Jet Airways: Ruling trunk routes

ANALYSTS' CORNER

Enam Securities rates Jet Airways as neutral, relative to the sector. The report states the Indian markets are in a growth phase, with domestic markets expected to show a rise of 16 per cent CAGR during 2005-10. Even as low-cost carriers will expand the market; the propensity to fly will be driven by pricing strategies and regional destinations. At the same time, infrastructure constraints may deter aggressive capacity increase on trunk routes.

Jet is the largest domestic carrier with a 40 per cent market share and is expected to dominate trunk routes for business travellers. The company can also leverage by adding international spokes to the domestic hub. Besides, the company has a fleet expansion plan of inducting one aircraft every two months. The report adds that the concerns include inability to fully recover fuel price hike through passenger fare revisions, which may impact domestic margins adversely.

Moreover, international operations have high break-even load factor at 75 per cent, which is expected to stabilise at 70 per cent by the financial year 07.

HCL Tech: BPO flourish

Enam Securities rates HCL Technologies as an outperformer, relative to the sector. The report states the company's business process outsourcing (BPO) is set to grow with large deals to the tune of about $100 million in the pipeline and margin improvement driven by increased offshore mix, shift utilisation growth and a conscious shift to non-voice business.

The report expects the utilisation rate will inch up during FY06. The stock trades at 17 times its FY06 earnings. The report adds that the robust growth in BPO, remote infrastructure management and execution of the Blue Ocean strategy would help HCL Technologies deliver better than the industry growth rate in the medium term.

Gujarat NRE Coke: aggressive expansion

UTI Securities recommends a Buy on Gujarat NRE Coke. The report states that Gujarat NRE Coke has been a profit-making company ever since its inception.

At present, it is the largest non-captive manufacturer of low ash metallurgical coke in India and is the largest and only exporter from India, producing more than 6,74,000 tonne per annum (TPA) in its two plants at Khambalia and Bhachau in Gujarat. It has also promoted Bharat NRE Coke.

The company has gone for backward integration and acquired two coking coal mines in Australia. This acquisition will help it reduce the cost of production. The mines have combined coking coal reserves of 400 mm tonne.

Moreover, the company is setting up its third plant at Dharwar in Karnataka at an investment of Rs 100 crore, primarily to cater to the huge markets in the west and the south. The new plant will also help it expand its exports kitty.

The plant likely to be completed by December 2005 will have a capacity of 4,00,000 TPA coke. The company is the only exporter from India. The stock is trading at a P/E of 4.9 times FY06P and 3.34 times FY07P earnings.