Asian Insurance - How fast is EV growing? ::Macquarie Research

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Asian Insurance
How fast is EV growing?
Event
 In our recent insurance initiations, we established return on embedded value
(RoEV) as an important measure of life insurance performance. In this report,
we have decomposed our EV forecasts into key drivers to better illustrate our
stock preferences and identify stock mispricings.
Impact
 How fast is EV growing? We think the best measure of EV growth is
operating RoEV, as it strips out market volatility and other non-recurring
impacts. The first chart opposite shows that Ping An has a materially higher
RoEV outlook than peers, and AIA has a materially lower outlook.
 What EV multiple is fair? We prefer new business multiples to assess life
insurance valuation. We consider P/EV a valuation output rather than an
explicit input. However the market tends to quote and compare EV multiples;
we believe this comparison is only relevant if the RoEV outlook is also
considered. With this in mind, we believe AIA is overvalued (1.7x FY11e EV)
and Ping An is undervalued (2.2x).
 Ping An growing fastest, AIA weakest: We forecast the Chinese insurers
have a materially higher outlook for RoEV than AIA. This is due to the
composition of value between inforce and future business, which in turn is a
function of scale, growth and excess capital. Even if we were to double our
VNB forecasts for AIA in all future years, its RoEV would still be less than
Chinese peers. We believe this justifies a materially lower P/EV multiple.
 How much does VNB contribute? VNB is an important metric in assessing
new business execution. For the less mature Chinese insurers, future new
business is a more meaningful contributor to valuation. VNB contributes 7-
16%pts of our FY11 RoEV forecasts for the Chinese life names; versus only
3.1%pts for AIA.
 How sensitive are stock prices to VNB? Since VNB is a more material
contributor to EV growth for the Chinese names, our valuations of the Chinese
are therefore more sensitive to VNB expectations. For a 10% rise in VNB, our
Chinese life valuations rise by 5-7% versus only 3.3% for AIA (as shown in
the second chart opposite). So whilst VNB is an important metric to assess
AIA’s new business execution, it does not alter valuation as much as for
Chinese peers.
Outlook
 We think higher RoEV justifies higher P/EV, and that this supports the high
EV multiples that Chinese insurers enjoy relative to global peers. We think
Chinese RoEVs are sustainably higher than peers due to greater VNB
contribution.
 In conclusion, this analysis is strongly supportive of our existing views. In
particular, we believe that Ping An can deliver a medium term RoEV almost
twice that of AIA, suggesting a substantial P/EV premium.
 There are no changes to our forecasts, price targets or recommendations in
this report.

Allcargo Global Logistics:: Results in-line, maintain Buy :Centrum

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Results in-line, maintain Buy
Allcargo Global Logistics’ (Allcargo) Q1 results were inline
with estimates. While higher realisations and steady
volumes helped boost revenues, lower operating costs
led to margin expansion and higher profitability.
Container volumes remained steady (up 10.1% YoY but
flat QoQ) at 121,310 TEUs. We remain upbeat on the
outlook of Allcargo due to growth in container volumes
both in the CFS and MTO operations and continuous
improvement in ECU Line’s profitability margins.
􀂁 Q1 results in-line: Consolidated revenue grew 24.9%
YoY to Rs7,315mn, just 1.0% higher than estimated.
EBITDA margins improved 249bp YoY to 12.3%, 100bp
higher than estimated. Net profit at Rs499mn was 3.5%
above our estimates, while net margin at 6.8% was inline
with our expectation of 6.7%.
􀂁 ECU Line continues to outperform: ECU Line reported
a revenue growth of 27.0% YoY to Rs5,160mn while
EBITDA jumped 99.5% YoY to Rs292mn. Net profit after
minority interest increased 64.1% YoY to Rs119mn.
Profitability margins improved with OPM up 206bp YoY
to 5.7% and NPM up 52bp YoY at 2.3%.
􀂁 Maintain estimates and Buy rating: With Q1 results
in-line, we are maintaining our earning estimates at
Rs15.2 for CY11 and Rs18.1 for CY12. We also maintain
our Buy rating with a price target of Rs217, valuing the
stock at 12x CY12E earnings. At the CMP, the stock
trades at 9.2x CY12E earnings and 5.5x EV/EBITDA.

L&T-- Analyst meet takeaways:: Credit Suisse

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L&T------------------------------------------------------------------------------------------------RESTRICTED
Analyst meet takeaways


● L&T reported 4Q adjusted PAT of ~Rs14.6 bn, up 9% YoY (street
estimate of Rs15.4 bn). Exceptional gain of Rs2.2 bn was on
account of the sale of stake in a construction equipment JV. For
the year, L&T reported sales growth of 19%, PAT growth of 15%
and order inflow growth of 15% YoY.
● Of the Rs300 bn order inflows in 4Q, management only shared
details about Rs170 bn of wins. Details of the remaining Rs130 bn
of wins are awaited.
● For FY12, L&T has guided for 25% growth in sales and 15–20%
growth in order inflows. Margins are expected to be under
pressure (max. 50–100 bp). The quarters will again remain
volatile, as per management.
● In the post results analyst meet, the key areas of strength were
highlighted as roads, ports and the Middle East, while outlook on
power was relatively muted.
● We are RESTRICTED on the stock.
We attended L&T’s post results analyst meet. The key takeaways are
as below:
● Guidance: Management guided for 25% YoY sales growth and
15–20% YoY order inflow guidance for FY12. Management
expects margins to decline 50-75 bp on heightened commodity
costs.
Order pipeline
● Infra: Management pointed out that ordering activity has
increased in certain segments such as roads and airports
(Bangalore Phase-II will come up for bidding). Management also
expects to qualify and bid for 3–4 airports in the Middle East and
win at least one of the two private ports coming up for bidding
(one each in the East and the West coast)
● Hydrocarbons: Management sees an uptick in ordering activity in
the hydrocarbons segment, especially in the GCC region (L&T is
well placed with two orders in Abu Dhabi and one order in Oman
and has recently won an order in Thailand). The Middle East focus
will remain as management sees opportunity worth Rs150-200 bn
there.
● In the upstream segment, management sees a market of Rs150-
200 bn, about Rs120 bn in mid-downstream (more than 12
pipeline and refinery expansion projects by firms such as RIL,
GAIL, PSU oil firms and GSPC), about Rs90 bn in fertiliser (three
new plants in brownfield and greenfield expansion for firms such
as Tata Chemicals, RCF and IFFCO) and about Rs150 bn in
chemicals (hydrogen, sulphur plants with focus on the Middle
East)
● Power outlook relatively weak: Management sees an extremely
volatile situation in the power sector with uncertainties in land
availability, environment clearances, coal linkages and logistics. In
spite of the uncertainties, management expects 15% YoY growth
for the power segment. Management highlighted that the order
inflow target can be met if L&T wins 5BTG orders.
● Gas power projects: In the gas turbine segment, orders (~Rs15–
200 bn) are expected to come from states such as Gujarat
(Bharuch and Surat), Maharashtra and Karnataka, and
management expects to win at least Rs30–40 bn orders (Rs15 bn
of the Rs35 bn TN gas plant order has been booked so far).
● JV’s for power plants: Management was confident that financial
closure of the CG power plant would happen by Sep-12 (L&T has
a JV with KPCL). In order to garner more inflows, L&T has
recently been increasingly pursuing SEBs (two MoUs have been
signed with the MP state government.)
● Power construction segment: Essentially, civil works for power
plants (third party) can generate ~Rs30–40 bn of orders in FY12.
● Nuclear segment: Management highlighted that after the Japan
incident, delays may come in India’s nuclear energy programme
for a year or so. However, the government initiatives and the evergrowing
energy demand should bring in some traction in this
sector.
● Defence: Management pointed out that growth from the defence
sector is expected to be muted due to limited ordering from the
private sector. L&T-EADS JV in avionics and electronics will
commence production in six to nine months.

Credit Suisse,::Jaiprakash Power-- In-line 4Q11, planned equity issuance a key trigger for the stock

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Jaiprakash Power Ventures Ltd------------------------------------------------ Maintain NEUTRAL
In-line 4Q11, planned equity issuance a key trigger for the stock


● JPVL’s 4Q11 operating results were in-line with our estimates.
However, recurring PAT was 4% lower than our expectations on
account of slightly higher-than-expected interest expenses.
● Generation at 219mu during 4Q11 declined 17% YoY. However,
during FY11, JPVL’s 300MW Baspa-II hydro project recorded the
highest generation at about 1.5bu (up 13% YoY).
● Shareholders and creditors of JPVL and its subsidiaries, JKHCL
and BPSCL, at the court convened meeting, have approved the
amalgamation of these subsidiaries, effective April 2010.
● Last week, JPVL synchronised the first unit (of 250MW) of its 1GW
Karcham Wangtoo hydro power project. JPVL believes its PPA with
PTC for the sale of 0.8GW power from this project is now void and
expects to sell the entire output on merchant basis in the near term.
This could provide an upside potential to our FY12 EPS.
● However, JPVL’s balance sheet is highly geared and would require
equity issuance during FY12. Our sensitivity analysis suggests
planned equity issuance should be earnings accretive and would
improve visibility on the company’s ability to execute large projects.
Figure 1: JPVL – quarterly generation from operating projects
In mn kwh 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11
Baspa (300 MW) 96 423 712 243 96
Vishnuprayag (400 MW) 167 607 866 428 122
Total generation 263 1,029 1,578 671 219
Source: CEA.
4Q11 operating results in-line
JPVL’s 300MW Baspa-II hydro project recorded the highest ever
generation at about 1.5bu (up 13% YoY) during FY11, since its
commencement in 2003. However, generation at 219mn kwh from its
700MW operating capacity (300MW Baspa and 400MW Vishnuprayag
projects) during 4Q11 declined 17% YoY. JPVL’s 4Q11 operating
results were in-line with our estimates. Recurring PAT at Rs116 mn
declined 81% YoY affected from interest expense on debt taken to
finance equity investments of its subsidiaries executing power projects.
Recurring PAT was 4% lower than our estimates, led by slightly
higher-than-expected interest expenses. We cut our FY11 earnings by
1% to incorporate this lower-than-expected 4Q results.
Figure 2: JPVL – 4Q11 standalone results summary
(Rs mn) 4QFY10 4QFY11 % YoY 4QFY11E % difference
Generation (mn kWh) 263 219 -17.0% 219 0%
Net Sales 1,411 1,415 0.3% 1,425 -1%
Operating expenses (328) (250) -23.9% (255) -2%
EBITDA 1,083 1,165 7.6% 1,170 0%
EBITDA margin (%) 76.8% 82.4% 561 82.1% 2610%
Depreciation (235) (234) -0.2% (240) -2%
EBIT 848 931 9.8% 930 0%
Net interest expenses (115) (787) 586.0% (779) 1%
PBT 734 145 -80.3% 151 -4%
Tax (125) (29) -77.0% (30) -4%
Tax Rate (%) 17.0% 19.9% 19.9%
Recurring PAT 609 116 -81.0% 121 -4%
Exceptionals (3) 54 0
Reported PAT 606 169 -72.0% 121 40%
Source: Company data, Credit Suisse estimates
Power capacity 3x within a year; commissioning pre-poned
JPVL plans to commission its 1GW (4 units of 250MW each) Karcham
Wangtoo hydro power project by 2Q FY12 in phases, about 3–4
months ahead of its schedule/our estimates and its 0.5GW Bina-I
coal-based project during CY11. This would more than triple its power
capacity to 2.2GW within a year (from 0.7GW currently). Early
commissioning of Karcham Wangtoo project would allow JPVL to
capture high profits earned by hydro projects during the monsoon
season (July-Sept). Also, as per JPVL, its agreement to sell 0.8GW
power from the project to PTC is now void. The company expects to
sell the entire output from the project on merchant basis in the near
term. This could provide an upside potential to our earnings estimate
for FY12.
Planned equity issuance would be earnings accretive and
improve visibility on planned projects
JPVL has a strong pipeline of coal and hydro power projects under
execution. However, one of the key concerns in its ability to execute
these projects is its high gearing. JPVL believes that it is adequately
funded in the near term, after which funding needs would be
supported by cash flows from the commissioning of the Karcham
Wangtoo and Bina-I projects.
However, we believe it would have to raise equity by FY12. JPVL has
already announced its plans to raise US$500 mn. Our sensitivity
analysis suggests that planned equity issuance should be earnings
accretive, as it would reduce interest expense from debt taken
currently to meet the equity needs of its subsidiary projects. Besides,
this should provide visibility on the company’s ability to execute large
projects. We see planned equity issuance as a key trigger for the
stock.

JPMorgan:: Jaiprakash Power - Mar-q results: Business as usual, but PPA uncertainty on Karcham Wangtoo remains

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Jaiprakash Power Ventures Ltd
Neutral
JAPR.BO, JPVL IN
Mar-q results: Business as usual, but PPA uncertainty
on Karcham Wangtoo remains


• Mar-q result update: JPVL adjusted PAT of Rs172mn (-72% YoY) was
below estimate (Rs202mn, -67% YoY) mainly on account of higher than
estimated interest cost during the quarter. The sharp dip in profits was due
to interest on corporate level debt raised by securitization of receivables of
operating capacity, to fund equity requirement of under construction
projects. At EBITDA level results for 700MW operating hydro projects was
broadly in-line. JPVL reported EBITDA of Rs1.44bn (-5% YoY) vs. our
est. of Rs1.37bn.
• FY11 PLF for run-of-river projects healthy, but it’s business as usual:
Baspa-II (300MW) operated at 56% PLF during FY11 vs. 49.6% in FY10;
this is the highest recorded level of power generation since CoD in Jun-
2003. Vishnuprayag (400MW) PLF for FY11 was up ~130bps to 57.7%.
However higher PLF does not impact profitability, given assured return
model (16% return on invested equity) and availability linked incentives
(~2% additional RoIE above 96% PAF).
• Karcham Wangtoo Unit-I (250MW) synchronized on 13th May, 2011.
We were factoring in commencement of operations of unit-I in end-April.
We have delayed CoD of entire 1000MW by 1month to end-Aug-11,
reducing FY12 EPS est. by ~3.2%.
• Uncertainty surrounding Karcham PPA remains: 704MW PPA with
PTC is still under litigation. There are 3 potential outcomes: (a) Negative:
Partial cost overruns are approved. 10% lower project cost approval would
reduce FY12E PAT by ~14%, (b) Base case: Full project cost approved,
neutral for estimates, currently priced-in by markets, in our view, (c)
Positive: Higher proportion of merchant sales allowed. If 100% generation
is sold at ST rate of Rs4, there is upside risk to our FY12 estimates.
• Maintain Neutral: Our Mar-12 SOP PT of Rs46 (vs. Rs44 earlier) factors
in Rs8 debit (vs. Rs10 earlier) to account for corporate level-debt and the
net-NPV of equity funding gap (adjusted for sale of treasury shares). A
return of risk appetite for IPPs is a potential +ive trigger, improvement in
coal visibility is also SOP accretive – 10% higher PLF (from ~75% base
case) would result in ~Rs10 upside to our PT.

JPMorgan:: India Autos Fuel Price Hike - further cost push for consumers

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India Autos
Fuel Price Hike - further cost push for consumers


• Petrol Price hiked by 8%: Post the recent state elections, oil marketing
companies in India increased retail petrol prices by Rs 5/ltr (~8%) to
pass on the under recoveries to consumers. Fuel expenses typically
account for c.25-30% of the monthly running costs for passenger cars / two
wheelers and c.50-55% for commercial vehicles. Diesel Price hike also
likely: While gasoline prices have been deregulated by the government,
diesel prices have not been raised (given political sensitivities). A group
of empowered ministers is expected to meet later this week to decide on
a price hike in diesel, (prices were last raised in Jun’10). Our JPM India
Oil & Gas team would view an 8-10% (Rs4/ltr) diesel price hike as
positive from a reforms perspective.
• Fuel Price hikes due to fiscal compulsions: J.P. Morgan Oil and Gas
team estimates that the recent hike is still Rs 3/ltr (~5%) lower than what
was required to make domestic prices at par with international prices.
They believe that another hike may be required to benchmark retail
prices to the prevailing international crude prices.
• Sector View: While auto sales are moderating - After robust growth
(CAGR of 25% over FY09-11), car sales growth has moderated to c.15%
yoy in April. (see figure 1). The management of Maruti Suzuki in their 4Q
results call highlighted that footfalls at dealerships are lower (as compared to
Dec'10 quarter). …. Further cost push ahead: Over the past year, monthly
running expenses for automobiles have risen by c.17-20% (Indian Autos:
Getting Pricey). We believe that consumer sentiment will be further
impacted, post the price hikes. Our India Strategy Team has an UW
stance on the sector.

JPMorgan:: HT Media Q4FY11: Ad growth delights; Maintain OW

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HT Media Ltd.
Overweight
HTML.BO, HTML IN
Q4FY11: Ad growth delights; Maintain OW


HTML reported Q4/FY11 revenues 4% ahead of consensus driven by strong
advertising revenues. EBITDA margins were 90bps below expectations on
account of higher newsprint costs. We cut estimates moderately to account for
higher newsprint costs going forward. Remain OW with revised TP of Rs250
• Yield improvements to drive Advertising growth: FY11 Advertising
revenues grew 22% YoY driven by strong volumes and yields. Management
indicated that ad spends across sectors have been strong for both English
and Hindi segments. Ad revenues for HT Mumbai grew 38% YoY, a trend
we expect to sustain as readership scales up. HTML noted that ad rates
raised in 3Q have been well received by the advertisers. Management
guided to similar ad revenue growth in FY12, with strong yield
improvements offsetting modest volume declines across certain sectors.
• Readership growing; but newsprint costs rising: HTML English
readership grew 2% QoQ in Q410 (IRS) with Delhi and Mumbai registering
strong growth. New editions in the NCR region should further improve
readership in the region. Mint, with readership share at 24% in key metros,
should also gain from new launches in Chennai, Ahmedabad and
Hyderabad. Management indicated that the high newsprint costs have
resulted not only from high paper prices, but also from higher print orders
given ahead of circulation ramp up of new editions.
• FY11 results highlights: FY11 revenues were up 25% YoY driven by
strong growth in ad revenues (+22%). EBITDA margins moderated 20bps to
17.9% due to higher raw material costs (+32% YoY). Net profit increased
31% YoY.
• Revise earnings and TP: We pare earnings estimates slightly (1%/4% for
FY12/FY13) to account for higher newsprint costs. We roll forward our TP
to Mar-12 (previously Sep-11), now at Rs250 based on 20x FY13E P/E,
inline with domestic media peers. Key risks include rising competitive
intensity, inability to scale up circulation in new markets, significant
increase in newsprint costs and slowdown in economic growth.

JPMorgan : Adani Enterprises- 4Q results strong, but emerging concerns on new borrowings and large overseas capex plans

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Adani Enterprises Ltd
Neutral
ADEL.BO, ADE IN
4Q results strong, but emerging concerns on new
borrowings and large overseas capex plans


• Mundra Port and coal trading lead to strong numbers: ADE reported
PAT of Rs9.3B (vs JPME Rs7.4B, consensus Rs6.8B). Mundra and Power
results were known earlier this week, so new info includes: (1) Coal trading
vol. growth of 16% yoy in FY11 and EBITDA margin expansion by 100bps
to 10.1% (JPM est 8.5%). 2) Turnaround of agro segment PBIT in 4Q, after
YTD loss, and topline growth of 16% yoy. Of course, MSEZ 4Q PAT had
sharply beaten estimates due to an accounting change and strong operational
performance. We increase our FY12 est by 5% on the back of coal
trading/Adani Power and reduce FY13 est. by 8% given the recent
housekeeping related cuts in Adani Power.
• Sharp increase in debt a bit puzzling. As of FY11 ADE’s consol debt
increased by almost 2x yoy or by Rs154B. Of this, incremental debt at
power and port businesses account for ~70%, while Rs28B of standalone
debt was repaid. Even after assuming debt at Linc Energy, we are not able
to explain Rs60B of new debt, which seems to arise from some other sub.
Currently, this debt is not in our SOP or estimates, but factoring it in would
increase our FY12 Net D/E to 2.1x from 1.4x, and reduce FY12 EPS by
15% (assuming 10% coupon).
• Large capex plans could be a potential overhang. The Adani Group has
overseas projects with a capex outlay of ~$9B on the anvil (Galilee coal
mine and its associated railway line which is still uner feasibility study, the
Bukit Asam project in Indonesia and the Abbot Point coal terminal).
Inclusion of these in numbers would result in Net D/E increasing >2x in
FY12/13, but cost escalation could pose further risk. On a BAU basis
though, ADE turns FCF +ve in FY13E, with ports and power turning +ve in
FY12E and FY14E, respectively.
• ADE has outperformed markets, but we think visible catalysts and
clarity on capex needed for stronger performance. ADE has
outperformed its listed subs and other conglomerates due tio: 1) A simpler
business model with value being discovered, 2) Lesser regulatory hurdles
and 3) A change in earnings profile as it becomes an asset owner. We think
ADE does not have compelling near-term triggers of its own besides the
listing of its MDO biz which is still a couple of years away. Also it is
exposed to higher capex risk and valuations are less attractive, in our view.
• We maintain Neutral and PT of Rs665. Our SOTP includes lower
contribution from power (31% vs 36%) and ports (33% vs 34%) to account
for their lower PTs. Coal mining is stable at 13%, while contribution from
coal trading increased to 27% vs. 21% due to increased margin ests. Our PT
includes a 10% conglomerate discount.

Quant Strategy – Drifting with events.:Macquarie Research

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Quant Strategy – Drifting with events
Outperformance after Chinese trade regulation changes
This month we use a new data source which tracks trade barrier/regulatory
changes and tests the impact of these changes on the affected sectors. We use
the MSCI China universe at a sector level and find that there is a post trade
regulation change drift that is not priced in. This mispricing lasts for 2-3
months, offering an opportunity for investors to take advantage of it.
􀂃 Sectors in which less open trade regulations are introduced (positive for local
company) tend to outperform by 4.7% on average in the following 3 months.
􀂃 Sectors which have more open trade regulations introduced (negative for local
company) tend to underperform by -3.2% in the following 3 months.
􀂃 Sectors with positive recent trade regulatory changes in China are:
Technology Hardware and Equipment, Materials, Real Estate and
Automobiles and Components.
Post earnings announcement drift in India
A large number of stocks in the MSCI India universe report full year results in
April-June. We test the Post Earnings Announcement Drift (PEAD) anomaly in
India to help guide investors on what to do after a stock reports. We find that:
􀂃 Positively surprising stocks (SUE > 1) tend to outperform by 1.2% in the
following 1-2 months.
􀂃 Negatively surprising stocks (SUE < -1) tend to underperform by -1.9% in the
following 1-2 months.
Country Model: Buy Thailand; Sell Japan
􀂃 Top three countries in our Macquarie Asia-Pacific Country Model this month
are: Thailand, Korea and China
􀂃 Bottom Three countries are Japan, India and Singapore.
What’s working – Momentum and Analyst signals
The Alpha model had another strong month in April, even when the valuation
component wasn’t working, the model still managed an IC of 11.0%.
􀂃 Momentum and Analyst sentiment: 12M momentum metrics were
particularly strong last month, with ICs of 32.4%.
􀂃 Valuation signals: Value surprisingly struggled this month with cashflow yield
and book yield both struggling.
Key quant picks in Asia
􀂃 Stocks ranking well in the Macquarie Alpha model include: Anhui Conch
Cement (HK), Rio Tinto (Australia), ICBC (China), China Petroleum and
Chemical (China) and Woori Fin (Korea).
􀂃 Stocks ranking poorly include: Inotera Memories (Taiwan), Nanya Tech
(Taiwan), BYD (China), Paladin Energy (Australia), and Malaysian Airlines
(Malaysia).

Bajaj Auto 4Q results: Better than expected ::Macquarie Research

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Bajaj Auto
4Q results: Better than expected
Event
 Bajaj Auto reported 4QFY11 results with revenue of Rs42bn and net profit of
Rs6.7bn, adjusted to Rs7.2bn including exceptional gains. EBITDA and
adjusted PAT were 3% and 5% ahead of our expectation on account of betterthan-
expected margins. We reiterate our Outperform recommendation.
Impact
 4Q results above our expectations. Bajaj Auto reported net sales of Rs42bn
(up 23.5% YoY), driven by 17% volume growth and 5.4% increase in average
realisation. EBITDA and adjusted PAT came in at Rs8.6bn (up 11% YoY) and
Rs6.7bn (up 20% YoY), respectively.
 Better-than-expected EBITDA margin. Bajaj Auto reported EBITDA margin
of 20.5% (down 236bp) in 4Q, ahead of company guidance of ~20%.
However, EBITDA margin declined 236bp YoY on account of respective
162bp and 56bp declines in raw material and employee costs as a % of sales.
 Better placed to maintain margin. We believe Bajaj has been able to
manage its margin better than its competitors and will benefit significantly in
case of reversal in raw material costs. Superior margin has been supported by
a higher proportion of premium motorcycle sales and three-wheeler portfolio.
Management has also stated the worst may be behind in terms of further input
cost inflation despite continued near-term raw material cost pressure.
 Volume guidance of 4.6mn vehicles in FY12E maintained. Bajaj Auto
expects ~20% volume growth in FY12E to 4.6mn vehicles, and motorcycle
volume of ~4.1-4.2mn in FY12E. We believe the company is well placed to
achieve ~20% volume growth in FY12E amidst little sign of growth slowdown
in domestic motorcycle segment and export markets.
 Better placed to face competition. Bajaj has been facing competition from
Honda (HMSI) for some time and has maintained its market leadership
position (~50% market share) in the premium motorcycle segment. Further,
Bajaj increased market share in premium motorcycle segment by 4% in FY11.
Earnings and target price revision
 No change.
Price catalyst
 12-month price target: Rs1,650.00 based on a DCF methodology.
 Catalyst: Strong volume growth data
Action and recommendation
 Outperform maintained. Bajaj’s Auto stock is trading at 12x FY12E PER,
which is a 30% discount to Hero Honda’s valuation. We believe the valuation
discount is not justified due to its resilient margin performance, along with
structural superiority due to established in-house R&D and strong brands. Our
target price implies 26% upside for the stock.

4QFY11 results - Jubilant Food::CLSA

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4QFY11 results
Jubilant reported in-line 4Q results with sales growth of 56% YoY and net
profit growth of 86% YoY. Same store growth was better than expected
at 33% despite the tough base of 38% in 4Q10. Ebitda margins were up
150bps YoY but down 30bps QoQ, supported by flat QoQ gross margins
despite food inflation pressures. The company is targeting 80 store
openings in FY12 in Domino’s alongside 20% same store sales growth
and at least flat margins. We have made modest upgrades to our
forecasts and increased our target price to Rs750, 6% upside. However,
the 29% rise in the stock since our initiation drives a downgrade to O-PF.
Healthy top line growth; cost pressures under control
Jubilant’s 56% YoY sales growth in 4QFY11 was underpinned by 33% same
store sales growth. This was delivered against a base of 68% sales growth
and 38% same store sales in 4QFY10. Jubilant added 14 stores during the
quarter, taking the base to 378, and is now present in 90 cities. Ebitda grew
72% YoY while PBT grew 147%. Net profit growth was a more modest 86%
due to taxes. Gross margins were down 40bps YoY at 74.5% and were flat
QoQ despite the inflationary trend in food prices. Whilst rent and other costs
grew slower than sales on a YoY basis, staff cost increases were higher at
61% YoY. On a QoQ basis, overall operating costs grew faster than sales and
drove an Ebitda margin decline of 30bps. Looking ahead, the ~5.5% price
hike taken in April should ease the cost pressures. The company is guiding for
20% same store sales growth and at least flat Ebitda margins in FY12.
Accelerating expansion plans; balance sheet healthy
Jubilant is targeting 80 new stores for FY12 in the Domino’s format against
the 70 in FY10 and 72 in FY11, signalling acceleration in store growth. The
company is targeting the “all day part food” segment through the Dunkin’
Donuts format. Whilst Jubilant is targeting 80-100 openings over five years,
expansion will be phased with the first store expected to open only in
4QFY12. Jubilant’s balance sheet and underlying cash generation is strong
enough to support this. The company had no debt, Rs89m of cash and
Rs216m of investments at the year end. Worryingly, the company did lend out
~Rs310m of inter-corporate deposits to an undisclosed recipient.
Earnings upgrades from extra stores
Given the higher store openings, we have upgraded our revenue, Ebitda and
net profit estimates for FY12-13 by 1-3%. This also drives a 3% increase in
our DCF based target price to Rs750 (FY13 PE of 34x and EV/Ebitda of
18.6x). Over FY11-14, we expect revenue to become 2.6x and PBT 3.1x.
Whilst we remain firmly convinced about the long term potential of the
business, the 29% share price run up since our initiation in March limits near
term upside. We downgrade Jubilant Foods to O-PF from BUY earlier.

Larsen & Toubro :: Orderflow surprise :CLSA

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Orderflow surprise
L&T’s recurring 4QFY11 EPS rose 11%YoY to Rs24.8 – 6% below expectations due
to Rs2bn in warranty provisions, Rs1bn MTM fx provisions and higher depreciation.
Core performance was inline with L&T ending FY11 with 19% topline growth and
+10bps E&C margins. 4Q E&C order flows were exceptionally strong at Rs285bn
taking FY11 E&C inflows to Rs730bn (+14%yoY, -10% ex internal orders). With
management guiding for 15-20% growth in orders for FY12 led by a rebound in
hydrocarbons and momentum in infra, L&T’s valuation premium could sustain. We
are cutting FY12-13 EPS estimates and our target by 7-12% but maintain O-PF.
Core metrics inline for 4QFY11; recurring EPS up 11%YoY
L&T’s 4Q standalone revenues rose 13%YoY to Rs154bn – 1% below estimate due to
lower than expected E&C revenues (Rs135bn, +13%YoY). Ebitda (Rs24bn, +19%YoY)
was inline despite Rs2bn in provisions for warranties on the large DMRC project. Rs1bn
in MTM provisions on currency swaps and higher depreciation (lower useful life
estimate) meant that recurring EPS (Rs24.8, +11%YoY) came 6% below estimates.
FY11 performance creditable; exceptionally strong 4Q orders
Full year topline rose 19%YoY – broadly inline with management guidance (~-20%)
along with creditable E&C margins (13.7%, +10bps). Recurring standalone earnings
rose 16%YoY to Rs60.7/sh. Incredibly, 4Q E&C orders (Rs285bn, +29%YoY) came in at
an all time high; L&T had made only Rs11bn in order announcements in 4Q but tallied
off Rs178bn in new orders in the analyst meet and explained that the bulk of the
residual ~Rs107bn was from the infra sectors, especially in buildings and factories.
FY11 E&C orderflows +14%YoY; -10%YoY ex of L&T internal projects
L&T ended the year with Rs730bn (+14%YoY) in E&C orders, therefore, despite the fall
in public sector orders (-49% YoY). Ex of internal orders (Rs175bn boosted by Rs59bn
Hyderabad metro, Rs9bn Seawoods in 4Q), inflows fell 10%YoY. Nonetheless, this is
creditable given L&T’s high base and the overall lull in ordering activity in 2HFY11.
FY12 guidance: +25% on topline, -50bps on margins, +15-20% on orders
L&T has guided for a stiff 15-20% orderflow growth in FY12 led by a rebound in
hydrocarbons (India, MENA), momentum in infra (roads, airports, buildings, ports) and
process (steel, fertilisers); it is also cautiously optimistic on power (BOP, construction,
T&D). Rs40-50bn for the Hyd-metro and Rs25bn for an NHAI contract will also be
booked in FY12. It also guides for 25% topline growth (fed from Rs1.3trn backlog), a
50-75bps cut in margins (inflation, competition) and a 3-4ppt rise in working capital.
Premium to peers to sustain, maintain O-PF
We are cutting FY12-13 EPS by 7-12% to factor in lower profits from subsidiaries
(which disappointed in FY11); we also lower our target to Rs1,800/sh. However, with
L&T broadly meeting its guidance metrics in the last five years, management’s
guidance of a 15-20% rise in orders in FY12 will sustain its valuation premium. OPF.

UBS:: L & T - Robust orders, Strong guidance

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UBS Investment Research
L & T
R obust orders, Strong guidance
􀂄 Beats expectations led by robust margins
L&T reported Q4 revenues of Rs153.8bn (+13% y/y, UBS-e Rs159bn), EBITDA
margins of 15.2% (UBS-e 14%) and pre-ex PAT of Rs15bn (+13% y/y, UBS-e
Rs14.3bn; slightly below consensus estimates of Rs15.2bn). In FY11, standalone
revenues/PAT grew 19/16% y/y, with EBITDA margins of 12.8% (-20bps YoY).
􀂄 Large order backlog provides growth visibility
L&T won Rs303bn of orders in Q4, ahead of UBS-e of Rs270bn and much higher
than street expectations. The backlog at Rs1,302bn is 2.4x 1-yr forward revenues.
􀂄 Strong guidance for FY12: 25% growth in revenues, 15-20% in orders
L&T has guided for 25% YoY revenue growth (execution of major projects is on
track), 15-20% order growth (it expects delays in project awards seen in FY11 to
ease; it has seen an improvement in pace of award decisions in Q4) and downside
risk of 50-75bps in margins (though multiple initiatives are on to maintain margins;
FY11 guidance was also similar while it managed to largely maintain its margins).
􀂄 Valuation: Maintain Buy; Top pick in Indian infrastructure space
L&T stock underperformed the market by ~15% over the last six months on
concerns of lower orders given the weak macro environment, especially in the
infrastructure sector. However, it has bucked the trend with strong order-inflows.
In our view, it is the best play on India’s structurally strong infrastructure growth
story given its large order backlog, good execution track-record, diverse exposure,
strong competitive advantages and robust balance sheet. Valuations are attractive
and it is currently at lower than the average of its historical trading range.

APIL - Waiting for more to come :: ::Macquarie Research

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APIL
Waiting for more to come
Event
􀂃 We review our NAV estimates and target prices for all of the developers under
our coverage. The company has shown a pickup in sales volume, but we
believe that upside is capped, as we believe that the NCR suburb market is
likely to have a 20–30% drop in the run-rate of sales volumes in the next 12
months. We upgrade APIL to Neutral from Underperform due to recent stock
price correction and company’s decent operational performance.

INDIA INFLATION – Remains worrying despite lower core ::CLSA

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INDIA INFLATION – Remains
worrying despite lower core
India’s WPI inflation in April came in at a stillelevated
8.7% YoY, marginally ahead of
expectations but slightly lower than the March
outcome of 9.1%. However, there was another
massive upward revision. The inflation for February
was revised to 9.5% YoY from 8.3% reported
previously. February is the third straight month of a
significant revision to the preliminary WPI data. If
this continues, the final March WPI inflation will
likely be revised to 9.5-10.0% range. There have
been data revisions to past years as well, some of
which are reportedly due to a “computer glitch”.

Reliance Retail- Unlisted:: News and updates:CLSA

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Reliance Retail- Unlisted
Business description:
Reliance Retail is 91.1% subsidiary of Reliance Industries
Ltd.
It operates over 1,000 stores across 85 cities across 14
states
Other formats: Mart, Super, Digital, Trendz, Footprint,
Wellness, iStore, Footprint, Jewellery, TimeOut,
bookstore, AutoZone
Currently there are c.5.5m ‘RelianceOne’ members under
its flagship loyalty programme
News and updates
Vision Express, the eyewear JV, plans to scale up to
500 stores by FY17 from 103 currently
Reliance will come up with 3000-4000 new stores over
the next 3-4 years across all 19 of its formats
The company plans to increase the number of Reliance
Trends stores to 150 by Mar’12 from 36 currently
Reliance Brands plans to add 37 new stores in 2011,
taking the total to 55 across various high end apparel
and footwear brands

Demat Account is not only for shares

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Are you aware ???

Demat Account is not only for Shares

As you are aware, a Demat Account is mandatory for safe keeping ‘Shares’. Whether you buy shares from the market or apply IPOs, a Demat Account is compulsory.  But today the scope of Demat Account has gone beyond “Shares”. 

1.      Mutual Funds:  Now, you can invest in Mutual Fund Schemes through our NSE terminals ( as you are buying shares ) and the units will get credited into your Demat account. No need for too many statements from various fund houses. A single Demat account will take care of all your MF investments.

  

2.       Corporate Bonds / NCDS:  Popular Companies are coming out with IPOs of Bonds / NCDs with very attractive interest rates. These Bonds / NCDs are offered only in electronic form.  So, without a Demat Account, you cannot apply these IPOs. 

3.       Gold ETFs:  This is supposed to be the easy, cost effective and safest way to invest in Gold. Because of its advantages, more and more investors are going for Gold ETF rather than buying actual Gold. Again, for buying Gold ETF, you need a Demat Account.

4.      Long-term Infrastructure Bonds:  In the recent budget, the Finance Minister has announced a special income tax rebate, wherein investment made upto Rs.20,000/- in Bonds issued by Infrastructure Companies, will be eligible for IT benefit u/s 80CCF. These Bonds also can be subscribed in the Demat mode.

In short, Demat Account has become inevitable for any investor.