Research Update with Emkay; 18 November, 2010

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n        Research Update Included

Deccan Chronicle Q2FY11 Result Update; Results below estimates, Catalyst exist - BUY; Target Price: Rs 175

n    Q2FY11 headline profit declined by 17% yoy to Rs826mn, below our estimate of Rs1.05bn affected by 5.7% yoy decline in revenues

n    Shift of festivities to Q3 and high base led to ad-revenue decline of 6% yoy

n    Cut EPS estimates by 6.5% and 5.5% to Rs12.1 and Rs15 for FY11E and FY12E respectively

n    Target price cut to Rs175. Retain BUY rating on attractive valuations. Buyback upto Rs180/share and IPL franchise stake sale are near term triggers

McNally Bharat Engineering Q2FY11 Result Update; Management holds guidance, Reiterate BUY; Target Price: Rs 418

n    Q2FY11 performance remains below estimates - revenue growth was healthy at 32% yoy to Rs4 bn, but APAT growth at 10% yoy to Rs97 mn was below expectations

n    CMT springs positive surprise on qoq basis – revenues up 46% qoq and PBT up 425% qoq. MSE failed to deliver – revenues down 10% yoy and APAT down 24% yoy

n    Despite lower Ebidta margins in H1FY11 - reiterates consolidated revenue guidance for FY11E of Rs25 bn and EBITDA margins at 10%, lending much needed comfort

n    Valuations attractive at 8.1X FY12E - Reiterate ‘BUY’ rating with target price of Rs418/Share

Orient Paper & Industries Q2FY11 Result Update; Cement division hurts profitability; BUY; Target Price: Rs 77

n    Net profit at Rs5mn (-98.8% yoy) below estimates, led by poor performance of cement division. Revenues at Rs4.25bn (+8%), electricals (+26%) & Paper division (+15%)

n    Though EBITDA declined by 74%, led by 91% decline in cement EBIT, paper division surprised positively, showing signs of turnaround. Electricals margins saw dip of 658 bps to 5.2%

n    Downgrade earnings by 11.9% for FY11 (EPS of Rs6.5) and 6.8% for FY12(EPS of Rs8.8) led by lower cement realizations and margin pressure in electricals segment

n    OPIL on the verge of earnings recovery led by recent cement price hikes in its key markets and turnaround of paper division. Upgrading TP to Rs77 by rolling over to FY12 nos

Tulip Telecom Q2FY11 Result Update; In-line results, Retain BUY; Target Price: Rs 240

n    Q2FY11 EBIDTA grew 28.5% to Rs1.6bn and APAT grew 35.3% yoy to Rs781mn, in line with estimate

n    Better than expected revenue growth of 19% to Rs5.9bn along with EBIDTA margin expansion of 200bps yoy drives profit growth

n    Net-debt rises to Rs11.6bn v/s Rs9.6bn in Q1FY11 primarily due to Qualcomm investment (Rs1.4bn)

n    Retain estimates, BUY rating and target price Rs240. Valuations at FY12E EV/EBIDTA of 4.1x & P/E 6.9x, attractive

Pharma Q2FY11 Results Review

n    Emkay Pharma universe grew by 13.8% (est. of 11.2%), driven by 51% and 26% each in Panacea Biotec, Aurobindo and Sun Pharma. Most of the companies in domestic pharma market reported robust growth.

n    OPM contracted by 46bps (EBIDTA growth of 11.4%) to 21.6% (est. of 21.5%). Sun Pharma (34% vs. est. of 29%) & Panacea Biotec (22% vs. est. of 17.2%) surprised positively while Divi’s (33.9% vs. est. of 40.4%) & Dishman (17.4% vs. est. of 23) surprised negatively. During the quarter, most of the companies reported higher gross margins driven by improved product mix and higher contribution of domestic formulation business. However higher employee cost and SGA cost on account of ramp-up in sales force impacted operating margins.

n    Despite higher depreciation cost (up 26%), APAT grew by 14% (est. of 6%) because of lower interest cost (down 15%).

n    CRAMS companies again disappointed in this quarter. We expect gradual recovery in second half and strong growth in FY12E, driven by a) increased outsourcing by global players post consolidation phase and b) lower base effect

n    Though the valuations of pharma sector has moved up (trading 8-10% premium to 5 years average multiple) but they are not yet in stretched territory

n    While we remain positive on the sector (as fundamentals remain strong), we believe there is less room for error after the recent outperformance. Post strong outperformance, we believe that it pays to be more stock specific now rather than having a bullish stand on entire pharma space

n    In the large cap - DRL, Lupin and Cadila are our preferred bet.

n    In mid cap - we continue to like Torrent, Aurobindo and Ipca Labs.

n    In the CRAMS space - we prefer Jubilant LifeSciences over other companies because of valuation comfort