Stock Review: JSW STEEL, EICHER MOTORS

BANK OF AMERICA on EICHER MOTORS

Bank of America is positive on business prospects of the company's key operating segments, i.e. commercial vehicles and premium bikes, and also excited about outsourcing of engines to meet Volvo's global requirements. The price target of 1,500 (up 6%) highlights increased earnings visibility and attractive valuations. Eicher Motors' strong franchise in light vehicles and growing acceptance of higher tonnage trucks has prompted the upward revision to the volume assumptions by 5% in CY11. BoA expects the company to register 20% sales CAGR over the next two years, ahead of industry average. Eicher Motors' competitive positioning in premium bikes reflects on YTD growth of 36%. With additional capacities in place, this business will also register 20% CAGR over the forecast period, similar to other popular models within this space. BoA also sees upside risk to profit margins through better efficiencies. Eicher Motors' cash and equivalents at 401/share is equivalent to 31% of market capitalisation. Additionally, engine supplies, which will likely commence in CY13E, contribute 134/share (about 9%).

RBS on JSW STEEL

JSW Steel is currently pursuing its own expansion programme in India and has its own M&A agenda. JSW Steel is all set to commission a threemtpa blast furnace at its Vijayanagar works which will take total capacity to 10 mt and make it the largest Indian steel producer at a single location and India's largest private sector steel producer. JSW Steel is also completing the acquisition of a controlling stake in Ispat Industries and has raised its open offer price for the minority acquisition for Ispat Industries. The next two to three quarters will involve a confluence of several factors that could increase the volatility of margins for JSW Steel given the lack of integration across its businesses with 1) higher coal and iron ore prices, 2) a seasonally sluggish domestic steel market, and 3) new capacity coming on stream. Steel producers could attempt to raise prices but RBS will not be confident that they would achieve 100% pass-through.