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Wednesday, May 28, 2008

Picks Of The Week - GREAT OFFSHORE, ITC, HDIL, SYNDICATE BANK

GREAT OFFSHORE

CMP:
RS 705.70 TARGET PRICE: RS 1,195
GLOBAL Markets has initiated coverage on Great Offshore with a ‘buy’ rating. In a note to its clients, Citi says the company will immensely benefit from rising crude prices, strong demand and a depreciating rupee. “High crude environment will drive development of marginal fields and refurbishment of existing assets or installations, which will not only be beneficial for the company’s current asset fleet, but also for revenues from marine construction services. Many of Great Offshore's contracts are US dollar-denominated, making rupee weakening good for the company” the report adds. The brokerage has put the company in medium risk category with a target price of Rs1,195, which captures the robust 38% EPS CAGR that the company is expected to deliver over FY08-11E. Strong day rate environment, high utilisation, sustainable business model, strong visibility of earnings and revenue contribution from the new and upcoming fleet is expected to keep the company on the right path.


ITC

CMP:
RS 209.10 TARGET PRICE: RS 179
MORGAN Stanley has assigned an ‘underweight’ rating to FMCG major ITC. The company has failed to meet the expectations of the brokerage with regards to growth in profit and turnover. “Sharp 144% growth in non-tobacco FMCG losses despite new product launches, flat or marginal decline in dividend pay-out ratio and 60% growth in other income are the key negatives with regards to ITC,” the brokerage said in a note to its clients. The rise in cigarette margins (as a result of product mix improvement and price hike) and margin expansion in hotels, agri and paper businesses have witnessed margin expansions of 360 bps, 240 bps and 160 bps respectively, the report said. Increase in government related risks, rising losses in the non-tobacco FMCG businesses and a potential slowdown in earnings growth for the hotel business could be the factors that will drive ITC into further losses, the report adds.



HDIL

CMP:
RS741.70 TARGET PRICE: RS 812
ICICI Securities has initiated coverage on HDIL with a ‘buy’ rating. The brokerage has maintained its ‘buy’ rating considering HDIL’s revenue growth, margin expansion, healthy balance sheet and large land bank. “HDIL posted quarterly figures that were above market expectations. Revenues and profits surged on the back of better realisations from slum rehabilitation scheme (SRS) projects, especially Kaledonia in Andheri, Mumbai, which was sold to DE Shaw for Rs 9 billion at Rs 20,000 per sqft. Higher component of SRS sales contributed significantly to revenue growth and resulted in better margins,” the ICICI report said. HDIL has a strong balance sheet with cash levels having increased to Rs 3.5 billion in March FY08 from Rs 48 million in March FY07. Current debt-to-equity (D/E) ratio stands at a healthy 0.76, the report said. The company is said to have 192 million sqft of land bank, 22 live projects and 15 projects in pipeline with saleable area of 104.1 million sq ft.


SYNDICATE BANK

CMP:
RS 70.75 TARGET PRICE: RS 109
IDBI Capital has maintained a 'buy' rating on Syndicate Bank even while reducing the target price to Rs 109 from the previous Rs 130. The price target also includes dividend of Rs 3 per share. The brokerage has scaled down the net profit estimate of FY09 from the previous Rs 10,396 million to Rs 9,221 million. "Subsequently, the EPS and ABV estimates also are revised 10-15% lower," adds the report. However, despite high RoE, the brokerage expects the "bank to trade at multiples close to ABV". "This is because of persistent weakness in the bank's spreads, which we think shall continue for some time going forward. Our estimated RoA for Syndicate Bank is around 0.8% level for FY10," says the brokerage in a note to its client. The brokerage has also revised the business growth assumptions to 21% YoY for FY09 and FY10 from the previous 16% YoY.

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