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Gammon India
The steep spike in crude oil prices has hit the sentiment of the stock markets like a thunderbolt. The -Feb 27, 2011
crude shock has triggered jitters in the markets of further increase in inflation and thus the interest
rates. A huge oil import bill is expected to hit India’s external balance sheet and fiscal health. These Other Picks
concerns has caused wild swings in the benchmark indices which were showing signs of recovery
before getting a second blow from the middle east. In the month of February we saw Sensex swing- BUY :
ing from as high as 18700 to as low as 17300 which is a 1400 point difference. To sum it up, the
tough times are here to stay for now. SAIL
Gammon India is the largest and one of the oldest civil engineering and construction company in CMP—`152
India. It constructed the foundations of Gateway of India in 1919. It is the only Indian Construction
Company to have be awarded ISO 9001 certification for all fields of Civil Engineering work. It is Target—`165
involved in some high potential R&D projects including nuclear plant structures, tunnel structures,
industrial structures and innovating techniques of building complex structures. Some of the past Stop Loss—`145
clients for the company are Delhi Metro Rail Corporation, GAIL India, Godrej properties, Govern-
ment and municipal corporations of various states, NHAI, NHPC, Satluj Jal Vidyut Nigam etc. They
are currently handling many prestigious projects ranging from roadways to pipelines to tunnels etc Subex
in India and many more across the globe. However they had three projects under execution in Libya
which is under extreme political unrest and thus the projects face a question mark in terms of com- CMP—`51.55
pletion. About three months back they acquired 84% stake in Metropolitan Infrahousing making it a Target—`61
subsidiary of Gammon India. This news caused the scrip to move up by 15% in 4 sessions to `185
but has been on a deep downtrend and has lost 50% in 5 months. This correction was due to its rich Stop Loss—`49
valuations against its peers and also the companies profitability ratios are lower than the industry.
However taking a contrarian approach we find that at current levels, P/B stands at 0.81 whereas
price to sales is a low 0.35 even though there are quite a few projects in execution and the company Sell :
is winning more contracts. Three years’ earnings growth is at 41% CAGR which is very healthy.
Reliance Power
The enterprise value per share is `224 therefore the market may now find it a value proposition at
current levels and ignore the lackluster performance in latest quarter which was mainly marred by CMP—`110.50
high interest payments. We may see a reversal from downtrend and a short term rally in this scrip.
Target—`99