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Brokerage Recommendations

Friday, November 12, 2010

K R Choksey calls a ‘Buy’ on IDFC
CMP: Rs 201 Target Rs 254

IDFC reported strong operating numbers with consolidated PAT of Rs 339 crs growing 16% y-o-y and flat q-o-q. Approvals and disbursement were up 2.3x and 2.5x y-o-y respectively, reflecting buoyant business outlook for infrastructure financing. Net interest income up 35% y-o-y and 11% q-o-q; driven by strong loan growth at 56% y-o-y and stable net interest margin. General provision increased 104% y-o-y on account of higher disbursements. Investment banking showed impressive performance on q-o-q due to higher fund mobilization and better yield on deals executed. Asset management business remained under pressure in term of volume growth and yield. We believe IDFC is well placed to capture sizable infrastructure financing opportunity both on fund and non fund side through various business vertices.

Valuation & Recommendation: Currently IDFC is trading at 19.3x of FY12E earnings and 2.5x FY12E BVPS. We believe Strong growth outlook, solid one firm business model, operating efficiency, incremental improvement in asset management, investment banking and broking businesses will be key investment rationale. IDFC performed strongly well on growth, operating efficiency and capital linked businesses fronts during the quarter. We reiterate our ‘Buy’ rating on the stock with a price target of Rs 254 on SOTP basis implying upside 22%.

Anagram calls a ‘Buy’ on B S Transcomm
CMP: Rs 218  Target Rs 395

Demand drivers - T&D capex of $100 bn, Telecom towers projected to grow at 17% CAGR In our estimates total tower manufacturing industry in India currently stands at 1 mn tonne while we expect demand from T&D space over next 3 tro 4 years to easily absorb the current capacity, also demand from telecom towers and export opportunities (Africa & Middle east) will enable industry players like BS Transcom record higher utilization of capacities.

Valuation: The Stock trades at 3.4x FY12E with earnings growth of 94% CAGR estimated over 2010-13E and is available at a discount of 60% to peers like KEC and Joyti Structure. We expect sales over FY10-13 to grow by 3x led by doubling
capacity and growth in technology service business while improvement in interest cost (Reduction in D/E) and higher overall margins due to higher contribution from technology service business would result in increasing net profits from Rs. 24 crs in FY10 to Rs. 56 cr in FY11 and Rs 142 cr in FY12. The EPS for FY11 is estimated at Rs. 25.4 and FY12 at Rs.64.7 on the post public equity paidup capital of Rs. 22cr. At our target price of Rs. 395 the stock trades at 6x FY12E EPS of Rs 64.7 and at a 60% discount to KEC and Jyoti Structures. We recommend a Buy on BS transcomm for a 12 to 15 month horizon. We would however like to reiterate that we continue to remain positive on BS Transcomm's long term business prospects as we believe it enjoys a strong business model with a large order book which ensures strong revenue visibility in the medium term, coupled with an excellent and able management team which should all add significant upside value to the company's future growth prospects going ahead. We hence would suggest a Buy at the current price of Rs 221 (IPO price Rs 248) for a 12 to 15 month horizon.

India Infoline calls a ‘Buy’ on Parabolic Drugs
CMP: Rs 65   Target Rs 98

Parabolic Drugs, a research based Active Pharmaceutical Ingredient (API) manufacturer, is expected to witness earnings CAGR of 37% over FY10-13E supported by a 3-year capex plan of Rs213cr, with a large portion of expanded capacities already tied-up with customers. The key growth drivers are a better product mix and diversification, CRAMS foray, penetrating in regulated markets and forward integration into Dosage. It recently received EU-GMP certification for its Cephalosporin API facility and the management expects US FDA inspection to be triggered shortly for this site. Funding is in place post successful IPO issue. The stock is trading at compelling valuations of 4.8x FY12E. Recommend Buy.

Strong PAT performance in last 5 years and H1 FY11, trend to continue: Parabolic witnessed a revenue and PAT CAGR of 59% and 60% respectively between FY05 and FY10. The company diversified its revenue base with sales to top five customers, in value terms, reduced from 57.6% in FY07 to 42.6% in FY10. H1 FY11 revenue growth was healthy at 17.9% on yoy basis, OPMs improved by 200bps on yoy basis, while PAT witnessed a yoy growth of 88.7%.

Compelling valuations, discount to peers: The stock is currently trading at a P/E of 4.8x FY12E. We believe these valuations are attractive as compared to its peers, given the expected strength in the company’s growth trajectory and improved product mix. Earnings are expected to witness a CAGR of 37% during FY10-13E. We recommend a ‘BUY’ with a price target of Rs 98 with 12-month horizon implying, an upside of 66%.


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