well. Engineering services also commands higher billing rates than GIS services and has been growing at over 35 per cent for the company and may improve realisations.

The geographical spread and capabilities also means that it may be well-placed to latch on to the next wave of outsourcing, which is believed to have engineering services outsourcing as a chunk. The company has a joint-venture with Thales, a player in critical information systems working with aerospace, Defence and security market. This JV may help Rolta corner any outsourcing to the JV done by Thales’ clients.

Another JV has been forged with Stone & Webster in the engineering services space, enabling the company to work in areas such as nuclear power engineering.

The JV is revenue-accretive to Rolta, and is executing projects in Singapore. The two companies are also seeking to capitalise on any opportunity arising out of the Indo-US nuclear deal, when it is completed.

Rolta has a strong order-book of over Rs 950 crore for the current year. The strong domestic focus means that the company is well-placed to weather rupee appreciation risks. The company operates at a 40 per cent earnings before interest, tax, depreciation and amortisation (EBITDA) margin, placing it well above levels enjoyed by Tier-II players.

The company also has recurring revenues of about Rs 150 crore for this year, up 25 per cent over last year.
Risks

The company derives nearly 38 per cent of its revenues from government orders. This means that receivables cycles could be much longer than is the case with other software companies. There are certain projects where complete payment is received only after the warranty period.

These may place higher demands on working capital requirements.

This apart, in the traditional IT services business, the company has to contend with heavy competition from the top and Tier-II players.

Television Eighteen India: Hold

Through quick, successive moves in the print business, Television Eighteen India (TV 18) has added a missing link to its media value chain. With a presence that straddles television, Internet and soon print media, a demonstrated ability to strike the right partnerships to execute its plans, a leadership position in the electronic business news space and a clutch of Internet properties that hold potential for value unlocking, TV 18 remains the preferred stock in the media space.

Expensive valuations

But much of this is already captured in the stock’s current valuations, offering limited potential for strong upside in the near-term.

Adjusting for the valuation of its web properties (estimated at 15 times the likely FY-09 sales), the stock, at Rs 473, still trades at about 45 times its FY-09 earnings per share. This assumes significant growth rates for its existing businesses and success in new forays. But the company’s track record in execution inspires confidence, supporting our ‘hold’ recommendation.

However, TV 18 will remain in a heavy investment phase in the medium term. The print business has a longer gestation period than television and earnings could be impacted by losses from initial years; details are awaited on how the print business will be structured. Its flagship channel, CNBC TV 18, best known for its stock market focus, may suffer declines in viewership, should there be a change in investor sentiment.
Print plans in ink

TV 18’s long-expected foray into print has now been firmly inked. The Rs 178-crore acquisition of a 40 per cent stake in Infomedia India marked its entry into the segment. TV 18 intends to acquire a controlling stake in the company, by making an open offer to Infomedia’s shareholders for 20 per cent.

If the offer is not successful, TV 18 has the option to acquire an additional 13 per cent stake from existing promoters, ICICI Ventures.

The acquisition will provide the company access to the yellow pages directory business and, more interestingly, the special interest magazine segment, which includes magazines such as T3, Cricinfo, Overdrive and Better Interiors.

It will also provide it access to printing facilities. That would come in handy in publishing the English business magazine that TV 18 proposes to launch in 2008, in association with reputed business magazine Forbes Media.

This involves a content licensing arrangement and may extend to the introduction of other Forbes products, subject to regulatory approvals.

TV 18 also announced a simultaneous entry into the rapidly growing regional print market through a 50:50 joint venture with Jagran Prakashan, publishers of the leading regional newspaper — Dainik Jagran. Plans are on to launch a Hindi business newspaper in 2008, to be followed eventually by business newspapers in other regional languages.
Well-conceived strategy

The print business involves higher capex spends, requires an extensive distribution network, and a new player generally takes a longer period to penetrate the market and break-even compared with a new television channel, even if good content is taken as a given.

However, TV 18’s foray into the market appears, on first take, well conceived. The acquisition of Infomedia’s printing facilities, distribution network and a clutch of its brands may reduce time to market. TV18 also has strong partners in Forbes and Jagran Prakashan, which bring in their experience in print.

Secondly, it has entered the English business magazine segment, where there is less competition. In contrast, there are five-six players competing in the English business daily segment, some of them with considerable financial muscle. In the regional print segment, again, there is no existing business newspaper. TV 18 also has experience in Hindi business news, courtesy its Hindi business channel “Awaaz”.
Heavy investment phase

But TV 18’s recent forays are likely to require substantial investments over the medium term. Besides investing in the print business, it will have to continue to pump in money to improve the profitability of its recent acquisitions; Newswire 18 is still loss-making, while Infomedia’s earnings have been weighed down by declining margins.

Significant investments are also being made in Web 18, which operates web portals. This segment is not making money yet, although a series of acquisitions and new Web site launches has ensured a strong increase in revenues.
Value unlocking

Revenues from its Web operations in the first half of FY 08 were at Rs 21 crore, as against Rs 25 crore in the whole of FY 07. The portals attempt to get their revenues from not just advertising but also subscription, which brings some stability to the business model.

However, the losses from the Web business are a drag on profitability. TV 18’s operations on a stand-alone basis enjoyed margins of over 40 per cent in the first half compared to about 26 per cent on a consolidated basis. TV 18 intends to ultimately list the web business and unlock value; this is already captured in the current valuations for the stock.

But the timing of this event is uncertain and a significant delay in listing the subsidiary is a risk to the stock’s performance.

Greaves Cotton: Buy

Investors can buy the stock of Greaves Cotton with a two-three year holding perspective. Strong growth in the infrastructure equipment business, recent overseas acquisition and product launch, apart from its success in turning around operations, lend confidence to its growth prospects.

Though the stock has been weighed down by concerns about Piaggio setting up its own plant, the company has taken initiatives to improve contribution from the power engines segment and ensure that business does not suffer from the gradual withdrawal of its single largest customer — Piaggio.

The stock trades at 11 times its expected earnings for FY-09 at the current market price. This is at a discount to a few other players in the engines business.
No major threat from Piaggio exit

Greaves Cotton has been supplying 100 per cent of Piaggio’s engine requirements locally. The latter now plans to have its own plant, which is likely to take off by FY-10.

While it is true that Piaggio has been a major customer for Greaves’ single cylinder engine (auto engines accounted for about 57 per cent of its total revenues for FY-07), there are a number of other players in the three-wheeler segment whose relatively low volumes do not allow them to set up their own plant for engines.

While traditional players in the segment such as Bajaj Auto and Force Motors have achieved backward integration through engine manufacturing, newer players such as Atul Auto, Mahindra and Mahindra and Scooters India depend on outsourced engines. Greaves also supplies to a number of regional OEMs. The company’s efforts to broad-base customers may take off by the time Piaggio starts its production, which is two years away.

Greaves’ recent acquisition of a German engine-maker (single cylinder engine) may also provide better technology to the company apart from better access to a global distribution network.

This apart, the success of the one-tonne four-wheeler ‘Ace’ by Tata Motors has induced players such as Bajaj Auto and Atul Auto to enter this space. Piaggio has already launched its four-wheeler in India. Greaves, anticipating this demand, has launched twin cylinder engine for one-tonne four wheelers. Piaggio and Atul Auto are expected to source the same from Greaves. We expect this segment to make a visible contribution to revenues over the next few years.
Expanding non-auto segments

Greaves also makes air-cooled and water-cooled diesel industrial engines that find application in various quarters. The company has managed a 15 per cent share in a market dominated by unorganised players. It is now exploring sources of fuel for dual-fuel gensets on the back of escalating diesel prices. It is also simultaneously looking at introducing enhanced range of engines for industrial applications and gensets, improving its prospects for market penetration.

Similarly, in the agricultural engines segment (portable petrol/kerosene engines), the company has been successful in combating low-cost imports from China. While it makes its own engines, it exports them to China for conversion into power tillers, before importing them.
Not just engines

Greaves has also ramped up presence in road construction and concreting equipment. While there are quite a few players in the construction equipment segment, the concreting segment (consisting of transit mixer, batch mix plants and concrete pumps), is dominated now by Schwing Stetter (India), a subsidiary of a German company. With improved construction methods and stiffer execution time targets, concreting may offer a huge business opportunity.

While the construction segment contributes about 20 per cent to sales, we expect significant growth in the segment, which may also make up for any slowdown in the auto engines segment in the near term.

Greaves had a tepid September quarter on the back of slowdown in three-wheeler sales. Any policy move that further dampens the interest rate-sensitive auto sector may slow auto-engine sales. We however, expect the infrastructure equipment segment to provide some cushion through enhanced volumes from the recently commissioned facility in Tamil Nadu.

Cairn India: Buy

Investors can consider buying the Cairn India stock at the current price of Rs 224 with a medium-term investment perspective. The stock has appreciated 40 per cent in the last one year from its IPO price of Rs 160, undergoing a re-rating in the process. Appreciation from hereon could be slower though, and the stock price will be driven as much by positive news flowing in from the execution of the Rajasthan project as by sustained high oil prices.

Investors can consider acquiring the stock in tranches to exploit any price weakness caused by broad market factors.

Our recommendation is subject to three main risks. First, softer oil prices, which could erode the value of the company’s reserves in the Rajasthan field.

Second, the issue of who should bear the cess payable to the government — Cairn or ONGC — and in what proportion, is yet to be resolved. And, finally, a sustained appreciation in the value of the rupee versus the dollar could impact revenues as pricing is denominated in dollars.
On track

Cairn’s project in Rajasthan is on track to meet the deadline of mid-2009 for the first oil to flow out. The government’s approval for a pipeline to transport the oil to the Gujarat coast removes a major uncertainty surrounding the project –– the stock acquired momentum on news of the approval.

But one more hurdle remains to be crossed on this count as the government will have to approve the additional cost of laying the pipeline, estimated at $800 million (Rs 3,200 crore) including the storage tanks and single point mooring for evacuation of oil by sea.

Cairn has meanwhile gone ahead with the front-end engineering and design for the project and has also placed orders for equipment with long lead times.

The route of the specialised heated pipeline to transport the viscous Rajasthan crude has been planned in a manner that will give it access to existing pipeline infrastructure in the western region and to the refineries located there. Mangalore Refinery and Petrochemicals will be a prime customer for the oil which will be shipped from coastal Gujarat to the refinery.
Appreciating reserves

The sharp run-up in oil prices means that Cairn’s reserves have turned more valuable. Though the oil from Rajasthan will be priced closer to the commissioning of the project, the broad expectation is that it will be sold at a discount of between $5 and $7 per barrel to prevailing Brent crude price.

At current prices, that would mean Cairn will earn around $80-82 per barrel; at the time of its IPO a year ago, it was assumed that it will earn around $50-55 based on the then prevailing prices. Importantly, Cairn will not be weighed down by subsidies such as ONGC.

Cairn has conservatively estimated output from the field at 1,50,000 barrels per day at peak level, but this could increase by about 10-15 per cent with the company employing enhanced oil recovery techniques. The higher output and expected strong oil prices could buoy revenues and earnings in the initial period following commissioning of the project.
Risks to note

The biggest threat to Cairn’s valuation will be a retreat in oil prices. Given the rapidly rising global consumption and tight supply, the chances for a retreat appear small. But the travails of the US economy and the threat of a slowdown or even a recession there could cause oil demand to fall exerting pressure on prices. Subject to this caveat, the medium-term prediction is for oil to trade in the $80-90 band, which is beneficial to Cairn.

Second, the issue of who should bear the cess on the oil is in all probability headed for arbitration. Cairn is on strong ground as it is not liable, going by the production sharing contract.

However, chances are that eventually the company will be called upon to bear a part of the cess, thus affecting realisations. Cess payable ranges from Rs 927 to Rs 2,575 per tonne of oil depending on the classification of the field. An adverse decision could affect the stock sentiment.

The appreciating trend in the rupee is another cause for concern as Cairn’s output will be priced in dollars. Since the company’s IPO a year ago, the rupee has appreciated by 11.5 per cent against the dollar. Further appreciation could blunt the benefit flowing from higher oil prices.

Finally, the enhanced oil recovery techniques that Cairn will adopt such as chemical and polymer flooding in the wells are established ones but have not been tried out on the scale that the company plans to now do.

Incremental output over and above the planned 1,50,000 barrels per day may not materialise on the scale expected if the techniques fail.

ABG Shipyard: Buy

A burgeoning order book, continuing capacity shortage in the global shipbuilding sector and the company’s swift moves to capitalise on this scenario through capacity addition, make ABG Shipyard a good investment for those with a three-year perspective. At the current market price, the stock trades at 17 times its likely earnings for FY09. The stock may continue to trade at premium valuations, given the strong demand outlook for ships. This demand situation also suggests that new orders may be obtained at higher prices, which, in turn, may expand profit margins.

ABG Shipyard’s present order book of Rs 8,277 crore is about 12 times the company’s revenues for FY 07, lending earnings visibility for the next three to four years. The company has been ramping up its capacities to make sure that timelines on execution are maintained. For one, it has expanded its existing facility in Surat and also acquired a strategic stake in Vipul Shipyard located near the existing Surat unit. ABG is also setting up a new facility in Dahej, which is expected to commence operations from April 2008. Once this facility is fully operational, the company would be able to manufacture ships up to 1,20,000 DWT (dead weight tonnage), essentially implying ships with high profit margins.

ABG has also diversified its operations through the acquisition of the ailing Western Shipyard (WSI) – one of the largest private ship and rig repair companies. Apart from the strategic location of this acquired unit (in Goa), ABG is also likely to benefit from the highly lucrative repairs business. The ailing WSI, which has been troubled by mounting debt, has already received restructuring packages from banks and institutions. ABG’s infusion of cash would further help in the turnaround process. We have, however, not factored revenues from this company into our estimates at present.

ABG has bagged a good number of repeat orders as well as orders for small bulk carrier vessels with similar specifications. Repeat orders are likely to result in operational efficiencies as well as economies of scale. This trend, together with higher priced orders is likely to protect operating profit margins from erosion due to any hike in steel prices. The company’s operating margin for the September quarter rose to over 30 per cent, an increase of 160 basis points over the same period last year. A removal of the ship-building subsidy and slow execution are the key risks to earnings growth.

Sensex drops over 860pts

The key stock market indices - the Sensex and the Nifty - dropped over 4% each during the week ended December 20 as foreign institutional investors (FIIs) sold heavily to meet their redemption pressure.

FIIs pulled out over Rs 5,400 crore (including Thursday's provisional figures) from the cash market, and sold shares worth Rs 2,445 crore in the futures & options segment.

The Sensex logged the second biggest fall of 769 points in absolute terms on Monday reacting negatively to the global meltdown. The Sensex finally ended the week at 19,162.57 - a net fall of 868.26 points (4.33%) from the last weekend close of 20,030.83.

The Nifty dropped 281.20 points (4.65%) to close the week at 5,766.50 as against the previous weekend close of 6,047.70.

FII: - Rs 1089 Cr; MF + Rs 123 Cr

FII Gross purchases Rs 2585 Cr, Gross sales Rs 3678 Cr, Net Sellers Rs 1093 Cr.
MF Gross Purchases Rs 1055 Cr, Gross Sales Rs 932 Cr, Net Buyerss Rs 123 Cr.

Our View:

Jitters from the global front continue and they are one of the primary reasons for the FII’s to sell. The direction is still not clear. Holiday mood would add to the choppiness and keep the markets ranged. F&O expiry scheduled next week would add to it. Stock specific approach is advocated at this point. Slow down in the mid cap counters can be considered as an buying opportunity for the long term investors.

Precious metals glitter as dollar weakens

Boosted by dollar weakness and rising crude, gold gains more than 2% for the week

Precious metals ended higher today, Friday, 21 December, 2007 after the dollar slipped against almost all its rival currencies barring yen. The greenback fell despite a strong economic report suggesting higher consumer spending in the US. Though this suggested that Fed might not be heading for another interest rate cut, it pushed up crude prices considerably higher today. Gold generally moves in the opposite direction of the U.S. currency. Gold, as a dollar-denominated commodity, suffers from dollar strength.

Comex Gold for February delivery rose $12.2 (1.5%) to close at $815.4 an ounce on the New York Mercantile Exchange today. For the week, gold gained $17.4/ounce (2.2%). Last week, prices rose by almost 0.3% ($2.2/ounce). On, 7 November, prices had touched $848/ounce. It was the highest price after a record $873 on 21 January, 1980.

Comex Silver futures for March delivery rose 14.8 cents (1%) to $14.488 an ounce. Silver prices have been rallying since the past three days as copper prices rallied. Prices touched 26 year high on 7 November, after reaching $16.275. The metal has climbed 12% this year.

Gold has traditionally been used as a safe-haven asset against rising inflation. Investor sentiments are boosted by the fact that gold and silver are alternate sources of good investment in the face of declining dollar and rising energy prices. Rising crude increases inflationary pressures and vice versa. On the other hand strong dollar reduces the appeal of the metal as alternate source of investment.

In the currency market today, The dollar gained on the yen but gave up a bit of ground to other major rivals in thin pre-holiday market conditions.

In the energy market, oil prices ended marginally lower today after going through some volatile session. Price closed lower by 20 cents at $91.04/barrel. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, edged down 0.1% at 77.70.

Gold had climbed 27% this year till date as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record. Dollar is still 9% down against the euro this year.

In 2006, silver had jumped 46% while gold gained 23%.

Crude shoots up

Prices rise more than $2/barrel on anticipation that demand from US will increase

Strong data on US consumer spending for the month of November, 2007 pushed up crude prices considerably higher today. Crude oil prices rose more than $2/barrel after data showed that US consumer spending in November was strongest in last two years. This gave rise to speculation that demand from world’s largest oil consumer will not be slowing in coming months and that’s why crude rallied. A weak dollar also contributed to the rising crude.

For the day ending Friday, 21 December, 2007, crude-oil futures for light sweet crude for February delivery closed at $93.31/barrel (higher by $2.25/barrel or 2.5%) on the New York Mercantile Exchange. Futures rose as high as $93.84 earlier in the day. Prices are 53% higher than the year before.

The Commerce Department reported today that U.S. nominal consumer spending increased 1.1%, the most in two and a half years. This was against an expected figure of 0.9%.

In the currency market today, the dollar gained on the yen but gave up a bit of ground to other major rivals in thin pre-holiday market conditions. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, edged down 0.1% at 77.70.

Brent crude oil for February settlement today rose $1.58 (1.7%) to $92.46 on the London-based ICE Futures Europe exchange.

Today, January natural gas rose 5.3 cents to $7.190 per million British thermal units. Yesterday, the EIA reported today that U.S. natural gas inventories dropped 121 billion cubic feet to 3,173 billion cubic feet in the week ending 14 December, less than expected figure of 129 billion cubic feet.

Against this backdrop, January reformulated gasoline rose 5.19 cents to $2.3795 a gallon and January heating oil edged up 1.96 cents to $2.6091 a gallon.

As per EIA, global oil markets will likely remain tight through 2008 and monthly average oil prices are expected to near $85 per barrel over the next year. The IEA, an adviser to 27 nations, said global demand in 2008 will rise 2.5% to 87.8 million barrels a day.

LIC Housing Finance

LIC Housing Finance

Weekly Technicals - Dec 22 2007

Weekly Technicals - Dec 22 2007

Weekly Track Report - Dec 22 2007

Weekly Track Report - Dec 22 2007

Insider Trades

Insider Trades

Stocks you can buy: Bharti Airtel, Spicejet, IDFC

Bharti Airtel
CMP:Rs 914.60
Target Price: NA

CLSA has initiated coverage on Bharti with a ‘buy’ rating on the back of expectations that the company would do well as India’s mobile subscriber base is set to grow at 33% CAGR to 383 million by FY10, implying a penetration of 31%.

“Bharti’s subscriber growth is on track to meet our forecasts of 108 million by FY10 CL and despite an intensely competitive environment, it has raised market share (up 200 bps y-o-y) as well as expanded margins (368 bps y-o-y to 42.8% in Q208).” The success of Bharti’s growing suite of value-added services will aid in mitigating ARPU decline.

The company’s key strengths are management’s proven execution skills, nationwide GSM network and a strong brand, the report says. “The outcome of key pending regulatory issues remain uncertain with the expected long drawn-out legal battle. However, if Trai recommendations on spectrum are implemented, Bharti’s FY09-10 EPS would be hit by 4.4-5.5%, which will be offset by impending upgrade following the positive surprise in the Q2 EBITDA margins,” the report said.

iDFC
CMP:Rs 210.35
Target Price: Rs 195

Citigroup has assigned a ‘sell’ rating on IDFC, taking into consideration the high valuation of the stock. The brokerage has, however, lowered the target price to Rs 195 on higher earnings, core business multiples, returns on P/E business and unrealised equity gains.

“Our quantitative team puts the stock in the glamour quadrant — momentum, but low relative value, which also suggests little room for valuation upsides,” the report says. As far as reasons for selling goes, valuations at 3.5 times FY09 PBV (price-to-book-value) are high relative to returns. Relative to private banks, we believe IDFC should trade at a discount to quality private banks.

“We are not arguing against the business. But key risks include continued low interest rates, steepening yield curve, strong capital markets, regulatory easing on NBFCs and higher premium on opportunity and quality management,” the report adds.

Spicejet
CMP:Rs 68.40
Target Price: Rs 88

IL&FS Investsmart has assigned a ‘buy’ rating on SpiceJet, which is expected to capitalise on emerging opportunities in the domestic aviation industry. The brokerage expects the airline’s sales to jump by 81% CAGR, from Rs 6,40.4 crore in FY07 to Rs 2,102.7 crore in FY09 and to see a turnaround in EBITDAR (before lease rentals) level from losses of Rs 27.4 crore in FY07 to a profit of Rs 419.7 crore in FY09.

“This is on the back of strong operational performance and also on the launch of additional sectors. Favourable industry scenario includes a booming economy, route expansion, surging demand from the Indian middle class and growth prospects in the domestic aviation industry,” the report said.

Colgate Palmolive
CMP:Rs 388.80
Target Price: Rs 474

Kotak has initiated coverage on Colgate Palmolive (CPIL) with a ‘buy’ rating. The brokerage expects the company to do well on low-penetration levels of oral care and growing awareness in the semi-urban and rural Indian markets.

According to Kotak, CPIL has consciously undertaken rural initiatives and entered into strategic tie-ups to increase its reach in lowly-penetrated areas. “We are projecting the net profits to grow to Rs 238 crore in FY08E and to Rs 283 crore in FY09E. This delivers an EPS of Rs 17.5 and Rs 20.8 in FY08E and FY09E, respectively,” the Kotak report said.

According to Kotak, low-penetration level of toothpastes, toothbrush and dentifrices in semi-urban and rural India will keep up the demand for toothpaste. Rising oral healthcare awareness and affluence levels will accelerate the growth.

“At current price, CPIL is trading at 22 times and 19 times FY08 and FY09 EPS estimates of Rs 17.5 and Rs.20.8, respectively. After the share capital reduction that took place recently, the company enjoys a leaner balance sheet and has a negligible debt position. We initiate a ‘buy’ on the stock with a price target of Rs 474 over a 12-month period. At our exit price, the stock will trade at 23 times FY09 earnings,” the report said.