Thursday, June 10, 2010

>Growth accelerates across Asia (DANSKE MARKETS)

Asia has so far performed better than expected in 2010. In emerging Asia GDP growth in Q1 10 accelerated to 12.2% q/q AR from 8.0% q/q in the previous quarter. Even Japan continued to perform strongly with GDP expanding by a solid 4.9% q/q AR following a respectable 4.0% q/q AR growth seen in the previous quarter.

The solid performance in Asia continues to be driven by a strong recovery in industrial production. As seen in the chart, industrial production again accelerated in Asia in Q1 10, following some moderation in growth in Q4 10 on the back of the exceptionally strong growth in the early recovery phase. Manufacturers across Asia continue to adjust production to demand and inventory cuts have eased substantially. Hence, growth in industrial production has continued to improve despite some slowdown in export growth. For Asia as a whole, export growth in Q1 eased slightly to 8.2% q/q from 11.2% q/q in the previous quarter.

Growth in industrial production probably peaked in Q1 and consequently we expect Asian manufacturing PMIs to start decline slightly in coming months. OECD leading indicators suggest that growth in exports will continue to ease albeit remaining healthy. In addition the positive impact on industrial activity from the inventory cycle should be less in the coming quarters. However, this has not yet started increasing across Asia, suggesting that there will be still be a positive impact on growth from inventories in the coming quarters, but that it would be significantly less than in the previous quarters.

To read the full report: GROWTH IN ASIA


Balkrishna Industries (BIL) has reported healthy financials for Q4FY10 that were above our estimates. The topline improved 27.8% QoQ and 37.3% YoY to Rs 442.9 crore while for the full year it registered a 10.7% growth to Rs 1,394.3 crore. The margin improved by 450 bps YoY to
25% and it maintained it sequentially by reducing other expenses by 440 bps even though rubber prices hit the ceiling. The performance also improved the bottomline, tripling it to Rs 63.5 crore YoY and 33.4% QoQ on the back of a strong topline along with reduced interest charges of 58.1% YoY and 7.1% QoQ to Rs 4.1 crore and exchange rate gain of Rs 4.2 crore against a loss of Rs 6.6 crore on a YoY basis.

Improving global demand
After subdued demand in FY09, the company is witnessing a revival in demand especially in agriculture as well as the OTR segment. The company has increased its volume sales by 5% for FY10 and expects to increase it further in the current year. The rise in rubber prices resulted in
an 8-10% tyre price increase during the year by the company. However, rising rubber prices would continue to pressurise margins. Operational efficiencies, however, muted the impact.

Introducing FY12 earning estimates
BIL is planning to spend Rs 1,200 crore over FY11-13 towards expanding capacities through greenfield expansion. The revival in demand and rise in capacities would enhance its topline and bottomline. We estimate sales and profit of Rs 1,862.7 crore and Rs 242.3 crore for FY12, respectively.

Rise in sales on the back of an improvement in demand would enhance its bottomline while softening of rubber prices would be a key trigger for bottomline enhancement. We are introducing our FY12 earning estimates wherein we are expecting a dip in rubber prices. We are revising our target price to Rs 689 by valuing the stock at 5.5x FY12E EPS and rating it STRONG BUY post the correction in stock prices.

To read the full report: BALKRISHNA INDUSTRIES

>There will not be any miracle cure

The seriousness of the euro zone’s economic and fiscal situation has led some analysts to believe that "miracle cures" might exist:

− inflation that could make it possible to reduce debt ratios. However, inflation cannot be decreed. Even if monetary creation becomes very rapid, there will be no inflation as long as there is no upturn in credit and global production capacity is saturated; inflation due to a rise in commodity prices does not help reduce debt ratios;

− protectionism, to regain market shares from emerging countries (customs tariffs or equivalent tax measures); but because of the form globalisation has taken, the substitutability between the euro zone’s domestic products and products imported from emerging countries is low, which makes protectionism ineffective;

− depreciation of the euro; it would have a positive effect on activity, but this effect would be weak given the low substitutability between domestic and imported products and the effect on import prices (including commodities);

− return of household confidence and rise in consumption if fiscal deficits are reduced quickly. However, it is unlikely that these "Ricardian neutrality" effects exist.

To read the full report: MIRACLE

>SUN TV: Robust ad revenue growth… (ICICI DIRECT)

Sun TV reported its standalone numbers for Q4FY10, which were above our expectations. The company reported a topline of Rs 391.9 crore, recording a growth of 42.0% YoY, against our expectation of Rs 335.4 crore. The company reported its best ever EBITDA margin at 84.4% in
Q4FY10, primarily due to lower employee expenses, which declined by 36.4% YoY. PAT margin for the quarter stood at 42.1% as against 40.5% in Q4FY09. The company also reported its consolidated numbers for FY10. Net sales at Rs 1452.8 crore grew 39.7%. Consolidated PAT stood at Rs 519.9 crore, at 34.9% of revenue.

Robust ad revenue growth
Sun TV continues to outpace industry growth rate in advertisement revenue. The company reported a 51.3% YoY growth in advertisement revenue in Q4FY10. This can be attributed to high growth in new channels and better inventory utilisation.

Highest ever standalone EBITDA margin
The company reported a standalone EBITDA margin of 84.4% in Q4FY10, primarily due to lower employee expenses (lower remuneration for company’s directors). Also, KAL radio reported an EBITDA of Rs 8.17 crore for FY10.

We expect the standalone business to do reasonably well but the radio business would continue to be a drag on the company’s profitability. At the CMP of Rs 406, the stock is trading at 23.3x FY11E consolidated EPS of Rs 17.4 and 20.3x FY12E EPS of Rs 20.0. Given the strong advertisement revenue growth in the regional space, we value the stock at 22x FY12E and arrive at a target price of Rs 441, implying an upside of 8.5% of the CMP. We reiterate our ADD rating on the stock.

To read the full report: SUN TV


On a consolidated basis, Tulip Telecom reported its Q4FY10 results, which were below our expectations. The topline stood at Rs 530.7 crore against our expectation of Rs 557.4 crore. Revenues grew 13.0% and 5.9% YoY and QoQ, respectively. Revenue growth can be attributed to higher realisation from the optic fibre network. The EBITDA was up 54.1% YoY and 14.4% QoQ to Rs 154.4 crore as compared Rs 135.0 crore in Q4FY10. The EBITDA margin at 29.1% improved 768 bps YoY and 216 bps QoQ. PAT stood at Rs 79.5 crore (I-direct estimate of Rs
69.4 crore). PAT was aided by a change in the depreciation policy.

Highlights for the quarter
The company reported its best ever EBITDA margin of 29.1%. It was backed by the decrease in stock in trade by Rs 27.0 crore. The company has revised its depreciation policy considering the
company's changing asset profile (ownership of a vast fibre infrastructure), which has aided the PAT during the quarter. The company won an order worth US$13 million for a three-year
period from a partner in Saudi Arabia in the managed services segment. The revenue from the same has started accruing. The company has also proposed a final dividend, subject to approval of shareholders, of 80%, which is Rs 8 per share. Tulip announced a stock split of equity shares of Rs 10 each to five equity shares of Rs 2 each.

At the current market price of Rs 940, the stock is trading at 11.5x FY11E diluted EPS of Rs 81.9 and 8.7x FY12E diluted EPS of Rs 107.7. We have valued the stock at 10x FY12E EPS and arrived at a target price of Rs 1077. Due to the recent run up in the stock, we are downgrading our rating on the stock from STRONG BUY to BUY.

To read the full report: TULIP TELECOM