RESEARCH REPORTS
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GODREJ INDUSTRIES: Rich legacy
Focused mid-income housing player with an asset-light model: Godrej Properties (GPL) is a focused mid-income housing player, with a pan India presence and a differentiated business model. Almost ~77% of GPL’s land bank of ~50msf comprises of joint development (JDA) projects. The JDA approach allows GPL to enjoy a low risk, low capital intensive business model. The advantages of GPL’s model are reflected in its superior RoEs…
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CUMMINS INDIA: Exports to grow 3x by FY12, driving 37% EPS CAGR over FY10-12
Strong demand to boost growth: Cummins India (CIL), the largest engine manufacturer in India, is likely to post accelerated growth over the next two years, led by improving demand in the domestic market and strong rebound in exports on the back of increased outsourcing by its parent. Better product mix, healthy pricing environment, stable commodity prices, and continuous cost-cutting initiatives will keep margins strong…
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BHARTI AIRTEL LIMITED: Some positives, more unknowns
We assume coverage of Bharti Airtel with a Neutral rating and a Mar-11 price target of Rs357 (13% upside). We prefer Bharti over RCOM and Idea as we believe it is better placed to benefit from Phase 1 (minute growth, moderated price competition). However Phase 2 in the Indian telco sector (competition resurgence) could throw up some challenges and we also expect Bharti to face operational issues in Africa in the near term. We see regulation as a continued overhang and don’t expect consolidation in the market anytime soon. Improving performance in Africa, benign regulations, and evidence of high-end churn not increasing at Bharti would make us more positive…
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CAIRN INDIA: Disappointing deal
Cairn Energy is expected to sell 40-51% of its stake in Cairn India (it currently has 62.4%) to Vedanta Resources for a consideration of US$6.65bn-US$8.48bn, implying per share value of Rs405. This includes Rs50/share of non-compete fee paid to Cairn Energy for not engaging in E&P operations in Bhutan, India, Sri Lanka and Pakistan for a period of three years. At the acquisition price of Rs405/share, Vedanta has valued Cairn India at ~US$24/boe (2P+2C). Post the open offer (additional 20% at Rs355/share) Vedanta would hold 51%-60% of Cairn India. Cairn Energy’s stake in Cairn India, on the other hand, would reduce to 21.6%-10.6% (fully diluted basis) depending upon the open offer response…
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BANK NIFTY: Banking – End of road soon (IIFL)
Bank Nifty has rallied staggering 226% from its bottom of 3,330 touched in March 2009. The outperformance to Nifty has been substantial at 113%. Improvement in market sentiment followed by robust earnings has driven a sharp upswing in banking stocks both PSU and private. In the past one month, (from July 16th), CNX Bank Nifty index has delivered returns of ~9% with majority of PSU banks scaling to all-time peak. Nifty appears to be stalling around resistance levels of 5,450-5,550 and the Bank Nifty, which has ~22% weightage, could see some profit booking. We have conducted a study of 15 banking stocks (large and medium size banks) and Bank Nifty to arrive at our medium-term outlook…
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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…
