Large-cap stocks
Recommendation: Buy
UBS Warburg
In a recent India strategy update, UBS Warburg Equity Research says that the recent market fall over war fears is likely to be temporary. Historically, such sharp declines have been followed by a recovery. Moreover, the Sensex at 10.2x FY03E and 8.5x FY04E seems attractive as the earnings growth is projected at 21.3 per cent in FY03E and 20 per cent in FY04E.
However, the valuation of the Sensex -- currently at historic lows -- is just 9.1x one-year forward earnings (post-September 11); its recent high was 12.4x, just before the recent budget.
Consequently, the risk-return profile of the market and several large market-cap, liquid stocks such as Hero Honda, Bajaj Auto, Nalco, Bharat Petroleum, Hindustan Petroleum, Reliance, Grasim and Ranbaxy appear very attractive.
Corporation Bank
Recommendation: Neutral at Rs 125
Inquire Equity
An Inquire Indian Equity Research update has downgraded its recommendation on Corporation Bank from buy to neutral at Rs 125. Predicting further pressure on margins, competition in fee income and higher provisioning this fiscal, earnings projections for FY03 have been revised downwards from Rs 390 crore to Rs 360 crore, amounting to earnings per share (EPS) of Rs 24.9. In addition to concerns about earnings growth, the deterioration in asset quality (net NPAs increased from two to 2.3 per cent in FY02, despite the higher provisioning of Rs 140 crore compared with Rs 100 crore in FY01) will restrict any improvement in valuations.
Tata Steel
Recommendation: Buy at 109
By JP Morgan India
J P Morgan India has upgraded its recommendation on Tata Steel to a buy at Rs 109, with a price target of Rs 140. International steel prices have staged a recovery in the past few months, rising 24 per cent in Asia since December 2001. Domestic demand-supply dynamics have also turned favourable, leading to a 10 per cent rise (Rs 500-1,500 per tonne) in the spot prices of hot rolled coils (HRCs) recently. In addition, Tisco is also one of the lowest-cost producers of steel in the world. Moreover, the company's decision to sell its stakes in about a dozen subsidiary companies which are less profitable than its main steel business, is seen a positive move. Tisco is estimated to post earnings of Rs 178 crore in FY02, amounting to an earnings per share (EPS) of Rs 4.8.
United Phosphorous
Recommendation: Buy at Rs 83
By Pioneer Intermediaries
Pioneer Intermediaries is bullish on United Phosphorous at Rs 83. Driven by strong exports, the company posted a robust performance in the past fiscal, with total revenues rising by 15 per cent to Rs 638 crore and net profit vaulting 80 per cent to Rs 36 crore. Export grew 24 per cent to Rs 300 crore and contributed to 51 per cent of sales, compared with 47 per cent in FY01. On the back of substantial reduction in borrowings (a decline of Rs 65 crore), net profits are projected to surge 76 per cent to Rs 63.5 crore this fiscal, while total income is estimated to grow by 25 per cent to Rs 797 crore in FY03.
