Analysts' corner

Dish TV, Cummins India & Divi's Laboratories

DISH TV
Reco price/date: Rs 62/July 4;
Current/target price: Rs 61/Rs 75
Dish TV reiterated its focus on profitable growth and de-emphasised chasing subs (notably low-value subs) given the robust scale (10.7 million paying subs) and poor churn experience with low-value subs. Other discussion points were 150-200 bps margin expansion in FY14, led by relatively stable cost structure, FCF expectation of Rs 200 crore in FY2014 given reduced capex (large STB inventory), un-hedged $debt exposure of $180 million but likely decline to $100 million by FY14. Moderate impact of Trai's standard rate order for STBs and continued modest traction in HD subs despite ad campaign/ maximum HD channels. We retain our ADD rating with 12-month forward FV of Rs 75; estimated at 10X FY2014 fair-accounting Ebitda valuation. Retain ADD.

-Kotak Institutional Equities Research

CUMMINS INDIA
Reco price/date: Rs 443/July 4;
Current/target price: Rs 441/Rs 548
According to its annual report new set of emission norms (CPCB II) will change competitive landscape significantly in favour of incumbents. As part of the initiative to add new geographies, it has supplied its first engines to Latin America in FY13; the company will help consolidate and diversify regional business risks. It has identified significant new business opportunities for Heavy Duty, High Horsepower Engines and Parts exports. Cummins further strengthened distribution backbone through various initiatives. The stock is trading at 18.5x FY14E earnings. Cummins continues to be the best franchisee in capital goods space. The long-term outlook continues to be positive, given strong industrial potential due to continued power shortage, strong balance sheet and technology capability. We believe near-term pain in numbers due to margin/demand correction is factored in the current price. Accumulate.

-Prabhudas Lilladher

DIVI'S LABORATORIES
Reco price/date: Rs 967/June 26;
Current/target price: Rs 963/Rs 1,125
In the past three months, the rupee has depreciated sharply against key export currencies for major pharma companies. Our analysis reveals Divi's is among the best-positioned in terms of foreign-currency exposures (export sales net of raw material and other costs incurred in foreign currencies). Unlike many peers, a virtually debt-free balance sheet and unhedged forex position should ensure flow-through of benefits at operating level to PAT. Approval for additional blocks and ramp up in utilisations at currently-operational blocks at DSN facility are key drivers from H2FY14. Despite maintaining $:Rs at 54.5 for our estimates, we believe current valuations are highly attractive, given the company's best-in-class currency exposure, balance sheet strength and cash flow profile. We upgrade the stock to 'Buy' with a target price of Rs 1,125. Buy.

-Spark Capital