Reliance Industries
Reco Price: Rs 994,
Target Price: Rs 1,070
The Directorate General of Hydrocarbons (DGH) has said Reliance Industries (RIL) may raise gas output from KG-D6 to 67 mscmd after four additional development wells are completed in April 2011. While DGH’s assertion indicates it is technically feasible to ramp up gas production with additional wells, RIL had stopped development drilling after completing 18 wells, as it tried to ascertain how to contain fall in production. Analysts await clarity from RIL before upgrading production and earnings estimates. However, after considering the higher production and associated lower operating costs at KG-D6, IIFL’s 2011-12 EPS would be upgraded by 4 per cent to Rs 75. Analysts believe that there is strong support to RIL’s 2011-12 EPS from the strength in its refining and polyester businesses. Maintain add.
—IIFL
Infosys Technologies
Reco Price: Rs 3,054,
Target Price: Rs 3,664
Over the past seven quarters, Infosys posted revenue CQGR of 5.1 per cent against TCS’ 5.9 per cent. The underperformance widened over the past three quarters, with Infosys posting revenue CQGR of 6.9 per cent, against TCS’ 8.3 per cent. Since July 2010, Infosys stock rose just 10 per cent compared to 50 per cent appreciation for TCS. However, Infosys outperformed TCS in three of the four key verticals (BFSI, Manufacturing and Retail) over the past three quarters and the past seven quarters. The underperformance is largely driven by weak performance in Telecom and energy and utilities (E&U). Analysts believe regulatory clarifications in Telecom may lead to pent up demand of which Infosys could be a key beneficiary and sustenance in discretionary spends can further bridge the gap in the recent overall underperformance. Analysts forecast 2011-12 topline growth of 22 per cent for Infosys, against 26 per cent for TCS. The 6.6 per cent valuation discount for Infosys (versus TCS) is unjustified, given greater earnings growth trajectory over 2011-13 for Infosys and better cash generation due to best-in-class working capital management. Maintain buy .
—Motilal Oswal
Nestlé India
Reco Price: Rs 3,935,
Target Price: NA
Nestlé India (Nestlé) management believes growth in India is on track and the company can sell more, but for capacity constraints. Nestlé has chalked out Rs 1,800-crore investment plan over the next two-three years and also on the anvil is the second R&D centre. Four new products are planned under the coffee segment in winter 2011 and new products in popular foods category are also planned. Nestlé is also planning to introduce a new manufacturing technology to increase yield of coffee berry. It will introduce a range of value-added products and command high pricing power. Analyts are enthused by Nestlé’s plan for higher capex. Edelweiss believes Nestlé is the best play on packaged foods from a longer-term perspective. Although coffee prices have spiked recently, Nestlé has demonstrated high pricing power, which will continue. Maintain hold.
Edelweiss Securites
Coromandel International
Current price: Rs 287,
Target price: Rs 342
The Department of Fertilisers (DoF), under the Ministry of Chemicals and Fertilisers, announced nutrient-based subsidy for complex fertilisers for 2011-12. Subsidies are revised upward on the back of higher international prices for raw materials/ fertilisers. The government has emphasised that the fertiliser prices at farmgate should remain at current levels and there should be no significant increase in 2011-12. With efficient raw material sourcing ability, ongoing capacity expansion and rising proportion of non-subsidy business, Coromandel International is better positioned to capture the structural growth in Indian fertiliser space. Pinc Research has revised its earning estimates upward for 2011-12 by 40.8 per cent. Upgrade to buy.
—Pinc Research
