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Analysts' corner

Infosys, Asian Paints, Tata Steel & JK Tyres and Industries

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Reco price/date: Rs 2,294/December 19;
Current/Target price: Rs 2,318/Rs 2,400
management has maintained that demand environment is uncertain with negligible visibility into clients’ CY13 budgets. Also, the budgets are not as sacrosanct as earlier and can change significantly over the course of the year. Analysts are still cautious on Infosys but incrementally more positive on industry. Barring hard-to-estimate effects of events like US fiscal cliff, analysts believe 2013/FY14 will likely be a better year for offshore IT industry than 2012/FY13 as the cycle turns. Comeback of more cyclical discretionary spending, legacy deals opening up in 2013, stability of client budgets could constitute the trigger points. Maintains Neutral.

JPMorgan Asia Pacific Equity Research

Reco price/date: Rs 4,444/December 21;
Current/Target price: Rs 4,380/Rs 5,200
The management believes that demand conditions remain healthy albeit lower than the historical level of 20 per cent plus growth. Titanium dioxide prices (25 per cent of raw material costs), which had run up sharply, have fallen seven per cent yoy in the December quarter. This should offset the impact of rising monomer/other raw material costs and sustain gross margins at 40 per cent. Furthermore, history suggests the paint industry reduces production during demand slowdown, despite making sharp capacity additions. Concerns that the 30-150 per cent capacity addition across the industry would result in product flooding are misplaced. The firm is still evaluating the categories for its home décor foray. Buy.


Reco price/date: Rs 432/December 21;
Current/Target price: Rs 428/Rs 498
Part or full divestiture of UK (TSEUK) operations will help Tata Steel (TSL) to reduce leverage (which is the impending need of the hour) and at the same time retain the more profitable operations in Netherlands. As long as the smelting margin of any integrated player is comparable to TSEUK, the lure of 50 per cent market share in UK can be enticing. TSEUK assets can suit a player with apt balance sheet strength to wait for an up-cycle and limited payback period. With considerations of $1-2 billion, analysts’ fair value of TSL can increase by 34-47 per cent. Any step towards divestments of loss making TSEUK assets can further increase our target price. Maintain 'Buy'.

ICICI Securities

Reco price/date: Rs 121/December 24;
Current/Target price: Rs 120/Rs 165
(JKI) plans to expand the production capacity of its truck and bus radial (TBR) tyres at the Mysore plant with an investment of Rs 476.5 crore. Post the expansion plan, the TBR capacity at the Mysore plant will increase to 106 million tyres/year from current levels of 367,000 tyres/year. Analysts believe increasing capacity levels will enable the company to meet the rising demand for the TBR tyres. However, analysts believe that the company will have to incur additional debt to meet the expansion plans which would further stretch its balance sheet. Nonetheless, at 2.9 times FY14 estimated earnings, valuations remain attractive. Maintain Buy.

Angel Broking

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