>ROAD INFRASTRUCTURE SUMMIT (JM FINANCIAL)

Driving India’s economic growth – From IT to Infrastructure

■ Ushering in the change by reaching out to investors: We cohosted Mr Kamal Nath, Union Cabinet Minister for Road Transport and Highways. The panel members included other luminaries like NHAI chairman Mr Brijeshwar Singh and Mr Brahm Dutt, Secretary, Ministry of Road Transport and Highways. This was Mr Kamal Nath’s first investor meeting post taking over the Ministry and shows the new and progressive outlook the government has on building infrastructure.

■ Open to suggestions and new ideas that can help improve execution: Mr Kamal Nath emphasized the role of infrastructure and particularly roads in driving the economic growth. He highlighted the importance of domestic demand, in the current global downturn and India’s favourable demographics. The minister reiterated his commitment to achieve development target of 20km of roads per day. His commitment and zeal was seen in his eagerness to listen to
suggestions. He invited suggestions on improving transparency, efficiency in bidding/awarding projects and innovative means of financing to meet the investment target for NHDP. The minister was confident to smoothen out issues on an urgent basis and will look into ways to make road sector projects more investor friendly. He highlighted that his focus was to decentralize and work closely with all stakeholders like various state governments, investors, developers etc. in implementing best practices.

■ Aggressive targets have been well thought-out with clear workplans: The last 2 years have not seen much progress with NHDP projects with only 9 projects being awarded in 2008-09. Mr Kamal Nath explained that even though the progress appeared slow, this was an important phase as the government has gained tremendous experience. Mr Singh presented a detailed work plan to award 126 projects covering around 12,000 km in 2009-10. Of this, 65 projects are expected to be open for bidding in Q2/Q3 FY10.

■ Land acquisition remains a major concern for investors: Investors expressed concern the fact that land related issues caused delays in project implementation leading to cost and time overruns. Mr Nath highlighted that with 80% of land being made available even before bid and balance 20% being notified, risk should get reduced. He also seemed open to increase the availability to 90%. A number of suggestions were put forward: innovative structures for bidding (eg. Swiss Challenge), easy access to superior technology for developers, private investment in projects (eg, NPV based concession period, monetizing land value), relaxing exit clause for developers to allow entry of investors post-completion. Mr Kamal Nath invited suggestions/white papers on these topics directly addressed to him.

To see full report: ROAD INFRASTRUCTURE

>PHARMACEUTICALS - GENERICS (MF GLOBAL)

AN INDUSTRY IN TRANSITION

CONTENTS

• INVESTMENT SUMMARY
• VALUATIONS: LARGE-CAP & MID-CAP GENERICS
• OUTLOOK FOR GENERICS
• RISKS

COMPANIES SECTION

• CIPLA
• BIOCON
• DR. REDDY'S LABORATORIES
• RANBAXY LABORATORIES
• SUN PHARMA INDUSTRIES
• LUPIN
• CADILA HEALTHCARE
• GLENMARK PHARMA

To see full report: PHARMACEUTICALS

>OIL & GAS UPSTREAM SECTOR ( DAIWA)

Ready for an upturn

Summary

■ We believe India’s oil-and-gas exploration and production (E&P) potential is being realised gradually with the success of the New Exploration and Licensing Policy (NELP). We expect E&P activity to pick up significantly over the next few years as blocks licensed out during previous rounds of NELP are explored and developed. The recent success of Reliance Industries (Reliance) (RIL IN, Rs1,893, 3) on the east coast and Cairn India (Cairn) on the west coast has given the sector an additional boost.

■ India is the fifth-largest consumer of oil in the world, and we forecast domestic demand to rise at a CAGR 4-5% over the next three-to-five years. Almost 73% of India’s demand for crude oil and 24% of its demand for gas are met by imports. Thus, new finds have a ready and expanding market. We are bullish on the longer-term prospects for crude-oil prices, and have a forecast of US$84/bbl for 2011 and a long-term forecast of US$85/bbl.

■ We initiate coverage of two pure E&P companies in India − Oil and Natural Gas Corp (ONGC)
and Cairn − with 2 (Outperform) ratings, as the stocks offer 7% and 6% upside potential, respectively, to our six-month target prices. We believe Reliance is also an exciting E&P play,
although its other businesses (such as refining and petrochemicals) are also significant.

To see full report: OIL & GAS SECTOR

>JK CEMENT (ICICI DIRECT)

Company Background
JK Cement, a part of the JK group, was incorporated by acquiring the assets of the cement division of JK Synthetics in November 2004. Currently, JK Cement has grey cement capacity of 4.4 million tonne (MT) and white cement capacity of 0.4 MT. The company is the second largest manufacturer of white cement in India. JK Cement sells cement under brand names Sarvashaktiman (43 grade OPC), JK Super (blended cement) JK White Cement and JK Wall Putty.

The JK Cement Works (Fujairah, UAE) FZC, a subsidiary of JK Cement, has signed an MoU with the Municipality of Fujairah. The company has been allotted limestone mines with reserves estimated at 150 MT.

Investment rationale

To increase cement capacity by 68%
JK Cement’s 3 MT greenfield plant at Karnataka is likely to be commissioned in H1FY10. The new plant will increase grey cement capacity by 68% from 4.4 MT at present to 7.4 MT at the end of H1FY10. On account of capacity additions, we expect JK Cement’s grey cement volumes to grow at a CAGR of 23.2% between FY09 and FY11.

Decline in pet coke prices, entering into high priced South Indian market to boost margins
JK Cement meets 90% of its fuel requirement through petcoke and rest 10% from linkage coal and open market. With crude oil and coal correcting from its peak, petcoke prices have also declined by 25% from its peak. Thus, we expect JK Cement’s power & fuel cost to decline to Rs 785 per tonne in FY10 from Rs 972 per tonne in FY09. Apart from this, JK Cement’s entry into the high-priced South India market will have a favourable impact on blended realisations. Thus, we expect the EBITDA margin of JK Cement to improve from 21.6% in FY10 from 22.6% in FY09.

Presence in high growth market
JK Cement’s sales contribution is 33% from Haryana, 27% from Delhi and UP, 21% from Rajasthan and 19% from Punjab, MP and Gujarat. Most states where JK Cement has a presence are growing faster than the all-India average. As against all-India consumption growth of 11% in April-May 2009, consumption has grown by 27% YoY in UP, 16% in Gujarat & Haryana, 11% in MP and 9% in Gujarat. Going ahead, we expect the northern region (key market of JK Cement) to continue to grow above the all-India average due to incremental demand that will come from the
Commonwealth Games and the hydropower projects coming up in the region. In addition, the upcoming US$90- billion Delhi-Mumbai Industrial Corridor project and the 1,483-km high-speed dedicated freight corridor project will also boost cement demand in North India.

Q1 results expected to be encouraging
With 14% YoY growth in blended sales volume and 5.8% increase in blended realisation, we expect net sales to grow by 20.6% YoY to Rs 414.4 crore. We expect the EBITDA margin to increase by 570 bps to 27.9% due to decline in power & fuel cost and improvement in realisation. We expect the adjusted PAT to grow by 69.8% YoY to Rs 61.3 crore. On a QoQ basis, we expect the PAT to grow 2.6%.

Risks & concerns

Delay in ramping up of greenfield plant

Delay in ramping up of greenfield plant of 3 MT at Karnataka may lead to lower volumes.

To see full report: JK CEMENT