Parsvnath Developers is Delhi NCR based real-estate firm which caters to the needs in both residential and commercial segments. The company primarily started from Delhi NCR region and gradually expanded to other cities of India.
During the last recession, the company suffered major losses due to tremendous amount of leverage on its books. In March '09 results, the sales revenues were reduced to half on Y-o-Y basis whilst the interest expenses increased to double. Its Interest / Net Profit ratio had increased to 36% in FY'09 results.
Subsequently, the company restructured its business, which has started to give some results now. The company's Net Profit has been increasing steadily and is expected to see it grow by around 35% this year (Click here for results).
Though few concerns remain. With Central Bank constantly increasing the benchmark rates, the loans will surely get expensive which would result in slowdown in demand (sales can decline) and also increase the interest expenses (higher borrowing cost). Also, the last quarter result shown decline in revenues and increase in other expenses which again put some doubts on the financial health of the company,
Technically though, the share price has declined sharply in the last two months. In Apr '10, the share price was trading @ PE of 8X (57 Rs price, EPS - 7 Rs). With expected EPS of 9.5 Rs and current price of 37 Rs, it is trading at PE of just 4X, which seems cheap.
Even in the current context, we may reduce PE valuations to 6X. Even in that case, the fair price comes @ around 60 Rs which provides an upside of not less than 50%.
Hence, it becomes a buy with first target of 47 Rs (@ PE of 5X) and second target of 57 (@ PE of 6X).
Hence, it becomes a buy with first target of 47 Rs (@ PE of 5X) and second target of 57 (@ PE of 6X).
3 comments:
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First target achieved... Second to follow :)
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