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

Stock views on NTPC, TIL, Allied Digital

India Capital Markets on Allied Digital - Target Rs 420
India Capital Markets has recommended a buy rating on Allied Digital Services with a target of Rs 420 in its research report. "ADSL’s standalone Q3FY09 revenue dipped 7.4% on a sequential basis to Rs 953 million (excluding exchange gains) led by 10.7 % fall in solution business while services were flat at Rs 283 million. Given the current environment, slower growth in the SI business is anticipated. However management has indicated increased opportunities in the maintenance part of the business. We recommend a BUY, target of Rs 420," says India Capital Markets' research report.


SKP Securities on TIL - Target Rs 150

SKP Securities has maintained its buy rating on TIL with a target of Rs 150 in its research report. "Net sales were down by 4.5% to Rs 189.6 crores in Q3FY09 over Q3FY08. PAT for the quarter fell by 30.2% at Rs 5.28 crores on y-o-y basis due to lower other income and higher interest and depreciation charges. To factor in the delay in expansion, reduced operating margins and general economic slowdown, we are revising our price target. However, we maintain our BUY recommendation on the stock with a target price of Rs 150 (previously Rs 300) at 6x FY10E earnings. Early improvement in demand outlook and preponement of its expansion plans remain key upside risks to our price target," says SKP Securities' research report.


Indiabulls Securities on NTPC - Target Rs 221

Indiabulls Securities Research has maintained its buy rating on NTPC with a target price of Rs 221 in its research report. "NTPC’s net sales for Q3’09 increased 20.9% yoy to Rs 112.8 billion. The increase in sales was primarily on account of higher fuel cost which is a pass-on cost for NTPC. We remain positive on NTPC’s long-term performance and its ability to generate consistent returns for its shareholders. Driven by encouraging revised tariff determination norms and other incentives proposed by the Central Electricity Regulatory Commission (CERC), we have increased our target price from Rs 195 to Rs 221 and maintain a Buy rating for the stock," says Indiabulls Securities' research report.

Stock Views on Federal Bank, NTPC, Nalco

GOLDMAN SACHS on NTPC

Goldman Sachs maintains its earning estimates of NTPC and `Buy’ rating on the stock. The 12-month target price of Rs 208 is the value of its FY2010E financial assets (Rs 37/share) plus the value of its operating assets using a residual income (RI) model (Rs 171/share). India’s central electricity regulator (CERC) has announced the final tariff norms for generation and transmission projects for FY2010-14. Takeaways for NTPC -
[1] Minimum regulated post-tax ROE (return on equity) raised from 14% to 15.5% (16% in case of new projects completed within prescribed time).
[2] Benefit of tax holidays to be retained, but tax on incentives will not be a pass-through.
[3] Fixed-cost recovery linked to ‘plant availability’ and not utilisation rate (PLF or plant load factor).
[4] Option to avail R&M (repairs and maintenance) allowance for more than 25-year-old units. [5] Normative levels for operational and working capital parameters have been tightened.
[6] Depreciation rate for tariff setting largely aligned with accounting norms.

Prima facie, CERC’s final tariff norms for FY10-14 are neutral-to-positive for NTPC’s earnings outlook; consensus expected them to be neutral-to-negative. We maintain that
[1] effective tax rate and,
[2] economic life of projects, are critical parameters to assess NTPC’s profitability during FY10-14.

CITIGROUP on FEDERAL BANK

Citigroup maintains `Buy’ rating on Federal Bank. However, it revises the price target down to Rs 215 from Rs 270. Federal Bank reported a strong P&L quarter in 3Q09, with high NIMs (net interest margins) of over 450 bps, core fee income growth over 90%, trading and bond portfolio gains, and relative cost moderation (excluding one-offs). However, the balance sheet was under pressure, with high asset deterioration and loan-loss provisions. Overall, a mixed quarter - a resilient P&L but marked by increasing asset risks. Federal Bank’s loan book comprises 36% SMEs (small and medium enterprises) and 32% retail, both of which have seen significant pressures over the last couple of quarters, and contribute to the bulk of the deterioration in asset quality. Incremental slippages increased to about 1.4% of loans in 3Q09, meaningfully above its larger peers. Citigroup increases FY09E earnings by 28%, to incorporate gains on the bond portfolio, but reduces FY10E and FY11E earnings by 21% and 31% respectively, reflecting significantly higher loan-loss provisioning costs.

DEUTSCHE BANK on NALCO

Deutsche maintains `Sell’ rating on Nalco with a price target of Rs 126. Nalco’s latest alumina sale tender, which is used as a benchmark for the spot market globally, has been closed at US$194/MT. The new contracted price is down 58% from a high of US$458/MT which Nalco got for a 30,000-tonne shipment in July ‘08. Outlook for alumina remains negative as brought out by the bidding range. Apart from the winning bid of US$194/MT, the majority of bids from traders ranged between US$153-US$176/MT, which provides an indication of market expectations of future alumina price movement. Nalco is averse to any production cuts despite the global demand weakness. Consequently, its aluminum inventory situation is expected to get worse. According to the news flow, inventory is hovering around 15 Kt which is already double of the normal levels of 8 Kt. The inventory situation is expected to get even worse with average inventory increasing to 30 Kt by the year-end. Deutsche remains negative on alumina/aluminium demand and pricing outlook in 2009

Stock views on NTPC, Aban Offshore, Everest Kanto Cylinder,

CITIGROUP on EVEREST KANTO CYLINDER

EVEREST Kanto Cylinder (EKC) is the largest domestic manufacturer of high-pressure gas cylinders used for storage of industrial gases and CNG. Citigroup believes EKC is uniquely positioned to capture the significant growth potential in India for high-pressure gas cylinders, driven largely by increasing CNG penetration, both in India and abroad. While the CNG segment in India is still at a relatively nascent stage, cost economics, improving refuelling infrastructure, visibility of gas supplies and clarity on regulations should accelerate the trajectory for city gas distribution and consequently, CNG penetration, thereby boosting demand for CNG cylinders. The 12-month target price for EKC of Rs 280, based on 15x September ’09E consolidated earnings — which includes contribution from India, Dubai, US-based CP Industries and the China plant — is in line with the fair value multiple range for its manufacturing/engineering peers in India. Citigroup prefers comparing EKC with capital goods companies that manufacture industrial goods and have a similar growth profile.


EDELWEISS on ABAN OFFSHORE

EDELWEISS initiates coverage on Aban Offshore with a ‘reduce’ recommendation. Day rates for Aban Offshore’s rigs that are on short-term contracts are likely to ease, in line with Edelweiss’ lacklustre jack-up industry outlook. Jack-up day rates are expected to ease 18-19% year-on-year (y-oy) in both CY09E and CY10E and test industry return on average capital employed (RoACE) of 8%. This is based on expectations of a lower jack-up demand (down 14.5% and 5.3% y-o-y in CY09E and CY10E, respectively) and a significant supply coming on stream in CY08-10E. Weak demand is likely due to low commodity prices, revision/deferment of small company and exploratory spend, and weak global outlook. Lacklustre industry outlook, a weak rupee (impacting debt) and short-term contracts/uncontracted Singapore assets are expected to be an overhang on the stock. This renders low fair value of Rs 685. Global drillers’ comparative multiples like EV/EBITDA (at 3.2x two-year forward), price/earnings (at 3.4x two-year forward), and price/book value (at 0.7x two-year forward) have shrunk on the back of low crude prices and economic weakness.


JP MORGAN on NTPC

JP MORGAN upgrades its rating on NTPC to ‘overweight’. The key risks to the target price of Rs 185 include major execution delays and a shortage of coal. NTPC’s size, strong balance sheet and assured-return structure put it in a strong position to achieve its growth plans. JP Morgan advises investors to use share price corrections due to hiccups in execution, if any, to buy the stock, as near-term delays do not affect its valuation much. Apart from execution, customers’ ability to absorb the rise in tariffs and the impact of coal shortages on incentives are the key concerns. With coal prices declining, the cost of debt is the main inflationary factor — power tariff can rise 6-7% per annum if interest costs rise by 500 bps. Access to KG Basin gas is an important potential catalyst to improve gas stations’ PLF and incentives. NTPC is trading at 15.6x FY10 P/E, 2.2x FY10 P/BV and is close to the March ’10 target price of Rs 185. This includes Rs 11/share value for NTPC’s 2 billion tonnes mineable coal reserves. Any positive news flow when coal production commences can improve this valuation. A replacement value-based approach for current capacities suggests a fair value of Rs 140, indicating the market is paying a reasonable premium for 2x capacities in the pipeline.

Indiabulls Securities views on State Bank of India, NTPC

State Bank of India - Target Rs 1,541


Indiabulls Securities Research has upgraded its rating on State Bank of India (SBI) to buy in its November 10, 2008 research report. "State Bank of India’s operating profit and net profit for Q2’09 surged 54.5% and 40.2% yoy, respectively, exhibiting a strong performance. While we expect the economic slowdown to adversely impact the Bank’s performance in the near-to-medium term, we believe that most of the negatives have been factored in the current price. Our fair value estimate is Rs 1,541. We, therefore, upgrade our rating to BUY," says Indiabulls Securities' research report.


NTPC - Target of Rs 194


Indiabulls Securities Research has upgraded its rating on NTPC to buy with a target of Rs 194 in its November 11, 2008 research report. "NTPC clocked revenues to the tune of Rs 96.6 billion for Q2’09. Net profit for the quarter increased 9.6% yoy to Rs 21.1 billion. After the recent correction, we believe NTPC’s stock should prove to be a good buy. Based on our DCF valuation, we have arrived at a target price of Rs 194, assuming a terminal growth rate of 5% and a WACC of 10.5%. Since our target price implies an upside of 28% from the CMP, we upgrade our rating to Buy," says Indiabulls Securities' research report.

Stock Views on on Infosys Technologies, NTPC, Sadbhav Engineering, Orchid Chemicals

Motilal Oswal on Infosys Technologies - Target of Rs 1640


Motilal Oswal has maintained its buy rating on Infosys Technologies with a target of Rs 1640 in its November 14, 2008 research report. "Infosys reported in-line revenue growth of 5.3% QoQ and 18.9% YoY to USD 1,216 million for 2QFY09. Infosys guided for revenue of USD 4.72 billion-4.81 billion for FY09 v/s its earlier guidance of USD 4.97 billion-5.05 billion, implying 13-15% growth now v/s 19-21% growth earlier. The rupee revenue guidance for FY09 has been changed only marginally to Rs 213 billion-217 billion from Rs 213 billion-216 billion, implying growth of 28-30%. The company has maintained EPS guidance for the year at Rs 101.06 (the higher end), implying growth of 24%."

"We believe operating margins will be stable with a negative bias for 2HFY09. The company hired 17,299 employees in 1HFY09, which is 69% of the total guided gross hires for the year. We reduced our FY09 EPS estimate by 2% to Rs 100.4 and FY10 EPS estimate by 5% to Rs 109.1 and are revising our target price to Rs 1,640 (15x FY10E earnings) due to earnings growth deceleration to 17% over FY08-10 and prevailing uncertainties. Maintain Buy," says Motilal Oswal's research report.


Hem Securities on NTPC - Target of Rs 183


Hem Securities has initiated a buy rating on NTPC with a target price of Rs 183 in its November 15, 2008 research report. "The company has posted decent results for the quarter ended September 2008. The Net sales have surged to Rs 100911 million with a year over year growth of 25.87 per cent. Presently, the stock is trading at Rs 149 which is at 17.65 times to its earnings and 2.18 times to its book value of Rs 68.49. Since the stock seems to offer extremely good investment opportunities, we initiate a ‘BUY’ signal on the stock with a target price of Rs 183 in medium term investment horizon expecting an appreciation of about 22% from the current level of Rs 149," says Hem's research report.


Angel Broking on Sadbhav Engineering - Target of Rs 718


Angel Broking has maintained its buy rating on Sadbhav Engineering with a target price of Rs 718 in its November 12, 2008 research report. "For 2QFY2009, Sadbhav Engineering (SEL) reported Net Sales numbers, which were below our expectations. The company registered 22% yoy growth in Net Sales to Rs 124.2 crore (Rs 101.8 crore) as against our expectation of 41% growth at Rs 143 crore. We value, SEL at 6x FY2010E standalone Earnings assigning Rs 430 per share. We value SEL’s portfolio of BOT assets at Rs 399 crore (Rs 420 crore earlier), contributing Rs 288 per share excluding NSEL Annuity project, which we believe has no value while factoring in current increased cost of financing and arrive at a conservative SOTP Target Price of Rs 718 (Rs 1,036). We maintain a Buy on the stock," says Angel's research report.


Reliance Money on Orchid Chemicals - Target of Rs 176


Reliance Money has recommended a buy rating on Orchid Chemicals and Pharmaceuticals with a target of Rs 176 in its November 14, 2008 research report. "Orchid Chemicals & Pharmaceuticals Ltd (Orchid) reported 19% growth in consolidated revenues on a higher base to Rs 3484.5 million during Q2FY09. As per revised estimates, we expect the Revenue and profit (excluding forex loss) would grow at a CAGR of 15% and 16%, respectively during FY08-10E. Thus, the revised EPS (excluding forex loss) stands at Rs 14 and Rs 22.9 for FY09E and FY10E, respectively."


"But the positive part of Orchid is that FCCBs have sufficient time horizon for conversion and the company does not hedge its revenues, which could benefit the company from the weakening Rupee scenario in the near term. In line with our changed estimate based on consolidated numbers and in order to align our valuation with market valuation, we are revising our target price. In fact, to capture the market wide correction in valuations, we have reduced the earning multiple by 35% and revise target price to Rs 176 (i.e. 8x FY10E EPS),Buy," says Reliance Money's research report.

Indiabulls Securities views on NTPC, Bharat Forge, Jindal Steel, Tata Power

NTPC, target of Rs 194


Indiabulls Securities Research has upgraded its rating on NTPC to buy with a target of Rs 194 in its November 11, 2008 research report. "NTPC clocked revenues to the tune of Rs 96.6 billion for Q2’09. Net profit for the quarter increased 9.6% yoy to Rs 21.1 billion. After the recent correction, we believe NTPC’s stock should prove to be a good buy. Based on our DCF valuation, we have arrived at a target price of Rs 194, assuming a terminal growth rate of 5% and a WACC of 10.5%. Since our target price implies an upside of 28% from the CMP, we upgrade our rating to Buy," says Indiabulls Securities' research report.


Bharat Forge - Target of Rs 130


Indiabulls Securities Research has maintained its buy rating on Bharat Forge with a target of Rs 130 in its November 21, 2008 research report. "Bharat Forge (BFL)’s stock has plunged 63%. At the current market price (CMP) of Rs 92.40, the stock is trading at a forward P/E of 8.3x and 8.1x for its FY09E and FY10E earnings, respectively. We have valued BFL by using the DCF valuation methodology, assuming a WACC of 13.1% and a terminal growth rate of 5%."

"Our valuation suggests a target price of Rs 130, which provides a potential upside of more than 40% from the CMP. At the current levels, we believe that BFL is a compelling long-term investment. Hence, we maintain our Buy rating on the stock," says Indiabulls Securities' research report.


Jindal Steel - Target of Rs 1000


Indiabulls Securities Research has upgraded its rating on Jindal Steel & Power from hold to buy with price target of Rs 1000, in its report dated December 3, 2008. "We have valued the Company by using the Sum-of-the-Parts (SOTP) valuation technique. We have used the DCF methodology to value the standalone company, assuming a WACC of 13% and a terminal growth rate of 5%. Additionally, we have valued JPL at two times its estimated book value at the end of Q2’09. Our SOTP-based valuation of Rs. 921 suggests a potential upside of 18.6% from the current market price (CMP) of Rs 776.9. Given the growth potential of its power business and based on our valuation, we upgrade our rating on the stock from Hold to Buy," says Indiabulls Securities' research report.


Tata Power - Target of Rs 872


Indiabulls Securities Research has upgraded its rating on Tata Power Company with a target price of Rs 872 in its December 4, 2008 research report. "Tata Power Company Ltd. (TPC), a leading private power sector player, is expected to significantly ramp up its capacity in the coming years on the back of the 4,000 MW Mundra UMPP and the 1,050 MW Maithon power project. Based on our SOTP valuation, we have arrived at a target price of Rs 872. Thus, we have upgraded our rating from Hold to Buy," says Indiabulls Securities' research report.

Stock Views on Indraprastha Gas, Sadbhav Engineering, NTPC

KRChoksey on Indraprastha Gas - Target of Rs 130

KRChoksey Research has recommended a buy rating on Indraprastha Gas with a target price of Rs 130 in its November 13, 2008 research report. "IGL reported net sales of Rs 215.2 crore, up 23.6% Y-o-Y, on the back of increase in volume of CNG by 22.7% and PNG by 26.7% to 117.2 million Kg and 13.3 mmscm respectively. We recommended a BUY on the stock with target price of Rs 130, giving an upside potential of 23%. At the target price the stock would be valued at 9.0x and 7.6x its FY09E & FY10E EPS of Rs 14.5 and Rs 17.0 respectively," says KRChoksey's research report.

Angel Broking on Sadbhav Engineering - Target of Rs 718

Angel Broking has maintained its buy rating on Sadbhav Engineering with a target price of Rs 718 in its November 12, 2008 research report. "For 2QFY2009, Sadbhav Engineering (SEL) reported Net Sales numbers, which were below our expectations. The company registered 22% yoy growth in Net Sales to Rs 124.2 crore (Rs 101.8 crore) as against our expectation of 41% growth at Rs 143 crore. We value, SEL at 6x FY2010E standalone Earnings assigning Rs 430 per share. We value SEL’s portfolio of BOT assets at Rs 399 crore (Rs 420 crore earlier), contributing Rs 288 per share excluding NSEL Annuity project, which we believe has no value while factoring in current increased cost of financing and arrive at a conservative SOTP Target Price of Rs 718 (Rs 1,036). We maintain a Buy on the stock," says Angel's research report.

Hem Securities on NTPC - Target of Rs 183

Hem Securities has initiated a buy rating on NTPC with a target price of Rs 183 in its November 15, 2008 research report. "The company has posted decent results for the quarter ended September 2008. The Net sales have surged to Rs 100911 million with a year over year growth of 25.87 per cent. Presently, the stock is trading at Rs 149 which is at 17.65 times to its earnings and 2.18 times to its book value of Rs 68.49. Since the stock seems to offer extremely good investment opportunities, we initiate a ‘BUY’ signal on the stock with a target price of Rs 183 in medium term investment horizon expecting an appreciation of about 22% from the current level of Rs 149," says Hem's research report.

India Infoline Views on Largecap Power Stocks - Power Grid, NTPC

Power Grid

The company has aggressive capex plans of Rs 550bn for the 11th Five Year Plan in line with the government’s target of increasing the national power transmission capacity to 37.7GW by FY12. The aggressive capex augurs well for PGC whose earnings growth is driven by growth in the gross block. PGC has a stable business model wherein it earns a cost pass through and a 14% return on regulatory equity plus performance.

NTPC

NTPC is India’s largest and leading power generation utility. It produces 29% of total electricity in India with an installed capacity of 30GW, which it plans to take to 50GW by FY12 and 75GW by FY17. We believe NTPC will be able to execute atleast ~80% of the planned capacity addition in time based on its unparalleled execution capabilities, cash balances of Rs170bn, low gearing at 0.52x and easy access to funds.

Stock Views on NTPC, Cairn India, Lanco Infra

GOLDMAN Sachs on NTPC - TARGET PRICE: RS 208

GOLDMAN Sachs Research has initiated coverage on the stock with a ‘buy’rating, saying NTPC’s business model entails a high degree of earnings visibility with core business consistently yielding 20% plus return on equity(RoE). “NTPC scores well as a defensive growth op-tion. It has the lowest risk to funding amongst its peers, competitive cost of generation, RBI guarantee for payment realisation from its customers (financially-constrained SEBs) up to FY2016 and inexpen-sive valuations,” said Goldman Sachs Research in a note to its clients. The firm expects the company’s net profit to grow at a compounded annual rate of 7.3% between FY2008 and FY2011E (estimated).

Macquarie on Cairn India - TARGET PRICE: RS 276

Macquarie Research has reaffirmed its ‘outperform’ rating on the stock, but has cut the target price by 1.4% to Rs 276 due to the change in 2008 West Texas Intermediate (WTI) forecast. “We have revised down the WTI crude oil price forecast by 6.3% for 2008. Our new forecast has the 2008 figure adjusted down to reflect the recent weakness in prices and the risk that slowing demand growth keeps prices in a range of $100-110/bbl (blue barrel),” said Macquarie in a note to its clients.

UBS Securities on TARGET PRICE: RS 250

UBS Securities has upgraded its rating on the stock to ‘buy’from ‘sell’, but has trimmed the price target to Rs 250. The firm has cut its earnings per share(EPS) estimates for the stock by 10%/20%/19% to Rs 19/22.4/33.3 for FY09/10/11E to reflect a slowdown in project execution. It has also made of 10% discount to the power, engineering procurement and construction (EPC) business and infrastructure valuation for the company. “