Category: Equity Research

DSP Merill Lynch in its Investment update has put a BUY recommendation on IndiaBulls Financial Services Ltd. It has also revised the target for IndiaBulls to Rs 750.

The upward revision is mainly due to the rise in value of its Real Estate Holdings. The NAV of Real estate business is estimated at Rs423/share (FY08) by Merill Lynch, a 47% discount to KF’s value of Rs796/share principally owing to the difference in SEZ valuation. They have pegged SEZ valuations at the price paid by Farallon last month (Rs173/shr v/s RS496/shr done by KF) owing to uncertainty in SEZ policies and extended timeline of SEZ. Hence, SEZ valuations may remain muted at 0.5-1.0x NAV.

Merill Lynch is however, positive on the non-SEZ properties, where our value of Rs250/shr is just 13% lower than KF’s value largely owing to absence of any price escalations. These properties could trade up to 1.2-1.3x NAV.

IndiaBulls Financial Securities business is valued at 15-17x FY08E earnings as markets remain
buoyant. Consumer finance business valued at 1.5-1.8x FY08E book given the rapid rise in earnings and loan book.

Total value of real estate business valued at Rs337-498/share. Total ‘sum of parts’ valuation range at RS650-855/share, underpinning our PO of Rs750.

The record date of Demerger of IndiaBulls Financail Services Ltd and IndiaBulls Real Estate / properties is fixed at Jan-09-2007.

Tags: Invest India, Emerging Markets, India Realty Stocks, Real Estate India

India’s leading Hospital Chain Apollo Hospitals Ltd and leading Auto Component manufacturer, Bharat Forge Ltd are likely to underperform in the next 2 quarters said a research note by HSBC Global Research.

HSBC said that margin recovery maybe delayed as Apollo embarks on another round of capital expenditure. The stock has consistently been rerated on the back of expectations of medical tourism taking off, improving macro parameters and more importantly as the only available play in the Indian hospital sector. However, HSBC believes that valuations continue to look expensive.On the DCF model, they set a target price of Rs 375 from current levels of Rs 430.

HSBC expects slowdown in sale of commercial vehicles in the US in 2007. HSBC has cut EPS estimates of Bharat Forge Ltd by 18% for FY2007 to Rs 13 and for FY08 to Rs 16 on lesser margins from subsidiaries. On a 3 stage DCF methord of valuation, HSBC is underweight on Bharat Forge Ltd and has set a price target of Rs 320 from current levels of Rs 350.

Tags: Dalal Street, Apollo Hospitals, Medical Tourism, Bharat Forge

Merill Lynch in its research report has highlighted about its recent company visit and talks with the management of Panacea Biotec.

WHO pre-qualification process is in advanced stage for three combination vaccines (US$500mn market size); exports to WHO likely to begin by mid-07. Combination vaccine exports to WHO have potential to scale-up five-fold in FY09E YoY. Near doubling in growth expectations for the Indian vaccine JV, Panacea-Chiron. Plans for dossier filing of anthrax vaccine (Phase II A) by mid-end 2007. EU filing for Pharma NDDS dossiers targeted for 2007; launch likely in 2009

Panacea Biotec now has a Debt free status as of Oct’ 06; about US$40mn net cash position; tax rate likely to reduce to 25% levels by FY09 (current 30% tax rate). Merill Lynch Reiterates a Buy and strong earnings outlook. ML expects Panacea Biotec to deliver 156% EPS (FD) growth in FY07 and 34% growth in FY08 due to 34% core revenue CAGR (FY06-08E), in turn led by strong growth in vaccines in both institutional and private markets. OPM expansion to 29.2% in FY08E (from 22.1% in FY06), noting the entry into high margin markets. Tax and excise duty savings on account of operations in tax friendly zone of Baddi (Himachal Pradesh).

Merill Lynch has set a 12 Month price target of Rs 515 from current levels of Rs 390. EPS estimates for FY2007 and FY2008 are Rs 19.86 and Rs 26.55 respectively.

Tags: Dalal Street, Panacea Biotec, Biotech India, Investment India

Citigroup research is bullish on the prospects of Ranbaxy Labs ltd. Ranbaxy recently received approval from the US FDA to sell 5, 10, 20, 40mg of Simvastatin tablets post the conclusion of Teva’s exclusivity period later this month. Ranbaxy has already captured more than 50% of the 80mg market by virtue of its exclusivity period. Citi expects Ranbaxy to be a key player in the other dosage forms as well.

This is the 4th ANDA approved by the US FDA in the last 2 months after Cetirizine, Cefprozil and Sertraline. While it is critical for Paonta to get approved for Ranbaxy to commercialize its large pending pipeline fully, we believe that it would be able to keep up some product flow in the interim from its facilities at Dewas and New Jersey. Effective resolution of the Paonta issue, which we believe is only a matter of time, could accelerate product flow and provide an upside catalyst for the stock.

Ranbaxy is one of the few geographically diversified and fully integrated global generic players. This, along with the scope for cost reduction, should support improved profitability as revenues scale up. Citi is expecting an EPS of Rs 20.10 for FY2007 and Rs 24.67 for FY2008[Ending Dec] which translates into a forward P/E of 20 and 16.5. Citi has set a 12 Months Price Target of Rs 515 on Ranbaxy.

Tags: Dalal Street, Indian Pharma and Biotech Stocks, Ranbaxy, India Stock Investment

Immediately after RBI awarded United Western Bank to IDBI in Oct-2006, DalalStreet.Biz recommended its readers to exit IDBI.

Macquaire Equity Research has now initiated coverage on IDBI Ltd with a UNDERPERFORM rating and a 12 month price target of Rs 65.00. The main reasons cited by Macquaire are,
IDBI is weighed down with a heavy burden of legacy, as it struggles with its large book of bad loans, manifested in the SASF bonds, and high cost borrowings. As a result, IDBI does and will continue to suffer from sub-normal NIM for quite some time.

The UWB acquisition is not enough. The UWB acquisition is unlikely to help matters significantly. While the added branches will be positive, we do not see it as being enough to sort out the bank’s problem with legacy highcost liabilities. Of course, hitches in integration could worsen matters.

IDBI already enjoys considerable government support, in the form of the SASF (stressed asset
stabilisation fund) and forbearance on statutory reserves. We do not see the bank being able to forego these concessions in the short term – most likely, the government is likely to extend these.

Tags: Dalal Street, IDBI, India Invest, Stock Investment Strategy

ABN Amro in its research report has upgraded 12 month target price of Federal Mogul Goetze India [FMGI] to Rs 583, current market price is Rs 425 [Markets have crashed but this stock has moved up].

FMGI is a turnaround stock. FMGI returned profits for quarter 2QCY06, as the restructuring-led clean-up of the balance sheet was carried out over the March and June 2006 quarters.

FMGI is banking on auto ancillary outsourcing wave. With its skilled manpower and capability, the company is well positioned to benefit from its parent’s plan to shift 25 plants to low-cost
countries by 2008, under its 2006 restructuring programme. Given 10 plant closures have already been announced globally, we expect benefits to begin to accrue for FMGI as early as calendar 1Q07, with the company building scale from that point forward.

FMGI has changed its year-end from March to December to get in sync with its parent. The expectation on the dieselisation of domestic cars in India to promote 18% growth in domestic sales for CY07 and CY08, and further exports are expected to grow more than five-fold as a result of the parent’s proposed plant shift. Revenues are expected to grow from Rs 404 crores in 06 to Rs 677 crores in 2007 and Rs 808 crores in 2008. PAT is expected to quadruple for CY06-08, leading to EPS of Rs24.8 in CY07F and Rs34.3 in CY08F.

Tags: Invest India, India Outsourcing, Federal Mogul Goetze India, Indian Stockmarket