RANBAXY
Reco price/date: Rs 503/November 27;
Current/Target price: Rs 502.65/Rs 510
At the margin, the base business performance has been disappointing. Steady growth in India is encouraging, but is negated by slower growth in most emerging markets in terms of constant currency. Lipitor faced pricing pressure post exclusivity, and recent withdrawal of batches and disruption in supplies could hurt market share. The research house cuts base business earnings by 12-15 per cent for CY13-14 on lower sales and margin assumptions. They incorporate a Rs 75-crore impact due to proposed price controls in India. Their target price is based on SOTP (sum-of-the-parts) valuations. They value the core business at 17.5x CY14 EPS; CY14 exclusivities at Rs 45 a share and derivative loss of Rs 50 per share. The base business trades at 17.5x CY13 Enterprise Value to Ebitda, which is at 46 per cent premium to Ranbaxy’s peers, implying expected revival in the base Business that is largely priced in at current levels. Maintain Neutral.
Nomura Equity Research
MPHASIS
Reco price/date: Rs 394.50/November 27;
Current/Target price: Rs 399.40/Rs 350
Mphasis’s relationship with HP (its largest shareholder and client) has been a double-edged sword. While it has helped the company build scale, HP’s loss of market share and diversion of business towards its local subsidiary has slowed Mphasis’s revenue growth. With 57 per cent of year-to-date FY12 revenues linked to HP, a projected decline of 10 per cent in FY13 from HP would keep Mphasis laggard versus peers. Margin risks are a concern, as Mphasis resorts to flexible pricing in order to secure new and retain existing business. Hopes of a parent buyback and de-listing should be viewed in light of the Digital Globalsoft (DGS) episode which was unfavorable to minority holders and the 186 per cent valuation gap between HP and Mphasis. Analysts’ revenue and EPS growth forecasts imply a 3.9 per cent CAGR in FY12-14E and make current valuations of 9.8x FY13E look rich. Initiate Underweight Rating.
Barclays research
PIPAVAV DEFENCE AND OFFSHORE ENGINEERING
Reco price/date: Rs 85/November 27;
Current/Target price: Rs 85.80/Rs 92
The company is one of the five largest docks in the world and the largest in India, well-equipped to accommodate ships of any size. It is presently constructing commercial vessels (Panamax) and plans to construct ships for the navy and the coast guard. A part of the shipyard would be dedicated to the offshore segment involved in construction of jack-up rigs, floating rigs and other offshore equipment. The strength of the shipyard involves huge size, good infrastructure, strong execution capabilities and focus on the defence sector. But weak shipping and shipbuilding market could lead to poor inflow of fresh orders in the commercial segment, at least for the next three to four quarters. However, we estimate Pipavav to capitalise on the huge opportunities in defence and offshore markets. We expect its revenues to grow at a CAGR of 30 per cent over FY12 to FY14E to Rs 3,100 crore. Accumulate Rating.
Kotak Securities Ltd
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KEC INTERNATIONAL
Reco price/date: Rs 62 / 27th November;
Current/Target price: Rs 62.60 / Rs 73
KEC has a geographically diversified business model which insulates itself from Slowdown in any particular region. Further, the company has also ventured in new businesses of water, telecom and railway which have fared well and order inflows as well as revenues have been picking up at a measurable pace. Given the attractive valuations (the stock is trading at 6.8x FY2014 Earnings per Share which is 48 per cent discount to its 5 year average Price to Earnings) the brokerage assigns a multiple of 8 times to arrives at the target price and maintains BUY. Upgrade to Buy.
Angel Broking Limited