SESA GOA
Reco price: Rs 404
Current market price: Rs 410.95
Target price: Rs 344
Downside: 16.3%
Brokerage: Angel Broking
The government has re-introduced a 5 per cent export tax on iron ore fines and doubled the duty on iron ore lumps to 10 per cent. Last year, it had withdrawn the duties on iron ore fines on account of the sharp dip in iron ore prices; however, it had retained a 5 per cent levy on lumps. A pick-up in iron ore exports (up 21 per cent year-on-year to 53.2 million tonnes in April-October 2009) and improved export realisations (by over 70 per cent since April) prompted the government to raise the iron ore duties.
Sesa exports 90-95 per cent of its iron ore output. The brokerage expects Sesa’s 2009-10 and 2010-11 EPS to be negatively impacted by 3.3 per cent and 8.5 per cent, respectively. It has introduced 2011-12 estimates for Sesa and expects iron ore realisations to increase by 21.5 per cent (earlier 10 per cent) in 2010-11 and by 10 per cent in 2011-12, on the back of strong Chinese demand. Iron ore pricing negotiations are expected to start early next year (reports suggest a 20-30 per cent hike). But, considering what happened last year, it is difficult to predict whether China will accept the price hike.
At Rs 404, the stock is trading at 6.7 times 2011-12 estimated EV/EBITDA. The brokerage has recommended a ‘sell’ on the stock. At its target price of Rs 304, it will trade at 6 times 2011-12 estimated EV/EBITDA, which is at the higher end of its historic trading range.
INDIABULLS REAL ESTATE
Reco price: Rs 218
Current market price: Rs 220.20
Target price: Rs 259
Upside: 17.6%
Brokerage: ICICI Securities
The developments in Indiabulls Property Investment Trust (IPIT) and new project launches look inspiring. Total saleable area of IPIT has increased from 5 million square feet (MSF) to 6.3 MSF owing to change in FSI. It has 2 MSF of constructed office space, of which 0.9 MSF has been leased and another 0.3 MSF is expected to be leased in March 2010 quarter. The management expects new leases to be done at Rs 185-190 per square feet, up from Rs 175 earlier.
The brokerage believes that IPIT is undervalued and estimates its equity value at Rs 6,000 crore or Singapore dollar $0.50 per unit (currently trading at $0.26). In 2009-10, Indiabulls Real Estate (IBREL) launched about 20 MSF of residential projects, including in Mumbai (9 MSF). Of the total, 2 MSF has already been sold (including 0.5 MSF in IPIT). IBREL recently raised Rs 2,700 crore through a QIP, which is yet to be deployed. The company is looking at strategic, big-ticket land-banks, particularly in Navi Mumbai, Dharavi and Mantralaya projects.
Since the stocks’ downgrade by the brokerage on July 31, 2009, it has underperformed the broader markets by 25 per cent. However, given the increase in saleable area at IPIT, pick-up in residential sales and bottoming of commercial lease rentals, it is upgrading the stock to ‘buy’ with target price of Rs 259 per share.
TRANSPORT CORPORATION OF INDIA
Reco price: Rs 90
Current market price: Rs 89.75
Target price: Rs 100
Upside: 11.4%
Brokerage: Kotak Securities
Transport Corporation of India (TCI) has formed a strategy to cross sell its services through its five divisions. Each division would cross market services and provide single point logistics solutions to its clients. This is expected to increase business for TCI, going ahead. Based on its JV experience with Mitsui (Transystem Logistics International), TCI has been able to replicate the model and deliver efficient supply chain solutions (SCS) to industries like FMCG, retail and automobiles.
SCS is expected to grow at 30-35 per cent and the segment’s profitability is better than the overall business. TCI plans to increase its warehouse space from 8 MSF currently to 10 MSF by March 2011. About 15 per cent of the warehouse space is owned by TCI and rest is leased. In the real estate business, it is looking at jointly developing properties (at Delhi, Chennai, Bangalore, etc) for construction of residential and commercial space.
The implementation of GST could also bring in additional business through higher outsourcing of logistics activities to the third party logistics players like TCI. At Rs 90, the stock is trading at 1.7 times book value, 12.8 times earnings and 7.3 times cash earnings based on 2010-11 estimated numbers earnings. Maintain ‘accumulate’.
HSIL
Reco price: Rs 61.25
Current market price: Rs 72.10
Target price: Rs 74
Upside: 2.6%
Brokerage: HDFC Securities
HSIL, earlier known as Hindustan Sanitaryware & Industries, enjoys a 40 per cent market share in the organised sanitary-ware industry. HSIL has increased its portfolio by adding more products in its bathroom and kitchen appliances products; it launched around 150 new products last year, of which, 60 per cent was in the premium category. Further, it has also started to venture into marketing and distribution of imported products to capitalise on its existing brand and distribution network. Besides, HSIL plans to increase its existing capacity by installing another kiln at its Bahadurgarh plant at a cost of about Rs 15-20 crore.
HSIL is expected to deliver revenue growth of 20.2 per cent and 23.7 per cent in 2009-10 and 2010-11, respectively on the back of enhanced product portfolio, increased demand and capacity utilisation. Its EBIDTA margins could stabilise in the 17-18 per cent range. However, higher depreciation and interest costs could be an over-hang. In 2009-10, HSIL’s PAT is expected to remain flat while in 2010-11, the same could increase by 29.1 per cent. Being an industry leader, HSIL is well positioned in the north as well as south to tap potential demand and is expected to grow faster than the industry. At Rs 61.25, the stock is trading at 8.2 times its 2010-11 EPS of Rs 7.5.
OM METALS INFRAPROJECTS
Reco price: Rs 30
Current market price: Rs 31.50
Target price: Rs 39
Upside: 23.8%
Brokerage: SBICAP Securities
Om Metals Infraprojects is the largest hydro-mechanical equipment supplier in India with a market share of over 60 per cent. The company presently has an order book of Rs 636 crore, which is 3.5 times first half 2009-10 annualised sales and is expected to be completed in next 3 years. This provides substantial medium-term revenue visibility. In addition, the company has submitted bids for more projects, which are expected to take the total order book to over Rs 800 crore by 2009-10.
The company has recently forayed into the infrastructure segment by winning two contracts for the development of a port and a multi-product SEZ, both in Pondicherry. The SEZ project is spread over 860 acres and the company has a 20 per cent stake in it. It has a 50 per cent stake in the port project, which is to be developed in next 5-6 years. Both projects are expected to be developed through separate SPV's.
Further, there is potential to unlock value from its saleable land-bank (1.5 MSF) situated at Hyderabad, Jaipur, Mumbai, Faridabad and Kota. The stock is trading at 5.3 times its core 2010-11 estimated earnings. Maintain ‘buy’.
Current market prices as on December 30
