Angel Broking has recommended following top picks for the month of September from universe of mid caps. The investment rationale and target price for each stock has been mentioned.
Anant Raj Industries
* Current Market Price: Rs 138/ Target Price: Rs 178/ Upside: 29%
* Rationale: Almost all of ARIL`s land bank (872 acres) is exclusively located in the NCR within 50km of Delhi, with approximately 525 acres in Delhi. This land bank has been acquired at an historical average cost of Rs300/sq ft. It expects ARIL`s residential projects to drive its near-term operational visibility and help register Rs 6 billion profit over the next three years. ARIL recently launched tworesidential projects in NCR; Kapashera (0.28mn sq. ft.) and Manesar (1mn sq. ft.) for Rs 5,000/sq. ft. and Rs 2,500/sq. ft., respectively. Management has indicated that it has entirely sold Kapashera project and ~50% of Manesar project. Further, it expects ARIL`s Manesar and Kirti Nagar properties to reach their peak occupancy levels in 6��”9 months as leasing activity improves coupled with five hotels getting operational by FY2011E. Consequently, we expect ARIL to report rental income of Rs201cr in FY2012E as compared to Rs 490 million reported in FY2010. ARIL is trading at a 34% discount to its NAV. The stock is trading at 10.0x FY2012E EPS and 1.0x FY2012E P/BV and hence it maintains a `Buy` on stock with a target price of Rs178 (15% discount to its one-year forward NAV).
Dishman Pharma
* CMP: Rs 198/ TP: Rs 279/ Upside: 41%
* Rationale: Dishman has incurred organic capex of Rs 3 billion in the last three years towards expansion of existing facilities at its Bavla unit and building the China and HPAPI facilities. Post all these facilities coming on-stream FY2011E onwards, Dishman would strengthen its ties with the global innovators leading to stable revenue flow over the long run. Further, revenues from the Abbott-Solvay contract, which constituted 13% of FY2010 Sales, have also started normalizing. Also, the Carbogen Amics (41% of FY2010 sales) is expected to witness an uptrend in FY2011. Overall, the company has guided towards 20% growth in Top-line for FY2011E. Dishman is currently trading at attractivevaluations of 9.2x FY2012E earnings. It has valued the company at 13x FY2012E earnings resulting into a target price of Rs 279.
IVRCL Infra
* CMP: Rs.158/ TP: Rs.216/ Upside: 37%
* Rationale: IVRCL has a robust order book of Rs 232.75 billion (4.3x FY2010 revenues) which lends revenue visibility. Robust order booking over last few quarters has ensured that its dependence on AP orders have come down significantly (from 28% to current 17%). IVRCL had issues on the execution front due to its high AP exposure and now with decline in that we are expecting the company to back on the growth trajectory. IVRC Asset has started tolling Jalandhar-Amritsar road in May`10 and Chennai water project has also started. In FY2011, all its old BOT projects would start generating revenues to fund its future investments. Management has given guidance of increase in revenues from these BOT projects once fully operational to Rs 14million day. IVRC Assets would be requiring equity infusion of Rs 13- 14 billion over the next 3 years and is also planning to raise money. It believes that value unlocking at the subsidiary level will act as a near term catalyst. It has valued IVRCL on SOTP basis. Its core Construction business is valued at a P/E of 14x FY2012E EPS of Rs11.6 (Rs162/share), whereas its stake in subsidiaries IVR Prime (Rs37/share) and Hindustan Dorr-Oliver (Rs17/share) has been valued on a Mcap basis, post assigning a 30% holding company discount. At the CMP of Rs 158, the stock is trading at a P/E of 13.7x FY2012E EPS and 1.8x FY2012E P/BV on standalone basis and adjusting for its subsidiaries at P/E of 9.0x FY2012E EPS and 1.2x FY2012E P/BV which it believes is at reasonable valuations. Therefore, on the back of the company`s excellent execution track record, robust order book to Sales ratio and comfortable valuations, it maintains a `Buy` on the stock with a target price of Rs 216.
Jagran Prakashan
* CMP: Rs 133/ TP: Rs 154/ Upside: 16%
* Rationale: Jagran continues to post steady growth in revenues, primarily aided by advertisement revenues (management reiterates its guidance of ~18% growth in FY2011), owing to its strong foothold in the Hindi-belt (Dainik Jagran, India’s no.1 daily), rising color ad-inventory (management has indicated a color ad inventory of ~50%), and absorption of ad-rate hikes (~8-9%). For FY2011E, we expect operating margins to marginally dip on the back of the 8-10% rise in newsprint costs and increasing competitive intensity with the entry of DB Corp in Jharkhand (cover prices cut in Jharkhand from Rs 4 to Rs 2). However, strong ad-revenue growth, cost curtailment measures and improving profitability in the nascent businesses of i-Next/City Plus and OOH/event management are likely to protect any sharp decline in margins. Hence, it estimates the company`s operating margins to remain stable at 30% levels in FY2012E. JPL acquired the print business from Mid-Day Multimedia and it believes that JPL`s combined offerings are likely to boost its advertising revenues due to the bundling effect. While it has not factored in the deal in JPL`s numbers, it believes the deal is likely to be earnings accretive by ~2��”3% in FY2011E. Moreover, with Blackstone`s recent investment of Rs 2.25 billion and a wider portfolio, it believes that JPL is well poised to benefit from the steady growth in print media. Meanwhile, the underperformance of the stock and attractive valuations (at current levels, the stock trades at 17x FY2012E EPS) provides good entry point for investors. It values JPL at 20x FY2012E EPS of 7.7.
Nagarjuna Construction Company (NCC)
* CMP: Rs.160/ TP: Rs.201/ Upside: 26%
* Rationale: NCC, with its diversified presence, is well placed for benefit from the current construction boom in the country, especially in the transportation segment. Angel believes that diversification was one of the prime reasons for NCC`s performance on the earnings front (29% earnings growth) vis-Ã -vis its peers during FY2010. This has also led to strong order booking - clocked ~40% growth in FY2010. Over the last few years, NCC has invested in BOT assets and it believes the time has come for reaping the benefits of the same. NCC has a portfolio of 5 BOT road projects with one BOT project already operational with the remaining expected to be operational in FY2011. NCC has not won any BOT projects in recent times and stayed away from fierce competition. Therefore, it believes that NCC is better placed than its peers to win projects from NHAI, as it benefits more from financial closure regulations than its peers do. It has valued NCC on SOTP basis. Its core construction business is valued at a P/E of 14x FY2012E EPS of Rs9.8 (Rs138/share), whereas its international subsidiaries at P/E of 10x (Rs24/share) and other ventures (road, real estate and power) has been valued on 1.5x P/BV basis (Rs39/share). At the CMP of Rs 160, the stock is trading at a P/E of 16.3x FY2012E EPS and 1.6x FY2012E P/BV on standalone basis and adjusting for its subsidiaries at P/E of 9.9x FY2012E EPS and 1.0x FY2012E P/BV which it believes is at reasonable valuations. Given attractive valuations following the recent correction in the stock price owing to short-term concerns and robust order book, it believes it provides an opportunity to Buy the stock., it maintains a Buy on the stock with a target price of Rs 201.
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