>CEMENT SECTOR (MOTILAL OSWAL)

■ India Cements’ 4QFY09 results were lower than our estimates, with EBITDA margins of 25.4%. Higher RM cost and higher other cost impacted performance. The management gave positive outlook for the industry for FY10, and expects marginal improvement in FY10 realizations over FY09.

■ Net sales grew just by 5.3% to Rs8.9b, being impacted by 5.5% YoY decline in volumes to 2.32MT. However, realizations were higher by 2.9% QoQ (~10.7% YoY) to Rs3,733/ton, benefiting from part retention of excise duty cut. Volume growth was impacted by on-going brownfield expansions and power cuts in TN & AP. Income from IPL of Rs165m for 4Q and Rs685m for FY09.

■ EBITDA de-grew by 14% to Rs2.25b, resulting in EBITDA margins contraction of 570bp YoY (~150bp QoQ improvement) to 25.4%. Margins were impacted by higher RM cost and higher other expenditure. Higher depreciation, higher interest and lower other income further restricted recurring PAT to Rs1b (~26% YoY decline).

■ Setting up CPPs, plans to acquire to coal mines: India Cement is planning to set-up 100MW CPP in Tamil Nadu and Andhra Pradesh with capex of Rs5b. However, its investment in CPP would depend on the structure of ownershipof these assets. Further, it is pursuing coal mining rights in Indonesia to meet its coal requirements.

■ We are downgrading our EPS estimates for FY10 by 4.3% to Rs20.3, but maintain FY11 EPS at Rs14.7. Downgrade in FY10 estimates is to factor in for higher RM and other expenditure as well as EBITDA losses in shipping business. The stock is valued at 6.5x FY10 EPS (fully diluted, ex-treasury stock), 3.6x FY10E EBITDA and US$59/ton (at 14MT capacity). Maintain Buy.

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>AIA ENGINEERING (ENAM SECURITIES)

NEAR TERM VISIBILITY IMPACTED BY SLOWDOWN
AIA Engineering (AIAE) FY09 results were in line with our estimates. On a consolidated basis, AIAE reported revenues of Rs 10.3 bn (up 45% YoY), EBITDS of Rs 2.6 bn (up 39% YoY) and adj. PAT of Rs 1.7bn (up 28% YoY). Due to uncertain export-market outlook (esp mining); the mgmt yhas not given specific revenue guidance but is cofident of maining margins.

FY09 result highlights and concall | takeaways

■ Sales volume were up 11% YoY to 95,348 MT, largel due to strong H1FY09 (~22% growth).
■ Margins: Bcaked by favourable sales mix and weaker INR, realizations increased ~32% YoY to Rs 108/kg.
■ MTM: AIAE partially hedges its forward sales (30-40%). In FY09, it booked gross MTM loss of Rs 320 mn (Rs 200 mn net MTM).
■ Balance sheet: Reduction in debtor (66 days) and inventory days (45 days) was noteworthy. Net cash increased to ~Rs 2.7 bn.

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>INDIAN IT SERVIES (JP MORGAN)

1QFY10 preview: Expect quarter to be in line with guidance and consensus; Management outlook on demand recovery is key

• We expect an in line 1QFY10 quarter, meeting management guidances and consensus estimates. We expect volumes to be largely stable Q/Q, with a slight follow-on impact of price declines. As a result, US$-revenues should be flat to marginally down Q/Q, with Rupee/US$ appreciation leading to Rupee revenues being down 5-7% Q/Q. EBITDA margins should contract due to lower utilization and currency, leading to 5-15% Q/Q EBITDA declines. However, EPS performance could vary dramatically due to different hedging policies. On a company specific basis, we expect Infosys performance to be weaker than TCS/Wipro due to investments in sales and marketing and limited hedging.

• We believe that the key in 1QFY10 results is the outlook for 2QFY10 and qualitative management commentary on demand. We expect all companies to indicate an improving business environment, more deal closures and acceleration in ramp-ups. Further, we expect companies to indicate low-to-mid single digit revenue growth in 2QFY10, at the higher end of consensus expectations. With Infoys being the only large player providing FY10 guidance, we do not expect material change in Rupee guidance as Rupee/US$ appreciation would offset any benefit on business improvement.

• Investment view: We have been fundamentally positive on the sector given our view of improving business outlook for offshore players and low consensus expectations. We expect 1QFY10 results and management commentary to confirm this trend and lead to upgrades in consenus estimates. In term of stock prices, a sharp upmove in the last few weeks could mean a near-term breather – we would be buyers in such a correction on a 9-12 month view.

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>RELIANCE INDUSTRIES (CITI)

Hold: News Flow a Bigger Driver than Crude Prices

■ Dependent on gas — Since most of RIL’s E&P revenues are dependent on gas, the company is not materially affected by changes in our global crude price forecasts.

■ Downside to fair value after the court verdict — Our current fair value of Rs1,835 incorporates a value of Rs729 from E&P assets based on 12x FY11E EV/FCF. Following the court verdict on the RIL-RNRL case, this E&P value could decline to Rs544/share assuming that RIL begins its supply of 28mmscmd of gas FY11E onwards (which is clearly a worst-case scenario given ADAG’s non-readiness of power plants to intake gas). FY11E EPS could decline to Rs151 in this case from our base case of Rs165. If 12mmscmd gas to NTPC is also sold at US$2.3/mmbtu, then E&P valuation reduces to Rs465 and EPS to Rs145.

■ NAV erosion is lesser — Based on this judgment, we estimate that our NAV of RIL’s E&P business would be reduced to Rs467/share from Rs521 earlier. If gas to NTPC is also sold at lower prices, we estimate the NAV to drop to Rs452.

■ D6 under control, new exploration will have to wait — The company is aiming at 40mmscmd by end-Jun and 80mmscmd by end-FY10. Exploration wells in other blocks would be in 2HFY10 – with one rig from D6 and one new delivery. Entry in domestic oil retailing is likely to be gradual and at a controlled pace.

■ Balance sheet — Net debt was Rs280bn. FY10E capex guidance at US$4.5- 5.0bn includes RPL’s remaining capex of US$0.5bn (total project cost of US$6.5-7.0bn).

To see full report: RELIANCE INDUSTRIES