>IDBI BANK (SKP SECURITIES)

Capital infusion, fuel for growth:
■ As on 31st March 2010. Tier 1 capital of IDBI Bank was 6.2%, which is lower than the RBIs suggested level of 8%.

■ To increase the Tier 1 capital to 8% GOI is expected to infuse capital of Rs.31000 Mn. by way of preferential placement of equity.

■ This will provide headroom to IDBI bank to raise funds to support its business growth.

Healthy business growth:
■ With the capital infusion, IDBI Bank would be in position to grow its business above the industry average, though achieving the previous high growth rate will not be possible. We believe that Total business for IDBI Bank will grow at the CAGR of 24% from FY09 to FY12E.

■ This growth would be supported by:
1. Branch expansion.
2. Capital infusion.
3. Targeting infrastructure lending.

Increased emphasis on CASA deposits:
■ IDBI Bank has been depending on borrowings to support its lending business. Now bank is emphasizing on deposits to support its lending, leading to decreased cost.

■ The bank has been growing its concentration on mobilizing the CASA deposits as witnessed by the CASA ratio trend which we estimate to increase from 14.78% in 2009 to 17% by 2012E.

Robust profitability:
■ Reshuffling of deposits and skew ness towards low cost deposits will improve margins and on this basis we expect to see growth in NII by 56% and 36% for FY2011E and 2012E respectively.

■ Fee based income is also expected to grow in line with growth in credit, helping to sustain high growth in PAT.

Valuation
At present IDBI Bank is trading at 1.2x Adj. BV of FY10. Our target price of Rs.154 is 1.2x and 1.1x to Adj. BV per share of FY11& FY12 respectively.

We hereby initiate coverage on IDBI Bank and recommend buy rating with a target price of Rs.154/- (24% upside) in 12 months.

To read the full report: IDBI BANK

>International Conveyors Ltd.: …conveying a robust growth story

Market leader in PVC conveyor belting
■ ICL is the market leader in the Indian PVC mine conveyor belt industry, where it has around 45% market share.
■ ICL is one of the major suppliers of underground PVC Belting for carrying coal & potash, and presently supplies over 150 km of PVC belts of various widths and strengths to underground coal mines in India.
■ With increasing focus on the underground mining by the domestic players, ICL is set to corner a sizeable share of the underground PVC belting business.

Stringent testing resulting in durable and quality products
■ ICL’s state of the art testing facilities ensure stringent quality control for conveyor belts at each and every stage of production process.
■ ICL’s conveyor belts are 50% more durable than the conventional conveyor belts, resulting in a superior value for money proposition.
■ The company’s products are approved by the respective authorities in India, US, Australia, Canada and South Africa — thus providing testimony to the quality of the products.

Superior products and customization created a loyal set of customers
■ The company customizes its R&D as per the customers’ requirement, as well as provides onsite training and demonstration at customers’ premises, thereby extending its services beyond the transactions.
■ The customization and product quality resulted in a high proportion of repeat business from the existing customers of ICL.

Technical capabilities acting as an entry barrier
■ The technical knowhow of manufacturing solid woven fabric reinforced PVC impregnated and PVC covered fire retardant, anti static conveyor belting requires atleast 5-6 years’ gestation period. Hence, ICL’s technical prowess works as an entry barrier for potential new entrants in this field.

To read the full report: INTERNATIONAL CONVEYNORS

>GREAT EASTERN SHIPPING LIMITED (SKP SECURITIES)

Company Profile
Great Eastern Shipping Ltd (GESL) is India’s largest private sector shipping company. The company has two main business: shipping and offshore. Shipping involves transportation of crude oil, petroleum products, gas and dry bulk commodities. Currently, company has 37 ships comprising of 31 tankers with average age of 10.9 years and 6 dry bulk carriers with average age of 13.6 years. The offshore business imparts services to the oil companies in carrying out offshore exploration and production (E&P) activities through its fifteen vessels.

Investment Rationale
Substantial value unlocking in offshore business
• Looking at the potential of offshore business, company is expanding its fleet size aggressively. GESL will be having youngest fleets in offshore segment by FY12 with an average age of 3 years. GESL has a capex plan of USD 362 mn (approx Rs. 1630 crore) for nine more assets.

• GESL is planning to list its wholly owned subsidiary, Greatship India as a separate entity. Separate Listing of offshore segment would provide an opportunity to GESL’s shareholders to unlock higher value.

Committed capex for shipping business
• GESL plans to add eight new fleets by FY12 with capex of around USD 577 mn (approx Rs. 2600 crore) aggregating 1.31 mn. dwt. Higher dividend pay out ratio and healthy cash position

• GESL with its higher dividend pay out ratio and healthy cash position is expected to give constant returns over a longer period.

Expertise in sale and purchase of vessels
• Second hand market for sale of ships had been constantly and judiciously used by Great Eastern Shipping Ltd near peaks of shipping cycles that has enabled company to realize significantly superior assets prices.

Turnaround in the world economy & favorable movement of freight rates
• For 2010, International Energy Agency (IEA) has revised its forecast of oil demand significantly upwards to 86.3 million barrels per day. Increased oil demand, accelerated phase out of single hull tankers, continues slippage and cancellation of order book will keep tanker rates
firm in near future.

• GESL with its 80% fleet size in tanker segment is well poised to take advantage of accelerating tanker freight rates.

Valuation
At current market price of Rs. 299/-, the stock is trading at P/E of 6.0x and 4.6x for FY11E and FY12E earnings respectively and with an EV/EBITDA of 5.2x in FY11E and 4.4x in FY12E. Our SOTP based target price stands at Rs. 363, which represents 21% upside from current level. We hereby initiate coverage on GE Shipping Ltd. and recommend buy rating with a target price
of Rs. 363 in 12 months.

To read the full report: GREAT EASTERN SHIPPING

>BALRAMPUR CHINI MILLS LIMITED (SKP SECURITIES)

Company Profile:
Balrampur Chini Mills Ltd. (BCML), promoted by K.N.Saraogi in 1975, is one of the largest integrated sugar companies in India. The allied businesses of the Company comprise of distillery operations, cogeneration of power and manufacturing of bio-composites.

Investment Rationale:
Sugar demand exceeding supply: Due to a demand-supply mismatch, the sugar prices have started to soar upwards. Against an estimated consumption of 23 million tonnes in SS 2009, the
sugar production is only projected to be 14.5 million tonnes.

Leader in the Eastern UP market: BCML is the largest sugar manufacturing company in eastern UP, which gives it an edge in procuring sugarcane in the region, where the cane prices are lower
than rest of the state. Also, the ground water level in the Eastern UP region is accessible at lesser than 100 feet, making the sugar cane produce lesser susceptible to droughts or low rainfalls.

One of the largest and most efficient integrated sugar companies in India: BCML is one of the largest sugar companies in India. Along with sugar, the company also has power and distillery businesses, which make its business model superior.

Outlook & Recommendation:
With the festive season round the corner, the demand for sugar is expected to go up. As the consumption is about to outweigh demand, the domestic sugar prices have already touched a 30 year high, and is projected to move up even further. BCML is well poised to substantially gain from the price rise, on account of lower contracted import cost, improved margins and better realizations.

We recommend a BUY on the stock with a 12 month target price of Rs. 157 at 10x FY10E earnings, giving it an upside potential of 39%.

Indian sugar industry overview

• India is the second largest producer of sugarcane next to Brazil. Presently, about 4 million hectares of land is under sugarcane with an average yield of 70 tonnes per hectre. The Indian sugar Industry is the second largest agro processing industry in India and it accounts for 15% of the total world consumption. About 50 million people are employed in this industry, that roughly contributes Rs 3000 crore to the Government exchequer. India's average recovery rate at 10.27% is quite meagre in comparison to the international average.

• Indian sugar industry is divided into organized and unorganized sector with the former accounting for 20 % of the total production. Sugar Industry is a cyclical industry with two years of deficit followed by two years of surplus, influenced by the production of sugarcane.

• In India, sugarcane is the key raw material for the production of sugar. Most of the sugarcane produced in India is a 10- 12 month crop planted during January to March. In northern Maharashtra and parts of Andhra Pradesh and Karnataka, there is also an 18 to 20 month crop. In most areas, the 12-month crop is followed by just one ratoon crop, that is, a new crop grown from the stubble of the harvested crop.

• At present, sugarcane is being cultivated throughout the country except in certain hilly tracts in Kashmir, Himachal Pradesh, etc. The sugarcane growing areas may be broadly classified into two agro-climatic regions—subtropical and tropical. The major sugarcane producing states in the sub-tropical areas include Uttar Pradesh (UP), Uttaranchal, Bihar, Punjab, and Haryana. In tropical areas of India, sugarcane is grown primarily in Maharashtra, Andhra Pradesh (AP),
Tamil Nadu (TN), and Gujarat.

• The sugarcane price in India is paid on the basis of weight of cane while in most other sugar producing countries, the same is paid after taking into account the sucrose content of the cane supplied to the mills. The latter system has an advantage as it provides incentives to the growers to plant high sucrose varieties and adopt cultural practices which increase the sucrose content of the cane at the time of its supply to the mills, including harvesting of cane at maturity and minimizing the time involved from harvesting of cane and its supply to the mills.

• The process of manufacturing sugar starts with pressing of sugarcane to extract the juice. Then it is followed by boiling the juice until it begins to thicken and sugar begins to crystallize. The crystals are spinned in a centrifuge to remove the syrup, producing raw sugar.

• The raw sugar is then transported to a refinery where it is washed and filtered to remove remaining non-sugar ingredients and color. Crystallizing, drying and the resultant packaging of the refined sugar then follow it.

By-Products of Sugar

• One tonne of sugarcane crushed gives 100 kg of sugar, 350 kg of bagasee and 45 kg of molasses and around 500 kg of pressmud. The 350 kg of bagasee can be converted to generate around 100 units of power. The 45 kg of molasses can be converted into 11 ltrs of ethanol. Hence, a tonne of sugarcane crushed gives 100 kg of sugar, 11-12 ltrs of ethanol and around 100 units of power.

• Bagasse is the fibrous material that results from the extraction of juice from the sugarcane. It can not only be used as a fuel for co-generation plants but also for the purpose of manufacturing paper, newsprint, insulation board, furniture and others.

• Pressmud, another by-product obtained in sugar factories contains sizeable quantity of micro and macronutrients besides around 20% of organic carbon. The organic manure made out of Press mud maintains Soil health, sustains sugarcane and sugar production, improves soils physical properties, retains soil moisture and reduces the erosion hazards. Application of enriched press mud, either alone or in conjunction with Bio fertilizers recorded higher sugarcane yield and sugar recovery.

• Molasses is a brownish liquid that is created during the crystallization of brown sugar in the refining process. It is used not only as a mixed cattle feed but also for manufacturing industrial and potable alcohol.

• Ethanol, resulting from the processing of molasses is used as an additive in fuels like petrol. Currently in India, 5% blending of ethanol in fuel is mandatory (in 9 states). Government is also looking into several options to increase its share to 10%.

To see full report: SUGAR SECTOR

>GREAT OFFSHORE LIMITED (SKP)

Company Profile:
Great Offshore Ltd (GOL) is the largest offshore oilfield service provider to upstream oil and gas companies to carry out offshore E&P activities.The Company currently operates in four major business areas viz offshore drilling services, offshore logistics support services, engineering services and port & terminal support Services. GOL owns state of the art vessels which includes two drilling rigs, twenty seven OSVs, one construction barge and eleven harbour tugs. It generates nearly 80% of its revenues from ONGC.

Investment Rationale:

Ventured in port management and single point mooring operations: GOL has forayed in to port management and single point mooring operations by acquiring 100% equity stake in two Hydrabad based companies KEI-RSOS Maritime Ltd. (KEI) and Rajamahendri Shipping & Oilfield Services Ltd (RSOS) with purchase consideration of Rs 1.6 bn. This EPC accretive acquisition is in line with Great Offshore's strategy of maintaining its leadership in the port & terminal and offshore logistics servises.

Strengthening its fleet by adding new vessels: GOL has ordered two new vessels - a jack up shallow water drilling rig and a MSV with an aggregate cost of USD 168 mn and USD 68 mn respectively. The total number of vessel will become 43 with these two additions by FY11.
Currently the company owns 41 offshore support vessels inclusive of two drilling rigs.

Increasing oil Import bills - Creating Strong demand for offshore vessels: The demand for rigs is expected to rise globally in response to increasing crude prices. India is the net importer of the crude oil. Its import bill has rose to USD 76.61 bn in FY09 from USD 48.39 bn in FY07 due to increase in petroleum demand and rising crude prices. This has led the government to intorduce various policies (NELP for instance) to give boost to E&P activities which are expected to create strong demand for offshore service vessels in the near future.

Outlook & Recommendation:
At the current market price of Rs 360, the stock is trading at a P/BV of 1.16x and 0.95x of FY10E and FY11E book value of Rs 310 and Rs 378 respectively.

We recommend BUY rating on the stock with a target price of Rs 454/- (26% upside) in 12 months implying a P/BV multiple of 1.2x of FY11E book value.

Industry Overview
The offshore shipping industry is highly dependent on oil exploration and production (E&P) activities. The global E&P activities continue to be buoyant on account of robust crude prices, strong demand from India and China and tight OPEC supplies. Oil accounts for around 33% of India’s total energy consumption. India faces a large supply deficit, as the domestic oil production is unlikely to keep pace with demand. This makes India a net importer of oil.

To see full report: GREAT OFFSHORE

>Shriram Transport Finance Company Ltd. (SKP Securities)

Company Profile

Shriram Transport Finance Company Ltd. (STFC), a flagship company of the Shriram group is India’s largest asset financing institution with a pan-India presence. It provides finance to almost 600000 customers and enjoys a track record of almost three decades (since 1979) in this business. STFC is mainly engaged in financing commercial trucks between 5-12 years. It’s consumer base consist of Small Truck Owners (STOs) and First Time Users (FTUs) with market share of 20-25% in preowned CV financing and 7-8% in new CV financing segment.

Investment Rationale

· Unique Business Model – A steering towards growth

STFC has created niche in financing the small fleet operators. It follows a relation based business model thereby substituting formal credit evaluation tools. The relationship based management helps the company to keep a close check on their credit profile, ensure ready business thus maintaining peer pressure thereby restricting defaults. Accordingly the company’s NPAs are restricted below 2%.

· Robust growth in loan book

STFC is aggressive in lending the small ticket size segment through referrals. Simultaneously it maintains client and truck wise exposure with the LTV restricted to 65%. The company has also introduced a wide range of products to the segment and arranged various road shows and truck utsavs. This has helped STFC to widen its reach and increase its disbursements to Rs. 11590 crore. Going forward, we expect disbursements to grow at 35% CAGR (FY08-FY11) and reach to Rs. 28215 crs.

· Margins to remain intact

STFC being the NBFC, it doesn’t have access to low cost funds like banks. Therefore over the years it has reduced borrowing from retails, which lowered its cost of funds. Since the company mainly finances the small operators, the yield earned on assets is quite high. This helps to keep the NIMs intact at approx 7%. The lower branch and employee cost helps to maintain lower operating cost, thereby keeping the PAT margins at 16%. We expect NIMs and PAT margins to be in the range of 7-8% and 13- 15% respectively.

· Efficient collection system to restrict credit losses below 2%

STFC mainly finances STOs & FTUs who has underdeveloped or no banking habits. Collection is always a challenge as these people are scattered in remote areas. To overcome this issue, STFC made its employees responsible for recovery in cash on every installment due date. This helps to keep an eye on the financial position of the customer and take adequate steps to reduce the credit losses below 2%. We expect STFC to maintain same level of credit losses inspite of prevailing challenging scenario.

· AUM to grow at 25% CAGR over FY08-FY11

STFC registered more than 60% growth in AUM from Rs. 12038 cr in FY07 to Rs. 19520 cr in FY08. The growth was mainly achieved due to availability of ready funds to the company. The inflow of funds leveraged company’s brand, customer base, wide reach and strong business model. Going ahead we expect the same factors to drive the growth of AUM to Rs. 37619 cr. by FY11.

Outlook & Recommendation

STFC being a leader in the financing of the STOs and FTUs, the unique business model will act as a support to survive in the prevailing slowdown and restrict its losses below 2%. We value the stock at 1.50x FY 11E book value implying a price target of 247 (33% upside) in 12 months and recommend accumulate rating on the stock.

To see full report: STPC

>Balkrishna Industries Ltd - SKP - 23 12 08

Balkrishna Industries Ltd (BIL), world's premier manufacturer of pneumatic tyres for special applications was incorporated on November 20, 1961. It focuses on the production of off-highway tyres that includes agricultural, industry, material handling, forestry, lawn and garden, construction and earth moving tyres. The company operates mainly in the business segment of tyres which by virtue becomes its core business. It's other businesses are fabric processing and paper manufacturing which has been transferred to its subsidiaries BKT Synthetic Ltd. and BKT Paper Mills Ltd.

At current market price of Rs. 174/-, the stock is trading at P/E 1.93x and EV/EBIDTA 2.30x of FY 11E earnings and EBIDTA respectively. We recommend accumulate rating at our target price of 237 (36% upside) in 18 months, it would trade at 2.6x FY11E earnings

Life is like a piano, white keys are happy moments and black keys are sad moments. But remember both keys are played together to give Sweet music in life...

To read full report Balkrishna Industries Ltd - SKP - 23 12 08