Everonn Systems
Reco price: Rs 374.00
Current market price: Rs 363.20
Target price: Rs 415.00
Upside: 14.5%
Brokerage: Angel Broking
The consolidated revenues of Everonn grew by a decent 15.9 per cent y-o-y in March 2009 quarter to Rs 35.8 crore, driven by the Virtual Technology-Enabled Learning Solutions (ViTELS) business. The total number of points of presence (POPs or schools and colleges) grew to 1,357 as compared with 410 at the end of March 2008, reflecting strong demand.
However, its ICT business disappointed, with no new schools added during the March quarter (total remained constant at 4,442), which is also below the guidance of 5,500 schools. Higher operating costs hammered down margins to 29 per cent as against 42.9 per cent in March 2008 quarter, which along with higher depreciation and interest costs led to a 30 per cent decline in net profit.
The brokerage expects ESIL to record CAGRs of 40 per cent and 38 per cent in revenues and net profit respectively, over FY 2009-11 with the ViTELS business (CAGR of 57 per cent) expected to remain the key contributor. At Rs 374, the stock is trading at 14.4x FY2011E EPS. Given the recent run-up in the stock price, Angel has downgraded it to Accumulate from Buy.
ICICI Bank
Reco price: Rs 733.00
Current market price: Rs 703.85
Target price: Rs 781.00
Downside: 11.0%
Brokerage: Sharekhan
ICICI Bank’s loan book growth has decelerated sharply in the last three years with 2008-09 marking the first instance of contraction. This is on account of the slowdown in the high-yielding retail segment, which is due to the weakening demand and the bank’s aim to re-balance the loan portfolio.
While the momentum in low-cost CASA growth did not happen in 2008-09, a major part of the liabilities should get repriced at lower rates and help improve margins. The downsizing of its work force by 15 per cent and reduced reliance on direct marketing agents during 2008-09, coul lead to an improvement in productivity.
While the emergence of green shoots at the macro level is encouraging from the asset quality perspective, ICICI Bank is likely to face tough challenges in managing its credit quality.
Positively, there was a significant decline in the off balance sheet items due to a reduction in the bank’s exposure towards interest rate swaps, currency futures and interest rate futures. There has been a marked change in the management’s stance on growth post elections—from a largely flattish growth to an expansion of 15-20 per cent in the balance sheet led by housing, corporate and car loan segments.
At Rs 733, the stock trades at 1.5x its book value based on 2010-11 estimates. While maintaining its earnings estimates, Sharekhan has revised the price target to Rs 781 and maintains Hold.
Indian Hotels
Reco price: Rs 75.40
Current market price: Rs 60.55
Target price: Rs 62.00
Downside: NA
Brokerage: Citi Investment Research
Indian Hotels’ 2008-09 performance was much below estimates with standalone PAT declining 27 per cent y-o-y due to lower occupancy and average room rents. The consolidated PAT was down 84 per cent y-o-y due to mounting losses from international properties and higher costs, despite recognition of an Rs 85.5 crore insurance claim and forex translation losses of Rs 46.5 crore.
Although some pickup in occupancy is expected in the second half of 2009-10 and the reopening of ‘The Pierre’ in August 2009 should lower losses, room rents may remain muted. For April 2009, revenue per available room (across 10 cities) is estimated to be down 42 per cent.
Among major headwinds, the high debt of Rs 4,600 crore (debt-equity of 1.4) and longer payback from new hotels, including the recent acquisition of erstwhile Sea Rock hotel for Rs 680 crore, should add to the pressures. While Indian Hotels is the best hotel play, the decline in revenue per room will lead to dismal earnings over the next two quarters. The stock has outperformed by 23 per cent over last three months. Citi has downgraded the stock to sell, even as it has raised the target price to Rs 62 (from Rs 47).
Jubilant Organosys
Reco price: Rs 169.00
Current market price: Rs 162.30
Target price: Rs 212.00
Downside: 30.6%
Brokerage: India Infoline
Jubilant is increasing focus on regulated markets of US, EU and Japan, which currently contributes about 65 per cent of its Pharma and Life-science revenues and have registered 70 per cent CAGR over the last five years. Jubilant expects the proprietary products business to register 38 per cent CAGR over the next five years, and API/generics business to register 25 per cent CAGR over a four year period.
Jubilant’s consolidated debt as on 31 May 2009 was Rs 3,480 crore, including FCCBs of Rs 900 crore. Of the FCCBs, Rs 234 crore is due for repayment in May 2010 and balance in May 2011. The management said it can repay the first tranche entirely from internal accruals, and the second one partly from internal accruals and partly through refinancing.
The company may also divest its polymer business, which would help reduce debt levels. Jubilant reiterated its 2009-10 guidance—revenue growth of 15 per cent and EBITDA growth of 30 per cent. Jubilant’s valuations are attractive and the easing of credit markets and cash conservation policies adopted by the company (scaling down of capex) has alleviated the risk of default on debt. Maintain Buy.
Power Grid Corporation
Reco price: Rs 122.00
Current market price: Rs 110.05
Target price: NA
Upside: NA
Brokerage: Edelweiss Securities
Power Grid’s (PGCIL) adjusted profit after tax (PAT) for 2008-09 stood at Rs 1,727 crore, against the estimated of Rs 1,714 crore. The company’s efforts to leverage its power assets as telecom towers have not scaled up. Though telecom revenues increased 22 per cent year-on-year (y-o-y) to Rs 153 crore, losses increased 79 per cent to Rs 32.1 crore. Consultancy revenues also dipped (14 per cent to Rs 218 crore), while earnings before interest and tax (EBIT) was down 37 per cent to Rs 102 crore.
PGCIL commissioned assets of only Rs 1,000 crore in March 2009 quarter (Rs 3,800 crore in 2008-09), which is low. It has planned a capex of Rs 55,000 crore over FY08-12. Till date it has spent Rs 14,100 crore (Rs 8,100 crore in 2008-09) and plans to spend the balance over FY10-12. Edelweiss believes that PGCIL will not be able to incur a capex of more than Rs 16,500 crore in FY10-12 assuming 70:30 debt-equity.
While the company could choose to meet the capex target through 80:20 debt-equity ratio, its earnings are unlikely to increase as they are pegged at the project equity level. So, unless PGCIL resorts to fund-raising it is unlikely to meet its ambitious capex target for the Eleventh Plan. At Rs 122, the stock is trading at 3.1x FY10 and 2.7x FY11 book value, respectively. Maintain Reduce due to its rich valuations.
Current market price as on June 18, 2009
