ECL Finance Limited NCD Issue :- Issue Opens 16th Jan'2014

Please find below the Details on ECL Finance Limited NCD (An Edelweiss Group Company).

Issue Opens:                                      Thursday, January 16, 2014

Issue Closes:                                      Monday, January 27, 2014

Issue Size:                                           Rs. 250 Crs with an option to retain oversubscription upto 250 Crs more aggregating to 500 Crs.

Tenor:                                                   Option I and Option II -36 months

Option III and Option IV -60 months

Rating:                                                  ‘CARE AA’ [Double A] by Care & ‘BWR AA (Outlook: Stable)' by  Brickwork

Coupon Rate:                                    11.60% for 36 months  - Monthly

11.85% for 60 months - Monthly

Effective Yield:                                 12.24% for 36 months  - Monthly & Cumulative

                                                                12.52% for 60 months - Monthly & Cumulative

Listing:                                                 BSE

*Additional Coupon rate of 0.25% for permanent resident employees of Edelweiss Group and resident Indian individual shareholders of Promoter Company.

Thanks & Regards

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Midcaps - 2014 Value Buys: ENIL, Navneet, TTK Prestige:: ELARA

Value buys
Entertainment Network India – steady revenue growth
Entertainment Network India has continued on its robust growth path
despite a weak ad market through innovation and improved offerings.
We expect the company to report 11% revenue growth, driven by
higher volume. EBITDA margin is expected at a healthy 35%, about
50bp higher YoY, on account of operating leverage. With limited free
capacity, we expect it to drop low-yield clients and improve ad rates.
TRAI’s upcoming recommendation on license renewal and phase III
hold key to growth opportunity.
Navneet Publication – shift of gov orders to Q4 to impact sales
Navneet Publication should face pressure on top line in Q3FY14, due
to the absence of INR 20mn in government orders awarded in
Q2FY14. However, the company has received clearance from the
government, and orders should be received in Q4FY14, thus
compensating for flat growth expected in Q3FY14. If we were to
exclude government orders, revenue would grow at 15%. Increased
competition in the stationery segment should lower revenue and
impact EBITDA significantly, leading to a sharp fall in EBITDA of 62%
YoY. However, this should be offset in Q4FY14. Management is
confident of 15% growth over the next 2-3 years, owing to the
syllabus change schedule until FY16. We believe the stock is valued
attractively based on 9.7x FY15E earnings, given its asset-light balance
sheet, consistent FCF, robust 25%-plus return ratios and no macro risk.
TTK Prestige – macro concerns, given lack of growth drivers
TTK is battling several issues like power shortages in Tamil Nadu,
geopolitical concerns in Andhra Pradesh, and the government’s policy
to increase cap of subsidized LPG cylinders to 9 from 6, affecting
revenue. We expect top line to decline by 6.5%, with about 100bp
margin contraction, leading to a 22% YoY drop in PAT. With limited
signs of new product categories launches, the company should face
growth issues over the next 2-3 years. The stock is trading at 29x
FY15E earnings despite deteriorating financials.

Government new capex picks up as private sector remains elusive: Goldman Sachs

Government new capex picks up as private sector remains elusive
Government new project starts showing signs of revival…
The CMIE Dec ’13 update on capex investment shows average four quarterly
new project starts at Rs1064bn, increasing by 29% qoq. The investment for
the quarter itself is the highest recorded in 6 quarters. While new projects
announced by the private sector continued to decline (down to c.Rs200bn
for the quarter vs. average of Rs1.5tn since 2004), government capex
showed a sharp increase to Rs710bn in the quarter (+73% qoq, +89% yoy)
driven by announcements of new solar power capacity.
This is the third consecutive quarter where government capex is higher
than private (after 40 quarters), and the second consecutive qoq increase in
government capex. With the government reform measures and the Cabinet
Committee on Investments (CCI) working on fast-tracking clearances for
infrastructure projects, we believe further downside in new investments
would be limited and we could potentially be past the bottom.
...completion still lackluster + stalled/shelved projects increased
The average four quarterly project completions declined 25% yoy, and
various major projects saw implementation stall in the quarter (reaching
5.1% of total projects outstanding). We believe this will reflect in the
upcoming earnings season (3QFY14) in the form of muted order book and
revenue growth. The uptick in government new investment will likely take
a few quarters to start reflecting in execution, and we remain concerned
about limited private sector announcements of new projects. With 31% of
the projects accepted having been fully addressed by the CCI, real
implementation of those will be key to re-start the capex cycle in our view.
Prefer quality with better visibility on growth
Given our expectation of a gradual capex recovery, we prefer structural
winners having quality execution and growth visibility. Our preferred pick
in the Infrastructure space is L&T (CL-Buy, 12-month TP Rs1064). We like
L&T because of its high order book coverage, execution ability and strong
balance sheet. We believe L&T is best positioned to benefit from a
potential recovery in the domestic investment cycle. We retain a Sell on
BHEL (Sell, 12-month TP Rs110) given lack of growth and our expectation
of declining returns for the stock due to negative operating leverage. Key
risks: Downside: Continued slowdown and high interest rates; Upside: Pickup
in capex and faster interest rate cuts.

Essar Oil- An unconventional opportunity :: JPMorgan

We assume coverage of Essar Oil with a Neutral rating and a Sep-14 PT of Rs55
from a Not Rated designation (OW rating and Rs160 PT prior to NR designation)
– a highly leveraged refining company with unconventional gas assets. The shares
have underperformed by 28% and 34% in absolute terms and relative to its local
market this year, reflecting concerns around debt management. However, Essar
Oil’s recently upgraded refinery provides better refining margins than most
domestic peers, with continued domestic diesel reform providing some
profitability upside. The company’s upstream asset, Raniganj, is now poised to
begin production with possible natural gas price reform also providing good cash
generation to manage its debt burden. While ESOIL gearing levels remain high
(c.424% in FY16E) despite converting costly INR debt to cheaper US$ loans, we
see risk-reward as fairly well balanced as we approach FY15.
 Sustainable refining margins from upgrading: With Essar Oil’s upgraded
refinery, with its higher complexity and optimization (using natural gas for
refinery power supply) providing more sustainable refining margins relative to
domestic peers despite our expectation of a broadly flat refining margin
environment in the medium term.
 Some upstream bias, worth c52% of value: Small volumes have commenced
from Raniganj, a coal bed methane project, with output expected to rise toward
a peak plateau of 3mmscmd from FY15. Overall we value all of Essar Oil’s
unconventional assets at Rs29/share, 52% of our total value.
 De-leveraging from debt conversion and operational delivery: Debt levels
remain elevated, with interest costs almost as high as EBITDA. While the
company is bringing interest costs down by converting INR debt to USD
(estimated saving of $60mn for every $1bn converted), gearing levels are likely
to remain high in the medium term.
 Valuation and Risks: Our PT is based on SOTP – we use an 11x P/E multiple
(at a discount to regional peers to account for continuing high leverage and
lower profitability, and value the Raniganj asset on DCF; Rajmahal on resource
base). Downside risks are lower refining margins, upstream execution and
persistently higher interest costs. Upside risks improving debt management,
higher natural gas prices and faster-than-expected diesel price reform.

FMCG - Q3FY14 Results Preview - Poised for strong performance :Centrum

Poised for strong performance



We expect strong Q3FY14 results for our coverage universe with topline
growth at 14% on the back of steady price hikes coupled with volume
growth. Operating margins are expected to compress by 21bps with
operating profit growth at 12.8%. Despite gross margin expansion, we
expect operating margin compression for Colgate and Nestle. PAT should
grow by 10% YoY. We expect positive surprise from GSK Consumer and
negative surprise from Colgate.

$ Double digit topline growth expected: We expect 14% YoY sales growth
for our coverage universe. Large cap MNC companies, Colgate and GSK
Consumer, are expected to report 11% and 8% volume growth while
pricing growth would be 7% and 8% respectively. Nestle will continue
to have price-led revenue growth. For Talwalkars, value added services
will add traction to sales growth while Speciality Restaurants will
post marginal pricing growth on the back of price hikes taken in the
month of August and December.

$ Operating margin to be under pressure: We have modelled operating
margin compression of 21bps YoY for companies under coverage. Despite
gross margin expansion of 57bps and 85bps for Nestle and Colgate
respectively, we believe operating margins will compress on the back
of higher A&P and other expenses. Among large cap stocks, GSK Consumer
is expected to expand operating margins by 200bps on the back of lower
other expenditure. Talwalkars will post operating margin expansion of
26bps on the back of significant operating leverage from the launch of
Zumba & Reduce while Speciality Restaurants will post a decrease of
136bps due to high A&P and lease expenses during the quarter.
Operating profit will grow by 12.8% YoY for the coverage universe.

$ Profits to grow at a slower pace: PAT for our coverage universe is
expected to grow by 10% YoY. While Colgate and Nestle are expected to
post single digit PAT growth, we expect a healthy 34% growth for GSK
Consumer.  Among small cap stocks, Talwalkars is expected to grow at
19.7% while Speciality will decline by 7%YoY.

$ Valuation & Risk: We upgrade Nestle to Hold and believe the worst is
behind for the company and it can expect volume growth in H1CY14. We
are increasing our target price for Speciality Restaurant on the back
of two menu price hikes and traction in restaurant opening. We
continue to retain Hold rating on Colgate and GSK Consumer and Buy on
Talwalkars Better Value Fitness and Speciality Restaurant. In large
caps, we prefer Glaxo Consumer followed by Nestle and Colgate. Key
risk to our call would be cut in discretionary spends due to the
economic slowdown and gross margin compression.



Thanks & Regards

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BFSI - Sector Initiation - Between rock and a hard place :Centrum

Between rock and a hard place



We believe that the recent outperformance of the banking sector could
prove illusory in 2014 as the impact of adversities get more
pronounced; structural rigidities resulting in higher rates remain
stubbornly sticky, uncertainties of an election year bite, recovery in
credit quality proving to be protracted, and heightened regulatory and
government oversight lead to further cracks. A stagflation-like
scenario coupled with large capital requirements at low valuations is
unlikely to be of sustainable shareholder value. We prefer select
private names – ICICI Bank, DCB Bank and City Union Bank.  We also
prefer housing finance to asset finance. Among stocks covered,
initiations are on GIC Housing Fin, HDFC Ltd, PNB, DCB Bank, Shriram
Transport Fin and Mahindra Finance.



$ Liquidity concerns to prevail; high interest–high costs make the
down-cycle deeper:  Even as a high inflation-high government debt
combo perpetuates high rates, unlike other cycles, the banking system
is not able to counter that with high lending rates due to subdued
growth and fear of further adverse impact on credit quality. In
addition, the apprehension of higher wage costs in this climate will
increase in the coming months as the PSU wage settlement nears. Too
many stars need to be aligned to get out of this complex web of
negatives.



$ Efforts towards stabilizing credit quality underway, but upside is
capped: Reform measures across the stressed sectors, de-leveraging by
corporates have made many believe that the recovery process is
underway. Interactions with experts, analysis of NPA trend however
point to a feeble uptick and thereby expect systemic slippage ratio to
inch to 3.1% for FY14. Impairment ratio has been on the rise and
warrants capital infusion on a more frequent basis. The lag effect of
substantive restructurings done till FY13 along with the regulator’s
belated resolve to end putative frivolities in asset classification
could mean that the pressure continues.



$ Housing finance to outscore asset financing companies: Growth
visibility given favorable sector dynamics, ability to maintain decent
spreads and limited asset quality concerns provides comfort in the
housing finance space. On the other-side, valuations of asset
financing companies do not seem to factor in growth moderation, margin
pressures due to sticky interest rates and increased credit cost, this
being akin to corporate lending which is under stress compared to pure
retail.



$ The much-discussed PSU-private divide is unlikely to reverse as the
enabling conditions that led to prior, brief incidents of reversal are
not in place. Prefer ICICI (BUY, TP Rs1,250) to Axis (HOLD, TP
Rs1,150). In mid-caps, we like City Union Bank (BUY, TP Rs63) and DCB
Bank (BUY, TP Rs70). Retain a negative view on PSU banking space and
asset financing companies: SBIN (HOLD, TP Rs1,620), PNB (HOLD, Rs590),
SHTF (SELL, TP Rs560) & MMFS (HOLD, TP Rs280). We also initiate on GIC
Housing (BUY, TP Rs150) and HDFC (HOLD, TP Rs860). A sharp retracement
of rates remains the key risk to our call.





Thanks & Regards

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