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| Analyst's corner | | Maruti Suzuki, United Spirits, KEC International & Siyaram Silk Mills |
| Si Team / Mumbai Sep 10, 2010, 00:59 IST |
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MARUTI SUZUKI
Reco Price: Rs 1,303,
Target Price: Rs 1,450
Demand outlook is strong, current capacity is about 1.3 million units per annum. Efforts are on to fast-track capacity addition to meet demand from 2011-12. Emkay has upgraded its 2010-11 and 2011-12 volume estimates by 4 per cent and 8 per cent, respectively. Currency is a concern (to lower 2011-12 estimated Ebitda by 12.9 per cent); however, no impact in near term due to hedges. The brokerage has raised its 2010-11 and 2011-12 estimates for EPS by 9 per cent and 14 per cent, respectively. Key triggers include capacity increase and pricing action. Key concerns arise from currency moves. Expect demand to remain strong. It has upgraded its rating on the stock to accumulate from reduce.
— Emkay
UNITED SPIRITS
Reco Price: Rs 1,525.9,
Target Price: Rs 1,622
Volumes have seen a strong pickup in July and August post the renewal of retailer licenses in Andhra Pradesh. Input costs are likely to soften further in 2010-11. On steady revenues, as input costs sequentially decline, gross margins should witness a sharp expansion. United Spirits has demonstrated the ability to pare discretionary cost items that further buffer Ebitda growth. Whyte & Mackay acquisition should significantly enhance its expansion plans in India and Europe. The company plans to reduce UK’s share of branded business from 45 per cent to less than 30 per cent in the next three years. Management expects to attain Ebitda of £50m in the next 3-4 years. The Bangalore IPL cricket team franchise at investment is valued at Rs 44 per share. Maintain Buy.
— Citi
KEC INTERNATIONAL
Reco Price: Rs 494,
Target Price: Rs 572
KEC’s management highlighted that the key reason for the $95m acquisition of SAE Towers is the immediate access to the large and potentially high-growth transmission tower market in the Americas. SAE, being the market leader with 40,000 MT spare tower capacity, is well-placed to capture the growth. Though at a CY09 EV/Ebitda of 9.6 times, the acquisition seems expensive (KEC is trading at 8.5 times 2009-10 EV/Ebitda), it still is EPS accretive given that KEC plans to fund the acquisition through low cost ECBs and internal accruals. Expect a 14 per cent revenue growth and EBITDA margin of 10 per cent over 2010-11, resulting in about 3 per cent EPS accretion in 2010-11. Maintain add.
— IIFL
SIYARAM SILK MILLS
Current market price: Rs 369,
Fair value: Rs 340
CRISIL Equities has assigned a fundamental grade of 4/5 to Siyaram Silk Mills Ltd (SSML), indicating ‘superior’ fundamentals relative to other listed equity securities in India. SSML is a textile manufacturer with an established position in the domestic fabric and readymade garment markets. The company has used branding as an effective tool to differentiate itself from competition. Robust demand for SSML’s products, a vast distribution network and increase in installed capacities will drive the company’s top line. SSML’s revenues are expected to grow at a three-year CAGR of 14 per cent to Rs 1,170 crore in 2012-13, while EPS is expected to increase from Rs 34 to Rs 62. CRISIL Equities has used the discounted cash flow method and arrived at a fair value of Rs 340 for SSML.
— CRISIL Equities
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