Shoppers Stop - Rights Issue ?
Wednesday, January 30, 2008
The days if unidirectional views on a stock are over. More confusion lies ahead as one fund Manager recommends a BUY and other recommends a SELL.Shoppers Stop posted Q3 FY08 EBITDA at 4.3%, showing that margin pressure continues to be the most important concern for the stock. Higher operating costs (employees, rents) have taken a toll on margins, and we are now estimating 5.7% EBITDA margin in FY09E from previous 8.6% expectations.
Management has indicated that Shoppers will raise Rs300 crore- Rs500 crore through a rights issue. Part of this will fund store expansion, and part may be used to increase its stake in Hypercity to 51%. While it is difficult to determine the price of the rights issue, but assuming that it comes at the current market price, potential equity dilution could be in excess of 20%.
Citi SOTP Valuation:
Valuing Shoppers at Rs294 based on 27x FY09E P/E, and Valuing its potential 51% stake in Hypercity at Rs66 per share based on 1.2x FY09E sales. Price Target of Rs 360.
HSBC SOTP Valuation:
INR 439 for Shoppers Stop, and INR55 for Hypercity. Target Price Rs 494.
We recommend investors not to take any fresh positions at least until the market sets a clear direction. Citi's views are probably right as they had recommended a SELL on the stock in April-07.
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Published by DalalStreet Business @ 12:01 PM IST.
Tata Tea + Britannia - Safe Havens
Monday, January 28, 2008
Post Q32008 results both Tata Tea and Britannia Industries look good and can be a safe haven considered to the over heated financial and Realty sectors.Tata Tea:
3Q EBITDA growth of 29% was ahead of estimates - margins have been improving over the last 3 quarters, driven by improving cost management and better product mix. Net profit (pre-exceptional) grew 175% due to decline in interest cost owing to cash inflow from Glaceau sale.
Tata Tea is still looking at inorganic growth opportunities in high-growth beverage segments to enhance its growth and margin profile. However, potential risk from future acquisitions is much lower now given 1) balance sheet is much stronger, owing to cash inflow from Glaceau sale, and 2) management's indication that it would no longer be buying minority stakes.
Tata Tea is trading at 9.7xFY09E P/E, cheapest in Indian consumer universe. The company is expected to report an EPS of Rs 57.9 and Rs 81.69 for FY08 and FY09 respectively. Citi is Raising target price to Rs1200 based on 15x 1-year forward P/E as we roll forward our target multiple from mid-FY09E.
Britannia Industries Ltd:
Britannia's 3QFY08 net profit grew a solid 143% yoy, in line with our estimates. The key drivers were 15.7% sales growth and 436bps EBITDA margin expansion. Britannia continues to enhance margins, despite raw materials cost pressures. EBITDA margin turnaround trend, which started in 4QFY07 continues to intensify, driven by improving product mix, and reduction in pack sizes for some brands, effectively hiking per unit prices.
Britannia's sales growth has slowed to 16% in 3Q from 20-30% over the last few quarters, which is worrying. While so far, Britannia has been able to maintain its market share despite new competition (ITC), its 3Q 16% growth pales in front of ITC's food portfolio growth of 50%.
Management dispute and laid back attitude of Sr. Wadia maybe the only risk going forward. The company is expected to report an EPS of Rs 78 and Rs 105 for FY08 and FY09. Existing Investors can continue to hold, fresh positions can be taken between Rs 1,200 and Rs 1,350 for a target price of Rs 1,750 over 12 months.
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Published by DalalStreet Business @ 11:54 PM IST.
Under the control of Foreign Institutions, where do retailers go ?
Friday, January 25, 2008
As we have opened the doors of liberalization we have also given permits to setup Modern East India Company to Foreign Institutions. Our markets are heavily owned by institutions in the past 4 years. Our analyst who has been monitoring the market very closely crunching every bit of data and talking to wizards of Dalal Street say that FIIs trapped the retail investors very badly in the recent meltdown.In hopes of a dream budget, most retailers were expecting a pre-pudget rally to take the Index to a new high of 23,5000 [consensus on the street]. Greed and leverage opportunity by modern day brokerages, who always think of paradise, extended unreasonable credit to retailers who could never sustain. FIIs caught in the sub-prime and other credit traps came under immense pressure to remit money back home to the parent company to save the sinking ship. However, Foreign Institutions didn't want to sell-off all their holdings as they believe in emerging market story and played a fantastic game. Data points that as retailers built positions, FIIs went short in the derivative market. Very few who trade by principles of stop-loss, exited, others held on. After slow liquidation in the second week of Jan-08, FIIs pulled the plug and unloaded massively in Cash Markets leading to crash landing. Derivates also CRASHED.
Our stupid brokers in panic started liquidating collaterals of their clients and called for additional margin from the retailer who had no choice but to liquidate his investment portfolio. FIIs continued to SELL in CASH market and caught retailers on the wrong foot. The beauty of this game is our SEBI, NSE, BSE etc barred retail Indian investors from taking fresh positions in Derivatives and only square-off was allowed. FIIs laughingly squared off his positions in Derivatives beginning Tuesday [An insider told us that leading Currency specultaor has made $500 Million for his hedge fund shorting in Indian Derivatives] and kept selling pressure in the cash market, resulting in Circuits of half-hearted stocks in Midcap category.
For instance, if an FII had to remit $1.0 billion from India, he made most of his money in the Derivatives and remaining liquidating some stocks which he may have bought a year or more ago. Only today, Friday, Retail Indian Investors were allowed fresh positions in derivatives. So you now understand why FIIs lobby with the Finance ministry for Derivatives and other instruments ?
Loopholes in the system,
- NSE + BSE Data Published immediately after Trading hours on NSE is lot different from what appears on the website of SEBI. We have written to SEBI requesting more transparency on the same.
- As long as an Investor [Retailer or HNI] is willing to Pay money, he should be allowed to take position in Derivatives. Most of us don't know the basic rules of the game, yet continue to gamble and lose.
Read the full article
Published by DalalStreet Business @ 11:42 PM IST.
Stupid Theories in Bull Market for Price Justifcation
Wednesday, January 23, 2008
This is not the first Bull Market we at DalalStreet.Biz are riding on. After having burnt our fingers in the early 90s we built a model of investing based on Fundamentals and Earnings of the company :-) Now, as reader you maybe wondering why are we writing after the show ? Well, whenever we had an opportunity, we have said that in the past [Rolta, SBI] and we just thought of summarizing more events on how Bull Market Analysts justify their Stupid Price Valuation Theories.In 1991, as Harshad Metha rigged up stocks like ACC, the price was justified by the replacement cost theory. Under this, it was argued that ACC's value should be at least the same as the cost, time and effort needed to create another ACC”. After Mehta’s game got over this theory has been confined to the dustbins of history, at least as far as Indian stock markets are concerned.
In 99-00, Ketan Parekh and associates formed cartels and strategically painted such a rosy picture for low quality companies like HFCL, Padmini Technologies, etc and began discounting their never realized future earnings higher than Infosys and other IT stocks.
In 2006-2007, desperate Analyst working for Macquarie research justified the valuations for Rolta by comparing it with L&T. Similarly, the bigger scam is in the widespread disease on Dalal Street of Land Bank Valuations. This theory is being used to justify the huge valuations of real estate companies as well as a lot of other companies which own a huge amount of land. The logic being that the price of land and real estate has been rising at a rapid rate and so these companeis are sitting on a potential goldmine. The stock market is just trying to price in the market value of their land holdings into the stock price.
Desperate Analysts started taking into account large amount of property owned by SBI. It was felt that SBI has a lot of assets like property and flats in the posh areas of metropolitan India, whose market value had not been factored into the stock price. This is good in theory but in practice, SBI will never SELL its Chairman's Bungalow of its officers apartments to boost stock price. Kindly beware of Land bank Valuations if you are a value investor as most of companies who want to push their stock prices to the roof who are barely transparent in operations nor have sound business model for their company.
In 2008, CLSA analyst is factoring in Rs 552 / share for Reliance SEZ [Land is not yet acquired and they valuing the SEZ here LOL ] and has pegged the stock price at Rs 5,207.
Coming back to what Sr. Fund Manager, Prashant Jain said in an interview,
"Asset valuations can be factored into valuations only if companies can generate cash flow from those assets. Discount the cash flows, not assets"The same holds good for commodities. You know the endless list of companies we can talk about here :-)
Read the full article
Published by DalalStreet Business @ 11:14 AM IST.
BSE Sensex Technial Charts
We have extracted charts of BSE-SENSEX. The charts below indicate that we are at support based on SEMI-LOG trendline, 50DEMA and fibonacci 61.8 retracement. Investors must consider 16,200 as a support. Close below 16200-16000 will indicate weakness.
SENSEX / Nifty Valuations: In one of my recent posts I had contradicted with Citigroup's opinion about Citigroup's SENSEX targets and you saw the results. At current levels the valuations look attractive; Markets are trading around 16.2 times one-year forward earnings. A great opportunity for medium and long-term investors.
Find charts attached below, charts can be enlarged and seen
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Published by DalalStreet Business @ 8:54 AM IST.
Blood Bath an Opportunity to Buy
Monday, January 21, 2008
The Blood Bath in the Indian markets in-line with global stocks should be considered as an opportunity to BUY & HOLD fundamentally good stocks. Nothing has changed in the Indian economy in the past week except Inflation figure, which was higher @ 3.79. Foreign Institutions are booking profits in emerging markets to set off their losses in the sub-prime fiasco.There is selling across the board with Small-CAP and Mid-CAP being the worst affected. All the Realty Stocks are in deep red and kindly stay away from this sector as we consider it risky bet in short to medium term.IT stocks appear lucrative with strong cash flows, but there is no clarity on the end of tax waiver period. A Good bet for Long Term.
If you invest in mutual funds, this is the best time to start investing in them. If you have not already invested Rs 100,000 in Tax Saver Funds to avail the benefits of Section 80, go ahead and start picking up today.
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Published by DalalStreet Business @ 11:11 AM IST.
Future of Tata Group Stocks - FY09
Thursday, January 17, 2008
Tata Group is one of the oldest business house in India with varied interests from Engineering to IT to Chemicals to Hospitality. The group has been on continuous restructuring exiting legacy businesses and consolidating the few where it could be amongst the Top-3 or Top-5.Here is an exclusive Study of Tata Group Stocks as reported by HDFCSEC.
Tata Motors:
Tata Motors is expected to report a CAGR of 14.4% in Net sales, on the back of volume CAGR of 12.1% for the period FY07-FY09E. It will report an adj. Net profit CAGR of 10.2% for FY07-FY09E. The standalone business at 13.0x FY09E EPS at Rs.738 and subsidiaries at Rs.182/share. Successful acquisitions of global brands Jaguar and Land Rover (JLR) will adversely impact the stock price and sentiment in the near term. HDFC maintains a BUY rating on the stock with a target price of Rs. 920 from a one-year perspective.
Tata Steel:
The company currently trades at a P/E of 7.4x its FY09E EPS of Rs 115 per share, which is at ~30% discount to its peers. Synergies from the Corus acquisition (~ $350-400 mn) will start reflecting from FY09E coupled with a reduction in concerns on financial leverage. BUY the stock with a price target of Rs. 1038 (an upside of 21.9%), at a target PE multiple of 9x FY09E EPS.
Tata Consultancy Services:
TCS is currently trading at a price-earnings multiple of 18.3x FY08E and 15.3x FY09E. More operating levers, tremendous client mining potential and superior skills in managing scalability and attrition, make us believe TCS may outperform Infosys in the near term. BUY the stock with a price objective of Rs.1170.
Tata Teleservices Mahrashtra:
The stock has seen significant appreciation and is currently trading at 16.7 times EV/EBIDTA on FY09E basis, at 22% and 62% premium to both RCOM and Bharti respectively. Thus, the stock is richly valued compared to its peers and also, the introduction of new players would lead to price wars, which can impact the expected turnaround in profitability in the near future. The stock is a Market performer with positive bias due to future potential catalysts like de-merger/ sale of tower business and allocation of GSM spectrum and with a price target of Rs 63.
Tata Chemicals Ltd:
TCL is on a strong footing across all its businesses over the next 2~3 years. We
expect TCL to benefit from firm prices and incremental volumes in soda ash and urea in FY09E. While, we are revising downwards our fully diluted FY08E EPS estimates by 22.9%. On FY09E valuation TCL trades at 10x PER, 0.34x PEG, 6.4x EV/Ebitda & 1.4x EV/Sales. BUY with a price objective of Rs 450.
Indian Hotels Company:
Domestically, though most players are building capacities, we do not envisage a supply glut until H2FY09. Thus ARRs would continue to be on an uphill during this period. Hoteliers increasing ARRs by 15% for the Oct'07-Mar'08 period is a case in point. Expect the profits for the IHC to grow by 28.4% in FY08E & 11.9% in FY09E, translating into an EPS of Rs 8 & Rs 9. We value IHC at Rs 180 (20x FY09E).
Tata Power Company:
In the wake of strong positive sentiment & hype for Reliance Power's IPO, one
might see valuations for utilities' stocks going upwards, leading to a significant re-rating of the entire sector. However, purely based on fundamental valuations, currently HDFCSEC maintains a negative bias for Tata Power, which is already trading at 4X its book value (FY09), which is at the higher end of the spectrum.
VSNL:
The management is targeting 15% topline CAGR and EBITDA margin expansion at 20% in the next five years through global voice and data capacity expansion, coupled with focus on high growth retail broadband. The challenging environment in its global business which forms (65% revenues FY07) would weigh on the overall performance of the company. Its fate will be decided by expected turnaround of acquisitions (TYCO & Teleglobe) by FY'09E. A negative bias on the stock is maintained.
Tata Tea:
TTL gained $523 mn from its 30% stake sale in Glaceau to Coca-Cola. TTL will use the sale proceeds to bring down the debt on the books of Tetley. According to Bloomberg consensus, the earnings growth is expected at 15.6% CAGR for the period FY07-FY09E. The stock is currently trading at 15.0x FY08E & 11.5x FY09E earnings, which seems fairly valued, given the modest earnings growth. Hence, one can Accumulate on Dips.
Titan Industries:
Only 5.4% of the Indian jewellery and watches market is organized and presents a huge opportunity to Titan. With a strong distribution network in this under-penetrated market and with its brand equity, Titan is poised to grow further. The company has an ROE of 42% due to optimum use of assets and better working capital management. The company is expected to have a strong earnings momentum of 33% CAGR (FY 07-09E) which is reflected in its rich valuation of 33.3x times FY 09E EPS.
Trent Ltd:
The company through its Westside and Landmark chain of stores, has carved a niche for itself in the booming retail industry. The company has registered consistent top line growth (55% CAGR FY 04-07) but with falling margins due to increasing raw material costs (72% CAGR FY 04-07) without a significant rise in the realizations per piece. Although the EPS is expected to grow at a CAGR of 20% (FY 07-09E) with a modest ROE of 9.5%, the stock is richly valued at 19.7x FY 09E EPS.
And the list goes on , but the above covered companies form the bulk of market-cap for Tata Group.
Read the full article
Published by DalalStreet Business @ 12:37 PM IST.
Buy Marico's Retail Growth Story - Kotak
Tuesday, January 15, 2008
Kotak Sec has a BUY recommendation on FMCG Major Marico industries and suggesting buying its retail growth story.The beauty and wellness segment is on a positive growth path riding on the back of fast-changing lifestyles, growing health consciousness, high disposable incomes and demand for quality products. The burgeoning urban population and rise in spending by rural India on personal care products augurs well for the consumer industry as a whole and the aforementioned segment in particular.
Kaya Skin Clinic, the skincare solutions business, is also expected to witness high growth post consolidation in FY07. Increasing contribution from international markets and potential acquisitions should also help the company maintain consistent growth.
Expect business revenues to grow at a CAGR of 23% over FY07-09. The PAT is expected to grow to Rs.2.25 bn at a CAGR of 41% over FY07-09E. Valuing Marico's current business on a DCF basis a fair price of Rs.90 per share is the target.
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Published by DalalStreet Business @ 11:28 AM IST.
Indian Banking Sector Upgraded by Deutsche Hong Kong
Thursday, January 10, 2008
In one of the boldest new year upgrades, Deutsche Bank Securities Research has upgraded the Indian Banking Stocks. Axis, Bank of Baroda and HDFC Bank have been upgraded from HOLD to BUY. The rest are already in the BUY list. However, this time we see target prices of most banks to be 40% + from current levels, something hard to believe but only time will tell.India stands at the cusp of a high growth scenario in domestic lending on two counts 1] RBI likely to use softening as a tool to address capital inflows leading to a rise in leverage 2] Curbs on ECBs and similar structures to increase demand from local banks. Also the value unlocking theme will be spiced up sporadically via the outright listing of AMCs and securities business.
Asset quality woes have largely been addressed in the retail lending side and robust profitability of the corporates have kept them cushioned. We foresee a pickup in corporate opportunities as momentum in projects is building up plus high prices and high volumes imply increased working capital.
Valued the core lending business on single-stage Gordon Growth for PSU banks and either 2-Stage Gordon Growth or P/E for private banks; for non-bank businesses, if present, use sum-of-parts. Here is the TOP BUY List and their Target Prices.
Axis Bank 1325
Bank of Baroda 550
HDFC Bank 2370
Kotak Mahindra Bank 1550
Centurion Bank 75
HDFC 4185
IDFC 290
ICICI Bank 1755
Karnataka Bank 320
Oriental Bank 440
Punjab National Bank 810
Read the full article
Published by DalalStreet Business @ 2:28 PM IST.
Kotak Donwgrades Indiainfoline to SELL
Revising earnings model for India Infoline (IIL) to factor in the proposed preferential allotment by Orient Global and recent infusion in the insurance distribution business. IIL will need capital to fund margins with exchanges. It may likely increase capital contribution to support growth in its finance business as well. However, expect high cash in its balance sheet and consequently its leverage will likely be lower-than-expected earlier. Changing earnings estimates by 5% for FY2009E and 11% for FY2010E.Kotak has tweaking the price target to Rs1,350 from Rs1,300 (based on FY2009); our fair value based on FY2010E is Rs1,500. The stock looks overpriced at the current levels and recommend investors to book profits.
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Published by DalalStreet Business @ 10:42 AM IST.
Lehman Brothers Upgrades Indian IT
Tuesday, January 08, 2008
In a research report released just minutes ago, Lehman Brothers has upgraded the Indian IT stocks. The upgrade comes 3 months after their bold move to call a SELL on Indian IT.Infosys Technologies:
Infosys's recent multiple contraction has priced in negatives like an appreciating rupee, a rising tax rate and a slowdown in EPS CAGR to 18.4% in next five years. The stock price will be driven by revenue and earnings momentum, which is likely to continue in the next few quarters. Infosys is expected to report an EPS of Rs 80.6 for FY08 and Rs 96 for FY09. Lehman has set a target price of Rs 2150 basedo n DCF.
Satyam Computers:
The recent multiple contraction for Satyam already prices in negative news such as appreciating currency, rising tax rates and a slowdown in EPS CAGR to 15.4% in the next five years. Continued offshoring demand in ERP services, we see good prospects for Satyam in the next couple of quarters. Lehman expects Styam to report an EPs of Rs 26.1 for FY08 and Rs 30.3 for FY09. Lehman is OVERWEIGHT on Satyam with a 12 month price target of Rs 549.
Wipro:
The contraction in multiple in the past one year reflects negatives such as rupee appreciation, rising tax rates and a slowdown in EPS CAGR to 18% for the next five years. Wipro has made some good acquisitions (especially of Infocrossing) in the recent past, and we expect that the company will post solid growth in FY09. Expect the domestic IT services business to do well based on the growing automation needs of the Indian corporate sector. Wipro is expected to report an EPs of Rs 23.6 and Rs 29.2 for FY2008 and FY2009 respectively. Lehman is OVERWEIGHT on Wipro with a price target of Rs 619.
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Published by DalalStreet Business @ 3:25 PM IST.
Sensex Target of 23950-25000 in 2008 - Citi
Citigroup continues to be bullish on the Indian market and has set a BSE SENSEX Target of 23,950 to 25,000 for 2008. Average earnings of SENSEX companies has grown by 33% in the last and current financial year. For the FY09 the earnings are likely to grow a modest 19%, the lowest in the PAST 5 years.
At the above figures, if SENSEX were to Quote at 25,000, the P/E would tend towards 23.1. In our honest opinion, we feel it is highly absurd valuation for mere 19% growth in FY09. We once again stick to fundamentals and VALUE based stock picking.
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Published by DalalStreet Business @ 10:28 AM IST.
Gateway Distriparks - Upsidse from Rail freight subsidiary
Monday, January 07, 2008
Gateway Distriparks has announced its plans to raise INR 2.5-3.0 bn through private equity in its subsidiary called Gateway Rail Freight (GRF) in the next 3-6 months. GDL owns 90% in the subsidiary whereas 10% is owned by directors of the company. Gateway rail freight is formed with a view to carry container train business and further expansion into its ICD business and plans to invest INR 8-10 bn over a five year period (INR 6-8 bn from equity and remaining debt contribution).In its first phase of development, it plans to develop two ICDs at Faridabad and Ludhiana with an estimated capacity to handle 36,000 TEUs each and to run 30 container trains in the next 2-3 years. It is also looking at a possibility to list the subsidiary in the next two-three years.
Gateway rail freight post infusion of private equity is expected to have 70% share in two ICDs and 35% share in the container train business (GFR owns 50% in the container business through its JV with Concor). We have estimated the revenue potential for the subsidiary by assuming 36,000 TEUs capacity for the two ICDs in FY10-11 and 20 and 30 trains in FY10 and FY11, respectively.
On the basis of FY09 SOTP, the stock targets are set to INR 227 and INR 273, giving 15x and 18x one year forward multiple.
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Published by DalalStreet Business @ 8:23 AM IST.
Suppliers for Tata Small Car Project
Saturday, January 05, 2008
The overhyped car from Tata Motors unveiled its first design in the Auto Expo show. I am wondering if their are any specialists reading this article to enlighten me about the safety this car can provide to its passengers.
We are all intelligent investors, right ? Forget Tata Motors, lets make money by betting money on its suppliers. Here is a list of suppliers for Tata's Small Car Project.BOSCH - Alternator; Brakes; Fuel injection system; Ignition system
LUMAX AUTOMOTIVE - Headlamps
RICO AUTO - Engine blocks
NK MINDA - Switches; horns
SONA GROUP - Steering columns
GABRIEL - Suspensions
KINETIC ENGINEERING - Gears
FEDERAL-MOGUL GOETZEE - Engine pistons
JK TYRES - 12-inch tyres
Attention should be drawn towards the above companies as they are likely to make good profits.
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Published by DalalStreet Business @ 3:38 PM IST.
Buy Sathavahana Ispat
Friday, January 04, 2008
Sathavahana Ispat (SIL), a standalone pig iron manufacturer with capacity of 210,000 TPA is stepping ahead as an integrated pig iron producer. It has commissioned 300,000 TPA of metallurgical coke and is on the verge of completing a 30 MW waste heat based power plant.
The company is setting up 30 MW cogen power plant. As it is waste heat based, cost of power generation is a meager Rs.1.2 per unit against selling price of Rs.3 per unit, representing net margins of approximately 60%. It is also increasing its power capacity by another 33% to 40 MW by Dec'08. Coke production - The company has commissioned 300,000 TPA coke plant at cost of Rs.1.1 bn in Mar'07. It requires 160,000 TPA of coke for captive consumption while the remaining it would sell in open market. The plant has stabilized and running at 79% utilization, we expect the impact would be visible in Q3 & Q4, FY08 numbers. Strategic tie up with Stemcor Holdings – Recently, Stemcor Holdings has taken 14.7% stake in SIL at Rs.60 per share. This association with SIL should help it in raw material procurement and finished goods sales contracting.
Expect SIL to grow its net sales and net profit at a CAGR of 28.8% and 68.1% to Rs.5.2 bn and Rs.667 mn respectively in FY10E over FY07. Currently it is trading at 6.7x its FY09E EPS of Rs.13 and 4.4x its FY10E EPS of Rs.20.Based on 14x average FY09-10E EPS of Rs.8.3, value of power business comes to Rs.116 per share and 7x average EPS of Rs.8.2, value of pig iron and coke business comes to Rs.58. Buy with a Target price of Rs 174
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Published by DalalStreet Business @ 10:13 AM IST.
Gremach Infrastructure - Oil Exploration and Coal Mining
Thursday, January 03, 2008
Religare has initiated coverage on Gremach Infrastructure with a BUY rating. Engaged in the business of leasing out construction and mining equipment. Strong government thrust on infrastructure development coupled with Gremach's timely equipment acquisition (capex of Rs 1.3bn) will drive a revenue CAGR of 62% CAGR over FY07-FY09. Aggressive forays into onshore oil rig rentals, SEZ development and coal mining would fuel the next phase of growth for the company.Orders placed for 40 onshore oil rigs for an amount of US$ 1bn to be delivered in the next three to four years by Bomco, China's biggest oil and gas rig manufacturer. This would make Gremach the biggest onshore rig rental player in India. Investing Rs 2bn to establish an SEZ in Kolhapur, Maharashtra and a further Rs 2.3bn to construct a saw pipe manufacturing facility within the zone. About 250 acres of land already acquired for the proposed SEZ.Coal mining rights acquired in Mozambique with estimated coal reserves of 200mn tonnes, which if proven, will place Gremach in the select club of Indian companies operating mines outside India. We expect this business to be extremely profitable for the company, but have not valued the same due to the absence of information.
Valuation and Recommendation:
Sum of the part valuation of Gremach Infrastructure
Rs 242/share for the core business based on a P/E of 12x on FY09E (20% discount to larger peer Sanghvi Movers).
Rs 195/share for the rig business based on FCFE approach and assuming 10 rig acquisitions in FY08 and FY09.
Rs 92/share for the SEZ foray (250 acres of Kolhapur land valued at Rs 7.5mn/acre).
Hence a Target Price of Rs 527 with upside of 47% from current levels in 6-12 months.
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Published by DalalStreet Business @ 9:44 AM IST.
Book Profits in GATI + Hindustan Constructions
Wednesday, January 02, 2008
It is always advisable to withdraw some money from the market. Kotak Securities is advising investors to nook profits in GATI and Citi is advising clients to take money off of Hindustan Constructions. The basic reason behind these two ratings is the run up of the stock in short span and prices prevailing above their targets.Kotak on GATI:
GATI has acquired 73.7% stake in Delhi-based cold chain logistics firm Kausar India (Kausar). Initially it acquired 52.96% stake in the company. Subsequently it came out with an open offer as per SEBI regulation and acquired another 20.76% @ Rs. 72.84 per share. As of now earnings estimates for GATI is EPS of Rs. 4.6 for FY08E and Rs. 6.7 for FY09E. At Rs.196, the stock trades at 4.0x book value, 29.4x earnings and 22.7x cash earnings based on FY09E. Kotak puts a stock price target of Rs 68 on 18X FY09 earnings. Book Partial Profits at Rs 190+ levels.
Citi on Hindustan Constructions:
HCC has lost its higher margins and larger size advantage over the past two years due to what we believe is poor project selection. Younger and more nimble companies, like Nagarjuna Construction and IVRCL, have not only caught up with HCC, but have also grown larger in terms of the profits generated from their core E&C businesses.
Here is SUM of The Parts Valuation of Hindustan Constructions according to Citi,
Construction (Rs90);
Real estate projects (Rs116), and
BOT projects (Rs3).
Book Profits in Hindustan Constructions with a Target price of Rs 208.
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Published by DalalStreet Business @ 2:38 PM IST.
Foreign Investors View about India in 2008
Tuesday, January 01, 2008
Here is what various Foreign Institutional Investors think about India.Citigroup Report says,
Given the current infrastructure deficit and above 90% capacity utilization ratios in many key industries, we expect the rapid pace of investment to continue into 2008. Consumption has slowed due to interest rate tightening, favorable demographics, increasing penetration of retail credit and untapped rural potential indicate the consumption story is still alive. India has potential to further lift its trend growth level and remain one of the fastest-growing economies in the region. But moving to a higher growth trajectory entails addressing a number of challenges.
Read On [PDF]
HSBC, One of the Major Investors in the current Rally said,
One of the major themes in 2008 will be corporate earnings. Companies will be reporting their annual numbers for FY2008e in April and May 2008. Consensus forecast for FY2008e Sensex EPS growth is 20.5%. From 708 in FY2007, Sensex EPS is expected to grow to 1,226 in F2010e according to consensus. This is a CAGR of 20.1% over three years. Read On [PDF]
Lehman Brothers writes,
The bigger macro story, to us, is Indias rising potential growth rate. India is exhibiting many of the characteristics that Japan, Korea and China did during their economic takeoffs. Read On [PDF]
Macquarie Research adds,
India will be in a "sweet spot" in 2008, with domestic growth bolstered by capital flows even as the US slows without slipping into recession. We explore the key themes that we think will dominate 2008. Read On [PDF]
Read the full article
Published by DalalStreet Business @ 10:47 AM IST.