Fw: Investor's Eye: Update - Jaiprakash Associates, Phillips Carbon Black

 

 

 

Investor's Eye [November 16, 2011]  Sharekhan www.sharekhan.com

Summary of Content STOCK UPDATE Jaiprakash Associates Cluster: Ugly Duckling Recommendation: Buy Price target: Rs105 Current market price: Rs67 Price target revised to Rs105 Result highlights Earnings ahead of estimate: Jaiprakash Associates Ltd (JAL) on a stand-alone basis posted a net profit of Rs128.7 crore (an increase of 11.4% year on year [YoY]), which was well ahead of our as well as the Street's expectations on account of much higher than expected profitability in its construction division and a higher than expected other income. However, the cement division disappointed with a loss at the EBIT level; its real estate division's performance was also below expectation due to the slowdown in the property market.  Overall revenue supported by cement division: JAL's revenues improved by 2.5% YoY to Rs3,067 crore in Q2FY2012. The overall revenue of the company was supported by its cement division, which posted a revenue growth of 9.6% YoY (driven by a volume growth of 18.8% as the realisation declined by 7.8% in the same period). Its construction division's revenue even though declined by 1% YoY the same at Rs1,555 crore was higher than our estimate. However, on account of the slowdown in the property market its real estate division posted a 37.6% decline in its revenue.  OPM contracts due to loss in the cement division: The operating profit margin (OPM) contracted by 81 basis points YoY to 22.3% in Q2FY2012 on account of the cement division, which posted a loss to the tune of Rs29 crore on account of cost push and higher than expected pressure on cement realisation. However, the negative impact of the disappointing performance of the cement division was largely offset by a surge in the EBIT (in percentage terms) of the construction division by over 15 percentage points YoY to 36.1%. Consequently, the operating profit declined by 1.1% to R683 crore. SOTP valuation: We have re-visited our earnings estimates for FY2012 and FY2013 mainly to factor in the higher than expected cost pressure in the cement division and the better than expected profitability of its construction division. Consequently, the revised EPS estimates for FY2012 and FY2013 work out to Rs3.1 and Rs4.2.  We continue to like JAL due to its diversified business model and aggressive expansion plan. However, the huge cost pressure in the cement division and the fluctuating profitability of the construction division will be the key risks. In terms of valuation we continue to value the stock using the SOTP valuation methodology. We have valued the cement business at 6x FY2012 EV/EBITDA. We have valued the construction division at 6x EV/EBITDA. We continue to value the real estate business at 1x its net asset value. For power projects, we have considered those projects in our valuations that are either operational or financially closed. In terms of the hotel business, we have valued the same at 7x FY2012 EV/EBITDA. The fair value based on the SOTP method works out to Rs105 per share. We maintain our Buy recommendation on the stock with a revised price target of Rs105. At the current market price, the stock is trading at a PE of 21.7x FY2012 and 15.8x FY2013 earnings estimates. Phillips Carbon Black Cluster: Cannonball Recommendation: Buy Price target: Rs173 Current market price: Rs117 Price target revised to Rs173 Result highlights Sales grew on better realisation but volume performance was poor: The net sales of Philips Carbon Black Ltd (PCBL) grew by 35% year on year (YoY), supported by a 27% growth in the realisation of carbon black. However, the performance on the volume front was poor. The volume grew by 7% YoY (new capacity was added over the previous year) but declined by 8% sequentially, indicating a poor demand. We observed that the company has cut production compared to the Q1FY2012 levels and there was a significant rise in its inventory in H1FY2012. Both indicate a lower demand outlook. The sales from the power segment remained healthy with a 23% growth YoY but slipped by 18% quarter on quarter (QoQ).  Profitability hit by margin pressure: The operating profit margin (OPM) for Q2FY2012 slipped to 8.2% compared to the historical trend of 12-13%. One of the highlights of the cost was a large foreign exchange (forex) fluctuation loss of Rs10 crore (PCBL has foreign debt) due to the rupee's depreciation. Even if we adjust this expense (as the same is notional in nature), the OPM appears to be around 10%, which is still lower. Moreover, the employee cost was reported high in this quarter compared to the previous quarter due to a variable payment made by the company (historical data suggests the trend). Consequently, the operating profit declined by 9% YoY despite a 35% sales growth. Sequentially, on flat sales the operating profit declined by a whopping 40%.  Valuation and outlook: Given the apparent slowdown in the domestic demand, the company is likely to witness several challenges in the medium term. Moreover, a higher interest rate coupled with the depreciating rupee could further be challenging for the company for some time. Hence, we have cut our earnings estimates by 13% and 11% for FY2012 and FY2013 respectively. As a result, we have reduced our price target to Rs173 from Rs205, considering the likely headwinds the company is expected to face in the medium term. Nevertheless, we remain positive on the stock from a longer-term perspective given its leadership position in the growing Indian market and the stock's low valuation. At the current market price, the stock trades at 0.6x its FY2012E BV and 0.5x its FY2013E BV. It is available at 3x its FY2012 and FY2013 earnings estimates. Therefore, we retain our Buy rating on the stock with a revised price target of Rs173.    "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

Regards, The Sharekhan Research Team myaccount@sharekhan.com   www.sharekhan.com to manage your newsletter subscriptions

 

Fw: Balanced Funds - Equity oriented

  

As the name suggests, this category of funds invests in both the asset classes - equity & debt. At least 65% will be invested in equity and the remaining will get invested in debt. You are getting a ready made portfolio that invests between equity and debt  & need not worry on rebalancing the portfolio as the same is taken care by the professional fund manager.

As for as taxation goes, these funds will get the treatment of an equity fund. There is no dividend distribution tax & no long term capital gain tax if the units are sold after 1 year.
 

The best of Balanced Funds are covered here:

 

Fund Name	Launch Date	NAV As on 04.11.2011 (Rs.)	Return as a % as on 04.11.2011			Value Research Rating
			3 Yrs	5 Yrs	Since Inception
Birla Sun Life 95 Fund	Feb-1995	301.89	26.19	11.84	22.88	****
Canara Robeco Balance	Jan-1993	60.86	22.98	10.17	11.79	****
DSP BlackRock Balanced Fund	May-1999	64.13	20.15	11.70	16.10	****
HDFC Balanced Fund	Aug-2000	56.48	28.10	12.18	16.79	*****
HDFC Prudence Fund	Jan-1994	208.39	30.09	13.87	20.61	*****
Reliance Regular Savings Fund - Balanced Plan	May-2005	21.16	24.83	13.38	12.41	****
Tata Balanced Fund	Oct-1995	82.24	23.59	11.81	16.21	****

 

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

 

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

    

Risk Factors : Mutual Fund investments are subject to market risk. Please read scheme information document carefully before investing.

 

Regards,

Integrated Enterprises (India) Ltd.,

 

  

Fw: ValueGuide: Signs of revival but a long haul ahead

 

 

Sharekhan ValueGuide [November 05, 2011]  Sharekhan www.sharekhan.com

EQUITY FUNDAMENTALS FROM SHAREKHAN'S DESK Signs of revival but a long haul ahead Did we not say that it is darkest before dawn? After the severe correction in September and the first week of October, the equity market did surprise positively with a smart rally globally. The sign of relief came after the European nations agreed on a much larger stabilisation fund and recapitalisation of the banks. Back home, the Reserve Bank of India (RBI) governor, who had reiterated his hawkish stance as recently as in September this year, finally hinted at a pause in the rate hike exercise last month, much to the market's relief. These two developments revived market sentiment. The market closed the month at 17706. That is a monthly gain of 1,251 points (7.6%), the highest in seven months!.   SHAREKHAN TOP PICKS Sharekhan top picks  MARKET OUTLOOK Key points Signs of hope: As articulated in our last issue of the ValueGuide, titled "Darkest before Dawn'', we had pointed towards some potential positive developments on the domestic and global fronts that could provide some relief or hope for the equity markets. In the domestic scenario, the likely peaking of interest rates and the expected pause in policy rate hikes boosted market sentiment. On the global front, European leaders are finally taking some hard decisions and planning radical steps to address the issue of sovereign debt crisis engulfing the European fringe countries. The risk of a double-dip recession in the USA too has eased out.  Domestically, RBI to take a pause in the interest rate hikes: After raising the key policy rates by 375 basis points since March 2010, the Reserve Bank of India (RBI) has indicated a pause in the policy rate hikes on account of the rising concerns over the domestic growth. Further, the inflation rate, which has been the main concern of the RBI, is expected to trend down due to the slowing of growth and a favourable base effect. While we do not expect any immediate reversal of the rate hikes, equity markets have led a reversal in interest rate cycle historically. However, the risk to the easing out of inflation emerges from the persistently high food inflation (despite record agriculture output); commodity prices are also volatile.  Globally, finally some hard decisions in Europe; economic data in USA to remain mixed: The European Union is moving towards implementing a comprehensive rescue plan in Europe, broadly focusing on three points (larger European Financial Stability Facility [EFSF] of $1.4 trillion, recapitalisation of banks and a 50% haircut on Greek debt by lenders). Though the situation remains fluid and volatile, we take comfort from the fact that the yields are already factoring in the worst scenario of Greece's sovereign default. In the USA also, the gross domestic product (GDP) growth in Q3 was tepid but better than expected and hence the risk of a double-dip recession has lowered unless the situation in Europe worsens considerably.  But concerns galore; key risks global contagion and rising probability of rating downgrade of India: In addition to a potential global event risk, the deterioration in the government's financial health poses the risk of the fiscal deficit overshooting the target of 4.6% set for FY2012 and is a threat to India's rating. Moreover, the lower than expected growth in revenues and higher subsidy burden could result in the crowding out of private investments and corporate earnings.  Valuations supportive; policy reforms in winter session and inflation the key monitorables: As we had pointed out in our earlier strategy reports, the Indian economy has been facing mid-cycle blues that have been accentuated by global issues and policy paralysis at home. Though there are concerns galore, the valuations have turned supportive since we turned extremely cautious early this year. The Sensex trades at 13.8x one-year forward earnings as against the long-term average multiple of 15.0-15.5x now. Thus, we believe that the easing of macro concerns and some positive developments on the reforms front in the winter session of the Parliament could provide the required boost to the market and lead to relatively better market conditions by the end of the calendar year 2011.  STOCK UPDATE Axis Bank: Price target revised to Rs1,410 Bajaj Auto: Price target revised to Rs1,870 Bajaj Corp: Operating performance in-line with expectation Bajaj FinServ: Growth in lending and insurance businesses propels earnings Bank of Baroda: Strong performance Bharat Electronics: Decent revenue performance, other income boosts bottom line Deepak Fertilisers & Petrochemicals: Corporation Price target revised to Rs188 Federal Bank: Asset quality improves in Q2 GAIL India: Price target revised to Rs541  Godrej Consumer Products: Price target revised to Rs516 Grasim Industries: Consolidated Q2 earnings up 29%, in line with expectation  HCL Technologies: In line with expectations HDFC Bank: Robust growth in earnings, margins take a dip Housing Development Finance Corporation: Steady earnings growth Infosys: Price target revised to Rs2,772 ITC: Results marginally ahead of expectations Kewal Kiran Clothing: Strong all round performance, price target revised to Rs840  Larsen & Toubro: Price target revised to Rs1,523 Mahindra Lifespace Developers: Price target revised to Rs400 Maruti Suzuki India: Confluence of negative events marred Q2 PAT NIIT Technologies: Price target revised to Rs277 Polaris Software Lab: Earnings beat expectations, margins disappoint  Reliance Industries: Q2 results in line with estimates though GRMs disappoint Sintex Industries: Price target revised to Rs182 Tata Consultancy Services: Price target revised to Rs1,250 Tata Global Beverages: Lower interest cost fuelled bottom line growth Torrent Pharmaceuticals: Upgraded to Buy United Phosphorus: Price target revised to Rs210 Wipro: Upgraded to Hold with revised price target of Rs400 Yes Bank: Strong operating performance THE STOCK IDEAS REPORT CARD SECTOR UPDATE Banking: RBI jumps the gun-deregulates savings deposit rates VIEWPOINT CMC: Extraordinaries pull down otherwise strong operating performance Gateway Distriparks: Healthy performance EARNINGS GUIDE MUTUAL GAINS Sharekhan's top mutual fund picks (equity)  EQUITY TECHNICALS  Sensex: Channelised move  EQUITY DERIVATIVES  Derivative view: Bears revive  COMMODITY FUNDAMENTALS  Macro-economy Crude oil: Sell into rallies Precious metals: Gold getting its safe heaven role Base metals: Limited upside Major economic events in November 2011   COMMODITY TECHNICALS  Gold (London): Pull-back over Silver: Retest likely  Light sweet crude oil: Bulls are back Zinc: Quiet accumulation Lead: Inverse head-and-shoulders in making Pepper NCDEX: Correction in its last phase  CURRENCY FUNDAMENTALS  USD-INR EUR-INR GBP-INR JPY-INR  CURRENCY TECHNICALS  USD-INR: Correction unfolding GBP-INR: Sliding down EUR-INR: Channelised play  JPY-INR: Forming retracement  PMS DESK Sharekhan PMS funds: Fund manager's view and product performance ProPrime-Top Equity ProPrime-Diversified Equity ProTech-Nifty Thrifty ProTech-Diversified ProTech-Trailing Stops  ADVISORY DESK  Monthly performance of Advisory products Smart Trades Derivative Trades MID Trades Click here to read report: Sharekhan ValueGuide

Regards, The Sharekhan Research Team myaccount@sharekhan.com  www.sharekhan.com to manage your newsletter subscriptions

 

Fw: Sharekhan Top Picks

 

 

Top Picks [November 05, 2011]  Sharekhan www.sharekhan.com

Summary of Contents   SHAREKHAN TOP PICKS Sharekhan Top Picks The market surprised positively last month and the benchmark indices, Sensex and Nifty, registered gains of 6.8% and 7% respectively since our last revision in the Top Picks basket. The upsurge was more pronounced in the large caps with the CNX Midcap Index reporting a relatively lower gain of 3.2% for the same period. Given the mix of large-cap and mid-cap stocks in it our Top Picks basket performed better than the CNX Midcap Index with a gain of 4.4%. But it relatively underperformed the benchmark indices after outperforming them smartly for seven consecutive months. In this month, we are making two changes in the Top Picks basket. We are introducing PTC India in place of CESC as part of the churn within the power sector. Despite being undervalued, PTC India was languishing due to concerns related to the health of the state electricity boards (SEBs), the buyers of electricity. These concerns could now get mitigated by the recent move by the SEBs to increase tariffs. Another change involves the replacement of Orient Paper and Industries with IL&FS Transportation Networks. Orient Paper and Industries reported strong quarterly results but the higher than expected pressure on its margins is a cause for concern and limits the upside in the near term. On the other hand, IL&FS Transportation Networks is our top pick in the infrastructure sector, which could see some improvement in sentiments due to a possible progress in execution accompanied by a pause in interest rate hikes. Click here to read report: Sharekhan Top Picks       Regards, The Sharekhan Research Team myaccount@sharekhan.com

Fw: Sharekhan Mutual Fund Finder

 

 

Sharekhan Mutual Fund Finder [November 05, 2011]  Sharekhan www.sharekhan.com

Sharekhan Mutual Fund Finder We are happy to announce the roll-out of the latest product from Sharekhan Mutual Fund Research Desk, Sharekhan Mutual Fund Finder. Mutual funds make an important part of any portfolio. Choosing the right funds for your portfolio is essential in investment planning. Sharekhan Mutual Fund Finder will help you to make the right investment decision that will bring you closer to realising your financial goals. The objective of this product is to give you the best selection of funds across categories along with the benefits of SIP and ELSS. Sharekhan Mutual Fund Finder will be published every month and we hope you find the product useful.   Summary of Contents Top equity picks Top SIP picks SIP calculator Crorepati calculator Fund of the month: Reliance Equity Opportunities Fund Performance of debt funds and ETFs Click here to read report: Mutual Fund Finder       Regards, The Sharekhan Research Team myaccount@sharekhan.com

Fw: Market Outlook: Winds of change

 

Market Outlook [November 05, 2011]  Sharekhan www.sharekhan.com

Summary of Contents MARKET OUTLOOK Winds of change Key points Signs of hope: As articulated in our last issue of the ValueGuide, titled "Darkest before Dawn'', we had pointed towards some potential positive developments on the domestic and global fronts that could provide some relief or hope for the equity markets. In the domestic scenario, the likely peaking of interest rates and the expected pause in policy rate hikes boosted market sentiment. On the global front, European leaders are finally taking some hard decisions and planning radical steps to address the issue of sovereign debt crisis engulfing the European fringe countries. The risk of a double-dip recession in the USA too has eased out. Domestically, RBI to take a pause in the interest rate hikes: After raising the key policy rates by 375 basis points since March 2010, the Reserve Bank of India (RBI) has indicated a pause in the policy rate hikes on account of the rising concerns over the domestic growth. Further, the inflation rate, which has been the main concern of the RBI, is expected to trend down due to the slowing of growth and a favourable base effect. While we do not expect any immediate reversal of the rate hikes, equity markets have led a reversal in interest rate cycle historically. However, the risk to the easing out of inflation emerges from the persistently high food inflation (despite record agriculture output); commodity prices are also volatile. Globally, finally some hard decisions in Europe; economic data in USA to remain mixed: The European Union is moving towards implementing a comprehensive rescue plan in Europe, broadly focusing on three points (larger European Financial Stability Facility [EFSF] of $1.4 trillion, recapitalisation of banks and a 50% haircut on Greek debt by lenders). Though the situation remains fluid and volatile, we take comfort from the fact that the yields are already factoring in the worst scenario of Greece's sovereign default. In the USA also, the gross domestic product (GDP) growth in Q3 was tepid but better than expected and hence the risk of a double-dip recession has lowered unless the situation in Europe worsens considerably. But concerns galore; key risks global contagion and rising probability of rating downgrade of India: In addition to a potential global event risk, the deterioration in the government's financial health poses the risk of the fiscal deficit overshooting the target of 4.6% set for FY2012 and is a threat to India's rating. Moreover, the lower than expected growth in revenues and higher subsidy burden could result in the crowding out of private investments and corporate earnings. Valuations supportive; policy reforms in winter session and inflation the key monitorables: As we had pointed out in our earlier strategy reports, the Indian economy has been facing mid-cycle blues that have been accentuated by global issues and policy paralysis at home. Though there are concerns galore, the valuations have turned supportive since we turned extremely cautious early this year. The Sensex trades at 13.8x one-year forward earnings as against the long-term average multiple of 15.0-15.5x now. Thus, we believe that the easing of macro concerns and some positive developments on the reforms front in the winter session of the Parliament could provide the required boost to the market and lead to relatively better market conditions by the end of the calendar year 2011. Click here to read report: Market Outlook

Regards, The Sharekhan Research Team myaccount@sharekhan.com

Fw: Investor's Eye: Update - Bharti Airtel, Marico, Ashok Leyland

 

 

Investor's Eye [November 04, 2011] Please see the attachment for details Sharekhan www.sharekhan.com

Summary of Content STOCK UPDATE Bharti Airtel Cluster: Apple Green Recommendation: Buy Price target: Rs468 Current market price: Rs398 Q2FY2012 results: First-cut analysis Result highlights Bharti Airtel (Bharti)'s Q2FY2012 results on a reported basis were in line with our estimates. But on an adjusted basis they missed our expectations by 18.3%, largely due to the foreign exchange (forex) impact. The consolidated top line and the operating profit grew by 1.7% and 1.9% respectively. The consolidated margins came in at 33.7% vs our expectation of 34% (largely affected by Indian operations), The reported profit is exactly in line with our estimate of Rs1,027 crore, but on an adjusted basis (adjusting for the forex loss of Rs239 crore) the profit after tax (PAT) came in at Rs1,189 crore (vs our expectation of Rs1,455 crore) which is lower by 18.3%. We had expected a forex loss of Rs638 crore in our estimate, while the loss came lower at Rs239 crore.  Adjusted earnings missed expectations: Bharti's adjusted earnings missed our expectations by 18.3% (adjusted PAT at Rs1,189 crore was lower than our expectation of Rs1,455 crore). The company reported a 15.5% sequential fall in the reported earnings, but adjusting for the forex impact the earnings grew by 2.2% on a quarter-on-quarter (Q-o-Q) basis. Despite a robust performance from the African venture, the soft performance from the domestic mobile segment, both on the revenue (-0.6% QoQ) and the profitability front (margins decline 50bps sequentially), along with a higher interest cost (+30.8% QoQ) dented the overall performance.  Heightened seasonality impacted Asia mobile's business: The domestic mobile business disappointed on the revenue as well as the profitability front. The revenue declined 0.6% on a sequential basis, led by a decline in traffic growth (-1.6% QoQ) and a 4% drop in the average revenue per user (ARPU; at Rs183 vs Rs190 in Q1FY2012). The deleveraging impact of lower traffic coupled with an increase in other costs resulted in a 50bps sequential contraction in the EBITDA margins for the segment from 34.2% in Q1FY2012 to 33.7% in the present quarter.  The silver lining of the result was the 1% sequential improvement in the average realised rate that increased from 42.8 paise in Q1FY2012 to 43.2 paise in the current quarter. We believe that the sequential enhancement in the tariff is owing to two factors - the 3G roaming pact revenues built in the total revenue coupled with some impact of the hike in tariff rates announced in July. Africa performance robust: The African business' performance was robust with a sequential revenue growth of 7.4% and an 110bps margin expansion from 25.2% in Q1FY2012 to 26.4% in the present quarter. Robust traffic growth (+9.9% QoQ) with an enhanced ARPU led the performance.  Other businesses: All the other businesses showed good growth in their revenues and EBITDA. From this quarter onwards the company has started reporting DTH performance. It has an overall 6.3 million subscribers with an ARPU of Rs163 and the business is profitable at the EBITDA level. Positive regulatory announcements on radar: We believe that the recent regulatory news flows pertaining to the sector like the new telecom draft paper, the recent TRAI guidelines that propose for spectrum sharing, and the relaxed merger & acquisition norms are all positive. These point towards a favourable competitive environment with limited players and enhanced profitability going forward. We currently have a Buy recommendation on the stock with a price target of Rs468. At the current market price, the stock trades at 19.9x and 16.4x its FY2012 and FY2013 estimated earnings respectively. Marico Cluster: Apple Green Recommendation: Hold Price target: Rs156 Current market price: Rs149 Price target revised to Rs156 Result highlights Strong operating performance: Q2FY2012 is the second consecutive quarter, where Marico's results were ahead of our expectation on account of better than expected operating performance during the quarter. The top line grew by 26% year on year (YoY) while the operating margin stood at around 12% (ahead of our expectation of 11%) during the quarter. Though gross margins declined by 487 basis points (bps) YoY to 45.3%, they have improved sequentially by 200bps. Volume growth momentum sustained: The domestic consumer business registered a strong growth of 44% YoY with the volume growth standing at 14% YoY (in-line with 15% YoY volume growth in Q1FY2012) during the quarter. This was on the back of sustained volume growth in the focus portfolio (Parachute +10% YoY, Saffola +11% YoY and value-added hair oils portfolio +25% YoY). The price-led growth in the domestic consumer business stood at 30% YoY during the quarter. The profitability of the domestic consumer business was affected by a higher input cost. Other businesses snapshot: The international business registered a strong growth of 19% YoY to Rs241 crore driven by a strong double-digit growth in South Africa and Egypt and contribution by the Vietnamese acquisition - ICP. The margins of the international business are in the range of 11-12%. Kaya revenues grew by 7% to Rs66.2 crore driven by a strong same clinic sales growth of 16%. Kaya's business registered a loss of Rs7.5 crore during the quarter.  Gross margins remained under pressure: The cost of key raw materials such as copra, sunflower oil, kardi oil and rice bran oil were higher by 50% YoY, 24% YoY, 30% YoY and 47% YoY respectively during the quarter. The company has not implemented any fresh price increases in its flagship brands and hence gross margins were down by 468bps YoY to 45.3%. However due to lower Y-o-Y ad-spends (as a percentage to sales) and lower other expenses (as a percentage to sales), the sharp decline in the operating margins was arrested to 12.0%. The ad-spends stood flat on a Y-o-Y basis at Rs94 crore in Q2FY2012.  Revision in estimates: We have marginally revised our FY2012 and FY2013 earnings estimates by 2.8% each to factor in a better than expected operating performance during the quarter. Outlook and valuation: We expect Marico's top line to grow at a compounded annual growth rate (CAGR) of 21% over FY2011-13 driven by a sustained and steady volume growth in the domestic consumer business and an above 20% growth in the international business. Though we expect the margins to remain under pressure in the near term, any significant downward movement in the key raw material prices (including copra) and the management's stringent efforts to reduce other operating spends would help in showing a better margin picture in FY2013. Hence we expect the bottom line to grow at a CAGR of 28% over FY2011-13. However any slowdown in growth in the domestic or international markets and any significant increase in the prices of inputs would act as a key risk to our earnings estimates. In line with an upward revision in our earnings estimates, we have revised upwards our price target to Rs156. However in view of the limited upside from the current levels we maintain our Hold recommendation on the stock. At the current market price the stock trades at 28.8x its FY2012E earning per share (EPS) of Rs5.2 and 21.9x its FY2013E EPS of Rs6.8. Ashok Leyland Cluster: Ugly Duckling Recommendation: Buy Price target: Rs31 Current market price: Rs28 Testing times ahead! Result highlights Ashok Leyland Ltd (ALL)'s revenues at Rs3,094.6 crore were up 14% year on year (YoY), a tad lower than our estimates. The operating profit was also marginally lower than our estimates at Rs331.2 crore, up 8.6% YoY. However the operating margin came in line with our estimates at 10.7%. The company reported a net profit of Rs154.1 crore against our estimate of Rs158 crore for Q2FY2012 reflecting a decline in the profit after tax (PAT) of 7.8% YoY. The contribution / vehicle declined by 4.2% sequentially on account of higher discounts given in the market place. One off items include one-time repair expense of Rs5 crore and Delhi Transport Corporation (DTC) maintenance charges of Rs8 crore. The profit before tax (PBT) was also impacted by higher interest charges due to a higher requirement of working capital. In Q2FY2012, the working capital requirement increased by Rs600 crore compared to the commensurate figure in the corresponding quarter of the previous year. ALL's Q2FY2012 PAT came 4% lower than our expectations at Rs154 crore. The vehicle factory at Jabalpur has completed 1,200 sets and another 1,500 are expected to get delivered in H2FY2012. In the power solutions business, the company has sold 5,000 engines in H1FY2012 and expects to sell 9,000 engines in H2FY2012. The company took pricing action of 1% or Rs8,000 - Rs12,000 per vehicle effective November 1, 2011. Another jump is expected to come in January 2012 the quantum of which is not known. The finished goods inventory at the end of Q2FY2012 remained high at 9,000 vehicles. Click here to read report: Investor's Eye

Regards, The Sharekhan Research Team myaccount@sharekhan.com   www.sharekhan.com to manage your newsletter subscriptions