MultiBagger: Aban Offshore

Multi Bagger: Aban Offshore Ltd Recommended Price Rs 4000.00
			Report Dated: May 30, 2008
			Increased E&P investments warrants strong demand for rigs: Crude oil prices have sky rocketed from $ 25/bbl in 2002 to $ 135/bbl today. The humongous run up has been on the back of rising demand especially from emerging economies. With no new major discoveries over the last few years, the reserve accretion rate has slumped below 100% mark. This has warranted huge commitments towards E&P activities leading to burgeoning demand for rigs. Rig rates to remain strong on firm operating rates: Between 2005 and 2007, day rates for rigs have more than doubled. With demand for rigs increasing, shipyards have been booked with rig construction orders for the next three years. This has caused acute shortage in availability of EPC contractors causing delay in rig deliveries. The demand is also fueled by ageing of rigs, which now need replacements. Supplies are lined up over the next three years, but delays in delivery would enable the industry to absorb the supply and keep operating rates at higher levels. This will lead to further increase in day rates.

Aban well poised to leverage on industry dynamics:
Aban Offshore Ltd (Aban) has been a key player in the Indian offshore rig market. With the acquisition of Sinvest, it has entered into the big league of international players and will now have a global presence. Along with Sinvest, it will have 22 rigs by the end of FY09. Recently, Aban has been able to take substantial hikes in day rates and six more assets are due for renewal in the next 10 months. Also, addition of assets to the fleet will fuel volume growth.

Valuation summary:

Period to	FY07	FY08E	FY09E	FY10E
(Rs mn)	(12)	(12)	(12)	(12)
Revenues	7,187	25,788	49,827	57,205
yoy growth (%)	46.6	258.8	93.2	14.8
Operating profit	3,474	16,183	35,209	39,428
OPM (%)	48.3	62.8	70.7	68.9
PAT	-344	4,065	19,123	22,386
yoy growth (%)	-	-	370.4	17.1
EPS (Rs)	-9.3	105.9	498	583
P/E (x)	-	38.2	8.1	6.9
P/BV (x)	28.1	17.9	5.9	3.3
EV/EBITDA (x)	70.4	15.9	6.7	5.5
ROE (%)	-	46.8	73.1	48.2
ROCE (%)	1.4	7.1	20.2	21.5

(Source: Company, India Infoline Research)

Investment rationale:

Acquisition of Sinvest propels Aban into the big league:
Aban began expanding inorganically in FY01 through acquisition of Hi-Tech Drilling Services (India) Ltd. With shipyards flush with order book positions, the delivery time for new rigs has increased to more than three years. Hence, Aban has continued with its inorganic growth strategy and acquired Sinvest for US$1.35bn. Sinvest has five rigs operational and five at various stages of construction. With its erstwhile fleet, Aban’s primary customer was ONGC. Acquisition of Sivest puts Aban into the global arena as a leading player.

Listing of Singapore subsidiary will unlock value:
Aban has 13 of its assets (including Sinvest) in its Singapore subsidiary, Aban Singapore (ASL). Aban plans to list ASL by divesting some stake. The process would help the company raise some funds and reduce debt on books raised for acquisition of Sinvest. The listing would unlock value for its minority shareholders.

Re-pricing of existing assets and volume increase through new assets to drive revenue growth:
Contract renewals for six of Aban’s assets (including Sinvest) are due over the next ten months. With the current tightness in the rig market, we expect the re-pricing of these contracts to happen at significantly higher rates compared to their existing rates. Volumes too are expected to increase as six vessels get added to the fleet over the next couple of years. This would translate into a CAGR of almost 100% for Aban’s revenues during FY07-10E.

EBIDTA margins to expand as new vessels are added to the fleet:
With addition of assets from Sinvest acquisition, the average age of Aban’s fleet would decline substantially. This would translate into lower repairs and maintenance expenditure. Significant jump in day rates would also help margin expansion. We expect OPM for Aban to increase from 48.3% in FY07 to 68.9% in FY10E.

Strong operating cash flows will improve leverage position going ahead:
With robust growth in earnings on back of strong revenue growth and expansion in operating margins, the cash flow from operations is expected to be strong. This would help improve the debt – equity ratio, which is currently at 14.2x to about 2.3x by FY10E.

Concerns:

Steep fall in crude oil prices:
Any steep fall in crude oil prices will put pressure on NPV of many offshore projects. However, we don’t foresee any such event as the demand supply scenario for crude oil is not expected to change dramatically in the coming years.

Timely delivery of rigs:
Based on tight supply for EPC contractors, we forecast that there could be delays in delivery of rigs from shipyards. Recent trend also support our presumption. However, timely delivery of rigs could put pressure on day rates. Aban would be cushioned to some extent as many of its assets are on long term charters.

ONGC capex delay:
With crude oil prices going through the roof, the under recoveries on sale of petrol, diesel, kerosene and LPG is burgeoning and is estimated to be Rs 2 trillion for FY09. ONGC’s has to share almost 30% of these under recoveries. This would lead to a cash crunch for ONGC and thus jeopardizing their future capex plans. We believe this could slowdown order flows to rig operators like Aban. However, Aban can float these rigs in the international market and alleviate the concern.

Global peer comparison:

	OPM (%)		P/E		EV/EBIDTA
	CY08E	CY09E	CY08E	CY09E	CY08E	CY09E
Diamond Offshore	64	65.3	13.6	11.3	7.2	6
Noble Corp	63	64.3	11.2	9.5	5.9	5.1
Ensco International	65.2	63.8	9.5	8.9	5.4	5.1
Pride International	46.7	47.3	13.1	11.4	5.7	5
Hercules Offshore	46.3	49.8	18.6	12.7	6.8	4.7
Rowan Companies	39.7	40.6	10.1	8.8	5.3	4.6
Transocean	56.8	58.2	11.4	9.7	8.1	7.1
Nabros Industries	34.2	35.5	13.2	11.5	7	6
Average	52	53.1	12.6	10.5	6.4	5.4
Aban Offshore #	70.7	68.9	7.9	6.8	6.6	5.4

Attractively valued compared to international peers:
Historically, Aban has clocked the highest operating margins in the industry at a global scale. Further, the growth rate expected for Aban over the next couple of years is higher than most of its peers. Our estimates are based on current day rates existing in the market. With strained demand supply scenario for rigs, upsides to our estimates cannot be ruled out. Also, listing of the Singapore subsidiary could unlock value for the company. At CMP of Rs 4,000 the stock is trading at a P/E multiple of around 8.1x and 6.9x FY09E and FY10E respectively compared to international average of 12.6x and 10.5x on CY08E and CY09E. We believe the stock should trade at 9x FY10 estimated earnings of Rs583. We recommend a BUY with a target price of Rs 5,247, an upside of 31.2%.

Pick of the Week: GTL Infra

BUY BUY BUY GTL INFRA

Equity : 734.29 Cr, BSE Code : 532775, CMP : 49.95


BUY GTL INFRA @ 49.95 : 50.5 TGT 55 : 55.5

GTL Infrastructure, established in 2004 and part of Global group, is the pioneer in Shared Telecom Infrastructure in India. GTL Infrastructure offers ready to use passive infrastructure to wireless telecom operators. For over two decades, Global Group has been partnering with leading telecom operators and OEM's, offerring its expertise in wireless communication. From 2G networks to 3G and 4G, from WiMAX to IPTV, Global Group provides complete life-cycle solutions of network services. These services include network planning and design, network deployment, network operations and maintenance, application management and professional services. The company is in the midst of rolling out a Pan India network of 6700 towers by 08, and is offering the infrastructure to the leading service providers in India. It is a publicly listed company, and has emerged as the largest independent tower company in India. GTL Infra is registered with the Department of Telecommunications as an Infrastructure Provider in Category I (IP-I). The Company builds, owns, operates and maintains passive network infrastructure on a shared basis in order to cater to the rapidly growing infrastructure needs of cellular telecom operators.

GTL Infra�s model of infrastructure sharing is through building, owning, operating and maintaining the shared resources for multiple service providers. Under the Build-Own-Operate model GTL Infra would be rolling out the entire passive infrastructure required in the needed territories and also operate and maintain the same based on the Service Level Agreements (SLAs) entered into with the operators. As GTL owns the passive assets, it frees up the operators capital. Gtl Infra plans to give the operators, a 'ready to move in' telecom equipment housing facility, in the form of base station sites and network management /monitoring facilities, with operator paying a monthly/quarterly fee to them for utilizing the facility. Although GTL Infra is a new entity, they are backed by strong expertise, experience, capital base and intimate understanding of the Indian market place. GIL is well placed to play a crucial role in implementing the concept of shared infrastructure in the Indian marketplace. They possess extensive skills in designing and implementing telecom networks. Its status as a preferred partner with leading OEM's, gives them an added advantage in securing stronger customer alliances, and in garnering leadership status. Sales for year ended 06 � 07 were 124.6Cr. Sales for latest Quarter 42.2Cr� Based on quarter latest NP increased by 9%

Pick of the Week: Voltas

BUY VOLTAS

Equity : 33.09 Cr, BSE Code : 500575, CMP : 163.50

BUY VOLTAS @ 163.50 : 164 TGT 177 : 178

Voltas Limited, a part of the TATA conglomerate, was incorporated in 1954. The collaboration of Tata Sons Ltd. with a Swiss firm Volkart Brothers formed Voltas in 1951. It is India's premier airconditioning and engineering service providers. Its operations are organized into four independent business specific clusters viz, Electro-Mechanical Projects & Services, Unitary cooling products for comfort & commercial use, Engineering Agency & Services and others.

Voltas is also actively engaged in the procurement and marketing of air conditioners, textile machinery, machine tools, mining and construction equipment and industrial chemicals. Its factories are located at Thane (Maharashtra), Dadra and Sanathnagar (Andhra-Pradesh). Its offices cover all metros and other major Indian cities. Its overseas offices are located in Abu Dhabi (UAE), Hong Kong and Singapore. It has technical collaborations with international companies like Hitachi (Japan), Standard Refrigeration (USA), Dunham Bush (USA), Hercules (USA), Mitsubishi (Japan) etc. It has six subsidiaries and five joint ventures.

The company has recently bagged Rs 2.60 billion contract from Emirates Central Cooling Systems Corporation for the construction of a cooling plant at the Dubai International Financial Centre. Under the contract, the company will complete civil, mechanical, electrical and plumbing works in addition to the construction of the 66,000 refrigeration ton district cooling plant. The project is expected to be completed in 15 months. This is among one of the large contract that has been awarded to company and is expected to add to the growth of top line and bottom line for the company.

The company in spite of rise in input cost has not hike the price of its air � conditioners. Steel, copper and aluminum contribute 70% to the input cost and due to the rise in cost of these inputs by 4% - 5% the sales revenues of the AC manufacturers in India have been affected. The company is planning to meet this rise in cost through high volume growth. The domestic room AC market has been estimated at 2 million during the financial year ending March 2008.The company commands 17% of the domestic market share in room ACs, which it plans to increase to 20% by next year which will help company in driving its volume growth.

The company with diversified business model and wide range of product line which is directly related to the economic growth is expected to drive its growth as economic growth is going ahead on strong platform and with more and more urbanization and changing demographics the demand for products like air � conditioners, construction equipments, refrigeration equipment, water coolers, freezers etc. are witnessing huge growth. Therefore, company is expected to capitalize its future growth through grabbing these opportunities.

The company has emerged from being a consumer appliance company operating in highly competitive arena to one that has expertise in the niche engineering area of electro � mechanical projects and services. This, we believe has the potential to take the company on to a high growth trajectory in the future. Sales and NP for year ended 06 � 07 were 2400.6 Cr & 129.6 Cr. Sales and NP for latest Quarter 664.8Cr & 42.4Cr. On YOY basis NP has increased by 43 % & based on quarter latest its increased by 127% Dividend during year ended 06 � 07 was 100 %

MultiBagger: Nestle India

Multi Bagger: Nestle India
Recommended Price Rs 1713.95


Company Profile:
Nestle India is a subsidiary of Nestle S.A., world's biggest food company and a leading Swiss giant. With seven factories and a large number of co-packers, Nestlé India is a vibrant company that provides consumers in India with products of global standards. Nestle manufactures a wide variety of processed food products - milk products and nutrition, coffee, chocolates & confectioneries and prepared dishes & cooking aids .Company has a wide presence across India with its portfolio of strong brands (Nescafe, Maggi,Milkybar,Milo,KitKat,Bar-one,Milkmade,Nestea,Nestle Milk,Nestle Fresh 'n' Natural Dahi and NESTLE Jeera Raita.). The company is focused on growing its market share through renovation and innovation of its existing brands in India.

Nestle has reported topline growth of 26.4% with its net sales for the Q1CY08 at Rs 1090.9 crores as compared to Rs 863.08 crores in Q1CY07 on the back of continuous brand innovation strategy.

The net profit stood at Rs 160.15 crores showing a strong growth of 47.7%. Company has improved over operating and PAT margins. Company also gets tax benefits in the quarter due to greater Maggi production at Pantnagar, Uttaranchal.

Investment Positives:

* Nestle has the right set of product portfolio, strong brand image and excellent distribution network to sustain its growth momentum on the back of favorable demographics, growing urbanization and the transition to organized retail sector.
* Nestle enjoys a big share in the growing Indian processed foods sector.
* Nestle can reap benefits from investments in organized retail and distribution infrastructure in India.
* With the continuous brand innovation and aggressive business strategy Nestle is on the way to get more market share in India to encash the coming opportunities in the space.
* Nestle is best placed in the FMCG sector with its global standard product portfolio.
* Structural changes in Indian consumer behavior will help the company to get sustainable growth.
* High Growth of its export business is supported by appreciating rupee and lower off take of beverages.
* Due to its vibrant pricing strategies Nestle enjoys a strong consumer bond in lowly competitive categories.
* New launches like Sanjivni range of healthy soups and Cerevita in under penetrated health and wellness segments of the FMCG market will help Nestle to get the substantial growth in the market share.
* Scale efficiencies, cost reduction initiatives as well as the ongoing strategic transformation process have allowed the business to more than offset higher raw materials costs which however continue to remain at record high levels and pose an ongoing challenge.

CONCERNS:
New strategic incursions can have negative impact over its operating margins. Any negative fluctuation in exports will dent its operating efficiencies. Highly competitive bottle water segment can pose another challenge for the company.

Recommendation:
Nestle has a very strong brand profile in the Food segment of FMCG. It also has the highest growth and margins in the sector. Though costs do present a continuous challenge, the company has managed it well. We consider this a safe and profitable investment in FMCG space and recommend a Buy.

MultiBager: Taj GVK Hotels and Resorts

Taj GVK Hotels and Resorts is an outperformer rating with target price of Rs 225 in its May 06, 2008 report. "We forecast sales and EPS CAGR of 25% and 24% over FY08-FY10E. The stock currently trades at 10.5x FY09E EPS and 8.4x FY10E EPS, which is attractive in the context of our forecasted growth. Coupled with a clean balance sheet and industry-leading return metrics (low leverage of 0.4x, RoE greater than 30%, dividend yield of 2%), we think Taj GVK is a quality branded play in the hospitality segment going at commodity-like valuations. We initiate coverage with an outperformer rating and a P/E-based target price of Rs 225, an upside of 55% from current levels. At our target, the stock would trade 13x FY10E EPS, a 15% discount to current multiples commanded by players such as Indian Hotels, EIH and Hotel Leela. Our target price is validated by our DCF valuation, which yields an objective of Rs. 236. Key risks to our recommendation would be an aggressive build-out by other players in Hyderabad, slower-than-expected roll-out of Taj GVK’s new properties and a softening of demand trends in Taj GVK’s key markets of operation".

Pick of the Week: BHEL

BUY BUY BUY BHEL

Equity : 489.52 Cr, BSE Code : 500103, CMP : 1724.50

BUY BHEL @ 1724 to 1800

In India in the energy-related/infrastructure sector, today. BHEL was established more than 40 years ago, ushering in the indigenous Heavy Electrical Equipment industry in India - a dream that has been more than realized with a well-recognized track record of performance. The company has been earning profits continuously since 1971-72 and paying dividends since 1976-77.

BHEL manufactures over 180 products under 30 major product groups and caters to core sectors of the Indian Economy viz., Power Generation & Transmission, Industry, Transportation, Telecommunication, Renewable Energy, etc. The wide network of BHEL's 14 manufacturing divisions, four Power Sector regional centers, over 100 project sites, eight service centers and 18 regional offices, enables the Company to promptly serve its customers and provide them with suitable products, systems and services -- efficiently and at competitive prices. The high level of quality & reliability of its products is due to the emphasis on design, engineering and manufacturing to international standards by acquiring and adapting some of the best technologies from leading companies in the world, together with technologies developed in its own R&D centers.

BHEL has acquired certifications to Quality Management Systems (ISO 9001), Environmental Management Systems (ISO 14001) and Occupational Health & Safety Management Systems (OHSAS 18001) and is also well on its journey towards Total Quality Management.

BHEL has �Installed equipment for over 90,000 MW of power generation -- for Utilities, Captive and Industrial users. Supplied over 2,25,000 MVA transformer capacity and other equipment operating in Transmission & Distribution network up to 400 kV (AC & DC). Supplied over 25,000 Motors with Drive Control System to Power projects, Petrochemicals, Refineries, Steel, Aluminum, Fertilizer, Cement plants, etc. Supplied Traction electrics and AC/DC locos to power over 12,000 kms Railway network. Supplied over one million Valves to Power Plants and other Industries. BHEL's operations are organized around three business sectors, namely Power, Industry - including Transmission, Transportation, Telecommunication & Renewable Energy - and Overseas Business. This enables BHEL to have a strong customer orientation, to be sensitive to his needs and respond quickly to the changes in the market.

BHEL's vision is to become a world-class engineering enterprise, committed to enhancing stakeholder value. The company is striving to give shape to its aspirations and fulfill the expectations of the country to become a global player.

The greatest strength of BHEL is its highly skilled and committed 42,600 employees. Every employee is given an equal opportunity to develop himself and grow in his career. Continuous training and retraining, career planning, a positive work culture and participative style of management? all these have engendered development of a committed and motivated workforce setting new benchmarks in terms of productivity, quality and responsiveness.

HEADLINES

* BHEL wins EPC contract for 700 MW Combined Cycle Power Plant through International Competitive Bidding

* BHEL once again bags EPC contract for 350 MW Combined Cycle Power Plant through International Competitive Bidding

* BHEL achieves another breakthrough in Libya Secures EPC contract for 300 MW Gas Turbine based Power Plant

* BHEL bags largest long-term contract for oilfield equipment from ONGC

* Business Standard ranks BHEL as the Star Performer of the year

Sales and NP for year ended 06 / 07 were 17320.7Cr & 2414.0Cr. Sales and NP for latest Quarter 4964.1Cr & 771.9Cr. On YOY basis NP has increased by 44 % & based on quarter latest its increased by 16% Dividend during year ended 06 � 07 was 245%

Pick of the Week: Dish TV

LIKE ALWAYS LAST WEEK EVEN OUR STOCK OF WEEK OF UNITECH ZOOMED MUCH MORE THAN OUR TARGET OF 310.THER RECENT STOCK OF THE WEEK CALLS HAVE LIKE HOTEL LEELA, LANCO INFRATECH, ADLABS FILMS, KAVERI TELE, PRAJ IND, YES BANK, AND MANY MANY MORE HAVE ACHIEVED TARGET IN FEW DAYS ITSELF

BUY BUY BUY DISH TV

Equity : 42.82 Cr, BSE Code : 532839, CMP : 58.45, Target Rs. 64 to 65

DISH TV

Dish TV is Indias first direct to home entertainment service that has digitalized Indian entertainment to bring to your home the best in television viewing through the latest in digital technology. It not only broadcasts high quality programmers straight from the satellite to your home, but also gives you absolute and complete control of what you watch and pay for. It is almost like having your own satellite up in the sky. With dish TV you can unleash the true potential of your high-end television set and complete your TV viewing experience with true DVD quality. If you are a connoisseur of good sound then make sure you experience true stereophonic sound effects, which only dishtv can bring to your home.

Dishtv takes television viewing to the next level as it supports various futuristic features like Electronic Programmer Guide, Parental Lock, and Capacity up to 400 channels, Games, Interactive TV, Movie on Demand etc. Dishtv also brings you exclusive National and International channels for the first time in India! You can enjoy all of these never-seen -before channels in uninterrupted viewing without any transmission cuts. Brought to you by a Zee Network Enterprise, dishtv has changed the face of the Indian television home, bringing it at par with the global entertainment industry.

Circuit Breaker: Bihar Tubes

Bihar Tubes (BSE Code : 590059) (Rs. 149.90)

Circuit Breaker Scrip

Bihar Tubes is expected to gain in short term one can take exposure

at Rs. 149.90 (BSE Code : 590059)

The Scrip of Bihar Tubes is technically sound & fundamentally strong company

Sale up by 68 %, Net profit Jumped by 52 %,

EPS Rs. 20 & at current level stock is trading at only 7.5 PE.

Target price Rs. 180 in near term.