Total world demand for pipes is estimated at $74 billion (235,171 km) for next five years (2007-2011). On the other hand, domestic demand for pipes is approximately $5.5 billion. Indian pipe makers, due to their locational advantage carry the potential to cater to the entire domestic demand.
In order to tap the growing global as well as domestic demand for pipes, Jindal Saw Ltd (JSL), India's largest pipe manufacturer, is increasing its capacity from 12,50,000 metric tones per annum (mtpa) to 19,50,000 mtpa by CY08. Sale of US operations along with de-bottlenecking exercises at JSL's ductile iron and seamless plants are expected to improve its operating margins from 11.4 per cent in CY07 to 15.3 per cent in CY09E.
The government recently withdrew the 10 per cent export duty on steel pipes and tubes, it had earlier levied in May 2008. This augurs well for JSL, as over 60 per cent of its revenue come from exports.
JSL has a strong order book of $1 billion, executable by January 2009. Current order book is equivalent to 1.2x times JSL's 2007 sales (annualised) from Indian operations. JSL's EPS is expected to grow from Rs 60.6 in CY07 to Rs 81.9 in CY09E. At Rs 574 the stock is trading at P/E of 11.02x CY08E earnings and 7.01x CY09E earnings. Recommend Buy.
Tanla Solutions
Reco price: Rs 264
Current market price: Rs 238
Target price: Rs 485
Upside: 103%
Brokerage: HDFC Securities
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Tanla Solutions Ltd (Tanla) recently acquired 85 per cent stake in Openbit, a Finland-based service provider of on-device payment for mobile applications. Openbit receives revenues from licenses and through a share in transactions made while using its License Manager.
In CY2007, Openbit sold 10 million licenses at $0.3 per license. The acquisition of Openbit extends Tanla's payments portfolio beyond operator billing products to address the emerging market for rich media and business applications on handsets.
Tanla is currently operating in the most sophisticated mobile value added service (VAS) markets i.e. UK and Ireland. These markets are better than others in terms of per user spending on VAS, technology penetration and the wide array of technology platforms available.
The market share of Tanla in UK and Ireland in aggregation is 5 per cent. The company has filled up the gaps in service offerings with a huge ramp up in top management team in FY08 and is geared to expand from five countries (FY08) to 40 countries in FY09. On valuation parameters, the stock seems to be cheap on one year forward EV/EBDITA of 2.24x, EV/Sales of 0.86x and P/E multiple of 10.24x. Maintain Buy.
Ashok Leyland
Reco price: Rs 33
Current market price: Rs 32
Target price: Rs 45
Upside: 40%
Brokerage: Reliance Money
Ashok Leyland is the second largest player in commercial vehicles (CVs) after Tata Motors and commands about 28 per cent market share in domestic CV market. High fuel prices are likely to encourage people to use public transport and thereby trigger demand for the bus market.
The company's management feels that in FY09E, the bus market is likely to witness double digit growth. During FY08, Ashok Leyland launched three new models each, in the truck and bus segments.
The company is planning to further launch three more new models in the truck segment along with the iBus in FY09E.
The company incurred capital expenditure of Rs 700 crore in FY08 and over next three years it would invest Rs 3,000 crore in order to expand its capacity from 84,000 vehicles per annum (pa) currently to 1,84,000 vehicles pa by FY10E.
Ashok Leyland has recently announced a joint venture with Nissan for its foray in the light commercial vehicle (LCV) segment, which will further enhance its product portfolio.
At Rs 33, the stock trades at 10.3x FY09E earnings. The brokerage feels that Ashok Leyland's investment in IndusInd Bank (10 per cent) and Ennore Foundries is not reflected in current valuations. Recommend Buy.
Plethico Pharmaceuticals
Reco price: Rs 355
Current market price: Rs 355
Target price: Rs 569
Upside: 60%
Brokerage: Emkay Share & Stock Brokers
Unlike other pharmaceutical players in the Indian market who are fighting for a pie of the available export generics opportunity, Plethico Pharmaceuticals (Plethico) has adopted a completely different path by focusing on high margin Herbals and Nutraceuticals in the International markets.
Plethico recently acquired Natrol Inc., a leading manufacturer and marketer of nutritional products in USA. Plethico is planning to manufacture and sell Natrol's top brand in India and other semi-regulated markets along with US markets. This will improve Plethico's margins going forward.
Plethico is expected to report CAGR of 36 per cent in revenues and 17 per cent in earnings during FY07-FY09E. The stock is currently trading at 6.9x FY09E EPS of Rs. 51.5. Maintain Buy.
Indraprastha Gas
Reco price: Rs 119
Current market price: Rs 118
Target price: Rs 150
Upside: 27%
Brokerage: Kotak Securities
Indraprastha Gas (IGL), which is a joint venture promoted by GAIL, BPCL, and the Delhi government, is the monopoly supplier of compressed natural gas (CNG) and piped natural gas (PNG) in the National Capital Region, comprising Delhi, Noida, Gurgaon and Faridabad.
The company recorded a growth of 15 per cent YoY in revenues (Rs 706 crore) and 26.5 per cent YoY in earnings (Rs 174.5 crore) for the year ending March 2008, with EBDITA margin of 42.5 per cent.
IGL had planned an extensive expansion of its CNG dispensing network and had planned to supply piped natural gas to the Commonwealth Games village for meeting its fuel needs.
However, after the Petroleum and Natural Gas Regulators' (PNGRB) order, IGL was forced to halt its expansion plans to meet needs of the Commonwealth Games. But, in a significant development, the Petroleum Ministry has allowed IGL to expand its CNG and PNG network in the NCR region without PNGRB's permission.
The brokerage feels that this development is very positive for IGL's future prospects. At Rs119, the stock is trading at 4.8x EV/EBIDTA and 8.7x earnings and 6.2x cash earnings based on FY09E.
(Current market price as on June 20, 2008)