Category: Equity Research

HDFC Securities which advised a BUY on Bartronics India Ltd [BIL] at Rs 98 is asking its investors to HOLD the stock at Rs 175 levels or BUY additional quantity in the price range of Rs 121 to Rs 143.

Bartronics reported sales of Rs. 25.43 cr in Q1FY08 vs. Rs. 12.27 cr in the corresponding quarter last year. This jump of 107% can be attributed to the doubling of sales in the AIDC segment. AIDC sales mainly comprise of Barcoding and the RFID (Radio Frequency Identification) business. This quarter, RFID sales contributed about 35% topline and the remaining 65% of revenue was from the traditional barcoding business.

EBITDA margins have remained in the same range y-o-y, where as sequentially they have dropped by 720 basis points. This is because in Q4FY07, RFID contributed 52% to net sales vis-a-vis 35% in this quarter. Thus, a fluctuation of margins may be observed quarter on quarter, but the margins on a whole year basis could remain steady in the 25% – 28% range. About 40% of BIL’s revenue this quarter was through exports. The strengthening of the Indian Rupee vis-a-vis the dollar does not impact BIL’s performance significantly because BIL has a natural hedge as it currently imports the chips and hardware.

As of June 2007, BIL is an almost debt free company except for a term loan of Rs. 5 cr and working capital loans of about Rs. 11 cr from the Bank of Baroda.

Kotak Securities after speaking to the management of Nagarjuna Constructions Company [NCC] maintain a HOLD on the stock with a target price of Rs 213. CMP – Rs 186.

The company is quite positive of achieving the targeted revenue growth for the current fiscal year. NCC expects to improve the operating margins for the current financial year as well, going forward. The company expects a 25% YoY jump in the order inflows as compared to last year. With a current order book of Rs.78 bn, we expect the revenues of the company to grow at a CAGR of 32% between FY07-FY09.

On the flip side, NCC being on high growth trajectory has availed hug quantum of loans for working capital and capex which will lead to larger outflow towards interest payment.

At the current market price of Rs.186, the stock is trading at 20x and 15.9x on P/E multiples and 10.9x and 9.2x on EV/EBITDA multiples on FY08 and FY09 estimates. Adjusted with BOT and land development valuations, it is trading at 16.9x and 13.4x on P/E multiples on FY08 and FY09 estimates.

The market is down 400 points while Patni Computers is up by 5%. What’s happening ? Citigroup in a report released this morning has recommended a BUY on Patni Computer Services with a possible M&A story cooking behind the scenes.

Patni trades at a ~50% discount to Satyam on a one-year forward EV/EBITDA basis, has 25% of its market cap in cash and equivalents, and has underperformed the BSE IT index by ~17% over the past two months. It is a high cash position of $300 Million. Expect a recurring earnings CAGR of ~14% over the next three years, slower than those of peers.

Patni at 7x 2007E EV/EBITDA is at deep discounts to its large peers (Infosys is at 19x and Satyam at 14x) and lower than its mid-cap peers (8-10x). Citi sees an upside bias from current levels, with M&A a possible trigger.

Citi has revised the target for Patni from Rs 565 to Rs 525 based on a 20% target-multiple discount to Patni’s closest peer, Satyam. Target price equates to 15x 2008E earnings.

With strong order book and continued flow, Kotak Securities has upgraded the stock of BHEL to Outperfrom and set a target price of Rs 1,825.

BHEL has received orders for two supercritical units of 800 MW each at OBRA power station. BHEL is also picking up a 50% equity stake in the project, which may have tilted the scales in its favor. Ordering activity for XIth plan requirements is very strong, with BHEL winning orders for 7,850 MW in FY2008 so far. BHEL could have near-term order inflows of about 19,819 MW for the XIth plan projects that have not been ordered yet, based on the market share that BHEL has recorded so far in the XIth plan projects.

Kotak revises earnings estimate for FY2008E and FY2009E to Rs65.9 (from Rs61.4 earlier) and Rs82.4 (from Rs74.2 earlier). Sales during the same period is expected to be Rs 221 bn and Rs 268 bn with EV/EBITDA of 13.6 and 10.7 respectively. They set a target price of Rs1,825 based on DCF model.

Citigroup has a target price of Rs 1,923 on BHEL.

CLSA Asia Pacific Research has an outperform rating on Reliance Industries Ltd with a price target of Rs 1,875. The target is actually revised downwards from Rs 1,995 which CLSA had set on August-2nd of this year.

The analyst compares RIL with that of US peers. Concern E&P valuation for Reliance (which assumes that it discover 75-80tcfe of additional in-place resources) pegs asset value at $3.5/boe on recoverable resources. North American natural gas E&Ps discount $16/boe on 1P reserves but trade at a more modest $4.5/boe on recoverable resources. They also operate in a higher profitability regime given better realisations. Further, the 8x P/CF multiple that forms the basis of our going concern value is 55% higher than the 5-5.4x P/CF that these peer discount.

The sum of parts valuation is as below.
Reliance was upgraded to BUY by Deutsche Bank earlier this week with a price target of Rs 2,130.

Kotak Securities is recommending buying Punjab National Bank [PNB] at current levels Rs 481, with a target price of Rs 680, potential upside of 40%.

PNB is well positioned to capitalize on growth opportunities in the Indian market. PNB is expected to have a loan growth of 21.5% and 19.7% in FY08E and FY09E, respectively. In the same period, deposits are expected to rise 17.7% and 16.1%, respectively, and investments are expected to rise 8.2% and 8.4% in FY08E and FY09E, respectively.

Valuations:
PNB is expected to grow its earning by 24.3% and 25.2% in FY08E and FY09E, respectively. Full year profit is estimated to be at Rs.19.14 bn and Rs.23.97 bn for FY08E and FY09E, respectively resulting into an EPS of Rs.60.70 and Rs.76.01. The adjusted book value is estimated to be Rs.344.55 and Rs.416.49, for FY08E and FY09E, respectively.