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

Fw: Investor's Eye: Special - Q3FY2012 Construction earnings review, Q3FY2012 Cement earnings review

 

 

Investor's Eye [February 23, 2012]  Summary of Contents SHAREKHAN SPECIAL Q3FY2012 Construction earnings review   Key points Stress continues; results below expectation: In Q3FY2012 the net profit of the engineering, procurement and construction (EPC) companies (ex Punj Lloyd) fell by 45% year on year (YoY; below our estimate) despite a decent revenue growth. This was mainly on account of a lower EBITDA margin and a higher interest burden. The revenue growth was decent across our universe except for NCC, IVRCL and Ramky InfraStructure (Ramky), which pulled down the cumulative revenue growth to 7.2% YoY (which was still marginally above our expectation). However, most EPC companies except Unity Infraprojects (Unity), Gayatri Infrastructure (Gayatri) and Ramky experienced pressure on their margins which caused our universe's (ex Punj Lloyd) EBITDA to fall by 5% YoY (below our expectation) in Q3FY2012. Further, the 42% year-on-year (Y-o-Y) rise in the interest cost (in line with our expectation) caused the stress to continue at the earnings level.  In case of infrastructure developers, the aggregate revenue was up 44% YoY, in line with our expectation, on the back of the strong execution witnessed by IL&FS Transportation Networks (India) Ltd (ITNL). But on the margin front, while ITNL saw a contraction (as expected) due to a higher share of its revenue coming from its construction arms, IRB Infrastructure Developers (IRB) witnessed a stable margin (above our estimate), resulting in a cumulative 30% growth at the operating level. Despite a strong operating performance, the cumulative net profit was up by just 13% YoY on account of a high interest burden. However, it was better than estimated due to IRB's better than expected quarterly results. IRB, Unity and Simplex outperform: In Q3FY2012 IRB, Unity and Simplex Infrastructures (Simplex) outperformed with regards to ours as well as the Street's expectations while IVRCL, NCC and Ramky were the laggards. IRB outperformed on the back of an expansion in its operating profit margin (OPM) along with a lower both depreciation charge and tax outgo. Even Unity outperformed on the back of margin expansion, a stable interest cost and a lower depreciation charge. Further, Simplex saw a pick-up in execution which resulted in a buoyant revenue growth; this supported by a stable interest cost led to its outperformance during the quarter. Even Pratibha Industries (Pratibha) saw a very robust revenue growth which led to its marginal outperformance at the earnings level. On the other hand, IVRCL saw poor execution due to delays in obtaining approvals and acquiring land which resulted in poor revenue booking and lower OPM. Even Ramky saw a poor revenue growth due to slower execution on account of adverse weather conditions in some parts of India. This along with a high interest burden led to Ramky's underperformance. NCC recorded a multi-year low OPM which along with a high interest burden led the company to report a loss at the earnings level. Punj Lloyd seems to have gained some traction on the execution front which is well reflected in its revenue performance over the last two to three quarters. However, its OPM continues to be under pressure which along with a high interest burden continues to result in a poor show at the net profit level. Outlook: For the EPC companies in our universe except IRB, we have marginally upgraded our estimates for FY2013 to factor in the better execution and higher margins as compared with our earlier estimates. However, we have revised our estimates downward for IRB to factor in the slower execution in a few of the company's projects and the substantial rise in the company's debt levels. The peaking of interest rates is a big relief for the sector and has led to a strong rally in the stock prices across the sector. The government is also slowly shedding its policy paralysis by taking a few initiatives. Now it remains to be seen when the government will speed up the decision making process in order to support the desired policy changes and will expedite the roll-out of the major projects as the same would boost investment in infrastructure. Quick policy actions will help the mid construction companies Like NCC, IVRCL to improve their execution and thus come out of the deep water. Till then we prefer being very selective and our top pick remains ITNL, Unity and Pratibha.    Q3FY2012 Cement earnings review   The Q3FY2012 earnings growth of the domestic cement players was impressive and ahead of the Street's estimates. The companies with a larger exposure to south India saw a significant improvement in their bottom line during the quarter, as their realisation surged due to a supply discipline followed by the manufacturers in the region. On the other hand, after a sluggish offtake during H1FY2012 the cement offtake witnessed signs of a revival in Q3FY2012. Hence, the impact of the cost pressure during Q3FY2012 was largely offset by the healthy realisation for most of the companies. Consequently, we have upgraded our earnings estimates for most of the cement companies under our coverage to factor in the better than expected cement realisation and the improvement in the cement offtake. Going ahead, with the price hike undertaken in January this year, we believe cement companies are expected to post better profitability and earnings in the coming quarter. Our top pick in the sector is Grasim Industries (Grasim) in the large-cap space on account of its strong balance sheet, better profitability in the viscose staple fibre (VSF) business and attractive valuation. In the mid-cap space we prefer Orient Paper & Industries (Orient Paper) due to its diversified business model, improving market mix in favour of the non-southern regions and attractive valuation.  Key points Cumulative revenue grew by 20.8%: In the quarter under review, the cumulative revenues of the cement companies under Sharekhan's universe grew by 20.8% year on year (YoY) to Rs17,606.7 crore. The revenue growth was supported by the realisation growth of 18.2% YoY and the volume growth of 10.2% YoY. Among the Sharekhan cement universe, Shree Cement, Orient Paper and Madras Cement posted a revenue growth of above 25% YoY. On the other hand, the revenue of the other companies grew by 18-20%. Large players like Ambuja Cement posted an impressive revenue growth of 30.2% whereas the revenues of ACC grew by 27.8% during the same quarter.  Mixed volume growth of cement universe, Orient Paper takes the lead: The cement companies under our coverage posted a mixed volume growth during the quarter. Orient Paper reported a volume growth of 25% due to the stabilisation of its new capacity and the revival in the demand for cement. On the other hand, JP Associates Ltd (JAL) and Madras Cement also posted an impressive volume growth in the range of 16-18%. Companies like UltraTech Cement (UltraTech), Shree Cement and India Cements, however, posted a volume growth of 7-9%. The pan-India large players like ACC and Ambuja Cement reported a volume growth in the range of 6-7%.  Cumulative realisation increased by 18.2%, supported by supply discipline: The cumulative realisation of the cement makers under our coverage increased by 18.2% YoY in the quarter. The cumulative growth in the realisation was supported by the supply discipline followed by the cement players. The average realisation of Shree Cement and Orient Paper increased by 33% and 20.7% respectively whereas the average realisation of the other players increased by 10-15%. Further, the cement prices increased by Rs10-12 per bag during January this year which will be reflected in the coming quarters.  Cost pressure offset by surge in realisation, margin expanded: On the operating profit margin (OPM) front, the cumulative OPM of these cement companies expanded by 48 basis points to 22% during the quarter under review. Shree Cement, India Cements and Madras Cement reported a healthy improvement in their OPM whereas the margin improvement was comparatively lower in case of UltraTech and Grasim. The margin expanded on the back of a surge in the realisation which offset the cost pressure in terms of an increase in the power & fuel cost (due to a rise in the coal price YoY) and a higher freight cost (due to an increase in the lead distance). On the other hand, players like JAL and Orient Paper reported contraction of 150-400 basis points in their margin. However, in the coming quarters we believe the margins would improve sequentially due to the recent increase in the cement prices. Earnings improved by 46.1% due to revenue growth and margin expansion: The revenue growth (supported by the realisation and volume growth) coupled with the margin expansion resulted in a better than expected earnings growth during the quarter. Further, the impressive performance of the non-cement division of JAL also supported the overall earnings growth. On a cumulative basis, the Sharekhan cement universe registered a 46.1% growth at the net profit level. 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: FD schemes from quality manufacturing companies

 

Dear Investor,

 

Greetings from Integrated.

 

Attractive Return from select Manufacturing Companies with a sound track record.

 

We are very happy in providing you with a list of popular FD schemes to suit your requirement.  

 

Company Name	Minimum Amount	Rate of Interest (%)			Additional Interest
		1 Year	2 Years	3 Years
Apollo Hospitals Enterprises Ltd	25000	9	9.25	9.50	-
Ceat Ltd	25000	9.50	10	10.50	0.25% additional for senior citizens
Elder Pharmaceuticals Ltd	25000	10	11	12	0.50% additional for senior citizens
Godrej Industries Ltd	10000	-	8.50	9.25	-
Mahindra & Mahindra Ltd	25000	8.50	-	9.75	-
Plethico Pharmaceuticals Ltd	25000	11	11.50	12	0.50% additional for senior citizens
Premier Ltd	25000	11.50	12	12.50	-

 

For further informations and application forms, kindly contact your nearest branch of Integrated.

 

For list of branches, please visit http://www.iepindia.com/contact.aspx