Rolta India
RESEARCH: BNP PARIBAS
RATING: BUY
CMP: Rs 127 BNP Paribas upgrades Rolta India to `Buy’ with a target price Rs 160. Management indicates that order inflow continues to improve and that the company is on track to meet its FY09 guidance. Rolta is in advanced stages of signing several new domestic infrastructure and defence-related orders, but these are unlikely to make the order book immediately with client go ahead still pending.
The international business will likely remain subdued, however, until oil capex and enterprise IT spending improves. BNP Paribas’ earlier margin assumptions were conservative - management expects flattish wage costs in FY10, while pricing could be better than the expectation on sales of newly launched solutions. Also note the current order book provides 65% revenue visibility for FY10E.
The target price rises on higher FY10/11E and medium-term projections, and implies FY10/FY11E P/Es of 11.4/10.0x. The latter is in line with the historical average and higher than the trough cycle of 6.8x P/E earlier. While the company may have missed the opportunity to buy back the FCCBs earlier in the year when the prices were much lower, any buyback at a discount is still positive as it reduces debt in the books and hence a likely heavy payback in 2012.
TATA STEEL
RESEARCH: JP MORGAN
RATING: NEUTRAL
CMP: Rs 438.30 JP Morgan recommends `Neutral’ rating on Tata Steel, but raises the price target to Rs. 415. While June and September 09 quarters should be weak, JP Morgan believes the worst is likely behind in terms of operational environment for Corus.
JP Morgan European steel analyst Jeffrey Largey expects European steel prices and demand to recover as inventory de-stocking comes to a close and believes European steel earnings are likely to improve from Q4CY09E with the real benefits flowing through in CY10E. While current capacity utilization at Corus remains at 50%, utilisation levels will gradually increase from here.
As the recent cancellation of the agreement by the buyers of slabs at the Teeside plant shows, FY08-level sales volumes are unlikely to come back for Corus any time soon. Indian operations should continue to do well and provide strong cash flow support over the next 12-18 months as Corus restructures. While deleveraging is expected to be limited over the next 18 months, it should pick up pace once Corus’ earnings normalise. JP Morgan does not rule out capital-raising to accelerate deleveraging, as net debt remains high.
MAX
RESEARCH: CLSA
RATING: BUY
CMP: Rs 206 CLSA maintains `Buy’ rating on Max India by raising the price target to Rs. 240. Max’s healthy growth in new business premiums of the insurance segment moderated towards Q4FY09, in line with the sector. But the high persistency rate of 82%, healthy margins on new policies and the cash breakeven of the healthcare business were encouraging. During FY10, Max New York Life (MNYL) will focus on expansion and targets to achieve breakeven by FY12.
MNYL's new business sales in Q4FY09 declined 13% y-o-y, compared to a 38% growth in the first nine months, reflecting industry-wide slowdown in sales, as weak equity markets led to a sharp fall in demand for unit-linked products. Revenue growth of 13% y-o-y was driven by sharp growth in outpatient revenues (32% y-o-y).
Average revenue per occupied bed day improved 3% y-o-y while utilisation remained flat at 65%. Max intends to expand total bed capacity from the current 770 to about 1,800 by FY12. CLSA values the healthcare segment at Rs27/share by ascribing 12x FY11CL EBITDA on current operational beds and adds net present value of replacement cost for rest of the beds.
CAIRN INDIA
RESEARCH: CITIGROUP
RATING: HOLD
CMP: Rs 230 Citigroup downgrades Cairn India to `Hold’ from `Buy’ with a revised target price of Rs 237. Citigroup’s long-term crude assumption (2012E onwards) remains unchanged at $65/bbl. For $65 long-term crude assumption, the stock is pricing in most of the quantitative and qualitative upsides.
Creation of surplus capacity (205k bpd plateau against Citi’s assumption of 185k bpd) exhibits confidence in terms of exploration potential and higher recovery. In addition, Citigroup now ascribes 5% premium to NAV to build in the exploration potential in other blocks as well as to factor in the potential for a positive surprise in project development targets.
In addition, Cairn’s positioning as the only hedge against crude for the “India-dedicated” money
ADITYA BIRLA NUVO
RESEARCH: UBS INVESTMENT
RATING: BUY
CMP: Rs 886 UBS Investment maintains ‘Buy’ rating on Aditya Birla Nuvo and raises price target to Rs 1,050 as UBS incorporates Idea’s revised valuation and lower holding company discount (10% from 30% earlier). ABNL has significantly appreciated (+126%) since 20 March ‘09 compared with a 59% rise in Sensex. UBS believes that Idea’s management’s strategy of investing in 1800 Mhz circles is sensible. Idea has gained excellent traction in revenue market share in the past few quarters due to its brand strength as well as excellent management. Idea’s 900 Mhz circles provide the company with a significant opportunity to create shareholder value. ABNL is likely to benefit from any increase in FDI/FII limits in insurance. Further triggers could be: 1) Any unlocking of value in insurance business, 2) Any stake sale in Idea or divestment of any non-core standalone businesses.
NESTLE
RESEARCH: HSBC
RATING: OVERWEIGHT
CMP: Rs 1975 The F&B industry in India is characterised by low penetration and low per capita consumption. The per capita consumption for some F&B categories in India is just 1-2 % of that in developed economies and is low even by emerging market standards. India’s income distribution pattern is changing, with the ‘deprived’ population set to decline from 50% of households in 2005 to 18% in 2025, resulting in a whole new consuming class. India has one of the youngest populations in the world, as well as a growing urban population, both of which are conducive to F&B growth.
With sales of Rs 4,320 crore in CY08, Nestlé is the largest processed food company in India and is poised for aggressive and sustainable growth. It has a robust milk supply chain enabling regular supply at an economical cost. The company drives new user recruitment through affordable priced packs and drives revenue and margins through brandsvariants/extensions; 76% of its sales growth is volume-led.
The company has excellent financials, marked by a net margin of 13%, a CY08-11 E EPS CAGR of 18.3%, negative working capital, and RoE of 125%-plus . HSBC values Nestlé at Rs 2,210 per share - 26x FY11E PE - as it deserves an about 8% premium to Hindustan Unilever (HUL), given its higher and better-quality growth in some categories and less competition in others. should support valuations. In addition, management’s track record in project execution adds a defensive shade to the stock despite the high leverage to crude prices. Cairn has adhered to its timelines, and readiness to start producing crude this month provides comfort on further milestones. Pricing seems to be settled with discount to Brent ranging between 10-15 %. The cess issue is likely to get resolved only in 2010, until which time Cairn is likely to pay at the present rate.
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