At the current market price of Rs. 284, the stock trades at 17 times it's trailing 12 months EPS. The stock is currently available at a huge discount compared to other large cap IT shares such as Infosys, Wipro etc.
The company Jun'08 quarterly results were good compared to Tier 1 companies due to it's pro-active hedging strategy. The company has hedged around 85 percent of revenues which should partly mitigate the risk of rupee appreciation.
Based on Jun'08 EPS, the stock trades at 13 times it's FY08E earnings. Investment can be considered in this stock with a horizon of year to two. Based on it's FY08E earnings the stock has a target of Rs. 390.
The company has seen good increase in business from the Asia-Pacific and European region. This together now constitutes to around 30 percent of it's revenue and provides a better geographical spread of revenues.
Fundamentals:
1) Better geographical spread and pro-active hedging strategy against rupee appreciation.
2) Strong multi million dollar clients with repeat business.
3) The company has unique client profile in aerospace and automotive which contributes to 25 percent of it's revenue.
Risks:
1) Further rupee appreciation.
2) US economic slowdown and also MNC's like accenture and IBM offering services comparing to the billing rates of Indian companies.
3) Very high employee attrition.
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Buy Neyveli Lignite
At the current market price of Rs. 73, the stock trades at 19 times it's trailing 12 month earning per share. This makes the stock sufficiently valued at this level.
On the other hand the stock is available at a discount to it's peers based on it's Annualized quarterly June' 08 EPS of 6.72. The stock is trading at 11 times it's FY08E earnings. Neyveli had taken an hit on it's financials for the last two years due to delay in acquisition of land which had taken an hit in lignite production and due to the order passed by CERC on lignite transfer pricing upto 2004. Having the above two already taken care this must not impact the earnings in the quarter's to come.
Based on FY08 earnings Neyveli has a target of around Rs. 105 at a one year time horizon. Not to mention the massive expansion going on which will start reaping benefits in FY09. If the investor has patience to hold the stock for three years this can turn out to be a multibagger stock.
Fundamentals:
1) Good financial track record.
2) High profit margins (more than 30%)
3) High cash reserves and low debt position
4) Massive expansion ahead.
5) Disinvestment of additional stake a bonus.
Risks:
1) Any New order affecting the pricing of power and lignite.
2) Delay in getting the project approval for expansion, which is happening now.
Updated on 24-Sep-2007
Target 1 of Rs. 105/- as recommended above crossed today. Return of 50% within one month of recommendation.
Stock Long term growth story still intact. Hold on if you are a long term investor.
Short term traders can book partial profits at current levels and re-enter on dips.
