Stocks you can buy this week

Titan Industries
Research: Morgan Stanley
Rating: Overweight
CMP: Rs 1,469

Morgan Stanley has assigned an ‘overweight’ rating to Titan. The stock is not fully discounting its long-term growth potential which depends on the following factors: 1) Product mix-led revenue growth and margin expansion in the watch business; 2) Improvement in product mix and same-store growth for Titan’s Tanishq jewellery retailing business; 3) Successful roll-out of its new businesses, i.e. eyewear and mass market jewellery retailing; and 4) Turnaround in its international and precision engineering division businesses. Morgan Stanley assumes Titan can deliver 22.4% CAGR in earnings during FY07-20. However, in FY07-10, it is likely to deliver 34.7% CAGR in earnings. The stock is trading near its all-time high and is attractively valued on a price-earnings growth versus return on equity basis.

Jet Airways
Research: Merrill Lynch
Rating: Neutral
CMP: Rs 907

Merrill Lynch has downgraded Jet Airways’ rating to ‘neutral’ from ‘buy’ as the stock has breached its target after its strong performance this fiscal. The stock currently trades at a slight premium to global growth airlines, up from a 25% discount earlier this year. Jet’s earnings are highly sensitive to variations in Jet Kero prices, but they are even more sensitive to the rupee’s volatility. A $1 variation in fuel price will impact Jet’s FY09E EBITDAR by 1.8%, assuming load factors are not impacted. Conversely, a Re 1 variation in exchange rate will positively impact FY09E EBITDA by 5.1%.

Jet has registered stronger-than-expected load factors on existing as well as new routes. The company’s recent introduction to the US has expectedly done well, and it is on track to add five more routes this year, including the busy Middle Eastern routes. Jet’s key routes to London and Singapore continue to grow rapidly.

The company is likely to sustain this performance on new routes, given its superior product and expanding franchise. Jet’s Q1 yields, up 13.4% YoY and 2.4% QoQ, also illustrate improved pricing power. The stock has risen 53% this fiscal, compared to 30% growth witnessed in the broader stock market. Merrill Lynch believes that this has largely captured the turnaround in Jet’s operations.

Bharti Airtel
Research: HSBC Global
Rating: Overweight
CMP: Rs 941

HSBC Global reiterates ‘overweight’ rating on Bharti Airtel. The domestic wireless segment has a fragmented market structure with scarce radio spectrum allocated to a large number of players on a circle-by-circle basis. With rapid growth of 6-7 million subscribers a month and very high minutes of usage per subscriber, network congestion is a serious problem in metros. TRAI’s plan to raise the subscriber targets required to receive additional spectrum can drive up capex for Bharti Airtel, which is entitled to additional spectrum in all 23 circles under existing rules.

The military announced plans to clear out of 45 MHz of spectrum and our current forecasts for India assume spectrum constraints are resolved over time. However, the potential shift in TRAI’s policy suggests our existing capex-tower assumptions are too optimistic.

HSBC provides three scenarios under which the number of subscribers per cell site decline by 2-4% per year for FY09-FY11E, from the current level of 857, down to a worst case of 760. Bharti Airtel will have to invest $2.6 billion to install 26,500 towers to support the existing subscriber forecast of 122 million by FY11E, trimming off Rs 57 per share from HSBC’s enterprise value. A significant portion of this investment in new towers can be offset by tower-sharing revenues.