Ambit Capital on RCom

The mobile industry has been adding more than 15-16 million subscribers per month. However, the proportion of multiple SIMusers is on a rising trend, leading to more than 100 per cent penetration in some metro areas.

Consequently, the company believes subscriber based criteria is increasingly becoming irrelevant. According to RCom, MNP, which is set to be implemented over the next few months, is expected to be beneficial. The company expects competitive intensity to increase in the high-value post-paid and corporate subscribers and expects to be a net beneficiary of this move. The number of players is expected to go up further after launch of services by new players. This will put further pressure on revenue and profitability of all operators. RCom believes that it will not be possible for all the players to survive and remain profitable in the long term, and hence, consolidation is inevitable. Due to rising competition, margin dilution due to MNP implementation, cash outflow (3G spectrum auction) and regulatory uncertainty about spectrum allocation, Ambit maintains a sell on Rcom.

Stock Views on Tata Motors, Infosys Technologies, Balrampur Chini Mills, Aban Offshore

INDIABULLS on TATA MOTORS

INDIABULLS has downgraded Tata Motors from hold to ‘sell’ after the company reported a decline in sales volume over the past few quarters. The broking house expects this trend to continue in the coming quarters, “given the slowdown in the economy, the cautious lending environment and a significant decline in consumer spending.” Indiabulls feels that the biggest challenge for Tata Motors currently is to turn around its Jaguar Land Rover (JLR) business, for which it raised a bridge loan of $3 billion. “Given the tight liquidity scenario and bleak capital markets, Tata Motors is likely to roll over its bridge loan, thereby adding to the company’s finance cost,” says the report. Further, JLR’s sales volume is trending downwards, and given the current economic conditions in the US and Europe, we do not expect volumes to recover in the near term, it adds.

Prabhudas Lilladher on INFOSYS TECH

Prabhudas Lilladher has a ‘reduce’ rating on Infosys Technologies as it feels that the outlook for the company and the software industry is quite weak in the near-term. “While we expect Infosys to perform better than most other players in the industry, we rate the stock ‘reduce’ with a target of Rs 1,246,” says the report. With a difficult FY10E and full-tax FY11E, the two-year earnings CAGR (FY09-11) for the company is unlikely to be over 10-15%, it adds. According to the broking house, the company’s pricing power in fresh contracts would remain under pressure as “pricing behaviour by competition has turned aggressive in new contracts.” While Infosys has seen some weakness in the BFSI domain in the recent past, the outfit expects this weakness to “spread to retail and possibly the manufacturing domains as well.” Of the various service lines, Enterprise Solutions may be worst affected over the next few quarters, according to the management, it adds. The broking house is also expecting another reduction in US dollar guidance by Infosys.

PINC Research on BALRAMPUR CHINI

PINC has downgraded its rating on Balrampur Chini Mills to ‘sell’ as it feels that lower cane crushing would impact the company’s profitability. “Although we remain confident about Balrampur Chini Mills’ business model & efficiency levels and are positive about the turnaround in the sector, we believe that lower cane crushing in FY09 would impact its return ratios (assuming cane price of Rs 140/quintal),” says the report. The outfit expects the company’s revenues for FY09 to rise by 12% to Rs 1,650 crore, aided by higher sugar revenues. “Revenues from sugar sales should grow 12% to Rs 1270 crore as a result of inventory liquidation and higher sugar prices. OPM should dip by 90bps to 21.3% in FY09 on the back of higher cane costs at Rs 140/quintal,” it says. The report, however, does add that if cane prices are maintained at last year’s SAP of Rs 125/quintal, the target price works out to Rs 38 based on FY09E profits of Rs 160 crore.

Ambit Capital on ABAN OFFSHORE

Ambit Capital has maintained a ‘buy’ on Aban Offshore with a revised target price of Rs 1,603 (earlier Rs 1,566), implying an upside of 143% from the current levels. The upward revision comes after the company announced contract renewal of its jack-up ‘Deep-Driller-IV’ (DD-IV) in continuation of expiry of its current contract in December 2008. According to the report, the renewal is for a period of six months and is part of the two six-month options built into the agreement

Stock views on NTPC, Bank of India, Inox Leisure

Ambit Capital on INOX LEISURE

AMBIT Capital has downgraded its rating on Inox Leisure from ‘buy’ to ‘sell’ citing disappointing quarterly numbers as one of the reasons. “Despite strong performance of key movies during the quarter, the company reported poor numbers that were way below our estimates. In our opinion, the company has failed to capitalise on an otherwise strong content supply,” said a brokerage note to clients. The brokerage says that it expects company’s earnings to be under pressure for some time. “Weak macro environment has taken a toll on the occupancies. Moreover, supply of content and screen space is not likely to improve in the forthcoming quarters. Consequently, we expect Inox to report a muted topline growth, going forward,” the note added.


Centrum Broking on BANK OF INDIA

Domestic brokerage house Centrum Broking has maintained its ‘buy’ rating on Bank of India, but lowered target price to Rs 330. According to brokerage’s estimates, the stock is trading at 0.9 times FY10 (estimated) adjusted book value. “We believe BoI would continue to command premium versus its peer PSU banks, primarily due to its strong returns ratios, better asset quality and higher profitability,” a Centrum note to clients said. BoI’s profit after tax for the quarter ended December rose 70% Y-o-Y to Rs 870 crore. “BoI continues to witness strong financial performance on the back of steady Net interest income (NII) and strong non-interest income growth and lower opex. We have raised our PAT estimates for FY09 by 29% and for FY10 by about 28% factoring in higher NII and other income growth.


Goldman Sachs on NTPC

Goldman Sachs has maintained its ‘buy’ rating on NTPC, saying that Central Electricity Regulatory Commission’s final tariff norms for FY10-14 are neutral to positive for NTPC’s earnings outlook, relative to the draft norms announced in September 2008. “We maintain that effective tax rate and economic life of projects are critical

Ambit Capital Views on Midcap Banking Sector

ANDHRA BANK

The bank is expected to exhibit a steady business CAGR in the range 23-25% over FY08-FY10E. A low capital adequacy has been constraining the bank’s growth over the last three years. This proved to be a blessing in disguise as the bank boasts of an asset quality among the most superior within the banking system. The bank’s provisioning coverage remains exceptional.

South Indian Bank

The bank remains a fundamentally sound investment idea from the old private sector banking space. We expect business growth in the range 15-18% during FY09E - the bank has already shed Rs 5bn worth of bulk deposits during H1FY09 and is focusing on improving the CASA levels. This, taken alongside the PLR hike to the extent of 100bps during H1FY09, has helped shore up NIMs.

Stock Views on Reliance Industries, Tata Consultancy Services, Allied Digital, Grasim Industries, Karuturi Global

ICICI Securities on Reliance Industries - Rating: BUY

ICICI Securities has maintained its buy rating on Reliance Industries in its June 11, 2008 research report. "We are increasing our FY09 and FY10 crude price and exchange-rate estimates as well as building-in lower refining and petrochemical margins for Reliance Industries (RIL). We are also factoring-in an expected delay in commencement of production from the KG D6 block and operations of the Reliance Petroleum (RPL) refinery commencing September ’08. Recent Government decision to keep private companies out of the purview of subsidy sharing is positive. However, we remain positive on the long-term prospects of RIL on the back of impressive earnings growth and attractive E&P portfolio. Reiterate BUY.""We value RIL’s extant petrochemical and refining business at Rs 1381 per share, retail at Rs 140 per share, E&P at Rs 1,168 per share and RIL’s stake in RPL at Rs 343 per share. We also attribute Rs 85 per share value to the company’s SEZ at Haryana, implying fair value of Rs 3,060 per share," says ICICI Securities' research report.

India Infoline on Tata Consultancy Services - Target Rs 875

India Infoline has recommended a buy rating on Tata Consultancy Services with a target price of Rs 875 in its July 17, 2008 research report. "Though the Q1 FY09 performance of TCS was sedate, as expected, and business outlook remains challenging, the stock is likely to outperform in the short-term given the bleak expectations before the results. Over the last three months, TCS has significantly underperformed the sector especially vis-à-vis similar-sized peers, Infosys and Wipro, due to higher uncertainty about its Q1 FY09 performance." "Since April 2008, TCS has delivered a negative return of 12.5% against positive return of 1% in BSE IT and 9% for Infosys. Since announcement of Infosys Q1 FY09 numbers, TCS is down 16% implying further moderation of expectations. Q2 FY09 is likely to be a better quarter for the company with improved growth outlook in the two troubled BFSI clients and as also indicated by healthy hiring in Q1 FY09. We rate the stock as BUY with a target price of Rs 875 implying 20% upside," says India Infoline's research report.

FinQuest Securities on Allied Digital Services - Target Rs 1198

FinQuest Securities has maintained its buy rating on Allied Digital Services with a target price of Rs 1198 in its August 8, 2008 research report. "ADSL reported operating revenue of Rs 896 million for the quarter ended 1QFY09, an increase of 38% YoY from Rs 652 million in the corresponding quarter last year. Its EBITDA grew by 57% YoY to Rs 218 million from Rs 139 million. EBITDA margin expanded by 250bps YoY to 23.6%, attributable to change in revenue mix in favour of Services business, which commands higher EBITDA margin in the range of 50-60%."

"At current market price of Rs 791, ADSL is trading at P/E of 31.9x for FY08 EPS of Rs 24.8. We expect ADSL to trade at 15.6x FY09E and 8.6x FY10E EPS of Rs 50.6 and Rs 92.1 respectively. We maintain BUY recommendation on the stock with price target of Rs 1198 using DCF-methodology, indicating an upside of 51% from the current level," says FinQuest Securities' research report.

Sharekhan on Grasim Industries - Target of Rs 3002

Sharekhan has recommended a buy rating on Grasim Industries with a price target of Rs 3002 in its June 11, 2008 research report. "Considering the poor performance of the sponge iron division in the past, we believe the sale of the business at 6.4x FY2008 EV/EBIDTA will be value accretive for the company. The sale of the sponge iron division will also boost the overall profitability of the company. The proceeds from the sale will enable the company to make fresh investments in its core businesses of cement and VSF. At the current market price of Rs 2192, the stock is trading at 8.8x its estimated FY2009E EPS. Based on our sum-of-the-parts valuation, we maintain our Buy recommendation on the stock with a price target of Rs 3002," says Sharekhan's research report.

Ambit Capital on Karuturi Global - Target of Rs 49

Ambit Capital has maintained its buy rating on Karuturi Global with a revised price target of Rs 49 in its June 10, 2008 research report. "Karuturi Global (KGL) announced its Q4FY08 and full year FY08 results, marginally below our expectations. Despite a strong showing in Q4FY08 that rounded off a very good second half for the company, KGL's performance was below our expectations.However, the company has delivered along expected lines as far as the margins are concerned."

"At its CMP of Rs 22, the stock is currently trading at a P/E of 5.6x and 4.8x our FY09E and FY10E fully diluted EPS estimates respectively. We maintain our 'BUY' recommendation on the stock with a revised price target of Rs 49; indicating 124% upside from CMP," says Ambit Capital's research report.