>AIA ENGINEERING: Mining segment to drive future growth...

AIA Engineering (AIA) results were in line with our estimates. It reported 16% growth in revenue to Rs3.4bn (PINCe Rs3.3bn). OPM declined by 210bps to 20.3% YoY but improved by 250bps QoQ. Low tax rate resulted in 8.5% growth in net profits to Rs503mn (PINCe Rs463mn). Average realisations improved to Rs98/kg (vs Rs91 in Q2FY12) led by better product mix and price increases undertaken by the company in few contracts. We believe company’s endeavour to take price increase in the mining segment is really commendable. This could lead to improvement in margins going ahead.


Mining segment lead volume growth, margins improved sequentially
In Q3FY12, AIA reported 15% growth in sales volume YoY to 34,700 tons (37,500 tons in Q2FY12). Production grew by 12% YoY to 39,000 tons (37,000 tons in Q2FY12). Sales in the mining segment grew by ~50% to 17,500 tons (3% up QoQ). Realisations stood at Rs98 per kg (Rs97 per kg in Q3FY11) led by better product mix and price increase undertaken by the company in few contracts. Operating margins fell by 210bps to 20.3% but improved by 250bps QoQ led by better product mix and pass on of hike in material prices to the customers.


Outlook
Company would continue to quote aggressively to acquire new mining clients but simultaneously go for price rise in existing customers. Historically company has demonstrated its ability to pass on the hike in prices to customers in cement industry. Management has indicated that gradually price rise would be taken in the mining segment as well where company has already demonstrated the quality of its products. Customer satisfaction, after sales service and product innovations would further lead to margin improvement. The size of the addressable opportunity in mining segment stands at 1.5mn tons p.a and management aims to capture 30% market share (vs 4% currently) in next 5-6 years. Capacity expansion of 100k tons (up by 50%) undertaken by management inspite of low capacity utilisation (70%) further strengthens our belief in the vast opportunity in the mining segment. Slowdown in the cement industry overseas is expected to persist in near future on account of global uncertainty.


VALUATION AND RECOMMENDATION
Current order book of the company stands at Rs4.8bn. We believe capacity expansion of 100k tons and improved capacity utilisation of existing capacities would lead to volume CAGR of 22% (FY12E-FY14E). We introduce our FY14E estimates. After four consecutive years (FY09-12E) of flat growth in profits, we expect 24% CAGR in profits in FY12E-FY14E lead by higher volume growth and small improvement in margins. We increase our target multiple from 12x to 15x and upgrade our recommendation on the stock from ''SELL” to “ACCUMULATE” with a revised target price of Rs343 (15xFY13E).


RISH TRADER

>CABLE & SATELLITE INDUSTRY: Dish TV, Hathway Cable & Datacom & Den Networks

India's C&;S market on the cusp of high growth phase
The Indian Cable & Satellite(C&S) industry, the third largest in the world, with 136mn C&S homes is all set for a revolution as the long-expected 'digitisation' becomes a reality. Currently there are 41mn DTH homes and 6mn Digital cable homes (35% penetration in C&S homes). Going forward digital subscriber base is expected to rise from 47mn to 83mn by 2015, increasing at 21%CAGR (2012E-2015E). An industry of Rs270bn will no longer operate under obsolete analog distribution business post digitisation. The long standing local cable operator (LCO) 'underreporting' issue will get resolved with the gradual roll out of digitisation as per the sunset clause. Aggressive marketing and promotional offers by DTH players adds to the growth factor of the industry.


Imminent Digitisation set to double digital subscriber base
C&S industry is set to expand to 166mn with 64mn DTH and 20mn digital cable gross subscribers by 2015E. Aggressive subscriber acquisitions by the well funded six DTH players have kept the digitisation momentum alive. Now with compulsory digitisation MSOs and LCOs are left with 'no choice' in the face of increasing threat from DTH. We believe with Government-mandated digitisation, the well funded national MSOs and DTH players are all set to capture the opportunity.


Industry on the threshold of profitability
Currently the C&S industry is largely run under the outdated analog mode of distribution which has resulted in a highly fragmented value chain and allowed last mile operator to corner ~80% of the subscription revenue. With compulsory digitisation, economic retention will be the crucial driver in value creation. Curbing of revenue leakages will be the main growth factor for C&S industry to register 10% CAGR over 2012E-15E. Out of which we expect 47% CAGR in digital cable revenue over 2012E-15E.Digital cable players will benefit with increased portion of retained gains of compulsory declaration, which would drive a 3x rise in revenues. DTH subscription revenue is estimated to show 22% CAGR during 2012E-15E. Digitisation is bound to reduce the incidence of under-reporting - the bane of the Indian C&S industry. High operating leverage business model will be the key driver for organised cable players and DTH operators in magnifying their operating margins. We see major players in DTH segment and organized MSOs to breakeven by 2013.



Hathway Cable & Datacom- all set to ride the digitisation wave
Hathway, the MSO with largest paying subscriber base of 1.8mn, is all set to be the major beneficiary from compulsory digitisation. We expect a turnaround in the business with strong traction in its profitability post Phase I and Phase II of the sunset clause of mandatory digitisation. We believe changing business strategy, strong execution capabilities and market leadership in the metros would enable the company to monetise the digitisation opportunity.


VALUATIONS & RECOMMENDATION
We believe Hathway is the best placed MSOs to benefit from the digitisation opportunity. At CMP, the stock is trading at 7.5x EV/EBIDTA FY13E and 5.8x FY14E. With digitisation a reality, sustained leadership in its key markets, improved business dynamics of cable and broadband businesses and clarity in profitability makes Hathway a very attractive play in digitisation space. We initiate coverage on the Company with a ‘BUY’ recommendation on the stock with a target price of Rs151(7.5x EV/EBITDA FY14E). We have valued the stock on average of DCF, EV/Subscribers and EV/EBITDA(taking Comcast and Time Warner as peers).



Dish TV’s dominance to continue...
Dish TV, the pioneer in the DTH industry, continues to maintain its leadership with ~30% market share reaching more than 12mn subscribers led by competitive pricing, strong marketing push and wide distribution network making it the most commendable player in the DTH Industry.


VALUATIONS & RECOMMENDATION
We believe Dish TV is best placed amongst all DTH players to tap the low penetrated DTH opportunity. At CMP, the stock is trading at 9x FY13E EV/EBIDTA FY13E and 6.8x FY14E EV/EBIDTA. With digitisation a reality, sustained leadership in its key markets and clarity in profitability makes Dish TV a very attractive play in the digitisation space. We initiate coverage on the stock with a ‘BUY’ recommendation and a target price of Rs77 (8.4x FY14 EV/EBITDA).We have value the stock on average of DCF, EV/Subscribers and EV/EBITDA (taking Direct TV and Dish Network as peers).



Den Networks- leading cable operator
Den Networks, the only profitable MSO in India, has the largest reach with 11mn subscribers including ~1.4mn paying subscribers, acquired mainly through aggressive secondary point acquisitions. Its strategic acquisitions helped it in garnering better carriage revenue through improved subscriber base. Star-Den, a syndication venture with Star, added to the scale and stability of the business. Den's strong execution capabilities, market leadership in key markets and profitable business model makes it a strong contender to benefit from the digitisation wave.


VALUATIONS & RECOMMENDATION
At CMP, the stock is trading at 5.3x EV/EBIDTA FY13E and 3.7x EV/EBITDA FY14E. We\ initiate coverage on the stock with a ‘BUY’ recommendation and a target price of Rs64 (4.6x EV/EBITDA FY13E).We have valued the stock on average of DCF, EV/Subscribers and EV/EBITDA (taking Comcast and Time Warner as peers).



Cable Distribution Industry


Changing Dimensions


The Rs270bn Indian cable sector is the third largest in the world after China and US. The number of TV homes in India grew from 120mn in 2007 to ~148mn TV homes currently. C&S homes have witnessed a strong 12% growth in 2011 adding more than 12mn subscribers to reach 136mn (92% penetration of TV homes). Cable reaches 94mn homes with 88mn analog and 6mn digital cable households. DTH has 41mn subscribers reaching 30% of C&S homes. The TV viewing experience has changed a great deal over the last few years with the upcoming broadcasters producing differentiated and niche content like reality shows, food channels and more. The number of channels available has more than doubled to 600 plus channels, offering viewers more choice than they could ask for. Digital technology is fast catching up and gaining wider acceptance amongst viewers who are quality conscious and wish to have a better TV viewing experience.

Profound growth opportunity..
Currently 65% of C&S homes are Analog cable, forming a major chunk of the C&S base, 30% are DTH subscribers and 4% subscribe to Digital cable. Though up to now the growth in Digital cable penetration has been slow, the off take of the mandatory digitisation bill will provide an
opportunity for cable operators to convert the 88mn analog base into digital cable and DTH.
DTH penetrated into urban and rural markets registering a robust 83% CAGR over 2007-2011 to reach 41mn gross subscribers in November, 2011, from a mere 2mn subscribers in 2007.
Latest offerings such as High Definition(HD), Set Top Boxes(STBs) with recording facility,
Movies on demand, interactive learning, gaming and mobile TV are other innovations which
provides digital viewing an edge over analog and has led to an evolution in the TV and broadcasting industry. The 12mn non cable TV homes and 90mn non TV homes highlight the potential for further cable penetration and ample growth opportunity.



Outlook for the Industry
With a strong distribution networks spread across the country, cable and satellite has penetrated to 92% of TV homes to reach 136mn homes in 2011 at 16%CAGR (2007-2011). Total C&S homes are expected to reach 166mn by 2015. Analog cable penetration of C&S homes is expected to decrease from 65% currently to 50% by 2015E. Much of the growth will come from Digital cable which is expected to increase its penetration from 4% in 2011 to 12% by 2015E reaching ~20mn subscribers. Mandatory digitisation will provide a thrust to digital cable to increase its reach. The deep penetrated analog reach will help digital cable operators capture this opportunity much faster. Digital cable subscriber base should witness 31%CAGR over 2012-2015. DTH has been growing fast as the 6 players (excluding DD Direct) are strongly competing to gain market share. Aggressive advertising and attractive promotional offers have led to the DTH industry penetrate 30% into C&S homes. The DTH subscriber base is expected to grow from 41mn in 2011 to 64mn by 2015 at 15% CAGR(2012-15). With digital cable we will also see a ramp up in broadband subscription reaching 3mnsubscribers by 2015E. Broadband subscriber base will grow considerably led by bundledoffering of digital cable with broadband.







RISH TRADER

>JSW ENERGY LIMITED

■ Capacity to increase ~2x by FY12
JSW Energy (JSWEL) plans to more than double its capacity to 3.1GW by FY12 from 1.4GW currently. It plans to sell ~56% of its expanded capacity in the short-term market, which would increase its earnings sensitivity. If we consider the 270MW Raj West extension, the share of merchant capacity increases further to ~60%.

■ Exposed to the spot market for 46% of total coal requirement
JSWEL has entered into long term coal supply contract with PT Sungai Belati and its South African company (South African Coal Mining Holding Ltd), which will together supply ~4mtpa. We believe
this will meet only ~54% of its total coal requirement of ~7mtpa in FY13, thus keeping it exposed to the spot market (on a steady state basis) for ~3.2mtpa. This dependence would be higher in
FY12E at ~4.8mn tons, as the company operates a part of its Rajasthan unit on imported coal.

■ Expect 13% downside; Initiate with SELL recommendation
Although, JSWEL is one of the fastest-growing power companies, we believe its high exposure to spot market only increases earnings sensitivity. Robust 66% earnings CAGR over FY10-12E, due to higher operational capacity, should allow the stock to trade at a premium in the near future. We expect the premium to contract as: 1) capacity addition slows; 2) short-term rates soften; and 3) fuel prices increase. Decline in profitability and higher interest outgo will contract its RoE going forward. Hence, further upside for the stock seems limited, in our view. We value the company on FCFE to arrive at our target price of Rs117, implying potential downside of 13%. We initiate coverage with a SELL recommendation.

To read the full report: JSW ENERGY LIMITED

>VOLTAS (PINC RESEARCH)

BACK ON TRACK
Voltas Ltd’s Q4FY10 results beat our expectation as net sales grew by 8.1% YoY to Rs14.8bn as against our estimate of Rs11.9bn. OPM expanded by 257bps to 9.4% due to decline in raw material prices. Consequently, adj. net profit rose by 87% to Rs1.1bn (our estimate was Rs777mn). For FY10, adj net profit increased by ~56% to Rs3.6bn against our estimate of Rs3.3bn. Intense summer took revenues northward: Revenues from cooling products segment (contributes ~25% to topline) increased by ~72% (YoY) and more than compensated the decrease in revenues from other segment. Overall, net sales for the Q4FY10 surged by 8.1%
YoY. Margins improved across the segment and resulted in OPM expansion of 257bps in Q4FY10.

Improving order inflows: In our earlier reports, we highlighted the expectations of improving order inflows by the end of FY10 due to lag effect from construction/ infrastructure industry. Voltas received a prestigious MEP order of Rs8bn for the modernisation of Abu Dhabi's Central Market. Total order inflows for Q4FY10 is ~Rs16bn which is an increase of ~5x QoQ. The total order book at the end of Q4FY10 stands at Rs47.2bn (+19% QoQ).

Outlook: Healthy order inflows augur well for bright future for Voltas. We believe that the company should be back on high growth trajectory from FY12 onwards. Performance for the Engineering product division should also improve in FY11 with improvement in industrial activities.

VALUATIONS AND RECOMMENDATION
We have increased our earning estimates for FY11 by ~7% on the back of better visibility from MEP segment and have introduced FY12 estimates. At the CMP of Rs172, the stock trades at a P/E of 13.0x and an EV/EBITDA of 7.2x its FY12E EPS of Rs13.3. We upgrade our recommendation to ‘BUY’ with a target price of Rs212

To read the full report: VOLTAS

>MERCATOR LINES LTD (PINC RESEARCH)

Pain in standalone business continues
Mercator Lines' Q4FY10 net profits of Rs214mn were above our expectations of Rs187mn mainly on account of sale of 3 ships in the quarter. Net sales decreased by 10% to Rs4.8bn in line with our estimates of Rs4.9bn. Operating profits decreased by 36% YoY and 8% QoQ to Rs1.2bn (estimated Rs1.6bn) due to negligible contribution from coal mining business and higher operating expenses. It sold 3 assets in the quarter resulting in a profit from sale of ships of Rs293mn which led to adj. net profits grow by 2.5x QoQ to Rs214mn, same as that in Q4FY09.
For the full year, adj. profits declined by 79% to Rs711mn.

Poor performance by the tankers and dredgers: Lower revenue days due to sale of 3 assets and continued pain in the dredgers reflected in the sequential drop in standalone op. profits to decline by 60% QoQ to Rs110mn.

Coal business still at trivial level: The coal mining and trading business generated revenues of Rs1.2bn but an operating profit of Rs16mn only.

Mercator Singapore’s (MLS) performance improves: MLS revenues grew by 12% YoY and 15% QoQ to USD40mn on back of 26% higher revenue days YoY to 1,225days and 21% sequential improvement in TCY to Rs29.7k/d. Sequential improvement in the day-rates also resulted in OPM expanding by 627bps to 56%. Operating profits rose by 29% QoQ to USD22.5mn. Subsequently, net profits surged by 72% to USD13mn.

Capex update: Mercator purchased a product tanker in Q4FY10 for USD9mn. It acquired a bulk carrier at the start of FY11 for USD38mn. In addition, it is also incurring a capex of USD130mn
related to a Mobile Offshore Production Unit (MOPU) and a Floating Storage & Offloading Unit (FSO) to be deployed in H2FY11.

Outlook: We believe the dry-bulk carriers and Jack-up rig are the two main earnings driver for the company as these are mostly contracted. The dredgers’ earnings would remain depressed for at-least next one year. We maintain our earnings estimates for FY11and FY12E.

VALUATIONS AND RECOMMENDATION
We upgrade our recommendation to 'HOLD' with a price target of Rs42, discounting FY11E EPS 5x.

To read the full report: MERCATOR LINES

>USHA MARTIN LIMITED (PINC RESEARCH)

We recently held the conference call with the Management of Usha Martin Ltd. (UML) to get an
understanding of the company’s ongoing capacity expansion programme to increase capacity to ~1mn mt and also to review the status of the captive coal mines. The key takeaways from the interaction were as follows UML is nearing completion of the ongoing capacity expansion to augment capacity by ~2.5x to ~1mn tpa. The same will also be supported by metallic capacity in the form of pig iron and sponge iron and other related infrastructure. The expansion also entails increasing the value added product capacity to maintain its share at ~45-50%. The entire expansion is progressing satisfactorily and is expected to be fully commissioned by Mar’10 (except certain power capacities).

However, delay in commencement of the captive coal mines present an area of concern as the same was scheduled to start production in Q4FY09 and are now expected to start extraction by the end of Q3FY10. UML’s management expects 25% and 100% coal integration in FY10 and FY11 respectively.

VALUATIONS AND RECOMMENDATION
At the CMP of Rs54, the stock trades at a P/E of 4.6x and EV/EBITDA of 3.1x, discounting its FY11E earnings. In our view, these valuations do not factor in the degree of value chain post the completion of the ongoing expansions and the commencement of the coal mines. We remain positive on the overall business of UML, and value the stock at 4x EV/EBITDA to arrive at a price target of Rs81/share. We reiterate our ‘BUY’ recommendation on the stock.

To see full report: USHA MARTIN

>HINDUSTAN DORR OLIVER LTD. (PINC RESEARCH)

Hindustan Dorr Oliver Ltd’s (HDOL) Q4FY09 results were in line with our expectations. Its revenues grew 77.8% YoY to ~Rs1.9bn backed by robust execution across mineral beneficiation segment. OPM for the period dipped by 595bps YoY to 8.4% owing to higher cost of raw materials at ~83% of net sales. Despite an other income of Rs13mn, net profits fell by 9.3% YoY to Rs87mn.

■ Fresh order inflows at ~Rs4.7bn: HDOL bagged couple of new orders in Q4FY09, taking the total order inflows in FY09 to Rs9.6bn. The major order bagged during the quarter is worth Rs4.4bn involving commissioning of a greenfield Ore mining & processing facility of 3,000 MTPD at Tumalapalle in Andhra Pradesh on LSTK basis. The process plant, adopting Alkali Pressure Leaching process will be executed in technical collaboration with Bateman, South Africa & is
slated to be completed in 22 months.

■ Strong Order book at Rs13.1bn: HDOL maintains a healthy order backlog of 1.9x FY10E revenues. The company has already bagged orders amounting to Rs905mn till date in FY10. While metal & mineral beneficiation accounts for ~67% of the total order backlog, environmental management & manufacturing orders score 25% & 5.4% respectively. ~50% of orders in the present backlog emanate from various governmental agencies & are fixed price in nature.

VALUATIONS AND RECOMMENDATION
At the CMP of Rs76, HDOL trades at a P/E of 6.9x & EV/EBIDTA of 4.7x its FY10E earnings. We are of the opinion that its current valuations are fair despite the considerable growth shown by the company in the past. We believe HDOL’s capability across successful execution of bigger & more complex projects, requiring prudent working capital management, still remains to be seen. Hence, we value the company at Rs88 (8x FY10E EPS) & maintain our ‘HOLD’ recommendation on the stock.

To see full report: HINDUSTAN DORR OLIVER LTD.

>IVRCL INFRASTRUCTURES & PROJECTS LIMITED (PINC RESEARCH)

IVRCL Infrastructures & Projects Ltd’s (IVRCL) Q4FY09 results were ahead of our expectations. Its revenues grew 23.1% YoY to ~Rs16.3bn backed by robust execution across water supply & environmental segment. OPM for the period dipped by 178bps YoY to 8.7% owing to higher masonry & labour expenses at 24.5% of net sales. Fuelled by other income of Rs87mn, net profits rose marginally by 9% YoY to Rs799mn.

■ Fresh order inflows at Rs9.3bn: IVRCL bagged new orders worth Rs9.3bn in Q4FY09, taking the total order inflows in FY09 to Rs76.4bn. Further, the company has already bagged jobs amounting to ~Rs6.6bn in Q1FY10 till date & stands L1 for additional projects worth Rs8-10bn.

■ Strong Order book at ~Rs135bn: IVRCL maintains a healthy order backlog of 2.1x FY10E revenues. While water supply & environmental projects dominate a major chunk (68%) of this backlog, buildings & industrial structures (20%) form the second largest segment. Almost 98% of IVRCL’s order backlog emanates from Government sector.

Revise our FY10 estimates: IVRCL has registered an impressive 33.4% YoY growth in its revenues for FY09; though the same has been accompanied by a fall in its OPM (down ~124bps YoY). Going forward, with commencement of work on projects bagged in FY09 we expect the company to maintain its growth momentum. The margins too are expected to improve by 40-50bps on account of reduction in prices of key raw materials. Hence, we revise upwards our FY10 EPS estimate to Rs16.2 from the earlier Rs15.5.

VALUATIONS AND RECOMMENDATION
At the CMP of Rs329, IVRCL trades at a P/E of 20.3x & EV/EBIDTA of 10.8x its FY10E earnings. We are of the opinion that presently the stock is fairly valued in line with our SOTP valuation of Rs340/ share (Refer page3). Hence, we maintain our ‘HOLD’ recommendation on the stock.

To see full report: IVRCL

>DEEPAK FERTILISERS & PETROCHEMICAL CORP. LTD. (PINC RESEARCH)

Deepak Fertilisers & Petrochemicals Corporation Ltd. (DFPCL) posted a 1.2%YoY de-growth in sales to Rs3.3bn in Q4FY09 against our estimate of Rs3.2bn. OPM expanded by 152bps to 20.4% driven by fall in operating expenses. With higher other income (+155%) and lower effective tax rate, net profit grew by 26.5% to Rs396mn against our estimate of Rs258mn.

■ OPM expands on lower trading volume
Declined in traded goods by ~25% YoY to Rs0.9bn and decrease in cost of other expenses to net sales by 167bps led OPM to increase by 152bps to 20.4%.

■ Ishanya getting firm
Ishanya mall is making its mark in the interiors and exteriors in western Maharashtra. It registered over 1.3mn footfalls with conversion rate of ~35%.

■ Availability of gas to boost performance
DFPCL has begun purchase of consignments of LNG through GAIL pipeline (Dahej-Uran). Once regular gas supply starts from KG basin, company will be able to increase its capacity utilisation and eventualy profitability will improve.

■ Projects / New initiatives
DFPCL augmented its technical Ammonium Nitrate capacity to 132k MT from 90k MT p.a. in FY09. It further plans to raise its capacity of Ammonium Nitrate by 300k MT p.a.at Taloja plant with a capex of Rs6bn, which is expected by Oct’10. Commissioning of Bentonite Sulfur plant (25k MT p.a.) at Taloja and Ammonia tank (15k MT) at JNPT is over and now company should be able to limit its exposure to highly volatile ammonia prices. Nitric acid facility with 450 MT p.d. should be commissioned by H1FY10 which will make DFPCL among the largest producer of Nitric acid in Asia.

VALUATIONS AND RECOMMENDATION
At the CMP of Rs86, DFPCL is trading at a P/E of 6.2x and EV/ EBITDA of 3.5x FY10E. Favourable fertiliser policy & expected increase in availability of gas post RIL KG basin development, augurs well for DFPCL. We maintain our ‘BUY’ recommendation with a target price of Rs98, which implies a P/E of 7x FY10 earnings that is less than 5years historical median P/E of 7.4x.


To see full report: DEEPAK FERTILISERS & PETROCHEMICAL CORP. LTD.

>GREAT EASTERN SHIPPING CO. LTD. (PINC RESEARCH)

G E Shipping's (GES) stand-alone results for Q4FY09 were below expectations due to an impairment loss of Rs700mn. Net sales declined by 24% to Rs5.6bn on back of lower revenue
days. OPM contracted 550bps YoY to 47.3% while expanding by 400bps sequentially. Adj. net profits dipped 67% to Rs1.1bn.

Reduced tonnage and rates depress revenues
Revenue days for the quarter declined by 18% on account of reduced tonnage. This coupled with depressed dayrates led to fall in revenues which was buffered to some extent by a stronger dollar.

Lower TCY & higher maintenance costs impact OPM
TCY declined across all asset classes while dry docking expenses increased 56%. Also, direct operating costs remained constant. This led to operating profits falling by 32% to Rs2.7bn & OPM contracting by 550bps to 47.3%.

Lower other income & impairment loss impact net profits
Other income contracted by 23% and GES took a Rs700mn impairment loss on one of its bulk carrier resulting in net profits declining by 67% to Rs1.1bn.

Fleet Details & Capex:
GES currently owns & operates 39 ships comprising 31 tankers (12 crude tankers, 18 product tankers, 1 LPG carrier) and 8 bulk carriers with an avg age of 10.3 yrs aggregating 2.9mnDWT. It also operates 5 in-chartered vessels. The offshore division GIL owns 5 PSVs & 5 AHTSVs and operates 3 in-chartered assets. 2 bulk carriers and 1 product tankers should leave the fleet by Q1FY10 as they have already been sold off. Further capex entails delivery of 26 assets with an outlay of Rs1.3bn over the next 3 years.

VALUATIONS AND RECOMMENDATION
Based on SOTP valuations incorporating the decline in tanker asset prices, we believe the stock is fairly valued and has achieved our target price. Accordingly we downgrade our recommendation to ‘HOLD’ with a revised target price of Rs270.

FY09 Performance
On a consolidated basis, revenues increased by 22% to Rs3.8bn mainly on account of a weak rupee, higher TCY and increased spot market exposure. Crude tankers TCY rose 37% while dry bulk TCY rose 4%. Rupee depreciation impacted the revenues by ~10%. Operating profits grew by only 14% as higher spot exposure led to margin deterioration. Better earnings in H1FY09 and increased offshore earnings help offset the sharp decline in TCY in the second half. Subsequently, OPM contracted by 280bps to 41%. GES accounted for a Rs700mn impairment loss on one of its bulk carriers which impacted the adj. net profits that grew by 9% to Rs14.2bn as against our estimates of Rs14.9bn. In FY09, GES took delivery of 2 product tankers, 2 AHTSVs, 2 PSVs & 1 Jack-Up Rig (In-chartered from Mercator Lines). During the same period, 3 product tankers, 5 bulk carriers and 1 gas carrier were sold off. Going forward, it has already inducted 1 product tanker and 1 AHTSV in Q1FY10. Further capex entails deliveries of 9 ships mainly in FY11& FY12 and 17 offshore assets by FY11 (10 in FY10 & 7 in FY11). The total outlay for aforesaid would be ~USD1.3bn (Shipping ~USD550mn & Offshore ~730mn).

To see full report: GE SHIPPING

>Petronet LNG (PINC RESEARCH)

Petronet LNG Ltd. (PLL) accounts for 23% of natural gas supply of India and boasts of a Sovereign parentage of GAIL, IOCL, ONGC and BPCL. Considered as an Indian pioneer in import distribution, it regasifies ~6.5 mn mtpa of imported LNG from its facility in Dahej, Gujarat and is a major supplier to GAIL’s HVJ gas pipeline.

Unique business model
PLL’s business model of back to back gas sale purchase agreements insulates the company from sourcing, offtake and exchange rate risks. With the virtue of a short working capital cycle, the company does not require any working capital funding for its growth.

Earnings growth visibility
PLL has growth visibility through its long term sale-purchase agreements and matching offtake agreements with GAIL, IOCL and BPCL, thereby ensuring supply and a ready customer base, which should enable it to register an earnings growth at a CAGR of 14% over next 3 years. As energy consumption is not expected to ebb in the foreseeable time, PLL offers high safety of earnings in these challenging times.

Capacity expansion
It would double its Dahej capacity in Apr’09 to 10 mn mtpa and another 5 mn mtpa terminal, which is under construction in Kochi, should be on stream by H2FY12.

RISKS
* Invocation of force majeure clause by the LNG supplier might result in lower volumes sold by PLL.

* Even though the capacity expansion at Dahej has been completed, PLL has not yet fully tied up with long term supply contracts for the new capacity. An unforeseen spot purchase might impact the profitability.

VALUATIONS
The capacity expansions at Dahej should enable PLL volume growth by 13% in FY10 to 7.4 mn mt and 24% in FY11 to 9.2 mn mt garnering scale in earnings. Hence we initiate coverage on the stock with a ‘BUY’ recommendation and a price target of Rs66 on a 24 month investment perspective.

To see full report: PETRONET LNG

>Automobile Sector (PINC RESEARCH)

On a recovery course……

Indian automobile sector reported an improved performance during the month of Mar’09. On a sequential basis, there has been a marked up-tick in the primary dispatches by the major auto players. Passenger cars and 2-wheelers were two segments which have done well. While domestic 2-wheelers sales improved, exports were weak with decline in volumes. Domestic passenger cars sales were boosted by the discounts and offers on the products. Exports were healthy with Maruti and Hyundai growing their penetration in the European market. Medium and Heavy Commercial Vehicles (MHCV) segment continues to be in a declining phase though there is sharp improvement sequentially.

* 2-wheelers: Overall industry performance has been good though Bajaj Auto continues to post a decline in its monthly sales. Honda Motorcycles & Scooters India (HMSI) and Yamaha have shown a strong growth in the motorcycle segment.

* Passenger Vehicles: Passenger cars and Utility vehicles reported strong performance. Utility vehicles has got a big boost due to National Elections. Hyundai reported a decline in domestic sales which is largely a factor of big base. Maruti Suzuki reported their best ever monthly sales.

* Commercial Vehicles: MHCV is on a gradual recovery phase for the last two months. However, we believe that this segment will be adversely impacted by elections and monsoons thereafter. So, we do not expect the segment to stabilise before Sep’09. Light Commercial Vehicles (LCV) segment has done well and we believe that this segment is in a secular growth phase due to large requirement for last mile connectivity.

To see full report: AUTOMOBILE SECTOR

>IT Services (PINC RESEARCH)

Introduction
We initiate coverage on Indian IT services sector with a Negative view. We believe that the macro-economic factors will continue to impede Indian IT Services industry. The industry is experiencing multiple headwinds along with the slowdown that will play out in terms of reduced growth rates, pricing pressures, project cancellations, delays or no orders and return of economic nationalism resulting in sluggish top-line growth. We initiate coverage on Infosys (Sell), TCS (Sell), Wipro (Hold), and HCL (Hold) rating.

· Global macro-economic headwinds: BFSI, Telecom and Retail the worst affected: The current macro-economic outlook appears bleak in the near term. GDP of the US and Europe, which contributes about 85% of revenue for top 4 Indian IT comapanies, is expected to de-grow. BFSI, Telecom and Retail that contributes 65% of revenue for top 4, are suffering because of declining consumer confidence, write-offs and bankruptcies. M&A has further decreased the size of the pie.

· Globalization of global delivery model: Large global peers like IBM, HP-EDS, and Accenture have managed to grow at a faster pace in India than the top 4 Indian IT companies. Global players have steadily improved their margins over the last 3 years. Tier-1 Indian IT companies are also facing pricing pressure due to competition from the Tier 2 Indian IT companies.

· Pyramid effect not geared for decelerated growth: We believe that with little visibility of volume growth and gloomy macro-economic condition, and in declining attrition scenario, the ability to maintain the pyramid base would be difficult. Any decline in hiring would increase the average age and accelerated hiring would put pressure on utilization ratio and margins.

· STPI benefit to end in FY10, slower volume growth could increase tax rate further in FY11: End of tax holiday will have dampening effect on bottom-line of Indian IT companies. According to us, slower volume growth than expected could increase effective tax rate higher than anticipated in FY11. We are factoring in the number of new business moving to SEZ, but as the volume of new business dries up the companies' effective tax rate could be higher than anticipated.

To see full report: IT SERVICES

>Offshore Oilfield Services (PINC RESEARCH)

Drilling for value....

Offshore Oilfield Services form an important segment of the oilfield value chain. It includes all activities involved in upstream exploration of hydrocarbons in the offshore environment including drilling, construction and support activities. While offshore capex has peaked after five years of scorching growth, we believe there are pockets of value for domestic players to continue the growth momentum, albeit at a slower pace.

■ Hydrocarbon capex has peaked, but will not subside: We believe that capex in this space peaked in 2008 after 5 years of scorching growth and upstream players will go slow on incremental capex. However, we also believe that oil exploration should continue at a slower pace, given the fact that oil is a perishable commodity and it has faced numerous feast and famine situations in the past.

■ Domestic demand to remain robust: With ONGC being a major upstream player in the domestic market with a clear mandate of ensuring energy security, the demand aspect of exploration is ensured for players with a strong domestic presence.

■ Shallow water players to emerge: Contrary to popular perception, we believe that shallow water players should experience renewed demand despite incremental supply coming in, mainly because with softening oil prices, deep water exploration is fast becoming prohibitive.

■ Niches waiting to be exploited: With the scorching pace of oil capex in the last five years slackening, there is room to breathe for upstream players and focus on revamping an ageing infrastructure. This will give business to players in offshore construction and maintenance space.

To see full report: OFFSHORE OILFIELD SERVICES

>Auto Sector 2 wheeler (PINC RESEARCH)

Indian 2-wheelers industry after showing impressive performance over 1992-2007 is facing a tough environment for the last two years. We believe that this phase is temporary and 2-wheelers will again move into growth phase. Given their operational efficiency, ease in maneuvering city traffic and low cost of ownership, 2- wheelers continue to be the preferred mode for daily commuting. We expect domestic 2-wheelers market to stabilise by FY17 with penetration levels of 135 vehicles per thousand population. We expect entry of low cost cars to have some impact on 2-wheelers demand especially in scooters segments.

● Base correction over the last two years: Over the last two years, the 2-wheelers industry has seen a base correction especially in the entry level segment. This should provide a platform for the sustainable growth in future.

● Low dependence on financing: During FY02-07, increasing penetration of financing led to strong growth for the industry. However with high default rates, financing flow has been restricted over the last two years. This augurs well for the industry and now onwards, we can expect growth in the industry on its own merits rather than finance stimulation. Return of financing will provide upside to our volume estimates for the industry.

● Global financial crisis to impact exports : 2-wheelers exports from India are expected to be adversely impacted by global financial crisis. We forecast exports growth to slowdown to single digits in FY10 & post that we expect a growth of 15%.

● Rationality in players’ behaviour: Over the past one year, we have observed rationality in players’ behaviour, which has led to profitability improvement despite increase in raw material cost. We expect that this trend to continue and players will refrain from indulging in price war.

To see full report: AUTO SECTOR

AIA Engineering - Pinc 20 01 09

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AIA Engineering - Pinc 20 01 09

>TRIVENI ENGINEERING(PINC RESEARCH)

Triveni Engineering and Industries Ltd. (TEIL) reported a YoY
growth of 41% in net sales to Rs4.3bn for Q4FY08, led by
healthy performance across its divisions. The company changed
the accounting policy relating to recognition of carbon credit
income, thus impacting profits to the extent of Rs90mn. OPM
expanded by 330bps to 18.6%, led by turnaround of sugar
operations coupled with improved margins in distillery division.
Net profits surged by 5.4x to Rs270mn.
! Sugar sales higher by 35%
Sugar despatches rose 35% to 143.8k mt whereas realisations improved
by 21% to Rs16.2k/mt. As on Sep’08, TEIL is carrying ~256k mt of
sugar inventory against 186.5k mt as on Sep’07. This should help the
company capitalise on firm sugar prices.
! Margins expand by 330bps to 18.6%
OPM expanded 330 bps to 18.6% on back of turnaround in sugar division
and improved contribution from distillery segments. Accordingly,
operating profits surged 71% to Rs796mn.
! SAP for SS 08-09 at Rs140/quintal
In Oct’08, UP government announced SAP of Rs140/quintal for
SS 08-09 against Rs125/quintal in SS 07-08 and Rs110/quintal paid by
sugar mills as per the Supreme Court order. The UPSMA has contested
the SAP announcement in the Allahabad High Court questioning the
methodology in arriving at the SAP.

To read full report TRIVENI ENGINEERING(PINC RESEARCH)