Analysts` corner

Bajaj Auto
Reco price: Rs 2,541
Current price: Rs 2,612
Target price: NA
Brokerage: Motilal Oswal

Bajaj Auto has taken aggressive steps to re-invent itself. From playing the volumes game in the entry level segment, it has shifted focus to strengthening its dominance in the premium motorcycle segment.

The company has also created an identity for Indian motorcycles in the global market, where it is targeting 10 per cent market share by the year 2010. While its core business profitability is expected to improve from here on, its insurance business is a potential value driver.

The report also includes the improvement in operating margins at 14.7 per cent in 2HFY08 and 15 per cent in FY09. The broking house arrived at an SOTP-based price target of Rs 3,065.

Its auto business is valued at Rs 1,190 per share (15 times FY09E earnings), financial services at Rs 683 per share and holding company at Rs 1,191 per share. Its SOTP valuation indicates a 21 per cent upside from the recommended price.

3i Infotech
Reco price: Rs 148
Current price: Rs 149
Target price: Rs 222
Brokerage: India Infoline

3i Infotech clearly stands out in a sector engulfed with multiple concerns of rupee appreciation, US sub-prime mortgage crisis, salary inflation, rising attrition and commoditisation of business models.

Where the sector players are reporting slow revenue growth, declining profitability and opting for drastic guidance cuts, 3i has outperformed. For instance, 3i has reported a robust 19 per cent revenue and 17 per cent earnings CAGR over 1QFY07- 1QFY08 with stability in profit margins.

More importantly, company has maintained FY08 guidance at Rs 10-11 bn in revenues (53-68 per cent yoy growth) and Rs 145-155 crore in profits (39-48 per cent yoy growth). Considering these factors 3i deserves a premium valuation.

India Infoline assigns a PE multiple of 18 times for FY09E EPS to arrive at one-year price target of Rs 222. Immediate triggers for the stock could be utilisation of $100 million cash for acquisitions, any reduction in stake by parent ICICI Bank and positive news flow surrounding takeover of the company.

Reliance Capital
Reco price: Rs 1,809
Current price: Rs 1681
Target price: NA
Brokerage Edelweiss

Edelweiss has come out with a report on Reliance Capital with a "reduce" recommendation. Reliance Capital has witnessed a three-fold rise in its stock price during the past six months, led by exponential growth in its existing operations and strong traction in new businesses.

Edelweiss is positive on the company's overall business performance its asset management segment, life insurance and general insurance.

Moreover, the report also estimate the company's retail broking business to generate a profit of Rs 1,05 crore by FY09E and Rs 1,57.5 crore by FY10E, and its consumer finance book to grow to Rs 11,500 crore by FY09E and Rs 18,500 crore by FY10E.

However, the stock's recent performance has priced-in aggressive growth targets in existing businesses and also captures the possibility of the company venturing into complementary businesses like investment banking, institutional broking, asset reconstruction, etc.

According to the report, sum-of-the-parts (SOTP) framework gives the base case fair value of Rs 1,573 on FY09E and Rs 1,874 on FY10E estimates and it is believed that the stock should hover in this range in the medium term.

Tata Steel
Reco price: Rs 865
Current price: Rs 832.9
Target price: Rs 1,053
Brokerage Emkay Share

The brokerage recommends a buy on Tata Steel with a target price of Rs 1053 based on 10 times FY09E fully diluted EPS of Rs 105.3. Given the strong pricing environment and the superior product range of Corus, the report expects the Corus acquisition to be an EPS accretive for Tata Steel, despite an estimated equity dilution of 43 per cent.

Increased capacity at its plants along with a strong pricing scenario is likely to ensure healthy realisations, thereby boosting revenues.

In the current steel cycle, we have witnessed a re-rating of the global steel majors and expect the Indian steel sector to follow suit. Tata Steel is currently valued at 30-50 per cent discount to its global peers, which is seen as a buying opportunity.