Brokerage Calls

Buy Axis Bank; target of Rs 835: Kotak Sec
At the current market price of Rs.755, the stock is trading at 20.1x its FY09E earnings and 2.9x its FY09E ABV. We expect net profit for FY08E and FY09E to be Rs.9.68 bn and Rs.13.10 bn, respectively. This will result into an EPS of Rs.27.70 and Rs.37.47 for FY08E and FY09E, respectively. The adjusted book value for FY08E and FY09E are forecast at Rs.230.95 and Rs.260.85, respectively.
We are maintaining a valuation gap of about 30% from HDFC Bank. However, we believe that the valuation gap between HDFC Bank and Axis Bank would come down. This would be due to the improvement in its balance sheet profile, clearance of a cloud of uncertainty about the top management and consistency in its earning growth (grown over 30% YoY in 28 out of the last 30 quarters)
We recommend BUY on the stock with a target price of Rs.835 based on a P/E ratio of 22x its FY09E earnings and P/ABV of 3.2x its FY09E adjusted book value for the bank, which could provide 11% upside from current levels.


Credit Suisse neutral on Unitech, target price of Rs 320.
Our target price of Rs320 is based on a sum-of-the-parts valuation, comprising Rs306 (a 10% premium to 12-month fwd NAV) for the real estate business and Rs14 for its other businesses. A 10% premium to NAV is justified based on: 1) scale and execution track record, 2) strong cash flow generation improving gearing and 3) potential upside from SEZ projects not in our valuations.


Sobha Developer an outperformer, target Rs 1080: Credit Suisse
Sobha.s twin businesses, backward integration and scalable business model, provide the right platform for growth, in our opinion. We expect significant volume growth in real estate business as the company expands out of Bangalore on the strength of a landbank of 3,574 acres across 8 cities.
Contractual business not only offers diversity and visibility to Sobha.s earnings, but also has favourable synergies with its real estate development plans.
Our price target of Rs1,080 is on a sum-of-the-parts basis, with Rs963 (15% discount to 12-month fwd. NAV) for the real estate business and Rs117 (8x 1-y.r fwd. earnings) for its contractual business.



Parsvnath Dev an outperformer; tgt Rs 425: Credit Suisse
We initiate coverage of Parsvnath Developers with an OUTPERFORM rating and a Rs425 target price. Parsvnath is our preferred stock for investors looking to invest in the growth story across Tier III locations. Parsvnath has a pan-Indian presence across 48 cities in 17 states and a developable landbank of 160 mn sq ft. Its landbank is relatively low risk, as a majority of the land is already in possession.
We estimate that close to 88% of FY08E revenue, 48% of FY09E, and 20% of FY10E revenue have already been secured, thereby giving strong visibility to our estimates. The company has the highest development-to-landbank ratio in our coverage universe, with ongoing developments on 74 mn sq ft. out of a total of 160 mn sq ft.



Credit Suisse neutral on Indiabulls Real, tgt Rs 585.
We initiate coverage with a NEUTRAL rating and price target of Rs585 - we believe that the stock is currently fairly valued. IBREL is a relatively new entrant into the real estate market, but has displayed strong project identification and acquisition capability, giving rise to strong potential for NAV expansion. IBREL has built a landbank of approx 4,358 acres across Tier I cities and SEZ projects and believes in taking large concentrated stances either in size or value. The current financials of the company are not reflective of its potential, as its projects are still in the development phase. We expect a multifold jump in revenues as the company commences development on its other projects.



Credit Suisse neutral on DLF, target price of Rs 770
We initiate coverage on DLF Ltd. with a NEUTRAL rating and a price target of Rs770 and continue to look for suitable entry points into the stock.
DLF has the largest landbank and is one of few developers to have demonstrated execution capabilities on large-scale projects, with 29 msf (224 msf including plots) of completed developments and 49 msf of projects under execution.
The landbank, acquired at a low historical cost, should support EBITDA margins of 65-67% for the next few years even as revenues grow at an 85% CAGR over FY07-10E. The company has a comfortable liquidity position after the recent IPO (gearing of 0.28x in FY08E, net cash by FY10E), which puts it in a position to invest in larger, longer gestation projects.


Buy Great Offshore, target Rs 996: IDBI Capital
Great Offshore Ltd. (GOL), is attaining burgeoning size with its well-planned inorganic growth strategy. The company has increased its fleet strength from 32 vessels in FY06 to 40 vessels at present, which will be further expanded to 42 by FY10. Going forward, we expect, increased fleet strength coupled with diversified revenue stream to drive growth for GOL. Topline is expected to post 24% CAGR over the next 3-years. EBIDTA margin is expected to surge to 60%. Boosting topline and surging margin is expected to lead to robust bottom line performance. PAT is expected to showcase CAGR of 41% in the next 3-years. The current market price is 13.1x the fully diluted FY09EPS of Rs.62.3 and 8.4x the fully diluted FY10EPS of Rs.97.1. We recommend ‘Buy’ with target price of Rs.996


Buy Tata Motors, target Rs 920: Deutsche Bank
Deutsche Bank is bullish on Tata Motors and has maintained buy rating on the stock with target price of Rs 920.


Sell Maruti Suzuki, target Rs 820: Deutsche Bank
We maintain our Sell on Maruti with a new target price of Rs 820. The stock has had a good run in the last 3 months (price performance of c30%). The drivers were strong monthly sales figures (21% YoY in Apr-Aug’07) in the backdrop of slow industry growth and a strong 1QFY08. Our view is based on four factors: 1) stretched valuations at current price, 2) rising capex intensity due to underinvestment in the past four years, 3) limited scope of further cost-reduction, and 4) competition in the compact car segment.


Buy ITC, target Rs 200: Sharekhan
We have always liked the way ITC has channelised the strong cash flows generated from its cigarette business into its other businesses of FMCG, hotels, paperboards and now e-Choupals. In our past reports we had always opined that the implementation of VAT might have a dampening effect on the stock price of ITC but the same would likely be a temporary aberration. We continue to be bullish on the stock with a long-term perspective. At the current market price of Rs184, the stock is attractively quoting at 23.2x its FY2008E earnings per share and 14.8x FY2008E EV/EBIDTA. We maintain our Buy recommendation on ITC with a price target of Rs200.