>SKF INDIA: Developed the revolutionary “StopGo” bearing for the two-wheeler sector

Positives
SKF India has developed the revolutionary “StopGo” bearing for the two-wheeler sector on the lines of the “Start-Stop” technology, which shuts down the engine when a vehicle is not moving. The installation of this bearing in two-wheelers can increase fuel economy by 6-10%.


In Q1CY2012, the company’s other expenses/sales ratio was the lowest in three years for any quarter as there were no foreign exchange (forex) losses. In CY2011, the company had suffered a forex loss of Rs15.4 crore.


The company has planned capital expenditure (capex) of Rs100 crore for CY2012 which remains modest. It proposes to expand all three plants, ie the Bangalore, Pune and Haridwar plants.


The company passed an enabling resolution for Buyback of shares. This may act as a support for the stock. Promoters currently hold 53.5% stake in the company.


Negatives
The company’s sales in Q1CY2012 were affected by a slowdown in the industrial bearing sector. Concerns specifically pertain to the wind power sector where the accelerated deprecation scheme ended on March 31, 2012. Some reports expect atleast a 15% decline in the demand for wind turbines if the accelerated depreciation scheme is not extended beyond March 31, 2012.


SKF India continues to support SKF Technologies (a company owned directly by SKF Sweden) and has increased the loan amount to the company from Rs162 crore in CY2010 to Rs209 crore in CY2011. The company received interest income on the same but it is difficult to ascertain the commercial and transfer pricing arrangement.


View: We see continued challenges in growing the sales in CY2012 as the overall industrial activity remains subdued. There is also an overhang of the wind power sector slowing down which will affect the industrial revenues of the company in the next few quarters.



The automotive business also faces a challenging growth environment in the second and third quarters of CY2012. We are lowering our revenue growth projection for CY2012 to flat revenue year on year (YoY). There is no change in the contribution margin. Unusually low other expenses/ sales ratio reported in Q1CY2012, would inch back to 14.5% as it contains write-back of Rs7.5 crore pertaining to extra provisioning done in employee expense during Q4CY2011.


Our earnings per share (EPS) growth projection for CY2012 stands at Rs43.3, indicating a growth of 9.5%. At Rs700 the stock trades at 16.2x CY2012 earnings and prices in the positives fully.


The stock’s valuation is towards the higher end but the revolutionary “StopGo” bearing product for two-wheelers seems to have a great application. While we do expect the two-wheeler industry to introduce products on the “StopGo”, the expensive valuation and muted growth leaves little room for any meaningful upside. However, we also take note of a strong possibility of buy-back of shares. This keep us neutral on the stock.

RISH TRADER

>Illusive recovery in GRMs

Crude traps sector and government likely to rescue in Q4FY12


GRMs seemed to be recovering in the month of January but it was an illusive recovery. With rising crude prices the GRMs also felt the heat and started declining from February, continuing till March. Benchmark Reuters Singapore Complex GRMs which averaged US$9.1/bbl in January declined to US$5.7/bbl in the month of March. Overall, the GRMs averaged US$7.7/bbl in Q4FY12 against US$7.9/bbl in Q3FY12. Sequentially, Gasoline-Crude and Naphtha-Crude cracks improved while Diesel-Crude, Jet Kero-Crude and FO-Crude cracks declined thus eliminating the benefit. GRMs have recovered a bit and are now hovering around US$7/bbl.



■ Iran issue leads crude to US$125/bbl
EU embargo on Iranian crude kept the crude prices (Brent) higher during February and March which averaged US$119.8/bbl and US$125.1/bbl respectively. Thus Q4 crude prices averaged
US$118.6/bbl. Even rising Libyan production did not arrest the rising crude prices. Crude prices are likely to remain higher in near to medium term due to the Iranian issue. We have recently upgraded our crude price assumption for FY13E and FY14E to US$120/bbl and US$110/bbl from US$104/bbl and US$100/bbl respectively.



■ Under-recoveries scale higher at Rs448bn: Devoid of price hikes in regulated fuels, under-recoveries scaled up further to an estimated Rs448bn in Q4. However, the OMCs are expected to be adequately compensated through upstream subsidies and cash from the government.


■ Crude estimate and rupee-dollar exchange rate for FY13E and FY14E revised: We have revised our crude price assumption to US$120/bbl and US$110/bbl and rupee-dollar exchange rate to Rs50/US$ to Rs48/US$ for FY13E and FY14E respectively. Incorporating these changes we have revised our estimates for RIL, Cairn, Gujarat Gas, Petronet LNG and IGL with subsequent changes in our target price and recommendation.

To read report in detail: OIL & GAS SECTOR
RISH TRADER

>Bharti Airtel launches TD LTE in India; Bharti kicks off 4G in India

EVENT
Bharti Airtel launches TD LTE in india Bharti Airtel, India’s largest wireless operator, became the first operator in India to launch 4G services. The company launched TD LTE in Kolkata, one of the four circles in which it acquired spectrum in June 2010. Our interaction with the company indicated that it is a city-wide commercial launch and the company will be launching in other circles shortly.


SUMMARY
Early days; high service and device price implies urban focus Bharti has launched LTE with a service price largely in line with high usage 3G data plans. However minimum monthly commitment is much higher than for 3G services, at INR999/month (USD20). Bharti has launched 4G with data card and a Wi-Fi device with a minimum cost of INR7,750 (USD155). We expect initial focus to be urban markets.


VALUATION
No significant impact on earnings or capex estimate
We do not expect any significant impact of LTE launch to our estimates, including capex, considering the limited geographical launch, and high device and service price. 3G, which had a much wider launch, has also not had much success one year since launch. Bharti paid INR33b to acquire spectrum in 2.3Ghz band in four out of 22 circles. RIL, which is the only company holding pan-India 2.3Ghz spectrum, will be the key operator to watch for. Our checks indicate that 1) a meaningful launch by RIL in 2012 is unlikely, and 2) RIL will closely watch for developments on 700Mhz spectrum auction as it is much more capex efficient compared to 2.3Ghz. We have a DCF-based TP of INR400 for Bharti.


To read report in  detail: BHARTI AIRTEL
RISH TRADER

>HDFC BANK LIMITED: Q4FY12 Result Update

Consistently consistent but limited upside


HDFC Bank’s Q4FY12 performance was in line with our expectations (PAT at Rs14.5bn). The bottom-line performance was primarily driven by healthy growth in NII while higher opex was offset by lower provisioning during the quarter. Asset quality held up well with stable %GNPA, restructuring & PCR. While consistent performance and strong asset quality have made the stock one of the safest bets in banking sector, limited upside (8%) to our fair value estimate leads us to maintain our Hold recommendation.


■ NIM stable QoQ, Loan growth @ 22%: NII grew by a moderate 19.3% yoy (in-line) to Rs33.9bn led by a healthy credit growth (22% yoy) while the reported NIM was stable sequentially at 4.2%. Loan yields benefitted from higher share of retail business (incremental growth skewed towards unsecured/high yield products). However, this was offset by increase in cost of funds leading to QoQ flattish NIM (reported) at 4.2%.


■ Asset quality holds up well: Asset quality continued to remain strong with GNPA stable in both absolute and relative terms. Restructured loans (including applications received and under process) were stable at 0.4% of gross advances. Despite lower provisions sequentially, PCR improved to 82.4% (from 80.3% in Q3FY12). While the slippage rate for FY12 came in at an enviable 1%, we expect this to inch up in FY13 to 1.3% led by 1) higher share of unsecured/high yield products and 2) impact of general deterioration in credit quality due to moderation.


■ Healthy credit growth, CASA ratio up QoQ: The advances book grew by a healthy 22% yoy to Rs1,954bn primarily driven by the retail segment (33.7% YoY with strong growth in unsecured/high yielding products). For FY13, the share of retail segment may come off a bit due to weaker demand in key segments (auto & housing) though anticipated improvement in corporate segment should help maintain a healthy growth of 20.6% YoY. Meanwhile, deposits grew by 18.3% yoy and 6% QoQ to Rs2,467bn with CASA improving sequentially to 48.4%.


RISH TRADER