>OBEROI REALTY: Cash rich in debt-trapped industry; initiate with a BUY

■ Premium developer with a strong track record: Oberoi Realty (ORL) is a premium real estate developer in Mumbai. Till date the group has developed 35 projects with a saleable area of 6.6msf. The company’s high focus on quality has earned goodwill from the buyers and hence it earns itself a premium over its peers. The company has a land bank of 124 acres with a saleable area of 13msf.


■ Focus on Mumbai, the strongest real estate market in India: Among all macro markets in India, Mumbai has been the strongest where the impact of property price correction came later and revival is faster and steeper compared to others cities. Demand in the region has also remained high between Nov 2008 and Nov 2010, when absorption grew by more than three-and-half times. Though, due to unaffordable prices pushed absorption down considerably following the slump in new launches, we expect increase in the pace of approvals from the government and new launches by the developers.


■ Balanced portfolio provides smooth cash flow: ORL has created a strong product mix, which includes development properties and investment properties (rental earning). The mix helps the company to enjoy smooth cash flows and places it in advantageous situation in every business cycle.


■ Land acquisition is a strategic game, ORL played it well till date: Unlike its peers in listed space, ORL has not increased its land bank aggressively. The management does not want to own land bank that has longer than 5-6 years of construction visibility. This strategy has helped the company in creating a healthy financial position, which is a rare case in listed space of Indian real estate industry.


■ Premium to cash is warranted: The strong net cash position places ORL in a good bargaining position against its peers who are desperate to monetise their land assets. This helps the company in buying assets at a significant discount either by paying upfront cash or by entering into joint development with the land owner. Thus, the company can buy assets with a value of 140x-150x by paying only100x.



Mumbai - one of the strongest real estate markets in India
Macro markets in India have witnessed sharp corrections and saw strong recoveries in the past few years. However, among all, Mumbai is the strongest and most-resilient real estate market. This was evident during the downturn in 2008-09; Mumbai (excluding Navi Mumbai and Thane) was the last to see property price corrections and was amongst the first to recovery. Considering July 2007 levels as a base of 100, Mumbai property prices came down to 83 and within less than 6 months, it rose back to the original levels. Currently, it is at 121. This, when compared to other active markets, is the fastest and strongest recovery.



■ Valuation and recommendation: We have valued ORL using NAV approach. We value the company’s net asset at Rs138bn, including a 30% premium to its cash balance. We initiate our coverage on ORL with a BUY rating at a target price of Rs336 (20% discount to NAV), providing 26% upside.
RISH TRADER

>Real State of Real Estate in NCR, Pune, Mumbai & Chennai Bengaluru

■ High level of absorption witnessed in Bengaluru; unlike other cities where it is seeing downtrend


■ Mumbai with the danger of sharp increase in inventory on the back of several new launches is poised for property price correction


■ In NCR, Gurgaon and Noida are stronger markets compared to Greater Noida which has high level of inventory and slow pace of absorption


■ Bengaluru continues to be the strongest property market in India; high level of absorption is the key to avoid price correction


■ New Delhi has very low inventory; marginally above 2msf, no price correction expected


■  New launches have declined across the markets excluding Bengaluru


■ Absorption in Pune is following Mumbai property market trend; price correction expected unless the pace of newlaunches remain slow


■ Reasonable absorption level and the slower pace of new launches will help Chennai property prices to stabilise at the current levels

To read the full report: REAL ESTATE
RISH TRADER

>YES BANK:Bank's business strategy for next five years

To read the full report: YES BANK

>PAINT SECTOR (SBICAPS SECURITIES)

The Indian paint industry is out of blues faced in FY09 and is back on track delivering double digit growth in sales with improved profitability. H1FY10 has seen major paint companies witnessing revival in demand for both decorative and industrial paints, thanks to pick up in economic activity boosting demand for construction and infrastructure development. While price corrections in realty, easing of credit availability, abating concerns on sustain ability of income have revived consumer sentiment and inturn demand for housing and consumer durables; enhanced government spending on infrastructure development and resurgence in investment by private sector have led to increased industrial activity boosting demand for industrial paints. With user industries gaining vigour, paint industry has also seen revival in demand.

Decorative paints are witnessing strong demand traction from both housing and commercial construction. Factors like low per capita consumption of decorative paints, existence of large unorganized market, improving financial status, growing nuclear family culture, increasing urbanization are driving demand for residential housing; where as strong growth in IT&ITES and Organized Retail sectors and the general economic development are drivingdemandfor commercial construction.

Demand for industrial paints is increasing because of increasing demand for automobiles (automotive paints), consumer durables (powder coatings), enhanced road development activity (road markings) and general infrastructure development (high performance coatings for power and other plants).

We are initiating coverage on Indian paint sector recommending two companies Kansai Nerolac Paints Limited (KNPL) and Berger Paints India Limited (BPIL) which are a pure play on India growth story with low country risk (minimal exposure to international markets) and currency risk (only to the extent of imported raw materials). These companies with pan-India presence, strong brands and products covering all price points are set to benefit from uptrading from lime-wash kind of low end products to paints as well as from growing number of high income class consumers driving demand for premium emulsions.

While revenue growth in H1FY10 was subdued despite strong volume off take due to price corrections; profitability has improved from Q1FY10 onwards due to year-on-year (YoY) lower raw and packing material cost. This revival in volume growth and improved profitability as also positive outlook for future has led to a re-rating of these companies post Q1 results. However, we believe there is room for further upside from current levels. We hence recommend a BUY on KNPL and BPIL with one year target price of Rs.1476 and Rs.70 respectively giving a potential upside of 39% and 20%respectively.

To read the full report: PAINT SECTOR

>OM METALS INFRAPROJECTS (SBICAP SECURITIES)

Om Metals Infraprojects Ltd (OMIL) is the largest hydro-mechanical equipment supplier in India with a market share of over 60 percent. The company has nearly 4 decades of experience in successful execution and completion of turnkey hydro-mechanical contracts for hydropower and irrigation. The company presently has Rs 636 crore worth of order book, which is 3.5x of its H1FY10 annualised sales and it is expected to be completed in the next 3 years.

We believe that value unlocking from its real estate business will be a major fillip for the valuation of the company. The value of its land bank is at Rs 248 crore (Rs 26 per share). We initiate coverage on the stock with 'BUY' rating.

■ Largest hydro-mechanical with a healthy order book: The company is the largest hydro-mechanical equipment supplier in India with a market share of over 60 percent and nearly 4 decades of experience in successful execution and completion of turnkey hydro-mechanical contracts for hydropower and irrigation. The company presently has Rs 636 crore orders book, which is 3.5x of its H1FY10 annualised sales and it is expected to be completed in next 3 years. This provides substantial medium term revenue visibility. In addition, the company has submitted bids for more projects and they expect to take the total tally of order book to over Rs 800 crore by FY10.

■ Huge value unlocking from the real estate business: The company has nearly 1.5 million Sq.ft of saleable land bank situated at Hyderabad, Jaipur, Mumbai, Faridabad, Kota etc This land bank is valued at Rs 248 crore which works out to Rs 26 per share. The company has a 35 percent stake in a 2.6 lakh Sq.Ft. SRA project in Bandra, Mumbai. This project will be completed in next 3 years and a total profit of Rs 117 crores is expected to accrue to the company on project completion. The company also generates real estate revenue from a hotel in Jaipur, lease revenue from a multiplex in Kota and a Toyota show room in Jaipur.

■ De-risking strategy through infrastructure forayed: The Company has recently forayed into the Infrastructure segment by winning two contracts for the development of a port and an SEZ in Pondicherry. The SEZ project is multi-product SEZ spread over 860 acres and the company has a 20 percent stake in it. The company has a 50 percent stake in the port project in Pondicherry, which is to be developed in next 5-6 years. Both projects are excepted to be developed through separate SPV's.

■ Valuations: We have valued the company by the 'Sum of the Parts' valuation method, in which we have taken the value of its core business and the BV of its land bank for the purpose of valuation. At the current price of Rs30, the stock is trading at 7.3x and 5.3x of its core FY10E and FY11E earnings respectively. As per our Sum of the Parts valuation, we recommend a buy on the stock with a price target of Rs39 thus providing an upside potential of 30%.

To read the full report: OM METALS INFRAPROJECTS

>AXIS BANK (SBICAP SECURITIES)

Strong CASA growth stands out amidst growth slowdown and asset quality concerns
CASA growth of 12% QoQ and 19.4% YoY stood out in a quarter marked by slowdown in asset growth (19%), credit growth (17.7%) and asset quality concerns - Gross NPA at 1.21% and Net NPA at 0.45%. We expect NII, Operating Profit and PAT to grow by 30.2%, 39.9% and 28.1%
respectively for FY10E. At the current market price, the stock trades at 2.7X FY10E and 2.3X FY11E ABV. Raise target to Rs.910. Maintain Underperform.

Retail leads slowdown in advances
Retail loans grew by just 7% YoY and their share in total advances reduced to 22% from 24% a year ago. Large and midcorporate loans grew by 19%, SME loans grew by 21% while agricultural loans grew by 38%. Overall advances grew by 17.7% while total assets grew by 19% YoY.

CASA growth at 19.4%
Current Deposits grew by 7.4% YoY and savings deposits grew 30.5% YoY. Share of CASA improved to 43% even as aggregate deposits grew by 12.4%. NIM for the quarter was at 3.52% as against 3.51% in Q2FY09 and 3.34% in Q1FY09.

Fee income growth slowing down, treasury gains surprise positively
Other Income grew by 53.5% YoY primarily driven by growth in treasury gains which were at Rs.2.2 bn. as against 0.4 bn. in Q1FY09. Fee income growth moderated to 11.7% while forex income continued to grow strongly at 35.2%.

Asset quality concerns evident
Despite higher provisioning at 1.4% of average assets for the quarter as against the usual trend of 0.6-0.9% of average assets, Gross NPA and Net NPA moved up to 1.2% and 0.5% respectively. During the quarter, the bank restructured assets amounting to Rs.3.9 bn (0.5% of
advances). Outstanding restructured assets stood at 2.9% of advances at the end of the quarter.

Outlook and valuation
We have upgraded our estimates to account for the higher than expected treasury gains that the bank has posted in this quarter. We expect NII, Operating profit and Net Profit to grow by 30.2%, 39.9% and 28.1% respectively. We are moving over to FY11E for valuing the bank and are upgrading our target price to Rs. 910. At our target price, the stock would trade at 2.4X FY10E and 2.0 FY11E ABV. We have raised our target price primarily on account of dilution at a higher than expected price and lower then expected equity dilution. Maintain Underperform.

To see full report: AXIS BANK

>ADLABS FILMS LIMITED (SBICAP SECURITIES)

We met the management of Adlabs. Following are the key takeaways

Re-crafting of business verticals
Adlabs has re-crafted its business segments, by demerging its radio business and discontinuing its film production business. The re-crafting of the business verticals is expected to add significantly to EBITDA and PAT margins, as operational losses and amortization of radio segment will not reduce, overall profitability.

Aggressive expansion plans
Adlabs is aggressively expanding both its domestic as well as international operations. The company is expected to add around ~123 screens and ~ 49 screensin FY10 and FY11 respectively from the current 473 screens. Around 70% of the currently operational theatres are in the form of multiplexes, which provides significant operating efficiencies as some costs are semi-fixed in nature, which enables the company to spread costs, over a higher revenue base and add to the profitability.

To see full report: ADLABS FILMS

>BRITANNIA INDUSTRIES (SBICAP SECURITIES)

Result analysis: Q4FY09
Quarterly net sales were up by 10%, slowest in past 12 quarters, operating profit up 17%, EBITDA down 11% and net profit down 33%. Operating profit increased due to lower raw material inflation, almost flat employee cost and less than proportionate increase in other operating expenses. However, starkly lower other income during the quarter affected the EBITDA. Lower EBITDA and higher tax provision coupled with exceptional & extraordinary items led to a 33% drop in net profit.

Result analysis: FY09
Annual sales growth momentum was maintained at 20%, whereas operating profit growth was restricted to 13.5% due to high commodity prices in the first half of FY09. Healthy other
income in Q3 and Q4 of FY09 buoyed up the EBITDA by 14.8%. Despite healthy EBITDA, and lower tax rate, net profit (bei) for the full year grew less than proportionately, up 9.7%, due to
higher financial expenses and depreciation. Extraordinary items further dragged the PAT down by 5.5%.

Management vision
As per Ms.Vinita Bali, MD, Britannia Industries, the company will continue to focus on:

• Building brand ‘Britannia’ in India and abroad and leverage the Middle East acquisition to expand its global footprint
• Continue to enhance portfolio of brands offered in India to cash in from buoyant demand for both healthy and indulgence food products from urban as well as rural India
• Cost efficiency to drive profitability
• Focus on both bakery and dairy to drive future growth

Outlook
Despite disappointing quarter we maintain our positive outlook due to Britannia’s leadership in biscuits category, which is expected to grow ~15% for next couple of years, as well as its increasing focus on other bakery products like bread and also on dairy businesses. We like Britannia’s aggressive innovation to cash in from rising demand for on-the-go snack foods and
presence across price points to cater consumers at all levels in the income pyramid. Buoyant demand from urban markets coupled with increasing demand from rural markets will keep the ball rolling for the bakery manufacturer, which controls 35% of the market.

Change in estimates and recommendation
Though, we maintain our positive outlook on the stock and expect the biscuit major’s revenues to grow by double digits, we revise our Earnings estimates (and in turn target price) downwards due to commodity inflation (sugar and vegetable oil), higher brand investment and increased debt burden to service bonus debentures (carrying 8.5% coupon for 3 years). We now estimate FY10 EPS at Rs91.1 and FY11 EPS at Rs111 and value the stock at 20xFY10E EPS arriving at a target price of Rs1823, upside potential of 8% from current price of Rs1682.

Recommendation changed from Buy to Market Perform.

To see full report: BRITANNIA INDUSTRIES

>ORACLE FINANCIAL SERVICES SOFTWARE (SBICAP SECURITIES)

Oracle Financial Services Software (Oracle FSS) declared Q4FY09 numbers significantly surpassing our estimates backed primarily by strong license fee bookings. Profitability also showed a marked increase partly due to the depreciation of the Rupee v/s major currencies. In view of the run up in price we downgrade the stock to Outperformer.

■ Product business posts strong growth
The company’s product business segment registered revenues of Rs. 7949 mn for Q4FY09, growing by 6% QoQ and 25% YoY. Noteably, a larger part of the growth was contributed by higher license fees bookings (Rs.1490mn) which grew 59% QoQ, a rare feat in the current uncertainties. However continued INR depreciation v/s major currencies has also been a contributing factor to this growth due to the company’s no-hedge policy.

■ Higher margin maintenance income increasing
Oracle FSS earned maintenance fees of Rs. 3627 mn for FY09 a growth of 48% YoY. Share of maintenance revenues has increased to 20% from 18% in FY08. We expect this to further go up to 22%.

■ Jump in margins
Operating margins for FY09 increased by 7% to 26.5% backed by cost curtailment measures and benefits from INR depreciation. This was in spite of a Rs. 291mn impairment loss taken by the company in Q4FY09. Net margins also improved by 770bps YoY. The company also recorded a higher interest income of Rs. 771mn on higher free cash flows resulting in higher net margins of 26.8% compared to 17.5% reported last year.


To see full report: ORACLE FINANCIAL SERVICES SOFTWARE

>GATEWAY DISTRIPARKS LTD. (SBICAP SECURITIES)

REASONABLE PERFORMANCE AMIDST UNCERTAIN ENVIRONMENT

GDL reported its 4QFY09 net profit at Rs 125.5 mn (- 21% YoY) below our expectations. Revenues grew at a modest pace of 53% YoY to Rs 1230 mn led by 70% YoY growth in volumes in rail operations and strong realisations of Rs 7600 per TEU as against Rs 6000 per TEU in Q4FY08 in CFS business. Volumes have fallen for the CFS business from 87,977 TEUs in Q4FY08 to 70,004 TEUs (-20% YoY) in the current quarter but strong realisations per TEU have led to revenues from the CFS business increase marginally by 2% YoY. Nascent Rail business continues to be in red which we believe would break even by FY11E. But overall a good performance by the company. We reiterate BUY

Brief highlights for the quarter

■ Revenues grew by 54% YoY in 4QFY09 to Rs 1231 mn mainly led by strong realisations of Rs 7600 per TEU across in CFS business as well as the ramp up in the rail business.

■ Operating margins fell sharply by 200 bps to 28% YoY led by diversification into low margin rail operations.

■ Interest costs and depreciation charges jumped sharply as GDL raised debt for the business (for acquiring rakes) and land acquisition for the new ICD’s during the preceding quarter.

■ The tax rate for the quarter was at 21 % as the company had 80IA benefits for its investments in ICDs and CFSs.

■ As a result, net profit after minority interest fall by 21% YoY to Rs 233 mn in 4QFY09.

SEGMENTAL SNAPSHOT

CFS business – subdued volumes but high realisations
With GDP and EXIM trade growth slowing, volumes handled at various ports by Gateway’s CFS business have also witnessed significant drop at 70,004 TEUs for the quarter dropping by 10% QoQ (77441 TEUs in Q3FY09). The realizations also dropped significantly to Rs 7595/TEU
as against Rs 8993/TEU in Q3FY09 (but grew YoY from Rs 5932/TEU in Q4FY08). The realization per TEU is as per our expectation. We believe it is primarily on account of much higher ground rent earned on account of stacking of containers at the ports and secondly on account of rationalization of rates by the CFS operators .

Container train business – increase in losses due to lower capacity utilization
As expected, Gateway's container train business losses have increased as compared to previous quarter. The volumes handled by the train business at 19,868 TEUs grew by 23% on a sequential basis. Realizations improved at Rs 31,256/TEU and EBITDA margins registered drop of 600 bps YoY. For FY09, losses in the container train business increased to Rs 248 mn as against loss of Rs 82 million during FY08. We believe the company today operates 15 rakes (13 owned and 2 leased) which we expect they would ramp up to 30 rakes by end of FY11.

To see full report: GATEWAY DISTRIPARKS

>Orbit Corporation Ltd (SBIcap Securities)

Orbit Corporation Ltd (OCL’s) result was disappointing, on the back of the deterioration in the macroeconomic environment, which has affected the whole real estate sector. OCL sales registered a decline of 60% in FY09 at Rs 2835 mn when compared to Rs 7055 mn in FY08. On QoQ basis the company showed a growth of 65% from Rs 483 mn in 3QFY09 to Rs 796 mn in 4QFY09. OCL was able to log some incremental sales in 4QFY09 which it was not able to do in 3QFY09. Sales transactions in 4QFY09 indicate stabilization of the real estate market. We believe that transactions will be slow in the high & premium segment where OCL primarily operates. We maintain our rating of market performer for the stock.

Incremental Sales gives evidence of revival:
The Company booked sales of around 16,521sq ft in 4QFY09 as compared to 3QFY09, where the company was not able to log any incremental sales. The value of the incremental sales for the 4QFY09 was Rs 360 mn. All of the sales were booked in the residential segment with no commercial transaction taking place is this quarter.

Incremental sales on with a huge discount:
The sales booked by the company in 4QFY09 were at a discount of ~30% - 35% from the rates quoted in 2 quarter of the fiscal year. The sales were mainly in the region of Lower Parel where rates have come down from Rs 23000-25000 quoted in Q2 FY09 to Rs 15000-16000 per sq ft in Q4FY09. Sales at Nepensea road have been at the rate of Rs. 35,500 per sq ft in Q4FY09.

Sales Backlog providing some buffer:
Net Sales registered a declined of 60% in FY09 at Rs 2835 mn from Rs 7055 mn in FY08. OCL which was not able to log any incremental sales in 3QFY09 saw some transaction happening in 4QFY09. This gives the signal that the real estate market is stabilizing. Moreover sales backlog of Rs 3994 mn in 4QFY09 provide some visibility in terms of future earnings.

Decrease in EBITDA and PAT margins:
OCL registered a 4% decrease in EBITDA margin from 49% in FY08 to 47% in FY09. 0n QoQ basis registered a decrease of 60% from 72% in 3QFY09 to 28% in 4QFY09. The PAT margins registered a decline of 69% on QoQ basis and decline of 62% from 33% in FY08 to 13% in FY09.

Increase in Debt a concern:
The debt has increased by Rs 216.14 mn, taking the total debt (including CCD’s) to Rs 6773.03 mn in 4QFY09. This has led the increase in DE ratio 1.2x TO 1.24x from Q3 FY09 to Q4FY09. OCL has already restructured debt of Rs 2 bn (NCD’s) for a period of 3 years. The company has to repay term loan of Rs 640 mn till Oct – March 2010.

Increase in interest cost and Sales Impairment effect:
OCL’s interest cost has increased by 15% on YoY basis to Rs 235.1 mn from Rs 205.2 mn, because of increase in loan; On QoQ basis the company registered a decline of 9%. The tax provision made in earlier quarters was in excess of the actual tax liability for the entire financial year due to impairment effect which was due to reduction in sales area of Orbit WTC from 333000 sq ft to 316000 sq ft. Hence, for Q4-FY09 no further tax was provided and excess tax
provision was written back.

Valuations
At the current price of Rs 71.9, the stock is trading at PE multiple of 7x and 5.9x for FY09 and FY10E earning respectively. Poor macroeconomic conditions have not only hampered corporate expansion plans but have also weaken the residential market due to uncertain job environment. However sales backlog of Rs 3994.5 mn in 4Q FY09 gives some visibility in terms of earnings in FY10 but we believe high end residential market will take more time to recover when compared to mid or affordable housing. We also believe that OCL’s inability to sell Hafeez Contractor House due to the weak real estate market can impact the revenue for next 1-2 quarters. We maintain our rating of Market performer for the stock.

To see full report: Orbit Corporation Ltd

>Godrej Consumer Products Limited(SBIcap Securities)

Future Sales growth to remain buoyant – In line with other
FMCG companies, GCPL too has not witnessed any slow down
in demand for its products namely, soaps, hair colours and
toiletries, till September 2008 quarter. The management does not
foresee any slow down in demand for its products going
forward also due to the sheer inelastic nature of its products.

To read full report Godrej Consumer Products Limited(SBIcap Securities)