Mid Term Stock Picks - September 8, 2010

Broking house Ambit Capital has suggested these stocks for mid-term picks.

Hindalco

• Recommendation: Buy
• Market Price: Rs 180
• Target Price: Rs 200
• The company is in a major capex mode and we expect an increase of 60% Y-o-Y and 110% Y-o-Y in the time-weighted capacity for alumina and aluminium, respectively in FY13E. The stock trades at 6.2x EV/ EBITDA and 9.6x P/E, both on FY12E basis.

IDFC

• Recommendation: Buy
• Market Price: Rs 184.60
• Target Price: Rs 215
• The stock currently quotes at 2.5x and 2.2x our FY11E/FY12E ABVPS estimates of Rs 75 and Rs 85, respectively. Our estimates and valuations do not capture the considerable upside that IDFC can potentially generate from any incremental exits (from the PE funds). We have a target price of Rs 215.

Polaris Software

• Recommendation: Buy
• Market Price: Rs 172
• Target Price: Rs 225
• Our target price implies a PE multiple of 11x on FY12E EPS. The stock is currently trading at 9.0x and 8.7x on FY11E and FY12E EPS, respectively. Valuations appear cheap v/s the midcap universe (8-12x), given the robust growth expectation and a PE re-rating from hereon is warranted.

Jagran Prakashan

• Recommendation: Buy
• Market Price: Rs 134
• Target Price: Rs 155
• We expect JPL with its numero uno position, in the biggest Hindi market of UP, to witness higher ad revenue growth, going forward. Over FY10-FY12E, we expect JPL’s earnings to grow at 16% CAGR. We maintain BUY on the stock with a target price of Rs 155

Castrol

• Recommendation: Buy
• Market Price: Rs 520
• Target Price: Rs 575
• If weakness in crude prices persists, it could benefit Castrol as base oil pricing is linked to crude oil pricing. We estimate for a Rs 1 litre decline in input costs, Castrol could gain 7% on pre-tax earnings. It trades at P/E multiple of 21x. and EV/EBIDTA multiple of 14x on CY11 earnings estimate.

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