BHARAT HEAVY ELECTRICALS
Reco price/date: Rs 198/September 12
Current/target price: Rs 200/Rs 199
Recent news on several private power producers being implicated in the 'coalgate' scandal, some of which are Bhel's customers, has negative implications on Bhel's execution outlook. Analysts estimate 28 per cent of Bhel's existing order book is at risk, compared with 19 per cent earlier. Several other private power developers have allegedly placed fake orders with power equipment companies to boost chances of securing coal mines in India. In the medium term, analysts believe the outlook remains highly uncertain, as the clean-up of existing orders would result in hurdles for incumbents. Nomura has cut its FY13-14 earnings estimate by one to eight per cent. Maintain 'Neutral'.
Nomura Equity Research
BHARAT FORGE
Reco price/date: Rs 295/September 10
Current/target price: Rs 281/Rs 372
Bharat Forge's management believes growth in the commercial vehicles business segment may be slowing faster than anticipated. The company's non-auto business, however, continues to perform on expected lines. Analysts now factor in growth in core revenue (excluding the benefit of rupee depreciation) of 0-5 per cent for the auto business and 15-16 per cent for the non-auto business in FY13/FY14. The total revenue growth of 7-11 per cent would likely be boosted by better rupee realisation on exports. Therefore, margins may improve significantly and the earnings per share for the standalone business could be Rs 20.3-25.6 in FY13 and FY14. With a drop in capital expenditure, return on equity can only improve. Current valuations remain attractive. Maintain 'Buy'.
ICICI Securities
KANPUR PLASTIPACK
Reco price/date: Rs 32/September 4
Current price/fair value: Rs 37/Rs 47
Kanpur Plastipack's results in the quarter ended June exceeded CRISIL Research's expectations. Revenue rose 37 per cent annually to Rs 51 crore, driven by an increase in volumes due to higher installed capacity and higher realisations. The earnings before interest, tax, depreciation and amortisation (Ebitda) margin improved by 419 basis points annually to 14.8 per cent due to (a) higher economies of scale due to nearly complete capacity utilisation, (b) higher dollar realisations in export markets, and (c) benefit of rupee depreciation. Adjusted net profit rose 103 per cent annually to Rs 4 crore. Driven by strong export demand, Kanpur Plastipack is expanding its flexible intermediate bulk container and multi-filament yarn capacities by 1,000 tonnes and 1,200 tonnes, respectively, over FY13-FY14, at a capital expenditure of Rs 15 crore. The FY13 and FY14 earnings per share estimates have been raised 66 per cent and 51 per cent, respectively, driven by higher installed capacity and a higher Ebitda margin.
CRISIL Research
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SESA GOA
Reco price/date: Rs 163/September 13
Current/target price: Rs 160.25/Rs 191
Taking cognisance of the Shah Commission's report on illegal mining of iron ore in Goa, the state government has temporarily banned all mining in the state. Sesa Goa, the state's largest mining company, would be severely hit by the ban and a likely downward revision in the mining limit. We have cut our volume estimate 60 per cent/44 per cent for FY13/FY14. With the weakness in Chinese iron ore prices resulting in a 22 per cent/14 per cent cut in our FY13E/ FY14E blended realisations, the earnings before interest, tax, depreciation and amortisation margin has been scaled down 88 per cent/53 per cent for FY13E/FY14E. We are cautious on Sesa's iron ore business. Yet, the imminent merger with Sterlite Industries and a 20 per cent stake in Cairn India (book value of Rs 157/share of Sesa) lead us to maintain ‘Hold’, with a revised targeted price of Rs 191 (Rs 205 earlier).
Edelweiss Securities