| Maruti Suzuki India's net sales increased 27 per cent y-o-y driven by higher sales volume and improved realisations. While the Indian auto industry witnessed a volume growth of 11.8 per cent y-o-y during Apr-Jan'08, Maruti's volume grew by a robust 16.8 per cent y-o-y led by higher sales in the A2 and A3 segments. |
| Average realisation per unit improved 8.5 per cent y-o-y to Rs 2.30 lakh on the back of a better product mix. However, operating margins dipped 70 bps as a result of higher raw material costs but partially offset by lower other expenditure. |
| With A-Star, Splash, and Dezire lined up for launch, the company's sales are expected to grow in the near future. The recent announcement of the reduction in excise duty and increase in disposable income due to changes in tax slabs would also act as a catalyst for volume growth. |
| However, there are concerns with respect to the impact of Tata's Nano on Maruti's Alto as well as 800 models. Indiabulls believes that with the increasing competition in the compact car segment, the company is likely to shed some of its market share to its peers. |
| At Rs. 905.70, the stock traded at a forward price-earnings multiple of 11.4 times estimated FY09 earnings. On applying the discounted earnings method, Indiabulls arrived at a FY09 target price of Rs 1,060 for Maruti. |
| Nestle Reco price: Rs 1,531.00 Current market price: Rs 1,490.00 Target price: Rs 1,793.00 Upside: 20.3% Brokerage: IndiaInfoline |
| Nestle recorded 24.4 per cent y-o-y growth in revenues at Rs 3,500 crore driven by strong 25.2 per cent y-o-y growth in domestic sales aided by higher volumes and realisations (judicious price hikes were taken during Q3 CY07). Nestle has registered a double-digit growth in domestic sales for the eleventh consecutive quarter. |
| During CY07, in all the four quarters, Nestle managed to record strong 20 per cent plus growth, which was earlier a cause of concern. Exports for the quarter grew by 18 per cent y-o-y, however, realisations were impacted by appreciation of rupee. |
| Operating margins for the quarter expanded by 60 basis points (bps) to 19.9 per cent aided by 190 bps decline in overhead cost. Nestle incurred additional staff cost of Rs 75.4 crore on account of provisions for pension and gratuity. |
| Prices of all the key raw materials such as milk (up about 35 per cent y-o-y), wheat (up 12 per cent y-o-y) and coffee (except sugar) witnessed an upward trend and are expected to remain firm. IndiaInfoline expects Nestle to pass on the impact of higher input cost by taking judicious price increases. |
| IndiaInfoline expects Nestle to record revenue and net profit growth of 16.6 per cent and 14.4 per cent respectively over the next two years. The management has been making attempts to widen the export basket of products and the brokerage believes the company to bring exports growth back on track in the near future. At Rs 1,531, the stock is trading at 23.1 times estimated CY09 earning per share of Rs 66.40. The brokerage puts a "buy" on the stock with a price target of Rs 1,793, an upside of 17.1 per cent. |
| Jindal Saw Reco price: Rs 888.95 Current market price: Rs 792.00 Target price: Rs 1,106.00 Upside: 39.6% Brokerage: Macquarie |
| Jindal Saw (JSAW) registered a net profit (excluding profit from its US divestiture) of Rs 1,100 crore (up 83 per cent y-o-y). Its order book of $1 billion (approximately Rs 4,000 crore) which amounts to 0.7 times net sales for last four quarters, is expected to be executed by January 2009. Recently, it won a Rs 800 crore order from Cairn India involving the supply of LSAW pipes for the world's longest underground pre-insulated heat traced pipeline. |
| On a q-o-q basis, operating margins improved by 50 bps to 12.4 per cent. Because the US facilities were high cost and working capital intensive, Macquarie believes that this should lead to overall margin expansion as higher margins for the Indian SAW, seamless and ductile iron segments begin to be reflected in the financials. |
| The company expects a revenue contribution of Rs 2,000 crore by FY10 and an operating margin of 20-25 per cent for its three new businesses of infrastructure, transportation and fabrication. The company expects capital expenditures of Rs 1,800 crore over the next three years for these initiatives. |
| The company proposes to issue warrants and unsecured compulsory convertible debentures (at a conversion price of not less than Rs 819 a share) to promoters that will provide Rs 450 crore to fund its new initiatives. The brokerage reduces its earning per share estimate by 4 per cent for FY08 and 9 per cent for FY09 to factor in the equity dilution. At Macquarie's target price of Rs 1,106, the stock would trade at 14 times estimated FY09 price-earnings ratio. |
| Bank of India Reco price: Rs 286.00 Current market price: Rs 268.00 Target price: Rs 425.00 Upside: 58.6% Brokerage: Emkay |
| Bank of India's (BOI) stock price has corrected by 38 per cent over its 52-week high driven by concerns over its exposure to the international markets and exposures to credit default swaps and obligations (CDS/CDO). BOI is currently carrying an investment book of $1 billion (approximately Rs 4,000 crore) in its international operations, of which $400 million (about Rs 1,600 crore) is in credit-linked notes (funded CDS). The bank has already done mark-to-market (MTM) provisions of $8.5 million (Rs 34 crore) on this book and additional provisions are likely to be only to the tune of $1 million (Rs 4 crore). |
| The bank's management has mentioned that the debt waiver scheme may apply only to the agriculture loans overdue as on December 2007. For BOI the non-performing assets in agriculture loans (total portfolio of Rs 11,000 crore) are about Rs 400 crore. |
| The valuations have been beaten down to 1.2 times estimated FY10 adjusted book value (ABV) from a high of 1.7-1.8 times. Emkay believes that valuations are very attractive looking at an average return on equity (RoE) of 24 per cent over FY08-10. Emkay upgrades the stock to "buy" from "neutral" while maintaining a price target of Rs 425. |
| Current market price as on Thursday, March 6. |
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