Saturday, April 14, 2012

>GAME CHANGER: RUPEES: The India consumption story.

The Indian consumption market will grow two-and-a-half times by 2025E, to Rs110 tn from Rs43 tn in FY2010. More Indians will have a pocketful of money and a long shopping list, spending disproportionately on leisure, hotels, housing, household goods, healthcare and more, but less on bare necessities and staples, as a proportion of consumption. How do we know? We present KIE’s RUPEES Estimator, a predictive model that plots India’s consumption story. It classifies households into: (1) Real-rich, (2) Upper class, (3) Prospering, (4) Evolving, (5) Emerging and (6) Surviving. However, inclusive growth (through productive job
creation) is crucial to the stability of the process.

RUPEES Estimator telescopes dramatic change
Prosperity changes spend trends. With increased prosperity, societies spend less on staples and increase discretionary spends as a percentage of their expenditure. We fed data on historical spends in India and in countries with different purchasing power parity-adjusted per capita income, into the RUPEES Estimator, to predict how Indian consumers will spend. The RUPEES Estimator can be a helpful tool in understanding the market opportunity. If you want to make your own assumptions, just ask for our model!

Buying power by the billion: Bucks for luxe
By 2025E the Indian consumption market will be two-and-a-half times bigger than it is today. The top three classes will account for about half the consumption, from less than a third currently and the Surviving class will emerge from a base of deprivation. Over our forecast period, we model consumption at 59-62% of GDP and assume long-term real growth of 7% on a population increase of 1% a year. To finance this growth, we expect India to continue its high savings rate.

Growing gains
Looking at the individual categories of spending, we identify trends that will bring meaningful
change in the category of consumers. The over-arching themes are (1) money spent per capita on a category will increase dramatically, requiring companies to innovate on providing better,
improved or more premium products, and (2) new sub-categories of consumption will open up
within each of these categories as an amalgam of consumer classes will require differentiated

Rural India morphs into mushroom towns
Evolving India will also mean the emergence of mushroom towns. The urban market will account for more than 55% of the consumption market by FY2025E from less than half today and urban households will account for about 40% of the total number of households, up from 30% currently. The push towards urbanization will not come from an overspill into metros, but
development of tier-II and tier-III cities. The emergence of growth hubs can offer stability to the
growth story.

GameChangers: How to nurture the metamorphosis
A richer, more prosperous India will throw up scores of opportunities for companies and entrepreneurs, according to RUPEES Estimator. However, two assumptions are crucial: (1) economic growth must continue (on a long-term basis) at 7% a year and (2) the growth must
be reasonably inclusive in nature. That means every class must benefit from growth. Therefore, it is crucial that the economy offers productive job opportunities. If it does not, the growth process may be neither stable nor inclusive.



Exchange traded funds are essentially straight forward products index tracking instruments, but in the hands of skill full and professional investor they become building block of sophisticated investment strategies.

Institutional use of ETFs has grown almost exponentially in India. ETFs are tracking globally, country specific and asset specific indices, covering a variety of asset classes including commodities and high-yield equities and bonds-bringing simplicity, flexibility and cost-effectiveness in their wake.

An exchange-traded fund is an investment company that offers investors a proportionate share in a portfolio of stocks, bonds, or other securities. Like individual equity securities, ETFs are traded on a stock exchange and can be bought and sold throughout the day through a broker-dealer.

Exchange-traded funds (ETFs) are a relatively recent innovation to the investment company concept. Like more traditional mutual funds and other investment company offerings, ETFs offer investors, including those
of moderate means, the opportunity to purchase shares in a diversified pool of securities at a competitive price.

Exchange-Traded Funds (ETFs) are similar to index mutual funds but are listed and traded on exchanges similar to unit investment trusts and closed end mutual funds. Unlike mutual funds, that trade only once a day at net asset value, ETFs trade at varying prices throughout the day just like stocks.

Exchange-traded funds (ETFs) have gained a wider acceptance as financial instruments whose unique advantages over mutual funds have caught the eye of many an investor. These instruments are beneficial for Investors that find it difficult to master the tricks of the trade of analyzing and picking stocks for their portfolio. Various mutual funds provide ETF products that attempt to replicate the indices on NSE, so as to provide returns that closely correspond to the total returns of the securities represented in the index. In India ETF's available on NSE are diverse lot. Equity, Debt, Gold and International Indices ETF's are available. Most ETFs charge lower annual expenses than index mutual funds. However, as with stocks, one must pay a brokerage to buy and sell ETF units, which can be a significant drawback for those who trade frequently or invest regular sums of money.Their passive nature is a necessity: the funds rely on an arbitrage mechanism to keep the prices at which they trade roughly in line with the net asset values of their underlying portfolios. For the mechanism to work, potential arbitragers need to have full, timely knowledge of a fund's holdings.


>How multinational companies can win in India

Over the past 20 years, multinational companies have made considerable inroads into the Indian market. But many have failed to realize their potential: some have succeeded only in niches and not achieved large-scale market leadership, while others haven’t maximized economies of scale or tapped into the country’s breadth of talent. The experience of a leading multinational consumer goods company illustrates the challenge: its revenue in India has grown by 7 percent compounded annually in the past seven years—almost twice the rate of the parent company in the same period. Nevertheless, the company’s growth rate in India is only about half that of the sector.

For multinationals, the key to reaching the next level will be learning to do business the Indian way, rather than simply imposing global business models and practices on the local market. It’s a lesson many companies have already learned in China, which more multinationals are treating as a second home market.1 In India, this trend has been slower to pick up steam, although best-practice examples are emerging:

• A leading beverage company entered India with a typical global business model—sole ownership of distribution, an approach that raised costs and dampened market penetration. The company’s managers quickly identified two other big challenges: India’s fragmented market demanded multiple-channel handoffs, and labor laws made organized distribution operations very expensive. In response, the company contracted out distribution to entrepreneurs, cutting costs and raising market penetration.

• A big global automobile company has become the one of the largest manufacturers in India, growing at a rate of more than 40 percent a year over the last decade, by building a local plant, setting up an R&D facility to help itself better understand what appeals to Indian customers, and hiring a well-known Indian figure as its brand ambassador.

To realize India’s potential, multinationals must show a strong and visible commitment to the country, empower their local operations, and invest in local talent. They must pay closer attention to the needs of Indian consumers by offering the customization the local market requires. And multinational executives must think hard about the best way to enter the market. More and more, that will mean moving beyond the joint-venture approach that so many have adopted and learning to go it alone. (For a localization-assessment tool, see sidebar, “Winning in India: An illustrative scorecard.”)

It’s essential that multinationals raise their game in India: the country’s economy is expected to grow by upward of 6 percent annually in the next few years, among the highest rates of any big emerging economy. In several product and market categories—mobile handsets, for example—India could account for more than 20 percent of global revenue growth in the next decade. In other words, the future of many multinationals depends on their ability to succeed in India.

To read full report: MNC

>SWAN ENERGY LIMITED: Acquired 104 acre plot in 2009 to develop an IT SEZ

Swan Energy (SEL) would see a terrific upmove in growth trajectory of its revenues and earnings on the back of revenue generation from Real estate business, which is at inflection point with the impending completion of its major real estate projects in the near term to generate strong cash flows in FY13.

SEL has mills located at Sewri and Kurla, where the company has under taken real estate development. The company’s two projects , namely Ashoka Gardens ( residential project) and Peninsula Technopark (commercial property) are nearing completion having total saleable area of 1.78mn sq. ft.The company has appointed reputed developer M/s Peninsula Land as the project manager for both the projects. A commercial IT park ‘Peninsula Technopark’ at Kurla consisting of 4 buildings with 0.88mn sq. ft. of saleable area. The construction work of 3 buildings have been completed and for remaining 1 building it is at the advanced stage and is expected to be completed by June 12.

A residential complex ‘Ashok Gardens’ at Sewri consisting of 2 towers of 23 floors, each housing 3 wings with 0.90 mn sq. ft. of saleable area, have nearly been completed and is ready for possession.

Proposed development of plot in Goa and Mysore
SEL had acquired 104 acre plot in 2009 to develop an IT SEZ and had obtained necessary permission from the state of Goa, but however due to change in government policies all SEZ projects have been de-notified. Since SEL had acquired the plot from a private seller, the company now plans to develop the same in to a mix of residential and hospitality projects.

The possible developable area under this project is ~ 4.5 million square feet. Though the project is at an nascent stage, we have not factored the same in our estimates, but we believe that the project has strong potential owing to the locational advantage as the plot is situated near to the proposed airport. SEL is also in negotiation to jointly develop a residential project with 197 acre plot of land in Mysore. The company is planning to develop the Mysore plot in to residential bungalows.

Completion of scheduled real estate projects to generate strong cash flows
SEL’s is expected to see an accelerated growth in revenues and profitability in FY13 on the back of completion of real estate projects. The improved financial performance would generate strong cash flows in the near term which would enable SEL to fuel the funding of its growth plans in existing real estate business and lucrative new business segment of energy and ports.

Investment in energy sector to tap humungous opportunity due to industry supply Shortfall: With the World being concerned over the impact of ill effect of the global warming &
climate change, SEL has evaluated business opportunities by taking up projects resulting in reduced green house gas emissions. It has been scouting for organic and inorganic opportunities in the clean energy projects, which once commissioned will be able to generate CERs (Carbon Credits).

To read full report: SEL

>CASTROL: Q4 CY11 Results

Q4 CY11 Results Update
Castrol India Ltd has posted profit of Rs.1068.00 million for the quarter ended on Dec 31, 2011 as against Rs.1059.00 million in the same quarter last year, an increase of 1%. It has reported net sales of Rs.7727.00 million for the quarter ended on Dec 31, 2011 as against Rs.6981.00 million in the same quarter last year, a rise of 11%. During the quarter, it reported earnings of Rs 4.32 a share.

Break up of Expenditure
Expenditure for the quarter stood at Rs.6164.00mn, which is around 14% higher than the corresponding period of the previous year. Consumption of Raw Materials cost of the company for the quarter accounts for 52% of the sales of the company and stood at Rs.4046.00mn from Rs.3545.00mn of the corresponding period of the previous year. Other Expenditure Cost decreased 28%YoY to Rs.565.00mn from Rs.784.00mn and accounts for 7% of the revenue of the company for the quarter.

Castrol is the second largest player in the Indian lubricant industry and is the market leader in the retail automotive lubricant segment.

It manufactures and markets a range of automotive and industrial lubricants.

The company offers passenger car engine oils, premium 2-stroke and 4-stroke oils, and multi grade diesel engine oils under the Castrol and BP brand names.

The Company sells its products through distributors to retail outlets Net Sales and PAT of the company
are expected to grow at a CAGR of 9% and 5% over 2010 to 2013E.

Castrol India has grown to become the second largest lubricant company in India with a market
share of around 22%.

To read report in detail: CASTROL

>PVR LIMITED: Marquee locations provide lucrative advertisement income

■ To add 50-60 screens across India – In the past, PVR has opened multiplexes at key locations by tying up with strong developers. It will continue this strategy and add over 50 screens across India in cities like Pune, Bengaluru, Cochin, Nagpur, Nanded and Vijaywada.

Industry growth should help maintain margins – We expect the movie industry to continue its growth which will lead to occupancy levels of 30% or higher. Rising ticket prices and food & beverage (F&B) sales will boost margins in the long run.

Marquee locations provide lucrative advertisement income – PVR is earning advertisement revenues which amount to 20% of net ticket sales due to its location strategy. This strategy is boosting margins and providing a kicker to the bottom line.

Bowling alley business to grow manifold - The number of bowling lanes should grow from 50 to 134 in the next couple of years. This business has a payback period of 2.5 years and ROCE of 29%. It will help the company become a one stop shop for retail entertainment and a leading anchor tenant for mall developers.

Implementation of GST would be a positive trigger as there will be a fall in the entertainment tax (e-tax) rate. Currently the company pays an average e-tax of over 18%. GST implementation will lead to a 1-2% fall in tax rate which can be retained by PVR.

To read report in detail: PVR LTD

>UNITED SPIRITS LIMITED: Downgrade due to Kingfisher Airlines hangover

  Downgrade from Buy to Neutral
We downgrade United Spirits (USL) to Neutral due to uncertainty surrounding Kingfisher Airlines (KFA). USL’s share price is down 51% since 1 January 2011, and we expect it to remain under pressure until the KFA issue is resolved. We also cut our FY12-14 EPS estimates by 18-19% to take into account its higher debt as of December 2011.

  A raw material cost reduction is possible
USL has been investing in primary distillation capacity, which should help lower its raw material costs. However, we will only incorporate these into our forecasts once the benefits kick in fully. USL is facing high raw material costs, with high energy prices boosting its system costs.

  Business is intact; underlying debt and governance are concerns
Our underlying view on USL remains resilient growth in branded spirits. We think: 1) USL should remain a beneficiary of India’s growing, young population and rising discretionary spending; and 2) USL has one of the widest and most dominant distribution networks in India, which aids its 34 ‘millionaire brands’ (brands that sells more than 1m cases annually) in the segment; and 3) USL will benefit from investments made in primary distillation capacity.

  Valuation: lower our price target from Rs850.00 to Rs780.00
We derive our price target from a DCF-based methodology and explicitly forecast long-term valuation drivers using UBS’s VCAM tool. We assume a WACC of 11.4%. We lower our FY12/13/14 EPS estimates from Rs34.47/43.90/54.85 to Rs28.25/35.22/44.31.

To read report in detail: USL

>BANKING SECTOR: All eyes on restructuring (Q4FY12 Results Preview)

Incremental restructuring and pipeline will dominate the attention of investors even as other asset quality matrices are likely to remain largely stable. Pre-provisioning profit growth for PSBs estimated to be strong (25% YoY for PSBs ex-SBI), despite sequential pressure on NIMs and material moderation in credit growth, led by distorted base (pension provisioning and –ve one-offs for SBI). However, relatively higher provisioning cost for PSBs led by slippages and incremental restructuring should lead to continuation of the divergent earnings performance trend among private banks and PSBs. HDFC Bank and ICICI Bank should lead private banks while SBI should fare relatively better among PSBs.

 All eyes on incremental restructuring and pipeline: In the light of moderating economic activity, we expect asset quality trends to remain the key focus area for the next few earnings seasons. Incremental restructuring is expected to increase as banks try to avoid slippages into NPA. Trends in cases referred to CDR corroborate our long held concern of material increase in restructured assets. This also implies that deterioration in other matrices (GNPA, slippage etc) will be avoided for now. We look forward to clarity on incremental restructuring pipeline as well as status of SEB restructuring from management of banks.

 Some pressure on NIMs likely: Not withstanding the strong pricing power aided by tight liquidity, we expect NIMs to witness marginal pressure (5-10bps) on a sequential basis, especially for PSBs. The firm wholesale rates, fuller impact of deregulation of NRE deposit rates, some impact of priority sector lending and selective downward tweaking of lending rates could collectively force the NIMs downwards, albeit marginally. Sequential pressure on NIMs and dramatic slowdown in loan growth should keep NII growth in higher single digits for PSBs ex-SBI compared with ~17% YoY growth estimated for private peers.

 Base distortions: The distorted base effect (pension provisioning and –ve one-offs for SBI) will help PSBs report strong growth in pre-provisioning profit (33% for PSBs vs 20% for private peers). However at bottom-line level, we estimate private peers to report 24% YoY growth on aggregate basis compared with 9% YoY growth for PSBs ex-SBI. Among the banks under our coverage, we expect HDFC Bank and ICICI Bank to report stronger performance while Bank of India and SBI should lead from bottom-line growth perspective among PSBs.


>Metals – Ferrous & Mining: Q4FY12 Result Preview

Sequential improvement on lower costs and higher volumes

Higher volumes on account of seasonal improvement in demand, improved realizations on a sequential basis and lower raw material costs (particularly for steel producers) are expected to result in a sequential improvement in profitability for metal companies in our universe during Q4FY12. We see the earnings improvement in Q4FY12 to be more seasonal in nature rather than structural and still remain concerned on the low demand-high supply dynamics in the global metals space. We maintain our cautious stance on the ferrous space but remain positive on the mining space on account of attractive valuations and low costs.

 Sales volume to improve sequentially: We expect volumes to show sequential improvement on the back of higher seasonal demand. Steel players are expected to show volume growth with SAIL and JSW steel showing sequentially higher sales. Among base metal players, HZL will see increase in lead and silver volumes.

 Realizations remain firm: Global base metal and steel prices improved during the quarter and with rupee remaining weak, we expect domestic realizations to remain firm on a sequential basis and result in sequential revenue growth. Mining players are expected to suffer a drop in realizations on a QoQ basis due to drop in global prices.

 Margins to remain weak despite sequential improvement: Margins are expected to improve by 100-300 bps QoQ for metal players in our universe but still remain weak on an overall basis and lower YoY as the recovery in demand remains slow.

 Profits to remain subdued: We expect pressure on PAT due to higher interest costs and expect only marginal recovery in MTM forex losses of previous quarters as rupee has remained
weak overall. We expect sequential improvement in PAT from all companies under our universe except NMDC which has suffered due to lower volumes in Q4FY12E.

 Maintain cautious view on the ferrous space: We remain Cautious on the domestic ferrous space amidst tough operational environment and subdued global steel prices going ahead due to higher supplies. We also expect raw material prices to spike yet again going ahead. We maintain buy on mining stocks like NMDC and HZL on attractive valuations and volume growth. We remain neutral on Sterlite Industries due to concern over the proposed merger with Sesa Goa. We maintain sell on Tata Steel and SAIL.


>LOGISTICS: Q4FY12 Result Preview

Healthy volumes & margins boost CFS profits

With container volumes steady at the ports and CFS players’ ability to pass on higher rates and maintain healthy margins, we remain positive on container based logistics players with a Buy rating on Gateway Distriparks (GDL) and Allcargo Global Logistics. Container volumes at 12 major ports remained stable during FY12, growing at a modest 3.0% to 7.8mn TEUs after increasing by 9.4% in FY11 to 7.5mn TEUs. We estimate container volumes to grow at 8.3% to 8.4mn TEUs for FY13E. Transport Corporation of India (TCI) is riding on the growth in its supply chain and express logistics division, helping its revenue grow higher than that of the industry.

 Container volumes stable: Container traffic at the 12 major ports remained stable during Q4FY12. Container volumes grew 0.2% YoY to 1.93mn TEUs during Jan-Mar 2012, compared to 3.0% in FY12. Volumes at JNPT grew 1.3% YoY to 1.08mn TEUs in Q4. The port handled a total of 4.32mn containers in FY12, its best annual performance in the last 5 years.

 Total port traffic down 7.5% YoY: Total port traffic remained lacklustre with a decline of 7.5% in Q4FY12 on the back of a sharp drop in iron-ore volumes. Iron ore volumes declined 54% YoY in Q4 to 12.8mn tonnes. POL volumes increased 4.1% YoY to 47.3mn tonnes, while coal thru-put increased 6.9% YoY to 20.4mn tonnes.

 EXIM trade too stable: India’s exports remained sluggish but its imports continued its robust growth during Q4. While exports grew just 7.2% YoY in value terms during Jan-Feb 2012, imports increased 20.4% YoY in the same period.

 Domestic industrial activity: India’s Index of Industrial Production (IIP) recovered from its lows reached in Oct 2011. Following a marginal 1.1% growth in Q3FY12, IIP expanded by 6.8% in January 2012, led by a sharp 42.1% expansion of consumer non-durables, while the rest of the IIP index contracted by 1.2%.

 GDL and Allcargo - Top picks in the sector: Gateway Distriparks and Allcargo are our top picks in the logistics space. We have a Buy rating on both with a target of Rs190 and Rs220 respectively. We believe Concor is looking fully valued at the current level and maintain Hold with a target of Rs1,015. We also maintain our Buy rating on TCI (target price Rs96).

Allcargo Global (Rating – Buy; Target Price – Rs220)
 Consolidated revenue is likely to increase 32.4% YoY to Rs9,684mn, primarily led by higher volumes in the CFS and MTO businesses. Operating profit is expected to grow 33.9% YoY to Rs1,201mn, while margins are expected to remain flat at 12.4% (up 14bp YoY). Volumes in the CFS (container freight station) business are likely to grow 12.4% YoY to 66,960 TEUs while average realisation is likely to remain flat (up 0.6% YoY) at Rs10,784 per container.

 The global MTO (multi-modal transport operation) business (ECU Line) volume is expected to increase 16.3% YoY to 64,409 TEUs and the domestic MTO business volumes are likely to grow at 14.5% YoY to 7,301 containers.

 Net profit is expected to grow 28.8% YoY to Rs642mn while net margins are likely to remain flat (down 18bp YoY) at to 6.6%.

Container Corp of India (Rating – Hold; Target Price – Rs1,015)
 We expect standalone revenue to increase 5.6% YoY to Rs10,511mn, mainly led by volume growth in the EXIM segment. EXIM segment’s volumes are expected to improve 7.1% YoY to 555,034 containers, while domestic business volumes are likely to decline 13.9% YoY to 120,031 containers.

 Operating profit is likely to grow 10.0% YoY to Rs2,564mn. Operating margins are likely to improve 97bp YoY to 24.4%. While Exim segment’s EBIT is expected to grow 5.0% YoY to Rs2,022mn, domestic EBIT is likely to contract 19.7% YoY to Rs144mn mainly on the back of cost pressure and inability to pass on the increased haulage charges.

Gateway Distriparks (Rating – Buy; Target Price – Rs190)
 GDL’s standalone CFS revenue is expected to remain flat; up 2.3% YoY to Rs541mn. Net profit is
likely to decline 21.1% YoY to Rs211mn on the back of higher taxes as the tax holiday period for Mumbai CFS got over in FY11.

 We expect the consolidated total income (revenue + other income) to grow 14.7% YoY to Rs1,961mn and operating profit by 14.9% YoY to Rs639mn. Consolidated operating margins are likely to remain flat at 32.6%.

 Container volume at the Mumbai CFS is likely to grow 15.3% YoY to 59,340 TEUs, while average realisation is expected to be higher by 41.3% to Rs10,584 per container. The higher realisation is expected to result in 12pp YoY increase in Mumbai CFS’ margins to 59.6%. 

 The rail subsidiary, Gateway Rail Freight (GRFL), is expected to register 17.6% YoY revenue growth to Rs999mn. Container rail volumes are expected to increase 17.4% YoY to 43,227 TEUs, while average realisations are likely to remain flat at Rs23,100 per container.

Transport Corporation (Rating – Buy; Target Price – Rs96)
 TCI’s standalone revenue is expected to remain flat (up 0.3% YoY) at Rs4,805mn, as growth in the express and supply chain business is negated by the decline in the transportation segment.

 Operating profit is likely to decline 8.8% YoY to Rs359mn, while margins are likely to contract 75bp YoY to 7.5%. Net profit is likely to fall 4.8% YoY to Rs121mn on the back of decline in freight business’ margins and higher tax. Net margins are likely to contract 14bp YoY to 2.5%.

 While the revenue of express division is expected to grow 9.2% to Rs1,309mn and that of supply chain solution (SCS) division by 2.6% YoY to Rs1,203mn, the freight revenue is likely to decline 5.7% YoY to Rs2,033mn. The express’ PBIT is expected at Rs109mn, a growth of 40.2% YoY with PBIT margins of 8.3%.


>SUGAR SECTOR: Q2SY12 Result Preview

We expect the profitability of sugar companies to remain under pressure impacted by higher sugarcane costs. The Uttar Pradesh government increased the SAP (State Advised Price) for Sugarcane to Rs240/quintal for SY12 against Rs205/quintal in SY11. Though, we expect Triveni Engineering and Bajaj Hindusthan to report profits in the quarter, we believe that these companies will incur losses in SY12E. In the quarter, we expect Shree Renuka Sugars to report losses mainly due to higher depreciation costs and interest expenses. Average sugar price (M grade Mumbai) during the quarter declined 0.9% QoQ to Rs30.4/kg. Going forward, we believe that the increase in sugar production to 25.5mt in SY12E against 24.2mt in SY11 will lead to an increase in inventory levels, which in turn, will put pressure on domestic sugar prices leading to subdued profitability of companies. Though, we have a Buy rating on Shree Renuka Sugar (after assigning benefits of potential hive off of the power business in Brazil) and Triveni Engineering considering historic valuations and its 21.8% stake in Triveni Turbine Ltd, the stocks could be under pressure in the near-term because of pressure on domestic realizations. We maintain Sell rating on Bajaj Hindusthan. The triggers for upside would be a) building up of cane arrears in this crushing season b) higher than expected sugar price and c) decline in area under sugarcane cultivation for next crushing season.

  Sugar price declines on a sequential basis: Sugar price (M grade Mumbai) during the quarter declined 0.9% QoQ to Rs30.4/kg (up 5.9% YoY). Current sugar price (M grade Mumbai) is at Rs30.7/kg. Going forward, we believe that sugar price will be under pressure due to higher estimated sugar production in SY12E.

  Export of 2mt allowed during the quarter: The government allowed 2mt of sugar exports under OGL (Open General License) quota in this quarter, which will help the companies generate additional profits.

  Increase in global sugar price on a sequential basis: Global sugar price increased 5.4% QoQ to US$628 during the quarter. On a YoY basis, global sugar price declined by 7.1% YoY. The sequential improvement in global price was driven by the expectation that the Brazilian sugar production will be under pressure in the next year.

  Valuations attractive though near-term challenges persist: We have a Buy rating on Shree Renuka Sugar (after assigning benefits of potential hive off of the power business in Brazil) and Triveni Engineering considering historic valuations and its 21.8%] stake in Triveni Turbine Ltd. However, these stocks could be under pressure in the near-term because of our expectation of pressure on domestic realization considering higher sugar production in SY12E. We maintain Sell rating on Bajaj Hindusthan. The triggers for upside would be a) building up of cane arrears in this crushing season b) higher than expected sugar price and c) decline in area under sugarcane cultivation for next crushing season.

Bajaj Hindusthan (Sell, Target Price: Rs30, CMP: Rs31.3)
 We expect the company to sell 2.4 lakh tonnes of sugar in the quarter with an average
realization of Rs28.8/kg. Net sales of the company is expected to decline 34.1% YoY (but,
increase 47.7% QoQ) to Rs8.5bn.

 EBITDA is expected to decline 24.2% YoY (but, increase 268.4% QoQ) to Rs2.3bn. EBITDA margin in the quarter is expected to be 27.5% against 24.6% in Q2SY11 and 11.4% in Q1SY12.

 Profit is expected to decline 38% YoY to Rs452mn. In Q1SY12, adjusted loss of the company was Rs444.3mn.

Shree Renuka Sugars (Buy, Target Price: Rs46, CMP: Rs31.4)
 Consolidated revenue is expected to increase 9.4% YoY (but, down 13.7% QoQ) to Rs20.1bn in the quarter.

 EBITDA is expected to increase 24% YoY and (3.9% QoQ) to Rs3.5bn mainly because of higher realizations in Indian markets and higher income from the sugar refinery segment.

 EBITDA margin is expected to be 17.1% vs. 15.1% in Q1FY12 and 16.2% in Q5FY12. The
company has changed its year-end from October to March in FY12.

 We expect the company to report loss of Rs314mn in the quarter against adjusted profit of
Rs594in Q1FY12 and adjusted loss of Rs854mn in Q5FY12. 

Triveni Engineering (Buy, Target Price: Rs23, CMP: Rs15.5)
 The company is expected to sell 1 lakh tonnes of sugar in the quarter at an average realization of Rs28.8/kg. Revenue is expected to increase 5.1% YoY (and 12.6% QoQ) to Rs4.8bn.

 EBITDA is expected to decline 5.9% YoY (but, go up 138.4% QoQ) to Rs511mn. EBITDA margin in this quarter is expected to be 10.7% against 11.9% in Q2SY11 and 5.1% in Q1SY12.

■ Adjusted PAT is expected to decline 13.8% YoY to Rs179mn. In Q1SY12, adjusted loss of the company was Rs108mn.


>Prime Focus Limited’s Promoter converts 10,00,000 warrants into equity shares

Mumbai, April 13, 2012: The Board of Directors of Prime Focus Limited (BSE code: 532748, NSE: PFOCUS, ISIN: INE367G01038), a global visual entertainment services group that provides creative and technical services to the film, broadcast, and advertising market, by Board Resolution passed on April 13, 2012 has approved the conversion of 10,00,000 Convertible Warrants held by Mr. Namit Malhotra- Promoter of the Company and allotted 1,00,00,000 Equity Shares against conversion of said warrants held at a premium of Rs. 544.78/- per warrant (each warrant convertible into one equity share of face value of Rs. 10/- each).

Please note that on account of stock split w.e.f 1st Nov, 2010 of one equity share of face value of Rs. 10 each into 10 equity shares of face value Re.1 each, company has issued 1,00,00,000 equity shares to Mr. Namit Malhotra.

The paid up share capital of the Company increased to Rs. 14,88,67,446/-–effective April 13, 2012 (post conversion of 10,00,000 warrants) and the promoter holding increased to 50.91% on the enhanced capital.

About Prime Focus Limited (PFL):
Prime Focus (BSE code: 532748, NSE: PFOCUS, ISIN: INE367G01038) is a global visual entertainment services group that provides creative and technical services to the film, broadcast, and advertising market. The group offers a genuine end-to-end solution from pre-production to final delivery – including visual effects, 2D to 3D conversion, video and audio post production, equipment hire, multi-platform content operations solutions and digital distribution.

Prime Focus employs over 4,500 people with state-of-the-art facilities throughout the key markets of North America, UK and India. Using its ‘Worldsourcing’ business model, Prime Focus provides a network that combines global cost advantages, resources and talent pool with strong relationships and a deep understanding of the local markets.