Reco price: Rs 941
Current market price: Rs 1,028.60
Target price: Rs 800
Downside: 22.2%
Brokerage: Macquarie Research
Bajaj Auto’ net sales for March 2009 quarter stood at Rs 1,880 crore, however profit after tax (pre-exceptional items) came in at Rs 200 crore, ahead of estimates.
The operating profit margin at 16 per cent was also ahead of expectations on account of lower raw material costs, which were down by around 360 basis points (bps) quarter-on-quarter (q-o-q). A higher realisation on its forward contracts should translate into higher operating margins for the company’s exports, which accounts for 33–36 per cent of sales.
After the launch of XCD 135, the company plans to launch a new range of Pulsar next month, and a brand new motorcycle in the executive segment in July 2009.
Bajaj Auto also plans to launch two 3-wheelers, one each in the cargo and passenger segment, targeted to appeal to suburban markets. The success of these launches is critical to arrest loss of market share and return to a growth trajectory.
The product development pipeline is on track. It includes a small car, new 2 wheelers in partnership with KTM and indigenous cargo 4-wheeler, which are proposed to be introduced in the next 2–3 years. The brokerage has raised its FY10 and FY11 estimates by 23 per cent and 24 per cent, respectively, and increased target price to Rs 800 from Rs 405. The stock is expensive at one-year forward PE of 14x. Maintain underperform.
Dishman Pharmaceuticals
Reco price: Rs 185
Current market price: Rs 191.30
Target price: Rs 217
Upside: 13.4%
Brokerage: Religare Hichens, Harrison
The March 2009 quarter results of Dishman were above expectations. On a year-on-year (y-o-y) basis, net sales increased by 21.3 per cent driven by increase in contract research and manufacturing (CRAMs) revenues.
The EBITDA margins expanded 681 bps driven by improvement in raw material costs; thus, EBIDTA increased by 65.8 per cent y-o-y. The gross margins expanded by 827 bps due to improvement in product mix and favourable foreign currency. The adjusted profit after tax grew at 17.7 per cent.
The company has guided for 15 per cent revenue growth for FY10 with similar improvement in margins. The customers have not seen any demand fall in prescriptions. Hence, the inventory pipeline adjustment process is likely to get over by Q1 FY10, and from Q2, the growth in the CRAMs business is likely to recover.
The brokerage has revised FY10E earnings by 31.5 per cent on account of strong growth in Q4 FY09 and better outlook. The stock is currently trading at 8.7x FY10 estimated earnings. The brokerage has upgraded the target PE multiple from 8x to 10x to arrive at a new target price of Rs 220.
Jet Airways
Reco price: Rs 280
Current market price: Rs 302.65
Target price: NA
Brokerage: IDFC-SSKI Securities
The current operational fleet (86 aircrafts under Jet and 23 aircrafts under Jetlite) is expected to be maintained as of now. Jet is in talks with Boeing over cancelling or finding another buyer for the Boeing 777 that is due for delivery in August 2009. Post a 22 per cent decline in Jet’s domestic capacity, there is still 20 per cent over capacity in the system. Coupled with declining passenger traffic, the pressure on yields is slated to continue in the near term.
Almost all the international routes (except UK) are close to breakeven. While FY09 saw a 5 per cent decline in domestic operations at Rs 5,450 crore, international operations grew 98 per cent to Rs 6,020 crore. This has taken the current domestic-international mix to 52:48.
Albeit some tailwinds - a fall in ATF prices, refinancing to the tune of Rs 2,000 crore in January and international operations achieving close to break-even; headwinds continue to persist. However, pressures in the domestic operations would continue to depress yields. While Jet continues to defer any capacity addition for the year, it needs to fund the losses and fulfil its obligations for the current year under the pressure of an overleveraged balance sheet. Maintain neutral.
OnMobile Global
Reco price: Rs 392
Current market price: Rs 445.80
Target price: Rs 490
Upside: 9.9%
Brokerage: Ambit Capital
OnMobile’s deal with Vodafone group to provide mobile value-added services in emerging markets is expected to be revenue accretive for the company. The monetisation of the deal is expected once OnMobile completes its deployment in these countries like India, Bangladesh and Pakistan. The expansion in new geographies is expected to enhance the company’s addressable market.
OnMobile’s revenues are expected to increase by 30 per cent CAGR over the next three years, driven by the large pent up demand in the domestic market and incremental revenues from the international markets.
The company’s operating margins, however, are likely to remain at the same level due to continuous deployment in various markets and new product development. It recently launched Music Search Services on Taslima’s speech recognition technology.
Other services launched by the company include MRadio, launch of “* to copy” service between four major operators, and development of four new foreign languages. The company is also expected to go live with its AdRBT services in the next few months.
Over FY09-11E, OnMobile’s EPS is expected to grow at 29 per cent CAGR. At Rs 392, the stock trades at 16x FY11 earnings. Maintain buy.
LIC Housing Finance
Reco price: Rs 447
Current market price: Rs 528.65
Target price: Rs 610
Upside: 15.4%
Brokerage: Edelweiss Securities
LIC Housing Finance (LICHF) has improved its market share to around 9 per cent in FY09 from 6 per cent in FY08. After muted disbursements over FY05-07, LICHF has been gaining market share, growing its disbursements by 38 per cent in FY08 and 24 per cent in FY09. The company’s loan book is also expected to grow at 22 per cent over FY09-11E.
LICHF’s exposure to corporate developers has gone up to 8.8 per cent in FY09 (from 3 per cent in FY07). However, the NPA risk on the corporate developer book has abated with improved capital availability.
Moreover, with anticipated economic recovery and increased property deals in the second half of FY10, expect gross NPAs to remain below 2 per cent over FY09-11E. The return on equity (RoE) stood at 26 per cent in FY09 and even after post equity dilution, RoE will range between 21-22 per cent.
Over the next one year, the brokerage expects the stock to get re-rated and trade in the range of 1.8-2.0x its book value. It has revised upwards its EPS estimates by 4 per cent for FY10 to Rs 73.5 and by 5 per cent for FY11 to Rs 84.7. The stock is trading at 1.4x FY10E book and 6x earnings. The brokerage has upgraded its recommendation from accumulate to buy.
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