India IT Services Back-end is a 'good' end – it tends to get under-rated but it adds credibility to the more 'glamorous' front-end:: JPMorgan

 First, take ‘bread-and-butter’ offerings such as BPO, Infra-management,
Testing and ADM. These need not be considered commodity businesses and
seen as necessarily detrimental to margins, as the managed services model,
allied with back-end efficiencies, can result in a decent margin profile. The
difference is not necessarily seen in what is seen by the client but: a) in how it is
priced (outcome-based or managed services) and b) in the vendor’s investments
in extracting back-end efficiencies through productivity-enhancing tools,
frameworks and solution accelerators (or ‘industrialization’ of delivery).
 Second, vendors’ internal IP is what differentiates their execution and
allows them to price for outcomes and hence, their margins. Examples
include SLA-based and/or device-based pricing in infra-management deals,
transaction-based pricing in BPO (say customer billing as % of claims processed
for insurance claims processing in BPO) and ticket-based pricing in application
maintenance). It is easier to take managed services or outcome-based deals on
board but harder to make good margins on them. This is because vendors need to
have sound execution which aims at employee productivity, backed by good data
analysis that underlies the risk for various outcomes. Also, gains to the vendor
over time accrue from improved productivity of the workforce (and this is much
beyond the plain-vanilla lift-and-shift kind of work or pure labour arbitrage).
 Making the workforce more productive through internal IP. Vendors’ ability
to make their workforce continually more productive through investments at the
back-end is a decisively differentiating factor. We believe that TCS is superior at
this execution game. Clients want their vendors to be able to offer productivity
increases year-in, year-out and not slacken after generating cost savings in Year-
1, Year-2. This requires ongoing investments in the back-end specific to the
client’s program. Or a dedicated investment program towards improving
productivity & developing solutions – not just front-end investments.
 Third, bundled solutions – again another back-end play. The other emerging
play at the back-end is service integration (integrating BPO, infra-management,
apps, testing) on a single, consolidated platform which TCS does well. This
allows vendors to seamlessly offer bundled solutions without making piecemeal
adjustments to various points of the client’s IT architecture, be it applications,
business process, infra-structure, software, etc. Bundling takes care of this issue.
 Fourth, making margins in emerging markets requires differentiated and
transplantable solution-based models (not the cost arbitrage-based onsiteoffshore
model of the developed markets). The government is a fairly large client
in developed markets and e-governance initiatives are common to several
emerging markets. Also, commonalities exist (in various emerging markets) in
industries such as power/utilities pertaining to leakages in distribution/generation
of power/energy. TCS makes the model transplantable to the extent possible by
leveraging its modular solutions developed for India for other emerging markets
(the key here is modularizing standardizable solutions offered as end-to-end
bespoke solutions or as part of a larger offering with a layer of customization).
 Finally, non-linear models necessitate differentiation at the back-end. As
businesses battle the law of large employee numbers, how companies embed
non-linearity in their business models is a function of how much transformation
they do at the back-end (such as their ability to offer productized, standardized
solutions on cloud-based proprietary platforms on a ‘pay-as-you use’ or
‘subscription-based’ pricing models).

SJVN- A miss on the generation front :: Prabhudas Lilladher

! Q4FY13 generation down by 4.6% YoY: SJVN’s reported revenue in FY13 degrew
by 12.7% YoY, as the generation dipped by 10.9% on the back of a 19.5%
YoY dip in water discharge. Units generated in Q4FY13 stood at 605m, down by
4.6% YoY. PAT came in at Rs10.5bn which was flat YoY on account of lower
interest charges. PAF for FY13 was at 105%. Incentives for FY13E were Rs2.5bn,
mainly on account of higher-than-expected UI charges.
! Updates: 1) SJVN has Rs3.5bn outstanding from Delhi, UP and HP SEBs. 2) The
company has chalked out a plan for adding 47.6MWs of wind power for which
the orders are being placed and COD is expected in Q2FY14E. 3) Capital
expenditure outlay for FY14E is Rs9.8bn and CWI is at Rs29bn. 4) Additional ROE
of 1% is not applicable to NJHEP. 5) Cash stands at Rs24bn. 6) Capex on Rampur
till March 2013 stands at Rs24bn out of the envisaged Rs33.5bn. 7) COD of
Rampur 1st Unit is Q3FY14E. 8) MOU target for FY14E stands at 6.8bn units.
! Valuation and Recommendation: Rampur HEP in FY14E and 45MW of wind will
start contributing to FY15E earnings. The generation this year was disappointing.
However, the impact on the stock price would not be material as it provides a
steady state dividend yield play. The stock is trading at 0.9x FY15E. We maintain
‘Accumulate’ on the stock.

Flows & Liquidity Investors are not overweight bonds:: JPMorgan

We estimate that central banks and commercial banks currently
hold $24tr of bonds or 55% of the global bond universe.
 Non-bank investors, which invest in both bonds and equities, hold
the remaining $20tr of bonds globally, 30% of their combined
holdings of bonds and equities.
 This 30% bond allocation by non-bank investors is marginally
below the historical average since 2002. This casts doubt on the idea
that non-bank investors are overweight bonds globally.
 Global share buybacks are up 50% from a year ago. They are on
track to reach $590bn this year. The previous high was in 2011 at
$640bn and before then in 2007 at $900bn.
 A negative ECB deposit rate will further hurt the Euro area money
market fund industry, which has already contracted by €70bn since
last August.
 Peripheral banks could benefit from a negative deposit rate at the
expense of core banks. Core banks are currently “long cash” by
around €430bn, while peripheral banks are “short cash” by €650bn.
 Italian and Spanish trading volumes continue to normalize.

Deutsche bank, reports update

Cairn India - Factoring in lower crude oil forecast; maintaining Hold [Harshad Katkar]
Deutsche Bank has lowered its oil price forecast by 4-6% on weaker oil demand, resulting in a reduction to Cairn India’s FY14-15E EPS by 4-7% and valuation by 7% to INR330/sh. We have also lowered our Rajasthan oil production forecast by 9% to 184k bpd for FY14 and 6% to 207k bpd for FY15, but raised our USD/INR assumption by 2% to 55 for FY14 and 53 thereafter. We maintain a Hold, as we see near-term challenges to a faster crude oil production ramp-up.
Oil & Gas - ONGC and Oil India acquire stake in Mozambique gas block for USD2.5bn [Harshad Katkar]
ONGC Videsh (OVL), fully owned subsidiary of ONGC, and Oil India (OIL) have signed definitive agreements with Videocon to acquire its 10% participating interest in the Rovuma Area 1 Offshore Block in Mozambique for USD2.475 bn. The acquisition will likely be implemented via a newly incorporated special purpose vehicle with OVL and OIL having 60% and 40% shares respectively.
Metals & Mining - Increase in iron ore royalty to 15% under consideration [Anuj Singla]
An Indian government panel has recommended a 5% increase in iron ore royalty (charge paid by mine owner/lessee to the respective state government for every tonne of mined mineral), as per Bloomberg reports. In case this proposal was to be implemented, it will increase the royalty rate for iron ore miners to 15% from 10% earlier. The panel’s report will need the approval of the mines ministry as well as Cabinet approval before the new proposed royalty rates become effective.
Indraprastha Gas - Pricing power reasserted, but we expect volumes to disappoint [Amit Murarka]
IGL has increased the selling price of compressed natural gas (CNG) by INR2/kg (5%), effective today. The new consumer price is INR41.9/kg in Delhi and INR47.35/kg in Noida, Greater Noida and Ghaziabad. The company has also raised domestic piped natural gas (PNG) price by 4% to INR24.5/scm for consumption upto 30scm in two months and by 14% to INR40.5/scm for consumption beyond 30scm.
Commodities Quarterly - Searching For Value [Michael Lewis]
We expect the DBLCI-MRE will prosper in the event of an eventual upturn in Chinese and US growth while a turn in Fed policy and heightened asset market volatility should provide favourable market conditions that the DB Momentum index can exploit.
US Daily Economic Notes - The spring is coiled, as we are due for some meaningful payroll volatility [Joseph LaVorgna]
Changes in monthly nonfarm payrolls have shown very little variation over the past couple of years. For example, last month nonfarm payrolls rose 175k. This was little different than its trailing three-month moving average of 163k, which itself was not statistically different from the 12-month moving average of 137k. Incidentally, all of our analysis uses the initially-reported change in nonfarm payrolls.

Punjab National Bank:: TP: ` 1021 Buy :: Dolat Capital,

Reductions in gross and net NPLs, with stable fresh NPL formations were the
cornerstone of PNB’s Q4FY13 results. Fresh NPL formations of ` 29.6bn was
flat QoQ and was lower than what the street was expecting. While NPL upgrades
declined QoQ, NPL recoveries showed an improvement. Overall, gross and net
NPLs declined QoQ both on absolute and percentage basis. Coverage ratio
also improved moderately from 56% in Q3 to 59%.
The bank restructured ` 64bn of loans during the quarter, while ` 64bn of loans
were reduced from the restructured loans portfolio as per the RBI guidelines.
Total restructured loans stood at ` 321bn forming 10.4% of the total loans
book. The management does not see a major restructuring pipeline going forward.
Balance sheet growth slowed down with loan growth of 5% and deposit growth
of 3%, in line with the management’s strategy of de-risking the balance sheet.
On average basis though, loan and deposit growth was better at 13% and 15%
respectively.
NIM at 3.51% improved moderately QoQ, however the management has become
more conservative in guiding for the next year. We believe that the bank should
be able to maintain its NIM at current levels supported by stable CASA.

Sun Pharma :: Karvy

Revenues Outperform due to URL
Sun Pharma’s revenues grew by 31.5% to Rs30.7bn for the quarter as
against our estimates of Rs29.2bn. EBDITA margins were at 41.5%,
marginally higher than Q4 FY12 due to URL and Dusa overheads. Profits
were at Rs 10.1 bn higher than our estimates of Rs 9.1 bn.
 Revenue Details: Domestic formulations clocked a degrowth of 11% on
account of high base impact last year due to change in accounting in
returns and discounts. US sales grew by 56% to USD 330 mn due to 2
mths impact of URL sales and full impact of Dusa sales. Taro sales were
down QoQ to USD 165 mn due to lower volume offtake. We believe
Doxil did not have a major impact in this quarter.
 Margins impact due to URL and Dusa: The company’s EBDITAM was at
41.5% as against 41.2% in corresponding quarter of the previous year.
Substantial savings of 380 bps in Gross margins was offset by growth in
staff cost by 27% to Rs4.4bn and increase in overheads by 52% to Rs6.2bn.
R & D was also higher at 7% of revenues as against our expectation of
6.5%. Profits for the quarter were higher at Rs10.1bn as against our
expectation of Rs9.1bn for the quarter. Profits were higher on account of
lower tax of 13.8% on account of subsidiary losses and lower minority
interest.
Outlook and Valuation: We upgrade our revenue estimates by 3.5% to
Rs134bn and by 4% to Rs150bn due to incorporation of URL Pharma in our
core financials, while we remove the option value of URL Pharma of Rs33
from our valuation. Our EBDITAM is increasing by 90 bps in FY14E and by
70 bps in FY15E due to better gross margins and savings in overheads. We
upgrade our EPS by 13.1% to Rs39.5 for FY14E and by 10.9 % to Rs46 for
FY15E. We upgrade our price target by 9.4% to Rs1,058 based on 23x FY15E.
At current market price stock trades at 21.6x FY15E offering a 6% upside,
hence we downgrade the stock from BUY to HOLD.

Supreme Infrastructure Consistent performance; Buy :: Anand Rathi

Key takeaways
Revenue growth strong, margins dip. Supreme Infrastructure’s revenue
grew 28.7% yoy (19% qoq), beating our estimate. Its reported EBITDA
margin, however, declined 175bps yoy to 12.7% (down 460bps qoq), lower
than we estimated. The company has made a one-time `110m provision for a
defunct liability, which led to the margin decline; adjusting for this, the margin
stood at 14.3%. Over FY14-15 management expects to maintain the margin
at 15-17%. As a result of the strong revenue growth and lower EBITDA
margin, adjusted PAT grew 50.4%, and came higher than we expected. Debt
has increased, taking net gearing to 1.8x.
Order book strong. The order book (incl. L1 projects of `11.2bn) of
`60.4bn (3x TTM revenue) is dominated by roads & bridges (40%) and
buildings (49%). Order inflows during FY13 stood at `31.3bn. The company
surpassed its full-year target order inflow of ~`25bn.
BOT projects update. For 10 BOT road projects, the company has an
equity commitment over FY12-15 of ~`8.1bn. Of this, it has infused `4.35bn
through investment, advances and debt at the hold-co level; ~`3.1bn is to be
infused by 3i India Infra Fund (of which `2bn has already been received), the
rest will be invested over FY12-15. The last tranche from 3i has not yet been
received and is awaiting certain NHAI clearances. BOT projects comprise
25% of the order book and is reducing. The Manor-Wada road project has
been operational since Jan’13. The company expects to raise `2bn-2.5bn by
securitizing the cash flows of this project and to repay some of its debt.
Our take. The company continues to demonstrate consistent and strong
revenue growth, with a stable operating performance. We expect it to post
~15%/19% revenue/PAT CAGRs in the next two years. We retain a Buy,
with a target of `360. Our sum-of-parts-based target of `360 is based on 4x
FY14e PE of the construction business (`304, a 50% discount to midcap
target multiples) and 1x Mar’12 P/BV (`56). Risk: Rise in interest rates.

Allahabad Bank -SPA

ALB continued to report dismal set of numbers with net profit plunging by 68.5% YoY in Q4FY13 largely due to 36.7% YoY increase
in provisioning expenses coupled with 18.0% decline in Net Interest Income. Asset quality deteriorated sharply on account of
2.6x surge in fresh slippages to INR 25.9 bn, out of which 3 accounts worth INR 9.4 are expected to be recovered by the next
quarter. The decline in NII was due to 98 bps fall in YoA owing to a base rate cut and interest reversals of INR 1.9 bn on bad loans.
We introduce FY15 estimates and retain our BUY rating on the stock with a revised target of INR 174 (Previous TP 195).
Sharp decline in NIMs
ALB witnessed a sharp sequential decline of 72 bps in NIMs to
2.3% due to a) 98 bps reduction in YoA owing to cut in base rates
from 10.75% to 10.20% in two tranches, and b) interest income
reversals on bad loans to the tune of INR 1.9 bn in Q4FY13.
Consequently, the NII declined by 18.0% YoY to INR 10560 mn in
Q4FY13. We expect NIMs to recover to ~3% levels over the next
couple of years on the back of increased focus on high margin
retail and MSME segments.
Asset quality sharply deteriorated
Asset quality deteriorated sharply with fresh slippages surging
sequentially by 159.7% to INR 25.9 bn in Q4FY13. Consequently
GNPA & NNPA deteriorated sharply increasing by 101 bps & 113
bps to 3.9% & 3.2% respectively. Importantly major portion of
these slippages was bulky in nature with 9 accounts contributing
to ~INR 16 bn out of which 3 accounts worth INR 9.4 are expected
to be recovered in next couple of quarters. We therefore expect
the asset quality to improve going forward with no strong pipeline
of stressed assets and ALB's renewed focus on credit monitoring
and faster recoveries & upgradations.
Restructured book - 11.4% of total advances
Restructured book increased to INR 148.8 bn, accounting for 11.4%
of advances (10.8% of advances in Q3FY13). The bank has
restructured advances of INR 13.9 bn in the last quarter, out of
which major restructuring was done for pharma, iron & steel apart
from other accounts in chemicals, textiles and food processing.
Restructuring pipeline for the current quarter stands at ~INR 5 bn.
Slippages from restructured portfolio to NPA stood at INR 12 bn.

Gujarat State Fertilisers & Chemicals Weak quarter; maintain ‘Accumulate’ on attractive valuations :: Prabhudas Lilladher

GSFC’s Q4FY13 result disappointed on the margin front. Adjusted EBITDA margins
stood at 9.9% (‐930bps YoY/‐50bps QoQ) primarily due to pressure in the chemicals
segment. However, capro‐benzene spreads have bottomed out and we expect
subsequent quarters to witness gradual improvement in chemicals margins.
Commencement of TIFERT is likely to boost manufactured fertiliser volumes and
margins in FY14E. We have downgraded estimates by 7%/2% to Rs 13.9/15.7 in
FY14E/15E due to lower fertiliser prices and volumes combined with slow recovery
in capro‐benzene spreads. However, we maintain ‘Accumulate’ (revised target
price Rs 66) due to attractive valuations. Union Ministry’s directive to recover
subsidy on ammonium sulphate is likely to remain a major overhang on the stock
(though management clarified that they have approached the Delhi High Court and
are confident of the outcome in GSFC’s favour).
! Q4FY13 results disappointed due to lower margins: GSFC reported PAT of
Rs584m, -75% YoY which included employee provisioning of Rs520m related to
wage revision of employees at its polymer and fibre units. This employee
provisioning included Rs400m of one-off items related to gratuity, pension
liabilities and was non-recurring in nature. After adjusting for the one-offs of
Rs400m, adjusted PAT stood at Rs984m, -47% YoY and significantly below est. of
Rs1.4bn. Though revenues at Rs 17.0bn, 11% YoY were slightly lower than est. of
Rs17.7bn, the primary disappointment was at the margins front. Adjusted
EBITDA margins stood at 9.9% (est. of 13.3%) due to lower margins in the
chemicals segment.
! Adjusted chemicals margins stood at 11.5% (est. of 16.0%); fertiliser margins
stood at 8.6% (est. of 10.0%): Adjusted chemicals margins stood at 11.5% (est.
of 16.0%) due to pressure on caprolactam-benzene spreads. Spreads remained
weak due to lower caprolactam prices (US$2400/mt), while benzene
(US$1400/mt) remained at elevated levels. Fertiliser margins also witnessed
pressure due to huge inventory in the system.

Union Bank of India Weak PPOP more than offsets steady asset quality :: Prabhudas Lilladher

Union Bank reported robust asset quality trends with low incremental slippages
and restructuring. However, operational performance was very weak despite high
B/S growth reported. We expect ROAs of just 0.8% in FY14 despite assuming 25bps
lower credit costs due to the operational weakness and this will likely cap multiples
<1x .="" an="" asset="" but="" our="" p="" pt="" quality="" rating="" seems="" steady="" to="" underpins="" upside="">limited (Rs265/share, 0.9x Sep‐14 book).

Tata Steel, TP: INR300 Sell ::Motilal Oswal

4QFY13 results better than expected
 Tata Steel (TATA) posted better than expected performance for 4QFY13.
Consolidated EBITDA grew 37% QoQ to INR43.7b (v/s our estimate of INR31b)
due to stronger performance across the group and divestment/closure of
some loss-making assets in Asia/Australia.
 Adjusted consolidated PAT was INR8.8b (v/s our estimate of INR401m loss).
Reported consolidated loss after tax (after minority interest and associates)
was INR65.3b, which included INR74b of extraordinary loss (INR83.6b loss on
account of non-cash impairment of goodwill + INR9.43b gain on account of
sale of stake in Titan).
 Tata Steel India's (TSI) EBITDA grew 31% QoQ to INR33b (v/s our estimate of
INR29.3b) due to lower fuel cost and swing in other expenditure. The
significant reduction in other expenditure may not be sustainable.
 Tata Steel Europe's (TSE) EBITDA expanded to USD33/ton (v/s our estimate of
USD7/ton), driven by sharper fall in raw material cost as compared to the fall
in realization and reduction in other expenditure. GBP69m benefit was on
account of unidentified factors.
However, outlook remains subdued; maintain Sell
 Though operating costs have declined during the quarter and further
improvements can be expected in Europe due to full benefit of relighting of
furnace at Port Talbot, weakening international steel prices (down by USD100/
ton in last four months) and poor demand will keep margins under pressure.
Some of the savings in other operating expenditure seen in 4Q may not sustain.
 TATA continues to invest in greenfield projects in India. The Odisha project is
likely to be completed by November 2014. Of the INR250b phase-1 capex,
INR83b has already been spent. Capex in India during FY14 is expected to be
INR80b. Total group capex is expected to be high at USD2.2b. As a result,
consolidated debt is unlikely to come down.
 We expected TSI's EBITDA to shrink to USD208/ton in FY15 due to lower steel
prices and poor demand. Stock is trading at an EV of 6.2x FY15E EBITDA. Sell.

Lupin, TP: INR851 Buy ::Motilal Oswal

4QFY13 performance was above estimates. Key highlights:
 Lupin's revenue grew 35% YoY to INR25.37b. Ex one-offs, core revenue grew
38% to INR23.57b (est of INR22.73b). Core EBITDA was up more than 2x to
INR5.1b (est of INR4.43b) on a low base of 4QFY12. Ex one-offs, adj PAT was
at INR3.36b (est of INR2.6b). PAT growth is higher than EBITDA growth due to
lower tax rate of 20.7% v/s estimate of 33% and 45% in 4QFY12.
 Reported EBITDA grew by 83% to INR6.1b (v/s est of INR5.42b) and reported
EBITDA margin expanded by 6.4% YoY to 24% on a low base. Margin expansion
was mainly on account of (1) contribution from one-off sales, (2) better
product mix in the US and (3) lower other expenses and employee costs
(operating leverage benefit). Notably, PAT growth, aided by strong
operational performance, has been achieved despite higher depreciation
costs, which include product write-off for carrying the value of Antara brand.
 Key takeaways from analyst meet: LPC aspires to touch USD5b (FY13 -
USD1.8b) in sales over the next five years to be achieved through (1) entering
niche segments of derma, controlled substances, inhalation; (2) biosimilars
opportunity and (3) inorganic opportunities in LatAm, Japan or RoW markets.
Lupin has a pipeline of 116 products (market size of USD54b) to support US
growth, while India formulations will continue to outperform the industry.
Maintained target of 75-100bp YoY improvement in EBITDA margin.
Valuation and view: Key growth drivers in FY14E/15E will be: (1) increased traction
in India formulations and emerging markets, (2) strong launch pipeline for the
US and (3) contribution from oral contraceptives in the US. Post 4QFY13 results,
we raise FY14E/15E estimates by 13%/14%, primarily to reflect the strong
operational performance in core business. We expect EPS of INR34.8 for FY14E
(up 38.8%), INR42.5 for FY15E (up 22%) - 30% EPS CAGR for FY13-15E. The stock
trades at 20.8x FY14E and 17x FY15E EPS. Buy with a TP of INR851 (20x FY15E EPS).

Glenmark, TP: INR617 Buy ::Motilal Oswal

Glenmark's 4QFY13 performance was above expectations. Key highlights:
 Glenmark's (GNP) net sales grew 25% YoY to INR13.35b (v/s est INR12.93b).
Sales growth was driven by strong growth in domestic formulations (up 32%
YoY) and US generics business (25% YoY, partly led by foreign currency). Sales
were above expectation despite absence of licensing income (est INR243m).
 EBITDA grew 44% YoY to INR2.69b (v/s est INR2.88b), with EBITDA margin
expanding 150bp YoY to 20.2% (v/s est 22.3%) on a low base of 4QFY12 (which
was impacted by adverse sales mix). Core EBITDA was up by 47.5% YoY to
INR2.4b v/s est of INR2.35b, with core EBITDA margin at 18.6% (v/s est 19%).
 Adj PAT stood at INR1.49b (v/s est INR1.47b), up 11.7% YoY. PAT growth is
lower than EBITDA due to a forex loss of INR150m (INR350m gain in 4QFY12),
but above our estimate due to a lower tax rate at 2.6% (v/s est 12%).
 GNP continues to show an improvement in working capital management,
with inventory days down 10 and payable days up 20 days. Cash conversion
cycle has reduced by 10 days, over and above a 45-day improvement in FY12.
Valuation and view: Post 4QFY13 results, we raise EPS estimates by 2%/4% to
reflect (1) healthy top line growth sustaining through FY15E and (2) lower tax
rate but partly offset by increased R&D expenses. We expect GNP to gradually
reduce its D/E from 0.9x in FY13 to ~0.5x by FY15E, with improvement in return
ratios. GNP has differentiated itself among Indian pharmaceutical companies
through its significant success in NCE research (resulting in licensing income of
USD205m till date). Given this success, company has been aggressive to add
new NCEs to its pipeline, which will exert pressure on its operations in shortto-
medium term as it will have to fund R&D expenses for these NCEs. The stock
trades at 19x FY14E and 15.7x FY15E EPS. Maintain Buy with a target price of
INR617 (18x FY15E EPS + INR15 DCF value for Crofelemer and Para-IV upsides).

Bharti Infratel- Muted operational performance in 4QFY13; FY14 likely to be a better year than FY13; reiterate OW:: JPMorgan

Bharti Infratel reported a muted quarter with weak rental revenue growth and a
modest decline in core margins (ex energy & other reimbursements). We need to
see higher growth in rental revenues for better quality earnings. Growth in
reimbursements does not necessarily provide an indication of earnings strength.
Capex remained meaningfully higher than our expectations due to changes in
estimates of site restoration obligations. Though net tenancy increase was weak,
gross tenancy additions were healthy in 4QFY13. We think 4QFY13 rental
revenues remained weak partly due to exit/downscaling of operations by players
whose licences were cancelled in Feb-12. We believe these headwinds are behind
the company, and existing operators are likely to expand footprint to grow their
subscriber base/market share in a market where subscriber additions are
moderating. So, we expect FY14 to be a better year for Bharti Infratel than FY13.
 Rental revenue growth needs to pick up for convincing/sustainable revenue
growth. Bharti Infratel reported Q/Q revenue growth of 1.8% in 4QFY13, but
rental revenues increased merely 0.6% Q/Q. Revenue growth was primarily
driven by energy and other reimbursements. We need to see growth in rental
revenues pick up for sustainable and better quality earnings. We expect rental
revenue growth to accelerate in FY14 as tenancy losses are likely to be nominal
because the operators who were impacted due to licence cancellations have
already discontinued/downscaled their operations.
 Core EBITDA margins (ex energy & other reimbursements) declined
modestly Q/Q due to muted revenue growth. Due to significant operating
leverage in Bharti Infratel's business model, core EBITDA margins (ex energy
& other reimbursements) declined 50bps Q/Q to 58.2% because revenue growth
remained muted. We expect core margins to improve as rental revenue growth
picks up in FY14.
 Higher-than-expected capex remains a concern. Bharti Infratel reported
capex of INR 6.7 billion in 4QFY13, meaningfully higher than our estimate.
Management suggested that a INR 2.0 billion adjustment for changes in site
restoration obligation estimate caused the pick-up in capex.
 Dividend payout ratio of 71% surprised positively. Bharti Infratel approved
total dividend of INR 4 per share i.e. 71% dividend payout ratio, meaningfully
higher than stated dividend payout target/policy of 30-50% of consolidated EPS.
 Reiterate OW with Mar-14 PT of INR 215. Given attractive free cash flow
growth prospects, current valuation is undemanding (EV/EBITDA at 7.7x FY14
or 10.0x on FY14 adjusted free funds from operation excluding growth capex),
at ~60%+ discount to US-listed towers and ~40% to Indonesian players.

India Refining & Marketing Window of opportunity emerges; prefer BPCL:: JPMorgan

Falling commodity prices, and regular diesel price hikes have created a
more benign environment that has seen a window of opportunity open for
the state-owned refining & marketing companies. The government’s
resolve to push through monthly hikes thus far is admirable – we do not
expect this to last the whole year, but see this contributing to a reduction
in subsidies. We continue to prefer BPCL, which adds its E&P portfolio
and more stable refining

Titan Industries - Risk-reward turning favorable, Upgrade to OW:: JPMorgan

Titan is one of the poor performing stocks in our consumer universe over the past
year, having underperformed the Sensex by 5%/11%/5% over past 3M/6M/12M.
The underperformance has been on account of: 1) slowing jewelry/watch demand,
2) concerns on margin deterioration, and 3) regulatory issues. While these
concerns may not go away entirely in FY14 (Q4FY13 revenue growth was below
expectations), we do expect things to improve from here on for the company. The
recent decline in gold prices has led to good surge in jewelry demand in the last
few weeks, and we expect growth rates, particularly in 1H, to be better if gold
prices stabilize at current levels. The watch segment, in our view, should see an
improved performance in FY14 (more back-ended though) both on the revenue
and margin front. Our recent discussions with industry players indicate that
unfavorable regulations related to the Money Laundering Bill, gold lease rates
and likely restrictions on gold imports may not impact jewelry retailers. We think
Titan remains a good long-term play on discretionary consumption, with strong
brand equity, good management and a strong balance sheet. Upgrade to OW.

UltraTech Cement -We see large downside to consensus estimates, and prefer parent Grasim at current valuations:: JPMorgan

UTCEM’s reported earnings were broadly in line with estimates, but EBITDA (ex
Other Operating Income) had a slight miss. UTCEM’s 4% y/y volume decline
highlights the weak industry environment. We remain sharply below consensus
estimates (16/24% for FY14/15E) and see material downside to Street estimates,
essentially on a weak industry environment affecting cement prices and volumes.
We roll forward our PT to Mar-14 from Dec-13 but reduce our target multiple to
8x FY15E EV/EBITDA as demand is likely to remain weak in the near term. We
remain UW on UTCEM and prefer parent GRASIM at current valuations.

Lower-Priced iPhone Stooping to Conquer:: JPMorgan

We see a high likelihood of Apple launching a lower-priced iPhone ($350-400
unlocked price) in 2H13, to capture market share among first-time smartphone
buyers. We believe Apple could re-shape the Smartphone Price Pyramid, like it
did in Tablets and iPods. This favors Apple and volume players in the supply
chain (EMS such as Hon Hai, Pegatron, Murata, LG Display, Broadcom,
Peregrine) while working against high-margin components (Largan, Catcher).
Mid-end Smartphones could move towards a Samsung-Apple duopoly, mirroring
the high-end market. Some whitebox/local brand consumers may upgrade to
Apple, but feature phone conversion should support growth in this segment.

FII DERIVATIVES STATISTICS FOR 31-May-2013

FII DERIVATIVES STATISTICS FOR 31-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	50235	1522.26	110636	3349.80	293510	8835.86	-1827.54
INDEX OPTIONS	414896	12481.64	400651	12091.94	1342784	40216.93	389.69
STOCK FUTURES	75350	2149.20	67934	1887.08	985347	27656.25	262.12
STOCK OPTIONS	22625	615.81	23590	634.87	20267	533.51	-19.06
						Total	-1194.79

 

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FII & DII trading activity on NSE, BSE and MCX-SX 31-05-2013

Category		Buy	Sell	Net
		Value	Value	Value
FII		5403.98	5908	-504.02
DII		1444.31	1241.2	203.11

 

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Mahindra & Mahindra - FES business expected to enter positive cycle ::LKP

Q4 results above expectations

M&M’s Q4 FY13 revenues came in at Rs 103bn, a growth of 12% yoy, and a dip of 2.7% qoq. Volumes in the quarter grew by 6.2% yoy while declining by 6.8% qoq. Auto volumes have grown by 1.4% qoq and 10% yoy in the quarter, while FES volumes have declined by 23% yoy and 5.4% qoq. M&M’s realizations grew by a robust 16% yoy and 2% qoq, which was the impact of price hikes taken last quarter and improved product mix on the UV side (higher number of XUV 5oo and Quanto). The growth in realizations was also in line with the price hikes of 4.5% taken YTD on the FES side and 2% in auto segment in December. Also, the company is out of the race of giving any discounts on any of its vehicles except trucks. This has also led to a good growth in pricing, however, the company has lost some of its FES market share to 40.2%, down by 1.2%. On profitability front, EBITDA margins went up to 12.11% from 11.24% qoq and 10.3% yoy. RM to sales fell to 74.82% from 75.9% qoq and 75.52% yoy.  Other expenses however have grown slightly to 8.8% from 8.2% qoq as the company spent on Quanto launch post a few months of its launch.

There was a strong surge in the segmental EBIT margins as auto margins went up to 12.4% on account of higher sale of high margin vehicles, while FES margins went up to 16%. Realizations on the FES side also moved up by 9.3% as the product mix on the back of improved product mix and price hikes taken in Q3. Depreciation expenses grew by 41% yoy and 2% qoq at Rs1,986mn. Tax rate came at 28%, while interest costs fell by 28% yoy as the company is reducing its debt. PAT adjusted for a Rs0.8 bn extraordinary income grew by 4% yoy, while fell by 4% to Rs 7.9bn, which was still above market expectations of Rs 7.7bn. Reported PAT came in at Rs8.89bn.

Outlook and valuation

Although the company is not launching any major vehicles in FY 14, FY 15 will see some major launches on both M&M as well as Ssangyong side, whose demand and profitability are on an upmove.  Also general elections coming up within next one year, we see a demand boost in FY 15E. We see also see improvement in FES segment in line with the management view. With pricing discipline seen on the FES side with zero discounting and price hikes taken, we see margin picture improving for M&M. Also increasing sales of high margin SUVs will help the cause. Softening of RM costs and stable ad spend will result in better margins.  We have slightly increased our FY14E earnings to Rs 61.2 from Rs 60 based on higher expectations from FES segment.  We now roll over our estimates to FY 15E and value the company on FY 15E earnings of Rs75.7 at 12x times arriving at a value of Rs908 from standalone business and Rs 211 from its various subsidiaries. We maintain our BUY rating on the stock with an upside of 15% from current levels.