BANK OF AMERICA MERRILL LYNCH on JET AIRWAYS

We have raised our FY10-FY12 EBITDAR estimate by 2-3.5% on better visibility of continued strong traffic growth. The focus on the low cost arm Jet Konnect and route rationalization have enabled Jet to post its strongest passenger growth in last 3 years. For the month of November, Jet Airways recorded a 33% growth in passenger traffic, in the domestic sector (industry growth 29.8%) and 19% in the international segment. For FY11, Jet is expected to show strong 15% passenger growth (earlier 14%) in the domestic sector. Jet Airways is expected to post strong passenger growth numbers and yields in the month of December on the back of ongoing holiday season. This should enable Jet to breakeven for the first time in the last seven quarters. Maintaining our target multiple, our price objective increases to Rs 600.

Stock views on Jet Airways, Unity Infra, Hindustan Construction Company

IndiaInfoline on Jet Airways - Target Rs 575-580

IndiaInfoline is bullish on Jet Airways and has recommended buy rating on the stock with a target of Rs 575-580, in its research report.

"On the daily chart, Jet Airways has formed a bullish price channel. It is a continuation pattern that slopes up and is bound by an upper and lower trend line. On Tuesday, the momentum indicator RSI depicted a positive divergence. In addition the stock is trading above its key short-term moving averages. We recommend a buy at current levels and on declines up to Rs 555 with a stop loss of Rs 551 for a target of Rs 575, 580," says IndiaInfoline research report.

Karvy Stock Broking on HCC - Target Rs 171

Karvy Stock Broking is bullish on Hindustan Construction Company, HCC and has recommended buy rating on the stock with a target of Rs 171, in its research report.

“Hindustan Construction Company (HCC) one of the largest and oldest companies engaged in construction business is in a sweet spot with core construction business on a growth trajectory driven by improving visibility for new order inflow and 135% higher infrastructure investments in 11th five year plan. We expect order book would grow at CAGR of 19% over the next two years to Rs 233 billion, primarily from sectors like hydro power and irrigation."

"Consequently, HCC's revenue would grow at CAGR of 26% over FY10-11 and able to sustain margin at higher level. In addition to that, value unlocking from its foray into real estate primarily Lavasa Corporation would add significant value to HCC's shareholders. We initiate coverage with a BUY rating and price target of Rs 171 based on our SOTP (Sum of the Parts) valuation,” says Karvy Stock Broking research report.


Nirmal Bang on Unity Infra - Target Rs 669


Nirmal Bang is bullish on Unity Infraprojects and has recommended buy rating on the stock with a target of Rs 669, in its research report.

"Unity Infraprojects has raised Rs 73.3 crore through a QIP issue. The QIP was issued at Rs 506 per share resulting in a post issue dilution of 10.7%. The promoter shareholding in the company now stands at 62.7% down from 69.5%. The company has issued 14,49,476 shares at a premium of Rs 496 per share. The equity share capital for the company now stands at Rs 14.8 crore. We have revised the target price of UIL to Rs 669 per share down from Rs 726 primarily to factor in the equity dilution. At the current market price of Rs 508 per share the stock looks quiet attractive. We maintain a ‘BUY’ recommendation with a long term view," says Nirmal Bang research report.

Stock Views on Hero Honda, Jet Airways, HDFC, Hindustan Zinc

Centrum Broking on HINDUSTAN ZINC

Centrum Broking has cut earnings estimates of Hindustan Zinc following disappointing quarterly results, but upgraded its rating on the stock from ‘reduce’ to ‘hold.’ The company has hefty cash on books of Rs 9310 crore and its capex requirement for next two years is only about Rs 2600 crore, which translates into Rs 220/share. “We believe a part of the cash would be given back to investors in the form of dividend as the outlook for core business looks gloomy,” the Centrum note to clients said. Centrum has cut earnings estimates for FY09 by 21.5% to Rs 66.1 (earlier Rs 84.2) and for FY10 by 24.5%. We believe the stock is cheap on valuation parameters. Besides, company has indicated that it would maintain volume growth and also cost would decline by about 5-7% going forward. This along with the imposition of 5% import duty on zinc would help improve margins going forward.

Deutsche Equities on HDFC

Deutsche Equities has retained its ‘buy’ rating on HDFC, post its third quarter earnings, but slashed price target of the stock. “The exceptionally difficult environment of Q3FY09 for both demand and cost of funds has already started improving. We have pared our earnings estimates, reflecting lower treasury profits and mark-to-market on foreign currency bonds,” the Deutsche Equities note to clients said. “The sharp sell-off post announcement of results appears excessive as we believe that in such an environment, keeping margins reasonable is more important than growth. Key risks are continued high property prices hurting mortgage demand and high capital needs of subsidiaries putting pressure on HDFC’s balance sheet,” the note added.

Prabhudas Lilladher on JET AIRWAYS

Prabhudas Lilladher has retained its accumulate rating on Jet Airways, saying the company’s earnings could be under pressure for some more time, despite the price of aviation turbine fuel coming down by half. “Benefit of this (lower ATF price) has been passed on to consumers as the company announced around 40% cut in basic fares effective January 2009. This should allow the airliner to operate closer or even above the break-even load factors for the subsequent quarters,” the Prabhudas Lilladher note to clients said. “Correction in the ATF prices has provided pricing flexibility, which in turn, should drive passenger volume growth. However, this is not enough as high interest burden and depreciation expenses will result in the company reporting losses for at least for next two years,” the note added.

Merrill Lynch on HERO HONDA

Merrill Lynch has retained its buy rating on Hero Honda citing better than expected third quarter earnings. “Margins expanded 50 basis points year-on-year and 90 basis points quarter-onquarter at 14.5%, mainly driven by lower raw material costs. We expect margins to improve further as the full benefit of softening commodity prices will be reflected hereon,” the Merrill note to clients said. “We expect the industry to end the fiscal year with low-single digit growth, constrained by lack of financing. However, we expect Hero Honda to stay ahead on the strength of its brand, and new launches. We maintain our 9% and 6% volume growth assumptions for FY09 and FY10 respectively,” the note added.

Stock Views on Bharti Airtel, Jet Airways, Lanco Infra, MTNL

HSBC Global Research on Bharti Airtel

HSBC Global Research has assigned an ‘overweight’ rating to the stock saying the company’s strong balance sheet and infrasharing models will allow it to consolidate its revenue market share leadership further. “We value the core business at 12.5 times FY10 (estimated) EPS (earnings per share) at Rs 660 per share and tower valuations of Rs 183 per share,” said HSBC Global Research in a note to its clients. The research firm is positive on Bharti based on a combination of expected sharp growth in the Indian wireless market, execution of a low-leverage, low-cost business model with a high return on invested capital, and a close alignment of majority and minority shareholder interests. However, it views higher regulatory charges and aggressive international expansion as key downside risks.

Citi investment research on Jet Airways

Citi investment research has changed its rating on the stock to ‘sell/high risk’ from sell/medium risk with a revised target price of Rs 167 from Rs 440. “Jet merits a high risk rating, given the competitive scenario in the domestic market, unstability in its international operations and its highly leveraged balance sheet,” said Citi in a note to its clients. Citi believes that Jet’s operating cash losses will continue into FY10 and expects the company will need to raise fresh funds to refi-nance debt repayment (around $280 million over FY09/10E). “Debt/equity ratios are rendered meaningless given the significantly affected net worth — debt-equity is forecast at seven times end FY10E (including asset revaluation reserves),” said the Citi note. According to Citi, the company will face recurring losses of over Rs 36 billion (earlier Rs 20 billion) over FY09-FY10 due to decelerating passenger traffic and escalating cost pressures (aided by depreciating rupee). It expects the yields to dip by 12% in FY10E as lower fuel prices will be passed on to the customers.

ICICI Securities on Lanco Infra

ICICI Securities has maintained its ‘buy’ rating on the stock. “We believe that the expected commissioning of Amarkantak I (300MW) by end-November 2008 would result in reducing execution risk/discount associated with Lanco’s power portfolio,” said ICICI Securities in a note to its clients. According to ICICI Securities, Lanco’s ongoing litigation with MP SEB to convert Amarkantak I from PPA (power purchase agreement) to merchant is expected to be resolved soon and even 50% conversion will provide upside of Rs 35/share. “Lanco has emerged as the sole bidder for the 1,320 MW coal-based power plant at Rajpura, Punjab. We ex-pect the tariff of the project to be lucrative, providing healthy upside along with Rs 70 billion EPC potential,” said the note. The NAV (net asset value) estimates for Lanco stand at Rs 65 billion or Rs 296 per share, the ICICI note said.

Merrill Lynch on MTNL

Merrill Lynch has maintained its ‘underperform’ rating on the stock with a lowered target price of Rs 65 from Rs 110 earlier, saying it has valued the company’s core telecom business at a 25% discount. “The discount captures the risk of potential large cash outgo towards its assured 3G licences. The stock appears cheap at a price/book of around 0.4 times FY09 and this reflects its low RoE (return on equities) of around 2-3%,” said Merrill Lynch in a note to its clients. Merrill Lynch has cut earnings by 35% for FY09E and 29% for FY10E. “This reflects around 3-5% cut in topline and 4% rise in operating costs. We now forecast MTNL’s EBITDA margin at 11-13% for FY09-10E vs 10% margin in 1H FY09,” the note said.

Stock Views on Axis Bank, Hindalco Industries, ITC, Jet Airways, Maruti Suzuki, Tata Motors

BNP PARIBAS on HINDALCO INDUSTRIES


BNP Paribas initiates coverage on Hindalco Industries with a ‘reduce’ rating. Hindalco’s operating performance is leveraged to aluminium prices. Global aluminium consumption growth is likely to slow to about 3% (from 11.6% in ’07), and remain in the range of 3-4% in ’09 and ’10. Weakening global demand will cause aluminium prices to remain subdued at $2,100/tonne in the near term, based on trends witnessed in previous market downturns. BNP Paribas thinks a price level of $2,100/tonne is unsustainable and expects a bounce-back, but overall, a weak pricing environment will persist in the short term. Hindalco will need to raise additional $ 3 billion in debt to spend $ 4.5 billion on capital expenditure (capex) in the next three years. These projects are in initial stages and may be postponed if aluminium prices remain subdued, while copper prices continue to move up due to rising energy and input prices. The target price of Rs 68 is based on an enterprise value (EV) to FY10 EBITDA multiple of 5x. In the past, Hindalco’s valuation has trended towards a 5x EBITDA multiple in an environment of declining prices.


CLSA on TATA MOTORS


CLSA maintains ‘underperform’ rating on the stock with a revised target price of Rs 320. It views Tata Motors as a risky bet even after the sharp 60% year-to-date (YTD) correction. Domestic truck sales are weakening. Following the company’s exit from West Bengal, the large ‘Nano’ volumes will flow only in FY11. Jaguar Land Rover (JLR) sales in the western world remain weak and the sales growth in emerging markets may not last long. Moreover, the JLR pension fund and re-financing of JLR acquisition bridge loan remain overhangs on the stock. Tata Motors needs to refinance $3 billion of the JLR acquisition bridge loan by June ’09. This still leaves $1.9 billion, which needs to be raised via a combination of foreign equity issuance ($500 million), sale of stakes in subsidiaries ($670 million) and raising of working capital facilities at JLR ($700 million). Also, the extent of deficit in the JLR pension fund (size ~$8 billion) will be known only by April ’09, when the next actuarial valuation takes place. Till JLR manages to strike a favourable deal with pension trustees, this will remain an overhang on the stock.


CITIGROUP on JET AIRWAYS


AIRLINES are trading plays — given the cyclical nature of their business, high operational and financial leverage, and an earnings profile that is excessively volatile and sensitive to macro variables like oil prices and currency movements. The target price of Rs 440 is a simple average of two methodologies — current equity value (based on residual cost) and oneyear forward price/book of 1x (in line with regional peers). The ‘medium risk’ rating on Jet Airways is also in line with the risk ratings on regional peers. Citigroup believes that Jet merits a ‘medium risk’ rating, given: a) the competitive scenario in the domestic market; b) its international operations are still at a relatively embryonic phase and should take at least 2-3 years to stabilise; and c) turnaround of the Air Sahara acquisition.


MERRILL LYNCH on AXIS BANK


MERRILL Lynch reiterates a ‘buy’ rating on Axis Bank with a target price of Rs 890. Axis Bank’s Q2 FY09 results were almost 30% ahead of estimates, with its net profit surging 77% to Rs 403 crore. The bank continues to reap the benefits of its increasing customer base, enhanced product penetration and geography arising from its expanded distribution. Axis Bank’s gross and net non-performing loans (NPLs) grew by 11% and 3% quarter-on-quarter (q-o-q) and 44% and 36% YTD, respectively. The spike in NPLs can result in higher loan loss provision, though NPLs remain manageable. Merrill Lynch raises its earnings estimates by 3-6% for FY09-10 to factor in higher fee revenue and topline, as the bank further expands and leverages distribution. Merrill Lynch believes the stock, trading at 2.5-2.6x FY09 book, can continue to trade at 2.8-3.0x book, one-year forward (lower end of its historic trading multiples of 2.5-4.0x), given the +38% CAGR earnings growth through FY08-10 and return on equity (RoE) bouncing back to +18.5%.

Stock Views on Hindalco Industries, Tata Motors, Jet Airways, Axis Bank, ITC , Maruti Suzuki

BNP PARIBAS on HINDALCO INDUSTRIES

BNP Paribas initiates coverage on Hindalco Industries with a ‘reduce’ rating. Hindalco’s operating performance is leveraged to aluminium prices. Global aluminium consumption growth is likely to slow to about 3% (from 11.6% in ’07), and remain in the range of 3-4% in ’09 and ’10. Weakening global demand will cause aluminium prices to remain subdued at $2,100/tonne in the near term, based on trends witnessed in previous market downturns. BNP Paribas thinks a price level of $2,100/tonne is unsustainable and expects a bounce-back, but overall, a weak pricing environment will persist in the short term. Hindalco will need to raise additional $ 3 billion in debt to spend $ 4.5 billion on capital expenditure (capex) in the next three years. These projects are in initial stages and may be postponed if aluminium prices remain subdued, while copper prices continue to move up due to rising energy and input prices. The target price of Rs 68 is based on an enterprise value (EV) to FY10 EBITDA multiple of 5x. In the past, Hindalco’s valuation has trended towards a 5x EBITDA multiple in an environment of declining prices.

CLSA on TATA MOTORS

CLSA maintains ‘underperform’ rating on the stock with a revised target price of Rs 320. It views Tata Motors as a risky bet even after the sharp 60% year-to-date (YTD) correction. Domestic truck sales are weakening. Following the company’s exit from West Bengal, the large ‘Nano’ volumes will flow only in FY11. Jaguar Land Rover (JLR) sales in the western world remain weak and the sales growth in emerging markets may not last long. Moreover, the JLR pension fund and re-financing of JLR acquisition bridge loan remain overhangs on the stock. Tata Motors needs to refinance $3 billion of the JLR acquisition bridge loan by June ’09. This still leaves $1.9 billion, which needs to be raised via a combination of foreign equity issuance ($500 million), sale of stakes in subsidiaries ($670 million) and raising of working capital facilities at JLR ($700 million). Also, the extent of deficit in the JLR pension fund (size ~$8 billion) will be known only by April ’09, when the next actuarial valuation takes place. Till JLR manages to strike a favourable deal with pension trustees, this will remain an overhang on the stock.

CITIGROUP on JET AIRWAYS

AIRLINES are trading plays — given the cyclical nature of their business, high operational and financial leverage, and an earnings profile that is excessively volatile and sensitive to macro variables like oil prices and currency movements. The target price of Rs 440 is a simple average of two methodologies — current equity value (based on residual cost) and oneyear forward price/book of 1x (in line with regional peers). The ‘medium risk’ rating on Jet Airways is also in line with the risk ratings on regional peers. Citigroup believes that Jet merits a ‘medium risk’ rating, given: a) the competitive scenario in the domestic market; b) its international operations are still at a relatively embryonic phase and should take at least 2-3 years to stabilise; and c) turnaround of the Air Sahara acquisition.

MERRILL LYNCH on AXIS BANK

MERRILL Lynch reiterates a ‘buy’ rating on Axis Bank with a target price of Rs 890. Axis Bank’s Q2 FY09 results were almost 30% ahead of estimates, with its net profit surging 77% to Rs 403 crore. The bank continues to reap the benefits of its increasing customer base, enhanced product penetration and geography arising from its expanded distribution. Axis Bank’s gross and net non-performing loans (NPLs) grew by 11% and 3% quarter-on-quarter (q-o-q) and 44% and 36% YTD, respectively. The spike in NPLs can result in higher loan loss provision, though NPLs remain manageable. Merrill Lynch raises its earnings estimates by 3-6% for FY09-10 to factor in higher fee revenue and topline, as the bank further expands and leverages distribution. Merrill Lynch believes the stock, trading at 2.5-2.6x FY09 book, can continue to trade at 2.8-3.0x book, one-year forward (lower end of its historic trading multiples of 2.5-4.0x), given the +38% CAGR earnings growth through FY08-10 and return on equity (RoE) bouncing back to +18.5%.

JM FINANCIAL on ITC

JM FINANCIAL reiterates a ‘buy’ rating on ITC with a target price of Rs 230. Despite defensive stocks being the flavour of the season, the market has ignored ITC this time. JM Financial forecasts a 19.7% growth in the cigarette segment’s earnings before interest and tax (EBIT) in FY09E — one of the highest in recent times. JM Financial has increased its FY09E ‘FMCG-others’ segment loss to Rs 400 crore (earlier Rs 300 crore) and also deferred the break-even projection for the segment to FY12E (earlier FY11E). While extension into related categories is on the cards, oral care looks unlikely in the immediate future. Most of the increase in FMCG losses is likely to be offset by improved earnings in the cigarettes segment. JM Financial has introduced marginal cuts in its overall FY09E (-0.3%) and FY10E (-1.1%) earning per share (EPS) estimates and prices in higher projected losses from ‘FMCG-others’ segment. Accordingly, it has reduced the sales multiple for the segment from 2.4x to 1.5x. The target price stands at Rs 230 (Rs 238 earlier). The price also reflects the discounted cash flow (DCF) value and implies an FY10E price/earnings growth (PEG) of 1.5 — in line with the past three years’ average.

EDELWEISS on MARUTI SUZUKI

EDELWEISS maintains ‘accumulate’ recommendation on Maruti Suzuki. The company is India’s largest passenger vehicle manufacturer with a market share of more than 50%. It has an installed production capacity of 870,000 units per annum and is expected to increase this to 1 million units by the end of H1 FY09. The company is likely to face intense competition from several global players, most of which plan to enter the Maruti-dominated compact segment for the first time. In recent times, higher input costs have adverse affected the company’s operating margins. Going forward, Edelweiss expects Maruti’s margins to remain under pressure due to higher costs associated with new model launches and exposure to yen-denominated component imports. On the positive side, the company is likely to get a major boost in sales from exports and leverage its market leader position in the growing domestic market. Increasing input costs and higher product launch costs may hit margins significantly. A slowdown in growth in the compact segment can hit Maruti, as it is substantially dependent on this segment. Further, intense competition is likely to ensue over the next few quarters, as more players enter the market with new products. The near-term outlook for the company remains subdued, given modest domestic sales and expectations of low margins for the second quarter in a row.