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Analyst’s Picks: Aban Offshore, Cipla

Posted on: February 8th, 2009 and is filed under Brokerage Recommendations.

Asit C Mehta Investment Interrmediates has reduced its price target for Aban Offshore to Rs 577 from the earlier Rs 1,295 due to increasing interest rates and higher operating costs. The brokerage also expects the global exploration and production demand (E&P ) to fall on account of lower crude prices and economic slowdown.

CMP: RS 421

“We expect day rates to go down on account of a fall in crude oil price and a slowdown in the world economy, which can affect global E&P capex and fuel demand,” it says in a recent report. It has reduced FY2009E and FY2010E earnings by 20% and 22%, respectively, mainly due to increasing interest rates, softening jack-up day rates in Asia, and higher operating costs. Considering the downward revision in estimates and outlook, we are lowering our PE multiple from 3.5 times to 2 times for FY10E, it adds.

CMP: RS 191.15

Indiabulls has maintained a ‘buy’ rating on Cipla after its third quarter top line increased due to a sharp rise in formulation exports and a consistent performance in the domestic market. “Cipla beat our expectations for Q309 as the top line swelled 21.5% y-o-y to Rs 1,340 crore,” the report says. The brokerage also expects Cipla to maintain its market share without compromising on margins.

“The company’s exports are increasingly getting skewed towards higher-value higher-margin formulations over bulk drugs,” it explains. According to the report, Cipla’s anti-asthma segment, which constitutes 25% of its revenues, is likely to get a boost as consumers shift from CFC inhalers to non-CFC inhalers in accordance with the Montreal Protocol’s deadline for banning the use of CFC inhalers by 2010. The report also highlights that fact that Cipla boasts of low leverage levels and absence of FCCBs, unlike peers such as Ranbaxy and Glenmark.

CMP: RS 752.95

ICICI Securities has initiated coverage on Tata Power with a ‘hold’ rating while advising investors to consider aspects like loan servicing and project funding capabilities of the company. “Falling coal prices do not augur well for Tata Power as it has a long position on coal. The company’s subsidiaries may face difficulty in servicing loan taken to acquire 30% stake in two Bumi mines, KPC & Arutmin,” states the report.

The brokerage also feels that the slowdown in metals in China and the resultant sluggishness in power consumption , long-term coal prices will most likely be at $40-45 per thermal equivalent (TE). “Thus, Tata Power will either refinance $950-million loan or raise additional loan in India to repay the Bumi debt, which appears difficult given the highly leveraged balance sheet,” says the report. Moreover, Tata Power requires at least Rs 1,000 crore to fund its ongoing projects, notes the report.

source: Business Standard

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