Jun 07, 2012, 12.52 PM | Source: Moneycontrol.com
Prabhudas Lilladher has come out with its report on largecap stocks.
, Prabhudas Lilladher |
Coal India : Thanks to 6% volume growth and nominal 3% increase in flat realisations, we expect CIL’s earnings to grow at a CAGR of 15% during FY12-14, despite sharp increase in the wage cost. We value the stock at Rs390, P/E of 12.5x FY13E operational EPS of Rs23.1 and cash per share of Rs102. We believe that valuations are justified, given the sustainable RoE in excess of 30%.
ITC : Limited exposure to key headwinds faced by the market i.e. high input costs elevated competitive intensity. Expect flat 2.5% volume decline in Cig in FY13e on the back of ~18% expected price hike post the budget. We have been conservative in our volume growth estimate and see some upside risks to the same. Non-cigarette FMCG profitability continues to improve. Gaining traction in Soaps (6% market share). Expecting a Q4FY13e breakeven. Agri and Paper margins have improved substantially over the last three years and are sustainable. Agri business to sustain double-digit EBIT margins on the back of improved portfoliomix. Improvement in dividend payout ratio will sustain the premiumvaluations. Solid earnings CAGR of 18% for FY12-14E. SOTP- based price target of Rs266. Top pick in large cap consumer space.
State Bank of India : SBI is currently trading at FY13 Price/Book of 1.12x. Our March-13 TP for the stock is Rs 2,350/Share, implying an upside of ~15% and FY13 Price/Book of 1.35x. The only caveat is that with valuations at ~20-25% premium to larger PSU peers, market is already factoring in NIM improvement, low restructuring v/s peers and some improvement in asset quality.
Infosys : Infosys is currently trading at 12.5x FY14 earnings estimates, one of the lowest valuations that the company has witnessed since Lehman crisis. We are still not able to envisage a scenario similar to that. Moreover, the delay in project ramp-up will only create projects along the sidelines, which would start once there is more clarity on macro-uncertainty. We reiterate “BUY” with a target price of Rs2,940.
ICICI Bank : Current valuations are trading at 1.4x FY13 book. Improving ROEs, pending growth in balance sheet could imply better multiples. We have a Mar 13-target price of Rs1,050 per share, implying FY13 P/B of 1.86x.
Larsen & Toubro : In the worst case scenario, we still expect a 20% revenue FY11-14E CAGR, with margins close to 11%. L&T is trading at 8.9x FY14E (core) which is a narrow premium to EPC players, which should increase as the technological/financial capabilities and corporate governance will play in.
Power Grid Corporation : We believe PWGR remains the safest play in the Power Utilities space which has been facing multiple issue of coal shortage, deteriorating SEB finances etc. PWGR is immune to fuel risk and faces relatively moderate land acquisition issues as compared to IPPs. We expect the company to deliver 16% EPS growth over FY12-17E with core RoEs of ~17.6% over the same period.
Axis Bank : Current valuations are trading at 1.6x FY13 book. Asset quality has been holding up well despite high SME exposure. We have a Sep-13 target of Rs1,400 per share, implying FY13 P/B of 2.2x.
Maruti Suzuki : We expect the FY13E top-line to grow by 17.6 %, driven by a CAGR of 12.9% in volumes and 4.1% CAGR in ASPs for FY12-FY14E period. We expect the margins to improve by ~200bps over the next two years, mainly on account of depreciating Yen, lower discounts and operating leverage. The stock is currently trading at 12.7x FY13E EPS and 10.6x FY14E, which in at a discount to its 5-yr average P/E of 14.5x. Maintain ‘Accumulate’ on expected improvement in volumes and margins.
Dr Reddys Laboratories : DRL is largely an exports-focused company as international businesses contribute ~80% of the overall revenues. India’s share <20%. Key markets includes US (contributes ~34% of the overall revenues) and EU which contributes ~26% of revenues. In 2006, DRL acquired Betapharm, a German company for EUR480m. Its German business witnessed tremendous margin pressure on account of various regulatory changes (tender-based business). DRL is a predominantly strong player in APIs (~27% of the revenues captured under PSAI division). Other markets include Russia/CIS where DRL has a strong brand franchise. This region accounts for 19.1% of revenues. In 2010, DRL signed an agreement with GSK to supply more than 100 products for several emerging markets. Subsequently, it acquired rights to Augmentin brand in US besides GSK’s penicillin facility. DRL has a strong product pipeline for the US market with >70 ANDAs pending for approval including 30 para IVs (16 FTFs). It has a decent portfolio of OTC store brands with revenues of >US$100m. Key products like Arixtra (Fondaparinux) & Allegra D-24 (fexo-pseudo OTC) have been launched in US. Expect Zyprexa 80mg, Arixtra, Geodon exclusivity/differentiated products to boost earnings in FY12 & FY13 (already launched).
DRL has signed a supply agreement with GSK under which it would manufacture and supply drugs for various emerging markets. We expect DRL to garner ~Rs1.2bn through GSK in FY13E/FY14E. In Russia, DRL is building its OTC franchise which accounts for nearly 25% of its revenues (growing at 40%). Nearly 50% of OTC portfolio is coming from its partners (include Vitabiotics, Cipla, Torrent, R-Pharm). It also has a formidable presence in Russia. We like DRL’s biologics portfolio comprising of nine products (four launched in India and other markets). It launched its first MaB, Reditux in the Indian market a couple of years ago (already its fifth largest brand).
The company guides for revenues of US$2.7bn in FY13E.
Adani Port & SEZ : Based on DCF, the value of the port stands at Rs99/share. Further, we are assigning a 50% probability to a 20-year extension of the concession agreement which translates to Rs21/share. The value of the SEZ at a 30% discount to NAV stands at Rs13/share, Abbot point contributes ~Rs 13/share, while all its other assets are valued at Rs10. Our SOTP value stands at Rs156.
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R Sreesankar, Head Institutional Equities, Prabhud
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