Analysts' corner

RESEARCH CALLS

Aban Offshore
Reco price: Rs 4,886
Target price: Rs 6,150
Current market price: Rs 5075.95
Upside: 26 %
Brokerage: Anand Rathi

Anand Rathi expects phenomenal growth in Aban Offshore mainly due to the re-pricing of present contracts, deployment of new rigs, aggressive growth plans and the general buoyancy in the offshore rig market.

The recent buoyancy in crude oil prices has led to oil and gas companies urgently accelerating production and reserve accretion.

Going forward, the annual spend on offshore assets, world-wide, is estimated to rise from $193 billion in 2006 to $248 billion in four years. Looking at world rig addition of not more than 18 per cent in the next four years and a world-wide aging rig profile, day rates for offshore rigs are expected to remain firm.

The company has revised the pricing for some of its contracts to the tune of 2-3 times the day rates for its ongoing contracts. These provide visibility to the company's earnings, which the brokerage expects, to grow at a compounded annual rate of 61 per cent from FY07 to FY10.

Add to this, the company's fleet will also see four new rigs delivered in the coming 18 months, which are likely to fetch premium rates. The stock trades at a price-earnings multiple of 8.1 times and an EV/EBITDA (enterprise value/earnings before interest, tax, depreciation and amortisation) of 6.4 times estimated FY10 earnings.

Anand Rathi puts a 12-month target price of Rs 6,150 based on 10 times estimated FY10 earning per share of Rs 615 and rates the stock an "outperformer".

IVRCL Infrastructure
Reco price: Rs 485
Target price: Rs 571
Current market price: Rs 505
Upside: 18 %
Brokerage: India Infoline

IVRCL's core construction business is on a strong footing buoyed by order inflows from water supply projects, its key area of strength.

Increasing government focus on enhancing water availability and strong outlook for industrial capex should translate into continued order inflow momentum in the segment.

Order inflows from irrigation and water supply projects is likely to gain further momentum as the Jawaharlal Nehru National Urban Renewal Mission, a central government sponsored programme, gathers steam. Projects totaling approximately Rs 19,800 crore have received funding approvals with water supply and sanitation projects constituting 70 per cent of the programme.

India Infoline estimates a 35 per cent compounded annual growth in IVRCL's earnings over FY07-FY10, driven by strong growth in revenues and slight improvement in margins.

Listing of real estate subsidiary has helped set valuation benchmarks for the land assets. Value resident in build-operate-transfer (BOT) assets would gain visibility as the projects approach completion.

India Infoline recommends a "buy" with a target price of Rs 571, an 18 per cent upside from the recommendation price. At Rs 485, the stock traded at 32.7 times and 22.2 times estimated FY08 and FY09 earnings, respectively.

Dabur
Reco price: Rs 106.45
Target price: 130
Current market price: Rs 110.40
Upside: 22 %
Brokerage: Macquarie Research

Dabur's growth in the past 2"�3 quarters has been driven by the strong performance of the oral care, shampoo and home segments. These segments benefit from the expanding market and market share gains. Macquarie expects this to continue into 2008.

The brokerage expects Dabur to relaunch its toothpaste brand Meswak, a recently launched milk additive and surface cleaners. Further, the company may also launch some brand extensions in the health food and the ready-to-eat category.

In addition, Dabur continues to scout for acquisitions in its focus markets of Asia, Middle East and parts of Africa. The company plans to utilise its strong cash position to bring new brands into incumbent markets and enhance existing distribution network.

Macquarie expects Dabur's earnings to be boosted by 3-5 per cent from FY09 onwards due to the company's H&B retail initiative. The brokerage remains bullish on Dabur given its consistent track record of delivering 20-50 per cent earnings growth with margin expansion in each of the past five years. Macquarie rates the stock "outperform" with a 12-month target price of Rs 130.

MindTree Consulting
Reco price: Rs 430
Target price: 338
Current market price: Rs 434.90
Upside: -21%
Brokerage: IL&FS Investsmart

In FY07, MindTree derived 65 per cent of its revenues from application development, a project-based business. Since the impact of a potential slowdown in the US on project-based revenues is high, the company is exposed to the risk of instability in revenues.

In spite of higher offshore revenues, the company reported lower than normal operating margins at 18.6 per cent in FY07 and 16.2 per cent in Q2 FY08. Low utilisation and higher selling, general and administrative (SG&A) expenses have also impacted the margins.

Further, the brokerage believes that, although MindTree provides the gamut of services to its clients, its service offerings, apart from application development and maintenance are small and lack critical mass.

Despite enjoying long-term relationships with its clients, MindTree's revenue per client is amongst the lowest in the industry, which makes it necessary for the company to mine its clients better.

MindTree is also exposed to the risk of fluctuations in the rupee-dollar exchange rate. The rupee has already appreciated by about 13 per cent in the first half of FY08, impacting the company's growth in revenues and profitability. MindTree is expected to post an earning per share of Rs 28.2 and Rs 33 in FY08 and FY09 respectively, implying a two-year EPS compounded annual growth rate (CAGR) of 17.54 per cent.

The brokerage assigns the company a price-earnings multiple of 10.3 times estimated FY09 earnings, and hence arrives at a target price of Rs 338, which is 21 per cent lower than the current market price. The brokerage recommends a "sell".

Current market price as on November 16