>SHREE RENUKA SUGARS: New crushing season commenced

■ Shree Renuka Sugars' (SHRS) reported 11% YoY growth in EBIDTA to INR3.3b for 5QFY12 (change in accounting year to April-March from October-September). Revenue declined 9% YoY to INR20.5b, while PAT surged 4x to INR3.4b due to forex gain of INR4.3b on USD/Real dominated liabilities. The forex gain was due to adoption of revised accounting standard to amortize change in long term foreign exchange liabilities over the tenor of the liability.


■ Standalone EBITDA slipped by just 3% YoY, despite the huge 37% YoY decline in revenue (on account of lower sugar sales and trading revenue). Expansion in EBITDA margin is attributed to the improvement in realizations across all segments. The company expects its refinery business to improve over next couple of quarters due to (1) favorable sugar spread; and (2) substantial availability of domestic raw sugar.


■ In Brazil, numbers remained steady on a YoY basis, although margins improved on account of higher sugar realization. However, higher realization was offset by lower volumes on account of adverse weather that impacted crushing volume of Renuka do Brasil (RDB). After the severe impact on cane yield in 4QSY11, the management expects yields to recover to ~65t/ha going forward.


■ During 5QFY12, SHRS has achieved its plantation target of ~25,000 ha (20,045ha at RDB and 5,136ha at VDI). We expect re-plantation to lower average age of crops and improve productivity/yield.


■ The company's net debt increased by ~INR7b to ~INR90b due to the increase in working capital debt in Indian operations. The management guided the divestment of co-gen business (138MW at Equipav) to be concluded by Feb-end. We believe this event would be a key trigger for the company's re-capitalization target.


■ Going forward, key triggers for the stock's would be: (1) turnaround in volumes and cane yield of its Brazilian operations, (2) upswing in international sugar prices, and (3) reduction in debt.


■ The stock trades at 5.8x FY13E EPS of INR7, and EV/EBITDA of 5.2x FY13E. We continue to value SHRS at 6x EV/ EBITDA, leading to a lower target price of INR50. Maintain Buy.


To read the full report: RENUKA SUGARS
RISH TRADER

>PUNJ LLOYD: Reported Q3FY12 profit of Rs703 mn

■ What surprised us
Punj Lloyd reported Q3FY12 profit of Rs703 mn, which included Rs840 mn of accounting gains on write-backs from the deconsolidation of the Simon Carves subsidiary. Adjusting for this, profit for the quarter was below our estimate, primarily due to higher than expected contractor charges. However, revenue for the quarter at Rs27 bn was 7%/5% above GSe and Bloomberg consensus estimates. Order inflow at Rs42bn was 20% ahead of our estimate, resulting in closing order book of Rs283bn being up 31% yoy – highest growth among the stocks within our coverage. Auditor qualification has also come down by Rs5 bn on account of the ONGC dispute and stabilization of the political situation in Libya.


■ What to do with the stock
We retain our Neutral rating on the stock, as despite these positives of: (1) Strong order inflow over the past 9M, which is 124% above the entire FY11’s inflow; (2) reduction in auditor qualification; and (3) close to historical trough valuations, we continue to be concerned over: (1) uncertainty on margin stabilization; (2) our assumption that new projects will likely deliver lower margins being they are competitive bids and given the geographical spread; and (3) uncertainty over potential treatment of the outstanding auditor qualifications.


We adjust FY12E EPS to Rs3.96 from Rs1.59 based on Q3 results and the writeback, and increase FY13-14E EPS by 31%-39% on higher order inflow and stabilization of execution. We also increase our P/B-based 12m TP to Rs57 (from Rs48 at 0.5X FY13E P/B) – now valued at 0.6X FY13E P/B – justified in our view given our expected ROE of about 6% in FY13E. Risks: Upside: lower commodity price and interest rate; downside: lower order inflow and project delays.


To read full report: PUNJ LLOYD
RISH TRADER

>ECONOMIC PROSPECTS: PM’s Economic Advisory Council (PMEAC) has made certain projections for the economy for financial 2012 & 2013

The PM’s Economic Advisory Council (PMEAC) has made certain projections for the economy for the current financial year as well as indicated prospects for the next one.


■ The rate of growth in FY12 is estimated at 7.1%, which is marginally higher than the projection of 6.9% of CSO due to better growth in agriculture and construction.

• Capital formation is to slip to 29.3%, which is a decline of almost 4 percentage points over the last four years. It had reached a peak of 32.9% in FY08 and dropped to 32.3% FY09 and then to 31.6% FY10 and 30.4% in FY11.
• Farm sector growth to average 3% on record output for rice, wheat and strong trend growth in horticulture and animal husbandry.
• Mining and quarrying sector likely to report negative growth on account of weak coal output growth, restrictions imposed on iron ore production, decline in natural gas production and negative growth in crude oil output.
• Electricity sector to grow at 8.3%.
• Manufacturing and construction to grow by 3.9% and 6.2% respectively.
• Strong growth in the services sector at 9.4%.

■ Balance of Payments (BoP) position will be tight and current account deficit to end at 3.6% for the year. The pressure both in regard to a larger than expected CAD and lower than expected net capital inflows resulted in a very sizeable depreciation of the rupee. In the fiscal year to date, the nominal terms of trade weighted 6-currency index fell by 14%, while in terms of the inflation adjusted effective exchange rate (REER) the decline was 11%. The decline of the rupee vis-à-vis the USD was 19% in April–December 2011. However, there has been some recovery in the course of January and February 2012, with the rupee recovering about 7.5%.


■ WPI inflation projected to be around 6.5% and this has been enabled by both monetary and other public policies.


■ Expansion of the fiscal deficit beyond its budgeted estimate of 4.6% of GDP is an area of concern. Government must strive to contain and improve the efficacy of subsidies.


To read full report: ECONOMIC PROSPECTS
RISH TRADER

>INDIA STRATEGY: Identifying Over-Owned/ Under-Owned Stocks

FII portfolio: U/W on IT & Consumer and O/W on Industrial fall; U/W on energy & O/W on telecom rise


■ During the quarter while FIIs were net sellers, domestic MFs & LIC were net
buyers. FII holding in Sensex has come down marginally.


■ FIIs were positive on defensives like Consumers & Telecom whereas they sold across most of the other sectors like Financials, Metals and Industrials. FII ownership in SBI is at all time low whereas Industrials has become an U/W sector for the first time due to this selling.


■ Financials, the favorite sector for FII, saw significant selling during the quarter bringing down the O/W marginally. Industrials was another sector sold by the FIIs resulting in reduction in its O/W. The Software sector was the biggest sector bought by the FIIs, followed by Consumers, resulting in change in their respective O/W and U/W.


■ In terms of long term trends, while the underweight of energy continues to come down, Industrials has become an underweight sector. On the other hand, consumers are no longer an underweight sector due to consistent buying done every quarter. Also Financials has seen its weight come down. Within Banks while FIIs have sold names like SBI, ICICI, Axis, they have increased exposure in Kotak. Any surprise in these names can reverse the trend.


■ Key buys in this quarter were: Infy, ITC, TCS, HDFC, HUL and Wipro . Key sells were: ICICI Bk, L&T, Coal India, Axis Bank and RIL.. 


Domestic MF Portfolio: U/W on metals fall; O/W on Industrials rise
■ Domestic MF portfolio is in stark contrast with that of FIIs, with Industrials being major O/W sector, sector where FIIs are marginally positive. Consumer is another sector where domestic MFs are heavily O/W in contrast to FIIs who are not. They are also U/W Financials where FIIs are O/W. However, on the similar lines of FIIs, domestic MFs are also U/W commodities.


■ In contrast to FIIs, MFs bought Metals and sold consumer & telecom names. On the similar lines of FIIs, MFs also bought software and cement names.


■ During the quarter mutual funds bought Software, Industrials, Metals & Energy and sold consumers &Telecom.


LIC net buyer
On the similar lines of MFs who were buyers, LIC was also a net buyer. LIC bought Financials (SBI, HDFC Bank), Utilities (Tata Power) and Energy (RIL). LIC sold Cement (Ultratech, ACC), Software (Infy) and Telecom (Bharti).


To read full report: INDIA STRATEGY
RISH TRADER