Brokerage Recomendations

Buy Kamat Hotels, target Rs 255: ICICI Direct
Given the robust growth in the tourist inflows to India and the investment interest being high in cities where Kamat Hotel has expansion plans, we expect it to improve its margins and return ratios. At the current price of Rs 175, the stock trades at a P/E of 11.66x FY08E EPS of Rs15.13 and 9.22x FY09E EPS of Rs 18.95. We arrive at a DCF valuation of 232 on a base case scenario. We rate the stock an OUTPERFORMER with a price target of Rs 225 at 12x FY09E.


Buy DLF, target Rs 800: CLSA
We believe that DLF’s near-term earnings are sustainable as a potential property price correction will be more than offset by volume jump. While the stock trades at 18% premium to forward NAV, we believe that the stock price will move on anticipated NAV accretion in the future. Comparable Chinese stocks trade at 22-25x on Dec’08 earnings and 30-65% premium to NAV. Thus, in a blue sky scenario, the stock could trade up to 20xFY09CL earnings i.e. Rs 1,000.


Buy ABG Shipyard, target Rs 775: Citigroup
We rate ABG Shipyard Buy/Medium Risk (1M). We value ABG at Rs775, which is 15x FY09E earnings, at a slight premium to other similar profiled Singapore shipyards that have significantly lower earnings growth, but in line with our target multiples for the Korean shipyards. Given ABG's superior earnings CAGR of 52% over FY08-10E and an order book that provides a cover of approx 6.7x FY08E sales, we believe the stock deserves to trade at a slight premium to its Singapore peers, subsidy concerns notwithstanding. Our target price also includes Rs47/share as the value accretion to ABG following the recent acquisition of Western India Shipyard.



Sell TVS Motors: HDFC Securities
At the CMP of Rs. 70, the stock trades at 25.5x and 18.9x its FY08E and FY09E earnings respectively. Though we believe there will be an improvement in margins in H2FY08 due to new launches and its entry into the high margin 3-wheeler business, we continue to be concerned about TVS Motors’ earnings growth uncertainty, as the scope for robust growth appears slim in the prevailing competitive scenario. We believe the lack of a stable product portfolio and poor track record of the company, are the main reasons for a lack of interest in this counter. We continue to maintain our negative view on the stock, as we believe it will be more vulnerable to the slowdown in the twowheeler sector vis-a-vis its peers. We reiterate SELL.



Pantaloon an outperformer: CLSA
We believe that margins will remain under pressure and profit growth will lag topline growth. FY08 will also see increase in rentals due to service tax on lease rentals, which is applicable from June-07. As highlighted in our earlier reports, Pantaloon is increasingly being looked at as a SOTP story of its various businesses. Small dilution in stakes in Futurebazaar.com (valuation Rs 5billion), Home Solutions (Rs 10billion) and Future Media (Rs2billion), even as these companies commence their operations, will likely keep Pantaloon’s valuations intact. The next big story from the group is Future Capital Holdings (FCH), the financial services arm, which plans to list in 4Q2007. Given the likely value unlocking, we maintain outperform.



MTNL an underperformer, target Rs 155: CLSA
CLSA is bearish on MTNL and has maintained underperformer rating on the stock with target price of Rs 155.



Sell Maruti Suzuki; target of 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 Tata Motors; target of Rs 920: Deutsche
We forecast an EPS CAGR (FY07-FY10E) of 15% over the next 3 years. Our new DCF-based target price is Rs 920/share (Rf 7.2%, Rm 4.5%, CoE 12.6%, Kd 9%, WACC 10.9% & 4% terminal growth rate) implying c15x FY09E EPS on consolidated basis. Key risks include a prolonged downturn and CV demand, and failure to launch the products within the forecast timeframe.



Buy Zee Entertainment, target Rs 360: CLSA
CLSA is bullish on Zee Entertainment and has maintained buy rating on the stock with target of Rs 360.



Sell Educomp Solution, target Rs 2380: Citigroup
We value Educomp on a P/E basis. Our target price of Rs2,380 is based on 35x FY09E EPS, derived using the stock's historical trading band. Since listing in Dec 2005, the stock has traded in a range of 15-58x one-year forward P/E, with an average of 29x. Over the past year, the average P/E has been 34x. Our target multiple of 35x is at 20% premium to the stock's average historical valuation to factor in the company's stronger growth prospects. It is supported by valuation multiples of other educational services companies in the Asia Pacific region. We believe 35x is fair as we expect strong revenue CAGR of 102% and an earnings CAGR of 95% over FY07-10E. We believe P/E remains the most appropriate valuation measure given Educomp's profitable track record and the widespread use of this methodology.



Buy Indo Tech Transformer, target Rs 730: P-Sec
We initiate coverage with a buy recommendation for a one year price target of Rs 730 (x 16 FY09P). An upside of 36% from current levels.



Sell Central Bk of India, target Rs 130: Citigroup
Citigroup is bearish on Central Bank of India and has maintained sell rating on the stock with target price of Rs 130.



Buy Seamec, target Rs 300: Sharekhan
Given the fact that the unfortunate incident is likely to impact only the CY2007 estimates, we maintain our positive stance on the stock. At the current market price the stock trades at 13.2x CY2007 and 6.4x CY2008 earnings. We re-iterate Buy recommendation on the stock with a price target of Rs300.



Buy Marico, target Rs 70: Sharekhan
We continue to be bullish on the company, which has an insatiable thirst for making new acquisitions that would fuel its growth in future. The company also has an excellent track record of successfully integrating new businesses with its existing businesses. The stock is trading at attractive valuations of a price/earnings ratio of 16.5x FY2009E and enterprise value /earnings before interest, depreciation, tax and amortisation of 10.9x FY2009E. We maintain our Buy recommendation on the stock with a price target of Rs70.



Buy Surya Pharma, target Rs 205: Sharekhan
After delivering a muted performance in FY2007, Surya has started FY2008 with a bang. Q1FY2008 has been a stellar quarter for the company with revenues and profits growing by 68% and 82% year on year respectively. Our discussion with the management has reinforced our faith in the company, as the management is confident of achieving close to Rs500 crore in revenues in FY2008. With most of the capacity enhancements and de-bottlenecking of existing capacities to be complete in FY2007, Surya's investment phase seems to be finally over. Surya is planning to make in-roads into the high-margin injectable segment through its new facility in Jammu and is augmenting its business by entering the menthol and menthol derivatives segment. Also, with expansion of its API capacity, Surya is also entering the high-end therapeutic segments like anticancer.
The entry into higher-end products will also have a positive impact on the company's margins, resulting in a robust 55.3% CAGR in profits over the next two years. At the current market price of Rs83, Surya is trading at 3.6x its FY2008E diluted earnings of Rs23.2 and at 2.6x its FY2009E diluted earnings of Rs32.1. The stock has underperformed the Sensex by over 25% in the last one year, and it is currently highly undervalued when compared with its peers like Ankur Drugs, Sharon Bio-Medicine and Granules India, which are trading at an average FY2009E P/E multiple of 7x. At current prices, Surya offers a remarkable combination of strong growth at cheap valuations. We view this as a strong buying opportunity and hence maintain our Buy call on the stock with a price target of Rs205.



Buy Yes Bank, target Rs 230: Citigroup
Shares of Yes Bank are seemingly expensive at current valuations (trading at 3.6x FY09E PBV multiple) compared to more established peers. However, we believe it offers higher growth potential over the medium term versus its peers, which combined with strong profitability, quality management, and a clean asset book makes this an attractive stock. We also view Yes Bank as a prime acquisition candidate given its scarcity value as a young private bank. We value Yes Bank at Rs230 per share based on our EVA model. Our key assumptions are a) longer-term spreads of 2.2%, slightly lower than most peers given its structurally lower spreads; b) 100bs loan loss provisioning over the longer term, in line with private banks; and c) 45% longer term cost-income ratio, in line with peers. Our EVA valuation is premised on an 8% risk free rate, consistent with our assumptions for other Indian banks. For reference, using our target multiple for peer HDFC Bank of 3.5x FY09E PBV, which is higher than those for other private-sector banks, would value Yes Bank at Rs182/share.
A similar multiple would be justified for Yes Bank for the following reasons: a) its higher growth momentum; b) high normalized profitability levels; c) strong management team; d) clean NPL portfolio with no legacy risk assets; and e) likely acquisition premium. We prefer the EVA methodology as we believe it better captures longer-term value of the business, and is in line with our approach to valuing other banks in the sector.