S Kumars: Primed for growth

ANALYSTS' CORNER

Prime Broking grades S Kumars Nationwide (SKNL) as a strong buy with a target price of Rs 90-100 by June '07. The report believes that SNKL's troubled times are over.

Its recently concluded corporate debt restructuring (CDR) package has refixed interest rates at 6-7 per cent compared with 15 per cent earlier. SKNL has presence across the value chain from spinning to garmenting.

Moreover, it has developed strong brands such as S Kumars and Reid & Taylor. SNKL has put together expenditure plans of Rs 80 crore in home textiles and 76 crore in worsted fabrics.

In retailing, SNKL plans to leverage on its existing 30,000 franchisee retail outlets and 300 wholesalers. Textile exports also promise a strong upside potential.

But unfavourable rate movements, changes in duty structure and increase in raw material prices, can be the risk areas for SKNL. At Rs 36, the stock trades at 9.5x (FY06) and 4.8x (FY08).

Asian Electronics: Demand booster

Prime Broking recommends a strong buy on Asian Electronics at Rs 183. The report points out that due to increasing awareness about energy efficiency and government initiatives, the company has a strong customer base of 500 institutional clients.

The company manufacturers products with ESCO component required to conserve energy as per the government directives. The company has in place strategic alliances with Global Energy Management, Westinghouse and Asian Raymold Lighting.

The report adds that the company has huge export potential. It currently exports to the US, the UK and other parts of Europe. Moreover, it has a sustained focus on new product development.

The company board has approved the proposal of raising about Rs 130 crore by way of ECBs, FCCBs and preferential allotment. The risks for the company include an unfavourable dollar-rupee move, rising prices of imported components and unorganised competition. The stock trades at 11.8x.

Reliance: Demerger leg up

Enam Securities grades Reliance Industries as an outperformer relative to the sector at Rs 714. The target price is Rs 800 and a potential upside of 12 per cent. The report further states that now there is greater clarity on the proposed demerger.

The entities include Reliance Capital, Reliance Energy, RCVL and GFMS. The report has worked out the fair value of the company at Rs 830-916.

The fair value has been worked out based upon a $8 billion valuation of the Infocomm business and a 8x P/E for its refining/ petrochem earnings stream.

The report attempts to arrive at a fair value based on several scenarios for valuation of Infocomm business as well as multiples of Reliance's residual operations.