EICHER MOTORS
Reco Price: Rs 1,282,
Target Price: Rs 1,508
Led by robust road freight demand, sales of higher-end M&HCVs in India is set to outperform lower-end trucks as profitability in the higher-end comercial vehicles is much more than 7-12T segment CVs. With Volvo AB as a JV partner, Eicher Motors (EML) is set to take advantage of the domestic higher-end CV demand. Analysts expect 37,000 and 42,000 CV volumes in CY10 and CY11, respectively. The motorcycle business is expected to grow 12 per cent, led by the cult status the product portfolio EML has created. Operating margin is expected to hover in the range of 7.5-8.5 per cent. Rising input costs, an inability to tap incremental market share and a lack of pricing power are key risks.
Maintain BUY.
— Reliance Securities
SHREE CEMENTS
Reco Price: Rs 2,248,
Target Price: Rs 2,400
Shree Cement (SCL) reported Q2FY11 revenues at Rs 720 crore (down 20.2 per ceny year-on-year). Cement EBITDA/tonne came in at Rs 589, power business operating profit at Rs 8.5 crores, and EBITDA margins at 19.9 per cent. Reported net profit at Rs 10.5 crore was below estimate due to a 28 per cent year-on-year drop in power volumes. Cement volumes declined 8.2 per cent year-on-year and power revenues declined 52 per cent. JM Financial's analysts estimate power EBITDA at Rs 108 crore in FY11. They have lowered volume estimate for FY11 to 10.16 million tonne (MT) from 10.6 MT. Higher pet coke prices will lead to 44.8 per cent year-on-year increase in power/fuel cost. The brokerage has cut the EPS estimate by 28 per cent to Rs 99 for FY11.
Downgrade to HOLD.
— JM Financial
AIA ENGINEERING
Reco Price: Rs 447
Target Price: Rs 355
AIA Engineering's (AIA) Q2FY11 revenues grew by 16 per cent year-on-year to Rs 254 crore. Fall in margins and realisation (down 5 per cent) on adversely affected the bottomline, which merely grew by 7 per cent to Rs 45 crore. Rupee appreciation and volume growth remain a key risk in the long run. The volume growth (23 per cent) was negated by lower realisations. Operating margins contracted by 206 basis points to 24.1 per cent mainly due to higher raw material cost which could not be passed on to the customers completely. Good traction of orders from overseas mining companies remains a key trigger going forward. Pinc's analysts believe current valuations are stretched beyond fair value.
Downgrade to Sell.
— Pinc Reseach
RELIANCE POWER
Reco Price: Rs 182
Target Price: Rs 170
Reliance Power' (RPWR) earnings were driven by contribution from other income Rs 1.43 per share. Plant load factor (PLF) during the second quarter continued to remain dismal (43 per cent) for 600MW Rosa unit-I due to shortfall in coal supply. Going forward, the company plans to blend domestic coal with imported coal (70:30, resepetively), which should help in sustaining healthy PLFs (80 per cent plus). Religare has lowered its earnings estimates for FY11 to Rs 3.2 to reflect lower PLFs for Rosa unit. The company signed an agreement with banks from US and China for loans worth up to $5 billion and $12 billion, respectively. This could lower interest costs (300-350 basis points) for the company in future.
Maintain HOLD.
— Religare Securities
