SAIL
Reco Price: NA
Target Price: Rs 270
SAIL's upcoming FPO has suppressed its price performance since long. While overhangs of a 10 per cent offering in January 2011 and a dilution of another 10 per cent in 2011-12 exist, the stock continues to offer one of the most secure margin expansion stories through operating leverage and efficiency improvement potential. Also, SAIL offers the lowest price leverage in the domestic ferrous space. The ongoing modernisation and expansion will lead to 20 per cent cost savings for the company. Major volume accretion will come on stream in 2013-14 and 2014-15. Company has embarked on a Rs 700 billion expansion capex at a Debt/Equity of 1:1. There will be minimal volume accretion in 2011-12. Maintain buy .
—ICICI Securities
Bajaj Finance
Reco Price: Rs 762
Target Price: Rs 1,000
Bajaj Finance (BFL) is well-poised to deliver 40 per cent assets CAGR in 2010-13, led by foray into new lending segments, namely, business loans—secured and unsecured. Earnings growth to be driven by decline in cost/income ratio and credit costs. Shift in focus towards opportunities in small businesses and consumer lending will reduce cyclicality and help de-risk portfolio from sharp swings in NPAs. The stock has risen by ~128 per cent YTD. It has priced in the normalisation of growth, but not the benefits of a strategic shift in focus fully. Brokerages expect BFL to raise additional capital to boost its capital position over the next 12 months, which will be attractive to book value and moderate valuation further. Initiate coverage with buy .
—IIFL
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ITC
Reco Price: Rs 162
Target Price: Rs 175
Brokerages expect cigarettes volumes to grow 1 per cent and 4 per cent for 2010-11 and 2011-12, respectively. Price hikes and softening in leaf tobacco prices, to drive nearly ~60 bps EBIT improvement in cigarettes business. If GST rate is 20 per cent, ITC will take an incremental 5-6 per cent price hikes as currently, it is paying ~15 per cent in state taxes. FMCG-others division could break-even in 2012-13 owing to losses in Personal Care. Bingo to break-even in another 6-8 quarters. Hotels business to post steady recovery. Chennai property to start in first quarter of 2011-12 and construction of Kolkata property is on track. Co expects to benefit from Common Wealth Games, Cricket World Cup and IPL-4. Target price revised to Rs175 from Rs165. Maintain buy .
—Prabhudas Liladhar
Navin Fluorine
Current price: Rs 293
Fair value: Rs 300
CRISIL Equities has assigned fundamental grade 2/5 to Navin Fluorine indicating ‘moderate’ fundamentals relative to other listed Indian equities. Navin has a long-standing presence as one of the four main local fluorine players. Crisil believes its increasing focus on the specialties segment is a step in the right direction. However, the existing businesses – refrigerants and bulk fluorides – have stagnated. Sales and profitability of refrigerants are dependent on CER income – the issuance and saleability of which is under question post 2011-12. Crisil expects Navin’s revenues to grow at a two-year CAGR of 16 per cent to Rs 501.1 crore in 2011-12, while EPS is expected to increase from Rs 81.6 in 2009-10 to Rs 116.3 in 2011-12. Crisil has used sum-of-the-parts method to arrive at a one-year fair value of Rs 300 per share (valuation grade of 3/5), indicating the fair value is ‘aligned’ with the current market price.
—CRISIL Equities