| Summary of Contents | | | STOCK UPDATE Reliance Industries
Cluster: Evergreen
Recommendation: Hold
Price target: Rs1,215
Current market price: Rs1,051
RIL announces second shale gas deal -
Reliance Industries Ltd (RIL)?s subsidiary, Reliance Eagleford Upstream LP, has entered into a definitive agreement with US-based Pioneer Natural Resources Company (Pioneer) to form a joint venture (JV) involving Eagle Ford Shale in Texas in the USA. Under the agreement, RIL will acquire 45% stake in Pioneer?s Eagle Ford Shale acreage (largely undeveloped) in two separate transactions. This is RIL?s second acquisition of shale gas assets in the USA in last three months (recently it had acquired 40% stake in Atlas Energy?s Marcellus Shale gas assets for USD1.7 billion). -
We positively view the company?s strategy of strengthening its shale gas assets which will provide it entry into the US gas market. The encouraging thing is that the two shale gas assets have the combined resource potential of 23.3TCF (9.8TCF net to RIL). We also highlight here that the company?s recent acquisition of shale gas assets (investment of over USD3 billion) and its foray into telecommunications sector (investment of around USD5 billion) and power sector (investment details not specific) will ensure efficient utilisation of cash flow of around USD10-12 billion that it is expected to generate over FY2010-12. -
Currently, we have not incorporated any value from the RIL-Pioneer JV deal in our estimates and price target as we seek more clarity on the field development and production plan from the company. We maintain our Hold recommendation and price target of Rs1,215 on the stock. At the current market price, the stock trades at a price/earnings of 13x FY2012E earnings and enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 7.2x FY2012E. Mahindra and Mahindra
Cluster: Apple Green
Recommendation: Hold
Price target: Rs694
Current market price: Rs632
Price target revised to Rs694 Key points -
Tractor demand to rise on structural shift in agricultural industry: We believe the demand for tractors is likely to see a healthy growth on account of the structural shift in the agricultural industry triggered by the National Rural Employment Guarantee Act (NREGA) and the higher minimum support price (MSP) announced by the government for various agricultural commodities. The NREGA guarantees a minimum 100 days employment in a year at a minimum wage of Rs100 per day while the higher MSP would leave the farmer with a higher net income. -
M&M, a key player in the tractor segment: Mahindra and Mahindra (M&M) derives approximately 42% of its revenues from its tractor division and has a 40% market share in the tractor industry. It is likely to be the key beneficiary of the healthy demand in the tractor segment currently. Moreover, the newly launched 15HP tractor Yuvraj at an attractive price of Rs1.6 lakh is likely to see a strong demand considering the higher fragmentation in land holdings in India. -
Volume estimates for tractor division revised upwards: In view of the forecast of a normal rainfall for the current year and the M&M management?s guidance of a 10-12% growth in the tractor industry?s volumes, we have increased our FY2011 and FY2012 tractor volume growth estimates for M&M from 10% and 8.4% to 12% and 10% respectively. However, we maintain our volume estimates for the utility vehicle (UV) segment as well as the three-wheeler and light commercial vehicle (LCV) segments. -
Preferred pick in the auto sector, price target raised: Consequently, our stand-alone earnings per share (EPS) estimates stand marginally revised to Rs40.5 and Rs45 for FY2011 and FY2012 respectively. We value the stand-alone business of M&M at 12x FY2012E earnings and the subsidiaries at Rs154 per share. We maintain our Hold recommendation on the stock with a revised price target of Rs694 (from Rs637 earlier). M&M remains one of our preferred picks in the automobile (auto) sector. Sun Pharmaceutical Industries
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs2,010
Current market price: Rs1,805
Price target revised to Rs2,010 -
Sun Pharmaceuticals (Sun) has announced patent settlement with Orion Corporation (Orion) for the generic version of Stalevo (USD120 million revenue) and Comtan (USD90 million revenue), which are used in the treatment of Parkinson?s disease. -
Under the terms of the settlement, Sun will be able to launch the generic version of Stalevo (for strength of 25/100/200mg and 37.5/150/200mg) in the USA on April 1, 2012 (six months? exclusivity). In addition to these strengths, Sun will be able to launch the generic versions of the other strengths on October 2, 2012 and the generic version of Comtan on April 1, 2013. Orion will supply the generic product versions to Sun. However, the agreements are subject to review by the US FTC and the US DoJ. -
We expect Sun's strong domestic business, niche US market (controlled release substances, hormones etc) and improving visibility of its patent challenge pipeline to drive a steady growth in the long term. We are of the view that news flow like key abbreviated new drug applications (ANDA) approvals for Effexor XR, resumption of sales from Caraco Pharmaceuticals and Taro Pharmaceuticals update would act as a re-rating trigger for the stock. With the impact of Caraco Pharmaceuticals and Taro Pharmaceuticals already built in the price, we believe that the stock?s valuations reflect most of the negatives and the risk-reward ratio has become favourable for investors. -
Given the improving US outlook for Sun (four approvals in the past three months) and its strong track record (a robust guidance of 18-20% growth over high base of FY2010), we reckon that Sun deserves to trade at a premium compared to its peers and hence increase our target multiple to 23x from 20x earlier. We thus maintain our Buy recommendation on the stock with a revised price target of Rs2,010. At the current market price of Rs1,805 the stock is valued at 25.1x FY2011E and 21.4x FY2012E fully diluted earnings.
| | 
| |
No comments:
Post a Comment