Category: Equity Research

ENAM Securities Research is recommending Peninsula Land as an outperformer with a price target of Rs 719.

Peninsula has applied for necessary approvals to change the land usage for its Dawn Mills property, in Lower Parel, from commercial to an IT Park, thereby doubling the FSI and saleable area to ~1.2mn sq. ft., resulting in a significant upside in our valuations. The selling prices at Sewri currently range between ~Rs 13,000 psf to 14,000 psf (Ashok Gardens project) and at Kurla, between ~Rs 13,500 psf to 14,500 psf (Peninsula Technopark project). The company expects to receive Rs 25-27bn in revenues over the next 3 years from Dawn Mills Project.

ENAM believes that the company is a high quality real estate player in Mumbai with a strong focus on the commercial segment. At CMP of Rs 450, the stock trades at a significant discount of ~29% to NAV of Rs 637.

ENAM’s base Case Target for the Stock is Rs 719 and the bear case target is Rs 550 based on Sum of Parts Evaluation.

IDBI Capital has initiated coverage on Reliance Communications with a Target Price of Rs 669.

The domestic telecom market grew by 58% YoY in FY07 itself, where-in 66.51m subscribers were added, taking the total subscriber base to 225.21m. RCOM, which has 17.2% market-share currently, is targeting a 21% market-share by FY09. Acquisition of Yipes Communications for Global Expansion.

Controversial hiving off of its tower subsidiary into a separate division in April 2007. Recently it sold a 5% stake in its tower subsidiary at US$ 337.5m to a consortium of 7 investors. This puts valuation of the subsidiary at Rs.270,000m. RCOM also plans to list its global subsidiary FLAG in a couple of quarters. FLAG is the largest private
submarine cable system in the world.

Sum Of the Parts Valuation [SOTP]
RCOM’s core business on DCF basis and the tower business on EV/subscriber basis. DCF valuation gives the core business value at Rs.534/share. Adding to this the value of tower business at Rs.135/share, we arrive at a fair value of Rs.669/share, upside of 35% from the current price of Rs.495. At the CMP Rs.495, the stock is trading at a PE multiple of 20.4x on FY08E EPS of Rs.24.3 and 15.8x of FY09E EPS of Rs.31.4/share.

Kindly note that Citigroup analysts valued the tower business at a price much below the Rs 135 / share which IDBI is valuing it at.

Motilal Oswal has reiterated BUY recommendation on Maruti Udyog Ltd with a price target of Rs 1,188. Passenger vehicle (PV) segment maintained its healthy growth in 1QFY08. This indicates the imperviousness of the PV industry to temporary negative factors like higher interest rates and tightness in bank financing. The structural factors sustaining the robust growth in PVs are still in place and we expect volumes to grow at 16.5% CAGR over FY07-10. As the leading player in the industry, Maruti would be a key beneficiary.

Despite a series of price cuts across its product range, competitive pressure and cost inflation, Maruti has consistently expanded its margins over the past three years (220bp over FY04-07). Estimated volume growth is at 16.4% CAGR over FY07-10; aggressive model launches could result in positive surprises. Margins would expand from 15.3% in FY07 to 15.9% in FY08, despite consolidation of the Manesar plant. EPS is estimated to be at at Rs67.7 for FY08 and Rs79.2 for FY09. The stock is attractive at 11.5x FY08E EPS and 9.8x FY09E EPS.

Indian government has approved Cairn Energy India’s plan to construct a crude oil pipeline to evacuate crude oil from its Rajasthan block RJ-ON-90/1. The cost of the pipeline (US$500 mn net to Cairn) is treated as part of the upstream capex and Cairn will recover both capex and opex related to the pipeline as part of the overall production sharing contract for the block.

Cairn Energy factors in US$780 mn of additional value (20% of base valuation of Cairn’s 70% stake in the block for potential upward revision to reserves). Cairn will likely provide updates on its crude reserves/production profile by end-2007 in terms of (1) outcome of further EOR studies including ASP simulation and pilot project for Mangala and (2) conversion of current contingent resources to reserves including ‘tight’ oil in Mangala Barmer Hill, Vijaya/Vandana/NR.

At US$60/bbl crude price in perpetuity from 2013E, our DCF-based 12-month fair valuation for Cairn stock would come to Rs154. At US$70/bbl in perpetuity, the same would increase to Rs166. Kotak Maintains an Underperform rating on Cairn Energy with a target price of Rs 140 based on DCF Model.

Zee Entertainment Enterprise Limited [ZEEL] has reportedly increased its prime-time ad rates for its flagship Zee TV channel by 15-20% and non-prime time rates by 40% following the 15%-25% increase in March 2007. The increase in ad rates for Zee TV will likely help ZEEL achieve our projected 24% growth in ad revenues for FY2008E and partially support ZEEL’s current rich valuations.

A 37% increase in ad revenues for FY2008E for Zee TV on the back of a 45% increase in ad revenues in FY2007E. The key to sustenance of ZEEL’s multiples would be (1) continued high ratings for Zee TV particularly after start of new competing channels and (2) continued improvement in domestic pay-TV subscription revenues.

ZEEL stock trades at 32.5X FY2008E EPS of Rs8.7 and 24.5X FY2009E EPS of Rs11.5. Kotak maintains an underperform rating on the stock with a price target of Rs 230.

Update on ZEEL from Merill Lynch [ML]:
ML reiterates a BUY with Price Objective of Rs 400 is at 30x 1-yr forward PER – 7% discount to current multiples & in-line with Indian media average.

HSBC Global Research in a report has said that it is overweight on Jyoti Structures Limited with a price target of Rs 254.

The stock corrected 10% in last week’s trading. This fall should be taken as an opportunity to buy the stock. HSBC is positive for the following reasons.

• Strong order backlog of INR23bn which is 2.3x of FY07 sales
• Based on current order backlog and buoyancy in the power transmission line, expect sales CAGR of 30% for the period of FY07-FY10e
• Expect EBITDA margin to improve on improved execution and expect EPSCAGR of 35% for the period
• Q1 FY08 results confirms our forecast with sales growth of 34% and EPS growth of49% y-o-y due to improvement in EBITDA margins

The new target price – INR254 is the mid-point of DCF fair value INR201 and PE multiple based fair value of INR307. You can send comments and suggestions to feedback @ dalalstreet.biz

Citigroup Research has recommended an Exit on India’s premier pharmaceuticals company Cipla. Citi’s target price is Rs 191 a modest 11% over CMP of Rs 171.

Cipla indicated that its PAT may be lower in FY08 due to rupee appreciation, higher cost of imports from China and pricing pressures. Cipla plans to incur capex of around Rs9.5bn over FY08-09 primarily on its facilities in Sikkim, Goa and Indore. With profitability under pressure this will take a heavy toll on return ratios.

Guidance of 10-12% sales growth and lower profits in FY08; tie up for 125 products across 10 partners in the US/ 94 ANDAs filed and expects to file 20-25 in FY08. Cipla is a steadily growing company, thus P/E based valuation is the right tool for the company. Target price of Rs191 is based on 20x June 08E earnings. Historically, the stock has traded at 15-30x forward earnings. Although Cipla is an Indian pharma major, Citi believe it should trade at a marginal discount to peers in the sector, justified by the lower value addition to the business.

Update on Aug-29th:
Citi has downgraded the target price of Cipla to Rs 165 and also revised EPS estimates for FY08 to Rs 7.93 a fall of 7.7%.