>Larsen & Toubro (EDELWEISS)

Too early to cheer

INR 57.8 bn worth orders booked; is the tide turning?
From March 30–April 9, 2009, Larsen & Toubro (LT) has announced orders worth INR 57.8 bn, primarily in power and process verticals. For Q4FY09, the company has announced orders worth INR 51.4 bn (order intake in Q4FY09 will, however, be higher as small-ticket orders have not been announced). Even with the spate of orders in the last week of Q4FY09, we believe the initial order accretion guidance (30% growth) for FY09 is unlikely to be met. While the order accretion growth for 9mFY09 has been strong at 30%, inflows in oil & gas (O&G) have been significantly below estimates; for 9mFY09, O&G order intake has been INR 43 bn (down 32% Y-o-Y). While the current order announcements by LT in the power and infrastructure verticals, is certainly a positive, we believe it is too early to conclude that the same will translate in to higher-than expected order inflows in FY10.

Power and infrastructure likely to drive order accretion growth in FY10
In FY10, LT’s order accretion is likely to be driven primarily by power and infrastructure verticals. In power, LT expects equipment orders from the 11 negotiated tenders from NTPC and DVC. In infrastructure, railways, roads, and airports would remain key drivers; railway orders are, however, expected to pick up significantly only post FY11 on the back of the Dedicated Freight Corridor (planned investment of INR 600 bn by 2016). Although order accretion has been weak in the company’s O&G vertical in FY09, management expects orders to start flowing in from Q1FY10.

Execution issues on 6% book; likely to rise in our view
Currently, our main concern is execution of current orders in the process vertical. LT’s order book is at INR 688 bn (37:63 public versus private; private includes 11% from group development projects); 6% of these could get delayed primarily in metals and real estate verticals, according to the management. We believe this percentage could be higher given that the company’s exposure to key problem verticals of metals, real estate, and O&G is at 40% of the current order backlog.

Outlook and valuations: Uncertainty overhang; maintain ‘REDUCE’
We value subsidiaries at INR 123. Hence, the implied P/E for the parent business is 14x and 12.5x for FY10E and FY11E, respectively. In the face of an uncertain macroeconomic environment, which could put the private sector capacity addition under a cloud, we believe upsides to valuations from current levels are likely to be capped over the medium term. We maintain ‘REDUCE’ recommendation on the stock.

To see full report: LARSEN & TOUBRO

>Aventis Pharma (KARVY)

Net revenues for the quarter were up by 5.4 % To Rs 2287 mn. The main de-growth has been due to loss of Rabipur revenues. Operating margins are expected to fall from 18.7 % to 17.9 %. The main reason for the fall in margins has been due to decline in high margin Rabipur revenues. Profits for the quarter are expected to decline from Rs 345 mn to Rs 320 mn for the quarter.

The company's top 6 brands grew by 21.6 %. Amaryl, Clexane, Targocid and Allegra rank no 1 brand in their respective segments. On the domestic front the company has introduced Combiflam cream to leverage on its Combiflam brand. Aventis also has an ambitious project to target Tier 2 towns with new products and a dedicated sales force. The company has given lower export growth estimates for CY 2009E. Export of Panadeine tablets to Malaysia would commence in the current year.

If one were to remove the cash per share of Rs 265 the stock would be quoting at attractive valuations of 11.5x CY 2009E. We introduce CY 2010 estimates and roll over our price target to CY 2010 basis. We rate the core business of the company at 12x CY 2010 at Rs 828 and add Rs 315 cash per share to the company's core price and arrive at a price target of Rs 1145. We upgrade the stock to Outperformer.

To see full report: AVENTIS

> Ess Dee Aluminium (SUNIDHI)

Company Description:
Incorporated in 2004, EDAL manufactures aluminium foils and polyvinyl film-based packaging products. It also manufactures thermoforming polyvinyl chloride films (rigid PVC films) as well as PVdC (polyvinylidene chloride)-coated PVC barrier thermoforming films for blister packaging. Along with subsidiary Flex Art Foil, it provides endto- end packaging solutions to the pharmaceutical end users.

During December 2006, EDAL tapped the capital market to raise Rs 157 crore at a price of Rs 225 per share. Its recently acquired India Foils (IFL) manufactures laminated flexible packages, aluminium foils and aluminium container sheets and light gauged strips and processed laminated paper, paperboard and containers.

Highlights:

During 2007-08, the company increased the capacity of cold rolling from 9, 100 MT to 18, 000 Mt to cater light gauge and ultra light gauge foil suitable for the Food and FMCG sectors.

IFL has installed capacity of 18,000 tpa and hence the combined capacity will be 36,000 tpa. This will put EDAL in a commanding position in the domestic market.

EDAL acquired a 90% stake in IFL for Rs 120 crore from Vedanta Group, making it a subsidiary. The remaining 10% stake is with Vedanta. EDAL raised Rs 84 crore in Sept 2007 via preferential issue of shares at a premium of Rs 565 per share from Morgan Stanley Mutual Funds.

EDAL has launched cold forming alu-alu foil in the premium segment as an import substitute product. EDAL’s alu-alu foil is around 40% cheaper than the imported material and hence the company is likely to garner a good market share. Moreover, it will have a first mover advantage.

EDAL has also entered into flexible packaging and metalised PVC films for its FGCG customers. The major customers include: ITC, HUL, Nestle, Cadbury, Perfetti, Hindustan latex etc. With the entry into FMCG segment the ratio of pharma: FMCG sales are likely to change from 90:10 in FY08 to 60:40 in FY09 (with India Foils).

EDAL is currently exporting to countries like Chile, Ghana, Cost

To see full report: ESS DEE ALUMINIUM

>Money Power (MOTILAL OSWAL)

During 2HFY09, financial closure for several power projects have been delayed given the global liquidity crunch, volatile interest rates, and funding constraints in the domestic markets. Given that the entire project debt is now to be raised predominantly from the domestic market, it presents its own set of challenges, given company/sector/group based ceilings for banks under existing norms.
Based on the capacity expansion plans of listed companies, we expect ~12GW of projects to achieve financial closure by mid-FY10. The projects likely to achieve financial closure include Reliance Power 4.9GW, GVK 910MW, CESC 600MW, GMR Energy 1GW, Adani Power 2.6GW and Jaiprakash Power 1.8GW.

To see full report: MONEY POWER

>NTPC (HSBC)

Reiterate UW (V): Mind the delay
* FY09 results below expectations; capacity addition disappoints; tough road ahead for 22GW target in 11th plan
* Too much premium attributed to strong balance sheet as market is not factoring in delays in capacity addition
* Maintain our estimates and TP of INR142; we believe valuations are expensive versus its peers; reiterate UW (V)

FY09 results below expectations. Revenue was up 14%, to INR421bn, on 3%
generation growth. PAT was up 6%, to INR78bn (HSBCe: cINR82bn), below HSBC and consensus estimates. We think this was primarily due to additional wage provisions as well as gratuity-related expenses (cINR14bn vs 9m09 INR8.8bn).

Generation growth remains muted. Generation continues to disappoint, with only 3% growth in generation units, to 207bn. Generation has been muted due to lower plant load factor (PLF) of 91.14% (vs 92.24% in FY08) and lower capacity addition (i.e., only 2000MW of capacity achieving commercial operation in FY09).

Capacity addition plan still eludes reality: NTPC has commissioned only 1000MW in FY09 and expects to add c19.7GW of capacity over the next three years. Given that it has missed timelines in the past, we now believe it will only add c9.2GW of capacity. The company has yet to place an order for 1.8GW. NTPC has spent INR152bn in FY09 towards capacity addition and is expected to spend INR245bn in FY10.

Securing fuel supply: NTPC has received 130.7mn tonnes of coal (including 6.4mn tonnes of imported coal) and 10.81mmscmd gas for its power plant. Management expects coal import to double next year, to 12.5mn tonnes, and also expects 15mn tonnes of coal from its captive mines by FY12. However, there are considerable delays in its captive mine development, with the land acquisition for Pakri Barwadih underway.

Valuation and risks: We maintain our estimates and target price of INR142. We use the average of three different approaches to value NTPC shares and derive a target price of INR142 per share. Hence on valuation grounds we reiterate our Underweight (V) rating. Key upside risks to our rating include faster than expected execution of the capacity addition and addressing of the fuel risks.

To see full report: NTPC

>Pfizer India Ltd (Hem Securities)

Company Snapshot
Pfizer India Ltd has a market share of 2.2%, and is currently ranked 14th (ORG-IMS MAT Dec. 2008) after the divestment of 4brands of the Consumer Health portfolio to M/s. Johnson & Johnson Ltd. The company has reported earnings results for the full year ended November 2008. For the year, the net sales grew marginally from Rs.6726.6 million in the previous year to Rs.7006.1 million. The company has achieved growth despite the sale of four Consumer Healthcare Brands to M/s. Johnson & Johnson Limited. The Com-pany has achieved a net profit of Rs. 2991.2 million as compared to Rs.3389.3 million for the previous year showing a decline of 11.75%. This decline is due to the impact of other income and exceptional items in the pre-vious year and the year under review respectively.

Q1FY09 Performance Highlights

The company posted excellent financial figures for the quarter ended Febru-ary 2009. The net sales for the company gone up by 26.51% to Rs 1902.40 million for the Q1FY09 as against the net sales of Rs 1503.70 million for the Q1FY08. The company posted the EBITDA of Rs 436.40 million for the Q1FY09 as against the EBITDA of Rs 315.70 million for the Q1FY08 with the growth rate of 38.23%. The operating profit margin for the company stood at 22.94% for the Q1FY09 as against the operating profit margin of 20.99% for the Q1FY08, clearly showing the strength of the company. The net profit for the company rose to Rs 390.10 million for the Q1FY09 in comparison to net loss of Rs 192.90 million for the Q1FY08. The net profit margin stood at 20.51% for Q1FY09. The EPS for the company stood at Rs 13.07 for the quarter ended in February 09 versus the negative EPS of Rs 6.46 for the quar-ter ended February 08. The EPS on TTM (Trailing twelve months) stood at Rs 48.67 for the company.


INVESTMENT RATIONALE

Pfizer India plans to set up 600 smoking cessation clinics across the country in the next two years. The company has already tied up with 150 clinics in 17 cities, including Max Healthcare, and is in talks with more hospitals for partnerships. The company is also in talks with the government to use this as a treatment op-tion in the 600 clinics that they plan to set up. Pfizer is also in talks with Masina Hospital for a possible partnership.

Pfizer targeting off-patent medicines for the growth has signed a series of agreements with Aurobindo Pharma to market medi-cines that are no longer patent protected and do not have market exclusivity in the US and Europe. The company expects to gar-ner revenues up by US\$200 million till 2014. Pfizer's deal with Aurobindo is its first in-licensing deal where the US-based pharma company takes on licence, products from Aurobindo.

The world's biggest drug maker -Pfizer Inc has acquired rival Wyeth for around US\$68 billion in a cash-and-stock deal. The company’s US\$68-billion acquisition of Wyeth is all set to get the operations rolling in India within 2-3 months after the global guidance is received. The deal seems to be an ideal merger as the two companies are complementary and there seem to be no major product overlaps. Acquisition of Wyeth would rope in interesting products in the animal health and vac-cine segments besides a very strong consumer healthcare divi-sion that has the popular hair-removing cream Anne French, among other products. This would be a boost to Pfizer's con-sumer division that had some time back sold a clutch of con-sumer products to Johnson and Johnson.

Pfizer is in a fray to acquire substantial stake in Wockhardt's biotechnology business in a strategic business tie-up estimated at around Rs. 250 crore. Wockhardt with a market cap of Rs. 780 crore possibly would have to hive off its biotech business into a separate company for another company to pick up stake.

To see full report: PFIZER

>World Recession

The world economy collapsed into steep recession in the final quarter of 2008 with global real GDP dropping at a 6 percent annual rate. This was undoubtedly the sharpest decline in world output and especially in world industrial production and world trade of the postwar era, with virtually all countries participating in the downturn and many registering record quarterly declines in real GDP.

Incoming data indicate that the global economic contraction continued through the first quarter of 2009, although perhaps at a somewhat slower pace than the preceding quarter. Downward momentum will likely continue at least through the spring. A number of forecasters and pundits foresee a global recession lasting through this year and perhaps well into 2010. However long the recession may last, the common expectation is that the recovery will be quite sluggish—the forecast of an L-shaped global recession and recovery. Despite a huge write-down in my global growth forecast from last September, I am more optimistic. Aided by substantial policy stimulus, growth in the Chinese economy should begin to accelerate in the first half of 2009 and the US recession should bottom out around mid-year with recovery accelerating to about a 4 percent annual rate by the fourth quarter. Recoveries in other countries will likely lag a little behind those in China and the United States. But, aided by a bounce-back in global trade from its recent extraordinarily sharp decline, the world economy generally will be in recovery by year-end. Then we will observe, as we have many times before, the Zarnowitz rule: Deep recessions are almost always followed by steep recoveries.

Before this recovery starts the world recession will become the deepest of the postwar era, with global real GDP falling about three-quarters of one percent on a year-overyear basis—the first significant decline of world real GDP in six decades. Output declines in the advanced economies (the traditional industrial countries plus Hong Kong, Israel, Singapore, South Korea, and Taiwan) will average 3 percent. Many emerging-market and developing countries, notably those in Central and Eastern Europe, will also see their real GDPs fall, but significantly positive year-over-year growth in China, India, and some other countries will keep growth for this broad and diverse group at about 1½ percent plus.

For 2010, global growth is projected to strengthen to 3.7 percent—a sharp rise from the preceding year but still somewhat below the potential global growth rate of about 4 percent. For the advanced economies, growth is expected to bounce back to 3 percent— enough to begin to narrow the margins of slack that developed during the recession. For emerging-market and developing countries, growth in 2010 is expected to rise to 4.7 percent, on its way back up to a potential growth rate above 6 percent.

To see full report: WORLD RECESSION