CAIRN INDIA
Reco price: Rs 258.55
Current market price: Rs 259.95
Target price: Rs 310
Upside: 19.3%
Brokerage: Goldman Sachs Research
Cairn India has indicated that it is going to start pumping oil from its Rajasthan asset shortly and thus, is meeting its original guidance of first oil from the said field in H2 CY09. The oil from Mangala field would mark the first major milestone for the Rajasthan project and would help grow Cairn’s production volumes by almost six times between FY09 and FY13. This not only de-risks the project, but also starts cash flows from this long gestation project – enabling a likely re-rating of the stock. Initial oil production is likely to be 30,000 barrels per day (bpd). The commencement of oil production indicates that issues like pricing of Rajasthan oil and sales tax levies have been resolved by the company.
Cairn already has oil off-take agreements for 0.7 million tonnes of production for 2009-10 and 2.4 million tons for 2010-11. After the first oil, focus would shift to issues like completion of the oil pipeline and volume ramp-up. Currently, the stock is implying long-term Brent price of $65 per barrel from 2013-14 onwards v/s forecast of $85 per barrel. Cairn is the best Indian stock for taking exposure to the improving fundamentals of oil market, owing to its high earnings leverage to oil price and strong oil production volume growth. The 12-month NAV-based price target is Rs 310.
CIPLA
Reco price: Rs 261
Current market price: Rs 272.30
Target price: Rs 238
Downside: 12.6%
Brokerage: Angel Broking
Cipla’s exports that constitute more than half of its revenues grew by 30 per cent in 2008-09 compared to domestic sales growth of 15 per cent. In the US, Cipla has received approvals for 36 products, of which 23 have been commercialised. In Europe, the company has 410 dossiers under registration, with 292 approved and 51 commercialised.
Cipla invested about Rs 2,000 crore in capex over the past three years. Cipla’s SEZ at Indore is expected to commence operations in 2009-10. However, Cipla’s SEZ project at Kerim, Goa remains suspended. Going ahead, the company is contemplating an incremental capex of Rs 500-600 crore and would require an additional Rs 300 crore on the working capital front. Cipla is planning to tap the capital market in the near future to raise funds of around Rs 1,500 crore, primarily to fund its incremental capex, working capital needs and to repay short-term debt.
The company’s sales are expected to grow at 12 per cent CAGR over FY09-11, primarily driven by exports. Given the supply-based model, in order to clock healthy topline growth, Cipla would continue to require additional capex, thereby suppressing its return ratios. At Rs 261, the stock trades at 19.2 times its estimated FY10 earnings. Maintain ‘reduce’.
GMR INFRASTRUCTURE
Reco price: Rs 137
Current market price: Rs 142.30
Target price: Rs 135
Upside: NA
Brokerage: Kotak Securities
GMR Infrastructure (GMRI) has demonstrated strong execution with completion of Hyderabad and Delhi airports (likely by March 2010) and road projects. GMRI is pursuing a strong growth agenda and aims to develop 6,240 MW of power projects, SEZs and coal mines along with the recent acquisition of Intergen NV.
The brokerage has valued the company’s existing asset portfolio at Rs 115 per share and has added 50 per cent of the value of projects that have been identified to arrive at a SOTP-based target price of Rs 135. Key components of SOTP-based valuation are airports at Delhi (Rs 12.1 per share) and Hyderabad (Rs 11.7 per share), associated real estate (Rs 35.5 and Rs 10.3, respectively) and power projects portfolio (Rs 23). The brokerage is positive on the stock based on incremental visibility on identified projects, likely pick-up in demand across assets led by broad economic revival and incremental project wins.
However, long-term infrastructure projects entail risks related to execution, demand outlook, financing cost and regulation. Other risks relate to $1 billion off-balance sheet debt to finance the Intergen acquisition, real estate transaction structure to reduce revenue share and taxes.
SOBHA DEVELOPERS
Reco price: Rs 243
Current market price: Rs 249.15
Target price: Rs 314
Upside: 26.0%
Brokerage: ICICI Securities
Sobha Developers’ (Sobha) is witnessing sales run-rate of Rs 50 crore per month vis-à-vis Rs 5-10 crore per month at lowest levels. Volumes have picked up across projects to over 0.5 million square feet (sq ft) from 0.3 million sq ft per quarter over the past five quarters.
Sobha has sold around 5 million sq ft to private equity players in Bangalore for Rs 225 crore, of which Rs 100 crore has been received. Further, Sobha is looking to sell land in Bangalore, Pune and other cities to raise additional capital of Rs 250 crore. These asset sales will further de-stress the balance sheet, resulting in faster execution and new residential launches for the company. Post capital infusion of Rs 530 crore through QIP and Rs 500 crore through land liquidation, expect gross debt-equity ratio to reduce from 1.8 to 0.6 by 2009-10 end.
Sobha is developing 9.3 million sq ft across 31 projects and has aggressive plans to launch another 3-4 million sq ft projects in 2009-10 in places like Bangalore, Mysore and NCR. Given cash-flow visibility from operations and asset sales, its long-term story is intact. ICICI Securities has raised its target price to Rs 314 from Rs 288. The stock is trading at 1.2 times FY11 P/BV of Rs 202 per share. Maintain ‘buy’.
SHOPPER'S STOP
Reco price: Rs 219
Current market price: Rs 256.60
Target price: NA
Brokerage: Edelweiss Securities
While same store sales (SSS)of Shopper’s Stop’ declined by 6 per cent in June 2009 quarter, it recovered in July falling only 0.4 per cent. In August though, SSS were badly affected due to the swine flu scare. The company expects growth to recover in second half of FY 10 owing to better urban consumer spending, strong pipeline of movies in multiplexes and receding swine flu scare.
Hypercity, Malad (Mumbai) reported a sales growth of around 12 per cent y-o-y; the company expects good growth from this format, going forward. SSL has an option to increase its stake from 19 per cent to 51 per cent by June 2010. The company expects to add two stores each of Shopper’s Stop and Hypercity in 2009-10.
The company is expected to benefit from store expansion, cost control measures, uptick in spending by urban consumers and strong movie pipeline. Although the swine flu scare has slowed down recovery in sales, expect growth to improve over the medium-term as swine flu panic has abated and malls and multiplex closure is now relaxed. The brokerage has revised its EPS estimates to Rs 3.2 and Rs 9.6 in 2009-10 and 2010-11, respectively and, recommendation from ‘Reduce’ to ‘Hold’.
Current market prices as on August 28.
