>DLF (CENTRUM)

Pain continues, maintain Sell

■ Results below estimates: Q4 revenues plunged 74% YoY to Rs11.2bn and PAT declined 92.6% to Rs1.6bn owing to fall in DAL sales and one-time revenue write-down of Rs6.8bn owing to price resets in ongoing projects.

■ Lack of visibility on DAL’s leasing activity: DLF delivered 5.1mn sq ft of space to DAL vs. its stated target of 9mn sq ft by 31 March 2009. DLF plans to deliver ~3.5mn sq ft of space in H1FY10 with a further 5mn sq ft of space to be leased over FY10-12.

■ DAL receivables still at Rs49bn, no immediate recourse in sight: With net inflow of Rs5.4bn from DAL in Q4, DAL receivables stand at Rs49bn. With no clarity on PE fund infusion and DAL-DLF merger, committee of independent directors has been appointed to explore various options.

■ Debt obligations for FY10 met, but FY11 remains a concern: DLF has met its repayment obligations of Rs35bn for FY09-10 through debt repayment of Rs7.2bn and obtaining fresh longterm loan of Rs25bn. However, Rs25bn of debt maturing in FY11 is a concern.

■ Land bank reduces to 425mn sq ft resulting in land payments reducing significantly: Land bank reduces by 327mn sq ft on account of pullout from Bidadi and Dankuni projects (269mn sq ft) and re-sizing of other township and hotel projects (58mn sq ft). As a result, outstanding land payments reduce from Rs57bn to 2.5bn.

■ Maintain Sell, revise target price to Rs143: Our target price of Rs143per share is at 25% discount to NAV and has increased by Rs23 per share from Rs120 previously after factoring in the net impact of reduced outstanding land payments from Rs57.1bn to Rs2.5bn and reduction in land bank.

To see full report: DLF

>Arshiya International Ltd (INDIA CAPITAL MARKET)

Revenues declined to Rs 940 mn (28% yoy, 18% qoq) in Q4FY09 impacted by decreasing freight rates in logistics segment. Arshiya’s end to end logistics declined by 20% yoy due to global economic slowdown. In FY09, Arshiya net added 62 new clients in India & Middle East for its logistics division. In Q4FY09, EBIDTA margins improved by 260 bps to 15.8% due to improvement in supply chain services and more demand of Cyberlog IT solutions.

Arshiya International has commenced rail operations with two rakes for Vedanta Aluminium Ltd & Mitsubishi. Arshiya will provide customized solution to its clients through its dedicated rakes on a long term contract basis. The 3rdrake is expected to commence by Q1FY2010.

Management has guided that the company will deploy 30 rakes of Phase I project by Q1FY2011 in domestic segment with the capex of Rs 6.26 bn. The D/E of this project will be 1.8 : 1. For FY09 Arshiya’s revenues increased by 25% to Rs 5 bn, while EBDITA grew by 47% to Rs 762 mn. EBIDTA margins expanded to 15.2% (+230 bps) due to change in revenue mix. In FY09,

Arshiya’s volume handling increased by 35% to Rs 42000 TEUs. Arshiya has entered into long term contracts for its rail container business. The 3rd rake is expected to start in current quarter for domestic segment.

FTWZs – delayed by three months
Arshiya has received formal approval from Board of Approval (BoA) of SEZs for JNPT FTWZ, while it is still waiting for the final approval. We expect the delay in BoA approval will defer the development work at FTWZ which is now expected to start its commercial operations by Q4FY2010. The company has earmarked the capex of Rs 5.3 bn for this project. Arshiya has tied up its capex with lead bankers for JNPT FTWZ project. Arshiya has received formal approval for FTWZ in Khurja, Delhi. The company will incur the capex of Rs 4.4 bn and are in the process for debt arranging with bankers.

Arshiya has acquired the land for Central FTWZ (Nagpur) which is anticipated to be at an investment of Rs 2 bn. Management has indicated that FTWZ at Sohar in Oman is dropped due to regulatory issues on leasing of land.

Outlook & Valuations
We expect business outlook for all logistic companies to remain weak through H1FY2010, due to global economic slowdown. Though we are positive on the delivery expertise of the company and its expansion plan, external environment presents significant scope for downward revision of its expected numbers. Moreover the delay in FTWZ approval will further shift the revenue to a future date. Though the business environment is bleak, we are positive on the company’s future plan and expertise. We recommend a ‘HOLD’ till our next update.

To see full report: ARSHIYA INTERNATIONAL

>ONGC (DEUTSCHE BANK)

Downgrade to Hold on rich valuations post recent rally

No positive catalysts; subsidy concerns may revive
We downgrade ONGC from Buy to Hold as the stock offers a 6% total return to our INR787/sh TP. The stock has risen 28%YTD (Sensex up 14%) and now implies US$70/bbl Brent assuming subsidy sharing. The stock will likely be capped by concerns about the subsidy burden in H1FY10, following the Q4FY09 reprieve and the lack of visible catalysts.

Lacklustre volumes, policy concerns dampen FY09-11 earnings outlook
The adhoc government subsidy policy and ONGC’s inconsistent track record in volume growth remain a concern. Our higher subsidy assumptions are based on i) the recent rise in global fuel prices and ii) cuts in domestic fuel prices on petrol, diesel and LPG – a setback for ONGC’s earnings outlook for the next two years.

Our Hold rating reflects a neutral risk/reward
The positives are Deutsche Bank’s rising oil deck from CY10E and likely positive newsflow on EoR/new initiatives and new acreage/reserves. Key negatives: i) an uncertain growth outlook; ii) revival of subsidy worries as India is electing a new government; and iii) rich valuations and a contracting oil demand outlook.

Volatile oil price/newsflow poses 10-15% rise/fall to the stock
We retain our DCF-based TP for ONGC at INR787/sh (over FY10-15E, nil terminal growth) using Deutsche Bank’s India WACC assumption of 13% and EV/2P reserves for OVL. Upside risks: new oil finds, gas price deregulation and subsidy reform. Downside risks: a sharp collapse in oil demand/prices, policy concerns, execution/political risk in domestic/overseas projects, and lack of transparency in its overseas arm OVL. (See pp. 5-6 for more on valuations and risks.)

To see full report: ONGC

>Reliance Capital (BNP PARIBAS)

Obstacle course for growth and margin

Initiate with REDUCE – valuation ahead of fundamentals We initiate coverage on Reliance Capital (RCFT) with a REDUCE rating and a TP of INR400. While the long-term outlook for RCFT is attractive, we expect significant growth and margin pressure in the near to medium
term. We expect all of its core businesses (insurance, asset management, general insurance, broking and consumer finance) to slow down. We believe the recent rally in the stock price is out of line with fundamentals and investors can find more attractive alternatives, given the overhang in the market.

Multiple pressures on growth and margins
RCFT’s core business growth is tied to the outlook for equity and capital markets in India – in the form of unit-linked life insurance products, returns on its proprietary investment book, income from asset management and broking. We expect relatively muted equity markets in FY10 to impact RCFT’s revenue growth. We expect RCFT (which has more than 95% of its life products in ULIPs) to clock life premium growth of 11% for FY10 compared to 40% y-y growth in FY09. We estimate RCFT’s consolidated net revenue will decline by 4% y-y for FY10. We expect a sustainable NBAP margin for life insurance of 15% compared to management guidance of 18-19%. Based on our channel checks and analysis, we believe RCFT’s insurance business growth was based on aggressive pricing, which is more evident in the general insurance business. In addition to margin pressures, RCFT’s core businesses are still in a capital consumption mode and will impact ROE over FY10-11. RCFT is a high beta play and in addition to improvement in core businesses, we’ll turn more positive on signs of a sustained market rally.

Valuation
We value RCFT at INR400 using a sum-of-the-parts approach. On a per share basis, we value life insurance at INR145 (8x FY10E NBAP), asset management at INR130 (3.5% to FY10E AUM), the standalone book along with consumer finance business at INR100 (0.8x FY10E ABV) and Reliance Money at INR25 (8.0x FY10E EPS). Our TP implies 15.5x and 1.3x price to FY10E consolidated EPS and ABV respectively.

To see full report: RELIANCE CAPITAL