Analysts' corner

RESEARCH CALLS

DEWAN HOUSING FINANCE
Recommendation: Buy
Broking firm: Religare
Reco price: Rs 148
CMP: Rs 140
Target price: 302
Upside: 115%

Dewan Housing, a part of the Wadhawan Group, has a niche positioning in providing housing loans to lower and middle income segments in the tier II and tier III cities. The company plans to increase its existing 54 branches four-fold in order to more than double the asset base to Rs 10, 000 crore in the next two-three years.

Besides growth in the core business followed by improvement in net interest margin to 3 per cent, the company's business growth would be supported by unrealised gains of Rs 200 crore on shares of HDIL (the real estate company) and a capital adequacy ratio of 17 per cent.

The company acquired 19.9 per cent equity stake in promoter-owned Wadhawan Food-Retail, operator of the Spinach store chain.

Based on sum-of-parts valuation method, the company is valued at Rs 302 per share with core business valuation of Rs 212 per share and Rs 90 per share due to stakes in DHFL Vysya, HDIL and Wadhawan Food"�Retail.

BOMBAY RAYON FASHIONS
Recommendation: Buy
Broking firm: Prabhudas Lilladher
Reco price: Rs 322
CMP: Rs 302
Target price: Rs 620 (FY10)
Upside: 105%

Bombay Rayon is investing Rs 1100 crore over three years to set-up its fabric processing and garmenting units in Maharashtra. As a result, its fabric and garment capacity will increase by 4 times and 1.6 times to 235 million meters and 164000 pieces per day by FY10E.

Besides, its garment capacity will further improve to 246000 pieces per day due to other new capacities, acquisition of Leela Scottish Lace and LNG apparels. The company's revenue and earnings are expected to grow at over 70 per cent CAGR over FY07-10.

Further, with better governmental support and greater operational synergies, the company could witness operating margin expansion of about 740 bps over FY08-10E.

However the full benefits of the expansion in Maharashtra will be reflected only in FY10. The appreciating rupee will have a limited impact on the company as it has managed to change its geographic mix of its revenue from US to Europe.

CORE PROJECTS & TECHNOLOGIES
Recommendation: Buy
Broking firm: Way2Wealth
Reco price: Rs 242
CMP: Rs 265
Target price: Rs 340
Upside: 28%

CPTL a niche player in education vertical having huge addressable domestic education infrastructure market. Its client list includes various state Governments such as Georgia, North Carolina, Michigan, Illinois, Florida and Maine in the US.

The company is aggressively looking at getting orders from various state governments of India and is scouting to expand its expertise across the globe in the EU and Australian markets.

The company is well positioned player in the long term due to its aggressive inorganic strategy and exponential growth in revenues and margins. The stock trades at 29 times and 19 times its estimated earnings for FY08 and FY09 respectively.

The company's revenues and profit are expected to double by FY09E driven by its education vertical (especially SSA Project), its recent tie-up with Centre of higher Learning (CHL) in US and inorganic growth. Operating margin is expected to improve to 32.9 per cent in FY2009.

LANCO INFRATECH
Recommendation: Buy
Broking firm: I-Sec
Reco price: Rs 445
CMP: Rs 427
Target price: Rs 591
Upside: 38%

The target price has been upgraded from Rs 332 earlier due to recent positive developments like the addition of 3,500MW to its power portfolio, increase in selling prices of residential project at Lanco Hills by 15-18 per cent, reduction in the cap rate for rental properties from 12 per cent to 10 per cent and value emanating from the potential addition of power projects.

As a result, revenue and profit estimates have also been revised upwards for the next three years. The stock trades at 21.6 times, 10 times and 6.3 times for FY08, FY09 and FY10 estimated earnings respectively. Lanco intends to have 12,000MW power capacity operational by '13.

Besides generation, the company is also mulling expansion in power transmission and distribution and will bid for setting up distribution networks.

Further, it has signed up a strategic agreement with Gulftainer, a leading port developer and operator from the UAE, to bid for port and transportation projects and is also planning to venture into airport development.

Within the construction segment, Lanco is planning to expand its road portfolio and is bidding for upcoming road projects in Punjab, Rajasthan, Andhra Pradesh and NCR.

NESTLE INDIA
Recommendation: Buy
Broking firm: Motilal Oswal
Reco price: Rs 1447
CMP: Rs 1370
Target price: Rs 1768
Upside: 29%

Nestle is one of the best plays on huge growth potential in food processing sector in India due to resurgent urban India and rising affordability in tier II and tier III cities. Strong brands and launch of new products and variants would enable the company post sales and net profit growth of 17.2 per cent and 24 per cent over CY07-09.

The company is uniquely placed to tap the potential of growing middle class and rising consumer confidence due to strong brands, R&D support of the parent and SBU focus.

Though volumes and value growth in the first nine months ended of calendar year 2007 (CY07) was impressive, the company witnessed strong rise in prices of all major inputs like wheat flour, coffee and milk. Raw material costs continue to be a concern in future.

The company's focus on innovation and renovation has enabled it to launch new products like Milkmaid Funshake, Polo Zero, Cerelac Multigrain, Orange and lemonade Juice Drinks concentrate and NescafeMild Coffee in the past few months. The stock trades at 24 times and 19 times its estimated earnings for CY08 and CY09 respectively.

Current market price on BSE as on November 23