>YES BANK (HDFC Securities)

Granularity missing

YES reported better than estimated results with core/net earnings beat of 9/6%. Pick-up in loans (+30% YoY), 20bps NIM improvement (aided by recent fund raise) and continued traction in other income were key positives. On the other hand, the sluggish CASA progress (mere +18bps QoQ), sharp rise in wholesale deposits, decline in PCR with rise in slippage (1% ann.) and increasing timeframe for any visible improvement in granularity were the disappointments.

After factoring better than estimated 2Q, we revise our net earnings estimates by 3% for FY15/16E. However, we largely retain our ABV estimate as we continue to factor high slippages given the large share of wholesale book & exposure towards stressed segments. Despite the bulky nature of B/S & expected decline in systemic interest rates, we believe scope for further NIM improvement in unlikely given the pricing pressure & relatively weak franchise. Further, current high contribution from bulky fees & lower provisioning looks unsustainable and might add volatility to earnings going ahead.

Further, the recent outperformance vs. peers and banking indices makes us maintain our NETURAL rating. Revise TP to Rs 650 (2x FY16 ABV).

 Favorable base and improved sentiment resulted in loan growth of 30/5% YoY/QoQ, driven by large corp segment (+25% YoY; 71% of loans). Improvement in CASA (%) further moderated to a mere +18bps QoQ (slowest in last 11 qtrs) to ~22%. Despite increasing its presence & adding retail products, granularity within B/S is yet to show any visible improvement.

 Combination of (a) rise in CD ratio (b) impact of capital raising (c) gradual decline in low yield credit substitute and (d) part effect of lower wholesale deposits share in previous qtr drove NIM (3.2%, +30/20bps YoY/QoQ). We have factored NIMs of 3.1% over FY14-16E.

 Slippages were higher QoQ at Rs 1.5bn (1% ann.), though NPA sale of Rs 400mn restricted rise in NPLs. G/NNPA increased 12/26% QoQ to 36/9bps of loans. We were negatively surprised with the 260bps decline in coverage ratio to 76%, despite strong earning cushion. Restructured book stood at Rs 1.2bn (19bps). We factor slippages/LLP of ~85/35bps over FY15/16E.

RISH TRADER

> Grasim Industries: RESULTS REVIEW 2QFY15 (HDFC Securities)

Softer pulp drives VSF margins

Grasim Industries’ standalone numbers were inline (EBITDA Rs 2.1n vs. est 2.2bn). New capacities continue to drive volume growth (101kt, +9% YoY). Standalone margins improved in 2Q, led by weakening RM costs on account of cheaper pulp (VSF PBIDT/kg : Rs 15/kg). Realisations held on at roughly same levels QoQ (Rs 125/kg), despite softening in global VSF pricing. Chinese cotton unwinding, which has driven cotton pricing downwards, has not effected VSF globally and the prices are at par with cotton for 1st time since FY13.

Trial runs for the remaining VSF capacity at Vilayat (43 ktpa specialty fibre) are underway and the new capacity should further boost volumes in FY16 (FY15 end capacity 490 ktpa). Thus Grasim is well set to reap the benefits of any demand revival in VSF globally, whenever that happens. We have a BUY on the stock with a revised TP of Rs 3,850 (UltraTech stake at 20% holding company discount, standalone business at 5.0x FY16E EV/EBITDA).

 2QFY15 highlights : Consolidated EBITDA was ahead of estimates driven by UltraTech surprise (EBITDA at Rs 8.3 bn vs Est 7.3 bn). Despite robust revenue growth (16.0% YoY), EBITDA growth was restrained due to weakness in VSF (Stlone. EBITDA down 22.8% YoY). JPA acquisition by UltraTech and higher debt led to 44% YoY higher interest cost. Combined with higher depreciation on account of new commissioning, APAT was down ~12%. In Parent entity, chemicals business continues to do well despite realisation decline (EBITDA margins at 23%) due to higher imports. This is driven by ramp-ups at Vilayat caustic plant and the epoxy facility.

 Outlook and view : We have tweaked our estimates marginally (EBITDA -6.2%/-2.2% for FY15/16), mainly on account of revision in UltraTech nos. Despite correction recently, UltraTech continues to trade at rich valuations (12.0x FY16 EV/EBITDA) with an added overhang of a likely acquisition overseas. Grasim remains undervalued, even on our target valuation for UltraTech (Rs 1,960/sh), and is preferable for an exposure to the cement business. Holding company discount should reduce as VSF prospects improve.

RISH TRADER

>INFORMATION TECHNOLOGY INDUSTRY OUTLOOK: Key growth drivers and threats

In the face of the volatility in the economic environment and currency, 2011 recorded steady growth for technology and related services sector, with worldwide spending surpassing USD 1.7 trillion, a growth of 5.4% over 2010. Software products, IT and BPO services continued to lead, accounting for over USD 1 trillion - 63% of the total spend. IT-hardware spend of USD 645 billion, accounted for the balance 38% of the worldwide technology spend in 2011. The year saw renewed demand for overall global sourcing, which grew by 12% over 2010, nearly twice the global technology spend growth.


India’s share in global sourcing stood at 58% in 2011, up from 55% in 2010. Indian IT-BPO exports continued on the growth path in FY12, as it is estimated to have grown by 16.3%. IT services has been exhibiting the robust growth at 19%, BPO growing by 13% & ER& D by 15%. Transformation, new business models are driving organization wide efficiencies


While the growth in IT-BPO spend is expected to be gradual over the next three years, global sourcing spend is seen to outpace this growth. IT outsourcing market is set to grow at a CAGR of about 8% over 2011 to 2013, while BPO off shoring is expected to grow at a little over 7% during the same period. Costs still remain essential for global sourcing, industry expertise and innovation is expected to drive future sourcing requirement. In addition, rate of introduction of new technology is much faster now and is expected to continue to be even faster in future. There is a strong correlation between technology adoption rate and investment rate. The year 2011 was the year of mobile adoption, where tablets and smartphones sales growth, by volume and by percentage, outpaced the shipment of desktop and laptop market. This mobile revolution witnessed spending by organizations in developing both consumer apps and enterprise apps.


From IT industry perspective - the market for enterprise mobility solutions alone is expected to grow to USD 17 bn by 2015, presenting a huge opportunity to increase revenue from this segment at a pace of triple-digit growth. Clearly, the future of technology services industry is beyond services - it will be a combination of services, solutions and platforms. Indian IT
organizations are investing in building platforms to drive future growth opportunities. These domain solutions and technology platforms will offer improved revenue leverage versus talent employed in the industry and will also significantly increase the intellectual property base of the Indian IT industry. The industry can take a clue from the fact that public cloud services
spending is expected to outpace growth of the overall IT spend by about four times between 2012 and 2015.


To read report in detail: IT INDUSTRY
RISH TRADER

>FAQs ON EXCHANGE OF WARRANTS IN TO EQUITY SHARES OF RS. 2 EACH OF THE CORPORATION

1. What is the face value of the Warrants?
Warrants have no face value.


2. On which stock exchanges are the Warrants listed?
The Warrants are listed on BSE Ltd and National Stock Exchange of India Ltd.


3. What is the lot size for dealing in the Warrants on the stock exchange(s)?
The lot size for dealing in Warrants on stock exchange(s) is of 1850 Warrants.


4. How many Warrants can be exchanged with Equity Shares at one time?
There is no limit on the number of Warrants that can be submitted for exchange.
5. Where should the Warrant Exercise Form be submitted for exchange with equity shares of the Corporation?
The Warrant holder can download the Warrant Exercise Form from the website of the Corporation (http://www.hdfc.com/investors/warrants.asp) and submit the same duly filled and complete in all respects along with at par cheque/demand draft and prescribed documents to the Registered Office or to the Investor Services Department of the Corporation, between 9.30 a.m. upto 5.00 p.m. at the following addresses. Please note that the last date for submission of
the form is Friday, August 24, 2012, in Mumbai.


Housing Development Finance Corporation Limited
7th floor, Ramon House,
H.T. Parekh Marg,
169, Backbay Reclamation,
Churchgate, Mumbai – 400 020.
Ph: 022-66316241/242/290


Or


Investor Services Department
Tel Rasayan Bhavan,
Tilak Road Extension, Dadar T T,
(Opp BEST Workshop Gate No. 4),
Dadar East, Mumbai 400 014.
Ph: 022-61413903/05/07/09




6. What is the amount payable for exchange of each Warrant and what is the exchange ratio?
The Warrant holder is required to pay Rs. 600 per Warrant for exchange into 1 [one] equity share of Rs. 2 each of the Corporation.


7. What are the documents required to be submitted for exchange of Warrants?


In case of individuals
· Warrant Exercise form, duly filled, in original;
· Cheque / Demand draft drawn in favor of ‘Housing Development Finance Corporation Limited’ (account no. 00600350071894) towards Warrant Exercise consideration amount;
· Self - attested copy of PAN card of all Warrant holder(s); and
· Your telephone/ mobile number.


In case of non-individuals (Body Corporate, FIIs, FIs, Custodians, Firm, etc.)
· Warrant Exercise form, duly filled, in original;
· Cheque / Demand draft drawn in favor of ‘Housing Development Finance Corporation Limited’ (account no. 00600350071894) towards Warrant Exercise consideration amount;
· Certified copy of PAN card; and
· Certified true copy of Board Resolution of the firm, stating the list of authorized signatories; or
· Attested copy of Power of Attorney containing the names of signatories authorized to execute the Warrant Exercise Form.
· Your telephone/ mobile number.


8. What is Warrant Exercise Date?
The Warrant Exercise Date refers to the date on which the Warrant Exercise Form, duly completed in all respect, is lodged with the Corporation. If the Warrant Exercise Form is lodged after the business hours of the Corporation or on a holiday, the next working date would be considered as the Warrant Exercise Date.


9. What is Warrant Exercise Period?
The Warrant Exercise Period refers to the period from August 25, 2009 up to 5.00 p.m. on Friday, August 24, 2012 i.e., up to which the Warrant holders can lodge the Warrant Exercise Form along with at-part cheque/ demand draft and prescribed documents, with the Corporation, for exchange of Warrants with corresponding number of equity shares of the Corporation.



10. What are the modes of payment of Warrant Exercise consideration? Whether fund transfer through RTGS is accepted?
The Warrant Exercise consideration can be paid only through at-par cheque or demand draft payable at Mumbai.


11. Whether consideration can be remitted through DCS/RTGS/NEFT?
No. Consideration amount cannot be remitted through DCS/RTGS/NEFT.


12. Does the Warrant holder need to transfer the Warrants to a separate Depository (Escrow) Account prior to submission of Warrant Exercise Form?
No. On receipt and verification of Warrant Exercise Form and realization of the consideration amount, the Corporation will proceed to extinguish the Warrants as stated in the Warrant Exercise Form, through a Debit Corporate Action.


13. What is the last day of the Warrant Exercise Period?
In terms of the Placement Document dated August 21, 2009, the Warrant Exercise Period extends up to 5.00 p.m. on Friday, August 24, 2012, in Mumbai.


14. What happens if the Warrants are not exercise before the expiry of the Warrant Exercise Period?
Warrants not lodged for exchange with the equity shares of the Corporation before the expiry of the Warrant Exercise Period viz. up to 5.00 p.m. on Friday, August 24, 2012, in Mumbai will lapse and shall cease to be valid and amounts paid towards it to date will stand forfeited. No further claim shall lie against the Corporation in this regard after the said date.


15. What is the record date for suspension of trading of the Warrants?
The Corporation has in consultation with the BSE and NSE, fixed Tuesday, August 21, 2012 as the record date for suspending the trading of the Warrants, so as to enable the Warrant holders to exchange the said Warrants with equity shares of the Corporation, during the said Warrant Exercise Period viz. up to 5 p.m. on Friday, August 24, 2012, in Mumbai.



16. What is the last date for trading in Warrants?
Please note that trading in the Warrants will be suspended from Friday, August 17, 2012 and consequently the last date for trading in the Warrants on the floor of the Stock Exchange would be Thursday, August 16, 2012.


17. What are the consequences of non submission of the Warrant
Exercise Forms before the expiry of the Warrant Exercise Period? The Warrants not lodged for exchange by 5.00 p.m. on Friday, August 24, 2012, in Mumbai, will lapse and cease to be valid and amounts paid in that regard, will stand forfeited. Further, thereafter such Warrants will be
extinguished by the Corporation, and no further claim shall lie against the Corporation in this regard, after the said date.


18. Will the Warrant Exercise Period be extended?
No. The Warrant Exercise Period will not be extended under any circumstances.


19. How long will it take for the equity shares to be allotted and credited to your depository participant’s account?
The entire process of exchange of Warrants with equity shares of the Corporation is subject to verification of the Warrant Exercise Form, the prescribed documents and realization of the consideration amount. Thereafter, the Corporation will engage with the Stock Exchanges/
Depositories, for extinguishing the warrants, allotting and crediting corresponding number of equity shares, receipt of listing and trading approvals, which normally takes 15 days from the date of receipt.


20. Will the equity shares allotted pursuant to exchange of Warrants be eligible for dividend, if any, declared for the FY 2012-13?
Yes. The equity shares allotted pursuant to conversion of Warrants will be entitled to dividend for the full year, if declared, for the FY 2012-13.

RISH TRADER

>Asbestos Cement Sheet

Asbestos Cement Sheet (ACS) is a building material in which asbestos fibres are used to reinforce thin rigid cement sheets. It is a very popular building material, largely due to its durability. The roofing industry is largely a commoditized business. While ACS started out as an industrial product, the increase in production and increase in the number of access points has made it into a retail product. With 4 dominant players in this oligopolistic industry, pricing is generally similar and there is limited brand premium. 80% of the sales come from rural markets with the balance 20% coming from the industrial and other segments (warehouses, poultry, urban slums etc).


The Key raw materials are Chrysotile (Asbestos Fibre), which constitutes 45% to 50% of the total raw material costs and is 100% imported, OPC (Ordinary Portland Cement), flyash and wood pulp. Overall, to make 100 kgs of fiber cement roofing sheet, 80 kgs of input are required (43 kg of cement, 8 kg of asbestos fibre, 28 kg of flyash and the balance is dry waste, pulp etc). The remaining is water weight gained during the manufacturing process. Raw material expense accounts for the largest operating expense in all companies (~60-70% of total operating expense). Freight is a large cost (also transporting over long distances could lead to breakages) hence location of the plant is key to cost competitiveness.


The ACS industry de-grew by ~5% in FY10, grew by ~3.5% in FY11 and grew further by ~7% in FY12. The industry is estimated to grow at ~6-9% for the next few years on account of increased income in rural areas coupled with various initiatives by the Government for affordable housing such as Indira Awas Yojna, Golden Jubilee Rural Housing Finance Scheme and Pradhan Mantri Adarsh Gram Yojana. Additionally, other schemes such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) guarantee employment to low-income individuals, which also helps generate demand for the roofing industry.


Over 50% of the Indian population still lives under thatched roofs (Kuccha roofing) and clay tiles. Thatched roof is not waterproof, and poses a fire hazard besides needing regular replacement. Tiled roof needs recurring maintenance and is also not safe. Hence with security concern coupled with rising income level leads to shift from kuccha house to pucca house.


ACSs are good insulators of heat and sound as compared to thatched, tiled or galvanized metal roofs. Additionally, ACSs are water resistant and fire resistant. ACSs are also relatively cheaper than galvanized metal roofs. ACSs require minimal maintenance and infrequent replacement unlike thatched and tiled roofs. Hence, whenever disposable income increases, switching to ACS roofs is the most obvious choice.


Currently there are 20 entities in the Industry with about 68 manufacturing plants throughout the country. The products are marketed under their respective brand names mainly through dealers for the retail market and directly for projects and government departments. Traditionally most players are concentrated in the Southern markets due to easy access to raw materials such as cement and greater affordability and desire to move into pucca houses. However, in recent years, the market leaders have been expanding operations to other markets as they realize the vast untapped market in other regions and to benefit out of rising incomes in those regions. The leading players in the industry are Hyderabad Industries Ltd, Visaka Industries Ltd, Ramco Industries Ltd and Everest Industries Ltd. These players account for ~72% of the industry’s capacity.


To read report in detail: ACS
RISH TRADER

>MAYUR UNIQUOTERS LIMITED

Recent Financial Performance – Q3FY12
MUL came out with decent Q3FY12 results. The company reported net sales of Rs 81.09 crs in Q3FY12 as against Rs 68.84crs in Q3FY11 and Rs 76.19 crs in Q2FY12. The company has been witnessing consistent growth in its sales over the past 3 quarters. The operating profit of the company stood at Rs 13.76 crs in Q3FY12 as against Rs 11.79 crs in Q3FY11 and Rs 12.17 crs in Q2FY12. The Profit Before Tax of the company stood at Rs 12.45 crs in Q3FY12 as against Rs 10.88 crs in Q3FY11 and Rs 11.10 crs in Q2FY12. The PAT of the company for Q3FY12 stood at Rs 8.65 crs as against Rs 7.32 crs and Rs 7.45 crs in Q2FY12. The EPS of the company stood at Rs 15.77 in Q3FY12 as against Rs 13.53 in Q3FY11 and Rs 13.77 in Q2FY12. During the quarter the company earned a duty drawback on part of exports of Rs 0.47 crs, which was reported under the other operating income and interest on FD was reflected under other income for a total amount of Rs 0.58 crs. 


Depreciation and interest costs rose as a consequence of the capitalization of expansion plans. MUL reported a forex loss of Rs.1.52 crs in Q3FY12 vs. a gain of Rs.0.36 crs in Q3FY11.


Capacity expansions to help MUL in growing its business
Exactly a year ago, MUL had overall capacity of 1.4 mn mtrs with 3 lines installed at a plant near Jaipur. The company installed the 4th line, which has enhanced the overall capacity to 1.9 mn mtrs. The 4th line started its production from December 2011 onwards and started functioning full fledged from the 1st week of February 2012. The company is also planning to start a 5th line of production and for the same purpose it has purchased land about 15 kms away from the current location. Post the completion of this line (which is expected to be completed by December 2012), the company expects its capacity to be enhanced to 2.5 mn mtrs per month. The 5th line is expected to be completed at a capex of Rs.22 crs while the 4th line was completed at a capex of 10-12 crs. The higher cost of the 5th line is mainly due to the fact that the line is being implemented at a new site.


With the demand for synthetic leather rising consistently, capacity expansion of the company could be handy and could augur well for the smooth growth of its business in the coming years.


Backward integration through production of fabrics
As mentioned earlier, the company has purchased a new plot of land, about 15 kms away from the current plant near Jaipur. The company along with planning a 5th line of production is also in the process of starting a fabric production unit which will manufacture raw material for the synthetic leather unit of MUL and hence is a backward integration initiative. The company has already started work and could start trial runs from Sept 2012. The capex incurred for this is about Rs.25 crs for production of Rs.45 crs worth fabric (at full capacity). The fabric plant will go into production in two phases (in terms of processes). This will help the company to register an increase in its margins and also help in reducing the rejection rate of its final products in export markets as it will have total control over the quality of a key raw material.


To finance these two initiatives, MUL could borrow about Rs.20 crs worth loans (including a large portion from Textile up gradation fund which is available with 5% interest subsidy). The rest could be raised from internal accruals.


To read full report: MAYUR UNIQUOTERS
RISH TRADER

>The 25 Smartest Things Warren Buffett Ever Said

The most daunting task wasn't finding 25 memorable quotes -- it was in weeding out an overabundance of intelligence down to "just" 25 favourites.


25. "If past history was all there was to the game, the richest people would be librarians."


24. "The best thing that happens to us is when a great company gets into temporary trouble. ... We want to buy them when they're on the operating table."


23. "Someone's sitting in the shade today because someone planted a tree a long time ago."


22. "Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results."


21. "Managers and investors alike must understand that accounting numbers are the beginning, not the end, of business valuation."


20. "I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will."


19. "Time is the enemy of the poor business and the friend of the great business. If you have a business that's earning 20%-25% on equity, time is your friend. But time is your enemy if your money is in a low return business."


18. "You only find out who is swimming naked when the tide goes out."
Anyone can pick a winner in a bull market. Picking out winners in a declining market is where true greatness is found.


17. "[The] stock market serves as a relocation center at which money is moved from the active to the patient."


16. "The most common cause of low prices is pessimism -- sometimes pervasive, sometimes specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer."


15. "It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."


14. "Wall Street is the only place that people ride to work in a Rolls Royce to get advice from those who take the subway."


13. "Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac's talents didn't extend to investing: He lost a bundle in the South Sea Bubble, explaining later, 'I can calculate the movement of the stars, but not the madness of men.' If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases."


12. "You only have to do a very few things right in your life so long as you don't do too many things wrong."
        Very key point here. You don't have to be right all the time -- you just have to let your winners ride and cut your losers early.


11. "There are all kinds of businesses that Charlie [Munger] and I don't understand, but that doesn't cause us to stay up at night. It just means we go on to the next one, and that's what the individual investor should do."


10. "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."


9. "Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years."


8. "I am a better investor because I am a businessman and a better businessman because I am no investor."


7. "I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over."
Keeping your expectations realistic and in check are important when investing. There's never any shame in making a profit, no matter how small.


6. "Rule No. 1: never lose money; rule No. 2: don't forget rule No. 1."


5. "Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful."


4. "'Price is what you pay; value is what you get."



3. "We've long felt that the only value of stock forecasters is to make fortunetellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children."


2. "The stock market is a no-called-strike game. You don't have to swing at everything -- you can wait for your pitch. The problem when you're a money manager is that your fans keep yelling, 'Swing, you bum!'"
              You never "have" to buy anything. Waiting for the values to come to you will undoubtedly make you a better investor.


1. "When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever."

>GLOBUS SPIRITS LIMITED: GSL continues to remain the leader in the Country Liquor (CL) segment in North India

In our Q2FY11 update dated November 26, 2011, (CMP Rs.100.55) we had recommended buying/adding the stock to dips of Rs. 87 for a target of Rs. 120. The stock achieved our target of Rs. 120 on February 6, 2012 and made a high of Rs.129.40 on Feb 10, 2012. It is currently trading at Rs. 121.00.


GSL recently declared its Q3FY12 results and reported net sales of Rs. 152.6 cr. - up 38.0% Y-o-Y and up 15.6% Q-o-Q. The Operating Profit for the quarter was Rs. 19.7 cr in Q3FY12 vis-à-vis Rs. 19.4 cr in Q3FY11 and Rs. 17.3 cr in Q2FY12. OPM for the quarter was 12.8%, 450 bps down YoY and 10 bps down QoQ. The fall in OPM can be attributed to the 81.2% increase in “other expenses” YoY and marginal increase in raw material expense QoQ. The Net Profit for the quarter was reported at Rs. 11.7 cr vis-à-vis Rs. 11.4 cr in Q3FY11 and Rs. 9.7 cr in Q2FY12. Interest expense has risen largely due to capitalization of new capacity and an increase in working capital loans due to higher sales volumes. Increase in depreciation costs YoY is due to capitalization of new capacity since Q3FY11.



Concerns:
• Government regulation is a major concern in the industry. In FY11 the Maharashtra government raised taxes on liquor sales, increasing prices significantly. While this currently has no effect on GSL’s sales, the possibility of a domino effect in the other states is a concern. The increase in excise duty for franchise bottling in Haryana has had a direct negative impact on GSL as Jagatjit has suspended franchise bottling operations till the law is changed in the ensuing Budget.


• The liquor industry is very seasonal. Q3 is the best quarter while Q4 is traditionally a poor quarter due to depletion of stock due to the allocation of liquor sale licenses to retailers in the fresh fiscal year.


• “Other expenses” increased significantly in the quarter to Rs. 46.6 cr from Rs. 25.7 cr in Q3FY11, an 81.2% rise. Other expenses increased significantly in all 3 quarters due to added power and fuel costs during the stabilization period of the company’s newplants. Stabilization is now complete at both the locations and these expenses could come back down in the coming quarters. “Other expenses” also increased as GSL wrote-off ~Rs. 0.5 cr worth of old inventory in Q3FY12.


• Country Liquor (CL) realization has fallen 6.7% in Q3FY12 over that in Q3FY11 because of a change in product mix / packaging mix. However, the 9MFY12 realization remains in line with that last year. GSL is seeking increase in selling price of Country liquor in Rajasthan, Delhi and Haryana and is confident of getting it effective Apr/May 2012.


• While IMFL sales are growing, they are not growing rapidly. IMFL realization fell in the quarter to Rs. 669.6/case from Rs.1118.2/case in Q3FY12 and Rs. 804.2 in Q2FY12. This fall in realization is almost entirely attributable to a change in duty structure in new locations entered in Q2FY12 and product mix.


• GSL’s capacities have risen from 288 lakh BL (bulk litres) to 700+ lakh BL from FY10 to FY12. So far the demand scenario for RS/ENA has been robust. In case there is a slowdown in offtake going forward, GSL could get hit due to higher fixed costs, which may not be fully recovered. Further the plan of GSL to get higher value add for its production by converting more of industrial alcohol into IMFL/Franchisee bottling/Country liquor has been progressing at a slow pace resulting in OPM getting hit and rerating of the stock getting postponed.


• Realization on exports is lower (~10% lower) than that of domestic sales. GSL exports ~2 lakh litres every month. OPM for a quarter could get impacted by the proportion of exports in total sales.


• GSL has suffered a setback in its OPM during 9MFY12 due to stabilization issues of expanded capacity at both the locations. This results in higher power and fuel costs due to frequent boiler shutdowns and restarts, low capacity utilization resulting in higher fixed costs, some quantity of lower quality production resulting in overall realizations getting impacted. While the Haryana expansion was stabilized in H1FY12, the Rajasthan expansion was stabilized only in Q3FY12. In case these issues recur, GSL could get impacted in terms of production and margins.


To read the full report: GSL
RISH TRADER

>GRASIM INDUSTRIES LIMITED

GIL recently reported its Q3FY12 results, which were below street estimates. Given below are some of the key highlights, which we came across while reviewing the results.


Key highlights of Q3FY12 results:
■ GIL reported higher sales at Rs.6,260.1 cr on account of higher cement and chemical volumes. Though VSF realisation improved 4.4% y-o-y led by Rupee deprecation, VSF
volumes declined 7.6% impacted by sluggish demand across markets particularly in EU.
■ Q3FY12 EBITDA stood at Rs.1,413 cr, up by 18% y-o-y despite cost pressures. This was possible as GIL managed to pass the cost hikes to the consumers thereby improving
margins to 22.6%, up by 40 bps y-o-y.
■ Net profit stood at Rs.669.1 cr up by 33.3% y-o-y on account of higher operating profit, higher other income, fall in interest, in depreciation costs and in tax rates.


Performance of business divisions:
■ Q3FY12 ended on a weak note supported by weak demand conditions. After witnessing an upturn in September, Textile Value Chain adopted cautious approach amidst Euro
zone and other uncertainties affecting the business sentiments and therefore demand for VSF. Realisations remained subdued in global markets aided by fall in cotton prices.


■ Input costs continue to rise coupled with rupee depreciation. Operating margins were impacted. Standalone PBIDT lower by 29% due to lower volumes and high base in
corresponding quarter. Profit of JVs was affected due to higher input cost. Consolidated PBIDT for VSF Business was lower by 28%. Domsjo performance improved q-o-q despite
fall in pulp realisation. Forex losses reduced substantially. However, plant shutdown and related cost affected Q3FY12 too.


■ In the present macro economic conditions, demand could remain volatile. Profitability in such scenario could be governed by the prices of competing fibres, input and energy
costs. New coal pricing mechanism could increase energy cost substantially. Further reduction in international prices of pulp could boost standalone profits. Inventories of VSF in
the system, input cost rise and forex fluctuations remain key issues.


■ GIL could emerge stronger from the present challenging times with high level of integration and continued focus on cost and operating efficiency improvement.


■ The VSF expansion projects at Vilayat, Gujarat (120,000 TPA) and Harihar, Karnataka (36,500 TPA) are on track. Civil work has commenced at both the locations and will be in
full swing post monsoon. Both these projects are slated for commissioning in FY13. A total capex of Rs.2,450 cr has been earmarked for the VSF business. This comprises of
Rs.2,110 cr for expansion projects and Rs.340 cr towards modernization. Post this expansion GIL’s VSF capacity would jump by 50% to 490,000 TPA by end of FY13 with focus
on specialty fibres. GIL also plans to set up a Greenfield VSF project of 180,000 TPA in Turkey in JV with group companies.




Concerns
■ In the next 18-24 months, new cement capacities could be commissioned across various regions and this could put pressure on prices and margins. However, fresh capacity
additions for GIL are also coming on stream and that will cater to high growth North and Central regions.
■ Lower demand offtake for VSF and cement could be a threat.
■ Sustained rise in input costs like pulp, coal, energy, fuel etc could pose a threat. Rupee depreciation could impact cost of imported coal.
■ Delay in execution of GIL’s proposed capacity expansions.


Conclusion & Recommendation
GIL’s Q3FY12 operating results were below street estimates on account of lower VSF volumes and margins. Demand for VSF has started picking up due to inventory depletion in
the value chain. GIL has highlighted uncertainty in global demand conditions going forward, especially from the current difficulties in the Euro zone. Along with this, cotton production
during this year could also be a key deciding factor about pricing going ahead.


The new coal pricing mechanism by Coal India has brought further uncertainties for the cement and VSF industries. Cement players will try to pass on the cost increase resulting
from the new pricing policy adopted by Coal India w.e.f. January 1, 2012.


The month of January 2012 has witnessed prices in Northern region come under pressure as the demand was affected due to severe cold while South continues to sustain its price
levels led by strict production discipline. Eastern, Central and Western regions saw a slight uptick in prices in anticipation of demand momentum picking up towards the month end
though certain pockets have shown slight improvement in offtake over the last month.


Though cement prices have started recovering post monsoon but demand continues to remain weak. Demand is expected to recover during H2FY12 and oversupply situation could
subside over the next 2-3 years with expected growth of 8% in demand. The management has indicated that cost pressures could continue to hurt the industry.


The chemical division is expected to do well going ahead given the increased off take from the aluminium industry.


Being the largest player with total capacity of 51MT (existing capacity) under control and highest organic growth visibility, GIL could be biggest beneficiary of any further increase in
cement price.


To read full report: GRASIM INDUSTRIES
RISH TRADER

>COROMANDEL INTERNATIONAL LIMITED

■ CIL’s sales volumes declined by 1% y-o-y to 830,000 mt in Q3FY12 due to erratic nature of the North East monsoons and widening spread (over last 18 months) between urea and complex fertilizers which impacted offtake of complex fertilizers. Despite increase in acreages for wheat and paddy during the current rabi season, agricultural productivity was impacted due to the erratic nature of North East monsoons. While urea price has remained constant during past 18 months, prices of decontrolled fertilizers have almost doubled impacting their offtake. Manufactured volume dropped sharply by 36% y-o-y and 39% q-o-q.


■ Urea & DAP industry dispatches were down by 1.8% and 12% y-o-y, whereas MOP and complex fertiliser sales were up by 6.3% and 4.4% y-o-y. After a prolonged potash holiday, MOP availability started since early October, which coincided with substantial demand for MOP during Q3FY12.


■ Overall, the non-subsidy business has shown substaintial growth, the contribution of which is ~30% to  EBIDTA. Organic fertiliser sales saw 40%-50% growth y-o-y and water
soluble fertilser sales have also gone up y-o-y, but the agrochemical division was under pressure due to adverse seasonal factors and ban on endosulfan by Supreme Court.


■ CIL's acquisition of Gujarat based agrochemical company Sabero Organics would continue to strengthen its topline growth. Sabero has a wide portfolio of 8-9 products across various categories like insecticides, herbicides and fungicides. Strong synergy benefit is expected from this acquisition going forward.


■ CIL has not yet consolidated Sabero’s financials (acquisition is effective Dec 17, 2011) and will start the same from Q4FY12 onwards. Sabero reported loss of Rs.21.5 cr for
Q3FY12 on sales of Rs.95.6 cr.


■ CIL has charged Rs.35.5 cr (net of tax Rs.24.9 cr) related to non-compete fees of Sabero, which has in turn adversely impacted CIL’s bottomline.


■ Revenue from Kakinada's new capacity is expected to start contribution from H2FY13. High fertiliser subsidy and fall in global P&K fertiliser prices could boost its consumption in coming quarters.


■ CIL has received Gujarat Pollution Control Board's permission for enhancing the capacity utilisation to 75% of normal that could help it to improve the production. It is also putting up additional environment affluent treatment facilities, which could help it to ramp up the capacity usage. So over the next quarters, there could be an improvement q-o-q as far as Sabero production and sales volumes are concerned.


■ Capacity additions and weak global demand to put pressure on international fertiliser prices. Further, the government is likely to consider a cut in subsidy rates for phosphatic fertilizers for FY13.


■ In retail business, ~200 additional stores are in various stages of opening. Of this, 90 have been opened and the rest will start by March 2012, taking the total store count to 600.


■ Coromandel SQM, a 50-50 joint venture between CIL and SQM of Chile, has commissioned its water-soluble specialty fertiliser plant at Kakinada. At present, the demand for water-soluble fertilizers in the country is 70,000 tonnes per annum. The plant now has a capacity of 15,000 tonne and will be doubled to 30,000 tonne with demand increasing. In the first two years, the JV would concentrate on the Indian market and later explore export possibilities. The use of these fertilizers could increase the yields substantially and require lesser labour, power and water. The JV firm will look to produce specific nutrient products for wheat and rice production and research on these lines is on. Blended products in will be launched in three to five months.


■ The Board has approved interim dividend of 400% or Rs.4/share. Assuming a final dividend of Rs.3 and bonus debentures of Rs.15 per share, the stock currently offers an attractive dividend yield of 8%.


Guidance:
■ The management is betting on farm mechanisation to provide a profitable new avenue for CIL in the coming years. In FY12 it is looking at 18,000-20,000 acre, mostly in AP (vs 8,000 acres in FY11). It buys equipment like harvesters, threshers & transplanters and employs a team of people to work on the farms and charges per acre. There is a huge potential for mechanisation. It also sees opportunity in providing extended services (developing nurseries, pre-plantation preparation to transplantation, basically, all other activities other than harvesting). The focus currently is on paddy and sugarcane with the project covering 8,000 acres and has plans to expand it to 20,000 acres in FY13E and ramp up about 4x-5x in subsequent years. CIL is pushing this through its retail centres in AP.


■ Management indicated that subsidy levels for FY13 are likely to be revised downwards as global fertiliser prices have declined from their peaks and have now stabilized. DAP prices which were ruling at US$680/mt have declined to US$520-530/mt and are likely to stabilize around these levels. Consequently, government is likely to announce subsidy reduction for FY13 on decontrolled fertilizers. Global DAP capacity is also likely to witness addition in FY13 which would keep the supply of phospatic fertiliser intact. While Saudi
Arabian Mining Company (Ma'aden)’s plant is likely to create additional supply of 1.5-2mn mt, commissioning of TIFERT could also aid volumes.


■ CIL is planning to invest over Rs.500 cr in the next couple of years to ramp up its production capacity to 4 mn tonnes from the present 3.25 mn tonnes. This includes Rs.116 cr greenfield 800-tonne per day single super phosphate plant to be set up in Punjab. It is also planning to pump in about Rs.350 cr more in the expansion of Kakinada plant that is already under way.


Concerns
■ CIL’s 100% revenue comes from Indian farmers, monsoon performance could impart variability to its annual performance. However, given CIL’s cost leadership, strong balance
sheet and presence across agriculture value chain we believe it is well placed to limit the impact from this.
■ Forex fluctuation in Rs/USD and Rs/Euro could impact its margins as it imports most of its raw materials.
■ CIL derives a large portion of its revenue from fertilisers where it converts rock phosphate/phosphoric acid to DAP as well as other complex fertilisers. Given limited backward integration, its performance depends on global prices for these raw materials.
■ With strong brand and market share in South India CIL plans to follow brand premium strategy in fertilisers. However, given the competition from imported fertilisers, CIL’s margins could get hit if importers start eating up into its market share.
■ Prices and availability of key raw materials - rock phosphate, potash and phosphoric acid could be an issue.


Conclusion & Recommendation
CIL reported weak numbers in Q3FY12 on account of lower crop acreage and erratic monsoon in the domestic market, while global fertilisers prices are coming off. The company is witnessing a demand contraction in phosphate fertilizers on account of higher prices and de-stocking happening at the dealers/retailers level. Further, field crops like paddy/wheat are seeing higher demand contraction compared to cash crops.


CIL’s growth trajectory could be supported by expansion of phosphoric fertiliser capacity in Kakinada and addition of 200 retail stores. High fertiliser subsidy and fall in global P&K fertiliser prices would continue to boost its consumption in coming quarters. Also CIL's acquisition of 


Sabero Organics could continue to strengthen its topline growth. CIL’s increasing non-subsidy portfolio through speciality fertiliser, pesticide, farm mechanisation, retail and organic manure also could work well for future growth.


CIL is targeting farm mechanisation for paddy crops, which is a main crop in South Indian states. Given large opportunity and unorganised nature, it could emerge as one of the leaders in this segment. It is scaling up its organic manure business with its brand Godavari Gold and plans to reach a sale of 1 mn tons within the next 3-4 years (FY12 estimates stand at 250,000 tons). Given strategic nature of vendor relationships especially in phosphoric acid, CIL is well placed to benefit from movement in raw material prices.


In Q4FY12, CIL may have to bear loss on fertilizer inventory as a result of falling global prices and recent Rupee depreciation and account for losses at Sabero Organics. It also faces the threat of lower subsidy by Government of India in FY13.


RISH TRADER

>How are Indian banks compared with global banks on ROA parameter...

2010 and 2011 has been a difficult period for the global banking system, with challenges arising from the global financial system, eurozone trouble as well as the emerging fiscal and economic growth scenarios across countries. The Global Financial Stability Report in
September 2011 has cautioned that for the first time since October 2008, the risks to global financial stability have increased, signalling a partial reversal in the progress made over the past three years. The table below may indicate India in a better position compared to
advanced nations on ROA basis but the prudent policies of RBI may be insufficient to protect bank’s financial health in the coming fiscal year.

Have bank stocks bottomed out?

What happened over the past year.…
The Bank Nifty (index covering banking stocks) is at its lowest in last 18 months. Bank Nifty Index was quoting at 11,483.7 in the beginning of FY12. It has fallen 23% to 8,839.7 while the broader market has fallen just 15%. Performance of PSU sector banks was even worse and the CNX PSU Index fell nearly 35% in the last ten months. Stock such as IDBI Bank, Union Bank and SBI has plummeted 38.9%, 41.5% and 37.5% respectively in the last 10 months. Others like Axis Bank, ICICI Bank have plunged 27.4% and 30% during the same period.


The reasons besides the weak macro-economic have been low capital adequacy, high interest rates and fear of increasing NPAs. Banking shares were also under pressure after global credit rating agency Moody’s Investor Service cut the standalone rating of India’s largest public sector bank, SBI in October 2011 due to concerns over capital and rapid deterioration in asset quality. The agency cut its rating on SBI’s financial strength to D+ from C- and lowered its hybrid debt rating on the bank to Ba3 from Ba2, following the reduction in financial strength rating. 


The repo rate, the rate at which banks borrow from the RBI for short duration, was increased by 375 bps between March 2010 and September 2011 to control inflation. In this rising interest rate scenario, the net interest margin (NIM) of nationalised banks, which account for 74% of the assets of the banking system, increased from 2.63 % in March 2010 to 3.2 % in March 2011. However, in the period between March and June 2011 when interest rates have continued to rise, the NIMs of nationalised banks shrunk to 2.9%.


Could this be the right time to enter into banking stocks or are there any downside risks left …
With Bank Nifty at 2-year lows leaves a possibility of strong recovery in the near future. The outcomes deduced in the current scenario are that the worst is over for most banking stocks and its time to buy. The main points being spoken are: The worst of inflation pressure is over, interest rates have peaked and stock prices have reached value zone and in some cases are at historic low. While prima facie, all of them look valid arguments, the current scenario is looking a bit like 2008, when we had the big inflation scare led by crude’s surge towards $140/bbl. The subprime crisis peaked in September 2008 following the collapse of Lehman Brothers. The global financial crisis which began in the fall of 2007 and progressively worsened in 2008, affected the Indian financial sector from 2008. The PBV of BSE Bankex fell from 3.99x on 14/11/2008 to 0.97x on 9/3/2009. It later moved up to 3.41x on 5/11/2010 and currently is at 1.84x.


To read the full report: BANKING SECTOR REVIEW
RISH TRADER

>Performance of Mutual Funds in CY 2011 & Toppers and Laggards during the year 2011

Overview: Indian stock markets showed disappointed performance during the calendar year 2011 as major factors such as high inflation, growth slowdown, rising interest rates, weak rupee, foreign fund outflows, high commodity prices, emergence of various industry-related scams, euro zone debt crisis, etc dampened the sentiments. The key indices, BSE Sensex ended at 15,544 down 4,965 points or 24.71% while the Nifty ended at 4,646 down 1,488 points or 24.68% compared to the previous year. Consequently, the performance of Indian equity mutual funds was also poor where all the equity categories barring FMCG posted negative returns over the period. However, part of actively managed schemes managed to contain the losses well as their NAVs depreciated less compared to the benchmarks.


Debt: On the debt front, the Repo rate, an interest rate indicator of Indian economy, was increased by 225 bps by the RBI over the year to tame the persistent inflation, to 8.50% at the end of the year 2011. Such elevated level in the interest rates resulted in spike in the yields of short debt instruments like Call, CD and CP, benefiting debt mutual fund schemes which invest predominantly in such instruments. Further, the RBI’s reversal in monetary policy stance on the back of moderation in inflation later towards the end of the year softened the yields of government papers. With softening yields, gilt funds have emerged as the biggest beneficiaries in the last two months of the year. The 10 year G Sec benchmark yields moved to a high of 9%+ level in September and closed up the year by 65 bps at 8.56% on Dec 30, 2011 Vs. its close of 7.91% at the end of the previous year.


Gold: Gold had been one of the top performing assets during last year. Continuing its record-breaking spree, gold galloped to all time highs in 2011 (from USD 1400 levels in 2010 to USD 1900 levels in September 2011) on the back of strong demand in times of economic turmoil and rising inflation. Gold rose 11.65% in USD & 30.74% in INR during the year while brent Crude rose approx 15% and US Dollar Index rose by 1.85%. Nervous investors preferred to park their funds in gold as a safe investment instead of risky assets like equities. Internationally gold prices saw correction later from its all time highs. However, falling INR has acted as a cushion for gold prices in India.


Mutual Fund Industry: As far as Indian Mutual Fund industry is concerned, the Average Assets Under Management of overall mutual funds rose by 0.54% Y-o-Y as of 31st December 2011 to Rs. 6,81,708 crore (AMFI Data). The total net inflows into the industry for the calendar year 2011 period stood at Rs. 36,918 crore while the total net outflow was at Rs 32,164 crore in the corresponding previous year. The industry collected Rs. 1,23,341 crore via new fund offers during the period.


Toppers and Laggards during the year 2011:


Category: Within categories, Gold ETF outperformed others during the year 2011 and posted 30% return. The yellow metal rose 30.74% in INR during the year as investors preferred to invest in gold as a safe investment instead of risky assets like equities. Equity sector - FMCG was the second top performer as it registered 13% of compounded returns during the year 2011. The FMCG index gained 9.53 per cent in 2011. Most of the FMCG companies were able to maintain their margins despite higher raw material prices and a sales slowdown. Equity – Infrastructure was the worst performing category in 2011 where it registered a compound annualized return on -35%. The year 2011 saw Construction & Infrastructure stocks underperforming the broader indices on account of tightening policy rates, muted order inflows across segments (except roads) & rising commodity prices affecting execution and margins. The CNX realty fell by 52% during the last year.


Scheme: Apart from Gold ETFs, ICICI Pru FMCG Fund, Canara Robeco InDiGo Fund and Sahara Short Term Bond Fund were the top performing schemes in the mutual fund industry where they delivered commendable returns of 16%, 15% and 14% of CAGR returns respectively. Active call strategy coupled with trading opportunities in the short term debt instruments spectrum helped income and short term schemes to outperform other schemes. Escorts Infrastructure Fund, HSBC Small Cap Fund and Reliance Infrastructure Fund were the bottom performers among mutual fund schemes as they posted negative returns of 47%, 46% and 45% respectively. The poor performance by the infrastructure sector was primarily driven by a range of sector-specific issues, such as land acquisition, environmental clearances, high interest rate regime and macro-economic factors. On asset weighted average returns basis, Equity Diversified large cap category outperformed the equity diversified midcap category but underperformed the equity diversified multi-cap category on a Year on Year basis. The largecap category posted an average CAGR returns of -23% while the midcap and multi-cap registered -24% and -20% of compounded returns respectively. In 2011, the indices - BSE Midcap index and BSE small cap fell 34% and 43% respectively.


To read the full report: Performance of Mutual Funds
RISH TRADER