IVRCL
CMP: Rs 235.05
CMP: Rs 235.05
Target price: Rs 308
Broking house Prabhudas Lilladher has maintained its ‘buy’ rating on the stock saying the stock is attractively valued at 14.5 times FY09 (estimated) earnings and 11.2 times FY10E earnings at the current market price.
“We expect the company to register a CAGR (compound annual growth rate) of 32% and 25% in revenues and PAT (profit after tax), respectively, for FY08-10(estimated),” said the broking house in a note to its clients.
According to the broking outfit, a substantial order book growth would be the primary driver of revenues for the company.
“The order book as on May 2008 stood at Rs 12,200 crore (year on year growth of 71%) as against Rs 7,100 crore. On account of focus on cash contracts, IVRCL enjoys a healthy order book position amongst the peers,” the note said.
IVRCL has improved upon its Sales/WC (working capital) ratio at 1.9 times as against 1.7 times in FY07 and is expected to maintain the same, says the broking house. “We believe that NWC (net working capital) position in future will depend upon order intake and projects reaching revenue reorganisation level,” the note added.
Pinc initiates 'buy' on Rain Commodities for target Rs 300
Pinc has initiated 'buy' recommendation on Rain Commodities for a target price of Rs 300 and investment horizon of 12 months. The brokerage expects strong predictability of demand and margins, coupled with visibility of revenues and operating leverage of the company's business model, to help it capitalise on the trend of pricing advantage moving in favour of CPC manufacturers.
At the CMP of Rs 186, the stock trades at an EV/EBIDT and P/E of 4.3 times and 2.8 times its CY09E earnings.
Rain Commodities, a Hyderabad-based company, is engaged in the manufacturing of calcined petroleum coke and cement with an installed capacity of 2.5mn millin tonne per annum and 3.2mn mtpa respectively. It has emerged as the world's largest manufacturer of calcined petroleum coke with 14 per cent share of the global market (excluding China). CPC is consumed by primarily by the aluminium and titanium dioxide industries and thus has strong demand visibility.
At present, Rain owns and operates 3 cement plants and 8 CPC plants. Additionally, it also owns 11.5 per cent stake (at a cost of Rs 258 mn) in a Kuwait based calcining company 'Petroleum Coke Industries Company' which is setting up a CPC plant in Kuwait, with a capacity of 350k mtpa. In addition to equity stake, Rain has an operational & maintenance contract with the company for 5 years , for which it would be paid $3.1/mt.
Cement demand in south India registered a CAGR of 11% from FY2002-08. The region accounted 30 per cent of the total domestic consumption of 163 mn mt in FY08, with regional cement manufacturers operating at 96 per cent CUF.
Over time, it set up a 49MW power plant, based on WHRS technology and ramped up calcining capacity to 480k mtpa by setting up another parallel kiln. Tweaking of these facilities led to the total capacity being enhanced to 600k mtpa in 2008.
Rain client roster includes global majors like Alcoa, Alcan, BHP Billiton, Dubal, Dupont, Alcasa, Norsk Hydro and domestic players like Nalco, Vizag Steel and Kerala Minerals & Metals. Plans are afoot to expand its CPC capacity by 600k mtpa (400k mtpa with a 30MW power plant in India & 200k mtpa in China). Envisaged at a total outlay of $150 million, these should be operational by Q2CY10. With a 3.2mn mtpa capacity in cement, Rain is a formidable player in South India. Its latest plant of 1.5mn mtpa was operationalised in Jun 08, at a competitive cost of Rs3.3bn. This timely expansion will enable it to capitalise on the strong demand in its addressable market, which has the most stable consumption patterns in India, over the next 5-6 quarters.
As mentioned earlier, the M.East is witnessing a large build-up in aluminium capacities due to the monetisation of the region's gas reserves. An aggressive ramp up of smelting capacities has been lined up in 3-4 years by regional players like Dubai (0.7mn mtpa), Emai (0.7mn mtpa), Qatalum (2 X 0.35mn mtpa) & Alba. All these players and others, like Alcasa (Venezuela) (0.1mn mtpa) are Rain's existing clients. In light of the strong existing relationships with these aluminium producers, Rain should not encounter any difficulty in selling the incremental output from its proposed capacity expansion. The company has envisaged a 400k mtpa plant at Vizag with a 30MW power plant and a 200k mtpa plant in China, at an outlay of $100 million and $50 million respectively. These plants are expected to commence commercial production in CY10.
STCI assigns ‘buy’ to Bajaj Electricals; target Rs 485
STCI Capital Markets has recommended ‘buy’ on Bajaj Electricals for a target price of Rs 485. Bajaj Electricals’ consumer products business model, forming more than 75 per cent of revenue, of outsourcing production provides protection to profitability with lower fixed costs in the event of slowdown in growth due to inflationary environment.
In engineering and project business, current order book and diversified revenue streams from telecom and transmission line towers, lighting projects and high masts and poles provides reasonable visibility of growth.
The company is having sizeable market share across its product lines. In appliances and luminaires SBUs, the company enjoys first position with 20 per cent share in each business. In fans and lights SBUs, the company is running close to competitors for second spot. In E&P segment, the company is the largest player in lighting projects business with 70 per cent share and high masts and pole business with 65 per cent share.
Revenue across all product lines have compounded in the range of 20-35 per cent over the last five years providing evenly spread out growth across SBUs.
Bajaj Electricals is leveraging its extensive distribution network of 5,000 dealers through tie ups with international majors. Joint venture with Morphy Richards has generated revenue of Rs 363.2 crore in 2007-08.
Last year the company entered into joint venture with Nardi for gas appliances and also with Helver controls for HVAC products, lighting control products and security products. For luminaires business, the company has joint venture with Trilux. The company entered into invertors business last year.
Net Sales and earning per shate are estimated to compound at a CAGR of 24 per cent and 16 per cent respectively during FY08-FY10.
Gammon India
Gammon India
CMP: Rs 138.15
Target price: NA
ICICI Securities has initiated coverage on the stock with a 'hold' rating citing concerns on the turnaround of the company's recent acquisitions.
"GIL's recent Italian acquisitions of Franco Tosi (FT) and Sadelmi for E97.5 million, loss-making in CY07, may take longer turn around time beyond the targeted CY09," said the broking firm in a note to its clients.
According to the outfit, GIL's strategy to leverage boiler manufacturing by another acquisition, Sofinter in Italy and further investment in uncharted Indian market may not succeed.
"GIL has diversified into BOT projects via Gammon Infrastructure Projects (GIPL), a subsidiary, which is likely to need equity due to investment-intensive nature of projects. Consolidated GIL has FY08 debt-equity (ratio)of 1 and will further leverage to deliver organic growth," said the note.
Prabhudas says 'accumulate' HCL Tech stock
Prabhudas Lilladher has maintained 'accumulate' on HCL Technologies and Infosys Technologies from a 12-month perspective. The brokerage expects that the battle for Axon will likely to extend for some time (at least for the next couple of months and possibly going into Q4FY09). The uncertainty on the final outcome of the process, coupled with macro economic uncertainty in the US and the problems in the financial sector, is likely to keep both these stock subdued.
HCL Technologies put in a competing all-cash bid for Axon. It has offered 650 pence per share of Axon compared to 600 pence offered by Infosys, valuing Axon at GBP 441 million. HCL Tech has said it has been exploring the option of acquiring Axon since January 2008 and started active discussion with the management in July. It intends to finance the deal using about GBP 400 million debt and GBP 41 million internal cash reserves. As of June 2008, HCL has cash reserves of $570 million on its books. The GBP 400 million financing has been tied up with consortium led by Standard Chartered Bank.
In our opinion it is quite likely that Infosys will respond with a matching or higher bid for Axon. From Infosys' point of view, not bidding is the worst of the three options - do nothing, match or bid higher. The essential question for Infosys to make up its mind is about matching the offer (and hence risk inviting an even higher offer from HCL) or bidding higher (and risk leaving little headroom in the event of an extended battle), says Prabhudas Lilladher.
HCLT claims that enterprise application services was identified as a core service with potential to drive growth in early 2005. However, growth of EAS within HCL has not been substantial. The company expects the Axon acquisition to plug this lacunae. Significantly, HCLTs stated intention of emerging as a global top five SAP vendor will get a major boost should the Axon acquisition go through. Management commentary also highlights complementarity between the client profile and geographical spread of Axon and HCLT thereby leading to minimal overlaps leading to strengthening overall business portfolio for the merged entity. Axons limited exposure to BFSI and its focus on Government business makes it appealing given the current macro environment. Finally, management stresses upon similarity between the two corporate cultures, which if taken at face value ought to ease merger pangs and smoothen the integration process going forward.
The brokerage's broad analysis indicates that at its current bid price of 650 pence per share, HCLTs FY'10 earnings ought to be accretive by 1.5% (v/s our earlier Ex-Axon estimates) at Rs 27.2 per share (a bid at 750pence will make the deal EPS dilutive by 0.7%).It may be noted that funding a major part of the acquisition via debt is a major reason for blunted impact on HCLTs earnings (with cost of debt being lower than treasury yield).
Morgan cuts HCL Tech to underweight after Axon bid
Morgan Stanley downgraded HCL Technologies to underweight on Monday, after the Indian software services firm made a counter bid to acquire British consultancy Axon Group Plc.
HCL on Friday launched an offer to pay 650 pence in cash for each Axon share compared with a bid of 600 pence from India's Infosys Technologies that valued Axon at around 407 million pounds.
Morgan said in a research report it downgraded the HCL stock from overweight due to potential acquisition-related risks, risks to current dividend yield and the worsening macro environment.
Analysts' pick: Reliance Petroleum
Reliance Petroleum
CMP: Rs 143.40
Target price: Rs 115
Brics Securities has downgraded its rating on the stock from neutral to ‘underperform’ saying it sees no margin of safety at the current price.
“We are lowering our FY09-12(estimated) EPS estimates for RPL after factoring in lower GRM (gross refining margins) and a weaker rupee. Our forecast for lower GRMs is based on the deteriorating outlook for the global oil refining industry,” said the broking house in a note to its clients.
The outfit has revised its GRM estimates downwards on the back of worsening fundamentals for the oil refining industry due to large capacity additions, weakening demand growth and increasing complexity of new refineries.
“These factors will result in lower capacity utilisation for refineries and reduce the advantage enjoyed by complex refiners. FY09E earnings are also negatively affected by lowering of our throughput estimates by 19.5% to 7.6 mmt (million metric tonne) due to a later start-up than our expectation,” the note added.
