Analysts' corner

Orchid Chemicals,Wipro,Reliance Communications,Aban Offshore

ORCHID CHEMICALS
Reco price: Rs 151, Target price: NA
Orchid Chemicals announced entering into an agreement to acquire the US-based generic marketing and sales service company, Karalex Pharma, through an all-cash deal. The deal is estimated to be in the range of 2-2.5x price/sales. Orchid proposes to fund the deal through internal accruals, as it has residual cash of Rs 300 crore from the Hospira deal. On a conservative basis, expect the deal to contribute $10 million in FY11E and $15 million in FY12E to Orchid’s top-line, with Ebitda margins to be in line with current levels of 17-18 per cent. With this acquisition, Orchid will get front-end presence in US and reach its customers directly, which would increase overall Margins of its US generic business contributing 13 per cent of FY11E sales. 
Maintain neutral.

— Angel Securities

WIPRO
Reco Price: Rs 648.15, Target Price: Rs 810
The countries impacted in Europe are not material revenue generators; no impact seen on customer sentiment/deal flow/pipeline so far. The cross currency impact on profitability will be limited due to European revenues only around 26 per cent, dollar billing within that is around one-fourth and costs in local currencies are around 50 per cent of revenues. Thus, net exposure is only about 6 per cent. Deal flow is broad-based across geographies/verticals and the company continues to win deals. Tech/Telecom, which have been sluggish over past few years, are showing some recovery. Price increases have started to trickle in; Management continues to focus on realisations and sees room for realisation improvement even without change in rates. The stock is trading at estimated 21x Sept’11 EPS and multiple has reduced from 23x to 21x. 
Maintain buy.

— Citi Investment Research

RELIANCE COMMUNICATIONS
Reco Price: Rs 179, Target Price: Rs 140
RCom announced de-merger of passive infra assets of its 95 per cent subsidiary Reliance Infratel (RITL) into an SPV, which would be owned/controlled by an ‘independent’ tower company. RCom would receive cash + stock as consideration, leading to substantial debt reduction in its consolidated balance sheet. RCom may eventually end up with a significant minority stake in the SPV (the ‘new’ tower-co). At estimated FY11 Ebitda of 8.3x, RCom shares are already trading at significant premium to peers, due to M&A speculation recently. Valuing RCom’s towers at EV/tower of Rs 4.8 million, and assuming RCom continues to trade at the current EV/Ebitda multiple post de-merger, estimate negligible share price upside from current levels. 
Maintain sell.

— Anand Rathi Research

ABAN OFFSHORE
Reco Price: Rs 179, Target Price: Rs 575
Though Aban would be able to meet its planned FY11 debt repayment of around $410 million, estimate a shortfall of $366 million for FY12, and an overall shortfall of $571 million for FY12-14. As a result, Aban is most likely to opt for debt restructuring, equity dilution or a combination of both. Earnings would be impacted in either case, expect around 15 per cent earnings impact with one per cent interest rate hike and around 25 per cent equity dilution even if the company raises $150 million.

To its credit, Aban has done well by successfully deploying its idle rigs during the past 12 months. Despite the recent 37 per cent hit, Aban stock is trading at an EV/Ebitda of 6.6x on FY12 earnings while global peers are trading at 5.0x.
Maintain sell.

— Elara Capital