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Summary of Contents
STOCK UPDATE
Bharat
Bijlee
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs1,900
Current market price: Rs826
Inside the annual
report
At the current market price of Rs826 Bharat
Bijlee is trading at 10.3x its FY2007 earnings and 8.4x its FY2008
earnings. Even on a comparative basis BBL's valuations are
reasonable. Further BBL has cash and cash equivalents of Rs260 per
share, which provides a decent margin of safety. (However with the
constant change in the stock prices this margin of safety keeps
fluctuating). We believe with the positive outlook for the power
sector, a strong earnings growth of 31% compounded annual growth
rate (CAGR) and an improvement in return ratios, the stock is
trading at attractive valuations. We maintain our Buy recommendation
on the stock with a price target of Rs1,900.
SECTOR UPDATE
Information
technology
Growing appetite for
acquisitions
Given the robust demand scenario, there
has been a considerable improvement in the growth outlook for the
Indian information technology (IT) service companies. This is
clearly reflected in the impressive growth guidance given by leading
offshore vendors like Infosys Technologies (30%) and Cognizant
(47%), and the aggressive recruitment targets set by the front-line
domestic IT service companies during the current
fiscal.
But despite the expectations of a robust
organic growth over the next couple of years, there has been a
heightened focus on inorganic initiatives by the Indian IT service
companies. Among the front-line companies Wipro and Tata Consultancy
Services (TCS) have been more active than their peers. But the
strategy to aggressively scout for acquisition is not limited to the
front-line IT companies. Some of the mid-sized companies like KPIT
Cummins, 3i Infotech and Subex Systems have also identified
inorganic initiatives as an important part of their overall growth
strategy and announced a slew of acquisitions in the past few
quarters.
Telecom
Bharti stays
ahead
Though the suggested acquisition cost of
$718 per subscriber is at a premium to the prevailing valuations of
both Bharti Airtel and Reliance Communication Venture (RCVL), it is
at a discount of 21% to EV/subscriber of around $910 paid by
Vodafone for the acquisition of around a 10.05% stake in Bharti in
November 2005. The premium commanded by Bharti seems to be justified
given its leadership position driven by the company's ability to
continuously improve its market share, pan India presence and
investments in long distance (national and international) telephony
network and operations.
ANALYST MEET
Asahi India
Glass
Improving product
mix
Though the margins
of Asahi India Glass would be under pressure as a result of capacity
overhang and rise in input prices, we expect that the improved
product mix and higher exports growth shall mitigate the pricing
pressures. Also, the company's strategy to move towards the more
value added products seems to be right and should result in greater
benefits over the long term. At the current market price of Rs77,
the stock is quoting at 12.5x its FY2006
earnings.
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