Analysts' corner

Coal India, Cipla, YES Bank, IIFL

Coal India
Reco price/date: Rs 301/March 28;
Current/target price: Rs 309/Rs 330

Analysts believe Coal India is unlikely to meet its medium-term dispatch targets due to supply-side constraints and policy ambiguity. Further, margins are likely to remain under pressure as pricing is expected to lag cost escalation (on higher fuel / employee costs). While potential regulatory risks could impact long-term profitability, the stock appears fairly priced at current valuations, given the inherent strength of the business model. Religare values the stock at eight times FY15 estimated EV/Ebitda for utility business and six times EV/Ebitda for the rest. Maintain HOLD.

-Religare Institutional Research

Cipla
Reco price/date: Rs 380/March 27;
Current/target price: Rs 379/Rs 475

Analysts believe, Cipla's MedPro (CMP) acquisition should be five per cent earnings accretive to Cipla India, based on one-year forward Bloomberg estimates for CMP. Further, analysts view the proposed acquisition as low-risk since Cipla has been an exclusive supplier to CMP since 2005 and knows the business and the company well. However, in Credit Suisse's opinion, revenue and cost synergies are limited in this transaction although the acquisition does give Cipla more control on product registration and marketing. CMP currently has 242 pending registrations with the South African regulator. Maintain Outperform.

-Credit Suisse

YES Bank
Reco price/date: Rs 435/March 26;
Current/target price: Rs 428/Rs 531

YES Bank has consistently delivered robust operating profit growth (average 35 per cent y-o-y in the past 11 quarters) despite substantial investment on network expansion. With asset quality behaving well, this has translated into persistent delivery of 1.5-1.6 per cent RoA and 24-25 per cent RoE. NIM expansion is estimated to drive 25 per cent earnings CAGR over FY13-15. YES Bank's stock price has corrected 16.7 per cent over the past two months lowering valuation to a reasonable 1.8 times FY15 price/adjusted book value. Current valuation is also below six-year mean and at 35-40 per cent discount to HDFC Bank. In analysts' view, current levels provide good opportunity to participate in the profitable growth story of YES Bank. Upgrade to Buy.

-IIFL

Visaka Industries
Reco price/date: Rs 96/March 28;
Current/target price: Rs 97/Rs 157

Rising rural incomes on account of government schemes for the rural population would boost growth. At the new value-added flat-board plant at Pune, the company plans to raise capacity by 72,000 tpa by June '13 at a capex of Rs 70 crore. Since the long-term outlook is intact, analysts are positive on the stock and assign a one-year forward price to earnings (P/E) multiple of four times. It trades at a P/E of 2.4 times for FY14 and two times for FY15. Rise in input costs is the key risk. With 17 per cent sales CAGR in FY12-15, analysts expect Ebitda margin at 11-12 per cent. Maintain Buy.

-Anand Rathi Research