Monday, August 17, 2009


June Loans Boosted by IPO loans, Trade Financing

Loans +1.5% mom, loans outside of HK -1.4% mom — Total licensed bank loans grew 1.5% mom, -2.3% ytd in June, mainly due to domestic loan growth (+2% mom) as loans outside of HK (e.g. China) contracted 1.4% mom due to crowding out effects from the Chinese banks. The sequential improvements in economic activities led to an increase in trade finance lending (+3.4% qoq) and due to an active stock market, with increased equity financing in IPOs, stock broking lending increased to HK$49.9bn (434% qoq). Stripping out the effect of stock brokerage lending, we estimate total lending was largely flat mom (c.+0.2%).

Recent High in New Mortgage Approvals — The latest residential mortgage survey shows new loans approved in June amounted to HK$38.4bn (+37% mom), which was the highest in recent years. All segments have picked up, with primary mkt approvals up 44% mom, secondary mkt +27% and refinancing +110% mom. Mortgage pricing remains competitive and will likely result in lower banks' margins as 52% of new loans are priced below BLR (e.g. Prime rate) while HIBOR based plans are gaining popularity (c.40% of new loans). Total outstanding mortgage loans reached HK$601bn (+1.2% mom, 2.3% ytd). While some moderate loan growth is expected from mortgages, corporate loan demand and lending outside of Hong Kong will likely remain weak in 2H09.

June deposits improved +1.8% mom, +3.6% ytd — With abundant system liquidity, total deposits continued to pick up (+1.8% mom), mainly due to a surge in demand deposits (+4.6% mom). The Loan-to-Deposit ratio dropped further to 50% while the HK$ L/D ratio also fell to 70.8%. Reminibi deposits grew for the second straight month (+1.7% mom) as the expectation of increased investment channels and usage of Rmb (e.g. Rmb denominated bonds, Rmb trade settlement scheme) may have sparked more interest.

DSB/DSF remain our top picks in the sector — With the recent upsurge in stock prices, valuations no longer appear cheap as most HK banks are currently trading at mid-cycle valuations. While we expect to see lower provisions, the revenue outlook remains muted in 2H09. DSB and DSF remain our top picks in the sector due to compelling valuations at 0.8x 10E P/B and potential normalization of credit cost. BOCHK is also relatively preferred given potential MBS write-backs and given that it will likely be a key beneficiary of positive developments and expansions in Rmb trade settlements.

To see full report: HONG KONG BANKS


Aiming at recovery in 2HFY10; maintain Buy

Results miss expectation; aiming at 2HFY10 recovery. Despite revenue declining, Nitin’s earnings grew a marginal 3% yoy, on the back of profits of its associate. We expect a recovery in revenue from 2HFY10; thus, we maintain a Buy.

Revenues belie expectation. Revenue for the quarter slipped 6% mainly on lower CNG cylinder sales (a 16% drop). Industrial cylinders (down 1%) and fire-fighting equipment (down 5%) were more or less flat.

CNG cylinder demand still weak. Demand for CNG cylinders has been weak for both Nitin Fire and Everest Kanto following poor vehicle sales and lower prices of crude. We expect demand to pick up in 2HFY10 on the back of a general upswing in the

Diversified business model provides stability. The company’s business model (operating in CNG cylinders, industrial cylinders trading and fire-fighting equipment) has shielded it from the major adverse effects of the slowdown. We believe this business model could sustain growth.

Valuation. We lower estimates to factor in the slowdown in 1HFY10 and the fall in commodity prices. We increase our target price to Rs401 based on 9x FY11e earnings (a 30% discount to our target multiple for mid-cap capital goods companies).

To see full report: NITIN FIRE


Q1FY10 Result Update August 03, 2009

RIL is present across the entire power chain – generation, transmission and distribution. Further, it also has a presence in EPC (engineering, procurement and construction) projects for the power sector and in Infrastructure projects (Metros, Roads and Real Estate). Reliance Infrastructure Ltd (RIL) came out with its Q1FY10 results. We attended the Q1FY10 conference call and given below are the key takeaways.

For Q1FY10, RIL reported net income of Rs. 2446.3 cr, 6.8% higher y-o-y, on the back of decent growth reported in the electrical energy segment and increase in EPC activity. The electrical energy segment grew by 5.2% y-o-y while the EPC segment recorded growth of 27.1% y-o-y. Operating margins have held steady at 12.24%. Other income jumped 121.5% y-o-y mainly due to higher interest income and forex gains. Rise in other income helped offset higher interest outgo, increase in depreciation charges and a higher tax rate. RIL reported a PAT of Rs. 316.6 cr, 25.4% higher y-o-y. It reported an EPS of Rs. 14.1 for the quarter on equity of Rs. 225.3 cr. On standalone basis, the net worth of the company stood at Rs. 12,172 cr and book value per share at Rs. 540 as on June 30, 2009. At the CMP of Rs. 1185.1, RIL is trading at 2.2x its standalone book value.

Key highlights of the Q1FY10
RIL reported net income of Rs. 2,446.3 cr in Q1FY10, 6.8% higher y-o-y and 1.5% higher q-o-q. The company has not declared separate standalone Q4FY09 results and thus the same have been derived. RIL has reported an increase in sale of electricity to Rs. 1,855.3 cr (up 5.2% y-o-y and 27.7% q-o-q) and an increase in the EPC business to Rs. 551.9 cr (up 27.1% y-o-y and down 37.8% q-o-q) in Q1FY10. The increase in electrical energy sales is due to higher quantum of power purchased during the quarter and increased generation from the Dahanu, Samalkot and Goa power plants. However, the segment classified as others, which mainly consists of other operating income, like maintenance of streetlights etc fell to Rs. 39.1 cr, down 57.6% y-o-y and 43.8% q-oq. This is due to the booking of some one time orders carried out in those respective quarters where in revenue is booked on an aggregate basis.

Other income increased to Rs. 244.2 cr, up 121.5% y-o-y, which in turn helped boost bottomline despite an increase in interest, depreciation and tax costs. The other income is mainly composed of interest income and forex gain. RIL has cash and cash equivalents of over Rs. 9,000 cr.

Operating margins remained flat on a y-o-y basis, 12.24% in Q1FY10 vs 12.48% in Q1FY09. On a q-o-q comparison, margins have expanded by 577 bps. In Q4FY09 margins had fallen sharply primarily due to an increase in other expenditure. In Q4FY09, RIL had provided for certain contingencies (Rs. 320 cr) towards regulatory matters (tax disputes, doubtful receivables in the EPC segment, electricity business and other corporate matters).



Model Portfolio & Focus List: Adding State Bank of India

• Changes to Focus List: We are adding State bank of India (Rs1,799) to our focus list. Our banks analyst Mihir Sheth argues that with the macro environment improving, SBI’s loan growth and asset quality are set to improve.

• He believes that NIMs will bottom out in F2Q10 and will start expanding significantly on account of re-pricing of high cost deposits and an acceleration in loan growth. The improvement in capital and credit markets will ease the asset quality concerns thereby aiding SBI’s key borrower segment – the corporate sector.

• SBI is gaining market share versus private players in terms of fee income generation and its subsidiary performance (including insurance) has remained strong. We believe this will provide further support to earnings and valuations.

• After taking an increase of 125% in credit costs in F2010, SBI still generates an ROE of 16% which is attractive in Mihir’s view. SBI trades at 1.8x book, 11.8x P/E – a significant discount to private banks and the market. He believes this will likely narrow as core earnings momentum returns.

• We fund this change by removing Union Bank (Rs213) from our Focus List which has been a relative outperformer.

• We are not making changes to our sector model portfolio which remains biased for a recovery in economic activity. Thus we are backing infrastructure and consumer discretionary sectors while remaining underweight in materials. We remain neutral financials.

To see full report: INDIA STRATEGY


Overhang of state budgets is behind us

Reiterate as Top pick; Raising PO to Rs275
We have increased our estimates for ITC by 2-5% over FY10-12E to factor in improved profitability in agri business and cig price hikes running marginally ahead of our estimates. Our new EPS is Rs10.5 for FY10E and Rs12.5 for FY11E implying a growth of 21.5% in FY10E and 19% in FY11E. We have increased our multiple for ITC to 22xFY11E (20xFY11E) to peg it at a 10% premium to last 5-yr average to reflect improved earnings growth potential. This on an EPS of Rs12.5 for FY11E gives us our PO of Rs275, implying 13% upside potential from current levels.

Threat of VAT hike on cig recedes post Andhra budget
With State Budgets over for FY10, the overhang of potential VAT increases in behind us. Post last two year’s declining trend, we forecast cig vol. gr to rebound to 7.5% in FY10. Post the budgets ITC has greater flexibility to balance volume & price growth. Excise savings outweigh the VAT increases in Delhi, Maharashtra and Rajasthan. Overall, we expect cig EBIT gr to accelerate to 18% in FY10. We are not overly worried about increased marketing spends to counter new competition from GPI given strong vol rebound and upside to retail price hikes.

FMCG and Agri should do well with improved profitability
We are encouraged to see a decline in FMCG losses in June Q. We believe losses have now peaked despite plans for new category launch in 2H. In agri we expect trend of falling topline but growing EBIT to continue. ITC is shifting its focus on smaller but more profitable commodity basket. Also, rise in tobacco leaf prices is helping ITC as global supply of leaf tobacco remains constrained.

Hotels and Paper to bounce back
We expect hotels to improve in 2H in line with economic recovery and on set of tourist season. Notwithstanding papers disappointing in June Q, we expect strong full year performance led by strong topline gr & margin expansion due to mix gain.

To see full report: ITC



Multiplex-Producer strike impacts Top-line, dips 33%: For 1QFY2010, Fame reported a decline in Top-line of 33.2% yoy to Rs15.8cr (Rs23.6cr) on a Standalone basis, largely impacted by the 63-day strike (covering almost the entire quarter) between Multiplex-Producers due to which most movie releases were stalled. Second season of the IPL and Elections also impacted footfalls during the quarter, which fell 36% yoy to 1.05mn (1.6mn) leading to a drop in occupancy levels by almost 1,200bp to 13% (25%). However, steady Average Ticket Prices (ATPs) and 11% improvement in F&B Spend helped arrest further fall in Top-line.

Margins collapse, register a huge Operating Loss: On the Operating front, Fame’s Margins completely collapsed resulting in a substantial Operating Loss of Rs5.2cr (Loss of Rs2.7cr). A weak Revenue base magnified the impact on Margins (as a % of Sales) leading to the sharp contraction. While direct costs (Distributor’s share and F&B costs) remained flat (as a % of Sales), higher Staff costs (up 643bp yoy, flat in absolute terms) and 46% yoy jump in Rentals (up 2,466bp yoy) to Rs7.2cr (Rs4.9cr) impacted Margins severely.

Bottom-line dips deep into the Red: The company’s Bottom-line dipped deep into the Red registering a Loss of Rs9.5cr (Loss of Rs3.7cr loss) on a reported basis. Earnings were depressed due to the sharp contraction in Margin, higher Depreciation charges (up 79% yoy) and sharp jump in Interest costs (up 124% yoy).

To see full report: FAME INDIA


Q1FY10 Result Update

NTPC’s principal business is generation and sale of bulk power. Other business includes providing consultancy, project management and supervision, oil and gas exploration and coal mining. The total installed capacity of the company as on 31 March 2009 is 30,144 MW including that under joint ventures. NTPC commissioned a 500 MW Unit 7 of Kahalgaon Super Thermal Power Project- Stage II on 30 June 2009, taking the total capacity to 30,644 MW. Of this, 24,709 MW is coal based capacity and the rest gas.

NTPC, India’s largest power generator came out with its Q1FY10 results. NTPC’s Q1FY10 results were above street expectations led by new regulations from the Central Electricity Regulatory Commission (CERC), 2,000 MW y-o-y increase in capacity to 27,850 MW
(standalone) and increase in gas plant PLF (plant load factor) from 67.2% in Q1FY09 to 79.87% in Q1FY10. NTPC’s ESO (energy sent out) sales rose ~11% y-o-y to ~ 52 bn units. Operating margins improved to 26.5% in Q1FY10 vs 25.4% in Q1FY09 due to lower
employee cost (as a % of sales). Q1FY10 PAT rose 27.1% y-o-y to Rs. 2,196.6 cr. We present an update post the analyst meet.


NTPC reported generation revenues of Rs. 11,968.6 cr in Q1FY10, up 25.8% y-o-y and 4.4% q-o-q. This was largely on account of increased generation from 4 units (2,000 MW) that were declared commercial during FY09. Further, the PLF of the gas plants also improved from 67.2% in Q1FY09 to 79.87% in Q1FY10 (increased availability of gas and spot LNG). It generated about 55 billion units during the quarter registering a growth of about 9% y-o-y and down 2.5% q-o-q. The average realization per unit sold was Rs.
2.3, an increase of 13.5% y-o-y and 14.6% q-o-q.

Other than the increase in commissioned capacity and increase in PLF, the topline was also in accordance with the new tariff regulations by CERC regulations, which stipulates a ROE of 15.5% for thermal power plants as against 14% in the 2004-09 regulation. However, while the increase in topline and profit can partly be attributed to the change in regulation, the full impact of the regulation is yet to be understood. The management during the analyst meet indicated that the change in CERC policy is neutral for NTPC. In the notes to the quarterly results, the management has indicated that the sales for Q1FY10 as per the new regulations amount to Rs.11,970.8 cr, while as per the earlier regulations, they would have been Rs.11,485.4 cr.

Average PLF for the quarter was higher for the coal based plants as well as gas based due to increased availability of fuel. NTPC received 32.85 mmt of coal during Q1FY10 (of which 3.25 mmt was imported coal) as against 28.7 mmt in Q1FY09. Q4 is typically the best quarter for power plants due to a seasonal impact (demand from corporates / industries is generally higher during the last quarter for the financial year). Similarly, in case of gas NTPC received 14.03 mmscmd as against 11.39 mmscmd received in Q1FY09. Given the sharp fall of LNG prices over the past year, NTPC’s spot and fallback RLNG received during the quarter increased to 5.1 mmscmd as against 2.57 mmscmd during Q1FY09. The table below summarizes the performance of NTPC in terms of PLF.

To see full report: NTPC


TOPIC-1 What has happened - The Perfect Storm
– Global Economic crisis
– Coordinated global policy action being taken

TOPIC- 2 Where are we now - Recovering
– Policy action showing results- Credit market Indicators improving
– Real Economic Indicators also showing signs of improvement
– Housing market stabilizing - to lead the recovery

TOPIC- 3 What do we expect

India in a sweet spot

Indicators in India also turning positive
– Stability coming in the currency and flows market
– India moving back into the positive territory
– Indian corporate in a healthy position
– Indian Markets –Valuations are reasonable when compared to peers
– India Election a game changer
– Factors to watch out for - Globally few indicators still to show reversal
– Factors to watch out for - Domestically

TOPIC- 4 Conclusion

TOPIC- 5 Credits

To see full report: EQUITY OUTLOOK


Q1FY10 Result Update August 05, 2009

Tata Power Company Ltd (TPC) is India’s largest private sector, integrated utility company. TPC has an installed power generating capacity of about 2,786 MW. The Mumbai power business has a unique mix of thermal and hydropower. Also, through its subsidiaries
and joint ventures, TPC has a presence in power transmission, distribution and trading. In June 2007, TPC acquired a 30% stake in the KPC and Arutmin mines of Bumi Resources and is thus focusing on backward integration and fuel security.

TPC came out with its Q1FY10 results and we present an update post the Q1FY10 conference call. The management intends to have a separate call in August 09 to discuss the performance of TPC – consolidated and hence this review only considers its standalone GTD
(generation, transmission and distribution) business.

TPC reported total income of Rs. 2,123.2 cr in Q1FY10, up 0.5% y-o-y and 18.9% q-o-q. Operating margins increased to 30% vs 13.5% in Q1FY09 due to the inclusion of Rs. 232.4 cr as part of revenue which pertains to previous years due to MERC tariff orders and
judgment of ATE received during this financial year. Excluding the impact of this, margins increased to 20.6% on the back of lower cost of fuel and lower cost of power purchased. TPC reported a PAT of Rs. 377.1 cr, up 98.1% y-o-y and up 6.3% q-o-q buoyed by higher
generation, lower fuel costs, receipt of previous year revenue and impact of FY09 capacity expansion. However, on a y-o-y basis adjusting for the one time item of Rs. 232 cr, PAT increased by 22.7% to about Rs. 233 cr.


In Q1FY10, TPC reported a topline of Rs. 1,975.6 cr, down 0.7% y-o-y and up 39.5% q-o-q. This includes an amount of Rs. 232.4 cr pertaining to previous years due to MERC tariff orders and judgment of ATE received during this financial year. Thus, based on a like by like comparison, revenue in Q1FY10 is at Rs. 1,743 cr, lower by 12.4% y-o-y. This fall is mainly explained by a decrease in fuel cost and thus a corresponding decrease in the price of power per unit sold.

On a q-o-q basis, the increase in revenue is higher due to the Rs. 232 cr of one time adjustment to revenue, an increase in the number of units sold and a marginal increase in the selling price per unit sold. The same has been summarized in the table given

Total generation increased by 8.3% y-o-y and 19.5% q-o-q due to commissioning of 421 MW in FY09, the impact of which can be seen in this quarter. Sales in the MLA (Mumbai License area) were flat y-o-y at ~3,000 mn units while sales outside the MLA increased by 6% y-o-y. Sales on a y-o-y basis increased by 1.6%. While Trombay Thermal Power Station generated 2,778 MUs of power as compared 2,669 MUs in the previous year (4.1% increase y-o-y mainly due to the replacement of operations from Unit 4 with Unit 8), the Jojobera Thermal Power Station recorded a generation of 803 MUs during the quarter as compared to 784 MUs (an increase of 2.4% y-o-y). The Belgaum Independent Power Plant (IPP) generated 107 MUs during the year as compared to 92 MUs (increase of 16.3% y-o-y possibly due to the lower cost of heavy fuel oil and increased demand from KPTCL).

Generation can be expected to increase in the quarters to come as Trombay Unit 8 (250 MW) and Haldia 90 MW are still under stabilization stages. TPC sold about 240 mn units on merchant basis (100 MW of capacity at Trombay and Haldia are available for merchant power sale). The tariff in the western region (Trombay) was in the range of Rs. 6.6 per unit and in the eastern region (Haldia) at Rs. 5 per unit. Merchant power sales are also expected to increase once these units stabilize. On a q-o-q basis, the sharp jump in number of units generated is partly due to the fact that generation was lower in Q4FY09 as there was a planned outage at Trombay Unit 6 during Q4FY09.

To see full report: TATA POWER


Margin expansion boosts bottom line

Results mixed: Q1 revenue (consolidated) declined 40.1% YoY to Rs689mn (24.3% lower than our estimate of Rs911mn). EBITDA was flat at Rs155mn vs. our
estimate of Rs129mn as margin improved 880bp to
22.4% against our estimate of 14.2%.

Better margins ahead; upgrade to Hold: With volatility in global oil prices reducing and LPG prices more stable, we expect margins to improve. We value the stock at 6x one-year rolling forward earnings and assign a new target price of Rs122 (earlier: Rs90). Upgrade to Hold.

Estimates revised: While we have lowered our revenue estimate by 12.3% for FY10E and 15.9% for FY11E, margin estimates have been raised by 222bp to 17.0% and by 330bp to 19.4%. We have also adjusted for the one-time extraordinary other income during this quarter. Effectively, EPS is higher by 6.8% for FY10E and 2.1% for FY11E.

Lower LPG prices impacts revenue, but gas division help boost margin: The gas division’s revenues declined 48.0% YoY to Rs504mn, impacted by the 54.1% decline in the global LPG prices to US$390/tonne. Liquid logistics revenue was flat at Rs182mn. EBIT margin increased 974bp to 24.2% as gas division’s margins improved 576bp YoY to 13.3%.

To see full report; AEGIS LOGISTICS



Zicom reported a 26.2% YoY growth in revenues for Q1FY10 at Rs. 1,047 mn versus Rs. 829 mn for Q1FY09. EBITDA grew by 49.6% YoY and EBITDA margin improved to 14.3% from 12.1% for Q1FY09. Depreciation and interest costs increased by 39.9% and 116.7% YoY respectively. At PBT level, profit stood at Rs. 61 mn, up by 15.8% YoY. Net profit adjusted
for minority interest was up by 14.5% YoY at Rs. 44 mn versus Rs. 38 mn for Q1FY09.


We maintain our expectation of a 30% CAGR in revenues over FY10-FY11E. We estimate FY10E and FY11E EPS of Rs. 22.3 and Rs. 32.8 respectively. The company is currently trading at P/E of 3.8x and 2.6x and EV/EBITDA of 3.4x and 3.0x times FY10E and FY11E numbers. Our target price on the stock is Rs. 223 at a P/E multiple of 10.0x its FY10E earnings.


The key downside risks are:
1) Delay in response for change in regulatory framework from the government as this impacts priority for security products, decision making and budgetary provisions for security projects in government and public sector companies

2) Increased competition due to low barriers to entry

3) High price sensitivity in the Indian market

4) Obsolescence of technology and products

To see full report: ZICOM