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.