Sunday, November 15, 2009


Company Brief
Genus Power Infrastructures Ltd is a power infrastructure company engaged in business of Turnkey T&D projects, Electronic Meters, UPS & Inverters. It is a pioneer and one of the largest electronic meter manufacturers in the country.

Genus power has a strong order book position of Rs 970 crore as on Sep 09, which is around 1.7 x FY09 sales. This provides a clear revenue visibility for coming years

Demand for meters is increasing at a remarkable pace Genus being one of the leaders with ~ 30% market share, expects to immensely benefit out of this opportunity.

Genus is a play on significant investment planned in the Power sector and as the government implements its various schemes, demand for company’s products would increase.

The Government through its various policies is making full effort to achieve its target of complete electrification of rural households and 100% tamper proof metering. This augurs well for Genus and opens up a huge opportunity.

With good recognition of its products in Latin American countries, Genus sees a great business opportunity for meters in overseas market.

The recent erosion in market capitalisation due to fire in one of its plant offers good entry point for investors. At the current price of Rs 133, the stock trades at a P/E multiple of 6.0 x FY10E earnings and 3.4 x FY11E earnings & P/BV of 0.6 x FY10E BV and P/BV of 0.5 x FY11E BV. We recommend a “BUY” on the stock with a price target of Rs 235, assuming a P/E multiple of 6 x FY11E earnings, an upside of 76%, over a period of 12 months.

To read the full report: GENUS POWER INFRASTRUCTURE


Described as the ‘sunrise industry of India’, the auto ancillary industry is highly fragmented
with 500 organized and 5,000 unorganized players with over 60% of exports to Europe and USA. The market for auto components can be classified into Original Equipment (accounting for around 40% of demand), Replacement Market (accounting for around 50% of demand) and export market (accounting for the balance 10%).

The pie-chart shows the vehicle category contribution to the component market in India. Two and three wheelers along with passenger cars account for two-thirds of the components manufactured.

Indian Auto Industry - Overview
The Indian auto industry is highly competitive with the presence of a number of global and Indian auto companies. India is the world’s second largest manufacturer of two wheelers and ninth largest car manufacturer. Automobile production has consistently shown an upward trend, growing at a CAGR of ~10% over 2002-2009. Automobile production including Passenger Vehicles, Commercial Vehicles, Three Wheelers and Two Wheelers stood at 11.2 million units in 2008-09, almost double the figure of 6.3 million units in 2002- 03.

During October 2009, sales of Honda, Ford, Skoda, Hyundai and Maruti increased by 347%, 98%, 97%, 41% and 21% y-o-y, respectively. The momentum in sales of automobiles shows buoyancy in demand.

With improving road infrastructure, higher per capita income, favorable interest rates and launch of new models, the demand for automobiles and hence production is forecasted to be on the rise over the coming years.

Indian auto component industry is expected to grow to US$33-40 billion by 2015 based on buoyed growth in auto industry. In 2008-09 the turnover of the auto sector (automobiles and auto ancillaries) stood at INR2,190 billion with the ancillaries industry accounting for ~50% of the total turnover. India supplies a range of high-value and critical automobile components to global auto makers such as General Motors, Toyota, Ford and Volkswagen. Some of the leading manufacturers of auto components in India include Apollo Tyres, Bosch Ltd, Exide, CEAT, Bharat Forge, Motherson Sumi.

India compares favorably with other low cost countries in labour cost. Power cost constitutes only 3% of total cost structure, hence India’s high power cost compared to other low cost countries is not a significant disadvantage. Indian manufacturers lag their counterparts in terms of high fuel costs and higher taxes. However, with continuous growth in this sector and increased competition from foreign players, the government might structure the taxes more favorably for the benefit of component manufacturers. For example, the government lately announced an excise duty reduction of 4% across automobiles. High fuel cost is solely an economy driven factor and with global recession calming this might not be a significant cause for worry.

To read the full report: AUTO ANCILLARIES


The opportunity
Swap ratio for the proposed demerger of ZeeNews' regional entertainment business (R-GEC) to Zee was announced on 29th October. The swap ratio is 4 shares of Zee for every 19 shares of ZeeNews. Post the demerger, ZeeNews will remain a listed entity with its businesses other than the R-GEC.

The ratio of market prices of ZeeNews to Zee has thus far traded at a premium to the 4:19 ratio thus implying some value for ZeeNews ex R-GEC. However, of late, the ratio of CMPs has come to trade at the demerger ratio itself thus implying that if one makes a switch from Zee to ZeeNews, then one gets the ZeeNews business ex-REC for free. Even based on conservative assumptions on ZeeNews' residual businesses' valuation, we believe that one should be looking at risk-free returns to the tune of atleast 10% by making this switch.

For arbitrage players buying ZeeNews in cash and shorting Zee futures in accordance to the swap ratio can be a fruitful way to make use of this opportunity.

Valuation of ZeeNews
We have tried to value ZeeNews ex R-GEC very conservatively (ZeeNews is not in our fundamental coverage universe) . The valuation assumptions include an FY10 EV/ Sales multiple of 1x and a debt assumption of 80 crs for ZeeNews ex R-GEC. Even with this conservative approach we arrive at a price of Rs. 5.56 for the residual ZeeNews business.

Roll Cost for Zee Entertainment
For an arbitrager who buys ZeeNews in cash and shorts Zee futures, roll cost becomes an important consideration in determining the overall returns. Looking at the history of last two years, Zee has tended to roll at a premium on an average and thus the roll cost does not seem to be a concern. A discount in the future however can be a potential risk.

Expected Timelines Based on timelines of the previous Zee demerger in 2006, this process of demerger can be expected to be over in the next 6-7 months.


MARG is a multi-asset play on infrastructure and real estate through a port; SEZ; airport; and
commercial/ residential real estate. The listed entity has the EPC business, mostly captive (80%), and has now commenced executing external orders. With a growing external order book of Rs.1.8bn, coupled with a captive order book of Rs. 16bn, we expect this business to log an earnings CAGR of 27% between FY09-FY11E. On the back of completion of its Phase I (5.2 Mtpa) of its Karaikal Port (100% subsidiary) port is expected to record an earnings of Rs. 2mn in FY10E & Rs. 409mn in FY11E from Phase I. Port capacity is set to increase to 21 Mtpa on completion of Phase IIA expansion. In addition, it owns land parcels of 1,800 acres across its SEZ, Mall & real estate projects which are under various stages of development. We initiate coverage with a BUY and have a 12 month target price of Rs. 280, an upside of 54%

Why we like MARG
Growing EPC business with faster execution (delivered Phase I of the port six months ahead of schedule) and conscious diversification into third party EPC contract

Karaikal Port, an east coast private sector port, having an early mover advantage has started serving hinterland customers of central Tamil Nadu who import coal (for thermal, cement & paper plants),sugar and edible oil; and export cement. Port also offers OSV (Off-shore support services) for vessels at Cauvery basin. We expect the port to clock a traffic of 2.8 Mtpa and 5.2 Mtpa for FY10E and FY11E.

The government-notified SEZ, located ~ 88 km south of Chennai connecting Chennai and Pondicherry, has 600 acres under development. Further it is in the process of constructing an integrated mall with a hotel, multiplex and office complex in Chennai. We expect its SEZ, Mall and other real estate projects to take-off gradually, given project size, sizeable capital requirement and lower off-take from end customers

Key risks
Any adverse changes in government regulation
Any cost overrun in case of delay in Phase IIA; Long-run competition from the newer ports
Downturn in real estate segment, which could potentially lock in capital

Valuation & View
Our 12 month target price of Rs. 280/- is arrived based on sum-of-the-parts methodology. We ascribe a valuation of Rs. 8,663mn for port (based on DCF); Rs. 4,076 mn (6x of one-year forward earnings) for the EPC business; and Rs. 2,764mn for its real estate and SEZ assets (based on book value)

To read the full report: MARG LIMITED


Cox and Kings (India) is amongst the oldest travel brands in the country offering travel (both leisure and business), forex and visa processing services. Globally, the C&K brand has evolved through a 250-year history and is present in 20 countries (including India)'s total business. India's tourism industry accounts for 6% of GDP, much below world average. This provides C&K with a vast opportunity to tap the domestic outbound and in bound tourism markets.

Ex-India revenue share has risen to ~47%in FY09 from less than 10% two years ago. C&K reported stable OPM of ~41% in the past three years while pre-exceptional PAT winessed 80% CAGR over the same period

To read the full report: COX AND KINGS