Broker alert: Debt, Chinese competition make Suzlon a bad bet
A renegotiation of the terms of its foreign currency convertible bonds seems unlikely as a depreciating rupee will magnify the FCCB liability of the company
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•Kotak Securities has a 'sell' rating on Suzlon Energy with a price target of Rs 20 per share. Suzlon is already trading below that at Rs 19.68. For sure, the company seems to be heading for tough times. First, a renegotiation of the terms of its foreign currency convertible bonds (FCCB) seems unlikely as a depreciating rupee tends to magnify the FCCB liability of the company. Second, Suzlon is experiencing intense competition in the wind energy space from Chinese players and third, it is being weighed down by high debt levels, the brokerage said.
For the year ended March 2012, Suzlon is expected to clock sales growth of 33.3 percent and net profit growth of 2.6 percent. Over the past week, the stock rose 8.5 percent, but lost almost 60 percent in 2011.
•Deutsche Bank is bearish on Tata Motors with a price target of Rs 180 per share. Currently, it is trading at Rs 203 per share. While the report expects momentum to continue in its Jaguar Land Rover segment, it is expecting deceleration in the domestic commercial vehicle (CV) business. "Competition in small CVs is strengthening, which would impact elevated segment margins," said the brokerage. For the year ended March 2012, it expects the company to clock sales growth of 18.9 percent, while earnings are expected to fall 4.3 percent.
•PINC Research is bullish on ITC with a price target of Rs 233 per share against its current market price of Rs 205, reflecting a growth of almost 15 percent. It expects its cigarette business to clock 13 percent growth (compounded annual basis) between April 2011 and March 2014 due to its extensive cigarette portfolio, large distribution network and consumer loyalty for ITC's brands. The non-cigarette business is also expected to grow by 20 percent (compounded annually) during the same period.
•Daiwa Capital Markets maintains 'buy' rating on Hero MotoCorp with a price target of Rs 1,786.45. The stock is currently trading close to the target price at Rs 1,774. As the company continues to maintain its market leadership through new launches, its operating margins are not likely to be badly affected, the brokerage said, adding that even the possibility of a price war is low. "The easing of commodity prices, reasonable sales volume growth and cost cutting measures should help the company to maintain its EBDITA margins at healthy levels of 12-14 percent", the report said. Overall, Daiwa expects revenues and profits to grow north of 18 percent for the year ending March 2012.