NTPC is the largest power utility in India with a capacity of 29,394 megawatt (MW), which is expected to increase to 55,865 MW by 2012. The company has been allotted nine coal blocks for captive consumption.
NTPC is expected to spend about Rs 14,000 crore on developing the first of the blocks, with commercial production beginning in Q3FY09. Once all the captive blocks are on-stream, NTPC would be able to source about 20 per cent of its annual coal requirement from its captive coal mines. (Presently, 82 per cent of the company's asset portfolio of 29,394 MW is coal-based).
The company is on-track to achieve its capacity additions plans and it would add 2,990 MW in FY09 and 2,511 MW in FY10. NTPC's revenues are expected to grow at 16 per cent CAGR to reach Rs 51,900 crore by FY10, while profits would increase to Rs 9,570 crore, a CAGR of 13.2 per cent. At Rs 162, the stock trades at 14.0x its FY10E earnings and 2.1x FY10E P/BV.
NTPC commands a premium due to low floating stock, being a focused power generator controlling 21 per cent of the total generation capacity in India and on account of regular planned capacity additions in the next few years. Buy.
Divi's Laboratories
Reco price: Rs 1,358
Current market price: Rs 1399.30
Target price: Rs 1,833
Upside: 31%
Brokerage: Religare Securities
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A key manufacturer of generic APIs (active pharmaceutical ingredients), Divi's Laboratories (Divi's) has a strong pipeline of products for the regulated markets with FTF (first to file) opportunities like Levetiracetam (Keppra, $500 million sales), which could contribute to sales in FY09.
Generic API estimated to witness revenue CAGR of 21.6 per cent to Rs 760 crore over FY08-FY10. Traction in CCS (custom chemical synthesis) continues as its contribution in Divi's total sales has increased from about 25 per cent in FY03 to about 50 per cent in FY08. CSS sales expected to grow at CAGR of 33 per cent to Rs 900 crore over FY08-FY10.
The global market for health-enhancing pills i.e. neutraceuticals (carotenoids) is estimated at about $1 billion and is concentrated in the hands of couple of players, as the synthesis of carotenoids is a complex process.
Divi's has managed to successfully synthesize carotenoids, whose commercial production will start in June 2008.
This is a good addition to Divi's product portfolio, with expected segmental sales of about $10.5 million in FY09 and EBDITA margins from this segment to be in the region of 40 per cent in the long run. Divi's bottomline is expected to grow at a CAGR of 31 per cent to Rs 600 crore over FY08-FY10. Maintain Buy.
Himadri Chemicals & Industries
Reco price: Rs 385
Current market price: Rs 388.70
Target price: Rs 509
Upside: 31.1%
Brokerage: Pinc Research
Himadri Chemicals & Industries (Himadri) is in the business of distillation of coal tar to extract coal tar pitch, creosote oils and chemical oils.
The company has 169k mt distillation capacity (operating at 106 per cent capacity utilisation) and caters 70 per cent and 89 per cent requirement of the domestic aluminium and graphite electrode manufacturers, respectively.
With large capacities being planned by aluminium and steel industries worldwide, Himadri plans to increase its total distillation capacity to 250k mt (in India) by FY09 and to 575k mt (325k mt in India and 250kmt in China) by FY10.
The company would further raise its mesophase pitch capacity to 650mt by Q2FY09, from 32mt in FY08. Mesophase pitch is a high margin product and is used for producing lithium ion batteries.
Its carbon black production facility (capacity 50k mt) is expected to start from Q3FY09, and the company plans to set up a 12 MW power generation unit to tap the large amount of heat being released from its plant.
The capex outlay for Himadri is the lowest amongst its peers on account of its proprietary technological skills. At Rs 385, the stock trades at 5.8x its FY10E EPS of Rs 65.9. The DCF value of the stock is Rs 509 with a 12-months investment horizon.
Indian Hotels Company
Reco price: Rs 88
Current market price: Rs 82.55
Target price: Rs 146
Upside: 76.9%
Brokerage: Sharekhan
Indian Hotels Company (IHCL), the largest hotelier in the country, is on an aggressive expansion drive, both domestically and overseas.
The company, along with its subsidiaries, associates and joint ventures, plans to add 2,100 rooms in FY09 (currently 10,291 rooms) with total capex of Rs 2,351 crore.
These include, setting up of new hotels in Bangaluru (199 rooms) and Chennai (215 rooms) along with expansion of 122 rooms at Taj Lands End and Taj Residency, both in Mumbai.
The Pierre, New York has been closed for renovation for CY08. The company intends to spend about Rs 320 crore on renovation and the hotel is expected to be operational from 2009.
For FY08, foreign tourist arrival increased by 11.5 per cent to 5.2 million, leading to a strong domestic demand for new hotels and in FY09 the tourist arrivals are expected to grow further by 10 per cent to touch 5.7 million.
However, the brokerage see increased risks going forward in terms of increasing the ARRs and maintaining the occupancy, against the backdrop of an economic slowdown and an increase in supply of hotel rooms. Hence, it has reduced the stock's price target to Rs 146, based on an 18x P/E multiple to its FY10E EPS of Rs 8.2.
Edelweiss Capital
Reco price: Rs 649
Current market price: Rs 697.85
Target price: Rs 820
Upside: 17.5%
Brokerage: Prabhudas Lilladher
Edelweiss Capital (Edelweiss) is one of the more diversified capital market companies in India, with just 26 per cent of its revenue in FY08 coming from broking (going down to 20.4 per cent in FY10E).
Edelweiss' balance sheet has grown at a CAGR of 288 per cent over FY05-08. Its networth (excluding minority interest) stood at Rs 1,847 crore as of March 2008, while total debt (including short-term bank overdrafts) stood at Rs 1,909 crore.
This strong balance sheet, coupled with ample scope for further leverage, will enable the company to scale-up its wholesale financing business rapidly over the next couple of years.
Of the Rs 4,234 crore balance sheet, the company has nearly 71 per cent in cash, liquid investments and treasury investments. This enormous liquidity pool is the highest amongst peers.
Over the next two years, as the advances book grow, surplus liquidity is likely to reduce, thus improving overall capital efficiency.
Thus, despite the weak market, revenue is expected to grow at a CAGR of 25.8 per cent over FY08-10. Currently, at 2.3x FY08 book value and 2.0x FY09E down-cycle earnings, Edelweiss' valuations are clearly attractive for a long-term investor. Maintain buy with a price target of Rs 820 (with a 12-18 months perspective).
(Current market price as on June 26, 2008.)