Category: Economy, Markets and Macro Views

Tanla Solutions Ltd [TSL] offers network billing and delivery, content management, content delivery and m-commerce transactions. TSL’s revenues are expected to grow at 72% between FY07-09E.

TSL has aggressively invested in R&D and is focused in developing newer products in FY 2008. It is expected to spend Rs 220 million for FY08 in R&D. Non voice revenues are expected to grow YoY across all the telecom markets in the world.

TSL would grow at a CAGR of 59% in FY07-09E at net levels and have a terminal growth of 3% for DCF calculations. This gives a target price of Rs 706 for the stock, Rs 646 for the core business and Rs 60 for its non-core business. TSL trades at 14.4x and 9.35x its FY08E and FY09E earnings of Rs 31.18 and Rs 48.15 respectively. Hence one can assign a PE Multiple of 24.8 for FY08E and 15.1 for FY09E on core business.

DLF remains committed to an aggressive execution schedule – seeks to deliver 16m and 23m sq ft of completed assets over the current and next year, with ~50m sq ft under construction. DLF management dismissed perceptions that it has low cost land bank. It clarified that about 40m sq ft (7% of land bank) is historic with an average cost of Rs275psf – the rest, about 575m sq ft, has been acquired in the last 3-4 years; effective cost slightly higher at Rs350psf.

DLF sees itself well leveraged to the strong commercial/retail asset environment; 50-55% of its assets are in this space, it has over 12m sq ft in preleased commitments on its books, with 42m sq ft of space under execution. DLF has an aggressive launch schedule in the mid-income housing space, spread across various cities in the country.

Target price of Rs.725 is based on a 25% premium to an estimated core NAV of Rs530, and Rs62 for other asset holdings and new JV businesses (Rs45/share for the existing 4.6m sq.ft leased assets and 7.2m sq.ft plot, and Rs17/share for DLF’s share in construction and hotel JVs. DLF is a medium Risk BUY.

HDFC Securities has put a BUY recommendation on Salzer Electronics Ltd [SZEL] with a price Target of Rs 150. CMP Rs 114.

Electrical equipment industry has been growing at a very rapid pace. SZEL’s products are mainly electrical panel accessories & mostly generate revenues from power segment. L&T Capital, an investment arm of engineering giant L&T recently acquired 14.95% stake in SZEL. Collaborations with German & Canadian companies have helped SZEL to establish a niche position in rotary switches & toroidal transformer business respectively. SZEL has increased focus on its modular switches business, which has a huge potential & has set up a unit at Himachal Pradesh for manufacturing these switches.

SZEL’s revenue & net profits to grow at a CAGR of 38% & 58.3% respectively over the next two years. The EBITDA margins are likely to increase to 16.2% in FY08 & 16.6% in FY09 from 15.2% in FY07. Its PAT margins are expected to improve significantly to 6.7% in FY08 & 7.3% in FY09 from 5.5% in FY07. At the current price, the scrip trades at 13.1xFY08E EPS & 9xFY09E EPS. Investors could look at making a small entry at the current levels & add on dips to Rs.95 with a one-year price target of Rs 150.

UBS Securities has upgraded the stock of ITC to Buy from Neutral with a price target of Rs 200.

ITC’s cigarette volumes is expected to be down by 4.4% in FY08, previous forecast a 6.5% fall. With strength in consumer spending, cigarette volumes held up well in Q1, despite imposition of a 12.5% VAT rate and a 33.5% trade tax in UP. Expect volumes to stabilise in Q2 and to recover in Q3. ITC’s multiple price points in its cigarette portfolio has allowed the business to move the consumer across segments rather than lose volumes. Filter cigarettes have held volumes better than the non-filter variety. This has improved the revenue mix.

ITC’s FMCG business is driving strong growth in the non-tobacco segments. Losses have stabilised and look set to decline. The hotel and paperboard businesses are recording strong growth and are expanding capacity.

Raised FY08 EPS forecast to Rs8.4 (+9%), and FY09E EPS to Rs9.9 (+13%). The increase reflects a rebound in cigarette volumes. New price target is benchmarked at 20x FY09E earnings, the mid-point of ITC’s valuation band.

Breaking News: Citigroup Research has upgraded the stock of Punj Lloyd with a target price of Rs 353 from Rs 305 earlier target.

Raised target price to Rs353 earnings estimates are revised by 14-16% over FY08E-10E on the back of (1) 73% YoY sales and 101% YoY PAT growth in 1QFY08; (2) 22% higher sales growth on faster execution of orders and 50bps higher margins in Punj (ex Semb); (3) Dilution because of the recent equity placement and promoter warrants.

L&T’s order backlog is 2.7x that of Punj + Semb but (1) its market is 7.5x and (2) is 32% more expensive than Punj. Citi expects this valuation and market capitalization gap to narrow as we forecast Punj Lloyd will start delivering earnings growth at a pace superior to L&T over the next 3 years.

Punj Lloyd is perhaps the only mid cap E&C company that could leapfrog into the next level which is occupied by L&T with its diversified skill sets. The first sign that Punj Lloyd can actually deliver on its potential came when the company reported 4QFY07 PAT of Rs889mn which was 59% ahead of CIR estimates.

Target price of Rs353 is based on a target P/E multiple of 23x FY09E, which is well supported by earnings CAGR of 44% over FY07-10E and RoEs expanding from 18% in FY08E to 21% in FY10E. Target multiple is at a discount to that of L&T.

ICICI Direct has recommended a BUY on Adhunik Metaliks with a price target of Rs 90 within 3 Months.

AML is implementing a capex programme that would change its business profile from a secondary steel manufacturer to an integrated steel player with linkages across the entire value chain from critical raw materials such as iron ore and coal to value added steel products. The company is executing an expansion plan that would almost double its capacity from 250,000 tpa to 440,000 tpa by 2008. The company is integrating backwards with captive ownership of critical raw materials, viz. iron ore and coal mines which would enable it to withstand pricing pressures and face competition better compared to its peers.

The company reported a top line of Rs 735.76 crore and bottom line of Rs 77.48. In Q1FY08, sales grew 21.86% y-o-y to Rs 208.12 crore, while bottom line grew 14.22% to Rs 17.75 crore. During the quarter under review, the company acquired Orissa Manganese & Minerals Pvt Ltd as a 100% subsidiary, which has mining rights with reserves of 15 million tonnes for manganese ore and 35 million tonnes for iron ore. The integration and acquisition of mines would drive the company’s top line at a CAGR of over 40.70% during FY06-09E to Rs 1,180.37 crore and bottom line at a CAGR of around 59.58% to Rs 137.00 crore.

At the current price of Rs 76, the stock is trading at 6x the FY09E EPS. The stock has the potential to touch Rs 90, an upside of 20%. Another research analyst, tracking this stock expects a price of Rs 95- Rs 105 on conservative basis.