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Analysts' corner

ONGC, Tata Motors, Sesa Sterlite & JM Financial

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ONGC
Reco price/date: Rs 264/December 12
Current/Target price: Rs 259/Rs 314
The effective date for Videsh (OVL)’s recent ACG acquisition in Azerbaijan has been set at January 1. Hence, OVL will account for volumes of 1.13 mmt (15 months ending March 2013) and related net profit of Rs 600 crore (estimated) in FY13. Analysts expect interest cost to start kicking in only by end of FY13 (expect $900 million debt). Analysts have increased OVL’s EPS contribution estimates by Rs 0.7 to Rs 4.3 to account for ACG volumes in FY13. On the $5 billion Kashagan acquisition, OVL remains confident of ramping up production close to Phase-I peak levels over two-three years. The deal, if finalised could provide incremental net profit of Rs 800 crore to OVL’s earnings in FY14. Analysts expect a 23 per cent CAGR growth in volumes and 25 per cent growth in OVL’s net profit (ex Kashagan). Valuations seem to be pricing in worst of subsidies and OVL’s earnings momentum would drive outperformance in near term. Maintain Buy.

Spark Capital

TATA MOTORS
Reco price/date: Rs 276/December 13
Current/Target price: Rs 287/Rs 319
Jaguar and Land Rover (JLR) reported a strong retail volume growth of 13.5 per cent yoy (18.7 per cent mom) in November to 29,893 units, driven by strong growth in Land Rover volumes (Evoque in particular, sales up 38.9 per cent yoy). Total volumes excluding Evoque, however, grew by a modest 4.1 per cent yoy largely due to a 38 per cent yoy decline in Range Rover volumes, set to be replaced by new Range Rover. Jaguar sales however, registered a decline of 5.4 per cent yoy ahead of the impending launch of the model year 2013 products, the XF Sportbrake and all-wheel drive and smaller engine options in the XF and XJ models. Maintain Buy.

ANGEL BROKING

SESA STERLITE
Reco price/date: Rs 187/December 13
Current/Target price: Rs 181/Rs 175
Vedanta’s multi-year battle to acquire the minority stakes in Hindustan Zinc (HZL, 29.5 per cent stake) and Balco (49 per cent stake) is potentially finally nearing a close, with the government planning to divest these stakes through the auction route in the current financial year. Vedanta’s board approved a maximum pay-out of $3.93 billion for GOI’s minority stakes in both entities. Although this is contingent on Vedanta and the GOI withdrawing litigation on each other, the minority buyout would enable Vedanta to make the cash flow fungible for Sterlite. Despite having one of the best resource bases in the world, given the non-controlling nature of the HZL stake, other parties could well leave the field clear for Vedanta. Maintain Neutral.

Espirito Santo Securities

JM FINANCIAL
Reco price/date: Rs 18/December 5
Current/Target price: Rs 19/Rs 36
Integrated capital market player has established a strong position in the financial sector, based on the experience-driven ability to retain clients and generate cross-selling opportunities. It has a good track record of executing various IPOs, M&A and PE deals. Since the company primarily derives its revenues from the capital market businesses, its earnings are vulnerable to the volatile capital markets. CRISIL Research expects the company's revenues to grow at a CAGR of 24 per cent to Rs 1,300 crore during FY12-14.

Crisil Research

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