Power segment to boost growth
For FY09, Jindal Steel and Power Ltd. (JSPL) reported a strong set of numbers. The net sales (consolidated) of the Company increased by a staggering 97.6% yoy to Rs. 108.4 bn, and the net profit jumped by 140.6% yoy to Rs. 30.1 bn. The Company’s strong results are primarily attributable to the commencement of operations of Jindal Power Ltd. (JPL)’s 1,000 MW merchant power plant (MPP), and a 35.8% yoy increase in the average sales realisation of saleable steel. We continue to hold a positive outlook on the Stock, mainly on the back of the stable revenue visibility in the Power business and the resurgence of domestic demand in the Metal sector. However, the stock has moved up sharply since our last report, and based on our valuations it is fairly valued at the CMP. Thus, we give a Hold rating to the stock.
Rising domestic steel demand to stimulate the Metal segment: We expect JSPL (standalone) revenue to increase by 8–10% in FY10. The recovery in the Automobile industry and an increase in infrastructure investments have encouraged the demand for steel. Further, we expect the demand from the Real Estate sector to increase due to the fall in the interest rates and the sharp correction in the property prices. Thus, along with the revival in the economy and the restoration of demand, we have increased our base metals average realisation estimates for the Company to ~Rs. 38,000 per tonne in FY10.
Power business continues to be a growth driver: We expect JPL’s revenue to increase by 12–15% in FY10. In FY09, JPL has fully commissioned its 1,000 MW MPP that sells power on merchant basis through short-term PPAs; such agreements command high realisations of around Rs. 5–8 per unit. Further, as the new capacity stabilises, we expect production to increase to ~8,000 mn units in FY10, as compared to 6,207 mn units in FY09. The current power deficit situation in the country is expected to persist, and this should further help the Company achieve stable revenue.
To see full report: JINDAL STEEL & POWER LTD.
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воскресенье, 21 июня 2009 г.
суббота, 30 мая 2009 г.
>CIPLA LIMITED (INDIABULLS)
Domestic revenue to remain robust; but exports may be under threat In Q4’09, Cipla posted a 21.8% yoy growth in sales to Rs. 13.7 bn, delivering in-line domestic growth and lower than - expected growth in exports. The Company’s EBITDA margin improved to 25.5%, up 748 bps yoy, gaining from lower material costs and favourable exchange rate. The net profit increased by 40.9% yoy to Rs. 2.5 bn and the net profit margin expanded by 251 bps yoy to 18.5%. We value Cipla based on DCF valuation, which gives a fair value of Rs. 246. Although, in our view, domestic revenues are likely to remain robust, exports may come under threat due to FDA deviations. Thus, we downgrade the stock to Hold.
Robust growth in domestic revenue: We project stable expansion of Cipla’s domestic revenues, which forms 45% of the Company’s gross sales, supported by strong domestic demand for generic drugs as customers are attracted towards cheaper alternatives for expensive innovator drugs. A robust demand offtake coupled with Cipla’s market leadership position lend support to our
upward revision of estimates for growth of domestic sales by 0.5% to 15% in FY10 and 14% in FY11.
However, exports at risk from FDA deviations and Cipla Medpro takeover: We expect Cipla’s exports to come under threat if the Company fails to rectify or comply with the nine deviations pointed by USFDA in its manufacturing processes at the Bangalore plant. Thus, non-compliance would put 27% of Cipla’s total sales at risk - Cipla draws 10% of its total sales from US and 17% from sales of anti-AIDS drugs in Africa under the President's Emergency Plan for AIDS Relief (PEPFAR) which requires USFDA approval. Furthermore, Cipla’s 20-year supply arrangement with Cipla MedPro in South Africa, which contributes 7% of total exports, may be impacted due to built-in marketing and sourcing conflicts if the latter is acquired by Adcock.
To see full report: CIPLA LIMITED
Robust growth in domestic revenue: We project stable expansion of Cipla’s domestic revenues, which forms 45% of the Company’s gross sales, supported by strong domestic demand for generic drugs as customers are attracted towards cheaper alternatives for expensive innovator drugs. A robust demand offtake coupled with Cipla’s market leadership position lend support to our
upward revision of estimates for growth of domestic sales by 0.5% to 15% in FY10 and 14% in FY11.
However, exports at risk from FDA deviations and Cipla Medpro takeover: We expect Cipla’s exports to come under threat if the Company fails to rectify or comply with the nine deviations pointed by USFDA in its manufacturing processes at the Bangalore plant. Thus, non-compliance would put 27% of Cipla’s total sales at risk - Cipla draws 10% of its total sales from US and 17% from sales of anti-AIDS drugs in Africa under the President's Emergency Plan for AIDS Relief (PEPFAR) which requires USFDA approval. Furthermore, Cipla’s 20-year supply arrangement with Cipla MedPro in South Africa, which contributes 7% of total exports, may be impacted due to built-in marketing and sourcing conflicts if the latter is acquired by Adcock.
To see full report: CIPLA LIMITED
воскресенье, 24 мая 2009 г.
>BHARTI AIRTEL LIMITED (INDIABULLS)
Rating downgrade due to competitive headwinds
In Q4’09, Bharti Airtel Limited (Bharti) posted a revenue growth of 25.6% yoy and 2% qoq, gaining from better-than-market ARPU of Rs. 305 while facing more-than-anticipated drop in share of net adds. Bharti’s share in net adds fell to 17.5% in Mar’09 (our estimates of 20%), as RCOM and other new entrants notched up subscribers with under-cutting in tariffs while rolling out their services in new circles. Moreover, Bharti’s overall market share plunged to 24% in Q4’09 from 24.7% in Q3’09. While we believe that Bharti can easily sustain its EBITDA margins in the near term at ~39%, retention of high-end Metro subscribers is a key challenge for the Company. Besides, the recent surge in the stock price has pushed it above our fair value estimate. Hence, we downgrade our rating to a Hold.
Customer retention is a key challenge
Bharti derives around 40% of its revenues from 11% subscribers, who are present in Metro circles. As newer mobile players are aggressively targeting these subscribers through value added services and attractive tariffs, subscriber retention has become a key challenge for Bharti in order to maintain its market leadership and profitability in the near term.
Scaled up operations and cost rationalization to help maintain margins
Bharti maintains a significant cost advantage over its competitors supported by its scaled up pan-India network and established brand equity. Besides, the Company is constantly keeping a check on its SG&A and payroll costs which is likely to help offset the increasing network operating costs due to rise in rural penetration. Thus, we expect Bharti to maintain its EBITDA margin to around 39% for FY10-11E.
Maintain our estimates and target price
We forecast revenue and EPS CAGR of 18% and 15% for FY09-11E, respectively (excluding associate contribution from Indus towers). Based on DCF valuation, we arrive at a target price at Rs. 817 implying a P/E multiple of 14.6x FY11E EPS.
To see full report: BHARTI AIRTEL LIMITED
In Q4’09, Bharti Airtel Limited (Bharti) posted a revenue growth of 25.6% yoy and 2% qoq, gaining from better-than-market ARPU of Rs. 305 while facing more-than-anticipated drop in share of net adds. Bharti’s share in net adds fell to 17.5% in Mar’09 (our estimates of 20%), as RCOM and other new entrants notched up subscribers with under-cutting in tariffs while rolling out their services in new circles. Moreover, Bharti’s overall market share plunged to 24% in Q4’09 from 24.7% in Q3’09. While we believe that Bharti can easily sustain its EBITDA margins in the near term at ~39%, retention of high-end Metro subscribers is a key challenge for the Company. Besides, the recent surge in the stock price has pushed it above our fair value estimate. Hence, we downgrade our rating to a Hold.
Customer retention is a key challenge
Bharti derives around 40% of its revenues from 11% subscribers, who are present in Metro circles. As newer mobile players are aggressively targeting these subscribers through value added services and attractive tariffs, subscriber retention has become a key challenge for Bharti in order to maintain its market leadership and profitability in the near term.
Scaled up operations and cost rationalization to help maintain margins
Bharti maintains a significant cost advantage over its competitors supported by its scaled up pan-India network and established brand equity. Besides, the Company is constantly keeping a check on its SG&A and payroll costs which is likely to help offset the increasing network operating costs due to rise in rural penetration. Thus, we expect Bharti to maintain its EBITDA margin to around 39% for FY10-11E.
Maintain our estimates and target price
We forecast revenue and EPS CAGR of 18% and 15% for FY09-11E, respectively (excluding associate contribution from Indus towers). Based on DCF valuation, we arrive at a target price at Rs. 817 implying a P/E multiple of 14.6x FY11E EPS.
To see full report: BHARTI AIRTEL LIMITED
>ABB LIMITED (INDIABULLS)
Promising outlook
ABB Limited (India)’s revenues declined 9.2% yoy to Rs. 14.1 bn in Q1’09 on account of weak order execution. Net profit of the Company was Rs. 784 mn, 33.4% lower than the previous year quarter. This was mainly due to an increase in other expenditures, depreciation charge and interest expenses in Q1’09 vis-à-vis Q1’08. However, on the back of improved order inflows for the Company during Q1’09 and positive recent political developments in the country, we have upwardly revised our estimates for the Company. Our valuation model suggests an upside potential of 16.5% for the Company’s stock price from the current market price of Rs. 617.1. We thus, upgrade our rating from Hold to Buy.
Orders inflows expected to increase:
■ The postponement of several power projects, particularly by private players in FY08, coupled with ABB’s decision to exit rural electrification projects, had led to a flat growth in order inflows for the power division in FY08 vis-à-vis FY07. Orders from government utilities had remained
strong, thereby offsetting the decline in orders from private players.
■ Order inflows of the Company in Q1’09 increased 83% sequentially, mainly attributable to the finalization of orders from Power Grid Corporation of India. The inflows in Q1’09 were the second best ever for the Company. The current order book of the Company stands at Rs. 70.3
bn, representing 1x of FY08 revenues.
■ With a peak power deficit of 16% and growing power needs, India has significant scope to increase its generation capacity. In the medium to long term, we should see robust order inflows for the Company on the back of an increase in government spending in power and other
infrastructure related projects.
To see full report: ABB LIMITED
ABB Limited (India)’s revenues declined 9.2% yoy to Rs. 14.1 bn in Q1’09 on account of weak order execution. Net profit of the Company was Rs. 784 mn, 33.4% lower than the previous year quarter. This was mainly due to an increase in other expenditures, depreciation charge and interest expenses in Q1’09 vis-à-vis Q1’08. However, on the back of improved order inflows for the Company during Q1’09 and positive recent political developments in the country, we have upwardly revised our estimates for the Company. Our valuation model suggests an upside potential of 16.5% for the Company’s stock price from the current market price of Rs. 617.1. We thus, upgrade our rating from Hold to Buy.
Orders inflows expected to increase:
■ The postponement of several power projects, particularly by private players in FY08, coupled with ABB’s decision to exit rural electrification projects, had led to a flat growth in order inflows for the power division in FY08 vis-à-vis FY07. Orders from government utilities had remained
strong, thereby offsetting the decline in orders from private players.
■ Order inflows of the Company in Q1’09 increased 83% sequentially, mainly attributable to the finalization of orders from Power Grid Corporation of India. The inflows in Q1’09 were the second best ever for the Company. The current order book of the Company stands at Rs. 70.3
bn, representing 1x of FY08 revenues.
■ With a peak power deficit of 16% and growing power needs, India has significant scope to increase its generation capacity. In the medium to long term, we should see robust order inflows for the Company on the back of an increase in government spending in power and other
infrastructure related projects.
To see full report: ABB LIMITED
суббота, 23 мая 2009 г.
>RELIANCE CAPITAL (INDIABULLS)
Downgrading to Hold after the recent price performance
For the FY 2009, Reliance Capital (RCap) reported a moderate 21.6% yoy growth in the operating income; however, net profit growth was relatively muted at 0.7%, primarily on account of increased general insurance claims and a higher cost of funds in the consumer finance business. We have a positive outlook on the Company based on its diversifying business profile, under-penetration in financial services segments along with aggressive approach towards expanding the business segments. However, we are downgrading the stock from a Buy to Hold after the recent share price performance, although we are raising our fair value to Rs. 897 per share based on our SOTP valuation methodology.
Growth in life insurance premiums decelerating; however, profitably in general insurance looks likely For the FY 2009, Reliance Life’s new business premium increased 27.7% yoy to Rs. 35.1bn against the decline of 6% for the industry. The NBAP margin for the FY 2009 increased to 20.9% compared to 18.8% for the nine months ended December 2009. For FY 2010, we do not expect the insurance business to see a faster growth as ULIPs - which account for a large chunk of the total insurance sales - are presently not a preferred form of investment because of the volatility in the capital market. We have assumed a growth of about 25%-30% in FY 2010.
During the year, GWP decreased 1.6% yoy to Rs. 19.1bn mainly due to economic slowdown and the ongoing focus on improved profitability and not topline revenues. Despite the increase in the claim ratio, the Company’s combined ratio declined from 129% to 114%, primarily on account of several cost-cutting measures initiated by the management.
Maintaining market share but AUM witnessing a slowdown
Average AUM decreased by 11% yoy to Rs. 809bn against the industry’s decline of 7%. Further, the proportion of equity in the total AUM declined, from 35% in FY 2008 to 29% in FY 2009, given that the retail investors are moving away from the market led by market volatility. However, with the sharp rise in capital market post elections, we expect equity proportion to increase. This may positively impact the Company’s bottom line as equity funds command a higher fee income vis-à-vis debt funds. Thus, for FY 2010, we expect the AUM to increase by around 35%-40%.
To see full report: RELIANCE CAPITAL
For the FY 2009, Reliance Capital (RCap) reported a moderate 21.6% yoy growth in the operating income; however, net profit growth was relatively muted at 0.7%, primarily on account of increased general insurance claims and a higher cost of funds in the consumer finance business. We have a positive outlook on the Company based on its diversifying business profile, under-penetration in financial services segments along with aggressive approach towards expanding the business segments. However, we are downgrading the stock from a Buy to Hold after the recent share price performance, although we are raising our fair value to Rs. 897 per share based on our SOTP valuation methodology.
Growth in life insurance premiums decelerating; however, profitably in general insurance looks likely For the FY 2009, Reliance Life’s new business premium increased 27.7% yoy to Rs. 35.1bn against the decline of 6% for the industry. The NBAP margin for the FY 2009 increased to 20.9% compared to 18.8% for the nine months ended December 2009. For FY 2010, we do not expect the insurance business to see a faster growth as ULIPs - which account for a large chunk of the total insurance sales - are presently not a preferred form of investment because of the volatility in the capital market. We have assumed a growth of about 25%-30% in FY 2010.
During the year, GWP decreased 1.6% yoy to Rs. 19.1bn mainly due to economic slowdown and the ongoing focus on improved profitability and not topline revenues. Despite the increase in the claim ratio, the Company’s combined ratio declined from 129% to 114%, primarily on account of several cost-cutting measures initiated by the management.
Maintaining market share but AUM witnessing a slowdown
Average AUM decreased by 11% yoy to Rs. 809bn against the industry’s decline of 7%. Further, the proportion of equity in the total AUM declined, from 35% in FY 2008 to 29% in FY 2009, given that the retail investors are moving away from the market led by market volatility. However, with the sharp rise in capital market post elections, we expect equity proportion to increase. This may positively impact the Company’s bottom line as equity funds command a higher fee income vis-à-vis debt funds. Thus, for FY 2010, we expect the AUM to increase by around 35%-40%.
To see full report: RELIANCE CAPITAL
четверг, 23 апреля 2009 г.
>Infosys Technologies Ltd (INDIABULLS)
Bleak near-term outlook
Infosys Technologies Limited (Infosys)’s result for FY09 was in line with our estimates. For Q4’09, Infosys reported a decline of 2.6% qoq to Rs. 56.4 bn in its top line largely due to increasing pricing pressure and sluggish volume growth, partially offset by the depreciation in the rupee against the dollar. Besides, revenues in the USD terms went down by ~4.5% qoq. Other than this, weak operational performance and increase in the SG&A expenses led
to fall in the EBITDA margin by 154 bps qoq to 33.6%.
Price erosion is inevitable
Billing rate for the quarter went down 2% and 4.2% qoq for onsite and offshore, respectively, indicating that clients renegotiated their contracts and new deals were signed at lower pricing. In our view, this trend is likely to continue, considering that the large clients from the developed economies are likely to demand price cuts. Thus, we expect billing to decline by 2–3% per quarter for the next 4–5 quarters.
Client engagement to help in the medium term
Infosys is focusing on client engagement and has guided to increase its selling & marketing efforts in the near term. Consequently, we expect SG&A expenses to increase by ~5% in FY10, which will strain the margins in the near term. However, this can benefit the Company in winning large deals in the medium term.
Potential strategic acquisitions to strengthen its positioning
Infosys has a strong balance sheet position along with a huge liquidity advantage in the current weak market scenario as it maintains a cash balance of USD 2.2 bn. In our view, the Company can use cash for strategic acquisitions in the next 12–15 months, which will strengthen its service offerings. Moreover, potential acquisitions in high end services such as consulting and system integration space can help to revive the margins.
To see full report: INFOSYS
Infosys Technologies Limited (Infosys)’s result for FY09 was in line with our estimates. For Q4’09, Infosys reported a decline of 2.6% qoq to Rs. 56.4 bn in its top line largely due to increasing pricing pressure and sluggish volume growth, partially offset by the depreciation in the rupee against the dollar. Besides, revenues in the USD terms went down by ~4.5% qoq. Other than this, weak operational performance and increase in the SG&A expenses led
to fall in the EBITDA margin by 154 bps qoq to 33.6%.
Price erosion is inevitable
Billing rate for the quarter went down 2% and 4.2% qoq for onsite and offshore, respectively, indicating that clients renegotiated their contracts and new deals were signed at lower pricing. In our view, this trend is likely to continue, considering that the large clients from the developed economies are likely to demand price cuts. Thus, we expect billing to decline by 2–3% per quarter for the next 4–5 quarters.
Client engagement to help in the medium term
Infosys is focusing on client engagement and has guided to increase its selling & marketing efforts in the near term. Consequently, we expect SG&A expenses to increase by ~5% in FY10, which will strain the margins in the near term. However, this can benefit the Company in winning large deals in the medium term.
Potential strategic acquisitions to strengthen its positioning
Infosys has a strong balance sheet position along with a huge liquidity advantage in the current weak market scenario as it maintains a cash balance of USD 2.2 bn. In our view, the Company can use cash for strategic acquisitions in the next 12–15 months, which will strengthen its service offerings. Moreover, potential acquisitions in high end services such as consulting and system integration space can help to revive the margins.
To see full report: INFOSYS
пятница, 27 марта 2009 г.
>Unitech Limited (INDIABULLS)
Diminishing sales volume
Unitech reported a weak financial performance in Q3’09 due to the intensifying slowdown in the real estate sector. The results were adversely impacted by a sharp deterioration in demand, decline in real estate prices and high finance costs. In light of the worsening prospects of the realty sector we downgrade our rating to Hold.
Property sales getting postponed: Despite a decrease in interest rates by the RBI and consequently by the commercial banks, and a cut in property prices by around 20% in new launches, the sales volume in the residential segment has so far failed to pick up. This is due to the potential buyers adopting a wait-and-watch approach in anticipation of a further decline in real estate prices. Further, a weak economic environment is pushing the expansion plans of IT/ITeS and retail companies thus impacting the commercial and retail space demand. We expect the weak demand scenario to continue at least for the next 2-3 quarters with a slow improvement thereafter.
Liquidity position improves marginally: Unitech has been able to repay Rs. 4,000 mn out of the Rs. 25,000 mn of debt due to be paid by March 2009. It has also restructured loans worth around Rs. 15,000 mn through banks and is changing its debt profile from short term to long term. It is further trying to raise funds to repay the balance.
Valuation: We have revised our NAV estimate downward to reflect the worsening prospects of the sector. We have cut our revenue and earnings estimates to factor in lower sales volume and high vacancy rates and a higher-than-expected decline in property prices in Q3’09. Our NAV based fair value estimate of Rs. 32 reflects a limited upside potential to the current share price. Hence, we downgrade our rating to Hold.
To see full report: UNITECH
Unitech reported a weak financial performance in Q3’09 due to the intensifying slowdown in the real estate sector. The results were adversely impacted by a sharp deterioration in demand, decline in real estate prices and high finance costs. In light of the worsening prospects of the realty sector we downgrade our rating to Hold.
Property sales getting postponed: Despite a decrease in interest rates by the RBI and consequently by the commercial banks, and a cut in property prices by around 20% in new launches, the sales volume in the residential segment has so far failed to pick up. This is due to the potential buyers adopting a wait-and-watch approach in anticipation of a further decline in real estate prices. Further, a weak economic environment is pushing the expansion plans of IT/ITeS and retail companies thus impacting the commercial and retail space demand. We expect the weak demand scenario to continue at least for the next 2-3 quarters with a slow improvement thereafter.
Liquidity position improves marginally: Unitech has been able to repay Rs. 4,000 mn out of the Rs. 25,000 mn of debt due to be paid by March 2009. It has also restructured loans worth around Rs. 15,000 mn through banks and is changing its debt profile from short term to long term. It is further trying to raise funds to repay the balance.
Valuation: We have revised our NAV estimate downward to reflect the worsening prospects of the sector. We have cut our revenue and earnings estimates to factor in lower sales volume and high vacancy rates and a higher-than-expected decline in property prices in Q3’09. Our NAV based fair value estimate of Rs. 32 reflects a limited upside potential to the current share price. Hence, we downgrade our rating to Hold.
To see full report: UNITECH
суббота, 21 марта 2009 г.
>DLF Limited (INDIABULLS)
Battling the slowdown: DLF’s net sales for Q3’09 plunged 62.0% yoy due to a slump in property demand and a correction in property prices. This coupled with increased interest cost burden impacted the net profit, which fell 68.7% yoy. Sales volume unlikely to pick up substantially in the near-term: We believe that the current slowdown in the real estate sector is yet to bottom out and the pricing pressure should further intensify in Q4’09. We expect the property demand to remain weak at least over the next 2-3 quarters as expectations of a further fall in prices, worsening economic environment, and low loan-to-value ratios, are keeping the potential buyers away from entering the property market. Despite a 15%–20% decline in realty prices across segments in the last few months (discounts offered are higher in certain new launches) and a cut in interest rates, the sales volume has failed to pick-up, indicating a wait-and-watch approach being followed by the potential buyers.
Slowdown to have an extended effect on profitability: We believe that the expected decline in property prices/rental rates will drag DLF’s margin considerably downwards even after considering a reduction in construction costs. Moreover, the shift in the Company’s strategy towards low-margined middle income segment should negatively affect margins over the longer term. DLF is also delaying certain projects and changing current debt profile of short-term loans to long-term, which would increase the carrying cost of capital and thus impact net margins negatively.
Valuation: Our revised NAV–based fair value estimate of Rs. 146 reflects a downside of 16% from the current market price. We have reduced our fair value estimate to reflect a higher than-expected decline in property demand and prices in this quarter. Thus, we downgrade our rating from Hold to Sell.
To see full report: DLF LIMITED
Slowdown to have an extended effect on profitability: We believe that the expected decline in property prices/rental rates will drag DLF’s margin considerably downwards even after considering a reduction in construction costs. Moreover, the shift in the Company’s strategy towards low-margined middle income segment should negatively affect margins over the longer term. DLF is also delaying certain projects and changing current debt profile of short-term loans to long-term, which would increase the carrying cost of capital and thus impact net margins negatively.
Valuation: Our revised NAV–based fair value estimate of Rs. 146 reflects a downside of 16% from the current market price. We have reduced our fair value estimate to reflect a higher than-expected decline in property demand and prices in this quarter. Thus, we downgrade our rating from Hold to Sell.
To see full report: DLF LIMITED
воскресенье, 8 марта 2009 г.
>Siemens (INDIABULLS)
SIEMENS INDIA LIMITED
Short term headwinds; long term growth intactIn January 2009, Siemens India Limited (SIEM) decided to sell its wholly owned subsidiary Siemens Information System (SISL) to its parent company Siemens AG. We believe SIEM stands to lose from this deal as it received less-than-adequate consideration in exchange for SISL; the deal valued at an EV/Sales of 0.5x, much below the industry average of 1.4x, resulting in a potential loss of value for the investors. Though our near-term outlook for SIEM has weakened following the SISL deal, we believe that the current market price (CMP) of SIEM’s stock more than factors the negatives. However, given its technological advantage, a diversified business model, and the strong financial position, we believe the Company is well poised to grow in the long run. Hence, we reiterate our Hold rating on the stock.
Top line to remain muted in the near term: We expect net sales to fall ~20% in FY09; excluding SISL, we expect the fall to be in the range of 15-18%. We expect the major segments - Industrial and Power to show a negative growth of ~7% and ~25%, respectively. The Power segment’s revenue is likely to fall due to the completion of several big-ticket projects in FY08, and we do not expect any mega order inflows in the near term. Meanwhile, we believe that strong growth in small segments such as Transportation, Healthcare, and BPO will help in cushioning the downside in revenue. However, we expect revenue to grow substantially post FY10 once the orders in the Power segment start coming in from the 12th Five Year plan.
To see full report: SIEMENS
воскресенье, 1 марта 2009 г.
>National Aluminium (INDIABULLS)
National Aluminium Company Ltd - SELL
Falling LME prices threaten profitabilityNational Aluminium Company Limited (NALCO) reported a weak set of numbers in Q3’09, mainly on account of lower sales due to declining demand. Net sales fell 6.6% yoy to Rs.10.4 bn because of a 14.9% yoy decline in the aluminium sales volume to ~75,000 tonnes. EBITDA plunged 39.7% yoy mainly on account of higher input costs. We do not expect aluminium prices to bounce back in the upcoming quarters, given the rising inventory levels on the LME and the falling demand. Factoring in the Company’s weak performance and the downbeat aluminium outlook, we have downgraded our rating from Hold to Sell. We expect NALCO to underperform
in the near-to-medium term due to the following reasons.
Aluminium prices to remain under pressure: We believe that aluminium prices will be in the range of USD 1,400–1,600 per tonne in FY10. LME aluminium prices have declined ~60% since July 2008, and we do not foresee any price recovery in the near term as the automobile, infrastructure, and packaging industries (which drive more than two-thirds of the global aluminium demand) are witnessing a recession. In addition, inventory levels at the LME have reached 3 million tonnes, mainly on account of lower demand. Thus, amidst the weak global demand and rising inventory levels, aluminium prices on the LME are expected to remain subdued in FY10.
Margins to contract: FY08 We expect the Company’s operating cost to decline by 18–20% in FY10, primarily due to falling power & fuel costs. However, we believe that the expected lower realisations will overshadow the benefit resulting from reduced operating costs. Thus, we expect NALCO’s EBITDA margin to be ~32% in FY09 and ~25% in FY10, compared with 43.9% in.
To see full report: NATIONAL ALUMINIUM
>IDBI (INDIABULLS)
IDBI BANK Ltd - Hold
Battling macroeconomic headwinds:Despite a robust growth in the net interest income, IDBI Bank reported a moderate 26.6% yoy growth in Q3'09 net profit, primarily due to a decline in the non-interest income. We hold a cautious near-term outlook for the Bank on account of its heavy dependence on corporate banking, a decline in treasury profits despite falling interest rates, and a lower RoE. However, the low CASA ratio should improve as the Bank plans to enhance its network by 200 branches during the next 6–9 months. Our SOTP valuation suggests a fair value of Rs. 55, indicating a potential upside of 11% over the current stock price. Thus, we give a Hold rating to the stock.
Fee income growth to decline in the short term:
The Bank reported a 27.3% yoy decline in the non-interest income to Rs. 2.7 bn; however, fee income increased 143.4% yoy to Rs. 2 bn. Non-interest income declined primarily due to lower treasury profits; this is a matter of concern as other Banks reported a growth in treasury profits on account of falling interest rates during the same time. We expect fee income growth to fall as the Bank would generate less income through loan processing. This is because the declining growth rate of advances and falling equity markets are likely to steer investors from insurance and mutual fund products, thereby adversely affecting third-party distribution. Thus, we expect the non-interest income to decline by around 30% in FY09.
To see full report: IDBI
суббота, 28 февраля 2009 г.
>Neyveli Lignite Corporation Ltd. (INDIABULLS)
Neyveli Lignite Corporation Ltd.- Buy
Valuation remains attractiveNeyveli Lignite Corporation Ltd. (NLC) posted a 9.7% yoy increase in the net profit in Q3’09. This was partially driven by the finalisation of the FY04–09 power tariffs for TPS-I, resulting in an additional revenue of Rs. 1.7 bn during the quarter. We maintain our target price of Rs. 100 for NLC’s stock and reiterate our Buy rating on the back of the following factors.
* New CERC guidelines to provide marginal benefits: We believe that CERC’s decision to increase the cap on return on equity (RoE) for tariff determination from 14% to 15.5% for FY10–14 will improve NLC’s profitability only marginally because:
· NLC has been accumulating significant amounts of cash and not ploughing them back in its power business; thus, its overall RoE has been on the lower side.
· With only 750 MW of additional capacity expected to be commissioned by FY10 and no major capacity additions planned during FY11–13, NLC would not be able to fully exploit the revised tariff determination norms for FY10–14.
* Long-term growth prospects remain promising: A number of projects proposed by NLC are in various stages of implementation. Of these, advance action proposals for a combined capacity of 6,850 MW have been sanctioned by the Government of India (GoI). Given NLC’s strong balance sheet position and the GoI’s thrust to increase the country’s power generating capacity, we believe NLC’s long-term growth prospects remain intact.
To see full report: Neyveli
>Power Grid (INDIABULLS)
POWER GRID CORPORATION OF INDIA LTD - BUY
Unleashing its potentialOur enthusiasm in Power Grid Corporation of India Ltd. (PGCIL)’s stock has been lighted up by the encouraging tariff determination norms issued by the CERC for FY10–14. As a result, we have increased our target price for PGCIL’s stock from Rs. 110 to Rs. 120 and maintain our Buy rating.
* Overall RoE to improve significantly in the next 4-5 years: We see the Company’s RoE improving from 11.7% in FY08 to 16-17% by FY13-14 due to the following reasons:
· CERC’s increase in the cap on the RoE from 14% to 15.5% for tariff determination purposes implies higher guaranteed returns on the transmission projects for FY10-14.
· We expect the Company to continue generating incentive income, which would mean a higher effective RoE on the transmission projects.
· Equity deployed in the transmission assets would increase significantly in the next 2-3 years as the Company has huge CAPEX plans. We do not see any major delays in the commissioning of new transmission lines as the Company has a stable cash-generating business model and strong GoI support for funding its projects.
· The Rs. 14.4 bn worth of GoI bonds issued to PowerGrid would be completely redeemed by FY16 in equal half yearly instalments. As these funds would be invested in higher return-generating transmission assets, the Company’s overall profitability should improve.
* Bright long-term prospects: Most of the power projects being planned for the future by the GoI are pit-head and of sizable capacity. These would require building a strong transmission network for dispatching electricity to the various project beneficiaries. PowerGrid, the only transmission company in the country, is set to benefit significantly from this scenario.
To see full report: Power Grid
>IVRCL - BUY (INDIABULLS)
IVRCL INFRA & PROJECTS LTD - BUY
Banking on a strong order book
IVRCL continues to be one of the strongest companies in the construction & infrastructure space due to significant advantages over its peers, including revenue visibility for the next 3–4 years and a high degree of exposure to government-funded orders, especially in the water & irrigation segment. The stock correction in the last few months is attributable to the negative sentiments attached with the worsening economic scenario, particularly in the real estate sector, to which IVRCL has an exposure through its subsidiary IVR Prime. We have calibrated our estimates to address the concerns of lower order inflows and slower execution over the next couple of quarters owing to the forthcoming elections. Consequently, we have arrived at a fair value estimate of Rs. 139, which reflects a potential upside of 35% over the current market price (CMP); hence, we maintain our Buy rating.
Healthy order book and favourable portfolio mix
IVRCL has an extremely healthy order book of Rs. 143 bn, 3.9x the FY08 revenues, which should insulate the Company from any slowdown in the order inflows over the next two years due to the adverse economic scenario. Moreover, IVRCL’s leadership in the water & irrigation space, which accounts for more than 65% of the current order book, provides it a significant opportunity to benefit from the increased planned government spending in the segment during the 11th Five Year plan period.
To see full report: IVRCL
>Corporation Bank (INDIABULLS)
CORPORATION BANK - HOLD
Result Review
Result Review
* Slowing Down: Corporation Bank’s operating profit grew by 61.9% yoy, driven by a 43.2% rise in the NII and a 69% rise in other income. However, comparing on a like-to-like basis, without the MTM gains, the operating profit grew by 31% yoy. Despite healthy numbers, the impact of the business-cycle downturn has been evident in a moderate advances growth (3.2% sequentially), and a 75% yoy rise in delinquencies for 9M FY09. In view of the ongoing economic downturn, we retain our conservative estimates for margins, but downward-revise those for credit quality and business-growth. This tempers our fair-value estimate to Rs.182. While, we do believe that Corp Bank’s stock price reflects these concerns, we see limited upside in current environment. Therefore, we downgrade our rating to Hold.
* Advances growth to remain moderate: We expect CorpBank’s advances growth to average ~18% and ~16% for FY09 and FY10 respectively. This downward revision in our growth estimates is based on funding and delinquency concerns. Funding concerns stem from a below average growth in deposits (2.7% qoq) and delinquency concerns emerge from the advances-mix. The Bank’s advances-mix is dominated by large industries (30.6%), retail (20%), SMEs (10.4%) and agriculture (9.2%), which are likely to face near-term headwinds. Therefore, the Bank’s credit off-take is likely to remain moderate.
To see full report: Corporation Bank
понедельник, 23 февраля 2009 г.
>Tech Mahindra - BUY (INDIABULLS)
Tech Mahindra Ltd. - BUY
Attractive valuation despite near-term headwinds
Tech Mahindra (TM) reported a disappointing performance for the quarter ended December 2008 as revenues went down 2.8% qoq to Rs. 11.3 bn, owing to a 3% decline in the sales volume. In USD terms, revenues declined substantially by 14% qoq due to a sharp depreciation in the GBP vis-à-vis the USD. The EBITDA margin improved slightly by 10 bps qoq to 28.1% after adjusting for a one-time tax reversal of Rs. 673 mn in the last quarter. Although we have cut our target price to Rs. 309 because of the deteriorating demand outlook and high revenue concentration, we maintain a Buy rating on the stock. This is attributed largely to TM’s large order book and strong balance sheet. Besides, we believe that the current price correction to the stock is overdone.
Strong revenue visibility: TM maintains a healthy order book of USD 2.5 bn over the next 3–4 years, including approximately USD 2 bn of deals from British Telecom (BT). This provides strong revenue visibility for the near-tomedium term. However, we remain concerned about the possible delays in the ramp-ups from BT due to the deteriorating performance of its various operating segments. Moreover, the new deals inflow is likely to remain poor, adversely affecting the volume growth.
To see full report : TECH MAHINDRA
>Alstom Projects - HOLD (INDIABULLS)
ALSTOM Projects India Ltd. - Hold
# Revenue growth will decline in the near term: APIL has not received any substantial new orders in FY09. Given that most of the orders for the 11th Five-Year plan have already been awarded, we expect the order book to decline in the upcoming quarters. As a result,
we have maintained our revenue contraction to the tune of 15–18% and 4–6% for FY10 and FY11, respectively. Thereafter, we expect revenues to surge, given the potential of the power sector in India.
# Non-conventional energy to act as a catalyst: India has always remained a power deficit country. There is a growing need to not only develop the conventional sources of energy but also develop nonconventional sources such as nuclear and hydro power. The country plans to increase its nuclear power generation from the current 4,100 MW to 52,000 MW by 2020 and APIL is expected to be a major beneficiary of this exercise. This is because we believe that the Company is well equipped to manufacture nuclear equipment by using its existing plant in Vadodara, Gujarat, which manufactures hydroelectric power generating components at present.
To see full report: ALSTOM PROJECTS
четверг, 19 февраля 2009 г.
суббота, 20 декабря 2008 г.
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