Analysts' corner

RESEARCH CALLS

Texmaco
Reco price: Rs 1,360
Current market price: Rs 1,399.75
Target price: Rs 1,913
Upside: 37%
Brokerage: ICICI Securities

Texmaco's leadership in key high-growth business segments will enable 36 per cent y-o-y growth in earning per share (EPS) over FY08-10. New joint ventures to tap loco and coach demand should provide further upside.

Demand for freight wagons is rising at a fast pace due to rising procurement by the railways that is committed to increasing its share of freight traffic, the entry of 14 new private container railroad operators with aggressive ramp-up plans, wagon leasing scheme and emerging demand from thermal plants or miners for captive transport.

Texmaco's steel foundry is also operating at full capacity. It is also set to benefit from growing demand for hydro-mechanical equipment, a market worth Rs 26,500 crore. ICICI Securities values the core business at Rs 1,615 a share based on 16 times estimated FY10 EPS.

Based on this, the value of real estate holdings and other investments, ICICI Securities puts a target price of Rs 1,913 a share with a "buy" recommendation.

Exide Industries
Reco price: Rs 67
Current market price: Rs 68.20
Target price: Rs 80
Upside: 17%
Brokerage: Angel Broking

On the back of a superior pricing power Exide will continue to achieve higher return ratios and maintain margins amidst a substantial increase in the raw material costs. Demand is expected to be robust due to a strong base and burgeoning automotive battery replacement market. Better performance by the industrial segment also works in favour of the company.

The demand for automotive batteries is expected to grow at 18-20 per cent a year, while the industrial battery segment is expected to register a higher growth at 22-25 per cent a year, over the next two years.

To meet this demand, Exide plans to double its industrial battery capacity and increase its automobile battery capacity by 50 per cent at an investment of Rs 450 crore over FY08-10.

Angel puts a "buy" recommendation on Exide with a sum-of-the-parts target price of Rs 80 a share. The company's core business fetches Rs 63 per share and the value of investments in insurance works out to Rs 17.

The brokerage values its stake in ING Vysya Life Insurance at Rs 17 per share at 15 times estimated FY10 new business arrived profit (NBAP) and adjusted valuation of 11 times FY10E earnings for its core business.

Reliance Industries
Reco price: Rs 2,346
Current market price: Rs 2321.70
Target price: Rs 3,198
Upside: 38%
Brokerage: IndiaInfoline

IndiaInfoline values the exploration and production (E&P) business of RIL at $35.2 billion (approximately Rs 1,40,800 crore).

Globally, gross refining margins (GRMs) have been on a sustained uptrend in the last three years with intermittent blips. RIL, with its complex refinery, has gained significantly by registering GRMs $5-7/bbl above benchmark Singapore GRMs.

The brokerage believes that the uptrend in GRMs would continue over the next couple of years as demand supply scenario remains tight. Based on the optimism, IndiaInfoline has valued RIL's refinery business at $22.8 billion (Rs 91,200 crore) and its 70 per cent stake in RPL at $17.1 billion (Rs 68,400 crore).

Besides, RIL's petrochemicals business is valued at $16.6 billion (Rs 66,400 crore) and the retail and special economic zone (SEZ) are valued at $8.7 billion (Rs 34,800 crore) and $5.6 billion (Rs 22,400 crore). The sum-of-parts valuation comes to Rs 4,64,649 crore, or Rs 3,198 a share, which translates into an upside of 38 per cent from the current market price.

Reliance Capital
Reco price: Rs 1,441.60
Current market price: Rs 1,327.10
Target price: Rs 1,962
Upside: 48%
Brokerage: Indiabulls

Reliance Capital has been consistent in recording impressive growth numbers for all its business domains. It has been able to maintain a balance between the various businesses. Reliance Capital has recorded a 231 per cent y-o-y increase in the new business premium to Rs 1,390 crore. Reliance General Insurance too continued to grow fast with a 151 per cent y-o-y increase in the gross written premium to Rs 1,530 crore.

While the asset management company is consistently increasing assets under management (AUM), the life insurance company alone added around 400 branches in the third quarter. Further, Reliance Money, in less than a year since inception, has established around 4,400 outlets.

Indiabulls has used a target price-to-book multiple of 2.5 times for the consumer finance business, thus valuing the division at Rs 177. The Broking business has been valued at Rs 125 on the basis of a target price-earnings multiple of 25 times.

Reliance Life Insurance has been valued at a target NBAP (new business achieved profit) multiple of 20 times. This gives the life insurance business a valuation of Rs 647. The general insurance divison, on assuming a target mutiple of 20 times, results in a value of Rs 184.

The asset management company has been valued at 10 per cent of its AUM, leading to a valuation of Rs 829. This results in a target price of Rs. 1,962 for FY09.

Hindalco Industries
Reco price: Rs 200
Current market price: Rs 181.55
Target price: Rs 251
Upside: 38.3%
Brokerage: Macquarie

Hindalco is increasing its alumina capacity four-fold to 4.2 million tonne a year and aluminium capacity three-fold to 1.6 million tonne a year at an estimated capex of $6.5 billion (approximately Rs 26,000 crore) by Q3 FY12. It has been allocated a bauxite mine (with reserves of 300 million tonne) and a coal mine (with reserves of 250 million tonne) for its projects.

For 9 month FY08, Novelis reported operating margins of 4.2 per cent. Macquarie expects this to improve to 5.8 per cent for the full year and to 6.4 per cent and 6.6 per cent for FY09 and FY10, respectively, driven by hedging against metal-price lags as well as hedged metal-price ceiling contracts.

Macquarie believes that Hindalco is well on track to become the lowest-cost aluminium global major with 3 million tonne per annum capacity and full forward and backward integration. The brokerage has increased its aluminium-price forecasts for FY09 and FY10 by 17 per cent and 16 per cent, respectively, to $3,059 a tonne and $3,197 a tonne.

Given this scenario, coupled with Hindalco's growth prospects and depressed earnings, the brokerage believes that the stock is attractively valued at 10 times estimated FY09 earnings. Therefore, Macquarie recommends a "buy" on Hindalco with a target price of Rs 251.