>Southwest Monsoon (EMKAY)

Sustained recovery
The advancement of the southwest monsoon has seen sustained momentum from last week. The rainfall for the week ended 04 August, 2010 was, ~16% above its long period average (LPA). The cumulative rainfall for the week ended 04 August, 2010 stood at ~2% below its LPA. The number of divisions experiencing excess/normal rainfall increased to 31 from 28 of last week, while those experiencing scanty rainfall dropped to 5 from 8 of last week.

Rain dependent and rain-fed areas cumulatively improve
For the week ended 04 August, 2010, cumulative rainfall in rain dependent areas stood at 1.5% above their LPA and rain-fed areas improved to 6.3% below LPA. Weekly rainfall also improved for rain-fed areas at ~13% above LPA.

Parts of north and east India cumulatively deficient
Cereal producing regions: east Uttar Pradesh, Bihar and West Bengal are cumulatively below their LPA by more than ~25%. Excepting West Bengal, weekly rainfall for these regions is deficient/scanty. Jharkhand, Assam & Meghalaya are also receiving deficient rainfall.

Reservoir levels pick up
The current reservoir levels are at 34% of their full reservoir level (FRL) against their LPA of 37% of FRL. The current storage level is ~92% of its 10 year average as opposed to ~82% last week.

Forecast rainfall for parts of central and east India
Madhya Pradesh, Chattisgarh and Orissa are likely to experience normal/excess rainfall over the coming week. While the southern states may receive poor rainfall the coming week, the west coast would see considerable rainfall.

Steady increase in the sowing of rice and cereals
Cropped area under rice and cereals are increasing in a steady manner. Area sown for all the major crops, excepting oilseeds is ~10-15% higher than the same period last year. Deficient rainfall in some of the cereal producing regions may affect the rate of sowing; unless the next couple of weeks, off-sets this.

To read the full report: SOUTHWEST MONSOON

>ABB: Second quarter current year 2010 (RESULT UPDATE)

ABB reported tepid 2QCY2010 results with revenues of Rs1,447cr and net profit at Rs38cr. The current quarter had to bear the impact of the exit cost from the rural electrification business in addition to the forex losses. Though revenues reported marginal fall of 3.9% yoy, the impact of the exit cost, forex provisioning and increasing pricing pressure eroded the profit margins resulting in a 54% fall in profit. We maintain Neutral on the stock.

■ Revenues stagnant, but net declines: Despite declining order accretion rate for the past few quarters, ABB India reported marginal 3.9% yoy fall in top-line to Rs1,447cr (Rs1,505cr) for 2QCY2010. As a major portion of the order backlog consists of large projects with long gestation periods, the company was able to report flattish revenue growth both sequentially and annually on the back of steady execution rate. The numbers at the operating level were hit by the 16.7%
increase in other expenditure, which could be attributable to the exit cost from rural electrification business. Besides the increasing pricing pressure, the company had to bear losses on account of exchange rate variations amounting to Rs23cr (Rs21cr) for 2QCY2010. EBIDTA margins, as a result, pruned back to 3.5%(8.5%) leading to a sharp 61% dip in EBITDA to Rs50cr (Rs129cr). Consequently, net profit dipped by 56.4% to Rs38cr (Rs84cr) for 2QCY2010. For 1HCY2010, the company posted 72% yoy de-growth in bottom-line to Rs45cr (Rs162cr).

■ Outlook and Valuations: ABB has been reporting disappointing results over the past several quarters amidst heightened competitive pressures. Although the economic scenario has been improving, we believe that current valuations factor in the same. At the current price, the stock trades at 34.7x and 26.1x CY2010E and CY2011E EPS, respectively. We maintain Neutral on the stock.

To read the full report: ABB

>Prakash Steelage Ltd.: IPO NOTE

Business Overview: Prakash Steelage Limited (‘PSL’) a flagship company of Prakash Group is engaged in the manufacturing of seamless & welded stainless steel Pipes, Tubes and U-tubes. PSL carries production through its two stateof- the-art production units situated at Silvasa and Umbergaon (Gujarat) with total installed capacity of 15,600 MTPA.

Key Rationale:
■ PSL is an ISO 9001: 2008 & PED certified company. Company is also a government recognized 'Star Export House' exporting to several multinationals in over 40 countries across the globe.

■ The Company manufactures a wide range of products based on the customer specifications. Company also plans to add Duplex, Super Duplex and Super Austenitic pipes/ tubes to its product portfolio.

■ PSL's installed capacity has increased at a compounded annual growth rate (CAGR) of 40.5% over FY2007-10. The company's utilization rate has steadily increased from the low of 35.3% in FY2008 to 68.6% in FY2010. PSL is planning to increase its capacity from 15,600MT to 19,000MT by FY2011.

To read the full report: PSL

>WENDT LIMITED (Industry - Abrasives)

Bangalore-based Wendt (India) Ltd (Wendt) is a leading manufacturer of superabrasives in
India. It also manufactures grinding machines and precision components. We assign Wendt a fundametal grade of ‘4/5’, indicating that its fundamentals are ‘superior’ compared to other listed securities in India. We assign a valuation grade of ‘2/5’, indicating that the current market price has ‘downside’ to our fair value per share.

■ Leading the superabrasives pack in India
Wendt currently commands ~35% market share in the Rs 1.5 bn Indian superabrasives industry, which is expected to grow at a CAGR of 7% over the next three-five years. Given its technological advantage, comprehensive product portfolio, strong brand image and reputed customer profile, we expect Wendt to maintain its lead. The rise in incremental demand due to a shift in customer preference from conventional abrasives to superabrasives will further boost the segment, though it is too early to factor this in.

■ Grinding machines and components to be the next growth driver
Wendt has renewed its focus on manufacturing grinding machines and precision components since FY06 while they have been making these machines since FY95. These products require high-end machines and technological expertise, which Wendt has courtesy of Wendt Gmbh, a leading manufacturer of grinding machine and precision components globally. We expect Wendt’s revenues from this segment to grow at a twoyear CAGR of 70% to Rs 274 mn by FY12 on account of a strong order flow.

■ Strong technical support from the parent…
Germany-based Wendt Holding Gmbh, part of the Winterthur Technology Group AG, is one of Wendt’s promoters. The company is globally known for its technological know-how and superior quality superabrasives. The technology sharing keeps Wendt’s product portfolio continuously updated and helps it command significant premium pricing over its competitors. We believe access to superior technology will help Wendt to maintain a strong foothold in the superabrasives segment.

■ … but technology dependence could be risky
Wendt benefits on the continuing technology inputs from Wendt Gmbh. But Wendt has over a period of time moved from being entirely dependent on the ‘Know how’ transfer to a company that operates on ‘Know why’ understanding. Over 40% of the current sales come from products that have been developed in-house by WIL. Though little but there still lies technology dependence risk which may impact the profitability.

■ Revenues to grow at a two-year CAGR of 19%, RoE to expand to 24.8%
We expect the company’s revenues to grow at a two-year CAGR of 19% to Rs 897 mn in FY12, primarily driven by strong growth in the grinding machines and components business. We expect EBITDA and net margins to marginally improve to 26.9% and 16.4%, respectively, by FY12. Consequently, RoE is expected to improve to 24.8% by FY12. We expect the company to continue to remain debt-free going forward.

To read the full report: WENDT