COAL INDIA
Reco price: Rs 322;
Target price: Rs 415
Coal India’s Q2 production declined 11 per cent year-on-year (yoy) due to excessive rains in August-September and was a one-off. Analysts expect FY12 offtake to increase five per cent yoy to 446 mt. This is due to an improvement in production in the second half and better logistics, as rake availability has increased to 181/day at end-October from an average of 156/day (YTD-FY12). The stock price has declined 18 per cent over the last three months (against the Sensex fall of three per cent), factoring in negative news. Separately, investor concerns about the government using the surplus cash in unrelated investments to meet its divestment target are exaggerated, in HSBC’s view. Analysts expect EPS to grow at a 24 per cent CAGR over FY12-14 on the back of volume growth (five per cent) and ASP increase (nine per cent), mainly due to higher e-auction prices and margin improvement (780 basis points). Maintain overweight.
—HSBC Global Research
GAIL
Reco price: Rs 390;
Target price: Rs 480
While volumes are trending at 118-120 mmscmd levels, falling KG gas volumes and full utilisation of the Dahej terminal could drive overall volumes modestly lower in the near term. While gas production from ONGC’s smaller fields has started, GAIL’s volumes have remained largely flat. The management has said dredging is on at Dabhol, with commissioning activities to commence in Q1CY12. The company expects full-fledged operations and volumes to commence from Q2CY12 at the rate of two cargoes/quarter, i.e. c2 mmscmd. Timely commissioning of this terminal is critical for volume growth in FY13. Continued uncertainty on subsidies, potential downside risks to volume estimates, the Dabhol and Kochi terminals being commissioned on time and the consequent potential downside risk to earnings could preclude near-term stock out-performance. Buy.
—Citigroup
JINDAL STEEL & POWER
Reco price: Rs 534;
Target price: Rs 661
Jindal Steel & Power is witnessing delay in commissioning of 7x135 Mw power units and is awaiting commencement of captive coal mine in Angul by March 2012. It has increased power rates by Rs 0.7/unit in Raigarh and another increase is expected at Angul in March 2012. It has guided for steel volumes of 2-2.2 mt for FY12 and 10 per cent growth in FY13. The management expects its Shadeed and South African coal business to continue contributing positively to net profit. Maintain buy.
—Edelweiss Securities
BAJAJ ELECTRICALS
Reco price: Rs 180;
Target price: Rs 245
Bajaj Electricals, a leading player in consumer appliances, continues to see strong demand in the consumer durables category. Margins are set to revive, as metal prices are on a declining trend. Analysts believe the recent fall in stock price more than reflects concerns on the industrial segment. The stock is trading at an FY13 estimated price to earnings ratio of nine times and is attractive. Buy.
—IIFL
