WEEK IN A NUTSHELL
WIN-dow to the week that was
Week in a Nutshell (WIN)
Week
ended
th
25 Jan
2013
Key WIN-dicators
Flat frontline indices mask a volatile week gone by, with markets looking ahead to
the impending Monetary Policy Review and unfolding results season for further
direction. While we now expect a 25bps cut in Repo rates, the associated
commentary in our view will be markedly dovish.
The result season thus far has clearly beaten expectations, and with large frontline
stocks reporting next week, we expect the positive trend to continue.
After the government announced a string of long awaited measures, it was now
the turn of Indian Telecom companies.
This week saw the first moves towards the
end of hyper competition with Top Telcos withdrawing the Special Tariff that were in
play. While base tariff may not have moved, the trend of falling RPM has decisively
changed with potential hikes across the range of offering.
Our interaction with the mgmt of RCom reaffirmed this shift in industry focus on
RPM and profitability improvement.
Read our detailed note.
Results Roundup
LT
surprised the markets with higher order intake for the qtr
while allaying fears of impairment on the orders at hand. With book to bill at 2.8x
TTM and international strategy holding well, any pick up in domestic scenario will
give the stock its next leg up.
Asian Paints -
sparkled with a 30% PAT growth, with domestic Decorative Paints
volumes growing robustly by ~13% YoY, beating both consensus as well as our est.
Our channel checks suggest that demand remains healthy even in 4Q. We upgraded
the stock to Buy with TP of INR5k.
HUL’s -
volume growth was a 12 Qtr low impacted by pricing transitions, weak
offtake and high base in different product categories. A bigger shocker was higher
royalty payout to parent (increasing from 1.4% in FY13 to 1.9% in FY14E and to
3.15% in a phased manner, latest by FY18E). We’ve lowered TP from INR540 to 450.
MSIL –
Reduction in discounts gave a fillip to margins coupled with higher diesel
vehicle sales that helped realizations. With forex benefits yet to flow in, we remain
positive on the back of volume pick up and further discount reductions.
Some of the highlights of this edition:
RELIANCE COMMUNICATIONS:
CEO meeting Note
Result Updates
THERMAX:
Upgrade to Buy
LT: Order intake (INR b) robust
FY15E Earnings sensitivity to gas
price hike:
Correction in TiO2
Nifty (+0.2%)
WWW – WIN Weekend Wisdom
Don’t let emotions get in the way of your mind
WIN – Week In a Nutshell
1
25
th
Jan
2013

WEEK IN A NUTSHELL
WEEK IN A NUTSHELL
[W]INside this week’s edition
WIN-teresting data points ..........................................................................................................................................................4
WIN-ning charts & chats ............................................................................................................................................................5
America's economy: Looking better ...................................................................................................................................................5
Results expected this week .................................................................................................................................................................6
Concall Details ....................................................................................................................................................................................6
WIN Sector Updates ...................................................................................................................................................................8
ENERGY: MoPNG cabinet note on gas price implies doubling to ~USD8/mmbtu; ONGC/OIL could see upto 28% EPS upgrade .......8
INDIA BANKING: Deposit growth improves to 13.3%, Loan growth at 16.3%. ...................................................................................8
INDIA Capital Goods: T&D Equipment. Demand environment to improve in FY14, but profitability eroded .....................................9
INDIA JEWELRY: Government hikes import duty on gold to 6% from 4% as expected. ....................................................................10
INDIA JEWELLERY: Takeaways from Concall with All India Gems & Jewellery Trade Federation .....................................................10
METALS WEEKLY: Indian steel intermediaries showing weakness; Iron ore down 5% WoW to USD147/t ......................................11
WIN Corporate Corner .............................................................................................................................................................12
ANDHRA BANK 3QFY13: Lumpy corporate account and SEB adds to stress; Strong NIM; Valuations attractive; Buy ....................12
ASIAN PAINTS 3QFY13: Decorative volumes up 13%; beats expectations.:Upgrade to BUY ............................................................12
CAIRN INDIA 3QFY13: EBITDA in line; Rajasthan prodn to reach ~200kbpd by March-14. Neutral .................................................12
DB CORP 3QFY13: Above est; Ad growth back to double digit; 28% PAT growth. Buy ....................................................................13
DISH TV 3QFY13: Below estimates on negative ARPU surprise: Neutral ..........................................................................................13
EXIDE 3QFY13 result: Lower capacity utilizations and higher cost push impact margins, Not Rated ..............................................14
HAVELLS 3QFY13: Standalone performance robust; Sylvania a mixed bag. Maintain Buy ..............................................................14
HDFC BANK 3QFY13: In-line; Stress points on asset quality emerging; NIM down 10bp QoQ; Strong fees; Valuations rich ...........15
HDFC 3QFY13: In-line; Healthy asset growth; Spreads and asset quality remain stable; BUY .........................................................15
HINDUSTAN ZINC 3QFY13: Mine prodn up 23% QoQ; silver disappoints; USD1.5b mine CapEx to up capacity 20% in 6yrs ...........15
HUL: Volume growth lowest in 12 qtrs; Royalty raised; cutting EPS & Target price ........................................................................16
IBREL 3QFY13: Strong sales momentum led by uptick in Mumbai; cash flow stronger than reported profits .................................16
INDIABULLS FINANCIAL 3QFY13: Growth momentum continues; Incremental spreads improve; Asset quality stable ...................17
ICICI BANK: Set for the next leap: Expect earnings CAGR of 23%+; Rising RoEs to drive more re-rating .........................................17
IDBI BANK 3QFY13: Cooling bulk deposit rates helps NIM but expect moderation; Stress in asset quality continues ....................18
ITC 3QFY13: 14th consecutive quarter of 20%+ PAT growth; remains our top FMCG pick ..............................................................18
JSW ENERGY: 3QFY13 performance above est., Upgrade earnings, re-iterate Neutral given peak earnings/lack of growth .........18
KOTAK BANK 3QFY13: Growth surprises positively. Strong control over cost. Neutral ....................................................................19
L&T 3QFY13: Operational performance below estimates; Continued order intake momentum; Cutting estimates .......................19
LUPIN: Receives approval for generic Plan B® in US.Strengthens oral contraceptive portfolio........................................................20
LUPIN: Receives approval for generic Lutera in US; Expect incremental upside; strengthens oral contraceptive portfolio.............21
MMFS 3QFY13: Below est., NIM disappoints, 15% QoQ rise in GNPA, Strong growth momentum continues ................................21
MAHINDRA LIFESPACES 3QFY13: Below est on weak revenue booking. ..........................................................................................21
NTPC: DESU dues approved; Capacity addition/generation growth looking up; Favorable environment ahead of OFS; Buy .........22
NTPC 3QFY13: Adjusted PAT in-line. operating parameters healthy, BUY .......................................................................................22
WIN – Week In a Nutshell
2
25
th
Jan
2013

WEEK IN A NUTSHELL
WEEK IN A NUTSHELL
NTPC: De-allocated coal blocks restored, positive for captive mine coal production of 37m tons by FY17E, Buy ...........................23
OBEROI REALTY 3QFY13: Above est; Sales stable QoQ; Collections weaken due to maturing collection curve; Buy .......................23
RELIANCE 3QFY13: Refining surprise shadows weak E&P; petchem revival expected. Neutral .......................................................24
RCOM: CEO meeting reaffirms enhanced industry focus on RPM, profitability improvement. ........................................................24
RELIANCE COMM 3QFY13: Wireless revenue/EBITDA up ~2% QoQ driven by RPM improvement; Neutral ....................................25
SUN TV 3QFY13: Ad growth in-line; earnings above estimates on lower movie amortization costs; Neutral .................................25
SHREE CEMENT 2QFY13: Op. performance in-line; Lower depreciation, tax boost PAT; Upgrading EPS; Buy .................................25
TATA Motors: JLR issued update on 3QFY13 performance ..............................................................................................................26
THERMAX: To benefit from structural trends in the economy .........................................................................................................26
WIPRO 3QFY13: Volumes decline QoQ; Margin levers and healthy deals keep recovery prospects afloat; Buy..............................26
ZEE ENTERTAINMENT 3QFY13: Above estimates on lower sports loss; Upgrading estimates 3-5% ................................................27
WIN Collage .............................................................................................................................................................................28
Has Apple peaked? : The world’s most valuable firm may be past its prime ...................................................................................28
Nifty Valuations at a glance .....................................................................................................................................................31
WIN – Week In a Nutshell
3
25
th
Jan
2013

WEEK IN A NUTSHELL
WEEK IN A NUTSHELL
WIN-teresting data points
Global
Indices
Sensex
Nikkei
Hang Seng
Dow Jones
FTSE 100
Sectoral
Indices
Bank Nifty
CNX IT
BSE Oil
Bond yields-
India
1 Year
10 Year
12680
6799
9571
Last
Friday
7.93
7.87
12693
6801
9536
0.10
0.03
0
WoW change
(%)
0.00
0.15
13.91
15.01
10.55
Spread Vs
US 10 yrs
7.80
6.03
Currency
Rs Vs Dollar
Euro Vs Dollar
53.71
1.33
53.69
1.34
0.04
0.85
Last
week
20039
10913
23602
13650
6154
Current
week
20104
10927
23580
13825
6267
WoW change
(%)
0.32
0.12
-0.09
1.29
1.83
P/E
Valuations
16.26
25.39
11.61
13.22
15.24
Inflows
FII (Rs B)
DII (Rs B)
Commodities
Oil(US$/Bbl)
Precious Metals
Gold ($/OZ)
Silver ($/OZ)
Metals
Copper(US$/MT)
Zinc(US$/MT)
Aluminum(US$/MT)
This week
7.93
7.88
8036
2017
2007
8065
2074
2041
0.36
2.84
1.72
1684
32
1667
32
-1.05
-0.95
MTD
164.27
-126.95
Last
week
112.97
YTD
(Calendar)
164.27
-126.95
This week
114.92
WoW change
(%)
1.73
BSE 500 – Key Movers
Top Gainers
Company Name
Finolex Inds
Den Networks
Suzlon
Prime Focus
Berger Paints
Spicejet
% Change
22%
11.8%
11%
9.8%
8.6%
7.3%
Top Losers
Company Name
% Change
HDIL
32%
Tulip Telecom
Arshiya Intl
IVRCL
Opto Circuits
Sintex
22.5%
20.8%
18.7%
16.7%
11.4%
WIN – Week In a Nutshell
4
25
th
Jan
2013

WEEK IN A NUTSHELL
WEEK IN A NUTSHELL
WIN-ning charts & chats
America's economy: Looking better
Housing market is firmly on the mend.
Employment is growing.
Euro zone, though feeble, is no longer about to collapse.
WIN – Week In a Nutshell
5
25
th
Jan
2013

WEEK IN A NUTSHELL
WEEK IN A NUTSHELL
Results expected this week
Company
ADANIPORTS
ADANIPOWER
BANKINDIA
JSWSTEEL
RELINFRA
CROMPGREAV
DABUR
IDEA
RELCAPITAL
STER
UNIPHOS
COLPAL
TITAN
GRASIM
ICICIBANK
LUPIN
PNB
SIEMENS
TATAGLOBAL
UNIONBANK
BHARTIARTL
BHEL
IDFC
UNIONBANK
DIVISLAB
FINANTECH
ING Vysya Bk
kalpatpowr
KPIT
Phoenix ltd
PUNJLLOYD
Date
28-Jan-13
28-Jan-13
28-Jan-13
28-Jan-13
28-Jan-13
29-Jan-13
29-Jan-13
29-Jan-13
29-Jan-13
29-Jan-13
29-Jan-13
30-Jan-13
30-Jan-13
31-Jan-13
31-Jan-13
31-Jan-13
31-Jan-13
31-Jan-13
31-Jan-13
31-Jan-13
1-Feb-13
1-Feb-13
1-Feb-13
1-Feb-13
2-Feb-13
28-Jan-13
28-Jan-13
28-Jan-13
28-Jan-13
28-Jan-13
28-Jan-13
Company
TORNTPOWER
TTML
VGUARD
Whirlpool
ALSTOMT&D
Century textiles
CONCOR
Jubilant
L&TFH
OFSS
Pidilite Ind
PVR
Shopper stop
TORNTPHARM
Zee news
Arvind
Chambal fert
Delta corp
DENABANK
DHFL
Greaves cotton
IOB
Nation alum
ALBK
Godrej Consumer Products
MRPL
Redington
Renuka
Thermax
Marico
INDIANB
Date
28-Jan-13
28-Jan-13
28-Jan-13
28-Jan-13
29-Jan-13
29-Jan-13
29-Jan-13
29-Jan-13
29-Jan-13
29-Jan-13
29-Jan-13
29-Jan-13
29-Jan-13
29-Jan-13
29-Jan-13
30-Jan-13
30-Jan-13
30-Jan-13
30-Jan-13
30-Jan-13
30-Jan-13
30-Jan-13
30-Jan-13
31-Jan-13
31-Jan-13
31-Jan-13
31-Jan-13
31-Jan-13
31-Jan-13
1-Feb-13
2-Feb-13
Concall Details
Date
28-Jan-13
28-Jan-13
28-Jan-13
28-Jan-13
28-Jan-13
29-Jan-13
29-Jan-13
29-Jan-13
29-Jan-13
29-Jan-13
29-Jan-13
30-Jan-13
31-Jan-13
Company Name
JSW Steel
IL&FS Investment
Managers
Andhra Bank
Persistent Systems
Shriram Transport
Finance
Kirloskar Oil Engines
United Phosphorus
KPIT Cummins
Dabur India Ltd
Jubilant Life Sciences
Limited
Sterlite Industries
(India) Limited
Chambal Fertilizers
KEC International
Time IST
2.30 pm
3.00 pm
4.30 pm
5.00 pm
5.30 pm
11.00 am
4.00 pm
4.00 pm
4.30 pm
5.00 pm
6.00 pm
4.00 pm
11.00 am
AM /
Concall
Concall
Concall
Analyst
Meet
Concall
Concall
Concall
Concall
Concall
Concall
Concall
Concall
Concall
Concall
6
Venue / Dial In No : Mumbai
18002000209 / 18002001298 (Toll Free
Number)
+91 22 66290556 / 30652485
Crystal Room (Central), Hotel Taj Mahal
Palace, Opp, Gateway of India
+91 22 6629 0353 / 3065 0133
+91 22 6629 0401 / 3065 0185
+91 22 30650015
+91 22 6629 0349 / 3065 0129
+91 22 3065 2503 / 6629 5850
+91 22 6629 0317 / 3065 0117
+91 22 6629 0301 / 3065 0122
+91 22 66290014 / 30650014
+91 22 66295836 / 30652472
+91 22 3065 0138 / 6629 0358
25
th
Jan
2013
WIN – Week In a Nutshell

WEEK IN A NUTSHELL
WEEK IN A NUTSHELL
31-Jan-13
31-Jan-13
31-Jan-13
31-Jan-13
1-Feb-13
1-Feb-13
1-Feb-13
Godrej Properties
Shriram City Union
Vedanta Resources
Lupin Limited
Thermax
GCPL
Bharti Airtel
2.30 pm
3.00 pm
3.30 pm
3.30 pm
12.15 pm
12.00 pm
1.00 pm
Concall
Concall
Concall
Concall
Concall
Concall
Concall
+91 22 66290301 / 30650122
+91 22 66290365 / 30650143
+91 22 66290014 / 30650014
+91 22 6629 5829 / 3065 0890
+91 22 66290532 / 30650378
+91 22 66290386 / 30650160
+91 22 44449999
WIN – Week In a Nutshell
7
25
th
Jan
2013

WEEK IN A NUTSHELL
WEEK IN A NUTSHELL
WIN Sector Updates
ENERGY: MoPNG cabinet note on gas price implies doubling to ~USD8/mmbtu; ONGC/OIL could see
upto 28% EPS upgrade
Media reports indicate that the Oil Ministry (MoPNG), in its cabinet note, has proposed to accept the
recommendation given by the Rangarajan Committee on gas pricing, implying new gas price of USD8/mmbtu
v/s currently at USD4.2/mmbtu. The note further states that the new price (if approved by the cabinet) will be
applicable immediately for APM gas (ONGC/OIL). However, before finalizing this, government will have to
address the affordability issue of Power/Fertilizer sectors to the extent possible.
As per the article, the new gas price will be applicable to all the natural gas producers (conventional, shale and
CBM) in the country and actual applicability/timing of the new price will vary for each company. ONGC and OIL
might get the new price applicable for APM gas immediately (full impact during FY14), while the same will be
applicable for RIL only from Apr-14.
Panna-Mukta & Tapti (~9mmscmd; ONGC: 40%, BG: 30%, RIL: 30%) gas prices (currently at USD5.57-
5.73/mmbtu)might not increase (as current price is based on pre-determined formula in PSC). However, pricing
for gas produced from the Ravva basin would increase (~1.1mmscmd; ONGC: 40%, Videocon: 25%, Cairn India:
22.5%).
Our View: Cabinet note proposing the new gas price, even to ONGC/Oil India, now removes any uncertainty on
the applicability of Rangarajan Committee gas price formula to APM gas and is a welcome step to move towards
uniform gas pricing.
Implications to gas producers and consumers
ONGC/Oil India key beneficiaries: Based on our sensitivity analysis, we estimate a EPS upgrade of ~29% and
~26% for ONGC and Oil India respectively, if price were to increase to USD8/mmbtu. Also, our SOTP for ONGC
increases by 27% INR 428/share (v/s INR 350/share now) and for Oil India increases by 24% to INR 738/share
(v/s INR 596/share now) respectively. Actual earnings impact will also depend on the level of upstream sharing
and impact of diesel price reforms. ONGC and Oil India are our top picks in the sector.
Marginal near-term benefit to RIL: While, for RIL, we have already assumed a gas price of USD 7.0/mmbtu from
FY15 in our estimates and hence at USD 8.0/mmbtu, there is a marginal upside of 1% to FY15 EPS and 2% upside
to our current SOTP of INR 879/share. For RIL, we see the gas price increase as a more of a long term positive as
many of its other fields to move into fast-track development mode and result in higher volumes beyond FY16.
We have a Neutral rating on RIL.
Gail would be negatively impacted, however diesel reforms a respite: Further, this will be a significant negative
for GAIL and could see an EPS downgrade of ~20%. However, Gail will have respite through reduced under
recoveries likely through diesel price reforms.
Positive for Petronet LNG: Higher base prices for gas (assuming govt. makes it affordable for fertilizer/power) is
positive for Petronet LNG (LNG importer) as the price differential between domestic and imported gas narrows,
thereby making LNG more competitive.
Impact to IGL depends on its ability to pass on the price hike: APM accounts to 65% of IGL’s gas purchase,
however the impact of higher gas price on its profitability will depend on its ability to pass the price hike to the
final consumers.
INDIA BANKING: Deposit growth improves to 13.3%, Loan growth at 16.3%.
RBI released the banking sector business data for fortnight ended 11th January 2013. Key takeaways:
Loan growth improved to 16.3% v/s 15.1% a fortnight earlier. In absolute terms, loans increased by INR156b v/s
increase of INR646b a fortnight ago and decline of INR322b a year ago.
Deposits growth for the banking system improved to 13.3% v/s 11% a fortnight earlier (historical low for the
banking system on a fortnightly basis since 1990). In absolute terms, deposits grew INR613b v/s INR433b a
fortnight ago.
On YTD (over March 2012) basis, loans in absolute terms increased ~INR3.4t to INR50.4t whereas, deposits grew
~INR4.3t to INR65.4t. In percentage terms loan and deposit grew 7% each.
After continued winding up of SLR deposits in the past few fortnights, SLR investments increased INR402b from
the previous fortnight as a result of which SLR ratio improved 30bp on a fortnightly basis to 27.2%. It remains
significantly higher from 26.1% reported at the end of March 2012.
WIN – Week In a Nutshell
8
25
th
Jan
2013

WEEK IN A NUTSHELL
WEEK IN A NUTSHELL
On a fortnightly basis CD ratio improved marginally by 49bp to 77.1%. YTD (Jan over March) CD ratio improved
to 79%
Valuation and View
The government of India's (GoI) concrete steps towards reforms in 2HCY12 brought rays of hope for Financials.
With inflation showing signs of cooling off and growth moderating, we expect the RBI to start cutting interest
rates from 4QFY13.
The government of India's (GoI) concrete steps towards reforms in 2HCY12 brought rays of hope for Financials.
With inflation showing signs of cooling off and growth moderating, we expect the RBI to start cutting interest
rates from 4QFY13.
Our top picks: state-owned banks - SBIN, CBK, UNBK and OBC; private sector banks - ICICIBC, AXSB and YES;
NBFCs - SHTF and LICHF.
Loan growth improves on a fortnightly basis…
…and so does deposit growth
INDIA Capital Goods: T&D Equipment. Demand environment to improve in FY14, but profitability
eroded
PWGR's order awards to plateau, but few green shoots emerging
Power Grid (PWGR) ordering is likely to plateau, as most of the 12th Plan (FY12-17) projects have already been
tendered out. However, there exist upside possibilities from (i) green energy corridors (investment plan:
INR400b), (ii) intra-state transmission projects and (iii) substation automation (particularly post the blackouts in
July 2012)
We expect project awards to accelerate in FY14/FY15. Several of these projects will necessitate technology
upgradation by Indian companies.
Competition from imports to wane, but domestic competition could intensify
Several Chinese and Korean players have announced plans to set up local transformer manufacturing capacities
in India - while this provides a level playing field for domestic players, it also increases domestic capacity and
the incumbents could retaliate through further capacity expansions which could permanently alter the industry
structure
Profitability stabilizing after significant erosion; still no signs of improvement
Profitability in power products has eroded over the last 3-4 years, with EBIT margins declining from a peak of
15-19% in FY09 to 7-8%. This is a function of increased competitive intensity, resulting in 25-30% decline in
transformer prices.
With product prices bottoming out and prices of raw material (CRGO electrical steel) easing, margins are
showing signs of stabilization
We believe that power products should see improved demand environment, given that several SEBs have raised
tariffs over the past 18 months. The financial restructuring proposals of SEBs will also lead to improved liquidity
Our view:
Competitive intensity in the Indian T&D equipment sector remains high. We believe that low product prices
would keep margins under pressure at least in the near to medium term.
We maintain Neutral on the T&D sector, with preference for Crompton Greaves over Siemens / ABB
WIN – Week In a Nutshell
9
25
th
Jan
2013

WEEK IN A NUTSHELL
WEEK IN A NUTSHELL
INDIA JEWELLRY: Government hikes import duty on gold to 6% from 4% as expected.
Government hikes import duty on Gold to 6%:
as expected, has increased the import duty on Gold and
platinum from 4% to 6%. It is intended to curb Gold imports which is said to be having a deteriorating impact on
India’s Current Account Deficit (CAD).
Takeaways from interaction with jewelry players:
We interacted with branded retail jewelry players as well as
bullion dealers. We believe rise in import duty by 2% will not have material impact on branded jewelry players.
Pricing of branded jewelers is anyways at a premium of 10% vis-à-vis traditional jewelers due to factors such as
caratage purity, designs and branding.
Gold Deposit Schemes:
It has also taken other steps to reduce Gold imports – a) the government will link Gold
Exchange Traded Fund (ETF) with gold deposit scheme, which will enable mutual funds to unlock their physical
gold and invest in gold- linked schemes offered by banks and b) reduce the maturity of Gold Deposit scheme
from three years to six months as well as reduce the minimum quantum of deposits for such scheme from the
existing 500gm. SEBI and RBI will come out with relevant notifications in next two to three weeks.
Our view:
Positive on Indian jewelry; Titan is our top pick:
We have a Buy rating on Titan in the jewelry space. We
recommend buying into the weakness due to government policy action.
INDIA JEWELLERY: Takeaways from Concall with All India Gems & Jewellery Trade Federation
We hosted Mr. Bachhraj Bamalwa, Chairman of the All India Gems & Jewellery Trade Federation for discussion
on recent government actions to curb Gold demand viz. import duty hike.
Key takeaways:
Hikes in import duty will not materially impact Gold consumption demand. On the contrary, it may encourage
smuggling, which has already doubled in past 12 months post import duty hikes in CY12 budget.
Imposition of excise duty in budget is ruled out as implementation of the same is cumbersome.
Gold demand has remained mixed post Diwali. Correction in Gold prices can curtail the Gold investment
demand.
Reduction in Gold lease period to 90 days is manageable. Jewelers are anyways not using the entire 180 days of
lease.
Increase in gold lease rate by linking it to base rate can be a game changer and impact the operations of
branded jewellery players; this seems unlikely in Mr. Bamalwa’s view.
Our View
Rise in import duty has removed the overhang of uncertainty around the quantum of increase in import duty on
Gold, in our view.
While maintaining our long term bullish stance on Titan and other jewelry players, given government’s
determination to bring gold imports under control.
We do not rule out further policy actions / headwinds for the Indian Jewellery players in the near term.
WIN – Week In a Nutshell
10
25
th
Jan
2013

WEEK IN A NUTSHELL
WEEK IN A NUTSHELL
Gold imports has expanded 14x in 12 years in value terms…Indian Jewelry demand has picked up
METALS WEEKLY: Indian steel intermediaries showing weakness; Iron ore down 5% WoW to USD147/t
Indian long steel (TMT Mumbai) and flat steel prices (Import parity) increased marginally by 0.3% and 0.1%
WoW respectively. Sponge iron and scrap iron prices decreased by 1.7% and 0.7% WoW respectively.
Global steel prices were mixed with prices declining in China, Turkey and North America by 0.9%, 1.8% and 3.1%
WoW respectively.
Prices increased in Europe and CIS by 3.7% and 8.9% WoW respectively. Iron ore prices declined 5% WoW to
USD147/ton DMT while coking coal prices increased by USD4.5 WoW to USD168/t.
Base metals prices were mixed with aluminum and lead decreasing 3% and 1% WoW respectively, while Zinc
prices increased 1% WoW.
WIN – Week In a Nutshell
11
25
th
Jan
2013

WEEK IN A NUTSHELL
WEEK IN A NUTSHELL
WIN Corporate Corner
ANDHRA BANK 3QFY13: Lumpy corporate account and SEB adds to stress; Strong NIM; Valuations
attractive; Buy
3QFY12:
Andhra Bank PAT was 7% below estimate at INR2.6b (declined 15% YoY and 21% QoQ). Strong NIM
performance (+20bp QoQ to ~3.4%; NII 8% above est.), was off-set by muted fee income (declined 6% YoY) and
higher tax rate of 40% (v/s estimate of 29%; PBT was 10% higher than estimate) and led to lower profitability.
Higher tax rate was on account of provisioning related to investment and standard assets.
GNPA up 10% QoQ led by higher slippages in corporate segment; restructured loans of INR13.2b during the
quarter:
Slippages though declined QoQ, continued to be at an elevated level of INR6.5b (annualized slippage
ratio of 3.3%; v/s INR9.3b in 2QFY13) led by stress in large corporate segment.
Three accounts (1) media account of INR2b (2) transmission segment of INR1.6b and (3) textile segment of
INR350m, together formed 60%+ of 3QFY13 slippages. GNPA increased 10% QoQ (GNPA % at 3.66%) and PCR
was stable at 39%.
Bank restructured INR13.2b during the quarter (of which INR5b was towards TNSEB). As a result, overall
standard restructured loan portfolio at the end of 3QFY13 stood at INR103b (11.4% of overall loans).
Margin improve 20bp QoQ – a positive surprise:
NII for the quarter stood at INR9.7b (8% above estimate) led
by strong margin improvement of 22bp QoQ (3.35% v/s 3.13% in 2QFY13). Cost of deposits declined 26bp QoQ
to 7.7%, whereas yield on loan was steady at 12.1% and led to margin expansion.
Valuation and view:
ANDB is expected to report FY13/14/15 EPS of INR23/26 /31 and BV of INR150/170/194.
Valuation of 0.6x FY14E BV and FY15BV with a dividend yield of 5% captures most negatives, in our view.
Maintain Buy.
ASIAN PAINTS 3QFY13: Decorative volumes up 13%; beats expectations.:Upgrade to BUY
Asian Paints 3QFY13 results were above estimates with Cons PAT of INR 3.35b, up 30.5% YoY (est INR 3.15b).
Revenues grew 18.7 % YoY, 1.5% ahead of our estimates. Cons EBITDA margin at 16.3% (est 16.7%) was up 80
bps YoY as gross margins expanded 90bp YoY.
Standalone (Decorative Paints) sales grew 20% to INR25.2b. Gross margins expanded 90bp YoY and EBITDA
margin expanded 50bp YoY to 17.4%.
We estimate that APNT’s domestic Decorative Paints volumes (part of the stand-alone entity) to have grown
~13%, above our as well as consensus expectations. This was driven by strong festive season sales. Our checks
suggest Paints demand continues to remain healthy even in 4Q.
International and Industrial subsidiary/JV (imputed as diff between consol and stand-alone entities) sales were
up ~13% YoY. While operating margins expanded 200bp to 11% as business in Middle East and Asia continued
to outperform other international subs.
We revise our estimates up by 2% for FY13E and ~5% for FY14E and FY15E, respectively to incorporate better
than estimated volume growth, other income and improving gross margin trends.
Valuation and view: Upgrade to BUY
We like APNT’s distribution, brand and thought leadership in the Indian Paints segment which is expected to
cross INR500b size in next three years, driven by rising incomes, growing urbanisation and consequently rising
nuclear families. Rising incomes is leading to shrinking of repainting cycle in Decorative paints; thereby raising
visibility on medium and long term Paints volume growth. Correction in input cost i.e. Tio2 augurs well for
medium term gross margins
We upgrade Asian Paints to BUY with a revised a 12 month forward target price of INR 5,000 (P/E of 27x on
FY15E EPS). Spike in input costs and slowdown in discretionary demand are the key concerns
CAIRN INDIA 3QFY13: EBITDA in line; Rajasthan prodn to reach ~200kbpd by March-14. Neutral
Cairn India’s reported 3QFY13 EBITDA at INR32.9b (in-line), up 29% YoY and down 5% QoQ.
While PBT was lower than our est. at INR32b (v/s est of INR35b) due to lower other income at INR1.8b (v/s est
of INR2.5b) and lower forex gain at INR2.4b (v/s est of INR4.2b), adj. PAT was in-line at INR31.6b (+ 40% YoY;
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+36% QoQ) due to lower tax rate at 1%. Reported PAT of INR33.5b includes INR1.9b gain on account of
reorganization of its subsidiaries (effective date Jan 1, 2010).
Rajasthan discount to Brent widens to ~13%; production averaged 170kbpd:
Cairn to step up exploration, to drill 100 exploration wells in next 3 years
To drill additional wells in Bhagyam, Rajasthan to reach ~200kbpd by end-FY14:
Key events to watch out are (1) Aishwariya production start and Bhagyam ramp-up; (2) clarity on policy of
further exploration and (3) guidance of cash utilization (currently at USD2.6b, will reach USD3.4b by end-FY14
post the planned capex and dividend)
Valuation and View:
We are increasing our FY14/FY15 EPS by 1.4%/3.7%.
The stock trades at 6.2x FY14E EPS of 54.8. We are rolling over our target price on FY15E to INR380/sh. Neutral.
DB CORP 3QFY13: Above est; Ad growth back to double digit; 28% PAT growth. Buy
Ad revenue up 10% YoY; circulation up 15% YoY:
DB Corp 3QFY13 PAT grew 28% YoY and 45% QoQ to INR706m
v/s our estimate of INR671m. Ad revenue grew 10% YoY to INR 3.2b ( est of INR3b) v/s 0-1% YoY. We believe
the 3QFY13 validates our view that print sector ad growth has bottomed out. Consolidated revenue increased
11% YoY to INR4.4b. Circulation revenue grew 15% YoY.
EBITDA margin improvement led by operating leverage, partially offset by INR36m forex loss:
EBITDA
increased 17% YoY and 38% QoQ to INR1.19b. Margin expanded 140bp YoY and 440bp QoQ on operating
leverage, but partially offset by INR36m forex loss on buyer’s credit for newsprint.
Emerging edition EBITDA loss down 66% YoY; mature editions EBITDA margin at 33%:
emerging edition
EBITDA loss declined 66% YoY and 43% QoQ to INR56.5m - profitability has been improving over the past six
quarters with increasing revenue base and steady operating costs.
Ad recovery on-track; 18% earnings CAGR over FY13-15E; maintain Buy:
DB Corp has also announced an
interim dividend of INR2/sh. The stock trades at P/E of 16.7x FY14E and 14.4x FY15E. Maintain Buy.
DISH TV 3QFY13: Below estimates on negative ARPU surprise: Neutral
Dish TV’s 3QFY13 EBITDA grew 15% YoY but declined 12% QoQ to INR1.38b (vs estimate of INR1.5b).
Revenue grew 14% YoY and 4.5% QoQ to INR5.58b. Operating cost increased 11% QoQ on higher content and
commission costs. EBITDA margin declined 450bp QoQ to 24.7%.
Net loss for the quarter increased QoQ to INR449m vs our estimate of INR256m net loss largely due lower
EBITDA and higher depreciation.
Subscription revenue grew 4.5% QoQ to INR4.94b driven by ~5% increase in net subscriber base to 10.5m and
largely flat ARPU at INR160.
Gross subscriber adds at 0.83m improved 74% QoQ on higher demand due to festive season and phase I
digitization.
Monthly churn rate remained steady at ~1% per month (~0.3m subscribers churned during the quarter).
Valuation and view:
EV/EBITDA of 11.8x FY14E: NEUTRAL
Phase II digitization (official deadline of March 2013) is likely to present an opportunity to digitize 11-12m
households, of which DTH industry might garner 35-40%.
EBITDA margin is likely to remain under pressure in 4QFY13 as well due to expected inflation in content costs
post new contract with Media-Pro. We expect margins to recover from 1QFY14.
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We are cutting EBITDA estimates by 6-7% led by lower gross adds assumption for FY13/14 (2.5m/3m vs
2.8m/3.8m earlier).At CMP of INR74, the stock trades at EV/EBITDA of 11.8x FY14E and 8.9x FY15E.
Maintain Neutral with a revised one-year forward DCF-based target price of INR75.
Programming and content costs increase QoQ (%) ARPU increased 1% QoQ; below estimates
EXIDE 3QFY13 result: Lower capacity utilizations and higher cost push impact margins, Not Rated
Result highlights:
Net sales grew by 17% stood at INR14.6b. Growth in 4W replacement segment was strong at
25% YoY, while 2W replacement segment grew by 53% YoY. However, OE supplies were sluggish, in line with
pressure on the OE industry. EBITDA margin at 11.3% (-110bp QoQ, v/s street est of 13.7%) was impacted due
to increase in lead prices coupled with INR depreciation, as per the company. The PAT stood at INR1.04b (flat
YoY, v/s street est of INR1.40b)
Earnings call highlights:
o
On 3Q performance: Focus on market share gains to remain in the replacement segment:
Despite better mix
in favor of replacement segment, 3QFY13 operating performance was impacted due to weak OEM demand
(impacting capacity utilization) and cost pressures driven by higher lead prices (8% QoQ) and INR depreciation
(4% QoQ).
o
FY14 Outlook: Expect recovery in performance led by higher capacity utilization:
Management expects
demand recovery from the OEM segment. This would provide significant operating leverage benefits in FY14.
Moreover, it expects strong growth in the replacement segment to sustain at 18-20% levels (reflecting robust
OEM demand over FY10/11).
Valuation and view:
The stock trades at 14.4x/11.9x FY14/FY15 Bloomberg consensus EPS estimates of INR8.8/10.6, factoring sales
growth of 26%/21% and EBITDA margins of 15.6%/15.6% respectively.
HAVELLS 3QFY13: Standalone performance robust; Sylvania a mixed bag. Maintain Buy
Havells 3QFY13 standalone operating performance were ahead of estimates, while Sylvania’s performance was a
mixed bag.
Sylvania’s European operations reported EBIDTA margins of 5% vs 0.8% in 2QFY13 (given price increases /
operating leverage), standalone business reported adj EBIDTA margins at 13.2% (up robust 86bps QoQ).
Consumer appliances contributing INR750m to 3Q revenues (vs INR840m in FY12 / INR627m in 1HFY13).
Sylvania’s revenue grew 2.8% vs 9.5% in 1HFY13 (in Americas); however we believe that this is an aberration
and growth rates in FY14 are expected to improve to ~10
Standalone revenues grew 18% (in-line with our estimates), EBIDTA grew 12% (5% ahead of estimates) while
Adjusted PAT grew 17.6% at INR804m (8.2% higher than estimates)
For Sylvania, reported revenues declined 3.7% YoY (est of 2% decline) and EBITDA margins at 6.4% (higher than
estimate of 5.1%, up 310bps QoQ). Sylvania sales have been impacted by muted 2.8% growth in Americas
(1HFY13 up 9.5% YoY) and continued de-growth in Europe (down 7.5%, vs down 9% in 1HFY13).
Over the longer term, the attempt is also to ingrain the ‘profitability focus’ culture of HAVL amongst all country
managers and thus non-profitable sales are being curtailed
Valuation and view:
13.7x FY15 EPS, BUY
We have upgraded our FY13 consolidated earnings estimate by 7% to factor the improvement in profitability in
Sylvania, and maintain FY14/FY15E.
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Our revised consolidated EPS estimate for FY13 stands at INR33 (down 3% YoY) and for FY14 at INR40.7 (up
23%) / FY15 at INR48.1 (up 18%).
The stock trades at 16x FY14 and 13.7x FY15 consolidated EPS. Buy with a target price of INR860/sh.
HDFC BANK 3QFY13: In-line; Stress points on asset quality emerging; NIM down 10bp QoQ; Strong fees;
Valuations rich
NII 3% below estimate at INR38b;
PAT up 30% YoY to INR18.6b (in-line)
NIM down 10bp QoQ v/s Est of stable NIM; Mgmt re iterates guidance of 3.9%-4.3%.
higher discounts offered in retail segment due to festive offers & lower proportion of incremental CASA
CASA ratio down 50bp QoQ to 45.4%; CA down 2% QoQ; SA up +4% QoQ and +17% YoY, SA strong despite
competitive intensity increasing post deregulation of savings deposit rates
Loans up 4% QoQ and 24% YoY
GNPA’s up 14% QoQ; Highest sequential increase since 4QFY09; 40% by CV/CE segment (retail formed 80%)
made provision of INR3.1b of which INR2.8b was on account of specific provisions towards NPA whereas
INR300m was towards floating provisions. Outstanding pool of floating provisions stood at ~INR17.5b
(~INR7.4/share)
In falling rate scenario, higher proportion of fixed rate loan & CASA deposits will provide cushion to margins
Trades at 3.7x FY14E BV of and 3.1x FY15E BV of and P/E of 17.8x FY14E and 14.2x FY15E
HDFC 3QFY13: In-line; Healthy asset growth; Spreads and asset quality remain stable; BUY
HDFC reported 3QFY13 PAT at INR11.4b (in line with our estimate).
Core operating performance was better than expectation (NII, 5% above est), lower than estimated trading
profits and dividend income led to marginal deviation in profitability
Healthy AUM growth of 22% YoY and ~4% QoQ , higher share of retail loans (69% vs 67% a quarter ago) in AUM,
largely stable spreads (9M) at 2.28% and continued impeccable asset quality performance (GNPA at 75bps) are
the key highlights of the quarter
Muted corporate loan growth (+7% YTD, vs 19% retail and 14% overall) not only impacted the disbursement
growth (9MFY13 +10% YoY) but also fee income growth (9MFY13, down 25% YoY).
Valuation and view:
Adj P/BV of 4.5x: BUY
The stock trades at Adj P/BV of 4.5x/3.5x FY14/15E & Adj P/E of 16.2x/15.1x FY14/15E.
We believe these valuations are reasonable, considering HDFC’s growth potential, sound business
fundamentals, and substantially improved subsidiaries' performance (life insurance business has turned
profitable.
We maintain Buy with an SOTP target price of INR919 (13% upside).
NII growth picks up on a lower base
Spreads maintained in narrow range (%)
HINDUSTAN ZINC 3QFY13: Mine prodn up 23% QoQ; silver disappoints; USD1.5b mine CapEx to up
capacity 20% in 6yrs
Revenue: in-line; boosted by custom smelting at the cost of integrated production; concentrate inventories
increased:
Hindustan Zinc 3QFY13 EBITDA increased 4% QoQ to INR14.9b, 9% below est. due to higher custom
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smelting of lead and silver at the cost of integrated production. Lower tax rate and higher other income boosted
the bottom line. PAT was INR16.1b vs est. of INR15.5b. Cost of production (CoP) declined by USD15 to
USD829/t. The reduction in cost is lower than estimate due to lower by-product credits, which partially offset
the productivity and coal cost gains.
Zinc mine capacity expansion by 20% to 1.2mtpa over 6 years at CapEx of USD1.5b; the volumes will pick up
in 4
th
year:
Mine production increased 23% QoQ to 233kt in accordance with the guidance. Inventories of
concentrate are up 33kt which will drive EBITDA growth in subsequent quarters. HZL announces USD1.5b CapEx
(USD250m pa spread over 6 years) to increase MIC capacity by 20% to 1.2mtpa. The benefits of higher capacity
will start kicking in from FY17. Integrated silver production volumes have been disappointing. As a result, we
have cut FY13 silver volumes by 10% to 302tons and EBITDA by 4% to INR61b.
Valuations & View:
Growth in volumes due to USD1.5b CapEx and possible higher dividends will re-rate stock. Stock is trading at
attractive FY15 EBITDA of 3.3x and P/BV of 1.3x (RoE of 17%). Buy with a Target price of INR167 (29% upside).
HUL: Volume growth lowest in 12 qtrs; Royalty raised; cutting EPS & Target price
HUVR’s 3QFY13 results were below est; Adj PAT of INR8.73b, up 14.5% (est INR9.09b) while net revenues grew
11.7% to INR66.5b.
Volumes grew 5% (est 7%), lowest in 12 quarters, impacted by pricing transition in Fair & Lovely, weak offtake in
Wheel and high base in Hair care.
Gross margin contracted 40bp to 46.9% due to mix deterioration as S&D outperformed PP. EBIDTA margins
remained stable as higher ad-spends (up 100bps) were offset by savings in overheads. Adj PAT grew 14.5% led
by 67% increase in other financial income.
Soap and Detergent sales grew 20% while EBIT increased 10.6%, margins contracted 100bp to 12.4%. Premium
and popular Laundry reported robust double digit volume growth.
Personal products sales grew 13%. Margins expanded 140bps YoY to 28.3%.
HUVR has entered into a new Royalty agreement with parent which will result in royalty rates moving up from
1.4% in FY13 to 1.9% in FY14E and then in phased manner to 3.15% latest by FY18E
Valuation and View: NEUTRAL
We revise our estimate to model higher royalty rates, increasing tax rates, better than expected other op and
financial income.
We cut FY14-15 EPS by 7.4% and 8.5% respectively. We now forecast 6.7% EPS CAGR over FY13-15E vs. earlier
estimate of 11% CAGR over the similar period.
We lower the PE assigned to HUVR to 26x (in line with historical averages) as against 30x which we were earlier
ascribing.
We arrive at our new TP of INR 450 based on 26x FY15E EPS (earlier TP of INR540) and maintain NEUTRAL
rating.
Volume growth lowest since Dec-09
Gross margins declined 40bps while EBITDA margins were flat
IBREL 3QFY13: Strong sales momentum led by uptick in Mumbai; cash flow stronger than reported
profits
3QFY13 revenues of IBREL (IBREL IN, Mkt Cap USD604m, CMP INR76, Buy) de-grew 7.1% YoY (-3%QoQ) to
INR3.3b, EBITDA grew 27% YoY (+9%QoQ) to ~INR1.3b, EBITDA margin expanded further 4.4pp QoQ to 39.7%
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led by steady improvement in margins and operating leverage. PAT grew 25%YoY (+62%QoQ) to INR523m,
owing to uptick in other income.
3QFY13 witnessed strong sales momentum of ~1msf (INR12b) – run-rate improves 2x as against 1.2msf
(INR12.1b) in 1HFY13. Average realization improves to IRN12,193/sf due to higher proportion of sales Mumbai
projects (~90%).
9MFY13 sales of ~INR24b have already met management’s earlier guidance of ~25%YoY sales growth over FY12
(~INR19b). Management has guided for sales momentum to continue over 4QFY13 and upgraded growth
guidance to 50-60% YoY (~INR30b).
Leasing velocity in IPIT commercial remains stable at 0.1msf v/s 0.28msf in 1HFY13, but lower than 0.35msf in
1HFY12. This takes total area under lease at IFC and Indiabulls One to 2.43msf with annualized rental of
INR4.74b.
In 9MFY13, IBREL generated operating cash surplus of INR6b (collections of INR25b and construction of INR19b).
This is much higher than reported 9MFY13 EBITDA of ~INR3.3b and signifies the strength of inherent operations.
Further, key projects like Bleu / IPIT / Savrolli are yet to contribute to the revenue. Management expects
revenue contribution from Worli project to commence in 1HFY14.
Going forward, given both the funding (Buyback and EWT) requirements are completed, we expect significant
FCF generation would lead to (1) steady uptick in execution and (2) de-leveraging.
During 3QFY13, IBREL generated operating surplus of INR1.1b and net surplus of -INR0.1b. While it has reduced
gross debt by INR2.84b, net debt is broadly stable QoQ at ~INR14.9b (0.21x), over and above outstanding debt
of INR23b in IPIT (45% stake of IBREL).
INDIABULLS FINANCIAL 3QFY13: Growth momentum continues; Incremental spreads improve; Asset
quality stable
Indiabulls Financial Services (IBULL IN, Mkt. Cap USD1.9b, CMP INR323, Not Rated) 3QFY13 reported PAT
growth of 31% YoY and 8% QoQ to INR3.2b, driven by lower operating expenses (incl. provisions; declined 2%
YoY and 6% QoQ).
Provision expense for the quarter stood at INR95m as compared to INR240m a quarter ago and INR320m a year
ago boosting profitability.
Margin (cal.) improvement of 20bp QoQ to 5.6%, strong AUM growth of 30% YoY (+5% QoQ) and stable asset
quality (GNPA %, flat QoQ) were the key positives for the quarter.
ICICI BANK: Set for the next leap: Expect earnings CAGR of 23%+; Rising RoEs to drive more re-rating
Subsidiaries transform from being guzzlers to capital providers to parent:
ICICIBC has not infused any capital in
its subsidiaries for the past three years. Corrective measures and consolidation has led to significant CRAR
improvement for ICICI UK and ICICI Canada. In the medium term, listing of life insurance business and
repatriation of capital from international subsidiaries will reduce capital charge ensuring dilution-free growth.
Core operations improve decisively, core RoE to reach 17%+ by FY15E:
ICICIBC's risk adjusted margins (RAM)
have improved sharply from a low of 1% in FY10 to 2.2% in FY12, led by a 95bp fall in credit cost and 25bp by
margins improvement. Despite lower growth in fee income, continuous margin improvement (~50bp over FY12-
15) and strong asset quality performance will translate into strong RoA's of ~1.7% and core RoE is expected to
improve to 17%+.
Significant improvement in asset quality in challenging times:
ICICIBC exhibited strong performance in asset
quality, with GNPA percentage declining over the past 10 quarters and provision coverage ratio increasing from
53% in FY09 to 79% in 1HFY13.
Structural changes to ensure higher return ratios; valuation attractive:
Return ratios are on an upward
trajectory and structurally core operations of ICICIBC has improved significantly, which would enable it to
sustain the ratios. Further unlocking of value from subsidiaries could lead to re-rating of the stock. ICICIBC
trades at near five-year average valuation, which is unwarranted considering expected improvement in growth
and ROE. Maintain Buy.
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IDBI BANK 3QFY13: Cooling bulk deposit rates helps NIM but expect moderation; Stress in asset quality
continues
Provisions of INR9.6b v/s INR4.1b in 3QFY12; accelerated provisioning on a/c of shifting of loans from the
bucket of sub-standard to doubtful category. Large aviation (INR7b) Kingfisher; made an additional provisions of
INR3.4b
PAT up ~2% YoY to INR4.2b
NIM up 25bp QoQ and +45bp YoY to 2.3%; Cof fund down 28bp QoQ; stable YoF; guided 10 bps moderation in
4Q as it builds up PSL book ; Model in 15bp+/10bp improvement in margin for FY13/FY14
Slippages at INR 7.1 bn v/s 6.2 QoQ; One large media a/c of INR2.7b; SME & personal banking slippages
contained at run-rate below 2QFY13
Mgmt expects to contain slippages run-rate to ~INR5-6b going forward
Recoveries & up-gradation moderated to INR1.6b as compared to INR2.6b+ in 2QFY13
Gross addition to restructured loan stood at INR33.7b (2% of overall loans) of which INR11.7b (NPV neutral) was
from one large wind energy account, INR10.5b from metals and INR8b from power (mainly from two large
accounts). OSRL by INR23b; expects restructuring of INR10-15b run rate over next two Qtr
Stressed assets at INR30.2b (gross slippages INR7.1b + and net addition to restructured loan of INR23b) v/s
INR18.9b (gross slippages of INR6.2b and net restructured loan of INR12.7b) in 2QFY13
ITC 3QFY13: 14th consecutive quarter of 20%+ PAT growth; remains our top FMCG pick
Sales up 22.8% : Cig, FMCG and Agri outperform; Hotels post modest recovery:
ITC’s 3QFY13 Adj PAT grew
21% at INR20.5b (est INR20.2b). ITC has posted 14th consecutive quarter of 20%+ PAT growth.
Cigarette volumes up ~1.5%; price increases and improved mix enable 400bp net margin expansion; 64mm
gaining shares:
Cigarette volumes up ~1.5%, despite 21% excise duty increase in CY12 budget, demonstrating
the pricing power enjoyed by ITC. ITC is likely gaining share from VST and GPI, in our view. ITC has once again
delivered 20%+ EBIT growth in cigarettes with 400bp EBIT margin expansion on net basis and 110bps on gross
basis. ITC is gaining good traction in 64mm segment and can offer upside to our FY14 Cig volume est.
FMCG: Strong sales growth of 30%; EBIT losses decline to INR240m v/s INR468m:
Non-Cig FMCG losses halved
to INR240m. Revenues posted a strong 30% growth led by mid-teens volume growth and strong traction across
all categories. We estimate 4QFY13 breakeven.
Agri business: Sales growth robust on account of wheat exports, leaf tobacco and soya: Agri business sales
were up 43%
to INR16.3b while EBIT grew 22% YoY to INR1.72b; margins contracted 185bp to 10.6%. EBIT
margin contraction in the division has been due to lower realizations.
Hotels business: Sales growth at 11%; EBIT margins record steep fall of 1850bp YoY:
Hotel revenues grew 11%
at INR3.09b, due to marginal improvement in the macro environment and low base. However, EBIT margin
remain under pressure and contracted 1850bp to 17.9%.
Valuation and View:
Remains our TOP FMCG pick; revise TP upwards to INR 340; budget is the key near term monitorable:
The stock trades at 25.9x FY14 EPS and 21.9x FY15 EPS. Buy with revised TP of INR 340 (P/E of 26x FY15). We
expect ITC to sustain premium valuations owing to strong earnings visibility, acceleration in earnings growth
trajectory to 20% and Cig volume outperformance vs. industry. Speculation around potential excise duty
increase in CY13 budget may keep the stock range-bound in near term.
JSW ENERGY: 3QFY13 performance above est., Upgrade earnings, re-iterate Neutral given peak
earnings/lack of growth
JSW Energy reported 2QFY13 consolidated PAT of INR3.1b; adjusting for forex loss of INR610m, PAT stood at
INR3.7b, vs our estimate of INR1.7b. Key deviation has been 10% QoQ and 18% YoY decline in fuel cost (savings
of INR0.30/unit QoQ). Gross margin for JSWEL has now improved to INR2.6/unit, vs INR2.2/unit QoQ.
Fuel cost savings was owing to better operational efficiency (higher PLF leading to better heat rate, lower
auxiliary consumption, etc), as also due to higher usage/blending of low cal coal in 3QFY13, vs 2QFY13. Blending
of low cal to high cal coal stood at 66:34, vs 27:73 in 2QFY13.
Rajwest reported significant improvement in performance with 81% PLF for 540MW of operating capacity. We
calculate EBIDTA from Rajwest project at INR1.6b, leading a delta of INR0.5b QoQ. Management expects the
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final tariff order for Rajwest to come by end FY13E and plans to announce CoD for balance 540MW in
February/March 2013. Current 3mtpa lignite production from Kapurdi mines, along with permission to increase
production by 25% (total 3.75mtpa) can fire all 8 units for 8 months. This provides for ample time, by which the
permission to increase the production from 3mtpa to 7mtpa from Kapurdi mines is expected to materialize.
Jalipa mines will take 15-18 months time to commence production.
We revise our FY13E/14E earnings by ~40%/2% to factor in higher operating efficiency, lower fuel
cost/improved blending. Key assumptions are: RB Index of USD88/ton for FY13E/14E, INR/USD of 53 from FY14E
onwards and merchant realization of INR4.25/unit for FY14E/15E (2% increase thereafter). We now expect
FY13E/FY14E consolidated PAT of INR10.3b (up 2x YoY)/INR11b (up 6% YoY). Higher ST realisation, lower fuel
cost, and rupee appreciation are key upside triggers. JSWEL has guided for EBIDTA margin of ~30% on sustained
basis and our estimates reflect the same.
Given volatile business model and no growth option in near term, the valuations of 12x PER and 1.5x P/BV (RoE
of 14%) on FY15E basis offers limited comfort on upside. We marginally raise our TP on the stock from INR65/sh
to INR69/sh, re-iterate Neutral.
KOTAK BANK 3QFY13: Growth surprises positively. Strong control over cost. Neutral
Kotak Mahindra Bank’s 3QFY13 consolidated PAT grew ~25% YoY and ~15% QoQ to INR5.8b (6% above est)
driven by healthy performance in the banking business. Bank (standalone) PAT grew ~30% YOY and QoQ to
INR3.6b (14% above est).
Key positive surprises: (a) Healthy loan growth of 27% YoY and 9% QoQ led by growth across segments (ex CV
and CE) (b) Strong control over cost with standalone Cost to income ratio coming down to 49% vs 53% in
1HFY13 (c) stable asset quality (GNPA/NNPA down QoQ by 13bp/9bp to 1.2%/0.6%) despite higher stress seen
in CV segment
Other highlights: (a) Consolidated NIMs declined 10bp QoQ to 4.6% (b) Capital market related business PAT
stood at INR400m (vs INR440m a quarter ago and expectation of INR382m) (c) K Sec market share increased
10bp QoQ to 2.6% and (d) Avg domestic AUM increased 5% QoQ to INR324b, Overall AUM stood at INR565b
(flat QoQ)Valuation
and view:
2.7X FY14: Neutral
Management has increased its growth guidance from 20%+ to ~25% although it still remains cautious on the
growth. Areas of focus to drive growth continues to be rural and semi urban areas, leveraging on its
geographical expansion with focused product penetration strategy
Stock trades at 2.7x and 2.3x FY14E and FY15E consolidated BV and 19x FY14E and 16x FY15E consolidated EPS.
On the back of rich valuations, we maintain Neutral with SOTP based FY15E target price of INR695.
KMPL: Loan gr. remains healthy at 30% YoY and 6% QoQ
Margin declines QoQ (%)
L&T 3QFY13: Operational performance below estimates; Continued order intake momentum; Cutting
estimates
3QFY13 operating performance was meaningfully below estimates, while the key positives are continued strong
order inflows of INR195b (up 14% YoY) and positive cash flow from operations.
Revenues at INR154b were up 10% YoY (below our estimate of INR161b) while adj EBITDA margins stood at
10.4%, down 84bp YoY (below our estimates at 10.9%).
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Adj Net profit stood at INR10.4b (down 7.8% YoY) and is below estimate of INR11.4b. 3QFY13 includes
INR1.25b of MTM provisions on forex debt of ~USD300m and INR2b of capital gains on property sale.
Order intake in 3QFY13 stood at a robust INR195b (up 14% YoY) and is in-line with the quarterly trends of
INR200b during past 4 quarters.
We are positively surprised as the announced order intake (through press releases) stood at just INR98b.
International business contributed 22% of the intake in 3Q, similar to 23.7% during 2QFY13.
Await further understanding on the ~INR35-40b each of exports and domestic projects, included in the order
intake. Also, this is the highest gap between reported and announced orders in last several quarters.
The management stated that incrementally, order pipeline has shown some signs of improvement particularly
in hydrocarbons, power, railways, fertilizers, etc.
Strategy on the overseas business seems to be playing out with new geographies (apart from Middle East)
contributing to 38% of the export orders in 9mFY13.
E&C revenues in domestic market declined 6.2% during 3QFY13 vs growth of 13.3% in 1HFY13. Sales decline of
6.2% in domestic market led to moderate 11% revenue growth in E&C business (which was supported by strong
191% growth in exports
Adj EBIDTA margins have declined by 84bp YoY in 3QFY13 impacted by lower sales and poor fixed cost
absorption. During 3QFY13, E&C EBITDA margins declined by 110bp (at 10.4% vs 11.5% YoY) while over 9MFY13
E&C EBITDA margins have declined by 60bp YoY (at 11.1% vs 11.7% YoY).
The decline is marginally higher than the lower band of the annual guidance of +/-50bp during FY13.
Management maintained FY13 guidance: Revenues and Order Intake +15-20% and E&C EBIDTA margins at +/-
50bp. For FY13, we model revenues to grow 16% YoY, E&C EBIDTA margins to decline 62bps and intake to be up
16%.
Valuation and View :
Buy with a revised SOTP-based target price of INR1,870/sh
We cut our FY13/FY14 consolidated EPS by 7% / 5% to model constraints in execution, and thus poor fixed cost
absorption.
Maintain Buy with a revised SOTP-based target price of INR1,870/sh (18% upside). We value L&T standalone at
14x FY15E earnings and subsidiaries at INR377/share.
Order intake (INR b) robust
Adj EBITDA margin declines
LUPIN: Receives approval for generic Plan B® in US.Strengthens oral contraceptive portfolio
Lupin has received final US FDA approval for its generic version of Teva’s Plan B® oral contraceptive. The
product currently generates annual revenues of ~USD81m in US.
Two other players, Watson and Perrigo, have already launched their generic versions of this product. LPC will be
the 4th player (including innovator) to enter the market.
Similar to earlier OC approvals, we do not expect any significant price erosion due to LPC’s entry given that it is
a low-competition market.
We expect LPC to generate revenues of ~USD1m from this opportunity in FY13 and USD5-6m in FY14. We
expect incremental upside for LPC from this launch as gaining market share in the US OC market is a time-
consuming process.
More importantly, this is the 3rd OC approval obtained by LPC over the last 2 months. This is sentimentally
positive for the company since the OC approvals have been slow to come and LPC has been awaiting these for
some time.
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Strengthens pipeline
– LPC has, till date, received approvals for 8 OC products of which 4 have been
commercialized. In total, the company has filed ~30 OC ANDAs till date (corresponding to innovator market size
of ~USD3-4b) which it expects to commercialize over the next 2-3 years.
Valuation & View :
19x FY14E: BUY
Based on our current estimates, we expect EPS of INR31.1 for FY14 (up 29%) and INR37.3 for FY15 (up 20%) i.e.
24% EPS CAGR for FY12-15.
LUPIN: Receives approval for generic Lutera in US; Expect incremental upside; strengthens oral
contraceptive portfolio
Lupin has received final US FDA approval for generic Lutera (an oral contraceptive belonging to Watson) for the
US market. The product currently generates annual revenues of ~USD103m.
Apart from Watson, three other players - Teva, Vintage and Novast - have already launched their generic
versions of this product. LPC will be the 5
th
player to enter the market.
We do not expect any significant price erosion due to LPC’s entry given that it is a low-competition market.
We expect LPC to generate revenues of USD1.5-2m from this opportunity in FY13 and USD8-10m in FY14. We
expect incremental upside for LPC from this launch as gaining market share in the US OC market is a time-
consuming process.
MMFS 3QFY13: Below est., NIM disappoints, 15% QoQ rise in GNPA, Strong growth momentum
continues
Net operating income up 33%YoY to INR5.7b
AUM growth of 32% YoY and 8% QoQ - Market expansion and product diversification; Model AUM 30%+ in FY13
& ~25% over FY14/15
M&M vehicles grew 8% QoQ and 27% YoY
Non M&M up 8% QoQ and 37% YoY; driven by Maruti, Tata and Hyundai -
CV and CE remains strong, management mentioned that they have slowed down the growth in this segment
due to rising delinquencies.
Provisioning at INR815m (inline) v/s INR850m QoQ
PAT up 30% YoY & 6% QoQ to INR2b (10% lower than est.)
NIM’s down (cal on AUM) by ~30bp despite benefit (~20bp) of capital raising; YoL (cal) down 30bp QoQ ; CoF up
10bp QoQ.
Post 13% QoQ rise in GNPA in 2Q, up further by 15% QoQ in 3QFY13.
CAR at 19.8%; Tier I ratio at 17.3%.
Key Beneficiary of Rate cut - 100% fixed-asset profile & ~ 50% of liabilities floating. Factor in stable margins over
FY13-15E.
Trades 2.5x/2.1x FY14/15 BV of INR464/548 and PE of 12.5x/10x FY14/15 EPS of INR91/115
Gross spreads decline QoQ
MAHINDRA LIFESPACES 3QFY13: Below est on weak revenue booking.
Standalone revenue stood at INR614m (-60%YoY, v/s est. of IRN1.2b), EBITDA INR91m (-51%YoY, est of 317m)
and PAT INR136m (-66%YoY, est of INR360m).
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Consolidated revenue was down 24% YoY at INR1.3b, while PAT (pre minority) was down 31%YoY to INR207m.
Sales run-rate stood at 0.4msf (INR1.5b) v/s 0.21msf (INR0.86b) in 2QFY13. Majority of the sales was driven by
recent launches (1) Ashvita, Hyderabad (0.23msf @ INR3500/sf and 69% sold) and (2) Iris Court III, Chennai
(0.16msf @INR3300/sf, 86% sold). MLIFE’s 9MFY13 sales stood at 0.8msf (INR2.9b) v/s our estimate of
INR1.3msf (INR4.8b) and FY12 sales of INR1.2msf (INR5.9b).
The management has indicated for meaningful improvement in approvals process. Barring Hyderabad launch, it
has received final approval for recently acquired project - Sopan Baug, Pune, and plans to launch it by January-
13 end.
MLIFE has entered into 8 MoUs (7 for premium residential and 1 for affordable housing) under various stages of
negotiation, with 2-3 at a very advance stage of conclusion.
trades at 1.2x FY14E BV, 12x FY14E EPS, and 25% discount to our FY15 SOTP value of INR538/share.
Sales volume improves QoQ (msf)
NTPC: DESU dues approved; Capacity addition/generation growth looking up; Favorable environment
ahead of OFS; Buy
In a recent move, Union Cabinet approved dues of Delhi Electricity Supply Utility (DESU) through a grant,
entailing a receipt of INR13b of outstanding receivable for NTPC (NTPC IN, Mkt Cap USD25b, CMP INR162, Buy),
and total of INR32.5b for all CPSUs. In a run to offer for sale (OFS), we believe that several other bottlenecks
hampering growth for NTPC could be addressed – key being restoration of 5 de-allocated coal blocks in the past.
While news flows remain positive (as was the last time – merchant sales was envisaged, which though never
occurred), we remain positive on business/valuation.
Capacity addition/commercialization for NTPC has been robust in YTDFY13, marking significant improvement
over FY11/12. Similarly, generation growth stands at ~6%, v/s 0.7% CAGR growth over FY10-12. Pick-up in
capacity addition, superior generation growth is key driver to core earnings growth.
On fuel sourcing front, NTPC is favorably placed with pass-through business model, ramp-up in captive mine
production and thus, can manage 90% target PAF with minimum import (20-25m tons) for its requirement in
the 12th Plan. Additionally, NTPC also scores well on qualification criterion specified for coal block auction for
PSUs and given its financial strength, it can lap up sizable reserves.
Earnings CAGR of 18% over FY12-15E, 250bp RoE expansion and historic low valuations provide strong comfort.
Buy with TP of INR191/sh.
NTPC 3QFY13: Adjusted PAT in-line. operating parameters healthy, BUY
During 3QFY13, NTPC reported net sales at INR158b (up 3% YoY), EBITDA at INR40b (up 40% YoY) and PAT at
INR26b (up 22% YoY).
Reported EBIDTA / PAT is partly boosted by lower staff cost for the company. Staff cost for 3QFY13 stood at
INR6.9b, down 23% QoQ and 4% YoY
staff cost is lower owing to reversal / write-back of variable pay, provided in earlier quarter. The quantum of the
same has been highlighted at ~INR1b.
Sales for the quarter stood muted with growth of 3% YoY, despite generation growth of 14% QoQ.
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Reported generation at 60BUs (up 6.6% YoY, 14.2% QoQ), of which coal project generation grew at 9.5% YoY
(up 15.4% QoQ),Gas plant generation de-grew by 16.4% YoY (but up 2.5% QoQ). Generation largely grew on
account of higher commercialization and improved PLF’s.
NTPC’s capacity addition stood at 2.66GW, vs 2.82GW in FY12 and 2.5GW in FY11. In 3QFY13 NTPC
commercialized 1 GW and thus reduced gap between commissioned and commercialization to 1.5GW v/s
3.2GW in 1QFY13.
Valuations and view:
PER of 12x and P/BV of 1.6x FY14: BUY
Over FY12-15E we expect NTPC earnings to grow at CAGR of 18%. We expect net profit of INR91b (up 14% YoY)
in FY13E, INR111b in FY14E (up 22% YoY) and INR129b in FY15E (up 16% YoY).
Stock trades at PER of 12x and P/BV of 1.6x FY14E basis, respectively. 18% earnings growth, 250bps RoE
expansion and softening risk free rate are key triggers for re-rating in our view.
Buy with TP of INR191/sh.
PLFs have been impacted for gas projects (%)
Generation growth dragged down by gas projects
NTPC: De-allocated coal blocks restored, positive for captive mine coal production of 37m tons by
FY17E, Buy
NTPC has been accorded formal approval for restoration of 3 coal blocks, viz. Chatti Bariatu (reserves of 194m
tons), Chatti Bariatu South (reserve of 357m tons) and Kerandari (reserve of 285m tons); “in-principle” approval
was already available for these coal blocks
Total production from these blocks is estimated at 26m tons, which along with 15m tons of production from
Pakri Barwadih mine will provide visibility on the captive coal production ramp-up.
NTPC’s management envisages captive production (PB mines initially) at 3m tons in FY14E, increasing to 37m
tons by FY17E. This would help meet the requirement on fuel front for 12
th
plan period.
The mines are at an advanced stage of development, with land acquisition notification already complete for
Chatti Bariatu & Kerandari mines and production from these mines should begin soon.
Urgency to address bottlenecks before OFS is positive. Re-iterate BUY.
OBEROI REALTY 3QFY13: Above est; Sales stable QoQ; Collections weaken due to maturing collection
curve; Buy
Oberoi Realty reported 3QFY13 results above our estimates.
Revenue stood at INR2.9b (v/s est. of INR2.3b), up 53% YoY/11%QoQ. Hotel Westin revenue grew 28% QoQ/7%.
Rental (including hotel) stood at INR585m (9MFY13 run-rate of INR1.6b) v/s our FY13E/FY14E estimates of
INR2.2b (stable YoY)/INR3.1b.
EBITDA grew 51% YoY to INR1.7b (v/s est of INR1.4b), while EBITDA margin is up by 1.6pp QoQ to 59.7%. Core
EBITDA (ex hotel) improved to 62% v/s 61% in 2QFY13 on account of higher realizations in fresh sales at
Exquisite. PAT grew 32% YoY to INR1.3b (v/s est INR1.1b).
Sales momentum remains stable sequentially at 0.12msf (INR2.2b). Average realizations stood at INR17,451/sf
(+2% QoQ, +22% YoY), led by higher realizations in fresh sales at Exquisite. 9MFY13 sales stood at 0.4msf
(INR6.5b) v/s our FY13/14 estimates of 0.6/1.1msf (INR10b/16b).
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Despite steady execution progress, customer collections remain weak over past couple of quarters at INR1.6-
1.7b v/s INR2.3b in 1QFY13 and earlier. The reason is significant decline in construction linked payments post
slab casting.
We believe, going forward, the key factors to improve cash flow would be fresh launches, and steady
construction progress in Esquire
Valuation and view:
Faster monetization, re-leveraging and cash deployment key to restore high RoCE
The stock is currently trading at 13.3x FY14E EPS, 2.1x FY14E BV and ~12% discount our FY15 NAV of INR359.
Maintain Buy with TP of INR359.
RELIANCE 3QFY13: Refining surprise shadows weak E&P; petchem revival expected. Neutral
EBITDA up 15% YoY, +9% QoQ at INR84b (Est 70b) - led by higher GRMs and petchem margins
PAT up 10% YoY, +4% QoQ at INR55b (Est 50b)
Refining GRM up 41% YoY & 1% QoQ at USD9.6/bbl (Est 8.5); Premium over Sing GRM up to USD3.1/bbl v/s
USD0.4/bbl QoQ; Model GRM of USD9/bbl in FY13 & FY14 v/s USD8.6/bbl earlier
higher Light-Heavy crude differentials + higher Naphtha cracks + lower avg. LNG purchase prices.
Petchem down -10% YoY, +11% QoQ EBIT at INR19.4b; EBIT margin at 8.8% v/s 7.9% QoQ ; Model FY14 EBIT at
INR80b, +21% YoY.
Absolute Higher PP-P spreads, higher integrated polyester margins and Benzene prices in chemical segment
contributed to the petchem performance
E&P – Positivity, domestic drilling restarts, but impact still 3-4 years away
drilled 1 probe well in KG-D6, Mgmt indicated production decline would continued in FY14 & stem it only by
end-FY15
plans to drill 3 wells in coming period: 1) G2 development well in KG-D6, followed by 2) appraisal well in CY-D6
block and 3) MJ1 well, in KG-D6
Upgrade FY13/14/15 EPS by 3-5% led by higher GRM at USD9/bbl (v/s USD8.6/bbl) + higher KG-D6 gas price
from FY15 at USD7/mmbtu (v/s USD4.2/mmbtu earlier), partly compensated by lower KG-D6 gas volumes at
18/16 in FY14/FY15 v/s 20/18mmscmd earlier
KEY THINGS TO WATCH:(1) DGH approvals for its E&P (2) Clarity on its E&P arbitration and 7-year income tax
holiday for KG-D6 gas (we model tax holiday), (3) Margin trend in refining and petchem, (4) Developments on
USD12b capex plan
Buyback ended on Jan 19, 2013; Purchased 46.2m (38.5%); Utilised INR33.6b (32.2%) of the proposed INR104b
- No continuation of Share buyback program -
Trades at 11.6x adj EPS of INR79.1b and EV/EBITDA of 8.6x
RCOM: CEO meeting reaffirms enhanced industry focus on RPM, profitability improvement.
The recent meeting with Mr Gurdeep Singh, President & CEO - Wireless Business, reaffirmed our view on
increasing industry focus on RPM and profitability improvement. The following are the key take ways:
Spectrum-based market strategy; 1HFY13 wireless market share trends encouraging:
RCom has put in place a
spectrum-based market strategy. Market share trends seem to be encouraging, with AGR market share increase
of ~100bp over the past two quarters.
Low spectrum liability, high sensitivity to RPM improvement; high leverage a concern:
Company has the
lowest spectrum liability (~INR37b) and highest sensitivity to RPM improvement among the large listed Indian
wireless operators. Assuming no elasticity, every 1p improvement in RPM increases RCom's fair value by
~INR9/sh (~10%).
High leverage a concern:
with net debt/EBITDA >5x and long-term debt repayment of INR35-36b p.a. during
FY14/15. We estimate excess spectrum liability at ~INR20b and renewal (FY16) at ~INR17b. Given initiatives on
market share improvement and cost reduction, coupled with expected industry-wide RPM improvement, we
upgrade FY14/15 EBITDA by 7%/12% (FY13-15E EBITDA CAGR of 13%) and TP from INR79 to INR96 based on 6x
FY15E EV/EBITDA. We would watch-out for sustained improvement in operating metrics. Neutral.
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RELIANCE COMM 3QFY13: Wireless revenue/EBITDA up ~2% QoQ driven by RPM improvement; Neutral
Reliance Communications’ (RCOM IN, Mkt Cap US$3.4b, CMP INR88, Neutral) 3QFY13 EBITDA grew 3% YoY and
1% QoQ to INR16.5b (vs est of INR17.1b).
Consolidated revenue grew 5% YoY and 2% QoQ to INR53b (vs est of INR52.7b).
Reported net profit of INR1.05b (down 44% YoY but up 3% QoQ) was below our estimate of INR2.2b on lower
EBITDA and higher finance costs.
Wireless revenue grew 2% YoY/QoQ to INR45.2b vs est of INR45.4b. Ex impact of revenue loss due to closure of
Etisalat DB operations, wireless revenue grew 4.7% YoY.
Wireless EBITDA grew 2% YoY/QoQ to INR12.1b (EBITDA margin of 26.7%). Ex Etisalat DB closure impact,
wireless EBITDA grew 15% YoY.
Wireless traffic grew 3% YoY and 0.5% QoQ to 103b minutes while RPM improved 1.5% QoQ to ~44p.
GEBU revenue/EBITDA remained largely flat YoY/QoQ.
Wireless RPM increase of 1.5% QoQ for RCom underscores enhanced industry focus on RPM improvement.
During September 2012, RCom had undertaken base tariff increase from 1.2p/s to 1.5p/s.
RCom trades at EV/EBITDA of 6.7x FY14E and 5.4x FY15E.
We await further details in earnings call on Thursday January 24th 12.30pm IST (dial in +91 22 3036 0400).
Neutral.
SUN TV 3QFY13: Ad growth in-line; earnings above estimates on lower movie amortization costs;
Neutral
Revenue
up 14% YoY & 12% QoQ to INR4.86b (Est 4.84b);
Ad revenue up 15% YoY to INR2.93b - on a low base (6% decline in 3QFY12); model 13% CAGR over FY13-15E
Subs revenue up 15% YoY and 5% QoQ to INR1.57b- model 14% CAGR over FY13-15E
DTH revenue up 5% QoQ to INR945m; Subs up 5% QoQ to 8.3m
Cable revenues up 9% QoQ- 1st full qtr of ARASU;
EBITDA margin down 280bps YoY to 77.5% (in line)
EBITDA up 10% YoY and 14% QoQ to INR3.76b (Est 3.75b)
PAT up 13% YoY and 25% QoQ to INR1.9b (Est 1.78b)
Upgrade EPS by 2-3% to reflect lower amortization expenses. FY14 estimates do not incorporate any IPL loss
Implementation of digitization in Chennai has been impacted due to ongoing court case and non-readiness of
state-run Arasu cable. However, DTH additions seem to be gaining traction
Chennai (phase I) has a digitization opportunity of ~1.5m subscribers while the five South Indian phase II cities
offer an opportunity of another ~4m subscribers
Trades at FY14 P/E of 21.9x and FY15 P/E of 18.4x; Dividend yield of 2.7%
SHREE CEMENT 2QFY13: Op. performance in-line; Lower depreciation, tax boost PAT; Upgrading EPS;
Buy
In line volume and realizations for both cement and power led 19.4% YoY revenue growth:
Shree Cement’s
2QFY13 operating performance is in line with EBITDA of INR3.7b (v/s est INR3.7b). Revenues grew 19.4% YoY
(+7.9% QoQ) to INR14.3b (v/s est INR14.7b). EBITDA grew by 12% YoY (down 5.4% QoQ) to INR3.7b, translating
into EBITDA margins of 26% (v/s est 25.4%) - a decline of 3.7pp QoQ (-1.8pp YoY). Moderated depreciation,
lower tax resulted in adj. PAT to INR2.3b (v/s est IN2b).
Cement:
volume has grown 5.2% YoY to 3mt, while blended realizations deteriorated INR9/bag QoQ
(+INR146/ton YoY) to INR3,724/ton (v/s est INR3,731/ton). Cement EBITDA/ton at INR1,017/ton (v/s est
INR1,010/ton) was lower by INR168/ton QoQ (-INR98/ton YoY).
Lower energy cost diluted by realization decline and higher other expenses:
Decline in realizations was
marginally offset by lower energy cost caused by decline in pet coke prices by ~11% QoQ, benefit of which was
diluted by higher other exp (maintenance shutdown). Merchant power volumes in 2QFY13 was at ~786m units
as against ~307m units in 1QFY13 , realizations were INR3.97/unit (v/s INR4.44 in 1QFY13) and in line
EBITDA/unit at INR0.85/unit.
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Upgrading estimates:
We are upgrading our EPS (for accelerated depreciation) by ~7%/3%/2% for
FY13/FY14/FY15 to INR327/INR386/INR469 respectively, led by lower tax rate. The management has reduced its
depreciation guidance for FY13 to ~INR4b (v/s INR5.4b earlier). The stock trades at 11.7x/9.6x FY14E/FY15E EPS,
6.2x/4.7x EV/EBITDA and US$114/ton FY15E (adj for Merchant Power assets of ~400MW). Buy with revised
target price of INR6,227 (SOTP based).
TATA Motors: JLR issued update on 3QFY13 performance
JLR's revenue will be higher than the previous two quarters, reflecting higher sales volume.
EBITDA is likely to be in the region of levels reported for the previous two quarters and the EBITDA margin is
likely to be slightly lower than in the previous two quarters.
This is primarily reflecting the ongoing effect of a higher mix of Evoque sales, the less favorable exchange rates,
and other factors.
FCF will be negative in the quarter ended 31 December (reflecting working capital calendarisation effects); but
will remain positive for the first nine months of the fiscal year to date.
Valuation and View
Increased FY14 capex to ~GBP2.75b (v/s GBP2b in FY13E v/s our est of GBP2.25b), will result in negative FCF.
The company has indicated that JLR currently has a cash balance of GBP 2.18b currently and has GBP795m of
undrawn credit lines.
We have cut our EPS estimates for FY13 by 6.3% to INR29.7 to factor in for weak 3QFY13. We also
conservatively cut our FY14/FY15 estimates by 4.2%/2.2
Based on our revised estimates, the ordinary stock trades at 6.8x FY15 EPS and DVR at 4.2x FY15 EPS
Our TP for ordinary share is INR373 (27% upside) and for DVR is INR224 (32% upside).
THERMAX: To benefit from structural trends in the economy
Thermax (TMX) is benefiting from few structural trends: (1) continued energy shortages and increased energy
pricing, driving demand for energy efficiency products, (2) hunt for alternative energy, given demanding
regulations and improving viability, (3) increased environmental concerns and stringent regulatory intervention,
(4) currency depreciation leading to increased possibilities of exports (currently at 22% of revenues), etc
The company's revenues have been largely stagnant over FY11-13, impacted by macroeconomic volatility, and
we expect 15% CAGR over FY13-15. While exports would grow at 27% CAGR, the domestic business is likely to
grow at 11% CAGR.
We believe TMX is uniquely positioned to benefit from the current trends, which will enable it to make a
transition to the 'Big League' in the next economic upturn. We expect TMX to report earnings CAGR of 22% over
FY12-15. The stock quotes at 20x FY14E and 15x FY15E EPS. We upgrade the stock to Buy, with an upgraded
price target of INR770 (upside of 33%).
WIPRO 3QFY13: Volumes decline QoQ; Margin levers and healthy deals keep recovery prospects afloat;
Buy
USD revenues up 2.4% QoQ (in line); CC Revenue up 2% (Est 1.8%) Realization CC onsite up +3.2% QoQ & CC
Offshore +3% QoQ
Volume down 1% QoQ v/s (est +1.6%) – Key Disappointment - hurt by trying to drive better productivity in run-
the-business (RTB) segments and lower working days QoQ
INR revenue up 2.7% QoQ (Est 2.5%); Realized USDINR INR54.1/USD (Est 54.15)
IT services EBIT margin down 50bp QoQ at 20.2% (Est 20.3%); Despite tailwind from productivity-led efficiencies
as gains offset by lower utilization v/s our estimate
PAT at INR17.16b (Est 15.95); other income INR3.4b v/s (est 2.3b) & tax rate 21.9% (est 23%)
IMS up 4.6% QoQ, 45% of incremental revenues; Business Application up 4.7% QoQ, 61% of incremental
Top 2-5 clients clocked 7.8% QoQ 31% of incremental revenues), re-emphasizing the company’s continued focus
of mining the top accounts
Volume growth concern Partly allayed by better deal closures in 2Q QoQ, & 1.7x increase in the deal pipeline
YoY + 2x increase in the number of large deals in the pipeline YoY - Prospects of growth revival remain afloat
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Q4 Guidance of 0.5%-3% QoQ (Our Est 1.9%) despite healthy deal wins given low levels of activity in first half of
the quarter, due to budget finalizations which would limit the company’s visibility on the ramp up in contracts
closed earlier
Past 6 Qtr IT Services EBIT margin in tight band of 20-21%, due to lower utilization – down 540bp @ historical
lows & higher SGA – up 170bp; Margin levers [1] Productivity, with more scope in RTB segment, [2] Historically
low utilization.
Model USD revenues by 9.3% in FY14 and 10% in FY15 implies 2.4% revenue CQGR
Upgrade in FY14E/15E EBIT margin estimates (20bp/90bp) & EPS by +2.7%/2.3%- factor in the higher realization
base on improved productivity
ZEE ENTERTAINMENT 3QFY13: Above estimates on lower sports loss; Upgrading estimates 3-5%
Revenue up 24% YoY to INR9.39b (Est 9.33b)
Ad up 29% YoY to INR5.1b (in-line) – QoQ decline was on a/c of lower ad revenue from sports; Industry Ad
revenue increased from earlier 8-9% to 10-11% for FY13
Subscription up 3.7% QoQ to INR4.09b (Est 3.92b) YoY not comparable as it includes Media Pro; Like-to-like
growth in the domestic subscription revenue was ~24% – Phase 1 numbers still partially reflected; Yet few
MSO’s have not started raising invoices; Still lot of steam left from Phase 1 which will be followed by Phase 2 !!
Domestic Subs up 5.5% QoQ
International subs up 9.4% YoY & flat QoQ
EBITDA margin down 80bps YoY at 27.8%. led by lower-than-expected loss in sports segment
EBITDA up 21% YoY to INR2.61b (Est 2.48b)
PAT up 39% YoY to INR1.9 bn (Est 1.84).
Sports revenue down 41% QoQ to INR1.08b. Sports loss at INR86m vs (Est 200m loss); 9M at INR465m; FY13
guidance of INR0.65-0.7; model loss (INR1/0.8b for FY13/14); Scope for +ve Surprise
Non-sports sales up 25% YoY (in-line); EBITDA margin down 150bp YoY to 32.5%; EBITDA up 19% YoY (in-line)
GRPs down from 237 in 2QFY13 to 198 in 3QFY13;
Original programming hours from 27 to 29.5 and plans to increase it further to ~32
upgrading our EPS estimates by 3-5%.
Trades at a P/E of 26.8x FY14 and 22.1x FY15; Digitization upside in the subscription revenue and ad market
recovery.
Zee TV average weekly GRP has improved significantly from lows of 3QFY12
o
o
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Has Apple peaked? : The world’s most valuable firm may be past its prime
TECH blogs are abuzz. Pundits are busy pumping out predictions. The company that makes the new device that is
attracting so much attention is teasing reporters by being coy about its innovative features. Apple’s product
launches are always like this. But this time the fuss is not about an Apple product: it is about Samsung’s latest
Galaxy smartphone, which is likely to be launched in March.
Stiffer competition in smartphones and tablets from the likes of Samsung has spooked investors in Apple. They got
another fright on January 23rd when the firm revealed that its latest quarterly profit of $13 billion was flat because
of higher manufacturing costs. That triggered a rout in after-hours trading: at one point some $57 billion was wiped
off Apple’s market capitalisation, roughly the equivalent of the entire value of Ford, a carmaker.
Apple’s shares have been mauled by bears many times before (see chart 1), but they have always recovered. The
big question on many investors’ minds is whether the firm can rebound again. Two things have whetted the bears’
appetites.
First, Steve Jobs, Apple’s founder and creative genius, is dead. The iPhones and iPads he sired still generate
gargantuan profits. But his successor, Tim Cook, has yet to prove himself capable of bringing new breakthrough
products to market. Second, Apple’s fantastic profit margins—38.6% on sales of $55 billion—attract competitors
like sweetshops attract six-year-olds.
The company’s fans pooh-pooh the idea that Apple has peaked. The firm’s price-earnings ratio—11.6 at close of
business on January 23rd—is not much different from Microsoft’s (see chart 2). That makes Apple’s shares look
relatively sexy. Unlike Microsoft, which depends heavily on the ailing personal-computer business, Apple
concentrates on sectors that are growing fast, such as smartphones and tablets. Only one of 60 analysts tracked by
Bloomberg had a “sell” recommendation on Apple before this week’s stockmarket fallout.
A drizzle of negative news had already dampened investors’ ardour before this week’s earnings announcement.
Apple bungled the introduction of its new mapping app, and there were rumours of cuts in component orders for
the iPhone 5. But iBulls still expect sunshine this year: news of new gizmos that Apple has created and new markets
it is set to disrupt.
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One of those gadgets is likely to be a much cheaper iPhone aimed at emerging markets. In China, where some men
have reportedly been dumped for failing to buy their girlfriends iPhone 5s, Apple sold 2m of its top-of-the-range
devices over its launch weekend last month. However, most Chinese shoppers can’t afford the things. Barclays, an
investment bank, reckons Apple could produce an iPhone for less than $150 to broaden its appeal.
The firm has played down reports of a cheaper iPhone, but Apple-watchers expect an announcement this year.
Slimmer profit margins in China and India may be worth it to woo millions of new buyers. Apple is said to be close to
a distribution agreement with China Mobile, a carrier with a hefty 700m subscribers. News of a deal may boost
Apple’s shares.
Yet the best way for the company to prove it is not past its prime would be for it to disrupt another big market.
Since Jobs’s death in 2011 Apple has concentrated on sprucing up its existing products. Now investors want to see it
conjure up entirely new ones. All eyes are on television (though Apple is also exploring the potential of other
markets, such as wearable computing. Mr Cook says television is an area of “intense interest”. He told interviewers
that when he switches on the TV in his living room, he feels like he has “gone backwards in time by 20 or 30 years.”
This fuels expectations that Apple will launch an iTV later this year.
Sceptics point out that plenty of elegant, wafer-thin screens are already on sale. Moreover, Apple’s existing set-top
box, which lets users play content from iTunes, Netflix and other services on their TVs, has not been a stunning
success. But this misses the—so to speak—bigger picture. The iTV, which may be controlled via gestures and voice
commands as well as via iPads and iPhones, could be a digital hub for the home. It would let people check whether
their washing machine has finished its cycle while they gossip on Facebook and watch their favourite soap. Peter
Misek of Jefferies, an investment bank, says sales of it should also boost purchases of iPads and other Apple gear, as
more people get sucked into the firm’s “ecosystem” of linked devices and software.
But the iTV is no surefire blockbuster. For one thing, persuading cable and broadcast outfits to make programming
available over the internet on demand will be tricky. They have already seen how such a model crushed music
companies. For another, iTVs are likely to be pretty expensive, limiting their mass-market appeal.
Apple will also, as usual, face stiff competition from Samsung. The South Korean firm is one of several that already
sell smart TVs. Indeed, Samsung seems to be churning out more and more groundbreaking devices while Apple has
produced only incremental innovations of late. Apple’s court battles with Samsung over smartphone patents have
reinforced the impression that it is on the defensive.
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However, Horace Dediu of Asymco, a research firm, says it would be a mistake to think Apple is resting on its
laurels. He notes that its capital expenditure has soared in recent quarters, reaching levels typically seen at firms
with huge manufacturing operations, such as Intel (see chart 3). Some of this money is going into data centres to
support cloud services like iTunes. But Mr Dediu reckons much of it is being spent on dedicated production
equipment at suppliers. This could give Apple an edge in producing new gadgets.
Yet even if it produces a cheaper iPhone, pushes deep into China and wows the world with a smart TV, its shares
will not reconquer last year’s peak. Competition is now tougher in its core markets. Rivals will not let it disrupt new
ones so easily. Apple may dip into its $137 billion cash lake to boost its share price by paying fatter dividends or
buying back more stock. That would deight some investors, but others would see it as a tacit admission that the
firm’s great innovation engine has stalled. Apple won’t crumble, but it has peaked.
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Nifty Valuations at a glance
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