Kotak India Daily: Strategy - GameChanger Perspectives; Results; Results, Change in Reco; Updates

Strategy

Strategy: Puzzling PDS off-take

l TPDS covers around a third of Indian households; Food Security will up it to two-thirds l TPDS off-take is now 51 mn tons; far higher than the 30 mn tons requirement l Decentralized procurement show meaningful delta; counts as TPDS off-take l If TPDS consumes 51 mn tons, what estimate should we build for Food Security ordinance?

Daily Alerts

Results

Coal India: Mixed bag

l Lower e-auction realizations offset by savings in employee and OBR costs l Volume growth rather muted, e-auction prices suppress overall realizations l Maintain BUY with a revised target price of Rs370

IDEA: We raise estimates, target price; dilution concerns overdone. BUY

l First things first - is the potential equity dilution a cause for concern? l Business in solid shape; reiterate BUY

Bharat Heavy Electricals: Weak quarter, bad patch may continue

l Very weak numbers - revenue down 24% yoy, margins (4.5%); PAT halves l Backlog falls on weak inflows, cancellation; cites potential 15 GW visibility for FY2014 l We revise estimates; reiterate SELL with a target price of Rs140

Godrej Consumer Products: Profitability elusive, yet again

l 1QFY14: Strong domestic show continues, IBD margins drop l Higher A&SP in domestic business, volatile IBD margins hurt profits l We retain our REDUCE rating, will revisit numbers after the concall

Reliance Communications: Fundamentals stressed despite RPM increase; retain SELL

l Business turnaround looks difficult l Cut consolidated estimates and retain SELL rating

Grasim Industries: When it rains, it pours

l Weak operating performance across segments - VSF and cement; lower taxes save the day l Sharp realization decline in both VSF and chemicals leads to 25-30% decline in operating profits l Maintain ADD rating with TP of Rs3,000

GlaxoSmithkline Consumer: Good quarter but not good enough to justify the rich valuations

l Marginally below estimates, margin contraction continues (partially hit by one-offs) l Domestic revenues up 18%; 7% volume growth, 10% price-led growth l We retain SELL while raising our TP to Rs3,900 (from Rs3,500 earlier)

Sun TV Network: Steady core business, priced in

l Ad rate hike key driver; market share losses, IPL franchise, cost inflation are risks l We retain REDUCE with 12-month forward fair value of Rs440 (Rs400 previously); limited upside

Siemens: All industrials sector bets seem to be off; Siemens just another cog

l Weak results across all segments: EBITDA margin nil, net loss Rs488 mn l Provisioning continues (may be recovered on contract completion) l Weak outlook; focus on internal cost cuts as low volumes, pricing, delays, volatility bite l We revise estimates; SELL on expensive valuations even on optimistic estimates (build significant recovery)

Cummins India: Weak domestic can possibly accentuate; hopeful on exports, but elusive so far

l Domestic: Cyclical weakness may persist; structural correction in deficit demand has just started l Exports: Weak global demand scenario overshadows upside risk from LHP scale-up l Margin downside can come with pricing weakness; inadequate capex compensation sours l Revise estimates on sharp cuts to sales and margin assumptions; retain REDUCE

Canara Bank: Margin pressure likely to continue

l Growth focus continues; maintain REDUCE l Loan impairment ratios remain high; high pipeline of restructured loans

J&K Bank: Fresh impairments remain high

l Weak performance on loan impairment continues; maintain REDUCE l Fresh restructuring high; NPL trend stable

Bajaj Corp.: Good quarter; reiterate BUY

l Another solid quarter in challenging macro, volumes surprise positively (aided by promotions) l OPM flat despite higher GMs owing to higher A&SP l Other key highlights from the result

Results, Change in Reco

PFC: Earnings on track, upgrade on inexpensive valuations

l Core earnings growth up 33% yoy, PAT up 23% yoy l Revision in estimates; upgrade on inexpensive valuations

Divi's Laboratories: Risk-reward turns favorable, recovery may still take time

l Weak quarter, on expected lines l Additional units to be commissioned in 2HFY14 - recovery expected in FY2015 l Upgrade to ADD (from REDUCE) with TP at Rs1,040 (from Rs1,060 earlier)

Oriental Bank of Commerce: The devil is in the price

l Impairment ratios stable - trend similar to previous years in 1Q l Recent correction gives comfort and management actions positive; upgrade to ADD l NIM shows a marginal improvement to 2.9% qoq; expect pressure in the short term

Company alerts

Sterlite Industries: Performance contingent on smooth transition in zinc businesses

l Zinc India - 2014 to mark transition to underground mining, open pit ore to fall 22% l Zinc India - lower ore mining at open cast results in higher strip ratio, maintains cost guidance l Zinc International - volumes may decline 40% in next 2-3 years unless Gamsberg commences

Glenmark Pharmaceuticals: Limited comfort on earnings quality

l Emerging markets deliver; US recovery expected in 2QFY14 l No change to guidance l Maintain cautious view with unchanged TP at Rs535

Jubilant Foodworks: SSG decelerates further; recovery optimism could be tested

l 1QFY14 - growth decelerates top to bottom l Aggressive store expansion continued l We like the long-term potential but valuations keep us from turning positive on the stock

MCX India: When it rains, it pours

l What is NSEL and what happened to it over the past two weeks?

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