India domestic HRC price pressure increases; Allytechnicals again driving prices/premiums

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India domestic HRC price pressure increases; Allytechnicals
again driving prices/premiums


• Steel- Indian domestic HRC market likely to see pricing stress in May:
After the correction in the spot HRC prices seen in March, prices have held up
at nearly Rs35K/MT. However, the export prices out of CIS and China have
corrected sharply over the last 2 weeks, with both of them going below
$700/MT with Ukraine export HRC at near $650/MT (implying landed price
of Rs33K/MT). We believe Indian domestic HRC prices need to be cut by
at least 5% to Rs33.5K/MT in May to dissuade large imports from
coming through (even as q/q costs/MT should only move up given coking
coal prices). Demand on the margin remains weak, with last year's big driver,
Autos, seeing growth rates moderate. China customs data for steel exports to
India shows a sharp surge to 0.3MT from 0.14MT each in Jan and Feb (July-
10 through Feb-11 average monthly exports from China to India stood at
0.15MT). Domestic long product prices have held up relatively better than
flat product prices with DRI prices (a key input for IF/EAF based steel
production in India), moving up 5% m/m in April.
• Technicals over Fundamentals: Aluminum premiums surge: LME
aluminum prices have remained strong over the last month while aluminum
premiums have surged across both NA and Europe as availability in the spot
market have remained tight. Getting material out of warehouses has continued
to be difficult with material being locked in financing deals. LME Aluminum
m/m has moved up 6% against m/m declines of 1-7% across copper, lead and
zinc. JPM Global metals analyst Michael Jansen highlights that the current
tightness is driven by one of the regular ‘warrant sweeps’ ‘that tends to happen
time to time, aided and abetted by the market having been in a protracted
contango that sees metal locked up once again. As such cash metal dries up for
a while and the spreads get tight and, naturally, more metal will come
into the system over the month of May.
• Sept-10 power cuts to return in China?: JPM China Utility analyst
Chapman Deng highlights the risk of power supply tightening in China given
resilient demand, and lower power supply (hydro). We have got investor client
queries on the similarities to Sept-10. During Sept-10, LME aluminum and
aluminum equities like Hindalco benefited more than steel (and steel equities).
This time given excess steel production, possible power cut related steel
production cuts in China, would help stem the export price pressure seen
recently (though lower steel production should be negative for spot iron ore).
Also given lower hydro generation, means demand for thermal coal is likely to
remain elevated. We believe over the next 3 months, how large the power cuts
in China are, could likely impact Indian metal and Mining equities
• Silver- The ETP data: As per the Commodity Investment Fund Flow
Monitor (details on page 12) value of silver in the long side commodity ETP’s
stood at $26.9bn v/s $21bn a month ago and $14.4bn 3 mths ago. Surprisingly
YTD silver flows have stood at $1bn only while YTD silver spot prices are up
60%.

Bharti Airtel: 4QFY11- Promising future 􀂃target rs 40; BNP Paribas

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4QFY11- Promising future
􀂃 Increase in non-voice revenue highlights 3G potential
􀂃 Synergies from outsourcing visible in Africa
􀂃 Tower sharing in Africa could further aid margin improvement
􀂃 Reiterate BUY, TP unchanged at INR440 based on DCF

Kotak Mahindra Bank F4Q11: Ahead of Expectations ::Morgan Stanley

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Kotak Mahindra Bank
F4Q11: Ahead of
Expectations
Quick Comment – Kotak Mahindra Bank reported a
PAT of Rs4.9bn at the consolidated level (+28% QoQ,
17% YoY) ahead of our estimate of Rs4.2bn. The
beat was driven by higher than expected earnings at the
banking, investment banking and life insurance
businesses. This was partially offset by lower than
expected earnings in the brokerage business.

52-Week Flop: Jubilant Life Sciences:: Business Line

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Jubilant Life Sciences, the largest custom research and manufacturing services player in India, has seen its stock price halve over the year. The BSE Health Care Index, in contrast has gained by over 14 per cent in the same period.

Hamstrung by lower than expected take-off in orders from global pharma after the massive destocking in 2008, CRAMS companies including Jubilant have had a tough time improving their financial scorecard. For the nine-months ended December 2010, Jubilant's net sales grew by a meagre two per cent only. Deteriorating margins, led by lower proportion of high-margin services, rupee appreciation and pricing pressure (due to high competition) too played spoilsport. Its operating margins during the period slipped from 23.8 per cent to 16.9 per cent. As a result, profits slipped by over 40 per cent to Rs 168 crore.

Index Outlook: Bears on the prowl again:: Business Line

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Sensex (18,518.8)

Stock prices jumped off the precipice last week driving home the fact that this correction cannot be wished away just yet. Surprisingly, it was not the violent end of Osama bin Laden but the higher than expected policy rate hike that scuttled stock prices. Traders had to grapple with sliding commodity prices as well in the later part of the week as silver, gold, crude et al went in to a free fall.

Volumes were tepid despite heightened intra-day volatility. FIIs remained net sellers in all the sessions; they have pulled out almost Rs 3,600 crore from the secondary market last week. Action in derivative segment was also lacklustre with open interest hovering around Rs 1,25,000 crore. PCR falling below 1 also implies that market is getting oversold and traders are not building fresh derivative positions.

The WPI and IIP data due next week will be of great interest to investors as they try to gauge the likely impact of these on future policy decisions. The results of Assembly elections will also vie for investor attention along with the earnings announcements by the stragglers.

The Sensex closed 617 points or 3 per cent lower last week. While this decline is not deep enough to cause concern, the fact that it cut sharply through the 19,000 support has altered the short and medium-term view significantly. In E-wave analysis, it is always difficult to figure out a sideways pattern (flat, triangle, double-three and so on) while it is evolving. There were two possible medium-term trajectories that we had been juggling with over the past weeks,

Aanjaneya Lifecare - IPO: Invest:: Business Line

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Investors with a penchant for risk can consider taking exposure in the initial public offering of Aanjaneya Lifecare. At the price band of Rs 228-240, the offer is priced at 8 times its estimated FY-11 per share earnings on a post-offer equity base, at a discount to most peers. The company's small scale of operations, lengthening working capital cycle and a limited operating history, however, may be a deterrent for the risk-averse.

Power Finance Corporation — Follow-on public offer: Invest:: Business Line

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Investors can consider subscribing to the follow-on public offer of Power Finance Corporation (PFC), one of the largest infrastructure financing companies. This equity offer would give PFC the much-needed capital boost to support loan growth. Additionally, the Rs 3,700 crore fresh equity (at current prices) would, to some extent, help PFC reduce the impact of rising interest costs to some extent. The recent correction in the stock has brought prices down to an attractive valuation.

At Rs 193 (reflecting a 5 per cent discount over the upper end of the price band Rs 193-203), the stock would be offered at 1.03 times its estimated FY12 book value. The price-earnings ratio of PFC works out to 8.3 times the estimated FY12 earnings which appears attractive. The valuation is at a discount to that of Rural Electrification Corporation. The company's return-on-equity may continue to be strong even after expansion in the equity base. This, coupled with strong business growth, makes a good case for investing in the company. The secured nature of the company's loan book with negligible non-performing assets and the low cost-income ratio (2.5 per cent as for FY11) are key positives. There is visibility on loan book growth, given the large size of sanctions approved, but not disbursed. The sanctions, as of December 2010, amounted to 1.6 times the March 2011 loan book.

Semiconductors: 3MMA world semis sales up 8.6% YoY in March; :: Macquarie Research,

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Semiconductors: 3MMA world semis sales
up 8.6% YoY in March; bottom in sight
Event
 According to WSTS data released on 2 May, 3-month moving average
(3MMA) world semiconductor sales increased 8.6% YoY (+2% MoM) to
US$25.3bn in March. As expected, the pace of growth decelerated from a
downwardly restated 11.1% growth (previously +13.6% YoY) in February.
 We continue to expect a bottoming of the YoY rate of change in CY2Q (likely
in May, at ~2%). We expect the growth rate to accelerate thereafter, at least
to end-CY11. This should provide a tailwind for semiconductor sector shares.
 Along with Macquarie US analyst Shawn Webster, we are maintaining our
10% YoY semiconductor industry sales growth forecast for CY11.

52-week Blockbuster: Dish TV:: Business Line

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Dish TV has been riding on the wave of increased subscriber preference to the DTH platform for digital viewing. After a slow start, the total DTH subscriber base in the country is now close to 31 million.

In an industry with as many as six players, the company has still been able to manage an impressive market share of over 30 per cent.

The company had a challenging 2008 and tepid growth in the first half 2009 where erosion in ARPUs was caused as entrenched players such as Tata Sky and Sun Direct as well as newer operators such as Airtel chased subscribers aggressively.

But, from late 2009 and in 2010, ARPUs have stabilised. In the recent quarter, there even been a marginal improvement to Rs 142. Subscriber acquisition costs too are down from Rs 2,800 levels to Rs 2,142 in the December quarter.

Despite the competition, Dish TV has seen increasing subscriber addition with 1.1 million added in the December 2010 quarter compared to just 0.55 million managed over the same period in the previous year. This has led to an impressive revenue growth.

By rationalising packages and by increasing spends on improving visibility, the company has been able to improve margins too. From having a negative operating margin, over the last 4-5 quarters, Dish TV has seen its margins improve to over 17 per cent levels. The proportion of content cost to revenues has also seen continuous reduction, thus helping margins.

Hold Escorts: Core business cost control poses a challenge… Target : Rs 136:: ICICI Securites

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Core business cost control poses a challenge…
Escorts reported its Q2SY11 results that were below our expectations
with the topline reported at | 901.8 crore, up 33.5% YoY (I-direct
estimate: | 914.6 crore). It was mainly driven by 21.5% YoY volume
growth at 17,762 units and realisations improving ~8.0% YoY adjusted
for trading & bought out orders. EBITDA margins were below our
estimates at 6.4% (up 120 bps QoQ) due to higher input costs per vehicle
(4.2% QoQ) and increase in trading expenses (3.0% YoY) towards the low
margin trading order. PAT was reported higher at | 73.2 crore due to the
tax write-back of ~| 33 crore on foreign receivables earlier provided for
as bad debt. Construction subsidiary ECEL posted a topline for H1SY11 of
| 380 crore with EBITDA and PAT margin at 4.5% and 3.4%, respectively.

Reliance Industries --Buy KG-D3 block valued at US$5bn in RIL-BP deal:: Deutsche Bank

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Event: Hardy Oil and Gas Plc, Reliance Industries' (RIL) partner in D3 block,
has announced that it has elected not to exercise an option to increase its
participating interest in the KGD3 block by 3%. Consequently, RIL will hold
60%, BP 30% and Hardy Oil 10% participating interest in the block once
the RIL-BP deal receives government approval. To date four successful
wells have been drilled in the block, resulting in natural gas discoveries.

Bank of India, BOI- Weak 4Q results :: Credit Suisse,

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● BoI’s 4Q profit at Rs4.9 bn (-24% QoQ; 0.6% RoAs) was below
our estimate on account of high pension provision and weakerthan-
expected operating performance.
● NIMs in 4Q were slightly lower than expected at 2.9% (down 15
bp QoQ) and asset quality was weaker with NPL slippages picking
up again. While loan growth at BoI outpaced system growth (11%
QoQ in 4Q, 24% YoY), its CASA share dropped to 29% (from
32% in Dec 2010). Fee growth was also pedestrian at 6% YoY.
● Asset quality that had appeared to be stabilising in the past three
quarters after the NPL jump in FY10, disappointingly weakened
again. Slippages rose to 2.1% of loans (versus 1.1% in 3Q).
Management attributes this to year-end audits. With RBI easing
coverage norms, we maintain our credit cost forecast at 0.6-0.7%
for FY12 and FY13.
● Our FY12-13E EPS changes by 2-3% and target price reduces to
Rs439 as we assign a lower book value multiple (with likely lower
coverage levels post the easing of norms).
● With asset quality yet to stabilise and a relatively weak deposit
franchise that should keep NIMs under pressure in FY12 (we
forecast 2.7%), despite the stock at 1.3x book trading at a 15-20%
discount to peers, we maintain our NEUTRAL rating.

CTS: Good is no longer enough :: Nomura

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Good is no longer enough
Revenue growth guidance fails
to excite; limited valuation
upside


Action: Valuations limit upside, wait for better entry point
Cognizant’s lower-than-anticipated revenue growth in 1QFY11 and its
FY11 revenue growth guidance do not provide enough triggers for an
increase in target price. While we like Cognizant for its growth
outperformance and relative margin stability, at the current valuation of
24x FY12F earnings, we see limited valuation upside and would wait for a
better entry point. Maintain NEUTRAL.

UBS:: April ’11: Hero Honda shines in a slow month

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A pr’11: Hero Honda shines in a slow month
􀂄 Passenger vehicles: Growth slows sharply; M&M robust
Maruti volumes grew 4% YoY (-20%MoM). Domestic volume grew only 9%YoY
due to weak growth in A2 segment (2% YoY). Mgmt. believes April was weak to
advancement of demand to Mar’11. Maruti exports remained weak. M&M UVs
sales grew 15% YoY while Hyundai’s domestic sales increased 11% YoY. Tata
Motors reported only 1% YoY growth for PVs despite strong growth in Nano
shipments as Indica and Indigo volumes declined sharply.

Hero Honda Motors – Back in action:: RBS

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Adjusted for royalty treatment, Hero Honda's EBITDA margin rose 40bp qoq to 12.1% in 4Q,
beating expectations. With the JV split overhang gradually clearing, we feel the company is well
placed to face challenges and deliver profitable volume growth. Buy, with revised EPS forecasts
on high dividend outflow

Not expecting Sensex to cross 20,000 levels for next 6 months: Dinesh Thakkar, Angel Broking (ET)

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In an interview with ET Now, Dinesh Thakkar, Chairman & MD, Angel Broking , talks on markets and contra investment. 

ET Now: Define contra investing? 

Dinesh Thakkar: I remember words of Warren Buffett , he told that 'buy a wonderful company at a fair price than buying a fair company at a wonderful price'. Contra investing is all about companies, which are neglected temporarily because of growth not being visible for few quarters. In the market, growth is perfectly priced but if at all analysts or smart investor does not see growth in next few quarters, that stocks are punished and prices goes to a level where it is available at a far more attractive valuation. That is where actually contra investment comes into picture. These are the companies where risk is overstated, and I feel that value, which emerges because of the selling is very compelling, so contra investment according to me are the companies, which are good, which have good track record and which are beaten down because of temporary lull phase or temporary phase where actually companies are struggling to get back to growth. 

ET Now: So contra investing is all about buying laggards? 

Dinesh Thakkar: Laggards in one sense, yes, if you compare it to market price performance but when it comes to company performance, it is not necessary they are laggards. These companies can be, they have taken some decision or maybe some temporary external environment is not conducive for growth, so in terms of company performance, they may be performing but not to the expectation of analyst. 

ET Now: But all laggards then necessarily do not become winners? 

Dinesh Thakkar: Exactly, hence investor has to be very careful. Contra does not mean that buying when everybody is selling. You have to buy companies where a growth visibility is there, where you are sure that growth is going to come out of your quarters or years but do not buy only this company only because everybody is selling and you want to be contrarian, that is not going to work. So in contra investment, one has to be very clear that you should do your homework very well. These are the companies, which are going to test your patience, which are going to test your judgements, so when it comes to contra investing, I would recommend for an investor who is new to market, he should not right now go and jump and go for contrarian investment. It requires some kind of a knowledge about market behaviour. Even if you are right in contra investing, it is not necessary that you will get rewards immediately. 

It will test your patience, so you have to be an expert investor who can understand that 'okay, I am right in terms of my judgement, it will take a few quarters for this company to perform according to benchmark indices'. What happens when an investor is right also in the judgemental call, usually I have seen that they lose their patience that they think that okay, market has appreciated by say some percentage and my stocks that I have invested have not appreciated, hence they doubt their own judgements. Hence I would recommend the person who is going for contra investing, he should buy 15-20% maximum in actually contra investing stocks and major of his portion should be in value stocks, growth stock where visibility of earning is there. Why I am saying this because once a person goes for like major component to contra investing, it is going to test his patience. If at all market does not perform or go as per his expectation in a quarter or two, contra investment stocks are available and suppose it is available because there is no growth in next two or three or four quarters, hence they are available at a valuation of what actually is far more attractive but one should not get very much say carried away by contra investing and reading stories of few investors who have made big wealth in market but they have to understand the same set of investors have kept lots of patience. 

ET Now: Identify your No. 1 contra idea? 

Dinesh Thakkar: Over here though our No. 1 contra area would be in banking sector, right now feeling across market is that interest rates are going up, so banking may not perform as per expectation, hence we are seeing correction in banking stock. It may continue for few more days or maybe for a quarter also. There are concerns on new license getting issued, NPA being too high. We feel that despite all this, this sector is here to grow. This is the sector, which can give a compounding growth of around 18-20% for next at least 5-6 years. This is a sellers' market. If we look at say RBI's comfort in terms of issuing new license, I do not think they are going to issue more than two or three licenses. If you look at our credit growth, it remains at 18-20% even in the period when interest rates were going high. If you look at our credit to GDP, it is just 35%. If you compare this to developed country, its 200% over there. So I feel for some time, for years maybe, interest rate growing up because of growth and inflation is not going to hurt margins of this bank and the growth of this bank. In this space, we feel that Axis Bank is well positioned to be called as a contra investing. 

Economic Times: Mutual Fund entry loads have permanent exit!! ::SEBI

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Sebi chairman UK Sinha rules out reversing predecessor's policy on mutual funds, IPO pricing under Sebi scanner


New Sebi chief UK Sinha on Friday said he does not intend to reverse rules put in place by his predecessor that restricted the ability of mutual funds to pay commissions to distributors. Indian fund houses, which manage equity and debt schemes with a corpus of over Rs 7,000,00 crore, were pinning hopes on a change in policies introduced by CB Bhave, whose three-year tenure ended in February this year. 

But in his first interview after taking over as chairman of India's stock market regulator, the former CEO of UTI Asset Management Company-the fourth-largest fund house-said a U-turn was not on the cards. 

"I don't think you can expect a policy reversal. But what we will do is to facilitate the widening of the geographical spread of the mutual fund industry, improve disclosures and focus on making mutual funds more investor-friendly," he told ET on Friday. 

In August 2009, Bhave had banned entry loads, or the commission paid to distributors, a move that has benefited investors but continues to draw howls of protest from the mutual fund industry. 

The so-called entry load refers to the industry practice of passing on 2.25% of the money paid by investors to buy units of mutual funds as commission to distributors. Asset management companies, which run mutual funds, have incessantly complained that distributors are no longer keen to sell mutual funds to investors. 

Sinha said he was mindful of the fact that there had been a net outflow in fiscal 2010-11 and a decline in the number of accounts of mutual fund investors, but investors have gained as all their money was being deployed in the market. Sebi had quantified such gains at over Rs 1,300 crore. 

The Sebi chief, who worked in the Indian Administrative Service for over three decades marked by stints in the banking division of the finance ministry, said a final call on two key policy initiatives-new rules governing takeovers and norms for ownership of stock exchanges based on the Bimal Jalan committee report- will be taken after the views of the government are taken into consideration. 

Sinha was in the finance ministry at a time the old financial institution ICICI was being converted into a bank, and later had a stint in the capital markets division of the ministry after which he quit the government half-way into the UTI job. 

There has been resistance from industry to some of the recommendations on takeover rules made by a committee headed by former head of the Securities Appellate Tribunal C Achuthan , notably the one advocating a ban on non-compete fee and the other mandating a public offer to buy out 100% of a company. 

"I have some idea of the thinking of the committees and there are strong views for and against. The general view of the Sebi board has been that we should encourage competition and our attempt is to take a decision at the earliest, " he said. 

Sinha also said a group has been formed to ensure that information provided to investors in the prospectus of initial public offerings helps them in taking the right decision. "Our understanding is that Sebi is asking for too much information in an unstructured manner which is again an area for improvement." 

Issuers and bankers may have to justify the pricing of their public offerings by prominently benchmarking it to parameters such as price earnings, or PE, multiple. "I would like Sebi to work towards some system whereby some comparative information is at least available." 

A majority of IPOs which listed during the last few years are now trading below their issue price, leading to criticism that issuers were pricing issues aggressively without leaving anything on the table for investors. This may well have prompted Sebi to review the record of merchant bankers handling such issues. 

The new chairman, the eighth since Sebi was formed in 1992, said the Indian markets were safe, not just in a legal and technical sense, but in a way ordinary investors would understand. 

Insider trading would become an increasingly risky activity, Sinha said, as investment in heightened surveillance had started to pay off. "Sebi is watching and we are providing a reasonable amount of supervision and we have mechanisms to discover any wrongdoing. We are watching much more closely than before. So if people think that they can beat Sebi and get away it is going to be increasingly difficult." 

Sinha, who headed a government-sponsored committee on foreign investment over a year ago, said the regulator would focus on encouraging foreign pension and retirement funds to invest in Indian stocks. "In our consultation with FIIs and other experts, we want to understand what we need to do on this on why pension and other funds are not so enthusiastic. That is one area we would like to work on," he said. 

Recent instances of wealth managers misleading or even duping investors have prompted Sebi to review the rules and plug regulatory loopholes because wealth managers straddle both the banking sector, regulated by RBI , and capital markets regulated by Sebi. "Sebi's attempt would be to fast track this and to take a quick view."

Glaxo SmithKline Consumer Healthcare -Volume slowdown, a concern ::Standard Chartered Research,

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Glaxo SmithKline Consumer Healthcare
Volume slowdown, a concern


 Results below expectations − Net sales, EBITDA & PAT
reported yoy growth of 9.5%, 9.4% & 15%, respectively.
 Volume growth in MFD category slowed down to ~5%,
lower than the 10-12% growth in the last few quarters.
 Volume growth in core variants of Horlicks and Boost at
2-3%, while niche variants grow in double-digits.
 EBITDA growth in-line with sales, but higher other
income results in adjusted PAT growth of 15% yoy.
 We reduce our EPS by 1.3% & 4% for CY11 & CY12
respectively. We roll forward earnings and revise price
target to Rs2,292 (Rs2,258 earlier). Maintain IN-LINE

Edelweiss: TORRENT PHARMACEUTICALS Strong play on branded generics

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􀂄 Strong domestic formulations growth over FY11-13
Torrent Pharma’s (TRP) domestic focus on the high growth chronic segment
(62% of domestic sales), with leading market share in CVS and CNS, imparts
higher growth than the industry. Moreover, with strong focus on brand building
and higher field force stability, the company is gaining strong traction in metros
and tier I cities, as per our survey. We expect its domestic business to post 18%
CAGR over FY11-13E after registering 16-17% growth in FY10-11, led by growth
in covered market and ramp-up of new divisions.

Edelweiss: SUN PHARMACEUTICALS Undisputed leader

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􀂄 Differentiated strategy in domestic market to render higher growth
Sun Pharma (SUNP), with its unique ability to identify therapeutic gap areas and
launch products ahead of market, dominates the Indian chronic therapy segment
(62% of domestic sales). The company also tops our survey results and has
emerged an undisputed choice among distributors. SUNP has innovatively built its
doctors franchise by engaging them at an early stage, which enables it to retain
market share. It is now focused on building a wider product portfolio in other
therapies (such as respiratory) and plans to launch 15 products per annum. Recent
tie-up with Merck for differentiated products is likely to further augment the
company’s product pipeline for domestic market, in our view. We expect the
domestic business to grow at 20% CAGR over FY10-13E, higher than peers.

Edelweiss: RANBAXY LABORATORIES Running ahead of reality

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􀂄 Emerging markets to drive growth; positive traction from Project Virat
Ranbaxy Laboratories’ (RBXY) CY11 revenue guidance of USD 1.87 bn implies
base business growth of 14%, largely driven by emerging markets (EM) such as
Africa, Latam, India, CIS, and Romania. During CY10, organic growth in EM has
been robust at 12%. We believe growth from these regions will be key growth
driver over the medium term. This is further evident from Daiichi Sankyo’s midterm
business plan, where EMs (ex-Japan) are projected to post 23% CAGR,
largely driven by RBXY. India is the key component of this growth strategy and
is seeing positive traction over the past three months after launch of Project
Virat, a significant positive. We expect EM to post 15% CAGR over CY10-12E.

Edelweiss: LUPIN PHARMA Growth evident; strong outlook

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􀂄 Domestic formulations growth to outpace industry
Lupin Pharma’s (LPC) domestic growth has consistently outpaced the broad
market and peers over the past five years—domestic growth has been a sturdy
24% (CAGR) over FY05-10. This is further evident through our extensive
distributor survey, which validates LPC’s strong domestic franchise led by wider
therapy coverage (chronic 41% of total sales), strong traction from new
launches, and effective field force. We expect the company’s growth momentum
to sustain in the domestic market and estimate 18% CAGR over FY11-13E.

Edelweiss: DR. REDDY’S LABORATORIES - More steam left

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􀂄 Domestic formulation: Gaining priority
We expect Dr. Reddys Laboratories’ (DRRD) domestic market to grow at 17%
over FY10-13E led by strategic initiatives such as field force expansion (750
additions in existing markets and 1,600 contractual field force for rural markets)
and increase in new launches. Its differentiated product pipeline such as biosimilars
(Reditux and Cresp) and novel formulations like Fentanyl patches, have
also been successful. Our survey indicates that the company’s supply chain
initiatives, which had impacted growth in FY09, are now contributing to better
performance and incrementally higher returns as inventory in channel has dipped
to 7-8 days versus 15-21 days (best among peers).

Edelweiss ::CIPLA - Turning around

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􀂄 Domestic growth can surprise positively
Cipla has broadly underperformed the domestic market (13% CAGR versus
industry growth of 14-15%) over the past three years due to decline in its mature
(~20% of domestic) and generic portfolio (20% of total domestic sales declined by
10-15%), while its focus portfolio was growing ahead of the market (19-20%
growth). We believe the company’s domestic market growth can surprise positively
due to higher traction from tier II-IV towns, where it has a strong foothold (as per
our survey), while its strategy to address decline in mature and generic-generic
portfolio can give higher upside from a low base.

CADILA HEALTHCARE Looking for next leap of growth::Edelweiss

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􀂄 Domestic formulations turnaround: A boon
Cadila Healthcare’s (CDH) renewed focus on the chronic segment and expansion
in field force over the past two years (22%) has improved its revenue traction in
the domestic market. Revenues have grown a robust 17% Y-o-Y (9mFY11), in
line with the industry, viz-a-viz relative underperformance over FY07-10 (11.6%
CAGR). CDH is through with restructuring phase and is set to grow in tandem
with industry. This growth will be more inclusive with strong traction from tier-
II/IV markets, as depicted through our distributor survey. Further, recent tie-up
with Bayer Schering (Bayer) secures its future product pipeline.

Edelweiss,: Pharmaceuticals: Ear to the Ground: Verdict is Out

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Ear to the Ground: Verdict is Out
India is projected to be the third-largest pharma market (after the US and China) in terms of
incremental growth. It is also evident that the sub-continent, with the highest population and
robust economic growth, offers attractive return to pharma companies due to its costeffective
manufacturing capabilities and branded generics nature of the market. Historically,
the non-regulated structure of market has enabled Indian companies to build strong market
share, however, with changing market dynamics, companies have to adopt new strategic
approach to grow and compete. Therefore, to gain a deeper understanding of this
transformation, we set out to survey various markets, encompassing all zones and tiers. We
selected a sample of 27 cities, ideally representing a mix of all geographies within India, and
after meeting more than 100 distributors across cities, we gained the following insights:
􀂄 Growth momentum to sustain and move into next orbit
Indian pharma market is likely to sustain current growth momentum (14-15% versus
historical run-rate of 10-12% over FY00-10) and a large number of distributors
anticipate growth trajectory to move to the next level of 18-20%. This could potentially
add USD 3 bn of incremental sales over the next four to five years. This strong growth is
inclusive of metros, tier I and II cities and smaller or tier III and IV towns. However,
one-third of this incremental growth will come from tier III-IV towns and rural markets,
which constitute 20% of the total market, and are currently growing at 25-30%, higher
than metros and tier-I cities. This is largely led by increase in income levels, higher
penetration of healthcare, and increase in health awareness among masses. Cipla, with a
strong portfolio in the acute and respiratory segment, is depicting strong growth in tier
II-IV markets, while Cadila, Lupin, Sanofi-Aventis and IPCA are also aggressively
expanding in these regions.

Buy United Phosphorus: Volume pick-up, contribution from acquisitions drives growth in consolidated revenue: Motilal Oswal

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United Phosphorus’ 4QFY11 operating performance was below our expectations. EBITDA margin was 20.8%, lower
than our estimate of 22.3% due to higher raw material (RM) cost. However, forex gain and lower tax boosted adjusted
PAT to Rs2.32b (v/s our estimate of Rs2.27b).
Key highlights
 Revenue grew 23% to Rs18.8b (v/s our estimate of Rs18.5b), driven by 20% volume growth and 3% price rise.
Revenue growth was strong across regions, except in the European Union (EU), where it witnessed 17% decline.
 Gross margin was flat at 37.8%, despite 200bp increase in RM cost. However, operating leverage and reduction in
fixed overheads drove 20bp expansion in EBITDA margin to 20.8%.
 Marked-to-market (MTM) forex gain of ~Rs140m and lower tax boosted adjusted PAT to Rs2.32m.
 For FY12, the management has guided revenue growth of 12-14%, EBITDA margin of 21% (60-80bp expansion), and
tax rate of 15-17%, implying PAT growth of over 20%.
 The board has declared a dividend of Rs2/share (v/s Rs2/share in FY10).
Valuation and view
We are marginally downgrading our EPS estimates to Rs17 for FY12 and to Rs20.4 for FY13. Valuations at 9x FY12E
EPS and an EV of 5.2x FY12E EBITDA do not adequately reflect the company’s growth potential (both organic and
inorganic). We maintain Buy, with a target price of Rs204 (~10x FY13E EPS).

Titan Industries: 1:1 bonus and 10:1 stock split announced: Motilal Oswal

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 Titan Industries 4QFY11 results are below estimates with adjusted PAT of Rs839m (est. 1.2b). Sales increased by
35.6% to Rs17.8b (est. Rs17.4b); EBITDA margin contracted by 290bp to 6% due to lower watch margins; 5x
increase in other income to Rs243m boosted adjusted PAT.
 Below expectation due to higher staff bonus; Growth momentum intact: The management indicated that
lower profits were due to (1) additional staff bonus equal to 4 months basic salary, (2) revisions in lease rentals, and
(3) higher tax rate due to lower profits in watch segment. While jewellery segment reported 86% EBIT growth and
230bp margin expansion; watch segment reported a sharp 81% decline in EBIT on 1180bp margin decline. We
believe that margin impact on watch segment is one time in nature as it accounts for nearly 2/3rd of staff costs. We
estimate an impact of Rs500m due to additional bonus, excluding which the overall results would have been in line
with estimates. The company has also announced bonus shares (1:1) and 10:1 stock split.
 Margin decline in watches; Jewellery margin expansion of 230bp: 4QFY11 Watch sales increased 16.8%
YoY (~16% volume growth) to Rs3.3b; EBIT declined 81% to Rs77m; EBIT margin declined 11.8% to 2.3%. Jewellery
sales increased 39% to Rs13.7b; EBIT grew 86% to Rs1.2b; EBIT margin expanded 230bp to 8.7%.
 Valuation and view: 33% PAT CAGR over FY11-13; outlook positive; Neutral: Although consumer demand
remains intact and volume growth is robust; higher base effect would impact the growth rates in the coming year.
Titan would gain from steady increase in gold prices as it’s making charges are linked to the gold prices, which props
up the margins in an inflationary gold price environment. However any softening of gold price can impact margins.
Eyewear is on a fast scale up although EBIDTA breakeven is likely by FY13 only; Precision Engineering is likely to
achieve breakeven in FY12. We are assuming additional bonus as onetime payment; change in strategy is a risk to
estimates. We are tweaking our estimates by 1-3% to factor in (1) Higher gold prices and (2) 50-100bp higher tax
rate. We are revising FY12 and FY13 EPS estimates to Rs136.3 (Rs131.8 earlier) and FY13 estimates to Rs173.6
(Rs171.8 earlier). The stock trades at 29.6xFY12E and 23.2xFY13E. Neutral.

Buy Phoenix Mills: PML 4QFY11 results in line; targets 70-75% operating margin : Motilal Oswal

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 Results in line: Phoenix Mills (PML) posted 4QFY11 results in line with our estimates. EBITDA grew by 62.1% YoY
to Rs321m (against our estimate of Rs323m) and EBITDA margin was 68.6% against 72.6% in 3QFY11. A decline in
EBITDA margin in 4QFY11 was due to higher maintenance expenditure in High Street Phoenix (HSP). Revenue,
which is mainly driven by HSP, grew by 35.7% YoY to Rs468m (against our estimate of Rs461m). Rental from HSP
increased 4% QoQ due to higher revenue share realizations. Net profit was Rs272m, up 72.9% YoY (against our
estimate of Rs206m).
 Expect impact of rental renegotiation at HSP from 1QFY12: Rentals at HSP are likely to grow steadily due to repricing
of old rental contracts of ~0.15msf. In 4QF11, PML entered into a re-pricing agreement with one of its key
anchor tenants, ending up with ~40% increase over the existing rental. The management expects a 20% growth in
operating income in HSP in FY12, with the weighted average rental moving to Rs175-180/sf/month against the
existing rental of Rs155/sf/month. We estimate rental income from HSP's retail and commercial assets to grow to
Rs2b in FY12 (against Rs1.8b in FY11).
 Pune mall may start in 1QFY12, stake increase in Bangalore a positive: PML's Market City projects' retail
portions are in an advanced stage of completion and delivery is expected over next 3-9 months. The Pune mall is
likely to start operations in May 2011. We expect rental income from PML's Market City projects to be ~Rs625m in
FY12. In 4QFY11, PML increased its stake in Phoenix Market City, Bangalore (E) from 32.7% to 37.8%, by acquiring
the remaining 33.3% stake in Pinnacle Real Estate Development Private Limited. Since improving market outlook
and steady progress in execution augur well for a robust upside, we believe steady increase in stakes in its Market
City projects will be a key positive for PML.
 Valuation and view: We believe PML is a unique play on the booming domestic consumption story. We expect its
annuity income to be boosted with ~Rs2.8b of annuity income in FY12 against Rs1.8b in FY11. Steady monetization
of its commercial and residential projects will be key triggers in this regard. Successful fund raising by EWPL at
attractive valuations will be NAV accretive for PML. Our NAV estimate for PML is Rs260, with the retail vertical
contributing 63% of GAV. The stock trades at a PER of 15.3x FY13E EPS of Rs13.2, 1.5x FY13E BV of Rs135.6 and
29% discount to our NAV of Rs260. Maintain Buy.

JPMorgan: Jain Irrigation FY11 Results: Balance sheet deterioration + pared growth outlook = Stock de-rating; cut PT to Rs165

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Jain Irrigation Systems Ltd
Underweight
JAIR.BO, JI IN
FY11 Results: Balance sheet deterioration + pared
growth outlook = Stock de-rating; cut PT to Rs165


• Further balance sheet deterioration in FY11: Based on standalone FY11
results, we note that a large proportion of incremental revenues in FY11
stand out as receivables. JI’s revenues in FY11 increased by Rs6.4B over
FY10, while receivables in FY11 rose by Rs6.05B over FY10; i.e. 95% of
incremental sales are yet to be realized to cash. Overall, debtor days in
FY11 increased to 159 from 115 in FY10. While the situation may not be as
bad on a consolidated basis (subsidiary results have not been published yet),
directionally we still see deterioration.
• Expect growth rates to moderate, impending margin pressures:
Management guided to 30% growth for MIS, but pared expectations on
growth for food processing business to 10%-15%. Exports are slowing
which is likely to put pressure on overall growth. Management expects
overall sales growth of 20%-21% in FY12. Raw material cost pressures are
building up owing to high oil prices, and management indicated that
margins could come under pressure if oil prices do not come off.
• NBFC likely to commence by Aug-Sep ’11: JI would invest Rs1B in the
NBFC, while another Rs1B will be invested by third parties. Management
indicated that the NBFC would start ramping up only in 4Q FY12E.
• 4Q results in line with our estimates, but below consensus: 1) Sales: Up
27% yoy, driven by strong 42% growth in domestic MIS, though MIS
exports de-grew 10%yoy; 2) EBITDA margins at 21.3%, up 50bp on
account of operating leverage; 3) interest costs up 39%yoy on higher
working capital; 4) PAT (pre-exceptional) up 28% yoy.
• Expect further de-rating, cut PT to Rs165: We believe that JI will de-rate
further in light of the deterioration in the balance sheet and impending
growth and margin headwinds. We reduce our Mar-12 PT to Rs165, based
on 15x FY13E P/E (from Rs175 earlier based on 18x FY12E P/E). Our
target multiple is at a 25% discount to JI’s historical trading average, but still
at a 50% premium to domestic agri-input players. Key upside risks: adoption
of MIS in canal-irrigated and cereal producing areas; change in govt.
subsidy policy and faster growth in food processing and overseas businesses

IDFC 4Q11: Fee income continues to disappoint -JP Morgan

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IDFC
Neutral
IDFC.BO, IDFC IN
4Q11: Fee income continues to disappoint


• 4Q miss on low fee income: IDFC reported 4Q11 net profit of Rs2.86bn
up 25% y/y but ~15% lower than our estimate. Strong loan growth and
treasury income aided NII (+50% y/y) but fee income continued to
disappoint with ~30% y/y contraction.
• Loan growth strong, marginal improvement vs. 3Q11 on sanctions:
Loan growth at 7% q/q improved vs. 2% q/q growth in 3Q11. Sanctions
also improved relative to a very weak 3Q11 but show clear signs of
deceleration relative to 1H11. Overall loan growth has been very strong
at ~50% y/y growth but we expect growth to moderate in the near term
given high rates. We believe this could impact profit growth as loan
growth was the primary profit driver in FY11 with fee income
continuing to disappoint.

JPMorgan TOP PICK:: Sintex Industries : Strong 4Q: Balance sheet profile improving. Increase PT to Rs270

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Sintex Industries Limited
Overweight
SNTX.BO, SINT IN
Strong 4Q: Balance sheet profile improving. Increase
PT to Rs270


• Management addressing balance sheet concerns: 4QFY11 marks a sharp
improvement in working capital, which has been a key concern in the past.
Net WC has improved to 132 days from 191 in FY10. Management has
indicated that most of the cash from escrow account has been freed and
loans to group companies have largely been refunded (of Rs5.29B in escrow
at end of FY10, Rs4.5B has been freed up). Sintex have also hived off their
oil & gas subsidiary, a positive step in our view and an indication that
management is unlikely to use the balance sheet for non core ventures.

Sesa Goa|4QFY2011 Result Update: Angel Broking,

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Sesa Goa’s 4QFY2011 net sales at `3,624cr were ahead of our estimate of
`2,654cr on account of higher-than-expected iron ore realisation. Net profit at
`1,462cr was also above our estimate of `1,281cr.
Top-line growth aided by higher realisation: Despite lower production during
4QFY2011 due to export ban in Karnataka and termination of third-party mining
in Orissa, sales volume grew marginally by 1.7% yoy to 7.5mn tonnes (wmt
basis). However, higher iron ore realisation led to 49.8% yoy growth in the top
line to `3,624 in 4QFY2011. During the quarter, iron ore realisation increased by
52.2% to US$100/tonne. On the operating front, EBITDA grew by 40.9% yoy to
`2,118cr. However, EBITDA margin contracted by 368bp to 58.5% yoy as the
positive impact of higher realisation was offset by increased royalty rates and
higher export duty and freight cost. Other income grew by 30.9% yoy to `169cr,
but tax rate increased by 34.7%, leading to only a 20.5% yoy increase in the
bottom line to `1,462cr.

Hindalco Industries – Aluminium surges past $2,800/t:: RBS

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Aluminium prices have surged past US$2800/t for the first time in three years. The price rise has
been supported by high energy prices as well as robust end-use demand. We believe Hindalco
would be a key beneficiary with its high level of resource integration. We have a Buy rating on
Hindalco with TP of Rs315.

Buy Sesa Goa: EBIT/ton up 38% YoY; 32.7mt of reserves added in FY11 Motilal Oswal

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 Sesa Goa 4QFY11 adjusted PAT grew 20% YoY to Rs14.6b. This was below our estimate of Rs15.3b mainly due to
a higher tax rate, as the company could not avail of EOU benefits in Karnataka due to an export ban over the past
three quarters. The operating performance was better than our estimates.
 Net sales increased 50% YoY to Rs36.2b, higher than our estimate of Rs31.4b, due to higher iron ore realization.
 Sales tonnage rose 2% YoY to 7.53mt, in line with our expectations.
 Average realizations rose 53% YoY to Rs4,680/ton (higher than our estimates of Rs4,026/ton). Iron ore revenue grew
56% YoY to Rs35.2b.
EPS upgraded due to Cairn stake acquisition; FY12 EPS to decline; maintain Buy
 Sesa Goa acquired 200m shares in Cairn India from Petronas for Rs331/share, amounting to 10.4% stake in Cairn
for Rs66.2b, which is in addition to an ongoing open offer.
 We have incorporated profits from the associate of Rs9.6b in FY12 and Rs10.3b in FY13 for the Cairn investment.
 Sesa Industries merged with Sesa Goa after a Supreme Court decision, dated 7 February 2011, with effect from 1
April 2005. As a result, the number of shares increased by 9.398m to 869.1m, up 1.1%.
 Despite a 17% EPS accretion from the Cairn investment, we expect overall EPS in FY12 to fall 12% YoY, as the full
impact of higher rail freight and enhanced export duty are yet to hit earnings.
 The stock trades at FY12E P/E of 7.5x and EV/EBITDA of 6.5x. Maintain Buy with a target price of Rs367 (Rs304
for core business based on 6x FY12E EV/EBITDA + Rs63 for investments discounted by 20%).

Strides Arcolab: Performance led by specialty segment ::Motilal Oswal

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Strides Arcolab's operational performance for 1QCY11 was in line with our expectations. Key highlights:
 Topline grew 30.5% YoY to Rs4.87b (v/s our estimate of 28.3% YoY to Rs4.79b), EBITDA grew 17.7% YoY to
Rs917m (v/s our estimate of Rs877m), and recurring PAT declined 15.4% YoY to Rs292m (v/s our estimate of
Rs386m).
 Topline growth was led by the specialty segment, which reported doubling in revenue to Rs2.4b (v/s our estimate of
Rs2.1b), albeit on a small base. However, the pharma segment reported muted growth of 1% YoY to Rs2.6b (v/s our
estimate of Rs2.7b) due to cautious approach towards low margin institutional business.
 EBITDA grew 17.7% YoY to Rs917m (v/s our estimate of Rs877m) while EBITDA margin declined by 210bp YoY to
18.8% (v/s our estimate of 18.3%). EBITDA margin was higher than estimated due to booking of higher licensing
income. Excluding this, core EBITDA margin declined 304bp to 9.5% (v/s our estimate of 12.9%).
 Adjusted PAT declined 15.4% YoY to Rs292m against our estimate of Rs386m primarily due to higher than expected
tax provisions (tax rate of 16.5% v/s our estimate of 15%) and lower other income.
Strides Arcolab is set to catapult into a specialty company, with revenue contribution from this segment likely to rise from
27% in CY09 to 47% in CY12. The company has an impressive product pipeline in the specialty segment. Besides, large
manufacturing capacities (Rs15b capex over CY06-09) are in place to support a revenue scale-up and best-in-class
marketing partners like Pfizer and GSK will lead to sustainable revenue growth. We expect Strides to clock earnings
CAGR of 31.2% over CY10-12, led by ramp-up in revenue from the sterile injectables (SI) segment and core EBITDA
margin expansion in line with changing product mix and higher capacity utilization. Return ratios are set to improve over
CY10-12 and gearing is likely to decline from 2x in CY10 to 1.6x in CY12. The stock trades at 13.6x CY11E and 10.9x
CY12E earnings. We maintain Buy, with target price of Rs473.

Canara Bank: OW: 4QFY11 results; slippages accentuate  HSBC

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Canara Bank (CBK)
OW: 4QFY11 results; slippages accentuate
 4QFY11 PAT was below our expectations – dragged down by
lower-than-expected margins and higher credit costs
 We are building in further margin compression for FY12 and
higher slippages with earnings surprise likely on the upside
 Cutting target price to INR719 (from INR878), implying a
potential return of 30%; reiterate OW rating, though nearterm underperformance may continue

Cadila Healthcare : Stellar 4Q ; Reiterate Buy : target Rs975 :: BofA Merrill Lynch

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Cadila Healthcare
   
Stellar 4Q ; Reiterate Buy
„4Q beat led by strong topline; PO raised to Rs975
Cadila’s 4Q PAT of Rs1.79bn (up 51% YoY) beat BofAMLe by 15% on stronger
sales of Rs11.8bn (up 43% YoY, 22% ahead). Increased staff incentive
(Rs510mn) led to slippage in EBITDA margins (18.8%, adj margin at 23%). Strong
domestic biz (up 23%) & sustained strength in US generics (up 51%) led to
revenue surprise. We retain our above consensus estimates and raise PO to
Rs975 on rollover to Sep-12E EPS as we expect further upgrades to help re-rate
stock at slight premium to the sector given strong EPS growth and return ratios.

Bharti Airtel: 4Q results below consensus; Africa margins rebound; target price INR425:: HSBC

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Bharti Airtel (BHARTI IN)
OW: 4Q results below consensus; Africa margins rebound
 4Q FY11 results disappoint; however, no directional negatives
 Africa margins rebound; slower rate of MOU growth negative
 OW and SOTP-based target price of INR425 unchanged

UBS :: Dabur India - Building a supplements business

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UBS Investment Research
Dabur India Ltd.
Building a supplements business
 
„ News: Dabur buys 30-Plus
Dabur is to acquire Ajanta Pharma’s energizer brand ‘30-Plus’, the oldest herbal
energizer brand in the country. It was launched in 1990. According to media
reports, the brand consideration is ~Rs500m.

Reliance Industries- Hardy option value isn't relevant ::RBS

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Reliance Industries
Hardy option value isn't relevant
Hardy's decision not to exercise an option to increase its stake in the D3 block
has no implications for the valuation of D3 and on the valuation of RIL's E&P
assets in our view. Also, our gross valuation for known reserves (US$16.6bn) is
higher than the estimate put out by Wood Mackenzie.

Shriram Transport Finance:: Regulatory risks magnify challenges:: Goldman Sachs

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Shriram Transport Finance (SRTR.BO)
Neutral  Equity Research
Regulatory risks magnify challenges
What's changed
Shriram Transport (SRTR) share price has corrected 25% since Apr 25 (recent
peak for banks/NBFCs) which we believe reflected  market concerns on
regulatory changes/risks and NIM compression. Recent regulatory changes:
(1) In the Monetary Policy, RBI has removed ‘bank loans to NBFCs’ as priority
sector (‘PS’) from April 1, 2011 (detailed guidelines awaited). (2) CRAR increased
to 15% from 12% for NBFCs from FY12. Potential regulatory risks: (1) RBI has
a committee re-examining the PS classification guidelines. If banks can’t buy
NBFC assets to meet PS norms, the regulatory arbitrage benefiting SRTR would
end. (2) If draft securitization guidelines (of Jun ‘10) are implemented (requiring
min. holding period and/or loan retention), then securitization (60%/ 51% of
disbursements in FY10/FY11) would be muted at least for a year, in our view.

Coal India : Price hike key to firing the coal engine, fairly valued; Goldman Sachs

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Coal India Ltd. (COAL.BO)
Neutral  Equity Research
Price hike key to firing the coal engine, fairly valued; initiate Neutral
Investment view
We initiate coverage on Coal India with a Neutral rating and 12-month
FY12E Director’s Cut-based target price of Rs405. In our view, CIL, which has
a near monopoly in India (80% of India supply), is best positioned to benefit
from burgeoning power sector coal demand and the widening coal deficit
(14% of demand in FY11E to 37% by FY15E). We like CIL for its top quartile
cash returns and strong growth (20% FY11-13E), driven by improved
realizations, operating leverage and low cash costs; but we believe upside
from the current levels will depend on CIL’s ability to hike notified prices,
which seems unlikely in the near term given inflationary concerns.

UBS :: Union Bank - Asset quality trends improve ; target Rs350

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UBS Investment Research
Union Bank
Asset quality trends improve
 
„ Event: Quality of earnings improve; Asset quality positive surprise
Union Bank reported PAT of Rs 5.97 bn (flat Y/Y) better than UBSe of Rs 5.7 bn
while NII came slightly ahead of expectations at Rs 17.2 bn. Key highlights of the
quarter were 1) NPL additions halve to 1.2% (from 2.4%); consequently credit
costs drop sharply 2) NIMs stable q/q at 3.4% 3) Staff expenses doubled q/q on
account of one off retirement employee provisions of (Rs3.7 bn) 4) Provision
coverage drops to 67% from 70% in Q3. Asset quality trends were the highlights.

UBS: Federal Bank -- On track ; price target Rs600

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UBS Investment Research
Federal Bank
On track
 
„ Event: Q4 earnings in line with UBSe, higher than consensus
Federal Bank reported net profit of Rs 1.7 bn (47% Y/Y) in line with UBSe while
well ahead of consensus however NII came slightly below estimates at Rs 4.5 bn
(UBSe Rs 4.7bn). Key highlights of the quarter were 1) Asset quality trends
stabilized as expected, GNPA flat, credit costs declining and provisioning coverage
improved to 83% 2) NIMs decline 30 bps q/q as loan mix changed along with cost
of fund increase 3) Balance sheet growth improves strongly in Q4 at 19% y/y.

JPMorgan: SKS Microfinance :: Still very stressed - cut PT to Rs200

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SKS Microfinance
Underweight
SKSM.BO, SKSM IN
Still very stressed - cut PT to Rs200


• We cut our PT on SKS to Rs 200 from Rs 550, accompanied by deep
earnings cuts and loss forecasts for FY12. We think the Andhra Pradesh
portfolio is seeing more losses and the business model has weakened
elsewhere too. Recent regulatory changes are not as positive as the street
thinks. We fear that SKS’ may need more capital. Maintain Underweight
– the risk-reward payoff is unappealing.

JPMorgan:: Reliance Infrastructure: Pressures on electricity distribution business

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Reliance Infrastructure Ltd
Neutral
RLIN.BO, RELI IN
Pressures on electricity distribution business


• The management of Reliance Infra  has admitted to severe liquidity
pressures in its Delhi distribution business, citing a steep increase in debt
levels to fund ongoing capex and in power procurement cost, while tariffs
have not risen commensurately. As per management, banks are unwilling to
fund the company and tariffs would need to be raised steeply by Rs2/KWH
(which would imply more than a 50% average increase in our estimate). The
company filed its FY12 tariff petition with the regulator in March-11.

Piramal Healthcare - Changing risk profile:: Macquarie Research,

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Piramal Healthcare
Changing risk profile
Event
 PIHC announced its 4Q FY11 numbers, with net sales at Rs5.6bn (up 38% YoY
for continuing business) and PAT of Rs2bn. Operating income was Rs6.9bn,
boosted by Rs1.3bn investment income. EBITDA margin was 8.2% for 4Q.
 The NCE unit of Piramal Life Sciences (PLSL IN, Not rated) will be transferred
into PIHC. Also, PIHC will set up an NBFC and will get into fund management
for real estate and infra sectors. PIHC is also acquiring Indiareit Fund
Advisors Pvt Ltd. (IFAL) and Indiareit Investment Management Company
(IIMC) for a consideration of Rs2.25bn.

UBS:: Tube Investments of India -Operationally strong 4Q ; price target Rs206.00/

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UBS Investment Research
Tube Investments of India
Operationally strong 4Q
 
„ Event: 4QFY11 results marginally below exp but strong operationally
Tube Investments (TI) Q4 FY11 adjusted net profit of Rs 465 mn (65% YoY, 24%
QoQ) was marginally below estimates. 4Q had strong operational numbers -
revenues up 23% yoy and EBITDA margins up 90bps yoy, despite raw material
price pressures. EBIT ROCEs were up yoy and sequentially for all segments
„ Impact: Cut estimates on huge capex announced
Management announced huge capex for next year of Rs 5-6bn, to be funded by
internal generation and debt (FY12E debt:equity at 0.9x). This will be spent on
increasing capacity and adding new higher-margins product, benefits of which will
start accruing from FY13. We cut our FY12/13 EPS by 10%/5% to account for
higher depreciation/interest costs. Management remains confident of strong growth
and stable margins in FY12.