>APOLLO TYRES

• Apollo Tyres is India’s second largest tyre producer with subsidiaries in Europe & South Africa. Improving South African operations and stable demand in Europe would in our view drive volumes for Apollo Tyres and easing rubber prices coupled with a pick-up in the domestic replacement market would help sustaining EBIDTA margins of 10%

• We like the business model of Apollo Tyres having an ROCE of 30% and despite the present subdued demand from domestic OEM’s in the Truck & Bus Radial segment, we believe that the capex cycle has peaked and with the ramp up of its Chennai facility slated for December 2012, the company would be in a position to bring down its gearing from present levels of 0.75x to 0.35x next fiscal by virtue of its robust free cash generation.

• Apollo Tyres by virtue of its timely capacity expansion and brand image is ideally positioned to leverage the potential in export markets. Buy Apollo Tyres trading at 6.5x one-year forward earnings with a price target of Rs115

To read report in detail: APOLLO TYRES
RISH TRADER

>EXIDE INDUSTRIES: Q4 FY12 - In line performance

“On a comeback trail”


Q4 FY12 - In line performance
On the back of strength shown from the 2wheeler segment, Exide was in a position to put up a sequential improvement in numbers. Total income increased by 16% qoq as well as yoy. At the EBITDA levels, there was an increase of 30% qoq and there was a flattish growth yoy. RM to sales moved up slightly sequentially to 67.2% since adverse forex movement offset the slight cut in lead prices. EBITDA margins surged to 14.6%, a growth of 160 bps qoq, as employee costs to sales went down to 5.2% of sales v/s 6% qoq and other expenses surprisingly came down to 12.9% v/s 14.2% sequentially against a difficult Q3. PAT declined 12.9% yoy while rising 37% qoq. The decline came on higher depreciation costs.


Replacement demand may provide the much needed traction in volumes
The volume improvement in the quarter was on the back of strong 2W battery numbers. The volumes grew 26% yoy and 4% qoq to 3.7mn while 4W volumes grew by 6% yoy to 2.38mn a growth of 16% qoq. On the industrial side, volume growth was 15.3% yoy and 20% qoq. On the capacity side, the company is through with 4W capacity expansion at 12mn units, while is still in the process of increasing 2W capacity to 22 mn in FY 13 which was close to 20mn in FY 12 and also the industrial capacity is slated for expansion to 2.5bn from 2.4bn units. The management expects replacement demand to be strong this year and hence expects to grow at 15-18% on the replacement side,higher than the market growth expected. In line with this, they are expecting to gain back their 36% market share in 4W replacement which had gone down to 23%, and currently stands at 30-31%. In Q3 FY12, the company functioned at 82% utilization rate on the 4W side, 73% on 2W side, while 72% on the industrial side. The replacement: OEM ratio in the year on the auto side was 1.14:1 lower than 1.22:1 in FY11. Going forward, we believe that 2W demand on the OEM side will be slightly soft as the sector has seen some slowdown off late, while on the 4W side OEM demand, we believe softness will continue over a couple of quarters with fuel prices moving up, while any further cut in interest rates will spur demand. On the replacement side, we believe that Q1 FY13 will see some turnaround from the demand for automobiles 3 years ago, both on 2W as well as 4W sides.


Margin improvement may come in coming quarters
In Q4, although the industrial margins grew by 380 bps, auto margins declined due to price cuts taken by the management in the 4W replacement side and pricing pressures from OEMs. However, although the company has taken 17% price cuts on car batteries with 5 year warranty, the management said that they have increased the prices on the other batteries in an attempt to realign prices with the industry and push up the demand on replacement side street expectations, the management in fact confirmed that this has led to some savings rather than margin erosion. The improvement seen in margins in this quarter is expected to continue going forward, as replacement demand is expected to pick up. Also softening of lead prices over the last few months is expected to continue. Softening of lead prices as seen in Q3 is expected to continue and help the margins going forward. We have already factored in about 270 bps improvement in margins in FY 13 to 16.1% over
13.4% in FY 12.


Outlook and valuation
We believe FY 13 will be a better year for Exide with replacement demand expected to pick up and OEM demand to improve in second half of the year following festive season, new launches and expected interest rate cuts. Margin improvement is also on the cards with lowering input costs and improving product mix. However, competition may lead to some margin weakness following any further price cuts in the replacement market. In line with positive expectation from the company going forward, we have slightly increased our FY 13E EPS from Rs 7.5 to Rs7.9 and have introduced FY 14E estimates.We have increased Exide's standalone business value at Rs123 (15.5x times FY 13E EPS of Rs 7.9) and insurance business at Rs13 taking the total TP to Rs136, thus upgrading the stock from Underperformer to Outperformer.


To read report in detail: EXIDE INDUSTRIES
RISH TRADER

>TVS MOTOR COMPANY LIMITED: Competition to hurt across the segments, new launches may help a little

■ Volumes fail again
A continuous muted volume performance by TVS over the past few months has backed our negative view on the stock to a higher extent. In the month of October, the company had guided to sell more than 2 lakh units per month after a stellar performance in September (2.19 lakh). However, in October TVS sold just 1.83 lakh units, which since then have been dipping consistently. In February, the company posted a sales decline of 3% yoy and 1% qoq at 172,061 units. In view of slowdown in the 2W segment and cut throat competition, TVS is consistently losing ground and has slipped from its third largest player status in India to fourth place as Honda has been overtaking TVS since last 3months. The gap between TVS and Honda’s 2W volumes has also been widening as this gap which was of ~18,000 units in January has more than doubled to ~37,000 units in February. We have cut our volume estimates for TVS and now expect them to grow at 7% in FY 12E v/s YTD growth of 8.5% and 5.5% in FY 13E.


■ Competition to hurt across the segments, new launches may help a little
Scooters - Devoid of any significant launches over the past few quarters, and w0ith an aged product portfolio with gaps in it, TVS lost market share in each of its segments of operation. In the bread and butter scooter segment, the company has been continuously losing market share to its closest rival Honda. Honda’s Activa which has been facing capacity constraints is sorting out these issues as its capacities are continuously ramping up to the north of 100,000 units. With new plant coming at Bangalore, its FY 13 numbers are expected to widely outperform TVS’s sales numbers. New 2-3 launches from Yamaha which were displayed in the auto expo will get launched in FY 13. Also Suzuki Swish 125, Hero Maestro, Vespa’s comeback with a scooter and a refreshed version of Honda Activa will provide tough competition to TVS’ new scooter planned to be launched by the end of CY 2012. The hybrid scooter Qube which was showcased during the auto expo will be launched in CY 13 along with Hero’s hybrid scooter
Leap which will again face the heat.


Motorcycles- In the motorcycle segment, two new launches from Hero (Ignitor 125 cc and Passion X Pro 110cc) will crowd the executive segment along with Honda’s Dream Yuga (110 cc) and Bajaj’s upcoming launch in this segment, w0hich will make TVS difficult to reproduce Victor’s magic when it will get relaunched by the end of CY 12. The Radeon 150 cc bike from TVS pitted to get launched in mid 2012 against the likes of Hero, Bajaj and Honda’s premium bikes is not expected to bring anything strikingly different from its competition to the table. Market share losses in this segment are expected to get rapid once the competitive launches start gaining momentum.


3Wheelers- On the 3W side, the company has seen demand reducing for its much hyped 3W King as its sales have gone down from levels of +4500 to sub 3000 levels. Even the strategy of 3W production getting ramped up from 6000 to 8000 shortly will not help the company as demand itself is weakening for TVS 3 wheelers. This will in fact add to the pressure on operating leverage thus hurting margins which are struggling to touch 8% at the EBITDA level. Opening of government permits in various states is pending since a long time but there is no clarity on the same.


Exports – Exports of the company are also shrinking thick and fast (10.4% of volumes in Feb v/s 13.5% yoy), as it can be seen that since August 2011, the exports have fallen by 40% from ~30,000 to 17,960 units. This signifies that competition from the market leaders like Honda, Yamaha and Bajaj in markets like Africa, South Asia, Latam and South East Asia, where TVS has its presence are exerting pressure on TVS. Indonesia, where the company has its subsidiary is also bleeding in losses and is struggling to touch the breakeven 60,000 units target.


■ Margin performance not expected to see a traction
In line with the lack of operating leverage on the 3W side and slowing demand, we believe the margins which have been always below 8% may not cross this figure although some softening of raw material may slightly help the cause. Volume weakening on 2W side in the wake of competition also may lead to margins getting weakened. Although the company has a 100% market share in moped segment (40% of total volumes), is a drag on the margins as moped is a low realization business. Higher ad spend stemming from prevention of market share decline may also hurt the margin performance. We further cut our margin estimates for TVS’s standalone business from 7.6%/7.8% to 7.4/7.5% in FY 12E/13E respectively as we see an insignificant improvement in pipeline.


■ Outlook and valuation
Given the weakening operational performance and challenging competitive environment, we are continuing our negative view on the stock. We have cut our earnings estimates in the wake of the expectations of domestic as well as exports underperformance and faltering performance in Indonesia, which we believe may not breakeven even in FY 14 given the competition from Honda, Yamaha and Bajaj Auto and significantly low scale of operations of TVS. Hence, we are cutting our target price from Rs 55 to Rs 50, valued at 10x times (30% discount to Hero) FY 13E consol EPS of Rs 5.02 and maintain out Underperformer rating on the stock.
RISH TRADER

>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.
RISH TRADER

>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.

RISH TRADER

>PETRONET LNG: Interest expense falls due to debt prepayment

Petronet LNG’s Q3 FY12 results beat our expectations due to all-time high capacity utilization of 114% (our estimate: 105%) and was reinforced by marketing margin (implied) of ~Rs 58/mmBtu (our estimate: Rs 28/mmBtu).


Capacity utilization at 114%, 8% above estimate
The company continues to utilize its Dahej terminal to the maximum with sales of 144.9 tbtu, 8.3% ahead of our expectation of 133.9 tbtu. Thus, capacity utilization stood at 114% during Q3 FY12, as against 106% in Q2 FY12. We raise our FY12 capacity utilization estimate to 109% driven by the persistent demand-supply gap of natural gas in India.


Implied Q3 FY12 marketing margin at Rs 58/mmBtu
Strong demand for natural gas has enabled Petronet to earn marketing margin of Rs 58.2/mmBtu on spot cargoes, which was much above our expectation of Rs 27.8/mmBtu. Notably, such a high margin was earned on spot LNG which was priced around $ 14-16/mmBtu during Q3 FY12. We expect the company to continue to earn healthy marketing margins in the near term.


Revenue at Rs 63,303 mn, up 75% y-o-y
Total revenue came in at Rs 63,302.6 mn, 17% ahead of our estimates led by higher capacity utilization and high marketing margins. Sales increased 74.5% yo-y on account of sales volumes increasing by 21.1% & blended regas margins higher by 39%. The q-o-q jump of 18% in revenue reflects higher marketing margin of Rs 58.2/mmBtu earned during Q3 FY12, compared to Rs 37.1/mmBtu in Q2 FY12.


EBITDA at Rs 5,572 mn, up 61.2% y-o-y
Q3 FY12 EBITDA stood at Rs 5,572.5 mn, 24.5% ahead of our expectation, driven by higher than expected marketing margin. OPM stood at 8.8%, higher than our estimate of 8.3%, but lower than Q2 FY12 OPM of 9.3%.


Interest expense falls due to debt prepayment
While depreciation was flat y-o-y & q-o-q at Rs 462.9 mn, interest expense was Rs 344.7 mn which was 24.8% lower q-o-q due to prepayment of debt of Rs 5,000 mn. The steep depreciation of the rupee has necessitated (as per accounting rules) entry of a notional forex loss of Rs 540 mn on the books.


PAT of Rs 2,954 mn, 17% ahead of estimates
Consequently, Q3 FY12 PAT stood at Rs 2,953.9 mn, up 72.9% y-o-y & 13.5% q-oq. EPS for the quarter was Rs 3.9 compared to Rs 3.5 in Q2 FY12.


To read the full report: PETRONET LNG
RISH TRADER

>CAIRN INDIA: Started production from Bhagyam field; EOR pilot in the Mangala field, consisting of four injectors, one producer and three observation wells; & uPDATE ON Ravva & Cambay

Q3 FY12 provided a glimpse of normalized revenues & profits after royalty was made cost recoverable; with reported net profit of Rs 22.6 bn in line with our estimate of Rs 22 bn.


■ Topline adjustments at $ 237 mn in Q3 FY12
The topline for Q3 FY12 was reduced by $ 237 mn on account of royalty being made cost recoverable and profit sharing with the Govt. of India on production from the Rajasthan block. Adjustment towards royalty for the quarter stood at Rs6,285 mn, 2% lower than our expectation of Rs 6,435 mn. Profit petroleum shared with the Govt. was Rs 5,727 mn, which has been calculated as 20% of profit petroleum for the quarter.


■ Topline at Rs 31 bn
In spite of blended realization jumping by 33% y-o-y from $ 76/boe in Q3 FY11 to $ 100.3/boe in Q3 FY12, revenue is flat y-o-y owing to royalty being made cost recoverable. The q-o-q rise of 17% in the topline is due to inclusion of one-off impact of royalty adjustment in Q2 FY12, inspite of stagnant production and marginally lower realization q-o-q.


■ Mangala production @ 125 kbpd, Bhagyam starts producing
Mangala production for the quarter stood at 124.9 kbpd whereas the Saraswati field is producing at its peak level of 0.25 kbpd. Production from Bhagyam field has started on Jan 19, 2012 and the management has guided for ramp up of output to the approved peak level of 40 kbpd by Mar 2012. The company has retained its guidance for FY12 exit production rate of 175 kbpd.


■ Other income boosted by forex gain of Rs 3 bn
The company reported a forex gain of Rs 3 bn in Q3 FY12 due to the swift depreciation of the rupee against the US dollar. DD&A expense during the quarter stood at $ 8/bbl, which is in line with management guidance. Tax rate came in at 5% during Q3 FY12, as against 9.2% in Q3 FY11. The management has
maintained its tax rate guidance at ~10%.


■ Net profit in line with estimates
Net profit for Q3 FY12 at Rs 22.6 bn was 2.8% higher than our estimate of Rs 22 bn. EPS for the quarter was Rs 11.9, 196% higher q-o-q & 12% y-o-y.


PERFORMANCE HIGHLIGHTS


■ Bhagyam to touch 40 kbpd by Mar 2012
Cairn India has started production from Bhagyam field on Jan 19, subsequent to receipt of Govt. approval for the same. Further work on the development of the Bhagyam field is ongoing. A total of 62 development wells have been drilled. Well results from the Bhagyam development drilling have been as per expectations. The reservoir and facilities will require some time for gradual and safe ramp up to reach the currently approved plateau of 40 kbpd. The company expects to receive approval soon for increasing output from Mangala to 150 kbpd. 148 development wells have been drilled in Mangala, of which 85 are currently producing and 30 injector wells are injecting water into the reservoirs. The company has retained its guidance of FY12 production exit rate of 175 kbpd.


■ Expansion of MPT facilities underway
The company is expanding its production facilities at the MPT to achieve processing capacity beyond the current level of 175 kbpd by end-2012. The current facility can handle higher volumes in line with the basin potential through incremental investments and augmentation of facilities, subject to JV & GoI approval. Further investments have been planned to augment processing capacity and pipeline infrastructure to deliver the envisaged basin potential. The management has guided for flat production of 175 kbpd (+/- 5-8%) for CY12.


■ Update on other exploratory activities
Mangala EOR: The first phase of the EOR pilot in the Mangala field, consisting of four injectors, one producer and three observation wells have been drilled, completed and hooked up to the facilities. After completion of baseline water flood for more than six months, polymer injection started in Aug 2011. Preparation for the commencement of the ASP phase is currently underway. The results to date are encouraging and based on these results, FDP for a full field application of polymer flood in the Mangala field is under preparation and is expected to be submitted by H1 CY12. This will be the start of the process for monetizing the full EOR potential of the block.


■ Ravva & Cambay: Recent infill drilling and workover campaigns have helped slow down the rate of production decline from the Ravva field. A 4D seismic survey was carried out previously to help identify bypassed oil zones in the reservoir along with prospects in the deeper zones. Interpretation of the seismic data is currently in progress. The spare gas processing capacity of the CB/OS-2 facilities is planned to be utilized by tolling and processing ONGC’s gas from its North Tapti field (adjacent to the Cambay field). ONGC has completed the North Tapti pipeline tie-in with the CB/OS-2 facilities. An infill drilling campaign is planned in the Cambay field to sustain production.


■ SL 2007-01-001: Cairn Lanka has successfully completed the first phase of the exploration campaign in Sri Lanka Block SL-2007- 01-001. The exploration programme involved the acquisition, processing and interpretation of 1,753 sq km of 3D seismic data and the drilling of three well deep water wells. This resulted in two successive gas and condensate discoveries: the CLPL-Dorado- 91H/1z well and, the CLPL-Barracuda-1G/1 well. The third well, CLPL-Dorado North 1- 82K/1 was plugged and abandoned as a dry hole on Dec 14, 2011. Following this success, Cairn Lanka has notified the government of Sri Lanka of its
intention to enter the second phase of exploration


Other blocks: In the KG-ONN-2003/1 block, an exploration well, Nagayalanka SE-1, is being drilled to test and appraise the Nagayalanka Discovery. Cairn India has decided to sell off its stake in the KG-DWN-98/2 block to its JV partner ONGC and focus on other areas of strategic interest elsewhere in its portfolio. 3D seismic data processing and interpretation has been completed in the KK-DWN-2004/1 block.


Outlook
The receipt of approval for production start from Bhagyam marks a return to constructive engagement between Cairn India, ONGC and the Govt. on the issues of ramping up production and realizing the full potential of the Barmer basin. We expect long pending approvals for higher peak production levels from the MBA fields to be given in a timely manner going ahead. We expect output from Rajasthan to reach the targeted level of 175 kbpd by end-FY12 and stay at these levels till end-2012. We expect production of 210 kbpd from the MBA fields from Jan 2013 onwards.


Valuation
As production from Rajasthan improves going forward, so would the profit sharing with the Govt., resulting in a higher portion of the operating cash flow being unavailable for the company. As the block is expected to produce at its peak level from FY14E-21E, revenues would be stagnant whereas profit shared with the Govt. would keep on increasing resulting in a lower topline y-o-y from FY14E onwards. On the other hand, operating costs would go up as opex/bbl for crude produced from EOR reserves is expected to be around $ 7/bbl as against $ 2.5/bbl currently. Hence, we expect the company to report its peak earnings in FY13E, and report lower earnings y-o-y going forward resulting in a series of lower cash flows going forward.


With the stock rallying over the previous 3 months, our previous price target of Rs 334 has been achieved. We introduce our FY14 estimates and roll forward our price target from Mar 2012 to Mar 2013. As a consequence of falling cash flows from FY14E onwards, our price target drops to Rs 318 and we rate the stock as UNDERPERFORMER.


To read the full report: 
RISH TRADER

>EXIDE INDUSTRIES LIMITED: “Positive developments factored in”

Q3 FY12 - Sequential improvement
On the back of strength shown from 2 wheeler segment, Exide was in a position to put up a sequential improvement in numbers. Total income increased by 6% qoq, while 19% yoy. At the EBITDA levels, there was an increase of 84% qoq and a 3% yoy. RM to sales came down significantly to 67.4% v/s 72.3% qoq while it was still up from 62.7% yoy. The reason for sequential dip was the exhaustion of high cost lead which impacted Q2 margins. EBITDA margins came in at 13.2% v/s 7.6% qoq and 15.2% yoy.PAT almost doubled to Rs1.04 mn on strong operational performance. 


2W volumes strong, 4W subdued, industrial post a growth
The volume improvement in the quarter was on the back of strong 2W battery sales. The auto battery volumes grew 19% yoy and 3% qoq to 3.55mn while 4W volumes declined by 21% yoy, while grew by 6% qoq. On the industrial side, volume growth was 13% yoy and 3% qoq on harsh October summer and demand from telecom industry increasing. On the capacity side, the company is through with 4W capacity expansion at 12mn units, while is still in the process of increasing 2W capacity which is slated to move up to 21mn. The management is confident about 2W demand getting back on track quickly, while has pessimistic outlook on 4W demand. In Q3FY12, the company functioned at 82% utilization rate on the auto side while 81% on the industrial side, which was a sequential improvement of 72% and 62% respectively. The replacement: OEM ratio on the auto side was 1.24:1 which was an improvement qoq. Going forward, we believe that 2W demand on the OEM side will be slightly soft as the sector has seen some slowdown off late, while on the 4W side OEM demand, we believe softness will continue over a couple of quarters. On the replacement side, we believe that Q1 FY13 will see some turnaround emanating from the demand for automobiles 3 years ago, both on 2W as well as 4W.


Margin improvement may come in coming quarters
The improvement in margin performance was in line with our expectations as high cost lead was expected to get over this quarter. The composition of replacement in the total volumes also improved and is expected to improve even more from FY 13. This will assist margin performance.Softening of lead prices as seen in Q3 is expected to continue and help the margins going forward. We have already factored in about 400 bps improvement in margins in FY 13 to 15.7%.


Industrial segment to remain subdued
Going forward with improving power conditions,we see the demand for inverters going down from current levels in the long term. In Q3, inverter sales were up due to strong summer in October, while stronger winter in most parts of the country would be reducing the sales of inverters in Q4. We expect the contribution of inverter sales to reduce in the total topline from FY 13, though the company is planning to enter the inverter business. On the telecom side of the industrial batteries, winning of contract by rival Amara Raja for supplying batteries to Bharti’s Africa business may take some market share from Exide.


To read the full report: EXIDE INDUSTRIES
RISH TRADER

>HERO MOTO CORP: “Margins weak, maintain Neutral”

Volume expansion and price hikes leads to strong revenue growth
Hero MotoCorp has reported 11% yoy volume growth in Q3 FY12 and had taken a price hike of ~Rs700-1000 per vehicle in October resulting into 17% yoy and 4% qoq growth to Rs60.3 bn. The company has been consistently putting up a strong show by selling ~5.3-5.4 lakh units per month and has won ~2% market share in the quarter. Going forward, with domestic motorcycle industry showing signs of weakening, we expect Hero to feel the heat in the wake of strong competition from Honda, which is aggressively expanding its capacities. With three new launches expected this year from Hero in the form of 110cc Passion XPro, Ignitor 125cc and a scooter Maestro, and the recent launch of Impulse, we slightly increase our FY12E/FY13E volume expectations at 15%/10% respectively from 14%/9%. We do not see a significant scope for realizations to grow in wake of competition as market share retention will be the main aim.


Margins below our expectations as staff cost rise & rupee depreciates 
In spite of commodity prices going down, Hero was unable to fetch the benefits of the same in this quarter, as rupee has depreciated significantly vis-à-vis Japanese yen. Since Hero imports ~17% of RM from Japan, this impact was felt a bit too much. Also, employee costs increased 11% qoq, due to wage hike taken in August getting reflected in this quarter. Excluding royalty, margins came in at 15.6%. However, we consider royalty in other expenses, due to which our EBITDA margins came in at 11.9% considering royalty outgo of Rs2280 mn which has increased over the previous quarters due to yen appreciation. Margins have come below our expectations. Going forward, we expect HMCL to post improving margins of 12.1%/13.2% in FY12E/13E as commodity prices start showing their impact as rupee has started showing some strength vis-à-vis foreign currencies.


Outlook and valuation
In view of good show in the domestic markets and increasing the market share, we have slightly increased our volume estimates. We believe new launches also will support the domestic growth of Hero. However, rapid expansion of Honda and overall slowdown in the 2wheeler market will arrest a strong growth in market share, due to which we believe the volumes will not grow above 10% in FY13E. On margin front, we are maintaining our margin estimates as we believe FY 13 will show margin improvement of up to 100bps as raw material prices are slowing down, but at the same time, low price new launches will lead to an adverse product mix, thus capping realization growth. We value the stock at 14x times FY 13E EPS of Rs142.5, due to its market leadership position and domestic strength. Due to expectations of slightly better domestic volume performance, we are increasing our target price to Rs 1996. At CMP of Rs1945 we see a very limited upside of 3%, due to which we reiterate our Neutral rating on the stock.




RISH TRADER

>INDRAPRASTHA GAS LIMITED: Prices charged for CNG & PNG by IGL include a marketing margin component

Marketing margin to be capped?
Media reports indicate that the central government has entrusted PNGRB with the determination of quantum of marketing margin chargeable on sale of natural gas to end consumers by a marketing entity on the basis of marketing costs incurred by it. Currently, GAIL charges marketing margin of ~$ 0.18/mmbtu on PMT, ~$ 0.12/ mmbtu on APM gas and ~$ 0.7/mmbtu on non-APM gas and LNG. RIL charges $ 0.135/mmbtu for KG D6 gas. Petronet LNG charges ~$ 0.4/mmbtu as marketing margin for spot LNG cargoes. Prices charged for CNG & PNG by IGL also include a marketing margin component.


Scope of regulations limited to domestic gas
The primary target for capping marketing margins would be domestic gas producers & marketers since customers for domestic gas are earmarked & allocated by the Govt. Thus, there are no marketing costs incurred in the process. However, it is not clear whether the current set of rules & regulations are applicable on CGD & LNG terminals. Importing spot LNG from the global market requires an ability to source competitively priced LNG. Also, the company makes its own efforts for identifying customers and signing offtake agreements with the same, which involves considerable resources. CGD companies have to make investments in pipelines, CNG stations, spur lines to ensure last mile connectivity to reach out to new areas and add more customers. Hence, we believe that LNG terminals & CGD companies would not be treated similar to passive sellers of domestic gas.


Implementation to take time
The PNGRB is yet to be fully constituted only after which it can pursue long pending issues related to authorization of transmission networks, transmission tariffs (GSPL), CGD rollout; besides the latest issue of linking marketing margins to marketing costs. PNGRB would also likely invite the various companies to present their case and evaluate the same. Meanwhile, it would also obtain opinions from other Govt. agencies on the scope and ambit of the current regulatory structure. Ultimately, the whole process would take a lot of time.




IGL looks attractive
We had initiated coverage on IGL in Oct 2011 with a contra-consensus SELL call, citing risks to continuance of the past rosy growth & margin scenario. Subsequently, the stock has corrected from Rs 426 at the time of our initiation to Rs 327 currently. Prior to the news flow regarding clamping down on marketing margins, the stock had fallen due to margin pressure resulting from increased dependence on spot LNG and steep rupee depreciation. Price hikes by the company have proved to be insufficient to protect margins. Accordingly, we have revised our estimates downward with FY12E & FY13E EPS going from Rs 25.2 & Rs 27.8 to Rs 19.8 & Rs 22.4 respectively. At the current market price, the stock looks attractively valued @ FY13E P/E of 14.6x and we upgrade our recommendation to a trading BUY at current levels and on dips with a target price of Rs 366.


RISH TRADER

>CHEVIOT COMPANY LIMITED: Industry of Jute & Jute Products

“Value Play on Jute ”


Investment Rationale
■ Cheviot has been around for a number of years now and contrary to market apprehensions about the Jute business, the Kolkata based company has in fact shown a credible performance over the years.


■ Cheviot in our view can easily maintain a 50:50 sales mix between domestic and export business and has the flexibility to shift products between the two depending on the demand situation.


■ Our belief that the government shall not implement any measures to jeopardise the labour intensive jute industry in Eastern India stands vindicated by the fact that market fears on Jute being a dying product seem unfounded since Jute continues to be an eco friendly product compared to plastic or polyethylene having demand for specific applications.


■ This debt free company with a book value of `600 is valued at cash and we believe that given the fact that there is no major capital expenditure needed going forward we expect a minimum 25% dividend payout going forward and this would imply a dividend yield of 6%. Cheviot in our view deserves to trade at 0.75 times book and we recommend a BUY with a one year price target of `450.


■ FY"11 was exceptionally good for Cheviot and the company posted an EPS of `63 and even enjoyed pricing power with good demand locally for sacking products as well as robust export demand. While this is not sustainable during the current fiscal, we believe that with the market valuing Cheviot at cash, there is ample upside potential once the management spells out a dividend policy for returning surplus cash to its stakeholders.


Valuation
Cheviot which operates in a highly labour intensive industry like Jute has been able to hold its fort well over the last many years and the stock trading at 0.4x book has cash and cash equivalent of over Rs1bn which is `220 per share even at current market levels. Further, the company has successfully introduced value-added jute products in its portfolio which enabled them to compete in a very competitive market scenario.


The debt free Cheviot trading at 4x earnings and 0.4x book is valued at cash and we recommend a BUY with a one year price target of `450.


To read the full report: CHEVIOT COMPANY
RISH TRADER

>SWITCH STRATEGY: Gujarat State Petronet Limited to Petronet LNG

■ Indian market starved of natural gas
The Indian market has always suffered from a chronic shortage of natural gas supplies. While a study by Mercados shows that natural gas demand is expected to grow at CAGR of 21% from 179 mmscmd in FY11 to 381 mmscmd in FY15, DGH estimates that supply will grow at CAGR of only 8.6% from 146 mmscmd in FY11 to 203 mmscmd in FY15. This is due to limited domestic gas supplies, gas pricing & customer allocation being the prerogative of the Govt. and inadequate transmission infrastructure in the country. The producing fields of ONGC and OIL are highly mature and positive production surprises are not expected in the near term. KG D6, which was expected to ramp up to 80 mmscmd, is languishing at ~40 mmscmd currently.


■ Transmission volumes to suffer consequently – GSPL remains vulnerable
The KG D6 block, from which 58% of GSPL’s transmission volume was sourced in FY11, is in natural decline with the latest production figure at 39.8 mmscmd, compared to 46.6 mmscmd & 55.9 mmscmd in H1 FY12 & FY11 respectively. With the KG D6 block stuck in a political quagmire, output is set to decline further resulting in lower D6 volumes for GSPL. As PLNG’s Dahej terminal is already operating above its rated capacity, further upside to LNG volumes appears less likely.


■ Reduction of transmission tariff looms large
Along with falling volumes, the spectre of tariff cut also is looming large. GSPL charged transmission tariff of Rs 0.79/scm & Rs 0.82/ scm in FY11 & H1 FY12 respectively and correspondingly generated ROCE of 26% & 28%. This is much higher than the normative ROCE of 18% allowed by the regulator. Hence, we expect the tariff to be revised downward to Rs 0.75/scm from FY13 onwards.


■ Imported LNG the only bright spot – PLNG best positioned
Significant shortfall in domestic gas supply, active sourcing of LNG contracts and first mover advantage combine to position Petronet LNG as an attractive investment opportunity. It enjoys the first mover advantage with its 10 MMTPA LNG terminal at Dahej. The company is taking advantage of the favorable economics of this industry by doubling its capacity to 20 MMTPA by end-FY15. In light of limited supplies of cheap domestic gas being earmarked for the priority sector’s growing needs, we expect companies operating in the steel, refinery/petchem, sponge iron etc. to increasingly turn to R-LNG. Moreover, R-LNG is environment-friendly and cheaper than its competing fuels, namely, naphtha, diesel and fuel oil.


■ Valuation
We rate GSPL as UNDERPERFORMER and assign a target price of Rs 77 (1 yr fwd P/E: 10x) which translates into downside of 12%. We reiterate BUY on Petronet LNG and assign a target price of Rs 204 which translates into upside of 28%.


To read the full report: SWITCH STRATEGY
RISH TRADER

>ALEMBIC PHARMACEUTICALS LIMITED: “Erstwhile Alembic is now a pure pharma play”

Investment Rationale

■ The recent demerger of the erstwhile Alembic into Alembic and Alembic Pharma has positioned the latter as a pure pharma play, helping it to focus on its growth momentum and we believe that this `12bn enterprise trading at 4.8xFY'13E earnings offers good value in the pharma space.

■ The `7bn domestic formulation franchise is today no longer just driven by its leadership in the Macrolide segment of antibiotics but by life style segments growing at rates faster than the category growth.

■ Domestic branded portfolio enjoys good brand equity with prescribers and its three macrolide brands figure among the Top100 brands with even its brands like Zeet and Wikoryl from the mature cough and cold segment figuring among the Top300 brands.

■ APL’s `2bn formulation exports to regulated markets, which contributes around 21% to the total revenues is gaining traction with 41 ANDA filings and 56 DMF filings and is expected to make additional contribution to its revenue basket with gradual approval in products.

■ As a part of ongoing restructuring, APL is aggressively ramping up its capacity in order to cater the increasing demand for drugs in the regulated markets. It will invest `1 bn in a new drugs facility, which will not only boost the productive capacity of the pharma major but will also soar up its revenue basket.

■ We expect APL to end this fiscal with revenues of `14.5bn and a net profit of `1.2bn and forecast a 30% growth in profits next fiscal which would be driven by a slightly muted revenue growth of 16% and aided by a lower debt and interest outgo.

Valuation

Alembic Pharmaceuticals is now a pure pharma play with strong foothold in the domestic formulation business and increased focus on regulated markets. The formulation business is expected to escalate at a higher pace and revenues from the US generic market are expected to scale up on the back of product approvals going forward. The company to its credentials has 41 ANDA filings and 56 DMF filings.

APL trades at 6.3xFY'12E and 4.8xFY'13E earnings and we recommend a BUY with a one year price target of `75. Good earnings visibility and reasonable valuations support our investment argument.

To read the full report: ALEMBIC PHARMACEUTICALS

RISH TRADER

>Gruh Finance Ltd.: “Housing-Rural India” (LKP SHARES)

GRUH Finance Ltd. (GFL) is an NBFC providing housing finance to rural and semi urban India. Modeled to complement the business of its sponsor, HDFC, GFL operates in states and regions offering high growth potential. The strong rural presence combined with an improved macroeconomic environment enables asset expansion. Backed by an underleveraged balance sheet and equity support from the promoter, GFL presents a case for higher growth.

■ Pricing power and low competition are its key strengths: Higher operational and credit costs in rural regions have led most aggressive banks and NBFCs to focus on urban and metro regions. GFL has a strong network to service the under penetrated markets and is compensated by high asset yields. Local knowledge and experience on buyer behavior keeps npas low, translating to higher RoEs of 28% (FY10). Although we expect competition to increase over the next few years, GFL will outpace its competitors with higher profitability and lower delinquencies.

■ Firm growth with balance sheet liquidity - 23% loan book CAGR and 24% PAT CAGR over FY10-13. CAR of 16%, strong internal accruals and continued equity support from HDFC provides growth visibility. An underleveraged balance sheet gives comfort to expectations of scalability. As asset book expands through broadening of customer and geographic diversification, pricing power and lower operational costs (C/I ratio of ~20%) translate to greater traction in NII.

■ Valuation at a discount to peers: GFL trades at P/ABV of 2.3x ABV FY12 as against its historical high of 3.3x. Loan book expansion (23% CAGR asset FY010-FY13), higher profitability (RoE of 29% FY12) and proven track record to tide over adverse interest rate cycles reaffirms our belief in GFL. GFL’s business model with ROE >28% and zero net NPA should command a higher multiple and we recommend a BUY with a price target of Rs345 (3x ABV FY12).

To read the full report: GRUH FINANCE

>KOUTONS RETAIL (LKP SHARES)

INVESTMENT RATIONALE
• Koutons Retail is the largest discount retailer of readymade apparels for men, women and children's in India with its own manufacturing facilities in North India. The company has a pan India presence through its network of over 1,400 Exclusive Brand Outlets (EBO's) in five different formats. With the management efforts to reduce inventory levels and with entry into higher margin children and female apparel retailing segments we expect higher traction in its revenues and profits going forward.

• The company has taken several measures to address the concern of high inventory on books, which included the inventories at manufacturing facilities, existing stores and buffer stock for new stores. The measures include key initiatives like outsourcing of production work, reducing SKU's (Stock Keeping Units) at stores and sharing idle capacities with other manufacturers. These initiatives are not only expected to bring down the inventory level on books but also to enhance profitability.

• 60% requirements coming from in-house manufacturing and absence of intermediaries has enabled the company to witness consistent expansion in margins and to report highest gross and EBITDA margin amongst its peers. Though the increase in outsourcing is expected to put pressure on margins, the entry into high margin children and women apparel retailing segments are expected to substantially compensate for this marginal decline.

• The company primarily operates its retail stores through the franchisee network and considering the macroeconomic condition has cautiously planned to expand the total number of stores to 1,670 by the end of FY12E. The company has also planned to convert some of its existing Koutons stores at premium locations to Koutons Family Stores (KFS), having an average store size of 3,000 sq ft., by acquiring more space within the same premise. This will help in increasing the per square feet revenue and in providing more variety to consumers within the same store.


INVESTMENT RISKS
• The company products include a mix of both formal and casual wear targeting the middle and upper middle class of the society. The company has been able to build 'KOUTONS' as a strong brand among the consumer class supported by its discount retailing model and product offerings for all (men, women and children) in the targeted consumer category that ensures consistent footfalls during trying times as well. Recently, it has also forayed into the footwear and accessories retailing, which is expected to auger well for the future growth of the company.

• The company operates ~95% of its stores on the franchisee model under the FOFO (Franchisee Owned Franchisee Operated) or COFO (Company Owned Franchisee Operated) model, which substantially reduces the capex requirements for store opening from the company side. In return the company assures its franchisee the minimum guarantee to cover for its store running costs, including rentals.

To read the full report: KOUTONS RETAIL

>BALRAMPUR CHINI (LKP SHARES)

■ Robust Cash Flow To Help Strengthen Balance Sheet
We are in the up-cycle of the sugar sector with acute shortage of sugarcane and there by acute shortage of sugar. Higher cash flows and negligible capex would help Balchini to improve its balance sheet and strengthen it further.

■ Lower Debt = Lower Interest Cost = Better Profitability
The higher free cash generation by Balchini will enable it to reduce its debt, thereby reducing the interest cost. Lower interest cost would result in better profitability, despite pressures on the operating profitability due to high sugarcane cost.

■ New Power Policy - "Santa's Gift
The new UP govt power policy has two key positives for the co-gen segment. Firstly, UPPCL has increased the power tariff by approximately 30% to around Rs 4 per unit effective from 1st October 2009. The state has also proposed a policy where they will facilitate sale of 10% bagasse based power through open access. This is during the season. UPPCL has further allowed 50% of off-season power through open access, which is from alternate fuel like Coal, etc. The balance 50%, would be bought by the grid at their own discretion for which they will have to fix up a tariff based on coal as feedstock. This would give a boost to the co-gen revenue not only during the up cycle but also during the down cycle mainly due to rising power deficit situation in the state of UP.

■ Moderate Sugar Volumes coupled With Higher Sugar Prices To Boost Revenue & Shoot Up Profitability.
The revenue from the sugar segment has been growing at a CAGR of 36% for the period between FY08-FY10E. The co-gen division has also performed moderately with 10% CAGR for the same period, however distillery division performance has been disappointing. The total revenue has been growing at 32% CAGR for the period between FY08- FY10E. We expect the profit to grow at 117% CAGR between FY08-FY10E on the back of rising sugar prices.

To read the full report: BALRAMPUR CHINI

>FEDERAL BANK (LKP SHARES)

• Low cost deposits and CASA: Federal Bank Ltd. (FBL) always had advantage of garnering NRI deposits and remittances, which constitute to a healthy low cost deposit base of the bank. Together with CASA of ~ 25%, low cost deposits constitute ~ 40% of total deposits of the bank. Low cost deposits base has anchored its NIMs to a significant extent, helping Federal Bank report one of the highest NIMs in the industry @ ~4% for FY09.

• Credit Offtake: FBL witnessed a very healthy loan growth in H1FY10E @ 21% and management is confident of maintaining a robust 25-30% loan growth for the year 2010E, which is more than the average industry standards. Slower credit off take in past quarters as well as infusion of capital has led to contracted growth of the balance sheet and has impacted return ratios. However, credit offtake in the corporate segment as well as retail segments, especially home loans shall remain the focus areas for growth.

• Asset Quality: FBL has reported high slippages in H1FY10E, at Rs.4.5bn out of restructured assets. However, FBL's provision coverage ratio, which has historically been in the range of 80-85% is the highest in the industry. Conservative provisioning of FBL is likely to continue going forward, with FBL maintaining ~ 83% as provision coverage, which gives further cushion on the asset quality and profitability. We believe that the incremental slippages should peak out this year, with FBL likely to see Gross NPAs at ~3% in FY11E.

• Pending acquisition of CSB: The acquisition of Catholic Syrian Bank (CSB), if it happens, will be a complementary fit to FBL's regional leadership strategy. CSB has s strong branch network of 363 branches and 140 ATMs as at March'09. This merger would provide FBL the market leadership in South India, thus raising the entry barriers for other banks in Kerala. Further, FBL would be able to productively utilize its excess capitalization for acquisition of CSB.

To see full report: FEDERAL BANK

>TTK PRESTIGE LIMITED (LKP SHARES)

INVESTMENT RATIONALE

• TTK Prestige Ltd, India's largest manufacturer of kitchen appliances has made a successful transformation from being a reliable consumer brand to an aspirational brand and the Rs4bn company now derives 75% of its revenues from products launched during the past four years. The company employs close to 900 people and has manufacturing facilities in Hosur and Coimbatore with its new unit at Uttarakhand to begin operations by the end of the current fiscal.

• Pressure Cookers now form 53% of its revenues; non-stick cookware and gas stoves account for 25% of its revenues and more than 20% of its revenues come from Kitchen Electrical Appliances like mixer grinders, hobs, electric chimneys and induction cook tops.

• Prestige Smart Kitchen outlets based on the 100% franchise model now has 202 outlets and contributes 18% of its revenues. Its second retail initiative - Prestige Kitchen Boutiques now has 9 outlets offering a wide range of modular kitchens.

• TTK Prestige presently operates at a capacity utilization of 57% and we believe that increased capacity utilization and geographical expansion beyond southern parts of the country would enable the company to grow its top-line at a CAGR of 19% over the next two years.

• Having exited the loss making US business and with a virtual debt-free status this fiscal we expect bottomline to start looking very healthy on the back of free cash generation.

• TTK Prestige is jointly developing its real estate of ~7 acres in Bangalore into a residential cum commercial complex which when completed in FY'12 should fetch Rs1.4bn to the company.

• TTK Prestige being an innovative company constantly developing new products we have factored an ad-spend of more than 8% of revenues in our forecasts.

• We forecast EBIDTA margins to stay well above 11% this fiscal and the next despite the same almost touching 13% during the first quarter of this fiscal.

OUTLOOK & VALUATION

• With the repeated cut in excise duties on branded pressure cookers we believe that TTK Prestige with its clear strategy of providing total kitchen solutions would stay ahead of the curve and maintain its first mover advantage in this growing consumer durable space.

• With an ROCE of 41% and attractive valuations of 6xFY'11E we remain optimistic on the prospects for TTK Prestige and re-iterate our BUY CALL on the stock with an 18 month price target of Rs400.

To see full report: TTK PRESTIGE

>SMART IDEAS (LKP SHARES)

Focus Issue of the Month

Focus Issue of the Month - Union Budget - 2009-10 - Analysis & Impact

Company Reports

Areva T&D India Ltd
While we are positive on its capacity expansion in high-rating power equipments and robust order intake, its high debt and higher contribution from low margin project business will lead to subdued growth in profits for the next two years. At 33xCY'09E earnings, Areva is fairly valued and we remain Neutral on the stock.

IDBI Bank Limited
IDBI Bank has transformed itself from a DFI into a full-service commercial bank. With Resource Mix shifting towards low cost deposits, we will witness NIMs expansion and improvement in CASA. We initiate coverage on IDBI Bank with a Buy recommendation with a target price of Rs.155, a return of 40% for a time frame of 12-18 months.

Impact Analysis of open offer for Great Offshore Ltd
We are likely to see a price war in the form of counter offers for the stake in Great Offshore Ltd. Bharati Shipyard Ltd has re - revised its bid for GOFS to Rs.405/ share as per SEBI rules. ABG Shipyard is also mulling over its options for the counter offer it has put across. Our estimates suggest that this acquisition will be more beneficial to BSL in all respects, financially, strategically as well as good synergies.

To see full report: SMART IDEAS

>Smart Ideas (LKP SHARES)

MAY 2009

Focus Issue of the Month
We have analysed the composition of India's GDP and attempted to present the opportunities in each of the components in the wake of the ongoing slowdown in the focus issue for this month.

Company Reports

BATRONICS INDIA
Integrated business model with robust order booking, which in our view should grow, going forward as revenues from government contracts start kicking in and the company would strengthen its market leadership. BIL growing at 75% and trading at 5xFY09E is an attractive investment bet.

CONTAINER CORPORATION
With a dominant position in the railway haulage business we expect Concor to benefit from the growth in the logistics space driven by port capacity additions.

DABUR INDIA
We expect the domestic rural demand to partly offset the lower growth in overseas business going forward given its large share in the ruralmarket and niche positioning.

FAG Bearings
Most profitable and de-risked bearing company trading at 4.5xCY'10E earnings is well placed to capitalize on an upturn in demand from its well diversified user industries.

MRF
The market leader in tyres should be done with the higher raw material inventory this fiscal and in our view the first half has seen the worst at MRF.

MIC Electronics
The pioneer in LED having seen the worst of the global credit crunch on its overseas business is beefing up its product offerings for the emerging opportunities in India.

SKF India
Investment phase in a highly challenging business environment would in our view enable the market leader to reap the benefits from next fiscal onwards.

GUJARAT GAS
Although gas supply and tariff structure regulations remain a concern, we believe that newer sources of gas supply would add to the top-line and we remain optimistic.


To see full report: SMART IDEAS