CLSA has maintained a sell call on Idea Cellular and stated that realising the synergy is key to lower gearing. It highlighted that the merged firm needs to have opex saving of Rs 8,400 crore for debt/EBITDA ratio of 3 times. Furthermore, the swap ratio of1:1 with respect to stake in Indus implies over 3 percent valuation premium for Idea Cellular. It has lowered revenue and EBITDA estimates by 2-27 percent to factor in near term risk.
JM Financial has maintained its hold call on the stock and has highlighted the more attractive entry price. Its near term outlook is dampened by longer M&A approval and completion cycle. It is also dampened by lower operating expenditure synergies against the estimates of Rs 10,000 crore. But, the brokerage also sees significant potential for value creation over the long term.
Meanwhile, Religare feels that the merger is a positive outcome for Idea as it can get access to capital. However, it cites defending market share a s a challenge for the company.
Citi has a buy call on Grasim with a target of Rs 1,115. The merger announcement should now alleviate investors’ concerns on cash support to Idea and it expects the firm with AB Nuvo to hold 14 percent in Idea-Vodafone. It also noted that the merger should prevent the holding company discount from widening.
Credit Suisse believes that the telecom market will be anchored to synergy targets and benchmark them. It says that the future will be focused on studying potential downside of the mega merger. Among stocks, it is cautious on Idea with a target price at Rs 91. It sees a few positives for Bharti Infratel and retains an outperform rating on the stock.
HCL Technologies on Monday announced a share buyback of Rs 3,500 crore. CLSA feels that the development is a positive from a tax-efficiency and RoE impact perspective. The announcement is partly in lieu of FY18 dividend and there may be no change in payout. It sees promoters participating in the tender offer with a likely acceptance ratio of 2.45 percent. It expects earnings per share (EPS) impact to be small but RoE could increase by 250 basis points. Moreover, it should not change long term value creation from the stock, the brokerage house said.
Bank of America Merrill Lynch has a buy call on HCL Technologies with a target price of Rs 990. It believes buyback will be neutral to earnings and is likely to be funded by net cash and investments on books. A defined capital allocation strategy may work better for the stock, it says.
Meanwhile, Nomura has a buy rating on the stock with an unchanged target price of Rs 1,010. The research firm said buybacks for IT companies will be marginally earnings accretive. The buyback amount is also largely in line with its expectations.
Kotak Institutional Equities has a reduce call on the stock with a target of Rs 840. It said that the buyback price was less relevant in tender route.
Morgan Stanley has maintained an equal weight on the stock with a target price of Rs 895. It believes that the announcement must be construed as RoC in lieu of dividend. Moreover, it believes that the buyback is unlikely to lead to a re-rating on the stock as long as payout does not change.
Goldman Sachs feels the buyback will be 29 percent of the net cash and cash equivalents. The research firm estimates the free cash flow yield at 2.8/5.9/5.2 percent in FY17, FY18 and FY19, respectively. The firm also believes that it has a well-balanced capital allocation strategy.
Credit Suisse has maintained outperform rating with an increased target price of Rs 1,850 from Rs 1,800. It believes execution and inflows from the Middle East have remained steady. Among risks, if feels margin erosion could be a challenge and absence of an investment cycle could cap upside.
Credit Suisse has maintained its outperform rating on the stock with an unchanged target price of Rs 1,370 per share. The research firm believes that the demerger of Co-SeQuent API business in the firm may lead to value accretion of 2 percent. Credit Suisse remains positive on the pharma company and expects stock to re-rate once RoCEs expand.
Credit Suisse has an underperform rating on the stock with an unchanged target price of Rs 300 per share. The brokerage house expects earnings trajectory to continue to improve over FY18. It is staying negative on the stock due to US LNG headwinds and earnings drag from Urja Ganga.