MARKET STRATEGY:: Feb 2012:: Kotak Securities TOP PICKS

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Preferred picks
Sector Stocks
Automobiles Bajaj Auto
Banking HDFC Bank, ICICI Bank, Bank of Baroda, SBI
Cement Grasim Industries
Construction IRB Infra, Unity Infra
Engineering Greaves Cotton, Cummins, BEL, Havells
FMCG GCPL
Information Technology Infosys, TCS, KPIT, NIIT Tech
Logistics & Transportation Allcargo Global Logistics, Gateway Distriparks, Mundra Port,
Arshiya International
Media HT Media
NBFC IDFC, M&M Financial Services
Oil & Gas Cairn India, IGL
Source: Kotak Securities - Private Client Research

MCX IPO Update: Opens on 22nd Feb ; close on 24th Feb ::FIRST IPO of 2012

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MCX IPO Update: Opens on 22nd Feb ; close on 24th Feb.

FIRST IPO of 2012

Infrastructure: Outlook 2012: is India likely to display remarkable growth deceleration? :: Deutsche Bank

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India Infrastructure

Outlook 2012: is India likely to display
remarkable growth deceleration?


We do not believe so; accordingly, our top infra picks are CIL, JSPL and L&T

Heading into CY12, valuations (E&C, Coal India) seem to be factoring in deep
pessimism. Valuations imply a coal volume de-growth of ~2% CAGR over
FY13-20e and new order growth of 5-10% CAGR over FY13-20e vs. 25-30%
CAGR over FY02-11. Our lead indicators suggest a recovery as: (a) new project
approvals show signs of a pick-up (b) cement demand has rebounded of late (c)
CY11 power demand growth at a decade high. For CY12, key themes could be
valuations and recovery. We prefer companies with strong balance sheets, high
RoEs/FCF as being the best positioned to benefit from an upturn.

Accumulate GUJARAT STATE PETRONET LTD (GSPL) :target price of Rs. 92/Share :: Kotak Securities

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GUJARAT STATE PETRONET LTD (GSPL)
PRICE: RS.84 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.92 FY13E P/E: 8.3X
q GSPL's Q3FY12 result is below our estimates. The company reported a
PAT of Rs.1.26 Bn as against our estimate of Rs.1.35 Bn (-7.1%).
q GSPL's bottom line has fallen mainly on account of 1) Lower gas transmission
volumes and 2). Lower revenue from sale of electricity. This was
partly offset due to higher gas transmission tariffs and lower interest
cost.
q In Jan'12, GSPL has signed an agreement with the consortium (led by
Bank of India) to fund the 2,200-km-long gas pipeline project from
Mehsana to Jammu, via Bathinda in Punjab. With the financial closure
project work will commission. The pipeline is expected to transmit more
than 40 million standard cubic meters gas per day (MSCMD). The project,
estimated to cost Rs. 35 Bn, is being implemented by a special purpose
vehicle (SPVs), with 52% stake of GSPL. In this regard, GSPL has formed
two SPVs for setting up new pipelines.
q In FY13E, GSPC (holding company) is expected to import one cargo of
RLNG per month which will improve GSPL's volumes (2.5-3 mmscmd).
q Recent fall in international LNG prices has resulted in higher demand
from refineries and steel plants but demand from power plants is yet to
pick-up.
q We would like to highlight that in Q3FY12 tariffs has increased by 5.9%
YoY and 7.6% QoQ to Rs. 899.2/KSCM. This is primarily due to increased
long distance transportation of gas which typically earns higher gas
transmission charges thereby pulling the averages up.
q Gas transmission volume had fallen by 6.9% QoQ and by 7.3% YoY to
32.8 MMSCMD in Q3FY12, mainly due to fall in domestic supply of gas.
In FY12E, transmission volumes are lower due to lower off take by few
power plants which were undergoing maintenance.
q The Company recorded flat operating margin on sequential basis. In
Q3FY12, the operating margin was 91.9% as against 92.0% in Q2FY12
and 93.8% in Q3FY11.
q From 1st April'10, the Company had changed the depreciation rate on
gas transmission pipeline from 8.33% SLM to 3.17% SLM. Hence, they are
not comparable.
q On a quarterly basis, the Company reported an EPS of Rs.2.24 and CEPS of
Rs.3.06.
q In FY11, PNGRB had granted authorization for setting up the pipeline,
which will be laid from Mallavaram in Andhra Pradesh to Bhilwara in
Rajasthan, Mehsana in Gujarat to Bhatinda in Punjab and Bhatinda to
Jammu. It will have capacity to carry ~ 95 MMSCMD of gas. We believe it
will take at least three years for completion. On a conservative note, we
have not considered this for our valuations.
q Key risk remains in terms of capping of margins by PNGRB at 18% pretax
ROCE. Based on Q3FY12 rates GSPL is earning around 27.5% pretax ROCE.
q We expect GSPL to report an EPS of Rs.9.03 FY12E and Rs.10.10 FY13E. We
believe the RLNG prices will fall from March'12 onwards due to seasonality
which will improve gas transmission volumes.
q The recent correction in the stock price has made the valuations attractive.
Hence, we retain ACCUMULATE rating on GSPL with a revised target
price of Rs. 92/Share (earlier Rs.105).

IDFC Ltd - Financial Results : Growth of 30% (YoY) in Net Interest Income and 23% in PAT

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Highlights of 9M FY 2012

Ø       Net Interest income of ` 1,527 crore : an increase of 30%

Ø       Profit After Tax of ` 1,219 crore for 9M FY 2012 compared to ` 995 crore in 9M FY 2011: an increase of 23%

Ø       Balance sheet size as on December 31, 2011 - ` 56,180 crore : an increase of 17%

Ø       Net Loan book increased from ` 35,021 crore as on December 31, 2010 to ` 43,897 crore as onDecember 31, 2011: an increase of 25%

Ø       Net NPAs at 0.2% of outstanding loans

Ø       Average Assets under management – ` 37,228 crore

  

At its 86^th Board Meeting held on February 10, 2012, the Board of Directors of Infrastructure Development Finance Company Limited (IDFC) approved financial results for the period April 1, 2011 to December 31, 2011.

BALANCE SHEET

§         The balance sheet size grew by 17% from ` 48,030 crore as at December 31, 2010 to ` 56,180 crore as atDecember 31, 2011.

§         Net Loan book increased by 25% from ` 35,021 crore as at December 31, 2010 to ` 43,897 crore as atDecember 31, 2011.

§         Exposure was ` 66,015 crore as on December 31, 2011.

INCOME

§         Net Interest Income (NII) increased by 30% from ` 1,171 crore in 9M FY 2011 to ` 1,527 crore in 9M FY 2012.

o        NII from infrastructure loans increased by 25% from ` 1,076 crore in 9M FY 2011 to ` 1,340 crore in 9M FY 2012.

o        NII from treasury operations increased by 96% from ` 95 crore in 9M FY 2011 to ` 187 crore in 9M FY 2012.

§         Non Interest Income decreased by 3% from ` 729 crore in 9M FY 2011 to ` 710 crore in 9M FY 2012.

o        Fees from IDFC’s asset management business increased by 13% from ` 195 crore in 9M FY 2011 to ` 221 crore in 9M FY 2012.

o        Income from Investment banking and broking activity decreased by 63% from ` 161 crore in 9M FY 2011 to ` 60 crore in 9M FY 2012.

o        Income from principal investments increased by 90% from ` 169 crore in 9M FY 2011 to ` 321 crore in 9M FY 2012.

o        Loan related and other fees decreased by 47% from ` 203 crore in 9M FY 2011 to ` 108 crore in 9M FY 2012.

PROFITS

§         Profit before Tax increased by 23% from ` 1,367 crore in 9M FY 2011 to ` 1,682 crore in 9M FY 2012. 

§         After accounting for tax and share of profit in associate company, PAT increased by 23% from ` 995 crore in 9M FY 2011 to ` 1,219 crore in 9M FY 2012.

§         EPS (diluted) increased by 17% from ` 6.87 per share to ` 8.01 per share.

Edelweiss India Post Conference Notes - Day-2 - Mumbai - Corporate Powerhouse

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We present key takeaways from day 2 of "Edelweiss India Conference-2012". The two day event was a resounding success and enabled over 2,000 one-on-one insightful meetings between investors and corporates.

Apart from investor-corporate interactions, highlights of the conference were the unique and insightful panel discussions on myriad topics such as financial inclusion, infrastructure and sustainability of consumer growth. The panel for each of the sessions was represented by leading names from the respective industry groups.

 The discussion on financial inclusion touched upon issues like creating a viable business model for enabling financial inclusion via a differentiated product and service offering and the use of modern technology and innovative distribution channel as enablers. The infrastructure panel dwelt on the hotly debated issues including availability of coal, rationalization of tariffs and risk allocation in major projects. Among other interesting topics, the potential for urban infrastructure, waste management and renewable energy as the next big thrust areas within the infra sector were discussed, especially in the context of India emerging as the largest PPP market in the world. Meanwhile the discussion on the consumer trends focused on the immense potential of India's retail markets. Interestingly, all panelists laid stress on growing importance of rural India as a market. This apart, the CIO panel debated on the increasing impact of government's decision making on the markets. The participants were of the view that while liquidity might push up the markets in the short term, for a sustainable rally, some new triggers are required, especially from execution front from the government.

Apart from panel discussions, the conference was also graced by eminent CEOs who addressed interesting and emerging trends - both for respective companies as well as for industries.

Through corporate interactions, investors continued to gain valuable insights. Within the capital goods sector, the key observation was the lingering weakness in power generation market owing to structural issues in coal and land availability. Participants however, were optimistic about the robust ordering from emerging areas such as urban infrastructure. On the BFSI sector, discussions centered on the asset quality issue (particularly infra segment), outlook on margins and drivers of credit growth going ahead.  In the oil & gas sector, our interactions suggest that the provisional under-recovery sharing for upstream, as hinted by GoI, is pegged at 37.91% for FY12. This is positive for upstream companies as the consensus was at ~45%. While outcome will be known in next three months, initial indications are positive. For the cement sector, our interactions pointed to 8% YoY demand growth in FY13 with the South region witnessing a near double digit growth due to a low base. The current surplus capacity, on a pan-India basis, is likely to subside over the next 2-3 years, aiding a gradual improvement in cement prices.

In sum while there are areas of concern, there is still a strong appetite for new ideas and investor mood seemed to be tilted towards optimism for FY13.       
       
       
       

Edelweiss India Post Conference Notes - Day-2 - Mumbai - Corporate Powerhouse

GAIL N: Earnings resilient but decelerating; lower TP  HSBC Research,

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GAIL
N: Earnings resilient but decelerating; lower TP
 Earnings likely to be resilient but historical c20% EPS CAGR is
likely to moderate to c8% over FY12-14e, in our view
 We expect the uncertain subsidy burden and potential
regulation of marketing margins to cloud the outlook
 We retain Neutral rating but reduce our TP from INR500 to
INR405 to account for lower volumes and higher subsidy

Allahabad Bank Buy (Another stellar performance aided by lower tax rate; sharp rise in other income ):: KJMC

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Allahabad Bank has once again reported strong PAT of Rs 5604.3mn, up 34.8%YoY
which was way ahead of our estimates of Rs 4697.6mn. NII for the quarter grew by
31.3% YoY ahead of our/street estimates while NIMs of the bank was maintained at
3.5%. Higher increase in profits was also supported by sharp increase in other
income by 35.2% to Rs 3484.1mn. ALBK reported slippages to the tune of Rs 5.9bn
while restructured assets stood at Rs 10.5bn. GNPA and NNPA of the bank
increased by 9bps and 10bps to 1.9% and 0.8% respectively.
The stock is currently trading at 0.7x of its FY13E ABV. We value the standalone
business at 0.9x of its FY13E ABV at Rs 217.6 and maintain our buy rating on the
stock with Target Price of Rs 196.
Key Highlights
Lower tax rate boost profits: ALBK has provided lower tax rate of 7.9% since it
has not availed tax benefits earlier on certain items like rural advances,
priority sector advances, MIS, etc. which has helped to boost profits above
our expectation. Also, management has guided in the last concall to avail Rs
3bn of tax benefits which will translate into 21% tax rate for the full year FY12
as compared to 26% in FY11.
Advances grew sequentially; NIMs remain stable: Advances for the quarter grew
4.9% sequentially to Rs 1tn due to strong growth in agri and corporate
advances while deposits for the quarter grew by 2.3% sequentially thereby
improving CD ratio to 69.1%. In addition, NIMs of the bank remained stable
at 3.5%.
Asset quality remains stable, restructured assets rise significantly: Asset quality of
the bank remained stable with Gross NPA and NNPA at 1.8% and 0.7%
respectively. Slippages during the quarter stood at Rs 5.9bn which includes
one big account from footwear industry situated in North of Rs 1.2bn. Major
chunk of slippages was from priority sector lending which constituted 60% of
the slippages. Management has denied having any exposure to Kingfisher or
GTL. The total outstanding restructured advances stood at Rs 38.2bn in
which Rs 2.6bn have slipped into the NPL category. Total restructured
amount during the quarter stood at Rs 10.5bn. No restructuring took place
for the SEBs. However, management has indicated to restructure Rs 6bn of
Rajasthan State Electricity Board in the coming quarter.

Tata Steel: The devil lies in the detail :: Kotak Securities

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Tata Steel (TATA)
Metals & Mining
The devil lies in the detail. Consolidated loss of Rs6 bn (our estimate was profit of
Rs1.6 bn) and EBITDA loss of US$147 mn at TSE (our estimate of US$64 mn) are the
headline disappointments. On closer scrutiny, US$143 mn of inventory write-down
(including raw materials) at TSE and high tax rates were the primary factors of the miss.
India business performance was solid. Financial performance of Tata Steel will improve
significantly starting 4QFY12E due to a combination of increase in steel prices and
lower raw material costs. We will review our estimates and TP post the earnings call.

Dr. Reddy’s Labs :Windfall from generic Zyprexa (olanzapine): Centrum

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Windfall from generic Zyprexa (olanzapine)
Dr. Reddy’s Labs (DRL) reported excellent results for Q3FY12 due to $99mn
(Rs4.55bn) revenues from 180-days exclusivity of generic olanzapine in the US.
The company’s revenues grew by 46%YoY, EBIT margin improved by 1190bps and
net profit grew by 88%YoY. The company is also likely to report similar results in
Q4FY12 due to generic olanzapine opportunity. However, the company reported
moderate growth in other markets. We have revised our rating from Hold to Buy
with a revised target price of Rs1885 (based on 24x FY13 EPS+FTF).
􀂁 Windfall from generic olanzapine: During the quarter, DRL reported $99mn
(Rs4.55bn) revenues from 180-day exclusivity of generic olanzapine in the US. The
company launched 20mg version of generic olanzapine in October’11 in the US.
DRL is also likely to report similar growth in Q4FY12 due to the remaining period
of exclusivity. Excluding generic olanzapine, the sales growth was 22%. The
company is likely to benefit from 40 Para IV and 10 FTF opportunities in the US.
􀂁 Moderate growth in other markets: DRL’s global generic business (77% of
revenues) grew by 57%YoY from Rs13.59bn to Rs21.29bn. Its PSAI business (20%
of revenues) grew by 12%YoY from Rs4.98bn to Rs5.56bn. DRL’s proprietary
business (3% of revenues) grew by 102%YoY from Rs417mn to Rs842mn. Global
generic growth rates in various geographies were: N. America 133% (due to
generic olanzapine), Europe 14%, India 11%, Russia & CIS 15% and others 34%. For
PSAI business the growth rates were: N. America 52%, Europe -10%, India 39%
and others 7%.
􀂁 EBIT margin improves by 1190bps: DRL reported 1190 bps YoY improvement in
EBIT margin from 15.4% to 27.3% mainly due to the high margin generic
olanzapine opportunity in the US

Birla Corporation Ltd. Strong Cement play marred by temporary hiccups :Networth Research

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We are positive on Birla Corporation Ltd. (BCL) due to 1) Its exposure
to better performing markets 2) Upcoming capacity to drive volume
growth 3) Low gearing level 4) attractive valuations. Our FY13E target
price of Rs 311 values the Company at EV/tonne of US$50 which
implies 17% upside from the CMP. We initiate coverage on Birla
Corporation with a BUY rating.
Investment Theme
Expect 6% CAGR in volumes over FY11‐14E on the back of capacity
expansion
We expect volume growth to improve to 6% CAGR over FY11‐14E as
against 4% CAGR over FY08‐11. Volume growth would be driven by
2.7 million TPA cement expansion at Chanderia (Rajasthan) and 0.6
million TPA At Durgapur (West Bengal) by FY14E.
Exposure to better performing markets
BCL’s sales volume comes from North (35%), East (25%) and Central
(40%) regions. We expect the Company to benefit as these regions
will see substantial reduction in incremental supply from new &
existing players and improvement in demand in FY13E.
Expansion plans will be largely funded through internal accruals‐ No
dilution risk
We expect that the total capex for the expansion (3.3 million TPA
cement capacity + 102.5 MW thermal power plant) of Rs 16 bn to be
incurred by FY14E would be largely funded through internal cash
flows. In case any additional funding is required for further expansion,
considering its low gearing (FY 14E D/E at 0.5); we expect it to be
easily accommodated by the balance sheet.
Valuation
On EV/EBITDA basis, the Company is trading at 4.3x FY12E EBITDA and
3.6x FY13E EBITDA respectively. We have valued the business (FY13
capacity) at EV/ton of US$ 50 which is at 50% discount to the
replacement cost. Our FY13E end target price of the stock stands at Rs
311 which implies 17% return. We recommend “Buy” at current
market price.

Prakash Industries :: TP: INR99 Buy :Motilal Oswal

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Prakash Industries 3QFY12 results were in-line; Greater focus on sponge iron and power sales boosts earnings
 Prakash Industries’ 3QFY12 Adj PAT grew 20% QoQ to INR668m (v/s est INR668m) due to stronger market for
sponge iron and power. EBITDA at INR910m was also broadly in line with our estimate of INR956m.
 Sponge iron realization increased 9% QoQ. PKI sold more sponge iron and power at the cost of steel production
to capitalize on stronger market.
 PKI has entered into a contract with Andhra Pradesh SEB for sale of 27MW power at an average rate of INR3.75/
kwh for next 5 months. Another 40MW capacity will be available for external sales after stabilization of all the
units.
 New Fe-Mn capacity of 24ktpa is being planned in FY13 at a capex of INR600m to leverage on enhanced power.
 Steel production is now being optimized to gain from improved market.
 Stock trades at very attractive FY13E P/E of 2.5x, EV/EBITDA of 2.7x, and P/BV of 0.3x. Maintain Buy.

Technicals: RPower, Voltas, IFCI , L & T Finance, Cummins, Alstom, Kalindee Rail, Gujarat Reclaim ::Business Line

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Please advise me on the long-term outlook of Reliance Power.

J. Senthan

Reliance Power (Rs 105.3): In September 2011, we had reviewed Reliance Power and written that investors could hold this stock as long as it traded above Rs 70. The stock bottomed after testing this support fleetingly in December, and is currently attempting to move higher. The stock has psychological resistance at Rs 100 and it is also the level it made in the recent peak of last November.

Move above Rs 100 can take the stock higher to Rs 127 or Rs 156 in the months ahead. Investors who are not in the stock for the long haul can hold with stop at Rs 65 and exit at either of these hurdles.

The long-term trend decider stays at Rs 200. Inability to move beyond this hurdle will result in the stock vacillating in the band between Rs 70 and Rs 200. Subsequent targets are Rs 230 and Rs 264.

Pidilite Industries: Upgrade to Buy: Nomura research,

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Growth driven by consumer
and bazaar, margin expansion
from falling raw material prices


Action/valuation: Upgrade to Buy with ~22% potential upside
We upgrade PIDI to Buy from Reduce, as we gain confidence in its solid
top-line growth (22% in 3Q, projected at ~19% in FY13-FY14) in the
consumer and bazaar segment, driven by new product launches. The
company is also benefiting from falling raw material prices and a
strengthening INR. We have raised concern about its elastomer project in
the past, and we believe this has underpinned the stock’s significant
underperformance (~17%) versus the CNX midcap index since the end of
November. As we await more clarity around this project by March 2012,
we think that valuation is now compelling. Our revised FY13-FY14 EPS
estimates (up ~12.7%) support our revised target price of INR174 (up
23%), which is still based on the three-year average P/E of 17.5x
Catalyst: Margin expansion driven by falling raw material prices
VAM prices are down ~20% since the peak in Q1FY12 in USD terms, but
have been largely offset by a depreciating INR in Q3. However, we believe
that declining VAM prices (~23% in CY12) and an appreciating INR vs
USD (~8% in CY12) should lead to margin expansion in the near term.
Probability of shelving/ divestment of the elastomer project is high
While the outcome of the elastomer project’s consultant review has been
delayed to Mar’ 12, given that the project continues to be on hold, and
considering media reports suggesting a potential divestment, we see the
probability of management not going ahead with this project as higher
now. We highlighted the risks of this project in our report “Risks outweigh
rewards concerns around the elastomer project” published on 29 Nov’11.

Stock Strategy: SBI, Suzlon face resistance ::Business Line

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State Bank of India (Rs 2,160): Thanks to the recent surge in the share price, the stock of SBI was able to arrest its bearish trend. However, it may face resistance going forward as the recovery was too sharp. SBI faces key resistance at Rs 2,264 while the support is placed at Rs 1,960. A close below the support can even drag the stock towards Rs 1,805. On the other hand, continuation of the current trend can push the stock towards Rs 2,568. We expect the stock to correct.

F&O pointers: Fresh shorts were initiated on SBI on Friday. Option trading indicates that SBI could move in Rs 1,900-2,200 range as lower strike puts and higher strike calls witnessed heavy accumulation of open interests.

Strategy: Traders can short SBI with a stop-loss at Rs 2,264 (spot price on a closing day basis). Market lot is 125 shares a contract. Alternatively, traders can sell 2,200 call, which closed at Rs 57 on Friday. While maximum profit in the strategy is the premium collected, loss could be unlimited if SBI moves up sharply above Rs 2,200. This strategy, therefore, is for traders with a high-risk appetite only. SBI is coming out with its quarterly numbers on February 13.

Suzlon (Rs 31): After hitting life-time low in January, Suzlon Energy has recovered sharply. However, it now faces strong resistance. It finds immediate resistance at Rs 33.5 and a key one at Rs 36.4. A close above the latter level would trigger a fresh rally in the stock, which may take it to Rs 45. On the other hand, a close below Rs 30 (spot price) will trigger a fresh sell-off. In that event, Suzlon can reach Rs 24.4 though in between it faces resistance at Rs 26.3.

F&O pointers: Suzlon saw heavy unwinding of open interest positions on Friday, along with a fall in share price. This indicates that traders are not willing to rollover their positions. Option trading indicates a neutral view as both calls and puts added open interest. Trading in call option indicates that Suzlon would face strong resistance at Rs 32.5 and Rs 35 levels. Puts were not that active.

Strategy: Traders can short Suzlon with a stop-loss at Rs 33.5 for an initial target of Rs 26. Stop-loss can be shifted to Rs 30, if it dips below that level. Risk-averse traders could wait till it closes below Rs 30.

Traders could also consider selling (writing) 32.5 call, which closed on Friday at Rs 1.35. This strategy for traders who can afford to take a risk, as loss could be unlimited if Suzlon reverses direction and surges sharply. The maximum profit could be the premium collected. Market lot is 8,000 shares/ contract.

Follow-up: Last week we had recommended a long on Alok Industries with a stop-loss at Rs 20. As expected, the stock moved in positive zone. Traders can now consider holding the position with a revised stop-loss at Rs 22.4. We had also advised traders to write 20 put in the counter. Traders can consider closing out the position, as the put closed at 15 paise, netting neat profits. We had also recommended a long on Biocon. Traders can hold the position with a revised stop-loss at Rs 280 (spot price on a closing day basis).

Investing for goals will help build your portfolio ::Business Line

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I am 51 and my wife is 49 . We have two daughters, one aged 20 studying second year engineering, the other is in class nine.

My annual salary post-tax is Rs 15 lakh with yearly performance pay of Rs 3.5 lakh. My wife is taking VRS and she will receive a pension of Rs 15,000 a month.

We get rental income of Rs 6,000 a month from our property in Coimbatore. My family is covered by employer group medical insurance; I and my wife will be covered till we live. Our life expectancy is 75 years.

Cash outflow:

Household expenses - Rs 35, 000

Premium towards insurances for me and my wife - Rs 20,000

Investment through SIP - Rs 15, 000

Educational expenses for our daughters - Rs 15, 000

EMI towards Housing (June 2020) - Rs 40,000

We have Rs 2.5 lakh in a bank FD for contingent expenses.

Financial assets in (Rs lakh)

Equity- 15

Mutual Fund - 13

Pension Fund - 5

FD/PPF/Bonds - 10

Gold - 12

Immovable Assets:

Mumbai flat - 55

Coimbatore flat - 50

Plot - 50

Insurance:

Savings - 17

Term - 25

Retirement benefits:

PF present value is Rs 25 lakh and my salary has been growing at 5 per cent. Gratuity at retirement will be Rs 20 lakh.

Superannuation benefits in present value Rs 13 lakh.

Leave encashment - Rs 7 lakh

Future requirement:

All data in present value:

Elder daughter's likely MBA costs - Rs 5 lakh

Younger daughter's higher education - Rs 10 lakh

Elder daughter's marriage, planned for 2015 - Rs 20 lakh

Younger daughter's marriage in 2018 - Rs 20 lakh

Post retirement household monthly expenses - Rs 25, 000

Provision of Rs 10 lakh for medical expenses after I turn 70

One world tour after retirement, estimated at Rs 10 lakh

Queries:

We wish to purchase a house in Chennai by making use of her VRS benefits of Rs 20 lakh and by selling our plots.

Can I meet all my future goals with the present financial status? What additional savings do I need?

Considering my age do I need to change my investment strategy?

I plan to retire at 55. Can I meet my post retirement expenses with retirement benefits?

Our insurance policies will mature in phases with values of Rs 20 lakh plus bonus by 2019.

- Balakichenan

Your portfolio is already overweight with real estate and if you wish to purchase another house, you need to sell your plots. So for a flat of Rs 50 lakh, sell your plots to raise the amount .

If your investment exceeds this value, take a home loan not higher than Rs 15 lakh. If you are planning to retire in another five years, take a loan for a similar tenure.

For a five year loan your total interest out go will be Rs 4.23 lakh if you borrow at 10.25 per cent.

To meet the EMI of Rs 32000, utilise the rental income from the property and performance pay.

If you happen to rent the flat till you retire, entire interest paid towards home loan can be adjusted against your income. If your wife is holding some part of the plot, buy the house jointly as this will reduce your tax on the rental income.

Invest your wife's VRS proceeds in a FD in your younger daughter's name and redeem the same when she is ready for employment. This will help you to earn interest without any deduction.

Take conservative bets on investments.

Meeting goals: You can comfortably meet all your goals as all the right investments have been made. What you need to do is to earmark each for a specific goals and manage it.

For your elder daughter's marriage allocate your equity investments and rebalance your portfolio with large cap stocks and ensure that you are achieving 10 per cent return .

Start a bank RD in her name for Rs 6, 470 for next 24 months and earn 10 per cent to reach the goal.

For your younger daughter's higher education utilise the debt investments. For her marriage, build a portfolio with mutual funds for the next nine years generating at least 12 per cent.

If there are any abnormal returns, book profits and shift proceeds to debt schemes. Continue your current SIP of Rs 15,000 and keep it as buffer to meet short fall in any of the goals.

Retirement: The present value of Rs 25,000 a month will be Rs 35,000 in another five years, if inflated at 7 per cent.

Post retirement, if your investments return beat inflation by a percentage point, it will meet your household expenses till 80. At retirement you should have corpus of Rs 92 lakh.

Your retirement benefits will be close to Rs 80 lakh. With pensions and rental income, you can lead a comfortable life till 80.

Even if your standard of living increases, maturity proceeds of your wife's VRS investment and pension plan can help you to meet the needs.

International tour: The maturity proceeds of your insurance will be Rs 30 lakh and utilise the same for your vacation.

Use a part of the balance to close your existing home loan and the rest for medical emergencies.

IL&FS Transportation Networks Ltd BUY:: KJMC

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IL&FS Transportation Networks Ltd (ITNL) reported better than expected
Q3FY12 results. The consolidated net revenue and PAT after minority interest for
the quarter grew at 73.5% and 42.5% respectively on yoy basis. The company has
current capital work order in hand to the tune of Rs 100.6 bn. In the quarter it was
awarded Rs 19 bn of projects. The company has bid pipeline of Rs 568.25 bn of
road projects which gives visibility on inflow of new projects in future.
Key Highlights
Strong execution supported 73.5% growth in consolidated net revenue: ITNL reported
strong performance at consolidated level in Q3FY12. The consolidated net
revenue for the quarter stood at Rs 12.68 bn which was up 73.5% yoy mainly on
account of strong contribution from construction revenue. In 9MFY12 the
consolidated revenue grew at 51.3% yoy to Rs 23.9 bn driven by 87.2% yoy
growth in construction income and 41.9% yoy growth in Toll/Annuity income.
The nine month revenue included 69% from construction, 14% from Elsamex,
10% from toll and annuity and rest from others. The standalone revenue was up
125.5% yoy to Rs 5.66 bn which included 70% construction revenue, 23% fee
income and balance as O&M income & others. The standalone revenue did not
include the construction revenue in Jharkhand State Road Project as it was
booked at SPV level. The fee income was mainly on account milestone based
upfront fee from Jharkhand projects, advisory income from a group company
and supervision fee from projects under construction.
EBITDA margin declined on contribution from low margin construction segment: In
Q3FY12 the company reported 454 bps decline in EBITDA margin that stood at
25.3%. The decline in EBITDA margin was mainly on account of higher
composition of low margin construction revenue. PAT for the quarter grew at
42.5% yoy to Rs 878 mn.
Added new BOT project in the quarter: In the quarter, ITNL added new project
Kiratpur Ner-Chowk in Himachal Pradesh of Rs 18.18 bn project cost. It is a
BOT Toll project of Rs 327 km length awarded by NHAI. This project is
awarded with a grant of Rs 1.34 bn. The new awarding took ITNL capital
work order in hand to Rs 100.6 bn which would translate into revenue in the next
three years. In addition, it is participating in Rs 568.25 bn of projects including Rs
86 bn of project at RFP stage and Rs 482.25 bn at RFQ stage.

Tulip Telecom: Slowdown impacts business growth : Centrum

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Slowdown impacts business growth
Tulip Telecom’s Q3FY12 revenue was below our estimates. Revenue was up
13.9% YoY at Rs6.8bn vs our estimate of Rs7.4bn due to slowdown in business
activity. However, EBITDA margin was in line with our estimate at 29% during
Q3. We revise our revenue assumption downward to factor in the uncertain
economic environment in the country which has decelerated the growth
momentum of the company. However, visibility in data centre is improving
and the company has orders worth Rs6bn for 5 years which bodes well
considering that it is a business in the investment phase. We believe that
negatives in terms of FCCB payout due in Aug 2012 is factored in the current
valuation. We re-iterate Buy rating with a revised target price of Rs205,
implying EV/EBITDA of 6.1x and 5.5x FY12E and FY13E respectively.
􀂁 Results below expectation: Q3 result came below expectation. Tulip clocked
13.9% YoY revenue growth to Rs6.8bn as against our expectation of Rs7.4bn.
However, the business mix in favour of fibre based services helped the
company maintain operating margin at 29% (in line with our estimates).
Higher interest expenses and tax rate led to a decline in net profit by 5.3% YoY
to Rs773mn during Q3.
􀂁 Return ratios slipping q-o-q: While the EBITDA margin remains intact, return
ratios slipped quarter by quarter due to continuous capex for its data center as
well as the existing fibre based segment. Also, working capital pressure has
increased with the company beginning to implement R-APDRP projects. We
believe that lower asset utilization would temporary put pressure on return
ratios. The reduction in capex from FY13, lower interest rate and monetization
of investment in Qualcomm/stake sale in subsidiary would reduce interest
burden going forward and improve return ratios.

Market View on India's 2012 Bull run ::Business Line

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Bull markets start with favourable liquidity, attractive valuations, and progress on fundamentals, which remain uncertain for 2012.

“The month of January, 2012, saw a strong FII inflow of $2.2 billion in Indian stock markets. Due to the surge of money, the S&P Nifty rallied 12 per cent, while CNX mid-cap rallied 16 per cent. Cyclical sectors outperformed the so-called defensive sectors. Which presents the following question — are we in a bull market? Bull markets start with favourable liquidity, and attractive valuations and progress on fundamentals. Though the liquidity conditions and reasonable valuations have led to a strong rally in January 2012, fundamentals remain uncertain in our opinion.”

— BNP PARIBAS MUTUAL

“Have the fundamentals of the Indian economy improved to warrant a sharp rally in recent times? Do global equity markets think that the Euro zone problem has come to an end? While predicting any outcome to the Euro Zone sovereign debt crisis is difficult, it is quite likely that the GDP of Euro Zone will contract in 2012. Hence, it is difficult to see a sustained medium-term rally in the Euro Zone.

Locally, inflation has come down, as per expectations, and interest rate reductions are likely in a few months. GDP growth is unlikely to accelerate substantially in 2012. As a result, valuations, especially of sectors that have gone up sharply, aren't inexpensive. We think therefore, that after such a sharp rally, Indian markets will consolidate, or give away a part of the recent gains. The state election results and Union Budget could provide some direction. In the near-term, equity markets will continue to mirror global movements. This rally can be sustained in the medium term by good global markets, and a serious move by the government to stimulate the investment cycle.”

— DEUTSCHE MUTUAL

“What are our key expectations from G-Secs/Corporate Bonds in 2012? One, corporate spreads for good-quality AAA bonds could narrow by 20-30 basis points (bps), falling to near 50 basis points from the current 80 basis points. Two, 10-year G-Sec is to average 8 per cent during the year but is likely to see lower levels during the year. Three, one-year CD rates could yield 100-125 bps lower during Q2/Q3 of 2012. 2-3 year corporate bond yields may also head lower by 50-75 bps. Yield curve should steepen through 2012. Thus, 2012 is expected to bring good times to fixed income investors. A fall in short-term rates and steeping of the curve will benefit medium duration funds, while narrowing corporate spreads and 10-year G-Sec at 8 per cent may benefit long duration funds.”

— BIRLA SUN LIFE MUTUAL

“The year 2012, as a calendar year, promises to be significantly better for the Indian debt markets, than 2011. We reiterate our optimistic view with a short-term perspective for the non-SLR segment, and being neutral on the gilt segment. Our medium-to-long-term view is neutral with an undertone of cautious bullishness. Investors may do well to remain invested with the bulk of their investments at the shorter end of the curve for now, while cautiously investing part of their funds towards the longer end of the yield curve. Investors with a medium-to-long-term perspective are advised to move along the duration curve in a confident but calibrated manner, as we move into the calendar year 2012.”

— DAIWA MUTUAL

Siemens India (SIEM IN) Downgrade to UW: Orders likely to disappoint; HSBC Research,

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Siemens India (SIEM IN)
Downgrade to UW: Orders likely to disappoint; margins may slip
 Parent results indicate a weak demand environment; new orders in
India fall c59% y-o-y (adjusted for currency)
 Group EBIT falls c23%; India margins may disappoint as weakness
is driven by the Power Transmission business
 Siemens’ growth profile likely to deteriorate; downgrade to UW
(from N), advocate switching to Areva T&D; maintain TP of INR765

Investment Focus - Jamna Auto Industries: Buy ::Business Line

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Although the economy has slowed in 2011-12, commercial vehicle (CV) sales have been encouraging. Cumulatively, medium and heavy commercial vehicles sales have grown by 12 per cent year-on-year for the first ten months. With lead economic indicators pointing to a bounce-back in growth and interest rate hikes coming to an end, the CV industry will witness higher volume growth as the calendar year progresses. These trends favour Jamna Auto Industries (JAI), which has 65 per cent market share in the supply of leaf and parabolic springs for CVs.

Forming an important part of a vehicle's suspension system, springs support the weight of the vehicle and spread the load more widely over the chassis. Attractive valuations at eight times its trailing twelve-month earnings and planned value-additions such as lift axles and air suspension systems make for strong prospects. Investors with a perspective of one to two years can buy the stock.

A diversified clientele including Tata Motors, Ashok Leyland, Eicher and Volvo puts the company in a sweet spot. Incremental demand will come from the expansion plans of its clients. Ashok Leyland is rolling out several models under the new U-truck platform. Tata Motors is sprucing up sales of its world truck range (Prima) vehicles.

VALUE ADDITIONS

What bodes well for JAI's margins and realisations is the focus on parabolic springs and the setting up of manufacturing capacities for lift axles and air suspension systems. Parabolic springs are lighter than leaf springs, improve fuel efficiency, offer twice its life and give better ride comfort. While these springs are widely used for light CVs, companies such as Tata Motors are beginning to use them for some heavy vehicle models too. These springs bring in 12-13 per cent of the company's revenues now.

The shifting market preference towards higher-tonnage vehicles augurs well for lift-axles, which are used for load-bearing purposes in heavy vehicles. Air suspension systems have applications in low-floor buses. To de-risk from the swings in new CV sales, JAI is expanding its dealer footprint. This will cater to the replacement demand for springs. It is working on improving the replacement market share in total revenues to 30 per cent from the current 10 per cent.

For the nine months ended December 2011, net sales grew 17 per cent year on year to Rs 665 crore. Adjusted net profits moved up over 50 per cent to Rs 31 crore. Cost pressures restricted operating profit margins to 11 per cent, down from 13 per cent last year