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AMSEC
Elgi Equipments (Buy)
CMP: Rs 68
Target: Rs 102
Key positives: 1) Elgi's overseas acquisition of Belair France is likely to be profitable in the next 15 months (acquisition cost in FY10 for Rs 4.5 crore and EBITDA likely to be positive in FY13).
2) Management's strategic initiatives of growing after-sales market, new product launches and strong capex plan augur well for the company in the long term.
3) Elgi has dominant market presence in air compressors and enjoys debt-free status.
Valuation: Stock has corrected post disappointing results and offers good buying opportunity with long-term perspective. Stock trades at 11.7x and 8.9x FY12 and FY13 EEPS. Buy with target price of Rs 102, based on 14x FY13 EEPS.
Key risks: Elevated inflation is likely to impact compressor demand over the near term impacting Elgi's FY12 performance.
Exide Industries (Buy)
CMP: Rs 156
Target: Rs 181
Key Positives: 1) EIL is expanding capacity by 26 per cent to 33 million batteries by September CY11. Dominant market share to be maintained.
2) EIL's two smelters currently meet 55 per cent of its lead requirement. Targeting to acquire one more smelter which can meet 70 per cent of its lead requirement.
3) Lead prices less than $2,700/tonne sweet spot for Exide Industries Ltd. ( 1Q avg price $2,530 /tonne).
4) Increased replacement share to help margins in H2 FY12 (FY12E EBITDA margin at 18.5 per cent).
Valuation: The stock is currently trading at a P/E of 16.1x, EV/EBITDA of 10.9x and P/BV of 3.3x on FY13 estimates. Our EIL Target price stands at Rs 181, based on standalone FY13E EPS of 9.3 and target multiple of 19.5x.
Key risks: 1) Any slowdown in the automotive sector. 2) Increase in lead prices. 3) Competition can dent market share.
StanChart Research
RIL (Outperform)
CMP: Rs 766
Target: Rs 969
Increasing visibility of the US as an LNG exporter to Asia presents RIL with a strategic opportunity to capitalise on the emerging value chain. Wide differential between HH and Asian LNG prices positive for valuation of shale assets.
HH prices of $5.5-6.0 will lead to RIL's shale gas valuation at Rs 69-80/sh; base case in SOTP at Rs 45 at $4.5. RIL's stock price factoring in value destruction on current as well as potential cash deployments + trough GRMs + reserve downgrades in D6 with no exploration premium. Maintain Outperform.
Microsec Capital
Rallis India (Buy)
CMP: Rs 175
Target: Rs 190
We adopted a comparable valuation method to value Rallis based on price-to-earning (P/E) multiples. Currently, Rallis is trading at 16.2x on its FY13 EPS (E) of Rs 10.04.
In the longer run, we expect the company continue to trade at a premium over the peer group average P/E based on its right strategic move and outperformance. As a result, we assign the multiple of 19x and arrive at a target price of Rs 190 for the stock. Our target price translates a 17 per cent upside over Rallis' current stock price.
Business Line does not assume responsibility for the recommendations sourced from third party brokerages. Reports may be sent to >marketwatch@thehindu.co.in
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