IIFL View on Apollo Tyre, Britannia, Rel Comm, Bombay Rayon

Apollo Tyre - Buy Target price of Rs 43

IIFL has downgraded Apollo Tyre from buy to add, as the stock’s recent rally has reduced the upside. However, target price remains unchanged at Rs 43, September 11, 2008, "Apollo Tyre’s (ATL) brownfield and greenfield expansion projects, which would increase its capacity by ~20%, would enable it to maintain its above-industry-average volume growth. Replacement demand for CV tyres, ATL’s key segment, continues to be strong (it rose 10.6% YoY in 1QFY09). We expect a sharp decline in the company’s EBIDTA margin to 6.4% in 2QFY09ii on account of high rubber prices from 10.2% in 1QFY09. We expect margins to expand to more than 10% in 4QFY09, as a decline in crude-oil prices causes raw-material prices to ease. We cut our EPS estimate for FY09 by 5% to factor in high rubber prices and retain estimates for FY10. We downgrade our rating from BUY to ADD, as the stock’s recent rally has reduced the upside. Our target price remains unchanged at Rs 43,"says IIFL research report

Britannia - Buy Target price of Rs 1765

IIFL has recommeded buy rating on Britannia with a target price of Rs 1765, September 11, 2008 report. "Britannia is the market leader in the Rs 80 billion biscuits market in India, with brands such as Tiger, Good Day and 50:50. The stock has underperformed the BSE FMCG Index by 15.4% over the last 12 months despite a sharp turnaround in its operating performance. Uncertainty on the ongoing legal tussle between the two largest shareholders has been one of the key overhangs on the stock. Other concerns have been rising raw-material prices and Britannia’s constrained pricing power in view of intensifying competition. However, with indications of an early resolution of the majority shareholders’ dispute and improving outlook on operating conditions, we believe the key concerns should start abating."

"We expect the operating turnaround at Britannia to gather pace and forecast earnings CAGR of 25% over FY08-11ii. BUY with a one-year target price of Rs 1765, based on 14x FY10ii earnings. We value the stock at a 25% discount to its three-year average multiple to factor in the ongoing promoter dispute," according to IIFL research report.

Rel Comm - Buy Target of Rs 529

IIFL has downgraded Reliance Communication's FY09 earnings by 21%; recommended to add the stock with target price of Rs 529."Reliance Communications’s (RCOM) Broadband business came out with the highest asset-turnover ratio as well as profitability amongst all its businesses in FY08, while the Global division dragged down aggregate measures. RCOM’s strategy of leaving forex loans unhedged proved 340bps more expensive than its investment yield, amplified by the massive size of the investments (US$3bn). On the same basis, RCOM may make an FX loss of more than Rs4bn in 2QFY09. Per-tower procurement cost is 13% higher than Bharti’s, despite lower visibility of multiple occupancy. We downgrade RCOM’s FY09 earnings by 21% (for FX and expectation of weakness in wireless results) and the rating to ADD, with a DCF target price of Rs 529," according to IIFL research report.

Bombay Rayon - Buy Target of Rs 474

IIFL is bullish on Bombay Rayon Fashions and has recommeded buy rating on the stock with target price of Rs 474. "Bombay Rayon Fashions (BRFL) is one of India’s largest integrated garment manufacturers, catering primarily to mid-premium brand retailers in Europe. The company is well positioned to take advantage of strong demand and price increases offered by this client segment, unlike its competitors in other countries such as Turkey and China, which face rising costs and appreciating currencies. The company has an aggressive capacity expansion plan, on which we base our projection of 50% and 60% CAGR in revenue and PAT over the next three years. We value the stock at a PE of 10.3x on one-year-forward earnings, in line with its peers’ multiples. This gives a one-year target price of Rs 474. Buy for 39% upside," according to IIFL research report.