Technicals: Sundram Fasteners, Gammon Infrastructure, Bajaj Hindusthan, S.E. Investments, Symphony, JM Financial, Dewan Housing, :Business Line

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

I am holding shares of Dewan Housing Finance bought at Rs 275 and JM Financial bought at Rs 35. Should I continue to hold or sell at current price?

Pragdas Mathuradas

Dewan Housing Finance Corporation (Rs 218.5): Dewan Housing still appears to be on strong foundation. It has key long-term support at Rs 155 and the stock bounced off the low at Rs 176 last December. Investors with long-term perspective can continue to hold the stock as long as it trades above this level.

If it manages to hold above Rs 176 in the upcoming months, investors can look forward to a rally to the previous peak at Rs 347 or even higher over the long term.

The near-term prospects for the stock are, however, under a cloud. Medium-term resistance for the stock is at Rs 280. Since the stock is reversing lower from this level, it can decline to Rs 175 or Rs 155 in the upcoming months. If your investment horizon is short-term, then exit the stock on a close below Rs 210.

JM Financial (Rs 13.5): This stock is in a vicious downtrend and it is advisable to switch over to some other stock. JM Financial recorded its long-term trough around Rs 19 in March 2009.

This trough was breached last September, and the stock is currently trading below this level. Since the stock is currently close to its multi-year low, it is hard to predict where the downward spiral can halt.

Immediate support for the stock is at Rs 11.6. If this level is breached, it may fall to Rs 5.1. Medium-term resistances will be at Rs 32, Rs 45 and Rs 65.

Please advise on the outlook for Symphony and S.E. Investments. Are these stocks worth holding?

Rakesh Duggal

Symphony (Rs 250.8): This stock moved out of wilderness, below Rs 20, in 2010 to move to the peak of Rs 334 in April 2011. Since then, the stock is moving sideways in a broad band between Rs 200 and Rs 300.

Long-term outlook is positive for the stock and investors can hold with stop at Rs 190. If the stock holds above this level, it will open the possibility of break out to Rs 400 over the next two years.

That said, breach of the support at Rs 190 will drag the stock down to Rs 168 or Rs 130. Therefore, investors should divest their holding on fall below Rs 190.

The medium-term trend in the stock is, however, sideways.

It could continue to oscillate in the band between Rs 200 and Rs 300. Investors with a shorter investment horizon should, therefore, exit the stock close to Rs 300 and look for buying opportunities near the floor of the current range.

S.E. Investments (Rs 319.9): This is an extremely volatile stock recommended only for the brave-heart. It is currently close to its long-term resistance between Rs 350 and Rs 400. S.E. Investments has reversed sharply from this band twice in the last two years.

Since the reversals can be very sharp giving little opportunity to investors to exit, it would be best to take some money off the table, if you have some in front of you.

Hold the rest with stop at Rs 285.

What is the long-term view on Bajaj Hindusthan?

R.N.B. Rao

Bajaj Hindusthan (Rs 29.2): Bajaj Hindusthan is hardly in a sweet spot, wallowing close to eight-year low. Needless to add that the long-term view on the stock is currently down.

Decline below the December 2011 low at Rs 24 will take the stock below the Rs 10 mark.

The stock needs to do a lot of work before it moves to a position of relative stability. The first requirement would be a strong close above Rs 60.

Investors with lower risk-taking ability should exit the stock at current juncture and consider re-investing on a strong close above Rs 60. Subsequent medium-term targets would be Rs 93 and Rs 136.

Long-term outlook for the stock will turn positive only on weekly close above Rs 200. Inability to move beyond this level will keep the stock in the Rs 25-200 band for a few more years.

I am holding shares of Gammon India purchased at Rs 123. Please advise on the prospects of this stock.

P.M. Rao

Gammon India (Rs 44.4): Gammon India has given up all the gains recorded in the 2009 rally and is currently trading near its 2009 trough. The trend across time frames — long, medium and short — are currently down for this stock.

Investors can hold the stock with stop at Rs 40. But given the fact that many stocks are currently trading well below their 2009 lows, the stock can head lower to Rs 33 or Rs 19 in the upcoming months.

Resistances in the upcoming months will be at Rs 130, Rs 180 and Rs 271. The long-term trend will, however, turn positive only if the stock manages a close above Rs 270.

Please advise on the future outlook of Sundram Fasteners.

Sajahan

Sundram Fasteners (Rs 53): Sundram Fasteners faces strong long-term resistance in the zone between Rs 65 and Rs 75.

The rally from 2009 lows halted in this zone and the stock is currently consolidating in the band between Rs 45 and Rs 65. Key long-term supports for the stock are at Rs 44 and Rs 36.

If the stock manages to hold above Rs 44, it will denote the propensity to break out higher to Rs 85 or Rs 94 in the next couple of years.

52-WEEK FLOP: GAMMON INDIA :: Business Line

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

 

Bogged down by debt, cost overruns in a few fixed-price projects and muted subsidiary performance, infrastructure major Gammon India has had a trying time. The deteriorating performance and cloudy future sparked a steep fall in its stock price. Adding to trouble was the general mark-down of all construction and infrastructure stocks.

Gammon India – International remains a drag ::RBS

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


Gammon's domestic business has started to show signs of improvement, prompting us to raise
our FY12F EPS. However, its European business continues to underperform and is the key driver
of group losses. With no relief in sight, we recommend Sell and cut our target price to Rs71.00.


Positive signs in core business, but Italian business remains a drag
In a recent conference call, Gammon management reiterated its 9% standalone EBITDA margin
guidance for FY12, which is better than our expectations. It is also focusing on working capital
management in order to keep interest expenses down. Working capital increased sharply in
1QFY12 after having improved in 2HFY11. However, management said that its Italian subsidiary
would continue to underperform as economic conditions worsen in Europe. We believe the
ongoing stabilisation of the core business and a good performance from its BOT (build-operatetransfer)
subsidiary GIPL will not be sufficient to offset the Italian losses at the consolidated level
(out of the Rs1.57bn net loss in FY11, international entities and other subsidiaries contributed a
loss of Rs1.97bn).
Standalone EBITDA forecasts up 5% for FY12; liquidity position likely to remain tight
We have raised our standalone EBITDA margin forecast for FY12 by 50bp to 8.8%; still slightly
below the guidance of 9%. This has resulted in a 17% increase in our FY12 standalone EPS
forecast. We maintain our forecasts for FY13. Despite the strengthening of the P&L, we remain
concerned about the liquidity position due to the working capital increase and the substantial
investment (Rs3bn) in a long-gestation real estate project.
We trim our SOTP valuation to Rs71 from Rs85.90; reiterate Sell
The downgrade to our target price is solely due to subsidiaries, with Gammon Infrastructure
(GIPL - the listed subsidiary) contributing half of the downgrade and the Italian subsidiaries/ JVs
the other half. While we are becoming more positive on the core business as it reduces lossmaking
legacy orders, the Italian business continues to weigh on overall profitability and liquidity.
We believe the situation is likely to continue given the worsening economic conditions in Europe,
and this may further strain the balance sheet of the consolidated entity (FY11 consolidated net
debt/equity increased to 258% from 200% in FY10).

Gammon India – Good 1QFY12 performance:: RBS

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


Gammon India reported impressive 1QFY12 results as standalone EBITDA came up 13% yoy
and 20% above our expectations after swinging to a loss in last quarter. We await the
management call (tomorrow) to see if the numbers were boosted by some one off items or if the
progress is sustainable.


Margin bounced back sharply leading to 20% EBITDA surprise
􀀟 Net sales came at Rs.13.9bn, up 6% yoy but down 20% qoq. RBS estimate was Rs.13.7bn.
􀀟 There was a loss of Rs.22.5mn on account of inventory policy change from FIFO to weighted
average. We treat it as one off for comparison purpose.
􀀟 Adjusted EBITDA margins were at 9.0%, up 57bps yoy and up 138bp from our estimates as
other contractual expenses declined sharply by 260bp yoy to 37.3% of net sales. The lower
contribution from the legacy low margin contracts could be the reason, but we wait for the
management call to ascertain if there were some one off items also.
􀀟 Normalized EBITDA came at Rs.1.25bn, up 13% yoy (vs a loss of Rs.530mn in 4QFY11). Our
forecast was Rs.1.04bn.
􀀟 Net interest expenses declined 10% qoq (up 41% yoy) to Rs.521mn; RBS forecast was
Rs.590mn. Considering the high interest rate environment, we wait for management's
explanation to check if it was boosted by some one time income.
􀀟 Tax rate came at 34.4% vs 26.7% in 4QFY11 and 19.9% in FY11. RBS estimate was 32.5%.
􀀟 Normalized net profit came at Rs.314mn, down 3% qoq (4QFY11 loss was Rs.1bn). RBS
estimate was Rs.139mn as the EBITDA level surprise widened at PAT level.
􀀟 Normalized EPS for the quarter came at Rs.2.3
􀀟 The company also announced a final dividend of Rs.0.40/share taking the full FY11 dividend
to Rs.0.80/share.
􀀟 It seems that the company was able to minimize the impact of lower margin legacy contracts
on its numbers sooner than expected. However, the possibility of some one time gains can
not be ruled out and hence we wait for management call scheduled on Wednesday 11:00am
before reviewing our forecasts.

Gammon India – No near-term relief in sight ::RBS

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


Gammon reported EBITDA losses for 4QFY11 due to sharp cost overruns on fixed-price
contracts for subsidiary GIPL. With these contracts still forming a large part of coming quarter
sales and no turnaround in sight for European subsidiaries, we maintain Sell on cuts to our EPS
and target price.

Credit Suisse,::Gammon 4Q11 disappoints on loss-making legacy orders

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


Gammon India----------------------------------------------------------------- Maintain OUTPERFORM
4Q11 disappoints on loss-making legacy orders


● Gammon’s reported PAT needs to be adjusted for: 1) Rs1.8 bn
received from its real estate subsidiary, Metropolitan Infrahousing,
2) Rs1.7 bn of loss provisioning on revaluation of old fixed-price
orders (Kosi & Gorakhpur) and claims writeoff (DMRC order) and
3) Rs250 mn of gains from sale of its stake in Sadbhav Engg.
● 4Q11 recurring PAT of Rs273 mn fell 56% YoY (4% below CS
estimate), mainly impacted by its old loss-making fixed-price orders.
● Although Gammon claims it has improved its working capital cycle
sequentially, our calculation suggests its working capital cycle (net
of cash) increased from 132 days in FY10 to 147 days in FY11.
● Gammon plans to focus on cash flow improvement during FY12
rather than focussing on growth. It therefore guided for just 7-11%
top-line growth in FY12. However, it expects margins to improve to
9% as loss-making orders are expected to be completed by
December 2011.
● Gammon did not provide any details on its Italian and real estate
businesses. We cut our FY12-13E EPS by 1-5% on rising interest
rates and reduce target price to Rs164 (from Rs182), based on
the value of its construction business, which is at 10x FY12E EPS
(vs 12x previously).
4Q11 disappoints as legacy orders impact margins
Gammon’s legacy fixed-priced orders that constituted 25% of its order
book have fallen to about 10% now. However, led by delays (including
external factors such as floods, insurgency, etc.) and rising commodity
costs, these orders are now loss-making. Loss at these projects
continue to impact Gammon’s performance. 4Q11 operating margins
were just 6.3% vs our expectation of 8% and 119 bp lower YoY.
Gammon expects to complete these loss-making orders by December
2011. Its reported PAT needs to be adjusted for several one-time items
such as: 1) Rs1.8 bn interest income received on debentures of Rs0.8
bn of its real estate subsidiary taken over from ICICI Bank 4-5 years
back, 2) Rs1.7 bn loss provisioning on revaluation of its legacy road
projects, Kosi & Gorakhpur and claims writeoff for its DMRC order and
3) Rs250 mn of gains from the sale of its stake in Sadbhav Engg.
Working capital cycle though has improved on a sequential basis as
guided by the company, we note that it (net of cash) deteriorated
during FY11 to 147 days versus 132 days during FY10. Gammon
plans to focus on improving working capital cycle during FY12.
Figure 1: Gammon India – 4Q FY11 standalone results summary
(Rs mn) 4QFY10 4QFY11 % YoY 4QFY11E % difference
Order book 113,595 150,000 32.0% 155,000 -3.2%
Net Sales 16,678 17,379 4.2% 14,500 19.9%
Total operating expenses (15,426) (16,282) 5.5% (13,340) 22.1%
EBITDA 1,252 1,097 -12.4% 1,160 -5.4%
EBITDA margin (%) 7.5% 6.3% (119) 8.0% (169)
Depreciation (189) (249) 31.7% (261) -4.8%
EBIT 1,063 848 -20.2% 899 -5.6%
Net interest expenses (230) (405) 76.4% (520) -22.1%
Tax (212) (170) -19.9% (95) 79.2%
Tax Rate (%) 25.5% 38.3% 1,286 25.0% N.A.
Recurring PAT 621 273 -56.0% 284 -3.9%
Exceptionals (73) 331 Nmf - N.A.
Reported PAT 548 604 10.3% 284 112.7%
Source: Company data, Credit Suisse estimates
Muted FY12 sales guidance; expects margin improvement
Gammon guided for muted sales growth during FY12 of 7-11%, led by
its almost flat order book over the past four quarters and focus on
improving cash flow generation and margins during FY12 rather than
focussing on growth. Gammon expects the legacy loss-making orders
to be completed by December 2011. Besides, on a conservative basis
it has already provided for potential loss from these orders until
December 2011. This should allow it to improve margins going
forward. Gammon plans to reach 9% operating margin during FY12.
Order inflows could provide positive surprise, led by order
wins at subsidiaries
However, order inflows could surprise on potential large road project
wins on BOT basis by its subsidiary, GIPL, and potential of it winning
the NTPC bulk tender, if it wins its litigation to participate in NTPC’s
bulk tender. Besides, our sales growth estimate for FY12 already
factors in lower growth, as guided by the company.
No clarity provided on its Italian and real estate businesses
During the post-results conference call, Gammon provided no details
on the performance of its Italian business as well as on the media
articles that suggests Gammon is looking to divest its stake in the
Italian business. Besides, we await clarity on details of the land bank
and development plans for Gammon India’s real estate business.
Cut FY12-13E EPS by 1-4%; maintain OUTPERFORM
We cut our FY12-13 earnings estimates by 1-5% to factor in rising
interest costs. We also cut our price target to Rs164 from Rs182 as we
now value its construction business at 10x FY12E EPS versus at 12x
earlier led by expectation of lower growth and fall in peer valuation.
However, adjusted for valuation of its infrastructure business, the stock
now trades at 4-5x core construction earnings, which we believe is
inexpensive and thus maintain our OUTPERFORM rating for the stock.

Gammon India – EBITDA swung into losses: RBS

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


Gammon reported 4QFY11 standalone EBITDA loss of Rs.530mn and a negative margin of
3% (4QFY10 profit: Rs.1.3bn), due to high raw material expenses. We await for the
management call for further clarification. Normalized loss for the quarter was Rs.738mn
versus RBS estimate of Rs.239mn profit. Sell.

RBS:: Sell Gammon India --High sales growth at what cost?

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


Gammon India 
High sales growth at what cost? 
Gammon's high sales growth exceeding that of industry peers is impressive, but
hasn't resulted in any benefit in PAT, due to high working capital costs. We
believe weak order inflow should add pressure on profitability. With no evident
profits at international subsidiaries, we maintain a Sell with revised EPS and TP.

RBS: Sell Gammon India -Lower PAT on higher interest costs

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


Gammon India 
Lower PAT on higher interest costs 
For 3QFY11 higher interest costs (up 13% qoq) led to a 30% disappointment vs
our forecasts at normalised PAT level for the standalone entity despite in line
sales and EBITDA. Profitability remains under pressure despite good execution
performance. We have Sell on the stock.

Gammon- Highlights of Q2FY11 results: IDFC Sec

Visit http://indiaer.blogspot.com/ for complete details �� ��



Highlights of Q2FY11 results
􀂉 Consolidated Q2FY11 results
• GIPL reported 11%yoy fall in revenues to Rs789mn due to lower revenues from Mumbai Offshore Container Terminal
(MOCT) port project. As per terms of MOCT concession, GIPL operates container terminal berth (BPS) in Mumbai
Port, which was closed for part of the quarter following collision of ships in Mumbai harbour in August 2010. Also,
TAMP has reduced the container tariffs by, affecting realisations per TEU on yoy basis.
• Expenses have fallen on yoy basis, due to absence of major maintenance expense incurred for AEL & REL in FY10.
Consequently, in spite of fall in revenues, EBITDA grew 32%yoy to Rs447mn.
• Other income fell to Rs9mn from Rs19mn in Q2FY10, as surplus cash has reduced to Rs279mn (from Rs800mn at end
Q1FY11) due to investment into GIPL’s various subsidiaries towards share of equity contribution in SPVs.
• Net Interest costs increased 23%yoy to Rs 156mn due to commissioning of MNEL, and inclusion of VSP’s interest cost
post increase in stake to 73.7% since October 2009. The interest expense is net of interest income on early completion
bonus in AEL and REL. During the quarter, the Supreme Court of India directed NHAI to pay the early completion
bonus (Rs110mn in REL and Rs50mn in AEL) to GIPL along with interest on the bonus from date of start of operations
(Sept 2004 for REL, and Oct 2004 for AEL). We have treated the interest income as part of regular operations of the
company.

Gammon Infrastructure -Broadly in-line; Alchemy

Visit http://indiaer.blogspot.com/ for complete details �� ��


Broadly in-line; non-operational expenses
dent the bottom-line
Top line grows 60% on adjusted basis; margins remain healthy
Gammon Infrastructure reported a top line of `788mn (down 11% YoY). However, in
FY10, the company had capitalised the periodic maintenance on the Rajahmundry and
Andhra expressway, and thus reported inflated revenue. Adjusting for that (~`400mn),
the top line grew 62% YoY. EBITDA margins at the consolidated level stood at a healthy
57%, up from 2QFY10 (38%) primarily due to consolidation of Vizag seaport and lower
operational expenses.

Higher depreciation and tax expense dent the bottom line
The compnay reported a 93% increase in depreciation expense, due to consolidation of
Vizag seaport, commissioning of Mumbai-Nasik expressway and amortisation of the
periodic maintenance incurred last year. The interest cost went up YoY, due to the
commissioning of the Mumbai-Nasik expressway. The tax expense for the quarter was
also higher than expected.

Toll collection on Mumbai-Nasik started; Punjab biomass first unit to commence
operations soon
GIPL started toll collection on the 64km stretch, of the 100km-long, Mumbai-Nasik
expressway in this quarter. The company is currently collecting toll revenue of ~`1.5mn
per day, and expects the entire 100km stretch to be commissioned before the end of
FY11. The first unit of the 9x12MW Punjab biomass project has also been commissioned
and is in the trial phase. The management expects it to be commissioned by December-
10. Apart from these, the Kosi bridge and Gorakhpur bypass projects are expected to be
commissioned in the first half of FY12.

Valuation and view
We maintain our favourable stand on the company on the back of the high RoIC and
cash-generating projects that the company has in its portfolio. As per our estimates, the
company is expected to generate an average RoIC of 16% over the next five years, and
29% over the next eight years. There remains further upside potential to our price
target, from three projects awaiting financial closure, and sale of CERs from power
projects.

We value GIPL by the SoTP method, calculating the NPV of future cash flows from
various assets (refer to Exhibit 2). The methodology gives us a price target of `34,
representing 47% upside from the current levels. We maintain a Strong Buy rating.