DIVI’S LABORATORIES
Reco price/date: Rs 1,107/September 14
Current/target price: Rs 1,074.9/Rs 1,342
Divi’s Laboratories’ long-term drivers are intact in an improving outsourcing environment, brand patent expiries in regulated markets and higher traction in the carotenoid (food colouring) segment. Further, the commissioning of additional units at its DSN facility at Vishakhapatnam and rupee depreciation are likely to result in 24 per cent/26 per cent CAGR in revenue/earnings and 284 bps/400 bps rise in return on equity/return on capital employed, respectively, over FY12-FY14E, thereby supporting near-term valuation, which despite a 53 per cent run-up in the stock over the past one year (as against an 11 per cent rise in the Sensex and a 27 per cent rise in BSE Healthcare in the same period) is still at a 10 per cent discount to its five-year average. Assign a Buy
Nirmal Bang Institutional Equities
ITC
Reco price/date: Rs 268/September 17
Current/target price: Rs 253.40/Rs 245
The analysts downgrade ITC based on changing business strategy in favour of volumes, rising regulatory and macroeconomic risks and stretched valuations. Their key arguments include margins in cigarette segment to have peaked. Rising state VAT is reducing pricing efficacy. Framework Convention for Tobacco Control (FCTC) regulations are much more than plain packaging. Further they feel that in the FMCG business value accretion will not be inspiring. They feel that ITC’s valuations remain stretched. Hence, downgrade to Sell.
MF Global India Research
GUJARAT STATE PETRONET
Reco price/date: Rs 75/September 17
Current/target price: Rs 75.8/Rs 93
PNGRB has approved tariff of Rs 24 per mnbtu for GSPL’s high-pressure network in Gujarat. The approved tariff is 12 per cent lower than the current tariff of Rs 27.41 per mnbtu and would be implemented retrospectively from November ‘08, implying a refund of Rs 2.5 bn to consumers. Also, we estimate GSPL to have receivables of Rs 2 bn from RIL (for gas transported to Jamnagar at a lower tariff). Tariff is in line with estimates and don’t see a material change in recurring EPS estimates. The brokerage reduced its NPV marginally to Rs 93 (compared to Rs 95 earlier) to factor in the development. Maintain Buy.
ENAM Securities
GAIL
Reco price/date: Rs 369/September 17
Current/target price: Rs 377/Rs 386
In its note on Annual Report update, MOSL says the contribution from JVs or subsidiaries increased from three per cent in FY05 to 20 per cent in FY12, led by higher contribution from city gas distribution JVs and Petronet LNG. Also, one-time gain in Ratnagiri Gas and Power Private Ltd (RGPPL), led by prior period tariff revision add to the performance. Adjusted for the one-time gain in RGPPL, standalone PAT grew three per cent. Lower transmission income was offset by higher trading income (driven by spot sales of LNG cargo). Limited gas availability will lead to underutilisation of its new pipelines in the near term, resulting in pressure on profitability. The brokerage expects RoE to decline from 17 per cent in FY12 to 15 per cent in FY14. While the brokerage likes the management’s strategy to build capacity for the long term, near-term challenges in terms of headwinds for incremental gas availability remain. Maintain Neutral.
Motilal Oswal Securities
