HINDUSTAN ZINC

Our commodities team has upgraded its zinc price forecasts, but believe that current zinc spot price has overshot the fundamentals and has downside risks. We downgrade the stock to Underperform from Outperform, even though we increase our target price to Rs1,029 from Rs996. Sterlite, the parent company, already owns a 65% stake and is very keen to exercise its option to buy an additional 30% stake from the government. While this should support a higher value, it is uncertain how the listing requirement of a minimum 10% free float is met. Moreover, the company has net cash of more than US$2bn. This is depressing the return on equity (ROE) to below 20%, in spite of the healthy operating margin of 60%+. Secondly, with management not very keen to distribute it as dividends, we see it as both risky and suboptimal use of funds. While we continue to like the low-cost assets, but believe that the risks are to the downside. Also, the uncertainty of the minority shareholders’ fate after the government stake purchase demands prudence at high valuations.

Stock views on Hindustan Dorr-Oliver, Titan Industries, Hexaware Technologies, ITC, Reliance Communications, Pantaloon Retail

Macquarie on Pantaloon Retail

Macquarie maintains its ‘Outperform’ rating on Pantaloon Retail, however, it has cut the earnings estimates and target price to reflect the expectations of slowing same-store sales growth and the credit crunch. Same-store sales (SSS) growth for Indian retailers turned negative for the first time in 4Q08. Slowing growth, the spectre of job losses and the high base effect (from the good old days of 2007) impacted sales. The problem was sharper in the high-end product segment versus items for daily consumption. Pantaloon saw its SSS growth improve from -3.6% and -14% in December 2008 to 4% and 12% in January 2009 for value retail and lifestyle retail respectively. Based on the estimates, Pantaloon’s operations can support growth of around 1-2 million sq feet per year with limited external funding. The supply-demand dynamics have led to a rise in retail rents in the last three years. Macquarie expects this to continue and average rents to fall at least another 25% over the next 12 months. We expect Pantaloon to be able to ride this tough period given its high exposure to value retail and planned capital raising by equity dilution or preferential share allotment.


CLSA on Reliance Communications


CLSA maintains the ‘Buy’ rating on Reliance Communications. There was a good response to GSM launch. In January RCom’s added 5 million users, bringing the total to 66 million subscribers. These additions include CDMA and GSM subscribers, accounting for 33-35% of total industry additions, though RCom is yet to release details, including circle-wise breakdowns to the GSM-industry body. RCom has rolled out GSM service across 14,000 towns, while targeting to up dual-network coverage to 24,000 towns and 600,000 villages. However, these schemes coupled with Idea Cellular’s latest offers in select circles may trigger the industry’s growing share of dual SIM and inactive subscribers. We estimate the company will be eligible for incremental 2G spectrum in 14 circles at 11 million new GSM subscribers. Recently, RCom cut its FY09 capex by 15% to $5.3 billion and guided FY10 at $3.2 billion. The firm has $1.7 billion in investments and a net debt-to-equity ratio of 0.64x. CLSA expects a boost to RCom’s valuation with confidence of a successful execution and improving market share in revenue.


HSBC on ITC

HSBC maintains its `Neutral’ rating on ITC with a price target of Rs. 172 per share. Considering the staggered price increase that ITC has been taking this year and that the budget has been delayed from February to June, questions are being raised whether there is one more price increase in the offing. While HSBC estimates a weighted average price increase, including mix effect, 14% has been implemented so far, and the probability of a further increase is small as ITC can manage decent growth in Q1FY10E without price increase, and ITC may not wish to jeopardise volume growth further when it is currently negative. If ITC decides to hike prices it could be implemented in the following order of priority:

• Goldflake Kings is likely to be the first option due to the price inelasticity in this segment.
• Bristol and Flake with price point of Rs 1.9 per stick; since loose buyers already pay Rs 2, trade margins can be cut;
• Goldflake regular though has had high price increases and has strong brand loyalty
• Scissors Regular is a less probable option since plains migration needs to take hold. HSBC derives a fair value of Rs 154 for the high tax and Rs 201 for the low tax scenario. At the target price, the stock will trade at 16.8x FY10E EPS.

Bank of America on Hexaware Technologies

Bank of America retains `Underperform’ rating on Hexaware Technologies. Though results were in line, Bank of America (BoA) was surprised by a very sharp revenue decline guided for 1Q at a negative 16% q-o-q with outlook being the weakest announced so far. This likely reflects high exposure to discretionary spends such as ERP (~29% revenue, -18% q-o-q). Estimates are cut by 5% to factor in a 17% cut in dollar revenues as reflected by weak 1Q revenue guidance and offset by higher margins due to falling rupee. Management highlighted that macro environment has worsened in 4Q; with clients across board rationalising IT spends. BoA expects margins to fall by at least 600 bps during 1Q. Also MTM losses in balance sheet increased to Rs 120 crore from Rs 100 crore q-o-q and are likely to impact CY09/10E profits if a weak rupee persists. Revenue grew 4% q-o-q to $64.4 million in constant currency terms in line with its guidance. Stock rose 40% before results on low valuations. BoA expects 1% earnings growth in CY09E and 8% CAGR over next two years. With 1Q results likely to disappoint and a poor revenue outlook, stock could correct.

EMKAY on Titan Industries

Titan Industries (TIL) is likely to face challenging times ahead on weakening macro economic indicators affecting its watch business, rising gold slowing its jewellery market share gains and its new business initiatives straining cash flows. TIL’s watch business is to report a 1.6% and 5.7% fall in revenues and EBIDTA , espectively in FY10E, and a revival thereafter. Emkay believes that it will be difficult for TIL’s jewellery division to garner market share at a similar pace as in the past, owing to rising gold and falling demand (3.6% in FY11E against 2.9% in FY08). The new business initiatives (precision engineering and eyewear) are still in investment phase, thereby denting TIL’s cash flows and EBITDA. Emkay expects moderation in growth with net revenue, EBITDA and adjusted net profit of TIL to grow at a CAGR of 16.0%, 12.8% & 7.7%, respectively during FY08-11E and an intermediate decline in FY10E. The above valuations are rich especially in the wake of moderation of growth and declining return ratios. We recommend a `Sell’ with a price target of Rs 671.

IL&FS Investsmart on Hindustan Dorr-Oliver

IL&FS Investsmart initiates coverage on Hindustan Dorr-Oliver with a ‘Buy’ rating, with a 15-month price target of Rs 55, providing an upside of 104%. HDO has made rapid strides in its core EPC business, engineering a ~5.4x growth in less then four years with significant contribution from the mineral beneficiation and environmental infrastructure business. However, the best is yet to come for HDO as the company is well positioned and has expertise to get into the bigger league with higher ticket contracts. The current order backlog of Rs 700 crore is 2.3xFY08 billings. Based on the pipeline bids, enquiries, and the capex cycle, order accretion is to gain momentum in the next few quarters and grow at 17% CAGR for the next two years. Traction is expected in the award of big ticket contracts in the next few quarters. IL&FS expects higher demand for its proprietary industrial products which is likely to prop the blended margin going forward with ~14% revenue contribution by FY10. HDO has all the characteristics to graduate to the next league and therefore the concerns reflected in the stock price are unwarranted; hence there is a good investment opportunity.

Stock views on ACC, Mundra Port, Idea Cellular, Ambuja Cements, GMR Infrastructure

HSBC on GMR Infrastructure
HSBC maintains the `Underweight' rating on GMR Infrastructure with a target price of Rs 53. There has been no respite in GMR's existing business. GMR's airport business faces: a) continuing decline in air traffic b) continuing delays in real estate development at Delhi airport, impacting fund availability, and c) inability to raise tariff at the Delhi and Hyderabad airports, impacting overall profitability. However, there has been some relief in the power business due to fresh gas supply and lower naptha prices. GMR runs a refinancing risk on the loan at the end of the two-year period. HSBC expects that in order to complete the Delhi airport in time, the government will have to provide incentives to GMR. These incentives might be in the form of allowing it to charge higher user fees or a higher equity contribution to meet the fund requirement. However, given the current financial condition of the airline industry, it would be difficult for the government to increase the charges without opposition from the airline industry. The outlook for the company remains weak given: a) no signs of recovery in airport traffic growth b) the ability to increase airport charges remains dependent on the government's approval c) no improvement in real estate outlook d) potential difficulties in refinancing its acquisition.

Merrill Lynch on Ambuja Cements

Merrill Lynch maintains `Underperform' rating on Ambuja Cements due to lack of upside triggers. Ambuja's CY09 earnings decline will likely be modest versus other majors due to a tad better supply-demand outlook for west India. Ambuja sells ~30-40% of volumes in the west, which is forecast to witness fewer capacity additions versus other regions. However, exposure to the north will likely hurt. Ambuja's CY08 EBITDA stood at ~Rs 1,770 crore, down ~13% y-o-y due to cost-led margin pressures. The company indicated that high-cost coal inventories, greater use of imported coal and year-end adjustments/provisions dragged 4Q results. 4Q realisations were up 1% y-o-y and 3% q-o-q; cost increase was sharper at ~10-12%. Volumes grew 5% y-o-y and 16% q-o-q. In its 4Q press release Ambuja said the industry's demand growth in CY09 will range between 6-8%. This compares with 11-12% volume growth witnessed in November-December 2008, likely led by pre-election government spending. Reflecting the pattern of previous election years, we worry that the recent demand impetus will ease in 3-4 months as elections draw closer.

Indiabulls Securities on Idea Cellular

Indiabulls Securities has reiterated the `Hold' rating on Idea Cellular, however, it has downgraded the target price to Rs 49. Idea ended the third quarter with a handsome topline growth of 13.1% q-o-q, backed by a robust 13% share in the all-India net additions of 38 lakh and a 3.7% improved realisation of 65 paise per minute. Idea's market share (excluding Spice) is to inflate beyond 11% by March 2010 from the current 9.9%. The company's share of the market net additions is likely to peak at 14-15% in FY10, given the upcoming roll-outs in five new circles and the overwhelming response received for the roll-out in Bihar and the re-branding in Punjab. Moreover, Idea's brand, which has all-India recognition, renders it a competitive edge over the other entrants in the new circles. The operating margin will likely remain under pressure in FY10E-11E and is expected to come down to ~11% as Idea opts for higher opex rather than capex for network expansion. In addition, intensifying competition and penetration in Class C circles calls for competitive pricing, which would further bring down ARPUs to around Rs 250 and Rs 210 for FY09E and FY10E respectively. While the company's business model points towards a strong longer-term growth trajectory, the upcoming congestion in the telecom market would exert significant strain on its key operating and financial parameters, thereby limiting major upsides in the stock price.

Citigroup on Mundra Port

Citigroup initiates `Sell' rating on Mundra Port and Special Economic Zone (MPSEZ) as the stock looks expensive. MPSEZ is a private port (capacity ~55 mtpa) on India's west coast:
1) Strategically located for north-bound cargo;
2) Handles more container volumes than all major ports, except JNPT and Chennai;
3) Has one of the deepest drafts;
4) ~40% of projected volumes are under long-term contracts; and
5) SEZ over ~32,000 acres should support volume growth.

Cargo/profits growth has been impressive at 53%/132% CAGR over FY04-08. Citigroup expects cargo, revenues and profits to grow at 17%, 25% and 47% respectively over FY09-11E, and RoEs to improve to 24% by FY11E from 11% in FY08. While Citigroup forecasts healthy cargo growth at MPSEZ, they see risks in the medium term given the deteriorating global environment. Volumes at major ports grew only by 4% y-o-y in April-November 2008 and fell 28% y-o-y in December 2008 at the DP World-operated container terminal at Mundra. A pullback in investments would hit development of the SEZ, a growth driver for the port. We value: 1) the port at Rs 262/sh; 2) SEZ at Rs 22/sh; 3) investments in subs at Rs7/sh. MPSEZ trades at 24x FY10E PE, a premium of ~85% to Asian ports' average of ~13x, which we find excessive despite EPS growth of 47% over FY09-11E versus the Asian average of -1%. Upside risks include better-than-expected traffic growth and demand for land at the SEZ.

Macquarie on ACC

Macquarie lowers the rating on ACC from `Neutral' to `Underperform' in the absence of cost-reduction levers and the stock lacks any positive catalyst except for cement prices. It believes that the current rally in the stock along with an improved business outlook is a good opportunity to book profits. ACC declared its CY08 results, which were about 11% below the estimates at the operating level due mainly to lower volumes and higher costs. Macquarie reduces the target price by 2% to Rs 452 to factor in lower volumes for the next year and also reducing CY09 and CY10 estimates to account for lower volume expectations because it foresees some delays to expansion plans. ACC has already exhausted the easy ways to reduce costs because most of its production is based on domestic subsidised coal. It already has coal-based captive power plants and it is reaching saturation in blending. The only major avenue is a merger with its sister concern, Ambuja Cements. The majority of 7 mtpa of further expansion will not be completed until CY10. ACC will, at best, grow in line with the industry.

Stock Views on NTPC, Cairn India, Lanco Infra

GOLDMAN Sachs on NTPC - TARGET PRICE: RS 208

GOLDMAN Sachs Research has initiated coverage on the stock with a ‘buy’rating, saying NTPC’s business model entails a high degree of earnings visibility with core business consistently yielding 20% plus return on equity(RoE). “NTPC scores well as a defensive growth op-tion. It has the lowest risk to funding amongst its peers, competitive cost of generation, RBI guarantee for payment realisation from its customers (financially-constrained SEBs) up to FY2016 and inexpen-sive valuations,” said Goldman Sachs Research in a note to its clients. The firm expects the company’s net profit to grow at a compounded annual rate of 7.3% between FY2008 and FY2011E (estimated).

Macquarie on Cairn India - TARGET PRICE: RS 276

Macquarie Research has reaffirmed its ‘outperform’ rating on the stock, but has cut the target price by 1.4% to Rs 276 due to the change in 2008 West Texas Intermediate (WTI) forecast. “We have revised down the WTI crude oil price forecast by 6.3% for 2008. Our new forecast has the 2008 figure adjusted down to reflect the recent weakness in prices and the risk that slowing demand growth keeps prices in a range of $100-110/bbl (blue barrel),” said Macquarie in a note to its clients.

UBS Securities on TARGET PRICE: RS 250

UBS Securities has upgraded its rating on the stock to ‘buy’from ‘sell’, but has trimmed the price target to Rs 250. The firm has cut its earnings per share(EPS) estimates for the stock by 10%/20%/19% to Rs 19/22.4/33.3 for FY09/10/11E to reflect a slowdown in project execution. It has also made of 10% discount to the power, engineering procurement and construction (EPC) business and infrastructure valuation for the company. “

Stock Views on Bartronics, Onmobile Global, PG CIL, HDFC

HDFC Securities on BARTRONICS INDIA - Target RS 234
HDFC Securities has initiated coverage on the stock with a ‘buy’rating saying the fast growing AIDC (Automatic Identification and Data Capture) technology in India will further boost the company’s order book and topline. “The company’s market share of around 90-95% in smart card and RFID (radiofrequency identification) segments offers all AIDC solutions under one roof. The company’s early entry into smart card manufacturing, will help retain its dominance in the area,” said HDFC in a note to its clients. It expects the revenues and profits of the company to grow at CAGR of 72% and 78% over FY08 to FY10E (estimated). “The stock is trading at 6.5 times and 3.8 times its FY09 (estimated) and FY10 (estimated) FDEPS (fully diluted earnings per share),” said the note.

MACQUARIE Research on Onmobile Global - TARGET PRICE: RS 650

MACQUARIE Research has initiated coverage on OnMobile Global with an ‘outperform’ rating saying the stock has a 42% upside from current levels. “We are excited about the opportunities in the Indian mobile value-added service (VAS) sector as well as in emerging markets. OnMobile is India’s No 1 mobile VAS provider, with around 30% share of India’s VAS market (ex-SMS),” said Macquarie in a note to its clients. The brokerage expects a 2 year FY3/08–10E EPS CAGR of 42.5% for the company, led by topline CAGR of 58%, marginally offset by one-time dip in margin in FY3/09E. According to Macquarie, recent M&A transactions have opened the door for OnMobile to tap the potential offered by the international VAS market. “OnMobile’s international revenues are likely to grow at a faster pace (FY3/08–13E CAGR of 63%) than growth of its domestic revenue (35.5%),” said the note. The brokerage feels that change in business model and large premiums for future acquisitions could result in value destruction for On-Mobile.

CITIGROUP on PG CIL - TARGET PRICE: RS 86

CITIGROUP Global Markets has initiated coverage on the stock with a ‘sell’ rating saying PGCIL will be FCF (free cash flow) negative until FY12E (and potentially beyond) and will not offer much dividend yield. “Investors consider dividend yield as a reason to invest in utilities with regulated earnings streams. We think PGCIL would be very compelling the day growth capex stops,” said Citi in a note to its clients. Citigroup expects PGCIL’s earnings to grow at a 15% CAGR over FY08-11E with RoE of 13-15%. If compared with the peers, PGCIL has traded at a premium to NTPC post listing, says Citi. “We note that PGCIL’s listing happened prior to the Reliance Power IPO and the associated lofty valuations for all Indian Electric Utility stocks during that time, and thus its valuations have been further propped up. And we feel the premium is not sustainable,” the note said. Citigroup has set its target price for PGCIL at a P/BV (price to book value) of 2.2x FY10E, which is at a around 10% discount to the implied ‘ceiling’ multiple for NTPC.

CLSA Research on HDFC - TARGET PRICE: RS 2,330

CLSA Research has maintained a ‘buy’ rating on the stock saying HDFC has not seen deterioration in asset quality due to rise in rates and its plans to list a couple of subsidiaries in CY09 may act as a catalyst. “HDFC expects its growth to sustain at +20% for next three years, as housing affordability remains high and it continues to gain market share from banks. Spreads might contract in short term due to liquidity crunch, however estimated to remain around 2.2%,” said CLSA in a note to its clients. According to CLSA, most of HDFC subsidiaries continue to scale up with better profitability amongst their competitors. “HDFC standard life (HDFC’s life insurance subsidiary) has a persistency rate of +85% which is the highest amongst all players; HDFC Mutual funds have much higher net margins than any other asset manager in India (2nd largest player) and HDFC bank is the most profitable banking franchise in India,” the note said. “Adjusting for the value of subsidiaries, HDFC is trading at 4.2x FY09CL (calendar year), with an estimated ROE of 25% in FY09CL,” the note added.

Stock Views on Areva TD, ONGC, Aditya Birla Nuvo, Ultratech Cement, Allied Digital

CITIGROUP on AREVA T&D INDIA - TARGET PRICE: RS 1,809

CITIGROUP Global Markets has assigned a ‘hold’ rating to Areva saying despite the company’s strong fundamentals, the stock is fairly priced. “The stock trades at a P/E multiple of 19.7 times 2009 (estimated) earnings and provides limited upside to our target price of Rs 1,809. Our target price is based on a P/E multiple of 23 times December 2009 set at a 9.5% premium to historical average P/E multiples and in line with ABB,” the Citigroup note to clients said. Citigroup expects Areva’s earnings per share to grow at a compounded annual rate of 32% over 2007-10 (estimated), with a return of equity of around 40%. In comparison, ABB’s EPS is expected to grow at a compounded annual rate of 25% with a RoE of roughly 30%.


MACQUARIE Research on ONGC - TARGET PRICE: RS 995

MACQUARIE Research Equities has given a ‘neutral’ rating to ONGC, as it feels that attractive valuations are offset by lack of earnings growth. “ONGC is trading at undemanding valuations of 7.7 times FY3/09 (estimated), but it also lacks growth, as a corresponding rise in subsidy burden wipes out a bulk of its gain from a rise in oil price re-alisations,” the Macquarie note to clients said. Earlier this week, ONGC Videsh (OVL), the wholly-owned subsidiary of ONGC, had an-nounced a recommended preconditional cash offer to acquire Imperial Energy Corp, an oil E&P (exploration and production) company with assets in Russia and Kazakhstan for £1.4 billion.

Sharekhan on ADITYA BIRLA NUVO - TARGET PRICE: RS 2,035

BROKERAGE firm Sharekhan maintained its ‘buy’ rating on Aditya Birla Nuvo even though it feels that the firm may have overpaid for its acquisition of Apollo Sindhoori Capital investments Ltd. “We believe ABN has paid substantial premium for the buy, considering the valuations at which the listed peers are trading and the bleak near-term outlook for the broking industry. Nevertheless, the acquisition provides ABN entry into broking business and may hold value in the long term,” the Sharekhan note said. “We remain positive on ABN on account of its presence across diversified businesses. In the near term, the stock would have the trigger on account of the insurance bill that is expected to allow higher foreign direct investment in the sector,” it added.

CLSA on ULTRATECH CEMENT - TARGET PRICE: RS 791

CLSA has resumed coverage on UltraTech Cement with a ‘buy’ rating and price target of Rs 791. It feels that while domestic prices should drop over the next 9-18 months due to an adverse demandsupply regime, UltraTech’s improving sales mix should keep blended realisations flat over FY08-11CL. “EBIDTA margin is set to fall due to higher cost but it will be the most moderate decline. Its 9% volume CAGR over FY08-11CL should help drive a 4% cash-earnings CAGR. At 5.8 times price/cash flow, downside is limited,” said the CLSA note.

Alchemy Share on ALLIED DIGITAL - TARGET PRICE: RS 1050

Alchemy Share and Stock Brokers has rated Mahashtra Seamless a ‘buy’with a price target of Rs 873. “With increasing activity E&P (exploration & production) in the oil & gas sector in India, demand for seamless pipes is expected to rise over 10% in the next five years. MSL, being the leader, the company will be the major beneficiary of this demand,” the Alchemy note to clients said. “Further, implementation of city gas distribution network (CGD) in 200 cities as planned by Gail will improve the outlook for ERW pipes. MSL, being one the two key players in ERW segment, is set to benefit from increased demand,” the note added.

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.

Stock views on RELIANCE COMM, BANK OF INDIA, AEGIS LOGISTICS, M&M, YES BANK

CITIGROUP on RELIANCE COMM

TARGET PRICE: RS 530

CITIGROUP has downgraded Reliance Communications to ‘hold’, citing subdued first quarter and falling capital productivity. Its new target is Rs 530. Essentially, it has cut its FY09-10E EBITDA estimates by 13% and EPS by 14-18% to reflect a host of factors. Chief among them are lower revenue per minute in-line with peers, lower elasticity, staggered rollout of GSM and higher net debt. It notes that the company registered a weak first quarter EBITDA, as wireless was hit by continued lack of elasticity. It expects this trend of low CDMA elasticity to continue to dominate RCOM’s rations till GSM launch. It also says that the company’s $5.5 billion capex (FY09) and $4 billion (FY10) would lead to a net debt of Rs 170 billion in end-2009 (Rs 130 billion on June-2008). It signs off saying no triggers in the near term. “RCOM’s wholehearted participation in wireless growth is contingent on consumer mix change through the GSM foray, key for rerating, but some time away and not without risks,” said Citi in a note to its clients.

MACQUARIE on BANK OF INDIA

TARGET PRICE: RS 336

MACQUARIE believes that Bank of India’s strong results show its relative resilience among government-owned banks to the tough macro environment. The bank remains its top pick among state-owned banks and the broking house maintains ‘outperform’ rating with a revised target price of Rs 336 from the previous Rs 299. It says that the key earnings surprise was strong growth in fees to 58% Y-o-Y driving the 49% Y-o-Y growth in non-interest income. It infers that the bank has been aggressively pushing for fees business, focusing on products such as letters of credit and guarantees.

KR CHOKSEY on AEGIS LOGISTICS

TARGET PRICE: RS 207

KR CHOKSEY Shares & Securities has assigned a ‘buy’ on Aegis Logistics with a one-year price target of Rs 207, citing growing domestic consumption of the company’s services. Aegis Logistics mainly concentrates on port handling of liquid petroleum or chemicals and gas storage and distribution. “Given the growing domestic consumption of petroleum and gas in the recent years, Aegis Logistics (ALL) is well placed to grab the increasing opportunities in this sector. As a result of favourable cost, economics of auto gas over petrol and the increasing new entrants of LPG variants of cars in the market, the company is all set to scale up auto gas stations from the current 22 to 100 in the next two years,” the report said.

EDELWEISS Capital on M&M

EDELWEISS Capital has initiated coverage on Mahindra & Mahindra (M&M) with a ‘buy’ rating. The brokerage expects the operating divisions of M&M to perform well over the medium term, in terms of growth and profitability. “We expect significant expansion in M&M’s addressable market through its entry into the passenger car. The company has significant value embedded in its investments, covering information technology (Tech Mahindra), real estate & infrastructure (Mahindra Gesco), hospitality (Mahindra Holidays), financial services (Mahindra & Mahindra Financial Services), and auto-component (Mahindra Ugine Steel and Mahindra Forgings) sectors,” the report said.

IDBI Capital on YES BANK

IDBI Capital has maintained a ‘buy’ rating on YES Bank, on expectations of higher growth. happen. The brokerage expects the bank to log strong income growth in the long term. Despite mark-to-market (MTM) depreciation, net provisions have been lower owing to reversals equivalent to MTM depreciation done on investment provisions, the IDBI report noted. The bank has increased its lending and deposit rates recently.