Morgan Upgrades Ranbaxy to Overweight
Monday, November 30, 2009
Ranbaxy Labs [Daiichi Sankyo] got a double upgrade from Morgan Stanley from UNDERWEIGHT to OVERWEIGHT citing strong cash flow over the next 3 years and also recovery in the US.Expect the business to recover in the next 3 years via operating leverage with base business growth and cost containment (closure of unprofitable sites/operations;moderation in costs related to Paonta, Dewas, etc.), benefits of continuing high market share post 180 days exclusivity; and synergy benefits with Daiichi.
With generic Valtrex launch, it is more or less certain that Ranbaxy can monetize its exclusivities from its Dewas facility through site transfer.
Expect Ranbaxy to gross at least Rs25-30 EPS in each of the ensuing three years (2010-2012), with declining contribution from large exclusivity. The stock is still under owned : 5% FII and 12% DII [Sept-09 data]. Morgan Stanley has a 12 months price target of Rs 549.
The stock has already run up on the bourses from Rs 200 levels to Rs 450 levels and Research is already following the price and not leading it :-)
Update by Citi:
The approval for Valtrex last week along with positive trends in the core biz lead to materially revise estimates, eliminate key valuation overhangs & lower our risk rating.
Unveiling of long term plan to unlock synergies with Daiichi; b) earnings momentum from FTF launches (Valtrex in Nov 09; Nexium & Flomax in 1QCY10) & improving core biz; c) Clearance of the Dewas plant are key Positives.
Citi expects Ranbaxy Labs to report an EPS of Rs 9.5 and Rs 23.25 for FY10 and FY11 respectively with a 12 month target price of Rs 620.
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Published by Webmaster @ 12:33 PM IST.
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Pipavav Shipyard - SELL by Citi
Thursday, November 26, 2009
Citi has initiated coverage on Pipavav Shipyard (PSL) at Sell / High Risk (3H) rating. The risk / reward remains unfavorable at current levels.
PSL is constructing a shipbuilding, shiprepair, and offshore fabrication complex at Pipavav which will have the capability to build and repair vessels of up to 400,000 DWT and provide offshore construction facilities.
Order Book Down:The shipyard is expected to be completed in FY10 vs. FY09 earlier, a delay of nearly a year. PSL has firm orders of US$485m for 10 Panamax bulk carriers and 12 OSVs, down from US$1.1bn for 26 Panamax bulk carriers last year, due to cancellations and amendments.
Global shipbuilding has suffered from overcapacity as well as a supply/demand mismatchs owing to the economic downturn. PSL intends to tackle this by targeting the domestic offshore and defence segments, though orders from these segments are yet to materialize. On the other hand, technical agreements with SembCorp and KOMAC and the induction of Punj Lloyd as co-promoters are material positives.
Citi has set a target price of Rs 45 based on 1.2x P/B, a 5-10% discount to global peers. We had recommended a AVOID during the IPO due to the shady promoters Mr. Gandhis.
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Published by Webmaster @ 10:25 AM IST.
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Nestle - Robust Outlook backed by Maggi
Tuesday, November 24, 2009
Nestle India's outlook remains robust on the back of its star performing brand - Maggi which is now contributing between 25% to 35% of total sales. Nestle is favorably placed to benefit from the structurally strong demand conditions in semi-urban and rural areas.New Product Pipeline:
Nestle's topline growth of 18-20% to be sustained led by high single digit vol growth. Focus on low unit price pack & enhanced distribution continues to expand its customer base. Its exports, institutional accounts and out-of-home segments should revive with pick up in eco.
Financial & Earnings:
Nestle should maintain healthy 28% EPS CAGR over CY09-11E led by robust 19% sales growth and a healthy 140bp margin gain over this period. BOFA Merrill expects its EPS to be Rs 92 and Rs 114 for Dec-2010 and Dec-2011 respectively. IIFL / 5Paisa expects similar EPS as reported by Merrill.
Nestle should maintain healthy 28% EPS CAGR over CY09-11E led by robust 19% sales growth and a healthy 140bp margin gain over this period.
Kotak is more conservative in its EPS estimate of Rs 78 for Dec-2010 and has set a target price of Rs 3,000.
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Published by Webmaster @ 10:50 AM IST.
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Maruti Suzuki - Speeding Production and Profits
Monday, November 23, 2009
India is witnessing robust demand trends in the car segment. Demand continues to be strong against a backdrop of economic recovery. Bank financing continues to improve; Maruti's cars sold on credit reached 71% now from 60% last year.The Manesar plant (where Swift and Dzire are produced) is operating at peak capacity, while the Gurgaon plant offers scope for expansion. Maruti expects make an official decision about potential capacity expansion at the Manesar plant, which could add 100-300k units (9-27%) to capacity, which should meet demand for the next three years.
HSBC is Overweight with a rating and target price of INR1880 as they believe that the company should be a key beneficiary of urban demand recovery. Target Price implies a target PE of 19x FY11e EPS of INR101. FY10 EPS is likely to be Rs 86.
UBS Expects of Rs 82 and 103 for fy10 and fy11 respectively.
HOLD or ADD on Decline.
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Published by Webmaster @ 10:43 AM IST.
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MidCap Companies for Investment
Saturday, November 21, 2009
This is the Last series of the 3 part post on MidCap Companies in India. Read Part - 1 [Aurbindo Pharma, BGR, IRB Infra, IVRCL, Everonn Systems] and Part -2 [Infotech Enterprise, Koutons Retail, Mahindra Holidays, Shiv Vani Oil & Gas] . All these have to be invested with a time horizon of 2 years according to Edelweiss.South India Bank:
South Indian Bank's (SIB) advances book is set to post a robust 22% CAGR over FY09-11E after having slowed down the pace of growth in FY09. SIB has a niche franchisee with nearly ~42% of total deposits comprising low-cost deposits; 24% current account and savings account (CASA) deposits, and a stable ~18% non-resident external (NRE) term deposits (where the bank pays close to 3%).SIB has one of the stronger asset quality portfolios with gross NPAs at 1.6% and net NPAs at 0.4%. SIB is one of the most attractive banks in the mid cap banking space. The stock is trading at 0.9 FY11E adjusted book and 5.4x FY11E earnings.
Techno Electric and Engineering:
India is expected to add ~60,000 MW of generation capacity in the Eleventh Plan, which is more than what was added in the past 15 years. TEE has been one of the key EPC (equipment, procurement, and construction) contractors for Power Grid Corporation of India (PGCI) for air insulated sub stations. At FY09 end, TEE had a gross block of INR 100 mn, implying a fixed asset turnover of ~101x. Even in the mid-1990’s down cycle, the company did not report a single year of loss, which we believe is an important indicator of a well managed company. At INR 150, the stock is trading at a P/E of ~9.9x and ~7.7x for FY10E [EPS 15] and FY11E [EPS 20], respectively.
TIL - Tractors India Ltd:
TIL provides total infrastructure solutions rather than supplying only products.Infrastructure development is a priority for the Government of India (GoI) for sustained GDP growth. ~12% of this spending is likely on equipment like cranes, forklifts, and material handling systems, translating into an opportunity of INR 72 bn over the next five years. TIL' order book is of INR 2.61 bn. At CMP of INR 303, TIL is trading at 6.9x its FY10E consolidated EPS of INR 43.9 and 5.4x its FY11E EPS of INR 55.6.
TRF:
TRF's primary business is - engineered equipment,coal beneficiation systems, coal dust injection, systems and coke oven equipment for steel plants, bulk material handling systems and equipment, , and port and yard equipment. TRF has an order book of 14 bn and is focusing on bagging more orders from Ultra Mega Power Projects. Edelweiss Analyst assumes 20% market share for TRF, it means incremental revenues of INR 8 bn over the next five years. At CMP of INR 600, TRF is trading at 11.6x FY10E consolidated EPS of INR 51.8 and 9.1x our FY11E consolidated EPS of INR 65.9.
Usha Martin:
Usha Martin (UML) has recently completed its blooming and section mill of 275 kt and wire rod mill expansion to 400 ktpa, as a part of its ongoing expansion plan.UML offers a variety of products in the wire rope segment. It is India's largest manufacturer of steel wire ropes. Assuming billet production of 395 ktpa and 575 ktpa in FY10E and FY11E, respectively. Assuming 4.8x EV/EBITDA, our fair valuation works out to INR 86/share (CMP is INR 72)
Welspun Gujarat Stahl Rohren:
Gradual increase in crude and gas prices (improving project economics) and better economic recovery outlook and liquidity are likely to improve the outlook for global pipeline capital spending. Has higher order book at INR 78.0 bn (Q2FY10 end) from INR 68.3 bn as on June 2009 end. Valuing the stock on both comparative (P/E and EV/EBITDA) and DCF valuation methods, yielding an average fair target value (March 2011) of INR 379/share. EPS Growth is expected to be 38 for FY10 and Rs 40 [yes flat growth] for FY11.
Questions and Comments can be posted here or on the forum, specially setup for informed investors like you.
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Published by Webmaster @ 10:33 AM IST.
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Aban Offshore - Back to Growth
Thursday, November 19, 2009
The Capital restructuring and the award of long-term contracts at premium dayrates have helped Aban tide over its near-term cash shortfall. Aban has raised US$150 mn through issue of 5.7 mn shares at Rs1,224/share. This amount will primarily be used to redeem the outstanding bonds of NOK1 bn (US$150 mn) due in Dec’09, which were issued by its Norwegian subsidiary Sinvest.
The deployment of four of its jackup rigs at better-than-market rates has significantly improved near-term revenue and cash flow visibility for Aban. Management indicates that it is in an advanced stage of negotiation for the remaining three idle rigs, the deployment of which will reduce the risk of idle assets to a large extent
Financials:
Aban posted a Rs714m net profit, down 73% yoy, on back of lower utilization of rigs. Going forward for, FY10, the company expects to report an EPS of Rs 164 and Rs 320 for FY10 and FY11 according to Anand Rathi. While Kotak expects it to be Rs 160 and Rs 300. Both the brokerages have a BUY recommendation with price targets of Rs 1700 and Rs 1500 [Kotak].
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Published by Webmaster @ 10:54 AM IST.
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L&T Power Generation Business - Insight
Tuesday, November 17, 2009
India's leading construction company L&T which has tremendous know-how in building mega power plans and projects has jumped into the business of power generation. Its 100% subsidiary L&T Power Development Ltd (LPDL) has emerged as lowest bidder to develop and operate a 1,320MW thermal power project in state of Punjab.
The project is expected to be operational only in 2014. However, on a longer term basis, we believe that it is positive because:
- it expands L&T's foray into the power sector as a power developer. This is the first large-scale power project to be developed and operated by L&T
- it provides an opportunity for an equipment order of cINR50bn to its power division, including its JV with Mitsubishi Heavy Industries (MHI)
- post development provides a stable long term cash flow (INR5-6bn per year, RoE of 20-25%) and reduces the earning cyclicality attached to an industrial company.
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Published by Webmaster @ 11:17 AM IST.
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MidCap Picks - NCC + Anant Raj + Shriram by Motilal Oswal
Monday, November 16, 2009
Motilal Oswal has picked the following 3 midcaps for investment and here is the review of all the thre.Nagarjuna Constructions:
During 2QFY10, NCC reported revenues of Rs10.7b & net profit of Rs439m (up 3.8%YoY). EBITDA margin during 1HFY10 stood at 10.3% vs FY09 margins of 9.0%, and the management is confident of maintaining margins at 10-10.5% in FY10.NCC has witnessed a meaningful traction, with order intake of Rs46b in 1HFY10, vs initial guidance of FY10 order intake of Rs65b.
NCC's order book as at end 2QFY10 stood at Rs143b, book to bill 3.4x TTM revenues. Including L1 projects, order book increases to Rs174b, Book to Bill of 4.1x TTM revenues. Maintain Buy rating on NCC with target price of Rs184/sh (core business at Rs142/sh, 12x FY11 and BOT/RE investments at Rs43/sh).
Anant Raj Industries Ltd:
ARIL has a robust business model with multiple revenue streams and high monetization visibility. We expect revenues to increase at 50% CAGR over FY09- 12 and net profit to increase at 18.2% over FY09-12.
ARIL has ridden the current RE cycle well since FY06. While Several RE companies bought expensive land and projects during FY06-08 and are now selling assets cheap in the downturn (FY09-10) to de-leverage.
ARIL's rental income is expected to increase from Rs150m in FY09 to ~Rs1.7b by FY11. Maintain a target price of Rs194.
Shriram Transport Finance:
For 2QFY10, STFC reported PAT growth of 25% YoY to Rs2.08b on back of 15% YoY growth in AUMs, 18% growth in total income and controlled operating expenses (down 13% YoY and 20% QoQ). Net NPA stood at 0.7% and coverage of 72%. Disbursements grew 10% QoQ, highlighting improved business environment.
NII grew strong 30% YoY and 12% QoQ to Rs5.3b (led by decline in funding cost). Overall AUMs grew by 15% YoY and Overall disbursements grew 10% QoQ.
Expect STFC to report EPS of Rs. 37 in FY10 & Rs 49/- in FY11 and maintain a BUY with target of Rs 490.
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Published by Webmaster @ 9:55 AM IST.
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Renuka Sugars' Sweet Brazilain VDI Deal - Research
Thursday, November 12, 2009
Shri Renuka Sugars is acquiring a Brazilian sugar and ethanol company in the state of Parana, in the centre-south region of Brazil. We view the potential acquisition as strategically compelling, as it increases operating flexibility and offers geographic diversification.Acquisition Valuation and Financing:
The acquisition is reasonably priced, as Renuka trades at USD90/tonne; and Cosan SA acquired Nova America at USD80/tonne in January 2009, and sugar prices have rallied since. Renuka is likely to pay USD82m for a 100% stake, which could be paid for through its recent QIP.
Further, expect it to be EBITDA-accretive, and add 10-15% in the first full year following integration (i.e., assuming no synergies). The deal increases the current crushing capacity by c62%; and 3) the acquisition cost is reasonable (at EV/tonne of USD77). Note that the acquisition is subject to final approvals within 45 days.
The acquisition would lead to backward integration of Renuka's Indian refining business, and account for 20-33% of its raw sugar requirement for FY11e, geographical diversification, with a presence in Brazil, the world’s largest producer of sugar.
Update:
Renuka targets to have 20% ROE in VDI compared to losses led by (1) increase
in cane crushing by 35% to full capacity; (2) doubling of sugar production by April
2011 by investing US$20mn from internal accrual of VDI. Renuka also seeks to
save US$5mn by importing sugar through VDI’s underutilized logistics assets.
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Published by Webmaster @ 1:53 PM IST.
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Sesa Goa - Rising spot price un-sustainable
Wednesday, November 11, 2009
The iron ore spot price for benchmark-grade 63.5% Fe CFR China has risen 20% since its Sept. low and 8% over the past week. As per SBB, the current iron ore price is US$100.5/t, 11% below its peak level in Aug. 2009.
While Sesa would benefit from a higher spot price, given that it exports 85% of its
output to China, we believe that this price may not be sustainable over the medium term.
The widening price spread between domestic iron ore and imports (China domestic concentrate prices up only 5% over the past 2 months) should encourage mills to use more domestic ore; and (2) Chinese steel prices have underperformed domestic and imported iron ore prices, with mills operating close to cash cost.
Sesa Goa SFIO Investigation:
A complaint has been filed by a shareholder of Sesa Industries in 2003 prior to the acquisition by the current promoter, Vedanta (VED.L, 2,338p; Neutral), in April 2007. As per company management, the current promoters are ring-fenced from the case. To put things into perspective, Sesa's revenue in FY03 was Rs6bn vs. Rs50bn in FY09. The investigation must be completed within 6 months, and may cause some volatility in the stock price.
Labels: sesa-goa-sfio-investigation
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Published by Webmaster @ 1:10 PM IST.
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Shoppers Stop - Recovery in Lifestyle Spending Helps
Thursday, November 05, 2009
Shoppers Stop Limited (SSL) on a consolidated asis reported a growth of 9.1% yoy in its revenues during 2QFY2010 to Rs382.2cr (Rs350.1cr). SSL clocked the growth on the back of SSS growth of 2.3% for Shoppers Stop departmental stores and 1.8% growth for all formats on yoy basis,thus ending the declining trend posted for the last three quarters. SSL's Bottom-line improved significantly thereby posting a profit of Rs8.7cr in 2QFY2010 against a loss of Rs18.3cr in 2QFY2009.The performance is significantly impressive on qoq basis as in 1QFY2010 the company had posted a 6.3% decline in departmental stores sales and a 7.5% decline in all formats sales. The growth was the result of increase in average space of 13.6% despite 2.6% decline in sales per sq ft.
The company during the quarter added one Shoppers Stop store and one Crossword store. The number of customers entering the stores improved by 5.3% yoy.
According to various analysts, Shoppers Stop is expected to report an EPS between Rs 6.5 to 7.5 and Rs 12 to Rs 14 for FY10 and Fy11 respectively. One can HOLD or BUY on corrections, around 200 levels.
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Published by Webmaster @ 11:36 AM IST.
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ICICI Bank - Positive Surprise + Transition Continues
Wednesday, November 04, 2009
ICICI Bank's profits for Q2FY10 grew 3% YoY and 18% QoQ driven by 18% fall in operating expenses. Net revenues (adjusting for trading gains) declined 15% YoY due to 5% decline in NII as loan book shrunk 13% YoY in Q2. Fee income continued to decline YoY (26% in Q2). Demand deposits grew 9% YoY and 14% QoQ.ROA set to increase to 1.3% by FY11e, led by improving margins. Core RoE of the bank could rise to ~17% by FY12 v/s 11% Higher retail NPL ratios may continue for some time. NPL's are high (and so is deterioration), coverage modest (New RBI regulations suggest lumpy provisioning ahead); c) International book: over 25% of loans, low on profitability (50bps margin), with risks harder to manage - in our view this expanded exposure adds little value.
This year management has been articulating its 4C strategy (CASA, cost, credit and capital) and appears to be delivering on that. CASA deposits went up, costs were down, credit problems seem to have peaked, and the capital base remains extremely strong.
EPS Estimates of ICICI Bank @ end of Q2:
Citi - 46.11 and 62.97 for fy10 and fy11 with sum of the parts valuation at 832
HSBC - 45.66 and 55.29 for fy10 and fy11
BOFA-Merrill - 37 and 49 for fy10 and fy11 with sum of the parts valuation at 1050
Morgan Stanley - 36 and 41 for fy10 and fy2011 with SOTP valuation of 765 [base case]
UBS - 38 and 51 for fy2010 and fy2011 with valuation of 900 which includes insurance subsidiaries, Housing Finance and other foreign businesses.
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Published by Webmaster @ 1:03 PM IST.
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Suzlon Energy - Q2 Absolutely Powerless + Darker
Tuesday, November 03, 2009
Green Energy Infrastructure Company, Suzlon's 2Q FY10 continued to disappoint, with shipments much lower than expected. At the Suzlon Wind level (parent level), 2Q FY10 wind shipments totalled 283MW, for a 1H FY10 figure of 406MW (17% of our FY10F estimate), and gross margin narrowed from 31% last quarter to 27%.Suzlon had a disastrous 2QFY10 with Rec. Loss of Rs3.4bn vs Rec. PAT of Rs2.6bn in 2QFY09 and 3x BofAMLe. This was led by uneconomical operations resulting from dwindling backlog -41%, client driven push back in sales - 61%YoY fall in WTG volume (ex-REpower) and 1.4x rise in interest cost.
Management guided that for Suzlon Wind to break-even at the PBT level, shipments of 2,000MW are required. As for guidance for the subsidiaries, Repower is expected to contribute sales of €1.4bn and an EBIT margin of 7.5%, whereas flat volumes are expected at Hansen for FY10F. Suzlon is proactively aiming to fix the debt repayment challenge by asking for a 2 year moratorium in its new US$2.4bn debt refinancing plan.
Suzlon Energy is expected to report an EPS of Rs 2.5 and Rs 4.5 for FY10 and FY11 respectively.
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Published by Webmaster @ 6:21 PM IST.
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Voltas - Q2 Lower Cost Boots PAT - But Order Inflow Cools Down
Voltas' 2QFY10 Sales at Rs10bn Grew 9% YoY and 2QFY10 PAT at Rs807mn grew 36% YoY. The earnings beat was primarily due to higher than expected EBITDA margins of 10.6% (up 296bps YoY and 282bps ahead of estimates) as the company benefited from lower cost inventory in this quarter and continued cost reduction efforts.The sales in 2QFY10 were affected by a sharp decline in revenue in the Engineering products and services segment (down 28% YoY) and slower execution in domestic MEP business due to problems faced by customers
2QFY10 Order Book at Rs43.6bn Fell 22% YoY as the company managed to win only ~Rs3bn of orders in domestic business and no new orders in international business in 2QFY10
BOFA_Merrill expects Voltas to report an EPS of 9.87 and 11.49 for fy10 and fy11 respectively.
Citi expects Voltas to report an EPS of 8.15 and 9.75 for fy10 and fy11 respectively.
Anand Rathi expects Voltas to report an EPS of 8.4 and 8.6 for fy10 and fy11 respectively.
Do NOT BUY the stock as upside potential appears to be LIMITED.
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Published by Webmaster @ 9:50 AM IST.
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DLF Sales Inline - Value Housing the new Landscape
Monday, November 02, 2009
DLF reported sales of Rs17.5bn, 6% growth qoq supported by 2m sq ft of sales in Delhi project. While the EBIDTA margin of 52% was higher than our expectation of 47%, net profit at Rs4.4bn was 9% below our estimate due to higher interest cost and taxes.
DLF plans to launch Value housing under a new brand to mark its entry into affordable housing. We think the move has been prompted by subdued demand for DLF's mid income housing projects, while other developers have seen phenomenal demand for launches in affordable housing in last six months. DLF did not provide details on its affordable housing plans though it is looking to generate margin of 25-30% (against 35-40% in mid income housing) and targeting launch of ~4m sq ft in 2HFY10.
JP Morgan expects DLF to report 10.7 and 15 for FY 10 and FY11
BOFA-Merrill expects it to be 10.35 and 10.80 for FY10 and FY11 [ No growth for FY 11 ???]
While Goldman Sachs is the BIG BULL in this counter with expectations of Rs 14.5 and 20 for fy10 and fy11 respectively.
Citi expects DLF to report 11.7 and 14.4 for FY 10 and FY11.
Even if we take the average consensus as Rs 14 for FY11, the stock is trading at a whopping P/E of 27 discounting its FY11 earnings. AVOID BUYING at this Level.
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Published by Webmaster @ 9:14 AM IST.
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Unitech - Q2 Lacklustre Quarter
Sunday, November 01, 2009
Unitech Ltd's Revenue fell of 48% and earnings decline of 50% YoY was well below our estimate; on a QoQ basis the performance was relatively better, with flat sales and earnings up 13% given that the company recognized the Gurgaon hotel sale (Rs700m) and earnings of Rs500m in the qtr.
Pre-sold ~10msf of the ~21msf launched; largely driven by its Unihome launches (~5msf). Execution however is still slow with ~35msf under construction (vs. ~33.5msf in 1Q); mgmt expects to ramp up significantly in 2H and is targeting to deliver 30msf over the next 3 yrs, which seems ambitious. Onsite workforce for the company has gone up +300% in 6 months to 15,600 people. Deliveries too are expected to start scaling up. Of the total 30msf of ongoing projects (to be delivered over next 3 years), 22msf of past projects are expected to be delivered by Mar-11.
Unitech is expected to report an EPS of Rs 2.8 and Rs 3.6 for FY10 & FY11 respectively.
Nomura is bullish on the stock - EPS of Rs 2.8 and Rs 5.8 for fy10 and fy11 with SOTP valuation at Rs 112.
CLSA expects Unitech to report EPS of 3.7 and 4.5 for fy10 and fy11.
JP Morgan appears to be extremely bullish on the stock - EPS of Rs 4.3 and Rs 7.0 for fy10 and fy11 with a target of Rs 120.
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Published by Webmaster @ 8:36 AM IST.
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