EDUCOMP SOLUTIONS
Reco price: Rs 657
Current market price: Rs 650.50
Target price: Rs 926
Upside: 42.4%
Brokerage: Angel Securities
Educomp reported robust performance recording 37.2 per cent year-on-year growth in top-line in the December 2009 quarter. The growth was driven by its School Learning Solutions (SLS) business that comprises of Smart Class and ICT Solutions (ICT), which registered robust 55.3 per cent growth. It implemented 355 new schools under the Smart Class business and signed in 363 new schools in ICT during the quarter. Strong margins (52.4 per cent) and other income boosted bottom-line by 92.3 per cent despite higher depreciation and interest costs.
Strong government backing pertaining to higher budgetary spends to spur growth of the education and training sector across the globe, and particularly in India, are key positives for companies like Educomp. Expect the company to thrive on the upcoming opportunities in space and continue to witness strong growth trajectory backed by ongoing investments for newer initiatives with focus on product and content innovation.
In addition to the aggressive expansion plans in the Smart Class segment, the company is also investing considerable amounts towards newer initiatives in terms of setting up its own K-12 high-schools and has embarked on expansion of its online, supplementary business. Expect Educomp to record strong CAGR of 48.5 per cent and 45.4 per cent in top-line and bottom-line, respectively over FY2009-12. The stock is trading at 14.2 times its estimated 2011-12 EPS.
HDIL
Reco price: Rs 307
Current market price: Rs 312.65
Target price: Rs 436
Upside: 39.5%
Brokerage: IIFL
Our channel checks indicate that TDR prices have increased 5-8 per cent since December 2009 and currently trade at Rs 2,600-2,900 per sq feet. The rate of increase in TDR prices has slowed down. For instance, in Bandra-Khar area, TDR price had increased from Rs 2,450 per sq feet on October 2009 to Rs 2,750 in December. The same is currently hovering around Rs 2,800-2,900.
Volumes have been weak and no large transactions were reported in January 2010. TDR prices are closing in on the previous peak of Rs 3,000-3,200 per sq feet recorded in late 2007, as residential volumes in suburban Mumbai continue to be strong. The brokerage estimates HDIL’s NAV at Rs 436 per share. The NAV estimates assumes long-term TDR price of Rs 2,200 per sq feet, which is significantly lower than current rates. It maintains a buy on the stock with a 12-month price target of Rs 436.
RELIANCE INDUSTRIES
Reco price: Rs 1,004
Current market price: Rs 1,013.95
Target price: Rs 1,220
Upside: 20.3%
Brokerage: Ambit Capital
Singapore complex refinery margins per barrel have improved from $2.3 at end-December 2009 to $4.4 currently; it averaged $3.9 in January 2010. The recovery was led by improvement in gasoline cracks that shot up from $5 per barrel to $11 per barrel. Low refinery runs in OECD nations, particularly US, drove this improvement. RIL’s gross refining margins (GRMs) stood at $7.8 per barrel year-to-date; expect RIL to report GRMs of $8.5 per barrel for March 2010 quarter in case the current situation prevails.
Petrochemical prices showed a sequential improvement of around 5 per cent in the month of January and a similar improvement is expected in February as well. However, margins should remain more of less stable, as feedstock costs are moving in tandem. The tight supply situation in Iran and South East Asian countries are contributing to the firmness in prices. India and China have emerged as robust markets for polyethylene, polypropylene and PVC, providing support to the prices.
RIL is expected to report earnings in the range Rs 6,000-6,500 crore in March quarter driven by higher GRMs, around 30 per cent higher gas production, cost savings owing to switching from re-gassified LNG to KG-D6 gas. Ambit expects RIL’s margins to increase from $7 per barrel in 2009-10 to $10 in 2011-12.
LUPIN
Reco price: Rs 1,582
Current market price: Rs 1,572.25
Target price: Rs 1,760
Upside: 11.9%
Brokerage: Sharekhan
Lupin has received the USFDA’s approval for the blockbuster hypertension drug Lotrel’s generic version, Amlodipine Benazepril capsules. The market size for the drug is $1.1 billion as per the IMS Health data and the patent for the drug expires in December 2017. This is a significant approval and will boost the cardiovascular therapy portfolio of Lupin. With only three players present in the market (the innovator Novartis; Sandoz, the authorised generic maker; and Teva, which had launched the product at risk), expect Lupin to garner a profit of Rs 15 crore in 2009-10 with incremental EPS of about Rs 2.
Lupin is well placed in the direct-to-market generic segment in the US with a healthy pipeline of 63 abbreviated new drug applications pending approval, including a number of Para IV opportunities. The 2010-11 product opportunities would be driven primarily by Antara, Allernaze and Lotrel. The growth beyond 2010-11 would be driven by the launches from an impressive portfolio of oral contraceptives, ophthalmology and possibly oncology in the domestic market. At Rs 1,582, the stock trades at 16.8 times its estimated 2010-11 fully diluted earnings.
SESA GOA
Reco price: Rs 367
Current market price: Rs 380.85
Target price: Rs 455
Upside: 19.5%
Brokerage: Edelweiss Securities
Sesa Goa will be a key beneficiary of the strong uptrend in iron ore imports and steel production in China. While it exports around 95 per cent of its total volumes, China accounts for 84 per cent of its sales volume currently. Sesa Goa (including Dempo) is expected to produce 26.8 million tonnes (MT) of iron ore in 2010-11 and 33.4 MT in 2011-12. The management is targeting total volume of 50 MT in the next two-three years i.e., latest FY13. The company announced a capex of Rs 1,500 crore for this capacity expansion, to be spent over three years.
The company is adopting a multi-pronged approach of brown-field exploration, making third-party mining arrangements and acquisitions in India and abroad to increase its resource base. Consequently, its resource base is expected to increase to at least 500 MT from the current 310 MT (including Dempo) in the next two-three years as per managements’ guidance. In terms of earnings, the stock is trading at an EV/EBITDA of 3.1 for based on estimated numbers for 2011-12, which is at a substantial discount. The company’s EBIDTA and EPS are expected to post a CAGR of 41 per cent and 40 per cent, respectively from 2009-10 to 2011-12 led by its superior volume growth profile. Edelweiss estimates Sesa Goa’s fair value at Rs 465.
Current market prices as on February 11
