JPmorgan: Non-operating factors crucially influence Infosys' EPS growth in FY12E; accordingly, adjust the P/E multiple

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Infosys Technologies Neutral
INFY.BO, INFO IN
Non-operating factors crucially influence Infosys' EPS
growth in FY12E; accordingly, adjust the P/E multiple


• Much analysis has already been done on Infosys’ guidance for FY12 (we
predict 18-20% USD revenue growth in constant currency terms) and what it
means for the sector. Consensus expects Infosys’ earnings growth rate in FY12
to trump that of TCS; we, too, expect modest earnings outperformance for
Infosys (vis-à-vis TCS). If investors appreciate the source/cause of Infosys’
higher earnings growth, it should be a minor consideration at best in setting P/E
multiples for Infosys. In analyzing Infosys’ expected EPS growth in FY12, we
cite two factors that contribute significantly to Infosys’ earnings growth.
• The two factors include: (a) lower/no step-up in tax rates; and (b) all-time high
interest income as a percentage of PBT helped by rising deposit yields. These
factors may be deemed non-operating and less relevant to setting the P/E
multiple.
• Lower step-up in tax rates for Infosys helps it register higher earnings
(EPS) CAGR over FY11-13. We think Infosys’ effective tax rates (ETR) at
26-27% will stay in a narrow band while for TCS the jump in FY12 (of ETR)
will likely be meaningfully higher by 400 bps from 19% to 23% (as also for
Wipro). However, logically their P/Es should not be impacted. P/Es are
impacted if there is a change in expectations of business-related earnings
growth profile over time. Therefore, any dislocation in multiples for TCS &
Wipro versus Infosys due to one-offs such as tax rate step-ups is likely to be
temporary.
• The contribution of other income to Infosys’ FY12 is likely to be all-time
high as % of PBT (at 14%). We estimate Infosys' core business EPS at Rs133
(versus Rs108 in FY11, i.e. ~23% growth Y/Y). Post-tax interest income is
likely to grow from Rs12 in FY11E to Rs19-20 FY12E (over a 50% increase
Y/Y because of rising yield). So, while our estimate of growth for the core
business is 23%, the post-tax interest income grows more than 50% to give an
overall EPS growth of 27% (in FY12E). Should investors pay the same
multiple on the post-tax interest income as they would on the core business?
We think not.
• Conclusion. If the source of Infosys’ EPS growth outperformance were due to
factors unrelated to the core business and accrues from below the operating line
(below EBIT) items, we believe that investors should also be cognizant of this in
setting the FY12 P/E multiple for Infosys. There is a tendency to peg P/E
multiples based on earnings CAGR but if the earnings CAGR is helped by noncore
factors, the attribution of the multiple may be misplaced. PEG-based
valuation approaches could mislead. We retain our Neutral rating on
Infosys. We continue to prefer TCS (OW) and Wipro (OW).


Understanding what leads to the earnings growth before
attributing a multiple to that growth
In our view, multiples should track sustainable growth of the core-business. Factors
that can influence earnings growth include non-core aspects such as interest income
and tax rates. As discussed, we think Infosys gains from both these factors in FY12.
We believe that investors must adjust for this in setting their multiple for Infosys’
stock. We forecast Infosys’ pre-tax core EBIT will rise 24% in FY12 (versus FY11)
during which period TCS’ EBIT rises 28%. We think the EBIT profile over FY11-13
is likely to most determine multiples, not the EPS growth if below-the-operating line
items crucially influence EPS growth (as they do for Infosys in FY12).
We thus expect TCS to continue to outperform operationally. Multiples should
track this growth, rather than EPS growth. Given this logic, TCS’ P/E multiple
should sustain its premium over that of Infosys (which we believe should be 5-
10%).


Cash yield has increased meaningfully in the last few months and the importance of
interest income has further increased for Infosys. Adjusting for the higher cash yield,
we have increased our FY12 EPS estimate by about 2% to Rs152.
Tweaking FY12 EPS upwards for higher interest income
Our FY12 EPS estimate increases by about 2% due to increased interest income
driven by higher deposit yield. Revenue estimates are unchanged in US$ terms, but
moved up slightly due to changed exchange rate assumptions. Thus, our
operational estimates remain largely unchanged.


Conclusion
If the source of Infosys’ EPS growth outperformance in FY12 is due to factors
unrelated to the core business and accrues from below-the-operating line (below
EBIT), we believe that investors should also be cognizant of this in setting the FY12
P/E multiple for Infosys. PEG-based valuation approaches could thus mislead.
We retain our Neutral rating on Infosys. The stock trades at 21.2x FY12E
earnings (P/E). We continue to prefer TCS (OW) and Wipro (OW).

Portfolio management: Dividend or growth, choice is behavioural:: Business Line,

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An important step in portfolio management after crafting a tax-efficient asset allocation policy is to decide how to take exposure to the desired asset classes.

For those taking direct exposure to asset class, this requires deciding the investment style, say growth or value, large-cap or mid-cap. For those who prefer mutual funds, the decision also involves choosing between dividend and growth. The question is: How should investors choose between these two options?

This article applies behavioural finance to explain why investors have to think beyond tax effects to choose between dividend and growth option. It also shows how the choice fits within the core-satellite framework.

Growth or Dividend?

Suppose an investor follows the core-satellite framework to achieve an investment objective such as a certain post-retirement lifestyle. The core portfolio is typically a passive exposure to a broad-cap index such as the S&P CNX 500 or a large-cap index such as the S&P CNX Nifty. The satellite portfolio is created to generate excess returns over the benchmark index (alpha) in the short term.

Now, investors' choice between dividend and growth option is typically driven by tax considerations. The recent Budget, for instance, changed the tax on dividends distributed money market mutual funds. Such changes could make a tax-efficient investment sub-optimal. It is, therefore, important to look at factors beyond tax effects before deciding on the dividend and growth options.

We apply behavioural finance to argue why dividend option may be optimal. Our argument rests on the fact that every investment has two sources of returns — dividend and capital appreciation.

For investors who take direct exposure to equity or MFs, the responsibility of generating dividend cash flow is on the companies or with the asset management firm. Capital appreciation, on the other hand, shifts the responsibility of earning the cash flow to the investor and this leads to several behavioural biases.

One, depending only on capital appreciation for returns exposes the investment to high risk. This leads to a behavioural bias called Regret Aversion. That is, investor could regret if the asset moves up after she sells it. Or she could regret if the asset declines after she decides to hold it. The regret is caused due to error of commission (selling the stock) or error of omission (not selling the stock). In either case, the error committed now could lead to sub-optimal decision in the future.

Choosing dividend can help moderate the Regret Aversion Bias. The investor can “emotionally” distance herself from the cash flow decision, as it is the responsibility of the mutual fund to time dividend payments.

Moreover, dividend option on index funds (passive core) fits well within a retirement portfolio. Dividend helps investor take profits on a continual basis and shift the money to bonds. This process aligns with the portfolio's objective of having higher bond exposure towards the retirement date.

And, two, individuals typically suffer from Mental Accounting. This refers to a bias where individuals treat income returns as different from capital appreciation — dividends are marked as return on capital and are available for current consumption.

Capital appreciation is treated as return of capital and cannot be used for current consumption. This distinction is useful for retirees who need continual cash flow to sustain their lifestyle.

Individuals should consider behavioural biases and not just tax effects before choosing between dividend and growth for core portfolio. Dividend is unimportant for the satellite portfolio, as its objective is to generate excess returns or alpha through market timing or security selection. We discussed only two biases that bring to the fore the importance of dividends. There are several other biases such as Loss Aversion and Psychological Reactance that are equally important

Excerpts from IIFL’s interview with Shekhar Bajaj, Chairman & MD; Ramakrishnan, ED; and Anant Bajaj, ED; Bajaj Electricals

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Excerpts from IIFL’s interview
with Shekhar Bajaj, Chairman & MD;
Ramakrishnan, ED; and Anant Bajaj, ED; Bajaj
Electricals
When India opened its markets in the early part of this decade in
deference to WTO norms, Shekhar Bajaj was one of the first to
identify value in importing good quality products at an affordable
price for the Indian consumer. He found significant value in retaining
the ‘marketing company’ business model of Bajaj Electricals for all
such products where there wasn’t much high-tech know-how
involved. He finds outsourcing sensible since Indian entrepreneurs
maintain strong control over costs and importing from places like
China offer scale efficiencies. Thanks to this, Bajaj Electricals has
been a pioneer in offering quality at an affordable price to Indian
consumers.
Bajaj Electricals is a fairly old company, established in the
1930s, but has seen meaningful growth only in the last
decade or so. What were the key growth drivers?
Shekhar Bajaj: The market for consumer durables opened up only
after 2000, when India had to allow imports of consumer products as
per the new WTO rules. Bajaj Electricals was also the very first
company to use this opportunity; we explored the option of
importing goods from China, where they have greater scale
advantages. We also brought foreign brands to India, including
Morphy Richards.
Do you see India’s explosive growth in consumption spending
continuing?
Ramakrishnan: I would not be surprised if it accelerates, because
when rural demand grows, it means about 70% of India’s population
would be a base from which we should see consumption growth.
Virtually every category today is under-penetrated. Thanks to
agriculture doing well, rural employment generation gaining steam
and infrastructure being built, we could witness a further spurt in the
buying power of rural India. Greater employment and greater
aspiration are a very potent combination. At the same time, even
urban consumption will continue to grow, amongst the lower and
lower-middle classes, driven by the same factors. So, on the whole, I
am even more bullish about the next 15 years.
How do you see the E&P segment growing?
Anant Bajaj: Our market share in the E&P space is still very small.
As we gain experience in implementing larger projects and a wider
variety of projects, I see our E&P segment attracting a greater share
of the order flow. Currently, we target not only domestic orders, but
also international orders. Recently, we won orders for turnkey
projects for the cricket and football stadiums in Dubai, in addition to
lighting projects in Africa. These projects have helped us improve
our expertise and quality control, and enable us to be more
competitive in the domestic market by offering greater quality at
affordable cost.


Where do you see your company ten years from now?
Shekhar Bajaj: I see us reaching Rs250 billion in revenues by
2020. While this will substantially be led by organic growth, we will
be happy to explore any suitable acquisition opportunities.
Ramakrishnan: In the medium term, I see our annual revenues
hitting Rs50 billion in three years and Rs100 billion in three years
after that. About 80% of this growth would be organic, and the rest
by diversification and acquisitions. Our strategy is simple—strong
growth in categories in which we are already present, and even
stronger growth in those that we plan to enter soon. We are entering
the water business, gas appliances, pressure cookers, LED lanterns
for rural areas, DG sets for small applications and industrial exhaust
fans and air circulators. We might get into non-stick utensils and
pumps.
Anant Bajaj: Specifically within segments, I think we’ll be a leading
player in luminaires in the next three years. We are not far behind
the leader today, and I think we can bridge that gap fairly soon,
thanks to our focus on quality control. I think we’ll be a leader in the
lighting segment in the next six to seven years, driven by new
products such as CFL. In the E&P space, we will be among the top 5
players in India and among the top 20 in the world, within five years.
How will your new products that are rural oriented impact
your margins?
Ramakrishnan: Today’s rural consumer is brand-aware; if he has a
choice between buying unbranded product vs a brand that assures
him high quality, he is willing to pay a premium. At the same time,
their incomes are also growing—agriculture is doing well, and
financial inclusion is gaining momentum. The rural consumption
story for any consumer company will be a function of three things:
1) product innovation—offering the right product at the right price
point; 2) rural distribution—how you can offer products through
channels which the rural consumer can reach easily; and 3)
consumer connect—a differentiated value proposition. Bajaj
Electricals is focussing on all these aspects, and I think will be ahead
of the race. So I don’t really see any risk to our consumer margins.
What can go wrong that may prevent you from meeting your
targets?
Shekhar Bajaj: We need to keep in mind that Bajaj Electricals has a
very low break-even, since our share of own manufacturing is very
low. Hence, a change in the demand growth trajectory should have
no major impact on our profitability. However, margins could come
under pressure in the event of any under-cutting by new players.
Ramakrishnan: It’s important to have a ready second line of
leadership. Not just at the top, but at every step within the
organisation. Secondly, as we grow in size, scale and complexity, we
will be faced with the challenge of retaining the entrepreneurial and
innovative spirit of the organisation.

IIFL - Excerpts from IIFL’s interview with Jayadev Galla, MD, Amara Raja Batteries

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Enterprising India 2 - Excerpts from IIFL’s interview
with Jayadev Galla, MD, Amara Raja Batteries
Jayadev Galla knows a thing or two about batteries, and he wants to
make sure they don’t just sit there under the hood, unsung and
uncelebrated. Batteries are a “low–involvement” category, but Mr
Galla’s Amara Raja is changing that through its witty advertising,
technological innovations and smart distribution. Amara Raja has
done what some of the largest global battery players were unable to
do—shake off Exide’s monopoly to garner 25% market share in the
automotive battery business. The result: Amara Raja’s revenues
have grown at 40% annually and profits at 80% annually over the
last five years.

Pharmaceutical::Angel Broking: 4QFY2011 Results Preview | April, 2011

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During 4QFY2011, the BSE healthcare (HC) index
underperformed the BSE Sensex after having outperformed in
3QFY2011. The HC index dropped by 10.6% as against the
5.2% fall in the Sensex in the same period. The sector was affected
because of major expectations from the Union Budget
remaining unfulfilled, levying of MAT on SEZ units and some
lower-than-expected results in 3QFY2011.

Cement price cuts start; Time to start cutting position in cement?-We think so :: JP Morgan

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Cement
Cement price cuts start; Time to start cutting position
in cement?-We think so


• Most dealer checks indicate cement price cuts/discounts having
started: After a very sharp cement price increase over Feb. to mid-
March, our recent dealer checks indicate cement price cuts/discounts
being given out in many regions as demand has (not surprisingly)
weakened after the spurt seen in Feb. to mid-March. The key markets
where cement price cuts/discounts have started are a) pockets of
Northern India (Rs5-/bag; 2-3%), b) pockets in AP in South India
(Rs8-10/bag, 3-4%), c) Central India (Rs5-15/bag, 3-5%), and d)
pockets of Western India (Rs5-/bag; 2-3%). Prices did go up very
sharply across most parts of India in the preceding two months, and
hence even after this seemingly minor price correction, margins should
still be good across the sector. However, given that we have just started
April and demand is not picking up, we would not be surprised to see a
further cement price correction. April generally is a weak month
following a strong March, and over the past five years, the m/m decline
has been 8-10%. However, this was in the context of a very strong
overall construction situation in the country. Over the last few months,
construction has been weak, and we would not be surprised to see a
larger m/m drop. The base looks challenging for the next two months,
after which comparing y/y demand until September becomes difficult as
it would depend on rains in a particular month.
• Anecdotal end demand suggests no pick-up so far in low-cost
housing in AP, government projects in UP: While cement dealers did
say that the letters from the housing board for low-cost housing have
come through, an actual pick-up has not started. Also the quantum
according to dealers is far lower than what it was at peak, although given
the demand situation in AP, any new avenue of demand would, in our
view, be positive. Government projects have not really started in UP. We
believe UP demand remains critical given expectations of a pick-up from
pre-election spending.
• Cement stocks: Nice run-up; time to take some money off the table:
We would look to book profits in the large-cap cement names such as
ACC, (+20%) ACEM (+30%), and to an extent UTCEM (+22%), which
have enjoyed a nice-run up since the beginning of February (when
cement prices started moving up sharply). Given that the cement pricing
environment seems to have peaked for the time being, while cement sales
volume and coal costs continue to look challenging, we believe stocks
lack catalysts to push them higher and we foresee the trade reversing.
ACC at $150 EV/MT and ACEM at $165/MT EV/MT are significantly
ahead of UTCEM at $125/MT.
• Demand-Supply imbalance continues: We expect FY11 demand to
close at ~210/MT, while headline capacity should be near 290MT.

Capital Goods: Angel Broking: 4QFY2011 Results Preview | April, 2011

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The capital goods (CG) index was the major loser during
4QFY2011, declining 14.1% as compared to the 5.2% fall in
the Sensex. Lower-than-expected IIP growth coupled with the
continuing decline in CG production over the past few months
adversely affected CG stocks during the quarter. In addition to
declining IIP numbers, the fall in new order bookings coupled
with hardening interest rates, delays in land acquisition and
environmental clearances also negatively affected the CG sector.
Valuations corrected significantly during the first two months of
the quarter, before marginally recovering in March 2011.
Despite underperforming the broad-based Sensex for a major
portion of the quarter, valuations of front-line stocks in the
CG index continued to trade at a premium to the Sensex.

Healthcare Q4FY11 Preview: In a healthy state : Centrum,

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In a healthy state
We remain Overweight on the Healthcare sector, given
the demand-supply mismatch, good brand building
exercises by companies and robust long-term growth
potential. We retain our Buy rating on Apollo Hospitals
and a Hold on Fortis Healthcare. We believe both the
companies are well-positioned to capitalise on the
increasing demand for healthcare services, sound
business fundamentals and attractive valuations.
�� Sales growth to continue: We expect Apollo Hospitals
to report 30% YoY sales growth in Q4FY11 to
Rs6,278mn. Fortis Healthcare is expected to notch
higher growth of 21.6% YoY to Rs4,006mn.
�� Margins to improve: We expect the EBITDA margin of
Apollo Hospitals to inch up to 16.3%. We expect Fortis
Healthcare to report an EBITDA margin of 16.7%, up
220bp QoQ. In Q3FY11 Fortis had some one time
expenses related to the opening of the Shalimar Bagh
hospital in Delhi. The improvement would primarily be
driven by cost efficiencies and improving operating
leverage.
�� Profitability to grow: We expect Apollo Hospitals’ PAT
to grow by a healthy 55% YoY to Rs500mn and Fortis to
register 34% YoY increase to Rs 366mn.
�� Key points to watch: For Apollo Hospitals, the key
thing to watch out for will be EBIT margins of the
pharmacy segment. After reporting +ve EBIT margins in
Q2FY11 (0.3%), the company once again showed –ve
EBIT margins of 0.5% in Q3FY11. We believe the
company would achieve PAT breakeven by FY12. We
believe the operating performance of pharmacy
vertical would be a key factor in improving the overall
margins. According the last analyst’s presentation on
Fortis, the opening of its 900 bed green-field facility in
Gurgaon (phase 1 450 beds) was delayed by one
quarter to Q2FY12. Any further delay would impact our
estimates.
�� Valuations: We value Apollo Hospitals at 14x FY13E
EV/EBITDA to arrive at a price target of Rs653. We value
Fortis Healthcare at 15x FY13E EV/EBITDA to arrive at a
price target of Rs175.

India- IT Services- Growth or margin leadership? :: CLSA

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Growth or margin leadership?
Revenue growth remains the key to higher stock returns.
Offshore IT vendors have used different business strategies over the past decade.
While Infosys has tried to maintain its premium margins, Cognizant has sought to
remain a growth leader operating at much lower margins. More recently, TCS has
managed bit of both while HCL is trying to replicate Cognizant. Our analysis of stock
performance over the past few years indicates that revenue growth leadership has
consistently triumphed margin leadership in delivering stock returns. The street is
more palatable to lower margins as long as revenue growth remains strong. Volume
growth with stable margin remains the elixir of stock returns in IT Services.
This note analyses Cognizant (proxy for growth leadership) and Infosys’ (proxy for
margin leadership) financials over the past few years and concludes that the drive
for higher revenue growth has helped Cognizant close the gap with Infosys not only
on revenues but also on operating profits. Moreover, Infosys’ inability to re-deploy
its capital more profitably has resulted in significantly higher compression of ROEs
c.f. Cognizant. Expectedly, the street has rewarded Cognizant’s growth leadership
with a much higher return (cum dividends) across every time period in last 7 years.
Thus, historical experience suggests that if Infosys remains focused on maintaining
its margin levels, its stock runs the risk of not only further underperforming
Cognizant but also peers like TCS and HCL who have upped the ante on revenue
growth. At the same time, if Infosys chooses to drop margins to drive above peer
revenue growth, near-term earnings hit could impact stock performance. TCS is our
top pick in the sector over the next 12 months.

Allcargo Global Logistics: For the long haul: Buy:: Business Line,

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Allcargo Global Logistics, whose business straddles the logistics value-chain offers a proxy to the growing economy. The company's presence in high-traffic ports, established relationship with major shipping lines and expanding footprint through inland container depots (ICD) make it an attractive investment bet for the long term.

With the country's export-import volumes beginning to pick up, Allcargo seems well-placed to leverage from it. Focused efforts to develop the logistics network in the country — road development, cold-chain logistics and warehouse development — too augur well for the company.

That it is now expanding into third party logistics (3PL) services and adding to its existing capacities also adds in its favour. Given this growth backdrop, valuations seem reasonable. At the current market price of Rs 164, the stock trades at about 11 times its expected CY-11 per share earnings.

11 April 2011; News headlines :: RBS

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News headlines
Oil & Gas
􀀟 HPCL to merge Prize Petroleum with itself (Economic Times)
􀀟 RIL may stop natural gas supply to non-priority sector to meet govt order (Economic Times)
􀀟 ONGC Videsh's FY11 oil, gas output up 6.3% vs year ago (Economic Times)
􀀟 Cairn-Vedanta deal a complex issue: Anand Sharma (Economic Times)
􀀟 Govt asks RIL to meet gas demand of fertiliser, power companies first (Economic Times)
􀀟 Global Offshore bags a three-year Rs393m contract (Economic Times)
􀀟 ONGC offers 700,000 barrels Sokol for late June (Economic Times)
􀀟 Price revision due to indigenous gas shortage: GGCL (Economic Times)
􀀟 Hiranandani plans LNG foray (Business Standard)
Banks
􀀟 PSU banks bear brunt for reviving Kingfisher (Economic Times)
􀀟 Dhanlaxmi Bank revises short-term deposit rates (Economic Times)
􀀟 Bank auditors to detail financial impact of pension & gratuity liability of PSBs (Economic
Times)
􀀟 SBI to continue amalgamation process of associates: Chaudhuri (Economic Times)
􀀟 Banks install 19,000 ATMs in 2010-11 (Economic Times)
Commodity
􀀟 Nalco defaults Rs 150mn to Orissa towards power bill: CAG (Economic Times)
􀀟 Vedanta Resources' FY11 metal output at record 0.84m tonnes (Economic Times)
􀀟 Vedanta still committed to Cairn India deal (Economic Times)
􀀟 JSW support rescues S Africa mining company from major losses (Economic Times)
􀀟 Uttam Galva owner Miglani family buys Brahmani Industries (Economic Times)
􀀟 Lloyds Steel to sell 32% stake to Uttam Galva for Rs6bn (Economic Times)
􀀟 Tata Steel to stay put in Riversdale, Rio gets majority stake (Economic Times)
􀀟 Tata Steel says India sales volume up 4% in 2010/11 (Economic Times)
Consumer
􀀟 Godrej Consumer targets 30% growth for next 5 years (Economic Times)
􀀟 Indian defence scientists develop hi-tech foods (Economic Times)
􀀟 NSL Sugars to raise Rs2.88bn debt (Economic Times)
􀀟 SC rejects Gatorade plea against Heinz on using similar phrase (Economic Times)
􀀟 Rasna plans foray into premium beverage segment (Economic Times)
􀀟 MNCs look to set up opium processing plant, cultivate poppy in India (Economic Times)
􀀟 Consumer product majors try pricing action (Business Standard)
Retail/ Real Estate
􀀟 Money laundering watchdog to track all Realty deals (Economic Times)
􀀟 Omaxe unit gets contract worth about Rs540m (Economic Times)


IT & Telecom
􀀟 Infosys, Mahindra Satyam among four shortlisted for Irda IT project (Economic Times)
􀀟 Tally Solutions aims to double revenues in 2011-12 (Economic Times)
􀀟 Vodafone ex-CEO Asim sells stake to Max India's Analjit Singh (Economic Times)
􀀟 DoT likely to cancel Idea, Spice licences in 5 circles (Economic Times)
􀀟 Airtel has unfair advantage, say Dhaka operators (Economic Times)
􀀟 ED charges 4 telcos with Fema violations of Rs43bn (Economic Times)
􀀟 Essar not looking for more money from Vodafone: Source (Economic Times)
Power, engineering & infrastructure
􀀟 Swiss cos eye $2bn renewable energy mkt in India (Economic Times)
􀀟 Gayatri Projects looks to raise $250m via PE by June-Aug (Economic Times)
􀀟 IECC aims nearly Rs100bn order book by (Economic Times)fiscal-end
􀀟 M3M ropes in L&T for construction of Gurgaon housing project (Economic Times)
􀀟 Chinese equipment suppliers pip BHEL in meeting deadline (Economic Times)
􀀟 KEC International bags Rs310m order in water business (Economic Times)
􀀟 Timken plans Rs2bn capex to meet wind, cement sector needs (Business Standard)
􀀟 Hydropower firms go in for diversification (Business Standard)
􀀟 Techno Electric & Engg to invest Rs100bn in power (Business Standard)
􀀟 BHEL-Bangalore units to up capacity to 20,000MW in FY12 (Business Standard)
Automobiles
􀀟 Maruti, Hyundai, Tata Motors lose market share to smaller firms in 2010-11 (Economic Times)
􀀟 Tata motors to look for fresh capacity for Nano (Economic Times)
􀀟 Car sales at record high, clock 2.5m in 2010-11 (Economic Times)
􀀟 JLR to invest around Rs540bn in next five year (Economic Times)s
􀀟 Auto exports soar 30% in 2010-11 (Economic Times)
􀀟 New variant of Jetta in 2nd half of 2011 (Economic Times)
􀀟 Mahindra & Mahindra hikes vehicles prices by up to Rs 15,000 (Economic Times)
􀀟 GM India introduces new variant of Chevrolet Cruze (Economic Times)
􀀟 Bentley Launches Rs19mn car (Economic Times)

India Steel Sector 4Q FY11 preview – Higher realization to raise profit:: Standard Chartered

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4Q FY11 preview – Higher realization to raise profit
 Realization on a qoq basis is likely to be higher since all steel majors increased prices
by close to Rs4,000/tonne in Jan ’11.
 Costs likely to be flat compared with the previous quarter because coking coal contracts
were signed at US$225/tonne this quarter. Hence, the cost will be a blend of
US$208/tonne (signed last quarter) and US$225/tonne.
 Volume growth is likely to be muted this quarter since apparent consumption increased
by only 4.5% yoy.
 Higher realization and flat costs are likely to improve profitability significantly compared
to the previous quarter.
 We prefer Tata Steel based on quarterly results, however, Sail remains our long-term
pick.

Property: Remain selective ::Kotak Sec,

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Property
India
Remain selective. Launches, absorption and inventory levels have remained stable over
the past two months despite funding getting tighter for developers and concerns on
demand. Relatively, Gurgaon has been the strongest and Mumbai the weakest. We
retain our stance of being selective. Our top picks are (1) Sobha (BUY, TP Rs380) –
Bengaluru residential, (2) Oberoi (BUY, TP Rs305) – visible NAV and net cash, and
(3) Phoenix (BUY, TP Rs300) – three mall openings in FY2012E are potential triggers.

India Economics:: Inflation Challenge to Hurt Growth :: Morgan Stanley

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Inflation Challenge to Hurt Growth
Growth to moderate in F2012: We expect GDP growth to moderate to 7.7% in F2012 from 8.6% in F2011. We expect government spending and consumption growth to slow in F2012. Investments will pick up but only gradually. We also expect exports to remain strong, but not enough to offset the slower growth in domestic demand.
Consumption growth to slow: We expect the central government to slow its expenditure growth to single-digit levels in F2012. Moreover, private consumption growth is likely to moderate in F2012 as higher inflation affects purchasing power, higher deposit rates encourage savings, and the government’s transfer to households slows.
Macro environment for private corporate to remain difficult: After a sharp decline in private corporate capex to GDP due to the credit crisis, the pickup in investment has been gradual in F2010 and F2011. After-effects of corruption- related investigations and persistently higher inflation as well as cost of capital will restrain growth in private corporate capex in F2012.
Fiscal policy exit will pick up in F2012: Aggressive hikes in the bank deposit rate since December 2010 mean that the effective monetary tightening is now done. We believe a reduction in government expenditure to GDP and fiscal deficit will now be critical for inflation outlook. We expect fiscal deficit (excluding one-off telecom licence fees) to moderate from 9.7% of GDP in F2011 to 8.5% of GDP in F2012, which we believe is still expansionary.
Inflation risks remain on higher commodity prices: While inflation has decelerated from close to double-digit levels to 8.3% in February 2011, it remains way above Central Bank’s comfort zone of 5-5.5%. We expect WPI inflation to average 7.6%YoY in 2011. We believe that prices of global commodities including crude oil will be key to the inflation outlook

Excerpts from IIFL’s interview with M B Parekh, MD, Pidilite Industries

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Excerpts from IIFL’s interview
with M B Parekh, MD, Pidilite Industries
A generation of Indians has been charmed by TV and print
advertisements of the white-glue brand Fevicol. M B Parekh is at the
helm of affairs of the consumer specialty-chemicals company Pidilite,
which owns and markets Fevicol. From an industrial-pigments player
to a consumer company with multiple top-of-the-mind brands, it’s
been a long and fulfilling journey.
The genial Mr Parekh completed his graduation in chemical
engineering from UDCT Mumbai, and went on to study for an MS in
the same subject from the US. He then worked for two years in
Medlabs near Chicago before coming back and joining his father B K
Parekh’s business.
Since then, he has driven Pidilite’s business on one key guideline:
me-too products are a bad idea for any sustainable business in the
crowded consumer-product segment. Starting at a time when his
competition in pigment dispersion products were MNCs and white
glue was not used in India, Pidilite has chosen to pave its own path.
Not that this serial innovation has been sustained without its share
of pain. A number of product ideas either languished on the drawing
board, or failed to sell in volumes. But this has not swayed Mr
Parekh from his commitment to nurturing nascent product ideas.
Mr Parekh is today spearheading a management transformation in
Pidilite. He is now busy grooming new managers and leaders to hand
over the baton.
You started as a company making white glues, industrial
chemicals and consumer specialty chemicals. Was this part of
your early vision?
We work in an iterative manner while holding true to our unique way
of doing things and our core values. Most of our segments have a
unifying theme, or focus on the kaarigar (artisan) community, which
included carpenters, masons, electricians, plumbers, etc. We have
always tried to add value to this set of key influencers in the
purchase decision. From the early days of Fevicol adhesives (more
than 30 years ago) we mailed them furniture design books. Today it
is a standard material that carpenters rely on all over the country.
You are currently one of the largest consumer specialtychemicals
players in India. Where do you see this business
five years from now?
As the economy develops, we keep focussing on allied areas with
high growth potential which can bear fruit after a few years of effort.
For example, we started the construction chemicals business almost
15 years ago, and for a few years we were not sure if this will take
off. This business made no money for the first ten years, but we
continued to put in focussed effort. We did the hard yards of
educating customers about our 150 products. We now think the
future in this business is bright, as threshold volume levels have
been surpassed and growth rates are very robust. Five years down

the line, this business could form a fairly big component of Pidilite’s
overall revenues, and emerge as a key growth driver.
There is another very strong product range—the industrial
maintenance business. Just as we have products like M-Seal and
Fevikwik in consumer maintenance, there are a range of products
possible for industrial maintenance too. These products have
enormous potential, given the thousands of small companies across
the country. Industrial maintenance is more a sundry retail sort of
business that is not in the B2B mould at all. This business runs
through distributors who are located in industrial areas and sell to a
large number of small units. It falls under the umbrella of MRO
(maintenance repair overall), covering both industrial and
automotive. We acquired a company called Cyclo in the US—an old
brand but a very small company—with no significant presence in the
US, but selling to 40-50 countries from there, with annual revenues
of US$12m–14m. This business, targeting the automotive
aftermarket segment, can now also come under the MRO umbrella.
Thirdly, we have launched the Hobby Ideas retail store chain—a pilot
project to assess the segment’s potential, including that in overseas
markets.
In short, a number of business that are now small, could grow
substantially 5–10 years down the line, and keep our growth
momentum going.
What are your thoughts on inorganic growth options? How do
you assess the suitability of potential takeover targets?
We are not keen on acquisition for the sake of numbers. Unlike some
companies who use acquisitions as one of the means to meet their
revenue or volume targets, we have no compelling need to go for big
acquisitions for the sake of numbers. If there is a good opportunity
to make meaningful progress in some segment or geography, we
would be open to it, but not for the sake of delivering inflated
numbers.
Among the many initiatives that you have undertaken, what
would you call your biggest mistake?
There have been many mistakes, but more importantly, they were
learning opportunities. We are generally shy of spelling out
projections like five-year targets. That makes it much easier for us to
accept mistakes, which are inevitable when you try new things.
When we make an endeavour, we are fully aware that we need to be
able to accept failure and modify or pull back. When I said we work
iteratively, I meant that many such small efforts are ongoing; we
avoid big leaps of faith.

India Strategy- Ignore oil at your own peril :: RBS

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India Strategy
Ignore oil at your own peril
Current crude oil prices imply a US$34bn yoy increase in India's net oil import bill
and a US$28bn increase in fuel under-recoveries. With only 3% upside to our
year-end target of 800 for the MSCI India, we recommend taking profits here.


The Indian equity market seems to be ignoring high crude oil prices…
Although India’s crude oil intensity (crude used per unit of GDP) has been declining, higher
crude oil prices are still a significant risk for India’s current account deficit and fiscal deficit
(as retail fuel prices are subsidised and lead to under-recoveries at oil marketing companies
(OMC)). We believe current Indian equity market levels assume that the current price
(US$118/bbl) of India’s crude oil basket is not sustainable and will fall 20% to US$95/bbl.
… which imply a US$34bn yoy increase in India’s net oil import bill at current prices
We estimate India’s net crude oil import bill would total US$109bn (5.3% of GDP) in FY12 if
the current crude price of US$118/bbl is sustained for the full fiscal. This would imply a
US$34bn increase from an estimated US$75bn (4.3% of GDP) in FY11 and a more than 100
basis point widening of the current account deficit as a percentage of GDP.
… and a US$15bn yoy increase in OMC under-recoveries post price hikes
We estimate OMC under-recoveries of US$32bn in FY12 (1.6% of GDP) assuming current
global petroleum product prices and measured retail price hikes (details inside), up from
US$17bn in FY11 (1.0% of GDP). The price hikes would boost WPI inflation by 150-170bp.
Assuming a 55% government share of OMC under-recoveries, this would add 86bp to the
government’s FY12 fiscal deficit estimate of 4.6% (no provision for under-recovery currently).
We recommend taking profits here because of limited upside
The MSCI India (up 9.4%) outperformed the MSCI Asia ex-Japan (up 5.0% in local currency)
in March in spite of higher-than-expected inflation for February because of a reversal in
foreign flows (inflows of US$1.6bn versus outflows of US$0.8bn in February). With only 3%
upside to our 2011 year-end price target of 800, we recommend taking profits here.

Energy: India Energy Monthly, April 2011 :Kotak Sec,

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Energy
India
Crude oil prices: No respite from surge in prices
Global refining margins: Improve led by strong diesel and kerosene cracks
India marketing margins: Higher marketing losses

Banks – Seasonal breather:: RBS

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Liquidity has improved sharply, leading to a sharp fall in three-month certificate of deposit rates.
In general, a sustained fall in short-term borrowing rates should be positive for NBFCs (Buy IDFC
and PFC). We remain cautiously optimistic on the sector (Buy SBI and HDFC Bank).

Banks/Financial Institutions: 4QFY11 preview: Likely strong operating performance barring minor irritants:: Kotak Sec,

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Banks/Financial Institutions
India
4QFY11 preview: Likely strong operating performance barring minor irritants.
We expect the core performance for banks to remain strong aided by impressive loan
growth (23% yoy) and higher yoy margins. Staff expenses on retirement benefits and
the new regime on slippages (proscribing manual interference) would be key items to
look into in public sector banks. NBFCs will likely report some moderation in margins
even as loan growth continues to remain strong. Valuations are comfortable, our top
picks are PNB, ICICI Bank, Union Bank, Axis Bank and Federal Bank.

Unconventional Wisdom The Old Normal :: Macquarie Research,

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Unconventional Wisdom
The Old Normal
Event
 A debate has started about the likely level of real US interest rates over the
longer term.
Impact
 It is one thing to hold down real interest rates during a crisis. It will be another
matter altogether if the Federal Reserve suppresses US real interest rates
indefinitely.
 Such an outcome is a distinct possibility. While fixed-interest investors may
not like it, a long period of low real interest rates would just mark a return to
the old normal.
 For equity markets it would be a very helpful development.

Banks: Headwinds Persist; Play Safe:: PUG

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 Sector valuations looks reasonable, however we believe headwinds are not yet factoredin.
High interest rate and liquidity issue, which seems to be a structural problem, are
likely to result in a slowdown in credit off take, compression in margins and pressure on
asset quality.
 Consensus expectation on margin compression stands at 15-20 bps. However, we expect
impact on margins to be more severe at 30-50 bps, especially for private players whose
funding cost would rise steeply.
 ‘CASA is King’, but demand deposits have a tendency to fall when liquidity situation is
tight. We expect demand deposits to fall by at least 2% until Q2FY12. Every 1% fall will
have an impact of 8bps on margins. Private and Foreign banks are most vulnerable.
 Lower Incremental CDR and decrease in investment spread would result in a sharp fall in
margins. Banks, whose loan books have grown due to a low base rate will see margin
deterioration in the next few quarters. Corporation bank and SBI are most vulnerable.
 Rising interest rates and high inflation would lead to higher delinquencies. Slippages
would remain elevated especially from mortgage, SME portfolio and a shift towards CBS
based NPA calculation in Q4FY11.
 Expected decrease in CDR, likely pressure on CASA deposit, lower treasury income and
higher NPA provisions will result in subdued profitability growth for the sector in FY12.
 We prefer franchise with better deposit growth (trailing CDR of <80%), lower bulk
dependence, better saving balance and higher coverage ratio.
 On broader terms, our investment pecking order would be Public Sector Banks (PSBs),
Private Sector Banks, PSU NBFCs and Other NBFCs. Within PSBs, we prefer Indian Bank,
Bank of Baroda, Punjab National Bank and Allahabad Bank.

Goldman Sachs, India Weekly Kickstart

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NIFTY (+0.3%) and SENSEX (+0.2%) end flat wow amid continued strong foreign inflows
 Mid caps outperformed (NIFTYM50 Index +2.2%), while Energy lagged (CNXNRG Index -1.1%) wow
 FIIs turned net buyers and have now bought US$0.8 bn ytd, while domestic MFs have bought US$0.3 bn ytd
 INRUSD strengthened to 44.07 on strong foreign inflows and a weak dollar after the ECB hiked rates on Thursday
 Dollar weakness also nudged commodities higher (+1.4% wow); Asian stocks rose (+1.7%) for the 3rd straight week
Overview
Indian equity markets witnessed domestic selling
pressure due to profit booking after foreign
investors pumped in US$2.5 bn in two weeks.
Strong foreign inflows spurred the INR to 44.07
against the USD. Markets will likely look to inflation
data and FY2011 earnings beginning next week for
further cues. Last week saw the ECB raise rates to
1.25% and Brent crude topping US$120 per barrel.
Asian equities continued their strong performance
(+1.7%) led by China (+2.5%) wow despite the PBOC
hiking interest rates by 25bp.
NIFTY price performance
NIFTY ended flat wow, but is down 4.8% ytd
Source: NSE, Datastream, GS Global ECS Research.
Foreign and Domestic Flows
Foreign buying reached US$1.4 bn wow, but
domestic MFs sold US$0.2 bn wow as of
Wednesday, April 6.
Earnings Sentiment and Relative Valuation
MSCI India Energy had the strongest EPS
sentiment (+4.8%) wow.
Commodities
MCX Spot Commodity Index rebounded to gain
1.4% wow. Crude (+3%) and Silver (+3.4%) gained
wow, while Natural gas fell 6% wow.
Events & Earnings releases
Feb IP (Apr 11), Mar WPI (Apr 14), Infosys FY11
results (Apr 15).
Focus
Popu-list: Census 2011.



Changes in banking system liquidity have been a key driver of overnight rates in recent months.
After several months of tightness, which resulted in a sharp increase in short-end rates and an
important overhang for equity markets, liquidity has eased considerably in recent days. We analyze
the outlook for liquidity through our liquidity framework. We find that notwithstanding the recent
easing, system liquidity may remain tight due to government borrowing, a high credit-deposit
ratio, and a weaker balance of payments. More importantly, we think the Reserve Bank of India will
have a preference for keeping liquidity tight given the concerns about inflation. Recently
recommended changes to the central bank’s operating procedures also state the intention of
keeping system liquidity tight, and banks in borrowing mode. We estimate sensitivities of liquidity,
deposit, and credit growth to different assumptions on capital inflows and government borrowing
needs. With our expectation of a further 50 bp in policy rate hikes, we think that short-end rates
may remain high in FY12.

Excerpts from IIFL’s interview with Shobhana Bhartia, Chairperson, HT Media

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Excerpts from IIFL’s interview
with Shobhana Bhartia, Chairperson, HT Media
We met the chairperson of HT Media, Shobhana Bhartia in
Delhi. She discussed the transition of Hindustan Times from a
paper was started to promote the freedom struggle to being a
more consumer-led business. She argues for a strong
business case for English newspapers with a strong franchise,
while expecting growth in regional print to outpace Hindi. In
a decade she expects the education business to contribute
equally.
It has been a very rich and interesting journey for HT. How
has the company evolved since its inception to its current
stature?
Hindustan Times was started to promote the freedom struggle, at
the behest of Gandhiji, and was not meant to be a profit-driven
enterprise. HT was started for a cause, and its change to a profitdriven
enterprise started in the 1990s, when liberalisation started
throwing up new opportunities. Everything started changing—we
adopted a more reader-friendly format and better-quality presses for
printing, and put in a real effort connect with the readers. We also
started some of our Hindi offerings—Lucknow and Bhopal. Our
English paper for Mumbai also came on the drawing board for the
first time in the mid 1990s, as there was a greater focus on growing
the business.
What is your outlook for the Indian print media space?
I think Indian print industry is in a far better position vis-à-vis the
rest. Although English papers should see healthy growth, Indian
language papers should see much stronger growth. Growth may not
be at the galloping double-digit rates that we saw in the 80s or the
90s, as increasing penetration of broadband causes a shift in the
younger generation’s reading habits. Furthermore, in India, linguistic
variations have acted as a driver for print media, and will continue to
do so. Another driver is the rising literacy rate, which offers enough
headroom. Newspapers are still the first point of conversion for an
illiterate person who moves to the literate pool, which is why I
foresee enormous growth in the Indian languages space.
HT launched its Mumbai edition five years ago. What is your
assessment of the performance of the Mumbai edition and
how soon do you expect it to break even?
We are satisfied with our growth in Mumbai, not just in terms of
circulation, but also in terms of readership—we are now the Number
2 paper in the city. We are happy about our progress so far. I
constantly ask people for feedback, which I think is the best way to
assess how we are doing—and I gather that HT Mumbai is creating a
buzz and has now been accepted as a Mumbai newspaper. It has
taken up a number of local causes and initiated some great
campaigns, and the paper is now making headway in Mumbai.
Revenues are also increasing, and we hope to break even within two
years. Regardless of what people plan or say, the gestation period
for a new paper is typically four to five years; it may even take
seven to eight years. Even if there is brand recognition, it takes a
while for that to translate into increased profitability. I see the

Mumbai edition breaking even in less than two years—and that
remains our primary focus for the English business for the mediumterm.
How serious and urgent is the threat of migration to digital
media?
The migration has started, but I do not see it assuming a significant
proportion in the near future. It’s a relatively small proportion of
consumers that is migrating, and ad spend on digital media is also
increasing. At present, digital media is still a small niche; majority of
the population still prefers the hard-copy. In the long term, the
migration will become widespread, so we are also building up our
presence in digital media. In English, I think the number 1 and
number 2 players have a strong business case in this country. But
over the long term, the trend of declining circulation—as has been
seen in other parts of the world—will affect India too. So the scope
for a #3 player becomes even smaller going forward, but for the #1
and #2 players, I think opportunities will remain.
Competition has been intensifying. Going forward, how do
you see this playing out?
It is always difficult to comment on competition, but yes, given how
attractive the print space is now, the major players might not be
content with merely occupying their current territories, and will try
and expand into newer geographies. In the English-language market,
I don’t see any signs of predatory pricing, as the existing players
have found a pricing level at which value is no longer being
destroyed. On the other hand, competition in the Hindi market has
increased, but it has done so in quite a predictable manner. In a
sense, Hindustan has also been a challenger in Uttar Pradesh. Going
forward, I think competition will increase, but I don’t think that the
pricing bloodbath of the 1990s is likely to happen again.
What are the group’s plans for businesses other than print
and radio, in which you already have a presence?
We are very excited about education; it will be a good fit for the
group. In fact, when I met Ms Graham in the 1980s, even at that
stage, 30% of her group’s revenues came from Kaplan (a
Washington Post subsidiary which provides higher education
programmes). I remember asking her why a newspaper company
would be in the education business. What she said still rings true:
the greatest strength of a newspaper company is credibility, and that
is the first inherent quality you look for when you put your child
through education. So I think the field of education offers the best
possible leverage for a print media company. In the 1980s and
1990s, media itself had such a long way to go and we also had a lot
on our hands. But now education is one area which we are looking at
very closely.
So what is your vision for the Group five or ten years down
the road?
First of all, businesses which would have crossed their gestation
periods will generate immense value for shareholders. The digital
business would have established itself in a much bigger market and
would no longer be a fringe business. I also see education being a
big part of our business; we have just started off with tutorials, but
in ten years, I hope to be sitting and discussing both the education
and media businesses on equal terms.

Economy: Liquidity does a turnaround - unlikely to sustain:: Kotak Sec,

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Economy
Liquidity
Liquidity turnaround – unlikely to sustain. In the new fiscal year, liquidity swung
sharply into positive territory with LAF on April 5, 2011 at `325 bn after being at (-
)`1,060 bn on March 31, 2011. This was surprising but was mainly on account of
transitory product adjustments factors and also heavy government expenditure. LAF has
been in the negative mode consistently since June 2010 and the current surplus liquidity
conditions are also unlikely to sustain too much into future. We expect LAF to dip once
more into the negative zone in the next fortnight starting April 9 as the undermaintenance
of CRR is reversed.

Hero Honda Motors - Capacity concerns addressed but margin headwind persists :: Emkay

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Hero Honda Motors Ltd.

Capacity concerns addressed but margin headwind persists

REDUCE

CMP: Rs 1,695                                       Target Price: Rs 1,590

---

n     Capacity increased by debottlenecking, revised capacity stands at ~6.2mn units. There is further scope of increasing capacity

n     Royalty is a fixed expense to be paid by 2014. Our est. indicates a royalty outgo of Rs 1.9bn to Rs 2.1bn in FY12-FY14. Cost pressures are significant due to metal prices

n     4QFY11/1QFY12 to have higher adv. spends due to World cup/IPL. Raise FY12 vol. est. to 6.1mn units (+3.6%) and EPS to Rs 113.8 (+3.7%). Expect FY12 DPS of Rs 68 (earlier Rs 30)

n     Expect negative surprises on the earnings. Current valuations (FY12e PER/EV-EBIDTA of 14.9x/10.5x) do not factor in such risks. Raise TP to Rs.1,590 (+3%), retain REDUCE

Maruti Suzuki- Margins - on an uptrend from 1QFY12 :: Emkay

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Maruti Suzuki India Ltd.

Margins - on an uptrend from 1QFY12

ACCUMULATE

CMP: Rs 1,279                                       Target Price: Rs 1,520

---

n     Demand outlook remains strong. Expect 12% to 15% industry volume growth in FY12. However, we are concerned with recent push demand (higher disc.) especially in March 2011

n     Targeting 12% EBIDTA margins over next two to three years through various cost reduction initiatives including  higher localization

n     RM cost pressures to continue despite price hike. Expect to lower the impact through various cost cutting measures. Operating leverage to also provide cushion to margins

n     Raise FY12E EPS by 6.1% to Rs 98.8 per share due to favorable currency assumption and product mix (higher share of domestic sales) and TP to Rs 1,520. Maintain ACCUMULATE

Tata Steel sales volume up 4% in FY2011 :: Angel Broking,

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Tata Steel sales volume up 4% in FY2011
For FY2011, Tata Steel's hot metal production increased by 3.8% to 7.5mn tonnes (7.2mn
tonnes in FY2010), while crude steel production came in at 6.9mn tonnes (6.6mn tonnes
in FY2010). In addition, saleable steel production increased by 3.9% to 6.7mn tonnes
during FY2011. Thus, sales volume for FY2011 grew by 4% to 6.4mn tonnes.
For 4QFY2011, the company’s sales volume was flat at 1.7mn tonnes (up by 4.3% qoq).
We remain bullish on Tata Steel for its buoyant business outlook, driven by a) higher sales
volume in FY2013E on completion of its 2.9mn tonne brownfield expansion project in
Jamshedpur, b) backward integration initiatives for Tata Steel Europe (TSE) via
raw-material projects at Mozambique and Canada and c) cost-reduction initiatives at TSE.
We maintain our Buy recommendation on Tata Steel with a target price of `802.

Add NTPC ; Provisional results in line…Target : | 202:: ICICI Securities

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Provisional results in line………
NTPC has declared its provisional numbers for FY11. The revenues of
witnessed a growth of 16.63% YoY from | 46169 crore to | 53721
crore while profit after tax grew by 1.1%% YoY from | 8,728 crore to |
8,826 crore. The company has added 2,490 MW of generation capacity
in FY11. In Q4 FY11, company added 1,000 MW of capacity. NTPC has
an installed capacity of 34,194 MW including 3,364 MW of capacities
under JVs. The company is expecting to add another 4,320 MW in
FY12E. For Q4 FY11, the company reported net sales of | 14,488 crore
and PAT of | 2505.42 crore
Highlights during FY11
• Generation for year FY11 was flat at 220.4 BU’s (growth of 0.79%
YoY). In Q4FY11, NTPC has commercialised1000 MW of new
capacity. Also, for FY12E its plans to generate 235 BU’s of
electricity, implying 6.8% YoY growth.
• In FY11, capacity addition stands at 2490 MW (against original
target of 4150 MW)
• For FY12, the company expects capacity addition 4320 MW.
However, we expect capacity addition of ~ 3820 MW
• PLF for year stood at 88.29%.PAF (Plant availability factor ) for
coal based stations stood at 91.6 in FY11 ( 91.4% in FY10) while
for gas based stations stood at 92.6% ( 90.6% in FY10)
• NTPC has incurred ~| 12, 817 crore as capex in FY11 and plans to
incur incremental capex of | 26400 crore.
Valuation
At the CMP of | 191, the stock is trading at 16.6x and 15.7x its FY12E and
FY13E EPS, respectively. Due to capacity slippage in FY11, moderate
ramp up in FY12 and grossing up of ROE on MAT, we maintain our target
price and change the rating from Buy to Add (due to the recent run up in
the price). At our target price of | 202, NTPC trades at 2x its book value of
FY12E. We would revisit our estimates post actual results for FY11 is
declared.

Sesa Goa’s iron ore sales volume marginally higher in 4QFY2011 ::Angel Broking,

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Sesa Goa’s iron ore sales volume marginally higher in 4QFY2011

For 4QFY2011, due to the export ban in Karnataka since the end of July 2010 and

termination of third-party mining in Orissa in November 2010, iron ore production on a

dry metric tonnes (DMT) basis declined by 21% yoy to 5.49mn tonnes (6.24mn tonnes on

wet metric tonne – WMT basis). However, iron ore sales volume came in marginally higher

at 6.65mn tonnes on DMT basis (7.53mn tonnes on WMT basis), compared to 6.55mn

tonnes (7.37mn tonnes on WMT basis) in 4QFY2010.

For FY2011, iron ore production was marginally lower at 18.8mn tonnes (21.08mn tonnes

on WMT basis), while sales volume was flat at 18.14mn tonnes (20.37mn tonnes on

WMT basis), as against 18.39mn tonnes (20.52mn tonnes on WMT basis) sold

in FY2010.

Recently, the Supreme Court has issued an interim ruling that the Karnataka export ban is

to be lifted from April 20, 2011. However, the final hearing of the case is expected in the

first week of May 2011. We maintain our Buy rating on the stock with a target price of

`382, valuing the stock at 3.0x FY2013E EV/EBITDA.

9am with Emkay 11 April, 2011

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9am with Emkay

11 April, 2011

n        Technical Comments

Nifty

Finally, we saw some profit booking in Nifty, after three consecutive sessions of horizontal trade. This resulted into the formation of a Shooting Star shaped candlestick on weekly chart. But as the candlestick does not hold a major weight age among the family of reversal candlestick patterns, we are only looking for a 38.2% pullback of the entire rally from 5348 to 5944, which comes at 5716. The reason behind this 38.2% reaction is the overbought oscillator on daily chart and the resistance of the falling trendline. Also, 5716 is the value of 200-DSMA, which makes it a key pivot going forward. However, the key support of 5810 is still intact, which should be treated with respect, as unless that is violated 5716 looks tough for Nifty. Above all, we still maintain our bullish target of 6250 in the short term with the reversal of 200-DSMA.