Reco price/date: Rs 47/June 27
Current price/target price: Rs 47.10/Rs 55
In a scenario of decelerating economic growth, the company’s revenue during FY12 grew 20 per cent. The increase in revenue was driven by expansion of existing capacities in the domestic market, as well as new plants in international geographies. Consequent to the capacity additions in FY12, revenue outlook for FY13 is positive. The management’s internal target is to cross revenue of Rs 2,000 crore in FY13 with exports contributing Rs 500 crore to total revenues. Capex is expected to moderate in FY13, which should aid reduction in borrowings. Analysts project earnings to rebound in FY13 as the company’s manufacturing units get ramped up. Maintain Buy.
Reco price/date: Rs 1,000/June 27
Current/target price: Rs 1,000/Rs 935
With broader economic growth continuing to slide, we highlight the growing evidence of Axis Bank’s vulnerability in the current economic environment, driven by the bank’s infrastructure-dominated asset mix that could further test its profitability over the next 12-18 months. Despite visible improvement in its liability profile during FY12, we stay sellers, with a revised valuation of Rs 935 (down six per cent from our April 11, 2012 valuation). This factors in a ballooning of the restructured book as a proportion of the loan book (FY11: 0.3 per cent; FY12: 0.8 per cent and FY13E: 1.1 per cent), largely driven by CDR and hence, imposing higher loss, given defaults on Axis Bank. The sustained pace of big ticket restructuring in investment-heavy sectors is the key catalyst supporting our sell recommendation. Maintain Sell.
Reco price/date: Rs 719/June 27
Current/target price: Rs 738/Rs 857
Post the FCCB redemption, Strides now has nearly Rs 1,500 crore debt (earlier Rs 2,100 crore) and cash of Rs 300 crore. The research firm believes Strides would continue to benefit from the current shortage of steriles in the US (currently 82 per cent of the 168 drugs in the shortage list are steriles), since injectable giants like Hospira continue to face manufacturing issues. Steriles’ contribution to overall sales to increase from 45 per cent in CY11 to almost 69 per cent in CY13. Expect its base business Ebitda margin (excluding licensing income) to reach 21.6 per cent by CY13. At the CMP of Rs 719, the stock is trading at 11.7xCY13E. We believe it will continue to get rerated, since combined with consistent improvement in margins, the D/E will continue to decrease. Maintain Buy.
MARUTI SUZUKI INDIA
Reco price/date: Rs 1,102/June 25
Current/target price: Rs 1,120.30/Rs 1,530
The petrol vehicle demand for Maruti has been affected after the steep rise in petrol prices in May. However, the fall in crude prices and subsequent reversal in the fuel price hike could revive petrol car demand. The company does not expect any steep rise in excise duty on diesel vehicles. It also enjoys a low base advantage since production was disrupted last year due to labout unrest. Analysts observe that the recent 30 per cent correction in the stock price captures the weak operating environment. However, fall in crude oil prices and the expected lowering of interest rates by RBI still makes Maruti Suzuki the preferred early interest rate cycle play. Maintain Buy.