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

Centrum Broking on HINDUSTAN ZINC

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

Deutsche Equities on HDFC

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

Prabhudas Lilladher on JET AIRWAYS

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

Merrill Lynch on HERO HONDA

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