Fw: Investor's Eye: Pulse - Inflation moderates but upward pressures remain; Special - Coal (Revised royalty on coal to have insignificant impact); Update - Transmission and distribution (PGCIL ordering picks up, but so does competition)

 

 

Investor's Eye [April 16, 2012]  Sharekhan www.sharekhan.com

Summary of Contents PULSE TRACK Inflation moderates but upward pressures remain  The Wholesale Price Index (WPI)-based inflation for March 2012 came in at 6.89%, ahead of the Street's expectations. The inflation rate for January 2012 too has been revised upwards to 6.89% from the provisional figure of 6.55%.   Outlook In the recent months, the WPI inflation has started to show signs of deceleration in the much expected level of 6-7%, but the sequential growth pattern of WPI inflation shows stickiness around the current levels. The decline is being driven partly by base effect and some transitionary factors. However, in view of the deteriorating industrial growth, and need to revive the slowing economy the street is factoring in a rate cut (repo rate) by 25 basis points in the forthcoming monetary policy meet on April 17, 2012.   SPECIAL REPORT Coal     Revised royalty on coal to have insignificant impact   The Cabinet Committee on Economic Affairs recently approved the proposal for adoption of ad-valorem regime, in place of the present hybrid formula, for charging royalty on coal and lignite at the rate of 14% and 6% respectively. Hence, it would percolate into higher cost of coal and lignite production for miners which we believe would be passed on to the coal consuming products and eventually to consumers. Hence, we have tried to assess impact of the royalty hike on coal / lignite consuming sectors. Primary coal consuming sectors are power, metal and cement. As per our analysis, only in case of higher grade coal (A &B), the impact would be meaningful with change of around 5%. However, in case of grade C to F which are mostly used by power generators and cement manufacturing, the impact is likely to be of around 1-2%.   SECTOR UPDATE Transmission and distribution     PGCIL ordering picks up, but so does competition   Key points  In Q4FY2012, the momentum in the Power Grid Corporation of India Ltd (PGCIL) ordering picked up as it awarded projects worth Rs10,791 crore (up 41% year on year [YoY] and 45% quarter on quarter [QoQ]). In FY2012, the total orders awarded by the PGCIL are valued at Rs22,143 crore, a yearly growth of 70%. (excluding the BHEL- ABB HVDC order worth Rs5,325 crore in FY2011).  Nonetheless, the market is getting fragmented with more domestic players entering the transmission and distribution (T&D) space. Also, in the 765Kv transformer space, the competition remained stiff as Chinese companies continued to grab big orders although only few. Uncertainty over order inflow amid intense competition and margin pressure would maintain the bearish sentiment in T&D stocks. While the investment trajectory of PGCIL in the higher rating transmission network looks sound, continuous presence of overseas companies (mainly Chinese) and higher local competition are likely to eat away the market share of the traditional T&D stocks- ABB, Siemens, Crompton Greaves and Alstom T&D India. Hence, we maintain our cautious stand on these stocks. 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.

Fw: Investor's Eye: Update - Infosys (Price target revised to Rs2,440)

 

Investor's Eye [April 13, 2012]  Sharekhan www.sharekhan.com

Summary of Contents STOCK UPDATE Infosys  Cluster: Evergreen Recommendation: Hold Price target: Rs2,440 Current market price: Rs2,403 Price target revised to Rs2,440 Result highlights Lackluster performance, disappointing guidance: Infosys' has reported lackluster numbers for Q4FY2012, missing its revenue guidance (revenue declined by 1.9% quarter on quarter [QoQ] against our estimate of a 0.9% rise). For FY2013 also, the company's management has given a disappointing guidance of an 8-10% revenue (US dollar terms) growth for FY2013. The weak guidance upset the Street and the same was reflected in the 12.6% correction in the company's stock price post the announcement of the results.  For Q4FY2012, the revenues were down 1.9% to $1,771 million, with the blended volume down 1.5% sequentially while pricing declined 1.1%. The shortfall in revenues can largely be attributed to ramp down from some clients in the banking financial services and insurance [BFSI] space in North America and due to delays in anticipated ramp ups during the quarter.  In INR terms, revenues were down 4.8% to Rs8,852 crore, whereas the EBITDA margin declined 110bps QoQ to 32.6% on account of an appreciation in the rupee (realisation down by 2.9% QoQ) coupled with a drop in the utilisation rate by 570bps to 73%. The net other income was up by 54.5% QoQ to Rs652 crore (interest income was up by 37% QoQ to Rs584 crore). The net income was down by 2.4% QoQ to Rs2,316 crore. For FY2012, the revenues were up by 22.7% year on year (YoY) to Rs33,734 crore and net income was up by 21.9% to Rs8,316 crore. During the quarter the company has added 52 new clients and won 5 large deals and 7 business transformation deals, out of which 3 deals are worth more than $100 million.  Guidance disappoints, management warns of challenges ahead: For FY2013, Infosys has guided for an 8-10% revenue growth and 4-5.7% net profit growth in US dollar terms. The revenue growth guidance fell well short of the Street's expectations and Nasscom's guidance of a 11-14% growth. Further, the company's management has also warned of an uncertain macro environment and a cautious spending pattern of clients (to be more visible in the BFSI space who are among the top clients), which has restricted its optimism on growth. Nevertheless, we believe Infosys' weak revenue guidance is more a reflection of company specific issues rather than secular sectoral concerns.  Valuation and view: Client specific issues and lower than anticipated ramp up in the projects has led to Infosys missing the upper end of revenues guidance for a third consecutive quarter. The company has refrained from giving an optimistic growth forecast owing to multiple issues and an uncertain macro environment. We have downgraded our estimates for FY2013 and consequently reduced our target multiple on the stock from 17x to 15x based on FY2013 earnings estimates to factor in a lower growth and volatility in earnings. Although the stock has already corrected by 12.6% post the results, we do not see any major upside trigger for the stock in the near to medium term. We maintain our Hold rating on the stock with a revised price target of Rs2,440. We continue to maintain our preference for Tata Consultancy Services (TCS) over Infosys. 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.

Fw: Investor's Eye: Pulse - IIP growth at 4.1% in February 2012; Update - Max India (Exit New York Life, enter Mitsui Sumitomo), Fertilisers (Impressive volume offtake despite lean season)

 

 

Investor's Eye [April 12, 2012]  Sharekhan www.sharekhan.com

Summary of Contents PULSE TRACK IIP growth at 4.1% in February 2012 In February 2012, the Index of Industrial Production (IIP) grew by 4.1%, which was lower than the market's expectations. The January 2012 IIP numbers have also been revised down drastically to 1.1% (as against 6.8% announced earlier) due to a sharp correction in the consumer segment (namely sugar production). On a year-till-date (YTD) basis, the IIP growth stands at 3.5% as against 8.1% in YTD FY2011.   Outlook The IIP numbers have been quite volatile recently and the recent downward revision for January 2012 has raised doubts on their reliability. We continue to track the 3-MMA as well as the YTD growth as these give a better picture. The 3-MMA declined to 2.6% whereas the YTD growth stood at 3.5%. Both the indicators show a slowdown in the industrial activity which is likely to increase the pressure on the RBI to cut the policy rates. Even though the inflation rate remains above the RBI's comfort zone, the Street is factoring in a rate cut (repo rate) by 25 basis points in the forthcoming policy meet on April 17, 2012 to address the declining investment activity.   STOCK UPDATE Max India Cluster: Emerging Star Recommendation: Buy Price target: Rs234 Current market price: Rs204 Exit New York Life, enter Mitsui Sumitomo Max India today entered into a tripartite agreement for its life insurance joint venture, Max New York Life. The agreement would pave the way for the exit of its existing foreign partner, New York Life (which holds a 26% stake) and the entry of Mitsui Sumitomo Insurance Company (Mitsui Sumitomo).   Structure of the deal  As per the terms of the deal, Mitsui Sumitomo would acquire a 16.63% stake from New York Life and a 9.37% stake from Max India for a total consideration of Rs2,730 crore. The deal will value the insurance business at Rs10,500 crore.   Max India would get Rs984 crore to sell the 9.37% stake but it would acquire the 9.37% stake left with New York Life for Rs182 crore. In the process, Max India's stake in the insurance business remains at 70% but it gains close to Rs802 crore in the bargain.   Upside to our SOTP valuation The implied valuation of the insurance business at Rs10,500 crore is at a 31.5% premium to Rs7,975 crore as per our calculation. The premium works out to over 40% if we consider the Rs800 crore profit on the deal with Max India. This implies an upside of Rs60-80 per share to our price target.   In October last, the company had also sold 26% stake in its healthcare subsidiary to South African Life Healthcare. The implied valuation of the deal stood at a 25% premium to our SOTP based price target.   Taking the implied valuations of both the deals, there is a potential upside of 30-40% (Rs72-90) to our current price target of Rs234 per share. We are currently not revising our price target but will come out with a detailed note on the company after the conference call scheduled on Monday (April 16, 2012). We remain extremely bullish on Max India and retain our Buy recommendation on the stock.     SECTOR UPDATE Fertilisers Impressive volume offtake despite lean season   Key points Robust volume offtake in March 2012: In March 2012, the aggregate sales of the domestically produced fertilisers (by 15 leading manufacturers) increased by 39% as compared with that in the same period of the last year. In March 2012 the import of fertilisers (urea, DAP, MOP and complex fertiliser) increased from 4.4 lakh tonne to 18.3 lakh tonne. The import of DAP, MOP and complex fertilisers have grown by 332%, 104% and 1,997% respectively on a low base due to the logjam over prices between the Indian importers and the global manufacturers. The import of urea also increased from 6,833 tonne to 44,217 tonne during March 2012.  Government may increase price of urea by 10%: The government may increase the price of urea by 10% in order to restrict the subsidy bill and to reduce the price difference between urea and non-urea fertilisers. For FY2013 the government has already reduced the subsidy on non-urea fertilisers, assuming a reduction in the prices of the raw materials in the international market. An increase in the price of urea will also help to check the excess use of urea which can damage the soil. Consumption of fertiliser grows by 5.6% in FY2012 for top 15 companies: In FY2012 the consumption of fertiliser saw a marginal rise of 5.6% even though there was a decline in the import of DAP and MOP due to their higher prices in the international markets and a low demand for MOP and DAP. The import of DAP and MOP declined by 6% and 29% respectively in FY2012 as compared with the last year's imports. Click here to read report: Investor's Eye Industry statistics: consumption rose by 7% in FY2012 despite lower import of DAP and MOP: The consumption of fertilisers increased by 7% during FY2012 but the consumption was lower as compared with that in FY2011 (when consumption had grown by 14%). The consumption of urea has increased by 4% while that of DAP has fallen by 3% on the back of lower imports due to tight demand and supply in the international market. The consumption of MOP in FY2012 declined by 23% as there was deadlock over prices between the Indian importers and the global suppliers of MOP during the first four months of FY2012. India depends completely on imports of MOP because it doesn't have natural resources to manufacture MOP locally.   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.

Fw: Sharekhan Special: Q4FY2012 Oil & Gas earnings preview

 

 

Sharekhan Special [April 11, 2012]  Sharekhan www.sharekhan.com

Summary of Contents SHAREKHAN SPECIAL Q4FY2012 Oil & Gas earnings preview   Key points Brent crude oil's price remains strong; was at $120/bbl in Q4FY2012: During Q4FY2012 the price of Brent crude oil hovered in the range of $110-125 per barrel. The average price of Brent crude oil in Q4FY2012 was $120, which is over 9% higher compared with the price in the previous quarter (Q3FY2012). The crude oil prices have surged largely on account of the geo-political issue in Iran. On a year-on-year (Y-o-Y) basis, the average price of crude oil in Q4FY2012 was higher by around 10%. Hence, the realisation of the end-products of exploration and production (E&P) should replicate the trend. However, the dollar corrected marginally in Q4FY2012 to Rs49.8 as compared with Rs51.3 in Q3FY2012. On account of strong crude oil prices, we expect E&P companies to benefit in terms of better realisation.  Expect correction in GRM: The Singapore gross refining margin (GRM) corrected sharply during the quarter and the average refining margin stood at $4.5 per barrel as compared with $5 per barrel in Q3FY2012. The Singapore GRM contracted on account of a correction in the gasoline crack. Further, the price difference between light and heavy crude oil also declined to $3.6 per barrel from $3.8 per barrel in Q3FY2012. Hence, we expect Reliance Industries Ltd (RIL) to report a GRM of around $6.5 per barrel in Q4FY2012 (as against $6.8 per barrel in Q3FY2012). Hence, we expect the earnings before interest and tax (EBIT) from the refining division to contract by over 18% quarter on quarter (QoQ).  Prices of petrochemicals improved, margin pressure continues: On the back of improved demand for petrochemical products globally, the prices of most of the petrochemical products moved northward during the quarter. Among the various products, the prices of ethylene, propylene, PVC, HDPE and PTA increased by 5% to 18% each. Further, depreciation in the rupee is likely to benefit the manufacturers and partially offset the margin pressure on the petrochemical industry. In case of RIL, we expect its petrochemical division to post a revenue growth of 6% QoQ and 15.3% year on year (YoY). However, we expect the EBIT from the petrochemical division to decline YoY.  Outlook The strong Brent crude oil price coupled with the rupee's depreciation during the quarter benefited the E&P companies by improving their realisation. Moreover, given the geopolitical issues Brent crude oil price could remain strong in the near term. However, contraction in the Singapore GRM due to a fall in the gasoline crack affected the refining industry. The key monitorables going ahead are GRM and petrochemical margins.  View and valuation We retain our estimates for RIL and GAIL. We value RIL following the sum-of-the-parts (SOTP) method at Rs890 and retain our Buy rating on it. We value GAIL at Rs464 based on the SOTP valuation method and retain our Buy rating on the stock.   Click here to read report: Sharekhan Special   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.

Fw: Sharekhan Special: Q4FY2012 Capital Goods & Engineering earnings preview

 

 

Sharekhan Special [April 10, 2012]  Sharekhan www.sharekhan.com

Summary of Contents SHAREKHAN SPECIAL Q4FY2012 Capital Goods & Engineering earnings preview   Key points Q4FY2012 would bring no respite for the capital goods companies as the business environment remains tough and execution of infrastructure projects has yet to pick up. Most of our coverage companies are expected to report a sluggish revenue growth in single digits for Q4FY2012 led by low order booking in the previous quarters and an unfavourable base effect.  Further, led by competitive margin pressure and a continuous rise in the prices of raw materials like metals, the margins would remain subdued in Q4FY2012. However, as Q4 normally accounts for 35-45% of these companies' yearly sales, some operating leverage is expected which would provide marginal relief from the margin pressure. The order inflow announcements in the capital goods space picked up slightly with companies bagging orders worth Rs30,787 crore in Q4FY2012 (excluding NTPC orders the same would have been Rs21,987 crore). Only a few large orders were bagged by the likes of Larsen and Toubro (L&T) and Bharat Heavy Electricals Ltd (BHEL). Though orders for all the expected super-critical equipment were not awarded by NTPC as was expected during the quarter, but some progress was seen with Doosan and JSW Toshiba bagging the first set of orders. A possible rise in the order awarding activities by NTPC and Power Grid Corporation of India Ltd (PGCIL) holds promise in the near term; nonetheless, the same needs to improve if the growth has to be robust from FY2013 onwards. In terms of the anticipated Q4 results, L&T and BHEL are expected to outperform in the large-cap space, Thermax and V-Guard Industries (V-Guard) would lead the show in the mid-cap space. Overall, our top picks in this space are L&T and V-Guard and we recommend a Buy on these companies from a long-term perspective. In the budget, there was no progress on the imposition of import duty to curb overseas competition which has continued to mar the sentiments in the domestic companies like BHEL, L&T, BGR Energy Systems (BGR) and Thermax. Outlook and valuation We expect the sluggish order inflow, margin pressure and subdued future guidance in the face of a slow demand environment and sluggish industry capex cycle to be the recurring tune in Q4FY2012 for most capital goods companies. Hence, the management commentary of these companies on the future growth would be closely watched and could lead to sharp downgrades in earnings estimates. In the budget, there was no progress on the imposition of import duty to curb overseas competition which has continued to mar the sentiment in the domestic companies like BHEL, L&T, BGR and Thermax. On the positive side, the expected awarding of NTPC's super-critical orders, a cut in interest rates and a pick-up in industrial capex activities remain the key positive triggers for the sector. Our top picks in this space are L&T and V-Guard, and we recommend a Buy on these companies from a long-term perspective.   Click here to read report: Sharekhan Special   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.

Fw: Sharekhan Special: Q4FY2012 Pharma earnings preview

 

 

Sharekhan Special [April 10, 2012]  Sharekhan www.sharekhan.com

Summary of Contents SHAREKHAN SPECIAL Q4FY2012 Pharma earnings preview  Key points Revenue to grow 24% YoY on strong domestic sales: We expect the Sharekhan pharma universe to report a 24% year on year (YoY) growth in revenue in Q4FY2012 on an aggregate basis, mainly led by Sun Pharmaceutical Industries (Sun Pharma; estimated revene to be up 55% YoY on strong performance of Taro), Glenmark Pharmaceuticals (Glenmark Pharma; estimated revene to be up 25% YoY on key launches in the US and Latin America and strong domestic sales), Torrent Pharmaceuticals (Torrent Pharma; estimated revene to be up 24% YoY on a low base) and Ipca Laboratories (estimated revene to be up 23% YoY on strong growth in institutional business). The sales in India of our pharma universe are likely to post a 24.5% YoY rise during the quarter, which is better than four sequential previous quarters. India sales would be mainly driven by Lupin (estimated to be up 33% YoY), Sun Pharma (estimated to be up 27% YoY) and Glenmark Pharma (estimated to be up 24.5% YoY).  On a quarter-on-quarter (Q-o-Q) basis we expect a marginal rise of 1.3% in the revenue for the universe as most of the acquisition led revenue is included in Q3FY2012.  Operating margin to improve by 394bps YoY; thanks to low base effect: The operating profit margin (OPM) is expected to improve to 26% in Q4FY2012 from 22% in Q4FY2011 for our universe. The margin would be mainly driven by a higher off- take from new facilities, higher inventory valuation and a favourable change in the product mix. The biggest gainer on the margin front would be Torrent Pharma (estimated margin to be up 1,195bps YoY) and Glenmark Pharma (estimated margin to be up 980bps YoY) on a lower base of Q4FY2011 due to one-off kind of expenses hitting operating margins. Other players like Opto Circuits (estimated margin to be up 512bps), Ipca Laboratories (estimated margin to be up 411bps YoY) and Lupin (estimated margin to be up 386bps YoY) would report better margins due to operationalisation of new facilities which would contribute to revenues and better product mix.  However, we expect a decline in margin for Divi's Laboratories (Divi's Lab; -322bps; due to higher operating costs at the new special economic zone [SEZ] facility). On a Q-o-Q basis, the operating margin of the universe is likely to shrink by 248bps YoY, mainly due to unavailability of exclusivity revenues in case of Sun Pharma. Adjusted PAT to jump by 24% YoY; forex loss may spoil the show: We expect the adjusted net profit (without considering foreign exchange [forex] losses and extraordinary items) to grow by 24% YoY for our universe, mainly led by Torrent Pharma (expected to be up 181% YoY on a low base), Sun Pharma (expected to be up 44% YoY) followed by Glenmark Pharma (expected to be up 20% YoY) and Lupin (expected to be up 19.6% YoY). On a Q-o-Q basis, the universe would show a decline of 2% in the adjusted net profit (ignoring marked to market [MTM] forex losses), mainly led by Glenmark Pharma which would record a 30% decline in its net profit, mainly due to lower licensing income.  However, MTM forex losses would materially impact the bottom line of key players like Glenmark Pharma (expect Rs100 crore of forex loss), Ipca Laboratories (expect Rs36 crore of forex loss) and Lupin (expect Rs30 crore of forex loss).  Top Picks: We prefer Sun Pharma, Divi's Lab and Ipca Laboratories   Click here to read report: Sharekhan Special   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.

Fw: Investor's Eye: Update - Apollo Tyres; Special - Q4FY2012 FMCG earnings preview, Q4FY2012 Cement earnings preview

 

 

Investor's Eye [April 09, 2012]  Sharekhan www.sharekhan.com

Summary of Contents STOCK UPDATE Apollo Tyres Cluster: Apple Green Recommendation: Buy Price target: Rs91 Current market price: Rs82 Extension of anti-dumping duty positive, price target revised to Rs91 Government stays anti-dumping duty on non-radial tyres from China, Thailand Anti-dumping duty would continue to be levied on non-radial bus/truck tyre imports from China and Thailand.  The finance ministry has extended the validity of anti-dumping duty on such bias tyres by another six months till October 7, 2012.  The anti-dumping duty had lapsed on October 8, 2011. This extension has come in the wake of a sunset review initiated in August last year.  The bulk of the sales by turnover of the domestic tyre industry comes from the non-radial bus and truck tyres. Impact of the extension of anti-dumping duty The truck tyre replacement market is dominated by non-radial tyres and constitutes 65-70% of the tyre market's size by value.  Most of the Chinese tyres are imported and sold in the truck tyre replacement market at a much cheaper price against the available branded tyres.  To protect the interests of the Indian tyre manufacturers the Indian government first imposed an anti-dumping duty on bias tyres imported from China and Thailand through a notification dated July 24, 2007. The duty was extended again on August 26, 2010 at new rates. The latest notification has extended anti-dumping duty on non-radial tyres till October 2012. Valuation We believe Apollo Tyres is the best sustainable tyre play in the Indian context on account of its product and regional diversification. The lower prices of natural rubber are expected to help its margins. Of late, the most crucial truck tyre replacement market has shown some signs of revival and this is expected to benefit the company. Apollo Tyres is now the largest radial tyre manufacturer in India and would gain from the shift from bias tyres to radial tyres.  Given the favourable headwinds-lower natural rubber prices and anti-dumping duty on tyre imports from China and Thailand--the stock is likely to see a re-rating. We keep our FY2014 earnings per share (EPS) estimate of Rs14.9 unchanged but we increase our price target to Rs91 per share. We are thus discounting the FY2014 earnings estimate by 6.1x, which is the long-term mean. We remain bullish on Apollo Tyres and keep it as our top pick in the auto ancillary sector.  SHAREKHAN SPECIAL Q4FY2012 FMCG earnings preview  Key points Strong top line growth is foreseeable: We expect Q4FY2012 to be yet another quarter of strong top line growth driven by a mix of sales volume growth and price increases for all the fast moving consumer goods (FMCG) companies under our coverage (except for Zydus Wellness [Zydus]). Our interaction with some of the FMCG companies under our coverage gave us the clear indication of a strong demand environment for daily consumption items in the domestic market. Also, the focus on enhancing the reach of their products (especially in rural India) is helping these companies to improve the consumption of products/categories. On the other hand, the discretionary/premium categories might witness some pressure on sales volume in Q4FY2012. The acquisitions made by some of the FMCG companies (including Godrej Consumer Products Ltd [GCPL], Marico and Dabur India) in the recent past would help in achieving a robust top line growth.  Raw material prices remained a mix bag: Though the prices of some of the key inputs, such as palm oil, copra and sunflower oil, have corrected from their highs, the prices of the other key inputs such as kardi oil, rice bran oil, LAB and HDPE have remained substantially higher on a year-on-year (Y-o-Y) basis. The FMCG companies had implemented calibrated price increases in their respective product portfolios during the fourth quarter. Despite that we expect the gross margin of some of the FMCG companies (including Bajaj Corp, GlaxoSmithKline Consumer Healthcare [GSK Consumer] and Zydus) to remain lower on a Y-o-Y basis. On the other hand, we expect the gross margin of Marico to improve substantially year on year (YoY) while that of Hindustan Unilever Ltd (HUL) and GCPL (reaping the benefits of low raw material inventory) is expected to remain stable on a Y-o-Y basis.  OPM to improve YoY: The rationalisation of the advertisement spends and stringent management of the operating cost would help the FMCG companies to post a better picture at the operating level. Performance of Sharekhan's FMCG universe: We expect the top line growth of most of the FMCG companies to remain above 17% YoY except for companies like Zydus, which is bearing the brunt of competitive intensity in categories such as scrubs and face wash. With the most of the companies likely to post a better margin picture, we expect companies under Sharekhan's FMCG universe to achieve a robust bottom line growth (except for Zydus and GSK Consumer). Despite a flat operating performance, Tata Global Beverages Ltd (TGBL) is expected to post around 26% Y-o-Y growth in the bottom line mainly on account of a lower interest cost YoY. Going ahead: Union Budget 2012-13 proposed a basic duty hike of 2% in consumer goods and an increase in the service tax rate by 2%. Also, the commodity price momentum has remained volatile for the past few months. In view of this, we expect the FMCG companies to go for price hikes in their respective product portfolios in the coming months. Having said that, we expect the companies to go for calibrated price hikes taking into account the competitive environment in the respective categories. We expect the steady volume growth momentum to sustain for most of FMCG companies, despite the price hikes implemented in the coming quarters. The steady volume growth would be on the back of an increase in the distribution reach, renovation/innovations amongst the product portfolio and steady consumption of FMCG products in the domestic market. With the implementation of price hikes and the prices of the key raw materials staying lower than their highs, we expect the margins to more or less remain stable in the coming quarters. Valuation: We retain our view of remaining selective in the sector. We prefer ITC, Marico and GCPL from the current levels. Since our last update on the company (on February 8, 2012) Bajaj Corp has moved up by 14% and there could be upside of another 11-13% from the current level. Though HUL's business fundamentals are intact, but the current valuations do not provide any upside from the present levels.   Q4FY2012 Cement earnings preview  Key points Volume offtake improved in Q4FY2012: With a pick-up in the infrastructure activity, the cement offtake in the domestic market improved in Q4FY2012. The all-India cement volume in the January-February 2012 period grew by 10.1% year on year (YoY). What's more, the March 2012 volume data of the large players is encouraging. Hence, we expect the volume growth to support the revenue growth of the cement players in Q4FY2012. However, on a year-till-date (YTD; April-February 2012) basis the volume growth in the domestic industry was limited to 5.6%, which is below the industry's expectation as well the projected gross domestic product (GDP) growth for the current fiscal. Among the Sharekhan's cement universe, companies like JP Associates Ltd (JAL) and Shree Cement are expected to register an impressive volume growth on the back of the stabilisation of their new capacities.  Average realisation for Q4FY2012 to be higher on a YoY and QoQ basis: Cement prices in the February-March 2012 period increased by an average of Rs15-18 per bag due to an increase in the railway freight and excise duty. The western and eastern regions witnessed relatively higher price hikes during Q4FY2012. But the cement prices in the southern and northern regions largely remained unchanged during the quarter. We expect the average cement realisation in Q4FY2012 to be higher by around Rs150-175 per tonne quarter on quarter (QoQ) for companies operating in the western and eastern regions. On the other hand, the realisation of the cement companies operating in the southern and northern regions is expected to increase by Rs50-75 per tonne QoQ. Among our coverage companies the realisation is expected to increase by 2-5% sequentially. JAL and Orient Paper and Industries (Orient Paper) are expected to post a relatively higher growth in their realisation. However, on a year-on-year (Y-o-Y) basis, cement prices across major cities were higher during the quarter. Hence, cement companies are expected to register a double-digit growth in their revenues for the quarter. Further, as per the recent channel checks the cement prices are likely to remain strong in the near term.  Cost pressure to offset benefit of price hikes; margin continues to be under pressure: With the support of growth in the volume as well as cement realisation, the revenues of the companies under our coverage are likely to increase by 5% to 36%. However, the positive impact of the increased realisation on the margins is expected to be offset by the cost pressure in terms of power & fuel and freight charges (due to an increase in the lead distance). The Sharekhan cement universe is expected to post a mixed performance on the margin front. Companies like India Cements, Madras Cement and JAL are likely to post an expansion in their operating profit margin (OPM) whereas Orient Paper, Grasim Industries (Grasim) and Shree Cement are expected to register a contraction of 200-350 basis points in their margins.  Average bottom line to decline by 6.3% YoY: Though the cumulative revenues of the companies under the Sharekhan cement universe are estimated to increase by 12.9% YoY, but the average bottom line of the universe is expected to decline by 6.3% on account of margin pressure and an increase in the interest and depreciation charges. India Cements and Madras Cement are expected to post a healthy earnings growth in the range of 53-58% on a Y-o-Y basis whereas JAL and Grasim are likely to post a decline in their earnings.  Click here to read report: Investor's Eye Outlook Due to a pick-up in the infrastructure activity and increased consumption from the rural housing sector, the demand for cement has improved in the past couple of months. Going ahead, in FY2013 we believe the domestic demand for cement would grow at around 8-9%. Further, with supply discipline and a likely improvement in the utilisation ratio the cement realisation would remain strong. However, the key risk remains the cost pressure in terms of power & fuel cost and freight charges. Moreover, an increase in the supply by the mid-sized cement players to deliver a higher volume may break the discipline and could be a concern with regard the stability of the cement prices at higher levels. Hence, we maintain our neutral view on the cement sector but are positive on selects cement companies. In the large-cap space we prefer Grasim and among the mid-cap companies we like Orient Paper. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.