Stock Views on IRB INFRASTRUCTURE, PIDILITE INDUSTRIES

NOMURA on PIDILITE INDUSTRIES

Nomura initiates coverage on Pidilite Industries with a `Buy' rating and a price target of 180. Pidilite's consumer and bazaar products business is largely being driven by the construction boom in India, repair and maintenance activities and work on furniture. Art materials is a play on discretionary spending of India consumers. According to Pidilite, its adhesive brand Fevicol, has about 70% market share in the organised adhesive industry in India and has high brand recall, even in rural India. The company's other brands such as Mseal and Dr. Fixit are also well known and are market leaders in their segments. Pidilite has a good record of identifying new product categories and successfully launching related brands. The company has a good record of maintaining margins and has had a consistently high ROCE and ROE from FY05-10, not including FY09. The stock is trading at 19.9x FY12E EPS of 6.70.

CITIGROUP on IRB INFRASTRUCTURE

Citigroup upgrades the rating of IRB Infrastructure to `Buy' from `Sell' as: 1) Since September 2010, the stock is down about 37% and has underperformed the Sensex by 35%, factoring in a lot of macro negatives 2) the stock is at a 21% discount to the new target price of 233, and doesn't factor in any growth 3) NHAI award activity is showing signs of a pickup 4) IRB is well-capitalised and relatively insulated from rising interest rates. As per IRB, the company has 3,100 crore worth of projects in the financial bid stage and 49,500 crore worth of projects in pre-qualification stage. Citigroup moderates the revenue expectations but increases the margin assumptions, driven by higher than expected EBITDA margin for the construction business. It increases the CoE for under-construction projects to 13% (from 12%). EPC business is valued at 9x June 2012E P/E, at a 18-25% discount to its E&C peers given the captive nature of its order book.