Buy Gayatri Projects; target Rs 374: India Infoline

Increased diversification with award of two annuity contracts

With the inclusion of two new annuities, GPL boasts of a BOT portfolio of five projects in all. The company has been successful in managing a meaningful diversification with its BOT portfolio, which in number terms, is comparable to some of the large construction players.

Healthy order book position, 6.2x FY07 topline

GPL’s order backlog, including the two recent annuity awards, stands at Rs 31 billion, translating into 6.2x FY07 turnover, which is higher compared to most peers. The company is also L1 for Rs 4 billion of projects in roads and industrial works. Going forward, it plans to sub-contract close to 20% of its order value. With 90%+ of our FY08E revenues derived from existing orders, we foresee high probability of the company meeting our estimates.

Investment rationale

Gayatri Projects adds a couple of more annuities to its kitty

GPL has announced that the Maytas-Gayatri consortium has been awarded two new annuity projects with a total project cost of Rs 8.8 billion. GPL and Maytas will partner equally for the construction and maintenance of an eight lane expressway for the Outer Ring Road (ORR) to Hyderabad, Andhra Pradesh

Increased diversification with five BOTs

GPL has successfully taken its BOT tally to five, one toll-based and four annuities, including the two new ORR projects. The first three BOTs have achieved financial closure and construction has commenced. Toll revenues will start accruing from March 2009 onwards and the Lalitpur and Jhansi projects will earn semi-annual annuity stream from March 2010 onwards.

Order position now stands at Rs31bn – comfortably placed at 6.2x FY07
turnover

With the inclusion of the two ORR annuity projects, GPL’s present order book position stands at Rs 31 billion, which translates into 6.2x FY07 turnover. This ratio is higher compared to most peers and provides good visibility. In our projections, 92.6% of FY08E and 72.4% of FY09E turnover is on account of present orders (excluding new annuities). This comforts on GPL meeting our projected numbers for the next two years with potential upsides from new order intake. The company is also L1 for Rs 4 billion of projects in roads and industrial works.

Strategy to sub-contract 20% of work in value terms

On account of a rising order book position, GPL plans to sub-contract around 20% of its order value. OPMs are likely to be impacted on account of subcontracting, but savings on depreciation and interest charges will help matters on the net profit front. We have projected a 140bps yoy fall in OPM in our FY08E figures and a 40bps yoy fall in FY09E to factor in the sub-contracting effect, rise in share of roads and increased competitive pressures.

Capital raising top on the agenda

The key for GPL is to manage its finances to meet its immediate funding needs. The construction business is working capital intensive and needs constant money infusion. The company has availed of temporary advance facility from its bankers to meet its equity contribution in Jhansi and Lalitpur BOTs. With two more annuities added to its fold, GPL will have to shell out Rs600mn as its equity contribution over a period of time. On account of a high D/E ratio, GPL has already expressed its intension of raising USD 20-30 millio n through the FCCB or QIP route. With the concession agreement for the new annuities to be signed in 45-60 days, it is crucial for the company to ramp up the required funds soon.

We expect a CAGR of 45.2% in topline with healthy margins

GPL registered its second consecutive quarter of good growth since our initiating coverage report post Q2 FY07 results. Net sales grew 39% yoy during Q4 FY07 and 35.3% yoy for the year. Turnover during FY07 crossed the Rs 5 billion mark against our estimated Rs 4,964 million. Backed by a healthy order book position, we expect the company to witness a CAGR of 45.2% between FY07-09E to cross the Rs10 billion turnover mark in FY09E. GPL enjoys higher OPMs than peers on account of owning most equipments, low sub-contracting and winning certain high margins irrigation contracts in the past. Although, we have projected a fall in OPMs during the next two years, margins will remain higher as compared to most peers and lower growth in depreciation and interest cost with boost NPMs. We expect GPL to witness a CAGR of 57% in net profit between FY07-09E, assuming full tax.

Attractive valuations

The GPL stock trades at a P/E of 7.9x and 5.2x FY08E and FY09E EPS respectively. GPL stock is trading at a discount of 50.5% to the average P/E of Gammon, HCC, NCC, IVRCL and Patel Engineering. Adjusted for BOT value, the GPL stock trades at a P/E of 5.8x FY08E and 3.8x FY09E EPS and EV/EBIDTA of 5.4x FY08E and 4.3x FY09E, making it one of the most attractive construction companies. Even at a discounted target multiple of 6x to FY09E earnings, the stock appears attractive on its core business alone. We take a haircut of Rs 54 per share to factor in concerns expressed on the IJM-Gayatri project under arbitration, where GPL’s loss stands at Rs 540 million. Our target price of Rs 374, comprises core business valuation of Rs 346, BOT valuation of Rs 82 and haircut taken on IJM-Gayatri of Rs 54. We reiterate a BUY with an upside of 24.3% from current levels.




Citigroup has recommended buy rating on Mphasis BFL with target price of Rs 400.

Initiating at Buy: Key to EDS Bestshore Strategy

We initiate on Mphasis at Buy (1M) with expected 53% revenue CAGR and 44% EPS CAGR over FY07-10E. Our estimates do not incorporate the pending EDS India merger, which is likely to be 10-20% EPS accretive. We arrive at a target valuation of ~21x FY09E EPS when we build in 15% EPS accretion.

Critical piece in EDS strategy

In the past, EDS has grappled with its offshore strategy and lost market share due to a weak offshore presence. The Mphasis acquisition was made to address this. We view it as a critical piece of EDS’s bestshore strategy, which is key for the success of its global delivery model.

Demand side almost guaranteed; execution key

EDS is a USD 20bn+ organization with new order bookings exceeding US$26bn last year. Demand is ensured from EDS relationship as many new orders have a sizeable offshore component. Management is taking steps in the right direction to address supply side challenges - successful execution would result in growth acceleration.

Is delisting the endgame?

It might make sense for EDS to de-list Mphasis in the medium to long run. It may, however, retain the listing to: a) use Mphasis stock options as incentives; b) give better accountability and transparency as an audited listed entity, and c) to retain offshore as profit center (vs. cost center).

Risks

Risks include supply-side challenges, ability to execute complex projects, INR appreciation, wage inflation. No forex cover for cash flows might impact 1Q08 negatively; stock correction could provide enhanced entry point.




DSP Merrill Lynch neutral on ONGC

DSP Merrill Lynch has recommended neutral rating on Oil and Natural Gas Corporation, ONGC. The company’s earnings growth was modest despite significant rise in oil price and volumes due to a sharp jump in subsidy. Even in FY06 earnings growth was modest despite much higher oil prices for the same reason.

Jump in subsidy limits FY07 EPS rise to 12%; remain neutral

ONGC’s FY07 consolidated recurring EPS, at Rs 80.9, is 12% YoY higher. Its earnings growth was modest despite significant rise in oil price and volumes due to a sharp jump in subsidy. Even in FY06 earnings growth was modest despite much higher oil prices for the same reason. This scenario is likely to continue until there are reforms to tackle the subsidy problem. Reforms appear unlikely until parliamentary elections due in mid-2009. We remain Neutral on ONGC.

Subsidy rise neutralized gain from oil price and volume rise

The price of ONGC’s marker crude Bonny Light was 12% YoY higher in FY07. Oil sales volumes, which bounced back after a hit from the accident in Mumbai High in FY06, also were 9% YoY higher. However most of the gains from higher price and volumes were neutralized by a 42% YoY rise in subsidy hit, to USD 3.8 billion.

FY07 consolidated EPS 2% below Mle & 9% below consensus

ONGC’s FY07 consolidated recurring EPS of Rs80.9 is 2% below our estimate and 9% below consensus. ONGC’s EBITDA was 6% lower than expected due to higher than expected staff cost. This was due to accounting policy changes made to comply with changes in accounting standards. Depreciation and depletion also was 3% lower than expected. Higher other income made up for some of this hit.

Significant accretion in reserves key to rerating

A 12.5% hike in ONGC’s regulated gas price has been proposed by the tariff commission and could soon be implemented, boosting its FY08E EPS by Rs1.7- 1.9. We however believe that the key to the rerating of ONGC is significant accretion of its reserves. It has not made large discoveries since the late 1980s. However, we remain hopeful, given its large exploration acreage in the highly prospective Krishna-Godavari and Mahanadi basins in India




Angel Broking neutral on ONGC

Higher Subsidy and Wage payout impacts PAT:

For Q4FY2007, ONGC reported a yoy de-growth of 9.8% in PAT (before extraordinary items) at Rs 2,207 crore (Rs 2,445 crore). Net sales were marginally higher by 4.2% to Rs 12,397 crore (Rs 11,898 crore). These were a disappointing set of numbers, which were over 20% below our estimates. Revenues were impacted due to lower realisations from selling oil at discounted rate to the refiners. For FY2007, the average oil price was USD 66 per barrel but ONGC realised only USD 44 per barrel as it offered USD 22 per barrel discount to the state-owned refiners. This resulted in mounting subsidy, which for the quarter stood at Rs 4,668 crore.

One-time wage provisions inflate yoy Wage Bill by 209%:

Staff cost for Q4FY2007 was up a whopping 209.3% to Rs 1,555 crore (Rs 503 crore) on the back of one-time provision of Rs 1,287 crore. The provision included Rs 400 crore towards contribution to the PRBS Trust, Rs 270 crore towards pay settlement, Rs 390 crore towards post retirement benefits and Rs 227 crore towards Golden Jubilee incentives. Going ahead, we expect the staff costs to remain under check.

Insurance claim and higher Other Income helps increase PAT:

During Q4FY2007, ONGC received Rs 475 crore (Rs 641crore) from insurance claims for damage to the BHN platform in the Mumbai High Field during an accident in FY2006. Other Income also shot up by 245.9% to Rs 2,179 crore (Rs 630 crore) due to receipt of Rs 1160 crore from the Gas Pool account to compensate for selling of richer gas fractions to GAIL at a discounted price.

Performance Highlights Crude oil production up 9%:

Crude oil production during FY2007 went up by 9% to 26.05 million metric tons (MMt) from 24.40MMt in FY2006. Gas production remained stagnant due to disruption in operations at the Hazira plant during floods in August last year. It remained at 22.44billion cubic meter (BCM) compared to 22.57BCM. Total Oil plus Oil equivalent (O+OEG) production was up 3.2% at 48.49MTOE (46.97MTOE). JV crude oil production was up at 1.89MMt (1.71MMt) and natural gas production was up at 2.47BCM (2.43BCM). Sale of crude oil was higher by 8.7% at 24.41MMt (22.45MMt) whereas natural gas remained flat at 20.30BCM (20.50BCM). Sale of value-added products declined marginally at 3.179MMt (3.373MMt).

Exploration efforts paying off:

During FY2007, the exploratory efforts culminated into 22 discoveries, of which nine are new prospects (three deep water, one shallow water and five onshore) and 13 are new pools. ONGC recorded in-place reserves accretion of 169.52MTOE, highest in 11 years after 1995-96. It also recorded ultimate reserve accretion of 80.29MTOE (ONGC operated fields – 65.56MTOE, domestic JVs – 4.77MTOE, overseas JVs – 9.96MTOE). The company drilled a total of 88 exploratory and 178 development wells during the year.

Standalone PAT up 10.0% for FY2007:

For FY2007, ONGC reported standalone PAT (before extraordinaries) of Rs 15,168 crore (Rs 13,790 crore). Net Sales for the same period were up 18.2% to Rs 56633 crore (Rs 47924 crore). PAT was largely impacted due to higher subsidy burden and higher Wage Bill. The company shelled out the highest-ever subsidy pay-out which was up a whopping 42.4% at Rs 17,024 crore (Rs 11,957 crore) and because of the one-time provisions, the Wage Bill was inflated by 134.4% at Rs 2,982 crore (Rs 1,272 crore) both of which affected the bottom-line. Although, relief came in from higher Other Income due to aid from the Gas Pool account, it was not sufficient to boost the bottom-line. On a consolidated basis, ONGC reported 16.4% rise in Net Sales to Rs 82,253 crore (Rs 70,642 crore) whereas PAT (before extraordinaries) was up 17.2% to Rs 17,295 crore (Rs 14,757 crore). This includes a larger contribution from ONGC Videsh.

Aggressive future capex plans:

During the year, ONGC’s capital expenditure rose by 25.6% at Rs 13,305 crore (Rs 10,591cr), which was primarily spent on Exploration and Production (E&P) activities. For the XI Five Year Plan (2007-2012), ONGC has set an aggressive target of USD 16 billion (approximately Rs 75,984cr) to raise the crude oil production to 140MMt (up by 10MMt over X Plan) and natural gas production to 112BCM. The company plans to utilise internal accruals and partly raise debt to fund the expansion plans. This move is towards gaining self-sufficiency for crude oil and natural gas in India.

Dividend yield of over 3%:

During FY2007, ONGC allotted bonus shares in the 1:2 ratio to its shareholders thus increasing the equity base to Rs 2,139cr. Over the expanded capital, it recommended dividend of 130%, which works out to Rs31/ share. The dividend payout is highest ever by an Indian corporate at Rs 6,631cr.

Outlook and Valuation

We expect ONGC to post marginal top-line growth of 5.0% during FY2008E to Rs 86,358cr with a PAT of Rs 18,683 cr, which works out to an EPS of Rs87.3. However, the mounting burden of subsidies is affecting performance of the company and in turn its profitability is getting depressed. We believe that the government policies over sharing of under-recoveries will hamper the company’s performance going forward as well. In the wake of these uncertainties, we remain Neutral on the stock.




Buy ONGC; target Rs 1100: Citigroup


Citigroup Research has recommended buy rating on ONGC with a target price of Rs 1100 on account of greater confidence in adherence to a subsidy-sharing formula and the company’s recent successes in driving volume growth and potential improvement in reserve replacement.

Citigroup Research report on ONGC:

4Q was disappointing, but expected — ONGC’s pre-exceptional standalone net profit at Rs 22.1billion in 4QFY07 was disappointing as higher subsidy share (Rs 46.7 billion) took its toll. However, profit contribution from the subsidiaries increased significantly to Rs 21.3 billion in FY07 vs. Rs 9.7 billion in FY06 – thus helping ONGC post a consolidated EPS of Rs 83 during the year.

Lots of one-offs, but net impact was neutral — ONGC accounted for one-off staff costs of Rs 12.9 billion during the quarter. However, it was offset by booking of other income of Rs 11.6 billion from the surplus in Gas Pool account, to partly compensate for higher price for richer fractions supplied to GAIL since July-05.

Contribution from subsidiaries kicks in, finally — OVL and MRPL contributed Rs 10 i.e., 12% to the consolidated EPS vis-à-vis 6% in FY06. Bulk of the improvement came from OVL, which benefited from the commencement of production from Sakhalin-I (Exxon Mobil).

FY08 subsidy sharing may hold positive surprises — Given the low chances of retail auto fuel price hike, upstream’s subsidy share could revert back to 33- 35% (from 40% in FY07). Meanwhile, the widening positive spread between Bonny Light prices (benchmark for ONGC) and the headline WTI would offset the impact of rupee appreciation. Undemanding valuations, increasing contribution from OVL, likely improvement in subsidy share, and possible exploration success make ONGC a good value pick. Maintain Buy/Medium Risk.

Company description

ONGC is India's largest E&P company. Through its subsidiary ONGC Videsh, the company has invested in overseas crude equity. It has ventured downstream, picking up a majority stake in Mangalore Refineries, and it intends to set up a petro-products retailing network.

Investment thesis

We rate ONGC as Buy/Medium Risk (1M) with a target price of Rs 1100. Despite near-term uncertainties on subsidy payouts, ONGC's asset valuations have improved with higher net realizations and greater confidence in gas price deregulation. The present subsidy-sharing mechanism reduces the gains for ONGC in the short term; however, stable and range-bound crude of USD 50- 60/bbl indicates a sweet spot for ONGC as the subsidy burden will become manageable at lower crude prices. Meanwhile, domestic gas prices have been on an up-move and the structural market forces will reflect in higher realizations for ONGC's APM gas in the next 2-3 years. OVL's past acquisitions will also start bearing fruit in FY2007-08 and beyond as they become a meaningful portion of ONGC's total production. ONGC remains reasonably priced among the Asia- Pacific E&P universe – both on traditional valuation multiples as well as asset valuations (EV/boe). This, coupled with dividend yield of 4.0%, makes ONGC a good value pick.

Valuation

Our target price of Rs 1100 is based on a PER of 11x FY08E P/E (previously 10x) on account of greater confidence in adherence to a subsidy-sharing formula and the company’s recent successes in driving volume growth and potential improvement in reserve replacement. The new target price imputes EV/EBITDA of 5.5x FY08E. This is at the higher end of historical trading ranges – PER of 2.1x to 11.3x and EV/EBITDA of 0.8x to 5.6x – but in-line with regional peers. In terms of asset valuation, ONGC's implied target EV/boe of USD 6.9 is at a discount to peers.




Buy Opto Circuits;target Rs 515: Karvy Stock Broking

Opto Circuits, is a leading player in the non-invasive (non-surgical) sensor segment and is all set to emerge as a potential global player for stents, as the acquisition of Eurocor (for a consideration of USD 13 million) would help to penetrate into most of the developed markets. It is growing through the organic and inorganic route and is increasing its presence in the global market. The growth momentum would continue on the back of its increasing sales of disposable sensors and stents with the help of strong global distribution network, customer focused business strategies, and expansion of product portfolio. The revenues are expected to grow at a CAGR of 64% to Rs 5155 million and bottomline at a CAGR of 65% to Rs 1,588 million over FY06-09. We recommend a BUY on the stock with a target price of Rs 515 over one year investment perspective.

Revenues to show strong growth on account of increase in sales of Disposable sensors and stents:

The increase in demand of stents, and disposable sensors across the global and domestic market would help the company to grow at CAGR of 64% during FY06-09. After the acquisition of Eurocor which is in the business of manufacturing Cardiac and Peripheral stents, Opto Circuits has become a leading player in stents market which globally has market size of USD 8 billion. We believe that increasing number of heart patients would enhance the demand of stents. The strong distribution network, CE (Conformit Europen) certification for stents and it’s revolutionary product – DIOR would help to increase revenues from stents business. Low cost of disposable products and the increasing number of HIV/AIDs globally has increased the use of disposable sensors. We expect the net sales of the company for FY07, FY08, and FY09 to increase by 74%, 60%, and 59% to Rs 2,021million, Rs 3,237million, and Rs 5155 million respectively.

Growing global & domestic stents market helps revenues to grow:

The global demand of Drug Eluting Stents (DES) is surging due to lowering the rate of restenosis. It is estimated that global stent market is growing at 14%p.a and market size for stents in 2006 was USD 8 billion of which US accounts for of USD 4 billion, Europe USD 3 billion and Rest of world comprising of USD 1billion. Going forward, it is expected that the total global market for stents would increase to USD 10 billion by 2008. The domestic market for stents is also big with over 60,000 stents sold in 2005 and estimated to go up to over 80,000 in 2007. The stents market in India is growing on account of increasing number of heart patients. Hence, companies are getting an opportunity to charge higher rates of reimbursement from payers on account of new inventions. Thus, we believe that by acquiring EuroCOR, Opto Circuits would leverage the opportunity from increasing demand as well as higher rate of Drug Eluting Stents (DES).

Low cost advantage driving the Pulse Oxymeters growth:

Pulse Oxymeters business has reported 40% growth in revenues for FY06 to Rs 236 million over FY05. We estimate that the revenues for FY07, FY08, and FY09 would increase by 18.8%, 41.5% and 20% to Rs 280 million, Rs 396 million, and Rs 475 million respectively. The growth is expected to be driven by a product called Desktop Pulse Oxymeters and Hand Held Pulse Oximeters which is used in operation theatres as well as in intensive care units. The product is featured with connectivity to computers, nurse call back facility and battery back up satisfying the international standards for this range of products. Opto Circuits would leverage on its low cost advantage as well as established distribution network to further penetrate the market.

Key Concerns

Business heavily dependent on research and development

The optoelectronics and medical instrumentation industry of which the company forms a part are substantially dependent on research and development for growth. The growth is substantially dependent on the research and development undertaken by the company and expertise of the research team. Consequently, it is also dependent on ability of company to attract, motivate and retain highly skilled research team. Any loss of the services of such personnel could have an adverse effect on the business.

Business is highly dependent upon demand and regulatory policies from the US and Europe:

The major revenues of the company come from product exports and services to developed country markets like the United States and the European Union. Consequently, the performance of the company is highly dependent upon demand and regulatory policies adopted in these markets. The reimbursement policies of large health insurers and government benefits providers are the key demand drivers for these markets. The effort from governments and private insurers to reduce health care costs may reduce the profitability of the company.

Foreign Exchange fluctuations

Opto Circuits is export oriented business. It is exposed to fluctuations in currency rate. Besides, the company imports the entire plant and machinery and raw materials. Thus, fluctuations in the rate of conversion of foreign exchange will have an impact on the performance and profitability of the company.

High debtor days

The company has extremely high debtor days which are due to the billing done to its overseas marketing subsidiary, MediAid Inc. It has never faced the problem of bad debt but the average debtor days are above 180 days due to the credit period given to its OEM customers.

Valuations:

The earnings of Opto Circuits including EuroCor are expected to grow at a strong CAGR of 65% to Rs 1588 million in FY09 from Rs 351million in FY06. The stock is currently trading at 22.7x FY08E and 14xFY09E earnings and at EV/EBIDTA of 20 x of FY08E and 12.5 x of FY09E. Hence, we believe that strong growth in stents and disposable sensors will boost the earning growth in future. We recommend a BUY on the stock with a target price of Rs 515 over one year investment perspective. We have valued the stock at 20x its FY09E EPS of Rs 25.76 to arrive at our price target of Rs 515.




Buy LIC Housing; target of Rs 246: SBICAP

We believe LIC Housing Finance (LICHF), the 2nd largest non banking housing finance company (HFC), is a serious long term player in the business and deserves better valuation. The industry offers a great potential for growth given Indian demographics and LIC housing finance would be able to reap benefits with its marketing network and enhanced operational setup. Hence, we are initiating coverage on the company with a BUY rating and 12 months a price target of Rs 246.

Business environment turning favorable for HFCs.

With banks reducing the focus on housing finance segment, we believe the HFCs would be the key beneficiary. Reducing competition would benefit LICHF in terms of rising business volumes. We expect the disbursements for LICHF to grow by 22.5% CAGR over next three years as against 11.7% CAGR witnessed in the past three years.

Business restructuring done with, time to do business.

In last couple of years, LICHF has concentrated on restructuring business processes and improving credit quality. The objective has been achieved with improved credit assessment systems in place and NPA levels reduced. We believe and also management has indicated that its time to do more business leveraging on the growth opportunity and improved operational systems.

Loan portfolio quality improving

NPA levels for LICHF have declined both in relative and absolute terms over the last couple of years. Moreover, loan to value ratio (LTVR) and Installments to Income ratio (IIR) on incremental sanctions during FY2007 stood at 58.2% and 35.5% resp. indicating lower level of risk assumed.

Systemic risks and changes in tax policy are the only major concern

Lower than expected growth and sharper increases in cost of funds are key risk to our financial forecast. Further, any change in tax policy by government in relation to sops given to individuals could impact business growth.

Valuation

At CMP of Rs 193, the stock is trading at 5.7x (FY2008E) and 4.8x (FY2008E) its earnings and 1.0x (FY2008E) and 0.8x (FY2009E). We believe that current valuation does not fully reflect industry and company growth potential. With expected RoE to be around ~17.5% and RoA of ~1.4% over next couple of years, we believe stock deserves better valuation. Hence, we are initiating coverage with a BUY rating and 12 months price target of Rs 246.




Deutsche Bank is bullish on Sun Pharmaceutical Industries and has recommended buy rating on the stock with a 12-month target of Rs 1200.

Sun acquired Taro fully aware of its losses in 2006

Taro, in a letter to shareholders seeking approval for its acquisition by Sun, guided for its 2006 financials. We believe that these, below expectation numbers, were largely driven by restructuring. With such significant restructuring already done, we believe that its recovery should be faster. Maintain estimates and Buy on Sun.

Taro’s communication to its shareholders

On 21st May, Sun announced the acquisition of Taro. The latter has sent a letter (dated 8 June’07) to its shareholders, announcing a meeting on 23rd July for approval of this acquisition.

Weaker headline 2006 numbers indicate restructuring is largely done

Guides 2006 financials, which are below expectations. Analysis indicates that Taro, on its own, has significantly rationalised its working capital, manpower, product portfolio and inventory at wholesalers/ retailers. We believe that after this significant clean-up and with its retail market-share being largely intact, Taro should bounce back sharply.

While some minority shareholders object to the fact that fresh equity issued to Sun was significantly below the open offer price, we believe that the sale process seems extensive and transparent. New equity issuance was a part of the acquisition process signed by Sun. Hence, we believe that all approvals for this acquisition should fall in place.

Valuation/risks

Taro’s financials (eps accretive for Sun FY2009E) are not included in our estimates. We believe that Sun should trade at a premium to the sector on account of its superior growth strategy (high and consistent growth as well as high ROCE) and value accretive acquisitions. Hence, our target multiple of 25x Mar’08e is at 20% premium to sector PE. Spreading its scarce management resources quite thinly and a delay in turnaround/ integration are key risks to this acquisition and our PT.