Category: Equity Research

We had reported last month that Citigroup has initiated coverage on Hindustan Zinc Ltd [HZL] with a price target of Rs 1155. Today Citigroup has revised the target to Rs 1194.

Zinc forecasts have been maintained for FY09E & FY10E. HZL is an integrated producer that offers exposure to the robust outlook for zinc and lead. It is among the lowest-cost producers globally. Target price of Rs1,194 is arrived at by applying a P/E of 10x to FY09E earnings. This appears justified as zinc has the most robust outlook among base metals and considers the re-rating enjoyed by metal stocks in India and globally. Macquarie Research had an OUTPERFORM rating on Hindustan Zinc in Jan-2007.

Citi has also upgraded the target price of Sterlite Industries to Rs 949 from Rs 910 the back of global commodity price forecast revisions. The expected purchase of the balance government stake in HZL and Balco, and buoyant zinc and lead outlook, should lead to 39% EPS growth in FY09E.

Prism Cement Limited [PCL] is an ISO 9001:2000 certified company promoted by Rajan Raheja Group. PCL manufactures and markets Portland Pozzollana Cement (PPC) with the brand name ‘Champion’ and full range of Ordinary Portland cement (OPC) of 33, 43 and 53 Grades.

PCL has planned to undertake a massive expansion plan, wherein PCL has envisioned a Brownfield expansion at Satna of 2 mtpa Clinker expected to come on stream by 2010. This would offer locational advantage, as the demand is very strong in North and growing at a good rate. For the last quarter ended June 07, PCL witnessed another high in its operating margins recording 50.6%, best in the industry. PCL’s Satna plant is at a prime location, near to well-known thermal plants like NTPC, MPSEB, IFFCO, Hindalco, etc. which provides a rich source of fly ash used in manufacturing of PPC.

Key demand drivers include big surge in real estate build-out for housing & commercial purposes by developers such as DLF, Unitech, Parsvanath, Omaxe etc., Commonwealth Games 2010 related Capex, Major scale-up in Hydro power and Infra Capex across North & Central India.

PCL will hold a 74% stake and the Australian group will hold the rest in proposed Insurance joint venture. One could look at accumulating Prism Cement in the Rs 53-61 band for 30-40% gain in a year’s time.

Riddhi Siddhi Gluco Biols, India’s largest cornstarch producer, is well-positioned to capitalize on the current consumption-led boom in the economy, which should see a spurt in demand for cornstarch and its derivatives.

The company reported a modest growth in quarter ended June 30, 2007 (Q1FY08), following a major fire at its plant in in Gokak (Karnataka) in May 2007, which forced it to suspend starch production. Revenues grew 3.95% y-o-y to Rs 68.28 crore, while net profit increased 11.9% to Rs 4.7 crore. EBIDTA margin improved by 82 bps to 17%. The management expects normal production to start by the end of September at the Gokak plant, which is currently running at around 50% capacity.

At the current price of Rs 270, the stock trades at a P/E of 8.28x its FY08E EPS of Rs 32.61. On an EV/ EBIDTA basis, the stock is available at a multiple of 6.19x FY08E earnings. ICICI values the stock at a P/E multiple of 11x its FY08E earnings with a price target of Rs 358.

International Travel House (ITH) continued to benefit from the huge growth in the travel and tourism Industry. The business growth was on account of higher commissions in the travel segment and increased fleet of cars in the transport segment. ITH’s car rental business is also doing extremely well. ITH is considering foray into online Travel Booking space.

Net sales grew 16.42% to Rs 18.93 crore in the quarter ended June 2007 as against Rs 16.26 crore during the previous quarter last fiscal, while net profit jumped 49.13% to Rs 2.58 crore as against Rs 1.73 crore.

At the current price of Rs 152, the stock trades at a P/E of 10.31x its FY08E EPS of Rs 14.75. On an EV/ EBIDTA basis, the stock is available at 3.65x FY08E earnings. ICICI values the stock at a P/E multiple of 15x its FY08E earnings with a price target of Rs 221 and maintain OUTPERFORMER rating on the stock.

Deutsche Bank has initiated coverage on IDFC, India’s only listed infrastructure financing company with a Price Target of Rs 150.

IDFC’s fee incomes will grow aggressively at an estimated CAGR of 66% during FY07-FY10E, and from 17% of total income in FY07 to 33% in FY10E. Fees are expected to rise from 17% of total income in FY07 to 33% in FY10E. Ramp-up of the principal investment business provides added equity upside potential.

Since it is not realistically possible to improve the RoE of the lending business to beyond 18-19% because of the expected spread compression, IDFC has been deliberately allocating more capital and management time to the other forms of serving the same infrastructure finance objective. These are principal investments, private equity, project equity and investment banking. Globally, infrastructure lending has progressed in this direction.

IDFC currently has $670mn FUM under private equity. One fund of $220mn is already fully deployed. Of the next proposed fund of $450mn, 35% is already committed, and should be 65-70% committed by June 2008. IDFC holds investments through PE in Bharti Airtel, NTPC, Indraprastha Gas, ONGC, etc

Sum of Parts Valuation of IDFC:
Value from Infrastructure Financing Rs120
Value form SSKI Rs 7.2
Value from NSE and ARCIL stake RS 7.0
Value from IDFC Private Equity Rs 8.3
Value from IDFC Project Equity Rs 5.1
Value from gains on listed investments Rs 3.0

Here is Citigroup’s Research Report on IDFC.

Kotak Sec Research is bullish on the prospects of Indian Lgistics Sector and Stocks. Here are some noteworthy points from the Logistics Conference Centrum – 2007.

Indian ports handled 6 mn TEUs in FY07. Container traffic may touch 30 mn TEUs by 2016.Currently, 68% of the cargo that can be containerized is being containerized. With growing awareness of the benefits of containerization this will go up to the international standards of 75% to 80%.

Rail transportation is cheaper than road.For handling 20 mn TEUs, we need 190 trains per day as against 40 trains currently. Dedicated expressway connectivity to the port needed. We need 4-5 hub ports with 16 mtrs draft.

Kotak believes that the growth in the Indian economy and increasing penetration of containerization would lead to faster growth in the handling of containers in the country. Currently, we handle about 6 mn TEUs. If we are to handle 30 mn TEUs, it calls for huge growth in opportunities for logistics service providers. Thus, positive on the logistics stocks.

Allcargo Global Logistics will report EPS of Rs.56.5 and Rs.70.8 in CY07E and CY08E, respectively. At Rs.889, the stock trades at 12.6x CY08E earnings. Kotak maintains BUY on Allcargo with a price target of Rs.1346, which provides 52% upside potential.

Gateway Distriparks Ltd [GDL] will report EPS of Rs.8.2 and Rs.10.7 in FY08E and FY09E, respectively. At Rs.132, the stock trades at 12.3x FY09E earnings. Kotak maintains BUY on GDL with a price target of Rs.180, which provides 37% upside
potential.

Container Corporation of India [Concor] will report EPS of Rs.126.7 and Rs.149.3 in FY08E and FY09E, respectively. At Rs.2214, the stock trades at 14.8x FY09E earnings. Kotak maintains BUY on Concor with a price target of Rs.3000, which provides 36% upside potential.