Friday, December 16, 2011


State-Run Indian Oil Corporation (IOC) at Most Risk If Gov’t Subsidies Fall Short

Adverse impact of weaker currency varies for issuers. The severity of the weakening Indian rupee (INR) on Indian corporate issuers ranges from high but potentially recoverable for Indian Oil Corporation (IOC, Baa3 stable) to low for regulated utilities and export-oriented companies, which benefit, respectively, from an automatic pass-through of higher costs and from exports that have now become more competitively priced. For others, such as the Tata Group companies, offshore operations may accentuate or mitigate the impact of a depreciated local currency.

India’s dependence on energy imports raises credit risk for oil marketers. Depreciating local currencies can help export-oriented emerging markets. However, India’s persistently high inflation and dependence on energy imports of oil, gas, and increasingly coal, provide limited leeway for its regulated, import-dependent sectors to cope with higher import bills caused by a weakened currency. A failure by the Indian government to fully compensate such rising costs at state-owned IOC would put the oil-marketing company’s finances at risk.

Ratio of net imports/EBITDA is more damaging than share of forex debt to total. At 8x, IOC stands out as having by far the highest ratio of net imports to EBITDA of all rated issuers, which makes the company vulnerable to a declining local currency by magnifying its impact on profitability. Exposure to debt denominated in foreign exchange (forex) does not have a similar, magnifying effect on debt or interest costs.

Most forex bond debt for Indian corporate issuers does not come due until 2014 or later. Eleven major issuers have little near-term exposure to maturing forex bonds. However, some issuers, including IOC, will need to refinance their short term foreign currency bank debt in the next 12 months, which may get challenging if Europe’s credit crunch reaches Asia and causes spreads to widen or curtails lending.

To read full report: DECLINING RUPEE


Siyaram Silk Mills Ltd. (Siyaram’s) is one of the most renowned vertically integrated textile companies in the country.

During the quarter ended, the robust growth of Net Profit is increased by 16.93% to Rs.169.80

The company offers yarns, fabric, home textiles and apparels in the Indian and global markets.

Net Sales and PAT of the company are expected to grow at a CAGR of 18% and 31% over 2010 to 2013E respectively.

The company has wide range of latest machinery in its eco-friendly plants at Tarapur, Daman and Mumbai.

The Siyaram’s brand retails in over 40000 outlets all over the country.

To read more about SIYARAM SILK MILLS

>BHEL LIMITED: a healthy order book of At the end of Q2 FY12, of INR 1,61000 crores

In a sweet spot due to structural deficit
Power sector plays a crucial role in the economic progress of the country given the importance of electricity in the economic activity. Currently, at the end of August 2011, the power generation capacity stood at 176,990.40 MW including the renewable energy sources such as wind, solar etc. However the country faces a peak power shortage of 13 percent as rising demand from industry, homes and shopping malls outstrips capacity growth. The energy-hungry nation needs to add over 75,000 megawatts in the five years to March 2017 to support its target of 9 percent GDP growth

Mammoth orders in book
Though the order inflow is muted during the year under review, BHEL has an outstanding order book of Rs. 1, 61,000 Crore as on September 2011, which comes at 3.30 times FY12E revenue, gives a clear revenue visibility for the next three years, coupled with strong execution capabilities. The company is also looking to get into agreements with many State Governments and other organizations which clearly signify the company‟s prospect for the next 3-4 years.

Minimal debt and cash rich company
Bhel is a low leveraged company having only 1% debt in the total financing coupled with a huge cash reserve of Rs.9000 crore, with which the company could withstand the effects of higher interest rate prevailing in the economy and finance the projects with much ease

Outlook and Valuations: Attractive; Initiate Coverage with ‘BUY’
Our DCF model with 15.3% discount rate values the company at Rs.400 per share giving an upside of 53.8% from the current level of Rs.260. We initiate coverage with a „BUY‟ recommendation for a target price of Rs.400. Those with a moderate to aggressive risk appetite can consider investing in BHEL at current level.

At the macro level, the current global economic scenario presents the most highly risk factor as any fall of the global economy into a double-dip recession can lead to a slower growth in our economy. Apart from that, the other concerns include the possibility for unusual further surge in the prices of commodities such as copper and steel, competition from the overseas players, persistence of the higher interest rate and higher coal prices causing delaying of projects etc. We expect all these concerns to ease in the medium term, which would otherwise impact the prospects of the company.

To read more about BHEL


As per latest ASSOCHAM study, the domestic cosmetics industry is set to double to INR200bn by 2014. This spurt can be credited to specialized products, increasing working women’s population, high advertising, rising fashion consciousness and rising disposable incomes. Also, the largely untapped Indian male consumer segment is likely to post explosive growth in cosmetic use. With India’s per capita cosmetic and toiletries consumption 40x lower than that of Hong Kong, and half of China, and aggressive rural expansion by companies, this segment is set for tremendous growth. We expect Hindustan Unilever (HUL), Dabur, Emami,

ITC and Marico to be key beneficiaries.
The makeover: Domestic cosmetics industry set to surge 2x by 2014 In a country‐wide survey by ASSOCHAM, of the ~6,000 consumers, 65% teenagers said their branded cosmetic consumption has jumped ~75% in the past 10 years. Improved purchasing power, rising fashion consciousness, increasing influence of fashion & film industry and huge ads will catapult Indian consumer goods from an INR100bn (in 2011) to INR200bn industry by 2014.

Power girls: Working women have higher purchasing power
As per the survey, working women in the age group of 30 and above have more cash, are more conscious of their appearance and look for lifestyle‐oriented products. Hence, they are more open to buying higher priced products.

The metrosexual: Male grooming largely an untapped opportunity
According to the survey, male teenagers have increased their average expenditure on cosmetics by over 300% in the past 10 years, which can be attributed to growing awareness and Western influence. 75% male teenagers have increased expenditure on cosmetics to INR3,000‐4,000 per month against an average of INR1,000 in 2000.

Refreshing change: Spa segment set for an invigorating surge
The spa segment in India is finding favour with urban population. Not only has the number of spas surged over the past five years, but also services and products on offer have grown. Also, rising health consciousness is likely to boost the herbal cosmetic industry’s growth to 12%. This is likely to be positive for Kaya, which is expected to break even by FY13.

Outlook: Robust
We expect the cosmetics segment to be one of the key drivers apart from foods segment of consumer demand. Favourable macroeconomic drivers such as GDP and population growth, coupled with rising income levels and lifestyle changes will further boost growth.