Stock Picks

Sobha Developers
CMP: Rs 914.50
Target Price: Rs 870

Kotak Securities has downgraded its rating on Sobha Developers from ‘outperform’ to ‘in-line’, citing a cautious view on the real estate sector as a whole. “We believe current expectations of high volume growth and high price of real estate are unlikely to pan out. We expect residential property prices to see a 10% correction over the next few months,” said Kotak Securities in a note to clients. “We rework our net asset value estimate for Sobha for a 10% reduction in selling price in the next 12 months. Our new fair price for the company, based on March 2009 NAV, is Rs 870 per share,” the note added.

HLL
CMP: Rs 219.35
Target Price: NA

CLSA Securities has downgraded its rating on Hindustan Unilever to ‘outperformer’ from ‘buy’, citing ITC’s impending entry into the personal care segment as one of the triggers. “HUL’s market share trend is improving in certain categories, detergents in particular. While the input prices remain high, price hikes have helped HUL’s margins,” the CLSA note to clients said. “However, the going may get tough with the entry of ITC into personal care segment. While competition is nothing new for HUL, and ITC is not known to compete on price, ITC’s financial muscle and ability to withstand losses for a longer period of time could potentially hurt HUL’s bottomline,” the note added.

Maruti Suzuki
CMP: Rs 999.55
Target Price: Rs 820

Deutsche Equities has retained its ‘sell’ recommendation on Maruti Suzuki with a price target of Rs 820. The brokerage has cited four factors for its negative view -- stretched valuations, rising capex, intense competition, and less scope for further cost cutting. “Rapid strides in indigenisation in the past five years have helped the company improve margins in the past, but this trend is unlikely to continue further. Further, we expect Maruti Suzuki to trade market share for margins with rising competitive intensity,” the Deutsche Equities note to clients said. “Overall, we estimate operating margins to fall by 100 basis points to 13.3% by FY10 (estimated),” the note added. The brokerage has lowered its forecast earning per share for the company for 2008-09 to Rs 58.55 from Rs 60.78 earlier.

Vaibhav Gems
CMP: Rs 204.45
Target Price: NA

SSKI Securities has assigned an ‘outperformer’ rating to Vaibhav Gems, citing upside from new ventures as one of the key triggers. “From being a key jewellery supplier to global retailers, Vaibhav now reaches the end customer directly via TV and direct retailing. The TV channel business has witnessed a quick ramp-up to three geographies within a span of two years,” the SSKI note to clients said. “While a cloud of uncertainty still hangs over the wholesale business, we see immense value being created in the ‘direct sales’ business. Though profitability would remain muted in the near term with large one-off expenses related to start-up cost in new ventures, operating leverage would drive up profits (Rs 70.7 crore in FY09E) as businesses scale up,” the note added.

Petronet LNG
CMP: Rs 80.50
Target Price: NA

MF Global Sify Securities has downgraded its rating on Petronet LNG to ‘underperformer’ from ‘buy’, citing stretched valuations. “We believe that the stock price is running ahead of its fair value,” the MF Global note to clients said. The brokerage has forecast the company’s EPS for 2007-08 and 2008-09 at Rs 5.9 and Rs 6.3, respectively. “Sourcing of LNG at competitive rates would be critical for the viability of Petronet LNG’s expansion plan. The company is likely to face few hurdles as global LNG prices are moving upwards in tandem with the strength in crude oil prices. We expect the financial performance beyond H1FY08 to be tepid as the de-bottlenecked capacity would be utilised to the hilt, limiting any upside until new capacities go on stream,” the note added.