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Inflation moderated in November
STOCK UPDATE GAIL India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs585
Current market price: Rs504 Lower KG D-6 output not to affect GAIL?s gas transmission volume -
Media reports suggesting a decline in the gas production at KG D-6 to 46 million standard cubic meter per day (mmscmd) have raised concerns regarding the gas supply scenario in India, as KG D-6 is a major contributor to incremental supply of gas in India. Hence, the market is expecting that GAIL may have to take a significant hit on its gas transmission volumes. -
From our initiation price of Rs476, GAIL has outperformed the broader market indices (GAIL?s share price up by 5.9% versus Sensex? decline of 1.3%). We continue to believe that GAIL is the key beneficiary of the dynamic change in the gas supply scenario in India on the back of its huge investment plans in gas pipeline network (capital expenditure plans of Rs30,000 crore to double its gas transmission capacity to 300mmscmd in the next four to five years). -
We maintain our Buy recommendation on GAIL with a price target of Rs585 based on SOTP valuation translating into an upside of 16% from the current level. At the current market price, the stock trades at a price/earnings ratio of 15.3x and enterprise value (EV)/earnings before interest, tax, depreciation and amortisation (EBITDA) of 9.9x based on our FY2012 estimates. Sintex Industries
Cluster: Apple Green
Recommendation: Buy
Price target: Rs233
Current market price: Rs194 Durha acquisition strengthens execution capability -
Sintex Industries (Sintex) has entered into a definitive agreement to acquire a 30% minority stake in a privately held construction company called Durha Construction Pvt Ltd (Durha), which is engaged in civil and power projects. Sintex has paid Rs42 crore for the 30% stake, which is divided between fresh issue of the shares and a stake sale by the promoter. Of the Rs42 crore, Rs35 crore would be infused in the company via the issue of new shares and Rs7 crore would be paid to the promoter. Going forward, by FY2011 Sintex aims to enhance its stake in Durha to 51% for which the terms of the deal have been finalised. -
The Durha acquisition is in line with the company?s strategy of increasing its geographic execution capabilities and the company had earlier indicated on various forums that it was evaluating such a transaction. Against the backdrop of the stupendous growth seen by Sintex in its monolithic business, we view this acquisition as positive and expect it to have a synergistic effect on Sintex. It will help the company grow and strengthen its monolithic and prefab businesses, and expand its building product offerings to the infrastructure and industrial space. Further it would help Sintex to increase its geographical spread, as Durha has orders spread across the north east and the northern parts of India (Punjab, Uttar Pradesh). Further, Durha offers strong revenue visibility with an order book of Rs750 crore (5x FY2010 revenues) spread across various infrastructure sub-sectors. According to the Sintex management, there is visibility that the order book would grow to Rs1,000 crore by March 2011. -
We maintain our bullish stance on Sintex in view of the strong visibility of its revenues and the expansion in its margin in the wake of the strong growth in its building material (monolithic as well as prefabs) and custom moulding divisions as well as the stable performance of its textile business. We value the company at 12.7x FY2012E fully diluted earnings of Rs18.5 and thus maintain our bullish stance on its stock with a Buy recommendation and a price target of Rs233. At the current market price the stock is trading at 14.3x and 10.6x its FY2011E and FY2012E earnings respectively.
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