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Wednesday, August 27, 2008

Stock Picks- INDIAN HOTELS - TATA MOTORS - PRAJ INDUSTRIES - INFOSYS

INDIAN HOTELS
CMP: RS 76.40
TARGET PRICE: RS 85
INDIA Infoline has maintained its ‘market performer’ rating on Indian Hotels Co with a reduced price target of Rs 85. The brokerage house expects the company’s volume expansion to come from its new properties and a stable revenue growth over the medium-term with the commissioning of its Ginger brand. “Since the company now operates in all major price points, it is cushioned against an adverse affect of a weakness in luxury market room rentals or any localised downturn,” the India Infoline note to clients said. “We expect the company to witness sales and earnings CAGR (compounded annual growth rate) of 15.1% and 26.6% respectively over the next two years. Valuations appear reasonable, with price to earning of 10.8 times and EV(enterprise value)/EBIDTA of 6.8 on FY10 (estimated) earnings,” it added.

TATA MOTORS
CMP: RS 433.50
TARGET PRICE: RS 454
HDFC Securities has maintained its ‘sell’ rating on the stock with a revised target price of Rs.454 (from Rs.431 earlier). The brokerage believes due to uncertainties looming over the company’s Nano project at Singur and 24-35% equity dilution would cap the upside in the stock. Also the Jaguar-Land Rover (JLR) acquisition would continue to be an overhang on Tata Motors’ stock, the note added. “We are revising our earnings per share estimate upwards by 9% (Rs.29.9 earlier) mainly on account of lower equity dilution by reducing the amount of funds raised through the equity route. We value the company on an SOTP basis with the core business valued at Rs 293 per share and subsidiaries at Rs 161 per share,” the note to clients said

PRAJ INDUSTRIES
CMP: RS 172.85
TARGET PRICE: RS 277
ULJK Group has assigned an ‘accumulate’ rating to Praj Industries as it expects the company to benefit from its operational presence in all major ethanol-producing countries. The firm believes that fuel ethanol production is seeing an uptrend on the back of the increase in crude oil prices and the company possesses process technology for the different types of feedstock for ethanol production. “We expect the order book to grow at a CAGR of approximately 37%, backed by the increase in demand for fuel ethanol, the note said. “The revenue of the company is expected to grow at a CAGR of approximately 31% during the period FY08-FY10 (estimated). The company is expected to deliver a net profit of Rs 1,694 million in FY09(estimated) and Rs 2268 million in FY10 (estimated), a CAGR of approximately 22%,” the note added.

INFOSYS TECH
CMP: RS 1,697.60
TARGET PRICE: RS 1,703
Broking firm Edelweiss Securities has maintained its ‘accumulate’ rating on the stock as it believes that the company’s recent acquisition of the Axon group would bolster the company’s presence in the consulting space. “The deal is earnings per share (EPS) neutral on standalone basis in FY09 (estimated), but EPS accretion in FY10 (estimated) depends on Axon’s growth and margin trajectory. Incorporating the financial impact of this acquisition, the stock trades at 16.5 times and 13.9 times FY09 and FY10 earnings respectively,” the note said. However, according to the brokerage firm, slowdown in US, significant increase in the salary hikes and attrition rate, reduction in the number of H1B visas granted by US, and incremental appreciation of rupee against US dollar, euro and GBP remain key concerns for the company.

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