>DEN NETWORKS: Q1FY13 results

Den Networks’ (Den) reported Q1FY13 results were in-line with estimates. Below are key takeaways of the results and our interaction with the management.

Revenue isn’t comparable with prior reporting due to accounting policy change: Den’s Q1FY13 total revenue stood at Rs 1.95bn. This isn’t comparable with prior reported revenues, as the company has now started reporting MediaPro revenue on a net basis (Gross revenues less cost of distribution rights paid to broadcasters). Earlier Media-Pro income was reported on a gross basis and content cost was included in operating expenditure. This move will however have no impact on EBITDA and profitability.

Cable income and EBITDA driven by STB sales: Den’s Cable business revenue stood at Rs 1.9bn, up 1% QoQ and 21% YoY. The company seeded 0.29mn Set Top Boxes (STBs), earning Rs 180mn of activation revenue. This led to overall business EBITDA margin improving to 19.8%, from 10.5% in Q4FY12 and 6.8% in Q1FY12.

STB seeding sluggish, but Den believes that phase I deadline will be met: Den has seeded ~70,000 STB’s in July 2012. Management acknowledged a slight dip in rate of seeding since the announced delay, but maintains that digitization will happen on time as the government is serious about digitization and is regularly monitoring stakeholders (demanding status reports during weekly and ad-hoc task force meetings). We highlight that Den has digitized ~0.7mn of its 2mn phase I subscribers, and now needs to seed 0.4mn subscribers/month to meet the deadline.

Digitisation progress on-track, maintain BUY: Considering the pack and STB rate increases by DTH peers, we upgrade our estimates for Den, factoring in ARPU increases and STB subsidy reduction going forward. Our DCF implied target price of Rs 150 implies an upside of 23% over the current price. Maintain BUY.

To read report in detail: DEN NETWORKS

>Companies doing Buy-Back – Offers value to investors

Corporate that generates profit usually deploy it in two forms one in the form of dividends to reward the shareholders, the remainder portion is redeployed in the business for future growth. Theory suggests that if the management is able to generate higher returns by deploying the profits so generated in business, then they should conserve cash for investing. However if the business is not able to generate better returns, the profit generated should be paid out to the investors as dividend.

Another form of rewarding the shareholder is through share BuyBack as an alternative to the dividend payout which is more efficient and better alternaive to dividends.The advantage is that buy-backs give a boost to share price and give shareholders capital gains rather than income. The management of the company may also resort to share Buyback when they feel that the stock is under valued and the surplus cash can be utilised to enhance the shareholder value for the existing shareholders, as sharebuy back is also one way of improving earnings per share. It is an indirect way of increasing the promoter holding in the company and reducing the floating stock.

To read report in detail: BUY BACK OFFERS

RISH TRADER

>PGCIL orders : Chinese back with a vengeance in transformers

» PGCIL orders see a sharp pick-up in Feb, 2012 post a lull in January; Feb orders at Rs34bn (+106% YoY) and YTD orders at Rs154bn (+87% YoY). Transformer orders see the sharpest jump YTD with orders up 350% YoY and substation orders up 98%; transmission line orders up 61% YoY. We expect the traction in orders to continue into March.


» Competitive intensity remains high across segments; Chinese transformer players win 45% of the orders YTD and 55% of the 765kv orders while 765kv substation orders seeing increased domestic participation on PQ dilution. Consolidation being witnessed in the transmission line EPC segment


» We maintain our BUY rating on Crompton Greaves and SELL on Siemens India in the T&D space. KEC International is our preferred play in the transmission line EPC space


Orders gain traction in Feb, 2012; up 87% YTD
PGCIL orders in the period Apr-Feb12 at Rs154bn are up 87% YoY. Transformer orders have seen the sharpest jump with orders up 350% YoY to Rs19bn (12% of total orders) lead by higher ordering in the 765kv segment. Substation orders jump 98% YoY to Rs26bn (17% of total orders) while transmission line ordering remained robust up 61% YoY to Rs71bn (46% of total orders). There has been a clear shift towards 765kv voltage level across equipment and transmission line orders. We expect PGCIL orders to pick up further strength in March which historically sees the highest amount of ordering. For FY12, we expect orders to be ~Rs190bn compared to last year’s order flow of INR183bn.


Competitive intensity high – Chinese aggressive in transformers
Within transformers, the Chinese players (TBEA Shenyang and Baoding) took a 45% market share and a 55% share in the 765kv segment; this has been at the expense of the Koreans and Crompton Greaves. TBEA Shenyang (36% share of the 765kv orders) is setting up a factory in Gujarat and appears to be aggressively bidding for new orders. Within substations, entry of domestic players in the 765kv substation segment has lead to a sharp fall in share of the Indian MNC’s (32% YTD vs. 100% share in FY11). Within the transmission line EPC space, signs of a consolidation continue with the top 5 players garnering 70% of the orders (77% in FY11 and 57% in FY10).


Valuation and picks
Our top pick in the sector remains Crompton Greaves and upgrade KEC International to BUY; KEC International is our preferred play on the easing interest rate cycle. We maintain our SELL rating on Siemens India on expensive valuations along with a declining margin profile. Key risks to our ratings include slower than expected interest rate cuts and a sharper than expected rise in raw material prices.
RISH TRADER

>INDIA FMCG SECTOR QUARTER SECOND FY 2012 PREVIEW

We expect the Indian FMCG sector to report strong revenue growth earnings growth for Q2FY12. Although revenue growth for Q2FY12 will be slower than Q1FY12, earnings growth is likely to improve. We believe that HUL's results will be a critical indicator of the demand scenario in India. The following will be the key themes for Q2FY12:

• Revenue growth will see a higher pricing component than volume, but volume growth will continue to remain critical.

• Gross profit growth to pick up and outpace volume growth.

To read full report: INDIAN FMCG SECTOR

>PETRONET LNG: APromising growth story in an emerging market

To read the report: PETRONET LNG

>HIND OIL EXPLORATION (MF GLOBAL)

>BHARAT FORGE LIMITED (MF GLOBAL)

Business fundamentals gaining strength

We met the management to BFL to examine the state of domestic and overseas business, seek clarity on JVs, recently announced fund raising, FCCB redemption and various other issues. While the initial feed remains cautious, we discovered that the challenging business environment has made BFL more determined on their future projects - be it auto ro non aunto. Add to this, one area that in our view hold stupendous potential and hence a major trigger for BFL's growth outlook are the JV's with Alstom, Areva and NTPC - meant for aggressively capitalizing the opportunity the capital goods forging space offers (mainly Power).

• Domestic busniess stablizing, overseas markets still mixed
• Non-auto capacity ramp up in FY11, to enjoy 3-4% better margin.
• Operating margins set to revive strongly
• JV's meant for capitalizing opportunities in Cap. Goods space

To see full report: BHARAT FORGE

>TATA POWER COMPANY LIMITED (MF GLOBAL)

Investment Rationale

■ Rich experience in the power sector is reflected in the business model that Tata Power has developed. The model ensures stable profits, coupled with growth on account of capacity expansion and merchant upsides.

• Adopts a healthy mix of asset types evolving in the sector.
• Integrated vertically and into related business like T&D, coal mining, etc.

■ Robust project pipeline, with a track record of timely project execution, ensures visibility to future earnings.

Risks

• Project execution delays.
• Fuel shortages.
• Change in the regulatory environment.

To see full report: TATA POWER

>ONMOBILE GLOBAL LIMITED (MF GLOBAL)

To see full report: ONMOBILE GLOBAL LTD

>WELSPUN GUJARAT STAHL ROHREN LTD (MF GLOBAL)

ROBUST PERFORMANCE FOR THE QUARTER

Welspun Gujarat's Q1FY10 results have been better than estimates.

• Top line growth of 72.4% YoY
• EBIDTA increased by 74.2% YoY, aided by foreign exchange gains
• Increase in PAT to the tune of 94.3% YoY
• Order Baclog of Rs 68bn
• Valuation & Rating

To see full report: WELSPUN GUJARAT

>PHARMACEUTICALS - GENERICS (MF GLOBAL)

AN INDUSTRY IN TRANSITION

CONTENTS

• INVESTMENT SUMMARY
• VALUATIONS: LARGE-CAP & MID-CAP GENERICS
• OUTLOOK FOR GENERICS
• RISKS

COMPANIES SECTION

• CIPLA
• BIOCON
• DR. REDDY'S LABORATORIES
• RANBAXY LABORATORIES
• SUN PHARMA INDUSTRIES
• LUPIN
• CADILA HEALTHCARE
• GLENMARK PHARMA

To see full report: PHARMACEUTICALS

>BANKING SECTOR (MF GLOBAL)

EXPECTATION BUILDS UP ON REFORMS IN BANKING SPACE

• The strong electoral mandate given to the UPA, would build up high expectation in terms of reforms in the banking space.
• The sentiment would turn positive, with expectation of faster and smoother implementation of reforms now compared to earlier tenure of UPA.
• The financial institution would play a pinotal role in the attempt to revive the economy. We believe that measures like re-capitalization of weak banks would expedite, as these banks need capital to expand. We view this as a positive development for the banking space, especially for the bank requiring re-capitalization, as this would enable them to enter the growth trajectory.
• Further measures like rise in FDI limit in Insurance sector; Relaxation of cap on holding more than 10% in bank by single entity; Permitting equity dilution without reducing the government's ownership below 51% would see positive development.
• We remain positive on banks like SBI, UBI & BOB. We also believe that the bank have a capital contraint showed do well given the possibility of re-capitalization exercise gaining momentum.

To see full report: BANKING SECTOR

>HT MEDIA (MFGLOBAL)

Warmed Up: Yet to Catch Fever 104

We remain positive on HT Media even as the stock has risen 51% since our upgrade on 29 March 2009. While continued strength in readership for Hindustan Times, Hindustan, and Mint provides support to our estimates, a surge in radio ratings is a positive surprise. Concerns on private treaties (advertising for equity deals) expressed recently in media (largely in the context of BCCL), are a potential short-term negative.

All of a sudden, Fever 104 rocks!: In Radio Audience Measurement (RAM) ratings for Week 17, Fever 104 has emerged as the #1 channel of Mumbai, and #2 channel in Delhi and Bangalore (see appendix for details). Healthy ratings of Fever 104 could raise earnings, and also offer opportunities to promote its own products and provide a wider variety of solutions to media buyers.

Fever 104 broke even in 4Q09: Fever 104 reportedly broke even in 4QFY09, even before the radio stations saw a ramp up in ratings. S. Keerthivasan, CEO, HT Music and Entertainment Ltd has said “...We are poised to become the most profitable radio operation in the country in times to come.”* Our estimates incorporate a minor loss for HT Media radio operations in FY10 (~Rs 250mn loss
for FY09).

IRS 2009 R1 results—HT Delhi continues to lead on AIR: IRS 09 R1 results indicate that the newspapers of the company continue to perform, although growth has slowed. Mint and Hindustan have shown continued growth, while Hindustan Times continues to be #1 in Delhi and NCR on Average Issue Readership (AIR). HT Mumbai readership grew ~4% over the previous survey.

Mint readership trends positive, to grow in visibility: HT Media’s business newspaper, Mint, has entered into a content partnership agreement with TV-18— positive as it provides targeted support to the Mint brand, especially in light of the reports that Mint is set to launch two new editions in Kolkatta and Chennai*.

Media Reports on BCCL’s private treaties’ losses likely to weaken sentiment: Recent media reports have questioned private treaties, and some have indicated that Bennett Coleman and Company Limited may have incurred losses in excess of 40% on private treaties entered into by the company (see appendix). This is likely to be a sentimental negative for HT Media stock, with
results around the corner.

We see a strong possibility of both earnings improvement and continued multiple expansion in the stock as concerns on radio operations weaken. We reiterate our BUY rating on HT Media with a price target of Rs 88.

To see full report: HT MEDIA

>Indian Banking Sector (MF GLOBAL)

■ What kind of credit growth can banks achieve? - We expect a credit growth of 16% and deposit growth of 19% in FY10e

■ Where will the interest rates move from here? Waning inflation and declining economic activity would necessitate reduction in interest rate.

■ To what extent can the weakening fiscal position impact G-secs yields? - The long term bonds yield will remain firm on account of swelling fiscal deficit

■ How do the margins of the banks pan outover FY10? - decline in C-D ration & lag effect in repricing deposits to impact margins in FY10e

■ To what extent can NPAs of the banks increase? - GNPA levels could, at worst, rise to 5.8% including assets re-structured under new RBIguidelines on restructuring

■ Are the banks adequately capitalized to overcome the current turmoil? The current level of capital base can enable the banks to achieve a credit growth of 20% CAGR over FY09-11

■ What is the right valuation to enter the stock given the above uncertainty? Stocks are tradig at discount to their historic median valuation after considering worst case credit default assumption

■ Near term trigger
- Further relaxation in key policy rates will provide as near term trigger for the sector.

■ Top picks: Large Cap - SBI, ICICI Bank
Mid Cap - PNB, BOI, BOB & UBI

To see full report: INDIAN BANKING SECTOR

>Jindal Saw (MF GLOBAL)

As expected Jindal Saw declared strong Q1CY09 results

■ Net sales was up by 53.7% yoy at Rs 14,636 mn in Q1CY09. The company sold 99,500 ton Saw pipes (up 1%), 68,200 ton DI pipes (up 12.5%), and 18,800 ton Seamless pipes (up 22.1%) respectively. Of the total sales, 73% was contributed by domestic demand while rest from overseas market.

■ Blended margin was lower by 279bps yoy to 12.6% on account of higher raw material cost and higher share of outsourcing and traded goods, however it was flat on qoq basis.

■ Blended EBITDA was around Rs.9,896 per ton of pipes sold in Q1CY09 against Rs 9,695 in Q4CY08 and Rs8,403 in Q1CY08. EBITDA increased by 25.9% to Rs1,846 mn in Q1CY09.

■ Interest and depreciation cost was higher due to capacity expansion undertaken in CY08.

■ The company reported net profit of Rs979mn and EPS of Rs18.8 in Q1CY09 up by 14.5%.

To see full report: JINDAL SAW

>Exide Industries (MF GLOBAL)

In-line Results

Exide's Q4FY09 results came largely in line with our expectations on the PAT front, while the top-line was little below estimates. The demand outlook appears challenging(mainly in the automative segment)during FY10 but we believe that EIL is well placed to sail through it with the help its unmatched distribution network, competitive pricing and increasing backward integration strength. We continue to maintain our positive stance on EIL. BUY with a price target of Rs. 61.

Q4FY09 Resilt Highlights and Outlook

■ Net sales for the quarter stood at Rs 7.98 billion (+0.9% YoY), little below our estimate, as the price cuts became effective for the entire quarter.

■ On demand front pressure from the auto space remained (though it was better QoQ),while the industrial segment maintained a stable growth (primarily coming from inverter, UPS and telecom space).

■ Operating margin at 16.6% (+240bps YoY and +200 QoQ) surprised us positively, indicating that the effect of lower lead prices have started flowing in. As a result, operating profit for the quarter grew 18.3% YoY at Rs 1.33 billion.

■ PAT for the quarter at Rs 682 million was 8.6% higher YoY (21.5% up QoQ) and ahead of estimated Rs 666 million. Net profit for the full year FY09 stands at Rs 2.84 billion, translating inti an EPS of Rs3.6.

■ EIL incurred a total Capex of Rs 1.6 billion for FY09.

■ We introduce our FY11 estimates for EIL, where we estimate 10.5% earnings growth on the back of 19.6% sales growth and 150bps cut in operating margin.

To see full report: EXIDE INDUSTRIES

>Rupee Report (MF GLOBAL)

Market Recap:
Spot rupee appreciated marginally against the US dollar, following a firm close in domestic key equity indices. This helped support the view that foreign funds selling in domestic markets may have slowed down thus reducing the demand for dollars. Demand for dollars from oil companies was also not present with RBI announcing Thursday, that it would start special market operations whereby it would buy bonds from oil companies in exchange for dollars. According to newswire reports major banks were among the dollar sellers with atleast 240 million being sold during the session. On overseas economic data front, it was the US non-farm payroll figure for February that the global markets were awaiting. There were expectations that US firms would cut jobs in services sector by 650,000 in Feb. The actual Feb number was in line with expectations at 651,000. The umpemployment rate rose to a 26 year high at 8.10% in Feb from 7.60% in Jan. With US jobs data pretty much inline with expectations, US dollar depreciated against its amjor counterparts on reduced risk perception.

Market Outlook:
Rupee is likely to remain under marginal pressure against the US dollar on weaker cues from domestic equity markets and weaker cues from Asian currencies against US dollar. Major Asian indices have slipped in to negative territory, with Nikkei at 7,115 (- 57.91 points) and Hang Seng at 11,750 (-171 points). SGX Mar Nifty futures contract was at 2568 (-44 points). With weaker
domestic equity markets, there would be renewed concerns over increased FII selling. On currencies front, US dollar was trading weak against major units, but marginally firm against the Asian units, including the locally closely followed Korean Won. Likely range for spot rupee today, is 51.50-51.90 per USD.

Trade Recommendation:
Prices charts indicate that the 51.50 support could hold for spot rupee. We had suggested buying 1-month dollar rupee futures at 51.70 with a stop at 51.50, for targets of 51.90 and 52.20 and will hold maintain this trade.

To see full report: RUPEE REPORT