>FUN WITH FLOWS (CITI)

Equity Fund Inflows Losing Momentum

■ Inflows to Asian funds halved — Although Asian equity funds continued to take in new money this week, the amount fell sharply to US$0.9m vs. US$1.9bn in the prior week, according to EPFR Global. Other emerging market funds (with the exception of LatAm funds) as well as global equity funds also faced decreased inflows: GEM fund inflows were down 24% WoW, EMEA funds 72% less and Global funds –47%.

■ An early sign of rolling over? — Asian funds saw net redemptions 63% of the time in June over the past eight years. For the rest of the time when net inflows were recorded, redemptions were recorded in May. Given inflows to Asian funds have been strong in April and May this year (US$8.1bn vs. US$7bn over the same period in 2008), we believe that the risk of foreign fund flows is on the downside. For instance, net outflows in June 08 totaled US$4.8bn.

■ Regional Asian funds took in new money the most in dollar terms — This also indicates that net inflows to all Asian dedicated funds are close to tops, as investors seem to lack clear preferences after strong market rallies.

■ Inflows to China funds dropped the most; India funds saw increased interest — Inflows to China funds decreased from an average US$501m/week in the past month to US$273m last week. By contrast, flows shifted towards India funds post elections. This country is a consensus underweight at Asian & Global funds.

To see full report: FUN WITH FLOWS

>TORRENT POWER (HEM SECURITIES)

Company Snapshot
Torrent Power is one of the leading brands in the Indian power sector, pro-moted by the Rs. 45 billion Torrent Group – a group committed to its mission of transforming life by serving two of the most critical needs - Healthcare and Power. Torrent Pharmaceuticals Ltd., the flagship company of the Torrent Group, is a major player in the Indian pharmaceuticals industry with a vision of becoming a global entity in the arena. The company has reported earnings results for the full year ended March 2009. For the year, the net sales for the company jumped to Rs 44249.60 million for the FY10 as against the net sales of Rs 36183.20 million for the FY09 with the growth rate of 22.29%. The net profit for the company stood at Rs 4078.90 million for the FY10 versus the net profit of Rs 2112.40 million for the FY09 with the growth rate of 93.09%.

The company posted financial figures for the quarter ended March 2009 in line of expectations. The net sales for the company gone up by 14.93% to Rs 10764.10 million for the Q1FY10 as against the net sales of Rs 10582.30 mil-lion for the Q1FY09. The company posted the EBITDA of Rs 1932.70 mil-lion for the Q1FY10 as against the EBITDA of Rs 1297.90 million for the Q1FY09 with the growth rate of 48.91%. The operating profit margin for the company stood at 18.26% for the Q1FY10 as against the operating profit mar-gin of 14.10% for the Q1FY09. The net profit for the company stood at Rs 1446.40 million for the Q1FY10 in comparison to net profit of Rs 504.60 mil-lion for the Q1FY09 with the growth rate of 152.02%. The net profit margin rose 13.67% for Q1FY10 in comparison to 5.48% for Q1FY09, which clearly shows the strength of the company. The EPS for the company stood at Rs 3.06 for the quarter ended in March 09. The cash EPS for the company stood at Rs 1.07 for Q1FY10. The EPS on TTM (Trailing twelve months) stood at Rs 8.63 for the company.

Business Details
Torrent Power Ltd. (TEL) was incorporated on Apr. 29, 2004 as Torrent Power Trading. The name of the company was changed to Torrent Power on Jan. 25, 2006. Consequent to the conversion of the company into a public sector company on Feb. 8, 2006, the company came to be called as TEL. It came into existence after the merger of Torrent Power AEC, Torrent Power SEC and Torrent Power Generation. Gujarat-based TEL is a part of Rs. 45 billion Torrent Group and is engaged in genera-tion, transmission and distribution of power. Torrent’s venture into power sector began with the acquisitions of utilities, the Surat Electric-ity Company and the Ahmedabad Electricity Company. It turned them into first rate power utilities in terms of operational efficiencies and re-liability of power supply. The company has a generation capacity of 1600 MW and distributes over 7 billion units of power annually to Ah-medabad, Gandhinagar and Surat. The company also bagged the Gold Shield for two consecutive years, 2004-05 and 2005-06, for outstanding performance in power distribution by the Government of India. Distri-bution franchise business is one area which Torrent Power has been aggressively pursuing as part of its current expansion plans. The com-pany created history by entering into the country’s first distribution franchisee agreement with Maharashtra State Electricity Distribution Company Limited for Bhiwandi Circle in December2006.

Industry Outlook
In recent years, the Government of India (GoI) has taken significant action to restructure the power sector and attract investments. The most significant reform package has been the introduction of the Electricity Act, 2003 which has modified the legal framework governing the electricity sector and has been designed to alleviate many of the problems facing India's power sector and to attract capital for large scale power projects. Eleventh Plan of GoI envisages a capital expenditure of more than Rs.10, 00,000 crore in power sector to ensure "Power for All". The Common Minimum Program of the GoI focuses on 100 % village elec-trification by 2009 and 100 % household electrification by 2012. Last year marked the commencement of the I I th Five Year Plan. About 21,200 MW of capacity got added in the 10th Plan against a target of 41,100 MW. Focused efforts are, therefore, required to implement the targeted 80,000 MW in the I I th Five Year Plan by 20I 2. Given the growing demand-supply gap, the Indian Power Sector continues to be fundamentally attractive. The additional capacity required to be built is huge. In this context, we believe that the Generation sector would be of great interest to investors. A lot will depend however upon the Central and State Governments' resolve to address issues concerning Distribution sector reforms, expeditious clearances (land and environment in particular) and allocation/ linkage of fuel.

To see full report: TORRENT POWER

>THERMAX (EDELWEISS)

MARKED IMPROVEMENT

Energy segment boosts revenue growth; margins above estimates
Thermax’s (TMX) Q4FY09 results were significantly above our expectations, both on revenue growth and profitability fronts. For the quarter, standalone revenues grew 2.8% Y-o-Y to INR 9.5 bn, driven by higher-than-expected growth in the energy segment. Sequentially, revenues grew 19.3% in Q4FY09, a positive surprise after a 1.1% Q-o-Q dip in Q3FY09. Consolidated revenues declined marginally, by 0.4% Y-o- Y, to INR 10.1 bn in the quarter. For Q4FY09, standalone EBITDA grew 5% Y-o-Y to INR 1.3 bn. Standalone EBITDA margins were up ~30bps Y-o-Y to 14.1%. In Q4FY09, TMX posted a forex loss (included other operating expenses) of ~INR 259 mn, excluding which, EBITDA margins stand at ~16.8%. For the quarter, standalone PAT grew 17.1% Y-o-Y to ~INR 943 mn. While depreciation expenses increased 64.5% Y-o-Y to INR 100 mn, effective tax rate was lower ~1,000bps Y-o-Y at 30.3%. Standalone net margin for the quarter was up 120bps Y-o-Y to 9.9%. Consolidated PAT in the quarter grew 27.3%.

Strong order book; intake likely to pick up post H2FY10
TMX’s consolidated order book (adjusted for renegotiated orders) at FY09 end was at INR 30.8 bn. Order intake during the quarter was ~INR 5.8 bn. The scope of a few of TMX’s projects was revised, leading to contraction in the company’s order book. Amongst major orders that were revised, Brahmani Steel’s order value now stands at INR 3 bn (~INR 4.5 bn earlier) and that of Essar at INR 3.8 bn (INR 8 bn earlier). Management expects order accretion to pick up H2FY10 onwards.

Outlook and valuations
Improved visibility; maintain ‘ACCUMULATE’ We are revising up our estimates for FY10 and FY11 for the company on the back of increase in order accretion assumptions for FY10. In spite of the upwards revision we are still projecting a 7% Y-o-Y decline in order accretion in FY10. We have increased our execution period assumptions for the energy business by 30% from prior estimates. Our standalone revenues for FY10E and FY11E are now higher by 9.6% and 16%, respectively, from prior estimates. On the margins front, we now expect a ~20bps Y-o-Y decline at the EBITDA level to 12.5%, compared to earlier expected decline of ~70bps Y-o-Y. Hence, our standalone EPS estimates are higher by 20.2% and 23.1% for FY10 and FY11 at INR 24.1 and INR 29.3, respectively. Subsidiaries contributed INR 0.25 to consolidated EPS in FY09. We believe, if TMX bags a few large orders in the utility segment in FY10, its order backlog at FY10 end could be substantially higher than expectations, leading to higher-than-expected growth in FY11. The stock is trading at a P/E of 16.2x and 13.3x for FY10E and FY11E, respectively. Ex-cash, the stock is trading at a P/E of 15.3x and 11.7x FY10E and FY11E, respectively. We maintain our ‘ACCUMULATE’ recommendation on the stock.

Segmental performance
Revenues from the energy business grew 5.5% and those from the environment business declined 7.4%, Y-o-Y during the quarter. However, margins in the environment segment improved significantly by 640bps Y-o-Y. Management stated that the rise was a one off phenomenon and not sustainable. Further, the energy segment’s margins declined 170bps
Y-o-Y to 13.9%.

To see full report: THERMAX

>MUNDRA PORT AND SEZ LTD. (IDFC SSKI)

HIGHLIGHTS

■ Cargo handled at the port grew by 12%yoy to 9.5mt, higher than our expectation of 9.4mt. Bulk cargo volumes increased by 25.5%yoy to 5.5mt, crude cargo volumes increased by 7.9%yoy to 1.8mt (reversing a declining trend of previous two quarters) and container cargo volumes declined by 8.5%yoy to 2.3mt. Cargo volumes continue to remain strong with April-09 volumes at 3.25mt.

■ Revenues fell by 13.4% yoy to Rs2.84bn, lower than our estimate of Rs3.1bn, due to Nil income from land sales. FY09 revenues increased by 38.7% yoy to Rs11.35bn.

■ EBITDA margins for the quarter stood at Rs58.2% (-460bps qoq, 1330bps yoy) impacted mainly by Nil SEZ sales during the quarter. Resultant Q4FY09 EBIDTA declined by 29.5%yoy to Rs1.7bn against our expectation of Rs1.9bn. FY09 EBIDTA grew by 37.7%yoy to Rs7.4bn with EBIDTA margins at 64.9% against 65.4% in FY08.

■ Q4FY09 depreciation charges were higher by 34.3%yoy at Rs391m with adverse impact of Rs11.8m due to increase in fixed assets due to capitalization of forex losses of Rs882m for the year. Net interest charges were lower by 21.8%yoy at Rs225m due to higher interest income of Rs255m (Rs158m in Q4FY08) from unutilized proceeds of IPO funds (Rs7.9bn in March-09).

■ Overall, net profit before extra-ordinary items and forex gain/loss grew by 24.5% yoy to Rs1.2bn for the quarter, in line with our estimate of Rs1.2bn. The growth in net profit appears steep in the backdrop of a 39% fall in PBT due to the impact of very high tax provision in Q4FY08.

■ FY09 consolidated total income increased by 42% to Rs12.4bn from Rs8.4bn in FY08. FY09 reported consolidated net profit increased by 105% to Rs4.3bn from reported net profit of Rs2.1bn in FY08.

■ The company declared dividend of 30% for FY09 (including 20% interim dividend) against 15% in FY08.

To see full report: MUNDRA PORT