Analysts Picks

Raymond
CMP: Rs 427
Target Price: Rs 475
CITI has reiterated a 'buy' rating on Raymond while increasing the target price to Rs 475 after taking into account the company's thrust on branded retailing and core worsted fabric business. According to the brokerage, the company is planning to expand its brand portfolio and network of 430 stores in FY07 by adding 100-plus stores by March 2008.

“The recent launch of Park Avenue and Colorplus brands in women's wear has received an encouraging response. We forecast revenues CAGR of 15% over FY07-10E and higher EBITDA margins of 10% (versus 5-6% of peers) given its premium positioning; however, near-term earnings could be muted due to store roll-outs,” adds the report.

The report further says that most of Raymond's garmenting subsidiaries and fabric joint ventures, except the denim business have showed an improved performance in second quarter of FY08. “We believe this could be early signs of these businesses starting to contribute towards Raymond's overall growth going forward,” it goes on to add.

Everest Kanto Cylinders
CMP: Rs 349.45
Target Price: NA
Prabhudas Lilladher has lowered the rating on Everest Kanto Cylinders to 'underperformer' on account of concerns like high gestation projects, highly skewed segmental results and creation of low yield capacities. According to the brokerage, the company had raised around Rs 2.40 billion in the last one year, which have been earmarked for taking its cylinder manufacturing capacity from 0.606 million units in FY06 (no expansion in FY07) to 1.421 million units by the end of FY09.

“Considering the threat of high project gestation periods, these funds will pull RoCE down from 24.6% in FY06. We expect the RoCE to fall to 17.4% in FY09. This may limit valuation expansion, which at 22.4 times FY09E (with EV/E at 13.3) is at a lifetime peak”, says the report. According to the brokerage, the one-year forward rolling PE chart clearly outlines the recent jump in valuation.

“After trading around the 20 times PE multiple for seven months till October 2007, the current rolling PE at 25.5 times indicates a 27.7% jump in just a fortnight”, says the report. We believe that the company's rich valuation clearly ignores the emerging concerns and hence we expect a correction, it adds.

Nestle India
CMP: Rs 1,395
Target Price: Rs 1,768
Motilal Oswal Securities has maintained a 'buy' on Nestle India with a target price of Rs 1,768 after factoring in the strong pickup in growth and the company's position to tap huge opportunity in processed foods. “Food processing is likely to emerge as one of the fastest growing areas due to changing lifestyles and trends.

The company is uniquely placed to exploit this growth opportunity on account of strong brands, technology support from parent and ability to launch a variety of nutritional products,” says the report. The brokerage also feels that strong brands and launch of new products and variants would enable the company post sales and PAT growth of 17.2% and 24% over CY07-09. “The stock trades at 25.1 times CY08E and 20.5 times CY09E earnings. (We) maintain buy with target price of Rs 1,768”, adds the report.

State Bank of India
CMP: Rs 2,279.60
Target Price: NA

Emkay Research has recommended a 'hold' for State Bank of India (SBI) as it feels that the stock will show upward momentum due to possible positives like the rights issue and a re-rating based on FY10 estimates a quarter down the line. “SBI has plans to raise anywhere between Rs 100 billion to Rs 180 billion through a rights issue”, says the report adding that “SBI's Tier-I CAR should comfortably remain above 8% after raising the fresh capital including equity. We expect the bank to maintain risk capital levels above 11.5% in FY08 and FY09.”

The report further says that according to the SBI management's estimates, the bank shall need about Rs 500 billion over a period of next five years to meet its business expansion plans. SBI has already raised Rs 100 billion in the current financial year through a mix of Tier-I and Tier-II debt”, it adds.

In terms of valuations, the report adds that the SOTP (some of the parts) calculation reveals a consolidated value of Rs 2,276 that includes SBI, banking subsidiaries, SBI Life, SBI MF and strategic investments in UTI MF and NSE. “Though the scrip trades above our fair value, we recommend hold”, adds the report.

Disclaimer: The above stocks are picked up at random from research reports of brokerage houses. Investors are advised to use their own judgement before acting on these recommendations.