2007 | Dalal Street

Equity Research

Punjab National Bank – BUY

August 16, 20071 min read

Kotak Securities is recommending buying Punjab National Bank [PNB] at current levels Rs 481, with a target price of Rs 680, potential upside of 40%.

PNB is well positioned to capitalize on growth opportunities in the Indian market. PNB is expected to have a loan growth of 21.5% and 19.7% in FY08E and FY09E, respectively. In the same period, deposits are expected to rise 17.7% and 16.1%, respectively, and investments are expected to rise 8.2% and 8.4% in FY08E and FY09E, respectively.

Valuations:
PNB is expected to grow its earning by 24.3% and 25.2% in FY08E and FY09E, respectively. Full year profit is estimated to be at Rs.19.14 bn and Rs.23.97 bn for FY08E and FY09E, respectively resulting into an EPS of Rs.60.70 and Rs.76.01. The adjusted book value is estimated to be Rs.344.55 and Rs.416.49, for FY08E and FY09E, respectively.

Breaking Corporate India Earnings News

HDIL ties up with Lehman Brothers for Dharavi development

August 16, 20071 min read

Global investment bank Lehman Brothers has teamed up with Wadhawan group promoted HDIL to bid for the redevelopment of Asia’s largest slum, Dharavi. The project is expected to generate close to Rs 25000 crore in revenue for the Maharashtra government.

HDIL has formed a special purpose vehicle (SPV) with Lehman Brothers. HDIL will hold a majority equity stake, reports suggest.

Reportedly, the new company will bid for the redevelopment of all the five sectors of Dharavi that the government has announced to develop through a global tender process. Interested developers will be evaluated technically and financially by a committee led by the state chief secretary.

HDIL reported a net profit of Rs 202.69 crore on sales of Rs 443.28 in Q1 June 2007. HDIL mainly operated in the Mumbai region.

Breaking Corporate India Earnings News

IVR Prime Lists at 20% Discount

August 16, 20071 min read

IVR Prime, the shady Real Estate company listed at 20% discount to its offer price. Any upward movement in the stock should be considered as an opportunity to exit.

The stock is currently trading at Rs 402, against the issue price of Rs 550.

Economy, Markets and Macro Views

Buy Reliance Industries – Deutsche Bank

August 15, 20072 min read

As India celebrates her 60th independence day, Deutsche Bank [DB] equity research has upgraded Reliance Industries from Hold to BUY with a price target of Rs 2130. DB is far more bullish on the prospects RIL’s refining business.

RIL is on the cusp of strong growth in refining and E&P. Timely expansion through its export-oriented refining subsidiary, Reliance Petroleum (RPL), should help RIL capitalize on the capacity crunch and demand for upgraded fuels, which we view as positive for RIL’s refining operating rates and margins.

RIL’s earnings should get a boost from production start-ups in KG D-6 gas and RPL’s new highly complex refinery, which should support higher GRMs. DB expects RIL’s refining business (including RPL) to get re-rated, as did Indian cement stocks over the past 4 years. Potential growth in oil and gas reserves in its large E&P portfolio, and visibility in cash flows from Reliance Retail which is capitalizing on India’s booming consumer-spending theme. Reliance Retail is also positive for RIL’s longterm ratings as it can sustain long-term growth and mitigate the cyclical risk in RIL’s current portfolio.

The Sum of Parts Valuation of Reliance Industries Ltd is as below,
RIL Petchem Rs 441
IPCL Petchem (post merger) Rs 126
RIL Refining Rs 651
RPL Refining Rs 296
KG D6 (based on DCF) Rs 161
Miscellaneous E&P portfolio Rs 79
Reliance Retail Rs 108
Miscellaneous [Less Debt etc]

Dalal Street Analyst Note:
It is never too late to BUY Reliance. Keep adding in small quantities as and when you get an opportunity. Here is an earlier coverage of Reliance Industries by Goldman Sachs.

Equity Research

Buy Mercator Lines – ICICI Direct

August 15, 20072 min read

ICICI Direct’s research team recommends a BUY on Mercator Lines Ltd – MLL with a price target of Rs 85 [CMP Rs 57, potential for 47% returns]It is the second largest private sector shipping company in India.

MLL has charted out an expansion plan of Rs 1,000 crore for acquiring dry bulk carriers through its Singapore subsidiary. MLL will benefit from the rising dry bulk charter rates as the rates are expected to remain firm on account of sustained momentum in commodity movement from developing economies of China and India.

MLL has placed an order for construction of a new offshore rig at a cost of Rs 810 crore, which is expected to be delivered in Q1FY09. Offshore activity for oil and gas exploration is likely to remain at a high.

The company is expected to improve its operating margins going ahead from 26% in FY07 to 33-35% in FY08E and FY09E. On fully diluted equity of Rs 23.23 crore, we expect MLL to report a consolidated EPS of Rs 10.1 for FY08E and Rs 14.2 for FY09E. MLL trades at 4.1x it FY09E consolidated earnings and is available at a significant discount to peers like Shipping Corporation of India and Great Eastern Shipping. The stock is likely to be re-rated at 6x its FY09E earnings with a target price of Rs 85.

Dalal Street. Biz:
Kindly note that Citigroup has terminated coverage on Shipping Corporation of India and Great Eastern Shipping citing low investor interest in the stock.

Breaking Corporate India Earnings News

Videocon incorporates SPV, Global Energy Inc

August 14, 20072 min read

Videocon Industries has incorporated an SPV, Global Energy Inc., which is a wholly owned subsidiary of the company, to explore for, develop and exploit petroleum block JPDA 06-103 and the export and marketing of that petroleum and all activities. As such, Global Energy Inc., is part of the consortium which was awarded the JPDA 06-103 production sharing contract by the timor sea designated authority.

The participating interest of Global Energy Inc., in the JPDA 06-103 production sharing contract is 25%. JPDA is within the bonaparte basin with estimated 23 Tcf of undiscovered EUR gas reserves. Besides gas, there could be substantial condensate recovery.

In production sharing contract 06-103, leads 103-A and 103-C have been identified with recoverable unrisked potential of 260 million barrels of oil or 1300 BCF gas and 130 million barrels of oil or 571 BCF gas respectively.

In JPDA 06-103 a contract for 1657 sq kms of 3-D data acquisition has been awarded at an estimated cost of $18.6 million. 1055 sq kms of reprocessed 3-D data to the north of the block has already been acquired from Fugro. With this it would facilitate zeroing in on the 4 well locations for the commitment wells included in the minimum work programme. The company’s share in the current work programme is US $ 18.9 million.

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