Larsen and Toubro Ltd
L&T Infrastructure Development Projects Ltd, a subsidiary of Larsen and Toubro Ltd (L&T), has sold its 17% stake in Bangalore International Airport Ltd (Bial) to GVK Power and Infrastructure Ltd (GVK) for Rs686 crore. GVK has paid Rs105 per share for the stake. With this, GVK’s stake in Bial has gone up to 29%.
Besides being an equity holder, L&T had been the engineering, procurement and construction contractor for the airport project. As per L&T’s annual report, the company has acquired 65 million shares at a face value of Rs10 each. Hence, we estimate that L&T has made an estimated profit before tax of Rs621.10 crore on the deal (on a selling price of Rs105 a share).
Although we are positive about L&T’s new ventures such as power generation, yet we have not accounted them in our projections on account of their long gestation period as well as the project execution risk associated. We maintain our consolidated earnings per share estimates for FY2010 and FY2011 at Rs67.70 and Rs80, respectively.
At the current market price, the stock is trading at 20.5x its FY2011 consolidated earnings. We remain positive on L&T given its capabilities, robust order book and opportunities in the infrastructure space, and maintain our hold recommendation and sum-of-the-parts-based price target of Rs1,702 on the stock.
Tata Steel Ltd has decided to partially mothball its Teesside Cast Products (TCP) plant as buyers failed to fulfil their contract of purchasing slabs from the plant.
TCP’s Redcar Blast Furnace, Lackenby steelmaking and the South Bank Coke Ovens will be mothballed at the end of January, while some operations such as Redcar Wharf, Coke Ovens and the power generating capacity will continue.
This will result in around 1,700 job losses and the cost of restructuring is likely to be £130 million. We maintain our neutral view on the stock, with a fair value of Rs521.
Grasim Industries Ltd
Cementing its way up
Grasim Industries Ltd has reported a robust volume growth of 18.5% year-on-year (y-o-y) in cement division for November. The dispatches stood at 1.5 million tonnes (mt). The impressive volume growth was achieved on the back of the company’s larger exposure in the northern region where the demand is robust. On a year-till-date basis (April-November) the dispatches grew by 22.1% to 12.5mt. Looking at the current momentum in the volume growth, we feel the overall volume growth for the company in FY2010 could be higher than our estimate of 18% growth y-o-y. However, we will revisit our volume growth estimate after the Q3 FY2010 results.
We are revising upwards our price target for the stock on account of the robust volume growth in the company’s cement division, the increase in the realization of its viscose staple fibre business and the increase in its stake in UltraTech Cement from 54.8% to 60.3%. We are upgrading our price target to Rs2,526 but maintaining our hold recommendation.
On the daily chart, the stock has been moving in a range of Rs716-670 from the last week of November. On number of occasions, the stock has bounced back from the lower band of this trading range.
In fact, daily candlestick chart suggests formation of multiple bottoms around the levels of Rs670-675. We expect the stock to continue its recent uptrend and attempt the levels of Rs730-735. The daily momentum indicators such as relative strength index and moving average convergence divergence are exhibiting positive divergences.
We recommend traders to buy the stock at current levels and on declines up to the levels of Rs693 with a stop loss of Rs683 for a target of Rs735.