Buy Madhucon Projects

Latest Quotes | Charts | News/Announcements | Quarterly Results | P&L | Price History Madhucon Projects (MPL) has a good mix of assets, which yield consistent returns and cash flows and which we believe will facilitate it to continue investing in the high-growth businesses of real estate, power and coal going ahead. We prefer MPL on account of the following: 1) Cooling commodity prices, which we believe would benefit MPL as it has orders with fixed price contracts; 2) Despite the recent run up in the stock, there exists a substantial valuation arbitrage between MPL and its peers; 3) MPL is one of the biggest beneficiaries of the improving liquidity scenario as it has an attractive portfolio of offerings; and 4) Certain catalyst/triggers (power and coal business) are still not priced in. We have assigned a PE of 8x FY2011E EPS of Rs 25.7 for its core construction business, 1x FY2011E P/BV for its BOT business at a value of Rs 270 cr (Rs73/share). On the real estate front, we have valued the land, at Rs 18.9 cr (Rs 5.1/share). At Rs 227, the stock is trading at attractive valuations, 6.7x and 5.0x on FY2010E and FY2011E Earnings respectively, after adjusting for BOT projects, power and real estate. Therefore, we recommend a Buy on the stock with a SOTP Target price of Rs 305.

Technical Analysis - Madhucon Projects

Madhucon Projects (Rs 72): This stock tested the support at Rs 42 twice, in November 2008 and again in March 2009. A short-term rally is currently in progress since March 12.

However this stock is extremely volatile and the nature of the decline from the January 6 peak, as the stock moved lower from one circuit to another, implies that risk-averse investors ought to steer clear of this stock since it becomes difficult to sell such stocks once they begin declining. Short-term targets for the stock are Rs 83 and Rs 104. Investors should switch out from this stock in such rallies. Decline below Rs 40 will take the stock to Rs 18.