NMDC Ltd Strong balance sheet at compelling valuations :: Sunidhi

After subdued production growth in the past (CAGR of -1.8% in FY08-13), we expect iron
ore production to perk up going forward on the back of impressive capacity expansion and
relatively firm domestic demand. Going forward, we anticipate production and sales will
grow at a CAGR of 5% and 6.5%, respectively, in FY13-15E. The stock has been under
pressure in the recent past on the back of the overhang surrounding the company’s
investment in the steel business and a steady drop in iron ore lumps realization. However,
we feel the present overhang is overdone. We believe that iron ore supply is getting
tighter in India, which will help NMDC in maintaining strong margins. We believe, iron ore
sales volume pick-up, inexpensive valuations turns the risk-reward trade-off favorable for
NMDC.
Pricing concerns remain but would fade eventually
NMDC’s stock price has been under pressure in the recent past on them back of concerns
over the unexpected drop in iron ore lump prices and recent weakness in global
commodity prices. We, however, believe the decrease in lump prices was in the offing as
the cost dynamics of the sponge iron industry resulted in closure of several sponge iron
units in Chhattisgarh resulting in consequent pressure on iron ore lumps demand and
prices. Moreover, the current cost dynamics were tilted towards usage of pellets instead
of lumps for domestic steel manufacturers. We, believe that concern on pricing still
persists given price difference between Odhisa players and NMDC. However we believe
that such difference would eventually fade out post M.B Shah report on illegal mining.
Capacity expansion on track to aim a gain in market share
The company has undertaken a capacity addition programme wherein it is on track to exit
FY15 with a mining capacity of 48 MT from 32 MT in FY13. The plan includes increasing the
existing capacity of Bacheli Complex in Chhattisgarh from 15 MT to 17 MT, a new mining
block in Kirandul complex, Chhattisgarh (capacity :7 MT) and a new mining block in
Kumaraswamy, Karnataka (capacity :7 MT). It has also been working on a plan to augment
its excavation capacity by increasing the rake loading capacity. NMDC is also mulling over a
dedicated slurry pipeline with its major customers that will provide further fillip to its sales
volume.
Other ventures like pellet plant in offing…
The company is also setting up a pellet plant with a capacity of 1.2 MT in Donimalai,
Karnataka. We believe pellet sales will drive incremental EBITDA for the company on the
back of optimal and captive raw material feed. The company proposes to use only 40% of
its fines produce as the raw material feed for its pellet plant and intends to use the idle
slimes lying at its mining complex in Karnataka as the remainder of raw material feed.
Valuation and Recommendation
NMDC has robust balance sheet with a healthy liquidity position (cash as of FY13 end at
210bn) . We have modelled an iron ore sales volume of 28.4 MT in FY14E and 32 MT in
FY15E. We have valued the stock at 5x FY15E EV/EBITDA thus arriving at a target price of
150 Possession of superior quality iron ore reserves, the company’s position in the lower
quartile of the iron ore cost curve & dominance in domestic market reiterate our positive
stanc

GMDC Ltd Volume growth to come back :: Sunidhi

Multiple disappointments have led the GMDC share price to free fall, we believe
pessimism is overdone and expect some rationality to return once volume shows sign
of stability. We believe volume could regain normalcy at its Tadkeshwar mine as seam
thickness is getting closer to 7m. We believe Tadkeshwar could scale back to 0.6-0.7
mn tonnes run rate from Q3FY14 onwards making total volumes at c.2mn tonnes. We
expect complete normalcy by FY15 to 2.2 mn tonnes. Secondly Volumes at Bhavnagar
mines are continuously getting affected due to teething problems of overburden
dumping. We believe the problem is more genuine and serious as it relates to land
acquisition for overburden dumping of capacity addition which company expected to
increase to 5mtpa. However previous estimates across the street were at 3-3.5MTPA
from Bhavnagar mine, which are now getting rationalized. But we believe company
would be able to maintain 2mtpa volume in FY14.
What is share price factoring? We believe multiple factors led the de-rating
GMDC share price has been witnessing severe pressure since Q3FY13. We underpin
following reasons for such a downfall i) Volume de-growth ii) delay in Lignite price hike
ii) Thermal power sub-performance iv) allocation of cash flows towards low return
wind generation business. However of these reasons cited, we believe weight age to
the volume and price hold the substantial value. We also believe that these factors
are time bound and have the potential to recover going ahead. We continue to believe
the robustness of demand of lignite in Gujarat and monopolistic nature of GMDC. We
also continue to believe that GMDC has the pricing power and would be utilized in
course of time. We never took such price hike in our estimates for FY14, understanding
bureaucratic nature of operations. However at CMP of 78 stock seems to factor in
volume similar to FY10 and a multiple of 4x EV/EBIDTA, which we believe is a perfect
case of irrational exuberance.
Umarsar mine ready with wildlife clearance, State level permissions pending, Make
us believe volume growth underway
GMDC secured wid life clereance of Umarsar mine two months back and has been
waiting for various state level miniscule permissions before it can issue tender for
contract mininng. However drilling work is getting delayed, which was expected to
start by now. Considering cautious scenario we now remove 0.5mn tonne from our
FY14 estimates, however there exist a bright possibility of Umarsar contributing in
FY14. We also cut our estimate from other mines given weak june volumes. We Now
cut our volume assumptiions to 11.6mtpa from 12.2mtpa.
Valuation and Recommendation
We now factor in volume estimate of 11.6 mn tonnes for FY14 against 12.2mn tonnes
earlier due to 0.5 mnt lower volume at Umarsar and other mines due to early monsoon
adjustment. We continue to believe in company’s overall strength and believe these
issues can be overcome in near future given strong execution done in the past. We
value GMDC at 5x of its FY14E EBIDTA and maintain our BUY recommendation with
target price of `153.

Yes Bank - Growth concerns overdone :: Sunidhi

Yes bank is one of the newest private sector banks in the country. Set up in 2004
by Dr Rana Kapoor, the bank rapidly expanded its balance sheet. The bank today,
has a total asset base of `1008 bn and a branch network of 475 branches. Despite
the disadvantages of being a new bank, such as a small branch network and low
CASA base, Yes Bank has consistently managed to maintain its ROA within a
narrow band across business cycles.
NIM compression concerns overdone
Yes Bank’s NIM has improved from 2.8% in Q1FY13 to 3.0% in Q1FY14. This is due to
the consistent improvement in the bank’s CASA ratio on deregulation of savings
deposit rates. The banks CASA ratio has improved to 20% in Q1FY14 from 16% in
Q1FY13. Additionally the bank has a high proportion of floating rate advances at ~
90%. As a result, advances re-price almost immediately while deposits re-price as
and when they reach maturity. This helps the bank protect its NIM. Management
has also clarified that bulk deposits do not pose significant threat of immediate
repricing as 86% of its deposits are contributed by less than 0.2% of total deposit
base individually and cost pressures would be mitigated through judicious
monitoring and lending rate hikes.
Asset quality appears comfortable
Yes bank has the best asset quality amongst its peers with %GNPAs at 0.22% and
NNPAs at negligible levels. The banks slippage rate stood at 0.6% in FY13. The banks
knowledge banking approach has helped keep asset quality issues at bay. Going
ahead we do not expect asset quality to deteriorate significantly as the bank has a
well diversified loan book with limited exposure to risky segments. Additionally the
bank has a strong provision coverage ratio of 88.5% which would act as a buffer in
case of asset quality deterioration. Its restructured book too is negligible at `1395
mn or 0.29% of advances.
Loan book to grow at a CAGR of 24% from FY13-15
Due to its small size the bank, has managed to grow its loan book at a rapid pace,
well above that of the industry. Loan book grew at a CAGR of 38% from FY08-13.
Going ahead we expect the bank to continue growing at a pace faster than that of
the industry. We have factored in a loan book CAGR of 24% from FY13-15.
Lower RWA as a proportion of total assets to free up capital
Yes bank has managed to bring down its total risk weighted assets to total assets
from 67.8% in FY13 from 80.6% in FY09. Going ahead we expect this ratio to
improve further to ~ 62% in FY15. Lower risk weighted assets as a proportion of
total assets would help free up capital for the bank and reduce the additional capital
requirement for the bank.
Buy with a target price of `491
At the CMP of `287 the bank trades at 1.5x its FY14E ABV and 1.2x its FY15E ABV.
The stock price has corrected sharply off late on the back of RBI’s liquidity tightening
measures. As a result Yes Bank is one of our top picks in the banking space with a
price target of `491 (2.5x its FY14E ABV).

Federal Bank Ltd Return ratios to improve :: Sunidhi

With the RBI looking at issuing new bank licenses, competition in the banking industry
is expected to heat up. In such a situation the future of old private banks which are
smaller in size and geographically concentrated appears uncertain. In our opinion one
of two scenarios are likely to play out 1) old private banks especially those with poor
profitability and asset quality concerns could become takeover targets for new private
sector banks and 2) larger old private banks could scale up operations and re-engineer
business processes to bridge the gap between themselves and new private banks. This
in turn could lead to a re-rating in the stock price of these banks. Given its large size
and proactive management, we believe that Federal bank is amongst the best placed
old private sector banks to make the transformation into a new generation bank.
NIM likely to improve to 3.4% in FY15
Federal Bank reported a NIM of 3.1% for Q1FY14, which improved sequentially by 6 bps.
The NIM improvement came on the back of a reduction in bulk deposits and an
improvement in the CASA ratio. Going ahead we expect Federal Bank’s NIM to improve
further as the bank continues to focus on reducing bulk deposits and improving CASA.
Non-interest income to pick up going ahead
Federal bank’s initiatives such as tying up with foreign banks for raising LC’s, installing
CRM solutions to identify cross selling opportunities, leveraging on NRI clientele to
increase other income etc would lead to a pick up in fee based income going ahead. We
expect fee based income to grow by a CAGR of 18% from FY13-15.
Asset quality impacted by volatile slippages in the corporate segment, SME, Agri and
Retail slippages in check
Federal Bank revamped its processes to improve asset quality. Some of the measures
undertaken by the bank included – separation between loan sourcing and sanctions,
improving loan appraisal systems and focus on credit monitoring and collection. Post
the revamp, the bank has managed to keep in check slippages in the SME, Agri and retail
segments. However volatile corporate slippages have impacted asset quality. Once the
economy stabilizes, corporate slippages are likely to stabilize. Additionally the bank has
a strong provision coverage ratio of 81% including technical write offs. This will act as a
buffer in case of asset quality deterioration.
Adequately capitalized
The bank is adequately capitalized with a capital adequacy ratio of 15% almost entirely
comprised of Tier 1 capital. As the bank leverages on its capital, return on equity is likely
to improve going ahead.
Buy with a price target of `547
At the current market price of `318, the bank trades at 0.8x it FY14E ABV and 0.7x its
FY15E ABV. We believe the worst in terms of NIMs compression, asset quality and
return ratios is behind us and focus on strong and profitable growth, prudent lending
and likely improvement in asset quality will drive earnings growth going forward. Thus
we have a Buy rating on the stock with a price target of `547 (1.5x FY14E ABV adjusted
for slippages from restructuring).

Cadila Healthcare Ltd Multiple triggers ahead; Maintain Outperform :: Sunidhi

Domestic formulations to post above industry growth rate
Domestic formulations faced hurdles during Q1FY14 on account of inventory adjustment
pre-implementation of pricing policy and trade related concerns but growth will be
normalized from Q3FY14. Its key segments like GI, Gynaec, respiratory & Derma
continues to do well while it needs to focus on CVS & CNS segments. We expect
company’s domestic formulation segment to show a CAGR of 14% over FY13-15E on back
of new launches.
Expect strong growth in Wellness segment
After posting muted growth in Wellness segment in FY12 due to stiff competition, growth
came back on track in FY13 with 19% growth on account of huge promotional spending.
Company maintains its leadership position in Sugarfree (92% mkt share) & revamped
entre everyuth brand version. We expect Wellness segment to show 16% CAGR over
FY13-15E.
US business to see traction by FY15 backed by niche pipeline
Cadila is the fastest growing company in US which showed 39% CAGR over FY08-13.
However growth will be impacted in FY14 due to delay in new approvals & price erosion
in existing products. Management expects only 5-8 approvals in FY14. However shortfall
in FY14 will be covered in FY15 where we will see traction in business as the company has
strong pipeline in US. Cumulatively ANDA filings stand at 179 out of which 78 are
approved. Total filings include 4 topicals, 5 nasal sprays & 26 injectables (19- through
patners & 7-owned) out of which 8 injectables (7 through patners & 1 owned) are
approved with 6 launches (5 through partners & 1owned). Since Moraiya facility received
USFDA clearance in July 2012, growth in US is expected to be strong as it has done
injectable filings & nasal sprays from this facility. Cadila has also started filing for
transdermals (3 filed) & expecting approval in FY15 which will be the next long term
growth driver for the US market. Nesher acquisition will also prove beneficial in the long
run as it is in a niche segment of controlled substances. Till date it has launched 2
products & likely to launch 2 products (1 controlled substances) in 2013. We expect
revenue CAGR of 18% over FY13-15E.
Emerging markets to continue to show momentum
Company has filed cumulatively 102 dossiers in Brazil out of which 40 are approved.
Company has filed 6 dossiers with regulatory authority in Mexico taking cumulative filings
to 20. We expect Cadila to post steady growth in emerging markets like South Africa,
Brazil & Asia Pacific.
Retain Outperform rating with the target price of `1011
At CMP of `708 the stock is trading at 17.2xFY14E & 13.3xFY15E EPS. Going ahead, we
believe domestic growth will be normalized from Q3FY14 and will be able to grow above
industry growth rate in FY15 & US business to see lower growth in FY14 due to delay in
approvals but it will ramp up in FY15. We continue to remain positive on stock &
maintain Outperform rating with thetarget price of `1011 at 19XFY15E of `53.2

Unichem Labs Poised for strong growth; Maintain Buy:: Sunidhi

Domestic growth to be back on track backed by focused promotional strategy
Domestic formulation business faced hurdles in the market during Q1FY14 mainly on account
of inventory adjustment in domestic market on the onset of drug pricing policy, trade issues
in Maharashtra & lower industry growth. But we believe domestic business growth will be on
track as the company has already strengthened its field force domestically to 3000 including
managers and is now looking to improve its productivity (currently 2.9mn). Attrition rate has
also come down significantly to 11-12% (earlier 35%). The domestic restructuring exercise at
distributor’s end is almost over and now company has started focusing more on C&F agents &
inventory days have been reduced to 30 from 80. Currently 1/3rd business comes from C&F
agents & rest from distributors.
Unichem’s top 10 brands & top 50 brands contribute nearly 50% & 83% of domestic revenues
respectively. Among top 10 brands, Tg-Tor group & Ampoxin are posting flat growth due to
stiff competition from low cost players. Company is trying to improve growth in its matured
brands through focused promotional strategy on general physicians & also focusing on other
high growth brands like Unienzyme & Telsar group to improve its overall domestic growth.
We expect revenue CAGR of 12% over FY13-15E driven by sales productivity through
increased sales force & marketing strategies taken by the management.
Exports will post flat growth due to slowdown in contract manufacturing
Export formulation business is impacted due to pressures in contract manufacturing business
from Ghaziabad facility on account of price erosion seen in existing products supplied by the
company. We expect revenues of around `800mn from CMO business in FY14E & FY15E
respectively. However Emerging markets business & US will continue to do well. In Brazil 16
products have been filed out of which 2 products (Anti-infective & Pain therapy) are in
market. Management expects 2 more approvals (CNS & Cardiac therapy) in FY14. Company’s
total ANDA filings in US stands at 29 and received 15 approvals out of which 10 products have
been commercialized till date. Management gave guidance of 1-2 ANDAs filings per quarter
to increase total filings to 34-35 & 3-4 product launches in FY14.
Management has identified 10 molecules to be filed in FY14-15 mainly from CNS, CVS & pain
management & 10-15 oral prefilled syringes to be filed beyond FY15. Company sold its Indore
SEZ unit to Mylan for `1600mn & proceeds will be used for capex plan at its formulation, API
plants & pilot plant in bioscience segment. We have not built in any gain from this sale in our
estimates which will be done after FIPB approval. Company has excess capacity due to delay
in ANDA approvals & foresees a long gestation period for SEZ project to effectively contribute
to its topline & profits. On the contrary company intends to expand its Goa facility as it is
already approved which could be done at a lower cost & lower gestation period which in turn
will improve margins.
Retain Buy rating with the target price of `223
We expect company to post domestic growth better than industry growth on account of
improved productivity through increased field force however pricing policy impact will be
around 2-3% on domestic business. Overall Margins too are expected to improve by 120bps
in FY14E on back of strong growth from both the domestic business & focus on emerging
markets. We maintain our Buy rating with the revised target price of `223 based on
12xFY15E EPS of `18.6.

Berger Paints Ltd Strong volume growth aided with favorable product mix :: Sunidhi

Berger Paints Ltd (BPL) is the second largest paint company (~16% market share) in the
Indian paint industry catering to both decorative and industrial segment which contributes
in the ratio of 80:20 to its revenue stream. With Indian economy on the revival mode,
Berger Paints volumes demand is set to grow at CAGR of ~ 12.8% over FY13-15E (i.e ~ 1.8x
GDP growth) well complemented by structural shift happening towards organized players
from unorganized players in the paint industry for fast growing emulsion paints ( premium
water based paints). With addition of 3.5 LTPA paint capacity (taking total installed capacity
up from 3.25 LTPA in FY13 to 6.12 LTPA by FY15E end), & newer focused management
strategy of repositioning & upgrading “Berger Paints” Brand Image from “ Mid-Economy”
Category” to “Higher - Mid Category” by providing both premium/affordable range of
emulsion paints, improving its supply chain system, expansion of distribution network and
aggressive marketing & sales promotion. Berger Paints is geared up to maintain its
dominating position in Tier II & Tier III cities & improve its market share ( ~ 17.50% in FY15E
vs ~ 16% in FY13). With the favorable product mix & higher realisation, Berger Paints is
equally well complemented with softening of raw material prices & economies of scale,
leading to expansion of EBITDA margins (~12.30% in FY15E vs 11.10% in FY13). We have a
“Buy” rating on the stock with target price of `248 implying 25x on FY15E EPS of `9.90.
Investment Rationale
Decorative Paints – Structural Growth Story
Berger Paints has a dominating position in Tier II & Tier III cities on the back of its strong
relationship with dealers & painters. With changing consumer lifestyle & growing demand
for premium quality emulsion paints, leading to a ongoing shift towards organized players
from unorganized players imply a significant & much more accelerated growth for Berger
Paints both in terms of Revenue growth at a CAGR of 18.4% & PAT growth at a CAGR of
25.0% over the next 2 years (FY13-15E).
Favorable Sales Mix to Increase Profitability
With the launch of new series of affordable emulsion paints in Tier II & Tier III cities, Berger
paints is driving a demand shift & Upgradation towards emulsion paints from lower
category distemper/ primer paints (~35% in FY15E vs ~29% in FY12). Thus, a favorable sales
mix with better average price realisation led by emulsions paints along with softening raw
material cycle would lead to expansion of EBITDA margins by 100-120 bps by FY15E (~12.3%
in FY15E Vs ~11.1% in FY13).
Yet another Price Hike by 1-2% effective from 1st September ‘13
Company has taken 1.3%% price hike in May’13 & August’13. It plans to take another price
hike of 1-2% effective from 1st September‘13 to mitigate the impact of higher import cost
on account of rupee depreciation. At the same time management is confident of
maintaining double digit volume growth momentum in the coming quarters.
Timely capacity expansion helps supplement demand
Berger Paints timely addition of 3.5 LTPA paint capacity to enhance its total paint capacity
from 2.6 LTPA in FY12 to 6.1 LTPA by FY15E end in phase manner would enable the
company to meet the growing demand & defend its market share. Berger Paints is set to
maintain capacity utilization in the range of ~ 60-65% & delivering a topline CACR growth of
18.4% over FY13-15E.
Aggressive Marketing Initiatives to develop Brand Image – To drive Sales
In order to develop a better brand image & penetrate the premium emulsion paints market,
Berger Paints has initiated marketing & advertising spends to promote it top brands like
“Silk”, “Bison” and “Weathercoat”.

Sunidhi's Super Seven - Investment Ideas

The broader market has cracked decisively on the back of weak macro indicators, monetary tightening by RBI, dwindling earnings growth and more so due to huge pessimism among market participants. The correction was more severe in midcaps as compared to large caps. CNX Midcap index has corrected almost 21% ytd vs ~6% of Nifty. Even in largecaps, the outperformance was confined to few stocks. We believe this correction throws an opportunity to identify stocks having strong earnings visibility over the medium term, compelling valuations, strong cashflows and no corporate governance issues.  In this series we have identified seven stock ideas which we believe should deliver strong outperformance in the medium term. 

1.       Berger Paints

2.       Cadila Healthcare

3.       Federal Bank

4.       GMDC

5.       NMDC

6.       Unichem Laboratories

7.       Yes Bank

KPIT Cummins Good Quarter, maintains annual guidance; Reiterate Hold:: Sunidhi

KPIT’s Q2FY13 revenue at US$103.4 mn was up 5.5% QoQ, higher than our
estimate. On lower-than-expected SG&A costs, operating margin increased
157bps QoQ to 16.7%. Forex loss of `213mn marred PAT for Q2FY13. Volume
growth for Onsite was ~9% and offshore was ~3% (blended ~4%).We maintain
our HOLD rating on the stock with a Target Price of `140 on account of recent
deal wins providing visibility and KPIT maintaining its FY13 US$ revenue
guidance (31-34% growth), focus on profitability and broad-based growth.

MphasiS --HP continues to haunt, outlook hazy: Sunidhi

MphasiS’ US$ revenues have been declining for the last four quarters – primarily due to weak HP contribution. Management indicated discretionary budgets for clients remain under pressure, with longer decision cycles. We believe weak sentiment due to a declining headcount (4 quarters in Applications and ITO business) and a weak outlook on HP’s enterprise services business is likely to persist for some time. HP channel revenues declined 10.1% QoQ to US$138.6 mn, while direct channel revenues grew at 1.6% to US$113.4 mn.

Tata Chemicals Ltd Near term headwinds are adequately priced in, Upgrade to ‘Buy’ : Sunidhi

Tata Chemicals reported Q4FY12 results. Topline and EBIDTA numbers were in line with estimates. Sales at `34650 mn was up by 30%, while EBIDTA went up by 11% YoY. EBIDTA margin improved to 15.9% from last quarter’s low of 14.6%. Exceptional items include notional forex loss of `246.9 million, impairment of assets at `259.3 million.

Power Grid -Increased capitalization to aid earnings, maintain ‘outperform’:: Sunidhi

Power Grid (PGCIL) reported its Q4FY12 numbers which were above our as well as street estimates. Revenue (`31 bn, 40.3% yoy), EBITDA (`26 bn, 44.1% yoy) and PAT (`10.3 bn, 37.4% yoy) all have seen robust growth, mainly driven by substantially higher capitalization for the quarter at `78 bn against `5.2 bn in Q4FY11 and `22.3 bn in Q3FY12. PGCIL surpassed its capitalization target for FY12, which stood at `141 bn against target of `120 bn and our estimate of `102 bn. We believe increased capitalization in FY12 would aid its earnings in FY13E-14E period as most of this capitalization are back-ended, given FY12 was the last year of 11th plan. We have revised our FY13E and FY14E EPS estimates upwards by 9.6% and 7.9% respectively to factor in increased capex and capitalization going forward. We maintain our ‘outperform’ rating on the stock with a revised DCF based target price of `123 (earlier `126/share), giving an upside potential of 16%.

Sintex Industries Ltd - Slowdown in monolithic hits topline and margin :Sunidhi

Multi Commodity exchange Multiple Growth drivers ahead, initiate Coverage with Buy "Sunidhi

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Exchanges globally have been businesses with strong monopoly status, robust EBIDTA margins, low capex requirements, negative working capital cycle which enable high free cash flow generation and robust dividend payout ratios. MCX, India’s first listed exchange is the largest commodity exchange with 87% market share appears to have multiple triggers for its business growth predominantly driven by regulatory outcomes. Though the exchange is the largest commodity exchange in India and the third largest in the world in terms of volumes of contracts traded, its breadth has been shallow with four commodities (gold, silver, crude, copper) together accounting to 90% of the total turnover value. MCX has benefited from the appreciation of commodity prices during (FY09-FY12) as its revenue model is depended on the value of the contracts traded. We believe that going forward there are multiple triggers on the volume growth front depending on the regulatory outcomes which include Introduction of options and indices trading in commodities, allowing banks, mutual funds and foreign institutional investors to trade in commodity exchanges etc. Global exchanges have been trading at wide P/E bands (15x-23x on forward earnings) depending on the exchange portfolio mix, revenues, margins and profits trends. Considering growth triggers we value MCX at P/E of 20x on FY14E EPS which yields a TP of `1320/Share. Initiate with Buy.
Options and commodity indices introduction could boost volumes
FCRA bill which allows introduction of commodity options, commodity indices and Institutional participation in commodity exchanges is awaiting the parliament approval. We believe that MCX’s strong parentage in technology (MCX is promoted by FT) would enable quicker launch of new product portfolio post the regulatory outcomes which could act as growth driver for volumes. Globally options account 17%-25% of the total transaction volumes in commodities and introduction of options and indices at MCX could act as substantial volume booster for the exchange. Further MCX is likely to introduce new products like Real estate indices, Rain indices etc which could act as growth drivers. FCRA bill clearance would also allow banks, institutions and FII’s to participate in commodity trading which could boost the exchange turnover.
Non linearity enables sustaining the robust EBIDTA margins
MCX has seen solid EBIDTA margin expansion with current EBIDTA margin at over 65% for nine months ended Dec 2011 driven by non linearity in the model up from 36% registered in FY09. MCX pays software & support charges (`one hundred and Twenty million + 12.5% of its gross transaction revenues) to Financial Technologies Ltd (which provides platforms), which is the only variable cost. The remaining cost structure includes salary and other administrative costs and hence inducing non linearity to the margin structure.
Multiple catalysts to drive the stock performance going ahead
MCX has 5% stake in MCX-SX as well as 634mn warrants and holding structure is under litigation with SEBI. FCRA bill approval, outcome of MCX-SX litigation could be the key catalysts which should drive stock performance going ahead.

ING Vysya Bank- Improvement in fundamentals continues : Sunidhi

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ING Vysya Bank reported a PAT of `1273.9 mn up 40% yoy and 7% qoq. Bottom-line stood in line with our expectations. NII came off by 1.4% qoq due to a 20 bps sequential deterioration in the NIM which was largely seasonal in nature. Provisions increased sequentially despite asset quality improvement as the bank used one off tax deductions to shore up its coverage ratio.
NIM compresses by 20 bps sequentially
ING Vysya Bank reported a NIM of 3.3% for Q4FY12, which was a sequential NIM compression of 20 bps. The NIM deterioration was largely seasonal in nature on account of priority sector lending and subscription to RIDF bonds which led to a 9 bps qoq decline in the yield on advances. In FY13, the NIM is likely to be in line with that of the previous year.
Strong loan book growth led by PSL lending
Advances grew by 22% yoy and 9.3% qoq. Sequential loan book growth was led by the agricultural and rural banking business which grew by 18% yoy on account of priority sector lending. On a yoy basis loan book growth was led by the business banking division. Going ahead the loan book will continue to grow ahead of the industry.
Non-interest grows on the back of growth in forex and core fee income growth
Non-interest income increased by 15.4% yoy and 15.8% qoq. The increase in other income was on account of a strong growth in forex and core fee income.
Asset quality improves sequentially
The asset quality of the bank improved sequentially with %GNPAs coming off by 8 bps qoq though up 4.6% qoq on an absolute basis. Slippages came of sequentially and stood at `600 mn or a slippage rate of 0.9%. The bank used the onetime tax benefits that accrued to it during the quarter to shore up its provision coverage ratio. Hence provisions increased by 69% qoq which led to a 569 bps improvement in the PCR to 90.7%. Due to higher provisions, NNPAs came off by 35% qoq and %NNPAs came off by 12 bps sequentially to 0.2%. The bank has managed to maintain its asset quality despite strong growth in its SME portfolio.
Restructured book at 1.4% of advances
The banks restructured book stood at 1.4% of advances which stood largely in line with that of the previous quarter.
Valuation and view
At the CMP of `355 the bank trades at 1.3x its FY13E ABV and 1.1x its FY14E ABV. At these valuations the bank trades below its long term one year forward P/ABV multiple. The bank is a strong re-rating candidate given its sound asset quality and improving cost to income ratios which will lead to an improvement in return ratios going ahead.

Buy TORRENT CABLES-- WIRED TO GAIN:: Sunidhi,

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Torrent Cables (TCL) formerly Mahendra Electricals was promoted by Shri J C Patel in collaboration with Johnson & Phillips of U.K. (now known as Delta Crompton Cables Ltd U.K.) was incorporated on 26th November 1960.
After the takeover of the same by the Torrent Group in July 1989, the Company with active support of John Royle of USA started commercial production of XLPE cables from September 1991 and successfully turned it around.
During 2007-08, as per the reverse merger plan, TCL was amalgamated with a loss making Torrent Gujarat Biotech, a group company of the Torrent Group effectively July 1, 2006. The equity was reduced and consolidated to `8.6 crore. The name was later changed/restored to Torrent Cables on 11th October 2008.
Plant & Products:
TCL's manufacturing facilities are located at Nadiad near Ahmedabad. Its products range includes, HT (high tension) cables (3.3 kv to 33 kv); LT (low tension) XLPE cables/LT PVC power as well as control cables; Rubber insulated cables and Specialty Cables like Railway-signaling cables mining &trailing cables. TCL also manufactures customized cables to meet client's specific needs.
Promoters:
TCL is promoted by the $1 billion Torrent Group headed by Rohit C Mehta. Torrent Group is a multifaceted and dynamic group dedicated to transforming life by serving two of its most critical needs - pharma and power.
Torrent Pharmaceuticals, the flagship company of the Torrent Group, has operations spread in more than 50 countries with over 1000 product registrations globally. In the power sector, Torrent Power remains the most experienced private sector player in the state of Gujarat (India).
User Industries:
TCL supplies its products to the industries like petrochemicals, metal, fertilizers & chemicals, FMCG industry, railways & ports, IT and engineering industries, cement & construction, aerospace, defence and energy sector.

Buy HYDERABAD INDUSTRIES CEMENTING GROWTH:: Sunidhi

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Company Description:
HIL, a C K Birla Group was incorporated as Hyderabad Asbestos Cement in June
1946 and was renamed to the present one in 1985. HIL is into the business of
producing building products, engineering goods and industrial products. Its first
public issue was in 1946. HIL is the market leader in its segments. HIL markets its
product AC and fibre cement sheets under the well-known brand “Charminar”.
HIL is also the largest manufacturer of calcium silicate, insulation blocks, pipe
sections and jointing for gasketing, thereby meeting the critical needs of the
fertilizer, engineering and chemical industries. It also makes aerocon prefab
panels, autoclaved aerated concrete (AAC) blocks which find applications in the
construction of residential quarters, malls, shopping complexes and office
partitioning etc.
Plants:
HIL’s most modern manufacturing plants are located at 12 locations in 8 states-
Andhra Pradesh, Gujarat, Haryana, Jharkhand, Kerala, Maharashtra, Orissa and
Uttar Pradesh. HIL being a market leader over several years with its strong brand
"Charminar" and a strong & extensive distribution network with nearly 8000 sales
points spread across the country which is serviced by its 45 depots.
100% asbestos-free:
Everest range of Fibre Cement Boards is manufactured from a homogeneous
mixture of portland cement, treated cellulose fibres, finely ground silica quartz
and other selected mineral fillers in a state-of-the-art unit using sophisticated,
digitally controlled processes.
Strengthening supplier base:
The major constituents of building products are OPC Cement, Raw Chrysotile,
Fly-ash and Lime. Cement prices are volatile and availability is a constraint in
some regions and thus HIL is taking steps to strengthen its supplier base.
Green Building Products:
Emphasis on environment and preference for Green building products remains a
focus area for the construction Industry. The Company's drive in growing the
Green Building Products business also meet with considerable success.

Union Budget-FY13 Realistic on Fisc; what about growth! - Sunidhi

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The Union Budget FY13 makes an earnest attempt to depict a true picture of the economic scenario given the dichotomy of slowing growth v/s fiscal challenges. Although, the aim to bring down the fiscal deficit to 5.1% in FY13 from a revised estimate of 5.9% in FY12 looks credible, but the gross market borrowing program of 5.7 trillion in FY13 has been a major dampener for the markets. Despite a deviation from the thirteen finance commission roadmap in terms of fiscal deficit (5.1% for FY13 against a target of 4.2%), the debt to GDP ratio at 45.5% for FY13 remains well below the target of 50.5%. As some undesirable subsidies have been putting pressure on the government financials, the budget assures to keep central subsidies under 2% of GDP in FY13. In addition to that finance minister targets to bring it down to 1.75% in next 3 years. The absence of any mention of proceeds from the 4G and 2G auctions of the cancelled licenses could provide a positive surprise to overall fiscal deficit number.

Buy Parekh Aluminex; target Rs 390: Sunidhi Securities

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Q3FY12 & 9MFY12 Results:
During Q3FY12, net profit surged by 42.3% to `22.2 crore (`15.6 crore) on 50.0% higher sales of `345.0 crore (`230.0 crore). OP and NP margin stood at 18.0% and 6.4% as against 18.2% and 6.8% respectively in Q3FY11. (YoY)
During 9MFY12, net profit advanced by 24.7% to `60.0 crore on 43.2% higher sales of `953.2 crore. OP and NP margin stood at 17.9% and 6.3% Vs 17.5% and 7.2% respectively in 9MFY11. 9MFY12 EPS works out to `46.5 Vs `37.3 in 9MFY11.
Company Description:
PAL, a Mumbai based company established in 1994, is engaged in the production and sale of Aluminium Foil Containers (AFC) together with lids or covers and Aluminium Foil Rolls (AFR). It came out with its IPO in 1997. PAL is the largest manufacturer and exporter of Aluminium Foil Containers (AFC) and also one of the biggest manufacturers in Aluminium Foil Rolls (AFRs) and Aluminium Lids, in India. Its two plants are located at Union Territory of Dadra and Nagar Haveli, India. From January 2009, PAL has been adjudged as 100 per cent EOU.
PAL manufactures these products with various sizes, shapes and microns. Aluminium Foil containers are utensils, pans, trays, packing materials made from Aluminium Foil. AFC’s has increased its capacity (casseroles/trays & containers/dishes) from 4, 000 million to 5, 750 million pieces per annum; AFR’s from 75 million to 98 million pieces per annum; and Aluminium lids from 1200 million to 1, 590 million pieces per annum.
The products find its application in packaging of food items in travel industry such as airlines, railways, fast food chains, restaurants, hotels etc and also find their application in household uses. PAL has set up a world-class plant to produce AFCs and is the biggest supplier of AFCs to Railways, flight kitchens, airlines and Five Star hotels. Further, it has the best production process and moulds to produce the widest range of products.
PAL’s manufacturing location attracted sales tax benefits for 15 years (six years left). Its products were exempted under certain notifications and subsequent to it, EOU duties were payable but at concessional rates, resulting in cost benefit. PAL is getting the tax benefit for 100% Export Oriented Unit U/s 10B of Income Tax Act, 1961.

ASM TECHNOLOGIES: Continue to Accelerate ::Sunidhi,

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Company Description
ASM Technologies, established in 1992, is a pioneer in providing world-class consulting services in enterprise solutions for the Packaged ERP products and in enterprise product development for SMB segment and in technology solutions covering embedded systems and system software to its global clientele. ASM has development centres in Bangalore (India), Singapore, Chicago, Toledo and Tampa (USA), and London (UK). Advanced Synergic Pte Ltd, Singapore, Pinnacle Talent Inc, USA, ESR Associates Inc, USA and Abacus Business Solutions Inc, USA are subsidiaries.
Industry Verticals
Manufacturing, Oil & Gas, Consumer Electronics, Growth Industries, Telecom, Public Utilities & Retail
Services
Enterprise Applications -- SAP, Oracle Applications, PeopleSoft & J D Edwards, Microsoft Dynamics, Business Process Management, Internet Applications, Outsourced Product Development, White Papers
Technology Solutions -- System Software, Embedded Systems, Network & Telecom, Engineering Services, Outsourced Product Development
Global presence
ASM has worldwide' Global presence with offices in India, Singapore, USA (Chicago, Toledo and Tampa), Japan & UK ' Focus on enterprise applications and technology solutions. It has development centres in India (Bangalore), Singapore, and USA (Chicago). During FY11-12, ASMTL explored the possibility of setting up operations in LATAM (Latin America) Region.
Acquisition
During FY11, ASMTL acquired 100% of US-based Abacus Business Solutions, Inc., in an all cash deal through its wholly owned subsidiary, Advanced Synergic pte Ltd, Singapore. Abacus has been in the business for more than a decade assisting large corporations/Fortune 500 firms with Enterprise Applications, Oracle Applications, Oracle Tools and Technology, E- Commerce, Reporting and Data warehousing. The acquisition has afforded ASMTL an opportunity to expand its offerings to a larger ERP & Oracle client base in the US and thus broaden its revenue margins.