>ADANI POWER IPO FACT SHEET (SHAREKHAN)

Object of the issue
The total issue of 30.16 crore equity shares is aimed at raising Rs2,715 crore to Rs3,016 crore (depending on the price band of Rs90-100 per share). Of the total issue the company is expected to deploy Rs2,193 crore for funding its projects while the balance would be utilised for general
corporate purposes.

Shareholding pattern
After the issue the total number of shares of the company will increase from 187.9 crore to 218 crore, bringing down the promoter group’s stake to 73.5% of the diluted equity

Company background
Adani Power Ltd (APL) is a power project development company that is developing and will operate and maintain power projects in India. The company currently has four thermal power projects under various stages of development, with a combined installed capacity of 6,600 megawatt (MW). In addition, the company is also planning to develop two power projects with a combined installed capacity of 3,300MW.

Adani Enterprise Ltd (AEL), the promoter of APL, is part of the Adani group. AEL is one of the largest traders of coal with coal mining rights both in the international and domestic markets. AEL is one of the largest power traders—in volume terms—in India. Another Adani group company, Mundra Port and Special Economic Zone Ltd (MPSEZL), owns and operates one of the largest private sector commercial ports in India, a special economic zone (SEZ) at Mundra, and a railway line between Mundra and Adipur. This would help APL to derive strong synergies, what with its projects being located in close vicinity.

Key risks

■ Sourcing equipment from Chinese manufacturers
APL has indicated its intention to procure the equipment for its planned capacity from the Chinese equipment suppliers. There has been significant reports about the quality and poor performance of the Chinese equipment in the country. If the equipment do not operate as required the financials of the company could be significantly affected.

■ Timely execution of projects
In case the company is not able to execute and commission its projects in time, it could hamper the cash flows and earnings going forward.

To see full report: ADANI POWER IPO

>AMARA RAJA BATTERIES LIMITED (NIRMAL BANG)

Snapshot
Amara Raja Batteries Limited (ARBL) is engaged in the production of storage batteries used in the industrial and automotive segments since 1985. ARBL entered into a JV with Johnson Controls Inc, USA for the import of technology for the manufacture of Automotive (SLI) batteries.

Investment Rationale
■ ARBL earns 55% of its revenues from Industrial VRLA batteries that cater to the sectors such as Telecom, Power & Railways which we believe are high growth & high margin businesses & have grown at a CAGR of around 50% over a period of last 5 years.

■ The slowdown in the Auto sector seems to be over with revival in auto sales in the first quarter of this financial year. Apart from this the replacement markets are expected to boom as the industry had witnessed double digit growth in last five years. The replacement market contributes 66% of the company revenues from Auto segment and has margins in the range of 20‐22%.

■ The Company is planning to incur a capex of Rs. 90 crores in the current year to expand it two‐wheeler battery capacity from 1.8 mn units to 2.4 mn units & UPS batteries from 1.2mn units to 1.8 mn units. Two wheeler batteries command higher margins in the range of 25‐30% & will help improve overall operating margins of the company.

■ ARBL batteries are used to power air‐conditioning in AC coaches of Indian Railways, which already has added 45350 new‐age coaches and further plans to add 22869 more, which we believe are a ready market for ARBL batteries.

■ With a mobile penetration of just 38% in India as against 60% in China, we feel there is enough scope of growth for the telecom sector. With ARBL a preferred supplier to almost all telecom operators in the country, the growth opportunities seem tremendous.

■ ARBL batteries support the transmission & distribution networks of Power stations. Increased spending by the government in the power sector will boost demand as government plans a 48% growth in transmission grid growth in the eleventh plan.

Valuation Recommendation
At the current market price of Rs. 100 per share, ARBL is currently trading at a PE of 6.3x FY10E and 4.8x FY11E EPS estimates, which looks quite attractive when compared to its peers. At Rs. 100 per share the stock is trading at a discount of 69% from our intrinsic price of Rs. 169 per share
which is 10.7x FY10E and 8x FY11E earnings. We recommend a BUY rating on the stock with a long term view.

To see full report: ARBL

>BHARTI AIRTEL (ICICI DIRECT)

Lower ADC denting ARPU…
Bharti reported Q1FY10 results which were a tad above our estimates. Top line grew by 1.2% QoQ and 17.2% YoY to Rs 9941.6 crore (I-direct estimates Rs 10253.6 crore). EBITDA stood at Rs 4151.8 crore at 41.8%. EBITDA margins improved by 24 bps QoQ and 103 bps YoY to 41.8% led by reduction in termination charges from Rs .30 to Rs .20 (effective from 1st Apr ’09). PAT margins stood at 25.3% as against 22.8% in the last quarter. The company posted a PAT of Rs 2516.7 crore versus our expectation of Rs 2334.6 crore.

Highlight of the quarter
The company crossed 100 million subscriber mark in Q1FY10, ending the quarter with 102 million subscribers. It added 8.4 million subscribers during The quarter with majority of them being from rural India. ARPU declined by 8.8% to Rs 278 primarily due to reduction in termination initiated charges by DoT from Rs 0.30/minute and Rs 0.20/minute (effective from 1st Apr ’09). The reduction of ADC resulted in a negative impact of Rs 12 on the ARPU. During the quarter, the company added 10 bn minutes on its network. Total minutes stood at 140 bn minutes at the end of quarter.

Valuations
We value the company using the SOTP method. Ascribing a value of Rs 786 to the core businesses, Rs 48 to Infratel and Rs 75 to Indus contribution, we have arrived at a target price of Rs 909/share. Our target price for Airtel discounts the FY10E EPS of Rs 51.7 by 17.6x and FY11E EPS of Rs 61.2 by 14.8x. We upgrade the stock to PERFORMER from HOLD. The company has got an approval for stock split in ratio of 1:2. In case of stock split the effective
target price would be Rs 455.

To see full report: BHARTI AIRTEL

>BHEL (CITI)

Hold: PAT Disappoints; Positive Surprise on Inflow Momentum

■ PAT disappoints — 1QFY10 PAT at Rs4.7bn up 22% YoY was 7% below CIRA estimates and 12% below Bloomberg consensus on higher staff costs and marginally higher raw materials costs. The staff costs in 1QFY09 looked unusually high given that FY10E management staff cost guidance is Rs45bn.

■ Raw material costs will ease from 2QFY10 — Raw material costs were higher in 1QFY10 due to: 1) Use of high cost inventory (9-10 months old) till May09; and 2) Work done on ONGC Hazira, Pragati and one more gas turbine where value added was low. BHEL has started using the inventory bought in Sep08 from Jun09 and as a consequence raw materials costs should ease from 2QFY10.

■Order inflow momentum surprises on the upside — Rs126bn of orders in 1QFY10 ahead of CIRA expectations of Rs70bn. Company expects to announce 3.6GW (~Rs72bn) of private sector orders this week. Order inflow guidance for FY10E has been hiked to Rs550bn from Rs500bn at the start of year and the company expects to book Rs550bn of orders in FY11E also. The bulk NTPCDVC
order is likely to be booked in the first month of FY11E. The order inflow momentum is a clear sign of the perceptible shift from Chinese equipment suppliers to BHEL in the private sector.

■ FY10E consensus and CIRA estimates seem aggressive — Management reiterated FY10E sales guidance of 25% YoY and PAT guidance of 30% YoY. CIRA and consensus EPS estimates are 10% and 8% higher than management EPS guidance of Rs83. The management conference call is tomorrow.

To see full report: BHEL