Tuesday, September 21, 2010


■ Cement manufacturers in southern region intimate price hike of Rs30-35/bag effective Sept 7– Prices in other regions largely stable

■ Dealers confirm price hike - but skeptical about absorption capacity of market given sluggish offtake and ample supply – Dealers suggest net price could be Rs10-15/bag

■ Assuming best case effective price hike of Rs15/bag for south, H2FY11 entry prices could be higher than our est by Rs10/bag. Earnings of our coverage cos could get upgraded by 4-36%

■ Maintain current earnings estimates pending uncertainty of effective price hike. Maintain NEUTRAL view on sector – pricing discipline and its sustainability remain key factors

Cement manufacturers in southern intimate price hike of Rs30-35/bag
Cement stock surged 5-15% in yesterday’s trade following news flow of price hike in Southern region. In a knee jerk reaction, cement manufacturers in south have intimated dealers that cement prices will be raised in key markets of Hyderabad and Chennai by Rs30-35/bag effective – 7th September 2010. Cement prices in Hyderabad which were hovering at around Rs138-140/bag, will go up to Rs178-180/bag, an increase of Rs30/bag. Similarly cement prices in Chennai market which were at Rs175-180/bag will be raised to Rs215-220/bag. We would like to highlight that cement price in southern region had fallen close to Rs60/bag from the recent peaks in April 2010. For example cement prices in Hyderabad fell from Rs200-210/bag in April to Rs140-150/bag in August. This sharp decline resulted in smaller cement manufacturers making cash losses.

Dealers wary about markets absorption capacity of the markets
Cement dealers have been surprised by the extent of price hike (Rs35/bag is amongst highest ever single price increase) and also the timing of hike (Dealers were expecting a seasonal price hike by early October). Though the prices have been hiked by Rs35/bag, dealers say that on account of a nation wide strike today (7th Sept - nationwide strike called by trade unions to protest against price rise, violation of Labour laws etc ) the dispatches on new prices will start only in next couple of days. Dealers also opine that given the sluggish cement offtake and ample supply, the markets are unlikely to absorb such a sharp price hike. For example, recently cement prices in Mumbai market were hiked by Rs8-10/bag. However with poor cement offtake cement manufacturers had to roll back price by Rs4-5/bag, resulting in net price hike of Rs4-5/bag. Dealers suggest that over a period of next couple of week, the effective price hike could be in the range of Rs10-15/bag. We believe that it will be only by 2nd-3rd week of September that we will see the absorption capacity of the southern markets.

To read the full report: CEMENT SECTOR

>Mid-Quarter Monetary Policy Review: Inflation continues to be RBI’s priority

RBI hikes repo (25bp) and reverse repo rates (50bp)
■ Hikes repo rate by 25bp to 6.0%
■ Hikes reverse repo rate by 50bp to 5.0%
■ Keeps cash reserve ratio unchanged at 6.0%

Inflation RBI’s priority in FY2011
The Reserve Bank of India in its maiden mid quarter monetary policy review
raised interest rates for the fifth time since mid March 2010 with an objective to
control inflationary expectations. It raised the repo rate (the rate at which it lends
to banks) and reverse repo (the rate at which it accepts surplus liquidity from
banks) by 25bp and 50bp to 6.0% and 5.0%, respectively. Effectively, this reduced
the Liquidity Adjustment Facility (LAF) corridor to 100bp after a reduction of 25bp
in July 2010 policy as well. The Central Bank has maintained status quo on Cash
Reserve Ratio (CRR) at 6.0%.

Monetary Policy - Key takeaways
■ Inflation remains the dominant concern for hiking the rates.

■ Expectation of rate hike not disrupting growth.

■ GDP and IIP growth rates indicate that the recovery is consolidating and the economy is rapidly converging to its trend rate of growth.

■ Monetary tightening that has been carried out since October 2009 has taken the monetary situation close to normal.

■ Central fiscal deficit to be contained at targeted 5.5% on account of higher than expected realizations from 3G and BWA auctions coupled with buoyant tax revenues.

The growth momentum in the Indian economy continued to be strong and was largely broad based, with IIP registering robust growth of 13.8% yoy in July 2010 coupled with healthy credit growth of 19.4% yoy in August 2010. On the other hand, continuing food inflation (14.6% yoy) has kept the overall WPI (8.5% yoy as per 2004-05 series) above RBI’s tolerable levels. Thus, with the headline inflation clearly above the RBI’s target of 6.5% as well as sustained healthy uptick in credit growth in the last few months, we expect gradual monetary tightening to continue.

To read the full report: MONETARY POLICY


Screen additions/movie pipeline to drive exhibition business: Management has
guided for a robust 2Q/3QFY2011 for the exhibition business, aided by strong
movie pipeline (both domestic and Hollywood), and substantial screen additions
(PVR has added 28 screens and ~7,500 seats over the last six months).
Management expects a pipeline of almost 14-15 3D English movies (most of
them being sequels) to be released over the next 18-24 months, and contributing
~27-28% to top-line.

Phoenix Mill offers considerable value unlocking, not factored in our numbers:
PVR is looking at sale and lease back of its property at Phoenix Mills. It is positive
of closing the deal by end of FY2011. The company expects the deal to rake in
~Rs80-100cr cash, which will help fund its future capex needs. It will also boost
the company’s RoCE though we have not factored in the same.

Multi-fold growth for PVR Pictures in FY2011E: PVR Pictures released Aisha, which
is estimated to have contributed net revenue of ~Rs20cr. Two more productions
are lined up in FY2011. The company has also bagged the pan-India distribution
rights for Action Replayy, which will be a Diwali release.

Blu-O a profit making venture from first year: Blu-O is expected to add a 26-lane
bowling alley by 4QFY2011, in Vasant Kunj, Delhi. The company is targeting a
total of 150 lanes by FY2012 and expects it to be ~Rs80-90cr business.

Outlook and Valuation: For FY2010-12E, we expect PVR to register 44% CAGR in
consolidated top-line, aided by 34% CAGR in exhibition revenues, 120% CAGR in
PVR Pictures and 80% CAGR in Blu-O. We estimate earnings to register strong
CAGR of 436% over the period on a low base and margin expansion (on a low
base, we expect OPM of 16-17% in FY2011-12E). At the CMP of Rs174, the stock
is trading at attractive valuations of 11.5x FY2012E EPS. We maintain a Buy on
the stock with a revised Target Price of Rs226 (Rs199) based on 15x FY2012E EPS
of Rs15.1. Upside risk to our estimates include significant value unlocking in case
the sale and lease agreement for the Phoenix Mill property goes through.

To read the full report: PVR

>YES BANK:Bank's business strategy for next five years

To read the full report: YES BANK

>ISPAT INDUSTRIES: Ispat’s share being 76mn tonnes.

We met management of Ispat Industries. Key takeaways of our meeting are as

Joint venture with Stemcor to set up a coke oven plant: Ispat has entered into a JV (Amba River Coke) with Stemcor for setting up a 1mn tonne coke oven plant at a cost of Rs1,124cr. Ispat holds 26% equity stake & the balance is held by Stemcor.

The project will be funded through debt-equity ratio of 2:1 and is yet to achieve the financial closure. Ispat’s equity contribution will be Rs100cr (Rs50cr will be through land and infrastructure support and balance Rs50cr through cash infusion). Once commissioned, the plant will cater to 100% coke requirement of the company.

110MW power plant to lead to cost savings: Ispat under its subsidiary, Ispat Energy, is setting up 110MW captive power plant (CPP) comprising of two units of 55MW each. The plant will primarily use gases from coke oven and blast furnace. Land for the project has been acquired and the civil work has also started. Total cost of the project is expected to be Rs491cr and the company expects savings of Rs1,300cr post commissioning of the power plant.

Captive raw material holds the key for future performance: Ispat has already
secured the prospecting license for developing iron ore mines in Maharashtra.
The management expects to start mining in FY2012 and targets iron ore
production of 2mn tonnes. The company in a JV with Essar Steel, Mukand,
Kalyani Steel and Ind Synergy has also been allotted Behrabad (North) coking
coal block in Madhya Pradesh. The mine has reserves of 170mn tonnes, with

Outlook and Valuation: At the CMP, the stock is trading at P/BV of 1.4x and
EV/EBITDA of 7.8x FY2010. We believe that future stock performance would be
dependent upon improvement in raw material integration and successful
commissioning of the power and coke oven plants.

To read the full report: ISPAT INDUSTRIES