>The Artificial Economic Recovery

Economic recovery in the U.S. and elsewhere has slowed rapidly and private and some
public forecasts are being downgraded accordingly. The Federal Reserve is sounding much
more cautious, although they are not yet prepared to talk of further monetary easing. The most
optimistic observers are now having to face reality. The massive stimulus packages did the job
of stopping a self-feeding downward spiral but they have given us an artificial recovery.

Growth is now gravitating back towards 1% in the U.S. and Europe, close to what final
demand has been. In the U.S. the inventory cycle has stopped adding growth, state and local
governments are slashing expenditures and jobs, the nascent housing recovery has gone into
reverse, and deleveraging continues. Realistically, it is difficult to picture where any new growth
surge may come from.

One of the most important implications of this dampened outlook is that government tax
revenues will be disappointing and expenditures will remain elevated. The cyclical component
of the deficit will remain high and the structural component will be hard to cut in a weak
economic environment with unemployment likely to rise further.

To read the full report: ARTIFICIAL RECOVERY

>STARCH: Poised for growth

To read the report: STARCH

>BHEL: Gross sales seen at Rs400-410bn in FY11E (CITI)

■ Gross sales seen at Rs400-410bn in FY11E — This mgmt estimate compares to official "base target" of Rs380bn and official "excellent target" of Rs395bn. To what extent sales actually exceed Rs400bn is a function of execution and client preparedness. Our gross sales estimate of Rs422bn now appears to have downside risk.

■ Trying to maintain RM % of sales at FY10 levels — Raw materials (RM) % of sales was ~60% in FY10 and can be maintained at the same levels in FY11E, though internal stretch targets are to reduce it to 58%. We assume 76bps increase.

■ Staff costs — These were Rs51.53bn in FY10. BHEL expects this to go up 10% in FY11E to Rs56.68bn, plus Rs1.5bn of pension provisions, implying FY11E staff cost of Rs58.18bn. Our estimates are Rs1.1bn higher at Rs59.26bn.

■ Rs600bn of inflows in FY11E — BHEL has won ~Rs90bn of orders in 1QFY11, a bit low vs. FY11E guidance, but this should be made up in next 9 months. In FY10, BHEL factored in the NTPC-DVC block tender in the guidance of Rs600bn, and despite the same slipping over to FY11E, still managed Rs590bn.

■ Chinese imports into India could be curbed — Against domestic manufacturers’ demands of duties of ~15% on Chinese equipment, the Arun Maira committee recommended ~10%. Ministry of Heavy Industries was demanding this be implemented immediately and Ministry of Power wanted this to be implemented only post FY12E. We believe duty of ~ 5% could be imposed in next budget. CEA might also specify technical norms (both sub and supercritical) for all power
plants in India which may curb Chinese imports. Mgmt maintains that the market is large enough only for 2 of the 3 – BHEL, domestic suppliers & Chinese.

■ 30GW/year market — This based on BHEL is winning 16-17GW annually and maintaining ~55% market. Out of 100GW in XIIth Plan, 62GW has been ordered. But 100GW number is not cast in stone and can be revised up in FY12E.

To read the full report: BHEL

>GEI INDUSTRIAL SYSTEMS (HDFC BANK)

Company Background: GEI Industrial systems (GIS) was founded in 1970 with its manufacturing facility located in Bhopal (Madhya Pradesh). The company was incorporated as General Engineering Industries. Later on in 1993 the company was converted in to a joint stock company. In 1997-98 Hammon industries, France bought a 30% stake in the company (29.95 lakh shares) and hence the name of the company was changed to GEI Hammon Industries. Hammon sold 25 Lakh shares in August 2008, post disagreements between the two parties. It
continues to hold on 4.95 Lakh shares in GIS. Initially the company was formed as an ancillary unit of BHEL (Bharat Heavy Electricals Limited). GIS is one of the leading players in the heat transfer industry (cooling media) and primarily caters to the requirements of the energy sector i.e. oil & gas sector and power sector.

Share holding Pattern:
The promoters stake as of June 2010 stands at 41.4%, which has been steady since the past four quarters. The total Non- promoters (institutional) stake has gradually increased to 8.1% as of June 2010 from 6.13% in June 2009. The following table depicts the changes in the share holding structure of the company.

Amongst the institutional shareholders Banyan tree Growth capital LLC owns 8.72% stake in the company (allotted in August 2009 at Rs 75 per share), while the Compagnie Financiere Hamon owns 2.98% stake, PCA India infrastructure Equity open fund Ltd holds 5.25% stake and Premier investment fund holds 2.08% stake in the company.

Business and Operations:
GIS is one of the leading players in the heat transfer industry (cooling media). It manufactures various types of heat exchangers. The company has two manufacturing plants based in Bhopal. The two key products from the company are Air cooled heat exchangers (ACHE) and Air Cooled Steam Condensers (ACSC), which are used in the Oil & Gas companies and power plants respectively. GIS undertakes design, manufacture, fabrication, erection, commissioning and maintenance of the heat exchangers and condensers. The following charts show the products manufactured by the company and their respective applications.

To see chart and full report: GEI INDUSTRIAL SYSTEMS

>DISH TV: Highlights of Q1FY11 results

■ Dish TV’s performance for the quarter is marginally below estimates with revenues of Rs3.04bn (flat QoQ), EBITDA of Rs322m (estimates of Rs370m) and net loss of Rs632m (estimates of Rs575m) in Q1FY11

■ During the quarter, Dish TV has added 0.6m gross subscribers (7.5m subscribers) and 0.4m net subscribers (6.2m subscribers). Churn has improved on QoQ basis at 0.7% per month

■ ARPU has improved from Rs137 in Q4FY10 to Rs139 in Q1FY11 with renewal ARPU at Rs172 (up from Rs163)

■ ARPU based revenues stood at Rs2.5bn, rental revenues stood at Rs450m and bandwidth revenues stood at Rs55m.

■ As WWIL has discontinued HITS, the revenue from the same has stopped (Rs210m of revenues from HITS in Q4FY10). However, as this business was EBITDA neutral, corresponding costs have also reduced (transponder cost in particular)

■ Content cost during the quarter has increased by 2.2% QoQ at Rs1bn inspite of strong addition of subscribers, as Dish TV has entered into fixed contracts with most broadcasters. However as some contracts come up for re-negotiation in Q2FY11, content costs would witness an increase in next quarter.

■ Advertising, selling and distribution expenses have increased QoQ on the back of strong subscriber addition during the quarter as also launch of HD services. Advertising spends have increased by 36.9% QoQ at Rs249m while S&D expenses have increased by 26% QoQ at Rs421m.

■ During the quarter, license fees, transponder costs and other goods and services costs have decreased by 15.7% at Rs574m. This is primarily attributable to exclusion of HITS related transponder costs.

■ Total operating expenses have increased by 1.4% QoQ at Rs2.72bn

■ Overall subscriber acquisition cost has dropped on quarterly basis from Rs2383 in Q4FY10 to Rs2147 in Q1FY11.

To read the full report: DISH TV

>GLOBUS SPIRIT LIMITED

Globus Spirits is a leading North Indian player engaged in manufacturing, marketing, and sale of country Liquor, IMFL and industrial alcohol comprising rectified spirit and ENA apart from taking contract bottling to cater to renowned Indian players.

GSL has two modern distilleries, one at Behror, Rajasthan and the other at Samalkha, Haryana. Both are spread out in an area of around 17 acres each and have a combined capacity of 28.8 million bulk liters of alcohol on an annual basis. Both of them are state-of-the-art plants capable of distilling alcohol from grain or molasses.

These units are currently operating at 100% capacity and to meet the current demand, the Company also has to procure alcohol from various other distillers. To fill this demand-supply gap, GSL is implementing expansion projects to almost double the capacities of both plants which will require a capex of INR 705 million.

The capex for this project will be funded from the IPO proceeds, term loans, and internal accruals. The total capacity of these units post-expansion will add up to 48.6 million bulk liters and is estimated to be completed by July 2010.

Apart from the planned expansion for doubling distillation capacity in each unit, the Company has also planned to expand its boiler capacities to 20 metric tons per hour at 42 kg pressure, and install a 2-MW turbine at each of its distillery.

In fact, Company’s project teams have successfully been able to re-engineer and place orders for 25 Metric tonne boilers at higher pressure of 67 kg/cm2 and also up the power generation to 3 MW at each distillery.

To read the full report: GLOBUS SPIRIT LIMITED