Stock Views on JSW Steel, HCL Tech, Tata Steel, HCC, Great Offshore

Tata Steel

Buy Target Rs 1083

Emkay Global Financial Services Ltd has recommended by rating on Tata Steel, with price target of Rs 1083, in its report dated 4th August, 2008.Tata Steel reported standalone 1QFY09 results, which are significantly ahead of our estimates. Net sales stood at Rs 61.65 billion (yoy up 46.9%, qoq up 7.5%), EBITDA stood at Rs 30.25 billion (yoy up 78%, qoq up 25.9%) and adjusted PAT stood at Rs 16.56 billion (yoy up 71.1%, qoq up 27.3%). The company reported Fx loss of Rs 3.03 billion. During the quarter, production volume declined by 6.4% on sequential basis to 1.19mt. The reduction in volumes was primarily on account of shutdown for 1.8mtpa expansion. Tata Steel expects 1.8mtpa expansion project to be ramped up by the end of 2QFY09. In 1QFY09, the company commenced “H” blast furnace having capacity of 2.5mtpa. For FY09, Tata Steel expects incremental hot metal production of 1mtpa. At CMP of Rs 681, the stock is trading at 6.3x FY09E FDEPS of Rs 108.3 and at 5.4x FY09E EV/EBITDA. We maintain BUY on the stock with target price of Rs 1,083.

HCL Tech

Accumulate Target Rs 297

Emkay Global Financial Services Ltd has recommended to accumulate HCL Technologies, with price target of Rs 297, in its report dated 4th August, 2008.We have revised our estimates and now build in (1) lower revenue growth (we expect FY09E US$ revenues growth at 19.4% now V/s 22.5% earlier, albeit see significantly lower/ negligible risk to these estimates), (2) lower employee addition (though compensated by an increase in utilization levels) and (3) exchange rate assumption set at Rs 42/$ and Rs 41/$ for FY09 and FY10 (in line with other peers). We now expect HCLT to report earnings of Rs 22.1 and Rs 24.8 for FY09 and FY10 respectively (highlight that sees low risk to these earnings estimates). With valuations looking extremely compelling at

JSW Steel

Buy Target Rs 1380

Emkay Global Financial Services Ltd has recommended buy rating on JSW Steel, with price target of Rs 1380, in its report dated 4th August, 2008. JSW Steel reported 1QFY09 results, which are significantly ahead of our estimates. Net sales stood at Rs 44.56 billion (yoy up 85.9%, qoq down 9.3%), EBITDA stood at Rs 8.15 billion. However, this includes forex loss of Rs 3.67 billion of which Rs 2.29 billion is on capital account translational loss. Adjusting for the notional Fx loss (including the impact on deferred tax on the same) EBITDA stood at Rs 10.4 billion (yoy up 46.5%, qoq down 1.5%) and APAT stood at Rs 4 billion (yoy up 35.7%, qoq up 30.1%). JSW reported Adjusted FDEPS of Rs 20. We believe a large part of this performance is attributable to the exports where we believe the realization is significantly higher as compared to the domestic markets. At CMP of Rs 797, the stock is trading at 8.6x FY09 and 5.7x our FY10 FDEPS estimate of Rs 93 and Rs 138 respectively. On EV/EBITDA, the stock currently trades at 5.7x and 4.3x FY09 and FY10 estimates. We maintain BUY on the stock with target price of Rs 1,380 which is 10x our FY10E consolidated FDEPS.

HCC

Buy Target Rs 125

Emkay Global Financial Services Ltd has recommended buy rating on Hindustan Construction Company, with price target of Rs 125, in its report dated 28th July, 2008. We continue to maintain our positive view on the company, as we believe that the company has one of the best quality orders, which should help it withstand the tough times ahead. The company’s real estate business is also shaping up well with two key projects of Lavasa and Vikhroli IT park expected to start generating revenues in the near term. The stock is currently trading at 13.1x FY09E EPS of Rs 4.3 and 8.5x FY10E EPS of Rs 6.8 (adjusting for value of non-contracting businesses). We value the construction business at Rs 87 per share base on 12.8x FY10E EPS. We assign our bear case valuation to the non-contracting businesses with real estate being valued at Rs 36 per share and the alone annuity BOT project valued at Rs 2 per share. We thus arrive at our target price of Rs 125 per share, which represents an upside of 30% from the current market price. We maintain our ‘BUY’ rating.

Great Offshore

Buy target of Rs 710

Emkay Global Financial Services has maintained its buy rating on Great Offshore with a target price of Rs 710 in its August 4, 2008 research report. "Great Offshore’s (GOFF) Q1FY2009 pre-exceptional net profit at Rs 356 million is below our expectation primarily because of lower revenue continuation from high margin offshore segment and higher than expected repairs & maintenance cost for the quarter.""We are not changing our earnings estimates for GOFF. The company has announced that it has called of its intention to acquire majority stake in Seadragon Offshore. Hence is absence of any near term upside from acquisition we are downgrading price target of GOFF to Rs 710. We have valued GOFF at 8X its FY2010 earnings of Rs 66 and added FY2010 estimated cash per share of Rs 180 on its book. Stock currently trades attractive valuations of 6.3X its FY2010 earnings and 3.74 X EV/EBIDTA. Maintain BUY," says Emkay Global Financial Services' research report.

Research by Emkay Global