Ashok Leyland
Reco price: Rs 31.00
Current market price: Rs 34.05
Target price: Rs 30.00
Downside: 11.9%
Brokerage: India Infoline
Ashok Leyland’s (ALL) domestic vehicle despatches have fallen by 30 per cent as against 60 per cent reported for June 2009 quarter largely due to the steps taken to eliminate dealer-level inventory, which fell from 3,000 vehicles at the start of the quarter to practically zero. However, ALL’s medium and heavy commercial vehicle volumes declined faster than the industry, as its key market, southern India, declined faster than industry, and the eastern India market, where ALL is relatively weak, grew faster than industry.
Bus orders under JNNURM could drive 20 per cent growth in bus sales in 2009-10. On the back of price hikes and falling raw material prices, the management expects EBITDA margin expansion of 350 bps in FY10. ALL also expects to free up Rs 500 crore of working capital.
While ALL expects its own truck volumes and that of the industry to grow by 0-5 per cent in 2009-10, the brokerage expects ALL’s volumes to decline by 15 per cent as against a 0-5 per cent decline for the industry. At Rs 31, the stock trades at 17.5 times its estimated 2009-10 earnings. Maintain reduce.
Gujarat State Petronet
Reco price: Rs 53.00
Current market price: Rs 52.70
Target price: Rs NA
Brokerage: Angel Broking
Gujarat State Petronet recorded 13.7 per cent year-on-year (y-o-y) jump in revenues to Rs 132 crore for March 2009 quarter. Transmission volumes fell by 27.7 per cent y-o-y, while average realisations spiked 59 per cent y-o-y. However, operating profit margins contracted due to higher staff and other expenses. With zilch contribution to Gujarat Socio Economic Development Society (GSEDS), bottom-line fall was stemmed at Rs 35 crore (Rs 41 crore).
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Reliance Industries’ KG D6 transmission volume is expected to increase to 9 mmscmd during first half of 2009-10, which is to be scaled further up to 11 mmscmd. This would enable healthy volume addition which is expected to be scaled up to 30 mmscmd in the current fiscal.
On account of improving visibility and volume flow from the KG basin, the brokerage has increased its volume assumption for 2010-11 to 39.5 mmscmd (from 35.5 mmscmd) which should also drive higher the company’s profitability. However, uncertainty regards GSEDS contribution continues to be an overhang on the stock. Given the recent run-up in the stock price, the brokerage maintains a neutral rating.
Jaiprakash Associates
Reco price: Rs 193.00
Current market price: Rs 197.35
Target price: NA
Brokerage: Edelweiss Securities
The merger of Jaiprakash Power Ventures (JPVL) with Jaiprakash Hydro Power (JHPL) would increase its holding company, Jaiprakash Associates’ (JPA) stake in JHPL to 76.5 per cent. Post the merger, JHPL will house 6,619 MW, out of which 700 MW is operational and another 2,374 MW achieved financial closure and will come on-stream by 2012. The brokerage has valued JHPL (post merger) at Rs 6,600 crore (as against Rs 18,700 crore current market value), considering the operational capacity and the 2,374 MW project.
For JPA, it recently launched a 3 million sq ft project in May 2009 at Noida at a low price point of Rs 2,100 a foot, which has been sold out. This along with other Noida projects should see net cash inflows of Rs 1,850 crore over 2010-12. The merger of power entities will aid fund raising for power capex. Also, flexibility to launch real estate properties due to low land cost, plot sales and monetisation of treasury shares are additional fund raising levers.
The brokerage has revised upwards its earnings estimates for 2009-10 by 27 per cent to factor in robust real estate sales and higher construction revenues. At Rs 193, the stock is trading at P/E of 22.2x FY10E and 19.4x FY11E. Maintain hold.
LUPIN
Reco price: Rs 808.00
Current market price: Rs 800.00
Target price: Rs 980.00
Upside: 22.5%
Brokerage: Emkay Research
EU regulators are investigating anti-trust probe against Servier (patent holder of Coversyl-Perindopril) and few generic players including Teva and Lupin over suspected agreements which may have blocked the entry of generic Perindopril into the European Economic Area. In April 2007 and October 2007, Lupin sold Perindopril patent application and intellectual property to Servier for Euro 40 million. The Lupin management indicated that they have sold the IPR rights and this does not infringe EU law. Similarly, Servier has also mentioned that initiation of proceedings does not imply proof of an infringement. Antitrust law says that violators could be subjected to penalties as large as 10 per cent of worldwide revenue. Unlike the US, the EU provides no criminal penalties for individuals who violate anti-trust law.
The chronology of events leading to out of court settlement raises an iota of doubt about the intention of settlement between innovator (Servier) and Lupin. In the worst case scenario, this event will lead to one-time charges as high as Rs 370 crore (10 per cent of FY09 revenue). Maintain buy.
voltas
Reco price: Rs 124.50
Current market price: Rs 120.95
Target price: Rs 142.00
Brokerage: Citi Investment Research
Voltas’ domestic electromechanical segment has been subdued. New inquiries, tendering and execution of orders have been muted. Current domestic and international order books stand at Rs 1,300 crore and Rs 3,500 crore, respectively. Mining and construction segments suffered due to low commodity prices and lack of finance. Recent signs indicate that the third party financiers for equipment have adequate liquidity. Overall, the engineering business in 2009-10 is expected to deliver flattish growth (improvement seen in second half) while 2010-11 could be strong.
Improved consumer sentiment and a harsh summer have helped volume growth; secondary AC sales have grown while primary sales have been subdued. Overall AC volumes are estimated to have grown a little less than 10 per cent in March 2009 quarter. Voltas' businesses seem to have bottomed and expect recovery to be driven by expectations of renewed domestic infrastructure spending and capex recovery in West Asia. However, Citi believes that the recent stock performance has captured the recovery too soon and does not see upside from current levels. At Rs 142, the stock is trading at 16x its September-FY10E FD EPS and is supported by 20 per cent earnings CAGR for 2010-11. Maintain sell.
Current market price as on July 9, 2009