Aban Offshore
Reco price: Rs 703
Current market price: Rs 762.50
Target price: Rs 693
Downside: 9.1%
Brokerage: Edelweiss Securities
Day rates for Aban Offshore's (Aban) rigs that are on short-term contracts are likely to ease in line with the lacklustre jack-up industry outlook. Jack-up day rates are expected to ease 18-19 per cent year-on-year (y-o-y) in both CY09 and CY10 on the back of lower jack-up demand and a significant supply coming on-stream in CY08-10.
Weak demand due to low commodity prices and short-term contracts in the Singapore arm, Aban Singapore, could lead to its assets being renewed at lower rates. This is significant considering that Aban Singapore is expected to be a lead contributor to earnings at approximately 65-70 per cent of total EBITDA in FY09-10E.
Aban's order book (September 2008 onwards) totals $2.8 billion. While a weak rupee will partly aid Aban's dollar-denominated earnings, revaluation/part repayment of its dollar-denominated loan liabilities (close to $2.3 billion) could expand the rupee-denominated debt and potentially result in unrealised/realised currency translation losses.
Global drillers' comparative multiples like EV/EBITDA (at 3.2x two year forward) and P/BV (at 0.7x two year forward), have shrunk on the back of low crude prices and economic weakness. As risks outweigh Aban's growth story, the brokerage has put a 'reduce' recommendation on the stock with a price target of Rs 693.
Indo Tech Transformers
Reco price: Rs 278
Current market price: Rs 288.10
Target price: N.A.
Brokerage: Religare Hichens, Harrison & Co
Prolec-GE, a joint venture between GE and Mexican group Xignux, has signed a share purchase agreement with the promoters of Indotech Transformers to acquire the latter’s entire 54.35 per cent (5.7 million shares) stake at Rs 406 per share. Prolec-GE has also announced an open offer to acquire a further 20 per cent in Indo Tech at Rs 406 per share.
In addition, it has signed a non-competing clause valid for three years with Rs 45 crore as compensation to the promoters. Including the non-competing clause, the pricing of the deal rises to Rs 480 per share.
The entry of Prolec-GE into the Indian markets reiterates the long-term growth potential of the industry. The brokerage suggests the investors to hold the stock and tender it during the open offer.
Even if the price was to fall to Rs 175 (4xFY09E earnings), the average value would be close to the current market price of Rs 278 (assuming an acceptance ratio of 43 per cent), making it worthwhile to wait for the open offer. However, if the stock rises close to Rs 320, investors should start selling in the market as the average for the open offer and current market price works out to Rs 333.
Torrent Pharmaceuticals
Reco price: Rs 122
Current market price: Rs 124
Target price: Rs 222
Upside: 79.0%
Brokerage: Kotak Securities
Torrent Pharmaceuticals expects the growth momentum in the Brazilian markets to continue in the near-to-medium term, led by improved sales force productivity and new product launches. TPL has a strong product development pipeline for the Brazilian and other Latin American markets.
TPL, so far, has filed 16 ANDAs and 10 DMFs with the USFDA as part of its US product pipeline and has received approval for five ANDAs. It has around 35 ANDA under development pipeline.
As per the long-term contract manufacturing and supply agreement, TPL supplies insulin to Denmark based Novo Nordisk. In FY08, revenues from the contract manufacturing segment grew by 25.8 per cent to Rs 149 crore (11 per cent of total sales). The company has increased insulin capacities at an investment of around Rs 40 crore.
This business is expected to do well and provide constant cash flow to the company. In order to support the strong growth in the domestic and similar markets, the company is setting up new manufacturing units in Baddi and Sikkim. The company will get fiscal benefits in the form of excise and income tax exemption for ten years. At Rs 122, the stock is trading at 5.5xFY09E and 4.9xFY10E earnings. Maintain accumulate.
Tata Consultancy Services
Reco price: Rs 541
Current market price: Rs 482.25
Target price: N.A.
Brokerage: Ambit Capital
During the last quarter, Tata Consultancy Services (TCS) was pursuing about 20 deals. Some of these deals have been converted during the third quarter. However, the velocity of the deal conversion is slower. TCS’ hiring for FY09 is still intact. The company has offered about 25,000 offers for FY10. The company is operating at 81.1 per cent of employee utilisation (excluding trainee) levels and further scope to improve the utilisation rates remains limited. And hence, maintaining the EBIDTA margins will be a key challenge.
TCS had an exposure of 42 per cent to the BFSI domain in Q2FY09. BFSI reported a sequential growth of about 2 per cent in Q2FY09 after reporting a sequential decline of 2.6 per cent in Q1FY09. Last quarter growth (in BFSI) was on the back of business from Tier-II and Tier-III BFSI clients. However, credit card defaults and other problems can lead to further deterioration of these institutions. The dollar has appreciated against the pound by nearly 21 per cent quarter-to-date (QTD) and against euro by close to 14 per cent (QTD). This will lead the dollar revenue reporting to be lower than expectations. At Rs 541, the stock is trading at 8.9xFY09E and 9.3xFY10E earnings. Maintain sell.
OnMobile Global
Reco price: Rs 204
Current market price: Rs 221.95
Target price: Rs 234
Upside: 5.43%
Brokerage: Asit C Mehta
At the core of OnMobile Global (OGL) offering to telecom operators is a platform named MMP 2500, which allows service providers to deliver various applications across multiple delivery modes such as SMS, MMS, etc. OGL had been pursuing the acquisition strategy to strengthen its product portfolio (Voxmobili) and for enhancing its underlying technology platforms (Telisma). With majority of future growth expected from rural areas, OGL’s competitive strengths lies in its initiative to develop new speech recognition language models.
The company has capex plans of Rs 60 crore for FY09 to be spent majorly on computer and electronic equipment in order to enable value added service (VAS) applications. OGL’s healthy cash flows and unleveraged balance sheet would enable its capex to be at 20 per cent of the total revenues going forward.
GL’s revenues are expected to grow at 42 per cent CAGR during FY08-10 on the back of rapid subscriber growth in the telecom industry along with the increased penetration of VAS. At Rs 234, the stock will be trading at P/BV of 2.2xFY10E estimates, which is in line with its foreign peers. ‘Buy at declines’.
Current market price as on December 12, 2008.
