Analysts' corner

Tata Power, Grasim Industries, Mphasis & United Phosphorus

TATA POWER
Reco Price: Rs 1219,
Target Price: Rs 1,407
Tata Power (TPC), is on verge of enhancing its capacity to 8.6GW by FY13E. Further, TPC has 4.5GW under development and 4.9GW under planning stages. It has the most visible commissioning plan on ground. TPC’s operation in transmission, distribution and trading business are growing with steady pace. Coal business is expected to provide upside in soaring coal price regime. Brokerages expect TPC to report 15 per cent revenue and 12 per cent earnings CAGR over FY10-FY14E. Early commissioning of Mundra UMPP and MPL along with globally soaring coal prices would be triggers for the stock. Delays in FSA for Maithon unit II, partial exposure of Mundra UMPP to spot coal prices and poor weather condition in Indonesia are key risks. At CMP, the stock is trading at 1.8x FY12E and 1.6x FY13E book value; 12.6x FY12E and 12.0x FY13E EPS. Maintain buy.

— IDBI Capital

GRASIM
Reco Price: Rs 2,307,
Target Price: Rs 2,500
Grasim Industries has increased the price of viscose staple fibre (VSF) by Rs6 per kg from the beginning of March 2011. This is the second price hike implemented by the company during the ongoing quarter so far and the realisation of the company now stands at a historic high of Rs135 per kg. Strong demand for VSF products in both the domestic and the global markets is the key trigger for this hike. The demand for VSF is supported by the high price of competing fibres like cotton. Earnings for FY2012 could be upgraded by 3-4 per cent. On a consolidated basis, the move will lead to a nearly 2 per cent upgradation of the FY2012 earnings estimates. The present debt-equity ratio stands at 0.38 which ensures a strong balance sheet and comfortable debt raising to fund the capital expenditure. Maintain hold.

— Sharekhan

MPHASIS
Reco Price: Rs 465,
Target Price: Rs 450
Mphasis management indicated that HP channel revenues would remain sluggish at 0-2 per cent sequential growth going forward, though, any further rate cut to HP unlikely. Mphasis' focus is to grow non-HP channel revenues and expects 3-5 per cent QoQ growth. Its EBIT margin is likely to be in the range of 16-19 per cent for FY11. It is also looking to utilising the cash for an acquisition/buyback of shares. With lower than expected growth, analysts have further cut FY11-12E EPS by 2-7 per cent and have reduced the target price to Rs 450.The company is unlikely to achieve its FY10 EPS even in FY13E. Analysts believe the company’s growth profile (both revenues and profitability) would lag peers by a wide margin and investor confidence is unlikely to be re-gained in the near term. Maintain hold.

— ICICI Securities

UNITED PHOSPHORUS
Current price: Rs 136,
Fair value: Rs 180
United Phosphorus (UPL) has acquired a 50 per cent stake in Sipcam-Isagro (SIB), a Brazilian agrochemical company. This gives UPL a foothold into one of the largest agrochemical markets in the world. Analysts believe this acquisition should be easier to integrate than Cerexagri, as the management plans to do little by way of restructuring currently. The acquisition is well-timed, as the company should benefit from a turnaround in the Latin American markets. IIFL has upgraded earnings estimates by 3-5 per cent over FY12-13 to factor in the contribution from this acquisition. UPL’s management plans to gain from leveraging SIB’s distribution network to sell its own products in the market, which should contribute to some modest revenue synergies over the next 2- 3 years. UPL has corrected by 23 per cent during the last quarter to 9.4x PE, which discounts little or no recovery in any of the global agrochemical markets as well as continued margin pressure. Maintain buy.

— IIFL