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 Rcom, Mahindra & Mahindra, Sun Pharma

Sharekhan on Sun Pharma - Target of Rs 1295

Sharekhan has recommended a buy rating on Sun Pharma, with price target of Rs 1295, in its report.

"Sun Pharmaceutical Industries (Sun Pharma)’ Q4FY2009 performance was above our expectations. The revenues for the quarter declined by 9.8% to Rs 1,134.4 crore due to lower sales in the US market (as against the high base of the nonrecurring sales of Pantaprazole in Q4FY2008), voluntary product recalls (Digoxin and associated write-offs) initiated by Caraco Pharmaceuticals (Caraco) and currency related losses."

"With Rs 3,000 crore of cash on books and with the global financial meltdown resulting in more attractive valuations for generic drug companies, Sun Pharma is scouting for other acquisition opportunities (possibly a mid-sized generic company in the USA). At the current market price of Rs 1,219, Sun Pharma is valued at 16x FY2010E fully diluted earnings. We shall review our estimates and follow this with a detailed note soon, Buy, target of Rs 1295," says Sharekhan's report.

Motilal Oswal on Mahindra & Mahindra - Target of Rs 756

Motilal Oswal has maintained its buy rating on Mahindra & Mahindra with a target price of Rs 756 in its research report.

"M&M’s operational performance for 4QFY09 was significantly better than we had expected, driven by merger of PTL and cost savings, with EBITDA margins at 11.5% and adjusted PAT at Rs 2.8 billion. The management guided 5-8% volume growth in both UVs and tractors, coupled with full benefit of raw material cost savings. We are upgrading our standalone EPS estimate for FY10 by 11.7% to Rs 37.9 and consolidated EPS estimate by 1.2% to Rs 62.6 (despite ~8% dilution related to PTL merger) to factor in benefits of PTL merger, higher volumes and cost savings. The stock trades at 10.8x FY10E consolidated EPS and an EV of 9.7x FY10E consolidated EBITDA."

"We remain positive on the core business of M&M and the accretion to its share value from its subsidiaries. The IPO of Mahindra Holidays will result in further value unlocking for the stock. The stock trades at 10.8x FY10E consolidated EPS and an EV of 9.7x FY10E consolidated EBITDA. We maintain 'Buy' with an SOTP-based target price of Rs 756," says Motilal Oswal's research report.

Motilal Oswal on Rcom - Target of Rs 350

Motilal Oswal has maintained its buy rating on Reliance Communications with a target price of Rs 350 in its research report.

"RCOM is seeking shareholders’ approval to raise funds through equity/equity-linked instruments which could result in potential equity dilution of up to 25%. As per the company, the funds would enable it to strengthen its balance sheet and equip it to participate in the upcoming 3G/Wi-Max auctions. RCOM’s shareholders have approved the scheme of arrangement for demerger of RCOM’s optic fiber division to Reliance Infratel. RCOM and its subsidiaries hold 94.5% stake in Reliance Infratel, financial investors hold 5%, while employee welfare trust holds 0.5% stake. As per RCOM’s notice convened for shareholders’ meeting, net consideration for the transfer of optic fiber assets would be Rs 67.2 billion."

"We are upgrading our March 10 target price to Rs 350 which now reflects nil discount to DCF (v/s 10% earlier) and incorporates a lower WACC of 12.8% v/s 13.5% earlier given reduced leverage concerns. Maintain 'Buy' on likely operational turnaround post recent GSM launch, and abating concerns on high leverage," says Motilal Oswal's research report.

IIFL views on IVRCL Infrastructure, Bharti Airtel, Reliance Communications

IIFL on Bharti Airtel - Target of Rs 710
IIFL has upgraded its rating on Bharti Airtel to buy with a target price of Rs 710 in its research report.

"The amended IUC regulations (effective 1 April 2009) will come as a relief for Bharti, despite a MTC (mobile termination charge) cut from Rs 0.3 to Rs 0.2 (in line with our expectations). It could have been worse: the rival lobby had been pushing for an MTC cut to zero, which would have significantly dented Bharti Airtel’s earnings. Besides, a cut to zero would have enabled Reliance Communications, RCOM and other start-up networks to price outgoing cross-network plans far more effectively, and possibly resulted in a congestion in Bharti’s network. On the other hand, the cut does represent a setback to Bharti’s rural expansion economics."
"Mobile-to-fixed termination charge has also been cut from Rs 0.3 to Rs 0.2, and this is favourable to wireless operators. Incoming TC on ILD has been raised only to Rs 0.4 from Rs 0.3, well below our expectation. We estimate that all these TC cuts -after factoring in licence fees, spectrum charges and service tax-will take 3.2% off Bharti’s EPS in FY10ii and FY11ii. We see the termination amendments as the termination of a lengthy period of uncertainty for Bharti. For the present, we see no significant regulatory threats, despite imminent change at the helm in TRAI. RCOM’s gains from this mild move will be limited, whereas Idea Cellular should be relatively unaffected. We upgrade Bharti to BUY with a target price of Rs 710," says IIFL's research report.


IIFL on Reliance Communications - Target of Rs 220

IIFL has recommended a buy rating on Reliance Communications with a target price of Rs 220 in its research report.

"RCOM has upgraded its CDMA network to 3G and launched wireless broadband under the name Reliance Netconnect Broadband Plus. The product will be available in 35 top cities from 17 March in the form of data cards and modems. The company has already placed a Rs 3 billion order with Huawei and ZTE for 1m such USB modems, with 100,000 modems expected to be delivered this week. We believe that this is a significant positive for RCOM and enables it first-mover advantage (with 3G auctions postponed, no operator would be able to match its offerings) and also take better advantage of mobile number portability (MNP), expected later this year. BUY with a target price of Rs 220," says IIFL's research report.


IIFL on IVRCL Infrastructure - Target of Rs 166

IIFL has recommended a buy rating on IVRCL Infrastructure with a target price of Rs 166 in its research report.

"Purandar Lift irrigation scheme project costing Rs 2.5 billion was awarded to IVRCL in 2001 by the Maharashtra government. Construction work continued for about a year before it was stopped owing to funding constraints. CIDCO’s sewage treatment plant at Navi Mumbai, this Rs 180 million project was awarded to Hindustan Dorr-Oliver (HDO) by CIDCO. Based on sequential batch reactor process, the plant has a capacity of 25MLD. The plant has commenced purification with the operations being currently handled by HDO."

"CIDCO Seawoods Estate residential project, construction of 0.39m sq ft space under phase II of the project is in progress. Phase II costs Rs 851 milliom and is on schedule for completion in December 2009. Construction of 0.68m sq ft under phase I is complete. BUY, target price of Rs 166," says IIFL's research report.

Stock views on Hindustan Dorr-Oliver, Titan Industries, Hexaware Technologies, ITC, Reliance Communications, Pantaloon Retail

Macquarie on Pantaloon Retail

Macquarie maintains its ‘Outperform’ rating on Pantaloon Retail, however, it has cut the earnings estimates and target price to reflect the expectations of slowing same-store sales growth and the credit crunch. Same-store sales (SSS) growth for Indian retailers turned negative for the first time in 4Q08. Slowing growth, the spectre of job losses and the high base effect (from the good old days of 2007) impacted sales. The problem was sharper in the high-end product segment versus items for daily consumption. Pantaloon saw its SSS growth improve from -3.6% and -14% in December 2008 to 4% and 12% in January 2009 for value retail and lifestyle retail respectively. Based on the estimates, Pantaloon’s operations can support growth of around 1-2 million sq feet per year with limited external funding. The supply-demand dynamics have led to a rise in retail rents in the last three years. Macquarie expects this to continue and average rents to fall at least another 25% over the next 12 months. We expect Pantaloon to be able to ride this tough period given its high exposure to value retail and planned capital raising by equity dilution or preferential share allotment.


CLSA on Reliance Communications


CLSA maintains the ‘Buy’ rating on Reliance Communications. There was a good response to GSM launch. In January RCom’s added 5 million users, bringing the total to 66 million subscribers. These additions include CDMA and GSM subscribers, accounting for 33-35% of total industry additions, though RCom is yet to release details, including circle-wise breakdowns to the GSM-industry body. RCom has rolled out GSM service across 14,000 towns, while targeting to up dual-network coverage to 24,000 towns and 600,000 villages. However, these schemes coupled with Idea Cellular’s latest offers in select circles may trigger the industry’s growing share of dual SIM and inactive subscribers. We estimate the company will be eligible for incremental 2G spectrum in 14 circles at 11 million new GSM subscribers. Recently, RCom cut its FY09 capex by 15% to $5.3 billion and guided FY10 at $3.2 billion. The firm has $1.7 billion in investments and a net debt-to-equity ratio of 0.64x. CLSA expects a boost to RCom’s valuation with confidence of a successful execution and improving market share in revenue.


HSBC on ITC

HSBC maintains its `Neutral’ rating on ITC with a price target of Rs. 172 per share. Considering the staggered price increase that ITC has been taking this year and that the budget has been delayed from February to June, questions are being raised whether there is one more price increase in the offing. While HSBC estimates a weighted average price increase, including mix effect, 14% has been implemented so far, and the probability of a further increase is small as ITC can manage decent growth in Q1FY10E without price increase, and ITC may not wish to jeopardise volume growth further when it is currently negative. If ITC decides to hike prices it could be implemented in the following order of priority:

• Goldflake Kings is likely to be the first option due to the price inelasticity in this segment.
• Bristol and Flake with price point of Rs 1.9 per stick; since loose buyers already pay Rs 2, trade margins can be cut;
• Goldflake regular though has had high price increases and has strong brand loyalty
• Scissors Regular is a less probable option since plains migration needs to take hold. HSBC derives a fair value of Rs 154 for the high tax and Rs 201 for the low tax scenario. At the target price, the stock will trade at 16.8x FY10E EPS.

Bank of America on Hexaware Technologies

Bank of America retains `Underperform’ rating on Hexaware Technologies. Though results were in line, Bank of America (BoA) was surprised by a very sharp revenue decline guided for 1Q at a negative 16% q-o-q with outlook being the weakest announced so far. This likely reflects high exposure to discretionary spends such as ERP (~29% revenue, -18% q-o-q). Estimates are cut by 5% to factor in a 17% cut in dollar revenues as reflected by weak 1Q revenue guidance and offset by higher margins due to falling rupee. Management highlighted that macro environment has worsened in 4Q; with clients across board rationalising IT spends. BoA expects margins to fall by at least 600 bps during 1Q. Also MTM losses in balance sheet increased to Rs 120 crore from Rs 100 crore q-o-q and are likely to impact CY09/10E profits if a weak rupee persists. Revenue grew 4% q-o-q to $64.4 million in constant currency terms in line with its guidance. Stock rose 40% before results on low valuations. BoA expects 1% earnings growth in CY09E and 8% CAGR over next two years. With 1Q results likely to disappoint and a poor revenue outlook, stock could correct.

EMKAY on Titan Industries

Titan Industries (TIL) is likely to face challenging times ahead on weakening macro economic indicators affecting its watch business, rising gold slowing its jewellery market share gains and its new business initiatives straining cash flows. TIL’s watch business is to report a 1.6% and 5.7% fall in revenues and EBIDTA , espectively in FY10E, and a revival thereafter. Emkay believes that it will be difficult for TIL’s jewellery division to garner market share at a similar pace as in the past, owing to rising gold and falling demand (3.6% in FY11E against 2.9% in FY08). The new business initiatives (precision engineering and eyewear) are still in investment phase, thereby denting TIL’s cash flows and EBITDA. Emkay expects moderation in growth with net revenue, EBITDA and adjusted net profit of TIL to grow at a CAGR of 16.0%, 12.8% & 7.7%, respectively during FY08-11E and an intermediate decline in FY10E. The above valuations are rich especially in the wake of moderation of growth and declining return ratios. We recommend a `Sell’ with a price target of Rs 671.

IL&FS Investsmart on Hindustan Dorr-Oliver

IL&FS Investsmart initiates coverage on Hindustan Dorr-Oliver with a ‘Buy’ rating, with a 15-month price target of Rs 55, providing an upside of 104%. HDO has made rapid strides in its core EPC business, engineering a ~5.4x growth in less then four years with significant contribution from the mineral beneficiation and environmental infrastructure business. However, the best is yet to come for HDO as the company is well positioned and has expertise to get into the bigger league with higher ticket contracts. The current order backlog of Rs 700 crore is 2.3xFY08 billings. Based on the pipeline bids, enquiries, and the capex cycle, order accretion is to gain momentum in the next few quarters and grow at 17% CAGR for the next two years. Traction is expected in the award of big ticket contracts in the next few quarters. IL&FS expects higher demand for its proprietary industrial products which is likely to prop the blended margin going forward with ~14% revenue contribution by FY10. HDO has all the characteristics to graduate to the next league and therefore the concerns reflected in the stock price are unwarranted; hence there is a good investment opportunity.

Stock views on HDFC, Bharti Airtel, Hero Honda

BANK OF AMERICA / MERRILL LYNCH on HDFC

Bank of America cuts HDFC’s target price to Rs 1,980 from Rs 2,450 owing to lower sum of parts value and factoring in moderation in growth. However, the stock can still trade at 2.5-3.0x FY10E given the comfort in asset quality; earnings growth of 16-17% through FY10-11E and ROE (return on equity) of 29% on its core business. HDFC’s 3QFY09 earnings were down 2% y-o-y and 4-5% lower than market estimates. This was primarily due to the absence of Rs 100 crore of high investment gains and extraordinary income and Rs 50 crore of exchange losses booked by HDFC in its convertible bond. Adjusting for these factors, both topline and pre-tax earnings grew by about 19% y-o-y. The other disconcerting feature was the 8% contraction in approvals - which appears to be a more conscious decision, as HDFC had been reluctant to lend in October-November ‘08 as conditions worsened. Bank of America has cut the FY09-10 reported earnings by 6-11% to capture the lower investment gains.

HSBC on BHARTI AIRTEL

HSBC reiterates `Overweight’ rating on Bharti Airtel. The 15% fall in Bharti’s share price since the launch of RCOM’s GSM service in December is an overreaction. Instead, investors should focus on Bharti’s market leadership strengths and RCOM’s longer-term structural limitations of operations in 1,800 MHz which require additional base stations. HSBC believes the combination of low revenue yields and bloated cost structure will reduce the scope for disruptive pricing and competitive intensity will become more rational. HSBC estimates FY10E traffic growth of 32% against the historical average of about 70% and cuts FY10-11E EPS by 7% and 4% respectively to factor in increasing competition and the slowing economy. The core business is valued at Rs 645 on 13.7x FY10E core earnings based on a 15% premium to HSBC’s Sensex target of 11.9x. The tower business is valued at Rs 141, which reflects a 36% discount to recent transaction multiples. Risks are early implementation of MNP (mobile number portability), rollout of flat rate plans, higher than estimated slowdown in usage, higher than estimated decline in margins on the back of rural penetration, lower termination charges and higher spectrum charges.

MORGAN STANLEY on HERO HONDA MOTORS

Hero Honda posted a decent set of 3Q09 numbers with net income 7% higher than the expected and in line with Street expectations. Despite a volume decline of 5%, an 11% y-o-y improvement in realisations helped the company to report revenue of Rs 2,880 crore (up 5% y-o-y). Margin came in at 14.5%, 50 bps above last year, primarily due to softening raw material commodity prices. This was on the back of an 11% y-o-y realisation improvement, improving product mix, and ramp up of capacity at the excise duty-exempt Haridwar facility. Net income of Rs 300 crore, improved 9% y-o-y, and came in 7% above estimate on the back of an improvement at the operating level and a lower tax rate as the company increased production in tax-free zones such as Haridwar. Hero Honda is on course to achieve 2009 growth estimate of 9% given its year to-date volume growth of 10.4%, and an improvement in market share of 5.5% to 58.5% in the fiscal year to date in the domestic motorcycle category.

Stock Views on Reliance Communications, Mahindra and Mahindra, Sterlite Industries

Emkay Global on Sterlite Industries - Target of Rs 301

Emkay Global Financial Services has maintained its buy rating on Sterlite Industries (India) with a target of Rs 301 in its research report. "Despite the current slowdown, SIL’s expansion plans are on track and the management expects the plants to be operational within time and budget. On EV/EBITDA basis the stock is trading at 2.1x FY09E EV/EBITDA and at 2.5x FY10E EV/EBITDA; while on P/B basis the stock is trading at 0.6x FY09E book value and at 0.5x FY10E book value. We maintain BUY on the stock, with target price of Rs 301," says Emkay Global Financial Services' research report.


Sharekhan on Mahindra and Mahindra - Target of Rs 565


Sharekhan has maintained its buy rating on Mahindra and Mahindra with a target of Rs 565 in its research report. "Mahindra & Mahindra’s (M&M) unit Punjab Tractors has entered into a memorandum of understanding with Sumitomo Corporation to sell its 14.04% stake in Swaraj Mazda Ltd (SML). We continue to value M&M on a sum-of-the-parts basis, valuing the core business at Rs 314 and the subsidiaries at Rs 251. We maintain our Buy recommendation on M&M’s stock with a price target of Rs 565," says Sharekhan's research report.


Prabhudas Lilladher on Reliance Communications - Target of Rs 367


Prabhudas Lilladher has recommended a buy rating on Reliance Communications with a target price of Rs 367 in its December 31, 2008 research report. "RCom announced the commercial launch of GSM services in 6k new towns in addition to 5k towns already under coverage in 8 existing GSM circles. GSM launch will help RCom not only garner incremental subscriber net additions but also help in gaining advantage of the roaming revenues. Moreover, FCCB MTM losses, leveraged balance sheet vis-à-vis Bharti and higher-than-anticipated treasury income for RCom, is reflected in the price. Buy, target of Rs 367," says Prabhudas Lilladher's research report.

Stock Views on TCS, Bharti Airtel, HDFC, IOC

Anand Rathi on TCS - Target of Rs 650

Anand Rathi Securities has recommended a buy rating on Tata Consultancy Services, TCS with a target price of Rs 650 in its November 17, 2008 research report. "TCS added 51 clients (gross) in 2QFY09, taking total active clients to 920. 1H09 saw TCS close 16 deals vis-à-vis 14 deals in 1H08. It is currently in pursuit of 20 deals. Its share of revenue from fixed-price projects is the highest of its peers (43.9% of TTM revenue). Efficient execution of these projects, along with decreasing share of domestic business, augurs well for TCS’ profitability. TCS trades at 8.8x FY09 and 9.9x FY10 estimated earnings."

"We rate it a Buy with a target price of Rs 650 at a target PE multiple of 10x its one-year forward earnings. At our target price, it would trade at 7.4x EV/EBITDA our one-year forward estimates. Our DCF valuations for TCS assume an 8.5% risk-free rate, a 6% risk premium and a 3% terminal growth rate. The DCF-based fair value, after taking estimated growth till FY10 and 10% growth during FY10-15, is Rs 645," says Anand Rathi's research report.

IIFL on Bharti Airtel, Idea Cellular

IIFL has recommended to buy Bharti Airtel with a target of Rs 877 and Idea Cellular with a target of Rs 72, add Reliance Communications (RCOM) with a target of Rs 360, sell Tata Communications with a target of Rs 335 and MTNL with a target of Rs 85.

IIFL's report on Telecom sector:

As expected the 3G & BWA auctions information memo carries some unexpected twists it permits foreign companies to bid within the 74% FDI ceiling and simultaneously permits incumbents to own 26% in another bidding entity creating the possibility that foreign companies and incumbents may associate through this route. No separate 3G spectrum charges will be levied but 2G spectrum charges will apply on 2G and 3G revenues creating a possible incentive for incumbent GSM operators to liberate and return excess 2G spectrum by migrating traffic to 3G and thus lowering spectrum charges. The 3G auctions will be for the 2100MHz band and for fewer blocks than expected and will commence on 16th January 2009. The government is expected to wrap up the entire process by February 2009. The document is very detailed and professionally organised which indicates the governments desire to ensure timely completion of the entire process.

Sharekhan on HDFC - Target of Rs 2805

Sharekhan has maintained its buy rating on Housing Development Finance Corporation (HDFC) with a target price of Rs 2805 in its research report. "We believe, HDFC is among the better-diversified players in the Indian financial services space with leadership position in mortgage market and strong presence in other financial services (life insurance, asset management and banking). Operationally, HDFC’s fund mobilisation abilities and operational efficiency should help maintain healthy earnings momentum in a tough operating environment. We maintain our Buy recommendation on the stock with a price target of Rs 2,805," says Sharekhan's research report.


Indiabulls Securities on IOC - Target of Rs 479


Indiabulls Securities Research has upgraded its rating on Indian Oil Corporation (IOC) to buy with a target price of Rs 479 in its research report. "With global oil prices at their peak in Q2’09, Indian Oil Corporation Limited (IOC) reported a net loss of Rs 70.5 billion as it was unable to pass the full effect of the price increase because of government controls. We have revised our estimates to incorporate the effect of the recent fall in the crude prices and the depreciating rupee. Based on our relative valuation, we have arrived at a target price of Rs 479, which provides an upside potential of 17%. Thus, we have upgraded our rating on the stock to Buy," says Indiabulls Securities' research report.

Stock View on Reliance Communications, Idea Cellular, Assam Company, Great Offshore

Angel Broking on Reliance Communications - Target Rs 595

Angel Broking has maintained its buy rating on Reliance Communications (RCOM) with a target of Rs 595 in its September 20, 2008 research report. "We expect RCOM to record a 24% CAGR growth in Top-line over FY2008-10E, while Bottom-line is expected to grow at a CAGR of 17% over the same period. We estimate a relatively flat Margin profile. At Rs 374, the stock is trading at 10.9x FY2010E EPS. We maintain a Buy on the stock, with a Target Price of Rs 595. This includes Rs 479 as the core business value and Rs 116 as the value of the towerco, Reliance Infratel," says Angel Broking's research report.

Angel Broking on Idea Cellular - Target Rs 104

Angel Broking has maintained its buy rating on Idea Cellular with a target of Rs 104 in its September 20, 2008 research report. "At Rs 82, the stock is trading at 14.5x FY2010E EPS. We maintain a Buy on the stock, with a Target Price of Rs 104. This includes Rs 73 as the value of the core business and Idea’s stake in Indus Towers fetches Rs31. We have been conservative on the core business valuations, given the Margin pressures likely to be faced by the company owing to falling ARPUs, intensifying competition and regulatory risks," says Angel Broking's research report.

Anagram Research on Assam Company - Target price Rs 24

Anagram Research has upgraded its rating on Assam Company to buy with a target price of Rs 24 in its September 20, 2008 research report. "At CMP of Rs 20 we find the stock attractively valued. The stock looks expensive in terms of earnings as tea business contributed 80% of earnings while price factors in the future prospects of oil & gas business. We upgrade our rating to Buy with a price target of Rs 24," says Anagram'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 RCOM, HPCL, OPTO CIRCUITS

RCOM

CMP: RS 442.25
TARGET PRICE: RS 501

Merrill Lynch has downgraded Reliance Communications from‘buy’ to ‘neutral’on lower than expected earnings due to weak revenues from its fixed wireless division. “The size of PCO (fixed wireless public call offices) revenues comes as a surprise to us,” says Merrill Lynch, adding that the topline and EBITDA was 8% and 11% below its expectations. The foreign brokerage has cut EBITDA forecasts by 10% for the current financial year and by 20% for FY10E “owing to unlikely pick-up in PCO revenues, continuing weak elasticity in mobile min-utes and lower global-biz EBITDA margins, post-Vanco acquisition.” In the first quarter of FY09, RCOM’s overall EBITDA fell 3% QoQ against 8% QoQ EBITDA growth for Bharti, says the report. According to ML, it would be difficult for RCOM to list its tower subsidiary (R-Infratel) and its global business (R-Globalcom) in the current volatile equity environment, owing to complex revenue forecasting and difficult valuation benchmarking. Merrill Lynch has lowered its target price from Rs 725 to Rs 501.


HPCL

ICICI Securities has maintained a ‘buy’ rating on HPCL even after the company reported a recurring loss of Rs 880 crore in the first quarter of the current financial year due to lower than expected subsidy sup-port from the government and upstream companies. The brokerage expects subsidy support to increase over the year as the government has not yet accounted for the Rs 40,000 crore unallocated burden. “Though we continue to believe that the stock may remain subdued in the short term till the government decides the final subsidy burden sharing formula, the company is trading at a significant discount to the replacement value of its asset,” says the report. The brokerage also highlights the fact that risks of further increase in interest costs along with expectations of a fall in refining margins could potentially impact earnings. Positive surprise, however, on higher subsidy sharing by upstream companies and oil bonds could be a boost to stock prices, it adds. Positive news on the E&P front and implementation of subsidy reforms recommended by the Rangarajan Committee could trigger re-rating in the stock, says the report.


OPTO CIRCUITS

CMP: RS 338.35
TARGET PRICE: RS 509

India Infoline has maintained a ‘buy’ rating on Opto Circuits after it reported better than expected results for the first quarter of the current financial year. According to the brokerage, the revenue of the company surpassed its estimate and grew 84% year-on-year. “Even better was the EBITDA margin expansion of 60bps YoY and 284bps QoQ, despite the inclusion of the significantly lower margin Criticare business,” says the report. This, it goes on to add, suggests that the management was able to realise synergies faster than expected. The brokerage has raised its FY09 earnings estimate by 10%. According to the brokerage, the international healthcare business of the company grew 97% in the first three months of the current financial year.