27 January 2013

J. P Morgan - Global Economic Overview

Mahindra Holidays & Resorts India Ltd (MHRIL) -BUY :: Ventura


We initiate coverage on Mahindra Holidays & Resorts India Ltd (MHRIL) as a BUY with a Price Objective of `451 representing a potential upside of ~37.0% over a period of 15 months. At the CMP of `329, the stock is trading at 23.7x and 19.0x its estimated earnings for FY13 and FY14 respectively. MHRIL is the market leader in the Vacation Ownership (VO) industry and faces limited competition (other sizable player being Sterling Resorts). MHRIL is expected to witness healthy growth of 17.7% CAGR in its top-line to `867.2 crore by FY14 on the back of acceleration in net member additions (13.4% CAGR). We believe that this acceleration is achievable owing to huge untapped opportunity for VO industry in India, adherence to its “Member First” policy and focus towards increasing room inventory (FY13 - ~600 rooms; FY14 - ~425 rooms). While in the recent past, MHRIL was plagued by significant member cancellations, its refurbished business model coupled with increasing room inventory should help in stemming the attrition; boosting net member additions and consequently revenues.
 Robust model with front ended cash flows and steady annuity income streams
Owing to MHRIL’s stable stream of cash flows and self funding nature of the business model, the company has been able to maintain its debt at negligible levels as compared to the hotel industry which has high gearing. MHRIL’s strategy is to fund capex (building room inventory) and customer acquisition costs from membership fees (via both upfront and securitization of receivables). Also, majority of the resort and company level expenses are funded through Resort income and Annual subscription fees (ASF). With an estimated growth of membership base at a 13.4% CAGR, the fund flows, going forward, will ensure that the company maintains debt at negligible levels. Also, the annuity stream in form of ASF will become stronger. Further, we believe that the low gearing status is an added advantage especially during the period of hardships (viz slowdown in membership base, delay in payment of membership fees) as it will be in a good position to raise liquidity from external sources.

Operating results in-line; maintain Neutral Bajaj Auto:: Centrum


Operating results in-line; maintain Neutral
Bajaj Auto’s (BAL) 3QFY13 operating performance was largely in line
with our expectations with EBITDA margins at 20.1% compared to our
estimate of 19.9% and adjusted PAT at Rs8.19bn compared to our est.
of Rs8.18bn. The recent success of Discover ST and Pulsar NS200
reflects improved market share in both segments. Overall market
share of BAL in the domestic motorcycle segment stood at 25.9% vs.
25.7% in 2QFY13. The new Discover 100cc is likely to be launched pan
India by the end of Feb’12. While, we continue to prefer BAL in the
two-wheeler space and understand that the company has largely
been able to maintain its market share in the domestic motorcycle
segment, we believe that at the current valuations, the stock is pricing
in most of the positives. We continue to maintain our Neutral rating
on the stock with a target price of Rs.2,213.
Operating performance in line: Net sales during the quarter stood at
Rs.55.1bn (a growth of 9% both on YoY and QoQ basis). Net realization
stood at Rs.47,060/unit largely driven by better export realizations (up
5% YoY and 2.5% QoQ). While domestic realization stood at
Rs.47,360/unit (up 7% YoY but lower by 1% QoQ), export realization
stood at Rs.46,462/unit (up 3.5% YoY and 8.9% QoQ). EBITDA margin
was largely in line with our expectations at 20.1%. Adjusted PAT for
the quarter stood at Rs8.19bn compared to our estimate of Rs8.18bn.
Conference call highlights: 1.) Re/$ realization stood at 49.9 during
3QFY13 compared to 48.8 in 2QFY13. The company expects Re/$ at
54 for FY14E. 2.) It expects stable pricing for the domestic motorcycle
industry (the likely entry of Honda in 100cc segment, could lead to
some pricing pressure in the segment) 3.) Expects a CAGR of 15-18%
in exports over the next 5 years 4.) While DEPB has been cut from
5.5% to 2% effective 10 Oct’12, the company could pass on~ 75-80%
of the impact effective from Nov’ 1, 12. 5.) It plans to launch
upgrades in the three-wheeler segment in FY14E 6.) Focus will
remain on brand specific margin 7.) To launch new Discover 100cc
Pan India by the end Feb’12 8.) Bajaj now accounts for 20-25% of
KTM’s overall export volumes; the company has seen a significant
turnaround in the financials over the last 2 quarters.

Goldman Sachs - The shale revolution and the global economy

Robust performance Magma :: Centrum


Robust performance
Magma’s Q3FY13 numbers reflect continued robustness in disbursement
growth (even as individual industries report moderation) driven by high yield
segments and Cars & UVs. However, the rising share of high yield loans (34%
now) along with seasonality pushed the collection efficiency down to 97%
and in line write offs remained at 0.48%. New products (housing, gold and
general insurance) should bring in further diversification and improve
profitability over the medium term. We retain Buy rating on attractive
valuations and improving return ratios with a revised price target of Rs115.
Disbursements growth moderates: Disbursements in Q3FY13 moderated
dramatically to 20% YoY, compared with 45% growth registered in Q2FY13.
From a product perspective, weaker demand in CE & CV segments were the
primary reason for the moderation while Cars & Utility segment (35% YoY)
and high yield assets (up 62% YoY) continued to report healthy traction. The
mix of high-yielding assets improved further to 34% from 23% a year ago.
Spread improves QoQ led by shift in loan mix: Reported spreads for Q3FY13
at 5.43% indicated an improvement of ~50bps QoQ, primarily led by better loan
mix and partly due to securitization done during the quarter. The increasing
share of high yielding segments coupled with usage of securitization as a
funding tool should help Magma sustain NIMs at current levels.

Den Networks Ltd. Digitisation led growth :: Ventura


Den Networks Ltd.
Digitisation led growth
Outlook
Although the valuation of stock seems expensive at 35.8 & 29.4x for FY13/14, we maintain a BUY. Given the fact
that subscriber additions remain strong and the benefits of digitization would start accruing to the top line from
Q1FY14. Further with not much significant costs being associated with the incremental revenues, the profitability
should be positively affected. We have not yet modeled this incremental revenue, as we would like to see proof of
the pudding before revising our forecast.
The Ministry of information & broadcasting (MIB) has demonstrated the seriousness of DAS implementation in
phase 2 cities. This can be reiterated from the various key initiatives (such as increasing intervals of review
meetings and conducting workshops) taken by MIB to achieve the superior results. Given that MSO’s are expected
to be the biggest beneficiaries of digitisation, we believe Den Networks Ltd is well placed to reap the benefit on the
back of its strong subscriber revenue base of ~11 mn and aggressive management team.
Key Takeaways
• According to the management, various steps are being initiated by the Ministry of Information & Broadcasting
(MIB) to lay emphasis on the seriousness of digitisation in phase 2 cities. Some of the initiatives include
increasing the intervals of review meetings (from every 10 days to 3 days), one day workshop with all the
nodal officers and IAS officials (of 38 phase 2 cities) to discuss various issues (queries related to customers,
stakeholders, technologies, etc). Further, state level meetings are also likely to be held with participants being
LCOs, MSOs and nodal officers.
• Den Networks reported strong set sets of numbers during the quarter with 13.3% QoQ top-line growth in its
cable business led largely by consolidation of acquired JVs and successful completion of Phase I.
Consolidated revenues were at Rs 241.8 crore during the current quarter. It is to be noted that consolidated
top-line is not comparable with corresponding period of previous year due to the change in accounting policy
at Media Pro which has started reporting revenues on a net basis (Gross revenues – Cost of Distribution
rights).
• Moreover, the company has been able to save on operating costs (64.8% v/s 66.0% of sales QoQ) in cable
business which has lead to significant improvement in margins by 260 bps QoQ (25.5% v/s 22.9%).
Consequently, consolidated EBITDA was at Rs 60.4 crore (+21.8% QoQ). PAT growth (+12% QoQ) was
offset by higher depreciation (+21.4% QoQ; higher deployment of set top boxes) and higher interest expense

Credit Suisse -China Market Strategy

IL&FS Transportation- Leading player in surface transportation for bet BUY --KRChoksey,


IL&FS Transportation Network Ltd (BO.ILFT) is the largest developer, operator and investor of surface transportation infrastructure projects in India. We expect revenue CAGR of 15% over the period of FY11-15E primarily led by increase in Construction and Fee income. The high EBITDA margins of ~20%-22% in construction division and ~85% in toll division will provide higher returns~16% of RoEs in FY13E-14E.
Strong Revenue CAGR 15% & PAT CAGR 12.4% from FY11-15E
We forecast strong revenue CAGR of 15% over the period of FY11-FY15E, primarily led by strong Fee and construction income. Further, ILFT collects Rs 1.83 crore gross average toll per day from 10 operational road projects which we expect to increase by 4.7x up to Rs 8.53 crore per day in FY15E primarily will be led by functional of 14 new road projects. The increase in toll revenue by 4.7x will leave enough free cash flow in the system.
Project Capital Works worth of Rs 1,08 bn remaining to be executed
ILFT has Rs 108 bn worth of project capital works remaining to be executed in over the period of 3-4 years. ILFT receives ~3% of total project cost (TPC) as upfront charges and further ~8%-9% as consulting charges from its subsidiaries. Further, the team of 400 engineers who designs supervises and outsources construction work to local subcontractors. This model allows it to focus on the core activities which optimizes leverage and maximizes the returns on assets and return on net worth.
NHAI’s Plan to award 9,300 km road projects in FY13E
National Highway Authority of India (NHAI) has planned to award ~9300 km of road projects with total worth of ~Rs 600-700 bn in current financial year. Consequently, we expect over ~22,000 km of hew highway projects to awarded in the next four years. ILFT maintained 5% market share in FY12 and a naturally beneficiary to grab the above opportunities.
Valuation
We have valued ILFT on a SOTP method and arrived at a target price of Rs 282. We have valued the standalone business, in which the company derives its revenues from advisory fees and EPC work at Rs 100 based on the 5x its FY13E EPS of Rs 20. We have valued the existing BOT projects of ILFT at Rs 150, investment at Rs 17, Elsamex at Rs 11.3/share and ILFT’s stake in Noida Toll Bridge at Rs 4/ share.

One-off slippage mars performance Federal bank:: Centrum


One-off slippage mars performance
FED’s Q3FY13 core performance was largely in line (PPP at Rs3.9bn vs Rs3.8bn
estimated) though spike in provisions led to a lower than expected bottomline.
NIM contracted by ~10bps QoQ on reversal of interest income on NPAs.
Asset quality matrices deteriorated due to one-offs with 1) gross slippage rate
jumping to 5.4% led by chunky slippage 2) GNPA going up 9% QoQ to 3.85%
and 3) PCR eroding by 600bps QoQ despite high provisioning cost at 82bps.
Notwithstanding the one-off hit to asset quality during the quarter, we
remain positive on the radical changes introduced by the new management
and its potential long term benefits. We stick to our thesis of RoE expansion,
which in turn should drive further re-rating of the stock over the long term.
We maintain Buy and target price of Rs600.
NIM contracts by 11bps QoQ: NII de-grew by 6% YoY to Rs5.0bn as NIM
contracted by 11bps QoQ offsetting the uptick in credit growth (19% YoY vs
8% last quarter). Importantly, the contraction in NIM was the result of reversal
of interest income on NPAs (Rs300mn mainly Air India & NAFED). Meanwhile,
cost of deposits inched up marginally as the last leg of NR deposits repriced
upwards to post-deregulation rates. Q4FY13 would still have the burden of Air
India FITL and hence will continue to contain NIMs. Management guided for a
NIM of 3.55% for FY13.
Uptick in loan growth: Loan growth during the quarter registered an uptick
and stood at 19% YoY (from 8% in the previous quarter) with key segments
driving growth. The corporate segment made a major comeback with 12.6%
QoQ growth. Incrementally, the bank remains comfortable in expanding its
SME and retail book given acceptable slippage performance though cautious
stance towards corporate segment will stay for the near term. The
management intends to close FY13 with a loan growth of 15-16% while for
FY14 it expects to get more aggressive with target of ~25% YoY.

Business as usual but for a small hiccup HDFC Bank:: Centrum


Business as usual but for a small hiccup
HDFC Bank’s Q3FY13 performance was in line with our expectations (PAT at
Rs18.6bn). The bottom-line performance was primarily driven by healthy
growth in NII and non-interest income. Asset quality experienced first hiccup
with %GNPA inching up QoQ for the first time since FY2010 led by CE & CV
segments though overall matrix remained robust. HDFC Bank continued to
deliver ~30% bottom-line growth despite the environment and has displayed
strong command over business segments it focuses on. That said, at current
valuations the stock is fairly priced. We upgrade the stock to Neutral from
Reduce earlier.
Reported NIM contracts 10bps QoQ, Loan growth ~ 24%: NII grew by a
healthy 22% YoY to Rs38bn led by healthy credit growth (24% YoY) while
reported NIM contracted sequentially by 10bps to 4.1%. Despite continuing
strong growth in unsecured/high yield products (credit cards up 55%,
personal loans up 28% YoY), lending yields contracted by ~25bps QoQ.
However, this was partly offset by decline in cost of funds which effectively
contained NIM contraction to 10bps QoQ.
Asset quality a small hiccup: Bank experienced a small hiccup on asset
quality with %GNPA inching up QoQ for the first time since FY2010 led by
slippages in CE & CV segments. The management views this as normalization
of NPLs to acceptable levels and indicated that long term average GNPA
stands at ~1.25% - something we have factored in for FY13. Notwithstanding
the potential near term implications of weak economic activity, the overall
asset quality matrix remains robust.
Healthy credit growth, focus on unsecured products: The advances book
grew by a healthy 24% YoY primarily driven by the retail segment (30% YoY
with strong growth in unsecured/high yielding products). In response to the
stress experienced in CV book (down 1% QoQ), the bank has turned cautious.
For FY13, the share of retail segment may come off a bit due to intensifying
competition and weaker demand in key segments (auto & housing) though
anticipated improvement in corporate segment should help maintain a
healthy growth of ~21% YoY.

IL&FS Transportation- Leading player in surface transportation for bet BUY --KRChoksey,


IL&FS Transportation- Leading player in surface transportation for bet BUY --KRChoksey,


Ranbaxy Labs:: Head - Investor Relations meeting by Centrum


We recently interacted with the Head - Investor Relations to get the
latest update on the company. The key highlights were:
Good growth in N. America and CIS: For Q3CY12, Ranbaxy Labs (RLL) has achieved growth in
revenues of 62%YoY for N. America, 81%YoY for CIS, 30% for W. Europe and 13% for India. However,
the growth in other geographies was subdued with Asia Pacific at -44% and Africa -6%YoY.
Good growth in the US: RLL performed well in Q3CY12 in the US market despite the difficult
situation. Generic atorvastatin achieved a market share of ~44%. However, the market
witnessed price erosion of 98.0-98.5% due to competition from Apotex, Mylan and Dr. Reddy’s
Labs. RLL had to recall 41 lots of generic atorvastatin during the quarter, due to the presence
of glass particles of <1mm and="" company="" corrective="" has="" in="" measures="" p="" relaunch="" size.="" taken="" the="" will="">the product soon.
Other opportunities in the US: RLL launched AG of Actos of Takeda in Q3CY12 and achieved
~30%MS. It also launched generic Caduet in May’12. The company is looking forward to FTF
opportunity of generic Nexium (patent holder: Astra Zeneca). RLL has achieved over 30%MS
for generic atorvastatin, donepezil and valacyclovir. The company has launched Absorica
Capsules for the treatment of acne in the US based on its NDA.
Emerging markets a good opportunity: RLL derives ~60% of its revenues from emerging
markets and has a strong presence in India, CIS, Africa and Asia Pacific. The company markets
branded generic products in these markets and expects double digit growth here. RLL has a
field force of ~5,200 MRs and is ranked 4th in the domestic market. The company focuses on 60
products in the domestic market. Its major OTC products Volini and Revital are doing well. The
company has launched Volini Duo for pain relief and swelling. It has launched Revital Women
and Revital Elder as line extensions.
S. African sales decline: RLL’s S. African business witnessed 6%YoY decline in revenues in
Q3CY12 as the company is moving away from ARV tender business. The company has
segregated East Europe and CIS as emerging markets with focus on profitability. RLL has
achieved double digit growth in Romania but is facing pressure due to the service tax.
Manufacturing facilities under US FDA scanner: RLL’s manufacturing facility at Dewas and
Paonta Sahib continues to face decrees from the Department of Justice (DoJ), US. The
company has appointed external auditors for baseline audit to take remedial measures. The
company has filed 8-10 ANDAs from Mohali SEZ and Ohm Labs, US and is awaiting the relaunch
of generic atorvastatin.
Impact of NPPP: Being among the leaders in the domestic market, the company is likely to
get impacted by NPPP. However, the company expects clarity for 5-year period. RLL expects to
increase prices for drugs outside NLEM in the coming years. The company expects growth to
come from increase in volume and new product launches.
Product basket of Daiichi Sankyo: The company has launched 6-7 innovative products of
Daiichi Sankyo (DIS) in various markets and is working on a hybrid model in various markets.
No major capex: RLL had no major capex in CY12 except maintenance capex of ~$110mn
(Rs6.05bn). The company has made a provision of $500mn (Rs27.5bn) for the liabilities arising
from DoJ for its Dewas and Paonta Sahib manufacturing facilities.
Derivative contracts: RLL has brought down the derivative contracts from $4.5bn (Rs248bn) to the
current level of $1.2bn (Rs66.0bn). These remaining contracts will expire by 2015. The contract
maturity is $40mn (Rs2.2bn) per month. RLL expects minimisation of volatility in the performance.
However, these contracts impact MTM loss/gains quarterly but have no effect on cash flows.
Our Estimates:
At the CMP of Rs496, the stock trades at 13.3x CY12E EPS of Rs37.3 (base business Rs25.3 and
FTF Rs12.0) and 16.8x CY13E EPS of Rs29.6 (base business Rs24.3 and FTF Rs5.3).
We have a Neutral rating for the scrip with a target price of Rs563 (23x CY13 base EPS of
Rs24.3+ FTF EPS of Rs5.3) with an upside of 14% over CMP.

One-off slippage mars performance Federal bank:: Centrum


One-off slippage mars performance
FED’s Q3FY13 core performance was largely in line (PPP at Rs3.9bn vs Rs3.8bn
estimated) though spike in provisions led to a lower than expected bottomline.
NIM contracted by ~10bps QoQ on reversal of interest income on NPAs.
Asset quality matrices deteriorated due to one-offs with 1) gross slippage rate
jumping to 5.4% led by chunky slippage 2) GNPA going up 9% QoQ to 3.85%
and 3) PCR eroding by 600bps QoQ despite high provisioning cost at 82bps.
Notwithstanding the one-off hit to asset quality during the quarter, we
remain positive on the radical changes introduced by the new management
and its potential long term benefits. We stick to our thesis of RoE expansion,
which in turn should drive further re-rating of the stock over the long term.
We maintain Buy and target price of Rs600.
NIM contracts by 11bps QoQ: NII de-grew by 6% YoY to Rs5.0bn as NIM
contracted by 11bps QoQ offsetting the uptick in credit growth (19% YoY vs
8% last quarter). Importantly, the contraction in NIM was the result of reversal
of interest income on NPAs (Rs300mn mainly Air India & NAFED). Meanwhile,
cost of deposits inched up marginally as the last leg of NR deposits repriced
upwards to post-deregulation rates. Q4FY13 would still have the burden of Air
India FITL and hence will continue to contain NIMs. Management guided for a
NIM of 3.55% for FY13.
Uptick in loan growth: Loan growth during the quarter registered an uptick
and stood at 19% YoY (from 8% in the previous quarter) with key segments
driving growth. The corporate segment made a major comeback with 12.6%
QoQ growth. Incrementally, the bank remains comfortable in expanding its
SME and retail book given acceptable slippage performance though cautious
stance towards corporate segment will stay for the near term. The
management intends to close FY13 with a loan growth of 15-16% while for
FY14 it expects to get more aggressive with target of ~25% YoY.

One-off slippage mars performance FED’s Q3FY13 core performance was largely in line (PPP at Rs3.9bn vs Rs3.8bn estimated) though spike in provisions led to a lower than expected bottomline. NIM contracted by ~10bps QoQ on reversal of interest income on NPAs. Asset quality matrices deteriorated due to one-offs with 1) gross slippage rate jumping to 5.4% led by chunky slippage 2) GNPA going up 9% QoQ to 3.85% and 3) PCR eroding by 600bps QoQ despite high provisioning cost at 82bps. Notwithstanding the one-off hit to asset quality during the quarter, we remain positive on the radical changes introduced by the new management and its potential long term benefits. We stick to our thesis of RoE expansion, which in turn should drive further re-rating of the stock over the long term. We maintain Buy and target price of Rs600. :: Centrum


One-off slippage mars performance
FED’s Q3FY13 core performance was largely in line (PPP at Rs3.9bn vs Rs3.8bn
estimated) though spike in provisions led to a lower than expected bottomline.
NIM contracted by ~10bps QoQ on reversal of interest income on NPAs.
Asset quality matrices deteriorated due to one-offs with 1) gross slippage rate
jumping to 5.4% led by chunky slippage 2) GNPA going up 9% QoQ to 3.85%
and 3) PCR eroding by 600bps QoQ despite high provisioning cost at 82bps.
Notwithstanding the one-off hit to asset quality during the quarter, we
remain positive on the radical changes introduced by the new management
and its potential long term benefits. We stick to our thesis of RoE expansion,
which in turn should drive further re-rating of the stock over the long term.
We maintain Buy and target price of Rs600.
NIM contracts by 11bps QoQ: NII de-grew by 6% YoY to Rs5.0bn as NIM
contracted by 11bps QoQ offsetting the uptick in credit growth (19% YoY vs
8% last quarter). Importantly, the contraction in NIM was the result of reversal
of interest income on NPAs (Rs300mn mainly Air India & NAFED). Meanwhile,
cost of deposits inched up marginally as the last leg of NR deposits repriced
upwards to post-deregulation rates. Q4FY13 would still have the burden of Air
India FITL and hence will continue to contain NIMs. Management guided for a
NIM of 3.55% for FY13.
Uptick in loan growth: Loan growth during the quarter registered an uptick
and stood at 19% YoY (from 8% in the previous quarter) with key segments
driving growth. The corporate segment made a major comeback with 12.6%
QoQ growth. Incrementally, the bank remains comfortable in expanding its
SME and retail book given acceptable slippage performance though cautious
stance towards corporate segment will stay for the near term. The
management intends to close FY13 with a loan growth of 15-16% while for
FY14 it expects to get more aggressive with target of ~25% YoY.

Robust performance; maintain Buy Ultra Tech:: Centrum


Robust performance; maintain Buy
Ultra Tech’s Q3FY13 result was above estimates (op. margin of 21.1% vs. est.
18.3%) primarily due to lower-than-expected op. costs. The company reported
EBITDA of Rs10.2bn (vs. est. Rs9.1bn) and adjusted profit of Rs5.9bn (vs. est.
Rs4.8bn). Op. cost/tonne during the quarter was Rs3,940/tonne vs. est.
Rs3,856/tonne primarily due to lower energy cost (Rs1,089/tonne vs. est.
Rs1,150/tonne) and lower raw material cost 0f Rs588/tonne vs. est. Rs643/tonne
(adjusted for inventory adjustment). Higher EBITDA and other income (Rs1.2bn vs.
est. Rs900mn) resulted in adj. profit of Rs5.9bn vs. est. Rs4.8bn. Going forward, we
believe that utilization rate of the industry will improve to 80.4% by FY15E after
bottoming out at 76.4% in FY13E. We expect cement demand to grow at ~7% in
FY13E and improve to 8-9% in FY14E. We believe improvement in utilization rate
and demand scenario will lead to improved pricing power of cement
manufacturers and help them pass on the rise in input cost to consumers leading
to improvement in operating margins for the industry. The company will also
benefit from its planned capacity expansion of 10.2mt by Q2FY14E after which its
grinding capacity in India will stand at 59mt against 48.8mt currently. We
maintain Buy on the stock with a one-year price target of Rs2,316.
Lower than expected cost leads to better results and helps beat estimates:
Though lower than expected grey cement sales volume of 9.62mt (vs. est. 10mt)
led to lower revenue of Rs48.6bn (vs. est. Rs49.6bn). The company reported op.
profit of Rs10.2bn (vs. est. Rs9.1bn) driven by lower-than-expected op. costs.
Blended realization/tonne during the quarter was at Rs4,887/tonne vs. est.
Rs4,850/tonne. Op. cost/tonne during the quarter was at Rs3,940/tonne vs. est.
Rs3,856/tonne primarily due to lower energy cost (Rs1,089/tonne vs. est.
Rs1,150/tonne) and lower raw material cost 0f Rs588/tonne vs. est. Rs643/tonne
(adjusted for inventory adjustment).
Higher realization leads to stable margins despite volume decline and cost
pressure: EBITDA margin remained stable at 21.1% during the quarter driven by
8.7% YoY increase in blended realization though volume decline by 2.2% YoY and
op. cost/tonne increased 8.7% YoY. Op. cost increase was largely due to increase in
raw material cost, freight cost and other expense on a per tonne basis. Employee
cost increased 12.5% YoY to Rs246/tonne. EBITDA/tonne increased 8.5% YoY to
Rs1,030/tonne.

Technicals- LIC Housing, Cairn, Andhra bank, Colgate, reliance infrastructure, SML ISUZU, Raj TV ::Business Line


Eyeing public sector bank stocks? Take risks into account::Business Line


HCL Technologies: Buy ::Business Line


Petronet LNG: BUY ::Business Line


IPCA Labs — book profits ::Business Line


Pivotals: Reliance Industries, SBI, Infosys, Tata Steel ::Business Line


Syndicate Bank, Tax write-back boosts profitability…ICICI Sec


Tax write-back boosts profitability…
Profits were higher than our and Street estimate but were mainly driven
by tax write-back of | 174.3 crore (of which MAT credit is | 140.8 crore),
which may continue in Q4FY13. Tax rate for FY14E is expected to remain
low as MAT benefit created in FY13E may be used. At PBT level, results
were dismal with 11.8% YoY de-growth to | 334.2 crore (I-direct estimate:
| 488.3 crore) mainly on account of subdued NII growth. Yield on
advances dipped 16 bps QoQ to 10.7%. Even other income growth was
modest, which included trading income of | 90 crore. We have lowered
our NII estimate from | 6038 crore to | 5542 crore in FY13E and have
accounted for tax write-back that the bank has been taking. Syndicate is
one of the few PSU banks delivering stable asset quality. Hence, investors
can accumulate the stock on correction. At CMP, we recommend HOLD.
Business growth picks up pace, asset quality stable
Credit growth picked up pace with 17.3% YoY growth to | 136648 crore
(up by | 9867 crore QoQ) while deposit growth stood at 14.6% YoY to
| 164075 crore (up by | 8221 crore QoQ). CASA ratio was flat at 32%.
Incrementally, lending grew across sectors except SME. Overseas book
(London branch) increased by | 3346 crore QoQ to | 20301 crore.
Absolute GNPA declined by | 18.6 crore QoQ to | 3160 crore while
slippage trend continued with | 900 crore of fresh slippages in Q3FY13.
Upgradation and recoveries were strong enough to offset these
slippages. Fresh restructuring of | 1000 crore was done to take the total
outstanding restructured assets to ~| 10200 crore (7.6% of total credit).
Moving from consolidation to in line growth…
The bank is expected to move from consolidation phase to growth phase,
which is reflected in improved business growth performance. NIM is
expected to remain above 3%. The consolidation phase of the bank is
auguring well as it is resulting in moderate NPAs now. Its provision
coverage ratio of 83% provides comfort.
Return ratios to remain healthy
Capital infusion from government is expected in FY13E (| 539 crore
factored at | 130). Return ratios are expected to remain decent with RoA
of 0.8% & RoE of 15% in FY14E. Operational performance has improved
with NIM >3% but C/D ratio at ~80% & leverage >20x levels still remain
high. We recommend HOLD rating on the stock and maintain TP of | 140.

Go for bear call spread in Nifty ::Business Line


Traders can consider initiating a bear call spread in options of Nifty February series. This option strategy can be set by selling Nifty 6,200 call option and by buying Nifty 6,300 call options. These options were trading at Rs 60 and Rs 31 at the end of Friday session. Since it is a bear call spread there will be an initial inflow which in our case comes at around Rs 29 (Rs 60 minus Rs 31). This will also be the maximum profit from this strategy.
If Nifty declines further, both the call options will be worthless and the net premium collected of Rs 29 can be retained.
If Nifty trades above 6,229, this strategy will lose money. The maximum loss will be capped at Rs 71 (6300 minus 6200 minus 29).
Traders can close their positions if the market corrects in the near term.
In the options segment, for January call series, 6,200 call has the highest open interest (OI) positions (95.3 lakh contracts) followed by 6,100 call (71.4 lakh). For January put series Nifty 6,000 put has the highest OI (90.3 lakh) followed by Nifty 5,800 put (82.6 lakh). OI in the put segment have been increasing consistently for the last few weeks suggesting weakness in the upward trend of the market.
India VIX, that measures the expected volatility in Nifty, closed at 14.7 compared with 13.4 last week.
Follow up: Last week we recommended initiating a long-strangle strategy in Nifty options expiring on February 28. The strategy is not yet profitable. The position can be closed on 29 January because the volatility can be maximum around the RBI’s monetary policy meeting.

Large deals, small returns ::Business Line


Why an annuity may not make you happy::Business Line


On more than one occasion, I was politely asked to provide an alternative solution when I suggested individuals to buy an annuity to fund their post-retirement living. You may have similar opinion on lifetime annuity; this is a product that will pay you a fixed sum of money periodically during your lifetime. Why are individuals biased against annuity?
Consider this. You are retired and earn a fixed sum as pension, which may or may not be indexed to household inflation. Your friend, however, has to depend on the income earned on her investments to support her post-retirement living because her employer did not offer pension. Will you be satisfied with your pension? Or will you wish that you had an income like your friend’s where you depend on the vagaries of the stock market to decide how many slices of bread you have for breakfast?
If you are a typical individual, you will feel happy receiving your pension. You may reason that a stable source of income is more important during post-retirement years than earning high but volatile income. But what if your employer does not provide you pension? Will you then buy an annuity from an insurance company using the lump-sum money you receive at retirement?
Now, most of you may prefer to invest in equity and bank fixed deposits than buy an annuity. Why? When your employer offers you pension, you will most likely look at the benefits of stable income during your post-retirement life.
And that would make you feel good about receiving the pension. Importantly, your happiness will not be reduced even if a stock-bond portfolio of equivalent amount earns higher return. This is because you create what psychologist Dan Gilbert calls synthetic happiness- happiness you make when you do not get what you want (in this case, higher expected returns from stock-bond portfolio).
But when you are offered lump-sum money, the choice is on you to decide whether to create stock-bond portfolio or buy annuity or both. Now, you are likely to look at the negative features of an annuity. Why? The expected return on a stock-bond portfolio is higher. So, buying an annuity could lead to regret, especially if the stock market moves up after you purchase the annuity.
You can overcome this feeling of regret if some part of your retirement portfolio is automatically used to buy an annuity; you can use the other part to create your preferred stock-bond portfolio. The new pension system (NPS) offers such a feature. And if you are not a subscriber to the NPS, consider buying some annuity and synthesising your happiness.

Cipla (Rs 391.2): SELL ::Business Line


Zee Entertainment catches eyeballs ::Business Line


Zee Entertainment (Zee) delivered an attractive set of numbers in the recent December quarter, ahead of market expectations. During the period, the company’s revenues grew 26.3 per cent over the same period last fiscal to Rs 938.8 crore, while net profits rose 40.5 per cent to Rs 193.3 crore.
Advertising, which accounts for 54 per cent of Zee’s overall revenues, grew 28.8 per cent over the same period last year. Subscriptions (44 per cent of revenues) too witnessed a healthy improvement, with revenues from this stream growing 25.6 per cent. Both domestic and international subscriptions increased for the company.

Index Outlook: A sprint away from life-time high ::Business Line


Excel Crop Care (Rs 188.2): SELL ::Business Line