Dalal Street

B L Kashyap[BLK] has proven execution skills, reasonably large-scale of operations and an established customer base, BLK is well poised to ride the construction boom in the fast-growing industrial, residential, commercial and retail segments.

BLK’s is our type of company because it focuses on providing contractual construction services to private sector clients and it has consciously avoided exposure to long duration infrastructure projects that are prone to delays and are much more capital intensive. Thus, it does not require regular infusion of funds through debt or equity dilution.

BLK has shown a healthy CAGR of 72.6% in its stand-alone revenues to Rs808 crore over the past three years. What’s more, the strong order backlog of Rs2,100 crore (2.6x FY2007 revenues) provides a robust revenue growth outlook for the coming years. Expect BLK to report CAGR of 48.8% over FY2007-10.

Real Estate Arm: BLK has forayed into real estate development through its subsidiary SSP, which undertakes joint development projects with the existing owners of land. Currently, it is executing six projects with saleable area of 13.2lsf (SSP’s share of around 8.5lsf) and also has rights for around 150-acre land in Bikaner, Rajasthan. Sharekhan value SSP at Rs580 crore.

At the current market price the stock trades at attractive valuations of 12.8x FY2009E and 9.3x FY2010E earnings (after adjusting for the value of its subsidiary: Rs554 per share). SSKI analysts recommends a Buy call on BLK with a price target of Rs2,850.

ITC’s cigarette performance in Sept Quarter will not live up to market’s expectations. ITC’s volumes in Sept Quarter are expected to be down 3-4% y-o-y and volumes are lower than June Quarter as the later had the hit of higher prices for only 2 months. Secondly, it bears the full brunt of Uttar Pradesh tax of 32%. UP accounts for 6% of ITC’s volumes and has not implemented VAT of 12.5%.

ITC’s recent shampoo launch marks its entry in the household and personal care (HPC) category. The brand, Fiamma Di Wills has been launched in six SKUs and is priced in between HUL’s Sunsilk and Clinic All Clear. We believe next in the pipeline are shampoo sachets and soaps. These events imply that ITC’s FMCG losses (5% of EBIT) are unlikely to decline in the near future.

ITC is expected to report a fully diluted EPS of Rs 8.27 for FY08 and Rs 9.36 for FY09.

DalalStreet.Biz Recommendation:
We recommend our reader / investors to switch out of ITC into other growth stock.