TATA MOTORS
Reco price: Rs 764, Target price: Rs 697
While the domestic medium-heavy commercial vehicle segment is booming, with Tata Motors enjoying strong pricing power, other segments face huge competitive pressures. This restricts the company’s ability to raise prices in an inflationary environment. In addition, the company’s depreciation costs are likely to increase substantially as various plants are being made operational.
With high fixed costs, JLR has an extremely high operating leverage. In the fourth quarter of FY10, a 10 per cent decline in volumes would have resulted in around 27 per cent and 55 per cent decline in earnings before interest, tax, depreciation and amortisation (Ebitda) and adjusted profit after tax (PAT), respectively. Further, in the luxury car space, a slowdown is normally accompanied with higher level of discounts, adding to profitability pressure. Maintain reduce.
— Edelweiss Research
SIMPLEX INFRASTRUCTURE
Reco price: Rs 489, Target price: Rs 487
Simplex Infrastructure (SIL) disappointed both in terms of execution and new order intakes. Though, fresh order flows have witnessed an upswing in the current quarter. However, the management’s revenue guidance of 15-20 per cent for FY11 indicates the continuation of a sluggish execution phase. Owing to a relatively simpler business model and a moderate growth in earnings, with virtually no major positive surprises in store, the stock will continue to underperform its industry peers. Sum-of-the-parts valuation pegs Rs 487 per share as the fair value of the stock, assigning a 15.6x FY11 earnings multiple to its core construction business, while valuing SIL’s 85 per cent stake in the oil drilling rig business at Rs 467 million.
Maintain reduce.
— Elara Capital
WABCO-TVS (INDIA)
Reco price: Rs 727, Target price: NA
Demand outlook for medium and heavy commercial vehicle continues to remain strong for at least next six months. Over the long term, expect demand to be in the vicinity of 1.2x the gross domestic product growth. There is no significant capex requirement for the next two years, as Wabco can add capacities with minimal investment (like balancing equipment).
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Exports are the next big opportunity for Wabco. They have already witnessed a strong traction over the last two years (share of exports has increased from 3.5 per cent in FY08 to nine per cent in FY10), but margins in exports were lower than the domestic business. Besides, margins are also under pressure due to higher metal prices. The stock is trading at 13.8 and EV/Ebitda of eight on FY11E. The brokerage is yet to give a rating.
— Emkay Global
HOTEL LEELA VENTURE
Reco price: Rs 46, Target price: NA
Hotel Leela Venture (HLVL) is operating across six locations, with a portfolio of 1,190 rooms. HLVL has expansion plans lined up in two phases, of which the properties in New Delhi and Chennai are expected to be operational in FY11E.
The Bangalore and Mumbai properties (that contributes around 62 per cent to revenues in FY10) witnessed occupancy rates of 70-80 per cent in the March quarter, a marked improvement over the 55-65 per cent levels a year ago.
With tourist activity (domestic and foreign) picking up, expect the industry to regain its lost glory. The stock trades at FY12E enterprise value per room of Rs 2.2 crore, higher than company’s replacement cost of around Rs 1.8-2 crore. At current valuations, HLVL is expensive compared to peers.
Maintain neutral.
— Angel Securities