Monday, February 13, 2012


NCC reported very disappointing numbers for the quarter. Every alternate quarter has been a disappointment from NCC, and this was one. Revenue lower by 13% and EBITBA margins down by a whopping 365bps have taken net profit to (Rs95mn). The reasons are the same: general economic slowdown and a few project specific issues. We have reduced our numbers sharply and downgraded the rating from Buy to Hold. The stock has seen a sharp 60% rise since our upgrade in Jan’12 and we believe the risk-reward is not favourable. We advice investors to consider Sadbhav Engineering which is our top pick.

 Operational numbers disappointing: Revenue lower by 13% and EBITDA margins down by 365bps impacted net profit. We expected Rs307mn in net profit but the company delivered a loss of Rs95mn. The reasons cited for lower margins were 1) general economic slowdown 2) labour shortages 3) lower revenue impacting absorption of overheads 4) a few project specific issues. Working capital situation improved marginally from Q2FY12, but investors should note that this was due to substantial amount of advance money received from its power subsidiary. Debtor’s days have deteriorated to 108 from the company’s target of

 Order-Intake strong, but mostly from internal power: NCC has an order-book of Rs220bn (around 3.5X FY11 consolidated revenue) and reported order-intake of Rs100bn in 9MFY12 period. The company also included internal power EPC orders worth Rs53bn in Q3FY12 and this order will contribute 25% of the total order-book and impact the financials of the company going forward. Financial closure of the project is awaited (REC, PFC and ICICI have sanctioned money) whereas REC and PFC have also disbursed their first installments). PPA does not exist and the company is trying for 500MW PPA with the AP government.

■ We downgrade the stock to hold as stock ran up by 60% post our upgrade in Jan, and carry forward our valuation on FY14 numbers: NCC stock has seen a sharp run up by 60% after our upgrade in Jan’12 and outperformed all other stock in our coverage (we placed it as our best buys in the construction sector). We have reduced our estimates for FY12 & FY13 sharply and made marginal changes in our FY14 numbers. We believe, the stock at the current market price does not present a favorable risk-reward especially after the 60% spike in one month. Hence, we downgrade our rating to Hold from Buy earlier. Our new target price is Rs57 (7% downside). We advise investors to shift to a better stock like Sadbhav Engineering which presents better risk-reward at current market price.


>GSPL: “Volumes falter, retain negative view”

GSPL’s Q3 FY12 results were exactly in line with our estimates with revenue being 0.6% higher than our estimate and net profit being 0.5% lower than our estimate.

■ Q3 FY12 volume at 33.5 mmscmd, 2.5 mmscmd lower q-o-q
Transmission volume for Q3 FY12 was 33.5 mmscmd (Dec 2011 exit rate: 31 mmscmd), as against 36 mmscmd in Q2 FY12 & 37.16 mmscmd in Q1 FY12. The steep decline in KG D6 volumes, along with power plant shutdowns during the quarter, took its toll on GSPL’s transmission volumes. Hence, we downgrade our FY12 volume estimate to 35 mmscmd. The company has conveyed that it will begin to transmit 1 LNG cargo (~2.5 mmscmd) sourced through the Hazira terminal in CY12, which should compensate for further fall in domestic gas supply.

■ Q3 FY12 transmission tariff @ Rs 0.9/scm
Transmission tariff for Q3 FY12 was Rs 0.9/scm, as against Rs 0.84/scm in Q2 FY12 & Rs 0.78/scm in Q3 FY11. Hence, pre-tax ROCE for the quarter stood at 27.5%, which is significantly higher than the regulatory norm of 18%. The company has submitted its transmission tariff to the PNGRB for its approval and we expect the tariff to be cut to Rs 0.75/scm from FY13 onwards.

■ Revenue at Rs 2,755 mn, 0.6% above estimate
Q3 FY12 revenue came in at Rs 2,755.4 mn, just 0.6% ahead of our estimate. Topline for the quarter was down 2.1% q-o-q and down 1.4% y-o-y. We note that the fall in revenue has been contained to ~2% due to take or pay contracts and longer distance transmission.

■ EBITDA at Rs 2,535 mn, 1% ahead of estimate
Q3 FY12 EBITDA stood at Rs 2,534.8 mn, down 2.1% q-o-q and down 3.4% y-oy. EBITDA margin for the quarter fell 1.8% y-o-y in spite of 16% rise y-o-y in tariffs, indicating higher per unit opex. Thus, operating expenses have jumped by 28.1% y-o-y amidst y-o-y fall of 7.3% in transmission volumes.

■ Depreciation & interest expense on expected lines
While depreciation was up 4.5% q-o-q at Rs 460.2 mn, interest expense was down 3.5% q-o-q at Rs 325.1 mn; which were as per expectation. The y-o-y jump of 1,710% in depreciation is due to adjustments made in Q3 FY11 as a result of change in depreciation rate on gas transmission pipelines.

■ PAT at Rs 1,261 mn, 0.5% below estimate
Consequently, Q3 FY12 PAT stood at Rs 1,261.3 mn, down 2.5% q-o-q & down 20.7% y-o-y. EPS for the quarter was Rs 2.2 compared to Rs 2.8 in Q3 FY11.

>OPTO CIRCUITS: Non-invasive business drives revenue growth on the back of CSC acquisition

Opto Circuits' 3QFY11 results were above our estimates. Key highlights of the results:

 Opto Circuits' revenue grew 46% YoY to INR6.1b (v/s est of INR5.8b), EBITDA grew 39% YoY to INR1.7b (v/s est of INR1.6b) while EBITDA margins contracted by 140bp to 28% (v/s est of 27%). Adjusted PAT grew 30% YoY to INR1.25b (v/s est INR980m) led by better operational performance.

 Topline growth was led primarily by acquisition of CSC. Ex-CSC, OPTC's topline is estimated to have grown 25% YoY led by non-invasive segment which is estimated to have reported growth of 27%. Invasive business reported healthy revenue growth of 24.5% YoY.

 EBITDA growth was 39% YoY to INR1.7b (v/s est. of INR1.57b) while EBITDA margins contracted by 140bp to 28%. EBITDA growth was muted compared to topline growth because of higher staff cost and other expenses related to CSC acquisition.

■ Adjusted PAT recorded 30% YoY growth to INR1.25b (v/s est INR980m), in line with strong operational performance but tempered down by higher interest cost and forex losses.

OPTC has delivered strong revenue and earnings growth over the last few years. It has consistently maintained its high return ratios. Despite rapid growth, the company still remains a marginal player in the global medical devices industry, which gives OPTC the opportunity to sustain its high revenue growth rate for the next couple of years. However, large accumulated goodwill in the books on account of past acquisitions, increasing working capital requirements thereby rapidly rising debt and very low free cash flow generation remain our major concerns.
Further, the company is planning to raise money through equity dilution in one of its subsidiaries, which may lead to sizable EPS dilution going forward. Based on our revised EPS estimates, the stock trades at 10.6x FY12E and 8.4x FY13E EPS. We maintain Neutral with target price of INR249 (8x FY13E EPS).

To read the full report: OPTO CIRCUITS

>Global Economy: Seven Lean Years

■ Why 2013 Won’t Be Better for US

■ Jobless Rate Implies No Fed Hikes Through 2013

■ US Consumers: Where’s the Deleveraging?

■ Gasoline and Food Inflation Should Ease in Response to Commodity Trend

■ Income Squeeze Eases (L), Allowing US
Consumers to Spend and Save (R)

To see full presentation with graphs: The Seven Lean Years

>DISH TV INDIA LIMITED: Key concerns abating

■ Churn likely to trend down
Post an increase in churn to 1.6% (monthly) in 3Q, it has fallen to 1.1% for the month of January. Management highlighted it has taken measures to control subscribers in pre churn (inactive for 0-120 days) and expects churn to reduce further in 1Q.

■ ARPU expansion likely
Reiterated guidance of achieving Rs155-156 ARPU for 4Q led by price hikes effected in November. Structurally it believes ARPUs likely to trend up due to implementation of cable TV digitalization across the country.

■ Operating leverage to continue
Expect 13-15% increase in content cost during FY13E. Margin expansion story likely sustainable. Forecast over 500 bps EBITDA margins expansion during FY12-14E

■ FCF turn around on track
Expects cash flow to turn positive FY13. Reiterated that current subscriber base should be able to fund gross sub addition of 2.6-2.7mn p.a. Stock trades at 11x EV/EBITDA FY13E at lower end of trading band of 11-18x ,we regard this as attractive. Retain Buy with PO of Rs90.

Price objective basis &  risk
Dish TV India Ltd (XCETF)
We value Dish TV on a DCF basis given the investment required in subsidizing set-top boxes for new subscribers and the gestation period involved. Our DCF value is Rs90 and implies EV/EBITDA of 16x FY13E. Our valuations are at a premium to global DTH peers such as DirecTV and Dish Network. We believe this is justified given the high growth in EBITDA for Dish vs peers.

While global peers trade at 6-9x EV/EBITDA currently, we note that historically during their growth phase these peers have traded at valuations of 12-15x EV/EBITDA.

We see upside risk from a potential reduction in license cost from 10% to 6% of revenue based on the court judgment. Downside risk is from higher-than expected churn impacting valuations adversely.


>ACC: Profitability beats estimates on cost control

A revival in demand in South India, where ACC has the highestexposure, in Nov. and Dec. ’11 along with higher available capacity vs. 4QCY10 enabled ACC to achieve growth of 6% in dispatch volumes in 4QCY11 and also helped it to take price hikes of 20% YoY and 10% QoQ. Overall the 4QCY11 results were better than our estimates, helped by higher realizations and a tax provision write-back with profitability
turning out 8% ahead of estimate.

Demand in the cement sector has picked up since Nov. ’11 after a dismal FY11 and 1HFY12; prices are currently at peak levels while cost pressures are unlikely to be high in the short term. This should allow profitability of cement companies to be boosted further in the next couple of quarters in line with our view in our anchor report of Dec 8, 2011 (India Cement – Rock Solid). Price hikes in South India though may be limited from here for the short term as they are at their peak and companies are conscious of inviting government intervention with rapid hikes.

We use an EV/ton to replacement cost/ton valuation methodology and continue to value ACC at a 4.7% discount to its replacement cost of INR6,250/ton based on its 10-year historical average and expected midcycle level ROCE to arrive at our target price. At present though the stock is trading at a 24% premium to the replacement cost, which is unattractive, in our view.

Key result highlights:
 Realizations at INR4,223/ton in 4QCY11 rose 20% YoY and 10% QoQ above our estimate of INR4,132/ton, while volumes as reported earlier at 5.9mnT were up 6% YoY
 This helped net sales at INR24.9bn rise 27% YoY against our estimate of a 24% increase.
 Raw material cost per ton (INR666/ton) was up 32% YoY in line with our estimate.
 Power and fuel cost per ton (INR991/ton) was up 23% YoY again in line with our estimate, driven primarily by higher coal prices.
 Freight cost per ton at INR639/ton was up 24% YoY slightly above our estimate of INR615/ton.
 Like Ambuja Cements (ACEM IN), other operating expenses per ton (INR1,028/ton) surprised on the upside against our estimate of INR950/ton, rising 10% QoQ.
 Overall ACC has controlled costs well unlike Ambuja Cements and its profitability in terms of EBITDA/ton turned out at INR635/ton, up 70% YoY and 62% QoQ, ahead of our estimate of INR588/ton. 
 For CY11, EBITDA/ton was at INR718/ton down from INR734/ton in CY10.
 Below the EBITDA level, the company reported a large reversal of tax provision related to earlier years of INR2.3 bn, which related to negative tax cost of INR1.3 bn for 4QCY11. Even in 4QCY10 there was a reversal of tax provision though much smaller in amount.
 Adjusting for this, PAT in 4QCY11 would have beaten our estimate by 8.7%.
 The company believes investment in infrastructure will boost cement demand in CY12, although cost pressures could continue through higher raw material, fuel & power and freight costs.


>APOLLO TYRES: “Business outlook improves…”

Standalone business surpasses expectations, RM benefits to deliver from Q4
Apollo’s standalone net sales grew by 46% yoy, 24% out of which came from volume improvement and the rest from product mix and price hikes. While on qoq basis, the net sales grew 13.5%, above our expectations. Management said that they have seen slight improvement in demand in this quarter when compared sequentially, mainly on the low margin OEM side in the TBR segment. Although this pulled down
the overall profitability, the standalone EBITDA margins came in at 8%, v/s 6.8% qoq. This was due to the partial impact of softening of rubber prices seen in this quarter, though it was largely offset by adverse currency movement. In spite of higher depreciation on account of the ramp up in Chennai plant and higher tax expenses, adj.PAT still managed to pull a growth of 93% qoq to Rs425 mn, which was a decline of 21% yoy.

Going forward, the impact of falling rubber prices will be seen starkly in Q4 and in the ensuing quarters. The plantation of significant amount of natural rubber plantation in India and China done in 2005-06 will started yielding from 2012 (it takes 6-7 years for a rubber plant to get matured and start producing). This may reduce the demand supply gap, thus resulting in a further price fall. Replacement demand is expected to pick up on both TBR as well as PCR sides in FY 13, though not significantly in Q4. Increasing radialization on the TBR (3-4% per year) will also help margin improvement, however, under utilization of bias capacities will be a concern. Chennai plant is expected to get completely ramped up by September 2012 and will function at optimum capacity of 450 MTPD from current levels of 275 MTPD. Apollo will be through with its capex plans by March 2012 and has no plans of any significant capex for FY 13. We have increased our volume and margin estimates for the standalone business going forward.

Europe and South Africa post a slightly soft performance
On a consolidated basis, the performance was mainly driven by the domestic performance, while Europe and South Africa posted results slightly below our expectations. Although Europe showed a growth of 27% and 9% in sales yoy and qoq respectively, it was suppressed by the not so cold winter in December over there, due to which sales of winter tyres were low in December. However, harsh January will ensure that the dealer inventories are cleared up, thus improving margins in Q4. EBIT margins in Europe came in good at 15.7%. No significant capacity expansion in Europe is slightly stagnating Vredestein’s business, however, strong inflows of Apollo branded tyres (expected to grow at 100% in Europe on a small base of •10 mn in a couple of years) will ensure that the momentum remains intact. Also entry into new geographies like Switzerland in March and other European countries apart from its existing geographies like the UK, Holland, Germany and Italy in the next one year will also improve European business revenues.

South Africa witnessed revenue growth of 13% yoy and 12% qoq on 23% volume increase and 8% price and mix which got slightly negated by 3% due to adverse currency. In spite of a good performance at the topline the company incurred loss at the EBIT level of Rs296 mn which when adjusted for a onetime expense of ZAR45 mn, EBIT comes at slight loss of Rs3mn, due to higher RM costs and declining currency. However, management is very confident of breaking even at the operating level in Q4 as RM costs are softening and further price hike will lead to improvement in margins.

Consolidated margins jump to 10% on domestic strength
Consolidated revenues grew by 36% yoy and 12% qoq to Rs32 bn, while EBITDA margins came in at 10%, 200 bps above the sequential margins of 8%. This was again due to domestic strength and European margins which came in at 18%, however, South African EBITDA margins were at 3%. Adjusted PAT was at Rs1.3bn, a growth of 6% yoy and 64% qoq.

Outlook and valuation
Apollo came out with a good set of numbers in the quarter, where domestic business led from the front. With expectations of rubber prices moving slightly down, Chennai capacity coming on stream, radialization in the TBR segment improving and replacement demand kicking in from FY 13, we are increasing our domestic volume as well as margin estimates for both FY 12 and FY 13. In Europe, geographical expansion of Apollo branded tyres and steady volumes will act as drivers, while South Africa, which has shown some signs of improvement is expected to breakeven in the ensuing quarters. With the company through with its capex cycle, we expect it to get a boost to the bottomline. Hence, we raise our target price to Rs91(@8x times FY 13E consol EPS of Rs11.4) from Rs77, and are maintaining our BUY rating on the stock.


>DLF: Parameters to monitor

DLF’s 3QFY12 earnings disappointed all round as the company’s change in execution strategy mid-stream in favour of third-party contractors resulted in a lower execution run rate in 3QFY12. The disappointment was accentuated by a higher-than-anticipated interest cost and a high tax rate, resulting in earnings missing estimates by 33%. The balance sheet was a bigger disappointment as net debt remained flat even while there was an inflow of INR 12bn from the sale of assets. This was primarily on account of lower operational cash flows resulting in interest payments being met from the asset sale cash flow, along with INR 3.7bn of land purchase.

Operationally, however, the quarter was in line with the company selling 3.3mn sq ft of projects while completing construction on 9.5mn sq ft of projects, which are now ready for delivery. The sales though were primarily from lower value plotted land, mainly in Lucknow.

Where to from here?
The company’s strategy to reduce debt through asset sales should have been supported by the operational cash flow taking care of interest payments and land purchases. Unfortunately, at this point the slowdown in the property market and the transfer of ongoing projects to third-party contractors for construction has resulted in slow sales and lower execution, affecting operational cash flow. Thus the asset sale cash flow is being diverted to make interest payments and land purchases.

It is imperative for the company to improve its operational cash flow through more sales and faster execution. Both, in our opinion, may not happen for the next two quarters as new launches of housing projects are likely to be slow till interest rates in the economy are cut, while the contractors will also take time to pick up the pace of execution on ongoing projects.

In this situation reduction in debt will remain limited and in the absence of asset sales in the near term, could even increase. However, the company’s target of INR 60bn of asset sales for FY13F remains with three key assets, Aman Resorts, the hospitality business and the wind power business, which are likely to contribute INR 50bn of the same. The sale of these assets at the required valuation though depends on the macro environment both globally and locally improving and hence could take time.

Overall, the company’s performance both in terms of the P&L and balance sheet could remain muted over the next two quarters. We maintain a BUY rating as we expect to see a better macro environmentvin 2HFY13F and asset sales and debt reduction taking place.

Parameters to monitor
 Improvement in operational cash flow to a level at least enough to meet interest payments.

 Spending on land purchase: management has mentioned that it will be going slow on the same in the near term to conserve cash.

 New launches both plots and group housing: A pipeline of ~7mn sq ft exists which includes 4.5mn sq ft of housing projects in Gurgaon both mid-income and premium.

 Deliveries of completed projects: 9.5mn sqft is complete in Gurgaon and ready for delivery. Another 15mn sqft is expected to be complete in FY13F. Faster deliveries of older projects will free up execution capability for new launches.

 Asset sale progress: As mentioned above, while we do not expect any major announcement over the next two quarters, asset sales will have to be undertaken by the company just to keep its net debt at current levels in FY13F.

To read the full report: DLF

>CADILA HEALTHCARE LIMITED: Long term drivers intact

Cadila Healthcare Ltd (CHL) reported a yearly growth of 18.6% & 12% q-o-q mainly on the back of acquisitions done in the past months. Biochem, Bremer & Nesher drives the Topline growth. However EBITDA only grew marginally at 2.1% y-o-y & degrew by - 5.2% q-o-q & stood at Rs 262cr. Operating profit margins stood at 18.9%, a decline of 304bps y-o-y & 339bps q-o-q. Decline of the margins was mainly on the back of contribution from low margin segments. Reported PAT including forex losses stood at
Rs 149cr and adjusted PAT stood at Rs 177cr, in line with our expectations. Net profit margins remained under pressure at 12.8%, a decline of 114bps y-o-y & 276bps q-oq. The lower margins were mainly due to higher depreciation expense partially offset by lower tax expense. Also the interest payment was bit higher both on a sequential & y-o-y basis. Overall the company reported muted performance for the quarter & is
consolidating its past acquisitions which would pay off in the coming quarters.

Q3FY12 Highlights:
■ Top-line growth mainly driven by past acquisitions
The company reported top-line of Rs 1383cr, a growth of 18.6% y-o-y & 11.9% q-o-q. Indian market including Biochem reported a growth of 11.2% y-o-y. The growth was mainly on the back of 15 new product launches including the line extensions. US market registered a growth of ~45% including Nesher. The total ANDA filings as on today stands at 141. Also the growth has been driven by rupee depreciation. CDL’s consumer business has registered negative growth of ~12% mainly due to increased competition in the skincare segment. The company has taken aggressive steps to arrest the degrowth & is confident of crossing Rs 500mark till FY13. JV’s performance was better on a sequential basis but pressure still exists as Hospira has not launched any products & competition has increased in the existing products.

■ Higher R&D expense & excess contribution from low margin segment dented the EBITDA margins:
Weak EBITDA numbers were a result of higher contribution from low margin segment as well as higher R&D expenses. EBITDA for Q3FY12 stood at Rs 262cr & degrew by ~5.2% q-o-q. Operating margins stood at 18.9% which declined by 304bps & 339bps y-o-y & q-o-q respectively. R&D expense stood at ~6% to the total sales no & is expected to be in the same range in the coming quarters.

 Adjusted PAT at Rs 177cr, a growth of 8.9% y-o-y:
PAT adjusted for forex losses of Rs 32cr for Q3FY12 stood at Rs 177cr, a meagre growth of 8.9% y-o-y. Net profit margins stood at 12.8%, it’s lowest in the last 8 quarters mainly due to higher depreciation & interest expense.

■ Our View & Valuation:
We believe that the company should bottom out in the coming quarter and superior performance could be expected from FY13 onwards. All the past acquisitions should aid in terms of growth. However, we have reduced our earnings estimate mainly on the back of higher expenses in the coming years along with CDL establishing its presence in the low margins segment. We value the company at 20x its FY13 EPS of Rs 42.7 & recommend BUY with a target price of Rs 854, an upside of 27.8% to the current levels.


>JAIN IRRIGATION SYSTEMS LIMITED: MIS growth to remain slow as focus on cash

Jain Irrigation’s 3QFY12 results were impacted by a higher-than anticipated interest cost and high exchange loss on foreign currency loans, which led to the company reporting only a tiny profit. Growth in micro-irrigation systems (MIS) declined to an all time low as the company was focused on controlling receivables. Agro-processing disappointed massively, while the piping business surprised positively. With the stock trading at 8.5x FY13F earnings we reiterate our Buy rating.

Key result highlights:
■ Net sales missed our estimates by 7%, increasing only 13% y-y. The key contributors to the low growth were the core MIS business and the agro-processing business.

 Operating profit also missed our estimate by 6%, as the company saved on staff costs and selling and admin costs. Margins were higher than our estimate on the MIS business but lower on the agroprocessing front, which was a negative surprise given the much better than- expected performance in 2QFY12.

 Interest costs at INR916mn surprised negatively, rising almost 60% yy on higher amount of working capital debt and higher interest rates resulting in profit before tax missing our estimate by 21% and reporting
a 25% y-y decline.

 As we expected, the company did not make use of the option provided by the Ministry of Corporate Affairs to amortize exchange losses on foreign currency debt. It instead reported a surprisingly large exchange loss of INR711.4mn vs. our estimate of INR450mn.

 The foreign exchange loss almost wiped out the profits of the company, leaving only INR12.4mn to be reported as the PAT. The company has taken tax shelter on the exchange loss to report almost no tax payment during the quarter

 With the INR appreciating against the USD in the current quarter, we expect some of the foreign exchange losses to be reversed in 4QFY11.

MIS business:
 The core MIS business grew only 10.5% y-y in 3Q, as the company consciously reduced growth to ensure that receivables on account of government subsidies did not increase.
 However, this low growth was a disappointment, suggesting that at an average of 65% of the value of the system being subsidised the company received only INR3bn from the various governments on older subsidies during the quarter. Jain has reduced the gross receivables on MIS by INR390mn q-q on a base of INR18.2bn. Due to lower bill discounting though, the net receivables on account of MIS are up INR1.5bn q-q. In terms of days of sales they are down 15 days q-q.
 Over the last nine months the company has reduced exposure to its key markets like Andhra Pradesh, Tamil Nadu and Karnataka to just 21% of overall MIS revenues from 37% in FY11 to retain control on the ballooning receivables from these governments. It has tried to make up for the deficit through Gujarat, Rajasthan and exports. In our view, these new states may not have the market to absorb the entire shortfall from the older ones and the company will continue to have to rely on Maharashtra for its growth, where also receivables are an issue.
 The company has cut down on its inventory over the last 12 months to reduce the working capital requirement.
■ We expect growth to remain weak in 4QFY12 too as company conserves cash.

 The pipes business has been the saviour this quarter, with PVC pipes growing 36% y-y after two quarters of slow growth as retail demand has picked up along with exports to Africa.
 PE pipes have displayed a sudden revival growing 15.5% y-y after seeing de-growth or very little growth over the past two years. The growth has been led by the gas distribution and water segments with margins also picking up after four quarters.
 Receivables are also down 20% q-q

■ This segment was the big disappointment in 3Q after showing signs of hope in the 1HFY12. We again reiterate our view that the company should sell off this business as it is a low-return, low-margin, volatile business which can no longer helping with cross-selling opportunities for the MIS business. The company can use the cash generated from the sale to invest in the working capital needs of the core MIS segment

 Dehydrated onions grew 72% y-y on an extremely low base, though EBITDA margins fell 10 percentage points q-q, which is fairly surprising, as onion prices have not risen. This is an export-oriented business, and the depreciation of the INR against global currencies should also have helped both revenues and margins. but surprisingly has not.

 Fruit processing turned out to be the big disappointment, as lower availability of pulp for 2HFY12 has led to a y-y decline in sales.

 Receivables for the combined agro processing segment are down 20%, too, q-q.

Balance sheet:
The company had USD157mn of foreign currency debt on its books as of 31 December 2011, with repayment of USD 3.8mn in FY12 and USD48.6mn in FY13F. The total term loan is INR11.6bn on the balance sheet up INR2.3bn from March 2011. It has a total term loan repayment of INR6.7bn in FY13F and FY14F. The net working capital cycle is at 178 days of sales outstanding down 12 days q-q and 20 days y-y, which is good news. We expect to see this decline further in 4QFY12 as inventory moves down and receivables move down a bit too. The company expects to receive INR3.5-4bn of receivables from the Maharashtra and Andhra Pradesh governments in 4QFY12.

To read full report: JAIN IRRIGATION

>KOTAK MAHINDRA BANK: Good Quality But Valuations Rich

■ Kotak bank continues focusing more on transaction banking and working capital loans as opposed to project loans or big concentrated bets. It expects loan growth to be around 25% in FY13

 The bank is optimistic on its CASA acquisition strategies. It intends to increase CASA base but refrained from assigning any number as it has been only 2 months.

 Fee income on a normalized basis can be expected to follow balance sheet growth.

 Bank plans to increase branch network from 330 (Dec ‘11) to 500 branches by Calendar 2013.

 Asset quality continues to hold up. Bank does not expect major slippages and restructuring coming forward.


>BRITANNIA INDUSTRIES LIMITED: Q3FY12 – Sales growth driven by price and mix growth, Volume growth in single digit at 6.5%

• Britannia reported net sales at Rs12.4 bn, up 15.4% Y-o-Y led by mix volume and price/mix
• Gross margin expanded by 304bps Y-o-Y to 36.7%.
• EBIDTA stood at Rs833 mn, 43% up Y-o-Y. EBITDA margins expanded 130bps Y-o-Y to 6.7%.
• Other expenditure and ad spends increased by 25% Y-o-Y (up 164bps) and 14% Y-o-Y (up 12bps)
in Q3FY12.
• PAT grew 45% Y-o-Y to Rs541 mn. PAT margins expanded 88bps Y-o-Y to 4.3%.

Result Highlights
■ Performance boosted by international business, while domestic business grew by strong 20%
Britannia reported net sales at Rs12.4 bn, up 15.4% Y-o-Y as against 18% Y-o-Y growth in Q2FY12. Volume growth contributed 6.5% (10% in Q2FY12) of Y-o-Y sales growth, while rest was due to price increases and improved product mix. The new product launches on health platform like NutriChoice Multigrain Thins and NutriChoice Multigrain Roasty has helped to push up the momentum.

■ Margins expansion led by price increases and lower expenses
Gross margin expanded by 304bps Y-o-Y to 36.7% helped by price increases. Among key raw
materials, milk prices continue to remain high; wheat and sugar prices witnessed stable prices.
While ad spends increased 17% on Y-o-Y basis, it decreased 13% on Q-o-Q basis as a result of high base. Other expenditure increased by 25.5% (up 164bps) Y-o-Y and staff cost increased 14% Y-o-Y (Q-o-Q 30% down). As a result EBIDTA stood at Rs 833mn, 43% up Y-o-Y. EBITDA margins expanded 130bps Y-o-Y to 6.7%. Further PAT grew 45% Y-o-Y to Rs541 mn. PAT margins expanded 88bps Y-o-Y to 4.3%.

Valuation & Viewpoint
Current quarter witnessed single digit volume growth. Further competition from national players
like Parle and ITC along with recently entered United Biscuits, Unibic and Kraft Foods has further intensified. We have a cautious view on the company. The stock is trading at 25.6x multiple of FY13 consensus EPS of Rs. 19.3.


>EICHER MOTORS LIMITED: Q4CY11 – Another Quarter of stellar Performance; CY11 consolidated PAT up 63% to `3.1 bn

• Eicher Motors Ltd (EML’s ) consolidated revenues increased 26.8% Y-o-Y to `15.7 bn in Q4CY11 against `12.4 bn in Q4CY10 due to 25% Y-o-Y volume growth in the VE Commercial Vehicle (VECV) business and 28% Y-o-Y volume growth in the Royal Enfield business.

• EBITDA grew 27.7% Y-o-Y to `1.5 bn in Q4CY11 against `1.2 bn in Q4CY10 due to price increase and better product mix in both the businesses.

• PAT grew 55.7% Y-o-Y to `854 mn in Q4CY11 against `549 mn in Q4CY10. This was led by 80% Yo- Y increase in other income to `429 mn and lower tax rate which was at 22.6% in the current quarter as compared to 27.3% in Q4CY10.

Result Highlights
 Best ever year(CY11) in terms of Revenues, EBITDA as well as PAT on consolidated basis
EML posted its highest yearly revenues, EBITDA and PAT in CY11. Consolidated revenues increased 29.3% Y-o-Y to `57.1 bn in CY11 against `44.2 bn in CY10 due to strong volume growth in both VECV as well as Royal Enfield businesses. For CY11 EBITDA grew 55.7% Y-o-Y to `5.9 bn against `3.8 bn in last year. EBITDA margins stood at robust 10.4% for CY11. PAT grew 63.4% Y-o-Y to `3.1 bn in CY11 against `1.9 bn in CY10. EPS stood at `114.0 in CY11 against `70.3 in CY10.

■ Stand alone business posted robust performance on back of strong Royal Enfield demand
For CY11 stand alone revenues grew 51.6% Y-o-Y to `6.7 bn against `4.4 bn in CY10 due to 33.9% Yo-Y growth in volumes to 72,835 units and 13.2% Y-o-Y increase in realizations to `92,119. EBITDA margins stood at 12.1% for CY11 against 10.3% in CY10. PAT grew 65.3% Y-o-Y to `1.2 bn in CY11 against `754 mn in CY10.

 VECV’s Heavy duty segment grew over 61% in CY11 against industry growth of 12%
VECV posted strong volume growth of 61.4% Y-o-Y in the Heavy Duty segment against the industry growth of 12%. Market share has improved 110bps to 3.1% in CY11 against 2.0% in CY10. For the month of December 2011 the market share stood at 4.8% in the heavy duty segment.

Valuation & Viewpoint
Eicher Motors Ltd at CMP of `1,770 is trading at a P/E multiple of 12.2x its CY13 consensus earnings of `145. With new Royal Enfield plant slated to commence production from Q1CY13, robust growth from the heavy duty segment and the new engine project coming on stream in CY13, company looks fairly priced at this juncture.