|
| Analysts' corner |
| BS Reporter / Mumbai Sep 21, 2009, 00:30 IST |
|
MAHINDRA & MAHINDRA
Reco price: Rs 869
Current market price: Rs 885
Target price: Rs 915
Upside: 3.4%
Brokerage: Kotak Institutional
Cost reduction at Mahindra & Mahindra’s auto parts business, Systech over the past one year is expected to reduce Systech’s breakeven level and help it to take advantage of any rebound in European commercial vehicle production. Systech’s management indicates signs of a rebound in order intake and with production levels increasing by 20 per cent from current levels. Systech has cut its workforce by more than a third, leading to a 45 per cent reduction in personnel expenses. Systech’s domestic operations are also seeing a strong rebound with current production levels twice as much as those of the March quarter.
Besides domestic volumes, European markets are expected to show sequential improvements within this month. Systech should be a key beneficiary of the growing trend of component sourcing from lower-cost countries, given its existing relationships with global OEMs. Systech management has set a target of €80-90 million in Ebidta, with €60 million coming from Europe. Separately, advanced talks are on with a private equity investor and a strategic investor, both of which are interested in taking a stake at Systech.
BIOCON
Reco price: Rs 236
Current market price: Rs 233.45
Target price: Rs 250
Upside: 7.1%
Brokerage: IDFC SSKI Biocon has signed a joint development and commercialisation agreement with Amylin, a US-based biopharmaceutical company for the development of a novel peptide hybrid. As part of this deal while Amylin would provide the technology, Biocon will lead the development and manufacturing. After the biogenerics partnership with Mylan, this deal is yet another affirmation of Biocon’s strong capabilities in the biotechnology arena, and diabetes in particular, as also its ability to partner with global players.
Biocon is a unique play on four big opportunities in the global pharma space – diabetes, biogenerics, CRAMS and NCE research – which can dramatically lift Biocon’s growth trajectory in the coming years, if executed well. Despite recent outperformance, reiterate outperformer with a price target of Rs 250 (16x FY11E). Biocon may close fairly substantial outlicencing deals over the next 12-24 months as it seeks to outlicence Insulin, Glargine as well as other biogeneric products. This can provide significant upside to estimates. Although there are limited near term triggers, there are possibilities that have significant scope to unlock over a period of time. While most of these opportunities are likely to have limited financial impact in the near term earnings, the brokerage is positive on the value creating potential of Biocon’s product portfolio.
YES BANK
Reco price: Rs 175
Current market price: Rs 195.9
Target price: Rs 239
Upside: 22%
Brokerage: SBI Cap Securites
Despite phenomenal growth since its inception, Yes Bank continues to remain one of the smallest banks in terms of total assets (~0.4 per cent market share) in the Indian banking space. Therefore, the opportunity for Yes Bank to grow faster than most other listed banks in India would continue to remain for a long time.
The bank has demonstrated its capability in gaining market share of CASA every year since its inception. While share of CASA in total deposits is very low (9.5 per cent), the growth in CASA has been remarkable (66 per cent CAGR from FY06 to FY09). With the bank having invested heavily in growing its branch network (123 branches - Q1FY10), the bank is not far from an inflexion point in growing its CASA on a sustained basis at levels far higher than the industry enabling it to sustain its profitable balance sheet growth momentum. The ability of the bank to deliver superior RoAs with balance sheet growth rates significantly higher than the industry warrant premium valuations for the stock. The stock is valued at 3.6x FY10E adjusted book value. At Rs 239, the stock trades at 17.4X FY10E and 14.7x FY11E EPS and 2.7x FY11E adjusted book value.
JINDAL STEEL AND POWER
Reco price: Rs 562.04
Current market price: Rs 633.1
Target price: Rs 714
Upside: 12.8%
Brokerage: Macquarie Research Macquarie commodities team raised forecasts of world average steel export prices by 19 per cent, 4 per cent and 2 per cent for FY10, FY11 and FY12, respectively to $563/tonne, $598/tonne and $617/tonne.
Given its unique technology and flexible product mix, JSPL's steel business has consistently clocked 40 per cent Ebidta margins. JSPL has already provided Rs 590 crore for the pending coking coal quantity last year, which none of its peers have done.
The additional 1,350MW of power capacity, of which 70–90 per cent was available for surplus sale, would boost margins further. JSPL's merchant power subsidiary recorded a realisation of Rs 6.2/KWH in Q1.
The brokerage is building in cumulative capex of $2.8 billion for FY10 and FY11, but the debt/equity still remains at just 0.8x for both the fiscal years.It is believed that its low cost operations, first mover advantage in merchant power, sizable resource base and strong growth pipeline make it a compelling investment idea.
Given the high earnings upgrade potential, valuations remain undemanding at 13x FY11E earnings. Maintain outperform. THERMAX
Reco price: Rs 525
Current market price: Rs 554.65
Target price: Rs 657
Upside: 18.5%
Brokerage: Edelweiss Thermax has secured a contract for turnkey supply of 270 MW (2x 135 MW) power plant valued at Rs 1,000 crore. The company had secured orders worth Rs 1,000 crore in Q1 FY10. Further, it announced order wins of Rs 410 crore in the previous fortnight.
The FY10 order intake estimates have been revised to Rs 3,770 crore, implying additional order inflow of Rs 1,370 crore in the balance of FY10. With order intake upgrades, FY11 and FY12 sales and net profit estimates are also upgraded. For FY11, EPS estimates stands at Rs 31.6 and for FY12, it is Rs 38.4.
The scale up in the utility business can change Thermax’s business model over the long term from a corporate capex player to a diversified power generation equipment and corporate capex play.
The brokerage upgraded the target price to Rs 657 to factor higher growth in cash flows driven by increase in order inflow. At Rs 657, the stock trades at 20.8x, its FY11E EPS. Maintain buy. Current market prices as on September 18
|
|
|
|
|
|
|
|
|
|
 Read Business news in |  |
|
|
|
|
|
|
Advertisements |
|
|
|
|
|
|
|
|
|
|
Content Guide
