Analysts' corner

Tata Steel, HCL Technologies & Federal Bank

TATA STEEL
Reco price: Rs 363
Target price: Rs 502
Tata Steel’s volumes for European operations are estimated to be 13.8 mt and 13.5 mt for FY12 and FY13, respectively. Its European operations’ Ebitda/tonne in second half of FY12 is likely to be below $10 and $45-50 in FY13. With its India capacity expansion on track, analysts expect incremental volume of 1.2 mt in FY13. They are lowering volume estimates 1.8 and 6.9 per cent for FY12 and FY13, respectively, to bring these in line with the management guidance. As a result, Ebitda is being revised downwards one per cent for FY12 and 11 per cent for FY13. Maintain buy.

— Edelweiss Securities

HCL TECHNOLOGIES
Reco price: Rs 412
Target price: Rs 520
HCL Tech has announced that AstraZeneca (AZN) has selected it as a strategic infrastructure outsourcing partner in a deal spanning five years. HCL will be responsible for managing AZN’s entire data centre network across 60 locations globally. It will also help AZN implement hybrid cloud though server virtualisation, storage and transformation. The deal shows signs of two catalysts playing for HCL, namely, its ability to win higher market share as clients finalise IT budgets and traction in IMS business. Analysts forecast 29 per cent revenue CAGR in FY11-FY14. This deal follows wins from Eli Lilly in July and Merck ($ 500 million) last year in the under-penetrated healthcare vertical. Analysts expect revenues from the deal to start accruing from Q1FY13. Maintain buy.

— Goldman Sachs Equity research

FEDERAL BANK
Reco price: Rs 360
Target price: Rs 462
The Reserve Bank of India (RBI) has deregulated interest rates of non-residential rupee (NRE) deposits and ordinary non-resident accounts. Earlier, interest rates on non-resident (external) accounts scheme and ordinary non-resident deposit under savings account were regulated by RBI at four per cent per annum. Around six-eight per cent of remittances to India are routed through Federal Bank, which results in a large NRE deposit base. This makes up 15 per cent of the bank’s total deposits. Since the deregulated rates would only apply on the fresh deposits, the impact would be negligible. Analysts expect Federal Bank to get re-rated on the back of higher recoveries, lower additions and improving ROE. Buy.

— Reliance Securities

ORCHID CHEMICALS AND PHARMACEUTICALS
Reco price: Rs 124
Target price: Rs 270
Orchid Chemicals and Pharmaceuticals has been sanctioned $100 million by way of external commercial borrowings (ECBs) by a consortium of Indian banks to redeem its outstanding foreign currency convertible bonds (FCCBs) of $117 million due in February 2012. According to the company, it will use the ECB and internal accruals to redeem the outstanding FCCBs. The total redemption value is $ 167 million. Analysts believe this move is positive and will remove concerns over the redemption of FCCBs. Orchid chemicals would also benefit from the depreciation of rupee as 85 per cent of the company’s sales come from exports and are billed in US dollars. Maintain buy.

— Angel Broking