Stock views on BHEL, LARSEN & TOUBRO, HCL TECHNOLOGIES

HSBC on HCL TECHNOLOGIES

HSBC has an `Overweight' rating on HCL Technologies with a target price or Rs 445. The positive outlook on HCL is driven by its well-diversified revenue profile and success in the infrastructure management market. The company has been winning mega deals providing strong visibility to its forward revenues. HCL is currently trading at about 32% discount to Infosys on FY12E earnings, and this discount is to shrink to about 25%. Under the HSBC research model, for stocks with a volatility indicator, the `Neutral' band is 10 percentage points above and below the hurdle rate for India stocks of 10.5%. For HCL, this translates into a Neutral band of 0.5-20.5% around the current share price.

MORGAN STANLEY on LARSEN & TOUBRO

The concerns about the expansion of the execution time cycle appear to be overdone, and the increase in execution cycle in F2010 was led by the slowdown's impact on L&T's customers, not a change in mix to highergestation power projects. MS' reduction in non-power change impact to around 19% over F2011-13E, over and above the 5% power impact they continue to build in, drives a 4-7% upgrade in F2011-12 revenue estimates. While L&T, in revenue terms, is larger than the next six largest construction companies put together, given the fragmented market and its high-quality execution, it has consistently gained market share over the last two decades. It has also been the vendor of choice for the private sector, making it the best way we see to play the structural growth story in Indian infrastructure.

UBS on BHEL

UBS upgrades the rating of BHEL from `Sell' to `Buy' and raises the price target to Rs 2,800. Excluding the impact of provisions related to wage revisions during FY08-10, BHEL appears to have a significant operating leverage, as suggested by the decline in its staff costs and other expenses during FY04-08. UBS thinks the structural decline in orders and lower margins for the private sector are likely to remain a long-term concern. However, BHEL is trying hard to protect its turf: 1) it has won significant orders from the private sector in FY10; and 2) BHEL has entered into JV/MOU (7,000 MW) with SEBs (state electricity boards) and state generation companies in an attempt to protect its margins and volume. At the price target of Rs 2,800, BHEL would trade at 18x FY12E EPS, which is reasonable.