vengabeats
Nilesh Nagdev
Tata Steel
Research: Enam Securities
Recommendation: Outperformer
CMP: Rs 511 (Face Value Rs 10)
12-Month Price Target: Rs 690
TATA Steel's main promoter, Tata Sons and its associates, will raise their stake in the company from 27% currently to 33% over the next 18 months. This will be through issue of equity shares and warrants to Tata Sons on a preferential basis. The board approved the preferential equity issue following shareholders' approval to raise long-term funds up to Rs 6,500 crore. The equity infusion is primarily aimed at raising controlling ownership to 33% from the current 27%. As paid-up equity capital will increase by 10% over the next 18 months, the fully-diluted EPS will be lower by 7-8% against the earlier earnings forecast, as cash return will be lower than that of business. Therefore, Enam revises its fully-diluted FY07 EPS downward to Rs 82.5 and fully-diluted FY08 EPS to Rs 85.2. At the current market price and at 6.6 times FY07E diluted earnings, the stock is undervalued. This is also demonstrated by Tata Sons' proposed subscription to equity at Rs 516 per share.
Balkrishna Industries
Research: Edelweiss Securities
Recommendation: Buy
CMP: Rs 588 (Face Value Rs 10)
12-Month Price Target: NA
THE Poddar family has bought out the 5.4% stake held by the Mahansarias in their joint venture, Balkrishna Industries (BKT), at an average price of Rs 560. Given the business traction and capacity expansion that is underway, this development will not affect the prospects of BKT's off-highway tyre business in the near to medium term. Operational responsibility of the key OHT business has been with Yogesh Mahansaria; he has also been the face for the outside world, including overseas customers and investors. However, BKT has developed a strong line of professional management at the manufacturing, R&D and sales levels in the past 2-3 years. The Poddar family has always had significant representation on the board and has been involved in key decisions. Therefore, the transition will be smooth. At the current market price, the stock trades at 15 times FY07E EPS of Rs 38.6 and 10.6 times FY08E EPS of Rs 54.8 and at an EV/EBITDA of 8.6 times FY07E and 6.4 times FY08E, respectively. Given its capacity expansion plans, valuations and focused business approach, Edelweiss maintains its 'buy' recommendation.
Bharti Airtel
Research: Karvy Stock Broking
Recommendation: Outperformer
CMP: Rs 362 (Face Value Rs 10)
12-Month Price Target : Rs 436
IN JUST over a decade of its operation, Bharti Airtel has become one of the leading wireless players in India on the back of exceptional execution skill and visionary management. Over the past couple of years, Bharti has entered into contracts with equipment suppliers and outsourced its non-core call centre and network management operations to third parties. The next phase of growth in Bharti will come from benefits accruing from economies of scale and sharper focus on customer delight. 'Customer is king' will assume greater importance as competition intensifies, with customers preferring companies with superior service and brands. Bharti continues to lead the domestic mobile wireless space with 1mplus subscriber additions over the past 5-6 months. This has been achieved on the back of increased penetration into smaller towns and cities, as well as effective communication of its marketing strategy. Among other divisions, enterprise service will contribute handsomely in the coming years. Economies of scale and effective marketing and distribution will be one of the critical success factors in the wireless sector.
Hero Honda
Research: Emkay
Recommendation: Reduce
CMP: Rs 718 (Face Value Rs 2)
12-Month Price Target: NA
HERO Honda posted disappointing Q1 FY07 performance on the back of lower average gross realisations and higher input costs. Despite an impressive 21% rise in sales volume, the company posted a net sales growth of 19.6% at Rs 2,364.4 crore as average realisations per unit fell by Rs 360 to Rs 28,394. Net profit grew 16.3% y-o-y to Rs 237.7 crore against the expectations of Rs 258.5 crore. The EBITDA margins shrunk 129 basis points to 13.5%. Average gross realizations, which had shown improvement during Q4 FY06 at Rs 33,784, fell to Rs 32,900 per unit, as the sales mix worsened and promotional discounts prevailed. This, coupled with a rise in material consumed to sales ratio by almost 100 basis points during Q1, took a toll on margins. The much-awaited price hike in the near term will help the company gain some shelter and arrest the margin contraction. At the current market price, the stock trades at 13.8 times and 12.2 times its FY07E and FY08E earnings of Rs 52 and Rs 58.8 respectively. Assuming a competitive pricing on its new launches, Emkay feels that the pressure on margins will continue for the next nine months
MphasiS BFL
Research: Parag Parikh Financials
Recommendation: Buy
CMP: Rs 138 (Face Value Rs 10)
12-Month Price Target: NA
MPHASIS BFL is a $200m-plus CMMi level 5 domestic IT services and BPO organisation, with IT services contributing more than 70% of revenues and profits. The Black Book of Outsourcing has ranked MphasiS as the fourth best managed outsourcing vendor for '05. The MphasiS transaction supports EDS' Global Best ShoreSM delivery strategy, which provides a full range of high-quality, cost-competitive services from designated onshore, near-shore and offshore locations. EDS launched its Best Shore strategy in '02 to highlight this distinctive delivery capability. At the current market price, MphasiS is at its December '05 price level and hence, the $20-bn outsourcing giant, EDS, has taken a controlling stake in the company and making it a part of the EDS family. Parag Parikh Financials believes the current opportunity in the stock exists due to the market correction and a tendency of the market to give a discount for perceived ambiguity.
Tata Motors
Research: CLSA
Recommendation: Sell
CMP: Rs 740 (Face Value Rs 10)
12-Month Price Target: Rs 645
AFTER nearly five years of strong cyclical upswing in its core business, a phase of improving capital efficiencies and positive free cash generation, CLSA believes that Tata Motors is now moving into a phase of: 1) negative post capex FCF, due to the expected Rs 10,000 crore capex in the next 3-4 years and 2) rising capital costs, resulting in earnings growth lagging EBIDTA growth by 8%. While near-term CV volume growth (27%) momentum remains strong, the stock already prices in such strong growth. Rising headwinds from the jump in interest rates, input costs like fuel and tyres, pose downside risks to growth. While consensus is still factoring in 22% earnings growth for FY08, risks of a disappointment are rising. CLSA believes that at current levels, the stock price is not factoring in a possible negative surprise, and accordingly, it is downgrading the stock to 'sell', with a 12-month target price of Rs 645.
Source:-ET
Research: Enam Securities
Recommendation: Outperformer
CMP: Rs 511 (Face Value Rs 10)
12-Month Price Target: Rs 690
TATA Steel's main promoter, Tata Sons and its associates, will raise their stake in the company from 27% currently to 33% over the next 18 months. This will be through issue of equity shares and warrants to Tata Sons on a preferential basis. The board approved the preferential equity issue following shareholders' approval to raise long-term funds up to Rs 6,500 crore. The equity infusion is primarily aimed at raising controlling ownership to 33% from the current 27%. As paid-up equity capital will increase by 10% over the next 18 months, the fully-diluted EPS will be lower by 7-8% against the earlier earnings forecast, as cash return will be lower than that of business. Therefore, Enam revises its fully-diluted FY07 EPS downward to Rs 82.5 and fully-diluted FY08 EPS to Rs 85.2. At the current market price and at 6.6 times FY07E diluted earnings, the stock is undervalued. This is also demonstrated by Tata Sons' proposed subscription to equity at Rs 516 per share.
Balkrishna Industries
Research: Edelweiss Securities
Recommendation: Buy
CMP: Rs 588 (Face Value Rs 10)
12-Month Price Target: NA
THE Poddar family has bought out the 5.4% stake held by the Mahansarias in their joint venture, Balkrishna Industries (BKT), at an average price of Rs 560. Given the business traction and capacity expansion that is underway, this development will not affect the prospects of BKT's off-highway tyre business in the near to medium term. Operational responsibility of the key OHT business has been with Yogesh Mahansaria; he has also been the face for the outside world, including overseas customers and investors. However, BKT has developed a strong line of professional management at the manufacturing, R&D and sales levels in the past 2-3 years. The Poddar family has always had significant representation on the board and has been involved in key decisions. Therefore, the transition will be smooth. At the current market price, the stock trades at 15 times FY07E EPS of Rs 38.6 and 10.6 times FY08E EPS of Rs 54.8 and at an EV/EBITDA of 8.6 times FY07E and 6.4 times FY08E, respectively. Given its capacity expansion plans, valuations and focused business approach, Edelweiss maintains its 'buy' recommendation.
Bharti Airtel
Research: Karvy Stock Broking
Recommendation: Outperformer
CMP: Rs 362 (Face Value Rs 10)
12-Month Price Target : Rs 436
IN JUST over a decade of its operation, Bharti Airtel has become one of the leading wireless players in India on the back of exceptional execution skill and visionary management. Over the past couple of years, Bharti has entered into contracts with equipment suppliers and outsourced its non-core call centre and network management operations to third parties. The next phase of growth in Bharti will come from benefits accruing from economies of scale and sharper focus on customer delight. 'Customer is king' will assume greater importance as competition intensifies, with customers preferring companies with superior service and brands. Bharti continues to lead the domestic mobile wireless space with 1mplus subscriber additions over the past 5-6 months. This has been achieved on the back of increased penetration into smaller towns and cities, as well as effective communication of its marketing strategy. Among other divisions, enterprise service will contribute handsomely in the coming years. Economies of scale and effective marketing and distribution will be one of the critical success factors in the wireless sector.
Hero Honda
Research: Emkay
Recommendation: Reduce
CMP: Rs 718 (Face Value Rs 2)
12-Month Price Target: NA
HERO Honda posted disappointing Q1 FY07 performance on the back of lower average gross realisations and higher input costs. Despite an impressive 21% rise in sales volume, the company posted a net sales growth of 19.6% at Rs 2,364.4 crore as average realisations per unit fell by Rs 360 to Rs 28,394. Net profit grew 16.3% y-o-y to Rs 237.7 crore against the expectations of Rs 258.5 crore. The EBITDA margins shrunk 129 basis points to 13.5%. Average gross realizations, which had shown improvement during Q4 FY06 at Rs 33,784, fell to Rs 32,900 per unit, as the sales mix worsened and promotional discounts prevailed. This, coupled with a rise in material consumed to sales ratio by almost 100 basis points during Q1, took a toll on margins. The much-awaited price hike in the near term will help the company gain some shelter and arrest the margin contraction. At the current market price, the stock trades at 13.8 times and 12.2 times its FY07E and FY08E earnings of Rs 52 and Rs 58.8 respectively. Assuming a competitive pricing on its new launches, Emkay feels that the pressure on margins will continue for the next nine months
MphasiS BFL
Research: Parag Parikh Financials
Recommendation: Buy
CMP: Rs 138 (Face Value Rs 10)
12-Month Price Target: NA
MPHASIS BFL is a $200m-plus CMMi level 5 domestic IT services and BPO organisation, with IT services contributing more than 70% of revenues and profits. The Black Book of Outsourcing has ranked MphasiS as the fourth best managed outsourcing vendor for '05. The MphasiS transaction supports EDS' Global Best ShoreSM delivery strategy, which provides a full range of high-quality, cost-competitive services from designated onshore, near-shore and offshore locations. EDS launched its Best Shore strategy in '02 to highlight this distinctive delivery capability. At the current market price, MphasiS is at its December '05 price level and hence, the $20-bn outsourcing giant, EDS, has taken a controlling stake in the company and making it a part of the EDS family. Parag Parikh Financials believes the current opportunity in the stock exists due to the market correction and a tendency of the market to give a discount for perceived ambiguity.
Tata Motors
Research: CLSA
Recommendation: Sell
CMP: Rs 740 (Face Value Rs 10)
12-Month Price Target: Rs 645
AFTER nearly five years of strong cyclical upswing in its core business, a phase of improving capital efficiencies and positive free cash generation, CLSA believes that Tata Motors is now moving into a phase of: 1) negative post capex FCF, due to the expected Rs 10,000 crore capex in the next 3-4 years and 2) rising capital costs, resulting in earnings growth lagging EBIDTA growth by 8%. While near-term CV volume growth (27%) momentum remains strong, the stock already prices in such strong growth. Rising headwinds from the jump in interest rates, input costs like fuel and tyres, pose downside risks to growth. While consensus is still factoring in 22% earnings growth for FY08, risks of a disappointment are rising. CLSA believes that at current levels, the stock price is not factoring in a possible negative surprise, and accordingly, it is downgrading the stock to 'sell', with a 12-month target price of Rs 645.
Source:-ET