Monday, August 9, 2010


For CCCL, we have derived valuation by using Free Cash Flow to Firm (FCFF). Using FCFF method, the value of CCCL has ended up in the range of Rs. 98 to Rs. 132 as shown in the valuation sheet. The average valuation comes to Rs. 114. The current order book size is @ Rs. 4500 Cr which is more than 2 times the Net Sales of FY10. At the current price of Rs. 84, the market is giving
Net Sales Growth of 15% for the next four years as per our valuation model that is quite conservative considering the company has grown at the average rate of 34% in the last three years. We see the stock is undervalued by 30%-35%.

To read the full report: CCCL

>Tata Teleservices Maharashtra Limited

Plenty of one-off items distorts reported numbers
TTML posted a normalized topline of INR5.6bn (a sequential decline of 8%), normalized EBITDA of INR1.2bn and a loss of INR0.59 per share on normalized basis against our expectation of a loss of INR0.62. This is the first time that TTML has posted standalone only results and as such a number of one-off items makes comparison to previous quarters untenable. The company reported an EPS of INR2.94 where the bottomline got a boost from the one-time gain from the disposal of tower business, amounting to INR8.3bn (positive impact of INR4.4 per share). In addition to this, EPS was distorted by a one-time provision of INR1.7bn (1.5x normalized EBITDA of the current quarter) set aside for contingencies towards outstanding loans/litigations against the company relating to DoT and other regulators.

EBITDA, ARPM decline, no Income Tax provision for FY11
EBITDA margins shrunk to 20.5% from 23% in the previous quarter, reflecting the sustainability (of EBITDA margins) of the core business. The company estimates that there will be no taxable profit for the year hence no provision has been made for the same. Until the last quarter, TTML had included USO subsidies in calculating ARPM. These expired last quarter hence the ARPM shows a sequential decline of 14% to INR0.43. The management highlighted in its earnings conference that
the tariff war is subsiding and it expects the ARPM to flatten out.

Maintain Sell
Excluding the one-time gain from hiving off the tower business, results were disappointing across the board. At CMP, the stock is trading at 15x FY12E EV/EBITDA and 8x FY12E Net debt/EBITDA (with an indicative sustainable margin of ~20%). These ratios are quite stretched in comparison to other telecom operators with higher EBITDA margins hence we maintain our SELL recommendation and target price of INR20.

To read the full report: TTML


Sales Up 74%, PAT up by 81% YoY
SIIL has reported excellent results. Net Sales at Rs. 1841 mn compared to 1059 mn in Q1FY10, Up 74% YoY, while PAT stood at Rs. 156 mn compared to Rs 86 mn in Q1FY10, Up 81% YoY. On QoQ basis, Sales was up by 7%, while PAT was up by 42%. Results are above our estimates.

Strong Order book at ` 20 bn translates into 3.7x of FY10 revenues
SIIL has diversified order book of ` 20 bn (including L1 of ` 3.3 bn) currently, while the average execution cycle is 24-30 moths. The current order book is 3.7x of FY10 revenues and provide revenue visibility for FY11E and FY12E. Order book is diversified across Buildings, Roads, Power transmission, Bridges and other segments.

Backward integration leads to higher margins, 19.7% in Q1FY11
SIIL reported EBIDTA margin of 19.7% in Q1FY11. The higher margin than industry is due to captive raw material with own quarries, crusher plants, Asphalt plants, RMC plants, Wet mix plants, tight cost controls and management efficiency. Higher margin in this quarter is also attributable to some of the road works which are about to be completed, where billing momentum has been good. We have been conservative in margin estimates for FY11E and FY12E to account for lower margins from increasing geographical spread and entry into new segments such as power transmission.

Foray into BOT projects, toll collections to start in FY13
SIIL has now focused on acquiring BOT portfolio as well and has 49% stake (74% after 3 years of project completion) in Manor Wada Bhiwandi Road project (4 laning of 64 KM) on SH-34 and SH-35 with a total project cost of Rs.4.3 bn. This project has a concession period of 22 years 10 months and is expected to be operational by Jun’12. On commissioning, the toll collection of ~`1.4 mn/day is expected. SIIL has also taken 10% stake in Kasheli road & bridge project where toll collection is expected at `1.1 mn/day on commissioning in FY13.

Valuations & Recommendation
At cmp of ` 292, SIIL is trading at P/E multiple of 8.9x of its FY11E and 6.4x on FY12E fully diluted EPS (at 16.74 mn shares) of ` 32.8 and ` 45.9 respectively. We maintain ‘Buy’ rating and Price target of ` 411 based on P/E multiple of 8x for construction business while BOT portfolio is valued at ` 44 per share based on NPV of FCFE method.

To read the full report: SIIL

>UNITECH: Triple Treat Ahead

Unitech (UT) has been successfully implementing its revamped business strategy, thereby showing continued momentum in new launches and bookings. The company has also been successful in lowering debt from peak levels. Looking ahead, we see three more drivers for the stock performance which may help bridge the discount to NAV – these include: 1) development of key land parcels; we estimate that over 25% of the land bank accounts for ~55% of UT’s GAV – such concentration makes valuations more tangible, 2) Once listed, Unitech Infrastructure should further help unlock value in non-real estate businesses, and 3) UT’s proposal to purchase Unitech Corporate Parks Plc (UCP) (60% stake in six IT Parks/SEZs in India) may add 4-5% to our NAV. We maintain Buy with a price target of Rs.100

Driver 1 – Value concentration in a few land parcels: We note that ~55% of the GAV for UT’s real estate business is contributed by a cluster of five key properties in Gurgaon, Noida and Mumbai. In our view, such concentration makes the valuation more tangible considering high visibility. Further, all of these are prime properties with high development potential and hence form part of the management’s key focus for value generation. We reckon that progress in development of these land parcels will increase cash flow visibility and hence valuations, thereby bridging the discount to NAV.

Driver 2 – Unitech Infra demerger: UT’s plan to demerge the infrastructure business should unlock value considering efficiencies coming from the separate management control and low-cost debt available to infrastructure projects. At the same time, value accretion from the infrastructure demerger will depend upon the on-ground performance (in terms of new contracts, etc). We note that at a value of 1.5x P/B for the infrastructure business UT’s NAV increases by 9%.

Driver 3 – UCP merger: Recently, UT offered to purchase 100% stake in UCP at 31pence/sh (£112mn) as against the CMP of 28pence/sh (£101mn). The offer is for the same assets which were sold by UT in FY07 at a total valuation of £317mn. Based on our current valuation of 90pence/sh, the proposal offers a significant value accretion for the company. Although we do not rule out a further increase in offer price, we see value accretion of 4-5% even if the price is escalated by 50%.

Valuation – maintain Buy: We revise our revenue and PAT estimates for FY11/12/13 by -1%/-2%/-5% and -2%/0%/-3% respectively as we realign our model to include improved realisations in select properties and lower volume assumptions. UT is our top pick in the large cap real estate space.

To read the full report: UNITECH


Proxy to high growth segments in FMCG: Hindustan National Glass and Industries (HNGI) is the largest container glass manufacturer in India with 85% of sales volumes from the FMCG sector and 15% from the pharmaceuticals sector. We expect sustained volume growth of 12-15% in the segments to which HNGI supplies - IMFL (52% of volumes), Beer (13% of volumes), Food & Beverages (17% of volumes) and Personal Care (4% of volumes). We expect HNGI's growth to accelerate post FY12, following 40% capacity increase.

New capacities to enhance growth further: HNGI's growth has been lackluster in the past couple of years due to lack of capacity addition and volatile input costs of fuel (power and fuel costs constitute 27% of sales). The company will expand capacity from 2,780tpd currently to 3,775tpd in CY12, which also includes 100tpd capacity for the high margin cosmetics glass segment. This will lead to further acceleration in volume/revenue growth post FY12.

Production efficiencies, switchover to gas to boost margins: HNGI has consolidated the container glass industry through three acquisitions in the last decade. This has increased its pricing power and provided economies of scale in sourcing, production and customer service. The company has increased draw efficiency from 64.5% in FY07 to 85% while its pack efficiency has also increased to 87%. We expect 7% increase in draw efficiency and 5% increase in pack efficiency over FY10-12, lowering operational costs. It plans to shift to using LNG as fuel in its Neemrana unit from July 2010 and in its Nashik unit from FY12, which will lower costs. We estimate 250bp increase in gross margin and 440bp increase in EBITDA margin over

A play on float glass, as well: HNGI has 65% share of the container glass market in India. It also has 37% stake in a 600tpd float glass venture. It intends to increase its stake in this venture to 51% by September 2010 and add a further 800tpd float glass capacity. The float glass venture will start contributing positively to the consolidated numbers from FY12. We value the stake at Rs32/share.

Initiating coverage with a Buy rating: We estimate 16% PAT CAGR over FY10-12. The stock trades at 7.5x FY11E EPS of Rs28.6 (adjusted for treasury stock) and 7.4x FY12E EPS of Rs29.2. We initiate coverage with a Buy rating and a target price of Rs325 - a 51% upside.

To read the full report: HNL