What are the stocks we can buy

MUMBAI: Prabhudas Lilladher has maintained ‘buy’ on Reliance Communications for a target price of Rs 706, an upside of 26.2 per cent from current level. RCom has guided for a potential market size of $ 275 billion for its global assets, which will be offering a diverse portfolio of global communication business services, including global voice, managed network, carrier ethernet and fibre capacity businesses. Total investments in Reliance Globalcom stands at $ 2.75 billion at the end of 2007-08.

Reliance Infratel aims to increase its tower portfolio to 70,000, thus enabling it to have 280,000 slots by 2009-10. The company has hinted at using around
110,000-120,000 slots for captive use. Further, the company is in active talks with two new entrants for pan-India tower portfolio.

Rcom has outlined to spread its GSM network to cover 90 per cent of the population by 2009. This will be the fastest rollout of GSM network in India. It has already signed conclusive arrangements of $ 1.3 billion for electronic equipment with vendors, including Huawei, ZTE and Alcatel Lucent. The company management has hinted at net additions to pick-up in subsequent months due to increase in its coverage of existing eight GSM circles.

With favourable regulatory developments in the last couple of quarters, Prabhudas believes Rcom is in a sweet spot. At the market price of Rs 559, the stock trades at a PER of 14.2x and at an EV/EBITDA of 9.8x FY10E earnings. Unlocking value in Reliance Globalcom and Reliance Infratel could be key catalysts in the next 6-12 months, says Prabhudas.

Sun TV

Prabhudas has maintained ‘market performer’ on the stock for a target price of Rs 367, an upside of 9 per cent from current level. Sun TV is expected to maintain 18 per cent CAGR in revenue over FY07-10E, which will be largely driven by annual advertisement rate hikes and increasing subscription revenue from addressable platforms such as DTH.

Operating margin is likely to expand by 300 basis points on the back of improving synergies post amalgamation and increase in DTH-related revenue. Earnings as a result, are likely to grow at 24 per cent CAGR FY07-10E.

Sun TV, along with its subsidiaries – Kal Radio and S FM, has been allotted licences for setting up 45 radio stations across India, for which it has paid licence fee of Rs 180 crore. During 2007-08, the company also acquired minority stake (48%) in Red FM, which operates three stations. With 37 operational stations at the end of FY08E, the company’s rollout plans are on track.

With competition heating up in the regional broadcasting space, Sun TV’s channels are expected to face the heat. However, the management seems confident, despite increasing competition, of sustaining their leadership position in all four states.

The stock is trading at 33.2x and 27.9x FY09E and FY10E respectively. Prabhudas has turned over their PER from FY09E to FY10E, at Rs 362 for its broadcasting operations and Rs 4.6 for its radio operations, valuing it at 1x investment value of Rs 180 crore.
Anant Raj Industries

Prabhudas has maintained ‘outperformer’ on the stock for a target price of Rs 282, an upside of 16.2 per cent from current level. Anant Raj is an NCR-based real estate company having a land bank of 982 acres, translating into approximately 70 million square feet of developable area.

The company believes in being location specific, however, it is diversified across varied commercial segments like IT, SEZ, hospitality and retail, as well as residential development.

The company has a strong pipeline of projects and is currently working on two retail projects, two hospitality projects and one IT Park. Besides, it is also working on an SEZ project, which is likely to be completed by December 2009. It is also likely to embark on two residential projects and a few hospitality projects.

The company has adopted the rental model, largely for its commercial projects, which comprises 75 per cent of its land bank. The other 25 per cent is residential projects, which are on an outright sale model.

Based on projects that are nearing completion, the company is likely to
earn a strong flow of rental income of Rs one crore per day starting August 2008, which it targets to increase to Rs two crore per day by 2008-09 and Rs four crore per day by 2009-10.

Prabhudas expects strong growth of 52.9 per cent and 111.5 per cent in the company’s revenue over 2008-09 and 2009-10. The corresponding growth in
profit after tax is likely to be 44.7 per cent and 95 per cent respectively. The brokerage working of the company’s NAV stands at Rs 332. The target price is based on a 15 per cent discount to NAV on account of the decline in peer group valuations.

Wipro

Prabhudas has maintained ‘marketperformer’ on the stock for a target price of Rs 512 (16x FY10E earnings). The management has maintained that it is not witnessing any pricing pressure yet, with new contracts commanding 3-5 per cent increase in billing rates. However, over the last few quarters, the increase in billing rates for Wipro has been one of the lowest as compared to its peers.

Wipro has indicated no loss of momentum in deal pipeline. While the past few months had witnessed decision paralysis with no decisions being taken by clients, the management indicates that the momentum appears to be building up.

BFSI contributes around 25 per cent to Wipro’s topline. The company believes that the segment will grow at the company average growth rate. The segment has grown at a CQGR of 10.1 per cent and 8.2 per cent over the last four and eight quarters respectively.

Consumer segment has grown at a CAGR of around 55 per cent over the last four years. The consumer division has done well clocking growth well above industry averages. Santoor brand has been recognised as India’s No. 3 toilet soap brand by value.

Prabhudas expects Wipro to report revenue of Rs 25,280 crore for 2008-09 and Rs 31,160 crore for 2009-10, implying a year on year growth of 28.1 per cent and 23.3 per cent respectively. Prabhudas expects its EBIT margin to be stable at 16.1 per cent and 16.2 per cent respectively over the same period. Earnings over the same period are expected to grow by 16.7 per cent and 24 per cent to Rs 25.8 and Rs 32.

At the market price of Rs 501, the stock trades at 19.4x FY09E and 15.6x FY10E earnings, respectively.