18 August 2011

Coal India :: Takeaways from 1QFY12 conference call; price hike is key trigger ::Goldman Sachs

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Coal India Ltd. (COAL.BO)
Neutral  Equity Research
Takeaways from 1QFY12 conference call; price hike is key trigger
What's changed
Key takeaways from the 1QFY12 conference call held today: (1) Mgmt
reiterated its target of 452 mn tons for production and 454 mn tons for
offtake in FY12E; (2) these volumes are not contingent on any further
approvals from MoEF (CEPI, forest clearance, etc) or other clearances (like
land acquisition); (3) need average loading of 175 rakes/day for the year –
for 1QFY12 the company received 168 rakes/day (vs 154 in 1QFY11); (4) the
company has also set a target to liquidate 25 mn ton of coal from
inventory (of 69.5 mn ton) this year, of which 17.8 mn tons were liquidated
by July; (5) August has seen heavy rainfall in the eastern sector (impacting
5 subsidiaries) – the company hopes to make up for this loss in remaining
periods of the year; (6) 13.54 mn tons of coal were sold through the eauction route (12.7% of sales) at an average realisation of Rs2,245/ton (a
90% premium over average notified price of Rs1,188/ton); (7) beneficiated
coal sales amounted to 3.94 mn tons with average realisation of Rs
2,185/ton; and (8) the committee for wage negotiations has been
constituted and the first meeting is scheduled on Aug 20-21.
Implications
In our view, provisioning for wage hikes will start impacting earnings from
2QFY12E on, and upside from current levels could depend on the company’s
ability to raise notified coal prices sold to the power sector. In an inflationary
environment, we think this would be difficult to achieve.
Valuation
At 9.1X FY12E EV/EBITDA, the stock trades at a 35% premium to global
peers, which we believe is justified given stable cash flows and a strong
balance sheet. We fine-tune our FY12E-14E EPS and maintain our Neutral
rating, as well as our 12-month Director’s Cut-based target price of Rs405.
Key risks
Risks include logistics availability and regulatory trends.
INVESTMENT LIST MEMBERSHIP
Neutral
 
 
Coverage View:  Neutral

In falling markets, Indian PSU refiners offer safer havens :: Macquarie Research,

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Indian PSU refiners offer safer havens
Refining and petrochemicals update
 Last week, GRMs continued their northward climb to average US$9.8bbl as
LPG and FO cracks rose, partially due to a sharp decline in crude prices.
Petrochem margins benefitted slightly from the 3% WoW decline in naphtha
prices and a mild increase in product prices across the board. Margins in
general are down 5-15% QoQ, but are up 30-60% YoY.
Country-specific developments and views
 India: Sliding crude, recently raised retail prices, and a political consensus
being built around curtailment of subsidies on petro-products are positive for
the Oil Refining and Marketing trio of IOCL, BPCL and HPCL. We believe
these are safer havens in falling markets, especially due to the leverage to
domestic demand. Dual pricing of diesel and targeting of LPG subsidies are
subsidy-reducing measures discussed in parliament last week. Our top pick is
HPCL due to its upcoming high complexity Bhatinda refinery in central India,
which has a 7 year income tax holiday and sales tax deferral benefits too.
 Taiwan: Formosa Group and the government may settle the first wave of
plant shutdowns early this week resulting from several fires at Formosa
facilities over the past year. While details have not been announced, we
believe that plants directly connected to previous fires may be shut down
first. Based on this assumption, Formosa Plastics (FPC) would have the
least exposure because none of its plant shutdowns have been due to
fire. After the recent sharp market correction, we expect the Formosa
Group’s performance could gradually pick up, as it could be a target for
government market stabilization measures amid the recent market turmoil.
 Japan: Refining margins in Japan are ¥13.3/lt (up by ¥5/lt, ie 56% WoW)
or ¥8.7/lt (189%) above the trough of 4/Mar/11, but ¥0.5/lt (4%) below the
recent peak on 6/May/11. We expect refining margins to remain strong in
Japan due to supply discipline and additional capacity reductions as well as
seasonal recovery in demand. JX Holdings is a fairly defensive stock to own
in our view, as domestic refining industry margins are less dependent on
global demand and are driven by domestic restructuring and post-quake
demand from power utilities.
Outlook and strategy
 In falling markets, we would recommend Indian public sector oil refiners
HPCL/BPCL as plays on the robust Indian domestic demand, subsidy
alleviation through a combination of fall in crude prices and regulatory
intervention, and longer-term strategic shift away from the subsidy-ridden
petro-retail business. We also like GS Hldgs, PTTAR, PTTCH, FPC and NPC.

Basic Instinct - Searching for low-cost plays:: Macquarie Research,

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Basic Instinct
Searching for low-cost plays
Event
􀂃 Global markets and Commodity-related stocks have plummeted over the past
few weeks. Concerns about growth in Europe and the US have fuelled the fall
and in many cases these concerns are very warranted. While fundamentals
are not the focus for most investors, 2008 showed us that sensible buying in
these sorts of markets can yield very large returns.
􀂃 We have screened stocks in the Asian and Australian commodities markets
for the following:
⇒ Low-cost operators – Low-cost operators are best-placed in a falling
commodity-price environment.
⇒ Low-valuation stories – Looking at both PER and NPV analysis; PER
will be less relevant if earnings come under pressure.
⇒ Potential M&A stories – With stock prices falling and with balance
sheets strong, we would expect to see a continuation of this theme.
􀂃 We have also reviewed previous highs and lows that were seen in 2008.
Clearly, underlying market conditions have changed since 2008, but it is
interesting to look at the potential downside that some markets and stocks
face. We believe markets do still have further downside attached to them, but
timing in relation to entry is critical and something we are focused on.
Post-screening – key stocks to focus on
􀂃 Based on our analysis, there are a number of stocks in each region that look
attractive. The market is likely to continue to be very volatile over the next few
weeks, so focusing on higher-quality names that are low-cost operators will be
critical. This list provides investors with some ideas and while valuation
support is difficult to gauge, there are some good opportunities out there

UBS :: Rural Electrification - In line quarter

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UBS Investment Research
Rural Electrification
I n line quarter
􀂄 Event: Q1 results lower by 4% on higher provisions
REC reported PAT of Rs 6.6 bn slightly lower than UBSe of Rs 6.9 bn (consensus
6.7 bn) up 13% y/y on account of higher credit costs. Net operating income came
better than expected at Rs 9.3 bn with stable NIMs at 4.3%. NPLs increased from
near zero levels to 0.3% due to slippage of MP based Hydel power plant (REC
exposure of Rs 2.5 bn). Approvals declined 7% y/y on account of decline in T&D
segment while disbursements grew 18% y/y. Share of private sector increased to
11% (from 10% in FY11) while generation now accounts for 43% of loans.
􀂄 Impact: Broadly maintain estimates
We maintain our estimates broadly however raise our loan FY12 forecast from
20% to 22%; simultaneously we also raise our provisioning estimate as we expect
management to build up provisions given increasing proportion of private sector in
overall loan book. We are building in 15 bps decline in FY12 NIMs.
􀂄 Action: Risk reward favourable, maintain positive view
We find the valuations attractive given 4.5% dividend yield, 13% EPS growth and
average RoE of 21%. Stock is currently trading at 1.3xFY12 book and 6.7xFY12
earnings. Key trigger for price performance in our view are likely reforms to
improve financial health of state utilities and government initiatives to address
issues surrounding power generation companies.
􀂄 Valuation: Buy, PT of Rs275
We value the stock using residual income method at Rs275 which implies 1.6x
FY13E book and 8.4x earnings.


􀁑 Rural Electrification
Rural Electrification Corporation (REC) is a Navratna Central Public Sector
Enterprise in which the government of India has a 67% stake. It was established
in 1969 and listed on the BSE in 2008. Its main objective is to finance and
promote rural electrification projects across the country. The company had an
asset base of Rs692bn as at June 2010. It disbursed Rs271bn in FY10. In
February 2010, REC raised Rs26bn through a secondary offering.
􀁑 Statement of Risk
We believe a slowdown in power sector investment could impact the company’s
growth outlook. Execution delays could affect the cash flow generating
capability of its projects. Favourable funding options—in the form of
infrastructure bonds and ECB issuances—if disallowed, could impact the
profitability of the business.

UBS- Hindalco Industries- Novelis Q1 FY12 numbers strong

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UBS Investment Research
Hindalco Industries
N ovelis Q1 FY12 numbers strong
􀂄 Event: Q1 adjusted EBITDA in line with guidance
Novelis reported strong Q1 FY12 adjusted EBITDA of US$306m (+.9%QoQ, 16%
YoY, in line with our estimate of US$300m) despite a marginal 3% YoY increase
in shipments at 797kt, led by: 1) better pricing due to strong market conditions; and
2) a better sales mix. Net income was US$62m (+24% QoQ, +24% YoY). Net
sales were US$3,113m (+5% QoQ, +23% YoY). Total shipments were 797kt
(767kt/30kt rolled/ingot). Shipments in Asia/Europe/North America grew
4%/2%/4% YoY.
􀂄 Impact: on track to achieve FY12 adjusted EBITDA guidance
The company had guided for an adjusted EBITDA of US$1.15-1.2bn (UBS
estimate is US$1.2 bn) for FY12. The strong performance in Q1 indicates Novelis
is on track to achieve FY12 guidance. Management is optimistic about the outlook
for the business, particularly the can and auto segments, for the rest of FY12. The
mill expansions in South Korea (c350 kt), North America (c220 kt) and Brazil
(c220kt) are on track to be completed on budget by end-2013, end-2012, and mid
2013, respectively.
􀂄 Action: Novelis continues to cushion operating earnings for Hindalco
Novelis has a stable business model, and provides a cushion to Hindalco
Industries’ (Hindalco’s) consolidated EBITDA on the downside. We estimate
Novelis will contribute approximately 55% of consolidated EBITDA for FY13.
Hindalco is currently trading at 4.5x FY13E EV/EBITDA.
􀂄 Valuation: maintain Buy rating, with price target of Rs240.00
We base our price target of Rs240.00 on a sum-of-the-parts valuation. We value
Hindalco’s Indian business at 5.5x FY13E EBITDA, Novelis at 6.5x FY13E
EBITDA, and listed subsidiaries/investments at a 20% discount to market price.


􀁑 Hindalco Industries
Hindalco is the largest non-ferrous metal producer in India and is focused on the
production of aluminium and copper. It produces 345,000tpa of integrated
aluminium and 660,000tpa of alumina. Its downstream products include rolled,
aluminium foil, wire rods and alloy wheels. Hindalco plans to expand its copper
smelter production from 180,000 to 250,000tpa. It recently acquired two copper
mines, which could meet up to one-third of its concentrate requirements.
Hindalco's 97%-owned subsidiary Indal produces 110,000tpa of aluminium and
401,000tpa of alumina/alumina hydrate.
􀁑 Statement of Risk
We believe a sharp fall in global prices for aluminium, which in turn is linked to
the recovery of the global economy, as well as continuing strong Chinese
imports, is the key risk factor for Indian aluminium companies

UBS:: Adani Enterprises - Decline in coal trading margins, though volume growth remains robust

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UBS Investment Research
Adani Enterprises
Decline in coal trading margins, though
v olume growth remains robust
􀂄 Event: Q1FY12 PAT below UBS and consensus estimates
AEL reported revenues of Rs96bn (+63% y/y), operating profit of Rs11.7bn (+35%
y/y; UBS-e Rs12.6bn) and pre-ex PAT of Rs5.7bn (+10% y/y; UBS-e Rs6.9bn,
consensus Rs7.3bn). Results were below estimates due to lower margins in the coal
trading business and losses in other business segments (other than port and power).
􀂄 Impact: Coal trading margins decline, though volumes are robust (+ 23%)
Q1 coal trading volumes rose 23% y/y to 10mt (UBS-e 37mt in FY12, FY11
33.5mt). Coal EBITDA margins were 6.8% (8.8% in FY11). EBITDA/t declined
4% y/y (25% q/q) to Rs350/t. It was significantly higher in last two quarters
(Q3/Q4- Rs495/467)- the impact of rising coal prices disproportionately impacting
selling and purchase prices seems to have reversed in Q1 (FY12 UBS-e Rs372/t).
􀂄 Action: Loss reported in agri, real estate and others segments
Though revenue growth in agri/other businesses was impressive at 58/158% y/y,
segmental EBIT was negative at Rs33/232m. Real estate segment posted a EBIT
loss of Rs61m (real estate business is currently in the development phase, with
Shantigram project being launched recently and construction works going on at the
BKC project). All these businesses combined comprise less than 10% of SOTP.
􀂄 Valuation: Neutral rating with SOTP-based PT of Rs645
Though AEL is a good play on rising energy consumption in the country,
valuations limit upside in our view.

FII DERIVATIVES STATISTICS FOR 18-Aug-2011

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FII DERIVATIVES STATISTICS FOR 18-Aug-2011 
 BUYSELLOPEN INTEREST AT THE END OF THE DAY 
 No. of contractsAmt in CroresNo. of contractsAmt in CroresNo. of contractsAmt in Crores 
INDEX FUTURES1241663048.331382153374.8860121714764.66-326.55
INDEX OPTIONS54385413473.1854857213747.99199995949432.90-274.81
STOCK FUTURES1397663401.951375153394.54122255428900.637.42
STOCK OPTIONS15616371.7414378338.0526856613.5533.69
      Total-560.25

 


-- 

NSE, Bulk deals, 18-Aug-2011

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DateSymbolSecurity NameClient NameBuy / SellQuantity TradedTrade Price /
Wght. Avg.
Price
Remarks
18-Aug-2011CREWBOSCrew B.O.S. Products LimiABHINAV CAPITAL SERVICES LTDSELL1,29,28643.11-
18-Aug-2011CREWBOSCrew B.O.S. Products LimiMEHROTRA LAXMI NATHBUY67,73843.10-
18-Aug-2011CREWBOSCrew B.O.S. Products LimiMEHROTRA VIVEK LAKSHMINATHBUY75,00043.10-
18-Aug-2011DENDen Networks LtdVENKATESWARA CAPITAL MANAGEMENT LTDBUY7,00,00038.50-
18-Aug-2011GRAVITAGravita India LimitedAMBER ENCLAVE PRIVATE LIMITEDBUY4366.50-
18-Aug-2011GRAVITAGravita India LimitedAMBER ENCLAVE PRIVATE LIMITEDSELL97,004367.65-
18-Aug-2011GTLGTL LimitedGENUINE STOCK BROKERS PVT LTDBUY5,59,09152.67-
18-Aug-2011GTLGTL LimitedGENUINE STOCK BROKERS PVT LTDSELL5,59,09152.73-
18-Aug-2011IBREALESTIndiabulls Real Estate LiMACQUARIE BANK LIMITEDBUY23,28,88476.00-
18-Aug-2011INVENTUREInventure Gro & Sec LtdALFA FISCAL SERVICES PVT LTDBUY2,20,250210.26-
18-Aug-2011INVENTUREInventure Gro & Sec LtdALFA FISCAL SERVICES PVT LTDSELL2,95,844213.90-
18-Aug-2011INVENTUREInventure Gro & Sec LtdCHANDARANA INTERMEDIARIES BROKERS P. LTDBUY2,14,176214.76-
18-Aug-2011INVENTUREInventure Gro & Sec LtdCHANDARANA INTERMEDIARIES BROKERS P. LTDSELL2,14,176212.70-
18-Aug-2011INVENTUREInventure Gro & Sec LtdCROSSEAS CAPITAL SERVICES PVT. LTD.BUY1,53,749214.84-
18-Aug-2011INVENTUREInventure Gro & Sec LtdCROSSEAS CAPITAL SERVICES PVT. LTD.SELL1,53,749212.94-
18-Aug-2011INVENTUREInventure Gro & Sec LtdGKN SECURITIESBUY1,08,906213.86-
18-Aug-2011INVENTUREInventure Gro & Sec LtdGKN SECURITIESSELL1,08,906211.91-
18-Aug-2011INVENTUREInventure Gro & Sec LtdNITIN BABAJI PALANDEBUY3,14,363209.25-
18-Aug-2011INVENTUREInventure Gro & Sec LtdNITIN BABAJI PALANDESELL3,14,363209.16-
18-Aug-2011INVENTUREInventure Gro & Sec LtdPANTHER FINVEST PVT. LTD.BUY1,75,878210.24-
18-Aug-2011INVENTUREInventure Gro & Sec LtdPANTHER FINVEST PVT. LTD.SELL1,75,878208.51-
18-Aug-2011INVENTUREInventure Gro & Sec LtdTOUCHSTONE FINVEST SERVICES PRIVATE LIMITEDBUY1,46,906207.22-
18-Aug-2011INVENTUREInventure Gro & Sec LtdTOUCHSTONE FINVEST SERVICES PRIVATE LIMITEDSELL1,46,906220.87-
18-Aug-2011KSOILSK S Oils LimitedEDELWEISS FINANCE & INVESTMENTS LIMITEDSELL88,64,7148.60-
18-Aug-2011KSOILSK S Oils LimitedTRANSGLOBAL SECURITIES LTD.BUY28,92,2778.59-
18-Aug-2011KSOILSK S Oils LimitedTRANSGLOBAL SECURITIES LTD.SELL26,62,9078.62-
18-Aug-2011NEHAINTNeha International LtdBRAJDHAM MARCANTILE PVT LTDBUY1,50,800120.78-
18-Aug-2011NEHAINTNeha International LtdTARUN SHARMASELL1,00,000121.98-
18-Aug-2011PARAPRINTParamount Printpack LtdDHARMESH MALDEVBHAI GODHANIABUY1,40,00026.90-
18-Aug-2011PARAPRINTParamount Printpack LtdGAUTAM N VANDARSELL1,40,04426.90-

BSE, Bulk deals, 18/8/2011

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Deal DateScrip CodeCompanyClient NameDeal Type *QuantityPrice **
18/8/2011511750Ascent EximSUMAN BAJIRAO PAGARB160004.53
18/8/2011532797Autoline IndsRKSV SECURITIES INDIA PRIVATE LIMITEDB100526127.94
18/8/2011532797Autoline IndsKAMAL KUMAR JALAN SEC. PVT. LTDB98944127.41
18/8/2011532797Autoline IndsKAMAL KUMAR JALAN SEC. PVT. LTDS98944127.97
18/8/2011532797Autoline IndsRKSV SECURITIES INDIA PRIVATE LIMITEDS100526127.42
18/8/2011524606Beryl DrugsSAHELI TRADING PRIVATE LIMITEDS2800033.69
18/8/2011532542Crew BosPUNNI SANGHAVIB6500043.00
18/8/2011532542Crew BosABHINAV CAPITAL SERVICES LIMITEDS12071443.01
18/8/2011531470EMPORISACCURATE FINSTOCK PVT LTDB310000115.40
18/8/2011531470EMPORISSAUMIL BHAVNAGARI LOPAS100000115.40
18/8/2011531470EMPORISVASHRAM DESAI DHARAMSHIS90000115.40
18/8/2011531470EMPORISPOPATJI THAKOR KIRTIS90000115.40
18/8/2011530337Exelon InfraSHAISHIL TUSHARKUMAR JHAVERIB9696558.86
18/8/2011530337Exelon InfraSHAISHIL TUSHARKUMAR JHAVERIS8354758.94
18/8/2011531055GFLFINEVERLIKE COMPUTERS PVT LTDB29000105.00
18/8/2011531055GFLFINBOAST COMMERCIAL (P) LTDB29000105.00
18/8/2011531055GFLFINSTARLINE VANIJYA PRIVATE LIMITEDB17500105.00
18/8/2011531055GFLFINANNLEELA VANIJYA P LTDB17500102.68
18/8/2011531055GFLFINNAMDEO SHANTARAM GOLES16000105.00
18/8/2011531055GFLFINKIRTI KANTILAL MEHTAS20000105.00
18/8/2011531055GFLFINNILESH KRUSHNA PALANDES23000105.00
18/8/2011531055GFLFINABHIJAI INVESTMENTS19716105.00
18/8/2011524754Gujarat MediPRIYANKA MANOJ JAINB4000027.30
18/8/2011524754Gujarat MediARIHANT FINEVEST PVT LTDB3300027.30
18/8/2011524754Gujarat MediSHANTILAL SHAH SURENDRAKUMARS3100027.30
18/8/2011524754Gujarat MediSWETA RITESHKUMAR SHAHS2800027.30
18/8/2011533506INVENTURECROSSEAS CAPITAL SERVICES PRIVATE LIMITEDB152553213.15
18/8/2011533506INVENTURECHANDARANA INTERMEDIARIES BROKERS PRIVATE LIMITEDB210041212.53
18/8/2011533506INVENTUREGKN SECURITIESB108905212.02
18/8/2011533506INVENTURECHANDARANA INTERMEDIARIES BROKERS PRIVATE LIMITEDS210041214.91
18/8/2011533506INVENTURECROSSEAS CAPITAL SERVICES PRIVATE LIMITEDS152553215.23
18/8/2011533506INVENTUREGKN SECURITIESS108905214.27
18/8/2011530165Kanchan IntlBALAJI INVESTMENTS3431650.24
18/8/2011530547KEN Fin ServANOOPKUMAR PARASDAS JAINB1550058.98
18/8/2011530547KEN Fin ServRAKESH MANEKLAL JAINB9710054.50
18/8/2011530547KEN Fin ServASHISH CHAUDHARYS13000055.64
18/8/2011531401Khodiyar IndsNARENDRA BHOOTRAB450005.90
18/8/2011526209KS Oils-$EDELWEISS FINANCE & INVESTMENTS LIMITEDS35038198.60
18/8/2011531540Maruti InfraKETAN RAJNIKANT SHAHS5415410.59
18/8/2011523820Neo CorpPARESH BHAGAT HUFS25000052.00
18/8/2011523820Neo CorpPARESH NAVNITLAL BHAGATS30000052.00
18/8/2011533399Paramount PrintGAUTAM N VANDARB14004427.00
18/8/2011533399Paramount PrintDHARMESH MALDEVBHAI GODHANIAS14000027.00
18/8/2011500329Pentamedia GrapAJAYKUMAR THAKKARS1249631.00
18/8/2011531467Polypro FibrilsMACRO EQUICOMB3000010.21
18/8/2011511585Regency TrustKIRTI KANTILAL MEHTAB5280056.45
18/8/2011511585Regency TrustEVERLIKE COMPUTERS PVT LTDS5500056.45
18/8/2011511585Regency TrustBOAST COMMERCIAL (P) LTDS5140056.45
18/8/2011500285SpicejetGS INVESTMENT PARTNERS (MAURITIUS) I LIMITEDS248070121.65
18/8/2011502589Vapi PaperMADHAV HARIDAS ASHERB1195011.95
* B - Buy, S - Sell
** = Weighted Average Trade Price / Trade Price