UBS on BHEL + Punj Lloyd + TCS + Petronet LNG

UBS has changed recommendations on several stocks including BHEL, Punj Lloyd, TCS etc with the correction in their stock prices.

UBS upgraded BHEL from Neutral to Buy following the recent correction in stock price. Of the nearly 75,000MW of private-sector capacity proposed to be built by 2015, BHEL’s potential target market is 43,000MW (72% of the yet to be ordered portion) Price Target of Rs3,030 is based on a DCF which assumes 20% mid-term (FY11-15E) growth, WACC of 11.2%, and terminal growth of 6%. At current levels, the stock trades at 18.3x FY10E versus 3-year CAGR of 36.4%.

Punj Lloyd:
UBS initiated coverage on Punj Lloyd with a BUY rating. Expect Sembawang E&C’s EBITDA margins to increase from 0.9% in FY07 to 6.4% in FY09, as higher-margin orders come through. We expect consolidated EBITDA margins to improve from 8.0% in FY07 to 10.3% in FY09. This drives an EPS CAGR of 60% over FY07-09E.

Punj Lloyd’s core contracting business at Rs660 per share, implying a one-year forward EPS of 28x. This represents a 30% premium to the mid-cap engineering and construction (E&C) companies and a 20% discount to L&T. Value the Pipavav shipyard at Rs27 per share and the real estate business at Rs9 per share.UBS recommends a BUY with a Target Price of Rs 696.

Petronet LNG:
Petronet LNG reported a net profit of Rs 1.31bn for the current quarter (up 54% yoy &13% qoq) despite recording a marginal increase in sales and volumes processed on a yoy basis. The company recorded an EBITDA of Rs 2.32 bn an increase of 34% on a yoy basis. Other income for the company also recorded an increase of 36%.

The company is expected to report an EPS of Rs 6.81 and Rs 7.81 for FY09 and FY10 respectively.On the basis of DCF valuations, UBS recommends a SELL on petronet LNg with a target price of Rs 92

TCS reported 3QFY08 revenues of Rs59.2bn (UBSe: Rs60.2bn), up 5.0% q-o-q and net profits of Rs13.3bn (UBSe: Rs13.1bn), up 6.7% q-o-q. EBITDA margins improved 40bps to 26.7%. Results are broadly in-line while the volume growth of 4% q-o-q is a disappointment.

TCS signed 9 large contracts in the quarter with cumulative contract value of 1.9bn USD. Further TCS is pursuing 25+ large contracts each of size >US$50mn USD most of which are expected to close over the next 3-6 months.

The stock price of TCS to remain sluggish in near term on the back of lacklustre volume growth at both TCS & Infosys in 3QFY08 and growing concerns on the US economy. However, from a period of next 12 months in view, UBS expects TCS to report an EPS of Rs 60 for FY09 and has set a target price of Rs 1,300.

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