>INDRAPRASTHA GAS LTD. (CD EQUIRESEARCH)

Company Brief
Indraprastha Gas Ltd., incorporated as a JV between GAIL, BPCL and the Delhi government, is the sole supplier of CNG to transport sector, PNG to domestic & commercial sectors & R‐LNG to industrial sector, in the National Capital Region (NCR) of Delhi.

Highlights
■ The company has a very sound business model due to its utility nature i.e fuel for the vehicles and piped natural gas for domestic and industrial consumers and hence is relatively immune from any economic downturn.

■ IGL is consolidating its presence in the NCR of Delhi by investing Rs 1,600 crore to expand its retail outlets and PNG network in and around the metropolis in the next three years.

■ IGL is looking for opportunities in the surrounding regions and has geared itself for competitive bidding being for setting up of City Gas Distribution Projects in various cities.

■ IGL has tied up for its future gas requirements by signing Gas Sale Agreements with GAIL & BPCL and the supply pact with RIL from KG D6 block, and hence will not have gas sourcing
issues over the medium term.

■ In view of forthcoming Commonwealth Games in 2010, a large number of high capacity buses and Radio Taxis running on CNG are expected to be added to the public transport fleet in the Capital, which would immensely benefit IGL.

■ IGL is a debt free company with surplus cash and investments of about Rs 250 crore and all the expansions have been undertaken with internal accruals.

■ At the current price of Rs 161, the stock trades at a P/E multiple of 11.1x FY10E earnings and 9.6x FY11E earnings. We recommend a “BUY” on the stock with a price target of Rs 205, assuming a P/E multiple of 12x FY11E earnings, an upside of 27% from the current levels, over a period of 12 months.

To see full report: INDRAPRASTHA GAS LTD

>HIGH NOON (SHAREKHAN)

SUPPORT @ 5050

The Nifty opened in green with positive global cues but has given up all its gains. It is finding resistance at 5150; however, it has got good support at 5050 level. The Nifty has given a breakout from a triangular pattern, so the upper end of the triangle also remains a crucial support in the short run. The momentum has started to reverse on the upside which will also support the Nifty to move higher.

On the hourly charts, the KST momentum indicator has a given a positive crossover and is trading above the zero line. The Nifty is trading above the 20-HMA and 40-HMA, ie 5039 and 5022 respectively, which are supports in the short run. The market breadth is positive with 764
advances and 456 declines.

Of the 30 stocks of the Sensex ITC (down 3.11%) and HUL (down 2.30 %) are the top losers while NTPC (up 2.50%) and BHEL (up 1.43%) are the top gainers.

To see full report: HIGH NOON

>J KUMAR INFRAPROJECTS (ANAND RATHI)

High-growth urban infra play; Reiterate buy

■ 49% earnings CAGR over FY09-12. Given steady order inflows and a proven execution record, we raise FY10 and FY11 earnings estimates by 25% and 21%, respectively. We estimate a 49%
CAGR in J Kumar’s earnings over FY09-12.

■ Healthy order book. J Kumar’s Rs14.5bn order book (3.7x FY09 and 3.1x TTM revenues) is a healthy mix of varied projects – transport engineering, skywalks, irrigation, civil construction and piling. It has an average execution period of two years.

■ Superior operating margins. J Kumar’s operating margin (15%) is better than the sector average (10%) given its strengths: geographical concentration, owned machinery and manpower and a strategy of not bidding for sub-contract work. For FY10-12, we estimate it would maintain margins at current levels.

■ Macro growth opportunities… scale up in execution is key. Increase in outlay on infrastructure development would increase order flows to construction companies. J Kumar, with a threedecade long track record in Maharashtra, is in a good position to capitalise on the potential for infrastructure investment.

■ Valuation. We value J Kumar at 7.5x FY11e earnings, a 50% discount to the average of large cap construction companies and a 25% discount to mid cap companies. At the current price of
Rs172, the stock trades at 5.0x FY11e earnings.

To see full report: J KUMAR INFRAPROJECTS

>DEEPAK FERTILIZERS & PETROCHEMICALS CORPORATION LIMITED (INDSEC SECURITIES)

We are initiating coverage on DFPCL, which has traditionally been perceived as a fertilizer company. However, DFPCL, which was incorporated in 1979 as an ammonia manufacturer and is today a multiproduct company with 2 major business segments, viz. Industrial Chemicals & Fertilizers. DFPCL is a dominant player in the industrial chemical segment which drives almost 70% of its revenues. With further Ammonium Nitrate capacity additions, DFPCL will undergo a re-rating from being a fertilizer company to an integrated industrial chemical manufacturer.

Investment Rationale:
• Of DFPCL’s total natural gas requirement of 0.8 mmscmd for the enhanced capacities, about 0.728 mmscmd (90%) has already been contracted at a landed cost of $ 6.1 per mmbtu. For the balance 10% the company plans to buy gas in the spot market, which will meet DFPCL’s entire gas requirement and help the company streamline its manufacturing activity and keep the volatile raw material cost under control. DFPCL has also set up a new 15,000 MT Ammonia storage tank at JNPT to ensure a steady supply of Ammonia.

• Recently, DFPCL augmented capacities at most of its plants, anticipating higher demand for -
Ammonia (90,000 TPA to 125,400 TPA), Ammonium Nitrate (90,000 TPA to 132,000 TPA) and DNA (297,000 TPA to 445,500 TPA). DFPCL will further increase its Ammonium Nitrate capacity by 300,000 TPA by Q3-FY11, at an investment of Rs. 6550 mn. with a view of fulfilling the rising demand from the infrastructure and mining sectors, which will drive future growth.

• Strong technology tie-ups with international players have enabled DFPCL in controlling production costs, leading to steady increase in margins.

• On the retailing front, the company has successfully leased out about 55% of the entire 550,000 sq. ft. of area at rentals of Rs. 35 per sq. ft. per month and plans to increase the rental to about Rs. 40 per sq. ft. per month by the end of this fiscal, targeting a revenue of Rs. 120 to 140 mn. in the current fiscal.

Valuation:
Based on DCF valuation with a terminal growth rate of 1%, risk free rate at 8% and WACC of 14.6% we arrive at a fair value of Rs. 156 per share resulting into 64% upside form the CMP of Rs. 90.85 per share. Hence, we recommend a BUY on DFPCL.

To see full report: DFPCL