Great Offshore
Reco price: Rs 444
Current market price: Rs 435
Target price: Rs 728
Upside: 67.4%
Brokerage: ICICIdirect.com Research

Great Offshore (GOL) reported 39 per cent year-on-year (y-o-y) increase in standalone revenues at Rs 202.68 crore in Q1 FY09. However, the company had to book an exceptional forex loss (non-cash) of Rs 23.64 crore (gain of Rs 20.72 crore in corresponding quarter). This has resulted in net profit after extraordinary items declining by 78.6 per cent to Rs 12.01 crore.

GOL is expected to register revenue CAGR of 22.1 per cent over FY08-FY10E to Rs 1,112.82 crore on the back of the addition of new vessels to its fleet and a sustained strong day rate environment for offshore vessels. The company is trading at 6.1x FY10E earnings.

The stock has declined substantially due to the market correction and cancellation of its plans of acquiring a company having on order, two harsh environment drilling assets. The cancellation of the acquisition has no fundamental impact on GOL. However, the target price has been lowered by 13 per cent to Rs 728 in line with the reduction in FY10E earnings.

KLG Systel
Reco price: Rs 425
Current market price: Rs 443.80
Target price: Rs 776
Upside: 74.9%
Brokerage: Reliance Money

The overall Q1 FY09 performance of KLG Systel (KSL) was in line with expectations, with a growth of 33.3 per cent y-o-y in revenues to Rs 57.5 crore and 50.3 per cent y-o-y in earnings to Rs 12.9 crore. Better margins in the power system segment led to an improvement of 340 basis points (bps) in operating margins to 39.3 per cent.

The recent capital infusion deal with Trans Pacific Group and IBM with its de-merged power system subsidiary, KLG Power will provide the necessary financial and strategic muscle to position itself in the global markets. With this, the power system products like SG 61 and Connect Gaia will get good long term support.

At the same time the SAP-based power system solution, ‘Vidushi’ is expected to enjoy good business traction in the Indian market. KSL’s consolidated net sales and net profits are expected to grow at a CAGR of 65 per cent and 43 per cent, respectively over FY08-FY10E.

The current valuations of 8.3x and 5.5x on FY09E and FY10E earnings and a EV/EBITDA of 4x on FY10E, make the stock an attractive long term investment. Maintain Buy with an 18-month SoTP price target of Rs 776.

Federal Bank
Reco price: Rs 227
Current market price: Rs 225
Target price: Rs 273
Upside: 21.3%
Brokerage: Religare Securities

Federal Bank’s Q1 FY09 results were slightly above estimates, with net interest income (NII) growth of 47 per cent y-o-y, aided by the utilisation of funds raised from the rights issue in Q4 FY08 and strong asset growth.

Higher incremental credit/deposit ratio of around 140 per cent resulted in net interest margins improving by 31 bps sequentially to 3.8 per cent. Non interest income declined 8 per cent y-o-y on account of treasury losses and lower recoveries. MTM losses for the quarter stood at Rs 132 crore but lower tax provision resulted in flattish net profit growth for the quarter.

Federal bank’s credit growth, which was 38 per cent during Q1FY09, is expected to moderate in the coming quarters in accordance with the changes in monetary policies and macro-economic environment.

The company expects to maintain 25 per cent growth in credit and 20 per cent growth in deposits, while the fee income is expected to grow consistently at 25-30 per cent, as all its branches have migrated to core banking solutions platform.

At Rs 227, the stock is trading at an adjusted price to book value (P/BV) of 0.9x and 0.8x for FY09 and FY10, respectively. Maintain Buy.

Bharati Shipyard
Reco price: Rs 310
Current market price: Rs 324.85
Target price: Rs 390
Upside: 20.1%
Brokerage: Asit C Mehta

Rapidly rising demand for hydrocarbons and surging oil and gas prices are providing strength to Exploration & Production (E&P) sector.

As per the Douglas Westwood survey, total global investment in offshore sector is expected to increase from $ 235 billion in 2007 to $ 275 billion in 2011. Increase in E&P expenditure along with ageing fleet will lead to strong demand for offshore vessels.

This augurs well for Bharati Shipyard (BSL) as around 70 per cent of its order book constitutes of offshore vessels. Current order book of Rs 4,870 crore is 7.6x times FY08 revenues and is to be executed over FY08-FY11, leading to strong revenue visibility.

BSL has received an order of self-elevating jack up drill rig from Great offshore, first of its kind received by an Indian private shipyard. This order has opened a new door for BSL, as it now has a first mover advantage in rig construction.

BSL’s revenue and earnings are expected to grow at a CAGR of 47 per cent and 29 per cent, respectively from FY08-FY10E. At Rs 310, BSL is trading at 8x FY09E and 5.6x FY10E earnings. Maintain Buy.

GTL Infrastructure
Reco price: Rs 39
Current market price: Rs 39.85
Target price: Rs 43
Upside: 7.9%
Brokerage: India Infoline

GTL Infrastructure (GTLI) had originally aimed for 6,700 towers by March 2008, but has rolled out only 6,360 towers by Q1 FY09. The lower speed of rollout is related to the formation of Indus Towers, which resulted in a drying up of demand from Idea Cellular in Q4 FY08. Of late, however, award of spectrum to Aircel and the renewed aggressiveness in expansion by BSNL has resulted in revenue visibility for GTLI in H2 FY09.

Introduction of 3G services would be a significant positive, as the services will be available (at least initially) on the 2100 MHz frequency, which intrinsically necessitates higher tower count.

Further, over time, data usage in India will increase, so it is likely that capacity will be added to the already congested tower landscape, especially in urban centres.

GTLI is aiming for a tower count of 10,000-12,000 by end-FY09 on organic basis. The company is also in talks with Essar for buying out the latter’s 4,000-strong tower portfolio.

GTLI’s average tower rental at present is Rs 31,000/month, around the same as that for Bharti Infratel, and rentals have been firm in the last 6-8 months. On account of intrinsic demand slowdown and higher interest rates, the brokerage has revised its DCF-based target price from Rs 55 to Rs 43.

(Current market price as on August 13, 2008.)

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