Stock Idea - Visa Steel

Recommendation: Buy

CMP = Rs 51.85 (at the time of this recommendation)

Target price = Rs 62.2

Key points:

• Background: Visa Steel Ltd. (VSL) is a part of the Kolkata-based Visa Group. The company currently produces pig iron, low ash metallurgical coke, ferro chrome and to some extent chrome concentrates. VSL is currently operating a blast furnace with production capacity of 225000 TPA of pig iron and a stamp charged coke oven plant of 400000 TPA. The company is also operating a chrome ore beneficiation plant and a chrome ore grinding plant with capacity of 100000 TPA each. VSL has manufacturing facilities in Kalinganagar and Golagaon, both in Orissa. The company has also been commissioning a 300,000 tonnes sponge iron facility by FY09. VSL is an emerging integrated special and stainless steel player by Fy11. Apart from India, Visa Steel has a strong global presence in countries like China, Australia, Indonesia, Switzerland, UK and Hong Kong.
• The performance of VSL has been remarkable in the past couple of quarters, mainly because of the sharply higher realisation from its coke and ferro chrome business. The company has stabilised its pig iron facility after a shutdown during the last couple of quarters. One of the two DRI kilns with a capacity of 150000 has already been commissioned. Full benefits are likely to come from Q3FY09 onwards and from Q2FY09. Good backward integration in terms of raw materials and expected firmness in coke and ferro chrome prices should help the company to do well in the near future.
• Since the company is already producing the raw materials for these two plants, there will be a significant cost reduction for the new plants. Adding to this, an additional 25 MW power plant by March 2010 would further help the company to reduce its costs and even earn some revenues as well. According to the latest development, the company is likely to set up a 2.5 MTPA steel plant in Chhattisgarh within three or four years.
• Shifting focus to manufacturing segment: The Q1FY09 result also indicates a significant transformation in the business of the company. Unlike previous years and quarters the revenues from the trading segment have come down sharply. Contribution of the manufacturing segment has been on the rise. Going forward the company plans to further scale down its trading business and concentrate more on its manufacturing segment. These robust numbers in Q1FY09 came despite a nil contribution from one of its major products, that is, pig iron due to a planned shutdown for a refractory lining in Q4FY08. However, the pig iron facility has been stabilised and is expected to contribute to the topline from Q2FY09.
• Sales were 10205 tonnes. The sponge iron plant of 300,000 tonnes capacity, along with 50 (2 x 25) MW power plant through waste heat recovery are expected to start functioning from Q2FY09. Thus, additional revenues from pig iron and sponge iron along with expected higher sales volume in coke and ferro chrome will further boost the topline, whereas lower power cost will support the bottomline from Q2FY09 onwards. Bright prospects for coke and ferrochrome price in the near to medium-term future is likely to help the company to enjoy strong realisations.
• Financials: Continuing its stellar performance since Q4FY08 Visa Steel reported an even more robust growth in earnings during the first quarter (April-June) FY2009, mainly driven by fairly higher sales volume and strong realisations from its two major segments (LAM coke and ferro chrome). Net sales soared more than 275% to Rs 255.73 crore against Rs 68.07 crore in the corresponding quarter of the previous year. Manufacturing activities, with a turnover of Rs 232.4 crore or almost 91% of the total net sales, mainly contributed to the growth in topline. Turnover from trading activities remained far lower at Rs 23.4 crore.
• Valuation: The backward integration into iron ore, chrome ore, steam coal, coke and power will help the company to expand its margins significantly, going forward. In addition, commissioning of fresh capacities in Q2FY09E and late FY10E would help it to expand its topline along with improved cost structure. The planned setting up of stainless steel and bar & wire rod plant during end FY10E is also going to be one of the key triggers for the company.
• I strongly recommend Buy call on this stock with price target of Rs 62.20, which is 3.12x of its FY10E EPS for an investment horizon of 3- 6 months.

Invest Wisely in dividend yielding stocks - Q3-2008

The recent volatility on the stock markets is posing challenges to investors looking for safe returns. High dividend yield stocks offer a safe haven to investors where safety is priority than high returns. So even if the market remains volatile going ahead, an investor can still get a decent return on investment, thanks to good dividend yielding stocks. The dividends are paid no matter what direction stocks moves and can provide a higher yield on investment in a weak market.

Here is the list of the high-dividend-yield companies:

Company name	Expected on	Dividend	Face value (Rs)	CMP (Rs)	Dividend Yield (%)
Banco Products	Aug 21	70%	2	32.3	4.3
Wyeth	Aug 22	300%	10	479.65	6.3
Indiabulls Real	Aug 27	675%	2	312.85	4.3
Indiabulls Sec.	Aug 27	375%	2	72.05	10.4
Savita Chemicals	Aug 28	115%	10	263.95	4.4
Gillanders Arbut	Sep 4	40%	10	86.8	4.6
Andhra Sugars	Sep 12	50%	10	112.4	4.4

Source: ICICIdirect.com Research

Stock Idea - GVK Power

Company background:

GVK is a diversified business entity with its primary focus on urban infrastructure projects. The company also has a significant presence in the hospitality, services and manufacturing sector. In the Indian growth story, GVK has realised the need for infrastructure development and embraced this challenge to create world class infrastructure, particularly in power, airports and roads. The company has an asset base of close to Rs 50 billion (US$1.22 billion) and an order book worth around Rs 150 billion (US$3.66 billion). GVK also has the strength of 7,000 technical professionals with the required capabilities.

GVK Power has two power plants, the 220 MW Jegurupadu-II and 464 MW Gautami plant. These are lying idle due to non availability of gas. Gas availability is expected to commence from October 2008. This should help to increase its revenues in its power division. With projects ranging from power, infrastructure, realty, coal mines and expected oil and gas blocks, GVK Power is expected to put up a good performance in the coming year and post good numbers. Also GVK Power may announce commercial production in next 6 months.

Financials:

• As the company has an exposure towards airports, any unforeseen event like terrorist attacks can impact the arrival of passengers, thereby impacting revenues.
• GVK also has exposure to real estate with respect to areas around the airport. A slowdown in real estate can significantly affect revenues from this segment. Slowdown in India's GDP growth can hamper infrastructure spending and, thus, have an adverse impact on the infrastructure sector.
• The Q1FY09 revenues increased by 10.8% yoy, driven by a 6.2% and 14.6% yoy increase in revenues of the power and roads divisions, respectively. EBITDA grew slower than sales at 3.2% yoy, as EBIT margins of the power division dropped by 570 bps yoy due to major maintenance expenses on one turbine of the J-I power plant.
• Interest cost (-54% yoy) came in lower than expected due to repayment of loans of the J-I power plant. Other income fell 18.6% yoy due to investment of cash surplus in SPVs. GVK provided tax at 9.6% in Q1FY09 as compared to 22.9% in Q1FY08 and estimates of 20%, mainly due to lower other income.
• GVK's share of profits from MIAL increased by 39.1% yoy to Rs 12.3 crore, driven mainly by a 67% yoy increase in non-aero revenues at the Mumbai airport. Consequently, PAT post minorities and after adding share of income from associates, jumped 88% to Rs 40.5 crore.

Valuation:

• GVK pure play on infrastructure: I believe that with the government expected to spend $494 billion on infrastructure spending during the Eleventh Five Year Plan, the company will be on a roll as it will provide ample opportunities for companies like GVK to grow substantially. GVK, with its diverse business mix including airport projects will definitely benefit the company.
• With a diverse portfolio of infrastructure projects and revenue visibility on key projects over the next couple of quarters, GVK is strongly poised to benefit from the huge infrastructure rollout planned in India over the next five years.
• GVK is currently trading at 34x FY10E earnings. I maintain a strong Buy call on this stock with a target price of Rs 49 over next 3-6 months.

Stock Idea - Orchid Chemicals & Pharmaceuticals

Recommendation: Buy (again!!)

CMP = Rs 256 (at the time of this recommendation)

Price target: Rs 300

Key points:

• Orchid Chemicals has entered into a collaborative drug discovery deal with US-based global pharmaceutical major, Merck & Co. As per the deal, Orchid would be undertaking the late-stage development and manufacture of an anti-coagulant drug candidate initially discovered and developed through Phase I clinical trials by Merck. Towards this, Orchid has acquired a majority stake in Diakron Pharmaceuticals, a US-based drug discovery and development company, which has an exclusive license agreement with Merck for the compound.
• Orchid plans to further develop the drug up till Phase II (a) clinical studies and then outlicense it to a global pharmaceutical company for further development and commercialisation, sometime in FY2010. The company will conduct a 25-30-patient Phase II (a) study on the compound which is estimated to cost around $4 million.
• Orchid’s consolidated profits would take a $2-3 million hit due to an increase in the R&D spend on this study. However, the deal is a significant milestone in Orchid’s R&D efforts, as it vindicates Orchid’s R&D capabilities, and could pave the way for more such collaborative drug discovery deals in the future. Orchid would also gain from Diakron's worldwide distribution rights once drug is launched commercially.
• At the current market price of Rs 256, Orchid is discounting its FY2009E earnings by 15.7x and its FY2010E earnings by 11.9x.
• I maintain a very positive and Buy recommendation on this stock with a price target of Rs 300.

This festival season, add Golden Shine to your portfolio

In the current economic scenario where inflation is threatening to get out of control, investors need to invest in asset classes, which have a positive correlation with inflation. Gold is one such asset which has historically done well during periods of high inflation. This is because during such times investors shift their holdings toward hard assets as the purchasing power of paper money starts dwindling.

An analysis of the price of gold during the high inflationary period of 1970's in the United States shows that gold gave handsome returns during the years when inflation was on an uptrend. As average inflation shot up from 6.5% in 1977 to 13.58% in 1980, the average annual price of an ounce of gold also zoomed from USD 147 to USD 615 . Once inflation was brought under control post 1980, the price of gold also started receding.

Gold exchange trade funds (ETF) are one of the most convenient ways of investing in gold.

Gold ETFs are open-ended mutual funds that put your money in physical gold and issue units to you in demat form. Investing directly in to bullion has storage and security issues. In case of jewelry there is too much of spread between the price and the value for it to be considered as true investment. Gold ETFs can be traded easily on the stock exchange at a transparent price and in convenient denominations, making it a more 'liquid' investment as compared to gold bullion. Another advantage is that investments through ETFs do not attract wealth tax provisions.

Currently, there are five gold ETFs listed on the National Stock Exchange. ETFs have outperformed the stock market indices with an average return of 42% in the last one year. For an average investor ETFs are the best route to get more out of his gold investments. An allocation between 5% - 10% of their portfolio to gold is recommended.

Stock Idea - Mold-Tek Technologies

Recommendation: Buy

CMP = Rs 72 (at the time of this recommendation)

Price target: Rs 169

Key points:

• Q1FY2009 revenues of Mold-Tek grew by 23% yoy to Rs 33.9 crore. While the plastic division’s revenues grew by 24% yoy, the KPO division’s revenues grew by 18.2% yoy during the quarter. The operating profit margin improved by 312 basis points during the quarter on account of better profitability of the plastic division. The earnings before interest and tax margin of the plastic division improved by 10 basis points. Consequently, the company’s operating profit grew by 52.6% yoy to Rs 5.5 crore during the quarter.
• The interest and depreciation grew by 63.2% and 20.6% respectively during the quarter. The company’s net income grew by 54.9%. yoy to Rs 4.2 crore. It also announced that the high court of Andhra Pradesh has approved the de-merger of its structural engineering KPO operations and the plastic packaging product manufacturing division.
• Mold-Tek is witnessing traction in its high-rise building business. It has added 2 new & prominent clients in Canada and one in Amsterdam. To cater to these clients and the potential new clients, the company plans to expand its HRB team from 50 to 170 members. It also plans to open a new branch in Nasik and the revenues from this branch are expected to flow from Q3FY2009.
• At the current market price, the stock is trading at attractive valuation of 4.9x FY2009 earnings estimate and 3.7x FY2010 earnings estimate.
• I maintain Buy recommendation on the stock with price target of Rs 169 over next 6-7 months.

Stock Idea - Ratnamani Metals and Tubes

Recommendation: Buy CMP = Rs 786 (at the time of this recommendation) Price target: Rs 1,110 Key points:  The revenues of Ratnamani Metals and Tubes Ltd (RMTL) grew by 31.4% to Rs 249.7 crore on account of a strong volume growth in both the stainless steel and carbon steel pipe segments. The operating profit of the company grew by 24.1% to Rs 56.4 crore in the quarter. The operating profit margin declined by 133 basis points to 22.6% due to an increase in the other expenses. The company's other expenses as a percentage of sales increased by 353 basis points to 11.2% in Q1FY2009. RMTL's interest cost declined by 29.8% while its depreciation charge rose by 20.9% in Q1FY2009. During the quarter, the company made a provision to the tune of Rs 7.86 crore for a mark-to-market loss on its exposure to forex contracts. The reported net profit increased by 12.6% in the quarter. The combined order book of the company stood at Rs 700 crore at the end Q1FY2009 as against Rs 650 crore for the same period last year. At the current market price, the stock trades at price-to-earnings of 6.2x and 5.2x its FY2009 and FY2010 estimates. I maintain a strong Buy call on this stock with a price target of Rs 1,110.

Tips to Cut Health Insurance Premium in 2008

With health insurance attracting so much attention now, it will be wrong for us not to cover this topic in our articles. Today many people still cannot afford purchasing a health insurance policy due to the skyrocketing prices. Here we've collected best tips to reduce regular payments and get an affordable health policy.

• A good way to lower life insurance premium is to use med services via phone. These community services are free and operate 24/7 offering high quality medical help to everyone. You can trust experienced nurses that work there with all your problems and be sure to get professional medical advice for free.However do not practice such calls as a substitute to actual visits to the doctor. They are primarily designed to offer advice for you to take precautious measures to stop the illness at the very start. So you'll be ok soon and also reduce the number of visits to the doctor. That will positively reflect on your life insurance bills.
• This tip is mostly for those who are of "healthy type" and get sick rarely. Consider purchasing a catastrophic health insurance policy. First, its premiums are considerable lower, and since you are not ill frequently, you do not need the full coverage. Second, they are really useful in case of sudden accidents or ailments.
• Do not disregard generic medications. Of course, brand name drugs are well trusted and proved to be effective, but they also make your health insurance expenses grow a lot. Generic drugs may be less popular, but not less efficient. It is regulated by law for generics to contain the very same active ingredients as the brand names have. They may only differ in inactive constituents. So, consider buying generic medications, but do discuss your decision with your doctor at first.
• Excessive weight causes extra payments. Since BMI (Body Mass Index) plays an important role in evaluating your health insurance premium, it is important to know, that overweight people have a higher risk factor for insurers than normal weight customers. But it doesn't mean that your premium will be reduced only if you lose 50 pounds! Just a few lost pounds will positively affect your health insurance bills and will spur you to lose more, get fit and healthy.
• Smokers pay more. Health insurers speak the language of figures and statistics, and smokers are proved to run a higher risk of getting different deadly diseases than non-smokers. Consequently, cigarette-addicts will get a higher premium. Now there is another good reason to quit smoking - to lower health insurance bills. If you have not taken a cigarette for about a year, do inform your insurance agent and see your premium cut a lot.
• Before purchasing health insurance it is recommended to spend time looking for online quotes. It is fast and easy - you instantly get health insurance quotes from a number of your local companies. You can choose the best suitable offer. Insurers compete for customers, and so, the more comparisons you make, the greater chance of getting a cheap health insurance policy you have.

Stock Idea - Andhra Bank

Recommendation: Buy

CMP = Rs 59 (at the time of this recommendation)

Price target: Rs 90

Key points:

• Andhra Bank reported a not-so-healthy PAT of Rs 77.6 crore indicating a decline of 45% yoy. The net interest income for Q1FY2009 was Rs 346.3 crore, largely flat despite a healthy growth in the advances (23% yoy), as the reported margins contracted by 71 basis points yoy. The non-interest income declined by 9.7% yoy on the back of a treasury loss of Rs 1 crore during the quarter. 
• The operating expenses were largely stable at Rs 259.7 crore during the quarter. The expenses were contained primarily due to a 2.9% decline in staff expenses, while other operating expenses grew by 11.9% yoy. Notably the provisions witnessed a significant (more than 10 times) jump and stood at Rs 122.7 crore.
• The asset quality of the bank remained healthy with an improvement on absolute and relative basis. The gross non-performing assets were 1.15%, down 37 basis points yoy, while the net non-performing assets were down by 10 basis points to 0.10%. The growth in the advances though lower as compared to the industry growth, was at healthy 23% yoy, while the deposits registered a growth of 20.6% yoy.
• At the current market price, the stock trades at 5.0x 2009E earnings per share, 2.6x 2009E pre-provisioning profit and 0.8x 2009E book value.
• I maintain a Buy recommendation with a price target of Rs 90.

Stock Idea - Tata Motors

Recommendation: Hold

CMP = Rs 396 (at the time of this recommendation)

Price target: Rs 545

Key points:

• Q1FY2009 results of Tata Motors are not satisfactory mainly because of lower-than-expected margins. However, its PAT is higher than estimated earlier, mainly on account of a higher other income and a lower tax outgo during the quarter. The net sales for the quarter grew by 14.4% to Rs 6,928.4 crore on the back of a 3.9% volume growth and a 10.1% realisation growth during the quarter.
• Domestic sales of commercial vehicles increased by 16% while that of passenger vehicles declined marginally. The export sales volume declined by 34%. An increase in the overall expenses, such as raw material cost, employee cost and other expenses, resulted in decrease in the operating profit margin by 130 basis points. Hence, the operating profit dropped by 3% in this quarter.
• A higher other income and a lower tax outgo helped the adjusted PAT to grow by 59.3%. After accounting for a forex loss of almost Rs 200 crore and a profit of Rs 113.7 crore on the sale of the stake in Tata Auto Components, the reported net profit declined by 30.1% to Rs 326.2 crore. Tata Motors has not reported the consolidated results for Q1FY2009 since the financial statements of Jaguar and Land Rover are under compilation and have not been finalised yet. However the performance of the new subsidiaries was also affected by the rising commodity prices and interest rates during the quarter.
• At the current levels, the stock trades at 6.5x its FY2010E consolidated earnings and is available at an enterprise value/earnings before interest, depreciation, tax and amortisation of 3.1x.
• I maintain a Hold recommendation on this stock with a price target of Rs 545.

Stock Idea - Corporation Bank

Recommendation: Buy

CMP = Rs 253 (at the time of this recommendation)

Price target: Currently reviewing…

Key points:

• Corporation Bank reported a PAT of Rs 184.3 crore, indicating a growth of 4.1% yoy. The net interest income was Rs 378.0 crore, up by 7.2% yoy despite a healthy growth in the advances (28.3% yoy). The non-interest income provided some relief with a 32.7% growth yoy.
• The operating expenses were Rs 214.6 crore during the quarter. The expenses were contained primarily due to a 13.0% decline in staff expenses, while other operating expenses grew by 12.4% yoy. In line with the robust growth in the non-interest income and the contained growth in the expenses, the pre-provisioning profit registered a healthy growth of 16.5% yoy.
• Notably, the provisions witnessed a huge 400% jump and stood at Rs 100.8 crore – mainly because of a significant (Rs 248 crore—net of tax) marked to market loss on the bank’s investment book. The asset quality of the bank remained healthy with an improvement on absolute and relative basis. The gross non-performing assets stood at 1.46% (down 61 basis points yoy), while the net non-performing assets were down by 10 basis points to 0.36%.
• The capital adequacy ratio was healthy at 12.43% as at the end of June 2008, compared with 13.3% a year ago. The growth in advances was healthy at 28% yoy, while the deposits registered a growth of almost 26% yoy. The healthy business growth implies that the bank is again focusing on building the advances book after a muted performance in Q4FY2008, when the bank was focusing on rebalancing its advances book. 
• At the current market price of Rs 253, this stock is trading at 4.5x EPS for 2009E earnings per share.
• I am currently reviewing the stock’s valuation and would report it shortly on this portal.

Stock Idea - Bank of Baroda (BoB)

Recommendation: Buy

CMP = Rs 227 (at the time of this recommendation)

Price target: Currently reviewing…

Key points:

• Bank of Baroda (BoB) reported a net profit of Rs 370.9 crore for Q1FY2009, indicating a growth of 12.1% yoy. The Q1FY2009 profit after tax was above our estimates of Rs 327 crore. The net interest income for the quarter stood at Rs 1,057 crore, up 16.9% yoy because of a robust 42.1% growth in the advances and a significant improvement of 790 basis points in the credit deposit ratio to 71.8%. 
• The non-interest income was up by almost 21% yoy to Rs 512.6 crore as compared to that last year. Notably, this growth was achieved on the back of higher growth in the foreign exchange income (up by 50%), followed by core fee income (up by 44%) and recoveries (up by 38%).  The operating expenses during the quarter were marginally up by 3.7% yoy; other operating expenses increased by 5.3% yoy, and the employee expenses increased by 2.8% yoy.
• The provisions and contingencies were up by 98.2% yoy, mainly due to a significant spike in the marked to market provisions to Rs 218.6 crore during the quarter as compared to the same time period last year. The asset quality of the bank improved during the quarter at gross levels. The gross non-performing assets declined by 5.3% yoy to Rs 2,091.1 crore. However, the net non-performing assets increased by 10.8% yoy to Rs 575.5 crore. The capital adequacy ratio remains comfortable at 13.19% as compared to 14.33% last year.
• The advances witnessed a robust growth of 42.1% yoy and stood at Rs 111,214 crore at the end of Q1FY2009. This growth was achieved on the back of a strong 67.8% growth in the foreign advances, a healthy 31.0% growth in the farm loan segment, a 19.5% growth in the small and medium enterprise segment and a 18.8% growth in the retail segment.
• At the current market price of Rs 227, BoB trades at EPS of 5.0, 2.5x 2009E.
• I am currently reviewing the stock’s valuation and would report it shortly on this portal.

Stock Idea - Ranbaxy Laboratories

Recommendation: Buy

CMP = Rs 475

Price target: Rs 575

Key points:

• Ranbaxy Laboratories has delivered a disappointing performance in Q2CY2008, largely due to a whopping forex loss of Rs 193.1 crore. The revenues grew by 13% in rupee terms to Rs 1,829.6 crore in Q2CY2008, which is marginally below are estimate of Rs 1,876.3 crore. The growth was primarily driven by a 12% rise in the revenues from the developed markets and a 9% jump in the revenues from the emerging markets.
• While the US markets continue to do well, the performance in Europe is disappointing due the lower than anticipated sales in the UK and Germany. Romanian markets grew by 5.2% and the growth is expected to improve in the coming quarters. The operating performance was in line with our expectations. The operating profit margin expanded by 260 basis points to 12% as compared to 9.4% in Q2CY2007, led by improving gross margins. Consequently, the operating profit stood at Rs 218.7 crore, registering a growth of 43.7% yoy.
• Despite a healthy operating performance, the reported PAT has witnessed a decline of 91.3% to Rs 22.9 crore due to the huge forex loss. Excluding the translation loss, the reported PAT is Rs 160.8 crore. The management has re-affirmed its guidance of an 18-19% growth in the top line in US Dollar terms and has stated that it expects to ramp up the growth in the coming quarters to achieve the said guidance. 
• At the current market price, it is discounting its CY2008 base earnings (excluding exclusivities) by 34.0x and its CY2009E base earnings by 20.2x.
• I maintain a cautious Buy recommendation on the stock with a price target of Rs 575.

Stock Idea - Esab India

Recommendation: Buy (again! J)

CMP = Rs 385 (at the time of this recommendation)

Price target: Rs 575

Key points:

• The revenues of Esab India for the quarter grew by 31% to Rs 114.4 crore led by the magnificent performance of the consumable division (revenues grew by 39.8% to Rs 86.6 crore) during the quarter. The equipment division's revenues grew by 9.6% to Rs 27.8 crore in the same quarter. The operating performance of the company remained stable with the operating profit margin at 24.6% in Q2CY2008. Consequently, the operating profit of the company grew by 29.8% to Rs 28.1 crore in the same period.
• The PBIT of the consumable division increased by 45.4% to Rs 25.2 crore in the quarter. This resulted in a 120-basis-point increase in the division's PBIT margin. The earnings before interest and tax margin of the equipment division, however, declined sharply by 320 basis points, leading to an 8% decline in the PBIT of the business to Rs 4.7 crore. Esab’s interest cost increased by 26.1% to Rs 0.3 crore whereas its depreciation charge rose by 21.8% to Rs 1.6 crore during the quarter. Consequently, its net profit grew by 30.9% to Rs 18.5 crore.
• For H1CY2008, Esab reported growth of 27.9% and 28.4% in its revenues and profits respectively. It also declared a 130% (= Rs 13 per share) dividend for its shareholders during the second quarter of CY2008. Esab would remain one of the major beneficiaries of the continued buoyancy in its user industries, such as pipes, shipbuilding and steel. Furthermore, a greater level of component indigenisation is likely to protect its margins against any adverse impact of the rising steel prices.
• At the current market price the stock discounts our CY2008 and CY2009 earnings estimates by 9.1x and 7.7x respectively.
• I maintain Buy recommendation on the stock with a price target of Rs 575 over next 5-6 months.

Stock Idea - Gateway Distriparks

Recommendation: Buy (again!!! J)

CMP = Rs 85 (at the time of this recommendation)

Price target: Rs 236

Key points:

• On a consolidated basis, the net sales of Gateway Distriparks Ltd grew by almost 99% yoy to Rs 96.2 crore particularly due to the continued strong volumes at the Jawaharlal Neheru Port Trust (JNPT) and a ramp-up of the rail business. It’s Q1FY2009 results of are quite positive, owing to a strong top line growth and lower than anticipated losses in the rail business during the quarter.
• The operating profit margin declined by 1,050 basis points yoy because of a change in the company's sales mix but improved by 230 basis points sequentially to 35.1%. The sequential improvement in the margin was achieved on the back of improved profitability of the rail and cold storage businesses. Better utilisation, increased efficiency and commencement of operations on the export-import routes improved the profitability of the rail business.
• The cold storage business too broke even at the net level in Q1FY2009. Consequently, the operating profit of GDL grew by 53% to Rs 33.7 crore in Q1FY2009. Both depreciation and interest charges rose considerably due to high capital expenditure incurred by the company to expand its container and rail businesses. Consequently, the net profit grew by 12% to Rs 21 crore in Q1FY2009.
• The company, in its board meeting, has also approved a proposal to buy back its shares from the open market through stock exchanges at a price not exceeding Rs 110 per share, payable in cash, for an aggregate amount not exceeding Rs 64 crore.
• At the current levels, the stock is trading at 9x FY2010E earnings.
• I maintain a very strong Buy recommendation on the stock with a price target of Rs 236 over next 6-7 months.

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Stock Idea - 3i Infotech

Recommendation: Buy (again!! J)

CMP = Rs 107 (at the time of this recommendation)

Price target: Rs 180

Key points:

• 3i Infotech's top line grew by 33.9% qoq to a whopping Rs 468.5 crore in Q1FY2009. While, the acquisitions contributed 19.9% to the sequential growth, the organic growth contributed 14.1% to the same. The operating profit margin declined by 299 basis points to 21.8% during the quarter on account of unfavorable sales mix (higher revenues contribution from the low-margin business). Consequently, the company's operating profit grew by 17.7% qoq to Rs 102 crore during the quarter.
• The net income grew by 20.1% qoq to Rs 58.7 crore. In terms of operational highlights, the company's order book grew by 6.1% qoq to Rs 917.8 crore driven by healthy sequential growth of 9.7% in the product order book. The revenues from the top five clients and top 10 clients (excluding ICICI group) grew by 148.7% and 78.5% respectively on a sequential basis.
• I have revised the FY2009 earning estimates upwards by 1.8% because of higher-than-expected contribution from the acquisitions.
• At the current market price, the stock is trading at attractive valuation of 7.3x FY2009 earning estimates and 6.0x FY2010 earning estimates.
• I maintain Buy recommendation with price target of Rs 180 over next 3-4 months.

Stock Idea - Allahabad Bank

Recommendation: Buy

CMP = Rs 58

Price target: Rs 95

Key points:

• Allahabad Bank reported PAT of Rs 93.4 crore for Q1FY2009, indicating a decline of 53.4% yoy. This decline was mainly because of a substantial increase in the provisions and contingencies which increased to Rs 202.2 crore as at the end of Q1FY2009 compared with Rs 24.5 crore during the same period last year. The sharp rise in the provisions was primarily due to higher investment depreciation to the tune of Rs 264.1 crore. The reported net interest income for the quarter stood at Rs 495.5 crore, up by 9.8% on a yoy basis, mainly driven by a around 24% increase in the advances during the quarter. 
• On the margin front, while the margins remained largely stable sequentially, the net interest margin declined by 22 basis points yoy to 2.75% from 2.97%. The growth in advances was slightly below the industry growth during the quarter. However, it still remains healthy at 24% yoy, due to higher demand from the oil marketing companies. Meanwhile, the deposits registered a growth of 16.5% yoy.
• The non-interest income for Q1FY2009 stood at Rs 117 crore, up 23.6% yoy on the back of higher treasury gains. The core fee income increased 6% yoy to Rs 107.3 crore. The gross non-performing assets in percent terms improved by 59 basis points to 1.87%. However, the net non-performing assets in percent terms remained flat at 0.75%. The capital adequacy ratio of the bank stood at 11.68% in Q1FY2009 compared with 12.71% a year ago.
• At the current market price of Rs 58, the stock trades at 3x 2009E EPS, 1.8x 2009E pre-provisioning profit/share and 0.5x 2009E book value/share.
• I maintain a Buy recommendation on this stock with a price target of Rs 95 over next 4-5 months.

Stock Idea - Satyam Computer Services

Recommendation: Buy (My personal favourite!)

CMP = Rs 383 (at the time of this recommendation)

Price target: Rs 521

Key points:

• The consolidated revenues of Satyam Computer Services grew by 8.5% qoq and 43.2% yoy to Rs 2,620.18 crore in Q1FY2009. In dollar terms, the revenues grew by 3.9% qoq to $637 million. The revenues in dollar terms were inflated by $13.5 million due to accounting difference in the US GAAP and the Indian GAAP. Adjusting for this, the company's revenues grew 1.7% qoq to $624 million, which were below its guidance range of $631.7-634.8 million. This was primarily due to loss of the animation business in Satyam's BPO subsidiary, aggregating to $6.7 million. 
• The operating profit margin improved by 134 basis points qoq to 24.1%, despite the negative impact of the rise in the visa cost (80 basis points). This improvement was mainly due to the positive impact of the rupee depreciation and operational efficiency. Consequently, the company's operating profit grew 14.8% qoq to Rs 632.3 crore. The net income grew by 17.3% qoq to Rs 547.7 crore. Despite forex loss of around Rs 36 crore in Q1FY2009, the other income stood at Rs 33 crore in Q1FY2009 as compared to Rs 23 crore during same period last year.
• In terms of guidance for Q2FY2009, the revenues in dollar terms are guided to grow at a muted sequential rate of 2.3% (unadjusted for accounting difference). The earnings in dollar terms for the next quarter are guided to decline by 7.9% sequentially due to the wage hike (effective July). The management is cautious on the demand environment in the retail and the banking, financial services and insurance (BFSI) verticals and maintains its stable outlook on pricing.
• At the current market price, the stock is trading at attractive valuation of 11.9x FY2009 earning estimates and 10.3x FY2010 earning estimates.
• I continue to maintain a strong Buy recommendation on Satyam with a price target of Rs 521.

Stock Idea - Thermax

Recommendation: Buy (again!!)

CMP = Rs 375 (at the time of this recommendation)

Price target: Rs 602

Key points:

• Thermax has announced its largest order win valued at Rs 820 crore (that is 31% of its current backlog) for the supply of a coal fired boiler to a captive cogeneration plant of a refinery. The boiler is expected to generate 390 megawatt of electricity. It would manufacture the coal fired boiler under the technology license with Babcock & Wilcox. The current order may be executed jointly by Thermax and Babcock in order to enable the indigenisation of the technology.
• Of late, the biggest area of concern for Thermax has been the slowdown in its order inflow, as is evident from the Q4FY2008 order backlog of Rs 2,637 crore vis-à-vis the order book of Rs 3,100 crore in Q4FY2007. The latest order may provide some respite as far as the concerns over a slowdown in the order inflow are concerned. We expect a gradual pick-up in the company's order inflow in future as clients are expected to finalize the pending orders.
• Though the visibility of the company's revenues has increased with the latest order win, the rising input cost continues to pose a risk to its operating profit margin and to its earnings as a result. The concerns are valid. However, Thermax carries 70-75% of its order backlog on a fixed price basis for which it ties up raw material supplies as soon as a contract is won. The stock price of Thermax has been under pressure lately because of concerns over its slowing order inflow and rising raw material cost that could adversely affect its earnings.
• At the current market price, this stock is valued at 12.2x and 10x FY2009E and FY2010E earnings.
• I continue to recommend a Buy call on this stock with a price target of Rs 602.

Stock Idea - Glenmark Pharmaceuticals

Recommendation: Buy

CMP = Rs 599 (at the time of this recommendation)

Price target: Rs 754

Key points:

• Glenmark Pharmaceuticals has proved itself as India's best play on research-led innovation. Of its pipeline of 13 molecules, five molecules are undergoing clinical trials. The company has managed to clinch four out-licensing deals for its developmental molecules collectively worth $734 million and has already received $117 million in initial milestone payments for the same. It has recently decided to restructure its business into two separate entities: GPL and GGL. GGL would be a 100% subsidiary of GPL and would be listed on the Indian bourses.
• Its core business comprising generics in the USA and branded formulations in Latin America, the other semi-regulated markets and in India has seen stupendous success, due to its focus on niche specialties and brand building. I expect the core business to grow at a 34% CAGR over FY2008-10, driven by a CAGR of 40% in the generic segment and a 29% CAGR in the branded formulation business.
• I expect Glenmark's consolidated revenues to grow at a 31% CAGR over FY2008-10 to Rs 3,377.7 crore, driven by a 34% CAGR in the core business and a $60-million milestone income in each of the two years. A robust growth in the top line would lead to a 26% CAGR in the consolidated profits over FY2008-10 to Rs 994.8 crore.
• Assigning a PE multiple of 18x to its fully diluted core earnings of Rs 30.6 per share in FY2010E, I value Glenmark's core business at Rs 550 per share.
• I recommend a Buy option on this stock with a price target of Rs 754.

Stock Idea - HDFC

Recommendation: Buy (must buy!!!)

CMP = Rs 1,721

Price target: Rs 2,912

Key points:

• HDFC reported a bottom line of Rs 468.1 crore in Q1FY2009, indicating a growth of 25.6% on yoy basis and a decline of 23.4% on qoq basis. The PAT was just Rs 529 crore, below earlier estimates.
• The net interest income for the quarter was Rs 651.6 crore, up 36% yoy buoyed by a 27.6% growth in loan disbursals and a healthy improvement in the net interest margin. The healthy top line growth could not trickle down fully to the net total income due to the moderate growth (16.4% yoy) in the other operating income. Besides this the company did not report any capital gains during the quarter. The net total income stood at Rs750.3 crore, up 28.2% yoy.
• The operating expenses were up by 26.6% yoy to Rs 86.7 crore, primarily driven by a significant increase in the other expenses (up 44.8% yoy) and the staff expenses (up 35.8% yoy). 
• Loan approvals during the quarter stood at Rs 9,996 crore, up 29.6% yoy in the same period last year. The disbursements during the quarter rose by almost 28% to Rs 7,204 crore from Rs 5,645 crore in the same period last year.
• At the current market price of Rs 1,721, the stock trades at 19.8x FY2009E EPS and 3.6x FY2009E book value/share.
• I maintain a strong Buy recommendation with a revised price target of Rs 2,912 over next 7-8 months.

Stock Idea - Marico

Recommendation: Buy (again!! J)

CMP = Rs 50 (at the time of this recommendation)

Price target: Rs 77

Key points:

• Marico's net sales increased by 22.5% to Rs 1,906.7 crore in FY2008 from Rs 1,556.9 crore in the same period last year. The sales growth was mainly achieved because of a strong volume growth of 13%, a price hike of 5% and an inorganic growth of 4.5% during the year.
• Marico's focus portfolio delivered a strong performance in FY2008. Its flagship brand Parachute, premium edible oil brand Saffola and hair oil basket achieved a healthy volume growth of 11%, 22% and 16% respectively during the fiscal. During FY2008, despite a rise in the number of creditor days to 57.6 from 54.8 in FY2007, the working capital cycle increased from 27.5 days to 33.5 days on account of an increase in both the inventory and the loans & advances.
• Marico’s ROCE increased by almost 7% in FY2007 – it was possible on account of the restructuring of the balance sheet undertaken by the company in FY2007 (including an adjustment of the intangible assets against the special reserves to the extent of Rs 309 crore). It is now aiming at rationalising its portfolio to focus on its beauty and wellness business. It divested its processed food business operated under the brand Sil to Scandic Food India Pvt Ltd, the Indian subsidiary of Good Food A/S, for a profit of Rs 10.6 crore in FY2008.
• The growing urbanisation of the Indian population and the increasing acceptance of specialised products and services provide a good opportunity for Marico to strengthen its roots in the country's lowly-penetrated beauty and wellness segment. To become a major player in this segment the company is continuously looking to expand its focus portfolio in both organic and inorganic ways. 
• At the current market price of Rs 50, the stock trades at 16.2x and 12.7x its FY2009E and FY2010E EPS of Rs 3.1 and Rs 3.9 respectively.
• I maintain Buy recommendation on Marico with a price target of Rs 77 over next 6 months.

Stock Idea - Orbit Corporation

Recommendation: Buy (again!)

CMP = Rs 249 (at the time of this recommendation)

Price target: Rs 808

Key points:

• The top line of Orbit Corporation grew by 28.8% yoy to Rs 81.8 crore in Q1FY2009. The bulk of the revenues (almost Rs 56 crore) were booked from Orbit WTC and around Rs 11 crore from Orbit Arya. Orbit had pre-sales revenues worth Rs 578.3 crore at the end of Q1FY2009 compared with Rs 644.8 crore at the end of Q4FY2008.
• The operating profit margin of Orbit declined to 40.5% during the quarter due to an increase in both its corporate expenses and its raw material cost. Consequently, the company's operating profit grew by 18.6% yoy to Rs 33.1 crore during the quarter. The company's effective tax rate stood at 32.2% in Q1FY2009 vs 23.6% in Q1FY2008, as none of its projects qualified for tax benefits under the section 80 IB during the quarter. The company has indicated that none of its projects is going to qualify for tax benefits in the future as well. Hence, going forward, the company is likely to pay tax at full rate.
• During Q1FY2009, the company's interest expenses grew at a lower rate than expected, as it capitalised the interest expenses on compulsorily convertible debentures worth Rs 200 crore raised for the Orbit Highcity project. The interest expenses on the project stood at Rs 8.27 crore during the quarter. Orbit's net income remained flat at Rs 18.2 crore during the quarter.
• In Q1FY2009, the company acquired an 85% stake in Ahinsa Buildtech Pvt Ltd at a cost of Rs 130 crore. The acquisition will give Orbit the right to develop the Orkay Mills project at Andheri in Mumbai. The average cost of land for this project works out to Rs 4,725 per sq ft. The company plans to develop the saleable area of 275,000 sq ft for mixed use.
• However, the capitalisation of the interest expenses for the Orbit Highcity project would also lead to a reduction in the interest expenses of Orbit because the project is not likely to start in the near term.
• At the current market price, valuation of this stock stood at 4.3x FY2009 earnings estimate and 3.1x FY2010 earnings estimates.
• I continue to maintain Buy recommendation on this stocj with a price target of Rs 808.

Stock Idea - Ranbaxy Laboratories

Recommendation: Buy (again!!)

CMP = Rs 476 (at the time of this recommendation)

Price target: Rs 575

Key points:

• The US government has levied against Ranbaxy Laboratories the allegations of violation of federal law, fraud, concealment of data and introduction of adulterated and misbranded products in the US. The US FDA has filed a motion in a US court seeking access to relevant documents to review Ranbaxy's manufacturing operations at its Paonta Sahib plant in Himachal Pradesh.
• Ranbaxy has denied the charges made by the US FDA, stating that there is no evidence of using unapproved active pharmaceutical ingredient sources or fabricating data, and intends to file a response on July 14, 2008. Its US formulations accounted for 26% of its revenues and ~35% of its earnings before interest, tax, depreciation and amortisation in CY2007. The legal implications of the allegations made by the US FDA could range from recalling some of Ranbaxy's products from the US to a complete ban on the company from supplying products in the US market.
• Further, legal damages in the form of penalties could follow and the management's role in the current developments could raise credibility issues. Despite the US government taking Ranbaxy to court, Japanese drug maker, Daiichi Sankyo, has decided to pursue its acquisition of Ranbaxy at the previously agreed price of Rs 737 per share. 
• The above development could depress sentiment and remain as a negative overhang on the stock until the issue is fully resolved. On the other hand, Daiichi Sankyo's continued interest in Ranbaxy, despite the criticality of the above issues, lends some comfort to the stock.
• At the current market price of Rs 476, Ranbaxy is discounting its CY2008 base business by 34.0x and its CY2009 base business earnings by 20.2x.
• I maintain a strong Buy recommendation on the stock with a price target of Rs 575.