BHEL:

CMP Rs 1311

BHEL is trading at about 15 times its expected earnings for FY10 at the CMP of Rs 1311.
This makes it an attractive investing opportunity given its consistently strong order inflows, timely capacity expansion measures to meet the increased opportunities and negligible funding issues, despite the global liquidity crunch.

BHEL has an order backlog of Rs 1,13,600 crore, as of end-2008 which speaks of the revenue potential for BHEL over the next two years, though power cuts, component shortage and delays in certain clearances led to lower revenues in the December quarter.

Rising commodity prices and employee expenses dented the operating profit margins to the less than 17 per cent. The competitive threat from BHEL’s Chinese competition has receded to some extent, given the spate of quality issues raised over the past year regarding Chinese equipment. The appreciating dollar has also helped narrow the pricing gap between the local and Chinese equipment.
The stock can be accumulated by long term investors as a safe bet with 20 percent annual returns as a target.

Brokers recommendations:

M&M

CMP: Rs 316.90

Target price: Rs 375

Antique Stock Broking has initiated coverage on Mahindra & Mahindra with a ‘buy’ rating. According to the broking house, M&M’s stake in group companies significantly augments its consolidated revenues and profits. The value accruing from these investments provides a huge cushion to M&M’s market price, the report said. “In line with the industry, we expect FY10 to be comparatively better for M&M’s automotive segment, given the reduction in fuel prices, fall in interest rates, decline in raw material costs and cut in excise duties. The positive response to its recently-launched Xylo will enable further market share gains for the company,” the Antique Stock Broking report said. The increase in allocation towards farm credit will indirectly help M&M’s tractor segment. Its significant presence in rural markets, which are relatively insulated from the current slowdown, provides it a competitive advantage, the report added.

Siemens India

CMP: Rs 200

Domestic broking house Indiabulls has retained its ‘hold’ rating on Siemens India. “Though our near-term outlook for the company has weakened following the SISL deal, we believe the company is well poised to grow in the long run,” the report said. The outfit adds that revenues in the power segment is likely to fall due to the completion of several big-ticket projects in FY08 and lack of mega order inflows near term. “We believe that strong growth in small segments such as transportation, healthcare and BPO will help in cushioning the downside in revenue from the power segment. The revenue is expected to grow substantially post FY10, once the orders in the power segment start coming in from the Twelfth Five Year plan,” the note added.

TCS

CMP: Rs 480.80

JP Morgan has maintained its ‘overweight’ rating on TCS against the backdrop of several cost-cutting measures adopted by the IT company. The broking outfit expects resiliency in TCS’ operating margins during the next fiscal, but has also cautioned of near-term weakness in earnings growth. “TCS is looking to reduce variable portion of employee salaries, has increased working hours of employees as per news reports. These cost-cutting measures are largely in line with our expectations; top Indian IT companies would be able to defend margins next fiscal despite pricing pressure,” the JP Morgan report said. According to the broking house, revenue growth remains the key variable of debate. “We continue to believe that top-tier players can deliver flat revenues in the next fiscal due to market share gains and Satyam issue. Given low investor expectations, flat revenue would be enough to drive share price,” the report added.