Stocks you can pick-up this week

Firstsource
cmp: Rs 75.25
target price: Rs 95

Merrill Lynch has initiated coverage on BPO firm Firstsource Solutions with a buy rating and a price target of Rs 95.
“FS’s key strengths are domain expertise, integrated offshore-onshore delivery and ability to complement organic growth through acquisitions/alliances, with a history of retaining acquired clients/people,” the Merrill note to clients said.

“Our 44% revenue CAGR over FY07-09 assumes mining of FS’s marquee client base eg BSkyB, Vodaphone, CapitalOne and new wins, also helped by inorganic moves like the partnership with US bank tech major, Metavante. We believe revenue visibility is high, given the annuity nature of BPO,” the note added.

PFC
cmp: Rs 107.25
target price: Rs 100

Kotak Securities has initiated coverage on PFC with an underperform rating and a price target of Rs 100, saying pressure on margins would make it unattractive relative to PSU banks.

“We expect buoyancy in the power sector to grow PFC’s loan book by 19% and operational income by 15% CAGR in FY06-09. However, the company is likely to generate a return on equity (RoE) of 12% close to its cost of equity, given the low spreads in its lending business,” the Kotak note to clients said.

“Key risks to PFC’s model are any slowdown in the reforms process, increase in competition and development of a vibrant debt market,” the note added.


Britannia Inds
cmp: Rs 1,245.40
target price: Rs 1568

Anand Rathi Securities has initiated coverage on Britannia Industries with an outperformer rating and a 12-month price target of Rs 1,568.

“We expect Britannia to record revenue CAGR of 20% over FY06 to FY09. Sharp rise in raw material prices forced many unorganised players to exit from the category,” the Anand Rathi note to clients said.

“On the other hand increased advertisement spends by organised players expanded the category, resulting in growth in volumes,” the note added, saying it expected the company to hold on to its market share in excess of 38%.


Indian Overseas
cmp: Rs 97.85
target price: Rs 124

HDFC Securities has initiated coverage on Indian Overseas Bank with an outperformer rating and a price target of Rs 124.

“The bank has one of the best net interest margins (3.91%) in the industry,” the HDFC Securities note to clients said. The brokerage has conservatively estimated a 27 basis point and 5 basis point decline in IOB’s NIM for FY08 and FY09.

“However, the bank is expected to comfortably maintain an undemanding RoE level of 18.73% in spite of the adverse business environment, which entitles it to be considered at a fair book value multiple of 1.5 times,” the note added.

Cinemax India
cmp: Rs 133.50
target price: Rs 193

Emkay Share & Stock Brokers has initiated coverage on Cinemax India with a buy rating and a price target of Rs 193.
“We believe with incremental seats addition of around 24,000 in the next two years and with marginal increase in average ticket price and conservative occupancy rate, Cinemax can comfortably drive ticket sales CAGR (compounded annual growth rate) of around 60% over FY07E (estimated)-09E, which drives growth in other business segment like gaming, F&B (food and beverages) and advertising,” the Emkay note to clients said.

“Cinemax being a part of renowned real-estate group is in better position to leverage the advantage and complete its scheduled futures plans,” the note added.

“However, the bank is expected to comfortably maintain an undemanding RoE level of 18.73% in spite of the adverse business environment, which entitles it to be considered at a fair book value multiple of 1.5 times,” the note added.

Cinemax India
cmp: Rs 133.50
target price: Rs 193

Emkay Share & Stock Brokers has initiated coverage on Cinemax India with a buy rating and a price target of Rs 193.
“We believe with incremental seats addition of around 24,000 in the next two years and with marginal increase in average ticket price and conservative occupancy rate, Cinemax can comfortably drive ticket sales CAGR (compounded annual growth rate) of around 60% over FY07E (estimated)-09E, which drives growth in other business segment like gaming, F&B (food and beverages) and advertising,” the Emkay note to clients said.

“Cinemax being a part of renowned real-estate group is in better position to leverage the advantage and complete its scheduled futures plans,” the note added.