Sunday, March 1, 2009

>Suzlon Energy Ltd. (MERRILL LYNCH)


New orders start to trickle-in

* Suzlon wins 113MW order - 6% of Int. book from AGL; Buy AGL Energy placed a third repeat order on Suzlon for 113MW order (6% of international order book) after successfully monetizing the 2nd wind farm. For Suzlon, this is the first material global order after a lull of almost a year, as clients appreciate performance of its new V3 turbines. We now look for orders from China, USA and India. Inexpensive valuations drive our Buy; we see major new orders wins and resolution of payment to Martifer in May'09 as catalysts.

* AGL places 3rd repeat order on Suzlon for delivery in CY09 - Suzlon won a 113MW order (6% of international order book) from the Australian utility, AGL Energy for the supply of 54 wind turbines of 2.1MW in 2009, after a lull of almost a year as clients appreciate performance of its new V3 turbines. To be delivered in CY09, this order will account for 5% of our FY10E international volumes ex-REpower. This is the third repeat order as AGL successfully monetized the wind farm made of Suzlon turbines (71 MW Hallett 2) for a development profit of $59mn (as per AGL Managing Director, Mr. Michael Fraser) through its sale to Energy Infrastructure Trust (EIT).

To see full report: Suzlon Energy

>Neyveli Lignite Corporation Ltd. (INDIABULLS)

Neyveli Lignite Corporation Ltd.- Buy

Valuation remains attractive
Neyveli Lignite Corporation Ltd. (NLC) posted a 9.7% yoy increase in the net profit in Q3’09. This was partially driven by the finalisation of the FY04–09 power tariffs for TPS-I, resulting in an additional revenue of Rs. 1.7 bn during the quarter. We maintain our target price of Rs. 100 for NLC’s stock and reiterate our Buy rating on the back of the following factors.

* New CERC guidelines to provide marginal benefits: We believe that CERC’s decision to increase the cap on return on equity (RoE) for tariff determination from 14% to 15.5% for FY10–14 will improve NLC’s profitability only marginally because:

· NLC has been accumulating significant amounts of cash and not ploughing them back in its power business; thus, its overall RoE has been on the lower side.

· With only 750 MW of additional capacity expected to be commissioned by FY10 and no major capacity additions planned during FY11–13, NLC would not be able to fully exploit the revised tariff determination norms for FY10–14.

* Long-term growth prospects remain promising: A number of projects proposed by NLC are in various stages of implementation. Of these, advance action proposals for a combined capacity of 6,850 MW have been sanctioned by the Government of India (GoI). Given NLC’s strong balance sheet position and the GoI’s thrust to increase the country’s power generating capacity, we believe NLC’s long-term growth prospects remain intact.

To see full report: Neyveli

>Ranbaxy Laboratories (ANGEL BROKING)

Ranbaxy Laboratories - BUY
Event Update

Price: Rs170
Target : Rs277
Time : 12 months

*USFDA invokes AIP
: The USFDA has invoked Application Integrity Policy (AIP) on Ranbaxy's Paonta Sahib facility citing that the company has falsified data and results in approved and pending ANDA filed from the facility. Prior on September 16, 2008, the USFDA had issued two warning letters and instituted an Import Alert barring entry of all finished drug products and active pharmaceutical ingredients (API) from Ranbaxy's Dewas, Paonta Sahib facilities due to violation of US current Good Manufacturing Practices requirements. That action barred commercial importation of 30 different generic drugs into the US and continues to be in effect. However, we expect this latest action by the USFDA to have limited impact on Ranbaxy’s US Sales as most of the approved drugs from this facility were already under the import ban list. Further, no other products from Ranbaxy's other manufacturing facilities are included in the AIP except products, which used clinical data from the Paonta facility.

* No Quality concerns: USFDA has however, clarified that it has no evidence that these drugs do not meet their quality specifications and has not identified any health risks associated with the currently marketed products from Paonta faicilities.

*No early resolution in sight: The latest USFDA action against Ranbaxy indicates that there appears to be no near-term closure to the investigation, and we believe it will continue over a longer period of time. However, Daiichi Sankyo and Ranbaxy have formed a team to resolve the issue. Notable, earlier this month, Ranbaxy had received approval for Imitrex from its Ohm facility in the US, which in our view was a positive development for it.

To see full report: Ranbaxy

>Power Grid (INDIABULLS)


Unleashing its potential
Our enthusiasm in Power Grid Corporation of India Ltd. (PGCIL)’s stock has been lighted up by the encouraging tariff determination norms issued by the CERC for FY10–14. As a result, we have increased our target price for PGCIL’s stock from Rs. 110 to Rs. 120 and maintain our Buy rating.

* Overall RoE to improve significantly in the next 4-5 years: We see the Company’s RoE improving from 11.7% in FY08 to 16-17% by FY13-14 due to the following reasons:

· CERC’s increase in the cap on the RoE from 14% to 15.5% for tariff determination purposes implies higher guaranteed returns on the transmission projects for FY10-14.

· We expect the Company to continue generating incentive income, which would mean a higher effective RoE on the transmission projects.

· Equity deployed in the transmission assets would increase significantly in the next 2-3 years as the Company has huge CAPEX plans. We do not see any major delays in the commissioning of new transmission lines as the Company has a stable cash-generating business model and strong GoI support for funding its projects.

· The Rs. 14.4 bn worth of GoI bonds issued to PowerGrid would be completely redeemed by FY16 in equal half yearly instalments. As these funds would be invested in higher return-generating transmission assets, the Company’s overall profitability should improve.

* Bright long-term prospects: Most of the power projects being planned for the future by the GoI are pit-head and of sizable capacity. These would require building a strong transmission network for dispatching electricity to the various project beneficiaries. PowerGrid, the only transmission company in the country, is set to benefit significantly from this scenario.

To see full report: Power Grid


JSW Steel Ltd.
CMP Rs 184.25 Tgt Rs 239.52

Q3FY09 Result Update...........

Key developments:

• Restored the production to normal level in January 2009 by restarting the two furnaces temporarily shut down in November 2008.

• Already commissioned Sinter plant, Coke oven batteries, Wire rod mill, Raw material handling systems, Utilities forming part of the expansion project to 6.8 MTPA. It is scheduled to commission the Steel Melt shop, Blast furnace and the Bar mill in Q4 FY 2008-09. On commissioning of the expansion project JSW Steel will be the largest steel Company in private sector in India with 7.8 MTPA steel production capacities.

• The new hot strip mill with 5 MTPA capacities being implemented in two phases and the first phase is expected to be ready during the period December 2009 to March 2010.

• The expansion project to 10 MTPA at Vijayanagar works along with beneficiation plant and power plant will now be commissioned during the period October 2010 to March 2011.

• All other green field projects are currently under review and will be taken up at appropriate time on achieving financial closure and on improvement of market conditions.

To see full report: JSW



Banking on a strong order book

IVRCL continues to be one of the strongest companies in the construction & infrastructure space due to significant advantages over its peers, including revenue visibility for the next 3–4 years and a high degree of exposure to government-funded orders, especially in the water & irrigation segment. The stock correction in the last few months is attributable to the negative sentiments attached with the worsening economic scenario, particularly in the real estate sector, to which IVRCL has an exposure through its subsidiary IVR Prime. We have calibrated our estimates to address the concerns of lower order inflows and slower execution over the next couple of quarters owing to the forthcoming elections. Consequently, we have arrived at a fair value estimate of Rs. 139, which reflects a potential upside of 35% over the current market price (CMP); hence, we maintain our Buy rating.

Healthy order book and favourable portfolio mix
IVRCL has an extremely healthy order book of Rs. 143 bn, 3.9x the FY08 revenues, which should insulate the Company from any slowdown in the order inflows over the next two years due to the adverse economic scenario. Moreover, IVRCL’s leadership in the water & irrigation space, which accounts for more than 65% of the current order book, provides it a significant opportunity to benefit from the increased planned government spending in the segment during the 11th Five Year plan period.

To see full report: IVRCL

>Corporation Bank (INDIABULLS)

Result Review

* Slowing Down: Corporation Bank’s operating profit grew by 61.9% yoy, driven by a 43.2% rise in the NII and a 69% rise in other income. However, comparing on a like-to-like basis, without the MTM gains, the operating profit grew by 31% yoy. Despite healthy numbers, the impact of the business-cycle downturn has been evident in a moderate advances growth (3.2% sequentially), and a 75% yoy rise in delinquencies for 9M FY09. In view of the ongoing economic downturn, we retain our conservative estimates for margins, but downward-revise those for credit quality and business-growth. This tempers our fair-value estimate to Rs.182. While, we do believe that Corp Bank’s stock price reflects these concerns, we see limited upside in current environment. Therefore, we downgrade our rating to Hold.

* Advances growth to remain moderate: We expect CorpBank’s advances growth to average ~18% and ~16% for FY09 and FY10 respectively. This downward revision in our growth estimates is based on funding and delinquency concerns. Funding concerns stem from a below average growth in deposits (2.7% qoq) and delinquency concerns emerge from the advances-mix. The Bank’s advances-mix is dominated by large industries (30.6%), retail (20%), SMEs (10.4%) and agriculture (9.2%), which are likely to face near-term headwinds. Therefore, the Bank’s credit off-take is likely to remain moderate.

To see full report: Corporation Bank