Stock Idea - KEI Industries

Recommendation: Buy

CMP = Rs 79

Price target: Rs 125

Result highlights:

• KEI Industries' (KEI) Q2FY2008 results were in line with our expectations. The net sales increased by 45.1% year on year (yoy) to Rs 198.4 crore led by a strong revenue growth in both power cable and stainless steel (SS) wire businesses.
• On segmental basis, the revenues of the power cable business grew by 49% to Rs 176.2 crore. The profit before interest and tax (PBIT) for the business grew by 40.2% to Rs 29.8 crore, while the PBIT margin declined by 110 basis points. The revenues of the SS wire business grew by19.6%, while the business reported a marginal loss due to volatility in nickel prices.
• The operating profit grew by 26.8% to Rs 27.9 crore. The operating profit margin (OPM) declined by 200 basis points to 14.1%. The OPM declined on the back of a marginal loss in the SS wire business. 
• The interest expense rose by 66.2% to Rs 9.7 crore, while the depreciation charge increased by 23.8% to Rs 1.8 core. Consequently the net profit increased by 14.7% to Rs 11.6 crore. 
• The current order backlog of the company (at the end of Q2FY2008) stood at Rs300 crore. Of this, Rs 75-crore worth of orders came for high tension (HT) cables, Rs 200 crore were for low tension (LT) power cables and the balance Rs 25 crore were for SS wires and house wires. 
• The 100% export oriented undertaking (EOU) plant at Chopanki scheduled to be commissioned by October 2007 has been delayed slightly due to the non-availability of power. The plant is now expected to be operational in a month's time. The HT cable capacity expansion at the current plant would be operational by April 2008.
• In the view of all this, I maintain a strong Buy call on this stock at Rs 125, with a time frame of 6-8 months.

SBI Capital Protection Oriented Fund, Series I - SUBSCRIBE - NFO closes on November 23, 2007

"How do you invest in a volatile market?- Invest to protect principal, with an option to participate in the market upside"

 

The NFO SBI Capital Protection Oriented Fund – Series I, a five year close ended capital protection oriented fund, endeavours to protect the capital invested through focused investments in debt and money market instruments. At the same time, it seeks to provide investors with opportunities for long-term growth in capital through equity investments.

 

The scheme endeavors to protect the capital invested through focused investments in debt and money market instruments as well as equity while at the same time also seeking to provide investors with opportunities for longterm growth in capital.

 

Why Invest in Capital Protection Fund?

• For return potential of equities along with safety of capital
• Quality debt portfolio: High quality debt securities with matching maturities to minimize credit and interest rate risk.
• Superior return potential: Equity portfolio will be actively managed in a diversified portfolio.
• Tax advantage: Avail indexation benefits and potential superior post – tax returns for investor in higher tax brackets

This fund is for…

• Investors of low to medium risk profile
• High net worth of investor who are in highest tax bracket
• Corporates / Institutions investing in fixed income products
• First time MF investors who like to enjoy the debt returns with an additional equity upside
• All investor investing significant part of their saving in “safe instruments” like Bank FD, PPF and NSC

The NFO closes on Nov 23, 2007 and the units will be available at Rs. 10 per unit.

 

NFO DETAILS:

• Mutual Fund Family: SBI Mutual Fund
• Fund Class: Debt fund with Equity Exposure 
• Fund Type: 5 years, close-ended
• Investment plan: Growth option only
• No Entry and Exit Load
• Fund Manager: Mr. Ganti Murthy & Mr. Vivek Pandey

Stock Idea - Ahmednagar Forgings

Recommendation: Buy

CMP = Rs 225

Price target: Rs 300

Result highlights:

• The Q1FY2008 results of Ahmednagar Forgings Ltd (AFL) are in line with our estimates.
• The company's sales for the quarter grew by 30.5% to Rs 159.2 crore. The growth was led by a 16% increase in the domestic sales and a 62.5% surge in exports.
• The operating profit margin (OPM) increased by 100 basis points to 20.3%. As a result, the operating profit grew by 37.3%. Higher interest and depreciation costs led the profit after tax (PAT) to grow by 26.8% to Rs 17.1 crore.
• The company continues to have a strong order book. The plan to expand its capacity to 165,000 tonne is expected to be operational by Q2FY2008.
• At the current market price of Rs 225, the stock trades at attractive valuations of 7x its FY2009E earnings and an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 4.5x.
• I maintain Buy recommendation on this stock with a price target of Rs 300.

Stock Idea - Ahmednagar Forgings

Recommendation: Buy

CMP = Rs 225

Price target: Rs 300

Result highlights:

• The Q1FY2008 results of Ahmednagar Forgings Ltd (AFL) are in line with our estimates.
• The company's sales for the quarter grew by 30.5% to Rs 159.2 crore. The growth was led by a 16% increase in the domestic sales and a 62.5% surge in exports.
• The operating profit margin (OPM) increased by 100 basis points to 20.3%. As a result, the operating profit grew by 37.3%. Higher interest and depreciation costs led the profit after tax (PAT) to grow by 26.8% to Rs 17.1 crore.
• The company continues to have a strong order book. The plan to expand its capacity to 165,000 tonne is expected to be operational by Q2FY2008.
• At the current market price of Rs 225, the stock trades at attractive valuations of 7x its FY2009E earnings and an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 4.5x.
• I maintain Buy recommendation on this stock with a price target of Rs 300.

Stock Idea - Jaiprakash Associates

Recommendation: Buy

 

CMP = Rs 1,655

 

Price target: Rs 2,000

 

Key points:

• Jaiprakash Associates (JP Associates) has started bookings for the residential complex that is being developed on the first parcel of its land at Noida. The initial response to the bookings appears to be very strong, as the average rate stands at Rs 6,000 per square foot.
• According to media reports, ICICI Venture Funds Management is planning to invest about USD800 million (Rs 3,148 crore) to pick up a stake in Jaypee Infratech, which is a unit of the Jaypee group's listed entity, JP Associates.
• Last week, Formula One Chief Executive Bernie Ecclestone confirmed that it would be holding the first ever Formula One grand prix in the National Capital Region, India in 2010. He struck an agreement to that effect with JSPK Sports Pvt Ltd, a unit of JP Associates. 
• JP Associates has approved a stock split of its Rs 10 share into five shares of Rs 2 each. In Q2FY2008, JP Associates reported a net profit of Rs 104 crore, registering a growth of 16% year on year (yoy).
• The company's overall revenue grew by 11.9% yoy to Rs 860 crore on the back of a 13% year-on-year (y-o-y) growth in the construction revenues and a 7% y-o-y growth in the cement revenues.
• Considering the increase in the benchmark cement valuations from USD80 to USD100-110 per tonne, we had revised our price target to Rs 1,350 per share. At that time, we had not factored the value of the coal mines, the power project and the remaining 5,000 acre of land the government would be allocating to the company over the next couple of years. Thus, JP Associates makes a strong case for value unlocking for the investors.
• I believe that as and when the investors get more clarity on the development of the company's land, the stock will get re-rated, as has happened in the past six months. Also, the Formula One deal will be a major trigger for the company in the future.
• I recommend buy option for JP Associates at Rs 2,000 per share.

Stock Idea - Housing Development Finance Corporation (HDFC)

Recommendation: Buy

CMP = Rs 2,700

Price target: Rs 3,362

Key points:

• Subsidiaries hold significant value: HDFC has created significant value in its subsidiaries. Three of these — HDFC Bank, HDFC Life Insurance and HDFC Mutual Fund—are valued at Rs883 per share. These subsidiaries are growing faster than HDFC, the value contributed by them would be significantly higher going forward.
• Gaining market share, CRR hikes also helping the cause: HDFC has gained significant market share in the past couple of quarters. Also, continuous CRR hikes by the RBI have benefited HDFC the most, as banks are unable to bring down their lending rates to protect their margins. HDFC doesn't need to maintain CRR, hence its incremental spreads have widened as incremental borrowing costs have declined while lending rates have remained stable.
• Strong earnings visibility: Its core mortgage business is expected to grow at 25-30% over the next couple of years. In Q2FY2008, HDFC's margins expanded and the core operating performance was very strong (up 56% yoy). I expect the earnings before exceptionals to grow at 26% CAGR over FY2007-10E. 
• Excellent asset quality despite strong asset growth: Despite the strong business growth the net NPA is almost negligible and the gross NPA is below 1%. Strong credit appraisal and risk monitoring techniques have helped HDFC to maintain a very healthy asset quality.
• Valuations look attractive: I have valued the core mortgage business at 22x FY2010E EPS and if we adjust Rs 954 for the value assigned by us to its subsidiaries from the CMP of Rs 2,700, HDFC is quoting at 15.9x its FY2010E earnings and 3x FY2010E book value. I feel the valuations look attractive considering HDFC's consistent above 20% earnings growth record, the potential value unlocking from its various subsidiaries and investments, and the superior track record of its management.
• I recommend a Buy call on the stock with a 12-month price target of Rs 3,362.

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