HINDALCO INDUSTRIES
Reco price: Rs 134;
Target price: Rs 129
A sub-committee of Forest Advisory Committee (FAC) is slated to resubmit its views on the Mahan coal block to the Empowered Group of Ministers (EGoM) by March ’12. It was on the FAC sub-committee’s recommendations in June ’11 that the erstwhile minister of environment and forests (MoEF), Jairam Ramesh, had declined forest clearance to the Mahan coal block. Further, the report had also recommended a more detailed environment impact assessment (EIA) to be conducted. Analysts believe a change in FAC’s stance on ecological and environmental grounds in less than eight months will only go against their previous recommendations. Even if Mahan coal block is made available to Hindalco/Essar Energy (Essar), the uncertainty surrounding Baphlimali hills and the time taken to ramp up Mahan coal block (15 months as per Essar’s statement) will dominate analysts’ negative stance on Hindalco. Upgrade to REDUCE from Sell due to recent stock price correction.
ICICI Securities
VOLTAS
Reco price: Rs 116;
Target price: Rs 145
Voltas currently trades at significant discount to long-term valuations on low single-digit revenue growth expectation for the next 12-18 months. This offers a favourable risk/reward to investors, given Voltas could benefit from improving Middle East capex through higher oil prices along with a stable position in the growing air-conditioning market – well supported by a net cash balance sheet. Goldman Sach’s 14-18 per cent above consensus earnings builds in a moderate pick-up in award activity in the Middle East and pick-up in volume growth in the domestic room air-conditioning segment in next 6-12 months. Upgrade to Buy from Neutral.
Goldman Sachs
COX AND KINGS
Reco price: Rs 172;
Target price: Rs 270
Analysts believe Cox and Kings is a leisure tour operator well-positioned to benefit from the rapid growth of Indian tourism. Its overseas expansion offers benefits of crossselling, captive destination management and consolidated buying, boding well for margins. The stock has de-rated post the acquisition of Holidaybreak (HBR) on concerns about earnings sustainability of a tourism business in Europe and high gearing. While concerns on gearing are not unfounded, analysts see HBR as a strong franchise. HBR’s revenues are predominantly from education travel that has traditionally been resilient in economic downturns. HBR is highly earnings accretive, enhancing FY13-FY14 EPS estimates by 57-71 per cent. Strong cash flow profile and eight-year repayment schedule provide some comfort on high debt. The company may require an equity infusion. Initiate coverage with OW.
JP Morgan
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SOMANY CERAMICS
Current market price: Rs 35;
Fair value: Rs 68
Somany is a reputed player in the Indian tiles industry with an established brand and pan-India distribution network. Its focus on value-added products and the decision to postpone greenfield expansion were steps in the right direction. This strategy will help reduce the balance sheet stress without restricting growth. However, slowdown in the real estate industry and rising operating costs could impact future prospects. CRISIL Research expects Somany’s revenues to log a two-year CAGR of 21 per cent to Rs 1,050 crore in FY13 and EPS to increase to Rs 9 in FY13 from Rs 6.9 in FY11. Fair value of Rs 68 per share is retained.
CRISIL Research