HDFC
Reco price/date: Rs 679/July 11
Current/target price: Rs 674.45/Rs 800
The analysts feel that the last two years of underperfomance (largely technical) has created a sweet spot for long-term investors. The mortgage business will continue to deliver 25 per cent plus return on equity, with around 20 per cent growth. They believe valuations at less than three time one-year forward book are extremely reasonable. The June 2012 quarter margin and growth performance addresses concerns on competitive intensity and related growth pressures. They are not considering accounting issues very significant and feel any investor concerns are likely to get addressed as HDFC moves to IFRS accounting in the second half of FY13. We upgrade HDFC to ‘Buy’ from ‘Accumulate’.
Prabhudas Lilladher
CUMMINS INDIA
Reco price/date: Rs 450/July 11
Current/target price: Rs 433.85/Rs 453
Cummins Inc (Cummins India parent) has lowered its CY12 revenue guidance from 10 per cent growth to flat, citing a softened order trend in the US for trucks and power generation equipment. Also, demand in Brazil, China and India has not improved, as had been expected earlier. Further, appreciation of the dollar against a number of currencies has negatively impacted revenue. Analysts believe Cummins India, which has about 50 per cent of Cummins Inc’s India business, could face the heat in exports, even as the domestic business is likely to grow 12-15 per cent. Maintain Hold.
Edelweiss Securities
APOLLO HOSPITALS
Reco price/date: Rs 644/July 11
Current/target price: Rs 635.50/Rs 732
Apollo Hospitals continues to maintain its leading position in India, with one of the highest number of hospitals under a single brand (50 hospitals, including 14 managed; 8,276 beds, including 2,388 managed). Further, it plans to add 2,900 beds in the next three years, taking its bed capacity to 11,000+ by FY15. Despite being in a capital-intensive industry; Apollo Hospitals has expanded at a steady pace over the years without stressing its balance sheet (debt/equity maintained below 0.6 times). With a well laid plan of expansion and proper funding strategy in place, along with pharmacy business turnaround, analysts are confident of the company witnessing 20 per cent plus growth. Initiate coverage with Buy.
IIFL
HCC
Reco price/date: Rs 21/July 11
Current/target price: Rs 20.10/NA
According to media reports, RBI has rejected Lavasa’s (HCC’s subsidiary) request to confer infrastructure status on its loans. The rejection means the firm cannot enter the special cell set up by banks to help ease the debt burden of troubled companies with high-cost borrowings. It must take the difficult road of negotiating individually with the banks and its debt will not have any chance of becoming a standard asset. The Rs 850-crore loans on Lavasa’s books are now treated as bad loans by most banks. This is negative for HCC as this development is likely to cause further delay in the project. Maintain Neutral.
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