Stock views on Andra Bank, Honda Motors

Kotak Securities on Andra Bank - TARGET PRICE: RS 81

Kotak Securities has initiated coverage on Andhra Bank with an ‘accumulate’ recommendation, saying the bank has one of the lowest NPAs (non-performing assets) in the industry and hence is better placed vis-à-vis its peers. The fact that the bank has been focusing on high yielding segments like agriculture, infrastructure, SMEs and retail has helped it deliver higher margins as compared to other public sector banks, says Kotak. “The bank’s gross NPA came down from 5.04% in FY04 to 1.07% in FY08 and net NPA declined from 0.93% to 0.17% during the same period,” the Kotak Securities note to clients said. The brokerage expects the bank to post an earnings growth of 1.1% CAGR (compound annual growth rate) for FY08-10E (estimated) as a result of moderate loan growth and lower noninterest income. However, says the note, the noninterest income would contribute less in the banks total income due to subdued equity market as well as increase in bond yields with corresponding fall in bond prices.

BNP Paribas on Honda Motors - TARGET PRICE: RS 884

BNP Paribas has upgraded its rating on two-wheeler major Hero Honda from ‘reduce’ to ‘buy’. The brokerage believes that potential upside on volume and earnings upgrades may act as positive catalysts for the stock. The year-to-date (YTD) growth in retail sales for Hero Honda, says the brokerage, were up 18% y-o-y (year-on-year) versus industry growth of 9.8% and going forward too, the volume growth looks healthy. “We don’t see any risk to our volume estimate, because our FY09 volume growth of 12.9% implies a 10% growth over the next eight months compared to a 17% growth achieved in the first four,” BNP Baribas note said in its note to clients. The brokerage has increased the FY09 EPS (earnings per share) and FY10 EPS estimates by 6.9% and 9.1% respectively. It expects the company’s net margins to be protected by fiscal benefits. “We do not see any threat to Hero Hondas’s net margins because we expect the aggregate 3-3.5% price increase (taken in two parts) coupled with lower tax rate due to fiscal benefits from the Haridwar plant to offset input cost pressure on the EBITDA line,” the note added.

Hem Securities Views on Gujarat Fluorochemicals, United Spirits, Aban Offshore

Buy Gujarat Fluorochemicals - Target of Rs 300

Hem Securities has recommended a buy rating on Gujarat Fluorochemicals with a price target of Rs 300 in its June 11, 2008 research report. "The company has been a pioneer in the refrigerant business and is has also diversified into the power generation and carbon credits. The chemical complex commissioned in Dahej will strengthen the cost competitiveness of the company by making it amongst the most integrated manufacturers of these products and add longevity to the company’s refrigeration business. The growing demand for PTFE is also expected to take the company on higher rungs of success. The company’s top line and bottom-line has grown with a CAGR of 61.41 % and 92.92 % re-spectively from FY05 to FY08, indicating the robust growth in its business."

"Presently, the stock is trading at Rs 195 which is 7.05 times to its earnings and 2.28 times to its book value. Keeping in view the robust opportunities in the industry, capacity expansion of the company and the growth rate of Gujarat Fluorochemicals, we initiate a ‘BUY’ signal on the stock with a price target of Rs 300 in the long term investment horizon, expecting an appreciation of 54% from the current price of Rs 195" says Hem's research report.

Buy United Spirits - Target of Rs 1803

Hem Securities has initiated a buy signal on United Spirits with a target price of Rs 1803 in its August 7, 2008 research report. "United Spirits Ltd has announced outstanding results for Q1FY09. The company being the largest spirits company in the country had posted good results for the year ended March 2008. The Net sales grew by 16.75 per cent to Rs 31663 million in FY08, while the bottom line stood at Rs 3210.60 million with net profit margins scaling up to 10.14 per cent versus 8.55 per cent clocked in the previous year."

"Presently, the stock is trading at Rs 1342 which is at 38.34 times to its earnings and 6.06 times to its book value of Rs 221.31. Since the stock seems to offer extremely good investment opportunities, we initiate a ‘BUY’ signal on the stock with a target price of Rs 1803 in medium to long term investment horizon expecting an appreciation of about 34 % from the current level of Rs 1342," says Hem's research report.

Buy Aban Offshore - Target of Rs 5555

Hem Securities has initiated a buy rating on Aban Offshore with a target price of Rs 5555 in its August 6, 2008 research report. "The company posted excellent financial figures for the quarter ended June 2008. The net sales for the company gone up by 93.52% to Rs 2469.51 million for the Q1FY09 as against the net sales of Rs 1276.13 million for the Q1FY08. The net profit for the company rose to Rs 715.10 million for the Q1FY09 in comparison to net profit of Rs 283.75 million for the Q1FY08 with the growth rate of 152.02%."

"We initiate a ‘BUY’ signal on the stock at the current levels with a target of Rs 5555 in the medium to long-term investment horizon with an appreciation of 120.25%," says Hem's research report.

Stock Views on Larsen Toubro, Container Corp Of India, Areva TD, HCL Technologis, Ansal Properties

MORGAN STANLEY on LARSEN & TOUBRO - RATING: OVERWEIGHT


MORGAN Stanley believes that fears of the impact of a slowdown in the capex cycle in India on Larsen & Toubro (L&T) are exaggerated. It expects L&T to gain market share during the slowdown, so the risk-to-growth estimates will remain low. Morgan Stanley believes L&T is the lowest risk play in the sector and strongly recommends buying into any weakness. However, despite the upgrade, Morgan Stanley estimates a CAGR of 25% for L&T’s standalone earnings over FY08-10E against 57% over FY06-08E. L&T will be cushioned from the slowdown due to its propensity to gain market share in slowdowns, its entry into newer verticals and its exposure to the Middle East. On a bottom-up basis, healthy capex trends in verticals (E&P and metals) further increase the company’s ability to weather the slowdown.


JP MORGAN on CONTAINER CORP OF INDIA - RATING: OVERWEIGHT


JP Morgan has assigned an ‘overweight’ rating on Container Corporation of India (Concor) with a March ’09 price target of Rs 1,010. The price target implies a 16% potential share price upside from current levels. Concor is India’s largest railway container freight operator with an over 90% market share. By that estimate, Concor will have an earnings CAGR of 16% over FY08-10 driven by growth in containerised cargo traffic. Given sustained growth in India’s foreign trade, JP Morgan expects container traffic to grow at 14% over FY08-10E. It expects Concor to be a key beneficiary of this growth, given its unparalleled infrastructure network with 58 inland container depots (ICDs) and over 150 rakes and established customer relationship. The company’s revenue growth is likely to accelerate to 18% CAGR over FY08-10E (versus 10% in FY08), given a sharp increase in customer tariffs. The March ’09 price target is based on discounted cash flows (DCF) and implies 13x oneyear forward P/E on FY10E EPS (which is at a 10% discount to its average historical three-year multiple). The multiple looks justified, given rising competition and moderation in earnings growth. Downside risks to the price target and view are a challenging macro environment, given high crude oil prices and rising inflation, which can slow down India’s foreign trade; and a sharper-than-expected increase in competitive intensity.


CITIGROUP on AREVA T&D - RATING: HOLD


CITIGROUP has initiated a ‘hold’ recommendation on Areva T&D India with a target price of Rs 1,809. Areva T&D’s EPS has witnessed a CAGR of 117% over CY04-07 and expanded return on equity (RoE) from 11.4% to 46.5%, aided by a focus on higher-margin national grid/selected orders for the Accelerated Power Development and Reform Programme (APDRP) and growth off a lower base. Further, the company’s EPS is expected to witness a CAGR of 32% over CY07-10E, versus that of ABB at 25%, with higher RoEs of ~40% versus ABB at ~30%. Discussions with the management suggest that any foray into the nuclear power equipment business in India will be through a separate entity. Globally, Areva is at No 3 after ABB and Siemens in power T&D. ABB has historically been the market leader in India. However, Areva T&D India has edged past ABB in H1 CY08 with a market share of 22.4% vs 19% for ABB and 12% for Siemens. These are strong end markets and low-cost manufacturing centres. Areva T&D Global has a clear strategy of making these two countries global sourcing hubs. Currently, exports contribute 14% to Areva T&D India’s sales and are expected to jump to 25% by CY12E. The stock trades at a P/E of 19.7x CY09E and provides limited upside to the target price of Rs 1,809. The target price is based on a P/E of 23x December ’09 set at a 9.5% premium to historical average P/Es and is in line with that of ABB’s. Order inflow momentum, execution and commodity price movements can drive share price movements.


INDIABULLS SECURITIES on HCL TECHNOLOGIES - RATING: BUY


INDIABULLS Securities has maintained its ‘buy’ rating on the stock because the company witnessed a strong deal inflow during Q4 ’08 ($310 million) and signed a total contract worth $1 billion during the year. HCL Technologies reported strong results for the quarter and the year ended June ’08. Its topline recorded a sequential growth of 11.5% to Rs 2,170 crore, driven by an appreciating dollar and a modest volume growth. EBITDA margin increased by 117 bps q-o-q to 23.4%, led by an improved operational efficiency and a decrease in the cost of revenue, which helped offset the increase in SG&A expenses. Although in a weak macro-economic environment, pricing will continue to remain under pressure, Indiabulls expects the company’s revenues to grow at ~21.4% in dollar terms for FY09, driven by volumes. Besides, gain from the appreciating dollar against the rupee will also help improve revenues to grow at 27.2% in rupee terms for FY09E. Despite a slowdown, the US remained the highest revenue contributor and showed a decent growth throughout the year. Besides, the company steadily improved its utilisation rate from 69.2% in Q1 ’08 to 73.9% in Q4 ’08, which helped improve margins. Despite having stable fundamentals, the stock is trading at a discount of 29% to the average industry multiple. Moreover, valuation gives a fair value of Rs 316. The stock has an upside of around 37%.


MACQUARIE on ANSAL PROPERTIES - RATING: NEUTRAL


ANSAL Property and Infrastructure (APIL)’s leverage ratios are stretched. Its net debt-to-equity ratio (incorporating the impact of outstanding land payments) stands at 165%. This does not include any impact of off-balance sheet financing. APIL’s stretched balance sheet and the general scenario of tight liquidity are primary concerns. Macquarie has a limited visibility on sources of capital which will be used to generate profits from this land bank. Investors are unlikely to (and should not) attribute any value to profits earned over and above the replacement cost of the land bank. Macquarie has cut its NAV estimates to reflect this change in opinion. Its ~240 million sq ft of land in North India provides APIL the scale to enjoy preferred supplier relationships. Margins are likely to be supported by the low average cost of land acquisition (Rs 121/sq ft). Projects in North India account for 100% of APIL’s NAV and land bank. This concentrated land bank limits its ability to focus elsewhere if this market experiences a slowdown. North India has seen rapid price rises and even more rapid project launches in the past 2-3 years. Incrementally, this scenario is likely to be exacerbated by a surge in secondary market supply, as speculators try to exit properties bought in the past two years. The target price of Rs 100 based on a 25% discount on NAV remains unchanged. APIL is trading at a 24% discount to liquidation value and below its book value. This provides downside support. Nevertheless, Macquarie has downgraded the stock to ‘neutral’ from ‘outperform’ as the stock lacks triggers, which may keep the share price at depressed levels.