04 March 2013

HDIL:Earnings below estimate. Refinance helps improve cash flow position significantly: JPMorgan


 Q3 results below expectations – Q3 PAT at Rs1.1B (-24% Q/Q, -31%
Y/Y) was significantly below our and consensus expectations. The
earnings miss was on account of lower margins (49% vs. JPMe- 55%)
and higher tax rate (38%). Revenues (Rs4.2B, +64% Q/Q) during the Q
were primarily driven by commercial FSI sales in Metropolis (~1msf in
Andheri W) project. There was no contribution from high-margin Virar
Vasai FSI sales in this quarter.
 Recent refinance helps ease cash flow position – Standalone net debt
came down by ~Rs2B and the company expects an additional Rs2B
reduction in Q4. Consolidated net debt, however, at Rs39.2 increased by
Rs1.2B Q/Q. Liquidity position for the company is now comfortable
post a recent finance wherein the company has been able to tie up longterm debt of 8-year tenure with a moratorium of 4 years, of which it has
drawn down Rs3B till Dec. With this, the company does not have any
significant repayments over the next 12 months. Cash on book is
Rs2.2B. Net D/E stood at 0.36x
 Launches improving at the margin – With the approval environment
improving in Mumbai, launches have started to pick up. Over the last Q,
the company launched a 0.6msf project in Virar Vasai. Going into Q4,
the company is guiding to new project launches in Ghatkopar (Mumbai)
and Pune.
 Project completions provide visibility on near-term revenue growth
– The company has four residential projects which are nearing
completion and are expected to be delivered soon. Given the company’s
completed project method of accounting, project completions should
result in meaningful scale-up in revenues/earnings over the next 2-3Qs.
 Conference call on Fri – Key questions will be: 1) Clarity on the recent
land purchase that management had aided HDIL for; 2) Debt reduction
strategy from hereon, and 3) Any update on the still stuck airport
rehabilitation project

Power Grid Corporation of India: Concerns about pace of capitalization overdone: Reiterate OW: JPMorgan


Ahead of the Dec-q results, PGCIL underperformed on concerns about weak
capitalization and slow execution of projects. In a seasonally weak quarter
owing to inclement weather conditions in Northern India, PGCIL reported
capitalization of Rs26B (up 16% YoY). The company incurred Rs150B of
capex until 12 Feb (up 46% YoY) and is well on track to achieve its FY13
target of Rs200B. Despite the healthy P&L in Dec-q, the stock has continued
to underperform. Capitalization in Mar-q until 12 Feb-2013 was Rs12B (down
37%). Based on our study of PGCIL’s T&D projects due for
commissioning in Mar-q, we estimate a sharp recovery in capitalization
(additional Rs44B in balance 4Q). Our EPS estimates imply a CAGR of
16.5% over FY12-17. PGCIL, a high-quality defensive with healthy execution
track record, provides relatively safe and stable growth with RoE of over 16%.
As on Sep-12 only Rs3.16B (less than 10 days of billing) worth of receivables
from SEBs was outstanding for over two months, a reasonably good outcome,
considering the poor health of SEBs. Being a monopoly, PGCIL enjoys
superior bargaining power with both its buyers and suppliers. We reiterate
OW on PGCIL with Mar-14 DCF-based PT of Rs135 (rolled forward from
Dec-13), which implies nearly 30% upside from the current share price.
 Healthy Dec-q P&L. PGCIL reported 3Q PAT of Rs11.3B (up 40% YoY),
exactly in line with our published estimates (see PGCIL: Ahead of Dec-q
results). We raise our EPS estimates by 3-4% for FY13-15 owing to higher
capex and capitalization assumptions. Management aims to match capex
and capitalization to restrain increase in CWIP, an aggressive objective. In
our assessment the two will converge as PGCIL delivers capex of ~Rs200B
in a row. It is notable that consensus has raised FY14 EPS estimate by 20%
since the beginning of 2011, although stock multiple has actually de-rated.
 Inside the report. See detailed substation and transmission line status of
PGCIL’s projects as of 31 Jan 2013. We have focused on projects due for
commission in the near term to ascertain physical targets and capitalization
likely to be achieved in Mar-q. Right-of-way issues and delays in land and
forest clearance affecting our estimates adversely are key downside risks to
our EPS estimates and price target.

Hindalco Industries:: JPMorgan


In our view, the current stock price of HNDL is only pricing in Novelis
(downstream subsidiary, 100% owned) and a part of the current India
business in FY14E and not even Novelis in FY15E. With project
commissioning on the way and India ally recovery (as production
stabilizes), we expect the sharp discount to our fair value estimate to
narrow. Admittedly, reported earnings for the standalone business would
be under pressure given higher capital costs as projects start flowing
through the P&L, however, cash earnings should pick up as the projects
deliver positive EBITDA. HNDL remains among our top picks in India
and we remain OW with a PT of Rs160, implying ~50% upside
potential.
 Novelis - Adjusted EBITDA impacted by one-time expenses: Novelis, the
downstream subsidiary (100% owned by HNDL), reported weak numbers with
adjusted EBITDA at $185mn, down 13% y/y, while adjusted EBITDA stood at
$267/T, down 15% y/y and 27% q/q. Results were impacted by Enterprise
Resource Planning (ERP) implantation issues. As per the company, Q3 impact
due to ERP was $39mn ($19mn in lost volumes and $20mn in start-up cost).
Adjusted for the impact, EBITDA/T stood at $323/T, up marginally y/y.
Production has now normalized, though the company does see some
incremental costs in North America in Q4 and pricing pressure in some
markets. We adjust our FY13 estimates to reflect the one-time costs. Excluding
North America, volumes increased y/y across all other regions, with South
America reporting multi-quarter high volume sales. Net debt increased
modestly to $4.5bn. The company expects Q4 EBITDA to be higher y/y.
 Brazil expansion commissioned; Capex for FY13E increased to $750mn: In
our view, Novelis is likely to see the benefits from the capex done over the last
2-3 years. The Pinda facility in Brazil was commissioned in Dec-12 ($325mn
investment). The capex for FY13E has been increased to $750mn.
 HNDL - See large upside with catalysts around the corner: We value HNDL
on FY14E and on our numbers the existing India + Novelis comes to
Rs123/share. Given that we think Novelis is likely to see EBITDA growth
driven by higher volumes, our FY15E Novelis/share value stands at Rs116
(6.5x EV/EBITDA for $1.3bn EBITDA, where we see upside). While
investors are worried about the sharp increase in reported interest and
depreciation costs (from new capacity commissioning), in our view, cash
earnings should go up as EBITDA>interest. We believe the three key catalysts
for re-rating in FY14E are: a) start of bauxite mining; b) India ally recovery; c)
Novelis ramp up of volumes. Key risks include large delays in Utkal refinery
commissioning.

LIC Housing Finance :: Earnings below expectations; NPAs rise on project loans ::JPMorgan


LICHF’s 3Q PAT of Rs2.4B (-23% y/y, -3 % Q/Q) was lower than
expected on lower NIMs. Higher NPA from developer loans hit credit
costs and yields (on interest reversals) a bit. Adjusting for this, margins
would have improved sequentially. Overall loan growth remained strong at
24%, and the incremental lending spread for 9M FY13 at 1.79% was far
better than the spread on book at 1.07%, suggesting potential improvement
ahead. We stay Overweight and maintain our price target of Rs320 as we
extend our timeframe to Mar-14 from Mar-13.
 Breakdown of margins. Individual loan yield at 10.75% improved only
2bp Q/Q despite some resets (Rs 2.5B) expected this quarter. This was
the key negative surprise in the results. Developer loan yield also fell by
130bp Q/Q on account of interest income write-off on higher NPAs
(costing about 5bp on yield as well). Cost of funds as expected did not
see an improvement (9.67%) given the roll-off of cheaper debt raised
over the last few years.
 Loan growth holds up; project loans also see a sharp uptick. Overall
loan growth remained strong, coming in at 24% Y/Y, with individual
loan growth better at 27% Y/Y. Individual disbursement growth for the
quarter was also healthy at 21% Y/Y (9M – 25% Y/Y). Project loan
disbursements (at Rs5B) saw a sharp sequential pick-up in the Dec-Q.
Overall, developer loan share at 4% was at its lowest point and should
pick up from here given an improvement in approvals pace in the key
markets of Mumbai/Delhi.
 Asset quality. GNPA at 0.74% and NNPA at 0.45% were up 11bp Y/Y
and 14bp Y/Y respectively. Management indicated that while the retail
asset quality has held up well, the developer portfolio has shown some
stress. We will await the details on these NPAs and the company’s
outlook on these accounts. We note that other Housing Finance NBFCs
have not reported any stress on project loans.
 Conference call on Friday. Key questions for the call: 1. NIM
expectations. 2. Outlook on the growth of developer loans. 3.
Explanations for a fall in processing fees. 4. Timeline on capital raising.

DLF - Laying down a "new operating strategy". Return to positive FCF zone critical towards re rating stock ::JPmorgan


At the recent analyst day, DLF’s management argued that the company will
soon return to surplus free cash flow territory (a first in 5 years) on the back of
planned debt reduction and launch of high value luxury projects in Gurgaon.
Volume targets are much more modest now; overall cash generation is
expected to improve substantially given high realizations. Focus now is to
enhance the value of core holdings in Phase-V via infrastructure developments
& outsource contracting/ project management to domain experts. A significant
chunk of low margin order-book has now run off and the company is looking
to recapture the price appreciation that has happened in NCR over last 3 years
via new launches that are priced almost 2-3x of 2009/10 levels. Despite
pressures on rent portfolio, the co expects 15-20% pa growth on the back of
planned retail projects and committed escalations in office rents. Whilst the
underlying asset value in the co. is high, in our view, a return to a positive free
cash zone will be critical in re-rating the stock. Response to luxury Phase V
launches hence will be important to watch out for over the next 3 months.
 Development business. Focus on ‘value’ not ‘volume’ given past hits.
Expect to stabilize at Rs 50B FCF in 3 years – The company expects to
re-start its development business, as significant past deliveries take place
over a 6 month period. Key driver of this will be its luxury Gurgaon projects
which will be launched after a gap of 5 years. If these go off well (1.5 msf
p.a expected), it could very well drive DLF’s overall free cash flow
generation to Rs30B+ over a 3 year period.
 Rent co. confident of growing 15-20% pa. 3 year target of Rs 27B vs.
current Rs 17B – On the back of new completions (Mall of Noida), new
office leasing (~2 msf p.a) and committed rent escalations in underlying
office portfolio.
 A ‘re look’ at debt – With debt levels coming down, the co expects to delever
its development business completely and over a 3 year period keep all
debt only in its rent co., which is securitized and hence easily serviceable
thus keeping the core development business (pro cyclical) debt free.
 Earnings to be muted near term as all the new launches of the company
comply with the 25% revenue recognition norm. Hence most new launches
will hit P&L after 4-6 quarters. Cash flows should then precede earnings (a
new normal).
 CCPS resolution likely only by Feb-15 – The promoters have indicated
that they will let the CCPS in DCCDL run till Feb-15 and will decide upon
its conversion only closer to the expiry.

Tata Motors 3Q FY13 review: Management upbeat on JLR prospects, domestic business to remain weak ::JP Morgan


 Tata Motors reported 3Q PAT of Rs16.3B: Adjusted for forex
charges, PAT was Rs18B (–14% q/q), below our and consensus
estimates. The standalone India business reported a higher-thanexpected
loss of Rs.4.6B, while Jaguar Land Rover’s (JLR) result was
largely in line with expectations, with the EBITDA margin at 14% and
PAT at £296MM (IFRS).
 Conference call takeaways: JLR: The growth outlook at JLR remains
healthy, with the New Range Rover receiving an encouraging response.
The Solihull plant (where the Range Rover is manufactured) is now
operating on three shifts. Over FY14E, volume growth should be driven
by new product launches, including the Range Rover, Jaguar F-Type and
the Range Rover Sport. The OEM’s expansion programs, including the
new engine facility, the manufacturing plant in China as well as the
capacity expansion in the UK are on track (for rollout in FY14-15).
Management expects margins to improve in 4Q driven by healthy
volume growth, improved product mix (higher Range Rover) and
favorable currency (GBP/USD). Standalone operations: The India
business is in the midst of an extended downturn, and the near-term
environment is uncertain, particularly for M/HCVs. While an industrylevel
increase in dealer inventory led to Tata Motors’ wholesale market
share in M/HCVs declining to 50%, the retail market share is still ~60%.
While competition in the passenger car segment remains intense, the
environment for LCV’s remains positive – with Tata expanding capacity
in this segment. The domestic margins continue to be impacted by
declining volumes and higher marketing spends.
 Price target: We roll forward our price target to Mar-14 and set a
revised PT of Rs330 (based on our sum-of-the-parts valuation). We
believe that the healthy growth outlook at JLR will drive stock price
performance. Key risks: Slower-than-expected growth in key markets,
any increase in discounting trends by global luxury OEMs, and a delayed
revival in the local industrial cycle.

FII trading activity on NSE, BSE and MCX-SX on Capital Market Segment 04-Mar-2013

CategoryBuySellNet
ValueValueValue
FII
3422.48
3452.58-30.1
DII
958.88
1069.96-111.08

 
 

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FII DERIVATIVES STATISTICS FOR 04-Mar-2013

FII DERIVATIVES STATISTICS FOR 04-Mar-2013 
 BUYSELLOPEN INTEREST AT THE END OF THE DAY 
 No. of contractsAmt in CroresNo. of contractsAmt in CroresNo. of contractsAmt in Crores 
INDEX FUTURES623081778.27483231378.913361239625.52399.37
INDEX OPTIONS3245299298.933011688667.23145794841565.76631.70
STOCK FUTURES641271897.63449671326.9582253923656.11570.68
STOCK OPTIONS404271157.3832091901.42652951818.02255.95
      Total1857.70


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Trends: Crompton Greaves, SAIL, Central Bank, Reliance Broadcast, Micro Technologies, Lovable Lingerie :: Business Line :: Business Line


 

Investment Focus - Bharti Airtel: Buy :: Business Line


With a shakeout happening in the telecom sector, the pressure on call charges has been easing. The exit of players, whose licences have been cancelled, is likely to put incumbents in a strong position. Bharti Airtel, the country’s top mobile operator, may be a good bet for investors with a two/three-year investment horizon.
By bidding selectively in the recent spectrum auctions, top operators have also signalled they will not overpay for air waves, as they did during the 3G auction.
It is Advantage Bharti Airtel thanks to its large share of subscribers as well as revenues, stable realisations and a focus on adding active customers. But the progress on turning around the African operations has been slow. Non-mobile businesses such as towers (Bharti Infratel), DTH and telemedia (landline and broadband) have seen significant operational improvements.
At Rs 311, the Bharti Airtel share trades at 18 times its likely per share earnings for FY15, which is lower than the levels it has traded and is marginally cheaper than Idea Cellular.
In the first nine months of the current fiscal, Bharti’s revenues increased 13.5 per cent to Rs 59,863 crore, while net profits fell 45.7 per cent to Rs 1,767 crore due to higher tax outgo and interest costs. With peak spending on expansion out of the way and the return of pricing power, profitability is likely to improve from here.
Bharti has the highest share of subscribers and revenues in the domestic telecom space. Its revenue market share is in excess of 30 per cent, placing it comfortably above competitors. Realisations have been stable at 42-43 paisa a minute over the past several quarters, while minutes of usage are rising steadily. The increased usage can begin to pay off once tariffs are put up.
Bharti’s focus has increasingly been on adding lucrative subscribers and weeding out those who do not recharge regularly. As with its competitors, such as Idea Cellular and RCom, Bharti’s subscriber base declined (by about four million users) in the last couple of quarters as it let go of inactive and non-lucrative customers.
The proportion of active subscribers (those that recharge regularly) has increased significantly to 95 per cent, placing it behind Idea Cellular. The African operation has seen a decline in the ARPU (average revenue per user) as well as revenue per minute the past three-four quarters. This has dragged the profit performance. Bharti’s DTH division continues to add subscribers at a healthy pace and ARPU in this segment has risen steadily over the past several quarters and is now at Rs 186 — among the highest in the industry.

Divis Labs: Hold ::: Business Line


Budget and MFs :: Business Line


The Budget has an important set of measures in making mutual fund investments attractive. A significant reduction in securities transaction tax (STT) on equity mutual funds, expanding scope of investments in the case of provident funds and pension schemes are key announcements that would make investments more enticing for retail investors.
But the sore point is the increase in dividend distribution tax on all debt and liquid funds, which would hurt cash flows for investors looking for periodic payouts.

MAKING MFS ATTRACTIVE

The STT has been reduced to nil (from 0.1 per cent) while purchasing equity mutual funds. In the case of sale of units, the proposed rate is 0.001 per cent (from 0.1 per cent). With entry loads also done away with, the cost of transaction at the time of investment gets reduced substantially for all genres of investors. To peg a number to such cost savings, for an investor who makes a purchase and sale of equity mutual fund units totalling Rs 1 lakh, there is a potential saving of Rs 250.
The other very important announcement is the widening of the mandate in investments for pension funds and PF trusts to include debt mutual funds, exchange traded funds (ETFs) and asset-backed securities.
Currently, pension funds such as the NPS are allowed to invest only in the Sensex and Nifty index funds and largely Government securities. They would now be able to benefit from newer investment avenues by investing in the broader market through ETFs tracking indices such as the CNX 500 or BSE 500. ETFs also tend to have very low tracking errors and lower costs compared with pure index funds.
Investment in debt mutual funds and asset-backed securities may help these pension funds and PF trusts to generate returns that are marginally higher than or at least equal to inflation rates even on a post-tax basis. For example, in 2012, the best performing debt mutual funds could generate 12-14 per cent returns. So those in the higher tax brackets too could find investments attractive.

MAKING DIVIDENDS COSTLIER

But the Budget was not without irritants. The disappointing announcement for mutual fund investors is a steep increase in the tax rates on dividends distributed by fund houses. The rate has been doubled from 12.5 per cent to 25 per cent for all (non-equity) schemes that declare a dividend.
Currently dividends from only liquid funds are charged 25 per cent. Now, all debt funds such as gilt, dynamic bond funds and monthly income plans have to pay 25 per cent. This tax is, of course, charged in the hands of the fund house which deducts the amount and pays the rest as dividends.
Investors who are in lower tax bracket and who do not require steady cash flows in the form of dividends, especially from MIPs, can opt for the growth option instead of the dividend choice.

SGX Nifty 5,694.50 -32.50; Market continue to FALL

SGX Nifty 5,694.50 -32.50;
Singapore exchange
8:55 AM
March 4th, 2012
Market continue to FALL