Nestlé India Limited :Annual Report Review: Volume concerns dominate 2012; hoping for a better 2013: JPMorgan

We analyse 2012 annual report for Nestlé India in this note. Post nearly flat
volume growth in 2012, we expect growth rates to recover in 2013 supported by
new capacity commissioning, wider product base and enhanced distribution
reach. EBITDA margins in 2012 were the highest seen in the past decade,
benefiting from price increases and favorable product/channel mix. Management
anticipates that moderation in growth rates will show steady recovery in the short
term and growth momentum will revive soon.
 Pricing led growth in 2012 as vol growth was nearly flat at 0.8% impacted
by challenging macro impacting packaged food industry growth adversely,
lower export sales and to some extent by portfolio churn in favor of better
margin products in chocolate and milk product segments. Revenue growth
across categories - milk pdts: 15% (vol:-5%, price: 21%), beverages: 5% (vol:-
5%, price: 11%), prepared dishes: 13% (vol:8%, price:4%) and chocolates:6%
(vol:-9%, price:17%). Vol growth moderated more in 2HCY12 to 0.5% vs.
1.1% in 1HCY12. Revenue mix was relatively stable vs last year. New
product/variant launches and renovations continued particularly in prepared
dishes and dairy segment. In 2012, Nestlé added 0.5mn new retail outlets
(0.4mn added in 2011). The number of SKUs was reduced by over 20%,
bringing down complexity costs across value chain.
 Substantial margin improvement. Commodity cost pressures were managed
well via price hikes, cost control and improved product/channel mix. Gross
margins expanded sharply by 250bp y/y and EBITDA margin improved 130bp
y/y, though employee (+21% y/y) and power & fuel (+25% y/y) costs were
higher. A&P spends were up only 9% y/y with A&P/Sales dropping to 4.3%.
 Capex and debt levels remain high; WC improves further – Capex in 2012
stood at ~Rs10bn. Over 2010-12, total capex has been ~Rs30bn which compares
against cumulative capex of ~Rs13bn over CY06-10. Debt levels stood at
US$192mn, which are likely to remain stable considering the significant
capacity expansion plans are largely done. Cash conversion cycle improved as
increase in payable days offset some deterioration in inventory days.
 2013 should be better we think. We expect volume growth rates to recover
gradually in 2013 supported by new capacity commissioning, wider product
base, enhanced distribution reach and a bit more competitive pricing in some of
the categories. RM inflation outlook appears benign and that should help
margins to hold out.

Hindustan Construction Company – Disappointing set of results: Aditya Birla Money

Result Analysis
 Execution muted; Order Inflow guidance positive: Company’s sales declined by
15.8% YoY to ~`9.8bn below our and street expectations. The company’s order book
stands at~ `149.4bn (29% hydro, 40% transport, 19% water and 12% nuclear and
others). Execution was badly impacted mainly due to issues in Kashmir which stalled the
execution of Kishanganga project (project value of ~`27bn). The order inflow outlook in
the medium term is muted; however the management has guided to bag orders to the
tune of `50bn in FY14 which is positive despite the weak macro environment. We expect
HCC to bag orders worth ~`29.7bn in FY14. The company’s execution is likely to pick up
in FY14 as transportation projects share in the overall order book pie has increased and
we expect the FY14 revenues to be at ~`41bn.
 Operating margin still under pressure: During 4QFY13, the company’s operating
margin expanded by 153bps YoY; however contracted by 163bps QoQ to 9.1%.
Operating margin were below our as well as street estimates mainly led by higher raw
material expenses. We expect the operating margin to be at ~10% levels for FY14 and
FY15 as the share of high margin hydro projects is coming down.
 Loss widens to `742mn; forex loss adds to the woes: Company reported a net loss of
`742mn during 4QFY13 higher than our expectations mainly due to execution delays and
forex loss. HCC booked a forex loss of `115.5mn during Q4FY13 as against a gain of
~`10mn during 4QFY12. Interest costs were down 13% YoY at `1,318mn mainly on the
back of corporate debt restructuring.
Other Key Highlights:
 Karl Steiner AG; another quarter of strong performance: The Company’s sales grew
by ~5% YoY during FY13 to ~`44.5bn, while it’s PAT increased by 3x to ~0.5bn
duringFY13. During the quarter company received order inflows of ~`4.9bn while it has a
backlog of `70.5bn giving us revenue visibility of 1.5-2 years. Karl Steiner is sitting on a
health cash position of ~`9.3bn.
 HCC Infrastructure: The company has achieved 59% progress on Baharampore-
Farakka and 47% progress on Farakka-Raiganj BOT projects and Commercial operation
& toll collection of West Bengal project (NH34) expected later this year.
 Lavasa; Work gathering pace - The construction work has started and ~410 units are
further ready to be handed over. On the institutional front it signed a deal with S.K
enterprises for a 0.55 acre plot for a consideration of `45mn (highest price per acre till
date).
Outlook and Valuations:
HCC has posted a weak set of results on the top-line as well as operating front. On the
profitability front interest costs have been contained mainly due to the debt restructuring
programme. The company’s focus for FY14 is clearly on lowering its debt and monetizing its
assets which we believe is difficult at this stage given the unfavorable market conditions. We
expect execution to slowly pick up pace and estimate HCC’s top-line to increase by 6.2%
during FY14 and 9.6% in FY15, while we expect its operating margin at 10% levels. Given the
stretched balance sheet (~4x) interest costs are likely to take a toll on profitability and we
expect HCC to continue post losses in FY14 and FY15.
Infrastructure segment is still under severe pressure and we do not foresee the situation
improving in the near term. Post, the recent RBI rate cuts interest costs for infrastructure
companies are likely to decline marginally. HCC’s balance sheet is highly leveraged and with
low visibility on asset monetization and high interest cost all are likely to impact HCC’s
profitability negatively. Lavasa continues to be an overhang on the stock and hence till further
clarity emerges we recommend “Hold” rating on the stock. At the CMP, the stock trades at
0.9xFY15E P/B and 11.9x FY15E EV/EBITDA.

Oriental Bank of Commerce's (OBC) TP: INR355 Buy:: Motilal oswal,

Oriental Bank of Commerce's (OBC) reported PAT for 4QFY13 grew 16% YoY
(declined 6% QoQ) to INR3.1b (7% below our estimate). Key highlights:
 NII grew 14% YoY (flat QoQ) to INR12.1b (5% below our estimate). Reported
NIM was flat QoQ at 2.8% v/s our expectation of 10bp QoQ improvement.
 Slippages were INR10.4b (v/s INR8.1b in 3QFY13). These included one large
account of INR4.6b, which was earlier expected to be restructured. Adjusted
for this, gross slippages were ~INR6b, better than the guidance of INR7b-8b.
 Incremental restructuring in 4QFY13 was at INR8b (v/s guidance of INR13b).
 Other highlights: (1) Loans grew 5% QoQ and 15% YoY, (2) CASA ratio and
proportion of bulk deposits was stable QoQ at 23.9% and 20%, respectively,
(3) Provision on employee expense increased to INR200m per month
(factored 20% wage hike) v/s INR150m per month in 3QFY13, (4) While PBT
was 58% below estimate, Nil tax rate v/s expectation of 26.9% helped PAT.
 Management guidance for FY14: (1) NIM of 2.9% v/s 2.8% in FY13, (2) GNPA
and NNPA to be contained at 2.9% and 2%, respectively v/s 3.2% and 2.3% in
FY13 and (3) PCR (including technical write-off) of 68%+ v/s 63% in FY13.
Valuation and view: Reduction in high cost deposits and easing interest rate in
the system are likely to be beneficial for OBC in perspective of NIM. During the
quarter, though accretion of fresh slippages was higher QoQ, adjusted for one
large account, which was expected to be restructured, it was lower than
management guidance. OBC is likely to report RoA of ~0.8% and RoE improvement
from ~11% in FY12 to 14% in FY15. Maintain Buy.

Metal Sparks Gold: Crumbling Pillars:: Morgan Stanley Research

Metal Sparks
Gold: Crumbling Pillars
In our view, the dramatic sell-off in the gold market
since 12 April has all the hallmarks of panic-driven,
stale long liquidation, stop-loss and capitulation
selling in the face of a concerted short sale that
began in New York on Friday April 12. We trace the
origins of the short sale assault to the 10% reduction in
CME margins for gold futures contracts that took place
in November 2012. The subsequent the erosion of some
of the major pillars supporting the gold bull market that
occurred in the interim provided fertile ground for such a
successful and attractively priced assault on the long
skew to investor positioning in the market. As a result of
the magnitude of the mark-to-market effect of this move
on YTD average prices, and the subsequent reset to the
pricing basis of the forward curve, we have
downgraded our gold price forecasts to
US$1,487/oz in CY2013 (-16% from our previous
forecast) and to US$1,563/oz in CY2014 (-15%).
The erosion of the long-running bull trend we attribute to
a number of factors, of which we would highlight the
following three as the most important:
1. ETF liquidation: Fund selling is probably the most
important single influence, with persistent liquidation
from these funds evident since early February.
2. Speculation over European central bank selling:
The spectre of a return of central bank net selling is
clearly of great concern to the market, particularly if it
would neutralise the current trend of buying from the
emerging market central banks.
3. Nervousness over the possibility of the Fed
pulling QE early: The latest Fed minutes suggested a
growing consensus from Federal Reserve Board
members to slow down federal purchases of MBS and
other assets.

NTPC - Management meeting takeaways :: JPMorgan

Key takeaways from our meeting with Director (Finance) of NTPC:
 NTPC remains opposed to participating in a coal price pooling
arrangement. According to management, pooling could place NTPC’s
plants lower in the merit order of dispatch for SEBs, as private sector
capacity setup using Chinese equipment may have lower fixed costs.
 Meeting rising coal import targets to plug shortfalls may be difficult;
pooling is the answer, in our view. Management pegged the FY14 target
of coal imports at 17MMT, lower than the 24MMT targeted earlier. In our
assessment, imported coal transportation to NTPC plants in the interior
states of the country is inefficient, and the company could benefit from
pooling to plug potential slippages in direct imports and target captive coal
production (see 11 January NTPC report - The greater good).
 NTPC will continue to follow up on coal quality issues with CIL.
Management said the problem has worsened as coal pricing has been done
on the basis of GCV since Jan-2012 vs. UHV earlier. The lowest count of
the former scale is smaller, so slippages in quality are costly for the buyer.
 Key FY13 stats are favorable. Availability factor for coal-based plants of
NTPC in FY13 was 87.6% vs. 88.4% in FY12. FY13 receivables stand at 36
days. NTPC added 3.2GW at the standalone level and 4.2GW at the
consolidated level, in line with the company’s original FY13 target. In light
of the coal shortages, SEB financial stress, and execution issues faced by
the sector, these are good outcomes, in our view.
 Confident of getting fresh coal blocks (reserved for government
enterprises) when allocation happens. NTPC has applied for fresh blocks
to support 8.46GWpipeline capacity under development (not yet tendered).
 We raise our Mar-14 PT slightly to Rs175 on housekeeping changes.
NTPC offers the prospect of a 7.2% PAT CAGR over FY12-17. NTPC
trades at 11.9x FY14E EPS – cheap in a historical context and relative to
regional utilities. Slippages in execution and lower fuel availability than
expected are downside risks, and vice versa for upside risks.

Is oil re-pricing growth expectations? ::BofA Merrill Lynch

Is oil re-pricing growth
expectations?
􀂄 A slowing economy could push Brent down below $95/bbl
Brent prices have declined by almost $20/bbl on a combination of seasonal and
cyclical headwinds. Some of these cyclical pressures are too large to ignore, such
as China’s drop in energy demand growth or Europe’s sharp contraction in credit
supply. In addition, emerging and developed markets face mounting structural
challenges. To name a few, energy importing countries like China, Japan or India
are seeing $15/MMBtu nat gas prices at the margin, while others like Brazil are
struggling with high labor costs and rising inflation. In Italy or Spain, a high cost of
capital poses a major challenge to a recovery. Should the global economic
recovery stall further, Brent oil prices could fall below $95/bbl in the near-term.
Our economists see few downside risks to EM growth…
At any rate, our economists still expect China to post GDP growth of 8.0% in 2013
and 7.7% in 2014. These numbers are consistent with our expectations of 360
and 485 thousand b/d in oil demand growth, respectively. A robust China outlook
should translate into strong EM growth and hence oil demand. Having said that,
Chinese oil demand in March grew by just 255 thousand b/d, consistent with
average GDP growth of around 5 to 6%. Surely, solid EM demand has been a
constant in the oil market for decades, so a structural slowdown in economic
activity would not bode well for global crude oil prices.
…so we keep our $112/bbl Brent forecast in 2014 for now
For now, we stick to our 2014 Brent forecast of $112/bbl despite the weaker data,
as OECD ex-US inventories remain low. But we are concerned about the
structural headwinds facing many economies. Whether it is high energy costs,
expensive labor costs, a rising cost of capital, declining profitability, or misdirected
investment into unproductive assets, the dislocations created by five years of zero
interest rate policy in DMs will likely have some negative consequences in EMs.
With oil demand growth exclusively supported by buoyant EM growth for years,
lower global GDP trend growth (say from 4% down to 3%) could push Brent firmly
out of the recent $100-120/bbl band into a lower $90-100/bbl range.

India Gold and oil prices – Major silver linings? :: Barclays Capital

India
Gold and oil prices – Major silver linings?
The drop in commodity prices, particularly in gold and crude oil, if sustained, could be
a major positive driver for India. The immediate and most visible impact would be on
the current account balance, which could improve by nearly 1% of GDP in FY 13-14, on
our estimates. A reduction in oil under-recoveries would also reduce the necessity for
domestic fuel price hikes, which contribute over 25% to current inflation.
Crude oil and gold are the two major commodity imports for India, and both have increased
significantly in recent years. India’s oil imports are typically sticky and not very sensitive to
price. The surge in gold import demand in recent years, on the other hand, has remained
mostly speculative in nature. This means that in the case of a downward trending price, not
only would the gold import bill likely decline, volumes could also decrease.
We examined the potential change in India’s net import bill in light of the recent drop in
prices of these two commodities, under the assumption that there will be no change in
oil/gold import volumes due to price change. Given the observed price-demand
relationship in recent years, we believe this is a conservative assumption.
We estimate that if gold prices remain flat at USD1400/oz, and Brent crude remains at
USD100/bl, India’s net import bill for these commodities could fall by nearly USD7bn and
over USD13bn, respectively, given our flat volume assumptions. This would result in net
savings of around USD20bn on the current account deficit, lowering it to USD66bn
(around 3.2% of GDP) and bringing it below our baseline estimate of over USD85bn
(4.1% of GDP). We have also not factored in any drop in other metal prices, such as
copper/palladium/silver, which could increase the benefits to the current account.

Ajanta Pharma:: SBI cap report

IT a benign hit, Palmy outlook but overboard on Price
Ajanta Pharma (AJP) beats 4Q estimates with Sales/PAT at Rs2.5bn/435mn
(+45%/114% yoy), driven by sweeping growth across DF (+46% yoy; 37% yoy
excluding Inst.) and exports (+45% yoy). Accelerated CVS/Derma growth within
Domestic has boasted OPM at 27.6% (+690bps yoy). Other highlights: Other income
of Rs62mn includes Rs54mn dividend income received from Mauritius subsidiary, one
time tax expense of Rs157mn to be written off against available MAT credit, shielding
the cash outflow.
Management outlook: Overall mgmt expects F14 Sales to grow +20% on F13’s high
base with OPM ~25% and profit growth between 10-15%. Growth from the Domestic
(led by Derma) and Exports segment is pegged at 20% and 25% respectively.
However stay positive on US business for F15 with 5-6 launches in 4QF15. On Africa
(ex-WHO tender) business, guided 18-20% stable growth.
Upgrade TP; Retain Hold: Following clarity on the IT penalty together with healthy
Sales and margin outlook for F14 we upgrade our F14/F15 earnings by 15-18% to
Rs54.8/65.1. Hence, our TP is revised to Rs716 (earlier Rs605) while retaining our
P/E multiple at 11x F15. The stock continues to get expensive on valuation and now
trades at all time high limiting upside. In recent 3-6m the P/E has expanded by >100%
(12.5x now on F15 consensus) while the earnings upgrade on consensus remained in
15-20% range for F14/15e.
Export formulation grew ~44%/45% for F13/4Q: Growth from export formulations
segment was healthy for F13/4Q (+44/45% yoy), led mainly by Asia and Africa
regions. Till date AJP has a basket of 14 ANDAs (2 approved) and has plans to file 5-
6 ANDA per year.
Domestic surprises on lofty Institutional sales: The F13/4Q yoy growth continues
to surprise at 29%/46% (29%/37% ex-Inst. business), largely driven volume growth
across Derma/ CVS + pick up in 3 newer segments. F13 witnessed 19 new product
launches of which 4 were first to market.
Valuation and recommendation: In our view, while the long term fundamentals of
AJP (backed by commercialization of Gujarat plant by F16) are in tact, the valuation
seems to be expensive though. Our TP is upgraded to Rs716 (earlier Rs605) valuing
at 11x F15.

Lower realization impacts profit; downgrade to Neutral Ambuja Cements :: Centrum

Lower realization impacts profit; downgrade to Neutral
Ambuja Cements’ Q1CY13 result was below estimates primarily due to lower than estimated realization (Rs4,388/tonne vs. est. Rs4,591/tonne). The company reported revenue of Rs25.4bn (est. Rs27.1bn), adjusted EBITDA (adjusted for Rs291mn of CENVAT credit for earlier years) of Rs5.1bn (est. Rs6.1bn) and adjusted OPM of 20.1% (est. 22.7%). Lower-than-expected operating profit resulted in adjusted profit of Rs3.3bn (est. Rs3.9bn) though depreciation at Rs1.2bn was lower than estimated Rs1.bn). Going forward, we expect recovery in cement demand led by electoral spending (general elections are expected in May 2014), improvement in capex activities of industries and higher demand from the housing segment (as we expect a decline in interest rate). Improvement in cement demand will aid pricing power of manufacturers who will be able to pass on the rise in input cost to consumers. Cement price has remained subdued for the past 3-4 months due to sluggish demand across India. Though, we expect recovery in OPM and profitability post Q2CY13E, lower realization during the quarter leads us to downgrade our EPS estimates downwards by 8.5% to Rs10.1 for CY13E. We expect recovery in cement price during Q3 and Q4 and hence CY14E EPS stands intact at Rs13.6. We downgrade our rating on the stock to Neutral from Buy with a revised price target of Rs207 (earlier: Rs222) based on 8.5xCY14E EBITDA.

Lower sales volume and higher costs lead to lower op. profit: Lower cement sales volume of 5.8mt (4.1% YoY decline) offset increase of 0.8% YoY in realization and led to revenue decline of 3.4% YoY to Rs25.4bn. Led by lower sales volume and higher operating costs, adjusted EBITDA (adj. for Rs291mn CENVAT credit related to earlier years) declined 31.2% YoY to Rs5.1bn.

HDFC Ltd Q4FY13 - Result :: Microsec Research

Dear Sir/ Madam,

Housing Development Finance Corporation Ltd announced its Q4FY13 result on 8^th May 2013.

In Q4FY13, the company’s topline increased by 24.52% QoQ and 18.99% YoY to INR11035.17 crores. Whereas, Profit After Tax (PAT) increased by 22.12% QoQ and 17.24% YoY to INR2083.12 crores.

For the full year of FY13, the company’s topline increased by 18.74% YoY to INR35948.18 crores. Whereas, Profit After Tax (PAT) increased by 21.55% YoY to INR6639.72 crores.

Particulars	Q4FY13	Q3FY13	Q4FY12	QoQ(%)	YoY(%)	FY13	FY12	YoY(%)
Net Sales & other operating income	11035.17	8862.46	9273.69	24.52%	18.99%	35948.18	30275.78	18.74%
Operating Profit (Excluding OI)	2442.84	1812.69	2090.52	34.76%	16.85%	7428.53	6189.65	20.02%
OPM(%)	22.14%	20.45%	22.54%	169bps	(40)bps	20.66%	20.44%	22bps
PAT	2083.12	1705.83	1776.74	22.12%	17.24%	6639.72	5462.51	21.55%
PAT(%)	18.88%	19.25%	19.16%	(37)bps	(28)bps	18.47%	18.04%	43bps
EPS	13.33	11.03	11.49	20.85%	16.01%	42.93	35.33	21.51%
All data in Crores.
Note:- Previous quarter's EPS adjusted to current number of shares.

The Board of Directors have recommended a dividend of INR12.50 per equity share.

Regards,

Team Microsec Research

Why real estate is a bad long term investment:: Ajay Shah, Professor, NIPFP

Most people in India are convinced that real estate is a great asset. More caution is in order.Real estate investment is not a guarantee of profit. It is hard to be diversified, and illiquidity hampers portfolio structuring. Most important, the outlook for supply over the medium term implies that there is no great upside.

Too many intelligent people in India believe that one can never do wrong by investing in real estate. Some facts will help bring more sense. Consider investing in the best commercial real estate of Bombay -- Nariman Point -- in 1994. The price was Rs.35,000 per square foot. Today, almost 20 years later, the price is Rs.25,000 a square foot.

Shree Cements Ltd -Rating : Sell Target : INR 3800 : FinQuest

Cement business disappoints, while lower depreciation and tax allowance
helps the bottom-line
Power division witnesses healthy growth while cost savings aids margin
expansion
Maintain 'Sell' rating on Shree Cement with a revised target price of Rs 3800
Despite disappointing cement dispatch growth, Shree Cement posted excellent bottom-line growth driven
primarily by decent growth in cement realization, excellent growth in the power business and lower
depreciation and tax outgo during Q3FY13 (Quarter ended March 2013).
The cement volumes fell 4% to 3.22 mn tonnes during the quarter, while the power volumes rose 68% to
722 mn units. But 3.5% Y-o-Y improvement in cement realization helped the total revenue to come in
7% higher Y-o-Y to Rs 14.72 bn. The cement realization during the quarter improved to Rs 3677 per
tonne as compared to Rs 3552 per tonnes during the corresponding quarter of the previous year. Coupled
with improvement in realization, fall in operating costs helped margin expansion by 144 bps to 28.6%
during the quarter under review.
The good news is that the power division is doing exceedingly well, while the cement realization has
improved despite poor demand. But the fact that the cement demand has remained poor despite the
quarter being the peak season for cement consumption in the northern markets where the company
operates is a major concern. The continuation of such scenario may result in steep price correction going
ahead, although the company expects the cement demand and price to increase by 10% and 5%
respectively in the next fiscal. Lower PET Coke prices and sharp fall in coal prices helped the company to
lower its fuel expenses and that in turn helped the EBIDTA margins during Q3FY13 expand 144 bps Y-o-
Y to 28.6%. As a percentage of net adjusted sales the power & fuel expenses contracted 215 bps to
24.1%, while the freight expenses fell 160 bps to 16.3% although the personnel expenses and other
operating expenses increased marginally.
The company has been following accelerated depreciation on certain assets for some time now and that
caused the depreciation allowance this time to be very low. It came in at Rs 1.27 bn (46% lower Y-o-Y),
while the tax expenses also came in 69% lower Y-o-Y at Rs 176 mn thus helping the bottom-line to post
136% gain during the quarter to Rs 2.74 bn.
Shree Cement has been aggressively expanding its cement and power capacity during the past several
years and the stabilization of the same in the days ahead bodes well for the company. We expect the
power business of the company to improve sharply, but the lacklustre growth of the cement segment is a
major concern. We reckon that if the cement demand remains poor the company would witness price fall
in the quarters ahead. We also see cost pressure going ahead driven by higher power & fuel cost and
freight expenses. Thus if cement price falls from these levels we see margin pressure going ahead for the
company's cement business. Although on the power business of the company we are quiet bullish.
Nevertheless we expect Shree Cement to maintain its market leadership position in the northern region
and would rather continue to outgrow the cement industry going ahead. Integrated operations have
enabled the company to post significantly higher operating efficiency than its larger peers in India.
Despite the relative macro strength of Shree Cement, we reckon that the share price
has run ahead of its valuation, hence maintain 'Sell' rating on the stock with a revised
target price of Rs 3800 (considering USD 140 per tonne replacement cost to value
the cement business)
We expect the company to maintain its cost leadership position in the cement industry, as it witnesses
significant ramp-up in its power business. We believe there would be pickup in pre election spending in
several states in the next 12 months while the demand supply mismatch would narrow in favor of demand
as the capacity expansion slows down. At the current price of Rs 4640, the stock is trading at PE and EV/
EBIDTA of 13.8x and 8x FY14E earnings. While we continue to be positive on Shree Cement operational
matrix, we are a bit worried about the cement industry macro at this point as the demand growth continues
to remain weak. We believe Shree Cement has run ahead of its valuation even after considering increased
cement replacement cost of USD 140 per tonne to value its cement business. We maintain our 'Sell'
rating on the stock with a revised one year price target of Rs 3800. We value the cement business at USD
140 per tonnes (in line with current replacement cost of USD 140- 150 per tonne). We value the power
business using discounted cash flow (DCF) approach to arrive at per share value of Rs 544. We estimate
the revenue and EPS for FY13 to come in at Rs 56.96 bn and Rs 277.8 respectively.

Dish TV: BUY ::Business Line

Lupin - Q4FY13 Result Update - Centrum

Q4FY13 Result Update/Estimate Change

Lupin

Rating: Buy

Target Price: Rs925

CMP: Rs731

Upside: 26.5%

On high growth trajectory

Lupin’s Q4FY13 results were above our expectations. The company reported a growth of 34%YoY in revenues, 610bps in EBIDTA margin and 162%YoY in net profit. Lupin has reported excellent growth of 43% in the domestic market and 49% in US & European markets. However, the company reported a lower growth of 2% in the Japanese market. We expect the growth momentum to be maintained from new product introductions in the US and domestic markets. The management expects 75-100bps margin improvement annually. We have revised our FY14 and FY15 estimates upward by 17% and 21% respectively. We have a Buy rating for the company with a revised target price of Rs925 (based on 22x Sept’14 EPS of Rs42.1).

m  Strong growth across geographies: Lupin reported 34%YoY growth in revenues from Rs19.24bn to Rs25.86bn due to strong growth across geographies. Growth rates across major geographies were as follows:  Domestic formulations 43% (22% of revenues), Formulations - US & Europe 49% and 33% in dollar terms (48% revenues,) , Japan 2% and 9% in yen terms (11% revenues) , API 10% (10% revenues), Formulations RoW 35% (6% revenues) and S. Africa 29% (4% revenues).
m  Healthy margins: Lupin’s EBIDTA margin improved by 610bps YoY from 19.4% to 25.5% due to overall decline in cost. The company’s material cost declined by 470bps from 39.7% to 35.0% of revenues due to the change in product mix with higher revenues from the regulated markets. Lupin’s personnel cost dropped by 120bps from 14.0% to 12.8%. Other expenses were marginally lower by 10bps from 26.9% to 26.8% of revenues.

m  Strong product pipeline in the US: Lupin has filed 176 ANDAs with US FDA of which 78 have been approved. The company filed 21 ANDAs in FY13 of which 14 were approved. Lupin has filed 138 DMFs with US FDA. The company has plans to file 25 FTFs with US FDA of which 12 are exclusive. It plans to file ~10 oral contraceptive (OC) products with US FDA. We expect this strong pipeline to drive future growth for the company.

m  Market leader in the US:  Lupin is the market leader in 24 products out of 46 products marketed in the US generic market. The company is amongst the top 3 by MS in 37 of these products as per IMS-March’13 data.

m  Valuations: We expect Lupin to benefit from good growth in the domestic and US markets and from the introduction of new products. We have revised our EPS estimates upwards for FY14 and FY15 by 17% and 21% respectively in view of good results.  At the CMP of Rs731 the stock trades at 19.7x FY14E EPS of Rs37.1 and 15.6x FY15E EPS of Rs47.0. We have a Buy rating for the scrip with a revised target price of Rs925 (based on 22x September’14 EPS of Rs42.1) with 26.5% upside from CMP.

Thanks & Regards, 

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Technical-Central bank, Ambuja Cements, SpiceJet, RCom, Balkrishna Industries, Everest Industries, Gravita ::Business Line

 

Cotton could bloom on Chinese demand ::Business Line

Since the start of this year, cotton prices have recovered their earlier losses on demand from the top consumer, China, and hopes of a drop in acreage in the world’s third-largest producer, United States.

MCX Cotton futures have gained almost 19 per cent taking prices to their highest level in more than a year. Preceding the recent surge, cotton prices posted back to back losses for two years as cheaper synthetic alternatives battered the fibre demand and on a global glut.

LOWER ACREAGE

Easing demand and fragile prices of cotton has led to many US farmers shifting to more remunerative crops, leading to a lower acreage. According to the USDA forecast, the acreage in cotton would drop by 19 per cent to 4.1 million hectares this season. Escalating fears of delay in planting due to heavy rains in the major growing areas in the country and recent upbeat economic releases are likely to support prices.

China, India and US are the major players in the cotton market and usually the demand-supply situation is the key factor behind the price fluctuations. China is the key market driver being the top consumer, producer and importer of the commodity. China produces 27 per cent of the total global production and consumes almost 40 per cent of the world offtake. Also, China accounts for almost 38 per cent.

China has been purchasing and stockpiling domestic cotton to boost the country’s output and importing to meet textile companies’ demand. The country bought 5.14 million tonnes of cotton from the global market in 2012.

China started stock-building programme in 2011, providing more than global prices to support domestic farmers that created a tightening global supply outside China and this action supported prices and pushed it higher during the first quarter of this year.

According to the China Cotton Association, the country will pursue the policy of purchasing and stockpiling domestic cotton to urge farmers to produce more cotton. To meet domestic demand, the Chinese government issued import quotas.

Another hot name among the international participants is India as it is the second largest producer of cotton and exports a significant part. According to the USDA report, India’s cotton output in the new marketing year beginning October is seen at 34.5 million bales.

Cotton sowing begins in April and continues till September. India accounts for about a third of the global cotton area.

According to the Cotton Advisory Board, the country had a surplus of 8 million bales after exporting a record 12.95 million bales last year.

SURGE IN DOMESTIC PRODUCTION

In the past 10 years, Indian cotton production has surged 153 per cent due to high yield after the introduction of genetically modified seed called Bt cotton in 2002-03 which made it a next exporter.

Looking forward, the outlook of cotton is not too gloomy. Despite a forecast of record supplies by the end of this crop year, prices could possibly trade in a range of Rs 17,200-19,500/bale levels on the MCX.

Major rallies are anticipated only on a close above Rs 20,000/bale levels.

(The author is Whole Time Director, Geojit Comtrade Ltd. The views are personal.)