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 midcap textiles - Bombay Rayon, Page Industries

Invest Shoppe on BOMBAY RAYON
Bombay Rayon has entered into new European geographies as part of its strategy to de-risk its business model. The recent acquisition of Italian based brand ‘GURU’ should act as an additional growth driver as it plans to open 400 exclusive showroom of GURU across the world. We believe the profitability of company to grow by around CAGR of 50% over next two-three years.

Invest Shoppe on PAGE INDUSTRIES

Increased urbanisation, rapid retail growth and brand consciousness are likely to fuel growth in mid premium to super premium segments of the Indian innerwear industry. A leading player in this segment, Page Industries is likely to be a major beneficiary of this growth. The company has an integrated business model right from material sourcing and inspection to fabric cutting, garmenting, and packaging.

Srock Views on ABG Shipyard, Bombay Rayon

Asit C. Mehta on ABG Shipyard - Target Rs 365

Asit C. Mehta has recommended a buy rating on ABG Shipyard, with a price target of Rs 365, in its report dated 30 September, 2008.

"Considering the opportunities in the offshore E&P, ABG’s current order book and expansion plans, we expect its sales (excluding subsidy) to grow at a CAGR of 50% and PAT to grow at a CAGR of 38 % from FY08 to FY10E. At the CMP of Rs 299, ABG is trading at 12.6x its FY09E EPS (excluding subsidy) and 7.4x its FY10E EPS (excluding subsidy). We initiate coverage on ABG Shipyard Limited with BUY recommendation and a target price of Rs 365, which is equivalent to a forward P/E of 9x to its FY10E EPS of Rs 40.6 (excluding subsidy)," says Asit C. Mehta's report.

Motilal Oswal on Bombay Rayon - Target Rs 566

Motilal Oswal has maintained its buy rating on Bombay Rayon Fashions with a target of Rs 566 in its September 22, 2008 research report. "We continue to value Bombay Rayon’s manufacturing operations at 12x FY10E EPS of Rs 37 to arrive at a value of Rs 444. We value the GURU retailing business based on DCF at Rs 122 per share. The SOTP target price for Bombay Rayon works out to Rs 566, and offers 68% upside from current levels. We maintain Buy," says Motilal Oswal's research report.

IIFL View on Apollo Tyre, Britannia, Rel Comm, Bombay Rayon

Apollo Tyre - Buy Target price of Rs 43

IIFL has downgraded Apollo Tyre from buy to add, as the stock’s recent rally has reduced the upside. However, target price remains unchanged at Rs 43, September 11, 2008, "Apollo Tyre’s (ATL) brownfield and greenfield expansion projects, which would increase its capacity by ~20%, would enable it to maintain its above-industry-average volume growth. Replacement demand for CV tyres, ATL’s key segment, continues to be strong (it rose 10.6% YoY in 1QFY09). We expect a sharp decline in the company’s EBIDTA margin to 6.4% in 2QFY09ii on account of high rubber prices from 10.2% in 1QFY09. We expect margins to expand to more than 10% in 4QFY09, as a decline in crude-oil prices causes raw-material prices to ease. We cut our EPS estimate for FY09 by 5% to factor in high rubber prices and retain estimates for FY10. We downgrade our rating from BUY to ADD, as the stock’s recent rally has reduced the upside. Our target price remains unchanged at Rs 43,"says IIFL research report

Britannia - Buy Target price of Rs 1765

IIFL has recommeded buy rating on Britannia with a target price of Rs 1765, September 11, 2008 report. "Britannia is the market leader in the Rs 80 billion biscuits market in India, with brands such as Tiger, Good Day and 50:50. The stock has underperformed the BSE FMCG Index by 15.4% over the last 12 months despite a sharp turnaround in its operating performance. Uncertainty on the ongoing legal tussle between the two largest shareholders has been one of the key overhangs on the stock. Other concerns have been rising raw-material prices and Britannia’s constrained pricing power in view of intensifying competition. However, with indications of an early resolution of the majority shareholders’ dispute and improving outlook on operating conditions, we believe the key concerns should start abating."

"We expect the operating turnaround at Britannia to gather pace and forecast earnings CAGR of 25% over FY08-11ii. BUY with a one-year target price of Rs 1765, based on 14x FY10ii earnings. We value the stock at a 25% discount to its three-year average multiple to factor in the ongoing promoter dispute," according to IIFL research report.

Rel Comm - Buy Target of Rs 529

IIFL has downgraded Reliance Communication's FY09 earnings by 21%; recommended to add the stock with target price of Rs 529."Reliance Communications’s (RCOM) Broadband business came out with the highest asset-turnover ratio as well as profitability amongst all its businesses in FY08, while the Global division dragged down aggregate measures. RCOM’s strategy of leaving forex loans unhedged proved 340bps more expensive than its investment yield, amplified by the massive size of the investments (US$3bn). On the same basis, RCOM may make an FX loss of more than Rs4bn in 2QFY09. Per-tower procurement cost is 13% higher than Bharti’s, despite lower visibility of multiple occupancy. We downgrade RCOM’s FY09 earnings by 21% (for FX and expectation of weakness in wireless results) and the rating to ADD, with a DCF target price of Rs 529," according to IIFL research report.

Bombay Rayon - Buy Target of Rs 474

IIFL is bullish on Bombay Rayon Fashions and has recommeded buy rating on the stock with target price of Rs 474. "Bombay Rayon Fashions (BRFL) is one of India’s largest integrated garment manufacturers, catering primarily to mid-premium brand retailers in Europe. The company is well positioned to take advantage of strong demand and price increases offered by this client segment, unlike its competitors in other countries such as Turkey and China, which face rising costs and appreciating currencies. The company has an aggressive capacity expansion plan, on which we base our projection of 50% and 60% CAGR in revenue and PAT over the next three years. We value the stock at a PE of 10.3x on one-year-forward earnings, in line with its peers’ multiples. This gives a one-year target price of Rs 474. Buy for 39% upside," according to IIFL research report.

Stock Views on THERMAX, BHEL, BOMBAY RAYON

Kotak Securities on THERMAX - TARGET PRICE: RS 540

Kotak Securities has assigned an ‘accumulate’ rating to Thermax, saying that recent orders will drive the company’s revenue growth in FY10. “The company is witnessing robust order inflows from steel and sponge iron makers. Thermax has also expanded its prequalifications in refineries. The company indicated that orders have been trickling in from sugar distilleries and the polyester sector,” the Kotak note to clients said. “Thermax is currently trading at 17.9 times and 14 times FY09 and FY10 earnings, respectively," the note added, cautioning that near-term growth was likely to be subdued.

Citigroup on BHEL - TARGET PRICE: RS 2,025

Citigroup Global Markets has downgraded its rating on BHEL from ‘buy’ to ‘hold’, citing limited upsides from the current levels with re-spect to the new target price. Citi has revised the target price for BHEL to Rs 2,025 from Rs 1,642 earlier to factor in the increase in the earn-ings estimates over FY10E-12E by 8-9%. “BHEL has hiked its order inflow guidance to Rs 500 billion from Rs 40,000-50,000 crore earlier. It has bagged Rs 192 billion of orders so far in FY09E and is well on course to meet its full-year order inflow guidance,” the Citi note to clients said. It expects BHEL’s earnings per share (EPS) to grow at a com-pounded annual rate of 27% over FY08-11(estimated) with RoE (return on equity) at 28-31% levels.

Merrill Lynch on BOMBAY RAYON - TARGET PRICE: RS 450

Merrill Lynch has initiated coverage on Bombay Rayon Fashion with a ‘buy’ rating and price target of Rs 450 citing attractive valuations. “Valuations are inexpensive at 9 times FY10 (estimated) earnings, given strong growth outlook and high RoE at 24%,” the Merrill Lynch note to clients said.