COAL INDIA
Reco price/date: Rs 270.95/November 20;
Current/target price: Rs 272.6/Rs 360
Coal India has raised coal prices by adjusting the charge for transportation of coal from mine to the railway siding. Despite the market's pessimism we find Coal India in an excellent situation. In a rising market, it benefits from improvement in 25 per cent of its sales which are market linked, while in a downturn, it is able to raise prices for the remaining 75 per cent of its sales to power sector to maintain margins. Global coal prices in rupee terms are down just four per cent year to date while Coal India cut prices by 12 per cent for high grade coal. Improvement in domestic demand should lead to higher e-auction prices and should also allow Coal India to recoup losses on higher grade coal. Both these can move FY15 estimated EPS up by 20 per cent. Outperformer.
-Macquarie Capital Securities
L&T
Reco price/date: Rs 996/November 20;
Current/target price: Rs 976.25/Rs 1,053
L&T's Management reiterated its guidance for FY14, implying a strong pick-up in execution and margins in second half of FY14. With expectation already running low on L&T meeting its guidance, scope for disappointment is low, in our view. Asset monetization in IDPL could be an additional trigger. The management is targeting to improve RoE to 20 per cent from the current level of 15 per cent. Few things planned to achieve the same are it is looking to not invest in asset-heavy manufacturing businesses, restrict investment in IDPL to current project pipeline, restrict capex to only maintenance capex and contain and optimise working capital cycle. Accumulate.
-Prabhudas Lilladher
M&M FINANCIAL SERVICES (MMFS)
Reco price/date: Rs 295/November 20;
Current/target price: Rs 292/Rs 264
Robust profitability growth over FY09-13 has resulted in MMFS's valuations getting re-rated from 1.3 times one-year forward price to book to 2.7. Moderation in MMFS's disbursements is visible, as its first half FY14 disbursement growth was much lower than that in FY10-13. However, with increased pressure on all its operating metrics (loan growth, NIMs and NPAs), we expect EPS growth to slow down at 12 per cent CAGR and RoEs to decline by 400 basis points over the next two years. The currently rich valuations do not appear to be factoring in this slowdown in profitability. The brokerage cut its earnings estimates by 9-17 per cent for FY14-15 and decrease its target price to Rs 264 (compared to Rs 283 earlier) and change its stance to sell. Sell.
-Ambit Capital
MOTHERSON SUMI SYSTEMS
Reco price/date: Rs 263/November 19;
Current/target price: Rs 262/Rs 314
Motherson Sumi Systems (MSS) reported a better-than-expected performance for Q2FY14 driven by a strong operating performance at the standalone level. Samvardhana Motherson Reflectec (SMR) and Samvardhana Motherson Peguform (SMP) too reported an improvement in their operating performance despite a seasonally weak quarter on account of the holiday season in Europe. SMP reported a net loss of Rs 49 crore (vs a loss of Rs 64 crore in Q1FY14), primarily due to foreign exchange loss of Rs 89 crore. MSS continues to report sharp improvement in its operating performance, driven by its strategy of increasing the content per car, improvement in utilisation levels at the new plants and profitability improvement measures at SMP. Maintain Buy.
-Angel Broking
