Category: Equity Research

NTPC: JP Morgan [JPM] initiates coverage on NTPC with Neutral rating and Rs228 DCF-based Price Target. Stripping out financial assets, NTPC trades at FY08E 23.5x P/E and 16.0x EV/EBITDA, in line with regional growth IPPs, especially in China. The sum of Parts valuation is as follows,

• Core business – Rs 170;
• Financial investments + cash on hand – Rs38
• Coal mines – Rs21

Revised estimates and DCF model assume smooth execution of NTPC’s plans to grow installed capacity to 75GW from 26GW by March 2017. NTPC’s strategy/structure are different from those of private IPPs; further re-rating unlikely: IPO announcements/private equity deals have energized Indian utilities’ stock performance.

NTPC is Asia’s third-largest utility company. JPM suggests that to maximize shareholder value, and unlock US$15B value for equity shareholders in an ideal scenario: NTPC can take the following measures (1) explore SPV structure for new projects; (2) optimally leverage future projects; (3) more merchant power projects, given current market environment; (4) better use of B/S potential for organic/inorganic growth; (5) explore carbon credits for supercritical coal, gas and hydro projects.

HDFC Bank: HDBK
HDBK’s net profit growth trajectory has decisively broken out of the 30-32% band seen over the past 20 quarters. Profits grew by 40% in 2Q08, about 8% higher than expected, driven by higher deposit growth and lower provisioning.

Despite the stock appreciating by 21% and marginally outperforming the Sensex over the past month, JPM set the target price to Rs1,610 for Sep-08, implying 13% upside. 150 branch approvals expected shortly is the likely stock catalyst. The shift out of the 30-32% net profit growth band is likely to be driven by: a) higher balance sheet growth trajectory at 35% CAGR over the next three years; and b) wholesale loans dominating growth over this period, leading to an incremental easing of provisioning requirements.

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Reliance Money has initiated coverage on Elder Pharmaceuticals with a BUY recommendation and a target price of Rs 554.

Elder Pharma has been a India centric pharma company but of late it has forayed into the regulated markets of Europe by acquiring a strategic 20% stake in Neutra Health PLC (an UK based neutraceutical company) and a 51% stake in Biomeda (one of the top 10 manufacturing and distribution company in Bulgeria).

The company maintains its leadership positioning in Women’s healthcare, wound care management and nutraceuticals. It has a fantastic folio of domestic Fast Moving Heath Goods (FMHG) segment with brands like – Fair One, Tiger Balm, AM PM Mouthwash etc.

Elder Pharma’s revenues and profit grew at a CAGR of 19.3% and 50% respectively over last five years upto FY07. Going forward, RMoney estimates the revenues to grow at a CAGR of 18.3% during FY07-09E. As a result,profit growth is estimated to be @ 31.5% and 24.9% to Rs 647.10 mn and Rs 808.4 mn in FY08E and FY09E respectively.

At current price of Rs 416 the stock trades at a 9x EV/EBITDA of FY09E and trades at 10x EPS FY09E. R Money are initiates coverage on Elder with a target price of Rs 554, based on DCF valuations.

ICICI has recommended all its investors to Book Profits in Reliance Capital with a target price of Rs 1,500, potential downside of 20%.

CardBhai writes to us that, Reliance Capital will kick off its Consumer Finance Business next week offering Personal Car, Home, Property and all different kinds of loans.

Reliance Capital has retained its leadership position in AMC which constitutes Rs 295 per share to Reliance Capital’s valuation. Life insurance premium has increased by 120% to Rs 474 crore for period up to August 2007.General insurance premium grew 195% to Rs 807 crore during the same period.

Sum of Parts Valuation of Reliance Capital,

• Reliance Capital (Standalone) 308
• Reliance General Insurance 83
• Reliance Capital Asset Management 295
• Reliance Life Insurance 545
• Reliance Money 56
• Unrealised gains of quoted equity book at 10% discount 189
• Adlabs Films value held in Reliance Land at 10% discount 24

Total Value is Rs 1,500. The company is likely to report an EPS of Rs 31 for FY08 and Rs 37 for FY09. Valuations look stretched. Book Partial profits at current levels.

New equity likely to sustain recovery in loan growth. Capital adequacy ratio to improve to a comfortable level; has been the lowest among peers since 2005.

Consequent to the increase in capital adequacy, the loan growth will improve to 19.6% at the end of March 2008 as compared to the forecast of 18.0% we had assumed earlier for the same period. However, loan growth to continue to stay below the industry average of c23%.

Increase net profit forecasts by 4.1%, 10.3 % and 8.7% to INR1.1bn, INR1.5bn and INR 2.0 for FY08e, FY09e and FY10e respectively. Target price raised for Vysa from INR231 to INR249 per share. Potential downside of 6.2% from CMP of Rs 265, with an underweight rating for the stock.

Lupin is on an acquisition spree. Earlier it acquired Rubamin and now its Kyowa Pharma in Japan. Lupin has acquired 80% stake in Kyowa Pharma, Japan (will increase to 100% soon) at an enterprise value of US$110 mn (1.7x sales and 11.3x EV/EBITDA). Current sales will significantly scale up from US$65 mn to US$100 mn and profits from US$3-4 mn to US$10-12 mn over the next 2-3 years. This would mainly be led by the increased number of product launches from Lupin, higher genricisation of the market and operational and sourcing efficiencies.

Taking this into consideration, the acquisition is a good opportunity for Lupin from a strategic point of view. The stock is trading at 15.9x FY08E and 13.1x FY09E earnings. ASK Securities reiterates a Buy rating on the stock with a target price of Rs 807.

Tags: Dalal Street, India Pharma, India Invest, India

ICICI Securities in a research report has put a BUY recommendation on Transport Corporation of India Ltd and a SELL on Deccan Chronicle.

Transport Corporation of India [TCI]:
TCI is one of the largest players in the domestic logistics industry, has transformed itself from a transportation company to an integrated logistics solution provider. The company has a presence across the entire logistics value chain and is enhancing its role in the high-value supply chain solution (SCS) business.

TCI is the largest integrated player having a 15% market share of the organised logistics industry. Apart from transportation, it operates one of the largest warehousing facilities of about 6.5 million sq. ft. The company has lined up an aggressive Rs 340 crore capex to scale up its business in order to meet increased demand.It plans to increase its warehousing space, buy new trucks, invest in cold chains, and boost its ship fleet strength over the next three years.

At the current price of Rs 115, the stock discounts its FY09E EPS of Rs 7.11 by 16.1x. Given TCI’s leadership position in the organised logistics sector, and transformation to an integrated player, the stock can be valued at 22x its FY09E earnings. Rate the stock an OUTPERFORMER with a target price of Rs 155, an upside potential of 35% from current levels.

Deccan Chronicle Holdings Ltd [DCHL]:
With the entry of Times of India in Chennai, ICICI has downgraded DCHL to SELL from BUY. DCHL would be faced with tough competition in both Chennai and Bangalore from the Times of India (ToI), which is set to foray into the Chennai market in Q4FY08; ToI is the leader in print in India. DCHL’s success strategy of low cover pricing and increasing colour inventory in Chennai is likely to be challenged in Bangalore, which is currently a two-player market post ToI acquiring Vijay Times and Deccan Herald.

ICICI downgrades DCHL from Buy to Sell with a target price of Rs.182 and believe any rise in stock should be used to liquidate positions given the looming aggressive competitive scenario.