>ASIAN PAINTS

Asian Paints reported disappointing set of numbers for Q1FY13 on the back of meagre volume growth. Company reported consolidated sales of INR 25,479mn, a YoY growth of 12.72% largely led by price increases. EBIDTA margin improved by 18bps YoY to 17.53%. PAT grew by 9.38% YoY to INR 2,884mn which was below our expectation. We expect volume growth to pick in next quarter; however, improvement in monsoon and stable exchange rate would be the key catalyst for the company's performance. We expect consolidated sales and PAT CAGR of 16.77% and 18.62% over FY12-14. At CMP, stock is trading at 30x FY13E EPS, which in our view is high on the backdrop of falling demand and continued pressure on margins. We downgrade to SELL.



Disappointed volume growth
Company's domestic decorative paints (standalone) business grew by 11.24% (after adjustment for shift in industrial business from standalone to subsidiary) representing a meagre volume growth of ~1% which is quite low compared to ~14% CAGR in last 2 years. The lower growth in volumes is attributed to higher stocking by dealers in previous quarter and lower consumer confidence in weak macro-environment which was also dented by ~25% cumulative price hikes taken by the company in last two years. However, we expect volume growth to pick up from next quarter onwards albeit at slower pace.


Price hikes supported margin expansion
Effective price hikes of ~5% YTD in decorative paints business supported by lower cost inventory helped company to improve its standalone EBIDTA margin by 343bps QoQ and 112bps YoY to 19.68%. However, the margin expansion in Q1FY13 in our view is not sustainable and is likely to contract in next quarter. Continued pressure on international and industrial paints business resulted in consolidated EBIDTA margins to improve by 249bps QoQ and 18bps YoY, lower than standalone. INR depreciation bereft company to take benefit of fall in international prices of key RM like TiO2 and crude derivatives.



Other business, a mixed bag
Other businesses including international and industrial paints business grew by ~32% YoY. International business reported good growth on the back of continued growth momentum in South Asian markets (except Nepal) and improved macro-environment in Middle East. Industrial paints business though reported growth in revenues but inability to pass RM inflation to institutional clients resulted in margin erosion. Growth in international and industrial paints business is expected to come down on the back of overall slowdown in Global economy and industrial sector.


Bad monsoon could be a damper
Company saw slowdown in rural demand owing to high inflation and delayed monsoon. In the event of bad monsoon, there could be risk to demand scenario particularly in rural markets which currently contribute ~50% to decorative paints revenue.


Outlook & Valuation
After considerable slowdown on volume front from ~16% in FY11 to ~11% in FY12 and ~1% in Q1FY13, we expect the downward trend in demand to continue. Lower demand also reduces the scope for any price hikes which would continue to put pressure on margins on the backdrop of high RM cost pressure. Poor monsoon and INR depreciation (against USD) could pose further risk to the overall performance of the company and therefore are key watchable. We downgrade the rating on the stock to SELL with target price of INR 3,336 (18 months) discounting FY14E EPS at 23x.

>ASHOK LEYLAND

Results in-line; Maintain Neutral


Ashok Leyland’s (ALL) 1QFY13 operating results were largely in line with our expectations with EBITDA margins at 8.0%, identical to our estimate. Revenues at Rs.30.1bn (our est. Rs.9.3bn) registered a YoY growth of 21% and sequential drop of 30%. PAT stood at Rs.669mn, in line with our estimate of Rs.665mn but significantly lower than street estimate of Rs840mn. Though we continue to see macro headwinds impacting volume growth in CVs which can surprise on the downside, we believe that at these valuations (post correction in the stock price), it factors in the macro concerns. As a result, we maintain our Neutral
rating on the stock with a revised target price of Rs23.7.


Operating performance in line: Revenues stood at Rs.30.1bn compared to our estimate of Rs.29.3bn. The drop in NSR was lower than our expectations (down 10% QoQ v.s Est. 12%) resulting in better than expected revenue growth by 2.5%. Lower realization was expected due to higher contribution from Dost to overall volumes at 36% in 1QFY13 compared to 16% in 4QFY13. Also, increase in discounts largely neutralized the positive impact of price hikes. As expected, interest burden was on the higher side due to increase in borrowings to support the higher working capital requirement.


Conference call highlights: 1) the management expects overall M&HCV industry growth to remain flattish for FY13E. However, overall volume growth for AL will be around 7-8% for M&HCV segment. 2.) Overall borrowings increased to Rs.47.5bn in 1QFY13E largely on account of short term borrowing increasing by Rs.13bn due to higher working capital needs. 3.) Inventory as on 1QFY13E stood at 10,000 units; the management indicated about 25% cut in production in July and expects the inventory to correct to 6,000-7,000 units. 4.) The company incurred a capex of Rs.1.6bn in 1QFY13E and has scaled down overall capex for FY13E to Rs4.5bn from Rs.6.5bn earlier 5.) Discount has gone up by Rs.10-15k QoQ and now stands at Rs60-65k per vehicle.



Valuations and Recommendations: At the CMP of Rs22.6, the stock trades at 11.7x FY13E EPS of Rs1.9 and 9.2x FY13E EPS of Rs2.4. We continue to maintain Neutral rating on the stock with a revised target price of Rs23.7 (based on 6.0x FY13E EV/EBITDA and Rs2.7 per share as value of investments in JVs at 50% discount).

RISH TRADER

>FAQs ON EXCHANGE OF WARRANTS IN TO EQUITY SHARES OF RS. 2 EACH OF THE CORPORATION

1. What is the face value of the Warrants?
Warrants have no face value.


2. On which stock exchanges are the Warrants listed?
The Warrants are listed on BSE Ltd and National Stock Exchange of India Ltd.


3. What is the lot size for dealing in the Warrants on the stock exchange(s)?
The lot size for dealing in Warrants on stock exchange(s) is of 1850 Warrants.


4. How many Warrants can be exchanged with Equity Shares at one time?
There is no limit on the number of Warrants that can be submitted for exchange.
5. Where should the Warrant Exercise Form be submitted for exchange with equity shares of the Corporation?
The Warrant holder can download the Warrant Exercise Form from the website of the Corporation (http://www.hdfc.com/investors/warrants.asp) and submit the same duly filled and complete in all respects along with at par cheque/demand draft and prescribed documents to the Registered Office or to the Investor Services Department of the Corporation, between 9.30 a.m. upto 5.00 p.m. at the following addresses. Please note that the last date for submission of
the form is Friday, August 24, 2012, in Mumbai.


Housing Development Finance Corporation Limited
7th floor, Ramon House,
H.T. Parekh Marg,
169, Backbay Reclamation,
Churchgate, Mumbai – 400 020.
Ph: 022-66316241/242/290


Or


Investor Services Department
Tel Rasayan Bhavan,
Tilak Road Extension, Dadar T T,
(Opp BEST Workshop Gate No. 4),
Dadar East, Mumbai 400 014.
Ph: 022-61413903/05/07/09




6. What is the amount payable for exchange of each Warrant and what is the exchange ratio?
The Warrant holder is required to pay Rs. 600 per Warrant for exchange into 1 [one] equity share of Rs. 2 each of the Corporation.


7. What are the documents required to be submitted for exchange of Warrants?


In case of individuals
· Warrant Exercise form, duly filled, in original;
· Cheque / Demand draft drawn in favor of ‘Housing Development Finance Corporation Limited’ (account no. 00600350071894) towards Warrant Exercise consideration amount;
· Self - attested copy of PAN card of all Warrant holder(s); and
· Your telephone/ mobile number.


In case of non-individuals (Body Corporate, FIIs, FIs, Custodians, Firm, etc.)
· Warrant Exercise form, duly filled, in original;
· Cheque / Demand draft drawn in favor of ‘Housing Development Finance Corporation Limited’ (account no. 00600350071894) towards Warrant Exercise consideration amount;
· Certified copy of PAN card; and
· Certified true copy of Board Resolution of the firm, stating the list of authorized signatories; or
· Attested copy of Power of Attorney containing the names of signatories authorized to execute the Warrant Exercise Form.
· Your telephone/ mobile number.


8. What is Warrant Exercise Date?
The Warrant Exercise Date refers to the date on which the Warrant Exercise Form, duly completed in all respect, is lodged with the Corporation. If the Warrant Exercise Form is lodged after the business hours of the Corporation or on a holiday, the next working date would be considered as the Warrant Exercise Date.


9. What is Warrant Exercise Period?
The Warrant Exercise Period refers to the period from August 25, 2009 up to 5.00 p.m. on Friday, August 24, 2012 i.e., up to which the Warrant holders can lodge the Warrant Exercise Form along with at-part cheque/ demand draft and prescribed documents, with the Corporation, for exchange of Warrants with corresponding number of equity shares of the Corporation.



10. What are the modes of payment of Warrant Exercise consideration? Whether fund transfer through RTGS is accepted?
The Warrant Exercise consideration can be paid only through at-par cheque or demand draft payable at Mumbai.


11. Whether consideration can be remitted through DCS/RTGS/NEFT?
No. Consideration amount cannot be remitted through DCS/RTGS/NEFT.


12. Does the Warrant holder need to transfer the Warrants to a separate Depository (Escrow) Account prior to submission of Warrant Exercise Form?
No. On receipt and verification of Warrant Exercise Form and realization of the consideration amount, the Corporation will proceed to extinguish the Warrants as stated in the Warrant Exercise Form, through a Debit Corporate Action.


13. What is the last day of the Warrant Exercise Period?
In terms of the Placement Document dated August 21, 2009, the Warrant Exercise Period extends up to 5.00 p.m. on Friday, August 24, 2012, in Mumbai.


14. What happens if the Warrants are not exercise before the expiry of the Warrant Exercise Period?
Warrants not lodged for exchange with the equity shares of the Corporation before the expiry of the Warrant Exercise Period viz. up to 5.00 p.m. on Friday, August 24, 2012, in Mumbai will lapse and shall cease to be valid and amounts paid towards it to date will stand forfeited. No further claim shall lie against the Corporation in this regard after the said date.


15. What is the record date for suspension of trading of the Warrants?
The Corporation has in consultation with the BSE and NSE, fixed Tuesday, August 21, 2012 as the record date for suspending the trading of the Warrants, so as to enable the Warrant holders to exchange the said Warrants with equity shares of the Corporation, during the said Warrant Exercise Period viz. up to 5 p.m. on Friday, August 24, 2012, in Mumbai.



16. What is the last date for trading in Warrants?
Please note that trading in the Warrants will be suspended from Friday, August 17, 2012 and consequently the last date for trading in the Warrants on the floor of the Stock Exchange would be Thursday, August 16, 2012.


17. What are the consequences of non submission of the Warrant
Exercise Forms before the expiry of the Warrant Exercise Period? The Warrants not lodged for exchange by 5.00 p.m. on Friday, August 24, 2012, in Mumbai, will lapse and cease to be valid and amounts paid in that regard, will stand forfeited. Further, thereafter such Warrants will be
extinguished by the Corporation, and no further claim shall lie against the Corporation in this regard, after the said date.


18. Will the Warrant Exercise Period be extended?
No. The Warrant Exercise Period will not be extended under any circumstances.


19. How long will it take for the equity shares to be allotted and credited to your depository participant’s account?
The entire process of exchange of Warrants with equity shares of the Corporation is subject to verification of the Warrant Exercise Form, the prescribed documents and realization of the consideration amount. Thereafter, the Corporation will engage with the Stock Exchanges/
Depositories, for extinguishing the warrants, allotting and crediting corresponding number of equity shares, receipt of listing and trading approvals, which normally takes 15 days from the date of receipt.


20. Will the equity shares allotted pursuant to exchange of Warrants be eligible for dividend, if any, declared for the FY 2012-13?
Yes. The equity shares allotted pursuant to conversion of Warrants will be entitled to dividend for the full year, if declared, for the FY 2012-13.

RISH TRADER

>CARBON MARKET (EUROPEAN UTILITIES)

EC could delay 400m to 1.2bn of carbon auction in Phase 3 Reuters reported on 14th June that the European Commission’s draft proposals to stimulate the carbon market could involve delaying the sale of 400m, 900m or 1.2bn permits during 2013-15 and then releasing them over 2016-18. The EC declined to comment, citing market sensitivity. But market fundamentals do not change without a structural solution


The 1.2bn figure clearly cheered up a carbon market, which has been desperate for some good news, and carbon prices edged up over EUR8/t. However, we are of the view that simply delaying the auction of some permits in Phase 3 does not change the long-term fundamentals of the EU ETS. This appears to be more of a way to kick the can down the road and prevent the market from crashing.


Three basic options to deal with carbon, two unlikely, in our view
Out of the EU’s three basic options for dealing with the EU ETS – a temporary delay, a permanent set-aside or doing nothing – we think the last two are unlikely. Intervention in the European carbon market has become more a question of when and how, not if, but it is hard to imagine a permanent set-aside being implemented in the next 12-18 months due to the lack of political support from carbon-intensive countries, especially the Eastern Europeans and those countries that are struggling with recession. ST impact of the delay: from minimal to significant…


We estimate that ~1.8bn of surplus will be coming into Phase 3, and hence a mere 400m delay over three years will be unlikely to move the carbon market materially, if at all. Meanwhile, an action towards the upper range, e.g., 900m or 1.2bn, will likely create a temporary scarcity in the system, thereby boosting the carbon prices. Regarding a 1.2bn delay, we think the EUA price could be pushed upwards to EUR9-11/t by end-2013.


To read report in detail: CARBON MARKET