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Wednesday, June 4, 2008

Analyst's Picks - TATA STEEL, IVRCL INFRA, ADOR INFOTECH, ADHUNIK METALIKS, SUN PHARMA

TATA STEEL

CMP: RS 861.75 TARGET PRICE: RS 1,286
Citigroup has initiated a ‘buy’on Tata Steel, with a price target of Rs 1,286, which includes the valuations of its subsidiaries. “Raw material integration in India insulates Tata Steel in India from the expected rise in costs and benefits it disproportionately versus other players as steel prices are expected to rise in India,” the investment bank said in a recent client note. While the Tata Steel-Corus merger is expected to create synergy savings of $450 million over three years, Citigroup estimates a fall in consolidated earnings per share (EPS) in 2009-10. “We expect consolidated EPS to rise 48% in FY09, but fall 14% in FY10 mainly due to cost pressures at Corus and due to preference share conversion on September 1, 2009,” it added.

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IVRCL INFRA

CMP: RS 402.35 TARGET PRICE: RS 610
Merrill Lynch has reiterated its ‘buy’ rating on IVRCL Infrastructure with a price target of Rs 610. “Its focus on water domain, a 25.7% EPS CAGR (compounded annual growth rate) over FY08-10E, potential Infra (infrastructure) SPVs (special purpose vehicle) wins and scale-up at IVR Prime/Alkor Petroo are the potential triggers,” the investment bank said in a client note. “IVRCL’s Infra SPVs are on track to start commissioning its toll roads in FY09E and the Chennai desalination project in collaboration with BEFESA, Spain is also set to be completed in 4Q 2008,” it added.


ADOR INFOTECH

CMP: RS 126 TARGET PRICE: RS 210
Anand Rathi Financial Services has rated Ador a ‘buy’, with a price target of Rs 210, citing strong outlook and cheap valuations as the main reasons. “Ador Fontech is providing interesting investment opportunities for value investors, as the stock is quoting at a 4X (times) & 3X of ’09 and ’10 earnings, respectively,” the domestic brokerage said in a client note. Anand Rathi estimates the company’s EPS for 2008-09 at Rs 31.4, as against Rs 25.1 reported in 2007-08. In 2009-10, its EPS is estimated at Rs 41.

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ADHUNIK METALIKS

CMP: RS 179.50 TARGET PRICE: RS 244
India Infoline has recommended a ‘buy’ rating on Adhunik Metaliks, with a price target of Rs 244, which includes value of its subsidiaries. “Based on the FY10E (estimated) EBITDA (earnings before interest tax depreciation and amortisation) for its steel and mining business of Rs 6.8 billion and an EV (enterprise value)/EBITDA of 4.5X, we arrive at a fair value of Rs 209 per share,” the domestic brokerage said. India Infoline values the company’s power arm at Rs 35 per share. “Operating margins for the standalone company are expected to expand to 21.1% in FY09 and 26.9% in FY10. The expansion in margins is led by higher sales of value-added products like stainless and alloy steel and lower iron ore and coal costs,” it added.


SUN PHARMA

CMP: RS 1,441.05 TARGET PRICE: RS 1,526
Enam Securities expects Sun Pharmaceuticals to outperformthe pharma sector, even after Taro terminated its merger agreement with the company. “We expect Sun’s legal team to file a reply to Taro’s motion for a declaratory ruling that has been filed in the Tel Aviv District Court. Irrespective of the legal outcome, it would be pertinent to note that the market value of the shares acquired by Sun (at $ 8.30 as of May 27), is reasonably in excess of the price paid,” the domestic brokerage said in a client note. “In the event of the merger not being consummated, the ‘loss’ to Sun will largely be in terms of time required to rejig its US strategy for the products it proposed to produce and market through Taro,” it added.

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