L&T is sitting on comfortable order backlog of Rs 52,700 crore, equivalent to 2.2x FY08 revenues. This order inflow momentum is expected to continue, owing to ongoing capex wave and asset creation drive in hydrocarbon and infrastructure segments. Consequently, the order backlog to revenue ratio is likely to remain intact at 2.1x-2.2x in FY2008-10E period.
L&T's FY08 consolidated results were below estimates on account of losses on commodity hedging and muted performance of its key subsidiary, L&T Infrastructure Development Projects Limited.
L&T is bullish on prospects in West Asia with ongoing construction boom in the region, which will help in compensating for any slowdown in order inflows from India. L&T expects stable margins despite rise in raw material prices due to price escalation clauses built in customer contracts.
Consequently, its standalone earnings (EPS) estimates have been revised upwards by 11 per cent to Rs 84.7 and Rs 104.4 for FY09E and FY10E, respectively. However, consolidated earnings estimates are revised downwards by 7 per cent and 15 per cent to Rs 107 and Rs134 for FY09E and FY10E, respectively.
IRB Infrastructure Developers
Reco price: Rs 149
Current market price: Rs 151.75
Target price: Rs 246
Upside: 62.1%
Brokerage: Pinc Research
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IRB Infrastructure Developers Limited (IRB) is a Mumbai-based infrastructure development and construction company with vast experience in building roads and highways, both as a contractor as well as an operator.
The company operates via two business verticals viz. road build-operate-transfer (BOT) projects and engineering and construction (E&C) divisions.
Being a fully integrated company, implementing EPC as well as operations and maintenance activities give IRB a better control on costs incurred and meeting stringent project time lines.
IRB presently has 14 BOT projects under its belt, with daily toll collection amounting to about Rs 1.35 crore. With IDAA and Surat-Dahisar becoming fully operational by FY10, the same will increase to Rs 3 crore per day.
A steady flow of revenues from operational road assets, the company is expected to report CAGR of 56 per cent in net sales and 83 per cent in net profit over FY08-11E. At Rs 149, the company is trading at a P/E of 7.7x and EV/EBIDTA of 5.6x its FY10E earnings. The sum-of-total-parts valuations peg IRB's fair value per share at Rs 246. Maintain Buy.
Pfizer
Reco price: Rs 551
Current market price: Rs 553.80
Target price: Rs 732
Upside: 32.2%
Brokerage: Prabhudas Lilladher
Pfizer has launched Champix, its first patented anti-smoking drug in India in February 2008. This product will be imported from Germany and will be marketed by Pfizer. Unlike other drugs, it does not contain nicotine and has a success rate of 44 per cent in the US.
The company has also introduced Cycklokapron, used for reducing blood flow during surgery. Pfizer has a string of new product launches in the pipeline, likely to be future growth drivers for the company.
The company sold its four over the counter brands to Johnson & Johnson for Rs 215 crore. These brands had combined sales of Rs 60 crore.
The government plans to increase the number of drugs under price control from 74 to 354 based on WHO list of essential drugs. Also, one of Pfizer's key raw materials, Codeine Phosphate, is in short supply. These developments may affect sales and profitability of the company going forward.
The company is expected to report CAGR of 7 per cent in net sales and 14 per cent in net profit over FY07-09E. EBIDTA margins are likely to improve from 22.5 per cent in FY07 to 24.7 per cent in FY09 due to restructuring and new product launches. At Rs 551, the stock trades at 9.8x FY09E EPS of Rs 56.3. Maintain Buy.
India Cements
Reco price: Rs 137
Current market price: Rs 124.80
Downside: N.A.
Brokerage: Edelweiss Securities
India Cements is a leading cement player in South India with close to 92 per cent of its FY08 dispatches being in that region. The company has seven plants with current installed capacity of about 9.9 mtpa.
India Cements' Q4FY08 results were below expectations as staff, freight, and other expenses maintained their upward bias. Affected by higher costs and muted realisation increase, EBITDA margin came off 200bps Q-o-Q to 31 per cent.
The company recorded extra-ordinary loss of Rs 48.1 crore on one-time settlement with lenders. While India Cements is likely to end FY09E with an installed capacity of 14 mtpa, bulk of the expansion is expected to come on-stream only by Q4FY09E. There is a two-quarter delay (approximately) from the initial timelines guided by the company.
The outlook for the sector remains negative as supply influx will curtail pricing power of cement companies. India Cements' core earning is likely to come off by about 27 per cent in FY10E vis-