20 February 2012

Triveni Engineering & Ind.:: Higher sugarcane price hurts profits :Centrum

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Higher sugarcane price hurts profits
Triveni Engineering & Industries’ (TEIL) Q1SY12 result was below our
estimates with EBITDA at Rs215mn against our estimates of Rs449mn and
operating margin at 5.1% vs. est. 10.1%. EBITDA was adversely impacted due
to inventory (of previous year) valuation write-down of Rs250mn. The
company reported adjusted loss (adjusted for Rs790mn paid for sugarcane in
crushing season 2007-08 after the recent Supreme Court judgment) of
Rs108mn against profit of Rs16m in Q1SY11. Sugar business during the
quarter was impacted because of higher sugarcane price coupled with lower
sales volume (down 19.5% YoY) and reported EBIT level loss of Rs229mn
against profit of Rs59mn in Q1SY11. In the Engineering segment, Gear
business was adversely impacted due to general economic slowdown and
reported revenue decline of 24.4% YoY and EBIT decline of 39.8% YoY to
Rs42mn. However, the management expects the performance of this division
to improve in Q2 as it believes that off-take by OEMs should improve going
forward. We believe that the profitability of the company would be under
pressure given the higher State Advised Price (SAP) (Rs240/quintal vs.
Rs205/quintal in SY11) fixed by the Uttar Pradesh State government and
pressure on sugar prices as higher production is expected in SY12E. However,
we maintain Buy rating on the stock on account of attractive valuations with
target price of Rs23 (upside of 20.6% from CMP).
􀂁 Disappointing performance of sugar segment: Sugar division reported EBIT
level loss of Rs229mn against profit of Rs59mn in Q1SY11 (and Rs157mn in
Q4SY11) driven by 19.5% YoY decline in sales volume to 0.10mt and higher
sugarcane price paid to farmers after the increase in SAP (State Advised Price)
by the Uttar Pradesh government. The profit was impacted adversely due to
inventory (of previous year) valuation write-down of Rs250mn. Realization of
sugar improved 6.5% YoY to Rs28.5/kg.
􀂁 Improvement in realization leads to better performance of distillery
segment: Led by 2x YoY sales volume increase and 20.6% YoY in realization,
revenue from the distillery segment went up 141.9% YoY to Rs310mn. EBIT of
this segment increased 4.8x YoY to Rs55mn and EBIT margin improved 878bps
YoY to 17.7%.

CAPGEMINI Feeling the offshore heat :: Edelweiss

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Capgemini’s H2CY11 revenue at EUR4.9bn, up 10.1% YoY, was marginally
ahead of the Street estimate, while it surprised on the operating
profitability side. Its operating profit, stood at EUR355mn (operating margin
of 7.2%). For the full year CY11, it reported growth of 11.5% including
inorganic (organic growth of 5.6%). It has guided for limited organic growth
(Street estimates 2%) in revenues for CY12 as it believes delay in decision
making, uncertain macro‐economic environment, coupled with higher
competition from Indian vendors, could further decelerate growth. The
positive from the result is guidance for better margin in CY12.
Delays in closure impacting growth
Although the company is seeing opportunities in the market, delays in decision making
are impacting project closure. This is also reflected in the deceleration in order book
which has declined on a YoY basis for the past three quarters. Management stated that it
continues to witness pressure in its public sector vertical (~24% of revenues) and pricing
continues to be under pressure. Thus, although it ended CY11 on a strong note, owing to
reduced visibility and uncertain macro‐economic environment it has guided for limited
organic growth in revenues for CY12.
Commentary positive for North America
Capgemini saw significant traction in North America as revenues grew 15.2% QoQ.
Further, management indicated that they recorded a strong January month with better
activity level. Demand environment certainly remains less buoyant compared with H1 of
last year but market segment remains similar to Q4CY11 with select pockets of weakness.
The company is confident of sustaining growth momentum in the geography given a
healthy beginning in January.
Outlook: Feeling the offshore pressure, advantage Indian peers
Clearly, Capgemini’s new order booking is being hit by stiffer competition in outsourcing
deals where Indian vendors have become aggressive and weakness in spending in the
government vertical. Further, management commentary indicated that clients in some
parts of Europe are massively opening up to outsourcing (structural positive for Indian
vendors) corroborating to commentary and performance of some Indian vendors.
However, in the near term, delayed decision making is likely to hit growth.

IVRCL Infrastructure :: TP: INR71 Buy ::Motilal Oswal

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 IVRCL Infrastructure's (IVRCL) 3QFY12 performance was significantly below expectations with revenue declining
15.2% YoY to INR12b, lower than our estimate of INR14.4b. Revenue growth was impacted by lack of clearances,
slow decision-making and unseasonal rains.
 The company reported EBITDA of INR948m (down 32.5% YoY) v/s our estimate of INR1.3b. EBITDA margin was
7.9% (down 200bp YoY) v/s our estimate of 9%. Margin was impacted by lower fixed-cost absorption. PAT
plunged 84% YoY to INR68m compared to our estimate of INR132m.
 Interest cost stood in 3QFY12 increased 11% YoY to INR661m from INR592m in 3QFY11, and INR652m in 2QFY12.
Interest cost was significantly below our estimate of INR840m. Depreciation increased 15% YoY to INR229m.
Debt as at end-3QFY12 was INR25b, up from INR21b in 4QFY11, and INR14.5b at end-FY10.
 Order book at end-3QFY12 was INR260b (including L1 orders of INR40b). Order intake during the quarter stood
at INR34b (up 68% YoY), contributed by Water & Irrigation projects (22% of total), Buildings (12%), Transport
(29%) and Mining (36%).
 9MFY12 order intake is INR65b (down 12% YoY). In Jan-Feb 2012, order intake was INR42b, taking the total for
YTDFY12 to INR107b (v/s INR89b for full year FY11). This includes 4 major orders: (1) INR12b order from
Hindustan Copper for the development of an underground mine of 5mtpa capacity at Balaghat, Madhya
Pradesh, (2) INR14.8m project from Ministry of Road, Transport and Highways, as part of Trans-Arunachal
highway project, (3) INR12b project including 4/6-laning of the Raipur-Bilaspur section of NH-200 in the state
of Chattisgarh; and (4) INR12b road project for 4-laning from Government of Haryana.
 We have cut our revenue estimates by 7% for FY12 and by 4% for FY13 to factor in lower-than-expected
revenue traction in 3QFY12 and likely subdued performance in 4QFY12. We have also lowered our EBITDA
margin estimates by 40bp for FY12 and by 10bp for FY13. Our revised EPS estimates are lower by 11% for FY12
and by 2% for FY13. We maintain Buy with an SOTP-based target price of INR71, valuing the core business at
INR39 (6.5x FY13E EV/EBITDA), IVRC Assets at INR27 and HDO at INR5.

Puravankara Projects: 3QFY12 earnings in line; cash flow to improve: Nomura research,

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Puravankara reported 3QFY12 results that were ahead of our estimates
on the top line, below on margins and in line in terms of earnings.
However, operationally, the quarter was weak, with sales volumes -21%
and sales value -20% q-q due to the lack of new launches, while sales in
older projects remain slow. The situation in 4QFY12 is expected to be
better though as the company has launched Provident Harmony in
Bangalore and plans to launch Purva Seasons soon in Bangalore too.
We remain positive on the company given our expectation of an
improvement in cash flows over the next 18 months and cheap
valuations at a 53% discount to NAV.

Grey market premium, Feb 20 :MCX IPO


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Grey market premium :MCX IPO


Price Band MCX IPO: Rs 860 to Rs 1,032

 Latest GMP MCX ipo Rs 260- Rs 270
 Kostak Buyer of Rs 3,500

 Expected retail over subscription: at least 10 times

 Apply maximum amount (if you have money) to get full benefit!

ACCUMULATE Nagarjuna : Target Rs 60: Kotak Securities

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NAGARJUNA CONSTRUCTION COMPANY (NCC)
RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.60 FY13E P/E: 17.8X
Result highlights: Revenues of the company were lower than our estimates
while operating margins were also impacted by higher costs and lower than
expected execution. Company posted net loss for the quarter and
profitability was impacted by high interest outgo and came much lower
than our estimates. Order inflow till now is lower than estimates. We
reduce our estimates and downgrade the stock to ACCUMULATE from BUY
earlier on the stock. We expect stock to underperform till order inflow,
execution ramps up and interest rates come down.
q Revenues declined by 5% YoY due to lower execution on account of lack
of order inflows, adverse macro-economic scenario of high interest rates
as well as labor unavailability.
q Operating margins stood at 6.1%, lower than our estimates. Company
has also lowered its full year operating margin guidance from 9.5-10%
earlier to 8.5% now.
q Earnings were impacted by higher interest outgo as well as lower than
expected execution and margins.
q We cut our FY12 and FY13 estimates to factor in poor performance witnessed
during 9MFY12. At current price, stock is trading at 17.8x P/E and
8.4x EV/EBITDA on FY13 estimates. Continued high interest rates coupled
with high working capital cycle during the fiscal has been impacting net
profit margins adversely for the company. We downgrade the stock to
ACCUMULATE from BUY earlier with a revised price target of Rs.60 (Rs.80
earlier)

NESTLE GLOBAL Emerging markets steal the show :: Edelweiss

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Nestle Global’s revenue declined 7.2% to CHF42.6bn in H2CY11; results are
not strictly comparable as CY10 numbers include contribution from Alcon
business. However, excluding Alcon, revenue decline was restricted to 4.7%.
For H2CY11, organic growth stood at 7.5% (H1CY11: 7.5%). The company’s
trading operating margin improved 20bps YoY for H2CY11 to 14.8% (up
90bps YoY in constant currency on continuing businesses) despite severe
cost pressure and intensified competition aided by price hike (CY11 price
hike of 3.6%). Emerging markets sustained robust performance, posting
13.3% growth YoY against 4.3% YoY growth in developed markets. To drive
growth, the company is looking to exploit the Chinese market, for which it
has established two new partnerships.
Good growth across zones
In CY11, America posted 6.2% organic growth led by double digit in LatAm with Mexican
market being a key highlight; margin declined 30bps YoY. European business grew 4%
organically, clocking sales of CHF15.2bn; margin improved230bps YoY driven by growth in
Western Europe, price hikes and efficiencies. Led by strong performance in emerging
markets, the Asia, Oceanic and Africa business (AOA) posted 11.9% organic growth with
sales of CHF15.3bn; operating margin improved 90bps YoY to 18.9% primarily due to
innovation, renovation and investments in distribution, manufacturing and procurement.
Emerging markets fuel growth
Focus of the company on emerging markets is evident with Nestle investing 50% of total
capex (CHF4.8bn) in these markets which contribute 41% of sales (post Chinese
partnership). The company intends to attain 50% of its sale from emerging markets by
2020. It has been scaling up in categories where it has good market share and higher
returns and at the same time building capabilities for new categories, further enhancing
returns in the future. 13.3% organic growth in emerging markets in CY11 (Nestle India
sales growth: 19.8%) stands out in comparison with the company’s 7.5% blended growth.
Outlook: Challenging
CY12 is likely to be a tough year due to economic uncertainties and the company expects
to deliver organic growth of 5-6% in CY12. However, we believe due to the diversified
nature of its products, the strong global distribution network and continued investments
in high growth emerging markets, the company will be able to navigate rather efficiently
through the difficult economic times. We believe, the company can expand their product
portfolio in India by introducing its Pizza brand DiGiorno, skinny cow range of snacks and
peelable ice cream (with Haagen-Dazs already introduced).

Andhra Bank: An improved performance :: Kotak Securities

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Andhra Bank (ANDB)
Banks/Financial Institutions
An improved performance. Andhra Bank reported a strong quarter with slippages
declining to 2% from 6% in 2QFY12 and gross NPLs declining qoq despite lower writeoffs.
Outstanding restructured loans increased 80 bps qoq to 5% of loans due to one
corporate exposure. We expect credit costs to remain high due to high exposure in the
power portfolio. Attractive valuations, healthy NIMs, strong cost-structures and
conservative credit costs were primary factors behind retention of our BUY rating

Corporation Bank: NIM expansion cushions credit costs :: Kotak Securities

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Corporation Bank (CRPBK)
Banks/Financial Institutions
NIM expansion cushions credit costs. Strong NIM expansion qoq (23 bps) enabled
the bank to provide for higher credit costs for the quarter. Reduction in wholesale funds
should comfort NIMs at current levels and provide for higher-than-expected credit costs.
Slippages for the quarter declined to 1.8% and driven by one large corporate segment.
Valuations are attractive at 0.7X book and 4X FY2012 EPS delivering RoEs of 17-18%
and EPS growth of 6% CAGR over FY2012-14E. Maintain BUY.

ACCUMULATE Bajaj Electricals:: price target of Rs 190 ::Kotak Sec

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BAJAJ ELECTRICALS LTD (BAEL)
PRICE: RS.171 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.190 FY13E P/E: 11X
q BAEL has reported Q3FY12 results in line with our estimates driven by
lighting and consumer durable segment.
q Engineering & Project segment reported muted sequential profit growth.
Margins continue to remain under pressure for the segment on account
of delay in pick up in major infrastructure projects in India.
q Pick-up in demand for lighting and consumer business in tier ii cities
augers well for company's growth. However rising interest rate and input
price trend would remain the key variable to monitor for next few
quarters.
q We tweak our estimates upward for FY13 to factor in margins stabilizing
at current levels and improvement in working capital for 2HFY13.
q In view of limited upside from current levels, we change our recommendation
to 'Accumulate' (from 'BUY' earlier) on the company's stock with
a one year DCF based revised price target of Rs 190 (Rs 180 earlier).

Muthoot Finance: Strong results, retain BUY :: Kotak Securities

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Muthoot Finance (MUTH)
Banks/Financial Institutions
Strong results, retain BUY. Muthoot Finance reported PAT of Rs2.5 bn, up 77% yoy
and 2% above estimates. Strong (66% yoy) growth in loan book, somewhat lower NIM
and operating expenses were key drivers. We revise estimates to factor higher margins;
retain BUY will price target of Rs240 (Rs230 earlier). Sharp decline in gold prices
provides a risk to growth and earnings.

DLF: 3QFY12 disappointing; debt reduction to be slow:: Nomura research,

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DLF’s 3QFY12 earnings disappointed all round as the company’s
change in execution strategy mid-stream in favour of third-party
contractors resulted in a lower execution run rate in 3QFY12. The
disappointment was accentuated by a higher-than-anticipated interest
cost and a high tax rate, resulting in earnings missing estimates by 33%.
The balance sheet was a bigger disappointment as net debt remained
flat even while there was an inflow of INR 12bn from the sale of assets.
This was primarily on account of lower operational cash flows resulting in
interest payments being met from the asset sale cash flow, along with
INR 3.7bn of land purchase.
Operationally, however, the quarter was in line with the company selling
3.3mn sq ft of projects while completing construction on 9.5mn sq ft of
projects, which are now ready for delivery. The sales though were
primarily from lower value plotted land, mainly in Lucknow.
Where to from here?
The company’s strategy to reduce debt through asset sales should have
been supported by the operational cash flow taking care of interest
payments and land purchases. Unfortunately, at this point the slowdown
in the property market and the transfer of ongoing projects to third-party
contractors for construction has resulted in slow sales and lower
execution, affecting operational cash flow. Thus the asset sale cash flow
is being diverted to make interest payments and land purchases.
It is imperative for the company to improve its operational cash flow
through more sales and faster execution. Both, in our opinion, may not
happen for the next two quarters as new launches of housing projects
are likely to be slow till interest rates in the economy are cut, while the
contractors will also take time to pick up the pace of execution on
ongoing projects.
In this situation reduction in debt will remain limited and in the absence
of asset sales in the near term, could even increase. However, the
company’s target of INR 60bn of asset sales for FY13F remains with
three key assets, Aman Resorts, the hospitality business and the wind
power business, which are likely to contribute INR 50bn of the same.
The sale of these assets at the required valuation though depends on
the macro environment both globally and locally improving and hence
could take time.
Overall, the company’s performance both in terms of the P&L and
balance sheet could remain muted over the next two quarters. We
maintain a BUY rating as we expect to see a better macro environment
in 2HFY13F and asset sales and debt reduction taking place.
Parameters to monitor
 Improvement in operational cash flow to a level at least enough to
meet interest payments.

Shree Renuka Sugar: Hold Target : 38 : ICICI Securities, pdf link

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http://content.icicidirect.com/mailimages/ICICIdirect_ShreeRenukaSugar_Q5SY12.pdf


H i g h e r   d e b t   r e m a i n s   a   b i g   c o n c e r n …
Shree Renuka Sugars posted a second consecutive quarter of dismal
results with the company posting a loss of | 85 crore (adjusted exceptional
items). Net sales witnessed de-growth of 17.7% on the back of domestic
volumes declining due to lower refinery sales. However, EBITDA margins
improved to 16.2% compared to 12% in Q1FY12 and 10.5% in Q4FY12.
The margins expanded due to improved margins in both Indian and
Brazilian operations. Interest cost  increased by 46.8% due to higher
interest rates and rising debt levels for the working capital requirement in
India. Depreciation provisioning also increased after the completion of
25,000 hectare of sugarcane plantation in Brazil. There was an exceptional
profit to the tune of | 429 crore with respect to the reversal of exchange
loss primarily incurred in the quarter ended September 2011. Adjusting the
exceptional gain, the company posted a loss of | 85 crore as compared to
the profit of | 128.1 crore in Q1FY12.
ƒ Standalone performance
SRSL’s net sales for the quarter witnessed a significant decline of 36.5%
to | 712.2 crore as compared to | 1121.3 crore in Q1FY12 on the back of a
decline in sugar sales volumes due to lower production through refinery.
Sugar sales dipped from | 836.8 crore to | 451.7 crore. However, EBITDA
margins improved from 8.7% to 14.8% due to lower cost of sugarcane in
Maharashtra. The company is paying ~| 240/quintal, which is ~25%
lower than UP-based sugar millers as the average recovery through
sugarcane in Maharashtra is ~11.5%.
V a l u a t i o n
Despite a better operational performance compared to Q4FY12, the
company is making losses at the consolidate level. Consolidated debt for
the company is at | 9300 crore and still increasing QoQ. We believe high
debt levels continue to remain an overhang on the stock. The company
needs to de-leverage its balance sheet for higher earnings growth in
future. Hence, we remain cautious on the stock and maintain a  HOLD
rating with a target of | 38/share.

Sector reports- PDF link: Auto, banks, real estate, telecom:: Kotak Securities

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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily17022012.pdf


Sector
Automobiles: Volume growth likely to remain subdued
Banks/Financial Institutions: Trudging along
Property: Elusive cash flows
Telecom: Rear-view: a look back at 3QFY12 earnings reports

Kingfisher Airlines :: ICICI Securities, pdf link

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M a r k e t   s h a r e   f a l l s ,   o pe r a t i n g   l o s s   w i d e n s …
Kingfisher Airlines (KFA) reported consolidated revenues of | 1,342 crore
(down 19.1% YoY) that were marginally lower than our estimated
revenues of | 1,406 crore due to a sharp decline in passenger traffic. It
declined by 16% YoY on account of a 13% YoY reduction in number of
flights. Flight cancellations by the company also affected passenger
sentiment negatively. International operations, that accounted for 27% of
total revenues, have also been impacted negatively. Revenues in this
segment declined by 9.0% YoY due to a 13% decline in passenger traffic
despite a 6% YoY increase in the number of flights. On the cost front, the
operating cost rose 7% YoY led by  36%  and  12%  rise  in  fuel  cost  and
lease rentals, respectively. As a  result, the company reported an
operating loss of | 350.5 crore vs. our estimated operating loss of | 240
crore. In addition, interest cost continued to remain higher and also rose
by  2.2%  on  account  of  a  rise  in  the debt burden. However, a sharp spurt
in other income to | 200 crore vs. | 17.3 crore (Q3FY11) and | 102 crore
(Q2FY12) helped to taper its loss for the quarter.
ƒ Losses in market share due to sharp supply cuts
KFA’s domestic market share declined sharply by 470 bps YoY to
14.2% as the company cut down capacity of flights by 15% YoY
during the quarter. This move also impacted passenger sentiments
negatively. As a result, its market share at the end of December
2011 dipped further to 12.1%.
V a l u a t i o n s
At the CMP of | 27, the stock is trading at 1.5x and 1.3x its FY12E and
FY13E EV/sales, respectively. We continue to place KFA’s rating and
target price under review as rising concerns on the company’s liquidity
crunch due to heavy operational losses in the past few quarters have
undermined investor confidence in the past few months. Although the
recent positive policy reforms like allowing ATF import directly by Indian
carriers and 49% FDI by foreign carriers has improved the scope for long
term growth of the sector, fund infusion by the KFA promoter remains a
crucial issue for effective running of the business. Hence, unless we see
any positive development on this front, we continue to keep our rating
UNDER REVIEW on the stock.

Adhunik Metaliks, Hold Target :Rs 58:: ICICI Securities, pdf link

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http://content.icicidirect.com/mailimages/ICICIdirect_AdhunikMetaliks_Q3FY12.pdf


P e r f o r m s   w e l l   o p e r a t i o n a l l y …
Adhunik Metaliks’ (AML) Q3FY12 performance was broadly above our
expectations. Consolidated net sales came in at | 476.6 crore (growth of
9.5% YoY and 6.4% QoQ) in line with our expectation of | 475.1 crore.
The consolidated EBITDA margin during the quarter under review was at
25.6%, higher by 760 bps QoQ but lower by 810 bps YoY (our
expectation: 23.0%). The standalone EBITDA increased sharply by 1440
bps QoQ to 19.2% in Q3FY12 as compared to 4.8% in Q2FY12. As a
result, the subsequent consolidated EBITDA came in at | 122.0 crore (I
direct estimate: | 109.3 crore) recording a dip of 16.8% YoY but higher by
51.5% QoQ. The ensuing consolidated PAT came in at | 23.1 crore.
ƒ Operational performance
In the standalone entity, overall sales volumes increased 12% QoQ
to 94696 tonnes. The sized ore sales volumes were higher by 28.8%
QoQ to 228546 tones while the manganese ore sales volumes were
also lower by 32% QoQ to 12656 tonnes.
V a l u a t i o n
We have valued the stock on an SOTP basis where we have valued AML
at 5.0x FY13E EV/EBITDA, Orissa Manganese & Minerals Ltd (OMML) at
4.5x FY13E EV/EBITDA and taken a  20% holding company discount for
valuing the investment in the power business. Subsequently, we have
arrived at a target price of | 58 and maintained our HOLD rating.

Buy Unity Infraprojects; Target : Rs 73:: ICICI Securities, pdf link

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http://content.icicidirect.com/mailimages/ICICIdirect_UnityInfraprojects_Q3FY12.pdf


Strong margin show…
Unity Infraprojects’ (Unity) Q3FY12 results were above our estimates as
the company reported superior margins of | 14.5% vs. our estimates of
13%. The order book stands at | 3,932 crore (2.2x order book to bill ratio),
which should improve further with materialisation of L-1 bids (~| 1015
crore). We highlight that Unity has  bucked the trend and continued to
deliver superior results vis-à-vis its peers. With plans to raise | 175 crore
from stake dilution in two SPVs and a possible rate cut in H2CY12, Unity
could further benefit in terms of  debt reduction and interest cost,
respectively. We maintain our BUY recommendation on the stock with a
target price of | 73 per share.
ƒ Another positive surprise on EBITDA front
Unity’s revenues grew 9.9% YoY to  | 489.6 crore in Q3FY12, slightly
below our expectation. However, net profit at | 24.7 crore was higher
than our estimates mainly due to superior margins. Unity again posted
superior margins of ~14.5% vs. our estimates of ~13%.
ƒ Order book at | 3,932 crore, 2.2x order book to bill ratio
Unity’s order book stood at |3,932 crore, 2.2x order book to bill ratio (on
TTM basis). The current order book implies inflow of ~| 1690 crore in
YTDFY12. In terms of L-1 bids, it  currently stands at | 1015 crore. The
company is well poised to achieve or even surpass its order inflow
guidance of ~| 2,000 crore for FY12.
ƒ Looking to dilute stake in 2 SPVs and raise | 175 crore
Unity is looking to dilute its stake in the Bengaluru land bank of 20 acres,
which it holds in JV and a hotel project in Nagpur. It is planning to raise
| 175 crore from the same. Additionally, the company also has ~39 acres
of another land parcel Bengaluru. The company has not provided any
further details on the same as the plans are at a nascent stage.
V a l u a t i o n
At the CMP, the stock is trading at 3.4x FY13E EPS and 0.5x FY13E P/BV.
Unity has continued its superior performance. We believe it is expected to
perform better than other construction companies in the challenging
environment. Hence, we maintain our BUY recommendation on the stock.
We have valued the stock at | 73 per share (4.2x EV/EBITDA, 30% discount
to leading midcap construction companies).

PDF link - GSK Pharma, voltas, India strategy:: Kotak Securities

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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily17022012.pdf


Results
GlaxoSmithkline Pharmaceuticals: Lower margin leads to PAT miss

Results, Change in Reco
Voltas: Upgrade on cash flows, inflows and recovery even as challenges remain


Strategy
Strategy: Another ho-hum quarter; expectations of earnings upgrade cycle
premature

Power sector update:: ICICI Securities, pdf link

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http://www.icicidirect.com/mailimages/ICICIdirect_Power_SectorUpdate_February2012.pdf


PMO   d i r e c t i v e   o n   F S A ,   a t  wh a t   c o s t ? ? ?
The Prime Minister’s Office (PMO) has directed Coal India to sign fuel
supply agreements (FSA) with  power plants commissioned till
December 2011 by March 2012. In the event of supplies dropping below
80% of the contracted value for these FSAs, Coal India will have to pay
a penalty but will be incentivised to provide 90%. For power plants,,
which are expected to be operational before March 31, 2015 and have
long term PPAs, Coal India will sign FSAs for 20 years. The directive also
states that in case of a shortfall (which we believe there will be), Coal
India would arrange for supply of  coal through imports or through
arrangement with state/central PSUs that have been allotted coal
blocks.

Our view is that while this directive is a step in the right direction
(previous measure like Shunglu committee reports were also in the
right direction), the question boils down to implementation. We believe
there are a few questions, which power producers are grappling with:
1) Where is incremental coal going to come from?
2) At what price?
3) Will companies with coal blocks  ramp up coal production to
augment supplies? At what price should they sell coal?
4) Does  infrastructure  in  India,  support  coal  movement  from  coal
mines to power stations or from ports to hinterland?

We spoke to the managements of  some of the companies (Reliance
Power, JPVL) to get their perspective regarding the above issues.
Following are the key takeaways
1) The entire exercise of making Coal India sign an FSA was to make the
monopolistic producer Coal India more responsible
2) As regards augmenting supplies for near term to power producers i)
Coal India can divert e-auction coal to power producers ii) There are
some thermal plants, which are inefficient in nature as regards coal
consumed per unit of power produced. So, rationalise supplies to
them and divert coal to newly commissioned projects iii) Import coal
– As a big buyer like Coal India will be attract discount to market price
3) Over the long term, projects (coal mines) stuck up in environmental
clearances or go no go area have to get go ahead in order to improve
long term coal supply within the country
4) The view on price was it would be blended price – which shall be a
complete pass through to SEBs (power price will go up as a result of
“this “ cost push but tariff hikes by states would ensure no back
downs)
5) There is a possibility that private companies who have got captive
mines (operational) will be allowed to ramp up production and sell it
to nearby projects
6) Regarding transport of imported coal, companies do agree that there
are infrastructure bottlenecks for inland transportation. However, in
the interim, there can coal be swapping agreements wherein plants
near coastal areas (who have got linkage coal from Coal India) can
use imported coal and inland projects use Coal India’s coal

Oil India:: Buy Target :Rs 1490 ICICI Securities, pdf link

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http://content.icicidirect.com/mailimages/ICICIdirect_OILIndia_Q3FY12.pdf
H i g h e r   s u  b s i d y   s h  a r e   i m p a  c t s   p r o f i t a b i l i t y…
Oil India (OIL) declared its Q3FY12  results with revenues at | 2,589.8
crore, EBITDA at | 1,428.2 crore and PAT of | 1014 crore. The results
were below our expectations mainly on account of higher upstream share
at 47.1% of gross under-recoveries (our estimate: 33.33%). OIL’s share of
the total upstream companies’ subsidy burden was 12.1% in Q3FY12 at
| 1853 crore. Higher upstream share resulted in net crude oil realisations
decreasing by 15.1% YoY and 33.9% QoQ to US$57.02/barrel in Q3FY12.
The EBITDA margin grew 430 bps QoQ to 55.1% mainly on account of
lower staff costs and other expenditure. The depreciation expense
declined by 51.1% QoQ to | 288.7 crore, mainly due to lower write-offs of
dry wells. We have assumed the subsidy sharing ratio of upstream
companies at 38.7% for FY12E and  FY13E. We have maintained Oil
India’s share among upstream companies at 12.2%, going forward. We
recommend a BUY rating on the stock, with a price target of | 1490,
which implies 9.3x average of FY12E and FY13E EPS.
ƒ Highlights of the quarter
The crude oil production increased 2.8% YoY to 6.88 mmboe in
Q3FY12 while the gas production  increased 9.7% YoY to 676
mmscm. Other income increased by 35.4% YoY to | 375.6 crore on
account of higher cash balance with the company. The company
has also announced a bonus issue where it will reward the
shareholder with three shares for every two held in the company.
Additionally, the company has declared a dividend of | 10 per share,
in addition to the interim dividend of | 25 per share paid earlier.
V a l u a t i o n
Oil India continues to perform well operationally, which is reflected in its
crude oil and gas sales growth. We believe Oil India’s strong reserve base
reflects significant growth potential. OIL’s strong balance sheet in terms
of cash position and negligible debt provides support for value accretive
overseas acquisitions. The stock is trading at 8.4x FY12E and 8.0x FY13E
EPS of | 156.3 and | 164.0, respectively. We recommend a BUY rating on
the stock, with a price target of | 1490.

PDF link - Time technoplast, Voltas:: Kotak Sec,

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http://www.kotaksecurities.com/pdf/dmb/MorningInsight17022012.pdf


TIME TECHNOPLAST (TTL)
RECOMMENDATION: BUY
TARGET  PRICE:  RS.58
CONS. FY13E P/E:8.3X


VOLTAS LTD
RECOMMENDATION: ACCUMULATE
TARGET  PRICE:  RS.122
FY13E P/E: 12.2X



SUN PHARMACEUTICALS USD960mn penalties on Protonix At‐risk launch :: Edelweiss

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Wyeth has sought claims worth USD960mn from Sun Pharma in its
ongoing patent dispute over an at‐risk Protonix generic launch. Wyeth has
also made a similar claim against Teva for a total consideration of over
USD2.1bn. Both Teva and Sun Pharma believe that their respective case is
strong enough to be defended in a federal court. We believe that Sun
Pharma will defend its case vigorously yet if it loses the patent invalidity
case in a higher court, it will have to pay damages to Wyeth to the extent
of USD250mn‐300mn (INR12‐15 per share), as Sun launched the product
after Teva and the introduction of authorized generic (AG) at a price
which was higher than the launched generics.
Teva had launched at‐risk Protonix generic in Dec’07 following which Wyeth had
introduced the AG version of the same. Wyeth lost nearly USD3.2bn sales in 27 months
of the generic entry while at 40% profit, it lost USD1.3 bn of profit. Hence, Wyeth is
claiming triple suit damage to the extent of USD3bn (3x of loss of profit).
Sun Pharma had launched this product in Jan’08 after the launch of Teva and Wyeth AG
and at a higher price than Teva and AG. We believe that Sun Pharma had revenue of
USD250mn‐260mn during the 27 month period as both Teva and Sun Pharma withdrew
this product from the market (April’10) once they lost the case in a district court.
Edelweiss view: Damage claim limited; maintain ‘BUY’
We believe that the damage claim should be far lower since Sun’s generic launch was
after the entry of Teva and Wyeth generics, and at a higher price than the launched
generics. Moreover, generics entry has helped reduce US health expenditure
substantially while the nation’s overall pro‐generic approach should also help limit
damage claims. We estimate a damage claim of USD250mn‐300mn for Sun in the worst
case scenario of an unfavorable outcome. Sun Pharma has a cash of USD1bn as on 31st
December’2011. We remain positive on the base business and maintain ‘BUY’.

TELECOM Policy guidelines – No surprises, marginally positive ::Edelweiss,

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India Telecom Minister Mr. Kapil Sibal has outlined some guidelines as
part of the National Telecom Policy in a press conference. Most of the
recommendations made by the TRAI have been accepted. There are
marginal positives though including the auction prices to be used for
imposing excess spectrum charges as against the TRAI prescribed pricing
and the decision to impose license fee on towercos being deferred.
Key guidelines are:
• Excess spectrum fees – The Minister indicated that TRAI will come up with
guidelines as ordered by the Supreme Court, implying that auction prices would be
used for imposing excess spectrum fees as against a TRAI prescribed price. In our
view, auction prices are likely to be lower than the one offered by TRAI hence this
is a positive. We estimate that the negative impact of excess spectrum fees based
on TRAI pricing on DCF of Bharti at INR13 per share and Idea at INR6.
• Spectrum re‐farming ‐ Approved in‐principle, but will issue guidelines later on.
• Uniform license fees – To impose a uniform license fee of 8% of revenues. This
would add INR8 to Bharti’s DCF and INR7 to that of Idea. TRAI had recommended a
phased reduction to 6%, but DoT wanted it at 8%. No surprises.
• Spectrum cap prescribed – The quantum of spectrum an operator can hold is
capped at 10MHz for Delhi and Mumbai, and 8MHz for rest of India. But the
operator can acquire more spectrum through auctions and M&A. Bharti has
10MHz spectrum in Andhra Pradesh and Karnataka, and 9.2 MHz in Tamil Nadu
and Bihar. No implication is seen since it would have paid charges for excess
spectrum at the auction prices. Instead, it would have to surrender this now and
win it back in auctions. This is based on TRAI recommendations.
• M&A guidelines ‐ Automatic approval for merger between operators with a
combined market share of up to 35% subject to a restriction that the merged
entity cannot hold more than 25% of the spectrum allotted in that circle. If it does,
it would have to surrender the incremental spectrum within one year of the
merger. DoT would await detailed guidelines from TRAI for approving mergers
leading to market share between 35%‐60%. The DoT was earlier against mergers
that resulted in a market share of over 35%.
• Spectrum sharing ‐ To be permitted only between operators who possess
spectrum in circles. Spectrum leasing and trading will not be permitted though.
Again, like in M&A, spectrum sharing will not be allowed between operators who
already have 25% of the allotted spectrum in a circle. Sharing of 3G spectrum
would not be permitted either. Since the current case is pending with the TDSAT,
we believe, this would be more applicable to future allotments. This is in line with
TRAI recommendation and would lead to a reduction in cash outflow for spectrum.
• License fee on tower cos – Decision deferred for a later date. License fees on
tower cos at 8% of revenues would reduce the DCF of Bharti by INR10 per share
and of Idea by INR3 per share.

Do we need securities transaction tax? ::Business Line,

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Financial markets in our country, be it equity, commodity or currency, are still in the growth phase. Imposing transaction tax on these will only stunt their growth.
Securities transaction tax (STT) is a form of financial transaction tax (FTT) that has an equal number of proponents and opponents. The earliest proponents of FTT, Keynes and Tobin envisaged using such taxes mainly as a tool to curb speculation. But in recent years, many countries have used such levies to raise revenue. The ease of tax collection and zero possibility of tax evasion are some of the arguments in its favour. Opponents cry hoarse over such issues as reduction and migration of trading volumes.

GLOBAL EXPERIENCE

Many countries besides India, such as China, Indonesia, Italy, South Africa, South Korea and the UK charge tax on cash-based equity transactions. These taxes are applied on the market value of the shares and can vary between 10 and 50 basis points.
Many other countries have also experimented and done away with with FTTs in the past. The US eliminated STT in 1966, Germany in 1991 and Japan in 1999. Australia removed stamp duty on share transfers in 2001 and France removed STT in 2009. The main reason cited for removal of such levies was concern that funds will move out of the country stunting development of domestic capital market, given the increased globalisation of investor base.
India is also exposed to the risk of foreign institutional investors migrating to other markets with lower transaction cost. FIIs are a dominant force in our market, contributing 20-30 per cent of the daily turnover value. But FII turnover has been declining since the introduction of STT. Their activity in the cash segment is down 21 per cent over the last five years. Increase in volume of Nifty futures on Singapore stock exchange (Singapore does not impose transaction tax on equity futures) also underscores this view.

STT ON DERIVATIVES

Though many countries have imposed STT on delivery-based transactions, such taxes on equity derivatives are rare. Apart from India, the UK and Taiwan are the only other notable countries that tax equity derivatives. 
Why are countries more reluctant to tax derivative transaction? According to IMF working paper, authored by Thornton Matheson, imposition of transaction tax creates a ‘no trade zone' around the purchase cost. Investors will not respond to changes in asset price within this zone because the returns will be less that the transaction tax incurred. This reduces trading volumes. Another reason is that the transaction tax cost for a trader is a much larger portion of the returns when compared to a long-term investor who can play for larger gains. Since capital market or the cash-based trading segment is supposed to be populated by investors with a longer investment horizon, they can bear the impact of these taxes better. This explains why most countries shy away from taxing derivatives. India would also do well to follow this practice.

REDUCTION IN LIQUIDITY

Empirical studies have proved that higher transaction tax does reduce trading volume. Umlauf (1992) found that 100 per cent increase in Swedish STT in 1986 resulted in 60 per cent decline in 11 most actively traded stocks on Stockholm exchange. Baltagi and other (2006) found that when China increased in STT from 0.3 to 0.5 per cent in 1997, trading volumes declined by one third.
What has the Indian experience been with relation to volumes? As the accompanying table shows, cash as well as derivative volumes on the NSE are declining over the last five years. The value of shares traded in the cash volume on the BSE has also witnessed a similar contraction. While part of this shrinkage can be attributed to indifferent market conditions, STT cannot be ruled out as a cause.

SHIFT IN VOLUMES

Migration of volumes across markets and borders is another fall out of taxing securities trades. Umlauf (1993) and Froot and Campbell (1994) found that the Swedish transaction tax resulted in trading shifting from Stockholm to London stock exchange. Similarly, studies have shown that reduction of STT in Taiwan resulted in volumes moving from Singapore to Taiwanese exchange.
The increase in volumes in exchange traded currency futures and commodity derivatives over the last three years in India could partially be due to the impact of STT on equity derivatives. But it needs to be noted that both these segments are at a nascent high-growth stage.
That can explain the sharp increase in volume in these segments too. A greater concern is shift in FII trading out of the country as discussed above.

NEED OF THE HOUR

India has among the highest transaction costs globally on equity transactions and a significant portion of this is due to STT. It is also among the few countries that impose both stamp duty as well as STT on equity transactions. Obviously the government is out to milk equity investors to the utmost extent. And, then, the investors have to shell out fee to support the market regulator SEBI as well.
Expanding the base for STT to untaxed segments such as commodities or currencies is not the solution. Financial markets in our country, be it equity, commodity or currency, are still in the growth phase. Imposing transaction tax on these will only stunt their growth. And then there is the danger of FIIs shopping for lower-cost destinations too.
The government needs to decide whether it wants a healthy rapidly expanding equity market or a moribund stagnating one.
The fate of the divestment agenda this fiscal and the woeful performance of Indian equity in 2011, even as other markets were thriving, should be enough to give a wake-up call that things are going wrong here.
The first step can be removing STT imposed on equity derivatives. This can be followed by phasing out STT on capital market segment as well.
Loss in revenue of Rs 7,500 crore from STT may be compensated by many other long-term benefits — divestments can be made at higher prices, forex reserves may remain heathy and Indian companies may enjoy easier availability of equity funds.
The Government can also improve enforcement of capital gains tax collection to mitigate the impact of reduced STT revenue.

NSE/BSE closed today: 20-Feb-12 Mahashivratri

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Enjoy day off!

NSE/BSE closed today: 20-Feb-12 Mahashivratri

TEVA PHARMACEUTICALS - CY11 ends on a strong note :: Edelweiss

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Teva reported a strong set of numbers, in‐line with Street estimates, led by
acquisition of Cephalon and Taiyo (Japan), robust growth in branded
products and ROW markets. Teva has guided 20% revenue growth over
CY12 with incremental USD30bn value opportunities in the US, higher
generic penetration in Europe and stable growth in branded products.
Solid performance led by branded products, acquisitions
Teva numbers were in line with the Street guidance; sales at USD5.67bn (up 28.5%), EBIT
at USD1.7bn (up 35%) and EPS at USD1.59 (up 27%). US grew 32% led by the acquisition of
Cephalon while generics growth slipped 5% due to lower launches and price erosion. Teva
US generics benefited from the launch of Zyprexa and royalty from Ranbaxy on Lipitor.
ROW generics grew 81% while branded products expanded 68% YoY.
Irvine manufacturing to be fully functional by H2CY12
Manufacturing issues at the Irvine facility might get resolved soon and the facility would
be fully functional by H2CY12, as per management. This facility supplies critical sterile
products in the US which are currently facing drug shortages.
US pipeline: USD30bn value opportunities in CY12
Teva has guided for USD650mn incremental sales from the US in CY12 given the 40
product launches including Lexapro, Actos, Eloxatin, Avalide, Plavix, Seroquel, Provigil and
Singulair. The key product launch will be Lexapro (escitalopram).
• Expect generic Copaxone launch only in CY15
Teva expects generic entry in Copaxone (USD2.5bn) only by CY15. This could be a
potential negative for Natco since the Street has been building in a 50% probability of
the launch in FY13.
• Teva not building in generic Tricor launch in CY12; positive for Lupin
Teva has highlighted that despite holding a license from the innovator, it does not
expect Tricor (USD1.4bn) launch in CY12. We believe this could be positive for Lupin
as it has date certain agreement with Abbott and expects to launch it in 2HCY12.
• Combivir: Teva had launched Combivir (USD200mn) in Dec‐end and expects Lupin to
launch this product after six months exclusivity with limited competition.
• Relaunch of generic Eloxatin to be a big opportunity
Teva and Hospira have highlighted relaunch of generic Eloxatin (USD1bn opportunity)
as a large opportunity with 5‐6 players. Sun Pharma is likely to launch this product in
August’12 and could be a key revenue generator in FY13E.

Hold Mercator Lines (Target : Rs 34:: ICICI Securities, pdf link

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http://content.icicidirect.com/mailimages/ICICIdirect_MercatorLines_Q3FY12.pdf


C o a l   v o l u m e s   s p u r t …
Mercator Lines (MLL) reported an above estimate performance on both
the revenue and profitability front. On a QoQ basis, revenues spurted by
41% to | 1100 crore (I-direct estimate: | 830.3 crore) while net profit
increased by 250% to | 23.4 crore (I-direct estimate: | 10.8 crore). The
EBITDA margin declined QoQ by 320 bps to 15.5% (I-direct estimate:
18.1%) but EBITDA increased by 17% to | 170 crore on account of higher
revenues. The rise in revenues has been primarily driven by higher coal
volumes. MLL ramped up its coal trading volume during Q3FY12 and sold
1.9 million tonnes (MT) compared to 2.43 MT for H1FY12. Higher traded
volumes during the quarter have led to lower EBITDA margin. Though
interest and depreciation rose QoQ by 13% and 15% to | 54 crore and
| 103 crore, respectively, MLL was able  to  report  a  250%  increase  in  net
profit owing to an exchange gain of | 13.64 crore. Despite the continued
underperformance of the shipping business, MLL is relatively better
placed to ride the volatility due to  a major shift in the business model
towards the coal mining and trading business. We expect the contribution
to revenues from the coal segment to increase from 49% in FY11 to 57%
in FY13E reducing the impact of volatility in revenues due to uncertainty
in the shipping segment.
Fleet status
During Q3FY12, MLL acquired a dredger in November 2011. With this
addition, Mercator now operates 18 dry bulk carriers, eight tankers,
seven dredgers and one MOPU and one FSO.
V a l u a t i o n
Considering the significant ramp up in coal trading volumes (low margin
business), we have revised downward our FY12E and FY13E EBITDA
margin estimate from 19.2% and 18.5% to 17.0% and 16.5%,
respectively. Consequently, we  have revised downward our EPS
estimates for FY12E and FY13E by 18.6% and 18.7%, respectively. At the
CMP of | 32, the stock is trading at 6.9x FY13E EPS of | 4.6 and 0.3x
FY13E book value of | 97. We have valued the stock at 0.35x FY13E book
value to arrive at a price target of | 34. We recommend a HOLD rating on
the stock. Existing investors can also hold the stock.

SGX Nifty 5,647.50 +50.50 (Singapore exchange) Indian Markets to open UP today

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SGX Nifty 5,647.50 +50.50 (Singapore exchange)
7:30 AM India time
Feb 20, 2012
Indian Markets  to open UP today

Dishman Pharma: Improved performance of CRAMS business :Centrum

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Improved performance of CRAMS business
Dishman Pharma (DPCL) Q3FY12 numbers were above our expectation due to
marked improvement in CRAMS business. The company’s revenues grew by
12%YoY, EBIDTA margin by 990bps and net profit by 896%YoY on a smaller
base. The management is confident of improved performance in FY13 and has
revised sales guidance from 15% to 20%. DPCL’s three manufacturing
facilities for oncology, vitamin D and disinfectant formulations at Bavla went
on stream during the quarter. These are likely to contribute significantly in
FY13. We reiterate Buy for the scrip with a revised target price of Rs92 (based
on 6x FY13 EPS).
􀂁 Lower sales growth of CRAMS business: During the quarter, DPCL’s total revenues
grew by 12%YoY from Rs2.38bn to Rs2.66bn. The company reported 7%YoY sales
growth in CRAMS from Rs1.58bn toRs1.69bn due to the fall in domestic revenues and
Synprotec, UK. However, Carbogen Amcis (CA) reported strong growth of 29%YoY from
Rs795mn to Rs1,023mn. The marketable molecule (MM) segment reported 31%YoY
sales growth from Rs736mn to Rs964mn. Vitamin D business grew by 36%YoY from
Rs375mn to Rs509mn. Revenues of other MM grew by 26% from Rs361mn to Rs455mn.
􀂁 Sharp improvement in Margin by 990bps: DPCL’s EBIDTA margin improved by
990bps from 13.2% to 23.1% due to overall reduction in costs. Material cost declined by
290bps from 35.2% to 32.3% of total revenues due to the change in product mix.
Personnel expenses were lower by 350bps from 30.6% to 27.1% due to re-structuring at
CA. Other expenses declined by 340bps from 20.9% to 17.5% due to lower marketing
cost. There was a forex gain of Rs81mn against Rs57mn. The company’s net profit
improved by 896%YoY from Rs17mn to Rs167mn on a lower base.