Stock views on KEC International, Nagarjuna Construction, Gujarat State Petronet

LKP Shares on Gujarat State Petronet - Target Rs 42

LKP Shares has recommended a buy rating on Gujarat State Petronet (GSPL) with a price target of Rs 42 in its research report.

"GSPL reported net sales of Rs 110.6 crore, up 6.2% year on year (YoY). Its operating profit of Rs 101.6 crore was up by 4.6% YoY," LKP said in its report.

"Higher staff and O&M expenses reduced the profit margin by 128 bps. Net profit growth of 10% YoY for Q309 was driven by good realizations, a growth of 51% YoY. Fixed capacity utilization charges — take-or-pay clause — were triggered on some of the contracts in this quarter, which led to increase in realizations."

"As per the priority set out by the new gas utilization policy, other sectors have been listed out prior to Refineries in the order of gas supply. This, we believe, shall lead to further delay of gas flowing from GSPL’s network to RIL’s refinery at Jamnagar to Q3’10. Also, many contracts are renewed at the higher tariff price starting January 1’09, which shall bolster the revenue earnings of the company. We recommend a BUY on the stock with a price target of Rs 42 for a medium term horizon," the research report said.


Angel Broking on Nagarjuna Construction - Target Rs 96


Angel Broking has maintained its buy rating on Nagarjuna Construction Co. with a target price of Rs 96 in its research report.

"The Government of Andhra Pradesh has cancelled order worth Rs 1,000 crore awarded to Nagarjuna Construction Company (NCC). The cancelled order was for Andhra Pradesh International Centre project, a multi-utility complex at the AP Bhavan premises in New Delhi and was proposed to be taken up through the PPP mode on a Build-Operate-Transfer basis. The work order scope envisaged to set up an international convention centre, guesthouse, residential quarters, hostel and dormitory facilities for government use, and service apartments on 19.84 acres at AP Bhavan. The order was canceled citing failure to execute the development agreement (DA) as well as licence agreement (LA) even after expiry of the 75-day deadline. NCC consortium also failed to submit performance security of Rs 100 crore before the execution of DA and LA."


"The consortium was also required to pay Rs 25 crore towards project development expenses but had paid only Rs 5 crore even after timeline extension by 60 days. As per the order agreement the developer was required to pay an annual minimum guarantee amount of Rs 45 crore during the first 10 years from commercial operation, Rs 60 crore during the next 10 years and Rs 75 crore during the last 10 years of the 30-year licence period. The order cancellation takes the outstanding order book of NCC to Rs 12,131crore which is 3.5x its FY2008 revenues. We maintain a Buy on the stock with a target price of Rs 96," says Angel Broking's research report.

IIFL on KEC International - Target Rs 160

IIFL has recommended an add rating on KEC International with a price target of Rs 160 in its research report.

"In our recent meeting with KEC International, management said it expects the company to achieve stable revenue growth in FY10 on the back of the current order book and likely order inflows from Middle East and Africa. However, increasing competition-especially in the domestic market-could play spoilsport for both new project wins and EBITDA margins. We estimate FY10-11 EBITDA margins at 9%, against management expectation of 10%."

"The company would continue to have forex gains/losses on mobilisation advances for international projects, as these are not hedged. Management hinted at a possible change in accounting policy for amortisation of reserves created due to the merger of RPG Transmission and NITEL in FY08. This change would result in 9M FY09 profits being lower by Rs 90 million. We incorporate this accounting change in our current estimates resulting FY09-10ii earnings estimates being lower by 8%. Add, price target of Rs 160," says IIFL's research report.

Stock views on Mphasis, Reliance Industries, GVK Power & Infrastructure

IIFL on GVK Power - Target Rs 23.9

IIFL has recommended a buy rating on GVK Power & Infrastructure with target price of Rs 23.9 in research report.

"The government has approved levy of a development fee (ADF) at Mumbai airport on an ad-hoc basis for a period of 48 months. The ADF considerably eases the fund crunch faced by the Mumbai airport and obviates the need for JV partners of Mumbai International Airport Limited (MIAL) to bring in additional equity. This is a major relief. Continuity of the ADF is contingent on review of land deals after six months. The levy adds Rs 3 per share to GVK’s SoTP as the government order has allowed real estate monetisation till Rs 10 billion before the levy is reviewed. Our assumptions of real estate monetisation in the initial phase are lower than the ceiling. Adjusting for a Re 1 per share potential hit due to VRS liability, we reckon there is an upside of 10% to GVK’s SOTP, Buy, target of Rs 23.9," says IIFL's research report.

Emkay Global on Mphasis - Target Rs 240

Emkay Global Financial Services has maintained its buy rating on Mphasis with a price target of Rs 240 in its research report.

"Mphasis reported superlative Q1FY09 results with revenues at Rs 9777 million (+9.3% QoQ, + 58.1% YoY) and operating profits (EBIT) at Rs 2106 million (+24.4% QoQ, +246.6% YoY). Operating margins remained steady at October month levels at 26.5%. Net profits at Rs 2100 million (+14.7% QoQ, +271.1% YoY) beat estimates boosted further by lower tax rates. Net employee addition remained in line at 1,193 (with apps HC up by 638 employees sequentially). Our confidence on Mphasis as the best demand story in the mid cap IT services space continues to get reinforced with enviable performance over the past 3 quarters now.

Our view gets vindicated with Mphasis being the 2nd best out performer in the IT services universe over the last 12 months (Mphasis has outperformed broader markets by 45%, next only to Infy on a LTM basis, refer section below). Although we increase our FY09 earnings estimates by 25% currently, we will review them shortly post discussions with co management as we believe there is significant upgrade to current estimates. Maintain BUY with a price target of Rs 240," says Emkay Global Financial Services' research report.

CLSA on RIL - Target Rs 1550

Following the Reliance Industries (RIL) and Reliance Petroleum (RPL) merger, CLSA (Credit Lyonnais Securities Asia) has said they will keep a buy on RIL post swap ratio and that they have a target of Rs 1,550 per share. The firm also said that RPL merger will not change RIL EBITDA profile.

The broking firm sees a free cash flow of USD 4.5–5 billion for RIL over the next two years while it sees 0.4–1.4% EPS accretion for RIL post the RPL merger.

Stock views on Tata Power, ICICI Bank, Siemens India,

MERILL Lynch on RELIANCE INDUSTRIES

MERILL Lynch has cut its price objective on Reliance Industries (RIL) by 15% from Rs 1,825 to Rs 1,555 based on sum of the parts valuation. However, it continues to retain its ‘buy’ on the stock. The brokerage says that the cut is due to cut in the value of its refining business and value of its investment in RPL. The former has been cut by 56% to Rs 168 per share and the latter by 39% to Rs 137 per share. “We have steeply cut Singapore complex refining margins forecast for financial year (FY) 2010 and 2011 (expected). Consequently, refining margins of Reliance Industries (RIL) and refining subsidiary Reliance Petroleum (RPL), too, have been steeply cut,” the report said. The cut is relatively modest assuming a weaker rupee, it adds. RIL’s presence in E&P and petrochemicals also helped dilute impact of refining margin cut on RIL. The report says that the key risks include failure in the retail business, and changes in government policies like withdrawal of the tax holiday which may have a direct impact on the business, cash flow and profit, among other things.


Enam Securities on SIEMENS INDIA

Enam Securities has put an ‘underperformer’ on Siemens India on lower-than-expected results and poor performance by its subsidiaries. The brokerage says that Siemens’ continuing engineering businesses — power, industry and transportation are showing signs of slowing. The IT business is unlikely to create value for the shareholders. “We are revising our earnings estimates downward by 31% to Rs 18.5 to account for slowing business traction. We downgrade the stock to sector underperformer,” the report says. It adds that the management of the company has hinted at delays in contract finalisation and contract renegotiations at lower prices by customers due to the decline in commodity prices. The management believes that the power division will be a key growth driver, driven by strong growth in domestic market and huge opportunity in the Middle East. “Going forward, the management would be focusing on the quality and profitability of order rather than size and volume of the project,” says the report.


BNP Paribas Securities on ICICI BANK


BNP Paribas Securities has maintained its ‘buy’ rating on ICICI Banks on account of bank’s strategy of consciously slowing down on growth in riskier categories. The brokerage house says, “Our analysis of incremental advances — broken into mortgage, non-collateralised retail and corporate loans — vis-`-vis the incremental gross nonperforming loans (NPLs) additions indicates that bank’s strategy of consciously slowing down on growth in riskier categories has started yielding results.” It expects a slowdown in rate of growth of non-collateralised NPLs over the next two quarters, although in absolute terms, incremental NPLs will continue in the Rs 3-4-billion-perquarter range as at present. The brokerage says that the bank trades at one time its financial year 2010 (expected) book value at its target price of Rs 620. “We use a three-stage residual income valuation to arrive at our core bank target price of Rs 475 and a sum-of-the-parts approach to arrive at Rs 145 per share for subsidiaries. Our aggregate target price for ICICI Bank is Rs 620.”


Indiabulls on TATA POWER


Indiabulls has upgraded its rating on private power sector major Tata Power from ‘hold’ to ‘buy’. The brokerage is upbeat about the company’s future on the back of its upcoming projects. It believes that the existing power generation and distribution businesses and stable revenue-generating subsidiaries provide stability to the company. “Based on our SOTP valuation, we have arrived at a target price of Rs 872. It says that stock price has corrected sharply since our last quarterly report, and it is undervalued at the current market price. It, however, adds that the company may find it difficult to finance its other expansion plans. But due to its experienced management team, it is expected to tide over the current crisis. It adds that any delay in completion of the Maithon and Mundra power projects would adversely affect company’s rating

Invest Shoppe Views on Indraprastha Gas , Gujarat State Petronet

Crude oil prices have come down to a level of $41 a barrel from a high of $146 a barrel last year. Consequently, upstream oil companies lost, but downstream companies gained. In terms of share price appreciation, downstream companies have outperformed the broader index, the Sensex.

Invest Shoppe on GUJARAT STATE PETRONET

GSPL owns and operates the second largest natural gas (NG) transmission network in India. The availability of natural gas is set to jump three-fold in the next four years. Moreover, its long-term contracts with Torrent Power and Reliance Industries (RIL) for transmission of natural gas are likely to be-come effective in the March 2009.

Invest Shoppe on INDRAPRASTHA GAS

Indraprastha Gas has maintained its consistent performance. The company has firm cash reserves of more than Rs 400 crore. It has already built the gas distribution infrastructure in Delhi, which connects more than 95,000 customers. The order of Supreme Court to states like Haryana and UP to set up CNG stations will help its business to grow.

Stock Views on Reliance Industries, Petronet LNG

Crude oil prices have come down to a level of $41 a barrel from a high of $146 a barrel last year. Consequently, upstream oil companies lost, but downstream companies gained. In terms of share price appreciation, downstream companies have outperformed the broader index, the Sensex.

Angel Broking on RELIANCE INDUSTRIES

RIL made two gas discoveries in the KG basin during the quarter. Development work of the gas from D1 and D3 fields is underway and production is likely to commence from 4QFY2009. RIL delivered decent set of numbers for 3QFY2009, which exceeded our expectations. It made a capital expenditure of Rs6,708cr in oil and Gas business.

Prabhudas Lilladhar on PETRONET LNG

Petronet’s capacity expansion at Dahej from 5.0mmtpa to 10.0mmtpa is on track and is scheduled to be completed in mid February. Expanded capacity will enable it to process higher spot volumes. Its blended re-gassification margin declined a little but management indicated this as a one-off incident.

Angel Broking Views on Gujarat State Petronet, Gujarat Gas Company

Angel Broking on Gujarat State Petronet - Target price Rs 133

Angel Broking has maintained buy rating on Gujarat State Petronet with target price of Rs 133 in its May 09, 2008 research report. "GSPL is likely to be one of the prime beneficiaries of the increased gas availability from the KG basin as well as from the West Coast. Pipeline expansion is expected to drive future growth for the company. Strategic stakes in CGD ventures are likely to add value over the next couple of years. We have valued GSPL using DCF methodology, Cost of Equity - 15.6%, WACC - 10.1% and Terminal growth rate - 2.5%. Due to higher volatility we have assigned higher risk premium to the company and subsequently downgraded our Target Price. We remain positive over the prospects of GSPL and maintain a Buy, with a Target Price of Rs107 (Rs133)" according to Angel Broking report.

Angel Broking on Gujarat Gas Company - Target price Rs 340

Angel Broking has maintained its buy rating on Gujarat Gas Company with a revised target price of Rs 340 in its May 9, 2008 research report. "We believe CY2008 will be a challenging year for Gujarat Gas as gas supplies would continue to be a concern. However, we expect Guj gas to secure supplies of about 0.5-1.0mmscmd from different sources like the RIL KG basin gas, Petronet Spot LNG and incremental volumes from PMT fields. Gujgas' parent British Gas is actively seeking Spot LNG for Gujarat Gas, which we believe will ease out the concerns about gas supplies. Demand remains robust in current operational areas and expansion into newer territories will provide further impetus to gas sales."

He further added, "The stock has recently corrected significantly on the bourses over concerns about the CGD Regulations and gas supplies. CGD regulations are not likely to impact Gujgas' performance and the company has successfully tied up supplies with GAIL. Owing to these developments, we have revised our numbers and assigned the stock a lower multiple. The stock is available at 9.2x CY2009E EPS of Rs 28.4. We are positive on the company's growth prospects and maintain a Buy on the stock, with a revised target price of Rs 340 (Rs 396), says Angel's report.

Stock Views on Reliance Industries, Tata Consultancy Services, Allied Digital, Grasim Industries, Karuturi Global

ICICI Securities on Reliance Industries - Rating: BUY

ICICI Securities has maintained its buy rating on Reliance Industries in its June 11, 2008 research report. "We are increasing our FY09 and FY10 crude price and exchange-rate estimates as well as building-in lower refining and petrochemical margins for Reliance Industries (RIL). We are also factoring-in an expected delay in commencement of production from the KG D6 block and operations of the Reliance Petroleum (RPL) refinery commencing September ’08. Recent Government decision to keep private companies out of the purview of subsidy sharing is positive. However, we remain positive on the long-term prospects of RIL on the back of impressive earnings growth and attractive E&P portfolio. Reiterate BUY.""We value RIL’s extant petrochemical and refining business at Rs 1381 per share, retail at Rs 140 per share, E&P at Rs 1,168 per share and RIL’s stake in RPL at Rs 343 per share. We also attribute Rs 85 per share value to the company’s SEZ at Haryana, implying fair value of Rs 3,060 per share," says ICICI Securities' research report.

India Infoline on Tata Consultancy Services - Target Rs 875

India Infoline has recommended a buy rating on Tata Consultancy Services with a target price of Rs 875 in its July 17, 2008 research report. "Though the Q1 FY09 performance of TCS was sedate, as expected, and business outlook remains challenging, the stock is likely to outperform in the short-term given the bleak expectations before the results. Over the last three months, TCS has significantly underperformed the sector especially vis-à-vis similar-sized peers, Infosys and Wipro, due to higher uncertainty about its Q1 FY09 performance." "Since April 2008, TCS has delivered a negative return of 12.5% against positive return of 1% in BSE IT and 9% for Infosys. Since announcement of Infosys Q1 FY09 numbers, TCS is down 16% implying further moderation of expectations. Q2 FY09 is likely to be a better quarter for the company with improved growth outlook in the two troubled BFSI clients and as also indicated by healthy hiring in Q1 FY09. We rate the stock as BUY with a target price of Rs 875 implying 20% upside," says India Infoline's research report.

FinQuest Securities on Allied Digital Services - Target Rs 1198

FinQuest Securities has maintained its buy rating on Allied Digital Services with a target price of Rs 1198 in its August 8, 2008 research report. "ADSL reported operating revenue of Rs 896 million for the quarter ended 1QFY09, an increase of 38% YoY from Rs 652 million in the corresponding quarter last year. Its EBITDA grew by 57% YoY to Rs 218 million from Rs 139 million. EBITDA margin expanded by 250bps YoY to 23.6%, attributable to change in revenue mix in favour of Services business, which commands higher EBITDA margin in the range of 50-60%."

"At current market price of Rs 791, ADSL is trading at P/E of 31.9x for FY08 EPS of Rs 24.8. We expect ADSL to trade at 15.6x FY09E and 8.6x FY10E EPS of Rs 50.6 and Rs 92.1 respectively. We maintain BUY recommendation on the stock with price target of Rs 1198 using DCF-methodology, indicating an upside of 51% from the current level," says FinQuest Securities' research report.

Sharekhan on Grasim Industries - Target of Rs 3002

Sharekhan has recommended a buy rating on Grasim Industries with a price target of Rs 3002 in its June 11, 2008 research report. "Considering the poor performance of the sponge iron division in the past, we believe the sale of the business at 6.4x FY2008 EV/EBIDTA will be value accretive for the company. The sale of the sponge iron division will also boost the overall profitability of the company. The proceeds from the sale will enable the company to make fresh investments in its core businesses of cement and VSF. At the current market price of Rs 2192, the stock is trading at 8.8x its estimated FY2009E EPS. Based on our sum-of-the-parts valuation, we maintain our Buy recommendation on the stock with a price target of Rs 3002," says Sharekhan's research report.

Ambit Capital on Karuturi Global - Target of Rs 49

Ambit Capital has maintained its buy rating on Karuturi Global with a revised price target of Rs 49 in its June 10, 2008 research report. "Karuturi Global (KGL) announced its Q4FY08 and full year FY08 results, marginally below our expectations. Despite a strong showing in Q4FY08 that rounded off a very good second half for the company, KGL's performance was below our expectations.However, the company has delivered along expected lines as far as the margins are concerned."

"At its CMP of Rs 22, the stock is currently trading at a P/E of 5.6x and 4.8x our FY09E and FY10E fully diluted EPS estimates respectively. We maintain our 'BUY' recommendation on the stock with a revised price target of Rs 49; indicating 124% upside from CMP," says Ambit Capital's research report.