India Cements: Price gains

ANALYSTS' CORNER

Sharekhan has recommended a buy on India Cements (ICL) at the price of Rs 220 with a price target of Rs 315. Cement consumption is expected to grow at a CAGR of 11 per cent for the next few years.

Fresh capacities will come up only in first half of FY09, hence cement prices are expected to remain firm for the next two years. ICL plans to raise capacity by 2 million tonne by December 2007 at a cost of Rs 350 crore.

This shall take its total capacity to 11 million tonne. Its balance sheet has improved in the past few years. Debt-equity ratio has come down to a much respectable 1.8:1 in FY06 from 6:1 in FY05 and it is expected to drop further to 0.3:1 in FY08. At the current prices, the stock is trading at 8.8 times the estimated FY08 earnings.

Jay Shree Tea: Capacity addition on cards

IDBI Capital recommends a buy on Jay Shree Tea & Industries at the market price of Rs 132 with a price target of Rs 239.

While tea business accounts for 77 per cent of its gross turnover, the chemicals and fertilisers segment contributing 21 per cent to its turnover is all set to add further to the topline through capacity expansion.

The company is planning to buy new gardens in Assam and plans for a capex of around Rs 50 crore for good quality gardens, though nothing has been finalised yet.

The company expects its PAT to grow at 48.1 per cent CAGR and topline at CAGR of 9.4 per cent in the next 2 years.

The current price is around 9.5 times and 5.5 times its FY07 and FY08 estimated earnings, respectively. Any acquisition of new gardens and expansion in capacity may result in huge earnings expansion.

Royal Orchid Hotels: A range of offerings

Emkay Securities recommends a buy on Royal Orchid Hotels (ROHL) at the current price of Rs 176 with a one year price target of Rs 243.

The demand for hotel rooms is expected to grow at 8-10 per cent annually for the next 3 years. ROHL has lined up an aggressive expansion plan involving a capital expenditure of Rs 500 crore, which will increase its room inventory by 57 per cent from the current 489 rooms to 769 by April '07.

ROHL is an emerging player in the hotel industry with major presence in Pune, Hyderabad, Jaipur and Delhi. Presence across various luxury, premium business and economy segments and in luxury resorts gives ROHL access to a wide customer base.

It takes properties on lease instead of owning them outright, which helps in having low set-up costs. At the current price, the stock trades at 12 times the FY08 expected earnings.