Wednesday, March 14, 2012

>Railway Budget 2012-2013 by DINESH TRIVEDI (Minister of Railways), 14th March 2012

Madam Speaker,
1. I rise to present the Railway Budget for 2012-13.
2. I consider it a great privilege for me to head the strong and vibrant railway family and present my maiden Railway Budget which is also the first year of the 12th Five Year Plan. I am grateful to the Hon'ble Prime Minister for his inspiring guidance and support in formulating the Budget.
3. I am also grateful to the Hon’ble Finance Minister and the UPA Chairperson, Smt. Sonia Gandhi for their support. It would not have been possible for me to present this budget had I not received the support and confidence of my party, All India Trinamool Congress, and its chairperson, Mamata Banerjee, to whom I shall always remain grateful. Above all, I am grateful to

as it is only because of their blessings that I have been able to make it to this Parliament.

4. Madam Speaker, when I look at the list of illustrious leaders of this country who had donned the mantle of Indian Railways right from Sh. Asaf Ali to Sh. Lal Bahadur Shastri, to Sh. Jagjivan Ram ji, to Sh. Gulzari Lal Nanda, Sh. Kamalapati Tripathi, Sh. Madhu Dandavate to Mamata Banerjee, I find myself nowhere near their stature. But I have certainly tried to take lessons from the pages of history and from their contribution to this great institution. I am grateful to Mamata Banerjee for giving vision to railways in her Vision 2020 document, which has guided me immensely in framing the roadmap for carrying forward the task.

5. I am grateful to each and every member of 14 lakh strong Rail Parivar which has not only given confidence to me but has also shown the direction. It is through their dedication, hardwork, loyalty and sacrifice that the railways have scaled great heights. No other 
organization can perhaps draw a parallel with Indian Railways. Right from the Board Members to the gangman, it is only this unity which has overcome various challenges and has made the country proud. Therefore, I dedicate to them all the achievements of the railways so far.

1) Extension of Trains
2) List of new Express Trains, Passenger Trains, MEMU, DEMU, Extension of run and increase in frequency of trains:- 

  • Express Trains
  • Passenger Trains
  • MEMU
  • DEMU
3) List of 84 Adarsh Stations to be taken up in 2012-13
4) List of 31 Projects being executed with State Cooperation (STATEWISE)
5) List of 20 new Railway Electrification Surveys sanctioned in 2012-13
6) List of 10 new Railway Electrification Projects sanctioned in 2012-13
7) List of 21 new Surveys for Doubling Projects sanctioned in 2012-13
8) List of 4 new projects of Doubling sent to Planning Commission for appraisal
9) List of 67 Doubling Works for completion during 2012-13
10) List of new Gauge Conversion Projects sanctioned in 2012-13

click on RAIL BUDGET to get detailed information

>LIBERTY PHOSPHATE: Subsidy payout on fertilizers i.e. Single Sulphur Phosphate(SSP), Murite of Potash (MOP) & Dai ammonium phosphate (DAP)

We have interacted with the management of Liberty Phosphate to understand the impact of reduction in subsidy payout rates on non urea fertilisers and its fallout on the demand environment.

 Subsidy cut may lead to increase in price of SSP: The government has decided to reduce subsidy payout on nutrients in complex fertilisers on the back of a decrease in the prices of raw materials in international markets. The government has decreased the subsidy on phosphorous by 32.6% to Rs21.8 while that on sulphur remains unchanged. Single Sulphur Phosphate (SSP) contains 16% phosphorous and 12% sulphur. So a decline in the subsidy on phosphorous will reduce the subsidy payout on SSP by 31.4% to Rs3,690 per tonne. A decrease in subsidy on SSP will restrict the company from decreasing the maximum retail price (MRP) from the current level of Rs5,000 per tonne. As per our interaction with the management, the price of SSP can be increased by Rs1,000 per tonne to Rs6,000 per tonne if the government reduces subsidy in the forthcoming budget.

Demand to remain intact for SSP even if price increases: We expect the demand for SSP to remain strong in spite of a likely price hike as it will find preference as a substitute to diammonium phosphate (DAP). The price of DAP has run up sharply in the last one year from Rs9,400 to Rs19,000 per tonne. Farmers, as a result, have been forced to look for a substitute. A special initiative taken by the government to use more of indigenously manufactured fertilisers in order to restrict subsidy will provide support to SSP manufacturing as a substitute to DAP in the long term. As stated earlier, the use of SSP in place of DAP may provide an additional growth opportunity to the company.

Margin may remain at current levels in spite of decrease in raw material prices: The prices of key raw materials have seen a declining trend on the back of lower demand in the international markets. The price of rock phosphate, after reaching a peak level of Rs10,000 per tonne during the current fiscal, has corrected to Rs8,000 per tonne. The same may further decline to Rs7,000 per tonne. In addition to this, the price of sulphuric acid has also corrected down and is presently quoting at Rs2,500 per tonne. The same may stabilise at the current levels. However the positive impact of decrease in the prices of raw materials will be offset by a decrease in subsidies and hence the margin is likely to remain at the current level.

 ■ Outlook and valuation: Liberty Phosphate is one of the largest SSP manufacturers which can grow by capitalising on its brand name and distribution network. Given the aggressive expansion of its manufacturing capacities the company can potentially grow at a compounded annual growth rate (CAGR) of around 28.6% over the next two years. In terms of valuation, the stock trades at around 1.7x FY2013 rough estimates. This makes it one of the cheapest stocks in the complex fertiliser space. Liberty Phosphate has appreciated by over 22% since we introduced the stock with a positive bias in the “viewpoint” section of our daily online publication “Investor’s Eye” on September 7, 2011. We maintain our positive bias on the stock.


>RELIANCE INDUSTRIES: Singapore Complex GRM corrects sharply (MARCH 2012)

Singapore Complex GRM corrects sharply: The gross refining margin (GRM) of the Singapore Complex has fallen sharply to around $2.4 per barrel from $5.6 per barrel at the end of Q3FY2012. The correction in the Singapore GRM was on account of contraction in the gasoil crack. Reliance Industries Ltd (RIL) has reported a GRM of $6.8 per barrel for Q3FY2012. Its GRM was expected to improve in Q4FY2012. However, looking at the severe drop in the Singapore Complex’ GRM we believe RIL may post a sequential drop in the GRM in its Q4FY2012 report card. We have factored GRMs of $7.5 and $8 par barrel for FY2012 and FY2013 respectively. With a drop of every $1 per barrel in the GRM, our earnings estimates for FY2012 and FY2013 carry a downside risk of 3-4% for RIL.

Gas output at KG basin falling continuously; likely to reach 27mmscmd by FY2013: The gas output at the Krishna Godavari (KG) D6 oil field has been declining for more than a year now and the field is currently producing 34.5 million standard cubic metre of gas per day (mmscmd) compared to 53-54mmscmd a year ago. According to the field development plan, the production was to touch 80mmscmd by April 2012 after all the 31 wells envisaged in the development plan are drilled and brought to production. However, RIL has so far drilled 22 wells on D-1 and 3, two of the 18 gas finds in the KG-D6
block that have been brought to production, but only 18 have been put-on production. Of these 18, five have ceased due to water/sand ingress. According to the management guidance in the media reports, the gas output at the KG basin is further expected to slide to an all-time low of 27mmscmd by April-May this year due to issues with the reservoir and to about 22mmscmd by FY2014. In our estimates for FY2012 and FY2013 we have factored in gas output of around 40mmscmd. Hence with the likely drop in the gas output to around 27mmscmd in FY2013 there is a downside risk of around 3% to our FY2013 earnings estimate.

RIL demanding upward revision in the gas price: The managements of RIL and BP have sought import parity for the gas produced from KG-D6 fields in the Bay of Bengal. It means a minimum of three-fold increase compared to the current price of $4.2 per million British thermal units. However, the oil ministry has rejected the proposal stating that the price of 4.2 per mmbtu is fixed till FY2014 and could not be revised before the due date. We believe any upward revision in the gas price from $4.2 per mmbtu in the near term augurs well for the company and could support the earnings of its exploration and production (E&P) division.

Petchem margin under pressure with increase in naphtha price: The petrochemical (petchem) business, which accounts for 20% of the revenue and over 35% of the EBIT, is facing severe margin pressure. For M9FY2012 the company has posted over 360-basis-point contraction in its EBIT margin from the petrochemical division. Further, with the increase in the naphtha price (up 18% in the past two months) due to an increase in the crude oil price and a lower than expected demand the margin pressure of the petrochemical division is likely to increase. Hence, a likely drop in the petrochemical margin in the coming quarters could be a downside risk to our earnings estimates for FY2012 and FY2013.

We maintain our earnings estimates and would revise them after Q4FY2012 results of RIL: A few negative developments like the fall in the GRM, the lower than expected output from the KG basin and the margin pressure in the petrochemical division could be downside risk to our earnings estimate for FY2012 and FY2013. However, we maintain our earnings estimates for FY2012 and FY2013 and would revise them after the announcement of the Q4FY2012 results of the company. Further, in this note we are also introducing our FY2014 estimates with the earnings per share (EPS) estimate at Rs71.4.

In order to factor in the recent negative developments of falling GRM, lower than expected output from the KG basin and margin pressure in the petrochemical division, we are downgrading our valuation multiple in case of its refining and petrochemical businesses. We thus arrive at a revised price target of Rs890. However, we believe the ongoing buy-back programme to provide support to the stock price and any positive development in terms of an improvement in the GRM and the petrochemical margin could be positive triggers for the company. Currently, the RIL stock is trading at 12.8x and 11.6x of FY2012 and FY2013 estimated earnings respectively. We maintain our Buy rating on RIL with a revised price target of Rs890 (based on the sum-of-the-parts valuation method).


>Do the "fundamentals" really exist? The case of equities

Investors like to refer to the "fundamental value" of a financial asset. We shall take the example of equities. The fundamental value of a share is the discounted sum of the company's future earnings. But can it be calculated?

- There is of course uncertainty regarding future growth and future profitability, but this uncertainty is natural.
- The fundamental value of equities is calculated applying a risk premium; however, the equity risk premium has varied significantly over time. Does it have a standard value, or else does it have a conventional value which
may be different at each period?
- What discount rate should be used for future earnings? The current longterm interest rate could be built on the basis of irrational expectations of future interest rates, or it could be distorted by central bank intervention
and by risk aversion.

Perhaps the concept of fundamental value (in this case of a share) is so vague that it is unusable.

A distinction is generally made between "fundamental" investors and others ("chartists", etc.). Fundamental investors refer to the "fundamental value" of the asset they buy.

In this Flash we shall consider the case of equities.

To read full report: Do the "fundamentals" really exist?

>DR REDDY'S LAB: Launches ziprasidone in the US; Post-Geodon pipeline is not “one-off”

OW: Generic Geodon launched in US

  Dr Reddy’s announces launch of ziprasidone oral capsules in the US, a FTF opportunity with potential USD65-70m sales
  US pipeline includes non “one-off” opportunities in Lipitor, Plavix, Seroquel, Actos and more going forward
  Reiterate OW and INR1,950 TP; an Asia Super Ten stock

Dr Reddy’s launches ziprasidone in the US: Dr Reddy’s announced over the weekend that it has launched its generic version of Pfizer’s antipsychotic drug Geodon. The launch is post ‘031 patent expiration on 2 March. While this was largely expected, some elements had earlier suggested that a possible grant of paediatric extension on the ‘031 patent could push the generic launch to September 2012. However, we believe the early FDA warning to Pfizer on paediatric trials covering Geodon could have impacted paediatric patent extension. The base patent of Geodon had earlier got one five-year term extension to March 2012 from March 2007.

Dr Reddy’s is shared first-to-file (FTF): Overall brand sales in the US for all strengths for the most recent 12 months ending December 2011 were cUSD1.34bn according to IMS. We believe Dr Reddy’s enters with three more players, including Lupin, Sandoz and AG (authorized generic), though only Dr Reddy’s has announced the final approval so far. Assuming 25% market share with c60% price erosion during the first six months we forecast sales of cUSD65-70m for Dr Reddy’s. We expect commoditization of the product post exclusivity given there are more than 15 active DMFs on this molecule.

Post-Geodon pipeline is not “one-off”: With the gZyprexa launch not long ago (October 2011), gGeodon should materially add to US revenues near term. We expect US sales to increase qoq for the next 2-3 quarters given strong launches ahead. Contrary to the above two launches, upcoming launches of gLipitor, gPlavix and gSeroquel will be not FTF launches and will sit in the base sales for a significant period of time. As per our current estimates we forecast US sales to peak in FY13 at cUSD900m.

Reiterate OW, preferred pick in universe, an Asia Super Ten stock: The timely gGeodon launch adds comfort to the US growth story for Dr Reddy’s. We expect fondaparinux to ramp up slowly and add to base sales materially in the US over FY13-15. We value the stock at 20x Sep-13 EPS of INR96 and add INR20 for para-IV value. Key risk is higher price erosion in upcoming big launches and slower ramp-up in market share. Slower recovery in the domestic formulations business poses additional risk.


>A very Bright chances why MR FM will do a major amendment in INDIAN CASINO LAW (Mammon Capital)

■ IF it happens FM will have free hands to STT cut, 3 lac limit to individual tax payer and many more things that will make this Budget a BIG BANG budget of 2012.

■ Sri Lanka plans to introduce new laws this year to attract investments from casinos and hotel chains abroad. While Sri Lanka already has a thriving local casino industry, the government believes that laws permitting foreign investment in gaming will stabilize the sector and entice international gaming developers.

The size of the international casino business was over USD $70 billion

 Casinos generate huge revenues for the government via licensing fees and taxation. In 2006, the size of the international casino business was over USD $70 billion and North American casinos can be credited for having generated about half the total amount. In 2007, Macao in China recorded about USD $10 billion in revenues through casino games. Additionally, Internet casinos, which have proliferated recently, is said to generate more than USD $15 billion.

Casinos in Pennsylvania have generated enormous revenues in 2011. One of the reputed casinos brought in more than USD $32 billion. 

■ Casinos in Pennsylvania have generated enormous revenues in 2011. One of the reputed casinos brought in more than USD $32 billion. In the state, revenues increased nearly 14%
and reached USD $199 million, and generated over USD $108.3 million in the form of tax! Macau casino revenue hit USD $33.5 billion this year. Las Vegas brought in USD $482.7 millions in January 2011.

 Casino gaming also has had a great impact on the tourism industry. In fact, tourism in Las Vegas, which saw a total of 34,450,600 visitors in 2010 and over 37 million in 2011, is a
frequented tourist destination owning to the Strip, on which its casinos are located. The tourism industry in Macao (China), Monte Carlo (France), Sun City (South Africa) owes massively to casino gaming.

Singapore which saw casinos come up two years ago, after an intensive debate, is set to overtake Las Vegas in gaming revenues.

 Singapore which saw casinos come up two years ago, after an intensive debate, is set to overtake Las Vegas in gaming revenues. Its growth in 2010 of 15 % was attributed largely to
its two huge multi-million dollar casinos. Both casinos cum hotel developments have become must visit places for tourists arriving in Singapore.

Some nations have encouraged the growth of casinos to attract international tourists.

 Some nations have encouraged the growth of casinos to attract international tourists. For instance, Gold Coast casinos in Australia have successfully attracted South East Asian players. Most nations across the globe, except Asia, have softened their attitude towards casino gaming. Not only this, they have used casinos to address several economic issues,
including the generation of revenues, enhancement of foreign exchange and creation of jobs. Some countries have even managed to combat illegal gambling functions by legalizing casino gaming.

Why can’t we take inspiration from the UK’s Gambling Act of 2005?

■ So, why is live gambling outlawed in India? Indian tourists frequent Lanka and Nepal to enjoy gaming activities. By introducing a licensing policy in various states, like Goa and Sikkim, a tremendous amount of black money deals and criminal activities can also be curbed. Why can’t we take inspiration from the UK’s Gambling Act of 2005? After all, it lays down a regulatory framework for all types of gambling, including the use of mobile phones, televisions and the Internet. A provision for the gaming industry can solve a lot of our economic and social problems.

 Enough said about economies of casinos. Benefits of bringing over ground, an activity which, because it is illegal, remains in hands of mafia, are obvious. The benefits of having Indians staying in India to gamble, instead of going to Nepal and other countries, are obvious. However, the real benefit is in recognition of human freedom – adults should be free – free to do as they wish, if they are not harming anybody other than themselves. Let adults have a choice to gamble, if they wish.


>MAHINDRA & MAHINDRA: Management Cuts Tractor Output

 What's New — MM reported it will cut tractor production in Mar by ~1-2 days per week, till the end of the month. Assuming a 26-day production schedule, a production stoppage of 4-6 days implies a 15-23% reduction in March output.

■ Our takeaways from mgmt’s conf call are as follows — a) There has been a buildup in finished stocks at MM’s factories & stock depots beyond the typical level of 3-4 weeks. Mgmt didn’t state the current level but, given mgmt is targeting a shutdown of 4-6 days (and there could probably be shorter shifts too), we reckon the inventory buildup is perhaps 2-3 weeks above the level mgmt is comfortable with. b) Mgmt attributed the sales slump to i) falling food prices, ii) slower sales in drought impacted AP and iii) falling cotton prices. Our analysis indicates that the three main cotton growing states (AP, Maha and Guj) accounted for >40% of tractor industry growth in 9mFY12; the slump in cotton prices doesn’t augur well for FY13 outlook. c) Mgmt’s outlook remains positive – FY13 tractor volume growth is forecast at ~7-8%; the slump in volumes post Nov is a blip – not a cyclical trend. This is predicated on resumption in GDP growth, lower inflation and an expected decline in interest rates. d) Capex continues per plan – 100k tractor capacity will be operationalised in 2HFY13 – capacity will rise ~40% - a tad risky from an op. lev. perspective, if volume growth doesn’t escalate at that juncture.

 Earnings Implications — Our PAT estimates are ~9% / 3% lower than consensus for FY13/14 respectively, with the variance attributed to our flat tractor volume forecasts for FY13. We will await trends in 1Q13 before adjusting forecasts / earnings. We don’t think a 5 month slowdown is a blip; it remains to be seen if the tractor cycle continues on its downward trajectory into FY13, or if it exhibits a muted recovery.

 Maintain Neutral…given sharp underperformance over the past few months, and the fact that some of the negatives are priced in. We look to the upcoming budget for pointers on the legislation front, which will influence the demand for farm equipment into FY13. From a sector perspective, we prefer Tata Motors (TAMO.BO; Rs279.20; 1) and Maruti (MRTI.BO; Rs1,341.90; 1).

To read full report: MAHINDRA & MAHINDRA

>PIRAMAL GLASSES: global leader in delivering packaging solutions for the perfumery and pharmaceuticals businesses

■ Glass Packaging Industry – Ample Scope to Scale up the Business
The global market size of the glass packaging industry is currently valued at US $30 bn dominated by the moulded glass packaging industry to the extent of US $28 bn while the balance is being contributed by the tubular glass packaging industry.

Further, of the moulded glass packaging industry, food and beverage (F&B) glass constitute majority of the market (more than 85%), while the balance is contributed equally by the pharma, and cosmetics and perfumery (C&P) segments. On the other hand, the SF&B market size is pegged at US $1.3 bn (5% of the F&B market). The addressable market for PGL (which has presence in C&P, pharma, and SF&B segments) is thus ~20% of the moulded glass packaging market.

 Cost Advantage and US Subsidiary Given Competitive edge
Flacconage is a labour and skill intensive industry. Though the manufacturing of glass itself is highly automated, critical functions such as quality control need large teams of skilled professionals. Not surprisingly, the total cost of production in India, where manpower is among the cheapest in the world, is less than 50% of that in France and almost half of that in the US (Source: Mckinsey). With manufacturing facilities in India and Sri Lanka, Piramal Glass is able to produce glass at significantly lower costs than its competitors in other parts of the world and deliver a sustainable cost advantage to customers.

 Healthy ROE and improving ratios
PGL has exhibited a sharp improvement in return ratios. The RoE is clearly improving as it was 3.4% in 2010 and 34% in 2011. High RoE in 2011 was because of leverage effect and going forward we expect 25-27% RoE is manageable.

The debt/equity has also reduced from the peak of 31x in FY09 to 3x in FY11. Going forward, we estimate the D/E of the company to reduce further to a reasonable 2x by FY13E and 1.5x by FY14E thus lightening the balance sheet despite the capex of Rs 260 cr. Moreover, the company has already restructured its debt to a lower interest rate, which is now stands at 7.5% against earlier peak rate of 13%.

To read full report: PRIRAMAL GLASS

>PRINT SECTOR: Top-2 dailies register decline in readership

Pecking order remains largely unchanged

 Lokmat makes a comeback as it climbs up to rank 7th from rank 8th (Lokmat had slipped to rank 8th from rank 6th in IRS 2Q 2011 survey) with an AIR (Average Issue Readership) of 7.6mn. Saving this reshuffling, the pecking order remained unchanged. The top-2 dailies, Dainik Jagran and Daink Bhaskar registered AIR decline on ror (readership over readership) basis of ~0-2%, while, Hindustan registered marginal increase of 0.1% ror in its AIR

■ Jagran Prakashan (flagship daily Dainik Jagran (DJ), other dailies Mid Day and Inquilab) maintained its leadership with AIR of 16.4mn, while, DB Corp ( flagship daily Dainik Bhaskar) registered an AIR of 14.6mn. DB Corp’s strategy of increasing urban readers has paid rich dividends, with consolidated DB Corp (dailies Dainik Bhaskar (DB), Divya Bhaskar, DB Star and Business Bhaskar) increasing its urban readership by 0.7% ror to 12.8mn, however, rural readership of Dainik Bhaskar registered decline of 5% ror to ~5mn. Hindustan maintained its 3rd rank albeit on a flattish growth rate with AIR of ~12mn

■ We have highlighted the urban readership numbers for the companies under our coverage (refer Exhibit 4 and Exhibit 5), as we believe dominant presence in urban areas is a good indicator for the companies to garner higher advertisement revenue

■ We maintain our Neutral recommendation for Jagran Prakashan (CMP Rs103, fair price of Rs104/share) and HT Media (CMP Rs141, fair price of Rs143/share). We are Reduce on DB Corp (CMP Rs209) with Target Price of Rs174/share as we believe, that the market is not factoring : 1)slower GDP growth rate of India resulting in lower advertisement revenue recognition (as DB Corp is primarily an urban play) and 2) numerous new launches (launched Divya Marathi), which will be a drag on the company’s balance sheet.

To read full report: PRINT SECTOR

>CIPLA: A potential opportunity in Dymista which is a combination of azelastine and fluticasone; has been a development partner for Sweden-based speciality pharma company Meda AB

Sweden-based speciality pharma company Meda AB (MEDA) has indicated that its NDA for a combination inhaler branded Dymista (azelastine and fluticasone) for allergic rhinitis could be approved in H2CY12. Cipla is the development/manufacturing partner of Meda for this product. The global market size for azelastine is ~US$250mn market while that for fluticasone is ~US$350mn. We expect Cipla to benefit significantly when this product is launched in the US and EU markets in CY12. We have currently not built this prospect into our estimates and expect upgrades if and when this product is approved. Maintain BUY with target price of Rs393/share.

 Dymista, the opportunity: Dymista is a combination of azelastine and fluticasone and is administered through an inhaler device. Having filed an NDA in the US in Jun’11 and a pre-registration in EU in Oct’11, Meda is preparing for a launch of the product in H2CY12. Individually, fluticasone (a steroid) and azelastine (antihistamine) have global sales of ~US$250mn and ~US350mn respectively and we believe that a combination has potential to offer better treatment. In one single product, patients will receive the benefit of a steroid (to treat the inflammation) and an antihistamine (for rapid effect and relief of nasal congestion).

 Cipla as a partner: Cipla has been a development partner for Meda and will also be the manufacturer for the product – both the formulation as well as the inhaler device. In CY09, it expanded its partnership to include other major markets like Australia, Brazil, Europe, Japan and South Korea over and above the US and EU. We believe Cipla will gain from the combination product as its sales pick up.

 Timelines: Meda has filed an NDA (for seasonal allergic rhinitis) in the US in Jun’11 and has indicated that its PDUFA (Prescription Drug User Fee Act) date for Dymista will be early May’12 indicating an imminent launch thereafter. In the EU Meda has filed a pre-registration in Oct’2011 and an NDA would be filed soon.

 Recent underperformance provides an opportunity: Since the announcement of Q3FY12 results, the Cipla stock has corrected ~10%. Our estimates have not changed post the Q3FY12 results and we continue to believe that Cipla’s export potential remains under-appreciated. At current price, Cipla trades at 17.8x FY13E EPS – ~10% discount to peer average. We find value in the stock and thus recommend BUY with target price of Rs393/share.

To read full report: CIPLA