Analysts pick

Cairn India

CMP: Rs 245.75

Target Price: Rs 355

Citigroup has maintained a ‘buy’ rating on Cairn India with a price target of 355, after reports indicated the government may impose a tax private oil companies. “Cairn’s correlation with crude has broken down in the past few weeks due to increasing speculation of a windfall tax. Given Cairn’s production is 12 months away, it does not add to government revenues immediately either,” the investment bank said in a client note.

“In addition to possible legal ramifications, the decision does not seem to be as clear-cut from the government’s point of view as it also loses profit share and taxation,” it said. “Despite Cairn being in the project stage due to tangible oil reserves which can be monetised, we have faith in the parent’s strong track record, and favourable demand-supply for domestic crude,” Citi added.

UltraTech Cement

CMP: Rs 551.35

Target Price: Rs 656

HDFC Securities has initiated coverage on UltraTech Cement with an ‘outperformer’ rating and a price target of Rs 656, even as it has a cautious view on the cement sector. The brokerage sees UltraTech’s move to set up power plants and the removal of exports ban from Gujarat ports to benefit the company.

On the sector, HDFC Securities said, “With the deadlock between the government and the cement industry continuing and rising input costs, which we feel the manufacturers will not be able to pass on in future, we maintain our cautious view towards the sector, despite the sharp correction in valuation multiples.” “From a long-term horizon, we believe that it is time to reduce the cement portfolio and adopt a bottom-up approach rather than being aggressive,” it added.

ICICI Bank

CMP: Rs 591.55

Target Price: Rs 1,150

BNP Paribas has reiterated its ‘buy’ rating on ICICI Bank with a price target of Rs 1,150. “We believe market-fears about ICICI Bank’s domestic non-performing loans (NPLs) are a key factor in the depressed sentiment for the stock,” the French bank said in a client note.

“We estimate the effect of NPLs on ICICI Bank for FY09 through various channel checks. Our checks reveal the gross NPL ratio for the bank could be in the range of 3.6-4.3% for FY09. Our estimates factor in gross NPL ratio of 3.8% for FY09. “We are projecting a 36% growth in NPLs for FY09 over FY08 as a bear case scenario. Our FY09 revenue growth estimate is lower at 14.5% compared to 20% by the Street (market estimates),” BNP added.

TVS Motor

CMP: Rs 27.05

Target Price: Rs 29

IDBI Capital Market has assigned a ‘hold’ rating on TVS Motor, with a price target of Rs 29, after the Q4 results. “We expect lacklustre volumes in FY09, hit by lack of cheap loans, cost inflation and cut-throat competition from peers. Consequently, margins are expected to be under pressure.

The current price discounts 13.6 times our revised FY10E EPS of Rs 1.9,” the brokerage said. IDBI Capital expects the two new proposed launches, StaR Sport and Apache RTR EFI to come as a relief to the company. “With a slew of new launches in two-wheelers and its foray in the three-wheeler segment lined up for launch in the next fiscal may help overcome pressure of declining sales volumes,” it added

The Economic times dt. 12 7 2008