The Orange Paper » Stock Calls

Buy: Punj Lloyd, target Rs. 532

Austin — Sun, 28 Sep 2008 08:15:49 +0000

Source: Sharekhan
Recommendation: Buy
Price target: Rs 532
Current market price: Rs 283

Punj Lloyd has won 2 orders this week. The first, to engineer, procure, install and commission a 211km pipeline with associated stations and infrastructure in Qatar — an $800 million contract (Rs. 3636 crore) from Qatar Petroleum for a gas transmission project, while the second order is much smaller at $42 million (about Rs. 190 crore) for an onshore drilling project in Libya.

The Middle-East has been one of the key business markets for the company and 27 per cent of its current order backlog constitutes of orders from this region. Sharekhan believes the investments planned in the Gulf Cooperation Council countries over 2006-12 spell a great opportunity for the company. Punj Lloyd’s increased foothold in these geographies will further enhance the company’s capability to win larger and more important projects in the Gulf Cooperation Council nations.

With this, the order backlog for the engineering and construction firm stands at Rs. 24,063 crore, which is 3.1x its 2007-08 earnings, imparts ample visibility to the company’s future revenues. In the June 2008 quarter, the order book stood at Rs. 20,162 crore a growth of 32% year on year. While the top line will get a boost, typically margins for international projects tend to be lower due to higher cost viz., contractor charges and staff costs.

Since June this year, the stock has outperformed the market, gaining 6 percent compared with a 16 percent fall in the Sensex. Sharekhan believes the stock is attractively valued at these levels given that the company’s earnings are estimated to grow at a compounded annual growth rate of 51.2 per cent over FY2008-10E and has thus maintained ‘buy’ on Punj Lloyd with a 12-18 month price target of Rs 532.

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BUY: KEI Industries, target Rs84

Austin — Sat, 21 Jun 2008 11:06:27 +0000

Source: Sharekhan
Recommendation: Buy
Price target: Rs84
Current market price: Rs47

Price target revised to Rs84

Result highlights

KEI Industries (KEI) has reported an increase of 24.6% in its revenues to Rs258.5 crore for Q4FY2008. The growth in its sales is in line with our expectations.
During the quarter the company made provisioning for mark-to-market losses of Rs3.67 crore on its exposure to foreign currency derivatives made for the purpose of hedging currency and interest rate-related risks.
Adjusting for the provisioning, the operating profit grew by 7.9% to Rs27 crore, translating into an operating profit margin (OPM) of 10.5%. Thus, in Q4FY29008 the OPM declined by 160 basis points year on year (yoy).
The operating performance of the company is disappointing due to the steep increase in its employee cost. The employee cost as a percentage of its sales increased by 140 basis points to 3.3%, as the company amortised deferred expenses for employee stock options (Rs2.05 crore) and employee benefits (Rs0.43 crore).
During the quarter, the depreciation charge rose by 107.1% to Rs2.4 crore as the company commissioned its Chopanki plant during January 2008.
Consequently, the adjusted net profit declined by 21.2% to Rs8.9 crore, which is below our expectations. The reported net profit is down 42.9% at Rs6.5 crore.
The company has an order book of Rs400 crore out of which orders worth Rs125 crore are for high-tension (HT) cables.
We have revised our FY2009 earnings estimate as we expect the company’s margins to remain under pressure this year. Our FY2009 fully diluted earning per share (FDEPS) estimate now stands at Rs8.4. We are also introducing our FY2010 earnings estimate in this note. Our FDEPS estimate for FY2010 stands at Rs12.
Though KEI enjoys a strong business outlook, the company has faced problems in managing its working capital. This has resulted in deteriorating cash flows. We have therefore revised our target multiple to 10x for the stock and downgraded our price target for KEI to Rs84 per share.
At the current market price, the stock trades at 5.5x its FY2009E and 3.8x FY2010E FDEPS. We believe the valuations are attractive and reiterate our Buy call on the stock.

ESS DEE Aluminium Ranks No.1 in Packaging Sector

Austin — Wed, 11 Jun 2008 08:10:14 +0000

ESS DEE Aluminium Limited has informed the Stock Exchange that: “ESS DEE Aluminium Limited has been ranked No.1 in the Packaging Sector for the year 2007 based on the ranking of the Top 500 Indian Manufacturing SMBs, initiated by Industry 2.0, a monthly manufacturing technology publication. Shri Sudip Dutta, Chairman & Managing Director of the Company received the Award of being the Top Indian SMB in Packaging Sector for 2007 at the Second “Industry 2.0 SMB Conclave & Awards Night” held on 30 May 2008 at New Delhi”.

Prabhudas Lilladher has recommended a BUY with a 12-month target of Rs. 689 (55.7%) on this stock. Check out this post to know more about the recommendation and you can also download a detailed analysis report.

BUY: ESS DEE Aluminium, target Rs 689

Austin — Tue, 10 Jun 2008 05:30:46 +0000

Prabhudas Lilladher has maintained buy rating on ESS DEE Aluminium with target price of Rs 689, implying upside potential of 55%, in its May 28, 2008 report.”We expect the company to report 31% CAGR in net sales and 48% CAGR in net profit over FY08-10. We also expect its EBIDTA margin to improve from 27.9% in FY08 to 32.4% in FY10 due to the introduction of new products, capacity expansion and entry into FMCG segment. At the CMP of Rs443, the stock trades at 16.8x FY08 EPS of Rs26.4, 9.0x FY09E EPS of Rs49.4 and 7.7x FY10E EPS of Rs57.4.

We reiterate BUY rating on the stock with a price target of Rs689 (12x FY10 earnings) over the next 12 months giving a 55.7% upside from the current level” says Prabhudas Lilladher report.

Download ESS DEE Aluminum Report [Source: Prabhudas Lilladher]

BUY: Opto Circuits India

Austin — Tue, 13 May 2008 17:02:46 +0000

Opto Circuits India

Source: Sharekhan
Recommendation: Buy
Price target: Rs460
Current market price: Rs338

Key points

# Opto Circuits India’s (Opto) non-invasive business is expected to grow at a compounded annual growth rate (CAGR) of 39.5% over FY2007-10E to Rs550.7 crore on the back of rising demand for its sensors and patient monitoring systems, coupled with an increasing market penetration and innovative new launches.

# The invasive business would be driven by the increasing acceptance of the company’s stents due to superior technology and better pricing. Further, the growing revenues from DIOR in Europe and the semi-regulated markets due to limited competition would also fuel the growth of the invasive segment. We expect the invasive segment (EuroCor) to contribute ~43% to the company’s total revenues by 2010.

# Opto has recently completed its $70 million acquisition of Criticare Systems (Criticare), a US-based publicly listed company specialising in vital signs and gas monitoring instruments. We estimate the Criticare acquisition to generate incremental earnings of Rs0.60 per share in FY2009E and Rs1.80 per share in FY2010E. We will incorporate the impact of the acquisition after the announcement of Opto’s FY2008 results.

# We expect Opto’s fully diluted earnings (without Criticare) to grow at a CAGR of 35% over FY2007-10E on the back of a 57% CAGR in revenues. We estimate earnings of Rs20.0 per share in FY2009E and Rs29.9 per share in FY2010E.

# We have valued the stock using the dividend discount model and the P/E mutiple, arriving at price targets of Rs453 and Rs470 per share respectively. Using the average of the two, we fix our price target at Rs460 per share, an upside of 36% from the current levels.

# Opto is trading at attractive valuations of 16.9x FY2009E fully diluted earnings and 11.3x FY2010E fully diluted earnings. Hence, we initiate coverage on Opto with a Buy recommendation and a price target of Rs460. Our current estimates do not incorporate the Criticare acquisition, which could yield incremental earnings of Rs1.8 per share in FY2010E, implying an upside of Rs28-30 per share to our target price.

Prabhudas Lilladhar suggests buying Bank of India

Austin — Sun, 17 Feb 2008 10:20:09 +0000

Bank of India raised tier-I capital of Rs 13.6 billion through qualified institutional placement, which was subscribed 1.8 times in the current weak market scenario. The capital raised will help the bank meet Basel II requirements and maintain the current business growth momentum.The capital raised will also support its life insurance venture with Dai-Ichi Mutual Life Insurance and Union Bank of India, mutual fund business, and credit card ventures.

Bank of India’s total income for quarter ended Dec 31, 2007 rose 43.66 per cent year on year to Rs 3,705.21 crore. The bank’s NPA stood at 0.6 per cent as on Dec 31, 2007 compared with 0.95 per cent in Dec 2006.

BoI is one of the best performing PSU banks with strong expected earnings at CAGR of 37 per cent for the period FY07-10. The third quarter of FY07-08 has shown an increase in total income by 5.76 per cent vis-a-vis the second quarter. RONW for the year ended March 31, 2007 was 21.25 per cent, which was 38 per cent higher than the last year.

Prabhudas Lilladhar estimates net interest income for FY10 at Rs 6,444.4 crore and operating profit Rs 5,480 crore, and EPS of Rs 54.3. BoI currently trades at 6.5X of FY10 expected EPS.

Prabhudas Lilladhar has maintained ‘buy’ on Bank of India for a fifteen-month target price of Rs 520. At the current market price of Rs 355, the stock is quoting at 6.5 times FY10E EPS and 1.5 times FY10E BV.

Anand Rathi Securities suggests buying IDBI

Austin — Sun, 17 Feb 2008 10:04:59 +0000

After a deep correction for last six weeks, IDBI exhibits the possibility of a trend reversal in daily and weekly charts, the brokerage says in a technical report dated Feb 14. Rise in volume indicates a medium term buy in the counter. Based on the chart pattern to date, the stock is likely to get support around Rs 98.

Anand Rathi Securities has set a medium-term target of Rs 134 on IDBI and suggests buying the stock around Rs 98-107 with stop loss of Rs 94. If it moves above Rs 134 then it can even touch Rs 146 levels, the report says.