>SUZLON (INDIA INFOLINE)

■ Repricing of bonds will result into 9.8% dilution
Suzlon announced the reduction in conversion price of its US$211mn and US$121mn FCCB’s to Rs97.26/share from Rs359.68/share and Rs371.55/share respectively. The company also revised the floor price to Rs74/share for both these bonds. In addition it has agreed to pay ~US$6mn as incentive fee to the bondholders and has asked for the removal of financial covenants and waiver of any existing or prior breaches. Post conversion of these bonds, Suzlon’s equity will dilute by 9.8%. However, it will enable the company to improve its balance sheet as it could potentially reduce debt by ~Rs15bn.

■ Restructuring provides room to breathe
Suzlon recently completed refinancing its rupee facilities of ~Rs100bn. Under the restructuring, it will be allowed a two year moratorium for principal payments, thus providing interim cash
flows. The re-pricing of its FCCB’s, conversion of promoter loans into equity and sale of its remaining 26% stake in Hansen will enable it to further reduce its debt.

■ Steep correction in price makes valuations attractive, upgrade to BUY
Over the last one month, Suzlon’s market cap reduced by ~11%. We believe the current market price factors all negatives. Our estimates do not factor in this dilution but build in weak performance in FY11 – a repeat of FY10 – due to weak demand. We also reduce our gross margin estimates to reflect stiff competition. We believe Suzlon will continue to face pressure in the near term with order inflow and execution remaining muted. Revival in the global environment and a pick up in the financing activity will enable healthy growth in FY12. The recent correction in the price has made valuations attractive, hence we upgrade to BUY with a target price of Rs80/share.

To read the full report: SUZLON

>ZYLOG SYSTEMS LIMITED

Zylog is an ISO 9001 certified provider of Onshore, Offshore & Near shore technology services. The company offers IT outsourcing services, including offshore development and information technology outsourcing; application services consisting of application development, maintenance, and integration services; business intelligence and data warehousing services comprising consulting, reporting and analysis, and application management services; mobile computing services; replacement technology services; managed services in the areas of desktop management, security management, server and database management, and network monitoring;

IT virtualization services; and quality assurance and testing services, including performance
testing, functionality testing, white-box testing, security testing, product testing, and user
acceptance testing.

AREAS OF SERVICE
Company has strong presence and catering to clients in Banking and Finance,
Pharmaceutical, Healthcare & Life Sciences, Telecom, Retail, Utilities and Transportation,
Consumer Electronics, Recycling, High-Tech and Computer Software industries.
Its Product range consists of RTGS PayManager, a liquidity management product;
AMLDetector, an anti money laundering solution,Cheque Truncation System consists of a data
and image-capturing application, claims management system developed primarily for the
insurance claim agents/brokers; iPage - forms processing, which provides image-based forms
processing solution; and DPOnline system, a depository operation cum financial accounting
system. The company also offers mobile solutions for Mobile Banking Solutions; supply chain
management; insured Vehicle Accident Recovery System (iVARS),BPO services,e-Governence
Solutions,

CLIENTS: Include reputed corporate names like Metlife, HSBC, JP Morgan Chase,GE,Barclays, IOB,SBI, Verizon,Pfizer,Daiichi Sankyo etc to name a few

EXPANSION & DIVERSIFICATION
Company is planning to invest around 400 to 450 cr for creating infrastrastructure which will
help co to bag government prodects besides some overseas acquasitions.Also company is
launching pilot project to give internet thru towers.

Apart from above co has bagged orders from Karnataka & Gujrat Transport to issue smart cards
for the drivers it includes license and RC book which will contribute of revenue of Rs 200 crore.
Company is eyeing total revenue to tune of Rs 1000 crore for the current year from various
segments.

OUTLOOK
1) Company has robust growth histrory since past five years with sales CAGR of 51% and Profit CAGR of around 54% & opertating profit in range of 16 to 18%

2) Well Qualified & Experienced management.

3) Derisked sales model

To read the full report: ZYLOG SYSTEMS

>CHENNAI PETROLEUM CORPORATION LIMITED (INDIA INFOLINE)

■ Revenues rise 13.6%, substantially below expectations on account of lower throughout.

■ GRMs were at US$4.3/bbl as against US$6.6/bbl in Q4 FY09 and US$3.4/bbl in Q3 FY10.

■ Sequential increase in GRMs was on account of higher spreads of gasoline and diesel.

■ With recovery in demand expected from CY10, GRMs could sustain at current levels.

■ We maintain our BUY with a revised target price of Rs309.

To read the full report: CHENNAI PETROLEUM

>INDIAN STEEL SECTOR: Integration Less Significant: Buy JSW Steel, Hold TSL & SAIL (CITI)

■ Prefer steel to ore — We expect HRC prices to average $825/t (+41% yoy) in FY11 vs current $790/t, to partly compensate for the expected near-term rise in coal prices. Spot iron ore prices are ~$160/t but expected to average $130/t in FY11. With steel prices expected to show only a marginal upside and iron ore prices expected to come off, integration becomes less relevant. EBITDA/t rises in FY11 but is flat to lower in FY12. JSTL (Buy) remains our top pick followed by SAIL (raised to Hold) and Tata Steel (Hold).

■ Estimates/TP changes — FY11 estimates change by -28% to +36% on new prices, costs, updated volumes, FX changes and revised tax rates. We maintain our earlier valuation parameters for JSTL (6.5x EV/EBITDA for India) and Tata Steel (7x for India), but hike SAIL’s target EV/EBITDA to 6.5x (in line with JSTL) keeping in mind its largely domestic exposure (safer). We upgrade TPs by 12-55%.

■ JSTL offers many advantages — 1) Strong volumes +18-38% in FY11-12; 2) better product mix (reduction of semi-finished steel volumes from 22% to 2-3% is an EBITDA driver); 3) 15% captive coking coal by FY11, >40% by FY13; 4) lower costs with iron ore beneficiation; 5) reasonable valuations – 6.1x Jun11 EV/EBITDA. We expect JSTL to report $186/t of EBITDA in FY11-12. Maintain Buy.

■ Tata Steel appears interesting; but Europe could be drag — TSL’s Indian ops have several positives: a 33% jump in EBITDA/t to $420 in FY11 as they have 100% iron ore, 50% coking coal and 7% volume growth. At Corus, FY11 should be better as margins have risen in the past few months − but recent uncertainty in Europe and FX trends with risks of price cuts/lower utilizations makes us more cautious than before. We cut FY11 cons. EBITDA by 6% but PAT by 28% (higher tax). At TP of Rs590, TSL would trade at 6.2x June11 EV/EBITDA and 9.6x PE. Hold.

■ SAIL upgraded to Hold — SAIL has the advantage of largely domestic exposure but offers lower volume growth relative to JSTL until FY12. We expect iron ore prices to fall in 2H (100% is captive) but a rising trend in coking coal (only 5% captive), which does not help SAIL. Stock valuations are relatively rich, and we don’t expect Sensex outperformance. However, the stock has fallen 9% in the past month and with underperformance vs. the broader indices unlikely, we upgrade to Hold. At our TP Rs234 (vs.Rs151), SAIL would trade 11.9x June11 PE.

To read the full report: STEEL SECTOR