Category: Equity Research

Reliance Money is recommending Mercator Lines Ltd [MLL] for short term trading. The buoyancy in dry bulk rates and low one time charges profits are expected to bounce back in FY08. The net profit is likely to be over Rs 250 crs for FY08E as against Rs 135 crs for FY07. FY09E will also see improvement, as the dry bulk cargo will be operational for the full year plus the additional chartered tonnage co will add to its
portfolio.

At the current market price of Rs 66, the stock is trading at 7x FY08E EPS of Rs 9 and 6x FY09E EPS, respectively. RMoney expect MLL to trade at 8x FY08E and expect the stock can rise with a target price of Rs.85 in the short term.

ABN Amro Stock Research is recommending TN Petro Products Ltd for short term trading gains with a price target of Rs 28.

TPL plans to set up a Coal based power plant to reduce energy costs. Singapore subsidiary to invest 51% in petrochemical plant. Subsidiary SEPC has necessary approvals for implementation of Power Project. TPL has given a price breakout on a daily and weekly basis and the breakout has been accompanied with strong volumes signifying greater strength in the scrip.

Alstom projects India Ltd [APIL] involved in EPC work will outperform the sector. BUY with a Target price of Rs 1,079.

India planning a huge capex for power generation, we frame a bullish outlook for APIL and expect it to post earnings CAGR of 43% FY07-10E. APIL will outperform on strong incremental order flow triggers. The current order book is over Rs 30bn (>2.4XFY07 revenues). APIL will to continue to post better margins and foresee the company’s RoCE & RoE improving substantially. APIL can leverage on its parent’s global leadership in integrated and hydroelectric power projects. With India set to enter a strong power generation capex cycle, this will be its key strength.

We all know the Record response Power Grid IPO received. We also know that India will spend massively in producing Electrical energy and hence stocks involved in building such mega projects will have excellent growth. A Price Objective of Rs1,079 (+38.7%) for Alstom Projects India Ltd, assigning it an exit multiple of 34X & 22X for FY09E & FY10E, respectively. Similar discounting has been assigned to Siemens and ABB stocks as well.

Kotak securities has downgraded HPCL and BPCL to In-Line from Outperform on the grounds of Political uncertainty and high crude oil prices.

The press has been reporting a possible price increase on auto fuels but the current difficult phase of the coalition politics precludes a price increase. Also, if the government were to fall or call for early elections, it may not be in a position to issue oil bonds to the downstream oil companies including BPCL and HPCL. It is still possible to make money in these stocks based on short-term trading opportunities but ratings and earnings estimates have largely lost meaning in the current environment, said the report.

Dalal Street Research Analyst recommends to stay away from PSU Oil Distribution and Marketing companies and the only stock he is optimistic in Oil and Gas is Reliance Industries Ltd. [We don’t recommend RNRL to value investors, however who have got it for FREE can switch to RIL]

Kotak Securities is bullish on the prospects of Satyam Computers and maintains an Outperformer rating on the Stock with a price target of Rs 570.

Satyam to deliver significant outperformance on its FY2008 revenue (40% versus its guidance of 35.5% for FY2008) and EPS guidance (Rs25.3 versus guidance of Rs24.5). Expect Satyam to significantly outperform its Sep ’07 quarter guidance of 6% qoq revenue growth. Satyam will deliver the highest revenue growth rate for Satyam in Tier 1 coverage list.

Satyam’s SAP practice has been a major contributor to its strong growth (CQGR of 12% over the past four quarters in the package implementation area—SAP has grown faster than the overall PI business). Satyam’s Engineering Services practice has been among the fastest growing service lines for the company (a CQGR of 14.3% over the past four quarters vs. company average of 9.3%) over the past 12 months.

Kotak values Satyam at Rs570 on absolute DCF valuation methodology. This translates into 22.5XFY2008E and 18.1XFY2009E earnings. Satyam is currently trading at 16.9XFY2008E and 13.6XFY2009E EPS, a 25% discount to Infosys and 15% lower than its historical average.

In a separate development, Sr. Fund Manager, Prashant Jain has totally sold TCS and Wipro in HDFC Equity Fund.

In FY07, Numeric Power Systems Ltd [NPSL] added 45 sales and service centers, thereby taking the total tally to 201 by March 2007. The company has a highly efficient service team, all of whom are personally trained by NPSL. They provide 24×7 technical support to all important customers/projects. The company has over 600 factory-trained engineers for this important function of customer care.

NPSL has developed partnerships with three major professional IT, sales and distribution companies. The sales through the entire network channel have grown 60% over last year. The revenues of Numeric to grow at 17.6% CAGR for the next two years. More importantly, the net profit is expected to grow at 33.2% CAGR for the next two years, that is, from FY07 to FY09E.

NPSL is expected it to report an EPS of Rs.58.1 in FY08E, moving up to Rs.71.6 in FY09E. The current market price of Rs 440 discounts FY09E earnings at 6.1, which is very attractive due to the clear growth prospects of the company, going forward. We remain positive and maintain BUY on Numeric Power Systems with target price of Rs.615, which provides an upside potential of 40%.

Religare has initiated coverage on Mumbai based Realty firm HDIL with a BUY recommendation and a target price of Rs 694.

HDIL has presence in Residential, Commercial, Retail and Slum Rehabilitation. It is a very well established brand especially in Residential and Commercial. HDIL has a land bank of 116 million sft. HDIL’s average cost of land acquisition is Rs 113.9 / sft [excludes post-ipo purchase of Land] while that of DLF is over Rs 300 / sft.

At the CMP of Rs 535 HDIL trades at P/E of 13.3 on FY08E EPS of Rs 40.2 and 7.3 on FY09E EPS of Rs 72.7. Using the NAV valuation approach, Religare analyst arrives at a stock price of Rs 694 / share. HIL currently quotes at 0.8x one year forward NAV which is relatively cheaper than DLF [1.3x] and Unitech [1.1x]. There is a potential upside of 30% in the stock.

Religare has also recommended a BUY on Parsvnath Developers Ltd. Parsvnath quotes at mere 0.6x one year forward NAV.