Deal Type *
GANESH BHIKAJI DHURE
CHIMANLAL MANEKLAL SECURITIES PRIVATE LIMITED
SAR AUTO PRODUCTS LIMITED
JITENDRAKUMAR SHANTILAL PATEL HUF
22 September 2010
Trade Price / Wght. Avg. Price
Aegis Logistics Ltd
SAPPHIRE COMMERCIAL PVT.LTD.
ABANS SECURITIES LIMITED
B.A.G Films and Media Ltd
ALFA FISCAL SERVICES PVT LTD
|FII DERIVATIVES STATISTICS FOR 22-Sep-2010|
|BUY||SELL||OPEN INTEREST AT THE END OF THE DAY|
|No. of contracts||Amt in Crores||No. of contracts||Amt in Crores||No. of contracts||Amt in Crores|
|Domestic Institutional Investors trading activity on NSE and BSE on Capital Market Segment|
|The following is combined Domestic Institutional Investors trading data across NSE and BSE collated on the basis of trades executed by Banks, DFIs, Insurance, MFs and New Pension System on 22-Sep-2010.|
29 (Lower Band)
0.70 to 0.75(Paise)
Tirupati Inks (FPO)
43 (Upper Band)
8.5 to 9
295 to 310
145 to 147
158 to 175
43 to 45
113 to 118
20 to 22
405 to 468
40 to 42
Orient Green Power
47 to 55
2 to 2.50
10 to 11
1.10 to 1.20
50 (Fixed Price)
7 to 7.5
1230 to 1310
292 to 295
127 to 135
14 to 15
Sea TV Network
100 to 110
19 to 20
297 to 324
11 to 13
Buy the leader before growth gets priced in
Africa to catalyse double-digit growth: We expect double-digit growth to
return in FY12E as companies digest significantly lower tariffs and growth
related charges in FY11E to deliver FY11-13E revenue, EBITDA and EPS CAGR
of 15%, 17% and 23% respectively. Bharti will become the fastest growing
telecom company across Asia and EMEA, as Africa delivers 45% revenue and
53% EBITDA CAGR during FY11-13E providing material uplift to both Bharti
and the India average (Exhibit 2).
Meanwhile, domestic market regains stability: The sector lost a third of its
market capitalisation between Sept’09 and Mar’10 as growth came to a
grinding halt in FY10 (flat vs 20-30% earlier). Fierce competition cut tariff 2.3x
faster than previous years while usage elasticity and cost efficiencies failed to
keep pace, leading to declining profitability and return metrics even as a debt
overhang from funding 3G and BWA spectrum costs and additional downsides
from TRAI’s spectrum recommendations loomed large. Significantly reduced
tariff competition (high cash losses for new operators, 3G funding led to
stretched balance sheets), a return of usage elasticity over the past 2 quarters
are lead indicators of a recovery, in our view.
BUY Bharti; traits of a global leader - new growth frontiers in place: We
expect domestic revenue growth to slow to 12% in FY10-13E with limited
room for tariff cuts or increased MOUs, but supported by a scope for rural
penetration and improved 3G based ARPUs over a slightly longer term. Africa
on the other hand is an opportunity which is perhaps larger than what India
was in 2003 with: 1) Near-perfect perfect blend of high population, low
penetration, high tarrifs and low minutes of use, and 2) Unique set of markets
which ensure sustained growth in the near, medium and long-term. With new
growth frontiers in place we recommend a BUY on Bharti, our top pick in the
sector, with a 12-month TP of `422.
HOLD Idea; a strong player - primed to grow fitter, exploit opportunities
and deliver growth: Idea is a quality operator in a resilient wireless space
where incumbents will continue to dominate markets and remain favourably
positioned to capture mind-share and market-share as and when new market
opportunities (3G and wireless internet access) arise. We expect 3G and
mobile number portability to polarise markets further with resultant gains
accruing to incumbents. Importantly, we see immense opportunity for Idea to
deliver high EBITDA growth on the back of strong margin improvements in
both established and new circles. We recommend a HOLD on Idea with a 12-
month TP of `72 as we keep a close watch for surprises.
SELL MTNL; poor business visibility – but government will ensure
survival: We are structurally negative on the wireline business which accounts
for c.64% of MTNL’s revenues and are unable to contemplate a scenario where
it usurps wireless market share in heavily competitive metro circles. Despite
an improved consumer appetite for both wireline and wireless broadband,
where MTNL could experience strong business salience, we expect MTNL’s
losses to grow exponentially and see a risk of networth erosion by FY14E
unless staff costs are controlled and/or the government infuses equity. We
recommend a SELL on MTNL with a 12-month TP `38.
The Indian airline sector continued to put up an impressive performance
(domestic pax traffic growth of 20% YoY during April-August 2010). This
was driven by strong macroeconomic growth (average GDP growth of
~8% YoY in Q2FY10-Q1FY11), conversion of FSC’s major capacities
towards low cost (in line with the changing preference of customers)
and stable crude oil prices (average of US$75 per barrel in Q2FY10-
Q1FY11 vs. US$121 per barrel Q1-Q2FY09). We reiterate our positive
outlook for the sector given strong operational performance of the
players and forthcoming government support for debt restructuring.
Growth momentum continues
With the shift of the domestic airlines sector towards low cost services
and strong capacity rationalisation, major players have reported high load
factors (in the range of 75-80% for FSCs and 84-89% for LFCs) in Q1FY11.
We believe domestic demand will remain buoyant driven by strong
macroeconomic growth (GDP expected to grow at higher than 8% YoY,
as per RBI), affordable airfares and stable crude oil prices. In our view,
higher load factor will drive earnings growth in the sector as capacity
addition has been deferred by players for the next one or two years.
Debt restructuring coming at right time
The government has agreed to a debt restructuring plan for major FSCs,
which are reeling under massive debt burden of ~` 60,000 crore (FY10).
According to the plan, which has received final approval from the RBI,
domestic banks are expected to restructure the loans of the airlines that
will enable them to raise fresh funds in order to deleverage their balance
sheet and finance future expansion plans.
Due to strong improvement in the domestic pax traffic (growth of 14.3%
YoY in FY10 vs. de growth of 11.1% in FY09), capacity rationalisation and
low fuel expenses, airlines have posted a robust operational performance
in FY10. Further, the sector is increasingly getting support from the
government in terms of debt restructuring programme and permission of
fund raising through various options. In our view, this will enhance the
attractiveness of the sector, going forward. In light of the positive
development in the sector and improving operational performance of the
players, we are raising our target price for Jet Airways to ` 850/share
(from ` 690/share), SpiceJet to ` 80/share (from ` 72/share) and Kingfisher
Airlines to ` 71/share (from ` 52/share).
Demand remains strong, no red flags: Our interaction with Infosys
management before the quiet period indicates strong confidence in the nearterm
(FY11) demand environment. Even for FY12, slow economic recovery is
not a worry and it will not impact the growth trajectory; however, macro
shock is a risk. Clients are increasing offshore activities, deal signings
continue unabated and clients’ spending pattern show no red flags. Pricing is
stable with some instances of price increases, though not a trend. Retain BUY.
Slow US economic growth is not a worry: Infosys management indicated
that slow growth in the US economy per se is not a concern and the company
should be able to maintain its growth trajectory. In such an environment,
clients focus more on cost optimisation and that plays to the strength of
Indian IT industry. However, a sudden macro economic shock, like the one
witnessed after Lehman bankruptcy in 2008, could result in few quarters of
slow growth before demand recovers.
No cancellations/deferrals: There have been no cancellations or project
deferrals by Infosys clients and demand remains strong. However, clients are
focused more on short-term engagements and are not committing to longterm
engagements, pending CY11 IT budget finalisation. Compared to the
future outlook in Sept-Oct 2009, clients are more confident now and have
better visibility for next year (CY11/FY12).
Pricing trend is steady: Infosys has been able to secure price increases from
clients in select cases; however, that is not a trend seen across clients. Clients
are also willing to accommodate the visa cost increase by a combination of
higher offshore and absorbing the cost themselves. Infosys is a) driving
service mix improvement to increase revenue productivity and b) utilisation
increase to fulfill demand in what is still a supply constrained environment.
Retain BUY; Infosys is our top pick: We remain positive on tier-1 IT
companies on the back of significant market share gains against global
incumbents. While the stock may consolidate in the near-term post the recent
sharp move (10%+ in 2 weeks), we remain positive from a 6-9 month
perspective. Our Mar’11 price target of `3,350 is based on 21x FY12E EPS.
Diversified consumer finance play
Diversified consumer finance company available at attractive valuation:
Shriram City Union Finance (SCUF), a part of the Shriram Group, specialises in
small-ticket retail loans. It offers vehicle/auto loans (40% of AUM), small
business loans (19%), gold loans (16%), two-wheeler loans (13%) and personal
loans (9%). With strong focus on semi–urban and rural markets (c.80% of
branch network), the company is a diversified consumer finance play available
at attractive valuation.
Auto, gold and business loans to drive 28% CAGR in AUM over FY10-13E:
We expect AUM CAGR of 28% over FY10-13 (vs 40% over FY05-10) on the back
of strong macro environment: a) Higher disbursements in the auto segment,
b) Rising demand for gold loans on the back of higher gold prices, c)
Increased lending opportunities to small business enterprises due to strong
Healthy 24% CAGR in NII over FY10-13E: Despite factoring in margin
compression of 68bps (NII/AUM) due to higher borrowing costs, we expect
healthy 24% CAGR in NII over FY10-13E on the back of robust AUM growth.
Operating efficiencies to lead to 57bps decline in cost ratios over FY10-
13E: We expect SCUF’s cost to assets ratio to improve 57bps to 3.5% over
FY10–13E driven by improved productivity, focus on product expansion
across all branches and leveraging of associate group companies’ distribution
network. Hence, SCUF is in a unique position to grow its business without
entering new locations or adding to its workforce.
Credit costs to remain stable at c.280bps with gross NPLs of c.2.3%: SCUF
increased its provisioning cost in the last 2 years primarily to increase its
coverage ratio from 41% in FY08 to 69% in FY10. Consequently, its credit
costs increased from c.230bps to c.275bps over FY08-10. Going forward, we
factor in stable credit costs of c.280bps over FY10-13E with gross NPLs of
c.2.3% and coverage ratio of 70% by FY13E.
Earnings CAGR of 23% over FY10-13E driven by strong loan growth,
improved cost ratios and stable credit costs. We expect SCUF to report
healthy return ratios with ROA of 3.2% and ROE of 23% over FY10-13E.
Initiate coverage with BUY and TP of `730: We value SCUF at 11x Sept’12
EPS, implying Sept’11 target price of `730, upside of c.25%. Key risks are
significant economic slowdown, spike in interest rates and higher than
Taking a fresh look at valuations
With Novelis returning to stable earnings, we switch to valuing it on a DCF basis.
In addition, given Hindalco’s robust expansion pipeline, which will not deliver
earnings until after FY12, we now value CWIP at 0.5x P/B. Based on these
revisions, we arrive at a target price of Rs229 (from Rs183). Maintain Buy.
Novelis: Switch to DCF-based valuation Rs127/share
Novelis acquired in 2007 has been a notable turnaround story and has emerged out of
the shadow of fixed price contracts, which has enabled its EBITDA to grow from US$450m in
FY09 to US$750m in FY10. Going forward, we expect Noveliss EBITDA to stabilise at
US$1bn in FY11F and beyond, and we therefore move to a DCF-based valuation
methodology vs our earlier approach of an EV/EBIDTA multiple based on comparable peers.
Following the change, we arrive at a value for Novelis of Rs127 per share of Hindalco.
Correlation with aluminium price weakens
The correlation of Hindalcos stock price with the LME aluminium price has weakened to 0.67
since the acquisition of Novelis was announced in February 2007. The correlation had
averaged 0.94 from 2000 to 2007. With new contracts renewed on a per-tonnage basis,
Noveliss pass-through business model should act as a natural hedge against volatile
aluminium prices. We believe Hindalco’s strategy to enter downstream value-addition
business through the acquisition is proving successful.
Planned CWIP pipeline becoming robust
The brownfield expansion of the Hirakud smelter to 213kt is scheduled to be completed by
4QFY12. The greenfield projects of 1.5mt Utkal Alumina 359kt each of Mahan Aluminium
and Aditya Aluminium are also on track to be commissioned by 2Q-3QFY12, although we
are more sceptical about the chances of the greenfield projects being commissioned on time
given the risks involved. However, as capex is due to pick up substantially in the coming
quarters, we now value the capital work in progress (CWIP) at 0.5x P/B (rather than 1x, as
these are new greenfield projects at new locations and therefore have higher risk of timely
execution, and also to factor in time value) and derive a value of Rs23/share. We continue to
value the domestic operations at 6x FY12F EBITDA and, as explained above, shift to a DCF
approach for Novelis. Based on these revisions, we raise our target price for Hindalco to
Rs229 (from Rs183) and maintain our Buy rating.
• Volume led growth to continue: Over FY10-13E, GSPL will grow
volumes at a 11%CAGR, driving a 13% CAGR increase in CEPS. We
see little risk of a downward revision in GSPL tariffs by the PNGRB,
based on preliminary tariff approved for GAIL's HVJ expansion. We
retain our positive view on the stock based on robust capital efficiency,
value of investments in CGD.
• Tariff ruling will be a key catalyst: GSPL’s tariff will be reviewed by
the PNGRB and a preliminary tariff is likely to be announced by end
2010. On conservative assumptions regarding operating expenses and
applicable capex for tariff determination, we believe GSPL's current
tariffs (c.Rs750/tscm) are sustainable.
• Robust business model with no commodity risk: GSPL provides a
clean play on increased gas volumes in Gujarat with no
commodity/cyclical risk. GSPL's Gujarat network links supply sources
to all major demand sinks in Gujarat, we envisage volumes to rise to
55mmscmd on the network by FY15E
• Investment in CGD, optionality of new bids are positive: GSPL’s
stake in CGD players with c.4mmscmd of sales volumes is a positive
driver for valuation. Judicious use of leverage in the new networks
GSPL has bid for will support ROEs of 20-25%, leading to significant
value creation. We believe it is too early to build option value for these
bids, given their long gestation but it provides pointers on future growth.
• Price target, valuation, key risks: Our DCF based fair value for
GSPL’s businesses is Rs162. We use a three-stage DCF model to capture
the periods on strong growth in gas volumes in India. Including the value
of CGD investment, our PT for GSPL is Rs165. Key risk is delay in
projects, unfavourable tariff ruling from PNGRB.