Stock Views on Mundra Port, Kesoram Industries

KRChoksey on Mundra Port - Target Rs 705

KRChoksey research is bullish on Mundra Port and Special Economic Zone has recommended buy rating on the stock with a target of Rs 705, in its research report.

"Mundra port is slated to become the largest standalone port in terms of the handling capacity by FY12-13 and based on our projections it would handle more than 100 mtpa by FY14, which would make it one of the largest standalone ports in terms of the cargo handled. Such growth will be mainly driven by the capacity expansion that the company has undertaken (coal terminal, dedicated container terminals for car exports, bulk cargo port at Dahej, ICDs at new locations, and additional rakes at Adani Logistics). We believe the company exhibited a steady performance in H1FY10. MPSEZ’s cargo growth was at 9.3% y-o-y in H1FY10, significantly outperforming the 2.9% y-o-y growth registered by the major ports in India during the same period."

"Major ports on the west coast (JNPT, Mumbai Port and Kandla Port) are operating at close to 100% capacity utilization. We thus believe Mundra port is well placed to attract the traffic on the west coast due to its unutilized capacity and strategic advantages. At the CMP, the company’s stock is trading at 25.3x its FY11E EPS of Rs. 22.0 per share. We initiate our coverage on MPSEZ assigning a BUY rating to the stock with 12-month target price of Rs 705, based on our SOTP valuation," says KRChoksey research report.


Sunidhi Securities & Finance on Kesoram Industries - Target Rs 480

Sunidhi Securities & Finance has recommended buy rating on Kesoram Industries with a target of Rs 480.

“Kesoram Industries’ Greenfield Tyre project of 257 TP per day capacity in the State of Uttarakhand with a Capex of about Rs 760 crore commenced the commercial production in phases during the financial year 2008-09. The Rs 783 crore expansion of 1.65 million tonnes of cement per annum in Vasavadatta Cement at Sedam in Karnataka as unit IV at the same site commenced production in June 2009 and a 17.5 MW Captive Power Plant commenced electricity generation from March 2009.”

“KIL is likely to post an EPS of Rs 85 in FY10, which would go up to Rs 98 in FY11. At CMP, the share is trading at a P/E of 4.4x on FY10E and 3.8x on FY11E. KIL stock was in an intermediate uptrend from early-March’09 till July ’09. RSI indicator (in the lower window) has declined far rapidly as compared to prices. The sideways consolidation in prices along with a rapid fall in RSI can pave way for the continuation of the prior uptrend. The stock is expected to move towards the 50% retracement level of Rs 390, which if broken would take the stock price to Rs 480 in the intermediate-term," says Sunidhi Securities & Finance research report.

Stock views on ACC, Mundra Port, Idea Cellular, Ambuja Cements, GMR Infrastructure

HSBC on GMR Infrastructure
HSBC maintains the `Underweight' rating on GMR Infrastructure with a target price of Rs 53. There has been no respite in GMR's existing business. GMR's airport business faces: a) continuing decline in air traffic b) continuing delays in real estate development at Delhi airport, impacting fund availability, and c) inability to raise tariff at the Delhi and Hyderabad airports, impacting overall profitability. However, there has been some relief in the power business due to fresh gas supply and lower naptha prices. GMR runs a refinancing risk on the loan at the end of the two-year period. HSBC expects that in order to complete the Delhi airport in time, the government will have to provide incentives to GMR. These incentives might be in the form of allowing it to charge higher user fees or a higher equity contribution to meet the fund requirement. However, given the current financial condition of the airline industry, it would be difficult for the government to increase the charges without opposition from the airline industry. The outlook for the company remains weak given: a) no signs of recovery in airport traffic growth b) the ability to increase airport charges remains dependent on the government's approval c) no improvement in real estate outlook d) potential difficulties in refinancing its acquisition.

Merrill Lynch on Ambuja Cements

Merrill Lynch maintains `Underperform' rating on Ambuja Cements due to lack of upside triggers. Ambuja's CY09 earnings decline will likely be modest versus other majors due to a tad better supply-demand outlook for west India. Ambuja sells ~30-40% of volumes in the west, which is forecast to witness fewer capacity additions versus other regions. However, exposure to the north will likely hurt. Ambuja's CY08 EBITDA stood at ~Rs 1,770 crore, down ~13% y-o-y due to cost-led margin pressures. The company indicated that high-cost coal inventories, greater use of imported coal and year-end adjustments/provisions dragged 4Q results. 4Q realisations were up 1% y-o-y and 3% q-o-q; cost increase was sharper at ~10-12%. Volumes grew 5% y-o-y and 16% q-o-q. In its 4Q press release Ambuja said the industry's demand growth in CY09 will range between 6-8%. This compares with 11-12% volume growth witnessed in November-December 2008, likely led by pre-election government spending. Reflecting the pattern of previous election years, we worry that the recent demand impetus will ease in 3-4 months as elections draw closer.

Indiabulls Securities on Idea Cellular

Indiabulls Securities has reiterated the `Hold' rating on Idea Cellular, however, it has downgraded the target price to Rs 49. Idea ended the third quarter with a handsome topline growth of 13.1% q-o-q, backed by a robust 13% share in the all-India net additions of 38 lakh and a 3.7% improved realisation of 65 paise per minute. Idea's market share (excluding Spice) is to inflate beyond 11% by March 2010 from the current 9.9%. The company's share of the market net additions is likely to peak at 14-15% in FY10, given the upcoming roll-outs in five new circles and the overwhelming response received for the roll-out in Bihar and the re-branding in Punjab. Moreover, Idea's brand, which has all-India recognition, renders it a competitive edge over the other entrants in the new circles. The operating margin will likely remain under pressure in FY10E-11E and is expected to come down to ~11% as Idea opts for higher opex rather than capex for network expansion. In addition, intensifying competition and penetration in Class C circles calls for competitive pricing, which would further bring down ARPUs to around Rs 250 and Rs 210 for FY09E and FY10E respectively. While the company's business model points towards a strong longer-term growth trajectory, the upcoming congestion in the telecom market would exert significant strain on its key operating and financial parameters, thereby limiting major upsides in the stock price.

Citigroup on Mundra Port

Citigroup initiates `Sell' rating on Mundra Port and Special Economic Zone (MPSEZ) as the stock looks expensive. MPSEZ is a private port (capacity ~55 mtpa) on India's west coast:
1) Strategically located for north-bound cargo;
2) Handles more container volumes than all major ports, except JNPT and Chennai;
3) Has one of the deepest drafts;
4) ~40% of projected volumes are under long-term contracts; and
5) SEZ over ~32,000 acres should support volume growth.

Cargo/profits growth has been impressive at 53%/132% CAGR over FY04-08. Citigroup expects cargo, revenues and profits to grow at 17%, 25% and 47% respectively over FY09-11E, and RoEs to improve to 24% by FY11E from 11% in FY08. While Citigroup forecasts healthy cargo growth at MPSEZ, they see risks in the medium term given the deteriorating global environment. Volumes at major ports grew only by 4% y-o-y in April-November 2008 and fell 28% y-o-y in December 2008 at the DP World-operated container terminal at Mundra. A pullback in investments would hit development of the SEZ, a growth driver for the port. We value: 1) the port at Rs 262/sh; 2) SEZ at Rs 22/sh; 3) investments in subs at Rs7/sh. MPSEZ trades at 24x FY10E PE, a premium of ~85% to Asian ports' average of ~13x, which we find excessive despite EPS growth of 47% over FY09-11E versus the Asian average of -1%. Upside risks include better-than-expected traffic growth and demand for land at the SEZ.

Macquarie on ACC

Macquarie lowers the rating on ACC from `Neutral' to `Underperform' in the absence of cost-reduction levers and the stock lacks any positive catalyst except for cement prices. It believes that the current rally in the stock along with an improved business outlook is a good opportunity to book profits. ACC declared its CY08 results, which were about 11% below the estimates at the operating level due mainly to lower volumes and higher costs. Macquarie reduces the target price by 2% to Rs 452 to factor in lower volumes for the next year and also reducing CY09 and CY10 estimates to account for lower volume expectations because it foresees some delays to expansion plans. ACC has already exhausted the easy ways to reduce costs because most of its production is based on domestic subsidised coal. It already has coal-based captive power plants and it is reaching saturation in blending. The only major avenue is a merger with its sister concern, Ambuja Cements. The majority of 7 mtpa of further expansion will not be completed until CY10. ACC will, at best, grow in line with the industry.