Metals and Mining - Coal Block Case: Mine Owners Woes Continue; Sector Update :: Edelweiss PDF link

Please Share::

The Supreme Court (SC) today passed a key judgement cancelling all 218 captive coal blocks (barring 4 belonging to SAIL, NTPC and Reliance Power). It also imposed penalty of INR295/t on producing coal blocks since start of production, transferring their operations to Coal India (CIL) within 6 months. The judgement is silent on auction and it will be up to the government to decide on the same. We see a risk that all the deallocated mines may not be auctioned, CIL may retain certain producing blocks and supply only part of current mine-owner’s production. We perceive highest impact on JSPL (~12mtpa production) with penalty of INR30bn (INR33/share), FY16E EBITDA cut of ~8% and target price reducing to INR209 (earlier INR304). Impact on Hindalco will be marginal- penalty of INR5bn (INR2.5/share), FY16E EBITDA cut of ~2% and target price reducing to INR223 (earlier INR240). With correction in JSPL stock, we retain ‘HOLD’ on the company; maintain ‘BUY’ on Hindalco.

SC cancels all coal blocks; CIL to takeover within 6 months

In its judgement today, the SC ordered: (i) all 218 captive coal blocks to be cancelled, barring 4 blocks of NTPC, SAIL and Reliance Power; (ii) 40 producing coal blocks to pay a penalty of INR295/t since start of production; and (iii) all producing coal blocks to be turned over to CIL within next 6 months. The judgement is silent on possible auction of the coal blocks and the onus is on the government to decide future course of action.

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

Transport Corporation of India - Visit Note :: Edelweiss PDF link

Please Share::

We recently met the management of Transport Corporation of India Ltd (TCI). Gradual recovery in the domestic economic activity is expected to drive revenue growth across the company’s three key segments viz., Freight, Supply Chain Solutions and Express Cargo. The management has guided for a topline growth of 10-15% in FY15 (4.6% in FY14). The margins are also expected to expand owing to pass through of diesel price increase to customers and increased business volumes across segments. The management indicated that the proposed GST rollout will have a positive impact on the logistics industry, due to increase in large-scale goods movement, though implementation of GST & actual impact of the same may take time. The company is planning an investment of approx. INR 350 cr over FY15-16, of which ~INR 275 cr will be in FY15. The proposed investment will largely be in Supply Chain (for warehouses) and Seaways business, which are expected to support growth over the next 4-5 years. At the current market price of INR 214, the stock is trading at 22x FY14 EPS.

Margin expansion likely in freight business; recovery in volumes still modest

The company’s EBITDA margins in the Freight business (37% of FY14 revenues) had declined from 4.0% in FY12 to 1.8% in FY14. The company was not able to pass on the sharp rise in diesel prices to customers owing to unfavourable market conditions (low business volumes & high competitive intensity). The decrease in volumes from over dimensional cargo (ODC) movement (a relatively high-margin sub-segment) due to infrastructure bottlenecks also impacted the segment’s margins.

The company is now passing on the diesel price increases to customers by renegotiation of rates and the management expects margins to recover to 3.0-3.5% by Q4 FY15. However, it has indicated that recovery in the freight movement and utilisation levels are still modest and will track incremental improvement in GDP growth going forward. The management expects ~5% growth in revenues in the freight business.

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

October Stockfest: Targeting Rs 1 Lac Profit

Please Share::

October Stockfest: Targeting Rs 1 Lac Profit

By trading intraday stocks only
Lets see how it goes...

ANY TIPS--
POST IN COMMENTS

Initial stocks to be traded:

Coal India -Buy
DLF - Short

Tata Steel- Buy
Reliance Infra -Buy


�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

NSE, BSE closed on 2nd, 3rd and 6th OCT :: Stock market HOLIDAYS

Please Share::

	02-Oct-2014	Thursday	Mahatma Gandhi Jayanti
	03-Oct-2014	Friday	Dasera
	06-Oct-2014	Monday	Bakri ID

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

Impact Report: SC cancelled 214 coal blocks allotted since 1993: IndiaNivesh PDF link

Please Share::


Impact on JSPL- Downgraded our rating from Buy to HOLD with target price
of Rs. 201
 Most affected company of this decision is Jindal Steel and Power as 4 coal
blocks were allocated to this company for its sponge iron plants and 1000
MW power plant. JSPL draws significant benefits from captive coal mines at
sponge iron production along with captive power plant (Raigarh) and its
1000MW (Tamnar1) merchant power plant of JPL (Jindal Power Ltd). For JSPL,
the SC ruling not only creates uncertainty on profitability from plant
(Raigarh)existing operational coal blocks (Gare Palma IV/I /2/3) but also on
the profitability of the US$2.6bn investment in the Angul Steel & Power project
as the associated Utkal B1 block is also de-allocated now.
Impact on standalone business (JSPL)
 JSPL draws benefits from captive coal mines for its sponge iron production.
After de-allocation of coal block JSPL may have to pay Rs. 2000/t against its
current cost of Rs. 1300/ton difference of Rs.700/t on 6mt volumes. This would
mean EBITDA loss of Rs. 4.3 bn on standalone business. At 8xEV/EBITDA, this
will mean loss of equity value by Rs 35 bn.
Impact on Jindal Power Ltd (JPL)
 JPL draws significant benefits from captive coal mines at its 1000MW
(Tamnar1) merchant power plant. Supply of coal for 1000 MW power plant is
sourced from its captive coal mines which are located in close proximity to
the power plant and which have geological reserves of approximately 246
million tons. The Gare Palma IV/2 and IV/3 mines have been leased to JPL for
30 years by the Ministry of Coal.
 Further the company is expanding its power generation capacity by setting
up 2,400 MW (4 X 600 MW) power plant adjacent to its existing 1000 MW
Power Plant. Three units of 600 MW each have been completed.....


�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

Aurobindo Pharma and Cipla :: IndiaNivesh PDF link

Please Share::


Aurobindo Pharma and Cipla
Newsflash: MPP announced six new sub-licences with Aurobindo Pharma, Cipla,
Desano, Emcure, Hetero Labs and Laurus Labs to allow generic manufacturing of
TAF for 112 developing countries. The generic companies will begin development
plans for new HIV product simultaneous with USFDA’s review to expedite access to
low and middle-income countries once the medicine is approved. In studies, TAF
has demonstrated comparable antiviral efficacy to that of 300 milligram tenofovir
disoproxil fumarate (TDF) – a World Health Organization-preferred HIV therapy –
but at a dose that is 10 times lower. The smaller milligram dose may also allow
lower production costs, as well as greater ease in developing new fixed-dose
combinations and single tablet regimens.
Our view: TAF, once approved, would be one more product under tender business
for HIV drugs. Participation of Aurobindo Pharma and Cipla in this drug would depend
on the profitability from this drug, given the past history of both the companies of
prioritising profitability over revenues. The potential consumption of this product
remains promising given the small amount of dosage required. Gilead, the innovator,
has just released the positive results on two of its TAF Phase III studies. Post results
and development by generic players, we expect meaningful revenue and profitability
to accrue 12-18 months from now.
The global sales of branded TDF – Viread has been US$958mn for CY13, as per
annual report of Gilead.
Impact on Stock:
Since the product is in development stage, we expect it to have no financial impact
as of now, however, it would be sentiment positive on Aurobindo Pharma and Cipla.


�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

Annual Report Analysis - Aurobindo Pharma :: Edelweiss PDF link

Please Share::

Aurobindo Pharma’s (APL) FY14 annual report analysis highlights robust profitability and return ratios with PBT increased to INR15.3bn from INR3.7bn in FY13. However, growth in operating cash flow (after interest) was subdued at INR5.8bn in FY14 from INR1.1bn in FY13 due to heavy investment in working capital despite robust profitability. Higher working capital investments coupled with acquisition advance paid led to APL’s debt increased by INR3.3bn despite robust profitability; however, the company’s D/E improved from 1.3x to 1.0x. During FY14, purchases and sales from/to related parties increased 41% and 228%, respectively. Profitability of subsidiaries (excluding US) deteriorated as losses widened from INR663mn in FY13 to INR1,039mn in FY14. The company made additional investment of INR1.9bn in existing subsidiaries, of which INR1.6bn was infused in Helix Healthcare (Helix).  Total exposure to Helix stood at INR6.3bn, of which INR1.8bn has been impaired.

What’s on track?

APL’s FY14 revenue and profitability catapulted 38% and 300%, respectively, coupled with expansion in RoCE and RoE, which stood at 27.2% and 36.9%, respectively  (FY13: RoCE-11.2%, RoE-11.9%).

Profitability of US subsidiaries improved from INR293mn (1.9%) in FY13 to INR1,345mn (5%) in FY14.

The company’s D/E ratio declined from 1.3x in FY13 to 1.0x in FY14 led by increase in net worth.

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

Eveready Industries Ltd - Visit Note :: Edelweiss PDF link

Please Share::

We met Mr Amritanshu Khaitan, Managing Director of Eveready Industries Ltd. Post appointment of Mr. Khaitan as the Managing Director in May 2014, the company is focusing on leveraging its strong brand and vast distribution network (3.2 mn retail outlets) besides cleaning up its balance sheet. Battery is expected to be a low-growth, steady cash flow business while the Lighting Products business is envisaged to be the key growth driver for the company. It is focused on debt-reduction and may consider write-off of intangibles to clean-up its balance sheet. The management has further indicated that it aims to maintain a consistent 20% dividend payout ratio. In the long run, the company plans to leverage its strong distribution network to enter into related products through tie-ups with established players. The stock is trading at EV/TTM EBITDA of 9.9x, P/Bx of 1.3x and TTM P/E of 38x (on suppressed earnings).

Strong brand and established position in battery business

Eveready enjoys strong market position in the Battery business with a 51% market share in dry-cell batteries while its nearest competitor has ~27% market share. The Indian dry-cell battery market is estimated to be around INR 1,300-1,500 crore (~2.4 bn pcs) and is expected to grow at a steady pace of 3-4% (in volume terms). The dry-cell batteries find applications mainly in Flashlights, Remotes for TV/ACs, Toys and Wall Clocks. Growth in the battery market is expected to be driven by rising per capita consumption (1-2 batteries per year in India vs. 5-6 in China) and increased usage of remote controls. The management has indicated that the decline in “D” size battery market (mainly used in flashlights) is ebbing and the overall market growth will be driven by “AA” (6-7% CAGR) and “AAA” (20-25% CAGR) batteries (used in remotes and toys). Further, we understand that key players in the industry have taken 2-3 price hikes over the past one year (without significant impact on volumes) to offset the increase in input costs, leading to recovery of gross margins. The management expects an average 4-5% pricing growth each year, leading to 8-10% growth in battery business revenues.

Flashlight market still underpenetrated; expect steady growth

The management has indicated that the flashlight market is still underpenetrated with around 40 mn households in India (mostly rural) without flashlights. However, competition is strong in this space from low-cost unorganised players. The management expects this business to grow at a steady CAGR of 11-13% over the next 2-3 years (7-8% volume growth and 4-5% pricing growth). Increasing penetration and gain in market share from the unorganised players through launch of better models and designs of flashlights will drive growth in this segment.

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

Index outlook: Skating on thin ice: Business Line

Please Share::





�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��