2007 | Dalal Street

Equity Research

Buy Parsvnath Developers – Religare

August 10, 20071 min read

Ranbaxy Group promoted Religare, in a research report initiating coverage on PAN India Realty Developer Parsvnath Developers has put a BUY recommendation with a price target of Rs 512.

Parsvanath has land bank of 153 million sft which can be fully developed over the next 5 years. Clea ownership and title of land bank with a low acquisition cost of just Rs 233 / sft.
Land Bank spread across 47 cities in 17 states with 80% in tier-ii and tier-iii cities.
Well diversified portfolio of 103 projects across diverse segments such as commercial, SEZ, IT Parks, metro stations, hospitality. Construction projects of 74 mn sft underway, the highest amongst real estate developers in India
Delhi Metro Rail contract to BOT. Also earn commercial rental on these properties but its a long gestation projects.

Parsvnath is expected to report topline of Rs 2,574 crore for FY-2008 and Rs 4,324 crore for FY-2009. Corresponding bottom line is expected to be Rs 555.7 crore and Rs 970 crore giving a fully diluted EPS of Rs 31.1 and Rs 54. Parsvnath Developers is trading at a P/E multiple of mere 10.8 and 6.2 on projected earnings way below the industry average of 17.3 and 14.8. Buy with a price target of Rs 512.

Breaking Corporate India Earnings News

Aban Offshore + Hindustan Copper’s restructuring

August 9, 20072 min read

Aban Offshore has announced that letter of award has been received from a leading E&P Company in South Asia for deployment of the new built jack up rig deep driller 4, for a firm period of 12 months with two options to the operator for a period of 6 months each.

The estimated revenues for the firm period of deployment would be approximately US $ 80 million, including mobilization and demobilization. The rig is likely to commence operations by 4th quarter of year 2007.

Reportedly, the ministry of mines had proposed a financial restructuring package worth Rs 637 crore for Hindustan Copper Limited [HCL] revival. The package includes waiver of loan, interest, preference share capital, guarantee fee and reduction of capital.

The combined measures are expected to substantially reduce HCL’s accumulated losses of Rs 723 crore that has eroded its capital base by about 50%, reports suggest.

The financial restructuring package is aimed at helping HCL to mobilise funds from the market for estimated outlay of Rs 1800 crore for modernisation, expansion and development of new mines.

Meanwhile, the state-run copper firm was recently in news for exploring avenues to hedge its risk on the Multi Commodity Exchange (MCX). If successful, HCL would be the first metal producer in the country to hedge on a local commodity exchange

Breaking Corporate India Earnings News

Biocon & Abraxis Bioscience announces licensing agreement

August 9, 20071 min read

Biocon has announced that the company and Abraxis BioScience, an integrated, global biopharmaceutical company has announced a licensing agreement for the commercialization of ABRAXANE in India.

Under the terms of the agreement, the company will also have the right to market ABRAXANE in Pakistan, Bangladesh, Sri Lanka, United Arab Emirates, Saudi Arabia, Kuwait and certain other persian gulf countries. As part of this agreement, Abraxis will receive royalties from the company based on net sales of ABRAXANE in these countries.

In July 2007, Abraxis submitted to India’s Ministry of Health and Family Welfare an application to market ABRAXANE for the treatment of breast cancer.

Breaking Corporate India Earnings News

Tata Tea gains on US acquisition buzz

August 9, 20071 min read

As per reports, the Tata Tea is examining a number of acquisition targets in the US beverage market. Topping the list is AriZona Beverages, in which the Tatas have been interested for almost three years now.

AriZona Beverages operates a portfolio of tea, coffee, water and juice brands, besides beer and snacks. Reportedly, if a bid goes through, the Tatas will keep both the bottled and powder beverage operations and may divest the beer and snack businesses of AriZona Beverages.

Last year, Tata Group paid about $677 million for a 30% stake in Glaceau — makers of enhanced water in the US. But it was forced to sell its stake in the company to Coke after the US giant made an aggressive offer.

The scrip touched a high of Rs 744.90 and a low of Rs 724.10 so far during the day. On BSE, 20,044 shares were traded in the scrip.

Economy, Markets and Macro Views

Hexaware+Sasken + KPIT Cummins Downgraded

August 9, 20072 min read

Citigroup Research has downgraded Hexaware Technologies Ltd [Formerly Aptech], Sasken Communications and KPIT Cummins Ltd.

Hexaware Technologies:
Company reported 2Q07 results – revenue of Rs.2.62b (-1% qoq) and net profit of Rs.261 m (-26% qoq) – was disappointing and significantly below our expectations on net profit.

Company clearly lacks margin levers especially when it had triple whammy – a) Strong INR, b) wage hikes (higher than usual) and c) tepid sales outlook due to client specific issues. Revise estimates now factor weak 2Q, cloudy outlook from a few clients and integration issues at FocusFrame – we cut our earning estimates by 11-18% for CY07-09. With lower earnings CAGR, Hexaware is now valued at 15x CY09E EPS (against 17x earlier) – thus, new target price is Rs.155 from Rs.214 earlier.

Sasken Communications Limited:
Sasken’s 1QFY08 numbers came in below street expectations. Services revenues grew only 2% qoq ($ terms) while margins declined sharply by ~800bp sequentially. Product business had an inline quarter – revenues ($2m) were in line with expectations.

Management cut the guidance for services revenues – 20-25% growth in $ terms as against the 30-35% guidance earlier. This implies $132 – 137m of revenues (against $100m in FY07). EBITDA margin outlook was reduced to 15-17% from the earlier 20-23%.

The disappointing 1Q results, weakness in telecom services and higher than expected INR impact has resulted in a 24% and 12% cut in FY08 and FY09 estimates. Revised target price is Rs.505 (from Rs.643) as the services business is now valued at 10x EV/EBITDA (against 11x earlier) to reflect lower earnings growth and deteriorating comparable valuations for mid-cap Indian IT.

KPIT Cummins Limited:
Company reported 1Q08 results – revenue of Rs.1.35b (+3.8% qoq) and net profit of Rs.127 m (-10% qoq) – was broadly in-line with expectations. Recognizing revenue at hedged rate, inflates revenue figure and EBITDA line in appreciating quarter.

KPIT Cummins recognizes revenue at hedged rate (against spot rate done by several other Indian IT companies) – this recognizes hedging gains/losses with revenue. lower our earnings estimates by ~7-10% for the delayed currency impact and amortisation of upfront payment.

New target price of Rs.154 (earlier Rs 180) is based on 15x FY09E EPS (against 16x earlier) to factor in lower earnings growth. Stock trading at 17x FY08E and 12x FY09E earnings.

Equity Research

Shipping Corporation of India – SELL / Exit

August 9, 20071 min read

Citigroup research has terminated coverage on Shipping Corporation of India Limited due to lack of investor interest in the stock.

Given global shipping team’s expectations of a stablisation in charter rates over 2007 / 10E in the tanker and the dry bulk segments, we expect SCI’s earnings to decline moderately over FY07-10E.

Final recommendation for the security is Sell/Medium Risk (3M) with a target price of Rs 171. Target price for SCI is calculated by using simple average of the long-term P/BV and the current NAV. Fair-value NAV/share is Rs204. SCI’s long-term average P/BV is 0.68x. The share price trades within a fairly steady band of +/-1 standard deviations. At an FY08E P/BV of 0.68x, the fair value is Rs138. SCI’s EPS is expected to fall to Rs 30.09 and Rs 27.46 for FY 08 and FY 09 respectively.

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