Stocks to buy

Analyses of selected stocks by broking firms

AKRUTI CITY

Broking firm: Prabhudas Lilladher

Price at the time of recommendation: Rs 1,079

Target price: Rs 1,500

Rationale: Project execution is on track. Akruti City has a product portfolio of 39 projects and a development potential of 45.5 mn sq feet of which 20.46 mn sq feet is Akruti’s share of development. Apart from this the company is developing two Township projects and the Baroda Biotech park. Together the two township projects at Panvel and Uran should be able to generate a developable area of 116 mn sq feet and the Baroda Biotech Park should generate a developable area of 20.6 mn sq feet out of which Akruti’s share is 13.8 mn sq feet.

The management is confident of executing development of the 20.5 mn sq feet without much funding constraint. However, has indicated that they are looking at raising additional funds either at the entity level or at the SPV level to fund land acquisition of the two township projects. The management does not see much pressure on prices for projects that they plan to develop in the medium term since projects are in specific prime locations and are targeted at a focused market. Hence execution so far is on track. Based on expected development schedule for various projects being developed by the company we arrive at a NAV value Rs 100 bn which works out to a per share value of Rs 1500. We maintain Outperformer rating on the stock.

Closing price on Friday, May 23, 2008: Rs 999

BALAJI TELEFILMS

Broking firm: Angel

Price at the time of recommendation: Rs 181

Target price: Rs 275

Rationale: Balaji Telefilms started to witness better times from the December quarter (3QFY2008) with the commencement of three new programmes, two on the newly launched 9X channel and one on Sony, thus re-initiating its relationship with the latter. The company is also scheduled to launch the mythological, Mahabharatha, on 9X. Also in the pipeline are two Reality shows, one on 9X called Kaun Jeetega Bollywood Ka Ticket and the other one on Sony. Overall, with these programmes getting launched, the company would be diversifying its revenue stream to some extent and reduce its dependence on Star.

Also, a slew of general entertainment channels are expected to be launched soon, which would open up further opportunities for Balaji to provide prime time content. Further, the company’s joint venture with Star, though delayed, could spawn 3-4 channels over the next few quarters in South Indian languages, which would augur well for Balaji’s content supply business. However, we have not assumed any contribution from this JV in our projections. The company has also ventured into movie production, co-production and distribution to widen its revenue stream and reduce risks. Balaji Motion Pictures, a wholly-owned subsidiary , released three movies during the year, of which two (Shootout at Lokhandwala and Bhool Bhulaiya) had a decent run. For FY2009, the company has four new film projects in the offing including the much-awaited Sarkar Raj.

While this film will be distributed by Balaji Motion Pictures, the other films (EMI, CKkompany and Mission Istanbul) are being coproduced by it. For FY2008, the Motion Pictures Division reported a Topline of Rs36.5cr and Net Profit of Rs5.5cr. We have not factored in any profit/losses that may arise from this business segment.

On the realisations front, Balaji faced pressure on commissioned realizations during the quarter. But while we do not expect it to command premium realisations in the wake of stabilised TRPs of its programmes, we believe it would have a marginal upper hand when its contract with Star comes up for re-negotiation in June 2008. This is because Star Plus continues to derive a substantial chunk of its TRPs from Balaji serials. Also, with new GECs likely to get launched, Balaji Telefilms seems to be in a comfortable position.

At current levels of Rs181, the stock trades at 9.8x FY2010E EPS. Balaji continues to be amongst the most preferred content providers for a general entertainment channel. We remain confident of its growth prospects going forward. Nonetheless, the biggest risk to our assumptions is any of the company’s key programmes going off-air without an equally strong substitution. We maintain a Buy on the stock, with a marginally reduced Target Price of Rs275 (Rs285) factoring in a 3% reduction in our FY2010E EPS.

Closing price on Friday, May 23, 2008: Rs 181