Author: CP

Sorry the BHEL coverage was left out in the earlier post. Kotak is bullish on the prospects of BHEL and has set a price target of Rs 1,550 on the stock.

While there are likely to be strong order inflows in the next two years Kotak believes that XIIth plan with skew towards private sector and supercritical configuration would pose challenges for BHEL. BHEL may lose market share as well as face pressure on margins because of (a) heightened competition, (b) change in project profile and (c) shift of power generation sector to a competitive tariff based bidding regime. With a market share (57% overall market share) and operating margins (18-19%), Kotak arrives at a value of Rs1,550/share, on DCF based target price to Rs1,550 (from Rs1,350 earlier) as we rollover to March 09 basis.

Kotak Securities has maintained an Outperform rating on Wipro and recommended a BUY with a March 2009 DCF price target of Rs 655. [Not March 2008, its 2009 earnings on Discount Cash Flow Model]

• FY2008 organic revenue growth will likely be higher than FY2007
• Jun’ 07 quarter guidance may be conservative, expect further acceleration from Sep’ 07 quarter
• SEZ ramp ups progressing well, FY2010 tax impact would be the least on Wipro
• Kotak forecasts an EBIT margin decline of 60bps for Wipro’s Global IT business in FY2008 to 23.8%.

Kotak maintains Outperform rating with an end-March 2009 DCF based target price of Rs655/ share. Kotak assume Re/US$ rate of 42 for FY2008, 42 for FY2009 and 41 for FY2010. Wipro is expected to report an EPS of Rs 24.3, Rs 30.4 and Rs 33.4 for Fy2008, 2009 and 2010

Dalal Street Research Analyst Update:
Indian Rupee is expected to average Rs 41 for FY2008 though Citigroup has pegged it at Rs 40.

Citigroup Research Analyst Ashish Jagnani in a research report released just a while ago has put a BUY recommendation on Tata group controlled Indian Hotels Company Ltd. Indian Hotels reported an excellent FY2006-07.

Indian Hotels plans to add five hotels to its portfolio in FY08 – two new hotels at Bangalore (ITPL) and Chennai (Mount Road) and three management contracts for hotels in Vijayawada, Trivandrum and Langkawi Malaysia). In addition, the company plans to increase the number of ‘Ginger’ Hotels [Budget Hotel Chain from Taj Group] to 30 by March 2009, up from eight at present.

Citi projects strong earnings growth of 21% for FY08E and consider valuations of 17x FY08 P/E, at par with sector, as attractive with a 12-month target price of Rs187 is based on 22x FY08E P/E, a premium to average sector valuations of 18x.

The stock is currently trading at 17x FY08E P/E, toward the median of its three-year historical range of 15-22x P/E, largely on par with domestic peers, which Citi believe is unwarranted given: 1) IHC’s market leadership and advantage of large room inventory; 2) The company’s premium brand positioning with ‘Taj’; 3) Expectation of strong earnings

Historically, Hotel Stocks have been valued on their earnings potential However, one should also consider the value of the properties they own which most analysts don’t. A Re-rating in this stock is due for a long time now. Punters Target for the Stock is Rs 200.