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stock picks from economic tmes

Rural Electrification

CMP: Rs 107.15

Target Price: Rs 139

Religare has maintained a 'buy' rating on Rural Electrification Corp while reducing the target price from Rs 145 to Rs 139. The brokerage has cut down its non-interest income estimates for the company besides raising the effective tax assumptions for FY09 and FY10.

"The PAT forecast has thus declined by 10% and 7% for these two years respectively", says the report. According to the brokerage, the company posted a 47% growth in NII for FY08. However, lower non interest income coupled with an unexpected spike in employee expenses, compressed operating profits.

"This together with a high effective tax rate of 34% pulled net profit below our estimates at Rs 8.6 billion," adds the brokerage in a note to its clients. The brokerage expects the company's business to remain robust with a continued thrust on high-yielding segments like power generation.

"This will help maintain spreads despite funding pressures. REC will continue to play an important role in the implementation of government plans in the power sector," it notes.

BEML

CMP: Rs 1,078.90

Target Price: Rs 1,303

Asit C Mehta Investment Intermediates has recommended a 'buy' rating on BEML due to the company's leading position in the construction and mining equipment (CME) market. According to the brokerage, demand for CME in the domestic market is expected to remain strong, considering planned infrastructure investment in 11th five year plan.

"BEML's leading position in domestic CME market, presence across all the major sub-categories, expansion in Latin American market and foray into mining activities (creating new demand for its products) is expected to support a CAGR of 18% in CME segment over the period of FY08 to FY10E," says the report.

Over the same period, the brokerage expects BEML's net profits to grow at a CAGR of 14% after considering increase in wage bill and rise in raw-material prices. The company also plans to expand its metro coaches capacity to 190 units pa from 150 units pa by the end of December 2008, says the report. The brokerage's buy recommendation with a target price of Rs 1,303 is based on 18 times FY10E EPS of Rs 72.40.

BHEL

CMP: Rs 1,622.15

Target Price: Rs 2,330

Emkay has maintained a 'buy' on Bhel even while reducing its target price to Rs 2,330 to factor in slower pace of execution, higher raw material prices and an increase in employee cost.

"In order to factor in a lower earnings growth we are downgrading our price target to Rs 2,330, which is based on 22.5 times its FY10 earnings," says the brokerage. Bhel is currently trading around 16 times its FY10 earnings and 10.4 times its FY10 EBIDTA, which is near the lower range of its trading band.

"We believe that Bhel is taking steps in right direction to address issue of supercritical order, increasing pace of execution and expanding capacity. Faster execution of delayed order shall also improve near-term earnings growth", it adds.

Bharat Forge

CMP: Rs 256.15

Target Price: Rs 400

Indiabulls has reiterated a 'buy' on Bharat Forge with a revised target price of Rs 400 after factoring in the results for FY08 and future growth prospects.

According to the brokerage, Bharat Forge reported a strong growth of 17.8% y-o-y in standalone net sales for FY08, despite a sharp rupee appreciation and a slowdown in the US and the Indian markets. "Going forward, situation in the global auto market is expected to improve and we believe that the company's well-diversified business model will help it survive all the challenges", it says.

In addition, BFL's foray into non-auto business will lead to further de-risking of the business model by adding several new segments, it adds.

It also notes that the two new facilities at Mundhwa and Baramati are expected to start commercial production by the end of FY09 or early FY10.

According to the report, the company has already received three contracts pertaining to non-auto business, with an annual value exceeding $50 million from global OEMs. These contracts are expected to start adding to the topline by the end of FY09, adds the report.

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