India Strategy- Headwinds to give more opportunity :: Emkay

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India Strategy

Headwinds to give more opportunity

n     Markets have corrected by 16% since their peak in Nov’10 with 16 and 197 companies from Nifty and BSE 500 respectively hitting 52 week lows in Feb’11. Companies below 200 DMA also increased sharply in Feb’11 to 37 and 392 for the same indices. 

n     Major reasons for the current fall are: a) high inflation (esp. food inflation), b) rise in interest rates, c) sell-off by FIIs and d) a series of scams 

n     On examining past financial scams, we believe that their impact on markets while significant, are temporary in nature

n     We expect inflation to come down to around 6.5% in FY12 on the back of fall in food prices and easing of crude oil prices.

n     Rise in interest rates will be contained with improvement in liquidity. Expect interest rates to inch up slightly or stabilise

n     FIIs have sold US$1.67bn of equities since beginning of Jan’ 11. However, we expect this to slowdown as this sell-off is a portfolio reshuffling from EM to developed markets and not a portfolio exit as witnessed in FY09. 

n     All concerns are already factored in the valuations but any improvement in the above factors could lead to a smart recovery in the market.

n     Valuations look reasonable (13.6XFY12 Consensus Sensex earnings)  

n     Long term India story intact; headwinds to give more opportunity

n     Return expectations moderate for this year with investors preferring quality

n     Prefer -  Agri-input, auto, pharma, IT, banking; Remain stock specific

Outperformers
Large Caps	Mid Caps	Small Caps
Bajaj Auto	Allahabad Bank	Kajaria Ceramics
BPCL	Aurobindo Pharma	Piramal Glass
Cadila Healthcare	Coromandel International
Infosys	Greaves Cotton
Larsen & Toubro	IRB Infrastructure
LIC Housing Finance	Rallis India
NTPC	Sterlite Tech
State Bank of India
Tata Motors
Underperformers
Large Caps	Mid Caps	Small Caps
Asian Paints	India Cements	Dishman Pharma
Bharti Airtel
Hero Honda
Idea Cellular
JSW Energy

Fund details:: Reliance Gold , IDFC Infrastructure, IDBI MIP, Sundaram Capital Protection

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Fund Houses have come out with variety of new funds.... Each one of them are different from the others and suit a particular segment of investors

1. Reliance Gold Savings Fund - NFO closes 28/02/2011.

    -----------------------------   --------------------------

An Open Ended Fund of Fund Scheme where investment will be made in Reliance Gold ETF. Investment in Gold provides much needed diversification for any portfolio. Investment can be made through our NSE terminals and units will get credited into your existing Demat account. Investors who do not have a Demat account also can invest, through the traditional form. Great opportunity to activate SIP in Gold ETF.

2. IDFC Infrastructure Fund - NFO closes 28/02/2011.

    ---------------------------  --------------------------

An Open Ended Equity Scheme based on Infrastructure & related activities. Definition of Infrastructure is by using the benchmark definition of RBI & World Bank. Fund will invest in sectors like Transportation, Power, Oil and Gases & Metals etc., Fund will NOT invest in sectors like Banking, Auto and ancillaries, Consumer durables, IT, Pharma & FMCG. Investment can be made through our NSE terminals and units will get credited into your existing Demat account.

3. IDBI Monthly Income Plan - NFO closes 28/02/2011.

    ----------------------------  --------------------------

Minimum of 80% investment in high quality Debt and maximum of 20% in Equities. Ideal product for a conservative investor

4. Sundaram Capital Protection Oriented Fund / Series 2 - NFO closes 28/2011.

    --------------------------------------------------------- -----------------------

A 5 year Close Ended Debt Scheme. Minimum of 70% will be invested in quality Debt & maximum of 30% in Equities. AAA(So) rating by CRISIL. Ideal product for a "safety first" investor.

Bayer CropScience – 3QFY2011 Result Update - Angel Broking

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Bayer CropScience – 3QFY2011 Result Update

Angel Broking maintains a Neutral on  Bayer CropScience.

For 3QFY2011, Bayer CropScience’s (BCS) results were marginally ahead of our
estimates. Total sales grew by 38% yoy to `531cr, while EBITDA margin increased
by 112bp to 11.8% (10.7%). Reported PAT came in at `36cr (`21cr), up 66% yoy
as against our estimate of `34cr. Going ahead, we expect BCS to be on a strong
growth trajectory on the back of high agro-commodity prices. Given that the stock
is currently trading at fair valuations, we remain Neutral on the stock.

PANTALOON RETAIL -Sales robust; needs to address concerns on rising debt, slow restructuring :: Edelweiss

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PANTALOON RETAIL
Sales robust; needs to address concerns on rising debt, slow restructuring


􀂃 Revenue in line led by buoyant festive season, robust same store sales
Pantaloon Retail’s (PRIL) core retail business revenues jumped 31.2% Y-o-Y, to
INR 27.5 bn (our expectation INR 25.2 bn) in Q2FY11 (December quarter).
Same store sales (SSS) rose 11.5% in value retailing, 20.9% in lifestyle retailing
and 18.3% in home retailing Y-o-Y, primarily led by buoyant festive season.
However, the company reported modest PAT growth of 5.5%, to INR 472 mn,
below our expectation, led by rise in interest expenses. Robust sales growth
continued in Q3FY11, with record sales in January (over INR 12,000 mn).

Accumulate GSPL – 3QFY2011 Result Update - Angel Broking

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GSPL – 3QFY2011 Result Update

Angel Broking recommends an Accumulate on GSPL with a Target Price of Rs. 105.

GSPL reported higher-than-expected numbers for 3QFY2011 due to higher
tariffs, lower opex and depreciation cost (due to change in depreciation rate from
8.33% to 4.75% w.e.f. April 1, 2010) during the quarter. Thus, the bottom line
surged by 37.9% yoy to `159.1cr (`115.4cr), which was much above our
expectation of `93.5cr. Given the company’s strong growth potential,
we recommend Accumulate on the stock.

3QFY2011 Update :Buy BGR Energy ;Target Rs.700:: Angel Broking

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BGR Energy Systems  – 3QFY2011 Result Update

Angel Broking maintains a Buy on BGR Energy Systems with a Target Price of Rs. 700.

BGR Energy Systems’ (BGR) 3QFY2011 results were broadly along expected lines.

The company’s revenue and PAT rose by 98% (est. 90%) and 109% (est. 85%) on

a yoy basis to `1,257cr and `88cr, respectively, on the back of higher execution

and margin expansion. We continue to maintain our Buy view on the stock.

3QFY2011 Update :Buy IVRCL Infrastructure; Target Rs. 126::Angel Broking

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 IVRCL Infrastructure – 3QFY2011 Result Update

Angel Broking recommends a Buy on IVRCL Infrastructure with a Target Price of Rs. 126.

For 3QFY2011, Patel Engineering (PEL) posted disappointing numbers on
consolidated and standalone basis. Going ahead as well, we believe recovery to the
growth path will take time as the order inflow concerns loom large. Hence, we are
downgrading our earnings estimates for FY2011 and FY2012 by 50–60%. Further,
the company has not provided for the recent IT raid (which would accrue in the next
few months), thereby increasing the tax rate going ahead; and the hedging loss
incurred due to project cancellations, which we believe would materialise and
impact the company’s financials. Hence, we are downgrading the stock to Neutral
from Buy, given the pressure on C&EPC’s earnings, muted order inflow, uncertainty
over tax outflow and hedging loss.

HOTEL LEELA - Disappointing numbers; stress test from Q1FY12:: Edelweiss

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HOTEL LEELA VENTURE
Disappointing numbers; stress test from Q1FY12


􀂄 Impressive jump in ARRs
Hotel Leela Venture’s (HLV) Q3FY11 sales jumped 11.4% Y-o-Y and 34.7% Q-o-Q,
to INR 1.42 bn, driven by 13% Y-o-Y and 35% Q-o-Q growth in ARRs, to INR
11,149 in Q3FY11 The company reported 69.7% ORs versus 69.2% in Q3FY10
and 61.6% in Q2FY11. Growth in HLV’s ARRs is amongst the best among all hotel
companies in India, this quarter. The Delhi property opening has now been
postponed to Q1FY12 against the previous expectation of Q4FY11.

Patel Engineering – 3QFY2011 Result Update - Angel Broking

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Patel Engineering – 3QFY2011 Result Update

Angel Broking downgrades Patel Engineering to Neutral from Buy.

IVRCL Infrastructure (IVRCL) reported mixed set of numbers for the third quarter,
with moderate growth on the top-line and EBITDA fronts but poor show on the
earnings level, led by higher interest cost. The outstanding order book including
L1 orders stood at `24,200cr (4x FY2011E revenue), which provides decent
revenue visibility; however, the key lies in funding captive orders and achieving
financial closure for the same. At current levels, the stock appears attractive on
the valuation screen, given that it is trading at a deep discount to its intrinsic value
and as we believe that downside from the current levels is capped. Hence, we
recommend Buy on the stock with a Target Price of `126.

ESCORTS -Higher raw material costs dents the margin:: Edelweiss

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ESCORTS
Higher raw material costs dents the margin


􀂄 Disappointing quarter; PAT well below estimate
Escorts’ Q1FY11 adjusted PAT, at INR 249 mn (up 6% Y-o-Y, 120% Q-o-Q), was
well below our INR 416 mn estimate. EBITDA margin disappointed on account of
higher-than-expected raw material costs which jumped 48% Y-o-Y and 33% Q-o-Q.

COX AND KINGS- Results in line; margins under pressure :: Edelweiss

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􀂄 Earnings momentum growth continues; EBITDA under pressure
Cox and Kings’ (CNK) consolidated Q3FY11 sales jumped 37.3% Y-o-Y to INR 1.08
bn as Indian operations reported 37% Y-o-Y sales growth. Q-o-Q, sales were flat
due to seasonal factors. Sales growth at the subsidiaries level, at 38%, was also
robust. With Q3FY11 being a seasonally weak quarter for travel and travel-related
services, we expect a strong earnings momentum in Q4FY11. EBIDTA margins at
the consolidated level declined to 35.6% from 38.4% Y-o-Y. Due to some changes
in the advertisement strategy of shifting to public hoardings from print media, the
advertisement cost as percentage of sales increased 300bps. We maintain our
27% and 19% sales growth estimates for FY11 and FY12, respectively, as we are
not building in any further acquisitions till its announcement. We expect CNK to
maintain 45-46% EBIDTA margin on consolidated basis for FY11E and FY12E.

3QFY2011 Update: Buy Tata Motors- Target Rs. 1,384:: Angel Broking

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Tata Motors – 3QFY2011 Result Update

Angel Broking maintains a Buy on Tata Motors with a Target Price of Rs. 1,384.

Consolidated results beat estimates on robust JLR performance: Tata Motors
(TML) reported impressive results for yet another quarter of FY2011, beating
street’s as well as our expectations. On a consolidated basis, the company
reported strong 21.7% yoy and 10.1% qoq growth in net sales to `31,685cr, led
by robust performance of JLR and better-than-expected performance at the
standalone level. Operating margin improved substantially by 276bp yoy and
26bp qoq to 14.2% on the back of improved operational performance at JLR and
favourable currency movement. As a result, net profit for the quarter grew
significantly by 272.9% yoy to `2,425cr.

Page Industries – 3QFY2011 Result Update -Angel Broking

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Page Industries – 3QFY2011 Result Update

Angel Broking recommends a Neutral on Page Industries.

For 3QFY2011, Page Industries reported a stellar set of numbers, above our
expectations. The company posted strong revenue growth, led by volume growth
and higher price realisation. OPM also came in above our estimates, which we
believe is not sustainable going ahead due to increasing raw-material prices.
Strong top-line growth: During the quarter, Page Industries’ top line grew
impressively by 49% yoy and 6% qoq to `134cr, while EBITDA grew by 81% yoy
and 7% qoq to `28cr. Operating margin came in at 20.7% thereby expanding by
360bp yoy and 20bp qoq.

APOLLO HOSPITALS- Earnings impacted by higher fixed costs:: Edelweiss

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APOLLO HOSPITALS ENTERPRISE
Earnings impacted by higher fixed costs

�� Higher fixed costs from greenfield expansion impact earnings growth
Apollo Hospitals’ (APHS) consolidated Q3FY11 revenues of INR 6.46 bn (23% Yo-
Y) were 4% below estimate, led by slow growth in inpatient (IP) volumes from
mature clusters and lower sales from JVs (dilution of stake in Apollo Munich to
13.2% versus 16.7% in Q3FY10, not built in our estimates). EBITDA margin, of
16.1%, 30bps Y-o-Y, declined 100bps Q-o-Q (from ~17% in Q2 FY11), as onetime
selling costs (INR 100 mn for ‘Billion Hearts’ campaign) and other expenses
incurred for greenfield projects offset higher profitability in subsidiaries and JVs.
Net profit growth, of 3% Y-o-Y, was impacted from negative operating and
financial leverage from commissioning of 900 beds (Y-o-Y).

ADANI ENTERPRISES -Earnings lower than estimates: Edelweiss

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􀂃 Q3FY11 PAT lower than estimates
Adani Enterprises’ (AEL) Q3FY11 consolidated earnings, at INR 4.75 bn, were
lower than our estimates of INR 7 bn, largely due to higher deferred tax
provision of INR 667 mn in Adani Power, lower coal trading (down ~3.5 mn
tones), reduced other income (at INR 763 mn) and higher other expenditure (at
INR 4 bn, up ~78% Y-o-Y).

Sovereign yields ended steady, LAF borrowing soars to INR 1trn: Edelweiss

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Sovereign yields ended steady, LAF borrowing soars to INR 1trn
Government securities
 Sovereign yields ended flat today however the underlying sentiment improved as
the government decided not to conduct an auction this week. With a possibility of
no fresh supply until the next fiscal, the appetite in the market has revived.
Although the yields ended flat volumes jumped to INR 77bn compared to an
average volume of INR 60bn in the past couple of weeks. The benchmark ten year
bond closed at 8.10% while the 8.13% 2022 bond ended unchanged at 8.16%.

Religare Silver Structured Product

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Do you know that your investment in Silver would have delivered an astounding 73% return in the calendar year 2010?Although Silver has been one of the best performing assets over the last few years, not many investors have benefitted from the unprecedented surge in the metal’s price. This is primarily due to the lack of suitable avenues to invest in Silver. While buying the physical metal entails problems of storage & pricing risks, Silver ETFs are not yet available in the Indian markets. Moreover, few investors can stomach the extreme volatility in commodity prices. In this regard, there is a need for a product that captures the upside in Silver prices, while fully protecting your initial capital investment. Religare Silver Structured Product (Series XIX) does just the same. It provides you an opportunity to gain from the positive performance in Silver, while protecting your principal.

SIMPLEX INFRASTRUCTURES Strong order inflows provide solace : Edelweiss

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􀂄 Results below estimates
Simplex Infrastructures’ (SINF) Q3FY11 standalone revenues and PAT were
below our estimates. Revenue, at INR 11.7 bn, grew 9% Y-o-Y and 11% Q-o-Q.
The company attributed this to sluggish order intake and lack of pick up in
execution in overseas territories. EBITDA margin, at 9.2%, was more or less flat
Y-o-Y but declined 80bps Q-o-Q. In line with peers in the industry, hardening
interest rates led to the company’s interest charges catapulting 38% Y-o-Y and
23% Q-o-Q. PAT, at INR 232 mn, was flat Y-o-Y and down 14% Q-o-Q. PAT
margin, at 2.0%, declined 20bps Y-o-Y and 60bps Q-o-Q.

SINTEX INDUSTRIES-- Focusing on core business : Edelweiss

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Sintex Industries’ (SINT) management recently clarified its stance on its
investments in power assets and O&G subsidiary. Management intends to
take investments in the O&G subsidiary off SINT’s balance sheet in the next
12-15 months itself (versus 2-3 years earlier), and SINT will not make any
material investment in this business. Management reiterated that SINT’s
investment in power will be only to meet its internal power requirements.
Promoter interests in power assets remain a separate venture.

SUN TV NETWORK - to effect ad rate hikes across Tamil and Telugu channels : Edelweiss

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􀂃 Sun TV announces ad rate hikes across Tamil and Telugu channels
Sun TV has announced hike in ad rates across its Tamil and Telugu channels with
effect from April 1, 2011. The increase for its flagship Tamil channel Sun TV
ranges from 8-32%. Ad rates have also been increased for other Tamil
channels—KTV, Sun Music, Sun News, Chutti, and Adhitya. Rates for its flagship
Telugu channel Gemini TV have also been hiked in the 6-13% range. Rates for
other Telugu channels—Gemini Movies, Gemini Music, Gemini News, Gemini
Comedy, Kushi—will be increased in the 9-43% range. Broadcast fees (slot fees)
received from content providers will also be increased accordingly.

Economy – Industrial production ::Dismal growth on high base :: Anand Rathi

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Economy – Industrial production
Dismal growth on high base
Low single-digit industrial growth in Dec ’10 was mainly on
account of the high base effect. The major drag came from
Capital Goods, while Consumer Durables witnessed a bounce
back. We maintain FY11e IIP growth at 7.1%.

Buy M& M: Fine 3Q performance, in line with expectations: target Rs833; Anand Rathi

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Mahindra & Mahindra
Fine 3Q performance, in line with expectations; maintain Buy
M&M’s 3Q profit rose 45.5% yoy on healthy volume growth,
improved realization and sustained healthy operating
performance. We remain positive on M&M’s core business and
expect strong performance ahead. We raise our FY11e/FY12e
volume estimates 5.3%/7.4% and revise target price to `833
from `899. Maintain Buy.

Sell Britannia Industries Weak outlook, though good 3Q; : Anand Rathi

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Britannia Industries
Weak outlook, though good 3Q; reiterate Sell
Britannia reported PAT growth of only 3.5% in 3QFY11. With
rising food inflation and keen competition, we expect Britannia’s
earnings growth to remain under pressure in coming quarters.
We retain Sell on the stock and target price of `313.

RELIANCE COMMUNICATION --Business shrinks: Edelwiess

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􀂃 Key operating metrics disappoint
Reliance Communications’ (RCOM) Q3FY11 revenue and EBITDA were below our
and street’s estimates, but PAT was higher owing to lower net interest cost and
tax write-back of INR 214 mn. But MOU dip of 9.1% Q-o-Q, 15th straight quarter
of decline, was a huge disappointment as Q3 is a seasonally strong quarter. The
company attributed the ramp down in its Public Call Office (PCO) business and
the fixed wireless business, both of which it claims yielded lower margins, for the
decline in revenues. Its revenue per minute at INR 0.44 remained resilient,
which is good news for its competitors. The management’s comments that it is
targeting corporate customers post-MNP and seeing early success will make the
ARPU and margin metrics a key monitorable for Q4FY11.

Buy RELIANCE CAPITAL -Core businesses gaining traction : Edelweiss

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RELIANCE CAPITAL
Core businesses gaining traction


Reliance Capital (RCap) reported a profit of INR 1.06 bn in Q3FY11 (up 68% Y-o-Y,
down 5% Q-o-Q). Earnings traction in core businesses was strong—profitability in asset
management and consumer financing grew 30% Q-o-Q and for securities/distribution
business, it grew 40% Q-o-Q. Life insurance business reported profits due to sharp
decline in opex and increased share of high margin policies. However, earnings were
below expectations due to absence of capital gains and much higher interest expenses
(up 18% Q-o-Q). Due to high combined ratio of 124%, losses continued in general
insurance business (INR 242 mn vis-à-vis INR 282 mn in Q3FY11).

Buy GMR Infrastructure- Airport regulations the key;: Anand Rathi

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GMR Infrastructure
Airport regulations the key; project execution in focus; Buy
 3QFY11 results. GMR’s consol. revenues grew to `13.6bn, up 27%
yoy (17% more than estimated) due to higher airport revenues and
consolidation of Male airport and Homeland Energy. Consol.
EBITDA grew 10% yoy to `3.8bn. It was 5% less than estimated due
to higher opex of `400m related to CoD of T3. Net loss was `223m
after recognizing a deferred tax asset of `1bn in GHIAL. Adjusted net
loss was `1.3bn, as estimated.

IVRCL INFRASTRUCTURE Results reinforce confidence at current valuations: Edelweiss

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IVRCL INFRASTRUCTURE
Results reinforce confidence at current valuations


􀂄 Execution picks up, as expected; interest costs hurt
Following a 5% Y-o-Y decline in turnover in H1FY11, execution picked up in
Q3FY11 as expected for IVRCL Infrastructure (IVRCL), with turnover of INR 14.2
bn, up 32% Q-o-Q and 20% Y-o-Y. Despite this, PAT at ~INR 423 mn (in line)
dipped 8% Y-o-Y due to 61% Y-o-Y jump in interest costs. Interest costs soared
Q-o-Q as well (23%) due to hardening interest rates, although debt at INR 22 bn
and net working capital remained unchanged.

COAL INDIA- Inline quarter ::Edelweiss

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􀂄 Volumes rise ~12% Q-o-Q; realisations inch upwards but below
estimate
Coal India Q3FY11 net sales were driven by an 11.7% Q-o-Q rise in volumes to
110.5 mt (in-line with our estimate) as well as a 2.5% Q-o-Q increase in blended
realizations to INR 1,148/t (estimate : INR 1,179/t). Consequently, net sales
rose by 14.4% Q-o-Q to INR 126.9 bn, marginally below our estimates of INR
129.7 bn. On a Y-o-Y basis, though volumes have increased ~3%, we do not
have the comparable financials for the respective periods.

India IT Services NASSCOM Forum 2011: The going is still good:: Anand Rathi

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India IT Services
NASSCOM Forum 2011: The going is still good
Customer satisfaction has improved in most segments of IT
Services, resulting in increased traction with clients. We believe
global locations for contracts require adding value to the business,
besides lower prices. Hence, we see outcome-based models
gaining further ground which will help Indian IT companies scale
up non-linear revenues. We remain positive on the sector in terms
of growth.

Bajaj Corp. 3QFY11 - Good results; reiterate Hold:: Anand Rathi

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Bajaj Corp.
3QFY11 - Good results; reiterate Hold
Bajaj Corp. had a healthy 3QFY11, with revenue and net profit
growing 24% and 26% respectively. However, with no progress
on new product launches after its IPO, we expect a subdued
stock price performance. We retain our Hold rating.

BL KASHYAP & SONS Execution picks up; order intake remains strong : Edelweiss

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􀂃 Revenue and PAT ahead of estimates
BL Kashyap & Sons’ (BLK) Q3FY11 result was ahead of estimates on both the top
line and bottom line fronts. Revenue, at INR 4.4 bn, grew 60% Y-o-Y and 41%
Q-o-Q. EBITDA margins, however, came in below our estimate, at 7.9%, down
50ps Y-o-Y, but up 30bps Q-o-Q. The improvement in working capital cycle
continued which enabled the company manage its interest costs despite increase
in interest rates; as a result, PAT margin came in at 3.4% (down 50bps Y-o-Y),
largely mirroring the decline in EBITDA margin.