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SI Team/Mumbai 04 Jul 12 | 12:58 AM

STEEL AUTHORITY OF INDIA
Reco price/date: Rs 91/July 2
Current/target price: Rs 92.60/Rs 81
We had a meeting with the management of Steel Authority of India Ltd (SAIL) to get an update about the current status of expansion projects. We are confident about the company commissioning its projects according to schedule, as most of the projects would get completed in three to 12 months. However, there would not be a material change in our earnings estimates, as the long ramp-up time ensures most of the benefits flow in only from FY14. We revise our capital expenditure guidance and fine-tune our earnings estimates following the meeting, leading to a one per cent drop and a two per cent rise in FY13 and FY14 estimated Ebitda (earnings before interest, taxes, depreciation, and amortisation), respectively. We retain our Sell rating as well as target price of Rs 81, which is 11 per cent below the current market price. Retail Sell.

Nirmal Bang Institutional Equities

FORTIS HEALTHCARE
Reco price/date: Rs 102/July 2
Current/target price: Rs 105.8/Rs 102
The near-to mid-term pain persists due to a stretched balance sheet and lower margins in SRL (Super Religare Laboratories). Fortis Healthcare Ltd has been affected by uncertainty following its acquisition of Fortis Healthcare International (FHI). Indian hospitals segment continues to do well and expects to add more than 600 operational beds in FY13 on a base of 2,900 beds at the end of FY12. We expect 22.4 per cent CAGR (compound annual growth rate ) revenue over FY12-15. We have assumed 10 per cent increase in ARPOB (average revenue per operating bed) and gradual increase in occupancy levels. We maintain a Sell with a price target of Rs 102, based on 15x Fortis Healthcare Ebitda and 12x FHI Ebitda with risk of equity raising at premium valuations. Maintain Sell

Anand Rathi Research

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RELIANCE INDUSTRIES
Reco price/date: Rs 719.9/June 28
Current/target price: Rs 736/Rs 700
A rebound in reserves, as expected by some, is unlikely when KG D6 gas price is hiked. This is because Niko’s reserve estimate assumes aggressive KG D6 gas price of $10.1-11.1/mcf ($10-11/mmbtu) in FY15-17 and $10.5/mcf ($10.4/mmbtu) thereafter. KG D6 gas is sold only to power and fertiliser sector and therefore gas price is unlikely to rise to more than $8/mmbtu. The entire KG D6 reserves cut is due to ‘technical revisions’ and not ‘economic factors’. This also appears to corroborate that KG D6 reserve cut is not linked to gas price.Our price objective of Rs 700 is based on a sum-of-the-parts valuation. It includes the enterprise value (EV) of RIL’s three businesses of Rs 771/share and net debt of Rs 70/share. The EV of the refining, petrochemical and engineering and procurement (E&P) business is calculated on a discounted cash flow basis, using a WACC (weighted average cost of capital ) of 11.8 per cent. Refining and marketing (Rs 353) is 46 per cent of the EV, E&P valuation (Rs 102) is 13 per cent, and petrochemicals (Rs 315) is 41 per cent. Retain Underperform.

Bank of America Merrill Lynch

ING VYSYA BANK
Reco price/date: Rs 366/June 29
Current/target price: Rs 371.70/Rs 425
Management articulated its ability to further deliver on robust asset quality despite 30 per cent SME exposure (with GNPL in the segment around 0.3% and NNPL in the negative). The bank attributes the same to better underwriting, adequate collateral cover (including property), consumption-driven growth, working capital focus and sole banker in most cases. Further, exposure to mid-corporate segment (weak point in previous downturn of FY08) has come off from 50 per cent to 30 per cent of wholesale banking, which, coupled with the bank’s marginal exposure to stressed sectors, should contribute to robust asset quality. With steady growth (loan CAGR of 20 per cent over FY12-14E) and benign credit cost (47 basis points), coupled with a decline in perational expenditure ratio, earnings are expected to post 18 per cent CAGR over FY12-14E. This will translate into a return on assets of 1.1 per cent and return on equity of 14 per cent in FY14E. The company is currently trading at 1.3x FY13E ABV and 10.6x FY13E EPS. Maintain Busearch

Edelweiss Research

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