Analysts' corner

McNally Bharat Engineering, Suzlon, Orient Ceramics & Industries, & Cipla

McNally Bharat Engineering
Current price: Rs 286
Target price: Rs 406

McNally Bharat Engineering (MBE) posted a disappointing set of numbers for the June quarter. Sales grew 12 per cent year-on-year, while Ebitda margin came in lower at 5.5 per cent ( from 6.8 per cent a year ago), dragging Ebitda by nine per cent. Profit after tax rose 16 per cent y-o-y to Rs 6 crore. MBE has a robust order book of Rs 4,803 crore (2.4x FY2010E consolidated revenues), led by the power sector that lends high revenue visibility. Hence, over FY2010-12E, we estimate sales and profits to register a compounded annual growth rate of 28 per cent and 24 per cent, respectively. At Rs 283, the stock is available at attractive valuations of 10x FY2012E earnings and 5x FY2012E EV/Ebitda. Hence, we maintain a buy on the stock, with a revised target price of Rs 406. Maintain Buy.

—Angel Research

Suzlon
Reco Price: Rs 51
Target Price: Rs 53

Suzlon reported consolidated loss of Rs 870 crore in the June quarter due to pricing pressure, disappointing results by REpower on client deferrals, Rs 250 crore notional forex loss and Rs 40 crore of debt restructuring costs. Conducive regulatory framework and introduction of 2.1 Mw turbines led to 10x jump in India order intake, while international orders remained muted. The management expects to maintain 50 per cent market share in India (2-2.2 GW market in FY11 & 2.6 -3 GW in FY12). FY11 would continue to be a challenge, with visibility of only 1.6 GW. However, increased traction in India and emerging markets focus would aid volume recovery (2.4 Gw) in FY12. At Rs 53, the stock is trading at 7.5x EV/Ebitda. Maintain Neutral.

— Enam Securities

Orient Ceramics & Industries
Current market price: Rs 91
Fair value: Rs 132

Crisil Equities assigned fundamental grade of 3/5 to Orient Ceramics and Industries indicating ‘good’ fundamentals. Orient has a strong presence in the northern and eastern regions, which together account for around 40 per cent of the tiles market. The tiles industry is expected to grow at 12-14 per cent to Rs 15,500 crore in the next two years. The recent launch of Orient’s brands, Europa and Stiler, along with retail expansion and increased marketing focus, will likely enhance brand visibility in the near future. Crisil Equities expects Orient’s revenues to grow at a two-year compounded annual growth rate of 18 per cent in FY12, while earnings per share is expected to increase to Rs 17.4 in FY12 from Rs 10.9 in FY10. Orient’s assigned valuation is 5/5 indicating ‘strong upside’ from the current levels.

— Crisil Equities

Cipla
Reco price: Rs 314
Target price: Rs 351

Cipla’s June quarter performance was below expectation. The lower single-digit growth in the domestic formulations is a major cause of worry. The brokerage believes that the higher base in technology income from royalty is another reason behind the lacklustre performance. The company also faced challenges in the domestic generic segment. Higher base in the domestic market and upfront cost in new plants like the Indore facility could impact near-term cash flows. However, Cipla is confident of regaining growth in the domestic market and expects to boost exports of partner products to the US and EU markets. The stock trades at PE 21x and 18x of FY11 and FY12, respectively. Maintain accumulate.

— Elara Securities