Fw: Investor's Eye: Update - United Phosphorus, Cement

 

 

 

Investor's Eye [March 02, 2012]  Summary of Contents STOCK UPDATE United Phosphorus  Cluster: Ugly Duckling Recommendation: Buy Price target: Rs167 Current market price: Rs136 Price target revised to Rs167 Revenue growth guidance revised downward for FY2012 to 25-30%: United Phosphorus Ltd (UPL) has reduced its revenue growth guidance for FY2012 due to the extended winter weather in some of its major markets. The company expects a revenue growth of 25-30% for the year 2011-12 which is much lower than the 35-40% growth guidance given earlier. During M9FY2012 UPL has seen a robust growth of 40.8% on the back of good volume and inorganic growth. But in Q4FY2012 volume offtake will undergo a de-growth due to prolonged winter in the western countries, which has delayed the sowing season to Q1FY2013.  Revised guidance implies muted performance in Q4FY2012: The downgrade in revenue guidance to 25-30% in FY2012 and margin guidance in the range of 18-20% implies a muted performance in Q4FY2012. Going by the guidance, we expect a flattish growth in revenue in Q4FY2012 as compared to 40.8% growth in M9FY2012 and that there would be a single digit growth in earnings.  Outlook and valuation: Given the expectation of a low volume offtake in Q4FY2012 due to unfavourable weather conditions in the USA and Europe, we have revised downward our earnings estimate for FY2012 by 21.5% to Rs13.9 and by 15.5% for FY2013 to Rs16.7. Consequently we have also reduced our target price from Rs197 to Rs167 per share. At the current market price the stock is trading at 9.6x and 8x its FY2012 and FY2013 earnings estimates respectively. Though the valuation has turned attractive after the steep correction in the past two days, we believe the stock could continue to underperform in the near term in anticipation of lackluster results. However, the stock offers value for long term investors. Hence, we maintain our Buy recommendation on the stock.     SECTOR UPDATE Cement      Seasonal pickup in demand Key points Cumulative volume for pan India players grew by 10.1%: The volume growth of the top two domestic cement players - ACC and Ambuja Cements for the month of February 2012 was impressive on a year-on-year (Y-o-Y) basis on account of a pick-up in cement offtake in the north, west and central regions of the country due to a pick-up in execution of infrastructure projects. Among the large players Ambuja Cements has posted an impressive dispatches growth of 13% YoY. On the other hand ACC has posted a 7.5% growth in its dispatches. Hence, the pan India players have cumulatively registered a 10.1% volume growth. On a sequential basis (compared to January 2012) the cumulative dispatches of pan India players have increased marginally by 0.2%.  Cement offtake picks up in north, west & central India; partially recovers in the south: In terms of demand, dealers have confirmed that the cement offtake in most parts of the country has shown sign of recovery in the past couple of months due to post monsoon pick up in the infrastructure activity. Further, demand in the southern region has partially recovered in February 2012. Going ahead dealers expect the momentum in demand to continue in the coming couple of months.  Cement price increased in most parts of the country: Cement prices during the month of February have increased in the range of Rs5-12/bag of 50kg in most parts of the country. The eastern region witnessed the highest price hike on a month-on-month (M-o-M) basis whereas cement prices in the southern region remained largely unchanged sequentially. The price hike has largely been driven by a revival in the cement offtake and supply discipline. Further, dealers are of the view that cement prices may further increase in the near term as cement offtake is expected to be strong going ahead.  Outlook-Maintain bullish stance on Grasim & Orient Paper: The cement sector has outperformed the broader market in recent times due to positives such as a recovery in cement offtake and strong realisation. However with the pick-up in cement offtake, supply discipline may break, which could lead to pressure on cement prices going ahead. Hence we maintain our neutral stand on the sector. But we are selectively positive on certain stocks in the sector and prefer Grasim Industries (Grasim) in the large size space and Orient Paper & Industries (Orient Paper) in the mid size space. Click here to read report: Investor's Eye   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Regards, The Sharekhan Research Team myaccount@sharekhan.com Manage your newsletter subscriptions

Fw: Muthoot Finance Ltd NCD Issue - Opens on 2 March 2012

 

Issue of Muthoot Finance Secured Non-Convertible Debentures (NCDs) Options Particulars Issuer Muthoot Finance Ltd Issue Base issue size of Rs. 250 Crores with an option to retain over-subscription upto additional Rs. 250 Crores Issue Opens 2nd March 2012 Issue Closes 17th March 2012 Basis of allocation First come first serve basis Issuance and Trading Compulsorily in dematerialised form Trading Lot 1 (one) NCD Rating AA-/Stable by CRISIL & ICRA Interest payable Interest on application & Interest on refund money - 13% p.a. Deemed Date of Allotment Shall be the date as decided by the duly authorized committee of the board constituted by resolution of the board. Issue details Options | || ||| |V Frequency of Interest Payment Annual Annual Annual NA Minimum Application Rs. 5,000 (5 NCDs)(for Options I, II, III and IV either taken individually or collectively) In Multiples of (in Rs) 1,000 (1 NCD) 1,000 (1 NCD) 1,000 (1 NCD) 1,000 (1 NCD) Face Value of NCDs (in Rs) 1,000 1,000 1,000 1,000 Issue Price (Per NCD - in Rs) 1,000 1,000 1,000 1,000 Coupon Rate (%) for NCD 13.00 13.25 13.25 NA Effective Yield (% per annum) 13.00 13.25 13.25 13.43 Tenor (in Months) 24 36 60 66 Redemption date (in Months from the Deemed date of Allotment) 24 36 60 66 Redemption amount (per NCD) Repayment of the Face Value plus any interest that may have accrued at the Redemption Date. Rs. 2000 Who can apply * Category I Public financial institutions, statutory corporations, commercial banks, co-operative banks and regional rural banks; Provident funds, pension funds, superannuation funds and gratuity fund; Venture Capital funds; Insurance Companies; National Investment Fund; Mutual Funds (Issue allocation 15%) Category II Companies; bodies corporate, societies; trusts; research organizations, Partnership and Limited liability partnerships; Resident Indian individuals; and HUF (applying for NCDs aggregating to a value exceeding Rs. 500,000, across all series of NCDs (Issue allocation 20%) Category III Resident Indian individuals; and HUF (applying for NCDs aggregating to a value not more than Rs. 500,000, across all series of NCDs (Issue allocation 50%) Category IV NRIs on a non-repatriation basis only * (Separate Form is to be filled in by NRIs) (Issue allocation 15%) Click here for more details * For the purpose of information only, invest only after referring to the final prospectus

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Fw: Investor's Eye: Update - Automobiles, Power equipment, Insurance

 

 

Investor's Eye [March 01, 2012]  Summary of Contents SECTOR UPDATE Automobiles      On a bumpy road Maruti Suzuki - The show-stopper in Feb 2012  Maruti Suzuki (Maruti) surprised positively with domestic sales breaching the 1 lakh unit mark yet again in February 2012. The Swift and the recently launched compact Dzire evoked a good response from the market leading to healthy sales. An improvement was also witnessed in the multi purpose vehicle (MPV) segment which had been under pressure a couple of months ago. Hard landing in tractors; worst performance in a seasonally high month A slowdown was witnessed in the tractors segment with Mahindra & Mahindra (M&M) reporting a drop in volumes by 21% year on year (YoY) in February 2012. The growth in the tractor industry for April 2011-January 2012 has slipped to 15.5% YoY from a growth of 19.8% YoY witnessed in the April 2011-October 2011 period. Going by the market leader M&M's tractor numbers in February 2012, the year till date (YTD) growth (April 2011-February 2012) is estimated to further slip to 12-13%.  Higher interest rates and an increase in input costs for farmers are the key reasons attributable to a slow down in the growth of tractor sales. Overall, the industry is estimated to grow by about 10% in FY2012, which is about half the growth rate witnessed in H1FY2012. LCVs shine; continue to outperform other auto segments The light commercial vehicle (LCV) segment has been the star performer showing no signs of a slowdown. The hub and spoke model adopted in the logistics industry has fuelled demand for LCVs towards last mile connectivity. LCVs continue to grow in excess of 25% YoY, growing 26.3% YTD in the domestic market. Moderation seen in two-wheelers Going by TVS Motors' and Hero MotoCorp's February 2012 volumes; two-wheelers are also witnessing a moderation in growth. Reports indicate higher dealer inventory with no waiting period. While the super bike segment is expected to grow well on a small base, the entry and executive segments are likely to grow in single digits. For Bajaj Auto, we expect an 8.5% YoY growth in February 2012 volumes. No pre-budget buying seen; consensus building for rollback of excise concessions  Given a general perception of a higher duty on automobiles in union budgets, we did not see any major advancement in buying. There is an impending risk that overall sentiments may deteriorate further if there is a rollback of excise from 10% to 12% and if there's an additional duty levied on diesel vehicles.   Power equipment      NTPC order - BGR shines, BHEL gets fair share, L&T misses yet again Event: Bids open for NTPC's bulk order; BGR emerges as lowest bidder  BGR Energy Systems (BGR) has emerged as the lowest bidder (L1) for the supply of supercritical boilers and turbine-generators (TG) respectively for the 7260MW (11x 660MW) National Thermal Power Corporation (NTPC) power projects. It is likely to get 7 units of boiler orders worth Rs6,500 crore at a realisation of Rs1.4 crore/MW. Here, Bharat Heavy Electricals Ltd (BHEL) is likely to get Rs3,700 crore worth of orders due to favourable NTPC tendering specifications, provided it matches the L1 quotations.  BHEL (CMP Rs299, Hold) - to get fair share of order  Power sector reforms and possible levy of import duty to improve competitive environment could result in re-rating of multiples. The recent few developments/reforms in the power sector seem to be working in favour of BHEL after a spate of bad news in CY2011. Price target revised to Rs328: The above positive developments and resulting containment in overseas competition would augur well for the company. Hence we are slightly increasing the target multiple to 12x (from the earlier 10x). Our revised price target stands at Rs328 (roll-over of the target multiple on average of FY2013 and FY2014 earnings estimate). We maintain our Hold rating on the stock. L&T (CMP Rs1,278, Buy) yet to open its account with NTPC L&T appears to have lost out to BGR and BHEL in its price bid in the super-critical bulk tender order from NTPC.  We feel that this was in accordance with the company's focus on the sustenance of healthy margins. The company has been earlier disqualified in the first round of 11x660MW equipment bid on technical ground. In the 9x800MW segment the company emerged as L2; the order was given to the joint venture of JSW Energy with Toshiba.  L&T currently has a well-diversified order book of Rs145,768 crore in M9FY2012, of which only 29% is contributed by the power sector. Hence, the shortfall in this sector could partly be compensated by contributions from other sectors. At the current market price the stock is trading at 11.9x its FY2014 consolidated earnings estimate. We maintain our Buy rating on the stock on its diversified business exposure and attractive valuations. Insurance      APE jumps 37.6% YoY in January 2012 Key points  The annual premium equivalent (APE) of the life insurance industry showed a jump of 37.6% year on year (YoY) and 10.4% month on month (MoM). The year-on-year (Y-o-Y) growth in the APE was mainly contributed by the Life Insurance Corporation of India (LIC), which reported a robust growth of 41.3% YoY. The private players also witnessed a rise of 31.5% YoY in their APE. The life insurance sector has started reporting growth on a Y-o-Y basis mainly due to the subsiding of the high base of the previous year (as new regulations were introduced from September 2010 onwards). However, on a year-till-date (YTD) basis (ie April 2011-January 2012), the APE of the industry continued to contract with the private players showing a higher decline (down 22.3% YTD) compared to a 3.9% growth shown by LIC. The market share of the private players declined to 33% levels in January 2012 while that of LIC expanded to 67%. Among the private players, SBI Life's market share decreased to 10.9% from 13.7% in January 2011 while that of Reliance Life declined to 6.1% from 8.4% in January 2011.The market share of HDFC Standard Life Insurance grew to 13.7% from 12.5% in January 2011 whereas that of ICICI Prudential Life Insurance remained stable at 18%. The share of Max New York Life Insurance also grew to 7% as against 6.7% in  January 2011. In terms of APE growth for January 2012, 14 out of 20 private players posted a decline Y-o-Y with Tata AIG Life Insurance Company showing the highest contraction of 32.8%. ICICI Prudential Life Insurance showed a growth of 53.5% YoY. On a YTD basis, the life insurance industry continued to report a decline in APE as the new unit-linked insurance policy (ULIP) guidelines set in and insurers awaited the clearance from the Insurance Regulatory and Development Authority (IRDA) for launching new products. Though premium collections will remain healthy in the next two month of the current fiscal (due to seasonality), the overall growth for FY2012 is likely to remain lower than in FY2011. Click here to read report: Investor's Eye Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Regards, The Sharekhan Research Team myaccount@sharekhan.com Manage your newsletter subscriptions

Fw: Investor's Eye: Viewpoint - Tata Motors; Special - Q3FY2012 Pharma earnings review

 

 

Investor's Eye [February 28, 2012]  Summary of Contents VIEWPOINT Tata Motors        CARS conversion-an overhang What are CARS?  CARS are Zero Coupon Convertible Alternative Reference Securities issued by Tata Motors in July 2007 to raise $490 million from foreign bond holders. These bonds are due for redemption on June 12, 2012 and carry yield to maturity (YTM) of 131.82%.  Scenario 1: CARS conversion by bondholders The conversion price as well as the rupee-dollar rate while estimating the bond conversion into equity shares has been fixed. The bondholders who may opt for conversion will get a conversion price of Rs181.4. The $473 million worth CARS will fetch a dollar-rupee rate of 40.6. Scenario 2: CARS redeemed by the bondholders  The bond holders are entitled to a 131% YTM on their zero coupon CARS. There is no fixed dollar-rupee rate for the redemption. The redemption would take place at current currency rates.  Probability of conversion low We estimate a mere 23.3% return for bondholders in five years, assuming they sell the converted shares at Rs270 per share. The returns are much lower than 131%, five-year YTM return on the respective bonds. The conversion is highly unlikely at the current prices due to the lower relative return.  Valuation Our FY2012 consolidated earnings per share (EPS) estimate stands at Rs36. The stock has traded between 8x and 9x one-year forward earnings in the past. Given the excellent performance of Land Rover, the company may continue to see long-term investment interest. However, the short-term overhang of CARS redemption would stay. We are positive on the stock with a long-term investment horizon.   SHAREKHAN SPECIAL Q3FY2012 Pharma earnings review    Key points Pharma universe grows 29% in Q3FY2012: Sharekhan's pharmaceutical (pharma) universe reported a 29.1% year-on-year (Y-o-Y) growth in net sales during Q3FY2012. The growth was mainly driven by the export of formulations which grew by 39% year on year (YoY) on a weaker currency and acquisition-led volume growth for a few. Excluding the contribution from the newly acquired entities the growth would have been at 16% YoY. Adjusted for the marked-to-market (MTM) foreign exchange (forex) losses and the extraordinary items, the net profit grew by 49% YoY, mainly driven by an improvement in the margins and better operating leverage. Revenues of players like Opto Circuits (up 46% YoY), Sun Pharma (up 34% YoY), Ipca Laboratories (Ipca; up 29% YoY) and Glenmark Pharma (up 37% YoY) were better than our expectations. Other players like Divi's Laboratories (Divi's; up 33.7% YoY), Cadila Healthcare (Cadila; up 21.9% YoY), Lupin (up 22.1% YoY) and Torrent Pharma (up 21.8% YoY) performed in line with our expectations.  Weaker rupee helps OPM but pinches bottom line: The operating profit margin (OPM) of our pharma universe stood at 26.2% (up 362 basis points YoY) mainly due to favourable currency movement and a better operating performance by players like Sun Pharma (up 1,741 basis points YoY, due to the consolidation of Taro Pharma), Ipca (up 586 basis points YoY) and Lupin (up 390 basis points YoY). However, players like Glenmark Pharma (core operating profit down 420 basis points YoY), Divi's (core operating profit down 280 basis points YoY) and Cadila (core operating profit down 114 basis points YoY), mainly on a higher raw material cost and higher payments to foreign employees due to the rupee's depreciation. However, lower values of the rupee against major international currencies also resulted in huge MTM losses which eroded a substantial portion of the profits. During the quarter, our pharma universe collectively provided non-cash forex loss of Rs222 crore against forex gains of Rs39 crore in Q3FY2011. Players like Glenmark Pharma, which has substantial foreign liabilities, provided Rs102 crore of MTM forex losses, followed by Ipca with Rs40 crore, Lupin with Rs34 crore, Cadila with Rs31.7 crore and Torrent Pharma with Rs18 crore. Players like Divi's recorded forex gains of Rs8 crore during the quarter. However, since these are non-cash items, we expect a partial write-back in the subsequent quarter as the rupee has strengthened against the major international currencies.  Universe's bottom line grows 26% YoY despite forex losses: Despite the provisioning of MTM forex losses, the net profit of the pharma universe grew by 26% YoY, mainly driven by Sun Pharma, which reported a 90% Y-o-Y rise in its net profit due to the consolidation of Taro Pharma, Opto Circuits (up 31% YoY) and Divi's (up 20.6% YoY). However, the forex losses affected the net profit of Glenmark Pharma (down 58% YoY) and Cadila (down 7.9% YoY) during the quarter. The adjusted profit after tax (PAT; excluding the forex loss and extraordinary items) grew by 48% YoY for our universe.  We introduce estimates for FY2014: Since we are closer to the end of FY2012 and the visibility of the revenues and earnings of our universe is better, we have introduced estimates for FY2014. On an average, our pharma universe is trading 14x and 12x FY2013E and FY2014E earnings. We have based our valuation on the average of the earnings for FY2013 and FY2014. We prefer Sun Pharma (an impressive performance of Taro Pharma and a better operating performance on a cash-rich balance sheet), Divi's (niche business segments and a clean balance sheet) and Ipca (a better operating performance on operationalisation of the Indore plants). Click here to read report: Investor's Eye   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Regards, The Sharekhan Research Team myaccount@sharekhan.com Manage your newsletter subscriptions

Fw: Investor's Eye: Update - Fertilisers; Special - Monthly economy review

 

 

Investor's Eye [February 27, 2012]  Summary of Contents SECTOR UPDATE Fertilisers      NIP 2012 structurally positive New Investment Policy 2012; structurally positive but gas-linked subsidy cap causes uncertainty: The empowered group of ministers (EGoM) has finally given an in-principle nod to the New Investment Policy (NIP) for urea manufacturers in order to attract new investments in the segment. Currently, India produces around 22 million tonne of urea as compared to the domestic consumption of 28-29 million tonne. The remaining gap is bridged by importing urea at a high cost. Thus, any move to attract fresh investments in urea capacity expansion (greenfield and brownfield both) will be structurally positive for the sector and the major fertiliser players looking to expand, eg Rashtriya Chemicals and Fertilizers (RCF), Tata Chemicals, Zuari Industries and Chambal Fertilisers and Chemicals. However, the proposal to link the subsidy in urea with the gas price within a band of $6.5-14 per mmbtu has caused some uncertainty and the domestic players have requested the government to increase the gas price limit to $20 per mmbtu. The policy will have to be cleared by the Cabinet Committee on Economic Affairs (CCEA) before it can be implemented.    SHAREKHAN SPECIAL Monthly economy review   Economy: Industrial growth remains subdued; inflation continues to decline In December 2011 the Index of Industrial Production (IIP) grew by 1.8%, which is a tad lower than the market's expectations. The relatively subdued growth was led by a weak performance in the manufacturing sector and a sharp decline in the capital goods sector. On a year-till-date (YTD) basis, the IIP growth stands at 3.6% as against 8.3% in the corresponding period of FY2011. The Wholesale Price Index (WPI)-based inflation for January 2012 came in at 6.55%, slightly lower than the Street's expectations. However, the inflation rate for November 2011 has been revised upwards to 9.46% from the provisional figure of 9.11%. The trade deficit for January 2012 expanded to $14.7 billion from 12.7% in December 2011. On a year-on-year (Y-o-Y) basis, the trade deficit increased by 117.9% and remains at higher levels. The growth in exports remained weak showing an increase of 10.1% YoY (up 6.7% in December 2011). Imports grew by 20.3% YoY (up 19.8% in December 2011). Banking: In view of tight liquidity another CRR cut expected In its last policy meeting, the Reserve Bank of India (RBI) had reduced the cash reserve ratio (CRR) by 50 basis points. In line with the continued liquidity pressure and the need to support growth we expect the RBI to continue with its liquidity easing measures and expect another cut in the CRR in the forthcoming mid quarter policy review meeting. The credit offtake registered a growth of 15.7% YoY (as on February 10, 2012), which was higher than the growth of 16.4% recorded in the previous month (as on January 13, 2011). The credit growth is lower than the RBI's guidance of 16%. The deposits registered a growth of 15% YoY (as on February 10, 2012), which was lower than the 17.2% Y-o-Y growth seen during the previous month (on January 13, 2012). The growth in deposits has fallen due to the higher yields offered by the other debt instruments. The credit/deposit (CD) ratio was at 75.6% (as on February 10, 2012), higher than 75.1% as on January 13, 2011. Meanwhile the incremental CD ratio increased to 96% for the period, which was higher than the ratio seen during the previous month.  The yields on the government securities (G-Secs; of ten-year maturity) stood at 8.21% as on February 24, 2012, in line with the previous month's levels. The G-Sec yields across the long-term maturities have increased on a month-on-month (M-o-M) basis. Equity market: FIIs remain buyers  During the month-till-date (MTD) period in February 2012 (February 1-15), the foreign institutional investors (FIIs) were net buyers of equities and the domestic mutual funds were net sellers of equities. For the MTD period in February 2012 (February 1-15), the FIIs bought equities worth Rs13,222 crore while the domestic mutual funds sold equities worth Rs1,015 crore.   Click here to read report: Investor's Eye   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Regards, The Sharekhan Research Team myaccount@sharekhan.com Manage your newsletter subscriptions