Stock views on Tata Power, ICICI Bank, Siemens India,

MERILL Lynch on RELIANCE INDUSTRIES

MERILL Lynch has cut its price objective on Reliance Industries (RIL) by 15% from Rs 1,825 to Rs 1,555 based on sum of the parts valuation. However, it continues to retain its ‘buy’ on the stock. The brokerage says that the cut is due to cut in the value of its refining business and value of its investment in RPL. The former has been cut by 56% to Rs 168 per share and the latter by 39% to Rs 137 per share. “We have steeply cut Singapore complex refining margins forecast for financial year (FY) 2010 and 2011 (expected). Consequently, refining margins of Reliance Industries (RIL) and refining subsidiary Reliance Petroleum (RPL), too, have been steeply cut,” the report said. The cut is relatively modest assuming a weaker rupee, it adds. RIL’s presence in E&P and petrochemicals also helped dilute impact of refining margin cut on RIL. The report says that the key risks include failure in the retail business, and changes in government policies like withdrawal of the tax holiday which may have a direct impact on the business, cash flow and profit, among other things.


Enam Securities on SIEMENS INDIA

Enam Securities has put an ‘underperformer’ on Siemens India on lower-than-expected results and poor performance by its subsidiaries. The brokerage says that Siemens’ continuing engineering businesses — power, industry and transportation are showing signs of slowing. The IT business is unlikely to create value for the shareholders. “We are revising our earnings estimates downward by 31% to Rs 18.5 to account for slowing business traction. We downgrade the stock to sector underperformer,” the report says. It adds that the management of the company has hinted at delays in contract finalisation and contract renegotiations at lower prices by customers due to the decline in commodity prices. The management believes that the power division will be a key growth driver, driven by strong growth in domestic market and huge opportunity in the Middle East. “Going forward, the management would be focusing on the quality and profitability of order rather than size and volume of the project,” says the report.


BNP Paribas Securities on ICICI BANK


BNP Paribas Securities has maintained its ‘buy’ rating on ICICI Banks on account of bank’s strategy of consciously slowing down on growth in riskier categories. The brokerage house says, “Our analysis of incremental advances — broken into mortgage, non-collateralised retail and corporate loans — vis-`-vis the incremental gross nonperforming loans (NPLs) additions indicates that bank’s strategy of consciously slowing down on growth in riskier categories has started yielding results.” It expects a slowdown in rate of growth of non-collateralised NPLs over the next two quarters, although in absolute terms, incremental NPLs will continue in the Rs 3-4-billion-perquarter range as at present. The brokerage says that the bank trades at one time its financial year 2010 (expected) book value at its target price of Rs 620. “We use a three-stage residual income valuation to arrive at our core bank target price of Rs 475 and a sum-of-the-parts approach to arrive at Rs 145 per share for subsidiaries. Our aggregate target price for ICICI Bank is Rs 620.”


Indiabulls on TATA POWER


Indiabulls has upgraded its rating on private power sector major Tata Power from ‘hold’ to ‘buy’. The brokerage is upbeat about the company’s future on the back of its upcoming projects. It believes that the existing power generation and distribution businesses and stable revenue-generating subsidiaries provide stability to the company. “Based on our SOTP valuation, we have arrived at a target price of Rs 872. It says that stock price has corrected sharply since our last quarterly report, and it is undervalued at the current market price. It, however, adds that the company may find it difficult to finance its other expansion plans. But due to its experienced management team, it is expected to tide over the current crisis. It adds that any delay in completion of the Maithon and Mundra power projects would adversely affect company’s rating

Stock views on ING Vysa Bank, Suzlon Energy, Balrampur Chini, Shobha Developers

ENAM Securities on ING Vysa Bank - Target RS 240

ENAM Securities has retained its “outperformer” rating on the stock with a price target of Rs 240, following robust second quarter numbers. “ING Vysya registered a 43% year-on-year growth in net interest income to Rs 1.56 billion driven by 26% growth in advance and 43-basis point improvement in NIM to 2.87%. The bank has shown a strong growth in NII over the past few quarters and the fee income growth is also impressive,” the Enam note to clients said. “While the tier-1 capital at 7% is bit of a constraint, the bank can still do well this year, even without raising any additional capital. The stock quotes at one time FY09(estimated) book value and 6.9 times FY09 earnings and is attractively valued,” the note added. While the stock has corrected significantly, given the multiple uncertainties, we believe it is best to stay away at this point, it goes on to add.

Morgan Stanley on Suzlon Energy - Target RS 52.45

Morgan Stanley has “downgraded” Suzlon Energy from overweight to equal-weight while lowering the price target to Rs 52.45 from the earlier Rs 450, citing slowdown in the global wind turbine market and the unresolved technological issues. “We expect a slowdown in the global wind turbine market in C2009, with growth moving down to only 6% from 25% in C2008,” says the report. Further, the foreign brokerage also does not expects Suzlon “to get access to REpower technology in the short term.” Morgan Stanley also feels that with the cancellation of the rights issue of the company, debt will become the primary source of funding the growth at Suzlon. “We believe that Suzlon is doing the right things... trying to delay the purchase of Martifer’s stake in REpower and cutting back on capex,” says the report. However, on our reduced numbers, we still perceive risk to Suzlon’s debt covenants. If the Martifer stake purchase cannot be pushed back, we expect Suzlon to breach its debt covenants, potentially resulting in punitive action from lenders, it adds.

ICICI Securities on Shobha Developers

ICICI Securities has maintained a “buy” on Sobha Developers after the company’s second quarter results were in line with expectations with revenues and PAT dipping 10% Y-o-Y and 13% Y-o-Y to Rs 2.9 billion and Rs 490 million, respectively. The brokerage, however, has downgraded the company’s NAV owing to sluggish sales and stretched balance sheet. According to the brokerage, the company is facing headwinds in the form of downturn in realty and strained balance sheet. “The debt level has increased three times to Rs 19 billion in one year, and new sales and project launches have slowed down. We lower FY09(estimated) NAV estimate to Rs 282/share (target price at Rs 169/share), assuming 25% drop in selling prices and increased timelines by 8-10 years (reducing development pipeline 55-65%). ICICI Securities has also lowered FY09E & FY10E earnings estimates by 51% and 71%, respectively. Sobha’s balance sheet is stretched and any respite through the proposed rights issue of Rs 3.5 billion will be temporary unless housing demand picks up, it adds.

Merrill Lynch on BALRAMPUR CHINI

Merrill Lynch has maintained an “underperform” rating on Balrampur Chini Mills while lowering the price target from Rs 56 to Rs 43. The brokerage’s revised price target is based six times FY09 (estimated) EV/EBITDA, which is equivalent to the long-term average of the sector since 1996, excluding periods of very low or negative profit. “Our price objective cut is driven by 17% cut in FY09E EPS and 6% cut in our target valuation multiple,” says the report. According to Merrill Lynch, key factors driving the earnings cuts are “4% higher sugarcane costs, 18% higher interest costs and 7% lower sugar sales volumes”. We expect the company’s earnings to remain under pressure due to fall in availability of sugarcane, the key raw material, adds the report.

Stock View on AIA Engineering, Container Corp, Kamat Hotels, Bajaj Hindustan

KOTAK Securities on AIA Engineering - TARGET PRICE: RS 1,870

KOTAK Securities has maintained its “buy” recommendation on the stock saying the stock is attractively valued at current levels, in the context of its growth prospects. The brokerage says that despite sharp increases in raw material prices and sharp rupee-dollar movements the company has been able to effectively maintain its operating margins, as it has been able to pass on price hikes. “Going forward, the management is confident of maintaining the margins in the 23-25% range. We maintain our earnings estimates for AIA and expect it to report an EPS (earnings par share) of Rs 98.1 in FY09E (estimated),” the Kotak Securities note to clients said. “The current market price, said the Kotak note, discounts FY09E earnings at 16.1, which we believe is attractive considering the growth prospects for the company going forward due to capacity expansion and strong demand for the products of the company,” the note added.

ENAM Securities on Container Corp - TARGET PRICE: RS 1,035

ENAM Securities has maintained its “outperformer” rating on the stock. Enam believes that despite improving visibility on earnings (19% CAGR over FY07-09E) and sustainability of RoE (return on equities) at around 25%, the stock trades at a 12% discount to the Sensex valuation. “Compared with global peers, admittedly with high barriers to entry, Container Corporation trades at 40% discount,” the Enam note said to its clients. According to Enam, growth in India’s export-import trade and investment in rail, road and ports infrastructure would drive growth for the company. “Steep increase in rail haulage charges had dampened volume growth in the past three years. Current pricing environment remains stable, with IR to hike haulage charges twice a year,” said the note. The brokerage expects Container Corporation EXIM throughput to revert back to long average of 14% per annum. “Lower flat discounts and increase in tariff are expected to drive 244 bps expansion in EBIT margin over the next two years,” the note added.

Sharekhan on Kamat Hotels

SHAREKHANhas initiated coverage on Kamat Hotels and has advised investors to maintain a cautious view on the stock. Though the stock is attractively priced, the inability of the hotel group to fund its expansion plans is a key potential risk to the earnings estimate for FY10, the research note said. “The company’s revenues are heavily dependent on two properties — The Orchid and VITS — in Mumbai. These two properties are like to face stiff competition with incremental supply of rooms from Sahara Star. We believe, the occupancy rate of these properties may remain suppressed due to economic slowdown,” the Sharekhan report added. According to Sharekhan, the hotel group’s growth would be driven by a 37% rise in its room inventory to 773 rooms by FY10. Also, an increase in properties under management contracts will contribute to the topline growth.

MORGAN Stanley on Bajaj Hindustan - TARGET PRICE: RS 240

MORGAN Stanley has assigned an “overweight rating” on Bajaj Hindustan, as it expect the company to do well in coming months. As the largest domestic sugar producer, Bajaj Hindustan seems well positioned to benefit from the favourable domestic sugar outlook, the brokerage said in a report. “As our expectation of a tighter sugar balance unfolds, investors may start discounting the higher sugar and ethanol realisations. BJH has increased crushing and distillery capacity more than three times in three years and seems poised to drive revenue growth in a constructive pricing environment,” said the Morgan note to clients. Aggressive government intervention to control sugar prices and cane cost could be one of the risk factors, according to Morgan. “We expect a sharp rally in Bajaj Hindustan’s stock price as the company reaps the benefits of aggressive capacity expansion in a constructive sugar pricing environment. We estimate the stock has more than a 25% chance of a price move (up or down) of more than 25% in a month, based on a quantitative assessment of historical data,” the note added.

Stock Views on Balaji Telefilms, Ranbaxy, Jyothi Structures, Hindalco Industries

MERILL Lynch on Balaji Telefilms - TARGET PRICE: RS 177

MERILL Lynch has maintained its “underperform” ratings on Balaji Telefilms. Recently, the STAR Group (STAR) had said it would sell 25.99% stake in BTL to the promoters or parties nominated by it at Rs 190 per share in 240 days. This implies that Balaji would be free to do programming for STAR’s rivals in certain time slots. “However, given the dominance of STAR Plus in the Hindi general entertainment (GE) space, we believe that the incremental opportunity could have lower ratings and higher costs. We think it is fraught with lower margins, lower RoE, and therefore, not positive for Balaji,” the Merrill note to clients said. “We believe earnings in Balaji’s core content business is set to slow — 12% CAGR (FY08-10 estimated) against a robust 27% (FY05-07),” the note added, citing limited prime time slots left for programming in the Hindi GE space, weak ratings on STAR Plus, entry into lower margin movies and higher costs on political intervention in labour matters as the reasons.

UBS on Ranbaxy - TARGET PRICE: RS 511

UBS has downgraded its ratings on Ranbaxy from “neutral” to “sell” , citing the ongoing investigation by the US Food and Drug Administration as a major concern. “We believe the ongoing US investigation is unlikely to be resolved in the short term and that negative publicity and heightened scrutiny are likely to result in slower product approvals in the US and other markets. We, therefore, now value Ranbaxy’s core business in line with tier-II Indian generic companies at 18 times adjusted forward earnings,” the UBS note to clients said. UBS has slashed its price target for Ranbaxy to Rs 511 from Rs 593 earlier and lowered its earlier earning per share estimate for 2008 by nearly 33% to Rs 12.78. “Our lower 2008 forecast is primarily due to FX translation loss on FCCBs,” the UBS note to clients added, also mentioning that the business outlook for the company remained “challenging”. “We believe Ranbaxy continues to face challenges in the EU market and that 10-12% year-on-year (Y-o-Y) represents the best case organic revenue growth for the company,” the note said.

MF Global on Jyothi Structures - TARGET PRICE: RS 192

MF Global has recommended a “buy” on Jyoti Structures, citing strong order flows, and an export focused business model which exposes the company to fewer operational risks. The brokerage expects JSL to report a 41% compounded annual growth in revenues between FY08-10 (estimated) and a 39% CAGR in earnings. According to MF Global, the company plans to invest more than Rs 600 million (FY09E) to strengthen its export presence in areas like the Middle-East and Africa. “The capex would mainly be towards buying construction equipment and CNC machines,” the MF Global note to clients says. MF Global expects the company to outperform its peers in a rising input cost scenario. It expects an inflow growth of 25% each during FY09E and FY10E and any positive surprise with respect to inflows would lead to a further increase in profit after tax for JSL.

ENAM Securities on Hindalco Industries - TARGET PRICE: RS 182

ENAM Securities has assigned an “underperformer” ratings to Hindalco as it feels the company’s proposed rights issue is diluting the growth of the company Hindalco is planning a rights issuance of three shares for seven existing shares at Rs 96 per share. “This is in contrast to the earlier envisaged one share for every three shares around Rs 120 per share and is round 30% discount to FY08 book value per share. The issuance hints at a sense of urgency for fund raising, given tight capital market conditions, to retire $3-billion bridge debt that expires in November 2008,” the Enam note to clients said. “We reduce our FY09 and FY10 earnings per share estimate to Rs 17.5 (Rs 19.9 earlier) and Rs 22.7 (Rs 24.4 earlier), respectively, to reflect more-than-anticipated rights dilution at lower price and attendant net interest impact,” the note added.