01 November 2010

Reliance Industries --Refined revival: Macquarie Research,

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Reliance Industries
Refined revival
Event
 RIL reported a 28% YoY rise in PAT to Rs49.2bn, in line with forecasts.
EBIDTA rose 30% to highest ever as GRMs surged and polyesters revived
sharply. Investors cited cyclical recovery, upstream successes and KGD6
ramp-up as key trigger in our recent e-survey. These 2Q results suggest that
a cyclical recovery is firmly underway in its largest business, refining.
Impact
 Refined gains. RIL’s GRM’s rose from US$ 6.0/bbl in 2QFY10 to US$ 7.9/bbl
in 2QFY11, and continued their QoQ rise, signalling a clear recovery. GRM
improvement was a result of US$2/bbl YoY rise in light-heavy crude price
differentials (Fig 9) and a US$4/bbl rise in diesel crack spreads (Fig 10). We
forecast further recovery on the back of sustained global demand, especially
for auto fuels in China and India, low global additions of less than 2% pa, and
large closures especially ~1m bpd announced by Japan recently.
 Crude reality. Upstream EBIT rose 39% YoY on the back of KGD6 gas rampup
to 58mmscmd. But EBIT declined 9% as PMT production shut for three
months till 25 October due to sub-sea pipe leakage. Management confirmed
that KGD6 gas ramp-up shall not happen for at least one year, but also
highlighted that there is no change in resource estimate. Regulatory approvals
for field development are also taking time for KGD6 satellite wells and NEC25.
RIL is likely to drill in Dec 2010 the highly prospective KGD9, in which the first
well was dry. MND4 drilling is unlikely till 1QCY11, due to a 3-year extension.
 Petchems mixed – margins flat YoY, +7% YoY. As 12m+ tpa ethylene
capacities add 9% to global production in 2010, margins collapsed by 26%
YoY (Fig 12). On the other hand, polyester chain margins bounced sharply.
Strong textile demand and a doubling in cotton prices YoY enhanced
downstream margins by 20%+. Recently even intermediate paraxylene
margins have rebounded as sanctions constrain Iranian capacities.
 Low cost funding ahead of large capex: Taking advantage of low interest
rates and a strong balance sheet (US$6bn+ cash, 35% net debt/equity,
US$7bn+ pa OCF), RIL has raised US$1.5bn fixed rate 10-30 year bonds at
4.5–6.25%, which is comparable to Petrobras, Brazil. This is ahead of a
US$20bn+ capex in domestic upstream, petchem, shale gas and broadband.
RIL had similarly borrowed in the mid-1990s ~10%.
Earnings and target price revision
 Reducing FY11 PAT by 3% due to CDU and PMT shutdown. No change in TP
Price catalyst
 12-month price target: Rs1,244.00 based on a Sum of Parts methodology.
 Catalyst: Cyclical recovery, upstream successes and KGD6 ramp-up.
Action and recommendation
 Accumulate cyclical laggard RIL: Early cycle, Korean and Thai refining and
petchem stocks have nearly doubled in the past few months (Fig 16, 17). We
recommend accumulating shares of laggard Reliance Industries.

Jaiprakash- Limited Good 2Q Led By E&C & Realty; BofA ML

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Jaiprakash Associates Limited
Good 2Q Led By E&C & Realty;
Cement weak
�� 2Q – strong E&C & realty make-up for weak cement & higher tax
A solid E&C margins (21%) and good E&C and realty execution - sales +73% &
266% resp., led JPA 2Q parent Rec. PAT (ex-dividend) of Rs1.1bn +22%YoY.
Weak cement (ASP -10%) and higher deferred tax pulled back growth.
Importantly, its key subs. (a/c for 53% of SOTP) – JP Power did well and JP Infra
had stellar 2Q with PAT +21x, which will drive consol. results. Buy JPA on Infra
assets trading at 40% discount to NAV, which could be un-locked by improving
visibility of cash flows and option value in its power / realty assets.
2Q – E&C and Realty surprise; JP Infra realty to boost Consol. Nos.
E&C sales was aided by strong execution at karcham HEP and start of realty
build-out by JPA for JP infra. E&C EBIT 83%YoY. Real estate sales +266%YoY;
EBIT +356%YoY. JP Infra had another strong quarter on Kensigton plot sales
while JP power PAT 10% ahead of MLe.
Cement weak YoY but much stronger vs sector EBITDA/tn
Cement sales +43%YoY but EBIT fell 15%YoY as its ASP fell 10% and industry
leading sales also brought start-up costs of 4.4mtpa (21% of capacity) added in
4Q. 2Q cement nos. mixed - volume +59%YoY; capacity +27%; realization/tn -
10%; EBITDA/tn fell 37% and EBIT/tn -46% on start-up costs. Overall, JPA had
industry leading 2Q EBITDA/tn of Rs888/tn v/s ACC at Rs340/tn and Guj. Ambuja
at Rs650/tn, which are richly valued vs our US$85/tn for JPA.
Execution on-track at – Power, Roads, Realty
JPA appears on-track to complete its key Infra SPVs on-time or ahead. Its largest
hydro project, Karcham Wangtoo is likely to start 6 months ahead of schedule in
4QFY11. Robust consol realty bookings till 1HFY11 - 41mn sqft for Rs143bn led by
success of AMAN/KOSMOS/ Klassic, to support FY11-12E consol P&L, in our view.
Buy value assets 40% discount & 21% EPS CAGR in FY10-12E
JPA offers a blend of asset play (40% disc to NAV) & 21% CAGR in parent EPS
(FY10-12E). Triggers are a) timely execution of projects (esp. Karcham),
equipment order for 2GW Karchana project, b) monetization of realty land bank, c)
bottom-out of cement prices in 2HFY11 & d) approval for Gr. NOIDA airport.

Great Eastern Shipping: F2Q11: Steady in Turbulent Waters; Morgan Stanley

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Great Eastern Shipping: F2Q11: Steady in Turbulent Waters; Remain OW

What's Changed
Price Target Rs345.00 to Rs370.00
Investment conclusion: Our OW rating is due to:
a) high revenue visibility in a period of volatile freight rates
with 57%, 71% and 54% revenue days in tankers, product
tankers and bulkers, respectively, amounting to Rs3.4bn
being covered under charter contracts for 2H11e;
b) earnings progression is likely to pick up in ensuing
quarters as its offshore fleet expands;
c) GESCO has net debt of Rs14bn and net debt:equity of
0.2x at September 2010, which bodes well for expansion;
Moreover, news flow around equity issuance of its
offshore subsidiary (filed with regulator) will also support
stock performance, we believe. GESCO trades at a
steep discount to global peers that we believe should
contract given its earnings profile and balance sheet
strength. We raise our probability weighted NAV based
target price to Rs370, implying an upside of 17%.
What's new: GESCO reported QE September 2010
earnings of Rs2bn, ahead of our estimate. This was driven
by lower expenses (including interest) and profit on sale of
ships. EBITDA margins expanded by 50bps QoQ to 41%,
ahead of our estimate. The company benefited from
charter exposure at attractive rates, in our view. This will
continue to support earnings in F2H11e.
Revenue momentum in offshore segment continues
to gain strength on the back of new assets acquired – it
took delivery of three vessels (in offshore) and delivered
one. It placed orders for two vessels for delivery in
F12/13e.
Key Risk: While freight rates are likely to be volatile in
2H11, higher than expected decline in freight and asset
prices is the key risk.

Jaiprakash Power:Good 2Q; execution pick-up : BofA ML

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Jaiprakash Power Ventures Ltd.
Good 2Q; execution pick-up with 7GW under build-out


􀂄 2Q11:Rec PAT +38%YoY on VHEP merger; 7GW ordered; Buy
JPVL (Parent) 2QFY11 Rec PAT Rs870mn grew by 38%YoY (+10% BofAMLe) on
merger of Vishnuprayag HEP and incentive on secondary energy at Baspa II. 2Q
generation at BASPA II +11%YoY while Vishnuprayag by -5% vs Indian hydro +4%
as its plants are powered by snow-fed rivers. Execution has improved as JPVL has
ordered 7GW (58% of our valued capacity) and has already spent Rs98bn ($2.2) till
1HFY11. Catalysts loaded in 4QFY11E: start of generation at 1.2GW Karcham
Wangtoo HEP, start of construction at 1.5GW Lower Siang HEP and equipment
order for 1.3GW Bara Ph 2. We tweak PO to Rs82 (81) to factor-in 25% hike
capacity of Bina project to 1.5GW (1.2GW) earlier. Near-term Q’ly should be weak &
valuations are not cheap due to back-loaded cash flows and debt taken by parent to
fund equity to minimize dilution, our PO is based on DCF of its 12GW capacity.
3x by FY12E and 11x by FY15E; 12GW IPP – 17x by FY19E
We forecast 3x rise in JPVL capacity by FY12E and 11x by FY15E. Execution is
picking-up (see table 2 & 3) – with ordering of Karchana equipment, 58% of capacity
would be under-construction. We have factored in 12GW of the capacity add by
FY19E and are yet to value 2160MW of capacity pending visibility of execution.
Growth Uts. with high profitability… funds in-place till FY12
JPVL is a growth utility with visible scale up of capacity to 12GW by FY19E on a
pipeline of high RoE (20-30%) concessions, even after factoring in a 40% fall in
merchant power tariffs by FY13E. Funding is a risk, but it shouldn’t be difficult given
the high profitability of projects. It raised debt for equity funding till 1HFY12-$200mn
CB, Rs10bn ZCB and Rs26bn securitized receivables. Expect equity issue in FY12.
…and diversified business model + catalysts
We like JPVL’s compelling and diversified model across: fuel mix (hydro 33%:
thermal 67%), regulated vs merchant mix (57: 43) and plant location across north,
central and north east India (60:23:17). A lot of catalysts for the stock in form of new
plant order and start of Karcham HEP are loaded in 4QFY11 as described above.

Oil & Gas - Diesel under-recoveries increase - monthly update:: Edelweiss

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Indian Simple GRMs improved 181.6% M-o-M, to 2.2 USD/bbl, due to an increase in products spreads primarily due to the impact of strikes in France. Likewise, Indian Complex GRMs also exhibited a positive trend during the month, increasing 25.5% M-o-M. Except for FO, other product spreads, including gasoline, kerosene, LPG, naptha and diesel cracks, improved during October 2010.

cid:image001.png@01CB79FC.BFC3C9B0

ü  In October, the Finance ministry has approved an ad hoc package of INR 100 bn to OMCs to cover up for the fuel losses incurred during H1FY11. Total loss of the companies is estimated at INR 310 bn and upstream is expected to contribute another INR ~100 bn towards the losses incurred. This leaves OMCs with the remaining burden of under recoveries to the tune of INR ~110 bn.
ü  During the month, IOCL, BPCL and HPCL increased prices of petrol again after raising it the previous month. This time, hike was in the INR 0.70-0.72 range.
ü  News for the month
n  28 Oct: Panna-Mukta fields resume production after a pipeline leak
n  20 Oct: GSPL wins contract for 1,600-km Mallavaram to Bhilwara pipeline
n  18 Oct: RIL raises USD 1.5 bn via dollar bonds
n  18 Oct: ONGC notifies two more O&G discoveries  in Cauvery Basin block
n  07 Oct: GAIL places INR ~6.8 bn orders for laying Dabhol -Bangalore pipeline
n  05 Oct: IGL raises price of CNG by INR 0.25 and INR 0.40 a kg in Delhi

MAHINDRA & MAHINDRA Surging ahead:: Edelweiss

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􀂄 Adjusted PAT ahead of estimate
Mahindra & Mahindra (M&M) reported an adjusted PAT of INR 7.3 bn (up 27% Y-o-
Y, 29% Q-o-Q) which was 11% and 17% ahead of our and consensus estimates
(source: Bloomberg). The variance was largely on account of lower–than-expected
raw material costs (68.1% vis-à-vis our expectation of 69.4%) and higher other
non operating income (at INR 2.2 bn vis-à-vis our expectation of INR 1.7 bn).
􀂄 Margin expansion surprises
While the top line benefited from the strong volume growth (up 20% Y-o-Y),
EBITDA margins improved on account of pricing action by M&M in the previous
quarter that offset the negative impact of higher commodity prices (raw material
costs to sales declined by 150bps Q-o-Q). However, sequential expansion in
EBITDA margins (15.8%; up 80bps Q-o-Q) was restricted due to rise in staff costs
and other expenses.
􀂄 Management outlook: Capacity constraints ease; demand strong
M&M remains positive on the demand outlook across its entire product
categories. It expects the tractor industry to grow at ~15% p.a. through FY11,
while the UV segment will continue to grow, albeit at a lower rate. The company
indicated that supply constraints from vendors (w.r.t. to fuel injection pumps
and forged castings) have eased considerably. The growing demand will be met
through debottlenecking of existing capacities and greenfield expansion.
􀂄 Outlook and valuations: Momentum maintained; maintain ‘BUY’
The company’s growth momentum across both key segments—utility vehicles
and tractors—remains strong. With a rich product pipeline, we believe the
company is an ideal play on the Indian economy.
While conservatively maintaining earnings estimates, we revise our core
business multiple to 14x FY12E (from 13x previously) with lower risks to the
growth outlook. We revise our SOTP-based target price to INR 837 (from INR
750), valuing the automobile business at INR 622 plus subsidiaries at INR 215.
We maintain our ‘BUY’/Sector Outperformer recommendation on the stock.

Adani Enterprises - F2Q11 Numbers - Strong:: Morgan Stanley

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Adani Enterprises Ltd
F2Q11 Numbers - Strong, but
Below Our High Expectations
Quick Comment - Mundra Inclusion Led to Strong
Margins and Net Income: The inclusion of Mundra
from F2Q11 helped AEL report an 8.4% YoY growth in
revenues (Rs 57.5 bn). Mundra’s greater profitability
(EBIDTA margins at 82.5% for the quarter) helped AEL
grow margins by 920 bps YoY to 12.6%, with EBIDTA
jumping 149% YoY (to Rs7.26 bn). Net income (after
minority, but before exceptional items) grew 234% YoY
to Rs 4.45 bn.
High Margin Businesses Grew Strongly, but not as
strongly as Expected: Power and Port revenues were
strong but disappointed vs. MSe, leading to overall
revenues coming in 7% below expectations. While the
coal trading business margins surprised on the upside
for the third quarter in a row, the comparatively lower
share of the higher margin power and port businesses
led to margins coming in 210 bps below our
expectations (Exhibit 1).
Organic Growth in the Bag, New Projects (organic
and Inorganic) Likely to Drive Future Performance:
Despite the negative surprise in F2Q11, over F1H11,
AEL has delivered 47% of our F11e net profits, thus
indicating that the company is well on track to deliver on
our full year numbers. However, we believe that stock
price performance will be driven more by profitability of
recently announced projects (none of which are included
in our current numbers) in Australia (Galilee coal
tenement and the coal terminal at Dudgeon Point,
Queensland), Indonesia (railroad and port infrastructure
in Sumatra) as well as India (Chhendipada coal block.)
Investment thesis: AEL’s business focus on the energy
deficit theme, the scale already attained by its various
businesses, and its cash flow and earnings-driven
business make it our top choice to play the infrastructure
developer space in India.

Tata Global Beverages - Q2F11: Sluggish Revenue Growth:: Morgan Stanley

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Tata Global Beverages Ltd- Q2F11: Sluggish Revenue Growth; Int’l Tea Business Margins Under Pressure


Results below expectations: Tata Tea reported
consolidated revenue, EBITDA and PAT growth of 3%,
(-)26% and (-)26% respectively for Q2F11. Operating
margins declined by 350bps, driven by a sharp decline
in profitability of the international tea business. We see a
combination of factors limiting near-term stock
outperformance: increased competition in the domestic
business, increased new product development
expenses, sharp increase in coffee prices, and likely
sub-economic returns on the cash that the company has
on its books. This along with valuation – the stock is now
trading at 20x F12e earnings (versus 15x long-term
average multiple) – supports our Equal-weight rating on
the stock.
International tea business disappoints… Tata Tea’s
International tea business continues to struggle. We
estimate that operating profit declined ~80-90% in
2QF11, with revenues declining by ~8-10% during the
quarter. This weakness in operating performance is
surprising against the backdrop of a ~14% decline in
international tea prices. According to management, the
combination of input cost inflation and investment
behind brands impaired margins during the quarter.
…as do international coffee prices: Eight O’Clock
coffee reported a revenue decline of 11% and PAT
decline of 30% during the quarter. The weak operating
performance was driven primarily by a sharp increase in
Arabica coffee prices of ~17% YoY, we believe.
Sluggish growth in domestic tea business:
Revenues and EBITDA grew by 4% and 13.5%
respectively during the quarter. Domestic margins
improved by 70bps, driven by other operational income.
Adjusted PAT grew by 19% during the quarter.

Grasim Industries-Growing fibre of success:: Macquarie

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Grasim Industries
Growing fibre of success
Event
 In line results: Grasim reported 2Q FY 3/11 earnings, which were in line with
our estimates. More importantly, an announcement of a large expansion in
VSF (viscose staple fibre) which will increase capacity by 50% to 490kt puts
the company on a growth path. We are adjusting our estimates to factor in the
restructuring and announced expansions and increasing our target price to
Rs2,488 from Rs2,400. We maintain our Outperform recommendation.
Impact
 Weak 2Q consolidated results: Net sales of Rs44bn were down 5% due to a
drop in cement realisation by 18%. EBITDA of Rs7.2bn is down 51% as
higher energy costs hurt the cement business. Net profit of Rs3.2bn is down
59% as both interest and depreciation costs increased post expansion.
 VSF business – water shortage hit supplies: The VSF business performed
quite well despite production loss as realisation improved by 11% YoY. Prices
are up again by 2% in Oct as the short supply in cotton pushed prices up. We
expect earnings to be strong in 3Q as volume recovers.
 Cement – under pressure: The cement business earnings hit a new nadir,
with realisation drop coinciding with increased energy costs. There has been
a recovery in cement prices but we believe it is unlikely that it will be
sustained as oversupply concerns may not resolved for another 12-18months.
 VSF expansions – reduce uncertainty: The expansion of the VSF business
by 156ktpa, to be completed by FY13 at an estimated capex of US$650m,
reduces concerns on growth options as well as the utilisation of the large
amount of cash on Grasim’s standalone balance sheet.
 Expansion of cement business – is it too early? Grasim has announced a
brownfield expansion of 9.2mtpa at a cost of US$1.25bn. While Grasim does
need 5mtpa expansion every year to maintain its market share, given the
oversupply situation, an aggressive measure could lead to increased
competition. Also, the profitability guided for the recently acquired ETA Star
cement at Rs400/t of EBITDA indicates potential EPS dilution.
Earnings and target price revision
 We are adjusting FY11 and FY12 estimates for Grasim by -5% and 11%,
respectively.
Price catalyst
 12-month price target: Rs2,488.00 based on a DCF methodology.
 Catalyst: Rally in VSF prices, recovery in cement prices & clarity on
expansion.
Action and recommendation
 Maintain Outperform: Grasim appears to be the only hedged play among the
large cement companies and it is also trading at a sharp discount of 30–40%
to them. It is our preferred name in the sector.

Essar Shipping Ports & Logistics Limited: HOLD:Antique

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Key highlights
􀂄 Consolidated revenue increased by 11.6% YoY (decline of 5.8% QoQ) to INR7.5bn in
2QFY11, 12.2% lower than our estimates. This was mainly on account of 23.6% QoQ
decline in shipping business to INR2.7bn on account of dry docking of three major
vessels during the quarter.
􀂄 Revenue in Oilfields segment declined by 52% YoY to INR697m on account of reduced
day rates for its semi-submersible drilling rig during the quarter. However, revenue from
Port and Terminal services grew by 54.3% YoY to INR1.7bn with commissioning of
30mtpa dry bulk port at Hazira in May 2010.
􀂄 EBIDTA declined marginally by 1.6% YoY from INR2.4bn in 2QFY10 to INR2.3bn in
2QFY11 on the back of 420bps margin decline to 31.1% mainly on account of 385%
YoY increase in dry dock to INR176m and 43.1% YoY increase in employee cost. EBIDTA
was lower by 22.1% than our estimates of INR3.0bn.
􀂄 The company reported loss of INR189.6m at EBIT level in 2QFY11 compared to profit
of INR90.1m in 2QFY10, significantly below our expectations of INR231.7m mainly
due to dry-docking of vessels.
􀂄 ESPL has reported profit on sale of ship at INR303.7m in 2QFY11 and currency gain of
INR129.6, adjusting for one-time items, the company has reported profits of INR110.1m.


Reliance Ind -Refining, petchem outlook improving; BUY:: Religare

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Reliance Industries Ltd
Refining, petchem outlook improving; Maintain BUY


Reliance Industries’ (RIL) Q2FY11 PAT, at Rs 49.2bn (+1.5%QoQ,
+27.8%YoY), was in line with our estimates (Rs 49.3bn) and marginally above
the consensus (Rs 48.9bn). PAT growth was flattish QoQ as a higher petchem
and refining EBIT were offset by lower E&P EBIT. Key operating highlights of the
quarter included: a) higher GRMs at US$ 7.9/bbl, b) stable petchem EBIT at
Rs 22bn (+7% QoQ), and c) gas production from KG-D6 at 59mmscmd. We
expect (a) the outlook for refining margins to improve, (b) petchem margins to
stay healthy driven by strong domestic demand for petrochemicals and
polyesters, (c) clarity to emerge on oil and gas production at the KG-D6 block,
and d) likely approval of FDP for KG satellite/other fields and NEC-25 block in
the next 3-4 quarters. Considering the better earnings visibility, we maintain a
BUY on the stock with a target price of Rs 1,210.
E&P—KG D6 gas production to remain at 60mmscmd till Sep ’11: The total gas
production for the quarter stood at 66.3mmscmd (-9% QoQ), 59mmscmd being
from KG-D6 and Crude production stood at 29kbopd (-49% QoQ) due to an
unplanned shutdown at the Panna-Mukta field on 20 July ’10; production has
resumed from 25 Oct ’10. RIL has guided that gas production from KG-D6 would
remain at 60mmscmd at least till Sep ’11 and higher production is likely only
after the reservoir performance is analysed. Similarly, to optimise the crude/gas
production mix at the block, oil production is unlikely to be raised beyond
30kbopd till June ’10.
Refining—GRMs show signs of improvement: RIL’s gross refining margin for
Q2FY11 stood at US$ 7.9/bbl (+8% QoQ, +32%YoY) backed by an improving
gasoil(HSD) demand in Asia. RIL’s premium over the Singapore Complex GRM
remained stable at US$ 3.6/bbl on a QoQ basis but increased sharply by 23% on
a YoY basis, primarily due to an improved heavy-light crude differential.
Petchem—Margins to improve: RIL’s polymer/chemicals margins benefited from
a) strong domestic demand (up 10% YoY for H1FY11), b) higher utilisation rates
arising from limited domestic capacity additions in the last one year and c)
higher contribution from the chemicals segment. We expect polyester margins to
improve further on account of a) higher cotton prices leading to increase in usage
of polyester as a substitute, b) strong domestic demand (up 17% YoY for
H1FY11) and c) lower competitive edge of Chinese products.
Maintain BUY with a target price of Rs 1,210: In view of a strong performance
and robust refining &petchem outlook, we maintain our BUY rating on the stock
with a SOTP-based target price of Rs 1,210.

TAJ GVK HOTELS & RESORTS Muted quarter:: Edelweiss

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TAJ GVK HOTELS & RESORTS
Muted quarter; busy season ahead



􀂄 Muted sales growth; H2FY11 to be exciting
Taj GVK Hotels & Resorts (Taj GVK) reported INR 598 mn sales, 11.8% Y-o-Y
growth and 1.4% sequential decline. The company posted ORs of 65% for its
hotels in Hyderabad compared to 52% in the other major city hotels. Chandigarh
clocked 65% and Chennai 57% ORs for the quarter. ARRs were flat on sequential
basis due to seasonal factor. The company is expected to increase ARRs between
5% and 10% across all its properties in H2FY11E with ORs of 70-75%. With the
MICE segment doing extremely well in Hyderabad city, H2FY11 is expected to be
eventful. We maintain our 70% ORs and 5% increase in ARRs for FY11E, although
we believe due to the out-performance of Chennai hotel, we could see some
upward revision.
􀂄 Slight dip in EBIDTA margins; busy season ahead
The company reported 32% EBIDTA margins compared to 35% in Q2FY10 and
37% in Q1FY11. Due to slight increase in employee and other expenses, margins
have declined. With the expected increase in ARRs in H2FY11 along with better
ORs, we maintain our EBIDTA margin estimates of 42% and 42.5% for FY11 and
FY12, respectively. In H1FY11, PAT margins were 14.5% and we maintain our
20.4% and 21.4% PAT margin estimates for FY11 and FY12, respectively.
􀂄 Begumpet and Krishna expansion on track
Capex of INR 900 mn at Begumpet with 190 rooms is on track and is expected to
be commissioned in Q4YF11. Along with this, the INR 200 mn car parking facility
expansion at Taj Krishna is also running on track for Q4FY11 opening. Due to the
increased demand for convention centers and banqueting facilities at Hyderabad,
the company is planning a convention center at the joint premises of Deccan,
Hyderabad and Taj Krishna. The new car parking facility will help the company tap
this fast emerging banqueting opportunity.
􀂄 Outlook and valuations: Positive; maintain ‘BUY’
With its leadership position in the CBD area of Hyderabad, Taj GVK is
strengthening it further by adding new facilities. With ARRs hike in H2FY11 along
with healthy demand from the MICE segment, we believe the company is in a
sweet spot. At CMP of INR 152, the stock is currently trading at EV/EBIDTA of
9.1x and 7.0x FY11E and FY12E, respectively. On a replacement cost basis, the
company is trading at INR 10 mn FY12E, one of cheapest in the entire industry.
We maintain our ‘BUY’ recommendation with price target of INR 220.

Auto Sales Update - strong festival demand: Edelweiss

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n  Hero Honda: Crosses half a million mark
Hero Honda’s volumes were robust at over 505,553 units (up 17% M-o-M; 43% Y-o-Y). The company recently increased capacity at its Uttaranchal plant which partially accounted for the higher production. Apart from the strong festival demand, volumes were also supported by the launch of new Splendor Pro.

n  Mahindra & Mahindra: Robust tractor volumes
Mahindra & Mahindra’s (M&M) tractor volumes sprung a surprise with volumes up 43% M-o-M and 31% Y-o-Y. Even accounting for seasonal factors, the growth was robust, indicating the strong underlying demand. The UV space (down 4% M-o-M, up 21% Y-o-Y) was broadly on expected lines; pick up in four wheelers seemed to have been impacted by production constraints.

n  Maruti Suzuki: Inventory build-up boosts volumes
Maruti Suzuki’s (MSIL) domestic volumes grew 13% M-o-M, to 107,133, posting total sales of 118,908 units (up 10% M-o-M, 39% Y-o-Y). Sales were higher than production capacity (of 110,000 units/month), as the company reduced its inventory levels. All segments performed strongly, but notably robust were the A2 space (up 13% M-o-M, partially supported by newly launched Alto – K series) and vans (up 11% M-o-M – EECO continues to perform strongly).

n  Tata Motors: Strong PV sales; CV sales as estimated
As expected, post change in emission norms in September 2010, Tata Motors’ (TTMT) M&HCV sales reported sequential decline, down 18% M-o-M. LCV sales were, however, positive (up 8% M-o-M; 11% Y-o-Y), despite strong competition from new product launches. Passenger vehicles showed strong growth (up 20% M-o-M, 24% Y-o-Y), while the Indica range (compact segment) disappointed. The sedan segment (Indigo) performed strongly with the new Manza being well received. However, Nano volumes plunged to ~3,000 units (from 7,000 two months ago). Jaguar LandRover volumes continued to perform strongly.

n  Outlook: Festivities start; robust volumes continue
With the onset of the festive season, sales remain strong across the two wheeler and passenger car segments. Going forward, we expect the strong trends to continue although growth rates could decline on a higher base. M&HCV sales could be impacted after the change in emission norms.

PTC INDIA- Traction across segments:: Edelweiss

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􀂃 Earnings beat estimates, backed by 20% volume growth
PTC India (PTC) reported adjusted PAT of INR 358 mn (up 53% Y-o-Y), against
our estimates of INR 250 mn. The growth is on the back of 7.7 bn kWh volumes
traded and sustained margins at 5 paise/kWh (4 paise/kWh last year). It is
noteworthy that the company delivered improvement in volumes and margins
despite a slack period in merchant power, with PTC’s average selling rate at INR
3.2/kWh versus INR 3.9/kWh in Q2FY10. Given that merchant trades are
improving and the forward curve is pointing towards rates near INR 4.5-4.8, we
believe PTC will maintain its margins in FY11.
􀂃 ESOP expense write back deflates employee cost
PTC has historically written off its ESOP related expenses in the P&L account,
recording higher employee costs. In Q2FY11, there has been a reversal in these
ESOP expenses (INR 57 mn), resulting in negative wage costs. The regular wage
cost for this quarter is at INR 24 mn. Similarly, in Q2FY11, the company had
recorded one-time income on rebate reversal at INR 110 mn. Adjusted for these,
PAT is up 53% Y-o-Y.
􀂃 Key Triggers - PFS IPO, tolling projects, resolve Karcham dispute
The management is targeting to list its subsidiary PTC Financial Services (PFS)
by Q4FY11 (we valued at 1x book value versus 1.3-1.7x of peers). The dispute
with JP Power Ventures on the Karcham - Wangtoo project is currently under
arbitration. An amicable settlement of the dispute would add 1,000 MW to PTC’s
PPA basket in FY12 (currently not factored), improving earnings and valuations.
The 350 MW tolling projects with Madhucon and Meenakshi are scheduled to
commission in FY12, while we have factored them in FY13.
􀂃 Outlook and valuations: Volume estimates upgraded; maintain ‘BUY’
Given that PTC has achieved 13.5 bn kWh in H1FY11 (68% of our full year
estimates), we have revised our volume estimates to 21.5 bn units (20 bn units
earlier), and maintain margin expectations at 5 paise /kWh for FY11. We have
raised the FY11 EPS estimates by 2% and by 7% for FY12. Cash on books has
improved to INR 11.5 bn, while we now value PFS at 1x book value (from 0.8x
earlier). We maintain ‘BUY/Sector Outperformer’ on the stock, with revised
SOTP target of INR 144.

BHARAT HEAVY ELECTRICALS Good show:: Edelweiss

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Bharat Heavy Electricals (BHEL) surprised positively on both revenue and
bottom line fronts in Q2FY11 on back of strong execution. Revenue was 7%
higher than our estimate and PAT was 11% above estimate. New orders
grew sharply by 73% Y-o-Y to INR 145 bn, which for H1FY11 was a growth
of 19% Y-o-Y to INR 253 bn, implying an order book growth of 20% Y-o-Y
to INR 1,540 bn (3.6X FY11 sales).
􀂄 Healthy execution and lower tax boost bottom line
Led by a strong 29% Y-o-Y growth in the power segment, which contributes
80% to total revenues, BHEL’s total revenues grew a strong 25% Y-o-Y. For
H1FY11, the company reported 21% Y-o-Y revenue growth, with the power
segment growth at a firm 24% Y-o-Y. We expect BHEL to post 26% Y-o-Y
growth in H2FY11 revenues, given its execution timelines. PAT for the quarter
grew 33% led by both improved margins and lower tax rate on account of
weighted average deduction for R&D spend during the quarter.
􀂄 Fresh orders rise 60% Y-o-Y; upsides to FY11 order inflow guidance
BHEL surprised us with a strong order inflow growth of 60% Y-o-Y to INR 135
bn, which, for H1FY11 grew at 15% Y-o-Y to INR 243 bn. The power sector
contributed major portion of new orders at 82% to INR 110 bn, representing
2,821 MW. During the current fiscal YTD, BHEL has bagged total orders worth
INR 313 bn, which could leave upsides to the management guidance of INR 550
bn for FY11.
􀂄 Update on power and other JVs
While BHEL could report two EPC orders from its various SEB JVs in the current
year, the company is in active talks with SEBs in Gujarat, Andhra, West Bengal,
and Punjab for power plant JVs. It has submitted bids for a diesel locomotive plant
for railways in consortium with GE and is also eyeing the propulsion systems
business for 7000 HP locomotives in tie up with Alstom Transport, France.
􀂄 Outlook and valuations: Positive; maintain ‘BUY’
Despite a strong negative sentiment prevailing in the domestic market for BHEL,
given mega BTG awards by Reliance and Lanco to Chinese players and import
duty deferment, we remain positive on the stock, given strong revenue visibility,
strong ordering pipeline over the next few quarters and expect it to beat the
FY11 order intake guidance. The stock currently trades at PE of 22x and 17x on
FY11E and FY12E earnings, respectively. We maintain our ‘BUY/Sector
Outperformer’ recommendation.

ABB INDIA: Still not out of woods; maintain cautious outlook:: Edelweiss

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ABB India’s (ABB) Q3CY10 results were strongly disappointing. While revenue
declined 8% Y-o-Y, EBIDTA declined a sharp 75% Y-o-Y due to continued adverse
impact of declining realizations and exit costs for RE business. Adjusted for forex gain
during the quarter, the company reported an EBIDTA loss of INR 135 mn versus
positive EBIDTA of INR 1.28 bn last year same quarter. Net profits dipped 86% Y-o-Y
for Q3CY10, while for 9MCY10 PAT declined 74% Y-o-Y, largely due to negative
contribution from the power systems division.
􀂃 Negative contribution from power division continues
The company reported negative EBIT contribution from power division and
process automation, which led to 69% Y-o-Y decline in total segmental EBIT for
Q3CY09. For 9MCY09, segmental EBIT declined 69% Y-o-Y, led by negative
contribution of INR 110 mn from the power division.
􀂃 9MCY10 new orders declined 22% Y-o-Y
While ABB reported a strong 65% Y-o-Y growth in Q3CY10 orders to INR 20.3bn,
it was a decline of 22% Y-o-Y for 9MCY10 period to INR 49.5 bn, largely due to
deferment of certain large value tickets in the power sector. The company
currently has an outstanding order book of INR 91.8 bn (+14% Y-o-Y), which
imparts sufficient revenue visibility till CY11. However, further impact on account
of exit costs on RE business remains to be unknown.
􀂃 Revising down CY10E bottom line 42%
Building in the Q3 disappointment in profits, we adjust our CY10E earnings by
revising down our EPS 42% to INR 8.1. Uncertainty regarding additional exit
costs on RE business and impact of decline in realizations continue, dampening
the company’s growth outlook.
􀂃 Outlook and valuations: Uncertainty continues; maintain ’HOLD’
We remain cautious regarding ABBs overall fundamental prospects in the near
term given strong uncertainty prevailing regarding further impact of exit cost
and declining realizations. While we remain optimistic about ABBs long term
growth potential given its overall business portfolio, strong balance sheet etc.,
we expect the top management to work towards optimizing the India business
model, which should augur well for the stock in the medium to long term. While
we maintain our absolute stock recommendation at ‘HOLD’, we downgrade its
rating relative to the sector from ‘Sector Performer’ to ‘Sector
Underperformer’. The stock currently trades at a PE of 34x on CY11E earnings.

IRB INFRASTRUCTURE: Revenues surprise positively:: Edelweiss

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􀂃 Revenue higher than estimates; up 38% Y-o-Y
IRB Infrastructure’s (IRB) Q2FY11 revenue, at INR 4.9 bn (up 38% Y-o-Y and
down 4.2% Q-o-Q), was higher than our expectation, but lower than consensus
estimates. This was primarily on account of higher-than-estimated contribution
from the construction segment. Despite being the monsoon quarter, revenues
from the construction segment came in at a strong INR 2.9 bn (up 46.4% Y-o-Y
and down 10.5% Q-o-Q). Revenues from the BOT segment were at INR 2 bn (up
25.8% Y-o-Y and flat Q-o-Q).
􀂃 Margins improve; lower tax rate helps
EBITDA margins for Q2FY11 came in at 48.2%, down 50bps Q-o-Q and 90bps Yo-
Y. However, tax rate for the quarter stood lower at 15.7% against 20.1% and
21.6% in Q1FY11 and Q2FY10, respectively. As a result, PAT, at INR 991 mn (up
40% Y-o-Y) for the quarter, was higher than our estimates of INR 802 mn. PAT
margins, at 20.2%, jumped 30bps Y-o-Y.
􀂃 Execution underway for three new projects
IRB recently started execution on three projects namely Jaipur-Deoli, Amritsar-
Pathankot and Amravati-Talegaon. Revenues from these projects will start
coming from Q3FY11. Execution on the Goa BOT project is expected to start in
the next quarter.
􀂃 Outlook and valuations: Bright prospects; maintain ‘BUY’
We have revised our estimates upwards for FY11, keeping in mind the higherthan-
expected execution and profitability in the construction arm.
Our SOTP-based target price for the stock is at INR 299. BOT projects contribute
INR 189 per share, while the EPC arm contributes INR 90; the balance comes
from cash and real estate. We maintain ‘BUY’ on the stock and rate it ‘Sector
Outperformer’ on relative returns

Forthcoming results: 2-Nov-10

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Company Name
Meeting Date
Purpose
ORBIT CORPORATION LIMITED
2-Nov-10
Results/Others
BERGER PAINTS (I) LIMITED
2-Nov-10
Un-audited Financial Results
HINDUSTHAN NATIONAL GLASS & INDUSTRIES LIMITED
2-Nov-10
Un-audited Financial Results
JUBILANT FOODWORKS LIMITED
2-Nov-10
Un-audited Financial Results
DCW LIMITED
2-Nov-10
Un-audited Financial Results
GUJARAT INDUSTRIES POWER COMPANY LIMITED
2-Nov-10
Un-audited Financial Results
GUJARAT LEASE FINANCING LIMITED
2-Nov-10
Results/Others
FORTIS HEALTHCARE LIMITED
2-Nov-10
Un-audited Financial Results
INDRAPRASTHA MEDICAL CORPORATION LIMITED
2-Nov-10
Un-audited Financial Results
GAMMON INDIA LIMITED
2-Nov-10
Un-audited Financial Results
KARUNA CABLES LIMITED
2-Nov-10
Results/Others
HYDERABAD INDUSTRIES LIMITED
2-Nov-10
Results/Others
SABERO ORGANICS GUJARAT LIMITED
2-Nov-10
Un-audited Financial Results
ORACLE FINANCIAL SERVICES SOFTWARE LIMITED
2-Nov-10
Results/Others
JAI CORP LIMITED
2-Nov-10
Un-audited Financial Results
GLAXOSMITHKLINE CONSUMER HEALTHCARE LIMITED
2-Nov-10
Un-audited Financial Results
NEYVELI LIGNITE CORPORATION LIMITED
2-Nov-10
Un-audited Financial Results
FUTURE CAPITAL HOLDINGS LIMITED
2-Nov-10
Un-audited Financial Results
SAMBHAAV MEDIA LIMITED
2-Nov-10
Financial Results
INFINITE COMPUTER SOLUTIONS (INDIA) LIMITED
2-Nov-10
Results/Dividend
TV TODAY NETWORK LIMITED
2-Nov-10
Results/Others
NEW DELHI TELEVISION LIMITED
2-Nov-10
Audited Financial Results
MEGASOFT LIMITED
2-Nov-10
Results/Others
TEXMACO LIMITED
2-Nov-10
Un-audited Financial Results
3I INFOTECH LIMITED
2-Nov-10
Audited Financial Results
CYBERTECH SYSTEMS AND SOFTWARE LIMITED
2-Nov-10
Un-audited Financial Results
NITCO LIMITED
2-Nov-10
Un-audited Financial Results
ATLANTA LIMITED
2-Nov-10
Results/Others
GEMINI COMMUNICATION LIMITED
2-Nov-10
Un-audited Financial Results
THIRUMALAI CHEMICALS LIMITED
2-Nov-10
Un-audited Financial Results
BROADCAST INITIATIVES LIMITED
2-Nov-10
Un-audited Financial Results
BROADCAST INITIATIVES LIMITED
2-Nov-10
Results/Rights
ELECTROSTEEL CASTINGS LIMITED
2-Nov-10
Results/Others
INDBANK MERCHANT BANKING SERVICES LIMITED
2-Nov-10
Un-audited Financial Results
S&S POWER SWITCHGEARS LIMITED
2-Nov-10
Un-audited Financial Results
UNIPLY INDUSTRIES LIMITED
2-Nov-10
Results/Others