Sharekhan views on Tata Tea, Sun Pharmaceutical, Crompton Greaves

Sharekhan on Tata Tea - Target of Rs 853

Sharekhan has maintained its buy rating on Tata Tea with a price target of Rs 853 in its research report.

"In line with the strategy, Tata Tea, together with European Bank of Reconstruction and Development (EBRD), has decided to acquire a 51% stake in Grand, a leading player in the Russian economic beverage segment. Tata Tea (through one of its overseas subsidiaries) and EBRD will hold a 33.2% and a 17.8% stake respectively in the company. The balance 49% stake will remain with the founding promoter of the company (Dr Alexander E Borisov)."
"With tea volumes growing moderately in the domestic and international markets, we expect Tata Tea’s new initiatives, such as the launch of green and herbal tea, the foray into non-carbonated beverage segment and the entry into new geographies, to drive growth at the consolidated level going forward. However, in the near term, the company’s profitability would remain under pressure, as the prices of its key raw materials (especially raw tea) shall remain firm. At the current market price, the stock trades at 8.7x its FY2010 earnings estimate and EV/EBIDTA of 3.2x. We maintain our Buy recommendation on the stock with a price target of Rs 853," says Sharekhan's research report.

Sharekhan on Sun Pharmaceutical - Target of Rs 1295

Sharekhan has maintained its buy rating on Sun Pharmaceutical Industries with a price target of Rs 1,295 in its research report.

"Sun’s domestic business has clearly outpaced the industry by registering a +17% growth in M9FY2009 vs a 12-14% industry growth in the same period. With a strong field force, a robust pipeline of new launches, strong product portfolio and a firm foothold in the domestic market, Sun expects its domestic formulation business to continue to outpace the industry growth of 10-12%. At the current market price, Sun Pharmaceutical Industries is valued at 12.6x FY2009E and 14.1x FY2010E fully diluted earnings. Uncertainty on the Taro acquisition and Caraco’s warning letter would remain as an overhang on the stock and cap the near-term upside. We maintain our Buy recommendation on the stock with a price target of Rs 1,295," says Sharekhan's research report.

Sharekhan on Crompton Greaves - Target of Rs 157

Sharekhan has maintained its buy rating on Crompton Greaves with a price target of Rs 157 in its research report.

"Crompton Greaves Ltd (CGL) has emerged as a strong power T&D product and service provider in the past few years, thanks to the acquisitions made globally. The stake purchase in APIL will squeeze the company’s plan to make any further acquisitions in the near term. Further, the diversification into the power business may be remunerative only in the longer term as any meaningful returns may flow in only after three to four years. This will suppress the company’s RoE in the near term, thereby exerting pressure on the stock’s valuations.
We remain positive about CGL’s business and operational efficiencies as CGL has performed consistently on these parameters. We have revised our price target for the stock to Rs 157 (9xFY2010E earnings) mainly to capture the lower returns expected after the investment in APIL. We are maintaining our Buy recommendation on the stock as its current valuation of 6.1x FY2010E earnings per share (EPS) is attractive. However, the stock may underperform in the near term as the proposed investment in a group company is sentimentally negative for the stock," says Sharekhan's research report.