26 October 2011

Yes Bank : Consolidating position :CLSA

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Consolidating position
For 2QFY12, Yes Bank reported profit of Rs2.4bn up 33% YoY. In order to
manage quality and profitability of portfolio the bank is consolidating
growth. As a result, the asset growth has moderated sharply to 21% YoY
(62% in Mar-11), but NIMs expanded by 10bps in spite of high interest
rates. We are concerned about slowdown in CASA growth to 20% as this
is critical to support a profitable growth. Fee growth was strong and asset
quality remains robust. Being a corporate lender, bank is more exposed to
a corporate cycle and we see limited upside from here.
Preferring profitability over growth
During 2QFY12, Yes Bank’s loan growth and asset growth moderated sharply
to 13% and 21%, respectively (from 55% and 62% in Mar-11) as the bank is
focussing on margin defence. As a result, bank was able to expand its
margins by 10bps to 2.9% even in a high interest rate environment. Recently,
bank has also become more selective of borrowers and has reduced exposure
to riskier segments. Share of non-SLR investments has increased as the bank
seems to be lending to larger corporate through bonds where coupons may
be below the Base Rate.
CASA growth slows, branch expansion may help
During 2Q, CASA growth moderated sharply to 20% YoY largely due to a high
interest rate environment. However, CASA ratio has improved marginally to
11% due to slower deposit growth (up 10%). In 2Q, liability-mix changed
with share of wholesale borrowings (partly in foreign currencies) rising to
16% of total liabilities from 11% in 1Q. Improvement in CASA ratio is critical
and achievable with expansion in branch network and steadier loan growth.
Asset quality robust and fee growth picks-up
Bank’s asset quality remains strong with gross NPLs growing by just 2% YOY
to just 20bps of loans and coverage ratio remains high at 80% (360% with
floating provisions). Restructured loans increased due to restructuring of
exposures to micro-finance institutions (MFI), but its still very low at 0.5%
(sector average of 3.5%). A strong fee growth of 40% also boosted earnings
driven by growth in investment banking as well as transactional banking fees.
Limited upside
Over FY11-14, we expect Yes Bank to report 25% Cagr in profit largely driven
by loan growth. With Tier I ratio at 9.4% the bank may need to raise capital.
Being a corporate lender, bank is more exposed to a corporate cycle and we
believe that could cap multiples in the short term; hence we see limited
upside from here - our target price is based on 2x FY13 adj PB. Improvement
in capex cycle, pick up in corporate activity would be the key catalysts.

Dish TV: 2QFY12 Results ::CLSA

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2QFY12 Results
Dish TV’s 2QFY12 operating performance was inline with expectations
with revenue up 5%QoQ and Arpu up 1% at Rs152. Ebitda margins
expanded 100bpsQoQ to 25%, enabling an Ebitda increase of 9%QoQ.
However subscriber additions were lower by 20%QoQ in a sharper than
expected slowdown and foreign exchange loss of Rs304m hiked the
quarter loss to Rs485m ahead of estimates. Meanwhile, there is
regulatory push for digitalisation with an ordinance but time deadlines
are ambitious and implementation remains to be seen. With valuation at
13x FY13CL Ebitda; we maintain Outperform.
Revenue growth of 5%QoQ but 20%QoQ lower subscriber additions
Dish TV’s 2QFY12 revenue increased 5%QoQ and 48%YoY to Rs4.8bn, in line
with estimates of which 86% was direct-to-home (DTH) subscriptions.
However Dish TV’s 575,000 subscriber additions were down a sharper than
expected 20%QoQ and the gross DTH subscriber base stands at 11.7m. The
net subscribers are 9.2m with net additions down even sharper 38%QoQ.
Arpu increased 1%QoQ and 9%YoY to Rs152 and high-definition (HD)
subscriber activations are at 5-6% of monthly net additions. Dish TV quarter
direct and content cost declined 3pptsQoQ to 31% of revenue and 7ppts YoY
aided by fixed fee content interconnect agreements with majority of
broadcasters and also one time adjustments in previous quarter. Margins
aided Dish TV’s quarter Ebitda which increased 9%QoQ however foreign
exchange loss of Rs304m hiked loss to Rs485m.
Ordinance on digitisation but key is implementation
Recently Information & Broadcasting Ministry has made a renewed push for
“Digitalisation” with an ordinance to amend the Cable TV Act. While the
renewed regulatory push is a positive, the time deadlines starting with 31
March 2012 for four metros are ambitious and implementation remains to be
seen. However digitalisation when implemented well could be a significant
catalyst for Dish TV subscriber additions, since it will force households to
choose a set-top box from either DTH or digital cable. Further the first
phase of digitalisation in four metros will also enable ramping up of HD
subscribers. Dish TV HD Arpu is Rs454 nearly 3x the current level. For
now, we forecast Dish TV to reach 17.6million gross and 14.8 million net
subscribers by FY14.
Maintain forecasts and retain Outperform.
With operating performance in line in Dish TV’s quarterly results, we maintain
our forecast of a 54% Ebitda Cagr over FY11-14CL. However the slowdown in
gross and net subscriber additions and likely delay in implementation of
digitalisation are issues. Also the significant regulatory boost from potential
licence-fee reduction via change in accounting from 10% of gross revenue to
adjusted gross revenue (AGR) and/or reduction in licence fees to 6-8% is
awaited. Meanwhile with stock valuation at 13x FY13CL Ebitda; we maintain
Outperform.

Crompton Greaves: Disappointing 2QFY12 results :CLSA

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Disappointing 2QFY12 results
Crompton’s 2QFY12 consol PAT came 25% below our estimates, at
Rs1.17bn (down 45% YoY). Across all the three divisions of the
standalone entity, revenue growth disappointed and Ebit margins
contracted on both YoY and QoQ basis. Ebitda margins of international
subs improved QoQ but profitability was hurt by higher depreciation and
interest costs. Working capital for the standalone entity increased from
6% of revenues in Sep-10 to 16% (8% to 14% for consol entity).
Management’s earlier guidance of flat profits in FY12 now appears nearly
impossible. We will revise down our earnings estimate and target price
post the analyst meet tomorrow; a 10-20% EPS cut looks likely.
Consol PAT 25% below estimates
Crompton’s 2QFY12 consol PAT fell by 45% YoY, to Rs1,167m - 25% below
our expectation. Revenues rose by 13% YoY, even as standalone revenues
remained flat, on account to strong international revenues (up 32% YoY). A
part of this growth was contributed by new acquisitions. Ebitda margins,
however, contracted by 555bps YoY to 8.4% (our expectation: 9.8%), due to
a 623bps increase in material costs. While Ebitda margin of 5% for
international subs was in-line with our expectation, a 487bps margin decline
in the standalone entity surprised negatively. As a result, Ebitda fell by 32%
YoY, to Rs2.3bn, 13% below estimates.
Poor performance by the standalone entity
The performance of standalone entity was extremely disappointing. In all the
three segments, revenue growth was slower than expected and operating
margins fell YoY and QoQ. In particular, power revenues fell by 7% YoY while
its Ebit fell 40% YoY (-6% QoQ). Material and employee costs rose by 405bps
and 100bps YoY respectively, leading to a sharp 490bps decline in standalone
Ebitda margins. Despite robust revenues (up 32%YoY/ 29%QoQ), helped
partly by forex and acquisitions, international subs contributed only a modest
Rs60m to consol PAT due to higher depreciation and interest costs.
Sharp WC rise; earnings/ TP downgrade likely post analyst meet
Net working capital increased sharply for both the standalone entity (from 6%
of revenues in Sep-10 to 16% now) and consol entity (from 8% to 14%).
Consol net debt rose by Rs5bn over last year (from Rs2.3bn to Rs7.3bn) on
account of higher working capital and acquisitions. Management’s earlier
guidance of flat profits for FY12 now implies 43% YoY profit growth in 2H
which appears nearly impossible in this environment. We would revise our
earnings and target post the analyst meet tomorrow, where we would look to
get clarity on the reasons for sluggish performance of standalone entity.

Petronet LNG -Steady performance ::Emkay,

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Petronet LNG
Steady performance


BUY

CMP: Rs161                                        Target Price: Rs170

n     Results were above our and street estimates at bottom line, mainly due to higher volume growth of both Firm (~91tbtu) and Spot (44.08tbtu) volume during the quarter
n     Highest ever capacity utilization at 106% with volume growth of 35.7% to 135tbtu (+1.3% QoQ), We expect volume growth remains strong for next couple of quarters 
n     Revenue grew significantly by 75% to Rs.53.6bn, and PAT grew by 98.6% to Rs.2.6bn.
n     Supply constrain of natural gas from KG D6 field continue to support higher volumes of PLNG, maintain BUY with PT of Rs.170

Buy Sterlite Technologies; Target : Rs 43 ::ICICI Securities,

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M a r g i n s   m i s s   i n   t e l e c o m   s e g m e n t …
Sterlite Technologies reported a mixed set of results as revenues came in
above our expectations at | 707 crore (I-direct estimate: | 571 crore). The
revenue beat was led by the power segment wherein volumes for the
power conductor grew 35% YoY. However, overall margins at 7.1% (Idirect estimate: 8.3%) were below  our expectations as both the power
and telecom segment disappointed in terms of margin delivery. Coupled
with this, PAT was also impacted due to higher interest costs and
recorded a decline of 78% YoY vs.  our expectations  of 66% decline.
Going ahead, although margins and profitability will look up in H1FY12 as
lower margin power orders will get executed by then and telecom
segment will get back on track, it will still call for earnings downgrade as
the management has finally revised  down their guidance for the FY12
performance.
ƒ Highlights of the quarter
The current order backlog stands at | 2400 crore out of which the power
sector accounts for | 2100 crore of orders. We believe the pain in the
power segment in terms of execution of low margins orders will get over
by Q3FY12. Hence, we will witness an uptick in segmental margins. The
other key negative surprise was the contraction of margins in the telecom
segment to 15.6% due to higher input costs and stabilisation issues with
the expanded capacity. In terms of volume, the power segment sold
36,000 MT of power conductor and telecom segment volume for optic
fibre and fibre optic cable stood at 2.8 million km and 0.8 million km,
respectively.
V a l u a t i o n
At the CMP of | 38, the stock is trading at 14x and 8x on FY12E and FY13E
EPS. Though we believe that FY13 will look better for the company, we
would be buyers into the stock once the company starts delivering from
H2FY12. We have valued the stock at 9x its FY13E EPS and arrived at a
price target of | 43 (earlier | 53).


Chambal Fertilisers Withdrawal of shipping business demerger - Negative :Emkay,

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Chambal Fertilisers
Withdrawal of shipping business demerger - Negative


ACCUMULATE

CMP: Rs87                                        Target Price: Rs98

n     Chambal’s Q2FY12 results were broadly in line with APAT of 841 mn, (-14%yoy) despite disappointment in shipping (EBIT loss of Rs 49 mn) and textiles (loss of Rs 90 mn)
n     Manufactured fertiliser and trading business posted encouraging results with EBIT margins of 16.8% and 6% respectively and expected to remain robust 
n     Withdrawal of proposed demerger of shipping is the biggest disappointment and is expected to put pressure on company’s earnings due to adverse business environment
n     Revise est to Rs 9.0/8.9 (from Rs 8.7/9.2) for FY12/FY13 resp. Trim target multiple and reduce target price to Rs 98 (from Rs 110) with downgrade to Accumulate (from BUY)

Jindal Steel & Power; 2Q12: The basket of operations continues to deliver:: Credit Suisse,

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● JSPL’s results were strong across divisions. It is showing good
execution and smart tactical steps to maximise profits. Net sales
and EBITDA beat estimates by 20% and 18%, respectively.
● Steel: Pellet sales grew 50% QoQ, thriving on the undersupplied
market for lump ore/pellets: JSPL expects this to continue for 2–3
years. Further, by using HBI from Shadeed rather than internal
sponge iron and also inventory liquidation, finished steel volumes
increased 30% YoY. Ex one-offs, EBITDA/T for division was $410/t.
● Power: Despite 2Q usually being weak (seasonal), PLF was 93%
(CS 85%). Chhattisgarh CPP units are at 50% PLF (below
expectations), but Angul unit is at 90%+. JSP still expects full
1,350 MW commissioning by FY12—a must to retain tax benefits.
● Commissioning timelines: Angul plate mill—Mar-12; SMS + DRI—
Sep-12; coal mine—Apr-12; Tamnar 2—Sep-13. Overseas
operations: Indonesia mining—Apr-12. South Africa is making
profits and expects to mine 1 mnt. Shadeed is running at 1.2
mnpta run-rate.
● Overall, the basket of operations continues to deliver well. We
maintain out target price of Rs635 and OUTPERFORM rating.

FY12 has been worst trading year of my life: Jhunjhunwala : Moneycontrol

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Billionaire investor Rakesh Jhunjhunwala, who's often referred to as India's Warren Buffett, says, the financial year 2012 has been, so far, the worst trading year of his life.
However, he is not giving up hope. He still believes that the market is in a corrective phase of a long-term bull run.
In an interview to CNBC-TV18’s Udayan Mukherjee, the big bull of Dalal Street says, although the market is showing strength, he has had the worst trading financial year of his life starting from April. And that’s what makes him cautious or confused. “I still don’t think that there is a clear picture. I think we will still have to wait for events to unfold.”
Below is the edited transcript of his interview.

eClerx Services Ltd. In line show, retain ACCUMULATE::Emkay,

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eClerx Services Ltd.
In line show, retain ACCUMULATE


ACCUMULATE

CMP: Rs 732                                       Target Price: Rs 800

n     Rev at US$ 24.3 mn (+9% QoQ) came in ahead of 7.2% QoQ growth expectations with margins declining by ~30 bps QoQ to 38.9% on a/c of ~130 bps QoQ increase in SG&A expenses
n     Profits at Rs443 mn (+26% QoQ) ahead of est aided by forex gains (Rs 102.3 mn).However, sharp increase in DSO’s over past 2 qtrs to 76(V/s 59 at FY11 end), a disappointment 
n     Non top 5 client revenues grow by ~27% sequentially helping reduce top 5 contribution by ~200 bps QoQ to 86%. Co remains committed to increasing sales/onshore investments
n     Lower currency resets drive a3%/4% raise in FY12/13E EPs to Rs 53.6/63. Retain ACCUMULATE with an unchanged TP of Rs 800

Wondering what to pick for Muhurat trading? Moneycontrol

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Avinash Gorakshakar, VP - Research, Edelweiss Financial Advisory

Sectors that will make maximum sales during Diwali: Consumer Electronics
Stock picks in the run-up to Diwali: Agro-based stocks, especially fertilizers; Banking like Axis, ICICI
Sectors to avoid for now: Construction, Capital Goods, Realty
Finally, Muhurat picks: Deepak

Jigar Shah, Head of research, Kim Eng

Diwali sales: Retail and Automobile. Little bit in entertainment since people will go watch movies.
Stock pick: Consumer sector stocks like Pantaloon, Bata; Entertainment player such as Eros
Avoid: Infra, Metals and Mining, Realty, Telecom
Muhurat picks: Petronet LNG, Hathway,

Deven Choksey, Managing director, KRChoksey

Diwali sales: Market is not too gung-ho about Diwali sales this time. No one sector will stand out.
Stock picks: Mostly stocks where fundamentals are strong and price is also cheap.
Avoid: Sectors where government policy is playing havoc, like Draft Mining Bill.
Muhurat Picks: SBI, IndusInd Bank


Karthik Mehta, AVP- Institutional Equity Research, Sushil Finance

Diwali sales: Textile and Consumer white goods and brown goods
Stock picks: Mostly earnings-based momentum. Godrej Industries is rightly positioned to cater to all needs.
Avoid: Steel and Metal, Realty and Passenger vehicles (cars)
Muhurat picks: Godrej Industries, Wabco India, Navneet Publications, BOC India, Oracle Financial Services


Madhumita Ghosh, Vice President-PMS & Research, Unicon Financial

Diwali sales: Consumer Durables, Paints
Stock Picks: Banking and beaten down ones such as Real Estate, Infrastructure and Capital Goods
Avoid: FMGC, Oil and Gas
Muhurat picks: Rallis India, Biocon, Coromandel International, Yes Bank


Varun Goel, Head of Equity PMS- Karvy Private Wealth

Diwali sales: Consumer Durables
Stock pick: Private sector banks
Avoid: IT and Metal
Muhurat picks: Banking and Auto stocks

Buy Essar Ports ; Target :Rs 107 ::ICICI Securities,

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C a p a c i t y   e n h a n c e m e n t   t o  d r i v e   f u  t u  r e   g r o w  t h …
Essar Ports (EPL) was demerged from Essar Shipping and Ports Ltd
(ESPLL) in June 2011. The existing company operates only the port
business. For Q2FY12, EPL reported an impressive performance.
Revenues increased by 53% YoY to | 274 crore while net profit jumped
from | 5.3 crore to | 40.8 crore. EBITDA increased 69% on the back of
760 bps increase in EBITDA margin to 82.3%. Revenues and EBITDA have
seen a significant increase on account of increase in average realisation.

During Q2FY12, volumes handled on a YoY basis increased by only 1% to
9.73 million metric tonne (MMT). Average realisation increased to |
233/tonne from | 174/tonne in FY11. Volumes were subdued during the
quarter due to synchronised shutdown of the Vadinar Oil Terminal and
Essar oil refinery for 13 days during the quarter. In Q2FY12, Vadinar
handled 6.79 MMT cargo as against 7.49 MMT in Q2FY11 whereas Hazira
handled 2.94 MMT of cargo in Q2FY12 against 2.14 MMT in Q2FY11.

For H1FY12, total volume of cargo handled stood at 20.93 MMT vs. 19.46
MMT in H1FY11 with Vadinar handling 15.2 MMT in H1FY12 against 15.26
MMT in H1FY11 and the remaining volumes being contributed by Hazira
port. EPL’s capacity expansion,  which has been aligned to anchor
customers  growth  plan,  is  slated  to  increase  from  88  MMT  at  present  to
158 MMT by Q4FY14 (earlier planned completion date was Q4FY13).
Paradip CQ3 berth with capacity of 16 MMT is expected to go on stream
by Q4FY12, which would boost cargo volumes, going ahead.
V a l u a t i o n
The company enjoys significant revenue visibility on account of long-term
take or pay agreements with its anchor clients. The recent upward
revision of handling charges structure and higher capacity utilisation
levels provide comfort about future growth in revenue and profitability.
We expect significant value creation as new capacities get commissioned
and cargo traffic gains traction over the next couple of years. We have
revised our DCF assumptions to factor in higher risk free return and
market risk and have reduced the target price from | 139 to | 107.

ET: Muhurat trading Diwali 2011: Top 10 mid-cap stocks worth buying this 'Samvat 2068'

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It's Diwali again and traders are busy gearing up for the customary 'Muhurat trading', a tradition unique to India where markets open for a short while in the evening on the day the country celebrates the festival of lights.

Indian markets open each year to let traders make the auspicious Muhurat trade as the ring in the new Samvat. It is on this day that traders often reflect on the year that went by and see how they fared since the last Deepawali.

This year from one Deepawali to another, there's not much to write about. Indian markets traded close to their all time highs last year when traders took their Muhurat punts and this time they are way off those high levels.

The Indian markets are currently going through tumultuous times once again in a short span of three years from low's of 2008 in the backdrop of global concerns.

The markets seem to have come to terms with the fact that, in light of such constraints, India's GDP growth is likely to be more like 7-7.5% in the near term rather than the aspired over 9%.

According RBI's recent policy statement, India's GDP growth decelerated to 7.7 per cent in Q1 (April-June) of 2011-12 from 8.8 per cent a year ago, and 7.8 per cent in Q4 of 2010-11. The slowdown was on account of slower growth in mining, manufacturing, construction and 'community, social and personal services'.

Here are top mid-cap picks by analysts and brokerage houses that investors may use it to invest in 'Samvat 2068'

1) Sintex Industries
2) Bajaj Electricals
3) Redington
4) Voltas
5) Swaraj
6) Balmer Lawrie
7) Yes Bank
8) Rallis
9) Aditya Birla Nuvo
10) ITC

Torrent Pharma - Domestic business disappoints – Maintain Hold :Emkay,

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Torrent Pharma
Domestic business disappoints – Maintain Hold


HOLD

CMP: Rs 577                                       Target Price: Rs 618

n     Q2’12 results were subdued - with Revenues at Rs6.6bn (up 19% YoY), EBITDA at Rs1.1bn (up 31%) & APAT at Rs793mn (up 15% YoY)
n     Growth in revenues were led by 32% growth in exports – 57% growth in US, 28% growth in Heumann (German subsidiary) and 34% growth in Brazil
n     Domestic business growth remained subdued at 7% on back of increased competition in gastro and anti-biotic segment
n     We maintain our earnings estimates and target price of Rs618 (14x FY13 earnings of Rs44). Maintain Hold

Buy Hindustan Zinc; Target :rs 135 ::ICICI Securities,

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P e r f o r m a n c e   s l i g h t l y  b e l o w   e x p e c t a t i o n …
Hindustan Zinc’s (HZL) Q2FY12 numbers were slightly below our
estimates, primarily due to muted sales volumes. While the refined zinc
sales volumes registered a decline of ~4% QoQ, refined lead sales
volumes were flat on a sequential basis. Net sales came in at | 2593.5
crore (I-Direct estimate: | 2853.5 crore) registering de-growth of ~8%
QoQ. EBITDA margins have improved by 10 bps QoQ and 450 bps YoY.
Net profit jumped ~41.7% YoY to |  1344.7 crore (I-Direct estimate: |
1414.3 crore), mainly driven by a sharp increase in other income (up
~110% YoY and ~9% QoQ).
ƒ Lower sales volumes lead to a subdued topline on a QoQ basis
In Q2FY12, HZL reported ~8% decline in topline on a QoQ basis on
account of muted sales volumes. During the quarter under review,
refined zinc sales volumes stood at 184161 tonnes registering a
decline of ~4% QoQ while refined lead sales volumes remained flat
at 14,686 tonnes.
ƒ Expansion projects
The 1,00,000 tonnes per annum (TPA) lead smelter at Dariba was
commissioned during the quarter, taking the total refining capacity of
lead to ~1,85,000 TPA. The ramp-up of the Sindesar Khurd mine is
on track to achieve its targeted 2.0 million tonnes per annum (MTPA)
capacity by the end of the year. The new silver refinery of 350 TPA is
scheduled to be commissioned in Q3FY12.
V a l u a t i o n
At the CMP of | 121, after adjusting for LME volatility in our estimates, the
stock is trading at FY12E EV/EBITDA of 5.2x and FY13E EV/EBITDA of
4.1x. We expect HZL to register growth of 10.4% and 9.9% CAGR in
topline and bottomline, respectively, during FY11-FY13E. We have valued
HZL at FY13E EV/EBITDA of 5.0x to arrive at our target price of | 135 and
assigned a BUY rating to the stock.

Q2 FY12 Result Update- ING Vysya Bank : Nirmal Bang Research

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Results ahead of expectations
ING VYSYA bank (IVBL) results were above expectations. Net profit of
the bank in Q2FY12 increased 22.8% QoQ and 53.4% YoY at Rs 115.5 crs
on account of lower provisioning. Net interest income increased both
on YoY and QoQ basis. The bank’s asset quality has improved and the
bank reported overall decline in its gross and net NPAs.
NIM’s showed significant improvement both QoQ and YoY
Net Interest Income increased by 19.4% on YoY basis and 15.9% QoQ in
Q2FY12 to Rs. 304 crs primarily due to the repricing done in the
advances portfolio and capital infusion in end Q1 FY12. Management
indicated that NIMs for FY12 will remain broadly in the range of 3.15%‐
3.25%.
Non interest income decline on YoY basis; improves sequentially
Non interest income showed significant improvement on a sequential
basis and increased 15.6% to Rs 162.5 crs. However on a YoY basis it
declined 15.9% on a YoY basis due to one ‐ off investment gains
reported in Q2FY11.
Cost‐to‐income ratio shows improvement sequentially
Cost to income ratio of the bank stood at 59.4% for Q2FY12, as
compared to 63.5% in Q1FY12 and 58.8% in Q2FY11.
Advances continue to maintain growth momentum
Advances grew by 22.8% on a YoY basis aided by traction in business
banking segment. Management expects that the advance growth to be
in the range of 22%‐25% for FY12E.
Improvement in asset quality
The asset quality of the bank continued to improve resulting in high
reduction in provisions at Rs. 17.5 crs against Rs. 69.8 crs in Q2FY11.
Gross NPA ratio and Net NPA ratio were at 2.02% and 0.31%
respectively in Q2FY12. The provision coverage ratio improved to 84.8%
in Q2FY12 as against 72.8% in Q2FY11.
Valuation
The bank has continued to show an improvement in its financial and
operational parameters and we believe that the bank will continue to
impress with its strong financials. At CMP, the stock is trading at 1.22x
and 1.06x FY12E and FY13E Adj BVPS respectively and therefore we
maintain our BUY rating on the stock. Our target price for the stock is
Rs 479 based on a P/ABV multiple of 1.8x on its FY12E adjusted book
value of Rs.266 per share.

South Indian Bank -Gold loan drives performance ACCUMULATE ::Emkay,

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South Indian Bank
Gold loan drives performance


ACCUMULATE

CMP: Rs23                                        Target Price: Rs27

n     SIB’s Q2FY12 earnings at Rs950mn ahead of expectation led by higher than expected NII growth
n     The NII grew by 31.1% to Rs2.6bn led by strong ~19%qoq growth in gold loan portfolio, and 20bps qoq expansion in NIM’s to 3%
n     High concentration of gold loan at 26% of the book, a concern. In case of any slowdown in gold loan book growth, rest of the book need to grow at more than 25%
n     Lowering earnings by 7.1/8.1% each for FY12/13 for higher opex and prov cost. Maintain ACCUMULATE with revised TP of Rs27

Rallis India - Downgrade earnings, maintain BUY :Emkay,

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Rallis India
Downgrade earnings, maintain BUY  


BUY

CMP: Rs 162                                       Target Price: Rs 197

n     Q2FY12 PAT at Rs 585mn (flat yoy) were below est due  to operating losses at Metahelix and lower standalone margins
n     Cons revenues grew by 19% yoy to Rs 4.39 bn with EBITDA margins of 22.2% vs 24% previous year. Lower pest occurrence and delayed sowing affected revenue growth
n     Thrust on revenue growth and aggressive products launch to put pressure on working capital resulting in higher interest
n     Downgrade EPS estimates to Rs 8/10.9 (previous Rs 8.9/11.6) for FY12/13. Maintain BUY with revised target price of Rs 197 (previous Rs 209)

Mutual Fund Query resolved : Business Line,

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I am 28-years old. I started investing Rs 2,000 a month in Birla Sun Life Tax Gain three years ago for tax benefit. But I find the current performance of this fund disappointing. Is it wise to quit or should I continue to hold this fund? In addition to this, I have been investing Rs 1000 a month in DSPBR Equity fund. I have a few long-term goals. I need Rs 2 crore after 20 years and another Rs 1 crore 30 years from now. To achieve this goal, how much do I have to invest every month and in what funds? I can currently invest Rs 10,000 a month. I need your advice to plan my investment.
Raghavendra Hegde
Bangalore
It is not a good idea to invest in tax-saving schemes through the SIP route. Every instalment in the scheme is locked-in for three years from the date of investment. This limits you from exiting the fund entirely if performance is poor. This is the case with your investment.
We are not sure if you meant Birla Sun Life Tax Plan or Birla Sun Life Tax Relief 96. There is no fund in Birla Sun Life AMC called Tax Gain. Either way, both the tax-saving schemes have delivered middle-of the-road returns over a three-year period, if we look at lump sum investment made in October 2008. The returns, at close to 20 per cent, look good simply because October 2008 was one of the low points in the 2008 bear market. However, SIPs have not worked well in both the funds, with internal rate of return in the range of 7.2-8.5 per cent over the last three years. Top diversified funds have delivered double this return. Stop SIPs in your tax-saving fund. Sell units as and when they cross the three-year lock-in period. It is not a prudent move to face the risk of losing capital for the sake of tax benefits. We suggest you first exhaust traditional options such as Employee's Provident Fund, Public Provident Fund and National Savings Certificate for tax purposes before considering other options.
If you are very particular, you can consider investing a lump-sum in Canara Robeco Equity Tax Saver, dividend payout option, right now. The draft Direct Tax Code, as it stands today, does not allow deduction of investments made in tax-saving funds (under Section 80C) from April 2012. Unless there is a change, these funds may lose their tax benefit status from next year.

FINANCIAL GOALS

To achieve Rs 2 crore, Rs 10,000 invested every month over the next 20 years together with the existing value of DSPBR Equity fund (assuming you have invested in the fund for three years now) should suffice, if the portfolio delivers 15 per cent per annum compounded annually. However, given that 20 years is a long way away, we suspect that returns would become more sombre as India stock markets mature. Hence, as a matter of prudence add another Rs 2,000 a month.
You can use the proceeds from sale of Birla Sun Life Tax Plan units (as and when you sell it) for this purpose. This should help keep the SIP alive for the next three years, post which you may have more savings in hand. For this Rs 12,000 a month SIP you can consider investing 40 per cent of your savings in HDFC Equity, 30 per cent in Canara Robeco Diversified Equity , 20 per cent in IDFC Premier Equity and 10 per cent in gold ETFs.
For your next target of Rs 1 crore over 30 years, we assume moderate returns of 13 per cent per annum as markets, over such a long time frame become unpredictable. If you are able to ramp up your savings by additional Rs 5,500 by say 2016, then SIPs over the next 25 years should fetch you Rs 1 crore.
For this portfolio you can consider holding Quantum Long-Term Equity, Fidelity Equity and HDFC Mid-Cap Opportunities in equal sums. If you are interesting in investing in value stocks in international markets, you can also add Templeton India Equity Income (by cutting back on Fidelity Equity) to the extent of 10 per cent of total SIP. However, run a five-year SIP and review this fund. You may discontinue it if it lags local diversified funds by more than 5 percentage points.
Monitor performance and book profits in all the funds in years of extraordinary returns. Exit equities if you achieve your goal ahead of the target date.

Hero MotoCorp: 2QFY2012 Result Update: Angel Broking,

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Hero MotoCorp’s (HMCL) 2QFY2012 results surprised positively on the
bottom-line front on account of better-than-expected operating margin. Strong
top-line growth of 28.1% yoy (2.6% qoq) was on expected lines, driven by 20.1%
(1% qoq) and 6.8% yoy (1.6% qoq) growth in total volumes and net average
realization, respectively. We maintain our volume estimates at 6.1mn/6.8mn for
FY2012E/FY2013E; however, our earnings estimates are marginally revised as
we expect slight improvement in operating margins going ahead. We maintain
our Neutral view on the stock.
Above-expectation operating performance: HMCL reported in-line net sales
growth of 28.1% yoy to `5,829cr, aided by strong 20.2% and 15% yoy growth in
domestic and exports volumes, respectively. Scooter volumes sustained their
robust performance, posting 32% yoy growth; and motorcycle sales grew by
19.3% yoy. Adjusted EBITDA margin (adjusted for royalty payments) stood at
12.2% (up 93bp qoq), above our estimates, led by improved product mix, price
increases and lower raw-material expenses. Other expenses, however, increased
by 70bp qoq due to rebranding-related costs. Led by better-than-expected
operating performance and lower tax rate, net profit registered strong growth of
19.4% yoy (8.2% qoq) to `604cr. Royalty outgo was higher during 2QFY2012 as
Yen exposure was unhedged and Yen appreciated against the INR.
Outlook and valuation: While we maintain our volume estimates for HMCL,
we expect volume growth to taper off in 2HFY2012 on account of high base
effect. We believe the benefits of lower raw-material cost will be limited as the
company intends to incur higher advertising, rebranding and R&D expenses.
Further, due to increased competitive activity in the two-wheeler segment, HMCL’s
market share will remain under pressure, leaving limited room for earnings
upgrade. At `1,985, HMCL is trading at 15.3x FY2013E earnings, in-line with its
historical multiple of 15x. We maintain our Neutral view on the stock.

Hedge against volatility:: Business Line,

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Shareholders of fertiliser producer Coromandel International can now hedge any volatility in their stock prices caused by market swings, with a fixed return instrument from the same company. To commemorate its golden jubilee year, the company plans to issue unsecured redeemable bonus debentures to its investors. The debenture will carry an interest rate not exceeding 9 per cent per annum. The tenure of the debenture is yet to be disclosed.
This reward to shareholders is different from the bonus shares or ‘special' dividends that cash-rich companies typically offer. Only a few companies, such as Hindustan Unilever, Britannia Industries and, more recently, Dr Reddy's Lab, have rewarded investors in this manner. Here's our take on how different this instrument is in terms of risks as well as taxability for an investor.

LESS RISKY

To start with, the debenture is offered as a bonus to investors, implying that shareholders get it for free. The debenture will earn a fixed annual interest income and will be redeemed at the time of its maturity. Alternatively, since these instruments are typically traded on the stock exchanges, debentures can also be sold on the bourses provided there is sufficient liquidity for the same. A passive investor, though, may choose to hold the same until the company redeems it to avoid the risk of wrongly timing an exit, as market prices of such debentures may fall too. In the present volatile market condition, a bonus debenture may be a more secure option than bonus shares. While a share is exposed to equity market swings, the interest on the debenture will provide a steady return. Remember, debentures are backed by reserves and will receive priority in repayment (over equity shares) if a company goes into liquidation. They are therefore, a good hedge for shareholders in the same company, especially when the debenture is issued free of cost to investors.
Coromandel too, benefits from the issue in two ways. One, it defers the cash outflow until maturity of the debenture. Until then, it treats the debenture as debt, paying only the interest. This appears to be a wise move, given the low debt on Coromandel's books and high cost of borrowing outside. Two, and more importantly, it prevents needless expansion of capital and in fact, improves return on equity (as reserves are shifted to debt) thus improving shareholder value.

TAXABILITY

The tax that investors suffer always plays a big role in determining how attractive an instrument is. In the case of bonus debentures, the interest income is taxed like any other income under the investor's normal tax slab. On redemption, though, experts reckon that the difference between the redemption/sale value and the cost (the value at the time of allotment) is taxed as short-term or long-term capital gain, depending on whether the holding period is less than a year or more.
It is noteworthy that while bonus shares have nil cost in the shareholder's hands, bonus debentures do have a cost. Experts say that this would be the case as the bonus debenture value would have already suffered tax at the time of issue; companies pay dividend distribution tax on the bonus debenture value as they are deemed to be dividend.
Hence, if the redemption value is, say, Rs 1,000 and the cost at the time of allotment is Rs 1000, investors would not suffer capital gains.
To sum up, in the proposed Coromandel issue, if investors receive interest payouts and hold till maturity, they are unlikely to suffer capital gains tax.

Sintex Inds ; Target – Rs 180 ::Way2Wealth :: Diwali Picks 2011


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History and Business Model
Sintex Industries Ltd is one of the leading providers of plastics and niche textilerelated
products in India. Sintex is organized into two business segments namely,
textile and plastics. In the textile division, the company manufactures high-value,
yarn-dyed structured fabrics, corduroy and items relating to home textiles. In the
plastic division, the company manufactures storage solutions for water, oil and fuel;
prefabricated structures, monolithic structures, industrial custom moulded products,
consumer custom moulded products and interiors products. Sintex is a leader in
providing building and custom molding products in India and abroad. Sintex has
strong presence in 4 continents and serves many reputed Fortune 500 global as
well as domestic companies.
Financials
The Company has been growing at a steady rate with revenue and profit CAGR of
25% and 24% resp. over FY08-FY11. Over the last year, the building materials
segment was the largest contributor to revenues at 48%. This segment reported a
CAGR growth of 29% over FY08-FY11 primarily based on higher spending on low
cost mass housing, increased Government spending on rural infrastructure, health,
sanitation and education. The monolithic segment contributed 30% to revenues
whereas the prefab segment contributed 14%. Q2FY12 saw a dip in profits Y-o-Y
by 61% due to reported notional MTM loss of Rs59.6crores on FCCBs as the
Rupee weakened against the US Dollar by 9.6% Q-o-Q.
Growth Drivers
• Spending on Housing schemes beneficial for Sintex: The Government of
India has been spending more than Rs 10,000 crores on various housing
schemes to provide housing for poor, low and middle income groups. Sintex is
in a favorable position with respect to attending to the housing needs of low and
middle income groups. As the majority business segments like Prefab and
monolithic construction of Sintex derives more than 70% of its revenues from
social sector government spending and in the near future this spending is not
expected to be reined in; thus Sintex is relatively well protected from any
probable slowdown.
• Strong order book: Sintex has a strong order book of Rs 3000 crores in
monolithic segment to be executed over 2 years.
• International acquisitions to augment its operations: With increasing
synergies between acquired entities the acquisition of six companies in OECD
countries by Sintex is slated to augment its operations. The acquisitions were
carried out to access enhanced technology and tap newer markets as well as
clients for its custom moulding business. We expect this to lead its consolidated
Custom moulding segment to grow at a CAGR of 10.3%.
• Positive Cash Flow: With improvement in its working capital cycle, Sintex has
turned cash flow positive in FY11 after reporting negative cash flow for years.
Reduction in loans and advances and increase in creditor payments resulted in
this turnaround for Sintex. We expect the working capital to further improve due
to better management of inventories and lower loans & advances.
• FCCB redemption on cards: About USD 22.5 crores worth of FCCBs are due
for conversion in March 2013. The primary intention of the fund raising was to
scout for inorganic growth options, but it has used only USD 8 crores to date
and the remaining USD 13.5crores is still intact. We expect Sintex to not
encounter any difficulty in repayment of FCCBs by FY13E with enough cash,
liquid investments and positive free cash flow generation.
Valuations:
At CMP of Rs 116.8, stock trades at PE of 6.3x and 5.3x its FY12E and FY13E
earnings of Rs 18.5 and Rs 22.1 respectively as per Bloomberg estimates. With
strong visibility in top and bottom line due to robust order book and long term
contracts with diversified industries, we believe Sintex is provides a sufficient
upside potential.
Technicals
The rally was unabated since 2009 till it reached Rs 240 levels. However now the
correction has been reasonable enough till 61% retracement of rally at Rs 112
levels which we believe would be held on. One should utilize these levels to initiate
longs for target of Rs 180 & Rs 220.


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Way2Wealth :: Diwali Picks 2011

Pidilite Industries; Target – Rs 190 ::Way2Wealth :: Diwali Picks 2011


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Company Background and Business Model
Pidilite Industries, promoted by the Parekh family, is an established player in
adhesives and specialty chemicals in India. It has a diversified product portfolio
comprising adhesives, sealants, construction chemicals, paint chemicals, art
materials, industrial resins and organic pigments. The company’s major brands
include Fevicol, Fevikwik, M-Seal and Dr Fixit. The company exports its products to
more than 80 countries. Pidilite derives ~12% of revenues from international
markets. The Company has 14 Overseas subsidiaries (4 direct and 10 step-down)
including those having significant manufacturing and selling operations in USA,
Brazil, Thailand, Dubai, Egypt and Bangladesh.
Financials
The Company has been posting healthy financials over the years as suggested
from 20.6%, 29% and 28% CAGR in net sales, PAT and operating profits between
FY07-11. Its return ratios have historically been healthy. For FY11, it reported
ROCE and ROE of 33% and 32% respectively. However, this takes into account its
investment in international subsidiaries and the Elastomer project. Adjusted for
these, the ROCE and ROE would have been higher.
Investment Argument
• Strong brand equity: Its legacy brand 'Fevicol' is clearly the market leader
holding a 70% market share. The Company has a special knack for creating a
demand for almost non-existent segments which makes them a market leader.
With its excellent branding and marketing techniques, Pidilite products enjoy
the highest branding recall.
• Enjoys strong pricing power: The Company enjoys strong pricing power in
all sub-segments with a market share of over 80% in each. It has been able to
pass on any rise in raw material costs to end-consumers, though after a lag.
• Turnaround in international operations: Pidilite’s international business has
been posting losses due to its low scale of operations. In FY11 international
business reported 12% increase in turnover to Rs 302 cr however EBIDTA
declined by 57% to Rs 4 crore. The company is taking initiatives to revamp
management and increase revenue. Management expects this segment to
start contributing to PAT in FY12.
• Elastomer project coming on stream: The plant was earlier expected to
commence commercial production in March 2010, and its production capacity
was estimated at 25,000tpa. This project was delayed by the economic
slowdown in 2008-09, and is now slated for completion by end-FY12.
Management expects this business to start contributing to earnings from
FY13. So far the company has spent around Rs 300 crore on the project and
another Rs 200 crore will be spent on the project to ensure its stability. The
management expects payback in 4-5 years.
Valuations:
With the extensive distribution network, excellent brand image and introduction of
new products, Pidilite would be able to leverage its strength and cater to the
growing demand from user industries. Its excellent return ratios, low debt: equity
ratio, cash rich status and a good track record of paying consistent & healthy
dividends are some of its financial strengths. The recent fall in crude oil prices
augurs well for the Company as it will reduce its raw material cost and improve the
margins. At the CMP of Rs 158, the stock is quoting at P/E of 20.5x its FY12E EPS
of Rs 7.7.
Technicals
Pidilite is having a history of consolidation and delivering longer rallies after
breakout. Recently the level of Rs 160 where healthy consolidation has taken place
has been taken out. This neckline at Rs 160 has now changed its status from
resistance to support. Considering its history, next leg of rally can take this stock to
new highs. Accumulate around Rs 160 levels for target of Rs 190.


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Way2Wealth :: Diwali Picks 2011

Nilkamal Plastics; Target – Rs 300 ::Way2Wealth :: Diwali Picks 2011


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Company Background and Business Model
Promoted by Parekh family, Nilkamal is one of the leading companies engaged in
manufacturing injection moulded plastic products. It manufactures and markets
injection moulded plastic products like furniture, material handling equipment &
OEM supplies for specific customers. It has manufacturing facilities at seven
locations across India with a combined production capacity 88,680 MTPA. Nilkamal
operates with 44 regional offices and 77 warehouses situated all across India. It
has wide distribution reach with 77 warehouses; 1,400 distributors; 44 branch &
regional offices. The company exports its products to Europe, US, Middle East, Far
East countries, African countries and Asia.
Financials
After a lull period of FY09, Nilkamal has managed to bounce back with its FY11 net
sales expanding by 21.5% with PAT growing by 11%. Its plastics business suffered
a set-back in FY11 due to high raw material prices which increased by 20% yoy.
Raw Material cost forms a major portion (66% of net sales). With the recent drop in
crude oil prices, margins are expected to improve in the coming quarters with a lag
effect. Going forward, the management expects 15-20% growth in Moulded
Furniture business and a 15% growth in Material Handling business. It is looking at
improving its margin to 14% to 15% in coming years.
Growth Drivers
• Moulded plastics industry is one of the fastest growing industries, increasingly
substituting other materials like wood and penetrating major sectors like
building and construction, transportation etc. We anticipate that the Company
being a market leader and having national presence will benefit immensely
from the India consumption story.
• Nilkamal is the No.1 player in the moulded furniture business with a 38%
market share and is 2.5-3x bigger than the No.2 player. The moulded furniture
business contributes 38% to the total revenue. Its Material Handling business
has a market share of 70% and Nilkamal is a market leader with size 2.5 x
bigger than its closest competitor. It contributes 47% to the total revenues.
• In 2005, Nilkamal has made a successful foray into Life Style furniture
retailing business through its @home retail ventures. It currently operates 17
stores across 12 cities covering an aggregate carpet area of 268,831 sq.ft. It
broke even at the operating level in FY11. The management expects 25%
growth in FY12.
• It plans to enter Monolithic construction business where it senses huge
opportunity as usage of plastics instead of metals is expected to reduce the
construction cost by 20%. Nilkamal does not need a capex for this business.
Margins are more than 15%. Sintex, CCC, Man Infra are some of the players.
• We are comfortable with Nilkamal’s Debt: Equity ratio of 0.83x which has
reduced from 1.54x in FY08. With major capex already undertaken in the last
few years and no major capex planned for the ensuing years, we expect
strong cash accruals and improvement in its working capital going forward.
Valuations:
It is currently trading at P/E of 7.4x based on TTM earnings which is lower than its
peers like Time Technoplast and Supreme Industries which cater to mainly
institutions (characterized by higher EBIDTA margins) as against Nilkamal which
caters to mainly retail segment. Its sound financial structure and improving
operating performance (reducing working capital, increasing sales from @home)
along with a dividend paying history makes Nilkamal a good investment bet.
Technicals
Nilkamal has rallied from Rs 42 to Rs 442 in just eighteen months gaining ten
times. Subsequent ten months of consolidation has given enough leg room for this
stock that too after correcting approximately 50% at Rs 240 levels. We opine that
this stock is now poised to regain the lost ground and continue its upward journey.
Rs 240 would act as strong support, 50% Fibonacci level, while immediate
resistance is at Rs 288 and later Rs 300 would be hurdle.


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Way2Wealth :: Diwali Picks 2011