Fw: Investor's Eye: Update - Sintex Industries (Price target revised to Rs120 ), Real Estate (Bangalore real estate stable now but to edge lower)

 

 

Investor's Eye [December 26, 2011]  Sharekhan www.sharekhan.com

Summary of Contents STOCK UPDATE Sintex Industries       Cluster: Apple Green Recommendation: Buy Price target: Rs120 Current market price: Rs71 Price target revised to Rs120  Our interaction with the management of Sintex Industries leads us to believe that the demand in the domestic as well as the international markets is moderating. Factoring the moderating demand, high crude prices and open forex exposure in the form of foreign currency convertible bonds (FCCBs: $110 million), we have reduced our FY2012 and FY2013 earning per share (EPS) estimate by 26% and 21% respectively. Our revised EPS for the stock is Rs13.5 (Rs18 earlier) and Rs16 (Rs20.3 earlier) respectively. On the stock performance side, Sintex Industries has underperformed the benchmark indices in the last six months (it has lost 52% while the Sensex has declined 11% in the same period). We believe that this underperformance on account of concerns related to moderating demand, slow execution pace and FCCBs is overdone and is getting reflected in the near bottom valuation of the stock (the stock is ruling at 4.4x its FY2013E earnings). Thus, we believe that this correction provides an attractive entry point for the investors and maintain our Buy rating on the stock with a revised price target of Rs120. Our price target implies an FY2013 price-to-earnings (PE) multiple of 7.5x, which is at a 30% discount to the average PE multiple of the last ten years. We feel this discount is warranted on account of the slower growth, the balance sheet risk and the company's exposure to an uncertain Europe. SECTOR UPDATE Real Estate     Bangalore real estate stable now but to edge lower  Residential demand at Bangalore fairly stable in comparison to other markets but might taper off in future Residential sales have been dropping in the prime cities of India, except for Bangalore, which is seeing somewhat steady sales comparatively. Volume in Bangalore fell by just 7% year on year (YoY) as compared to 23% and 31% fall in Mumbai and Delhi respectively. In fact in Q3CY2011, Bangalore-based developers outperformed peers, with a strong sales volume. However, with the information technology (IT) industry also slowing down, the demand in Bangalore is also expected to be affected going ahead. Bangalore's commercial market scores better but could edge down Even Bangalore's commercial market is doing fairly well compared to other markets. While the commercial market in other prime cities is facing heat with commercial leasing touching one-year low in Q3CY2011, the Bangalore market was much better off. Slower demand from IT/ITES may affect Bangalore developers The inventory level is already high for Brigade Enterprises (Brigade) and Puravankara Projects (Puravankara). Now if the inventory level rises further, it would further affect the cash flow of the companies, putting strain on their balance sheets. Except for Prestige Estates (Prestige), the net debt to equity for the rest of the southern developers is already in the range of 0.7x to 0.8x. Going ahead, a slowdown in demand, rising working capital pressure and negative free cash flows will result in higher debt requirement. Infact the return on equity (RoE) is very poor across all south based developers except Prestige. Outlook The sector has highly underperformed over the last one to two years, making valuations very attractive. However, we are still cautious as the real estate market will take time to revive. Though the interest rates seem to have peaked out, the demand will revive only once the overall economy improves and with the developers adopting meaningful price cuts.   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.   Click here to read report: Investor's Eye

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Fw: NHAI Tax-free Bond Issue - Opening on 28 Dec 2011

 

Investment Opportunity: Interest rates are at peak level; best time to invest in fixed income tax free instruments. Interest rate cycle has peaked out Given the sharp slowdown in the industrial activity and softening of the food inflation, the interest rate cycle has peaked out. Reserve Bank of India has restrained from increasing the interest rates in the last policy review meet and is expected to begin reducing rates in March or April 2012. Bond yields correct sharply The bond yields which had increased close to 9% levels have corrected significantly to around 8.3% which shows easing of pressure on rates. The banks have also kept their demand deposit rates stable since past couple of months despite the increasing policy rates. High post tax yield for triple A rated product Tax free bond with yield of 8.2-8.3% is comparable with yields offered on government bonds and offer extremely attractive pre-tax yield close to 12% for a long period of time. The bond issue has got AAA (stable) rating from the three agencies -- Crisil, CARE and Fitch. The bonds would also be listed and tradable on NSE/BSE. About NHAI: National Highways Authority of India (Authority) is an autonomous organization of Government of India and was constituted mainly to survey, develop, maintain and manage the National Highways, to construct offices or workshops, to establish and maintain hotels, restaurants and rest rooms at or near the highways vested in or entrusted to it, to regulate and control the plying of vehicles, to develop and provide consultancy and construction services and to collect fees for services or benefits rendered in accordance with Section 16 of the NHAI Act. As per NHAI Act, 1988, certain stretches of National Highways have been entrusted to NHAI by the Government for development, maintenance and management.

Tranche Series-I Series-II Tenor 10 Years 15 Years Face Value Rs1,000/- per bond Rs1,000/- per bond Issue Price At par i.e. Rs1,000/- per bond At par i.e. Rs1,000/- per bond Coupon Rate 8.20% p.a. 8.30% p.a. Interest Payment Annual Annual Put & Call Option None None Redemption Amount (Rs./ Bond) Repayment of the Face Value plus any interest that may have accrued at the Redemption Date Repayment of the Face Value plus any interest that may have accrued at the Redemption Date Credit Rating "CRISIL AAA/Stable" by CRISIL, "CARE AAA" by CARE and "Fitch AAA(ind)" by FITCH Mode of Holding Dematerialized as well as in physical form Minimum Application 50 bonds (Rs50,000/-) and in multiples of 1 bonds (Rs1,000/-) thereafter Listing Proposed on BSE/ NSE Who can apply Category-I Category II Category III Reservation for Categories 40% of overall issue size 30% of overall issue size 30% of overall issue size Basis of allocation in case of over-subscription On first-come-first-serve basis On first-come-first-serve basis On prorata / proportionate basis * For more details, please refer to the Terms and Conditions.

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