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Besides, in real estate business, it plans to develop 186 millionsq ft of land on 14,000 acres of land in Maharashtra. Out of this,the 12,500-acre Lavasa-based Township (near Pune) is HCC's flagshiprealty project, which will be developed in phases over 1215 years. However, considering the prevailing uncertainty in the realtymarket, the stock has been hammered down. Analysts believe thatthere is excessive negative sentiment built up in the stock price,which is why the stock is trading at discount to its fair value. Fundamentally, rising infrastructure spending in the country shoulddrive the growth in HCC's core business. A strong order book of Rs9,560 crore, which is 3.1 times its FY08 revenues, providesvisibility. Any improvement in the sentiment towards the realestate sector should provide further fillip to the stock. On an SOTP basis, HCC's fair value is pegged at Rs 165 per share,comprising of core business at Rs 98-110 per share and Lavasaproject at Rs 34-40 per share. Adjusted for Lavasa and other realestate projects, the stock trades at 9 times it's FY09 estimatedearnings and 6 times FY10 earnings.
The country's infrastructure needs should only rise as the economygrows bigger. Even at current projections, the opportunity is huge.The proof: the Eleventh Five Year Plan indicates that $500 billionworth of investment will be required for creation of newinfrastructure space, which in turn is positive for companies likeInfrastructure Development Finance Company (IDFC), a leadinginfrastructure financing institution. The company's infrastructure lending business is expected to growat CAGR of 37 per cent during FY08-FY10. While interest spreadscould see some pressure, better fund management should help offsetsome of this. Additionally, non-interest income should continue to contributeabout 47 per cent of total income during FY08-FY10, driven byconsistent increase in asset management fee, income from itsprinciple investment book and growth in IDFC-SSKI (broking andinvestment banking) business. IDFC has also entered into an agreement to acquire 100 per centstake in Standard Chartered AMC. Overall, the net interest income is expected to grow at CAGR of 28per cent during FY08-FY10, with net interest margin expected tohover at 3 per cent. "Looking at its business growth and expertise in infrastructurefinancing, we believe the stock is undervalued and provides aninvestment opportunity for decent return in medium term," says U RRao, head of research, ULJK Securities. At Rs 105, the stock is trading at 16 times its FY09 estimatedearnings and 12.5 times FY10 earnings. The research house has putsa price target of Rs 160 per share.
Thanks to the slower growth in industrial production and capitalgoods output in the recent past, Larsen & Toubro (L&T),too, has seen its share price being hammered down. This offers anopportunity to buy into the country's largest engineering andconstruction player, which is among the best plays on India'sinfrastructure and industrial capital expenditure (capex) boom. Also, the benefits of its diversification into power equipment,shipbuilding, defence equipment and railways are yet to pay, andhelp sustain growth in the long-run. "Flush with cash flows from high oil prices, the Middle East regionis likely to achieve infrastructure spend of $1,000 billion.L&T has not fully exploited the opportunity in the region dueto constraints of resources. In case of slowdown in India, thecompany can derive more growth in Middle East," says Anil Advani,head Research, SBICAP Securities. These factors and a strong order book of Rs 52,700 crore, thecompany is expected to maintain its growth at about 35 per centover the next two years. Any value unlocking from its IT andFinance subsidiaries (expected to be listed separately) wouldfurther add to the shareholders wealth. Regards valuation, at Rs 2,357, the stock is trading at 22 timesits estimated FY09 consolidated earnings and 17 times FY10earnings, which is not very expensive historically. On SOTP basis (factoring valuations of different businesses andsubsidiaries), analysts have estimated a fair value of Rs3,000-3,200 per share.
India's leading passenger car company, Maruti Suzuki is availableat half the price compared to its 52-week high of Rs 1,252 pershare seen in October 2007. Historically, the share price of Maruti has been trading in the PEband of 13-17 times. But, thanks to the market turmoil, it is nowtrading at just eight times its FY09 estimated earnings. The correction was partly on account of concerns over the risinginput cost (for the company) and, high crude oil prices andinterest rates (for its customers). Analysts believe that though concerns remain in the near term, thestock should get rerated in the long run on account of benefitaccruing from new launches, including WagonR Duo, Zen Estilo,Diesel Swift and SX4. Also, with the ongoing expansion at Manesar plant, exports areexpected to go up. The company will manufacture small cars forsupply to its parent's customers in global markets. Estimates indicate that Maruti will be exporting about 100,000units to its parent, Suzuki Motor Company of Japan, while another50,000 units would be supplied to Nissan Motor Company. Theexpansion of its capacities should also help company to maintainits margins, helped by economies of scale. Along with the benefits of new launches and the expansion, thecompany's target of selling one million cars in the domestic marketby FY2011, translates into a volume growth (for domestic market) of12 per cent over next three years. Overall, the company is expected to grow at decent pace. Investorscan use the current market conditions to gain from the stock'sre-rating once the macro concerns ease out in the future.
Opto Circuits, too, is seen as a good investment, with the stockhaving fallen by over 45 per cent since it high in January 2008,thereby rendering its valuations attractive at 13 times FY09estimated earnings and 9 times FY10 earnings. The company manufactures healthcare products in the invasive andnon-invasive segments. Historically, the company has been growingat 47 per cent during the last five years ending FY08, mainly onaccount of a series of organic and inorganic initiatives. Given the strong growth across segments, the company is expected togrow at about 57 per cent during FY08-10, while its net profitscould grow at a 45 per cent. A part of this growth will come from by its subsidiary EuroCor,which is engaged in the design and manufacture of cardiac andperipheral stents. The estimated size of the global market for itsproducts is pegged at $8 billion, and growing 15 per cent annually. Opto's other business segments include medical electronic andmonitoring products such as optical sensors, electro-medicalequipment, security systems and pulse oxymeters manufactured. "The company's unique chip design capabilities, USFDA approvedproducts and strong relationship with customers, have led to a 51per cent revenue growth in the past," says Amitabh Chakraborty. Also, the company recently acquired US-based Criticare Inc for $70million to strengthen its position in the non-invasive space. Alongwith this, the analysts also estimate that its invasive businesswould grow at 55 per cent during FY08-10, on the back of a strongproduct portfolio as well as a series of products to be launched inthe near future. Besides good fundamentals, the research houses like its businessmodel, where the company is a niche player in the medicalequipments commanding high margins along with high entry barriers.
Sintex is a strong play on the domestic consumption story. Thecompany's popularity improved sharply after its foray into theplastic water-tank segment. While it is still a leader in thebusiness, it has also moved into and emerged as a leader in manyvalue-added plastic-based products. These include new concepts like prefab and monolithic construction,which notably are growing at a fast clip. Analysts expect thesebusinesses to grow at about 70 per cent, driven by strong orderbook of Rs 1,500 crore (65% of FY08 sales) and growing demand forquick and affordable mass housing solutions. Additionally, the company has also emerged as a strong player inthe auto and electric plastics product segment, after makingseveral acquisitions in these businesses in FY08. The full impactof these acquisitions will be visible from FY09 and is expected tocontribute about 27 per cent of consolidated revenues. Driven by larger product portfolio, geographical diversification,higher domestic demand and benefits of its acquisitions, thecompany is estimated to grow over 50 per cent in consolidatedearnings. At Rs 291, the stock is trading at attractive valuationsof 10 times and 6 times estimated FY09 and FY10 consolidatedearnings, respectively.
Thermax was among the stocks that have fallen sharply due to theslow down in the industrial capex seen recently. High input costalso impacted sentiment, leading to a 60 per cent fall in its shareprice where valuations at 13 times its FY09 estimated earnings and11 times FY10 earnings are proving to be attractive. Importantly, except for these short-term blips, the company'sfundamentals continue to hold ground. The company's order book ofRs 2,637 crore provides revenue visibility of about two years. The company has also taken several initiatives, which should helpsustain growth in years come. Thermax operates in a specialisedsegment within the engineering sector, catering to the needs of anumber of industries. Also, the company is leader in small andmedium-sized industrial boilers, heaters, and captive power plantsin the energy sector. Notably, the company will gain from its entry into higher capacityboilers, which are used by power utilities. It recently signed a15-year agreement for sub-critical boilers up to 800MW with Babcockand Wilcox. The company has already completed the first phase of3,000MW boiler facility at Baroda and the second phase is expectedto be complete by October 2008. In this direction, the company has already announced its largestorder win ever, valued at Rs 820 crore for the supply of a coalfired boiler to a captive cogeneration plant of a refinery. While the margins may remain under pressure as 70-75 per cent ofits order backlog is on a fixed price basis, these are alreadyreflecting in the share price. Such issues are being taken care offwith the company immediately securing inputs for new orders.
Stocks from the media sector are finding favour among many researchhouses post the market correction. Television Eighteen India (TV18)is India's premier 'Business News' broadcaster and leading contentprovider in the electronic media space. It owns and operatesbusiness channels CNBC TV18 and CNBC Awaaz and has severalstrategic investments in the internet business such asmoneycontrol.com, which is among Asia's largest financial portalsand commoditiescontrol.com. The company's existing businesses have been doing well; newsoperations has witnessed a CAGR of over 54 per cent for the lastthree years, while the web and news wire business are currently inan investment phase. Its internet subsidiary, Web18, operates different businesses liketravel, technology, movie bookings and financial news. While TV18holds 85 per cent in Web18, revenues are still small, but offergood scope for growth over the longer term. On the existing and new businesses, the company's revenues areexpected to grow at over 37 per cent over the next 2-years.However, its ability to replicate its success in its foray intoprint and digital media needs to be watched. The company has already started the process and is acquiring 53 percent stake in Infomedia. The acquisition will provide the companyaccess to the yellow pages directory business and, several specialinterest magazine segments. Shahina Mukadam, head equity research, IDBI Capital Markets, says,"In the medium to long run, benefits would also accrue from its JVwith Forbes (English business magazine), Jagran Prakashan (Hindibusiness daily) and global media giant Viacom for a strategicalliance across television, film and digital media."