Stock Views on RELIANCE INFRASTRUCTURE, ASHOK LEYLAND, BALLARPUR INDUSTRIES

JP MORGAN on BALLARPUR INDUSTRIES

JP Morgan initiates coverage on Ballarpur Industries with an `Overweight' rating with the price target of 50. BILT is trading at a 35-40% discount to its global peers, which it expects to narrow on account of: 1) its market leadership in India, the world's fastest growing paper market, 2) ensuing vertical integration which will delink the business from volatility in pulp prices and enhance its long-term margin profile, and 3) steady improvement in RoE over FY10-FY13E to global benchmark levels. BILT has a 40% share of the market for wood-free coated paper and a 25% share for copier paper - high end segments that are growing at 12-15% per annum. BILT's paper capacity expansion will allow it to increase paper output from 0.78 MM tonnes in FY10 to 1 MM tonnes by FY13E to cater to the growing demand. Private equity players had acquired a 20.5% stake in this subsidiary in 2008, valuing it at $855 MM. A potential listing would unlock value and allow BILT to reduce gearing, boding well for valuations and earnings.

IIFL on ASHOK LEYLAND

IIFL maintains `Buy' rating on Ashok Leyland with a price target of 84. During Q2FY11, Ashok Leyland reported net sales of 2,710 crore versus 1,580 crore in Q2FY10. The growth was driven by a 72% y-o-y jump in volumes to 24,590 vehicles. Realisations were flat on both y-oy and sequential basis despite price hikes. This was mainly on account of a change in product mix towards goods carriers. The company reported an OPM of 11.30% versus 10.5% in Q2FY10. This was primarily on account of benefits of operating leverage, which resulted in a 282 bps and 129 bps y-o-y reduction in staff costs and other expenditure as a percentage of sales respectively. Total material costs as a percentage of sales were higher by 335 bps y-o-y on account of higher commodity prices. Depreciation and interest costs were higher by 26.6% and 132% y-o-y respectively on account of capitalisation of costs for the Pantnagar plant. The management has guided for a volume of 95,000 vehicles with a possibility of touching 100,000 for FY11.

UBS on RELIANCE INFRASTRUCTURE

UBS maintains `Buy' rating on Reliance Infrastructure. Overall, UBS finds the company's strategy and progress on execution of projects impressive. In India, infrastructure projects face significant execution challenges, which include land acquisition, approvals and clearances, financial closure, and availability of skilled manpower. Some of the key factors which allowed RELI to successfully meet these challenges are: a) a captive engineering, procurement, and construction (EPC) division; b) strong in-house capabilities in different verticals such as metro, roads and transmission; c) a strong balance sheet; and d) synergies with the other group companies. UBS likes the strong infrastructure portfolio of the company. It consists of eleven road projects, five airports, five transmission projects, three metros, and one sea link. RELI is a good longterm asset play on the India infrastructure growth story. The price target of 1,325 is based on the sum-of-the-parts valuation. UBS values RELI's 44.9% stake in Reliance Power based on a 10% discount to Reliance Power price target of Rs140/share.