Stock Views on SINTEX, TATA STEEL, LARSEN & TOUBRO

CITIGROUP on LARSEN & TOUBRO

Citigroup believes the E&A (electrical and automation) demerger and possible revaluation balances out the weak inflow outlook. Announcement in Q4FY11E suggests L&T may not win 74,500 crore in FY11E. Further, if the H2FY11 slowdown extends into H1FY12, L&T might not win more than 80,000 crore of orders in FY12E. Citigroup's estimates are 7-9% below consensus in FY12E-13E, which implies there are significant downside risks. Furthermore, the estimates are not conservative given there is a possibility that the company might win less than the Rs 79,100 crore of inflows that have been assumed in the numbers. In line with Lakshya 2015, L&T proposes to transfer the electrical and automation IC (EAIC), excluding the medical equipment business, into a subsidiary and/or associate company or to any other entity as a going concern or otherwise. This restructuring of the business is required so that it is able to realise its full growth potential and participate comprehensively in the growth of the industry. L&T plans to sell its E&A business as a part of its restructuring plan at valuations of about 11,500 crore.

HSBC on TATA STEEL

HSBC reiterates 'Overweight' rating on Tata Steel. HSBC notes that the UK management is targeting GBP 55-60/t of cost savings over the next five years, with GBP 15-20/t over the next two years, GBP 20/t from the capture of gases currently flared and facilities eventually moving completely off-grid, and GBP 20/t from potentially captive coking coal. HSBC values Tata Steel on a sum-of-the-parts basis at a FY12E EV/EBITDA multiple of 6.5x for the Indian and other Asian operations and 5.5x for the European operations. A delayed expansion at Jamshedpur could cause HSBC to lower the volume estimates. Lowerthan-expected steel prices or higher-than-expected raw material prices could hurt earnings. Steel demand conditions in Europe and adverse carbon emission related policies also pose downside risks.

CLSA on SINTEX

CLSA initiates coverage on Sintex with a `Buy' rating and a price target of 200. Sintex's prefabricated structures and monolithic businesses are driving strong growth, while the composites business holds the promise for the next leg of innovation-led growth and is benefitting from leveraging pre-crisis acquisitions. Improving working capital discipline should underpin positive FCF (free cash flow) performance over FY11-13. Sintex's widening footprint and portfolio of offerings in prefab as well as the 2,600-crore order book in monolithics will support continuing growth here. The nature of its products and tight execution support superior margins in the business (about 19%). CLSA expects the stabilising business mix and improving capital discipline to drive positive free cash flow for Sintex over FY11-13. A lack of cash flow has been a key issue for Sintex over the past three years due to deteriorating working capital, which has risen from 46 days in FY07 to 152 in FY10 due to changing business mix and a lack of discipline. We expect this to stabilise at 115 days with rising management focus and capital discipline. CLSA expects Sintex to deliver a profit CAGR of 24% over FY11-13.