Analysts' corner

Upside: 38 %

For Q3FY08, Titan Industries posted a 50.5 per cent growth in net sales to Rs 802 crore. The growth in the company's net profits by 11.3 per cent to Rs 30.84 crore, however, was below expectations; this growth was restricted due to the sharp increase in gold prices coupled with investments in new outlets.

Titan Industries' operating margins fell sharply by 430bps to 6.2 per cent due to lower margins of the jewellery division. IL&FS has lowered its EPS estimates by 9.6 per cent for FY08 from Rs 36.3 to Rs 32.8. EPS estimates for FY09E and FY10E have also been reduced by 10 per cent and 10.4 per cent.

The research firm believes that the recent fall in the stock price is overdone and presents an attractive investment opportunity, even after taking into account the revised EPS estimates.

At the current market price, the stock is trading at PE multiples of about 24.8x and 18.6x FY09E and FY10E earnings respectively. Maintain buy rating on the stock with a new price target of Rs 1,686 based on DCF valuation.

Tata Metaliks
Brokerage: PINC Research
Current market price: Rs 152
Target price: Rs 185
Upside: 21 %

Tata Metaliks reported net sales of Rs 270 crore (+60 per cent) in Q3FY08. This was due to increased production volumes from its Redi unit, coupled with higher realisations for pig iron. TML's production volumes in Q3FY08 have shown a rise of 81 per cent y-o-y to ~150,000 mt, led by increased contribution from its Redi unit. Growth in net sales also resulted from improved realisations, which at ~Rs 18k/mt was up 7.7 per cent on a y-o-y basis.

OPM for Q3FY08 stood at 9.3 per cent, lower by 120 bps on a q-o-q basis as rising iron ore and coke prices dampened profitability. At the CMP of Rs 140, the stock trades at a P/E of 3.8x and EV/EBDIT of 2.3x its FY09E earnings.

In view of the buoyant pricing for pig iron, increasing capacity utilisation at Redi unit and an upcoming facility, the research firm believes that the stock is a buy with a 12-month price target of Rs 185, which is 5x times its FY09E earnings.

SpiceJet
Brokerage: Prabhudas Lilladhar
Current market price: Rs 69
Target price: Rs 98
Upside: 42 %

SpiceJet reported 97 per cent growth in its operating revenue, driven by a 72 per cent capacity addition to 1,647m ASKMs and better load factor at 76.2 per cent in Q3FY08. Yields were also better during the quarter with average fare increasing by 17 per cent to Rs 3,150 per passenger. Higher fuel cost increased cost/ASKM by 9 per cent to Rs 1.2, which was the primary reason for costs/ASKM going up to Rs 2.59 in Q3FY08 (Rs 2.5 in Q3FY07).

However, other income of Rs 29.5 crore helped the company post net profit of Rs 9.3 crore. The third quarter saw the company's cost rising to Rs 2.59/ASKM, mainly due to higher fuel costs. However, since ATF prices have again been revised downwards by 4 per cent (Rs 2/litre) w.e.f. January, and crude settling down below $90 levels, the research firm feels that fuel cost will not affect the company's profitability to a considerable extent.

With signs of improving yield evident and costs under control, it is expected that the airline will be profitable in FY09. The airline will report a profit of Rs 20.2 crore in FY09 and Rs 79.3 crore in FY10. SpiceJet is currently trading at about 1.9x FY09E and 1.8x FY10E adj. EV/sales, which appear attractive for a low cost player with strong growth prospects. Maintain buy rating on the stock with a price target of Rs 98.

HDFC Bank
Brokerage: Emkay
Current market price: Rs 1,608
Target price: Rs 1,700
Upside: 5 %

HDFC Bank reported strong Q3FY08 results with net interest incomes growing at 65.6 per cent y-o-y driven by robust advances growth and better than expected net interest margins. The operating profit grew by 67.5 per cent y-o-y to Rs 1,060 crore driven by higher fee income and treasury gains which compensated for higher operating expenditure.

However net profit grew by only 42.2 per cent, as the bank made a higher provisioning of Rs 420 crore in the quarter as compared to Rs 210 crore in the corresponding quarter last year. The research firm says that the robust business model of HDFC Bank and quality of its earnings as well as assets stand it in good stead.

The firm revised its earnings estimates for FY08-10E by 1-15 per cent. At current valuations of about 20.7x its FY2010E EPS and 3.4x FY2010E P/ABV, the stock seems quite attractive. Emkay gives it a accumulate rating on the stock with a revised one year price target of Rs 1,700.

Union Bank of India
Brokerage: MF Global
Current market price: Rs 203
Target price: Rs 227
Upside: 11 %

The bank reported net interest income growth of 15 per cent y-o-y on the back of high credit growth. High treasury gains of 420 per cent y-o-y to Rs 156 crore and strong recoveries worth Rs 42 crore aided the 109 per cent growth in the other income. Advances showed a healthy growth of 27.4 per cent y-o-y to Rs 743bn.

Deposits registered a y-o-y growth of 28.4 per cent to Rs 992bn; the low-cost deposit mix increased by 60bps on a sequential basis to 33.10 per cent. The research firm expects the bank to register a moderate credit growth of 21 per cent over FY07-10. Margins are expected to stabilise going forward as the bank sheds high cost bulk deposits.

The credit to deposit ratio will improve which will add to the margins going forward. Non fund based income is expected to register healthy growth of 16.6 per cent over FY07-10 driven by growth in fee income and forex income. Maintain outperformer rating on the stock based on price target of Rs 227.