RESEARCH: BNP PARIBAS
RATING: BUY
CMP: RS 393
BNP Pariba
s maintains ‘buy’ rating on Shiv-Vani Oil & Gas, while reducing the target price from Rs 800 to Rs 522 on higher borrowing costs and multiple contractions. The company’s global peers trade at a forward P/E of 10.5x, compared to Shiv-Vani’s 8.4x (based on FY10 EPS estimates). Global peers are likely to expand at 23% from FY08-FY10, while Shiv-Vani is set to grow 58%.BNP Paribas believes oil service companies will continue to see strength in their core businesses, despite weak sentiment surrounding crude. Shiv-Vani’s receivables rose by 158% to Rs 276 crore, which comprised 48% of its FY08 revenue. Since over 85% of Shiv-Vani’s revenue comes from ONGC, this raises concerns on the company’s working capital management. BNP Paribas believes Shiv-Vani will need to raise cash to fund its working capital needs in the near term and hence, will see an increase in its cost of borrowing.
OPTO CIRCUITS
RESEARCH: EDELWEISS
RATING: BUY
CMP: RS 165
EDELWEISS maintains ‘buy’ recommendation on Opto Circuits. The company cancelled the proposed $100-million acquisition of an European company as the demanded price was not justifiable from an economic value perspective. Over the past few years, Opto has created strategic and shareholder-value by focusing on inorganic opportunity for growth, be it in the Advanced Micronic Devices acquisition in ’01, Palco Labs and the thermometer division of HUL in ’02, Mediaid in ’03, EuroCor in ’05, or the recent Criticare Systems acquisition in ’08.
This shows the management’s focus on value creation. After the recent correction in stock price, the valuations offer a good buying opportunity. Opto has traded at a premium to the market due to high growth, healthy margins and upside from potential acquisitions. But with the recent market fall and overhang of large ownership by FIIs, the stock price has corrected more-than-warranted, making it attractive.
-----------------------------------------------------------------------------------------------
