HINDALCO
Reco price/date: Rs 121/October 3;
Current/Target price: Rs 125/Rs 161
Hindalco remains focused on capital expenditure in various greenfield projects, despite a low internal rate of return at current London Metal Exchange (LME) rates. Annual capital expenditure is expected to peak in FY13, with Rs 9,000 crore on Indian projects and $600-700 million at Novelis. Expect Mahan to start production in December with 40 pots, while the FY14 metal production target would be about 140 kt. The Utkal Alumina refinery is expected to start operations in the first quarter of FY14. Analysts believe Hindalco's current valuations factor in most negatives; the conversion business provides 70 per cent of operating cash flows, and is fairly insulated from LME volatility. Maintain 'Buy'.
Motilal Oswal Securities
ADANI PORTS & SEZ LIMITED
Reco price/date: Rs 122/September 28;
Current/Target price: Rs 129/Rs 150
Mundra's behemoth set-up, superior offerings and geographic positioning ensure market share wins. 'Take-or-pay' contracts assure a compounded annual growth rate of 26 per cent in cargo (101 mt) during the FY12-14 period. While the diversified cargo mix mitigates risk concentration, the container segment would drive cargo growth. Long-term agreements with Tata and Adani groups would ensure a boost in coal volumes. Other ports would also start contributing from FY13. Abbot Point is expected to witness a turnaround over the next three years, owing to solid positioning and first mover advantage. In FY14, 46 per cent of the cargo would be under long-term take-or-pay contracts, offering stability. Cash flow from operations is expected to nearly double through the next two years to Rs 2,367 crore. Initiate 'Buy'.
Emkay Global Financial Services
SUN TV NETWORK
Reco price/date: Rs 322.85/Sept 30;
Current/Target price: Rs 365/Rs 400
SUN TV continues to be the top player in the Tamil and Kannada segments, has remained at the top slot in the Telugu space despite renewed competition and is placed second in the Malayalam segment. Unlike Hindi GECs, in which competition is high, we believe SUN TV, with strong market leadership, enjoys better bargaining power with advertisers. The management's guidance of mid-single digit ad revenue growth in the coming quarters looks achievable. We expect domestic analogue subscription to increase after the Arasu Cable deal, while DTH (direct-to-home) / international revenue should grow about 15 per cent annually in FY13. Digitisation in Chennai (1.4 million subscribers) is likely to be dominated by DTH players, given Arasu's lack of preparedness. Higher subscription revenue would reduce earnings volatility, owing to the weak macro environment (which affects advertising). Looking at the improving business fundamentals, lower earnings volatility and falling political risk, the stock looks attractive at current valuations (15.8 times the FY14 estimated earnings). Maintain 'Buy'.
Religare Institutional Research
APOLLO TYRES
Reco price/date: Rs 92/October 3;
Current/Target price: Rs 93/Rs 99
The board of directors at Apollo Tyres has approved raising $150 million (Rs 800 crore) through the placement of shares to qualified institutional buyers. The company has also approved increasing the investment limit of foreign institutional investors from 30 per cent to 40 per cent of the paid-up capital. While the management has not stated the reason behind the intended fund raising, analysts believe the funds could probably be used to enhance capacity. Analysts estimate the proposed equity infusion of $150 million may result in equity dilution of 15-16 per cent. The stock is trading at 6.5 times the FY14 estimated earnings. 'Accumulate'.
Angel Broking
