>IRB INFRASTRUCTURE DEVELOPERS LIMITED (DOLAT CAPITAL)

IRB’s FY09 results were in line with our estimates. The consolidated net revenue has grown by 35% YoY on the back of ~23% YoY increase in toll revenue and ~56% YoY increase in construction revenue. However, margins have shown a dip due to rise in construction cost on account of higher raw material prices. The construction cost saving upto 20% is estimated on Surat Dahisar BOT which will have a positive impact on the project and aggregate NPV. However, it would be too early to factor in this development as the project has just begun and will be completed in the next 28 months. We believe, in the current scenario, change in our assumptions (traffic growth rate, cost of equity and debt, toll escalation rate) are not warranted. Our calculation suggests the NPV of BOT projects will have the highest sensitivity to the traffic growth rate amongst other factors. We have valued the stock on SOTP (BOT – NPV and EPC – PER) method and believe that the stock remains overvalued at these levels. We maintain a SELL on the stock with target price of Rs 67(BOT - Rs.56 and EPC - Rs.11).

Order book details
The Company has an order book of Rs.58.9 bn as on 31st March 2009 (of which O&M work accounts for 43.7%, EPC in ongoing BOT projects accounts for 51.6% and rest 4.6% is attributed to funded projects). Further, the EPC order book of Rs.30.46 bn is confined to construction work of ~300 kms, out of which Surat Dahisar accounts for 239 kms and KIRDP (Kolhapur Road Integrated Development Programme) for 50 kms. The company expects to execute the order book in next two and half years.

Project update

Surat Dahisar BOT
The EPC cost of the project (~Rs.25 bn) is expected to be reduced by ~20% on account of reduction in raw material prices and cost of funding. This is expected to result in a saving of around Rs.5 bn. However, it would be too early to predict the extent of cost saving as only 2 months of construction period has gone by out of a total period of 30 months. Hence, any upward movement in RM cost in the balance period of construction might not reduce the construction cost to the extent of 20% as anticipated by the company.

IRB has started collecting toll from 20th Feb 2009 on this stretch and has so far collected Rs.335.9 mn on gross level (around 7.3% contribution to total toll revenue) but this is lower than earlier expectation by around ~26%. The current run rate is ~Rs.8.5 mn/day on the gross basis as against the expected ~Rs.11.5 mn/day. The lower toll collection is on account of lesser port traffic on the stretch due to slow down in exports and economic activities.

Sensitivity of NPV to change in construction cost (EPC) at constant 6% traffic growth
The NPV of Surat Dahisar BOT will range between - Rs.4.82 per share to Rs 3.71 per share for 0% to 20% cost saving in construction expense.

Our aggregate NPV is estimated to improve between 3.8% to 15.3% for reduction in construction cost between 5% to 20%. (NPV range – Rs 55.90 per share to Rs 64.43 per share).

To see full report: IRB INFRASTRUCTURE

>CINEMAX INDIA (RELIGARE)

Margin pressure continues

Sales in line with estimates: Cinemax India’s consolidated revenues for Q4FY09 rose 34.9% YoY to Rs 334mn, broadly in line with our estimates. The exhibition business was the main revenue growth driver, rising 43.4% YoY to Rs 308.3mn. Income from the retail space stood at Rs 22.5mn, while windmill and distribution/production revenue stood at Rs 3.1mn and Rs 0.3mn respectively.

Exhibition revenues increased because of the addition of 22 new screens during the year along with higher footfalls, although the average occupancy dipped to 25% in Q4 from 29% in comparable properties, and average ticket price (ATP) declined marginally to Rs 129. Occupancy in non-comparable properties was 28% and ATP stood at Rs 118. F&B spend per head at comparable properties increased to Rs 31 from Rs 29 in Q4FY08, whereas it stood at Rs 27 for noncomparable properties.

Lower occupancy rates and decline in ATP lead to margin pressure: Operating profit declined 25.8% YoY to Rs 35mn owing to lower occupancy rates and ATP. Film distribution cost increased to Rs 67.7mn, rising by 70bps as a percentage of net revenue to 20.3%. Other expenses rose by 68% to Rs 182mn, accounting for 54.4% of net revenue (up 1,080bps). F&B cost and employee cost stood at Rs 18.4mn and Rs 30.6mn respectively.

Net profit drops 55.8% YoY: Cinemax reported a PBT of Rs 2mn in Q4FY09 against Rs 37mn in Q4FY08. In spite of a tax write-back of Rs 8mn, PAT declined 55.8% YoY to Rs 10mn.

Operational highlights – 16 new projects in the pipeline: Cinemax is present in 25 locations as of Q4FY09 with 74 screens, including 5 added during the quarter. The number of footfalls has increased from 6.6mn in Q3FY09 to 8.5mn in Q4FY09. The company has a total of 16 new projects in the pipeline which will add 55 screens and 12,678 seats by FY10.

Earnings estimates cut – Hold: The stock is quoting at 10.2x P/E and 7.5x EV/EBITDA on FY10E. We have reduced our net profit estimate for FY10 by 12.4%, on account of lower revenue estimates given the standoff between producers and multiplex owners. In addition, we have switched over from a DCF-based valuation to a P/E model in order to capture the overall re-rating in the media sector. Our revised price target thus stands at Rs 61, based on a P/E of 10x on FY10E. We upgrade the stock from Sell to Hold.

To see full report: CINEMAX INDIA

>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