17 July 2011

Inventure Growth and Securities IPO: All the details

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Issue Terms
 
Issue price / Floor Price (Rs)
100-117
Application per share (Rs)
100.00
Minimum investment amount (Rs)
5,000.00
Minimum bid (no of shares)
50 shares and in multiples of 50 thereafter
Maximum Shares for Retail
40-34
Issue Date and Size
 
Issue opens
20-Jul-11
Issue closes
22-Jul-11
Listing on
BSE, NSE
Issue size (Rs cr)
70-81.9
Mkt cap at issue price (Rs cr)
210-245.70
Shares on Offer
Lakhs
Total shares offered
70.00
Of above, offered to public
70.00
Post-issue shares
210.00



Lead Managers & Registrar
Lead Manager(1)
Intensive Fiscal Services Pvt Ltd
E-mail
inventureipo@intensivefiscal.com


Registrar
Link Intime India Pvt Ltd
E-mail
igsl.ipo@linkintime.co.in



Company Contact Details
Company's address
Viraj Towers, 201, 2nd Floor, Near Landmark, Western Express Highway, Andheri (E), Mumbai.
Pincode
400 069
Tel No.
91 22 39548500
Fax No.
91 22 40751535
Website
http://www.inventuregrowth.com



Description
Company provides comprehensive advisory services that are well diversified from trading services in equity cash and derivatives market, debt market, commodities and currency futures segment to financing activity, wealth management, and distributions of financial product.
Objects of Issue
  • -Investment in subsidiary, Inventure Finance Private Limited;
  • -Augmenting long term working capital requirement

Macquarie Research, Agri-view --Bullish outlook for US cotton offset by bearish global markets

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Agri-view
Bullish outlook for US cotton offset by
bearish global markets
Feature article
 Poor crop progress reports for the developing US cotton crop will likely offset
last week’s bearish USDA acreage report. In our view, low yields and high
abandonment rates will nullify the higher than expected planted acres
suggested by the USDA. But this does not necessarily make for a bull market,
given positive supply prospects elsewhere in the world. A rebound in world
(ex-US) production, coupled with weakened milling demand for cotton sends
bearish short-term signals – although given low stocks, cotton prices will likely
find strong support at 100-110c/lb.
Latest market update
 We had expected sugar prices to come off after the expiry of the July sugar
contract, but Oct futures have rallied further ahead to target 30c/lb on the
back of Brazilian port congestion and expectations that Unica will revise down
its estimates for the CS Brazilian cane crop from 568mt to 520-540mt. They
have already suggested that CS Brazilian sugar production will be at least 1mt
lower than last season. While the 3-month outlook remains in our view
bearish, due to the looming surplus expected to emanate from the developing
northern hemisphere new crops, it appears that in the short-term traders
continue to factor in supply-side risks associated with Brazil’s poor agricultural
cane yields and port delays. The number of vessels waiting to load sugar in
Brazil has risen to 86, up from 64 a fortnight ago. In India, the monsoon
precipitation has so far come in lower than expected in the western states,
causing some concern for plantings. The market awaits India’s OGL exports
to provide short-term supply relief in light of Brazil’s imminent problems.
 The NY arabica coffee market rallied this week to above 265c/lb due to news
of frost in some Brazilian coffee growing regions. There is little evidence of
crop damage though, and prices will continue to be influenced by macro
moves and pressure from the ongoing harvest. Brazilian producers continue
to show strong discipline in selling, as reflected by still firm BMF futures. The
robusta market remains supported by a lack of available supplies in Asia, with
Vietnam’s 2011/12 harvest at least 4 months away. The tightness is being
played out through rising differentials, as London futures continue to face
price resistance on account of large stocks held in Europe.
 The cocoa market put in a strong performance this week on the back of chartbased
technical moves and short covering to shoot past $3,200/t.
Fundamentals, however, continue to look weak, short term. Ghana’s cocoa
purchases are up over 50% season-to-date, at 960mt, and new crop hedge
pressure is already being seen. Around half of Ivory Coast’s stocks (built up
during Q1 during the embargo) have been shipped; but the remainder, coupled
with the supplies from the ongoing mid-crop harvest, is likely to weigh on prices
over the next few weeks. This supply will need to be worked off, before the
tighter balance currently projected for 2011/12 can translate into higher price.
Otherwise, a larger than expected carry-over stock risks dampening prices into
next season too, regardless of lower forecasted global production.

Forthcoming Results -July 18th

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July 18, 2011




Company
Company
Company
Company
Company
BASF India
Indo Rama Syn
Kakatiya Tex
Sri Lakshmi Saras-$
Waterbase
Bijlee Textiles
ING Vysya Bank
Maharashtra Poly
Steel Strp Whls-$
Wheel & Axle
BOC India
INNOV IND
Oxides & Special
Supreme Petro
Zydus Wellness-$
Gemini Comm
Jarigold Tex
Persistent Sys
SURYAMBA SP

GHCL
Jasch Inds
Premier Expl
Vadilal Enter

Goa Carbon-$
Kajaria Cerm
Rosekamal Tex
Vadilal Inds-$



Shriram Transport Finance - NCD: Listing tomorrow (July 18, Monday)

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Shriram Transport Finance - NCD: Listing tomorrow (July 18, Monday)

HAPPY TRADING

Inventure Growth and Securities :: All the forms -Application-ASBA, grading report, Prospectus

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Inventure Growth and Securities Ltd
*Non-Retail investors i.e. QIB and Non-Institutional Investors shall mandatorily use ASBA facility
Symbol - SeriesIGSL EQ
Issue PeriodJuly 20, 2011 to July 22, 2011
Post issue Modification PeriodJul 23,2011
Issue SizePublic issue of 70,00,000 Equity Shares of Rs. 10/- each
Issue Type100% Book Building
Price RangeRs.100 to Rs.117
Face ValueRs.10/-
Tick SizeRe. 1/-
Market Lot50 Equity Shares
Minimum Order Quantity50 Equity Shares
IPO GradingIPO GRADE 2
Rating AgencyFitch Ratings India Private Limited & ICRA
Maximum Subscription Amount for Retail InvestorRs.200000
IPO Market Timings10.00 a.m. to 5.00 p.m.
Book Running Lead ManagerIntensive Fiscal Services Private Limited
Syndicate MemberIntensive Fiscal Services Private Limited
Categories*FI,IC,MF,FII,OTH,CO,IND,and NOH
No. of Cities with Bidding Centers48
Name of the registrarLINK INTIME INDIA PRIVATE LIMITED
Address of the registrarC -13, Pannalal Silk Mills Compound,L.B.S Marg, Bhandup (West),Mumbai ? 400 078
Contact person name number and Email idMr. Chetan Shinde,Tel. No.: +91 22 2596 0320 Fax No.: +91 22 2596 0329,igsl.ipo@linkintime.co.in
ProspectusClick Here
Trading Member ListClick Here
Application FormsClick Here
ASBA e-form linke-Forms
Grading ReportClick Here
Branches of Self Certified Syndicate Banks (SCSBs) where syndicate / sub syndicate member to submit ASBA formClick Here

The Visible Hand :: Walking the carbon tax tightrope-- Macquarie Research,

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The Visible Hand
Walking the carbon tax tightrope
Event
 The Australian government announced the details of the carbon tax to be
introduced in July 2012.
Impact
 It is very likely that the carbon tax and the associated policy changes
announced by the government will be at the centre of the next election
campaign.
 Yet there are some significant political risks for the government. One of the
most important is the assumption that inflation will only rise slightly and that
household living standards will not suffer a large hit.
 Encouraging competition is likely to be one policy response. It probably also
means acceptance of a strong A$ both to suppress inflationary pressures and
discourage monetary tightening by the RBA.
Analysis
 As any tightrope walker knows, balance is critical. The Australian government
has commenced a highwire act with the details of the carbon tax and whether
or not it has got the balance right will be critical for its chances of winning the
next election.
 Winning the debate will not be easy because of the complexities of the policy
changes. The combination of environmental, taxation and industry reforms
would make this a difficult political “sell” at any time.
 In addition there are some risks in the policies that could bring the
government unstuck if some of the assumptions prove to be wrong.
 One of the biggest risks is the fact that the compensation is fixed but the price
adjustments are variable. Modelling of the likely inflationary consequences of
the carbon tax is the best that can be done at the moment. But there is
certainly no guarantee that the results will be close to the forecasts.
 There is an assumption in the forecasts that inflation will only rise slightly. The
impact is assumed to be much less than the jump that followed the
introduction of the GST in 2000 and relatively low compared to the average
inflation rate of the past decade.

Sizzling Stocks - JSW Energy , Bajaj Finance:: Business Line,

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JSW Energy (Rs 77.6)

The stock zoomed 14 per cent with good volumes last week, decisively penetrating its 21- and 50-day moving averages. After recording an all-time low at Rs 64 on June 22, the stock reversed its trend upwards, triggered by positive divergence in both the daily moving average convergence divergence and weekly relative strength index. Since then, it has been on a short-term uptrend. Nevertheless, the stock is currently testing its immediate resistance at Rs 80. Emphatic move above this resistance can lift the stock higher to Rs 88 in the short-term. A surpass of the resistance level at Rs 88 will see the stock encounter long-term resistance at Rs 100.
On the other hand, reversal from either Rs 80 or Rs 88 will mean resumption of its intermediate-term downtrend that has been in place since last September. It can drag the stock down to Rs 70 and then to Rs 65 levels in the medium-term. Strong move above Rs 110 is required to mitigate its downtrend.
Bajaj Finance (Rs 716.7)
Following the announcement of the company's strong first quarter results, the stock accelerated 9 per cent with extraordinary volumes. With this surge, the stock broke through its key long-term resistance at Rs 640 and finished the week with 12 per cent gains. However, the stock met with its medium-term resistance at Rs 720 and is testing it. Strong jump above this resistance will push the stock higher to Rs 760 and then to Rs 800-810 range in the medium-term.
The stock has significant medium-term support at Rs 640, Rs 600 and Rs 560. Inability to surpass Rs 720 or Rs 760 can pull the stock lower to Rs 640. Immediate support is at Rs 680 where its 200-day moving average is positioned

Bajaj Auto: Adverse swing in product mix impacted EBITDA margins:: Kotak Sec

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Bajaj Auto (BJAUT)
Automobiles
Adverse swing in product mix impacted EBITDA margins. Bajaj Auto 1QFY12
profits of Rs7.11 bn (+21% yoy, +5% qoq) were 7% below our estimates and 4%
below consensus estimates due to lower-than-estimated average selling price, higher
raw material costs and lower other income. EBITDA margins came in at 19.1% (110 bps
below our estimates) driven by adverse swing in product mix. We maintain our ADD
rating on the stock due to strong volume growth outlook


Decline in premium segment motorcycle volumes impacted EBITDA margins
�� Bajaj Auto 1QFY12 profits of Rs7.11 bn (+21% yoy; +5% qoq) were 7% below our estimates
and 4% below consensus estimates. Revenues grew by 23% yoy but were 2% below our
estimates due to adverse swing in product mix. Raw material costs as a percentage of net sales
increased to 72.6% in 1QFY12 (170 bps increase qoq) driven by inferior product mix and
increase in raw material costs during the quarter. Other income was also lower by Rs319 mn
than our estimate.
�� Domestic premium motorcycle segment declined by 18% qoq as the company lost 3.6%
market share qoq primarily to Yamaha Motors. Yamaha Motors has gained 7.2% market share
in the premium segment over the last 12 months from Bajaj Auto. Bajaj plans to launch Boxer
150cc in 2QFY12E and new Pulsar variants in 3QFY12E which should help the company in
increasing its market share in 2HFY12E, in our view.
�� Domestic motorcycle volumes were up 10% yoy driven by 36% yoy increase in the Discover
volumes (100, 125 and 150cc). Economy segment bikes declined by 5% yoy in 1QFY12 as
customers shifted to executive segment bikes.
�� Export volumes were robust (+32% yoy) while export revenues increased by 40% yoy indicating
that the pricing/mix improved by 8% yoy in 1QFY12. Export average selling price increased by
3% qoq indicating strong demand/pricing environment in the export markets.
�� We believe 1HFY12E EBITDA margins will remain under pressure and expect improvement in
EBITDA margins in 2HFY12E driven by increase in market share in the premium motorcycle
segment and moderation in raw material costs. We retain our EBITDA margin assumptions of
19.2% for FY2012E. We maintain our ADD rating on the stock with a target price of Rs1,550
(based on 14X FY2013E EPS).

Strategy: Services substitute food as expenditure patterns evolve:: Kotak Sec

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Strategy
GameChanger
Services substitute food as expenditure patterns evolve. NSSO survey results show
the Indian consumption basket (across rural and urban India) changing towards services.
Consumption expenditure is up between 10.5% and 11.0% CAGR across India over
the last five years. There is significant disparity in rural and urban consumption and
across both the inter-deciles disparity is high. Southern and western India typically has
higher consumption than eastern and northern India. We await more data and clarity.

Glenmark Pharmaceuticals- Key takeaways – call with head of US :: Macquarie Research,

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Glenmark Pharmaceuticals
Key takeaways – call with head of US
Event
􀂃 We spoke to Terrance J. Coughlin, head of US business at GNP late last
week. He maintained the US business (FY11A sales ~US$182m) has the
potential to grow b/w 20 to 25% in FY12. We maintain GNP as our top pick
with a TP of Rs465.
Impact
􀂃 GNP has >10% market share for the launched OC products: The market
has been concerned about GNP’s ability to gain share in the OC space. GNP
highlighted that they have already gained >10% market share in the 4 OC
products launched in FY11. Recently approved Ortho Tri-Cyclen (market size
of US$226m) gets launched in July. The total market size for the hormonal
product approved for GNP in the US is now ~US$380m. With an expanding
portfolio (3 to 4 more OC approvals expected in CY11) and entry barriers for
competition, OC could be a growth driver for GNP.
􀂃 Oxycodone: GNP now has more than two-thirds market share in
Oxycodone (5 mg capsule and 20 mg /ml solution) with market size of these
strengths being ~ US$18m. GNP has also informed the FDA that they
have ample supply of Oxycodone (to prevent shortage when other players are
forced out). GNP’s Citizen Petition (CP) is pending with the FDA for Oxycodone
requesting the FDA to adopt the same stringent API standard for all other ANDA
and NDA filers as LVT (GNP's partner) was subjected to. If granted this could
mean additional regulatory hurdles for competition going forward. We have
US$15m & US$30m in sales for GNP from the product in FY12 & FY13.
􀂃 Dovonex (Calcipotriene): Taro launched this product in 2HFY11 and is
currently promoting the product in the US with its 60 strong derma sales force.
Mar-11 IMS data puts this brand annualizing at US$7m with a strong
prescription pick-up. The current market size for Calcipotriene products is
US$240m and we have factored Taro garnering 15 to 20% market share at
peak. GNP gets ~ 35% royalty on this product from Taro with a Quarter lag.
􀂃 Felodipine: Glenmark launched Felodipine ER (Plendil) in 4QFY11. The
opportunity is lucrative; given limited competition (3 players) and market size
~ US$85m. GNP has already gained ~ 20% market share on this product.
􀂃 Malarone & Cutivate: Under settlement these products get launched in Sept-
11 & Mar-12 respectively and should contribute ~US$20m in sales in FY12.
Earnings and target price revision
􀂃 No change.
Price catalyst
􀂃 12-month price target: Rs465.00 based on a Sum of Parts methodology.
􀂃 Catalyst: Crofelemer approval
Action and recommendation
􀂃 Valuations look attractive in our view, with GNP trading at a PER of 12x
FY12E earnings, adjusted for exclusivity and NCE value. Our Top pick.

Macquarie Research, HDFC 1Q12: A stable quarter

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HDFC
1Q12: A stable quarter
Event
􀂃 Nos below our estimates due to: HDFC reported 22% YoY growth in net
profits – 4% below our number and consensus no of Rs8.78bn (Bloomberg).
The lower profits were mainly on account of NII which came in 7% below our
estimates at Rs10bn. Maintain Outperform with TP of Rs775.
Impact
􀂃 Growth is stable at 20% as guided; rising rates have not been a
deterrent for growth: HDFC’s sanctions and disbursements for the quarter
were up 22% YoY and 20% respectively. Loan growth (adjusted for sell down)
has been 21% YoY. Company has been in a position to maintain growth at
20% levels despite rising rates.
􀂃 Spreads maintained despite tight liquidity conditions: HDFC continues to
maintain loan spreads at 2.3% levels. The company has also increased its
investments in liquid funds from virtually nil in 4Q to Rs58bn this quarter.
Share of deposits has gone up to 25% in overall funding compared to 21% in
4QFY11. Nearly 70% of the incremental funding this quarter has come
from retail deposit base. The corporation has taken lower recourse to bank
borrowings as banks’ base rates were quoting at 9.5 to 10% and deposits
were coming in at lower rates.
􀂃 Sequential increase in NPLs is just a seasonal phenomenon: The
sequential increase in NPLs is just a seasonal phenomenon where by 1Q
NPLs are higher than 4Q due to lower recoveries. The Gross NPLs as a result
are up from 0.77% 4QFY11 to 0.83% in 1QFY12.
􀂃 Key takeaways from conversation with the management: 1) The
sequential fall in NII is due to a) the NPL increase that happens as they stop
accruing interest income and hence NII looks weak usually in 1Q and as and
when recoveries happen, interest reversals also happen b) this quarter the
higher base rates of banks plus c) higher deposit mobilisation where the
origination expense gets booked under interest expenses depressed the NII
further 2) The debit to reserves this quarter because of ZCBs is Rs1.5bn 3)
Individual sanctions and disbursements have also growth at 20% levels 4)
Income from securitisation is amortised over the life of the loan and also
amortised quarterly. The quarterly run rate has been Rs450mn resulting in
annual securitisation income of Rs1.8bn.
Earnings and target price revision
􀂃 Marginal changes to EPS done. TP is kept unchanged.
Price catalyst
􀂃 12-month price target: Rs775.00 based on a Sum of Parts methodology.
􀂃 Catalyst: Positive earnings surprises, strong growth and stable spreads
Action and recommendation
􀂃 Long-term positive, triggers limited in the near term: At 4.5x FY13E P/BV
we see limited upside from current levels in the near term. We would
recommend long-term investors to hold onto the stock. Reiterate Outperform
with TP of Rs775.

Economy: The story remains the same:: Kotak Sec

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Economy
Inflation
The story remains the same. Headline inflation remains elevated (as expected) with
revisions to April inflation also on the higher side. June inflation was reported at 9.44%;
lower than our estimates of 9.87%. This compares with May inflation of 9.06%. April
inflation was revised to 9.74% from 8.66% and given the trend of the upward
revisions, the June number is also likely to eventually end up close to our estimates.
Manufactured ex-food products inflation continued to stay high at 7.3% compared to
5.5% in June 2010. With the preferred gauge of inflation for the RBI continuing to stay
higher than the comfort level, we expect RBI to raise repo rate by 25 bps on July 26
despite the more-than-expected soft patch from industrial production.


Primary articles move up; effect of hike in fuel prices yet to come but will be dampened
Primary articles inflation ticked up to 12.2% from 11.3% in May. Most of the increase in the index
came from minerals which increased by 27% yoy compared to 11.9% in May, led by crude price
inflation that was at about 47.3%. Food prices on the other hand remained at around 8.4%,
similar to the inflation in May. Effect of the hike in diesel, kerosene and LPG came in only for the
week-ended June 25 and the full effect on the index will be seen in July. Inflation arising out of
this hike, although, may be dampened by base effect due to a similar hike in prices last year
around the same period. Last year, prices were hiked by 5.6% (June 24, 2011 hike: 9.2%) for
diesel, 11.3% (14.6%) for LPG, 35.4% (18.3%) for kerosene. Added to this, petrol price were also
hiked which now is more or less market determined. Given this situation, July inflation for fuel and
power will likely be at current levels due to this base effect.
Manufactured ex-food products inflation at 7.3%
Manufactured products inflation came in at 7.43%, slightly higher than 7.27% in May. The
internals of manufactured products still indicate a significant effect of global commodity prices as
sectors like ’basic metals, alloys and metal products‘, ’chemicals and chemical products‘, etc.
continue to experience high inflation. Despite some recent softening in the global prices of
commodities, we feel that the pace of any further softening would be slack and hence is unlikely
to be of much benefit for domestic inflation dynamics. Textile price index dropped by 1% over
May with raw cotton price index down 23% from a record high in April 2011. However, further
drops could be limited as global stocks are low and there could be some uncertainties developing
over rainfalls in Gujarat, a key cotton producing state. Measures of core inflation continue to
indicate persistence of demand side pressures. Manufactured ex-food products inflation (a metric
closely watched by the RBI) came in at 7.3%, slightly higher from 7.2% in May.
RBI unlikely to change stance in July 26 meeting
We expect the RBI to continue to tilt towards containing inflation rather than nurturing growth.
We expect headline inflation to remain in the 9.5-10% range for the next four to five months and
could also be biased higher given the historical trends of revisions. Thus we hold to our view that
the RBI would increase the repo rate further by 50 bps to 8%, with the first of the 25 bps hike on
July 26. However, there could be a chance that the next 25 bps hike is delayed beyond the midmonetary
policy review meeting in September. This is likely to be dictated by global conditions.
Significant uncertainties have emerged with respect to sovereign debt worries in the European
region and future course of risk conditions could depend on policy steps taken up to resolve the
issues. In the event of a significant risk aversion playing out which leads to a drop in the
commodity prices, RBI’s course of action could be delayed.

Coal trip takeaways; China’s aluminium outperformance Macquarie Research,

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Coal trip takeaways; China’s
aluminium outperformance
 This week we cover takeaways from our recent to trip to Shanxi to talk to
thermal and coking coal miners, and we look at how a sharp drawdown in
Chinese aluminium inventories has led to Chinese prices outperforming LME
prices over the last month.
Labour driving coal cost inflation
 The thermal coal mines we spoke to reported operating costs rising, on
average, by around 13% YoY. The biggest driver was labour, which was up
20% YoY. This was disproportionately affecting SOE mines, given their
tendency to overemploy. We saw an SOE with output of 1.2mtpa that was
employing 4,000 people. This compares with 650 employees at a private mine
with the same output.
Capacity utilisation still has room to ramp up
 Production at coking coal mines, particularly in the Linfen and Lvliang areas of
west of Shanxi (a region rich in hard coking coal), was being artificially
suppressed. One of the mines we saw had a capacity of 2mtpa, but the
government had set its 2011 production target at 1.2mtpa. We heard that
Shanxi produced 300mt of unwashed coking coal in 2010 and that it has the
potential to lift output by 100mt over the next five years. Given that production
is being suppressed the most in west Shanxi, the majority of the 100mt rampup
could be in hard coking coal.
Chinese aluminium prices have outperformed LME
 The LME aluminium price has underperformed its peers over the past month;
indeed, it is the only one of the major metals traded on the exchange to have
fallen in price over that timeframe. Chinese aluminium prices, by contrast,
have continued to increase, while stocks have been drawn down, reflecting
solid demand in the domestic market.
Order intake slowing, but low inventory will support prices
 Aluminium semis producers are now starting to see some softness in order
intake, although it should also be acknowledged that this is seasonally typical
and fabricators are generally reported to be holding low stock levels.
 On balance, it appears unlikely that the SHFE aluminium price will continue to
run away from the LME price in the coming months, but at the same time, the
world market balance as a whole appears to be sufficient to maintain price
levels through the second half of this year.

India metal and mining-- Mining tax: an opportunity to accumulate Macquarie Research,

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India metal and mining
Mining tax: an opportunity to
accumulate
Event
􀂃 Time to cherry pick: Metal and mining stocks have corrected sharply since
the approval of the draft of the Mines and Mineral Development Act (MMRD)
by the Group of Ministers (GoM). We see the new proposal has already been
slightly watered down from the earlier version and think that there is a
possibility that some more waivers will be introduced by the time it is
approved by the Cabinet and Parliament. The maximum impact will be limited
to 10% of PAT in the worst case, while some stocks have already corrected
by much more. We think this is a good time to accumulate defensive names
like Coal India, JSP, JSW Steel and Hindalco.
Impact
ô€‚ƒ New proposed tax – already watered down and expect more: The new
draft proposal calls for only a 26% share of profits for coal mining; for non-coal
mining, the new liability is equivalent to royalty paid. Thus, for iron ore, the
cost is now just US$3/t compared with US$9-10/t (based on 26% of profits)
earlier. If the expenses for social welfare are allowed as a deduction, this can
be even lower. We firmly believe that when the final bill is cleared, the impact
will be even less. Lastly, given the approvals required, we think this bill may
take another few years to pass.
􀂃 Impact can be easily passed on: Because the whole industry is likely to be
affected, we believe the likelihood is good that most of the cost increase will
be passed on. We see no reason why Coal India will not pass on the
increased costs to consumers, given its wafer-thin margins.
􀂃 Already makes Indian metal sector one of the most taxed globally:
Including these proposals, the metal sector in India for some commodities will
be at the highest end of taxation. Iron ore is now taxed at almost 70%. Taxes
will have to be reduced whenever commodity prices fall, we believe, otherwise
it will impede the growth of the nascent mining sector in India.
Outlook
ô€‚ƒ Coal – most likely to be passed on: Coal India is working on thin margins
and appears unlikely to be able to absorb this unless it is allowed to net off the
CSR spent (Rs22bn in FY11, will reduce burden to Rs3bn, or 2% impact).
ô€‚ƒ Iron ore – will have to be absorbed: With this, iron ore taxation rises above
70%. We believe that, as iron ore prices decline, the industry will see tax cuts.
ô€‚ƒ Steel – little impact: The impact should be less than $15–20/t. This, we
believe, can be partly passed on.
ô€‚ƒ Zinc and lead – have to be absorbed: The impact on zinc and lead is linked
directly to international prices, given the nature of royalties. We believe this
will have to be absorbed.
ô€‚ƒ Cement – The impact may be close to Rs3/bag, which we think can be
passed on in a bull period.
ô€‚ƒ Aluminium – negligible impact: The low contribution of bauxite in the value
chain has reduced the impact on aluminium.

Essar Ports - Analysis of Jun-q cargo volumes ::JPMorgan

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Essar Ports Overweight
ESRS.BO, ESRS IN
Analysis of Jun-q cargo volumes


Promise to ‘take or pay’ is all set to get tested in Jun-q post weak cargo
volumes at Hazira. We estimate 118% qoq PAT growth in 1Q following T/P
guidelines applicable for FY12. An in-line or superior set of results could
reduce investor concerns around inter-group contracts.
 Essar Oil throughput continues at high rate. Essar Oil (covered by
Pradeep Mirchandani) reported throughput of 3.62MMT in Jun-q, implying
a utilization of 135%. As per our O&G team, the refinery expansion to
18MTPA remains largely on track, with the company planning a 35 day
shutdown starting 18th Sep to integrate most new units. Start up activity of
the new units is expected to begin ~Dec-11. In light of this there appears to
be limited downside risk to our FY12 est. of 14.5MTPA each of crude and
product handling at Vadinar Port. The port accounts for 62% of FY12
consol EBITDA estimate. ~77% of Vadinar Port’s revenue is assured
through take-or-pay contracts for storage or crude/products.
 Weak volumes at Hazira, take-or-pay will be tested in Jun-q. Hazira
handled 2.8MMT of cargo in Jun-q, well below quarterly run-rate of
4.5MMT implied by T/P agreement with Essar Steel. We had anticipated
delays in ramp-up at Essar Steel and our full-year estimates assume T/P
volumes for revenue calculation.
 Revised T/P contracts to drive strong growth in Jun-q: Using actual
throughput for Vadinar Port and T/P guidelines we estimate Jun-q revenue
of Rs2.7bn, up 41% qoq. We expect EBITDA margins to improve to ~76%
(up ~320bps YoY) as lighterage expenses are no longer required at Hazira.
We est. Jun-q PATAMI of Rs297mn, implying a 118% growth qoq.
 Reiterate OW and Mar-12 PT of Rs135. Essar Ports is trading at 9x FY13
EV/EBITDA despite our estimate of 37% EBITDA CAGR over FY11-15.
The markets appear to be sharply discounting the company's ability to
execute under construction projects (~70MTPA capacity) and secure
pending environmental clearances. Any dilution of T/P contract terms is a
key downside risk and could raise investor concerns on inter-group
transactions and lead to a further stock derating.

JPMorgan Focus Stock:: BUY Sintex- Q1 call highlights: growth on track across divisions; FY12 guidance maintained

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Sintex Industries Limited Overweight
SNTX.BO, SINT IN
Q1 call highlights: growth on track across divisions;
FY12 guidance maintained


SINT hosted a Q1FY12 post results conference call today. SINT management
noted that all key divisions remain on track and maintained its FY12E
guidance of 20%-25% revenue growth with steady margins. Key highlights
from the call are below:
 Monolithic order book. Management indicated that govt. spending on
education and healthcare remains robust. Housing boards across various
states continue to invest in mass housing. These initiatives have resulted in
strong monolithic order book, which has increased by ~Rs3.75B in 1Q. In
order to reduce dependence on govt. orders and diversify its revenue
streams, SINT is focusing on private sector order for monolithic
construction. Management indicated that they are in the final stages of
negotiation for two large private corporate orders for monolithic
construction.
 Improving penetration of custom molding in domestic and overseas
markets. Domestic custom molding business pre-dominantly focuses on
auto components. Management indicated that Sintex is now expanding to
new areas of industrial/electrical equipment and healthcare, leveraging off
the expertise of its overseas subsidiaries.
 One-off in interest costs. Management clarified that the interest costs
includes the one-off items: 1) Rs26.6MM interest settlement cost paid to
ONGC. (SINT had sued ONGC for differential gas pricing in 1976, which
they lost), 2) 3 new plants were commissioned in 1QFY12 for which interest
cost of Rs44MM was routed through P&L rather than being capitalised.
Although, these expenses are non-recurring in nature, management noted
that interest costs should remain up YoY due to rising rates.
 Focusing on capital efficiency. Management reiterated its focus on
enhancing capital returns and balance sheet discipline and guided to
potential ROCE levels of 18%-22% over the next 2-3 years driven as
overseas subsidiaries and monolithic businesses achieve critical scale. We
expect SINT to re-rate as its balance sheet profile improves. Reiterate OW
rating with PT of Rs270 based on Sep-12 FY12E P/E.



JPMorgan:: Jain Irrigation - Competition to intensify going forward?

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Jain Irrigation Systems Ltd Underweight
JAIR.BO, JI IN
Competition to intensify going forward?


We recently met management of Godrej Agrovet, who has announced
plans to enter drip irrigation systems.
 Formidable Competition ahead? We recently met the management of
Godrej Agrovet, who are part of Godrej Industries and are engaged in
animal feeds, oil palm plantations and agri-input businesses with a pan-
India presence. Godrej Agrovet, who has been indicating potential entry
into micro irrigation business, is looking to announce firm roll out plans
over next 1-2 months. Godrej Agrovet is looking to enter this segment
through a JV with an Israeli micro-irrigation firm. The Israeli firm is
expected to contribute technology, while Godrej Agrovet would market
and distribute the MIS products. While so far there has been sporadic
news flow of large players looking to enter the micro-irrigation market,
we believe that Godrej's plans would mark entry of a player with a strong
balance sheet (FY10A assets of Rs36bn) and wide distribution reach
(12000 dealers & distributors for agri-input business). Mahindra
entered MIS through EPC acquisition. In Feb-11, Mahindra &
Mahindra announced its entry in micro irrigation systems through
acquisition of stake in EPC – an MIS company with operations primarily
in Gujarat and Maharashtra. M&M management has also indicated that
they are looking for few more acquisitions to build up a formidable
presence in this space.
 We don’t see near term impact on incumbents, but watch out for
potential pressure as new players scale up. While we do not expect
Godrej to scale up and build a distrbution network to match Jain
Irrigation in the near term, we believe that market share pressures could
emerge over next 2-3 years as new entrants scale up. We note that the
current competitive landscape for micro-irrigation is largely dominated
by small regional players and there aren’t many pan India challengers to
Jain Irrigation.
 Reiterate Underweight Rating. We reiterate our Underweight rating
and Mar-12 PT of Rs165 based on 15x FY13E 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.