TATA COMMUNICATIONS
Reco price/date: Rs 315/January 7;
Current/target price: Rs 309.85/Rs 390
Tata Communications' marked turnaround has been led by focus on operational efficiency, a transient pricing uptick in voice business and rupee weakness. We concede that core business growth and margins could moderate as benefits of rupee and pricing reverse in the near term. However, strong cash flow generation and non-core asset sales (Neotel stake sale, demerger of land bank and monetization of additional properties) would improve balance sheet health. Despite the recent outperformance (31 per cent return in 2013), we believe valuations are inexpensive. With peak capex in core business behind and profitability improving, we estimate free cash generation of $500 million over FY14-16 for Tata Comm. After falling to historic lows in August on the back of ADR liquidation and promoter selling to comply with Sebi guidelines, Tata Comm stock has bounced back sharply. This was supported by a business turnaround-led earnings surprise. We believe strong cash generation and corporate actions would drive the next leg of stock upmove over 12-18 months. Outperformer
-IDFC Institutional Securities
ADANI PORTS AND SEZ (APSEZ)
Reco price/date: Rs 150/January 6;
Current/target price: Rs 150.40/Rs 186
While concerns over y$807 million corporate guarantees (provided for Abbot's acquisition debt) outstanding despite Abbot's divestment are valid, analysis suggests that APSEZ's gearing shall decline from 3.4x as on March 20113 to 1.4x as on March 2016, even if the Abbot transaction does not fructify. On concerns over the group's power business stress spilling over to APSEZ in future, analysis suggests no downside for APSEZ even if it is forced to fund up to 85 per cent of Adani Power's cash deficit over FY14-18E from Mundra's free cash flows. APSEZ will continue to largely remain insulated from stress at Adani Power. India's rising imported coal needs (247 million tonnes by FY17) are likely to drive Mundra's 14 per cent volumes compounded annual growth rate (CAGR) ahead. With Dahej, Hazira and Vizag commissioned, expect consolidated volumes to witness 22 per cent CAGR over FY13-16E and utilisation to improve to 49 per cent by FY16. Release of corporate guarantees for Abbot, continuation of strong volume growth at Mundra, and an acquisition at reasonable valuation are key catalysts. Outperformer
-Credit Suisse Securities
AMARA RAJA BATTERIES
Reco price/date: Rs 328/January 6;
Current/target price: Rs 331.25/Rs 402
EPS estimates are 10 per cent higher than consensus Amara Raja (AMRJ) is expected to surprise on margin led by Telecom (23 per cent of revenue) which will benefit from shifting preference for high capacity batteries, improving pricing, and capacity addition and UPS (16 per cent) which will benefit from recovery in government spend and acceleration in bank ATM additions. Expect AMRJ 's market share gain in Auto replacement to continue led by improved brand recall. Strong operating performance and efficient capital utilisation ensure return ratios (RoE, RoCE, RoIC) are significantly higher than Exide. Empirical data suggests return ratios scale new peak post utilization of new capacities. Have valued the company at 15x - at a premium to Exide (13.5x) - expect higher growth and superior return ratios to continue. Buy.
-axis capital
