Parsvnath Developers - Headwinds present but valuations provide better Risk vs Reward ratio

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).

Eicher Motors - fundamentally good stock and valuations attractive

Eicher Motors is India's leading tractor manufacturer company. Royal Enfield brand too belongs to this firm. The company has shown tremendous growth since last recession when interest costs and less demand on the agriculture front had put steep pressure on the bottom line.

With new economic horizon, the working environment for this company has changed. Both Central and State Governments are now focussing on the agriculture sector which would help the company in increasing its sales. Also it has exclusive tie-up with International HCV manufacturer -Volvo - for trucks manufacturing. Thus the company foray into Rural India space would help it continue to grow in the near future.

In terms of financials, the company was into tremendous interest costs pressure in 2008 where Sales/ Interest Expenses ratio was around 14% which now has been reduced to mere 2%. The reduce in interest expenses along with improved sales has helped the firm notch 100% increase in Net Profit on Y-o-Y basis.

Valuation-wise the stock used to trade in PEX of 18-20 times during recession period. In the current bull market, it traded at PEX of 45-50 times. Currently, it is trading at PEX of 35. With better financial prospects in the future and its working in "Agriculture" domain, it should demand PE of at least 35 times. With estimated EPS of 35 Rs (30% gains Y-o-Y) and PE of 35X, its fair price comes at 1250 Rs for next one year which provides returns of 20% from current market price.

Technically, it has good support at 1020-1050 levels. If this level is broken, the stock can be accumulated at around 850-860 levels, which is extremely attractive. After this level, one may buy around 600-650 levels where exists Stop-loss as well for this stock (Ref: graph).

My advise is to buy around 50% at current levels and 50% at 850 levels for optimal gains. In case of last resort, put 100% more at 650 levels with strict stop-loss of 580.



Jain Irrigation seems a good buy though at lower levels

Jain Irrigation is World's second largest organization in Micro-irrigation sector and has given exceptionally good results in the last few quarters.

Though after the split occurred in Oct, the stock is trading in a range with some negative bias probably due to more equity now floated into the market. The negative sentiments of the overall market is also putting pressure on the stock.

The stock traded @ PE of 30 times last year at EPS of 7 Rs (adjusted) citing the robust business model of the company. The company has managed to live upto investor sentiments but its rising interest costs would surely bring the bottom line into pressure in the comg days.

With potential EPS of around 8.5 Rs this year and PE of 25X (lower due to current market sentiments), the probable target price comes at 215 Rs.

Fundamentals of the company remains intact and can be bought @ 170-180 Rs with target price of 215-225 levels.

Macro Economic factors look to spoil the bull party- 03rd January 2010

Indian Equity Markets have made a good rebound from intermediate lows made in the early part of December 2010.

But if we look at the charts carefully, even though it is giving bullish signals, the correction gaps have widen up than before. In other words, the time to recovery is increasing as we move up. It indicates that confidence level is now as good as it was in the lower levels.



Then the only reason we have been goin up is the liquidity factor. The long term investors must utilize this opportunity to book profits and wait for a good correction to come. With high current account deficit, rising interest rate regime and high inflation, there has been some serious fine tuning required in the Indian economy before it can resume its meaningful upward journey.

Short term traders must go into the market with strict stop-losses. The logic is not to afraid to book losses quickly.

Technically, we are into bullish zone till the time market crosses 6170-6200. Also RSI which is in mid-50 range can go upto 70-80 levels where we would see an over bought region. In this range, we anticipate another fall to come into the markets.

Options traders can sell Nifty 6300-6400 Calls for January at every rise. In the downward trend, one may sell Nifty 5800-5900 Puts.

Wishing you a great trading time ahead!!!