RESEARCH REPORTS
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ASIA FINANCIAL STRATEGY: Is the grass greener on the other side? (KEEFE, BRUYETTE & WOODS)
Colleagues returning from visits to continental Europe report quiet holiday retreats, vacant homes and empty shops. Yet much of Asia is very different, with vibrant activity and signs of growth. For investors with a cautious view of the global economy Asia financials can offer defensive qualities, in our view. We screen banks using criteria that are generally considered indicators of defensiveness. ■ We screen consensus bank data for names that have a 2011 consensus PE below 12x, consensus eps growth above 10%, a dividend yield above 3%, a beta below 1.2 and a tangible common equity ratio above 5.5%…
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ADANI POWER: Plug in; More upside left
Still more upside despite run-up Adani Power (APL) shares have outperformed the MSCI India by 10.6% in the past three months and have surpassed our previous target price of INR135. We retain our BUY rating, as our new TP suggests another 16% upside from current levels despite factoring in the risk of higher tax incidence and a slight delay in capacity addition. We now estimate the company will achieve 4.6x net profit growth over FY11-13, on the back of a 10-fold growth in power generation capacity to 6.6 GW by FY13. APL currently has 990 MW of capacity under operation and it will be India’s first power generator to complete a super-critical power plant, when it starts its Mundra III power plant early next year…
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INDIA STRATEGY: A Tale of Two Stocks
Reliance Industries’ MSCI India index weight converged with Infosys’ weight earlier this week. In our view, this is significant because it was only at the end of 2007 when the stocks were separated by 11% points in terms of index weight with Reliance at about 17% and Infosys below 7%. They are both now at just below 11%. What is also significant is that Morgan Stanley’s analysts rate both these stocks Equal-weight, that is almost 22% of the index accounted for by two stocks expected to move in line with the index. We see these noteworthy developments especially given that both companies are in some way linked to global growth and in other ways are solid proxies on India’s long-term growth story. The key debate is what lies in store ahead, where are these stocks in terms of what the market is pricing in and what is the market view on these stocks?
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CAMPHOR ALLIED & PRODUCTS LIMITED: Chemical market back on huge expansion
Since 1961, Camphor & Allied Products Ltd. (CAPL) has been a pioneer in the field of Terpene Chemistry in India. It established the first Synthetic Camphor plant with technology from Dupont, USA. CAPL is India’s largest manufacturers of variety of terpene chemicals and other speciality aroma chemicals. CAPL’s vast product range includes Synthetic Camphor, Terpineols, Pine Oils, Resins, Astrolide, and several other chemicals finding applications in vast array of industries ranging from Flavours & Fragrances, Pharmaceuticals, Soaps & Cosmetics, Rubber & Tyre, Paints & Varnishes and many more…
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GMR INFRASTRUCTURE: Focus back on domestic assets
GMR Infra recorded consolidated normalised PAT post minority of Rs24m (-89% yoy, -95% qoq) on net sales of Rs12.3bn (+5% yoy, +9% qoq). Even though EBITDA was 11% ahead of our estimate, growing 17% yoy and 20% qoq to Rs3.78bn, PAT disappointed due to FX translation impact, a sharp decline in other income and higher taxes. In terms of divisional performance, all except roads and others recorded qoq dips in EBIT, while, on a yoy basis, airports and roads recorded a sharp increase…
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INDIA CONSUMER: Disconnect Between Industry Fundamentals and Stock Valuations
We believe Indian home and personal care products EBITDA margins have peaked for now. Rising input costs amidst intense competition and slowing revenue growth are likely to continue to constrain earnings. We maintain our OW rating on United Spirits – the top pick in our coverage universe. We reiterate our UW rating on HUL and Marico and downgrade ITC to EW from OW as valuations look less compelling. We upgrade Colgate to EW (UW earlier) given the recent sharp increase in operating margins in a relatively benign competitive environment for oral care in India. We upgrade Nestlé to OW from EW on recent stock underperformance and a potential tailwind from input costs…
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RELIANCE INDUSTRIES: Upgrade to Buy: Cyclical Risks Priced In; Structural Gas Rewards Not
Weak cyclical outlook reflected in under-performance — After a 15% YTD underperformance vs. the market, we believe the unexciting refining/petchem outlook is largely priced in and reflected in RIL’s valns that now stand at a 3-year low relative to Sensex. However, structural changes we see in the rapidly developing Indian gas market could provide the trigger for stock performance from a 6-9 month perspective, driving our upgrade to Buy, while maintaining our TP and estimates…
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JM FINANCIAL LIMITED: Q1FY11 result analysis
JM Financial Ltd’s revenues recorded an increase of 57.2% y-o-y to Rs 1.9 bn in Q1FY11, backed by healthy growth in the investment banking and securities funding businesses. However, PAT dipped by 2.4% to Rs 304 mn due to poor performance of the securities broking business. Intense competition in the broking business and preference for lowyielding options vis-a-vis the cash segment has put significant pressure on brokerage yields. However, JM Financials’ diversified business model has buffered the impact and helped it report stable earnings. We maintain our fundamental grade of ‘4/5’, indicating JM Financials’ fundamentals are ‘superior’ relative to other listed equity securities in India…
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INDIA EQUITY STRATEGY: Owning India Inc.: FIIs – Investing More, Owning Less
A lot of foreign flow, but less and less to show — A fair amount of foreign money flowed into India in the March–June quarter ($2.5b) while domestic MF flows were negative; but foreigners owned less of India Inc. at the end of the quarter (-40bps, 16.4%). This appears an extreme outcome – probably a combination of flow timing, underperformance (buying high selling low?), paper supply and insurance company buying. But a longer-term trend of foreign flows/market performance suggests that more and more foreign money is still moving the market, but by less and less…
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McNally Bharat Engineering
Order book for the Projects business stands at 42000 mlns. Infrastructure forms 23% of the total order book, power comprises 37%, material & non ferrous segment forms 29% whereas steel mines & port forms the remaining 11% of the total. Order book for McNally Sayaji stands at 2480 mlns whereas for CMT & German Manufacturing business it stands at 3550 mlns. In May’10, MBE has bagged its first overseas order in Zambia of Rs. 1140 mlns. MBE also bagged its single largest BOP order of Rs. 8140 mlns in Apr’10…
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SANGHVI MOVERS: Performance in line
Sanghvi Movers (SML) reported its performance for Q1FY11 that was in line with our expectations. The company reported a PAT of Rs 24.02 crore, in line with our expectation of Rs 23.2 crore. SML registered 4% YoY revenue growth of Rs 86.14 crore in Q1FY11. The EBITDA margin declined 140 bps YoY to 74.6% in Q1FY11 on the back of an increase in operating expenses and other expenditure. The subsequent EBIDTA stood at Rs 64.26 crore indicating a marginal increase of 2%. The company reported a 4% increase in net profit to Rs 24.02 crore in Q1FY11 against Rs 23.1 crore in Q1FY10…
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Easun Reyrolle- Initiating Coverage
Easun Reyrolle is an acknowledged leader in the field of electrical power management. The company offers a “ONE TOUCH ACCESS” to power system solutions. It has 25% market share in the relay panel (a power system protection device) market in the country. It has diversified its offering to protection products, protection systems, energy meters, automation, communication & control products, turnkey projects business, and switchgears. ERL expects to sustain the growth of 50% CAGR for next 4 years. Easun is one of the leading players in power management – power system protection, control and automation, would benefit from the investments in the power sector…
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INDIAN TOLL ROAD SECTOR: The Roads to Revenue
■ The Indian Toll Roads sector is an excellent proxy to play on India’s vibrant growth story
■ NHDP is entering an important inflection point and NHAI alone would be coming up with orders worth Rs 1.9 trillion over the next four years
■ ITNL and IRB are our top picks in the Toll Road sector: We believe ITNL will leverage its parent’s strong background, superior execution skills, and established track record of executing BOT projects… -
STATE BANK OF INDIA: Result Update 1QFY2011
For 1QFY2011, State Bank of India’s (SBI) standalone net profit grew 25.1% yoy and 56.1% qoq, which exceeded our estimates on account of better-thanestimated NII and lower operating expenses. Robust operating performance with reasonable asset quality was the key highlight of the result. We maintain an Accumulate rating on the stock. Robust operating performance: The bank’s net advances increased 20.4% yoy and 3.4% qoq to Rs6,53,220cr, while total deposits grew 6.8% yoy and 1.4% qoq to Rs8,15,297cr during 1QFY2011…
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LINC PEN & PLASTICS LIMITED: Good growth prospects
Linc Pen (Linc) has over the years built an aggressive supply chain which comprises the manufacture of writing instruments at very competitive costs. The Kolkata-based manufacturer of writing instruments and stationery also supplies goods to various global retail chains. ■ Stock trigger: Linc, we believe is a play on the India’s consumption and outsourcing stories. We believe that news of any major orders from any global retail chain will act as a trigger for the stock. On the other hand retail network expansion, in the short-term, may be a lowdown forprofitability…
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DOLPHIN OFFSHORE LIMITED: Starts FY11 in the red
Dolphin Offshore Ltd (Dolphin) reported a net loss of Rs 123.1 mn in Q1FY11 as against a net profit of Rs 120.1 mn in Q1FY10, which was well below CRISIL’s estimates. During the quarter, the company undertook significant additional work resulting in extra time and cost for two EPC contracts. However, the company has not booked the revenue against this as it is yet to receive change orders for such work. The company’s order book has increased by just around 4 per cent in Q1FY11 over the previous quarter due to the slow tendering process of its major client – ONGC. This slow pace of order book addition has led us to lower our yearly projections for FY11…
