LARSEN AND TOUBRO
Reco price: Rs 1,297;
Target price: Rs 1,160
Larsen and Toubro (L&T) is likely to witness muted growth in order inflow through FY12-14 due to unresolved issues in core sectors, such as power and hydrocarbon, among others. Analysts believe company is likely to deliver five per cent de-growth in order inflow for FY12 and FY13 each and recover in FY14. Moreover, marginal softening in interest rates in FY13 may not lead to sharp revival in the investment cycle, while issues with respect to clearances, fuel and competitive intensity will restrict order inflow. Further, L&T’s high capital commitment to own infrastructure projects worth Rs 75,500 crore would lead to a lower Return on Equity of 17 per cent by FY14, compared with over 30 per cent in FY’07. Initiate with sell.
-ICICI Securities
UNION BANK OF INDIA
Reco price: Rs 240;
Target price: Rs 185
Analysts expect Union Bank’s ROE to witness severe pressure and fall from the 18-20 per cent seen in FY08-11 to 12-13 per cent by FY14 given slower growth and asset quality issues. Once known for superior asset quality, Union Bank has steadily disappointed with rising net NPA levels. This has led to a continued de-rating of the stock over the past 1.5 years. With poor reported provision coverage of 45 per cent, analysts expect credit costs to pile up over FY12-14. Further, lower loan growth, asset quality issues and a weakening franchise are likely to weigh on the stock performance in the medium term. Downgrade to Underperform.
-Macquarie Equities Research
BATA INDIA
Reco price: Rs 688;
Target price: Rs 805
Bata India stores in Mumbai are doing really well with respect to sales and footfalls. Gross average per store sales for Bata in CY10 was Rs 1.15 crore (PINC estimates), which is likely to go up to Rs 1.5 crore per stores by CY13. Analysts believe the company will be able to exceed the growth estimate of 17 per cent for CY12 and is likely to show robust revenue growth of 20-23 per cent for CY12. The price revisions usually come at the year-end, especially after the discount season ends. Maintain buy.
-Pinc Research
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SOBHA DEVELOPERS
Reco price: Rs 301;
Target price: Rs 462
Having de-leveraged its balance sheet over the past three years, Sobha is now accelerating the pace of its new launches, execution and cash collection. With a strong brand built around quality and speed of execution in a relatively stable real estate market like Bengaluru, Sobha is well placed to monetise its land bank of 2,500 acres over the next 15-20 years. At current land prices, the land bank is worth at least four times cost. Analysts’ base case DCF model values this land bank at two times cost and generates a fair value of Rs 462 a share — a 54 per cent upside. Buy.
-Ambit Capital