Dalal Street Investments

Credit Suisse’s Picks MICO + HPCL + Satyam + Dr Reddy + Canara Bank

October 16, 2007

Credit Suisse is in love with 5 stocks which are being ignored by the market and which have also underperformed the market.

1. MICO:
The stock is attractively valued (20.2x CY08E). Three catalysts for MICO’s business and share performance: 1) increasing popularity of CRS powered diesel cars; 2) an increase in exports of engines and cars from India and 3) production of Tata Motors’ proposed mini-car. MICO being a key supplier of injection systems to engine and car manufacturers is likely to be a beneficiary of all these.

2. HPCL:
In the medium to long term though, the company is expanding capacity and working hard on improving service quality at its outlets, putting it in a good position for the day when price distortions are removed. Meanwhile, decreasing international crude prices can imply better earnings for the company.

3. Satyam Computers:
While the exchange rate is a real concern, demand slowdown may not become evident till the end of 2007, in our view. Sound September 2007 results and an increase in guidance would be strong triggers for the stock in the near term. For long-term investors, however, its attractiveness is both in valuations and long-term growth.

4. Dr Reddy’s Laboratories:
Dr Reddy’s performance has suffered primarily due to four reasons: 1) uncertainty over the changes in Germany and the possible impact 2) currency – 80% of revenues are exports, and it has a low natural hedge. 3) a lack of immediate catalysts in the US pipeline – Dr. Reddy’s is known to be a stock driven by one-offs in the US market. 4) removal from the Sensex will be a dampener until 19 Nov. Stock is trading at its lowest forward multiple since 2004; For the long-term investor, this provides an excellent entry point.

5. Canara Bank:
With uncertainty looming large over whether the RBI will hike CRR, many banking stocks have underperformed the Sensex. A stable earnings growth over the next two or three quarters after a relatively weak 1Q and cheaper valuations could be the catalysts for the stock to outperform.


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