Analysts' corner

PRAJ Industries, UltraTech, NMDC & Reliance Industries

PRAJ INDUSTRIES
Reco price/date: Rs 38/July 9;
Current/target price: Rs 38.8/Rs 60
Praj Industries Ltd is a technology-driven company with an established market position in the ethanol project and process engineering business. Although the current business environment remains challenging, we believe, with capex revival and aggressive efforts for its new emerging businesses, order inflow momentum should pick up, aiding revenue growth in FY14. We expect margins and return ratios to improve with higher contribution from new businesses and internationalisation. The almost-zero debt balance sheet, healthy cash and underperformance of the stock price limits significant downside risk from here, while any improvement in demand will lead to rerating of the stock. Successful commercialisation of the second generation ethanol plant would be a big trigger. Recommend BUY.

-Nirmal Bang Institutional Equities

ULTRATECH
Reco price/date: Rs 1,918/July 8;
Current/target price: Rs 1,927.85/Rs 1,944
We went through UltraTech Cement's (UTCEM) annual report for FY13. The management is optimistic on the long-term prospects of the sector. This has been the genesis of its focus on bolstering industry leadership. Its ongoing expansion would increase capacity by 20 per cent over FY14-16 to 64.45 million tonnes (including Star Cement). With its 61.5 mt of capacity (by FY16) and pan-India presence, UTCEM is the best proxy for the Indian Cement industry. The stock trades at 16.4x FY15E EPS, and at an EV of 8.9x FY15E Ebitda and $137 a tonne. Maintain Buy.

-Motilal Oswal

NMDC
Reco price/date: Rs 103/July 8;
Current/target price: Rs 102.90/Rs 140
NMDC aims to ramp up its production capacity to 48 million tonnes by FY15E (current capacity - 32 mt) through increased exploration of existing mines and development of new ones, that is, Bailadila 11/B, Kumaraswamy and Deposit 10 & 11/A. However, given the anticipated low steel demand, we expect sales volumes to grow only 6.9 per cent y-o-y and 7.1 per cent y-o-y in FY14 and FY15, respectively. Over the past five years, NMDC has traded at an average EV/Ebitda of 12.0x, compared to its current valuation of 2.5x FY2015E EV/Ebitda. Strong balance sheet, low cost of production, high-grade mines, long mine life and high dividend yield (6.8 per cent at CMP) make NMDC an attractive bet at the current levels. Maintain Buy.

-Angel Broking

RELIANCE INDUSTRIES
Reco price/date: Rs 880/July 5;
Current/target price: Rs 873.35/Rs 1,055
Reliance Industries (RIL) has emerged as a serious shale gas player by virtue of its $5.7 billion investment in the business. While low natural gas prices post acquisition has dented this business' returns, higher earnings from assets and enhanced capex efficiency have offset most of the impact. The company is pursuing a high leverage strategy ( more than 80 per cent debt financed) to enhance equity returns in the shale business. With a reasonable natural gas price deck assumption, we put the EV of RIL's shale gas assets at Rs 146 a share. We continue to like the company due to earnings CAGR of 15 per cent over the next four years. Reiterate BUY.

-Edelweiss Securities Limited