Citigroup on JSW Steel

Citigroup rates JSW Steel with a `Buy’/`Medium Risk’ rating based on the positive Indian steel outlook, strong volume growth and less balance sheet stress. JSW Steel’s adjusted PAT for Q3FY10 was Rs 410 crore, higher than expectations, driven by a 100% y-o-y jump in volumes, a better mix and lower per tonne costs. Citigroup assumes a 23% price decline in average iron ore prices in FY10, but an average hike of 8% in FY11 and 2% in FY12. For coking coal, Citigroup assumes a 60% y-o-y price decline in FY10, but a 60% hike in FY11 and flat in FY12. The combination of higher prices and lower costs should help consolidated EBITDA margins to rise from 22% in FY09 to 24% in FY11 and 27% in FY12. Citigroup values the standalone business at 6.5x EV/EBITDA. We value the other businesses (mainly represented by US pipe and plate operations) at 3x EV/sales. We use 3x EV/sales as utilisation levels at its US business are quite low at 25-30% in FY11E. This gives a negative value resulting in a net target price of Rs 1,027/share. At our target price of Rs 1,027, the stock would trade at a consolidated March 2011E EV/EBITDA of 6.9x and P/E of 9.3x.

Sector View on Indian Steel Industry

KRChoksey Shares & Securities on TATA STEEL

The company’s EBITDA has increased by 43.68% Y-o-Y from Rs 2,733.4 cr to Rs 3,075.9 cr. While PAT has increased to 50.13% from Rs 1,488.4 cr to Rs 1787.8 cr. Other income has also increased by 152.72% which has led to increase in the profit margins. We recommend a buy on the stock despite the growth concerns purely on the basis of attractive valuations.

KRChoksey Shares & Securities on SAIL

SAIL’s net sales increased 34% Y-o-Y to Rs 12,238.59 crore in Q2FY09 as against Rs 916 3.49 crore during Q2Y08. EBITDAof the company registered a growth of 17% Y-o-Y to Rs 3,433.92 crore & PAT rose by 18% Y-o-Y to Rs 2,009.6 crore. The second half of FY09 is expected to present significant challenges in the metals sector, though the long term fundamentals of the company remains strong.

Geojit Financial Services on JSW STEEL

The company is among the largest Indian steel companies. It has now tied up with UK based Severfield Rowen to float an equal stake joint venture company for manufacturing construction steel. The net profit of the company has grown 44.72% from the June quarter to this September quarter. The P/E of the stock is 3.43 and the EPS (TTM) is at 70.89.

Geojit Financial Services on WELSPUN GUJARAT STAHL

Welspun Gujarat Stahl Rohren is the flagship company of Welspun Group. It is all set to be positioned as the world’s largest pipe company with an increase in capacity from 1 million ton pa to 1.75 million ton by March 2009. The debt-equity ratio at 1.21 shows that most of the assets are financed and it must set aside more money to pay the cost of borrowed money.

Emkay Global Financial Services on HEG

HEG will become number one manufacturer of graphite electrodes in India after its expansion from 60000 tpa to 80000 tpa by Q4FY09. We expect topline and PAT to have CAGR of 37% and 25% respectively for next two years. It is trading at 5.9x FY09E FDEPS of Rs21.2 and at 2.6x FY10E FDEPS of Rs48.8.

Emkay Global Financial Services on GODAWARI POWER AND ISPAT

Godawari Power’s iron ore pelletisation will commence in 2HFY10 while the iron ore mining will start from Q4FY09 which will translate into tremendous savings. PAT is expected to grow at CAGR of 47% GPIL trading at 1.6x FY09E FDEPS of Rs40.2 and at 0.8x FY10E FDEPS of Rs76.6, while on EV/EBITDA basis it is trading at 2.4x FY09E EV/EBITDA and at 1.2x FY10E EV/EBITDA.

Stock views on Bajaj Auto, JSW Steel, Marico

IIFL on Bajaj Auto - Target of Rs 670

IIFL has recommended a buy rating on Bajaj Auto with a target price of Rs 670 in its research report.

"After two years of declining volumes, Bajaj Auto is poised for profitable growth, on the back of a series of model launches in the high-margin 125cc+ segment. We believe strong margin expansion aided by volume growth in this class of bikes will drive a re-rating in the stock. The stock is trading at a PE of 9x on FY10ii—a 30% discount to Hero Honda, which is trading at 12.8x. We value the stock at 11x FY10ii and rate it a BUY with a target price of Rs 670," says IIFL's research report.

Karvy on JSW Steel - Target of Rs 834

Karvy Stock Broking has maintained its buy rating on JSW Steel with target price of Rs 834 in its research report.

"JSW Steel, India's third-biggest producer, is on target to achieve robust sales volume growth during Q4FY2009. It is likely to sell 1.2 million tonnes of steel as against 0.7 million tonnes during Q3FY2009. However, it is to be noted that the YoY sales volume is likely to be flat."
"We believe that the sales volume growth could help the company in posting EBIDTA growth on QoQ in absolute terms, but the EBIDTA margin of 15% is expected to be under pressure due to the lower price realization. In our opinion, the current rally in JSW Steel and other steel stocks is driven by the strong sales volume growth during Q4FY2009. We maintain our BUY rating on the stock with target price of Rs 834," says Karvy Stock Broking's research report.

IIFL on Marico - Target of Rs 80

IIFL has recommended a buy rating on Marico with a target price of Rs 80 in its research report.

"The recent hike in minimum support price (MSP) for copra by the government has given rise to concerns on Marico’s margin outlook for FY10. Historical evidence leads us to believe that the MSP hike will not alter copra price dynamics. NAFED (National Agriculture Marketing Federation), the nodal procurement agency for copra, has in the past not been as effective in supporting copra prices."

"Perishable nature of copra as well as the dearth of funds has compounded the problem of NAFED being not an end-user itself (unlike FCI), necessitating liquidation of copra inventory in the market within four months of procurement. Importantly, copra demand, over 50% of which comes from edible coconut oil, has fallen this year as consumers switch to cheaper options such as palm oil, creating downward pressure on copra prices. Copra prices are likely to rule 7-8% lower in FY10 (YoY) benefiting Marico, supporting a 110 bps gross margin expansion in FY10, in our estimate. BUY with a target price of Rs 80," says IIFL's research report.

Stock Views on JSW Steel, Hindalco Industries,

Citigroup on JSW STEEL

Citigroup has maintained its ‘sell’ rating on JSW Steel while cutting its target price to Rs 185 from Rs 190. “We are revising our estimates to account for lower raw material prices, domestic realisation, revised volumes and capex, and weaker performance by the US subsidiary,” the investment bank said in a report. “The benefit of lower raw material prices is largely offset by weaker prices,” it said. “We expect total net debtequity ratio by March 2009 to be approximately 2x (times), making JSTL (JSW Steel) riskier in a downturn,” Citi added.

JP Morgan on HINDALCO

JP Morgan is reviewing its earnings estimates for Hindalco amid concerns over the outlook of US-based Novelis, which the Aditya Birla Group has acquired a couple of years back. Novelis reported a sharp decline in earnings in the December quarter. The brokerage has a 'neutral' rating on the stock. " On the operating front, we are negatively surprised by the sharp decline in shipments (-13% y/y) While there is a strong element of de-stocking (similar to steel), given Novelis' large exposure to Europe and North America, we expect shipments to remain weak well into the second half of financial year 2009-10 (estimated)," the investment bank said in a report.

Stock Views on JSW Steel, HCL Tech, Tata Steel, HCC, Great Offshore

Tata Steel

Buy Target Rs 1083

Emkay Global Financial Services Ltd has recommended by rating on Tata Steel, with price target of Rs 1083, in its report dated 4th August, 2008.Tata Steel reported standalone 1QFY09 results, which are significantly ahead of our estimates. Net sales stood at Rs 61.65 billion (yoy up 46.9%, qoq up 7.5%), EBITDA stood at Rs 30.25 billion (yoy up 78%, qoq up 25.9%) and adjusted PAT stood at Rs 16.56 billion (yoy up 71.1%, qoq up 27.3%). The company reported Fx loss of Rs 3.03 billion. During the quarter, production volume declined by 6.4% on sequential basis to 1.19mt. The reduction in volumes was primarily on account of shutdown for 1.8mtpa expansion. Tata Steel expects 1.8mtpa expansion project to be ramped up by the end of 2QFY09. In 1QFY09, the company commenced “H” blast furnace having capacity of 2.5mtpa. For FY09, Tata Steel expects incremental hot metal production of 1mtpa. At CMP of Rs 681, the stock is trading at 6.3x FY09E FDEPS of Rs 108.3 and at 5.4x FY09E EV/EBITDA. We maintain BUY on the stock with target price of Rs 1,083.

HCL Tech

Accumulate Target Rs 297

Emkay Global Financial Services Ltd has recommended to accumulate HCL Technologies, with price target of Rs 297, in its report dated 4th August, 2008.We have revised our estimates and now build in (1) lower revenue growth (we expect FY09E US$ revenues growth at 19.4% now V/s 22.5% earlier, albeit see significantly lower/ negligible risk to these estimates), (2) lower employee addition (though compensated by an increase in utilization levels) and (3) exchange rate assumption set at Rs 42/$ and Rs 41/$ for FY09 and FY10 (in line with other peers). We now expect HCLT to report earnings of Rs 22.1 and Rs 24.8 for FY09 and FY10 respectively (highlight that sees low risk to these earnings estimates). With valuations looking extremely compelling at

JSW Steel

Buy Target Rs 1380

Emkay Global Financial Services Ltd has recommended buy rating on JSW Steel, with price target of Rs 1380, in its report dated 4th August, 2008. JSW Steel reported 1QFY09 results, which are significantly ahead of our estimates. Net sales stood at Rs 44.56 billion (yoy up 85.9%, qoq down 9.3%), EBITDA stood at Rs 8.15 billion. However, this includes forex loss of Rs 3.67 billion of which Rs 2.29 billion is on capital account translational loss. Adjusting for the notional Fx loss (including the impact on deferred tax on the same) EBITDA stood at Rs 10.4 billion (yoy up 46.5%, qoq down 1.5%) and APAT stood at Rs 4 billion (yoy up 35.7%, qoq up 30.1%). JSW reported Adjusted FDEPS of Rs 20. We believe a large part of this performance is attributable to the exports where we believe the realization is significantly higher as compared to the domestic markets. At CMP of Rs 797, the stock is trading at 8.6x FY09 and 5.7x our FY10 FDEPS estimate of Rs 93 and Rs 138 respectively. On EV/EBITDA, the stock currently trades at 5.7x and 4.3x FY09 and FY10 estimates. We maintain BUY on the stock with target price of Rs 1,380 which is 10x our FY10E consolidated FDEPS.

HCC

Buy Target Rs 125

Emkay Global Financial Services Ltd has recommended buy rating on Hindustan Construction Company, with price target of Rs 125, in its report dated 28th July, 2008. We continue to maintain our positive view on the company, as we believe that the company has one of the best quality orders, which should help it withstand the tough times ahead. The company’s real estate business is also shaping up well with two key projects of Lavasa and Vikhroli IT park expected to start generating revenues in the near term. The stock is currently trading at 13.1x FY09E EPS of Rs 4.3 and 8.5x FY10E EPS of Rs 6.8 (adjusting for value of non-contracting businesses). We value the construction business at Rs 87 per share base on 12.8x FY10E EPS. We assign our bear case valuation to the non-contracting businesses with real estate being valued at Rs 36 per share and the alone annuity BOT project valued at Rs 2 per share. We thus arrive at our target price of Rs 125 per share, which represents an upside of 30% from the current market price. We maintain our ‘BUY’ rating.

Great Offshore

Buy target of Rs 710

Emkay Global Financial Services has maintained its buy rating on Great Offshore with a target price of Rs 710 in its August 4, 2008 research report. "Great Offshore’s (GOFF) Q1FY2009 pre-exceptional net profit at Rs 356 million is below our expectation primarily because of lower revenue continuation from high margin offshore segment and higher than expected repairs & maintenance cost for the quarter.""We are not changing our earnings estimates for GOFF. The company has announced that it has called of its intention to acquire majority stake in Seadragon Offshore. Hence is absence of any near term upside from acquisition we are downgrading price target of GOFF to Rs 710. We have valued GOFF at 8X its FY2010 earnings of Rs 66 and added FY2010 estimated cash per share of Rs 180 on its book. Stock currently trades attractive valuations of 6.3X its FY2010 earnings and 3.74 X EV/EBIDTA. Maintain BUY," says Emkay Global Financial Services' research report.

Research by Emkay Global