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Auto – December 2010 volume update
Maruti Suzuki India Ltd (MSIL)
n Domestic sales grew by 26% YoY to 89,199 units
n Export volumes declined by 29.3% YoY to 9,756 units.
n Total sales increased by 17.0% YoY to 99,225 units
Ashok Leyland Ltd (ALL)
n Total sales increased by 24.1% YoY to 7,568 units
n Total MHCV sales increased by 25.1% YoY to 7,484 units
n Total exports sales increased by 105.5% YoY to 1,157 units.
Grasim Industries – Stock Update
Grasim Industries hikes VSF prices by Rs7/kg from January 2011
VSF Prices hiked by Rs7/kg- VSF EBIDTA margins could touch ~35%
Grasim Industries recently hiked VSF prices by Rs7/kg from January 2011. The hikes come after an Rs8/kg hike taken in Q3FY11 – (Oct -10 Rs3/kg & Nov-10 Rs5 kg). The company has also reduced discount to the tune of Rs2-4/kg. Grasim’s average realisations in H1FY11 were at Rs117/kg with December realizations reaching Rs124/kg. Post the hikes we estimate realisation to increase by further Rs10/kg to Rs134-135, an increase of 14.5% from its H1FY11 average.
FY12 Earnings currently modeled at Rs126.5/kg
Our Consolidated earnings of Rs234.7 are modeled at VSF realisation of Rs126.5/kg. If we model in VSF realisation of Rs135/kg and pulp prices in a range of ~USD1150-1200, our earnings could get upgraded by 2.4 - 4.4% to Rs240-245.
Price hike to offset rising pulp prices
This hike in VSF prices will help Grasim to protect its margins against increasing domestic pulp prices which are on an uptrend and expected to touch USD 1300 by Q4FY11. However, international prices of pulp (50% of its pulp requirement is procured from international markets) have shown some stabilization at USD 1150-1200/ton.
Margins to improve
We expect VSF prices to remain firm as shortage of competing fibers and their sharp prices drive increasing preference for VSF. Driven by uptrend in VSF realization and pick up in volumes we expect Grasim VSF EBIDTA margins to improve ~300 bps (over 31.9% in Q2FY11) to 35% by Q4FY11.
Grasim’s Standalone Business significantly undervalued – FY12E implied EV/EBIDTA at 2.7X
At current levels the stock is implying holding company discount of ~45%. Assigning a 25% holdco discount to all investments of Grasim, at current levels, Grasim's standalone business looks significantly undervalued with the implied multiples of 2.7x FY12 EV/EBITDA. We believe such pessimistic valuations are unwarranted, given that peak VSF margins are ahead for us. Maintain our ACCUMULATE rating on the stock with a price target of Rs2,730.
Mandatory competitive bidding for regulated utilities to start from today, PPA prices might witness pressure in mid term
From today onwards, mandatory competitive bidding for regulated utilities will start. Till now these utilities were getting projects through negotiated route at cost plus basis. The current projects for which PPAs have been signed before January 5, 2011, will continue to be cost plus projects. However, henceforth all the projects have to be bagged through competitive bidding route. For private utilities it started from 2006 onwards.
n Impact on NTPC: NTPC has already signed Power Purchase Agreements (PPAs) for about 40,000 MW under negotiated terms apart from its present capacity of around 33,000 MW. This accounts for most its projects commissioning upto FY17E. We believe as the company has tied up most of its capacities till 2017 it will not be very aggressive in PPA market in mid term.
n Impact on PPA prices: PPA prices which recently have been in the range of Rs2.5-3.8/unit might witness some pressure going forward as more players (regulated utilities) enter the PPA market.
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