Stocks you can buy: Bharti Airtel, Spicejet, iDFC
Target Price: NA
CLSA has initiated coverage on Bharti with a 'buy' rating on the back of expectations that the company would do well as India's mobile subscriber base is set to grow at 33% CAGR to 383 million by FY10, implying a penetration of 31%.
"Bharti's subscriber growth is on track to meet our forecasts of 108 million by FY10 CL and despite an intensely competitive environment, it has raised market share (up 200 bps y-o-y) as well as expanded margins (368 bps y-o-y to 42.8% in Q208)." The success of Bharti's growing suite of value-added services will aid in mitigating ARPU decline.
The company's key strengths are management's proven execution skills, nationwide GSM network and a strong brand, the report says. "The outcome of key pending regulatory issues remain uncertain with the expected long drawn-out legal battle. However, if Trai recommendations on spectrum are implemented, Bharti's FY09-10 EPS would be hit by 4.4-5.5%, which will be offset by impending upgrade following the positive surprise in the Q2 EBITDA margins," the report said.
Target Price: Rs 195
Citigroup has assigned a 'sell' rating on IDFC, taking into consideration the high valuation of the stock. The brokerage has, however, lowered the target price to Rs 195 on higher earnings, core business multiples, returns on P/E business and unrealised equity gains.
"Our quantitative team puts the stock in the glamour quadrant momentum, but low relative value, which also suggests little room for valuation upsides," the report says. As far as reasons for selling goes, valuations at 3.5 times FY09 PBV (price-to-book-value) are high relative to returns. Relative to private banks, we believe IDFC should trade at a discount to quality private banks.
"We are not arguing against the business. But key risks include continued low interest rates, steepening yield curve, strong capital markets, regulatory easing on NBFCs and higher premium on opportunity and quality management," the report adds.
Target Price: Rs 88
IL&FS Investsmart has assigned a 'buy' rating on SpiceJet, which is expected to capitalise on emerging opportunities in the domestic aviation industry. The brokerage expects the airline's sales to jump by 81% CAGR, from Rs 6,40.4 crore in FY07 to Rs 2,102.7 crore in FY09 and to see a turnaround in EBITDAR (before lease rentals) level from losses of Rs 27.4 crore in FY07 to a profit of Rs 419.7 crore in FY09.
"This is on the back of strong operational performance and also on the launch of additional sectors. Favourable industry scenario includes a booming economy, route expansion, surging demand from the Indian middle class and growth prospects in the domestic aviation industry," the report said.
Target Price: Rs 474
Kotak has initiated coverage on Colgate Palmolive (CPIL) with a 'buy' rating. The brokerage expects the company to do well on low-penetration levels of oral care and growing awareness in the semi-urban and rural Indian markets.
According to Kotak, CPIL has consciously undertaken rural initiatives and entered into strategic tie-ups to increase its reach in lowly-penetrated areas. "We are projecting the net profits to grow to Rs 238 crore in FY08E and to Rs 283 crore in FY09E. This delivers an EPS of Rs 17.5 and Rs 20.8 in FY08E and FY09E, respectively," the Kotak report said.
According to Kotak, low-penetration level of toothpastes, toothbrush and dentifrices in semi-urban and rural India will keep up the demand for toothpaste. Rising oral healthcare awareness and affluence levels will accelerate the growth.
"At current price, CPIL is trading at 22 times and 19 times FY08 and FY09 EPS estimates of Rs 17.5 and Rs.20.8, respectively. After the share capital reduction that took place recently, the company enjoys a leaner balance sheet and has a negligible debt position. We initiate a 'buy' on the stock with a price target of Rs 474 over a 12-month period. At our exit price, the stock will trade at 23 times FY09 earnings," the report said.
strong buy :colgate palmolive targetRS 548 after 2yrs