Analysts' picks

BSEL Infra Realty

CMP: Rs 92.50

Target price: Rs 133

Prime Broking has initiated coverage of BSEL Infrastructure Realty with a 'buy' rating as it feels the company has strong alliances with quality players and a good low cost land acquisition strategy. According to the brokerage, 35% of the land has been acquired on a lease basis. "We consider this a good strategy — aiming for growth with little upfront investment.

If BSEL wanted to acquire land outright, it would have had to raise substantial amount of debts," says the report. The brokerage also feels that a keenly worked-out strategy of partnering with peers and competitors has enabled the company to grab some key projects.

The company has strategic associations with Unity Infraprojects, Kamat Hotels (India) and a consortia with architects like Hafeez Contractor, notes the report. The brokerage has also factored in the fact that the company's wholly owned subsidiary, BSEL Infrastructure Realty FZE, has acquired seven plots at Emirates City at Ajman, which will have development of 7.9 MM sq ft of residential towers.

Everest Kanto

CMP: Rs 348.15

Target price: Rs 390

Anand Rathi has initiated coverage on Everest Kanto Cylinder with a 'market performer' rating after factoring in the company's capacity addition in tax-free zones and raw material diversification to expand margins and ensure reliability of supplies. According to the report, the company has recently set up a plant at the Jebel Ali Free Zone in Dubai and plans to set up plants in China and at an SEZ at Kandla.

"These locations offer the advantage of a tax holiday, which would enable the company to expand its net margins due to effectively lower tax rate, " notes the report. The brokerage also feels that the capacity expansions are planned at the right time to benefit from increasing concern over pollution and cost of crude.

The company also wishes to diversify its raw material sources and plans to manufacture industrial cylinders using the billet piercing method at the proposed plant at Gandhidham. "The use of billet as raw material is expected to expand its margins as this method is less expensive than the seamless steel tubes that the company currently uses, " says the report.

Nucleus Software

CMP: Rs 395.15

Target price: Rs 407

ICICI Securities has maintained a 'buy' rating on Nucleus Software Exports as it feels that the company's growth momentum offerings remain intact based on robust product pipeline in different geographies. "Product pipeline remain strong in Middle East, Africa and India for various new opportunities in the areas of captive auto financing, dealer financing, collateral insurance management, sales lead management, business partner incentives and payment management," says the report.

The brokerage also feels that the impending sub-prime issues in US would not impact Nucleus as it does not have any product implementations in US. The brokerage also feels that the company's renewed initiative to grow services revenue with increased sales personnel hiring and small acquisitions in either Europe or US will leverage it's portfolio of offerings leading to an overall healthy growth.

Gulf Oil

CMP: Rs 353.40

Target price: Rs 477

Religare has initiated coverage on Gulf Oil Corporation with a 'buy' rating as it feels that strong organic growth is expected across segments driven by increased prices and robust economic growth. The company is also planning to set up an IT and ITES park at its Bangalore land and a knowledge city at its Hyderabad land with an investment of about Rs 10 billion and Rs 8 billion respectively.

"These projects when kicked off will unlock shareholders' wealth significantly," says the report. According to the brokerage, new product addition and venturing into new locations will provide a huge growth to its speciality chemical business unit.

"The company expects the segment to break even by FY09," it said. Using the SOTP approach, the brokerage has valued the existing businesses at Rs 162 per share on EV/Sales multiple basis, while land bank at Rs 315 per share. The brokerage has cited factors like delay in execution of projects and adverse changes in the mining policy as key concerns.

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