Monday, July 9, 2012


Allotment of Equity Shares Under ESOP
AXIS Bank Ltd has allotted 2,89,831 equity shares of Rs. 10/- each, under ESOP Scheme of the Bank. The paid up share capital of the Bank will accordingly get increased to 41,42,90,946 equity shares from 41,40,01,115 equity shares.
Axis Bank inducts Schorders as a 25% partner in Axis AMC
Axis Bank has reached an agreement to sell 25 per cent of the share capital of its wholly owned subsidiary, Axis Asset Management Company Ltd (Axis AMC) to Schorder Singapore Holdings Pvt Ltd, a wholly owned subsidiary of Schorders. Schorders is a global asset management company with £ 187.3 billion under
management as at 31 December 2011.

Q4 FY12 Results Update
Axis Bank Ltd has reported net profit of Rs 12772.70 million for the quarter ended on March 31, 2012 as against Rs 10201.10 million in the same quarter last year, an increase of 25.21%. It has reported Net Income of Rs 60603.20 million for the quarter ended on March 31, 2012 as against Rs 43666.60 million in the same quarter last year, a rise of 38.79%. Total income grew by 31.47% to Rs 76479.40 million from Rs.58170.60 million in the same quarter last year. During the quarter, it reported earnings of Rs 30.91 a share.

Recommends Dividend
AXIS Bank Ltd has recommended a dividend of Rs. 16 per share (160%) for the year ended March 31, 2012.

To read report in detail: AXIS BANK


>BF UTILITIES: Nandi Highway Developers Ltd & Nandi infrastructure Corridor Enterprise

The projects so far..
1) Nandi infrastructure Corridor Enterprise (NICE) (74.5% holding) Project – BMIC – Bangalore Mysore Infrastructure Corridor Project.

2) Nandi Highway Developers Ltd (NHDL) (69% holding) Project – Hubli -Dharwad Bypass road. - The Hubli-Dharwar bypass in Karnataka is a 30 km road on NH4 that lets highway traffic bypass the two cities, speeding up traffic. NH4 connects Mumbai/ Pune with Bangalore/ Chennai. Operational since 2000.

3) Project – Wind energy, 18.33MW power over 300 acres in Satara, Maharashtra is 100% owned.

Event – The key asset for the company is the project BMIC (Bangalore Mysore Infrastructure Corridor Project) – A 164km tolled expressway connecting the cities Bangalore and Mysore. It includes a peripheral road in Bangalore, 5 New Townships along the Expressway (the first Section A involves 7,290 acres
land), a Town Planning Authority status, and a Concession period for the toll of 40 years. The BMIC is 75% owned by BF utilities. It has a single planning authority – Bangalore Mysore Infrastructure Corridor Area Planning Authority (BMICAPA) for the entire project.

To read report in detail: BF UTILITIES

>INDIA INFRASTRUCTURE: JNPT(Jawaharlal Nehru Port Trust) CT-4 () & DFCC Western Corridor: expect project awards of USD5b-7b in FY13/14

JNPT's expansion plans to nearly double capacity: The Jawaharlal Nehru Port Trust (JNPT) has selected (in September 2011) the consortium led by Port Authority of Singapore to construct and operate its fourth container terminal (CT-4). JNPT currently has a capacity of 4.1m TEUs and CT-4 will add a further 4.8m TEUs. The concession agreement is expected to be signed shortly. Phase-1 of CT-4 (2.4m TEUs) is likely to be completed by 2015/16 at an estimated cost of ~INR38b.

CT-4 / Western Corridor project viability interlinked: JNPT's CT-4 operations are strongly interlinked with Dedicated Freight Corridor Corporation's (DFCC) Western Corridor project, given the constraints in terms of railway capacity. The Railways account for ~27% of the hinterland transport for JNPT and the existing network is congested, with limited room for expansion. Hence, the near doubling of container capacity post commissioning of CT-4 is largely dependent on DFCC for evacuation. The economic viability of DFCC's Western Corridor project is also linked to JNPT expansion, as containers will account for 75-80% of
traffic. Land acquisition in the JNPT-Vadodara section has been significantly behind schedule (near nil land acquired around Mumbai, Surat), while the Vadodara- Rewari section has witnessed 83% land acquisition.

Expect project awards of USD5b-7b in FY13/14: We expect substantial parts of the project awards for both CT-4 (INR38b, phase-1) and DFCC Western Corridor (~USD8b) to be completed in FY13/14. This will entail interesting opportunities for construction players. Both the projects are expected to be commissioned by FY16/ 17. We believe that DFCC could provide a 'multiplier effect' for India in many ways, and successful implementation will lead to several benefits.

How to play the theme - L&T is the best bet: We believe L&T (Buy) will be a clear beneficiary of the project awards of USD5b-7b expected in FY13/14 for CT-4 and the Western Corridor. L&T is also one of the two consortiums pre-qualified to submit price bids in two packages of the Western Corridor (size ~USD1b). Adani Port (Not Rated) will also be a beneficiary of the shift in the northern hinterland container cargo from Maharashtra to Gujarat - JNPT's capacity is largely saturated till CT-4 / western DFCC becomes operational and the recent TAMP (Tariff Authority on Major Ports) tariff reduction for private operators at JNPT will lead them to lower volumes, as efficiency gets punished. Adani Port already accounts for ~25% of the western region container traffic and the transition is expected to be rather quick over the next 3-4 years.

To read report in detail: INDIA INFRASTRUCTURE

>JSW ENERGY LIMITED: Barmer tariff petition key near-term trigger

We initiate on JSW with a HOLD and a PT of Rs 50. We like the company for its conservativeness with regard to expansion, i.e., even under current operating conditions, JSW would be free cash positive (pre-debt this year and after debt and capex in 2 years). The company has also gained from lower imported coal prices YTD (a 1% change in INR-denominated coal prices would impact FY14 EPS by 1.5%). Nevertheless, most of these positives are priced in after the near 50% move YTD. At 12xFY14E PE, we think valuations are fair for utility with low visibility on tariffs and fuel costs.

Limited capacity addition=FCF positive: JSW has guided for nil expansion until more clarity emerges on coal availability. While this could weigh on near-term MW growth, we think this will prepare them for profitable growth at an opportune time.

Falling imported coal prices to help FY13 margins and earnings: YTD, global coal prices have corrected 20% in INR terms. JSW sources ~65% of fuel for its 3140MW capacity from overseas (SA+ID), and is likely to benefit from falling coal prices globally – every 1% change in INR-denominated coal prices would impact FY14 EPS by 1.5%. We expect benefits to earnings in 2QFY13.

Barmer tariff petition key near-term trigger: JSW has filed a tariff revision petition before the Rajasthan Electricity Regulatory Commission (RERC) for revision of the lignite transfer price from Kapurdi and Jalipa mines (to ~Rs 1781/tn), and power tariffs from Barmer plant (from Rs3.35/kwh to Rs 4.86/Kwh). Against this, we have built in a tariff of Rs3.61/kwh - 10% RoE on the revised project cost.

Valuation and rating: We think most of the positives are priced in at CMP. Given this, and its structurally dependence on imported coal, exposure to merchant power markets, and absence of capacity addition post FY13, we initiate with a HOLD with a TP of Rs 50/sh. Key upside risks are above expected ROE on Barmer, and lower than estimated international coal prices.

To read report in detail: JSW ENERGY


>GRASIM INDUSTRIES: Acquires 40% stake in sick pulp manufacturer

Grasim Industries has announced an acquisition of 40% stake in a distressed pulp manufacturer Terrace Bay Pulp, Canada. Another 60% has been acquired by an Aditya Birla Group entity Thai Rayon. While further details have not been revealed, Grasim will infuse USD44 mn over a three year period into Terrace Bay out of a total equity requirement of USD110 mn. At this moment the mill is shutdown after an explosion in its plant in Oct’11 further weakened an already weak financial position and will be restarted by Oct’12. Terrace Bay at this moment has been placed under credit protection by Canadian authorities.

Till now the mill was producing paper grade pulp with a capacity of 550,000 tonnes per annum and over the next 3-4 years, the mill would be converted into a 280,000 tonnes per annum dissolving pulp grade manufacturer to supply VSF manufacturers like Grasim. This would require an investment of USD250 mn in total. Terrace Bay currently has total assets of USD46.3 mn and has debt of USD54 mn from Ontario province and unsecured creditors.

This acquisition is in-line with Grasim’s intention to vertically integrate and have an in-house supply of pulp for its VSF business. Grasim is expanding its VSF capacity by 156,500 tonnes per annum or by almost 50% of its current capacity in India by end of FY13 apart from creating a Greenfield capacity in Turkey. We believe more acquisitions of pulp manufacturers are likely to come through in the future as the current inhouse pulp capacity is sufficient only for ~75% of Grasim’s current capacity. Grasim’s has USD430 mn of cash on its standalone books and almost USD1 bn of cash on its consolidated books which would be more than sufficient for this acquisition and further acquisitions. Grasim in May’11 had acquired 33% stake in Domsjo Fabriker, a Swedish pulp manufacturer for USD62 mn apart from further investments. Grasim does not necessarily ship pulp from these countries to its plants in India but hedges its purchases from nearby pulp manufacturers through sales from its acquired entities to other VSF manufacturers.

We do not expect any significant reaction by the stock to these acquisitions and at current levels after rallying 20% in the last one month we expect the stock to look for an upward movement in VSF prices or cement prices/volumes to further outperform.

To read report in detail: GRASIM INDUSTRIES


>LARSEN TOUBRO: Strong Q1 orders; sustainability a key concern

L&T has announced orders worth INR157bn in 1QFY13 so far (excluding an order from Sadara Chemical Company, Saudi Arabia, for which the order value has not been disclosed). Historically, disclosed order proportion has been 60-80% of a total quarter’s inflows, and thus the company could potentially end 1QFY13 with INR200-250bn worth of overall inflows. The risk, though, remains that the share of disclosed orders in 1QFY13 is higher than in prior quarters. Nevertheless, even with L&T ending up in excess of INR160bn for 1QFY13 inflows, it would be seen positively by the markets in our view. In the recent past, 1QFY13 orders have been ~23-24% of reported full-year inflows for the company; however, this year, we believe, 1QFY13 has witnessed higher order activity due to a carry-over of orders delayed from the previous year. As such, the adjusted full-year run-rate seems to be between INR670-800bn, which is higher than our current FY13 estimate of INR694bn.

Over the past few quarters and especially in 1QFY13, we note that order inflow has been primarily driven by sectors such as building and factories, roads and power T&D.

We also highlight a chartbook on IIP data, cement dispatch numbers and their correlation with L&T in the past. While we note a very strong correlation between cement dispatch volumes and L&T order inflow (both y-y growth trends), L&T’s inflows relate only modestly to the IIP data. We also map L&T’s valuation, with IIP data and 10-year G-sec bond yield, and find a strong correlation with bond yield rather than IIP data, suggesting that any upcoming rate cut might potentially lead to compression in valuation multiples; this follows from our strategist’s arguments that cut in interest rates may not be a panacea for falling IIP and, consequently, order inflow. Below we highlight two phases where interest rates were falling but it was accompanied by a fall in growth rates (please refer to Fig. 1). Also, historical evidence suggests that falling rates, by themselves, are neither necessary nor sufficient for market/L&T rerating.

To read report in detail: LARSEN & TOUBRO


>STATE BANK OF INDIA: Change in Asset Quality Outlook

Change in asset quality outlook: SBI management indicated that gross and net new NPL formation during F1Q13 could be at ~Rs50bn and ~Rs30bn, respectively. This is higher than the outlook of Rs40-45bn quarterly slippages run-rate and Rs60bn of net new NPL creation in FY13, mentioned during our summit held in early June 2012. (See India Summit 2012: Day 1: A Confluence of Macro and Micro dated June 6, 2012). Management indicated that F1Q13 credit costs could be around 120bps. Restructuring during the quarter could be in the range of Rs20-25bn.

No change in outlook on NIMs, loan growth for F2013: Management expects margin to remain flat QoQ in F1Q13 and decline by 10-15bps to 3.7-3.75% in FY13. On loan growth, it continues to expect ~15% in F2013, similar to last year levels.

Our view: We continue to believe that asset quality pressures will intensify in F2013. However, since we are in a corporate NPL cycle, the flow of bad loans will be lumpy. In our view, the key now is duration of slowdown. Our economist, Chetan Ahya, projects that Indian GDP growth could be ~6% for the next four quarters – implying six quarters of ~6% growth (including the last two quarters). As the slowdown becomes entrenched we are likely to see continued impairments. We maintain our Underweight rating on SBI. Our current forecasts assume credit costs of 112bps (PAT sensitivity of -5% to 10bps increase in credit costs) and margin decline of ~30bps (PAT sensitivity of +7% to 10bps increase in margins) for the parent in FY13. Given this, our PAT estimate for SBI’s parent is 17% lower than Bloomberg consensus. SBI is currently trading at a 1.2x P/BV and 9.1x P/E for FY2013e. Our current price target of Rs1,425 implies 33% downside to the current market price.

To read report in detail: SBI


>APOLLO TYRES: Expansion to aid growth

Fall in rubber prices will result in margin improvement for tyre companies: Amidst all the gloom and doom in the auto industry, tyre companies have something to cheer in the form of fall in rubber prices. Despite the falling rupee and sluggish demand, the correction in rubber prices may result in margin improvement for tyre companies in the coming quarters offering much needed margin relief. Domestic prices have come down from Rs.240/ kg to around Rs 185/kg i.e around 23% from its peak.

Expansion to aid growth: Apollo Tyres plans to invest around 400 million euro (over Rs 2,700 crore) to set up two new facilities in East Europe and Brazil in the next 3-4 years as it aims to expand its global footprint. The company already has a tyre manufacturing facility in South Africa in the city of Durban. The company expects production from Durban facility to move from 1,000 tyres to 1,200 tyres per day while, the company is planning increase the tyre production from Ladysmith facility to 13000 tyres from 10,000 tyres per day.

Increasing shift towards Radialization: Indian tyre industry lags far behind other developed countries when it comes to Radialization in Trucks and Bus Segment (T&B). The Indian markets are slowly converging towards radial tyres in CV segment. Tyre Companies are now continuously investing in radial capacity which is likely to improve turnover and margin performance due to change in the sales mix.

To read report in detail: APOLLO TYRES


What’s new – PMO directs MoEF to grant clearance to 12 projects 
As per a news report from Press Trust of India (PTI), post a meeting convened by the Prime Minister’s Office (PMO) with the Environment Ministry (MoEF), Coal India (CIL) and Ministry of Coal (MoC) to review the status of 12 projects of CIL, where production is proposed to be raised by 25%: 

  • The PMO has directed the MoEF to grant clearances to these projects within 3-4 months; progress would be monitored on a monthly basis.
  • The permission to raise production from these projects by 25% would augment output by 10mtpa.
  • However, the MoEF has not relaxed the prerequisite of a public hearing (meeting of all stakeholders, including villagers of the area to be affected) prior to the grant of the environment/forest approval. 

Implication – Signal of intent to expedite clearances is a positive

 Feedback from our interaction with policymakers and CIL over the past three months has consistently indicated a 3QFY12 timeline for MoEF awarding clearances for critical projects of CIL. In this context, PMO’s push to MoEF to expedite the ‘green nod’ for CIL’s expansion projects was imminent, in our view.

 Notwithstanding, the non-exemption from ‘public hearing’ prior to the ‘green nod’ (which arguably leaves the door open for delay in granting clearances) for the 12 projects, we view this signal of intent to expedite clearances is a positive for CIL and, in turn, the power utilities space.

Production / offtake on target; up 6.4% / 6.3% YoY in 1QFY13… In 1QFY13, CIL posted a 6.4% YoY rise in production to 102.5mt (up 6.2mt YoY) and 6.3% YoY rise in offtake to 112.9mt (up 6.7mt YoY), in line with the company’s target. We build in offtake at 460mt (vs. 433mt in FY12 and CIL’s target of 470mt for FY13) and blended realization at Rs1,463/ton (implying a 3.2% rise over the normalized FY12 blended realization of Rs1,418/ton.

…our FY13 forecasts appear fairly achievable; maintain Buy rating On our FY13F normalized earnings (which includes the incidence of the potential 26% profit share via the mining tax), the stock trades at 14.2x P/E, 7.5x EV/EBITDA.