BHEL, Titan Industries, Jaiprakash Associates & Alembic
BHEL
Reco Price: Rs 2,155,
Target Price: Rs 2,700
Bharat Heavy Electricals (BHEL) has reported impressive margins in 3Q-FY11, despite rising competition. This is primarily on account of various cost reduction initiatives. With increasing upward pressure on commodity prices and nearly 50 per cent of contracts with price variation clauses, analysts believe the current level of premium margins will be unsustainable. However, with a normal increase in staff cost and higher execution, operating leverage is likely to neutralise the pressure on margins. BHEL currently has an order backlog of Rs 1,58,000 crore, providing strong revenue visibility. Order intake for 2011-12 also looks robust with the NTPC order (9x800 MW) and orders from the various JVs expected to come during 1Q-Q3-FY12. BHEL has been able to maintain its market share despite competition, and with strong pipeline of power sector orders, analysts expect growth momentum to continue. Capacity expansion, stability in margins and positive macro outlook lends comfort for BHEL’s performance. Maintain buy.
—Reliance Securities
Titan Industries
Reco Price: Rs 3,465,
Target Price: Rs 3,876
Titan Q3-FY11 adjusted net profit at Rs 137 crore was higher than expectation of Rs 118 crore. Revenue growth at 46.6 per cent y-o-y to Rs 1,950 crore, had healthy contribution from jewellery, watches and eyewear segment. Titan gained from operating leverage and robust growth, resulting in 190 bps expansion in Ebidta margins to 10.0 per cent. Jewellery continues to glitter (up 49.7 per cent), watches continue to tick (up 34.9 per cent) and eyewear saw pick-up in sales (up 37.3 per cent y-o-y). Jewellery business continues to drive earnings upgrade. Since, Titan adopted a cost-plus percentage model in jewellery pricing; sensitivity to gold price is higher with significant impact on profitability. Emkay has revised earnings by 10 per cent and over 2 per cent for 2010-11 and 2011-12, respectively. Maintain accumulate.
—Emkay Global Financial Services
Jaiprakash Associates
Reco Price: Rs 87,
Target Price: Rs 142
In Q3-FY11, Jaiprakash Associates (JPA) reported revenue of Rs 2,900 crore (up 1 per cent) and net profit of Rs 230 crore (down 26 per cent), below analysts estimates. Performances at the cement and E&C divisions were also below expectations, but the real estate division’s performance was a positive surprise. E&C revenues of Rs 1,270 crore were down 23 per cent, which is surprising given that 2QFY11 was impacted by heavy monsoons. Motilal Oswal expects JPA to post net profit of Rs 720 crore in 2010-11 (a downgrade of 15 per cent) and Rs 1,230 crore in 2011-12 (a downgrade of 11 per cent). Maintain buy.
—Motilal Oswal
Alembic
Reco Price: Rs 69,
Target Price: Rs 92
Alembic reported strong 21.6 per cent y-o-y growth in revenues at Rs 365 crore in Q3-FY11. The domestic formulation business grew by a strong 20 per cent during the quarter. Exports were subdued during the quarter at Rs 116 crore, up a mere 3.3 per cent impacted by the API segment. Alembic reported operating margin of 15.9 per cent, on account of the higher contribution from the high-margin domestic formulations business. Net profit stood at Rs 30.8 crore, driven by the better-than-expected revenue growth for the quarter. The company expects to list Alembic Pharma by March 2011. Angel Broking has valued Alembic Pharma at Rs 62 a share, Alembic’s 30 per cent stake in Alembic Pharma fetches Rs15 a share and the loss-making API business fetches Rs 4 a share. The land asset of 70 acres has been valued at Rs500 a sq ft resulting in Rs11 a share. Thus, revised target price to Rs 92 (versus Rs 74 earlier) and upgrade to buy.
—Angel Broking
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