Stock Idea - Andhra Bank

Recommendation: Buy

CMP = Rs 91

Price target: Rs 117

Result highlights:

• Andhra Bank reported its Q3FY2008 results with the net profit going up by 16.7% yoy and 5.2% qoq. The yoy growth was driven by higher other income (up 29.3%) and lower staff expenses (down by 17.8%). The core performance was better than that of last quarter (Q2FY2008) with the net interest margin (NIM) improving slightly due to a slim reduction in the cost of deposits.
• The non-interest income grew by 11.1% yoy to Rs 147.7 crore due to a 258.7% jump in the treasury income, while the core fee income showed a decline of 3.7% yoy. The fall in the core fee income is a cause for concern though the management expects this to improve going forward with an increase in the income from distribution of third party products.
• The operating expenses fell by a moderate 2.6% yoy helped by a 17.8% fall in employee costs, which is in contrast to other PSU banks. The main reason for the fall in the employee costs is the bank's decision to adjust the transitional liability on account of AS-15 (amounting to about Rs 375 crore) against the reserves. Upto Q2FY2008 the bank used to make an adhoc provision for this liability. This coupled with a 4.3% y-o-y growth in the net total income resulted in a moderate growth of 10.5% yoy in pre-provisioning profits.
• Andhra Bank's business grew quite strongly with the advances up by 22.4% yoy. The deposits mirrored the advances growth going up by 21.6% yoy. The deposits were down 1.2% qoq, which is an indication of the bank giving up some of the high-cost deposits. Despite the strong growth in the advances, the asset quality continued to remain among the best in the industry with the gross non-performing assets at 1.35% and the net non-performing assets (NNPA) at 0.16%.
• The capital adequacy levels are at 12.03% with the Tier-I CAR at around 8-9%, which is not a constraint on growth. The asset quality continues to remain among the best in the industry.
• At the current market price of Rs91, the stock is quoting at 6.3x its FY2009E earnings per share (EPS), 3.4x pre-provision profits and 1.1x book value. The stock is available at attractive valuations given its low price to book multiple compared with its peers.
• I maintain a strong Buy call on the stock with a price target of Rs 117 over next 3 months.

Stock Idea - Grasim Industries

Recommendation: Buy

CMP = Rs 2,736

Price target: Rs 3,853

Result highlights:

• Grasim Industries' (Grasim) Q3FY2008 net sales increased by 15.4% year on year (yoy) to Rs 2,630 crore, mainly on the back of higher realisations from Viscose Staple Fibre (VSF) and sponge iron businesses.
• The operating profit margin (OPM) improved by 340 basis points to 32.6%, mainly on account of higher realisations from VSF and sponge iron businesses. Consequently the operating profit was up 29% yoy to Rs 856.3 crore.
• The reported profit after tax (PAT) was up by a robust 34.6% yoy to Rs 553.79 crore because of a healthy growth reported across all the segments namely cement, VSF, sponge iron and caustic soda.
• The company's expansion plans are on track for both cement and VSF businesses. The company is adding about 9 million tonne per annum (MTPA) of cement capacity by Q2FY2009 and about 95,000 tonne of VSF capacity, of which 64,000 tonne is expected to come by March 2008. The company has also announced a Rs 840-crore greenfield plant with 88,000 tonne VSF capacity.
• The management has hinted at a possible buyback, which will be a positive trigger for the stock.
• At the current market price of Rs 2,736 the stock is trading at 9.4x its estimated FY2008 earnings per share (EPS) and 10.8x its estimated FY2009 EPS.
• I maintain Buy recommendation on the stock with a revised price target of Rs 3,853.

Stock Idea - Sanghvi Movers

Recommendation: Buy

CMP = Rs 250

Price target: Rs 298

Key points:

• Large investments in core sectors like refineries, windmills, petrochemicals, cement and power will create huge demand for cranes. Sanghvi Movers Ltd (SML) which is the largest player in crane hiring business in the country is likely to corner a large share of the opportunity
• In the first nine months of FY2008, SML added 16 cranes to its fleet and is expected to add another 22 cranes in the Q4FY2008. By the end of FY2008, SML would have a fleet size of 283 cranes with capacity ranging from 20 to 800 tonne. The fleet would be the biggest in the country and the wide tonnage range would enable SML to provide unmatched service.
• In FY2010, I estimate SML to clock revenues of Rs 407.1 crore though yields are likely to be lower. I expect its revenues to grow at a compounded annual growth rate (CAGR) of 31.6% over FY2007-10E. Stable operating performance should help the bottom line to grow at a CAGR of 31.8% over FY2007-10E.
• SML plans to spend Rs 200 crore in FY2008, Rs 390 crore in FY2009 and Rs 100 crore in FY2010 to acquire more cranes. The robust top line growth and stable operating performance resulted in a strong profit growth during the quarter.
• On increased capital expenditure (capex) guidance, I recommend Buy option on this stock with a price target of Rs 250 over next 4 months.

Best stocks to make young investors crorepatis!!! Literally...

Volatile stock market… Uncertain Sensex… All your dreams of making it big in stocks now face the danger of wiped out… Caveat is that you need to hold your stocks for a long period: ten years if you can to reap the benefits of picking stocks that will create value for you.

 

Here are the top picks which have the potential to be multi-baggers (a stock that grows manifold over a period of time) if held with an investment horizon of ten years:

• Large caps are selected because of their proven track record and ability to grab mega opportunities through their financial strength.
• Mid caps if the management has the vision and management band width to scale up rapidly to become large caps.

 

A. Commodities

• Reliance Industries – Perennially evergreen company
• Reliance Petroleum – Largest refinery with very high Nelson complexity index  that will lead to highest gross refining margins, GRMs
• Gujarat NRE Coke – integration from coking coal to coke
• Tata Steel – formerly Tisco; lowest cost producer of steel plus large value addition through Corus acquisition
• Hindalco – lowest cost producer of aluminium plus large value addition through Novelis Fusion Technology
• Sterlite Industries – commodity powerhouse at a time when globally commodities are in a super cycle
• Sesa Goa – largest reserves of iron ore in private sector

 

B. Telecom

• RCom – marketing aggressiveness plus financial engineering plus political acumen

 

C. Auto

• Tata Motors – from world's cheapest car to luxury Jaguar to SUV Landrover to trucks -- will be in global top five in 5 years

 

D. Finance

• ICICI Bank – proactive, aggressive fund raising and lending taking full advantage of slow decision making at PSU banks
• Reliance Capital – straddling all areas of non-banking financial services

 

E. Infrastructure

• L&T – another evergreen company, value unlocking through listing of subsidiaries, very strong core business
• Patel Engineering –  strong position in high margin high technology construction sector, real estate development

 

F. Pharma

• Glenmark – innovator, out-licensor of drugs in fast growing therapeutic areas like lifestyle diseases
• Cipla – innovator copier, low cost supplier of essential medicines people can't do without

 

G. Realty

• DLF – proxy for the Indian real estate sector
• Unitech – number 2 and tries harder than number 1
• Sobha Developers – fully integrated real estate contractor who graduated to property developer status

 

Note: Please note that these are my recommendations. I would advise my readers to understand the nuances of each stock thoroughly before making decisions.

New IPO - Emaar MGF Land (SUBSCRIBE)

Issue details:

• Issue opens: 01 February, 2008
• Issue closes: 06 February, 2008
• Issue size: 10.26 crore equity shares
• Face value: Rs 10 each
• Break-up of fresh issue to public:
• QIB's portion: 6.15 crore shares
• Retail portion: 3.08 crore shares
• Non-institutional portion: 1.02 crore shares
• Price band: Rs 540 – Rs 630

 

Objective of the issue

The issue of 10.26 crore equity shares is aimed at raising Rs 6, 256.8 crore to Rs 7,077.4 crore (depending on the price band of Rs 610-690 per share) to make part payment towards acquisition of land and land development rights, development and construction cost for its Palm Drive project and repayment of loans. Part of the proceeds would be utilized for meeting issue expenses and general corporate purposes. After the issue, the total number of shares for the company will increase from 88.34 crore shares to 98.59 crore shares, bringing down the stake of the promoters and the promoters group to 85.3% of the diluted equity.

 

Company background

Incorporated in 2005, Emaar MGF Land (Emaar MGF) is a joint venture between Emaar Properties PJSC of Dubai (Emaar) and MGF Development (MGF) of India. Emaar is the world's leading real estate company, which has operations in 16 countries and has developed approximately 45.0 million square feet (mn sq ft) across the business verticals. MGF has established itself as one of the key players in retail real estate development in northern India over the last ten years.

 

Key positives

• Parent company's advantage:

Emaar MGF is a joint venture between Emaar and MGF. In my opinion, Emaar's brand name coupled with its international expertise will enable Emaar MGF to develop the prestigious projects in a timely manner.

 

• Higher proportion of well-diversified land bank is fully paid:

Given the aggressive development plans by the real estate developers, land acquisition cost is going to increase significantly for the developers. Emaar MGF has made full payment for 89.0% of the total land reserves.

 

• Aggressive expansion plans in hospitality

The demand for accommodation across the hotel sector is gaining momentum due to increased international and domestic tourism, increased business travels and growing investment in infrastructure. To capitalise on this opportunity, Emaar MGF is planning to develop 4,960 hotel rooms across cities over the next five to seven years.

 

• Other initiatives
• Emaar MGF is also planning to foray into healthcare and infrastructure projects.
• In the healthcare business line, the company has entered into a memorandum of understanding with Fortis Healthcare to develop hospitals, which would be positioned as "one-stop shops" for healthcare facilities in the Tier-I and Tier-II cities of India.
• The company plans to develop 25 hospitals with capacity ranging from 75 to 125 beds in joint venture over the next 10 to 12 years.
• In infrastructure projects, Emaar MGF has bid for the development of the international airport at Amritsar in Punjab. It includes commercial operation and maintenance of the airport terminal spread across 41,000 square meter and city side development covering 30 acre.

 

Key concerns

• 80.0% of land reserves comprise agricultural land
• Higher concentration of land bank in northern region
• Execution risk

 

Valuation

Using the net asset value (NAV) valuation method, it comes out that NAV of this stock is Rs 754 per share. Given the well-diversified land bank, the parent company's advantage and plans to expand into the other verticals of the sector, Emaar MGF should trade at 1.1x NAV multiple, indicating a fair value of Rs 830 per share. I would recommend Subscribe option to all my readers, taking into account excellent future of the infrastructure industry in India in the next 3-4 years.

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Market ends firm as IT stocks rally

The rally in IT stocks followed by firm open in European markets saw the Sensex gain 585 points at close.

The rise in the inflation rate could not dampen the market spirits as the Sensex staged gains of around 600 points at close. The market reported a solid performance on the back of strong all-round buying even though other major Asian indices exhibited a subdued trend in the morning trades. The market opened with a gap of 172 points at 17,821, but slipped immediately on selling in heavyweight, realty, and power stocks and touched the day's low of 17,535.

However, buying at lower levels in technology, metal, auto and oil stocks saw the Sensex shed all of its losses and enter into the green again. Sustained buying thereafter helped the Sensex to regain the 18,000 mark and touch the intra-day high of 18,312. The Sensex finally closed the session at 18,233, up 585 points. The Nifty ended the session up 180 points at 5,317.

The market breadth was negative, with the losers outpacing the gainers in the ratio of 1.43:1. Of the 2,795 stocks traded on the Bombay Stock Exchange (BSE), 1,113 stocks advanced, 1,606 stocks declined and 76 stocks ended unchanged. Among the sectoral indices, the BSE IT index moved up by 5.77% followed by the BSE Teck index (up 3.94%), the BSE Metal index (up 3.63%) and the BSE Auto index (up 3.54%). However, the BSE CD index and the BSE Realty index closed in the negative territory and shed 0.05% each.

Among the tech stocks Satyam Computer shot up 8.18% at Rs421, TCS soared 6.17% at Rs929, Infosys surged 5.80% at Rs1,591 and Wipro jumped 5.79% at Rs437. Among the other gainers Tata Motors moved up by 6.82% at Rs754, Hindalco scaled up 6.73% at Rs177, Maruti Suzuki was up 6.60% at Rs905, Tata Steel advanced by 5.86% at Rs776, ONGC gained 5.68% at Rs1,045 and HDFC advanced by 5.44% at Rs2,998. However, ACC slipped 3.72% at Rs754, followed by Ambuja Cement and HDFC Bank, which were down 0.79% and 0.05% respectively.