Analysts' Picks: Gitanjali Gems, Unitech, Seamec, Dishman Pharma

Analysts' Picks: Gitanjali Gems, Unitech, Seamec, Dishman Pharma
20 Feb, 2008, 0313 hrs IST,

Gitanjali Gems
CMP: Rs 303.50 Target Price: Rs 547

Morgan Stanley has rated Gitanjali Gems an ‘overweight’ with a price target of Rs 547 per share as it believes the stock is “highly undervalued” in India’s consumer and retail segments. “The stock is trading at 13x (times) 2009E EPS (estimated earnings per share of Rs 23.64) and the core jewellery business is at 7.5x 2009E EPS, after stripping out the real estate business value,” the investment bank said in a client note.

“We believe it is set to benefit from a shift in consumer buying patterns towards branded and diamond-studded jewellery. Given the diverse brand bouquet and aggressive expansion plans, we estimate an impressive 51% earnings growth in FY07-10,” it added.

Unitech
CMP: Rs 397.25 Target Price: Rs 454

Citigroup has rated Unitech a ‘buy’ with a price
target of Rs 454 per share, which has a 15% premium attached to its net asset value (NAV) estimate of Rs 395. “The premium is attributed to Unitech’s competitive advantage of large diversified land bank, thrust on asset monetisation, and strong brand positioning and proven track record,” the investment bank said. Merrill said Unitech’s low risk/high return model and focus on scale in tier-I and tier-II cities differentiates its growth profile from peers.

“Key drivers we see ahead are enhanced scale with sizeable land additions translating into a portfolio of 696 million sq ft, spread over 8-10 years, widened geographic spread, particularly with entry in Mumbai, and improved asset mix and growing income from lease/management fees,” the investment bank said.“Value unlocking for its telecom licences and upsides from rate compressions on likely listing of its Trust and more asset injections in UCP (Unitech Corporate Parks) the AIM Fund are potential stock triggers not currently built in our target,” it adds.

Seamec
CMP: Rs 168 Target Price: Rs 240

Emkay Shares and Stockbrokers has maintained its ‘buy’ rating on Seamec, even as it downgraded the company’s earnings estimates for 2008 after reporting lower-than-expected earnings in the fourth quarter (October-December) of 2007. “

At current levels, even though the stock is trading at attractive valuations of 8.2X (times) its CY (calendar year) 2008 earnings and 5.8X its CY2009 earnings, we believe the stock is likely to languish on the back of erratic quarterly performance and lack of any acquisition upside,” the domestic brokerage said in a client note.

The brokerage has downgraded the company’s EPS estimates in 2008 by 35% to Rs 21.3 per share, citing likely revenue loss of Rs 50 crore.“SEAMEC II, which met an accident at the dry dock, had substantial damages in the fire accident. The vessel will undergo major damage repair exercise and is expected to commence operation only by June-July 2008. Also, the deployment of Seamec Princess has been delayed on account of delay in upgradation of the vessel,” it said.

Firstsource sol
CMP: Rs 50.30 Target Price: Rs 80

Merrill Lynch has retained its ‘buy’ rating on Firstsource, while trimming its price target to Rs 80 per share from Rs 105. “We are cutting FY08, FY09 and FY10 EPS estimates by 6%, 22% and 15% respectively to factor in potential dilution from the Dec ‘07 Zero Coupon FCCB issue,” the investment bank said in a client note.

Merrill expects operating profit to fall 12% and 17% in 2007-08 and 2008-09, “given delay in conversion of the Metavante-led pipeline of local US banks and weakness in the collection business due to the challenging US environment.”

Dishman Pharma
CMP: Rs 419 Target Price: Rs 275

Enam Securities expects Dishman to ‘outperform’ the pharma sector, with a price target of Rs 419 per share citing strong earnings growth over the next couple of years and attractive valuations.“We expect a CAGR of 28% and 27% in sales and net profit over FY07-FY10E (estimates),” it said.

”We expect strong traction in Dishman’s CRAMS(contract research and manufacturing) business, improving profitability of CA (Carbogen Amcis) & shifting of low-end work like QUATS (quaternary compounds) and marketable molecules (MM) to China to drive revenues and profitability in the next three years,” Enam said.