Citigroup on JSW Steel

Citigroup rates JSW Steel with a `Buy’/`Medium Risk’ rating based on the positive Indian steel outlook, strong volume growth and less balance sheet stress. JSW Steel’s adjusted PAT for Q3FY10 was Rs 410 crore, higher than expectations, driven by a 100% y-o-y jump in volumes, a better mix and lower per tonne costs. Citigroup assumes a 23% price decline in average iron ore prices in FY10, but an average hike of 8% in FY11 and 2% in FY12. For coking coal, Citigroup assumes a 60% y-o-y price decline in FY10, but a 60% hike in FY11 and flat in FY12. The combination of higher prices and lower costs should help consolidated EBITDA margins to rise from 22% in FY09 to 24% in FY11 and 27% in FY12. Citigroup values the standalone business at 6.5x EV/EBITDA. We value the other businesses (mainly represented by US pipe and plate operations) at 3x EV/sales. We use 3x EV/sales as utilisation levels at its US business are quite low at 25-30% in FY11E. This gives a negative value resulting in a net target price of Rs 1,027/share. At our target price of Rs 1,027, the stock would trade at a consolidated March 2011E EV/EBITDA of 6.9x and P/E of 9.3x.

Citigroup on Punj Llyod

Citigroup downgrades Punj Llyod’s rating to `Sell’ and cuts the target price to Rs 197 from Rs 228. It also reduced FY10E-12E EPS to 8-11% to factor in:

(1) 4-5% lower sales growth and
(2) 28-40 bps cut in EBITDA margins on potential write-offs in projects.

Citigroup values the shipyard on the west coast at a 50% discount to book since at the current stock price, the risk reward trade off seems unfavourable given:

(1) risks of additional write-offs in the Ensus project;

(2) chances of potential LDs in the Ensus project;

(3) cost over-runs on the ONGC Heera project;

(4) Auditor qualifications of Rs 69.6 crore at the end of Q2FY10; and

(5) Inconsistent earnings delivery. Earnings downgrades of 8-11% lead to a lower target price.

Every months’ delay beyond 12 December ‘09 will cost Simon Carves £5m on the Ensus bio ethanol project. Technically, Ensus can also claim liquidated damages on this project in the future. According to the FY09 annual report, estimate revisions on the ONGC Heera project have resulted in costs and revenues on the project increasing by Rs 360 crore and Rs 150 crore respectively. The company has filed claims with ONGC amounting to Rs 510 crore against the increase in cost estimates. Pending acceptance, these claims have not been accounted for in the books.

Citigroup on Sun Pharma

Citigroup believe thats Sanofi’s recent settlements with several generic companies for Eloxatin could potentially leave Sun Pharma as the sole generic player in the $1.3-bn market over July ‘10 to Aug ‘12. This could lead to the potential NPV (net present value) of this opportunity, during exclusivity, being much higher than current estimate of about Rs14/share. Sun appears to be the only generic firm with approval that will continue selling the product. Sanofi had sued several generic companies for infringement of its patents on Eloxatin. Sun settled its litigation in May ‘09. A favourable ruling for generic companies in June ‘09 triggered “at risk” launches by Teva and Hospira.

Sun launched generic Eloxatin in the US in Mar ‘10 and, unlike the other generic companies in the market, its launch is not “at risk”, given its earlier settlement. This has effectively strengthened its position vis-àvis the other generic companies, whose launches were “at risk”, allowing it to hold on in the market unlike other generic cos such as Teva, Hospira and Sandoz. However, there is upside to this if Sun remains in the market as the sole generic player till August ‘12. If Citigroup assumes a single-player market (30% price erosion and 30% market share) till August ‘12, the NPV from this opportunity would work out to Rs 65/share. Earlier than expected entry of other generic players is a potential risk to this valuation.

Stock Views on Tata Power, Union Bank of India, Reliance Capital

NOMURA on TATA POWER

NOMURA initiates coverage on Tata Power with a ‘buy’ rating and a 12-month target price of Rs 854, representing 17% potential upside from the current level. Nomura believes a strong project pipeline, adequate fuel security, global expansion plans and high earnings visibility are key positives for the stock. Tata Power’s capacity will rise to 13,611 mw by FY14, representing a CAGR of 33% over FY08-14E — significantly higher than the targeted 10% CAGR under India’s 11th Five-Year Plan. Nomura expects its EPS to rise from Rs 47.5 in FY08, at a CAGR of 28%, to Rs 209.4 by FY14E, due to stable cash flows from businesses in Mumbai, North Delhi Power, Mundra UMPP and Indonesian coal mines. The target price translates into a 14.2x FY09E EPS of Rs 60 and 12.9x FY10E EPS of Rs 66.4 — a significant discount to NTPC’s 20.9x FY09E P/E and 18.8x FY10E P/E.

MOTILAL OSWAL on UNION BANK OF INDIA

MOTILAL Oswal maintains ‘buy’ rating on Union Bank of India. The bank is confident of achieving its FY09 targets of stable margins (2.85% vs 2.8% in H1 FY09), loan growth of over 22%, deposit growth of 23%, and slippage ratio of <1.25%.>

(1) technology and process transformation;

(2) fast growing retail deposits, branch network and customer base; and

(3) achieving profitable business growth.

Motilal has upgraded FY09 estimates by 9% to factor in the bond gains and has downgraded the FY10 estimates by 3% to factor in higher NPA charges. Motilal expects the bank to report an EPS of Rs 33 in FY09 and Rs 35 in FY10. The stock trades at 4.7x FY09E EPS and 1.1x FY09E book value. RoA and RoE will remain strong at 1.1%+ and 23%+, respectively, over the next two years.

CITIGROUP on RELIANCE CAPITAL

CITIGROUP has a ‘sell’ recommendation on Reliance Capital with a target price of Rs 500. Reliance Capital has corrected sharply since September ’08, and is now close to its bare bones valuation. But Citigroup believes its businesses will continue to face challenges due to:

a) uncertainty in the capital market;

b) tight funding environment; and

c) slower economic and savings growth.

It values the life insurance business at Rs 294; AMC at Rs 124; consumer finance at Rs 42; non-life insurance at Rs 21 and broking at Rs 22, at 10x one-year forward EPS. Also, it does not attribute any value to unrealised portfolio gains due to sharp correction in the capital market. Key pressure points are:

a) earnings linked to the equity market;

b) non-banking platform;

c) growth in life insurance and consumer finance can slow meaningfully; and

d) vulnerability of consumer finance asset quality.

An easing of any/some of these concerns can lead to a change in the view on the stock.

Stock views on Larsen & Toubro, Ranbaxy, Allied Digital Services, Piramal Healthcare, Infosys, Mahindra & Mahindra

MOTILAL OSWAL on M&M
MOTILAL OSWAL maintains its 'Buy' rating on Mahindra & Mahindra. M&M had earlier mentioned in its post-2QFY09 results that it would be reviewing the Rs7,000-crore capex plan over FY09-12 for a possible reduction. After a review of the capex plans, management has now decided to go ahead with the original capex plan of Rs 7,000 crore without any cuts. Out of the Rs 7,000 crore over FY09-12, Rs 5,000 crore will be invested in the automotive business and Rs 2,000 crore in the non-auto business. In auto business, investment will be made in the Chakan plant (~Rs2,500 crore), product development (Rs 2,000 crore for Xylo, Scorpio's successor, light transport vehicles and lobal product) and further equity contribution in Mahindra Navistar JV (Rs 350 crore). In the non-auto business, it is investing Rs 500 crore in tractors business, Rs 700 crore in logistics business and defence business and Rs 750 crore for setting up world-class research facility at Chennai. Motilal Oswal has downgraded the consolidated earnings estimates by 11.7% for FY09 to Rs 58.7 and by 12.9% for FY10 to Rs 70.6, to factor in lower volumes and downgrade in subsidiary / associate earnings. Notwithstanding short-term challenges, valuations at 4.6x FY09E and 3.9x FY10E consolidated EPS are attractive.


CITIGROUP on INFOSYS

CITIGROUP EXPECTS Infosys' revenues at $1,167m, down ~4% qoq. This assumes marginal decline in volumes, stable pricing and ~4% impact of cross currency. EBIT margins are expected to fall ~150bps qoq. Citigroup forecast basic EPS of Rs 26.63 in line with guidance. Volumes continue to be under pressure with clients cutting back on discretionary projects and Q3 being also impacted due to "holiday project closures". Citigroup has lowered its FY10-11E estimates by ~6% on the back of lower volume/pricing assumptions and cross currency impact in Q3. While the stock price witnessed ~37% erosion in CY08, expected numbers are ~6% below consensus, and consensus is to be revised down further. This could put further pressure on the stock in the near term. The EPS numbers benefit from ~5% INR depreciation assumed in FY09 - in other words, Citigroup is modelling an EPS decline in constant currency terms. With a likely result disappointment and further EPS cuts, the stock could underperform in the near term.


MERRILL LYNCH on PIRAMAL HEALTHCARE


Merrill Lynch reiterates 'Neutral' rating on Piramal Healthcare (PHL). However it revises estimates to factor higher interest cost and lower target price to Rs 280 based on 12x FY10E EPS. PHL's proposed acquisition of Minrad comprises equity consideration (US$6mn), convertible debt redemption (US$30mn) and existing debt (~US2mn). Apart from this, PHL would infuse US$12mn in Minrad for working capital requirement. Post-completion of this acquisition (5th in 2008), PHL's D/E would be ~0.9x which is higher than the industry average. Minrad's acquisition bolsters the US$20mn inhalation anaesthetics business of PHL and broadens its portfolio from two products currently to five (halothane, isoflurane, enflurane, desflurane and sevoflurane). PHL-Minrad combine would be the 3rd largest player in US inhalation anaesthetics market addressing a US$1bn+ opportunity worldwide. Merrill Lynch is relatively conservative and expects the deal to be EPS neutral in FY10. The deal is expected to be closed by FY09-end. PHL's CMO business has mid-teens EBITDA margin which is the lowest among that of its peers.


INDIAINFOLINE on ALLIED DIGITAL SERVICES

Allied Digital Services (ADSL)'s pan-India presence, direct support model, established remote infrastructure and significant price competitiveness provide an edge against competition in the domestic IMS market. Its marquee clientele includes large customers won from leading Indian offshore vendors. The recent En Pointe Global Services LLC (EPGS) acquisition would significantly increase international IMS revenues apart from driving domestic revenues through offshoring. Further, the SOC services are expected to register exceptional growth driven by increasing compliance requirements globally. The company expects a hefty ~US$100-million revenue contribution from EPGS in FY10. ADSL's operating margin is likely to improve by 150-200bps in FY10 driven by lower solutions revenue share and improving profitability within IMS through offshore shift. IndiaInfoline expect revenues and net profit of ADSL to record a robust CAGR of 61% and 82% respectively over FY08-10E. Higher growth in earnings would be driven by OPM expansion. Given the strong fundamentals, current valuations of 4.7x FY10 P/E and 1.4x FY10 P/BV appear inexpensive.


JP MORGAN on RANBAXY LABORATORIES

GIVEN THE twin uncertainties of the continued US FDA import ban and potential currency exchange losses, JP Morgan remains 'Neutral' on Ranbaxy even though valuations remain attractive for longer-term investors. Ranbaxy, which has a 180-day exclusivity on generic Imitrex (Sumatriptan), has not yet been able to launch the drug in the US as the FDA approval has not yet come through. Sumatriptan First to File is approximately Rs 5/share of the target price. Brand sales of Imitrex were US$1.29 billion in 2007. Given that the generic filing is not from the manufacturing sites where the US FDA had issued warning letters, the launch approval from the US FDA for Sumatriptan is key to see if it is business as usual for Ranbaxy in the US beyond the products in the import ban. Given the large FTF (first to file) pipeline for Ranbaxy, any delay in approvals for Sumatriptan would be negative for the remaining FTF pipeline.


HSBC on LARSEN & TOUBRO

HSBC has downgraded the rating of Larsen & Toubro to 'Negative' over the Satyam stake purchase. HSBC believes this investment is a portfolio investment rather than a strategic one and views this as a negative for L&T. It thinks that the stake is not positive for L&T's subsidiary, L&T Infotech, given that it has a smaller operation versus Satyam's 53,000 employee base. The integration will be a significant issue given L&T Infotech's smaller size. Also, after allegations of misappropriation regarding Satyam's former chairman, integration could expose L&T to litigation. Moreover, there is a lot of uncertainty in terms of any liability for Satyam. HSBC reduces its FY10E PAT estimate by 8%, driven by a lower 4% change in sales and expects a 25.7% revenue CAGR over FY09-11E, driven by the existing order backlog and new orders from infrastructure, power and new verticals. HSBC is reducing its valuation of L&T subsidiaries to Rs 131 per share.

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.

Srock views on MTNL, Titan Industries, SIEMENS, Yes Bank, Colgate Palmolive, GREAT Offshore

HSBC on COLGATE PALMOLIVE

HSBC has initiated an ‘overweight’ rating on Colgate-Palmolive with a potential return of 25.8%. The oral care category in India has a penetration rate of 78% and a per-capita usage of toothpaste, which is half that of China. Increased usage and penetration, along with a shift from toothpowder to toothpaste, are likely to drive volume growth of 8-9% for the next several years. Colgate is the undisputed market leader in all the sub-categories of oral care and has a diversified product portfolio covering all price points and an excellent distribution network. Colgate is poised for steady growth. It has increased gross margins by changing its raw material mix, reducing complexity, and increasing in-sourcing with minimal price increases, protecting volume growth. HSBC values Colgate on a price-earnings (P/E) and a direct cash flow (DCF) basis. The P/E valuation, at 18x FY10E earnings per share (EPS), comes to Rs 424. The target price of Rs 470 is an average of the two. Colgate is currently trading at a 12-month forward P/E of 17.1x, the lowest forward P/E in three-and-a-half years.


DEUTSCHE BANK on YES BANK

DEUTSCHE Bank believes that Yes Bank’s recent severe underperformance relative to the market and the banking index has factored in most of the concerns about its asset quality, margins and fee income growth and has upgraded the stock to ‘hold’. However, it has reduced the target price to Rs 55 and cut earnings by 11-17% for FY09-11. The major concerns are: asset quality due to large exposure to mid-corporate group and commercial real estate; margins due to weak funding franchise; and a sharp slowdown in non-interest income growth due to relatively high dependence on capital market-linked activities. The target price of Rs 55 is based on a single-stage Gordon growth model with a price-to-book value (P/BV) of 1.0x, arrived by using a blended return on equity (RoE) of 15.5%. The key upside risk to Deutsche Bank’s hypothesis is a sharp recovery in loan growth accompanied by a rise in margins. The key downside risks are higher-than-expected deterioration in asset quality and stagnation of branch network due to unavailability of branch licenses, which can pose a challenge for Yes Bank.


JP MORGAN on SIEMENS

SIEMENS reported a standalone net profit of Rs 225 crore in Q4, substantially below the estimate of Rs 360 crore. Operating profit margin was down 300 basis points (bps) year-on-year (y-o-y) to 12.5%. Markto-market (MTM) losses on short positions in foreign exchange (forex) derivatives contracts, in a quarter where the rupee depreciated 10% visà-vis the dollar, can be responsible for a large part of the margin decline. With the underlying hedged being of longer maturity, JP Morgan can expect gains on the underlying in coming quarters. The performance of the company’s subsidiaries is a drag on results: Siemens’ FY08 consolidated revenue of Rs 9,680 crore was in line with estimates, while its profit after tax (PAT) of Rs 470 crore was 30% below full-year estimates. The company’s 100%-owned principal subsidiary, SISL, performed poorly in FY08. Siemens’ standalone revenue growth from continuing operations is higher at 15%, but power (which contributes 49% to the topline), posted a growth of 3.2% y-o-y. There has been little incremental visibility in the power segment, as the Qatar order has neared completion. All other segments have shown strong revenue growth.

JM FINANCIAL on TITAN INDUSTRIES


TITAN benefits from the presence of extremely strong brands in largely unorganised segments. The domestic jewellery market is pegged at Rs 75,000 crore, less than 5% of which is ‘branded’ and Titan controls 65% thereof. With extremely low penetration level, there is huge scope for the ‘democratisation of luxury’ in India. With Titan now partially linking jewellery-making charges to gold value, profitability may not be so susceptible to the movement in gold prices, going forward. In the watches segment, JM has projected a compounded annual growth rate (CAGR) of 13% in sales between FY08 and FY11E. Viewed in the context of India being an attractive retail market (more so in the luxury segment, in which India is still at the nascent stage), Titan emerges superior among retail players in terms of profitability, as well as return on capital employed (30%-plus). Also, y-o-y generation of free cash flow is a source of distinct advantage for Titan. In light of a slowing economy where future growth potential is a key concern, the P/E to growth (PEG) method of valuation appropriately recognises future growth rate and adjusts the P/E multiple accordingly.


CITIGROUP on GREAT OFFSHORE

GREAT Offshore has announced a combined contract for two of its assets — Malaviya Thirty Three (a heavy lift vessel) and Gal Ross Sea (an anchor handling tug) — for a total of $22 million for one year in the Khafji oilfields of Saudi Aramco. The assets have been contracted out at a combined day rate of $63,000. Although the exact day-rate split between the two assets is not known, they estimate the heavy lift vessel to fetch ~ $55,000. This contract is a key positive, indicating strength in the offshore services segment, as opposed to the downtrend witnessed in segments such as dry bulk. Citigroup retains a ‘buy’ rating on the stock, given a relatively stable business profile (75% of revenues from ONGC) and good earnings visibility (average contract durations ~2-2.5 years), making it less exposed to a cyclical downturn in the offshore cycle. Though spot rates have declined 10- 15%, the company has only five of its 41 vessels operating on spot. Q3 should see sequential growth in revenues and profits on account of commencement of new contracts, as well as higher dry-docking expenses in Q2.


BNP PARIBAS on MTNL

BNP Paribas initiates coverage on Mahanagar Telephone Nigam (MTNL) with a ‘reduce’ rating and target price of Rs 55, based on cash per share of Rs 39 and a core business valuation of Rs 16 at 2.5x FY09 EBITDA. Historically, MTNL traded close to its book value, but the valuation is now converging towards its cash per share as its return on equity (RoE) has declined to 3.3%, well below its cost of capital. Moreover, one-fourth of its book value is amount recoverable from the Department of Telecom (DoT), which is unconfirmed and outstanding for several years. Cash per share will dip to Rs 39 from Rs 61. BNP believes MTNL faces significant revenue risk as its wire-line segment, which contributes 70% of its revenue, will continue to decline due to subscriber loss and reduction in tariffs. MTNL will find it extremely difficult to protect its wireless market share in competition with more efficient private operators, which are reducing tariffs, leveraging scale economies, coupled with superior customer service.

Stock Views on Hindustan Zinc, Nestle, Jaiprakash Associates

CITIGROUP on Hindustan Zinc

CITIGROUP has downgraded Hindustan Zinc’s (HZL) rating to ‘sell’ by reducing the target price to Rs 430 on the back of an earnings cut of 22% for FY09 and 27% for FY10. Citigroup’s new estimates incorporate changed zinc and lead forecasts, updated trends in rupee-dollar exchange rates and small changes in volumes based on management feedback. Zinc prices are expected to fall 41% year-on-year (y-o-y) in FY09, further fall 10% y-o-y to reach a bottom in FY10, and recover thereafter in FY11. HZL enhanced its zinc capacity by 88,000 tonnes per annum (tpa) to 669,000 tpa in April ’08 (total zinc-lead capacity to 755,000 tpa). In addition, HZL has announced further capital expenditure (capex) to enhance zinc capacity by 210,000 tpa and lead capacity by 100,000 tpa — taking the total to 1.07 million tpa by ’10, together with additional mining and captive power capacities. Citigroup sees a fall in earnings and EBITDA margins despite positive factors for HZL, such as its status as one of the lowest-cost producers globally, strong zinc volume growth (20% in FY09E and 40% in FY10E), high realisations for by-products like sulphuric acid, and savings from commissioning of captive power.

EDELWEISS on Nestle

EDELWEISS initiates coverage on Nestle with an ‘accumulate’ recommendation. Nestle is expanding into tier-II and III cities by introducing stock-keeping units (SKUs) below Rs 10. Also, its turnover from innovations/renovations, positioned on the health and wellness platform (priced at a substantial premium to existing products) has increased fivefold over the past few years. The turnover is expected to remain at high levels, going forward, on the back of the company’s strong product pipeline. At the current market price, the stock is trading at P/Es of 28.9x and 23.5x to CY08E and CY09E earnings, respectively. Nestlé is trading near the upper end of its recent band of 23-27x forward earnings. Edelweiss believes these levels are sustainable, given Nestlé’s strong growth and defensive nature of its business. Amidst volatile capital market conditions, the stock looks attractive over the long term. Edelweiss has valued Nestle at 26x CY09E earnings, which results in a target price of Rs 1,830. It expects Nestlé’s earnings to witness a compounded annual growth rate (CAGR) of 25.5% over CY07-09E.

MERRILL Lynch on Jaiprakash Associates

MERRILL Lynch has maintained a ‘buy’ rating on Jaiprakash Associates (JPA), but has reduced the target price to Rs 335 from 395. This is because it has reduced the value of Yamuna Expressway due to indefinite delay in the proposed Greater Noida International Airport, higher expressway cost and lower real estate realisations till FY11E. This can impact development of realty at three (3,750 acres) of the five land parcels (6,250 acres) of JPA’s Yamuna Expressway located in and around Noida airport. Hence, Merrill Lynch has removed these parcels from the valuations till visibility emerges. It has also factored in a higher cost of the expressway at Rs 7,400 crore on higher land/construction costs and lower realisation assumptions on the Noida land bank till FY11E on continued weakness in the realty market in National Capital Region (NCR). Key triggers are: a) Improved macro situation — lower inflation/rates; b) Execution of power/infrastructure projects on time; and c) Monetisation of realty land bank.

Stock View on Lupin, Opto Circutes

CITIGROUP on Lupin - TARGET PRICE: RS 938

CITIGROUP Global Markets has maintained its ‘buy’recommendation on the stock saying the company’s initiative to build a global presence through small acquisitions and the buyout of a majority stake in Pharma Dynamics of South Africa would boost inorganic growth. “This is the company’s third acquisition in FY09 after Hormosan (Germany) and a minority stake in Generic Health (Australia). We believe the small size has kept valuations reasonable & expect all deals to be EPS and RoI accretive from FY10,” said Citi in a note to its clients. Citi has rated Lupin as ‘medium risk’ citing generic competition in Suprax (around 5% & 16% of sales & PBT) as the key reason. According to Citi, rising input costs due to Chinese government’s crackdown on environmentally unfriendly plants could hurt profitability. “Inability to effectively integrate the Kyowa acquisition could take a heavy toll on profitability as well as return ratios,” added the Citi note.

KOTAK Securities on - TARGET PRICE: RS.463

KOTAK Securities has maintained a ‘buy’rating on the stock saying the valuations are very attractive considering the strong market positioning, potential introduction of new products, front end R&D set up (with the Criticare acquisition) and strong management. The brokerage expects OCIL to register a 56.7% and 43.7% compounded growth in revenues and earnings, respectively over the next two years. It expects revenue growth of 73.9% to Rs 8.1 billion and net profit growth of 43.5% to Rs 1.9 billion in FY09. “The key growth drivers for topline would likely to be stents business which is expected to grow at about 80% while non-invasive segment is expected to grow at 77%, mainly due to Criticare acquisition,” said the Kotak note. According to Kotak, net profit margin is likely to decline to 23.8% in FY10 as against 28.3% in FY08 mainly due to higher interest cost. “The company has raised $52 million debt to fund the Criticare acquisition. We expect 43% and 44% growth in EPS in FY09 and FY10, respectively. In FY09, we expect EPS of Rs.20.2 while in FY10 we expect EPS of Rs.29,” the note added.

Stock Views on Indiabulls Real Estate, OnMobile Global

Deutsche Securities on Indiabulls Real Estate - TARGET PRICE: RS 300

Deutsche Securities has initiated coverage on Indiabulls Real Estate with a ‘hold’rating as it feels the company has limited track record in execution. Weakness in the Mumbai office market for highend office properties, and a large free float — which allows much larger head-room for “borrowing” and selling short — are downsides for the stock. According to a Deutsche Bank note, Indiabulls’ revenue growth would be driven by volumes and stake sale of associate and/or subsidiaries. “We expect a revenue CAGR (compound annual growth rate) of 41% over FY08 to FY11 (estimated). We expect EBITDA margins to drop from 72% in FY08 to 55% in FY11 (estimated), mainly driven by higher costs (land, construction, employees, SG&A). Further, we expect the tax rate to increase from around 28% in FY08 to nearly 30% in FY11 (estimated). Thus, while we expect volume growth (around 40%), we expect PAT (profit after tax) to grow by only a 19% CAGR over FY08-11 (estimated),” the note to clients said. However, the Deutsche Bank note added that the demerging and listing of its forays in power and retailing would drive growth and shareholder value in the near term. Meanwhile, SEZs, townships and annuities from com-pleted projects will drive long-term growth, it added.

Citigroup Global on ONMOBILE GLOBAL - TARGET PRICE: RS 630

Citigroup Global Markets has initiated coverage on OnMobile Global with a ‘buy’ rating saying OnMobile Global is India’s largest VAS (valueadded services) operator (35% share) in a rapidly growing market [FY08-11 (estimated) CAGR at 51%. The estimated 36% EPS (earnings per share) CAGR over FY08-11 (estimated), was due to the company’s increasing international presence, said Citi. “Though it ap-pears high in the current environment, we believe our target PE (price to earning) of 25x Mar-10E is justified by OnMobile’s strong growth prospects and is in line with the multiple for comparable peers,” the note added. According to the Citi note, the domestic VAS has gradu-ated from being a glorified sub-set of p-to-p SMS to a well-demarcated segment.