13 Nov, 2008
The stock market is throwing up many value buying opportunities for long term stock investors. We regularly update you on stock picks where you can begin investing your money in small amounts. There is no guarantee that the stock market will not test its bottom again and you might find even cheaper valuations for these stocks. No one can predict and time the stock market bottom and these are a once in life time stock investing opportunities
Hindustan Unilever
Current market price: Rs 208.20
Target price: Rs 280
Upside: 34.5%
Brokerage: India Infoline
Hindustan Unilever (HUL) reported third straight quarter of 20 per cent year-on-year (y-o-y) sales growth in CY08, in what is turning out to be its strongest growth phase in 10 years. HUL’s volume growth is showing signs of tapering off, after a series of steep price hikes taken to mitigate commodity price pressures.
Of the growth in revenues, 6.5 percentage points came from volume growth, while the rest came from an increase in realisations. EBITDA margins declined by 90 basis points y-o-y to 13.4 per cent on account of a surge in prices of key raw materials such as palm oil and linear alkyl benzene (LAB), a raw material for household detergent. Due to this, adjusted net profit rose by 11.3 per cent y-o-y to Rs 457.4 crore, which was below expectations.
HUL’s margins are likely to expand from Q4 CY08 as the sharp correction in palm oil (down 70 per cent from its peak) and the downtrend in LAB (down 11 per cent from its peak) plays out. In the current macro environment, HUL offers high stability and visibility in earnings growth, and is the least susceptible to multiple headwinds faced by the economy. At Rs 224, the stock trades at 24.1x CY08E and 21.1x CY09E earnings.
Punj Lloyd
Current market price: Rs 169.65
Target price: Rs 190
Upside: 12%
Brokerage: Emkay Global Financial Services
Punj Lloyd (PLL) delivered back-to-back second quarter of strong performance with a revenue growth of 56 per cent y-o-y to Rs 2,953 crore during Q2FY09. Operating margins expanded 260 basis points y-o-y to 11.4 per cent, primarily due to lower raw material and employee costs. Consequently, operating profits doubled to Rs 337.4 crore, ahead of estimates. Despite forex loss of Rs 38 crore and higher interest charge, net profit grew 61 per cent y-o-y to Rs 144.1 crore.
PLL witnessed continued momentum in order inflows during August-October ’08 period; the order inflows were Rs 4,470 crore, up 136 per cent y-o-y. With unexecuted order backlog at Rs 21,670 crore giving strong visibility to earnings, the brokerage has maintained its EPS estimates for FY09E and FY10E at Rs 15.3 and Rs 18.9, respectively.
However, the target price has been revised from Rs 414 to Rs 190, due to rising risks to earnings owing to challenging environment and revision in relative valuations. PLL has been valued (1) at 10x FY10E earnings - 33 per cent discount to Larsen & Toubro valuation multiple and (2) excluding the embedded value assigned to high risk investments of shipbuilding and realty. Maintain buy.
Tata Power Company
Current market price: Rs 616.55
Target price: N.A.
Brokerage: Edelweiss Securities
Tata Power’s Q2FY09 numbers were largely in line with expectations, with a 45 per cent y-o-y rise in revenues to Rs 1,960 crore and 6 per cent y-o-y increase in earnings to Rs 178 crore. The adjustments to ear |
