GODREJ CONSUMER
Reco price: Rs 114
Current market price: Rs 115
Target price: Rs NA
Brokerage: Motilal Oswal Securities
Godrej Consumer Products' (GCPL) soap segment has witnessed strong traction (about 17 per cent up in H1FY09) while higher vegetable oil prices have dented EBIDTA margins by 540 basis points. The recent fall in crude oil prices has had a more pronounced impact on palm oil (a soap input) as the prices have declined 60 per cent from the peak. Along with the reduction in packaging, freight and fuel costs, the manufacturing cost has declined 30 per cent from its peak. Consequently, EBITDA margin is expected to improve to over 20 per cent in Q4FY09 and increase further from Q1FY10 onward.
GCPL has been losing share in powder hair dye segment, as competing brands such as Super Vasmol and Black Rose have benefited from the increased retail push, due to higher trade margins. The company has taken major initiatives like re-launching Godrej Powder Hair Dye (as Godrej Expert) in four different colours, at Rs 10 per sachet. The stock is trading at a multiple of 16x FY09E and 12.2x FY10E earnings and has a dividend yield of 3.5 per cent.
THERMAX
Reco price: Rs 229
Current market price: Rs 200.70
Target price: Rs 280
Brokerage: Asit C. Mehta
Thermax provides integrated equipment and services in the energy sector (boilers, heaters, and captive power plants) and environment-friendly industrial solutions such as water/waste solutions and chemicals. It is a market leader in the small and medium-sized industrial boilers segments. The company has signed a 15-year technology transfer license agreement with Babcock & Wilcox Power Generation Group Inc for sub-critical utility boilers up to 800 MW. This will enable Thermax to cater to demand from the captive power as well as the independent power producers in the sub-critical space. The company has managed to secure a large order worth Rs 800 crore in the utility space. In the water pollution segment, the company has started bidding for government projects in the municipal segment as well as the Jawaharlal Nehru National Urban Renewal Mission projects. The group order backlog was Rs 4,250 crore, a growth of almost 32 per cent y-o-y. Thermax's revenues are expected to register a CAGR of 19 per cent during FY08-10E, with earnings growth of 15 per cent during the same period. At Rs 229, the stock is trading at a multiple of 9.1x FY09E and 7.1x FY10E earnings. Buy the stock at declines, with a price target of Rs 280.
INDIABULLS REAL ESTATE
Reco price: Rs 98
Current market price: Rs 99.75
Target price: Rs 170
Brokerage: ICICI Securities
Indiabulls Real Estate (IBREL), the Mumbai-based realty company owns a land bank of about 94 million square feet (msf) comprising residential (68 msf), office (11 msf) and retail (15 msf); with another 157 msf under SEZs. IBREL's land bank in metros is in premium areas, mostly acquired through government auctions. The company follows a two-pronged approach for property development.
Firstly, it focuses on short-term cash flows through lease rentals from developed properties such as commercial offices, IT parks and retail malls. Secondly, it acquires large land parcels in the outskirts of emerging cities to develop townships and SEZs for long-term capital appreciation.
The company's robust lease model along with a strong balance sheet (net cash Rs 122 per share) are positives in the current downturn. However, significant execution risks exist in IBREL's realty, retail and power ventures. Sluggish absorption of leased space and residential property is another concern that the company faces. The company's earnings are expected to grow at a CAGR of 7 per cent in FY08-11E. At Rs 98, the stock is trading at a multiple of 10x FY09E and 9.5x FY10E earnings. The FY09E NAV is estimated to be Rs 341 per share. Buy with a target price of Rs 170 per share (assuming a 50 per cent discount to its NAV).
ZEE ENTERTAINMENT
Reco price: Rs 104
Current market price: Rs 113.80
Target price: Rs 161
Upside: 41.5%
Brokerage: ULJK Securities
Zee Entertainment Enterprises' (ZEEL) flagship channel, Zee TV has a dominant position in the Hindi general entertainment (GEC) segment, with 19 out of the top 50 programmes and a market share of 20 per cent. Among the other channels, Zee Cinema is the leader in the Hindi cinema genre with a 33 per cent channel share. In Q2FY09, the company's sales increased by 43 per cent y-o-y to Rs 571.7 crore. The operating margins were down 711 basis points to 26.03 per cent y-o-y due to an increase in operating costs of 57 per cent. Its net profits went up 84 per cent y-o-y to Rs 178.1 crore, mainly due to the tax refund, to the tune of Rs 78.9 crore.
ZEEL's subscription revenues, which account for about 40 per cent of its total revenues, are expected to grow 25 per cent y-o-y on the back of increase in the DTH subscriber base. However, slower growth in advertising revenues and ZEEL's reducing market share on account of increasing competition are the main concerns for the company. ZEEL's net sales and profits are expected to grow at a CAGR of 22 per cent and 14 per cent respectively over FY08-FY10E. At Rs 104, the stock is trading at a multiple of 11x FY09E and 9.3x FY10E earnings. Accumulate with a target price of Rs 161.
MEGASOFT
Reco price: Rs 20
Current market price: Rs 18.75
Target price: Rs 28
Upside: 49.3%
Brokerage: Kotak Securities
Megasoft is facing severe challenges given the deteriorating macro environment for its key verticals. Its key clients are in troubled waters and the company's smaller vendor status puts it in a weak bargaining position with clients. The company's receivables have also increased and stand at about Rs 200 crore during the quarter, at close to 200 days' of revenues. Megasoft has also delayed the repayment of $2 million of FCCBs, giving rise to concerns about the liquidity with the company.
Megasoft has also not been able to make any progress on the proposed sale of VisualSoft's assets in Visakhapatnam and Madhapur (Hyderabad). Consequently, debt has remained at about Rs 160 crore (large part of which was taken on board for the BCGI acquisition) with repayment in the near term increasingly looking difficult. Megasoft reported a dismal set of Q3CY08 numbers with revenues declining by 17 per cent q-o-q and profits plunging by 82 per cent q-o-q. The brokerage had cut Megasoft's earnings estimates by 30 per cent for CY08 and expects EPS of Rs 7.8 (Rs 12.4 earlier) for CY08E. The brokerage does not see any upsides for stock in the medium term.
Current market price as on November 21, 2008
