Analysts' corner

Reliance Industries, Sun TV & Jubilant Foodworks

RELIANCE INDUSTRIES
Reco price/date: Rs 805/April 16;
Current/target price: Rs 781.80/Rs 1,000
Overall, a decent fourth quarter result, in our view. We continue to believe that a recovery in petrochemicals is not far. With its ongoing mega petchem expansion getting closer to completion, RIL would reap advantage of a cycle upturn. The refining performance remains good. Even as continuing decline in KG-D6 production is a concern, the earlier acrimony with the government seems to have subsided. The government seems intent on decision making, and an early decision on gas price would revive exploration and production investment, in our view. Buy.

-Nomura Equity Research

SUN TV
Reco price/date: Rs 369/April 17;
Current/target price: Rs 391.20/Rs 500
After a sluggish trend in FY10-13, the research firm expects Sun TV's earnings to post 17 per cent CAGR over FY13-15, driven by an uptick in ad spends from second half of FY14 and higher subscription revenues. The stock price has fallen 27 per cent over the past three months. Valuations, at 18 times one-year forward, are at 10 per cent discount to average for the past three years and sector multiple. DMK's exit from the central government is unlikely to impact the underlying business strength of the company, and in the worst case may imply transitory risks. We believe this correction offers an attractive entry point for long-term investors. The risks according to the brokerage are sluggishness in macro economy, resulting in subdued advertising revenues and slower-than-expected pick-up in subscription revenues. Buy.

-Anand Rathi Research

JUBILANT FOODWORKS
Reco price/date: Rs 1,108/April 16;
Current/target price: Rs 1,087/Rs 1,000
With same store sales growth slowing down, the research firm believes that operating leverage will be adversely impacted and promotion and marketing costs will rise. The new service tax will reduce the leeway for price increases in FY14. We do not expect Dunkin' Donuts to break even in the next three-four years. Jubilant broke even only after it had over 100 Domino's stores, which are more profitable than Dunkin' Donut stores given their high delivery share, larger ticket sizes and higher operating leverage. Our earnings estimates are 10-15 per cent below consensus as we build in lower same-store sales growth and margins. Valuations look stretched as the stock trades at 40x one-year forward earnings, a 40 per cent premium to its Indian consumer discretionary peers. The key risks are a strong recovery in urban consumer demand and a faster-than-expected breakeven at Dunkin' Donuts. Underperform.

-Credit Suisse Securities