ONGC (CMP Rs1087 TP Rs1425 Upside 31%)
- Any positive progress on Parikh committee report - not being priced in as yet
- Potential deregulation of nautral gas pricing in the near term
- Defensive nature of stock in the event of falling crude prices
Hero Honda ( Price: 1585, Target Price: 1980, Upside: 24.5%)
- 1/3rd production in tax free zone,hence, least affected by excise duty hike.
- small ticket size makes it relatively, easier to pass on the incremental cost.
- industry is organized and the past pattern of price hikes gives us confidence that they should be able to pass on the cost.
- bulk of demand is coming from executive segment where buyers are cash rich and relatively immune to 2-3 pct price hikes.
BHEL (CMP : 2295, TP: 2850, Upside : 24.2%)
- Strong order-backlog of INR1350bn, 4.6xFY10 revenue, to drive 30% earnings CAGR for 2010-12e.
- Near term catalysts :
a) bulk ordering of supercritical projects by NTPC and other orders
totalling INR344bn (25% addition to existing orderbacklog).
b) Margin expansion due to lower staff cost inflation and lower commodity prices
- Valuation : 19.7xFY11e P/E and 12x FY11e EV/EBIDTA.
Goldman's SELL on the BHEL stock is unlikely to have any impact in the near term :-)
Infosys (CMP: 2353, Tgt price Rs3100, upside 31.8%)
- Earnings upgrades expected on the back of improving discretionary spending and thus stronger topline
- Recent results of SAP & CISCO reflect more positive corporate spending trends, typically lead indicators for Indian IT companies
- Rupee forecasts on the street reflect stronger rupee than current levels, representing potential for further earnings upside
ITC (CMP Rs249 Rs TP Rs295, Upside 18%)
- Cigarette volume growth robust: we estimate 5% volume growth next year and a moderate tax hike which can be passed on to the consumer without
impacting margins or volume growth
- Paper and agri business improve profitability significantly. FMCG losses within control, with good sales traction. Hotels expected to show a growth
in Q4.
- Trading at 20x FY11e and we expect these multiples to sustain. TP 295
HUVR (CMP Rs229 TP Rs310 Upside35.4%)
* Volume growth has returned and is likely to accelerate in Q4 to near
double digits. Value market shares expected to stabilise and volume market
shares expand.
* Price cuts on detergents not as negative as made out. Will result in
consumer acquisition and margin impact can be mitigated via cost control
and consumer uptrading due to reduced prices. SKUs on which price has been
cut contribute c7% to company EBIT.
* Stock is down 12% and gives good entry point.
JSW Steel (CMP Rs966 TP INR 1260 Upside 30.5%)
- Highest volume growth over FY09-FY12 amongst peers
- Higher input costs and limited price increases could cap margins expansion in FY10-11, however we expect margins to bounce back in FY12
