Siemens- Recent rally not in tune with fundamentals; downgrade to UW:: JPMorgan

Weak demand outlook and low profitability of SIEM appears delinked with
valuations post the 15% rally (in line with Sensex) from April lows. We
downgrade the stock to UW from N; DCF-based Mar-14 PT of Rs450 (vs. Rs605
earlier) key reasons being: (1) Revenue declined by 16% in 1H, well below
expectations (see Mar-q preview) due to customer delays attributed to
unavailability of land or financing. (2) At the analyst meet, management stated
that even the short cycle business (where growth had been resilient) witnessed
deferrals by customers in a persistent high interest-rate environment. (3) Order
backlog declined 12% YoY and even Rs28bn of inflows in the Mar-q (up 52% on
a low base) were not sufficient to stem the decline. (4) Low capacity utilization in
factories contributed to sharp margin compression across segments. Post estimate
cuts, at 43x one-year forward P/E and 8% FY13E RoE, we think the stock is
expensive. Our FY13E EPS is 28% below consensus.
 Uncertainty is the only constant, as headwinds prevail. Large orders from
credit-worthy customers is a key upside risk to our UW thesis. Adjusting for
cost provisions due to project delays, 1H PBIT margin was just 4.2% (2.1%
reported). Management did not give guidance or a target for near-/medium-term
profitability, although commentary was bearish.
 Working capital deterioration in 1H. Working capital has deteriorated
sharply in 1HFY13 led by higher debtor days and lower current
liabilities/provisions in tune with liquidity pressures faced by customers. Cash
reduced Rs7.3bn in 1H to Rs3.44bn, the lowest level in a decade.
 Sharp estimate cuts, despite building in hopes of margin recovery. Post 1H,
we cut FY13/FY14 EPS estimates by 53%/40%, well below consensus;
profitability is a grey area- in FY14 our OPM est. of 8.6%, factors in a 320bps
YoY improvement; if the current scenario persists, there is further downside
potential.
 Closely-held free float may not be enough to stem downside. Like ABB Ltd
(ABB.BO, Rs521.20, UW), fundamentals are catching up with Siemens’ stock
price; related-party transactions (with MNC parent and fellow subsidiaries) are
hurting profitability. Diversification is key in a weak macro; Siemens scores
over ABB and BHEL (BHEL.BO, Rs191.30, UW), while L&T (LART.BO,
Rs1,552.05, OW) and then CG (CROM.BO, Rs93.40, N) have broader
portfolios and geographical diversification in our coverage.

Inflation, liquidity and asset markets 􀂄 BofA Merrill Lynch,

Inflation, liquidity and asset
markets
􀂄 Global: inflation, liquidity and asset markets
In the past year, the big surprise relative to the consensus forecast is not that
global growth is slowing, but that inflation is falling. Looking ahead, we expect
further central bank easing. The low-inflation-high liquidity story is far from over.
United States: debt in a time of low growth
A fair reading of the recent debt debate is that high levels may have a small
impact on trend growth, but results from distant countries and times are not very
relevant to the US today.
Euro area: fiscal easing - don’t get your hopes up
We discuss the potential easing and argue that although the policy stance may be
relaxing; this will not provide a strong tailwind to growth, so is unlikely to change
the ECB’s view on the outlook.
Japan: possible sources of inflation
Larger declines in consumer durable goods prices and no rise in service prices
have been the two major sources of deflation in Japan. The reversal of these
trends is necessary for Japan to have inflation.
Emerging Asia: Indonesia - commodity or consumer driven?
Indonesia has held up well relative to other large commodity exporters such as
Brazil and Russia. The growth engine has shifted to consumer spending from a
decade long commodity boom.
Emerging EMEA: commodities – digging deeper
A simulation of fundamentals without the rise in terms of trade since 2002
suggests lower GDP per capita but higher public and external debt and thus
worse sovereign ratings.
Latin America: slow investment growth in 1Q
Investment in LatAm expanded only 2.1% yoy in 1Q, according to our estimates.
We updated our monthly investment indices, which help predict quarterly National
Account investment data.
UK: weaker wage growth for the doves
We expect the BoE’s Inflation Report to show a slightly softer near-term inflation
outlook, though still remaining above target until 2015.
Canada: helplessly hoping
We believe the Bank of Canada is overestimating the potential for exports to drive
growth in 2013. In our opinion the export rebound is a 2014 story, not a 2013 one.
Australia: RBA surprises – what more could be in store?
The RBA cut its cash rate by 25bp to an all-time low of 2.75%. The language of
the post-meeting statement leaves the door open to another cut next month.

Is the Indian IT sector now becoming a higher Beta sector? We think so as the business becomes more cyclical with size:: JPMorgan

We advocate that investors use a higher cost of equity in discounting cash
flow streams for large-cap Indian IT than they might have been doing so in
the past. Over 2004-08, we saw Beta for the large-cap Indian IT space as
contained between 0.5-0.7 over varying time periods (1-year, 2-year, 3-year and
so on). But over the past 3-4 years, this has noticeably shot up to as high as 0.7-
0.9 for the likes of Infosys/TCS (a reasonable 0.2-0.3 increase in the past 3 years).
The reason we think the Beta for large-cap Indian IT companies is exhibiting
a rise is due to the cyclicality of the business model. Why is cyclicality of
growth getting more pronounced necessitating a higher Beta? In our view,
two factors increasingly contribute to this occurrence: 1) clients’ IT spending
patterns and 2) companies’ large account sizes (esp. of the large-caps).

Divis Laboratories Ltd.:HOLD Target : Rs.1,084: IndiaNivesh

Quarterly performance (standalone):
On account of lower revenue growth, Divis lab performance was below expectation
on all fronts; however operating margins were better than previous quarter & ahead
of estimates. Partially linked with higher base in the same quarter previous year,
Divis revenue declined 8.2% y-o-y (increased 21.8% q-o-q) to Rs 6.50 billion in Q4
FY13 (V/s INSPL est= Rs 9.13 billion). Company’s Gross margins increased ~460 bps
y-o-y (~237 bps q-o-q) to 60.9% level in Q4FY13 due to change in product mix.
Adjusting for forex loss of Rs 98 million during the quarter, company’s EBITDA
declined 8% y-o-y (increased 57.6% q-o-q) to Rs 2.61 billion (V/s INSPL est= Rs 3.33
billion) in Q4 FY13. On the yearly basis, decline in material cost was completely
offset by increase in employee cost & other expenses, as a result EBITDA margins
stood almost flat at 40% level. While sequentially, EBITDA margins increased ~910
bps due to decline in material cost & operating expenses (V/s INSPL est=36.5%).
During the quarter, adjusting for forex loss of Rs 98 million in Q4FY13, Divi,s net
profit declined 10.8% y-o-y to Rs 1.92 billion in Q4 FY13 (V/s INSPL est= Rs 2.65
billion). Company reported adj EPS of Rs 14.4 in Q4 FY13 compared to Rs 16.2 in Q4
FY12.
Annual Performance (consolidated):
Divis revenue grew 15.1% y-o-y to Rs 21.40 billion in FY13. Gross margins increased
~366 bps y-o y to 62.7% level. Decline in material cost was partially offset by increase
in employee cost & other expenses, as a result EBITDA margins grew only ~100 bps
to 37.9% level in FY13. Adjusting for forex gain of Rs 115 million during the year,
company’s EBITDA grew 17.7% y-o y to Rs 7.33 billion in FY13. Due to ~38% y-o y
decline in other income & ~160 bps increase in effective tax rate, adj net profit
grew only 10.7% y-o y to Rs 5.91 billion in FY13. Company reported adj EPS of Rs
44.5 in FY13 compared to Rs 40.2 in FY12.
Valuations & Outlook:
In the last two quarters, company has lost the growth momentum, accordingly we
adjust financial estimates & expect company’s revenue to report revenue CAGR of
17% during FY13-15E on the back of worldwide patent expiry & strong pipeline of
key products like Irbesartan (Market Size= $780 mn) Latanaprost ($1.7 billion)
Pregabalin ( $2.8 billion) Valsartan ($ 4 billion).
Assuming slow growth in revenue, we expect company’s operating expenses to
increase going forward. As a result, EBITDA margins may decline 50-70 bps in FY14E
& FY15E. We expect company to report EPS of Rs 53 in FY14E & Rs 60 in FY15E.
At CMP of Rs 1,087, the stock is trading at P/E multiple of 20.6x & 18.1x of FY14E &
FY15E earnings estimates respectively. We had recommended stock since Rs 720
level in our Diwali Picks (2011) with target price of Rs 885. After considering
consistent robust performance in FY12, we upgraded target price to Rs 1,032 and
further to Rs 1,164, which has been achieved. We believe that increasing health
care cost in developed markets, patent expiry of key molecules of MNCs, increase
in genericisation, favorable currency movement would continue to favor Divis Lab
in long term. However, current slowdown in revenue growth is a cause of concern.
The stock has been traded between forward P/E multiple of 18x to 21x depending
on growth prospects of the company. Considering slowdown in revenue growth,
we expect stock to trade at lower side of valuation band. Hence, revise target price
downward to Rs 1,084 and maintain HOLD rating on the stock. (Earlier target price
was Rs 1,164).

Zydus Wellness Ltd. BUY: Target: Rs 726 :SBI Caps

Zydus Wellness Ltd. (ZYWL), a subsidiary of Cadila Healthcare Ltd. is into manufacturing and marketing of niche
wellness products, having plants at Ahmadabad and Sikkim. It offers wellness products, combines best of healthcare,
nutrition and cosmeceuticals. All its products, viz., Sugar free, Nutralite, EverYuth and Actilife; cater to the evolving
needs brought about by change in lifestyle and surge in chronic diseases. Being an early entrant, with launch of
Sugar Free in 1988, it has successfully gained over 90% of the market share of an artificial sweetener.
Over half of its revenues have been contributed by Sugar Free and EverYuth, we expect these two products continue
to drive the revenues and Nutralite to provide some support to the overall margins as vegetable oil prices are cooling off. Between FY08 and FY13, ZYWL's revenue and net profit have
grown at a CAGR of 48% and 84%, respectively, due to its play on
the rising affluence in the country, increasing conscious about their
calories intake and rising number of diabetic patients. We expect to
mirror relatively similar growth, going ahead. We initiate coverage with
a target price of Rs.726 and BUY rating.

Bright performance, but sustenance unlikely; maintain neutral Tata Steel :: Centrum

performance, but sustenance unlikely; maintain neutral
Tata Steel delivered bright operational performance across operations which
was well above our and street expectations. Consolidated EBITDA jumped
~37% YoY and stood at Rs43.7bn (margin of 12.8%) as domestic operations
saw higher expansion led volumes of 2.3MT and lower fixed costs which led to
EBITDA/tonne of Rs14500/tonne (up8% QoQ). European operations also
returned to positive EBITDA of US$33/tonne. We expect the sharp fall in global
steel prices to have an adverse effect on realizations and profitability going
ahead and do not foresee operational performance sustaining at higher levels
of Q4FY13. We revise our estimates upwards marginally for FY14E/15E. We
continue to maintain our subdued stance on the stock with negative stance on
the European operations, lower margin profile in domestic operations on
reduced backward integration post expansion and high interest costs on
account of the large debt pile. Maintain neutral.
 Standalone results improve from a trough: Domestic sales volume stood at ~2.28MT (up
~21% QoQ) backed by expansion at Jamshedpur. Realizations dropped by 5.3% QoQ on
account of pressure on domestic demand. Costs were lower on power & fuel and other
expenses (lower forex losses and royalty payments) which led to 8%QoQ increase in
EBITDA/tonne to ~Rs14500.
 Margin improves across operations: Cons. EBITDA stood at ~Rs43.7bn (up by ~37.4% YoY)
with a margin of 12.8% (well above our expectation of 9.6%). Margin improvement was
witnessed across operations with domestic operations having a margin of 31.2%
(EBITDA/tonne of ~US$267). European operations reported EBITDA/tonne of ~US$33 (well
above our exp of US$5/tonne). This was mainly due to the sharp fall in fixed and raw material
costs and higher volumes of 3.4 MT. South-East Asian operations had a margin of 6.4%
(EBITDA/tonne of ~US$52/tonne)

Exemplary consistency - CUB :: Centrum

Exemplary consistency
CUB’s Q4FY13 core performance (Rs1497mn, 31% YoY) came in well above our estimates driven by a spike in recoveries and contained opex. However, higher provisioning (significant write-offs) and effective tax rate contained the bottomline at Rs825mn (vs estimate of Rs862mn). Overall asset quality metrics remains robust with %GNPA at 1.13% and restructured assets at 1.5% of loans. Despite materially challenging operating environment, CUB has delivered a consistent 1.5% RoA with +20% RoE – in line with the last decade. We remain positive on the stock driven by its ability to deliver consistently robust return ratios. Maintain Buy and the target price of Rs65.

NIM stable sequentially: CUB reported NII of Rs1.73bn, up 26.8% YoY driven by strong credit growth (25.9%YoY) and sequentially stable NIMs. Stable NIM is the result of a 10bps increase in cost of funds offsetting 10bps higher blended yields. FY13 reported NIM came in at 3.35% vs 3.4% for FY12. We are factoring in flattish NIM for FY14 on a conservative basis.

Asset quality continues to hold up well: Despite higher slippages (Rs 680mn, 1.9%), asset quality remained largely stable as absolute GNPA remained flat at Rs1730mn due to higher write-offs during the quarter (Rs520mn in Q4 vs Rs500mn in M9). Nearly 50% if the write-offs were due to chunky accounts from varied sectors. The slippage rate for FY13 stood at 1.84% - a mere 30bps rise YoY despite a materially challenging operating environment. Outstanding restructured assets declined from Rs2.97bn to Rs2.35bn (1.5% of loans) following upgrades after completion of two years of satisfactory performance.

`BOT´ is the way Ashoka Buildcon :: Centrum

`BOT´ is the way
Ashoka Buildcon (Ashoka) has moved up the value
chain from being just an EPC player to a BOT developer.
With an asset base of over 18 owned projects (12 road
BOT and 6 foot over bridges) and 7 road BOT projects in
Ashoka Concessions (ACL), the company has developed
strong visibility. With a backward integrated EPC
model, the company is well placed to capture better
than industry margins through better project
management skills. Additionally, SBI-Macquarie’s
Rs7.0bn capital infusion with further commitments has
provided visibility for securing large size road projects
in future. We believe the company will grow at a faster
clip going ahead due to the steady stream of earnings
from its EPC business coupled with rising cash flows
from toll collections. We initiate coverage on the stock
with a ‘Buy’ rating and a target price of Rs332.

India Cement: Buy Target : INR 110 :FinQuest

Poor realization and high freight expenses impacts profitability
Margins are expected to remain under pressure in FY13 and FY14 as operating
cost increases and as realization falls… But growth in volumes for the
company is expected to help going ahead
Maintain our 'Buy' rating on the stock with price target of Rs 110 as the company is
the cheapest among the frontlines in terms of asset based valuation
South India's largest cement producer India Cement posted disappointing set of numbers during
Q4FY13. Poor cement realizations during the quarter and significant rise in variable costs
resulted in the net profit missing ours as well as consensus estimates by a huge margin. The
revenue rose 7.2% Y-o-Y (10.6% Q-o-Q) to Rs 11.99 bn, while the net profit fell 59.5% Y-o-Y
(0.6% higher Q-o-Q) to Rs 263 mn.
Volumes posts decent growth while realizations remained under pressure-
The company's cement dispatches rose 7.3% Y-o-Y to 2.78 mn tonnes, while the realization
remained under significant pressure. Cement prices in company's major market of Andhra
Pradesh remained under severe pressure during the quarter, while other regions like Tamil
Nadu and Karnataka also witnessed significant price pressure. The company's gross realization
fell 1% Y-o-Y (3.5% Q-o-Q) to Rs 4213 per tonne, while the net realization (after freight expenses)
fell 6.4% Y-o-Y (5% Q-o-Q) to 3225 per tonnes.
Revenue from Shipping and IPL post impressive growth -
The shipping revenue rose 62% Y-o-Y (24% Q-o-Q) to Rs 184 mn, while the IPL revenue rose
50% Y-o-Y to Rs 3 mn. The revenue from the Windmill division stood at Rs 7 mn in Q4FY13.
Continued power holiday in Andhra Pradesh increases the power & fuel expenses-
The company witnessed severe power shortage in Andhra Pradesh, while it was not allowed to
wheel the power it generated in Tamil Nadu for the Andhra Pradesh plant, as per the Tamil
Nadu Pollution control board clearance. In Andhra Pradesh the company faces 12 days power
holiday in a month and in the remaining days four hours power cut. This caused the power
plant in Tamil Nadu to operate at lower capacity utilization, while it had to resort to costlier
grid power for its Andhra Pradesh plant. So the power cost remained elevated. Although the
company has taken various measures to improve the situation by setting up additional captive
power units, the actual fructification would take some time.
Higher freight costs impacts the margins
Recent increase in diesel prices and rail wagon rates caused the company's freight cost to
increase substantially thus impacting the margins significantly. The freight expenses as % of
sales rose nearly 400 bps Y-o-Y (100 bps Q-o-Q) to 22.9%. The EBIDTA margin thus fell 480
bps Y-o-Y (320 bps Q-o-Q) to 14.7% in Q4FY13. The absolute EBIDTA came in at Rs 1.76 bn
(19% lower Y-o-Y, 9.2% lower Q-o-Q).

Technicals: ABB, Siemens, Opto Circuits, Voltamp Transformers, Aditya Birla Nuvo, Andhra Bank, :: Business Line

India reform...some progress Update on investment approvals and subsidies:: JPMorgan

 Our OW on India is controversial. Part of the case is that reform is
under-appreciated. This report is an update on the progress on diesel
subsidy reduction and project approvals by the Cabinet Committee on
Investment (CCI).
 The Finance minister, Mr. Chidambaram, took office on 31 July 2012.
His pro-reform stance is clearer than his predecessor Pranab Mukherjee.
Reform includes the politically expensive policy to reduce diesel
subsidies. Diesel was 23% of FY13 US$31billion subsidy bill. Since
September 2012 the diesel price increased by Rs 7.31/litre and the
subsidy declined from Rs17.1/litre to Rs6.42/litre. In January the
government committed to increase the diesel price by Rs0.5/litre every
month.
 PSU banks estimate that 215 projects worth USD130billion are awaiting
approvals. These projects are spread across power, roads, ports, cement
and steel. YTD CCI approved 31 oil blocks and 13 power projects. The
oil blocks should free investments worth US$13.4bn and generate
additional investment of US$2.5bn in exploration activities over the next
3-5 years. The power projects involve investment of ~US$6bn. The next
significant market event is resolving the coal price pooling, with an
announcement due in May.
 Subsidy reform is limited to transportation fuels. Food and fertilizer
subsidies are forecast to increase. The next general election is scheduled
for April 2014. The political window for reform is narrow

Apr’13 ‐ Complex fertiliser sales decline by 50%; urea up by 6% YoY :: Prabhudas Lilladher

Preliminary data from the Ministry of Fertilisers indicates that sales volumes of
overall complex fertilisers (incl. manufactured & traded) declined by 50% YoY for
the industry during Apr’13. On the contrary, urea sales increased by 6% YoY during
the same period. Imported complex fertilisers witnessed decline of 56% YoY during
Apr’13 as companies refrained from importing due to delay in subsidy fixation as
well as huge inventory in system. Similarly, manufactured complex fertiliser
volumes declined by 47% YoY during Apr’13. While we expect urea demand to
remain steady, complex fertiliser sales continues to remain under pressure due to
wide differential in urea v/s complex fertiliser prices and huge inventory in system.
Though few companies have already announced reduction in farm gate prices of
complex fertilisers, the bigger challenge is the existing inventory in system which
will be sold at reduced prices. Our channel checks/interactions with industry
suggest that major portion of the loss will have to be borne by the companies.
However, companies have already passed significant part of the reduction in the
form of dealers discounts, promotional offers etc. We maintain ‘BUY’ on Chambal
Fertilisers and ‘Accumulate’ on Coromandel, GSFC, Tata Chemicals, and Deepak
Fertilisers.
! Complex fertiliser sales continue to face demand headwinds: Preliminary
volumes data for Apr’13 indicates that sales volumes of overall complex
fertilisers (incl. manufactured & traded) declined by 50% YoY for the industry.
On the contrary, urea sales increased by 6% YoY during the same period.
Complex fertiliser sales continue to face demand headwinds due to windfall
increase in their prices over the last two years. Our channel checks suggest that
farmer is reluctant to purchase complex fertiliser at such high prices despite his
crop economics remaining favourable.
! Reduction of farm gate prices on existing inventory has emerged as a new
problem for industry: Complex fertiliser industry, which was already grappling
with the slide in demand and consequent build-up of inventory, is now facing
another challenge. Though few companies have already announced reduction in
farm gate prices of complex fertilisers, the bigger challenge is the existing
inventory in the system which will be sold at reduced prices. Our channel
checks/interactions with industry suggest that major portion of the loss will
have to be borne by the companies. However, companies have already passed
significant part of the reduction in the form of dealer discounts, promotional
offers etc. during the last few quarters.

Birla Corporation Core disappoints; PAT higher; FY14 to be better; Buy :: Anand Rathi

Key takeaways
2% yoy revenue growth. Birla Corporation’s aggregate revenues grew 2% yoy
following 4% growth in cement. Cement volumes, at 1.71m tons, grew 5% yoy
(10% qoq), the highest in any quarter despite the ban on mining limestone at
the Chanderia facility. Realizations dipped 1% yoy (5% qoq) to `3,580 a ton due
to weak prices in the Centre and East regions during the quarter. The jute
division revenues, however, dropped 10% yoy due to production interruptions
early in the quarter.
EBITDA down 17%, PAT up 26% yoy. Despite better volumes, EBITDA fell
17%, driven by cost inflation in power & fuel (up 17% yoy), freight (up 29% yoy),
RM (up 36% yoy) and staff (up 25% yoy). EBITDA/ton at `375 (vs `505 yoy, `337
qoq) was lower than estimated. The jute division saw a turnaround with a positive
PBIT of `16m vs a `25m loss yoy and `17m qoq. Resumption of work, together
with machinery upgrading and manpower rationalization, could return it to
profitability. Management expects a similar performance in FY14. PAT was better
than estimated due to higher other income and lower interest and tax rate.
Update on projects. The company had filed a petition in the Supreme Court
challenging the High Court order prohibiting mining and blasting at its
Chanderia plant. It was permitted to carry on mining operations manually
(without blasting) between 18 Mar and 14 Apr’13 to enable the CBRI to study
the impact of mining on the Chittorgarh fort. The report is expected to be
submitted shortly, after which the court will take up the matter. The company
hopes for relief in the form of mining without blasting and will then pursue its
1.5m-ton expansion project.
Our take. The operating performance belied our estimates chiefly because of
mounting cost pressures even as profit surprised positively. During FY14, we
expect improvement. We maintain our Buy rating, with a target of `360 at
which, the stock would trade at 4.5x Jun’14e EV/EBITDA, and an EV per
ton of US$45. Risk: Decline in cement prices.

June 2 -Technicals-Reliance Industries, Tata Steel, Infosys, SBI, :: Business Line

Trade Deficit Widens in April: Exports Decelerate, Gold Imports Rise - Morgan Stanley

Export growth decelerated on YoY basis in April:
According to trade data released by the Ministry of
Commerce, exports (in dollar terms) decelerated to
1.6% YoY in April vs. 7% YoY in March 2013. On a
seasonally adjusted basis, exports declined 2.8%
MoM in Ap-13 (same as last month). Even after the
decline in April on a seasonally adjusted cumulative
basis, exports have increased 15.5% from the trough
in Jul-12. The deceleration in export growth in YoY
terms is also consistent with the weaker export
growth reported earlier by Korea and Taiwan,
reflecting the soft patch in global growth that is
expected to prevail through 2Q. Our developed
markets (DM) economics team is expecting a gradual
recovery in domestic demand in the US and Europe
from 2H13; we believe that this will help improve
export growth from 3Q onward.
Import growth accelerated in April: On a YoY
basis, imports (in dollar terms) rose 10.9% in April vs.
a decline of 2.9% YoY the previous month. On a
seasonally adjusted basis, imports rose 1.7% MoM in
Apr-13 vs. a decline of 3.8% MoM in March. The rise
in imports in April was driven primarily by gold imports.
Gold imports rose 138% YoY to US$7.5bn in April vs.
a decline of 31% in March (US$ 3.1bn). Indeed,
imports ex gold declined 0.8% YoY in April vs. growth
of 1.3% in March. As we have been highlighting, we
believe that lower gold prices will not necessarily
translate to lower gold imports / trade deficit. The fall
in gold prices would have probably led to some
front-loading of gold imports, and this trend could
sustain in May as well, keeping gold imports high for
another month. However, we expect gold imports to
moderate from Jun-13. We believe that for a
systematic reduction in gold imports, moderation in
inflation expectations is key

Sterlite Industries -Q4 results highlight the leverage to coal (availability and cost); FY14-15E should be better than FY12-13:: JPMorgan

STLT delivered a strong beat across segments essentially driven by volumes and
cost (coal). While the overall operating environment has still not stabilized
(copper smelter is shut, while most new power and aluminum capacities are not
operating), we believe the worst is over in terms of regulatory headwinds. From
here the key re rating catalyst remains merger with SESA and subsequently a road
map to debt reduction. Operationally we expect copper smelter to restart in
H2FY14E, while the power segment should continue to ramp up. We remain OW.

SBI -4Q13 results: weak numbers, but some positives on asset quality:: JPMorgan

SBI reported 4Q PAT of Rs 32.9bn, down 19% y/y, 20% below JPMe. The
key misses were on pensions and NPL provisions though incremental asset
stress showed improvement. We maintain our OW rating and our positive
view on PSU banks; we see this correction as a long-term entry
opportunity. Our thesis is driven by cheap valuations and early indicators
of the cycle turning — we see the bond market rally triggering monetary
transmission — and that remains unchanged.

Index Outlook: Down but not out :: Business Line

Jyothy Laboratories (Rs 197.5): BUY :: Business Line

Gujarat Mineral Development Corpn (Rs 143.9): Buy :: Business Line

JSW steel, TP: INR569 Sell ::Motilal Oswal

Results better than expected on higher volumes
 JSW Steel (JSTL) posted better than expected results for 4QFY13.
Consolidated EBITDA grew 30% QoQ (1% YoY) to INR17.3b. Standalone EBITDA
increased 29% QoQ (3% YoY) to INR169b (17% above our estimate) due to
higher volumes and slightly lower costs. Foreign subsidiaries continue to
disappoint, with total EBITDA of INR359m in 4QFY13 v/s INR607m in 4QFY12.
 Standalone EBITDA remained subdued at USD129/ton (5% above est). Better
cost management by using various grades of coking coal aided margins.
 Consolidated adjusted PAT declined 57% YoY to INR2.3b due to higher interest
and depreciation charge. Standalone adjusted PAT declined 15% YoY to INR4.7b.
 The JSTL-Ispat merger has been approved by Bombay High Court and JSTL is
in the process of completing necessary formalities. Post merger, net cons.
debt will be INR270b (excluding acceptances of USD350m on capital account
and USD1.75b on revenue account). Net debt is estimated at INR386b.
 The company has guided sales of 9.75m tons for FY14, subject to easing of iron
ore availability post starting of category A&B mines in Karnataka. We are
modeling 6%/11% sales volume growth to 9.4m tons/10.4m tons in FY14/FY15.
 JSTL will be spending INR108b over the next three years (INR50b in FY14 +
INR40b in FY15) on various projects, which will improve the share of valueadded
products (VAP) and EAF (electric arc furnace) steel capacity by 1.5m tons.
Margin outlook subdued; valuations rich
 Despite starting of category-A and category-B mines in Karnataka, iron ore
will remain in short supply due to depletion of iron ore inventories in the
state and significantly toned down mine capacity. This is likely to keep
margins under pressure. We expect EBITDA of USD119/ton in FY14 and
USD125/ton in FY15 on subdued realization and sticky costs of iron ore.
Exports, which helped sales during the quarter, have weakened again.
 We expect margins to remain under pressure, led by weak steel prices and
sticky iron ore costs. Stock looks expensive at EV of 6.1x FY15E EBITDA. Sell.

Investment Focus - Bayer CropScience: A good harvest :: Business Line

 

The stock of Bayer CropScience may be a good bet for investors looking for a defensive buy. With a portfolio of branded chemical formulations that caters to crop protection, public health and household pest management, the company has notched up consistent sales and profit growth in the last five years despite adverse business cycles.

Steady profit margins, negligible debt and cash coffers that have been recently bolstered by a huge land sale, are other positives that should help support the stock. At the current price of Rs 1,395, the stock trades at 21 times its 2012-13 earnings (excluding one-offs) and about 18 times forward earnings. This is a discount to most MNC peers and at the lower end of its own historical band of 20-32 times.

Despite a deficient Southwest monsoon that curtailed overall agricultural growth to just 1.9 per cent, Bayer CropScience closed 2012-13 with a 19 per cent jump in its overall sales to Rs 2,626 crore and a nearly 90 per cent rise in its net profits (excluding income from land sale). Prospects for the current year should be supported by a better monsoon, rebound in acreage and higher farm incomes arising from 15-30 per cent hikes in the minimum support prices of key crops last year. Bayer CropScience, in any case, has demonstrated a fair degree of resilience to the ups and downs of agricultural cycle.

This seems to be due to three factors. One, drawing on its parent’s research pipeline, the company has regularly come up with new products catering to niche segments in the agrochemical industry that aren’t very susceptible to generic price competition. While cotton insecticides are the mainstay for most agrochemical players, Bayer CropScience has focussed instead on wheat and rice herbicides, demand for which have been boosted by shortage of farm labour, and fungicides for foodgrains and horticultural crops.

Two, the company has been successfully expanding its presence in the promising hybrid seeds business. Bayer now holds a nine per cent share in the domestic hybrid seeds market, dominating crops such as paddy and millets. It has over 18 new hybrid varieties lined up for launch over the next three years. This business offers not just high growth potential, but also high margins, not available in the agrochemical business. A third leg that provides stability and predictability to Bayer’s earnings is its supply of pesticides to the public health programme, aimed at eradicating vector borne diseases. A thrust on marketing Bayer products to household pest management outfits has also lifted sales from this segment.

The only weak spot in Bayer CropScience’s finances are its high material costs (over 60 per cent of sales) which are susceptible to a weak rupee. However, with two-thirds of the import bill covered by exports and the rest hedged through forward contracts, the company seems to be adequately protected against the currency risk. Sale of a large tract of land at Thane for a profit of Rs 1,175 crore this fiscal has bolstered its cash coffers. While Bayer has offered no indication on how this surplus will be deployed or distributed, it translates into over Rs 220 per share, net of taxes.

L&T India Large Cap: Invest :: Business Line