shartekhan recommadations

Investor's Eye
[November 28, 2007] Please see the attachment for details
Summary of Contents
STOCK UPDATE
Hexaware Technologies         
Cluster: Ugly Duckling
Recommendation: Book Outsharekhan
Current market price: Rs84
Book out
Hexaware Technologies (Hexaware) has reported that it has come to the management's notice that one of the officials from its treasury department has conducted fraudulent foreign exchange (forex) transactions over the past few months. There are a total of 11 such transactions spread across various currencies such as the US Dollar, euro, pound, yen and Swiss Franc. The board of directors has appointed an internal committee to investigate the matter and has suspended the official in question. Hexaware plans provisions of $20-25 million to cover any potential loss as a result of these transactions.

Though the scrip has corrected substantially in the recent past and is trading at attractive valuations, it is likely to continue with its underperformance due to lack of any positive triggers. Consequently, it is advisable to exit the stock. 
 
Jaiprakash Associates          
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs2,000
Current market price: Rs1,795
ICICI Venture picks up stake in Jaypee Infratech 
With the company bagging the Taj Expressway project accompanied by a land parcel of 6,250 acres, the stock has received a tremendous re-rating. As we have mentioned in our earlier reports, we expect the stock price to move up as and when clarity emerges on the development of real estate sector. The ICICI deal now only reinforces our bullishness on the stock. We maintain our buy recommendation on the stock with a price target of Rs2,000 per share
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Bharat Heavy Electricals          
Cluster: Apple Green
Recommendation: Buy
Price target: Rs3,289 
Current market price: Rs2,725
Price target revised to Rs3,289
Results highlights
  • Bharat Heavy Electricals Ltd (BHEL) had a spectacular order inflow in the past 18 months. In H1FY2008, the company's order inflow rose by 74% year on year (yoy). At the end of Q2FY2008, BHEL has an order backlog of Rs72,600 crore ( 4.2x FY2007 revenues), which represented a staggering increase of 59% yoy.
  • In a strategic move, BHEL signed a memorandum of understanding (MoU) with the Tamil Nadu Electricity Board (TNEB) for a joint venture (JV) to set the first 2x800 mega-watt (MW) super-critical power project in Tamil Nadu. We believe this tie-up is positive for the company in two ways. First, the equity stake in the JV would ensure BHEL as a supplier for the super-critical project. Second, the deployment of surplus cash-on-book would yield better returns from the investments made in the JV.
  • After National Thermal Power Corporation's (NTPC) Barh-II project, BHEL has emerged as the sole bidder for the AP Genco project at Krishnapatnam, which is a 2x800MW project based on super-critical technology. We expect the order flow in the super critical space to remain buoyant for the company going forward.
  • The union cabinet has approved BHEL's proposal of taking over Bharat Heavy Plate & Vessels Ltd (BHPV), an engineering company catering to oil and gas sector. The company's current turnover stands at Rs150 crore, and the BHEL's management believes BHPV's turnover has a potential to grow to Rs1,000 crore plus.
  • For Q2FY2008, the nets sales of BHEL grew by 18.7% to Rs3,965.4 crore, which was slightly below expectations. The operating profit margin (OPM) improved by 380 basis points, which came in as a positive surprise. Led by better OPM and higher other income, the net profit (before extra-ordinary items) increased by 57.5% to Rs567 crore. The profit growth was above expectations.

SECTOR UPDATE
Banking
Indian banks have become more resilient
The Reserve Bank of India (RBI) in its annual report on the trend and progress of banking in India 2006-07 has highlighted the improving resilience of Indian banks' operations to changing macro-economic conditions. It has also stated that the incremental credit-deposit ratio is on the decline and credit growth has shown some moderation in the real estate and retail sectors. Since the credit growth has been strong in the past few years, some minor deterioration could be expected in the asset quality of banks going forward. The medium-term risk for the domestic banking sector could emanate mainly from global developments (US subprime mortgage saga) and the fall-out of the same in the other asset classes (equity, real estate). However, the main challenge facing domestic banks at this juncture remains raising resources to maintain their growth momentum.

 
Real estate         
BKC auction sets high benchmark
According to media reports, Reliance Industries Ltd (RIL), Wadhwa Builders and TCG Infrastructure--Hiranandani Construction consortium emerged as the leading bidders for the three Bandra-Kurla Complex (BKC) plots measuring 75,350 square meter (sm). The value of the top three bids was Rs2,790 crore, which amounts to an average price of Rs34,424 per square feet (sf). 
 
Regards,
The Sharekhan Research Team
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