>TIME TECHNOPLAST LIMITED (KOTAK SECURITIES)

The Innovative Package

Time Technoplast Ltd (TTL) is the market leader in India in the polymer based industrial packaging industry with a market share of more than 75%. The company has a technical collaboration with Mauser Germany for packaging products.

TTL has key strengths in polymers, technology and innovation. Based on this, it has successfully diversified into high-end polymer based innovative applications for infrastructure, healthcare, auto components, and lifestyle products that typically enjoy higher margins. It has also diversified into telecom battery business and formed a JV with Schoeller

Arca Systems for material handling solution and systems. We believe the recently commissioned new plants in India, Poland and Sharjah, expansions, acquisitions and a strong product pipeline would lead to 21.9% growth in revenues and 33.8% growth in profitability for the company in FY10E. We are positive on the long term growth prospects of TTL. Therefore, we are initiating coverage with a BUY recommendation on TTL with a price target of Rs.60 (50% upside potential) over a 12-month horizon. This is based on the DCF method of valuation, with 13.2% WACC and 4.0% terminal growth rate.

Key Investment Rationale
■ Market leader in industrial packaging. TTL is the market leader in the industrial packaging segment with more than 75% market share. These are used as barrels or containers for packing by users in specialty chemicals, paints, inks, pharmaceutical intermediates, FMCG intermediates, construction chemicals, additives, lube oils and food industry among others.

■ Tie up with Mauser-Werke GmbH of Germany. The company has a tie up with Mauser-Werke GmbH of Germany, which is one of the largest producers of intermediate bulk containers, plastic, steel and fiber drums in Europe and the US with annual revenues of more than $1.0 bn. Mauser has a presence in over 54 countries worldwide through its licensees.

■ Strengths - Polymers, technology and innovation. TTL has key strengths in polymers, technology and innovation. Based on this, it has successfully diversified into high-end polymer based innovative applications for infrastructure, healthcare, auto components, and lifestyle products that typically enjoy higher margins. It is important to note that all its products are based on the polymer platform primarily to replace metals and to give superior strength and overall performance utility to its customers. The company believes in R&D and has developed most of the products in-house.

■ Foray into battery business. TTL has diversified into telecom battery business by acquiring Hyderabad based NED energy systems and Bahrain based Gulf Powerbeat WLL. Through the acquisitions, TTL plans to leverage NED's technology in automotive batteries to achieve significant growth for its well established automotive segment where it enjoys strong relationships with major OEMs as Tier-I supplier. We expect the battery vertical to contribute more than 20% to the overall revenues of the company from FY10E onwards and it has high growth potential, going forward.

To see full report: TIME TECHNOPLAST

>SUZLON ENERGY (MOTILAL OSWAL)

■ Below estimate 4QFY09/FY09 performance on continued one-offs: During 4QFY09 Suzlon reported below estimated EBITDA of Rs3.1b (-67% YoY) and adjusted net profits of Rs190m due to non-linear increase in other operating costs to Rs12.7b (+145%YoY, 57%QoQ). Also, the FY09 EBITDA was impacted due to increase in the other costs of Rs6.5b (part of which is non-recurring majority of which is booked in 4QFY09), including: (1) Availability loss on installed WTG of ~Rs2.8b, (2) Liquidity damages of ~Rs2.8 due to delays in commission, shipment etc, and
(3) higher consultancy and financial costs of ~Rs1b.

■ Lower order book, realizations; higher fixed costs to impact FY10 WTG performance: Current order book for the WTG business stands at 1,463MW (-57.6% YoY, -23.6% QoQ), which provides visibility for only next 2-3 quarters. For FY10, per MW realization is also likely to witness decline of 5-7%YoY. We model FY10 revenues of 2,400MW, at lower end of management guidance of 2,400-2,600MW. With the current order book of just 1,463MW (including 200MW to be delivered in FY11), our assumptions look challenging since the company will need to secure orders during next 2-3 months to achieve these volumes for FY10. Also, higher fixed costs at lower volumes will impact FY10 performance. We are estimating just Rs414m of net profit in FY10 as against Rs6.3b in FY09.

■ Cutting earnings; maintain Neutral: We have cut our FY10 and FY11 earnings by 36% and 31%, respectively, to factor in lower volumes and very high fixed costs. We are less optimistic about Suzlon’s ability to reduce fixed costs, and thus higher volumes would be the only upward risk to our estimates. Maintain Neutral with target price of Rs95, based on 18x FY11 earnings for WTG, Hansen and REPower.

To see full report: SUZLON ENERGY

>SOUTH INDIAN BANK LIMITED (FINQUEST)

Investment Rationale

■ Being conservative in FY09 due to bleak economic scenario has led SIB in strong footing to capitalise on better economic prospects ahead. We expect SIB's advances and NII to grow at a CAGR of 20% (vs 16% in FY09) and 16% respectively over FY09-FY11E. We believe that faster re-pricing of deposits coupled with strong growth in advances will stablise NIMs at 2.8 % levels.

■ In Q4FY09, NPA have shown steep rise due to a technical slippage of INR 1bn in one major account. However, the account has become performing and has been upgraded in the current quarter. Going forward, we expect that the aggressive recovery policy and cautious lending will keep NPA under check.

■ The bank has large number of loyal NRI clients that contribute about ~20% to the bank's deposits. About 45% of its deposits comprise of low-cost CASA deposits and NRE deposits. SIB is planning to open 45 more branches mainly in northern states which will improve CASA ratio.

■ We expect SIB's fee income to grow at a CAGR of 18% and overall non interest income to grow at a CAGR of 12% over FY09-FY11E. The bank has recently tied up with LIC, Mutual Funds and Insurance companies to distribute their products and is targeting income of INR 1bn from distribution of these products. We also expect increase in volumes of remittances and forex to boost fee income growth.

■ We expect SIB's earnings to grow at CAGR of 19% over FY09-FY11E led by 16% CAGR growth in net interest income. Resultantly, ROE will increase to 17 %( by FY11E) whereas RoA will remain above of 1% levels.

Valuations
SIB is trading at an attractive valuation of 0.7x FY10E ABV. Peer banks like KTK Bank, KVB etc continue to trade at 1x FY10 ABV, although operational parameters are comparable with SIB. We therefore believe that SIB’s valuations will catch up with peer banks. Our target price of INR 120 for the stock (based on DDM model) discounts 1x FY10E ABV. We recommend Buy on the stock.

To see full report: SOUTH INDIAN BANK

>SABERO ORGANICS (ANAND RATHI)

A MULTI-BAGGER STOCK

Investment Argument
• Company is an integrated agrochemical player and largest producer of 2 of its key products [ Mencozed & Glyphosate ], in India and second largest in world.

• Capacities of its key products doubled recently [in Jan’09], full benefit of which will accrue from current year onwards. Withmost of the production tied up for sales to large MNCs, accounting for almost 70% of total sales, hence domestic monsoon conditions will have limited impact on sales.

• With over 200 product registrations of bulk & 45 for formulations across 35 countries, export potential is huge.

• Company is targeting to grow from current sales of Rs 366 Crs to around Rs 1000 Crs in next 3 years, with commensurate rise in profits.

• The valuations of company deserve a re-rating because – post Chinese Olympics, dynamics of industry changed for better. [This is following Chinese stricter norms for environmental protection, leading to closure of capacities and for remaining plants, there was a rise in cost due to installation of waste/water treatment facilities]. This led to a general rise in product prices since last year.

• This led to a general improvement in margins for this industry, which is yet not captured in by valuations of this sector, [which were very poor traditionally due to low margins], now needs to
be re-rated due to better margin trend.

• The Present Mkt cap [Rs 80 Crs] of company is less then 25% of the sales for ’09, and replacement cost is just 30%. Thus offering huge scope for appreciation.

• At present stock discounts 2010 earnings by just 2X and going by stated target of attaining Rs 1000 Crs turnover in 2-3 years, it deserves at least 4-5X discounting, leading to one year target of
Rs 48-60 and 2 years target of Rs over Rs 75-90.

To see full report: SABERO ORGANICS