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Brokerage Calls: Nestle India, SAIL

SI Reporter/New Delhi 08 Aug 12 | 11:17 AM

Current Price: Rs 85
Target Price: Rs 80

Steel prices across the globe are already quoting close to their yearly low levels with severe correction in last two months. Chinese steel prices are making new two year lows due to weaker demand, higher production and tighter financing conditions. However, domestic prices have so far avoided similar level of correction due to support from depreciating INR against USD.

However, going forward, sluggish demand, higher production capacity on commissioning of new furnaces along with easing of raw material prices will push domestic prices downwards. Long product prices have already seen correction of 15% from peak in 2 months and we expect further correction from current levels. The stock is trading at expensive EV/EBITDA of 7.6x FY14E. We are factoring 19% volume growth in FY14. Maintain Sell.- Motilal Oswal

BGR Energy
Current Price: Rs 278

BGR's working capital has seen a deterioration over the past few quarters, mainly due to high receivables. In our view, tight liquidity is likely to transmit negatively on BGR's books. At the current market price, the stock is trading at a PE multiple of 9.6x on our FY2014E EPS estimates, which we believe is reasonable amidst the structural issues (slowdown of order inflow in BTG space and high leverage) being faced by the company. Hence, we maintain our Neutral view on the stock.- Angel Broking

Nestle India
Current Price: Rs 4,387

At the CMP, Nestle is trading at 149% premium to the Sensex, significantly ahead of its five-year average historical premium of 97%. 
We render caution on the company’s high premium to the Sensex on account of modest Volume Growth and competition in the high-growth noodles category from HUL (Knorr soupy noodles), GSKCHL (Horlicks Foodles) and ITC (Sunfeast Yipee). Hence, we continue to maintain our Neutral view on the stock.- Angel Broking

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