Amtek is amalgamating five group companies with itself, bringing all the forgings and castings units under the ‘Amtek Auto’ umbrella. This is expected to lead to better integration of operations, clearer efficiencies in sourcing and negotiations, and greater transparency in operations. Amtek Auto is valued at 15x FY11e earnings, which is a 25 per cent discount to the target PE multiple for Bharat Forge. The target price is Rs 254 (without considering the impact of its amalgamation with four other group entities).

Hindustan Unilever

CMP: Rs 255.95
Target price: Rs 304
Upside: 18.7%
Brokerage: IIFL

Hindustan Unilever’s (HUL) top management is pursuing volume growth and this is now visible in every brand in its portfolio. HUL is re-launching earlier de-focussed soap brands Liril, Hamam, Rexona and Breeze to regain share from regional players in specific geographies. The company has reintroduced key price points of Rs 10 and Rs 5 toothpastes and soap brand Lifebuoy.

With competition (GPCL, Wipro and Ghari) not reacting to price cuts in HUL’s discount brands, prospects of a recovery have improved. Channel checks suggest that the new re-launches/price points/price cuts have been well received in trade, though it is too early to judge consumer offtake at this stage. HUL has lost the maximum ground over the past 15 months in soaps, with its market share dropping by over 650 bps from 53 per cent to just over 46 per cent. Its old brands are being re-focussed after 2-3 years to take on competitors such as Godrej No 1 and Santoor, which have specific regions of strength.

Lanco Infratech

CMP: Rs 422

Brokerage: Edelweiss Securities

Lanco Infratech (LITL) currently has over 7,195 MW of new generation capacity under various stages of execution. Over half of this is already under construction and the balance has secured offtake agreements and fuel linkages and is likely to attain financial closure over the next 12 months. Post-commercialisation of RIL’s KG gas basin, Lanco has been receiving 1.6-1.65 mmscmd of gas, enabling its 368 MW Kondapalli power plant stage 1 to operate at 94 per cent PLF. The 366 MW second stage of the plant is expected to be operational in September/October.

The company has indicated that it will finalise plans to expand the capacity by about 750 MW (phase III & IV) at the same location. It also said that the proximity to Krishna river and anticipated higher KG basin output will alleviate water and gas issues. The research house has assumed earnings of Rs 71.7 crore from this plant in its FY10 estimates assuming merchant tariff and sale of about 610 million units. If LITL is able to operationalise the plant, sourcefuel, and execute merchant sales for the entire capacity, then there could be upside risks to earnings forecasts. At recommended price of Rs 420, the stock is trading at 2.8x FY10E and 2.2x FY11E book value.

Tata Steel

CMP : Rs 469
Target price: Rs 540
Upside: 15%
Brokerage: Deutsche Bank

The stock has been upgraded to buy based on three factors. The first is the view that the worst is over for Corus and that each quarter at Corus should be incrementally better, following the record negative EBITDA of $387 million in June quarter FY10. The second is a 132 per cent CAGR in consolidated EPS over FY10-12E, and finally an attractive valuation – the stock currently trades at a FY11E EV/EBITDA of 4.9x, an 18 per cent discount to the average valuation of its global peers. Worries over long-drawn earnings uncertainty at Corus have been a key stock overhang since late last year.

Nascent recovery in steel consumption in Europe, a rising capacity utilisation rate and a decline in coking coal prices should drive an EBITDA turnaround at Corus. We forecast Corus EBITDA to rise at a CAGR of 260 per cent over FY10-12. Tata Steel’s India operations (among the most competitive in the world) look set to benefit impressively from aggressive organic growth. EBITDA at Indian operations is likely to rise at 21 per cent CAGR over our forecast period. Increasing production in India should result in Indian operations constituting an overwhelming 67 per cent of consolidated EBITDA by FY12 from 46 per cent in FY08 when Corus was acquired.