Analysts' corner

Bhushan Steel, eClerx, Lakshmi Energy, Maruti Suzuki

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BHUSHAN STEEL
Reco price: Rs 1,396, Target price: Rs 1,979
Bhushan Steel (BSL) extended its presence in the steel value chain with commissioning of its 1.9-million-tonne hot-rolled steel capacity. Volumes are expected to grow at a compunded annual growth rate of 26.2 per cent over FY10-15E on completion of Phase-III expansion by October 2012. This will be sweetened by a rise in earnings before interest, taxes, depreciation and amortisation to $331 per tonne in FY11E. Being one of the first entrants in the auto grade steel segment in India, BSL will witness lower demand risks and uncertainties, courtesy its strategic relationships and growing investments by foreign original equipment manufacturers. With debt/equity expected to decline from 3.3x in FY09 to 2.0x in FY12E, the stock is trading at estimated 6.5xFY12 enterprise value/earnings before interest, depreciation and tax multiple. Maintain buy.

— Angel Securities

ECLERX
Reco price: Rs 558, Target price: Rs 640
Eclerx expects its dollar revenue to grow at a compunded annual growth rate of 28 per cent over FY10-12E, however FY11/FY12 earnings estimates by around 5 per cent/5.6 per cent. The company’s recent measures — strengthening senior sales and middle management addition, with an increased focus on greater client mining within existing client accounts, further expansion into SEZ facilities and 45 per cent net hiring during FY10 — point to strong footing ahead. Despite some investor concerns, valuations remain attractive, with return on equity above 40 per cent. However, operating margins are expected to decline 350 basis points over FY10-12E and a dividend yield of around 3.5 per cent is likely. Key downside risks include a macro scare (akin late CY08) and further appreciation in rupee.

—Emkay Global

LAKSHMI ENERGY & FOODS
Current market price: Rs 102, Fair value: Rs 145
Lakshmi Energy and Foods is the largest integrated rice milling player in agriculturally-rich Punjab. Till FY08 (year ended September), the company earned more than 85 per cent of its revenues from non-basmati rice. Lakshmi’s foray into the high-margin basmati rice segment will drive revenue growth. Crisil Equities expects revenues to grow at a two-year compunded annual growth rate of 46 per cent to Rs 1,500 crore in FY11, while earnings per share is expected to increase from Rs 14.5 in FY09 to Rs 22 in FY11. Crisil Equities has used the sum-of-the-parts method to value Lakshmi. Rice business is valued at Rs 101 using a PE of 6x, while power business is valued at Rs 44 .

—Crisil Equities

MARUTI SUZUKI
Reco price: Rs 1,315, Target price: Rs 1,582
Maruti’s stock has underperformed in the last six months due to heightened concerns regarding market share erosion in the compact car segment. Expect Maruti’s passenger car market share (ex Nano) to fall from 51.2 per cent in FY10 to 48.4 per cent in FY12E. The domestic passenger car volumes are likely to increase at a compunded annual growth rate of 13.5 per cent over the next two years. The company expanded its portfolio from being a predominant compact car manufacturer to a leader in the entry-level sedans. Further, with the launch of the Eeco, the company aims to augment its share in the multi-purpose vehicle segment. Export market growth is likely to moderate, as base effect and withdrawal of scrappage incentives in most European nations is likely to impact overall market volume growth. The stock is trading at 11.6x FY12E earnings. Maintain buy.

—Ambit Capital