>JAGRAN PRAKASHAN (KR CHOKSEY)

INVESTMENT RATIONALE

Jagran Prakashan Limited is a leading media house of India which publishes Dainik Jagran, India's largest read daily with a total readership of 56.6 million readers per day (IRS 2008 R1). It was also voted the most credible and trusted newspaper in India, according to a survey by Globscan, conducted in 10 of the world's leading countries, including the US, UK, Germany and Russia. JP has not only consolidated in its home market but expanded aggressively, launching 17 new editions in last five years. Led by quality content JP has expanded circulations at 14% CAGR in last five years and ad-revenue has grown faster at 26% CAGR accounting for 65% share. The Indian newspaper industry can be broadly categorized as (1) Hindi, (2) English and (3) the other Indian languages. The Hindi language newspapers comprise 44.6% of the total newspapers while the English ones make 7.4% of the same. The other languages comprise the remaining 48% of the newspapers.

Key Developments
Directorate of Advertising and Visual Publicity (DAVP)
The Directorate of Advertising and Visual Publicity (DAVP) has increased the advertisement rates by 24% across the board with effect from September 1, 2008. For the company DAVP contributes 10-15% of the advertising revenues. Expected to receive waiver for custom duty

The concessions include full exemption in customs duty on newsprint as well as on uncoated paper used for printing of newspapers, commonly known as 'glazed newsprint', and also full exemption in customs duty on light weight coated paper used for printing magazines.

The newspaper and magazine publishing sector had sought relief from the Information & Broadcasting Ministry in the wake of the sharp rise in international prices of newsprint and light weight coated paper (used for publishing magazines), which had resulted in a significant increase in publishing costs. Falling advertising revenues due to the recent economic slowdown have also affected this sector.

Valuations
As the CMP of Rs 77.3, Company is trading at a 27.3x TTM EPS of 2.83. The stock is trading at higher PE than its peer group, but it deserve the premium valuation as being the market leader in North India and IRS 2008 reaffirmed 10th time in a row No.1 status of Dainik Jagran in the country across all languages with a total readership of 56.6 million.. We believe that stock is reasonably valued and can be accumulated at these prices. We recommend “BUY” on the stock with an target price of Rs 92 , with represent an upside potential of 19%.

To see full report: JAGRAN PRAKASHAN

>BANK OF INDIA (KR CHOKSEY)

INVESTMENT RATIONALE
Bank of India reported net profit of Rs.810.4 Crore during Q4FY09 in line with our expectations. During Q4FY09 bank reported a net profit of Rs.810.4 Crore as compared to Rs.757.1 Crore in Q4FY08 a increase of 7% (y-o-y). Key triggers for banks are Other Income was higher on back of strong fee income growth (up 103% y-o-y) and trading gains (up ~273% y-o-y). Operating Performance was slightly worse than expectations on account of higher operating expenses, which increased 23.5% q-o-q on account of higher wage costs and a non recurring investment to migrate all bank branches to the core banking system, decline of Net Interest Margin, and higher cost on account of branch expansion and branding. Net Interest Margin had significantly decline from 3.38% in Q3FY09 to 2.98% in Q4FY09.

Key Developments
• Interest Earned increased 3% q-o-q to Rs 4493.1 crore on account of at 6% qo- q growth in loan book

• CASA ratio declined 120 bps q-o-q to 30.5% as deposit mobilization campaign in December 2008 brought in mostly Fixed Deposits

• Capitalization remains comfortable with Tier I capital ratio at 13.0%, giving room for balance sheet expansion and additional fund raising

• Management is planning aggressive channel expansion of ~150 branches and ~500 ATMs in FY10

• Majority of bank’s advances are concentrated in the corporate sector (~48%) with the rest coming from SME (22%); agriculture (14%) and retail (15%). Management expects a similar profile of advances to be maintained in FY10

• Management expects incremental credit demand to come from the infrastructure (power, roads and telecom) and services (hotel and hospitals) sector

• Management indicates that it has been able to deploy resources towards advances and investments while parking minimal amount of funds with the RBI through reverse repo

Healthy Business Growth

The total business has grown by 26% to Rs. 3,34,440 crore in Q4FY09 as compared to Rs.2,64,804 Crore during Q4FY08. Advances have grown by 26% to Rs.1,44,732 crore in Q4FY09 as compared to Rs.1,14,793 Crore during Q4FY08 and deposits grew by 26% to Rs.1,89,708 Crore in Q4FY09 as compared to Rs.1,50,012 Crore during Q4FY08. Advances grew on the back of strong retail loan book which now constitute 79% of the banks advances while deposits grew on the back of huge demand for Term Deposits which stood at Rs.1,59,487 Crore in Q4FY09 as compared to Rs. 1,26,010 Crore in Q4FY08.

Valuations

• At current price of Rs 324 the stock is trading at 1.14x FY10E BV of Rs. 465 and 4.62x FY10E EPS of Rs. 70.

• We believe that Bank of India has low valuations (~1.2 FY10E BV/s) compared to public sector banking peers, moderating business growth (~18- 20% advances growth expected in FY10) will be positive as it will allow management to focus on asset quality and improving funding mix, stabilizing NIMs ~3% as high cost differential interest rate deposits run off or are repriced in next two quarters and CASA ratio of 35% is achieved in H2FY10, asset quality headwinds will likely subside as economy improves

• We recommend a “BUY” on the stock with a 12 month target price of Rs. 465 giving an upside potential of 43% from current level.

To see full report: BANK OF INDIA

>SUN PHARMACEUTICALS LIMITED (KR CHOKSEY)

Depressing performance

Topline in line with expectation: The topline of the company is inline with our expectation and posted a turnover de-growth of 10% Y-o-Y, mainly due to 67% Y-o-Y decline in the sales from its Caraco subsidiary. The decline was largely on account of a very high base in the corresponding quarter last year, contributed by launch of Pantoprazole generic. Indian formulation business grew by 81% to Rs 652.6 crore whereas International formulations businesses, excluding Caraco, have grown by 89%. API sales grew by 64% Y-o-Y; most of the growth was witnessed from international markets.

Operating level deteriorated: Sun Pharma reported dismal performance at its operating level.
The Q4FY09 Operating profit at Rs 375 crore stands below with our expectation of Rs 499
crore. The EBITDA posted a de-growth of 49% Y-o-Y, whereas on a Q-o-Q basis it recorded degrowth of 9% mainly due spike in the other expenses which includes one-off expenses related
to product recalls at Caraco and inventory write offs. Also due to high raw material cost & staff
cost led the margin to shrink. The OPM contracted by 2,590 bps to 33% in Q4FY09.

Bottom Line – Below our expectation: The bottom line of the company was below our
expectation at Rs 395 crore. Despite a higher other income and a lower tax numbers due to creation of deferred tax asset, the net profit declined by 47% to Rs395 crore during Q4FY09
consequent to a sharp decline in the operating profit.

Our View: Sun Pharma Q4FY09 performance was hit by lower sales from Caraco and the
economic downturn, which resulted in a slowdown in the domestic business. Currently, the status of the Detroit facility is unchanged; however the management has indicated that if the need arises, the company could evaluate product transfer options to India from Caraco on a case-to-case basis. For FY2010, Caraco has not provided any guidance, given the uncertainty surrounding its Detroit facility and the lower exclusivity revenues.

Going forward, we expect the slower growth in the business to continue for the next two to three quarters, due to the economic downturn and lack of new product launches from the Caraco facility that is under USFDA scrutiny. However, the company’s track record of delivering consistent and robust growth makes it the best Indian player in the generic space. With a strong balance sheet with over Rs 3,500 crore in cash, Sun Pharma is well positioned to exploit newer growth avenues. Thus we remain positive on the stock.

To see full report: SUN PHARMACEUTICALS LIMITED

>COLGATE PALMOLIVE LIMITED (KR CHOKSEY)

INVESTMENT RATIONALE
Colgate’s strong brand portfolio across price points, strong customer connection, an opportunity to expand penetration of oral care in rural markets and favorable margin outlook makes it attractive in FMCG space. Market share gains continue to remain healthy with market share in terms of value in toothpaste category rising 200bps y-o-y to 50.2% in Mar’09 quarter, which further increased to 50.7% in Apr-09 quarter.

Key Developments
Low penetration levels of modern oral care in India provide enough headroom for about 8-10% volume growth in the toothpaste category over the next couple of years. Colgate’s market leadership position coupled with a wide product portfolio covering all price points and strong distribution structure has helped it to increase its consumer base substantially over the past few years, reflected in the consistent market share gains as well. Strong brand equity has helped pricing power for the company too. It undertook a 2-3% price hike across its key brands in April 2009.

Results:
Colgate reported top-line growth of 16% and adjusted net earnings growth of 47% y-o-y during Q4FY09. Key highlight was 15.2% volume growth registered for the toothpaste category, which is the best ever reported growth by the company in recent years. EBITDA grew 41% y-o-y helped by 120bp gross margin expansion (on lower raw material costs, freight and excise duties) and lower ad spends.

Valuations
At CMP of Rs. 474, the stock is trading at 23x its FY09 EPS of Rs. 21.0. At the CMP we recommend a BUY rating on the stock with a target price of Rs. Rs. 545.

To see full report: COLGATE PALMOLIVE

>WELSPUN GUJARAT STAHL ROHREN LIMITED (KR CHOKSEY)

Forex losses over shadows performance

Higher sales due to better realizations– Welspun Gujarat reported Q4FY09 consolidated revenue of Rs 1,831 crores, an upside of 50% y-o-y and 26% q-o-q on account of better realizations. However if we see the product wise performance, sales of LSAW pipes which command higher prices, has gone down by 67% over last year in volume terms.

Operating performance –For Q4 FY09 company has reported an EBITDA of Rs 161 crores, down 16% y-o-y mainly on account of foreign exchange provision of Rs 131.4 crores made during the quarter. As more than 90% of sales of the company is generated from export markets and also majority of raw material procured from foreign countries, higher volatility in forex rate could have serious implications on performance of the company.

For Q4 FY09 blended pre exceptional item EBITDA per tonne stood at Rs 10526 for pipes and Rs
6000 for plates compared with Rs 9969 for pipes in Q4 FY08.

Net profit for Q4 FY09 stood at Rs 51.8 cores, an upside of 15% q-o-q but a decline of 49% y-o-y due to higher depreciation and interest cost added to above mentioned reasons. Depreciation mainly increased on account of additional capacity of HSAW, Plate mill and US HSAW facility added this year.

Order book: Order book of the company stood at Rs 7740 crores, which includes orders worth Rs
640 crores of plates. In volume terms total pipe orders are 780,000 tonnes consisting of 240,000 of
LSAW, 505,000 of HSAW and 35,000 of ERW pipes. Share of domestic orders has gone up to 20%, which include GAIL order worth Rs 500 crores

Our View – With crude oil price rising to $ 67 levels, we expect that demand for SAW pipes will also see an upside as pipeline investments are highly correlated to crude oil prices. With the commissioning of Plate mill, the raw material cost of the company will go down. US mill will also
help company save cost on logistics front.

The order book of the company at Rs 7740 crores provides a good visibility for FY10 revenues. At
current CMP of Rs 180 stock is trading at forward FY10 P/E and FY11 P/E of 4.8 respectively. We value the company at FY10 EVEBITDA of 6 which gives us a valuation of Rs 239 per share. We
recommend a buy rating on the stock.

To see full report: WELSPUN GUJARAT

>PANACEA BIOTEC LIMITED (KR CHOKSEY)

Better prospects ahead!!

Topline below our expectation: Panacea Biotec posted its Q4 FY09 and FY09 numbers with
topline growing at the rate of 7.6% y-o-y to Rs 243.0crore whereas 34.2% q-o-q on consolidated basis. The standalone numbers reflect a 16% growth in net turnover to Rs227.6 crore against Rs195.5 crore during the same quarter a year earlier. The growth in the topline is mainly contributed by good growth from both of its segments. The formulation segment registered revenue of Rs 51.5 crore whereas vaccine segment clocked revenue of Rs 175.7 crore. The oncology segment of the company has reported a growth of nearly 55%.

Healthy performance at the Operating level: The company clocked an operating profit of Rs 99.5 crore compared to Rs 47.8 crore during the same quarter last year, thus registering a spurt of 108%. The increase in operating profit is mainly driven by decline in staff as well as other expenses. The margins of the company had shown an improvement of 1764 bps y-o-y to 38.8%, whereas it had improved around 3167 bps on a q-o-q basis. On the operating level the company is witnessing a decline in COGS this reflecting an increased operating efficiency.

Bottom Line – below our expectation: The bottom line of the company witnessed losses due to currency fluctuation which resultant in the company to report a negative bottom-line. The net profit of the company before adjusting for the losses showed a robust growth of 410% to Rs 105.2 crore against Rs20.64 crore, whereas after adjusting for losses it turned negative Rs 38.14. The net margins of the company before adjustment for losses recorded a significant improvement y-o-y..

Our View: We believe the sales of the company were mainly driven by good performance from its vaccine as well as pharma segments. The company reported forex losses of Rs 55 crore whereas created a provision for MTM loss of Rs170.2 crore during FY09. The company also witnessed an Increase in depreciation as well as interest expenses which had adversely impacted the profitability of the company.

Going forward, we believe that Panacea would post good growth numbers in the coming years as we see a good revenue visibility from its vaccine as well as formulation segment. The company would start its supply of combination vaccine to WHO from July 09 and the agreement stands for 3 years till 2012. The formulation segment is also expected to record good number backed by manufacturing agreement with MNC giants like GSK and Bayer. We expect the margins of the company would remain at the level of 25% and 17% at the operating and net level. Looking at the good growth opportunity coupled with robust revenue visibility we maintain our positive view on the company.

To see full report: PANACEA

>DISHMAN PHARMACEUTICALS (KR CHOKSEY)

Robust segmental growth led the numbers to improve!!

Topline below our expectation: The Q4FY09 numbers of Dishman Pharma was below our expectation whereas the FY09 numbers were in line with our expectation. The company reported a sales growth of 21.4% to Rs 293.7 crore against Rs 241.9 crore during the same quarter last year. The growth in the revenue was mainly driven by good performance recorded in its segments. The CRAMs segment which contributes most of the company’s revenue grew by nearly 29% y-o-y whereas marketable molecule which constitutes around 25% of its revenue showed an impressive growth of 56%.

Healthy performance at the Operating level: The company carried forward its impressive topline performance to its operating level also. The operating profit of the company grew by nearly 66% to Rs 74.8 crore against Rs 45.0 crore during the same quarter last year. The growth in operating profit is mainly driven by decrease in other expenses and good performance across its segment. The operating margin of the company has seen a spurt of 684 bps y-o-y.

Bottom Line below our expectation: The net profit of the company for the quarter has increased by 21.7% y-o-y to Rs48.7 crore whereas on q-o-q basis the company has recorded a growth of 40%. The net profit margin of the company has shown a marginal growth of 5 bps y-o-y and 421 bps q-o-q.

To see full report: DISHMAN PHARMACEUTICALS

>HDFC (KR CHOKSEY)

Impressive Performance – HDFCs operating numbers and net profit numbers in Q4FY09 were impressive. Net Interest Income handily beat expectations coming in at Rs 870.9 crores during Q4FY09 on back of higher interest income from disbursements and better spreads. Unlike other private sector financial institutions, HDFC increased its disbursements in tough economic times. Loan approvals grew disbursement growth was reported at 16% yo- y and 3% q-o-q. Inspite of having no access to low cost deposits, HDFC interest expense growth in Q4FY09 was muted at 1% q-o-q. Non Interest Income growth was impressive at 125.7% q-o-q largely on account of dividends and fees from HDFC AMC.

Incremental Margins Improvement – Net Interest Margins improved incrementally to 2.21% for FY09 from 2.19% for 9MFY09 on back of lower funding costs. CP rates, a proxy for wholesale funding costs in India, have been trending down on account of comfortable liquidity environment and decreasing risk aversion. HDFC has been incrementally shifting its borrowings to the wholesale markets from deposits to benefit from the declining rates. HDFC strategy continues to be to hold onto margins as it has not followed SBI’s aggressive pricing strategy in home loans.

Asset Quality – Management focus on prudent underwriting standards during the upswing has helped withstand the pressures on asset quality. Gross NPLs amounted to Rs. 701.55 crores (0.81% of portfolio) as at March 31, 2009 down 3 bps from 0.84% as at March 31, 2008. Provisions for contingencies stood at Rs. 621.53 crores (0.72% of portfolio) as at March 31, 2009. Coverage ratio was high at ~89%, providing a buffer to future earnings.

Our View – At current price of Rs 2093 the stock is trading at ~3.86x FY10E P/BV. We maintain a buy on HDFC with a target price of Rs 2,475, giving an upside potential of 18% from the current levels, on account of:: 1) housing demand will improve in H209 due to better affordability, leading to a 18 – 20% y-o-y pickup in disbursements (high loan approvals and disbursements in Q4FY09 demonstrates HDFCs ability to withstand stiff competitions from public sector banks); 2) Net Interest Margins will improve as borrowing rates, especially in the wholesale markets, will remain low on account of benign liquidity conditions; 3) income from real estate fund management fees and asset management (HDFC MF) will remain an earnings driver in FY10; 4) strong asset quality will reduce earnings pressure; 5) RoE growth (~18% in FY09) on account of redeploying cash to support balance sheet growth will drive multiple expansion; 6) potential value unlocking in life insurance subsidiary.

To see full report: HDFC

>KOTAK MAHINDRA BANK LIMITED (KR CHOKSEY)

Steadying ship in turbulent seas

Impressive Outperformance – Kotak Mahindra Bank beat estimates with Net Profits increasing 40.7% q-o-q to Rs 171 crores on back of continued robustness in the core business. Profits growth from banking activity was even more impressive growing ~44% to Rs 102.6 crores in Q4FY09 from Rs 71.1 crore while profits from lending business (Kotak Mahindra Prime) grew 41% to Rs 47 crores. Capital Markets related businesses underperformed in Q4 with advisory business loosing Rs 3.8 crores on account of slowdown in corporate activity. Brokerage net revenues also degrew ~80% y-o-y as stock market volumes declined. The quality of earnings improved in FY09 as the share of profits from volatile capital markets business declined to 18% and the share of profits from banking and financing business grew to 67%. Management’s ability to manage balance sheet continues to be impressive as the bank was a net lender on most days during the liquidity crisis of
October 2008.

Net Interest Margins – The banks NIMs are easily the best in the industry. NIMs grew 40 bps y-o-y to 6% for FY09 from 5.6% in FY08. Wholesale funding was available at ~6% as the rates on the short end of the curve have been driven down by surplus liquidity while retail deposits, which compete with administered rates, were 150 – 175 bps more expensive at 7.5 to 7.75%. Management believed that it was prudent to boost margins by incrementally shifting funding sources to wholesale deposits from retail deposits.

Asset Quality – Management continued to be cautious during the turbulent times changing asset mix and slowing advances growth. Total retail advances were flat in FY09 at ~Rs 19600 crores. The compositions of retail advances shifted to lower risk secured assets, such as housing loans (which increased 300 bps y-o-y) and away from higher risk assets, such as unsecured personal and business loans (which decreased 400 bps y-o-y) and commercial vehicles (which decreased 200 bps). Gross NPA increased from 2.56% in FY08 to 3.64% in FY09 while Net NPA increased to 2.02% in FY09 from 1.65% in FY08. Coverage ratio declined 4% q-o-q on account of higher slippages.

Our View – At current price of Rs 619 the stock is trading at ~2.72 x FY10E P/BV. We maintain a hold on Kotak Mahindra Bank with a target price of Rs 695, giving an upside potential of 12% from the current levels, on account of: 1) balance sheet well positioned to grow advances by 10 – 15% without pressuring RoE or raising additional capital; 2) incremental shift in asset mix in favor of corporate advances will reduce risk; 3) potential multiple expansion of insurance subsidiary on account of policy changes; 4) rationalizing of bank branches will reduce operating expenses. 5) cost control measures (consolidating back office to lower rental premises and moving front office function to BKC) will improve operating efficiencies; 6) capital markets business well positioned fore recovery. Downside risks to out price target include: 1) volatility in the wholesale funding markets driving up funding costs and pressure margins; 2) slower than expected credit growth; 3) prolonged slowdown in capital markets and corporate activity driving down subsidiary profits


To see full report: KOTAK MAHINDRA BANK

>PAIR STRATEGY (KR CHOKSEY)

RECOMMEND STRATEGY

Pair Strategy : Long BHARTIARTL, Short RCOM

Long BHARTIARTL, Short RCOM on a rupee neutral basis

Currently, the May Futures of BHARTIARTL and RCOM are trading at Rs 921.15 and Rs 330.05 respectively, giving the current price ratio (BHARTIARTL / RCOM) of 2.791.

We recommend profit booking at a price ratio of 3.261.

The expected return at the target is 16.8%, computed on gross exposure.

Over the past 1 month, BHARTIARTL has underperformed RCOM as BHARTIARTL has increased by 35.3% as against an increase of 52.3% in RCOM. Hence, the current price ratio of 2.791 is trading at 3x standard deviations below 20 day mean price ratio.


To see full report: PAIR STRATEGY

>Hero Honda (KR Choksey)

INVESTMENT RATIONALE

Hero Honda (HH) reported net sales of Rs 3,422.5 crore, up 23% y-o-y & 19% q-o-q. Operating Profits stood at Rs549.1 crore, increased by 33% y-o-y, improved realization along with reduction in commodity prices helped OPM to improve by 127bps. Net profit reported was Rs.402.2 crore, improved by 35% y-o-y and profit margins enhanced by 104 bps y-o-y to 11.8% on account of margin expansion and lower tax.

Higher than expected volumes enhanced the topline: Topline improved by 23% y-o-y to Rs3,422.5 crore in Q4FY09 on the back of 13% growth in volumes and 9% growth in realisation. Realisation improved by 7% y-o-y due to price hike in earlier this year and better product mix. HH outperformed the two-wheeler industry with a domestic market share of over 57%. HH witnessed a volume growth of 12% in FY09 whereas the industry grew by 5% y-o-y.

Robust operating performance: HH OPM stood at 16.0%, an improvement of 127 bps y-o-y. The margin was 64 bps higher than our estimates due to higher than expected benefits from the softening in raw material prices. Raw material cost as a percentage of sales declined from 70.2% in Q3 to 68.9% in Q4FY09.

Net Income improved due to tax benefit from the Haridwar plant: Net profit stood at Rs402.2 crore, a growth of 35% y-o-y. The effective tax rate for the quarter was 28% due to tax benefits enjoyed in the Haridwar plant. Thus sharp growth on the Opearting performance and decline in the tax rate led to the expansion in the NPM by 104 bps y-o-y to 11.8%.

KEY DEVELOPMENTS

• HH has chalked out Rs.350 crore capacity expansion and modernization plan in FY10 to upgrade plants and to develop two-wheelers engines conforming the emission norms of 2010

• During FY09, the company posted 3.72 million vehicles sales and aims to reach 4 million mark in FY10. To maximize tax benefit at Haridwar plant HH plans to produce 1.2 million units by FY10

• Commencement of Haridwar plant during the fiscal was another advantage for the company as 100% tax exemption benefit for this plant for 5 years started in this fiscal

To see full report: HERO HONDA

>Hero Honda (KR Choksey)

Hero Honda (HH) reported net sales of Rs 3,422.5 crore, up 23% y-o-y & 19% q-o-q. Operating Profits stood at Rs549.1 crore, increased by 33% y-o-y, improved realization along with reduction in commodity prices helped OPM to improve by 127bps. Net profit reported was Rs.402.2 crore, improved by 35% y-o-y and profit margins enhanced by 104 bps y-o-y to 11.8% on account of margin expansion and lower tax.

Higher than expected volumes enhanced the topline: Topline improved by 23% y-o-y to
Rs3,422.5 crore in Q4FY09 on the back of 13% growth in volumes and 9% growth in
realisation. Realisation improved by 7% y-o-y due to price hike in earlier this year and better product mix. HH outperformed the two-wheeler industry with a domestic market share of over 57%. HH witnessed a volume growth of 12% in FY09 whereas the industry grew by 5% y-o-y.

Robust operating performance: HH OPM stood at 16.0%, an improvement of 127 bps y-o-y.
The margin was 64 bps higher than our estimates due to higher than expected benefits from
the softening in raw material prices. Raw material cost as a percentage of sales declined
from 70.2% in Q3 to 68.9% in Q4FY09.

Net Income improved due to tax benefit from the Haridwar plant: Net profit stood at Rs402.2 crore, a growth of 35% y-o-y. The effective tax rate for the quarter was 28% due to tax benefits enjoyed in the Haridwar plant. Thus sharp growth on the Opearting performance and decline in the tax rate led to the expansion in the NPM by 104 bps y-o-y to 11.8%.

HH’s management is positive on maintaining the margins due to softening Raw Material prices and tax benefits enjoyed in the Haridwar plant. Management expects to cross over 3.7 million units to be sold in FY10.

Valuations & Views – We believe that the company performed reasonable well inspite of
the slowdown witnessed in the industry. HH’s with its focus on rural market and tie-ups
with regional NBFC’s for financing will help the company to maintain growth momentum till
medium term. HH is going to continue its focus in the rural markets as lot of money has
been pumped in by the government in the last couple of years. The Bharat Nirman, the
Rural Employment Generation Programme and the 6th Pay Commission money which is now
getting into the hands of the government employees will help HH to improve volumes. Raw
material prices are expected to remain low due to sluggish demand. Thus we expect HH’s
OPM to enhance by 80 bps y-o-y. To maximize the tax benefit at the Haridwar plant HH
plans to produce 1.2 million units from there by FY10. Thus this ramp up in the Haridwar
plant will help in margin expansion and profit growth of 25% y-o-y. At the CMP of Rs 1082,
HH is trading at 16.9x its FY09 EPS of Rs.64.2 and 13.9x its FY10E EPS of Rs. 77.8. We
recommend a Hold on the stock with target price of Rs 1192, giving an upside of 10%.

To see full report: HERO HONDA

>Reliance Infrastructure Ltd. (KR Choksey)

Investment Rationale

Reliance Infrastructure Ltd is not only India’s largest private sector enterprise in power utility but also the largest private sector player in many other infrastructure sectors of India. In the power sector the company is involved in generation, transmission, distribution and trading of electricity and constructing power plants as EPC partners. In the infrastructure space the company is focused on roads, Urban infrastructure which includes MRTS, Sealink and Airports, Specialty Real Estate which includes business districts, trade towers, convention centre and SEZ which includes IT & ITES SEZ and non IT SEZ as well as free trade zones. Reliance Infrastructure distributes more than 28 billion units of electricity to cover 25 million consumers across different parts of the country including Mumbai and Delhi in an area that spans over 1, 24,300 sq. kms. It also generates 941 MW of electricity, from our power stations located in Maharastra, Andhra Pradesh, Kerala, Karnataka and Goa.

Reliance Power Ltd
Reliance power is a subsidiary of the company which is been listed mainly with the intention of generation of power. The company through its various subsidiaries is developing various generation projects with an aggregate capacity of ~ 28,000 MW on completion of which the company will be the largest private generating company.

Key Developments
Huge Order book
At the end of the 3rd quarter, the company enjoys a healthy order book of Rs 21,510 crore (3.4x of FY08 sales) and has a substantial cash & liquid balance of Rs 9,898 crore (cash per share of ~Rs 434)

Financial Performance
Net sales of the company has again surprised the street and surged by 80.5% (YoY) to Rs 2,717.6 crore on back of exceptional performance from both its division viz Electrical Energy and EPC & Contracts, increased by 62.4% and
144.7% (YoY) to Rs 2031.2 crore and Rs 686.4 crore respectively

EBIDTA of the company augmented by 7.9% (YoY) to Rs 455.6 crore, majorly impacted by purchase of electricity cost and Material & Sub contract charges, increased by 90.3% and 152.1% (YoY) to Rs 1233.9 crore and Rs 587.7 crore respectively.

PAT of the company gone down by 16.7% (YoY) to Rs 251.2 crore on back of high base effect as Rs 89.5 crore tax was reversed in the previous corresponding quarter. At the end of the Q3FY09, the company enjoys substantial cash & cash equivalent balance of ~Rs 9,898 crore (Rs 434/share) and intact order book of ~Rs 21, 510 crore (3.4x of FY08 sales)

Valuations
At CMP of Rs 710.2, stock is trading 14.8x TTM EPS of Rs 47.8 and 15.6x on FY09E EPS of Rs 45.5. On back of diversified business model, strong execution capabilities of the management, huge infrastructure development in India, intact order book position, rich cash reserves, the company seems well situated in the current turbulent times. However, we recommend our investors to book profits with a medium term target price of Rs 707.

To see full report: RELIANCE INFRASTRUCTURE

>EMCO Ltd. (KR Choksey)

Too cheap to avoid

EMCO is the third largest transformer manufacturing company in India. It is a leading player in the 132KV, 220KV and 400KV rating transformer market segments with an annual capacity of 20,000 MVA. It also manufactures meters and has a presence in EPC turnkey power T&D projects. Transformer segment contributes about ~65% to the revenues, while rest has been contributed from the transline towers, project business, electronic energy meter and other businesses.

Investment Rationale
Rs 550 crore order from PGCIL
Emco Ltd has received five orders worth Rs 550 crore from the state-run Power Grid Corporation of India Ltd for a 765 kilo volt overhead transmission line. The orders also involve supply of galvanised steel towers.

"Transforming" into a complete T&D EPC player
The Baroda-based Urja Engineers, a transmission-tower manufacturing company, has been merged with EMCO. Previously, it had supplied towers to EMCO for the latter's projects business. Post-expansion the merged entity would have transmission-tower manufacturing capability of 45,000 MT. Urja is qualified to bid for all State Government and PGCIL contracts. This provides EMCO with an edge in terms of providing 400kv transmission lines along with its 400kV transformer manufacturing capability. The focus is to become an end-to-end solutions provider for the EPC business.

Emco plans hybrid model for selling power
The company plans for 540 MW merchant power plant at Warora in Chandrapur district (near Nagpur, Maharashtra). The financial closure for the first phase of 270 MW (135MW X 2 units) of the project is about to be completed. The plant is expected to be operational by March 2010.

Q3FY09 Results
In Q3FY09, company’s witnessed drop of 14.6% & 45.7%(YoY) in net sales & PAT to Rs 207.9 crore & Rs 8.2 crore.

Valuations
In last one year, we have witnessed re-rating of transformers industry on anticipation of surplus capacity & slowdown in economy. Earlier the industry, which used to trade in range of ~12x to 14x is currently trading in range of 3x to 4x (in other words stocks are available at ~70% discount).

We believe on back of EMCO’s diversified business model, high concentration of Government orders, foray in to power generation & coal mining, and the stock looks attractive at current levels. Further, with the kind of order it received from PGCIL, it seems strong demand still exist in the transformer industry. At CMP of Rs 47.7, the stock is trading at 4.8x on TTM earning of Rs 9.96 and 5.3x FY10E earning of Rs 8.9. We maintain our BUY rating on the stock with target price of Rs 55.

Key Developments
JV with Edison Group
EMCO has formed a JV with Edison Group through its wholly owned subsidiary, Emco Overseas Pte Ltd., Singapore by way of 51% participation in the equity of Emco Edison Transformer (Pty) Ltd incorporated in South Africa. This company will manufacture and market Transformers to cater to South Africa and neighboring countries.

The company plans 2,000 MVA transformer capacity at its new facility in South Africa. Initially, the company would be focusing on 20MVA/33KV class transformers and planning to source higher rating (220KV and 400KV) transformers from its Indian facilities. This would facilitate the company to meet its aim of enhancing export business from ~16% to ~30% in coming time. EMCO expects to begin the commercial production of transformers by Q1FY10E. It has planned a capex of ~USD 10 mn (~Rs 45 crore) for its South African venture.

Stake in Coal Mine
EMCO bought 37.35% stake in Singapore-based Rabaan Pte Ltd for ~$18 million (~Rs 76 crore) through its overseas subsidiary Emco Overseas Pte Ltd. The move is to get into coal trading as the demand for coal is quite high. The Singapore based company has a long-term exclusive coal offtake contract with Bina Insan Sukses Mandiri, an Indonesian mining company, which has estimated coal reserves of ~105m tons, 95% of which is extractable. The Indonesian coal mine is in the Kalimantan region with ~5500 kcal/kg calorific value.

Competition can be managed
EMCO management strongly believes that despite rising competition in the business, the company will retain its competitive edge due to prequalification norms for SEB orders and proven quality vis-à-vis newer entrants.

Strong order book position
At end of Q3FY09, Emco order book stands at ~Rs 1300 crore (increased 5.5% YoY). The transformer orders constitute ~56% of the order book (10% export orders), projects contributed ~42%, while the balance 2% being meter orders. Further, order inflow during Q3FY09 fell by 56% (YoY) to Rs 208 crore mainly due to higher base affect.

To see full report: EMCO Ltd.

>Ranbaxy (KR Choksey)

Daiichi expanding its wings to Indian market

Ranbaxy to Launch Daiichi Sankyo’s innovative antihypertensive drug, “Olvance” in India

First product from Daiichi Sankyo’s portfolio to be introduced through Ranbaxy -
Ranbaxy, the idnian subsidiary of Japan’s Daiichi Sankyo has annpounced that Ranbaxy would launch Olvance (Olmesartan Medoxomil, antihypertensive), which was originally discovered by Daiichi Sankyo. This follows a licensing agreement between the two companies authorizing Ranbaxy to promote and market the drug in India.

Benefits to Daiichi Sankyo

• This move would scale up Daiichi’s innovative product introductions in India, through Ranbaxy.

• The drug is expected to be launched in 50 countries world wide thus strengthening company’s portfolio in the antihypertensive segment.

Benefits to Ranbaxy

Launch would strengthen Ranbaxy’s presence in the antihypertensive segment.
• Olvance is an effective, fast acting and well tolerated antihypertensive agent aand the clinical trials of Olmesartan have shown it to be significantly more effective at reducing blood pressure. Ranbaxy being a significant player in the cardiovascular disease segment and leader in Statins the cholesterol reducing agents the introduction of Olvance will further strengthen Ranbaxy’s presence in the antihypertensive segment.

Impact on Earnings

“Olvance”, an antihypertensive drug, enjoyed a market size of ~ Rs 42 Cr last year (growth of nearly 91%). We expect the drug, which would be launched in April, 2009, to contribute ~ Rs 20 -25 Cr to the topline of the company from the Q2 CY09. The antihypertensive segment enjoys the domestic market size of ~ Rs. 2500 Cr.

Competitor

Glaxo Smith Kline Pharma (GSK), which is having a licensing agreement with Daiichi, would be launching the same drug in India; and would turn out to be a major competitor. Apart from GSK there are two to three small players in the same drug category.

Valuation

We have revised our earnings estimate keeping in view the revenue inflow from the approval for the generic version of Imitrex and the launching of anti hypertensive drug, Olvance. We are positive about Ranbaxy as Medicines and Healthcare products Regulatory Agency (MHRA) of UK, and the Therapeutic Goods Administration (TGA), Department of Health and Ageing of the Australian Government, have issued Good Manufacturing Practice (GMP) certificates for its manufacturing site at Paonta Sahib (India), following a joint audit conducted in October 2008. The MHRA approval will not only cover product filings for the UK but will also apply to product filings for the entire European Union.

To see full report: RANBAXY

>Q4FY09 PREVIEW (KR CHOKSEY)

Q4FY09 PREVIEW : MARCH 2009
Q4FY09 Earnings Preview: Time for bottom fishing, Re-rating to take place

Sensex sales to increase 4.8% y-o-y and profits to increase ~4.2% y-o-y in Q4FY09 We expect Sensex sales and profits to increase ~4.8% and ~4.2% y-o-y, respectively, in Q4FY09. In Q4FY09, our Universe of Stocks (representing ~58% of overall BSE market cap) is estimated to report a y-o-y growth of ~3.7% in sales and a decline of 8.7% y-o-y in net profit.

Top line growth to decline significantly, margins expected to face the heat
In Q4FY09, our universe is expected to see 3.7% growth in sales, significantly lower as compared to 11.0% witnessed in Q3FY09. The decline in growth has been mainly due to fall in realizations owing to the overall fall in prices due to slowdown in demand. We expect the PAT margins to take further hit in this quarter. PAT margins in Q4FY09 are expected to be 14.8% as compared to 15.8% in Q4FY08. However, with indications of easing commodity costs and macro pressures, margins may just pick in coming quarters in selective commodity-intensive sectors like metals, autos, cements and semi-finished goods.

The Macro factors
S&P’s downgrade of outlook for India due to ballooning fiscal deficit of above 11% acted as key trigger for FIIs to pull out as the dollar kept on gaining against rupee. Rising fiscal deficit will lead the government to borrow heavily in the coming quarters. The huge borrowing of ~ Rs 3,29,000 crore (of which Rs 2,40,000 crore will be borrowed in H1FY10) will have a crowding out effect on the economy. Pressure on rupee will ease due to contracting trade deficit and weakening of dollar due to problems in US. Dollar depreciation would lead to rise in commodities which augur well for domestic players which are the lowest cost producers. Ample liquidity will ensure availability of credit at much cheaper cost to the borrowers. We may see deflation till Sept 09 levels at WPI. Upcoming productions from KG D-6 and Cairn facility in Rajasthan have potential to increase GDP by ~1.1%. In near term market will focus on G20 meeting and upcoming general election. Stable government at the center may bring some cheers to the market players.

Attractive Valuations
Recent strong ~25% bounce in the market could be attributed to a mix of positive global cues, pre-election rally and Government stimulus initiatives. Indian markets are trading at attractive valuations and offer substantial opportunities for the long term player. We expect market to be in a range of 9,000-10,500 till the election and it will consolidate at this level for few quarters. We are overweight in Metals, Power & Capital Goods, Telecom sectors and selective financials.

Top Picks from KRC Universe
Reliance Industries, SBI, BHEL, Reliance Infra, IVRCL, Bharat Forge, Sterlite Industries, Mundra Port, Bharti Airtel, Hindustan Zinc.

To see full report: Q4FY09 PREVIEW

>Nifty changing to free float method (KR CHOKSEY)

Proposed changes in Nifty composition

The National Stock Exchange (NSE) has announced that it will switch to a free float market capitalization methodology for calculating the value of the S&P CNX Nifty against the full market capitalization weighted methodology used at present. The new formula will come into effect from June 26, 2009.

Our Key Findings

• Weightage of a stock in the Nifty will be proportional to the public shareholding (non-promoter holding – free float market capitalization method)

• Till now, the weightage was proportional to the market capitalization of the company. So, a company with low public shareholding, but high market capitalizations used to have a higher weightage. This is set to change.

To see full report: NIFTY

>Voltas Ltd. (KR CHOKSEY)

We met the management of Voltas Ltd to understand the company’s strategy in the midst of the global economic slowdown. Key takeaways of the meeting are as follows:

Huge orders from the international market to provide strong revenue visibility
The total order backlog of the company stands at Rs 5,334 crore at the end of Q3FY09. In domestic business the order book stands at Rs 1,085 crore, a growth of 35% y-o-y and in international projects the order book stands at Rs 4,200 crore, a growth of 58% y-o-y. The domestic projects have timeline of 9-12 months and international projects have timeline of 24-30 months thereby providing good revenue visibility. The company has not witnessed any cancellation of orders as most of the projects are government or semi-government funded.

Diversified business model
Voltas has primarily three business lines where Electro Mechanical Projects & Service (EMPS) is the biggest business segment contributing 54% to the topline in FY08. In this segment Voltas serves both international as well as domestic clients. Going forward we expect the international projects to contribute ~60% to the segment revenue (45% in FY08). The company is now a fully integrated player from a mere HVAC (Heating, Ventilation and Air-conditioning) to MEP player in domestic market on acquiring Rohini Electrical (Mumbai based turnkey electrical and instrumentation projects contractor). Thus being well diversified would ensure revenue growth inspite of economic slowdown.

Competitive Advantage over others
Civil work constitutes 65% of the total construction cost of an In-built environment and 30-35% is MEP works. Voltas is a contractor of choice in MEP (Mechanical which includes HVAC, Electrical & Public health which includes plumbing) in the international market. Thus being a well established player and having strong track record of projects, Voltas has an edge over other players in domestic and international markets.

To see full report: VOLTAS

>Jubilant Organosys Ltd (KR CHOKSEY)

Draxis – Jubilant’s subsidiary received an approval for generic Sestamibi
Draxis pharma, Canadian subsidiary of Jubilant Organosys, a leading player of custom research and manufacturing services (CRAMs), has received an approval from Health Canada for generic Sestamibi. The drug is a generic kit for Technetium (Tc 99m), Sestamibi injection, a diagnostic cardiac imaging agent used for the diagnosis and localization of myocardial infarction; and for the diagnosis and localization of ischemic heart disease and coronary disease. The recent approval of the drug is expected to strengthen the product portfolio of the company in radiopharmaceutical segment.

Manufacturing base:
Sestamibi is expected to be manufactured at Montreal, the sterile injectible facility of Draxis. and is expected to be commercialized once the patent for the innovative drug “Cardiolite” expires. Sestamibi to hit the Canadian market by July The patent of the innovator drug is expected to expire by July 2009 thus the company is expecting launch the generic version of innovator drug, Sestamibi by the mid of second quarter.

Sestamibi to hit the Canadian market by July
The patent of the innovator drug is expected to expire by July 2009 thus the company is expecting launch the generic version of innovator drug, Sestamibi by the mid of second quarter.

First mover advantage for Jubilant
Jubilant being the first generic player to launch the drug in Canada would get the first mover advantage as there would be only two player in the market including the innovator company BMS for the same. The total market size of the drug in Canada is estimated to be around USD25 Mn whereas globally it is expected to be around USD 800 Mn.

To see full report: JUBILANT ORGANOSYS

>EMCO (KR Choksey)

● Rs 550 crore order from PGCIL
Emco Ltd has received five orders worth Rs 550 crore from the state-run Power Grid Corporation of India Ltd for a 765 kilo volt overhead transmission line. The orders also involve supply of galvanised steel towers.

● "Transforming" into a complete T&D EPC player
The Baroda-based Urja Engineers, a transmission-tower manufacturing company, has been merged with EMCO. Previously, it had supplied towers to EMCO for the latter's projects business. Post-expansion the merged entity would have transmission-tower manufacturing capability of 45,000 MT. Urja is qualified to bid for all State Government and PGCIL contracts. The focus is to become an end-to-end solutions provider for the EPC business.

● Emco plans hybrid model for selling power
The company plans for 540 MW merchant power plant at Warora in Chandrapur district (near Nagpur, Maharashtra). The financial closure for the first phase of 270 MW (135MW X 2 units) of the project has been achieved. The plant is expected to be operational by March 2010.

● Q3FY09 Results
In Q3FY09, company’s witnessed drop of 14.6% & 45.7%(YoY) in net sales & PAT to Rs 207.9 crore & Rs 8.2 crore. The topline declined mainly due to intentional delay in deliveries to industrial clients and issues in sourcing of key components.

To see full report: EMCO