Aditya Birla Nuvo
Reco price: Rs 924.00
Current market price: Rs 934.80
Target price: Rs 968.00
Upside: 3.6%
Brokerage: Sharekhan
Aditya Birla Nuvo is planning to raise Rs 1,000 crore by issuing warrants to promoters. The amount, to be raised over the next 18 months, will be used for the expansion of the company's insurance business and in repaying debt. This will help bring down the debt to equity ratio, which was 1.5x as on March 31, 2009, and reduce the interest burden. This announcement has resulted in rerating of the stock, as high leverage has been a key concern for the company. The brokerage values the insurance business at Rs 354.7 per share. The research firm has upgraded the valuation of the company's telecom business, Idea Cellular, in line with the improvement in the valuation for telecom companies. The telecom business is now valued at an EV/EBITDA of 11 times its FY2010 EBITDA. At the current market price, the stock trades at an EV/EBIDTA of 17.6x FY2010E. Given the diverse businesses of the company it is best valued using the sum-of-the-parts (SOTP) method. The brokerage has increased the SOTP price target for the company to Rs 968 due to a re-rating of its insurance business and the improvement in the valuation of its telecom business. However, the stock is downgraded to hold due to the steep run-up in the stock price.
Divi's Laboratories
Reco price: Rs 1,194.00
Current market price: Rs 1,178.95
Target price: Rs 1,089.00
Downside: 7.6%
Brokerage: Emkay Research
For the quarter ended March, Divi's Laboratories reported revenues of Rs 320 crore (up 16 per cent y-o-y and 21 per cent q-o-q), were in line with expectations. The revenue mix has changed in favour of APIs, which constituted 51 per cent of revenues. EBIDTA for the quarter grew by 9 per cent to Rs 121.6 crore. EBIDTA margins declined by 237 bps to 37.8 per cent. However, adjusting for forex loss of Rs 16.9 crore, EBIDTA margins were up by 290 bps to 43.1 per cent. PAT at Rs 107.4 crore was up 16 per cent y-o-y and 17 per cent q-o-q.
At Rs 1,194, the stock is trading at 70 per cent premium to CRAMS universe. In the last three years, stock has traded at 32 per cent premium to sector universe because of superior growth profile (46 per cent and 81 per cent CAGR in revenue and earnings over FY06-09) and relatively strong balance sheet. However, going forward, it would be difficult to maintain similar growth profile. Revenues are expected to grow at 14.4 per cent and 19-20 per cent in FY10E and FY11E, respectively. PAT estimates for FY10E and FY11E are Rs 76.1 and Rs 92.2. At the current price, the stock is trading at 13x FY11E. Maintain hold.
Jaiprakash Associates
Reco price: Rs 224.00
Current market price: Rs 213.45
Target price: Rs 227.00
Upside: 6.3%
Brokerage: Motilal Oswal Securities
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For FY09, Jaiprakash Associates reported lower consolidated PAT of Rs 420 crore (down 38 per cent y-o-y) compared to standalone PAT of Rs 900 crore. Despite EBIT from construction business of Rs 660 crore, the decline in consolidated profit is due to execution of in-house projects. In construction business (standalone), in-house projects contributed 77 per cent of revenues and 87 per cent of EBIT, driven by execution at Yamuna Expressway project, which came as a surprise. During FY09, the company reported a 54 per cent increase in consolidated capital employed (CE) to Rs 27,200 crore, representing an increase of Rs 9,520 crore y-o-y. The capital employed on Yamuna project in March 2009 stands at Rs 2,420 crore, up from Rs 380 crore in FY08, indicating accelerated pace of execution.
The company is expected to report standalone PAT of Rs 990 crore in FY10E (up 16 per cent y-o-y) and Rs 900 crore in FY11E (down 9 per cent y-o-y). The brokerage has a price target of Rs 227 per share, of which Yamuna project is valued at Rs 80 per share. The amalgamation with Jaypee Cements, Gujarat Anjan Cement, Jaiprakash Enterprises and Jaypee Hotels has been approved, which has led to equity dilution of 218 million shares. The stock trades at a P/E of 35x FY11E. Maintain buy.
Pantaloon Retail
Reco price: Rs 299.00
Current market price: Rs 320.00
Target price: Rs 165.00
Downside: 48.4%
Brokerage: IIFL
Pantaloon Retail India plans to raise Rs 1,000 crore to fund expansion plans and repay part of its debt. The company plans to add 2.5 million square feet each in the next two years with total funding requirement at Rs 1,300-Rs 1,400 crore over the next two years. Of this internal accruals could contribute Rs 600-Rs 700 crore. The company is likely to pay down part of the debt on books out of Rs 300-400 crore excess funds it is likely to generate once the funding is tied up, bringing down its debt/equity to 0.6x in FY10 (from the current 1.2x).
PRIL's proposed fund raising could lead to equity dilution of 19 per cent at the current market price. This round of equity dilution, could be earnings-accretive, the extent of which would depend on the amount of debt the company pays down using the proposed funds. The fund-raising plans will be a positive, as it would ease funding constraints over the next two years. The Board has also mandated the management to consider merger of subsidiary, Home Solutions Retail, with itself. Though the company plans to split its retail business into two entities and bring in FDI, with the government ruling out retail from the purview of the FDI norms as of now, the restructuring would have little meaning. Maintain reduce.
Tech Mahindra
Reco price: Rs 774.00
Current market price: Rs 722.60
Target price: Rs 845.00
Upside: 16.9%
Brokerage: Angel Broking
Satyam Computer Services, acquired by Tech Mahindra in April 2009, released key financial data pertaining to Q3 FY09 and January and February 2009. On a consolidated basis, net sales stood at Rs 2,414 crore in Q3 FY09 with EBITDA Margins of 14.7 per cent and net profit of Rs 160 crore. The company had a cash balance of Rs 373 crore at the end of March 2009 and accounts receivable of Rs 1,911 crore.
The Satyam acquisition will add around 50 per cent to FY10 and over 74 per cent to FY11 estimated revenues. The acquisition will become EPS accretive from FY10 adding 27 per cent to Tech Mahindra's EPS in FY10 and 42 per cent in FY11. However, the acquisition is likely to be margin-dilutive for Tech Mahindra, with 415 bps and 448 bps drop estimated in FY10 and FY11, respectively. This is due to lower margins of Satyam. The lawsuits remain a major concern and the likelihood that the actual audited results could differ materially from those stated remain key risks. The release of key financial data by Satyam and the subsequent new facts coming to light, the brokerage upgrades the stock. At Rs 744, the stock trades at 9.7 times its FY11 estimated EPS. Maintain accumulate.
Current market price as on June 12, 2009