Month: July 2007

The Indian market bounced back during 1H07 after jitters caused by inflation,
rate hikes, tightening liquidity and currency appreciation, but it still lagged
regional peers. Citi believes the worst is over on the above concerns and growth remains robust (though less spectacular than recent years), Citi is positive on Indian equities over the next 6-12 months. Citi sets a Sensex target of 16,000 for Dec-07 (at the upper end of our earlier 14,700-16,000 target) and 17,500-18,400 for Dec-08, the market would be trading at a 12-month forward P/E of 17.3x and 16.3-17.1x for Dec-07 and Dec-08, respectively.

The average growth of EPS for SENSEX stocks is expected to be 15.08% for FY08 and 12.4% for FY09. Here is Historical Chart of BSE Sensex Stocks based on their forward Earnings Projections. If you want to read the full report send an e-mail to feedback @ dalalstreet.biz

NOTE:
In our view Sensex is a notional value. Keep BUYING wherever you find value. Small investors should take the Mutual Fund SIP route.

ICICI Research has an Outperform recommendation on JK Cements Ltd and Tata Chemicals Ltd.

JK Cement Ltd:
JK Cement is a play on the booming cement market in the northern region. The company’s aggressive expansion-cum-cost-cutting plan coupled with low valuations make the stock a good medium to long-term investment.

On EV/tonne basis, JK Cement is quoting at $65 per tonne, which is lowest compared to the deals that have happened recently ($150-$200 per tonne). The scrip currently quotes at 3.29x EV/EBITDA of FY09E. ICICI has valued JK Cement at 4.83x EV/EBITDA of FY09E, which yields a value of Rs 255 per share. At the target price, the stock would be valued at an EV/tonne of $107, which is still at a considerable discount to the market. Buy with a 12 Month target price of Rs 255, 71% upside potential from current levels. JK Cement is expected to report an EPS of Rs 27 for FY08 and Rs 33 for FY09.

Tata Chemicals Ltd:
Tata Chemicals Q3FY07 results were in line with expectations. Standalone net sales grew 4% y-o-y to Rs 1307 crore while standalone net profit was 19% higher (y-o-y) at Rs 117 crore on the back of better realizations and higher volume.

Tata Chemicals consolidated revenue to grow at a CAGR of 25% to Rs 6,044.01 crore over FY05-FY08E. Consolidated net profit should grow at a CAGR of over 20% to Rs 593.10 crore during the same period.

Tata Chemicals is trading 8.32x FY08E consolidated EPS of Rs 27.57 and 9.58x FY07E consolidated EPS of Rs 24. ICICI is not changing estimates and sticks to sum-of-parts valuation, wherein the fair value is Rs 374. Target price gives us an upside of 65% from the current levels. ICICI reiterates an OUTPERFORMER rating.

Stone India announced during market hours today, that the company had received an initial development order from the Indian Railways for supply of five sets of 180 kilo volt-ampere (KVA) static converter for locomotive application. This is a high-value, solid-state product to be supplied under collaboration with SMA Technologies AG, Germany.

On 23 April 2007, Stone India entered into an exclusive understanding with ZRJC, China, to supply air-conditioning systems for trains. This product will be manufactured at its upcoming plant in Nalagarh, Himachal Pradesh, which enjoys tax benefits.

On 14 April 2007, Stone India had received an order for refurbishment and upgradation of 1,115 wagons from the Union Ministry of Defence. The order, valued at about Rs 14 crore, to be executed over the next eight months.

The scrip had hit a high of Rs 199.85 and a low of Rs 180 so far during the day. Its 52-week high was Rs 278.80 on 29 August 2006 and 52-week low Rs 104.30 on 30 April 2007.

The Stone India stock had risen 18.31% over the last one month to 6 July 2007 compared to the Sensex’s return of 5.48%. The scrip had outperformed the market over the past quarter, gaining 22.88% compared to the Sensex’s rise of 16.40%.