Public Relations
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Expect moderate returns in 2010
order back log is robust at Rs 19,600 crore, and is expected to grow given that work for about 28,000 mw of capacity of Reliance Power is yet to be awarded. Further, its increasing focus and strong portfolio of 730 km of road projects and, scheduled completion of the Delhi and Mumbai metro projects over the next nine months, augur well. Also, increased contribution from its power business and improving margins due to lower commodity prices should result in higher profitability. Analysts value the stock at about Rs 1,350 per share based on its investment in various companies and cash in the books. SBI During 2008-09, SBI increased its loan book faster than its private peers. Analysts expect the trend to continue with an upward bias on the margins also. Nevertheless, RBI’s mandate to increase its provisioning coverage to around 70 per cent could put pressure on its profitability in the short-term. However, favourable policy initiatives like scrapping of SBI Act, consolidation of associate banks with SBI, and likely listing of its life insurance subsidiary could act as future triggers. Although the bank may have to raise funds in 12-18 months, the same would provide fuel for funding future growth in its businesses. Major concerns over restructured assets impacting financials would taper off, slowly but surely, as the economic growth momentum picks up further, leading to better stock valuation. Suzlon Energy Suzlon could be a good play given the increasing focus on renewable energy globally. Demand for wind power equipment has been lower in the recent past, but should improve in two of Suzlon’s largest markets (US and Europe) helped by customers getting easier access to funds. Suzlon is also taking steps to bring down its leverage. Recently, Suzlon’s promoters invested money in the company, while the company raised funds by selling its stake in its Netherland-based subsidiary, Hansen, which was used to pay some of its debt. Meanwhile, Suzlon is in the process of restructuring its remaining debt, which lower the pressure on its cash flow and earnings. Suzlon’s stock is currently trading at cheaper valuations as compared to its peers due to concerns over debt and lower demand. But, as things improve, expect it to get rerated, which indicates potential for strong upside. Thermax Thermax, a leading player in the environment and energy equipment business, could benefit from the growing environment concerns globally and an expected revival in India’s industrial capex. The company is already making efforts to gain orders for its waste treatment business for domestic municipal corporations. In power, while Thermax is leader in small and medium sized industrial boilers, it is now eyeing large-size projects on the back of an increase in its boiler manufacturing capacity which now stands at about 1500-2000 mw. The company also forayed into sub-critical power equipment segment through a technical tie-up, which should boost growth rates going ahead. Meanwhile, its strong order book of Rs 5,056 crore provides good visibility, which along with the benefits of lower commodity prices will mean higher profit margins. United Phosphorus United Phosphorus (UPL), which operates in two main segments (crop protection and seeds), is another stock to play on the agriculture growth story. It generates about 80 per cent of its revenues from international markets. As UPL integrates its several overseas subsidiaries and increases focus on the US and European markets for the generics opportunity in crop protection products, expect growth rates to perk up. Additionally, improved outlook for the domestic agriculture market should benefit Advanta India, a listed subsidiary of UPL which has a strong position in the domestic seeds market. Overall, its robust portfolio, strong distribution network and established presence in growing markets should help sustain healthy growth. The company’s net profits are expected to grow at about 25 per cent annually over the next two years. A WATCH-LIST FOR 2010 Stocks of cyclical sectors such as commodities, including metals, have rebounded sharply on the back of higher global prices. While the demand is yet to pick up in a meaningful manner, the price rise is largely attributed to investors seeking real assets on account of dollar’s weakness, all of which indicates that there is little room for appreciation in 2010. There is high certainty about interest rates moving up in 2010, which may not sound positive for sectors like automobile and real estate. Stocks in the two sectors have already given strong returns in 2009, and hence, are likely to underperform in 2010. Despite expectation of higher interest rates, the credit growth which has slipped to about 10 per cent recently is expected to bounce back to 16-18 per cent going ahead. This would mean good news for the banking sector. Higher economic growth and improving industrial numbers would translate into increased spending by consumers and industries in 2010. Thus, the capital goods or industrial sectors should do well particularly. Higher agri-commodity prices, rising farm incomes and focus on increasing agri output is good news for agri-based companies, particularly sugar, given the demand-supply mismatch. Hence, they should do well. Selectively picking companies which felt the hardest impact on their financial performance due to the demand slowdown and global crisis might lead to high returns. Such companies could get re-rated as economic conditions normalise resulting in improved earnings. Return of risk appetite will also help companies raise funds through QIP, etc and de-leverage their balance-sheets.Pages: 1 [2]