Analysts' corner

RESEARCH CALLS

Ballarpur Industries
Reco price: Rs 29
Current market price: Rs 27.05
Target price: Rs 45
Upside: 66%
Brokerage: Emkay Share

The aggressive growth plans and favourable industry scenario are positives for the company.

The company underwent business and financial restructuring wherein there was a stock spilt in the ratio of 1:5 and buyback of 2:1. Further, it sold 21 per cent stake in its subsidiary Ballarpur Paper Holding (BPH) for about Rs 700 crore.

It has also planned a capital expenditure of Rs 1,600 crore for BPH, which is expected to be completed by FY10 and is largely funded through debt. This will increase its consolidated paper capacity from 0.6 million tonne per annum to one million per annum and integrated pulp capacity from 0.46 million tonnes per annum to 0.560 million tonnes per annum.

Emkay expects the company's revenues to grow at a CAGR of 18.8 per cent to Rs 3,880 crore by FY10 and profit is expected to increase at a CAGR of 20.4 per cent to Rs 510 crore by FY10E. At Rs 29, the stock appears attractively valued at 6.5 times and 5.3 times its estimated earnings for FY09E and FY10E respectively.

Dabur India
Reco price: Rs 107
Current market price: Rs 104.3
Target price: Rs 133
Upside: 27.5%
Brokerage: IL&FS

The outlook for FMCG sector is favourable considering the slowdown in various other sectors and a positive outlook on domestic consumption space and stable earnings outlook.

Dabur has an excellent product portfolio with multiple growth drivers. which insulates it from downturns in any single category. Further, its international business is also poised for a higher growth of more than 20 per cent.

The company has also entered the retail sector with ' New U' stores, which it plans to take it to around 100 by FY10E. The company's revenues and earnings are likely to grow at a CAGR of 16.3 per cent and 21.3 per cent respectively through FY08-10E. EBITDA margins are expected to improve from 16.2 per cent in FY08E to 17.2 per cent in FY10E due to improved product mix and higher prices.

Moreover its valuations of 21.6 times FY09 estimated earnings have become attractive as compared to 26 times earlier. The stock trades at 17.9 times FY10 estimated earnings.

Tata Motors
Reco price: Rs 679.4
Current market price: Rs 628.7
Target price: Rs 837
Upside: 33%
Brokerage: Macquarie

Macquarie feels the acquisition of Jaguar Land Rover (JLR) brands from Ford Motor for $2.3 billion is negative for Tata Motors.

The company intends to finance the acquisition through a 15-month bridge loan of $3bn to be raised from a syndicate of banks, which will be later replaced by a mix of long-term debt and equity. Consequently, the potential EPS dilution for FY09 on various assumptions could be in the range of 20"�29 per cent.

Moreover, there are very few product/distribution synergies between Tata Motors and the JLR brands. Although the access to technology is positive over the longer term, the benefits are unlikely to be felt in the near to medium term.

Besides, JLR made a combined loss of around $80m in 2006. With stringent conditions imposed by the unions and outsourcing unlikely, a turnaround will be difficult and long drawn out.

Viceroy Hotels
Reco price: Rs 58
Current market price: Rs 68.95
Target price: Rs 116
Upside: 68%
Brokerage: ICICI Direct

The number of business travellers to India has witnessed substantial growth. Further, investment interest is high in the cities where Viceroy Hotels plans to expand. The company, which currently owns a single property in Hyderabad, plans to quadruple its room count from the current 355 to 1,405, by FY10.

Apart from increasing its room base in Hyderabad, it also plans to expand its reach to Chennai and Bangalore under the Marriott brand with an addition of 850 rooms.

Further, Viceroy Hotels plans to expand its F&B (Food & Beverage) business to more cities from currently 11 outlets to 19 by FY09E and further to 35 by FY10E. As a result, the company's revenues and profits are expected to grow at 55 per cent and 49 per cent CAGR between FY07-10E.

Jindal Steel and Power
Reco price: Rs 1,974
Current market price: Rs 1,944.60
Target price: Rs 2,501
Upside: 28.6%
Brokerage: Indiabulls Securities

Steel prices are expected to move higher amid strong demand for steel in the emerging economies and rising raw material prices due to rise in iron ore and coal prices.

Jindal Steel and Power's margins are expected to improve as it is insulated from fluctuations in raw material prices due to its captive reserves. Further, the clarity on its Bolivian project as well as the increase in production capacity augurs well for the company.

The company's power segment is also expected to grow at a considerable pace on account of commissioning of the 250 MW power generation capacity followed by another 750 MW to be commissioned by June'08. Amid all these factors and sharp correction in the stock prices due to a choppy market, the stock looks attractive at 12.3x FY09E EV/EBITDA.

Sarda Energy & Minerals
Reco price: Rs 335
Current market price: Rs 320
Target price: NA
Brokerage: India Infoline

Sarda Energy & Minerals, a manufacturer of sponge iron, steel and ferro alloys, has undertaken an expansion plan of Rs 450 crore. This will not only increase saleable output in a buoyant pricing environment but also de-risk the business model by diversifying revenues.

The company's revenue is expected to register 40 per cent CAGR over FY07-10. Further, the increasing resource integration would expand profitability resulting in a robust earnings CAGR of 79 per cent over FY07-10.

Current market price as on April 3.