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Equity Research

Exit Cipla – Citi Research

August 25, 20072 min read

Citigroup Research has recommended an Exit on India’s premier pharmaceuticals company Cipla. Citi’s target price is Rs 191 a modest 11% over CMP of Rs 171.

Cipla indicated that its PAT may be lower in FY08 due to rupee appreciation, higher cost of imports from China and pricing pressures. Cipla plans to incur capex of around Rs9.5bn over FY08-09 primarily on its facilities in Sikkim, Goa and Indore. With profitability under pressure this will take a heavy toll on return ratios.

Guidance of 10-12% sales growth and lower profits in FY08; tie up for 125 products across 10 partners in the US/ 94 ANDAs filed and expects to file 20-25 in FY08. Cipla is a steadily growing company, thus P/E based valuation is the right tool for the company. Target price of Rs191 is based on 20x June 08E earnings. Historically, the stock has traded at 15-30x forward earnings. Although Cipla is an Indian pharma major, Citi believe it should trade at a marginal discount to peers in the sector, justified by the lower value addition to the business.

Update on Aug-29th:
Citi has downgraded the target price of Cipla to Rs 165 and also revised EPS estimates for FY08 to Rs 7.93 a fall of 7.7%.

Economy, Markets and Macro Views

Buy IDFC – Citigroup

August 24, 20072 min read

Citigroup Research in a detailed research report released just a while ago has initiated coverage on India’s premier and best Infrastructure Financial institution – Infrastructure Development and Finance Corporation – IDFC. Citi has recommended a BUY with a Target Price of Rs 140 from current levels of Rs 110.

IDFC is the most levered and broad-based infrastructure play in the Indian financial sector. IDFC brings to the table,

Integrated offering as a lender, advisor and investor,
Management – track record, defined strategy and pedigree
A broadening business model – trending towards more annuity and risk-linked fees,
Risk management systems – proven asset quality record, and
Capital – to leverage and invest.

Citi expects IDFC’s profits to grow at a strong 26% CAGR over FY07E-10E, backed by asset expansion and stronger asset management-driven fee income growth. ROEs, is likely to remain moderate at 14-15%, with leverage and fee incomes the driver beyond.

Citi recommends a BUY on IDFC with Rs140 target price implying a 27% expected total return from current price levels. Target price is based on a sum-of-parts methodology with the core lending business valued at 2.5x FY09E PBV or Rs113 per share. The asset management business is valued at Rs17 per share based on DCF analysis. Finally, the unrealized investment gains at Rs10 including NSE and SSKI stakes.

DalalStreet Analyst Views:
Yes, you can take exposure to this stock at Rs 110 level and blindly add more when it falls. IDFC is backed by Deepak Parekh who indirectly had told Citigroup executives to sell their stake in HDFC if they were not happy with HDFC’s performance. [The issue was just Citi wanted HDFC to be little bit more aggressive but then Deepak Parkeh may have misunderstood and reacted sharply].

Comments, Suggestions & Requests for entire Research report maybe sent to feedback @ DalalStreet.Biz

Equity Research

Hold or Add Bartronics – HDFC Securities

August 24, 20072 min read

HDFC Securities which advised a BUY on Bartronics India Ltd [BIL] at Rs 98 is asking its investors to HOLD the stock at Rs 175 levels or BUY additional quantity in the price range of Rs 121 to Rs 143.

Bartronics reported sales of Rs. 25.43 cr in Q1FY08 vs. Rs. 12.27 cr in the corresponding quarter last year. This jump of 107% can be attributed to the doubling of sales in the AIDC segment. AIDC sales mainly comprise of Barcoding and the RFID (Radio Frequency Identification) business. This quarter, RFID sales contributed about 35% topline and the remaining 65% of revenue was from the traditional barcoding business.

EBITDA margins have remained in the same range y-o-y, where as sequentially they have dropped by 720 basis points. This is because in Q4FY07, RFID contributed 52% to net sales vis-a-vis 35% in this quarter. Thus, a fluctuation of margins may be observed quarter on quarter, but the margins on a whole year basis could remain steady in the 25% – 28% range. About 40% of BIL’s revenue this quarter was through exports. The strengthening of the Indian Rupee vis-a-vis the dollar does not impact BIL’s performance significantly because BIL has a natural hedge as it currently imports the chips and hardware.

As of June 2007, BIL is an almost debt free company except for a term loan of Rs. 5 cr and working capital loans of about Rs. 11 cr from the Bank of Baroda.

Breaking Corporate India Earnings News

SEL Manufacturing secures export order

August 24, 20071 min read

SEL Manufacturing Company has received export order for exporting readymade garments to the extent of US $ 18 million (approximately Rs 73.80 crore). The order is to be executed in three stages upto January, 2008 commencing from September 2007.

The above said order is in addition to the regular business transactions of the company and will bring greater strength to the company. The order strengthens the customer’s confidence in the company’s progress in textile sector.

Economy, Markets and Macro Views

Accept Holcim’s offer for Ambuja Cements – Citi

August 24, 20071 min read

Citigroup research in a report released just a while ago advises investors to accept Holcim’s open offer at Rs154/share for Ambuja Cements Ltd [ACL].

Citi rates ACL Sell/Medium Risk (3M) with a target price of Rs103. Although ACL is likely to trade at a premium to domestic peers, due to higher EBITDA margins, the stock is expensive given: (1) limited visibility on cement pricing moving up as a result of uncertainties arising from unfavorable government measures in CY07; (2) a 20% yoy expected decline in CY08E earnings as large capacities are expected domestically, particularly in North India; and (3) the risk to exports, as substantial new cement capacity is coming up in the Middle East, which would convert the current deficit in that region into a surplus.

Dalal Street Analyst Note:
Kindly note that shares tendered in Open Offer are liable for Long Term Capital Gains Income Tax because you are not paying the STT [Security Transaction Tax] when submitting through open offer. So decide if you want to SELL in the market or accept the open offer.

Breaking Corporate India Earnings News

AREVA Transmission & Distribution bags Order

August 24, 20071 min read

Areva T&D India has announced that AREVA Transmission & Distribution (T&D) India has bagged its first Turnkey AIS sub station contract from ESSAR Steel at a value of 630 MINR.

This 3.9 MTPA Expansion project at Hazira entails the complete design, supply, erection, testing & commissioning of 220 kV Switchyard on Turnkey basis and also the supply of 160 MVA, 220 kV, 90 MVA, and 220 kV power transformers.

Maharashtra State Electricity Transmission (MSETCL) has also placed its first Gas Insulated Switchgear (GIS) complete turnkey solutions order on AREVA T&D India. This order is valued is at 339 MINR. This project endeavours to improve the power quality and reliability for the Infotech city of Pune.

The scope includes turnkey execution of the 132/22/11 kV rasthapeth substation involving design, supply, civil work, erection, testing and commissioning of multiple bays of 132 kV GIS, 50 MVA and 25 MVA transformers, control relay panels and numerical bay control system. AREVA T&D offers state-of-the-art GIS technology along with Spring operating mechanism and aluminium enclosure. The product offering also provides an undoubted advantage of compactness, modularity and reliability for the customers.

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