Stocks you can pick up this week

Bajaj Auto
Research: Angel Broking
Ratings: Hold
CMP: Rs 2,730 (Face Value Rs 10)
12-Month Price Target: Rs 3,000

After an improved market share in price and premium segment, BAL is now targeting executive segment, which contributes almost 55% of the total motorcycle volume in the industry.

It is planning to launch a new line of aggressively priced bikes between 50 cc and 150 cc segments, which will offer higher performance and better looks in an attempt to pull the customer away from Hero Honda’s highly popular ‘Splendor’ and ‘Passion’.

BAL gained strong market share in FY06 and nine months of FY07, which was largely driven by its entry segment CT100, newly launched Patina in April ’06 and premium bike ‘Pulsar’. If BAL succeeds in gaining market share in the executive segment, then it will be a big gain in terms of volume for the company.

Based on the SOTP valuation of Bajaj Auto, the target on FY08E basis works out to Rs 3,200. Angel Broking maintains a hold on the stock and advises investors to enter the stock at lower levels with a long-term perspective.

Automotive Axles
Research: ASK Raymond James
Ratings: Buy
CMP: Rs 614 (Face Value Rs 10)
12-Month Price Target: Rs 730

Automotive Axles’ (AAL) Q1 FY07 results were in line with expectations. Revenues witnessed a growth of 44% to Rs 145 crore against the expectation of Rs130 crore. Rise in raw materials cost by 10% QoQ (raw materials to sales increased by 380 bps YoY) led to margin pressure of 80 bps YoY to 17.3%.

Reported PAT witnessed a growth of 39% to Rs 13.6 crore, which includes an exchange income of Rs 1.33 crore. When adjusted it leads to a PAT of Rs 12.3 crore (in line with our estimated figure of Rs 12.3 crore).

The company will manage to increase its margins and maintain the same at 18% as it will be able to pass on the raw material hikes to its customers in the next quarter. Also, the company’s axle sales to military vehicles, which reduced around 90% (high margin sales) due to postponement of orders from the customer side, is expected to flow from Q2 FY07E.

Moreover, with fresh export orders expected from Arvin Meritor, the company will achieve Rs 80 crore by FY07E and Rs 120 crore by FY08E. On the back of higher capacity expansion and higher export growth prospects, ASK Raymond upgrade the earnings from Rs 37.2 to Rs 40.8 for FY07E and from Rs 46.2 to Rs 52.9 for FY08E respectively.
HDFC Bank
Research: Enam Securities
Ratings: Underperformer
CMP: Rs 1,066 (Face Value Rs 10)
12-Month Price Target: Rs 944

HDFC Bank’s Q3FY07 results were largely in line with expectations, with stable margins and moderate asset growth. Net profit rose 32% YoY, driven by 38.5% growth in NII. Balance sheet growth moderated to 33% YoY levels with both deposit and credit growth moderating to 33% and 30% respectively.

Current account and saving account (CASA) bounced back to 55% after falling to 52% in Q2 FY07, which has been a function of moderation in deposit growth to 30%, coupled with improvement in current account proportion from 24% in Q2 to 26% in Q307.

It is noteworthy here that the bank added 48 branches in a very short span during the quarter, after being deprived of new branch licenses for a year. Enam believes that the bank’s net interest margin (NIM) will likely sustain, as CASA is likely to remain high.

While asset growth has moderated, it will pick up going forward, given the new branches being added. While the fundamentals remain intact, Enam believes that valuations at 4.2x FY08E BV offer limited upside from a one-year perspective.

Great Offshore
Research: BRICS PCG
Ratings: Buy
CMP: Rs 746 (Face Value Rs 10)
12-Month Price Target: Rs 900

Outfitted with a fleet of 37 vessels, Great Offshore is the country’s largest private operator of support vessels and harbour tugs. Great Offshore’s fleet comprises two exploratory drilling rigs, 23 offshore support vessels (OSV), 11 tugs and a barge.

The company aims to become a composite service provider in the offshore drilling, offshore oilfield support, marine construction and port terminal service segments. A large portion of the company’s income comes from its Indian operations, though it has expanded its reach to other countries as well.

It has set up representative offices in Dubai and Malaysia and is now providing services in markets like the Middle East, North Sea and South Africa. The average one-year forward P/E for global peers is estimated at 10x.

BRICS has assigned a 30% premium to the company’s offshore division due to its significantly higher revenue visibility vis-à-vis global peers. Applying the P/E multiple of 13 to FY08E EPS of Rs 48, BRICS has arrived at a fair value of Rs 623 for the offshore division.

Great Offshore will take delivery of a jack-up rig in Q3 FY09, the full benefit of which will arise in FY10. Therefore, drilling division is valued based on FY10 earnings and rolled this back to arrive at an FY08 target of Rs 277.

TTK Prestige
Research: Emkay
Ratings: Buy
CMP: Rs 137 (Face Value Rs 10)
12-Month Price Target: Rs 201

TTK Prestige is making aggressive efforts to become a total kitchen solution provider by outsourcing products requirement from other players. Also, with cost-cutting and operating efficiency measures, Emkay expects it to post a strong set of financials in the next two years.

The company posted a topline growth of 25% during the past two years and the management is confident of revenue growth of 30% over the next 2-3 years. Emkay expects it to post a 27% CAGR in terms of its revenue over the period of FY06-FY08E and 57% EPS CAGR during the same period. RoCE and RoE are expected to be 16% and 23 % for FY08E, respectively.

Kirloskar Oil Engine
Research: Edelweiss
Ratings: Buy
CMP: Rs 268(Face Value Rs 2)
12-Month Price Target: NA

Koel’s Q3FY07 results were in line with expectations in terms of sales growth and below expectations in terms of profitability. Net revenues grew by ~37% YoY to ~Rs 450 crore, driven by growth in the engine business. Engines and auto component segments grew by ~43% and ~18% YoY, respectively.

Engines formed ~83% of sales in Q3 FY07 compared with ~77% in Q3FY06. The business mix has been changing in favour of the engine segment, driven by robust demand for generators and diesel engines. Post Q3 FY07 results, Edelweiss continues to remain positive on the company as an infrastructure and agriculture sector play