Saturday, August 8, 2009


Issue details

Issue opens : August 7, 2009

Issue closes : August 12, 2009

Issue size : 167.73 crore equity shares

Fresh issue : 111.82 crore equity shares

Offer of sales by government Of which : 55.91 crore equity shares

Employee reservation : 4.19 crore equity shares

Net issue : 163.54 crore equity shares

Face value : Rs10 each

Break-up of net issue to public:
QIB's portion : 98.12 crore equity shares
Retail portion : 16.35 crore equity shares

Non-institutional portion : 49.06 crore equity shares

Price band : Rs30-36 per share

Object of the issue
The issue of 167.73 crore equity shares (of which 111.82 crore is fresh issue and 55.91 crore is offer for sale by the Government of India [GoI]) is aimed at raising Rs5,032.1 crore to Rs6,038.5 crore (depending on the price band of Rs30-36 per share). Of the total proceeds of the issue Rs1,677.4 crore to Rs2,012.8 crore would go to the GoI.

The objects of the issue are:

  • part financing of the construction and development costs of certain projects, namely Subansiri Lower, Uri – II, Chamera - III, Parbati – III, Nimoo Bazgo, Chutak, and Teesta Low Dam – IV; (Please refer exhibit 1 for details).
  • general corporate purposes; and
  • listing benefits.
To see full report: NHPC IPO


Solid 1Q; strong wireless resurgence

RCOM reported good 1Q results. EBITDA broadly matched our estimate while the wireless segment was the star of the show after a long time. PAT was 25% ahead of our estimate despite the introduction of the MAT tax rate, led by Rs6.21bn interest income boosted by forex gains. Reiterate Outperform.


Wireless ARPU and MoU were exactly in line with our estimates, while average revenue per minute and EBITDA per minute each came 1 paise ahead of our estimates. Wireless revenues were in line, despite the termination rate cuts.

Wireless EBITDA margin came in at 38.6% compared with our estimate of 37.1%, leading to a positive surprise of 4.2% in wireless EBITDA. Wireless EBITDA was up 11.2% QoQ, a significant increase on a sequential basis. This was again the sharpest QoQ growth in wireless EBITDA in the entire sector. Consolidated EBITDA margin was 39.9%, ahead of our estimate of 39.0%.

Good: What we liked in the quarter
⇒ The first signs of resurgence in wireless growth are clearly visible, led by GSM – the best sequential growth (6.5% QoQ growth) in wireless revenue in seven quarters. RCOM reported wireless revenue growth of 16.4% YoY vs 19% at Bharti. Adjusted for a termination rate cut, RCOM’s wireless revenue growth of 22.6% YoY compares with Bharti’s 23.5% growth. Such close convergence between Bharti’s and RCOM’s wireless revenue growth has occurred after 12 straight quarters (the last time in June 2006). It also registered the most impressive QoQ growth of 6.5% among Bharti, RCOM, Vodafone and Idea, both before and after adjusting for termination rate cuts.

⇒ Wireless broadband data access, riding on EVDO (3G CDMA), is a new
revenue stream that has just been tapped, with significant upside expected in two years.

⇒ Net debt was down (by Rs4.3bn) in 1Q after going up for four quarters. This coincided with the first quarter of positive free cash generation (Rs10.93bn, or US$227m, in 1Q) by RCOM in its listed history.

Bad: What we did not like in the quarter
⇒ A change in accounting policy to move to AS11 means RCOM generated significant forex gains in 1Q. Management noted that the return to AS11 was because Section 6 of the Companies Act (which it followed in prior quarters) ceased to exist on 31 March 2009.

Earnings and target price revision

No change.

Price catalyst

12-month price target: Rs275.00 based on a DCF methodology.
Catalyst: Positive impact of new GSM launch on operating metrics.

Action and recommendation

We are maintaining our Outperform rating, based on improving growth outlook, attractive valuation and consensus upgrades.



Sell: Core Business Picking Up; But Valuations Rich

Poor 1Q, though better than est. — Rev fall of 48%, was greater than expected; while earnings decline of 63% was better than our estimated fall of 73% - this was due to higher EBITDA margins of 63%, largely driven by profits (Rs800m) from sale of Saket Off in the qtr. Lower interest costs of Rs926m also helped. Going forward we expect another qtr of higher margins as hotel assets will be booked subsequently; post which we see margins correcting to 40% levels.

Comfortable on liquidity — Unitech’s ~US$900m QIP in two tranches along with Rs11.5b warrant issue to promoters over the last four months has made the company comfortable on liquidity. Leverage is down to 0.57x, net debt levels down to Rs76bn in Jun’09 (vs. Rs109bn in 3Q) and post 2nd QIP this is targeted to reduce less than 50 billions. That said, its ~37% dilution does offset some of the benefits.

Aggressive plans in residential business — Targeting to launch ~30msf and pre-sell ~20msf in FY10 – 90% being resi project with focus on affordable housing priced in range of Rs1-3m under its ‘Unihomes’ brand. The initial start is encouraging, with ~16.5msf launched and ~6.9msf pre-sold as of Jul’09 with its first Unihome launch in Noida having done well – we believe sustainability and timely execution will be key for operational cash flows.

Rich valuations — With the stock having outperformed the sensex by 56% over the last three months, we believe the improvements in business seem largely priced in. Further, with the stock already trading at a premium to our NAV of Rs88, we believe valuations leave no room for error.

To see full report: UNITECH


Demand pick-up yet to be seen…

Taj GVK Hotels came out with lower-than-expected Q1FY10 numbers. The
net sales de-grew by 18.6% YoY and 16.1% QoQ, respectively, due to the impact of the lean season apart from ongoing continued sluggishness in demand for hotel rooms. As a result, its margins continued to remain under pressure despite a reduction in operating costs. Operating margin declined 1210 bps YoY and 420 bps QoQ, respectively. The company reported a net profit of Rs 4.9 crore that de-grew 67.6% YoY and -38.1% QoQ, respectively.

Highlight of the quarter

In the last quarter, the company opened a new hotel with 215 rooms in Chennai. However, the impact of the same has not been felt during the current quarter. Its net sales declined 16.1% QoQ against our expected growth of 5.6% QoQ. The cut-down in travel budgets has impacted the overall business. The lean season (April-September) also played a key role in de-growth of the company’s revenues. Operating profit for the quarter was Rs 7.6 crore. It declined by 40.8% YoY and 25.7% QoQ, respectively. The company reported a net profit of Rs 4.9 crore that de-grew by -67.6% YoY and -38.1% QoQ respectively.


Over a short-term perspective, we may continue to see a tedious performance due to the lean season and continued sluggishness in demand for hotel rooms. We are revising our FY10E estimates downward taking into account the current subdued performance of the company. At the CMP of Rs 108, the stock is trading at 10.1x and 8.7x its FY10E and FY11E EV/EBITDA,
respectively. We feel it is fairly valued and advise investors to book profits at this level. We continue to maintain our target price of Rs 107 and HOLD rating on the stock.

To see full report: TAJ GVK HOTELS


Sell: 1Q Trend In-Line With Peers; Lower Rev/Min & MoU, Margins Up

Target price upgrade on potential GSM upside and lower risk premium — We raise FY10E-11E EBITDA forecasts by 1%-11% giving TTML the benefit of: 1) increasing sub/rev share from GSM launch, and 2) better usage versus CDMA. Our new target price of Rs26 (from Rs12) is based on revised EBITDA forecasts and a WACC reduction. We maintain a Sell rating on TTML given high valuations (imputed target multiple of 12x FY10E is at a 20-30% premium to larger peers) and execution risks in its dual network strategy.

High funding but manageable — Capex guidance stays at Rs10bn (only the active portion), resulting in FY10E net debt/EBITDA of 5.4x. However, we believe that high leverage is no longer a big concern given NTT DoCoMo’s strategic interest in TTML. It also reduces constraint on expansion plans and 3G.

GSM launch in 2Q — Management indicated GSM launch in August 2009. However, the spurt of launches in the past 1-2 quarters and expected launches by other entrants during FY10 raises questions on the NPV accretion, especially given the high penetration in Mumbai circle.

1Q EBITDA in-line — 1Q EBITDA at Rs1.5bn was in-line as a sharp fall in MoU and the expected Rev/min decline (4p, o/w 2p was due to termination cut) was offset by the sharp margin expansion. EBITDA margins expanded 440bps, mainly from decline in SG&A besides the termination cut (100bps). MoUs continue to fall as a result of: 1) economic slowdown, and 2) impact of dual SIM usage especially in Mumbai. The net profit loss in 1QFY10 was Rs343m.
Meanwhile capex recovery at ~6% for the towerco appears lower than peers.

To see full report: TATA TELESERVICES


Exceeding expectations

State Bank of India’s (SBI) Q1FY10 net profits grew 42% YoY, higher than our expectations, driven by strong 45% YoY rise in core fee income growth and Rs12bn write-back of investment provisions. While NIMs remained under pressure (down 73bps YoY and ~15bps QoQ), this was in line with most banks that reported margin compression due to excess liquidity on the balance sheet. Pre-provisioning profits were down 7.3% YoY given higher operating expenses on the back of Rs6.3bn additional provision for wage revision. Asset quality remained manageable – Dabhol exposure of Rs16.5bn is now upgraded to standard restructured assets. Maintain HOLD. Prolonged margin compression and deterioration in asset quality are the key risks.

Balance sheet liquidity rises; NIMs under pressure. SBI’s advances grew 22.5% YoY, while deposits increased 35.9% YoY and ~2.9% QoQ. Excess liquidity deployed in low-yielding assets, BPLR cuts and slow deposits repricing led to compression in NIMs (down 73bps YoY) to 2.3%. NII increased 4.3% YoY (in line with our estimates). We estimate ~20bps YoY compression in NIMs in FY10E.

Robust other income growth; one-time items buoy costs. Other income increased a healthy 48.5% YoY driven by Rs7.1bn trading profits (Rs2.23bn in Q1FY09). Growth in other income (ex-treasury) was healthy at 31.1% YoY. Operating expenses grew 51% YoY, primarily driven by one-time wage provisions of Rs6.29bn owing to increase in estimated liability for wage revision and pension provisions of Rs4.29bn in Q1FY10.

Asset quality controlled; no surprises on restructured assets. SBI marginally improved its asset quality with GNPAs & NNPAs improving 5bps QoQ & 21bps QoQ to 2.79% & 1.55% respectively. SBI’s restructured assets were at Rs81.18bn, with Rs16.5bn exposure to Dabhol being a part of the standard restructured assets in Q1FY10. Total outstanding restructured assets, including loans ordinarily restructures, are at Rs211.5bn (3.85% of gross advances). Provisions declined 88.9% YoY due to Rs12bn write-back in investment depreciation. Provision
coverage ratio improved to 45.2% QoQ in Q1FY10 from 38.72% in Q4FY09.

Healthy performance by subsidiaries; maintain HOLD. SBI Group’s consolidated net profit grew an impressive 68.11% YoY. We marginally adjust earnings to account for traction in core-fee income and write-back of investment depreciation. But margin pressure is likely to keep RoE subdued at 16% through FY11E. At the current market price, the stock trades at FY11E P/E & P/BV of 6.9x & 1.1x. Prolonged NIM compression and sharp deterioration in NPA are key risks.

To see full report: SBI


Sell: PAT Declines 35%; Better Outlook But Stock Expensive

1QFY10 marginally better — SAIL's reported PAT came in at Rs13.3bn, down 28% yoy. Adjusting for the wage provision write back, recurring PAT was Rs11.9bn, down 35% yoy (4% above our estimate). EBITDA margin (incl other income) was 25% vs 29% last year (20% in 4QFY09). The fall in profits was on account of lower realizations despite an overall reduction in per tonne costs.

Volumes grow in line with industry — Sales rose 5% to 2.8m tonnes and output rose 4% to 3.1m tonnes. SAIL focused its efforts on special steels/value added products (+21% yoy) and better productivity norms in 1Q. Overall capacity utilisation was 111%. SAIL's volume growth in 1Q (+5%) is low vs Tata Steel (+22%) and JSW Steel (+62%) as most of SAIL's expansions are likely by FY12.

Weaker realizations — Avg realizations fell 20% yoy to ~Rs32,600/t, but flat qoq. Going forward, flat product prices could improve on strong demand. However, long product prices (35% of volumes) are weakening due to sluggish seasonal demand and are only likely to recover post the monsoons in 3QFY10.

Overall costs decline — Overall costs per tonne fell 13% yoy with declines across all heads. Raw materials were the exception with costs rising 13% yoy due to high cost coking coal inventory. Input costs should fall in the coming quarters on lower cost imported coking coal and increased captive coal output.

Sell — While SAIL would benefit from an improved price environment, we believe that the positives are already priced in and it is expensive relative to history. The stock has run up 127% YTD, outperforming the Sensex by 67%.

To see full report: SAIL


Robust order intake; Buy for strong FY11e

Strong profit beat, sharp jump in order book; Buy
Rolta’s recurring 4Q PAT came in 27% higher than MLe, driven by 174bps margin expansion and 4% beat in revenues. More importantly Rolta reported 140% QoQ increase in new order intake in engineering services segment lead by domestic engineering clients compared to a 64% QoQ decline reported in previous quarter which was one of our key concerns. As per management order intake continued to be robust in July also. We raise FY10e earnings by 16% and FY11e by 38% driven by strong topline growth and uptick in margins. See further upside from Indian defence spend in the Thales JV post stable government elected in May. Upgrade the stock to Buy and raise PO to Rs200, at 12x FY11e in line with historical PE average, offering upside of 29%.

Order intake surprises; Strong FY11e likely now
Order intake for the company overall increased 31% QoQ as against decline of 24% in previous quarter and was driven by 140% increase in order intake in engineering services. During the call management indicated that order intake continues to be strong even in July. As most of these orders will be implemented from 2Q/3Q FY10 onwards, we expect FY11 to show a sharp rebound in sales and PAT. Estimate 21% yoy growth in FY11e revenues and 33% yoy growth in
FY11e PAT up from 13% earlier.

1Q order intake critical for FY10 revenue guidance
Management has guided at 11-14% yoy growth in revenues for FY10 and EBITDA margins of 33-35%. We estimate 7% yoy growth in revenues in FY10E. Currently management has 75% visibility for FY10 revenues and 1Q order intake would be critical to achieve FY10 guidance, given implementation typically starts with a lag of 3-6 months. Key risk to our estimates is slower than expected recovery in domestic market and delay in ramp up of orders.

To see full report: ROLTA INDIA


Sell: 1Q10 Results – Asset Risks, Equity Leverage Shows Through

1Q10 profits down 56% YoY, significantly below estimates — RCap's profits were dampened by lower investment gains in 1Q10 (-65% YoY) and were 46% lower than our estimates. The key business highlights of the quarter were: a) Sharp rise in asset deterioration in the consumer finance segment; b) Increasing growth in asset management; c) Significant market share erosion in the retail brokerage segment, and d) Continued focus on controlling expenses.

Asset deterioration, is it near the peak? — NPLs in RCap's consumer finance portfolio almost tripled QoQ to 5.6% (2% in 4Q) with ~25% losses in unsecured loans. We expect losses to stabilise as Rcap has stopped unsecured lending and management suggests pressures are peaking and has re-started disbursements in the secured loan segments (focus on mortgages and commercial vehicles).

Retail broking: Transition time — Revenues dropped 14% QoQ, volumes were up 7% (+65% QoQ industry growth). Management is focused on cost control (rationalised branches and employees), but it’s the topline that needs fixing – it is contemplating a change in revenue model to advalorem (from a fixed fee model currently). Expect subdued profitability in 2/3Q10 while it transitions.

Growth in asset management, unrealised investment gains — RCap's capital market leverage showed through – domestic AUMs increased 34% QoQ (+48% equity AUMs) and unrealized equity gains were Rs5bn (nil earlier). Continued strong capital markets and a keen eye on costs should support future profitability, but RCap remains exposed to any downsides, especially as its other businesses face relatively tougher times. We maintain a Sell rating on RCap.

To see full report: RELIANCE CAPITAL



Punjab National Bank (‘PNB’) delivered strong net profit growth of ~62.4% yoy to Rs8.32bn in Q1FY10, ahead of our estimates of Rs7.0bn. The outperformance was driven by strong core performance and robust treasury gains.

Incremental restructurings surprise at ~3% of the book…: PNB incrementally restructured ~Rs50bn of advances during Q1FY10 (as against pending application worth ~Rs8bn in March 2009), amounting to 3.2% of net advances. This takes the cumulative restructuring to ~6% of the loan book. PV loss provisions of Rs1.3bn were made during the quarter, amounting to ~2.6% of restructured loans.

…while Gross NPAs remain steady: Gross NPAs remained steady at 1.8% in Q1FY10, and Net NPAs at 0.19%. Provision coverage ratio came in at 89.6% as against 90.5% in Q4FY09. The bank continues to deduct floating provisions of Rs10.8bn from NPAs by RBI’s permission. (Exhibit 5)

Healthy NII growth led by improving CD ratio: NII came in at Rs18.6bn, (in line with our estimates of Rs18.5bn), a 28.9% yoy growth, buoyed by an improving CD ratio and yoy improvement in margins.

Margins expand on a yoy basis: In Q1FY10, NIMs held up – an increase of ~15bp yoy to 3.41% - owing to rapid re-pricing of bulk deposits and contained sub PLR lending. Yields on advances declined by ~50bps qoq owing to PLR cuts affected in the quarter while average cost of deposits declined by ~30bp qoq to 5.94%. Sub-PLR proportion of the book has declined to ~30% as against ~60% earlier. (Exhibit 1)

Robust non-fund income; stellar treasury gains: Non-interest income grew by 113% yoy to Rs9.70bn, buoyed by strong treasury profits of Rs3.59bn (~23% of operating profit) and traction in CEB (~45% yoy growth). (Exhibit 3)

Strong deposit growth; CASA slips: Growth in total deposits was strong at 27% yoy and 4.4% qoq. PNB’s CASA ratio declined by ~70qoq and ~300bp yoy to 38.3%.(Exhibit 2)

Provisioning expenses in line: The bank made provisions of Rs3.0bn, of which Rs2.7bn are specific loan loss provisions (including provisions on restructured assets of Rs1.3bn). The bank booked write-back of MTM.

To see full report: PNB


Longing for new policy implementation...

Neyveli Lignite (NLC) reported a 21.3% topline growth on a like-to-like basis for the reported quarter to Rs 884.3 crore. The results were much below our estimates on the bottomline as the new CERC policy has not yet been implemented and NLC has not adopted the computation through provisional tariff route. This has lead to depressed financials for the
company for Q1FY10. We have also excluded the previous year’s adjustment item (taken for the generation segment) from Q1FY09 for a fair comparison of the numbers. The net profit for the company was marginally up at Rs 287.5 crore as against Rs 285.8 crore in the corresponding quarter last year.

Highlights of the quarter
The power generated by the company for the reported quarter has witnessed a significant growth of 25.4% to 4.9 BU. However, due to the pricing under the old tariff mechanism the company’s revenue growth has been capped at 21.3%. With the new policy implementation taking effect before the end of FY10, the effect is expected to be revised retrospectively or in the active quarter of implementation. So far, there has been no update on the disinvestment front. However, we continue to believe it is an imminent disinvestment candidate in the coming years.

At the CMP of Rs 130, the stock is trading fairly at 2.1x and 1.9x its FY10E and FY11E book value, respectively. Better tariff and higher stability of the plants in its portfolio would help NLC grow at a reasonably good pace. We also believe the generation of the first phase (125 MW) of the Barsinger plant will achieve synchronisation over the next quarter. With the positive milieu supported by strong fundamentals, we have revised the target price to Rs 146
with a PERFORMER rating on the stock.

To see full report: NEYVELI LIGNITE



• Real GDP fell by 1.0% (annualized) in the second quarter, the smallest contraction since the Great Recession began.

• Recent developments in the U.S. housing market, fiscal stimulus, and the emergence of
Chrysler and GM from bankruptcy suggest that Q3 may well show positive economic growth, a good signal that the U.S. economy has emerged from the Great Recession.

• While the recession may be coming to a close the road to recovery will not be swift. A pummelled labor market and shrunken household net-worth imply a slow-go recovery in 2010.

To see full report: THE NASCENT RECOVERY


Tea Party; Raise EPS and PO

Reiterate Buy; raised PO to INR200; 43% upside potential
Post a strong quarter and sustainable surge in tea prices we increase PO to INR200 backed by 38% and 40% upgrade in FY10E and FY11E EPS. We estimate 13% increase in realized tea prices in FY10 which we believe will sustain through FY11. PO is pegged at 11xFY11 PE- in line with target PE of Buy rated India sugar stocks. Our new price objective offers 43% upside potential.

Tea prices at an all time high since yr 2000; upward bias
Production in Kenya & Sri Lanka (40% of global exports) declined 14% & 37% till April due to poor weather. Indian production is down 15% during this period. This will aggravate already existing pipeline deficit in India even if crop is normal in the rest of CY09. We expect Indian tea prices to remain firm around INR130/kg- an all time high since 2000 with an upward bias led by i) ~20mn kg est fall in India’s tea production in CY09 in addition to 23mn kg shortage and ii) strong global demand.

Robust Q1; Price leverage remains strong
Q1 EBIT was up 90% led by over 30% higher realizations. 1% increase in tea prices raises McLeod’s EPS by ~3.5%. We forecast 146% EPS growth in FY10 and expect EBITDA/kg to increase to INR38.5/kg from INR24.4/kg in FY09.

Attractive valuation vs peers
The stock trades at 7.5xFY11e PE vs Indian sugar co’s at 8x to 15x. It trades at the lower end of the range 6-27x FY11ePE for peers in global food commodities space. Adjusting for treasury shares, stock is at 5.5xFY11e PE. Valuation is attractive, in our view, given an upbeat tea price outlook. We believe risk of govt. intervention is low as tea forms just 1% of WPI basket and govt is in fact focusing on encouraging investments in tea gardens. Key risks: drastic cut in production in case of poor monsoon, lower than expected tea prices, wages and rupee appreciation.