Analysts Pick: Godawari Power, Indian Hotels, Ambuja Cements

Godawari Power

CMP: Rs 207

Target Price: NA

Motilal Oswal Broking House has reiterated its ���buy��� rating on the mining major saying that its margins are only going to improve in the coming quarters. ���During FY09, sponge iron production is expected to increase 17% and margins are likely to be better due to substantial increase in sponge iron and steel prices while cost increases will be moderate,��� said the domestic brokerage in its client note.

The broking house points out that the margins have already expanded and the current prices of sponge iron and steel are substantially higher than the average prices during fourth quarter. ���We remain bullish on sponge-based mini mills,��� says the broking house reiterating that the company���s valuations remain extremely attractive.

Himadri Chemicals

CMP: Rs 382

Target Price: Rs 509

PINC Research has maintained its ���buy��� on the company that is in the business of distilling coal tar to extract CTP, creosote oils and chemical oils. As per the brokerage, the company���s results were in line with expectations. Higher net sales growth was due to the surge in realisation of Coal Tar Pitch (CTP), a key product.

One of the key reasons why PINC is bullish on the stock is that the company operates on ���fixed contribution margin,��� and it could easily transfer the cost burden to its customers. ���There is expected to be a 6-7 months delay in commissioning the distillation plant in China due to delays in financial closure,��� it adds.

Indian Hotels

CMP: Rs 80.20

Target Price: Rs 146

Sharekhan says it likes IHCL, but has reduced its price target for the company citing increased risks, going forward in terms of increasing the average room rates (ARRs) and maintaining the occupancy against the backdrop of an economic slowdown and an increase in supply of hotel inventory.

In fact, the brokerage has revised downward its sales and profit estimates for FY2009 on a standalone basis and consolidated basis on account of the estimated delay in the commencement of new properties and the closure of the Pierre, New York for renovations. ���We have also factored in the lower occupancies, going forward that has contributed to the lowering of the estimates,��� the broking house said. While the company���s rights issue enabled it to raise Rs 844 crore through the issue of equity in the ratio of 1:5, the second issue of non-convertible debentures (NCDs) fell apart after being hugely unsubscribed.

Ambuja Cements

CMP: Rs 81.30

Target Price: NA

Indiabulls has downgraded the stock from ���hold��� to ���sell���, as it notes that the company could not shield its profits from the rising raw material and power costs, which resulted in 868 bps Y-o-Y fall in EBITDA margin. It explains that falling realisation rates are likely to reduce topline growth. ���On a sequential basis, the average realisation rate registered a decline of 2%.

Owing to an expected excess supply scenario and the government���s price control policies, the realisation rates are expected to dip further, ��� the brokerage said in their client note. They have estimated a CAGR of 5% in the topline for the next two years, it adds. Indiabulls says rising costs are pulling down margins as raw material costs doubled during the quarter, due to an increase in the prices of limestone, fly ash, and coal, a trend that is likely to persist due to the global inflationary pressures. ���We expect that margins would drop significantly in CY08E. On the basis of DCF analysis and valuation, we conclude that the stock seems to be over valued at the current market price,��� the report said.

Tata Steel

CMP: Rs 726.80

Target Price: NA

ICICI Securities has reiterated its ���buy��� rating on Tata Steel (TSL). It says that domestic operations were strong due to improved realisations, volume accretion in Jamshedpur and raw material integration muting price hike. TSL continues to enjoy 100% integration in iron ore and 70% in coking coal.

It predicts that Corus too will maintain, strong EBITDA in FY09 in spite of the raw material price hike given large proportion and over-recoveries in spot sales. On the valuations front, I-sec notes that TSL has been able to refinance its bridge loan ($11 billion ) through secured-term loans and equity issues to decrease interest outlay. ���Improved realisations from long-term contracts (TSL India) give us confidence on TSL���s ability to increase domestic margins. Boosted by robust West European markets , Corus will mostly be able to pass on raw material cost rise,��� it adds.