CP | Dalal Street

Equity Research

Buy Tata Steel – ABN Amro

June 18, 20072 min read

The Steel stocks are all on fire. Sharekhan and HDFC upgraded JSW steel to a BUY. Now ABN Amro has put a BUY on Tata Steel with a price target of Rs 700.

Tata Steel’s bold move to acquire Corus will lift its profits sufficiently to overcome equity dilution. ABN expects its strategy of pursuing high-value, high-growth markets, while growing its low-cost production base, to deliver strong returns. Tata Steel’s consolidated profits will increase 89% in FY08, while EPS on a fully-diluted basis will rise 25%. In ABN’s opinion, the market has focused on the potential 41% increase in issued shares, but may have underestimated the earnings contribution Corus can offer.

Tata Steel will deliver an average EPS CAGR of 23% over FY08-10, with sales volumes boosted by the Corus acquisition plus further expansion of its facilities and given a robust steel price outlook in Europe and India. ABN Amro reiterates Buy rating on the stock, with an increased price target of Rs 700, based on 2x FY08E P/B.

Tata Steel’s projections by ABN Amro.
Tata Steel is likely to report full year revenue of Rs 1173388 1188933 1232227 million for FY08 FY09 and FY10. Fully diluted EPS is expected to be around Rs 93.3, Rs 110 and Rs 113 for the corresponding years.

One should not be surprised even if the stock surpasses Rs 700.

India IPO Reviews and Updates

ICICI Bank – Public Offer

June 18, 20072 min read

ICICI Bank is diluting its equity yet again with a follow on Public Offer. They are also playing a gimmick of partly paid up shares for Individual Retail investors at Rs 250 on application and Rs 250 on allotment. The partly paid up stock will also be listed separately for trading.

The IPO Price band for fully paid up share is priced between Rs 885 and Rs 950 per share. The bank has given retail investors the second option of paying the full bid amount minus the discount at the time of application. So even if you end up bidding for 100 shares at Rs 900, it is the near ICICI Bank’s Friday’s closing price of Rs 908.

With such a large equity dilution, short term retail investors may get the stock lower than the IPO price. With markets in correction mode, it is better to AVOID the FPO of ICICI Bank and look for opportunities in the secondary market or look for very small gains through this Follow on Public Offer.

Their is another way to play this IPO – Buy ICICI Bank Put Option or go Short in Futures and Bid for the stock in FPO. So in either case of the stock movement, you can make some money.

Equity Research

Buy JSW Steel – ShareKhan and HDFC

June 15, 20071 min read

Their are BUY reports coming from HDFC Securities and Sharekhan on JSW Steel. The company has lined up a 2.6x jump in capacity over FY06-10 to 10mtpa, which would arguably make it the second largest steel manufacturer in India.

JSWS embarks on a Rs170bn expansion over the next few years, Sharekhan does not expect debt-equity ratio to cross 1.1x. JSWS has a track record of strong project execution and has also been able to bring down specific investment cost per tonne with each phase of expansion.

At 5.5x FY08E earnings, we see room for further appreciation in the stock price. Notably, JSWS offers significant volume growth over the next few years, and hence is not a pure leverage story on steel prices. However, considering the scale and growth visibility, SSKI analyst believes that the stock deserves to trade at a premium to peers. SSKI / Sharekhan initiates coverage on JSWS with a price target of Rs 729 per share.

JSW Steel is expected to report an EPS of Rs 103.3 for FY08 and Rs 112.5 for FY09.

Note from Dalal Street Business:
JSW Steel is at the top of Holding List of Sr. Fund Manager, Sunil Singhania @ Reliance Fund.

Breaking Corporate India Earnings News

Indiabulls Real Estate rides on European tieup

June 15, 20071 min read

Indiabulls Real Estate announced before market hours today, 15 June 2007, that the company and Strabag Group’s Zublin International GmbH have entered into a memorandum of understanding to consolidate their resources and experience and jointly work on large infrastructure development projects. They have also agreed to set up a special purpose vehicle (SPV) to execute these projects.

Strabag Group is one of Europe’s leading construction groups with nearly 53,000 employees and a turnover of more than 10 billion euros in 2006.

Indiabulls Real Estate reported net profit of Rs 6.01 crore on total income of Rs 14.39 crore in the quarter ended March 2007. It reported a net profit of Rs 13.12 crore on total income of Rs 27.06 crore in the year ended March 2007 (FY 2007).

The Indiabulls Real Estate share price had declined from Rs 401.85 on 1 June 2007 to Rs 347.15 on 12 June 2007. It recovered over the next two trading sessions to Rs 358.25 on 14 June 2007

Economy, Markets and Macro Views

Citi Upgrades Suzlon Energy to BUY

June 15, 20071 min read

Citigroup Research which had a SELL recommendation on Suzlon Energy with a price target of Rs 1,137 has upgraded it to BUY with a price target of Rs 1,700. The new price target is based on P/E multiple of 23x Suzlon’e FY09 estimated earnings which is well supported by EPS CAGR of 44% and RoEs in the 30-40% range over FY07-10E.

The fact that Suzlon will stagger the payment of 1.2bn punds for REPower over three years implies that it would be EPS accretive from CY08E/FY09E onwards. REPower is a good strategic fit for Suzlon as it provides: (1) Immediate access to Europe, the largest WTG market over the next 5 years; (2) REPower’s low margins (as it is basically an assembler) imply there is plenty of room for volume and margin growth; (3) REPower’s product portfolio is complementary to Suzlon and would be helpful to make inroads into Europe.

India IPO Reviews and Updates

DLF Limited Subscribed 3.47 times

June 14, 20071 min read

The DLF IPO managed to subscribe 3.47 times with most of the demand coming from Institutional Investors. High Networth Individuals and Retail investors participation was very very low. Here are the final figures that National abd Mumbai Stock exchange compiled and sent to us in a fax message.