Eros International
Reco price: Rs186,
Target price: Rs247
Eros International Media’s (EIML) revenues and net profit have grown at an exponential pace of 58 per cent and 157 per cent CAGR, respectively during FY06-10. The company plans to invest Rs1,000-crore in co-production and acquisition of film rights over the next 18-24 months in order to more than double its existing gross block of Rs1,016.4-crore by FY2012. EIML’s unique tie-ups enables it to recover almost 80-85 per cent of its cost upfront through pre-sales of overseas rights, music rights and broadcasting rights and in-film advertising. EIML has shown a significant improvement in its operating margins due to the efforts taken to exploit its vast content library. Strong earnings growth of 32.1 per cent CAGR during FY2010-13 is expected.
Initiate coverage with a buy.
—Sharekhan
IOC
Reco price: Rs399,
Target price: Rs459
IOC posted Q2FY11 Ebitda of Rs6,520 crore. A higher-than-expected government compensation of Rs7,220-crore and higher GRMs (gross refining margins) of $6.58 per barrel was offset by lower marketing volumes at 16.9 million tonnes, higher staff costs of Rs1,600 crore and Ebit loss in the petchem segment of Rs500 crore. Net profit was Rs5,290 crore. As in previous years, subsidy sharing is likely to be finalised only towards the end of the year, in Q4FY11 and hence, quarterly sharing is no indication of the final sharing formula. The brokerage is awaiting clarity on diesel deregulation and subsidy rationalisation. It has modelled oil marketing companies (HPCL, BPCL and IOC) to share 11 per cent of gross under recoveries in FY11 and FY12. Maintain Buy.
—Motilal Oswal Securities
JK Lakshmi Cement
Reco price: Rs60,
Target Price: Rs92
For Q2FY11, JK Lakshmi (JKLC) posted a 2,314 basis points year-on-year decline in operating margin to 10.4 per cent due to a fall in realisations and a steep 62 per cent increase in per tonne power and fuel costs, due to higher coal prices. Going ahead, Angel Broking expects JKLC to face relatively less pricing pressure post the recent price hike and the pick-up in demand post monsoons. Net profit was down by 87.8 per cent year-on-year due to lower realisations, higher power cost. Angel Broking expects JKLC to post a modest 2.3 per cent CAGR in top line over FY2010–12, aided by a 6 per cent CAGR in despatches.
Maintain Buy.
—Angel Broking
