Indian Equity Research and Investment Strategy
Abbott India announced that a meeting of the board of directors of the company will be held on 5 September 2007, to consider a proposal for buyback of a portion of fully paid equity shares of the company. The buyback price to be determined by the board will not exceed Rs 650 per equity share, it said.
Net profit of Abbott India rose 34.66% to Rs 18.30 crore on 18.80% rise in sales to Rs 154.04 crore in Q2 May 2007 over Q2 May 2006.
Infotech Enterprises has announced that Infotech Enterprises America, (Infotech), a global geospatial and engineering consulting and professional services firm has formed a strategic alliance partnership with Continental DataGraphics (CDG), a subsidiary of the boeing company.
The alliance with Infotech will also enable CDG to be more responsive to growing demands from its customers to develop and deliver new solution offerings in an accelerated timeframe. CDG is proactively developing new strategic partnerships with companies such as Infotech to further globalize its business and to actively seek out opportunities for growth in a broader marketplace.
CDG specializes in the creation, production, and distribution of complex engineering publications. Its comprehensive services include technical authoring and illustration services, digital imaging, and hosted portal services supporting multiple market segments in the United States and Europe, including aviation, aerospace and defense, manufacturing, energy and government. CDG has developed complex technical and engineering publications for Boeing aircraft and other heavy equipment manufacturers for many decades.
Citigroup Research which had a BUY recommendation on ABB has revised its target price upwards to Rs 1,266. Current market Price is Post Stock Split from Face Value Rs 10 to Rs 2.
Citi expects earnings CAGR of 49% (from 42% earlier) over CY06-09E with RoEs at the ~37% level, driven by sales CAGR of 42%. Target price is based on a P/E of 30x FY09E at a ~30% premium to BHEL given: 1] EPS CAGR of 49%; 2] RoEs of ~37%; 3] Access to parent technology; and 4] ABB India’s importance in the ABB Group.
ABB China grew sales at a CAGR of 33% over a 7-year period between CY98 to CY05. ABB India may find it possible to repeat this feat in India given India is the fastest growing T&D market in the world, a fact corroborated by both ABB an Areva. India is not only a promising domestic market, where ABB is well-positioned as a market leader in power and automation technologies but also a global sourcing hub; global R&D centre; and regional excellence centre.
Citi has also recommended a BUY on Nicholas Piramal India as the stock will unlock the value from proposed demerger of R&D unit – NCE Research. NPIL’s focus on NCE R&D has been rising and it is working on 13 NCEs (3 in the clinic). R&D/sales was up from 1.2% in FY03 to 5.2% in FY07 (66% CAGR) and is set to rise to 5.7% in FY08E.
First-cut calculations indicate that a demerger would raise FY09E and FY10E EPS 12-16% and 11-15% respectively. Besides, the street has treated NPIL’s NCE R&D as a cost, thereby reducing the company’s overall valuation. On demerger, if the NewCo is listed, expect the Street to assign some value to this as well, thus unlocking value for shareholders. Citi sets a target price of Rs 345 on Nicholas Piramal India.
In a separate Research report, Sharekhan securities has set a Target price of Rs 326 on Nicholas Piramal India Ltd.
Elder Pharmaceuticals has reportedly acquired 51% stake in Biomeda Group in Bulgaria for euro 5 million (around Rs 28 crore) in an all-cash deal. Biomeda Group is a leading pharma group in Bulgaria with a turnover of about 10-12 million euros. With the acquisition, Elder will see the launch of many more products in Europe. Biomeda is Elder’s second acquisition in less than 45 days.
On 26 July 2007 it had acquired a 20% stake in UK’s NeutraHealth Plc for 5.63 million pounds sterling (Rs 47crore). Neutra Health has three subsidiaries selling neutraceutical products such as vitamins, health supplements and over-the-counter medicine. Neutra Health has a turnover of 23 million sterling pounds and a market capitalisation of close to 16.8 million sterling pounds.
Elder’s net profit rose 15% to Rs 15.08 crore in Q1 June 2007 over Q1 June 2006. Sales moved up 15.6% to Rs 120.69 crore.
Firstsource Solutions announced it has acquired MedAssist Holding, Inc., a leading provider of revenue cycle management in the healthcare industry in the US. The company has over 1,000 clients including hospitals, large physician groups and alternate site providers. The acquisition is valued at $330 million. MedAssist had revenue of $99 million for year ended 31 December, 2006
On 14 August 2007, Firstsource Solutions board of directors approved the proposal for merger of healthcare outsourcer RevIT Systems, a wholly owned subsidiary of the company with the company.
IDBI Capital has initiated coverage on Reliance Communications with a Target Price of Rs 669.
The domestic telecom market grew by 58% YoY in FY07 itself, where-in 66.51m subscribers were added, taking the total subscriber base to 225.21m. RCOM, which has 17.2% market-share currently, is targeting a 21% market-share by FY09. Acquisition of Yipes Communications for Global Expansion.
Controversial hiving off of its tower subsidiary into a separate division in April 2007. Recently it sold a 5% stake in its tower subsidiary at US$ 337.5m to a consortium of 7 investors. This puts valuation of the subsidiary at Rs.270,000m. RCOM also plans to list its global subsidiary FLAG in a couple of quarters. FLAG is the largest private
submarine cable system in the world.
Sum Of the Parts Valuation [SOTP]
RCOM’s core business on DCF basis and the tower business on EV/subscriber basis. DCF valuation gives the core business value at Rs.534/share. Adding to this the value of tower business at Rs.135/share, we arrive at a fair value of Rs.669/share, upside of 35% from the current price of Rs.495. At the CMP Rs.495, the stock is trading at a PE multiple of 20.4x on FY08E EPS of Rs.24.3 and 15.8x of FY09E EPS of Rs.31.4/share.
Kindly note that Citigroup analysts valued the tower business at a price much below the Rs 135 / share which IDBI is valuing it at.