26 May 2011

Still looking for a platinum performance  ::Macquarie Research

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Still looking for a platinum
performance
 We review the outlook for platinum ahead of platinum week, with plenty of
catalysts ahead to bring platinum out of the doldrums.
Latest news
 Base metals were largely unchanged on Thursday, although silver fell by an
astounding 17% from the AM fix on Wednesday (to the AM fix on Thursday),
to $32.5/oz (although it rebounded after this to trade up to $35/oz).
 The Chinese copper import arbitrage has opened slightly, and the Chinese
SHFE forward curve has gone into backwardation. We expect the flow of
metal from Chinese bonded warehouses to LME (South Korea in particular)
that has driven LME stocks higher over the past 6 months to end this month.
In other words LME stocks are set to be flat to down over the coming month.
 RUSAL upgraded its 2011 aluminium demand forecast to 46mt in its 1Q11
report on Thursday, up from 43.8mt last quarter. The increase is driven by a
0.5mt increase in forecast Chinese consumption to 19mt and a 1.7mt increase
in world ex-China/developed word/CIS/Russian consumption (South America,
Asia ex-China) to 12.5mt.
 From 6th May 2010, unionised miners at KGHM have engaged in work-to-rule
action, following violent protests the previous day. Around half of all KGHM
employees are reported to be working in accordance with the legal terms of
their contracts, their aim being to stifle output, while evading disciplinary
action and prosecution, according to CRU. The workers are demanding a
PLN300 (US$108.81) monthly pay rise and KGHM has agreed to negotiate,
however a date for these negotiations is yet to be agreed. KGHM is expected
to produce over 400,000t of copper-in-concentrate in 2011.
 We presented at the 15th Metal Bulletin Zinc and its Markets seminar in
Dublin on Wednesday. The themes common to the commodities space
regarding a positive demand outlook and rising cost of new mine capacity
were again evident in many outlooks.
 Zhang Lin of Teck highlighted that over 70% of the zinc resource finds in the
past 10 years are still at a prospecting and exploration status, with many
simply being too geologically diverse and/or expensive to bring to production.
As a result, Teck sees only an additional 700ktpa of zinc in concentrate being
added to Chinese output through 2015, compared with 4.3mtpa of additional
smelter capacity, leaving China ever more reliant on the international
concentrate market.
 At the same conference, Nyrstar's Maarten de Leeuw noted that Nyrstar saw
15-20% wage inflation for Chinese-based staff over the past year, reflective of
the cost inflation being felt by the mining and metals processing sector in the
country.
 China's need to diversify its iron ore supply sources in the face of
underperformance in seaborne supply and flat out domestic production
continues, with Nanjing Steel having agreed on an offtake deal for 19 million
tonnes of ore over the next 10 years, starting from June 1. China will need to
source at least 15mt more from 'non-traditional' supply sources in 2011 in
order to satiate demand.

Jubilant FoodWorks The party continues!!! Prabhudas Lilladher,

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􀂄 Same‐store sales (SSS) growth of 33%: Jubilant FoodWorks (JUBI) reported Q4
sales, EBITDA and PAT of Rs1.94bn, Rs331m and Rs193m as against our
expectations of Rs2.02bn, Rs368m and Rs231m, respectively. SSS growth of
33.2% surprised us positively as it comes on the back of higher base of 38% in
Q4FY10. This was aided by cricket world cup in Feb‐March 2011.During the
quarter, JUBI opened 14 new stores, taking the total store count to 378. For
FY11, 70 new owned stores were opened in‐line with the guidance. Seeing the
robust demand momentum, management has upped the guidance for store
openings to 80 for FY12e.
􀂄 Operating margins up 160bps YoY: Inflationary pressures in key RM
constituents did not impact gross margins significantly (down 50bps YoY).
However, employee costs remained firm and presents a challenge, going
forward, given the high attrition prevalent at store level and base of 11500
employees. Beneficial impact of strong SSS growth was visible in the operating
leverage as rental and other expenses declined 120bps and 150bps,
respectively. Consequently, operating margins were up 160bps YoY.
􀂄 Rich valuations limit near term upside: Strong SSS growth of 37% in FY11 on the
back of 22% growth in FY10 indicates a robust demand momentum in the Indian
QSR space. Current quarter once again demonstrates the inherent superiority of
JUBI’s business model. Negative working capital, high capital efficiency ratios
and healthy cash generation is the consequence of JUBI’s strong market
positioning and robust brand equity. However, after outperforming the markets
by 110%/25%/45 in the last 12/6/3 months and at 31.6 times FY13e, we believe
the stock price reflects all the positives and hence, has limited upside in the near
term, despite our long‐term bullish stance on JUBI. Hence, we maintain our
‘Accumulate’ rating, with a revised target price of Rs700.

Tata Power -- FY11 results in line; coal cost for Mundra UMPP a key factor to watch:: Credit Suisse

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Tata Power Ltd ----------------------------------------------------------------------- Maintain NEUTRAL
FY11 results in line; coal cost for Mundra UMPP a key factor to watch


Tata Power’s FY11 consolidated PAT needs to be adjusted for
several one-time items. Its adjusted PAT of Rs15.5 bn declined
14% YoY and was mostly in line with our estimate.
● Coal business’ production of 58 mn t (down 10% YoY) and higher
cost of production of US$38/tn (up 19% YoY) were disappointing;
however, coal realisation at US$76/ton (up 27% YoY) was robust.
● Mundra UMPP is 80% complete and the company maintains its
guidance for commissioning the first unit in September 2011. Tata
Power has made a representation to the Indonesian government
to allow it to procure about 25% of the unhedged imported coal
requirement for this project below the ‘minimum price obligation’
(cheaper by US$30-35/ton). If approved, this would provide
potential upside.
● The Maithon project is 95% complete. Unit 1 and Unit 2 are
expected to be commissioned in June and October 2011,
respectively. Tata Power would sell 309 MW from this project on
merchant basis until the start of its long-term PPA in April 2012.
But, contracted merchant tariff at Rs3.45/kWh is lower than our
estimate. We marginally cut our FY12E EPS by 2% and target
price to Rs1,365. We maintain our NEUTRAL rating.

Credit Suisse,:Dr. Reddy's -What’s one-off and what’s not in FY13 guidance?

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Dr. Reddy's --------------------------------------------------------------------- Maintain OUTPERFORM
What’s one-off and what’s not in FY13 guidance?


● Management’s FY13 sales guidance of US$2.7 bn includes oneoffs,
but overall sales should grow in FY14. Assuming no one-offs
in FY14, the guidance implies that FY13 one-offs are US$350 mn
(at base business growth of 15%). This could add 8% to CS’
FY13E base EPS of Rs97.
● 4Q11 sales were in line (ex. Allegra D-24) but the mix was inferior.
India growth was just 5% YoY as aggressive pricing and channel
promotion by competitors resulted in a 5% price decline on Dr.
Reddy’s portfolio (70% is acute). Dr. Reddy’s expects a bounceback
in FY12 but April 2011 AIOCD data still show a weak growth of 6%.
● Gross margins ex. Allegra D-24 declined 180 bp QoQ due to:
1) strong growth of the low-margin API division, 2) incremental OTC
sales in Russia are from in-licensed products and at lower margins,
3) 5% price decline on India portfolio and 4) price erosion on Lotrel.
● We maintain our OUTPERFORM, given strong earnings CAGR of
23% until FY13 and multiple support from strong FY13 guidance.
We increase our target price by 2%, to Rs1,800, as we roll
forward to FY13E base EPS (18x P/E). We reduce our
FY12E/13E EPS by 4%/1% due to delay in Fonda launch and
increase in interest cost due to bonus debentures.
Figure 1: FY13 guidance vs CS projections
(US$ mn) FY11 actual FY13 CS FY13 guidance
Generics* 507 738 900
Branded 576 785 900
PSAI 531 658 900
Total 1,659 2,307 2,700
*BASF revenues included as part of PSAI. Source: Company data, CS estimates
What’s one-off and what’s not in FY13 guidance?
Management maintains that with organic growth it currently has
revenue visibility until US$2.7 bn in FY13 vs consensus sales
estimate of US$2.3 bn. The EPS contribution from extra sales of
US$400 mn could be Rs16 and adds 15% to FY13E EPS. The
unknown variable is how much of this upside is recurring. The
company has also guided that FY13E includes one-offs but total sales
in FY14 should grow. Assuming no one-offs in FY14, the guidance
implies that one-offs in FY13 sales amounts to US$350 mn (at base
business sales growth of 15%) or half of the sales gap is nonrecurring.
4Q11 margins were weak excluding Allegra D-24
Excluding Allegra D-24, sales were in line with our estimates but the
product mix was inferior. Indian sales growth was just 5% YoY as
aggressive pricing and channel promotion (higher bonus offers) by the
competitors in the acute segment resulted in price decline of 5% on Dr.
Reddy’s domestic portfolio (70% of the portfolio is acute).
Management expects the growth to bounce back in FY12 but April
2011 AIOCD data still shows a weak growth of 6%.
Gross margins ex. Allegra D-24 declined 180 bp sequentially due to:
1) strong growth of the low-margin API division, 2) price decline of 5%
on domestic portfolio, 3) incremental OTC sales in Russia are from inlicensed
products and at lower margins and 4) price erosion has been
significant on Lotrel after Par pharma entered in January 2011.
Maintain OUTPERFORM; target price of Rs1,800
We maintain our OUTPERFORM, given a strong earnings CAGR of
23% over the next two years and multiple support from strong FY13
guidance. We increase our target price by 2%, to Rs1,800, as we roll
forward to FY13E base EPS of Rs97 (18x P/E) and value FTF pipeline
at Rs46/share. Our target price has potential upside of: 1)
Rs170/share if our estimation of one-offs of US$350 mn in FY13 is
correct and 2) Rs200/share from multiple expansion from 18x to 20x
(sector average multiple) as we draw closer to FY13E earnings.
Key takeaways from the conference call
● Net debt increased US$180 mn QoQ due to bonus debenture issue of
US$113 mn and increase in receivables in the US and API division.
● Allegra market size reduced by 25-30% after the transition from
Rx to OTC. No inventory adjustment is expected in 1Q12 on D-24.
● FY12 capex target is Rs8-9 bn and the capacity should expand by
44% until FY13.
● Dr. Reddy’s is not looking at major acquisitions currently and the
deal size under consideration is US$30-50 mn.

JPMorgan : Bajaj Auto 4QFY11 Results - While industry growth rates are likely to moderate, competitive intensity is rising; Maintain Neutral

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Bajaj Auto
Neutral
BAJA.BO, BJAUT IN
4QFY11 Results - While industry growth rates are
likely to moderate, competitive intensity is rising;
Maintain Neutral


• 4Q reported PAT of Rs14.0B included an exceptional gain of Rs7.2B.
Adjusting for this, PAT came in at Rs6.8B (+20% yoy), which was
above our and consensus estimates, driven by improved profitability. 4Q
EBITDA margin came in at 20.5% (-240bp yoy but +20bp qoq), which
was led by a healthy product mix and cost control measures. Exceptional
gains of Rs7.2B included sales tax deferral incentives of Rs8.3B and an
impairment loss of Rs1B related to the Bajaj Indonesia venture.
• Management outlook in its post results call: Volume Outlook:
Management expects to grow ahead (+20% yoy) of the domestic
motorcycle industry (+14% yoy) in FY12 and also expects growth in the
export segment to remain healthy, resulting in a volume target of c.4.5m
units (vs.c.3.8m units in FY11). Margin Outlook: The company is
guiding for FY12 margins to come in at close to 20%. Management
believes that advertising/S&D spends will be contained over FY12, and
that the commodity inflationary pressures should ease in 2H FY12
which would be supportive of margins. On export incentives: While the
DEPB benefit (9% of export value) scheme is likely to expire in June,
management does not anticipate that the benefits will be phased out
immediately. The export incentives account for c.10% of Bajaj’s PBT.
Dividend Payout: The company will likely continue with its dividend
payout ratio at c.50% Capex: Management has guided for a capex of
Rs5B over FY11-13.
• Price target: We are rolling forward our PT to Sep’11. As we are
lowering our P/E multiple to 13x (from 14x earlier), our PT remains at
Rs1,400. We believe that while industry growth rates will likely
moderate from hereon, competitive intensity is rising (particularly post
the split of Hero and Honda). Bajaj has already ceded share to the
competition in 4Q. We reiterate our Neutral rating on the stock. Risks to
our PT: Key downside risks to our price target are a sharp build-up in
competitive pressures and any lowering of the DEPB benefits, while a
key upside risk is a higher-than-expected industry growth rate.



JPMorgan:: Suzlon Energy: Analyst meet high on promise

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Suzlon Energy Ltd
Neutral
SUZL.BO, SUEL IN
Analyst meet high on promise -


• Management confident of meeting FY12 guidance. Suzlon has guided to
consol revenue of ~Rs240-260bn and EBIT margin of 7-8%. The group
expects to sell ~2.5GW of turbines in Suzlon wind business in FY12, with
~1.8GW in the domestic market. As per management current backlog
(2.23GW) provides sales visibility for 1.5GW (0.8GW domestic) and they
expect to bag another 1GW of domestic orders for supply in FY12.
Assuming sales realization of ~Rs60mn/MW for wind business, the implied
Repower sales guidance for FY12 is ~Rs90-100bn (vs. our est. of Rs88bn).
We have retained our est. of 2.25GW turbine sales. We await pick-up in
order inflows deliverable in FY12 to become more positive. Our FY12
consol revenue est. is Rs227bn and EBIT margin estimate of 6.5%.
• Positive highlights on operations and growth outlook: (1) Management
emphasized that Suzlon's turbine availability levels exceed 97% (quality
issues are behind), and would require lower guarantee costs (2) Domestic
market is expected to be ~3.5GW in FY12 and may reach ~5GW level over
next 3 years, Suzlon’s market share is ~53% on supply basis currently; (3)
Site availability is not a constraint for Suzlon and it requires a 4-5 year
development cycle which will keep new competition entry barrier high for
turnkey wind project execution in India. Market for vanilla equipment
supply is only ~500MW and Suzlon is also competing for its share, (4) Mr.
Tanti stated that Suzlon’s #1 priority in FY12 will be to build an order book
for future years, with India and Europe (for Repower) being the top 2
markets. In our view, this hints to more framework contracts in FY12 similar
to the 1GW Caparo order last fiscal, (5) Management expects absolute level
of working capital to remain stable at FY11 levels next fiscal, despite
~60%+ growth target on volumes. They expect to recover the sticky
receivable of US$204mn from Edison Mission of USA in FY12.
• Status update on the Edison receivable. According to management the
underlying project of ~200MW is operational and is running at high
availability. There are three potential outcomes- a) Edison Mission achieves
financial closure and pays Suzlon before end-FY12, management is banking
on this, (b) the project is sold to a third party, the proceeds would then be
used to pay Suzlon, (c) Suzlon gets a revenue share from the project; the
most adverse scenario in our view.

India metals and mining- Cyclical dip, add quality to portfolio .:Macquarie Research

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India metals and mining
Cyclical dip, add quality to portfolio
Cyclical slowdown in demand, supply still constrained
The developed world seems to be heading for a seasonal slowdown, and China
may take a while to come out of the tightening cycle, but downside seems limited
as supply remains constrained. Rising costs also lend support on the downside.
We expect China to reverse in 2nd half of the year, which should push commodity
prices higher. Iron ore, coking coal and copper remain our preferred exposure.
Best growth stocks at bargain: We believe this correction presents a good
opportunity to accumulate some of the best growth stocks at great bargains. JSP
remains our top pick for its strong growth profile at the lowest end of the cost
curve. Among pure steel companies, we prefer JSW Steel, having deleveraged,
focus is back on growth. Sterlite is our preferred pick among base metals.
Steel – high iron ore prices adds to competitive advantage
Indian steel prices have stabilised post a decline in April and are now at a
discount to import parity price. Demand was hit by liquidity tightening, but now
seems to be stabilising, albeit at a slower pace. However, the Indian steel
industry is likely to witness almost 10mnt of capacity addition and slower
demand this year, but still should be able to operate at full capacity as gross
imports stand at 7–8mnt which can be substituted. Our team has increased steel
prices to compensate for rising raw material forecasts, hence only minor change
in steel margins. We like JSP and JSW Steel, where our earnings estimates are
well above consensus. Tata Steel is a leveraged play on the steel cycle, while
SAIL lacks a positive catalyst in the near term and can be avoided currently.
Base metals – zinc has cost support, avoid aluminium
We think zinc prices have corrected quite a bit and are near the marginal cost of
production. We upgrade HZ to Neutral, as stock has corrected almost 25% from
its peak. However, our preferred play on zinc is Sterlite, which has other
catalysts too. Aluminium seems to be peaking out and we remain cautious to the
possibility of unwinding of inventory as interest rate cycle reverses. Hindalco,
with 65% of earnings coming from the rolling business, remains our hedged play
on aluminium.
Bulks – Prefer coking coal and iron ore
Our team has upgraded its outlook for both iron ore and coking coal given the
supply disruptions. We have upgraded NMDC to Outperform to reflect increase
in our long-term iron ore price assumption from US$55 to US$65 and reasonable
valuations. JSP represent a good proxy to play both iron ore and coking coal.
GNC remains our preferred pick to play the coking coal up cycle, given its strong
volume growth and attractive valuations.
Top Picks
 India Metals and Mining – Jindal Steel and Power (JSP IN)
 Steel – JSW Steel (JSTL IN)
 Base Metals – Sterlite Industries (STLT IN)
 Bulks – NMDC (NMDC IN) and Gujarat NRE Coke (GNC IN)

JSW Steel -Deleveraged and growing \::Macquarie Research

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JSW Steel
Deleveraged and growing
Event
 Results above consensus: JSW Steel reported very strong earnings for
the quarter, 17% higher than the consensus estimate, led by good sales
volume and higher-than-expected margins. We maintain our earnings
estimates and target price and continue to like the company’s growth profile.
We believe that stock has already bottomed and is interestingly poised here.
Maintain Outperform.
Impact
 Strong 4Q FY11 results: Standalone sales at Rs70.3bn were up 36% YoY,
owing to 19% higher realisation with better product mix and 14% higher
volumes. This also helped margins, and the company reported EBITDA/t of
US$201, versus our estimate of US$200/t and an excellent improvement from
US$135/t last quarter. Net profit at Rs8.3bn was up 16% YoY and above the
Rs3.8bn reported in 3Q.
 Mining subsidiaries to deliver: JSW despatched its first shipment of iron ore
from its mine in Chile in April and looks to be well on track to achieve 1mnt of
production this year, which could potentially add US$60–70mn to earnings.
JSW has also received permits for its coking coal mines in the US and is
expecting to produce 500kt this year, which could mean an additional profit of
US$70mn. The street, including Macquarie, has not built this into its numbers.
 Low intensity capex: JSW has announced the setting up of 2mt of capacity
in Vijaynagar that will entail capex of $600mn, or ~$300/t. JSW is also setting
up a 2.3mt CRM mill, commissioning its 3.2 mt brown field expansion and
planning a West Bengal project. We believe that with recent deleveraging and
with a cash flow of around $1.2bn per annum, JSW can actually do 2mnt
without breaching 1:1 debt equity and can concentrate on growth.
 US pipe operations– will FY12 be better?: These operations reported
EBITDA of US$14.7mn in FY11 as compared to a loss of US$40.9mn in
FY10. We are estimating EBITDA of US$60mn in FY12, assuming upside
from current levels as utilisation goes up. Although the facility continues to
see a very low capacity utilisation of 10%, we hope that a recovery in US
markets and rising oil prices should increase demand for pipes.
Earnings and target price revision
 No change.
Price catalyst
 12-month price target: Rs1,200.00 based on a Sum of Parts methodology.
 Catalyst: Commissioning of its 3.2mt expansion.
Action and recommendation
 Maintain Outperform: The shares of JSW Steel have corrected almost 30%
from their peak, while the company’s business outlook has improved. We
think earnings upgrades are probable, as consensus remains 25% below our
estimates, and should drive a rerating.

Larsen & Toubro – Concerns in the price ::RBS

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4Q was in line with our forecasts. Execution and margin management in FY11 were effective.
L&T remains the best play on Indian infrastructure growth, in our view. It faces short-term
macro headwinds, such as rising interest rates, but we believe these are adequately
captured in current valuations and upgrade to Buy.

Tata Power – 4Q impacted by lower coal volumes ::RBS

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4Q numbers were below expectations due to lower revenues from trading operations, lower
merchant realization and lower coal volumes. New projects coming on line, are on track and a
ramp-up in coal business should help growth over the next few years. We have a Hold rating on
the stock.

Tata Power:: FY11 result :: CLSA

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FY11 result
Tata Power’s 4Q and FY11 operating performance was broadly in line
with our estimates though lower tax expense and strong performance of
power subsidiaries/JVs helped boost net profit. FY12 is key year for Tata
Power which will see commissioning of Maithon and two units of Mundra.
Tata Power may now have to procure 2.5mt coal for Mundra at market
prices, instead of fixed price, as per Indonesian government’s directive.
While the company has made a representation against this, we are taking
a cautious stance and factoring this in our estimates. We have also
lowered our coal sales volume estimates leading to 9-12% EPS cut for
FY12-13. TP cut to Rs1,410/sh.
Standalone numbers higher due to lower tax expenses
Tata Power 4Q standalone net profit at Rs2.7bn was boosted by lower tax
expenses due to higher tax free income; lower deferred tax and utilization of
MAT credit. Generation was down YoY in both Mumbai and outside Mumbai as
cheaper power was available for purchase and due to scheduled outage of
Jojobera Unit -4. Merchant sales (from Haldia and Unit-8) were down 2% YoY
(to 314 mkWh) and average tariff was in the range of Rs3.4-5.4/kWh.
14mt coal sales in 4Q; average realization of US$87/t
The Indonesian coal companies sold 14mt coal in 4Q which was below our
estimates though the realization jumped very sharply to US$87/t – up 19%
QoQ. For the full year the mining companies sold 58.8mt coal at an average
realization of US$76/t.
1st unit of Maithon/ Mundra to be commissioned by Jun/Sep 2011
1st unit of Maithon (2 x 525MW) project is expected to be commissioned by
June. The long term PPAs for this project are signed with DVC (300MW) which
commences on CoD date while the balance capacity (750MW) is tied up into
PPAs starting from April 2012 which gives Tata Power to sell power in the
short term market in the interim. Mundra UMPPs first unit of 800MW is
expected to commission in September though the transmission line being
setup by Powergrid is lagging behind.
Earnings cut by 9-12% for FY12-13. TP cut to Rs1,410/sh
Tata Power’s may have to procure 2.5mt of coal for Mundra at market price,
instead of a fixed price agreed upon at the time of purchase of stake in Bumi
mines, as per Indonesian government’s directive on price of coal traded. This
might increase cost of coal for Mundra by US$35/t for the 2.5mt of coal. We
have incorporated the higher coal price in our numbers and we have also cut
our coal mining volume assumption for FY12-13 which has resulted in 9-12%
earnings cut. Our new SOTP based target price is Rs1,410/sh.

Buy National Peroxide:: Target Rs 712:: nirmal bang,

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INVESTMENT RATIONALE
Demand for hydrogen peroxide on a growth trajectory
The demand for hydrogen peroxide is set to grow across the world on account of environmental concerns. Hydrogen peroxide is widely used as a bleaching chemical finding extensive application in the textile and paper industry. Chlorine, another chemical is equally used in the bleaching industry. However, usage of chlorine leads to depletion of the ozone layer and is therefore, hazardous to the environment. The usage of hydrogen peroxide is not engulfed with any such issue and is very much safe with regard to the issues related to the environment.
The usage of hydrogen peroxide has gained importance over the recent years as a substitute for hypochlorite and other bleaching agents. This chemical acts by creating active oxygen. Hydrogen peroxide needs higher temperatures and high pH levels to oxidise.
Hydrogen reacts very willingly with many chemical substances but creates no harmful by-products. Hence, it can be considered harmless with respect to the environment unlike many other chemicals.
Hydrogen peroxide prices have almost doubled over the last one year
Hydrogen peroxide prices have been constant at Rs.35 per kg over the last two months. Off late, the prices have improved to Rs.43 per kg levels. There is a 100% y-o-y increase in hydrogen peroxide prices at Rs.41.9 per kg during the quarter compared to Rs.21.9 per kg during the corresponding quarter last year. We expect the company to be a key beneficiary of the upturn in hydrogen peroxide prices.
Leadership status, expansion plans to improve performance further
National Peroxide is the market-leader with 38% share of the domestic market. Considering the improvement in demand for its product, the company has commenced the expansion process of its facilities from 68,000 tonnes to 84,000 tonnes in this quarter itself. As a result, the company has undertaken maintenance shut down for a period of about six weeks commencing from April 11, 2011. The company plans to expand the capacity further to 1,50,000 tonnes over the next five years. The capacity expansion expected to be around Rs.50 crore would be entirely funded through internal accruals only.
The increase in capacity should not only lead to a surge in volumes but also in margins on the back of apportionment of fixed costs. During FY’11, the company has clocked an EBITDA margin of +50%. We expect high margins to sustain going forward as well on the back of buoyancy in hydrogen peroxide prices, capacity expansion plans and reduction in cost-structure.


Increase in promoter holding
The promoter holding in the company has increased from 66% to 70.09% over the last 15 months. This increase in holding by the promoter group re-instates the confidence of the promoters in the business model of the company.
Strong growth in the end-user industry
The prospect of Hydrogen Peroxide is dependent on performance of the textile and paper industry since it finds significant application as a bleaching agent in both these sectors. Both, paper and texile, are doing extremely well and are on track with their expansion plans. The acquisition of AP Paper Mills by International Paper and that of Subburaj Papers by Seshasayee Paper Mills clearly states that the paper industry is on the verge of consolidation.
The client list of the company in the textile sector and the Paper sector have been mentioned below:
BILT
Andhra Pradesh Paper Mills
West Coast Paper Mills
Some of the prominent names in the textile sector who source Hydrogen Peroxide from the company are:
Bombay Dyeing Arvind Mills
Risks & Concerns
Volatility in the price of hydrogen peroxide
Volaitility in the price of hydrogen peroxide is a significant risk to our earnings estimate. However, on account of environmental issues associated with the usage of its nearest competing product, chlorine, the demand is expected to be robust.
COMPANY BACKGROUND
Incorporated in the year 1956, National Peroxide Limited is a Wadia group company . The company is the largest single location hydrogen peroxide manufacturer in the country. NPL derived close to 92% of its revenues from the sale of hydrogen peroxide during FY’10 and is the leader with 38% market-share.
VALUATION AND RECOMMENDATION
We expect NPL to post an EPS of Rs.114.8 in FY’12E on the back of expansion in capacity and robust trend in the price of Hydrogen Peroxide. The performance in Q1FY’12 is expected to be muted on account of the shutdown undertaken by the company to expand the capacity. We remain upbeat about the future prospects of the company on the back of robust demand for hydrogen peroxide from the end-user industries. We value the core business at 6x FY’12E earnings of Rs.115 per share to arrive at a figure of Rs.690. The value of the investment in group companies stands at Rs.22 per share (after assigning a
40% holding company discount). Investors looking out for strong and steady business model, having high return ratios can expect a price of Rs.712 over the next 6 to 9 months providing an appreciation of 27% from the present levels.

India Strategy- Equities in Tug o’ War; Money in Stocks:: Morgan Stanley

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Lots of headwinds…
High and rising oil prices, uncertain DM world, slowing domestic growth, fragile politics, stubborn inflation, tight domestic liquidity, and rising rates are hurting equities.
…some positives too

Equities have suffered a 17% loss vs. EM since Oct-10.

Valuations are looking attractive, especially on an absolute basis, and for the broader market. The market is pricing in slower near-term growth and implying an attractive 14.5% long-term return.

Interest rates are closer to the peak than before given the recent RBI rate hike.

Earnings growth appears to be nearing a trough given the margin compression that has already happened. ROE, too, is off the bottom.

Politics and policy could surprise positively given how low expectations are.

The market is cautiously positioned if our sentiment indicator is a guide.

Companies and retail continue to be constructive on equities even as FIIs are sellers.

Buy COROMANDEL INTERNATIONAL; Target 384 ::Anand Rathi

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Investment Rationale
• Company works in 4 major segments – Fertilizer, crop
protection, specialty nutrients, rural retailing.
•Farm mechanization and Organic manure is the new growth
driver from the retail ruraling
•Strong free cash flows to continue going forward
•Successful organic growth with capacity expansion plans on
track.
•Policy change in the Fertilizer sector is beneficial on the
margins front
Company Background
Coromandel Fertilisers Ltd, a part of the Murugappa Group of
companies is a leading manufacturer of a wide range of
fertilisers and pesticides. They are the producer of phosphatic
fertilisers, plant protection chemicals, specialty nutrients, and
sulphur bentonite, potash.
They are in the business of manufacturing and marketing of
pesticides, which includes insecticides, fungicides, herbicides
and plant biostimulants.
Their brand name includes Gromor, Paramfos, Parry
Sulphur and Parry Gold.
It is the second largest producer of Di-Ammonium Phosphate
in India with a strong presence in South India.
The company's fertilizer plants are located are located at
Visakhapatnam and Kakinada in Andhara Pradesh, Ennore
and Raniper in Tamil Nadu

Jubilant Foods – JUBI IN ::Headroom for penetration led growth is substantial::CLSA

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Jubilant Foods – JUBI IN (O-PF)
Business description:
Master franchisee for Domino’s in India. Dunkin’ Donuts added
recently
End market for Domino’s growing at 20%+ with broad growth
and a penetration led shift towards takeaway and chain formats
Rising middle class income, evolving attitudes and a young
population drive this
Its strong brand and retail model generate healthy margins and
return ratios
Store portfolio over the 380 mark
News and updates
Financials
Price: Rs673
Mkt Cap: US$962m
Avg T/O: US$19.0m
Jubilant plans to increase its pace of store expansion
to 80 in FY12 against 70-72/year in FY10-11
The company is targeting same store sales growth of
20% in FY12
The rollout of the Dunkin’ Donuts will be gradual with
the first store opening in 4QFY12 and 80-100 stores
over five years
Domino’s has introduced credit card payments

Divi's Lab : Strong 4Q beat highlights higher revenue visibility; Buy:: BofA Merrill Lynch

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Divi's Lab
   
Strong 4Q beat highlights
higher revenue visibility; Buy
„Raise PO post 4Q beat; Reiterate Buy
Following 70% profit beat in 4Q, driven largely by 30% higher than expected
sales, we raise EPS forecasts by 12-16% over FY12-13E. Consequently, increase
PO to Rs900, also factoring roll over to FY13E, retaining P/E multiple of 20x,
justifiable on stronger visibility and return ratios.  

Steels - India:: Domestic fundamentals moderating; lowering POs ::BofA Merrill Lynch

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Steels - India
   
Domestic fundamentals
moderating; lowering POs
„Maintain cautious stance on SAIL, Tata & JSPL; keep Buy on JSW
We lower POs for Indian steel cos. by 3-10% due to moderating fundamentals &
near term margin risks. We expect domestic prices to correct further near term
due to rising headwinds. Lower steel prices & higher coking coal costs should
lead to margin pressure near term. We have cut our FY12e EPS by 1-5% (4-20%
below consensus) as marginally higher steel price est. (on MTM/ higher costs) is
offset by higher costs. Despite recent pull back in Indian steel equities, we stay
cautious near term & stock selective given earnings risks & scope for further derating, though stock-specific factors may lead to divergence in performance.  

JSW Steel : Strong 4QFY11 results :CLSA

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Strong 4QFY11 results
JSW’s 4Q EBITDA/t rose 52% QoQ to US$215/t and drove 26% beat at net
profit. However, margins will decline in 1HFY12 as the impact of US$330/t
coking coal will flow through. JSW has finally achieved some progress in its
overseas mining projects, which could now lead to some upside to our
estimates. The 3.2mtpa expansion at Vijaynagar will come online in Jun-11
and will drive strong volume growth over FY12-13. Plan for further expansion
to 12mtpa by Jun-13 is a positive as it will extend the growth profile beyond
FY13. We are incrementally positive on JSW given stronger than expected 4Q
results, progress in overseas mining projects and new India expansion plans.
Strong 4Q results but margins likely to decline near-term
JSW reported 4Q net profit of Rs8.3bn – up 29% YoY and 26% above estimates
led by higher-than-expected volumes and lower raw material costs. 4Q volumes
were at 1.7mt, up 14% YoY and ahead of estimates. ASPs were up 12% QoQ – in
line with expectations. EBITDA came in at Rs16.5bn - up 24% YoY and 16% above
estimates. EBITDA/t rose 52% QoQ to US$215/t - 9% above estimates due to
lower-than-expected raw material and power costs. However, we expect margins
to decline in 1H12 as the impact of US$330/t coking coal will flow through.
Progress in overseas mining projects finally
JSW has finally achieved some progress in its overseas mining projects. It has
started shipments from Chilean iron ore mines in Apr-11 and is targeting 1mtpa
production in FY12. JSW has also received all permits to start operations at its US
coking coal mines and plans to start production in Jul-11. We have not assigned
any value to these projects yet, and hence these could lead to potential upside.
The US mills continued to disappoint with low utilization in 4Q. JSW is targeting
40% utilization and positive net profit in FY12; but we remain cautious here.
Expansion to 12mtpa at Vijaynagar – a positive
JSW’s 3.2mtpa expansion to 10mtpa capacity at Vijaynagar is slightly delayed and
will now be commissioned in Jun-11. JSW has also announced further expansion
to 12mtpa at Vijaynagar by Jun-13 via debottlenecking of existing blast furnace
and setting up of a new electric arc furnace. While this Rs27bn project will
increase capex and gearing near-term, we see the project as a positive as it will
extend JSW’s growth profile beyond FY13.
Incrementally positive post-4Q results; we will revisit estimates shortly
We are incrementally positive on JSW given– (1) better-than-expected 4Q results,
(2) progress in the overseas mining projects, and (3) plan for further expansion at
Vijaynagar from 10mtpa to 12mtpa by Jun-13. We continue to have concerns on
rising capex and debt levels near-term, but believe that most of the risks are
priced in post 21% underperformance vs. the Sensex in YTD-CY11 We will review
our estimates shortly post some clarifications from the management. Retain O-PF.

JSW Steel – Good quarter, tough ones ahead ::RBS

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Buoyant pricing helped JSW Steel post strong earnings for 4QFY11, which in our view is unlikely
to be repeated in the near term. We believe earnings growth from expansion is largely priced in,
and expect investor focus to shift to the resilience of margins in the high cost environment.
Maintain Sell, TP cut to Rs828.