Analysts' corner

HUL, Larsen & Toubro, Tata Power, Jeypore Sugar Company

HUL
Reco price: Rs 294, Target price: Rs 360

Brokerages expect a visible transformation in HUL from a low-end ‘mass marketer’ to a mid-to-premium ‘affluent brand retailer’ with defined product attributes. New product launches in the mid-premium range (Dove hair conditioners, Knorr Soupy Noodles, Ponds Age Miracle) and increased marketing spends towards these categories, reflects the critical change in direction in the business. With three consecutive quarters of double-digit volume growth, HUL is now growing in line with market, thereby arresting market share declines. With mid-tier consumer players (Marico, Dabur, Godrej Consumer) increasing exposure to international markets, analysts see limited merit in playing the “Indian consumption story” through these names. Brokerages recommend switching to large caps such as HUL and Nestle to participate in the pure India-centric consumption plays.

Upgrade to outperformer from neutral.

IDFC Institutional Research

Larsen & Toubro
Reco price: Rs 1,979, Target price: Rs 2,024

Larsen & Toubro (L&T) has bagged domestic and international orders aggregating to Rs 2,503 crore. The company secured five orders worth Rs 1,516 crore in the domestic markets, which include projects for laying down of transmission lines, manufacturing of electrical equipment used in energy generation and railway construction activity. The company's international segment bagged three orders for Rs 987 crore in the West Asia region for seven substation projects and 153 km of transmission line projects. Analysts believe most of the positives are factored in the current market price. Maintain neutral.

Angel Broking

Tata Power
Reco price: Rs 1,366, Target price: Rs 1,508

Tata Power has indicated that the deal with Olympus Capital to sell Tata Power’s 15 per cent stake in the coal mine holding companies for $300 million has been terminated. Analysts believe there could be more of regulatory issues with respect to the deal which could have resulted in the deal being called-off. For Tata Power, this development will be neutral/positive from valuations perspective but negative from a fund raising/stake sale perspective. Analysts believe the stock could be re-rated over the next 12-18 months due to the high international coal prices, upwards restatement of coal reserves, earnings growth due to 5-Gw of projects being commissioned, and greater clarity on the pipeline 6 Gw as the management is expected to achieve financial closure for sizeable portion of the capacity. Maintain buy.

Edelweiss Securities Limited

Jeypore Sugar Company
Fair Value: Rs 152, Current Price: Rs 170

Crisil Equities has assigned fundamental grade 2/5 to Jeypore, indicating moderate fundamentals. The grade factors in Crisil Research view of sugar prices to remain firm at Rs 28,000-30,000 per tonne in SS 2010-11. The grade is constrained due to high leverage of the company (net debt-equity of 3.6x) which is a key cause of concern in the inherently cyclical sugar industry. Further, delays of almost three years in starting up of Pothavaram facility have significantly increased the capital costs of the project. The company has a low bargaining power due to presence of other sugar factories in nearby area. Crisil Equities expect the revenues to grow at 25 per cent compound annual growth rate over FY10-12. Crisil expects the company to post a loss of Rs 5 crore in 2010-11 and a profit of Rs 8 crore in 2011-12.

Crisil Equities