ONGC
Reco price/date: Rs 279.3/August 13
CMP/target price: Rs 286/Rs 315
In the June 2012 quarter, while domestic oil production was three per cent lower at 3.2 MMT, net realisation was consequently higher than expected at $46.6/bbl. The oil giant reported better-than-estimated net profit of Rs 6,100 crore on account of a lower subsidy burden (Rs 12,300 crore, up two per cent year-on-year), lower expenses for survey and dry wells. It also reported an oil discovery in Mumbai Offshore D1 field, which is likely to add five per cent to its oil production by FY14 and the incremental production to add three per cent to consolidated revenue. ONGC is our preferred pick amongst the Indian state-owned oil companies. Our positive investment case is premised on better oil net realisation driven by fuel price hikes, undemanding valuations (EV/boe of $3.8/bbl, FY13e P/BV of 1.6x) and a potential increase in the domestic natural gas price. Reiterate BUY
Deutsche Bank Markets Research
ITC
Reco price/date: Rs 268/August 13
CMP/target price: Rs 267/Rs 244
We have turned bearish on ITC after years, partly due to reasons not of its own making. The global tobacco industry is staring at a ‘systematic risk’ with Australia, UK, Canada and Russia taking stringent actions that can cap cigarette sales and dilute brand franchise. We believe that as regulatory concerns escalate, global majors will be de-rated and have a rub-off effect on ITC. Adding to the woes is an increasingly disruptive tax environment for cigarettes in India. The ancillary business offers no consolation. We always believed ITC has ‘not fired’ in non-cigarette FMCG business. With 75 per cent of capex set for asset-intensive segments like hotels and paper (lowering return profile) and structural headwinds rendering the cigarette growth story illusory, we reverse our positive stance. We see ITC getting into a prolonged de-rating. Downgrade to Underperformer.
IDFC Securities
TATA STEEL
Reco price/date: Rs 396/August 14
CMP/target price: Rs 406/Rs 466
Tata Steel reported consolidated Ebitda of Rs 3,400 crore in-line with ICICI Securities and higher than Street expectations. This is on the back of a lower-than-expected domestic Ebitda and a higher-than-expected Ebitda from Tata Steel Europe (TSE). TSE Ebitda of $35/tonne is a positive surprise, and this gives analysts comfort in their FY13 estimate at $21/tonne. Analysts are not expecting the outlook commentary from management to be very positive in the earnings call tomorrow. Net debt has increased by $ 1 billion sequentially to Rs 54,000 crore in Q1FY13. Maintain buy.
ICICI Securities
GMR INFRASTRUCTURE
Reco price/date: Rs 21/August 13
CMP/target price: Rs 21/Rs 30
GMR’s operating performance improved in the June 2012 quarter as net sales of Rs 2,310 crore was 12 per cent higher than estimates, driven by higher aero revenue at Delhi airport (aided by increased tariff rates) and also rise in EPC revenue. However, the company reported a more-than-estimated net loss of Rs 94.3 crore sustained at Delhi airport following higher capitalisation charges and one-time reversal of tax assets at the Vemagiri plant. We believe the airport segment would continue to report improvement in financial performance led by full benefits of tariff revision from 3QFY13. Regulatory problems related to fuel availability easing, commissioning of two major power projects and beginning of toll collection at three new road projects would keep the growth momentum intact. Retain BUY.
Nirmal Bang
