>GODREJ INDUSTRIES (CENTRUM)

Godrej Properties - the next trigger

■ Higher raw material costs impact PAT: Net sales (consolidated) for the full year (FY09) grew 16.3% YoY to Rs34.2bn vs. our estimate of Rs32bn. However, PAT plunged 33.6% to Rs1.1bn (vs. estimate of Rs1.8bn) mainly due to increased raw material costs.

■ Revised rating and target price: The stock has achieved our target price of Rs120. Hence, we have changed our rating to Hold and set a revised target price of Rs129 on SOTP valuation. Currently the stock trades at 19x FY10 EPS of Rs19 and 15.6x FY10EV/EBIDTA.

■ Godrej Sara Lee stake merged with GCPL; SOTP value revised: GIL’s stake in Godrej Sara Lee is being merged with Godrej Consumer Products (GCPL) at a 1:1 swap ratio. This would consolidate the FMCG businesses under GCPL. Further GIL’s holding in GCPL would increase to 25%. We have revised our SOTP value to Rs163 and revise our target price, post a 20% conglomerate discount, to Rs129.

■ Godrej Properties results in-line: Godrej Properties reported revenues of Rs2.5bn (excluding other income), exactly in-line with our estimates. We believe revenues were booked mainly from the Planet Godrej project at Mahalaxmi in Mumbai and Bangalore projects. PAT stood at Rs750mn vs. our estimate of Rs583mn.

■ Chemicals division dampens results: The slump in the chemicals business, which contributes 22% to topline, impacted overall results. Fluctuations in commodity prices and currencies, curtailment of natural gas supplies to factories and sluggish business environment impacted the division on the cost and margin fronts.

To see full report: GODREJ INDUSTRIES

>METAL SECTOR (CENTRUM)

Meltdown over, time to solidify

■ Sector upgraded to Overweight: Our upgrade is premised on stabilizing metal prices after a sharp rally and improving business confidence. Aluminium prices have risen 16% from their Dec 2008 lows while copper and zinc have surged 59% and 43%, respectively. However, steel prices remain mostly unchanged at US$425/tonne. Prices of base metals have increased 30- 50% in Nov 2008 and are stabilizing at the current level. Besides, we believe that weakening dollar would further give support to the commodity prices going forward.

■ Return of business confidence the main trigger: We believe this price stabilization is the result of arrest in demand decline and decline in inventory as a result of production cuts, destocking and the return of buyers on increased business confidence.

■ Earnings unchanged, but valuations upgraded: We have not revised the earnings estimates but upgraded ratings of metal stocks within our coverage on improved business confidence over last two months, based on China’s rising Purchase Managers Index (PMI). A stable government in India and increased business confidence would lead to higher investment and consumption, which would ultimately lead to a re rating of the sector.

■ Valuing stocks on underlying commodity prices: We have valued stocks on the basis of underlying commodity prices, which we expect to remain stable going forward. We have considered the ratio of stock and underlying commodity prices to arrive at our target
price under an optimistic scenario.

■ Top Buy - Tata Steel; Top Sell – Nalco: We have upgraded Hindalco to Accumulate (Reduce) and JSW Steel to Accumulate (Reduce) as steel and base metals prices have stabilized and we do not expect further declines from current levels. We prefer Tata Steel and JSW Steel to SAIL, given the higher sensitivity of their earnings to steel prices. We retain Sell on Nalco with a
price target of Rs240.

To see full report: METAL SECTOR

>BRIGADE ENTERPRISES (CENTRUM)

Liquidity intact, maintain Buy

■ Lacklustre results: Q4 revenues plunged 68% YoY to Rs426mn and PAT declined 27% to Rs156mn owing to higher operating expenses. Although the company reported loss before tax of Rs89mn, exceptional items representing prior period items and excess tax provision resulted in adjusted PAT of Rs156mn.

■ Core business still under strain: Low off-take in new apartment sales of its Gateway and Metropolis projects targeted at premium segment and weak leasing activity of commercial and retail space in Bangalore continues to be a cause for concern.

■ PAT estimates revised: We have retained our revenue and EBITDA estimates, but lowered our PAT estimates by 4.5% for FY10 and 5.5% for FY11 owing to higher tax rate and lower
other income.

■ Affordable housing and hotels hold long-term potential: Brigade intends to launch affordable housing projects in Bangalore and Mysore with flats priced up to Rs2mn and plans to launch ~8-10mn sq ft of projects in FY10. Further, its hotel at Gateway is also expected to become operational in CY10.

■ Maintain Buy with target price of Rs107: Our FY10E NAV has increased to Rs119 from Rs96 earlier due to balance sheet and project level adjustments. We have included NAV from ongoing projects with remaining land bank taken at book value. We are providing 10% discount to NAV compared to 50% earlier to reflect easing sector liquidity concerns but remain cautious on the commercial and retail space. We maintain our Buy rating with target price of Rs107.

To see full report: BRIGADE ENTERPRISES

>SOBHA DEVELOPERS (CENTRUM)

Liquidity easing but valuations stretched

■ Lacklustre results: Q4 revenues plunged 68% YoY to Rs1,545mn and PAT declined 90% to Rs72mn owing to a halt in new transactions and higher tax rate.

■ Volumes thin due to unaffordability of premium flats: Most of the company's ongoing projects consist of apartments with more than 1,500 sq ft saleable area, targeted at the premium segment. This has resulted in stagnant sales off take due to apartments being priced over Rs5mn.

■ Estimates lowered: We cut our revenue estimates by 22.1% for FY10 and 20.7% for FY11 due to slower-than-anticipated volume off take in core real estate business. However, PAT estimates have been raised by 17%, assuming that there would be no further correction in prices in FY11 and reduced interest burden.

■ Possible QIP issue a trigger for the stock: Sobha continues to have a high D/E of 1.7x with ~25% of its Rs18.75bn debt maturing in FY10. However, with liquidity concerns easing in the sector, Sobha may raise upto Rs7.5bn in FY10 through QIP issue.

■ Spin-off of non-core businesses may provide upside: Sobha’s plans to spin-off its non-core manufacturing and interiors businesses may provide further upside to the stock.

■ Upgraded to Hold: We have raised our target price to Rs150 from Rs56 due to upgrade in SOTP NAV from Rs140 to Rs200. We have provided 25% discount to NAV vs 60% earlier owing to liquidity concerns easing for the sector. However, Sobha’s minimal presence in affordable housing and questionable accounting practices makes us cautious on the stock and we recommend a Hold on the stock.

To see full report: SOBHA DEVELOPERS

>SALORA INTERNATIONAL (CENTRUM)

Infocom disappoints

■ Revenue falls sharply: Salora International (SIL) reported sharp 48.2% YoY (25.4% QoQ) decline in revenues. This drop was mainly due to 50.4% YoY decline in its Infocom business in addition to 22.7% YoY drop in its consumer electronics division. FY09 sales fell 35.8%
YoY to Rs7.1bn.

■ EBITDA margin turns negative: With revenues plummeting to half the value, SIL’s EBITDA margin fell steeply by 627bp YoY and 338bp QoQ to -2.7%. SIL ended FY09 with a margin of 2.1%. Absolute EBITDA at Rs147mn was down 56.4% YoY. For FY09 it incurred a PAT loss of Rs2.8mn Rs242mn profit in FY08

■ Expect margins to improve: We expect SIL’s margin to improve 40bp in FY10E and FY11E on the back of 7.8% and 18.5% YoY increase in its revenue during the period, respectively. Recovery in its infocom business would primarily drive this growth. We expect its infocom business to register a growth of 9.5% in FY10E and 20.5% in FY11E.

■ Introducing FY11E, Retain Buy: A recovery in SIL’s infocom business and entry of HP products in its portfolio will provide the necessary growth opportunities during the downturn. At CMP, stock trades at 3.6x FY11E EPS of Rs10.2per share. We reiterate Buy on the stock
with target price of Rs42.

To see full report: SALORA INTERNATIONAL

>TRANSPORT CORP OF INDIA (CENTRUM)

■ Target price achieved: We had initiated Buy on TCI (Well integrated, dated 11 Dec 2008), with a target price of Rs51, providing an upside of 34.2%. The stock touched a high of Rs53 on 12 May 2009 and closed at Rs51.

■ Rating changed to Hold: Our target price of Rs51 was based on a P/E of 7x FY11E EPS and 4.6x EV/EBIDTA. We believe that the stock is fully valued and there is very little upside from current levels. Accordingly, we have changed our rating to Hold.

■ Warehousing capacity addition may be delayed: We believe TCI’s target of creating a total 10mn sq. feet of warehousing space by FY10 end may be delayed. The slowdown in the industrial and manufacturing sectors has dampened demand for value-added services in
supply chain solution (SCS) services.

■ Slowdown in industrial activity hits demand: Slowdown in industrial activity and lower EXIM volumes have resulted in lower demand for domestic logistics services and reduced movement of goods. IIP growth for March 2009 contracted 2.3% YoY while for FY09 it grew a modest 2.4% (vs. 8.5% in FY08). Exports declined 33.3% during March 2009 and imports declined 34.0%.

■ Maintain estimates, consolidated results awaited: We are maintaining our earnings estimates (consolidated) at Rs5.5 for FY10 and Rs7.3 for FY11. However, the company’s financials in the interim may be impacted by the current slowdown. We expect greater clarity from the management post the Q4FY09 and FY09 consolidated results (22 May 2009), after which we will review our projections.

To see full report: TRANSPORT CORP OF INDIA

>DLF (CENTRUM)

Pain continues, maintain Sell

■ Results below estimates: Q4 revenues plunged 74% YoY to Rs11.2bn and PAT declined 92.6% to Rs1.6bn owing to fall in DAL sales and one-time revenue write-down of Rs6.8bn owing to price resets in ongoing projects.

■ Lack of visibility on DAL’s leasing activity: DLF delivered 5.1mn sq ft of space to DAL vs. its stated target of 9mn sq ft by 31 March 2009. DLF plans to deliver ~3.5mn sq ft of space in H1FY10 with a further 5mn sq ft of space to be leased over FY10-12.

■ DAL receivables still at Rs49bn, no immediate recourse in sight: With net inflow of Rs5.4bn from DAL in Q4, DAL receivables stand at Rs49bn. With no clarity on PE fund infusion and DAL-DLF merger, committee of independent directors has been appointed to explore various options.

■ Debt obligations for FY10 met, but FY11 remains a concern: DLF has met its repayment obligations of Rs35bn for FY09-10 through debt repayment of Rs7.2bn and obtaining fresh longterm loan of Rs25bn. However, Rs25bn of debt maturing in FY11 is a concern.

■ Land bank reduces to 425mn sq ft resulting in land payments reducing significantly: Land bank reduces by 327mn sq ft on account of pullout from Bidadi and Dankuni projects (269mn sq ft) and re-sizing of other township and hotel projects (58mn sq ft). As a result, outstanding land payments reduce from Rs57bn to 2.5bn.

■ Maintain Sell, revise target price to Rs143: Our target price of Rs143per share is at 25% discount to NAV and has increased by Rs23 per share from Rs120 previously after factoring in the net impact of reduced outstanding land payments from Rs57.1bn to Rs2.5bn and reduction in land bank.

To see full report: DLF

>Balrampur Chini (CENTRUM)

Positive surprise on inventory gains

■ Results above expectations: Q2 adjusted profit stood at Rs662mn vs. our estimate of Rs405mn. PBIT margin in the sugar segment stood at 21.3% and in distillery at 36.6%.
Inventory gains on carry forward inventory of sugar and 39.1% rise in sugar prices led to improved performance.

■ Estimates/target price raised: We have raised earnings by 39.9% for FY09E and by 4.3% for FY10E, led by upward revision in sugar prices and reduction in interest cost (due to repayment of loan on higher cash flows). Accordingly, target price is raised to Rs81 from Rs78.

■ Inventory gains on carry-over stocks: Out of 124,000 tonnes of sugar sold, 110,000 tonnes was from carry-over stock, valued at Rs15,050/tonne vs average sugar price of Rs20,300. This accounted for Rs578mn out of total Rs625mn PBIT in sugar. The current cost of production is
much higher than last year’s inventory, the effect of which will be felt in the coming two quarters through lower PBIT margin in sugar on QoQ basis.

■ Retain Buy: At CMP, the stock trades at 8.6x FY09E and 8.4x FY10E. Reiterate Buy on the back of buoyant outlook for sugar prices with the upside potential of 24.6%.

To see full report: BALRAMPUR CHINI

>Triveni Engineering (CENTRUM)

Sugar business boosts earnings

■ Results in-line with expectations: The upturn in sugar prices helped boost sugar revenues 47.5% YoY. However, the 9.1% de-growth in engineering revenues restricted overall sales growth to 21.0%. Margins expanded 68bp and PAT was Rs 378mn vs. our estimate of Rs401mn.

■ Target price revised: We have revised our target price valuing the company on FY10E. Appling a P/E multiple of 7.1x (a 15.0% discount to our earlier FY09E multiple), our target price works out to be Rs 69 ( previous Rs 67)

■ Robust sugar performance: Higher sugar prices (up 35.8% YoY) and higher volumes coupled with better prices of ancillary products helped sugar revenue to grow by 47.5%. Inventory gains on sugar led to a turnaround PBIT margin from 0.6% to 15.7% YoY.

■ Engineering revenue recovering: Revenue from engineering business fell 9.1% YoY. However, the 40% QoQ growth strengthens our confidence in recovery in the sector. The company’s order-book stood at Rs7.7bn, flat on QoQ basis.

■ Maintain Buy: We maintain our Buy rating on the stock. At CMP, the stock trades 7.1x FY09E and 5.5x FY10E. We have revised our target price to Rs69 (from Rs67 earlier), representing a 29.1% upside potential.

To see full report: TRIVENI ENGINEERING

>Telecom Sector (CENTRUM)

Mobile subs adds buoyant

􀂁 BSNL performance drives higher net adds: Ex-RCom GSM, the industry added 10.8mn subs in Mar 2009 vs. 9.2mn in Feb. The performance is primarily driven by higher net adds of BSNL (2.5mn vs. 1.5mn last month), Vodafone (2.8mn) and four new circle launches by Aircel.

􀂁 Subs net adds to remain robust: More launches in Apr (Idea in Orissa, MTS in TN, Aircel in Mumbai) will provide further impetus to subs net adds, in our view. However, we remain cautious of increasing non-active subs base in the disclosed numbers.

􀂁 Bharti increases subs net adds to 2.8mn: Bharti added 2.8mn subs during Mar, taking its subs base to 93.9mn. B and C circles continued to contribute majority (56%) of Bharti’s net adds during the month.

􀂁 Idea (incl. Spice) maintains net adds run rate at 1.5mn: Idea continues to garner robust incremental market share in new circles of Mumbai (20%) and Bihar (27%). These circles contributed 316,000 subs during Mar- 09 vs. 165,000 last month. However, it added meager 85,000 subs in Spice’s Punjab and Karnataka circles in Mar 2009 vs. 96,000 in Feb.

􀂁 Bharti is top pick; reiterate BUY on Idea: Bharti’s valuation premium over peers has narrowed significantly after its recent price performance. At 7.2x FY10E EV/EBITDA, we believe Bharti is relatively better priced compared to RCom, which trades at 6.5x FY10E EV/EBITDA. We recommend a strong Buy for Idea as it continues to strengthen its leadership position.

To see full report: TELECOM SECTOR

>Rolta (CENTRUM)

● 42% decline in stock price unwarranted: Rolta saw a sharp sell-off last week with the stock falling 42%. Our talks with the management indicate the fundamentals of the company remain intact and the sell-off is unwarranted.

● Management confident of 10% revenue growth in FY10 even in ‘worst-case’ scenario: The management exuded confidence of achieving a 10% revenue growth in FY10E even on a ‘heavens may fall’ scenario. In such a case, the company would deliver a fully-diluted EPS of Rs17.2 per share.

● Buyback of FCCBs a likely near-term trigger: Rolta has announced plans to buyback FCCBs of $150mn in part or in full. This is a likely near-term trigger for the stock.

● Order book to help achieve targeted growth: The company has an order book of Rs15,918mn, executable over the next 15 months. We believe this would help the company achieve its targeted 35%-40% growth in FY09.

● Maintain Buy rating: At CMP, the stock trades at a attractive P/E of 2.7x, despite having best in class return ratios and revenue growth. We maintain our Buy rating with a DCF-based price target of Rs124, which discounts our FY10E EPS of Rs18.8 by 6.6x. At the current price, the stock now delivers a dividend yield of 9%, with minimal risk in our view.

To see full report: ROLTA

>Reliance Power (CENTRUM)

● Huge potential upside: We believe Reliance Power (RPower) is well-placed to capitalise on the emerging opportunities in the power sector. The stock currently trades close to its bear-case value of Rs90, which would be rewarding in the long-term, considering the huge 207% potential upside in our best case scenario.

● Rs120bn cash in books, internal accruals adequate to fund 21GW capex: About Rs120bn cash combined with internal accruals from initial projects and treasury gains should be adequate to fund its 21GW capex plan. We expect the Rosa (Phases 1 and 2), Butibori, Sasan, Krishnapatanam, Dadri and Tilaiya projects to be funded without resorting to equity dilution.

● Projects are fundable, nearing financial closure: RPower’s projects have equity support, tied-up fuel requirements, received requisite clearances and in most cases completed land acquisition. We believe these factors give RPower projects good chance to complete financial closure at the earliest.

● Projects are profitable; provide high IRR: We estimate the equity IRR of Sasan and regulated projects at around 18% and that of Krishnapatanam and Tilaiya UMPPs at about 25%. Based on a tariff of Rs2.5/unit, the Chitrangi and Dadri projects have an estimated IRR of about 50%.

● 2bn tonne excess coal reserves a significant value add: We believe the excess 1bn tonne reserves from the coal mines allocated to it for the Sasan and Tilaiya projects and the additional 1bn tonne coal reserves from its Indonesian mines are a significant value add.

● Base case valuation gives target price of Rs140: Based on our base case valuation, we arrive at a target price of Rs140 using DCF methodology. The stock has limited downside from here, but the upside potential is 207% in a best case scenario.

● Risks: Key risk is delay in achieving financial closure of projects. Failure to tie-up gas supply for Dadri plant would impact estimates as this project alone adds Rs39 per share in our base case value of Rs140.

To see full report: RELIANCE POWER

>Sintex (CENTRUM)

Company Background: Incorporated in 1931, Sintex Industries Limited is a dominant player in the plastic and textile segments. The company manufactures a wide range of building materials and composites across India. Sintex is expanding its capabilities in the composite market, (composite market in India worth $1 billion) through M&A activities. This provides the company access to technologies and large OEMs that are crucial for technology adoption. Subsequent to several strategic acquisitions, the company possesses a global footprint, spread across the USA and Europe. In the textile segment, the company is focused on niche offerings, specialization in men’s shirting, catering to premium fashion brands like Burberry, Armani, Hugo Boss and Arrow, among others.

Revenue visibility: The monolithic business has an order book of Rs.1,200 cr (approximately), to be executed by the end of FY’10E. Taking into consideration India’s housing shortage at 24.7 mn units and the Government’s focus on the housing sector in the 11th Five year plan, there exists a huge opportunity of growth for the company, going forward.

Monolithic segment – Key growth driver: Monolithic construction has emerged as a preferred substitute for traditional concrete construction, on account of its superiority on various parameters like construction time, cost, etc. A monolithic project can be completed within a timeframe of six months as compared to 18 to 24 months, taken by a concrete structure. Sintex has bagged orders for its monolithics segment from various Governments, including Gujarat, Delhi, Rajasthan and Madhya Pradesh, among others. The present order position is to the tune of Rs.1200 cr (approximately), to be executed by FY’10E.

Entry barriers in the pre-fabricated segment: A key entry barrier in the pre-fabricated segment is getting approval, for every product, from the designated authority of the respective State Government. Even a variant of the existing product requires approval from the authority. Sintex has received approvals from 16 states for all its key products in the prefabricated segment. On an average, an experienced five member team can set up a classroom weighing 1000 kilograms within a span of three days, in addition to the traveling time of two days, from the manufacturing facility to the site.

Financials: In 9MFY’09, the net sales increased by 65.94% to Rs.2,233.26 cr and PAT increased 55.50% to Rs.211.1 cr, compared to 9MFY’08. For FY’09E, the company is expected to achieve a net sales of Rs.2,953 cr and PAT of Rs.281 cr. On an equity of Rs.27.3 cr, the EPS for FY’09E works out to around Rs.20.59. Net Sales and PAT for FY’10E could be around Rs.2,510 cr and Rs.220 cr respectively. This translates into an EPS of 15.02 for FY’10E.

Valuations: At the present market price of Rs.72, the stock is trading at 3.50x its FY’09E earnings and 4.79x its FY’10E earnings. Sintex has a strong balance sheet with cash in hand of about Rs.1,600 cr. On account of the global slowdown, two of the company’s subsidiaries, Wausaukee Composites and Bright Auto would be negatively impacted. However, at the present price of Rs.72, we feel that all the negatives have been factored into the price. Consequent to today’s announcement by General Motors that they do not require the $2 billion loan, the overall sentiments of the auto sector, a key customer to which subsidiaries of Sintex cater to, has improved. Taking all this into consideration, we recommend a “BUY” on the stock with a target price of Rs.97 over a span of nine months.

To see full report: SINTEX

>Ultra Tech Cement (ICICI Securities)

*Delay in production ramp-up in Tadipatri. UTCL’s 4.9mnte Tadipatri expansion was announced in March ’08. However, while the clinkerisation unit was operational, grinding units took longer to get operational. The spit grinding unit at Karnataka has already been commissioned in Q2FY09 and the grinding unit at the mother plant is likely to be commissioned as of end-Q4FY09. Consequently, we have reduced our FY09E volume estimates from 17.3mnte to 15.9mnte.

*Higher net realisations from excise cut. In FY09, so far UTCL has witnessed higher-than-expected realisations, mainly due to better prices in the South. While, we expect FY10E average gross realisations to decline 5%, the Government’s decision to cut excise rate from 12% to 8% would help offset the impact of pricing pressure during the year.

* Sharp rise in fuel costs. UTCL relies on imported coal for ~40% of its fuel requirement. Imported coal prices peaked in Q2FY09 to ~US$190/te, after which they have softened. However, the benefit from coal price correction would accrue only Q4FY09 onwards. Hence, we have assumed 65% rise in coal costs for FY09E versus 40% earlier. For FY10E, we have assumed 22% decline in coal costs versus 5% earlier.

* Valuations: The stock has already exceeded our target price of Rs475. At the current EV/te of ~US$73, we believe the stock is fairly valued given that the sectoral fundamentals remain weak. Consequently, we downgrade UTCL to HOLD from Buy with a target price of Rs509/share.

To see full report: Ultra Tech Cement

>Power Grid Corporation (CENTRUM)

* 86% of 11th Plan investment target to be met: We believe, fears that PGCIL would fall short of its proposed Rs550bn investment target in the 11th Five-Year Plan are overdone. The company is expected to spend around Rs409bn on capex during FY09-12E, taking the total
investment to Rs475bn, which is 86% of the target.

* 42% of projects are system-strengthening or national grid projects; no major delays expected: Further, about 42% of the proposed capex is for system- strengthening and national grid projects. We believe these projects would be commissioned on schedule and don’t foresee any major delays.

* Execution capabilities better in transmission sector compared to generation: During the last 3 Five-Year plans, the transmission sector has achieved more than 90% of its capex targets, whereas the generation sector fared poorly with only about 50% execution level.

* Comfortably leveraged to meet capex requirements: PGCIL is comfortably placed in terms of debt-equity ratio to meet the capex needs. We expect the D/E ratio to increase from 1.7x in FY08 to about 2.4x in FY12E close to regulated D/E ratio.

* New CERC norms to impact positively: We believe the new CERC norms would positively impact PGCIL with ROE increasing 200bp from 14% to 16% and allowance of grossing up at MAT rate of 11.33% for new projects with 80IA benefits.

* Buy with target price of Rs115: We initiate coverage with a Buy and target price of Rs115. We believe PGCIL’s ideal one-year forward P/BV should be 3x, a 20% premium to the base multiple of 2.6x, considering better leveraging and high capex growth. Further possibilities of interest rate fall in the economy would make annuity based revenue models more valuable.

* Key Risks: Upside risk to the price target will be a higher Capex (more than Rs409bn estimated) for the period FY09-12E. Downside risk can arise from changes in the current regulatory framework of availability based tariff

To see full report: POWER GRID

>Bata India(Centrum)

To read full report Bata India(Centrum)