Wednesday, April 1, 2009

Brokerage Views - Crompton, Tata Motors, Tata Tea, Dishman, BHEL

Analysts' corner
S I Team / Mumbai March 30, 2009, 0:21 IST

Crompton Greaves
Reco price: Rs 122.15
Current market price: Rs 120.95
Target price: Rs 110
Downside: 9.5%
Brokerage: BNP Paribas Securities

Crompton Greaves (CR) will be investing Rs 230 crore for acquiring a 41 per cent stake in Avantha Power (AP). AP has four captive power units and is in the process of developing two more power plants of 600MW each, which include Korba Project at Raigarh in Chhattisgarh and Jhabua Project at Seoni in MP.

The total consolidated cash in FY09E is expected to be Rs 405 crore. Thus, post the acquisition of AP, the company can buyback a maximum of 3.9 per cent of outstanding shares. However, given the company’s need for working capital, the maximum buyback will be up to 1.6-2.0 per cent of outstanding shares. The company has successfully integrated three acquisitions to fill in product gaps and to enter new geographies. The brokerage favours the continuation of this acquisition strategy to acquire technologies such as HVDC and automation systems than to forward integrate into power generation. At Rs 110, the stock trades at 7.3x of FY10E earnings. It is trading at a discount to its peers due to a higher exposure to weakening T&D capex cycle in Europe and US (40 per cent of sales) and on account of the weakening demand in its industrial and consumer segments. Maintain reduce.

Tata Motors
Reco price: Rs 166
Current market price: Rs 172.70
Target price: Rs 100
Downside: 42.1% 
Brokerage: Edelweiss Securities

Tata Motors has launched Nano with several options, wherein the base version is priced at about 30 per cent lower than the M800. With deliveries slated to start in June 2009, the company is likely to produce around 50,000 units in FY10. This will contribute Rs 500 crore to standalone revenues. But, Nano is expected to be profitable only on high volumes, thus the project is unlikely to make a positive contribution to the company’s bottomline in FY10.

The favourable demographics of the Indian market indicate a large potential demand for a low-priced car like Nano. However, the key to the car’s success will be its on-road performance. Given the huge excitement the car has generated, any let down will impact its demand. Initial reviews of the car will be crucial to its success. While Nano could yield Tata Motors long-term positives depending on its performance, till then, the company is likely to continue to be plagued by a large funding gap, decline in domestic CV sales, and integration of Jaguar and Land Rover. The brokerage has estimated a fair value (target price) of Rs 100 for the stock. Maintain sell.

Tata Tea
Reco price: Rs 553
Current market price: Rs 559
Target price: Rs 853
Upside: 52.6%
Brokerage: Sharekhan

With tea volumes growing moderately in the domestic and international markets, Tata Tea is seeking opportunities to expand its beverage portfolio beyond tea and coffee. Tata Tea has launched ‘T!ON’, a tea and fruit based cold beverage in three variants-Mango Rush, Peach Punch and Apple Buzz in a 400 ml pet bottle priced at Rs 22. The non-carbonated beverages segment is growing at a healthy rate of 35-40 per cent in the domestic market. Tata Tea’s entry into this segment could be the much-needed revenue driver.

The company’s profit margins have been under pressure in FY09 and are likely to remain so with higher raw material prices, especially due to tea prices staying firm on account of tight demand-supply situation in India and globally. However, with a portfolio of strong global brands, Tata Tea has the ability to take price increases to ease the pressure on margins. In the domestic market, it has selectively hiked prices by 7-9 per cent in the beginning of Q4 FY09. The brokerage expects the company to sustain margins in FY2010.

The company’s focus on new geographies and new initiatives (green and herbal tea, fruit-based beverages and mineral water) augur well to sustain the growth at a consolidated level. At Rs 553, the stock trades at 8.7x its FY10 earnings estimate and 3.2x EV/EBITDA. Maintain buy.

Dishman Pharmaceuticals
Reco price: Rs 95
Current market price: Rs 98.15
Target price: NA
Brokerage: ICICI Securities

Dishman Pharmaceuticals is a world-class player in the global CRAMS market with expected revenues of Rs 1,000 crore for FY09, of which the CRAMS segment is likely to contribute around 75 per cent. Dishman’s collaborative deal with Polpharma of Poland will utilise the former’s back-ended capabilities and this deal is expected to be a medium-term positive with expected revenue contribution from FY11.The company announced a 13 per cent salary cut for all its employees along with production cut by one day per week at its manufacturing plant at Bavla, near Ahmedabad. This is likely to result in cost savings of Rs 6-7 crore for FY10. With customers tightening inventory and R&D budgets, most CRAMS players are facing a demand slowdown. Besides, rationalising in Solvay’s (top customer of Dishman) production sites could result in lower growth in revenues and profit, at least through to FY10.

The highest ever forex loss in Q2 FY09, issue of pledged shares and mid-cap stock correction has seen the stock tank 69 per cent in the past six months. Dishman is on track to achieve its FY09 PAT guidance of Rs 150 crore. The stock trades at FY10E P/E of 4x and P/BV of 0.9x. Reiterate buy.

Reco price: Rs 1,410
Current market price: Rs 1,570.15
Target price: NA
Brokerage: India Infoline

Although execution issues are easing, the thermal power project site where BHEL is a BTG vendor is still facing constraints for acceleration in execution. The physical targets set for FY09 would be missed by 12-13 per cent. Domestic supply-chain bottlenecks have eased significantly, with the Trichy plant being able to meet the requirements well ahead of schedule. Considering the execution issues, FY10 revenue targets would translate into around 20 per cent growth, which is 5-6 per cent lower than consensus estimates. In FY08, BHEL’s revenues were in line with the targets. In FY09, BHEL is unlikely to outperform, given the execution slippage in Q3. Hence, FY10 consensus revenue estimates could be revised downwards.

In Q3, the management increased the FY09 employee cost estimates to Rs 4,300 – Rs 4,500 crore. Thus, in FY10, employee costs could provide a positive surprise (pending final negotiations), notwithstanding increased gratuity provisions. Against order inflow guidance of Rs 40,000 crore given at start of the year, the management expects to end the year with inflows of Rs 60,000 crore, a 20 per cent y-o-y growth in an environment where other engineering players are finding it difficult to sustain order books. Maintain buy.

Current market price as on March 26, 2009

source : business-standard