NTPC
Reco price: Rs 161
Target price: Rs 203
Analysts believe the rate increase proposed by 20 SEBs (including Tamil Nadu) and the proposal for improving the finances of SEBs by Shunglu committee are steps in the right direction. The key recommendations of the committee such as independence of the regulators and curbing the power of the state government over them will lead to far-reaching reforms in the distribution sector like the enactment of Electricity Act 2003. Additionally, the recent judgment by APTEL on suo motu revision of the rate increase augurs well for the sector. Plant availability and plant load factor are likely to improve in the second half of FY12 owing to better fuel availability. Analysts believe NTPC will remain a favoured entity to receive incremental coal supply from state-run public enterprises, thereby reducing coal availability risk. Maintain buy.
—Antique stock broking
NESTLE INDIA
Reco price: Rs 4,230
Target price: Rs 3,900
Processed food is a $ 40-billion opportunity in India and is expected to grow at 20 per cent compounded growth. Nestle leads in high growth and margin categories like noodles, baby food and instant coffee, with brands like Maggi, Cerelac and Nescafe that have become synonymous with their categories, given the first-mover advantage. With premium positioning and distribution, analysts expect a 20 per cent earnings compounded annual growth over 2011-13. However, Nestle is trading at 38 times one-year price/earnings, a 30 per cent premium to its five-year historical average and a 25 per cent premium to Hindustan Unilever despite a narrowing growth differential. Its return ratios will be pressured in the medium term, led by highly planned capex. Given this, analysts believe the current valuations leave minimal room for error and any miss in earnings could lead to a strong correction in the stock price. With procurement led risk to capacity utilisation, risk-reward appears negative. Maintain underperform.
—Bank of America Merrill Lynch
DISH TV INDIA
Reco price: Rs 60
Target price: Rs 82
Analysts believe DTH subs will double to 60 mn in the next five years. They forecast Dish TV's Ebitda will witness a 40 per cent compounded annual growth from FY11-16, led by a 17 per cent growth in subscribers, a nine per cent growth in average revenues per user and the consequent operating leverage. Content costs paid to broadcasters are fixed in nature, and as the business model matures, the share of new subscribers who come at a cost goes down substantially. Credit Suisse believes Dish is in the middle of a phase witnessed in the US for Dish Network, USA, which translated into a 37 per cent growth in subscribers, 30 per cent improvement in margins and a 10 times return in the stock over 1998-2003. Initiate with an outperform.
—Credit Suisse
ASHOKA BUILDCON
Reco price: Rs 189
Target price: Rs 245
Ashoka Buildcon (ABL) would need to infuse equity up to Rs 990 crore (FY2012-14) in various SPVs; this would be substantially funded by the PE route, says the management. However, analysts have not factored this in their estimates, given the gloomy market conditions; instead, they have pencilled in the increase in debt levels. In recent times, markets have been harsh on companies with loose financial discipline and, hence, analysts are conservative in assigning trading multiples to ABL. Therefore, Angel broking prefers IRB over ABL, considering ABL's comparatively small size, dependency on capital markets for equity and projects in nascent stage. Initiate coverage with buy.
—Angel Broking
