Suzlon Energy
Reco price: Rs 57
Current market price: Rs 64.55
Target price: Rs88
Upside: 36.3%
Brokerage: Kotak Securities
Suzlon Energy’s German subsidiary, REpower Systems Group (REpower) and RWE Innogy have signed a Memorandum of Understanding (MoU), which provides for the negotiation of framework agreements with a volume of up to 1,900 megawatts. The wind turbines would be manufactured and delivered by REpower within a timeframe of 4 to 6 years, beginning on January 1, 2010. REpower is one of the leading turbine producers in the German wind energy sector with a market share in excess of 10 per cent. Suzlon currently holds about 68 per cent in Repower. After staggered purchase of Martifer’s 22 per cent stake in REpower, Suzlon’s stake would rise to almost 91 per cent.
Despite the global credit squeeze, Repower’s order backlog in MW terms has increased by 17.3 per cent y-o-y in H1, FY09 (April-September 2008). Order visibility stands at close to 17 months of annualised revenues. In the US market, data indicates that Suzlon has seen some slip-up in its market share. The company is putting its strategy to regain its market share. The company sees a good market potential for its V3 S88 turbines in the US market. The stock is trading at 7.1xFY09E and 8.3xFY10E earnings, respectively. Maintain accumulate.
Cipla
Reco price: Rs 187
Current market price: Rs 191.5
Target price: Rs 165
Downside: 13.8%
Brokerage: ICICI Securities
Cipla’s H1, FY09 performance was disappointing with net profit declining 6 per cent y-o-y to Rs 291.5 crore despite a 40 per cent y-o-y surge in exports, which resulted in a 28 per cent rise in revenues. This was primarily due to a heavy forex loss of Rs 179 crore. The company appears to be in no position to achieve its FY09 guidance of 12-15 per cent y-o-y growth in both, sales and net profits. Cipla’s SEZ in Goa, in which the company has invested Rs 150 crore so far, is facing uncertain times, with the Goa government scraping all SEZs in the state.
Cipla’s partnership model for the US generics market did work reasonably well in the beginning. However, the wave of mergers and acquisitions in the global generics market (for example, Cipla’s top partner, IVAX Labs, was acquired by Teva in 2005) and the entry of many mid-size Indian pharmaceutical companies created additional competition, resulting in declining margin for Cipla since FY06. Consequently, the company decided to file ANDAs on its own and has received approval for six ANDAs in the past 15 months. However, Cipla would be at a disadvantage versus top-tier companies such as Sun Pharmaceutical, Dr Reddy’s and Glenmark that never followed partnership model. The stock appears fully priced at FY10E P/E of 17x. Maintain hold.
Bank of Baroda
Reco price: Rs 275
Current market price: Rs 287
Target price: Rs 361
Upside: 25.8%
Brokerage: Sharekhan
Bank of Baroda (BoB) plans to sell non-performing assets (NPAs) worth Rs 300 crore to an asset reconstruction company during FY09. This is a welcome move by BoB, in the light of likely deterioration in asset quality of banks over the coming quarters. In terms of size, Rs 300 crore worth of NPAs forms about 13 per cent of the estimated gross NPAs for FY09. BoB expects to maintain a net interest margin of 2.87 per cent for FY09, a contraction of three basis points from 2.9 per cent, reported for FY08.
In line with the anticipated economic slowdown ahead, the outlook for credit demand in FY10 has definitely weakened. However, in immediate term, the credit demand has been robust, as alternative sources of finance (external commercial borrowing, foreign currency convertible bonds, etc) have dried up, which has led to higher reliance on domestic banks. The significant cooling off in g-sec yields should allow the bank to reverse major part of MTM losses incurred in H1, FY09 (Rs 338 crore). BoB’s advances are expected to grow about 33 per cent year-on-year (y-o-y) in Q3FY09, leading to a bottom line growth of 28.7 per cent y-o-y to Rs 645 crore. At Rs 275, the stock trades at 5.9xFY09E earnings and 0.9xFY09E book value. Maintain buy.
Gateway Distriparks
Reco price: Rs 82
Current market price: Rs 87
Target price: Rs 105
Upside: 19.6%
Brokerage: SBICAP Securities
Gateway Distriparks (GDL) has the largest port-based container freight station capacity among private players in India. With containerisation low in the country, GDL has a location advantage with its container freight stations present at key ports, including JNPT and Chennai (together they handle more than 80 per cent of India’s containerised trade). In 2006, GDL acquired 50.1 per cent stake in Snowman Frozen Foods, with a capacity of around 10,000 pallets, for Rs 48 crore. The company is expected to invest around Rs 700 crore on network development (inland container depot/container freight station), purchasing rakes for its haulage business and expanding cold chain business over the next 30 months. This would enable GDL to provide an inter-modal end-to-end solution to the customer in a more seamless fashion.
GDL’s earnings are expected to grow at a CAGR of 24 per cent over FY09-11E. The stock is currently trading at a one-year forward P/E of 9x as compared to its historical average of 21x. The brokerage feels that GDL’s current dividend yield of around 4 per cent, capex plan (with debt-equity ratio at 0.3xFY09E) and the recently announced share buy-back program (at a maximum price of Rs 110) should act as valuation support. Initiate coverage with a ‘buy’ rating.
Nava Bharat Ventures
Reco price: Rs 118
Current market price: Rs 128
Target price: Rs 171
Upside: 33.1%
Brokerage: Religare Hichens, Harrison & Co
Nava Bharat Ventures (NBVL) has approved a buyback at a price not exceeding Rs 170 per share. The aggregate amount to be spent will not exceed Rs 50 crore. NBVL’s revenue has grown at a CAGR of 43 per cent and earnings at a CAGR of 133 per cent over FY06-FY08. It has improved its operating margins from 16 per cent to 45 per cent during this period due to strong growth in ferro alloy prices, coupled with increasing power capacity and improved operational efficiencies. With a sharp drop in ferro alloy prices, NBVL has increased its merchant power sales volume.
It targets to sell 120 MW of power in the current year with the addition of the 20 MW cogen plant commissioned in December 2008. The company plans to set up another 64 MW power plant at the existing location in Orissa using domestic coal and 2x135 MW power plants in Andhra Pradesh using imported coal, thus increasing its current capacity of 237 MW. The diversified nature of operations with an ability to alter the revenue mix makes it a relatively safer bet. The stock is currently trading at a P/E of 2.3x and an EV/EBITDA of 2x FY10E earnings.
Current market price as on January 2, 2009
