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.