Sesa Goa
Reco price: Rs 156
Current market price: Rs 158.75
Target Price: N.A.
Brokerage: Edelweiss Securities
Spot iron ore prices in China have dropped from $185/tonne in July 2008 to $160/tonne due to factors like shutting down of Chinese steel mills around key city areas in connection with Olympics and increased participation of Australian and Brazilian producers in the spot market.
Sesa Goa has however, not witnessed significant decline in volume growth. The company expects spot prices to rebound in Q3 FY08 as demand returns post Olympics.
Volume growth is expected to be 25-30 per cent for FY09 with total volume reaching up to 22.5 million tonne by FY10. This is proposed to be achieved using multi-modal transport in Karnataka as well as increased beneficiation capacity at Goa.
The company expects an 80 per cent increase in contract prices for FY09, which should help offset cost pressures in the current fiscal. The company is likely to undertake a project to expand pig iron and coke capacity to 1.0 million tonne per annum (mtpa) and 0.75 mtpa respectively. The plan may include some capacity for manufacturing alloy steel.
After obtaining export-oriented unit (EOU) status for its Goa and Karnataka operations, the company is currently attempting to obtain the same for its Orissa operations. The company has about Rs 250 crore in cash and proposes to utilise it largely to acquire iron ore mines, both in India and abroad. Maintain Buy.
Entertainment Network India
Reco price: Rs 299
Current market price: Rs 293.20
Target Price: Rs 383
Upside: 30.6%
Brokerage: Prabhudas Lilladher
Entertainment Network India’s (ENIL) radio segment grew by 35 per cent, out-of-home segment by 320 per cent, and the event management business by 52 per cent in FY08.
Consequently, revenue grew by 76 per cent in FY08. Radio business is central to its profitability as both outdoor and events businesses are still at initial stages.
The company transferred its events management business from Times Innovative Media to a new subsidiary, Alternative Brand Solutions. The above restructuring can give focus to both outdoor and events business.
ENIL’s Radio Mirchi has maintained an average 48 per cent market share over the year. The company had operations across 32 stations in FY08 as against 10 stations in FY07. The rolling out of 22 new stations in eleven months signifies its execution capabilities.
The radio business had an operating margin of 23.2 per cent in FY08 and expects it to be 34.7 per cent by FY10 on the back of improvement in pricing for its legacy stations and higher utilisation of new stations. At Rs 299, the stock trades at 41.2x FY09E and 17.6x FY10E earnings. Maintain Buy.
Fortis Healthcare
Reco price: Rs 67.6
Current market price: Rs 75
Target Price: Rs 88
Upside: 17.3%
Brokerage: ICICI Direct
Fortis Healthcare (Fortis) has been expanding aggressively through greenfield projects, acquisitions and management contracts. Going forward, the company plans to strengthen its position in the National Capital Region (NCR) and spread to the western and southern regions of India. Fortis announced the commencement of Malar Hospital, it had acquired in September 2007. The 258-bed multi-specialty hospital in Shalimar Bagh is expected to start operating by late 2009, while the Gurgaon medicity is expected to be launched in 2010. Fortis is set to benefit in the long-term from its metro-focused multi-speciality facilities with expertise in cardiac care.
For the first time, Fortis reported positive consolidated net profit of Rs 94 lakh for Q1 FY09. In FY10, expected bed expansion in their existing facility will lead to better asset utilisation. It must be noted that Fortis would be increasing its leverage for capex and future acquisitions.
The key risk to Fortis operations arises from the litigation surrounding Escorts Heart Institute & Research Centre and its subsidiaries.
The company is expected to generate an EPS of Re 0.26 and Re 0.70 in FY09 and FY10, respectively. The brokerage has revised the DCF-based target price to Rs 88 (Rs 106 earlier) on account of rising inflation and interest costs.
Britannia Industries
Reco Price: Rs 1,425
Current market price: Rs 1,440
Target Price: NA
Brokerage: Motilal Oswal
Britannia Industries has adopted a three-pronged strategy which includes brand building, channel expansion and efficiency in operations to boost growth. Britannia has been focussing across all product segments unlike concentration in lower and premium segments done in the past.
The company has considerable value locked in real estate at Chennai (7-8 acres) and Mumbai (5 acres) along with liquid investments of Rs 140/share in FY08. The company holds 49 per cent stake in Britannia New-Zealand Foods.
The company has decided to thwart the continued rise in prices of wheat, vegetable oil and also sugar by undertaking a 2-12 per cent price increases across brands, by way of pack size reduction and absolute price increases.
Britannia outsources 70-80 per cent of its biscuit requirements through dedicated contract suppliers to control costs and flexibility. The management expects long-term volume growth to average at 7-9 per cent due to 90 per cent product penetration along with tonnage growth of 5 per cent in FY09 and 7.2 per cent in FY10.
Greater focus will be on lifestyle products, modern retail and cost efficiencies in a highly inflationary scenario, with increased advertising and brand building spend. The resolution of the management dispute between the Wadias and Danone is a major positive going forward. At 1,425, the stock trades at 14.2x FY09E earnings. Buy.
Simplex Infrastructures
Reco price: Rs 475
Current market price: Rs 475
Target Price: Rs 670
Upside: 41%
Brokerage: Anand Rathi
Simplex Infrastructures has nurtured a low risk and flexible business model. To mitigate geographic and sector risk, it has bid for projects all over India and in all verticals of the construction business.
Simplex’s order book size of Rs 10,000 crore and average two-year execution period provides good revenue flow visibility for FY09-10. It has lowered execution period to around two years, the lowest amongst its peers, by concentrating on private contracts accounting for 76 per cent of its order book.
This has reduced the proportion of government contracts to around 24 per cent of the order book, which should protect it from any slowdown in government infrastructure spend.
Simplex order book also has a high proportion of star-rated/full cost pass through contracts (nearly 58 per cent), which mostly shields it from any increase in raw material prices. Fixed price contracts constitute only 15 per cent of the order book.
In addition, almost 33 per cent of its order book comprises of high-margin overseas contracts from Middle East. Its management has decided to avoid bidding for orders below Rs 150 crore (except piling) to take advantage of economies of scale that will translate into better margins. At Rs 475, the stock trades at 14.1x and 9.9x for FY09E and FY10E earnings, respectively.
Current market price as on August 29, 2008.
