Crompton Greaves: capex rebound boosts

ANALYSTS' CORNER

Sharekhan.com has given a buy call on Crompton Greaves with a target price of Rs 770. The report states that the rebound in the country's industrial capacity expansion cycle coupled with the Accelerated Power Development and Reform Programme (APDRP) initiative are expected to drive the revenues of both the power and industrial system divisions.

The company has a diversified product range that covers power systems, industrial systems and consumer products. Moreover, the acquisition of Pauwels, one of world's leading producers of three-phase transformers, will boost the earnings of Crompton.

It gives Crompton a presence in the tough-to-penetrate European markets and complements Crompton's existing range of transformers.

The report adds, "Our earnings estimates (inclusive of the benefits flowing from Pauwels) for FY2006 and FY2007 stand at Rs 35.4 and Rs 51.3 per share, respectively. At Rs 617, the stock is trading at P/E of 15.7x FY2007E."

NTPC: one notch down

Asia Pacific Equity Research has downgraded NTPC to neutral from the previous rating of overweight. This is in line with the sector downgrade as reform delays are a big negative.

The report adds, "The four per cent rebate on the 8.5 per cent coupon OTS bonds expires in March '06, which implies lesser incentive for state electricity boards to pay on time. We believe the rebate may be extended, which means earnings cut for NTPC. One per cent rebate impacts FY07 earnings by two per cent. The bonds are scheduled for repayment in October '06, and any refinancing proposal may be negative for investor sentiment."

But NTPC's immediate expansion projects are on track despite recent concerns about fuel options. The company's proactive approach in terms of captive coal mining plans are positive.

The report forecasts a two-year CAGR of nine per cent for earnings in FY05-07E. However, coal shortages and gas availability can impact existing operations and may delay new projects planned.

Current P/E at around 15x is not cheap for 10 per cent medium-term earnings growth, and 2.5 per cent dividend yield offers little support.

IDFC: reaping core sector boom

Motilal Oswal recommends a buy on Infrastructure Development and Finance Co (IDFC). It plays on the explosive growth anticipated in infrastructure development in the country.

The only specialised lender for infrastructure development in the country, IDFC is also endowed with a pedigree in quality lending. High capital adequacy would enable IDFC to grow its loan book aggressively and would enable RoE expansion.

The report adds, "Sectors such as power, transportation and telecom are witnessing strong momentum. We estimate a robust 50 per cent expansion in IDFC's loan book in FY06. The scope of IDFC's activities is not restricted to infrastructure lending. It has developed domain expertise in various financing activities and fee-based services, the revenues from which are increasingly augmenting its interest income. IDFC has a strong due diligence process, which is also used by other banks for financing infrastructure projects."