Stock Views on BHARTI AIRTEL, ESSAR OIL, TUBE INVESTMENT OF INDIA

NOMURA on TUBE INVESTMENT OF INDIA

Nomura continues to maintain `Buy' rating on Tube Investment of India due to the strong competitive position of its businesses, good return ratios, high quality of management and attractive valuations. While the growth may slow down in FY12E as compared to that in FY11, it is still likely to be upwards of 15% as per current indicators and estimates. The company has been able to pass on the increase in raw material prices and is likely to maintain margins at least in the next one-two quarters. Oneyear forward P/E multiple of 13.5x on a standalone one-year forward EPS of 11.08 gives a value of 150/share. The one-year forward P/E multiple of 13.5x for the standalone business is justified as it is a highquality and high ROCE business where the company has dominant market share. Nomura has not assigned any value to the general insurance business, in which the company holds a 74% stake and held a market share of 2.3% in FY10.

CREDIT SUISSE on ESSAR OIL

Credit Suisse upgrades Essar Oil's rating to `Outperform' with a target price of 155. Essar Oil reported Q4FY11 EPS of 2.35, up 18% Q-o-Q and 57% Y-o-Y. ESOIL has booked sales tax deferral benefits of $2.86/bbl in Q4, supported by high product prices. Adjusting for this, Q411 GRM (gross refining margin) stands at $5.3/bbl, up $0.5/bbl Q-o-Q. The refinery upgrade project has been delayed due to fabrication issues at some units. These have reportedly been fixed, and ESOIL now believes it will be able to complete the upgrade by Q3/Q4 FY11. Trail production and sales have commenced at the Raniganj CBM block. Commercial production is expected to commence as some pending approvals are obtained. FY12/13E EPS increases by 8%/6% to 6.9/22.3 respectively. Completion of the upgrade should materially increase ESOIL's EPS/cash flow.

HSBC on BHARTI AIRTEL

HSBC upgrades Bharti Airtel to `Overweight' and raises target price to 425 as Bharti benefits most from weakening of competition. The stock underperformed after the launch of GSM services by Tata Teleservices and the entry of a range of new greenfield operators that led to irrational price competition. However, in the last six-nine months, the stock has bounced back as new GSM operators have become defensive in terms of pricing and rollout of services. In fact, Bharti won back about 100 bp of its revenue market share in the June quarter, a clear indication of its dominance in the Indian wireless space. Bharti is well positioned in the Indian market with the largest block of 900 MHz spectrum and 3G spectrum in 13 circles that cover 68% of India's population; the largest amongst all operators. HSBC believes FY12E will be a year of consolidation for both voice and data. With 3G launch to gain traction in the next 9-12 months and focus on voice improvements to be more visible in FY13E, investors should now be looking at FY13E.