>MARUTI SUZUKI LIMITED (SHAREKHAN)

Outlook positive, maintain Buy with a revised price target of Rs3,600

Maruti Suzuki India (Maruti) posted an impressive volume growth of 16.8% in Q2FY2015. A favourable currency impact aided in a 68BPS sequential expansion in OPM to 12.4%. A fall in the tax rate to 20.2% as against 24% in the previous quarter resulted in a 28.7% Y-o-Y increase in the net profit to Rs863 crore as against our estimate of Rs784 crore.

Maruti’s management has maintained its guidance of a 10% volume growth for FY2015 and reiterated that the discount push was necessary to sustain the current trend which remains unstable. The urban volume growing at 10% is the key positive and a sign of better times ahead for the industry. Maruti meanwhile continues to consolidate its leadership position with its market share touching a four-year high of 45.2%. A spate of new launches coupled with refreshes to the current line-up is targeted at further consolidating the pole position.

We have tweaked our volume estimates for FY2016 and FY2017 given the deferment of the launch of XA-Alfa in FY2017 instead of FY2016 earlier. We have also reduced our tax rate estimate given the lower rates for the quarter and further benefit due to the expenditure on research and development. Consequently, earnings estimates for FY2015-16 are marginally higher, while FY2017 earnings estimates have been raised by 4.6% given the dual benefit of higher volume and lower tax rate. We continue to remain positive on the stock and reiterate a Buy recommendation with a revised price target of Rs3,600 (earlier Rs3,500) discounting FY2017E EBITDA 10x.

RISH TRADER

>FERTILISERS: Demand for complex fertilisers moderates further

Key points

• Weak monsoon and high prices dent demand environment: In August 2012, the aggregate sales of fertilisers (by 15 leading manufacturers) declined by 14% as compared with that in the same period of the last year. The sales fell mainly because of a steep decline in the demand of DAP and complex fertilisers. In August 2012, the production and imports of non-urea fertilisers, DAP and complex fertilisers declined drastically due to a lower demand for and higher prices of non-urea fertilisers. The imports of DAP and complex fertilisers decreased by 22% and 74% respectively during the month due to lower imports by Indian Potash and IFFICO. The imports of MOP and urea were higher by 20% and 1,414% respectively on the back of higher imports from Indian Potash.
• Fertiliser sales decline on YTD basis: The total fertiliser sales declined by 16% on a year-till-date (YTD) basis as compared with that in the same period of the last year. The fertiliser sales declined largely due to lower production and lower imports of non-urea fertilisers owing to a lower demand and higher prices of non-urea fertilisers. The sales of DAP, urea and complex fertilisers were lower by 38%, 4% and 34% respectively whereas the sales of MOP increased by 21% due to higher imports by Indian Potash, which is one of the major importers of potash in India. The imports of urea on a YTD basis declined by 32% to nearly 4.95 lakh tonne as compared with that in the same period of the last year. 
• Outlook: We maintain our cautious outlook on the complex (non-urea) fertiliser manufacturers but the recovery of the monsoon in the later part of the season could have a positive impact on the demand which augurs well for the rabi season. However, we continue to prefer the cheaper alternatives like urea and SSP as compared with DAP and the other NPK fertilisers due to the price differential. A possible hike in the price of urea is also a trigger for pure urea stocks like Chambal Fertilisers, Zuari Industries and SPIC. We also maintain our preference for pure SSP players like Rama Phosphates and Liberty Phosphate.

RISH TRADER

>PHARMACEUTICAL SECTOR

Key points

• Pharma outperformed benchmark indices: Given the general preference for the defensives and the robust financial performance of the pharmaceutical (pharma) companies (partially aided by the benefits of the rupee’s depreciation), the pharma stocks have attracted a lot of attention from investors in the past few quarters. Consequently, on a one-year forward price-earnings ratio, the BSE Healthcare Index has outperformed the benchmark indices. The BSE Healthcare Index trades at a 53% premium to the Sensex which is much higher than the average premium of 39% the pharma benchmark index has enjoyed over the Sensex for the last five years.
• Rally in pharma stocks sustainable: Notwithstanding the strong outperformance of the pharma stocks, the current valuations of the BSE Healthcare Index are at a 10-14% discount to its long-term (three-year and five-year) average multiples. Even within our coverage universe, the pharma stocks are trading at a premium of only 4-6% over their long-term average multiples. Thus, we believe that the outperformance of the pharma stocks is sustainable.
• Divergence in valuations within pharma stocks: Though we maintain our positive stance on the pharma sector, but we believe that it is time to get selective. We suggest playing on the divergence in the valuations within the universe of the pharma stocks. Our analysis shows that a lot of positives are already priced in Lupin and Sun Pharmaceuticals, which are trading at a huge premium to their long-term average multiples. On the other hand, Cipla and Dr Reddy’s Laboratories are at a discount to their long-term average multiples and offer a better risk-reward ratio. Similarly, within the mid-cap space, we see valuation comfort in Torrent Pharmaceuticals and Cadila Healthcare.

RISH TRADER

>Q1FY2013 Pharma earnings review

Weaker rupee and key launches drive growth

• Pharma universe's performance better than expected: Most of the players in Sharekhan's pharmaceutical (pharma) universe reported better than expected results during Q1FY2013. The universe reported a 39.7% year-on-year (Y-o-Y) rise in its revenues as compared with our estimate of a 34.7% growth. The operating profit margin (OPM) jumped by 412 basis points year on year (YoY) to 27.6%, which is 270 basis points higher than our estimate. However, due to a sharp jump in the fixed costs and marked-to-market (MTM) foreign exchange (forex) losses, the reported profit rose by 9.6% YoY for the pharma universe during the quarter. However, excluding the forex losses or gains and the exceptional items, the adjusted net profit increased by 18.5% YoY, which is better than our estimate of a 7.4% growth for the universe. The profit growth was mainly led by Ipca Laboratories (Ipca; up 93% YoY), Divi's Laboratories (Divi's Labs; up 63% YoY) and Sun Pharmaceuticals (Sun Pharma; 59% YoY). 
  
  
• Higher fixed costs and effective tax rate affects bottom line: Despite the impressive performance at the operating level, the profit of the key players weakened on a sharp rise in the interest and depreciation charges. During the quarter, the interest cost rose by 143% YoY while depreciation jumped by 30% YoY on an aggregated basis. Moreover, the imposition of the alternate minimum tax (AMT) on partnership-based manufacturing units resulted in a sharp rise in the effective tax rate of the pharma universe. The effective tax rate of the universe jumped to 19.8% during the quarter from 11.2% in Q1FY2012. Most affected by the new tax were Sun Pharma (a rise of 1,482 basis points YoY to 17.3%) and Cadila Healthcare (Cadila; a rise of 1,354 basis points YoY to 24.4%) due to the imposition of AMT on their Sikkim-based manufacturing plants.
  
  
• Management of most of key players maintain FY2013 guidance: Most managements maintained their revenue guidance for FY2013 despite an impressive performance in Q1FY2013. We expect the growth to moderate in the subsequent quarter mainly due to a slower growth in the domestic formulation business (from a relatively higher base) and slower depreciation in the rupee against the dollar (up 11% YoY). Nonetheless, strong product pipelines, improved utilisation of the newly commissioned facilities and the contribution from the newly acquired entities would continue to ensure the long-term growth of the pharma universe.
  
  
• Our top pick: We prefer Sun Pharma in the large-cap space due to the strong traction in its US business and its increased focus on the domestic branded formulation business (which has been divested for increased focus). We pick Divi's Labs in the contract research and manufacturing services (CRAMS) space due to the increased traction in the company's CRAMS business and currency benefits. We like Cadila in the mid-cap space for its strong research and development (R&D) for its expected ramp-up in the USA after the US Food and Drug Administration (USFDA) cleared of the company's Moraiya facility and R&D base.

RISH TRADER

> Q1FY2013 Telecom earnings review

Competition intensifies, regulatory risk persists; cautious view maintained 

• Weak results fail to meet expectations: The Q1FY2013 results of the telecommunications (telecom) companies tracked by us, ie Bharti Airtel and Idea Cellular, were below expectations on all the fronts, viz revenue, margin and earnings. Bharti Airtel's performance was weak in both South Asia (including India) and Africa. The company's consolidated top line grew at 3.3% on a quarter-on-quarter (Q-o-Q) basis, with the operating profit and the net earnings showing a sequential decline of 6.2% and 24.2% respectively. For Idea Cellular, the top line grew at 2.5% quarter on quarter (QoQ) while the adjusted operating profit and the earnings witnessed a sequential decline of 4.8% and 1.5% respectively. The margin of both the players took a solid hit-Idea Cellular's margin was down 200 basis points QoQ (from 28.1% in Q4FY2012 to 26.1% in Q1FY2013) while Bharti Airtel's consolidated margin contracted by 310 basis points QoQ from 33.3% in Q4FY2012 to 30.2% in the quarter under consideration. 
• Volumes expand; profit contracts: As expected the traffic momentum remained strong during the quarter, with both Idea Cellular and Bharti Airtel registering a sequential volume expansion of 3.9% and 5% respectively. This good volume growth was achieved on the back of the already solid Q4FY2012 volumes, but at the cost of profitability. Both the players experienced a decline of 2.5% in the average realised rate on a sequential basis which was the prime reason for the fall in the profitability, as visible in the report card.
• Business competition intensifies, this time the leader leads: The competition in the Indian wireless industry has intensified. The price increases taken by the players earlier have not been sustainable and the price war has started again in the market, this time led by the industry leader itself, ie Bharti Airtel.
• Bharti Africa-targets realigned with reality: On the African business front as well, Bharti Africa's Q1 performance was dissatisfactory with a flat revenue growth and a 200-basis-point Q-o-Q contraction in the margins. In the conference call of Bharti Airtel, the management confirmed that the business environment in Africa is also facing challenges on multiple counts, ranging from the euro zone crisis and volatile commodity prices to the general political environment in each African country. It echoed our longstanding stance that it would be difficult for the African business to achieve its stated revenue and EBITDA guidance of $5 billion and $2 billion respectively in FY2013 and postponed the guidance.
• Regulatory environment weighs heavy on fundamentals and stock price movement: The Indian telecom sector is passing through a phase of high policy uncertainty, where various contentious issues that could affect the earnings/cash flow and competitive positioning of the players remain unsettled (read, licencee renewal norms, spectrum refarming process etc). Further, the cabinet's decision of fixing the all-India 2G base price at Rs14,000 crore would hurt the operators, investors and consumers. We believe that the news flow in this sector would be very fluid. Hence, any positive or negative development would swing a stock's performance in the northward or southward direction respectively.
• Reduced estimates and downgraded rating: Taking cognisance of the changing business environment and the unhealthy regulatory developments, we have reduced our estimates for both Bharti Airtel and Idea Cellular. Bharti Airtel has missed analysts' expectations for around seven to eight quarters in a row for various reasons ranging from a competitive environment to regulatory issues. We expect Bharti Airtel to continue to safeguard its subscriber base and revenue market share at the cost of profitability. This is likely to keep the South Asian business' margin under pressure in FY2013. Further, the African business is also not showing the required elasticity and agility. Thus, we have downgraded our EBITDA and earnings estimates for FY2013 and FY2014. Our new earnings per share (EPS) estimates for FY2013 and FY2014 are Rs11.9 (vs Rs14.3 earlier) and Rs15.7 (vs Rs18.8 earlier) respectively. Based on the new estimates and looking at the tough competitive as well as ambiguous regulatory environment, we reduce our target EV/EBITDA multiple for Bharti Airtel from 7x to 6.5x its one-year forward FY2014E earnings to arrive at a new price target of Rs310 (against Rs362 earlier) and downgrade our rating on the stock from Buy to Hold.

RISH TRADER

>Q1FY2013 Auto earnings review

Drive with caution

• Auto sector reported flat growth for Q1FY2013; has given lacklustre returns in last six months: In our Thematic Report dated December 27, 2011, we had expressed concerns over the moderation in growth of the automobile (auto) sector with the full impact of the moderation expected in H1FY2013. As against the benchmark index' return of 13% between December 27, 2011 and August 21, 2012, the auto stocks under our coverage too gave an average return of 13%. The best return of 57% came from Apollo Tyres, our top pick for the last six months. The next highest return came from Maruti Suzuki at 22% due to the stock sell-off on account of the Manesar strike. Excluding these two stocks, the rest of the universe gave a negative return of 0.5% between December 27, 2011 and August 21, 2012.
  
  As we analyse the Q1FY2013 results, our coverage universe saw a profit after tax (PAT) growth of merely 2%. Our auto tracking universe of 15 companies, ex Tata Motors, saw a PAT growth of 2.5% year on year (YoY); that with Tata Motors saw a PAT growth of 11% YoY during the same period. 
  
  
• M&M added to our conviction list on robust Q1FY2013 performance: During the past six months, most of the stocks under our coverage except Apollo Tyres had been kept on Hold recommendation. We recently added Mahindra and Mahindra (M&M) to our Buy list as we see it as a proxy play on food inflation and best positioned to benefit from the reviving rural incomes (refer to our Stock Update report on M&M dated August 21, 2012). 
  
  
• Apollo Tyres, M&M and Tata Motors top revenue earners; Maruti, SKF laggards: Apollo Tyres saw its Q1FY2013 PAT growing the most, by 79% YoY, on a strong operating performance. Tata Motors, M&M and Suprajit Engineering also reported a 20% plus Y-o-Y earnings growth. The disappointment came from Maruti Suzuki and SKF India, both of which reported an earnings decline of over 20% YoY for the quarter. 
• Outlook and valuation: Going forward in H2FY2013 and FY2014, barring a few companies like Maruti Suzuki, which would grow on a low base, a large part of the earnings growth is expected on an improved operating performance in H2FY2013 and FY2014. The volume growth may remain modest, but the raw material pressure is expected to moderate for most companies in H2FY2013. After keeping most auto companies on Hold for the last six months, we have added M&M to our Buy list along with Apollo Tyres. The outlook on most other companies looks cautious as multiple factors related to competition, inventory build-up, global slowdown and fuel price hike continue to weigh on the auto sector.

RISH TRADER

>FERTILISER SECTOR

Fertiliser sales hit by lower production 

Key points

• Lower production of non-urea fertilisers weighed on total fertiliser sales: In July 2012, the aggregate sales of fertilisers (by 15 leading manufacturers) declined by 24% year on year (YoY) led by a steep decline in the sales of the non-urea fertilisers. In July 2012 the production and import of non-urea fertilisers, mainly di-ammonium phosphate (DAP), and complex fertilisers declined drastically on account of the non-availability of phosphoric acid and price negotiation by the Indian importers for DAP (imported). The imports of DAP and complex fertilisers decreased by 59% and 43% respectively during July 2012 mainly on account of lower production and lower imports by Coromandel International, India Potash and IFFCO. The imports of MOP and urea were higher by 69% and 48% respectively in the same month.
• YTD sales of fertilisers decline: The year-till-date (YTD) sales of fertilisers declined by 17% as compared with the sales in the same period of the previous year. The decline in the fertiliser sales volume was largely driven by the lower both production and import of non-urea fertilisers on account of a tight supply of phosphoric acid and the expiry of the contracts for the import of DAP. The sales of DAP, urea and complex fertilisers were lower by 59%, 1% and 43% respectively whereas the sales of MOP increased by 69% mainly due to higher imports by the Indian importers (potash plays an important role in a drought-type scenario). The imports of urea on a YTD basis declined by 50% to 2.71 lakh tonne as compared with that in the same period of FY2012. 
• Outlook: We maintain our cautious outlook on non-urea fertiliser manufacturers mainly due the lacklustre demand for these fertilisers on account of price hikes, margin pressure due to higher raw material cost and a demand shift towards cheaper fertilisers like urea and SSP. We prefer a pure urea manufacturer like Chambal Fertiliser as well as SSP manufacturers like Rama Phosphates and Liberty Phosphate in view of the existing demand-supply scenario.

RISH TRADER

>GODREJ CONSUMER PRODUCTS

Recommendation: Hold (SHAREKHAN)
Price target: Rs665
Current market price: Rs631

Downgraded to Hold; price target revised to Rs665

Result highlights

• Q1FY2013 results-strong growth momentum sustained: The Q1FY2013 results of Godrej Consumer Products Ltd (GCPL) are in line with our expectations largely on account of a higher than expected revenue growth during the quarter. The strong growth momentum of the previous quarters was sustained with the revenues growing by 39.2% year on year (YoY) and the adjusted profit after tax (PAT) growing by 47.9% YoY during the quarter. Q1FY2013 is the fourth consecutive quarter of a strong double-digit volume growth in the company's domestic soap segment, an above 20% growth in its domestic household insecticide (HI) business, and a more than 25% year-on-year (Y-o-Y) revenue growth in its Indonesian business. The strong growth could be attributed to adequate media spends as well as innovations and renovation in the respective portfolios.
• Results snapshot: In Q1FY2013 the consolidated net sales of GCPL grew by 39.2% YoY to Rs1,388.6 crore. The robust revenue growth was largely driven by a 24.3% Y-o-Y growth in the domestic business and a 67.5% Y-o-Y growth in the international business (an organic growth of 31% YoY). The consolidated gross profit margin (GPM) improved by 64 basis points YoY to 52.2% while the operating profit margin (OPM) stood flat at 14.7%, largely on account of it being a weak quarter for the HI business in India and seasonally the weakest quarter for the Latin American business. Thus, the operating profit grew by 38.2% YoY to Rs202.3 crore (the growth is in line with the revenue growth). This along with a lower incidence of tax resulted in a 48% Y-o-Y growth in the adjusted PAT (before the minority Interest) to Rs151.8 crore. The foreign exchange (forex) loss stood at Rs17.6 crore in Q1FY2013 as against a forex gain Rs2.4 crore recorded in Q1FY2012.
• Upward revision in earnings estimates: We have revised upwards our earnings estimates for FY2013 and FY2014 by 5.5% and 7.9% respectively to factor in the higher than expected revenue growth in Q1FY2013 and the lower tax rate indicated by GCPL's management in its commentary. 
• Outlook and valuation: Q1FY2013 was yet another quarter of a strong operating performance and a strong start to the fiscal year 2013. According to the management, there are no signs of a slowdown in the categories in which GCPL has a strong presence in the domestic market. It has maintained its thrust on innovation-led and distribution-led growth in the domestic and international markets. We expect GCPL's top line and bottom line to grow at compounded annual growth rate (CAGR) of 22.8% and 32.1% over FY2012-14.
  We have revised our price target for the stock upwards to Rs665 (based on 23x its FY2014 earnings of Rs28.9 per share). However, due a limited upside (of 5.3%) from the current level we have downgraded our recommendation on the stock from Buy to Hold. At the current market price the stock trades at 26.7x its FY2013E earnings per share (EPS) of Rs23.7 and 21.8x its FY2014E EPS of Rs28.9.

RISH TRADER

>INDIA CEMENTS

Recommendation: Buy (SHAREKHAN)
Price target: Rs110
Current market price: Rs85

Operating performance in line with estimates

Result highlights

• Operating performance in line with estimates; adjusted net profit below estimates: In Q1FY2013 India Cements posted an adjusted net profit of Rs82 crore (a decrease of 21.9% year on year [YoY]). The same is below our estimate on account of a higher than expected interest cost of Rs95 crore (an increase of 63% YoY) and a foreign exchange (forex) loss of Rs25 crore. However, the operating profit of the company is much in line with our estimate at Rs277.7 crore (higher by 14.9% YoY). 
• Revenue growth driven by healthy realisation and IPL income; in line with estimates: The net sales of the company grew by 13.7% YoY to Rs1,201.4 crore (largely in line with our estimate), which also includes revenues from the Indian Premier League (IPL), wind power and shipping businesses. The revenues from the cement division (cement is its core business) improved by 10.8% YoY to Rs1,062.9 crore largely driven by a 7.6% growth in the average cement realisation. However, on the volume front, the southern region continues to witness a lacklustre demand environment. Hence, the volume grew by just 2.9% YoY to 2.38 million tonne (mt). On the other hand, the revenues from the IPL division jumped to Rs122 crore as against Rs84.8 crore in the corresponding quarter of the previous year. The shipping division booked Rs12.5 crore of revenues during the quarter. 
• Cost pressure largely offset the benefit of improvement in cement realisation: On the margin front, in spite of a 7.6% improvement in the cement realisation YoY, the continued cost pressure-in terms of (a) a higher power & fuel cost (up 16.8% on per tonne basis); (b) higher freight charges (up 21% YoY); and (c) higher employee cost (up 23.6% YoY to Rs78.7 crore)-largely offset the benefit of the increased realisation. Hence, the operating profit margin (OPM) could expand marginally by 25 basis points YoY to 23.1%. The overall cost of production on a per-tonne basis increased by 8.4% YoY and the EBITDA per tonne increased by 5% YoY to Rs1,033. Consequently, the operating profit of the company increased by 14.9% YoY to Rs277.7 crore.  
• Surge in interest cost due to forex loss: The interest cost increased by 63% YoY to Rs94.9 crore on account of an increase in the borrowings at a higher rate to redeem the outstanding foreign currency convertible bonds and a forex loss of Rs25 crore. The total borrowings of the company stood at Rs2,880 crore as compared with Rs2,700 crore at the end of FY2012. Further, a one-time expense of Rs20 crore was incurred on account of the operations of the IPL franchise. Hence, the reported net profit declined by 39.2% YoY to Rs62 crore whereas the adjusted net profit works out to Rs82 crore (a decline of 21.9% YoY). 
• CCI has imposed a penalty of Rs187.5 crore; the company will appeal against the CCI order: The Competition Commission of India (CCI) has imposed a penalty on around 11 cement companies for making a cartel and managing cement prices at higher levels. As per the CCI order, India Cements will have to pay Rs187.5 crore as a penalty. However, based on the legal opinion the company will appeal against the order before the Tribunal. Accordingly, the company has not made any provision for the CCI penalty. 
• Fine-tuned earnings estimates for FY2013 and FY2014: We have fined-tuned our earnings estimates for FY2013 and FY2014 mainly to incorporate the higher than expected cost pressure (a higher freight cost) and a lower than expected volume growth. We have also factored in the higher than expected cement realisation in our estimates. Consequently, the revised earnings per share (EPS) estimates for FY2013 and FY2014 are Rs9.6 and Rs11 respectively. 
• Maintain Buy with price target of Rs110: The demand for cement in the key market (southern region) of India Cements is likely to witness a partial recovery driven by the private sector housing industry and a pick-up in the rural demand. Further, in order to get better volumes and realisations the company is trying to change its market mix in favour of the non-Andhra Pradesh states and the western region. On the realisation front, the cement price in the southern region stands at a healthy level and we expect the average realisation in FY2013 to remain higher compared with that in FY2012. Moreover, with the commissioning of its captive power plant (CPP) the company will benefit by saving cost and gaining a regular supply of power. However, in order to deliver higher volumes the realisation could come under pressure. Cost pressure in terms of any adverse movement in the price of imported coal and a higher freight cost would partially offset the positive impact of the increased realisation and the savings from the CPP. We maintain our Buy recommendation on the stock with a price target of Rs110. At the current market price the stock trades at a PE of 7.7x discounting its EPS for FY2014 and EV/EBITDA of 4.4x its FY2014E earnings.

RISH TRADER

>Sun Pharmaceutical Industries

Recommendation: Buy
Price target: Rs743
Current market price: Rs682

Price target revised to Rs743

Result highlights

• Better than expected performance: For Q1FY2013 Sun Pharmaceuticals (Sun Pharma) reported a 62.5% year-on-year (Y-o-Y) rise in its net sales to Rs2,658.1 crore, which is 12% higher than our estimate. The operating profit margin (OPM) jumped by 1,231 basis points to 45.8%, which is substantially higher than our estimate of 38.6%. The quarter's OPM is better than the margin achieved in the previous 14 quarters. Despite a foreign exchange (forex) loss (netted off in the other income) and a higher effective tax rate (17.3% in Q1FY2013 vs 2.5% in Q1FY2012), the net profit jumped by 58.8% year on year (YoY) to Rs796 crore during the quarter. The net profit exceeds our estimate by 19%. 
• Strong results of Taro and exclusive supplies of Lipodox help: The better than expected performance was driven by three main factors: (1) stronger revenues (up 42% YoY to $159 million) and higher profit (up 110% YoY to $62.9 million) from Taro Pharmaceuticals (Taro); (2) better revenue and profitability from the supplies of Lipodox (through Caraco Pharmaceuticals [Caraco]; opportunity arose out of a drug shortage in the USA); and (3) a strong growth in the emerging markets (ex Taro the growth stood at 45% YoY). Besides, Sun Pharma's base business also seems to have grown impressively during the quarter. 
• Business restructuring and full control of Taro to help sustain the strong growth: Sun Pharma is in the process of restructuring its business. It has announced a plan to spin off its domestic formulation business (which contributes about 22% of its revenues) to its wholly owned subsidiary called Sun Resins and Polymers Pvt Ltd with effect from March 31, 2012. This is being done with a view to enhance the focus on the business and to allow for quicker responses to the competitive market conditions. Besides, the company has announced a plan to acquire the entire stake in Taro which will give it a stronger foothold in the USA and Europe.
• We revise our earnings estimates and price target; maintain Buy: Despite an impressive performance in Q1FY2013, the management has maintained its guidance of an 18-20% revenue growth for the base business in FY2013. We have revised our earnings estimates upward by 14% each for FY2013 and FY2014, in view of Sun Pharma's plan to gain full control of Taro (which will result in a lower minority interest) and the operational synergies that would result from such a move. Accordingly, our price target stands revised by 14% to Rs743. We maintain our Buy rating on the stock. 

RISH TRADER

>AGC NETWORKS

Recommendation: Buy (SHAREKHAN)
Price target: Rs400
Current market price: Rs265

Spreading its network

Key points 

• Spreading wings to reap large industry opportunity: AGC Networks (AGC; formerly known as Avaya Global Connect) has transformed its business from a single-partner (Avaya) relationship into a diversified business with multi-level global partners (Cisco, Juniper, HP, IBM, Dell, Polycom etc) to significantly multiply the addressable market and growth opportunities in its focus area of IT network infrastructure and related services. Currently, it gets around 80% of its business from India, where the addressable product & services target market was close to Rs30,000 crore in FY2011 and is growing at 20% per annum. However, with its renewed strategy (named as 10^3) the company is spreading its wings through a multi-solution, multi-alliance and multi-geography strategy, which augurs well as it will provide much more diversified revenue traction in the coming years. 
• Parent Aegis adds muscle to AGC's growth prospects: AGC's parent Aegis is ranked among the top Indian BPO companies with presence in 13 countries, 55 locations and over 300 clients across verticals, such as BFSI, telecom, healthcare, travel and hospitality, consumer goods, retail and technology. AGC would be leveraging the strong presence of Aegis and get access to the parent's elite client base across geographies. After being acquired by Aegis in May 2010, AGC has significantly grown its product portfolio, geographical markets and partners. Over the last two years after coming to the fold of Aegis, AGC has transformed from a single-product (unified communications[UC]) and single-partner (Avaya) entity into a diversified integrated player with multiple partners and businesses spread across geographies. 
• Solid financials, healthy prospects ahead: In the last two years AGC has reported a strong growth in the top line and the bottom line. Going forward, with diversified product offerings and a wider client base, the company is well poised to raise its growth trajectory. We estimate an over 40% CAGR in its earnings over FY2012-14 with a 33% revenue CAGR over the same period. We expect the OPM to remain stable at 10% over the next two years with a judicious mix of products (70%) and services (30%) in the revenues. Further, with an increase in the addressable market opportunities and the successful implementation of the 10^3 strategy, the management aspires to reach $1 billion in revenues (Rs5,500 crore) by 2015 through both organic and inorganic initiatives. 
• Undemanding valuation, rich dividend play: AGC is a distinguished player in the enterprise communications space in India and its pertinent focus on delivering industry-specific solutions with customised services proves to be a key differentiator from the others. With increasing clients and an expanding geographical network through the Aegis legacy and own sales and marketing initiatives, the company is well poised to witness significant traction in profitability in the coming years. At Rs265 the stock is currently available at undemanding valuations of 3.9x and 3x FY2013E and FY2014E earnings respectively. Further, the company is a strong dividend play in FY2012 150% dividend, 33.5% pay-out). Going forward, with the company all set to receive a windfall of Rs97 crore through the sale of the Aegis stake (5.7 million shares at Rs170 per share) by December 2012, its per-share value works out to Rs68. Thus, there is a higher prospect of a special dividend pay-out in FY2013 over and above the usual dividend. We initiate coverage on AGC with a Buy rating and a 12-month price target of Rs400. At our price target the stock would be valued at modest 4.5x FY2014E earnings. 

RISH TRADER

>PTC INDIA

Recommendation: Buy (SHAREKHAN)
Price target: Rs71
Current market price: Rs60

Price target revised to Rs71

Result highlights

• Q1FY2013 results affected by lower rebate income: PTC India's Q1FY2013 results were significantly below expectations led by a fall in the rebate and treasury incomes. The company started selling power under power tolling agreements during this quarter and made an operating profit of Rs12.5 crore (approximately Re1/unit). Its management indicated that the sustainability of the profit of the power tolling business could be determined only after some time as the business is currently at a very nascent stage. The payment from the Tamil Nadu State Electricity Board (SEB) has started coming in. The company has already received over Rs175 crore from the SEB and expects to receive the balance (Rs450 crore) by the end of CY2012. However, the company is yet to receive the timeline for the payment due (over Rs450 crore) from the Uttar Pradesh SEB. 
• Top line fell by 20%: The top line of the company fell by 20% year on year (YoY) driven by a 18% year-on-year (Y-o-Y) fall in the realisation/unit while the trading volumes were in line with our expectation. The number of power units sold under the long-term contracts was stable at around 1 billion units on a yearly basis. The company started selling power under power tolling agreements (for the Simhapuri power project of 200MW) in this quarter and sold ~121.7
  million units. 
• Fall in rebate and treasury incomes mars profitability: The operating profit margin (OPM) fell to 1.6% from 1.9% in Q1FY2012. This was mainly due to a drop in the rebate income, which declined to Rs2.2 crore in the quarter from Rs23.4 crore in Q1FY2012. The overall operating profit fell by 33% on a yearly basis. The core trading margin (excluding the surcharges and rebates) dropped to 4 paise/unit from 4.7 paise/unit in Q4FY2012 owing to increased competition in the short-term trading market. The company is estimated to have earned a profit of Re1/unit on the power sold under the tolling agreements. It charges a 2% rebate on the payment in case of early payment while it charges a surcharge @ 15% per annum on delayed payments. 
• Net profit dropped by 49%: The other income decreased by 88% YoY led by a fall in the investments-the treasury income declined to Rs1.6 crore in Q1FY2013 as against Rs17.3 crore in the corresponding quarter of the last year. The positive surprise was the fall in the interest cost (became almost nil) as the debt level was maintained at zero throughout the quarter. Further, led by a higher tax rate, the profit after tax (PAT) fell by 49% to Rs22.9 crore, which is lower than our expectation of Rs40 crore. 
• Receivables remain high at Rs2,700 crore: For the quarter, the net cumulative receivables from the Tamil Nadu and Uttar Pradesh SEBs remained high at Rs930 crore with only Rs100 crore of payment received. The total receivables further increased from Rs2,581 crore in Q4FY2012. However, the company is sitting on a surcharge of over Rs150 crore on account a delay in receiving payments from the SEBs; this would boost the future profitability as and when the dues are received.
• Estimates downgraded by 10%: We have further downgraded our estimates for FY2013 and FY2014 by 10% each in view of the impending competitive margin pressure, the falling short-term trading volumes and the other income assumption. We expect the profit from the core trading business to post a compounded annual growth rate of 14.1% over FY2012-14. PTC India Financial Services (PFS) has reported a strong performance for the quarter (with its PAT up 124% on a yearly basis) led by a rise in its interest income from loan financing during the quarter. One of its power tolling projects aggregating 200MW was commissioned in early FY2013 and boosted its revenue and profitability during the quarter. 
• Price target revised to Rs71: We expect the overall power traded volumes to significantly increase on the back of the long-term power purchase agreements (PPAs) in the next two years when the undersigned power projects would start commercial operation. However, the recovery of payments from the SEBs and an improvement in the execution of power projects have become essential for keeping PTC India's growth story intact. We have increased our target valuation multiple of PTC Energy to 2x its FY2012 book value (from 1 x earlier) as the revenue from it's first power tolling projects started flowing in from Q1FY2013. However, on account of our downgraded estimates for the core power trading business, our sum-of-the-parts (SOTP) based price target has been revised downwards to Rs71. As the stock's current valuation still looks attractive at 0.7x FY2014 estimated book value, we maintain our Buy rating on PTC India.

RISH TRADER

>SELAN EXPLORATION TECHNOLOGY

Recommendation: Buy (SHAREKHAN)
Price target: Rs360
Current market price: Rs265

Price target revised to Rs360

Result highlights

• Performance remains flattish in absence of regulatory approvals: Selan Exploration (Selan) reported another quarter of a flattish growth in oil production in the absence of the regulatory approvals that are essential to take forward exploration and drilling activity and monetise the oil & gas assets (oil fields). The revenue growth of 15.2% year on year (YoY) was largely driven by the benefits of depreciation in the rupee and a marginal decline in the production volumes as part of the natural depletion of the resources in the existing wells. 
• Lower interest burden due to repayment of debt: At the profit after tax (PAT) level, the growth was marginally down YoY and grew by 11.4% sequentially due to the rupee's depreciation and a lower interest cost. The company utilised part of the cash on hand to repay its foreign currency debt and consequently it is practically debt-free now. 
• Looking at alternative means of utilising cash on hand: The upstream oil & gas companies in India have suffered due to the lack of regulatory approvals after the issues raised by the Comptroller and Auditor General of India (CAG) and the subsequent investigations by the law agencies. In the absence the approvals, the management indicated that it is actively looking at some proposals to acquire participatory interest in oil assets abroad. This would result in productive utilisation of the over Rs100 crore of cash left on the books after the repayment of its debt. We believe the management could also look at a buy-back in case it is not successful in carrying out an overseas acquisition. 
• Lack of regulatory approvals raises risk of de-rating of valuation multiples: The company had commenced drilling operations in Q1FY2012 and had brought in a seasoned professional team to speed up the process of monetising of its oil fields in the Cambay Basin, Gujarat. However, the policy inertia in government departments has resulted in unexpected delays in the regulatory approvals, which are essential to take forward the exploration and drilling programme. Though the management remains hopeful of receiving the approvals (at least partially in some fields) and is contemplating alternative means to productively utililise the cash on hand (it generates Rs35-40 crore of free cash annually at the current production level), the continued delay in the approvals could result in the de-rating of the valuation multiples. We are reducing our production volume estimates for FY2013 and FY2014 to factor in the concerns. Accordingly we revise down our target multiple of 4x EV/EBITDA (FY2014E) and hence downgrade our price target to Rs360. 

RISH TRADER

>UNITY INFRAPROJECTS

Recommendation: Buy
Price target: Rs95
Current market price: Rs45

Price target revised to Rs95

Result highlights

• Muted revenue growth; margins maintained though: In Q1FY2013 the net sales of Unity Infraprojects (Unity) grew by just 5% year on year (YoY) and dropped by 45% quarter on quarter (QoQ) to Rs395 crore, which is below our expectation. The sales were affected by the delays in obtaining approvals/clearances for certain government projects (government projects form 85% of Unity's order book) which led to the slow execution of these projects. However, on the operational front the operating profit margin (OPM) was in line with our expectation at 13.6%, which shows an expansion of 60 basis points on a yearly basis. The OPM is also better than the Q4FY2012 margin of 12.5% mainly because raw material prices were stable during Q1FY2013. The operating profit thus rose by 9.5% YoY.
• Higher interest charge resulted in a decline in PAT: However, the moderate top line performance and the margin expansion were nullified by the escalating interest charge, which rose by 33% YoY, resulting in an 8% drop in the profit after growth (PAT) to Rs18 crore (which is below our expectation). The depreciation charge, however, reduced sequentially as the capital expenditure done in the machinery lying idle has not been accounted for.
• However, healthy order book provides revenue visibility: Unity has bagged fresh orders worth Rs470 crore in FY2013 so far. This along with the orders worth Rs2,850 crore secured in FY2012 takes the total order book to a respectable position of Rs4,180 crore, which is 2.1x its FY2012 revenues. Thus, there is good revenue visibility for the company over the next two years. Of the present order book, 48% is from buildings, 23% is from the water segment and the remaining is from the transportation segment.
• One of three road BOT projects starts execution; while real estate portfolio still moving slow: Unity currently has three road build-operate-transfer (BOT) projects in its portfolio. Out of these, financial closure has been achieved for the two-laning of the Chomu-to-Mahla project in Rajasthan (after a delay) and work has started on the project. In addition, the concession agreement has been signed for one project out of the two recently won road BOT projects; the agreement for the other one will be signed soon. The two projects will achieve financial closure four to six months after the signing of the concession agreement. On the other hand, the real estate project in Nagpur has finally signed the management agreement with Hyatt and will start execution work post-monsoon. All the necessary approvals for the project are in place. However, the project in Bangalore maintains the status quo and expects the final approval in one to two months, as the new government settles down. 
• Estimates revised downwards: We have revised our revenue estimates downwards by 4% each for FY2013 and FY2014 to factor in the slower project approval, which will hamper the execution of the order book. Further, in light of this we expect the working capital need to rise which would result in higher borrowings. Thus, we have also increased our interest expense estimates. As a result, the earnings estimates stand revised by 10% and 13% for FY2013 and FY2014 respectively. 
• Maintain Buy with a revised price target of Rs95: We continue to like the company due to its strong order inflow momentum and healthy order book position in an adverse macro-environment. We also like its diversification into the road BOT space with prudent caution. The successful mobilisation of funds from a private equity would remove some overhang on account of the real estate projects. We have not given any value to Unity's road BOT and real estate projects which would add to the valuation whenever they gain some momentum. We maintain our Buy recommendation on the stock with a revised price target of Rs95. At the current market price the stock is trading at a price/earnings multiple of 2.8x FY2013E and 2.3x FY2014E earnings respectively.

RISH TRADER

>TELECOMMUNICATION SECTOR

Weak net adds; Uninor posts decline while Bharti leads

In July 2012 the GSM operators across India (excluding Reliance Communications [RCom] and Tata Telecommunications [Tata Tele]) added a meagre 1.70 million subscribers, taking the cumulative GSM subscriber base to about 679.05 million, an increase of 0.25% over the June 2012 base. 

The July 2012 net additions of 1.7 million represented a decline of about 63% month on month (MoM) following a 36% drop in the net additions in June 2012. This was the second consecutive month of a decline in the net additions.

The decline in the net addition numbers was led by Uninor, which posted a decline of over 1 million in the total subscriber numbers for the month. The major incumbent operators, Bharti Airtel and Idea Cellular, also posted a significant drop in their net additions.

View: The Indian telecommunications (telecom) space is plagued with a myriad of policy issues and regulatory uncertainty. The business environment also remains tough. We, therefore, maintain our cautious stance on the sector. However, amongst the listed telecom companies, Bharti Airtel appears to be the most resilient and agile to face the regulatory and competitive risks on account of its strong balance sheet. We, thus, prefer Bharti Airtel from a long-term perspective. Though in view of the business risk in the short term and the absence of any major triggers we have downgraded our recommendation on the stock from Buy to Hold and reduced our price target for it from Rs362 to Rs310.

RISH TRADER

>ISMT

Recommendation: Book out
Current market price: Rs22

Book out

Key points

• Unfavourable business environment: ISMT's performance has deteriorated with the softening demand environment and increased foreign exchange (forex) fluctuations. Over the last two quarters, the volumes in the steel segment have dropped by 27.2% year on year (YoY) in Q4FY2012 and by 20.5% YoY in Q1FY2013. The volumes in the tube segment have also dropped by 8.4% YoY in Q4FY2012 and by 6.1% in Q1FY2013. Going ahead, with the gross domestic product forecasts being downgraded to sub-6% levels, the domestic demand is expected to deteriorate which could lead to a further fall in the volumes. ISMT has also been unable to effectively manage forex fluctuations. In the last four quarters, the company has reported a total forex loss Rs50.8 crore, which is close to one-third of its earnings before interest and taxes (EBIT) of Rs146.3 crore in the same period.
• Limited benefit from its captive power plant: After a long delay in execution, ISMT commissioned its 40MW coal based captive power plant (CCP) in end May 2012. The company was expecting the CPP to save Rs60-65 crore in the power cost. However, it has been unable to secure coal supply at the indicated rates and the cost benefits of captive power supply are likely to get significantly reduced now. This was one of the major re-rating factors for the stock but has not played out well. 
• Valuation; cheap but could get cheaper: ISMT has got de-rated significantly due to a weak demand environment, margin pressure and its inability to manage forex fluctuation related losses. The long-awaited captive power plant finally got commissioned but in the absence of a secure coal supply at reasonable prices the cost benefits would get curtailed significantly. Thus, the financial performance is unlikely to improve materially in the coming quarters. The stock could continue to languish despite trading at 0.6x its book value. We are, therefore, suspending our coverage on the stock and would advise you to book out of it at the current levels.

 RISH TRADER

>ORBIT CORPORATION

Recommendation: Hold
Price target: Rs60
Current market price: Rs46

Price target revised to Rs60

Result highlights

• Results below expectation: Orbit Corporation (Orbit)'s Q1FY2013 consolidated revenues came in at Rs85 crore, which is below our expectation. The revenues were flat year on year (YoY) and declined by 31% quarter on quarter (QoQ) mainly due to weak execution of projects and poor pre-sales during the previous quarters. Revenues were booked largely from Orbit Terraces with a 56% share followed by Orbit Residency Park with a 27% contribution. The quarter witnessed poor execution of a few projects that are stuck or have slowed down for want of clearances and approvals.
• OPM expands but higher interest cost spoils the play completely: The operating profit margin (OPM) expanded from 38.3% in Q1FY2012 and 35.7% in Q4FY2012 to 39.6% in the quarter under review due to a lower raw material cost. On the other hand, in spite of the margin expansion, an escalating interest burden (up 77.5%) completely eroded the bottom line and resulted in a loss of Rs2.2 crore for the company. The company raised additional debt of ~Rs50 crore during the quarter taking the debt/equity ratio to 1x.
• Looking at partial or full exit in a few projects: Orbit is looking to partially or fully exit a few of its projects, namely Orbit Grandeur, Santa Cruz (an SRA project), the Kilachand project at Napean Sea Road and Orbit Midtown at Lalbaugh, all in Mumbai. If Orbit manages to successfully close these deals, it will help the company to bring down the debt on the books which is currently at about Rs1,000 crore. The management is eyeing Rs300-400 crore from these deals.
• Estimates revised downwards: We are reducing our earnings estimates for FY2013 and FY2014 by 28% and 14% respectively to factor in the higher interest cost and the persistent slower pace of approvals and clearances. Even the management has indicated that for the next three to four quarters project execution would remain slow because of the delay in obtaining approvals and few new launches in the pipeline. 
• Reduce to Hold with a price target of Rs60: Poor sales across projects due to regulatory uncertainty and the absence of new launches on account of the pending approvals and clearances had taken a toll on the company as well as the industry. Though the regulatory environment has started to improve but it is yet to gain momentum and would take another three to four quarters to do so. Till then the execution of the existing projects and the new launches will be rolling at a snail's pace. This would keep the inventory and the debtor levels high which will keep the debt level high in the books. Thus, the key thing to watch out for going ahead will be the success of the company in exiting a few of its projects to bring down the working capital pressure slightly. Hence, we downgrade the stock from Buy to Hold with a revised price target of Rs60. At the current market price, the stock trades at 12.1x and 6.2x its FY2013E and FY2014E earnings respectively. 

RISH TRADER

>Ratnamani Metals and Tubes

Recommendation: Hold
Price target: Rs129
Current market price: Rs115

Downgraded to Hold

Result highlights

• Revenues down due to sluggish performance of CS pipes: For the quarter ended June 2012, Ratnamani Metals & Tubes (Ratnamani) reported a mixed performance with the stainless steel (SS) pipes segment reporting a 24.8% year-on-year (Y-o-Y) revenue growth and the carbon steel (CS) pipes segment reporting a 28% Y-o-Y revenue decline. The net sales for the quarter dropped 2.5% to Rs282.3 crore. The overall volume fell whereas the realisation improved year on year (YoY) during the quarter. 
• OPM remains under pressure: The gross profit margin (GPM) improved by 600 basis points YoY to 39.1% on the back of an improvement in the realisations. The realisation for the SS pipes segment was up 30.5% YoY boosted by a delivery related to a nuclear plant deal. The realisation for the CS pipes segment increased by 14.2% YoY. The operating profit margin (OPM) was down by 190 basis points YoY to 16.8% due to the impact of a foreign exchange loss of Rs12 crore and freight charges, which are now borne by the company (effective from Q2FY2012). 
• Net profit down 24.7%: On account of a 12.8% fall in the operating profit, a 53.3% increase in the interest cost and a higher effective tax rate (32.6% against 30.1% in Q1FY2012), the net profit was fell 24.7% to Rs20.3 crore. The company's interest cost has been increasing quarter on quarter mainly due to the depreciating rupee because about 90% of its total debt of Rs255 crore is dollar denominated.
• Demand environment remains uncertain: The demand environment remains uncertain due to the existing volatile macro-economic environment. The export demand is resilient. The company's order book is improving. However, the pricing pressure remains. In the SS pipes segment, the demand for value-added products is improving. During the quarter under review, the volume of the SS pipes segment declined but its realisation surged mainly due to some deliveries relating to a nuclear plant deal. The deliveries under this deal would be recorded in Q2FY2013 as well. With regards the CS pipes segment, the demand remains volatile and the pricing continues to be under pressure. On the industry side, the company is witnessing demand from the refinery and power sectors.
• Downgraded to Hold: Ratnamani reported a soft performance for Q1FY2013 on account of the lower than expected performance of its CS pipes segment, the flat performance of its SS pipes segment and the higher interest cost. In view of the current quarter's performance and the domestic demand environment, we have tweaked our revenue estimates by 3.3% and 1.2% for FY2013 and FY2014 respectively. We have also revised our earnings estimates for FY2013 and FY2014 by 8.7% and 3.7% respectively. Accordingly, we have lowered our price target to Rs129 (5x FY2014E earnings). In view of the limited upside to the stock from the current levels, we have downgraded our rating on Ratnamani to Hold from Buy. The risk to our rating and price target remains a faster than expected revival in the demand environment.

RISH TRADER

> Q1FY2013 Banking earnings review

Divergence between the performances of private banks and public banks continues

• Earnings growth in line: During Q1FY2013, Sharekhan's banking universe reported an earnings growth of 24% year on year (YoY; ex State Bank of India [SBI]), which was in line with our estimate. However, the net interest income (NII) growth slowed to 17.6% YoY (from 22% in Q4FY2012 and 17.1% YoY in Q3FY2012) due to a decline in the net interest margin (NIM) and a slower business growth. 
• Pressure on margins to continue: The NIM on an average declined by 15 basis points QoQ in Q1FY2013 (Bank of India [BoI] and SBI posted the highest decline) led by a rise in the cost of funds, a decline in the yields and a reversal of interest on slippages. Going ahead, the reduction in the lending rates (in the retail, small and medium enterprises [SME] segments) and the relatively higher deposit rates will continue to put pressure on the margins which will affect the NII growth.
• Asset quality weakens though divergence continues (PSBs vs private banks): The slippages rose sharply for the public sector banks (PSBs; especially SBI, Punjab National Bank [PNB] and Union Bank of India [UBI]) leading to a rise in the non-performing assets (NPAs). The restructured assets also expanded across PSBs. However, the private banks largely maintained their asset quality at healthy levels.
• Top picks: ICICI Bank, Federal Bank and SBI: The Q1FY2013 results clearly reflect the impact of the worsening macro environment on the performance of banks. The gross domestic product (GDP) growth estimates are being revised downwards while the inflation estimates are being raised (due to a deficit rainfall, high fuel prices) which could increase the challenges for the banking sector in terms of business growth, NIMs and asset quality. This could ultimately affect the earnings growth of the sector. Going ahead, the slippages and restructuring will continue albeit at a lower pace for the PSBs and that is partly reflected in the valuations of banks. The private banks are likely to outperform the PSBs and maintain a decent earnings growth and asset quality. We prefer ICICI Bank (which sustained the improvement in its earnings and asset quality) and Federal Bank (whose valuations are attractive) among the private banks. Among the PSBs we prefer SBI (due to its strong core performance and attractive valuations after the correction in stock price.

RISH TRADER

>IRB INFRASTRUCTURE DEVELOPERS: Strong execution drives growth

Earnings above estimates, margins expand: For Q1FY2013 IRB’s consolidated revenues grew by 22% YoY and 15.5% QoQ led by a strong execution in the EPC segment and consistent toll collection across projects. The OPM improved sharply on account of margin expansion in the EPC segment to 43.4% vs 41.1% in Q1FY2012. However, the PAT growth was restricted to only 5.7% YoY to Rs142 crore due to an 80% surge in the depreciation and a 31% increase in the interest charge.

Strong performance by EPC segment; BOT continues to be stable: The EPC vertical posted a strong growth of 27% YoY led by robust execution across projects. The margins expanded to 27.9% against 22.8% in Q1FY2012 due to range-bound raw material prices. The PAT was up 37% YoY. The BOT division continued to be stable with revenues up 10.4% YoY largely led by (i) 6% toll revision at the Tumkur- Chitradurg project; and (ii) a strong traffic growth across a few projects YoY. The OPM improved by 110 basis points YoY to 88.2%. Due to a sharp jump in the depreciation the PAT fell by 35% YoY but rose by 13% QoQ.  Thus earnings estimates revised upwards: We have revised our earnings estimates upwards by 15% and 7% for FY2013 and FY2014 respectively to factor in the expansion in the EPC margin in Q1FY2013.

Maintain Buy with price target of Rs175: With a mature portfolio now, the management plans to reward the shareholders with a dividend of up to 20% of the PAT. Further, it is also looking at growing inorganically by acquiring operational projects. Notwithstanding the legal tangle of its promoter and the recent Maharashtra Navnirman Sena attack on its Mumbai-Pune Expressway, we believe the sharp correction offers a compelling buying opportunity. At the current price the stock is trading at 7.6x and 8.4x its FY2013E and FY2014E earnings respectively.

RISH TRADER