Reduce SUZLON ENERGY; Target: RS.20:: Kotak Sec

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SUZLON ENERGY LTD
PRICE: RS.18 RECOMMENDATION: REDUCE
TARGET PRICE: RS.20 FY13E P/E: 6.0X
q Depreciating INR trend likely to magnify FCCB liability of the company;
further renegotiation of FCCB conversion price seems unlikely. FCCB conversion
price stands at significantly higher level than the current market
price.
q Competition has been intensifying in wind energy space globally mainly
from Chinese players. Pricing pressure exists across the value chain; from
suppliers to project management companies.
q Order intake in Suzlon wind remains sluggish. Company's order book at
the end of 1HFY12 stands at 2042 MW (ex-RE Power) vis-à-vis our breakeven
level estimate of 1900 MW.
q We reduce our earnings estimate for FY13 to factor in margin pressure
on account of 1) higher raw material pressure 2) lower realizations 3)
higher finance charges for FY12.
q We expect further de-rating of the sector and the company due to 1)
slack in overall business activity in wind energy space globally 2) government
in European region likely to remain reluctant in providing subsidy
and tax incentives due to their already stretched fiscal deficits 3) higher
debt levels of the company.
q We continue to remain cautious on company's stock and maintain our
'Reduce' rating on with one year forward revised target price of Rs 20 (Rs
43 earlier).
Competition has been intensifying in wind energy space globally;
aggressive price cuts from Chinese players and regulatory
uncertainty in key European and US markets adds up to further
Industry woes
n Competition has been intensifying in wind energy space globally mainly driven
by lower prices quoted by Chinese turbine players.
n USA, which is considered as second largest wind market after Europe, has been
observing maximum pricing pressure. Pricing pressure exists across entire value
chain viz. from suppliers to project management companies.
n Business outlook in European region appears sluggish and fresh order bookings
remained elusive in 1HFY12. Government of various countries within EU is reluctant
in dealing with subsidy and tax incentives issues due to their stretched fiscal
deficits position.
n Suzlon claims that the introduction of REC's and other such incentives are likely
to provide thrust to the domestic wind market. However, we believe that this
would be achievable in longer term after things get materialized in terms of policies
and infrastructure.
n Domestic wind industry has been observing a lot of action from the internationals
players like Gamessa and GE trying to gain market share in India posing a threat
to Suzlon that currently enjoys dominant position locally.

Sugar - Q1SY12 Results Preview - Profits to remain under pressure - Centrum

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Q1SY12 Results Preview

Sugar

Profits to remain under pressure

We expect the profitability of sugar companies to remain under pressure impacted by higher sugarcane costs. The Uttar Pradesh government increased the SAP (State Advised Price) for Sugarcane to Rs240/quintal for SY12 against Rs205/quintal in SY11. Higher cane costs will impact the profit of UP based mills adversely and we expect them to report losses in SY12E. Average sugar price (S grade Mumbai) during the quarter was up 5.9% QoQ to Rs29.9/kg. Going forward, we believe that the increase in sugar production to 25.5mt in SY12E against 24.2mt in SY11 will lead to an increase in inventory levels, which in turn, will put pressure on domestic sugar prices leading to subdued profitability of companies. Post a steep correction of 35-53% in the stock prices since our sector initiation in September ’11 and cyclical-low valuations, we had upgraded our coverage universe (Triveni- from Hold to Buy and Bajaj Hind- from Sell to Hold) post Q4SY11 results. However, there can be near-term challenges due to higher than expected sugar production, which may put pressure on sugar prices. The triggers for upside would be a) building up of cane arrears in this crushing season b) further allowance of exports by the government c) higher than expected sugar price and d) decline in area under sugarcane cultivation for next crushing season.

Cement: Strong quarter led by higher realizations -Centrum

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Q3FY12 Results Preview

Cement

Strong quarter led by higher realizations

We expect aggregate sales volumes of our cement universe to grow 6.5% YoY (and 9% QoQ) to 28.8mt. Average cement realization is expected to improve 19% YoY (and 4.9% QoQ) to Rs3,858/tonne led by price hikes by cement manufacturers across India. Pan-India average price is expected to increase by Rs17/bag QoQ (~7% QoQ) to Rs264/bag. The higher cement price and sales volume would lead to 4pp YoY (and 1.9pp QoQ) improvement in average operating margin of our coverage universe to 19.6%. Cement demand continues to remain sluggish with a 4.2% YoY growth for the period April-November ’11. Cement price corrected by Rs15-25/bag in the North, Central and West regions in December ’11 after the hike of Rs32-35/bag in these regions between September and November ’11. The continued slowdown in housing and real estate construction activities remain a concern for the sector and we don’t expect steep price hikes from manufacturers due to lower utilization rates and sluggish demand. We maintain Sell on ACC, Ambuja Cement and UltraTech considering expensive valuations. We have a Hold rating on Grasim Industries and Shree Cement. We prefer mid-caps and have a Buy on Orient Paper, India Cements and JK Cement due to attractive valuations.

m  Volume growth driven by low base of last year: Aggregate sales volume of our coverage universe is expected to grow 6.5% YoY (and 9% QoQ) mainly due to the low base of last year to 28.8mt. Among large players, Ambuja Cement is expected to register volume growth of 10% YoY. We expect 14.9% YoY and 11.6% YoY volume growth for Orient Paper and Shree Cement respectively in the quarter. 

m  Steep increase in realization expected: Average cement of our coverage universe is expected to increase 19% YoY (and 4.9% QoQ) to Rs264/bag due to price hike across India. On a sequential basis, cement price increased 9-12% QoQ in North, Central and East regions. In South and West regions, price increased by 1.5-3% QoQ in this quarter.

m  Higher realization will lead to operating margin expansion: Average operating margin of our coverage universe is expected to improve 4pp YoY to 19.6% led by higher realizations in the quarter. Higher realization would lead to Rs150-300/tonne improvement in EBITDA/tonne for the companies under our coverage.

m  Prefer mid-caps due to attractive valuations: Large-cap cement companies are trading at a premium to their mean trading multiples, which we believe is unwarranted considering the weak demand environment, expected volatility in realizations and decline in return ratios. We maintain Sell on ACC, Ambuja and UltraTech. We have a Hold rating on Grasim Industries and Shree Cement. We maintain Buy on mid-caps (Orient Paper, India Cements, and JK Cement) under our coverage due to attractive valuations.

Event Update Some relief; hopeful of better news to follow… ICICI Sec

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Event Update
Some relief; hopeful of better news to follow…
On Tuesday, the Government notified its decision to allow 100% foreign
direct investment (FDI) in single brand retail (under the approval route).
This move frees up the 51% limit on foreign direct investment in single
brand retail. While this move has come with certain riders and has been
positively received by the industry, retailers still await the big move of
opening up of FDI in the multi-brand retail segment.
􀂃 FDI in retail - Indian saga!
Exhibit 1: The journey thus far...
Year Event
1997
FDI in cash and carry wholesale trading was first permitted, to the extent of 100%, under the
government approval route
FDI in single brand retail (to the extent of 51%) was permitted
FDI in cash and carry wholesale trading was brought under the automatic route
2010 DIPP floated a discussion paper to open up FDI in multi-brand retail
Nov-11
Approval for 51% FDI in multi-brand retail and relaxation of the 51% (to 100%) norm for single-brand
retail
Dec-11 The above decision was put on hold due to opposition from political parties
Jan-12 100% FDI in single brand retail allowed, under the government approval route
2006
Source: ICICIdirect.com Research
After facing severe opposition to the opening up of multi-brand retail to
FDI in November 2011, the government has decided to take one step at a
time and decided to allow 100% FDI in single brand retail. This further
raises hopes of opening up of the multi-brand retail segment also.
However, nothing is expected until the elections are completed. With this
move, foreign retailers will be able to come and set up shops in India with
full ownership being in their control.
􀂃 The riders
• Products to be sold should be of a single brand only;
• Products should be sold under the same brand internationally;
• Single brand retailing would cover only products, which are
branded during manufacturing;
• The foreign investor should be the owner of the brand;
• With respect to proposals involving FDI beyond 51%, mandatory
sourcing of at least 30% of the value of products sold would have
to be done from Indian ‘small industries, artisans and craftsmen
Note: Small industries would be defined as industries that have a total investment in plant
and machinery not exceeding $1 million.
Our view
We believe that further opening up of the single brand retail clearly shows
the government’s positive intent towards bringing about reforms. We see
this as an important step towards further reforms in the multi-brand
sector as well. The move is also expected to benefit India’s small
producers as any global retailer going in for more than 51% investment
will be required to source at least 30% of their products from the Indian
small and cottage industry. While it is difficult to comment on the fate of
the existing tie-ups, we do not foresee a lot of renegotiations as some
foreign players would prefer to have an Indian partner who has a proper
understanding of the Indian retail market and consumer.
Retail sector Permissible FDI limits across formats

Infrastructure - Sector Update & Q3FY12 Preview - Fundamentals stressed for construction sector - Centrum

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Sector Update & Q3FY12 Preview

Infrastructure

Fundamentals stressed for construction sector, but valuations ripe; asset owners better placed. ITNL & NCC our top Infra picks

m  Headwinds galore for construction sector – Macro stress, low order-tendering, intense competition, volatile operating margins and high interest expenses on elevated debt/equity, will impact construction companies’ results in the next 6m-1yr. Our CMIE report on Q3FY12 data also reflects a grim picture on project execution (indirectly, revenue of construction companies) and order-intake (as new project announcements are low).

m  We are cautious on the Infrastructure sector, particularly construction but after deep price correction, we upgrade some stocks - We believe, Q3FY12 would again produce the shocks the investors witnessed in Q2FY12 (macro issues leading to lower execution, volatile operating margins, etc). Construction companies under our coverage are expected to deliver revenue de-growth of 3% YoY (Including L&T, unrated, revenue growth is expected at 12.4%) in the quarter. However, we upgrade our recommendations on the sector purely because valuations are cheap on stock price corrections witnessed in past 3m.

ITC OW: Gold Flake price hike sensible, attractive valuation 􀀗 HSBC Research

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ITC
OW: Gold Flake price hike sensible, attractive valuation
􀀗 15% price increase in Gold Flake Kings sets the direction of
potential price increases in the near term
􀀗 Selective price hikes are sensible and we see no significant
impact on volumes; we estimate FY11-15 EPS CAGR of 16%
􀀗 Valuation is attractive at 22x FY13e PE. Reiterate OW with TP
of INR242

Oil India - Risk‐reward favourable:: Prabhudas Lilladher

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We hosted investor meetings with the OIL India (OIL) management – Mr. T.K Ananth
Kumar, Director (Finance). Following are the key takeaways on key issues:
􀂄 Utilisation of cash flows and acquisition: OIL is in advance talks for potential
overseas acquisition of producing property in the African region. The company is
likely to give a non-binding agreement for the same in the next 2-3 months. The
reserve is around 200m barrels and the potential acquisition cost is around
Rs50-60bn, translating into EV/boe of US$4.8-5.8/boe. The same compares
favourably to the opportunity cost (F&D cost of US$5.45/bbl in FY11).
􀂄 Possible options for divestment of government stake: Management believes
the preferred option for the divestment of government stake is likely to be
block-trade, wherein the government offloads its stake to the institutional
investor.
􀂄 Subsidy sharing mechanism: OIL expects government to provide minimum net
realisation of around US$60/bbls for the current fiscal. The company has asked
the government to take average of the last five years for calculating the
proportionate share of upstream companies against the current practice of last
three year’s average.
􀂄 Outlook: OIL has been delivering impressive performance on the core operating
parameters such as production growth, coupled with efficient operations,
resulting in low finding, development and lifting cost. Key catalysts affecting the
stock price continues to be subsidy sharing and outlook with regards to
deployment of significant cash balance. The stock is currently trading at
attractive 7.3x FY2013E EPS. We continue to maintain ‘Accumulate’ on the
stock, with a target price of Rs1,525/share (a multiple of 10x FY2013E EPS).

Reduce Marico ::FMCG SECTOR: Top Picks by PINC

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Marico (CMP Rs151, TP Rs144, Reco- REDUCE with a downside 5%)


Investment Rationale

􀁺 Marico's 29% sales growth in H1FY12 is not sustainable in our opinion. Marico has

already taken sharp price hike on Parachute which limits the scope of further price

hike. Parachute volume growth at ~17% during H1FY12 was ahead of our expectation

and we expect it to taper down.

􀁺 We believe softening of input prices would be set off by higher A&P spend. New product

launches and requirement of higher marketing efforts in the international business

would force Marico to escalate A&P (% of sales) spending by 200-250bps going forward

from 9.7% in H1FY12.

􀁺 Slower growth in depreciation and interest cost would translate ~19% EBITDA CAGR

into ~22% net earnings CAGR during FY11-14E.

VALUATIONS AND RECOMMENDATION

On account of limited product portfolio, higher exposure to commodity prices and moderate

scope for further price hike on key brands, we maintain Marico's P/E discount over FMCG

sector. We retain our 24x multiple on 12-month forward earnings and raise TP to Rs144

(earlier Rs141). We maintain our 'REDUCE' rating on the stock.

ICRA: Short term pain, long term gain: SPA

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ICRA Ltd. (ICRA), an associate company of international rating agency Moody's Investors Service, is the second largest credit rating


agency in India. Due to ongoing economic concerns, there has been slowdown in credit off-take in the form of bank loans and debt

market activities which has impacted the revenue and profitability of the company. We therefore expect consolidated revenue

CAGR of 6% for next two years for the company. Despite short term headwinds, we are very positive on the huge long term

opportunity for the credit rating sector on the back of development in debt market which is at nascent stage in India. We believe

that all the short term negatives (i.e. lower rating revenue growth and pressure on profitability) are already discounted in the stock

price and there is a good upside potential from here. We therefore initiate coverage with BUY recommendation.

T&D EQUIPMENT SECTOR UPDATE:: Kotak Sec,

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T&D EQUIPMENT SECTOR UPDATE
q While the robust PGCIL ordering is a positive, benefit of the same would
be muted due to weak order intake from private and state sector utilities.
q Our interactions with industry players indicate that ordering from state
utilities has been slack since past 18 months. Moreover, with major
states like UP going into elections, ordering has taken a beating as election
code of conduct is applicable.
q We continue to maintain a negative outlook on the sector in view of intense
price competition from domestic and foreign players as well as
sluggish market growth for T&D. ABB (Reduce with TP of Rs 670), Siemens
(Reduce with TP of Rs 780), Crompton Greaves (Reduce with TP of
Rs 130), Areva T&D (Reduce with TP of Rs 158).

Accumulate Dabur ::FMCG SECTOR: Top Picks by PINC

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Dabur (CMP Rs99, TP Rs109, Reco- ACCUMULATE with an upside of 10%)


Investment Rationale

􀁺 Dabur India's (Dabur) rural segment is facing slowdown which impacted its H1FY12

performance. Consolidated net sales has shown robust 31% growth led by its recent

acquisitions (Hobi Kozmetic and Namaste Group), excluding the same, sales grew at

a slower pace of 13% during H1FY12. Hair oil and food categories were the exception

and clocked strong growth of 21% and 30% during H1FY12 while skin care, health

supplement, oral care and home care displayed muted growth of 7%, 4%, 9% and

10% growth respectively during H1FY12. We have not witnessed the recovery of shampoo

business during H1FY12 which posted 24% YoY decline due to sharp price cut by its

peers.

􀁺 Dabur's international business (excluding recent acquisitions) displayed 18% growth

in H1FY12 which was also lower as compared to the past three years' >25% history.

GCC, Egypt and Nigeria continue to perform well and registered 27%, 27% and 36%

growth during H1FY12 respectively.

􀁺 We expect EBITDA margin during FY12-14E would be lower than FY10-11 as we

believe higher contribution of low margin acquisitions. Hobi Kozmetic and Namaste

Group fetch low profitability profile which would change the overall profitability profile of

the company. We expect Hobi and Namaste would combined contribute 13% and 10%

of consolidated sales and EBITDA of FY14.

VALUATIONS AND RECOMMENDATION

Dabur's strong presence in the domestic market through its robust portfolio and regular

entrance in geographies enabled it to maintain its high growth momentum. We retain our

25x multiple on 12-month forward earnings and derive TP of Rs109 (earlier Rs107). We

maintain our 'ACCUMULATE' rating on the stock.

Suzlon Energy Ltd (SUEL IN) N(V): Profits return but EPS cut on intensified uncertainties  HSBC Research

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Suzlon Energy Ltd (SUEL IN)
N(V): Profits return but EPS cut on intensified uncertainties
 We expect Suzlon to return to profitability this year but cut
volume and margin assumptions on tighter project financing
 We see limited share price downside from current levels
although a steep INR depreciation adds to Suzlon’s woes
 We retain our N(V) rating but reduce our TP to INR20 from
INR60 on forecast cuts and higher uncertainty discount

Oil & Gas - Q3FY12 Results Preview - Problems aplenty - Lower GRMs and KG D6 gas output - Centrum

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Q3FY12 Results Preview

Oil & Gas

Problems aplenty - Lower GRMs and KG D6 gas output, higher under-recoveries and spot LNG prices, rupee depreciation to impact Q3FY12

Although crude oil prices remained more or less stable during Q3FY12, the sector faced a spate of problems which are likely to drag down the Q3 performance of oil and gas sector companies. In this quarter GRMs (Reuters Singapore complex) slipped to about US$4/bbl, KG D6 output declined below 40mmscmd, spot LNG prices remained high at about US$15-18/mmbtu and rupee hit a bottom of Rs53/US$. Moreover under-recoveries are likely to be over Rs360bn. Rupee depreciation is likely to hit oil and gas companies the hardest among others. We believe the quarter will be the worst for most companies excluding Cairn (rupee depreciation benefit), PLNG and GSPL (stable volumes for both).

FMCG SECTOR: Top Picks by PINC

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Selective Picks


􀁺 India's past 5 years average GDP growth was at ~8.6% which was way ahead of ~5.5% GDP growth in the last 5

decades. India's key states Maharashtra, UP, AP, TN, West Bengal and Gujarat have contributed well towards India's

robust growth. These 6 states contribute >50% to the Indian GDP and grew by >13% in the past 5 years.

􀁺 Urban India growth is marked by rise in urban population mix which stands at 30% as compared to 18% in 1960.

Besides, there is a significant expansion in upper urban income mix to 36% in 2010 from 17% in 2002. Such favourable

transformation is supporting FMCG companies from premiumisation perspective.

􀁺 Rural market is being driven by growth in non-agriculture income, better MSP rates, higher education and the Government's

emphasis on rural development programmes. Large rural population provides consistent volume growth for FMCG

companies.

􀁺 FMCG categories, with low per capita and low penetration level i.e. skin care, shampoo, oral care, deodorant and

packaged juices are the opportunities for FMCG companies. While categories like soaps and detergents which have high

penetration level can also show healthy growth due to their low per capita consumption.

􀁺 International business is an opportunity for the long term growth potential for domestic FMCG companies. Entrance into

new geographies provides growth scope for the established brands/power brands. However, we expect initial cost would

impact the profitability of domestic players in the near term.

􀁺 We evaluate the competitive strength of FMCG companies based on our 'RIVER' analysis through which HUL, Nestle,

Dabur and ITC are the foremost rankers.

Sector Valuation

FMCG sector, in the current global financial turmoil, converted into a preferable bet for the investors which resulted in 35%

outperformance of BSE FMCG over BSE-Sensex in the past 12 months. FMCG sector trades at ~27x P/E on 12-month

forward earnings which is ~13% higher than its past 5 years median P/E. FMCG sector valuations are at 118% premium over

BSE-Sensex (above +2 standard deviation) as compared to the 5 year average premium of 70%. FMCG valuations are very

expensive and we believe going forward growth in net earnings would play a key role in the stocks' performance.

At the current juncture, we prefer stocks on their relative traits where earnings growth and valuations both are at attractive

level.

Recommendation

We initiate coverage on ITC (BUY) and HUL (REDUCE) while update on Nestle India (SELL), Dabur (ACCUMULATE),

Colgate (REDUCE), Marico (REDUCE) and Jyothy Labs (BUY).

SINTEX INDUSTRIES: PINC research

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We met the management of Sintex Industries (SINT). Key takeaways from


the meeting (1) slowdown in Monolithic construction on account of delay in

clearances from the government,(2) Prefab segment is on track but might

see some collection slowdown from UP and Punjab due to elections and

(3) Domestic and Overseas custom moulding business to see slowdown

due to fall in auto sales growth and concerns over the European and US

economies. Post discussion with the management we downgrade our

revenue and EPS estimate for FY12e and FY13e. We downgrade our revenue/

EPS estimate by 8.5%/26% and 9.5%/25% for FY12e and FY13e respectively.

The stock has sharply corrected (44%) over the past 3 months on account of

forex losses and the slowdown impact in overseas markets. We revise our

TP from Rs240 to Rs115 (7x FY13e EPS) and believe that CMP of Rs65 factors

all negative aspects discussed below. At CMP of Rs65, the stock discounts

4.4x and 3.8x FY12e and FY13e EPS of Rs14.7 and Rs17.0 respectively.

Monolithic Construction: As per management there is a slowdown in Monolithic

construction especially on account of delay in getting clearances from the

government. The company has an order book of Rs29bn of which Slum rehabilitation

(Rs7.5bn), Railways (Rs2.5bn) and Defence (Rs2.5bn) cumulatively have ~45% of

the order book and where the slowdown/stoppage is being felt. We also noticed

stoppage of work in 4-5 sites out of the 18-20 sites in progress. We believe that

with the upcoming state elections (Feb’12) in UP (order book of Rs4.5bn) and

Uttarakhand the company will face delays in collection.

Prefab Segment: As per the management this particular segment is on track.

We believe going ahead this segment may also get some collection issues since

the plants in Baddi (HP) and Dadri (UP) supply to UP and Punjab which are going

for state elections in Feb’12.

Custom Moulding: As per the management there is likely to be a slowdown in

the domestic custom moulding business on account of slack in auto sales. Overseas

custom moulding will be hard hit due to European and US economic slowdown. As

per the management it is likely to be a flat to 5% negative growth in overseas

custom moulding.

VALUATIONS & RECOMMENDATION

We reduce our TP from Rs240 to Rs115 (7x on FY13e EPS) and maintain a ‘BUY’

rating on the stock. We believe the CMP factors the slump in overseas business,

forex loss impact and slowdown in the Indian economy.

Fairwealth Investment Ideas 2012

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Fairwealth Investment Ideas 2012

Axis Bank TP: 1350


Ashok Leyland TP: 32

 Bajaj Electricals TP: 241

KPIT Cummins TP: 185

JindalSteel TP: 640

Shasun Pharma TP: 90

SLOWDOWN IN CHINA January 2012:: Normal Bang

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SLOWDOWN IN CHINA January 2012


1 Nirmal Bang Commodities Pvt. Ltd.

China, the manufacturing giant of Asia is expected to

witness a slowdown in its growth trajectory. Its growth

may lose momentum due to the lack of demand from the

developed nations. It can partly be blamed on Euro

zone’s deteriorating fundamentals. China, the fastest

growing economy moderated to its lowest pace in more

than two years. China has always been the main source

of optimism in the global economy and signs of a

slowdown in China, coupled with trouble in Europe,

show that industrial commodities are in for a bumpy

ride.

The demand for Chinese goods is continuously worsening due to the economic woes in Europe. Exports rose at the slowest

pace in almost two years in October as worsening situation in Europe crumbled demand. The weakness in export demand

is expected to continue in the near future due to the economic slowdown across the globe.

The Chinese economy is expected to register a second year of below-trend growth because of the headwinds from the global

slowdown, domestic housing market weakness and limited room for policy stimulus.

SHASUN PHARMA:: Fairwealth Investment Ideas 2012

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SHASUN PHARMA


Shasun Pharma (Shasun) is engaged in manufacturing active pharmaceutical

ingredients (APIs), their intermediates and enteric coating excipients with a

significant presence in some key generics. Shasun has created a strong product

portfolio, building on its R & D Expertise, regulatory capabilities and multi scale

production capacities. Today, Shasun is one of the largest producers of Ibuprofen

worldwide. The company offers derivatives of Ibuprofen like Ibuprofen Sodium,

Ibuprofen Lysinate and S+Ibuprofen. It is also one of the major producers of

Ranitidine and Nizatidine in the world. Its products are exported to countries

across North America, Europe, Asia and Latin America.

Investment Rationale

􀂾 We expect that Rhodias performance will improve significantly on back of

incremental supplies to Vertex over the next few quarters as the volume ramp up

starts for Incivek and batch supplies get replaced with bulk orders.

􀂾 Incivek commands more than 70% market share with one of the strongest

launches within Pharma industry. Shasun Pharma stands to gain significantly as it

has an assured contract from Vertex (Marketing rights for North America) for

70% of its global requirement of API. We think the strong set of revenue of drug

would reflect in subsequent quarter earnings for Shasun UK.

􀂾 Management has recently highlights strong growth prospects with 40-50%

revenue growth and profitability to triple in FY12. The company plans to reduce

its debt from 330 Cr to 220 Cr with majority of it being repaid through internal

accruals by the end of this financial year.Further the improvement in business

fundamentals led by series of initiatives like expansion of capacities and launch of

new products augur well for the future.

􀂾 We maintain a positive outlook on the stock due to supplies for telaprevir to

vertex, increased focus on high margin APIs and various expansion drives.

Valuations

The stock has come under pressure due to steep rupee depreciation which would

lead to Market to market losses on company’s forward contract We believe going

forward the company is a candidate for re-rating due to high potential growth with

majority of earning accruing from UK subsidiary. At the CMP the stock is trading

at 8.4x for FY11P/E. We recommend BUY with a target price of Rs 90.

JINDAL STEEL & POWER LTD:: Fairwealth Investment Ideas 2012

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JINDAL STEEL & POWER LTD


Jindal Steel and Power Limited (JSPL) is one of India’s major steel producers

with a significant presence in sectors like Mining, Power Generation and

Infrastructure. With an annual turnover of over US $2.9 billion, JSPL is a part of

the about US $15 billion diversified O P Jindal Group and is consistently tapping

new opportunities by increasing production capacity, diversifying investments,

and leveraging its core capabilities to venture into new businesses. The company

has committed investments exceeding US$ 30 billion in the future and has several

business initiatives running simultaneously across continents.

Investment Rationale

􀂾 Currently JSPL has operational capacity of 1,000MW at Tamnar, Chattisgarh,

which is one of the largest merchant capacities in India. In the near term the

company is likely to register a healthy profit from the power segment as the cost

of power generation remains broadly unchanged, given the company has a captive

coal mine.

􀂾 JSPL is adding another 2,400MW of capacity at Tamnar (phase II) in two

phases of 1,200MW each. For some time clearances were pending on this project

but the project has received all the clearances recently. Hence, work is in progress

now and that should be a positive trigger for the stock.

􀂾 On the steel business, the management guided that it is likely to commission

1.5-million-tonne plate mill in Angul, Orissa by the end of FY2012. Further,

during H1FY2013 a 2-million-tonne DRI plant at Angul is expected to come up.

The company is expected to add 1.6 million tonne of steel melting capacity by the

next one year.

􀂾 JSPL plans to increase its steel capacity 4x over the next four years and power

capacity 10x in 10 years. JSPL has one of the best iron ore and coal resources in

India, with assets spread over various mineral-rich countries. Both its steel and

merchant power businesses are insulated from input prices.

􀂾 The stock has underperformed over the last 18-20 months, due to anticipation

of slower earnings growth over FY11-13. We expect the stock to get re-rated

again, as the visibility of projects and earnings improves over the next 12 months.

Valuations

Amidst rising coal supply insecurity in India, the company stands out as one of the

few companies having captive coal resources. We believe the integrated status of

the company ensures it would generate better returns than the regulated players in

the power segment. The sock is currently trading at very attractive valuations of

11.3xFY11P/E. We recommend BUY with a target price of Rs 640 which is a

price appreciation of 41% from CMP.

Education - Q3FY12 Results Preview - Growth momentum intact - Centrum

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Q3FY12 Results Preview

Education

Growth momentum intact

We expect the companies to register strong growth during Q3FY12 on the back of seasonality . We believe the growth in topline would be largely driven by multimedia solutions to private schools, vocational courses and IT training segments. We expect Educomp Solutions to register strong growth in sales in Q3 driven by the school segment. NIIT is expected to report a decline in topline as it sold the Element K business. Within the space, we like NIIT considering attarctive valuation and better prospects of improving its margin profile in FY13E.

m  Topline growth to continue: We expect the growth momentum to continue for companies given the opportunity in the space and also because Q3 is seasonally a better quarter. Segments including multimedia solutions to private schools and vocational business would be key drivers.   

m  Operating margin to improve: Better topline would result in improvement in margin during Q3. NIIT would witness better margin on a like to like basis, though the individual learning segment is in the process of integration. We believe that NIIT would see margin expansion in FY13E on the back of better sales mix in favour of individual learning solutions and school learning solutions.

m  Prefer NIIT in the space: We prefer NIIT in the space considering attractive valuations and prospects of margin expansion in FY13E. Our belief is that NIIT re-rating is contingent upon FY12E financial performance i.e growth with margin expansion. Hence, NIIT becomes a long-term bet. Also, we believe that stock price of Educomp factors in all the concerns including FCCB payout, high capex in formal education and free cash flow generation.  Some of the triggers for the stock would be: 1) monetization of subsidiary(s) and 2) further announcement of securitization deal with 20% recourse.

KPIT CUMMINS:: Fairwealth Investment Ideas 2012

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KPIT CUMMINS


KPIT Cummins (KPIT) provides technology solutions partner for global

Manufacturing corporations with special focus on Automotive, Energy & Utilities,

Industrial Equipments, and Semiconductor industries. Highly focused approach

has helped company to pioneer innovative solutions and file 37 patents in the

Automotive and Semiconductor domains. Following the acquisition of Sparta,

KPIT’s revenue from its SAP-related ERP services doubled over the past two

years.

Investment Rationale

􀂾 KPIT Cummins has been experiencing strong demand environment due to

cyclical up-tick in its manufacturing vertical, positive structural changes in

Automotive clients, emerging economies growth and ramp ups from newly

acquired business (CPG, In2Soft and Sparta).

􀂾 We expect the robust growth to continue going ahead with strong Automotive

engineering demand, sustained IT spending by manufacturing clients being the

key growth drivers.

􀂾 KPIT has shown one of the strongest revenue growth performance within the

mid-cap space with revenue growth of 46% (40% organically) due to strong

demand up-tick in major verticals.

􀂾 KPIT acquired 50% stake in leading Oracle JDE enterprise service provider,

Systime, for ~Rs1.03bn in Q1 FY12 thus strengthening its Oracle offering

providing access to marquee clientele and un-penetrated geographies.

􀂾 KPIT registered strong deal wins during 2QFY12. Traction from top client has

also improved (36% yoy in 2QFY12). Moreover, it has also won a large deal from

its top client recently. In addition, we expect KPIT’s partnership with PACCAR to

ramp up by 1QFY13 and account for ~5% of employee base of KPIT. These

strong deal wins and PACCAR relationship improve medium term visibility on

revenue growth.

􀂾 Despite consolidation of lower-margin SYSTIME, we believe that due to

depreciating INR, KPIT will register a strong 250bps improvement in EBITDA

margins by 4QFY12.

Valuations

The stock is currently trading at 13.5x FY11P/E which appears to be cheap. We

assign BUY rating to the stock with a target price of Rs.185 indicating potential

upside of 27% from current levels.

BAJAJ ELECTRICALS :: Fairwealth Investment Ideas 2012

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BAJAJ ELECTRICALS LTD


Bajaj Electricals Ltd (BEL) is a 72 year old company with diversified business

interest in consumer durables, lighting and engineering & projects (E&P). The

company has grown strongly with revenues increasing at CAGR of 26% and a

staggering 40% CAGR in the bottom line in last five years backed by robust

growth in consumer segment and steady growth in other divisions.

Investment Rationale

􀂾 Consumer durable which consists of small appliances and fans has registered a

strong 3 year CAGR growth of 25.9%. Management has a very bullish stance on

consumer appliances’ space and expects a growth of 20-24% (3x GDP growth).

We expect segments revenue to increase to Rs.1945 Cr in FY13E from Rs.1276.9

Cr in FY11 with a potential to grow at a CAGR of 23% over FY11-13E.

􀂾 Company’s E&P segment which faced headwinds in Q1FY12 is showing

credible traction with revenues increasing 9.7% YoY to Rs.171.2 Cr. Segment

reported EBIT margins of 3.8% as against an operating loss in previous quarter.

BELs current order book stands at Rs.742 Cr which provides revenue visibility for

the current financial year. Lighting and luminaries segment combined is expected

to register revenue of Rs.842.2 Cr in FY13E at 15.5% CAGR.

􀂾 Among the 3 segments, consumer durable is the fastest growing segment with

EBIT margins at 10-13% The share of consumer durable segment to total

revenues has increased from 43.9% in FY08 to 46.6% in FY11. Going ahead, we

expect consumer durable contribution to overall sales to increase to 50% in

FY13E due to higher growth in this segment compared to other segments which

would lead to margin expansion.

􀂾 Q2FY12 performance was a mixed bag with revenues above expectations

while margins being under pressure. Revenues grew 19.2% YoY to Rs.700.8 Cr,

EBIDTA margins fell 22 bps to 7.6%, APAT at Rs.25 Cr registering a YoY

growth of 7.9%, APAT margins however fell 37 bps to 3.6%.

􀂾 Company witnessed pressure on its EBIT margins primarily due to the

consumer durables segment which saw a decline in margins to the tune of 207 bps

YoY in Q2FY12. Consequently company’s overall EBIT margin fell 40 bps YoY

to 7%.

Valuations

At the CMP, BEL trades at a P/E and EV/EBIDTA of 9.6x and 5.5x, discounting

its FY12E numbers. Based on increasing share of consumer segment, higher cash

flows and strong growth prospects, we value the company at 11x FY13E EPS and

arrive at a target price of Rs.241. We recommend BUY

ASHOK LEYLAND:: Fairwealth Investment Ideas 2012

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ASHOK LEYLAND


Ashok Leyland (AL) has seven manufacturing plants - the mother plant at Ennore

near Chennai, three plants at Hosur (called Hosur I and Hosur II, along with a

Press shop), the assembly plants at Alwar, Bhandara and state-of-the-art facility at

Pantnagar. The total covered space at these seven plants exceeds 650,000 sq m

and together employs over 11,500 personnel.

Investment Rationale

􀂾 AL reported a good set of results for Q2FY12, driven by higher net average top

line to Rs.3,095cr, driven by an 18.7% yoy increase in its average net realization.

EBITDA margin came in at 10.7%, registering a decline of 58bp yoy; however, it

expanded by 128bp qoq, largely due to favorable operating leverage, better-thanexpected

realization and lower other expenditure.

􀂾 Management has guided for modest industry volume growth of 5-6% in

FY2012. However, according to management, the company’s volumes are

expected to surpass 100,000 units in FY2012, with exports likely to report sales of

~13,000 units.

􀂾 With interest rates expected to cool down from CY2012, we expect pick-up in

industrial activity, leading to a rebound in M&HCV sales. Thus, we expect Ashok

Leyland's volume growth to rebound in FY13E leading to higher revenues.

􀂾 AL has entered into an agreement to form a JV with Nissan Motor Company

negligible presence in the LCV space, this partnership would be positive for AL in

the long run.

􀂾 Despite the macroeconomic headwinds and a high base, the domestic MHCV

Truck segment has grown 8.9% YoY in H1FY12 aided by an increase in freight

rates. Ashok Leyland has underperformed the industry with a 10% decline in

volumes in the segment which is primarily attributable to the high base of

H1FY11. However, we expect a rebound in H2FY12 with good growth in MHCV

truck volumes and overall volumes.

Valuations

We expect demand to revive from CY12 with the likely easing of interest rates,

thereby helping AL to post robust volume growth in FY13E. At CMP, AL is

trading at 9.5x its FY2011 earnings. We recommend BUY with a target price of

Rs. 32 for a potential upside of 39%.

AXIS BANK LTD:: Fairwealth Investment Ideas 2012

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AXIS BANK LTD


The Bank was promoted jointly by the Administrator of the specified undertaking

of the Unit Trust of India (UTI - I), LIC and GIC and other four PSU insurance

companies, i.e. National Insurance Company Ltd., The New India Assurance

Company Ltd., The Oriental Insurance Company Ltd. and United India Insurance

Company Ltd. The Bank has a very wide network of more than 1281 branches

(including 169 Service Branches/CPCs as on 31st March, 2011). The Bank has a

network of over 6270 ATMs as on 31st March, 2011.

Investment Rationale

􀂾 Axis Bank plans to grow its advances by 22-24% in FY2012 with focus on

corporate and retail (mainly mortgages, automobile) segments. The bank also

plans to diversify its asset book by increasing the proportion of retail advances to

30% of its mix from 21% over the next 2-3 years. The bank's efforts to reduce

wholesale deposits and improve its low-cost deposit ratio through retail savings

augur well for its margins. It has managed to reduce the proportion of wholesale

deposits from 41% in March 2011 to 39% in June 2011.

􀂾 With the present 1400 branches pan India and expected addition of ~200

branches every year will support the business growth. It will also help the bank to

improve its retail segment reach.

􀂾 Axis Bank has enjoyed healthy asset quality so far with GNPA and NNPA at

1.08% and 0.34% respectively. High exposure to infrastructure and other stressed

sectors may post threat on the asset quality in coming quarters but strong growth

in core income will offset for provision requirements.

Valuations

Axis is among our preferred picks in the banking sector due to its strong deposit

franchise, healthy growth-return profile, and relative discount to peers. Concerns

over asset quality of the bank seem largely discounted in the current market price

and stock is currently available at a significant discount to its historical average.

Currently the stock is trading at 1.7x FY11 P/BV. Hence, we recommend Buy on

Axis Bank with medium to long term horizon with the target price of Rs. 1350.

Strategy: Early rays of a recovery are visible: Avendus

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Amidst the pervasive gloom, a few signs are pointing to better times


returning sooner rather than later. The rapid fall of the Nifty PEG has

brought it to within 10% of the band where it stabilized in 2009, before

the next rally began. A ‘time‐correction’ could pull down the PEG to

0.7x in 1Q2012. The yield‐gap is down to near its three‐year mean. In

the real economy, two lead indicators – Electricity generation and LCVs

– are pointing to a rebound in Manufacturing. The missing element –

lower interest rates – may be back soon, as seen in the recent fall in

bond yields. Shifts in earnings momentum suggest that sectors with

strong links to the recovery are more likely to outperform in 2012. We

advise cuts in allocations to Two‐wheelers and Consumer, and

increases in Commercial vehicles, Passenger vehicles, Cement,

Pharmaceuticals, Telecom, Metals and IT Services.

Steep fall in valuation; Nifty within 10%, three months of stable level

After falling from 2.0x to 0.8x in nine months, the Nifty PEG is within 10% of the

range where the Nifty stabilized in 2009, before the next rally began. If prices

and FY13 earnings forecasts stay at end‐Dec11 levels, the ‘time‐correction’

could push down the PEG to that range within three months. The yield‐gap to

the 1‐year government bond too has fallen close to its three‐year mean, partly

due to the fall in the Nifty, but more due to the large fall in the bond yield itself.

Latent signs suggest manufacturing recovery may be impending

Previous cycles saw the Electricity segment of the IIP rebound about six months

before Manufacturing. A strong rebound in Electricity has now been under way

for 14 months. Another similar lead indicator has been growth in sales of LCVs.

Despite the leading indicators being flashed, the rebound in Manufacturing has

not commenced. We believe the missing element in this cycle, that was active

in the previous economic cycle, is a low interest rate regime. The fall in food

inflation in Dec11 is significant as the food segment contributed over half the

rise in wholesale inflation during 2011. The fall in the one‐year government

bond yield has been a strong indicator of the fall in the Repo.

Tilt away from defensives may have begun

Late 2011 saw sectoral performances begin to shift from previous trends. There

is a tilt away from ‘defensive’ sectors and towards stocks with stronger linkages

to the next rebound. These changes are linked to the shifts in earnings

momentum and have signaled the revival of ‘normal’ sectors such as Cement

and Commercial vehicles. For 2012, we advise cuts in allocations to Twowheelers

and Consumer and increases in Commercial vehicles, Passenger

vehicles, Cement, Pharmaceuticals, Telecom, Metals and IT Services. Our top 10

stocks for 2012 are Bharti Airtel (BHARTI IN, Buy), Hindalco Industries (HNDL IN,

Buy), HCL Technologies (HCLT IN, Buy), ICICI Bank (ICICIBC IN, Buy), Larsen and

Toubro (LT IN, Hold), LIC Housing Finance (LICHF IN, NR), Maruti Suzuki (MSIL

IN, NR), State Bank of India (SBIN IN, Buy), Sun Pharmaceuticals (SUNP IN, Add)

and UltraTech Cement (UTCEM IN, Add).

Logistics - Q3FY12 Results Preview - Stable volumes, higher realisation to help CFS operators - Centrum

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Q3FY12 Results Preview

Logistics

Stable volumes, higher realisation to help CFS operators

With container volumes steady at the ports and CFS players’ ability to pass on higher rates and improve margins, we maintain our positive view on container based logistics players with a Buy rating on Gateway Distriparks (GDL) and Allcargo Global Logistics. We expect container volumes at 12 major ports to remain healthy and estimate a 10.2% volume growth (in TEU terms) to 8.3mn TEUs for FY12E and 10.0% growth to 9.1mn TEUs for FY13E. Transport Corporation of India (TCI) is riding on the growth in its supply chain and express logistics division, helping its revenue grow higher than that of the industry.

m  Container volumes stable: Container traffic at the 12 major ports remained stable during Q3FY12. Container volumes grew 3.5% YoY to 1.96mn TEUs during Oct-Dec 2011, as compared to 4.0% YTD FY12. Volumes at India’s largest container port JNPT also remained flat YoY at 1.1mn TEUs in Q3 as the port capacity was fully utilised.

m  Total port traffic down 4.7% YoY: Total port traffic remained lacklustre with a decline of 4.7% in Q3FY12 on the back of a drop in iron-ore and POL volumes. Iron ore volumes declined 30.4% YoY to 16.2mn tonnes while POL volumes fell 11.1% to 41.3mn tonnes in Q3.

m  EXIM trade too stable: India’s exports remained sluggish but its imports continued its robust growth during Q3. While exports grew just 6.9% YoY in value terms during Oct-Nov 2011, imports increased 36.0% YoY in the same period.

m  Domestic industrial activity: India’s Index of Industrial Production (IIP) however remained lacklustre and volatile with growth ranging between 3-4% and contracting in Oct. During Oct 2011 it contracted for the first time in 3 years by 4.7% YoY (new series) largely on account of decline of 6% in the manufacturing sector. However, during Nov it bounced back to 5.9%.

m  GDL and Allcargo - Top picks in the sector: Gateway Distriparks and Allcargo are our top picks in the logistics space. We have a Buy rating on both with a target of Rs190 and Rs242 respectively. We believe Concor is looking fully valued at the current level and maintain Hold with a target of Rs1,015. We also maintain our Buy rating on TCI (target price Rs109).

9 eurozone nations downgraded by S&P

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Standard & Poor's said Friday that it has downgraded the credit ratings of nine euro area governments, including AAA-rated France and Austria. S&P lowered its rating for Italy, Spain, Portugal and Cyprus by two notches. The move means Italian bonds are now rated BBB+, dangerously close to the junk bond level that could make it even harder for the government to raise money. France and Austria both had their top-tier credit rating lowered by one notch to AA+, said S&P. But Germany, Finland, the Netherlands and Luxembourg all maintained their AAA ratings. S&P cut the ratings of Malta, Slovakia and Slovenia by one notch. It's not clear how hard the downgrades will hit markets. Investors have been expecting S&P to act for weeks now -- a fact that could blunt the impact. At the same time, downgrades could scare off investors in European debt and raise the cost of government borrowing. S&P said the downgrades reflect a combination of economic and financial challenges, as well as "an open and prolonged dispute among European policymakers over the proper approach to address challenges." Specifically, the agency pointed to weakening economies, tightening credit conditions across the eurozone, rising interest rates for a growing number of nations and the "deleveraging" of both governments and households. "Today's rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone," said S&P. S&P warned that most eurozone governments are at risk of further downgrades given the risk of a "more adverse economic and financial environment." The agency said a deeper-than-expected recession in the eurozone would put further stress on government finances. In addition, governments remain vulnerable to further turmoil in the bond market, which could drive up their borrowing costs. Meanwhile, S&P said it welcomed recent moves by the European Central Bank to help prevent a credit crisis in the banking system.

Happy Pongal, Lorhi and Makar Sankranti to all readers: IndiaER.blogspot.com

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Happy Pongal, Lorhi and Makar Sankranti to all readers: IndiaER.blogspot.com


Enjoy the festivities

DSPBR Opportunities: Hold :: Business Line

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Fixed Deposits: Quality Company Deposits with Double Digit Return

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Looking for a "Double Digit Return" in the current scenario ??

 

That too from reputed Companies with a sound track record ???

 

We are very happy in providing you with a list of popular FD schemes to suit your requirement.

 

 

Company Name	Min. Amount	Rate of Interest (%)						Additional Interest	Rating
		1 Year	400 Days	15 Months	2 Years	33 Months	3 Years
DHFL AASHRAY Deposit - 400 Days	10000	-	10.75	-	-	-	-	0.50% additional for senior citizens	CARE (AA+FD)  BWR FAAA
Elder Pharmaceuticals Ltd	25000	10	-	-	11	-	12	0.50% additional for senior citizens	-
Godrej Properties Ltd	10000	9	-	-	9.50	-	10.50	-	-
Gruh Finance Ltd	2000	9.50	-	-	9.75	-	10	0.25% additional for senior citizens	MAA+ (ICRA) FAA+ (CRISIL)
Godrej & Boyce Mfg. Co. Ltd.	15000	-	-	-	-	-	10	-	-
HDFC Ltd - Platinum Deposits	20000	-	-	10	-	10	-	0.25% additional for senior citizens	FAAA (CRISIL) MAAA (ICRA)
Mahindra Finance Samruddhi	10000	9.50	-	-	10.25	-	10.50	0.25% additional for senior citizens	FAAA (CRISIL)
Plethico Pharmaceuticals Ltd	25000	11	-	-	11.50	-	12	0.50% additional for senior citizens	-
Premier Ltd	25000	11.50	-	-	12	-	12.50	-	-
Shriram Transport Unnati	25000	9.25	-	-	9.75	-	10.75	0.25% additional for senior citizens	FAA+/stable (CRISIL) MAA+/stable (ICRA)
United Spirits Ltd	25000	11	-	-	11.50	-	-	-	-