Analysts' corner

RESEARCH CALLS

Upside: 11 per cent

The research firm believes that order inflows will pick up. At the start of the quarter, Elecon had an order book of Rs 1,090 crore, which has now increased to Rs 1,380 crore. Elecon expects order inflows to pick"�up, and hopes to bag orders worth Rs 400 crore in the next couple of months.

The management expects faster execution of orders during Q4FY08 which will help it to complete the fiscal with a turnover of Rs 900 crore. Elecon has already installed six windmills and is planning to end the year with around 30-40 of them. It is in the final stages of signing a JV to manufacture gear boxes in the 1-2MW class.

The manufacturing facility for windmill gearboxes is behind schedule and is expected to be operational by April 2008. At the current market price of Rs 234, the stock trades at 18.72x and 14.5x its estimated FY08 and FY09 EPS of Rs 12.5 and Rs 16.1 respectively. The research firm maintains a "Market Performer" rating on the stock with a target price of Rs 269, an upside of 11 per cent.

Plethico Pharma
Brokerage: Emkay Share
Current market price: Rs 415
Target price: Rs 569
Upside: 37 per cent

Unlike other pharmaceutical players in the Indian market who are fighting for a pie of the available export generics opportunity, Plethico Pharma (PPL) has adopted a completely different path by focusing on high-margin herbals and nutraceuticals in the international markets.

After initially focusing on the unregulated markets such as the CIS and Africa, the company is now set to enter the regulated markets like the US and Europe. PPL recently acquired Natrol Inc., a leading manufacturer and marketer of branded nutritional products in the US.

PPL is planning to manufacture Natrol's top brand in India and sell them locally and in other semi-regulated markets. PPL is also planning to set up a manufacturing unit in Sikkim (apart from the one recently announced in Dubai) which will provide them tax benefits.

Considering that sales from the US are expected to gather momentum and given the company's continued strong performance in other markets, the outlook for Plethico appears quite optimistic.

The stock is currently trading at 9.4x FY08E EPS of Rs 43.8 and 8x FY09E EPS of Rs 51.5. We believe these valuations are attractive and offer excellent long term investment opportunity considering its strong presence in niche segments, higher EBDITA margins, increasing global demand for herbals/ neutraceuticals, strong expected growth from regulated and semi-regulated markets and its potential to improve its revenues and operating margins going forward. It recommends a 'BUY' on the stock with target price of Rs 569.

Suzlon Energy
Brokerage: Motilal Oswal
Current market rice: Rs 298
Target price: Rs 309
Upside: 3.6 per cent

Suzlon's US operations have had an impact on both margins as well as volumes. Margins have been impacted due to rupee appreciation, levy of import duty of 2.6 per cent on Nacelles and increasing commodity prices. The current order book will account for 96 per cent of Suzlon's FY09 MW sales from US operations and 79 per cent of FY10, resulting in continued margin pressures.

Suzlon's capacity expansion is expected to be commissioned in phases during FY09, and reaching full capacity utilisation by FY11. For Hansen, incremental capacities (expansion to 14,600 MW vs current 3,600 MW) would be partly available from Sept 08 (assembly operations) and full capacity would be available from April 2011.

Since large parts of the expanded capacities are expected to achieve optimal operating rates by end FY11, gains from operating leverage are likely to accrue from FY10 onwards. The research firm downgrades its earnings estimates for Suzlon to factor in possible margin pressure on existing order book and now expects consolidated net profit of Rs 1,080 crore in FY08 (downgrade of 17 per cent), Rs1,880 crore in FY09 (downgrade of 6 per cent) and Rs 2,530 crore in FY10 (downgrade of 6 per cent). The SOTP-based target price is Rs 309 comprising: Core business at Rs 237 a share, Hansen at Rs 39 per share and REpower at Rs 33 a share.

Unity Infra
Brokerage: Sharekhan
Current market price: Rs 732
Target price: Rs 970
Upside: 32 per cent

The strong growth in real estate sector will trickle down to construction companies, which would lead to strong order inflows for these companies. The growth in real estate sector coupled with government thrust on infrastructure spending would lead to over 20 per cent annual growth in Unity's order inflows during the period FY2007-2010.

Unity has a strong order book of Rs 2,450 crore, which is 4.8x its FY2007 revenues. Unity has forayed into the real estate sector through a wholly-owned subsidiary, Unity Realty and Developers (URDL). The real estate projects include those at Nagpur, Pune and Goa, which are on a build-operate-transfer (BOT) basis.

Beside this, the company plans to develop 15 million square feet in Kolkata. In line with this, the company has acquired 150 acre of land for Rs 100 crore in Kolkata. To fund these projects, the company plans to dilute its stake in URDL, which will unlock value for Unity's shareholders. Unity's core construction business is valued at Rs 757 per share while Nagpur and Goa projects in the real estate sector and Ulhasnagar water supply project are valued at Rs 192 per share.

The Pune project is valued at Rs 21 per share based on the recent stake sale to Clear Hotel Capital. The research firm initiates a 'Buy' recommendation on Unity with a price target of Rs 970.

Blue Star
Brokerage: IL&FS Investsmart
Current market price: Rs 478
Target price: Rs 678
Upside: 42 per cent

Blue Star India is expected to grow faster due to project execution track record, scalable business model and established relationships with institutional buyers. BIL is likely to post a 36 per cent annual growth rate in revenues and 73 per cent growth rate in earnings through FY2007-10.

BIL is expected to have an addressable market for central air-conditioning, commercial refrigeration, and cold chain equipment, at around at Rs 45,800 crore by 2012 comprising Rs 30,700 of central air-conditioning, cold chain and commercial refrigeration and Rs 15,100 worth of electrical and plumbing work.

This is expected to be fourteen times the addressable market as on date of Rs 3,200 crore. BIL has limited its presence in the highly competitive, low-margin, consumer durable segment of the room air-conditioner market.

Instead, it has focused on high-margin institutional segments like central airconditioning, commercial refrigeration, and cold storage equipment. An improving pricing environment and benefits of scale with average ticket size improving from Rs 5 crore to Rs 8 crore is expected to expand operating margins from 10 per cent to 12 per cent by 2010.

The stock at Rs 478 quotes at a P/E multiple of 17x FY09E (EPS: Rs 28.1) and 11.71x FY10E (EPS: 40.8) earnings. The research firm puts a 'BUY' rating with a target price of Rs 678. Current market price as on February 28.