Thursday, March 31, 2011

Analysts' corner Bse Nse Stock

Divi's Labs, KEC International, Hotel Leela Venture & RPG Life Sciences

Reco price: Rs 650,
Target price: Rs 833

Divi’s Labs is scouting for acquisitions in the bio-similar space and has accumulated Rs 500 crore cash for inorganic growth. Growth momentum is likely to accelerate 20 per cent CAGR in custom synthesis and generics business over FY11-13E. The company is confident of clocking over 100 per cent sales CAGR in nutraceuticals over FY11-13E. Overall, management has a clear visibility of Rs 600 crore of additional sales over the next 2 years. Analysts believe carotenoids will be the next growth driver for the company. With increased visibility on growth on the back of increase in outsourcing from customers in US & Europe, commissioning of Vizag facility in the first quarter of FY12, Emkay has upgraded the stock to buy.

— Emkay Global Financial Services Ltd

Reco price: Rs 78,
Target price: Rs 95

KEC International management remains confident of achieving order intake targets despite intensifying domestic competition. Aided by international orders, first nine months saw intake at Rs 5,020 crore, up 31 per cent y-o-y. The recent momentum in inflows would translate into revenue growth acceleration in FY12. New businesses such as railways, water and BoP would add to growth but would eat into margin gains from SAE Towers. Increased interest cost coupled with stable margins means FY12 profit growth would lag revenue growth. Order inflow and execution to remain stable. Around 14 per cent is the sustainable Ebitda margin for SAE Towers, helped by higher proportion of tower supplies and less construction. However, consolidated Ebitda margin for KEC would be 10 per cent, as new businesses such as cables, railways, power BoP and water (irrigation and water treatment) are yielding lower margins as the company builds qualifications in these businesses. Hardening of borrowings rates to hurt profitability.


Reco price: Rs 37,
Target price: Rs 39

Despite the revival in Indian hospitality industry, analysts believe Hotel Leela’s balance sheet would continue to be stressed, mainly due high cost of its upcoming hotel in New Delhi. Its main revenue earning properties are in Mumbai and Bangalore and the increased room supply in these metros means ARR growth would be capped despite rising occupancy levels. Delays over commissioning its hotels in Delhi and Chennai would make matters worse. Hotel Leela’s debt-burdened balance sheet will be a concern. The company will continue to have a high debt/equity ratio of 1.6x in FY12 only showing a marginal drop to 1.5x in FY13.

— Centrum Broking

Current price: Rs 77,
Fair value: Rs 120

Crisil Equities has assigned fundamental grade of 3/5 to RPG Life Sciences Ltd (RPGLS), indicating ‘good’ fundamentals. RPGLS has accelerated its growth by launching 30 new products during the first nine months of FY11 in its focus therapies. RPGLS’s efforts to obtain the USFDA approval is expected to bear fruits by FY13.

— Crisil Equities  

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Wednesday, March 30, 2011

Analysts' corner Bse Nse Stock

Gujarat Gas & Indraprastha Gas Ltd

Gujarat Gas
Reco price: Rs 377
Target price: NA

Gujarat Gas (GGas) has guided to 8-10 per cent growth in volumes for CY11. However, it runs the risk of degrowth in its direct firing (DF) segment, if gas prices remain higher or inch up further. The DF segment constitutes 21 per cent of GGas’ sales volumes. The company is likely to focus on increasing volumes in the high-value customer segment of DF (with customers willing to pay higher prices). The company is currently focused on continuing penetration into untapped markets in Gujarat. Accordingly, it has bid to operate in the Bhavnagar district. The company plans to revise prices more frequently as against quarterly revision. Management expects sustainable margins of 18-20 per cent.

—Edelweiss Securities

Indraprastha Gas Ltd
Reco price: Rs 299
Target price: Rs 357

Indraprastha Gas Ltd (IGL) has a CNG compression capacity of 3.52mn kg per day and fuels more than 400,000 vehicles daily. In the PNG segment, IGL provides natural gas to over 210,000 domestic and 300 commercial customers. It also supplies re-gasified liquefied natural gas (R-LNG) to 58 industrial consumers. IGL has increased the number of CNG stations from 181 in FY09 to 241 stations by the end of FY10 and it plans to further strengthen its CNG stations count to 281 by the end of FY11. Analysts expect total PNG sales to grow from Rs 143 crore in FY10 to Rs 363 crore in FY13 (at a CAGR of 36 per cent). Initiate coverage with a “Buy”.

—Asit C Mehta Investment

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Tuesday, March 29, 2011

Analysts' Corner Bse Nse Stock

Voltas & Marico

Reco Price: Rs 155,
Target Price: Rs 250

Voltas and KION Group GmbH to set-up a JV—Voltas Materials Handling (VMH) for the development, manufacture, marketing, and servicing of forklift trucks and warehousing equipment. KION is a €3.5 billion revenue company, the second-largest player in industrial trucks globally and a leader in Europe, China, Eastern Europe, and South America. Voltas’s material handling operations to be integrated into the new JV. In FY10, Voltas recorded sales of Rs 124 crore from sales of forklift trucks and spares (sold 1,175 forklift trucks worth Rs 100 crore), equivalent to 2.6 per cent of FY10 consolidated revenues. Voltas will be used by VMH to focus on the Indian market with a product range that includes diesel/LPG and electric trucks with load capacities of 1.5 to 16 tonnes. Analysts give thumbs-up to the above JV. However, they await clarity from the management on Voltas’ share and further investments in the JV. Maintain buy.

— Emkay Research

Reco price: Rs 131,
Target price: Rs 158

Analysts believe that Marico’s sale of its non-core edible-oil brand, Sweekar, to Cargill (for an undisclosed amount) would release resources for working capital and manpower for other brands, and improve profitability. Sweekar was a less-focused-on edible oil brand of Marico and brought in revenues of around Rs 200 crore (7 per cent of FY11 revenues). Its Ebitda margin came in the low single digits. In 3QFY11, Cargill acquired Rath from Agro Tech Foods at a price-to-sales ratio of 0.3x. Sweekar sells across the country, and commands a better brand recall and has more variants than Rath. Hence, Sweekar would have been sold within a price-to-sales range of 0.5x and 0.6x, implying a value of Rs110 crore to Rs130 crore. Higher raw material prices and keener competition are key risks. Maintain buy.

— Anand Rathi

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Friday, March 25, 2011

Analysts' corner Bse Nse Stock

Bharat Forge, Godrej Industries, Shree Renuka Sugars & Redington

Reco Price: Rs 333,
Target Price: Rs 404

With European M&HCV segment growing at 20–25 per cent, Bharat Forge's management expects the exports to grow at 25 per cent in FY12. On the other hand, the management expects the domestic CV growth to slow down to 10–12 per cent in FY12. New non–auto facility likely to operate at 65–70 per cent in FY12 utilization level versus 50 per cent as of now. This augurs well for the profitability of the company as non–auto margins are likely to be higher by 400 basis points over the auto segment margins. With utilization of overseas subsidiaries improving to 55 per cent, analysts expect these subsidiaries to turn net profit positive in FY12. Analysts have factored in net profit of Rs 20 crore from the overseas subsidiaries in FY12 compared to no contribution in FY11. Operating leverage, coupled with higher utilization at the new non–auto facility, will lead to EBITDA margins in excess of 25 per cent on a standalone basis by FY12. Maintain accumulate.

— Prabhudas Lilladhar

Reco Price: Rs 167,
Target Price: NA

ICRA Online has assigned the Fundamental Grade ‘4+’to Godrej Industries Limited (GIL) indicating “strong fundamentals”. Key positives of the company are significant value inherent to its investment portfolio, risk mitigation through presence in diverse business segments, Lease income & dividend income protect cash flows from the cyclicality associated with the chemicals business. Also, successful integration of recently acquired companies could result in significant synergy benefits for Godrej Consumer Products. Robust growth envisaged for Godrej properties aided by its low capital-intensive model and strong brand image is a trigger. There are strong growth potential in the oil palm plantation and agri-inputs segments of Godrej Agrovet.

— ICRA Equity Research Service

Reco Price: Rs 72,
Target Price: Rs 100

Shree Renuka Sugars (SRSL) expects domestic prices to improve slightly on exports of 2 mnt and as crushing season is about to end. SRSL expects improvement in domestic profitability on stable sugarcane cost/realisation, significant improvement in distillery profitability on higher volume/realisation and stable co-generation profitability. Unlike FY10, refinery would earn normalised EBITDA margins of $40-50/t vs $100/t in FY10 as raw-white spreads remain subdued. Global sugar prices are expected to remain firm due to very low inventory levels. SRSL expects to crush 12mnt of cane in Brazil in the ensuing season and maintains EBITDA guidance of $25 per tonne of cane based on its hedged sugar prices. Analysts expect strong cash flows from Brazilian companies. Post recent correction, SRSL is available at an attractive valuation. Upgrade to buy from hold.

— JM Financial

Current price: Rs 74,
Fair value: Rs 100

Redington's exposure to troubled nations in MEA (Libya, Egypt, Bahrain) is less than 2–3 per cent of total sales; also, the management indicated that Egypt is showing signs of normalisation. Overall, however, Redington derives 30 per cent of its revenues from the Middle East (majority UAE, followed by Saudi Arabia) and hence may be vulnerable should the protests spread. Reports also suggest that the Japanese earthquake has forced a shutdown of key facilities, hitting the production of silicon wafers and components used in the manufacture of PCBs and displays. While the near-term fallout could be limited as residual inventory in the supply chain is utilised, any prolonged shutdown of Japanese manufacturing facilities could disrupt supplies at the OEM hardware level, thereby affecting the distributors. If the Japanese capacities remain offline for any significant period of time (>2–3 weeks), there could be an impact on shipments of PCs, displays and other consumer electronics. Maintain buy.

— Religare Institutional Research


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Thursday, March 24, 2011

Analysts' corner Bse Nse Stock

Analysts' corner
Ranbaxy, Adani Power, Lanco Infratech & Madhucon Projects

Reco Price: Rs 437,
Target Price: Rs 480

Mylan has sued the US FDA for inaction and failure to disclose the status on 180-day marketing exclusivity relevant to Ranbaxy’s ANDA on generic Lipitor. While it would be difficult to comment on US FDA action but any denial of 180-days exclusivity (a rare possibility) to Ranbaxy for generic Lipitor would shave-off Rs36/share from Pinc research's target price (Rs480/share) and provide huge negative sentiment for the stock. However, analysts continue to believe that Ranbaxy would be able to monetize generic Lipitor exclusivity through Ohm labs (as seen in case of generic Aricept). Further, analysts are cognizant of the competitive scenario in generic Lipitor (Watson-AG) during the exclusivity period and have factored in only Rs36/share. Maintain hold.

— Pinc Research

Adani Power
Reco Price: Rs 108,
Target Price: Rs 125

Adani Power’s pre PPA merchant sales could be to a lesser quantum (3-6 months) and capacity ramp-up could be slower than earlier. Also, coal prices would be higher than expected. However, analysts believe the company is building a solid business model that can deliver 20-25 per cent RoE over next five years. Citigroup has revised earnings downwards by 7-38 per cent over FY11E-14E to factor in delay of two months across all future power plants; imposition of MAT, which is NPV negative but EPS neutral; Mahanadi Coalfields coal price hike by Rs90-100/ton; and higher auxiliary consumption in initial years. Target price is also revised to Rs125 (from Rs130 earlier). Adani Power can weather Coal India shortages in FY12E using Bunyu coal. Maintain buy.

— Citigroup

Lanco Infratech
Reco Price: Rs 36,
Target Price: Rs 43

Lanco Infratech (Lanco) has commercially added close to 1045MWs in FY11, thereby, increasing the operating capacity by 101 per cent YoY. The company also synchronised 600MWs of Udupi–2 recently. However, commercial operation is expected to start in Q2FY12 on account of delay in transmission line set up. For other plants, Kondapalli continues to face gas supply issues from KG D6 and GAIL. The COD of Budhil Hydro (70MWs) has been delayed by six months and now expected to start in Q2FY12. Maintain accumulate.

—Prabhudas Lilladher

Madhucon Projects
Reco Price: Rs 91,
Target Price: Rs 171

Madhucon Projects (MPL) has bagged an annuity project worth Rs1,500 crore from National Highway Authority of India for four-laning of Ranchi-Rargaon-Jamshedpur section of NH-33, Jharkhand. The project is awarded under the National Highway Development Programme-III on DBFOT basis, with semi-annual annuity of Rs 133.2 crore. The concession period is 15 years, including a construction period of 30 months. This is the same order in which MPL was disqualified and later the Delhi High Court had intervened. With this order, MPL’s outstanding order book stands at Rs 5,600 crore (3.3 times FY11E revenue), thus enhancing revenue visibility. This is positive for MPL, as the company will be able to book EPC revenue in the coming quarters (FY2013 onwards), thus boosting its overall revenue. Maintain buy.

—Angel Broking       

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Thursday, March 17, 2011

Analysts' corner Bse Nse Stock

Tata Motors, Ultratech Cement, Rallis India & Godrej Consumer

Reco Price: Rs 1,137,
Target Price: Rs 1,500

Jaguar Land Rover’s (JLR) February scorecard of 21,653 units (up26 per cent YoY and 6 per cent MoM) was ahead of analysts estimates. With YTD volumes of 217000 units, the company is firmly on track to achieve its full-year guidance of 240000 units. While analytsts expected lower sales in February (a lean month for the UK market), the management has seen no significant change in geographic mix, implying a build up of inventory at the dealers’ end in anticipation of higher offtake in March. JLR’s good run was led by Land Rover which recorded its highest volumes in FY11. Jaguar volumes came in at 3,213 units (down 2 per cent YoY but up 5 per cent MoM), while Land Rover notched up 18,440 units (up 33 per cent YoY and 6.5 per cent MoM). Other luxury car majors—Audi and BMW—continued to perform well across geographies. Maintain buy.

— Religare Institutional Research

Reco Price: Rs 1,028,
Target Price: Rs 1,177

The cement industry is suffering from over-supply and substantial rise in costs. Cement demand is expected to pick up in the current quarter and continue until the onset of monsoons, giving price flexibility to manufacturers. Ultratech Cement (UTCEM) has the most balanced geographical spread of cement capacities with major demand centers, North, West and South, each accounting for 25 per cent of total capacity. Analysts expect UTCEM to achieve volume of 42 million mt in FY12. Developmental projects in AP, which were stalled, should receive a boost considering easing political tensions in the state, which has been the trouble spot for the cement industry. Maintain buy.

— Pinc Research

Reco Price: Rs 1,247,
Target Price: Rs 1,472

Rallis India (RALI) is an attractive play on the growing agriculture inputs market. Analysts expect a 17 per cent revenue CAGR over FY10-13E versus an expected industry growth of 7-8 per cent during the same period, driven by a market share expansion from the current share of 13 per cent in a Rs 6500 crore domestic agrochemicals market and a presence of strong macro drivers in the domestic agrochemicals industry. A strong product portfolio and launch pipeline, CRAMS initiatives planned by the company and incremental exports from the Dahej SEZ facility would also make a significant contribution to revenue growth. Margin is at a historical peak, but sustainable at 19-20 per cent. Analysts expect revenue contribution from high margin exports to increase to 35-40 per cent by FY12 from 21 per cent in FY10. Maintain buy.

— Reliance Securities

Reco price: Rs 356,
Target price: Rs 465

After a rally of over 50 per cent in the past six months, Palm oil prices have corrected 10 per cent from their peak, due to expectations of a strong soybean harvest in Latin America. Godrej Consumer (GCPL)’s own purchasing costs for palm oil have come off 3-5 per cent from peak prices. If the price correction continues, IIFL's FY12 margin estimates for GCPL could witness an upside. Revenue growth is on a strong footing in both the domestic and international business. GCPL is witnessing an improvement in volume growth in soaps and hair colours, while price hikes add to revenue growth. Home insecticides is likely to see a moderation in growth rates going ahead at 18-20 per cent, as GCPL continues to gain share in a category with a revenue growth of over 15 per cent. International business growth will be led by Indonesia and Latin America, while Africa and UK would also likely see a gradual recovery in growth rates.GCPL has almost completed the process of merging the two domestic businesses, and cost synergies could also provide margin gains in FY12. Valuations at 18.4x FY12 EPS are attractive.

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Tuesday, March 15, 2011

Analysts' corner Bse Nse Stock

 Reliance Industries, Infosys Technologies, Nestle India & Coromandel International

Reliance Industries
Reco Price: Rs 994,
Target Price: Rs 1,070

The Directorate General of Hydrocarbons (DGH) has said Reliance Industries (RIL) may raise gas output from KG-D6 to 67 mscmd after four additional development wells are completed in April 2011. While DGH’s assertion indicates it is technically feasible to ramp up gas production with additional wells, RIL had stopped development drilling after completing 18 wells, as it tried to ascertain how to contain fall in production. Analysts await clarity from RIL before upgrading production and earnings estimates. However, after considering the higher production and associated lower operating costs at KG-D6, IIFL’s 2011-12 EPS would be upgraded by 4 per cent to Rs 75. Analysts believe that there is strong support to RIL’s 2011-12 EPS from the strength in its refining and polyester businesses. Maintain add.


Infosys Technologies
Reco Price: Rs 3,054,
Target Price: Rs 3,664

Over the past seven quarters, Infosys posted revenue CQGR of 5.1 per cent against TCS’ 5.9 per cent. The underperformance widened over the past three quarters, with Infosys posting revenue CQGR of 6.9 per cent, against TCS’ 8.3 per cent. Since July 2010, Infosys stock rose just 10 per cent compared to 50 per cent appreciation for TCS. However, Infosys outperformed TCS in three of the four key verticals (BFSI, Manufacturing and Retail) over the past three quarters and the past seven quarters. The underperformance is largely driven by weak performance in Telecom and energy and utilities (E&U). Analysts believe regulatory clarifications in Telecom may lead to pent up demand of which Infosys could be a key beneficiary and sustenance in discretionary spends can further bridge the gap in the recent overall underperformance. Analysts forecast 2011-12 topline growth of 22 per cent for Infosys, against 26 per cent for TCS. The 6.6 per cent valuation discount for Infosys (versus TCS) is unjustified, given greater earnings growth trajectory over 2011-13 for Infosys and better cash generation due to best-in-class working capital management. Maintain buy .

—Motilal Oswal     

Nestlé India
Reco Price: Rs 3,935,
Target Price: NA

Nestlé India (Nestlé) management believes growth in India is on track and the company can sell more, but for capacity constraints. Nestlé has chalked out Rs 1,800-crore investment plan over the next two-three years and also on the anvil is the second R&D centre. Four new products are planned under the coffee segment in winter 2011 and new products in popular foods category are also planned. Nestlé is also planning to introduce a new manufacturing technology to increase yield of coffee berry. It will introduce a range of value-added products and command high pricing power. Analyts are enthused by Nestlé’s plan for higher capex. Edelweiss believes Nestlé is the best play on packaged foods from a longer-term perspective. Although coffee prices have spiked recently, Nestlé has demonstrated high pricing power, which will continue. Maintain hold.

Edelweiss Securites

Coromandel International
Current price: Rs 287,
Target price: Rs 342
The Department of Fertilisers (DoF), under the Ministry of Chemicals and Fertilisers, announced nutrient-based subsidy for complex fertilisers for 2011-12. Subsidies are revised upward on the back of higher international prices for raw materials/ fertilisers. The government has emphasised that the fertiliser prices at farmgate should remain at current levels and there should be no significant increase in 2011-12. With efficient raw material sourcing ability, ongoing capacity expansion and rising proportion of non-subsidy business, Coromandel International is better positioned to capture the structural growth in Indian fertiliser space. Pinc Research has revised its earning estimates upward for 2011-12 by 40.8 per cent. Upgrade to buy.

—Pinc Research        

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Friday, March 11, 2011

Analysts' corner Bse Nse Stock

Tata Steel, Usha Martin, L&T & Hindustan Zinc

Tata Steel
Reco Price: Rs 613,
Target Price: Rs 778

Tata Steel has signed an agreement with New Millennium Capital Corp. (NML) to develop the LabMag and KeMag iron ore deposits (together known as The Taconite project) in Canada with reserves of 5.6 billion tonnes (at 30 per cent Fe) and a total reserve and resources of 9.1 billion tonne. Tata Steel has indicated a long-term target of 50 per cent iron ore integration for Tata Steel . This implies a requirement of 10 million tonne per annum from Taconite project, against its capacity of 22 million tonne per annum. This means that Tata Steel will require minimum of 45 per cent stake in the project. It is good strategy to secure iron ore (Canada) and coking coal (Mozambique) supplies for Tata Steel Europe. However, the benefits would flow in only in the second half of 2012-13.Maintain buy.

—Edelweiss Research

Usha Martin
Reco Price: Rs 50,
Target Price: Rs 82

The company has resumed operation of the 30-Mw CPP (90 per cent PLF) affected by blade failure in the third quarter. Further, transportation of captive coal from Kathuria mine has been resumed to normal level of 40kt per month. The company is confident of increasing DRI and billet output for the fourth quarter to 70kt (52kt in the third quarter) and 150kt (113kt in the third quarter), respectively. Besides, it has more than 2.0 million tonnes of iron ore fines inventory, which would be used in captive sinter and pellet plant. Moreover, the company has procured enough coking coal at $225 per tonne to meet requirement for the fourth quarter, as well as built 0.1 million tonne inventory to be used in the first quarter of 2011-12. On revised estimates, the stock is attractively valued at 3.3 times 2011-12E EV/Ebitda. Maintain buy.

—Pinc Research

Reco Price: Rs 1,662,
Target Price: Rs 2,210

The brokerage recently visited L&T’s Hazira facilities — spread over 750 acres by the waterfront — which houses the heavy engineering division, fabrication facilities (oil & gas related), ship-building yard and the recently commissioned BTG facilities. L&T’s 4,000-Mw BTG facilities (L&T-MHI JV) was set up in record time of under 24 months. While these facilities could be stretched to execute up to 5,000 Mw capacity, the management has taken a conscious decision to not scale up to 6,000 Mw in the medium term. Focus remains on reducing costs and timely delivery. At recommended price, L&T offers good risk reward, with earnings backed downside protection in place. At Rs 1,662, the stock trades at PE of 22.0 times 2010-11E and 18.4 times 2011-12E earnings. Maintain buy.


Hindustan Zinc
Current price: Rs 134,
Target price: Rs 154

The brokerage has raised the Hindustan Zinc’s (HZL) 2010-11E-12E earnings estimates by 4-10 per cent. Its 2011-12E-13E earnings is 6 per cent more than the street’s, which it believes have further upside in the form of zinc, lead and silver volumes. Also, the brokerage’s recent site visit reaffirmed faith in HZL. Rampura Agucha, HZL’s premier mine, is not showing any signs of operational cost escalation. The speedy execution reflects Vedanta Aluminium’s (VAL) zeal — mine and smelter capacity is ramping up ahead of schedule. The brokerage has revised the target price to Rs 154 (due to the rollover targeted EV/E of 5.5 times to 2012-13 from 2011-12). Maintain buy.

—ICICI Securities

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Thursday, March 10, 2011

Analysts' corner Bse Nse Stock

Tata Power, Grasim Industries, Mphasis & United Phosphorus

Reco Price: Rs 1219,
Target Price: Rs 1,407

Tata Power (TPC), is on verge of enhancing its capacity to 8.6GW by FY13E. Further, TPC has 4.5GW under development and 4.9GW under planning stages. It has the most visible commissioning plan on ground. TPC’s operation in transmission, distribution and trading business are growing with steady pace. Coal business is expected to provide upside in soaring coal price regime. Brokerages expect TPC to report 15 per cent revenue and 12 per cent earnings CAGR over FY10-FY14E. Early commissioning of Mundra UMPP and MPL along with globally soaring coal prices would be triggers for the stock. Delays in FSA for Maithon unit II, partial exposure of Mundra UMPP to spot coal prices and poor weather condition in Indonesia are key risks. At CMP, the stock is trading at 1.8x FY12E and 1.6x FY13E book value; 12.6x FY12E and 12.0x FY13E EPS. Maintain buy.

— IDBI Capital

Reco Price: Rs 2,307,
Target Price: Rs 2,500

Grasim Industries has increased the price of viscose staple fibre (VSF) by Rs6 per kg from the beginning of March 2011. This is the second price hike implemented by the company during the ongoing quarter so far and the realisation of the company now stands at a historic high of Rs135 per kg. Strong demand for VSF products in both the domestic and the global markets is the key trigger for this hike. The demand for VSF is supported by the high price of competing fibres like cotton. Earnings for FY2012 could be upgraded by 3-4 per cent. On a consolidated basis, the move will lead to a nearly 2 per cent upgradation of the FY2012 earnings estimates. The present debt-equity ratio stands at 0.38 which ensures a strong balance sheet and comfortable debt raising to fund the capital expenditure. Maintain hold.

— Sharekhan

Reco Price: Rs 465,
Target Price: Rs 450

Mphasis management indicated that HP channel revenues would remain sluggish at 0-2 per cent sequential growth going forward, though, any further rate cut to HP unlikely. Mphasis' focus is to grow non-HP channel revenues and expects 3-5 per cent QoQ growth. Its EBIT margin is likely to be in the range of 16-19 per cent for FY11. It is also looking to utilising the cash for an acquisition/buyback of shares. With lower than expected growth, analysts have further cut FY11-12E EPS by 2-7 per cent and have reduced the target price to Rs 450.The company is unlikely to achieve its FY10 EPS even in FY13E. Analysts believe the company’s growth profile (both revenues and profitability) would lag peers by a wide margin and investor confidence is unlikely to be re-gained in the near term. Maintain hold.

— ICICI Securities

Current price: Rs 136,
Fair value: Rs 180

United Phosphorus (UPL) has acquired a 50 per cent stake in Sipcam-Isagro (SIB), a Brazilian agrochemical company. This gives UPL a foothold into one of the largest agrochemical markets in the world. Analysts believe this acquisition should be easier to integrate than Cerexagri, as the management plans to do little by way of restructuring currently. The acquisition is well-timed, as the company should benefit from a turnaround in the Latin American markets. IIFL has upgraded earnings estimates by 3-5 per cent over FY12-13 to factor in the contribution from this acquisition. UPL’s management plans to gain from leveraging SIB’s distribution network to sell its own products in the market, which should contribute to some modest revenue synergies over the next 2- 3 years. UPL has corrected by 23 per cent during the last quarter to 9.4x PE, which discounts little or no recovery in any of the global agrochemical markets as well as continued margin pressure. Maintain buy.


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Wednesday, March 9, 2011

Analysts' corner Bse Nse Stock

Coal India, Cipla, Anant Raj Industries & Heidelberg Cement

Coal India
Reco Price: Rs 333,
Target Price: Rs 395

Coal India (CIL)’s coal price hike announced in end-Feb 2011 should impact 32 per cent of its total volumes (excluding e-auction and washed coal). Analysts now expect an overall yoy realisation increase of 20 per cent in FY12 (versus 10 per cent earlier). The timing and the quantum of the hike have surpassed market expectations. The new structure implies 14 per cent hike (constant volumes) in overall realizations – while analysts incorporate 20 per cent assuming higher e-auction/washed coal prices (on global trends). While relaxed pollution norms/project approvals are likely, benefits should come only by FY13 – with a lag effect for subsequent approvals. Besides production, evacuation of coal is an issue. Production volumes are expected to be 431mt in FY11 (flat yoy) and 447mt in FY12 (up 4 per cent yoy). Citigroup has raised FY12 net profit estimate by 20 per cent to incorporate higher prices and higher wage expenses. It has also hiked target price to Rs 395 from Rs 350.


Reco Price: Rs 306,
Target Price: Rs 342

Cipla’s FY11 performance was adversely affected by a stronger rupee, lower licensing revenues and high set-up costs in the new Indore facility. The low base, combined with the ramp-up at Indore, sets the stage for a pick-up in growth in FY12— IIFL expects a 20 per cent-plus earnings growth in FY12 and FY13. The business is expected to bottom out in the current quarter and IIFL has reduced its EPS estimate for FY11 by 5 per cent, but has maintained its estimate for FY12 while raising that for FY13 by 7 per cent. There could be further potential upsides from the possible Pfizer deal and combination-inhaler launches in Europe. Analysts expect the pressure of adverse rupee movement and a high licensing revenue base to ease in FY12. Management projects the Indore facility will account for 10 per cent of FY12 revenues, which results in a 25 per cent increase if added to the international formulations business.The low pace of growth in the domestic business remains a key concern. Upgrade the stock to Add.


Anant Raj Industries
Reco Price: Rs 73,
Target Price: Rs 130

Anant Raj Industries (ARCP), which historically focused on commercial leases, has now moved towards residential projects which will help it grow earnings by 35 per cent CAGR during FY11-13. Analysts are positive on the company as rental revenue is estimated to increase by 60 per cent YoY in FY11 to Rs 80 crore and Rs120 crore in FY12 on operation of Kirtinagar mall by April’11 and Tricolour Hotel on NH8. Further, it has started to earn residential revenue and expects to launch over 3 msf in FY12. It expects to complete 2.85msf of IT space by FY13. Delay in leasing Manesar IT park, Kirtinagar mall,and Rai IT park may dent profitability. Initiate coverage with Buy.

—Pinc Research

Heidelberg Cement
Current price: Rs 34,
Target price: Rs 44
Heidelberg Cement India (HCIL) has cement capacity of 3.07 mn TPA. With the improvement in the pricing scenario as well as cost reduction, operating profit/tonne for HCIL is expected to improve by 43.5 per cent. Major markets for HCIL saw price rises since the beginning of CY11. This increase in prices has been due to curtailed production and pricing discipline followed by cement manufacturers. Analysts believe cement prices across all regions will increase further due to demand improvement as the January-to-May period remains a busy season for various construction activities. With the recovery in cement prices as well as the reduction in energy cost, operating profit per tonne is expected to improve by 43.5 per cent from Rs 364 to Rs 525. Maintain Buy.

—Reliance Securities     

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Tuesday, March 8, 2011

Analysts' corner Bse Nse Stock

Sterlite Industries, Areva T&D & GVK Power and Infrastructure
SI Team / Mumbai March 08, 2011, 0:33 IST

Reco Price: Rs 168,
Target Price: Rs 206

Sterlite Industries India (SIL) has completed acquisition of the zinc and lead businesses of Anglo American (Anglo) for a total consideration of $1.5 billion (excluding cash in Anglo). Analysts believe the acquisition will contribute 14 per cent to consolidated Ebitda in 2011-12 and will be earnings accretive. Though Sterlite Energy (SEL) has received coal linkage for its entire 2,400-Mw power plant at Jharsuguda, analysts expect availability of only 50 per cent linkage coal as Coal India faces production issues. Moreover, this coal from MCL will now be available at a higher cost. The balance will be procured through a mix of e-auction and imports. Edelweiss has revised down SEL’s Ebitda 43 per cent from earlier estimate. In the light of higher availability of copper concentrate, its Ebitda for the copper business is upgraded by 5 per cent for 2011-12 and contribution from silver in 2011-12 by 90 per cent. Maintain buy.

— Edelweiss Securities

Reco Price: Rs 267,
Target Price: Rs 236

Areva T&D (Areva) reported good numbers in the fourth quarter of 2010 calendar year. Revenue for the quarter grew 14.4 per cent YoY to Rs 1,330 crore. Growth was primarily driven by strong volume growth as pricing was significantly lower for orders taken in 2009 and 2010 calendard years. The management indicated a priced erosion of about 20-30 per cent for orders taken in 2009 and 2010. Management says revenue for the quarter was marginally hit by delayed clearance from customers. Order intake for the quarter declined 8.7 per cent YoY to Rs 1,300 crore. This led to only 2 per cent growth YoY in order book to Rs 4,880 crore at the end of 2010. While pricing remains a concern, further price erosion has halted. The company is hopeful that pricing will improve with higher ordering activity in the second half of 2011, while competition from Chinese and Korean manufacturers remains intense. Ebitda margin for the fourth quarter of 2010 improved 140 basis points to 13.4 per cent YoY due to higher operating efficiency and operating leverage benefit. Interest expense grew 26.2 per cent YoY to Rs 22 crore, driven by higher working capital requirement and a rise in interest rates. Net profit stood at Rs 88 crore, up 52 per cent YoY. Maintain sell.

— Reliance Securities


Reco Price: Rs 26,
Target Price: Rs 45
According to media reports, GVK has bought a 13.5 per cent stake in Mumbai Airport from Bidvest for $280 million. This would value Mumbai Airport at $2.07 billion compared to the implied value of $2.3 billion used in Citigroup’s current GVK SOTP valuation. This is positive for GVK because it acquires a controlling stake — with its total stake going up to 50.5 per cent, and it has been acquired at a 9 per cent discount to Citigroup’s value for Mumbai Airport. Analysts believe the acquisition will be debt-funded. The transaction is be subject to regulatory approvals. Citigroup has valued the operational assets at Rs 39 and the assets under development at Rs 6.

— Citigroup

Current price: Rs 31,
Fair value: Rs 39

Crisil Equities has assigned a fundamental grade of 2/5 to Chaman Lal Setia Exports Ltd (Chaman Lal), indicating ‘moderate’ fundamentals. Chaman Lal holds a reputable position in the fast-growing basmati rice industry. The company’s strong R&D focus has helped differentiate itself by developing innovative products like diabetic and pesticide-free basmati rice. Crisil Equities expects the company’s revenues to grow at a two-year CAGR of 5 per cent to Rs 200 crore in 2011-12. EPS is expected to be Rs 9.5 in 2010-11 and Rs 12.9 in 2011-12.

— Crisil Equities 

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Friday, March 4, 2011

Today's picks Bse Nse Stock

 Nifty, IDFC, JP Associates

Current price: 5,536, (March futures 5,554)
Target price: NA

The Nifty has hit serious resistance in the 5,525-5,600 zone and it could be due for a pullback till the 5,350-5,400 level, if bulls decide to lighten up. A bearish view can be traded with a bearspread of long March 5,400p (76) laid off with a short March 5,300p (55). This costs 21 and breaks even if the Nifty hits 5,379, with a maximum return of 79. A bull should probably take a long Nifty future with a stop loss at 5,500.

Current price: Rs 148,
Target price: Rs 143

The stock is reacting after a recent high and it could fall further until its hits support at 143-144 and it may drop to 138 if it falls below 143. Keep a stop at 151 and go short. Increase the position between 145 and 146 and reset the stop to 148. Book profits below 144 or hold for a three-session target of 138 with a stop-loss of 146.

JP Associates
Current price: Rs 86
Target price: Rs 90

The stock is rebounding from recent lows on good volumes. While the long term is negative, it may have the momentum to test 90-91 today. Keep a stop at 84 and go long. Increase the position between 88 and 89 and reset the stop to 87. Start booking profits above 90.        

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Analyst Corner Bse Nse Stocks

Sesa Goa, Monnet Ispat & Energy Ltd, TVS Motors, HT Media

Sesa Goa
Reco Price: Rs 262, Target Price: Rs 326

As part of the Budget 2011-12, export duty on iron ore is proposed to be raised to a uniform 20 per cent from existing 5 per cent on fines and 15 per cent on lumps. Analysts estimate 2011-12 Ebitda impact of Rs 870 crore (16 per cent) and EPS impact of 11 per cent for Sesa Goa. Export duty rise further compounds problems for Sesa Goa, already reeling under concerns of a decline in volume growth and uncertainty on open offer for 20 per cent in Cairn India. Brokerages expect additional export duty to contract Sesa’s 2011-12 operating margin by 906bps to 49 per cent. Rise in export duty on iron ore and removal of 15 per cent duty on pellet is a move to incentivise investments in setting up more pelletisation capacity in India to domestically consume majority of iron ore fines. Over a period of time, this would reduce iron ore exports from India, which could provide strength to international iron ore prices. The current market price adequately factors in these concerns. Maintain buy.

—Pinc Research

Monnet Ispat & Energy Ltd
Reco Price: Rs 550, Target Price: Rs 593

Crisil Equities has assigned fundamental grade of 4/5 to Monnet Ispat & Energy Ltd (MIEL), indicating ‘superior’ fundamentals. MIEL is forward integrating into value-added products — plates and bar/structures — which will make it an integrated steel company. This will enable MIEL to gain from the expected rise in global demand for steel. The company has been allocated coal, coking coal and iron ore blocks, which will reduce its dependence on market purchases. MIEL has also forayed into power generation through Monnet Power Company Ltd, an 87.5 per cent arm, which is expected to operationalise a 1,050-Mw power plant by 2013-14. The power plant is expected to meet its raw material requirement entirely through captive coal blocks located in close proximity. Crisil Equities expects its standalone revenues to grow at a two-year CAGR of 29 per cent to Rs 2470 crore in 2011-12.

CRISIL Equities

TVS Motors
Reco Price: Rs 57, Target Price: Rs 46

TVS Motors’ February 2011 volumes marked good growth, both YoY and MoM, impressive, particularly after a disappointing January. Three-wheelers, scooters are the fastest-growing segments. For the month, TVS Motors reported volume growth of 24.3 per cent YoY (and 7.4 per cent MoM) to 177,412 units. The key volume drivers were three-wheelers (up 97.6 per cent YoY and 22.9 per cent MoM) and scooters (up 49.3 per cent YoY and down 1 per cent MoM). The motorcycles segment was once again the slowest-growing segment for TVS, with volume growth of 12.7 per cent YoY (and 5.5 per cent MoM). Exports rose 25.6 per cent YoY and 23.3 per cent MoM to 24,036 units. Maintain sell.

—Anand Rathi

HT Media
Current price: Rs 133, Fair value: Rs 175

HT Media has guided for healthy ad growth of 15 per cent in English and over 25 pre cent in Hindi segments. Pricing would drive the growth for HT Delhi and incremental volume growth, coupled with price improvement, would support ad growth for HT Mumbai. Turnaround of Mumbai edition and Mint breakeven in 2011-12 would support the higher margins. Also it is participating in Phase-III auction of radio frequencies. It is expecting to reduce the huge yield gap, compared to the market leader. It would be looking for 8-10 stations in the areas where it has print operations. However, the management has also indicated it would not go ahead if the auction prices go over the roof. Focus remains on the improving yields and volumes for the Mumbai edition. Reducing pricing gap with the closest competitors across the markets. Ebitda margins to see significant improvement after 2011-12, due to incremental losses from internet business to reduce gradually. Maintain buy.

—Emkay Global  

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