07 August 2011

Tamil Nadu News Print Ltd - Initiating Coverage:: Unicon

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Tamil Nadu News Print Ltd - Initiating Coverage

Tamil Nadu News Print Ltd. (TNPL), promoted by the Govt. of Tamil Nadu, is the world's largest bagasse-based paper manufacturer. It's paper capacity of 4 lakh MT at a single location is the largest integrated facility in India.

Investment Rationale:

Ongoing structural changes to help grow paper consumption in India
At ~9.6kgs per capita consumption, India is one of the lowest paper consuming economies. Structural changes such as growing organised retail, industrial and service sectors, and improvement in living standards will help grow the paper consumption to 8%p.a. in the next few years.

Fewer expansions in the next four years to benefit the paper industry
In the next four years ending FY15, the total additional capacity supplies will be ~1.9 mn MT whereas incremental demand may be over 3.2 mn MT, suggesting a narrower demand supply situation. A favourable scenario is already visible as the paper industry is able to pass on the increased input costs to the consumers starting 2011.

Historical trend suggests TNPL is shielded to a large extent from short-term economic downturn
For TNPL, the impact of slowdown was witnessed in FY10, when YoY average realisations fell by 2.4%. However, EBITDA margins for FY10 improved marginally to 27.4% as against 25.2% in FY09 largely due to reduced input costs. Further, as bagasse is delivered on a barter basis from sugar mills in exchange for supplying steam, TNPL is benefited during the downturn with the reduction of commodity prices such as coal and furnace oil.

Investments to drive both the top and bottom line for TNPL
In Jan 2011, TNPL brought on stream 1,55,000 MT of paper and 80,000 MT of pulp at a total cost of INR10 bn. Further, it is setting up a mini-cement factory, a de-inking facility and an onsite Precipitated Calcium Carbonate (PCC) plant. Once commissioned, these facilities together will add over 3% to EBITDA margins.


Valuation and Outlook
At CMP of INR 117, on relative valuation parameters such as PE and EV/EBITDA, TNPL share is trading at a discount of 12% and 15% respectively to its peer group. Further, TNPL with its industry's highest EBITDA margins coupled with positive industry prospects such as strong growth, sustained higher utilizations and improved pricing power, is best placed to take advantage of any upside re-rating. We initially assign a PE of 6x its FY13E earnings, giving us a target price of INR 161 and an upside potential of 38% in the next 12-18 months. Thus we recommend a BUY on the stock at current levels for decent gains.

Essel Propack - Our prognosis of Ebidta margin not played out BUY :Emkay

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Essel Propack
Our prognosis of Ebidta margin not played out


BUY

CMP: Rs43                                        Target Price: Rs63

n     Essel Propack (EPL) Q1 FY12 was below expectations - Revenues up 8.4% yoy at Rs 3.6bn, EBIDTA up 2.3% at Rs 576mn and APAT up 9% at Rs 94mn.
n     Ebidta margins decline 90 bps yoy to 16% - being impacted by reduction in gross margins – our prognosis for Ebidta margin expansion has not played out.
n     Europe continues to report Ebit loss at Rs50 mn and Americas fails to report improvement in capacity utilization, thereby impacting overall performance.
n     Revise Ebidta margins assumptions and thereby revise earnings downwards by -24.6% and -16.5% for FY12E and FY13E - Retain BUY with revised target price of Rs63/Share.

GSFC- Results in line with estimates BUY :Emkay

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GSFC
Results in line with estimates


BUY

CMP: Rs397                                        Target Price: Rs530


n     Q1FY12 results were in line with estimates with APAT of Rs 1.77bn, +63% yoy. Reported sales of Rs 12.1bn, 13% yoy excludes inventory gain of Rs 441mn
n     Chemicals segment margins at 38.7% (1700bps yoy/400bps qoq) surprised positively. Fertilizer segment margins improved 160bps yoy to 15.0% (in line with est)
n     Caprolactam-benzene spreads declined to $2,145/mt from $2,242/mt in Q4 FY11. Spreads to witness further contraction in FY12 as caprolactam prices retreat from their peak
n     We continue to maintain our BUY recommendation on the stock based on compelling valuations, FY12 EV/EBITDA 2x, 10% discount to BV

Andhra Bank Strong profit but slippages may haven risen ACCUMULATE ::Emkay

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Andhra Bank
Strong profit but slippages may haven risen


ACCUMULATE

CMP: Rs137                                        Target Price: Rs150

n     Andhra Bank’s NII well above our estimates at Rs9.1bn; PAT at Rs3.9bn was up 20% yoy on back of lower provisions. However, gross NPAs saw sharp increase of 18% qoq
n     Adjusted NII at Rs9.3bn was up 27% yoy. NII growth aided by strong 6% sequential growth in loan book. The reported NIMs were up 8bps qoq!!!
n     Asset quality deteriorated further; credit costs at 0.15% appear low. Large exposure to problemtic sector of MFI and power remains area of concern
n     Though concerns remain on asset quality valuations at 0.9x FY13ABV and div yield of 5% will work as support. Maintain ACCUMULATE with target price of Rs150

Bank of Baroda Lower provisions drive profits:Emkay

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Bank of Baroda
Lower provisions drive profits


HOLD

CMP: Rs875                                        Target Price: Rs950

n     BOB’s NII below our/street estimates at Rs22.9bn, PAT at Rs10.3bn in line driven by lower provisions . But, lower provisions jacked up net NPAs by 30% qoq
n     Balance sheet grew 3.2% sequentially; Deposits / loans were up 2.5%/1.6% qoq respectively. Margin compression came in at 58bps qoq to 2.9%
n     Asset quality deteriorates, albeit superior vis-à-vis peers; Slippages came in at Rs5.7bn (1% annualized). The bank has moved all its accounts to system based NPA recognition
n     Valuation at 1.4x/1.2x FY12E/FY13E ABV commensurate with 1.2% RoAs. Maintain HOLD rating on the stock with price target of Rs950

GSFC- Results in line with estimates BUY :Emkay

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GSFC
Results in line with estimates


BUY

CMP: Rs397                                        Target Price: Rs530

n     Q1FY12 results were in line with estimates with APAT of Rs 1.77bn, +63% yoy. Reported sales of Rs 12.1bn, 13% yoy excludes inventory gain of Rs 441mn
n     Chemicals segment margins at 38.7% (1700bps yoy/400bps qoq) surprised positively. Fertilizer segment margins improved 160bps yoy to 15.0% (in line with est)
n     Caprolactam-benzene spreads declined to $2,145/mt from $2,242/mt in Q4 FY11. Spreads to witness further contraction in FY12 as caprolactam prices retreat from their peak
n     We continue to maintain our BUY recommendation on the stock based on compelling valuations, FY12 EV/EBITDA 2x, 10% discount to BV

GNFC:: Chemical business disappoints - BUY :Emkay

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GNFC
Chemical business disappoints


BUY

CMP: Rs100                                        Target Price: Rs135

n     Q1FY12 APAT of Rs 417mn (against loss of Rs Rs 227mn due to ammonia plant shutdown previous year) disappointed us on back of dismal performance of chemical segment
n     Chemical segment reported lower margins of 17.0% (+380bps yoy/-1070bps qoq) against expectation of 27.0%. Fertilizer segment margins stood at 3.6%
n     WNA- II plant commenced operations in July. Increase in Nitric Acid capacity and commissioning of Ethyl Acetic and TDI plant to boost topline over the next 2 years
n     Reduce FY12E/FY13E estimates by 13.6% / 3.1% to Rs 19.3/Rs 25.7. Subsequently reduce price target by 13.6% to Rs 135, maintain BUY with 35% upside

Dishman Pharma High on Hopes – Maintain Accumulate :Emkay

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Dishman Pharma
High on Hopes – Maintain Accumulate


ACCUMULATE

CMP: Rs89                                        Target Price: Rs125

n     Q1FY12 was below our expectations with a) Revenues at Rs2.4 bn (up 18% YoY), EBIDTA at Rs448 mn (up 1% YoY) and APAT at Rs107mn (down 37% YoY)
n     Revenue growth was mainly driven by 33% growth in MM business & profit decline was due to increase in interest and depreciation
n     Going forward, commencement of supplies of CVS intermediate to US market, increased sale from Benzathine & commissioning of new Vit-D plant will propel growth & improve EBITDA margins
n     Maintain accumulate rating with target price of Rs125 (13xFY13 earnings of Rs9.6)

Nava Bharat Ventures - Lower MAT credit impacted PAT, Maintain Accumulate :Emkay

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Nava Bharat Ventures Ltd.
Lower MAT credit impacted PAT, Maintain Accumulate


ACCUMULATE

CMP: Rs237                                        Target Price: Rs290

n     Q112 APAT of Rs528mn (down 51% yoy) is below est. on lower MAT credit. Highlights - merchant tariff Rs4.0/unit, PLF 84% (lower demand), cost of generation Rs2.3/unit
n     Contract with TISCO to start in 2Q. Under the deal (1) NBVL to supply 35000MT ferro chrome for 3 yrs, (2) 17MW captive power supply at Rs3.9/unit & (3) fixed margin of Rs1000/MT 
n     Zambia coal trading to start from Sep11 - 1mnMT in FY14E. 64MW COD still pending - expected in 2Q. Indonesian investment safe, NBVL to get 20% offtake also.
n     Review earnings post concall. Reiterate NBVL is better placed in terms of fuel security (washery rejects and Zambia hedge) and offtake (natural hedge - ferro alloys). Accumulate

Orient Paper & Industries Ltd - Demerger to trigger value unlocking process :Emkay

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Orient Paper & Industries Ltd
Demerger to trigger value unlocking process


BUY

CMP: Rs62                                        Target Price: Rs82

n     Q1 APAT at Rs584mn (+70% yoy) above est (Rs457mn) led Revenues at Rs5.33bn (+21%), Cement (+11.4%), Electricals (+22.3%) & Paper (+137%)
n     Cement revenues +11.4% yoy to Rs3.34 bn as realizations improved 29% yoy and 5.6% qoq –driven by elevated levels of FY11 exit cement prices resulting in higher quarter averages
n     Board approves de-merger of cement business into a new wholly owned sub- Orient Cement Ltd (OCL) - triggers the much awaited value unlocking process
n     Stock trades at undemanding valuation of 6.6x FY12 PER & EV/EBIDTA of 4X. We maintain our BUY rating on the stock with revised target price of Rs82

eClerx Services Ltd.- Another strong show, raise TP to Rs 885 :Emkay

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eClerx Services Ltd.
Another strong show, raise TP to Rs 885


ACCUMULATE

CMP: Rs819                                        Target Price: Rs885

n     eClerx ‘s June’11 operating performance in line with expectations with revenues at US$ 22.3 mn(+5.7% QoQ) and margins down by ~280 bps QoQ  to 39.2%
n     Profits at Rs 351 mn (+19% QoQ) , marginally higher than expectations driven largely by higher other income. Net addition strong at 357(+10% QoQ) taking total HC to 4,015
n     Top 5 clients drive growth with ~8% QoQ growth. Co remains confident of deal pipeline ( 2-3 opportunities within top clients) along with intent to reduce client concentration
n     Retain ACCUMULATE with a revised DCF based March’12 TP of Rs 885(V/s Rs 840 earlier) as we tweak our FY12/13E EPS up by 1.6%/3.2% to Rs 52.2/63.9

Canara Bank Slippages may have peaked out :Emkay

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Canara Bank
Slippages may have peaked out


HOLD

CMP: Rs496                                        Target Price: Rs535

n     CBK results below expectations with NII at Rs17.9bn and net profit at Rs7.3bn. Slippages at Rs13.6bn, though remain high were lower than Rs19bn in previous quarter
n     NII lower driven by interest income reversal of Rs2bn. Adjusted for the same NII growth was at 15.4% (in line). NIMs down by 40bps as expected
n     One positive in the results – one of very few banks to have system classified NPAs upto as low as Rs2 lakh loan. We do not expect any –ve surprises on NPAs going forward
n     Lowering earnings by 10.2%/4% for FY12E/FY13E for higher provisions (one-time). Large infra book and low NIMs remain key -ves. Maintain HOLD with TP of Rs535 (1.1x FY13E ABV)

NTPC - Grossed at full rate; upped commissioning target ; Buy :Emkay

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NTPC
Grossed at full rate; upped commissioning target ; Buy


BUY

CMP: Rs 177                                       Target Price: Rs 204

n     NTPC grossed its ROE by corporate tax in 1Q12 & guided for a tax rate of ~21% for FY12 – in line with our expectations but a positive trigger as consensus has build in MAT
n     Indicated upping commissioning target from 4320MW to 4980MW in FY12 (Sipat 660MW synchronized). We reiterate FY12 is sunset yr of 80IA – expect positive surprises in COD
n     1Q12 PAT impacted by (1) higher planned maintenance (+1% yoy) affecting PAF at 89.90% vs 90.14%, (2) prior year taxes (Rs1bn) and (3) lower UI (our assessment)
n     Positive news to continue 1) higher COD in FY12-sunset yr of 80IA, (2) FY12/13 grossing & (3) in medium-term, acquiring distressed plants. Maintain Buy; rising interest rates- concern     

Bhushan Steel -Higher depreciation, interest cost to weigh HOLD:Emkay

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Bhushan Steel
Higher depreciation, interest cost to weigh


HOLD

CMP: Rs375                                        Target Price: Rs425

n     Topline performance came better than our expectations at Rs 22.3 bn, up 63% YoY and 14% QoQ, mainly backed by 58% YoY and 15% QoQ growth in sales volume to 4.89 lakh tonne
n     EBITDA performance also has been better than our estimate at Rs 6.6 bn, up 62% YoY and 10% QoQ. EBITDA/ tonne stood at Rs 13500, down 5% QOQ but up 2% YoY      
n     APAT at Rs 2.1 bn, up 2% YoY and down 27% QoQ, met our estimates despite higher revenue and EBITDA on 119% and 63% QoQ rise respectively in depreciation and interest costs
n     We revise down our EPS for FY12E and FY13E to Rs 42 and Rs 47 respectively with a target price of Rs 425/ share; Maintain Hold        

Bharti Airtel - Operational performance in line, Retain ACCUMULATE: Emkay

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Bharti Airtel
Operational performance in line, Retain ACCUMULATE


ACCUMULATE

CMP: Rs427                                        Target Price: Rs464

n     Q1FY12 revenue at Rs169.8bn up 4.4% qoq (in line with est.). EBITDA at Rs57bn, up 4.8% qoq. PAT at Rs12.1bn below est. of Rs15.2bn on account of higher tax and interest outgo
n     KPI’s on expected lines remained stable qoq, led by stabilization in price war. APRU at Rs190 down 2.1% qoq, MoU was flat at 449 while ARPM wad down 1.2% to Rs0.43
n     Cons. EBITDA margin improved 13bps qoq to 33.6% (lower than our est. of 34.2%). EBITDA margin from African operation stood at 26.7% v/s 26.4%  in Q4FY11
n     Cut EPS by 11.1% & 2.9% for FY12E/13E on account of higher interest & tax going forward. Valuations at 8.6/6.9 EV/EBIDTA for FY12E/13E. Retain ACCUMULATE with TP of Rs464

Berger Paints - Domestic act in order… Maintain ACCUMULATE:: Emkay

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Berger Paints
Domestic act in order… Maintain ACCUMULATE


ACCUMULATE

CMP: Rs101                                        Target Price: Rs109


n     Domestic volume growth in the decorative paints segment remains strong at 15%+ for the quarter
n     Standalone sales growth of 30% yoy to Rs 6.4 bn and PAT growth of 10% yoy to Rs 407 mn is in line with our expectation
n     However, seasonally weak performance of its Polish subsidiary, has affected consolidated PAT of Rs372mn - below estimates
n     Retain our FY12E and FY13E EPS of Rs 5.0/share and Rs 6.2/share, respectively. Maintain ACCUMULATE rating with target price of Rs 109/share