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Tuesday, April 10, 2007
ICICIDirect - Company Update - Sun Pharmaceuticals (Price: Rs 1,057, Performer)
Sun Pharmaceuticals (SUNPHA)
Price: Rs 1,057 PERFORMER
Sun Pharma is a leading domestic pharma company with a strong presence in chronic segments such as cardiology, neurology and diabetology. The
company's turnover has doubled and net profit tripled in the last 4 years. Its net margins have been consistently higher than its peers (the top 10
Indian pharma companies) and it boasts one of the highest operating margins in the sector. It established its first research center, Sun Pharma Advanced
Research Center (SPARC), in 1993. The company has used a combination of internal growth and acquisitions to drive growth. The most important
acquisition was in 1997, that of Detroit-based Caraco Pharm Labs in the US.
The company plans to demerge areas related to new molecular entities and drug delivery systems into SPARC and list the company. The fair value of the
newly formed company works out to US$620 million (around 13% of the current market price). We believe the de-merger and listing of the newly formed
subsidiary will unlock value both for the company and its shareholders.
The stock is currently trading at Rs 1,057, 18.51x FY09E EPS of Rs 57.11 and 23.16x FY08E EPS of Rs 45.63. Given the superior fundamentals in terms of RoNW, ROCE, margins, product mix (95% chronic space) and almost debt-free status, we believe that the stock should trade at a premium to its peers. At
the current levels, its peers are at an average PE of 16.44x FY09E EPS, while Sun Pharma is trading at a premium of 12.60%, at a P/E of 18.51x its
FY09E EPS. We rate the stock a PERFORMER.
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ICICIDirect : Research Report - Sanghvi Movers (Buy: Rs 640, Target: Rs 837)
Sanghvi Movers (SANMOV)
Price: Rs 640 Target: Rs 837
OUTPERFORMER
Sanghvi Movers, India's largest crane-hiring company, is a proxy on the industrial and infrastructure boom in the country. Its aggressive ramp- up in crane capacity has coincided with a severe shortage of cranes globally, which should lead to robust growth in revenue and profits over the next few years. We initiate coverage on the company with an OUTPERFORMER rating.
Thrust on infrastructure to spur demand for cranes: Cranes are an essential component for infrastructure building. The government has unveiled several initiatives to boost infrastructure and investment amounting to Rs 1,400,000 crore have been planned over FY07-12E. We believe this will create huge demand for cranes and Sanghvi Movers will be a major beneficiary.
Dominant player in the crane-hiring business: Sanghvi enjoys a leadership position in the domestic crane-hiring market with an almost 50% market share. It is India's largest crane operator and among the top 5 largest crane hiring companies in Asia. It is ranked 15th globally by Cranes International, a UK based leading magazine tracking the global crane
providers.
Aggressive ramp up in crane capacity: To capitalise on the rising demand, the company has been adding capacities and ramping-up its fleet size. It has lined up capex of Rs 330 crore for FY07-08E, to further boost its fleet by another 60-65 cranes. Of this it has completed expansion of Rs 180 crore in FY07.
Valuations: At the current price of Rs 640, the stock is trading at a P/E multiple of 12.5x its FY07E EPS of Rs 50.9 and 10.7x its FY08E EPS of Rs 59.7. On an EV/EBIDTA basis, the stock is available at 6.3x FY07E earnings and 5.4x FY08E earnings. Given the company's dominant position in the crane-hiring market and the capex boom in India, we believe that the stock
is undervalued. We rate the stock an OUTPERFORMER with a 12-month price target of Rs 837, at 14x FY08E earnings, an upside potential of 40%.
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Price: Rs 640 Target: Rs 837
OUTPERFORMER
Sanghvi Movers, India's largest crane-hiring company, is a proxy on the industrial and infrastructure boom in the country. Its aggressive ramp- up in crane capacity has coincided with a severe shortage of cranes globally, which should lead to robust growth in revenue and profits over the next few years. We initiate coverage on the company with an OUTPERFORMER rating.
Thrust on infrastructure to spur demand for cranes: Cranes are an essential component for infrastructure building. The government has unveiled several initiatives to boost infrastructure and investment amounting to Rs 1,400,000 crore have been planned over FY07-12E. We believe this will create huge demand for cranes and Sanghvi Movers will be a major beneficiary.
Dominant player in the crane-hiring business: Sanghvi enjoys a leadership position in the domestic crane-hiring market with an almost 50% market share. It is India's largest crane operator and among the top 5 largest crane hiring companies in Asia. It is ranked 15th globally by Cranes International, a UK based leading magazine tracking the global crane
providers.
Aggressive ramp up in crane capacity: To capitalise on the rising demand, the company has been adding capacities and ramping-up its fleet size. It has lined up capex of Rs 330 crore for FY07-08E, to further boost its fleet by another 60-65 cranes. Of this it has completed expansion of Rs 180 crore in FY07.
Valuations: At the current price of Rs 640, the stock is trading at a P/E multiple of 12.5x its FY07E EPS of Rs 50.9 and 10.7x its FY08E EPS of Rs 59.7. On an EV/EBIDTA basis, the stock is available at 6.3x FY07E earnings and 5.4x FY08E earnings. Given the company's dominant position in the crane-hiring market and the capex boom in India, we believe that the stock
is undervalued. We rate the stock an OUTPERFORMER with a 12-month price target of Rs 837, at 14x FY08E earnings, an upside potential of 40%.
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ICICIDirect - Research Report - UltraTech Cement (Buy: Rs 715, Target: Rs 890)
UltraTech Cement (ULTCEM)
Price: Rs 715 Target: Rs 890
OUTPERFORMER
UltraTech Cement, a subsidiary of Grasim Industries, is one of the leading cement manufacturers in the western and southern regions. The company has undertaken a Rs 2,700 crore capex plan over the next three years (FY07-09) to increase its production capacity. It is also replacing its high-cost naptha-based power plant in Gujarat with an efficient lignite-based plant. The stock is currently available at a attractive enterprise value per tonne of $140 per tonne. We initiate coverage on the company with an OUTPERFORMER rating.
Capex to drive growth: The company has undertaken a Rs 2,700 crore expansion plan over the next three years (FY07-09). It will scale-up its production capacity by 4 million tpa from the current 17 million tpa by Mar FY08. We expect net sales to grow at a CAGR of 25% to Rs 6, 587.15 crore in FY09E from Rs 3,339.33 crore in FY06.
Captive power plant to cut costs: UltraTech's earnings were impacted due to its high power costs. It is now setting up captive power plants at its units in Gujarat and Chhattisgarh. In Gujarat, it will replace its naptha-based power plant by a more efficient lignite-based plant. We expect savings of Rs 170 crore per annum FY09 onwards which would boost the company's EBIDTA margins to 33.8%, in line with other major cement players.
Low cement clinker ratio, more scope for blending: Currently, the company's cement clinker conversion ratio is low at 1.14, below the industry average of 1.45. We expect company will reach to 60-65% of blended cement as against 40% currently of blended cement. This should help it to reduce costs and improve profitability.
Strong presence in fast-growing markets: UltraTech has a strong presence in the southern and western regions. These markets are expected to grow at a faster pace than other regions. With the demand-supply mismatch expected to continue till FY09, the company's additional capacity of 4 million tpa will get easily absorbed.
Valuations: At the current price of Rs 715, the stock trades at an EV/EBIDTA of 6.40x FY08E and 5.03 x FY09E respectively. We have taken the average of various valuations like EV/EBITDA, P/E and P/BV to arrive at a target price of Rs 890. At the target price, the stock would be valued at $140 EV/tonne for FY09E at an increased capacity of 21 million tonnes.
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ICICIDirect - Special report - Best mutual fund picks
Please find attached our special report on the best mutual fund schemes. These schemes have a good performance track record and have also been rated by Value Research.
Franklin India Prima Plus
HDFC Top 200
Prudential ICICI Power
Reliance Growth
Sundaram BNP Paribas Select Midcap
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ICICIDirect - Research Report - Finolex Industries (Buy: Rs 68.50, Target: Rs 95)
Finolex Industries (FININD)Price: Rs 68.50
Target: Rs 95OUTPERFORMERFinolex Industries,
India's second largest polyvinyl chloride (PVC)manufacturer, is well placed to capitalise on the demand-supply mismatch inthe domestic PVC industry. It is also planning to foray into the real estatebusiness by developing its 78 acres of land at Chinchwad, outside Pune. Weinitiate coverage on the company with an OUTPERFORMER rating.Demand-supply mismatch: PVC producers in India are currently in a sweet spotas there has been a shift from excess supply to shortage in the last fewyears. For the period 2001-06, capacity addition grew at a CAGR of just 2%,whereas demand continued to surge in double digits at a CAGR of 11%. Thishas resulted in firm PVC prices and high capacity utilisation rates fordomestic manufacturers.Capacity expansions, cost reduction initiatives: Finolex has doubled its PVCresin capacity to 260,000 tpa and is in the process of expanding its PVCpipes capacity from 65,000 tonnes to 85,000 tonnes. It is also undertakingInitiatives like setting up of a 43 MW captive power plant and convertingits jetty into an all-weather jetty, which will expand margins goingforward.Real estate foray to stabilize earnings: The company has 78 acres of land inChinchwad, which it plans to monetize in partnership with a developer. Ithas been in negotiations for the last one-year and we expect an announcementfrom the company shortly. We expect the company to go for a lease modelwherein its share of the income would be Rs 72 crore per year.Valuations: We have used the sum of parts methodology to arrive at a fairvaluation for Finolex Industries. We estimate the value of its core PVCbusiness at Rs 58 per share, value of its 14.5% shareholding in FinolexCables at Rs 12 per share and value of its real estate business at Rs 25 pershare. Our target price works out to Rs 95 per share, which offers a 39%upside from the current price of Rs 68.50.
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ICICIDirect - Pick of the Week: Tata Power Company (Buy: Rs 501, Target: Rs 610)
Tata Power Company (TATPOW)
Current Price: Rs 501 Target Price: Rs 610
Tata Power Company is India's largest private sector electricity generating company with an installed generation capacity of over 2,300 MW. The company has a presence in all areas of power sector generation (thermal, hydro, solar and wind), transmission and distribution. Its thermal power stations are located at Trombay in Mumbai, Jojobera in Jharkhand and Belgaum in Karnataka. The hydro stations are located in the Western Ghats of
Maharashtra and the wind farm in Ahmednagar.
An optimum mix of hydel and thermal capacity enables the company to supply
power at competitive tariffs to its customers. Among its achievements, the
company has to its credit the installation of India's first 500 MW unit at
Trombay, the first 150 MW pumped storage unit at Bhira, and a flue gas
desulphurization plant for pollution control at Trombay. The company's
growth momentum is expected to intensify after it was awarded the bid for
the Mundra ultra mega power project. It is also expanding capacity and has
taken stakes in Indonesian coal companies to secure fuel supplies.
We expect sales to grow from Rs 5,740 crore in FY06 to Rs 7,890 crore in
FY08E. Net profit is expected to rise from Rs 637 crore to Rs 790 crore. We
expect the company to earn a RoE of 14% on its investments in the Mundra
ultra mega power project assuming a 70:30 debt-equity mix. We estimate FY08E
EPS at Rs 40.10 and set a price target of Rs 610. At this price, the stock
will trade at P/E of 15.21x, giving an upside potential of 22% from the
current price of Rs 501 within a 12-15 month time horizon.
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PowerYourTrade Trading Calls
Ashwani Gujral
Buy Reliance Communication with stop loss of Rs 390 for target of Rs 433/492. Call valid for maximum 1 week
Buy UTI Bank with stop loss of Rs 435 for target of Rs 546/614. Call valid for maximum 1 week
Deepak Mohoni
Buy Bajaj Hindustan below Rs 208.50 with stop loss of Rs 204.50; This is a day-trading recommendation
Buy CESC below Rs 396 with stop loss of Rs 390; This is a day-trading recommendation.
Rajat K Bose
Buy Reliance Energy with stop loss below Rs 503 for target of Rs 535-546. This is a day-trading recommendation.
Buy India Cement with stop loss below Rs 157 for target of Rs 173; This is a day-trading recommendation.
Markets dance to local tunes: Sharekhan Market Outlook dated April 09, 2007
Markets dance to local tunes
- Uncertainty and risk in the market have sharply risen in the recent past. In addition to the global uncertainties the market now has to grapple with domestic interest rate related risks as well.
- There are widespread concerns that the tightening of money supply has been excessive and could lead to a significant slowdown in the economy, especially in the interest rate sensitive sectors such as automobiles and housing.
- We are still maintaining our views that (1) inflation will moderate going forward and (2) the US economy will slow down but not go in recession. As these events unfold, concerns should ease and the environment for equities should improve. However, the risks around our base case have certainly risen.
- Volatility is likely to peak in the next four weeks. We expect inflation to ease by the end of this month. End April shall also bring the initial monsoon forecast as well as the credit policy of the Reserve Bank of India (RBI). While the fourth quarter results of Indian companies may not be a trigger, the market will keenly await the guidance on the FY2008 prospects of the corporate sector, especially that of automobiles, banks and the other interest rate sensitive sectors.
Anand Rathi - Daily Strategist - Apr 10
The NIFTY futures saw a rise in OI 0.51% with prices positive indicating that as market recovered shorts covered their positions aggressively and fresh long positions built up in the market as market crossed its immediate resistance level of 3800 .If market goes below 3750 levels we may see fresh short positions being built up in the. The FIIs bought index futures to the tune of 430crs indicating long positions built up by them as well as buyers in index options indicating hedged positions built up by them. The PCR has come up form 0.86 to 0.95 levels indicating strength in the market. The volatility has come up from 26.80 to 26.90 levels indicating volatile trading sessions ahead as historical volatility is also on higher side.
Among the Big guns, ONGC saw rise in OI to the tune of 0.44% with prices up indicating heavy short covering in the counter and fresh buying emerging in the counter indicating strength in the counter whereas RELIANCE saw rise of OI to the tune of 0.16 % with prices up performing in line with the market.
In the TECH front, INFOSYSTCH, TCS, SATYAMCOMP, WIPRO saw drop in OI with prices up indicating shorts covered their positions and fresh buying emerging in IT pack indicating strength in the sector.
In the BANKING counters, SBIN, HDFCBANK, ICICIBANK saw rise in OI with prices going up indicating that long positions built up in these counters indicating strength in these counters.
In the metal pack TATASTEEL, SAIL saw fresh built up in OI with rise in price indicating fresh buying emerging in the counter indicating further strength in these counters. HINDALCO saw drop in OI with prices up indicating short covering in the counter whereas STER saw rise in OI with prices up indicating some fresh buying emerging in the counter indicating strength in the counter.
Considering the overall scenario and the markets behavior the market may show some volatility before taking any sharp and directional movement .If it remains above 3800 levels we may see fresh long positions being built up in the market. Traders are advised not to go aggressively short on the market unless important support level of 3750 is breached and any position taken today should be with strict stop losses to be adhered too.
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