Broker's call

| Updated on September 28, 2011 Published on September 28, 2011

Emkay Global

GSFC (Buy)

CMP: Rs 426

Target: Rs 530

Caprolactam prices rebound to $3580/mt in September compared to $3190/mt in June. Revival in demand has been led by tightening supply and increasing participation of downstream buyers. Spreads bounced back and reached an all time high of $2465/mt. Spreads likely to remain intact as maintenance shutdown globally in October (13 per cent of global capacity) squeezes supply. Driven by strong margins in chemical and improved fertiliser performance, cumulative operating cash generated (after working cap) will increase to Rs 3,600 crore during FY09-13 compared to Rs 1,800 crore from FY04-08. Upgrading estimates by 15 per cent to Rs 84.6 to reflect improving chemical spreads. With 45 per cent of CMP in cash and equivalents and FY12 EV/EBITDA of 2.2x, P/E of 5x, the stock remains attractive.

PINC Research

HSIL (Buy)

CMP: Rs 164

Target: Rs 270

HSIL’s stock price has corrected by 20 per cent in the last one week from Rs 200 to Rs160. However, we believe there is no fundamental concern for the company. The correction is overdone and gives a buying opportunity for investors. HSIL’s sanitary and container glass segments are likely to witness a CAGR of 30 per cent and 23 per cent over FY11-13 along with margin expansions. At CMP of Rs162, the stock is attractively valued at PE of 8.1x and 5.9x on FY12E and FY13E EPS’ respectively. Moreover, the company has recently acquired Garden Polymers (PET business) which is likely to be EPS accretive by Rs1.6-2.0 in FY12 post consolidation (not captured in the valuation). There is no slowdown or any fundamental concerns on the company and recent stock price correction gives an opportunity to buy.

PowerGrid (Buy)

CMP: Rs 97

Target: Rs120

PGCIL plans to spend Rs 20,000 crore a year during the 12{+t}{+h} Plan to meet its marginally reduced capex target of Rs 1.02 trillion. In order to achieve this it plans to award equipment orders worth Rs 15,000-18,000 crore a year. This capex will be incurred on projects spilled over from the 11{+t}{+h} Plan, UMPPs, HPCTC lines and system strengthening. Increased capex and capitalisation shall translate into 16 per cent earnings CAGR over FY11-17E. The capex provides strong visibility on its earnings going forward. We expect its capitalisation run rate to improve during the 12{+t}{+h} Plan period, thus aiding 16 per cent earnings CAGR over FY11-17E. We reduce our consultancy division estimates marginally to reflect a muted growth going forward.

Nirmal Bang

Allahabad Bank (Buy)

CMP: Rs 158

Target: Rs 200

The share price of Allahabad Bank has corrected by 40 per cent from it’s 52-week high levels of Rs 271. This correction in the share price has made the valuations very attractive. Allahabad Bank has posted a net interest income of Rs 4,022.5 crore during FY11 compared to Rs 2,650.5 crore in FY10, registering an increase of 51.7 per cent y-o-y. The net profit for FY11 stood at Rs 1,423.1 crore compared to Rs 1,206.3 crore during FY10, a jump of 17.9 per cent y-o-y. This translates into an EPS of Rs 31.4.

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Published on September 28, 2011
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