Maruti Suzuki

The fixed burden of royalty payments to its parent and its stinginess in paying dividends make Maruti Suzuki a risky bet in the auto sector

MARUTI Suzuki has been one of the star performers among large-cap stocks. Since the beginning of this year, the car maker’s stock price has nearly trebled and the company is India’s most valuable automobile company now.

So, what should the retail investors do now? The company is one of the fastest growing car makers in India and its revenues and profits are at an all-time high. On the downside however, the company acts miserly while rewarding its shareholders with dividends unlike other automakers.

Despite being one of the largest campany in the sector, Maruti Suzuki has one of smallest dividend pots. In FY08, the company paid a total dividend of Rs 101 crore and the amount was less than 10% of its net profit. In contrast, Tata Motors and Mahindra & Mahindra distribute nearly a third of their net profits as dividends. And 2009 was no exception. This makes Maruti Suzuki’s shareholders overtly depended on the vicissitudes of the stock market to make money from this stock. And given the company’s cost structure and its capex plans, the situation is not likely to change much in next few years. This raises the risk-to-reward ratio and may not suit investors who believe in buy and hold strategy and like to savour the fruits of their investment over the long term.

BUSINESS:

Maruti Suzuki controls over 50% of the domestic market. In the near term there is no threat given its high brand recall, superior sale and service network and the widest product range in the industry. Its dominance in the all-important small and compact car segment is even stronger. With six models and dozens of variants, it controls nearly two-thirds of the segment. It has further consolidated its position in this segment by launching a slew of international models in last few quarters . The company has also expanded its export business and is now one of the leading suppliers of fuel-efficient cars to European markets. Export now accounts for nearly 15% of its production and has more than doubled this year.

FINANCIAL PERFORMANCE:

The company’s net sales have expanded at a compounded annual growth rate (CAGR) of nearly 18% between FY04 and FY09. The growth was aided by 11% CAGR in its sales volume during the period besides price hikes and launch of higher priced models. However, the company’s operational cost grew at even faster rate, which eroded its operating margin. Its operating profit expanded by just 9% CAGR during the period. It’s operating margin has shrunk from a high of 14.6% during year-ended September ’06 to 6.7% in March ’09. It has recovered in last two quarters, thanks to gains from excise duty cut, but is still below its historical levels. Rise in operational cost was mainly because of rise in raw material costs and royalty payments to its Japanese parent, Suzuki Motor Corporation. Maruti Suzuki pays 5% (of net sales) for domestic sales and 8% for exports as royalty to Suzuki for the use of latter’s brand and technology. In last five years Maruti’s expenses on royalty has jumped six times against two-and-half times growth in net sales. Given the fact that operating margin in auto industry now hovers at around 10-12% for most manufacturers, royalty payments may act as a drag on company’s profitability in future. In the past, the company was able to restrict the impact of falling margins on its net profit, thanks to copious growth in its other income, which expanded by 21.5% (CAGR) in last five years. In FY09, other income—comprising dividends, interest, profit from sale of investments and scrap sale—accounted for 60% of its profit before tax. Going forward, it would be difficult to achieve this given the turmoil in financial markets. Moreover, its capex programme forced it to liquidate a substantial chunk of its investments last year.

VALUATIONS:

At its current price, the stock is trading at around 28 times it’s earnings per share in last four trailing quarters and looks expensive on historical valuations of around 20-22x. Besides, the stock offers one of the lowest dividend among all leading auto majors. High valuations coupled with the fact that metal prices are once again on an upward trajectory, makes us cautious on this counter.

Stock Views on Tata Motors, Infosys Technologies, Balrampur Chini Mills, Aban Offshore

INDIABULLS on TATA MOTORS

INDIABULLS has downgraded Tata Motors from hold to ‘sell’ after the company reported a decline in sales volume over the past few quarters. The broking house expects this trend to continue in the coming quarters, “given the slowdown in the economy, the cautious lending environment and a significant decline in consumer spending.” Indiabulls feels that the biggest challenge for Tata Motors currently is to turn around its Jaguar Land Rover (JLR) business, for which it raised a bridge loan of $3 billion. “Given the tight liquidity scenario and bleak capital markets, Tata Motors is likely to roll over its bridge loan, thereby adding to the company’s finance cost,” says the report. Further, JLR’s sales volume is trending downwards, and given the current economic conditions in the US and Europe, we do not expect volumes to recover in the near term, it adds.

Prabhudas Lilladher on INFOSYS TECH

Prabhudas Lilladher has a ‘reduce’ rating on Infosys Technologies as it feels that the outlook for the company and the software industry is quite weak in the near-term. “While we expect Infosys to perform better than most other players in the industry, we rate the stock ‘reduce’ with a target of Rs 1,246,” says the report. With a difficult FY10E and full-tax FY11E, the two-year earnings CAGR (FY09-11) for the company is unlikely to be over 10-15%, it adds. According to the broking house, the company’s pricing power in fresh contracts would remain under pressure as “pricing behaviour by competition has turned aggressive in new contracts.” While Infosys has seen some weakness in the BFSI domain in the recent past, the outfit expects this weakness to “spread to retail and possibly the manufacturing domains as well.” Of the various service lines, Enterprise Solutions may be worst affected over the next few quarters, according to the management, it adds. The broking house is also expecting another reduction in US dollar guidance by Infosys.

PINC Research on BALRAMPUR CHINI

PINC has downgraded its rating on Balrampur Chini Mills to ‘sell’ as it feels that lower cane crushing would impact the company’s profitability. “Although we remain confident about Balrampur Chini Mills’ business model & efficiency levels and are positive about the turnaround in the sector, we believe that lower cane crushing in FY09 would impact its return ratios (assuming cane price of Rs 140/quintal),” says the report. The outfit expects the company’s revenues for FY09 to rise by 12% to Rs 1,650 crore, aided by higher sugar revenues. “Revenues from sugar sales should grow 12% to Rs 1270 crore as a result of inventory liquidation and higher sugar prices. OPM should dip by 90bps to 21.3% in FY09 on the back of higher cane costs at Rs 140/quintal,” it says. The report, however, does add that if cane prices are maintained at last year’s SAP of Rs 125/quintal, the target price works out to Rs 38 based on FY09E profits of Rs 160 crore.

Ambit Capital on ABAN OFFSHORE

Ambit Capital has maintained a ‘buy’ on Aban Offshore with a revised target price of Rs 1,603 (earlier Rs 1,566), implying an upside of 143% from the current levels. The upward revision comes after the company announced contract renewal of its jack-up ‘Deep-Driller-IV’ (DD-IV) in continuation of expiry of its current contract in December 2008. According to the report, the renewal is for a period of six months and is part of the two six-month options built into the agreement

Stock Views on Shree Cement, Tata Motors, Larsen & Toubro, Reliance Power

BNP Paribas on RELIANCE POWER

BNP Paribas has reiterated its ‘reduce’ rating on Reliance Power while lowering its price target from the earlier Rs 136 to Rs 105, as it feels that the company does not have any operating income and there is a likelihood of some projects getting delayed. “The company currently has no operating income and only generates interest on the cash it raised in its IPO last year,” says a report. BNP Paribas also feels that Reliance Power’s Sasan and Chitrangi projects could get delayed, as Tata Power has filed a petition in the Delhi High Court. It estimates an upside of Rs 15 per share to the target price, if RPL’s gas dispute with RIL is resolved at $5.20/ mmbtu. “We also estimate an upside of Rs 37 per share, if RPL is able to execute both Sasan and Chitrangi projects,” it adds.

Motilal Oswal on LARSEN & TOUBRO

Motilal Oswal has maintained a ‘neutral’ rating on Larsen & Toubro while lowering its capex guidance for the company. It feels that going forward, there are increased possibilities of execution delays. “Standalone capex guidance for FY09 has been reduced to Rs 15 billion now, from earlier Rs 20 billion,” says a report. “During 1HFY09, the capex stood at Rs 8 billion, indicating that 2HFY09 capex has been cut sharply,” it added. The brokerage also feels that while there have been no meaningful delays till date, there is a probability of execution challenges for segments like metals/minerals (8-9% of order book), airports (9-11%+) and real estate (6%). It expects L&T to report consolidated EPS of Rs 52.6 per share for FY09 (up 34% Y-o-Y), Rs 57.4 per share in FY10 (up 9% Y-o-Y) and Rs 60.8 per share in FY11 (up 6% Y-o-Y).

HDFC Securities on TATA MOTORS

HDFC Securities has maintained its ‘sell’ rating on Tata Motors due to various factors, including demand slowdown, lack of credit financing and failure of the company’s rights issue. “The demand is slowing down drastically. Lack of credit financing, coupled with high interest rates are forcing customers to postpone purchases hitting among others Tata Motors,” says a report. To align production with demand, the company had temporarily shut down its Jamshedpur, Pune and Lucknow plants, it adds. The brokerage also feels that the failure of the rights issue has reflected badly on Tata Motor’s credibility and ability to raise money on its own. We believe the JLR acquisition will continue to be an overhang on Tata Motors’ stock, it says. The profitability of Tata Motor’s subsidiaries in Q2 FY09 was also very disappointing, it notes

India Infoline on SHREE CEMENT

India Infoline has retained its ‘add’ rating on Shree Cement with a target price of Rs 587 on expectations of higher volume and lower decline in cement prices. “The company has nine mtpa cement production capacity and plans to increase it to 10 mtpa by mid-FY10,” says a report. The company also plans to set up a 35MW WHR-based and around 40MW petcoke-fired power plant, it adds. The company, according to the report, recorded strong volume growth (>30% Y-o-Y) in the quarter ended December 2008 that enabled it to offer bigger discounts than its peers. The company is expanding its cement capacity by adding another line (Unit VII) at Ras — scheduled to start production by mid-FY10, says the report. The company is trading at EV/tonne of $41 and does not reflect the company’s

Stock Views on City Union Bank, Reliance Communications, Rolta India, Tata Motors

Angel on Tata Motors - Target Rs 339





Angel Broking has maintained its buy rating on Tata Motors with a target price of Rs 339 in its November 24, 2008 research report. "Jaguar Land Rover (JLR) is in secret talks with the UK government for a £1-billion loan and an answer to the request would be made in the next fortnight, a media report said. Tata is looking to the government for a bridging loan to help it over the next 24 months, a period in which the industry will come under further financial pressure when it is difficult to access funding markets, the report added. The economic downturn has hit the auto industry hard and at present a number of large UK-based industrial groups are also considering asking the government for financial support."



"The market for JLR cars has fallen 25% around the world and this could further deteriorate in near term. JLR has already cut shifts and production days at Solihull, Halewood and Castle Bromwich. The Society of Motor Manufacturers and Traders, which is representing the interests of the wider British industry, is thought to want between £2 billion and £3 billion of state aid. Meanwhile, Toyota has also cut shifts at its UK plants, and Bentley, the luxury carmaker majority-owned by Volkswagen of Germany, has cut shifts at its plant in Crewe. We maintain Buy on Tata Motors with Target price of Rs 339," says Angel's research report.





Karvy on City Union Bank - Target of Rs 31





Karvy Stock Broking has maintained its buy rating on City Union Bank with a target of Rs 31 in its November 24, 2008 research report. "Going forward, we believe that lending and deposits rates would further moderate and incidence of slippages due to higher interest rates would decline but due to lesser growth prospects across industries slippages would increase eventually increasing gross NPA."



"We estimate the bank's NIM for FY09 to drift down by 21 bps to 3.1%. We estimate that the bank's total business and bottomline would grow at 23% and 11% CAGR (during 2008-10) and the bank's book value and adjusted book value would be Rs 24 and Rs 22 respectively; we value the bank at 1.42x adjusted book value FY2010 at Rs 31. We re-iterate our BUY rating with a target price of Rs 31," says Karvy Stock Broking's research report.




Karvy on Rolta India - Target of Rs 220





Karvy Stock Broking has recommended a buy rating on Rolta India with a target of Rs 220 in its November 24, 2008 research report. "We do not expect the margins take any beating and are likely to stay at the current levels of 36%. Even after factoring M-to-M losses of Rs 900 million (as a result of FCCB) in FY09, the profits at the net level would modestly go down by 2.1%."





"The company is contemplating to reduce its foreign currency loans, and if it does reduces the same the company would be entitled reverse the M-to-M losses in FY10, which would give big boost to its earnings, even if the company writes off goodwill over the next 5 years. We have an BUY rating on the stock with a price target of Rs 220," says Karvy Stock Broking's research report.





Anand Rathi on Reliance Communications - Target of Rs 275





Anand Rathi Securities has recommended a buy rating on Reliance Communications with a target price of Rs 275 in its November 22, 2008 research report. "After two dismal quarters, RCOM’s operating performance is likely to show signs of recovery in the coming 1-2 quarters. With several sources of potential upside, the stock offers attractive ST reward/risk ratio. Buy, target of Rs 275," says Anand Rathi's research report.

Stock Views on Axis Bank, Hindalco Industries, ITC, Jet Airways, Maruti Suzuki, Tata Motors

BNP PARIBAS on HINDALCO INDUSTRIES


BNP Paribas initiates coverage on Hindalco Industries with a ‘reduce’ rating. Hindalco’s operating performance is leveraged to aluminium prices. Global aluminium consumption growth is likely to slow to about 3% (from 11.6% in ’07), and remain in the range of 3-4% in ’09 and ’10. Weakening global demand will cause aluminium prices to remain subdued at $2,100/tonne in the near term, based on trends witnessed in previous market downturns. BNP Paribas thinks a price level of $2,100/tonne is unsustainable and expects a bounce-back, but overall, a weak pricing environment will persist in the short term. Hindalco will need to raise additional $ 3 billion in debt to spend $ 4.5 billion on capital expenditure (capex) in the next three years. These projects are in initial stages and may be postponed if aluminium prices remain subdued, while copper prices continue to move up due to rising energy and input prices. The target price of Rs 68 is based on an enterprise value (EV) to FY10 EBITDA multiple of 5x. In the past, Hindalco’s valuation has trended towards a 5x EBITDA multiple in an environment of declining prices.


CLSA on TATA MOTORS


CLSA maintains ‘underperform’ rating on the stock with a revised target price of Rs 320. It views Tata Motors as a risky bet even after the sharp 60% year-to-date (YTD) correction. Domestic truck sales are weakening. Following the company’s exit from West Bengal, the large ‘Nano’ volumes will flow only in FY11. Jaguar Land Rover (JLR) sales in the western world remain weak and the sales growth in emerging markets may not last long. Moreover, the JLR pension fund and re-financing of JLR acquisition bridge loan remain overhangs on the stock. Tata Motors needs to refinance $3 billion of the JLR acquisition bridge loan by June ’09. This still leaves $1.9 billion, which needs to be raised via a combination of foreign equity issuance ($500 million), sale of stakes in subsidiaries ($670 million) and raising of working capital facilities at JLR ($700 million). Also, the extent of deficit in the JLR pension fund (size ~$8 billion) will be known only by April ’09, when the next actuarial valuation takes place. Till JLR manages to strike a favourable deal with pension trustees, this will remain an overhang on the stock.


CITIGROUP on JET AIRWAYS


AIRLINES are trading plays — given the cyclical nature of their business, high operational and financial leverage, and an earnings profile that is excessively volatile and sensitive to macro variables like oil prices and currency movements. The target price of Rs 440 is a simple average of two methodologies — current equity value (based on residual cost) and oneyear forward price/book of 1x (in line with regional peers). The ‘medium risk’ rating on Jet Airways is also in line with the risk ratings on regional peers. Citigroup believes that Jet merits a ‘medium risk’ rating, given: a) the competitive scenario in the domestic market; b) its international operations are still at a relatively embryonic phase and should take at least 2-3 years to stabilise; and c) turnaround of the Air Sahara acquisition.


MERRILL LYNCH on AXIS BANK


MERRILL Lynch reiterates a ‘buy’ rating on Axis Bank with a target price of Rs 890. Axis Bank’s Q2 FY09 results were almost 30% ahead of estimates, with its net profit surging 77% to Rs 403 crore. The bank continues to reap the benefits of its increasing customer base, enhanced product penetration and geography arising from its expanded distribution. Axis Bank’s gross and net non-performing loans (NPLs) grew by 11% and 3% quarter-on-quarter (q-o-q) and 44% and 36% YTD, respectively. The spike in NPLs can result in higher loan loss provision, though NPLs remain manageable. Merrill Lynch raises its earnings estimates by 3-6% for FY09-10 to factor in higher fee revenue and topline, as the bank further expands and leverages distribution. Merrill Lynch believes the stock, trading at 2.5-2.6x FY09 book, can continue to trade at 2.8-3.0x book, one-year forward (lower end of its historic trading multiples of 2.5-4.0x), given the +38% CAGR earnings growth through FY08-10 and return on equity (RoE) bouncing back to +18.5%.

Stock Views on Hindalco Industries, Tata Motors, Jet Airways, Axis Bank, ITC , Maruti Suzuki

BNP PARIBAS on HINDALCO INDUSTRIES

BNP Paribas initiates coverage on Hindalco Industries with a ‘reduce’ rating. Hindalco’s operating performance is leveraged to aluminium prices. Global aluminium consumption growth is likely to slow to about 3% (from 11.6% in ’07), and remain in the range of 3-4% in ’09 and ’10. Weakening global demand will cause aluminium prices to remain subdued at $2,100/tonne in the near term, based on trends witnessed in previous market downturns. BNP Paribas thinks a price level of $2,100/tonne is unsustainable and expects a bounce-back, but overall, a weak pricing environment will persist in the short term. Hindalco will need to raise additional $ 3 billion in debt to spend $ 4.5 billion on capital expenditure (capex) in the next three years. These projects are in initial stages and may be postponed if aluminium prices remain subdued, while copper prices continue to move up due to rising energy and input prices. The target price of Rs 68 is based on an enterprise value (EV) to FY10 EBITDA multiple of 5x. In the past, Hindalco’s valuation has trended towards a 5x EBITDA multiple in an environment of declining prices.

CLSA on TATA MOTORS

CLSA maintains ‘underperform’ rating on the stock with a revised target price of Rs 320. It views Tata Motors as a risky bet even after the sharp 60% year-to-date (YTD) correction. Domestic truck sales are weakening. Following the company’s exit from West Bengal, the large ‘Nano’ volumes will flow only in FY11. Jaguar Land Rover (JLR) sales in the western world remain weak and the sales growth in emerging markets may not last long. Moreover, the JLR pension fund and re-financing of JLR acquisition bridge loan remain overhangs on the stock. Tata Motors needs to refinance $3 billion of the JLR acquisition bridge loan by June ’09. This still leaves $1.9 billion, which needs to be raised via a combination of foreign equity issuance ($500 million), sale of stakes in subsidiaries ($670 million) and raising of working capital facilities at JLR ($700 million). Also, the extent of deficit in the JLR pension fund (size ~$8 billion) will be known only by April ’09, when the next actuarial valuation takes place. Till JLR manages to strike a favourable deal with pension trustees, this will remain an overhang on the stock.

CITIGROUP on JET AIRWAYS

AIRLINES are trading plays — given the cyclical nature of their business, high operational and financial leverage, and an earnings profile that is excessively volatile and sensitive to macro variables like oil prices and currency movements. The target price of Rs 440 is a simple average of two methodologies — current equity value (based on residual cost) and oneyear forward price/book of 1x (in line with regional peers). The ‘medium risk’ rating on Jet Airways is also in line with the risk ratings on regional peers. Citigroup believes that Jet merits a ‘medium risk’ rating, given: a) the competitive scenario in the domestic market; b) its international operations are still at a relatively embryonic phase and should take at least 2-3 years to stabilise; and c) turnaround of the Air Sahara acquisition.

MERRILL LYNCH on AXIS BANK

MERRILL Lynch reiterates a ‘buy’ rating on Axis Bank with a target price of Rs 890. Axis Bank’s Q2 FY09 results were almost 30% ahead of estimates, with its net profit surging 77% to Rs 403 crore. The bank continues to reap the benefits of its increasing customer base, enhanced product penetration and geography arising from its expanded distribution. Axis Bank’s gross and net non-performing loans (NPLs) grew by 11% and 3% quarter-on-quarter (q-o-q) and 44% and 36% YTD, respectively. The spike in NPLs can result in higher loan loss provision, though NPLs remain manageable. Merrill Lynch raises its earnings estimates by 3-6% for FY09-10 to factor in higher fee revenue and topline, as the bank further expands and leverages distribution. Merrill Lynch believes the stock, trading at 2.5-2.6x FY09 book, can continue to trade at 2.8-3.0x book, one-year forward (lower end of its historic trading multiples of 2.5-4.0x), given the +38% CAGR earnings growth through FY08-10 and return on equity (RoE) bouncing back to +18.5%.

JM FINANCIAL on ITC

JM FINANCIAL reiterates a ‘buy’ rating on ITC with a target price of Rs 230. Despite defensive stocks being the flavour of the season, the market has ignored ITC this time. JM Financial forecasts a 19.7% growth in the cigarette segment’s earnings before interest and tax (EBIT) in FY09E — one of the highest in recent times. JM Financial has increased its FY09E ‘FMCG-others’ segment loss to Rs 400 crore (earlier Rs 300 crore) and also deferred the break-even projection for the segment to FY12E (earlier FY11E). While extension into related categories is on the cards, oral care looks unlikely in the immediate future. Most of the increase in FMCG losses is likely to be offset by improved earnings in the cigarettes segment. JM Financial has introduced marginal cuts in its overall FY09E (-0.3%) and FY10E (-1.1%) earning per share (EPS) estimates and prices in higher projected losses from ‘FMCG-others’ segment. Accordingly, it has reduced the sales multiple for the segment from 2.4x to 1.5x. The target price stands at Rs 230 (Rs 238 earlier). The price also reflects the discounted cash flow (DCF) value and implies an FY10E price/earnings growth (PEG) of 1.5 — in line with the past three years’ average.

EDELWEISS on MARUTI SUZUKI

EDELWEISS maintains ‘accumulate’ recommendation on Maruti Suzuki. The company is India’s largest passenger vehicle manufacturer with a market share of more than 50%. It has an installed production capacity of 870,000 units per annum and is expected to increase this to 1 million units by the end of H1 FY09. The company is likely to face intense competition from several global players, most of which plan to enter the Maruti-dominated compact segment for the first time. In recent times, higher input costs have adverse affected the company’s operating margins. Going forward, Edelweiss expects Maruti’s margins to remain under pressure due to higher costs associated with new model launches and exposure to yen-denominated component imports. On the positive side, the company is likely to get a major boost in sales from exports and leverage its market leader position in the growing domestic market. Increasing input costs and higher product launch costs may hit margins significantly. A slowdown in growth in the compact segment can hit Maruti, as it is substantially dependent on this segment. Further, intense competition is likely to ensue over the next few quarters, as more players enter the market with new products. The near-term outlook for the company remains subdued, given modest domestic sales and expectations of low margins for the second quarter in a row.

Stock Views on Union Bank of India,

Mafatlal Securities on Union Bank of India - Buy Target Rs 205
Mafatlal Securities has recommended a buy rating on Union Bank of India with a target of Rs 205 in its September 11, 2008 research report. "At the current price of Rs 147.60 the scrip discounts its estimated EPS of FY09 and FY10 by 5.28x and 3.91x respectively. The scrip is currently trading at a PE ratio of 5.37x (TTM) which is at a discount of 39% to the industry PE of 7.45x. The scrip is trading at 1.10x and 0.88x of estimated BV of FY09 and FY10. We recommend a “BUY” on UNBK with a target price of Rs 205 and an investment horizon of one year," Mafatlal Securities' research report.

Anand Rathi on Punjab National Bank - Buy Target of Rs 515

Anand Rathi Securities has recommended to buy Punjab National Bank (PNB) between Rs 490 and Rs 495 with a stoploss of Rs 485 and a target of Rs 515 in its September 12, 2008 research report.

ICICIdirect.com on Tata Motors - Buy above 424

ICICIdirect.com has recommended to buy Tata Motors above Rs 425 with a stoploss of Rs 424 and target of Rs 427/435/higher in its September 12, 2008 report.

Deutsche Bank on Kotak Mahindra Bank - Target of Rs 600

Deutsche Bank has downgraded its rating on Kotak Mahindra Bank to Hold with a target of Rs 600

Stock Views on Indian Hotels, Tata Motors, Praj Industries, Infosys

INDIA Infoline on Indian Hotels - TARGET PRICE: RS 85

INDIA Infoline has maintained its ‘market performer’ rating on Indian Hotels Co with a reduced price target of Rs 85. The brokerage house expects the company’s volume expansion to come from its new properties and a stable revenue growth over the medium-term with the commissioning of its Ginger brand. “Since the company now operates in all major price points, it is cushioned against an adverse affect of a weakness in luxury market room rentals or any localised downturn,” the India Infoline note to clients said. “We expect the company to witness sales and earnings CAGR (compounded annual growth rate) of 15.1% and 26.6% respectively over the next two years. Valuations appear reasonable, with price to earning of 10.8 times and EV(enterprise value)/EBIDTA of 6.8 on FY10 (estimated) earnings,” it added.

HDFC Securities on Tata Motors - TARGET PRICE: RS 454

HDFC Securities has maintained its ‘sell’ rating on the stock with a revised target price of Rs.454 (from Rs.431 earlier). The brokerage believes due to uncertainties looming over the company’s Nano project at Singur and 24-35% equity dilution would cap the upside in the stock. Also the Jaguar-Land Rover (JLR) acquisition would continue to be an overhang on Tata Motors’ stock, the note added. “We are revising our earnings per share estimate upwards by 9% (Rs.29.9 earlier) mainly on account of lower equity dilution by reducing the amount of funds raised through the equity route. We value the company on an SOTP basis with the core business valued at Rs 293 per share and subsidiaries at Rs 161 per share,” the note to clients said

ULJK Group on Praj Industries - TARGET PRICE: RS 277

ULJK Group has assigned an ‘accumulate’ rating to Praj Industries as it expects the company to benefit from its operational presence in all major ethanol-producing countries. The firm believes that fuel ethanol production is seeing an uptrend on the back of the increase in crude oil prices and the company possesses process technology for the different types of feedstock for ethanol production. “We expect the order book to grow at a CAGR of approximately 37%, backed by the increase in demand for fuel ethanol, the note said. “The revenue of the company is expected to grow at a CAGR of approximately 31% during the period FY08-FY10 (estimated). The company is expected to deliver a net profit of Rs 1,694 million in FY09(estimated) and Rs 2268 million in FY10 (estimated), a CAGR of approximately 22%,” the note added.

Edelweiss Securities on Infosys - Rating: Accumulate

Broking firm Edelweiss Securities has maintained its ‘accumulate’ rating on the stock as it believes that the company’s recent acquisition of the Axon group would bolster the company’s presence in the consulting space. “The deal is earnings per share (EPS) neutral on standalone basis in FY09 (estimated), but EPS accretion in FY10 (estimated) depends on Axon’s growth and margin trajectory. Incorporating the financial impact of this acquisition, the stock trades at 16.5 times and 13.9 times FY09 and FY10 earnings respectively,” the note said. However, according to the brokerage firm, slowdown in US, significant increase in the salary hikes and attrition rate, reduction in the number of H1B visas granted by US, and incremental appreciation of rupee against US dollar, euro and GBP remain key concerns for the company.

KRChoksey vliews on Tata Motors, IVRCL Infrastructure, Wockhardt, Dishman Pharmaceuticals

Buy Dishman Pharmaceuticals, target of Rs 356

KRChoksey Research has maintained its buy rating on Dishman Pharmaceuticals & Chemicals with a target price of Rs 355.8 in its August 1, 2008 research report. "In Q1FY09, the company’s sales have increased by 40.4% on a y-o-y basis to Rs 235.9 crore. The net profit of the company rose by 28.7% y-o-y to Rs 27.7 crore against Rs 21.5 crore."

"At the CMP of Rs 298.7, the stock is trading at 19.9x TTM EPS of Rs 15.0 and 13.0x FY09E EPS of Rs 22.9. We maintain our BUY recommendation with a target price of Rs 355.8, implying an upside potential of 21%. At the target price, the stock would be valued at 15.5x FY09E EPS of Rs 22.9," says KRChoksey's research report.

Buy Wockhardt, target of Rs 250

KRChoksey Research has maintained its buy rating on Wockhardt with a target price of Rs 250 in its July 31, 2008 research report. "In Q2CY08, the company’s sales have increased by 48.3% on a y-o-y basis to Rs 935 crore. The net profit of the company rose merely by 4% y-o-y to Rs 106.3 crore against Rs 102.4 crore."

"At the CMP of Rs 187, the stock is trading at 5.3x FY07 EPS of Rs 35.25 and 4.8x FY08E EPS of Rs 39.1. We maintain our BUY recommendation with a target price of Rs 250, implying an upside potential of 33%. At the target price, the stock would be valued at 6.4x FY08E EPS of Rs 39.1," says KRChoksey's research report.

Buy IVRCL Infrastructure, target of Rs 381

KRChoksey Research has maintained its buy rating on IVRCL Infrastructure and Projects with a target price of Rs 381 in its July 31, 2008 research report. "We expect IVRCL to register strong growth in top-line as a result of robust order book position providing revenue visibility over the next 2-3 years. Moreover, central and state government’s urge to develop irrigation projects augurs well for IVRCL having order backlog of Rs 9,800 crore (66.2% of total order book). However we anticipate pressure on operating and net profit margins in the immediate future due to increase in raw material and interest expenses."

"We therefore downgrade our target price from Rs 526 to Rs 381, however, maintaining a BUY rating. At the target price the stock would be valued at 21.5x FY09E EPS of Rs 17.72, implying an upside potential of 26.2%," says KRChoksey's research report.

Buy Tata Motors, target of Rs 634

KRChoksey Research has recommended a buy rating on Tata Motors with a target price of Rs 634 in its August 1, 2008 research report. "Net sales grew by 14.4% y-o-y to Rs 6928.4 crore against Rs 6056.8 crore in Q1FY08. The sales growth was on the back of 3.65% y-o-y growth in volumes and strong growth in the realizations of 10% y-o-y."

"We recommend a BUY on the stock with a target of Rs 634 arrived through the SOTP process. At the target price the company would be trading at 11x its FY09E EPS of Rs 57.47 representing an upside potential of 60% from current levels. These calculations, however, do not take into account the recent JLR acquisition which we believe would be strongly EPS accretive, as we are awaiting the numbers for JLR to be disclosed by Tata Motors to evaluate it," says KRChoksey's research report.