Analysts' corner: Mahindra Ugine

Motilal Oswal Securities maintains its "buy" on Mahindra Ugine Steel Company. The report states that post consolidation with Pranay Sheetmetals, the company's integration within the M-SAT initiative undertaken by its parent, will lead to earnings stability for the company's overall business.

Capacity expansion in its alloy steel business would lead to growth. De-bottlenecking and brownfield capacity expansions initiated by the company would increase its capacity from 96,000 MT annually in FY05 to 110,000 MT annually in FY06 and to 250,000 by FY08, an increase of 14.6 per cent and 127 per cent, respectively.

The expansion programme would be through an electric arc furnace (EAF) process route and the capex involved would be Rs 110 crore, financed through a mixture of debt and internal accruals.

The alloy steel caters to the automobile linked bearings and forging business. The well-distributed revenue model for the business among the user industries, which are on a strong growth path, augurs well.

Hindustan Lever

Citigroup Research retains its "sell" recommendation on Hindustan Lever. The reports states that Douglas Baillie becoming the company's CEO is a positive development. But Arun Adhikari's departure is a negative one as he has been the key force behind the company's aggressive market strategies in the HPC segment.

But the report adds that such a large organisation has a very rich pool of talented managers and it is never a one-man show. Competitive pressure will continue to weigh on the company's profitability. The macro economic environment is favourable for the urban economy.

However, much will depend on the current year monsoon for rural consumption to pick up significantly, which, given its low base, represents a big growth opportunity.

The company faces two types of competition, one from local players in the Indian market and the other from MNCs like Proctar & Gamble, which are deep pockets. HLL is vulnerable to attacks from competitors that may be happy operating at lower levels of profit while gaining market share.

Nestle India

DSP Merrill Lynch downgrades its recommendation on Nestle India from "buy" to "sell". Although the company has delivered a phenomenal performance on the stock market for some time, the report believes that the best is now behind us.

The report downgrades its recommendation because the company faces likely margin pressure, higher raw material costs and increasing advertising costs. Post a strong 34 per cent growth in the first nine months of 2005, the report now expects growth to slow down to at best 18 per cent in 2006.