>DB CORP LIMITED: Better-than-expected numbers…

On a consolidated basis, DB Corp reported its Q4FY10 results. The results were above our expectations. The topline stood at Rs 257.2 crore (I-direct estimate of Rs 248.5 crore), growing 13.3% YoY on the back of higher ad revenues. EBITDA for the quarter grew 44.9% YoY to Rs 69.6 crore. Lower newsprint prices and cost rationalisation measures adopted by the company led to an improvement of 589 bps in the EBITDA margin, which stood at 27.0%. The company reported a PAT of Rs 36.7 crore as compared to Rs 23.5 crore in Q4FY10.

■ Highlights for the quarter
DB Corp reported YoY ad revenue growth of 10.8% at Rs 185.1 crore. The ad revenue was led primarily by higher volume growth and re-pricing of old clients. Circulation grew 4.2% YoY to Rs 52.7 crore. The EBITDA margin improved YoY on the back of lower raw material cost that was down 8.5% YoY, while QoQ it declined due to higher selling and administrative expenses. Revenue from the radio business grew from Rs 8.0 crore to Rs 10.3 crore in Q4FY10. The radio business broke even during Q4FY10.

■ Merger of radio business
The company has demerged the radio business from its subsidiary Synergy Media Entertainment Ltd (SMEL) and merged it into the parent company.

Valuation
At the CMP of Rs 240, the stock is trading at 20.0x FY11E EPS of Rs 12 and 16.8x FY12E EPS of Rs 14.3. Given the good advertisement growth and break even in the radio business, we are confident about the company’s performance. We have valued the stock at 18x FY12 EPS to
arrive at a target price of Rs 258. This implies an upside of 7.4%. We are maintaining our rating on the stock as ADD.

To read the full report: DB CORP

>RELIANCE INDUSTRIES (ANAND RATHI)

■ RIL-ADAG overhaul non-compete agreement. RIL and ADA group companies have signed and approved an agreement canceling all existing non-compete arrangements entered into between them in Jan ’06 pursuant to the reorganization of the Reliance group. They have now entered into a new non-compete agreement with respect to only gas-based power generation for the period extending until Mar ’22.

■ New opportunities for RIL to deploy excess cash. With the change in the non-compete agreement, RIL now has the freedom to explore investment opportunities in the telecom, power, and financial services segments. While some of these businesses were expected to be out of the non-compete framework after five years of initial de-merger of businesses of the Reliance group, it seems that for businesses like telecommunication, the non-compete agreement was (earlier) until 2015.

■ Gas agreement under negotiations. RIL’s statement said that they expect to expeditiously negotiate and conclude the gas supply arrangement with RNRL in accordance with the orders of the Supreme Court. We believe that the role of the government still remains critical, as any gas allocation to RNRL or its affiliate can only be done by the government and not by RIL, as per the
existing gas utilization policy.

■ Valuation. At our target price of Rs1,150, RIL offers 15% upside to current market price.

To read the full report: RIL

>BHEL (INDIA INFOLINE)

■ Robust 29% yoy revenue growth aided by 30% growth in power division.

■ Continues to benefit from lower raw material cost, operating margin expands by 225bps yoy to 18.3%

■ Higher depreciation, due to commissioning of the enhanced capacity, partially offset operating profit growth – thus resulting into 42% PAT growth during the quarter

■ Order book continues to remain strong at Rs1.4trn, provides earnings visibility for the next 3 years

■ Maintain BUY, but reduce target marginally to Rs2,709/share to reflect higher competition in FY12.

To read the full report: BHEL

>The Great Reflation: The Mother of all Financial Experiments

Chuck Prince, the former CEO of Citigroup, who presided over the bank’s collapse, famously remarked in July 2007 that "as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” Shortly after, the music stopped, the financial system broke, and Citigroup and other financial behemoths went under.

To rescue the economy and financial system from near‐total meltdown, the government created
an unprecedented package of bailouts, stimulus, free money and massive fiscal deficits. It succeeded, and a 1930s style debt deflation and depression were aborted. Liquidity, on a vast scale was unleashed into the financial system, demonstrating, once again, the power of such flows to drive up the prices of stocks, commodities and other risky assets.

In The Great Reflation we focus on how the authorities pumped air back into the balloon, and
got the music playing again. Investors and banks, including Citigroup, are back out on the dance floor. However, just because the system was saved, doesn’t mean it has been fixed.

Why do we say that the system isn’t fixed? The major theme running through The Great Reflation is that we have been living through a multi‐decade period of money and credit inflation that started back in the 1960s when the post‐World War II global monetary system (Bretton Woods) began to break down. The Great Reflation is about this inflation and the consequences of the Act II, which is now unfolding.

The Engine of Inflation
Inflation is the biggest enemy of investors in the long run. However, in the short term, inflation
in its early stages is often a wonderful elixir, greasing the wheels of the economy and causing riskier assets like stocks, commodities and corporate bonds to levitate. Euphoria tends to build as people get richer. But, it is important to understand that inflation is an undue expansion of money and credit. It can have the effect of raising the prices of things we consume or the prices of assets that we own or want to buy. But those are the symptoms of inflation that, if extreme, tell us that a bust is coming. In the case of rising consumer prices, the central bank ultimately has to raise interest rates and curtail credit. Recession follows. Or, if asset prices rise on the back of credit expansion, debt servicing ultimately becomes unbearable and asset prices—the collateral—start to fall, but debt levels are fixed in the short term. When people can’t service or repay debt, panics and crashes follow, and the risk of a debt deflation and depression rises dramatically.

Too much debt and falling asset prices caused the depression of the 1930s and almost another
one in 2008‐2009. One Important reason that debt rose to such extremes, both in 1929 and 2007 was that the monetary system had a built‐in inflationary bias. In the 1920s, it was called the gold exchange standard, whereby countries held both gold and currencies in their reserves. In the post‐1971 world, it was called the floating dollar standard or Bretton Woods II. Countries held mainly dollars in their reserves. As a result, the U.S. could inflate at will and foreign countries had to buy the excess dollars on the foreign exchange market if they wanted to prevent their currency from rising. In a world of low and falling price inflation, as was the case after 1982, almost all countries want a cheap currency.

To read the full report: THE GREAT REFLATION