Phillips Carbon Black- Continuing robust volume growth; Buy: Anand Rathi

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Phillips Carbon Black
Continuing robust volume growth; maintain Buy
 In line with estimate, revenue driven by better volumes.
Phillips Carbon Black (PCB) reported robust 2QFY11 volume
growth of 29.1% yoy (0.6% qoq), in line with our estimate, mainly
boosted by the 199.5% yoy rise in exports. This and better
realisation allowed it to clock a healthy 50.6% revenue growth,
despite the slightly lower contribution from the power segment.
 Power segment disappoints; 2QFY11 margin declines. PCB’s
12% 2QFY10 margin was considerably lower (by 18.6%), chiefly
due to the rise in raw material cost and the smaller contribution
from Power, down 12%. Employee cost jumped 76% yoy on
account of the bonus payout. At the EBIT level, contribution
from Power was down 20% yoy to `136m.
 Net profit slipped 25% yoy. The lower contribution from Power
dragged the net profit down 25% yoy to `242m, as the company
had made provision for a higher tax rate (33%; we expected 20%)
due to the lower power profits and higher deferred tax.
 Change in estimates. We lower our FY11 and FY12 EPS
estimates by 9.1% and 3% respectively due to the higher tax rate
and other adjustments.
 Valuation and risks. We maintain a Buy on PCB, with a revised
target price of `272 (earlier `278). The stock trades at 5.5x FY11e
and 4.3x FY12e earnings. We continue to value the stock at 1.3x
FY12e PBV, giving a target price of `272. We introduce FY13
estimates. Risks: Higher imports and lower exports of carbon
black; and lower-than-anticipated merchant power rate.

ONGC - Stable production but dry wells dent profits - IIFL

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Stable production but dry wells dent profits
ONGC’s standalone EPS grew 6% YoY to Rs25.2 in 2QFY11, falling short of our estimate on account of
unexpectedly high dry-well write-offs. We expect write-offs to remain elevated, as ONGC has achieved
only 50% of its ultra-deep-water exploratory programme target for FY11. Domestic production has
stabilised, thanks to Rajasthan ramp-up, with OVL’s production surprising positively by growing 9.6%
YoY over 1HFY11, driven by Block06.1, Vietnam. Average realisation improved to US$62.75/bbl on
lower subsidy burden QoQ. ONGC trades at 10.3x FY12ii EPS of Rs127. With a production ramp-up in
marginal fields allaying concerns of a decline in domestic production, we retain BUY on the stock.
2QFY11 in line with estimates: ONGC’s EPS grew 47% QoQ in 2QFY11, on lower subsidy burden, flat
volumes, and the full impact of the increase in APM gas price. A sharp 41% QoQ increase in recouped costs
driven by c3x jump in dry-well write-offs QoQ dampened EPS growth. The company wrote off five deepwater
exploratory wells in KG-Offshore in 2QFY11, and has achieved only half of its targeted ten-well exploration
programme in ultra-deep water in FY11. Other income grew 102% QoQ on higher dividend income.
OVL production surprises positively: Domestic crude production increased 3.8% QoQ on a 1.6%
increase in standalone production and 27% increase in JV production, driven by Rajasthan. Gas production
declined 2.5% QoQ on the PMT shutdown. OVL’s production grew 9.6% YoY in 1HFY11 on a 35% increase in
Block 06.1 (Vietnam) and a 50% sequential increase in production in BC-10, Brazil.
Domestic production decline arrested, auto-fuel deregulation key: ONGC expects production from
marginal fields to ramp up from 2mmtoe in FY10 to 9.5mmtoe by end-FY12, allaying concerns of a decline in
domestic production. With OVL volumes and earnings likely to surprise on the upside and expected auto-fuel
pricing reforms, we expect ONGC to deliver 18% EPS CAGR over FY10-12ii. We retain BUY on ONGC.

PNB: 2QFY11 results – in-line: Buy:: IIFL

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2QFY11 results – in-line
Punjab National Bank’s (PNB) net profit increased by 16% to Rs10.8bn, in-line with market consensus
and our estimates. Revenue growth, helped by higher NIM, came ahead of our estimate, but higher
expenses and loan loss provisions (LLP) dragged down profit growth. Additional pension obligations
drove expenses higher, while deterioration in asset quality drove LLP higher. Going forward, higher
expenses and LLP would likely remain an overhang to consensus and our expectation for FY11.
However, these concerns would abate in FY12ii and beyond; higher revenue expectation would likely
drive earnings higher. We raise our earnings forecast for FY12ii /FY13ii. We retain BUY.
2QFY11 results – largely as expected: PNB’s net profit increased by 16%, largely in-line with consensus
and our estimates. Profit growth could have been higher, given the strong growth momentum in revenue.
However, higher expenses, due to additional pension obligations and LLP, capped upside to earnings growth.
New NPL accrual remained high for PNB; however, it has shown improvement on a sequential basis.
Near-term upside to earnings capped; medium-term outlook stronger: We believe higher operating
expenses and LLP would cap upside to FY11ii earnings growth expectation, despite stronger revenue growth.
Potentially, both could surprise on the downside; pension obligations could turn out to be higher, based on
final actuarial assessment, while a switch to the system-based NPL recognition process could result in higher
NPL accrual and LLP. However, we believe high expense growth would moderate, due to higher base and
lower wage inflation. NPL accrual rate would likely abate in FY12ii, due to upswing in economic outlook.
We retain BUY; raise target price to Rs1,600: Notwithstanding the near-term headwinds, PNB remains
as a best pro-cyclical play. Robust medium-term earnings prospects, strong lending and deposit franchise,
and high profitability remain as key investment arguments in favour of PNB. These along with moderate
valuation and favourable tailwind to macro economic outlook should sustain price performance, in our view.

CUMMINS INDIA 2QFY11: Profit nearly doubles; Buy :: Motilal Oswal

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CUMMINS INDIA 2QFY11: Profit nearly doubles; Growth momentum to sustain through FY12; Buy

-          Cummins India (KKC IN, Mkt Cap US$3.2b, CMP Rs741, Buy) reported standalone performance better than estimates. 2QFY11 revenues stood at Rs10.9b (up 76% YoY), EBITDA at Rs2.17b (up 91% YoY) and PAT at Rs1.68b (up 91% YoY). 2QFY11 EBITDA margin improved 170bp YoY to 20%.

-          1HFY11 revenues stood at Rs20b, up 60%, and PAT at Rs3.1b, up 74%. EBITDA margin at 20.6% improved 220bp YoY.

Domestic sales picking up on the back of power shortage and industrial growth

-          After sluggish demand in FY09 and first half of FY10, domestic engine market has shown impressive recovery in past 6-8 months. With growing power shortage, diesel engine demand for power-generation application will continue to be strong. We expect domestic sales to grow at a CAGR of 26% through FY12.

Exports expected to provide strong growth in remaining part of the year

-          Cummins India is expected to show strong jump in exports in FY11 (Rs9.5b against Rs4.8b in FY10), driven by recovery in certain key markets.

-          We project exports to further grow to Rs15b by FY12, driven by recovery in global engines sales and increased outsourcing by parent.

Cash levels up despite aggressive capex

-          Cash and investments at end Sep-2010 stood at Rs8.7b against Rs7.9b in Mar-2010 and Rs7.3b in Sep-2009.

-          The company has been able to increase cash levels despite aggressive capacity expansion program.

Valuation and view

-          At CMP of Rs740, the stock trades at P/E of 24x FY11E EPS of Rs30.8 (up 37%) and 17.8x FY12E EPS of Rs42 (up 36%).

-          We are likely to revise our earnings upwards post the conference call.

-          Cummins is among the best performing stocks in the capital goods sector. We believe that despite its recent run-up, Cummins offers good investment opportunity with a long-term horizon. Strong 37% earnings CAGR, near-term earnings upsides due to likelihood of faster revenue growth, and growing exports opportunity should keep valuations at a premium to broader market.

-          We recommend Buy on the stock with the target price of Rs840, based on 20x FY12E earnings.

Forthcoming Results: November 1 2010

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Company Name	Meeting Date	Purpose
ALCHEMIST LIMITED	1-Nov-10	Un-audited Financial Results
DECOLIGHT CERAMICS LIMITED	1-Nov-10	Un-audited Financial Results
HALONIX LIMITED	1-Nov-10	Audited Financial Results
ADVANI HOTELS & RESORTS (INDIA) LIMITED	1-Nov-10	Results/Dividend
CENTURY ENKA LIMITED	1-Nov-10	Un-audited Financial Results
CENTURY TEXTILES & INDUSTRIES LIMITED	1-Nov-10	Un-audited Financial Results
TECHNOFAB ENGINEERING LIMITED	1-Nov-10	Un-audited Financial Results
GAMMON INFRASTRUCTURE PROJECTS LIMITED	1-Nov-10	Un-audited Financial Results
ORIENT CERAMICS AND INDUSTRIES LIMITED	1-Nov-10	Un-audited Financial Results
GOENKA DIAMOND AND JEWELS LIMITED	1-Nov-10	Un-audited Financial Results
GUJARAT MINERAL DEVELOPMENT CORPORATION LIMITED	1-Nov-10	Un-audited Financial Results
HAVELLS INDIA LIMITED	1-Nov-10	Board meeting Rescheduled
JSW ENERGY LIMITED	1-Nov-10	Un-audited Financial Results
DATAMATICS GLOBAL SERVICES LIMITED	1-Nov-10	Un-audited Financial Results
GUJARAT STATE FINANCIAL CORPORATION	1-Nov-10	Un-audited Financial Results
HINDUSTAN MOTORS LIMITED	1-Nov-10	Un-audited Financial Results
LUPIN LIMITED	1-Nov-10	Un-audited Financial Results
BIRLA COTSYN (INDIA) LIMITED	1-Nov-10	Un-audited Financial Results
PUDUMJEE PULP & PAPER MILLS LIMITED	1-Nov-10	Results/Others
TOURISM FINANCE CORPORATION OF INDIA LIMITED	1-Nov-10	Audited Financial Results
PUDUMJEE INDUSTRIES LIMITED	1-Nov-10	Results/Others
DISHMAN PHARMACEUTICALS AND CHEMICALS LIMITED	1-Nov-10	Un-audited Financial Results
SHRENUJ & COMPANY LIMITED	1-Nov-10	Un-audited Financial Results
EVEREADY INDUSTRIES INDIA LIMITED	1-Nov-10	Un-audited Financial Results
SUBROS LIMITED	1-Nov-10	Un-audited Financial Results
PVR LIMITED	1-Nov-10	Board meeting Rescheduled
PUNJ LLOYD LIMITED	1-Nov-10	Financial Results
EMAMI LIMITED	1-Nov-10	Un-audited Financial Results
GTL INFRASTRUCTURE LIMITED	1-Nov-10	Results/Others
MANDHANA INDUSTRIES LIMITED	1-Nov-10	Un-audited Financial Results

Grasim Industries, 2QFY11 results below expectation- ADD :: IIFL,

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2QFY11 results below expectation
Grasim’s (standalone) net sales declined 68% YoY to Rs9.3bn (primarily on account of de-merger of
the cement business); PAT declined 59% YoY to Rs2.8bn against our expectation of Rs2.6bn, as
higher-than-expected other income boosted profits. EBITDA margin was lower than our expectation as
VSF realisation declined QoQ, against our expectation of an increase in realisation. In the post-result
call, management said prices of VSF had risen ~3% since the start of the current quarter. VSF prices in
international markets have increased sharply in the past 4-5 weeks, as cotton prices has risen, given
the likely shortage in production. We upgrade our FY11 EPS estimate for Grasim by 2% to factor in an
likely increase in VSF realisation in 4QFY11. However, we downgrade our FY12 EPS estimate by 4%,
as we expect earnings of the cement subsidiary to remain under pressure in FY12.
VSF realisation increases YoY, but at a lower pace than expected: VSF realisation increased 11% YoY
on account of strong demand due to tightness in global cotton supply (VSF is a competing product to cotton).
Global cotton and VSF prices have increased sharply in the past 4-5 weeks on account of a likely shortage of
cotton in FY11, as floods have severely damaged cotton crops in Pakistan. Grasim’s management said VSF
prices had risen ~3% since the start of the currenty quarter; we expect further increases in VSF realisation in
4QFY11, as cotton prices are likely to remain high at current levels for the next 1-2 quarters.
Water shortage negatively affects VSF volumes: VSF volumes declined 9% YoY for 2QFY11 as its Nagda
plant was shut on account of water shortage for 25 days, against eight days in 2QFY10. We expect volumes
to increase in the quarters ahead, as the monsoon was normal this year. We have factored in volume growth
at 3% in FY11 and 7% in FY12. Grasim has upped its VSF capacity expansion plans from 80,000tpa to
156,500tpa on account of strong demand for VSF. After these expansions, expected to be completed by
FY13, Grasim’s VSF capacity will increase from the current 0.34mtpa to 0.49mtpa.

bank of baroda - 2QFY11 results – exceptionally strong, ADD says IIFL,

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2QFY11 results – exceptionally strong
Bank of Baroda’s (BOB) 2QFY11 net profit increased by 61% to Rs10.2 bn, well ahead of market
consensus and our estimates. The performance was exceptionally strong across many parameters,
including loan growth, NIM, cost and loan loss provisions. The strong show was helped by the absence
of any provision for additional pension liabilities that the bank is likely to incur. Still, the growth would
have beat consensus and our estimates by a significant margin. Going forward, the bank would likely
sustain the strong momentum seen in 2HFY11 as well, even after considering the impact of additional
pension liabilities. We raise our earnings forecast and target price. We retain ADD.
2QFY11 results – exceptionally strong: BOB reported an exceptionally strong performance in 2QFY11.
Net profit growth was ahead of market consensus and our estimate by 21% and 29%, respectively. Strong
growth was seen across many parameters. Loan growth was significantly ahead, NIM rose sequentially and
loan loss provisions (LLP) declined sharply. The strong show was helped by the absence of any provision for
additional pension liability. Even after this, the results would have beat expectation.
Strong momentum likely to sustain in 2HFY11: We expect the strong earnings momentum to sustain in
2HY11, even after moderating loan growth and considering the additional burden from pension liabilities.
NIM would likely remain strong; LLP would likely remain low. We upgrade our earnings forecast by 9.7-
12.1% over FY11-13ii.
We retain ADD; raise target price to Rs1,170: BOB has delivered consistent growth and returns over the
last five years by compounding its earnings by 36% during FY05-10 and improving ROA by 40bps during the
same period. We believe the improvements seen across key metrics, such as growth and profitability would
sustain momentum, helped by favourable tailwinds. Strong profitability metrics suggest that the bank would
likely re-rate further from here.

GRASIM 2QFY11: Below est as higher cost; Buy:: Motilal Oswal

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GRASIM 2QFY11: Below est as higher cost push in VSF impacts margins; 6% EPS downgrade; Maintain Buy

Grasim’s (GRASIM IN, Mkt Cap US$4.7b, CMP Rs2,282, Buy) 2QFY11 standalone results are below estimates, impacted by severe cost push in VSF business, with EBITDA margin of 28.3% (vs est 32.8%) and PAT of Rs2.8b (vs est Rs3.13b). Results are not comparable YoY due to divestment of cement business. Key highlights:

-          VSF volumes declined 9% YoY to 67,488 tons (vs est 79,000 units) severely impacted by 25 days shutdown. Realizations were in-line at Rs116.5/kg (+10.7% YoY, -1% QoQ).

-          On like-to-like basis, net revenues were flat YoY and QoQ at Rs9.3b. EBITDA margin at 28.3% was lower 530bp YoY (~360bp QoQ) impacted by ~52% YoY increase in pulp prices.

-          Expect VSF margins to improve in 2HFY11 due to price increase of Rs3/Kg from 1 Oct and stable pulp prices (at higher level).

-          Capacity expansion in VSF has been revised upwards from 80,000 tons to 156,500 tons with total capex of Rs29.1b, a 47% increase in capacity by FY13.

-          We have downgraded consolidated EPS for FY11 by 6.2% to Rs234.3 and FY12 by 6.1% to Rs258.3, to factor in downgrade in UltraTech’s EPS

Coal India, Gravita and Power Grid --Gray Market Premium Prices for India IPO: 31st Oct, 2010

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Company Name	Offer Price	Premium
	(Rs.)	(Rs.)
Coal India	245  (Upper Band)	32 to 36 +  5% discount for retail
Gravita India	120 to 125	12 to 14
Power Grid FPO	80 to 90 (rumor)	5 to 7

Adani Enterprises- MDO pipeline grows, wins 4th contract :JPMorgan

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Adani Enterprises Ltd Neutral
ADEL.BO, ADE IN
MDO pipeline grows, wins 4th domestic contract



• Contract to develop and operate a 1.6BT coal block in Orissa. ADE
won another MDO contract in Orissa from 3 SEBs for 1.6B tonnes of
coal reserves. The Chendipada block will have a mining capacity of
40MTPA. Mgmt. expects to secure all clearances, complete land
acquisition and commence production within 4 years. The washed coal
will be supplied to the power plants in UP, Rajasthan, Chhattisgarh and
Maharashtra.
• 200MTPA by 2020. With the addition of the Chendipada coal block,
ADE’s peak production of domestic coal from current MDO agreements
should touch 110MTPA. Adani Enterprises is targeting 200MTPA of
coal production within India itself by 2020. The company has also bid
for another block (Mahanadi, next to the Machhakatta coal block) in
Chhattisgarh with a production capacity of 30MTPA.
• Current 3 mines to hit 70MTPA of peak production by FY18: As yet,
the company has been allocated three mines in India based on a
competitive bidding process totaling 1.8BT in reserves and peak
production capacity of 70MTPA (pre washing) by FY18 in our estimate
including Machhakatta 50MTPA, Parsa Kente 15MTPA and Parsa
5MTPA. According to mgmt., the PK block will be the first to
commence production (Jun 2011); while all other clearances have sorted,
land acquisition and forest clearance in pending. For the Machhakatta
block, we expect production to commence in FY13 – land acquisition is
still in progress while the mine plan has been approved, financial closure
is complete and exploratory stage is over. The Parsa block is still at a
very nascent stage, we estimate production to commence in FY14.
• More pipeline for Adani Power. In addition the Adani Group will be
setting up a 2GW thermal power plant utilizing the rejects from the coal
washery. Adani will have an 89% stake in the project and the balance
11% will be owned by JV formed by the three SEBs. In our view, this
would most likely be developed by Adani Power which currently has
~1GW of operating capacity, 5.6GW under construction and 6GW at the
development stage.
• Potential accretion to SOTP. Our Mar-11 SOTP PT of Rs640 includes
Rs69 for MDO operations. The addition of the Chendipada coal block
could lead to a potential accretion of Rs40-45/share. We await details on
realizations and margins. Key risks to our PT: commissioning delays and
lower merchant prices for Adani Power; slower traffic growth and SEZ
development for Mundra Port and higher than estimated mining costs
and production delays for the MDO business.