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Brokerage Recommendations

Tuesday, December 21, 2010

Angel Broking calls a ‘Buy’ on D. B. Corp
CMP: Rs 264  Target Rs 358

DBCL’s ad revenue to outpace regional ad growth: During FY2010–13E, we peg DBCL’s ad revenue (excluding radio) to post a 17% CAGR, ahead of industry growth at a 14% CAGR. Growth will be led by 1) higher ad spends in regional markets, 2) uptick in the economy, resulting in higher ad volumes and 3) penetration into new geographies.

Despite low focus on circulation, we expect DBCL to outpace industry growth: We expect circulation revenue to post a 9.3% CAGR over FY2010–13E compared to industry growth of 5.3% CAGR over the same period. We expect the circulation revenue to be led by ~5% volume growth and have penciled in average realisation per copy of Rs 1.5 in FY2013E.

Jharkhand and Jammu launches – A good bet in the long term: We expect new launches to post advertising revenue of Rs 43cr in FY2013. We expect circulation revenue to post an 80% CAGR over FY2011–13E.

Radio to post a 20% top-line CAGR over FY2010–13E: We expect the radio business to post profit of ~Rs 9cr/Rs 11cr in FY2012E/13E, respectively, at the EBITDA level, aided largely by 1) synergistic benefits that will be derived from the parent post the merger (expected by 4QFY2011) and 2) shift of royalty rates to revenue sharing, paving way for Phase-III licenses auction. Valuations: Our target price is based on 21x FY2013E EPS of Rs 17.0, 5% premium to the target multiple of its peers, HT Media and Jagran Prakashan. We believe the premium valuation is justified given 1) the leadership in the vernacular print space in terms of readership and circulation for consolidated DBCL portfolio, 2) that it is the only Hindi print play to have a leadership position in non-Hindi state (Gujarat), 3) its well-executed and maximum number of successful launches, 4) significant reduction in losses in radio (already achieved breakeven at the operating level) and 5) healthy balance sheet on account of retirement of debts. We Initiate Coverage on the stock with a Buy recommendation and a Target Price of Rs 358, based on 21x P/E FY2013E EPS.

Fairwealth calls a ‘Buy’ on Bhushan Steel
CMP: Rs 451  Target Rs 518

Bhushan Steel (BSL), India’s leading value-added steel producer, has extended its presence in the steel value chain with the commissioning of its 1.9mt HR steel capacity.

Key Investment Rationale: Moving up the Value Chain: From being a mere convertor, the company is planning to move up the value chain to a fully integrated primary steel producer by indulging itself into a major backward integration cum expansion project in Orissa in three Phases.

Catering to Niche Segment: Currently, the Indian automakers import nearly 30% of high-grade automotive steel, which creates a big opportunity for value-added players like Bhushan Steel. BSL drives nearly 35% of its sales from auto sector and is one of the preferred suppliers in the segment.

Valuations: At the current price of Rs. 450, the stock is trading at just 9.88x and 8.05x times of our estimated FY11E & FY12E earnings. We thus recommend a ‘Accumulate’ with a price target of Rs 518. We believe that the expansion project in Orissa along with the rising demand from auto sector would be the key growth driver for BSL.

First Call Research calls a ‘Buy’ on Elder Pharma
CMP: Rs 373   Target Rs 427

Elder is one the leading companies in the pharmaceutical formulation market in India. Company is engaged in manufacturing and marketing of prescription pharmaceutical brands, surgical and medical devices. Net Sales and PAT of the company are expected to grow at a CAGR of 14% and 18% over 2009 to 2012E respectively. During the quarter ended, the robust growth of revenue is increased by 20.51% Rs. 2042.50 million. The board has approved for authorizing to increase the borrow upto Rs. 1250 cr Elder Pharmaceuticals Ltd has declared of dividend @ 30% for the year ended March 31, 2010. Company’s arm has further stake has been increased to 92.2%.

Outlook and Conclusion At the current market price of Rs. 371.00, the stock is trading at 10.16 x FY11E and 9.19 x FY12E respectively. Price to Book Value of the stock is expected to be at 1.55 x and 1.33 x respectively for FY11E and FY12E. Earning per share (EPS) of the company for the earnings for FY11E and FY12E is seen at Rs. 36.52 and Rs. 40.36 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 14% and 18% over 2009 to 2012E respectively. On the basis of EV/EBITDA, the stock trades at 4.45 x for FY11E and 3.99 x for FY12E.

We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs. 427.00 for Medium to Long term investment.

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