Analysts' corner

UNITECH
Reco price: Rs 76
Current market price: Rs 71.25
Target price: Rs 85
Upside: 19.3%
Brokerage: Ambit Capital

Revenues were higher than expected and grew 76 per cent q-o-q to Rs 774.5 crore. The revenue jump was primarily due to recognised income from sales made prior to FY10. Revenues are recognised on percentage of completion method and this reflects increase in execution as projects reach the threshold level for revenue recognition. EBITDA margin declined sharply, down to 24 per cent from 48 per cent, a year ago due to cost overruns.

However, expect margins to improve and trend back to 30-35 per cent in the long term since the impact of cost overruns is accounted for in Q3 FY10. Net profits declined to Rs 139.5 crore partially mitigated by the 76 per cent decline in interest expenses and the lower tax rate. An improvement in the balance sheet and a gradual but steady improvement in demand is expected to limit the downside to the stock. The brokerage upgraded the stock to hold and the target price is revised upwards to Rs 85.

ORCHID CHEMICALS
Reco price: Rs 160
Current market price: Rs 152.5
Target price: Rs 142
Downside: 6.8%
Brokerage: Angel Securities

Orchid posted subdued Q3 results on a standalone basis in spite of Tazo+Pip exclusivity during the quarter. Net Sales came in at Rs 308.8 crore, up by a mere 4.6 per cent on the back of lower sales of Tazo+Pip and continuous pressure on the base business (excluding injectables). The company reported OPM which slipped to 16 per cent (28.2 per cent in Q3 FY09) on back of higher legal and professional fees, and MTM losses on working capital assets.

Orchid reported net Loss of Rs 16.8 crore for the quarter. Post the subdued results, the brokerage revised their FY10E sales and earnings estimates downwards by 14-48 per cent. However, neither the future acquisitions nor additional long-term contract wins on the company’s API business front have been factored in the estimates.Post the Hospira deal, Orchid is left with the plain vanilla low-margin API and oral dosage generic formulation business (oral cephalosporin and NPNC products). Further, loss on the earnings front is unlikely to be compensated from savings on the interest cost front. However, in the last one month, the stock has declined 14 per cent and is currently trading at 13.7x FY11E and 11.3x FY12E earnings.

HINDUSTAN UNILEVER
Reco price: Rs 237
Current market price: Rs 231.15
Target price: N.A .
Brokerage: Edelweiss Securities

HUL cut prices sharply in the soaps and detergents category. In this high inflationary environment, regional players will be under cost pressure as they do not have HUL’s sourcing benefits and scale. It is expected that the company’s price cut in Rin and across other brands and segments will help it record higher volume growth. Ad spends in Q3FY10 increased 60 bps q-o-q to 14.1 per cent of sales.

The company is also trying to improve product and mix with superior high growth and margin products. The company is investing heavily in its brands, realigning its sales and distribution strategies, and will start regaining market share, a trend which has already begun in Q3FY10. The recent correction has been overdone and these levels provide a good entry for investors looking for defensive names and a likely turnaround in fortunes. At Rs 237, the stock is trading at 20.9x and 18.3x of FY11E and FY12E, respectively. Maintain buy.

Current market prices as on February 4