Category: Equity Research

ICICI Direct’s research team recommends a BUY on Mercator Lines Ltd – MLL with a price target of Rs 85 [CMP Rs 57, potential for 47% returns]It is the second largest private sector shipping company in India.

MLL has charted out an expansion plan of Rs 1,000 crore for acquiring dry bulk carriers through its Singapore subsidiary. MLL will benefit from the rising dry bulk charter rates as the rates are expected to remain firm on account of sustained momentum in commodity movement from developing economies of China and India.

MLL has placed an order for construction of a new offshore rig at a cost of Rs 810 crore, which is expected to be delivered in Q1FY09. Offshore activity for oil and gas exploration is likely to remain at a high.

The company is expected to improve its operating margins going ahead from 26% in FY07 to 33-35% in FY08E and FY09E. On fully diluted equity of Rs 23.23 crore, we expect MLL to report a consolidated EPS of Rs 10.1 for FY08E and Rs 14.2 for FY09E. MLL trades at 4.1x it FY09E consolidated earnings and is available at a significant discount to peers like Shipping Corporation of India and Great Eastern Shipping. The stock is likely to be re-rated at 6x its FY09E earnings with a target price of Rs 85.

Dalal Street. Biz:
Kindly note that Citigroup has terminated coverage on Shipping Corporation of India and Great Eastern Shipping citing low investor interest in the stock.

Citigroup just a while ago in a research report revised the target price for UTI-Axis Bank to Rs 675 with Outperform rating.

UTI Bank has now formally changed its name to Axis Bank. Citi raised target price to Rs675 (Rs560), on the back of a] new capital and rolling forward valuation benchmark valuations to FY09 (FY08); b] revised earnings (up 5%-2% FY08E-FY09E); c] relatively higher loan and fee growth momentum. Bank is expected to have higher asset growth momentum and broader business mix, through new initiatives in credit cards, international, wealth, distribution businesses and forays in private equity and institutional broking.

On the flip side, AXBK is more than doubling its capital base; but will it add value? – Returns on shareholder equity – No. Axis Bank has pulled back after a sharp 44% move over the quarter and capital raising. Returns over the next 12 months is expected to be moderate with a price target of Rs 675.

Citigroup research has revised the target price of Aban Offshore from Rs 2850 to Rs 3530. Deficits in several international markets should, however, result in absorption of newbuilds entering the market over the next 9-12 months without impacting day rates. The long-term outlook for the sector remains solid, with steadily rising long-term oil price expectations.

Citi has revised FY08E EPS downwards by 21% to factor in delays to the drilling schedules of a couple of rigs. FY09E EPS remains relatively unchanged, while they have modestly increased our FY10E EPS forecasts by 5%. Aban’s EPS is expected to be Rs 101 and Rs 354 for FY08 and FY09 respectively.

Citigroup analyst has maintained a BUY on HCL Technologies with a target price of Rs 400. HCL Tech’s Q4FY07 results were in-line with expectations – higher than expected revenue growth (+9.2% qoq in US$-terms) but lower than expected margins (~170bp qoq) resulted in EBITDA of $85m (as against expectation of $86m). Margins were lower on account of INR – net income was significantly higher due to forex gains.

Infrastructure services reported another strong quarter with revenues growing 18% qoq. IT Services reported sequential growth of 7.6% qoq. Volume growth was 6.5% qoq.

HCL Tech management guided to ~30% growth for FY08 and indicated that margin expansion should continue. HCL Tech now has ~Rs.33 per share of cash and dividend yield of 2.5%. EPS growth over the next two years is likely to be very modest and the company is expected to report and EPS of Rs 18.34 and Rs 21.85 for FY08 and FY09 ending in June, respectively.

Edelweiss India Equity research has upgraded Ranbaxy Labs from Accumulate to BUY with a target price of Rs 418.

The branded generics segment, which is likely to be Ranbaxy’s key growth driver in the near term, is extremely lucrative in terms of margins. We expect almost 65% of the company’s growth in CY08E to be driven by the branded generics business. With reduced dependence on the (plain vanilla) generics business (down to 23% in CY08E from ~29% in CY06), Ranbaxy’s profitability would improve significantly, going forward.

Upsides from Valtrex and Lipitor opportunities in 2009-end and 2010,respectively, are extremely attractive, but have not been priced in the stock. At CMP of INR 370, the stock trades at 17.6x our CY08E base business earnings. Using SOTP methodology to value the base business at INR 418 and the combined Lipitor and Valtrex opportunities at INR 58 per share. This implies a potential upside of ~28% from the current level.

Kotak Securities has initiated coverage on the prospects of India’s largest Realty player – DLF.

DLF, with 615 mn sq. ft of land acquired or under acquisition at low cost, is best positioned to participate in the strong growth we expect in the Indian real estate sector. Concurrently, DLF’s extensive experience in the commercial and retail sectors (it has developed 10 mn sq.ft) should help accelerate its aggressive plans for developing office space, shopping malls, SEZs and hotels.

Kotak estimates March 2009 NAV for DLF at Rs670/share. DLF’s net income is expected to increase to Rs112 bn in FY2010E from Rs19 bn in FY2007 driven by increase in revenues to Rs221 bn from Rs39 bn. More specifically, (a) DLF is to develop and sell 31 mn sq. ft of developed in FY2010E, up from 8 mn sq. ft in FY2007; (b) DLF to have 26 mn sq. ft of assets under lease by FY2010; and (c) DLF’s new initiatives (SEZs, hotels) to start contributing to revenues over the next few years.

DLF’s fully diluted EPS is expected to be Rs 37.5 for FY 08 and Rs 55 for FY 09. Kotak has set a price target of Rs 710, 5% premium to its NAV.

One should be very careful while investing in Realty stocks because the sector is overheated today and Indian Realty Stocks are the most expensive in the world according to S&P report. Further, FIIs have sold the following Realty stocks – DLF, Mahindra Gesco, Atlanta and Unity Infra.

Update from Citigroup:
Citigroup research has also initiated coverage on DLF with a BUY rating and a price target of Rs 725.

DLF is India’s largest developer with an emerging pan-India presence. We initiate with a Buy/Medium Risk rating and a Rs725 target price, based on a 25% premium to an estimated core NAV of Rs530 and ascribing Rs62 for other asset holdings and new JV businesses. The premium is based on DLF’s sizeable land bank; higher leverage to office, IT Parks/IT SEZs and retail mall assets.

DLF’s strengths are 1] Focus on scale with a portfolio mix of ~615m sq.ft spread across top-tier cities; 2] strong cash reserves in this liquidity strained environment, 3] a de-risked business model, with JVs in construction and hotels aiding growth, and 4] a robust earnings CAGR of 81% for FY07-10E.

Ranbaxy Group promoted Religare, in a research report initiating coverage on PAN India Realty Developer Parsvnath Developers has put a BUY recommendation with a price target of Rs 512.

• Parsvanath has land bank of 153 million sft which can be fully developed over the next 5 years. Clea ownership and title of land bank with a low acquisition cost of just Rs 233 / sft.
• Land Bank spread across 47 cities in 17 states with 80% in tier-ii and tier-iii cities.
• Well diversified portfolio of 103 projects across diverse segments such as commercial, SEZ, IT Parks, metro stations, hospitality. Construction projects of 74 mn sft underway, the highest amongst real estate developers in India
• Delhi Metro Rail contract to BOT. Also earn commercial rental on these properties but its a long gestation projects.

Parsvnath is expected to report topline of Rs 2,574 crore for FY-2008 and Rs 4,324 crore for FY-2009. Corresponding bottom line is expected to be Rs 555.7 crore and Rs 970 crore giving a fully diluted EPS of Rs 31.1 and Rs 54. Parsvnath Developers is trading at a P/E multiple of mere 10.8 and 6.2 on projected earnings way below the industry average of 17.3 and 14.8. Buy with a price target of Rs 512.