>ROLLOVER REPORT: JULY 30, 2010 (ANGEL SECURITIES)

Rollovers in Nifty (76.55%) has been on the higher side but its open interest has decreased around 8% month-on-month with 1.66% in price levels which indicates there has been short covering in 2nd half of July series. BANKNIFTY (83.42%) has seen healthy rollover and rise in OI indicating long rolls. FII’s have been very active in cash market segment and have been buyers there in most of the sessions in last expiry. Interestingly they have been buyers of options and their activity in index futures is mixed. DIIs on the other hand, have sold substantially. Implied volatility too supports buying of options rather selling. Initial options data suggests that new range for 1st half may be 5300-5600 levels. High open interest in market should not be seen with caution as most of the built up is in option segment and in futures participants are divided in opinion so don’t expect significant deleveraging or short covering. Range bound market and rise in futures open interest also suggests that activities will get further skewed towards stocks.

To read the full report: ROLLOVER REPORT

>BHARAT HEAVY ELECTRICALS LIMITED: Margin surprise led to 1Q11 numbers well above expectations

■ Strong order flows should continue in FY11F; order book remains robust
The outlook for FY11 remains strong, as orders for the 12th five-year plan start to pick up.
NTPC is planning a further tender for 9x800MW supercritical capacity in addition to its bulk
tender for 11x660MW. The company is progressing well on order conversion of its joint
ventures with states. We expect private sector orders to be strong as well for BHEL in FY11.
All these factors give us confidence in the company’s ability to meet its FY11 inflow guidance
of Rs600bn. The current order book stands at Rs1.48trn, which is 4.4x FY10A sales and
provides strong medium-term visibility.

■ Margin surprise led to 1Q11 earnings well above expectations
BHEL reported 1Q11 earnings well above our expectations on the back of higher-than anticipated margins. Overall, revenue and PAT grew 16.4% and 41.9% yoy respectively to Rs66bn and Rs6.7bn. Margins expanded 418bp yoy to 14.6%, primarily on the back of a 480bp improvement in RM/net sales. Although the company reported a top line marginally below our expectations, we expect execution to catch up in the coming quarters and believe that the lower-than-anticipated top line might be due to a slight delay in revenue booking. On the margin front, we believe there is limited room for improvement over FY10, given rising material prices, and expect margin expansion to be lower for the rest of the year.

■ Introducing FY13 numbers, maintaining our Buy recommendation
We retain our estimates for FY11 and FY12. We also introduce our FY13 numbers and roll forward our DCF, which raises our target price to Rs2,793, a change of 8% compared with our previous target price of Rs2,590. We continue to like BHEL and remain confident in its ability to maintain its leadership and profitability, even in the increasingly more competitive scenario in the industry. In this regard, we watch keenly the upcoming NTPC tender for bulk supercritical equipment. Buy rating maintained.

To read the full report: BHEL

>SUNDARAM FINANCE LIMITED: Key Subsidiaries and their performance

■ Sundaram BNP Paribas Home Finance Limited (50.10%)
Despite the challenges posed by the volatility and uncertainty in the operational environment, and stiff interest-rate competition, the Company managed to turn out a reasonably good performance during FY10, helped by an upswing in the business during the second half of the year, after a sluggish first half. The net profit for FY10 at Rs. 27.72 crores was 3.4% higher than in FY09 (Rs. 26.81 crores).

■ Sundaram BNP Paribas Asset Management Company Limited (50.10%)
This subsidiary earned a total income of Rs 111.71 crores for the year 2009-10, by way of investment management and advisory fees and other income during the year as compared to Rs. 86.05 crores in 2008-09. It reported a profit after tax of Rs 20.83 crores for the year as compared to Rs. 10.67 crores in the previous year. The Average Assets Under Management of
Sundaram BNP Paribas Mutual Fund as at March 31, 2010 was Rs. 13,878 crores, as compared to Rs. 9,267 crores for the previous year ending March 31, 2009. This represents a growth of 49.76% over the previous year. The closing AUM as on March 31, 2010 was Rs. 12,770 Crores. This represents a share of 2.08% of the Industry AUM of Rs. 6,13,979 Crores. It opened 11 branches and closed 9 branches during the year 2009–10, taking the total number of branches to 57 as at the yearend.

■ Sundaram Finance Distribution Limited (SFDL) (100%)
In spite of significant changes in the regulatory guidelines and decline in the number of New Fund Offers by mutual funds, the income from mutual fund distribution has gone up to Rs.1.58 crores during 2009-10 from Rs.1.04 crores during 2008-09. Despite reduction in insurance premium levels consequent to de-tariffing, the subsidiary has earned a higher commission of
Rs.4.01 crores through stepped-up efforts in distribution of insurance products during the year as against Rs.2.28 crores in the previous year. The profit after tax for the year amounted to Rs.1.96 crores as against Rs.1.37 crores in the previous year.

■ LGF Services Limited (100%)
In its sixth year of operation, this subsidiary has earned a higher commission of Rs.5.58 crores through stepped-up efforts in the distribution of insurance products as against Rs. 4.38 crores in the previous year. The profit after tax for the year was higher at Rs.1.83 crores as against Rs.1.77 crores in the previous year.

■ Sundaram BNP Paribas Trustee Company Limited (50.10%)
During the year under review, this subsidiary earned a gross income of Rs.1.24 crores by way of trusteeship fees and other income as against Rs. 1.05 crores in the year 2008-09. This translates to a growth of 17.75% on a year-to-year basis. It reported a PAT of Rs. 0.42 crores for the year ended March 31, 2010 as against Rs. 0.36 crores in the previous year, registering a growth of 16.67%. After taking into account a sum of Rs. 0.29 crores brought forward as surplus from the previous year, a sum of Rs. 0.71 crores is available for appropriation for the financial year 2009-10.

T0 read the full report: SUNDARAM FINANCE

>ABAN OFFSHORE LIMITED: 97% of the USD235mn claim received:

On consolidated basis, Aban suffered loss of `1.4bn on account of write off of the rig. Revenue was in line with our expectation while Ebitda was higher than our expectation. Sales have grown 6% y‐o‐y but declined 17% q‐o‐q to `8.4bn. EBITDA grew by 11% y‐o‐y and was down 21% q‐o‐q to `5.2bn. The EBITDA margin declined to 61% from 64% in the previous quarter. Depreciation
increased by 30% y‐o‐y and 1% q‐o‐q to `1.2bn and Interest cost was down 4% y‐o‐y and up 4% q‐o‐q to `2.2bn. Depreciation and interest cost stood at 15.3% and 27% of sales. Net Loss stood at `1.4bn. We give a Hold rating with a revised target price of `882 per share.

■ 97% of the USD235mn claim received:
Aban pearl has received 97% of the USD235mn insurance claim. The company has written off balance USD70mn against Q1FY11 profits. Another `0.13bn extra ordinary item was on account of write off in relation to its `1.95bn investment in Norway based drilling company that filed bankruptcy. The company is considering the replacement of Aban Pearl.

■ Equity dilution a must in near future:
After the sinking of Aban pearl, a high yielding asset of Aban that used to earn $3,58,000/per day, the company will face the brunt of huge debt repayment. Its debt as on date stands at ~ `142bn. USD375m is due in FY11E and 650m in FY12E. Yet there is no clarity on new repayment schedule. We have assumed equity dilution to get earning of `107 and `130 in FY11E and FY12E.

■ Valuation:
Aban currently trades at a PER of 8.3x, 6.8x its FY11E and FY12E earnings of `108 and `132 and EV/EBITDA of 6.6x and 5.7x in the same period. We value Aban by assigning a 4.5x EV/EBITDA multiple to its FY12E EBITDA, considering lack of clarity on debt repayment. Based on this, our target price is `.882, which offers a 1% downside, thus we assign a Hold rating on the stock.

To read the full report: ABAN OFFSHORE