June, 2007 | Dalal Street

Citi Upgrades Punj Lloyd to BUY

June 8, 20072 min read

You are reading this first here…
Citirgroup Analyst, Venkatesh Bala, in a report released just few seconds ago has upgraded Punj Lloyd Ltd to a BUY with a price target of Rs 305. Our Dalal Street Research Analyst had recommended Punj Lloyd in December-06 with a price target of Rs 300 [Post-split] So you notice the difference between our quality research and research coming from world’s top brokerage house ? We were the first one to do it 🙂

Citi in its report has also upgraded the stock from Risky- SELL to Low Risk – BUY. Punj is now pre-qualified for larger/more complex projects. Indications of this scale-up are already visible (average order is up from US$30mn to US$100mn in FY07 and likely to go up to US$200mn).

At the end of FY07 Punj Lloyd had the third largest order backlog of Rs159bn in Engineering & Construction sectors after BHEL (Rs550bn) and L&T (Rs369bn).

Earnings revisions of 20% in FY08E and 21% in FY09E. A rolling forward of our target P/E multiple to 23x FY09E, from 23x FY08E earlier. This is well supported by an earnings CAGR of 38% over FY07-10E with RoEs expanding from 17% in FY08E to 25% in FY10E.

Despite L&T being a more diversified and established player with a market cap which is ~ 10x that of Punj Lloyd, Citi uses a similar multiple for both companies given Punj Lloyd’s superior earnings CAGR of 38% over FY07-10E coming off a smaller base vis-a-vis 31% for L&T.

India IPO Reviews and Updates

Nelcast Review and Recommendation

June 8, 20072 min read

Nelcast is dependent on the auto industry ramping up of exports and increasing machining are required to maintain growth as domestic users face a slowdown.

Right now, Neelcast exports about 9% of its sales Globally, export of castings to developed nations is on the rise on account of rising costs, lack of skilled foundry people and environmental restrictions in these markets. The company plans to increase its focus on exports and become the preferred full service supplier to original equipment manufacturers (OEMs) across the globe. The export target is 30% of sales by 2010.

Strengths:
The composition of machined castings is about 10% of production. This is to be increased to about 20%-25% over the next two years so as to improve margin.

Weakness:
More than 70% of revenue is derived from the HCV and tractor segments. Both these user industries are set to slow down significantly in FY 2008 when the company’s substantial capacity expansion is under implementation.

Ancillaries to domestic auto and auto components sectors often have to maintain their prices despite rising raw material cost due to a limited number of clients. Margin is down from 11.9% in FY 2004 to 8.9% in FY 2006, though it jumped to 13.4% in FY 2007.

Valuation:
At a price band of Rs 195 – 219, Nelcast’s P/E works out to 17.2 – 19.3 times FY 20007 earning on post-diluted equity. Industry peer Ennore Foundries is trading at a P/E of 19.0.

Investors with some risk appetite may apply at Cut-Off.

Breaking Corporate India Earnings News

India Technicals

June 8, 20071 min read

With SENSEX and Nifty in Red, here are the technical support and resistance levels.

Nifty — The index opened on a flat note and exhibited intra-day volatility in 4230 and 4162 band.It ended the day down 18 points.

Support — The index has support around 4141 (low of 25 May 2007) and 4127 (approx.) the level of 4127 is 62% retracement level of the rise from low of 3981(11 May 07) to the recent high at 4363. Intra day Nifty declined towards the 4141 level and witnessed an intra-day bounce.

Resistance — The index faces resistance around 4225 (20dma) and 4257 (10dma), cross above 4225 could see an intra-day bounce towards 4257.

Conclusion — Intra-day pullback will face resistance around 4257.

Equity Research

Citi Maintains a BUY on Indraprastha Gas

June 7, 20071 min read

Citigroup in a research report released just a while ago has maintained a BUY on Indraprastha Gas with a price target of Rs 156. Indraprashta Gas is expected to record a 21% annual growth between 2006-09.

Citi projects growth in PNG penetration, with renewed focus as compliance-led skew toward CNG should moderate; (2) regulatory upside potential, with the Delhi government mandate for conversion of new LCVs to CNG; (3) geographical growth in the National Capital Region; and (4) discretionary demand growth.

Indraprastha Gas is expected to report an EPS of Rs 9.18 and Rs 11.06 for FY07 and FY08 respectively. On DCF model Citi recommends a BUY with a price target of Rs 156. Target price for IGL is also based on a Price/Cash Earnings of 11.1x FY07E.

Breaking Corporate India Earnings News

Suzlon Energy Powered by US Order

June 7, 20071 min read

US-based Suzlon Wind Energy Corporation, the step-down subsidiary of Suzlon Energy, has signed a contract for a total of 300 units of 630 mega watt (MW) of wind turbine capacity with Edison Mission Group of Irvine, California, the USA. The two phase contract calls for delivery of 315 MW of turbine capacity in 2008 and another 315 MW of capacity in 2009.

In May 2007, Suzlon Energy had acquired German wind turbine manufacturer REpower after the French nuclear energy group Areva decided to withdraw from the bidding contest. REpower is one of Germany’s biggest wind-turbine makers and one of the world’s leading companies in wind energy sector.

Suzlon Energy’s net profit rose 21.56% to Rs 437.82 crore in Q4 March 2007 (Rs 360.16 crore). Sales moved up 32.72% to Rs 2055.48 crore in Q4 March 2007 (Rs 1548.71 crore). The net profit rose 29.22% to Rs 1061.14 crore in FY 2007 (Rs 821.19 crore). Sales jumped 42.02% to Rs 5380.37 crore in FY 2007 (Rs 3788.46 crore).

From Rs 1187.65 on 30 April 2007, it had advanced to Rs 1,250.90 by 14 May 2007. But it slipped sharply to Rs 1,138.30 on 15 May 2007 after it reported poor results for Q4 March 2007 during trading hours that day. The scrip again moved up to Rs 1378 by 25 May 2007. It had settled at Rs 1310 on 6 June 2007.

Economy, Markets and Macro Views

Currency Coin Scam Hits India.

June 7, 20072 min read

You must have always noticed that whenever the Congress Government is in power, Indians have to face the wrath of a Financial Scam. Be it the Bofors Scam or the 1994 – Securities Scam or 2005 – SEZ Land Scam.

To your left you can see a Rs 2 coin made of Cupro-Nickel which weighs 6 gram and is 26 mm in diameter. Scamsters have been collecting coins of Rs 2 denomination and smuggling out of the country, mainly to Bangladesh where they are melted and re-minted to form statues and other metal articles. Why only coins of Rs 2 denomination ?

Because you get 6 gram of Cupro-Nickel. While in coins of Rs 5, the weight is only 9 gram, proportionately it should have been 15 gram but they aren’t because the coins of Rs 5 came into circulation when the prices of Cupro-Nickel had already appreciated and thus they have just 9 gram of Cupro-Nickel.

It is the duty of the Central Government of India to protect its currency. Instead the Government has asked RBI to pump 900 Million fresh pieces of coins in May-2007. I overheard some folks talking that for every Rs 100 of these Cupro-Nickel coins, their is a kingpin who is paying Rs 160 in Cash. Imagine the depth of the racket and our government doing nothing.

Tags: India, Scam, Currency, Coins

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