Analysts' corner

RESEARCH CALLS

Firstsource Solutions
Reco price: Rs 79
Market price: Rs 74.60
Target price: Rs 97
Broking firm: Man Financial

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Man Financial put a "buy" on Firstsource Solutions, a pure play business process outsourcing (BPO) vendor. The company has delivered strong performance in the past and has a focused approach in key business verticals balanced across geographies. Due to the blended offshore-onsite mix, Firstsource enjoys a natural hedge which its competitors with an India-based delivery model may lack.

The company boasts of an attractive clientele, and has a privileged access to its stakeholder Metavante's business. Further, the company is eyeing acquisitions in overseas markets. Man Financial expects Firstsource's revenues, EBITDA and net profit to grow at a compounded rate of 39, 41 and 46 per cent over FY07-09E. At the target price of Rs 97, Firstsource is valued at 21.6 times estimated FY09 earnings.

Hero Honda
Reco price: Rs 660
Market price: Rs 630
Broking firm: Prabhudas Lilladher

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Rated "outperformer", Hero Honda's results were a dampener as its profits declined y-o-y over FY07. Rising commodity prices, mounting competition and cost hikes to usher in new-engine-technology products created margin pressures for the company. Prabhudas Lilladher believes that slowed down sales will gain momentum in the coming festival season again to a double-digit growth.

Further, in spite of major upheavals in the industry, the company has been able to maintain its market leadership with a 41.4 per cent share in the last three years. At Rs 660, the stock traded at 13.8 times and 10 times estimated FY08 and FY09 earnings per share of Rs 47.8 and Rs 66.2, respectively.

Jindal Drilling Industries
Reco price: Rs 754
Target price: Rs 1,056
Market price: Rs 755
Broking firm: Religare

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Jindal Drilling Industries offers good prospects as new rigs are being acquired and its pricing environment changes for better. The company offers varied services to oil exploration and production majors including offshore drilling, directional drilling and mud logging and derives 85 per cent of revenues from offshore drilling.

The company has plans to acquire new-build jack-up rigs through its Singapore-based subsidiaries for $35 million. These new rigs will start operation from the fourth quarter of FY09, and the company has already entered into a contract with ONGC for one rig at $148,000 a day for five years.

Due to strong crude prices which fuel higher price realisations in rigs and adding to the number of rigs, Religare expects Jindal Drilling's net sales increase at a 56 per cent CAGR over the next two years. At Rs 754, the stock is valued at 46.3 and 29.7 times estimated FY08 and FY09 earnings, respectively.

Bharat Forge
Reco price: Rs 275
Target price: Rs 416
Market price: Rs 263.60
Broking firm: Emkay Shares

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Bharat Forge delivered a strong export growth in the quarter ended June 2007 at about 32 per cent y-o-y despite the rising rupee. Further, even though the domestic commercial vehicle industry, which is the key growth driver for Bharat Forge-- remained subdued during the quarter, the company's domestic revenue grew 9 per cent y-o-y.

Exports to European Union markets almost doubled to Rs 93.3 crore compared to Rs 46.9 crore in the corresponding quarter previous year. On the other hand, US exports grew by 4.3 per cent y-o-y to Rs 122.3 crore, and Asia Pacific market witnessed growth of 37 per cent y-o-y to Rs 8.1 crore. Following a slowdown in the US business, the management expects a recovery in early 2008.

Going forward, Bharat Forge also expects a revival in its Chinese operations with further inventory corrections. The stock currently trades at 17 times and 12 times estimated FY08 and FY09 earnings respectively.

Ranbaxy Laboratories
Reco price: Rs 368
Market price: Rs 352.20
Broking firm: Edelweiss

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Edelweiss upgraded its rating on Ranbaxy from "accumulate" to "buy" as it foresees the branded generics segment's contribution to the company's revenues increasing significantly. Being a high margin business, branded generics business is a lucrative area.

Further, with the announcement of settlement of patent litigation for Valtrex, Edelweiss believes there is a higher possibility of similar announcements for monetising another Para IV opportunity in CY08. The stock has underperformed the healthcare index by more than 12 per cent over the last one year.

This was primarily driven by the issues in approval of facilities at Paonta Sahib and the USFDA raid on the company's offices in the US. Due to these, Edelweiss believes that all the adverse news are already factored in the price and there is limited downside to the stock going forward. At Rs 368, the stock traded at 17.6 times estimated FY08 earnings.