Saturday, 8 September, 2007

Stock Picks

Hotel Leelaventure
CMP: Rs 44.75
Target Price: Rs 72

ICICI Direct has initiated coverage on Hotel Leela with a hold rating and expects the stock to underperform its peers in the sector due to expensive valuation. “Given the delayed expansion plans and absence in major markets till 2010, we feel Leela’s current valuations have factored in the business growth till FY09,” the retail brokering house said.

“Although Hotel Leela has undertaken expansion plans to New Delhi, Pune, Chennai and Hyderabad, the company is not expecting any of the fresh capacities to be operational before FY11. By 2010, the hotel sector should witness huge supplies coming in at major cities resulting in rationalisation of average room rates (ARRs) and cooling down of the occupancies,” it said.

Transport Corp
CMP: Rs 115.25
Target Price: Rs 140

SSKI Securities has initiated coverage on Transport Corporation of India (TCI) with a buy rating and price target of Rs 140. “TCI is currently trading at 12.8 times FY09 earnings and 7.4 times FY09 EV/EBITDA (enterprise value/earnings before interest, taxation, depreciation and amortisation), which we believe is attractive, considering the sharp earnings growth trajectory and steep discount to peers,” the institutional brokerage said. “Further, to emerge as one of the largest SCS (supply chain solutions) providers, TCI is also investing heavily into warehouses and trucks, which will enable TCI’s SCS revenues to grow at 55% CAGR over FY07-09E,” it said.

Motherson Sumi
CMP: Rs 101.05
Target Price: Rs 120

Merrill Lynch has initiated coverage on Motherson Sumi Systems with a buy rating and price target of Rs 120 citing sustainable strength in earnings growth and new business ventures as among the key reasons. “We expect a 23%+ CAGR (compounded annual growth rate) in EPS (earnings per share) during FY07-FY10E (estimated) driven by 25% CAGR in revenue,” the investment bank said in a note to clients.

“Expansion of rubber component business with the recent acquisition of Empire Rubber in Australia and beginning of commercial production of mobile phone plastics parts business in H2FY08 are the key growth drivers apart from the 22% CAGR in wiring harness revenue, in our view,” the note said.

CMP: Rs 919
Target Price: Rs 1,050

While maintaining its buy rating on ICICI Bank, with a price target of Rs 1,050, CLSA said concerns about the private bank’s asset-quality were exaggerated. “Concerns about the bank’s rising gross non-performing loans (NPLs) are exaggerated given that most of the increase is due to the bank’s higher proportion of unsecured loans, which are priced for higher defaults and have ROE (adjusted for the high risk) of about 25%,” the French investment bank said. After factoring in the rise in provisions for NPLs, CLSA expects ICICI Bank’s net profit to grow 30% on an annual compounded basis till 2010.

Phillips Carbon
CMP: Rs 168.75
Target Price: Rs 213

Angel Broking has initiated coverage on Phillips Carbon Black with a buy recommendation and 12-month price target of Rs 213. “We expect PCBL to grow at a CAGR of 9.8% in topline (net sales) and 78.8% in bottomline (net profit) over FY2007-09E. Growth in bottomline will primarily be aided by contribution from the power division as it will reduce costs as
well as provide additional source of revenue with 85-90% EBITDA margin (operating margins),” the broking house said in a note to clients. Angel estimates Phillips’ EPS in 2007-08 at Rs 21.7, as against Rs 9.4 in 2006-07. In 2008-09, the company’s EPS is expected to be Rs 26.6.