Analysts' corner

RESEARCH CALLS

FINOLEX INDUSTRIES
Brokerage: Angel Broking
Reco price: Rs 118
Current market price: Rs 121.05
Target price: Rs 158
Upside: 30.5 %

Finolex is an integrated manufacturer of PVC pipes and is in the process of setting up a captive power plant facilitating further integration and reducing operating costs. The company would incur total capex of Rs 200 crore for the power plant.

However, it is expected to reduce the company's power costs from Rs 5 per unit to Rs 2 per unit resulting in better operating margins. The manufacturing cost per tonne of PVC would also decline by approximately Rs 600 per tonne.

Angel expects the consumption of PVC pipes to increase on the back of heightened construction activity and increase in land irrigation activities in the country.

Besides the core business, Finolex has 80 acre land at Pune, which has the potential for residential and commercial development. Angel estimates that Finolex would realise Rs 550-600 crore from the sale of this land. Angel has factored in the sale of land in its estimates at a conservative value of Rs 500 crore.

The brokerage expects Finolex's net profit to grow at a CAGR of 27 per cent with net sales growing at a CAGR of 20 per cent over FY07-10 and operating profit margins improving from 12.2 per cent in FY07 to 15 per cent by FY10.

At Rs 118, the stock trades at 17 times, 13 times and 10 times estimated FY08, FY09 and FY10 earnings, respectively. Angel recommends a "buy" with a 12-month price target of Rs 158.

SANGHVI MOVERS
Brokerage: Religare
Reco price: Rs 309
Current market price: Rs 309
Target price: Rs 370
Upside: 19 %

Sanghvi Movers' core business is of hiring imported used cranes. It specialises in the erection of windmills, turbines for power plants and clinkerisation units for cement plants. Its fleet of 260 cranes caters to the fast growing capital goods and construction companies. Its cranes are booked for the next 12-18 months.

The company has 130 cranes in the above 100MT capacity segment contributing more than 90 per cent to its revenues. Further, its capacity addition over the next three years, which will almost double its lifting capacity, will also be in this segment.

This ensures strong revenue visibility in the forthcoming quarters. Religare expects Sanghvi Movers' earnings to grow at 30 per cent CAGR over FY07-10. The brokerage has valued Sanghvi Movers at 16 times two-year forward earnings translating to a one-year forward target price of Rs 370.

Therefore, at Rs 309, which is 15.7 times estimated FY09 earnings, Sanghvi Movers trades at below market price-earnings multiples with higher than market earnings growth and Religare expects it to outperform the market.

SUN PHARMACEUTICALS
Brokerage: Edelweiss
Reco price: Rs 1,199
Current market price: Rs 1,108.30
Target price: NA
Upside: NA

Sun Pharmaceuticals' domestic formulations segment has performed well, delivering more than 20 per cent growth in the first half of FY08. Edelweiss increases its growth assumptions for this segment to 22 per cent for FY08 and at about 17 per cent for FY09.

The company's US generics business has been showing growth for the past few quarters, sequentially. There are several one-time opportunities for the company like Oxcarbazapine, Pantaprazole, Venlafaxine, and Rivastigmine, which could add approximately INR 45 per share.

Sun Pharma's Taro acquisition is likely to be earnings accretive to the company from the first year itself, which is a positive for the stock. Due to this, the brokerage has revised its earnings estimated for Sun Pharma upward by 8 per cent for FY08, and by 6 per cent for FY09 to Rs 49 and 58, respectively.

Edelweiss believes that at current valuations, the stock has a limited upside. At Rs 1,199, the stock traded at 24.6 times and 20.6 times estimated FY08 and FY09 earnings, respectively. Edelweiss recommends "accumulate".

LARSEN AND TOUBRO (L&T)
Brokerage: Indiabulls
Reco price: Rs 4,061.60
Current market price: Rs 4,244.40
Target price: NA
Upside: NA

Larsen and Toubro (L&T) registered a robust growth in sales of 47.2 per cent y-o-y to Rs 5,500.9 crore on the back of healthy order inflow and efficient contract execution. Order book increased 43.5 per cent y-o-y to Rs 4,402.9 crore due to heavy order inflows in the engineering and construction (E&C) segment from infrastructure and oil and gas sector.

Exports constitute 18 per cent of the total order book. On a y-o-y basis, earnings before interest, tax, depreciation and amortisation (EBITDA) showed a phenomenal rise by 140.8 per cent to Rs. 587.3 crore because of operational efficiencies and optimisation of overall costs.

EBITDA margin also improved 415 basis points (bps) y-o-y from 6.5 per cent to 10.7 per cent. However, higher tax rate and lower other income dampened net profit resulting in a less than proportionate increase by 101.4 per cent y-o-y to Rs. 405.2 crore. Net profit margin improved 198 bps y-o-y to 7.4 per cent.

As per the management guidance, L&T is likely to clock sales growth at 30-35 per cent with the estimated growth in order book at 25-30 per cent for the current financial year.

At Rs 4,061.60, L&T traded at 34.3 times and 25.7 times its EV/EBITDA (enterprise value/ earnings before interest, tax, depreciation and amortisation) for estimated FY08 and FY09 numbers, respectively. Indiabulls believes that the current market price factors in more or less all the major upsides, and recommends "hold".

HCL TECHNOLOGIES
Brokerage: Emkay
Reco price: Rs 323
Current market price: Rs 315
Target price: Rs 384
Upside: 18.5%

HCL Technologies has garnered an early lead in the Remote Infrastructure Management space, bagging a number of multi-million contracts, ahead of competition. In mid 2005, the company embarked on a major transformation program to help it grow through identifying high growth opportunities.

This program is on schedule and the positive effects of the same have started reflecting in the company's performance as is evident from accelerated revenue growth (FY07 growth was 42 per cent versus 27 per cent in FY06), and large deal wins in the past 8 quarters. It has announced 28 large deals in excess of $50 million over the past 8 quarters.

HCL Technologies has been able to manage margins in a more resilient fashion as compared to its peers. Margins in Q1 FY08 were down only 30 bps y-o-y where as its peers reported declines in the range of 90-280 bps over the same period.

Emkay expects margin decline to be restricted to 50 bps over FY07-10. Emkay expects the company to rake in an earning per share of Rs 24 in FY10 and values the stock at a 1-year forward price-earnings multiple of 16 times, thus translating into a March 2009 target price of Rs 384.