Tuesday, 15 September 2009

Pipavav Shipyard — IPO: Avoid

Investors with a low risk appetite can give the initial public offer (IPO) of shipbuilder Pipavav Shipyard a miss; the offer does not appear to be a compelling investment option at this point in time given the lack of an operational track record, relatively attractive valuations of listed peers, pricing pressures and risks of vessel order cancellations.

The shipbuilding sector is reeling under stress as a result of the downturn, with no clear signs of revival in orders.

The offer is being made at a price band of Rs 55-60; the price discounts the estimated per share earnings for FY-11 by about 18-20 times. This is at a steep premium to the listed peers ABG Shipyard and Bharati Shipyard that are currently trading at single-digit valuations.

While a premium to peers may be justified given Pipavav’s superior dock facility and multi-product capabilities, the premium demanded may not be warranted at this stage for the following reasons: One, shipyard is a sector with high cyclical risks and has traditionally traded at a discount to the broad market. Two, lack of operational track record and execution risks associated with Pipavav makes the pricing appear even more stiff at this stage. On an enterprise value to order book ratio too (as revenue is yet to flow), Pipavav is at 1.1, stiffer than the 0.3-0.4 times ratio of its peers. Earnings may however ramp up quickly post FY-11 when a good number of the vessels contracted now are completed.

The shipbuilding business of Pipavav Shipyard, no doubt, holds huge long-term potential, given the company’s well-integrated facility comprising docks, fabrication and block assembly as well as facilities for offshore products.

Business opportunity flowing from the co-promoter Punj Lloyd may also prove to be an added benefit. Investors can therefore wait out the IPO and look at buying the stock in the secondary market at a later date, when a lower price or a year or two of sustained financial performance, make the stock a more attractive investment.

Source: thehindubusinessline

Maruti Suzuki: Buy

The stock of Maruti Suzuki is one of the outperformers in the BSE Sensex basket over the past year. But the stock remains a preferred exposure to capitalise on the recovery in automobile sales. Though concerns about a deficient monsoon and a slowdown in exports next year have tended to impact the stock’s performance in recent weeks, the company appears well placed to weather both risks and still deliver strong growth.

Investors with a moderate return target (10-15 per cent) can consider buying the stock currently at Rs 1467. This translates into a PE multiple of 32 times trailing 12-month earnings, but one should keep in mind that earnings for the company remained depressed for most part of last year.

The company’s formidable array of products not only shielded it from the slowdown in demand last year but also helped expand its market leadership in the A2 and A3 car segments. The strong financial performance despite the input cost continuing to remain stiff is yet another comforting factor for investors. However, given the way the stock price has shot up in recent times, it may be ambitious to expect big returns in the near future.

Source: thehindubusinessline

Power Trading Corporation: Buy

Investment with a long-term horizon can be considered in the stock of Power Trading Corporation of India. PTC is India’s largest power trading company promoted by PSU majors NHPC, NTPC, PowerGrid and Power Finance Corporation; it has a 46.5 per cent share of traded electricity volumes.

The Electricity Act defines power trading as “Purchase of electricity for resale thereof”, which means the company facilitates flow of power from surplus generators to electricity deficit customers.

Source: thehindubusinessline

Prism Cement (Rs 52.9): Sell

We recommend a ‘sell’ in Prism Cement from a short-term perspective. It was apparent from the charts of Prism Cement that the scrip, after bottoming in October 2008 to a low of Rs 13.50; was on a strong uptrend. However, the stock encountered resistance in mid-August at Rs 60. After encountering resistance for the second time in early September, the stock changed direction. This trend reversal was triggered by negative divergence displayed in the daily moving average convergence and divergence. The stock has been on a short-term downtrend since then. While trending down, the stock penetrated its medium-term uptrend line and its 21-day moving average recently. The daily RSI is declining in the neutral region and weekly RSI began to fall from the overbought levels. The daily MACD has indicated a sell. We are bearish on the stock from a short-term perspective. We expect the stock’s decline to prolong until it hits our price target of Rs 47.5 in the upcoming sessions. Traders with a short-term perspective can sell the stock while maintaining a stop-loss at Rs 56.

Source: thehindubusinessline

Syndicate Bank (Rs 83.6): Buy

We recommend a buy in Syndicate Bank from a short-term perspective. It is evident from the charts of the stock that after recording a multi-year low of Rs 37.6 in March, the stock has been on an intermediate term uptrend. However, it has been consolidating sideways in the range of Rs 76-84 over the past month. On September 11, the stock gained almost 4 per cent, accompanied with good volume. The stock is trading well above its 21- and 50-day moving averages. Both the daily and weekly relative strength index (RSI) have re-entered the bullish zone from the neutral region. The daily moving average convergence and divergence indicator is signalling a buy. Considering that the intermediate-term up trendline is intact, we are positively biased on this stock from a short-term perspective. We expect the stock to move up further until it hits our price target of Rs 92 in the approaching trading sessions. Traders with a short-term perspective can buy the stock while maintaining a stop-loss at Rs 79.

Source: thehindubusinessline

Buy Balrampur Chini, target of Rs 148: Sharekhan

Sharekhan has maintained its buy rating on Balrampur Chini Mills with a target price of Rs 148 in its September 14, 2009 research report.

"We believe that the two-year (FY2010 and FY2011) scenario for sugar companies in India is strong with the domestic and global sugar industries experiencing a deficit. Thus, sugar prices are likely to remain high leading to hefty profits for these companies. The key risk to sugar prices though is the continuous intervention by the government. We maintain our 'Buy' recommendation on the stock with a price target of Rs 148," says Sharekhan's research report.

Source: Moneycontrol

Buy Bajaj Hindusthan, target of Rs 246: Karvy

Karvy Stock Broking has recommended a buy rating on Bajaj Hindusthan with a target price of Rs 246 in its September 15, 2009 research report.

"We are revising our rating on Bajaj Hindusthan from 'Outperformer' to 'BUY' considering 40% increase in volume growth from recent contract (31 August 2009) for raw sugar import. The company has contracted to import raw sugar of 0.4 mn mt in addition to 0.3 mn contracted earlier on 28 July 2009 for refining during sugar season 2010 (October 2009 to September 2010). Target of Rs 246," says Karvy's research report.

Source: Moneycontrol

Buy Reliance Comm, target of Rs 391: Motilal Oswal

Motilal Oswal has maintained its buy rating on Reliance Communication with a price target of Rs 391 in its report dated September 11, 2009.

"We maintain our price target of Rs 391/sh based on core DCF valuation (ex-incremental tower upside) of Rs 342/sh (12.6% WACC, 4% terminal growth, implied FY11 EV/EBITDA of 6.8x), and Rs 47/sh for the incremental upside from the passive infrastructure business (Rs 2 million/tower). Our DCF valuation for Reliance Infratel (RI) is USD 9 billion or Rs 200/sh of Reliance Communication, of which 40-50% would accrue from external tenancy, Buy," says Motilal Oswal's report.

Source: Moneycontrol

Buy JP Associates, target of Rs 274: Motilal Oswal

Motilal Oswal has maintained its buy rating on Jaiprakash Associates with a target price of Rs 274 in its September 10, 2009 research report.

"We expect JPA to report net profit of Rs 12 billion in FY10 (up 34% YoY) and Rs 10.7 billion in FY11 (down 11% YoY), given lower profitability in cement business. We arrive at revised SOTP-based target price of Rs 274 per share. Our valuations are contingent on successful fund raising in JPVL and power projects attaining milestone based progress, Buy," says Motilal Oswal's research report.

Source: Moneycontrol

Buy HCL Tech, target of Rs 346: Motilal Oswal

Motilal Oswal has recommended a buy rating on HCL Technologies with a target price of Rs 346 in its September 8, 2009 research report.

"On an EV/EBITDA basis the stock is quoting at 8.4x FY10E and 7.6x FY11E. We recommend a Buy with a target price of Rs 346, based on 14x FY11E earnings, implying a discount of 30% to our target multiple for Infosys," says Motilal Oswal's research report.

Source: Moneycontrol

DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. The author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and that you confirm the facts on your own before making important investment commitments.