Research Calls: Nucleus Software Exports

Recommendation: Accumulate
Reco price: Rs 991
Current market price: Rs 1,002
Broking firm: Edelweiss

Nucleus Software focuses on the banking, financial services and insurance (BFSI) industry, with specialised products for retail banking.

It has recently won an order from ACOM - Japan's largest consumer finance company, worth Rs 150 crore taking its total order book size to Rs 330 crore as on FY07. So far, the company has over 250 product implementations for its flagship product FinnOne.

In FY07, nearly 54 per cent of its revenues came from the product segment, which is expected to grow at a CAGR of 64.5 per cent over FY07-09E, contributing 72.6 per cent to its estimated FY09 revenues.

This is likely to result in EBITDA margins expanding from 28.61 per cent in FY07 to 29.9 per cent in FY09E.

Edelweiss expects Nucleus' revenues and profits to grow at 42 per cent and 41 per cent CAGR respectively, between FY07 and FY09. At Rs 991, the stock traded at 21 times its estimated FY08 earning per share (EPS) of Rs 47, and at 14.5 times its estimated FY09 EPS of Rs 68.1.

Punjab National Bank
Reco price: Rs 530
Target price: Rs 601
Current market price: Rs 524.25
Upside (%): 14.63
Broking firm: Karvy Stock Broking

PNB has a strong foothold in northern India, in particular with the prosperous agricultural districts. Post 2009, competition is likely to intensify as foreign banks will be allowed more leeway.

In such a scenario, PNB has to be prepared for a highly competitive environment post-FY2009 and has to also modify its business model to focus on rural or semi-urban India and in northern and central India.

At the recommended price, the stock is valued at a P/E multiple of 6.3 times its estimated earnings and 1.3 times its book value in FY09.

Gayatri Projects
Reco price: Rs 301
Target price: Rs 374
Current market price: Rs 290
Broking firm: IndiaInfoline

Gayatri Projects has bagged two new projects worth Rs 880 crore in partnership with Maytas. Including these two projects, the order book stands at Rs 3100 crore translating to 6.2 times its FY07 sales.

The company is expected to witness a CAGR of 45.2 per cent in topline between FY07-09E and cross the Rs 1000 crore turnover in FY09E. During the same period, net profit is expected grow at CAGR of 57 per cent.

At the recommended price the stock is trading at a discount of 50.5 per cent to the average P/E of Gammon, HCC, NCC, IVRCL and Patel Engineering. At a recommended price, the stock trades at 5.8 times FY08E and 3.8 times FY09E EPS, making it one of the most attractive construction companies.

AIA Engineering
Reco price: 1,752
Target price: Rs 1,974
Current market price: Rs 1,697.10
Upside (%): 16.3
Broking firm: Prabhudas Lilladher

AIA Engineering is a niche player in high-chrome metallurgy products catering to the cement, power and mining segments.

The three industries that it caters to, are expected to invest more than Rs 5,70,000 crore over the coming five years in capital expenditure. It is a market leader with nearly a 90 per cent share in the domestic market, while in the global market it has a 20 per cent share.

Further, it is increasing its capacity from 65,000 tonne per annum to 265,000 tonne per annum over the coming two years which will fuel its growth in the forthcoming years.

Prabhudas Lilladher expects a net profit CAGR of 40.2 per cent on the back of revenue CAGR of 46.5 per cent. At the price of Rs 1,752, the stock trades at 24.2 times and 17.8 times its estimated FY08 and FY09 earnings of Rs 72.3 and Rs 98.6, respectively.

On an EV/EBITDA basis, the stock is available at 16.4 times and 11.4 times its FY08 and FY09 estimates respectively. The target price of Rs 1,974 per share discounts FY09 earnings by 20 times.

Indian Bank
Reco price: Rs 130
Target price: Rs 182
Current market price: Rs 140.85
Upside (%): 29.21
Broking firm: Motilal Oswal

Steady margins with strong asset growth, rising fee income, strong recoveries, and lower provisions towards NPAs and income tax would drive Indian Bank's earnings for the next couple of years.

The bank's earnings is expected to grow at a CAGR of 24 per cent over FY07-09. The bank has progressively reduced its gross NPAs over the last five years to 1.9 per cent, in line with the best in the sector. It has been speeding up recovery and is containing fresh slippage.

Recoveries could bring earnings surprises for the next couple of years. The stock recommended price trades at 1.1 times FY09E book value and 4.8 times FY09E EPS.

Based on its RoE of 25 per cent, which is highest amongst state-owned banks, the stock should trade at 1.6 times FY09E book value.