16 December 2013

Nomura research, Fortis Healthcare- Retain TP at INR124 Operations consolidated, with a focus on India and execution

Action: Balance sheet leverage reduced; focus back on India; Buy
FORH has addressed two investor concerns: a) high leverage on balance
sheet and b) higher complexity of business with an international focus.
FORH has divested most of its international operations and India sales
now account for more than 90% of its overall revenue. Through
divestments and fresh equity issuance, we expect net debt to come down
to INR10.8bn by end-FY14F from INR59.6bn in Mar ’13. Net debt-toequity is comfortable at 0.18x (Mar’14) and, in our view, presents enough
room to expand its India operations more aggressively. We incorporate
the impact of recent corporate actions such as the divesture of Quality
Health and Hoan My and equity issuance. Our DCF-based TP remains
unchanged at INR124.
Catalysts
Commissioning and ramp-up of its newly commissioned Gurgaon,
Ludhiana and Chennai facilities and subsequent improvement in margins;
improvement in ROE.
Valuations
Near-term earnings are suppressed due to the high payout to Religare
Health Trust (RHT) (RHT SP, Buy) and high burden of start-up costs. On
EV/EBITDA, the stock trades at 21x FY15F, at a 33% premium to APHS.
Given the operating leverage, we expect EBITDA and earnings to rise
rapidly (we estimate EBITDA and EPS CAGR of 42% over FY15-18F) and
on our FY17F estimates FORH trades at a marginal discount to Apollo
(APHS IN, Buy)

Eicher to roll out next generation 'Pro Series' trucks; target to double market share - Company Visit Note :JPMorgan

Eicher launched its new commercial vehicle range, the ‘Pro’ series. The
new range will be rolled out across the entire product spectrum (from 5-49
tonnes). With this roll out, VECV has signaled its intent to double its
current market share of about 4% in the next three years in the heavy duty
segment.

IT: A wrap-up of recent discussions with the industry and consultants : Credit Suisse

● FY14 is poised to be a good year: Recent discussions with
industry sources, consultants and companies reaffirm a strong
demand environment and pick-up in discretionary spending.
● Immigration bill is a non-issue for customers: Buyers are not
quizzing consultants about this. Senior leaders in the US
Congress have assured the industry on the absence of
discriminatory clauses. An industry survey of CIOs suggested that
most will be forced to offshore more in case of an adverse fallout.
● Some other key issues: Cloud revenues will be like a "reverse
hockey" stick – lots of work initially before any drop in revenue. Buyers
are not renegotiating rates down due to the INR depreciation. In
Europe, there is strong growth in the Netherlands, Germany and
Sweden. There is some insourcing of data centres but not a trend.
● Company-specific feedback from consultants continue to favour
TCS: TCS remains the best service provider and a "strategic
thinker", Infosys is more aggressive by bundling IPs but not
reducing like-to-like pricing, Wipro needs to be more consistent,
HCLT's infra business remains very strong with recent wins

Infosys On the road lesstravelled :Prabhudas Lilladher,

We interacted with Infosys (Mr. Sandeep Mahindroo – IR Head) to understand the
demand environment and road-map of new strategic initiatives. Infosys is
undertaking cost optimization, improving sales effectiveness and focusing more on
the traditional Business IT. We expect these initiatives to drive earnings momentum
in the near term. We retain our “BUY” rating.

Britannia Industries Tasty Treatin ‘GoodDays’!!: Prabhudas Lilladher

We are increasing FY14 and FY15 EPS estimates of BRIT by 12% and 6.5% and
target price to Rs1050 (Rs885 earlier). Thisfollows 110% PAT growth in Q2FY14 on
the back of sustained margin expansion for third consecutive quarter and 13.7%
sales growth in an environment of slowing consumer demand. BRIT continues to
gain from strong tailwinds like 1) benign input costs of Sugar, Palm oil etc. 2)
improving sales mix in biscuits 3) rising share of non‐biscuits in portfolio and 4)
gains from higher in‐house manufacturing and efficiencies in new units. BRIT is
undertaking product and packing innovations in Bourbon, Nutrichoice Cream
Cracker, 50‐50 etc. which will enable sustain growth momentum in H2. Input cost
environment will prevent further run‐up in gross margins assugar prices are down
2.5% from Q2 average, wheat prices are up 5%, while Palmoil prices are up 8%. We
are increasing gross margin estimatesto 40.1% (40.4% in H1) in FY14 and 40.3% in
FY15. We estimate standalone EPS of Rs30.2 in FY14 and Rs38.1 in FY15 and
increase 12 month target price to Rs1050 (23xSept 2015 EPS and subs at 0.75x
EV/sales), a 20% upside.

Coal India- Non-operational news flow should improve from here, and drive a likely bounce in the stock:: JPMorgan

No dates have been finalized as of now for the COAL stake sale, and there is no
finality if the stake sale would happen in the current fiscal. The stock has
significantly underperformed Indian mining names on a combination of a):
operational disappointments and b) stake sale overhang. While we maintain our
structural cautious view on the stock given the regulatory issues are yet to be
sorted out, we see positive news flow on: a) dividends, with a large part of
dividends to come through over the next 3 months and b) closure of the stake
sale overhang by Jan end. We maintain our Jun-14 PT of Rs310, which implies
15% potential upside from current levels.
 A trade at current levels? We think so: As we have highlighted in our
research previously, COAL offers a good trading range, with dividend yield as a
support for the stock. We maintain our structural cautious view on the stock, as
we remain unsure as to what the steady state profitability of COAL would be
once supplies start on all the new Fuel Supply Agreements (FSA). However the
sharp underperformance vs the index (YTD down ~32%) and peers like TATA
(-13% YTD) can see some reversion as: a) dividends get announced (last year
was in March) and b) stake sale overhang gets over. The current Dividend yield
is ~6%, and there is a strong likelihood, in our view, of dividends being
increased this year, which effectively puts a floor on the stock price.
 Why we remain structurally cautious on COAL: COAL’s production growth
remains anaemic and is likely to miss FY14E official targets. The issue at the
Talcher mines has not been helpful. On the other hand, supply commitments
continue to increase, with media reports (ET), quoting the Chairman, that FSA
have been signed for ~71GW of power capacity out of the 78GW on the list.
Eventually, over the next two years, these power plants are likely to have Power
Purchase Agreements (PPA) in place, which means COAL would need to supply
~65% of the agreed quantity from its own production. Given the lack of
production growth, the implications on current profitability are yet to be
ascertained.
 Is there downside risk to our FY14-15E numbers: Yes there is: As we
highlighted in our recent results update, we wait for more clarity on the supply
commitments, before we adjust our numbers, and hence agree that there is some
downside risks to our earnings estimates.
 Can a trade still work with consensus earnings being cut? The support for a
short-term trade comes from a) Investor Positioning, which has moved away
from the stock aggressively and b) Dividend/Stake sale news flow.

PETRONET LNG High spot prices continue to dent demand: Edelweiss

We recently met the Petronet LNG (PLNG) management to get an update
on current LNG demand trend. As mentioned in our earlier update,
Volume outlook weak, dated September 10, 2013, high spot LNG prices
and INR depreciation continue to dent demand. While investors’ concern
so far had centered on utilisation of new capacity, we believe it is now
shifting to volume decline in existing operations. We estimate FY14 overall
volumes remaining flat despite commencement of Kochi facility, leading to
EPS decline over FY14/15. Maintain ‘HOLD’ with target price of INR131.