WEEK IN A NUTSHELL
WIN-dow to the week that was
Week In a Nutshell (WIN)
Week
ended
rd
3 Feb
Key WIN-dicators
Call money rates still in the upper
corridor
Indian Equity Market continues to be the best performing market in
2012
with Nifty clocking its 5th consecutive weekly gain, led by YTD FII
inflows in excess of USD3bn. While this rally is not India specific, India
benefitted the most from rising flows into Emerging markets, coming out
of one of the worst months ever in December. The week also saw
Supreme Court deliver a landmark judgment cancelling ~120 telecom
licenses issued by government in 2008. This would likely reduce
competitive intensity and the sector would finally be served up the much
awaited consolidation. Banking Secretary clarified that the Banking sector
exposure to the affected parties is INR 100 Bn.
Monthy Auto Numbers:
Have the car volumes bottomed out? The
numbers seem to be indicating that; with both Tata Motors and Maruti
surprising positively. 2 Wheelers are trading market share but clearly this
year will be different and tougher. Can the 2 Wheeler stocks go the same
fate as the PV stocks? Inventory levels seem different for different
companies ranging from 15 to 40 days.
While the earnings have been largely in line with expectations till now
with
Nifty Companies reporting a PAT growth of 9.4% YoY,
we highlight a
few that stand out for the right and the wrong reasons:
-
ICICI Bank:
6% lower than est Opex, 19% lower than est provisioning
and higher Other Income (maiden dividend of INR1.5b from life
insurance sub) were the 3 key reasons for PAT (INR117.3b +20%YoY)
being 10% above our est. Adjusting for dividend, PAT was in line. 30bps
QoQ improvement in International NIM’s were a +ve surprise.
-
Titan:
PAT was impacted by by 5% decline in jewelry volumes and a
steep 590bp decline in watch business margins.
-
Crompton Greaves:
Worst possibly over, but wouldn’t jump in yet. Build
up of orders is a +Ve (Consol order-book stands at INR82b, up 17% YoY
on back of strong order flows in domestic power business).
We would also like to bring focus on Indian OMCs (BPCL, HPCL and IOC)
where there has been no erosion in BV but the stocks are trading at
significant discount to their 10-year historical averages. Also, in our
view, the Govt/ upstream will eventually compensate OMCs, ensuring
no erosion of BV. We have Buy ratings on the OMCs.
OMC book Values have never
declined
Monthly FII Investments
US$B
WoW - Nifty Change (+2.3%)
WWW – WIN Weekend Wisdom
Four most dangerous words in investing: “Its different
this time”.
WIN – Week In a Nutshell
1
3 Feb
2012

WEEK IN A NUTSHELL
WEEK IN A NUTSHELL
[W]INside this week’s edition
WIN-teresting data points .................................................................................................................. 5
WIN-ning charts & chats ..................................................................................................................... 6
Where are valuations now ........................................................................................................................................ 6
Results and Earnings Concall Next Week ............................................................................................. 8
Results expected this week ....................................................................................................................................... 8
Concall Details ........................................................................................................................................................... 8
EPS Change Estimates ............................................................................................................................................... 9
WIN-conomics .................................................................................................................................. 10
INDIA ECONOMICS: Liquidity turns stressful once again despite CRR cut; RBI announces further OMOs ............10
INDIA ECONOMICS: Revision in FY11 GDP data pushes back NTD by a year; raises twin deficit ...........................10
WIN-sights from management interaction ........................................................................................ 11
Bank of India - N Seshadri, Executive Director........................................................................................................11
Corporation Bank - Ajai Kumar, Chairman and Managing Director ........................................................................11
Dabur - Sunil Duggal, chief executive officer ..........................................................................................................11
Havells India Ltd - Anil Gupta, Jt MD.......................................................................................................................11
HDFC - Keki Mistry, Vice Chairman and Chief Executive.........................................................................................12
Hexaware Technologies - PR Chandrasekhar, CEO .................................................................................................12
Indian Bank - T M Bhasin, Chairman and Managing Director .................................................................................12
Kotak Mahindra Bank
-
Uday Kotak, Executive Vice Chairman & MD ....................................................................12
Manappuram Finance & Leasing - VP Nandakumar, chairman and managing director.........................................13
Maruti Suzuki - Mayank Pareek, Managing executive officer - marketing and sales .............................................13
M&M - Arun Malhotra, Senior Vice President-Sales & Customer Care- automotive division................................13
McLeod Russel - Aditya Khaitan, Managing director ..............................................................................................13
Petronet LNG - Dr A Balyan, Chief Executive Officer and Managing Director ........................................................13
Shoppers Stop - Govind Shrikhande, managing director ........................................................................................14
Subramanium Swamy - Prime petitioner in the 2G scam .......................................................................................14
Tata Power - Anil Sardana, Managing Director .......................................................................................................14
TRAI - JS Sarma, Chairman ......................................................................................................................................14
WIN Sector Updates ......................................................................................................................... 15
CAPITAL GOODS: Notes from ELECRAMA 2012 ......................................................................................................15
INDIAN BANKING: Industry contributes ~63% of incremental loan growth YTD....................................................15
METALS WEEKLY: Global crude steel capacity utilization lowest in two years......................................................15
Oil & Gas: Indian OMCs - Buy at current attractive valuations; Preference order - BPCL, HPCL and IOC ..............16
WIN – Week In a Nutshell
2
3 Feb
2012

WEEK IN A NUTSHELL
WEEK IN A NUTSHELL
STEEL: Peter Marcus shared his negative view on global outlook ..........................................................................16
WIN Corporate Corner ...................................................................................................................... 17
ANDHRA BANK 3QFY12: Healthy business growth; GNPA down 5% QoQ; BUY .....................................................17
ALLAHABAD BANK 3QFY12: Stable margins QoQ; Fee income traction continues; Lower tax rates .....................17
BAJAJ AUTO: Jan-12 volumes below est at 337,875; Motorcycles disappoints, 3-wheelers in-line.......................17
BANK OF INDIA 3QFY12: In-line with est.; NIM up 11bp QoQ; Restructuring of INR30b in 3QFY12 .....................18
BHARTI AIRTEL: Adverse Nigeria court verdict unlikely to have meaningful impact ..............................................18
BHEL 3QFY12: Operating performance ahead of estimates; Order-book drops 9% QoQ ......................................18
BIRLA CORP 3QFY12: Lower realizations, Fx loss impacts EBITDA; Downgrade estimates ....................................19
CANARA BANK 3QFY12: Below est; Business growth muted; Asset quality stable QoQ ........................................19
CORPORATION BANK 3QFY12: Margin improve 23bp QoQ; Slippages ratio at 2.1%; Neutral...............................19
CROMPTON GREAVES 3QFY12: Below est.; Overseas business in red again; India business margins hit ..............19
Crompton Greaves Analyst meet highlights: Margin outlook still uncertain, orders build up ...............................20
DABUR 3QFY12: In line; Domestic volumes up 8%; Higher other income, Lower tax rate boosts PAT .................20
DIVI'S LABS 3QFY12: EBITDA in-line; Maintains 25% topline growth guidance for FY13 .......................................21
GLENMARK 3QFY12: EBITDA in-line; Margins impacted by cost pressures ...........................................................21
HAVELLS 3QFY12: Above est; Higher domestic sales and sharp improvement in Sylvania’s margins ...................21
HERO MOTOCORP: Below estimate at 520,272 (+11.5% YoY, -3.7% MoM, v/s est 540,000); Buy ........................22
ICICI BANK 3QFY12: Operating perf in-line; Dividend income from Insurance business boosts PAT .....................22
INDIAN BANK 3QFY12: Above est.; Lower opex and Tax rate drives profitability; Buy ..........................................22
IOB 3QFY12: Margins down 25bp QoQ; Asset quality stable QoQ; Restructured loan higher ...............................23
IOC: SC directs IOC to deposit 50% of UP entry tax liability; impact of INR36/sh on fair value .............................23
IPCA 3QFY12: Performance above est led by international formulations, favourable currency ...........................24
J&K BANK 3QFY12: Business growth strong; Reported margins down 6bp QoQ ; Asset Quality healthy ..............24
JUBILANT FOODWORKS: Starbucks enters India in JV with Tatas; Aggressive entry strategy ................................25
LIC HOUSING 3QFY12: Margins surprise negatively; Prov. write back boosts bottom-line; Buy ...........................25
MAHINDRA LIFESPACES 3QFY12: Above est; Improved visibility of project launch ...............................................26
MARUTI SUZUKI: Above est at 115,433 units (5% YoY, 25% MoM); New Dzire launched .....................................26
M&M: In-line at 64,071, +12% YoY; UVs surprise, tractors disappoint; Ssangyong volume slipping .....................26
NHPC 3QFY12 Results: Adjusted PAT in-line ...........................................................................................................26
NTPC 3QFY12: Adjusted PAT well below estimate led by lower incentives; Cutting FY12/FY13 EPS.....................27
OBC 3QFY12: NIM improves 26bp QoQ; Net slippages decline sharply QoQ; Buy................................................27
PETRONET LNG 3QFY12: Above est; Dahej utilization at 115%; Expansion projects on track ...............................28
PNB 3QFY12: Below est.; Healthy core operating performance; Asset Quality deteriorates QoQ ........................28
PRESTIGE ESTATES 3QFY12: strong sales yet to reflect in revenue; net debt up ...................................................29
PTC INDIA 3QFY12: Below est; Operating performance muted; Cutting est, target price .....................................29
WIN – Week In a Nutshell
3
3 Feb
2012

WEEK IN A NUTSHELL
WEEK IN A NUTSHELL
SBI : Gets nod for capital infusion of INR79b from GoI; Tier-I CAR to improve by ~80bp; BUY .............................29
SIEMENS 1QFY12: Profitability under pressure; 23-17% cut in FY12/13 EPS estimates; Neutral ..........................30
TATA MOTORS: Above est at 87,467 units (+16% YoY, +6% MoM), driven by highest ever PV volumes ..............30
TITAN INDS: Below est; Jewelry volumes down 5%; New formats lower watch margins 590bp ...........................30
UNIPHOS 3QFY12: Below est; Higher staff cost impacts margins; Higher tax impacts PAT ...................................30
WIN Collage...................................................................................................................................... 32
Facebook may be a good bet for investors now; but regulatory problems lie ahead ............................................32
Nifty Valuations at a glance .............................................................................................................. 34
WIN – Week In a Nutshell
4
3 Feb
2012

WEEK IN A NUTSHELL
WEEK IN A NUTSHELL
WIN-teresting data points
Global
Indices
Sensex
Nikkei
Last
week
16863
8793
Current
week
17432
8877
WoW
change (%)
3.37
0.95
P/E
Valuations
15.98
19.02
Inflows
FII (Rs B)
DII (Rs B)
MTD
150
-70
Last
week
110.47
1730
34
8413
2245
37398
YTD
(Calendar)
150
-70
WoW
change
(%)
1.36
1.70
2.40
-1.08
-3.84
1.2
Hang Seng
Dow Jones
FTSE 100
Sectoral
Indices
Bank Nifty
CNX IT
BSE Oil
Bond yields-
India
1 Year
10 Year
20160
12660
5671
20739
12705
5796
2.87
0.35
2.20
9.41
13.10
10.56
Commodities
Oil(US$/Bbl)
Precious Metals
Gold ($/OZ)
Silver ($/OZ)
This week
111.97
1759
34
8322
2159
37851
9537
6104
8356
Last
Friday
8.12
8.28
9992
6281
8592
This
week
8.08
8.13
4.77
2.90
3
WoW
change (%)
-0.49
-1.86
13.65
18.88
11.54
Spread Vs US
10 yrs
7.95
#N/A
Metals
Copper(US$/MT)
Aluminum(US$/MT)
Steel HRC(Rs/T)
Currency
Rs Vs Dollar
Euro Vs Dollar
49.80
1.31
49.16
1.31
-1.29
0.00
Top Gainers
Company Name
Aban
Mahindra Life
Hexaware
Jubilant
Sintex
Shoppers
BSE 500 – Key Movers
Top Losers
% Change Company Name
26.4%
Network 18
22.5%
Adani Power
21.3%
BHEL
20.1%
Phoenix
18.4%
17.7%
GMDC
BOB
% Change
8.3%
7.5%
6.9%
6.0%
5.8%
5.4%
WIN – Week In a Nutshell
5
3 Feb
2012

WEEK IN A NUTSHELL
WEEK IN A NUTSHELL
WIN-ning charts & chats
Where are valuations now
PE (x) - Top 10 Highest Premium
(Prices as of 31 jan)
Current
LTM
LTA
Bajaj Auto
Sun Pharma
Hind Unilever
ACC
Ambuja Cement
Grasim Inds
ITC
Maruti Suzuki
TCS
Sesa Goa
13.1
24.8
28.5
15.4
15.5
7.5
22.7
18.1
18.3
6.1
11.1
22.0
24.2
14.8
14.1
7.2
20.9
16.6
17.6
6.2
10.2
20.4
24.3
13.6
13.9
6.9
21.0
16.8
17.1
6.0
Max
15.3
26.9
31.0
19.6
19.5
11.0
25.3
27.1
25.5
9.6
Min
3.1
11.9
18.7
4.8
6.7
2.4
15.7
6.6
6.9
2.5
LTM
18
13
18
4
10
4
9
9
4
-2
Prem / Disc (%)
LTA
Max
28
-14
22
-8
17
-8
14
-21
12
-20
9
-32
8
-10
8
-33
7
-28
2
-37
Min
317
109
52
224
131
215
45
174
165
141
PE (x) - Top 10 Highest Discount
Current
Reliance Infra
Cairn India
BHEL
Sterlite Inds
L&T
Jaiprakash
Associates
Reliance Inds
IDFC
Axis Bank
Siemens
7.1
7.9
9.7
6.6
15.9
21.1
10.9
12.4
9.9
22.7
LTM
19.7
9.2
20.6
9.9
23.1
31.5
15.1
16.7
13.4
30.5
LTA
22.3
19.4
20.9
10.0
23.4
30.7
15.6
17.5
13.9
31.7
Max
64.0
64.3
40.9
19.1
45.8
71.7
25.2
39.6
23.6
68.2
Min
4.5
6.4
9.3
3.7
10.1
8.9
9.2
6.6
5.7
11.2
LTM
-64
-15
-53
-34
-31
-33
-28
-26
-27
-25
Prem / Disc (%)
LTA
Max
-68
-89
-59
-88
-53
-76
-34
-65
-32
-65
-31
-30
-29
-29
-28
-70
-57
-69
-58
-67
Min
56
23
5
78
58
138
17
87
73
102
WIN – Week In a Nutshell
6
3 Feb
2012

WEEK IN A NUTSHELL
WEEK IN A NUTSHELL
PB (x) - Top 10 Highest Premium
Current
Dr Reddy's Lab
Ranbaxy Labs
ITC
Sun Pharma
Bajaj Auto
ICICI Bank
Ambuja Cement
Hero Honda
HDFC Bank
BPCL
4.9
5.8
7.3
4.5
5.7
2.1
2.7
7.3
3.4
1.2
LTM
3.0
4.4
5.8
3.7
5.7
2.0
2.5
7.6
3.4
1.2
LTA
3.5
4.7
6.0
3.7
5.2
2.0
2.6
7.2
3.4
1.2
Max
6.0
9.6
8.1
4.7
7.6
2.9
4.4
12.7
5.0
1.7
Min
1.5
1.5
4.1
2.7
1.8
0.7
1.2
3.5
1.9
0.6
Prem / Disc (%)
LTM
LTA Max
60
38
-19
34
25
-39
26
21
-10
21
21
-4
0
9
-25
5
7
-27
11
4
-38
-4
2
-42
0
2
-31
0
0
-33
Min
215
298
79
67
208
197
117
110
79
89
PB (x) - Top 10 Highest Discount
Current
Reliance Comm
BHEL
Reliance Infra
Tata Steel
DLF
Sesa Goa
SAIL
Sterlite Inds
Jaiprakash Associates
L&T
0.5
2.2
0.7
1.5
1.3
1.0
1.0
0.8
1.4
2.9
LTM
1.0
5.5
1.5
2.7
2.0
2.0
2.0
1.3
2.4
4.7
LTA
1.7
5.6
1.6
3.1
2.8
2.0
2.0
1.3
2.5
5.0
Max
4.7
10.7
4.4
7.1
8.8
3.7
4.3
2.5
5.4
11.1
Min
0.4
2.1
0.4
1.1
0.9
0.8
0.8
0.6
0.8
2.1
LTM
-48
-60
-53
-46
-34
-50
-49
-41
-40
-38
Prem / Disc (%)
LTA
Max Min
-68
-89
41
-61
-80
4
-56
-84
56
-53
-80
33
-52
-85
48
-50
-72
32
-49
-76
25
-43
-70
34
-42
-74
74
-41
-73
43
WIN – Week In a Nutshell
7
3 Feb
2012

WEEK IN A NUTSHELL
WEEK IN A NUTSHELL
Results and Earnings Concall Next Week
Results expected this week
Company
ADANIPORTS
ADANIPOWER
HINDUNILVR
GMRINFRA
M&M
BHARATFORG
POWERGRID
ACC
ADANIENT
AMBUJACEM
CUMMINSIND
HINDALCO
HINDPETRO
TATASTEEL
BPCL
JSWSTEEL
SRTRANSFIN
TATACHEM
Date
6-Feb-12
6-Feb-12
6-Feb-12
7-Feb-12
7-Feb-12
8-Feb-12
8-Feb-12
9-Feb-12
9-Feb-12
9-Feb-12
9-Feb-12
9-Feb-12
9-Feb-12
9-Feb-12
10-Feb-12
10-Feb-12
10-Feb-12
10-Feb-12
Company
TATAPOWER
SUZLON
BGRENERGY
DENABANK
India Cem
Nationalum
NCC
Cadila health care
OPTOCIRCUI
JSWISPAT
Jubilant foodworks
TECHM
TULIP
Dishman Pharma
Gammon india
MRF
PANTALOONR
SUNTV
Date
10-Feb-12
11-Feb-12
6-Feb-12
6-Feb-12
6-Feb-12
6-Feb-12
6-Feb-12
7-Feb-12
7-Feb-12
8-Feb-12
8-Feb-12
8-Feb-12
8-Feb-12
9-Feb-12
9-Feb-12
9-Feb-12
10-Feb-12
10-Feb-12
Concall Details
Date
Company Name
Analyst Meet
/ Con Call
Venue/Dial In No.
Time IST
6-Feb-12
6-Feb-12
6-Feb-12
6-Feb-12
6-Feb-12
7-Feb-12
7-Feb-12
7-Feb-12
7-Feb-12
8-Feb-12
8-Feb-12
8-Feb-12
9-Feb-12
9-Feb-12
9-Feb-12
10-Feb-12
13-Feb-12
GODREJ INDUSTRIES
Dena Bank
Bajaj Electricals
Jubilant Life Sciences Limited
NCC
DCM Shriram
Zydus Cadila
HUL
Mahindra & Mahindra Ltd
Bharti Airtel Ltd.
Tech Mahindra
Novelis
Jubilant FoodWorks
VIP Industries
Dishman Pharmaceuticals
Shasun Pharmaceuticals
Tata Chemicals Limited
Concall
AM
Concall
Concall
Concall
Concall
Concall
Concall
Concall
Concall
Concall
Concall
Concall
Concall
Concall
Analyst Meet
Concall
+91 22 6629 0301 / 3065 0122
Lotus Room, Hotel Trident, Nariman
Point, Mumbai
+91 22 6629 0302 / 3065 0102
+91 22 6629 0301 / 3065 0122
+91 22 6629 0307 / 3065 0107
+91 22 6629 0301 / 3065 0122
+91 22 6629 5833 / 3065 0194
+91 22 44449999
+91 22 6629 0282 / 3065 2496
+91 22 4444 2200
+91 22 6629 0043 / 3065 0043
0008001007106 - Toll free no
+91 22 6629 0301 / 3065 0122
+91 22 6629 0302 / 3065 0102
+91 22 6629 0052 / 3065 0044
The Lotus’ Trident, Nariman Point
+91 22 6629 0311 / 3065 0111
3.00 pm
4.00 pm
4.00 pm
4.00 pm
4.30 pm
12.00 noon
3.00 pm
4.30 pm
7.30 pm
2.30 pm
6.30 pm
7.30 pm
4.00 pm
4.00 pm
5.00 pm
4.00 pm
11.00 am
WIN – Week In a Nutshell
8
3 Feb
2012

WEEK IN A NUTSHELL
WEEK IN A NUTSHELL
EPS Change Estimates
EPS PREVIEW
(Rs)
EPS REVIEW
(Rs)
%
Change
EPS PREVIEW
(Rs)
EPS
REVIEW
(Rs)
%
Change
Company Name
IPCA Labs.
LIC Housing Fin
Indian Bank
Petronet LNG
ICICI Bank
Siemens
OBC
United Phosphorous
BHEL
Havells India
Bank of India
PNB
Dabur
Divis Labs
Mahindra Lifespace
Titan Industries
Shopper's Stop
Jagran Prakashan
Canara Bank
NTPC
Crompton Greaves
Glenmark Pharma
PTC India
NHPC
Birla Corporation
FY12E
21.5
17.9
40.4
13.8
53.0
25.1
40.9
13.6
25.5
28.9
45.6
158.0
3.7
35.7
31.0
6.8
8.8
6.6
79.7
10.7
8.0
11.7
7.6
1.9
43.0
FY12E
26.3
20.9
44.5
14.7
55.1
25.7
41.8
13.8
25.5
28.9
45.1
155.3
3.6
34.9
30.1
6.6
8.1
6.0
72.6
9.6
7.1
10.0
6.3
1.6
34.1
FY12E
22.5
17.1
10.0
6.3
4.0
2.6
2.2
1.8
0.0
-0.2
-1.2
-1.7
-2.0
-2.3
-3.1
-3.2
-7.6
-8.3
-8.9
-10.8
-11.4
-14.4
-17.8
-18.0
-20.8
FY13E
27.7
26.8
46.6
13.5
60.8
29.7
49.4
21.4
25.8
35.8
58.2
183.7
4.4
45.4
45.9
8.2
10.3
8.4
89.3
12.0
11.2
20.6
8.9
2.0
48.3
FY13E
31.6
27.5
48.4
14.2
62.3
22.9
49.6
19.7
25.8
35.8
58.5
180.8
4.4
44.1
35.5
8.1
10.1
7.2
88.9
11.0
10.6
20.6
7.6
2.1
41.0
FY13E
14.3
2.6
3.9
5.2
2.5
-23.1
0.4
-8.0
0.1
0.1
0.6
-1.6
-1.3
-2.9
-22.8
-1.0
-1.9
-13.3
-0.4
-8.7
-5.6
-0.1
-15.0
1.9
-15.1
WIN – Week In a Nutshell
9
3 Feb
2012

WEEK IN A NUTSHELL
WEEK IN A NUTSHELL
WIN-conomics
INDIA ECONOMICS: Liquidity turns stressful once again despite CRR cut; RBI announces further OMOs
Call money rates above repo rates:
Call money market rates have flared up once again above 9% on January
30, 2012 and remained above repo rate in January 31, 2012 despite a 50bp cut in CRR by RBI
In upper corridor since Nov-11:
The call money rates have decisively shifted in the upper part of the LAF
corridor since Nov-11. This contrasts with the call money rates varying hovering in the lower end of the
corridor (i.e., between 7.5% reverse repo rate and 8.5% repo rate) during the current year upto Oct-11.
MSF window availed:
Some banks availed of the MSF window on January 30, 2012 again of INR50b. This is
the fourth time in a month that MSF window is availed for amount varying between INR2-50b.
Net repo balance closer to historical high:
As further signs of liquidity stress, repo balance (net of reverse
repo amount) is again hovering ~INR1.5t, closer to their highest ever level of INR 1.7t.
Call money rates still in the upper corridor
INDIA ECONOMICS: Revision in FY11 GDP data pushes back NTD by a year; raises twin deficit
The government has lowered the FY11 GDP growth estimate to 8.4% (from 8.6% estimated earlier) while FY10
GDP growth was revised upwards to 8.4% (from 8.0% estimated earlier). This contrasts with the opposite bias
injected by the revised IIP series, whereby FY10 industrial growth was nearly halved.
Oddly enough, the change in nominal GDP figures followed an altogether different pattern despite no
significant changes in the old and the new WPI series. The sumtotal of these changes has led to India reaching
the next trillion dollar (NTD) mark reaching one year later in FY13 in place of FY12 envisaged earlier.
Along with the revision in FY11 GDP data, saving and investment ratios for the year too was released that
showed a decline of 1.5% of GDP which takes it close to the crisis year of FY09 and pre-boom years of FY05.
The decline in investment ratio is however, concentrated on slowdown in machinery & equipment investment
that appears largely a function of challenging business environment that is unlikely to resolve anytime soon.
Saving investment ratios in FY11 at crisis and pre-boom levels
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WIN-sights from management interaction
Bank of India - N Seshadri, Executive Director
One large exposure related to aviation which slipped this quarter. GTL was a big name being restructured
Gross basis we had almost about Rs 900 crores of recovery
Air India is not part of it because ultimately it is a standard asset that is getting repaid as per terms
State electricity boards we are discussing on case to case basis. I do concede that SEB loans need to have a
conversion of term loan into long term and some amount of restructuring would be required. Provision
increase by 1.6%, other than that I don't see any impact to the P&L as far as State Electricity Board is
concerned.
Small value accounts 75-80% of them have respond to recovery by way of upgradation or cash recovery.
We would give a guidance of about 3% as far as domestic NIM is concerned. Overall on global basis we have
indicated about 2.75%
Q4 would see lesser provision than what we had seen in Q3.
NPL's from about 2.78% at the gross level it must come down to about 2.5% and on a net basis from 1.78% I
expect it to come to 1.55-1.6%
Corporation Bank - Ajai Kumar, Chairman and Managing Director
NIM improved to 2.66% as against 2.5% but CASA continues to be under pressure. Aiming at NIM level of 3%,
but if not that then at least 2.9%.
Corp Banks exposure to the companies whose license have got canceled - fund based and non-fund based is
below Rs 200 crore.
NPAs have actually not gone up very high in general. It is only because of an account - Kingfisher which has
been treated as an NPA - increase in NPA
Fresh slippage in the Q3 of Rs 374 crore. Previous quarter was Rs 540 crore. Total restructured accounts are
Rs 4,539 crore
Dabur - Sunil Duggal, chief executive officer
Inflation, atleast in the Q3, continues to be pretty adverse, also depreciation of the rupee- put further
pressure on margins
The 21% growth, net of the acquired businesses, is driven by 11% volume and 10% by price. Going forward,
the pricing component will go down whereas the volume growth 10% should continue at the current pace
The high growth drivers in this quarter have been the healthcare piece, the supplements, the digestives. The
food business continues to fire very consistently and there have been pockets of growth in HPC, particularly in
hair care, shampoos
Sum total around 25% growth in international business is something which we believe we can deliver
Havells India Ltd - Anil Gupta, Jt MD
We are experiencing a far higher growth (26% in revenues )than the industry growth. Some of this has come
from new products like appliances but that is only about 15 crore or so. 24% from growth (excluding
appliances)and profitability. We have improved margins in all product categories.
Despite the tough macroeconomic conditions we will be able to maintain a growth of 15% to 20%.
We will turnaround the year for Sylvania. We have seen flattish growth in terms of revenues in this quarter.
We have seen tremendous improvement in profitability, achieved 2 million euros PBT in this quarter. This is
despite a notional loss in pensions of almost close to about 4 million
Going forward, this year we will not be experiencing any growth in Europe but there will be severe
turnaround in the profitability.
The international operations will contribute 37 million euros of EBITDA and in the coming year we are
expecting it to go up between 45 and 50. We are expecting a 20% or 25% growth in profitability in the coming
year itself.
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Switchgears shows a 15% growth in revenues. It is still a much better growth over the industry and lighting
also has grown in this quarter by almost 25%.
HDFC - Keki Mistry, Vice Chairman and Chief Executive
Carlyle sold 2 crore shares out of the 7 crore shares that they own. They are private equity investors, their
money has to be returned back to investors after some period. They had invested in HDFC in 2007, so I guess
that they taken some profit.
I understand that they have an internal rule or an internal policy that if they sold shares of a company they
would not deal in those shares for a certain period of time –Think it is three or four months
Hexaware Technologies - PR Chandrasekhar, CEO
Margins have now reached 23%. We believe that we can sustain and even improve margins over current
levels.
Volume growth actually has been about 7.4% versus the growth in terms of dollars of about 6.7%
Guidance of 20% is a very healthy growth and a realistic one for us. As things improve and we see more
visibility maybe we can do better
Our top 10 clients represent about 52% of our revenues. They have delivered us good growth over the last
few quarters. We have also invested a lot in account management which means that the next set of 20 clients
have grown and will hopefully continue to do that in 2012 as well.
In terms of the geographies, in 2010, we could say North America led growth, in 2011, both the Asia-Pacific
and Europe joined in.
The environment is certainly getting tougher. Still our onsite billing rate is about 73% and our offshore
remains reasonably healthy at 23%
Indian Bank - T M Bhasin, Chairman and Managing Director
Cash recovery in this quarter at about Rs 366 crore. The year as a whole, expect the total recovery will be Rs
500 crore
As far as NIM is concerned it's about 3.54% and going down the line for the four quarters it will be around
3.50%.
My restructured book for 2008-09 till date is about Rs 7,859 crore, out of which we have recovered and
closed accounts amounting to Rs 2,286 crore. So outstanding as on 31 December, 2011 is Rs 5,573 crore,
which is 6.33%. Out of this, NPA level is around Rs 340 crore, which is 6.10% of the restructured book.
Current quarter, we have restructured about Rs 800 crore and provision has gone up slightly by about Rs 60
crore on these Rs 800 crore accounts.
Fresh slippages are around Rs 259 crore
our exposure to SEBs are around Rs 4,000 crore, and all the accounts are to the profit making companies
The loan growth will be around 19% for the year as a whole
Kotak Mahindra Bank
-
Uday Kotak, Executive Vice Chairman & MD
The risk in this budget is that we will probably increase revenues through higher taxation but if we do not do
the right things on expenditure it will lead to a lot of wastage. So, we need to correct both sides of the P&L.
A lot of banks to do what is known as a carry trade, 1% money- 6% Italian bonds. The second place money
runs the risk of going is commodities. That may not be good for India if it goes into oil or gold. Third, it will go
into emerging economies with stronger fiscal and stronger current account and thereafter, if at all, it will go
into countries with weaker fiscal and weaker current account
Clear at Davos that the Indian swagger was missing
India, if it has to become a top-down story, requires the benefit of strong policy but India will always continue
to be a good bottom up story
I would be very surprised if we did more than 13% or 15% Sensex earnings year on year.
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Manappuram Finance & Leasing - VP Nandakumar, chairman and managing director
Compared to Q3 last year - asset under management has grown by 90% from 6,500 to 12,358 crore, so that's
an increase of 90%. Our disbursal has grown by 86% from 5,575 crore to 10,371 crore.
Our cost of fund is around 12.5% and our gross yield is around 25%, so we have spread of more than 12%.
Expect to maintain margins at 12%
Q4- We will grow by another Rs 1,000 crore.
Maruti Suzuki - Mayank Pareek, Managing executive officer - marketing and sales
Grown about 5.2% year on year and around 18% month on month this month. Primarily this growth has come
on account of increased supply of diesel vehicles. January, while diesel increased by 34%, petrol actually
declined by 6%
Production is back to normal so this month we have done almost 115-116,000
In FY13 we can expect 15% plus kind of growth
Pricing - did one tweaking in January. We increased prices by around 1% to 3.5%. Right now we don't have
any plan to do it again. Inventory is under control.
M&M - Arun Malhotra, Senior Vice President-Sales & Customer Care- automotive division
First 10 months of the financial year, we have grown by 28%. In January, we have grow by 22%. So coming on
high base figure, this 22% growth and since it is all time high for us for our sector at 44,717 units
XUV 500 we are trying to ramp up production because our capacity is only 2,500 unit. We are trying to
increase the capacity to 3,000 units in a short period
We had raised our prices around 8th January. So we cannot plan for a price increase now
Growth story beyond the top cities is still growing very strong
Bolero which is our large volume product, we still have waiting for four-six weeks. Scorpio is also going strong.
So I certainly believe that if you can penetrate new markets, reach out new segments, have more financing
available with more finance partners, there is still an opportunity to grow
McLeod Russel - Aditya Khaitan, Managing director
Basically we have a seasonal business from April to December and good part this year was that we got our
surge in crop during the quality months of May, June and July. We were actually ahead by around 8 million up
to October but we ended up losing crop in November and December
Less crop being made in November and December (also of lower quality), the stock position and the inventory
position during the cold months of December-March gets depleted and therefore our opening levels in the
month of April again looks to be very strong into the new season.
We have shut shop for the year and we are opening in the month or maybe March if the rains come in on
time. We have ended up with around 6.5 million ahead over last year in crop and our total crop up to
December would be around 80 million compared to 72 million of last year. We are looking at around Rs 6 in
pricing higher than last year
Petronet LNG - Dr A Balyan, Chief Executive Officer and Managing Director
The Dahej terminal has done for this quarter the best result so far. We have been able to operate over 11.4-
11.5 million tonne. Compared to the last quarter, we have done about 10 trillion BTU more, that means about
7% more. The capacity utilization is also up by 7%.
Long-term gas output we have done 32 mmbtu compared to 27 mmbtu last Q, and we have done 45 mmbtu
We have operated at almost 110% plus capacity now and with the kind of actions taken at the plant level
operations, the operation efficiency has been very good.
Jetty construction is coming up quickly; the expansion plans are also getting implemented. So we feel that if
we operate at this level, we can ramp it up by 2013 to perhaps a higher level.
As you see our long-term supply remains at 7.5 million tonne and we have operated at more than 11 million
tonne. That means the other volume, the spot short-term is growing
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We feel that regasified LNG is an imported gas where pricing is not controlled or facilitated by the
government. So I don't think there is any issue on the margin for the imported gas.
Shoppers Stop - Govind Shrikhande, managing director
We have had the highest number of store openings in this quarter - 11 till date in this financial year.
Like to like store model that we have is shaping up very well. The stress test of the slower economy rate, we
are able to see. But at the same time, like to like stores profitability is intact and will maintain.
Opex growth of about 300 basis points because of the new stores is impacting it
In the department store, we have seen a 9% volume drop fundamentally coming from apparel price increases
In Hyper City - seeing 18% volume growth in that business which is very good. In fact the prices there have
dropped by about 6%. So, like to like growth in the hyper business has been pretty good at 12% inspite of the
slowdown in the economy. Seen a 70 basis point margin growth in the hyper business.
Subramanium Swamy - Prime petitioner in the 2G scam
Companies which are serious about wanting to continue in the telecom business can pay the market price and
get their licenses to be continued
Doesn't matter whether they have been charged or not. All of them have to pay, not Rs 1650 crore as they
paid but they will have to pay about 10 times that
If they had taken the spectrum cheap and then given the services I can understand. Every one of them sold it
to some foreign company; even Tata sold it to Docomo, so all the government is doing is that we are not
going to let this people earn illegal rent.
There should be a permanent policy that henceforth either market-discovered price or auction. On all scarce
resources there is no question of first come first serve or any other discretionary decision making.
Tata Power - Anil Sardana, Managing Director
We have been saying that it's the SEBs which is the bulk purchaser of power and it's their health which is very
important for all the projects to remain viable. But this kind of a situation where SEBs themselves are in
tremendous loss will create a deep challenge for people to recover their dues.
We had tied up with Bumi as soon as we won the Mundra project. All was going well until Sep 2011 when the
Indonesian government changed the law.
We have now switched to low grade coal (Mundra) so that it comes at non-linear discounts
Maithon went off pretty well. We commissioned the first unit on time barring the transmission delays that
delayed it by few weeks otherwise the project is doing very well.
This year we plan to do more than 75 million tonne (KPC mines) which is of large quantity.
Coal India pricing change impact anything from 22% to about 45% or so.
TRAI - JS Sarma, Chairman
Supreme Court has given us four months time in which TRAI and government have to take necessary action.
From our point of view we will be able to come out with necessary recommendations or whatever is required
of us by the Supreme Court
The market mechanism is always the best. I believe that the sector has evolved to an extent where now
auctions could be the method of allocation of spectrum. I don't think in any auction you can foresee what the
value of the auction would be.
Disruption of service to customers - the Supreme Court itself has given four months time. During this time I
am sure people can easily port out. There is already the MNP facility available to all customers.
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WIN Sector Updates
CAPITAL GOODS: Notes from ELECRAMA 2012
Union Power Minister, Mr S K Shinde expressed concerns on levying import duty on power equipment at this
point, though supported the idea of providing level playing field to domestic players.
Mr S Sundareshan, Secretary, Department of Heavy Industries, confirmed that the government will provide
level playing field to Indian power equipment manufacturers. He stated that decision will be taken soon.
Mr B P Rao, CMD, BHEL, raised serious concerns on the disadvantages of domestic manufacturers vis-à-vis
Chinese imports. He also stated that import duty is under active consideration, and that action will be taken
sooner than later.
Most companies expressed concerns about near-term demand slowdown, largely due to project deferrals.
However, most believe that slowdown is temporary, and the industry should see improved demand
conditions in next 6-12 months.
Pricing pressure in T&D space, remains a major cause of concern. Overcapacity and intensifying competition
have significantly impacted price realizations and hence margins. Most companies do not see pricing
environment worsening further.
Our view: Volumes to accelerate but pricing environment to remain tough; Neutral on T&D equipment
manufacturers
INDIAN BANKING: Industry contributes ~63% of incremental loan growth YTD
Non-food credit growth continues to decline to 15.4% YoY as compared to 16.8% in Nov-11 and 27.2% YoY
On a YoY basis, Industrial loan growth (20%) continues to outpace retail loan growth (~12%) and Agriculture
growth (muted at ~6%). Services grew largely in-line with overall loan growth. Industrial loan growth
excluding infrastructure stood at 19%.
YTD (Dec over March) loan growth stood at 10.3% v/s 15.3% in the corresponding year ago period. Agriculture
loan growth continues to lag overall loan growth and its share has come down to 11.4% . On a YTD basis, Agri
loans grew only 0.1% led by seasonal phenomena and banks being cautious in lending to agriculture segment.
In industrial loans (up ~20% YoY), strong contribution was witnessed from Mining (+40% YoY on a lower base),
Metals (+24% YoY), Gems and Jewelry (+30% YoY) and Infrastructure (+21% YoY – power +24% YoY, roads and
ports +28%, and telecom -3.8% YoY, also down 9.5% YTD).
Services segment grew 14.9% YoY largely driven by NBFCs (+36% YoY, an area of concern). On a YTD basis,
services grew ~9% driven by NBFCs (~20%), Real estate (+5.5%), Tourism (+14%) and Trade segment (+12%).
Overall personal loan growth moderated further to 12.3% YoY. However personal loans grew ~8% YTD.
Housing loan growth moderated to 12% v/s 13.8% a month ago; YTD growth remained healthy at ~9%. Some
of the other retail products like advances to individuals against collateral and vehicle loans have also grown
sharply by 40% YTD and ~14% YTD, respectively, led by higher focus of private sector banks on this segment.
METALS WEEKLY: Global crude steel capacity utilization lowest in two years
HRC prices increased in Europe, Turkey, Middle East while being flat in North America and Russia. Indian long
product prices declined (down 0.3% WoW) while flat product prices increased (up 0.5% WoW). Appreciating
INR against USD will put pressure on Indian steel prices.
3m LME Aluminum, Copper and lead prices increased 2% WoW each while 3m LME Zinc prices increased 7%
After Alcoa and Rio Tinto Alcan, Rusal spoke of cutting 6% output over 18 months due to shrinking margins.
Smelter closures have lifted European duty paid premiums by USD10 to USD180-190 per ton.
Global crude steel production for CY11 increased 6.8% YoY to 1,527 MT. The growth rate moderated sharply
towards the end of year by growing only 0.8% YoY (up 1.7% MoM) to 117.1m tons in the month of December.
Europe had a significant decline in Dec
Global crude steel capacity utilization ratio in Dec-11 declined to 71.7% compared to 73.3% in Nov- 11, its
lowest point for two years.
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Oil & Gas: Indian OMCs - Buy at current attractive valuations; Preference order - BPCL, HPCL and IOC
OMCs (HPCL, BPCL and IOC) have corrected 25%/15%/11% in the last six months and have underperformed
the broader indices, led by their worst ever financial performance (highest quarterly losses in 1HFY12).
The poor quarterly financial performance is transitory, in our view, and the government/ upstream will
eventually compensate the OMCs, ensuring no erosion of book value.
Nevertheless, the stocks are trading at significant discount to their 10-year historical averages (HPCL: 35%,
BPCL: 8% and IOC: 21%).
HPCL and IOC are trading at their lowest P/B (except 2008 crisis) in the last seven years.
We expect OMCs’ dependence on subsidy to reduce to some extent with the emergence of non-subsidy-
linked earnings avenues and result in lower earnings volatility in the longer term.
Valuation and View:
Buy OMCs; preference order BPCL, HPCL, IOC.
We believe that this is a good buying opportunity given: a) Brent is at ~USD110/bbl with a downward bias led
by demand concerns; b) likely moderation in the interest rates; and c) reducing headline inflation which
would make government proactive in price hikes (obviously after state elections!).
We value OMCs on average of P/B, EV/EBITDA and P/E methodologies. Our target price for BPCL at
INR683/share implies 21% upside, HPCL at INR348/share implies 23% upside, and for IOC at INR332/share
implies 18% upside. Maintain Buy.
STEEL: Peter Marcus shared his negative view on global outlook
Global steel demand/production is likely to decline 2% in CY2012 against 6.5% growth forecast of World Steel
Association (WSA) due to slowing fixed asset investment (FAI). Demand growth in EMs will disappoint.
HRC prices have rallied USD20-30 to USD640/t on fob at port of export and can move further to USD680-
690/t range over next 2-3 months because of restocking demand.
HRC price trend will however reverse in middle of CY2012 when real demand disappoints. The prices may
correct by USD150 to USD550/t fob in the second half of
Coking coal prices may fall from USD220/t to USD180/t fob because there will be 15m tons YoY supply growth
from Australia, America and Mongolia and likely Mozambique
Iron ore prices will correct to USD100 per ton cfr China in second half of CY12.
Steel scrap prices are over prices by USD50-70/t. Expect scrap prices to settle at USD350/t in 2
nd
half of year.
Our View:
New HRC capacities will make the Indian producers to change flat segment pricing from import parity leading
to 5-8% of EBITDA margins impact.
Advantage of lower iron ore prices with non integrated Indian steel producers is at risk as domestic
consumption rises and mine production suffers on increased regulatory and environmental vigil.
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WIN Corporate Corner
ANDHRA BANK 3QFY12: Healthy business growth; GNPA down 5% QoQ; BUY
Healthy business growth with advances growing 20.7% YoY and 6.3% QoQ to INR792b. Growth lead by
corporate and SME segment.
Deposits grew 20% YoY and 5% QoQ to INR987b. Notably, CASA deposits grew 6.3% QoQ, faster than overall
deposit growth. Within CASA, savings bank balances grew 6.8% QoQ.
Reported NIM stood stable QoQ at 3.8%.
Post the steep increase witnessed in the NPLs in 2QFY12, absolute GNPAs declined by 5% QoQ in 3QFY12. PCR
(including technical write offs) improved to 65% from ~62% in 2QFY12.
O)/S restructured loans increased to INR36.7b (or 4.6% of advances) from INR28.1b (or 3.8% of advances) in
2QFY12.
Non-interest income grew 18% YoY and 32% QoQ to INR2.35b could be growth in core fee income.
Valuation and View:
0.7x FY13E BV: BUY
Business growth remains healthy
GNPAs decline 5% QoQ
ALLAHABAD BANK 3QFY12: Stable margins QoQ; Fee income traction continues; Lower tax rates
Allahabad Bank’s 3QFY12 PAT grew 35% YoY and 15% QoQ to INR5.6b.
Reported margins improved 5bp QoQ to 3.73% v/s 3.68% in 2QFY12.
Non-interest income grew 35% YoY and 13% QoQ to INR3.5b.
In absolute terms, Gross NPAs increased 10% QoQ and 22.5% YoY, whereas net NPA increased 20% QoQ to
INR7.9b. In % terms GNPAs stood at 1.86%.
Gross slippages during the quarter continued to remain high at INR5.95b (annualized slippage ratio stood at
~2.5% vs 2.4% a quarter ago). ALBK added loans worth INR10.5b during the quarter (~104bp of loan book) in
the restructured category, led by INR2.1b in infrastructure space, INR1.5b in metals, INR1.3b in textiles and
INR1.6b in Pharma space.
ALBK’s exposure to stressed account is (1) Rajasthan SEB –INR6b , UP SEB – INR28b and Haryana SEB INR8b.
(2) Exposure to Air India at INR5b.
Loan book grew 5% QoQ and ~17% YoY to INR1t (healthy loan growth across all sectors). Deposits grew 20%
YoY and 2.3% QoQ to INR1.5t. CD ratio improved sharply by 175bp to 69.1%.
CASA ratio remained stable at 30.6%.
Valuation and view:
Stock trades at 0.8x FY12 and 0.7x FY13 P/B.
BAJAJ AUTO: Jan-12 volumes below est at 337,875; Motorcycles disappoints, 3-wheelers in-line
Bajaj Auto’s total volumes grew 7.7% YoY (10.5% MoM) to 337,875 (v/s est of 358,500). Domestic volumes
grew by just 5.2% YoY to 220,879 (v/s est of 233,500).
Currently, its inventory is at a normal level of 18 days against 30 days for the industry.
While overall motorcycle volumes grew by 7% YoY (12% MoM) to 294,439 (v/s est 315,000), domestic retail
volumes were up 10% YoY.
3-wheeler volumes grew by 14% YoY (3% MoM) to 43,436 (v/s est 43,500).
Exports volumes grew 13% YoY (down 2% MoM) to 116,996 (v/s est 125,000). However, the company expects
exports growth to bounce back to ~25% YoY in the coming months.
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Bajaj maintained its lowered FY12 volume guidance of 4.4m (~16% growth), with exports guidance of over
1.5m. It expects the motorcycle industry to grow at 5-6% in 4QFY12.
BANK OF INDIA 3QFY12: In-line with est.; NIM up 11bp QoQ; Restructuring of INR30b in 3QFY12
Bank of India 3QFY12 PAT grew 10% YoY to INR7.2b. While slippages declined significantly to INR5.2b, high
restructuring of INR30.1b (130bp of overall loans) during the quarter disappointed.
Slippages for 3QFY12 at INR5.2b (annualized slippage ratio of 1.1%) as against INR28.2b in 2QFY12. Of the
overall slippages INR5.1b was on account of one large account from aviation industry.
Gross NPAs in absolute terms declined 2% QoQ to INR63.9b, whereas net NPA declined 4% QoQ to INR40.9b.
The bank restructured loans of INR30b (130bp of overall loan), of which INR7.8b belongs to international
loan. Domestic restructured loan during the quarter, major contribution came in from Telecom (~INR9.8b)
Gross restructured loan book not stands at INR137bp (5.9% of overall loans) of which cumulatively INR32b
(~24% of restructured loan) have slipped into NPA.
Reported domestic margins increased 14bp QoQ to 2.9%, while global NIMs improved 11bp QoQ to 2.55%.
International margins improved 18bp QoQ to 1.38%, supporting overall NIMs. While domestic loans grew
~4% QoQ and 9% YoY, international loans grew 17% QoQ and 65% YoY led by currency depreciation.
Valuation and view:
Stock trades at 1.1x BV FY12 and 0.9x BV FY13.
BHARTI AIRTEL: Adverse Nigeria court verdict unlikely to have meaningful impact
The Federal High Court of Nigeria passed the judgment in a case between Econet Wireless Ltd (EWL) and
Bharti’s Nigerian subsidiary, Airtel Networks Limited (ANL).
The High Court has ordered ANL to reinstate the 5% shareholding of EWL. The court has also ordered all
actions taken by the company since October 2003 to be considered invalid and to revoke the name change
from Econet Wireless Nigeria Ltd.
Our interaction with the company indicates that Bharti has already appealed against this order in higher
court. In the worst case, Bharti will have to reinstate EWL’s 5% stake in Nigeria operations.
However, this will not have any meaningful financial or valuation implications for Bharti at consolidated level
(fair value impact of INR5b assuming 2.5x EV/sales multiple for Nigeria business).
BHEL 3QFY12: Operating performance ahead of estimates; Order-book drops 9% QoQ
BHEL reported impressive performance in 3QFY12, ahead of our estimates. Revenues grew strongly by 19%
YoY, while adjusted PAT was flat YoY.
Adjusted EBITDA margin during quarter dipped by 380bp YoY led by power sector (EBIT margin down 200bp
YoY). EBITDA margin was impacted due to higher provisions
Working capital continues to deteriorate - Cash declined to INR50b, from INR79b at the end of 2QFY12
During the quarter, orders worth INR58.47b were cancelled or their scope was changed. Order intake for
9MFY12 stands at INR152b (against Intake of INR168b in 1HFY12), a YoY decline of 59%.
Valuation and View
BHEL’s valuations will remain under pressure due to the following de-rating catalysts, namely 1) Possible
downside to our order intake assumptions in FY12/13 due to worsening external environment in the power
sector; 2) downside risk to FY13 earnings estimate due to execution constraints and deteriorating working capital
and 3) uncertainty around the company’s proposed follow on offer (FPO)
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BIRLA CORP 3QFY12: Lower realizations, Fx loss impacts EBITDA; Downgrade estimates
Net sales grew by 12% YoY (+4% QoQ) to INR5.4b. EBITDA of INR657m and PAT of INR437m impacted by
lower realizations, forex loss and higher tax.
Cement volumes de-grew by 6.7% YoY (-2% QoQ) to 1.39mt (v/s est 1.4mt). Realizations improved by 9% QoQ
(+18.5% YoY) to INR3,500/ton (v/s est INR3,563/ton),
EBITDA margins improved by 610bp QoQ to 12.2% (est 15.5%) and PAT grew by 67% QoQ to INR437b.
Valuation and View:
3.9x EV/EBITDA and US$38/ton; BUY
Trend in Cement EBITDA (INR/ton)
Trend in volumes and realizations
CANARA BANK 3QFY12: Below est; Business growth muted; Asset quality stable QoQ
PAT declined 21% YoY to INR8.8b led by muted business growth. NII declined 9% YoY to INR19.2b.
Margins during the Q were stable QoQ at 2.64%. During the Q, the reversal in interest income was INR280m
Slippages continued to trend downwards and stood at INR8.6b, vs INR12.4b in 2QFY12.
Assets of INR15.6b were restructured in 3QFY12, which took the cumulative outstanding restructured book at
INR95.6b (4.4% of loan book). CBK took an NPV hit of INR1.57b on accounts restructured during the quarter.
In 3QFY12, CBK made provisions to the tune of INR1.85b towards depreciation on investments and INR1.57b
towards diminution in fair value of restructured assets.
Valuation and view:
Stock at 5.3x FY13E EPS and 0.9x FY13E BV largely factor in negatives.
Loan growth moderates sharply
Slippages (INR b) continue to decline
CORPORATION BANK 3QFY12: Margin improve 23bp QoQ; Slippages ratio at 2.1%; Neutral
3QFY12 net profit stood at INR4b (flat QoQ and +5% YoY).
While NII improved 16% QoQ, led by strong loan growth sequentially (+13%) and 23bp improvement in
margin, it grew just 5% YoY (as margins were down 30bp YoY).
Slippages for Q stood at INR3.7b (annualized ratio of 2.1%); adjusted for INR1.6b on aviation, ratio was 1.2%
During the Q bank restructured loans of INR7.4b, of which INR4b was one large telecom account
Margins have improved 23bp QoQ to ~2.7%, it has been led by sharp increase in CD ratio
Valuation and view:
0.7x FY12 BV; neutral
CROMPTON GREAVES 3QFY12: Below est.; Overseas business in red again; India business margins hit
Consolidated earnings:
Revenues at INR30b up 26% YoY (est INR27b) healthy growth in power business, both
domestic & overseas and (acquisition of Swedish Co. Emotron).
EBITDA margins at 6% down 816bp YoY (est 9%) Margins down across segments in domestic business, with
Domestic power, industrial and consumer segments.
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Net Profit at INR771b down 67% YoY (est INR1.4b); driven by loss of INR 502m in international subsidiaries &
standalone profit down 28% YoY
Consol EPS estimates for FY12 & FY13 stand at INR 8 (down 44% YoY) and INR11.2 (up 40% YoY). With
deteriorating outlook for international business we see earnings downgrade of 10-15% in FY12 and FY13 post
Standalone earnings
Revenues at INR16.2b up 16% YoY (est INR14.6b); EBITDA margins at 10.8% down
552bp YoY (est 11.7%). Domestic power, industrial and consumer segments reporting 904bp, 363bp and
224bp YoY decline in EBIT margins. Given the competitive intensity in the Indian power segment, domestic
margins are likely to remain under pressure in the near term.
Subsidiaries
: Revenues at INR14b (up 40%) (es INR12.5b). In Euro terms, revenues up 25%. EBITDA margins
came in at 0.5% (est 5.8%).
Valuation and view:
Neutral rating on the stock
Crompton Greaves Analyst meet highlights: Margin outlook still uncertain, orders build up
EBITDA margins in the international subsidiaries were impacted by closure of a Euro50m project and
liquidation of inventory worth Euro35m. The project had zero margins.
We estimate that inventory liquidation and closure of a large US-based project contributed approximately
Euro 50-55m to total revenues (Euro 205m during the quarter).
Adjusting for sales arising of inventory liquidation, revenues growth during the quarter was 3% YoY, despite
positive impact (around Euro 16m) of acquisition of Emotron and QEI.
The domestic power T&D industry continues to be highly competitive, putting significant pressure on
realizations. However, on the positive side management highlighted that prices seems to have bottomed out,
especially in the transformer industry, and will not see further decline
The company registered strong order inflow in Power as well as Industry segment. Consolidated order intake
grew by 66% to INR 34b. Consolidated power order intake stood at 29b, up 82% while Industry order intake
stood at 4.6b, up 6%. Domestic order intake stood at INR14.9b.
DABUR 3QFY12: In line; Domestic volumes up 8%; Higher other income, Lower tax rate boosts PAT
Consol sales up 34.5% was a mix of volume growth, price increases, and currency gains, of which 14.3% was
acquisition driven; Gross margins contracted 260bp to 49%. Adj PAT up 11.9% at INR 1,728m;
International business; 26.5% organic CC revenue growth led by GCC, Egypt and Nigeria; Margins nosedived in
3Q due to lower margins in new acquisitions and exceptionally high margins in base quarters for organic
international business.
Domestic sales growth was 16.2% at INR 10.4b; Gross margins down 250bp to 46.3% Consol Volume growth
10.8% & domestic volume growth at 8%.
Hair oils up 22% led by a healthy single digit volume growth & price hike; Shampoos posted 4.1% growth on a
low base of steep double digit decline; Toothpastes grew 14.4%; volume growth was disappointing at 3%; Skin
care up 5%, impacted by distribution realignment; Foods growth of 17.4% was lowest in last 7 quarters
Mgmt said “cost of regaining lost market share is far higher than regaining margins” and so it would rather
focus on volume growth and market shares than near term margins.
We note that coming quarters have a low base of ad spends; as DABUR plans to increase ad spends to 12-13%
levels, this could further dampen margins.
Valuation and view:
Stock trades at 25.8x FY12E and 21.5xFY13E EPS of INR 3.8 and INR 4.5. Maintain Neutral
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DIVI'S LABS 3QFY12: EBITDA in-line; Maintains 25% topline growth guidance for FY13
Sales up 34% YoY to INR4.14b (in line), EBITDA at INR1.48b (li line) Adj PAT to INR1.22b (est of INR1.14b)
EBITDA margins at 35.8% (est of 36.3%). PAT boosted by higher Fx gains of INR160m.
Generic API revenue up 41% : CCS sales up 27%. Carotenoids up 33% albeit on a low base.
Commercialized its neutraceuticals facility in FY09 to target the USD1b carotenoids opportunity
Ramp-up in this business is very gradual with INR580m for 9MFY12. Neutraceuticals business Mgmt guided
for doubling of revenues to INR1.2b in FY12, we model in revenue of INR780m
Retained FY12 and FY13 guidance of 20-25% and 25% topline growth respectively and maintaining EBITDA
margins. However, it has raised tax guidance from 20% to 22% for FY12 and from 19% to 20% for FY13.
Valuation & outlook: Sstock
trades at 23.4x FY12E and 18.5x FY13E earnings
GLENMARK 3QFY12: EBITDA in-line; Margins impacted by cost pressures
Glenmark’s 3QFY12 operational performance was in-line with estimates. Topline grew by 37% to INR10.31b,
EBITDA by 23% to INR2.04b while reported PAT declined by 58% to INR461m
Excluding generic Malarone exclusivity upside in US, revenues were up 33.4% to INR10b vs est of INR9.12b,
EBITDA was up 10.5% to INR1.84b (vs est of INR1.85b) and EBITDA margins declined 380bps to 18.4% vs est of
20.3%.
Excluding NCE research income of INR238m, core EBITDA margins were at 16.4% vs est of 18.2%. EBITDA
margins were lower than estimate due to significant increase in costs mainly related to increase in R&D
expenses and partly due to adverse impact of INR depreciation on USD-denominated costs
Adjusted PAT at INR83m (excl both NCE research & Malarone upsides) was higher than our est of net loss of
INR314m mainly due to lower than expected forex losses (INR 1.02b vs our est of INR1.39b)
Mgmt has cut its guidance for core EBITDA Margins from 22-23% to 20% for FY12. Guidance excludes R&D
income. We believe that the guidance is a bit aggressive and model core EBITDA Margin of 19% for FY12.
Valuation and View:
Stock at 15x FY13E earnings.
HAVELLS 3QFY12: Above est; Higher domestic sales and sharp improvement in Sylvania’s margins
Havells’ 3QFY12 standalone revenues grew 30% (est. 20%) to INR8.9b, while PAT grew 29% to INR789m
beating our estimate of INR727m, up 19% YoY.
Forex losses adversely impacted profitability while amalgamation of Standard Electricals had a positive
impact. Consolidated sales grew 16% YoY to INR16b while consolidated PAT grew 41% YoY to INR886m on the
back of significant improvement in profitability in Sylvania.
Cables, Lighting and Consumer Durables segments showed strong growth in revenues while contribution
margins improved driven by cost-led increase in prices and low cost inventory. Switchgear showed significant
improvement during the quarter with a growth of 30% YoY vs. 19% YoY growth for 9MFY12. Results in
Switchgear were boosted by amalgamation of Standard Electricals adjusted for which sales grew by 15% YoY
vs. 10% YoY during 9MFY12.
Sylvania delivered improved performance with significant improvement in EBITDA margins despite adverse
currency movement in Brazilian market. In 3QFY12, adjusted PAT (adjusted for pension liability) stood at
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Euro5.2m vs. Euro 0.5m during 3QFY11 and Euro 1.7m during 2QFY12. EBITDA margins at 9.7% showed sharp
increase of 470bp YoY from 5.1% during 3QFY11 (v/s 7.4% in 2QFY12 and 7.3% in 1QFY12).
Valuation and view
Our EPS estimate for FY12 stands at INR29.0 (up 32%) and for FY13 at INR36 (up 24%). The stock trades at 15x
FY12E and 12x FY13E consolidated EPS. We maintain Buy, with a target price of INR501 (14x FY13E EPS).
HERO MOTOCORP: Below estimate at 520,272 (+11.5% YoY, -3.7% MoM, v/s est 540,000); Buy
Hero Moto Corp volumes grew 11.5% YoY (-3.7% MoM) to 520,272 (v/s est 540,000).
Its scooter brand ‘Pleasure’ continues to grow strongly and contributes over 38,000 units/ month.
Hero is debottlenecking existing capacities by 0.7m units to 7m units by Mar-12, with large part of de-
bottlenecking happening at Haridwar
We model volume growth of 16.1% for FY12 to 6.27m (due to capacity constraint) implying residual growth of
10.2% and residual monthly run-rate of 544,311 units, and 70bp contraction in EBITDA margins (adjusted for
change in royalty accounting) to 11.1%.
ICICI BANK 3QFY12: Operating perf in-line; Dividend income from Insurance business boosts PAT
NII up 17% YoY & 8% QoQ to INR27.1b. PAT up 20% YoY of INR117.3b (est INR15.8b) driven by lower opex ,
lower provisioning and maiden dividend of INR1.5b from ICICI Life. Adj PAT in line with estimates.
NIM’s up 10bp QoQ to 2.7%. International NIMs up ~30bp QoQ to 1.4%; Domestic NIM’s up 6 bps QoQ to
2.98%. Mgmt guided for blended margins of 2.7% for 4QFY12.
Loans grew ~5% QoQ and ~19% YoY. SME loan portfolio up 33% YoY. Deposits up 6% QoQ and 20% YoY
CASA ratio up 43.6% from 42.1% CA up 21% QoQ (due float of NHAI bonds issue)
Fee income growth was muted at 5% YoY and flat QoQ to INR17b.
Opex up 12% YoY; Cost to Core Income ratio at 42%: Mgmt aiming at 41% C/I ratio in FY13
Gross slippages up INR8.77b; recoveries strong at INR6.96b- Guides credit cost of 0.7% for FY12
GNPAs down 4.5% YoY; not recognized GTL & Kingfisher yet. Management has maintained its guidance for
credit cost of 0.7% for FY12 including provisions for restructured loans
Restructured loans up 5 bn QoQ to INR30b – Pipeline of INR13b towards pending CDR cases in Q4 of which
GTL would be 10 bn: Management does not see any stress on asset quality however, expects outstanding
pool of restructuring to increase.
Valuation and view:
subs value at INR240/share, stock trades at 1.5x AP/ABV FY13 and 10.6x AP/EPS.
INDIAN BANK 3QFY12: Above est.; Lower opex and Tax rate drives profitability; Buy
PAT grew 7% YoY to INR5.3b, operating income in-line with est., lower opex and tax rate higher
Margins declined ~18bp QoQ to 3.58%. While cost of deposits were higher by 26bp QoQ, yield on loans
declined sharply by 41bp QoQ to 11.7% leading to margin contraction.
Slippages for 9MFY12 stood at INR9.4b, however reported slippages stood at INR8.4b . Gross Annualized
slippage ratio of 2.1% v/s 2.2% in 2QFY12). GNPA in absolute terms increased 14% QoQ, whereas NNPA was
up 17% QoQ.
During the quarter net addition to restructured loan was INR4.5b – of which INR3b was on account of GTL (on
which NPV loss stood at INR360m).
Gross restructured loan book stood at INR78.6b (8.9% of overall loans), however adjusting for recoveries/
settlement and NPA net outstanding restructured loan book stood at 52.3b (5.9% of overall loans).
Cumulative slippages from restructured loan stood at INR3.4b.
Non-interest income grew strongly by 13% YoY (but declined 17% QoQ) to INR2.8b; however adjusting for
one-off in 2QFY12 sequential decline would have been 7%.
Fee income growth remained volatile, declining 18% YoY - a disappointment. Recoveries were strong at
INR1b v/s INR400m in 2QFY12, driving profitability.
On a sequential basis loan and deposit grew loan and deposit growth moderated to ~2%. While domestic loan
growth stood at 1.4% QoQ (+17% YoY), overseas loan growth was strong at 12% QoQ and 61% YoY – partially
led by depreciation of currency.
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Effective tax rate for 3QFY12 stood at 22% v/s est. of 33% driving profitability. During the quarter bank
reversed INR520m on account of deferred tax liability adjusted for which tax rate would have been 30%.
Valuation and view :
1x FY12 BV; BUY
RoA is expected to be 1.3%+ over FY12/13 and RoE will be 20%+ over FY12/13.
The stock trades at P/BV of 1x FY12 BV and 0.9x FY13 BV. We maintain Buy with a target price of INR300 (1.2x
FY13 BV).
Margins decline 18bp QoQ – a negative surprise Asset quality needs to be watched
IOB 3QFY12: Margins down 25bp QoQ; Asset quality stable QoQ; Restructured loan higher
IOB's 3QFY12 profit stood at INR1.1b (down 48% QoQ and 53% YoY) led by lower NII growth (8% YoY, but
down 4% QoQ) and higher provisions (INR6.7b v/s INR6.3b in 2QFY12 and INR3.6b in 3QFY11).
Asset quality was stable QoQ with absolute GNPA up just 2% QoQ (in % terms, down 8bp to 3%).
Margins declined 25bp QoQ to 2.6%. While cost of deposits increased 14bp QoQ to 7.3%, yield on loans
declined 10bp QoQ leading to margin decline.
Slippages during the quarter stood at INR6.9b (annualized slippage ratio of 2.7%) v/s ~INR10b a quarter ago
and INR1.9b a year ago. GNPA in absolute terms was up just 2% QoQ to INR39.8b, whereas NNPA was up 6%
QoQ to INR16b. PCR (cal) stood at ~60%; PCR (including technical write-off) was at 72%.
During the quarter, IOB restructured loan of INR32.1b (240bp of overall loan), of which, high contribution was
from telecom, power, entertainment and trade services. INR1.8b slipped from restructured loans. O/s
restructured loan book now stands at INR100b (7.6% of overall loans).
Fee income growth was strong at 10% QoQ and 47% YoY (INR2.4b).
Loans grew 4% QoQ and 32% YoY to INR1.3t; deposits grew 2% QoQ and 34% YoY to INR1.7t. CASA ratio
declined to 26.2% v/s 27.5% a quarter ago.
Valuation and view
The stock trades at 0.6x FY13 BV and 4.6x FY13 EPS.
Asset Quality stable QoQ
Restructured loans (INR b): Sharp jump in 3QFY12
IOC: SC directs IOC to deposit 50% of UP entry tax liability; impact of INR36/sh on fair value
Allahabad (Uttar Pradesh state) High court (HC) dismissed IOC’s appeal to exempt it from paying entry tax on
crude oil for its Mathura refinery in UP.
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Post this High court decision, IOC filed a Special Leave Petition (SLP) in the Supreme Court, who has ordered
IOC to pay 50% of entry tax liability before Supreme Court takes up its case.
The net liability till March-12 is estimated at INR84b (INR23/sh post-tax). IOC will have to pay INR29b (INR8/sh
–
refer table below)
or INR42b (INR12/sh post-tax) immediately and will have to give bank guarantee for the
remaining amount.
Other OMCs (HPCL and BPCL) are not impacted by this order
The impact on the EPS will be ~INR4.5/sh implying a fair value impact of INR36/sh
IOC remains hopeful of positive verdict from Supreme court
Of the 19 PSU refineries, 12 fall under the states where entry tax is levied. IOC is contesting the entry tax in
UP and Haryana, while BPCL’s Bina refinery in MP is exempt from entry tax for 15 years. While other state
governments are free to levy entry tax, we expect the Central government to intervene soon / come out with
a solution to do away with the uneven tax structure in different states and thereby create a level playing field.
IPCA 3QFY12: Performance above est led by international formulations, favourable currency
Revenues up 32% to INR6.15b (est of INR5.5b), - strong 73% YoY growth in international formulation to
INR2.9b partially led by favourable currency. Domestic formulation reported muted growth of 5.7% YoY due
to continued slow-down in anti-malaria business, increased competition in anti-infective segment and slower
growth in CVS segment.
EBITDA up 66% at INR1.51b (est of INR1.11b); EBITDA margins down 590bps YoY to 24.6%. led by 1) strong
revenue growth, 2) improvement in gross margins on the back of favorable sales mix and 3) favorable
currency movement.
Adj PAT flat at INR639m, despite robust operating performance, primarily due to INR400m of forex losses
related to foreign currency loans and hedges as against forex gain of INR112m in 3QFY11
Indore SEZ is an important determinant of IPCA’s revenue growth in the US market; US FDA approval could be
a positive trigger (awaiting approval for the past 2 yrs)
International formulations business to record 35% CAGR for FY11-13
Revising our EPS estimates for FY12 and FY13 by 12% to INR20.9/share and 14% to INR31.6/share
respectively to take into account 1) strong growth in revenue, 2) robust Improvement in EBITDA margins led
by better product mix and favorable currency 3) Better absorption of operating expense at Indore SEZ and 4)
reversal of forex losses in FY13.
J&K BANK 3QFY12: Business growth strong; Reported margins down 6bp QoQ ; Asset Quality healthy
J&K Bank's 3QFY12 profit grew 27% YoY to INR2.1b.
Healthy NII growth of 16% YoY and ~4% QoQ to INR4.5b and lower provisions (INR182m v/s INR223m in
2QFY12 and INR306m in 3QFY12) boosted bottom line. Key highlights:
Reported margins declined by 6bp QoQ to 3.63%. While Yield on loans improved 35bp QoQ to 12.15%, cost of
deposits increased 44bp QoQ to 6.6% leading to contraction in margins.
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Gross slippages during the quarter stood at INR500m (annualized slippage ratio of ~80bp), flat QoQ. Absolute
GNPA was flat QoQ whereas NNPA declined 22.4% QoQ to ~INR490m. Provision coverage ratio further
improved to 91% v/s 88.4% in 2QFY12. PCR (including technical write-off) stood at 94.1%, best in the industry.
J&KBK restructured loans of INR470m (70bp of overall loans). Gross restructured loans stood at INR26b (8.7%
of overall); adjusting for repayment/ settlement net restructured loan stood at INR17b (5.8% of overall).
Cumulatively, INR1.8b have slipped into NPA (7% of gross restructured loan).
Loans grew 17% YoY and 5% QoQ to INR297b. Adjusting for repayment of government overdraft of ~INR23b
in 4QFY11 loan growth stood at 30%+. Deposits were up 19% YoY and 3% QoQ to INR488b. CD ratio improved
140bp QoQ to 61% from 59.5% in 2QFY12.
CASA deposits grew 8% YoY and 21% YoY led by strong growth in SA deposits (+11% QoQ and 27% YoY). CASA
ratio improved 200bp QoQ to 40.2%.
Fee income (CEB +Insurance) grew 11% QoQ and 13% YoY to INR448m. Non-interest income remained muted
at INR736m v/s INR712m a quarter ago and INR776m a year ago.
JUBILANT FOODWORKS: Starbucks enters India in JV with Tatas; Aggressive entry strategy
Starbucks and Tata Global Beverages announced a 50:50 joint venture called TATA Starbucks Ltd to own and
operate Starbucks cafes which will be branded as Starbucks Coffee - “A Tata Alliance”.
It will compete with Dunkin Donut chain of stores slated to be launched by Jubilant Foodworks
Starbucks Café’s will be developed in cities across the county, beginning with stores in Delhi and Mumbai in
CY2012. Starbucks plans to launch first stores in Sep-12 with 50 stores in its first full year of operations.
Starbucks has also signed up a sourcing and roasting agreement with Tata Coffee (57.48% subsidiary of Tata
Global Beverages; largest Indian coffee plantation company in Asia)
We believe aggressive entry of Starbucks increases risk associated with JUBI’s Dunkin Donuts foray. We note
that Starbucks has better following and brand awareness in India. While Dunkin Donuts plans to position itself
as a food outlet with coffee, such a positioning will need significant change in coffee consumer mindset.
LIC HOUSING 3QFY12: Margins surprise negatively; Prov. write back boosts bottom-line; Buy
3QFY12 reported PAT grew strongly by 43% YoY and 3x QoQ to INR3.06b (much above our est. of INR2.35b)
on the back of provision write back of INR797m.
Adjusted PAT stood 10% lower than our est at INR2.26b. Margins contracted sharply by 18bp QoQ to 2.27%
Disbursements grew marginally by 2% YoY, but declined 8% QoQ to INR47.2b
Loans grew by 27% YoY and 5% QoQ to INR587b.
Individual loan portfolio remained robust at 33% YoY (and 6% QoQ) to INR551b (~94% of total loan book).
Management guided for loan growth of ~25% for FY12.
The builder loan portfolio continued to decline to INR35b, down 27% YoY and 12% QoQ. This was on account
of the higher than expected prepayments and lower disbursements during the quarter.
Reported margins declined 18bp QoQ to 2.27% from 2.45% in 2QFY12. Spreads (calc.) declined further to
1.32% v/s 1.45% in 2QFY12 increase in cost of funds and stable yields .
LICHF wrote back excess provisions on the balance sheet to the tune of INR1.06b. Adjusting for provisions to
be made during quarter the net write back during the quarter stood at INR797m, which boosted bottomline.
Asset quality remained largely stable with GNPAs up marginally by 2% QoQ to INR3.7b. PCR declined sharply
to 51% from 82% in 2QFY12
Reported margins down 18bp QoQ
Loan growth remains strong at 27% YoY
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MAHINDRA LIFESPACES 3QFY12: Above est; Improved visibility of project launch
Mahindra Lifespaces reported 3QFY12 EBITDA above our expectation. Standalone EBITDA grew by 8% YoY to
INR462m while margin improved by ~250bp QoQ to 30%. Higher revenue contribution from Splendor I
(Mumbai) led to margin improvement. However, overall execution across projects remained strong.
MLIFE launched ~0.8msf of projects in 3QFY12 after long period of lull in project launches. It also witnessed
meaningful progress in approval for other pipeline launch.
During 3QFY12, MLIFE witnessed best ever quarterly sales run rate with 0.61msf (INR3b) as against 0.5msf
(INR2.3b) in 1HFY12. Recently launched Aura Phase IV and V were the key sales drivers with ~0.5msf sales
volume. 9MFY12 sales stood at 1.2msf (INR5.4b) v/s. 1.3msf (INR7b) in FY11 and our estimate of ~1.5msf
(INR7b) for FY12E.
Leasing at Jaipur SEZ remained muted, albeit management hinted for some deals in advance stage of
conclusion in DTA zone.
MLIFE has acquired ~50% of land in North Chennai SEZ (target 1000acres) and plans to commence activities
once another 200 acres is acquired. However, its other pipeline ventures viz. Pune and Gujarat SEZ have no
near-term commencement plan.
The recent drop in share price offers an attractive entry point. The stock trades at ~45% discounts to our SOTP
value of INR502/share, 0.9x FY13E BV and 7.7x FY13E EPS of INR36.
MARUTI SUZUKI: Above est at 115,433 units (5% YoY, 25% MoM); New Dzire launched
Maruti's Jan-12 volumes grew 5% YoY (+25% MoM) to 115,433 (est 100,500), its highest level in YTD FY12.
Domestic volumes remained flat YoY (+28% MoM) at 101,047 units (v/s est 91,500) driven by inventory
stocking for the new calendar year
Export volumes at 14,386 (v/s est 9,000) grew 54% YoY (-2% MoM). Volumes are expected to remain volatile
driven by timing of shipments.
Maruti launched new Swift Dzire today at introductory starting price of INR479,000 (ex-showroom Delhi),
INR15,000 lower than existing edition. The company would save at least ~INR65,000/car due to lower excise.
It is also likely to commercially launch its new 7-seater MPV, Ertiga in 2-3 months
Management indicated that margins have bottomed in 3QFY12 and would improve hereon. We expect FY13
EBITDA margin to improve 320bp to 8.5% from 5.3% of 3QFY12, driven by (a) price hike in Jan-12, (b) better
product mix with higher diesel engine availability, (c) benefit of operating leverage, and (d) savings from
higher localization.
M&M: In-line at 64,071, +12% YoY; UVs surprise, tractors disappoint; Ssangyong volume slipping
M&M’s volumes came at 64,071 (est 64,800), a growth of ~12% YoY, driven by 4-wheeler pick-ups and UVs.
Tractor volumes were down 5.6% YoY (+18% MoM) at 19,354 (v/s est 22,000).
UV volumes grew 28% YoY (3% MoM) to 35,848 (v/s est 33,000),
3-wheeler volumes de-grew 1% YoY (+7% MoM) to 6,126 (v/s est 7,000).
Ssangyong’s volume momentum has slipped from 1HFY12 run-rate of ~10,000/month to 8,233 this month
NHPC 3QFY12 Results: Adjusted PAT in-line
NHPC reported PAT of INR2.2b, while adjusted PAT stood at INR2.7b (up 51% YoY) in-line with our estimates.
NHPC has lowered its capacity addition targets for FY12/13 to 313MW (v/s its earlier guidance of 515MW)
and 673MW (v/s 1.1GW earlier), respectively. It is also facing several regulatory, administrative bottlenecks
for few of its projects in the State of J&K (Uri, Chutak , Nimo Bazgoo), Arunachal Pradesh (Subhansri Lower) as
well as environment issues (Kotle Bel).
NHPC is also facing delays in receivables and 33% of its debtors (INR9b) are 60 days old. SEB/Discoms not
paying on time including BSES (RELI), Punjab and Jaipur and account for 95% of the receivables over 60 days.
We cut our are FY12/FY13 estimates to factor in capacity delays, and expect NHPC to report PAT of INR17.2b
in FY12 (down 1% YoY) and INR23b in FY13 (up 31% YoY). Stock trades at PER of 13x and 10x and P/BV of 0.9x
each on FY12E and FY13E basis. Re-iterate Neutral.
In 3QFY12 generation grew by 2% YoY
Trend in incentives (INR m)
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NTPC 3QFY12: Adjusted PAT well below estimate led by lower incentives; Cutting FY12/FY13 EPS
NTPC reported 3QFY12 Adjusted PAT at INR21.7b, including benefit of gross up using corporate tax rate.
However, adjusting for the benefit (as we consider the benefit would be non-recurring in FY13), the PAT for
the quarter stood at INR19.4b, significantly lower than our estimate of INR25.4b. Lower than estimated PAT is
due to 1) Higher maintenance related expenses 2) Lower Incentive income.
Coal projects plant load factor (PLF) for the quarter stood lower at 83.6% v/s 87.1% YoY, while plant
availability factor (PAF) stood at 85.2% v/s 93.6% YoY.
We however note that operating performance was impacted largely in October month owing to several one-
off events like Coal India strike, lower production/dispatch, etc. For the month of November / December, the
PLFs stood at 87%, v/s 77.3% in October 2011. Infact, excluding Farakka / Kahalgaon project (PLF of 72% in
Nov/Dec 2011, v/s 63% in Oct 2011), the PLFs for other projects stood above 87%.
In our view, the fuel supply issue for NTPC could be medium term issues, as the logistics constrains are
addressed for projects like Farakka/Kahalgaon, captive mine production begins by CY13 and domestic coal
availability is improved.
Infact, management indicated improved fuel availability for the month of January 2011 with PAF of 92% and
expects PAF to improve by 200-250bps QoQ (v/s 85.3% in 3QFY12 for coal projects).
Valuation and View
We cut our earnings estimate for NTPC by ~10% each for FY12/FY13 given delays in commercialization of
capacity, impact on availability/generation linked incentive owing to fuel supply issues. We now expect NTPC
to report EPS of INR9.6/sh in FY12E and INR11/sh in FY13E. Stock trades at 16x FY13E PER and 1.8x P/BV. Buy.
OBC 3QFY12: NIM improves 26bp QoQ; Net slippages decline sharply QoQ; Buy
3QFY12 PAT of INR3.5b (11% above est.). While operating profit was in-line with est., lower tax rate (~21%
v/s est. of 32.5%) led to higher than estimated PAT.
Reported margins improved 26bp QoQ to ~2.9%. CoD increased 22bp QoQ, whereas yield on loan was up
58bp ( lower interest income reversal) leading to margin expansion.
Slippages remained at an elevated level of INR7b, strong recoveries and up gradation of INR5.1b was a
positive surprise as a result of which net slippages stood at just INR1.8b
Restructured loan during the quarter of INR22b (~200bp of overall loans) of which INR9b was towards Uttar
Haryana SEB and INR6b towards GTL. Going forward management expects further restructuring of INR30b
Gross restructured loan book stood at INR76b whereas o/s restructured loan book (net of repayment/
settlement) stood at INR61b (5.6% of overall loan)
Loan grew 5% QoQ and ~22% YoY to INR1.1t, whereas deposits grew ~4% QoQ and 21% YoY to ~INR1.6t.
Fee income growth was moderate at 12% YoY (but declined 13% QoQ).
Management has guided for loan growth of 18-20% for FY12, implying 4QFY12 loan growth of 4-6% QoQ.
CASA ratio stood at 22.3% as against 22.9% a quarter ago.
Valuation and View :
at 0.9x BV FY12; BUY
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GNPA and NNPA declines QoQ
Margin up 10bp QoQ (%)
PETRONET LNG 3QFY12: Above est; Dahej utilization at 115%; Expansion projects on track
Petronet LNG’s 3QFY12 reported EBITDA of INR5b (+46% YoY, +12% QoQ) was ahead of estimates led by (1)
higher volumes and (2) marketing margins. PAT stood at INR2.95b (+73% YoY, +13% QoQ). Variation at PAT
level was higher than EBITDA primarily due to lower interest outgo INR345m (v/s est INR495m) led by INR5b
debt repayment, partially compensated by lower other income at INR164m (v/s est INR200m) and higher
effective tax rate at 32.7% (v/s est of 32.1%).
Total gas sales in 3QFY12 stood at 145tbtu (+21% YoY and +7% QoQ) implying a capacity utilization of 115%
and included 98tbtu of long-term, 25tbtu of spot and 22tbtu of re-gas services volumes.
We compute marketing margins on spot volumes at ~INR35/mmbtu (similar to re-gas charges on long-term
contracts).
We believe Kochi ramp-up and 2
nd
jetty commissioning at Dahej would be the next growth drivers. Our
current Kochi volumes assumption is conservative at 0.25/1mmt in FY13/FY14; benign spot LNG prices could
provide upside to these numbers. We continue to remain positive from the long-term perspective given
continued demand-supply gap in India.
Upgrading earnings: We are increasing our FY12/FY13 EPS by ~7%/5% to INR14.7/14.2 led by higher
utilization at Dahej. Maintain Buy: The stock trades at 11x FY13E EPS of INR15/sh.
Re-gasification volumes increase QoQ (tbtu)
3
QFY12 EPS at INR3.9; annualized EPS of INR15.8
PNB 3QFY12: Below est.; Healthy core operating performance; Asset Quality deteriorates QoQ
Operating profit was 4% above est, provision (INR9.5b, est. of INR6.6b) led to PAT up 6% YoY to INR11.5b (est.
of INR13.1b). Core fee income remains impressive up 10% QoQ and 23% YoY to IN6.1b in 3QFY12.
NIM’s down 7bp QoQ to 3.9%; YoL up 7bp QoQ, CoD up 22bp QoQ
Loan up 5.5% QoQ and 19% YoY- Incremental loan growth in domestic segment was driven by SME (+8% QoQ
and 18% YoY) and agriculture segment (+9% QoQ and 13% YoY).
CASA ratio down 90 bps to 36.2%
Gross slippages at INR16.8b QoQ v/s 10 bn (Normal Run rate)- Kingfisher slipped into NPA Amount not
disclosed; Recoveries at INR 3.6 bn QoQ v/s 7.2 bn - slowdown in recovery Disappointing; Absolute GNPA up
25% QoQ; Provided INR5.8b towards NPA including Restructured loan provision of INR1.8b.
Restructured ~INR19b of which INR10b is GTL; no SEB restructured in the current qtr; o/s restructured loans
stood at INR155b (5.9% of overall loans) Includes TN SEB while others banks have not restructured;
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Management mentioned that it expects restructuring to increase further over next couple of quarters
Received application from Rajasthan SEB and expects Haryana and U.P to be restructured.
Valuation and view: Stock trades at 1.2x FY12 BV and 1x FY13 BV.
Slippages rise QoQ; led by one large corporate account Gross rest. book at INR221b; Net rest. (excl NPA) at INR145b
PRESTIGE ESTATES 3QFY12: strong sales yet to reflect in revenue; net debt up
Prestige Estate Projects Ltd has reported 3QFY12 standalone numbers below our expectations. Standalone
EBITDA de-grew 46%YoY to INR501m, while EBITDA margin stood at 30% (v/s. 38.4% in 2QFY12 and 23.4% in
FY11).
Standalone revenue declined 54%YoY to INR1.7b, while PAT stood at INR281 m (v/s. INR544m in 3QFY11).
Sales momentum continues to remain strong at ~1msf (INR4.7b), although declined sequentially from
~2.1msf (INR7.8b) in 2QFY12. 9MFY12 sales stood at 3.6msf (INR14.6b), which seems above management
guidance of INR15-17b and our estimate of INR16.5b
Despite strong sales, revenue booking was subdued
No major commercial leasing happened during 3QFY12, rental income at INR399m v/s. INR385m in 2QFY12.
Consolidated net debt stood at INR14b (effective exposure of PEPL is INR12.1b) v/s. INR13b in 2QFY12,
implying net DER (x) ~0.55x. Cost of debt moderated to 13.5% v/s. (v/s. 13.61% in 2QFY12)
PTC INDIA 3QFY12: Below est; Operating performance muted; Cutting est, target price
PTC India reported 3QFY12 PAT of INR95m, down 75% YoY (INR356m in 2Q) and lower than estimate of
INR290m due to 1) lower margins at Ps0.02/unit on 813MUs booked under “banking arrangement”, 2)
Contraction in gross margin at Paisa6.2/unit and 3) lower other income at INR43m given nil gains on FMPs
Volumes stood at 4.6BUs, as PTC curtailed power sales to TN and UP to avoid counter party risk.
Outstanding debtors position from TN and UP stood at INR13b, with INR3b without any counter party
guarantee (PTC’s net exposure is INR10b).
Management indicated that INR600m of interest on the debtors is not accounted on conservative basis and
would be accounted on receipt basis. Debt on books came down to INR1.8b, v/s INR4.1b as at Sep-11.
We cut our FY12/13 EPS estimate for PTC by ~15% on the back of lower volumes, margins, higher interest cost
and delays in comisisoning of tolling capacity. Stock trades at a consolidated P/E of 6.3x FY13E. Buy with
revised SOTP-based target price of INR65.
SBI : Gets nod for capital infusion of INR79b from GoI; Tier-I CAR to improve by ~80bp; BUY
State Bank of India (SBIN) received approval from the Government of India for capital infusion of
approximately INR79b by way of preferential allotment of equity shares to the GoI.
This capital infusion would lead to ~6% dilution, and GOI stake will increase likely to 61.9% from 59.4%
In our view, it will lead to SBIN’s tier I ratio improving by ~80bp, BV accretion of ~2% and near term
Consolidated RoE compression of ~60bp
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SIEMENS 1QFY12: Profitability under pressure; 23-17% cut in FY12/13 EPS estimates; Neutral
Revenue of INR24b down 6% YoY (est INR28b). All four segments recorded slower growth during the quarter.
EBITDA margins at 5.1%, down 920bp YoY (est 11.6 %); PAT at INR706m down 70% YoY (est INR2.1b)
PAT down 70% YoY; Energy & healthcare segments reported loss. Profitability in energy segment is expected
to improve with pick up in execution in large orders. Execution was weak, revenues declining by 6% YoY.
Order intake (at INR28b) down 29% YoY during the quarter. New orders grew by 11% YoY during the quarter,
after excluding the effect of a large order in 1QFY11. We believe that order intake growth is comforting.
Order-book stands at INR140b, with a BTB of 1.4x TTM sales.
Mgmt has witnessed meaningful pickup in demand in past 2-3 months, which will result in improved sales
We are cutting Siemens’ FY12 and FY13 earnings by 23% and 17%, respectively
Valuation and view:
Cut target price to INR672 (22x FY13E EPS), from INR745. Maintain Neutral
TATA MOTORS: Above est at 87,467 units (+16% YoY, +6% MoM), driven by highest ever PV volumes
Total volumes grew 16% YoY (6% MoM) to 87,467 (v/s est 80,000) driven by 12% YoY growth in car volumes
and 37% YoY growth in UVs. Total volume growth (ex-Nano) is 16% YoY (7% MoM).
CV volumes grew 16% YoY (-1% MoM) to 52,076 (v/s est 52,500).
M&HCV volumes grew 13% YoY (+6% MoM) to 20,193 (v/s est 20,500)
LCV volumes grew by 19% YoY (-5% MoM) to 31,883 (v/s est 32,000).
Unlike its peers, easy availability of its diesel cars have helped higher sales for Tata Motors
TITAN INDS: Below est; Jewelry volumes down 5%; New formats lower watch margins 590bp
Adj PAT of INR1.6b (est INR1.8b), impacted by 5% decline in jewelry volumes, a steep 590bp decline in watch
Sales up 26% and EBIT up 19%; margins down 50bp to 9%.
Watch business sales up 17% (volume up 11%); EBIT margins down 590bp owing to input cost pressures and
retail store expansion in Helios. Benefit of 6-7% price increase across most brands and up to 27% increase in
solid gold Nebula could be availed from Dec-2011 only.
Eyewear sales up 77% as 6 stores added; even, LTL sales grew a robust 26%.
PE revenues increased sharply, enabling Others (Eyewear+PE) to report EBIT of INR52m.
New businesses like 1) Fastrack watches and accessories targeting youth, 2) Helios multibrand watch outlets,
3) Titan Eye+ eyewear will see aggressive store expansion, will keep near term margins under check.
Valuation and view:
stock trades at 31x FY12E EPS of INR6.6 and 25x FY13E EPS of INR8.1
Jewelry volumes decline 5% YoY …
UNIPHOS 3QFY12: Below est; Higher staff cost impacts margins; Higher tax impacts PAT
Revenues grew 58% to INR19.3b (v/s est INR18.7b) driven by ~33% organic growth. While volume growth was
~31%, favorable forex contributed ~19% and pricing ~8%.
Gross margins declined by 210bp YoY (+70bp QoQ) to 36.6%, impacted by higher RM cost and full period
consolidation of DVA Agro (Brazil). However, higher operating leverage diluted impact of RM cost push,
resulting in near-flat EBITDA margins YoY (-20bp QoQ) to 18.1% (v/s est 19%). Further, higher tax restricted
adj PAT growth to ~36% to INR1.14b (v/s est IN1.44b).
UNTP accounted for INR110m loss on recently acquired 50% associate company Sipcam Isagro (Brazil), for Jul-
Sep quarter, resulting in loss from associates to INR216m.
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Based on strong demand environment, UNTP has maintained its revenue growth guidance at 35-40% and
EBITDA margin guidance of 19-20%.
Valuation & view:
Stock trades at 10.4x FY12 EPS and 7.3x FY13 EPS.
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WIN Collage
Facebook may be a good bet for investors now; but regulatory problems lie ahead
IT ALL began as a lark. Mark Zuckerberg posted pictures of his fellow Harvard students online to let viewers
comment on who was hot and who was not. Eight years later, Facebook is one of the hottest companies in the
world. On February 1st the social network announced plans for an initial public offering (IPO) that could value it at
between $75 billion and $100 billion. This is extraordinary. Investors believe that a start-up run by a cocky 27-
year-old is more valuable than Boeing, the world’s largest aircraftmaker. Are they nuts?
Not necessarily. Facebook could soon boast one billion users, or one in seven of the world’s population. Last year
it generated $3.7 billion in revenue and $1 billion in net profits. That is nowhere near enough to justify its price
tag. But there are reasons to bet Facebook will justify the hype, for it has found a new way to harness a
prehistoric instinct. People love to socialise, and Facebook makes it easier. The shy become more outgoing online.
The young, the mobile and the busy find that Facebook is an efficient way of staying in touch. You can do it via
laptop or smartphone, while lying in bed, waiting for a bus or pretending to work. You can look up old friends,
make new ones, share photos, arrange parties and tell each other what you thought of the latest George Clooney
film.
As more people join Facebook, its appeal grows. Those who sign up (and it’s free) have access to a wider circle.
Those who don’t can feel excluded. This powerful feedback loop has already made Facebook the biggest social-
networking site in many countries. It accounts for one in seven minutes spent online worldwide. Its growth may
be slowing in some rich countries—unsurprisingly, given how enormous it already is. And it is in effect blocked in
China. But it is still growing fast in big emerging markets such as Brazil and India.
With a little help from my friends
A $100 billion price tag would hardly be cheap, but other tech giants are worth more: Google’s market
capitalisation is $190 billion, Microsoft’s $250 billion and Apple’s $425 billion. And the commercial possibilities
are immense, for three reasons.
First, Facebook knows a staggering amount about its users. It is also constantly devising ways to find out more,
such as Timeline, a new profile page that encourages people to create an online archive of their lives. The
company mines users’ data to work out what they like and then hits their eyeballs with spookily well-targeted
ads. Last year it overtook Yahoo! to become the leading seller of online display ads in America.
Second, Facebook is the most powerful platform for social marketing. Few sales pitches are as persuasive as a
recommendation from a friend, so the billions of interactions on Facebook now influence everything from the
music that people buy to the politicians they vote for. Companies, like teenagers, are discovering that if they are
not on Facebook, they are left out. Social commerce (or “s-commerce”) is still in its infancy, but a study by Booz &
Company reckons that $5 billion-worth of goods were sold in this way last year.
Finally, Facebook is becoming the world’s de facto online passport. Since so many people have a Facebook
account under their real name, other companies are starting to use a Facebook login as a means of identifying
people online. It has even created its own online currency, the Facebook Credit.
That is the case for Facebullishness. But there are also two sets of reasons to worry. The first is the managerial
challenge of jumping from start-up to giant. Facebook has only 3,200 employees, many of whom will now become
paper millionaires. The prospect of having to motivate VIP employees—Silicon Valley shorthand for workers
“vesting in peace”—may explain why Mr Zuckerberg delayed a flotation so long. With the billions of dollars that
the IPO will bring in, the firm will add more people and services. It has already rolled out an e-mail service and
persuaded millions of other websites to add buttons and links that enable Facebook users to share material. It is
bound to add an online-search function that will heat up its battle with Google, which is including information
from its Google+ social network in its own search results.
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Google has made the jump from popularity to profitability. For all its talk of new revenue streams, Facebook is
still dangerously dependent on display ads. And there is a tension between attracting users and squeezing money
out of them. Facebook’s greatest asset is the information that its users willingly surrender to it. Turning such data
into cash, however, will inevitably raise privacy concerns. Most users don’t realise how much Facebook knows
about them. If they start to feel that it is abusing their trust, they will clam up and log out.
What Rockefeller was to oil...
This is where the other set of worries emerges—and these should concern more than just investors. America’s
Federal Trade Commission has already forced Facebook to submit to a biennial external audit of its privacy policy
and procedures. As this newspaper has argued before, it would be better if Facebook, Google and other web
giants switched their default settings from “opt-out” to “opt-in” (so that users had to give permission for the
companies to use their data).
Further down the line there is antitrust. Technology is fiendishly hard for competition tsars. On the one hand, it
creates competitors quicker than any other industry (remember AltaVista, or Myspace?). On the other, network
effects help to create monopolies. No other social network is nearly as big as Facebook, and it will soon be rich
enough to buy up potential rivals. Many firms feel they have no choice but to deal with it, and some already
resent its clout.
For the moment, leaving Facebook alone makes sense. Its users can switch if something better comes along and
its war with Google is only just beginning. If either firm behaves in a predatory way, it should be punished. But
just as Microsoft once fell foul of trustbusters, so the new web giants surely will—for good and bad reasons. It
seems likely that Google will soon face a probe from the European authorities; Facebook will probably follow one
day. The film has already been made, but the Facebook story is likely to get more intriguing.
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Nifty Valuations at a glance
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2012