L&T
Reco price: Rs 1,558
Target price: Rs 1,946
Larsen & Toubro’s (L&T) building and factories division has bagged orders aggregating Rs 1,340 crore from various clients during Q2FY12. Orders adding up to Rs 975 crore were for the construction of a mixed use commercial development and construction of the main civil works for an IT campus. Orders worth Rs 203 crore and Rs 162 crore were for construction of a residential tower and add-on orders from various clients for ongoing contracts, respectively. With these orders, the outstanding order book stands at Rs 1,37,512 crore (3.1 times of FY2011 revenues). The stock is trading at 19.5 times of FY2013 estimated earnings and 3.3 times FY2013 estimated P/BV, on a standalone basis. Buy.
—Angel Broking
PTC INDIA
Reco price: Rs 72
Target price: Rs 128
PTC’s Power trading business is on track, though analysts expect some moderation in growth. Volumes grew at a 36 per cent CAGR over FY08-11. Analysts expect growth to moderate because of delays to some long-term projects. But we expect short-term purchases will cover up the shortage, since capacity addition in India is expected to be strong. HSBC has lowered its estimates for volume growth to 23 per cent CAGR over FY12-14, down from 25 per cent. Analysts think a recent spurt in PTC’s additional earnings owing to charges for delays in payment has come from one or two clients, especially Tamil Nadu, to whom PTC had stopped sales from June. Other than the risk of delays, which is already playing out, the risk of default for PTC is limited. HSBC has removed cash used as working capital from valuation and brought subsidiary valuation in line with the market value. It has cut the target price from Rs 161, stock still looks cheap, trading at 0.8 times estimated FY12 PB. Maintain Overweight.
—HSBC Global Research
VARUN SHIPPING
Reco price: Rs 20
Target price: Rs 17
Varun Shipping continued its dismal performance in Q1FY12, with top line remaining flat at Rs 83.2 crore. At the Ebitda level, it reported a loss of Rs 15.1 crore, compared to a loss of Rs 3.1 crore in Q4FY11. The interest and depreciation resulted in an operating net loss from operations of Rs 84.8 crore in Q1FY12. The company has booked an extraordinary profit, on sale of crude tanker and AHTS, to the tune of Rs 49.5 crore in Q1FY12. This has resulted in reducing the net loss to Rs 35.3 crore. The operational performance is likely to be under pressure for another couple of years, as freight rates continue to remain subdued. The sale and lease back arrangement of its vessels would continue to put strain on the Ebitda margin due to a rise in the chartered hire expenses. Analysts expect revenue to decline by five per cent in FY12, and increase by 13 per cent in FY13. Maintain Sell.
—ICICI Securities
