Category: Equity Research

Morgan Stanley has taken the lead to re-rate JP Associates shedding the conservative valuations it enjoyed. They have changed 12 month target price to Rs 1,461 and earnings estimate for FY08 and FY09 are Rs 22.7 and Rs 29.2.

The company reported F2Q08 results in line with estimates, with revenue and net profit growing 11% and 16%, respectively, led mainly by the cement business. Expect construction and real estate to pick up the growth mantle as cement starts to struggle in F2009 . Also incorporated a 7.4% dilution due to the conversion of the second tranche of FCCBs (euro-denominated) issued by Jaiprakash, which results in our EPS numbers for F2008 and F2009 moving up by only 9.1% and 1.8%, respectively, despite increases in net profit forecasts of 12.9% and 9.1%

Sum of Parts Valuation of JP Associates,

• Construction Business – Rs 395
• Cement – Rs 435
• Power – Rs 197
• Hotels – Rs 13
• Taj Expressway – Rs 394
• Jaypee Greens – Rs 28

On the back of value in its sum of the parts, which includes option value for full development of Taj Expressway implies upside of 47% from current levels.

DSP Merill Lynch also said, raised Price Objective to Rs1,530 from Rs985 based on the value creation across businesses.

Allahabad Bank’s profit growth of 14% Y-o-Y at INR 2.4 bn in Q2FY08 was ahead of expectations. However, this growth was buoyed by lower tax provisioning (10%) and higher treasury gains (INR 359 mn). Core business performance remained muted with merely 17% Y-o-Y growth in advances and lower-than-expected growth in net interest income at 13% Y-o-Y. The bank’s pre-provisioning operating profit grew by 23% supported by strong treasury gains and a 40.9% growth in the trading income yoy.

The operating expenses grew by a moderate 11.1% yoy which helped the bank in reporting a better operating profit growth of 23.2% yoy. The core operating profit growth was at 19.3% yoy but declined by 13% sequentially. The asset quality remained stable on a sequential basis with the net non-performing asset (NPA) at 0.75% as in September 2007.

At the current market price of Rs95, the stock is quoting at 4.4x its FY2009E EPS, 2.8x PPP and 0.9x BV. One can BUY the stock with a price target of Rs125 and can also hold for long term.

Sona Koyo Steering Systems (Sona Koyo) declared another set of good numbers with an 18.8% growth in revenues at INR 1.65 bn in Q2FY08. EBITDA stood at INR 177 mn, up 33% Y-o-Y, with EBITDA margins improving 110bps Y-o-Y and 20bps Q-o-Q. The company’s net profit for the quarter stood at INR 87.9 mn, up 38.2% Y-o-Y.

Capex for its greenfield plants at Singur and Uttaranchal is on track; the company expects them to come on stream by H2FY09E. It is also setting up a third plant at Bawal, Haryana, as part of its recent 49:51 JV with JTEKT, called JTEKT Sona Automotive India.

The company has shifted its focus towards the more profitable European markets, and deferred some export orders to the US. Valuations for Sona Koyo are still attractive given its healthy topline growth with improving margins. At CMP of INR 44, the stock is trading at a P/E of 11.5 and 8.8 on our EPS estimate of INR 3.8 and INR 4.9 for FY08 and FY09, respectively.

Existing investors can hold and add on market corrections.

Kotak has upgraded the stocks of Container Corporation of India Ltd [CONCOR] and Gateway Distriparks Ltd after the Q2 results.

CONCOR:
You can see the Q2 results flash in our earnings news section. Here is the rationale behind the upgrade. Accommodating for lower average realizations, lower operating margins, higher other income and lower then expected average tax rates, Kotak revises earnings estimates and expect the company to report EPS of Rs.125.0 in FY08E and Rs.145.1 in FY09E as against earlier estimates of Rs.126.7 and Rs.149.3, respectively.

At Rs.1885, the stock trades at 3.0x book value, 13.0x earnings and 11.4x cash earnings based on FY09E. Concor has a tremendous advantage in terms of its scale of operations consisting of volume of traffic, network of terminals across the country, strong base of low cost assets like hi-speed wagons and containers, which would ensure its No.1 position in India in the visible future for transportation of containers through rail. Kotak reiterates BUY on Concor with a revised price target of Rs.2875.

Gateway Distriparks Ltd: GDL
Q2FY08 results of Gateway Distriparks were above expectation on the revenues side. However, the margins have disappointed us. On the profitability side, the results were below expectations.

On a consolidated basis net sales for Q2FY08 were at Rs.640.3 mn, up 67.8% on YoY basis and up 32.5% on sequential basis. EBIDTA for Q2FY08 was at Rs.255.5 mn, up 16.6% YoY and up 15.9% on sequential basis. Consolidated PAT for Q2FY08 was at Rs.188.8 mn, down 10.4% YoY and up 1.6% on sequential basis thereby translating into quarterly EPS of Rs.1.6 and quarterly CEPS of Rs.2.2.

Gateway Rail Freight Ltd, subsidiary of GDL, has acquired its first own container train and subsequently it deployed two of its own rakes on the domestic route. The cold chain business of the company through Snowman Frozen Foods has done well as the revenues grew by 10.1% on sequential basis to Rs.71.4 mn.

Expect GDL to report EPS of Rs.7.2 in FY08E and Rs.9.5 in FY09E, as against earlier estimates of Rs.8.2 and Rs.10.7, respectively. Revised Target price is Rs 170.

Jubilant’s 2QFY08 results were very strong, with a robust trend in revenues as well as profitability. The high margin PLSPS business (especially CRAMS) was the key growth driver and now contributes c60% of revenues.

2QFY08 was stronger than expected, with sales growth of 33% YoY (16% organic) & 169 bps expansion in EBIDTA margins leading to a
49% increase in recurring PAT. Reported PAT was buoyed by forex translation gains (Rs289m). CRAMS was the key growth driver while the legacy industrial and performance products business benefited from lower molasses prices.

Citi raised FY08E, FY09E and FY10E net profit estimates by 41%, 5% and 3% respectively. The company is expected to report an EPS of Rs 17.37, 22.11 and 27.00 for FY08, 09 and 10 respectively. Citi also raised the stock target price by 8% to Rs 415/share.

Though the IT pack is out of the HOT favorites amongst investors, Kotak favors Infotech Enterprises a Midcap IT company.

The company exhibited sustained volume growth during the quarter. The results were broadly in line at the EBITDA level. A higher other income component resulted in modestly above estimate profits. Revenue visibility remains strong for FY08 and encouraging for FY09. ‘Offset clause’ can bring in potentially large business in the defense and aerospace areas.

Infotech is cash-rich post the recent private placement. Strategic acquisitions are possible in the near term.FY08 and FY09 earnings are estimated at Rs.16.1 per share and Rs.20.9 per share, respectively, based on fully diluted equity. Kotak recommends a BUY on the stock with a price target of Rs.354.