‘Buy, call on Idea Cellular is maintained with a higher target price of Rs.120 over one year, as against the earlier target price of Rs.110.
Idea has gained revenue market share in every circle of its operation in the last three years and has been a pure GSM operator.
The company has the highest proportion of active and rural subscribers, which will enable the company to outperform its peers.
Low mobile penetration in rural India (around 35%) and rising rural income may help telecom operators to penetrate the rural market and raise tariff rates.
An analysis has revealed that the company has increased its revenue market share in each of its 22 circles in the last three years.
The stock appears to be the top pick to play in the improving outlook for the Indian telecom sector.
The company is expected to report 29% CAGR in revenue growth, 32% CAGR in EBITDA and 42%
CAGR in EPS, which appears to be the highest in the telecom industry.
Company’s capex intensity is likely to moderate as much of the capex for 3G has been taken care of in FY12.
TP has been hiked to Rs.120 from Rs.110 because of higher earnings estimates.
The target price is at 7.5 multiple of FY13 expected EV/EBITDA.
Thursday, September 29, 2011
Wednesday, September 28, 2011
Sector outlook – Telecom
The telecom sector is poised for better revenue growth and margin improvement, backed by tariff hike and revenue from 3G services.
Impact of recent tariff hikes has been analyzed and its effect on revenue side is positive.
Despite a weak start, it seems that building blocks on 3G are falling and revenue growth is gaining momentum.
Profitable revenue growth from tariff increase and 3G revenue is expected to increase free cash flow of companies, which will help debt reduction.
Competitive intensity in the industry is falling and there is increased scope for resurgence.
Price driven revenue growth will improve margin and better free cash flow. Lower capex requirements may also help free cash flow.
Besides tariff hike, urban cycle revenue is expected to get a boost by data (internet) while there is further potential for rural mobile penetration.
As the industry prospects are improving, Indian telecom companies are expected to report 50% plus increase in EPS in FY13. Based on this, target prices on Idea and Bharti have been hiked.
Impact of recent tariff hikes has been analyzed and its effect on revenue side is positive.
Despite a weak start, it seems that building blocks on 3G are falling and revenue growth is gaining momentum.
Profitable revenue growth from tariff increase and 3G revenue is expected to increase free cash flow of companies, which will help debt reduction.
Competitive intensity in the industry is falling and there is increased scope for resurgence.
Price driven revenue growth will improve margin and better free cash flow. Lower capex requirements may also help free cash flow.
Besides tariff hike, urban cycle revenue is expected to get a boost by data (internet) while there is further potential for rural mobile penetration.
As the industry prospects are improving, Indian telecom companies are expected to report 50% plus increase in EPS in FY13. Based on this, target prices on Idea and Bharti have been hiked.
Saturday, September 24, 2011
PIC RIGHT STOCK : Buy Oberoi Realty
Buy Oberoi Realty – Target Price Rs.268
Initiated coverage on Oberoi Realty with a target price of Rs.268 over one year. The stock is currently traded in the range of Rs.221.
The ‘buy’ rating is based on many positives to the company while compared to peers and
looks the top pick in the realty space.
One major positive for the stock is the healthy cash balance of the company. Its cash balance at Rs.1560 crore is around 20% of its market capitalization.
Checks suggest that the company’s execution capacity is superior to others and order
cancellation risk is limited.
The company has the highest RoE in the coverage universe and new land acquisitions at
current prices would help the company to maintain strong RoE, going ahead.
The company has launched two new projects in Mumbai (one in Mulund and another one in
Worli), together constitute 25% of current land bank.
It has also leased out almost 80% of its rent generating assets.
Acquisitions of new land parcels are underway. These three are expected to be the immediate catalysts to the stock price.
The target price of Rs.268 implies 22% appreciation from the current level and at a price / book value multiple of FY13 expected book value.
Initiated coverage on Oberoi Realty with a target price of Rs.268 over one year. The stock is currently traded in the range of Rs.221.
The ‘buy’ rating is based on many positives to the company while compared to peers and
looks the top pick in the realty space.
One major positive for the stock is the healthy cash balance of the company. Its cash balance at Rs.1560 crore is around 20% of its market capitalization.
Checks suggest that the company’s execution capacity is superior to others and order
cancellation risk is limited.
The company has the highest RoE in the coverage universe and new land acquisitions at
current prices would help the company to maintain strong RoE, going ahead.
The company has launched two new projects in Mumbai (one in Mulund and another one in
Worli), together constitute 25% of current land bank.
It has also leased out almost 80% of its rent generating assets.
Acquisitions of new land parcels are underway. These three are expected to be the immediate catalysts to the stock price.
The target price of Rs.268 implies 22% appreciation from the current level and at a price / book value multiple of FY13 expected book value.
Sunday, September 18, 2011
Buy NHPC At Attractive Level
Buy call on NHPC of target price of Rs.30, Target price is lowered due to delay in project execution and its impact on P/BV ratio.
‘Buy’ on the stock is maintained due to its outperformance over the MSCI India index and considering the fact that ongoing capacity addition is not reflected in the current market price of the stock.
Over the last six months, the stock has outperformed the MSCI India index by 15%. In 2010, the stock underperformed the index because of poor execution records of the company.
It seems that poor execution has already priced in the current stock price. At the current price in the range of Rs.24, the stock appears at a 13% discount to the worst case scenario price of Rs.28. This reflects the pessimism over the execution capabilities of the company.
However, the company is now showing some progress in the execution front and 678 MW additional capacity is expected to be added by the next six months. Of this, 231 MW Chamera 3 and 44 MW Chutak plants are expected to commence operations by next month.
These capacity additions may lead to a possible re-rating of the stock, though the capacity additions are slightly lower than the market’s earlier estimates.
The stock is currently traded at 14.3 multiple of FY12 expected earnings and at 12.2 multiple of FY13 expected earnings.
‘Buy’ on the stock is maintained due to its outperformance over the MSCI India index and considering the fact that ongoing capacity addition is not reflected in the current market price of the stock.
Over the last six months, the stock has outperformed the MSCI India index by 15%. In 2010, the stock underperformed the index because of poor execution records of the company.
It seems that poor execution has already priced in the current stock price. At the current price in the range of Rs.24, the stock appears at a 13% discount to the worst case scenario price of Rs.28. This reflects the pessimism over the execution capabilities of the company.
However, the company is now showing some progress in the execution front and 678 MW additional capacity is expected to be added by the next six months. Of this, 231 MW Chamera 3 and 44 MW Chutak plants are expected to commence operations by next month.
These capacity additions may lead to a possible re-rating of the stock, though the capacity additions are slightly lower than the market’s earlier estimates.
The stock is currently traded at 14.3 multiple of FY12 expected earnings and at 12.2 multiple of FY13 expected earnings.
Thursday, September 15, 2011
OIL SHARE IN NEWS : Buy HPCL and BPCL
HPCL – Upgraded to ‘buy’ with Target Price of Rs.420
Hindustan Petroleum (HPCL) has been upgraded to ‘buy’ from the earlier ‘reduce’ recommendation. The target price is Rs.420 over one year. The stock is currently traded in the range of Rs.362.
The upgrade is based on potential decline in subsidy burden and recent decline in share price despite favorable crude outlook for oil marketing companies.
Over the last one year, HPCL stock has fallen by 11% versus 9% drop in the market.
Besides all the above, duty cuts and fuel price hikes have assisted oil marketing companies to reduce under- recoveries.
HPCL is favored over BPCL because of improved EBITDA of HPCL in the event of declining oil prices. As the oil prices are falling, HPCL is expected to generate 70% EBITDA from its marketing business while it is expected at 55% for BPCL.
The stock is attractive on valuation front as well. Standalone basis, the stock is currently traded at 0.8 multiple of FY12 expected P/BV as against its five year average of 0.9 P/BV.
Apart from upgrading the stock to ‘buy’ from ‘reduce’, the target price has also been hiked to Rs.420 from Rs.366 earlier.
The standalone business is expected to contribute Rs.356 to the target price and the rest is expected to come from investment in MRPL and Oil India Limited.
BPCL – Upgraded to ‘hold’ from ‘reduce’ –TP Rs.695
BPCL has been upgraded to ‘hold’ from the earlier recommendation to ‘reduce’. TP has been revised upward from Rs.547 to Rs.695.
The share has not been upgraded to ‘buy’ because positives on the exploration and production front have already reflected in the current price of the stock. As against 9% fall in the market over the last one year, the stock price has gained by around 8% at the current valuation of Rs.656 range.
For the near term, no major triggers are visible on the exploration and production (E&P) front and hence major upside on the stock price is unlikely.
Company’s lower exposure to marketing is another factor limiting the upside.
However, softening crude prices, lower subsidy burden and reduced under- recoveries are minor positives that may help the stock to some extent.
Hindustan Petroleum (HPCL) has been upgraded to ‘buy’ from the earlier ‘reduce’ recommendation. The target price is Rs.420 over one year. The stock is currently traded in the range of Rs.362.
The upgrade is based on potential decline in subsidy burden and recent decline in share price despite favorable crude outlook for oil marketing companies.
Over the last one year, HPCL stock has fallen by 11% versus 9% drop in the market.
Besides all the above, duty cuts and fuel price hikes have assisted oil marketing companies to reduce under- recoveries.
HPCL is favored over BPCL because of improved EBITDA of HPCL in the event of declining oil prices. As the oil prices are falling, HPCL is expected to generate 70% EBITDA from its marketing business while it is expected at 55% for BPCL.
The stock is attractive on valuation front as well. Standalone basis, the stock is currently traded at 0.8 multiple of FY12 expected P/BV as against its five year average of 0.9 P/BV.
Apart from upgrading the stock to ‘buy’ from ‘reduce’, the target price has also been hiked to Rs.420 from Rs.366 earlier.
The standalone business is expected to contribute Rs.356 to the target price and the rest is expected to come from investment in MRPL and Oil India Limited.
BPCL – Upgraded to ‘hold’ from ‘reduce’ –TP Rs.695
BPCL has been upgraded to ‘hold’ from the earlier recommendation to ‘reduce’. TP has been revised upward from Rs.547 to Rs.695.
The share has not been upgraded to ‘buy’ because positives on the exploration and production front have already reflected in the current price of the stock. As against 9% fall in the market over the last one year, the stock price has gained by around 8% at the current valuation of Rs.656 range.
For the near term, no major triggers are visible on the exploration and production (E&P) front and hence major upside on the stock price is unlikely.
Company’s lower exposure to marketing is another factor limiting the upside.
However, softening crude prices, lower subsidy burden and reduced under- recoveries are minor positives that may help the stock to some extent.
Tuesday, September 13, 2011
Market Outlook – Market correction provides value buying opportunities
In these days of market correction, long term investors are searching for value buying opportunities.
An analysis of stocks from different sectors reveals that there have been many stocks that are trading below or close to their ‘net current asset value’.
Attractive opportunities are available in plenty in sectors like IT, engineering and construction, real estate, metals etc.
It may be difficult to predict short term performance of these stocks. However, it seems that many stocks have significant re-rating catalysts over the medium term.
An analysis of stocks from different sectors reveals that there have been many stocks that are trading below or close to their ‘net current asset value’.
Attractive opportunities are available in plenty in sectors like IT, engineering and construction, real estate, metals etc.
It may be difficult to predict short term performance of these stocks. However, it seems that many stocks have significant re-rating catalysts over the medium term.
Monday, September 12, 2011
TCS - downgraded to ‘reduce’; Target Price of Rs.830
TCS has been downgraded to ‘reduce’ from the earlier ‘buy’ call as the price may drop to Rs.830 range over one year.
Though the demand environment for IT companies remain unaffected for the time being, it is difficult to believe that demand situation may continue to remain unaffected in the current scenario of deteriorating macroeconomic variables such as severe job cuts in financial services segment, faltering consumer and manufacturing data etc. These areas contribute about 72% of revenue of the company.
It seems that the current price of the stock does not factor in weak demand scenario for IT services and several other adverse factors such as the debt crisis in Europe, US banking issues etc that may impact the stock price. Hence the target price is reduced to Rs. 830 over one year.
Company’s overexposure in to financial services sector is another cause for concern because demand from this segment is faltering. While it is in the range of 26 -35 % to its peers, it is around 43% for TCS.
Issue related to new US visas is another problem for Indian IT companies. Checks indicate that getting US new visas is more difficult than earlier. Companies may overcome this problem by hiring from the US but this is more costly and will lower margins.
Though the demand environment for IT companies remain unaffected for the time being, it is difficult to believe that demand situation may continue to remain unaffected in the current scenario of deteriorating macroeconomic variables such as severe job cuts in financial services segment, faltering consumer and manufacturing data etc. These areas contribute about 72% of revenue of the company.
It seems that the current price of the stock does not factor in weak demand scenario for IT services and several other adverse factors such as the debt crisis in Europe, US banking issues etc that may impact the stock price. Hence the target price is reduced to Rs. 830 over one year.
Company’s overexposure in to financial services sector is another cause for concern because demand from this segment is faltering. While it is in the range of 26 -35 % to its peers, it is around 43% for TCS.
Issue related to new US visas is another problem for Indian IT companies. Checks indicate that getting US new visas is more difficult than earlier. Companies may overcome this problem by hiring from the US but this is more costly and will lower margins.
Wednesday, September 7, 2011
Reduce rating for Infosys and HCL Technologies
Infosys has been downgraded to reduce with a target price of Rs.2000 over one year. The downgrade is on ground that the stock is likely to be available at lower prices than the current prices and it seems prudent to book profit at the current level.
Many economists see that a recession in the US is very likely and this would adversely affect revenue and profitability of IT companies including Infosys.
Though the company circles have viewed that near term demand for products and services may not be affected, it has not quantify the medium term impact of the probable recession in the US on the company’s financials.
In this scenario, the stock price is expected to drop from the current level and the stock may be available cheaper.
Based on the same reasoning as above, HCL Technology has also been downgraded with a target price of Rs.300 over one year. Currently, the stock is being traded at a price range of around Rs.397.
Many economists see that a recession in the US is very likely and this would adversely affect revenue and profitability of IT companies including Infosys.
Though the company circles have viewed that near term demand for products and services may not be affected, it has not quantify the medium term impact of the probable recession in the US on the company’s financials.
In this scenario, the stock price is expected to drop from the current level and the stock may be available cheaper.
Based on the same reasoning as above, HCL Technology has also been downgraded with a target price of Rs.300 over one year. Currently, the stock is being traded at a price range of around Rs.397.
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