ABG Shipyard

THE year old drama over the acquisition of Great Offshore appears to be coming to an end. In a block deal reported to the stock exchanges earlier this week, ABG Shipyard Ltd (ABG) and Eleventh Land Developers Pvt Ltd (ELDPL), a wholly owned subsidiary of ABG, announced the sale of 30.78 lakh shares of Great Offshore through a stock market transaction. This accounts for approximately 8.27% of the current paid up shareholding of Great Offshore.

Bharati Shipyard holds a 23% stake in Great Offshore and currently has an open offer to acquire an additional 20% at Rs 590 per share. Since this is 13% higher than ABG Shipyard’s open offer, it nullifies ABG’s open offer, paving the way for Bharati to takeover Great Offshore.

The story dates back to December 2008, when Vijay K Sheth, vice-chairman and managing director, Great Offshore knocked at the doors of his friend P C Kapoor, Bharati Shipyard’s managing director, for a loan of Rs 240 crore. This was an amount he owed two financial institutions - IL&FS and Motilal Oswal. In exchange, Sheth pledged 14.89% of his stake in Great Offshore with Kapoor. These shares were earlier placed as collateral with the two financial institutions.

In May this year, Bharati Shipyard acquired the shares pledged by Sheth in a cashless deal taking Bharati’s stake in Great Offshore to 14.89%. This brought Sheth’s holding in the company to less than 1%. According to a statement from Bharati, the company has acquired 55.34 lakh shares at Rs 315 a share resulting in a deal size of Rs 174 crore.

Sheth took management control of Great Offshore after the company was demerged from Great Eastern Shipping which was run by his second cousin, Bharat Sheth following a split in the family business in 2006. To buy his holding of 15.73% in Great Offshore from Great Eastern Shipping, Vijay Sheth sold his resultant 3% stake in GE Shipping post the demerger. However, to raise more funds to facilitate the purchase, he pledged his 14.89% stake in Great Offshore to IL&FS and Motilal Oswal.

Great Offshore’s stock took a major beating when the markets crashed in 2008. The scrip fell from a high of Rs 1,102 on January 7, 2008 to Rs 212 on December 26, 2008. The financial institutions got edgy and it is understood that they wanted to dump their holding in Great Offshore.

The battle for Great Offshore ending is a win-win situation for both companies. The deal for Bharati, makes tremendous business sense as it would help it in consolidating its position across the oil exploration industry. “As of September 2009, Bharati Shipyard has a cash of Rs 550 crore on its balance sheet, which could be used to acquire the 20% shares through the open offer”, says Kunal Lakhan, Analyst at KR Choksey. To sum it up, a win-win situation for both with Bharati deriving business synergies and ABG making a cash profit.

Stock views on Polaris Software, Adhunik Metaliks, Bharat Heavy Electricals

Hem Securities on Polaris Software - Target Rs 250

Hem Securities is bullish on Polaris Software Lab and has recommended buy rating on the stock with a target of Rs 250, in its research report.

“A review of the market opportunity areas and Polaris offerings and strengths indicates an overall positive outlook for the coming year, with a good mix from current geographic markets as well as new developing markets and business lines. Further, good cash and cash equivalents, efficient acquisition via internal accruals, minimal debt, expanding global presence via strong tie-ups, diversified product portfolio and strong client base including big clients like Axis bank, HDFC bank, ICICI Prudential, AIG and many big global players would fuel revenue growth going forward. In wake of such growth, Polaris Software Lab Ltd. seems to be extremely attractive investment opportunity.”

“Presently, the stock is trading at Rs 180 which is at 13.55 times to its earnings and 2.29 times to its book value. Since the stock offers good opportunity, we initiate a ‘BUY’ signal on the stock with a target price of Rs 250 in medium to long term investment horizon expecting an appreciation of about 40% from the current level of Rs 180,” says Hem Securities research report.


Motilal Oswal on Adhunik Metaliks - Target Rs 147

Motilal Oswal has maintained buy rating on Adhunik Metaliks with a target of Rs 147 in its research report.

“Adhunik Metaliks is an integrated special steel producer and iron ore miner. It is venturing into the power business through its subsidiary, APNR. ADML will be merging group companies Vedvyas and MP Ispat, which will bring 120,000tpa of coke oven capacity and 120,000tpa of sponge iron capacity. Consolidated EPS is likely to grow at a CAGR of 58% over FY09-12 on account of growth in steel production and iron ore mining. The stock is trading at 4.6x FY12E EPS and an EV of 5.2x FY12E EBITDA. We value the stock at Rs 147 per share (EV/EBITDA of 6.5x FY12E). Maintain Buy,” says Motilal Oswal research report.

Motilal Oswal on BHEL - Target Rs 2752

Motilal Oswal is bullish on Bharat Heavy Electricals (BHEL) and has recommended buy rating on the stock with a target of Rs 2752.

“We expect BHEL to witness robust order intake during the next 12-18 months, driven largely by

(i) supportive equity markets, which would enable financial closure for private projects,

(ii) 'National Tariff Policy' stipulation that CPSUs and state entities must award projects by January 2011 to be eligible for CERC methodology of tariff determination,

(iii) bulk ordering of 11 supercritical sets (660MW each) by NTPC and DVC expected in 1HFY11, and

(iv) order award of 6.5-6.9GW from JVs signed by BHEL with state utilities.”

“During FY09-12, we expect BHEL to report earnings CAGR of 28%, in line with revenue CAGR of 28%. We expect adjusted EBITDA margin to expand 167bp during FY09-12, despite 505bp reduction in staff costs (as a percentage of revenues). Other income is likely to grow at a CAGR of just 3.3% till FY12, given decline in customer advances, as execution improves and order intake stagnates. We upgrade the stock to Buy, with a price target of Rs 2,752 per share.”

ABG Shipyard

The company, with reserves of Rs 200 crore and a strong balance sheet, is likely to find it easier to raise debt to fund the acquisition. It has time till August 24 to change its offer price

WITH ABG Shipyard jumping in the fray to acquire Great Offshore, the battle between it and Bharati Shipyard has intensified. As things stand, ABG Shipyard holds a 9% stake in Great Offshore and it has made an open offer to acquire an additional 23.5% stake in the company at Rs 520 per share, which will up its stake to 32.5% in Great Offshore. This would entail an outgo of Rs 654 crore. Compared to this, Bharati Shipyard holds a 19.5% stake. However, with both ABG and Bharati getting serious about their moves, analysts feel things will not end too soon and do not rule out a revision in offer price, even from here.

Buying Great Offshore is lucrative and the opportunity is hard to miss. ABG and Bharati make ships and supply vessels that are used by offshore oilfield firms like Great Offshore. The saga of Great Offshore dates back to December 2008, when chairman Vijay K Sheth approached his friend PC Kapoor, managing director of Bharati Shipyard for a loan of Rs 240 crore. This was an amount he owed two financial institutions — IL&FS and Motilal Oswal. In exchange for the funds, Sheth pledged 14.89% of his stake in Great Offshore with Kapoor. These shares were earlier placed as collateral with the two financial institutions.

Great Offshore is a rare case of an Indian promoter losing control on account of the stock markets crashing. Vijay Sheth raised the money in 2007 by pledging his shares in order to buy out his cousins’ stakes in the company. Under the Sheth family settlement in 2007, Vijay Sheth was to buy out the equity stakes of his cousins in Great Offshore which was carved out of Great Eastern Shipping as part of division of assets between the family members.

In May 2009, with Great Offshore unable to repay its loan, Bharati Shipyard acquired the shares pledged by Sheth in a cashless deal taking Bharati’s stake in Great Offshore to 14.89%. However with no management control, even rival ABG Shipyard took a fancy to Great Offshore.

Globally there are several instances of ship builders being asset owners. For rival Bharati Shipyard, it has an even higher synergy as Great Offshore has been its customer for many years.

As of now, one could say that the battle could move either way. While Bharati Shipyard has the advantage of being the first mover, having acquired the 15% stake at a lower price of Rs 320 per share, ABG Shipyard has acquired the 9% stake by paying about Rs 160-170 per share more than what Bharati paid. ABG Shipyard, has reserves of Rs 200 crore and with a stronger balance sheet, it would find it easier to raise debt to fund the acquisition as compared to Bharati.

The two companies have time till August 24 to change their offer price. Some significant shareholders who hold more than 1% stake in the company and could help clinch it are Videocon, financial institutions and mutual funds. As of now this one has the makings for a photo-finish.

Stock views on Pidilite Industries, Hero Honda, Punj Lloyd

Bonanza on Pidilite Industries - Target Rs 195

Bonanza has recommended a buy rating on Pidilite Industries, with price target of Rs 195, in its report.

"Pidilite Industries is a dominant player in the adhesive and sealant market in India. The company cleared all the highcost inventory of raw materials, the low-cost inventory of raw materials together with price increases boosted OPM 510 bps to 23.3% in Q1 of FY 2010. Thus, strong brands enable the company to generate better sales and margin, baring short-term aberration. Going ahead with crude derivatve still priced lower, we expect the company to post better OPM for FY10. The company is about to start off its manufacturing operations at Bangladesh and African plants by later this. We have projected sales from these facilities with a lag effect of six months. We have projected that the company would post an EPS of 9.93, which is a conservative estimate in view of Q1FY10 EPS of 3.3. At this EPS the company is trading at an earning multiple of 14.1x. We recommend investors to buy the counter in 135-145 range with a target of Rs 195 in medium term," says Bonanza's report.

Motilal Oswal on Hero Honda - Target Rs 1762

Motilal Oswal has maintained its buy rating on Hero Honda Motors, with price target of Rs 1762, in its report.

"We like Hero Honda due to its dominant position in the two-wheeler market, multiple earnings drivers, 31% EPS CAGR (FY09-11) and strong balance sheet with net cash of Rs 257 per share in FY10 and Rs 342 per share in FY11. We maintain FY10 earnings estimates at Rs 100 (56% growth) and for FY11 at Rs 110.2 (10% growth). The stock trades at 15.1x FY10E EPS and 13.7x FY11E EPS. Maintain Buy with target price of Rs 1,762 (16x FY11E EPS)," says Motilal Oswal's report.


Bonanza on Punj Lloyd - Target Rs 300

Bonanza has recommended a buy rating on Punj Lloyd with a target price of Rs 300 in its research report.

"Punj Lloyd provides services to develop infrastructure for a host of industries. It lays down pipelines, tanks and terminals, refineries, power and civil infrastructure projects etc. The company had tough period in later half of FY2009. As global sentiments have turned positive, better performance is expected in FY10. It is likely to report a consolidated EPS of Rs.20/Share. At CMP Rs.255, it trades at 12.6 PE on forward earnings. Investors may BUY in range of Rs.245- 255 for a target of Rs.300 i.e. about 15PE on FY 10 estimates," says Bonanza's research report

Motilal Oswal views on Simplex Infrastructure, Nagarjuna Construction, IVRCL Infrastructure

Motilal Oswal on Simplex Infra - Target Rs 512

Motilal Oswal has maintained its buy rating on Simplex Infrastructure, with price target of Rs 512, in its report.

"We believe that changing geographic mix has contributed to the improvement in working capital. Middle East has lower working capital cycle as compared to India; where the revenue proportion has increased to 29% in FY09 as against 16.9% in FY08. We believe that further improvement looks challenging. We expect FY10 EPS at Rs 34 (up 28%YoY) and FY11 EPS of Rs 43 (up 25%YoY). At CMP, the stock is trading at PER of 13.4xFY10 and 10.7xFY11. Maintain Buy with a price target of Rs 512/sh (based on 12x FY11 earnings)," says Motilal Oswal's report.


Motilal Oswal on Nagarjuna Construction - Target Rs 164

Motilal Oswal has maintained its buy rating on Nagarjuna Construction Company, (NCC) with price target of Rs 164, in its report.

"NCC's international business through its subsidiaries in Middle East has achieved critical scale. During FY09, international business revenue stood at Rs 5.9 billion (+243% YoY) and net profit at Rs 249 million (+183% YoY). Currently, international operations contribute 27% (Rs 33 billion including Dubai real estate project cost of Rs 9 billion) of the total order backlog (Rs 122 billion). During FY09, international order book has grown by 36%, while the domestic order book has declined by 1%. We expect NCC to reports earnings CAGR of 24% during FY09-11. Our SOTP based target price is Rs 164. Maintain Buy," says Motilal Oswal's report.

Motilal Oswal on IVRCL Infra - Target Rs 372

Motilal Oswal has maintained its buy rating on IVRCL Infrastructure, with price target of Rs 372, in its report.

"We expect earning CAGR of 15% during FY09-FY11E (27% assuming full tax rate for FY09). At CMP, the stock quotes at P/E of 19.1x FY10E and 16.2x FY11E. Maintain Buy with a price target of Rs 372/share. We have valued core business at Rs 317/share (14x FY11E EPS), BOT projects at Rs 31/share (P/B of 1.5x) and other subsidiaries at Rs 24/share (based on CMP)," says Motilal Oswal's report.

Stock Views on Tata Power, Union Bank of India, Reliance Capital

NOMURA on TATA POWER

NOMURA initiates coverage on Tata Power with a ‘buy’ rating and a 12-month target price of Rs 854, representing 17% potential upside from the current level. Nomura believes a strong project pipeline, adequate fuel security, global expansion plans and high earnings visibility are key positives for the stock. Tata Power’s capacity will rise to 13,611 mw by FY14, representing a CAGR of 33% over FY08-14E — significantly higher than the targeted 10% CAGR under India’s 11th Five-Year Plan. Nomura expects its EPS to rise from Rs 47.5 in FY08, at a CAGR of 28%, to Rs 209.4 by FY14E, due to stable cash flows from businesses in Mumbai, North Delhi Power, Mundra UMPP and Indonesian coal mines. The target price translates into a 14.2x FY09E EPS of Rs 60 and 12.9x FY10E EPS of Rs 66.4 — a significant discount to NTPC’s 20.9x FY09E P/E and 18.8x FY10E P/E.

MOTILAL OSWAL on UNION BANK OF INDIA

MOTILAL Oswal maintains ‘buy’ rating on Union Bank of India. The bank is confident of achieving its FY09 targets of stable margins (2.85% vs 2.8% in H1 FY09), loan growth of over 22%, deposit growth of 23%, and slippage ratio of <1.25%.>

(1) technology and process transformation;

(2) fast growing retail deposits, branch network and customer base; and

(3) achieving profitable business growth.

Motilal has upgraded FY09 estimates by 9% to factor in the bond gains and has downgraded the FY10 estimates by 3% to factor in higher NPA charges. Motilal expects the bank to report an EPS of Rs 33 in FY09 and Rs 35 in FY10. The stock trades at 4.7x FY09E EPS and 1.1x FY09E book value. RoA and RoE will remain strong at 1.1%+ and 23%+, respectively, over the next two years.

CITIGROUP on RELIANCE CAPITAL

CITIGROUP has a ‘sell’ recommendation on Reliance Capital with a target price of Rs 500. Reliance Capital has corrected sharply since September ’08, and is now close to its bare bones valuation. But Citigroup believes its businesses will continue to face challenges due to:

a) uncertainty in the capital market;

b) tight funding environment; and

c) slower economic and savings growth.

It values the life insurance business at Rs 294; AMC at Rs 124; consumer finance at Rs 42; non-life insurance at Rs 21 and broking at Rs 22, at 10x one-year forward EPS. Also, it does not attribute any value to unrealised portfolio gains due to sharp correction in the capital market. Key pressure points are:

a) earnings linked to the equity market;

b) non-banking platform;

c) growth in life insurance and consumer finance can slow meaningfully; and

d) vulnerability of consumer finance asset quality.

An easing of any/some of these concerns can lead to a change in the view on the stock.

Stock Views on oriental bank of commerce, Colgate-Palmolive, ABB

Morgan Stanley on oriental bank of commerce

OBC is now trading at a huge discount to other state-owned enterprise (SOE) banks. OBC has corrected sharply in the last few days. The stock is now trading at 0.4x book. The stock is mispriced compared with other SOE banks, which are trading close to 0.9x book, on an average. Morgan Stanley remains negative on OBC’s fundamentals, but that’s for all the SOE banks. The valuation gap is huge and some of this is likely to get bridged. OBC is now a most preferred stock among SOE banks. Earnings will be under pressure. Morgan Stanley is expecting the revenues to fall by 31% in F2010. This will be driven by a continued weakness in NIMs (net interest margins) and a sharp pick-up in credit costs. But, even on those earnings, the stock is trading at 4x. Morgan Stanley agrees things can be much worse in terms of asset quality, but OBC will not be the only one to be affected. Other banks (which are trading at significant premiums) will also be affected in equal measure. Hence, this is the stock to buy in the SOE universe. There is no change in the negative view on Indian banks. Morgan Stanley expects core earnings for Indian banks to remain weak in F2010 driven by increased credit costs and weak revenues. Plus, Indian banks still remain among the most expensive banks in the region.

HSBC on Colgate-Palmolive

HSBC maintains `Overweight’ rating on Colgate-Palmolive with a price target of Rs 470. The company’s sales growth volume for the first three quarters of this year has averaged 12%, with Q3 spiking up to 14%. However, the average over the last three years has been 9%. There are three factors responsible for this high growth rate:

(1) market share gains - Colgate has moved up from 47.8% in FY06 to nearly 50% currently (crossed 50% for the first time in several years for the month of January 2009)

(2) Price stability - Colgate has not taken any price increases in the year till date

(3) price point rationalisation - price of Cibaca 20g pack was reduced from Rs 6 to Rs 5, which has greatly boosted volumes.

Although Colgate is in staples category and is relatively immune to recession, it is possible that there may be a slight impact on the sales and volume growth may return to the three-year average in high single digits, from the current 12%+ which is probably above trend. The probability of a price increase, however, seems low given the softening commodity cost scenario.

Motilal Oswal on ABB

Motilal Oswal has reiterated `Neutral’ rating on ABB with a target price of Rs 382, which implies a downside of 4% from current levels. ABB India reported in-line performance for 4QCY08, with revenues up 18% y-o-y to Rs 2,170 crore, EBITDA up 3% y-o-y to Rs 270 crore, and net profit up 6.8% y-o-y to Rs 190 crore. While 4QCY08/CY08 results are largely in line with the estimates, order intake witnessed sharper than anticipated decline (- 37% y-o-y, -33% q-o-q), as projects got deferred. Order backlog as of December 2008 stands at Rs 6,160 crore (up 22.6% y-o-y), and book to bill ratio is at 0.9x CY08 revenues. EBITDA margin declined 100 bps to 11.2% in CY08, in line with our estimates. EBIT margins for power systems declined 190 bps to 8.6% in CY08 from 10.5% in CY07, largely due to business restructuring (reduced focus on APDRP and RGGVY) and possibly higher costs in certain projects. Business headwinds on the industrial side (47% of CY08 EBIT) are getting stronger, particularly in the project segment, given delays in terms of financial closure. Metals and cement (~30% of industrial order book) are witnessing demand slowdown. Also, segments like hydrocarbons, paper/pulp and real estate constitute a sizeable part of the order book, where order intake would be impacted. Motilal Oswal is downgrading its earnings estimates by 9.8% for CY09 and by 11.6% for CY10 to factor in the business headwinds. The stock trades at 15.7x CY09E and 16x CY10E earnings.

Stock Views on Aditya Birla Nuvo, ITC, Divis Laboratories

Indiabulls Sec on Aditya Birla Nuvo - Target Rs 1035

Indiabulls Securities Research has maintained its buy rating on Aditya Birla Nuvo with a target price of Rs 1035.

"Aditya Birla Nuvo (ABNL) reported results, which are above our expectations. The Company's consolidated net sales registered a growth of 15.3% yoy in FY09. Most of the Company’s segments have displayed an improvement in Q4’09. Accordingly, we have upwardly revised our estimates, and it has resulted in an increase in our fair value estimate. Further, we continue to believe that the Company's growing Life Insurance and Telecom businesses along with the improving performances of its other businesses will provide long-term value to the shareholders. Thus, we reiterate our 'Buy' rating on the stock. We have valued the Company by using the sum-of-the-parts methodology; our fair-value estimate of Rs 1,035 suggests a potential upside of 17% from the current market price. Hence, we reiterate our 'Buy' rating," says Indiabulls Securities' research report.

Motilal Oswal on ITC - Target Rs 237

Motilal Oswal has maintained its buy rating on ITC with a target price of Rs 237 in its research report.

"The stock has appreciated by about 12% in the last couple of trading sessions – perhaps the highest rise in reaction to budget pronouncements in recent times. We remain positive on ITC’s long-term prospects. We have upgraded our FY10E EPS to Rs 10.2 (Rs 9.9 earlier) and FY11E EPS to Rs 11 .6 (Rs11.3 earlier), factoring in no excise increase and removal of fringe-benefit tax (FBT). Maintain Buy with FY11E SOTP value of Rs 237," says Motilal Oswal's research report.

Sushil Finance on Divis Lab - Target Rs 1490

Sushil Finance has recommended a buy rating on Divis Laboratories with a target price of Rs 1490 in its report.

"In spite of the economic slowdown, DLL has managed to maintain its above average industry margins in FY09. DLL does expect some pressure on its Custom Chemical Synthesis Business (CSS) business but is banking on API sales of Levirecetam, lopamidol & nabumetone which will offset the slowdown in other businesses. Seeing the growth prospects & above industry average margins the stock deserves to trade at higher multiple. At the CMP, the stock trades at 13.3x its FY11E earnings. It has recommended buy rating on the stocks, target of Rs 1490," says Sushil Finance's research report.

Stock Views on Punjab National Bank, Bajaj Auto, ITC

Motilal Oswal on PNB - Target of Rs 721

Motilal Oswal has maintained its buy rating on Punjab National Bank with a price target of Rs 721 in its report.

"Punjab National Bank’s 4QFY09 PAT at Rs 8.7 billion was higher than our estimate of Rs 8.1 billion. We like PNB for its inherent strengths of large branch network in the cash-rich North India, strong liability side of balance sheet, higher sustainable margins, strong tier-I at 9%+ and improved asset quality. We expect momentum to slow down in loan growth and fee income. However; return ratios will remain superior with RoA at 1.3%+ and RoE at 23%+. Post 4QFY09 results, we have increased our EPS estimates by 11-12% for FY10-11. We expect PNB to report EPS of Rs106 in FY10 and Rs124 in FY11. BV would be Rs 494 in FY10 and Rs 585 in FY10. The stock trades at 1.3x FY10E BV and 6.1x FY10E EPS. We have maintained buy rating on the stock, target of Rs 721," says Motilal Oswal's report.

Angel Broking on ITC - Target of Rs 214

Angel Broking has maintained its buy rating on ITC with a target of Rs 214 in its research report.

"For 4QFY2009, ITC posted 1.1% yoy de-growth in Top-line to Rs 3,892 crore. We remain positive on ITC’s strong consumer demand profile, better pricing power, strong cash flows and its ability to channel these flows into new growth opportunities. At the CMP, the stock is trading at 15.3x FY2011E EPS of Rs 12. We maintain a 'Buy' on the stock with a target price of Rs 214. However, higher-than-expected hike in Excise Duty on cigarettes during the next Budget (we have factored in 5% hike for FY2010E) carries downside risks to our estimates," says Angel Broking's research report.

IIFL on Bajaj Auto - Target of Rs 1030

IIFL has maintained its buy rating on Bajaj Auto with a target price of Rs 1030 in its research report.

"Bajaj Auto’s operational 4QFY09 results were much better than the street’s expectations. EBITDA margin adjusted for one-off items expanded 150bps QoQ, driven by a steep decline in raw-material costs (primarily steel and aluminium) and shift in product mix towards the highly profitable 125cc+ segment. Reported PAT was lower than our estimate on account of a Rs 220 million MTM loss on forex contracts taken for hedging exports in FY10. Going forward, we expect margins to expand further to over 18%. Accordingly, we raise our EPS estimate for FY10 by 29% and for FY11 by 20%. We maintain 'BUY' with a price target of Rs 1,030, based on 13x FY10ii EPS," says IIFL's research report.

Stock Views on Federal Bank, TRF, Bharti Airtel

Motilal Oswal on Federal Bank - Target of Rs 277

Motilal Oswal has maintained its buy rating on Federal Bank with a price target of Rs 277 in its report.

"Federal Bank’s 4QFY09 results were significantly below our expectations. NII growth was lower than we had estimated, tax rate was higher than we had expected. Strong tier-I ratio, higher provision coverage, and lower C/I ratio of 35% are the bank’s key strengths. We expect Federal Bank to report EPS of Rs 33 in FY10 and Rs 39 in FY11. We estimate 14% earnings CAGR over FY09-11. RoA should remain strong at1.4% over FY09-11. However, excess capital would restrict RoE at 13%. The stock trades 7.1x FY10E EPS and 0.9x FY10E BV of Rs 277. We have maintained buy rating on the stock, target of Rs 277," says Motilal Oswal's report.


Emkay Global on TRF - Target of Rs 692

Emkay Global Financial Services has maintained its buy rating on TRF with a price target of Rs 692 in its report.


"TRF gave positive surprise in Q4FY09 with better-than expected operational performance. Its revenues grew by 41% yoy to Rs 2.4 billion led by sustained pick up in order booking in Project division, operating margins up 210 bps yoy to 15.5%, net profit growth at 55% yoy to Rs 239 million. TRF is sitting on strong order backlog of Rs 13.6 billion, up 33.5% yoy basis. There is ‘Project’ to ‘Product’ mix of 98:2, in favor of Project Orders. We revise our consolidated FY10E earnings upwards by 10.7% to Rs 104.9/Share and introduce FY11E earnings of Rs125.9/Share. We maintain our ‘BUY’ rating with revised target price of Rs 692, valuing at 6X 1-year forward PER," says Emkay Global Financial Services' research report.


Angel Broking on Bharti Airtel - Target of Rs 903

Angel Broking has recommended an accumulate on Bharti Airtel with a price target of Rs 903 in its report .

"Bharti Airtel is India's leading provider of GSM-based mobile services with 96.7 million subscribers at the end of April 30, 2009. In fact, in May, the company crossed 100 million subscribers. Bharti Airtel, in order to acquire a 49% stake in MTN Group, would have to fork out a gross of USD 6.8 billion at ZAR 86 per MTN share. On the other hand, the company would see an inflow of USD 2.9 billion from MTN Group as part payment towards purchase of a 36% post-transaction economic interest in Bharti. Thus, the net cash outflow required would be to the tune of approximately USD 3.9 billion."

"MTN Group is a South Africa-based communication service provider offering cellular-based services and business solutions. MTN has operations in 21 countries across Africa and the Middle East and is one of the largest emerging market mobile operators globally. Bharti Airtel is likely to trade volatile until the final result of the discussions between the two parties is out. Nonetheless, we believe this is a bold and necessary move being attempted by Bharti and investors would have to be patient and take a longer-term approach to reap the fruits of such a deal. We recommend an 'Accumulate' on Bharti with a target price of Rs 903," says Angel Broking's report.

Stock Views on Rcom, Mahindra & Mahindra, Sun Pharma

Sharekhan on Sun Pharma - Target of Rs 1295

Sharekhan has recommended a buy rating on Sun Pharma, with price target of Rs 1295, in its report.

"Sun Pharmaceutical Industries (Sun Pharma)’ Q4FY2009 performance was above our expectations. The revenues for the quarter declined by 9.8% to Rs 1,134.4 crore due to lower sales in the US market (as against the high base of the nonrecurring sales of Pantaprazole in Q4FY2008), voluntary product recalls (Digoxin and associated write-offs) initiated by Caraco Pharmaceuticals (Caraco) and currency related losses."

"With Rs 3,000 crore of cash on books and with the global financial meltdown resulting in more attractive valuations for generic drug companies, Sun Pharma is scouting for other acquisition opportunities (possibly a mid-sized generic company in the USA). At the current market price of Rs 1,219, Sun Pharma is valued at 16x FY2010E fully diluted earnings. We shall review our estimates and follow this with a detailed note soon, Buy, target of Rs 1295," says Sharekhan's report.

Motilal Oswal on Mahindra & Mahindra - Target of Rs 756

Motilal Oswal has maintained its buy rating on Mahindra & Mahindra with a target price of Rs 756 in its research report.

"M&M’s operational performance for 4QFY09 was significantly better than we had expected, driven by merger of PTL and cost savings, with EBITDA margins at 11.5% and adjusted PAT at Rs 2.8 billion. The management guided 5-8% volume growth in both UVs and tractors, coupled with full benefit of raw material cost savings. We are upgrading our standalone EPS estimate for FY10 by 11.7% to Rs 37.9 and consolidated EPS estimate by 1.2% to Rs 62.6 (despite ~8% dilution related to PTL merger) to factor in benefits of PTL merger, higher volumes and cost savings. The stock trades at 10.8x FY10E consolidated EPS and an EV of 9.7x FY10E consolidated EBITDA."

"We remain positive on the core business of M&M and the accretion to its share value from its subsidiaries. The IPO of Mahindra Holidays will result in further value unlocking for the stock. The stock trades at 10.8x FY10E consolidated EPS and an EV of 9.7x FY10E consolidated EBITDA. We maintain 'Buy' with an SOTP-based target price of Rs 756," says Motilal Oswal's research report.

Motilal Oswal on Rcom - Target of Rs 350

Motilal Oswal has maintained its buy rating on Reliance Communications with a target price of Rs 350 in its research report.

"RCOM is seeking shareholders’ approval to raise funds through equity/equity-linked instruments which could result in potential equity dilution of up to 25%. As per the company, the funds would enable it to strengthen its balance sheet and equip it to participate in the upcoming 3G/Wi-Max auctions. RCOM’s shareholders have approved the scheme of arrangement for demerger of RCOM’s optic fiber division to Reliance Infratel. RCOM and its subsidiaries hold 94.5% stake in Reliance Infratel, financial investors hold 5%, while employee welfare trust holds 0.5% stake. As per RCOM’s notice convened for shareholders’ meeting, net consideration for the transfer of optic fiber assets would be Rs 67.2 billion."

"We are upgrading our March 10 target price to Rs 350 which now reflects nil discount to DCF (v/s 10% earlier) and incorporates a lower WACC of 12.8% v/s 13.5% earlier given reduced leverage concerns. Maintain 'Buy' on likely operational turnaround post recent GSM launch, and abating concerns on high leverage," says Motilal Oswal's research report.

Stock views on Sun Pharma, Ipca Labs, ITC

Motilal Oswal on ITC - Target of Rs 200

Motilal Oswal has recommended a buy rating on ITC, with price target of Rs 200, in its report.

"ITC’s stock price has reacted negatively to sharp increase in duties in the past. The stock declined by 6.1% in 2005 (10% excise increase after a gap of three years) and 17% in 2007 (imposition of 12.5% VAT and 5% increase in excise). We currently factor in 7.5% increase in excise and 4% volume growth: We are currently factoring in 4% increase in cigarette volume and 7.5% increase in excise duty. Double-digit excise duty increase will be viewed negatively by the markets, in our opinion. Expanding margins by increasing prices will not be an easy option in FY10 as cigarette prices have increased by over 25% in the last two years. Maintain Buy with target price of Rs 200," Motilal Oswal's report.

Angel Broking on Ipca Labs - Target of Rs 684

Angel Broking has maintained its buy rating on Ipca Laboratories with a target price of Rs 684 in its May 29, 2009 research report.

“Ipca, a vertically integrated company with a geographically diversified business model, has grown at a steady pace in the past posting a CAGR of 17.3% in net sales during FY2005-08 primarily driven by its Domestic Formulation Segment. Going forward, we expect the next leg of growth for the company to come from its Export Segment as it leverages its API capabilities to create a sturdy business in the Regulated and Emerging Formulations market.”
“For FY2010, management expects top-line to grow 18-20% with OPM remaining steady at 20-21% levels. On the back of the same, we have upgraded our FY2010 net sales estimates resulting in an 8% upward revision of our net profit FY2010 numbers. We have also introduced our FY2011 numbers, wherein we expect the company to post 14.1% and 23.9% rise in net sales and Profit, respectively. Overall, we expect Ipca’s net sales and Adjusted net profit to post a CAGR of 16.9% and 29.4% respectively, over FY2009-11. At Rs 547, the stock is trading at 8.0x FY2010E and 6.4x FY2011E Earnings. We believe that the stock is trading at attractive valuations compared to its historical trading band. Hence, we maintain a buy on the stock with a target price of Rs 684," says Angel's research report.

KRChoksey on Sun Pharma - Target of Rs 1352

KRChoksey has recommended a hold rating on Sun Pharmaceutical Industries with a target price of Rs 1352 in its KRChoksey's research report.

"Sun Pharma Q4FY09 performance was hit by lower sales from Caraco and the economic downturn, which resulted in a slowdown in the domestic business. Currently, the status of the Detroit facility is unchanged; however the management has indicated that if the need arises, the company could evaluate product transfer options to India from Caraco on a case-to-case basis. For FY2010, Caraco has not provided any guidance, given the uncertainty surrounding its Detroit facility and the lower exclusivity revenues."

"Going forward, we expect the slower growth in the business to continue for the next two to three quarters, due to the economic downturn and lack of new product launches from the Caraco facility that is under USFDA scrutiny. However, the company’s track record of delivering consistent and robust growth makes it the best Indian player in the generic space. With a strong balance sheet with over Rs 3,500 crore in cash, Sun Pharma is well positioned to exploit newer growth avenues. Thus we remain positive on the stock.'Hold', price target of Rs 1352," says KRChoksey's research report.

Indiabulls Securities views on Patni Computer Systems, Suzlon Energy, Mphasis

Indiabulls Securities on Patni - Target of Rs 123

Indiabulls Securities Research has maintained its buy rating on Patni Computer Systems with a target price of Rs 123 in its research report.

"Patni Computer System (Patni)’s result for CY08 was in line with our estimates. For Q4 CY08, Patni reported 6.7% qoq growth in net sales to Rs 8.5 billion, largely helped by the sharp depreciation of the rupee vis-à-vis the dollar. However, revenues went down by an expected 3.9% qoq, in USD terms, due to the global slowdown. The EBITDA margin declined 874 bps to 10.9%, owing to a weak operational performance during the quarter. Nonetheless, Patni remains an attractive value pick, considering its low EV/EBITDA. Besides, the Company has a high investment portfolio & cash position, which will work as a strong base for its stock price. Although we have reduced our target price (TP) to Rs 123 from Rs 142, we maintain our Buy rating on the stock," says Indiabulls Securities' research report.


Indiabulls Securities on Suzlon Energy - Target of Rs 53

Indiabulls Securities Research has recommended a buy rating on Suzlon Energy with a target price of Rs 53 in its research report.

"Suzlon Energy Ltd. (SEL) reported a strong operating performance during Q3’09. Net sales for the Company (Wind Group and Hansen) increased 56.2% yoy to Rs 49.5 billion, mainly on account of better sales realisations and increased sales volumes. EBITDA increased 64% to Rs 6.4 billion due to a decline in raw material costs and a 21% yoy increase in the average realisation rate."

"Though our near-term outlook for the Company has weakened because of the prevailing slowdown, we believe that the current market price more than factors the negatives. Based on our valuation, we have arrived at a target price of Rs 53 (assuming an 11.2% WACC and a 5% terminal growth rate). Since our target price provides an upside potential of 36% from the CMP, we give a Buy rating," says Indiabulls Securities' research report.


Motilal Oswal on Mphasis - Target of Rs 200

Motilal Oswal has maintained its buy rating on Mphasis with target price of Rs 200 in its research report.

"Mphasis reported QoQ revenue growth of 9.3% at Rs 9.8 billion v/s our estimate of Rs 9.6 billion for the quarter ended January 2009. The company has changed its financial year to Y/E October, in line with HP’s reporting cycle. EBIT margin at 21.5% was up 260bp QoQ. PAT at Rs 2.1 billion grew 15% QoQ with PAT margin expansion of 100bp QoQ to 21.5%. Forex gains were Rs 30.9 million in 1QFY09 v/s Rs 149 million in 4QFY08. Tax rate at 3.2% was lower than 2.8% in 4QFY08."

"Mphasis has displayed impressive execution since the last few quarters with 1] robust operating margin expansion, 2] improvement in billing rates in an environment of high pricing pressure, 3] improvement in utilization. We believe Mphasis would benefit from its strong parentage (HP and EDS) and presence in offshorable service lines like BPO, infra and application maintenance services in the near future. Maintain Buy, target price of Rs 200," says Motilal Oswal's research report.

Stock views on Power Grid, Seamec, Piramal Healthcare

Indiabulls Sec on Power Grid - Target Rs 120

Indiabulls Securities Research has maintained its buy rating on Power Grid Corporation of India with a target price of Rs 120 in its research report.

"PowerGrid’s net sales were up 34.4% yoy to Rs 14.8 billion in Q3’09, mainly due to a higher transmission income. Transmission revenues increased on account of the commissioning of assets worth Rs 87.5 billion since Q3’08 and the recognition of Rs 1.9 billion of Foreign Exchange Rate Variation (FERV) loss as recoverable transmission income. Our enthusiasm in Power Grid Corporation of India Ltd. (PGCIL)’s stock has been lighted up by the encouraging tariff determination norms issued by the CERC for FY10–14. As a result, we have increased our target price for PGCIL’s stock from Rs 110 to Rs 120 and maintain our Buy rating," says Indiabulls Securities' research report.

Emkay Global on Seamec - Target Rs 73


Emkay Global Financial Services has maintained its buy rating on Seamec with a price target of Rs 73 in its research report.

"Seamec has reported net profit Rs 547 million in Q4CY2008 which is sharply above our expectation on account of higher than expected utilisation of fleet during the quarter. Revenues for the quarter stood at Rs 1044 million registering a growth of 369% yoy as Seamec had all of its four vessels full operational during the quarter as compared to just two vessels operating partially in Q4CY2007. Driven by full utilisation of fleet, higher day rate for Seamec Princess and currency appreciation, EBITDA for the quarter stood at Rs 612 million as compared to loss in Q4CY2007. As per management guidance all of its vessels will be fully available for operation in CY2009."

"Consequently on expected full utilisation of fleet and currency appreciation we are upgrading our earnings estimates for CY2009 by 20% to Rs 24.3 per share. At current levels the stock is trading at undemanding valuations of 2X its CY2009 earnings and P/B of 0.4X. The company has a market cap of USD 34 million and it is already sitting on committed contracts worth 40 million dollars. We maintain our BUY recommendation with a revised price target of Rs 73," says Emkay Global Financial Services' report.


Motilal Oswal on Piramal Healthcare - Target Rs 290

Motilal Oswal has maintained its buy rating on Piramal Healthcare with a target price of Rs 290 in its research report.

"Piramal Healthcare’s 3QFY09 performance was below estimates, with topline growth of 13.1% to Rs 8.3 billion v/s estimate of Rs 8.65 billion, EBITDA margin at 18.8% v/s estimate of 20% and PAT decline of 23% to Rs 599 million v/s estimate of Rs 976 million. We estimate that adjusted for NCE hive-off, PAT has de-grown by 39% for 3QFY09. We reiterate Buy with a target price of Rs 290 (12x FY10E EPS), an upside of 58%," says Motilal Oswal's research report.

Stock Views on Shree Cement, Tata Motors, Larsen & Toubro, Reliance Power

BNP Paribas on RELIANCE POWER

BNP Paribas has reiterated its ‘reduce’ rating on Reliance Power while lowering its price target from the earlier Rs 136 to Rs 105, as it feels that the company does not have any operating income and there is a likelihood of some projects getting delayed. “The company currently has no operating income and only generates interest on the cash it raised in its IPO last year,” says a report. BNP Paribas also feels that Reliance Power’s Sasan and Chitrangi projects could get delayed, as Tata Power has filed a petition in the Delhi High Court. It estimates an upside of Rs 15 per share to the target price, if RPL’s gas dispute with RIL is resolved at $5.20/ mmbtu. “We also estimate an upside of Rs 37 per share, if RPL is able to execute both Sasan and Chitrangi projects,” it adds.

Motilal Oswal on LARSEN & TOUBRO

Motilal Oswal has maintained a ‘neutral’ rating on Larsen & Toubro while lowering its capex guidance for the company. It feels that going forward, there are increased possibilities of execution delays. “Standalone capex guidance for FY09 has been reduced to Rs 15 billion now, from earlier Rs 20 billion,” says a report. “During 1HFY09, the capex stood at Rs 8 billion, indicating that 2HFY09 capex has been cut sharply,” it added. The brokerage also feels that while there have been no meaningful delays till date, there is a probability of execution challenges for segments like metals/minerals (8-9% of order book), airports (9-11%+) and real estate (6%). It expects L&T to report consolidated EPS of Rs 52.6 per share for FY09 (up 34% Y-o-Y), Rs 57.4 per share in FY10 (up 9% Y-o-Y) and Rs 60.8 per share in FY11 (up 6% Y-o-Y).

HDFC Securities on TATA MOTORS

HDFC Securities has maintained its ‘sell’ rating on Tata Motors due to various factors, including demand slowdown, lack of credit financing and failure of the company’s rights issue. “The demand is slowing down drastically. Lack of credit financing, coupled with high interest rates are forcing customers to postpone purchases hitting among others Tata Motors,” says a report. To align production with demand, the company had temporarily shut down its Jamshedpur, Pune and Lucknow plants, it adds. The brokerage also feels that the failure of the rights issue has reflected badly on Tata Motor’s credibility and ability to raise money on its own. We believe the JLR acquisition will continue to be an overhang on Tata Motors’ stock, it says. The profitability of Tata Motor’s subsidiaries in Q2 FY09 was also very disappointing, it notes

India Infoline on SHREE CEMENT

India Infoline has retained its ‘add’ rating on Shree Cement with a target price of Rs 587 on expectations of higher volume and lower decline in cement prices. “The company has nine mtpa cement production capacity and plans to increase it to 10 mtpa by mid-FY10,” says a report. The company also plans to set up a 35MW WHR-based and around 40MW petcoke-fired power plant, it adds. The company, according to the report, recorded strong volume growth (>30% Y-o-Y) in the quarter ended December 2008 that enabled it to offer bigger discounts than its peers. The company is expanding its cement capacity by adding another line (Unit VII) at Ras — scheduled to start production by mid-FY10, says the report. The company is trading at EV/tonne of $41 and does not reflect the company’s

Stock views on Nestle, ITC

Motilal Oswal Securities on ITC

ITC’s 2QFY09 results were in line with our expectations. New FMCG business sales grew 29.4% to Rs 7,600 cr. It has been facing considerable headwinds in the cigarette business in the past couple of years. 75-80% filter cigarette conversion and expansion is positive. New FMCG is expected to remain in investment mode in the medium term. Hotels business, however, is likely to witness pressure on sales and profits.


Antique Stock Broking on NESTLE

Nestle’s dominant market share and continued innovation in the milk product category would help this business to grow at steady CAGR of 15%. We expect the prepared dishes and cooking aids category to be a key growth driver for Nestle going ahead led by an increase in penetration levels and launch of innovative variants. The decline in raw material prices would lead to higher profitability.

Stock views on Larsen & Toubro, Ranbaxy, Allied Digital Services, Piramal Healthcare, Infosys, Mahindra & Mahindra

MOTILAL OSWAL on M&M
MOTILAL OSWAL maintains its 'Buy' rating on Mahindra & Mahindra. M&M had earlier mentioned in its post-2QFY09 results that it would be reviewing the Rs7,000-crore capex plan over FY09-12 for a possible reduction. After a review of the capex plans, management has now decided to go ahead with the original capex plan of Rs 7,000 crore without any cuts. Out of the Rs 7,000 crore over FY09-12, Rs 5,000 crore will be invested in the automotive business and Rs 2,000 crore in the non-auto business. In auto business, investment will be made in the Chakan plant (~Rs2,500 crore), product development (Rs 2,000 crore for Xylo, Scorpio's successor, light transport vehicles and lobal product) and further equity contribution in Mahindra Navistar JV (Rs 350 crore). In the non-auto business, it is investing Rs 500 crore in tractors business, Rs 700 crore in logistics business and defence business and Rs 750 crore for setting up world-class research facility at Chennai. Motilal Oswal has downgraded the consolidated earnings estimates by 11.7% for FY09 to Rs 58.7 and by 12.9% for FY10 to Rs 70.6, to factor in lower volumes and downgrade in subsidiary / associate earnings. Notwithstanding short-term challenges, valuations at 4.6x FY09E and 3.9x FY10E consolidated EPS are attractive.


CITIGROUP on INFOSYS

CITIGROUP EXPECTS Infosys' revenues at $1,167m, down ~4% qoq. This assumes marginal decline in volumes, stable pricing and ~4% impact of cross currency. EBIT margins are expected to fall ~150bps qoq. Citigroup forecast basic EPS of Rs 26.63 in line with guidance. Volumes continue to be under pressure with clients cutting back on discretionary projects and Q3 being also impacted due to "holiday project closures". Citigroup has lowered its FY10-11E estimates by ~6% on the back of lower volume/pricing assumptions and cross currency impact in Q3. While the stock price witnessed ~37% erosion in CY08, expected numbers are ~6% below consensus, and consensus is to be revised down further. This could put further pressure on the stock in the near term. The EPS numbers benefit from ~5% INR depreciation assumed in FY09 - in other words, Citigroup is modelling an EPS decline in constant currency terms. With a likely result disappointment and further EPS cuts, the stock could underperform in the near term.


MERRILL LYNCH on PIRAMAL HEALTHCARE


Merrill Lynch reiterates 'Neutral' rating on Piramal Healthcare (PHL). However it revises estimates to factor higher interest cost and lower target price to Rs 280 based on 12x FY10E EPS. PHL's proposed acquisition of Minrad comprises equity consideration (US$6mn), convertible debt redemption (US$30mn) and existing debt (~US2mn). Apart from this, PHL would infuse US$12mn in Minrad for working capital requirement. Post-completion of this acquisition (5th in 2008), PHL's D/E would be ~0.9x which is higher than the industry average. Minrad's acquisition bolsters the US$20mn inhalation anaesthetics business of PHL and broadens its portfolio from two products currently to five (halothane, isoflurane, enflurane, desflurane and sevoflurane). PHL-Minrad combine would be the 3rd largest player in US inhalation anaesthetics market addressing a US$1bn+ opportunity worldwide. Merrill Lynch is relatively conservative and expects the deal to be EPS neutral in FY10. The deal is expected to be closed by FY09-end. PHL's CMO business has mid-teens EBITDA margin which is the lowest among that of its peers.


INDIAINFOLINE on ALLIED DIGITAL SERVICES

Allied Digital Services (ADSL)'s pan-India presence, direct support model, established remote infrastructure and significant price competitiveness provide an edge against competition in the domestic IMS market. Its marquee clientele includes large customers won from leading Indian offshore vendors. The recent En Pointe Global Services LLC (EPGS) acquisition would significantly increase international IMS revenues apart from driving domestic revenues through offshoring. Further, the SOC services are expected to register exceptional growth driven by increasing compliance requirements globally. The company expects a hefty ~US$100-million revenue contribution from EPGS in FY10. ADSL's operating margin is likely to improve by 150-200bps in FY10 driven by lower solutions revenue share and improving profitability within IMS through offshore shift. IndiaInfoline expect revenues and net profit of ADSL to record a robust CAGR of 61% and 82% respectively over FY08-10E. Higher growth in earnings would be driven by OPM expansion. Given the strong fundamentals, current valuations of 4.7x FY10 P/E and 1.4x FY10 P/BV appear inexpensive.


JP MORGAN on RANBAXY LABORATORIES

GIVEN THE twin uncertainties of the continued US FDA import ban and potential currency exchange losses, JP Morgan remains 'Neutral' on Ranbaxy even though valuations remain attractive for longer-term investors. Ranbaxy, which has a 180-day exclusivity on generic Imitrex (Sumatriptan), has not yet been able to launch the drug in the US as the FDA approval has not yet come through. Sumatriptan First to File is approximately Rs 5/share of the target price. Brand sales of Imitrex were US$1.29 billion in 2007. Given that the generic filing is not from the manufacturing sites where the US FDA had issued warning letters, the launch approval from the US FDA for Sumatriptan is key to see if it is business as usual for Ranbaxy in the US beyond the products in the import ban. Given the large FTF (first to file) pipeline for Ranbaxy, any delay in approvals for Sumatriptan would be negative for the remaining FTF pipeline.


HSBC on LARSEN & TOUBRO

HSBC has downgraded the rating of Larsen & Toubro to 'Negative' over the Satyam stake purchase. HSBC believes this investment is a portfolio investment rather than a strategic one and views this as a negative for L&T. It thinks that the stake is not positive for L&T's subsidiary, L&T Infotech, given that it has a smaller operation versus Satyam's 53,000 employee base. The integration will be a significant issue given L&T Infotech's smaller size. Also, after allegations of misappropriation regarding Satyam's former chairman, integration could expose L&T to litigation. Moreover, there is a lot of uncertainty in terms of any liability for Satyam. HSBC reduces its FY10E PAT estimate by 8%, driven by a lower 4% change in sales and expects a 25.7% revenue CAGR over FY09-11E, driven by the existing order backlog and new orders from infrastructure, power and new verticals. HSBC is reducing its valuation of L&T subsidiaries to Rs 131 per share.

Stock views on Tata Power, Bombay Rayon, Indian Hotels

CITIGROUP on INDIAN HOTELS

CITIGROUP has downgraded Indian Hotels to ‘hold’ from ‘buy’ rating with a target price of Rs 47. The downgrade is based on lower earnings estimates to take into account the recent terror attacks in Mumbai, which will lead to temporary shutdown of the company’s flagship property in Mumbai and likely lower occupancy of the company’s other properties in India. Indian Hotels is the largest hotel operator in the country and is looking to enter the budget hotel segment through its new brand ‘Ginger’. It already operates 11 budget hotels and plans to add 35 such hotels in the next few years with an investment of Rs 400-600 crore. Indian Hotels also plans to foray into the adventure business with wildlife lodges. The company is looking to expand overseas through acquisitions/management contracts. There is limited upside from current levels, given the unfavourable outlook for the hotel sector in India. The target price is based on 10x (versus 13x earlier) FY10E P/E as Citigroup builds in concerns of slower earnings growth, given expectations of lower occupancy, economic downturn and upcoming room supply.

MOTILAL OSWAL on TATA POWER

MOTILAL Oswal maintains a ‘buy’ rating on Tata Power with a target price of Rs 751. Tata Power has achieved financial closure and placed equipment orders for 5,660-mw projects under development. Its total equity commitment stands at ~Rs 6,000 crore, of which Rs 2,900 crore is likely through internal accruals, Rs 1,900 crore through issue of warrants and preferential allotment to Tata Sons, and Rs 1,200 crore via rights issue and/or monetisation of investments. In FY08, the company raised Rs 380 crore via sale of part stake in Tata Teleservices Maharashtra and Rs 710 crore via share issuance to Tata Sons. Tata Power is expected to commission 2,663 mw of capacity by FY12, including the first unit of Mundra UMPP (800 mw) in September ’11. Despite initial delays, capacity addition in FY09 and FY10 is expected at 530 mw and 120 mw, respectively. In FY09, Tata Power will have merchant capacity of 200 mw, which should contribute 6.5% of the standalone net profit in FY09 and 18.6% in FY10. Motilal Oswal expects Tata Power to report a consolidated net profit of Rs 1,410 crore in FY09 and Rs 1,610 crore in FY10.

EDELWEISS SECURITIES on BOMBAY RAYON

EDELWEISS Securities has downgraded Bombay Rayon’s stock to ‘accumulate’ from ‘buy’. Garment sales are estimated to contribute 66% to Bombay Rayon Fashions’ (BRFL) consolidated revenues in FY09. The company exports 100% of its garments to the US and Europe. With both these key geographies witnessing economic turmoil, same store sales of BRFL’s clients have dropped almost 3% to 15%. BRFL reported robust numbers in Q2 FY09 with net sales up 28% y-o-y at Rs 290 crore and EBITDA up 39% yo-y at Rs 68.7 crore. Even though the management seems confident of delivering 50% topline growth in FY10, Edelweiss has revised down its estimates of revenues from garment sales by 24% in FY10 to Rs 1,097 crore. At CMP, the stock is trading at a P/E of 5.4x FY09E EPS of Rs 19.9 and 4.9x FY10E EPS of Rs 21.9. The stock has corrected 60% since July 1, ’08, factoring in most of the risks of a slowdown in its garment business. But Edelweiss believes the overhang of negative news flow from its key markets and customers, as well as downside risks to topline due to cancellation of orders or defaults on payments, will hinder any major outperformance of the stock.

Stock Views on Sintex Industries, Tata Steel, Indiabulls Real Estate

Motilal Oswal on Indiabulls Real Estate

Motilal Oswal has recommended a buy rating on Indiabulls Real Estate in its research report. "Management has indicated that they would re-evaluate all their development plans and adopt a risk-averse development strategy. IBREL will focus on pre-sales ahead of commencing development, at least to the extent of the construction cost, as a risk-mitigation strategy."

"We have revised our NAV for IBREL to Rs 294 per share, to account for: (1) delay and postponement in development of retail and commercial projects, (2) lower rental assumption for Mumbai projects to Rs 225/sf per month from Rs 275/sf per month, (3) increased cap rates for Mumbai’s commercial office properties to 12% v/s 11% earlier, and (4) lower net cash. The stock is trading at 48% discount to our current NAV estimate of Rs 294 per share. Buy," says Motilal Oswal's research report


Indiabulls Securities on Tata Steel - Target of Rs 255

Indiabulls Securities Research has upgraded its rating on Tata Steel from hold to buy with a target price of Rs 255 in its research report. "We have downgraded our estimates for Tata Steel Limited to account for the greater-than-expected downturn in the global economy and the subsequent fall in steel prices. However, its stock has fallen by around 60% since our last quarterly report. At its current market price (CMP), we believe the market is more than factoring in the negative macroeconomic news and is ignoring the long-term potential of the Company. Our DCF based target price of Rs 255. Hence, we upgrade our rating on the stock from Hold to Buy," says Indiabulls Securities' research report.


Angel on Sintex Industries - Target of Rs 230

Angel Broking has initiated an accumulate rating on Sintex Industries with a 12-month target price of Rs 230 in its research report. "Sintex Industries (Sintex) is a market leader in the manufacture and sale of value added plastics and textile-based products. Sintex intends to leverage its established brand name to increase its Revenues and Profits going ahead. Moreover, an excellent Order Book lends high Revenue visibility to its Monolithic Business Division. The company is reputed for its acumen to recognise and enter new and evolving businesses. Sintex's growth plans are adequately funded and we believe it is wellplaced to achieve its targets on schedule. The company’s Monolithic and Prefab business put together have a strong order book of Rs 1,600 crore. On a conservative basis, we estimate the company's Top-Line and Bottom-Line to post CAGR of 32.6% and 36.3% over FY2008-10E, respectively."

"We Initiate Coverage on the stock with an Accumulate recommendation and 12-month target price of Rs 230, which translates into a Target P/E of 8x FY2010E Adjusted EPS. It may also be noted that we have not converted the FCCBs issued by the company and the warrants to promoters into Equity on account of the current adverse market conditions. We have calculated interest that would be paid out on FCCBs every year until maturity at YTM and have accordingly adjusted Net Profit of the company and calculated Adjusted EPS thereof," says Angel's research report.

Views on IVRCL Infra

KRChoksey IVRCL Infra - Target of Rs 198:

KRChoksey Research has recommended a buy rating on IVRCL Infrastructure, with price target of Rs 198, in its report. "At the CMP, IVRCL is trading at 7.8x TTM EPS of Rs 17.8 and 8.8x FY09E EPS of Rs 15.6. We anticipate slowdown in order inflow and an increase in interest expense, which will impact the revenue and net profit margins of the company. We have reduced our EPS estimates for FY09 and FY10 by 10% & 9.8% respectively. We therefore downgrade our target price from Rs 381 to Rs 198, maintaining a BUY rating, with an upside potential of 41.4%," says KRChoksey's research report.


Motilal Oswal on IVRCL Infra

Motilal Oswal has maintained its buy rating on IVRCL Infrastructure and Projects in its research report. "Strong revenue growth during 1HFY09 was partially aided by benefits accrued on account of price variation clauses. For FY09 management has guided for revenue growth of 35-40% YoY and EBITDA margin of 9.5-9.9% (earlier at 10%). It also indicated that incremental debt requirement during FY09 will be limited to Rs 1.5-2 billion (existing debt Rs 14.5 billion). The net working capital stands at Rs 23 billion as at September 2008 compared with Rs 19.7 billion at end-FY08. Loans and advances currently stand at Rs 4 billion, including Rs 2.6 billion to IVR Prime."

"We expect IVRCL to report net profit of Rs 2.3 billion in FY09 (up 10% YoY) and Rs 3.2 billion in FY10 (up 37% YoY). The stock is trading at 7.6x FY09E earnings and 5.5x FY10E earnings. Maintain Buy," says Motilal Oswal's research report.

Indiabulls Securities on IVRCL Infra

Indiabulls Securities Research has maintained its buy rating on IVRCL Infrastructure and Projects in its research report . "IVRCL’s standalone revenue increased by 65.1% yoy to Rs 11,366 million. Net profit soared 62% yoy to Rs 571 million during the quarter. Our SOTP-based fair value estimate stands reduced to Rs 178 due to the challenging macroeconomic environment. However, we believe that the stock has corrected significantly in the recent past and is trading at an attractive valuation. Our fair value estimate reflects a potential upside of 28% over the current market price. Hence, we maintain our Buy rating on the stock," says Indiabulls Securities' research report.