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| Summary of Contents STOCK UPDATE Oil India
Recommendation: Buy
Price target: Rs670
Current market price: Rs606 Lower subsidy burden bodes well Key points - With gradual deregulation of diesel prices (the under-recovery has come down from Rs8/litre to Rs1.8/litre in the last one year due to regular price hikes) and weaker crude oil prices, the overall oil subsidy bill for the country is expected to reduce significantly from Rs140,000 crore in FY2014 to around Rs80,000 crore in FY2016.
- Against the backdrop of the changing dynamics, news reports suggest that the government is looking at modifying the subsidy sharing mechanism and could propose an equal sharing of the oil subsidy burden between the government and the upstream companies (ONGC, OIL, GAIL) which is higher than the current formula. However, on the positive side it proposes to relieve the subsidy burden of the upstream companies to the extent of the Oil Industry Development cess paid by them on nominated fields.
- In case of a bullish outcome, we believe if the proposal is accepted the net subsidy burden of the upstream companies will come down by another 20% over our base assumption. Consequently, the earnings estimates and price target could get upgraded by close to 15% (the existing price target is Rs670). However, the proposal has still not been formalised and might not be implemented in its true spirit (going by the past experience). Thus, we maintain our price target of Rs670 with a Buy rating on the stock.
Pratibha Industries
Recommendation: Buy
Price target: Rs65
Current market price: Rs53 Operations improving; upgraded to Buy, price target revised to Rs65 Key points - In Q1FY2015 Pratibha Industries Ltd (PIL)'s revenue growth was led by higher execution of projects during the quarter and supported by better margins. A higher other income and relatively lower interest expense (down 4% QoQ) led to a 23% Y-o-Y growth in the earnings.
- The company's growth prospects seem to have revived on the back of an improvement in execution, better OPM and control on interest expenses. A healthy order book of Rs7,600 crore provides revenue visibility for the next 2.0-2.5 years. We estimate the earnings of the company would grow 2.6x over FY2014-16 driven by the factors mentioned above.
- We have revised our estimates upwards while assigning a higher P/E multiple with signs of improvement in the operating performance of the company. Consequently, we have revised our price target upwards to Rs65 and upgraded the stock to Buy.
| | | Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. | |
| Regards,
The Sharekhan Research Team |
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