Tata Steel
Reco Price: Rs 703,
Target Price: Rs 1,017
Tata Steel will embark upon a new earnings growth path, with expansion of capacity from 6.8 mtpa to 10 mtpa at Jamshedpur, start of coking coal production at Benga project, Mozambique, and start of iron ore production at DSO, Canada over the next 12-15 months. Sale of Teesside Cast Products’ (TCP) slab plant for nearly $ 500 million will help to deleverage the balance sheet and reduce earnings volatility for Tata Steel’s Europe operations. TSE margins will remain under pressure until full economic recovery in the European region. Though the earnings contribution from RIV and NML will be marginal in 2012-13, Rio Tinto group’s keen interest in RIV with a firm bid of A$ 3.9 billion and possible counterbid is likely to get reflected in Tata Steel’s valuations sooner than expected. Upgrade to Buy.
—Motilal Oswal
Indraprastha Gas
Reco Price: Rs 350,
Target Price: Rs 360
Indraprastha Gas (IGL) has increased prices for CNG by Rs 1.25/Kg and for PNG (domestic) by Rs 2.1/scm. With gas demand in NCR growing at 15 per cent per annum, incremental gas supplies would increasingly come in the form of LNG, thereby increasing gas costs for the company. The recent price rise establishes IGL’s strong pricing power and an ability to pass on future increases in gas costs to consumers. With these price rises, IGL would be able to maintain its CNG margin at Rs7.6/scm and PNG margins at Rs11.5/scm. Overall, analysts expect the Ebitda/scm to remain stable at Rs4.8/scm. Over the next three-four years, IGL is likely to invest Rs 1500 crore to expand its network for both, CNG and PNG in NCR. This will enable the company to support the demand momentum even beyond 2011-12. Maintain hold.
—Religare Institutional Research
Jaiprakash Power Ventures
Reco Price: Rs 56,
Target Price: Rs 79
Jaiprakash Power Ventures (JPVL) has commenced filling of water in the intake channel of the 1,000-Mw Karcham Wangtoo hydropower plant. The company has targeted March 6 as the commissioning date of the first unit, and the timely commencement of water filling provides comfort that it will achieve the target. While a dispute with PTC regarding the PPA for the sale of power from the plant remains unresolved, brokerages expect a solution before the plant is commissioned. Till then, analysts assume design energy of 5.36 bn units and JPVL to sell 80 per cent of the same to PTC on tariffs determined under CERC regulations and the balance 20 per cent in the merchant market. The commissioning of Karcham Wangtoo as a key trigger for the stock. Maintain outperformer.
—IDFC Institutional Research
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Somany Ceramics
Fair Value: Rs 79,
Current Price: Rs 56
Crisil Equities has assigned fundamental grade of 4/5 to Somany Ceramics (Somany), indicating superior fundamentals. Somany has the second largest manufacturing capacity of 19.1 mn sq.ft., strong brand recall and an extensive pan-India distribution network. The company’s newly launched products – VC and Durastone tiles - received encouraging response in the market. Crisil Equities expects Somany’s revenues to grow at a two-year CAGR of 21 per cent to Rs 790 crore in 2011-12, while EPS is expected to improve to Rs 9.1 in 2011-12 from Rs 5.7 in 2010-11.
—Crisil Equities