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Book Profits in GATI + Hindustan Constructions

January 2, 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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