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STOCK UPDATE
ITC
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs220
Current market price: Rs177
Takeaways from annual report
review
We have always liked the way ITC has
channelised the strong cash flows generated from the cigarette
business into the other businesses of FMCG products, hotels,
paperboards and now e-Choupal. Notably over FY2000-06,
the company has incurred a capex of more than Rs4,500 crore
for its various businesses without affecting its return on
capital employed which has remained at an average of 33% over
the same period.
At the current market price of Rs177,
the stock is trading at 20.1x FY2008E earnings per share and
12.8x FY2008E EV/EBIDTA. We reiterate our Buy recommendation
on the stock with a price target of Rs220.
Bajaj
Auto
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs3,500
Current market price: Rs2,683
Annual report
review
As Bajaj Auto has cited in its annual report,
there is huge headroom for growth of the motorcycle industry
in India, looking at the low penetration of motorcycles in
India at just 31 motorcycles per 1,000 citizens. The ratio is
much lower in comparison with that in some of the other
developing nations like Indonesia, Vietnam, Malaysia and
Thailand. We believe that BAL is in a good position to
capitalise on this opportunity and would continue to perform
well in the motorcycle market. Further, taking into account
the good track record of the company, its strong brands across
segments in the motorcycle business, the emerging
opportunities in the retail finance space and the insurance
businesses, we maintain our positive outlook on BAL.
At
the current market price of Rs2,683, the stock discounts its
FY2008 earnings by 16.5x and quotes at an FY2008 enterprise
value/earnings before interest, depreciation, tax and
amortisation of 10.5x. We maintain our Buy recommendation on
the stock with the price target of
Rs3,500. |
