Sunday, March 8, 2009


Credit Rating Information Services of India
Result Update
Target - 3,650

Results inline with expectations

CRISIL’s CY08 numbers were in line with our expectations. The operating revenues have grown by 31%yoy to Rs5.3bn. The reported net profit at Rs1.4bn has grown by 67.7% yoy. However Q4CY08 performance was moderate on account of slower growth in advisory business, Forex losses and one-time expenditure. The reported operating margins contracted by 266bps yoy and
1,630bps sequentially to 27.4% during the quarter on account of higher employee expenses, goodwill write off and Forex loss during the quarter.

The stock is currently quoting at 9.3x CY09E EPS, The company has declared a total dividend of Rs70 per share (including Rs35 per share interim) reflecting a dividend yield of 3.3%. We maintain our BUY recommendation with price target of Rs3,650.

Forex losses and advisory impact revenue growth
The CRISIL net operating revenue for Q4CY08 grew by a moderate 15.1%yoy to Rs1.4bn. The moderate performance was on account of following reasons:

# CRISIL has sold of its one of the international subsidiaries Gas Strategy Group (for ~Rs210mn) with effect from December 10, 2008. Hence, the revenues from the business were not there for 21 days. Along with the same we were expecting slow down in the advisory business.

# The research business has also grown by just 16.1% yoy during the quarter. However, during the quarter there was no loss of clients. We expect the business to grow by 20% in CY09 albeit with back ended growth. However, the rating business has continued its robust performance, as the revenues have grown by 37.7% yoy and 16.5% qoq to Rs526mn during the quarter. The growth was driven by continued demand for bank loan rating and SME rating.

However, the rating business has continued its robust performance, as the revenues have grown by 37.7% yoy and 16.5% qoq to Rs526mn during the quarter. The growth was driven by continued demand for bank loan rating and SME rating.

To see full report: CRISIL


Company Update
Action - SELL

The worst is still not behind us…

* Project cancellations intensified, Q4FY09 is likely to be dismal …
There have been project cancellations in the last two months across the board, more severely in BFS, Manufacturing and Telecom with some amount of resilience witnessed in Retail, Pharma and Utility verticals. Nevertheless, management indicated at newer deal flow albeit at a slower pace. On the other hand, as clients are trimming their overall IT budgets, there could pressure on volume growth in the coming quarters, however some respite can be expected by Q2FY10E, with bottoming out of project cancellation and revival in organic volume growth.

* Pricing cuts worries intensify; margins to come under pressure..
TCS’s management indicated that pricing pressure from clients increased in the recent months and renegotiation requests are coming in to the extent of ~5%-15% cut in the contracts. However, management expects to negate the pricing pressure to the extent of single digit pricing cut by exercising the internal levers like higher offshoring, cut in variable pays (~8%of salary), increase in working hours (~45 hrs per week from ~40hrs earlier) coupled with bringing down the bench strength (already substantially reduced outside of India bench strength).

To see full report: TCS


Action - SELL

Five structural issues that concern us about ONGC; reiterate Sell

Source of opportunity
We re-visit the fundamental premise for our outlook on ONGC and highlight our five top concerns, which, in our view, will likely keep ONGC stock unattractive over the medium term. Our key concerns are:
(i) Overseas growth strategy has not been very effective
(ii) Unexciting execution track record in domestic business,
(iii) Limited focus on cost control,
(iv) Corporate governance issues with cash withdrawals by promoter, and
(v) ONGC being structurally unattractive with downside from lower oil price but limited upside from price rebound.
Also the key positive stock catalysts are in government hands – hence unpredictable.

1) Downgrades to FY10E-11E consensus estimates, which remain high,
2) lack of meaningful domestic exploration successes,
3) production decline in overseas assets;
4) price cuts in retail fuel, and
5) announcement of any expensive overseas acquisition.

We reiterate Sell on ONGC, with P/B-based 12-month target price of Rs574, implying potential downside of 14%. Our target multiple of 1.4x FY09E P/BV, based on 2003 trough multiple, is actually generous (mainly due to ONGC’s net cash position), since ONGC’s FY10E ROE is likely to be much lower than FY03-04 levels. We have cut FY09E-11E EPS by 6%-15% primarily driven by lower volume and higher costs. Though some investors like ONGC for its large government holding and for not being widely owned by institutional investors, we find it hard to own the stock, given that it has hardly any catalysts to surprise on the upside but has downside risk from adverse government action.

To see full report: ONGC

>Satyam (ANAGRAM)

Event Update


Government and SEBI working in tandem has chalked out a definitive plan to offer a 51 percent equity equity to the prospective investor in Satyam.

The company would come out with the specific plan for the bidding process in the next few days.

Earlier Company Law Board (CLB) authorised the Satyam Board to make a preferential allotment of equity shares to a strategic investor and raised the company's authorised capital to Rs 280 crore from Rs 160 crore.

The plan has two riders among other conditions :

1. The bidder should have net assets of over $150 million.

2. Whoever wins the bid cannot sell equity shares for a period of three years from the date of the acquisition.

The process

The selected investor should subscribe to the newly issued equity shares, comprising 31 percent of the authorised share capital.

The investor should go for a mandatory minimum public open offer (at the same share price the investor paid for the subscription of new shares) for the remaining 20 per cent.

In case the investor falls short of 51 per cent stake after the two-step process, the option to subscribe to additional newly issued equity shares to reach the figure that gives controlling stake would also be available.

Is worst over for Satyam?

It seem so. The company has taken drastic steps to curtail expenses and survive on wake of unimaginable conditions.

The company is using the available bank funding in a controlled and phased manner to meet immediate and near-term operating requirements, including payments to vendors.

There were media reports of company receiving unsolicited offers from banks for funding.

Though, It is loosing some customers, there are few new orders as well. The company has bagged $250-million worth of deals over the past two months. According to the management, current orders are across industry verticals, technologies and geographies.

To see full report: Satyam

>Banking Update (ANAGRAM)


Where money is going?

On a review of ongoing global and domestic macroeconomic situation, RBI infused Rs 4000 billion into the system through series of monetary measures since mid September aiming at availability of fund with baks that can be passed to productive sectors to revive the economic growth. But the baks are seen on a diverse track where they prefer safety over growth resulting in to reluctance for lending. Advance growth figures of Q3FY09 gave a clear indication of it. The next obvious question would be, where the money infused by RBI is going? Bank that lost trust and confidence in the market, chose RBI itself by way of G-Sec investment and reverse repo window as the heaven place for putting their surplus funds even though it returned lesser than normal credit of banks.

Advance growth of baks inder analysis dropped to 4% on sequential basis in the third quarter of this fiscal as compared to 8% of the second quarter. Private sector banks were seen more cautious for lendingin this period on a fear of high risk of default on their portfolio. Credit growth of scheduled commercial banks (SCB) had touched the level of 29.13% in the first week of October, slipped to 19.78% in Feb 09. Incremental C/D ration fall below 70% in Feb from the high of 97% of October.

To see full report: Banking Update March'09


4QCY2008 Result Update
BUY; Target - 3600

Performance Highlights.....

* Better-than-expected Performance: For 4QCY2008, Bosch India reported 13.5% yoy growth in Net Sales to Rs974cr, which was marginally below our expectation of Rs994cr. This came on back of 17% yoy decline in Auto segment while Other businesses posted robust 33.1% growth. The company’s Bottom-line, which recorded 24.3% yoy decline to Rs94.2cr (Rs124.4cr) however, exceeded our expectation. Bottom-line was mainly supported by the 72.8% yoy increase in Interest Income to Rs35.3cr. While the Auto Segment clocked sluggish growth (in some segments), the company’s Non-Auto businesses continued to clock strong growth.

* EBITDA Margin declines 270bp: During 4QCY2008, Bosch witnessed a substantial 270bp yoy fall in EBITDA Margins owing to higher Raw Material costs, which moved up 202bp yoy and accounted for over 50.9% of Sales (48.9% in 4QCY2007). Bosch imports some of its key components from Europe. Hence, unfavourable exchange rate fluctuation impacted Margins. Further, the company’s product mix has also undergone changes consequent to which, its overall input mix has seen a gradual change, which was one of the reasons for higher Raw Material cost, as indicated by management. Other expenditure for the quarter however, declined by 231bp yoy, which cushioned the fall in Margins to an extent. Other expenditure declined mainly on the back of continuous efforts of the company to cut Operating costs on account of the industrial slowdown. Overall, Bosch reported a 27.2%yoy decline in Operating Profits (excluding Other Income) to Rs175.4cr (Rs240.9cr) primarily owing to low operating leverage during the quarter.

* Bottom-line down 24.3%: Bosch reported 24.3% decline in Net Profit to Rs94.2cr (Rs124.4cr) for 4QCY2008. The company reported 9.3% increase in Depreciation to Rs105.3cr (Rs96.4cr) in 4QCY2008 due to its ongoing capex in CY2008. Almost 70% of capex was booked in 2HCY2008. However, 113.1% yoy jump in Other Income negated the impact on Bottom-line to an extent. An increase of 72.8% yoy in Interest Income to Rs35.3cr also lent a boost to Bottom-line.

To see full report: Bosch

>Ashok Leyland (ICICI Securities)


Recovery path still hazy

* Spate of new product launches include: i) cost effective & fuel efficient 40.19 and 25.16 vehicles iii) Neptune engine (being co-developed with Avia) to be introduced in April ’10 (Euro IV-compliant; can be scaled-up to meet Euro V norms). Neptune would be at least 20% more fuel-efficient vis-à-vis existing engine iv) modular platform for cabs (mid ’10) v) Unitruck (mid ’10), similar to Tata Motors’ world truck.

* Cost reduction initiatives. ALL is aggressively focusing on cost reduction on all fronts: i) Has realised 25-30% reduction in raw material in Q4FY09, with FY10 likely to witness full benefit of commodities softening; ii) Salary cut via reduction of 2,000 casual workers, working days from six days per week to three and executive salaries, thereby leading to 20% lower salary bill in FY09; iii) Reducing admin costs. However, discounts are substantially high and could, thereby, impact profitability in the short term. Post inventory correction, ALL would discontinue the discounts.

* Cash conservation – Reduction in capex and WC. ALL has scaled-back its capex plans to Rs28.5bn from Rs42bn over FY09-12E. Capex is expected to be Rs8.5bn in FY09 (versus Rs10bn earlier) and Rs20bn over the next three years (versus Rs32bn earlier). ALL plans reducing Rs6bn from WC in Q4FY09 to payoff short-term debt and reduce interest costs.

To see full report: Ashok Leyland

>Ambuja Cements (MERRILL LYNCH)

Company Update - UNDERPERFORM

Company visit highlights

* Co offers sober demand assessment
Ambuja voiced doubts about sustainability of recent demand recovery beyond the upcoming elections. The Co said recent govt. measures have helped accelerate existing (real-estate & infrastructure) projects but no new projects appear to be on the anvil. Ambuja feels recent demand recovery is led by a combination of preelection spend, higher govt. spend ahead of fiscal-yr closure & beneficial impact of the stimulus package. The Co expects industry growth in CY09E to be ~6-8%.

* Pressure on local prices by end-09; exports already weak
Barring any seasonal dip during monsoon months, Ambuja expects domestic cement prices to be stable until 4Q CY09. The Co feels there is high visibility on new capacity additions of ~30mn tpa across the industry through CY09. However, meaningful supplies from these are likely only by 4Q. On the export front, Ambuja said export cement prices are already down to ~US$45-50/t vs ~US$60/t last yr.

* Lagged benefit of falling coal prices for Ambuja
Ambuja has used relatively high cost coal inventory through the Jan-Mar ’09 quarter. The benefit of falling coal prices for the Co may be visible only from 2Q CY09, unlike other majors that may witness lower energy prices in Jan-Mar qtr.

* Other tidbits: Cochin jetty; expansions; stake creep-up
Ambuja’s captive jetty at Cochin (~0.5mn tpa handling capacity) is almost ready. The Co’s CY09 capex budget is frozen at ~Rs14-15bn; the Co expects to commission its Bhatapara expansion by mid-CY09 while the Himachal expansion may scrape thru with end-CY09 commissioning. In our assessment, Holcim is unlikely to seek significant stake increases in Ambuja in the current environ. We maintain underperf rating on unexciting CY09 outlook & relatively high valuation.

To see full report: Ambuja Cements