Tuesday, November 4, 2008

>Punj Llyod(ANAND RATHI)

* Maintain Buy. Punj Lloyd has reported strong revenue and
earnings growth for 2QFY09. On the higher execution of
projects, it beat our as well as the street’s estimates. We maintain
our Buy rating.

* Robust revenue growth. Sales grew 54.5% yoy on the back of
higher execution of projects, mainly in the infrastructure (39% of
revenue) and process plants (34% of revenue) segments.

* Margin expansion. EBITDA margin for the quarter expanded
52bps yoy. Though the margin expansion came 41bps under our
estimate, the higher-than-estimated ‘other income’ more than
made up for the lower reported EBITDA margin.

* growth beats estimates. Punj reported a 61.1% yoy
increase in earnings growth, 17.3% more than estimated. The
growth was driven by higher revenues and margin expansion.

* Order backlog and valuations. Its order backlog stands at
Rs216.75bn; order inflows for the quarter were Rs56bn (a 170%
rise yoy). The company is not seeing any slowdown in order
inflows or project executions. We maintain our estimates. Our
revised target price of Rs217 implies a target PE of 11x our Sep’09
earnings estimate. It stands at a 35% discount to the market target
multiple for market leader L&T. The target price of Rs217 is well
supported by our sum-of-parts valuation of Rs237.

For full Report Punj Llyod(ANAND RATHI)

>NTPC(Merrill Lynch)

2Q: Higher Fuel Price Drive Rec. PAT +12%YoY, EBITDA+17% Greater value of efficiency incentives from higher fuel costs (gas / LNG +100%YoY & Naphtha +66%) drove NTPC’s Rec. PAT to rise by 12% YoY,despite just 3.5% volume growth . 2Q09 income climbed +26.4% YoY, and EBITDA reached Rs32.5bn, +17% YoY. Coal PLF fell (83.1% v/s 83.4%) on coalshortages. We lower our Price Objective to Rs165 from Rs202 to factor in higher equity risk premium (6% v/s 5.7%) and 5% discount to DCF. We maintain our Buy
rating, however, given that the stock offers defensive growth, NTPC is cashBold-rich (US$3.4bn), and it has pipeline of +20% RoE projects.

Key drivers of NTPC’s growth ahead are:

1 Secure ~3.71mmscmd of gas from 1st tranch of Reliance KG gas for existing plants to boost RoE of its gas based projects operating at sub-optimal utilization

2 Potential hike in regulated return from April 1, 2009 by ~100bps on higher rates

3 Capacity expansion to 50GW by FY12E v/s 28GW – FY09 mark the peak in
NTPC’s efficiency, then on it will have to depend on capex to drive its growth.Monitize low cost fuel sources – captive coal mines (reserves 4.4bt) & LNG (~US$3-4/mmbtu from Nigeria)

4 PLF & Heat rate linked incentives to compensate for cap on spot market rates Value accretive FY08-10E capex CAGR +46%YoY; 3GW p.a.
NTPC plans capex of Rs126bn in FY09E +47%YoY and in FY10E of Rs186bn
+48%YoY. It has accelerated order placements of additional 2.5GW of projects (likely on BHEL) to compensate for delay in some projects and achieve 22GW add in XI Plan. It plans to commission 3GW in FY09E v/s 1GW (own) in FY08.

Concerns: a) 4GW or 18% of NTPC’s XI plan capacity ordered on Russian
suppliers / Doosan could get delayed by ~2 years; and

b) delay of over 1 year in production (FY10E) at its 1st captive mine due to land acquisition issues.

For full Report NTPC(Merrill Lynch)


Lupin’s 2QFY09 results were above our estimates. Key highlights:
? Net sales grew by 42% to Rs9.3b (vs estimates of Rs8.3b) while adjusted PAT grew by 53% to Rs1.15b (vs estimates of Rs956m). Organic top-line growth (excluding Kyowa & Rubamin acquisitions) was 18%. EBITDA margins expanded by 200bp to 19% (vs estimate of 18%) led by better product-mix and currency depreciation.

Niche/IPR opportunities gaining visibility – Lupin has a track record of launching low-competition IPR driven products in the US for the past few years. We expect this trend to continue in the future also with the company targeting to launch oral contraceptive products in the coming years.

Expect 30% EPS CAGR – We expect Lupin’s core operations (excluding one-off upsides) to record 25% sales and 30% earnings CAGR for FY08-10 led by traction in regulated markets, strong growth in domestic formulations and incremental savings from tax-exempt zones. The growth will be led by 23% CAGR for the regulated dosage form business and 21% CAGR for the domestic formulations business. Lupin is likely to witness a gradual improvement in the underlying fundamentals led by an expanding US generics pipeline niche / Para-IV opportunities in the US, strong performance from Suprax (branded product in US) and ramp-up in formulation revenues from its European initiative. Incremental benefits are likely to be visible from the Jammu facility which enjoys fiscal benefits. We expect the company to record EPS of Rs49.7 and Rs63.8 for FY09 and FY10 respectively. Given the strong earnings growth, valuations at 12.7x FY09E and 9.9x FY10E consolidated earnings are attractive.
Reiterate Buy.