Category: Equity Research

Breaking News:Citigroup Research has downgraded Ultratech Cement [ULTC] to a SELL with a Price Target of Rs 730 potential downside of 26% from current levels.

UltraTech reported net sales at Rs13.5bn (+17% yoy) on the back of higher domestic realizations (+11% yoy). Production costs rose 11% yoy, due to a 22% jump in coal prices. EBITDA margins were flat yoy (32%) but increased 250bps qoq. PAT came in higher than expected at Rs2.6bn.

Costs came in at Rs9.2bn, largely due to an increase in raw material expenses; +27% yoy on a per tonne basis. Freight costs per tonne increased 10% yoy. Other income doubled to Rs269m. While the sector enjoys pricing power in the near term, the company agrees with that FY09 is likely to see a supply surplus causing pricing pressures. Citi recommends selling into strength.

ULTC as Sell/Medium Risk (3M) with a target price of Rs730. ULTC has been hard hit by higher costs recently, particularly for coal and freight. ULTC should benefit from lower costs
due to the captive power capacity due by FY09, but this is unlikely to help compensate for the 8% yoy price decline. Citi expects a YoY profit decline in FY09. At target price of Rs730, ULTC would trade at an FY09E P/E of 11.4x.

Ambuja Cements:
Citi has also downgraded Ambuja Cements to a SELL. Ambuja Cements adjusted PAT was Rs4.04bn, 23% higher yoy but 5% below our expectations. Reported PAT was Rs8.8bn, including Rs2.2bn as profit from sale of stake in Ambuja Cement India Pvt Ltd and Rs2.6bn from sale of land.

Ambuja Cements [ACL] is a Sell/Medium Risk (3M) with a target price of Rs103. The stock is expensive for the following reasons: (1) limited visibility on cement pricing moving up as a result of uncertainties arising from unfavorable government measures in CY07; (2) a 20% yoy expected decline in CY08E earnings as large capacities are expected domestically, particularly in North India; and (3) the risk to exports, as substantial new cement capacity is coming up in the Middle East.

Target price at Rs103 based on a 10% discount to the historical seven-year average of 8.4x.

Citigroup Research downgraded the price target of Tata Tea Ltd after a disappointing quarter. Consolidated EBITDA margins declined by 340bps due to high advertising and promotional expenses. Tata Tea’s consolidated revenues grew by 28% driven primarily by its Eight O’ Clock acquisition and strong branded sales in its domestic business, which grew 18%. Profitability was, however, hit due to a higher tax rate and higher interest charges. Net profit declined 3.5% to Rs44.5m

Cutting FY08E and FY09E earnings estimates by 15.5% and 3.5% to reflect lower than expected 1QFY08 results. Citi reduced EBITDA margin assumptions building in higher ad-spend for Tetley. Consequently, to reflect lower earnings, Citi has cut target price to Rs1045 (Rs1150 earlier) retaining our target P/E multiple of 15x mid-FY09E earnings .

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Power Finance Corporation’s [PFC] first quarter results look terrific at a glance but when you look at the finer details you will see that other income contributed to a large portion of the bottom line.

Kotak Securities has an Underperformer rating on the stock with a price target of Rs 125. CMP of PFC is Rs 195.

PFC has reported stable spread of 1.9% in 1Q08 and 4Q07. PFC’s ALM position seems comfortable in the near term. riable rate loans (with three-year reset) from FY2005 will be re-priced about 2-3% higher in FY2008; About 61% of PFC’s assets are floating as compared to 16% of its liabilities. This will help the company in a rising interest rate scenario.

PFC’s tax rate in 1Q07 was higher at 41% on account of prior period income tax demand. Consequently, reported PAT was subdued in that period. The 1Q08 effective tax rate was 32% in line with long-term trends.

PFC is expected to report an EPS of Rs 11.2 for FY2008 and Rs 12.8 for FY2009. Dalal Street Analyst advises Investors to Book Profits at CMP of Rs 198 as the stock looks expensive.

Citigroup just a while ago upgraded Corporation Bank to a BUY and also revised its target price upwards to Rs 455 from Rs 379. The reason for the upgrade is the solid performance in Q1-08; profits are up 23% – well ahead of 3% growth expectations. Balance-sheet driven NII expansion, fee growth and reduced bond portfolio charges (sharp base effect) drive profits up 23%.

Management foresees about 20% growth, which should alleviate recent funding pressures and support its above-industry capital cushion. Corp Bank is expected to report a fully diluted EPS of Rs 45.53 and Rs 55.44 for FY2008 and FY2009 respectively.

EVA-based target price of Rs455 is premised on a risk free rate of 8%, industry average margins of 230bps and higher than industry long-term capital ratio of 6.5% vs 6% average. Citi is also benchmarking target price on a 1.3x FY09E P/BV multiple (FY08E earlier), which is in-line with industry average target multiple.

Kotak Securities has put a BUY recommendation on Nitin Fire and Industries. Nitin Fire Protection Industries Ltd (NFPIL) is India’s leading player in the fire protection, safety, security and intelligent building management systems.

The company is setting up a 500,000 cylinders per annum capacity plant to manufacture high-pressure seamless gas cylinders for both industrial and CNG applications at its Visakhapatnam SEZ. Traditionally, the demand for cylinders grew in India due to industrial, medical fire fighting and beverages segment. Going forward, we expect major growth in demand for cylinders to come from the automobile segment. The use of CNG as an auto fuel is also rising at a rapid pace in neighboring countries like Iran, Pakistan, and Malaysia among others.

The Indian fire protection industry, as a whole, is approximately valued at Rs.20 bn. It is expected to record double-digit growth rates in future. At the current price of Rs.431, the stock is trading at very attractive valuations of 10.5x FY09E earnings and 8.8x FY09E cash earnings. The stock is available at 7.9x EV/EBIDTA multiple and 1.5x EV/sales multiple based on FY09E estimates. Kotak expects the company to report RoE of 34.4% in FY09E. Kotak Sec initiates a BUY recommendation on NFPIL with a price target of Rs.650 over a 12-month horizon, based on the DCF method of valuation.

Citigroup in a report released a while ago has maintained BUY rating on Chennai Petroleum Corp Ltd [CPCL] with target price of Rs 360.

Citi maintained Buy/Low Risk (1L) rating on CPCL with a target price of Rs 360. CPCL looks well positioned to capitalize on the sustained upturn in refining margins. In this context, CPCL’s capacity expansion by 40% (up from 7.5MTPA to 10.5MTPA) and increased complexity appear timely.

Citi raised FY08-09 estimates by 19- 25% on the back of sustained strength in the refining cycle and reduced chances of subsidy burden. Introducing FY10E. The new target of Rs 360 is based on EV/EBITDA of 5.5x mid-FY09E, at the high end of its historical trading range but at a meaningful discount to peers (6.0-7.0x). Dividend yield of 5.6% provides downside support.