>SOAPS AND DETERGENTS SECTOR

In order to delve into the reasons for the resilient growth witnessed by the highly penetrated laundry and soaps category and assess its future prospects, we conducted an extensive survey covering the entire supply chain. We did a 360 degree survey, wherein we met/spoke to sales
managers and distributors of soaps and detergent companies across regions. This was also done with the intention of demystifying the inconsistency between research firm’s estimation for market growth and that reported by leading companies.

■ Volume growth remains resilient in branded S&D category but value growth to moderate owing to cap on further price hikes and base effect kicking in. Growth could normalize to 16-17% in laundry category and 10-12% in soaps category

■ Branded players’ gained share at the expense of small/fringe regional players. Significant presence of regional players still exists (players with strong brand recall), but any incremental
share gain would be at higher associated costs

■ Southern and Eastern India have received sufficient rainfall, thereby dealers/sales managers from South and East were fairly confident of limited impact of deficient monsoon. Whereas, North and West were unable to guess the course of growth

■ Laundry: New product launches will drive higher ad spends. Renewed vigor witnessed in Tide naturals. However, not much change witnessed in market share differential between HUL and P&G. Also, Ghadi detergents have deepened their penetration in Maharashtra

■ Soaps: Lux and Rexona are witnessing de-growth and losing out to Santoor and Godrej No.1. HUL plans to refocus on Rexona and Lux - initiate trade promotions. Godrej Consumer reactivated Cinthol portfolio and also launched rosewater and almond variant in Godrej No. 1 soap

■ On a positive note, soaps and laundry category is not witnessing downtrading like personal product category n Positive in S&D category is offset by negatives brewing in PP category - earning upgrades for companies like HUL and GCPL unlikely

■ We might have underestimated the consumer buoyancy (or bit early) as consumer demand continues to be robust – until August 2012. We intend to repeat this exercise in October
(around festive season)

■ Until then, retain negative bias as valuations do not offer comfort and earnings upgrades unlikely. We maintain HOLD rating on HUL and GCPL with price targets of Rs415/Share and
Rs580/Share respectively

To read report in detail: SOAPS & DETERGENT SECTOR

>MAHINDRA SATYAM: Large deal wins at Tech Mahindra (Contracted revenue from the captive acquisition)

With increasing participation in the US, traction continues to improve for Mahindra Satyam (M Sat). Further, we understand that M Sat’s internal margin thresholds for new deals are higher now, indicating a high focus on profitability. Tech Mahindra, on the other hand, is benefiting from many large deal wins. Moreover, while the perception is that of Tech Mahindra having ‘bought revenue’, our analysis shows that the company’s cash generation has been on par with larger vendors. Even its recent acquisition of a captive is cheaper than other captive acquisitions over the past two years. Consequently, we continue to be positive on M Sat/Tech
Mahindra.

Incremental positives at M Sat: Our channel checks indicate that M Sat’s internal margin thresholds for new deals have increased in the recent past. This, along with steady renewals and increasing participation in US-related deals, gives us comfort over sustainability of margins and revenue growth.

Tech Mahindra has not ‘bought revenue’: Tech Mahindra’s large deal wins have been strong over the past year. Moreover, our analysis shows that in deals where Tech Mahindra had paid upfront, its cash generation has been on par with larger vendors. Further, for its recent
acquisition of a captive, implied valuations were cheaper than other captive acquisitions over the past two years.

Cheap valuations: We believe stable renewals, improving traction in the US, and margin levers will continue to result in robust Ebitda growth for M Sat. Tech Mahindra is benefiting from an improving market for telecom IT services and a buoyant and large deal pipeline. Almost all uncertainties related to M Sat’s legal liabilities have been addressed. Valuations of the combined entity continue to be cheaper than even some of the mid-tier IT companies at ~11x FY13ii PER. We are increasing our target price to Rs122. Re-iterate BUY.


Large deal wins at Tech Mahindra:
Tech Mahindra is benefiting from an improving demand for telecom related IT services and a robust large deal pipeline. Our channel checks indicate that Tech Mahindra has won two large deals in the past two months. This is in addition to the ~US$845m of contracted
revenue from the captive acquisition.

To read report in detail: MAHINDRA SATYAM


RISH TRADER

>Tech Mahindra acquires 51% stake in Comviva (JM Financial)

Comviva to strengthen mobile VAS offerings

Tech Mahindra acquires 51% stake in Comviva: Tech Mahindra has announced the acquisition of 51% stake in Comviva Technologies for a total consideration of `2,600mn. This includes upfront payment of `1,250mn and deferred payment of `1,350mn over a period of 5 years based on performance targets. Comviva had FY12 revenues of US$70mn with mid-teen
EBITDA margins. The transaction values Comviva at 1.3x FY12 EV/Sales and 8.6x FY12 EV/EBITDA assuming 15% EBITDA margins. Management expects the deal to be EPS accretive for Tech Mahindra. As per our calculation, the transaction adds c.1.5-2% to FY14 EPS.

Strategic intent of the acquisition: Comviva provides solutions in mobile data, integrated messaging, mobile payments etc. Acquisition of Comviva is in-line with TechM’s strategy of (a) investing in emerging areas such as Network, Mobility, Analytics, Cloud and Security, and (b) focusing on nonlinear growth. TechM already has presence in mobility solutions through its
subsidiary CanvasM, which contributes c.2% to total revenues currently. Comviva acquisition should further strengthen TechM’s VAS offerings particularly in the field of VAS infrastructure management and Mobile payment and platforms. The acquisition will also enable TechM to cross-sell Comviva’s offerings to its telecom clients.

Other details: The acquisition will add c.1,500 employees to TechM. Airtel is the largest client of Comviva and top-10 clients contribute c.85% to total revenues. Comviva derives c.30% revenues from VAS managed services and c.70% from platform-based solutions. Post deal closure, TechM will own 51% stake in the company, Bharti group 20%, PE firms 9% and employees the balance. Comviva had cash and cash equivalents of c.`320mn at end-Jun’12.
 
Maintain BUY rating with target price of `1,260 based on 12x 1 year forward P/E.

RISH TRADER

>10 grams of GOLD price history for the last 86 years

RISH TRADER