9am with Emkay 31 March, 2011

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9am with Emkay

31 March, 2011

Contents

n        Research Views

Update on NHAI awarding activity

Mr. JN Singh (Member – Finance, NHAI) in a recent media interaction has highlighted the new awarding plan for FY12E.

NHAI is looking to award 700kms in April – 2011 & 2,000 kms of award over 1QFY12E

n    NHAI is set to award 700 kms in April – 11 including projects like Ahmedabad – Vadodara(100kms), Beawar pali Pindwara (244 kms). Mr JN Singh also indicated that NHAI has received bids for both the projects and has witnessed good participation with 15+ bids

n    In 1QFY12E, NHAI is targeting an award of 2000 kms including some premier mega road projects like Kishangarh – Ahmedabad ~(500kms), Eastern Peripheral highway (135kms)

n    In FY12E, NHAI is targeting to award 7300 kms of new awards

EMKAY Believes

The stocks in the road development universe are not reflecting value of new projects. The announcement is expected to be positive for larger companies like IRB which is amongst the selected bidders to participate for mega projects like Kishangarh - Ahmedabad project (500 kms).

Undemanding Valuations - as the stock is not reflecting any growth opportunity for IRB 

At CMP Rs 207, the stock is not reflecting any growth opportunities for the company which is contrary to the strong macro trend and IRB’s strong positioning which enables the company to bag dilution free growth opportunities. IRB is trading at 13.3 PER and EV/EBITDA of 8.8x for FY12E. We believe that at the current stock price, which is closer to bear case assumptions, factors in a lot of pessimism even as we see little evidence of such pessimistic scenario eventually panning out. 

n        Research Update Included

Divi’s Lab Management Meet Update; Growth momentum to accelerate; Upgrade to Buy; Target: Rs 833

n    Getting ready for next leg of growth, scouting for acquisitions in the bio-similar space, accumulated Rs5bn cash for inorganic growth

n    Growth momentum to accelerate led by 20% CAGR in CSS (Custom Synthesis) and Generics business over FY11-13E

n    Nutraceuticals – confident of clocking over 100% sales CAGR over FY11-13E. Carotenoids* to be the next growth driver for the company

n    With increased visibility on growth on back of increase in outsourcing from customers in US & Europe, commissioning of Vizag facility in Q1FY12, we upgrade the stock to Buy

Paper Sector Event Update; Undervaluation of domestic paper companies;

n    World’ largest paper company, International Paper Company (IPC), has entered into Indian printing & writing paper (PWP) industry through acquiring the controlling stake in India’s 4th largest paper player, Andhra Pradesh Paper Mills (APPM)

n    At deal price of Rs 542 (2.7x of yesterday’s closing price) IPC has valued APPM at FY 2011E EV/EBITDA of 15.9x, MCap/Sales of  3.0x and P/E of 44.2x

n    The valuations paid by IPC to APPM are approximately 2.5x-3.0x of the current valuations of domestic paper companies indicating that domestic paper companies are trading at significant discount to their potential true value

n    We see re-rating of domestic paper companies  in the near future and reiterate our buy recommendation on BILT, JK Paper & TNPL

n        Technical Comments

Nifty

Continuous buying across the board did maintain the positive momentum going throughout the day. Moreover, Nifty saw a close above its 200-DSMA for the second consecutive session, which is a good positive sign for the market. Any decline from current level due the negative crossover of hourly MACD should only be used for adding fresh longs. Above all, unless 5465 is broken our short term bullish view still remains intact. The next target to watch out for is the level 6000.