06 October 2012

2Q Earnings Preview - IDFC Sec

We expect Q2FY13 Sensex earnings growth of 15% yoy (ex-Oil & Gas) as against 19% yoy in Q1FY13. Including Oil & Gas, earnings growth is likely to be muted at 6.4% vs14.5% in Q1FY13, mainly due to assumption of NIL oil subsidy from government in Q2FY13 (lower earnings for ONGC due to higher share of contribution). While non-commodities are expected to report strong earnings growth (18%yoy) led by Financials and IT, earnings of commodities would likely contract by 15.4% yoy. Our Sensex EPS stands at Rs1,196 (9% yoy) for FY13 and Rs1,349 (13% yoy) for FY14. Notably, continued cost pressures are likely to compress margins of Sensex companies by ~110bp yoy to 19%. Top-line growth of Sensex companies is expected to moderate to 13.4% yoy from 17% in the previous quarter. Earnings of the broader IDFC universe (ex-Oil & Gas) are likely to be at 16.5% yoy.

Dr.Reddy's Laboratories - Strong momentum in ensuing quarters; visit note; Hold :: Edelweiss PDF link


Dr.Reddy’s Laboratories (DRRD IN, INR 1,646, Hold)
We recently met Dr. Reddy’s (DRRD) management. The company anticipates higher growth over the next two-three quarters led by strong sequential growth in US & PSAI and continued traction in India & Russia. Moreover, incremental growth will be accompanied by higher currency realisations aiding margin. Given improved growth visibility for balance FY13, the stock may do well over the next three-six months. However, owing to moderate FY14 outlook we continue to maintain ‘HOLD’.

Technology: Accenture's result: Plenty to worry about for Tier-1 IT::Kotak Sec


Technology: Accenture's result: Plenty to worry about for Tier-1 IT
` A snapshot of Accenture's performance: Solid but slowing revenue growth
` Offshore pure plays have a lot to worry about; FY2014 consensus estimates
will be tested


http://www.kotaksecurities.com/pdf/indiadaily/indiadaily01102012kk.pdf

Strategy: 'Common good' and uncommon companies & Welcome Welcome::Kotak Sec


Strategy: 'Common good' and uncommon companies
` Auction is not the only method for allocation of natural resources
` Principle of 'common good' is paramount as spelt out in Article 39 (b) of
the Constitution of India
` 'Respect for the mandate and wisdom of the executive' provides some
clarity
` However, 'arbitrary, unfair, unreasonable and capricious actions' will be
reviewed
` Nothing for free in the future; 'common good' argument can be extended
to recent awards too



Strategy: Welcome, welcome
` Flows, flows, flows - welcome one, welcome all
` FDI blocks may account for US$3 bn CYTD, sovereign funds another US$2
bn
` ETFs, cash-futures arbitrage may have contributed another US$2.5 bn
` It seems a large amount of FII inflows came through P-notes over JulyAugust 2012



Economy: No joy yet ::Kotak Sec




Economy
` Economy: Economy: No joy yet
` CAD is better in 1QFY13 but still high at 3.9% of GDP
` Capital flows remained steady; composition changes
` Not to be carried away by the improving BoP in 1QFY13

http://www.kotaksecurities.com/pdf/indiadaily/indiadaily01102012kk.pdf

Strategy reports : Federalism and reforms and Oops! ::Kotak Sec


Strategy: Federalism and reforms
` Too many cooks?
Strategy:
` A quiet downgrade of exports of metals and passenger cars for FY2011
` FY2012 data also shows some discrepancy
` Downward revisions raise more questions than they answer
` Tailpiece - no exports of cars to Tokelau Islands in FY2012; sharp decline in
exports to Indonesia


Manappuram Finance Ltd ::RoA to settle at respectable level post the full impact of new regulations:: IIFL


RoA to settle at respectable level post the full impact of new regulations
Over the past seven months, gold loan companies have been hit by a spate of
game changing regulations ‐ LTV cap of 60%, stringent bilateral assignments
guidelines and higher Tier‐1 capital requirement of 12% (to be reached by end‐
FY14). In the initial phase of the adjustment process, AUM growth has been
severely impacted while contraction in NIM and RoA has been limited. Though
RoA would most certainly deteriorate through the year, it is likely to settle at
healthy levels of 3.5‐4% in the longer term supported by reasonable pricing
discipline, cyclical decline in funding cost and realization of operating
efficiencies. Given the systemic importance of gold loan companies,
incremental regulations are likely to be less stringent – a cap on cash
disbursements can dilute financial inclusion.

Pharmaceuticals - Balanced Policy; sector update :: Edelweiss PDF link

The  Group of Ministers (GoM) has proposed the pricing policy, which intends to control prices of 348 essential drugs (covers 25% of overall domestic market) including combinations mentioned in the National List of Essential Medicines (NLEM 2011). The ceiling price formula is based on weighted average price of all brands with more than 1% market share (based on volume). Our bottom-up molecule-wise analysis suggests 2-3% impact on domestic revenue for the industry while PBT impact varies from 1-15% of PBT. While the impact  will be larger on MNC companies, it will be minimal on domestic players.

SELL Engineers India; TP: INR 190.00 :: religare research,


Weak orders to hobble growth; downgrade to SELL
ENGR’s revenue growth profile is likely to remain weak over FY13-FY14 due to anaemic order inflows, with the order book unlikely to scale prior peaks in the medium term (Rs 75bn in FY11). We expect revenues to decline at an annual run-rate of 14% over FY12-FY14E (down 16% in Q1FY13), though profitability should be supported by margin improvement and higher other income. We cut our September’13 TP to Rs 190 and downgrade the stock to SELL.

BUY Sun TV Network; TP: INR 400.00:: religare research,


Operational improvement likely; maintain BUY
We recently interacted with the SUNTV management. Key takeaways are: (a) Advertising growth recovering but in single digits, (b) no ad pricing pressure seen in the regional GEC space, (c) higher subscription revenues expected due to the Arasu Cable agreement (~Rs25mn/month) and steady growth from DTH/international subscription (15%+), and (d) EBITDA margins to remain healthy at ~76%. Backed by improving business fundamentals, attractive valuations (15.8xFY14E) and falling political risk for the business, we reiterate BUY with a revised TP of Rs400.

Arvind, Buys India Businesses Of Two UK Retailers, Nautica Brand:: Nirmal bang,

Buys India Businesses Of Two UK Retailers, Nautica Brand

Arvind has acquired India businesses of British fashion retailers Debenhams and Next and also American brand Nautica from Planet Retail having FY12 revenue of Rs700mn for a total sum of ~Rs550mn, valuing the acquisitions at ~0.8x P/S. As per the management, these brands are making marginal profit at the store level, but losses at EBITDA/PAT levels due to corporate overheads. Due to the losses coupled with aggressive Rs1.5bn expansion, we believe the latest acquisitions would exert pressure on free cash flow and return ratios in the near term. Accordingly, we have increased our revenue estimates by 0.8%/1.7% but cut EBITDA and PAT estimates by 0.8%/3.5% and 10.9%/22.8% for FY13E/FY14E, respectively. We have rolled forward our valuation to FY14 estimates (from FY13) and factored in lower free cash flow/return ratios due to aggressive capex. We have retained our Buy rating on Arvind with a revised SOTP-based TP of Rs92 (from Rs97 earlier

Bharti Airtel:: How to improve ROIC? Nomura research,


How to improve ROIC?
Resist the temptation

Action: Maintain Reduce... too many unknowns still How to improve Bharti‟s low 6% ROIC was a key topic in our recent meeting with Mr Akhil Gupta, MD. Within this, low operating margin is one concern, but asset turn of 0.7x is one of the lowest amongst regional telcos. The company attributes this to 3G/4G/Africa payments, which has increased the asset base, but is not generating much incremental earnings yet. With potential spectrum renewals ahead, and limited incremental earnings scope, we think ROIC could remain weak. On India, management expects rational competition, and voice prices may rise and stick over the next few quarters. Focus is also on managing acquisition costs to control margins. On Africa, the company believes cashflows will improve gradually but may not cover the principal repayments on debt over the next 2-3 years. On towers, the company attributes the rationale and timing of the listing (Bharti Infratel) to „shareholders agreements‟. We remain unclear/ unconvinced on the capital structure (low gearing). There were no specific comments on regulations. We don’t dismiss Bharti’s inherent potential, but given what we view as its expensive valuation and various unknowns, it is hard to conclude that the earnings downgrade cycle is over. Hence, we reiterate our Reduce rating. Has Bharti under-spent on capex? Management stated that current ~USD3bn capex could be the peak. We are skeptical: 1) as seen in the recent June quarter results, seven Asian telcos have increased their capex guidance (mainly data/4G related); and 2) annual capex by the Indian operators appears low vs regional peers, especially given its scale and spectrum differentials .
Catalysts: core operating trends, regulations, balance sheet

Coromandel International Ltd: Nutrients for growth seeded BUY: report by KRChoksey

Strong demand environment for augmented capacities: India is the second largest consumer of fertilizer in the world next to China. Fertilizer consumption has outpaced food grain production in the country over FY03-12. India’s per hectare fertilizer consumption at 141 kg for FY12 is lower than developed and many developing countries. The domestic capacity and production had stagnated leading to increasing imports in a rising raw material costs scenario. However post NBS regime, we believe CIL is well prepared to cater to the increasing domestic demand with capacity expansion and raw material availability issues getting over during FY13.

MCX- Opportunity abound:: IIFL research


Opportunity abound
Financial Technologies promoted Multi Commodity Exchange is a market
leader in India’s burgeoning commodity derivatives market. Its journey of
becoming a dominant commodity exchange with 86% market share has been
fascinating. Interestingly, the next largest player has only 10% market share.

SBI Bluechip: Book Profits/ Sell ::Business Line


Rashtriya Ispat Nigam Limited IPO opens on Oct 15


Rashtriya Ispat Nigam Limited IPO:

Issue Period :October 15%u2013 October 18, 2012

Price Band:Will be announced 2 days prior to issue opening date.

Retail & Employee Discount:5% on the offer price can be availed at the time of submitting the bid.