Analysts' corner

RESEARCH CALLS

Pfizer
Reco price: Rs 680
Current market price: Rs 675
Target price: Rs 720
Upside: 7%
Brokerage: Motilal Oswal

Pfizer's performance for the quarter ended February was below estimates and was impacted by a slowdown in pharmaceutical business and part-divestment of consumer brands. Net sales declined by 3.6 per cent to Rs 150 crore impacted by a 5.7 per cent decline in pharmaceutical business due to part-divestment of consumer business.

Adjusted for the divestments, pharmaceutical sales have grown by 2 per cent. Part of this slow-down was mitigated by a 19 per cent growth in the animal healthcare business.

Pfizer has a cash balance of over Rs 600 - Rs 700 crore (about 30 per cent of current market cap). There are various avenues to deploy the cash surplus - share buyback or brand acquisitions - which will be a positive development.

Given the strong parentage, Pfizer is well positioned to take advantage of the new IPR regime in India. We expect Pfizer to achieve double digit top-line growth (for continuing business) over the next few years.

While the stock is reasonably valued at 14.2x FY08E (adjusted for sale of consumer division), uncertainties still exists on the presence of the parent's 100 per cent subsidiary in the country and the patented products to be launched through this company.

HUL
Reco price: Rs 244
Current market price: Rs 240
Target price: Rs 238
Upside: -1%
Brokerage: India Infoline

HUL recorded a robust performance during CY07 driven by strong 14 per cent y-o-y growth in the domestic FMCG business. The core HPC segment recorded sharp 12.3 per cent y-o-y growth led by 9 per cent and 14 per cent increase in personal care and soaps & detergents revenues respectively.

The company has started focusing on new growth categories like high-end personal care (skin, hair care), foods and water. It has invested heavily in the water purifier business and expects to complete national rollout during the current year.

Heavy onslaught of competition in the core categories from emerging players like ITC, will result in higher adspend. Firm raw material prices will further add pressure on margins going forward.

The company purchased 3 crore equity shares of Re 1 each (from October 03, 2007 to January 31, 2008) at an average price of Rs 207.13 (upper price limit was decided at Rs 230 per share). HUL has bought back these shares through open market route with an investment of Rs 626 crore.

C & C Constructions
Reco price: Rs 197
Current market price: Rs 200.80
Target price: Rs 280
Upside: 39%
Brokerage: Anand Rathi

C & C Constructions has received an order of Rs 574 crore from Jaypee Associates to construct and develop a four-lane road from Zirakpur to Parwanoo passing through Himachal Pradesh, Haryana and Punjab. With this order, C&C's order book has jumped from Rs 1,160 crore to Rs 1,730 crore (5.25x FY07 sales & 4.7x TTM sales).

The research firm had estimated that the company would win new orders worth Rs 700 crore in FY08 (year ending June). The new order flow has already reached Rs 1,000 crore in the first nine months (Jul.'07 to Mar.'08) and C&C is expecting more orders, especially from Afghanistan. Good growth in its order book has provided enough visibility to revise estimates upwards.

Based on this top-line estimates have been raised by 21 per cent for FY09 and 32 per cent for FY10. Since the order is sub-contracted, it would lead entail lower margins, which are factored into estimates. Thus PAT has been raised by 16 per cent for FY09 and 26 per cent for FY10.

Although FY09E EPS has been raised to Rs 37.9, target price is unchanged due to execution risks associated with the contract. The sum-of-parts-based target price for C&C Construction remains Rs 280 a share (Rs 243 for the contracts business and Rs 37 for the B-O-T project). At this target price, the stock would trade at FY09e P/E of 7.4x and EV/EBITDA of 3.6x.

Solar Explosives
Reco price: Rs 449
Current market price: Rs 435
Target price: NA
Brokerage: ICICI Direct

Solar Explosives (SEL) manufactures explosives and through its subsidiaries makes detonators, detonator components and bulk explosives.

The company is well positioned to benefit from its capacity expansions in bulk explosives as demand for the explosives would increase in tandem with rising coal mining activities.

We expect the company to register a 32 per cent annual growth in topline and 58 per cent annual growth in earnings over FY07-09E on the rising volumes and realisations. SEL is a major player in the domestic industrial explosives market with a market share of about 25 per cent.

The company has increased its capacities for bulk explosives by 110 per cent to 2.42 lakh tonne. The explosives industry is largely dependant on the mining and infrastructure industries.

Capacity expansion in metals, power and cement industries, which are among the major users of coal, is expected to heighten coal mining operations. Increased mining activity would spur demand for explosives.

The company is expected to register a 32 per cent growth in topline and 58 per cent growth in bottomline over FY07-09. At the current price of Rs 449, the stock discounts its FY09E EPS of Rs 27.85 by 16.12x and FY08E EPS of Rs 21.05 by 21.33x.

Mahindra & Mahindra
Reco price: Rs 609
Current market price: Rs 612.25
Target price: Rs 740
Upside: 21%
Brokerage: Prabhudas Lilladher

M&M has chalked out an aggressive capacity expansion plan of about Rs 7,500 crore over the next three years, in addition to an investment of Rs 1,500 crore in its subsidiaries.

A major chunk (Rs 5,000 crore) of the amount would be spent in its core auto business, allocated equally between the new Chakan facility and for new product development.

The company is slated to introduce five new models in the next 2-3 years. Rising raw material prices are expected to impact margins in FY09, but management believes that it would be able to maintain double digit margins going forward.

The management believes that the auto sector would also slowdown with the slowing down of the overall economy, and expects the domestic auto sector to post a moderate 10 per cent growth in FY09.

During this period, the off-take from tractors is also expected to be subdued with the segment expected to post 6-8 per cent annual growth over the next three years. While the core business is expected to take a couple of years to generate steady returns, we believe these are attractive levels to invest in a long term (12 "� 18 months) growth story.

Current market price as on April 10, 2008