Category: Equity Research

Exclusive: UBS Investment Research has initiated coverage on United Phosphorus Ltd [UPL] with a BUY recommendation and a price target of Rs 425.

UPL is emerging as a strong global agrisciences major with its recent acquisition of Cerexagri’s crop protection business and Advanta’s seed business. Following the acquisitions, UPL is the 3rd largest generic crop chemical and 12th largest crop protection company globally.

UPL has grown revenues at a 28% CAGR and net income at a 36% CAGR over FY04-07, through value accretive acquisitions. Other large generic companies such as Nufarm and MA Industries have adopted similar routes. Cerexagri, accounting for c30% of revenues, will be the primary earnings driver over the next two years. Integration of Cerexagri and continued strong growth in Europe and the rest of the world will drive a 30% revenue CAGR over FY07-09, EBITDA margins to expand from 21.3% to 21.8%, and interest costs to decline, driving a 35% CAGR in net income. Advanta is modelled separately and added to UPL’s share to net income.

UPL has underperformed for over 18 months and trades at a 15-20% discount to other generics and to its historic multiples. Successful integration of new acquisitions will drive outperformance. Target of Rs425 includes Rs392 as a DCF of standalone UPL, and Rs33 for UPL’s holding in Advanta.

DalalStreet Analyst Comments:
We back the views of UBS and believe UPL has worthy of investment for value investors.

Crompton Greaves (CGL) is mainly concentrating in Power Systems, Industrial Systems and Consumer Products and Digital business. CGL is engaged in manufacture, distribution and sale of electrical and electronic equipment/systems.

Positive Triggers

• From FY09 onwards, international business is likely to take the lead in growth given higher margin improvement potential
• Microsol acquisition would increase CGL’s strengths in the area of high-end engineering and sub-station automation capabilities. CGL has acquired three international companies. In all three cases the acquisitions did not involve large capital outlay, resulted in addition of more products and skills and helped increased production capacity.
• The Government of India (GoI) has set a goal of “Power for All” by FY2012E. Investments in infrastructure, particularly in the power generation, and transmission & distribution (T&D) segments, are estimated to be at Rs 1400 billion for T&D alone in the XIth Plan (FY07-FY12).

CGL could end FY08 with an EPS of Rs. 10.5 – 11.25. Though the stock looks steeply valued at the current market price, one could accumulate the stock in the Rs. 270-310 band for a period of 2-4 quarters.

Here is the chart of Ratings and Target stocks prices for all the banks in India. Courtesy SSKI Securities report on Indian banks.

ENAM India Research has maintained a neutral rating on the prospects of Tata Steel with a price target of Rs 657 because of the short term challenges the company is facing rather than the long term gains.

• Equity raising and capacity expansion are the key to future success of Tata Steel
• Higher interest costs on bridge debt financing
• Tax inefficiencies for one of the SPVs (Tata Steel Asia)
• Improving margin by enhancing integrated operations in India

Robust demand growth, driven by strong consumption in China and other EMs. Large Chinese capacity addition to replace old capacities and also for local consumptions. Iron ore – Spot iron of prices currently 50% higher than current contract prices. Expected to rise significantly next
year. Coking coal – prices are expected to move higher next year.

Key risks include financial leverage and low operating margin. Thus maintain a NEUTRAL rating on the stock.

Citigroup Technical Research has put a short term BUY recommendation on Tata Metalik with a target price of Rs 164. CMP Rs 147.

Tata Metalik has seen a bullish breakout from a “Triangle” pattern. Construction of triangle is T#1 Upper Boundary and T#2 Lower Boundary. Prices have closed above the breakout level (T#1) at 136; breakout was supported with rise in volume

The minimum price objective has been calculated using the “maximum depth” technique. Maximum depth within the triangle is distance between # 152 (P1) and # 124 (P2), 152-124=28. Adding 28 to the breakout level at 136 gives us a minimum price objective of 164 [28+136].

Short-term Buy (1B) with target price of 164 and stop loss price of 134 (on a daily closing basis)

Prabhudas Lilladher [PL] initiate coverage on Areva T&D with “Outperformer” rating and a target price of Rs 1855 (30x CY08 earnings), implying a 17% upside potential.

Areva T&D is the third largest transmission and distribution player globally with a significant presence in the Indian T&D space. Areva currently has an order book of Rs 24.2bn, 1.8x its CY06 sales, providing visibility of earnings for next few years. The company has won the first ever 765 kV substation order from NTPC, being the only fully integrated 765kV substation supplier in the country.

For the period FY07 to FY09, PL expect CAGR of 57.7% in net profit on the back of revenue CAGR of 24.7%. At the CMP of Rs 1,590, the stock is available at 36.8x and 25.7x CY07E and CY08E earnings of Rs 43.1 and Rs 61.8 respectively. Areva enjoys attractive return ratios with RoE at 46.1% and RoCE at 47.5%. PL initiates coverage on Areva T&D with an “Outperformer” rating and a target price of Rs 1855 (30x CY08 earnings), implying an upside of 17% from current levels.