UBS has changed recommendations on several stocks including BHEL, Punj Lloyd, TCS etc with the correction in their stock prices.
BHEL:
UBS upgraded BHEL from Neutral to Buy following the recent correction in stock price. Of the nearly 75,000MW of private-sector capacity proposed to be built by 2015, BHEL’s potential target market is 43,000MW (72% of the yet to be ordered portion) Price Target of Rs3,030 is based on a DCF which assumes 20% mid-term (FY11-15E) growth, WACC of 11.2%, and terminal growth of 6%. At current levels, the stock trades at 18.3x FY10E versus 3-year CAGR of 36.4%.
Punj Lloyd:
UBS initiated coverage on Punj Lloyd with a BUY rating. Expect Sembawang E&C’s EBITDA margins to increase from 0.9% in FY07 to 6.4% in FY09, as higher-margin orders come through. We expect consolidated EBITDA margins to improve from 8.0% in FY07 to 10.3% in FY09. This drives an EPS CAGR of 60% over FY07-09E.
Punj Lloyd’s core contracting business at Rs660 per share, implying a one-year forward EPS of 28x. This represents a 30% premium to the mid-cap engineering and construction (E&C) companies and a 20% discount to L&T. Value the Pipavav shipyard at Rs27 per share and the real estate business at Rs9 per share.UBS recommends a BUY with a Target Price of Rs 696.
Petronet LNG:
Petronet LNG reported a net profit of Rs 1.31bn for the current quarter (up 54% yoy &13% qoq) despite recording a marginal increase in sales and volumes processed on a yoy basis. The company recorded an EBITDA of Rs 2.32 bn an increase of 34% on a yoy basis. Other income for the company also recorded an increase of 36%.
The company is expected to report an EPS of Rs 6.81 and Rs 7.81 for FY09 and FY10 respectively.On the basis of DCF valuations, UBS recommends a SELL on petronet LNg with a target price of Rs 92
TCS:
TCS reported 3QFY08 revenues of Rs59.2bn (UBSe: Rs60.2bn), up 5.0% q-o-q and net profits of Rs13.3bn (UBSe: Rs13.1bn), up 6.7% q-o-q. EBITDA margins improved 40bps to 26.7%. Results are broadly in-line while the volume growth of 4% q-o-q is a disappointment.
TCS signed 9 large contracts in the quarter with cumulative contract value of 1.9bn USD. Further TCS is pursuing 25+ large contracts each of size >US$50mn USD most of which are expected to close over the next 3-6 months.
The stock price of TCS to remain sluggish in near term on the back of lacklustre volume growth at both TCS & Infosys in 3QFY08 and growing concerns on the US economy. However, from a period of next 12 months in view, UBS expects TCS to report an EPS of Rs 60 for FY09 and has set a target price of Rs 1,300.
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