The growth of the India's film industry estimated at 13 per cent CAGR over 2007-12 to Rs 175.5 billion should auger well for Pyramid Saimira Theatre (PSTL). India's largest theatre chain operator runs 53 multiplexes and over 600 single screens with about 4.5 lakh seats.
The company is spread across the entire entertainment value chain with interests in film and TV production, post production, film distribution, radio, gaming and food & beverages. PSTL has managed to grow at a rapid pace as it acquires theatres on lease and puts up additional facilities to ensure quality viewing, thereby incurring minimal investment.
It is a dominant player in tier-I and tier-II cities, with a strong foothold in the lucrative Rs 4,000 crore South India market where occupancy rates are as high as 45 per cent, as compared to the all-India average of 32-35 per cent.
It plans to ramp up the number of screens to 1,650 by FY10 and thereby generate a CAGR of 128 per cent and 145 per cent in standalone revenues and PAT over FY07-FY10. Religare assigns PSTL a P/E multiple of 12x on FY09E (based on peer comparison) with a price target of Rs 557.
Welspun Gujarat Stahl Rohren
Reco price: Rs 409
Current market price: Rs 422.70
Target price: Rs 500
Upside: 18.29%
Brokerage: Asit C Mehta
Welspun Gujarat Stahl Rohren (WGSRL) is part of the Rs 4,000 crore Welspun Group, with plants manufacturing saw pipes located in Dahej and Anjar in Gujarat.
The company enjoys distinction of supplying highest recognised X 80 grade and 56" outer diameter line pipes in the country. Its order book as on March 2008 stands at Rs 5,900 crore and has bid for Rs 16,000 crore worth of orders, thus displaying clear visibility of earnings in the coming years.
The company has setup a 1.5 mn tonne plate cum coil mill at Anjar (Gujarat) which will be fully operational from FY2009. This backward integration would improve the company's EBIDTA margins. There is substantial demand from the US market for pipes to layout its oil and gas transportation infrastructure.
In order to cater to this growing demand of linepipe, WGSRL is setting up a 0.3 mn tonne HSAW plant in the US with a capex of Rs 400 crore. This plant is also expected to be operational from FY2009. At a price of Rs 422.7 the stock is trading at 13.95 x FY09E and 9.3 x FY10E earnings.
Megasoft
Reco price: Rs 95
Current market price: Rs 96.15
Target price: Rs 158
Upside: 64.33%
Brokerage: Kotak Securities
Megasoft is product-based technology company providing IT solutions and services to the telecom and life sciences domains.
Megasoft has acquired Boston Communications Group (BCGI) for an expected aggregate purchase price of Rs 260 crore and is actively started routing a good proportion of its telecom product sales through it. Consolidated revenues grew 39 per cent y-o-y for Megasoft to Rs 90.3 crore in Q1CY08.
Numbers though are strictly not comparable on account of the BCGI consolidation. Telecom revenues grew strongly y-o-y (more than 2x), while being flat q-o-q. The higher margin telecom business (segmental EBIT margins at 57 per cent in CY07 v/s 19 per cent in services) now contributes to 61 per cent of overall revenues.
The telecom products business is expected to spur revenue and profit growth for Megasoft in CY08E, with a relatively lower growth in the lower margin services business.
Megasoft has long announced its intent to liquidate Visualsoft's assets - land in Vishakhapatnam and Madhapur in the medium-term. This is expected to make the company cash rich to pursue acquisitions in the medium-term in addition to retiring debt taken for the BCGI acquisition. Price target of the company based on DCF valuation is set at Rs 158.
Transformers & Rectifiers India
Reco price: Rs 457
Current market price: Rs 453.10
Target price: N.A.
Brokerage: Edelweiss
In the Eleventh Plan, India is expected to add about 60,000 MW of generation capacity, which is more than what was added in the past fifteen years.
The 3x jump in capacity is likely to boost demand for transformers and leading transformer companies such as Transformers & Rectifiers India (TRIL) are likely to benefit from the same. It has a presence in power, distribution, and specialty transformers and currently has a capacity of 7,200 MVA.
TRIL's focus on high-margin specialty transformers bodes well for the company, both in terms of profitability and risk mitigation through diversification.
The company has raised money through an IPO in November 2007 to set up a 16,000 MVA manufacturing facility at Moraiya, to raise its total capacity to 23,200 MVA by June 2008.
Over and above the robust macro scenario, TRIL's timely expansion strategy along with its vertically integrated model and a diverse portfolio places it in a strong position to emerge as a leader in the transformer industry, going forward. As per the consolidated EPS estimate of Rs 38 and Rs 59, the stock is trading at a P/E of ~12x and ~8x FY09E and FY10E earnings, respectively.
Lupin
Reco price: Rs 550
Current market price: Rs 576.8
Target price: Rs 800
Upside: 38.7%
Brokerage: IDFC-SSKI India
Lupin is engaged in manufacturing active pharmaceutical ingredients and formulations. The company expects approval to launch Ramipril (anti-hypertension drug with Rs 2,800 crore sales in 2007) in June 2008 upon expiry of the six-month exclusivity for Cobalt.
With limited competition scenario (3-4 players only) the company expects the product to be a key growth driver in the coming few quarters. The company remains positive on the overall US business outlook with the expected launch of 8-10 new products in FY09 as well as one more specialty branded product in the pediatric segment.
In EU, the company is aiming to launch another 6-8 new products across multiple geographies during FY09 which will drive strong growth on a low base.
Lupin subsidiary Kyowa's recent announcements on approval to launch 10 more new products in the Japanese market with a total market of Rs 10,600 crore will further enhance Lupin's growth potential. Healthy revenue growth along with steady margin improvements will drive 21 per cent CAGR profit growth over FY08-10 (excluding IP licensing income).
At 14.5x FY09 and 11.6x FY10E earnings with multiple upside opportunities through launch of limited competition products in regulated markets and embedded value of NCE R&D, Lupin is attractively valued.
Current market price as on April 24.
