UBS Investment Research-- Ranbaxy Pressures are in the price, Upgrade to Buy „

UBS Investment Research
Ranbaxy
Pressures are in the price, Upgrade to Buy
„ Valuations look compelling; Concerns seems overblown
We believe valuations have now turned attractive after a sharp 33% decline in
stock price over last 3 mths. We do not expect further disruption in the US business
due to potential ‘483’s for Mohali facility post inspection last year. We have also
gained more confidence that mgmt. is taking steps to address the low profitability
of the base business and expect margins to improve significantly over next 3 years.
We see US product approvals as the key trigger for the stock in the near term.
„ Absorica, higher utilization and cost control to help improve margins
We expect EBITDA margins to improve to 14.6% by CY15 from 7.8% in Q1CY13
driven by strong growth in US branded business (Absorica), step down in
remediation spending by end CY14, cost control and better utilization of mfrg.
facilities. Absorica continues to steadily gain market share in Isotretnoin market.
We expect US branded business to account for ~50% of CY15 EPS.
„ Expectations low – resumption of approvals will be the key trigger
We cut our CY13 EPS by 38% as we build in Rs 5bn of FX losses due to INR
depreciation. We expect approval for Diovan and Valcyte in CY13. Mgmt. expects
to maintain its exclusivity for Diovan despite the delay in approval. We note that
ex FTF’s Ranbaxy has not won any generic approvals from the USFDA since
2009. Resumption of approvals therefore will be a key upside trigger for the stock.
„ Valuation: Upgrade to Buy, Maintain Price target of Rs 400
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool with a WACC of 11%.

Dabur India- Good 1Q FY14 aided by healthy volume growth; stay OW :: JPMorgan

Against a challenging macro backdrop, Dabur posted healthy volume growth of
9% during 1Q FY14. Consolidated Net Sales, EBITDA, and PAT grew 13%,
15%, and 21% y/y respectively. While sales growth was marginally ahead of
expectations, EBITDA margin expansion at 30bp y/y was lower than expected.
Management remains fairly optimistic about FY14 performance supported by 8-
12% domestic volume growth (rural-led), price rises of 4-5%, margin expansion
and recovery in growth rates for Namaste operations. We estimate 19% EPS
CAGR over FY13-15 which is one of the highest growth rates across our coverage
universe. Our price target rises to Rs190 as we roll it forward to Sep-14.

Yes Bank: Hit by the macro reversal :: JPMorgan

Yes’ strong 1Q14 (PAT up 38% to Rs4B) is not that important, in our
view; the ability to cope with higher rates is the key issue. Management is
sanguine about margin resilience to higher rates – we think it could come
at the cost of growth. We believe the market overreacted – both on the
permanency of high rates and its impact on Yes’ earnings. At a P/E of 8.3x
FY14E (on consensus, which we think is too conservative) we think it’s too
late to sell, and see this more as an entry opportunity. The caveat is that
the rate environment will stay challenged for weeks and, with no nearterm catalysts, the stock’s short-term volatility could persist for a while.
 Impact of RBI tightening. Management quantified the static balance
sheet gap at 10% – i.e., a 100bp rate rise affects margins by 10bp. This is
offset by ~70% of the book being base rate – a 25bp base rate rise would
more than cover the potential NIM losses. The treasury book is unlikely
to see losses at today’s bond yield levels. Our view: base rate increases
would probably cushion the margin pressure significantly but would
constrain growth. That is a smaller problem – growth is a weaker
earnings determinant than margins. We think the stock price reaction
overestimates the earnings impact.
 1Q earnings summary. Loan growth was strong at 24%, led by retail
and commercial segments. Margins were flat q/q. Non-interest income
was very strong, driven by treasury and loan-related fees: both these are
now vulnerable in the current high-rate environment. The bank raised
provisioning to keep credit costs at ~80bp – it now has a 100bp buffer as
floating/countercyclical provisions. Incremental delinquency was muted
at 21bp. The CASA ratio improved to 20% and the momentum could
accelerate through the year, according to management.
 Earnings outlook. We will revisit revenue forecasts – growth, margins
and fees – once the dust settles in the money market. Any potential risks
to earnings should largely be covered by downside to our aggressive
credit cost forecasts (110bp for Jun-Mar), in the context of the
countercyclical buffer. We are 16% > consensus – there is some risk to
our forecasts but we still see scope for significant consensus upgrades.

Indiabulls Real Estate- Cash generation remains solid. Pre sales momentum strong despite challenging macro :: JPMorgan

IBREL’s 1Q earnings (Rs0.7B, +92% Y/Y) came in line with expectations
primarily coming from suburban portfolio. Net cash generation (Rs3.8B for
1Q) remained solid and is significantly ahead of the reported PAT. Operating
performance has also been impressive. In terms of pre sales (Rs15.9B in Q1),
IBREL’s performance has been much better than peers and it has already
achieved ~35% of its full year pre sale guidance in Jun-Q. Leasing too has
gained traction with 0.5msf of incremental leasing done in Q1, taking
occupancy of lease portfolio to 90%. Over the next 12 months, as Worli
project hits the revenue recognition threshold, earnings should also see a
substantial pick up bridging the gap to cash flows. Maintain OW.
 Operating performance is impressive- Jun-Q pre sales at Rs15.9B
(IBREL stake at ~Rs12B) was fairly strong, with 65% contribution
coming from luxury projects (Worli, Lower Parel) and remainder from
suburban portfolio. Re-launch of Lower Parel projects have seen good
response. Overall, IBREL has already achieved 35% of its full year pre
sale guidance of Rs36B in Jun-Q. Of the total Rs36B FY14 target,
IBREL is looking at Rs20B of pre sales from suburban portfolio and
remainder from luxury projects. Incremental leasing at 0.5msf in JunQ is much higher than 0.2msf quarterly run rate over the last 2 years.
This takes total leased area to 3msf (90% occupancy) which should yield
stabilized annual rental income of ~Rs5B (IBREL stake- 50%) by FY14
end. With this, IBREL now has only 0.3msf area yet to be leased.
 Cash generation remains strong–Net Debt came down by Rs1.3B Q/Q
to Rs23.3B (including OCDs/CCDs) in Jun-Q. Further, IBREL paid
Rs2.5B for IPL advances in 1Q, bringing down the total payable (for
power de-merger) to Rs2B. This implies net cash generation of Rs3.8B
during the Q. IBREL also announced an interim dividend of Rs1/share in
1Q, given the cash generation in the business.
 Additional buyback likely- Given strong cash generation in the
business, increased dividend payouts are likely ahead. Further, company
might also look at additional share buyback in FY14 (IBREL also did a
10% buy back last year). Promoters have also continued to increase their
stake in the company from open market. Current promoter stake stands at
~47% levels vs. 44% in Mar-Q

Info Edge India :Mixed quarter with healthy revenue growth but lower margins; structural growth story remains intact; reiterate OW :: JPMorgan

 Info Edge reported a mixed quarter (1QFY14) with relatively healthy
revenue growth of 3.2% Q/Q (after delivering 10% Q/Q growth last
quarter), but meaningful contraction in gross/EBIT margins. Recruitment
services, the largest business of the company, grew 1.8% Q/Q and 7.6% Y/Y.
Naukri.com collections grew 9% Y/Y in the first half of CY13 despite weak
macro environment. However, management suggests that there is no sign of
improvement in hiring activity yet and growth might remain subdued in coming
quarters due to challenged macro environment. Notably, Recruitment Services’
revenue growth is highly correlated to domestic GDP growth and corporate
confidence in the country. Due to Info Edge’s leadership position in this
business, we believe the company is well positioned to benefit
disproportionately as and when GDP growth picks-up. The other smaller
businesses/verticals saw solid growth of 7.6% Q/Q. 99acres had a relatively
muted quarter with flat Q/Q revenues (though up 47% on Y/Y basis).
 We maintain our view that Info Edge is best placed to benefit from the
increasing internet penetration and demographic profile of the country due
to its leadership position in two major verticals – recruitment services and real
estate. However, we believe it is a relatively long-term play, and the macro
environment could cause disappointments in the short term.
 Info Edge reported EBIT margin contraction of 380 bps Q/Q (from 31.0%
in 4QFY13 to 27.2% in 1QFY14) primarily due to a decrease in gross
margins & increase in advertisement expenses. Gross margins contracted 260
bps Q/Q due to increase in salary costs. Management reiterated that margins are
likely to remain under pressure if revenue growth remains below 20% Y/Y.
Notably, advertising expenses increased meaningfully from 14.1% of revenues
in 4QFY13 to 16.3% of revenues as the company advertised for 99acres,
Jeevansathi.com & Shiksha. The advertisement investments point to longer-term
growth/market-share focus of Info Edge, which is encouraging in our view.
 99acres (Info Edge’s online real estate classifieds) reported flat revenue
Q/Q in 1QFY14 (after 48% Y/Y growth in FY13). However, we remain
confident about the long-term growth potential of this business given Info
Edge’s leadership position in this under-penetrated market. Management plans
to continue investing in advertising/brand and product development to maintain
leadership in this business.
 Investment view: Retain OW with our Mar-14 PT of INR 360. Recruitment
Services accounts for most of the value, and 99acres the remainder.

UltraTech Cement (ULTC.BO) 1QFY14 – Volumes on a Weak Trajectory  :: Citi Research

UltraTech Cement (ULTC.BO)
 1QFY14 – Volumes on a Weak Trajectory
 1Q PAT inline — ULTC’s 1QFY14 PAT fell 14% yoy to Rs6.7bn (in line with our
estimates) on a yoy decline in volumes (cement + clinker) and realizations; and higher
costs. PAT would have been lower but for the surge (>2x) in other income to Rs1.9bn.
ULTC’s EBITDA/t fell to ~Rs1,040 from Rs1,250 last year and Rs1,080 in 4QFY13.
 ULTC loses market share — 1Q sales (cement + clinker) fell 2% yoy to 10.1mt.
Domestic volumes fell 1% to 9.9mt vs. India’s demand growth of ~3-4% during the
quarter (industry sources). ULTC’s volumes would have been particularly weak in
May/June as it had reported >10% volume growth in Apr13. ULTC’s overall capacity
utilization in 1QFY14 was ~79% (on FY13 exit capacity). ULTC’s markets: North 30%,
West 30%, South 20%, East 20%.
 Realizations fall yoy — ULTC’s avg. realizations fell ~2% yoy – conversations with
dealers suggest prices declined almost across India (yoy) in 1Q. On a sequential basis,
ULTC’s realizations were marginally higher (+1.5%). Prices have been largely stable
across regions since June13; except Calcutta (East) where prices have fallen ~10%;
Hyderabad (South) where producers have hiked prices by ~7% by restricting supply.
 Costs (per tonne) up 5% yoy — Hikes were seen mainly in raw material per tonne
(+6%) and freight per tonne (+8%) impacted by higher rail freight/diesel prices. Power
costs fell 7% yoy (lower imported coal/pet coke costs; higher pet coke usage). Imports
accounted for ~20% of ULTC’s coal consumption; pet coke 25-30%.
 Demand is key; maintain Sell – Production discipline is unlikely to sustain post the
monsoon: 1) Expect >22mt of capacity in FY14 (on a base of 350mt, +27mt in FY13) –
with weak demand the struggle for market share will continue; 2) The Competition
Appellate Tribunal’s order to deposit 10% of the penalty imposed by the CCI does not
help the cement producers’ case. For pricing to track a sustained upward trajectory,
demand would need to recover. At an EV/t of $164 (Sep14, 57mt capacity); ULTC
appears expensive.