Analysts' corner

Nagarjuna Constructions, Emami, Thermax & Savera Industries

NAGARJUNA CONSTRUCTIONS
Reco Price: Rs 133,
Target Price: Rs 210
Nagarjuna Construction Company (NCC) has emerged as the lowest bidder (L1) for NHAI’s Rs 1500-crore BoT annuity road project, which will connect Ranchi and Jamshedpur. The construction contract for this project (of Rs 1,300 crore) will be awarded to the parent company, and will add to its strong order backlog of Rs 1,71,00 crore currently. NCC has a diversified order backlog and a healthy balance sheet (relative to mid cap peers). NCC’s working capital increased Rs 500 crore to Rs 2,700 crore in H1FY11, pushing its net leverage from 0.6x to 0.8x. Despite this, its current leverage remains relatively better than mid cap peers, and should help the company grow without resorting to external capital. The company is likely to record a revenue/ net profit CAGR of 22 per cent/15 per cent over FY10-FY12E. Maintain buy.

— Religare Institutional Research

EMAMI
Reco Price: Rs 359,
Target price: NA
Paras Pharma has been acquired by Reckitt Benckiser. Emami, too, was interested in this deal. This deal will be positive for Emami as higher interest outflow (following Paras Pharma acquisition) would have been a burden on the core business. Also, the company will continue to focus on current businesses. The Emami stock has corrected 44 per cent from peak largely following the Paras Pharma deal news flow. Based on current indications, the overhang seems to have been eliminated. Emami, which is focused on the mass-market product portfolio, is a leader in several categories. It faces limited competition from MNCs and regional players, enjoys pricing power and has high growth potential. New product launches, combined with rejuvenation of Zandu brands, should drive growth. September quarter volume growth of 23 per cent was best in the industry and analysts are bullish on the current businesses of Emami. Maintain buy.

— Edelweiss Securities

THERMAX
Reco Price: Rs 855,
Target Price: Rs 1,045
Over the last two years, Thermax (TMX) has taken some very important and critical business decisions in terms of exploring new business avenues which are likely to drive the growth of the company for the next decade. The company’s expertise in thermal energy application coupled with its foray into clean energy domains like solar energy will drive the company’s growth in the coming decade. TMX’s current order book stands at Rs 7,200 crore. It expects a strong double–digit growth for most of its business segments over the next three–four years. Analysts believe it will be able to hold on to its current multiples and continue to outperform. Maintain buy.

— Prabhudas Lilladhar Research

SAVERA INDUSTRIES
Fair value: Rs 73,
Current market price: Rs 40
Crisil Equities has assigned fundamental grade of 2/5 to Savera Industries Ltd (Savera), indicating ‘moderate’ fundamentals. Savera operates a four-star deluxe hotel located strategically in Mylapore (heart of Chennai) with an inventory of 230 rooms. It is expected to benefit from improved outlook of the hotel industry backed by a sharp rise in room demand. Crisil Research expects room demand to grow by 13-15 per cent over FY10-12. Crisil Equities expects Savera’s revenues to grow at a two-year CAGR of 12 per cent to Rs 44 crore in 2011-12, while EPS is expected to register growth of 49.9 per cent to Rs 4.8 during the same period. Crisil Equities has arrived at a fair value of Rs 73 based on the EV/room method.

— Crisil Equities