Analysts' corner

M&M, United Phosphorous, IDEA Cellular & Reliance Industries

MAHINDRA & MAHINDRA
Reco price/date: Rs 954/November 26;
Current/Target price: Rs 922/Rs 959
News reports (Bloomberg) suggest Mahindra is one of the bidders vying for control of Aston Martin (40 per cent stake). While these reports remain unconfirmed by the company, we take a preliminary look at the pros and cons of this. Firstly, the obvious cons are the balance sheet implications (news reports suggest an enterprise value of £650-700 million including a £300 million of debt) and the drag on the overall profitability and return ratios. The pros would include expansion of portfolio into luxury cars and access to key technology know-how. In our view, Aston Martin is sub-scale with 5,000 units/per annum. (With an average realisation of £0.1 million /unit) and can be significantly larger, if M&M can pull this off. In the near term, we expect the stock to remain weak as further details emerge. We currently have an Overweight rating.

Barclays Equity research

UNITED PHOSPHOROUS
Reco price/date: Rs 110.10/November 23;
Current/Target price: Rs 111.10/Rs 145
United Phosphorus’ pan-global presence provides it operational flexibility to overcome geographical weather disruptions and business seasonality. Analysts estimate a 13 per cent CAGR in revenue and 17 per cent CAGR in earnings per share over FY12-15E, driven by its strong presence in the key emerging markets of India and Latin America (in particular Brazil). Moreover, United Phosphorous is currently trading at five-year lows (FY13 P/E of 7x and FY13 P/BV of 1.1x), providing a good entry point for investors. Though the analysts cut their target price to Rs 145 (implied upside) to factor in expectations of higher working capital, they reiterate a ‘Buy’ rating.

Deutsche Bank

IDEA CELLULAR
Reco price/date: Rs 92.65/November 23;
Current/Target price: Rs 92.75/Rs 106
The Research House hosted an investor meeting with the CEO and CFO of Idea as part of the Airtime Series. The meeting reinforced the view that competitive intensity in the market is declining and Idea continues to be better positioned to gain incremental market share. In the meeting, management discussed 1) Current regulatory issues; 2) Potential for 3G uptake and capex outlook; 3) Outlook on tariff and minutes growth. Between Idea and Bharti (both rated Buy), the research house prefers Idea given its better execution, higher operational leverage (to potential tariff hikes) and higher upside. Reiterate 'Buy' ratings.

Goldman Sachs

RELIANCE INDUSTRIES
Reco price/date: Rs 770.25 /November 22;
Current/Target price: Rs 773.10/Rs 1,015
The research house foresees recent approval for allowing drilling in D6 by DGH (Director General of Hydrocarbons) for its four-satellite fields, government withdrawing note on rejection of gas price hike and Reliance softening its stance on scope of KG-D6 audit as early signs of constructive efforts by Reliance and the government to resolve disputes & ramp up domestic gas production. They believe volatile third quarter gross refining margins (around $7.6 a barrel), falling gas output & earnings are largely priced in. With valuations at five-year lows & share buyback providing good support, we believe stock is attractive at current levels.

UBS Investment research