GMR Infrastructure
Reco price: Rs 67
Current market price: 60.8
Target price: Rs 54
Downside: 11.2%
Brokerage: Motilal Oswal Securities
During September 2009 quarter, GMR Infrastructure reported revenues of Rs 1,200 crore, up 41 per cent year-on-year (y-o-y). However, net profit after minority interest of Rs 54.9 crore was down 50 per cent y-o-y due to several one-time items like Rs 9.5 crore of write-back of depreciation towards Vemagiri project and Rs 12.5 crore of prior period service tax charge in Hyderabad airport SPV. On the operating front, its airport business witnessed momentum as passenger traffic grew on y-o-y basis by over 20 per cent at Delhi Airport and 8 per cent at Hyderabad Airport. In the road segment as well, most road projects which were under construction have entered operations phase and monthly annuity/toll collection stood at Rs 30.5 crore against Rs 11.6 crore in the quarter. In the power business, PLF improved for its projects--Vemagiri operated at 90 per cent, while Chennai Power’s PLF stood at 73 per cent. On a SOTP basis, the stock is valued at Rs 54 per share. At Rs 67, it trades at a PE of 51 times and 53.4 times estimated 2009-10 and 2010-11 earnings and price to book value of 3.6 times and 3.4 times, respectively
Punj Lloyd
Reco price: Rs 203
Current market price: 202.90
Target price: Rs 192
Downside: 5.4%
Brokerage: Emkay Global Financial
Led by yet another instance of cost overrun of Rs 104 crore booked on project undertaken by WOS Simon Carves, Punj Lloyd reported a 63.3 per cent y-o-y decline in adjusted net profit to Rs 52.8 crore. Even revenues declined by 2.8 per cent y-o-y to Rs 2,870 crore, led by lower traction in key orders.
The lower revenues were not surprising, but recurrence of cost overruns despite clarification by management in earlier interaction is negative surprise. The stock has already taken a significant beating in last few trading sessions. While Emkay had a negative bias on the stock, the recent price correction has taken the sheen of the high expectations and valuations from overtly-optimistic levels to attractive levels. But, successful and profitable order book execution remains key risk to earnings, considering the track-record of cost overruns. Since, the company has not stabilised its operations, the brokerage has retained a ‘reduce’ rating and also increased the relatively discount to L&T’s valuations to 45 per cent versus 30 per cent earlier with a revised price target of Rs 192 per share. Consolidated earnings estimates have been maintained for 2009-10 and 2010-11 at Rs 14.1 and Rs 16.8 per share, respectively. At Rs 203, the PE works out to 14.4 times on estimated 2009-10 earnings.
Indraprastha Gas
Reco price: Rs 162
Current market price: 157.45
Target price: Rs 193
Upside: 22.6%
Brokerage: Edelweiss Securities
Indraprastha Gas (IGL) had its best-ever quarter, posting an EPS of Rs 4.1 in September 2009 quarter due to continued volume growth and high CNG realisations on account of increase in prices. A decline in other income, mild rise in gas costs and increased cash costs only partially offset the positives. CNG volumes, at 134.4 million (mln) kg, grew 14.7 per cent y-o-y and 11.5 per cent over June 2009 quarter due to strong demand from CNG buses, which are continuously being added to the Delhi fleet in the wake of Commonwealth Games. IGL added six CNG stations in the quarter, taking the total number to 187.
The stock has rallied in the quarter on account of the positive regulatory news and Commonwealth Games-led volume growth being factored in. Edelweiss has marginally reduced its earnings projections (4-5 per cent) in line with increased costs. At Rs 162, IGL is trading at 10.8 times its EPS and 2.8 times price to book value based on 2009-10 estimates, as against the fair value of Rs 193.
Madhucon Projects
Reco price: Rs 225
Current market price: 231.35
Target price: Rs 284
Upside: 22.8%
Brokerage: Angel Broking Madhucon Projects recorded a 4.9 per cent y-o-y growth in net sales to Rs 254.7 crore. The company acknowledged that its irrigation segment has been hit by delays consequent to the untimely demise of the chief minister of Andhra Pradesh. For the September 2009 quarter, the company reported a decline in OPM to 11.2 per cent versus 16.6 per cent in September 2008 quarter. Considering this, the brokerage has estimated an OPM of 11.6 per cent in 2009-2010. The company also reported 6.6 per cent decline in net profit to Rs 12.0 crore
On the positive side, interest cost has come down by 26.6 per cent to Rs 4.5 crore. Besides, the company has an outstanding order book of about Rs 4,600 crore or 3.6 times its estimated 2009-10 revenues, which lends strong revenue visibility. Also, as the company's various plans and ongoing projects in the BOT road segment, real estate, power and coal venture are near completion and expected to be operational, it would create immense value. The current market capitalisation doesn’t factor in the company's true value (including all its ventures). At Rs 225, the stock is trading 9.8 times 2010-11 estimated standalone earnings. However, considering its different ventures the value the stock on a SOTP basis works out to Rs 284.
Idea Cellular
Reco price: Rs 54
Current market price: 55.50
Target price: Rs 50
Downside: 9.9%
Brokerage: Ambit Capital The company reported flat revenues on a sequential basis at Rs 2,970 crore. Its standalone ARPU declined 10 per cent whereas Spice's ARPUs fell 7.4 per cent. The company also reported a decline in EBITDA margins to 27.2 per cent on the back of higher subscriber acquisition cost and personnel expenses. According to the management, seasonality effect has impacted the minutes of usage leading to a sharp decline in ARPUs. Ambit Capital expects ARPUs to continue to fall further due to launch of per second billing in some circles and 50 paisa per minute local and NLD tariffs. Also, probable reduction in roaming charges and a hit on rental income post-MNP will put further pressure on ARPU.
Increasing competition coupled with MNP implementation would lead to higher selling and administration expenses and network operating costs. The brokerage also believes that cash in hand and operating cash flow would not be adequate to meet 3G auction payment and capex. Hence, it expects the company to raise further debt, which would lead to higher interest expense. Owing to this, margins are expected to remain subdued in the short-term. Overall, as a result of these concerns, it continues to expect revenue and profitability growth to remain under pressure, and maintains a ‘sell’ with a target price of Rs 50.
Current market prices as on October 29
