Hindustan Unilever (HUL) - Recovering lost ground

Intense competition in the soaps and detergents categories did not deter Hindustan Unilever (HUL) from delivering 8.2 per cent growth in the top line for the March 2010 quarter — the highest increase in the last five quarters. Notably, most of its businesses did well, clocking 15-23 per cent growth. This was led by product innovations and new launches, helping gain market share in many segments.

On the flip side, adjusted for higher exceptional income of Rs 221 crore, net profits were down 7.9 per cent year-on-year at Rs 422 crore. While HULis making efforts to gain market share, it is unlikely to come easily.

Competitive pressures

The soaps and detergent business was under stress. Thanks to the pricing war with P&G, sales in this segment declined two per cent year-on-year, while profit margins fell 375 basis points. Positively, detergent volumes improved, with in delivering double-digit growth. While volume growth is expected to remain healthy, pricing pressures are likely to persist for some time, keeping overall margins under check.

Others chip in

In the personal care segment, skin care as well as hair care saw gains in market share. New product launches, like Vaseline Menz range, introduction of shampoo variants and stable volumes in oral care saw personal care sales increase 19 per cent in the quarter.

The foods business grew 22.7 per cent year-on-year with Kissan and Annapurna posting good growth. New launches like Knorr Soupy Noodles also boosted growth. Beverages, too, saw HUL launch Brooke Bond Sehatmand in the mass tea segment.

Overall, foods and beverages reported improved profitability (up by 40 per cent) in the March quarter, helped by better cost management.

HUL's volumes jumped 11 per cent in the March quarter (helped by a weak base in the March 2009 quarter, when volumes declined four per cent year-on-year). The top line growth, however, was muted due to pricing pressure in the laundry segment, where prices were lower by an average 2.5-3 per cent.

Outlook

Aggressive promotional spends (up 39 per cent in the March quarter) across all brands and pricing action should augment HUL's volumes and help expand market share. However, it would also bring pressure on the Ebitda margins, which were down about 100 basis points in the March quarter. Overall, HUL could post an average 10-12 per cent revenue growth annually over the next two years, aided by improved performance in the personal care and foods divisions and volume gains in the laundry business. HUL would be looking at rural markets closely and intends to treble its rural reach in the next two years.

ITC

ONE OF the last few FMCG companies to announce its March quarter results, ITC did not disappoint its investors. The company offered the twin benefits of a strong financial performance along with a hefty dividend to its investors. Net sales growth of 28% for the fourth quarter exceeded market expectations while the 27% rise in net profit was just a tad lower than average estimates. Consequently, the company's stock closed 3.4% higher on Friday following the announcements.

   The earnings for the quarter were slightly impacted due to the significant rise in raw material cost. The input cost as a proportion of net sales rose by close to 600 bps year on year. At 32%, the operating profit margin therefore took a marginal hit of 85 bps y-o-y.

   Its dominant business of cigarettes, contributing over 44% to its total revenues and nearly 85% to its operating profit, has grown at a healthy rate of 18.5% in revenues and 16% in operating earnings. Differential taxation on cigarettes across states and increased regulation have posed challenges to the growth of this division.

   Its non-cigarette FMCG business has logged a robust growth of 34% in revenues. Despite being a late entrant in this business, ITC has been able to steadily garner market share across most of its segments such as biscuits, atta, confectionery, salt, soaps and shampoos. While this loss making division is yet to turn profitable, it has been able to reduce its losses quarter after quarter.

   ITC's hotels business has shown a smart recovery in the fourth quarter against the earlier three quarters of FY10. With the economic conditions improving and travel and tourism picking up, the segment posted a sales growth of 16% and modest earnings growth of 10% y-o-y.

   ITC continues to aggressively invest in the segment. The agri business, despite logging the highest sales growth of 88%, witnessed a modest jump of 10% in earnings. The paper board division, which had registered a stellar performance in the preceding December quarter, posted a muted growth of 12.5% in revenues and 11% in earnings during the March quarter.

   With yet another good quarterly show, ITC continues its trajectory of growth quarter after quarter. Its strategy to reduce dependence on its core cigarette business is steadily gaining ground. For investors, considering the consistent growth in performance, steady capital appreciation, limited downside risk and good dividend yield this FMCG stock is a safe investment bet.

   However, there could be likely headwinds that the company may face, going forward. Poor or deficient monsoon for the second consecutive year can impact the performance of an agro-based company like ITC. Rising food inflation also can hurt consumer sentiment with its attendant impact on demand for mass-market FMCG products as well as premium hospitality. Besides the competition in the FMCG segment is intensifying. This may tell on the prospects of the company's consumer products business in the near term.

Stock views on MAHINDRA & MAHINDRA, IRB INFRASTRUCTURE, AXIS BANK

GOLDMAN SACHS on AXIS BANK

Goldman Sachs downgrades Axis Bank to `Neutral' from `Buy', as recent share performance has priced in steps taken by management and an economic recovery. The stock is currently trading at 16x FY11E P/E and 2.7x FY11E P/B, a 14% premium when compared to the P/B median from FY04. While asset quality concerns are receding in general, concerns around some riskier and mid-sized exposures is likely to keep the stock range bound; Axis Bank has seen about 18% slippage from its restructured loan book. Goldman Sachs revises the EPS estimates by +3%/+2%/-1% for FY11E/FY12E/FY13E to factor in no further increase in CRR versus expectation of 50 bps and higher treasury gains partially offset by higher employee costs. Consequently, the 12-month target increases from Rs1,280 to Rs 1,320.

HSBC on IRB INFRASTRUCTURE

Given the government's renewed focus on building highways, HSBC estimates India's road sector will generate Rs 3 trillion worth of business over the next seven-ten years and HSBC estimates IRB will capture a 6.5% share ($2.6bn) of this highly fragmented market during this period. Market leader IRB offers a focussed play on India's road sector at a time when highway construction is a priority for the government. HSBC estimates it will record FY10-12 earnings CAGR of about 47%, driven by four contracts that the company has won in the last six months. IRB plans to complete the Rs 6,500 crore of project capex during the next 30 months, which sustains the revenue visibility in its construction segment. HSBC expects construction revenue CAGR of 90% during FY10-12, rising from Rs 1,000 crore to Rs 3,500 crore, with the share of construction revenue increasing from 58% in FY10 to 77% by FY12.

MACQUARIE on MAHINDRA & MAHINDRA

Macquarie initiates coverage on Mahindra & Mahindra (M&M) with an Outperform' rating and a target price of Rs 740. It rates M&M as a top pick in the Indian auto space. With leadership in the utility vehicle and tractor segments and a robust estimated 13% CAGR in earnings over the next three years, at 9.3x core auto FY12E PE, Macquarie thinks M&M remains one of the most attractively valued stocks in its coverage universe. It forecasts M&M's earnings to grow at a CAGR of 13% over the next three years despite a minor decline in margins. The stock trades at about 28% discount to its peers on core auto business valuations. Macquarie ascribes a PE multiple of 14x, in line with sector average, to core auto earnings, valuing it at Rs 583 per share and value listed subsidiaries at a 20% discount to current market cap, in-line with our valuation methodology for other auto names.

GE Shipping

 

GE SHIPPING reported an improved performance in the March 10 quarter, thanks to a tight check on its operating cost, boosting its consolidated operating profit margin to 41.2% year-on-year (y-o-y). The company reduced key costs like repair & maintenance for its fleet and rigs, coupled with the costs related to hiring chartered ships.

   However, the much-anticipated revival of the global shipping industry in the fourth quarter does appear to have not materialised, with GE Shipping's consolidated income from operations falling 1% on a y-o-y basis to Rs 766.7 crore in the quarter.

   Senior company management highlighted that while demand from emerging markets for hiring tankers (to transport crude oil) was strong, that was not the case in the West, which still accounts for an overwhelming proportion of global oil demand. As a result, it is estimated that tanker vessels like crude carriers earned on average about $29,320 per day in the fourth quarter, a fall of nearly 9.6% y-o-y. However, on a sequential basis, average freight earnings for these crude carriers have shown a sharp improvement.

   In the smaller segment of the shipping industry, like dry bulk, the Baltic Dry Index averaged 3018 in the March 10 quarter, a jump of 93.6% y-o-y, thanks to strong demand conditions from the Chinese metal industry for transport of key inputs. Nevertheless, segment revenue of the company's shipping division declined 12.8% on a y-o-y basis to Rs 612.1 crore in the fourth quarter, but segment profit improved 7.8% helped by tight check on costs.

   The results were declared on Saturday and on Monday the stock gained 3.7% to Rs 285.35. Also, this stock has gained nearly 6.7% over the past one week as compared to a 6.9% drop in the broader Sensex, on expectations that a revival in the global economy will help the shipping industry.

   In its offshore division, a pick-up in oil exploration activity in the sub-continent and neighbouring region helped segment profit of this division rise by 201% y-o-y in the fourth quarter to Rs 69.1 crore. The company's core net profit (excluding sale of ships and other non-core items) also rose 1,028% y-oy to Rs 211.5 crore in the fourth quarter, helped by a low base effect in the previous year.

   Its offshore subsidiary, Greatship, is planning an IPO and recently filed its draft red herring prospectus with Sebi. GE Shipping trades at 8.5 times on a consolidated basis on a trailing four quarter basis and we are neutral on this stock, given the uncertainty in the global economy, especially in Europe.

 

Nagarjuna Agrichem

Expected normal monsoon, attractive valuations and an expansion drive make Nagarjuna Agrichem an attractive bet

 

INVESTORS willing to bet on a normal Indian monsoon should take a look at Nagarjuna Agrichem. While the scrip appears attractively priced at present, its future earnings growth appears sustainable, thanks to its major expansion drive.

BUSINESS:

Hyderbad-based NACL was established in 1994 for producing monocrotophos and has progressed to manufacture various technical as well as formulation agrochemicals. The company has a technical plant at Srikakulam with a capacity of 8,800 TPA and has formulation plants at Ethakota and Shadnagar with combined capacity of 32,000 TPA.

   Nearly 70% of the company's sales come from insecticides, 17% from fungicides and 13% from herbicides at present. In FY10, nearly two-thirds of NACL's revenues came from domestic sales and the rest from exports. Half of its domestic revenues came from southern India and from paddy-specific products. The company has total diversified portfolio of 54 pesticide brands with 26 insecticides, 15 fungicides, 11 herbicides and two plant growth regulators. It has extensive distribution infrastructure through 33 warehouses, 9,250 dealers in 370 sales territories.

   Besides, the company also has toll manufacturing arrangements with various global MNCs for agrochemicals as well as fine chemicals.

GROWTH DRIVERS:

The company, which was traditionally focused on rice, is zeroing in on expanding its product offering. It had launched nine products in FY10 and has recently launched seven new products further strengthening its product portfolio. It also plans to expand its retail business geographically by increasing the number of registrations in other countries.

   NACL is planning a capex of Rs 350 crore to set up technicals plant in Vizag SEZ and an R& D centre in Hyderabad. The new plant that will involve capex of Rs 250 crore will have capacity of 8,000 tonne in phase I. While Rs 25 crore will go for the R&D centre and Rs 75 crore will be invested to debottleneck its existing plants. The SEZ plant is expected to come up in FY12.

FINANCIALS:

In the five year period ended March 2010, the company has grown its net sales at a cumulative annualised growth rate (CAGR) of 17.6%, while the profits grew at 19.5%. In fact, the profit figure was stagnant till FY08, which more than doubled in the past two years.

   The company has maintained operating profit margins above 15% for the past five years, which averaged 18.8% in the past two years.

The company has healthy operating cash flow. Its debt-equity ratio has risen to 0.5 from around 0.3 in the past three years. The company is planning to raise funds through equity and debt for its expansion projects and expects to achieve the financial closure by end of June 2010.

VALUATIONS:

At the current market price of Rs 300, the stock trades at a price-to-earnings multiple (P/E) of 7.5 and 2.2 times its FY09 book value. Its peers Rallis India, Insecticides India, Sabero Organics and Excel Cropcare are trading in a P/E range of 6.1 and 17.9 and a P/BV range of 1.6 to 4.6.

 

Concor

Investors can consider Concor to avail of the long-term opportunities in the container rail freight segment

 

   THE 63.1% government owned Container Corporation of India (Concor) is the largest player in the domestic container rail freight segment, with a market share of 80-82%. Also, with the current upturn in the domestic economy over the past several quarters, coupled with a pickup in the country's external sector, Concor is well positioned to take advantage of the growth opportunities over the medium term.

   We had recommended this stock in our issue dated December 7, 2009 and since then the stock has gained barely 4.5%. And given the company's dominant position in the container rail freight segment, the stock is trading at a higher level versus the past few years -it currently trades at about 3.85 times its book value for the year ended March 2009, as compared to a range of 1.5 to 2.5 times between March 2005 and March 2009.

INFRASTRUCTURE NETWORK:

At the end of March 2009, the company's network included 8,117 wagons (on ownership basis), a rise of 36.9% from two years earlier. In addition, it also had a pan India network with 49 inland container depots (ICDs) and nine domestic container terminals spread across the country.

   These depots and terminals act as regional hubs for collecting and then dispatching export-import cargo either to ports (in case of exports) or to their final destination in case of imports.

   The company has strong cash flows - for instance, it had invested Rs 653.3 crore during the March '07 to March '09 period, while its operational cash flow during this period was a healthy Rs 2,253.8 crore. Private sector operators entered this segment of the logistics business in April '07 and as per various estimates, there are 15 private players that are in the ramp-up stage and as yet do not pose a serious challenge to Concor.

FINANCIALS:

Concor's operating profit margin declined 330 basis points y-o-y to 23.2 % in the March '10 quarter, at a time when its income from operations grew 13.1% y-o-y to Rs 950.5 crore. The company's operating margins were under pressure in the quarter under review due to its inability to fully pass on higher rail charges, which were raised in January '10, to its customers. In addition, Concor also offered rebates in both its Exim and domestic segment in the fourth quarter, for its key customers and that also hurt margins.

   Meanwhile, in Concor's key Exim segment, the volume of goods transported amounted to 4.9 lakh TEUs (twenty foot equivalent) in the fourth quarter, a rise of 19.6% y-o-y, given the 33.5% y-o-y jump in the country's exports in dollar terms during the quarter, while imports rose 55.3 %. The growth in volume of goods transported in the Exim segment by Concor in the fourth quarter was considerably better than that of the first three quarters of FY10, given signs of a pick-up in the country's external trade.

 
   In its domestic segment, too, Concor was also able to take advantage of the current upturn in the economy, with volume of goods transported amounting to 1.52 lakh TEUs in the fourth quarter, a rise of nearly 15.8% y-o-y. Concor's total volume of goods transported (Exim and domestic) grew nearly 4.9% y-o-y to 24.2 lakh TEUs in FY10.

   No doubt, Concor is the largest player in the domestic logistics segment, but private players have grown quicker even when the domestic and global economies were adversely affected by the sub-prime crisis. For instance, during the period March '08 to March '10, Concor's net sales grew at a CAGR of 5.2% to Rs 3702.3 crore, and net profit rose 1.7 % during this period. In contrast, a multi-modal logistics player, Allcargo Global Logistics, grew its consolidated net sales by 13% between December '07 and '09 on a CAGR basis, while net profit grew 30.3%.

VALUATIONS:

Container Corporation currently trades at 21.5 times on a trailing four-quarter basis, while other logistics players like Allcargo Global trade at 14.2 times on a consolidated basis.

   Gateway Distriparks also trades at 15.8 times. Investors could consider Concor in a bid to exploit long-term opportunities in the logistics segment.

 

Suzlon Energy

 

 

Suzlon Energy's stock has significantly underperformed the indices in the last one year, as well as the recent past. After the announcement of a poor March quarter result on Saturday, its stock fell by about nine per cent.

The company reported a significant decline in revenues, along with a loss of Rs 983 crore in 2009-10 (Rs 188 crore for the March quarter). More important, in terms of volumes, the company could manage sales of 1,460 Mw in 2009-10 due to delays and postponing of projects, which significantly lowered its earlier guidance of 1,900-2,100 Mw.

Low visibility

Suzlon's woes seem far from over. Among key concerns is the decline in its order book (pending orders) to 1,126 Mw in May 2010, compared to 1,463 Mw at the end of 2008-09. Out of the current order book, about 900 Mw of orders are to be delivered in the current year. Should the flow of new orders remain weak (a good probability), it would mean lower revenue visibility for the company. To sustain its order book, Suzlon needs 50 per cent order inflow growth in 2010-11, according to Inderjeetsingh Bhatia, an analyst at Macquarie Research. However, with demand from its key markets – the US and Europe (which account for 32 per cent of revenue) – expected to remain poor, the flow of new orders is unlikely to be strong.

Profitability pressure

Lower order intake will make it difficult for the company to come out of the red in the current year, considering it will continue to incur high interest expenses. For 2009-10, Suzlon reported a consolidated earnings before interest, taxes, depreciation and amortisation (Ebitda) of Rs 943 crore, which was not enough to cover its interest expenses of Rs 1,195 crore.

For 2010-11, too, its interest expenses are likely to remain at elevated levels even after considering the proposed Rs 1,300crore rights issue that will help lower the company's debt from Rs 10,608 crore in 2009-10. Further, on the back of increasing competition along with the under utilisation of its capacities, margins are expected to remain under pressure. The company's consolidated operating margins dropped to 4.6 per cent in 2009-10 from 10.8 per cent last year.

Outlook

While concerns over high debt and a weak demand outlook persist, expectations of subdued earnings in the current year have led analysts to cut their share price estimates for Suzlon to about Rs 45-55.

Although investors could do better in the long run, considering that analysts expect Suzlon's performance to improve in 2011-12 and 2012-13 when the company is expected to report earnings per share of Rs 3 and Rs 6 respectively, its medium-term prospects continue to be bleak.

Angel Securities on GE Shipping

Angel Securities on GE Shipping - Target Rs 396

 

Angel Securities is bullish on Great Eastern Shipping and has recommended buy rating on the stock with a target of Rs 396, in itsresearch report.

"Great Eastern Shipping (Gesco) has emerged almost unscathed from the downturn of the shipping cycle on account of timely purchase and sale of assets and sound mix of time spot ratio. Accordingly, with the bottoming out of the freight rates and asset prices, we expect Gesco to register 49.3% CAGR in Net Profit over CY2010-12E. Further, the company plans to list its wholly-owned offshore subsidiary, Greatship Limited (GIL) by end FY2011E, which we believe will unlock value for the shareholders."

"On NAV basis, the Shipping business fetches Rs 263 per share (10% discount to NAV), while we have valued the Offshore business at 6.5x FY2012E EV/EBIDTA in line with its global peers and fetches Rs 133 per share. Based on our Target Price of Rs 396 the implied EV/ EBITDA, P/BV, P/E multiple works out to 5.7x, 0.9x, and 5.7x respectively, on FY2012E basis. Thus, on account of trading at a significant discount to its global peers, we recommend a Buy on stock," says Angel Securities research report.

 

SpiceJet

 

 

The Low-Cost Carrier's Strategy Pays Off; Low Leverage An Added Attraction

 

SPICEJET yet again demonstrated the advantage of sticking to a lowcost carrier model in Indian aviation industry. For FY10, the company has been able to make handsome profit in comparison to its previous year. For the full year the company reported a profit of Rs 61 crore as against a loss of Rs 352 crore in FY09. More so, for FY10, the company's market share increased to 20% from 12.8% in FY09.

   This shows that in the last one year and also going forward, the low cost carrier would act as a turnaround strategy for players in the industry. Sensing this, Jet Airways — a full service carrier — adopted the same strategy and launched a new no-frills service branded as Jet Konnect.

   Not surprisingly, in the past one year, the SpiceJet's stock has showered investors with more than 100% returns and it has outperformed the Sensex by a considerable margin. In the past two trading days, the company's stock has seen six times increase in its trading volume to around four lakh along with delivery of around 55%. This shows that long-term investors have already factored in the sustainability of the LCC model and hence are accumulating the stock. Also for March 2010 quarter, the company became profitable from a loss-making last year's March 2009 quarter. For the March 2010 quarter, the company's profits were Rs 27.5 crore as against a loss of Rs 7.8 crore for the same period last year. On the operational front, the company's EBIDTAR—earnings before interest, depreciation, tax, amortisation, and rentals shot up from a negative 4% in FY09 to 19% in FY10.

   Buoyed by good December '09 quarter, the company also did good promotional campaign to improve its brand recall. This was step towards its next big leap — commencing international service. The company recently completed five years of successful domestic operations. Going forward, the company can leverage on its domestic success and wean away the price-conscious flyers on short-haul international routes. This will save it capital cost. Also, the company is leastleveraged among Indian peers. As of FY09, it had a debt of around of Rs 488 crore, while Jet Airways and Kingfisher Airlines had debt of Rs 16,900 and Rs 5,665 crore, respectively. All these add up to profitable quarters ahead provided the company doesn't go overboard on capacity addition.

Petronet LNG

Though Petronet LNG's facing challenges in generating earnings at present,given its future outlook,it looks to be a good bet for the long term

   Petronet LNG's difficulties in generating earnings from its expanded capacity have weighed down on its valuations. However, in a gas-starved country like India, it won't be long before the supporting infrastructure comes up that enables PLNG's assets to generate incremental earnings. In view of the solid asset base that the company has created and its de-risked earnings model, the temporary problems that the company is facing provides an opportunity for long-term investors to enter the stock.

BUSINESS

Petronet LNG (PLNG), 50% owned by four PSU petroleum companies in equal proportions —Gail, BPCL, Indian Oil and ONGC —is India's largest importer of liquefied natural gas with a 10 million tonne plant at Dahej in Gujarat. For this, the company has tied up with Qatar's Ras-Gas to supply 5 mtpa of LNG, which was raised by 50% to 7.5 mtpa with effect from January 2010.

   Thanks to back-to-back sales agreements with its promoter group, it bears no marketing risk. The conversion charges it imposes on regassification of LNG remains its source of earnings. The conversion charges that currently stand at Rs 31.7 per million units are revised up 5% every year. This arrangement typically results in a low operating margin but ensures adequate return on capital.

   The company is currently setting up another 2.5 mtpa greenfield LNG import plant at Kochi at a capital cost of Rs 2,500 crore. It also has a joint venture with Adani Group for a solid cargo port at Dahej.

GROWTH DRIVERS


The company doubled its regassification capacity to 10 million tonne per annum in July 2009. The company has also added another vessel to transport additional LNG in November 2009. Qatar's RasGas has increased LNG supply by 50% to 7.5 mtpa from January 2010.

   The availability of shale gas in the US has reduced its dependence on imported LNG. As a result, the LNG exporters from the Middle East and African countries are looking at Asian region to market their product. A part of this additional LNG is expected to come to India. With PLNG enjoying a significant spare capacity it will be the natural beneficiary of higher LNG volumes. PLNG's Kochi terminal is expected to commission by March 2012, where the capacity utilisation is likely to remain high.

FINANCIALS

PLNG's business is capital intensive — it has spent nearly Rs 3,800 crore in building the 10 MTPA capacity at Dahej over the past seven years. In the past three years, the average return on capital employed remained at 24.9%, which could weaken marginally for FY10, as its additional capacity hasn't earned any income. In the past five years, the company has grown its net sales at a cumulative annualised growth of 40.5%, while the net profit grew at 20%. The company has a history of generating healthy cashflows from operations. Its FY10 numbers were particularly affected by the additional burden of interest and depreciation on the doubled capacity, which hasn't started generating revenues yet. The company reported a 22% fall in net profit after the interest cost jumped 82% and depreciation was up 57% during the year.

   During the March '10 quarter, when the additional volumes started coming in, the company faced challenges in evacuating the regassified gas to its customers — firstly due to the congestion in Gail's pipeline and secondly due to availability of RIL's cheap gas. Although a number of industrial consumers still finds RLNG cheaper to the liquid fuels, the existing pipelines getting choked up with cheaper RIL gas is leaving little scope for PLNG's additional volumes.

VALUATIONS

PLNG's current price is 15.2 times its earnings for FY10. It is currently valued at par with its peers in the natural gas industry. However, this fails to capture the earnings potential of its expanded capacity, which is currently facing challenges due to lack of evacuation infrastructure. Gail's new pipeline capacity in the North India will be the key trigger for the company as it will be able to push more RLNG through it for its consumers. The company is expected to end FY11 with EPS of 7.4. The current price is 11 times its one-year forward earnings. For a company with steady earnings flow, this appears attractive

 

SRF

 

Rising Profits, Healthy Dividend Yield & Capex Plans Ramp Up Attraction Quotient

GURGAON-BASED diversified company SRF came out with substantially superior results for the March 2010 quarter as its net profit jumped more than five-fold to Rs 110.6 crore, while its revenues jumped 65.6%. All its segments made a strong recovery in revenues as well as profitability, making it an all-round performance.

    SRF's technical textiles business continued its strong growth momentum from preceding quarters to post a major turnaround in the March 2010 quarter. The segment's profits stood at Rs 48.4 crore as against a loss of Rs 9.5 crore in the March 2009 quarter. Doubling of BOPET film capacity by December 2009 benefited the packaging film business, which doubled its revenues and grew profits by 75%. The chemicals and polymers business benefited from improved realisations as well as introduction of a few new products. This segment grew 22% to Rs 219.2 crore with profit jumping 71% y-o-y to Rs 117.5 crore.

    The profits for the quarter were also boosted by a forex gain of Rs 11 crore as against a forex loss of Rs 11.75 crore in the corresponding quarter of previous year.

    SRF has taken deliberate measures over the past few years to shift its focus away from the nylon tyre cord fabric (NTCF) business and is expanding its technical textiles as well as fluoro-specialities businesses. The company recently commissioned its 48 million square meters per annum production capacity of laminated fabric at Kashipur. It has also approved investment of Rs 143 crore to set up a lacquered tarpaulin unit that can produce fabric suitable for tensile structures such as tents or polyurethane-coated fabrics for niche industrial applications. The company is also setting up a fluoro-specialities chemical plant at Dahej with initial capacity of 12500 TPA.

    The company paid a total dividend of Rs 14 per share during the year, which at the current market price translates in a dividend yield of 6.25%. After accounting for the fourth quarter profits, the company's per share earnings stand at Rs 53.6. As a result, the price-toearnings multiple (P/E) stands at 4.2.

    SRF's capacity expansion programmes ensure that its growth will continue in coming quarters — although not at the same pace as seen in the March 2010 quarter. Its valuations on the Street appear attractive with healthy dividend yield and growing profits.

Stock views on PUNJ LLYOD, MAHINDRA & MAHINDRA

RBS  on MAHINDRA & MAHINDRA

RBS retains 'Buy' rating on M&M and raises the target price to Rs 677. For the March '10 quarter, normalised PAT of parent company M&M rose 32.7% q-o-q to Rs 570 crore on an 18% q-o-q increase in net sales to Rs 5310 crore. The IT services segment was affected by the Satyam acquisition cost and lack of Satyam financials for consolidation. M&M's new products since H2FY10 grew sales volumes 36% in April-May '10. RBS feels the strong sales volume growth will sustain as the one-tonne Maxximo truck is yet to be launched in south India, the country's largest market. Given the industry size of 0.6 million units and M&M's strong position in adjacent segments like pick-up trucks and three-wheelers, the company is well positioned with a strong distribution network to ramp up Gio and Maxximo trucks with minimal cannibalisation.

NOMURA  on PUNJ LLYOD

Nomura reiterates 'Neutral' rating on Punj Llyod with a target price of Rs. 116. After the weak Q4FY10 results, there could be further negative impact from the ONGC Heera project and Simon Carves in FY11F. Working capital days have almost doubled in FY10 versus a year ago. This has increased net debt/equity, resulting in higher interest costs. A high degree of uncertainty remains on sustainable working capital levels. The book-to-bill ratio is at 2.63. The order book is not expected to translate into revenues quickly as the majority of recent orders are longduration orders. Nomura reduces the revenue estimate by 11-17% for FY11F and FY12F to take into account delay in start of execution of Libyan orders. Overall, with these changes, the FY11F EPS estimate is lower by 45%, while FY12F estimate falls by 36%. Although the stock has fallen 34% in the past one month, risk-reward is not attractive given concerns on execution, a relatively thin order backlog, potential write-offs and an increased working capital cycle.

Godrej Consumer Products

MARKING its entry in the Latin American market, Godrej Consumer Products (GCPL) is set to acquire the Issue Group which has a leading presence in the fastgrowing hair colour markets of Argentina, Peru, Uruguay, Paraguay and Brazil.

   This latest takeover, after a series of acquisitions across the UK, South Africa, Nigeria and Indonesia, falls in line with GCPL's strategy to be present in Asia, Africa and Latin America.

   GCPL is buying a 100% stake in the group by paying around 8 times its EBITDA. Assuming the Issue Group, with annual revenues of $33 million (around Rs 152 crore) earns average EBITDA margin of 20%, the deal size can be estimated to be around Rs 250 crore. The acquisition is slated to be completed by June on close heels of company's two back-to-back acquisitions in March and April this year. GCPL has recently also bought out the stake of Sara Lee in Godrej Sara Lee joint venture for around Rs 1,055 crore. To meet the increased fund requirement on all these fronts, the company is considering raising equity either through private equity option or QIP route.

   The company's aggressive stance in achieving inorganic growth needs to be eyed with caution. Unlike the conservative business approach followed by FMCG players, GCPL has been more forceful than any other player in the sector. Frequent fund requirement is likely to bring the company's finances under pressure and increase its leverage. Despite the recent acquisitions being EPS-accretive, raising money through equity is likely to neutralise the effect of any rise in EPS.

   While the series of acquisitions across various geographies makes the company a leading multinational FMCG, it also exposes it to variety of risks pertaining to foreign exchange, region-specific economic conditions and execution.

   The Street's immediate reaction to the acquisition news was exuberant — pushing GCPL's stock to an all time intra-day high of Rs 365..

   Investors need to closely monitor GCPL's progress over the next 10 months as it consolidates all the newly-acquired businesses and attempts to achieve a profitable growth for FY11. This is because any sign of lapse in execution, co-ordination or risk management will cost the company dearly – especially during a phase when the company has been growing very rapidly.

Reliance Infrastructure

Reliance Infrastructure was recently awarded two road projects worth Rs 4,000 crore, making it one of the largest players in the promising road segment. In addition, the company has also emerged as a leading player in the infrastructure space, and is developing 23 large projects worth Rs 36,200 crore across other segments like airports, bridges & sea-links, metro rail and so on. It also has a significant presence in the power generation and transmission & distribution businesses, wherein the resolution over gas supply between Reliance Industries and RNRL could pave the way for Reliance Power's mega power project in Dadri.

Boost from infra

Of the ongoing projects, almost 13 projects worth Rs 21,000 crore will be operational in the current year – which is significantly higher compared to just two projects commissioned in 2009-10 – boosting the company's revenues and profitability. In the road segment, the company has 11 BOT (build-operate-transfer) road projects of 970 km worth Rs 12,000 crore. Out of this, two road projects of 97 km are already operational since September 2009 quarter. But, the biggest boost will come in the current and next years as five new road projects (about 800 km) will become operational by the end of this year.

In addition, the company is also developing three metro rail projects. In 2009-10, projects worth Rs 4,950 crore, or 35 km, will be operational, which includes the Mumbai Metro Line One and the Delhi Airport Metro Express Line.

The company has also emerged as a large player in the power transmission space, and is developing five transmission projects worth Rs 6,640 crore. This includes two ultra mega transmission projects worth Rs 2,370 crore. One of these projects, of Rs 1,380 crore, will become operational in the current quarter. Over the next twothree years, the company foresees an opportunity of Rs 55,600 crore in this segment.

Stable business

Most of these projects will contribute partially to revenue in the current year and fully in 201112. Meanwhile, power generation and distribution, which forms almost 78 per cent of total revenues, is expected to grow by five-six per cent in 2010-11.

The growth will be higher at about 30-35 per cent in the case of the engineering-procurementconstruction (EPC) business, which contributes about 22 per cent of revenues. This is primarily on account of the strong order book of Rs 19,250 crore, which is almost 5.6 times its 2009-10 revenues, and provides good visibility.

Investment rationale

With most of its projects slated for commissioning in the current year, expect the company's revenues and profits to rise by 30 per cent each in 2010-11. In the long run, considering the company's capabilities, strong balance sheet and large size of projects as well as presence across the infra space, it is well positioned to harness the opportunities in the infrastructure segment.

Considering its different businesses, including the 44.9 per cent stake in Reliance Power and huge cash and cash equivalent in the books, analysts value the stock at Rs 1,300-1,400 per share, which indicates good potential for an upside from the current price of Rs 1,029.35.

This, along with its future plans in the power business, should reward investors in the long run.

Shipping Corporation of India (SCI)

STATE-OWNED Shipping Corporation of India (SCI) appears well positioned to take advantage of the much-awaited upturn in the global shipping industry. That's because the US economy, a key determinant of the global shipping industry, is on the growth path and demand for crude oil is also showing signs of a revival. This, in turn, should help freight rates in the key tanker segment of the shipping industry, where vessels are utilised for transporting petroleum products. Indian shipping companies have a majority of capacity utilised in the tanker segment.

   In addition, strong demand for crude oil from emerging markets, such as China, and a revival in other emerging economies, will help the shipping industry emerge from the slump during the year ended March 10. We had recommended this stock in our issue dated June 22, 2009 and since then the stock has gained 41.6%. Also, this stock trades at about 1.1 times its book value for the year ended March 2009, while it has traded in a range between 0.64 times and 0.8 times between March 2005 and March 2008. However, given the anticipated upturn in the global shipping industry in the medium term, we believe that there is still upside potential in this stock.

FLEET SIZE

Shipping Corporation's owned fleet capacity was 75 vessels with a capacity of 5.35 million dead weight tonnes (DWT) as on August 2009, a rise of 12.4% from two years earlier. Shipping Corp, like other players, in this sector has a majority of its capacity utilised for the tanker segment. At the end of March, 2010, SCI had a fleet of 76 vessels with a capacity of about 5.14 million DWT. Rival GE Shipping's fleet capacity was 2.71 million DWT in May 10.

   However, the underlying problem related to SCI's fleet was the age profile of its vessels — at the end of August 2009, SCI has highlighted that 85% of its dry bulk fleet capacity is over 15 years old and it has handymax vessels which are even over 20 years old. As a result, quick deployment of these vessels with clients is difficult, as users typically prefer younger vessels.

EXPANSION PLANS

SCI has an ambitious programme to modernise its fleet and to take advantage of the growth opportunities over the next few years. As part of that strategy, it had earlier got government approval for a total capex of Rs 13,135 crore to induct 62 new vessels by the end of the 11th plan (which ends 2012). SCI has 30 vessels on order and these vessels will be delivered at various time points by 2012. The total capex involved for these acquisitions is approximately $1.5 billion (nearly Rs 6,900 crore). These acquisitions will be financed through combination of internal resources and external commercial borrowings.

   SCI's leverage ratio was just 0.33 at the end of FY09, one of the lowest in the industry and it leaves enough headroom to fund the company's expansion plans. Also, as per the recently announced rules related to shareholding pattern and ensuring 25% public float, it does appear that SCI will need to come with a follow-on issue to dilute the government stake, going forward. However, details regarding a follow-on offer are still sketchy.

FINANCIALS

The shipping industry experienced a very difficult operating environment, especially during the year ended March 10, due to sluggish global demand for transporting crude oil. As a result, for players such as SCI, operating profit margin during the previous financial year declined 1110 basis points y-o-y to 15.5%, at a time when its net sales also fell 16.9% to Rs 3,463.1 crore. That's because in the key tanker segment, for crude carriers, their average freight rates had dropped to $23,800 per day levels, in the first quarter of FY10, a sequential decline of nearly 27.7%. However, with a pick-up in the global economy, especially in the US and China in the second half of the financial year, freight rates for crude vessels recovered and averaged about $29,000 in the fourth quarter of FY10. Nevertheless, its adjusted net profit declined 70.4% to Rs 279.9 crore for year ended March 10. GE Shipping's consolidated operating profit margin also declined 740 basis points y-o-y to 37% in the previous financial year.

VALUATIONS

SCI trades at 18.8 times on a trailing four-quarter basis, while rival GE Shipping trades at 8.8 times on a consolidated basis. One of its peers in the private sector, Mercator Lines, trades at 19.8 times on a consolidated basis. Investors could consider SCI on a long-term basis.

 

Firstsource Solutions

The worst seems to be behind for Firstsource Solutions. Given its prospects,

 

FOR Firstsource Solutions, the past six quarters have been a challenging period as the Mumbai-based outsource company's business was adversely affected by slack in demand from the Western economies. This is also reflected in the performance of its stock on bourses during the period. The stock has remained rangebound, thereby underperforming the benchmark indices and other sectoral indices. However, a gradual uptick in the global demand is likely to benefit Firstsource given its investments in overseas delivery centers and its delivery capabilities in the healthcare and telecom segments.

BUSINESS:

Firstsource is a Rs 1,970-crore independent business process outsourcing (BPO) company in the country. It offers services across a variety of horizontals in the BPO space including call centre, transaction based services, collection of receivables and business analytics.

   It caters to three verticals, including healthcare, telecom and media, banking, financial services and insurance (BFSI). Share of healthcare segment in total revenue has gone up from 9% in FY07 to 36% in the March 2010 quarter post acquisition of US-based MedAssist Holding in September 2007. It had 24,860 employees as on March 2010. Concentration of clients in its revenue has significantly declined over a period of time, while contribution of existing clients has increased reflecting greater client engagement.

FINANCIALS:

Firstsource's consolidated revenue has increased at a compounded annual growth rate of 37.3% in the past four years. Net profit rose by 53% during the said period. In FY10, sales grew by 12.7% in Indian rupees and 11.2% in constant currency terms. The company reported 120 basis points of expansion in its earnings before interest, depreciation, taxes, and amortisation (EBITDA) margin in FY10 to 13.8%.

CHALLENGES:

The company's return on capital employed (ROCE) has dwindled to just over in 7.4% in FY10 from 12% in FY07. This is substantially lower and may put pressure on its financials during tough economic conditions. The company needs to take measures in this regard.

   The company's tax rate will increase from FY11 due to lapse of the STPI policy after March 2011. The policy exempts export revenue from corporate tax. The tax rate under such a scenario may be in the range of 20-25% for the company. The company needs to take steps to mitigate this risk by either locating its business centers in SEZs or in countries with tax holidays.

VALUATIONS:

The stock has more or less remained stagnant at around Rs 31 since the past four months. At this level, the stock trades at 10.7 times its trailing 12 month earnings. On the back of improving demand scenario, the company is likely to increase its revenue growth rate for FY11 from over 13% in FY10. This is likely to be better at around 15%.

   Further, the company is gradually improving its margins. The improvement, however, may face some hurdles such as stronger rupee against the dollar and possibility of higher tax rate going ahead. Given this, the company's net margin is likely to increase by a modest 50 basis points to 7.5% for FY11. This results into a forward P/E of 7.7 at the current stock price. Given the likelihood of a turnaround in its business, the stock looks attractive at the current levels.

 

Tata Chemicals

 

 

Higher Margins & Better Volumes Help Co Improve Show, But Challenges Remain

 

TATA Chemical's stock crashed 6.5% after posting disappointing results for the quarter and year ended March 2010 on Monday. The scrip has marginally outperformed the market, gaining around 31% in the past one year as against a 15% growth in benchmark Sensex.

   Tata Chemicals profit for the fourth quarter fell by more than a quarter to Rs 128 crore on a consolidated basis, despite a 24% improvement in net sales. Although net sales also fell against last year, the main positive was the 360-basis point improvement in its operating margins to 19.3%.

   TCL's inorganic chemical segment saw a fall of 8% and 4% in its revenue and PBIT, respectively. This was mainly due to the demand and pricing decline during the initial quarters of FY09-10. Similarly, the fertiliser segment also saw a huge fall of 36% and 25% in its revenue and PBIT, respectively, as the prices came down.

   During FY10, the company saw better local and overseas demand for soda ash against previous year. Also, the debottlencking of its plant helped increase urea production by 20% y-o-y basis. Its new water purifier 'Tata Swach' launched in October 2009 sold nearly 50,000 units in Maharashtra and Karnataka, even as the company aims to sell a million units in FY11 as it pans out nationwide.
   It paid off Rs 440 crore of debt during the June '09 quarter followed by selling part of its stake in Titan to raise Rs 88 crore during the September '09 quarter. It has reduced its debt-equity ratio to 0.81 for FY10 as against 0.95 for FY09. The company is still spending nearly Rs 400 crore on interest costs annually.

   The company has lined up a capex of around Rs 300 crore for FY11, when it will be completing its first customised fertiliser facility and embark upon doubling its urea capacity at Babrala. To shore up its capital base before going for this next round of capex the company is planning to raise over Rs 400 crore through a preferential allotment to its promoters.

   Doubling of urea capacity to 2.4 million tonne per annum will take up three years with an estimated capex of Rs 3,500 crore. It has already carried out pre-feasibility and basic engineering studies and is awaiting clarity on gas supply to move ahead.

   During the year, the company acquired shares in Rallis India — another Tata Group company focusing on agrochemicals — to take its shareholding beyond 50%.

   Thanks to higher margins and better volumes, Tata Chemicals's performance during FY10 was much better than in FY09. There is still some more restructuring lying ahead for this soda ash major.

 

IVRCL INFRASTRUCTURES

Higher focus on road projects and geographical diversification after the group restructured itself is now paying IVRCL Infrastructures (IVRCL) rich dividends. On Tuesday, IVRCL Group won the largest toll-based road project of Rs 3,100 crore from the National Highways Authority of India (NHAI), involving construction of 122.06 km of road from the Maharashtra-Goa border to the Goa-Karnataka border.

After the restructuring of the group companies and business portfolio, IVRCL's 80.5 per cent-owned, listed arm IVRCL Assets & Holdings (earlier known as IVR Prime) acts as a developer/owner of all infrastructure assets, whereas the construction, or the EPC work, is undertaken by IVRCL Infrastructures. So, like other BOT (build-operate-transfer) assets, while the new project will be developed and owned by IVRCL Assets, IVRCL will undertake construction work estimated to be worth about Rs 2,200 crore (spread over threefour years).

Strong revenue visibility

IVRCL is among the leading players in the infrastructure space, having a presence in growing segments like water, irrigation and roads projects. Including the new project win, its order book now stands at about Rs 25,500 crore, which is 4.7 times its 2009-10 consolidated revenues and provides the highest revenue visibility among infrastructure companies.

On the back of its strong order book and higher contribution from IVRCL Assets, the company is expected to witness a growth of about 25 per cent annually in consolidated earnings over the next two years.

IVRCL Assets now has 11 projects costing Rs 11,150 crore, including two water projects. Out of this, three projects are operational, six are in development stages and two of them are expected to become operational in the current month.

While IVRCL Assets reported revenues of Rs 165 crore and a net loss of Rs 31.7 crore in 2009-10, it should mark a turnaround in the current year on account of higher revenues from new and existing projects.

"We are expecting IVRCL Assets to clock a turnover of Rs 1,000 crore and it will turn profitable this year," says Sudhir Reddy, CMD, IVRCL.

Further, IVRCL Assets also plans to monetise its land bank of over 3,300 acres spread across major cities. The company is looking to earn revenues of about Rs 75 crore this year and a total of about Rs 500 crore over three years.

Investment rationale

The company is in the growth phase, having strong order book, operational BOT assets and plans to diversify into other infrastructure segments. Notably, concerns regarding its exposure to Andhra Pradesh have also eased with the region now contributing just 16 per cent to IVRCL's order book.

Considering its stake in the listed subsidiaries, analysts value the stock between Rs 210 and Rs 374 a share on the sum of part valuations basis. In this backdrop of strong earnings growth and immense potential in the sector, at Rs 170.90, the stock is a good opportunity for long-term investors.

Stock views on ITC, Yes Bank

Citigroup On Yes Bank

Yes Bank's management expects strong growth over the medium term in:

a) Credit - 35-40% p.a. over the medium term;

b) Distribution - branch network growing to 225 by March '11 and 750 by March '15, incremental branches largely in North and West India;

c) Liabilities - including strong growth in CASA (current account savings account) ratios.

 

While focus will shift to retail assets - mainly mortgages and credit cards - the share of retail is likely to remain well below 15% even with a medium-term outlook. SME and mid-corporate segments are likely to be the key growth drivers- also likely to have higher loan yields.

 

The management appears confident of maintaining current net interest margins due to:

 

a) Growth in low CASA share;

b) Increasing proportion of higher yielding SME and mid-corporate loan book; and

c) Well matched asset and liability durations. Non-interest income growth has been a key strength of Yes Bank so far and the management expects it to remain strong going forward as well. However, it could lag balance sheet growth in the medium term. This could lead to non-interest income/income ratio falling to below 40% levels.

JP Morgan On ITC

JP Morgan initiates coverage of ITC with an `Overweight' rating and a target price of Rs 307.

 

The rating is primarily based on:

(a) Defensive nature of the stock,

(b) Core cigarette EBIT growth is likely to exceed the expectations of 15% over FY10-12E, and

(c) The non-tobacco business sustaining strong performance.

 

While cigarette volume off take is likely to remain subdued in the near term, ITC's medium-term investment case will depend on pricing power which drives earnings much more than volumes. Price hike of about 15% for its cigarette portfolio is substantially higher than the about 9% increase needed to offset the excise/VAT hike and would drive EBIT growth upwards of 15%. Sales growth surprised on upside, driven by higher than expected growth for cigarette (volume growth of 8.5- 9%), other FMCG (+34% y-o-y) and agri-business revenues (+88% y-o-y). The target price implies one year forward P/E and EV/EBITDA of 20.5x and 12.5x respectively which is inline with company's last five-year averages.

Stock views on Mphasis, Container Corp Of India, Tata Power

Morgan Stanley On Tata Power

Morgan Stanley maintains an `Equal weight' rating on the stock with a revised target price of Rs 1,087. In their view the company has strong execution capabilities and there is high visibility on the implementation of power projects. However, the stock is trading at two times P/B and 10x EV/EBITDA on FY2012 consolidated estimates, which leaves limited upside. Tata Power reported FY10 consolidated revenue of Rs 17,880 crore (up 2% Y-o-Y), EBITDA of Rs 3,680 crore (up 4% Y-o-Y), and adjusted profit of Rs 1,330 crore (up 6% Y-o-Y). Standalone earnings estimates was lowered due to uncertainty on merchant capacity: Tata Power had decided to sell an additional 200-400 MW in the short term market from the capacity that was earlier provided to RInfra. They had built in 158 MW of such additional merchant capacity; however, given regulatory uncertainty the company may have to sell this at regulated rates to Reliance Infrastructure. This is the primary reason for taking down the standalone earnings by 13% and 16% for FY2011E and FY2012E, respectively.

Nomura on Container Corp. Of India

Nomura maintains the `Neutral' rating on Container Corporation of India with a price target of Rs 1,350. Based on data released by the Indian Ports Association, container traffic at the 12 major Indian ports rose 21.4% y-o-y but was down 3.7% m-o-m in April '10. CCRI recorded a weak H2FY10 owing to poor margins, despite reporting strong traffic in Q4FY10. Overall, FY10 results were disappointing, and Nomura expects further near-term pressure on margins as the company is still passing on the price hike imposed by the Indian railways. During the post results call, Concor spoke of another possible price hike by the Indian railways in July '10. Trading at 17x FY11E P/E, Concor appears fairly valued, given its historical average trading multiple of about 15x one year forward earnings, although Nomura expects downsides to the current numbers. On an expected medium-term sustainable earnings growth rate in mid-teens, the historical mean traded multiple appears justified, and accordingly Nomura values the stock at 15x FY12F EPS to arrive at the price target of Rs 1,350.

Hsbc On Mphasis

HSBC maintains 'Overweight' rating on MphasiS with a target price of Rs 770. The key question for investors currently is whether the pricing discounts seen in Q1 were one-off and limited to the infra division. HSBC does not rule out further pricing discounts. However, the management has defined benchmarks for profitability and may not be willing to win business that breaches its profitability criteria. HSBC has factored in 31-30% threshold gross margins for the Applications and infra divisions in the forecasts. HSBC expects 4.5% q-oq dollar topline growth and an EBITDA margin decline of about 100 bps sequentially (primarily driven by the assumption of a pricing discount in the Application division and rupee appreciation). HSBC expects strong volume growth in FY10 and FY11 and EPS growth of about 8% in FY11 and values the stock at a PE of 14.5x on FY11E EPS, which is a 35% discount to Infosys.

India Infoline views on Titan Industries, ABB

India Infoline on Titan Ind - Target Rs 2270

 

India Infoline is bullish on Titan Industries and has recommended buy rating on the stock with target of Rs 2270, in its research report.

"Titan Industries has rallied smartly from a low of Rs 1,861 in April 2010 to the present levels. Despite the ongoing volatility in the market, the stock has managed to hold on to the support of its short-term trendline. On the daily charts, it has formed a pattern of a higher bottom. It is considered as the initial sign of a bottoming out process in the short term. The daily RSI is already in strong buy mode, indicating that the prices are set to rally from the current levels."

"A sustained move past the Rs 2,195 levels will see the stock heading towards the levels of Rs 2,250-2,270 in the medium term. We recommend high risk traders to buy the stock between Rs 2,180-2,195 levels for an initial target of Rs 2,270 with a stop loss of Rs 2,165," says India Infoline research report.

India Infoline on ABB - Target Rs 855

 

India Infoline is bullish on ABB and has recommended buy rating on the stock with a target of Rs 855, in its research report.

Since last few months, ABB has made 100-day DMA to be its most important support level. In March 2009 it made a base around this moving average and then staged an impressive rally of 12% in two weeks (from a base of Rs775 to a high of Rs875). In yesterday's session, the stock stabilized again around its 100-day DMA against the weaker trend in the broader indices, emphasizing our belief that it remains a critical support level. Keeping in mind, the above mentioned evidences, we recommend high risk traders to buy the stock with a stop loss of Rs 800 for a target of Rs 855 and Rs 860,"says India Infoline research report.

AK Stockmarket views on Yes Bank, Suzlon Energy

A.K. Stockmart on Suzlon Energy - Target Rs 85

 

A.K. Stockmart has initiated a buy recommendation on Suzlon Energy, with price target of Rs 85, in its report. The stock closed at Rs 59.20.

"We have valued Suzlon Energy based on weighted average of the DCF (WACC— 10.82%, terminal growth rate — 1.5%) and P/E methodology to arrive at a price target of Rs 85. We apply an industry average multiple of 16.0x of our target FY2012E EPS of Rs 4.94. We recommend a buy rating on the stock, with potential upside of 20%. We initiate coverage on the company with a buy rating with 12 month price objective of Rs 85," says A. K. Stockmart report.

 

 

AK Stockmarket on Yes Bank - Target Rs 320

 

AK Stockmarket has initiated buy rating on Yes Bank with a target of Rs 320, in its research report.

"Yes Bank registered CAGR of 73% in loans over FY-06-09 as against industry CAGR of 22%. Further in 9M FY10 even though industry was under pressure Yes Bank was able to leverage its strength to grow its loan book by 72% Y-o-Y (5.5x industry growth). Yes Bank has demonstrated its ability to maintain its margin throughout the cycle despite being wholesale funded (ability to pass on higher rates due to differentiated offerings). We initiate BUY with a price target of Rs 320 implying a P/Bv multiple of 2.5x for FY 12E as we believe it deserves premium due to strong growth and its quality performance," says AK Stockmarket research report.

Stock views on RIL, HT Media, Hyderabad Industries

FinQuest on Hyderabad Ind - Target Rs 850

 

FinQuest Research is bullish on Hyderabad Industries and has recommended buy rating on the stock with a target of Rs 850, in its research report.

"Hyderabad Industries (HIL) posted excellent set of numbers for 4QFY10 and FY10, surpassing  our expectations. We had post result interaction with management of HIL and it came our knowledge  that HIL is further expanding its cement sheet capacity by setting up a 90,000 MT plant at Bihar  (at cost of INR 400-450 million; expected to be operational by Mar11) and increasing capacity at  existing UP plant by 90000 MT (at cost of INR 250-270 million; expected to be operational by  4QFY11). We have fine tuned our estimates for FY11E and have incorporated our estimates for  FY12E. At CMP, HIL is trading at 5.2x and 5.0x FY11E and FY12E earnings respectively. We  roll our valuations to FY12E earnings and reiterate BUY rating with target price of Rs 850. (target  FY12E P/E ratio of 6.0x)," says FinQuest Research.

 

 

Angel Securities on HT Media - Target Rs 182

 

Angel Securities is bullish on HT Media and has recommended buy rating on the stock with a target of Rs 182, in its research report.

"For 4QFY2010, HT Media (HTML) reported an advertising growth of 8% yoy, circulation growth of 5% yoy and overall revenue growth of 10.7% yoy to Rs 374.3 crore, on a consolidated basis. However, Earnings registered a multi-fold growth to Rs 48 crore, driven by strong operating performance and a low base. We have revised our Top-line estimates by 4-6% to factor in the revenue traction from Burda JV, and have revised our Earnings estimates by 6-7% to factor in the increased revenue traction from new businesses, higher Margins and lower Interest Expenses. Hence, we revise our Target Price upwards and maintain a Buy on the stock,"says Angel Securities research report.

P Lilladher on RIL - Target Rs 1213

 

Prabhudas Lilladher has come out with its report on RIL-RNRL case. The research firm has maintain 'Accumulate' rating on Reliance Industries, with a SOTP price target of Rs 1,213.

"Reliance Industries (RIL) and Reliance Natural Resources (RNRL) will have to  renegotiate the price of Natural gas within the next six to eight weeks.  This implies that the price decided by the Empowered Group of Ministers  (EGoM) is applicable to all the parties utilizing KG D6 gas. EGoM has decided  a flat price of US$4.2/mmbtu for all the consumers utilizing the KG D6 gas.  As there is no differential pricing for different consumers like power players,  fertilizer players, petchem players etc., the verdict simply signifies that  RNRL will have to buy the gas at government-decided price of  US$4.2/mmbtu."

"The verdict is clearly in favour of RIL. The company will be selling all KG D6 gas at the EGoM decided price of US$4.2/mmbtu. Earlier for calculating KG D6 NPV, we had taken US$2.34/mmbtu gas price for RNRL; this has now increased to US$4.2/mmbtu which will increase our KG D6 NPV by Rs30/share. Consequently, our EPS for FY11E and FY12E is revised by about 4.0-8.0% to Rs69.9 and Rs75.8, respectively. We maintain our 'Accumulate' rating, with a SOTP price target of Rs 1,213."