Mundra Port & SEZ
Reco price: Rs 494
Current market price: Rs 457.45
Target Price: Rs 716
Upside: 56.5%
Brokerage: Kotak Securities
Mundra Port and Special Economic Zone (Mundra) displayed robust operational performance in FY08, handling 1,624 vessels, up 42.7 per cent on year-on-year (y-o-y) basis. Similarly, cargo handled at the port by the company was up by 45.5 per cent y-o-y to 28.79 million metric tonne (mmt).
The textile park, created at Mundra’s SEZ, has already sold the allotted area (116.24 acres) to the technical textile, garments and terry towel units. A second textile park has also been conceptualised in the same SEZ. The company is also offering the required logistical and utility infrastructure for effective operation in SEZ units.
In view of the two mega-thermal power plants and other industries nearby, the company is setting up a dedicated coal handling terminal comprising of deep water offshore berths with stockyard and mechanisation. The company has entered into an agreement with Maruti Suzuki, which will involve export of cars out of India from Mundra port.
The company is adding loop-lines, doubling the railway link and enhancing the port road connectivity to measure up the increase in cargo at the port. Mundra port is estimated to handle 100 mmt by FY14. At Rs 494, the stock trades at 5.8x BV and 33.1x EPS based on FY10E earnings. The SOTP price target for the stock is Rs 716. Maintain Buy.
Tata Chemicals
Reco price: Rs 268
Current market price: Rs 276.10
Target Price: Rs 319
Upside: 15.5%
Brokerage: Emkay Global Financial Services
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Tata Chemicals (TCL) failed to cash in on the sharp rally in soda ash spot prices (up about 42 per cent in FY08) as 89 per cent of its soda ash sales volume was on long term contract.
And now, with soda ash prices expected to soften on the back of demand slowdown from China, increased capacities and overall correction in commodities, probability of TCL benefiting through price hikes in contract renewals seem bleak.
Rising interest burden, sharp depreciation in rupee vis-à-vis the US dollar, weak global equity markets (where company has parked its pension fund liabilities) and possibility of fertiliser subsidy payments in bonds are key near term concerns for the company.
However, improvement in fertiliser business due to increase in urea capacity and increased profitability of Morocco-based chemical company, Indo Maroc Phosphore (in which TCL holds 33 per cent stake) is likely to remain a big positive driver in the near future. The brokerage has revised TCL’s earnings estimates downward by 12.4 per cent and 16.4 per cent for FY09E and FY10E, respectively. It has recommended a Hold, with a revised price target of Rs 319 as against Rs 466 earlier.
Nagarjuna Construction Company
Reco price: Rs 133
Current market price: Rs 115.60
Target Price: Rs 154
Upside: 33.2%
Brokerage: Angel Broking
Nagarjuna Construction Company (NCC) is set to emerge as a diversified infrastructure player with special purpose vehicles (SPV) and real estate. It is also foraying into the metals, oil & gas and power sectors. It has a strong order book of Rs 14,500 crore. High commodity prices, land acquisition issues leading to delays in execution are some concerns that the company faces.
NCC was expected to receive cash inflow to the tune of Rs 261 crore through warrants. NCC had allotted 25 lakh warrants (at Rs 217/share) in February 2007, to the promoters. In view of this, promoters paid 10 per cent upfront and subsequently failed to pay the remaining 90 per cent, leading the warrants to lapse.
There are good chances that the warrants issued to Blackstone (91 lakh warrants at Rs 225/share) in August 2007, also stand cancelled as they haven’t been converted so far and the approval from FIPB is still pending.
Thus, the company will go for higher debt instead of equity dilution. This can negatively impact earnings on account of prevailing high interest rate regime. The brokerage has pruned earnings estimates and EPS has been revised to Rs 7.5 (earlier Rs 8.6) and Rs 9.5 (earlier Rs 12.5) for FY09E and FY10E, respectively. The price target for the stock has been thereby reduced from Rs 189 to Rs 154.
Zee News
Reco price: Rs 45
Current market price: Rs 45.55
Target Price: N.A.
Brokerage: Edelweiss Securities
Regional media is expected to grow faster than the overall advertisement industry’s growth rate of 20 per cent (as per FICCI-PwC) and Zee News (ZNL) will be one of the key beneficiaries of this. ZNL has an attractive bouquet of 10 channels in regional and news genres. Both these genres, which form 44 per cent of the entire TV viewership and 37 per cent of the total ad pie, are currently witnessing an increasing viewership share. Zee Marathi and Zee Bangla have made substantial viewership gains and hold No.1 position in their respective markets. Also, the company’s new launches, namely Zee Telugu (GRP up 97.5 per cent y-o-y) and Zee Kannada (GRP up 200 per cent y-o-y) have garnered good market shares.
ZNL plans to invest Rs 500 crore in a slew of channels over the next three years to expand its presence in regional markets and new segments. The company is in the process of applying to the Information and Broadcasting Ministry for clearance to operate a Bengali movie channel. ZNL is also planning to launch an English business and a global news channel. ZNL’s ad revenues are expected to grow at a CAGR of 29.4 per cent over FY08-10E. ZNL is currently trading at a P/E of 20.2x FY09E and 14.8x FY10E, which is the lower end of its historic trading band. Recommend Buy.
Aban Offshore
Reco price: Rs 2,394
Current market price: Rs 2,460.45
Target price: Rs 3,569
Upside: 45.1%
Brokerage: Sharekhan
The capacity expansion in the jack-up rig market has led to increasing concerns of a fall in the utilisation rates and of a subsequent drop in the day rates. The demand-supply situation in the jack-up rig market is expected to remain tight going forward and the high utilisation level of over 90 per cent for the jack-up rigs is likely to be sustained.
Aban Offshore is expecting big order wins from the Iranian market, where the tender process is still going on. Aban would like to increase its presence in the deepwater segment and might either acquire new assets or a company that has ordered such deepwater assets, once these assets shave off their high premium.
The company's drilling rig, Aban Abraham has started undergoing sea trials and is likely to be deployed next month. The company has also signed an agreement for the deployment of the semi-submersible rig, Aban Pearl Offshore in Latin America for five years.
The contract is expected to start from the third quarter of FY09 with estimated revenues of Rs 3,150 crore. It plans to list Aban Singapore, the timing of the listing is not confirmed as of know. The brokerage feels that the concerns regarding Aban have been overdone and the stock is available at compelling valuations of 4.9x FY10E earnings.
Current market price as on September 19, 2008.