GAIL India
Reco price: Rs 399
Current market price: Rs 416.25
Target price: Rs 529
Upside: 25.8%
Brokerage: ICICI Securities

GAIL India (GAIL) will benefit from gas grid expansion and improved visibility on gas supply from Reliance Industries’ (RIL) KG basin. The company plans to double its gas transmission capacity at a capex of Rs 28,000 crore in two phases, to be completed by FY12E.

This will increase its pipeline network to over 12,000 kms and its transmission capacity by 176 mmsmcd. This in turn will quadruple GAIL’s gas transmission EBITDA in the next seven years, and improve its risk profile based on enhanced annuity earnings from transmission and reduced share of cyclical earnings from LPG and petchem.

GAIL will fund the pipeline network expansion through 70 per cent debt and the remaining via equity. The company’s existing free cash-flows and retained earnings are adequate to fund the equity portion at Rs 8,400 crore.

Higher crude oil prices will lead to increased profitability of LPG and petchem on surging realisations (linked to crude price) and stable raw material prices (as gas price is regulated in India). This will offset the affect of higher subsidy burden on GAIL.

GAIL’s revenue is expected to grow at a CAGR of 11.3 per cent through FY09E-11E on the back of 20.2 per cent transmission volume CAGR and declining subsidy burden. The stock is currently trading at FY10E P/E of 11.1x, EV/EBITDA of 7.5x and P/BV of 2x. Maintain Buy.

Satyam Computer Services
Reco price: Rs 433
Current market price: Rs 415.80
Target price: Rs 521
Upside: 20.5%
Brokerage: Sharekhan

Satyam Computer Services’ (Satyam) hedge position at the end of Q1 FY09 has reduced from $1,133 million in FY08 to $675 million, which is lowest among its peers. As the rupee depreciated around 7 per cent in Q1 FY09, Satyam reported lower forex losses in Q1 FY09 compared to its peers.

Satyam’s subsidiaries contributed 4.7 per cent to the topline in FY08, while their contribution to the bottomline was negative. The management had earlier said that it expects Satyam BPO (Nipuna) to break even in FY09 as against a loss of Rs 20 crore in FY08.

In FY09, the company intends to increase its capex to Rs 538 crore for developing four special economic zones (SEZs); two in Hyderabad and one each in Chennai and Nagpur. This should benefit the company to reduce its effective tax rate post FY10, when the tax sops to Software Technology Parks of India are withdrawn. Satyam has a strong balance sheet with cash and cash equivalent of about Rs 4,500 crore.

According to a press release, Satyam is currently pursing four acquisitions in Europe to strengthen its presence in the region. Satyam’s topline and bottomline are expected to grow at a CAGR of 25.4 per cent and 23.4 per cent, respectively during FY08-FY10. At Rs 433, the stock trades at 13.5x FY09E and 11.6x FY10E earnings.

ITC
Reco Price: Rs 191
Current market price: Rs 189.60
Target Price: Rs 218
Upside: 15.2%
Brokerage: India Infoline

ITC’s cigarette volumes will decline by 1 per cent in FY09 although Q1 FY09 volume decline was not as bad as expected. Margins on cigarettes will expand once the consumer upgrading exercise targeted at converting non-filter smokers is over by Q2 FY09. Cigarette volumes are expected to register a CAGR of 6.5 per cent over FY10-11.

Losses of non-cigarette FMCG businesses are unlikely to increase meaningfully as, the food business will turn earnings-positive by FY10 as commodity prices stabilise with major contribution from Aashirvaad and Sunfeast. Also, investments in soaps and shampoos businesses will be scaled back after aggressive expenses in the launch phase to accommodate new market entries such as skincare.

In agriculture business, easing in commodity prices is likely to improve the macro environment for ITC, with exports of commodities such as wheat being freed up. Growth in paper business would be driven by expansion plans of Rs 200 crore over the next 2-3 years and feasibility study is on to put up a 9,00,000 tpa paperboard machine.

Hotels revenues would be stable, driven by capacity additions during FY10-11 as well as restricted supply in key markets. To protect itself against rupee appreciation, ITC has started rupee billing. Agri, paper & paperboard and hotels are expected to register sales CAGR of 16 per cent, 28 per cent and 10 per cent, respectively over FY08-11.

HTMT Global Solutions
Reco price: Rs 246
Current market price: Rs 242
Target price: N.A.
Brokerage: Edelweiss Securities

HTMT Global Solutions (HTMT), a part of the Hinduja group, is the twelfth-largest BPO player in India, based on NASSCOM’s ranking for FY08. In customer contact services, HTMT focuses on after-sales service across verticals such as telecom, consumer electronics, and BFSI among others. On the back-office processing side, it provides claims processing services for insurance customers.

HTMT has, with its organic and inorganic initiatives, acquired an onshore presence in the US, near-shore presence in Canada, and offshore presence in Mauritius, the Philippines, and India that provides it with a fairly diversified delivery base.

With cash on hand of close to Rs 500 crore, the company is actively looking for inorganic growth opportunities to strengthen its delivery and domain capabilities.

HTMT has grown its revenue and net profits at a CAGR of 68 per cent and 101 per cent, respectively over FY06-08, while EBITDA margins also have steadily improved from 12.7 per cent to 15.8 per cent.

The stock is currently trading at a P/E of 5.2x and 4.2x its FY09E and FY10E earnings, respectively. HTMT has huge net cash balance equivalent to Rs 229 per share; almost the price at which the stock is currently trading. The brokerage has not rated the stock.

Sadbhav Engineering
Reco Price: Rs 827
Current market price: Rs 800
Target Price: Rs 1,036
Upside: 30.3%
Brokerage: Angel Broking

Sadbhav Engineering (SEL) is embarking to de-risk business from road segment (86 per cent of topline) by giving importance to segments like irrigation and mining in the future.

SEL is accepting projects outside Gujarat, besides going international with its entry in Mozambique. SEL has a strong order book of Rs 2,643 crore. It enjoys L1 status for projects worth Rs 1,800 crore. SEL has fixed price BOT orders worth Rs 596 crore and is moving up the value chain by owning BOT projects through its subsidiary, Sadbhav Infrastructure Projects (SIL).

Around 77 per cent of SEL’s order book has a pass through clause, which insulates it from any increase in raw material prices.

SEL plans to raise Rs 80-100 crore by diluting 10-15 per cent stake in SIL, which will be a possible trigger.

Sadbhav Natural Resources (SNRL), another subsidiary, has entered the mining exploration segment by acquiring 74 per cent stake in Ocean Bright Corporation, which holds over three mining areas for which SNRL has acquired prospecting licenses. SEL is expected to grow at a CAGR of 34 per cent over FY08-10E. The stock is trading at 10x FY10E earnings.

NTPC
Reco price: Rs 162
Current market price: Rs 155.70
Target price: Rs 217
Upside: 39.4%
Brokerage: Ambit Capital

NTPC is the largest power utility in India with a capacity of 29,394 megawatt (MW), which is expected to increase to 55,865 MW by 2012. The company has been allotted nine coal blocks for captive consumption.

NTPC is expected to spend about Rs 14,000 crore on developing the first of the blocks, with commercial production beginning in Q3FY09. Once all the captive blocks are on-stream, NTPC would be able to source about 20 per cent of its annual coal requirement from its captive coal mines. (Presently, 82 per cent of the company’s asset portfolio of 29,394 MW is coal-based).

The company is on-track to achieve its capacity additions plans and it would add 2,990 MW in FY09 and 2,511 MW in FY10. NTPC’s revenues are expected to grow at 16 per cent CAGR to reach Rs 51,900 crore by FY10, while profits would increase to Rs 9,570 crore, a CAGR of 13.2 per cent. At Rs 162, the stock trades at 14.0x its FY10E earnings and 2.1x FY10E P/BV.

NTPC commands a premium due to low floating stock, being a focused power generator controlling 21 per cent of the total generation capacity in India and on account of regular planned capacity additions in the next few years. Buy.

Divi’s Laboratories
Reco price: Rs 1,358
Current market price: Rs 1399.30
Target price: Rs 1,833
Upside: 31%
Brokerage: Religare Securities

A key manufacturer of generic APIs (active pharmaceutical ingredients), Divi’s Laboratories (Divi’s) has a strong pipeline of products for the regulated markets with FTF (first to file) opportunities like Levetiracetam (Keppra, $500 million sales), which could contribute to sales in FY09.

Generic API estimated to witness revenue CAGR of 21.6 per cent to Rs 760 crore over FY08-FY10. Traction in CCS (custom chemical synthesis) continues as its contribution in Divi’s total sales has increased from about 25 per cent in FY03 to about 50 per cent in FY08. CSS sales expected to grow at CAGR of 33 per cent to Rs 900 crore over FY08-FY10.

The global market for health-enhancing pills i.e. neutraceuticals (carotenoids) is estimated at about $1 billion and is concentrated in the hands of couple of players, as the synthesis of carotenoids is a complex process.

Divi’s has managed to successfully synthesize carotenoids, whose commercial production will start in June 2008.

This is a good addition to Divi’s product portfolio, with expected segmental sales of about $10.5 million in FY09 and EBDITA margins from this segment to be in the region of 40 per cent in the long run. Divi’s bottomline is expected to grow at a CAGR of 31 per cent to Rs 600 crore over FY08-FY10. Maintain Buy.

Himadri Chemicals & Industries
Reco price: Rs 385
Current market price: Rs 388.70
Target price: Rs 509
Upside: 31.1%
Brokerage: Pinc Research

Himadri Chemicals & Industries (Himadri) is in the business of distillation of coal tar to extract coal tar pitch, creosote oils and chemical oils.

The company has 169k mt distillation capacity (operating at 106 per cent capacity utilisation) and caters 70 per cent and 89 per cent requirement of the domestic aluminium and graphite electrode manufacturers, respectively.

With large capacities being planned by aluminium and steel industries worldwide, Himadri plans to increase its total distillation capacity to 250k mt (in India) by FY09 and to 575k mt (325k mt in India and 250kmt in China) by FY10.

The company would further raise its mesophase pitch capacity to 650mt by Q2FY09, from 32mt in FY08. Mesophase pitch is a high margin product and is used for producing lithium ion batteries.

Its carbon black production facility (capacity 50k mt) is expected to start from Q3FY09, and the company plans to set up a 12 MW power generation unit to tap the large amount of heat being released from its plant.

The capex outlay for Himadri is the lowest amongst its peers on account of its proprietary technological skills. At Rs 385, the stock trades at 5.8x its FY10E EPS of Rs 65.9. The DCF value of the stock is Rs 509 with a 12-months investment horizon.

Indian Hotels Company
Reco price: Rs 88
Current market price: Rs 82.55
Target price: Rs 146
Upside: 76.9%
Brokerage: Sharekhan

Indian Hotels Company (IHCL), the largest hotelier in the country, is on an aggressive expansion drive, both domestically and overseas.

The company, along with its subsidiaries, associates and joint ventures, plans to add 2,100 rooms in FY09 (currently 10,291 rooms) with total capex of Rs 2,351 crore.

These include, setting up of new hotels in Bangaluru (199 rooms) and Chennai (215 rooms) along with expansion of 122 rooms at Taj Lands End and Taj Residency, both in Mumbai.

The Pierre, New York has been closed for renovation for CY08. The company intends to spend about Rs 320 crore on renovation and the hotel is expected to be operational from 2009.

For FY08, foreign tourist arrival increased by 11.5 per cent to 5.2 million, leading to a strong domestic demand for new hotels and in FY09 the tourist arrivals are expected to grow further by 10 per cent to touch 5.7 million.

However, the brokerage see increased risks going forward in terms of increasing the ARRs and maintaining the occupancy, against the backdrop of an economic slowdown and an increase in supply of hotel rooms. Hence, it has reduced the stock’s price target to Rs 146, based on an 18x P/E multiple to its FY10E EPS of Rs 8.2.

Edelweiss Capital
Reco price: Rs 649
Current market price: Rs 697.85
Target price: Rs 820
Upside: 17.5%
Brokerage: Prabhudas Lilladher

Edelweiss Capital (Edelweiss) is one of the more diversified capital market companies in India, with just 26 per cent of its revenue in FY08 coming from broking (going down to 20.4 per cent in FY10E).

Edelweiss’ balance sheet has grown at a CAGR of 288 per cent over FY05-08. Its networth (excluding minority interest) stood at Rs 1,847 crore as of March 2008, while total debt (including short-term bank overdrafts) stood at Rs 1,909 crore.

This strong balance sheet, coupled with ample scope for further leverage, will enable the company to scale-up its wholesale financing business rapidly over the next couple of years.

Of the Rs 4,234 crore balance sheet, the company has nearly 71 per cent in cash, liquid investments and treasury investments. This enormous liquidity pool is the highest amongst peers.

Over the next two years, as the advances book grow, surplus liquidity is likely to reduce, thus improving overall capital efficiency.

Thus, despite the weak market, revenue is expected to grow at a CAGR of 25.8 per cent over FY08-10. Currently, at 2.3x FY08 book value and 2.0x FY09E down-cycle earnings, Edelweiss’ valuations are clearly attractive for a long-term investor. Maintain buy with a price target of Rs 820 (with a 12-18 months perspective).

The Nifty closed at 4,136 points, down 4.85 per cent week-on-week. The Sensex was down 5.28 per cent at 13,802. The rupee stayed weak at 42.79, but it recovered slightly from lows near 43 and the Defty lost 4.55 per cent.

FII remained net sellers – they have sold over Rs 10,000 crore in June. Domestic institutions were net buyers, but not in quantities that could halt the slide.

Volumes were average on the other sessions and good on Thursday. The advances-declines ratio was highly negative. The Junior slid 8.7 per cent, while the Midcaps-50 dropped 9 per cent and the BSE 500 was also down 6.6 per cent. Smaller stocks ran into liquidity issues because the focus was clearly big-caps.

Outlook: The market hit yet another annual low and it is likely to test 4,000 in the coming week. On the upside, rallies are likely to terminate in the 4,450-4,500 range. Next week, expect high intra-day volatility and net losses broken by one possible up-session. If the government falls, the market will go bust and perhaps hit 3,800.

Rationale: It is difficult to set targets given a continuous downtrend that has lasted since early May. But, another key support was broken at 4,200 and the intra-day low on Friday was 4,119. The target projections would be in the 4,000-range and these could easily be exceeded given another negative trigger.

Counter-view: Intermediate trends can stay in force for between 4-12 weeks- this one has already run 8 weeks. There is a chance it will mature and a rally till 4,500 will be triggered. However, we are in an extended bear market and that makes an early termination of the current bearish intermediate trend less likely.

Bulls & Bears: The bearishness was all pervasive, but sectors such as banking and real estate got hit harder than others. Liquidity in smaller stocks was an issue with volumes concentrated only in bigger F&O counters. A host of index heavyweights broke key support levels.

Among the few bright spots were Reliance Industries and RPL, which found support in a falling market.

The BankNifty lost 9.5 per cent and most of the bigger banks busted key support levels - J&K is among the few that may have bottomed.

IT and FMCG were among the least damaged sectors with the CNXIT losing “only” 4.2 per cent but even here, Infosys made a downside breakout. Metals saw selloffs with Sterlite, Hindalco, Nalco and Tata Steel badly affected. Most auto counters plunged.

The trader will have to pick between shorts that could slip further and badly beaten down counters that are now on strong supports.

This is a dangerous game since shorts (in either derivatives or intra-day in cash) need to be managed much more carefully with tight stops and extra margin.

MICRO TECHNICALS

Adlabs
Current Price: Rs 473.7
Target Price: Rs 450

The stock made a downside breakout with high volume action. The projected target would be about Rs 450. Keep a stop at Rs 483 and go short. Start booking profits below Rs 460. Be prepared for high daily ranges and intra-day switches in direction.

CESC
Current Price: Rs 408.85
Target Price: Rs 430

The stock is showing unusually high activity and it has actually gained in the past four sessions. It has decent delivery ratios that suggest there is investment buying. It has the potential to hit Rs 440 on intra-day moves and chances of closing in the Rs 430-435 range. Keep a stop at Rs 400 and go long.

Grasim
Current Price: Rs 1,944
Target Price: Rs 1,800

Grasim has made a big downside breakout on very high volumes. It is tough to set a target with a pattern like this - the stock has fallen from Rs 2,280 in five sessions. The minimum downside should be Rs 1,800. Keep a trailing stop at Rs 1,980 and go short. Slide the stop 20 units down for every 30 unit fall.

RPL
Current Price: Rs 173.65
Target Price: Rs 185

The stock has seen support even in this falling market. It could recover till the Rs 185 levels. Keep a stop at Rs 170 and go long. If the stock does drop below Rs 170, it will find the next support at Rs 160.

Tata Motors
Current Price: Rs 444.25
Target Price: Rs 425

The stock has made a downside breakout on reasonable volume. It has a minimum target of Rs 425-430 and it could fall further. If there is a technical bounce, the key resistance would be at Rs 460. Keep a stop at Rs 452 and go short. Start covering below Rs 430.

PVR
Reco price: Rs 174
Current market price: Rs 184
Target price: Rs 318
Upside: 72.83%
Brokerage: Prabhudas Lilladher

PVR reported impressive FY08 numbers with consolidated revenue growing by 49.7 per cent to Rs 265.9 crore and earnings growing by a whopping 112.2 per cent to Rs 21.6 crore.

During the year, the company added 16 new screens, taking its total screen count to 84. It plans to scale up total screen count to 125 by FY09. For FY09, PVR Pictures is expected to release four movies under co-production viz. Jaane Tu Ya Jaane Na, Contract, Mere Khwabon Mein Jo Aaye and Ghost Ghost Na Raha.

In February 2008, the company entered into a 51:49 joint venture with Major Cineplex Group, a leading film exhibition and retail entertainment company based in Thailand.

The JV would set-up bowling alleys, karaoke centres, ice skating rinks and gaming zones. The company’s revenue and profit are expected to grow at 48 per cent and 70 per cent CAGR respectively over FY07-10E. At Rs 174, PVR is trading at 12.7x FY09 and 8.4x FY10 earnings. The company’s valuations are expected to be re-rated as it aggressively scales-up its new ventures.

India Glycols
Reco price:Rs 285
Current market price: Rs 273.75
Target price: Rs 535
Upside: 95.43%
Brokerage: Pinc Research

India Glycols (IGL) is one of the leading manufacturers of glycols and ethylene oxide (EO) derivatives, which cater primarily to industries like textiles, agrochemicals, oil and gas, detergents and paints. Currently, its business can broadly be segregated into chemicals, alcohol and other products (guar gum and industrial gases).

In December 2007, it acquired Shakumbari Sugar and Allied Industries for Rs 47 crore, which will give it flexibility in making ethanol through molasses or sugarcane depending on their price cycles. It is one of the few companies, globally, to produce EO/Mono-ethylene Glycol (MEG) via the organic route.

MEG as a key product accounted for about 51 per cent within chemicals, and about 41 per cent of total gross sales in FY08. The largest consumer of MEG in India is the polyester fibre sector (about 70 per cent). Reduction in custom duty (from 10 per cent to 7.5 per cent) on polyester in Union Budget 2007-08 has brought prices at par with cotton.

IGL is expanding its MEG capacity by 20 per cent to 600 tonne per day, which will be completed by June 2008. Expansions in the polyester industry (Indo Rama, JBF and Reliance Industries) will ensure offtake of IGL’s incremental capacity. At Rs 285, IGL is ruling EV/EBIDTA of 2.3x and P/E of 2.7x FY10E earnings. Maintain Buy with a price target of Rs 535 (12-month investment horizon)

Tata Tea
Reco price: Rs 779
Current market price:Rs 816.30
Target price: Rs 970
Upside: 18.83%
Brokerage: Sharekhan

Tata Tea has launched Himalayan mineral water in Q4 FY08 (a brand of Mount Everest Mineral Water in which Tata Tea has a 31.73 per cent stake) in its new avatar.

The bottled water market in India is estimated at over Rs 1,500 crore and is growing at a stupendous rate of 25 per cent YoY. For FY08, Tata Tea’s revenue grew 9.1 per cent YoY to Rs 4,392.3 crore.

Adverse impact on account of forex translation and transfer of north India plantation operations impacted the overall growth. The sale of investment held in Energy Brand Inc resulted in the exceptional income of Rs 1,607.52 crore for FY08. Consequently, Tata Tea posted a net profit of Rs 1,542.6 crore for FY08 as against Rs 443.4 crore in FY07.

The company’s hefty reserves together with the management’s intention to look for acquisitions in the domestic and global non-alcoholic beverage market will ensure inorganic growth in the future. At Rs 777.3, the stock trades at 10.7x FY10E earnings. Maintain Buy with the sum-of-the-parts price target of Rs 970.

Motherson Sumi Systems
Reco price: Rs 85
Current market price: Rs 83.75
Target price: Rs 111
Upside: 32.54%
Brokerage: Angel Broking

Motherson Sumi Systems (MSSL) is a leader in wire harnessing, controlling over 65 per cent of the domestic passenger vehicle market.

The company is now focusing on the supply of higher level assemblies and modules as the margins in this segment are comparatively higher. MSSL entered into a 49:51 joint venture (JV) with Calsonic Kansei Corporation in FY08 to meet the growing needs of the automotive manufacturers in India.

The JV will avail advantages of the strong synergies between the two players, as Calsonic Kansei will provide the product and manufacturing technology, which will be supported by the company’s high performance development/production engineering in the fields of polymer molding and tool making.

For FY08, MSSL clocked 32.8 per cent year-on-year growth in consolidated revenue to Rs 2,028 crore. The company reported 37.3 per cent YoY growth in earnings to Rs 177.9 crore (including extra ordinary income of Rs 24 crore, owing to profit on sale of land) during the year.

MSSL is expected to grow at a CAGR of around 18-20 per cent over the next two years. At Rs 85, the stock is trading at 15.8x FY09E and 13.4x FY10E consolidated earnings (fully diluted). Maintain Buy with a target price of Rs 111.

Glenmark Pharmaceuticals
Reco price: Rs 657
Current market price: Rs 646.45
Target price: Rs 938
Upside: 45.10%
Brokerage: ICICI Securities

As part of the re-organisation, Glenmark spun out its non-branded generics international business into a separate company, Glenmark Generics (GGL) effective April 1, 2008.

The company plans to raise about Rs 2,000 crore in FY09 by diluting 25-30 per cent stake in GGL (by way of an IPO) and thereby fund its ambitious growth and acquisitions in the US and EU generics markets.

Glenmark’s international generic business has risen 42x in the past five years from a modest base of about $7 million in FY03. Performance in the dosage-form market in the US is exemplary, with $140 million revenues (with estimated EBITDA margin of 38 per cent and NPM of 34 per cent in FY08) catapulting the company into the big-league of the top-4 from India.

The company has an impressive pipeline of 13 compounds, with three new chemical entities (NCE) in phase II.

Glenmark has beaten its FY08 guidance by 2 per cent and raised PAT guidance for FY09 by 8 per cent to $210 million and FY10 by 15 per cent to $282 million, driven by the base generics business.

The stock is currently trading at a P/E of 16x FY10E earnings on a consolidated basis. The fair value for the stock is Rs 938, representing potential upside of 45 per cent over the next 18 months.

Peninsula Land
Reco price: Rs 82
Current market price: Rs 79.85
Target price: Rs 129
Upside: 61.55%
Brokerage: Prabhudas Lilladher

Peninsula Land (PLL), a Mumbai focused development company, is now diversifying to other cities in southern and western India.

The company is currently working on five projects in Mumbai, totaling about four million square feet. Three SEZs in Goa are in the pipeline; one of which is a gem and jewellery SEZ, while the other two are biotech SEZs (one biotech SEZ has been notified, while the other two have been approved but are yet to be notified).

The company is about to commence construction of the SEZ cum IT Park and a township in Pune along with the township and a residential project in Nashik. These projects are expected to complete over the span of next two-five years.

The company has raised about Rs 200 crore for its realty fund domestically and has further plans to raise funds from abroad, which will enable the company to invest in a larger number of projects.

Lehman Brothers has agreed to co-invest with PLL and will chip in Rs 500 crore for the same. The total investment to be made in land acquisition over the next two years is likely to exceed Rs 2,000 crore. The company’s earnings are expected to grow at 123 per cent CAGR over the next two years. Maintain Buy with target price of Rs 129.

Mercator Lines
Reco price: Rs 104
Current market price: Rs 112.85
Target price: Rs 160
Upside: 41.78%
Brokerage: Religare Securities

Mercator Lines (MLL) offers sea borne transportation services that include transportation of crude oil besides providing dredging services.

The company is expanding and has recently purchased its fourth dredger and its third VLCC (very large crude carrier). It has already deployed this new dredger with the Dredging Corporation of India at day rates of $ 25,000.

This apart, MLL has acquired coal mines in Indonesia and Mozambique, to mine and transport coal, thus providing a holistic logistical solution.

During FY08, fleet expansion coupled with a robust day rate environment led to a 30 per cent y-o-y increase in the company’s consolidated net revenue to Rs 1,450 crore and a 143 per cent rise in earnings to Rs 330 crore.

Continued build-up of a young and modern fleet, deployed at attractive day rates, to bolster revenues and profitability is expected in the coming years as well. The stock is trading at a P/E of 4.5x, P/BV of 1x and an EV/EBITDA of 3.6x on FY10E earnings. The NAV-based and P/E-based valuations both yield a target of Rs 160.

BEML
Reco price: Rs 1,077
Current market price: Rs 1,091.25
Target price: Rs 1,303
Upside: 19.4%
Brokerage: Asit C. Mehta

BEML has a diversified business model with presence in areas like construction and mining equipment, defence equipment and railway and metro rolling stocks.

BEML is currently the only player with manufacturing facility for metro coaches in India. After the recent success of metro rail transportation in Delhi, cities such as Mumbai, Bangalore, Hyderabad, Ahmedabad, Chennai and Cochin are considering metro rail transportation.

To cater to the growing demand from this segment, BEML is planning to expand its metro coaches’ capacity to 190 units per annum (pa) from 150 units pa by the end of December 2008. BEML’s order book position at the end of FY08 was Rs 3,795 crore, which is equivalent to 1.2 times its turnover in FY08.

While these factors will result in BEML’s revenues to grow at a CAGR of 18 per cent over FY08-10E, the company’s net profits are expected to grow at a CAGR of 14 per cent during the same period, after considering the increase in wage bill (sixth pay commission recommendation) and rise in raw-material prices. At Rs 1,077, the stock trades at a PE multiple of 17.2x based on its FY09E earnings. Recommend Buy with a target price of Rs 1,303.

Bajaj Auto
Reco price: Rs 596
Current market price: Rs 599.6
Target price: Rs 992
Upside: 65.44%
Brokerage: Motilal Oswal Securities

Bajaj Auto (BAL) is expected to register volume growth of six per cent in motorcycles, 20 per cent in scooters, and five per cent in three-wheelers, which would effectively result in a 14.4 per cent growth in the total income.

The main growth drivers would be: (1) continued improvement in product mix towards the executive and premium models (2) higher production at Uttaranchal plant - up from 2.75 lakh units in FY08 to 5 lakh units in FY09 - where BAL has excise duty and income tax benefits (BAL will also manufacture the more profitable XCD at this plant in FY09 in addition to the Platina) and (3) improved realisations due to the recent 1-2 per cent increase in prices to combat higher input costs.

BAL has acquired 24.45 per cent stake in KTM Power Sports AG (KTM) through its fully owned subsidiary, Bajaj Auto International Holdings BV for Rs 570 crore. KTM is the second largest European motorcycle maker, and a worldwide leading manufacturer of power sports vehicles.

KTM bikes are likely to be introduced in India in the next 3-4 months through BAL’s ProBiking showrooms.

Though the domestic volume growth for the two-wheeler industry looks challenging, export volume growth (volumes have increased at a 46 per cent CAGR over FY05-08), new product launches, and excise and tax benefits would lead to a 19 per cent growth in earnings for BAL in FY09. The stock trades at attractive levels of 8.7x FY09E earnings and the target price for the stock is Rs 992.

Emami
Reco price: Rs 280
Current market price: Rs 291.1
Target price: Rs 398
Upside: 36.72%
Brokerage: Anand Rathi

Emami is an established niche player in India’s FMCG sector operating chiefly in hair care, skin care and pain-relieving products segments. It owns power brands like Navratna Tel, Boroplus antiseptic cream, Fast relief, and Fair & Handsome. Emami has recently made a foray into real estate.

For this, the company has floated Emami Realty Private, a 100 per cent subsidiary and has identified 16 real estate projects (IT/ITES parks, commercial and residential development). The move into real estate would help it deploy excess cash on its balance sheet and utilise the core expertise held by the promoters’ in real estate.

Considering the expected launch of new products, variants and brand extensions, the company would be able to show strong revenue growth of 20 per cent CAGR from FY08-11E; while the lower ad spend should drive earnings at a 25 per cent CAGR during the same period.

At Rs 280 and FY10E earnings, the stock trades at P/E and EV/EBITDA of 12.3x and 9.6x, respectively. The DCF of the FMCG business yields a value of Rs 371 and the NAV of the realty business at a 30 per cent discount gives a value of Rs 27, collectively amounting to Rs 398.