>SALORA INTERNATIONAL (CENTRUM)

Infocom disappoints

■ Revenue falls sharply: Salora International (SIL) reported sharp 48.2% YoY (25.4% QoQ) decline in revenues. This drop was mainly due to 50.4% YoY decline in its Infocom business in addition to 22.7% YoY drop in its consumer electronics division. FY09 sales fell 35.8%
YoY to Rs7.1bn.

■ EBITDA margin turns negative: With revenues plummeting to half the value, SIL’s EBITDA margin fell steeply by 627bp YoY and 338bp QoQ to -2.7%. SIL ended FY09 with a margin of 2.1%. Absolute EBITDA at Rs147mn was down 56.4% YoY. For FY09 it incurred a PAT loss of Rs2.8mn Rs242mn profit in FY08

■ Expect margins to improve: We expect SIL’s margin to improve 40bp in FY10E and FY11E on the back of 7.8% and 18.5% YoY increase in its revenue during the period, respectively. Recovery in its infocom business would primarily drive this growth. We expect its infocom business to register a growth of 9.5% in FY10E and 20.5% in FY11E.

■ Introducing FY11E, Retain Buy: A recovery in SIL’s infocom business and entry of HP products in its portfolio will provide the necessary growth opportunities during the downturn. At CMP, stock trades at 3.6x FY11E EPS of Rs10.2per share. We reiterate Buy on the stock
with target price of Rs42.

To see full report: SALORA INTERNATIONAL

>FUNDAMENTAL PICK OF THE WEEK (ICICI DIRECT)

Indraprastha Medical

Established in 1995, Indraprastha Medical Corporation has established itself well over the past 10 years. The company’s commitment to continuous improvement and focus on clinical outcomes has resulted in a significant improvement in resource utilisation. Increased focus on pathways, faster turnaround of operation theatres, decreasing length of stay and the use of minimally invasive surgeries has significantly contributed to growth in revenues while lowering cost to the patient. With a shortage of hospital beds coupled with growing medical tourism and rising demand for private healthcare services, Indraprastha Medical is well placed to leverage the growth opportunities due to its low debt-equity ratio and strong cash position.

Company Background
Indraprastha Medical is an associate company of Apollo Hospitals, in which the latter holds nearly 18.25% stake. It is a healthcare company, which operates through Indraprastha Apollo Hospital. Indraprastha Apollo, a 695-bed specialty hospital, was commissioned in December 1995 in collaboration with the New Delhi administration. The company offers various healthcares services. It provides diagnostic, medical and surgical facilities through its chain of hospitals. Its services include surgical services, dental, cardiothoracic, neuro, vascular, joint, plastic, cosmetic and general surgeries. It is India's first corporate hospital. It primarily operates in India and is headquartered in New Delhi.

Future plans
To capitalise on the long-term growth opportunity in the healthcare space, the company is expanding itself gradually. The company has recently announced plans to augment its facilities by an additional 175 beds. The project is expected to be complete within a year. It further plans to set up more than 10 satellite clinics in and around Delhi to facilitate easy availability of Apollo-type medical services to a larger cross-section of society. These clinics are slated to take the shape of mini-hospitals with all basic back-up emergency services aimed at providing posttreatment facilities to Apollo Hospitals patients. The hospital is also investing in upgrading technology. The demand for quality healthcare infrastructure and services in India far exceeds the supply. Thus, any addition to capacity would have incremental positive impact on its bottomline.

Sector outlook
In India, the demand for quality healthcare infrastructure and services far exceeds the supply. Rising literacy rates and growing healthcare awareness will further drive the demand for quality healthcare in India. This is further supplemented by the rapid increase in middle and rich segments of the population. According to Technopak Advisors report ‘India Healthcare Trends 2008’, India needs investments of $82 billion in order to fill up the long standing gap in demand and supply. The government can meet only 15% of this demand. Moreover, the public sector healthcare delivery infrastructure and facilities are in a poor state. Thus, the overall outlook for private players in this sector is expected to remain positive. Indraprastha Medical is well placed to leverage the growth opportunities due to its low debt-equity ratio and strong cash position.

To see full report: INDRAPRASTHA MEDICAL

>SECTORAL SNIPPETS MAY 2009 (KPMG)

INDIA INDUSTRY INFORMATION

Table of contents

• India Economy
• Auto & Auto Components
• Banking & Financial Services
• Consumer Markets & Retail
• Hospitality
• IT/ITes
• Media
• Oil & Gas
• Pharma
• Power
• Real Estate & SEZs
• Telecom
• Transport & Logistics

To see full report: SECTORAL SNIPPETS

>EDUCOMP (HDFC SECURITIES)

• Smart class will continue to dominate private school segment
The company maintained that smart class would continue to be an industry leading product. Also, Educomp is changing its model for Smart Class. It plans to sell content and hardware together and receive money outright. The model would reduce the cash burden on the company and lighten its working capital needs. It plans to increase its sales staff by 40 people in FY10. We believe that Educomp will continue to get the early mover advantage in this space and will be able to ward off competition, thereby retaining its leadership positions. We have factored in 2825 schools for FY10 and 3750 schools for FY11.

• Gujarat ICT contract comes with better margin
The company recently won an ICT order from Gujarat government for 1,780 schools and the margin for this contract is comparatively better than the previous ones. In the ICT space, due to few PAN India participants, many state players have entered considering this a sound business opportunity. This has resulted in unwarranted competition. The local players offer huge discounts and have no proven management skills. The company said that this concern no longer exists and expected the ICT segment to be more profitable going forward. We have factored in 17,250 schools for FY10 and 22,500 schools for FY11.

• Dry management contracts to drive K12 business
The focus of K12 business of Educomp is shifting towards dry management contracts as this model does not involve any capex and Educomp gets a fair share of revenues (about 20%). The management attributed this change to the fact that many private schools were not managed properly and this model did not involve capex. The company currently operates 20 schools and has visibility of another 23 schools in FY10. We estimate it would take up 45 schools in FY10 and 60 in FY11.

• FCCB conversion is not a concern
Educomp had outstanding FCCBs of US$80m (raised in July ’07) convertible at Rs2,950. The bonds are due for redemption in July ’12. Currently, the bonds are trading at 5% discount. Considering the expected growth of the company, we believe the conversion price is not a concern and expect the entire FCCBs to get converted into equity.

• Outlook and Valuation
We expect Educomp to record a revenue and net profit CAGR of 46.4% and 45.3% between FY09 to FY11. At the CMP, the stock is trading at a P/E of 24.7x and 18.7x our estimated EPS of Rs106.8 and Rs140.9 for FY10 and FY11. With a stable government geared to growth at the centre we expect sectors including Education will get a boost benefiting companies like Educomp. We continue to rate Educomp a ‘Marketperformer’ with a revised target price of 2,670. Though, we earlier valued Educomp at 22x of FY10 estimated EPS, we now value Educomp at 25x of its FY10E EPS of Rs106.8 as we believe the PE ratios of high growth companies in the education sector will expand faster due to the strong government at the centre.

To see full report: EDUCOMP