Category: Equity Research

HSBC in a report released jus ta while ago is overweight on Hindustan Construction Company. They have set a price Target of Rs 125.

HCC declared their full year number with sales growth of 19% to INR23.6bn (vs HSBC
estimate of INR24.3bn). The PBT was up 20% yoy, however, higher tax rate (additional
INR220mn due to removal of 80IA benefit) has resulted in decline in a profit to
INR793mn (vs HSBC estimates of INR857mn). The lower sales growth has been due to
the excessive snowfall and rain at some of its project sites resulting in project execution delay. The net profit growth was impacted by higher staff cost (up 59%), higher interest (50%), and depreciation cost (up 52%, capex of INR3.8bn)

HSBC has reduced FY08e and FY09e profit by 11% and 7% to INR1.18bn and INR1.56bn respectively. HSBC reduced FY08e sales by 4% to INR30.7bn, while increasing the sales of FY09e marginally. HCC’s EPS is expected to be around INR4.6 and INR6.1 for FY08e and FY09e.

UBS Investment research has maintained BUY recommendations on cement majors ACC and Grasim industries. However, UBS has revised the price target downwards to Rs 1,090 from Rs 1,225 for ACC and Rs 3,100 from Rs 3,300 for Grasim.

ACC:
ACC’s Q1FY07 revenue (Rs16.35bn), EBITDA (Rs5.07bn) and pre-ex PAT (Rs3.44bn) were significantly better than estimates – Rs15.9bn, Rs4.6bn and Rs3bn respectively. Entire difference in PAT from our estimate was due to higher EBITDA.

ACC is expected to report an EPS of Rs 76.45 and Rs 80.76 for FY08 and FY09.

Grasim Industries:
Grasim’s standalone Q4 pre-X PAT (Rs4.5bn) was in line with our estimate (Rs4.6bn), as were revenue and EBITDA. In FY07 consolidated earnings grew 89%, faster than standalone earnings growth of 78%, driven by 249% earnings growth at subsidiary, Ultratech.

Grasim is expected to report an EPS of Rs 252 and Rs 276 for FY08 and FY09 respectively.

In a research note released by Citigroup, analysts have recommended a SELL on Unitech, Parsvnath Developers Ltd and Ansal Properties and Infrastructure. Spiraling property prices, rising interest rates, regulatory intervention in developer funding (on concerns of an asset bubble), supply coming on stream, and aggressive land acquisition by developers (and wannabe developers) are adding to the industry woes.

NAV is best way to value Indian developers : Citi expects NAV to be the standard valuation benchmark for at least the near term, with P/E multiples used more as a secondary methodology or “sanity test”. However, not every institution values Realty stocks like Citi does. Here is how others value Real Estate Stocks.

In the same report, Citi analysts expect Unitech EPS to grow to Rs 20.2 for FY08 and Rs 33.9 for FY09. Parsvnath’s EPS is expected to be Rs 37 and Rs 68 for FY08 and FY09. Ansal Properties’ EPS is expected to be Rs 31.8 and Rs 54 for FY08 and FY09.

Citi says the earnings forecast is already factored into current share price and recommends a SELL with 10% downward potential. Citi expects NCR and other properties to cool off and hence the recommendation.

Subros, a leading automobile air-conditioner manufacturer, reported a 8.7% growth in net sales for Q4FY07, while net profit declined 16.6%. For the full year, the company reported 14.6% revenue growth on buoyant volume growth, despite pressure on realizations. EBITDA margins improved marginally (50 basis points) to 11.4%, mainly due to increasing localization of raw materials that eased realization pressures. Net profit increased 14.2% to Rs 28.4 crore in line with ICICI’s expectations.

On the back of strong demand outlook, backed by surging volume growth from its key customers – Maruti Udyog and Tata Motors – ICICI maintains earning estimates for FY08. Post ICICI’s recommendation (Sept 21, 2006) at price of Rs 230, the stock surged to a high of Rs 299. It has corrected and is currently trading at Rs 235. At this price, it is available at attractive valuations of 7x its FY08E EPS of Rs 33.7. ICICI reiterates OUTPERFORMER rating on the stock.

In a research note released to high net worth clients, Macquaire has rated Bharti Airtel as an Outperformer with a 12 month Price Target of Rs 1050, 25% potential upside from current levels. Bharti Airtel is expected to report an EPS of Rs 37 for FY08 and Rs 50 for FY09.

Bharti Airtel reported a fantastic Q4 and highest ever EBITDA margin of 41.6%, an
expansion of 80bp QoQ and 410bp YoY. Bharti’s performance in 4Q and FY3/07 was impressive despite subscriber deactivation of 300k in 4Q and the hit from the phase out of roaming rentals and sharp cuts in roaming tariffs that took effect from 15 February 2007. Bharti’s ROE was 37.4% in FY3/07 and free cashflow break-even was achieved in 4Q FY3/07, well before the consensus estimate.

On DCF Methodology, Macquaire sets a price target of Rs 1050 and Bharti Airtel is their top telecom pick in Asia.

JP Morgan in a research note released just a while ago has initiated coverage on MindTree Consulting with NEUTRAL rating with no potential upside for the next 6 months.
Mindtree’s fundamentals are good but with 84% post-IPO appreciation their is no room for more till Dec-07.

JP Morgan expects the share price to trade in a narrow range over the next 9-12 months as earnings catch up with the sharp share price appreciation and the market starts to focus on earnings growth during FY08-FY09 and beyond. They advise investors to enter on declines below Rs630.

JP Morgan expects Mindtree consulting to report sales of Rs 78o crore for FY08 and Rs 1060 crore for FY09 and an EPS of Rs 30.4 and Rs 42.7 respectively. With Indian Rupee under pressure, one needs to take a cautious outlook about Indian IT companies. Mindtree Consulting is one of the scrips in IPO scam where brokers would manipulate the stock post listing.