Mahindra Lifespaces' 1,400 acres SEZ in Chennai has entered the cash generation phase as companies located in the processing area of the SEZ have started ramping up their operations.
The processing area includes three sectors - IT, apparel & fashion and auto components. The company has also drawn up plans to launch a residential project over its 12-15 million square feet of residential area near the SEZ, to cater to the demand of about 20,000 apartments over next five years by employees working at the SEZ.
The company has witnessed significant progress at its 3,000 acre SEZ at Jaipur, where it has till acquired 2,500 acre of land and has committed about 20 per cent of processing area to anchor tenants such as Infosys, Wipro, Tech Mahindra and Deutsche Bank.
Management has made significant progress towards concretising its two other proposed SEZs at Karla, Pune (3,000-acre multi-product SEZ) and Thane, Mumbai (52 acre biotech SEZ).
It has also entered into a MoU with the Sri Lankan government for development of 52 acre as mixed use IT SEZ. Based on SOTP valuation, the company is available at a 32 per cent discount to its NAV.
Rohit Ferro Tech
Reco price: Rs 125
Current market price: Rs 139.55
Target price: Rs 216
Upside: 54.78%
Brokerage: Religare
The domestic steel industry is witnessing a sharp upturn as production cuts in South Africa and the levy of export tax by China have driven up prices. This in turn has elevated the demand for ferro alloys, a key raw material for steel production.
The prices of ferro chrome have risen more than 67 per cent since January 2008. This augurs well for Rohit Ferro Tech, one of the formidable players in merchant ferro alloy production with capacity of 1.8 lakh tpa. The company currently exports about 60 per cent of its production and the balance is sold to domestic steel players like Jindal Stainless, Essar Steel and Rathi Ispat.
Rohit Ferro is ramping up its capacity by setting up the fifth furnace in FY09 with a production capacity of 50,000 tpa.
The company is also aiming at diversifying its portfolio and mitigating the raw material supply risk by setting up a 1 lakh tpa plant for manganese alloy production. Possibilities of change in the external environment like banning of ferro alloy exports, shortage of raw material or a slowdown in steel sector continue to remain key concerns.
Rohit Ferro's revenues and earnings are expected to grow at a CAGR of 189 per cent and 200 per cent over FY07-FY10E and the stock is currently trading at 3.6x FY09E earnings, making its valuations compelling.
Simplex Infrastructures
Reco price: Rs 572
Current market price: Rs 564.90
Target price: Rs 800
Upside: 41.62%
Brokerage: Kotak Securities
Simplex Infrastructure has a fairly diversified order book of Rs 9,900 crore, which is 3.8x FY08E revenues. The company is hedged against the raw material price hikes with 90 per cent of the order book having variable pricing contracts.
Simplex has forayed into contract on-shore oil drilling services business and has already commissioned one rig which was bought for Rs 38.6 crore. It has signed a two-year contract with OIL India at about Rs 6.4 lakh/day.
Simplex has entered into 70:30 joint venture with the government of Jharkhand for constructing a 2.5 lakh square feet residential cum commercial complex.
Similar deals are signed by company with different landowners in Hyderabad and Calcutta. Company management believes that it will not be impacted with the present cooling off in the real estate prices as it is targeting the mid-market residential segment and not the premium segment.
Simplex's revenues and earnings are expected to grow at a CAGR of 42 per cent and 68 per cent between FY07-FY10E. Adjusted with the valuation of the oil rigs business as well as real estate business, the stock is trading at 16.9x and 11.3x its FY09E and FY10E earnings. Recommend Buy with a price target of Rs 800.
Redington India
Reco price: Rs 351
Current market price: Rs 354.35
Target price: Rs 445
Upside: 25.58%
Brokerage: PINC Research
Redington India is in the business of distribution and reselling of IT hardware and peripherals in India. The company has an extensive distribution network reaching out to about 17,000 resellers. It accounts for about 20 per cent of HP's (Hewlett Packard) hardware revenues in India and about 10 per cent of total Indian IT hardware market.
Redington's revenue base is diversified across India, South Asia, West Asia and Africa. The company plans to further venture into North & South Africa, Vietnam and CIS countries which would ensure additional impetus to growth.
To capitalise on its supply chain management infrastructure, Redington has now begun to broad base its offerings and has expanded its product range to include telecom products, gaming consoles and titles, digital lifestyle products and consumer durables.
Considering its scalable business model, prudent cash flow management and humongous market opportunity, Redington has the potential to post 22.6 per cent CAGR in revenues accompanied by a 42.7 per cent CAGR in net profits over FY07-10E. The DCF-based price target of the stock, with a 12-month perspective, comes to Rs 445.
Opto Circuits India
Reco price: Rs 338
Current market price: Rs 340
Target price: Rs 460
Upside: 35.29%
Brokerage: IDFC-SSKI
Opto Circuits has emerged as a leading player in the non-invasive space, manufacturing electronic medical sensors such as pulse oximeters and cholesterol detectors.
Opto's sensors are approved by the US FDA and also have the European CE mark. After establishing a strong foothold in the sensor segment, the company forward integrated into the manufacture of patient monitoring systems as well.
These two categories (sensors and patient monitors) form Opto's non-invasive business and contribute 75 per cent to the company's overall revenues. The company derives 80 per cent of its revenues from the overseas markets, with its key markets being the US, Europe and West Asia.
Through the acquisition of EuroCor, Germany in 2006, Opto has also established itself in the invasive segment, where it manufactures cardiac stents used in the treatment of coronary artery blockages.
Opto is the only company in the world to have obtained the CE mark for DIOR, a drug eluting balloon catheter used in the treatment of coronary in-stent restenosis, enabling it to sell DIOR in the European countries and capture a large market.
Opto's earnings are expected to grow at a CAGR of 35 per cent over FY2007-10E on the back of a 57 per cent CAGR in revenues. The company is trading at an valuation of 16.9x FY09E earnings.
Current market prices as on May 15, 2008
