Jet Airways (JET.BO) Etihad Airways to Acquire 24% Stake in Jet Airways  ::Citi Research

Jet Airways (JET.BO)
Etihad Airways to Acquire 24% Stake in Jet Airways
 Etihad Airways to invest ~US$380m in Jet Airways — to purchase 24% stake (post
money), at a ~32% premium to CMP. Jet has approved the issuance of 27.26m shares
to Etihad Airways at a premium of Rs744.74/sh. Etihad’s investments in Jet Airways will
total ~US$600m, which includes US$70m paid for Jet’s slots at Heathrow and another
US$150m for a majority equity stake in Jet’s frequent flyer programme ‘Jet Privilege’
(pending approvals, to be completed over the next 6 months).
 A textbook transaction for Etihad — Acquiring minority stakes in airlines is
somewhat consistent with Etihad's philosophy – over the past few years it has acquired
stakes in: Aer Lingus (2.99%), Air Berlin (29.2%), Virgin Australia (9%). These stakes
typically foster a closer working relationship – code sharing, joint marketing initiatives –
and appear to be part of Etihad's strategy to augment its international presence.
 Critical for Jet on several fronts — A) Liquidity and solvency - Cash infusion of
~US$450m gives Jet the leeway to pay down high cost debt – we factor in interest cost
savings of ~Rs1.9bn pa, as Jet repays ~US$300-400m of high cost debt. B) Capital
structure – The cash infusion effectively recapitalizes Jet; D/E falls to ~4x. Interest
coverage ratio forecast to rise to 1.8x in FY14 (1.2x in FY13). The perception of Jet’s credit
quality should improve, given Etihad’s backing. C) Strategically – this deal could alter the
complexion of Jet’s international business: i) If Jet were to hub at Abu Dhabi instead of
Brussels (our conjecture), it could effectively utilize its 777 fleet to fly point to point services
to the United States, a critical market from which Jet has almost withdrawn from given cost
pressures. ii) Jet could uplift fuel for its int'l long-haul operations at Abu Dhabi, reducing fuel
costs. iii) Both carriers have the flexibility to continue with existing code sharing agreements.
 New TP of Rs766 — is based on 8.5x Sept 14E EV/EBITDAR (roll forward from Sept
2013) and is based on post money estimates. EPS increase reflects interest cost savings.
We haven’t forecast cash infusion for the Jet Privilege transaction. Nor do we forecast
any synergy benefits with Etihad (fuel cost savings, cost savings by shifting hub from
Brussels to Abu Dhabi, etc). For detailed forecasts, see our note on 7 Aug'12 Jet Airways
(JET.BO) - Upgrade to Buy: Not Yet a 747, But a 545 Key risks: Delays in the transaction

Supreme Industries - TP: ` 409 Buy :Dolat Capital

Supreme Industries Q3 FY13 results review
Supreme Industries (SIL) for Q3FY13 has reported net revenues at ` 9.04bn
(Dolat Est. ` 9.1bn), growth of 19% YoY on the back of impressive revenue
growth of ~42% YoY in its plastic piping segment. On the other hand, while
consumer & industrial product segment grew 9% & 1% respectively, the
packaging product segment de-grew by 5% YoY for the quarter under review.
Overall volume growth was quite impressive with 13% YoY growth at 74,526
tonnes (Dolat estimates at 75,000 tonnes) while realization grew by impressive
4.1%.
Impressive operating performance powered by 110 bps expansion in
margins
Higher operating margins during the quarter resulted in EBIDTA growing by
28% YoY to ` 1.34bn (Dolat estimates at ` 1.3bn). SIL’s operating margins
improved by 110bps from 13.8% in Q3 FY12 to 14.9% in Q3 FY13 (Dolat
estimates at 14.2%) due to: a) strong 14.7% margins (an increase of 170 bps
YoY) reported by plastic piping segment (53% of overall revenues) and b)
inventory gains.
Core profitability rises 38% to ` 680mn (higher than estimates)
Profits from the core business (adjusted for construction business profits &
excluding share of associates) grew by 38% to ` 680mn (Dolat estimates at `
631mn) as compared to ` 493mn. On consolidated basis (including share of
associates & construction business), SIL has reported a YoY growth of 39% to
` 758mn from ` 547mn YoY.
View: We roll our numbers to FY15. Thus change our rating to ‘BUY’from
‘ACCUMULATE’ with a revised target price of ` 409 (14xFY15E EPS)

Mahindra Lifespaces : TP: INR480 Buy :: Motilal oswal,

Mahindra Lifespaces (MLIFE) reported 4QFY13 standalone results below our
estimate, while consolidated numbers surprised positively.
 MLIFE's standalone revenue for 4QFY13 stood at INR1b (-27% YoY, v/s est. of
INR981m), while EBITDA declined 46% YoY to INR172m (est. of INR227m).
EBITDA margin improved 2.1pp QoQ to 16.8%, but fell below our estimate
due to weaker progress in Splendor II . PAT declined 28% YoY to INR232m (est.
of INR290m), further impacted by lower other income, but offset by lower
effective tax rate as well.
 4QFY13 consolidated revenue stood at INR3.3b, +25% YoY, while PAT (pre
minority) was at INR925m, +166% YoY. FY13 consolidated revenue stood at
INR7.4b (+5% YoY, v/s est. of INR6.1b), EBITDA at INR2.4b (+26% YoY, v/s est. of
INR1.5b) and PAT at INR1.4b (+19% YoY, v/s est of INR929m).
 Sharp increase in consolidated revenue in 4QFY13 is attributable to (1)
multiple projects crossing 25% threshold: (a) three phases of Bloomdale
(Nagpur), (b) Iris 2/3 (Chennai) and (c) Ashvita (Hyderabad, in standalone
entity), and (2) uptick in new leasing at MWC Jaipur: leased out 73 acres
(~INR1b) in 4QFY13, of a total 75 acres in FY13.
 MLIFE sold 0.38msf (INR1.5b) in 4QFY13, a stable run-rate against (0.39msf)
INR1.5b in 3QFY13 and 0.2msf (INR0.5b) in 4QFY12. FY13 pre-sales stood at
1.1msf (INR4.4b) v/s our estimate of 1.3msf (INR4.8b) and FY12 sales of 1.2msf
(INR5.9b). 4QFY13 pre-sales were driven by (1) Ashvita (Hyderabad) - 0.21msf
and (2) MWC Chennai projects (Iris and Aqualily) 0.14msf. Incremental presales
have been weak in Aura (Gurgaon) and phase I/II of Bloomdale (Nagpur).
 It acquired five projects (~2msf, with guided revenue potential of INR10b) in
FY13, along with one more affordable housing project in Boisar, Mumbai
(0.55msf) in Apr-13. 4QFY13 acquisitions include (1) a premium project in
Andheri (0.37msf) and (2) Bangalore (0.67msf). Consolidated net debt
increased by INR3.2b QoQ to INR7.1b (net DER of 0.55x).
 The stock trades at 1x FY15E BV, 10.2x FY15E EPS and 27% discount to our
FY15E SOTP value of INR520/share. Maintain Buy with a target price of INR480.

Cairn India- TP: INR370 Buy ::Motilal oswal,

Cairn India (CAIR) posted EBITDA of INR33b (+9% YoY, -1% QoQ) for 4QFY13, below
our estimate of INR35.6b primarily due to lower realization and higher opex at the
Cambay block. Rajasthan realization was USD99.7/bbl (our estimate: USD101.2/bbl)
and opex was USD4.9/bbl (our estimate: USD3.1/bbl; 9MFY13 average: USD2.9/bbl).
PAT impacted by exploration write-offs of INR3.7b: CAIR’s reported exploration
write-offs of INR3.7b included (a) INR2.7b of dry well write-off at Sri Lanka, and
(b) INR0.7b of 3D seismic survey expense in South Africa. This was partially offset
by (a) lower forex loss at INR28m (our estimate: INR1.5b), and (b) lower than
expected tax rate of 2.2% leading to a PAT of INR25.6b (our estimate: INR30.2b).
Rajasthan discount to Brent at ~12%; production averaged ~169kbpd: Rajasthan
realization was USD99.7/bbl (v/s USD108.5/bbl in 4QFY12 and USD95.6/bbl in
3QFY13), implying ~12% discount to Brent (v/s 13% in 3QFY13). Gross production
averaged 168.5kbpd (v/s 138kbpd in 4QFY12 and 170kbpd in 3QFY13).
Reiterates FY14 Rajasthan exit rate of 200-215kbpd; Mangala field might sustain:
The management indicated that if it gets approval to drill 48 infill wells at Mangala,
it could sustain/extend the current 150kbpd plateau, implying no decline at
Mangala in 4QFY14, contrary to our/consensus expectations. Update on key fields:
(a) Mangala: To drill 48 infill wells to sustain/extend plateau of 150kbpd (status:
approved by Operating Committee (OC), pending with Management Committee
(MC)), (b) Bhagyam: Expects to reach 40kbpd in 2HFY14 (~25kbpd now), ~30 wells
pending to be drilled as per the FDP, (c) Aishwariya: Has drilled nine of 11
development wells and plans to reach approved plateau of 10kbpd in next few
months, and (d) Barmer Hills: Has submitted development plan to OC and expects
to start production by end-FY14 subject to receiving MC approval.
Valuation and view: The stock trades at 5.3x FY14E EPS of INR55.8. Our SOTP value
for CAIR stands at INR370/share, implying 26% upside from current levels. Buy.

CESC (CESC.BO) Upgrade to Buy – Four Solid Reasons to Buy the Stock  Citi Research

CESC (CESC.BO)
Upgrade to Buy – Four Solid Reasons to Buy the Stock
 Upgrade to Buy — And we increase our target price to Rs369 to factor in: EPS
revision; increase in target P/BV multiple to 1.0x (0.85x) on RoEs expanding from 7.6%
in FY12 to 12% in FY15E and roll forward of target P/BV to Sep14E (Mar14E earlier).
Our target P/BV is well supported by cons EPS CAGR of 28% with average RoE of
10%. The key reasons for our upgrade are……
 Reason # 1: Underperformance — Post FSL acquisition in Oct 12, the CESC stock
has declined 13% and underperformed the BSE Sensex by 16%. This
underperformance more than makes up for the unrelated diversification. It might be of
interest to investors that pre-FSL in the first ten months of CY12, the stock had
outperformed the BSE Sensex by 42% (with absolute gains of 63%), which implies, ex-
FSL, investors were rewarding the business performance.
 Reason # 2: Unrelated diversification is EPS accretive — The FSL diversification
might not be positively viewed (and overall valuations might be better off without the
same), but unlike retail: (1) the businesses is not a cash guzzler, (2) is EPS accretive
from FY13E itself. We expect FSL to contribute 5-15% of CESC’s consolidated profits
over FY13E-15E post acquisition interest cost and (3) should generate a return on
investment of 18-20% from FY14E onwards.
 Reason # 3: Pessimism on parent business — In 9mFY13 the parent has averaged
Rs1.2bn/quarter which worried investors that PAT would decline YoY in FY13E if the
same average is maintained in 4QFY13E. We believe this fear might be unfounded as
we expect PAT to rebound QoQ in 4Q to Rs2.3bn to end FY13E at Rs5.9bn up 6% YoY.
 Reason # 4: Doubling generation capacity over next 2 years— Over next 2 years,
CESC will add 1.2GW which would double the generation capacity. Unlike other IPPs
CESC has not tied itself up in unrenumerative PPAs. 600MW is on regulated RoEs and
remaining 600MW is open. Yes, on the open portion there is a possibility of losses in
the 1st year, but from 2nd year onwards this plant has the ability to generate 15% RoEs

Sterlite Industries - TP: INR114 Buy:: Motilal oswal,

 Sterlite Industries' (STLT) 4QFY13 consolidated EBITDA increased 42% QoQ to
INR33b (v/s est of INR30.3b) due to strong performance across segments.
Adjusted PAT increased 57% QoQ to INR19.6b. Superior performance (v/s
est) was largely driven by improved operating parameters of recently
commissioned 80MW CPP at Tuticorin and improved quality and lower cost
of coal for Bharat Aluminium (Balco), Vedanta Aluminium (VAL) and Sterlite
Energy (SEL) for generation of power and aluminum smelting.
 Uncertainty regarding restart of copper smelter persists but we are optimistic
that the smelter will eventually come back to operations.
 SEL's fourth unit of 600MW was commissioned on March 31, 2013. Lack of PPA
for 1,800MW, transmission bottlenecks and fluctuating quality of coal and
prices will keep SEL's profitability volatile.
 Both VAL and Balco's aluminum smelters are operating at full capacity and
are now fully non-integrated for alumina. Balco is in advanced stages of
signing the mining lease for coal block, which could improve cash flows and
cost structure of its 245ktpa smelter and 325ktpa expansion.
 Although production at Zinc International will decline ~5% in FY14, Hindustan
Zinc (HZL) will more than compensate with higher mine production.
 STLT has a debt of INR190b (standalone INR100b + Balco INR43b + TSPL INR38b).
Sesa-Sterlite (SS) merged entity will have a consolidated debt of INR730b.
Standalone SS will have a debt of INR650b, while EBITDA will be only INR35-
45b. We are concerned about the servicing of debt as the surplus funds with
cash cows (HZL and Cairn India) are not fungible. Management continues to
evade answering queries regarding the same. We believe SS will have to
undergo another round of group restructuring to avail cash from its cash
cows for servicing debt. The high leveraged position of standalone-merged
entity continues to concern us and drag SS' valuation.
 SS trades at attractive FY15E PE of 5.1x and EV/EBITDA of 5x. Maintain Buy.

HDFC Bank - Q4FY13Result Update:: Centrum

Impressive performance but priced in
HDFC Bank’s Q4FY13 performance was in line with our expectations (PAT at Rs18.9bn). The bottom-line performance was primarily driven by healthy growth in NII and lower provisions. Asset quality was largely stable with a positive bias with %GNPA decreasing by 4% QoQ and PCR inching up by 30bps. HDFC Bank continues to deliver ~30% bottom-line growth despite the challenging environment and has displayed strong command over business segments it focuses on. The bank continues to invest in deepening its retail franchisee to support robust growth in future. That said, at current valuations the stock is fairly priced. We turn Neutral from Buy earlier.

Reported NIM contracts 20bps QoQ: NII grew by a healthy 21% YoY to Rs43bn led by a healthy credit growth (23% YoY) while reported NIM expanded sequentially by 20bps to 4.5%. The NIM expansion is the result of higher blended yields led by better loan mix (strong growth in unsecured/high yield products) along with marginal easing in cost of funds.

Asset quality matrix stable: Despite deceleration in economic activity at macro level and resulting challenges in certain product segments, asset quality matrix remained stable for the quarter. In fact, GNPA decreased by 4% QoQ to 0.97% while PCR improved further by 30bps to 80%. For FY13, the gross slippage rate was stable YoY at ~1% with credit costs at 84bps. Conservatively, we have factored in slippage rate of 1.4% and 1.5% for FY14 and FY15 leading to a credit cost of 74bps for both years.

Healthy credit growth, focus on unsecured prooducts: The advances book grew by a healthy 23% YoY primarily driven by the retail segment (27% YoY with strong growth in unsecured/high yielding products). In response to the potential stress in CV book, the bank remains cautious (down 1.6% QoQ). For FY13, the share of the retail segment has inched up further to 57% from ~55% for FY12. Led by intensifying competition and weaker demand in key retail segments (auto & housing), share of retail loans may come off a bit in FY14 though anticipated improvement in corporate segment should help maintain a healthy growth of ~23% in FY14 and FY15.

Nifty Index Stocks: A Guide to Identifying Outliers: Morgan Stanley Research

Tracking what the Market is Doing with the Biggest Stocks
This bi-monthly product tracks key 12-month drivers for stocks in the Nifty index. We reckon these drivers include a) sell side consensus opinion; b) institutional ownership; c) relative valuations; d) ROE; e) consensus earnings expectations; and f) long-term relative trailing performance. All these indicators are plotted in a time series so investors get a picture of the current value as well as change over time.
Our argument is that for a 12-month view, apart from the usual fundamental debates, investors need to assess how bullish (or bearish) the sell side – the more bullish the less likely the stock performs, the level of institutional ownership – higher ownership is headwind for stocks, relative valuations – richer valuations become an impediment, earnings expectations – while falling expectations are bad, if earnings growth expectations fall too low, it could well become a support for shares and finally ROE which is the most important fundamental factor. Indeed, we may quickly point out that sometimes the consensus is right so taking a counter consensus view does not work. Yet, the objective of this work is to pinpoint extreme cases of mispricing.
The stand out stocks from Nifty
Based on the recent changes in institutional ownership, change in ownership, sell-side ratings, change in ratings, earnings revisions, trailing performance and change in relative valuations, it appears that IndusInd Bank, ICICI Bank, ITC, Lupin and Maruti are the stocks where the consensus is most bullish and Hindustan Unilever, Tata Steel, Jindal Steel and Power, BHEL and Tata Power is where the consensus is most bearish

United Phosphorus - Capital Markets Day confirms our positive outlook:: Prabhudas Lilladher

UPL hosted its ‘Capital markets Day’ last Friday. The Management Team of UPL,
including the Regional Business Heads, explained the regional agri trends & UPL’s
strategy over the medium‐term. Post interaction with the management, we remain
fairly confident about UPL’s growth path ahead. Robust earnings growth during
Q4FY13, improvement in margins and working capital despite growing share of
Brazil, increased interaction with the investor community and improved disclosures
are likely to bring back investor confidence gradually. Management remained
fairly confident of achieving its revenues growth guidance of 12‐15% YoY during
FY14E, along with margin improvement of 100bps YoY. We believe consistent
earnings growth combined with improvement in Balance Sheet and return ratios is
likely to trigger re‐rating. Reiterate ‘BUY’ with target price of Rs185.
! Brilliant climax to FY13: Q4FY13 results turned out to be a pleasant surprise,
both on the profitability as well as Balance Sheet front. EBITDA margins
improved by 70bps YoY to 19.0%. Consistent pricing increase (nine consecutive
quarters of YoY positive price increases), shift in product mix, rationalization of
costs, turnaround in DVA are gradually gaining momentum and we believe,
margins are likely to improve by 50bps YoY in FY14E. Management is targeting
margin improvement of 300-400bps in DVA over the next two years. Working
capital days reduced to 90 at the end of FY13 driven primarily by increase in
creditor days (management has guided for working capital days in the range of
90-100 for FY14E). UPL generated FCF of Rs6.2bn in FY13.

Align investment choices with your investment horizon: Business Line

Many of you buy investment products because they offer attractive features such as high returns or tax-exempt income. Your choice could range from buying broker-recommended stocks to new fund offerings and bond issues rated highly by analysts. In this article, we discuss why you should not buy products just because they carry attractive features! Rather, your first step should be to shortlist investments that align with your investment horizon and then analyse the shortlisted investments for their attractive features.

Bond mapping

Suppose your investment horizon is six years. If you buy bond mutual funds, you will have to redeem your units after six years. Your redemption value will depend on the market value of the bond portfolio held by the fund. If bond prices decline, your redemption value will decline as well! You are, therefore, exposed to bond market risk. Besides, you have to pay taxes on income and capital-gains arising from such investments.

To avoid taxes, suppose you invest in 10-year tax-free bonds issued by government institutions such as NHAI and IRFC. Such investments save taxes but expose you to the same market risk because you have to sell your bonds at the end of 6 years!

You will face a different problem if you invest in a 10-year bond when your investment horizon is 12 years! Then, you will have to reinvest the redemption proceeds received after 10 years into another bond and hold that bond for two more years. If interest rates were to decline in year 10, you will earn lower returns in years 11 and 12.

One way to moderate the risks associated with bonds is to map your investments with your investment horizon. Given that your investment horizon is six years, you should look for an attractive bond investment with a maturity of six years. This means you will avoid investing in 10-year tax-free bonds or a bond fund that has earned high returns in the past!

Equity mapping

Unlike bonds, stocks do not have a finite life. So, mapping equity investments refers to your decision to take profits based on your investment horizon. If you do not align your equity investments with your investment horizon, you will be tempted to take profits whenever unrealised gains are high. And because generating continual gains from market timing is difficult, you are likely to suffer from two behavioural biases- regret bias and disposition effect.

Regret bias refers to the behaviour that you could move away from equity investments, driven by regret that your previous profit-taking decisions were wrong! Disposition effect refers to the tendency to hold on to loss-making positions for too long and to sell profit-making positions too quickly! Suffice it to say that both these biases could lead to failure in achieving your investment objectives.

If you were to hold your investments till the end of your investment horizon, you will not be tempted to take short-term profits. You can moderate the biases by adopting the following rules: One, buy-and-hold investments till the end of the investment horizon. Two, review the investments every six months. If the unrealised gain is higher than the annualised return required to achieve the investment objective, sell investments to capture only the excess returns. Three, invest the excess returns in short-term deposits. Four, transfer this excess returns back to equity to bridge the gap if in any year the unrealised return is lower than the annualised required return.

Conclusion

Mapping your product choices with your investment horizon creates investment discipline; it reminds you that investing is not about chasing “returns” but about achieving objectives! This process, hence, prevents you from buying products that may not be appropriate for achieving your investment objectives, even if they carry attractive features such as high returns, lower fees or tax-exempt income

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FII & DII trading activity on NSE, BSE and MCX-SX 03-05-2013

Category		Buy	Sell	Net
		Value	Value	Value
FII		2903.75	1949.8	953.95
DII		886.12	1678.9	-792.78

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FII DERIVATIVES STATISTICS FOR 03-May-2013

FII DERIVATIVES STATISTICS FOR 03-May-2013
	BUY		SELL		OPEN INTEREST AT THE END OF THE DAY
	No. of contracts	Amt in Crores	No. of contracts	Amt in Crores	No. of contracts	Amt in Crores
INDEX FUTURES	53236	1603.59	53805	1616.20	407704	12167.18	-12.61
INDEX OPTIONS	669423	19983.59	685589	20452.14	1655827	49277.96	-468.55
STOCK FUTURES	66068	1928.36	90095	2612.94	884089	24757.25	-684.58
STOCK OPTIONS	66208	1880.26	65151	1856.27	75925	2111.63	23.99
						Total	-1141.76

 

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