Research Views with Emkay; 12 January, 2011

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n        Research Views

Industrial production growth for the month of November likely to drop to 7.5% levels

Industrial production growth for the month of November FY11, to be announced 12 January 2010, is likely to drop to 7.5% levels. This is mostly due to the presence of an unfavourable base effect and reduced momentum in core industries production.

IIP growth for the month of November is to see a drop in growth from the 10.8% in October. In addition to the unfavourable base, November has seen core industry performance represented by the core index (26.7% of IIP) contract by 8.6% MoM, nearly double the average seasonal contraction. This southward move has been driven mainly by a drop in cement production (23.81% mom) and a fall in electricity generation (11.8% mom). November is likely to see a number hovering around 7.5%.

With Cumulative YoY growth for October 2011 at 10.3% (H1FY11 also at 10.3%), implied growth for Dec’10-Mar’11 period is expected to be at 5.8% according to our estimate for FY11 at 8.3%. We expect the growth for December 2010 to be lower at 4.9% driven by high base effect and then to pick up at 6.2-6.4% for Q4FY11.

From the rate action perspective, signals seem mixed. On the one hand the IIP growth is likely to moderate while inflation, especially food inflation, is yet to see signs of easing. With a possibility of a crude price increase feeding into the inflationary spiral and the high current account deficit, the RBI would have a tough call to take. Nevertheless from a long term perspective, the RBI is likely to continue the calibrated increase in the repo and the reverse repo by 25 bps each with an upward bias, bringing the rates to 6.5% and 5.5% respectively.

Coromandel International Q3FY11 Results Expectation: Net Sales Rs 17.3 bn, PAT Rs 1.4 bn

(CRIN@IN, MCAP USD 1,792 mn, CMP Rs 288, RECO Buy, TP Rs 435)

Coromandel International is expected to report their Q3FY11 results today i.e. January 12th, 2011.

Due to recent floods witnessed in southern India (key market for Coromandel) we expect fertiliser sale volumes to decline by 11.5% yoy resulting in a marginal 2% drop in revenues to Rs 17.3 bn. With EBITDA / MT at Rs 3200 (+20% yoy), we expect EBITDA margins to expand by 100 bps to 12.8% resulting in 6% growth in overall EBITDA to Rs 2.2 bn. The company is likely to report APAT of Rs 1.4 bn and AEPS of Rs 5.1 in Q3FY11.

We estimate the company to report AEPS of Rs 22.2 and Rs 28.9 for FY11E and FY12E respectively.

n        Research Update Included

Indraprastha Gas Q3FY11 Result Update; Results inline with expectation; Maintain ACCUMULATE; Target: Rs 382

n    Volume increased by 22% from 203.5mmscm in Q3FY10 to 246.1mmscm in Q3 FY11

n    CNG and PNG volumes increased by 13.7% and 92.4% respectively, YoY

n    Blended unit realisation stood at 18.6/scm, growth of 30.3% YoY and 2.2% QoQ, mainly due to hike in prices of both CNG and PNG segment at the beginning of the quarter 

n    Given its monopoly in NCR region and easing of pricing pressure, recommend Accumulate with PT of Rs.382