Jain Irrigation a market performer; target Rs 533: HDFC Sec

CAGR growth of 36% (FY07-FY09) in Revenues

Due to the MIRS /SIS business growing at the rate of 70%, PVC pipes & PE pipes SBU each growing by 15%, PC sheets business by 5%, onion dehydration by 20%, and fruit processing by 17%, the CAGR growth in revenues comes to 36% over FY07-FY09E and the bottom line grows by 33.17% over FY07-09E.

Micro Irrigation Systems (MIRS)/Sprinkler Irrigation Systems (SIS)
Business and Acquisition of NaanDan

Continuing its acquisitions in the MIRS space, Jain Irrigation’s acquisition of NaanDan makes it the second largest player, next to Netafim of Israel (USD 325 million revenue size). NaanDan gives Jains access to 50 countries to which it supplies equipment, including Europe and Latin America apart from the US, Australia and Israel, through its seven manufacturing facilities across the globe. The size of micro irrigation systems market in the US is USD 400 million.

MIRS/SIS Business and Government Support

The addition of new states under MIRS including Tamil Nadu, Karnataka and Gujarat, over the existing ones like AP and Maharashtra will drive the revenue growth rate. EBITDA margins in this business are the highest among all SBUs at 24%. We expect JISL’s order book to be Rs4.5-5bn from Gujarat, Maharasthra, TN and AP. We also expect an upside from its entry into Chattisgarh and Rajasthan. With domestic operations well on course to grow at over 50% CAGR, JISL is making its intent clear of covering the global markets. It is keen to operate in three other key markets of US, Israel and Africa through various acquisitions. On June 21, 2007, the AP government released Rs300 crores for micro irrigation projects. This will increase further the number of projects JISL has secured in AP. Apart from Maharashtra and AP, many other state governments are providing 50% subsidy for micro irrigation systems.

Valuation

The fair value of the equity portion of the stock comes to Rs 533.5 per share which discounts the FY08E EPS 23.2 times and the FY09E by 16.93 times. We reiterate, “Market performer” with a positive bias.





Buy Balmer Lawrie; target Rs 560: Emkay Research

Balmer Lawrie Limited (BLL), a public sector undertaking, is a diversified conglomerate with presence in logistics, industrial packaging, grease and lubricants and tours and travels. Logistics contributes 60% of PBIT of the company. The company has mutiple growth drivers in place as it plans to increase its CFS capacity at existing locations and expand its CFS/ICD network to other parts of the country as well. We expect the company to report an EPS of Rs 54.1 in FY08 and Rs 62.5 in FY09. The stock trades at 7.2x FY09 earnings and 4.3x FY09 EV/EBITDA. We believe, such steep discount to its logistics peers is unwarranted and initiate coverage with a BUY and a target price of Rs 560.

Containerisation to fuel growth

Buoyancy in exim trade, improvement in port infrastructure and increasing penetration of containers will drive container traffic at various ports in India. With proposed investment in the port handling capacity, container traffic is expected to grow three fold by 2014. We believe, BLL will be a key beneficiary of increased container traffic by virtue of its CFS presence at JNPT, Chennai and Kolkata.

Logistics - The profit driver

BLL's logistics segment has presence in Container Freight Stations (CFS) and freight forwarding services (FFS). Logistics segment contributes 60% of PBIT, with container freight station garnering the lion's share. The company is further mulling expansion at two of its CFS and is also in the look out for acquisitions. In the FFS, the company is a preferred service provider to PSUs with an 80% market share. With the rapid growth in container traffic, we expect BLL's logistics division to drive profitability of the company.

Capex and acquisition to drive growth

The management is contemplating acquisition in the logistics segment. The company has also appointed a consultant to advice it on the future growth strategies by outlining locations for its new CFS. Going forward, expansion at Chennai CFS and approval for expansion at JNPT will drive volumes.

Valuation- Initiate coverage with target price of Rs 562

We expect BLL to report EPS of Rs 54.1and Rs 62.5 in FY08 and FY09 respectively. The stock trades at 7.2x FY09 earnings and 4x EV/EBITDA. The stock trades at a sharp discount to its peers in the logistics sector. Given the strong return ratios and positive surprise from inorganic growth, we believe the discount is unwarranted. While the other logistics companies trade at a band of 12-16x FY09 earnings, BLL at 7.2x FY09 earnings is at a steep discount. We initiate a coverage with a BUY and a target price of Rs 560, discounting FY09 earnings by 9x.





Sell JSW Steel; target Rs 468: Karvy Broking

We expect the revenue growth of 53.2% YoY (QoQ decline of 3.8%) to Rs 24,038 million. We expect steel sales volume growth of 26.3% YoY. The robust volume growth will be because of expanded capacity of 1.3 million ton coming on stream during Q3FY07.

EBIDTA margins are expected to increase by 300 bps to 33.0%. The operating profit is expected to increase by 68.5% to Rs 7,936 million. Interest is likely to go up by 31.7% to Rs 1,169 million as the interest on borrowings incurred for the expanded capacity will be charged to P & L. Depreciation cost will also be higher by 14.7% to Rs 1,349 million due to the additional charge of the expanded capacity coming into P & L. Other income is unlikely to see any significant change. Overall, the net profit is expected to increase by 110.8% YoY to Rs 3,590 million translating in to EPS of Rs21.9 during the quarter.

For FY08E, we expect the revenue growth of 19.7% to Rs 102,869 million and adjusted profit to rise by 5.3% to Rs 13,440 million. We are maintaining our SELL rating with the target price of Rs 468.





Hold McNally Bharat Engineering: HDFC Securities

Key Positives :

The company has a strong order position of Rs 11.25 billion, which will be executed over a period of 18-24 months. This is almost 2.3x its FY07 sales, showing clear visibility of its long-term growth potential.

The break up of orders between product and project businesses is Rs 300 million and Rs 10.95 billion. Further bids outstanding of Rs 74 billion are in different stages of decision making. It is likely to receive firm orders from this during FY08E.

We expect MBE’s EBIDTA margins to improve from 5.6% in FY07E to 8.4% in FY09E, due to higher value added orders on the back of higher economies of scale on bigger contracts and stable raw material price.

Financials

MBE reported a strong performance in Q4FY07 and FY07 with net sales improving by 25.2% and 51.5%. Operating profits were down by 6.8% y-oy during Q4FY07 but were up by 67.9% y-o-y in FY07, followed by growth in PAT by 217.6% and 228.3% during the same period.

OPMs during Q4FY07 were significantly down by 110 bps to 3.5% as most of the low margin contracts were executed during the quarter and were subsequently booked into revenues. As per our interaction with the management, this was the last quarter for MBE with such low margins and going forward, there is likely to be significant improvement as the current order book is at very healthy margins.

During the quarter, other income was very high as the company sold one of its properties in Bangalore for Rs 52 million.

Outlook

MBE is trading at a P/E of 22.7x and 15.2x its expected FY08E and FY09E fully diluted earnings. Given the huge investments in the metal industry and mining infrastructure, these businesses of MBE are expected to witness robust growth in the next few years. We expect revenues to register 35% CAGR in the next two years, along with margin improvement, with the company increasing its share of revenues from high margin businesses like mineral processing. In view of the above, the company is poised for robust growth in revenues and improvement in its financial performance. However, the stock has witnessed significant upsurge in the last couple of months and has breached our initial target price of Rs199. We feel MBE is fully valued at current levels. So, we are now DOWNGRADING the stock from ‘BUY’ to ‘HOLD’ with a positive bias, until we revise our numbers going forward.