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Stocks you can pick this week(The Economic Times (India) Via Thomson Dialog NewsEdge) Larsen & Toubro Research: JM Morgan Stanley Recommendation: Overweight CMP: Rs 2,657 (Face Value Rs 2) 12-Month Price Target: Rs 3,024 WHILE the company looks fairly valued on most earnings-based metrics, the metrics do not take into account higher growth at the margin. With FY06 sales of Rs 14,800 crore, it compares well even with the large regional construction companies (especially those in Korea.) Despite its size, L&T continues to clock impressive growth (ex-cement sales grew at a CAGR of 28% over FY02-06), and its Rs 28,300-crore order book supports the belief that this trend will continue. The stock has done well over the past 12 months, with the price moving up by 85%, compared with the uptick of 42% in the broad Indian market. While the global peers of the company trade at a FY08E P/E of 10-12 times and an EV/EBITDA of 8-13 times, L&T trades at 15.4 times FY08E EV/EBITDA and 18.9 times FY08E P/E. However, JM Morgan Stanley believes that the sustainability of higher growth over the medium term will enable the company to continue to trade at a premium to its global peers. BASF Research: Sharekhan Recommendation: Buy CMP: Rs 228 (Face Value Rs 10) 12-Month Price Target: Rs 300 BASF is a 52.7% subsidiary of BASF AG, Germany. The company is expanding its presence in the specialty chemical business by moving into production of polyurethane, which has applications in packaging, furniture and automobiles. Expandable polystyrene is used in packaging and insulation. The major end users in the packaging segment are consumer electronics and white goods industries. These, coupled with the easier availability of finance, and increased distribution/penetration of consumer goods have resulted in a strong secular growth in the consumer electronics industry, which has grown at a CAGR of 18% over FY01-06. At the current market price, the stock is quoting at 7.6 times its FY08E EPS and 4.3 times its FY08E EV/EBIDTA. Sharekhan believes that the stock is trading at attractive valuations, given that the outlook for the company's business is very bright over next two years. The return ratios RoCE and RoNW are likely to show sharp improvement and the dependence on agri-nutrients business is likely to reduce substantially. Wockhardt Research: Karvy Stock Broking Recommendation: Market Performer CMP: Rs 402 (Face Value Rs 5) 12-Month Price Target: 440 Wockhardt has decided to sell Dumax's diary and milk processing unit. It has bought over Dumax to gain access to two main brands, Protinex and Farex. The company had to buy this unit as a composite deal with the unit because Royal Numico wanted to exit the country. As Wockhardt has a similar processing unit in Punjab, it makes logical senses to dispose off this unit as it will mount to duplication of assets. The plot has a 32-acre greenfield diary and milk processing unit located in Punjab and was set up to manufacture instant formula milk powder and health food supplements. It has a 0.2 million litre a day milk processing capacity and was set up with a total investment of Rs 170 crore. The plant was to commence commercial production in December '06. According to market sources, Wockhardt is in the race to buy Pinewood, an Irish company. Pinewood has around 400 employees and sells over 200 ethical and OTC brands in about 30 countries. The deal size could be in excess of $100 million. On current valuations, it is quoting at 16.3 times CY06 and 13.5 times CY07. Unless the company goes through the acquisition, the company will remain a market performer. Infosys Research: Enam Securities Recommendation: Outperform CMP: Rs 1,830 (Face Value Rs 5) 12-Month Price Target: Rs 2,041 Infosys' new service offerings and consulting segments are contributing towards higher EBITDA realisation per employee (Infosys at $3,300 v/s $2,800 for TCS and $2,500 for Wipro in Q1 FY07). While absolute share remains at 3% of revenue share in Q1 FY07, business prospects remains encouraging. The annualised revenue run rate stands at $500 million (implied QoQ growth rate at 10% in residual three quarters of FY07). ES remains a key growth area with higher billing rates, increasing share of consulting, high growth in Europe and faster sales cycle. Post phase-II (113 acres) completion, the Pune facility will boast of a capacity of 50,000. This will be just short of Infosys' current strength of 58,409 employees in Q1 FY07, including onsite employees. This investment highlights a defined HR roadmap and encouraging demand dynamics. Effective monitoring of recruitment cycle, T&D investments, KM initiatives and apt compensation strategies remain the order of the day. At current market price, the stock trades at 28 times FY07E and 22.6 times FY08E earnings. Motherson Sumi Research: Angel Broking Recommendation: Buy CMP: Rs 95 (Face Value Rs 1) 12-Month Price Target: Rs 107 MOTHERSON Sumi (MSSL) is a leader in wire harnessing, controlling over 65% of the domestic passenger car market. MSSL's sales of this segment are to grow at a CAGR of around 28% over the next two years. MSSL is focusing on the supply of higher level assemblies and modules. Margins in this segment are comparatively higher. In this segment, MSSL is to clock a CAGR growth of 49% in sales over the next two years on the back of steady growth in passenger cars. The company is also increasing content per car in its bid to diversify its product portfolio. MSSL is focusing on its global product plan (GPP), wherein it enters into JVs with leading tier-I suppliers to upgrade its technology base and increase clientele. MSSL is focusing on increasing its overseas sales to achieve 60% of consolidated turnover from overseas clients. At the current market price, the stock is trading at 18.5 times FY07E and 14.1 times FY08E consolidated earnings and 8.2 times FY08E EV/EBITDA. Micro Inks Research: Religare Securities Recommendation: Buy CMP: Rs 320 (Face Value Rs 10) 12-Month Price Target: 390 MICRO Inks has a more than 30% market share. It has a distribution network in more than 50 countries, exporting products to more than 70 countries. Adverse factors like steep rise in crude prices, inability to increase selling prices, losses on currency fluctuations, payments for contractual obligation are coming to an end. With two hikes in selling prices in July and August '06, the company is set to perform better in the quarter ending September '06 and report good results for the last quarter ending December '06 and onwards. Interest charges will fall due to part-repayment of debt from proceeds of the GDR. Due to these reasons, Religare expects the current year (for nine months) to end with sales of Rs 780 crore and PAT of Rs 13 crore, giving annualised EPS of Rs 7. But CY07 should see robust earnings with net sales of Rs 1,120 crore and PAT of Rs 63 crore, resulting in an EPS of Rs 25.40. Disclaimer: Investor's Guide does not accept responsibility for consequences of financial decisions taken by readers on the basis of information provided herein. The aim is to provide a reasonably accurate picture of financial and related opportunities based on information available with us. Copyright 2006 The Economic Times of India, Coleman & Co Ltd. Source : Financial Times Information Limited |