Analysts' corner

RESEARCH CALLS

OPTO CIRCUITS
Broking firm: Religare Research
Reco Price: Rs 562
Target price: Rs 642
CMP: Rs 430
Upside: 49 %

The stock trades at 21.5 times and 14 times its FY08 and FY09 estimated earnings respectively. However, Religare believes that Opto deserves better valuations considering the increasing earnings visibility and significant entry barriers to the business.

Further, the company has delivered a strong performance in September 2007 quarter with growth in sales (120 per cent) and profits (95 per cent) above estimates. The firm has raised revenue and profit estimates by 8.4 per cent and 12.4 per cent for FY08 and by 14.1 per cent and 18.6 per cent for FY09 respectively.

The company is expected to enjoy increased demand for non-invasive products coupled with growing acceptance of stents. Moreover, pressure on operating margins is likely to ease with price hike for products expected at the beginning of 2008.

GARWARE OFFSHORE
Broking firm: PINC Research
Reco Price: Rs 227
Target price: Rs 300
CMP: Rs 231.05
Upside: 30 %

Garware Offshore Services (GOS), a significant player in the Offshore Supply Vessel (OSV) space, has embarked on an expansion spree to double its current fleet of assets including four Anchor Handling Tugs cum Supply Vessels (AHTSV) and three Platform Supply Vessels (PSV) by FY09.

It is also moving up the value chain by adding more PSVs to its fleet as well as higher tonnage AHTSVs. Thus increase in scale and change of asset profile and current upswing in oil exploration both globally and in India will lead to robust earnings growth and improved margins.

The company is also diversifying its revenue stream to include revenues from inchartering as well as sale of designs by virtue of its tie-up with Norwegian ship yard HavyardLeirvik AS. The stock trades at 9.5x and 6.2x its estimated earnings for calendar years 2008 and 2009 respectively.

BIHAR CAUSTIC AND CHEMICALS
Broking firm: IL&FS Investmart
Reco Price: Rs 60
Target price: Rs 85
CMP: Rs 69.25
Upside: 23 %

Bihar Caustic and Chemicals, an Aditya Birla Group company, has embarked on an expansion plan to increase its caustic soda capacity by 18 per cent to 265 tonnes per day.

Further its recently expanded aluminum chloride (AC) facility has commenced production and is expected to add Rs 40 crore per year to revenues of Rs 143 crore (FY07). The company is also setting up a stable bleaching powder (SBP) plant, to be commissioned in FY2009.

With user industries witnessing strong business traction and capacity expansion, BCCL is poised for a good performance due to the progressive improvement in capacity utilisation of plant, projected expansion and value-added products like AC and SBP. The stock trades at 3.3x and 2.6x its estimated earnings for FY08 and FY09 respectively.

GUJARAT GAS
Broking firm: Angel Broking
Reco Price: Rs 311
Target price: Rs 363
CMP: Rs 306
Upside: 19 %

Gujarat Gas has delivered a commendable performance in the September 2007 quarter with improvement in margins at operating and net levels. Net sales rose 18 per cent year-on-year to Rs 276.6 crore primarily due to a rise in realisations and rupee appreciation.

Moreover operating profit jumped by 70.7 per cent to Rs 57.1 crore due to price hikes and a lower rise of 37.6 per cent in operating expenditure. The company's gross margins were up by 760 basis points to 31.9 per cent.

Consequently, net profit increased at a higher rate of 60 per cent to Rs 34.1 crore. The stock trades at 13.6 times its revised estimated earnings for calendar year 2007. We believe the company will deliver a consistent 15-20 per cent volume growth going ahead.

NAGARJUNA CONSTRUCTION
Broking firm: Macquarie Research
Reco Price: Rs 268
Target price: Rs 348
CMP: Rs 302
Upside: 15 %

The firm expects robust growth due to ballooning order book position, margin expansion and a growing contribution from new initiatives like the lucrative metals space (Orders of Rs 1,100 from Steel Authority of India) and township project in a joint venture with Tishman Speyers and ICICI Ventures.

Further, growth will also come from its subsidiaries like NCC Urban Infra, which will develop 13.4 million square feet spread over more than nine locations.

For its existing business, the company has built a reasonable portfolio of five build-operate-transfer (BOT) road projects, two hydropower projects and a port project. The firm has revised profit estimates from an annual rate of 30 per cent to 48 per cent between FY08-10.

PENINSULA LAND
Broking firm: Prabhudas Lilladher
Reco Price: Rs 126
Target price: Rs 150
CMP: Rs 132.85
Upside: 13 %

Mumbai-based real estate developer, Peninsula Land is now expanding its reach to high growth cities in south and west India. Besides development of commercial and residential projects, PLL is now extending its expertise to the development of SEZs (special economic zones), which will provide the company with an annual income in the form of lease rentals.

Further, it is launching two real estate funds""international and domestic to raise $350 million and $100 million respectively""to pursue opportunities with a potential IRR of over 25 per cent. This will reduce the company's dependence on other sources of capital as well as derisk its business.

The company currently has 3.9 million square feet of saleable area under development including commercial and residential projects in Mumbai to be completed by FY11. Further, 22.5 million square feet area including townships and SEZ projects in rapidly growing cities outside Mumbai are in the pipeline.

CMP is current market price as on October 26 (BSE)