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Analysts’ Picks: Hindustan Zinc, HDFC, Jet Airways

This article was posted on Jan 24, 2009 and is filed under Stock Views

Hindustan Zinc
Cmp: Rs 321.15
Target price: NA
Centrum Broking has cut earnings estimates of Hindustan Zinc, following disappointing quarterly results, but upgraded its rating on the stock from reduce to ‘hold’. The company has hefty cash on books of Rs 9,310 crore and its capex requirement for the next two years is only around Rs 2,600 crore, which translates into Rs 220/share.

We believe a part of the cash would be given back to investors in the form of dividend as the outlook for core business looks gloomy,” the Centrum note to clients said. Centrum has cut earnings estimates for FY09 by 21.5% to Rs 66.1 (earlier Rs 84.2) and for FY10 by 24.5% to Rs 66 (Rs 87.4). We believe the stock is cheap on valuation parameters. Besides, the company has indicated that it would maintain volume growth and also cost would decline by around 5-7% going forward. This, along with the imposition of 5% import duty on zinc, would help improve margins going forward.

HDFC
Cmp: Rs 1,388.40
Target price: Rs 1,550

Deutsche Equities
has retained its ‘buy’ rating on HDFC, post its third quarter earnings, but slashed price target of the stock from Rs 1,625 to Rs 1,550. “The exceptionally difficult environment of Q3FY09 for both demand and cost of funds has already started improving.

We have pared our earnings estimates, reflecting lower treasury profits and mark-to-market on foreign currency bonds,” the Deutsche Equities note to clients said. “The sharp sell-off, post the announcement of results, appears excessive as we believe that in such an environment, keeping margins reasonable is more important than growth. Key risks are continued high property prices, hurting mortgage demand and high capital needs of subsidiaries, putting pressure on HDFC’s balance sheet,” the note added.

Jet Airways
Cmp: Rs 160.10
Target price: RS 198

Prabhudas Lilladher has retained its ‘accumulate’ rating on Jet Airways with a price target of Rs 198, saying the company’s earnings could be under pressure for some more time, despite the price of aviation turbine fuel coming down by half. “Benefit of this (lower ATF price) has been passed on to consumers as the company announced around 40% cut in basic fares, effective January 2009.

This should allow the airliner to operate closer, or even above the break-even load factors for the subsequent quarters,” the Prabhudas Lilladher note to clients said. “Correction in ATF prices has provided pricing flexibility, which in turn, should drive passenger volume growth. However, this is not enough as high interest burden and depreciation expenses will result in the company reporting losses for at least in the next two years,” the note added.

source: Economictimes

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