BPCL
Reco Price: Rs 660
Target Price: NA
BPCL began processing crude oil at its 120,000-barrel-a day Bina refinery from June 29. It expects full commissioning to take some time, possibly by end of September 2010. The first batch of kerosene and LPG has already been sold to BPCL. The start of the Bina refinery is positive as it will ease BPCL’s products purchase from imports/other refiners. Further, it will add to its earnings from the refining segment. However, BPCL consolidated estimates already incorporate contribution from this refinery assuming a mid-year start. The stock trades at a price to earnings of 11.0x estimated FY12 earnings. Maintain reduce.
— Edelwiess Research
Hero Honda
Reco Price: Rs 2,021
Target Price: Rs 2,250
The demand outlook is robust. Facing a near-stock-out situation with system inventory of seven to 10 days, expect the strength in demand to sustain. A normal monsoon can result in strong festival season sales. Maintain volume target of 5.3 million. Monsoon remains the key. Significant pressures on the raw material front as the increase in costs due to new emission norms has not been passed on to consumers. It raised prices across products (Rs 500-700), except for Splendor and Karizma, in June 2010. Some benefit is expected from declining metal prices from the second quarter of FY11. Margins were under pressure in the first quarter of FY11 due to higher metal prices and IPL-related costs. The brokerage is upgrading volume estimates by 2.6 per cent but has lowered earnings per share targets by 1.5 per cent and 1.4 per cent for FY11 and FY12, respectively. Maintain accumulate.
— Emkay Global
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Ranbaxy Labratories
Reco Price: Rs 460
Target Price: Rs 527
Ranbaxy has hived off the discovery-led research unit of its R&D department to be merged with Daiichi Sankyo India Pharma. Under the deal, Ranbaxy would transfer intellectual properties of the ongoing research of current molecules as well as around 150 employees of this unit. In return, Ranbaxy will receive some upfront consideration, which is yet to be disclosed by the management. The brokerage feels that the restructuring exercise between parent (Daiichi Sankyo) and the subsidiary (Ranbaxy) is a first sign of synergy between the two after the acquisition. Apart from a one-time cash flow from Daiichi as upfront consideration, the company would improve earnings per share estimates by 9 per cent, 8 per cent, and 6 per cent for 2010, 2011 and 2012, respectively. Maintain Accumulate.
— Elara Capital
Reliance Power
Reco Price: Rs 175
Target Price: Rs 107
The approved scheme of amalgamation between Reliance Power (RP) and Reliance Natural Resources (RNRL) seems to have been done out of necessity than to create value. The price to book value (P/BV) after adjusting for the potential goodwill created from the transaction sees the metric worsen to around 3.2x P/BV. Stripping out cash and investments implies a P/BV of 11.8x, highlighting the early stage of the execution cycle for the combined entity. The only real fundamental value that RNR could bring to RP shareholders is undeveloped gas assets. Again, it seems that RP paid an enterprise value of around $1.4 billion for this more speculative upside. With financial closure only achieved for 17 per cent of its project pipeline, there is still a long way to go regarding project execution. Maintain underperform.
— Macquarie Research