Analysts' corner

RESEARCH CALLS

Religare

The research firm believes that Cadila Healthcare's domestic and international operations are on track to deliver a robust performance over the next two years.

While domestic operations are likely to be ahead of the industry, export sales would be driven by the US, French and Brazilian markets. Zydus France is on track to turnaround in FY08 and will have a positive impact on margins.

The company's JV with Hospira for oncology products is also progressing smoothly. Further, CHL is eyeing acquisitions in the European markets. We believe CHL's growth drivers remain strong and estimate that the company will witness an earnings growth of 20.7 per cent to Rs 340 crore over FY07-FY09.

A key concern for the medium-term is the ongoing patent litigation on Altana's Pantoprazole (now part of Nycomed) which is now proceeding to the trial stage.

While the court has stated that the generic companies (Teva and Sun Pharma) would need to meet a higher burden of proof, if the trial goes in their favour and a generic version is launched in FY09, it could significantly affect Religare's FY09 estimates for Cadila as it makes the drug for the patent holder.

Prism Cement
Reco price: 61.25
Current price: 62.25
Target price: NA
Broking firm: HDFC Securities

Owing to the healthy uptrend in the cement industry over the last two years, Prism Cements (PCL) has planned an expansion at its Satna plant of 2 mtpa clinker which is expected to come onstream by 2010. This would offer locational advantage, as the demand is strong in the North and growing at a good rate, while capacities are limited.

It has also planned a greenfield expansion of 3 mtpa clinker capacity in Andhra Pradesh, which is slated to be completed by 2012. These two expansions would involve a capital outlay of about Rs 1600-1800 crore and a major part of it would be funded by PCL through internal accruals.

PCL has the best operating margins across the industry recording an EBIDTA margin of 43.1 per cent for FY 2007 and has shown an excellent growth trend over past few years.

For the last quarter ended June 07, PCL witnessed another high in its operating margins recording 50.6 per cent, the best in the industry. HDFC Sec recommends accumulating the stock in the Rs 53-61 band for 30-40 per cent gain in a year's time.

Jindal Saw
Reco price: 620
Current price: 617
Target price: 813
Broking firm: Khandwala Securities

Jindal SAW (JSL) is the largest pipe producer in India with an annual capacity of 1.25 million tonnes. Its saw pipes, seamless pipes and ductile iron pipes divisions have capacities of 9.5 lakh, 1 lakh and 2 lakh tonnes respectively.

JSL would add about 2 lakh tonnes of spiral pipe capacity by March 2008 for catering to oil & gas as well as water transportation sectors. The company would increase its seamless pipe capacity to 2.5 lakh tonnes by June 2008.

The company is also putting a 15 MW power plant based on waste gases, which would improve profitability. The current capacity utilisation for pipe plants for the last financial year stood at 46 per cent.

There is further scope of improving utilisation, which would improve volumes going forward. The company has recently divested its minority interest in US operations as the company want to focus on pipe business only.

This divestment will fetch JSL post tax cash flow of over Rs 8,40 crore. JSL has an order book of Rs 2870 crore for Indian operations (excluding US order book), which is going to be executed in current financial year.

The company is also expected to receive a significant number of orders from upcoming oil and gas projects in India as well as abroad as cost of conversion in India is approximately $50/tonne vs. $90-110/tonne for overseas competitors.

GEI Industrial Systems
Reco price: 98.45
Current price: 115
Target price: 240
Broking firm: Networth

GEI manufactures air cooled heat exchangers and air cooled steam condenser and other allied products used in critical applications in oil refinery, thermal power and gas transmission projects.

Booming petroleum and petrochemicals business, the company's scalability in operations and product mix and ability to bid for big-ticket projects are positives for GEI. Its revenues are expected to grow annually at 51 per cent and EPS at 89 per cent over FY07-09.

The recommended price of Rs 98.45 discounts the FY07 EPS of Rs 3.99 by 24.7x and the FY08E and FY09E EPS of Rs 6.53 and Rs 14.31 by 15.1x and 6.9x respectively.

The firm recommends a buy on the stock as the significant growth story would unfold over FY07-09 on the back of opportunities in the petroleum, gas exploration, processing and transportation and power sectors. Networth has a 18-month price target at Rs 240, which gives an upside of 144 per cent over the recommended price.

Indian Hotels
Reco price: 128
Current price: 128.5
Target price: 170
Broking firm: Mata Securities

Indian Hotels enjoys a stong brand image and operates 81 hotels in all major business and tourist destinations across India and 11 hotels outside the country.

Its presence in the low-tariff Ginger brand of hotels, food and beverage business, air catering and travel assistance services insulates it from segmental business risk.

The company is expanding its operations in F&B business with a target to generate an annual revenue of Rs 5000 crore within a period of five years.

The company has registered 30 per cent annual growth in total income during FY03 to FY07 to Rs 2506 crore. Operating profit margin improved from 17 per cent to 31 per cent while net profit margin moved up from 3 per cent to 15 per cent in the same period.

At recommended price of Rs 128, it trades at 20.84x its FY'07 earning and 14.88x on EPS'09E on diluted equity.