Hindustan Zinc Delivers quality earnings; Return potential intact ::Prabhudas Lilladher,

Hindustan Zinc reported Q4FY13 earnings ahead of our expectation on the back of
better-than-expected concentrated sales volumes. Given the strong likelihood of
Govt. stake sale at a much higher price and beaten down valuations (EV/EBITDA:3.6x
FY14E), we reiterate our “BUY” rating with TP of Rs150, EV/EBITDA of 4.5x FY15E.
! Strong concentrated sales leads the beat: Thanks to higher-than-expected
concentrated sales (61kt v/s PLe: 30kt), revenues grew ahead of our expectation
at Rs38.5bn (PLe: Rs37.3bn), up 22.6% QoQ (24.5% YoY). Higher concentrated
sales compensated lower-than-expected refined metal (215kt v/s PLe: 220kt)
and silver (107t v/s PLe: 119t) volumes. Led by higher concentrated sales,
EBITDA grew ahead of our expectation at Rs20.6bn (PLe: Rs19.4bn); up 46%
QoQ (27% YoY). Gap further widened on PAT level on account of lower tax rate
(9% v/s PLe: 13%). Adj. PAT grew ~39.5% QoQ (53.7% YoY) at Rs21.8bn (PLe:
Rs20.1bn).
! Key takeaways from earnings con‐call: 1) Zawar (capacity of 1.2mtpa) secured
all requisite approvals to resume production 2) Management guided 15%
growth in mined metal production in FY14 at 1m tonnes on the back of
increased production in Zawar, SK and Kayar mines 3) Integrated saleable silver
production (net of own consumption) is guided to grow 25% YoY at 360t. 4) Net
addition of 16m tonnes to Reserves and Resources (R&R) after depletion of
8.6m tonnes in FY13. Total R&R stood at 348m tonnes at the end of FY14 with a
mine life of 25+ years. 5) Cost of production guided to remain stable in FY14 6)
Tax rate is guided to be in mid-teens in FY14.
! Valuation and Outlook: We remain positive on the stock given the play on
attractive valuations and quality assets, coupled with strong likelihood of Govt’s
stake sale at a significant premium. We maintain our “BUY” rating with TP of
Rs150, EV/EBITDA of 4.5x FY15E.

Rallis India- In‐line results; maintain ‘Accumulate’::Prabhudas Lilladher,

Rallis India reported Q4FY13 results broadly in line with expectations. Adjusted PAT
for the quarter stood at Rs105m, 253% YoY, driven by better rabi season & lower
base. Working Capital requirements also reduced to Rs1.8bn compared to Rs2.2bn
at the end of H1FY13. We believe Rallis will continue to benefit from its leadership
position in domestic agrochemicals market, strong product pipeline in Metahelix
and ramp‐up in Dahej. Stock is currently trading at 15.7x FY14E earnings (long‐
term average of 18x based on 1‐yr forward earnings). Maintain ‘Accumulate’ with
TP of Rs140.
! Q4FY13 results were broadly in line: Rallis reported consolidated sales of
Rs2.9bn, 32% YoY (against an est. of Rs2.5bn). Standalone sales stood at
Rs2.6bn, 33% YoY, while Metahelix sales stood at Rs196m, 18% YoY. However,
consolidated margins at 9.9% were lower than estimate of 11.7%. EBITDA for
the quarter stood at Rs282m, 128% YoY, in line with estimates. Adj. PAT for the
quarter stood at Rs105m, 253% YoY (low base effect) in line with estimates.
! New product launches, ramp‐up in Dahej & strong product pipeline of
Metahelix to drive growth: We expect domestic agrochemicals industry to
rebound over the next year and Rallis being one of the leading players is
expected to be a major beneficiary. Consistent launch of new products & rampup
in Dahej would further spur growth. Metahelix has a strong product portfolio
across corn, millets, paddy and vegetable seeds and is well-positioned to
achieve 25% p.a. growth over the medium-term.
! Maintain ‘Accumulate’ with target price of Rs140: Rallis is currently trading at
15.7x FY14E earnings of Rs7.8 (long-term average of 18x based on 1-yr forward
earnings). Rallis continues to trade at a premium of 25-30% to domestic peers
which, we believe, will continue over the medium term. We value Rallis at 18x
FY14E earnings, resulting in target price of Rs140 (potential upside of 14%) and
recommend ‘Accumulate’.

Merck Pharma Buy- Q1CY13Result Update ::Centrum

Good sales growth, but margin disappoints
Merck’s revenues for Q1CY13 were in line with our expectations but EBIDTA margin and net profit were below our estimates. The company reported 24%YoY growth in revenues, 170bps decline in EBIDTA margin and 13% growth in net profit. The growth was driven by the pharma business (63% of revenues), which grew by 28%YoY. The chemicals business (37% of revenues) grew by 20%YoY. Merck is a debt-free company with cash/share of Rs116. We expect the growth momentum to be maintained due to strong growth in the pharma business and benefits from NPPP. We have revised our CY13 and CY14 EPS estimates downwards by 3% each. We have a Buy rating for the scrip with a revised target price of Rs878 (based on 14x June’14E EPS of Rs62.8).

Strong growth in pharma business: Merck reported 24%YoY growth in revenues from Rs1.46bn to Rs1.82bn due to the strong growth in pharma business. The company’s pharma business (63% of revenues) grew by 28%YoY from Rs929mn to Rs1.19bn. The growth was way ahead of domestic pharma market growth of ~11%. The company’s chemical business (37% of revenues) grew by 20%YoY from Rs575mn to Rs688mn.

Strong margin improvement: Merck’s EBIDTA margin declined by 170bps YoY from 11.2% to 9.5% due to the increase in material cost and other expenses. The company’s material cost went up by 210bps from 41.6% to 43.7% of revenues due to the change in product mix. Merck’s personnel cost declined by 280bps from 15.6% to 12.8% due to higher sales growth. Other expenses went up by 220bps from 31.7% to 33.9% of revenues. On a QoQ basis, margin declined by 560bps from 15.1% to 9.5%.