Analysts' corner

Apollo Tyres, GVK Power & Infrastructure & Bajaj Electricals

APOLLO TYRES
Reco price: Rs 59.35,
Target price: Rs 86
Apollo Tyres’ management indicated that the environment remains challenging with respect to domestic demand and forex is a new concern. However, positives were lower input costs, solid European business and likely break even in South Africa. Focus will be towards de-leveraging through working capital management and controlled capex. Risk reward seems favourable and we expect revival in replacement demand next year to provide positive trigger. Target price is based on 8x FY13E P/E, which is a mid-cycle mutiple. At our price objective the stock would trade at 4.9x FY13E EV/Ebitda. Buy.

-BofA Merrill Lynch

GVK POWER & INFRASTRUCTURE
Reco price: Rs 11,
Target price: Rs 16
Singapore's Changi Airports is likely to buy a 26 per cent stake in GVK Airports, the airport holding company of GVK Power & Infrastructure (GVK). Reports indicate a deal size of Rs 2,000-2,200 crore for the stake in GVK Airports. News articles suggest that the money raised will be used to repay the debt taken by GVK for buying its stake in Bengaluru Airport (BIAL) and Mumbai Airport (MIAL) as well as to meet capex requirements. Analysts had valued the airport portfolio of GVK at Rs 3,660 crore whereas the current deal values the same at Rs 7,700 crore, implying a sizeable premium to their valuation. Adjusting for the stake sale to Changi and reducing the debt required to be paid, analysts’ SOTP for GVK will rise from the current value of Rs 16 to Rs 22. Hold.

-Edelweiss Securities

BAJAJ ELECTRICALS
Reco price: Rs 136,
Target price: Rs 193
Bajaj Electricals has a strong domestic brand franchise and is the market leader in most of its categories. It is poised to benefit from the rising domestic demand for appliances, its increasing urban penetration, product launches and strong distribution in the semi-urban and rural markets. Taken together with the rising revenue from the E&P division, analysts estimate this rise in demand to lead to 21 per cent earnings CAGR over FY11-14. Initiate coverage with buy.

-Anand Rathi Research