Esab India
Reco price: Rs 588
Current market price: Rs 590.80
Target price: Rs 672
Upside: 13.7%
Brokerage: Sharekhan
For the December 2009 quarter, Esab posted a 60 per cent year-on-year rise in net profit at Rs 14.7 crore as against Sharekhan’s estimate of Rs 11.4 crore. The performance was achieved mainly on the back of higher than estimated revenues and margin during the quarter. Its net sales improved by 15.1 per cent to Rs 105.7 crore. OPMs expanded by 652 basis points to 22.3 per cent, mainly due to a decline in the raw material cost. Due to a healthy growth in sales coupled with the margin expansion, net profits increased sharply.
The demand for Esab’s products depends on the domestic infrastructure activity. Sharekhan expects the business environment to improve considerably in line with the strong focus on infrastructure development. The company’s international parentage provides it a significant technological edge.
Esab would be able to post a 14 per cent CAGR in its profits over CY2009-11. In view of the company’s strong balance sheet, high RoE and dividend yield, Sharekhan maintains a buy with a revised price target of Rs 672 (valuing it at 12 times CY2011 estimated earnings).
Hindustan National Glass & Industries
Fair value: Rs 314
Current market price: Rs 258.35
Fundamental grading: 4/5
Valuation grading: 5/5
Research house: CRISIL Equities
Hindustan National Glass & Industries (HNGIL) is the leading player in the domestic glass container industry with a 65 per cent market share. It has a capacity of 2,760 tonnes per day (TPD). HNGIL has a strong and well-diversified client base, which includes United Spirits, SAB Miller, Pfizer, Nestle, Coca-Cola, etc.
CRISIL Equities expects the demand for glass containers to be driven by healthy growth of its user industries – liquor, beer, pharmaceuticals, foods and carbonated drinks. HNGIL is well poised to capitalise on this growth given its market leadership and competitive advantages – economies of scale, multiple locations, superior technology and strong client interdependence.
HNGIL has also forayed into float glass business through an associate company, where it has a 36 per cent stake. The company has put up a capacity of 600 TPD, which it plans to expand by another 800 TPD in the next 2-3 years.
CRISIL Equities expects HNGIL’s revenues to grow at a CAGR of 13.1 per cent to reach Rs 1,960 crore in 2011-12. EBITDA margins are expected to increase significantly from 20.0 per cent in 2008-09 to 25.5 per cent in 2011-12 due to process improvement. PAT (adjusted) is expected to increase at a CAGR of 18.6 per cent from Rs 120 crore to Rs 200 crore by 2011-12.
CRISIL Equities has assigned a fundamental value of Rs 314 per share which translates into a valuation grade of 5/5 indicating ‘strong upside’ from Rs 240 level.
Punj Lloyd
Reco price: Rs 181
Current market price: Rs 185.30
Target price: Rs 196
Upside: 5.8%
Brokerage: Religare Hichens Harrison
UK-based Ensus has sought £23.1 million (Rs 170 crore) as liquidation damages from Punj Lloyd’s (PLL) 100 per cent subsidiary, Simon Carves, due to late completion of its bioethanol project. PLL has already booked a loss of Rs 300 crore on this contract in the nine months to December 2009. The order was booked by PLL after its acquisition of Simon Carves in 2006.
This apart, concerns persist over the ONGC’s Heera order worth $266 million booked in January 2007 and the slow progress of project execution in Libya. The project has recorded significant cost and time overruns due to design changes, increase in scope of work, and client-led delays in approving the revised design.
At the end of Q3FY10, PLL had an outstanding order book of Rs 23,400 crore, which is 1.7x FY10E revenues – the lowest in Religare’s construction universe. Order book quality remains a worry as 40 per cent of the outstanding orders represent projects in Libya, which are witnessing delays. The stock is trading at 14.2x FY11E earnings (ex-subsidiaries 12.8x). Religare maintains a sell rating on PLL considering the company’s recurring contractual losses and poor order book visibility.
GE Shipping
Reco price: Rs 286.90
Current market price: Rs 292.35
Target price: Rs 315.50
Upside: 7.9%
Brokerage: ICICI Direct
India’s largest largest private shipping company, Great Eastern Shipping Company (GE Shipping) is expanding its fleet size from the current 62 vessels to 74 vessels over the next two years. Its subsidiary company, Greatship, has a significant presence in the offshore segment with a fleet of 21 vessels, which is being scaled up to 27.
With new deliveries joining the fleet over the next two years, GE Shipping would be operating at peak capacity and its impact would be visible in the financial performance. Global freight rates are also showing signs of strength. Freight rates across vessel categories have moved upwards over the last fortnight. Baltic Dry Index has spiked up sharply recently to inch higher to the 3,121 level. With a rise in commodity demand (iron ore and coal) from China, bulk rates are expected to firm up even further.
After being weak in the first half of February, tanker rates have also recovered. As tanker/product carriers constitute the largest segment of GE Shipping (12 crude oil tankers and 19 product carriers), any firmness in tanker rates would be very beneficial. At the CMP of Rs 315.50, GE Shipping is trading at 5.2x FY12E earnings and 0.68x FY12E P/BV. Factoring in FY12E earnings, GE is trading at a discount to its fair value and is likely to get re-rated.
Dabur India
Reco price: Rs 169
Current market price: Rs 171
Target price: Rs 180
Upside: 5.2%
Brokerage: Religare Hichens Harrison
Dabur India (Dabur) offers one of the widest consumer portfolios after Hindustan Unilever, a heady mix of cash cows (hair oil and health supplements) and stars (foods, shampoo, skin care, international operations and toothpaste), a rich new product funnel and proven capabilities to manage inorganic growth.
While all these factors have culminated into 25 per cent plus earnings growth over the past five years, the stock has been rewarded with a sharp rerating (4x increase in market capitalisation against 2.5x for Sensex over FY05-10). Currently trading at 24x FY11E earnings, Dabur commands a 20 per cent valuation premium to peers, which makes it the costliest consumer stock after Nestle.
While the research firm remains upbeat on future growth momentum as Dabur extends its portfolio to capitalise on the rural consumption story and urban uptrading (foods, Fem Care, launch of Uveda, home care, etc), it believes that current valuations have already factor in the upside. With limited scope for business re-rating from here, the firm downgrade its recommendation on Dabur to neutral with a 12-month price target of Rs 180.
(Current market prices as on March 5)
