Stocks you can pick up this week

McNally Bharat CMP: Rs 177.25 Target Price: NA
Edelweiss Capital has maintained ‘buy’ rating on McNally Bharat Engineering. “With 50, 000 MW of capacity addition expected over FY07-12, we expect a total capital expenditure of Rs 112.5 billion on the material handling equipment front over six years. McNally, being one of the bulk material handling equipment players, is expected to benefit from the same,” the Edelweiss note to clients said. “In FY07 McNally had 30-35 projects in hand, aggregating to a turnover of Rs 5 billion. Currently with an order book worth Rs 11 billion, McNally has less than 10 projects in hand. This reduces the risk points for McNally and also gives the company the option of getting selective in bidding for future projects and in turn improve margins,” the note added

Patel Engineering
CMP: Rs 391.80
Target Price: Rs 485
The retail broking arm of Kotak Securities has upgraded its rating on Patel Engineering from hold to ‘buy’ with a price target of Rs 485. “Patel Engineering enjoys very good margins as compared with other construction players due to its focus on the higher margin hydropower construction projects. Hydropower projects have operating margins in the range of 17-22% while irrigation projects have margins in the range of 7-15%,” the Kotak Securities note to clients said. “With a current order book of approximately Rs 50 billion, we expect the company to grow its revenues at a compounded annual growth rate of 30%. Adjusted with the subsidiary and land bank valuations, it is trading at 14.3 times and 11.4 times P/E multiples on FY08 and FY09 estimates, respectively,” the note added.

Ambuja Cements
CMP: Rs 135.40
Target Price: Rs 103
Citigroup Global Markets has reiterated its ‘sell’ rating on Ambuja Cements even after Holcim’s open offer at Rs 154 a share. The brokerage has a price target of Rs 103 for the stock. According to Citigroup, the ACL stock is expensive due to limited visibility on cement pricing, expected decline in 2008 earnings due to capacity addition in the sector, and risk to exports because of new capacities coming up in the Middle East. “We have factored in a slowdown in export volumes and pricing, however, these could be greater than we forecast,” the note added.

ITC
CMP: Rs 161.90
Target Price: Rs 203
Motilal Oswal has maintained its ‘buy’ rating on ITC with a price target of Rs 203. “We expect(cigarette) volumes to start recovering 4QFY08 onward and upgrade our cigarette volume growth estimates for FY08 to -3% against -6% estimated earlier, for FY09 to 5% against the earlier 4%,” the Motilal Oswal note to clients said. “We expect the paperboard and packaging business to improve topline and margins due to increasing of paper capacity by 50% in FY09. Branded foods business is likely to record higher growth rates due to the success of Bingo (potato wafers), continued growth momentum in Sunfeast (biscuits) and Aashirwad (atta),” the note added.

Indiabulls Financial
CMP: Rs 478.95
Target Price: Rs 515
Goldman Sachs has initiated coverage on Indiabulls Financial Services with a ‘neutral’ rating, saying the stock was fairly priced at current levels. “IBFSL has a well established market position in the securities business, however, we believe the key value driver for the company going forward will be the consumer finance business. We believe IBFSL’s consumer finance business caters to a niche market, which is largely untapped, giving it has an early-mover advantage,” the Goldman Sachs note to clients said. “The company is likely to expand its scale of operations significantly between FY08E and FY10E and consequently we expect this business to deliver 90% CAGR and 86% CAGR in loan assets (excluding shares) and earnings, respectively. However, we believe the current valuation captures our growth expectations from the consumer finance and capital market businesses,” the note added.
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