Q1FY13 Result Review - Downdraft ebbing: Edelweiss Research PDF link

Adjusted earnings growth for Q1FY13 (7.8% for the coverage universe, ex OMCs, and 12.4% YoY for Sensex) is sluggish but the downward drift seems to be ebbing. Though sector-wise pockets of concern remain, there are some signs of an improvement- a higher beat-to-miss ratio and indication that the sharp contraction in margins may have been arrested - in line with our view that in a slowing demand environment, businesses adopt by shifting focus from growth to profitability through cost rationalization. The cycle of EPS downgrades is also losing steam with only a paltry 0.4% cut to FY13E Sensex EPS during the reporting season as compared to much sharper cuts during previous reporting seasons.

Annual Report Analysis - Tata Motors: Edelweiss

Tata Motor’s (TAMO) FY12 annual report analysis highlights improved cash flow led by better operational performance of JLR coupled with benefits of negative working capital kicking in. We observe that for global peers the proportion of R&D cost expensed in P&L is almost equal to cash cost vis-à-vis JLR where it is much lower than the cash cost. Actuarial losses on pension continue for the fourth consecutive year, which are allowed to be adjusted in reserves under IFRS. Cumulative cash contribution to pension fund over the last four years is higher than P&L charge. Interest cost on FCCBs and NCDs continue to skirt P&L as per option given under the Companies Act.

Reliance Industries - Refining: Positive longer-term view; company update; Buy: Edelweiss Research PDF link

Reliance Industries (RIL IN, INR 816, Buy)

Refining margins have soared recently by USD2/bbl due to unplanned large outages in refineries. While we expect moderation in refining margins as capacities come back, in the long term, we continue to remain positive on them as we believe that capacity closures will keep net capacity addition at 1.9 mbpd, lower than 2.3 mbpd demand surge. We like Reliance Industries (RIL) due to its high refining complexity, large planned capex in refining & petchem and earnings growth from investment in shale gas. Maintain ‘BUY’ with target price of INR906/share.

Metals and Mining - Coal gate: CAG castigates government; Edelweiss Research PDF link

The Comptroller and Auditor General’s (CAG) final report on coal block allocations has reaffirmed its view that the Government of India (GoI) should have adopted the auction route post 2004. The report lists 57 coal blocks with “windfall gains” estimated to be INR1.86tn. More than the issue of “windfall gains”, we are concerned about further delays in mining approvals due to policy freeze and/or imposition of conditions which could dilute returns from mines. In such an event, while most metal & mining companies could be impacted, the effect may be more pronounced on Hindalco, JSPL and Sterlite-BALCO. On the positive side, allocations to Coal India (CIL) may increase as recommended by CAG.