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 Mahindra & Mahindra, Dabur, Reliance Power

Merrill Lynch on Mahindra & Mahindra

WHILE Merrill Lynch has reiterated its ‘underperform’ rating on Mahindra & Mahindra (M&M), it has revised the price target to Rs 536 from Rs 499 due to additional value of listed subsidiaries, and a 4% lower dilution on assumed non-conversion of foreign currency convertible bonds (FCCBs). Merrill Lynch has the following concerns: Unexciting overall prospects of core business, restricted by highly competitive and margineroding utility vehicles segment, as well as substantial investments, which will dilute earnings and return parameters. Over the next three years, capital outlay is estimated at Rs 9,000 crore on an existing base of Rs 7,000 crore. Around 50% of the company’s investments are expected to be related to acquisitions/joint ventures, possibly in new forays, or where the management’s capability is yet to be proven, for example two-wheelers, auto parts etc. Standalone capital expenditure (capex) surge will sharply increase fixed overheads, and therefore, drag down mediumterm profitability, as well as the return ratio.

HSBC on Dabur

HSBC has assigned an ‘overweight’ rating to Dabur India with a price target of Rs 110. The recent sluggishness in the share price can be attributed to the slowdown in growth for foods from 20%+ earlier to around 15% in the past few quarters. However, since the integration with the consumer care division (CCD) has been completed, and supply chain issues have been sorted out, the foods segment is set to return to 20%+ growth in the next quarter. This may be the trigger that the market seeks to re-rate the stock. HSBC has valued Dabur at 21x FY10E earnings per share (EPS) of Rs 5.25 to get a target price of Rs 110. Dabur has averaged a 12-month forward price-earnings (P/E) multiple of 24.6x over the past two years with minimum and maximum P/Es of 17.1x and 29.9x, respectively. The stock is currently trading at 21.1x FY09E EPS. Given its robust business model, which is well-diversified over a large number of segments, with brands targeted at each category of consumers, Dabur is currently trading below its deserved multiple.

BNP Paribas on Reliance Power

BNP Paribas has initiated coverage on Reliance Power by assigning a ‘reduce’ rating. Reliance Power is a power utility at an early stage of development with revenue expected to start only in FY10, when its first power project becomes operational. The company has an ambitious plan to become the second-largest power generator in India by adding ~31 gigawatts (gw) of capacity by FY16. However, the company faces significant headwinds as only one project has attained financial closure. Further, 66% of the land required for its projects is yet to be acquired. Its hydroelectric projects are in very early stages of development with the risk of being shelved. BNP Paribas believes that Reliance Power will find it difficult to prevent project cost escalations on rising equipment and construction costs. Rising interest rates and a global credit crunch can increase debt costs above the company’s estimates.