Result Update: Marico, Manappuram General Finance, Tamilnadu Newsprint, Jubilant Life Sciences, GSK Consumer, KSK Energy:: Emkay

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Result Update

Marico Reco: ACCUMULATE CMP: Rs 163 Target Price: Rs 172 No Hiccups, Hereon, Maintain ACCUMULATE ·      Upbeat volume growth drives performance in Q3FY12; Revenue +29.4% yoy to Rs10.6 bn, Ebidta +22.1% yoy Rs1.2 bn and APAT +21% yoy Rs841 mn ·      Domestic business registered volume growth of 13% yoy and International business registered organic growth of 16% yoy ·      Shares optimistic outlook, Volume growth of 10-12% yoy in FY13E; Parachute at 8-10%, Saffola 14-16% and Hair Oils 20% ·      Forecast strong earnings performance in ensuing quarter, Retain FY13E earnings at Rs7.5/Share. Maintain ACCUMULATE rating with target price of Rs172/Share

Manappuram General Finance Reco: HOLD CMP: Rs 59 Target Price: Rs 65 Results inline; price led growth a concern ·      MAGFIL results inline with expectation with NII at Rs4.3bn and net profit at Rs1.6bn. The growth driven by strong advance growth and broadly stable NIM’s at 13% ·      AUM growth strong at 90%yoy supported by 63%yoy increase in customer base in commensurate with 53%yoy increase in branch network ·      Despite aggressive additions of 1345 branches over last  five quarters, the gold stock additions have seen consistent decline from 9.4MT/qtr to 4.3MT/qtr ·      MAGFIL continue to grow at a healthy pace, however sustainability of the same amid rising competition and any regulatory change in NPA recognition to 90dpd is under ques

Tamilnadu Newsprint Reco: ACCUMULATE CMP: Rs 93 Target Price: Rs 110 Disappointing results; trim estimates ·      Q3FY12 results disappointed due to lower sales volumes & higher input cost. Sales increased by 13%yoy  to Rs 3.1 bn. EBITDA margin declined by 700bps yoy/900bps qoq to 19.1% ·      TNPL reported adjusted loss of Rs 177mn against est of profit of Rs 22mn. APAT has been adjusted for EO gain of Rs 1bn (tax adjusted Rs 812mn) on forward currency contract. ·      Inventory builtup to the tune of ~60,000mt is a key concern which is likely to put pressure on near term realisations and EBITDA margins ·      Due to weak Q3FY12 results we have reduced our FY EPS est to Rs 1.3 (from Rs 9.1). On back of compelling valuations (40% discount to BV) we maintain Accumulate

Jubilant Life Sciences Reco: BUY CMP: Rs 177 Target Price: Rs 348 Debt remains a concern – Maintain Buy ·      Q3FY12 Results – Revenues at Rs10.9bn (up 25%YoY), b) EBITDA at Rs2.1bn (up 58% YoY) and c) APAT at Rs771mn (up 82% YoY) ·      Top-line growth and EBITDA margin expansion was led by strong traction in Generic business & favorable impact of INR depreciation, however debt increased by Rs4bn QoQ ·      Going forward, new capacity additions in pyridine & vitamin business, momentum in Cadista and +ve impact of currency will boost the top-line and the bottom-line ·      Strengthening INR will ease out debt concerns in next quarter – Maintain Buy with a target price of Rs348 (10xFY13E EV/EBITDA)

GSK Consumer Reco: ACCUMULATE CMP: Rs 2,637 Target Price: Rs 2,743 16% volume growth in Horlicks, Retain Accumulate ·      One-offs in A&P spends and Tax outgo impact performance, APAT growth curtailed to 11% yoy to Rs591 mn ·      Horlicks bounces back with volume growth of 16% yoy, but MFD volume growth of 12% yoy… ·      GSK has raised product prices by 8% on Boost portfolio effective December 2011 and 4% on Horlicks portfolio effective January 2012 ·      Maintain Earnings estimates for CY12E, Remains preferred play within 3 themes in Consumer sector, Maintain ‘ACCUMULATE’ with target price of Rs 2,743

KSK Energy Reco: HOLD CMP: Rs 72 Target Price: Rs 75 Improvement in coal supplies; maintain hold ·      3Q12 PAT of Rs755mn above exp. driven by i) fuel cost (-7% qoq) and ii) other income (+57% qoq). Linkage coal supply better for Wardha/Arasmeta I. Issues continued with Arasmeta II (no fuel) and Sitapuram ·      Co. confident of getting 70-75% linkage coal for Wardha in 4Q vs 60% in 3Q, resulting in fuel cost of Rs2.4-2.5/unit vs 3Q at Rs2.9/unit. Have factored Rs2.9/unit fuel cost in FY13 for Wardha, would wait for 4Q to change our assumption ·      Open access received for Wardha, co. in process of signing BPTA. Captive power supplies to start from Mar12. PPAs at 10-20% discount to ind. grid power rates in Maharashtra ·      Were expecting run up post 2Q, on attractive valuations & better 3Q. But, CMP prices in (1) ~50-60% linkage coal for Wardha & (2) Mahanadi I. Maintain Hold; Upside triggers - (1) 60% + linkage coal for Wardha & (2) alternative block

KSK Energy Ventures- Weak 1Q12 results; visibility on fuel supplies key factor to watch ::Credit Suisse,

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● KSK’s 1Q12 PBT of Rs354 mn declined 66% YoY and was 13%
below our estimate. The disappointment was mainly led by KSK
registering revenues from only 405 MW of its 540 MW Wardha
Warora project (last unit’s revenue capitalised until 1H of July 2011).
● However, the reported PAT was ahead of our estimate on account
of deferred tax asset and one-time tax writeback (we are awaiting
details from the company). We note that minority interest is
notional for KSK as the captive power consumers owning equity
stake are not entitled to profits of the projects.
● According to the company, its open offer has been further delayed
on account of some pending SEBI clearances. KSK expects the
open offer to start during September 2011.
● Start of linkage coal supply from cost plus mines of WCL for
Wardha Warora project and resolution of ‘no-go zone’ issue for
Morga-II captive coal block for Mahanadi-I project are long pending
issues. Visibility on fuel supply from the resolution of these issues is
the key trigger ahead. We maintain our OUTPERFORM rating.
1Q12 results below estimates
KSK’s 1Q12 PBT of Rs354 mn declined 66% YoY and was 13%
below our estimate. The disappointment was mainly led by the
company registering revenues from only 405 MW of its 540 MW
Wardha Warora project (last unit’s revenue capitalised until 1H of July
2011). However, the reported PAT was ahead of our estimate on
account of deferred tax asset and one-time tax writeback (we are
awaiting details from the company). We note that minority interest is
notional for KSK as the captive power consumers owning equity stake
are not entitled to profits of the projects. During the quarter, KSK has
sold wind assets of 31.8 MW to its subsidiary, KSK Wind Energy Pvt.
Ltd. for Rs181.3 mn.


Gross generation increased to 1.1 bn kwh vs 466 mn kwh in 1Q11, led
by better PLF and increase in capacity at the Wardha Warora project


Visibility on fuel supply key factor to watch
Reliance Infra has already signed a three-year PPA for purchase of
0.3 GW from the Wardha Warora project at an attractive levelised
tariff of Rs4.85/kwh (as reflected in 1Q12). Construction work for its
3.6 GW Mahanadi project is progressing well—boiler drum lifting for
two units of 0.6 GW each is complete and KSK maintains its guidance
of synchronising first unit in 1Q13. But, start of linkage coal supply
from cost plus mines of WCL for the Wardha Warora project and
resolution of the ‘no-go zone’ issue for Morga-II captive coal block for
Mahanadi-I project are long pending issues and key triggers for
profitability ahead. We maintain our OUTPERFORM rating on KSK.

KSK:: Morga-II coal block denied forest clearance; allocation of alternate block likely-- Credit Suisse,

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● Media reports suggest that the Environment Ministry has denied
forest clearance to the Morga-II captive coal block (fuel source for
KSK’s 1.8 GW Mahanadi-II project) given its location in a dense
forest area. Morga-II was among the eight coal blocks recently
recommended by a group of ministers for faster clearances.
● However, in lieu of Morga-II, the Environment Ministry has
recommended allocation of an alternate coal block (Bhalumunda),
identified by KSK, and sought the PMO’s intervention to expedite
the same. The CEA and Ministry of Power have also supported
the allocation but decision is pending Ministry of Coal’s approval.
● In light of the Environmental Ministry recently clearing few ‘no-go’
categorised coal blocks and government’s push towards meeting
power capacity addition targets, we believe the possibility of
Ministry of coal allocating an alternate coal block to GMDC is high.
● Allocation of coal block is not currently factored in our valuations.
If awarded, this could provide an upside of 2-9% to our current
valuation of Rs166/sh, assuming coal production from the block
commences from FY15/16. Maintain our OUTPERFORM rating.
Morga-II coal block denied environmental clearance
Media reports suggest that the Environment Ministry has denied forest
clearance to the Morga-II captive coal block as it is located in a dense
forest area of Chattisgarh, unlike the other recently cleared coal
blocks (Figure 1) which were on the fringes. Notably, Morga-II was
among the eight captive coal blocks recently recommended by EGoM
for faster clearances (Figure 2) owing to significant investments
having already been made in their end-use projects. KSK’s 1.8 GW
Mahanadi-II project in Chattisgarh was the beneficiary of coal from the
Morga-II block. The Environment Ministry further substantiated its
stance by indicating that since the Mahanadi-II project is not based on
super-critical technology (600 MW units), typical benefits of 5-8% CO2
emissions reductions too shall not be realised upon commissioning.

Environment ministry supports allocation of alternate block
KSK has identified an alternate coal block (Bhalumunda) if Morga-II is
denied environmental clearance, and allocation of the former has been
supported by CEA and the Ministry of Power; but is currently pending
Ministry of Coal’s approval. The Environment Ministry has also
requested allocation of an alternate coal block for Mahanadi-II and has
sought intervention from the Prime Minister’s Office (PMO) for
expediting its clearance to avoid project delays, which have already
incurred capex of c.Rs52 bn (for entire 3.6 GW Mahanadi I & II).
Given that the Environmental Ministry recently cleared some coal
blocks earlier categorised under the ‘no-go zone’ and also given the
government’s push towards meeting power capacity addition targets
to sustain economic growth, we believe the possibility of Ministry of
Coal allocating an alternative coal block to GMDC is high.
As per KSK, Bhalumunda block is favourably located (vis-à-vis Morga-
II); adjacent to its Gare Pelma-III coal block allocated for the 1.8 GW
Mahanadi-I project and should enable the company to optimise its
evacuation infrastructure.

Alternate block, if awarded, can give 2-9% valuation upside
Alternate coal block allocation has not been currently factored in our
valuations. If awarded, KSK expects to start coal production in three
years by FY15 (tapering linkage till then). We value 1.8 GW Mahanadi-
II project at Rs8/sh currently and could rise to Rs12-23 assuming coal
production starts from FY15/16 (and peak production by FY17/18); i.e.
2-9% valuation upside to our price target of Rs166/sh.

KSK -OUTPERFORM; 4Q11 results disappoint; fuel supply clarity key trigger ahead ::Credit Suisse

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KSK ------------------------------------------------------------------------------- Maintain OUTPERFORM
4Q11 results disappoint; fuel supply clarity key trigger ahead


● KSK’s 4Q11 reported PAT at Rs377 mn appeared ahead of CSe at
Rs134 mn, but adjusting for Rs484 mn deferred tax credit created
from accelerated depreciation at Wardha Warora, it had a net loss of
Rs108 mn, despite higher-than-expected volatile project development
fees. FY11 Rec. PAT (Rs1.3 bn) was 7% below CS estimates.
● Performance of the Wardha Warora project led to the disappointment of:
1) generation reported for only 270MW versus 405MW operational during
4Q (rest capitalised on auditor’s guidance); 2) high auxiliary consumption
at 21% led by frequent back-down requested by MSEDCL and low fuel
availability; and 3) merchant tariffs of just Rs3.96/kWh earned on a
negotiated basis from MSEDCL.
● We cut earnings for FY11 by 7% in line with reported results and by
4-5% over FY12-13 on continued delay in the commencement of coal
supplies from Coal India for its Wardha Warora project.
Consequently, we lower our target price by 5% to Rs166.
● The likely start of coal supply from June, commissioning of the
135MW Unit 4 at Wardha Warora and 43MW at Arasmeta, and
potential clearance of Morga-II block from no-go zone are key
positives.

KSK Energy - Fuel cost and aux consumption impact performance::Emkay

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KSK Energy

Fuel cost and aux consumption impact performance

HOLD

CMP: Rs112                                        Target Price: Rs110

---

n     Q411 conso. PAT of Rs377mn was below est. - mainly due to higher fuel cost (Rs3.4/unit vs our assumption of Rs2.9/unit) and aux consumption (21% vs our assumption of 13%)

n     We gather that recent SLC meeting has taken up coal supply issue of Wardha Warora but it is still not clear as to at what price (cost plus, MOU or linkage basis) and qty

n     MSEDCL took more power in Q4FY11 (Wardha PLF at 80%) but at lower price (Rs3.9/unit). From 1st May, Reliance infra is supposed to buy 260MW at Rs4.85/unit as per MERC order

n     Assuming supplies from CIL on linkage by Q212, we assume avg. fuel cost of Rs2.0/unit in FY12E for Wardha. Lower FY12E/FY13E EPS by 10%/6%; Maintain Hold - coal supply for Wardha/Mahanadi & Reliance infra contract remains key   

Credit Suisse:: Buy KSK - 3QFY11 above estimates but mainly led by volatile PDF revenues

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KSK ------------------------------------------------------------------------------- Maintain OUTPERFORM
3QFY11 above estimates but mainly led by volatile PDF revenues


● In-line with our estimates, fixed costs of its 270MW Wardha
Warora project that was shutdown for 45 days for performance
guarantee and reliability tests has hurt 3QFY11 performance.
However, KSK’s 3QFY11 PAT was above our estimates mainly
led by project development fees of Rs424 mn (CSe Rs25 mn)
earned from its wind and 1.8GW coal-based JR Power projects.
However, we expect these revenues to be volatile near-term.
● We are concerned about the rising cost of generation and lower
utilisation for its Wardha Warora project given that KSK is
operating on expensive e-auction/ imported coal, pending start of
coal supplies from the cost-plus mine of Western Coalfields
(WCL). KSK expects WCL coal supplies to commence from March
2011. Any further delay would be a key risk to our FY12 earnings.
● We cut our FY12 EPS by 12% on potential lower merchant tariff of
Rs5/kWh (versus contracted Rs5.5/kWh) on its contract with
Reliance Infra to supply 0.3GW from Wardha Warora. We tweak
our FY11 and FY13 EPS by 1%. Potential clearance of Morga-II
from no-go zone can be a key positive. Maintain OUTPERFORM.

KSK Energy Ventures: Highlights of Q2FY11 results: IDFC reseaqch

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Highlights of Q2FY11 results
􀂉 Consolidated Q2FY11 results
• Revenues grew +135% yoy to Rs2.8bn, as capacity addition of 270MW over past three quarters led to jump in power
generation revenues. However, Q2FY11 revenues were below estimates of Rs2.9bn, led by lower development
revenues.
• Led by commissioning of 135MW VS Lignite plant (end-March 2010) and first unit of 135MW at Wardha Warora plant
in May 2010, power generation revenues jumped 4.23x yoy to Rs2.8bn. Sale of wind power generation from 52MW
wind power capacity acquired in 1QFY11 also contributed to yoy growth in generation revenues.
• However, development division revenues fell sharply by 76.8% yoy to Rs95mn, as no new milestones were achieved
in power projects under implementation.

KSK: Power business ramping up - IIFL

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KSK Energy Ventures: Power business ramping up

KSK’s 2QFY11 net profit increased 47% YoY, thanks to ramp up in the core power generation business
that offset drop in project development fees. The aggregate generation increased 156% YoY through a
combination of new capacity and higher PLFs of older units. KSK expects to add 313MW capacity in
2HFY11, as against 270MW added in 1HFY11. We adjust our FY11-13ii earnings by 20% to factor in
higher coal costs and slower-than-expected ramp up in newly installed capacity. Timely
commissioning of projects is key for the stock to end its underperformance to the broader markets.