Advanta India
Reco price: Rs 637
Current market price: Rs 491
Target price: Rs 980
Upside: 99.5%
Brokerage: IDFC-SSKI Securities
Advanta India is one of the most aggressive hybrid seeds companies in India with strong presence in fast growing markets like Australia, Argentina and Thailand. Advanta has been working on a proprietary R&D project for developing a range of high oleic/stearic sunflower oils (possessing lower saturated fat levels) that will be marketed under Nutrisun brand.
Advanta has a sharp focus on the genetically modified (GM) seeds segment and its strategy involves in-licensing GM traits from biotechnology R&D players like Monsanto, to incorporate them into its hybrids. Advanta is among the very few players in the world with sweet sorghum germplasm, which can be used as a biofuel. It has acquired the sorghum business of Garrison and Townsend in Texas, (US) which has a very strong sorghum germplasm base, for $10.5 million and has thus acquired a head-start in this field.
Advanta’s revenues and earnings are expected to grow at a CAGR of 31 per cent and 30 per cent, respectively over CY07-09E, aided by consolidation of the recent acquisitions. The momentum will accelerate with unfolding of opportunities like Nutrisun oil, sweet sorghum for biofuel and wheat royalties in Australia. Limited exposure to the US/EU and crops like corn and soybean also insulates it from the ongoing global turmoil. The stock trades at 22.1x CY08E and 15.6x CY09E earnings. Maintain Buy.
Jubilant Organosys
Reco price: Rs 245
Current market price: Rs 206
Target price: Rs 383
Upside: 85.9%
Brokerage: Reliance Money
Jubilant Organosys and Eli Lilly have entered into a 50:50 joint venture agreement in India, focusing on providing drug development services. This is a strategic collaboration which would be focusing exclusively on developing new drugs in the areas of oncology, metabolic disease, cardiovascular and diabetes. This Bangalore based joint venture will focus on developing molecules from the preclinical stage to the Phase II stage. Both the partners will jointly invest $8 million in this venture over the next three years.
By leveraging the expertise of Eli Lilly in the R&D capabilities, Jubilant would strengthen its drug discovery and development portfolio. Also, the partnering of global innovator such as Eli Lilly would boost the global acceptance for Jubilant’s CRAMS and accordingly result in an earning traction. Jubilant’s topline is expected to grow at a CAGR of 35 per cent and net profits at a CAGR of 26 per cent over FY08-10E, on account of robust growth prospects available across the CRAMS segment and better performance by Hollister. The stock currently trades at a P/E of 9x FY10E earnings. Maintain Buy.
Gujarat NRE Coke
Reco price: Rs 50
Current market price: Rs 31
Target price: Rs 69
Upside: 122%
Brokerage: SBICAP Securities
Gujarat NRE Coke (GNCL) is the largest non-captive independent coke manufacturer in India with an installed capacity of one million tonne per annum (mtpa). The company has planned to expand the current coke manufacturing capacity to 1.25 mtpa by December 2008 and further to 2.5 mtpa by FY09E. GNCL has already started mining at the Australian mines and it is expected to produce around one mtpa of coking coal for FY09E and slowly scale up to over seven mtpa by 2013E.
The prospects of the coke industry are bright on the back of strong demand from major steel consuming sectors like infrastructure and low domestic per capita consumption of steel (mere 39 kilos as against the world average of 150 kilos). GNCL’s topline is expected to grow at a CAGR of 52 percent over FY08-FY10E.
The company currently imports nearly 30-40 percent of its coking coal requirement. The margins of the company would stabilise at 23-24 per cent at the operating profit level, once the company starts sourcing 80-90 percent of its coking coal requirement from its Australian subsidiary.
The stock trades at 7.4x and 6.4x its FY09E and FY10E earnings, respectively Maintain Buy.
Adhunik Metaliks
Reco price: Rs 60
Current market price: Rs 50.50
Target price: N.A.
Brokerage: Motilal Oswal Securities
Adhunik Metaliks’ steel-making capacity has increased from 2,50,000 tonne per annum (tpa) to 4,00,000 tpa on addition of induction furnaces. This will drive volume growth of 25 per cent over FY08-10E. New rolling mill of 220 kilo tpa will enable higher production of rolled products, which command higher realisation and better margins. The company will be able to enter new business of stainless steel, should the market conditions become favourable as it has already commissioned an argon oxygen degassing unit, which has capacity to produce 1,20,000 tpa.
Sinter plant with a capacity of 2,67,000 tpa has commenced production, while the coke oven plant of 1,00,000 tpa capacity is expected to commence production by December 2008. These additions will bring down specific consumption of high cost raw materials. Captive iron ore mines will get operational from December 2008, which will further result in savings of costs. Though there is pressure on steel prices, the pressure on alloy and special steel is not similar due to lesser volatility.
Falling coke prices will ease input cost pressures and partially offset pricing pressure. Conversion of debentures and promoter warrants will reduce debt by Rs 230 crore. Consolidated EPS is expected to increase at CAGR of 67 per cent over FY08-10E. The stock is trading at P/E of 4.6x FY09E and 2.4x FY10E earnings. Maintain Buy.
Opto Circuits India
Reco price: Rs 203
Current market price: Rs 165.25
Target price: N.A.
Brokerage: Edelweiss Securities
Opto Circuits India (OCIL) recently cancelled the proposed $100 million acquisition of a European company, with which it had signed a letter of intent in September 2008. The reason cited is that the demanded price is not justifiable from an economic value perspective. This step is positive for OCIL, as it removes any uncertainty of possible balance sheet risk in the short term.
OCIL’s revenues are expected to grow at a CAGR of 54 per cent and net profits at CAGR of 42 per cent over FY08-10E, led by strong growth in the non-invasive as well as invasive businesses. The growth in the non-invasive business will be led by the recent Criticare acquisition—focusing on patient monitoring systems (PMS) and SpO2 sensors, while the invasive business is expected to show traction through stents and DIOR, used in angioplasty procedures.
OCIL, through its 100 per cent subsidiary EuroCor, has certification to sell its invasive products in 34 countries. Until now, OCIL has traded at a premium to the market because of high growth, healthy margins and upsides from potential acquisitions. However, with the recent market fall and overhang of large ownership by foreign institutional investors, the stock price has corrected more-than-warranted, making it attractive. At Rs 203, the stock trades at a P/E of 10.3x and 7.3x its FY09E and FY10E earnings, respectively. Maintain Buy.
Current market price as on October 10, 2008
