Research Views with Emkay; 14 January, 2011

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n        Research Views

Inflation for the month of December likely to rise to 8.2%

Inflation for the month of December, 2010, represented by the wholesale price index (WPI) is likely to rise by ~70bps to 8.2%. This, in all probability would be driven upwards by the rise in primary articles inflation. While we expect primary articles and fuel inflation to be on the rise, core inflation is likely to stay relatively stable.

The favourable base effect that has been partially responsible for the ease in inflation this far, would not work effectively for the month of December, 2010 due to a sharp jump in primary inflation. The month of December (weekly inflation) has seen YoY jumps in food articles (16.9%), led mainly by the prices of vegetables (70.7%). Northward movement is witnessed in fibres (36.7%), while increases have been recorded in fuel and power (11.5%), with petrol recording an inflation of 25.1%.

If the run in inflation continues unrestrained as would be seen in December, FY11 inflation expectations could be significantly revised upwards by ~100bps.

In view of this likely development, the RBI would continue with upward rate calibration in their third quarter monetary policy review. This calibration however is likely to be minimal (25bps) in light of the recent moderation in industrial production.

n        Research Update Included

Infosys Technologies Q3FY11 Result Update; Misses heightened expectations; Accumulate; Target: Rs 3,400

n    Infy’s Dec’10 show a tad disappointing when weighed against the heightened street expectations. Lower operating performance coupled with higher taxes drove profit miss

n    Seq vol growth at 3.1% was the lowest in 5 qtrs, however improvement in price realizations/cross currency gains helped drive a ~6% QoQ revenue increase. 

n    A 1-2% QoQ growth March’11 qtr guidance is well below a ‘normal’ March qtr’ guidance, however we see reasonable beat on it ahead. 

n    Cut FY11E EPS by ~2% to Rs 120, while tweak FY12/13E EPS up by ~1.1/4.4% to ~Rs 150/182, aided by a currency reset to Rs 45/$. ACCUMULATE, TP Rs 3,400(V/s Rs 3,300 earlier)

Sintex Industries Q3FY11 Result Update; Clears Ambiguity; Accumulate; Target: Rs 215

n    Excellent quarter again beating estimates; consolidated revenues up 40% yoy (est. 27% yoy), EBITDA margins 16.6% (up 162bps yoy) and PAT up 55% yoy (est. 39%yoy)

n    Some improvement in working capital cycle visible (111 days, assuming Rs3bn of loans & adv. as cash, otherwise 134 days), net debt reduces by Rs1bn

n    Some clarity on power investment size (likely Rs0.80bn, Max Rs1.4bn) and purpose; ambiguity on investment in oil & gas continues 

n    Fine tune estimates (3% up); Trading at 8.2xFY12E earnings (Rs20.5/Share), upgrade to accumulate on 14% under performance versus nifty in past three months

Coromandel International Q3FY11 Result Update; Results inline, Maintain estimates; Buy; Target: Rs 435

n    Results inline with estimates – Revenues at Rs 20.5 bn (+17% yoy), EBITDA margins at 10.9%, APAT of Rs 1.4 bn (-2% yoy)

n    Raw material prices to go up by 6% - margins likely to remain stable on the back of 8-15% increase in fertiliser prices

n    Sales spill over to the next quarter and recent price hike in fertilisers – to result in strong Q4FY11 performance (we expect APAT growth of 64% yoy)

n    Maintain estimates of Rs 22.2 for FY11E (Rs 17.4 for 9MFY11) and Rs 28.9 for FY12E. Re-iterate BUY with target of Rs 435