Stocks you can pick up this week

Stocks you can pick up this week. Check it out:
(The Economic Times (India) Via Thomson Dialog NewsEdge) Hindustan Lever

Research: HSBC Global Research

Recommendation: Overweight

CMP: Rs 256 (Face Value Rs 1)

12-month Price Target: Rs 323

Hindustan Lever's (HLL) advance tax payment of Rs 80 crore in September represents a 33% increase y-o-y. HLL's effective tax rate will be maintained at 18%. The higher tax payment is caused by higher other income driven by the sale of HLL's 51% stake in a Bangalore-based BPO, three weeks ago.



HLL has not revealed the amount it has received for the sale of its stake. The pricing pressure for HLL continues to ease as volume growth in the FMCG sector is still robust, particularly in rural India. HLL has increased prices of fabric wash (between 2% and 10%), oral care (by 3.9-5.5%) and personal products (by 4-14.3%) in the quarter ended September '06.

HSBC believes that a major impact will be reflected in increasing sales and margins in '07 for HLL. Furthermore, HLL's strongest competitor within the popular soaps category, Godrej Soaps, has announced price hikes of 5-10% across its product range.

HSBC's P/E multiple and DCF valuation models define a range of fair value of Rs 282 to Rs 364 per share. The P/E multiple fair value is based on 30 times FY07E at an EPS of Rs 9.36, yielding Rs 282 per share.

Mahindra & Mahindra

Research: Edelweiss

Recommendation: Buy

CMP: Rs 681 (Face Value Rs 10)

12-month Price Target: NA

M&M announced the acquisition of Jeco Holding, one of Germany's top five forging companies with revenues of e185 million in CY05 and e149 million in CY04. M&M will acquire 67.9% of the company for an enterprise value of e140 million. Jeco Holding has a forging capacity of 1,000,000 TPA spread over three locations in Germany and an employee strength of 800.

Some of the key customers of Jeco are Volvo, Scania, Renault, DaimlerChrysler, Audi, Caterpillar and ZF. This acquisition provides M&M with access to a large, diversified and marquee set of customers, technology and product capabilities, as well as near-shore presence for tapping the large European market. The acquisition is the largest yet by M&M, and the fifth in the past two years.

The earlier acquisitions were for a total value of around Rs 210 crore and revenues of Rs 470 crore. At current market price, M&M is trading at 12.7 times FY07E and 10.5 times FY08E consolidated earnings. Excluding the value of its subsidiaries and other investments, which is estimated to be Rs 302 per share, the price is discounting the core EPS (excluding investment income) by 13.6 times FY07E and 11.3 times FY08E.

Manugraph India

Research: Emkay PCG

Recommendation: Buy

CMP: Rs 240 (Face Value Rs 2)

12-month Price Target: Rs 380

MIL is the domestic market leader in the web offset presses segment and is an established tier-I supplier to large publishing houses like The Times of India group, Indian Express group, Dainik Jagran Prakashan group, Hindustan Times, Anand Bazar Patrika and other regional newspapers and publications.

Over the years, Manugraph has emerged as a thriving, nimble, printing machinery enterprise, due to its ability to transform itself rapidly in a highly competitive market and its commitment to become a supplier of choice by delighting customers with superior services and products at competitive prices. Constant modernisation and introduction of state-of-the-art technology at Manugraph has enabled it to stay ahead in the industry.

An EPS CAGR growth of 23% estimated over FY06-08E makes the current valuations of 10 times FY07E and 8 times FY08E look extremely attractive.

This comes on the back |of a 21% CAGR in the topline, and attractive RoE and RoCE levels of 67% and 49% on FY07E, and an EV/EBIDTA of 7 times FY07E and 5 times FY08E. Emkay recommends a buy on the stock with a target price of Rs 380 based on the DCF approach. At this target price, the stock will be valued at 14 times P/E and 9x on EV/EBIDTA basis on FY08E.

Bharat Electronics

Research: Sharekhan

Recommendation: Buy

CMP: Rs 1,153 (Face Value Rs 10)

12-month Price Target: Rs 1,525

The healthy increase in the capital outlay of the defence budget and the government's efforts to reduce dependence on imports for critical equipment and security systems has considerably increased the size of the addressable market for defence equipment manufacturers.

With its wide range of product portfolio, R&D capabilities and a proven track record, Bharat Electronics (BEL) is well poised to effectively tap the same. With the recent modernisation and expansion of its manufacturing facilities, as well as its technical capabilities, BEL is actively looking at tapping the huge opportunity in the contract manufacturing service space.

The additional capacities will also make it the preferred contender for any foreign supplier looking at partnering with a domestic entity as per the offset clause for any contract worth over Rs 300 crore from the defence sector. BEL's net revenue and earnings are estimated to grow at a CAGR of 16.4% and 14.1%, respectively, over FY06-08E

The current valuations do not capture the improved growth outlook and the free cash & cash equivalents of Rs 385 per share expected by the end of FY08.

Disclaimer: Investor's Guide does not accept responsibility for consequences of financial decisions taken by readers on the basis of information provided herein. The aim is to provide a reasonably accurate picture of financial and related opportunities based on information available with us.

Copyright 2006 The Economic Times of India, Coleman & Co Ltd. Source : Financial Times Information Limited
The opinions and views expressed in comments, blogs, etc. are those of the authors alone and not necessarily those of TMC, TMCnet, or its editors. TMCnet reserves the right to edit, delete, or otherwise make changes to the content that appears on these pages at its own discretion and as it deems necessary.

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