| REL's 3QFY08 pre-exceptional profit were sharply below estimates at Rs 152 crore (-25 per cent y-o-y) led by lower than estimated revenues and margins of EPC division and higher tax rate during the quarter. Revenues fell by 2 per cent y-o-y to Rs 1,500 crore during the quarter led by 54 per cent y-o-y fall in EPC revenues (lower procurement component). Operating margins of EPC improved sharply by 610 bps to 9 per cent as orders executed during 3Q08 had higher service component. |
| However, the higher purchased power costs resulted in lower (-20bps) power division margins. The research firm believes that REL has a sound business model of backward integration of its distribution business achieved by setting up generating capacity across various fuels such as gas, coal and hydel. |
| Moreover, the IPO of Reliance Power (50 per cent associate of REL) would unlock value for shareholders of REL by establishing a valuation benchmark for the power assets as well as limit the fund infusion of REL into RPL's power assets. The research firm has valued RPL at Rs 900 bn based on the issue price (higher end of Rs 450/share). After factoring in the value of RPL, the SOTP of REL works out to Rs 2,654/share. |
| Time Technoplast Brokerage: HDFC Securities Current market price: Rs 870 Target price: Rs 1,250 Upside: 43% |
| Time Technoplast Limited (TTL) is engaged in the manufacture and sale of polymer-based products in its five business segments"" packaging, lifestyle products, automobile components, healthcare, and construction. TTL's business has clocked a growth rate of 65.4 per cent CAGR from FY05 to FY07 and is expected to grow at a rate of 48.2 per cent over FY07 to FY09E. |
| The research firm believes that TTL is a good buy at the current levels because of its market leadership, diverse product portfolio, de-risked business model and innovative product portfolio in the pipeline. Given TTL's broad product range, its client base is also diverse which further helps de-risk its business model as its top customer contributes less than 5 per cent to its topline. |
| The research firm believes that TTL can be accumulated in the Rs 809""Rs921 band for a price target of Rs 1,250 in the next one year. Apart from EPS expansion, transformation in its business model could fetch it higher valuations. The stock could quote at 27 times FY09 (E) EPS in 2-3 quarters. |
| IDFC Brokerage: Prabhudas Lilladhar Current market price: Rs 209 Target price: Rs 236 Upside: 13% |
| IDFC posted 89.7 per cent y-o-y growth in its total operating income to Rs760 crore. High growth was largely due to consolidation of SSKI and profit from sale of investments. IDFC for the first time booked 'carry income' from its first fund, which was part of the principal investment income. Non-interest income as a percentage of total operating income increased to 25 per cent as compare to 14 per cent in Q3FY07. Benefiting from large scale investments in the infrastructure space, approvals and disbursement grew at a healthy rate of 60.5 per cent and 52.3 per cent respectively. Balance sheet grew by 58 per cent to Rs 259 bn similarly loan book at the end of the quarter was Rs 192 bn, y-o-y growth of 48 per cent. |
| IDFC increased its stake in SSKI from 66.7% to 79.8% during the quarter for an undisclosed amount. It also transferred its investment banking business to SSKI. The research firm values IDFC's stake in SSKI at Rs18 bn, implying per share value of Rs11.5. It has revised its earnings upwards by 4 per cent and 7 per cent for FY08E and FY09E respectively and maintains an outperformer rating on the stock with a SOTP price target of Rs 236. |
| Adhunik Metaliks Brokerage: Edelweiss Current market price: Rs 209 Target price: Rs 260 Upside: 24% |
| Adhunik Metaliks (AML) will morph from a 250,000 tpa standalone carbon steel player to a company with: (i) 450,000 tpa capacity alloy, stainless and carbon steel business with backward integration in terms of iron ore (25 mn tonnes reserves) and power (51 MW capacity); and (ii) a high margin merchant mining business utilising its high grade iron ore (64 mn tonnes reserves) and manganese ore mines (36 mn tonnes reserves). |
| The company has already raised Rs 375 crore to part fund the total Rs 865 crore capex to achieve this transformation. Considering the current supply tightness in iron and manganese ores, prices are at record highs; iron ore spot prices in China, for instance, are up over 90 per cent Y-o-Y. |
| This favourable price outlook, capacity expansion, product mix enrichment, backward integration, and entry in the mining business are combining into a sweet spot for AML. Overall, EPS is expected to increase by a CAGR of 77% from FY07 to FY10E. Adhunik's sum-of-the-parts (SOTP) fair value works out to Rs 260/share. Infotech Enterprises Brokerage: Kotak Research Current market price: Rs 265 Target price: Rs 338 Upside: 27% |
| Infotech Enterprises' (IEL) revenues for Q3FY08 grew by a strong 11 per cent in US dollar terms on a sequential basis. Operating margins were maintained at Q2FY08 levels despite the rupee appreciation. There were 7 per cent price increase from top two clients. The company enjoys a cash-rich status, post the recent private placement. Strategic acquisitions are possible in the near term. |
| The research firm favours this mid-cap pick given strong potential in its differentiated business verticals and the company's execution abilities. An accelerated slowdown/recession in major user economies and a sharper than-expected appreciation in the rupee v/s major currencies are pronounced risks for every IT services player. Infotech is no different. |
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