RAJESH'S RECOMMENDATIONS14.8.07

RAJESH'S RECOMMENDATIONS14.8.07 RAJESH’S PORTFOLIO CHOICE DT:14.08.07
GMR INFRASTRUCTURE LIMITED
Growing with India
SNAPSHOT
BSE ticker code 532754
NSE ticker code GMRINFRA
Major activity INFRSTRUCTURE
Chairman Mr G.M. Rao
Equity capital Rs 331.08 crore
52-week high/low Rs 1005 / 205 (FV Rs 10)
CMP Rs 826
Mkt Capitalisation Rs 87552 crore
Recommendation Buy at declines

Mr infrastructure is one of the fastest growing infrastructure companies in the country, engaged in creation and managing of infrastructure assets mainly through special purpose vehicles (SPV’s). Its current portfolio spans over three very important areas ie airports, power and roads. We strongly feel that investors should consider this scrip for long term investment.
Just consider:
 India is the second fastest growing economy in the world but for an economy of its size, the use of air travel is extremely low. Leading observers believe that, given the right environment and product pricing, demand for air travel can shoot up significantly. GMR’S aviation business portfolio comprises Delhi and Hyderabad International Airport, which together represent 28% of India’s total passenger traffic of 73m (FY06). Recently GMR has won Sabiha Gokcen International Airport, Istanbul, Turkey. The company’s assets in aviation are very rich and capable of providing substantial high yields once the regular cash flow starts running.
 GMR has a power portfolio of three operational gas based / liquid fuel based power projects with installed capacity of 844 MW out of which 455MW is operational at Mangalore power Plant & Chennai power plant. Currently power business contributes 72% of total consolidated revenue & 67.89% of consolidated EBIDTA level. We see power business of the company as a consistent source of cash flow for other capital intensive projects.
 The road business portfolio of the company is a mixture of annuity based & toll based projects. Out of six road projects on hand, two are already operational while remaining are under implementation. The company has achieved financial closures of all the remaining four projects. GMR enjoys 49% EBIDTA margin on annuity based road projects, such projects provide consistent cash inflow to the company, which has to incur only collection changes which is approximately 10-15% of sales.
 The company holds development rights of 250 acres of land near Delhi & 700 acres at Hyderabad airport which commands premium valuation .Analysts have valued Delhi property rights at Rs. 5359 crore. Hyderabad rights have been valued at Rs. 5346 crore. We expect value unlocking on the above.
 The fiscal 2007 was the first year of the company GMR Infra declared its Q1 FY08 result. The company in Q1 registered consolidated net profit of Rs 46.41 crore on net sales of Rs 476.59 crore. On standalone basis, the net is Rs 73 Lakh on sales of Rs. 7 crore. The share price is now Rs 826. It should give good upside in medium to long term as the current infrastructure SPVs of GMR on discounted cash flow basis are valued at Rs 34091 crore, translating into a price target of over Rs 1000/share. Strong growth visibility, margin expansion and capacity and implementation skills are major reasons why investors should look to add this scrip of course, with long term objective only.

ENISONS HYDRAULICS INDIA
Value pick for profit
SNAPSHOT
BSE ticker code 505232
NSE ticker code Not listed
Major activity Hydraulic products
Chairman V C Janardan Rao
Equity capital Rs 1.80 crore
52-week high/low Rs 438 / 205 (FV Rs 10)
CMP Rs 385
Mkt Capitalisation Rs 70.2 crore
Recommendation Buy at declines

HYDERABAD-based, three decades old, Denisons Hydraulics India is an engineering company, which manufactures hydraulic pumps, hydraulic valves, hydraulic cylinders, hydraulic accessories and hydraulic motors. We recommend the scrip for investment as it is one of the few undervalued scrips in engineering space.
Just consider
 The company’s products find application in fast growth industries like, engineering, industrial, construction and agriculture. The company has been growing by leaps and bounds and will continue to grow. It is one of the best investment opportunities. Last year it had taken up an expansion program to enable the company to offer a wider range of products. Once the capex is completed, the company will be able to further expand its sales as well as bottom line growth. As a result growth, is assured for at least next three years. The most encouraging part of the company’s growth has been its sales as well as OPM expansion. During the first quarter of the fiscal, its OPM improved by 220 basis points..
 With sales growing at 59% to Rs 14.83 crore, the net profit has spurted by a whopping 68% in the June 2007 quarter. This has taken its nine months sales to Rs 34.73 crore, indicating a rise of 51%, while its net profit has gone up at a much faster pace of 87% to Rs 3.34 crore. The company’s FY ends in September. This means that it is available at a 3 month forward P/E of just 7.2.
 The company has been growing strength-to-strength .In the year ended September 2006, its sales had grown by 19% to Rs 35 crore and net profit was up by 30% to Rs 5.8 crore. OPM has expanded by 360 basis points to 31.5%. In the first nine months of the current year , its sales and net profits are higher than entire FY 2006’s sales and net profits. In FY 2007 (September ending), we expect the company to register sales of Rs 50.00 crore, and the net profit of over Rs 9 crore. Thus EPS will be around Rs 53. The share price trades at Rs 390. P/E is just 7.2.
 The company’s equity is very small - Rs 1.80 crore and promoters hold 73%. Moreover, in the last twelve months, the promoters have been raising their stake slowly but continously and have bought as much as 14% in the last 1 year. Foreign institutional investors hold 13.01% of the equity stake in the company. Thus the promoter and FII holding totals to 86%. Obviously, the floating stock is very small.
 For the next year, the company is expected to register sales and net profit of Rs 75 crore and Rs 14 crore respectively. On a very small equity of Rs 1.8 crore, EPS would be around Rs 85. P/E on the current share price of Rs 385 falls to just around 4.3. Also by 2008, its book value will near Rs 250 mark making it a very strong bonus candidate. According to us the medium and long term outlook of this stock is very bright, so buy at every decline.


IDFC
Proxy for India infra growth
BSE ticker code 532659
NSE ticker code IDFC
Major activity Infrastructure finance
Chairman Deepak S Parekh
Equity capital Rs 1294.04 crore
52-week high/low Rs 138 / Rs 53 (FV Rs 10)
CMP Rs 124
Mkt Capitalisation Rs 2425.50 crore
Recommendation Buy at declines

IDFC, is a specialised intermediary in infrastructure financing. The company has a well-managed team of professionals with international and national experience from diverse professional backgrounds at the helm of affairs. We feel that there is good investment value in this scrip.
Just consider
 Apart from being a specialized financer in infrastructure sector, IDFC also undertakes debt, preference and equity financing through proprietary investments in unlisted equity as well as public offers of infrastructure companies. The company has extensive domain knowledge to become a ‘one-stop-shop’ for infrastructure financing. It has built strong relationships with the sponsors of infrastructure projects by working closely with clients. It’s expertise and innovative abilities enable it to be a preferred financer. In fact, banks are tieing up with IDFC to identify, assess and finance infrastructure projects.
 The company’s asset management business has tremendous growth potential. In addition, IDFC Project Equity Company (‘IDFC Project Equity’) was set up in 2006-07 to manage the proposed USD 2 billion third party equity component of the ‘India Infrastructure Initiative’. This fund would be a very significant step forward to IDFC’s asset management business. The company’s tie-up with Citigroup, Blackstone and India Infrastructure Finance Company (IIFCL) for deploying US$5 bn into infrastructure projects in India has significantly improved the visibility for fee income streams.
 The company has a very clean asset book. As of June 2007, the NPAs as a percentage of net advances were 0%. The zero NPA reflects better quality of assets and prudent NPA coverage on part of the company. Its leverage ratio has increased from 4.6 times to 5.7 times and the return on equity stood at 19% during June 2007 quarter. In Q1 FY 2008, Its balance sheet size has grown by 50% to Rs 20,673 crore and loan book size increased by 30% to approx Rs 15000 crore. The equity book has shot up by 155% to Rs 1573 crore.
 IDFC has a significant stake in NSE bought at very attractive level, it also controls 67% in SSKI , SSKI is a privately held domestic corporate finance and institutional securities company based in Mumbai. Both these investments should offer lots of value to shareholders while synergies with SSKI could be exploited.
 The company has been doing very well in the financial front .For the fiscal 2008, we expect it to register total income of Rs 2500 crore and net profit of Rs 700.00 crore. On fully diluted equity of Rs 1294.04 crore and face value of Rs 10 per share, EPS works out to Rs 5.3 . The share price trades at Rs 124 and the P/E works out to 22.3. IDFC’s FY 2008 book value is expected to touch Rs 43, which is discounted just 3 times by the current price. We feel this can be a very productive investment in medium to long term.