Stock Views on DLF, Suzlon Energy, Sesa Goa, GAIL

DEUTSCHE Global Markets view on DLF - Ratings Hold

DEUTSCHE Global Markets Research has downgraded its ratings on DLF to “hold” because of weakening demand, falling property prices and tight financial markets. The firm has reduced its revenue forecasts for the company for the next two years to 19% and 25% owing to delay in execution of the projects, lower product prices across verticals, and deterioration in product mix in favour of low-margin mid-end housing. Increase in construction costs and other expenses (staff, SG&A) due to new launches, says Deutsche Global, has lead to significant margin compression. Hence the firm has cut profit estimates of the company by approximately 24% and (approx.) 29% for the next two years. Deutsche has reduced the NAV (net asset value) per share from Rs 700 to Rs 532.

MERRILL Lynch on SUZLON ENERGY - Rating Buy

MERRILL Lynch has maintained its “buy” rating on Suzlon saying the company remains on track for material scale-up in operations across the wind turbine value chain. Suzlon, says the Merrill note, has pre-poned its purchase of Martifer’s 22.48% stake in REpower for a pre-determined price of 270 million pound sterling. “This acquisition shall consolidate Suzlon’s holding in REpower to (approx.) 90%, enough to press for a domination agreement, which is key for integrating REpower and derive synergy benefits from a unified product and market strategy,” the note said. Merrill has valued Suzlon’s wind business at 18.5 times estimated 1-year-forward earnings, at Rs 296 per share. “This is conservative given it is 20% and 25% discount to its current PER (price to earning) and peers respectively. Suzlon’s 71.3% stake in Hansen is valued at Rs 76 per share at 10% discount to the price objective of 330 pence,” the note added.

CITI Investment on SESA GOA - Rating Sell

CITI Investment Research has initiated coverage on Sesa Goa with a “sell” recommendation saying that most positive triggers for the stock are already priced in. The future iron ore price hikes, says Citi, are expected to be substantially lower relative to FY09 and risks of government intervention to contain inflation remain as downside risks for the stock. At the price target of Rs 145, the note says, Sesa Goa would trade at 3.8 times 12-month forward PE (price-to-earning). “The PE multiple is at a discount to global majors (forward PE of around 7-9 times), justified given their relative size, diversified product mix and higher market cap,” the Citi note said. Sesa Goa, says Citi, has significant growth plans and is part of an industry with strong pricing power.

ICICI Securities on GAIL - Rating Buy

ICICI Securities has maintained its “buy” rating on the stock saying the company will benefit from gas grid expansion and improved visibility on gas supply. Post-commencement of NGG (national gas grid) operations, says ICICI Securities, GAIL’s returns may settle below its recent average as the future growth will likely be skewed toward annuity earnings from transmission. “Assuming the absence of growth in the existing business beyond FY11E, GAIL’s RoCE (return on capital employed) is likely to be 16.4% in FY16E versus 14.8% in FY09E,” the note said. ICICI Securities expects GAIL’s EBITDA CAGR (compound annual growth rate) at 12.3% and net income CAGR at 8.6% over FY08-11E, driven by gas transmission business, expected to grow at 16% revenue CAGR through FY08-11E (estimated).