“Elecon Engineering Company

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“Allied Digital Services reported a substantial rise in standalone net profit for the quarter ended December 2009. During the quarter, the profit of the company rose 43.66% to Rs 267.50 million from Rs 186.20 million in the same quarter previous year. Net sales for the quarter for the quarter rose 27.30% to Rs 1,224.20 million, while total income for the quarter rose 28.38% to Rs 1,239.90 million, when compared with the prior year period. At the market price of Rs 220.30, the stock trades at 10.08x and 8.83x for FY10E and FY11E respectively. The topline and bottomline of the company are expected to grow at a CAGR of 22% and 39% respectively over FY08 to FY11E. We recommend a “BUY” in this stock with a target price of Rs 260 for medium to long term,” says Firstcall research report.

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Hindustan Unilever’s (HUL) top management is pursuing volume growth and this is now visible in every brand in its portfolio. HUL is re-launching earlier de-focussed soap brands Liril, Hamam, Rexona and Breeze to regain share from regional players in specific geographies. The company has reintroduced key price points of Rs 10 and Rs 5 toothpastes and soap brand Lifebuoy.With competition (GPCL, Wipro and Ghari) not reacting to price cuts in HUL’s discount brands, prospects of a recovery have improved. Channel checks suggest that the new re-launches/price points/price cuts have been well received in trade, though it is too early to judge consumer offtake at this stage. HUL has lost the maximum ground over the past 15 months in soaps, with its market share dropping by over 650 bps from 53 per cent to just over 46 per cent. Its old brands are being re-focussed after 2-3 years to take on competitors such as Godrej No 1 and Santoor, which have specific regions of strength.

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The research house expects Amtek Auto to benefit from the relatively strong growth in automobile demand at home and the nascent recovery globally. Its amalgamation with five group companies would lead to integrated operations and greater efficiencies. Domestic auto demand has rebounded, and overseas markets, too, are showing signs of improvement. Amtek has a significant presence in the overseas markets through subsidiaries, which would boost revenue from its subsidiaries as well its joint ventures with leading global suppliers such as Magna and ARI. Given the secular growth in demand ahead, Amtek (ex-merger impact) to register a robust 50 per cent CAGR in earnings over FY09-12.

Amtek is amalgamating five group companies with itself, bringing all the forgings and castings units under the ‘Amtek Auto’ umbrella. This is expected to lead to better integration of operations, clearer efficiencies in sourcing and negotiations, and greater transparency in operations. Amtek Auto is valued at 15x FY11e earnings, which is a 25 per cent discount to the target PE multiple for Bharat Forge. The target price is Rs 254 (without considering the impact of its amalgamation with four other group entities).

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The broking house believes that one of State Bank of India’s (SBI) biggest advantages is the high interest spread on its bond portfolio. The incremental cost of funds for SBI has fallen by almost 210 bps over the past nine months, whereas the incremental yield on its government-bond portfolio has remained more or less the same. Currently, if SBI buys a 10-year government bond, then it is making an incremental interest spread of 200-250 bps, compared with a negative interest spread six months ago and a positive spread of around 10 bps nine months back.

SBI moved almost Rs 35,000 crore of short-term cash to statutory liquidity ratio (SLR) securities in 1Q FY10, and this is likely to have a positive impact and reflect in the NIM in the latter half of FY10. The re-pricing of high-cost deposits in November-December 2009 would also give the NIM a further boost. SBI has underperformed both the broader and Nifty banking indices over the past six months, but this trend will reverse over the next six months. The six-month target price is revised to Rs 2,109 from Rs 1,043, based on a target PBR of 1.5x on FY10 consolidated BVPS forecast and adding Rs160 per share for the life-insurance venture.

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Koutons Retail’s USP is its ability to cut down intermediaries and bring fashion to masses at affordable prices. The brokerage is positive on the company’s growth based on its business model, expansion plans, and higher margins compared to other retailers on account of integrated operations. It initiates coverage on the stock with buy recommendation and values it at 12.5 times FY11E EPS (50 per cent discount to Pantaloon’s FY11 P/E multiple) to arrive at a target price of Rs 500.The report mentions that organised retail is expected to grow at CAGR of 19 per cent over the next four years to reach Rs 202,400 crore by FY13E. Clothing and fashion accessories, which account for 38 per cent of this will be one of the key beneficiaries. The brokerage believes, low penetration, favourable demographics, steady economic growth, increasing availability of credit, and improving cost structures will reverse the now sagging fortunes of organised retail.

Koutons plans to convert its existing stores to family stores and rationalise stores based on demand. We expect interest costs to dip due to restructuring of high cost debt and softening of interest rates. This is likely to increase its PAT margins over the coming quarters with earnings CAGR of 24.6 per cent over FY09-11E likely.

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Recent statements from the government (specifically, the Ministry of Petroleum and Natural Gas) have been positive, indicating the possibility where OMCs might not have to bear any subsidy. Also, brokerages expect lower crude/product prices in months ahead and subsequent lower debt load.

With the steep fall in crude prices and lower product prices, the working capital requirements and debt load of HPCL have fallen sharply compared to FY09. These along with lower interest cost should help the company to report improved profitability. This is also a reason that the brokerage forecast a 92 per cent y-o-y jump in FY10E EPS over FY09 to Rs 42.6, on the back of lower under-recoveries (partially on cooking fuels), lower interest costs and inventory gains. The brokerage recommended the stock at Rs 361 and raised its target price to Rs 470, which is based on 50 per cent historical discount to Sensex PE of 17 times and value of its investments in MRPL, at a 25 per cent of holding company discount.

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Sell BPCL around Rs 497.7-504.4; last close Rs 495.35; stop loss Rs 507. Cover short around Rs 488.7-473. If stop loss is violated then buy above Rs 507 with low of the day stop loss.

Buy Sintex around Rs 233.1-226.2; last close Rs 238.65; stop loss at Rs 220. Book profit around Rs 245-265. If stop loss is violated then sell below Rs 220 with high of the day stop loss.

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“With EPS at Rs 10.69, the company seems to be on its way to achieve an annual EPS in its fourth decile, with a conservative estimate at Rs 40.6. This brings the earnings multiple to around 7 times at CMP. We recommend a BUY at 10 times one year forward earnings with a target price of Rs 406,” says Parag Parikh Financial Advisory Services’ report.

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