Analysts' corner

Nestle, BPCL, Havells India & PI Industries

NESTLE
Reco price: Rs 4,450
Target price: Rs 4,700
Nestle has come up with Milkmaid Creations, a new range of powdered dessert mixes, targeting the large Indian traditional sweet market. The product will target the convenience-seeking consumers, besides offering eggless cakes (for India’s large vegetarian population). Once again, Nestle has capitalised on its core competence of a quick turnaround (10-15 minutes for a dessert would be attractive). The launch also indicates supply constraints for the company are getting addressed gradually. Cadbury (Kraft) is also trying to capture a slice of this pie by promoting chocolates as a substitute for sweets. Nestle remains the best play on the Indian foods segment, but the stock is fairly valued over the near term. Maintain hold.

Edelweiss Securities

BPCL
Reco price: Rs 666
Target price: Rs 717
Daiwa has raised its estimate of BPCL’s exploration and production (E&P) value to Rs 207 a share from Rs 46 a share. Consequently, it has raised its SOTP-based six-month target price to Rs 717 from Rs 574. The E&P business now accounts for 28.9 per cent of its total value for BPCL (eight per cent previously). As the E&P business increases in value, the core business may progressively appear fair to inexpensive. On Daiwa’s estimates, excluding investments and the value of E&P assets, the core business is trading at an FY13 estimated price to book ratio of 0.8 times, which appears to be fair. Upgrade to Outperform from Underperform.

Daiwa Capital Markets

HAVELLS INDIA
Reco price: Rs 530
Target price: Rs 550
Havells is India’s largest and one of the fastest-growing consumer electrical products company, according to management, with revenues in excess of $1 billion. Analysts believe its strong brand recall, diversified product range, a solid distribution network and advantages that accrue from scale will mean it will continue to generate above-average returns in its domestic business. Analysts project solid growth for the domestic business (52 per cent of the group’s top line; 2012-14 estimated revenue CAGR of 17 per cent, Ebitda CAGR of 14 per cent) but a relatively modest growth in international business (42 per cent of the group’s top line; 2012-14 estimated revenue CAGR of two per cent, Ebitda CAGR of eight per cent). Initiate with Neutral.

Nomura Equity Research

PI INDUSTRIES
Reco price: Rs 509
Target price: Rs 760
IIFL estimates a 24 per cent CAGR in PI Industries’ revenue over FY12-14, driven by a healthy product pipeline in the agri-inputs business and a robust order book in the custom synthesis business. Further, we expect Ebitda margins to expand by 160 basis points from FY12-14 due to operating leverage and favourable shift in sales mix. A 12 times FY13 estimated price/earnings (PE) seems undemanding in the context of IIFL’s growth expectations. Key risks include adverse weather and lower-than-expected adoption of the company’s key molecules. However, the company’s order book, product pipeline, strong relationships with innovators and high-quality management offer good visibility for a strong ramp-up in growth. Initiate coverage with buy.

IIFL