Larsen & Toubro
Research: JM Morgan Stanley
Recommendation: Overweight
CMP: Rs 2,657 (Face Value Rs 2)
12-Month Price Target: Rs 3,024
WHILE the company looks fairly valued on most earnings-based metrics, the
metrics do not take into account higher growth at the margin. With FY06
sales of Rs 14,800 crore, it compares well even with the large regional
construction companies (especially those in Korea.) Despite its size, L&T
continues to clock impressive growth (ex-cement sales grew at a CAGR of 28%
over FY02-06), and its Rs 28,300-crore order book supports the belief that
this trend will continue. The stock has done well over the past 12 months,
with the price moving up by 85%, compared with the uptick of 42% in the
broad Indian market. While the global peers of the company trade at a FY08E
P/E of 10-12 times and an EV/EBITDA of 8-13 times, L&T trades at 15.4 times
FY08E EV/EBITDA and 18.9 times FY08E P/E. However, JM Morgan Stanley
believes that the sustainability of higher growth over the medium term will
enable the company to continue to trade at a premium to its global peers.
BASF
Research : Sharekhan
Recommendation: Buy
CMP: Rs 228 (Face Value Rs 10)
12-Month Price Target: Rs 300
BASF is a 52.7% subsidiary of BASF AG, Germany. The company is expanding its
presence in the specialty chemical business by moving into production of
polyurethane, which has applications in packaging, furniture and
automobiles. Expandable polystyrene is used in packaging and insulation. The
major end users in the packaging segment are consumer electronics and white
goods industries. These, coupled with the easier availability of finance,
and increased distribution/penetration of consumer goods have resulted in a
strong secular growth in the consumer electronics industry, which has grown
at a CAGR of 18% over FY01-06. At the current market price, the stock is
quoting at 7.6 times its FY08E EPS and 4.3 times its FY08E EV/EBIDTA.
Sharekhan believes that the stock is trading at attractive valuations, given
that the outlook for the company's business is very bright over next two
years. The return ratios RoCE and RoNW are likely to show sharp improvement
and the dependence on agri-nutrients business is likely to reduce
substantially.
Wockhardt
Research: Karvy Stock Broking
Recommendation: Market Performer
CMP: Rs 402 (Face Value Rs 5)
12-Month Price Target: 440
WOCKHARDT has decided to sell Dumax's diary and milk processing unit. It has
bought over Dumax to gain access to two main brands, Protinex and Farex. The
company had to buy this unit as a composite deal with the unit because Royal
Numico wanted to exit the country. As Wockhardt has a similar processing
unit in Punjab, it makes logical senses to dispose off this unit as it will
mount to duplication of assets. The plot has a 32-acre greenfield diary and
milk processing unit located in Punjab and was set up to manufacture instant
formula milk powder and health food supplements. It has a 0.2 million litre
a day milk processing capacity and was set up with a total investment of Rs
170 crore. The plant was to commence commercial production in December '06.
According to market sources, Wockhardt is in the race to buy Pinewood, an
Irish company. Pinewood has around 400 employees and sells over 200 ethical
and OTC brands in about 30 countries. The deal size could be in excess of
$100 million. On current valuations, it is quoting at 16.3 times CY06 and
13.5 times CY07. Unless the company goes through the acquisition, the
company will remain a market performer.
Infosys
Research: Enam Securities
Recommendation: Outperform
CMP: Rs 1,830 (Face Value Rs 5)
12-Month Price Target: Rs 2,041
Infosys' new service offerings and consulting segments are contributing
towards higher EBITDA realisation per employee (Infosys at $3,300 v/s $2,800
for TCS and $2,500 for Wipro in Q1 FY07). While absolute share remains at 3%
of revenue share in Q1 FY07, business prospects remains encouraging. The
annualised revenue run rate stands at $500 million (implied QoQ growth rate
at 10% in residual three quarters of FY07). ES remains a key growth area
with higher billing rates, increasing share of consulting, high growth in
Europe and faster sales cycle. Post phase-II (113 acres) completion, the
Pune facility will boast of a capacity of 50,000. This will be just short of
Infosys' current strength of 58,409 employees in Q1 FY07, including onsite
employees. This investment highlights a defined HR roadmap and encouraging
demand dynamics. Effective monitoring of recruitment cycle, T&D investments,
KM initiatives and apt compensation strategies remain the order of the day.
At current market price, the stock trades at 28 times FY07E and 22.6 times
FY08E earnings.
Motherson Sumi
Research: Angel Broking
Recommendation: Buy
CMP: Rs 95 (Face Value Rs 1)
12-Month Price Target: Rs 107
MOTHERSON Sumi (MSSL) is a leader in wire harnessing, controlling over 65%
of the domestic passenger car market. MSSL's sales of this segment are to
grow at a CAGR of around 28% over the next two years. MSSL is focusing on
the supply of higher level assemblies and modules. Margins in this segment
are comparatively higher. In this segment, MSSL is to clock a CAGR growth of
49% in sales over the next two years on the back of steady growth in
passenger cars. The company is also increasing content per car in its bid to
diversify its product portfolio. MSSL is focusing on its global product plan
(GPP), wherein it enters into JVs with leading tier-I suppliers to upgrade
its technology base and increase clientele. MSSL is focusing on increasing
its overseas sales to achieve 60% of consolidated turnover from overseas
clients. At the current market price, the stock is trading at 18.5 times
FY07E and 14.1 times FY08E consolidated earnings and 8.2 times FY08E
EV/EBITDA.
Micro Inks
Research: Religare Securities
Recommendation : Buy
CMP: Rs 320 (Face Value Rs 10)
12-Month Price Target: 390
MICRO Inks has a more than 30% market share. It has a distribution network
in more than 50 countries, exporting products to more than 70 countries.
Adverse factors like steep rise in crude prices, inability to increase
selling prices, losses on currency fluctuations, payments for contractual
obligation are coming to an end. With two hikes in selling prices in July
and August '06, the company is set to perform better in the quarter ending
September '06 and report good results for the last quarter ending December
'06 and onwards. Interest charges will fall due to part-repayment of debt
from proceeds of the GDR. Due to these reasons, Religare expects the current
year (for nine months) to end with sales of Rs 780 crore and PAT of Rs 13
crore, giving annualised EPS of Rs 7. But CY07 should see robust earnings
with net sales of Rs 1,120 crore and PAT of Rs 63 crore, resulting in an EPS
of Rs 25.40.
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