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Aug 07, 2008, 07.02 PM IST | Source: CNBC-TV18

Stocks to watch: Bilcare, KCP, Sterlite Tech

The markets were in consolidation mode. The indices traded choppy for most of the session and ended with marginal gains. The Nifty closed at 4,523 up six points, while Sensex shut shop at 15,117 up 44 points.

Kamlesh Kotak, Vice-President – Research, Asian Markets Securities

The markets were in consolidation mode. The indices traded choppy for most of the session and ended with marginal gains. The Nifty closed at 4,523 up six points, while Sensex shut shop at 15,117 up 44 points.

 

Kamlesh Kotak , Vice-President – Research, Asian Markets Securities , is bullish on Bilcare and KCP.

 

Here’s how Kamlesh Kotak views the stocks on board:

 

On Bilcare :

Bilcare is a niche company. It is one of the fastest growing companies having a global footprint. The company is into pharmaceutical packaging, which is a business posting a steady growth of 15-20% both domestically and globally. The interesting part is their entry into GCS, or Global Clinical Supplies, business, which basically caters to clinical research, new drug discovery, and outsourcing of all services related to that. It is growing at a phenomenal 40-50% CAGR. The company has made four acquisitions over the last three years and has made its presence in the US, UK, Singapore, and India. The company is going to see a 30% growth between FY08 and FY10. We have a price target of Rs 900 based on an EPS of Rs 60 for FY10. So, the stock is trading at 15 times FY10 earnings.

 

On KCP :

KCP is a diversified company having a presence in engineering, cement, sugar, and power. The company’s growth has not been that great over the last two quarters. It also has some real estate development, and some capex plans on the engineering front. If we look at valuations, the stock is going dirt cheap at four times FY10 earnings. We have a sum-of-the-parts valuation of Rs 480 on the stock. It is purely a value buy for long-term investors who have to ride on FY09 earnings, which would not be great. But in the long-term the stock has immense potential. The real estate arm and sugar business in Vietnam would pick up significantly. Only cement would remain flat till new expansion comes up. Overall, the company has got a strong and diversified business model, excellent engineering capabilities, and high EBITDA margins in the region of 30%. It is a value pick but only for long-term investment.

 

Disclosures:

I don’t hold either stocks, but we have recommended a buy on both stocks to our clients.

 

Deven Choksey of KR Choksey Securities is bullish on Sterlite Technologies, Mahindra Lifespace, and JMC Projects.

 

Here's how Deven Choksey views the stocks on board:

 

On Sterlite Technologies :

This company is interestingly placed in both sectors. They have a kind of shockproof business model because the aluminium conductor business, which feeds the power transmission business is where majority growth has come in the last quarter. In the current quarter, major growth is likely to come from this particular segment because they are expanding aluminium conductor capacity from 1,15,000 tonne to 1,60,000 tonne.

 

It also has a broadband business model which is fibre optic cables. Here also capacity is expected to double. This capacity expansion is being funded through internal accruals.

 

In Q1, the company has generated good profit, except for the mark-to-market provision on forex losses. If we exclude that, then profit growth has been on the higher side compared to last year. We believe that in two years this company is going to double its base from Rs 200 crore in FY09 to Rs 400 crore in FY10-FY11. At the current market price, the stock is available at a valuation of eight times forward PE. Valuation-wise, this stock is available at an attractive price.

 

On Mahindra Lifespace :

This company has an interesting business model. Unlike any other reality company in the country, they are a zero debt entity. That gives us good confidence in a rising interest rate scenario. It also has two SEZs at Chennai and Jaipur.

 

In the Chennai SEZ project, they are now into the residential space, where there are going to have a higher amount of realization this year because another 15 million sq ft is going to come into the market. Subsequently, they have added another 300 acres which will translate to around 20 million sq ft in two years from now. To a greater extent, this company is going to add a significant amount of high value property into the books. So, we will probably get good margins in the books in subsequent quarters in the following year.

 

In the Jaipur SEZ project, they have already started with commercial tenants like Infosys and Barclays. In the second phase, they will start with residential properties. In the next two-three years, they will have good amount of profits to talk about.

 

On the integrated township side, Goregaon and Bhandup properties are likely to record revenue and profits in the current financial year much more than what they have recorded till now. This company is on an inflection point and we are going to see substantial amount of lumpy quarters for the rest of the year and good amount of growth.

 

At present, the company can come out with an EPS of around Rs 34 on a conservative side and optimistically around Rs 38-39 this fiscal. This discounts the stocks on a conservative basis at around 14 times price-to-earnings.

 

The visibility for next 2-4 years is very good. The land bank is at a substantially lower price and because of the SEZ, taxation is in their favour. So, the cost is taken into account. All put together, this company looks promising from an investment point of view.

 

On JMC Projects :

It is a transformed company. From a low-value project executive business to the construction space, they have gradually moved maybe due to the parentage of Kalpatru. They are now practically participating in the road sectors which are on a build, operate and transfer basis. This is going to add higher amount of margins than what they used to have in earlier years. Along with Kalpatru,  they are going to be bidding for some power transmission lines projects, so margins are going to improve significantly.

 

The fundamentals of the company are also quite attractively placed. The company is growing at about 40-45%. This year and next year it is likely to grow higher than that. The company's order book is around Rs 2,500 crore which gives us a visibility of at least two years from now. If one looks at Rs 34 EPS in the current financial year as a possible earnings target, in such a situation we are getting this company at a valuation of around eight times the current market price. That is the reason why we find good value available in some of the midcap companies like JMC, which have a proven business model. Maybe one will get good amount of appreciation around 40-50% in a risen market. So, one can earn from this company. 

 

Disclosures:

It is safe to assume that our clients and us have investment interest in these companies. We have research coverage on it and at the same time may be having some positions in these companies.

 

Prasad Dahapute , Senior Analyst, Antique Stock Broking , is positive on Tata Power.

 

Here's how Prasad Dahapute views the stocks on board:

 

On Tata Power :

Tata Power is not going to face any problems from Indonesia. They have a coal asset in Indonesia which has been under dispute on account of value-added tax that was offset against royalty payment. That dispute is pending since January 1, 2000. Although the claim is more than USD 200 million for the company as a whole, we need to remember that Tata Power actually has purchased it on June 27, 2007. The liability of Tata Power to that extent is expected to be very limited. So, the reaction in the market is completely overdone. If you look at the monetary impact on Tata Power’s consolidated earnings, it should not be more than Rs 2. I doubt we need to revise our estimates because we have still kept our coal price realization to USD 59 per tonne although Bumi Resources, Asia's third-largest coal miner, is claiming USD 77 per tonne as realization in Q3 and has already seen USD 71 per tonne in Q2 2008.

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