Reco price: Rs 1,631
Current market price: Rs 1,572.50
Target price: Rs 2,144
Brokerage: Anand Rathi Research
Bharat Electronics’ (BEL) order backlog at the end of October 2009 stood at Rs 12,260 crore, up 18 per cent from Rs 10,390 crore as on April 1, 2009. The company has seen healthy order inflows of Rs 3,950 crore in the first half of 2009-10 and expects more to follow in the second half. Nevertheless, some of the orders received also relate to “off-set clause” as per the new defence procurement policy. The brokerage feels that the “off-set provision” for defence procurement has opened new avenues for the company’s growth.
Revenues in the first half of 2009-10 have grown 89 per cent year-on-year (y-o-y) and earnings by 146 per cent. Though this growth seems exponential, it is not indicative of growth for the year and is a function of equally spread-out revenue in 2009-10, compared to 2008-09.
The brokerage has raised its target price for BEL to Rs 2,144 (from Rs 1,998 earlier), which is 17 times and 15.5 times the estimated EPS for 2010-11 and 2011-12, respectively. As BEL should continue to deliver strong growth in earnings as well as order inflows in the future, the brokerage maintains a buy on the stock.
Reco price: Rs 324
Current market price: Rs 335.25
Target price: Rs 400
Brokerage: India Infoline
Pantaloon Retail (PRIL) has begun the restructuring of its existing businesses along three verticals. This would entail firstly, the consolidation of PRIL as a pure retail play and transfer of the Big Bazaar and Food Bazaar formats into wholly-owned subsidiaries of PRIL, secondly, transfer of all non-retail businesses into a separate company and thirdly, value unlocking in the financial services businesses.
The management hinted at a possible tie-up with an international retailer to ramp up its discount food format, which could have an exposure of as high as 65-70 per cent (of sales) to food products. It said that the induction of such a foreign partner is one of the drivers for the planned Big Bazaar hive-off.
PRIL derives 30 per cent of revenues from its private labels, which has given the company leverage in its relationships with category leaders such as Nestle and Kellogg’s. PRIL is also expected to do a private-label launch in cereals. To extend the reach of its private labels beyond its own store, the company could be exploring the idea of buying out an FMCG company, preferably one focused on foods. The Big Bazaar hive-off would allow efficient use of capital, transform PRIL into a pure retail play and allow investors a direct exposure to pure discount retailing if and when Big Bazaar gets listed. Maintain buy.
Reco price: Rs 2,132
Current market price: Rs 2,125.15
Target price: Rs 1,750
Brokerage: Kotak Securities
Reliance Industries (RIL) did not make any acquisition-related announcement at its AGM contrary to Street expectations. The key announcements include peak gas production from KG D-6 block to be achieved by second half of 2009-10, oil production from KG block at around 8,000 barrel per day with peak production to be achieved by end of the fiscal, renewed focus on a new 2 MTPA petrochemical complex at Jamnagar, announced in an AGM two years back and commencement of exploratory drilling in Block 18 in Oman.
The brokerage has maintained its 2009-10 and 2010-11 EPS estimates of Rs 97 and Rs 138, respectively. The brokerage does not rule out the possibility of downside to the earnings estimates for 2009-10 since current chemical and refining margins are below its second half 2009-10 assumptions. It believes that its 2010-11 earnings estimates also look challenging without a very steep recovery in refining and chemical margins.
The 12-month SOTP-based fair valuation has been retained at Rs 1,750. Key upside risks are steep global economic recovery and higher than expected E&P reserves. However, the downside risks to the SOTP-based valuation include weaker than expected chemical and refining margins and unfavourable developments in the ongoing RIL-RNRL legal dispute. The brokerage maintains that the stock looks expensive.
Reco price: Rs 547
Current market price: Rs 551.60
Target price: Rs 669
Brokerage: Edelweiss Securities
The management has guided that Corus’ capacity utilisation is likely to increase from around 56 per cent in June 2009 quarter to around 85 per cent in March 2009 quarter and maintained its 2009-10 and 2010-11 volume guidance at around 15 million tonne (MT) and around 17 MT, respectively. The management maintained that the full benefit of lower-cost coking coal and iron ore would accrue only from December 2009 quarter. Overall savings is likely to be in the range of $125 per tonne of steel.
Tata Steel might increasingly focus to reduce its debt-equity ratio albeit at the cost of dilution. The GDR issue of $500 million and the CARS to FCCB swap would reduce net debt-equity ratio from 2 in June 2009 quarter to 1.6 post the issue. Post September 2009 quarter standalone results, the management guided for reduction in debt of $1.6 billion in the next 12 months.
Recent uptick in Chinese steel prices and strong recovery in Baltic freight index continue to point towards recovery in global steel. Expect firm to moderately increasing steel prices in March 2009 quarter and then into 2010-11. With increasing volume growth, firm to moderately increasing European steel prices and reducing costs at Corus going forward, the brokerage has increased their 2010-11 EV/EBITDA estimates for Corus from 4.5 to 5.5, and maintains buy on the stock.
Reco price: Rs 237
Current market price: Rs 232.90
Target price: Rs 266
The management of Jaiprakash Associates (JAL) announced that the company is looking at diluting 15 per cent stake in its subsidiary, Jaypee Infratech (JIL), for Rs 2,500 crore. JIL is constructing the 165-kilometre-long six-lane Yamuna Expressway (formerly Taj Expressway) connecting Greater Noida and Agra. The company would be filing the draft red herring prospectus for JIL in a week and will hit the markets with a public offering in January 2010.
Assuming JAL makes a fresh issue of equity to raise Rs 2,500 crore, the indicated equity value of JIL works out to around Rs 16,670 crore. Accordingly, the derived value of JAL's holding of 95.5 crore of JIL's shares works out to Rs 14,005 crore. This is marginally higher than the value of Rs 14,512 crore assigned in the brokerage’s SOTP valuation of JAL.
Though it sees JAL emerging as a leading infrastructure player in the next few years, there is limited upside from the current level based on SOTP valuation of Rs 266. At the current market price, the stock is trading at 24.8 times 2010-11 earnings estimate. Maintain hold.
Current prices as on November 20, 2009