Weekly Stock Recommendations

Asian Paints: Buy
The stock of Asian Paints appears to be a good addition to the portfolio for conservative investors with a two-year investment horizon.

Strong growth prospects for decorative paints arising from the higher pace of construction activity and a ramp-up in revenues from international operations could aid sales growth over the next couple of years.

ICRA: Book profits
Investors in the initial public offering from ICRA have reaped substantial rewards from their investments, though only two months have elapsed since the offer. After listing at a significant premium to the offer price, the stock has delivered almost a three-fold appreciation from its IPO price of Rs 330.

At the current price levels of Rs 940, investors can look to book profits on at least a part of their holdings, as current stock valuations appear to capture a good portion of the earnings growth potential over the next couple of years.

Petronet LNG: Buy
Investors can consider acquiringPetronet LNG stock with a long-term perspective. The company is in a growth phase and accounts for a quarter of the domestic gas market. The growing demand for natural gas augurs well for Petronet's expansion plans while the near-term earnings are likely to be buoyed by spot and short-term market cargoes.

The growing acceptance of regasified LNG (liquefied natural gas) by users such as power and fertiliser companies, even of gas sourced at relatively higher rates in the spot market, holds out promise for Petronet's business .

Stock Takes

Will cash help Tata Tea?

With reports of Coca Cola's interest in the Glaceau brand doing the rounds for quite some time now, the stock price of Tata Tea had already run up to a significant extent in expectation of a deal to buyout Tata Tea's stake in Energy Brands Inc (owner of Glaceau).

Apart from a sizeable cash inflow of $1.2 billion (about Rs 4,800 crore) from the deal, Tata Tea has also managed to pocket a tidy profit of $523 million (about Rs 2,100 crore) representing the difference between its own acquisition price for Glaceau and the recent sale price for its 30 per cent stake. However, the manner in which the company chooses to deploy this cash would be crucial to the future direction of the stock price. If used to retire the substantial debt on the groups' balance-sheet after a series of debt-funded overseas acquisitions in recent years, the cash inflow could help improve earnings prospects.

Balanced against this is the fact that Glaceau was among the most promising brands in Tata Tea's current portfolio, in terms of its growth potential. With the sale of this brand, Tata Tea is once again left with a clutch of conventional beverage businesses spanning the globe. As these are unlikely to offer the growth potential of Glaceau, the company may again be forced to scout for new acquisitions to drive growth. The stock may continue to trade at a valuation discount to its FMCG peers.

Everest Kanto faces margin pressure

Everest Kanto Cylinders (EKC) registered an 80 per cent growth in net sales and 114 per cent increase in earnings for FY-07, on a consolidated basis.

Healthy realisations and high utilisation led to the expansion of net profit margins. However, on a standalone basis, revenues remained flat while earnings fell by about 50 per cent. This can be explained by the exclusion of contributions from EKC's Dubai facility in Q4 of FY-07 compared to the corresponding previous quarter, as the Dubai facility has been transferred to EKC's wholly-owned subsidiary.

On the operational front, while margins expanded on a year on year basis, change in sales mix in the Indian operations led to a decline in margins on a sequential basis. Driven by a robust demand, EKC has announced an investment of $60 million (approximately Rs 240 crore) for further expansion through equity-linked instruments. This apart, the company has also announced a 5:1 stock split.

Tension mounts for Fortis

The Fortis Healthcare stock has been under pressure in recent times following an escalation in tension between the Fortis management and a leading cardiologist at its key hospital — the Escorts Heart Institute and Research Centre (EHIRC). The two parties have reached an out-of-court settlement towards the end of the week. But irrespective of this outcome, uncertainties remain about the initial takeover and operation of EHIRC by the Fortis group, which is under litigation.

Further clarity on this front may emerge only after the next Court hearing. At the current price of Rs 92, the stock trades at a premium to Apollo Hospitals, a peer company which has better profitability and return parameters. This suggests that further downside to the stock cannot be ruled out.