Analysts' corner

Bharat Forge, Godrej Industries, Shree Renuka Sugars & Redington

BHARAT FORGE
Reco Price: Rs 333,
Target Price: Rs 404
With European M&HCV segment growing at 20–25 per cent, Bharat Forge's management expects the exports to grow at 25 per cent in FY12. On the other hand, the management expects the domestic CV growth to slow down to 10–12 per cent in FY12. New non–auto facility likely to operate at 65–70 per cent in FY12 utilization level versus 50 per cent as of now. This augurs well for the profitability of the company as non–auto margins are likely to be higher by 400 basis points over the auto segment margins. With utilization of overseas subsidiaries improving to 55 per cent, analysts expect these subsidiaries to turn net profit positive in FY12. Analysts have factored in net profit of Rs 20 crore from the overseas subsidiaries in FY12 compared to no contribution in FY11. Operating leverage, coupled with higher utilization at the new non–auto facility, will lead to EBITDA margins in excess of 25 per cent on a standalone basis by FY12. Maintain accumulate.

— Prabhudas Lilladhar

GODREJ INDUSTRIES
Reco Price: Rs 167,
Target Price: NA
ICRA Online has assigned the Fundamental Grade ‘4+’to Godrej Industries Limited (GIL) indicating “strong fundamentals”. Key positives of the company are significant value inherent to its investment portfolio, risk mitigation through presence in diverse business segments, Lease income & dividend income protect cash flows from the cyclicality associated with the chemicals business. Also, successful integration of recently acquired companies could result in significant synergy benefits for Godrej Consumer Products. Robust growth envisaged for Godrej properties aided by its low capital-intensive model and strong brand image is a trigger. There are strong growth potential in the oil palm plantation and agri-inputs segments of Godrej Agrovet.

— ICRA Equity Research Service

SHREE RENUKA SUGARS
Reco Price: Rs 72,
Target Price: Rs 100
Shree Renuka Sugars (SRSL) expects domestic prices to improve slightly on exports of 2 mnt and as crushing season is about to end. SRSL expects improvement in domestic profitability on stable sugarcane cost/realisation, significant improvement in distillery profitability on higher volume/realisation and stable co-generation profitability. Unlike FY10, refinery would earn normalised EBITDA margins of $40-50/t vs $100/t in FY10 as raw-white spreads remain subdued. Global sugar prices are expected to remain firm due to very low inventory levels. SRSL expects to crush 12mnt of cane in Brazil in the ensuing season and maintains EBITDA guidance of $25 per tonne of cane based on its hedged sugar prices. Analysts expect strong cash flows from Brazilian companies. Post recent correction, SRSL is available at an attractive valuation. Upgrade to buy from hold.

— JM Financial

REDINGTON (INDIA)
Current price: Rs 74,
Fair value: Rs 100
Redington's exposure to troubled nations in MEA (Libya, Egypt, Bahrain) is less than 2–3 per cent of total sales; also, the management indicated that Egypt is showing signs of normalisation. Overall, however, Redington derives 30 per cent of its revenues from the Middle East (majority UAE, followed by Saudi Arabia) and hence may be vulnerable should the protests spread. Reports also suggest that the Japanese earthquake has forced a shutdown of key facilities, hitting the production of silicon wafers and components used in the manufacture of PCBs and displays. While the near-term fallout could be limited as residual inventory in the supply chain is utilised, any prolonged shutdown of Japanese manufacturing facilities could disrupt supplies at the OEM hardware level, thereby affecting the distributors. If the Japanese capacities remain offline for any significant period of time (>2–3 weeks), there could be an impact on shipments of PCs, displays and other consumer electronics. Maintain buy.

— Religare Institutional Research