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30 March 2009
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expressed in the report.
Disclosure of Interest Statement
The MOSt group and its Directors own shares in the following companies covered in this report: report:
Bharat Electronics, Bharti Airtel, Birla Corporation, GSK Pharma, Hero Honda, Hindalco, IOC, Marico,
Oriental Bank, Siemens and State Bank.
MOSt has broking relationships with a few of the companies covered in this report.
MOSt is engaged in providing investment-banking services in the following companies covered in this
report: Sintex Industries
This information is subject to change without any prior notice. MOSt reserves the right to make
Fading darkness
modifications and alternations to this statement as may be required from time to time. Nevertheless,
MOSt is committed to providing independent and transparent recommendations to its clients and
would be happy to provide information in response to specific client queries. Prices as of Friday, 27 March 2009
BACK Cover
COVER
Contents
Automobiles 4-12 Birla Corporation 52
Bajaj Auto 4 Grasim Industries 54
Hero Honda 6 India Cements 56
Mahindra & Mahindra 8 Shree Cement 58
Maruti Suzuki India 10 UltraTech Cement 60
Tata Motors 12
Engineering 62- 78
OUR PRODUCTS & SERVICES Banking 14- 46 ABB 62
Andhra Bank 14 Bharat Electronics 64
Equities & Derivatives Axis Bank 16 BHEL 66
Bank of Baroda 18 Crompton Greaves 68
Portfolio Management Services Bank of India 20 Cummins India 70
E - Broking Canara Bank 22 Larsen & Toubro 72
Corporation Bank 24 Siemens 74
Depository Services Federal Bank 26 Suzlon Energy 76
HDFC 28 Thermax 78
Mutual Funds HDFC Bank 30
FMCG 80- 102
IPOs ICICI Bank 32
Asian Paints 80
Indian Bank 34
Insurance Britannia Industries 82
Indian Overseas Bank 36
Colgate Palmolive 84
J&K Bank 38
Commodities* Dabur India 86
Oriental Bank 40
* Through Motilal Oswal Commodities Broker Pvt. Ltd. GSK Consumer 98
Punjab National Bank 42
Godrej Con. Products 90
State Bank 44
Hindustan Unilever 92
Union Bank 46
ITC 94
Cement 48-60 Marico 96
ACC 48 Nestle India 98
MOTILAL OSWAL Ambuja
M OTILALCement
OSWAL 50 Tata Tea 100
Page No. Page 1
2
United Spirits 102 Jindal Steel 144 Jubilant Organosys 192 Textiles 216- 222
JSW Steel 146 Lupin 194 Alok Industries 216
Information Tech. 104 -116
Nalco 148 Nicholas Piramal 196 Arvind Mills 218
HCL Technologies 104
Sterlite Industries 150 Ranbaxy Labs. 198 Raymond 220
Infosys 106
SAIL 152 Sun Pharmaceuticals 200 Vardhman Textiles 222
MphasiS 108
Tata Steel 154
Patni Computer 110 Real Estate 202-204 Utilities 224- 232
TCS 112 Oil & Gas 156- 174 DLF 202 CESC 224
Tech Mahindra 114 BPCL 156 Unitech 204 NTPC 226
Wipro 116 Cairn India 158 PTC India 228
Retailing 206-208
Chennai Petroleum 160 Reliance Infrastructure 230
Infrastructure 118-126 Pantaloon Retail 206
GAIL 162 Tata Power 232
HCC 118 Titan Industries 208
HPCL 164
IVRCL 120 Others 234- 242
IOC 166 Telecom 210-214
Jaiprakash Associates 122 Blue Star 234
Indraprastha Gas 168 Bharti Airtel 210
Nagarjuna Construction 124 Bombay Rayon 236
MRPL 170 Idea Cellular 212
Simplex Infrastructure 126 Everest Kanto Cylinders 238
ONGC 172 Reliance Communication 214
Sintex Industries 240
Media 128- 138 Reliance Industries 174
United Phosphorus 242
Deccan Chronicle 128
Pharmaceuticals 176- 200
H T Media 130
Aventis Pharma 176
Jagran Prakashan 132
Biocon 178
Sun TV Network 134
Cadila Healthcare 180
TV Today 136
Cipla 182
Zee Ente. Enterprise 138
Divi’s Laboratories 184
Metals 140- 154 Dr Reddy’s Labs. 186
Hindalco 140 GSK Pharma 188
Hindustan Zinc 142 Glenmark Pharma. 190
MOTILAL OSWAL MOTILAL OSWAL
Page2 Page3
3
SECTOR: AUTOMOBILES
Bajaj Auto Bajaj Auto
27 March 2009 BUY - Rs616 QUARTERLY PERFORMANCE (Rs Million)
YEAR NET SALES PAT EPS P/E ROE ROCE Y/E MARCH FY08 FY09 FY09 FY08 FY09E
END (Rs m) (Rs m) (Rs) (x) (%) (%) 4Q 3Q 4QE Full Year Full Year
3/08A 90,462 8,241 57.0 10.8 51.9 42.4 Total Volumes (nos) 552,101 493,748 444,513 2,451,407 2,198,396
3/09E 88,227 7,878 54.5 11.3 39.5 35.2
Net Sales 20,744 21,031 18,604 90,462 88,227
3/10E 92,059 9,181 63.5 9.7 36.5 35.2 Change (%) -15.9 -10.3 -2.5
3/11E 99,706 10,102 69.8 8.8 32.6 33.7
Total Cost 17,969 17,973 15,809 77,366 76,267
• We expect Bajaj Auto’s overall volumes to decline 19.5% EBITDA 2,776 3,058 2,795 13,095 11,960
YoY (~10% QoQ decline) in 4QFY09. Volumes would be EBITDA Margins (%) 13.4 14.5 15 14.5 13.6
impacted by 28% QoQ (~2% YoY) decline in exports, but
4% QoQ (~27% YoY decline) in exports. While we expect Other Income 205 379 215 1,227 1,103
two-wheeler volumes to decline 22% YoY (~9% QoQ), Extraordinary Expenses 671 611 611 1,185 1,833
three-wheeler volumes would decline 5% YoY (~14% QoQ). Interest 18 90 75 52 234
• We estimate net sales of Rs18.6b, a decline of 10% YoY. Depreciation 414 319 354 1,740 1,339
Realizations would improve by 11% YoY, reflecting
PBT 1,878 2,417 1,969 11,346 9,657
improvement in product and segment mix. EBITDA margin
would expand by 160bp to 15%, benefiting from lower Tax 670 755 611 3,788 3,036
RM cost and improvement in product mix. We estimate Effective Tax Rate (%) 35.7 31.2 31 33.4 31.4
EBITDA at Rs2.8b (flat YoY) and adjusted PAT at Rs1.8b Rep. PAT 1,208 1,662 1,359 7,558 6,621
(up 8.6% YoY). Change (%) -22.2 12.5 -12.4
• The newly launched XCD 135cc has received encouraging
response, with volumes of 20,668 units in February 2009, Adj. PAT 1,639 2,082 1,780 8,347 7,878
the first month of launch. This coupled with four product Change (%) -16.2 8.6 -5.6
upgrades in April 2009 would drive volume growth for
the company. E : MOSt Estimates No. of Equity Shares (m) : 144.7
• Our FY10 earnings estimate factors in 5.7% growth in
volumes, with domestic volume growth of 5.4% and
export volume growth of 6.3%. The stock trades at 11.3x
FY09E and 9.7x FY10E EPS. Maintain Buy.
MOTILAL OSWAL 27 March 2009 4 MOTILAL OSWAL 27 March 2009 5
4
SECTOR: AUTOMOBILES
Hero Honda Hero Honda
27 March 2009 BUY - Rs1,086 QUARTERLY PERFORMANCE (Rs Million)
3/08A 103,318 9,679 48.5 22.4 35.5 45.7 Total Volumes (nos) 884,075 857,806 994,601 3,337,142 3,718,746
3/09E 122,240 12,629 63.2 17.2 37.6 47.6
3/10E 129,520 15,874 79.5 13.7 37.6 46.8 Net Sales 27,887 28,740 33,167 103,318 122,240
Change (%) 5.6 4.8 18.9 4.4 18.3
3/11E 140,363 17,722 88.7 12.2 30.4 37.5
Total Cost 23,768 24,643 28,015 89,824 105,354
• We expect Hero Honda’s volumes to grow 12.5% YoY (~16%
QoQ) in 4QFY09. It continues to dominate the two-wheeler EBITDA 4,118 4,098 5,152 13,494 16,885
industry and has continuously gained market share. Also, As % of Sales 14.8 14.3 15.5 13.1 13.8
realizations are likely to improve by 5.7% on account of price
Other Income 551 508 566 1,854 2,204
increase taken in 1HFY09 and higher sales from Haridwar.
Our estimates factor in 280,000 units from Haridwar in Interest -81 -87 -60 -358 -280
4QFY09. Depreciation 435 475 506 1,603 1,869
• Net sales would grow 19% YoY to Rs33.2b, while operating PBT 4,316 4,219 5,272 14,103 17,501
margins are likely to improve 70bp QoQ to 14.5%, driven by Tax 1,329 1,214 1,439 4,424 4,872
ramp-up at Haridwar plant and further benefit from softening Effective Tax Rate (%) 30.8 28.8 27.3 31.4 27.8
in commodity prices. This coupled with lower tax (due to
ramp-up at Haridwar) would boost PAT growth to 28% to PAT 2,987 3,004 3,833 9,679 12,629
Rs3.8b. Adj. PAT 2,987 3,004 3,833 9,679 12,629
• The recent lowering of peak excise duty rate from 10% to 8% Change (%) 47.1 9.2 28.3 11.8 30.5
would benefit Hero Honda on raw material sourcing at E : MOSt Estimates No. of Equity Shares (m) : 199.7
Haridwar, as excise paid on raw material sourced from outside
of Haridwar is not MODVAT-able.
• Our FY10 earnings estimate factors in 6% volume growth,
1.5% decline in net realizations, and about 1m units from
Haridwar. The stock trades at 17.2x FY09E and 13.7x FY10E
EPS. Maintain Buy.
5
SECTOR: AUTOMOBILES
Mahindra & Mahindra Mahindra & Mahindra
3/08A 114,106 9,009 35.2 10.9 20.7 19.5 Total Volumes (nos) 79,025 61,130 76,003 293,759 297,441
3/09E 119,441 6,707 26.2 14.7 14.6 12.4 Change (%) 5.2 -20.7 -3.8 8 1.3
3/10E 127,511 8,372 32.7 11.8 16.6 15.1
Net Sales 31,482 25,063 31,497 114,106 119,441
3/10E 136,923 9,721 38.0 10.1 17.2 16.3
Change (%) 14.7 -14.6 0 14.3 4.7
• We expect M&M to report overall volume growth of 24% Operating Other Income 130
QoQ (but 4% YoY decline) in 4QFY09, driven by 48% QoQ Total Cost 28,058 24,345 28,510 101,672 110,109
improvement (but 4% YoY decline) in UV volumes as well as
16% QoQ (~12% YoY) growth in three-wheeler volumes. EBITDA 3,424 847 2,988 12,434 9,332
However, tractor volumes declined by 5.5% QoQ (~9% YoY). As % of Sales 10.9 3.4 9.5 10.9 7.8
Change (%) 10.5 -74 -12.7 3.6 -24.9
• Net sales are likely to decline 1.4% YoY to Rs31b. Savings in
raw material cost, coupled with return of operating leverage Other Income 273 436 208 1,682 2,234
as well as non-recurrence of excess hedging related losses Interest 139 141 159 242 533
(present in 3QFY09) would drive 610bp QoQ improvement
(but 140bp YoY decline) in EBITDA margin to 9.5%. Further, Gross Profit 3,697 682 3,036 16,454 9,129
lower tax provisioning would boost recurring PAT to Rs1.95b. Less: Depreciation 649 653 663 2,387 2,571
EO Expense -139 461 0 -2,581 1,904
• UV volumes were boosted by the launch of Xylo (14 January),
which registered sale of 2,287 units (~4,095 since launch). PBT 3,048 29 2,374 14,068 6,559
Xylo, which has received an encouraging response, would be Tax 837 17 420 3,034 1,361
the key volume driver for M&M in the UV segment, as no Effective Tax Rate (%) 27.5 58.9 17.7 21.6 20.8
major product launch is expected in the medium term.
Reported PAT 2,211 12 1,954 11,034 5,198
• We are downgrading our standalone EPS estimates by 15% Change (%) -6.3 -99.7 -11.6 3.3 -52.9
for FY09 and by 12% for FY10, and our consolidated EPS
estimates by 9% for FY09 and by 18% for FY10. On a Adj PAT 2,102 316 1,954 9,009 6,707
consolidated basis, the stock trades at 6.9x FY09E EPS and Change (%) -13.7 -88.3 -7 -4.9 -25.6
6.4x FY10E EPS. Maintain Buy.
E : MOSt Estimates No. of Equity Shares (m) : 255.9
6
SECTOR: AUTOMOBILES
Maruti Suzuki India Maruti Suzuki India
YEAR TOTAL INC. PAT ADJ.EPS P/E ROE ROCE Y/E MARCH FY08 FY09 FY09 FY08 FY09E
3/09E 207,207 13,375 46.3 16.5 13.7 18.7 Change (%) 1.1 -14 13.8 13.3 2.7
3/10E 226,461 14,473 50.1 15.3 13.4 17.9
Realizations (Rs/car) 239,258 264,685 264,475 235,221 257,903
3/11E 259,489 17,396 60.2 12.7 14.1 19.0 Change (%) 8.1 14.2 10.5 13.3 9.6
• We expect Maruti’s volumes to grow 13% YoY (~33% QoQ) in Net Op. Revenues 50,472 46,808 61,875 184,785 207,207
4QFY09, benefiting from improvement in consumer sentiment and
A-Star launch. While volumes in A1 and MPV segments continue Change (%) 11.1 -1.7 22.6 0.2 12.4
to decline, the A2 and A3 segments are witnessing robust volume EBITDA 7,904 3,518 6,080 28,553 20,823
growth. Also, export volumes are likely to grow by about 45%, As % of Sales 15.7 7.5 9.8 15.5 10
driven by commencement of A-Star exports. However, export of
other models is under pressure. Non-Operating Income 772 1,209 768 3,974 5,173
• Net sales are likely to grow by 23% YoY to Rs61.9b, driven by 13% Extraordinary Expense 3,173 -18 0 1,050 361
volume growth and 10% improvement in realizations driven by Interest 161 45 69 596 490
improvement in product mix. EBITDA margin would expand by
230bp QoQ (but contract by 590bp YoY) to 9.8%, benefiting from Gross Profit 5,342 4,700 6,780 28,589 25,145
better product mix and lower raw material cost. However, higher Less: Depreciation 988 1,775 1,800 5,682 6,894
depreciation (due to change in accounting policy) would result in
34% YoY decline in recurring PAT to Rs3.4b. PBT 4,354 2,925 4,980 25,030 18,251
• Growth in the domestic market is driven by A-Star (launched in Tax 1,377 789 1,594 7,722 5,110
November 2008) and Swift DZire (launched in March 2008). While Effective Tax Rate (%) 31.6 27 32 30.9 28
A-Star would be a key growth driver going forward (coupled with
launch of Splash in 1QFY10), Swift Dzire’s contribution to volume PAT 2,977 2,136 3,385 17,308 13,141
growth would decline from March 2009, as the base-effect gets Adjusted PAT 5,146 2,122 3,385 19,472 13,401
neutralized. Change (%) -0.2 -54.6 -34.2 0.1 -25.7
• Our FY10 earnings estimate factors in 9.7% volume growth, with
8% growth in domestic volumes and 28% growth in export E : MOSt Estimates No. of Equity Shares (m) : 289.0
volumes. Our estimate does not factor in potential export order
for A-Star from Nissan, which could add 30,000-70,000 units.
The stock trades at 16.5x FY09E and 15.3x FY10E earnings.
Maintain Buy
Buy..
7
SECTOR: AUTOMOBILES
Tata Motors Tata Motors
27 March 2009 NEUTRAL - Rs189 QUARTERLY PERFORMANCE (Rs Million)
YEAR NET SALES PAT Adj.EPS P/E ROE ROCE Y/E MARCH FY08 FY09 FY09 FY08 FY09E
3/09E 251,965 4,893 9.1 20.7 5.9 8.0
Net Sales 88,734 47,136 64,305 285,314 251,965
3/10E 240,135 7,498 14.0 13.5 8.6 10.6 Change (%) 7.9 -34.6 -27.5 4.1 -11.7
3/11E 259,717 8,678 16.2 11.7 9.5 11.7
Total Cost 79,557 46,670 60,706 257,761 236,390
• We expect Tata Motors to post volume growth of 35% QoQ (but EBITDA 9,178 917 3,599 27,553 15,574
24% YoY decline) in 4QFY09, driven by 50% QoQ growth in EBITDA Margins (%) 10.3 1.9 5.6 9.7 6.2
M&HCVs and 25% QoQ growth in LCVs, benefiting from the Change (%) 0.3 -88.8 -60.8 -16.2 -43.5
stimulus package (especially accelerated depreciation at 50% till
March 2009). Also, UV volumes grew by 69% QoQ while car Non-Operating Income 1,609 517 831 3,444 4,073
volumes grew by 35% QoQ. Forex Gain / (Loss) -1,266 -2,265 -1,750 1,376 -8,864
• Net sales grew by 36% QoQ to Rs64.3b, benefiting from 35% Extraordinary Income 718 478 0 3,382 5,202
QoQ growth in volumes and 1% QoQ increase in realization. Interest 126 1,684 1,650 2,824 5,940
Further, raw material cost savings and return of operating leverage Gross Profit 10,112 -2,038 1,031 32,931 10,045
would result in 370bp QoQ improvement (but 470 YoY decline) Depreciation & Amort. 1,776 2,017 2,191 6,523 8,045
in EBITDA margins to 5.6%. Further, lower other income, higher Product Dev. Expenses 116 137 129 644 450
interest and higher depreciation would impact recurring PAT,
which we estimate at Rs461m (~93% YoY decline). PBT 8,221 -4,192 -1,289 25,765 1,550
• Tata Motor’s CV volumes have improved, driven by increase in Tax 1,618 -1,559 -425 5,476 -1,684
accelerated depreciation on CVs purchased till 31 March 2009. Effective Tax Rate (%) 19.7 37.2 33 21.3 -108.7
However, momentum in CV volumes might not sustain post
PAT 6,603 -2,633 -864 20,289 3,235
4QFY09. Sustained pick-up in CV volumes would be a key to
improvement in the company’s financials. Change (%) 14.5 -152.8 -113.1 6 -84.1
• We are upgrading our consolidated EPS estimate for FY10 by 6% Adj PAT 6,734 -1,593 461 17,431 4,893
to Rs16.7, to factor in higher volumes in all segments. Our FY10 Change (%) 20.4 -138.3 -93.2 -14.6 -71.9
estimates factor in volume de-growth of 3%, with CV volume
de-growth of 9% and car & UV volume growth of 5%. The stock E : MOSt Estimates No. of Equity Shares (m) : 535.9
trades at 19.4x FY09E and 11.3x FY10E EPS. Maintain Neutral.
8
SECTOR: BANKING
Andhra Bank Andhra Bank
YEAR NET INCOME PAT EPS P/E ROAE ROAA Y/E MARCH FY08 FY09 FY09 FY08 FY09E
3/08A 20,012 5,756 11.9 4.1 18.0 1.1 Interest Income 11,489 13,824 14,016 42,096 52,695
3/09E 22,975 6,189 12.8 3.8 18.0 1.0 Interest Expense 8,263 9,305 9,786 28,700 36,151
3/10E 25,935 6,274 12.9 3.7 16.4 0.9 Net Interest Income 3,226 4,519 4,230 13,396 16,544
3/11E 28,832 6,761 13.9 3.5 15.9 0.8 % Change (Y-o-Y) 29.2 31.1 -0.3 23.5
• We expect net interest income (NII) to grow 31% YoY to Rs4.2b Other Income 2,036 2,165 1,725 6,617 6,431
on the back of lower base effect and 25% YoY growth in Net Income 5,262 6,684 5,955 20,012 22,975
loans. On a QoQ basis NII is expected to decline by 6% on the
Operating Expenses 2,131 2,958 2,812 9,443 11,272
back of expected fall in margins (PLR cuts and loss of pricing
power). Operating Profit 3,131 3,725 3,142 10,569 11,703
% Change (Y-o-Y) 5.9 29.2 0.4 13.5 10.7
• Moderate growth in fee-based income (~10% expected)
coupled with lower trading profits and recoveries are likely Other Provisions 914 249 490 1,394 2,534
to keep non-interest income under pressure. In 4QFY08, the Profit before Tax 2,218 3,477 2,653 9,176 9,169
bank had earned trading profits of Rs320m and recovered Tax Provisions 975 1,350 980 3,420 2,980
Rs310m from written off accounts.
Net Profit 1,243 2,127 1,673 5,756 6,189
• With gross NPAs at just 0.9% and net NPAs at 0.21%, % Change (Y-o-Y) -10.5 33.8 34.6 7 7.5
incremental provisioning for NPA would be low.
Interest Exp/Interest Income (%) 71.9 67.3 69.8 68.2 68.6
• The stock is trading at 3.7x FY10E EPS and 0.6x FY10E ABV. Other Income/Net Income (%) 38.7 32.4 29 33.1 28
The stock also offers an attractive dividend yield of ~8%. Cost/Income Ratio (%) 40.5 44.3 47.2 47.2 49.1
Maintain Buy. Provisions/Operating Profits (%) 29.2 6.7 15.6 13.2 21.6
Tax Rate (%) 44 38.8 36.9 37.3 32.5
9
SECTOR: BANKING
Axis Bank Axis Bank
3/11E 89,484 22,761 63.6 6.8 18.6 1.2 % Change (Y-o-Y) 88.7 24.4 22.4 76.1 41.9
Other Income 5,565 7,322 6,494 17,955 27,008
• We expect NII growth of ~22% YoY in 4QFY09 on the back of
36% loan growth and improved yield on advances. NII at end- Net Income 13,849 16,619 16,636 43,808 63,685
4QFY08 was substantial (a large base) owing to the raising of Operating Expenses 6,621 7,522 7,977 21,549 29,163
capital
Operating Profit 7,228 9,096 8,659 22,259 34,522
• We expect margins to improve QoQ from 3.1% in 3QFY09, as % Change (Y-o-Y) 82.1 35.3 19.8 76.1 55.1
we expect cost of funds to decline in the quarter due to Other Provisions 1,642 1,320 2,146 5,794 8,991
downward repricing of bulk deposits and better liquidity.
Profit before Tax 5,586 7,777 6,513 16,465 25,531
• We expect fee income growth to slow down to ~25% in Tax Provisions 1,972 2,768 2,001 5,755 8,681
4QFY09 due to growth pressure on retail fee.
Net Profit 3,614 5,009 4,512 10,710 16,851
• We have factored in higher NPA provisions during 4QFY09. % Change (Y-o-Y) 70.5 63.2 24.8 62.5 57.3
• The stock is trading at 8.4x FY10E EPS and 1.5x FY10E ABV. Interest Exp/Interest Income (%) 58.9 68.9 67.3 63.1 66.3
Maintain Buy. Other Income/Net Income (%) 40.2 44.1 39 41 42.4
Cost/Income Ratio (%) 47.8 45.3 47.9 49.2 45.8
Provisions/Operating Profits (%) 22.7 14.5 24.8 26 26
Tax Rate (%) 35.3 35.6 30.7 35.0 34.0
* Adjusted for reclassifcation of mortization on HTM investments as part of other income
10
SECTOR: BANKING
Bank of Baroda Bank of Baroda
3/11E 88,058 20,794 56.9 4.4 15.4 0.8 % Change (Y-o-Y) -2.4 46.6 38 9.3 29.7
Other Income 5,546 9,156 4,750 20,510 23,790
• We expect NII to grow 38% YoY to Rs14.1b on the
Net Income 15,831 23,774 18,942 59,628 74,509
back of strong growth in loans (24% YoY) and expected
improvement in margins on a YoY basis. However, on Operating Expenses 7,687 9,627 9,570 29,343 33,931
a QoQ basis NII is expected to fall by 3% despite Operating Profit 8,145 14,147 9,373 30,286 40,578
expected increase in loan growth (4% QoQ) due to % Change (Y-o-Y) 5.4 51.7 15.1 25.4 34
pressure on margins. Other Provisions 4,250 3,501 3,189 8,214 11,912
• We have factored in fee income growth of 18% YoY Profit before Tax 3,895 10,646 6,183 22,072 28,665
and lower recoveries and trading profits of Rs830m v/ Tax Provisions 1,131 3,562 1,723 7,716 9,460
s Rs2b in 4QFY08. Net Profit 2,764 7,084 4,461 14,355 19,206
• We believe the bank will make higher NPA provisions % Change (Y-o-Y) 12.5 41.4 61.4 39.8 33.8
and improve provision coverage in view of the expected Interest Exp/Interest Income (%) 69.1 64.4 67 66.9 66.7
worsening asset quality. We have factored in the NPA Other Income/Net Income (%) 35 38.5 25.1 34.4 31.9
provisions of Rs2.3b in 4QFY09. Cost/Income Ratio (%) 48.6 40.5 50.5 49.2 45.5
• The stock is trading at 0.8x FY10E ABV and 4.9x FY10E Provisions/Operating Profits (%) 52.2 24.7 34 27.1 29.4
Tax Rate (%) 29 33.5 27.9 35.0 33.0
EPS. Maintain Buy.
11
SECTOR: BANKING
Bank of India Bank of India
3/11E 100,494 28,195 53.6 4.4 19.0 1.1 % Change (Y-o-Y) 25.7 41 25.5 22.9 32.2
Other Income 6,532 10,506 5,791 21,169 28,456
• We expect strong loan growth of 24% and deposit growth of Net Income 18,700 25,722 21,056 63,461 84,377
~20%. In 4QFY08, loans and deposits for the bank grew
10%+ QoQ whereas, in 4QFY09 we expect the deposits to
grow ~4% and loan to grow ~3%. Operating Profit 12,122 17,616 13,201 37,012 53,689
% Change (Y-o-Y) 35.4 81.4 8.9 54.5 45.1
• We expect margins to come under pressure QoQ, which will
Other Provisions 2,866 2,720 2,947 10,165 12,025
lead to flat NII growth on a QoQ basis. BoI’s cost of funds
remains one of the best in the industry due to the strong Profit before Tax 9,256 14,896 10,254 26,847 41,664
retail term deposit franchise and efficient asset liability Tax Provisions 1,686 6,174 2,226 6,753 11,666
management. Net Profit 7,570 8,722 8,028 20,094 29,998
% Change (Y-o-Y) 69.2 70.4 6.1 78.9 49.3
• We have assumed significantly lower trading profits and
recoveries from written off accounts on a YoY as well as QoQ Interest Exp/Interest Income (%) 65.3 65 65.8 65.8 65.7
basis. Other Income/Net Income (%) 34.9 40.8 27.5 33.4 33.7
Cost/Income Ratio (%) 35.2 31.5 37.3 41.7 36.4
• We believe BoI has many levers to ring in positive surprises Provisions/Operating Profits (%) 23.6 15.4 22.3 27.5 22.4 Tax
versus our earnings estimate. The stock is trading at 5x FY10E Rate (%) 18.2 41.4 21.7 25.2 28.0
EPS and 1x FY10E ABV. We maintain Neutral.
12
SECTOR: BANKING
Canara Bank Canara Bank
3/11E 76,718 17,163 41.9 4.0 14.9 0.6 % Change (Y-o-Y) -12.9 33.2 28.6 -12.1 30
Other Income 7,143 7,575 5,021 22,129 19,668
• We expect loans to grow by 21% YoY (on a higher
base) and deposits to grow 20% YoY. On a QoQ basis Net Income 16,368 20,018 16,885 57,507 65,657
deposits are expected to grow 6% and loans will likely Operating Expenses 6,976 7,877 7,927 27,913 29,788
be flat. Operating Profit 9,392 12,141 8,957 29,594 35,869
• We expect NII to grow 29% YoY due to the lower base % Change (Y-o-Y) -6.6 60.2 -4.6 1.6 21.2
effect. In 4QFY08, NII declined 13% YoY. Other Provisions 3,751 3,526 2,024 10,544 12,400
• We expect operating profit to fall by 5% YoY due to Profit before Tax 5,641 8,615 6,934 19,050 23,470
lower expected trading profits and higher operating Tax Provisions 1,000 1,600 1,459 3,400 4,459
expenses (due to higher provisions for wage revision). Net Profit 4,641 7,015 5,474 15,650 19,010
% Change (Y-o-Y) -8.0 52.9 18.0 10.1 21.5
• In 3QFY09 gross NPAs for the bank increased 60% QoQ
(~Rs10b), as the bank recognized some of the technical Interest Exp/Interest Income (%) 75.6 73.1 74.2 75.1 73
Other Income/Net Income (%) 42.6 39.4 46.9 48.5 45.4
NPAs, of which Rs5b is expected to reverse in 4QFY09.
Cost/Income Ratio (%) 43.6 37.8 29.7 38.5 30
We have modeled higher NPA provision of Rs1.8b. Provisions/Operating Profits (%) 39.9 29 22.6 35.6 34.6
• The stock is trading at 4.5x FY10E EPS and 0.8x FY10E Tax Rate (%) 17.7 18.6 21.0 17.8 19.0
ABV. We maintain Buy. E : MOSt Estimates No. of Equity Shares (m) : 410.0
13
SECTOR: BANKING
Corporation Bank Corporation Bank
3/10E 28,390 7,739 54.0 3.2 15 0.9 Net Interest Income 4,026 4,780 4,395 14,433 17,021
3/11E 31,917 8,135 56.7 3.1 14.1 0.9 % Change (Y-o-Y) 3.4 37.3 9.2 10.3 17.9
Other Income 2,112 2,820 1,745 6,998 7,885
• We expect loans to grow by 20% and deposits by 17%
Net Income 6,138 7,600 6,140 21,431 24,906
on a higher base. However, QoQ basis we expect the
bank to grow its loans and deposits by 4% and 5%. Operating Expenses 2,103 3,106 2,648 8,920 10,195
On a QoQ basis, margin is expected to fall, which will Operating Profit 4,035 4,494 3,492 12,511 14,711
lead to fall in NII by 8%. % Change (Y-o-Y) 17.6 61.9 -13.5 9.7 17.6
• We expect operating profit to fall 13% due to higher Other Provisions 1,019 185 413 1,857 2,164
operating expenses (on account of higher wage revision Profit before Tax 3,016 4,309 3,079 10,654 12,547
provision) and lower trading profits and recoveries Tax Provisions 960 1,744 996 3,304 4,140
(Rs293m in 4QFY09 v/s Rs1b in 4QFY08). Net Profit 2,056 2,565 2,084 7,350 8,406
• Asset quality remains robust with net NPAs at 0.3%. % Change (Y-o-Y) 73.5 34.3 1.3 37.1 14.4
We do not expect any material weakening of the asset Interest Exp/Interest Income (%) 67.9 70.6 74.0 68.0 71.9
portfolio for the bank, however the restructuring Other Income/Net Income (%) 34.4 37.1 28.4 32.7 31.7
amount can throw negative surprises. Cost/Income Ratio (%) 34.3 40.9 43.1 41.6 40.9
Provisions/Operating Profits (%) 25.3 4.1 11.8 14.8 14.7
• The stock is trading at P/E of 3.2x of FY10E EPS of Rs54 Tax Rate (%) 31.8 40.5 32.3 31.0 33.0
and P/ABV of 0.5x of FY10E ABV of Rs360. Maintain
Buy. E : MOSt Estimates No. of Equity Shares (m) : 143.4
14
SECTOR: BANKING
Federal Bank Federal Bank
3/11E 22,205 6,628 38.8 3.8 13.2 1.5 % Change (Y-o-Y) 22 88.8 49.2 21.1 61.5
• We expect NII growth of 49% on the back of improved Other Income 1,249 1,648 1,263 3,950 4,915
margins (due to large capital raising of Rs21b in 4QFY08). Net Income 3,979 5,494 5,336 12,630 18,934
• On a higher base, we expect loans to grow 19% YoY and Operating Expenses 1,365 1,650 1,634 4,689 5,823
deposits to grow 12% YoY. On a QoQ basis, loans and
deposits is expected to grow 4% and 6% respectively Operating Profit 2,614 3,844 3,702 7,941 13,111
• In 9MFY09, fee income for the bank grew 60%+ and we % Change (Y-o-Y) 16.3 129.3 41.6 29.6 65.1
expect the strong traction to continue in 4QFY09 as well. Other Provisions 1,377 500 1,766 2,940 5,558
• A sharp QoQ fall in trading gains and MTMs would lead Profit before Tax 1,238 3,344 1,936 5,002 7,552
to equally sharp earnings decline. Tax Provisions 209 1,306 513 1,321 2,266
• In 9MFY09, gross NPA for the bank increased 34% YTD
due to the slippage of some of the large technical Net Profit 1,029 2,039 1,423 3,680 5,287
accounts. The bank expects to restrict the gross NPA in % Change (Y-o-Y) 3.6 98.1 38.4 25.7 43.6
4QFY09. We expect the bank to improve its provision Interest Exp/Interest Income (%) 61.9 56.1 55.4 65.5 58.3
coverage ratio from 88% to 94% in 4QFY09 on back of Other Income/Net Income (%) 31.4 30.0 23.7 31.3 26.0
strong operating profits (42% YoY) and expected increase Cost/Income Ratio (%) 34.3 30.0 30.6 37.1 30.8
in slippages in FY10. Reported net NPAs would jump Provisions/Operating Profits (%) 52.7 13.0 47.7 37 42.4
significantly due to floating provision reclassification. Tax Rate (%) 16.9 39.0 26.5 26.4 30.0
• Federal Bank is a value pick. The stock is trading at 4.4x
FY10E EPS and 0.5x FY10E ABV with RoA of 1.4%+, E : MOSt Estimates No. of Equity Shares (m) : 171.0
however RoE is likely to remain lower due to lower
leverage. Maintain Buy.
15
SECTOR: BANKING
HDFC HDFC
27 March 2009 NEUTRAL - Rs1,589 QUARTERLY PERFORMANCE (Rs Million)
YEAR NET INCOME PAT EPS P/E* ROAE ROAA Y/E MARCH FY08 FY09 FY09 FY08 FY09E
3/08A 30,532 19,400 68.3 16.8 22.2 2.6 Income from Operations 23,112 29,193 28,993 81,764 107,471
3/09E 33,943 21,528 74.8 16.1 16.8 2.3 Other Income 90 56 78 197 240
3/10E 38,729 24,526 85.2 13.4 17.5 2.2 Reported Total Income 23,202 29,248 29,071 81,961 107,711
3/11E 45,010 28,571 99.3 11.1 18.7 2.3 Total Income ex invst. profits 23,178 29,233 29,061 80,628 107,461
YoY Change (%) 40.8 42.5 25.4 44.7 33.3
*Price is adjusted for value of key ventures; Book value adjusted for investment in
subsidiaries Interest and Other Charges 13,598 20,427 20,085 51,429 73,768
• We expect HDFC’s disbursement growth to be muted at Other Expenses 664 960 958 2,993 3,877
~4% YoY in 4QFY09 — significantly lower than 22% Total Expenses 14,262 21,387 21,044 54,422 77,645
growth registered in 9MFY09. We expect loan growth to PBDT 8,940 7,861 8,027 27,538 30,066
slow down from ~24% YoY in 9MFY09 to 20% YoY in YoY Change (%) 31.2 2.8 -10.2 41.1 9.2
FY09. Depreciation 45 45 41 166 166
• Despite lending rate cuts, we expect spread to be
PBT (Excl Exceptional) 8,896 7,816 7,986 27,372 29,900
unaffected due to significant reduction in wholesale
PBT Ex Invest. profits 8,871 7,801 7,977 26,040 29,650
borrowing costs during the quarter.
YoY Change (%) 50.7 18.8 -10.1 58.5 13.9
• During 4QFY08, there was Rs2b exceptional gain (before
tax) on stake sale in general insurance to Egro. Adjusted Exceptional Profits 2,021 0 0 6,363 0
for extra-ordinary income earnings is expected to remain Reported PBT 10,916 7,816 7,986 33,735 29,900
flat for the company. Provision for Tax 3,235 2,348 1,950 9,373 8,372
• At current price, HDFC is trading at 3.4x FY10E AP/ABV Reported PAT 7,681 5,468 6,036 24,363 21,528
(price adjusted for value of other businesses and book YoY Change (%) 39.6 -15.7 -21.4 55.1 -11.6
value adjusted for investments made in those businesses).
PAT (Excl exceptional) 6,105 5,468 6,036 19,400 21,528
This is higher than our target multiple of 3x P/BV for the
YoY Change (%) 11.0 -1.4 -1.1 25.6 11.0
stock. Further BV multiple re-rating, in our view, is limited
given the limited scope to the RoE expansion. Maintain E : MOSt Estimates No. of Equity Shares (m) : 287.7
Neutral.
16
SECTOR: BANKING
HDFC Bank HDFC Bank
3/08A* 88,552 17,294 40.8 24.5 16.0 1.3 Interest Income 29,562 44,685 45,578 101,150 166,392
3/11E 156,844 35,055 82.6 12.1 18.6 1.4 % Change (Y-o-Y) 55.7 37.7 22.5 50.7 45
* Includes pro forma merged figures for HDFC Bank and CBo
Other Income 5,493 9,394 8,820 22,825 30,579
• HDFC Bank would consolidate CBoP in 4QFY09. We have
included the impact of CBoP merger in our 4QFY09E. Net Income 21,914 29,186 28,938 75,103 106,389
• On an adjusted basis, we expect loans to grow by 30% YoY Operating Expenses 11,027 14,606 14,714 37,456 56,080
and deposits to grow 20% YoY. We expect margins to remain Operating Profit 10,887 14,581 14,224 37,647 50,308
stable QoQ.
% Change (Y-o-Y) 42.3 36.7 30.7 46.8 33.6
• We expect other income to decline QoQ due to lower treasury
gains during the quarter. During 3QFY09, HDFC Bank has Other Provisions 4,651 5,318 4,862 14,843 17,085
reported a strong treasury gain of Rs2.3b (25% of other Profit before Tax 6,236 9,263 9,362 22,804 33,223
income). Tax Provisions 1,525 3,046 2,911 6,905 10,631
• We do not expect overall provisions to increase significantly
YoY due to (a) 4QFY08 provisions include exceptional provision Net Profit 4,711 6,217 6,451 15,899 22,592
towards MTM losses on derivative contracts (b) standard asset % Change (Y-o-Y) 37.1 44.8 36.9 39.3 42.1
provision would be nil due to relaxation by RBI on some Interest Exp/Interest Income (%) 44.5 55.7 55.9 48.3 54.4
products. Other Income/Net Income (%) 25.1 32.2 30.5 30.4 28.7
• On a reported basis, we expect HDFC Bank to report 37% Cost/Income Ratio (%) 50.3 50 50.8 49.9 52.7
earnings growth. However adjusted for CBoP (on an estimated Provisions/Operating Profits (%) 42.7 36.5 34.2 39.4 34.0
basis) acquisition, earnings growth is expected to be ~29%. Tax Rate (%) 24.4 32.9 31.1 30.3 32.0
• We have not considered conversion of warrants by HDFC during
FY10 in our estimates. We estimate PAT CAGR of 25% over No. of Equity Shares (m) : 424.3
FY09-FY11E with RoE increasing to 18.5% by FY11 (combining
CBoP with HDFC Bank from FY08 itself). The stock is trading at * * HTM ammortisation is included in the other income
2.6x FY10E ABV and 15.2x FY10E EPS. Maintain Buy.
17
SECTOR: BANKING
ICICI Bank ICICI Bank
27 March 2009 BUY - Rs 385 QUARTERLY PERFORMANCE (Rs Million)
YEAR NET INCOME PAT EPS P/E AP/ABV* CAR Y/E MARCH FY08 FY09 FY09 FY08 FY09E
3/11E 187,733 46,911 42.2 9.1 0.7 13.4 % Change (Y-o-Y) 29.3 1.6 -5.7 29.6 12.1
*Price is adjusted for value of key ventures; Book value adjusted for investment in
Other Income 23,617 25,145 17,314 88,108 76,615
subsidiaries
• We expect loans to decline 4% YoY as retail loan growth Net Income 44,411 45,050 36,918 161,149 158,496
has slowed down significantly. However, on a QoQ Operating Expenses 21,505 17,341 16,776 81,542 70,653
basis loan growth may come from increase in
agriculture and priority sector lending related activities. Operating Profit 22,907 27,708 20,142 79,607 87,843
We expect deposits to decline 12% YoY due to net % Change (Y-o-Y) 28.1 22.7 -12.1 35.5 10.3
repayment of bulk deposits in the quarter and Other Provisions 9,475 10,077 10,447 29,046 37,684
moderation in loan book growth.
• We expect the margins to fall QoQ due to: a) carrying
Tax Provisions 1,933 4,910 2,725 8,984 13,041
costs of high cost deposits raised during 3QFY09, b)
build up of low yielding loan book during the quarter Net Profit 11,498 12,722 6,971 41,577 37,118
and c) existing home loan rate reduction during % Change (Y-o-Y) 39.4 3.4 -39.4 33.7 -10.7
4QFY09. Interest Exp/Interest Income (%) 74.1 74.6 74.5 76.3 73.8
• On a high base of 4QFY08, we expect fees to decline Other Income/Net Income (%) 53.2 55.8 46.9 54.7 48.3
by ~25% YoY. We also expect the trading profits to be Cost/Income Ratio (%) 48.4 38.5 45.4 50.6 44.6
muted in the quarter. We have assumed trading profits Provisions/Operating Profits (%) 41.4 36.4 51.9 36.5 42.9
of Rs2.3b v/s Rs9.8b in 3QFY09 and Rs1.6b in 4QFY09. Tax Rate (%) 14.4 27.8 28.1 17.8 26.0
• With deteriorating asset quality and exposure to riskier
asset classes, we expect NPA provisions to remain high. E : MOSt Estimates No. of Equity Shares (m) : 1,112.7
• Excluding subsidiaries, the stock is trading adjusted P/
E at 7.7x FY10E and 0.7x FY10E adjusted ABV. We
maintain Buy.
18
SECTOR: BANKING
Indian Bank Indian Bank
3/11E 45,279 13,887 32.3 2.7 20.0 1.3 % Change (Y-o-Y) -6.7 24.6 31.1 11.8 31.2
Other Income 3,129 2,873 2,509 10,679 9,942
• We expect loan book growth to remain strong at ~30%. Net Income 8,261 10,069 9,238 30,596 36,081
During 9MFY09, the bank reduced the share of bulk deposits
to 9.5% (14.4% in 4QFY08), which will help the bank maintain Operating Expenses 3,031 3,833 3,748 14,003 14,659
margins despite cut in PLR. We have factored in lower interest Operating Profit 5,230 6,237 5,491 16,593 21,422
on recoveries in our 4QFY09 estimates. Any positive surprise % Change (Y-o-Y) -3.4 34.6 5.0 17.4 17.9
on that front can lead to higher than expected NII growth.
Other Provisions 1,782 1,410 841 4,243 5,030
• In 9MFY09, fee income grew 35%+ and we expect the strong
traction to continue. We have factored in ~20% growth in
Tax Provisions 1,031 1,320 1,442 2,262 4,672
fees. In 4QFY08, the bank earned the trading profits and
recoveries from written off accounts of Rs1.5b, which we Net Profit 2,417 3,507 3,208 10,087 11,720 %
expect to be lower. Higher-than-expected recoveries and Change (Y-o-Y) 2.7 14.0 32.7 32.8 16.2
trading profits would provide upside to our earnings Interest Exp/Interest Income (%) 62.3 59.7 62.6 61.3 61.4
estimates. Other Income/Net Income (%) 37.9 28.5 27.2 34.9 27.6
• Asset quality of the bank remains strong with GNPA at 0.9% Cost/Income Ratio (%) 36.7 38.1 40.6 45.8 40.6
and net NPAs at 0.2%. We have factored in accelerated NPA Provisions/Operating Profits (%) 34.1 22.6 15.3 25.6 23.5
provisions as operating profit growth remains strong. Tax Rate (%) 29.9 27.3 31.0 18.3 28.5
• The stock is trading at 3.2x FY10E EPS and 0.6x FY10E ABV. E : MOSt Estimates No. of Equity Shares (m) : 429.8
Maintain Buy.
19
SECTOR: BANKING
Indian Overseas Bank Indian Overseas Bank
3/11E 53,711 13,972 25.6 1.9 18.9 1.0 % Change (Y-o-Y) -11.2 25.4 18.9 4.6 17.4
Other Income 3,521 5,508 3,358 8,076 11,398
• We expect NII to grow 19% YoY on the back of the lower
base effect. In 4QFY08, NII declined 11%. We expect loan Net Income 10,344 13,734 11,472 34,871 42,850
growth to slow down to 22% YoY from 30%+ YoY in Operating Expenses 3,929 5,057 4,192 14,853 18,467
December 2008 (largely on account of the higher base effect).
Operating Profit 6,415 8,677 7,280 20,018 24,383 %
• In 9MFY09, fee income grew 16% YoY and we expect Change (Y-o-Y) 14.2 76 13.5 28.3 21.8
the traction to continue in 4QFY09 as well. We have assumed
trading profits of Rs600m v/s Rs1b in 4QFY08 and Rs3.6b Other Provisions 2,398 1,731 2,317 3,521 5,234
in 3QFY09. Profit before Tax 4,017 6,946 4,962 16,497 19,149
• Operating expenses likely to increase as the bank has started Tax Provisions 957 3,062 1,592 4,524 5,745
making provisions for the likely wage revisions. It has already Net Profit 3,060 3,884 3,370 11,973 13,405
provided Rs1.5b in 9MFY09. % Change (Y-o-Y) 5.6 26 10.2 18.7 12
• In 9MFY09, IOB’s provision coverage worsened to 46% v/s Interest Exp/Interest Income (%) 67.8 69.0 69.8 66.4 68.5
81% in 3QFY08 due to large slippages. We expect the bank Other Income/Net Income (%) 34.0 40.1 29.3 23.2 26.6
to improve provision coverage in the quarter, as operating Cost/Income Ratio (%) 38.0 36.8 36.5 42.6 43.1
profit growth would remain strong. Provisions/Operating Profits (%) 37.4 20 31.8 17.6 21.5
• PAT growth is likely to be 10% in 3QFY09, driven by higher Tax Rate (%) 23.8 44.1 32.1 27.4 30.0
growth in net interest income and treasury profits. E : MOSt Estimates No. of Equity Shares (m) : 544.8
• The stock is trading at 2.1x FY10E EPS and 0.4x FY10E ABV.
We maintain Buy.
20
SECTOR: BANKING
Jammu & Kashmir Bank Jammu & Kashmir Bank
3/11E 15,307 5,705 117.7 2.5 17.5 1.3 % Change (Y-o-Y) 10.9 30.2 12.5 5.5 23.6
• NII is expected to grow 12% to Rs2.5b in 4QFY09 on the Other Income 806 394 866 2,450 2,319
back of expected muted loan growth of 15% (5% QoQ). Net Income 3,050 3,015 3,390 10,555 12,340
We expect margins to come under pressure in 4QFY09 v/ Operating Expenses 1,021 1,145 1,155 4,036 4,544
s 3QFY09 however, it is expected to remain higher than
FY08 levels of 2.95%. Operating Profit 2,029 1,870 2,235 6,518 7,796
% Change (Y-o-Y) 38 11.4 10.2 17.3 19.6
• Other income growth is likely to be subdued due to Other Provisions 441 120 510 759 1,288
lackluster fee-based income growth.
• Management guided that it would be making higher NPA Tax Provisions 990 543 546 2,160 2,018
provisions, as trading profits have been strong in the Net Profit 598 1,207 1,179 3,600 4,491
quarter. We have modeled trading profits of Rs450m and % Change (Y-o-Y) 32.1 10.6 97.2 31.2 24.7
NPA provisions of Rs500m in our estimates for 4QFY09.
Interest Exp/Interest Income (%) 65.2 67.2 69.2 66.7 66.8
• The stock is trading at 2.9x FY10E EPS and 0.5x FY10E Other Income/Net Income (%) 26.4 13.1 25.5 23.2 18.8
ABV. We maintain Buy. Cost/Income Ratio (%) 33.5 38.0 34.1 38.2 36.8
Provisions/Operating Profits (%) 21.7 6.4 22.8 11.6 16.5
Tax Rate (%) 62.4 31.0 31.6 37.5 31.0
All quarters have been adjusted for reclassification of amortization on HTM
21
SECTOR: BANKING
Oriental Bank of Commerce Oriental Bank of Commerce
3/10E 34,313 9,443 37.7 3.2 13.6 0.8
Net Interest Income 4,370 5,678 5,678 16,820 21,040
3/11E 37,353 10,239 40.9 2.9 13.3 0.8
% Change (Y-o-Y) -2.1 41.1 29.9 -0.6 25.1
• We expect OBC’s margin to remain stable (with downward Other Income 1,606 3,154 1,967 6,167 9,268
bias) in 4QFY09, as a significant share of bulk deposits Net Income 5,976 8,832 7,645 22,987 30,308
are expected to be repriced at lower rates.
• Management has guided that loan growth would come
down to ~20% in 4QFY09 from 28% YoY in 3QFY09 due
% Change (Y-o-Y) 0 30.2 57.4 -6.0 36.0
to higher repayments from OMC. We expect loan growth
of 20% and deposits growth of 18% respectively in Other Provisions -1,001 519 1,035 -429 5,501
4QFY09. Profit before Tax 4,251 3,343 4,081 12,619 11,082
• We expect trading profits to remain high in the quarter, Tax Provisions 2,206 821 1,647 4,210 1,552
as the bank holds ~40% of the investment portfolio in Net Profit 2,046 2,522 2,434 8,409 9,531
the AFS category. The bank has not completely reversed % Change (Y-o-Y) 74.6 26.3 19.0 1.7 13.3
the AFS MTM provisions in 3QFY09. Strong trading profits
(largely on back of churning the portfolio) would enable Interest Exp/Interest Income (%) 77.1 76.4 77.1 75.4 76.6
the bank to make higher NPA provisions for the expected Other Income/Net Income (%) 26.9 35.7 25.7 26.8 30.6
Cost/Income Ratio (%) 45.6 56.3 33.1 47 45.3
slippages.
Provisions/Operating Profits (%) -30.8 13.4 20.2 -3.5 33.2
• The stock is trading at 3.2x FY10E EPS and 0.4x FY10E Tax Rate (%) 51.9 24.6 40.4 33.4 14.0
ABV. We maintain Buy.
22
SECTOR: BANKING
Punjab National Bank Punjab National Bank
3/10E 107,697 30,196 95.8 4.6 21.0 1.2
3/11E 121,906 34,932 110.8 4.0 20.7 1.2
% Change (Y-o-Y) 12.7 38.1 28.6 6.2 27.8
• We expect loan growth to come down to 26% YoY in Other Income 5,372 9,452 5,337 19,976 25,978
4QFY09 v/s 39% YoY in 3QFY09 largely on the back of Net Income 20,545 29,126 24,847 75,317 96,731
strong base effect. On a QoQ basis, we expect the bank
to report loan growth of 6%. In 4QFY08, loans grew 18% Operating Expenses 8,277 11,066 11,046 35,255 41,369
QoQ and deposits grew 9% QoQ. Margins are expected Operating Profit 12,268 18,059 13,800 40,062 55,362
to decline QoQ due to sharp PLR cuts and loss of pricing % Change (Y-o-Y) 39 82.2 12.5 10.7 38.2
power.
• We expect trading profits of Rs250m v/s Rs3.4b in 3QFY09 Other Provisions 1,677 1,813 2,943 7,103 10,039
and Rs719b in 4QFY08. We expect fees to grow ~15%. Profit before Tax 10,591 16,246 10,858 32,959 45,324
• Gross NPA and net NPA ratio remains comfortable at 2.3% Tax Provisions 5,154 6,188 2,744 12,472 14,957
and 0.4% with provision coverage ratio of 83% as on
December 2008. However, on the back of strong Net Profit 5,438 10,058 8,114 20,488 30,367
profitability we have assumed NPA provisions of Rs3.3b % Change (Y-o-Y) 128.8 85.8 49.2 33 48.2
for 4QFY09. PNB's reported net NPAs would rise Interest Exp/Interest Income (%) 60.9 62.8 63.6 61.2 63.6
significantly QoQ due to reclassification of floating Other Income/Net Income (%) 26.1 32.5 21.5 26.5 26.9
provision. Cost/Income Ratio (%) 40.3 38 44.5 46.8 42.8
• We expect the bank to report PAT growth of 50% in Provisions/Operating Profits (%) 13.7 10 21.3 17.7 18.1
4QFY09 largely on back of strong core operations. In Tax Rate (%) 48.7 38.1 25.3 37.8 33.0
4QFY08, the bank had a higher tax rate of 49%.
• The stock is trading at 4.6x FY10E EPS and 1x FY10E ABV. E : MOSt Estimates No. of Equity Shares (m) : 315.3
We maintain Buy.
23
SECTOR: BANKING
State Bank of India State Bank of India
YEAR NET INCOME PAT EPS CON.P/E ROAA ROAE Y/E MARCH FY08 FY09 FY09 FY08 FY09E
3/10E 369,352 84,755 134.2 6.4 0.9 14.4
3/11E 418,296 98,281 155.6 5.7 0.9 15.0
% Change (Y-o-Y) 5.6 35.3 20.9 0 28.3
* Consolidated Other Income 28,172 32,256 38,505 86,949 118,231
• We expect loans growth of ~23 YoY and deposit growth of
30%+ YoY for the bank. On a QoQ basis loans and deposits Net Income 76,178 89,838 96,526 257,162 336,564
are expected to grow ~2% each. Operating Expenses 32,447 45,011 41,504 126,086 155,160
• We expect margins to decline QOQ due to lending rate cut
and significant liquidity in the balance sheet. Operating Profit 43,731 44,826 55,023 131,076 181,404
% Change (Y-o-Y) 10.2 22.5 25.8 0 38.4
• In 9MFY09, fee income grew ~50% YoY for the bank. 4Q
fees for SBI are lumpy in nature and usually equal to total Other Provisions 16,191 1,968 16,163 26,687 39,732
fees booked in first three quarters. We have assumed fee
income to remain flat on a YoY basis in 4QFY09 (and ~25% Profit before Tax 27,540 42,858 38,860 104,389 141,673
lower than 9MFY09 fees). Trading profits are expected to Tax Provisions 8,707 18,074 14,104 37,098 53,127
remain lower than 3QFY09 level. Net Profit 18,833 24,784 24,756 67,291 88,545
• We expect opex to decline QoQ as 3QFY09 included % Change (Y-o-Y) 26.1 37.0 31.5 48.2 31.6
exceptional pension liability provision of Rs7.5b. SBI had not
fully reversed MTM gains on its investments during 3QFY09. Interest Exp/Interest Income (%) 64.6 68.1 69.7 65.2 67.2
Thus we expect MTM provisions would be marginal during Other Income/Net Income (%) 37 35.9 39.9 33.8 35.1
4QFY09 despite hardening of yields. Cost/Income Ratio (%) 42.6 50.1 43.0 49.0 46.1
• We have factored in higher NPA provisions of Rs14.4b due to Provisions/Operating Profits (%) 37.0 4.4 29.4 20.4 21.9
lower provision coverage and increased NPA concerns. We Tax Rate (%) 31.6 42.2 36.3 35.5 37.5
note that SBI can surprise positively on the provision front.
• The stock is trading at 6.4x FY10E consolidated EPS and
1x FY10E consolidated ABV. Maintain Buy.
24
SECTOR: BANKING
Union Bank of India Union Bank of India
3/10E 59,381 17,947 35.5 4.3 23.1 1.1
3/11E 68,490 20,945 41.5 3.7 22.6 1.1
% Change (Y-o-Y) -5.3 50 34 11.6 35.4
• We expect loan growth and deposit growth of ~27%. We Other Income 3,467 3,921 3,176 12,327 12,146
expect margins to be under marginal pressure due to the
cut in PLR and loss of pricing power. NII is expected to Net Income 11,446 15,205 13,864 41,734 51,971
grow 34% YoY on a lower base (in 4QFY08, NII fell 5%
YoY). However, on a QoQ basis we expect NII to fall by 5%.
• Core fee income is likely to grow strongly at ~20% YoY in
% Change (Y-o-Y) 17.4 34.3 17.6 29 24.7
4QFY09 on the back of the bank’s increased thrust on
scaling up traditional non-fund based revenue. Other Provisions 3,520 -449 2,041 7,199 6,581
• We have assumed the trading profits of Rs470m v/s Rs400m Profit before Tax 5,387 8,997 8,434 18,605 25,599
in 4QFY08 and Rs980m in 3QFY09. Tax Provisions 170 2,280 2,618 4,734 7,168
• The bank enjoys the best asset quality with GNPA at 1.7% Net Profit 5,217 6,717 5,816 13,871 18,431
and NNPA at 0.14%. However, on the back of the higher % Change (Y-o-Y) 128.7 84.1 11.5 64.1 32.9
operating profits, we expect the bank to accelerate NPA
provisions in the quarter. We have modeled NPA provisions Interest Exp/Interest Income (%) 68.9 65.4 67.4 68.4 66.5
of Rs1.7b in 4QFY09. Reported NPAs could rise ~5x from Other Income/Net Income (%) 30.3 25.8 22.9 29.5 23.4
December 2008 level due to reclassification of floating Cost/Income Ratio (%) 22.2 43.8 24.4 38.2 38.1
provisions as per RBI’s new requirement. Provisions/Operating Profits (%) 39.5 -5.3 19.5 27.9 20.5
Tax Rate (%) 3.2 25.3 31.0 25.4 28.0
• The stock is trading at 4.3x FY10E EPS and 1x FY10E ABV.
We maintain Buy. E : MOSt Estimates No. of Equity Shares (m) : 505.1
25
SECTOR: CEMENT
ACC ACC
27 March 2009 NEUTRAL - Rs579 QUARTERLY PERFORMANCE (STANDALONE) (Rs Million)
YEAR NET SALES PAT EPS* P/E ROE ROCE Y/E DECEMBER CY08 CY08 CY09E cY08 cY09E
END (Rs m) (Rs m) (Rs) (x) (%) (%) 1Q 4Q 1Q Full Year Full Year
12/07A 68,807 12,798 68.1 8.5 30.8 33.7 Cement Sales (m ton) 5.4 5.46 5.6 21 22.3
12/08A 73,086 11,787 62.7 9.2 23.9 25.0 YoY Change (%) 9.5 8.8 3.7 5.2 6.0
12/09E 77,033 10,423 55.5 10.4 18.8 20.7 Cement Realization 3,271 3,575 3,575 3,479 3,459
12/10E 78,385 6,749 35.9 16.1 11.5 11.6 YoY Change (%) 3.8 10.4 9.3 6.7 -0.6
QoQ Change (%) 1.0 -0.7 0
* Fully Diluted EPS;
Net Sales 17,663 19,520 20,020 73,086 77,033
• Dispatches during 1QCY09 are expected to have muted
YoY Change (%) 8 13.2 13.3 6.2 5.4
growth at 3.7% to 5.6mt, as it continues to operate at
optimal rate. Average realizations are expected to remain EBITDA 4,706 4,449 5,145 17,332 16,665
flat at Rs3,575/ton (~9.3% higher YoY). Margins (%) 26.6 22.8 25.7 23.7 21.6
• Net sales are expected to grow by 13% YoY to Rs20b. Depreciation 714 768 780 2,942 3,452
Cement business EBITDA margin is expected to improve Interest 56 120 110 400 466
by 290bp QoQ (~90bp YoY decline) to 25.7%, as benefit Other Income 656 1,098 600 2,887 2,250
of lower energy cost starts reflecting. As a result, EBITDA PBT before EO Item 4,593 4,660 4,855 16,877 14,997
is expected to decline 9% YoY to Rs5.1b. Higher EO Income/(Expense) 366 0 0 489 0
depreciation, interest cost and tax provisioning would PBT after EO Item 4,958 4,660 4,855 17,366 14,997
restrict impact PAT growth to 1.9% to Rs3.4b. Tax 1,383 1,315 1,481 5,238 4,574
• ACC, with about 85% dependence on domestic coal, Rate (%) 27.9 28.2 30.5 30.2 30.5
would benefit from moderation in domestic open market Reported PAT 3,575 3,345 3,374 12,128 10,423
coal prices. We estimate Rs6-7/bag savings in cost. Adjusted PAT 3,312 3,345 3,374 11,787 10,423
Margins (%) 18.7 17.1 16.9 16.1 13.5
• We are upgrading our earnings estimates for CY09 by YoY Change (%) -5.9 8.5 1.9 -7.9 -11.6
5.3% to Rs55.5 to factor in change in pricing assumption
for stable prices till 1QFY10 and Rs10/bag decline in
2QFY10 and 3QFY10 each. Valuations at 10.4x CY09E Note: The quarterly results are not strictly comparable due to demerger of RMC business
EPS and 5.7x CY09E EV/EBITDA appear rich. Maintain from January 2008.
Neutral.
26
SECTOR: CEMENT
Ambuja Cement Ambuja Cement
YEAR NET SALES PAT EPS P/E ROE ROCE Y/E DECEMBER CY08 CY08 CY09E cY08 cY09E
12/07A 56,314 13,078 8.6 8.3 32.2 43.0 Sales Volume (m ton) 4.8 4.5 5.08 17.6 18.86
12/08A 62,347 11,335 7.4 9.6 22.1 31.1 YoY Change (%) 10.6 5.7 5.8 5 7.2
12/09E 64,721 10,738 7.1 10.1 17.9 24.4 Realization (Rs/ton) 3,448 3,570 3,543 3,542 3,431
12/10E 67,044 8,019 5.3 13.6 12.3 16.5 YoY Change (%) 5.4 3.6 2.8 5.4 -3.1
QoQ Change (%) 0 -0.2 -0.8
• Dispatches are expected to be 5.1mt (growth of ~6% Net Sales 16,549 16,081 17,998 62,347 64,721
YoY), whereas average realizations are expected to be at YoY Change (%) 16.6 9.5 8.8 259.3 228.9
Rs3,543/ton (up ~3% YoY and 1% QoQ decline). As a EBITDA 5,160 3,785 4,622 17,779 16,804
result, 1QCY09 sales are expected to be at Rs18b (up Margins (%) 31.2 23.5 25.7 28.5 26
~9% YoY). Depreciation 618 709 715 2,598 3,301
• EBITDA margin is expected to improve 220bp QoQ Interest 57 148 70 321 294
(~550YoY decline) to 25.7%. However, there wouldn’t Other Income 406 666 450 1,754 1,810
be any benefit of lower imported coal prices in 1QCY09 PBT before EO Item 4,890 3,594 4,287 16,615 15,018
as the company is carrying inventory of high cost Extraordinary Inc/(Exp) -59 0 0 3,083 0
imported coal. Recurring PAT is estimated to decline by PBT after EO Exp/(Inc) 4,832 3,594 4,287 19,698 15,018
9% to Rs3b. Tax 1,570 1,105 1,286 5,676 4,280
Rate (%) 32.5 30.7 30.0 28.8 28.5
• Ambuja would benefit from lower imported coal prices
from 2QCY09. We estimate cost savings of about Rs10- Reported Profit 3,262 2,490 3,001 14,023 10,738
11/bag, including savings in freight cost. Adj PAT 3,302 2,490 3,001 11,335 10,738
YoY Change (%) -7.8 -11 -9.1 -13.3 -5.3
• We are upgrading our earnings estimates for CY09 by
E : MOSt Estimates No. of Equity Shares (m) : 1,522.4
8.4% to Rs7.1 to factor in change in pricing assumption
for stable prices till 1QFY10 and Rs10/bag decline in
2QFY10 and 3QFY10 each. Valuations at 10.1x CY09E
earnings and 5.6x CY08E EV/EBITDA are a fair reflection
of business fundamentals. Maintain Neutral.
27
SECTOR: CEMENT
Birla Corporation Birla Corporation
03/08A 17,248 3,932 51.1 3.4 39.1 42.5 Cement Sales (m ton) 1.48 1.4 1.5 5.28 5.2
03/09E 17,130 3,226 41.9 4.2 25.1 28.5 YoY Change (%) 3.8 5.3 1.5 0.9 -1.6
03/10E 17,388 2,844 36.9 4.7 18.6 23.2
Cement Realization 2,963 2,931 3,013 3,001 3,025
03/11E 17,835 2,119 27.5 6.3 12.5 16.1
YoY Change (%) 1.6 -2.8 1.7 9.8 0.8
• During 4QFY09, Birla Corporation’s revenues are expected to QoQ Change (%) -1.7 -4.9 2.8
grow by just 1% to Rs4.9b. Cement realizations are likely to
improve by 3% QoQ (~1.7% YoY) to Rs3,013/ton, whereas Net Sales 4,887 4,521 4,932 17,248 17,130
volumes are expected to grow by 1.5% to 1.5MT. YoY Change (%) 10.1 4.5 0.9 10.1 -0.7
• Higher realizations would translate into 230bp QoQ Total Expenditure 3,575 3,503 3,659 11,493 12,918
improvement (~200bp YoY decline) in EBITDA margin to
EBITDA 1,312 1,019 1,273 5,755 4,212
24.8%. Also, it would benefit from decline in pet coke and
Margins (%) 26.8 22.5 25.8 33.4 24.6
domestic open market coal prices. Further, lower tax
provisioning at 26.8% of PBT (v/s 30.9% in 4QFY08) would Depreciation 107 110 111 419 419
boost recurring PAT to Rs897m (~3.6% YoY). Interest 54 56 34 211 177
• Birla Corp would benefit from recent recovery in cement prices Other Income 101 191 97 383 644
in its key market of North, Central and East. While partial
benefit of higher cement prices would be reflected in 4QFY09,
Tax 387 230 328 1,576 1,033
full benefit is expected to reflect only from 1QFY10. This
Rate (%) 30.9 22.1 26.8 28.6 24.3
coupled with savings of Rs8-9/bag, on account of energy and
freight cost, augurs well for the company. Adjusted PAT 866 814 897 3,932 3,226
• The stock trades at 4.7x FY10 EPS, 1.7x EV/EBITDA and EV/ton Margins (%) 17.7 18 18.2 22.8 18.8
of US$16/ton (at 7.5mt capacity), which is at a discount to YoY Change (%) -14.5 -23.6 3.6 20.5 -18.0
comparable peers. We believe the discount is not justified
and valuations, based on earnings as well as replacement
cost, are compelling. Maintain Buy.
28
SECTOR: CEMENT
Grasim Industries Grasim Industries
27 March 2009 BUY - Rs1,607 QUARTERLY PERFORMANCE (STANDALONE) (Rs Million)
END* (Rs m) (Rs m) (Rs) (x) (%) (%) 4Q 3Q 4QE Full Year Full Year
03/08A 169,739 26,951 293.9 5.5 34.3 31.1 Net Sales 27,424 26,536 26,680 102,781 105,991
03/09E 177,477 21,870 238.5 6.7 21.7 20.3 YoY Change (%) 10.8 2.3 -2.7 18.9 3.1
03/10E 173,595 16,835 183.6 8.8 14.4 15.9
EBITDA 6,623 4,995 5,795 31,097 24,102
03/11E 187,702 13,804 150.5 10.7 10.3 15.4
Margins (%) 24.2 18.8 21.7 30.3 22.7
* Consolidated
• Grasim (standalone) is estimated to post sales decline of 3% Depreciation 942 1,198 1,338 3,533 4,654
YoY to Rs26.7b in 4QFY09, impacted by severe slowdown in Interest 272 444 614 1,070 1,650
VSF business. However, cost savings in cement business Other Income 1,187 806 726 3,148 3,350
would drive margin improvement of 290bp QoQ (~250bp
YoY decline) to 21.7%. Further, higher depreciation and PBT before EO Items 6,597 4,159 4,569 29,642 21,147
interest cost due to commissioning of new cement capacities Extraordinary Inc/(Exp) 2,257 0 0 2,307 0
would further result in PAT de-growth to 31% at Rs3.1b.
PBT after EO Items 8,853 4,159 4,569 31,949 21,147
• The cement volumes are expected to benefit from Tax 2,182 864 996 9,623 4,942
commencement of new 4.5MT capacity at Rajasthan, driving
7.1% YoY growth in volumes to 4.65mt. Realizations expected Rate (%) 24.7 20.8 21.8 30.1 23.4
to improve by 1.5% QoQ (~5.6% YoY) to Rs3,450/ton. Reported PAT 6,671 3,296 3,573 22,326 16,206
Cement division’s operating margins are expected to improve
by 70bp QoQ (~450bp YoY decline) to 24.3%, benefiting Adj. PAT 4,453 3,296 3,573 20,071 16,206
from lower energy cost. YoY Change (%) -0.8 -40 -19.7 32.9 -19.3
• VSF volumes are likely to decline by 15% YoY and realizations E : MOSt Estimates No. of Equity Shares (m) : 91.7
are likely to decline by 7.9% QoQ (~17% YoY) to Rs89/kg. As Quarterly results do not add-up to full year results due to restatement
a result, operating margins for VSF business are expected to
decline by 14.7pp YoY (~70bp QoQ improvement) to 12%.
• We are upgrading our earnings estimates for FY10 by 2% to
Rs183.6 to factor in change in pricing assumption for stable
prices till 1QFY10 and Rs10/bag decline in 2QFY10 and
3QFY10 each. Valuations at 8.8x PER FY10E and 5.5x FY10E
EV/EBITDA (consolidated) appears reasonable. Maintain Buy.
29
SECTOR: CEMENT
India Cement India Cement
03/08A 30,442 6,739 24.7 4.4 34.0 25.6 Sales Dispatches (m ton) 2.46 2 2.44 9.22 9.24
03/09E 34,282 5,201 19.1 5.8 18.7 19.8 YoY Change (%) - -8.3 -0.6 9.4 0.2
03/11E 38,152 4,564 16.7 6.6 12.5 14.8 YoY Change (%) 21.7 6.9 6.9 23.2 8.6
QoQ Change (%) -0.7 1.2 -0.6
• India Cement is expected to report 5.7% YoY sales growth Net Sales 8,440 7,529 8,923 30,443 34,282
to Rs8.9b, driven by 7% YoY (flat QoQ) higher realizations YoY Change (%) 8 2 5.7 35 12.6
to Rs3,605/ton and flat volumes to 2.44MT. Volumes are
Total Expenditure 5,811 5,728 6,293 19,648 23,968
impacted due to on-going brownfield expansion at its key
plants. EBITDA 2,629 1,801 2,631 10,794 10,314
• Savings from lower imported coal cost would translate Margins (%) 31.1 23.9 29.5 35.5 30.1
into EBITDA margin improvement of 560bp QoQ (~160bp Depreciation 390 513 584 1,279 2,084
YoY decline) to 29.5% and flat EBITDA to Rs2.6b. Our Interest 229 293 283 1,099 1,054
estimates doesn’t factor in for any expenses related to Other Income 325 141 167 511 530
IPL. Lower tax provisioning would restrict PAT de-growth PBT before EO Expense 2,335 1,136 1,931 8,928 7,706
to 1.6% to Rs1.38b. Extra-Ord Expense 481 132 60 481 705
• India Cement would be one of the biggest beneficiaries PBT 1,854 1,004 1,871 8,446 7,001
of decline in imported coal prices. We estimate saving of Tax 810 385 529 2,071 2,275
about Rs16-17/bag from energy cost and freight cost Rate (%) 43.7 38.3 28.3 24.5 32.5
savings from 4QFY09. Reported PAT 1,044 619 1,342 6,375 4,725
• At valuations of 5.3x FY10E EPS and 3x FY10E EBITDA, Adj PAT 1,408 700 1,385 6,739 5,201
the stock is attractive. Maintain Buy. YoY Change (%) -16.8 -44.9 -1.6 40.7 -22.8
Margins (%) 16.7 9.3 15.5 22.1 15.2
*Excluding Visaka merger
30
SECTOR: CEMENT
Shree Cement Shree Cement
03/08A 20,659 2,879 82.6 8.1 51.1 27.0 Sales Dispatches (m ton) 2.06 2.11 2.28 6.6 8.33
03/09E 26,276 4,762 136.7 4.9 53.2 33.7 YoY Change (%) 61.1 30.2 11.1 33.6 26.1
03/11E 27,048 2,049 58.8 11.4 13.3 14.8 YoY Change (%) 6.7 -6.9 -3.2 13.1 -1.3
QoQ Change (%) -3.5 -0.2 0.3
• Sales in 4QFY09 are expected to grow by 11% YoY to Rs7.2b
Net Sales 6,501 6,653 7,188 20,659 26,276
driven by volume growth of 11% YoY to 2.28mt, while YoY Change (%) 71.9 25.6 10.6 51 27.2
realizations are expected to remain flat QoQ (~3% YoY decline)
to Rs3,059/ton. EBITDA 2,537 2,269 2,528 8,624 8,730
Margins (%) 39 34.1 35.2 41.7 33.2
• Significant savings in energy cost, coupled with freight cost
savings, would translate in EBITDA margin improvement of Depreciation 1,867 509 1,000 4,788 2,507
110bp QoQ (~380bp YoY decline) to 35.2% and EBITDA to Interest 246 166 186 497 689
Rs2.5b. Shree Cement would benefit from about 50% drop Other Income 146 183 164 733 800
in pet coke prices, with savings of about Rs17-18/bag which
PBT before EO Exp 569 1,776 1,507 4,072 6,335
would be reflected from 4QFY09. Extra-Ord Expense 0 53 60 389 286
• Depreciation is expected to increase QoQ by 96% to Rs1b as
unit VII is expected to be capitalized in 4QFY09. As a result, PBT 569 1,723 1,447 3,683 6,049
Tax 158 484 394 1,079 1,573
PAT is expected to de-grow 14% QoQ (~167% YoY growth)
Rate (%) 27.8 28.1 27.2 29.3 26.0
to Rs1.1b.
• We are upgrading our earnings estimates for FY10 by 4.7% Reported PAT 411 1,239 1,053 2,604 4,476
to Rs98.8 to factor in change in pricing assumption for stable Adj PAT 411 1,278 1,096 2,879 4,688
YoY Change (%) 920 264.7 166.9 81.3 62.9
prices till 1QFY10 and Rs10/bag decline in 2QFY10 and 3QFY10
Margins (%) 6.3 19.2 15.3 13.9 17.8
each. The stock trades at attractive valuations of 6.8x FY10E
EPS and 3.6x FY10E EBITDA. Maintain Buy. E : MOSt Estimates No. of Equity Shares (m) : 34.8
Quarterly results do not add up with full year results as it provides addl. depn. and deferred tax at the
end of the year
31
SECTOR: CEMENT
Ultratech Cement Ultratech Cement
27 March 2009 BUY - Rs529 QUARTERLY PERFORMANCE (STANDALONE) (Rs Million)
03/08A 55,092 10,076 80.9 6.5 45.2 40.7 Sales (m ton) 4.82 4.57 5.14 17.28 18.04
03/09E 63,177 9,242 74.2 7.1 29.6 28.3 YoY Change (%) -4.6 4.6 6.7 -2.3 4.4
03/11E 68,819 7,034 56.5 9.4 14.8 17.3 YoY Change (%) 11.4 11.8 4.1 11.7 8.5
QoQ Change (%) 5.1 1.5 -2.1
• Net sales expected to grow by 12% YoY to Rs18b driven
by 4.1% YoY (~2.1% QoQ decline) higher realizations Net Sales 16,017 16,308 17,947 55,092 63,177
to Rs3,325/ton and 6.7% growth in volumes to 5.14MT. YoY Change (%) 9.3 18.2 12.1 12.2 14.7
Also, strong growth in RMC business (~35% YoY) Total Expenditure 11,132 12,000 13,131 37,892 46,627
would support revenue growth.
EBITDA 4,885 4,308 4,816 17,201 16,549
• While realizations in domestic market would remain Margins (%) 30.5 26.4 26.8 31.2 26.2
stable, export realizations have declined by about
US$10/ton for cement and US$5/ton for clinker. Depreciation 650 805 1,046 2,372 3,370
Interest 193 359 422 757 1,337
• Cost savings in the form of energy and freight cost Other Income 270 204 202 999 950
would result in 40bp YoY decline (~370bp YoY decline)
in EBITDA margin at 26.8% and flat EBITDA at Rs4.8b. PBT after EO Expense 4,312 3,348 3,550 15,070 12,792
However, higher depreciation and interest cost (on Tax 1,483 964 983 4,994 3,550
Rate (%) 34.4 28.8 27.7 33.1 27.8
account of new capacity) would result in 9% de-growth
in PAT to Rs2.6b. Reported PAT 2,829 2,384 2,567 10,076 9,242
• At 6.9x FY10E EPS and 4.4x FY10E EV/EBITDA , Adj PAT 2,829 2,384 2,567 10,076 9,242
YoY Change (%) 22.2 -14.7 -9.3 28.8 -8.3
valuations do not fully reflect the improving operating
performance and organic growth visibility at the low E : MOSt Estimates No. of Equity Shares (m) : 124.5
cost of expansion. Maintain Buy. Quarterly results do no add up to full year results due to recasting
32
SECTOR: ENGINEERING
ABB ABB
YEAR NET SALES PAT EPS P/E ROE ROCE

Y/E DECEMBER CY08 CY08 CY09E cY08 cY09E
END* (Rs m) (Rs m) (Rs) (x) (%) (%) 1Q 4Q 1Q Full Year Full Year
12/08A 68,370 5,325 25.1 16.7 28.5 45.6 Sales 15,353 21,663 16,781 68,370 73,685
12/09E 73,685 5,098 24.1 17.5 21.8 35.1 Change (%) 17 17.8 9.3 15.3 7.8
12/10E 73,838 4,890 23.1 18.2 17.6 28.4 EBITDA 1,728 2,680 1,846 7,658 7,855
Change (%) 34.8 3 6.8 5.7 2.6
12/11E 81,372 4,914 23.2 18.1 15.3 24.9
As % of Sales 11.3 12.4 11 11.2 10.7
• Order intake in 4QCY08 stood at Rs12.6b (down 37.1% YoY and Depreciation 83 103 105 367 446
33.2% QoQ), the first instance of YoY decline since 4QCY05. Even
during 2QCY08/3QCY08, order intake posted QoQ decline Interest 28 159 148 262 450
indicating slowing order flow. Order backlog at December 2008 Other Income 185 507 187 1,275 825
was Rs61.6b (up 22.6% YoY), book-to-bill ratio of 0.9x CY08 PBT 1,801 2,925 1,780 8,304 7,784
revenues.
• We expect subdued revenue growth of 9.3% YoY to Rs16.8b during Tax 624 993 614 2,858 2,685
1QCY09, in line with our annual assumption of 8% YoY growth. A Effective Tax Rate (%) 34.6 34 34.5 34.4 34.5
majority of the contracts entail PVC, thus the commodity price
decline could be largely pass through. Also, management indicated Repoted PAT 1,177 1,931 1,166 5,446 5,098
that price negotiations are in a few private sector projects. Adj. PAT 1,177 1,931 1,166 5,325 5,098
• EBITDA margin during CY08 has witnessed 100bp decline to Change (%) 35.9 6.8 -0.9 8.3 -4.3
11.2%. While we have estimated further decline in EBITDA margin
to 10.7% in CY09, the impact would be more prominent during E : MOSt Estimates No. of Equity Shares (m) : 211.9
2HFY09. This could be due to reducing proportion of higher margin
automation/private/products business.
• We expect decline in the share of revenues of automation business
from 42% in CY08 to 40% in CY09 and 36% in CY10; and share in
EBIT to decline from 48% in CY08 to 42% in CY09 and 36% in
CY10. Given the change in composition towards power business
(relatively lower margin) in CY09 / CY10, we expect EBIT margin
pressure during CY09/CY10.
• During CY08, the working capital has witnessed deterioration and
stands at 17% of revenues in CY08, v/s 8% in CY07. Also, net cash
level has declined from Rs6.4b in December 2007 to Rs2.8b in
December 2008.
• The stock is trading at 17.5x CY09E and 18.2x CY10E earnings.
We estimate EPS of Rs24.1/sh for CY09 and Rs23.1/sh for CY10.
Maintain Neutral.
33
SECTOR: ENGINEERING
Bharat Electronics Bharat Electronics
3/08A 40,603 8,272 103.4 8.1 29.4 29.4 Sales 22,937 6,709 26,761 40,693 45,116
3/09E 45,116 7,998 100.0 8.4 23.5 23.9 Change (%) 32.3 1.3 16.7 4.5 10.9
3/10E 51,443 8,720 109.0 7.7 21.5 21.5
EBITDA 6,986 1,606 7,764 9,742 10,671
3/11E 56,587 9,443 118.0 7.1 19.8 19.8
Change (%) 44.1 26.6 11.1 3.5 9.5
• For 4QFY09 we expect Bharat Electronics to report revenue of As of % Sales 30.5 23.9 29 23.9 23.7
Rs26.8b, up 16.7% YoY; EBITDA of Rs7.8b, up 11.1% YoY; and net
profit of Rs5.5b, up 9.1% YoY. Depreciation 269 270 278 935 1,044
• Management has guided for revenue of Rs100b for FY12, which Interest 1 0 109 3 180
is higher than the previous (April 2007) guidance of US$2b by
Other Income 522 456 715 2,303 2,316
FY12. It implies an impressive CAGR of 24.9% over FY08 gross
revenues of Rs41.1b. Exceptional Items (reported) 212 0 0 232 0
• Order book position at the end of 3QFY09 stood at more than PBT 7,450 1,793 8,093 11,338 11,762
Rs100b, book-to-bill ratio of 2.2x FY09 revenues.
Tax 2,402 565 2,585 3,669 3,764
• Every year BEL signs an MoU with the Ministry of Defense stating
its target for the year. During FY09, BEL has to clock a turnover of Effective Tax Rate (%) 32.2 31.5 31.9 32.4 32
Rs46.5b to achieve an excellent rating from the government. Reported PAT 5,048 1,228 5,508 7,670 7,998
During FY08, BEL has achieved an excellent rating.
• During 4QFY09, BEL signed MoUs with: (1) Astra Microwave Change (%) 41.3 8.7 9.1 7.4 4.3
Products for manufacturing microwave components and Adj PAT 4,836 1,228 5,508 7,438 7,998
assemblies, products which will cater to the requirements of the
Indian defense, government establishments etc., (2) SELEX Galileo E : MOSt Estimates No. of Equity Shares (m) : 80.0
to explore opportunities in the filed of electronics warfare for the
Indian and export market, (3) Boeing to open center to support
India’s defense modernization. BEL has also been selected by
Northrop Grumman Corporation to manufacture components for
the F-16 fire control radar.
• We expect the company to post revenue and earnings CAGR of
12% and 9% respectively during FY09-11E. The stock is trading at
a P/E of 8.4x FY09E and 7.7x FY10E. Buy.
34
SECTOR: ENGINEERING
BHEL BHEL
27 March 2009 NEUTRAL- Rs1,551 QUARTERLY PERFORMANCE (Rs Million)
03/08A 197,652 25,095 51.3 30.3 25.7 51.1 Sales 72,019 60,223 92,027 193,654 248,969
03/09E 254,103 33,079 67.6 23.0 28.1 43.4 Change (%) 4.1 21.3 27.8 12.3 28.6
03/10E 311,286 42,359 86.5 17.9 29.8 49.1
EBITDA 13,633 10,207 15,409 33,667 36,460
03/11E 400,725 54,833 112.0 13.9 31.2 50.7
Change (%) -14.1 2.3 13 2.3 8.3
• For 4QFY09, we expect revenue to grow 27.8% YoY to Rs92b, As a % Sales 18.9 16.9 16.7 17.4 14.6
adjusted EBITDA to rise 27.2% YoY to Rs18b and adjusted net
profit to grow 20.9% YoY to Rs13.9b. Adjusted EBITDA 14,174 11,008 18,030 32,312 41,115
• The order book stood at Rs1,135b as of December 2008, up Change (%) -2.7 26.9 27.2 2.2 27.2
45.5% YoY, while order intake during 9mFY09 was at Rs467b. As a % Sales 19.7 18.3 19.6 16.7 16.5
The current order backlog represents a book-to-bill ratio of
4.6x FY09 revenues. Interest 42 179 71 354 298
• During 1QFY09, BHEL indicated that total provisions for wage Depreciation 827 865 872 2,972 3,206
revisions would be at Rs19.1b over 9 quarters starting from Other Income 4,242 3,063 4,227 13,962 13,279
4QFY07 to 4QFY09 i.e. Rs2.1b/quarter. Based on the
provisioning of Rs5.9b during 4QFY07 and FY08, the provisions PBT 17,005 12,226 18,693 44,303 46,236
to be made during FY09 are Rs13.1b. Out of this, Rs8.4b has Tax 5,897 4,321 6,547 15,711 16,183
been provided during 9mFY09, indicating the relatively higher Effective Tax Rate (%) 34.7 35.3 35 35.5 35
provisioning of Rs4.7b during 4QFY09.
• During 4QFY09, BHEL bagged several large orders of ~Rs102b Reported PAT 11,108 7,906 12,146 28,593 30,053
including, a key order of (1) 600MW rating Malwa thermal Change (%) -3.5 2.4 9.3 18.4 5.1
power plant (Rs31.5b), (2) orders worth Rs70b from NTPC (for
Adj. PAT 11,459 8,426 13,850 25,095 33,079
Vindhyachal Super Thermal Power Project (STPP) Stage-IV and
Rihand STPP Stage-III), MahaGenco (Parli TPP Stage-III), Change (%) -0.4 22.6 20.9 3.9 31.8
Tuticorin TPP etc. E : MOSt Estimates No. of Equity Shares (m) : 489.5
• In line with its previous JV with TNEB, BHEL signed a JV with
Karnataka Power Corporation (KPCL) to set up supercritical
thermal power projects.
• The stock is trading at a P/E of 23x FY09E and 17.9x FY10E.
Maintain Neutral.
35
SECTOR: ENGINEERING
Crompton Greaves Crompton Greaves
YEAR NET SALES PAT* EPS* P/E ROE ROCE Y/E MARCH FY08 FY09 FY09 FY08 FY09E
3/08A 38,758 3,654 10.0 11.9 34.3 50.0 Sales 11,595 10,797 13,555 38,758 46,043
3/09E 46,043 5,305 14.5 8.2 35.5 49.4 Change (%) 17.1 18.0 16.9 15.1 18.8
3/10E 52,362 5,715 15.6 7.6 29.4 42.3
EBITDA 1,566 1,386 1,890 4,838 6,092
3/11E 58,952 6,079 16.6 7.1 25.5 37.3
Change (%) 36.9 19.5 20.7 41.5 25.9
* Consolidated; pre-exceptionals As of % Sales (Adj) 13.5 12.8 13.9 12.5 13.2
• As of December 2008, the order book (standalone) stood at Rs26.7b,
up 22.9% YoY, and the order book for Pauwels and Ganz put together Depreciation 74 94 122 407 444
stands at Rs39.8b, up 33.9% YoY. The order book for Pauwels and
Ganz is higher since the Euro has appreciated YoY versus the INR by
Interest 74 47 67 271 175
~15% YoY in 3QFY09. Other Income 241 85 93 696 361
• The consolidated order book of Rs65.9b declined during 3QFY09 by
2.8% YoY and order intake witnessed its first steep QoQ fall. The order PBT 1,659 1,330 1,793 4,856 5,834
intake declined 31% QoQ. We expect 4QFY09 to be better on order Tax 628 483 648 1,717 2,027
flow from PGCIL. Effective Tax Rate (%) 37.8 36.3 36.2 35.4 34.8
• Post growing at 51% YoY during 1HFY09, the international business
(Pauwels /Ganz/Microsal) witnessed 34% YoY growth to Rs10.7b, partly Reported PAT 1,031 847 1,145 3,139 3,807
due to the Euro appreciation of 15% YoY versus the INR and addition Adj PAT 944 847 1,145 2,752 3,807
of Microsal. But even excluding the impact of these two aspects,
international business grew at 19% YoY.
Change (%) 26.0 34.7 21.3 40.9 38.3
• Power division (~50% of standalone revenues) reported improved E : MOSt Estimates No. of Equity Shares (m) : 366.6
performance during 3QFY09, with revenues up 20% YoY and EBIT
margin of 15.1% (+260bp YoY). In 3QFY09, revenue growth for
industrial segment stood at 3.5% YoY, with EBIT margin of 15.4% (down
290bp YoY). The decline in EBIT is due to pricing pressure given
increased competitive intensity. Revenue growth of 3.4% YoY in 3QFY09
is an aberration, and management expects revenue growth at ~15%
for the next 2 quarters. Consumer division reported revenue growth
at 14.2% YoY and EBIT at 9.1% (down 70bpYoY).
• We expect Crompton to report consolidated earnings of Rs14.5/sh in
FY09 (up 45.2% YoY), Rs15.6/sh in FY10 (up 7.7% YoY) and Rs16.6/
sh(up 6.4% YoY) in FY11. The stock trades at a P/E of 8.2x FY09E and
7.6x FY10E. Maintain Neutral.
36
SECTOR: ENGINEERING
Cummins India Cummins India
27 March 2009 BUY- Rs179 QUARTERLY PERFORMANCE (STANDALONE) (Rs Million)
03/08A 26,555 3,249 16.4 10.9 28.8 34.9 Net Sales 6,700 7,495 6,442 23,308 32,475
03/09E 32,475 3,755 19.0 9.5 30.4 35.3 Change (%) 32.7 27 -3.9 26.6 39.3
03/10E 32,114 4,017 20.3 8.8 26.2 33.9 Total Expenses 5,964 6,190 5,539 20,239 28,073
03/11E 35,872 4,492 22.7 7.9 25.5 32.6
EBITDA excl Optg OI 736 1,305 902 3,069 4,401
* Consolidated Margin (%) 11 17.4 14 13.2 13.6
• In the 3Q concall management had indicated softening of Operating Other Income 267 214 181 654 812
order flows from both the domestic and export markets. EBITDA 1,003 1,519 1,083 3,723 5,213
Demand from construction and automotive segments is worst Change (%) 8.5 50 8 11.4 40
affected. Further, the management expects sales channel EBITDA Margin (%) 15 20.3 16.8 16 16.1
correction (destocking) in 4QFY09. Combined, it had guided
for a 20-30% QoQ decline in 4QFY09 revenue. Depreciation 90 110 112 330 466
Interest 4 0 5 7 14
• We believe the management guidance will be partly offset by Financial Income 197 128 119 573 402
the sharply weaker rupee. We have factored in 14% QoQ Extraordinary Inc/ (Exp) 0 291 0 0 0
decline in sales to Rs6.4b (down 4% YoY). We expect PAT of
PBT 1,106 1,829 1,085 3,960 5,136
Rs721m, down 5% YoY.
Tax 350 495 364 1,153 1,640
• For FY10, we have revised our US$/Rs rate to Rs49.6 (Rs44 Tax/PBT (%) 31.7 27.1 33.5 29.1 31.9
earlier). As a result, our FY10E EPS stands upgraded by 7.4% Standalone PAT 756 1,333 721 2,807 3,496
to Rs20.3 (up 7% YoY). Adjusted PAT 756 1,042 721 2,807 3,496
• At CMP, the stock trades at attractive P/E of 9.5x FY09E Change (%) 15.1 39.7 -4.6 16 24.5
and 8.8x FY10E. Cummins has attained financial critical mass Profit from Subsidiaries and Ass (inc. Cummins Sales & Services in FY08) 442 259
– zero debt, healthy return ratios and high dividend Consolidated PAT 3,249 3,755
payout. We believe it is well-placed to tide over the current Change (%) 21.2 15.6
slowdown. We maintain Buy with a target price of Rs243
(12x FY10E EPS).
37
SECTOR: ENGINEERING
Larsen & Toubro Larsen & Toubro
YEAR NET SALES PAT* EPS* P/E* ROE ROCE Y/E MARCH FY08 FY09 FY09 FY08 FY09E
3/08A 249,387 22,910 39.3 17.3 27.0 29.5 Net Sales 84,669 85,940 103,078 248,547 334,896
3/09E 335,953 32,386 55.5 12.3 24.3 24.3 Change (%) 35.5 34.6 21.7 41.4 34.7
3/10E 396,668 33,775 57.9 11.8 21.0 23.2
EBITDA 11,302 7,799 14,711 28,378 35,927
3/11E 452,414 36,496 62.5 10.9 19.5 21.9
Change (%) 16.3 12.1 30.2 61.2 26.6
* Consolidated; EPS is fully diluted
• L&T’s order backlog as of December 2008 stood at Rs688b, up 38.7% Adjusted EBITDA 11,302 9,429 14,711 28,887 38,157
YoY against Rs527b in December 2007. The order book-to-bill ratio Adjusted Margin (%) 13.3 11 14.3 11.6 11.4
on TTM basis stands at 2.2x. During the quarter (until date), L&T’s
order intake has been below the average rate for the past three Depreciation 682 781 829 2,116 3,000
quarters, at ~Rs50b. Most incremental orders are for civil structures.
Also, unlike management indication, there has been no project Interest 499 975 920 1,227 2,968
awards from the hydrocarbon (ONGC etc.) segment. Other Income 2,370 3,072 2,096 5,647 8,668
• Until date there has been no announcement of formal delays/
cancellations for any of the large projects. But we believe that the Reported PBT 12,491 9,114 15,058 30,682 38,628
segments including real estate (6-7% of order book) and metals / Tax 3,696 3,073 4,844 9,821 12,747
minerals (8-9% of order book) would be vulnerable to project delays/
cancellations. Effective Tax Rate (%) 29.6 33.7 32.2 32.0 33.0
• During 3QFY09, performance of the machinery and industrial
products (MIP) and electrical business group (EBG) business divisions Reported Profit 9,668 6,041 10,214 21,734 25,881
was impacted due to slowing domestic volumes, higher competition, Adjusted PAT 9,101 6,401 10,214 21,008 26,524
underutilization of capacities and lower commission income from Change (%) 29.9 24.3 12.2 51.7 26.3
the construction equipment business. Thus lower profitability in these
two segments along with poor operating leverage in E&C business is
likely to impact margins during 4QFY09 and FY10. E : MOSt Estimates No. of Equity Shares (m) : 584.7
• During 3QFY09, the book size for L&T Finance and L&T Infra Finance All quarterly numbers are for standalone entity
has witnessed a marginal decline QoQ at Rs56b and Rs21b
respectively. Borrowings during 3QFY09 were at Rs64b, up from
Rs36b in March 2008 and Rs48b in September 2008 on account of:
(1) loans and advances of Rs14b to subsidiaries and associate
companies (2) investments in subsidiaries of Rs6b and (3) capex of
Rs13.5b to December 2008. As at December 2008, net DER was at
0.13x, v/s negative 0.17x at March 2008.
• The stock is trading at a P/E of 14.7x FY09E and 13.5x FY10E. Maintain
Neutral.
M
4 OTILAL OSWAL 27 March 2009 72 MOTILAL OSWAL 27 March 2009 73
38
SECTOR: ENGINEERING
Siemens Siemens
YEAR NET SALES PAT EPS P/E ROE ROCE Y/E SEPTEMBER FY08 FY09 FY09 FY08 FY09E
9/07A 77,660 5,369 15.9 15.7 40.1 69.1 Total Revenues 21,546 16,399 19,471 83,582 74,860
9/08A 83,577 5,214 14.6 17.1 28.5 46.2 Change (%) 0.9 -14.6 -9.6 7.6 -10.4
9/09E 74,860 4,620 14.4 17.4 18.1 38.5
EBITDA 152 1,702 1,944 7,791 7,562
9/10E 87,276 5,441 16.7 15.0 16.7 26.0
Change (%) -90.9 10 1,177.40 5.1 -2.9
• For 2QFY09 (September year ending), we expect Siemens to As % of Revenues 0.7 10.4 10 9.3 10.1
report revenue of Rs19.5b, down 9.6% YoY, EBITDA of Rs1.9b,
and net profit of Rs1.3b. Depreciation 149 181 186 639 765
• Order intake during 1QFY09 stood at Rs19.8b (up 3.5% YoY, Interest Income 54 165 160 451 663
down 17%QoQ), while order backlog at Rs103b is up 9.5% YoY. Other Income 15 2,233 0 67 2,233
Stable to marginally increased order book will constrain the
execution during FY09. PBT 71 3,919 1,917 8,916 9,693
• During 1QFY09, revenues from projects in the Middle East have Tax 55 613 652 2,984 2,611
been subdued mainly due to completion of Qatar transmission Effective Tax Rate (%) 76.6 15.6 34 33.5 26.9
projects. Excluding impact of this order, revenues are up 5%
YoY. With expected decline in exports largely comprising Qatar Reported PAT 17 3,306 1,265 5,931 7,082
projects, the FY09 revenues would be impacted.
• For past three consecutive quarters, the power division has posted Adjusted PAT 17 1,073 1,265 5,051 4,849
healthy margins, implying increased profitability focus of the Change (%) -98.5 -1.6 7,489 8.1 -4.0
management. EBIT margin for the industrial segment has
increased marginally to 5.2% in 1QFY09, from 4.8% in 1QFY08, E : MOSt Estimates No. of Equity Shares (m) : 337.2
whereas the energy segment’s EBIT margin had increased to
12.1% from 8.5% in 1QFY08.
• Siemens decided to buy 50% stake in Flender for Rs875m. Flender
is one of the leading players in the industrial gearboxes segment.
Earlier in 2006 Siemens had acquired 50% stake in Flender for
Rs678m. With this, Flender is now a 100% subsidiary of Siemens
and has a manufacturing unit located at Kharagpur, West Bengal.
The company caters to market segments like cement, sugar, steel,
rubber etc.
• The stock is trading at a P/E of 17.4x FY09E and 15x FY10E. We
maintain Neutral.
39
SECTOR: ENGINEERING
Suzlon Energy Suzlon Energy
27 March 2009 NEUTRAL - Rs46 QUARTERLY PERFORMANCE (CONSOLIDATED) (Rs Million)
3/08A 136,794 12,607 8.4 5.4 21.7 15.3 Sales 41,934 39,320 41,247 114,665 143,251
3/09E 184,485 11,229 7.2 6.3 13.0 10.6 Change (%) 49.3 -1.6 24.9
3/10E 159,473 9,507 6.1 7.4 10.0 7.8
EBITDA 7,158 5,063 5,666 17,136 17,877
3/11E 192,168 13,156 8.5 5.4 12.7 9.0
Change (%) 53.5 4.3
Consolidated
As of % Sales 17.1 12.9 13.7 14.9 12.5
• The order book stood at Rs104b (-39.3%YoY, -26.1%QoQ) versus
Rs183b order book at end-4QFY08. In terms of MW the order Depreciation 532 752 908 1,703 2,771
book stood at 1,916MW including domestic order book of Interest 1,104 2,188 2,534 4,603 7,812
98MW and the international order book of 1,818MW. Out of
Other Income 565 534 299 1,968 1,420
the current 1,916MW order book, ~900MW would be executed
in 4QFY09, thus leaving ~1,000MW for FY10. Exceptional Items (reported) 2,407 4,489 0 2,852 9,565
• Suzlon’s management had indicated a possible order inflow of PBT 3,680 -1,832 2,522 9,946 -851
1GW in the near future. Of this, it has already bagged two
Tax 421 -258 475 1,493 871
orders of 213MW from China and Australia during 4QFY09.
Also, the Indian market order intake has been very poor during Effective Tax Rate (%) 11.4 14.1 18.8 15 -102.4
3QFY09, which is expected to improve during 4QFY09 onwards, Reported PAT 3,259 -1,575 2,047 8,453 -1,722
due to relatively improved credit environment.
Change (%) -9.2 -223.7 -120.4
• Net profit in the previous quarter continued to be depressed
due to additional provision for blade retrofitting, availability Adj. PAT 5,665 2,914 2,047 11,305 7,381
loss (Rs2.3bn) and MTM losses (Rs2.16bn). Suzlon does not Change (%) 57.8 116.4 -34.7
expect any incremental provisions for the blade retrofitting
program henceforth. E : MOSt Estimates No. of Equity Shares (m) : 1,497.0
• Suzlon’s gross debt stands at Rs122b at end-3QFY09. The
increase in borrowings during FY09 is largely on account of
working capital (Rs12b) and currency movement (Rs3b). Suzlon
will need to reduce its net debt by Rs16b from the current level
of Rs111b to avoid any breach of covenants.
• We expect Suzlon to report EPS of Rs7.2/sh for FY09 and Rs6.1/
sh for FY10. The stock is trading at a P/E of 6.3x FY09E and 7.4x
FY10E consolidated earnings. We maintain Neutral.
40
SECTOR: ENGINEERING
Thermax Thermax
YEAR NET SALES PAT* EPS* P/E* ROE ROCE Y/E MARCH FY08 FY09 FY09 FY08 FY09E
03/08E 32,042 2,876 24.1 7.1 42.4 64.1 Sales 9,221 7,951 10,042 32,042 33,625
03/09E 33,625 2,762 23.2 7.4 33.5 50.0 Change (%) 14.6 -6.0 8.9 49.9 4.9
03/10E 34,589 2,523 21.2 8.1 26.8 40.3
EBITDA 1,270 968 1,284 4,096 3,915
03/11E 36,909 2,506 21.0 8.2 24.6 37.2
Change (%) 43.2 -7.8 1.1 47.6 -4.4
* Consolidated As of % Sales 13.8 12.2 12.8 12.8 11.6
• For 4QFY09, we expect revenue of Rs10b, up 8.9% YoY,
Depreciation 61 84 88 218 311
EBITDA of Rs1.3b and net profit of Rs808m, up 0.4% Interest 4 6 4 13 20
YoY. Other Income 126 88 72 418 478
• The consolidated order backlog for the company stood PBT 1,352 966 1,265 4,304 4,062
at Rs41b as of December 2008, up 40% YoY. During Tax 546 243 457 1,496 1,377
the concall for 3QFY09, management indicated slowing Effective Tax Rate (%) 40.4 25.2 36.1 34.8 33.9
order inflow starting from October 2008. While
Reported PAT 805 723 808 2,808 2,685
enquiries were on track, they were not getting Change (%) -3.7 0.4 61.1 -4.4
converted into actual orders with advances from the
clients. E : MOSt Estimates No. of Equity Shares (m) : 119.2
• We expect Thermax to report consolidated net profit

of Rs2.8b in FY09 (-4%YoY) and Rs2.5b (-8.6%YoY) in
FY10.
• The stock is trading at a P/E of 8.1x FY09E and 8.2x
FY10E. Maintain Neutral.
41
SECTOR: FMCG-PAINTS
Asian Paints Asian Paints
27 March 2009 NEUTRAL- Rs774 QUARTERLY PERFORMANCE (Rs Million)
3/08A 44,043 4,175 43.5 17.8 42.5 57.6 Net Sales 11,330 13,210 12,176 44,043 52,559
3/09E 52,559 3,705 38.6 20.0 31.2 47.3 Change (%) 18.2 12.2 7.5 20 19.3
3/10E 55,330 4,090 42.6 18.2 29.1 46.2
3/11E 61,378 4,710 49.1 15.8 28.4 46.7
EBITDA 1,557 1,093 1,310 6,582 6,214
• We expect net sales to show muted growth of 7.5% YoY to Margin (%) 13.7 8.3 10.8 14.9 11.8
Rs12.2b. EBITDA margins would decline 290bp YoY (up 150bp Change (%) 33.1 -41.1 -15.9 37.7 -5.6
QoQ) on account of 7.5% reduction in prices, high priced
inventory of inputs, and lower volume growth in decoratives Interest 39 66 27 212 216
(both domestic and overseas). Adjusted PAT would decline Depreciation 154 202 208 592 751
26% YoY to Rs717m. Other Income 134 122 130 620 534
• On the input cost front, while titanium dioxide prices have Operational PBT 1,497 946 1,205 6,399 5,780
been strong, turpentine oil prices have softened considerably. Non Recurring Income -21 -6 151 -84 131
• The extent of price reductions by Asian Paints has been higher PBT 1,476 940 1,356 6,314 5,911
than the excise benefit due to cut in abatement rate. As a Tax 477 291 435 2,034 1,879
result, margin pressure would continue. Effective Tax Rate (%) 32.3 30.9 32 32.2 31.8
• We expect domestic volumes to grow 4.5% YoY as against
flat volumes in 3QFY09. International operations would to PAT 999 650 922 4,281 4,033
report sharp decline in sales and profit growth as this quarter Minorrity Interest 54 60 53 189 197
will show the numbers of Dec quarter (1 quarter lag in results Adjusted PAT 966 596 717 4,176 3,705
presentation).
Change (%) 57.2 -49.8 -25.8 45.7 -11.3
• Volume growth would remain subdued due to slack
construction activity. We expect 12.8% PAT CAGR over FY09- E : MOSt Estimates No. of Equity Shares (m) : 95.9
11, as new plants and lower volume growth (both domestic
and international) would retard profit growth. The stock
trades at 18.2x FY10E and 15.8x FY11E earnings.
Maintain Neutral.
42
SECTOR: FMCG
Britannia Industries Britannia Industries
27 March 2009 BUY- Rs1,342 QUARTERLY PERFORMANCE (Rs Million)
03/08A 25,848 1,911 84.5 15.9 26.7 27.2 Net Sales 6,928 8,183 8,412 25,848 31,914
03/09E 31,914 2,149 91.6 14.7 24.2 27.0 YoY Change (%) 15.6 24.7 21.4 17.5 23.5
03/10E 36,003 2,608 110.7 12.1 24.5 28.0 Total Exp 6,342 7,527 7,702 23,530 29,301
03/11E 40,097 2,970 126.1 10.6 23.3 26.7
EBITDA 586 656 710 2,318 2,613
Margins (%) 8.5 8 8.4 9 8.2
• We expect Britannia to report net sales of Rs8.4b, up
21.4% YoY. Double-digit volume growth would sustain Depreciation 77 86 91 291 337
Interest 14 30 17 97 126
in 4QFY09. EBITDA margin could contract by 10bp YoY,
Other Income 106 73 89 342 409
as the prices of wheat and sugar have increased by
24% and 8% YoY; 5-12% increase in realizations (mix PBT 601 614 692 2,272 2,559
of price increase and pack size reductions) would curtail Tax 78 88 123 353 409
Rate (%) 13.0 14.3 17.8 15.5 16.0
margin decline. Adjusted PAT would de-grow 8.7% YoY
to Rs569m. PAT 523 526 569 1,919 2,149
YoY Change (%) 42.9 7.7 8.8 12.5 12.0
• We believe the resolution of the dispute between Wadia
and Danone, and the completion of stake acquisition Extraordinary Expenses -87 64 67 9 250
Reported PAT 610 462 636 1,911 1,899
would be a major re-rating trigger. Further increase in
payout ratio could also lead to higher multiples being E : MOSt Estimates No. of Equity Shares (m) : 23.9
assigned to the stock.
• The stock trades at 12.1x FY10E EPS of Rs110.7 and
10.6x FY11E EPS of Rs126.1. Maintain Buy.
MOTILAL OSWAL 27 March 2009 82 3MOTILAL OSWAL 27 March 2009 83
43
SECTOR: FMCG
Colgate Palmolive Colgate Palmolive
03/08A 14,734 2,318 17.0 27.0 104.7 103.3 Net Sales 3,913 4,192 4,471 14,734 16,865
03/09E 16,865 2,766 20.3 22.6 154.3 42.8 YoY Change (%) 14 14.1 14.3 13.8 14.5
03/10E 19,189 3,202 23.5 19.5 148.4 91.9
Total Exp 3,408 3,447 3,861 12,448 14,336
03/11E 21,681 3,714 27.3 16.8 143.9 62.7
EBITDA 506 746 611 2,286 2,529
Margins (%) 12.9 17.8 13.7 15.5 15.0
• We expect net sales to grow 14.3% YoY to Rs4.5b in
4QFY09. EBITDA margin would expand 80bp YoY, buoyed Depreciation 55 55 57 198 223
by lower packaging cost. Adjusted PAT would increase Interest 3.6 1 10 14 20
14% YoY to Rs634m. Other Income 214 228 217 848 1,027
• We expect double-digit volume growth in toothpastes PBT 662 918 760 2,921 3,312
(14% in 3QFY09) and toothbrushes. Colgate has increased Tax 105 140 126 603 547
prices by just 1.2% in FY09, which has enabled it to not Rate (%) 15.9 15.3 16.6 20.7 16.5
only sustain double-digit volume growth but also increase Adjusted PAT 556 777 634 2,318 2,766
market share by 50bp. YoY Change (%) 11.6 28.6 14 52.7 19.3
• Colgate has increased promotional offers in few of its Reported PAT 556 777 634 2,318 2,766
premium SKUs. This should help enhance the sale of YoY Change (%) 9.9 28.6 14.0 44.6 19.3
premium products. Further, presence across segments in E: MOSt Estimates No. of Equity Shares (m) : 136.0
toothpastes would enable the company to retain
customers in case of downtrading.
• Colgate remains the best pure play on oral care in India,
given steady growth, 80% payout ratio, and 4% dividend
yield. The stock trades at 19.5x FY10E EPS of Rs23.5 and
44
SECTOR: FMCG
Dabur India Dabur India
03/08A 23,610 3,337 3.9 24.1 54.0 55.6 Net Sales 6,065 7,787 7,231 23,610 27,969
03/09E 27,969 3,805 4.4 21.1 45.1 48.3 YoY Change (%) 14.3 19.9 19.2 15.6 18.5
03/10E 32,683 4,524 5.2 17.8 41.6 46.4
Total Exp 5,087 6,497 6,073 19,517 23,402
03/11E 37,023 5,274 6.1 15.2 38.6 43.9
EBITDA 978 1,290 1,158 4,093 4,567
• We expect net sales to grow 19.2% YoY to Rs7.2b in 4QFY09.
Margins (%) 16.1 16.6 16.0 17.3 16.3
EBITDA margin could contract 10bp YoY. Adjusted PAT would
grow 16.4% YoY to Rs926m. Depreciation 117 109 124 421 473
• Volume growth would sustain at 13% (14.5% in 3QFY09), on Interest 35 69 50 168 199
the back of strong traction in hair care. Response to the new Other Income 138 114 119 340 498
range of Gulabari has been encouraging while the re-launch PBT 964 1,226 1,104 3,844 4,394
of the Rs10 SKU (with toothbrush) has led to revival in Babool Tax 131 152 158 507 593
sales. Chyawanprash sales are likely to remain muted. Rate (%) 13.6 12.4 14.3 13.2 13.5
• We expect margins to be flattish after 130bp decline in
Minority Interest 29 -11 10 -1 -4
3QFY09, as decline in packaging cost and lower prices of
honey and oil start benefiting the company. Adjusted PAT 804 1,085 936 3,337 3,805
YoY Change (%) 4.5 14.8 16.4 17.9 14.0
• Dabur’s retail venture, newU is likely to end the year with a
loss of Rs200m. The company has opened two new stores Extraordinary Inc/(Exp) 8 0 10 10 10
during the quarter. We remain negative on the company’s Reported PAT 796 1,085 926 3,327 3,795
retail initiatives.
E: MOSt Estimates No. of Equity Shares (m) : 864
• Fem acquisition is likely to be completed shortly and
integration would take another 3-6 months. We expect the
acquisition to start contributing from 3QFY10.
• The stock trades at 17.8x FY10E EPS of Rs5.2 and 15.2x FY10E
EPS of Rs6.1. Maintain Neutral.
45
SECTOR: FMCG
GSK Consumer GSK Consumer
12/07A 12,778 1,626 38.7 15.5 25.2 38.6 Net Sales 4,106 3,334 4,730 15,428 17,833
12/08E 15,428 1,884 44.8 13.4 25.5 39.5 YoY Change (%) 25.8 17.3 15.2 20.7 15.6
12/09E 17,833 2,250 53.5 11.2 25.8 39.5 Total Exp 3,309 2,932 3,830 13,052 14,894
12/10E 20,123 2,617 62.2 9.6 25.5 38.9
EBITDA 797 402 900 2,376 2,939
Margins (%) 19.4 12.1 19 15.4 16.5
• We expect GSK Consumer to report net sales of Rs4.7b, up
15.2% YoY. EBITDA margin contraction would be limited to Depreciation 106 107 116 419 497
40bp YoY, as the company took a 5.5% price increase effective Interest 13 30 14 70 65
from 1 January 2009. Adjusted PAT would grow 15.2% YoY to Other Income 186 242 212 955 1,011
Rs652m.
• We estimate high single-digit volume growth in 1QCY09 due PBT 864 507 982 2,841 3,388
to high base in 1QCY08 (17% volume growth); the company Tax 298 181 330 957 1,138
had launched Women Horlicks and Active Base in January 2008. Rate (%) 34 35.8 33.6 33.7 33.6
• Raw material pricing pressure should subside by 2QCY09, as PAT 566 326 652 1,884 2,250
malt extract prices decline post commissioning of new barley YoY Change (%) 33.8 18.5 15.2 15.8 19.4
processing capacities. Wheat prices are likely to remain steady
– just 8% increase in minimum support prices (MSP) and E: MOSt Estimates No. of Equity Shares (m) : 42.1
bumper harvest would prevent any sharp price increase. Liquid
milk prices should remain firm.
• GSK Consumer has launched Horlicks Nutribar (Rs15/40gm)
during the quarter; more new launches – including a value for
money variant of Horlicks – are expected during the course of
the year.
• The stock currently trades at attractive valuations of 11.2x
CY09E EPS of Rs53.5 and 9.6x CY10E EPS of Rs62.2. The
company has delivered PAT CAGR of 21% during the last three
years. New launches and change in dividend payout policy could
significantly re-rate the stock. We maintain Buy.
46
SECTOR: FMCG
Godrej Consumer Products Godrej Consumer Products
03/08A 11,040 1,592 7.1 17.0 92.8 64.4 Net Sales 2,718 3,421 3,110 11,026 13,613
03/09E 13,613 1,612 6.2 19.2 27.7 27.5 YoY Change (%) 12.1 25.4 14.4 36.2 23.5
03/10E 14,697 2,066 8.0 15.0 32.7 33.6
Total Exp 2,151 2,938 2,542 8,881 11,669
03/11E 16,285 2,471 9.6 12.5 35.5 36.3
EBITDA 567 483 568 2,145 1,944
*Equity capital for EPS calculation in FY09-10E is Rs258m Margins (%) 20.9 14.1 18.3 19.5 14.3
(Post rights)
• We expect GCPL to report net sales of Rs3.1b, up 14.4% YoY. Depreciation 43 51 54 182 206
EBITDA margin would decline 260bp YoY but expand 420bp Interest 34 -42 -34 129 -135
QoQ as the benefits of lower palm oil prices get accounted. Other Income -1 15 23 40 103
Adjusted PAT should grow 15.8% YoY to Rs473m. PBT 489 489 572 1,875 1,976
• We expect 18% volume growth in toilet soaps due to strong Tax 81 88 99 283 364
traction of Godrej No1. The brand has benefited because of Rate (%) 16.6 18.1 17.3 15.1 18.4
its value for money positioning in the current environment of
consumer downtrading. In addition, new variants of cinthol PAT 408 401 473 1,592 1,612
and fairglow have been a success. YoY Change (%) 32.6 -6.9 15.8 12.5 1.3
Reported PAT 408 401 473 1,592 1,612
• In hair color, multiple initiatives (11% price increase, new
launches and 4% increase in trade margins) are expected to E: MOSt Estimates No. of Equity Shares (m) : 258.1
increase sales by 15%.
• Keyline would report high double-digit growth (excluding
impact of currency translation). Kinky would report pressure
on performance due to stock shortages, accounting issue and
USD Rand fluctuations.
• The stock is trading at 15x FY10E EPS of Rs8 and 12.5x FY11E
EPS of Rs9.6. Maintain Buy.
47
SECTOR: FMCG
Hindustan Unilever Hindustan Unilever
YEAR NET SALES PAT EPS P/E ROE ROCE Y/E December FY09 FY09 FY09 cy07 FY09E
12/06A 122,695 15,397 7.0 34.4 56.5 67.0 Net Sales (incl service inc) 38,712 43,787 44,067 163,452 210,671
12/07A 139,109 17,691 8.1 29.5 122.9 144.7 YoY Change (%) 19.7 15.2 13.8 19.2 53.6
03/09E* 171,959 20,490 9.4 25.5 128.6 153.8
03/10E 182,191 22,980 10.6 22.7 101.7 126.3
EBITDA 4,851 7,640 5,759 21,287 30,198
• We expect HUL to report sales growth of 13.8% YoY for the YoY Change (%) 17.8 12.5 18.7 12.9 60.1
quarter ending March 2009 (5QFY09; accounting year changed Margins (%) 12.5 17.4 13.1 13.0 14.3
from December ending to March ending) to Rs44b. EBITDA
margins would expand 60bp YoY to 13.1%, as the benefits of Depreciation 363 406 412 1,541 1,952
lower input costs and price increases in detergents start Interest 35 0 0 122 0
contributing. Adjusted PAT is likely to grow 21.8% YoY to Other Income 236 292 319 1,744 2,063
Rs4.6b.
PBT 4,689 7,526 5,667 21,368 30,309
• We expect volume growth to remain muted (2.3% in 4QCY08).
Tax 905 1,425 1,058 4,854 5,912
The company had taken significant prices increase in the last six
months in both soaps and detergents; this has resulted in loss of Rate (%) 19.3 18.9 18.7 22.7 19.5
market share to regional players. Adjusted PAT 3,784 6,101 4,609 16,514 24,397
• Management has indicated greater focus on volume growth, going YoY Change (%) 13.3 10.1 21.8 4.8 54.8
forward, and has accordingly increased the grammage (by 38%
in Lux from 54gm/Rs10 to 75 gm/Rs10) and has reduced prices Extraordinary Inc/(Exp) 25 56 0 1,349 1,349
(7% reduction in Lifebuoy) in toilet soaps. We expect these moves
to arrest market share decline in toilet soaps Reported Profit 3,810 6,157 4,609 17,863 25,746
• HUL has reduced the prices of Wheel by 10%, as regional players YoY Change (%) -3.0 -2.5 21.0 3.1 48.6
like Ghari and Fena have been gaining ground. In addition, Rin E: MOSt Estimates No. of Equity Shares (m) : 2,177.5
Advanced has started a promotional offer (100gm Rin Matic free
with 1kg of Rin Advanced), with an eye on increasing market
share even as P&G is currently pricing Tide at 13% premium.
• The stock is currently trading at 25.5x FY09E and 22.7x FY10E
earnings. We maintain Neutral.
48
SECTOR: FMCG
ITC ITC
03/08A 139,476 31,202 8.3 22.5 25.9 35.8 Net Sales 40,305 38,587 46,419 141,820 162,972
03/09E 159,989 33,181 8.8 21.2 24.2 34.3 YoY Change (%) 16.3 9.8 15.2 16.1 14.9
03/10E 180,564 38,217 10.2 18.4 24.3 34.8
Total Exp 28,463 24,806 32,566 95,436 111,571
03/11E 159,989 43,452 11.5 16.2 24.3 35.0
EBITDA 11,843 13,780 13,852 46,384 51,401
• We expect ITC to post revenue growth of 15.2% YoY to Rs46b. Margins (%) 29.4 35.7 29.8 32.7 31.5
EBITDA margin is likely to expand by 40bp YoY to 29.8%. PAT
would grow 12.6% YoY to Rs8.6b. Depreciation 1,215 1,442 1,494 4,385 5,537
Interest 27 5 54 46 100
• We expect cigarette volumes to decline 3%, as conversions
Other Income 555 976 512 3,764 3,393
have been strong. Full benefits of price increases would enable
margin expansion during the current quarter. PBT 11,156 13,310 12,817 45,718 49,156
• Hotels would continue to report a decline in sales and PBIT Tax 3,485 4,277 4,182 14,517 15,976
on account of the slowdown in economy, which has impacted Rate (%) 31.2 32.1 32.6 31.8 32.5
the tourism industry. Reported PAT 7,670 9,032 8,635 31,201 33,181
• New FMCG losses would remain flat QoQ (Rs1.27b loss in YoY Change (%) 17.9 8.7 12.6 15.4 6.3
3QFY09). We expect acceleration in sales growth due to rising Adjusted PAT 7,670 9,032 8,635 31,201 33,181
acceptability of its personal care products. Lifestyle retailing
YoY Change (%) 17.9 8.7 12.6 15.6 6.3
would remain under pressure.
E: MOSt Estimates No. of Equity Shares (m) : 3,762.2
• In Paper and Paperboard, stabilization of pulp facility (122k
ton), and decline in coal and fuel prices (fall in excise) would
enable margins to expand.
• Pricing scenario in cigarettes and excise policy post elections
would be key factors to watch out for. The stock is currently
trading at 21.2x FY09E and 18.4x FY10E earnings. We maintain
Buy.
49
SECTOR: FMCG
Marico Marico
03/08A 19,067 1,589 2.6 22.9 50.5 33.5 Net Sales 4,675 6,228 5,780 19,067 24,053
03/09E 24,053 1,812 2.9 20.1 40.4 35.0 YoY Change (%) 17.8 23 23.6 22.5 26.2
03/10E 26,027 2,173 3.5 16.7 35.2 36.6
Total Exp 4,220 5,437 5,191 16,603 21,177
03/11E 29,588 2,562 4.2 14.2 31.0 37.3
EBITDA 456 791 589 2,464 2,876
• We expect Marico to report net sales of Rs5.8b, up
23.6% YoY. EBITDA margins would expand by 50bp, Margins (%) 9.7 12.7 10.2 12.9 12
while adjusted PAT would grow 22% YoY to Rs368m. Depreciation 79 98 102 309 356
• Volume growth is likely to trend lower, both in Interest 73 68 67 277 301
Parachute and Saffola. Lower volume growth for Other Income 37 31 21 67 74
Parachute would be on account of slower conversions
to branded oil. The high price differential between PBT 341 657 441 1,945 2,293
Saffola and other edible oils is likely to adversely impact Tax 39 148 73 360 482
Saffola volumes. Rate (%) 11.4 22.5 16.6 18.5 21.0
• Prices of key raw materials – copra and safflower oil – Adjusted PAT 302 509 368 1,586 1,812
have declined 24% and 30%, respectively due to start YoY Change (%) -2.4 19 22.0 60.4 14.3
of flush season. We expect copra prices to decline by
xx% in FY10, which would enable margin expansion in Exceptional Items 106 0 0 106 0
FY10. Reported PAT 408 509 368 1,692 1,812
• International businesses would face headwinds due to
trickle down effect of economic turmoil in key E: MOSt Estimates No. of Equity Shares (m) : 609.0
economies of presence (South Africa, Middle East and
Bangladesh). However, the transition of distribution
network in Egypt is complete and the benefits of the
same are expected to accrue, going forward.
• The stock is trading at 16.7x FY10E EPS of Rs3.5 and
50
SECTOR: FMCG
Nestle India Nestle India
YEAR NET SALES PAT* EPS P/E ROE ROCE Y/E DECEMBER CY08 CY08 CY09E cY08 cY09E
12/07A 35,044 4,313 44.7 34.1 73.7 110.0 Net Sales 10,909 10,901 12,954 43,242 51,387
12/08A 43,242 5,648 58.6 26.0 87.0 123.4 YoY Change (%) 26.4 21.7 18.7 23.4 18.8
12/09E 51,387 6,776 70.3 21.7 81.6 116.2 Total Exp 8,419 8,778 9,975 34,607 41,056
12/10E 60,641 8,236 85.4 17.9 81.5 117.0
EBITDA 2,490 2,123 2,979 8,636 10,331
* Excluding extraordinary items and provisions Margins (%) 22.8 19.5 23 20 20.1
• We expect net sales to grow 18.7% YoY to Rs13b. EBITDA Depreciation 211 257 230 924 1,013
margins would decline by a marginal 30bp due to input cost Interest 0.9 1.7 0.7 17 3
pressures. Adjusted PAT would increase 16.5% YoY to Rs1.6b. Other Income 63 129 70 341 364
• We expect Milk & Milk Products and Prepared Dishes & Culinary PBT 2,341 1,994 2,819 8,036 9,680
to report strong growth on the back of recent launches and Tax 640 614 803 2,387 2,904
sustained pick-up in Noodles. Price increase in the range of Rate (%) 27.3 30.8 28.5 29.7 30.0
15-20% has been taken in Chocolates (SKUs of Rs2 increased
to Rs3), which would impact volume growth in the near term. Adjusted PAT 1,701 1,380 2,015 5,648 6,776
YoY Change (%) 52.7 40.3 18.5 30.9 20.0
• Sugar prices have increased by 33% YoY but the company
should benefit from the decline in prices of skimmed milk Extraordinary Inc/(Exp) -100 -169 -50 -308 -204
powder and coffee.
Reported PAT 1,601 1,211 1,965 5,340 6,572
• We expect volume growth to be marginally lower given the YoY Change (%) 47.6 29.4 22.8 29 23.1
economic environment. Nevertheless, new product launches E: MOSt Estimates No. of Equity Shares (m) : 96.4
under the wellness platform and strong brands provide Nestle
with pricing power and consumer stickiness.
• The stock is trading at 21.7x CY09E EPS of Rs70.3 and 17.9x
CY10E EPS of Rs85.4. Maintain Buy.
51
SECTOR: FMCG
Tata Tea Tata Tea
33/08A 43,923 2,898 46.9 12.1 8.1 11.5 Net Sales 11,768 13,009 12,914 43,923 49,273
3/09E 49,273 3,194 51.7 11.0 8.3 10.4 YoY Change (%) 1.5 9.8 9.7 8.6 12.2
3/10E 51,469 3,391 54.8 10.3 8.3 10.3
Total Exp 10,153 11,286 11,443 36,821 43,106
3/11E 55,998 3,859 62.4 9.1 9.0 11.2
EBITDA 1,615 1,722 1,472 7,102 6,167
• We expect net sales to grow 9.7% YoY to 12.9b. EBITDA Margins (%) 13.7 13.2 11.4 16.2 12.5
margin would decline 230bp YoY due to higher tea prices.
Adjusted PAT is likely to grow 18.6% YoY to Rs808m. Depreciation 235 241 239 916 923
Interest 118 155 -18 2,214 399
• Domestic branded sales could be impacted, as tea as a Other Income 59 91 137 397 583
category lacks consumer stickiness. Entry-level consumers
could downtrade to loose tea. PBT 1,322 1,418 1,388 4,369 5,428
Tax 594 485 464 1,534 1,791
• The company has taken a price hike of 8-10% during the Rate (%) 44.9 34.2 33.4 35.1 33.0
last six months to ward off the impact of high raw material
prices. PAT 728 934 924 2,835 3,637
YoY Change (%) 158.8 1 26.9 7.9 28.3
• Tata Tetley would report de-growth in rupee terms as the
3-4% growth in pound terms would be overshadowed by Minority Interest/ Share of Associate -46 -113 -116 63 -443
~8% appreciation in the rupee v/s the pound. Currently,
the INR/GBP exchange rate is ~73 (4QFY09 average ~71.5 Adjusted PAT 682 821 808 2,898 3,194
v/s 4QFY08 average ~78). YoY Change (%) 237.4 -0.1 18.6 7 10.2
• The stock trades at 10.3x FY10E EPS of Rs54.8 and 9.1x Extraordinary Gains 448 3,141 0 16,160 1,370
FY11E EPS of Rs62.4. We maintain Neutral.
Reported PAT 1,130 3,961 808 19,059 4,564
YoY Change (%) 123.7 -69.7 -28.5 316.1 -76.1
E: MOSt Estimates No. of Equity Shares (m) : 61.8
52
SECTOR: FMCG
United Spirits United Spirits
YEAR NET SALES PAT* EPS P/E ROE ROCE Y/E MARCH FY08 FY09 FY09 FY08 FY09E
03/08A 46,275 3,012 33.7 20.1 12.4 12.1 Net Sales 7,590 10,293 8,897 31,663 38,344
03/09E 53,176 2,912 32.6 20.8 12.3 11.3 YoY Change (%) 15.9 15.8 17.2 6.9 21.1
03/10E 59,907 4,198 46.9 14.4 15.1 12.5
Total Exp 6,237 9,229 7,716 25,359 32,157
03/11E 68,328 5,712 63.9 10.6 17.0 13.9
* Excluding extraordinary items and provisions
EBITDA 1,353 1,063 1,181 6,304 6,187
Margins (%) 17.8 10.3 13.3 19.9 16.1
• We expect United Spirits to report net sales of Rs8.8b up
17.2% YoY. EBITDA margin would decline by 530bp YoY Depreciation 85 87 97 317 354
to 13.3% (300bp QoQ expansion). Adjusted PAT would Interest 329 529 539 1,276 1,804
decline by 24.8% YoY to Rs490m PBT from operations 939 447 545 4,711 4,029
• We expect robust volume growth of 13-14% due to strong Other Income 107 60 226 294 483
brand franchise and all-round improvement in first line
brand sales. PBT 1,047 507 771 5,004 4,512
Tax 396 201 281 1,794 1,606
• Molasses prices had eased during the flush season and Rate (%) 37.8 39.7 36.5 35.8 35.6
this would result in margin expansion of 300bp QoQ. As
the production of sugar and potable alcohol has declined PAT 651 306 490 3,211 2,906
sharply, molasses prices are expected to remain firm till YoY Change (%) 14.1 -65.3 -24.8 -32 -9.5
2QFY10. However, sharp fall in glass prices would prevent
a significant fall in margins. Reported PAT 651 306 490 3,211 2,906
• While there are concerns with regard to highly leveraged E: MOSt Estimates No. of Equity Shares (m) : 100.2
balance sheet, the business outlook for the company * 4QFY08 sales show adjustment for previous quarters due to sale of north India
remains promising. Management has indicated that it will
plantations
sell treasury stocks in United Spirits, which would enable
the company to reduce its debt obligation. We believe
that United Spirits remains the best bet in the liquor space
in India. The stock is trading at 14.4x FY09E and 10.6x
FY10E EPS. We maintain Buy.
53
SECTOR:
INFORMATION TECHNOLOGY HCL Technologies HCL Technologies
YEAR NET SALES PAT* EPS* P/E ROE ROCE Y/E JUNE FY08 FY09 FY09 FY08 FY09E
6/08A 76,394 10,269 15.5 6.8 20.1 20.0 Revenues 19,448 24,908 29,436 76,394 108,208
6/09E# 108,208 12,625 18.8 5.6 22.6 19.1 Q-o-Q Change (%) 7.1 5.1 18.2 26.6 41.6
6/10E 124,267 12,922 19.0 5.5 20.4 16.1
Direct Expenses 11,946 14,975 18,508 46,877 66,894
6/11E 128,309 13,288 19.2 5.4 18.8 16.0
Sales, General & Admin. Exp. 3,172 4,332 4,833 12,578 18,066
* After ESOP charges; # Axon consolidated in December 2008
• HCL Technologies is expected to clock revenue growth Margins (%) 22.3 22.5 20.7 22.2 21.5
of 18.2% QoQ to Rs29.4b.
Other Income 499 1,206 431 1,697 2,619
• Axon will be fully consolidated in the current quarter.
Forex Gain / (Loss) -271 -1,419 -1,389 -3,067 -4,675
Excluding Axon, US$ revenue is expected to be US$ Depreciation & Amort. 773 971 1,337 3,032 4,597
502m Interest 0 0 429 0 859
• Consolidated EBITDA margin is likely to decline 178bp
PBT bef. Extra-ordinary 3,785 4,417 3,371 12,537 15,736
to factor lower revenue growth
Provision for Tax 368 684 546 1,272 2,311
• HCLT has forex forward covers of approximately Rate (%) 9.7 15.5 16.2 10.1 14.7
US$1.4b, we expect the company to book losses worth
Minority Interest -7 0 0 19 -14
Rs1.4b due to large forex covers.
ESOP Charges 236 203 203 977 814
• We expect the company to book net profit at Rs2.6b
versus Rs3.5b in 2QFY09 PAT after ESOP Chrg. 3,188 3,530 2,621 10,269 12,625
Q-o-Q Change (%) 3.2 5.1 -25.7 -17.0 19.5
• The stock is trading at 5.6x FY09E and 5.5x FY10E
earnings estimates (after ESOP charges). E: MOSt Estimates No. of Equity Shares (m) : 670.4
• Key risks: Shrinking IT spend with delays in decision
making, currency volatility, pricing pressure,.successful
integration of Axon Plc
54
SECTOR:
INFORMATION TECHNOLOGY Infosys Infosys
3/08A 166,920 45,580 79.5 16.9 36.4 36.4 Revenues 45,420 57,860 57,446 166,920 218,026
3/09E 218,026 58,415 101.8 13.2 37.4 37.4 Q-o-Q Change (%) 6.3 6.8 -0.7 20.1 30.6
3/10E 232,400 61,235 106.6 12.6 31.5 31.5
Direct Expenses 24,820 30,750 30,824 92,070 118,024
3/11E 239,449 60,939 105.9 12.7 26.0 26.0
SG&A 5,820 6,800 6,833 22,470 27,173
• We expect consolidated revenues to decline by 0.7% QoQ. Operating Profit 14,780 20,310 19,788 52,380 72,828
Revenues in US dollar terms are expected to decline by 1.1% Margins (%) 32.5 35.1 34.4 31.4 33.4
QoQ. Infosys had guided for 4QFY09 revenue growth of -3.7%
to 0% QoQ. Other Income 1,390 380 960 7,040 3,170
• We expect pricing to decline in constant currency in the second Depreciation 1,570 1,870 2,183 5,980 7,513
quarter consecutively after 1.8% decline in 3QFY09. Our revenue
growth estimates factor in 1.4% QoQ volume growth. We PBT bef. Extra-ordinary 14,600 18,820 18,566 53,440 68,486
expect Infosys to deliver US$ growth below the top end of its
guidance due to cross currency headwinds and a decline in Provision for Tax 2,110 3,030 2,970 7,860 10,070
realizations. Rate (%) 14.5 16.1 16 14.7 14.7
• During 4QFY09, GBP has depreciated by ~8% versus the US$.
Infosys bills ~11% of its revenues in GBP. PAT before EO 12,490 15,790 15,595 45,580 58,415
• EBITDA margin is expected to decline 65bp QoQ to 34.4%. Q-o-Q Change (%) 5.8 10.3 -1.2 22.4 28.2
EBITDA margin is expected to be impacted owing to a decline
in pricing and utilization. Utilization is expected to decline due Extra-ordinary Items 0 620 0 1,010 930
to large gross additions in an environment of muted volume
growth. PAT aft. Minority and EO 12,490 16,410 15,595 46,590 59,345
• Infosys held hedges worth US$576m as of December 2008 with Q-o-Q Change (%) 1.5 14.6 -5 30.8 47.4
a mix of options and forwards. We expect Infosys to book MTM
forex losses of Rs1.5b. E: MOSt Estimates No. of Equity Shares (m) : 572.5
• Net profit is expected to decline 1.2% QoQ to Rs15.6b.
• Infosys is expected to hire 3,500 employees (gross) in 4QFY09,
having already hired 23,296 employees in 9MFY09.
• The stock is trading at 12.6x FY10E and 12.7x FY11E earnings
estimates. Maintain Buy.
• Key risks: Shrinking IT spend with delays in decision making,
currency volatility, pricing pressures.
55
SECTOR:
INFORMATION TECHNOLOGY MphasiS MphasiS
YEAR NET SALES PAT EPS P/E ROE ROCE Y/E OCTOBER pe oct.08 FY09 FY09 peoct.08 FY09E
3/08A 24,231 2,553 12.2 16.3 23.6 23.5 Revenues 8,361 9,777 10,108 19,065 40,660
10/08A 19,065 2,953 14.2 14.1 22.8 22.7 Q-o-Q Change (%) 12.7 NA 3.4 NA NA
10/09E* 40,660 7,257 34.8 5.7 48.1 47.9
Direct Expenses 5,754 6,117 6,505 13,315 26,229
10/10E 44,602 6,552 31.4 6.4 30.3 30.3
Sales, General & Admin. Exp. 836 1,067 1,041 1,864 4,423
• We expect MphasiS to report revenue of Rs10.1b for Operating Profit 1,771 2,592 2,562 3,885 10,008
2QFY09. Margins (%) 21.2 26.5 25.3 20.4 24.6
• EBITDA margin is expected to be down by 120bp to Other Income 164 64 5 218 86
25.3% during the quarter. Depreciation 447 486 556 1,006 2,257
• Net profit is expected to decline 12% QoQ on the back PBT bef. Extra-ordinary 1,488 2,171 2,012 3,096 7,835
of higher tax rate (8% v/s 3.2%). Provision for Tax 77 70 161 143 578
• With respect to the HP-EDS merger, we expect the Rate (%) 5.2 3.2 8.0 4.6 7.4
merger to be long-term positive for Mphasis, given PAT bef. Extra-ordinary 1,411 2,100 1,851 2,954 7,258
that the overlap of services between the two is low in Q-o-Q Change (%) 78.6 NA -11.9 NA NA
India. E: MOSt Estimates No. of Equity Shares (m) : 208.7
• The stock is currently trading at 5.7x FY09E and 6.4x Financial year ending has been changed to year ending October from March earlier.
FY10E earnings estimates. Maintain Buy.
• Key risks: Delay in decision making over IT spend,
currency volatility, pricing pressure and integration of
EDS with HP.
56
SECTOR:
INFORMATION TECHNOLOGY Patni Computer Systems Patni Computer Systems
12/07A 26,950 4,643 32.4 3.8 18.9 18.9 Revenues 7,061 8,570 7,755 31,991 30,057
12/08A 31,991 3,671 28.6 4.3 13.4 13.4 Q-o-Q Change (%) 2.9 0.6 -9.5 18.7 -6.0
12/09E 30,057 3,023 23.4 5.3 10.2 10.2 Direct Expenses 4,843 5,455 5,258 21,158 20,740
12/10E 31,180 2,894 22.4 5.5 9.0 9.0 Sales, General & Admin. Exp. 1,157 1,496 1,376 5,549 5,075
* reflects adjusted PAT Operating Profit 1,061 1,619 1,120 5,284 4,242
• Revenues are expected to decline 9.5% QoQ to Rs7.8b Margins (%) 15 18.9 14.4 16.5 14.1
in rupee terms in 1QCY09. We expect US$ revenues to Other Income 59 -435 -139 106 469
decline 11.4%, in line with the company’s guidance. Depreciation 279 286 295 1,147 1,164
• EBITDA margin is expected to decline to 14.4% PBT bef. Extra-ordinary 842 898 686 4,243 3,546
compared with 18.9% in the last quarter. We expect Provision for Tax 117 117 96 572 524
operating margins to deteriorate despite 2% rupee Rate (%) 13.9 13.1 14.0 13.5 14.8
depreciation QoQ on account of low pricing flexibility Net Income bef. Extra-ordinary 725 780 590 3,671 3,023
and lack of sufficient operating levers. Q-o-Q Change (%) -27.3 -30.9 -24.3 -20.9 -17.7
• We expect net profit to decline by 24.3% QoQ at Extra-ordinary Items 0 0 0 -873 0
Rs590m, primarily on account of lower revenues,
Net Income aft. Extra-ordinary 725 780 590 4,544 3,023
higher forex losses and cross currency impact Q-o-Q Change (%) -27.3 -61 -24.3 -2.1 -33.5
• The stock trades at 5.3x CY09E and 5.5x CY10E earnings
estimates. We remain Neutral.
• Key risks: Shrinking IT spend with delays in decision
making, currency volatility, pricing pressures.
57
SECTOR:
INFORMATION TECHNOLOGY Tata Consultancy Services Tata Consultancy Services
3/08A 228,614 50,484 51.3 11.2 47.0 43.0 Revenues 60,947 72,770 74,811 228,615 281,222
3/09E 281,222 52,152 53.3 10.8 36.8 34.3 Q-o-Q Change (%) 2.9 4.7 2.8 22.7 23.0
3/10E 305,160 52,275 53.4 10.8 29.3 27.7
Direct Expenses 32,587 39,348 42,044 122,344 154,698
3/11E 303,832 53,489 54.7 10.5 27.7 0.0
Sales, General & Admin. Exp. 12,836 13,948 14,197 46,873 54,969
* includes Citigroup Global Services revenues since 4QFY09
• TCS is expected to report revenues at Rs74.8b, a growth of Operating Profit 15,524 19,474 18,570 59,398 71,555
2.8% QoQ, with dollar revenue growth of 1.7% QoQ in Margins (%) 25.5 26.8 24.8 26.0 25.4
4QFY09 on a consolidated basis.
Other Income 781 -1,847 -700 4,450 -3,999
• The company will consolidate Citigroup Global Services (CGSL) Depreciation 1,625 1,454 1,677 5,746 5,647
in the current quarter. Excluding CGSL, US$ revenues are
expected to decline 3.2%. PBT bef. Extra-ordinary 14,681 16,173 16,194 58,102 61,910
• EBITDA margin is expected to be at 24.8%, lower by 200bp Provision for Tax 1,988 2,481 2,445 7,494 9,164
QoQ due to lower utilization and pricing decline. Rate (%) 13.5 15.3 15.1 12.9 14.8
• We expect forex losses at Rs1.9b for the quarter. The
company’s cash flow accounting policy would reflect a part Minority Interest 134 167 172 416 593
of the losses in the balance sheet under head, other
comprehensive income (OCI). Net Income after. EO 12,559 13,525 13,576 50,192 52,152
• Net profit is expected to grow 0.4% QoQ to Rs13.6b. Q-o-Q Change (%) -5.6 7.2 0.4 23.1 3.9
• The company has experienced project cancellations during E: MOSt Estimates No. of Equity Shares (m) : 978.6
3Q and 4QFY09, which will affect billed volumes in the current
quarter. We expect volumes to decline QoQ. * includes Citigroup Global Services revenues since 4QFY09
• Billing rates are expected to dip compared with 3QFY09 owing
to renegotiations in existing deals.
• The stock is trading at 9.7x FY09E and 9.7x FY10E earnings
estimates. Maintain Buy.
• Key risks: Shrinking IT spend with delays in decision making,
currency volatility, pricing pressures.
58
SECTOR:
INFORMATION TECHNOLOGY Tech Mahindra Tech Mahindra
YEAR NET SALES PAT EPS* P/E ROE ROCE Y/E MARCH FY08 FY09 FY09 FY08 FY09E
3/08A 37,661 7,693 58.9 4.7 70.7 69.2 Revenues 10,218 11,322 10,879 37,661 45,013
3/09E 45,013 9,213 70.5 3.9 55.0 53.7 Q-o-Q Change (%) 5.3 -2.8 -3.9 28.6 19.5
3/10E 42,980 7,464 57.1 4.8 30.7 30.2
Direct Cost 6,560 6,572 6,402 23,854 26,666
3/11E 43,183 6,751 51.7 5.3 21.9 21.6
Other Operating Exps 1,434 1,570 1,686 5,549 6,246
*Diluted EPS (before extra-ordinary item)
• We expect Tech Mahindra to report 3.9% QoQ revenue decline Margins (%) 21.8 28.1 25.7 21.9 26.9
in 4QFY09 to Rs10.9b. The US$ revenues (US$219m) are
expected to decline 5.4% QoQ due to US$ appreciation v/s Other Income 364 -397 -218 1,044 -674
GBP. Interest 5 0 0 62 2
Depreciation 229 286 250 796 1,062
• EBITDA margin at 25.7% is expected to decline 240bp due to
over 8% average depreciation of GBP. We note Tech Mahindra PBT bef. Extra-ordinary 2,354 2,497 2,323 8,445 10,364
derives over 65% of revenues in GBP. Provision for Tax 165 269 279 748 1,151
Rate (%) 7.0 10.8 12 8.9 11.1
• The tax rate is expected to be flat at around 12%.
Minority Interest -1 -1 0 3 0
• We expect net profit to decline 8.3% QoQ to Rs2b on account
of over 9% GBP depreciation in the quarter. Net Income bef. EO 2,190 2,229 2,044 7,693 9,213
Q-o-Q Change (%) 9.9 -5.3 -8.3 25.7 19.8
• The stock is trading at 3.9x FY09E and 4.8x FY10E consolidated
(diluted) earnings estimates. Maintain Neutral. Extra-ordinary Items -4,401 0 0 -4,399 673
• Key risks: Shrinking IT spend with delay in decision making, Net Income aft. EO -2,211 2,229 2,044 3,294 9,886
currency volatility, pricing pressures and client concentration. Q-o-Q Change (%) -210.9 -26.4 -8.3 171.9 200.1
Axon is consolidated since December 2008
59
SECTOR:
INFORMATION TECHNOLOGY Wipro Wipro
3/08A 197,428 32,241 22.2 11.4 27.9 24.6 IT Services and Products# 47,882 58,572 57,502 170,715 224,426
3/09E 253,169 33,031 22.5 11.2 23.2 21.5 Other Businesses 8,072 6,815 6,563 26,713 28,743
3/10E 276,840 34,877 23.6 10.7 20.6 19.7
Revenues 55,954 65,387 64,065 197,428 253,169
3/11E 291,785 36,961 24.7 8.5 19.7 0.0
Q-o-Q Change (%) 6.9 2 -2 0 0
* Reflects adjusted PAT; * Citi Technology Services is fully consolidated in FY10 Y-o-Y Change (%) 29.1 24.9 14.5 32.1 28.2
• We expect Wipro to report consolidated revenue Direct Expenses 39,606 45,953 46,220 138,831 178,796
decline of 2% at Rs64b. SG&A 5,363 8,754 8,391 18,431 32,838
• In IT services, we expect the company to report QoQ
EBIT 9,628 10,318 9,197 34,239 40,194
US$ revenue decline of 5.5% compared with guided Margins (%) 17.2 15.8 14.4 17.3 15.9
revenue degrowth of 5%. Wipro will consolidate Citi
Technology Services (CTS) in the current quarter. We Other Income 287 -223 -239 2,066 -1,274
expect ex-CTS QoQ US$ revenue degrowth to be 7.3%. Forex Gain/(Loss) -150 150 -210 -424 -1,070
Income from Equity Investees 100 114 107 257 434
• Consolidated EBIT margin is expected to decline 140bp
to 14.4% on account of lower utilization and pricing PBT 9,865 10,359 8,855 36,138 38,284
assumptions. Provision for Tax 1,095 1,364 1,151 3,873 5,191
Rate (%) 11.1 13.2 13.0 10.7 13.6
• We expect consolidated net profit to decline 14.3%
QoQ to Rs7.7b in the quarter, due to revenue degrowth Minority Interest 16 16 12 24 62
and deteriorating profitability. Net Income 8,754 8,979 7,692 32,241 33,031
• At CMP, the stock is trading at 11.2x FY09E and Q-o-Q Change (%) 6.0 9.2 -14.3 -0.3 2.4
10.7xFY10E, maintain Buy. E: MOSt Estimates No. of Equity Shares (m) : 1,467.8
• Key risks: Shrinking IT spend with delays in decision * includes Infocrossing
making, currency volatility, pricing pressures.
60
SECTOR: INFRASTRUCTURE
Hindustan Construction Hindustan Construction
3/08A 30,828 708 2.8 14.6 7.4 11.2 Sales (Excl JV) 10,550 8,194 12,211 30,828 35,553
3/09E 35,553 799 3.1 12.9 7.6 10.8 Change (%) 24.5 9.3 15.7 28.7 15.3
3/10E 43,500 1,082 4.2 9.6 9.6 10.7
EBITDA 1,306 1,060 1,552 3,666 4,360
3/11E 51,799 1,406 5.5 7.4 11.4 11.8
Change (%) 48.9 9.5 18.9 53.0 18.9
* Fully Diluted As of % Sales 12.4 12.9 12.7 11.9 12.3
• HCC has bagged two important orders in hydro power segment Depreciation 275 299 309 962 1,157
during the quarter. It has been awarded Rs27.2b Kishanganga
Power Project in Jammu and Kashmir and Rs3b Kashang Hydro Interest 452 573 694 1,524 2,149
Pruejct in Himachal Pradesh. It also bagged a Rs14.2b (Rs5.2b Other Income -95 -46 0 380 347
being HCC’s share) road project from NHAI. PBT 483 143 549 1,560 1,401
• At the end of 3QFY09, HCC’s order book stood at Rs122b (up
35% YoY, 13% QoQ), book to bill ratio of 3.4x FY09E revenue. Tax 220 -90 197 472 308
HCC was L1 in projects worth Rs23b as of December 2008, Effective Tax Rate (%) 45.4 -62.8 35.8 30.3 22
excluding Kishanganga hydro power project. During 3QFY09, Reported PAT 264 232 353 1,088 1,092
share of water supply and irrigation in pending order book
increased to 40% from 27% at the end of 2QFY09. Based on Adj PAT 359 300 353 708 801
the receipt of few large orders in 4QFY09, we expect book to Change (%) 124.2 52.7 -1.7 29.5 13.2
bill ratio to improve further by the end of FY09. E: MOSt Estimates No. of Equity Shares (m) : 256.3
• Lavasa has achieved pre-sales of Rs7b till December 2008
(similar amount as of September 2008) and has received * Actual adj profit is Rs190m for 3QFY09, tax write back of 1HFY09 is Rs110m
customer advances of Rs1.5b. The project has already achieved
financial closure. The company has already spent Rs12b till
December 2008 in Lavasa towards infrastructure development.
As of now, around 1,400 villas/apartments have been sold and
350 acres have been leased for commercial purposes. Phase 1
will be fully operational from October 2009.
• The stock trades at P/E of 9.6x FY10E and 7.4x FY11E. We
maintain Buy.
61
IVRCL Infrastructure IVRCL Infrastructure
3/08A 36,606 2,053 15.4 8.7 14.0 14.6 Sales 13,217 11,896 14,475 36,606 47,021
3/09E 47,021 2,190 16.2 8.3 12.8 13.1 Change (%) 33.2 22 9.5 58.8 28.5
3/10E 57,734 2,531 18.8 7.1 13.1 13.3
EBITDA 1,387 1,085 1,419 3,614 4,236
3/11E 69,449 3,009 22.3 6.0 13.8 14.3
Change (%) 29.3 0.1 2.3 57 17.2
• At the end of 3QFY09, IVRCL’s order book stood at Rs143b (+30%YoY), As of % Sales 10.5 9.1 9.8 9.9 9.0
book to bill ratio of 3x FY09E revenues. Share of irrigation / water
segment increased to 70% in 3QFY09, up from 58% in 3QFY08. Depreciation 99 123 128 328 466
• Declared order intake during 4Q is lower than average orders received Interest 208 419 413 478 1,330
during previous three quarters. It is primarily due to hectic pre-election Other Income 11 14 15 45 227
project awards by Andhra Pradesh government until December 2008.
Major orders bagged during the quarter include Rs1.8b order from PBT 1,092 556 893 2,853 2,666
Guru Govind Singh Refinery and Rs1.7b order from Bangalore Metro Tax 359 91 205 749 507
Rail Corporation. Effective Tax Rate (%) 32.9 16.3 22.9 26.2 19.0
• We expect revenue CAGR in FY09-11 at 22% v/s 46% CAGR in FY06-
09. This moderation, we believe, would shorten the working capital Reported PAT 733 465 688 2,105 2,160
cycle in turn improving the operating cash flows. Current (FY09E) net Adj PAT 733 465 688 2,053 2,190
debt to equity ratio at 0.8x is comfortable v/s peers. Outstanding equity Change (%) 0.1 -16.6 -6.1 45.2 6.6
contribution towards BOT projects is limited to Rs300m. Given that all
BOT projects will be commissioned in FY10, possible monetization E: MOSt Estimates No. of Equity Shares (m) : 129.7
through stake sale / securitization could improve the cash flows. IVR
Prime (62% subsidiary) is largely debt free, limiting further
commitments by IVRCL.
• Working capital increased from 122 days in June 2007 to 150 days in
December 2008, largely driven by increase in inventory (9 days) and
decline in current liabilities (19 days). We expect reduction in working
capital to 130 days by FY11, driven by lower inventory and improved
terms with creditors. Average borrowing cost currently stands at
11.75% v/s peak rates of 12.5%.
• The stock trades at 7.1x FY10E and 6x FY11E earnings. We maintain
Buy with a target of Rs154.
62
Jaiprakash Associates Jaiprakash Associates
YEAR NET SALES PAT EPS* P/E* ROE ROCE Y/E MARCH FY08 FY09 FY09 FY08 FY09E
3/08A 39,670 6,097 5.2 17.2 16.3 10.6 Sales 12,780 13,217 15,550 39,670 52,079
3/09E 52,079 7,243 6.1 14.7 14.5 10.0 Change (%) 44.2 46.9 21.7 15.3 31.3
3/10E 76,666 9,217 7.8 11.5 16.0 12.2
EBITDA 3,956 2,473 4,241 10,786 13,313
3/11E 96,013 9,415 7.9 11.3 14.5 11.5
Change (%) 50.4 10.9 7.2 19.3 23.4
* Fully diluted As of % Sales 31 18.7 27.3 27.2 25.6
• For 4QFY09, we expect Jaiprakash to report revenue
of Rs15.6b (up 21.7% YoY), EBITDA of Rs4.2b (up 7.2% Depreciation 610 646 783 2,030 2,717
YoY) and net profit of Rs1.8b (down 12.5% YoY). Interest 972 992 1,295 3,392 4,279
Other Income 669 1,254 775 3,069 3,464
• JPA has recently bought back zero coupon FCCB of the
value of US$32m at an estimated discount of ~50%. PBT 3,043 2,089 2,938 8,433 9,781
Tax 946 434 1,104 2,336 2,989
• JPA has commissioned 2mton of cement capacity at
Effective Tax Rate (%) 31.1 20.8 37.6 27.7 30.6
Siddhi, Madhya Pradesh in 3QFY09, while management
expects to commission 2.5m ton of UP Cement unit by Reported PAT 2,097 1,655 1,835 6,097 6,793
FY09 end. In FY10, we expect JPA to add HP Cement Adj PAT 2,097 2,105 1,835 6,097 7,243
(3.5m ton), HP Chamba (2.5m ton) and Bhilai JV with Change (%) 60.1 34.9 -12.5 46.9 18.8
SAIL (2.2m ton). E: MOSt Estimates No. of Equity Shares (m) : 1,186.6
• Land for expressway construction has been received.
On real estate front, JPA booked revenues of Rs664m
in 3QFY09 (v/s Rs266m in 2QFY09). Till YTD December
2008, the company has pre-sold 4.7msf of area at
NOIDA at an average realization of Rs5,600/sf.
• We expect JAL to report net profit of Rs7.2b in FY09
(up 17.3% YoY), Rs9.2b in FY10 (up 27.3% YoY), and
Rs9.4b in FY11 (up 2.2% YoY). Buy.
63
Nagarjuna Construction Nagarjuna Construction
3/08A 34,729 1,623 7.1 8.5 12.4 12.3 Sales 12,541 10,266 14,295 34,729 44,829
3/09E 44,829 1,717 7.5 8.0 10.5 11.2 Change (%) 44.5 31.7 14.0 21.0 29.1
3/10E 52,466 2,118 9.3 6.5 11.9 11.9
EBITDA 1,094 899 1,245 3,598 4,144
3/11E 62,842 2,647 11.6 4.2 13.4 13.1
Change (%) 50.4 4.2 13.8 33.4 15.2
• We expect NCC to post revenue of Rs14.3b during the quarter, As of % Sales 8.7 8.8 8.7 10.4 9.2
up 14% YoY. With EBITDA margin remaining at similar levels,
EBITDA will grow by 13.8% YoY to Rs1.2b. However, due to Depreciation 138 119 122 482 532
steep rise in interest cost, PAT will grow only by 6.3% YoY to Interest 174 238 275 719 1,026
Rs560m. Other Income 37 8 8 56 35
• NCC had a strong order book of Rs124b at the end of 3QFY09, PBT 819 551 856 2,452 2,621
book to bill ratio of 2.8x FY09E reveneus. NCC witnessed Tax 293 188 296 833 904
slowdown in order intake during the quarter. Major orders Effective Tax Rate (%) 35.8 34.1 34.6 34.0 34.5
bagged during the quarter includes Rs3.6b contract from
Singareni Colleries. Reported PAT 526 363 560 1,620 1,717
• By the end of 3QFY09, NCC had invested Rs6b in real estate. Adj PAT 526 363 560 1,620 1,717
It has deferred plans to offload equity in real estate projects. Change (%) 55.4 -8.4 6.3 19.3 6.0
Equity investment in BOT projects stands at Rs3b, and E: MOSt Estimates No. of Equity Shares (m) : 228.8
outstanding equity commitment is Rs700m over the next 12-
18 months. Advances to subsidiaries (largely RE) have
increased to Rs2.9b in 3QFY09 from Rs1.9b in FY08. Though
these are interest bearing advances, the repayment of principal
might take time due to adverse real estate scenario.
• The stock trades at attractive valuations of 6.5x FY10E and
4.2x FY11E earnings. We maintain Buy with a target of Rs106.
64
Simplex Infrastructure Simplex Infrastructure
3/08A 28,121 1,021 20.6 7.3 13.6 18.2 Net Income 9,552 12,703 13,636 28,121 46,556
3/09E 46,556 1,416 28.6 5.2 16.0 18.0 Change (%) 65.5 80.4 42.8 64.4 65.6
3/10E 53,064 1,831 37.0 4.1 17.4 18.0
EBITDA 815 1,156 1,271 2,675 4,516
3/11E 60,573 2,235 45.2 3.3 17.8 19.2
Change (%) 57.1 63.9 55.9 65.2 68.8
As % of Sales 9.6 9.4 9.6 10.4 10.0
• We expect 43% YoY growth in revenue during the quarter and
EBITDA margin to remain stable at 9.6%. We expect Simplex to Other Income 98 37 41 246 135
report revenue of Rs13.6b and EBITDA of Rs1.3b. Interest 214 436 396 1,007 1,431
• At the end of 3QFY09, order book for Simplex stood at Rs102b Depreciation 206 370 372 643 1,299
(+15%YoY, -4%QoQ), book to bill ratio of 2.2x FY09E revenues. Extraordinary Expenses - - - - -60.2
Current order book includes 69% domestic orders and 31% of
PBT 493 387 544 1,271 1,861
orders from Middle East. Private orders in the current order book
Tax 199 134 214 370 615
are at 48%. Its exposure to the real estate sector is 16% (5% in
India and 11% in Middle East). Tax/PBT 40.3 34.7 39.3 29.1 33
• Management indicated during our recent interaction that the end PAT 295 253 330 901 1,246
market activity has improved as compared to previous quarter in Adjusted PAT 415 303 330 1,021 1,356
both domestic as well as Middle East market. As % of Sales 4.3 2.4 2.4 3.6 2.9
• During 4QFY09, the company has bagged orders of Rs15b Change (%) 119 37.3 -20.3 90.1 32.8
(including L1 projects), lower than previous three quarters. Simplex
management is cautious in selection of orders. It has taken up E: MOSt Estimates No. of Equity Shares (m) : 49.5
those orders from which it does not expect any payment problems.
• During 4QFY09, the working capital has further improved for
Simplex. This has resulted in the company repaying Rs1b of debt.
4QFY09 debt would be ~Rs12.5b v/s Rs13.2b at the end of
3QFY09.
• The stock trades at 4.1x FY10E and 3.3x FY11E earnings. We
maintain Buy.
65
SECTOR: MEDIA
Deccan Chronicle Deccan Chronicle
03/08A 7,824 2,719 11.1 4.1 25.5 25.7 Sales 2,051 2,147 1,950 7,824 8,297
03/09E 8,297 1,394 5.6 8.0 12.6 17.5 Change (%) 39 -0.7 -4.9 41.5 6.0
03/10E 7,986 1,755 7.1 6.3 15.4 20.4
EBITDA 1,232 544 506 4,860 2,766
03/11E 8,775 2,148 8.7 5.2 18.1 23.5
Change (%) 68.6 -61.5 -59 88.1 -43.1
As of % Sales 60.1 25.3 25.9 62.1 33.3
• We expect Deccan Chronicle to post 4.9% YoY decline
in revenues to Rs1.95b Depreciation 72 78 87 280 312
• Decline in newsprint price would benefit the company Interest 251 191 185 768 771
Other Income 83 136 112 379 462
and EBITDA margin is likely to expand by 60bp QoQ.
However, margins would decline by 34.2% YoY to PBT 992 411 347 4,191 2,144
25.9% due to higher other expenses and YoY increase Tax 966 154 272 1,471 750
in newsprint prices. Effective Tax Rate (%) 97.3 32.0 78.5 35.1 35.0
• The advertising industry continues to remain under Reported PAT 26 257 75 2,719 1,394
pressure and has largely impacted the metros and big Adj PAT 26 257 75 2,719 1,394
cities. DCHL with a focus on big cities and metros is Change (%) -89.6 -75.1 181.4 68.5 -48.7
expected to be affected E: MOSt Estimates; Consolidated No. of Equity Shares (m) : 245.0
• DCHL intends to sell a part or entire stake in its IPL
venture, The Deccan Charger Sporting Venture.
• We estimate PAT of Rs75m in 4QFY09 v/s Rs26m in
4QFY09. The increase would be due to higher deferred
tax in the previous year. PBT is expected to decline by
65%. YoY.
• The stock is trading at 8x FY09E and 6.3x FY10E
earnings. We maintain Buy.
66
SECTOR: MEDIA
H T Media H T Media
03/08A 11,862 1,445 6.2 8.9 15.8 15.2 Sales 3,134 3,338 3,028 11,862 12,955
03/09E 12,955 716 3.9 14.1 7.0 9.4 Change (%) 14 4.5 -3.4 14.1 9.2
03/10E 13,425 1,007 5.2 10.7 8.8 13.7
EBITDA 601 424 304 2,229 1,790
03/11E 14,530 1,022 5.2 10.7 8.1 12.9
Change (%) 43.8 -23.9 -49.4 16.7 -19.7
As of % Sales 19.2 12.7 10.1 18.8 13.8
• We expect HT Media to post decline of 3.4% in revenues
to Rs3b. Depreciation 117 138 117 447 512
Interest 43 101 35 177 261
• EBITDA margin is expected to decline from 19.2% in Other Income 123 79 99 407 311
4QFY08 to 10.1% in 4QFY09. Extra-ordinary income 0 128 72 0 200
• Its Hindi daily, Hindustan continues to do well while PBT 564 135 179 2,012 1,128
Tax 148 57 82 567 413
HT Mumbai and Mint have not able to gain traction.
• The company’s cost structure continues to increase due Reported PAT 416 78 97 1,446 716
to entry into new ventures. Exceptional Items 0 128 72 0 200
• PAT is expected to decline by 59% to Rs170m due to Adj PAT 416 206 170 1,446 916
lower EBITDA margin. Change (%) 73.6 -36.5 -59.2 25.4 -36.7
• The stock is trading at 14.1x FY09E and 10.7x FY10E No. of Equity Shares (m) : 234.2
67
SECTOR: MEDIA
Jagran Prakashan Jagran Prakashan
03/08A 7,497 981 3.3 17.6 18.2 22.6 Sales 1,900 2,070 1,945 7,496 8,166
03/09E 8,166 833 2.8 20.7 15.1 18.8 Change (%) 16.1 4.0 2.4 25.3 8.9
03/10E 8,639 991 3.3 17.4 17.1 21.4
EBITDA 300 301 251 1,637 1,428
03/11E 9,673 1,110 3.7 15.6 17.9 22.1
Change (%) 2.4 -30.4 -16.5 36.6 19.1
As of % Sales 15.8 14.5 12.9 21.8 17.5
• Jagran Prakashan is expected to post 2.4% YoY growth
in revenue at Rs1.94b. Depreciation 94 98 99 336 369
Interest 11 18 17 60 57
• EBITDA margin is expected to decline from 15.8% in Other Income 33 45 63 215 225
4QFY08 to 12.9% in 3QFY09. Decline would largely be
PBT 228 229 197 1,457 1,227
on account of rising newsprint price and losses in its Tax 74 75 62 477 394
OOH business. Effective Tax Rate (%) 33 32 31.5 32.7 32.1
• JPL being a regional player would be able to withstand Reported PAT 155 155 135 980 833
the decline in advertising revenue growth. Further, the Adj PAT 154 155 135 980 833
company sources 80% of the newsprint requirement Change (%) 0.6 -40.1 -12.6 33.3 -15.0
from the domestic market where the prices have E: MOSt Estimates; Consolidated No. of Equity Shares (m) : 301.2
declined by 30%.
• We estimate PAT to decline 12.6% YoY to Rs135m.
68
SECTOR: MEDIA
Sun TV Network Sun TV Network
3/08A 8,697 3,670 9.3 18.3 25.0 44.3 Sales 2,465 2,708 2,959 8,611 10,282
3/09E 10,299 4,140 10.5 16.2 23.5 42.7 Change (%) -35 24.4 20.1 27.2 19.4
3/10E 12,244 5,115 13.0 13.1 24.2 43.2 EBITDA 1,581 2,013 1,934 6,219 7,393
3/11E 14,197 6,116 15.5 11.0 24.3 42.7 Change (%) -37.4 17.7 22.3 29.1 18.9
Standalone numbers excluding radio Business As of % Sales 64.1 74.3 65.4 72.2 71.9
• We expect the company to post revenue of Rs2.9b, up Depreciation 377 446 436 1,130 1,623
20% YoY; EBITDA of Rs1.9b, up 22.4% and PAT of Rs1.1b, Interest 11 8 11 56 40
up 22% YoY. Other Income 215 144 137 649 610
• We estimate 16.8% increase in advertising revenue in the Extraoridnary Item 207

quarter. DTH revenue to drive subscription revenues. PBT 1,408 1,703 1,624 5,682 6,546
However, cannibalization due to DTH would result in Tax 494 581 509 2,012 2,200
modest growth in the subscription revenue. Effective Tax Rate (%) 35.1 34.1 34.7 35.4 33.6
Reported PAT 915 1,122 1,115 3,670 4,346
• Sun TV continues to remain an undisputed leader in south
Adj PAT 915 1,122 1,115 3,670 4,214
India with presence across all the four states. The regional
Change (%) -23.1 9.7 21.9 36.5 14.8
market has not been impacted significantly due to slow
down in economy. E: MOSt Estimates; Consolidated No. of Equity Shares (m) : 394.1
• The company has forayed into the movie business; it also

has a radio business, both these business are in the
investment mode.
earnings. We maintain Neutral.
69
SECTOR: MEDIA
TV Today TV Today
03/08A 2,311 437 7.5 8.9 15.1 22.5 Sales 638 652 606 2,311 2,568
03/09E 2,568 322 5.8 11.5 10.2 15.4 Change (%) 8.9 -6 -5 22.3 11.1
03/10E 2,847 412 7.4 9.0 11.7 17.7
EBITDA 184 138 105 625 495
03/11E 3,268 550 9.9 6.7 13.9 21.0
Change (%) -9.7 -43.4 -43.2 20.8 -4.4
* Excluding extraordinary items and provisions As of % Sales 28.9 21.2 17.3 27.1 19.3
• We expect the company to post revenue of Rs606m,
down 5% YoY. EBITDA margins are expected to decline Interest 0 0 0 1 1
17.3%. Other Income 65 70 65 204 218
Extra-ordinary income 0 0 0 1 0
• Aaj Tak is an undisputed leader in the Hindi news genre
in spite of increased competition in this genre. The PBT 208 143 101 667 496
company continues to focus on increasing the reach Tax 73 56 33 232 174
of Headlines Today, which would result in higher Effective Tax Rate (%) 35.1 35 33 34.7 35
expenses on carriage fee. Reported PAT 135 87 68 436 322
Adj PAT 135 87 68 436 322
• The merger of Radio Today awaits clearance from the Change (%) 10.3 -48 -49.6 39.7 -26.0
Ministry of Information and Broadcasting.
E: MOSt Estimates; Consolidated No. of Equity Shares (m) : 58.0
• We estimate 49% decline in PAT to Rs68m. The stock is
trading at 11.5x FY09E and 9x FY10E earnings. We
maintain Buy.
70
SECTOR: MEDIA
Zee Entertainment Enterprise Zee Entertainment Enterprise
3/08A 18,354 4,033 9.3 11.4 13.5 19.6 Advertsing Revenue 2,466 2,684 2,203 9,307 10,537
3/09E 21,722 3,959 9.1 11.6 12.5 16.6 Subscription Revenue 2,071 2,274 2,412 7,436 9,081
3/10E 22,263 4,061 9.4 11.4 11.6 16.7 Other Sales and Services 723 497 514 1,611 2,104
3/11E 24,677 5,344 12.3 8.6 13.7 19.3 Net Sales 5,260 5,456 5,130 18,354 21,722
Change (%) 36.8 5.3 -2.5 21.1 18.4
• We expect Zee Entertainment Enterprise (ZEEL) to report Prog, Transmission & Direct Exp 2,192 2,684 2,539 7,818 10,202
2.5% YoY decline in revenue on back of 11% decline in Staff Cost 406 382 413 1,438 1,998
advertising revenue and 16% increase in subscription Selling and Other Exp 1,359 1,189 1,136 3,675 4,348
revenue. PAT is expected to decline by 10% YoY at EBITDA 1,303 1,201 1,042 5,423 5,173
Rs832b. Change (%) 36.9 -23.5 -20 69.2 -4.6
• Operating margins of the company is likely to decline As of % Sales 24.8 22 20.3 29.5 23.8
by 450bp YoY to 20.3% due sharp decline in advertising Depreciation 54 84 85 232 290
revenue and launch of new programs. Interest 184 386 244 335 1,066
Other Income 435 401 450 1,138 1,408
• GEC space continues to get fragmented with new Extra-ordinary 26 26 0 208 1,392
launches. We believe slowdown in economy will have a
PBT 1,475 1,158 1,163 5,786 6,617
sharp impact on advertising revenue of ZEEL Tax 430 318 397 1,634 1,621
• The stock trades at 11.6x FY09E EPS of Rs9.1 and 11.4x Effective Tax Rate (%) 29.2 27.5 34.1 28.2 24.5
FY10E EPS of Rs9.4. We remain Neutral. Reported PAT 1,044 840 766 4,152 4,996
Minority Interest 119.9 14.7 51 327.7 115
PAT after Minority Interest 924 917 832 3,825 3,959
Change (%) 53.1 -16.4 -10 61.0 3.5
E: MOSt Estimates; Consolidated No. of Equity Shares (m) : 433.6
71
SECTOR: METALS
Hindalco Hindalco
27 March 2009 SELL - Rs55 QUARTERLY PERFORMANCE (STANDALONE) (Rs Million)
3/08A 600,128 19,803 16.1 3.4 36.6 7.4 Net Sales 50,102 41,172 36,480 191,795 180,492
3/09E 642,784 17,273 9.9 5.6 16.0 5.6 Change (YoY %) 5.5 -9.1 -27.2 4.7 -5.9
3/10E 512,300 9,071 5.2 10.6 7.6 5.1
3/11E 514,901 7,729 4.4 12.5 6.0 5.0
Consolidated EBITDA 7,967 7,792 3,792 34,033 30,542
Change (YoY %) -28.5 -2.7 -52.4 -16.6 -10.3
• For 4QFY09, we expect standalone PAT to decrease 62.1% As % of Net Sales 15.9 18.9 10.4 17.7 16.9
YoY to Rs2b due to correction of aluminum prices by 50% to
an average of ~1,400/ton. EBITDA is expected to decline 52% Interest 988 932 913 2,804 3,462
YoY to Rs3.8b and margin is likely to contract 550bp to 10.4 Depreciation 1,516 1,611 1,627 5,850 6,398
% due to falling prices on the LME. Other Income 1,442 1,505 1,354 4,929 7,240
• Aleris, 3rd largest producer of aluminum, rolled products
declared bankruptcy during the quarter while Novelis had to PBT (before EO Item) 6,905 6,754 2,606 30,308 27,923
shut-down its Rotterdam mill in the UK due to extremely poor Extra-ordinary Income 5,412 - - 5,412 -
demand outlook. Demand for aluminum products has PBT (after EO Item) 12,317 6,754 2,606 35,720 27,923
declined steeply especially in the North American region as
Total Tax 1,542 1,306 573 7,061 6,275
the demand from housing and auto majors has nearly
% Tax 22.3 19.3 22 19.8 22.5
disappeared.
• Novelis depends on the North American region for 40% of its Reported PAT 10,775 5,448 2,033 28,659 21,648
revenues. Recently, Alcoa announced that it will ask customers Adjusted PAT 5,363 5,448 2,033 24,317 21,648
to fund mark to market margin on fixed price contract. This Change (YoY %) -30.4 0.4 -62.1 -8.8 -11.0
will change the terms of trade in America, which may reduce
working capital requirement of non integrated players like E: MOSt Estimates; No. of Equity Shares (m) : 1,752.1
Novelis.
• We estimate an EPS of Rs 5.2 for FY10 and 4.4 for FY11
assuming average aluminum price of ~US$1,400/ton. The
stock trades at 10.6x FY10E P/E and 4.4x FY10E EV/EBITDA.
Maintain Sell.
72
SECTOR: METALS
Hindustan Zinc Hindustan Zinc
3/08A 78,778 43,961 104.0 4.3 37.1 41.9 Net Sales 22,660 10,692 11,048 78,780 56,081
3/09E 56,081 25,596 60.6 7.4 18.1 15.5 Change (YoY %) 12.1 -35.5 -51.2 -8 -28.8
3/10E 45,425 17,559 41.6 10.9 11.2 7.2 Total Expenditure 7,850 7,641 7,840 24,980 30,225
3/11E 50,951 20,087 47.5 9.5 11.5 7.6
EBITDA 14,810 3,051 3,208 53,800 25,856
Standalone
Change (YoY %) 5.8 -70.8 -78.3 -16 -51.9
• For 4QFY09, we expect net sales to decrease 51.2% As % of Net Sales 65.4 28.5 29 68.3 46.1
YoY to Rs11b due to lower zinc prices on the LME Interest 50 44 48 240 231
despite 12% YoY volume growth. Revenues from by- Depreciation 740 712 806 2,220 2,908
product too will decline due to sharp fall in sulphuric Other Income 3,260 2,363 2,500 8,510 8,764
acid prices even though silver realizations have PBT 17,280 4,658 4,854 59,850 31,480
improved. Total Tax 4,500 969 1,019 15,890 5,884
% Tax 26 20.8 21 26.5 18.7
• EBITDA is expected to decline 78% YoY to Rs3.2b and
margin to contract 36pp to 29% due to falling prices Reported PAT 12,780 3,688 3,834 43,960 25,596
on the LME. Profit after tax is likely to decrease 70% Adjusted PAT 12,780 3,688 3,834 43,960 25,596
YoY to Rs3.8b. Change (YoY %) 36.7 -53.0 -70.0 -1.0 -41.8
E: MOSt Estimates; No. of Equity Shares (m) : 422.5
• Zinc volumes will grow at 12% CAGR in FY09-11 to
700,000tons with the 1mton expansion plan by mid
2010, while silver volumes will grow at 68% CAGR to
270ktons with the expansion of Sindesar Khurd mine
in Rajasthan. We estimate an EPS of Rs 41.6 for FY10
and Rs47.5 for FY11 assuming zinc price of US$1,200/
ton. Maintain Buy.
73
SECTOR: METALS
Jindal Steel & Power Jindal Steel & Power
27 March 2009 BUY - Rs1,235 QUARTERLY PERFORMANCE (STANDALONE) (Rs Million)
3/08A 54,890 13,634 88.6 13.9 35.4 16.6 Net Sales 15,230 17,811 17,463 54,108 76,388
3/09E 108,114 31,355 203.7 6.1 47.3 29.2 Change (YoY %) 44.5 27.6 14.7 53.7 41.2
3/10E 107,071 30,198 196.1 6.3 31.5 21.0
3/11E 134,067 40,781 264.9 4.7 30.0 24.0
Consolidated EBITDA 6,793 6,846 5,486 22,775 28,707
Change (YoY %) 73.4 28.6 -19.2 62.4 26
• For 4QFY09, we expect net sales to grow 14.7% YoY to
As % of Net Sales 44.6 38.4 31.4 42.1 37.6
Rs17.5b, driven by volume growth in steel business.
EBITDA is likely to decrease 19.2% YoY to Rs5.5b. Post- Interest 603 743 700 2,086 2,481
tax adjusted profit is likely to decline by 42.3% YoY to Depreciation 1,035 1,109 1,200 4,515 4,443
Rs2.8b. Other Income 248 104 104 491 432
• Short term trading prices for power at the Indian energy
PBT (before EO Item) 5,402 5,097 3,689 16,666 22,215
exchange averaged ~Rs6.07/kwh as compared to ~Rs7.4/
Extra-ordinary Income -1,000 -726 0 -1,640 -2,602
kwh in 3QFY09, which may be repeated in 4Q as well.
We expect JPL’s 4Q PAT of Rs4.9b. Therefore, consolidated PBT (after EO Item) 4,402 4,371 3,689 15,025 19,613
PAT is expected to increase 61% YoY to Rs7.7b. Total Tax 499 1,120 922 2,656 5,072
• Volume growth in steel business due to revamp of % Tax 11.3 25.6 25 17.7 25.9
0.5mtpa mini blast furnace, start of new 100ton EAF,
Reported PAT 3,903 3,252 2,767 12,370 14,541
540MW CPP at Raigarh, 4.5mtpa Pellet plant, plate mill
Adjusted PAT 4,792 3,792 2,767 13,720 16,470
and 810MW CPP in Orissa will provide earnings growth
Change (YoY %) 136.3 18.8 -42.3 95.2 20.0
during FY10-FY11, while JPL’s strong cash flows will be
invested into 2,400MW brownfield expansion over next E: MOSt Estimates No. of Equity Shares (m) : 154.0
4 years.
• We expect EPS CAGR growth of 44% during FY08-11.
Consolidated EPS of Rs196 for FY10 and Rs265 for FY11.
The stock trades at a P/E of 6.3x FY10. Our SOTP valuation
is Rs1,443. Maintain Buy.
74
SECTOR: METALS
JSW Steel JSW Steel
3/08A 123,455 16,211 86.7 2.7 21.3 12.1 Sales (tons) 906,500 711,000 1,097,050 3,206,308 3,462,050
3/09E 166,705 10,097 54.0 4.3 12.8 9.5 Change (YoY %) 15.6 -13 21.0 113.8 8.0
3/10E 200,673 19,186 102.6 2.3 20.3 15.2 Realization (Rs per ton) 37,782 39,178 32,301 36,138 41,218
Change (YoY %) 18.6 3.9 -14.5 -36.7 14.1
3/11E 216,673 20,963 112.1 2.1 19.1 15.9
Net Sales 34,250 27,855 35,436 115,870 142,697
Consolidated
Change (YoY %) 37.1 -9.6 3.5 35.3 23.2
• We expect net sales to grow 3.5% YoY to Rs35b due to Total Expenditure 25,507 23,941 29,093 82,304 112,943
volume growth of 21% YoY and realizations decline of EBITDA 8,743 3,915 6,343 33,566 29,755
14.5% YoY. EBITDA is likely to decline 27.4% YoY to Change (YoY %) 8.9 -53.5 -27.4 23.2 -11.4
Rs6.3b. Margin would decline ~8pp YoY to 17.9% due As % of Net Sales 25.5 14.1 17.9 29 20.9
to coking coal cost pressures. We expect a marginal EBITDA (Rs per ton) 9,645 5,506 5,782 10,469 8,594
Interest 1,335 2,333 2,810 4,610 8,634
profit of Rs308m in 4Q. Depreciation 1,829 2,141 3,400 7,029 9,368
• The company ramped up production aggressively Other Income 325 420 426 1,521 1,544
during the quarter in tandem with the improved PBT (before EO Item) 5,904 -139 559 23,448 13,297
EO Items -655 -1,768 0 1,385 -6,718
demand outlook in construction and automotive
PBT (after EO Item) 5,248 -1,907 559 24,833 6,579
sectors domestically. US pipe and mill operations Total Tax 2,372 -632 179 8,312 2,107 %
continue to face a challenging demand outlook and Tax 45.2 33.1 32.0 33.5 32.0
we expect them to work at the previous low capacity Reported PAT 2,876 -1,275 380 16,520 4,472
utilizations of ~20%. Preference Dividend 73 72 72 291 289
• Strong volume growth of ~68% to 5.8mton in FY10 Adjusted PAT 3,163 -165 308 15,308 8,750
Change (YoY %) -15.9 -104.8 -90.3 24.1 -42.8
and significant cost savings will drive earnings growth
of CAGR 44% in FY09-11E. We estimate an EPS of E: MOSt Estimates No. of Equity Shares (m) : 187.1
Rs102.6 for FY10 and Rs112.1 for FY11. The stock * We have excluded SISCOL’s financials from reported FY08 4Q stand-alone & have
trades at an EV/EBITDA of 3.4x FY10E. Maintain Buy. adjusted Rs1.39b misc exp. w/off for 1Q to 4Q of FY08
75
SECTOR: METALS
Nalco Nalco
3/08A 49,888 16,483 25.6 9.3 18.6 20.4 Net Sales 14,057 10,360 7,718 49,884 48,117
3/09E 48,117 12,611 19.6 12.2 13.0 13.9 Change (YoY %) -10.3 -6.6 -45.1 -16 -3.5
3/10E 39,280 5,556 8.6 27.7 5.6 2.8
3/11E 42,220 6,451 10.0 23.8 6.3 3.2
Standalone EBITDA 6,028 2,655 727 22,277 17,158
Change (YoY %) -31.5 -39.7 -87.9 -37.1 -23
• We expect net sales to decline 45% YoY to Rs7.7b due
As % of Net Sales 42.9 25.6 9.4 44.7 35.7
to ~50% YoY decline in aluminum and alumina prices.
EBITDA is expected to decline 87.9% YoY to 727m Interest 0 6 0 -7 10
primarily on account of lower metal prices. Profit after Depreciation 758 642 813 2,794 2,830
tax is likely to decline 83% YoY to Rs718m. Other Income 1,350 1,133 1,187 5,683 4,762
PBT (before EO Item) 6,620 3,140 1,100 25,173 19,079
• Nalco's last tender in 4QFY09 for alumina was settled Extra-ordinary Income -357 0 0 -254 0
at US$191/ton. Alumina prices averaged ~189/ton
PBT (after EO Item) 6,263 3,140 1,100 24,919 19,079
during the quarter. Coal shortage situation has not
Total Tax 2,173 946 381 8,553 6,469
impacted production during the quarter. % Tax 34.7 30.1 34.7 34.3 33.9
• Volume growth of 19% in aluminum and 16% in Reported PAT 4,091 2,195 718 16,366 12,611
alumina will drive earnings in FY10. Bauxite mines will Adjusted PAT 4,324 2,195 718 16,533 12,611
undergo expansion to be able to produce 30% more Change (YoY %) -26.8 -33.4 -83.4 -30.9 -23.7
YoY to 6.3mtons. We estimate an EPS of Rs8.6 in FY10 E: MOSt Estimates No. of Equity Shares (m) : 644.3
and Rs10 in FY11 on aluminum price assumption of
US$1,400/ton and alumina price assumption of
US$200/ton. The stock trades at expensive valuations
of 18.6x EV/EBITDA FY10. Maintain Sell.
76
SECTOR: METALS
Sterlite Industries Sterlite Industries
27 March 2009 BUY - Rs374 QUARTERLY PERFORMANCE (CONSOLIDATED) (Rs Million)
3/08A 247,243 45,019 63.5 5.5 20.2 21.2 Net Sales 67,659 45,362 38,806 247,054 207,807
3/09E 207,807 35,762 50.5 6.9 14.1 9.2 Change (YoY %) 8.2 -13.3 -42.6 1.3 -15.9
3/10E 149,140 16,637 23.5 14.9 6.2 3.2
3/11E 177,591 21,496 33.3 10.5 8.3 4.5
Consolidated
EBITDA 21,746 5,653 6,105 78,682 46,373
Change (YoY %) -4.3 -64 -71.9 -16.8 -41.1
• We expect net sales to decline 42.6% YoY to Rs38.8b due As % of Net Sales 32.1 12.5 15.7 31.8 22.3
to lower base metal prices on the LME. EBITDA is expected
to decline 71.9% YoY and the margin would contract 16pp Interest 908 1,220 616 3,186 3,290
to 15.7%. Profit after tax is likely to decrease 57.5% YoY Depreciation -269 1,654 1,802 5,950 6,777
to Rs4.8b. Other Income 5,918 5,852 4,300 15,661 20,297
PBT (before XO Item) 27,024 8,632 7,986 85,206 56,602
• The earnings of copper smelter will benefit from higher
Extra-ordinary Exp. -528 -145 - -528 -245
TcRc, while byproduct credit will decline further due to
crashing of sulphuric acid market. Balco’s margins are PBT (after XO item) 26,496 8,486 7,986 84,678 56,357
under pressure due to falling aluminium prices despite Total Tax 7,177 1,163 1,118 21,027 9,004
cost reduction on account of lower alumina, caustic soda % Tax 27.1 13.7 14.0 24.8 16.0
and calcined pet coke prices. Reported PAT 19,319 7,323 6,868 63,651 47,353
• We believe Sterlite’s low cost capacities of zinc, copper Minority Interest 6,135 2,186 1,038 19,659 12,106
custom smelting will continue to generate positive cash Adjusted PAT 13,712 5,283 5,830 44,520 35,492
flows irrespective of metal prices. We have downgraded Change (YoY %) 19.4 -38.2 -57.5 -2 -20.3
our EPS for FY10 from Rs36 earlier to Rs23.5 as we factor
in our new aluminum price assumption of US$1,200/ton
(from Us$2,000/ton earlier). The stock is trading at P/E of
14.9x FY10 and P/B of 0.9x FY10. Maintain Buy.
77
SECTOR: METALS
Steel Authority of India Steel Authority of India
3/08A 400,581 84,603 20.5 5 36.4 45.8 Sales (m tons) 3.8 2.4 3.44 12.34 11.14
3/09E 439,893 56,427 13.7 7.5 20.7 26.8 Change (YoY %) 10.1 -20.3 -9.5 3.9 -9.7
3/10E 393,644 48,186 11.7 8.8 15.5 20.2
Realization (Rs per ton) 35,468 37,169 33,169 32,588 39,137
3/11E 409,226 58,296 14.1 7.3 16.4 22.3 Change (YoY %) 17.8 17.4 -6.5 12.8 20.1
Standalone
Net Sales 134,779 89,206 114,102 402,142 435,989
• We expect net sales to decline 15.3% YoY to Rs114b, Change (%) 29.8 -6.4 -15.3 17.2 8.4
driven by 3.5% decline in average realization, while EBITDA 47,333 11,287 2,994 129,710 81,381
the sales volume is expected to decline 9.5% to 3.4m Change (YoY %) 58.2 -63.2 -93.7 33.3 -37.3
tons. As % of Net Sales 35.1 12.7 2.6 32.3 18.7
• EBITDA margin will decline 32pp YoY to 2.6% due to EBITDA per ton 12,456 4,703 870 10,511 7,305
high cost coking coal inventory and falling realizations. Interest 522 1,078 625 2,509 2,746
Depreciation 3,171 3,194 3,425 12,355 12,978
Depreciation of currency too has added to costs of
Other Income 3,774 5,550 5,216 13,029 18,916
imports. PAT is likely to decline 91% YoY to Rs2.7b.
PBT (after EO Inc.) 36,650 12,566 4,160 114,689 75,323
• We estimate an EPS of Rs11.7 in FY10 and Rs14.1 in Total Tax 12,883 4,132 1,410 39,320 25,693
FY11 assuming a blended realization of Rs33,169/ton. % Tax 35.2 32.9 33.9 34.3 34.1
Rs540b capex to expand capacity from 13mtpa to Reported PAT 23,768 8,433 2,749 75,369 49,631
23mtpa will bring volume growth in FY12-FY14. In FY10 Adjusted PAT 31,159 8,279 2,741 84,035 55,726
and FY11, cost reduction due to coking coal price Change (YoY %) 63.6 -58 -91.2 41.5 -33.7
correction will be key driver of earnings due to absence
of meaningful volume growth. However, SAIL's balance
sheet is risk free due to absence of loans, while surplus
cash of >US$3b is an added comfort. Maintain Sell.
78
SECTOR: METALS
Tata Steel Tata Steel
END (Rs m) (Rs m) (Rs) (x) (%) (%) Standalone Financials 4Q 3Q 4QE Full Year Full Year
3/08A 1,315,359 77,404 94.2 2.4 48.4 15.1 Sales ('000 tons) 1,279 1,072 1,619 4,782 5,118
Change (YoY %) 1.5 -13.8 26.6 -0.3 7.0
3/09E 1,506,382 111,672 135.9 1.6 70.6 17.6
3/10E 1,502,842 68,371 83.2 2.7 30.1 12.6 Realization (Rs per ton) 39,157 41,666 37,666 36,598 43,293
Change (YoY %) 11.4 18.4 -3.8 12.3 18.3
3/11E 1,237,016 67,552 82.2 2.7 24.2 12.0
Net Sales 57,367 48,021 63,098 196,933 240,211
Consolidated Change (YoY %) 15.2 -3.5 10 12.2 22.0
• We expect standalone net sales to increase 10% YoY EBITDA 24,023 14,780 18,033 82,235 93,823
to Rs63b, driven by 26.6% YoY growth in volumes Change (YoY %) 26.2 -29.5 -24.9 17.9 14.1
(% of Net Sales) 41.9 30.8 28.6 41.8 39.1
despite a 3.8% YoY decline in realizations. EBITDA is
expected to increase 93.7% YoY and margin would EBITDA(Rs/tss) 16,323 12,401 9,729 15,481 16,729
Interest 2,339 3,482 3,308 8,787 11,755
contract 440bp to 37.8%. Margins of Indian operations Depreciation 2,092 2,513 2,614 8,346 9,783
will come under pressure due to softening steel prices, Other Income 275 85 370 3,350 4,026
while possibilities of cost reductions are limited. PBT (before EO Inc.) 19,868 8,869 12,481 68,452 76,310
EO Income(Exp) -1,442 -1,268 2,211 -7,756
• We expect significant inventory write-down in Corus
PBT (after EO Inc.) 18,426 7,601 12,481 70,664 68,554
during the quarter due to decline in prices. Corus Total Tax 6,371 2,939 4,194 23,793 22,842 %
remains a concern due to drastic demand destruction Tax 34.6 38.7 33.6 33.7 33.3
in Europe, which may force Tata Steel to infuse more Reported PAT 12,055 4,662 8,288 46,870 45,712
funds to keep it afloat despite unprecedented cost Adjusted PAT 12,999 5,930 8,288 44,659 53,468
Change (YoY %) 15 -45.1 -36.2 2.1 19.7
cutting measure undertaken. Tata Steel remains
committed to its brownfield expansion to 10mtpa at Consolidated Financials
Net Sales 360,579 331,910 297,400 1,315,359 1,506,382
Jamshedpur. We believe greenfield projects in Orissa EBITDA 52,255 46,014 12,943 179,931 211,330
and other states will suffer due to funding problem. Adjusted PAT 20,729 27,586 -9,207 62,255 111,672
The stock trades at P/BV of 0.8x FY10. Maintain Buy. E: MOSt Estimates No. of Equity Shares (m) : 822.0
tss=ton of steel sales;
79
SECTOR: OIL & GAS
BPCL BPCL
YEAR NET SALES ADJ.PAT EPS P/E ROE ROCE Y/E MARCH FY08 FY09 FY09 FY08 FY09E
03/08A 1,112 15.1 41.9 8.7 12.5 8.5 Net Sales 325,420 318,845 271,197 1,105,102 1,358,523
03/09E 1,363 14.3 39.5 9.2 10.6 9.5 Change (%) 34.9 10.2 -16.7 13.3 22.9
03/10E 899 17.0 47.2 7.7 11.4 8.3
Raw Material Consumed 132,175 147,535 96,871 493,911 557,890
03/11E 972 17.7 48.9 7.5 10.7 7.4
Staff Cost 4,550 7,540 3,100 12,973 20,462
* Consolidated
Fininshed Goods Purchase 166,231 140,027 113,658 525,515 683,927
• We expect BPCL to report net profit of Rs40.9b v/s Rs584m in Other Exp (incl Stock Adj) 13,864 8,533 5,800 42,023 58,635
4QFY08.
• For 4QFY09, we assume government will issue total oil bonds EBITDA 8,600 15,209 51,767 30,680 37,609
of Rs145b to the three OMCs (HPCL, BPCL and IOC) and no Change (%) -32.5 247.9 501.9 -10.2 22.6
discounts from upstream companies. % of Sales 2.6 4.8 19.1 2.8 2.8
• Our BPCL numbers factor in oil bonds of Rs33.4b v/s Rs39.7b in
4QFY08 and Rs36b in 3QFY09. If oil bonds are not issued in Depreciation 3,319 3,014 3,142 10,982 11,266
4QFY09, we estimate BPCL to report loss for FY09. Interest 2,156 7,161 5,125 6,244 20,640
• BPCL had received discounts of Rs23.7b in 4QFY08 and Rs12.4b Other Income 1,343 3,002 3,466 12,519 12,450
in 3QFY09.
• On the operational front, we expect throughput at 5mmt (up PBT 4,468 8,036 46,966 25,973 18,153
1% QoQ and flat YoY). Tax 3,884 38 6,064 10,167 6,172
• Decline in the crude oil price (from average US$120/bbl in Rate (%) 86.9 0.5 12.9 39.1 34.0
1HFY09 to average US$45/bbl in 4QFY09), leading to lower
working capital requirement, has significantly improved PAT 584 7,998 40,902 15,806 11,981
working capital requirement. Also, oil bonds of Rs181b were Change (%) -91.3 174.5 6,903.80 -12.5 -24.2
issued at end-3QFY09 and in 4QFY09. Currently, BPCL can sell Adj. PAT 584 7,998 40,902 14,246 11,981
oil bonds through RBI’s special market operations (SMO) facility
against its dollar requirement for crude imports. E: MOSt Estimates No. of Equity Shares (m) : 361.5
• The stock is trading at 7.7x FY10E consolidated EPS of Rs47.2
and 0.8x FY10E P/BV. Buy.
80
SECTOR: OIL & GAS
Cairn India Cairn India
YEAR NET SALES PAT EPS P/E ROE ROCE Y/E December FY09 FY09 FY09 cy07 FY09E
12/07A 10,123 -245 -0.1 -0.1 1.1
Net Sales 3,158 2,108 1,729 10,123 14,237
03/09E 14,237 8,709 4.6 42.1 2.8 2.6 Change (%) 33.6 -21 -45.3 40.6
03/10E 29,355 6,717 3.5 54.6 2.0 2.9
Inc/Dec in Stock -33 91 0 -112 182
03/11E 77,355 39,296 20.7 9.3 11.1 12.8
Staff Cost 252 271 200 1,257 1,175
*EPS based on diluted equity; Consolidated Operating Expenses 659 796 700 2,305 3,618
• We expect Cairn to report net sales at Rs1.7b (v/s Rs3.2b in EBITDA 2,280 950 829 6,672 9,262
1QFY09) primarily due to decline in oil prices. % of Net Sales 72.2 45.1 47.9 65.9 65.1
Change (%) 54.9 -34 -63.7 38.8
• We estimate PAT at Rs814m v/s adj. PAT of Rs1b in 1QFY09.
Exploration write-off 175 375 300 2,512 1,357
• We estimate gross oil and gas production at 63kboepd (flat Depr. & Exploration w/off 632 326 650 2,077 2,905
QoQ and down 11% YoY). Net working interest production Interest 3 6 6 27 49
for Cairn is estimated at 16.4kboepd (down 1% QoQ and Other Income (Net) 218 884 850 1,324 3,458
down 9% YoY). Forex Fluctuations -19 567 400 -2,120 2,075
• Average realization for the quarter is estimated at US$39/ Exceptional Items 156 -48
boe (v/s US$73/boe in 1QFY09 and US$47/boe in 4QFY09). PBT 1,824 1,694 1,123 1,259 10,436
Tax 659 -671 309 1,505 1,775
• We build first production from its Rajasthan Block to
Rate* (%) 35.8 -59.5 42.7 44.5 17.0
commence from July 2009 in our estimates.
PAT 1,164 2,364 814 -245 8,661
• The stock currently trades at 9.3x FY11E earnings. Buy. Adj. PAT 1,009 2,364 814 -245 8,709
* Excluding forex fluctuations; *2007 - Dec year end, 2009 - 15 month period
81
SECTOR: OIL & GAS
Chennai Petroleum Corporation Chennai Petroleum Corporation
03/08A 280,186 10,891 73.1 1.3 37.2 33.3 Net Sales 83,995 56,376 53,506 280,186 325,246
03/09E 319,990 -1,061 -7.1 -12.9 -13.2 -8.2 Change (%) 48.6 -20.2 -36.3 13.7 16.1
03/10E 231,148 4,963 33.3 2.8 15.5 19.0
Raw Materials (incl Stock Adj) 75,335 71,749 46,882 253,186 314,263
03/11E 220,615 4,331 29.1 3.2 12.7 16.9
Employee Costs 450 366 417 1,427 2,207
• We expect CPCL to report net profit of Rs2.4b (v/s adj. Other Exp 1,405 2,072 2,387 4,456 11,613
net profit of Rs3.7b in 4QFY08 and net loss of Rs12b EBITDA 6,804 -17,812 3,820 21,118 -2,837
in 3QFY09). % of Sales 8.1 -31.6 7.1 7.5 -0.9
Change (%) 69.3 -533.2 -43.9 70.2 -113.4
• Significant loss in 3QFY09 was due to huge inventory
losses led by oil price decline. (~US$50/bbl oil price Depreciation 660 638 669 2,516 2,582
Interest 518 834 948 1,948 2,768
decline in 3QFY09) Now, with the oil prices remaining
Other Income -327 221 200 562 680
stable in 4QFY09, no such huge inventory losses will
be repeated. PBT 5,299 -19,062 2,403 17,216 -7,507
Tax 1,860 -6,564 0 5,987 -3,418
• On the operational front, we expect refinery Rate (%) 35.1 nm 0 34.8 45.5
throughput at 2.7mmt (up 6% QoQ and down 1% YoY)
PAT 3,439 -12,498 2,403 11,230 -4,089
• We expect refining margin to remain subdued in the Change (%) 81.9 -653.9 -30.1 98.7 -136.4
short term as 1.2-1.6mmbbls new refining capacity is Adj PAT* 3,743 -12,068 2,403 10,653 -1,061
expected to come on line in the next few months. The
stock trades at 2.8x FY10E EPS and an EV of 2.4x FY10E
EBITDA. Buy. * Adjusted for forex gain/loss
82
SECTOR: OIL & GAS
GAIL (India) GAIL (India)
03/08A 180,082 25,442 20.1 12 20.0 25.2 Net Sales 49,353 58,117 51,927 180,082 228,644
03/09E 228,644 27,034 21.3 11.3 18.4 23.2 Change (%) 27.1 35.2 5.2 12.2 27.0
03/10E 237,631 25,332 20.0 12.1 16.1 20.8
Finished Gds Purchase 28,890 41,717 30,637 102,007 141,859
03/11E 315,160 30,062 23.7 10.2 17.8 23.7
Raw Materials Cons 3,607 5,240 6,231 17,148 21,944
• We expect GAIL to report net profit of Rs4.8b (up 90% Employee Costs 2,203 3,226 1,702 4,700 6,974
QoQ and down 33% YoY). Other Exp (incl Stock Adj) 3,053 5,275 6,506 16,735 20,047
• Subsidy sharing skews the GAIL’s quarterly reported EBITDA 11,600 2,660 6,851 39,492 37,820
numbers. We have not built any subsidy sharing in 4QFY09 % of Net Sales 23.5 4.6 13.2 21.9 16.5
versus Rs3.9b in 4QFY08 and Rs9b in 3QFY09. Change (%) 92.6 -69.5 -40.9 31.8 -4.2
• We estimate GAIL to report EBIT of Rs7b in 4QFY09; up Depreciation 1,425 1,374 1,477 5,710 5,666
98% QoQ and down 36% YoY. Adjusted for subsidy sharing Interest 195 185 195 796 760
GAIL’s EBIT would have been down 43% QoQ and down Other Income 997 2,352 1,812 5,564 7,600
52% YoY. PBT 10,976 3,453 6,991 38,550 38,994
• Significant decline in profitability is on account of lower Tax 3,752 919 2,167 12,535 12,434
petchem and LPG realizations. Petchem prices in dollar Rate (%) 34.2 26.6 31 32.5 31.9
terms are down 7% QoQ and down 48% YoY. Also, we
PAT 7,224 2,534 4,824 26,015 26,561
build 19% QoQ decline in volumes as 3QFY09 sales
Change (%) 112 -59.2 -33.2 27.1 2.1
included inventory of 2QFY09. LPG price is down 42%
QoQ and lower 54% YoY. Adj PAT 6,651 2,534 4,824 25,442 27,034
• We estimate gas transmission volumes at 85mmscmd (up E: MOSt Estimates No. of Equity Shares (m) : 1,268.5
1% QoQ and 3% YoY). Adjusted for subsidy in 1QFY09 and 4QFY08
• The stock trades at 12.1x FY10E EPS of Rs20. Buy.
83
SECTOR: OIL & GAS
HPCL HPCL
03/08A 1,047,038 7,263 21.4 12.2 7.2 7.6 Net Sales 314,706 293,867 267,296 1,047,038 1,262,706
03/09E 1,262,706 570 1.7 154.9 0.5 7.3 Change (%) 44.0 8.4 -15.1 17.6 20.6
03/10E 851,074 11,548 34.1 7.6 10.5 10.1
Raw Material Consumed 103,493 121,198 83,659 356,688 436,905
03/11E 945,439 9,837 29.0 9.0 8.2 9.3
Staff Cost 2,631 4,236 3,800 8,677 15,296
• We expect HPCL to report net profit of Rs46b v/s adj. PAT of Fininshed Goods Purchase 191,977 157,025 124,567 622,059 745,200
Rs767m in 4QFY08. Other Exp 14,436 6,685 4,050 44,074 39,507
• For 4QFY09, we assume government will issue total oil bonds EBITDA 2,169 4,723 51,220 15,540 25,797
of Rs145b to the three OMCs (HPCL, BPCL and IOC) and no
% of Net Sales 0.7 1.6 19.2 1.5 2.0
discounts from upstream companies.
Change (%) -78.8 218.9 2,261.80 -33.8 66.0
• Our estimates for HPCL factor in oil bonds of Rs31b v/s Rs34.5b
in 4QFY08 and Rs42b in 3QFY09. If oil bonds are not issued Depreciation 2,532 2,482 2,559 8,508 9,827
in 4QFY09, we estimate HPCL to report loss for FY09. Interest 3,009 7,961 4,838 7,925 22,132
• HPCL had received discounts of Rs21b in 4QFY09 and Rs12.4b Other Income 3,177 1,539 2,037 11,980 6,831
in 3QFY09.
• On the operational front, we expect throughput at 4.2mmt PBT -196 -4,180 45,861 11,087 670
(up 3% QoQ and down 2% YoY). Tax -4,041 40 0 -262 100
• Decline in the crude oil price (from average US$120/bbl in Rate (%) nm nm 0 -2.4 14.9
1HFY09 to average US$45/bbl in 4QFY09), leading to lower PAT 3,846 -4,220 45,861 11,349 570
working capital requirement has significantly improved Change (%) nm 2,583.00 1,092.60 -10.5 -95.0
working capital requirement. Also, oil bonds of Rs161b were
issued in end-3QFY09 and 4QFY09. Currently, HPCL can sell Adj. PAT 767 -4,220 45,861 7,263 570
oil bonds through RBI’s SMO facility against its dollar
requirement for crude imports. E: MOSt Estimates No. of Equity Shares (m) : 339.0
P/BV. Buy.
84
SECTOR: OIL & GAS
Indian Oil Corporation Indian Oil Corporation
03/08A 2,279 79.1 66.4 6.0 19.7 17.4 Net Sales 718,998 703,687 541,700 2,424,831 2,991,994
03/09E 2,885 54.3 45.5 8.7 11.7 12.6 Change (%) 35.9 9.9 -24.7 12.9 23.4
03/10E 1,795 64.9 54.4 7.3 12.5 13.6
Raw Material Consumed 284,677 338,019 195,205 989,060 1,296,080
03/11E 1,955 62.7 52.6 7.5 10.8 12.9
Staff Cost 7,847 13,725 8,079 29,142 44,698
*Consolidated and adj. for extra-ordinary items and forex Fininshed Goods Purchase 379,189 291,798 192,459 1,190,557 1,392,924
• We expect IOC to report net profit of Rs91b v/s net loss of Other Exp (incl Stock Adj) 41,065 27,968 19,100 114,777 150,597
Rs4b in 4QFY08.
EBITDA 6,220 32,177 126,857 101,295 107,695
• For 4QFY09, we assume government will issue total oil % of Net Sales 0.9 4.6 23.4 4.2 3.6
bonds of Rs145b to the three OMC’s (HPCL, BPCL and
Change (%) -87.3 8.4 1,939.50 1.0 6.3
IOC) and no discounts from upstream companies.
• Our estimates for IOC factor in oil bonds of Rs81.2b v/s Depreciation 6,922 7,275 7,946 27,097 28,723
Rs75b in 4QFY08 and Rs91b in 3QFY09. Interest 4,923 15,054 9,800 15,512 40,925
• IOC had received discounts of Rs54b in 4QFY08 and Rs36b Other Income -1,070 19,831 8,950 42,086 43,534
in 3QFY09. PBT -6,695 29,679 118,061 100,772 81,582
• On the operational front, we expect throughput at 12mmt Tax -2,553 93 27,474 31,145 27,730
(flat QoQ and down 2% YoY). Rate (%) 38.1 0.3 23.3 30.9 34.0
• Decline in the crude oil price (from average US$120/bbl in PAT -4,143 29,586 90,586 69,627 53,852
1HFY09 to average $45/bbl in 4QFY09), leading to lower
Change (%) -114.7 41.5 nm 24.5 -22.7
working capital requirement has significantly improved
working capital requirement. Also, oil bonds of Rs417b Adj. PAT -4,143 32,333 90,586 69,627 56,599
were issued at end-3QFY09 and in 4QFY09. Currently, IOC
can sell oil bonds through RBI’s SMO facility against its E: MOSt Estimates No. of Equity Shares (m) : 1,192.4
dollar requirement for crude imports.
• The stock is trading at 7.3x FY10E EPS of Rs54.4 and 0.9x
FY10E P/BV. Buy.
85
SECTOR: OIL & GAS
Indraprastha Gas Indraprastha Gas
03/08A 7,060 1,745 12.5 8.5 33.4 47.0 Net Sales 1,874 2,194 2,266 7,060 8,520
03/09E 8,520 1,496 12.9 8.2 28.5 40.7 Change (%) 14.1 20.1 20.9 15 20.7
03/10E 9,355 1,495 10.7 9.9 20.5 29.7
Raw Material Consumed 810 1,148 1,020 3,029 3,970
03/11E 10,885 1,404 10.0 10.6 17.6 25.5
Staff Cost 42 63 66 153 236
Other Exp (incl Stock Adj) 239 305 295 878 1,143
• We expect IGL to report PAT at Rs485m (v/s Rs482m in 4QFY08
and Rs383m in 3QFY09). 3QFY09 PAT was lower due to EBITDA 783 678 886 3,000 3,170
Rs175m provisioning for demand from its gas supplier relating % of Net Sales 41.8 30.9 39.1 42.5 37.2
to excess drawal of gas. Though IGL is disputing the demand, Change (%) 10.0 -13.1 13.2 17.6 5.7
pending resolution, it had provided for the same.
Depreciation 151 166 222 626 721
• We expect EBITDA margin at 39% (v/s 42% in 4QFY08 and
Other Income 89 66 63 234 260
31% 3QFY09).
• We expect CNG volumes to grow by 19% YoY to 158mmscm PBT 721 578 726 2,609 2,710
and PNG volumes to grow by 25% YoY to 15mmscm. Tax 239 195 241 864 903
• IGL currently operates 166 CNG stations and plans to add 15- Rate (%) 33.2 33.7 33.2 33.1 33.3
18 new stations over the next few quarters. PAT 482 383 485 1,745 1,807
• Concerns over likely implications of Petroleum and Natural Change (%) 20.2 -14.9 0.7 26.4 3.6
Gas Regulatory Board (PNGRB) regulations on the company
remain. IGL has reported high EBITDA margin (~40%) and E: MOSt Estimates No. of Equity Shares (m) : 140.0
high RoCE (38-45%) over the last three years.
• The new PNGRB regulation would limit both the network tariff
including compression charges (14% post-tax or 21.2% pre-
tax RoCE). Though we do not expect any large cuts in selling
prices in the near term, we believe IGL’s ability to pass on the
impending gas price hikes would be limited.
• The stock is trading at 9.9x FY10E EPS of Rs10.7. Neutral.
86
SECTOR: OIL & GAS
MRPL MRPL
03/08A 327,179 10,979 6.7 6.3 38.9 27.6 Net Sales 95,001 75,340 68,743 327,179 385,829
03/09E 385,829 8,475 6.5 6.5 20.7 17.9 Change (%) 40.0 -7.0 -28 14.3 17.9
03/10E 249,962 6,400 3.7 11.6 13.9 10.1
RM Consumed (incl. inv chg) 88,847 77,583 62,368 299,755 359,889
03/11E 284,416 6,449 3.7 11.5 13.0 8.2
Staff Cost 496 184 188 1,246 1,031
• We estimate MRPL to report net profit of Rs3b (v/s adj. Other Expenditure 1,352 1,116 761 5,708 7,761
net profit of Rs2.4b in 4QFY08 and net loss of Rs2.3b EBITDA 4,306 -3,543 5,425 20,470 17,148
in 3QFY09) % of Net Sales 4.5 -4.7 7.9 6.3 4.4
Change (%) -26 -165 26 35.6 -16.2
• Significant losses in 3QFY09 was due to substantial
inventory losses led by the oil price decline. (~US$50/ Depreciation 946 962 1,074 3,778 3,950
Interest 358 363 390 1,476 1,496
bbl oil price decline in 3QFY09) Now, with the oil prices
Other Income 89 520 414 2,116 1,950
remaining stable in 4QFY09, no such substantial
inventory losses will be repeated. PBT 3,090 -4,349 4,375 17,332 13,653
Tax 346 -1,495 1,483 5,164 4,292
• On the operating front, we expect refinery throughput Prior-year Tax Adjustment 1,190 0 0 1,190 619
at 3.3mmt (up 5% QoQ and 3% YoY). MAT Credit Entitlement Adjusted -699 0 0 0 0
Rate (%) 11 34 34 29.8 31.4
• MRPL’s, Rs124b, refinery upgradation and expansion
(9.69 to 15mmtp) is expected to be completed by PAT 2,254 -2,854 2,892 12,201 8,742
October 2011. Change (%) 23.9 -196.9 28.3 132.2 -28.4
Adj. PAT* 2,410 -2,334 2,892 11,815 11,377
• The stock is trading at 11.6x FY10E EPS of Rs3.7 and
EV/EBITDA of 8.7x on FY10E. Sell. E: E: MOSL Estimates; No. of Equity Shares (m) : 1,752.6
* Adjusted for MAT credit and forex gain/(loss)
87
SECTOR: OIL & GAS
ONGC ONGC
27 March 2009 NEUTRAL- Rs808 QUARTERLY PERFORMANCE (STANDALONE) (Rs Billion)
03/08A 968 199 92.9 8.7 27.7 27.3 Net Sales 156.3 124.4 147.5 598.5 646.5
03/09E 1,123 197 92.2 8.8 23.5 23.0 Change (%) 26.0 -17.8 -5.6 5.7 8.0
03/10E 987 183 85.7 9.4 19.1 17.7
Raw Material and Purchases 24.7 16.6 16.4 70.8 90.2
03/11E 1,147 189 88.5 9.1 17.5 16.3
Statutory Levies 33.8 24.6 27.4 127.1 114.7
* Consolidated
Employee Costs 1.6 3.9 3.1 11.5 12.7
• We estimate ONGC to report net profit of Rs34.8b (v/s Rs26.3b in
Other Exp (incl Stock Adj) 38.3 29.3 29.8 87.7 106.4
4QFY08 and Rs24.7b in 3QFY09). We expect EBITDA at Rs70.8b
(v/s Rs57.8b in 4QFY08 and Rs50b in 3QFY09). EBITDA 57.8 50 70.8 301.5 322.5
• We factor in oil production (excl. JV) of 6.4mmt (v/s 6.5mmt in % of Net Sales 37 40.2 48 50.4 49.9
4QFY08 and 3QFY09) and gas production (excl JV) of 6bcm. Change (%) 7.5 -37.7 22.5 1.4 7.0
• We estimate gross realization at US$47.9/bbl versus US$100bbl
in 4QFY08 and US$56/bbl in 3QFY09. D,D & A 38.4 28.6 29.6 98 108
• We do not build any subsidy sharing in 4QFY09 estimates (as Interest 0.1 0 0.2 0.6 1.3
guided by the company). ONGC had given the subsidy of Rs85b Other Income 20.3 12.2 10.6 49.5 48.2
in 4QFY08 and Rs49b in 3QFY09. Net realization is estimated at
US$47.9/bbl (v/s US$50/bbl in 4QFY08 and US$34/bbl in 3QFY09) PBT 39.5 33.6 51.5 252.3 261.3
• As the gas price hike recommended by the tariff commission is Tax 13.3 11.7 16.7 85.3 90.7
yet to be notified (pending for more than year now), we do not Rate (%) 33.6 34.8 32.5 33.8 34.7
build any price hikes for FY09. From FY10, we model moderate
gas price hikes of 5%. PAT* 26.3 21.9 34.8 167 170.7
• ONGC recently completed the acquisition of Imperial Energy
Change (%) 1.7 -49.8 32.3 5.4 2.2
Corporation Plc (IEC LN). This acquisition added 920mmboe of 2P Adjusted PAT 26.3 24.7 34.8 167 173.9
reserves representing ~10% of the ONGC and OVL’s 2P reserves
of 8,962mmboe. E: MOSt Estimates No. of Equity Shares (m) : 2,138.9
• Our Brent oil price assumption is US$50/bbl for FY10 and US$60/
bbl for FY11 respectively. The stock trades at 8.6x FY10E
consolidated EPS of Rs93.7. Neutral.
88
SECTOR: OIL & GAS
Reliance Industries Reliance Industries
27 March 2009 BUY - Rs1,548 QUARTERLY PERFORMANCE (STANDALONE) (Rs Billion)
03/08A 1,334 153 105.0 14.7 21.5 17.5 Net Sales 372,860 315,630 317,655 1,334,430 1,496,945
03/09E 1,497 155 102.5 15.1 16.3 14.5 Change (%) 35.8 -8.8 -14.8 19.5 12.2
03/10E 1,633 226 136.6 11.3 17.7 15.7
Raw Material Consumed 280,980 228,150 227,118 981,780 1,115,688
03/11E 1,896 257 154.9 10.0 17.5 17.2
Staff Cost 5,760 6,050 6,030 21,200 24,470
* FY10E includes RPL financials Other Expenses 25,930 27,800 27,568 98,390 120,268
• We expect RIL to report net profit of Rs38b (v/s net profit of
Rs39b in 4QFY08 and Rs35b in 3QFY09). EBITDA 60,190 53,630 56,939 233,060 236,519
• We estimate GRM at ~US$11/bbl, indicating a premium of % of Net Sales 16.1 17 17.9 17.5 15.8
US$5.5/bbl over Benchmark Singapore (v/s reported premium of Change (%) 16.4 -8.1 -5.4 16.3 1.5
US$8.5/bbl in 4QFY08 and US$6.4/bbl in 3QFY09). Singapore Depreciation 13,800 13,170 13,448 48,470 50,768
GRM at ~US$5.5/bbl is up 53% YoY and down 21% QoQ .
Interest 2,720 4,840 5,092 10,770 17,242
• Polymer prices in rupee terms were up 1-7% QoQ and down 9-
16% YoY, while polyester prices were down 3-6% QoQ and 4-5% Other Income 2,890 6,630 7,140 8,950 17,540
YoY. Though, we estimate the operating rates to be lower in
4QFY09, rupee depreciation would be beneficial for RIL. PBT 46,550 42,250 45,539 182,770 186,049
• Oil production from its KG-D6 block (began from September Tax 7,430 7,240 7,768 30,150 30,948
2008), which was halted from 9 December 2008 due to an Rate (%) 16 17.1 17.1 16.5 16.6
accident, has restarted. RIL has recently signed Gas Sales and
Purchase Agreement (GSPA) with 12 fertilizer companies to supply Adjusted PAT 39,120 35,010 37,771 152,620 155,101
15mmscmd gas. Gas production is expected to commence in Change (%) 24 -9.8 -3.4 27.8 1.6
April 2009.
• Key events to watch out for RIL in the near term are: (1) Mumbai Reported PAT 39,120 35,010 37,771 194,580 155,101
High Court’s final decision on the RIL-RNRL case (expected in the
next few weeks); and (2) commencement/ramp-up of KG-D6 gas E: MOSt Estimates No. of Equity Shares (m) : 1,573.4
production. including IPCL
• We continue to be positive primarily due to large potential upsides
from E&P. RIL currently trades at 11.3x FY10E EPS of Rs136.6
(including RPL). Buy.
89
SECTOR: PHARMACEUTICALS
Aventis Pharma Aventis Pharma
END* (Rs m) (Rs m) (Rs) (x) (%) (%) 1Q 4Q 1Q Full Year Full Year
12/07A 8,735 1,444 62.7 14.1 21.5 33.1 Net Sales 2,169 2,699 2,204 9,833 9,185
12/08E 9,833 1,662 72.2 12.2 21.7 33.9 YoY Change (%) 1.9 32.3 1.6 12.6 -6.6
12/10E 9,966 1,580 68.6 12.8 17.5 26.6
EBITDA 405 467 372 1,855 1,371
* Standalone results
Margins (%) 18.7 17.3 16.9 18.9 14.9
• APL’s 1QCY09 topline is expected to grow by only 1.6% to
Rs2.2b due to a 7% de-growth in the domestic Depreciation 51 44 50 182 189
formulations business, given the discontinuation of Other Income 189 288 205 926 892
Rabipur sales. Export revenues at Rs555m are expected to
record growth of 41% on a low base. PBT 543 711 527 2,596 2,075
Tax 198 255 180 934 708
• EBITDA margin is expected to decline by 180bp mainly Effective Tax Rate (%) 36.5 35.9 34.1 36 34.1
due to lower Rabipur sales (a high margin product
contributing about 12% of revenue). Reported PAT 345 456 347 1,662 1,367
• We estimate flat PAT growth for the quarter at Rs347m Adj PAT 345 456 347 1,662 1,367
due to loss of Rabipur revenues. YoY Change (%) -20.3 68.9 0.7 15.1 -17.7
Margins (%) 15.9 16.9 15.8 16.9 14.9
• We believe that APL will be one of the key beneficiaries of
the patent regime in the long-term. The parent has a E: MOSt Estimates No. of Equity Shares (m) : 23.0
strong R&D pipeline with a total of 81 products
undergoing clinical trials, of which 42 are in Phase-III, some
of which are likely to be launched in India. Topline growth
continues to be elusive and is thus impacting margins and
earnings for APL. Based on our revised estimates, we
expect the company to record EPS of Rs59.4 for CY09E
(17% YoY decline). It is currently valued at 14.8x CY09E
and 12.8x CY10E EPS. We believe that the stock price
performance is likely to remain muted till clarity emerges
on growth drivers in absence of Rabipur revenues.
Maintain Buy.
90
Biocon Biocon
03/08A 10,540 2,250 11.3 11.8 15.3 14.6 Net Sales 2,670 4,362 4,756 10,540 16,184
03/09E 16,184 698 3.5 38.1 4.6 4.8 YoY Change (%) -4 84.1 78.1 6.9 53.5
03/10E 21,251 2,908 14.5 9.1 16.6 16.5
03/11E 23,695 3,204 16.0 8.3 16.1 15.9
EBITDA 830 943 1,045 2,990 3,393
• Biocon’s 4Q topline is expected to grow by 78% mainly due to
consolidation of AxiCorp (Germany) operations which will Margins (%) 31.1 21.6 22 28.4 21
contribute about Rs1.4b in revenues for the quarter. Organic Depreciation 250 270.9 378.7 940 1,193.00
topline growth for the quarter is likely to be 25% led by a 47%
increase in contract research revenues due to favourable Interest 20 36.3 48.7 100 164.2
currency and gradual scale-up of the BMS contract. Other Income 120 -296 -642.4 360 -1,257.60
• EBITDA margin is expected to decline by almost 910bp as PBT 680 339 -24 2,310 779
AxiCorp’s EBITDA margin is significantly lower than that of Tax 60 58 -25 130 109
Biocon. A drastic reduction in licensing income at Rs28m (v/s Rate (%) 8.8 17.1 102.4 5.6 14.0
Rs110m for 4QFY08) is also likely to pressurize EBITDA margin.
• The recent depreciation of the INR v/s the US$ is likely to result Minority Interest -30 0 -12 -70 -28
in increased MTM losses on forex hedges resulting in a 98% PAT 650 281 12 2,250 698
decline in PAT to Rs12m.
YoY Change (%) 7.1 -47 -98.1 12.0 -69.0
• Traction in the company’s Insulin and contract research Margins (%) 24.3 6.4 0.3 21.3 4.3
initiative, coupled with incremental contribution from
immunosuppressants should augur well for Biocon’s FY09/10 E: MOSt Estimates No. of Equity Shares (m) : 200.0
performance. However, higher R&D costs, higher depreciation,
expenses linked to the scale-up of the domestic formulations
business and currency hedging, will continue to temper down
earnings growth. We have upgraded our FY10 earnings
estimates by 8% to take into account the depreciation of the
INR v/s the US$. Biocon is currently valued at 9.1x FY10E and
8.3x FY11E earnings. Maintain Buy.
91
Cadila Healthcare Cadila Healthcare
03/08A 23,245 2,632 20.5 12.5 26.7 23.6 Net Revenues 5,637 7,491 7,149 23,245 29,191
03/09E 29,191 3,003 23.8 10.8 25.4 19.9 YoY Change (%) 29.4 29.3 26.8 312.4 25.6
03/10E 34,832 4,536 33.2 7.7 30.9 22.8
03/11E 38,861 5,434 39.8 6.5 29.4 23.1
EBITDA 1,139 1,425 1,268 4,598 5,835
• Cadila’s 4Q topline is likely to record 26.8% growth led
Margins (%) 20.2 19 17.7 19.8 20
by a 49% growth in exports. The company’s US revenues
will show increased traction due to the recent depreciation Depreciation 225 299 315 969 1,119
of the INR v/s the US$. Domestic revenues are expected to Interest 113 233 251 444 732
grow by 9% for the quarter. Other Income -48 -11 -111 118 -364
• EBITDA margin is likely to decline by 250bp led by higher PBT before EO Income 753 881 591 3,303 3,620
staff costs and increased other expenses. EO Exp/(Inc) 0 0 0 69 18
• PAT is likely to record only 3% growth to Rs536m for the
quarter as the recent depreciation of the INR v/s the US$ PBT after EO Income 753 881 591 3,234 3,602
is likely to result in increased MTM losses on foreign Tax 201 284 33 613 540
currency loans and hedged positions. Rate (%) 26.7 32.2 5.5 19.0 15.0
• We expect Cadila to record 25% earnings CAGR for FY08- Minority Int/Adj on Consol 32 -8 22 45 74
11 period led by increased traction in its international
businesses and a depreciating currency. Our estimates take Reported PAT 520 605 536 2,576 2,988
into account the demerger of the consumer business and Adj PAT 520 606 536 2,632 3,003
related equity dilution. Traction in international business, YoY Change (%) 33.7 10.3 3.1 406.1 14.1
commencement of Hospira supplies coupled with a de- Margins (%) 9.2 8.1 7.5 11.3 10.3
risked business model should ensure good long-term E: MOSt Estimates No. of Equity Shares (m) : 125.6
potential for the company. We have upgraded our FY10E
EPS estimates by 5% to factor in a favorable currency. Quarterly numbers don’t add up to full year numbers due to restatement
Cadila is currently valued at 7.7x FY10, and 6.5x FY11
consolidated earnings. Reiterate Buy.
92
Cipla Cipla
03/08A 42,184 7,014 9.0 24.3 18.7 19.0 Net Sales 11,137 13,420 13,594 42,184 52,633
03/09E 52,633 7,499 9.6 22.7 17.3 17.9 YoY Change (%) 19.5 21.5 22.1 18.1 24.8
03/10E 63,765 11,369 14.6 15.0 21.7 22.6
03/11E 72,998 13,202 17.0 12.9 21.2 22.6
EBITDA 1,923 3,385 3,422 8,392 12,663
• On a high base of last year, Cipla’s 4QFY09 topline is likely to Margins (%) 17.3 25.2 25.2 19.9 24.1
grow by 22% led mainly by a 23% growth in export revenues.
Domestic business growth is likely to be about 15%. Other Depreciation 347 412 497 1,307 1,697
operating income (including technology licensing income) is also Interest 47 110 155 117 358
likely to aid topline growth with an 88% increase to Rs762m. Other Income 353 -241 14 1,198 -1,680
• EBITDA margin is likely to expand by 790bp YoY due to the recent Profit before Tax 1,882 2,622 2,784 8,167 8,928
depreciation of the INR v/s the US$. Tax 294 388 433 1,369 1,428
• The depreciation of the INR v/s the US$ is likely to result in MTM Rate (%) 15.6 14.8 15.6 16.8 16.0
forex losses for the company as it has entered into forward
contracts worth US$400m (only US$190m outstanding). Reported PAT 1,587 2,234 2,350 6,798 7,499
• PAT is likely to record 48% growth to Rs2.35b on a low base of YoY Change (%) 11 6.1 48 0.5 10.3
last year. Margins (%) 14.3 16.6 17.3 16.1 14.2
• We believe that Cipla has one of the strongest generic pipelines E: MOSt Estimates No. of Equity Shares (m) : 777.3
among Indian companies. It has tie-ups with 17 US-based generic
companies for supply of generic products. This coupled with its
low-risk strategy and strong capex should ensure good long-term
potential. Most of the forex hedges (which adversely impacted
YTD FY09 performance) are likely to run out by 1QFY10 helping
the company to reap the benefits of a favourable currency from
2QFY10. We have upgraded our FY10E EPS estimates by 6.7% to
factor in a favorable currency. Cipla is currently valued at 15.0x
FY10E and 12.9x FY11E earnings. Maintain Neutral.
93
SECTOR:
PHARMACEUTICALS Divi's Laboratories Divi's Laboratories
27 March 2009 BUY - Rs959 GLOBAL QUARTERLY PERFORMANCE (Rs Million)
03/08A 10,328 3,476 53.8 17.8 49.5 47.2 Net Op Revenue 2,780 2,648 3,390 10,328 12,003
03/09E 12,003 4,279 66.3 14.5 41.4 42.1 YoY Change (%) 10.1 -6.9 21.9 42.6 16.2
03/10E 14,823 5,446 84.4 11.4 38.3 39.3
03/11E 17,570 6,478 100.3 9.6 34.1 35.4
EBITDA 1,061 1,083 1,398 4,075 5,298
• Divi’s 4QFY09 topline is expected to grow by 22% to Rs3.39b
Margins (%) 38.2 40.9 41.2 39.5 44.1
led by increased outsourcing revenues, incremental
contribution from Carotenoids and the recent depreciation Depreciation 102 123 163 357 512
of the INR v/s the US$. The company commissioned Interest 18 16 28 102 82
its Carotenoids facility in June 2009 and we expect a Other Income 43 -63 49 138 -52
gradual scale-up in revenues from this initiative over the next
two years. PBT 984 880 1,256 3,754 4,651
Tax 82 59 170 194 372
• EBITDA margin is likely to expand by 310bp to 41.2% led by
Deferred Tax 39 26 -68 105 0
richer product-mix, upsides from supply of Levetiracetam API
Rate (%) 12.3 9.6 8.1 8.0 8.0
to the US market and currency depreciation.
• Bottomline growth is expected to be strong at 34% for Adj PAT 863 795 1,154 3,455 4,279
the quarter. YoY Change (%) -14.7 -21 33.8 80 23.8
• We expect Divi’s to be a key beneficiary of the increased Margins (%) 31 30 34.1 33.5 35.6
pharmaceutical outsourcing from India given its strong E: MOSt Estimates No. of Equity Shares (m) : 64.6
relationships with global innovator pharmaceutical
companies. In the short-term, outsourcing supplies may be
adversely impacted as customers are likely to reduce
inventories. We have raised our FY10E EPS estimates by 7.5%
to factor in the favorable impact of INR depreciation v/s the
US$. Divi’s is currently valued at 11.4x FY10E and 9.6x FY11E
EPS. We continue to be positive about Divi’s long-term
prospects. Maintain Buy.
94
SECTOR:
PHARMACEUTICALS Dr Reddy's Laboratories Dr Reddy's Laboratories
27 March 2009 BUY - Rs474 GLOBAL QUARTERLY PERFORMANCE (US GAAP) (Rs Million)
03/08A 50,007 4,669 27.8 17.1 9.9 4.8 Gross Sales 12,999 18,401 15,543 50,007 65,134
03/09E 65,134 2,081 12.4 38.3 4.3 3.4 YoY Change (%) -16.5 49.3 19.6 -23.2 30.2
03/10E 66,713 7,182 42.7 11.1 13.4 10.7
EBITDA 1,725 4,202 2,078 6,701 10,421
03/11E 73,412 8,334 49.6 9.6 14.0 11.5
Margins (%) 13.3 22.8 13.4 13.4 16
• We expect DRL’s topline to grow by 19.6% to Rs15.54b led by Depreciation & Amortization 693 339 3,068 4,194 4,270
24% growth in branded formulations exports, a 86% growth in Other Income 200 -1,540 -1,838 932 -3,550
US business (24% excluding contribution of generic Imitrex of
Rs1.5b) and consolidation of acquired companies. Profit before Tax 1,232 2,323 -2,828 3,439 2,601
• Despite the positive impact of currency depreciation, EBITDA
margin is expected to remain flat at 13.4% due to flat growth for Tax 218 399 -424 -1,229 520
domestic formulations (13% of overall revenues) and continued Rate (%) 17.7 17.2 15 -35.7 20
pricing pressure in Germany (13% of revenue).
• Other income is likely to be adversely impacted due to lower cash Reported PAT 1,015 1,924 -2,404 4,669 2,081
balance and MTM forex losses. Minority Interest -17 0 0 -10 0
• We expect a net loss of Rs2.9b for the quarter after excluding
Rs525m PAT contribution from generic Imitrex but taking into Adjusted PAT 1,032 897 -2,929 4,679 529
account the one-time write-off of Rs2.6b related to intangible YoY Change (%) -68.3 - -383.7 -49.6 -88.7
impairment in Germany (related to the AOK tender) and Rs1.8b Margins (%) 7.9 4.9 -18.8 9.4 0.8
of forex losses.
• Traction in the branded formulations and US businesses will be E: MOSt Estimates No. of Equity Shares (m) : 168.2
the key growth drivers for DRL over next two years. Sourcing of
products from Indian facilities for the German market will have a
positive impact on the profitability of the company, though we
await further details on the AOK tender litigation. Our estimates
take into account the potential margin erosion in Germany related
to the AOK tender and also factor in the potential write-offs. We
believe that DRL has initiated steps towards a more focused
approach towards its business by announcing the exit from some
marginal generic markets. We have upgraded our FY10E EPS
estimates by 5.3% to factor in a favorable currency. DRL trades at
11.1x FY10E and 9.6x FY11E EPS. Maintain Buy.
95
SECTOR:
PHARMACEUTICALS GlaxoSmithKline Pharmaceuticals GlaxoSmithKline Pharmaceuticals
27 March 2009 BUY - Rs1,068 QUARTERLY PERFORMANCE (CONSOLIDATED) (Rs Million)
12/07A 15,703 3,997 47.2 22.6 29.4 44.8 Net Sales 4,215 3,695 4,570 16,653 18,651
12/08A 16,653 4,484 52.9 20.2 29.1 43.9 YoY Change (%) 0.3 8.9 8.4 6.0 12.0
12/10E 21,076 5,917 69.9 15.3 29.6 44.7
EBITDA 1,435 1,018 1,556 5,443 6,172
Margins (%) 34.1 27.6 34.1 32.7 33.1
• We expect GSK’s topline to grow by 8.4% to Rs4.6b
led by double-digit growth in Priority Products (60- Depreciation 37 47 38 163 169
70% of sales). DPCO products (~26% of sales) are likely Other Income 428 362 440 1,520 1,759
to record single-digit revenue growth. PBT before EO Expense 1,826 1,333 1,958 6,799 7,762
Tax 622 442 666 2,315 2,639
• EBITDA margin is likely to remain flat at 34%.
Deferred Tax -9 0 0 0 0
• PAT is expected to grow by 6.5% for the quarter. Rate (%) 33.6 33.1 34 34.1 34
• We continue to be positive about GSK’s long-term Adjusted PAT 1,213 891 1,292 4,484 5,123
prospects. It is one of the best plays on IPR regime in YoY Change (%) -14.5 7.6 6.5 12.2 14.3
India with plans to launch 9 patented/low-competition Margins (%) 28.8 24.1 28.3 26.9 27.5
products by CY10E. We believe the company deserves Extra-Ord Expense 0 -1,193 0 -1,282 0
premium valuations due to the strong parentage Reported PAT 1,213 2,084 1,292 5,766 5,123
(giving access to a large product pipeline), brand- E: MOSt Estimates No. of Equity Shares (m) : 84.7
building ability and its likely positioning in the post
patent era. Parent is fully committed to the listed entity,
which is evident from the fact that it is proposing to
launch most of the patented products through the
listed entity. GSK is currently valued at 17.7x CY09E
and 15.3x CY10E earnings. Maintain Buy.
96
SECTOR:
PHARMACEUTICALS Glenmark Pharmaceuticals Glenmark Pharmaceuticals
27 March 2009 NEUTRAL - Rs151 QUARTERLY PERFORMANCE (CONSOLIDATED) (Rs Million)
03/08A 19,757 3,154 12.0 12.6 20.8 15.8 Net Income 5,727 5,814 6,046 19,783 22,073
03/09E 22,073 2,951 11.2 13.5 15.7 14.9 YoY Change (%) -67.8 -14.4 5.6 -67.8 11.6
03/10E 29,665 3,437 13.0 11.6 15.4 15.5 EBITDA 2,233 1,891 1,556 8,031 6,546
03/11E 34,193 4,649 17.6 8.5 17.2 17.5 Margins (%) 39 32.5 25.7 40.6 29.7
• Glenmark’s 4Q topline is expected to record 18% growth Depreciation 242 291 330 716 1,062
(excluding NCE out-licensing revenue) led mainly by strong double- Interest 160 343 364 637 1,049
digit growth in emerging markets. US revenues are expected to Other Income 341 92 28 446 662
grow by 13% despite the one-time contribution of Oxcarbazepine
PBT before EO Expense 2,172 1,349 890 7,124 5,097
in 4QFY08 (not disclosed by the company). Reported topline
growth will be 5.6% due to NCE upsides for 4QFY08. Tax -111 452 -226 623 1,223
• EBITDA margin (excl NCE upsides and Oxcarbazepine contribution)
Deferred Tax 94 83 379 188 0
are estimated to expand by almost 110bp led by the strong double- Rate (%) -0.8 39.6 17.2 11.4 24
digit growth in emerging markets. Reported PAT 2,190 814 737 6,313 3,874
• However, PAT (excl NCE and Oxcarbazepine upsides) is expected Adj PAT (excl NCE) 1,659 814 737 6,313 3,874
to de-grow by 41% due to higher depreciation, increased interest YoY Change (%) -9.5 -34.3 -55.6 23.7 -38.6
costs and higher tax outgo.
Margins (%) 29 14 12.2 31.9 17.6
• Glenmark has differentiated itself amongst Indian pharmaceutical
companies through its significant success in NCE research. It E: MOSt Estimates No. of Equity Shares (m) : 248.7
emerged as the most successful NCE research company by out-
licensing 3 molecules and receiving US$117m in upfront and Note: Financials not adjusted for R&D capitalization
milestone payments till date. Given this success, Glenmark has
been aggressive in adding new NCEs to its pipeline, which will
put pressure on its operations in the short-term as the company
will have to fund the R&D expenses for these NCEs on its own. It’s
formulations business, both branded and generics, is likely to face
growth pressures in the short-term due to de-stocking, delays in
product approvals and efforts by the company to control
receivables in high-risk markets. Glenmark is currently valued at
11.6x FY10E and 8.5x FY11E EPS. Maintain Neutral.
97
Jubilant Organosys Jubilant Organosys
03/08A 24,889 3,988 27.1 3.5 37.0 16.6 Net Sales 6,890 9,096 9,172 24,889 35,940
03/09E 35,940 -680 -4.6 -20.6 -5.6 0.4 YoY Change (%) 48.7 41.8 33.1 37.5 44.4
03/10E 45,135 4,468 30.4 3.1 32.6 14.4
03/11E 50,250 6,004 40.8 2.3 32.2 17.6
EBITDA 1,127 1,411 1,414 4,507 6,256
• Jubilant’s 4QFY09 topline is expected to record 33% growth
Margins (%) 16.4 15.5 15.4 18.1 17.4
led by increased traction in the CRAMS business and
consolidation of acquired companies. Organic growth (on like- Depreciation 361 434 481 1,039 1,662
to-like basis) is likely to be 19%. Interest 21 324 416 337 1,098
• EBITDA margin is expected to decline by 100bp despite Other Income -182 -1,161 -592 1,430 -4,426
favorable currency movement due to significant increase in
staff costs linked to acquired companies. PBT before EO Expense 563 -508 -75 4,561 -930
• Other income will be adversely impacted due to MTM forex Extra-Ord Expense 93 110 0 129 110
losses on outstanding foreign currency loans and FCCBs. Tax -20 283 -677 573 -167
• Despite strong operational performance, bottomline is Rate (%) -4.3 -45.7 910.9 12.9 16.1
expected to grow by only 8% due to the MTM forex losses. PAT 491 -901 603 3,860 -872
• Based on our revised estimates, Jubilant is currently valued at Minority Interest 27 -25 0 -16 -100
3.1x FY10E and 2.3x FY11E consolidated earnings. It is likely
to benefit from the increased outsourcing from India due to Adjusted PAT 561 -715 604 3,988 -680
its existing relationships with global pharmaceutical and YoY Change (%) -12.1 -178.5 7.7 74.9 -117.1
agrochemical players and significant ramp-up in Hollister’s Margins (%) 8.1 -7.9 6.6 16.0 -1.9
injectibles business in the US. Despite these positive macro
drivers, valuations are likely to remain muted due to the E: MOSt Estimates No. of Equity Shares (m) : 147.0
uncertainty on funding of the US$270m FCCB repayment (incl
interest) scheduled between May 2010 and May 2011. We
believe that earnings growth for FY11E could be impacted
significantly (7% growth over FY10E) if the company were to
refinance the FCCB redemption through debt. Maintain Buy.
98
Lupin Lupin
03/08A 27,064 3,334 37.8 16.9 31.0 22.0 Net Sales 7,504 9,618 9,738 27,064 37,323
03/09E 37,323 4,501 51.0 12.5 31.1 22.3 YoY Change (%) 41.1 33.3 29.8 34.4 37.9
03/10E 44,288 6,136 69.6 9.2 33.3 25.3
03/11E 50,073 6,956 78.9 8.1 30.1 24.3
EBITDA 1,197 1,540 1,736 4,358 6,591
• Lupin’s 4QFY09 topline is expected to record 30% growth driven Margins (%) 16 16 17.8 16.1 17.7
by mainly by ramp-up of Kyowa (Japan) revenue, which is
expected to contribute about Rs1.2b to revenue and a 33% Depreciation 206 219 256 647 870
increase in formulations exports to emerging market (partly Interest 104 146 182 374 557
aided by a depreciating currency). India formulations business Other Income 328 221 -75 2,065 361
is likely to record 18% revenue growth.
• EBITDA margin is likely to expand by 180bp mainly due to a PBT 1,216 1,396 1,223 5,402 5,526
depreciating currency. Margin expansion will be partly tempered Tax 255 219 151 1,318 995
down by the loss of high-margin Cefdinir revenues and Rate (%) 20.9 15.7 12.3 24.4 18.0
contribution from Kyowa’s low-margin business. Reported PAT 961 1,178 1,072 4,084 4,531
• PAT is expected to grow by only 11% on high base of last year Extra-Ordinary Exp/(Inc) 0 0 0 -748 0
and also impacted by higher depreciation and interest cost as
well as forex losses. Recurring PAT 959 1,165 1,059 3,334 4,501
• Lupin is likely to witness a gradual improvement in the YoY Change (%) 47 9.9 10.5 43.3 35
underlying fundamentals led by an expanding US generics Margins (%) 12.8 12.1 10.9 12.3 12.1
pipeline, niche / Para-IV opportunities in the US, strong
performance from Suprax (branded product in US) and ramp-
up in formulation revenues from its European initiative.
Incremental benefits are likely to be visible from the Jammu
facility which enjoys fiscal benefits. We have upgraded our EPS
estimates for FY10E by 8.4% to factor in a favorable currency.
Given the strong earnings growth, valuations at 9.2x FY10 and
8.1x FY11 EPS are attractive. Reiterate Buy.
99
Piramal Healthcare Piramal Healthcare
03/08A 28,728 3,643 17.4 10 34.0 25.6 Net Sales 7,759 8,283 8,992 28,729 33,251
03/09E 33,251 2,945 14.1 12.4 25.3 18.6 YoY Change (%) 20.3 13.1 15.9 16.2 15.7
03/10E 39,734 5,161 24.7 7.1 36.3 24.3
03/11E 44,560 5,980 28.6 6.1 32.9 23.9
EBITDA 2,116 1,555 1,828 5,418 6,613
• PHL’s 4QFY09 topline is expected to grow by 16% to Rs9b led
Margins (%) 27.3 18.8 20.3 18.9 19.9
mainly by double-digit growth for the domestic formulations
business and ramp-up in CRAMS revenues from India. Topline Depreciation 166 295 338 947 1,190
growth for UK-based CRAMS operations will continue to be under Interest 119 261 279 463 831
pressure due to inventory correction at customer’s end.
Other Income -202 -309 -272 61 -1,196
• EBITDA margin is expected to decline by 700bp on very high
base of last year related to the one-time write-back of R&D PBT before EO Expense 1,629 691 939 4,068 3,396
expenses post the demerger of NCE operations. Adjusted for the Extra-Ord Expense 253 0 0 339 136
NCE research spend on a quarterly basis for full FY08, EBITDA
margin is expected to expand by 110bp for the quarter. PBT after EO Expense 1,376 691 939 3,729 3,260
• MTM forex losses on forward contracts are likely to adversely Tax 153 72 27 377 299
impact other income for the quarter. Deferred Tax 2 0 76 0 76
• PAT is expected to de-grow by 43% due to one-time write-back Rate (%) 11.3 10.4 10.9 10.1 11.5
of NCE expenses in 4QFY08.
• Despite the short-term adverse impact of inventory reductions, PAT 1,221 619 836 3,352 2,885
the macro environment for CRAMS business remains favorable Less: Minority Interest 15 20 25 14 60
given India’s inherent cost advantages and chemistry skills. We
believe that PHL will be a key beneficiary of increased outsourcing Reported PAT 1,206 599 812 3,338 2,825
from India, given the strong MNC relations which the company Adj PAT 1,431 599 812 3,643 2,945
enjoys. A steady growing domestic formulations business (47% YoY Change (%) 132.8 -23.1 -43.3 53.5 -19.2
of total revenues for FY09) with good profitability and potential
debt reduction should also augur well over the next two years. E: MOSt Estimates No. of Equity Shares (m) : 209.0
We expect PHL to record 18% earnings CAGR over FY08-11E and
30%+ RoE in FY10E and FY11E. The stock trades at 7.1x FY10E Quarterly numbers don’t add up to full year numbers due to restatement
and 6.1x FY11E EPS. Reiterate Buy
100
SECTOR:
PHARMACEUTICALS Ranbaxy Laboratories Ranbaxy Laboratories
27 March 2009 NEUTRAL - Rs164 QUARTERLY PERFORMANCE (Rs Million) r
12/07A 69,756 5,325 13.3 12.4 19.1 11.7 Net Income 16,986 16,370 12,661 71,174 76,843
12/08A 71,174 1,491 3.3 49.2 2.9 4.6 YoY Change (%) 7.4 -13.9 -25.5 2.5 8.0
12/09E 76,843 965 2.2 76.1 1.9 3.2 EBITDA 2,552 -1,085 -1,266 6,168 4,500
12/10E 85,146 2,703 6.1 27.2 5.2 5.4 Margins (%) 15 -6.6 -10 8.7 5.9
* Excludes upsides from FTF products
Depreciation 621 720 730 2,656 3,044
• Ranbaxy’s 1Q topline is expected to de-grow by 25.5% despite
a favourable currency due to the ongoing US FDA ban on some Interest 384 442 425 1,886 1,695
products as well as significant forward covers taken in the past. Other Income -713 -1,374 -1,034 -6,988 748
A slow-down in emerging markets is also likely to adversely
impact topline growth. PBT before EO Expense 834 -3,621 -3,455 -5,362 509
• We believe that the company will report a loss at the EBITDA Extra-Ord Expense -895 7,843 0 9,389 0
level due to forex losses on US$1.5b hedges and a 40% decline PBT after EO Expense 1,729 -11,464 -3,455 -14,751 509
in US revenues.
Tax 361 -4,666 -691 -5,605 102
• Besides forex losses of Rs4.8b on hedges, we expect MTM forex
losses of about Rs1.4b linked to outstanding foreign currency Rate (%) 20.9 40.7 20 38 20
loans (including FCCBs). We expect the company to report a Reported PAT 1,368 -6,798 -2,764 -9,146 407
net loss of Rs2.7b. Excluding the MTM forex losses on foreign
currency loans, we expect the company to record a net loss of Minority Interest 0 0 8 0 40
Rs1.65b. Adj PAT after Minority Int. 1,012 -1,055 -1,646 1,491 965
• We expect Ranbaxy to record core EPS of Rs2.2 for CY09E after YoY Change (%) 20.1 -161.7 -262.6 -70.8 -35.3
factoring in the impact of the US FDA ban and forex losses on
hedged positions. Given the seriousness of the US FDA issue, Margins (%) 6 -6.4 -13 2.1 1.3
we believe that it is imperative for the company to resolve it E: MOSt Estimates No. of Equity Shares (m) : 373.1
fast. We also believe that the company needs to clearly
demonstrate that the Para-IV opportunities (DCF value of Rs115/
share) are not at risk due to the US FDA problems. Acquisition
of a US FDA approved facility can provide short-term trigger to
the stock price. Ranbaxy’s ability to leverage Daiichi’s strengths
will be a key determinant of the long-term prospects of the
stock. Ranbaxy is currently valued at 14.2x CY09E core earnings
adjusted for the value of its Para-IV pipeline. Maintain Neutral.
101
Sun Pharmaceuticals Sun Pharmaceuticals
27 March 2009 BUY - Rs1,080 QUARTERLY PERFORMANCE (CONSOLIDATED) (Rs Million)
03/08A 32,909 14,869 71.8 15 38.3 35.6 Net Revenues 12,389 9,183 8,911 32,909 40,110
03/09E 33,575 11,799 57.0 19.0 21.5 23.7 YoY Change (%) 133.2 16.2 -28.1 58.3 21.9
03/09E* 40,110 16,777 81.0
EBITDA 7,407 4,134 2,978 15,511 17,871
03/10E 40,729 13,570 65.5 16.5 20.8 22.3
Margins (%) 59.8 45 33.4 47.1 44.6
03/11E 45,160 15,735 76 14.2 20.4 21.9
* Includes Para-IV upsides Depreciation 268 311 370 9691,244 Net
Other Income 556 443 460 1,451 1,877
• Sun Pharma’s 4QFY09 topline is expected to degrow by 28% to
Rs8.9b due to absence of exclusivity based Pantoprazole and PBT 7,695 4,266 3,068 15,994 18,504
Oxcarbazepine supplies. Excluding patent challenge upsides, Tax 270 170 157 485 914 Rate
topline is expected to grow by 24% to Rs8.9b.
(%) 3.5 4.0 5.1 3.0 4.9
• We expect the company to record negligible Pantoprazole
revenues as it is unlikely to lower prices (for recording higher Profit after Tax 7,425 4,097 2,910 15,509 17,590
volumes) given that it is a “launch-at-risk” product. Share of Minority Partner 197 10 320 640 813
• While reported PAT is likely to de-grow by 64% due to absence
of one-off upsides of Pantoprazole and Oxcarbazepine, we Adj Net Profit 7,228 4,086 2,591 14,869 16,777
believe that excluding these one-offs, bottomline is expected to YoY Change (%) 240.8 28.4 -64.2 92.1 12.8
record about 20% growth for the quarter. Margins (%) 58.3 44.5 29.1 45.2 41.8
• An expanding generic portfolio coupled with change in product E: MOSt Estimates No. of Equity Shares (m) : 193.4
mix in favor of high-margin exports is likely to bring in long-
term benefits for SPIL. Its ability to sustain high growth rates at
superior margins even on a high base is a clear positive. With
the domestic business progressing well and increasing traction
on the US front (led by aggressive filings), the possibility of a
rapid scale-up over the next couple of years is high. Key drivers
for future include ramp-up in US, the expected value unlocking
by leveraging acquired companies (Able Labs & Valeant) and
monetization of the Para-IV pipeline. SPIL is currently valued at
16.5x FY10E and 14.2x FY11E core earnings. Maintain Buy.
102
SECTOR: REAL ESTATE
DLF DLF
3/08A 144,375 78,120 45.8 4.0 39.7 43.0 Sales 43,065 13,667 8,709 142,287 97,926
3/09E 97,926 48,242 28.0 6.3 19.5 16.3 Change (%) - -62 -79.8 440.1 -31.2
3/10E 60,546 23,486 13.6 12.9 8.7 8.5
3/11E 58,956 15,344 8.9 19.8 5.4 6.9
EBITDA 27,829 7,720 4,695 97,518 58,031
• For 4QFY09, we expect DLF’s revenue to decline 80% YoY to Rs8.7b
and net profit by 86% YoY to Rs3.1b. We estimate EBITDA margin Change (%) - -69.1 -83.1 556 -40.5
of 53.9% in 4QFY09 owing to increased contribution from mid- As % of Sales 64.6 56.5 53.9 68.5 59.3
income housing segment. Depreciation 362 788 816 785 2,654
• DLF’s financial performance would be negatively impacted due
to the absence of DAL revenues as DLF has suspended sales to Interest 1,079 938 1,109 2,980 3,057
DAL from 4QFY09 in the backdrop of the prevailing economic Other Income 658 1,361 711 2,652 3,387
scenario and mounting outstanding of ~Rs54b from DAL. PBT 27,048 7,356 3,482 96,405 55,706
Revenues from DAL has historically accounted for 40-50% of DLF’s
Tax 4,978 537 348 17,534 7,464
revenues and PBT.
• The management is hopeful of raising ~US$450m of funds in Effective Tax Rate (%) 18.4 7.3 10 18.2 13.4
DAL prior to March 2009. In the event DAL is unable to raise funds, Reported PAT 22,070 6,818 3,133 78,120 48,242
DAL would exercise the option of securitizing its rental portfolio Change (%) - -68.1 -85.8 303.4 -38.2
of ~10msf to repay DLF.
• During 4QFY09, DLF was one of the first RE companies to launch/ Profit/(Loss) of Associates/ MI -301 -110 - -313 210
re-launch residential projects in Bangalore, Chennai and
Hyderabad, priced at 25-35% discount to similar projects in the Adj. PAT 21,769 6,708 3,133 78,108 48,032
vicinity. These projects witnessed an encouraging response with a Change (%) - -68.7 -85.6 303.3 -38.5
high number of enquiries and bookings, indicating existence of
pent up demand for affordable prices. E: MOSt Estimates No. of Equity Shares (m) : 1,722.0
• Our revised FY10 NAV for DLF is Rs211/share v/s Rs296/share earlier Comparable quarterly numbers are not available, as 1QFY08 is the first quarter post listing
due to substantial scale down in new launches coupled with lower
realization assumptions. DLF trades at P/BV of 1.2x FY10 adjusted
BV of Rs127/share. We view DLF as one of the best managed real
estate company in India. Maintain Buy.
103
SECTOR: REAL ESTATE
Unitech Unitech
3/08A 41,152 16,692 10.2 3.5 46.1 21.5 Sales 11,600 4,894 3,885 41,404 28,927
3/09E 28,927 9,641 5.9 6.0 21.1 12.4 Change (%) 36.7 -57.1 -66.5 24.8 -30.1
3/10E 22,973 1,444 0.9 40.3 3.1 5.8
3/11E 27,992 3,231 2.0 18.0 6.4 8.6
EBITDA 4,818 2,443 1,671 22,290 16,290
• For 4QFY09, we expect Unitech’s revenue to decline 67% YoY to
Rs3.9b and net profit to decline 88% YoY to Rs428m. We estimate Change (%) -5.5 -66.7 -65.3 9.7 -26.9
EBITDA margin at 43%. As of % Sales 41.5 49.9 43 53.8 56.3
• During 4QFY09, Unitech launched three residential projects (two
in Mumbai and one in Gurgaon) and two commercial projects Depreciation 89 53 73 205 233
(in Mumbai) after a gap of nearly six months. While pricing for Interest 434 967 1,122 2,804 4,510
all these projects is not disclosed, its residential project at Gurgaon
is attractively priced at ~20-30% discount to similar projects in Other Income 115 176 93 1,397 679
the vicinity. Extra-ordinary Income 255 -20 0 255 -4
• In February 2009, Unitech’s 100% telecom subsidiary, Unitech
Wireless (UWL) entered into an agreement with Wireless-TT PBT 4,666 1,579 568 20,678 12,226
Infoservices for leasing ~40,000 towers for its upcoming GSM Tax 973 219 140 3,986 2,585
rollout — it plans to launch in 2HCY09.
• Further, its deal with Telenor for 60% stake was repriced
downward by ~11% to adjust for rupee appreciation. Post Reported PAT 3,693 1,361 428 16,692 9,641
completion of the deal (in four phases prior to September 2009)
for the same consideration, Telenor would now control 67.2% Adj PAT 3,603 1,380 428 16,619 9,645
stake in UW v/s 60% stake earlier. Change (%) 0.9 -73.6 -88.1 27.3 -42.0
• Post closure of phase 1 of the deal, Unitech i) would get
immediate cash inflow of Rs3.5b from the Rs12b of phase 1 E: MOSt Estimates No. of Equity Shares (m) : 1623.4
proceeds from Telenor and ii) would no longer need to consolidate
Rs12.5b of debt advanced to its 100% subsidiary UW. As a result,
Unitech’s consolidated debt would be lower by ~Rs16b.
• Our FY10 NAV for Unitech is Rs61/share. We expect Unitech to
trade at significant discount to its NAV due to its i) high net
debt/equity of 2.1x, ii) land payment outstanding of ~Rs40b, iii)
concentration of land-bank in Tier 2 and Tier 3 cities and iv) high
bullet debt repayment obligations by March 2010. Maintain
Neutral.
104
SECTOR: RETAILING
Pantaloon Retail Pantaloon Retail
YEAR NET SALES PAT EPS P/E ROE ROCE Y/E JUNE FY08 FY09 FY09 FY08 FY09E
06/08E 50,489 1,259 7.9 20.2 6.8 9.3 Net Sales 13,543 15,257 16,500 50,489 64,273
06/09E 64,273 1,440 8.2 19.5 7.3 10.7 YoY Change (%) 57.3 24.4 21.8 56 27.3
06/10E 74,659 1,947 11.1 14.4 9.1 11.3
Total Exp 12,402 13,684 15,050 45,884 58,122
06/11E 87,836 2,240 12.8 12.5 9.6 11.6
EBITDA 1,141 1,573 1,450 4,605 6,151
• We expect Pantaloon’s revenue to grow 21.8% YoY in 3QFY09
Margins (%) 8.4 10.3 8.8 9.1 9.6
with value retailing driving growth during the quarter.
• Lower sales growth has been on account of 1) single digit Depreciation 223 325 327 834 1,304
same store sales growth 2) 0.5msf area addition in last 6 Interest 429 742 670 1,853 2,687
months v/s 1msf in same period last year. Other Income 17 15 15 38 55
• EBITDA margin is expected to improve 40bp YoY to 8.8%, PBT 506 522 468 1,956 2,215
while EBITDA will grow 27%. Lower margin expansion (140bp Tax 185 187 164 697 775
YoY in 1HFY09) will be on account of decline in same store Rate (%) 36.6 35.8 35 35.6 35
sales growth and extended discounts.
Adjusted PAT 321 335 304 1,259 1,440
• Interest burden is expected to increase 60% (high financial YoY Change (%) 71.5 6 -5.2 106.2 14.3
leverage and increase in interest rates by 300bp) which will
lead to PAT degrowth of 5%. Reported PAT 321 335 304 1,259 1,440
• Expansion plans have been significantly scaled down with E: MOSt Estimates No. of Equity Shares (m) : 175.2
1.3msf area addition (8 months) as against 2.7msf in FY08.
We expect area addition of less than 2msf in FY09 and FY10.
EPS of Rs11.1. Maintain Buy.
105
SECTOR: RETAILING
Titan Industries Titan Industries
03/08A 29,937 1,483 33.4 23.1 34.0 30.7 Net Sales 8,225 10,238 10,274 29,937 39,500
03/09E 39,500 2,131 48.0 16.1 35.1 35.1 YoY Change (%) 37.9 27.6 24.9 43.2 31.9
03/10E 48,842 2,471 55.7 13.9 31.3 34.3
Total Exp 7,487 9,519 9,423 27,533 36,109
03/11E 57,934 3,080 69.4 11.1 30.3 34.5
EBITDA 738 719 851 2,404 3,392
• We expect Titan to register a 24.9% growth in revenue Margins (%) 9 7 8.3 8 8.6
to Rs10.3b in 4QFY09.
• In watches, volume growth would remain muted as Depreciation 79 79 103 297 338
discount brand Sonata is under pressure, while Titan Interest 63 56 84 201 254
brand sales remain strong. Sales mix is favorable which Other Income 4 12 9 18 41
will increase watch margins YoY. PBT 600 596 673 1,923 2,842
• Jewelry sales are likely to remain strong as investment Tax 95 175 157 440 711
demand continues to be buoyant. Same store sales Rate (%) 15.8 29.3 23.4 22.9 25
are under pressure. Gold prices have increased 55%
Adjusted PAT 505 421 516 1,483 2,131
YoY and 15% QoQ. 4Q will show the impact of increase YoY Change (%) 6.2 36.6 2.2 25.3 43.7
in gold lease charges which will result in margin
pressure as against 180bp margin expansion in Extraordinary Income 100 304 0 20 0
9MFY09. Reported PAT 605 118 516 1,503 2,131
• Titan Eye+ is performing as per expectations. The E: MOSt Estimates No. of Equity Shares (m) : 42.3
management has guided for addition of 20 new stores
by the year-end and expects to add another 60-70
stores every year after that. PE (Precision Engineering)
continues to have a healthy order book due to rising
importance of outsourcing to cut costs globally.
• The stock trades at 16.1x FY09E and 13.9x FY10E.
Maintain Neutral.
106
SECTOR: TELECOM
Bharti Airtel Bharti Airtel
3/08A 270,250 67,008 35.4 17.6 36.9 27.3 Gross Revenue 78,191 96,334 100,166 270,250 371,536
3/09E 371,536 84,855 44.7 13.9 31.4 26.4 YoY Growth (%) 45.0 38.3 28.1 45.9 37.5
3/10E 456,199 98,478 51.9 12.0 27.0 22.2 QoQ Growth (%) 12.3 6.8 4.0
3/11E 545,094 115,885 61.1 10.2 24.7 20.9 Total Operating Expenses 45,673 56,884 59,355 156,535 219,060
EBITDA 32,518 39,450 40,811 113,715 152,476
• We expect revenue to grow 28.1% YoY and 4% QoQ, driven
by healthy mobile subscriber growth of 10% QoQ. YoY Growth (%) 45.1 33.1 25.5 52.6 34.1
QoQ Growth (%) 9.7 6.6 3.5
• EBITDA margin is expected to decline by ~80bp YoY and Margin (%) 41.6 41.0 40.7 42.1 41.0
~20bp QoQ to 40.7%. We expect EBITDA growth of 25.5%
YoY and 3.5% QoQ. Net Finance Costs 2,157 1,904 729 2,341 10,206
Non-Operating Income 473 -215 -415 2,423 -140
• Mobility revenues are expected to grow 3.3% QoQ, implying Depreciation & Amortization 9,702 12,702 13,472 37,260 47,768
an ARPU of Rs305 (decline of 6% QoQ). EBITDA margin for
mobile business is expected at ~31%, down 40bp QoQ. Profit before Tax 21,132 24,628 26,195 76,537 94,358
Income Tax Expense / (Income) 2,085 2,558 3,143 8,378 7,737
• Net profit is expected to grow 21.7% YoY and 4.4% QoQ to Profit / (Loss) to Min. Shareholders 518 478 499 1,151 1,767
Rs22.6b. We have modeled for derivative loss of Rs1b v/s
Rs2.2b in 3QFY09. Significant JPY depreciation during the Reported Net Profit / (Loss) 18,529 21,592 22,552 67,008 84,855
quarter should restrict the extent of forex losses. YoY Growth (%) 36.9 25.4 21.7 57.4 26.6
QoQ Growth (%) 7.6 5.5 4.4 57.4 26.6
• We reiterate Buy on Bharti given low capex intensity, Margin (%) 23.7 22.4 22.5 24.8 22.8
unleveraged balance sheet, and scale advantage, though
earnings visibility is getting clouded by increased competition. Mobile ARPU (Rs/month) 357 324 305 366 325
Valuations at 6.8x EV/ EBITDA and 12x P/E FY10E are QoQ Growth (%) -0.3 -2.1 -6.0
well supported by 17-19% earnings and EBITDA CAGR over Mobile MOU/sub/month 507 505 492 479 511
FY09-11E. QoQ Growth (%) 7.0 -4.0 -2.5
Financials as per US GAAP No. of Equity Shares (m) : 1,895.5
107
SECTOR: TELECOM
Idea Cellular Idea Cellular
3/08A 67,374 10,424 4.0 13.3 36.4 14.7 Gross Revenue 19,853 27,311 29,070 67,374 101,199
3/09E 101,199 8,184 2.7 19.1 9.5 6.4 YoY Growth (%) 48 59.7 46.4 53.6 50.2
3/10E 145,783 6,958 2.2 24.1 4.4 3.6 QoQ Growth (%) 16.1 18.6 6.4
3/11E 177,215 7,374 2.2 23.5 4.1 3.6
Total Operating Expenses 13,118 20,337 21,826 44,681 73,709
• We expect the consolidated revenue to grow 46.4% EBITDA 6,735 6,974 7,245 22,693 27,490
YoY and 6.4% QoQ, driven by ~14% QoQ subscriber YoY Growth (%) 43.6 22.5 7.6 52.7 21.1
growth. ARPU (ex-Spice) is expected to decline by 6.8% QoQ Growth (%) 18.3 14.9 3.9
QoQ to Rs248, dragged by decline in RPM and MOU. Margin (%) 33.9 25.5 24.9 33.7 27.2
• EBITDA margin is likely to decline by 860bp YoY and Net Finance Costs 1,206 874 844 2,776 4,741
60bp QoQ to 24.9%. We expect margin in established Depreciation & Amortization 2,597 3,937 4,402 8,768 14,120
circles to decline by 100bp QoQ while EBITDA losses in Profit before Tax 2,932 2,163 1,999 11,149 8,629
Mumbai and Bihar are expected to continue. We expect Income Tax Expense / (Income) 165 -31 80 725 445
EBITDA margin in Spice (to be consolidated on 41% JV
basis) at 20%, down 200bp QoQ. Adjusted Net Profit / (Loss) 2,767 2,194 1,919 10,424 8,184
YoY Growth (%) 43.1 -7.3 -30.6 107.5 -21.5
• Net profit is expected to decline by 30.6% YoY and QoQ Growth (%) 16.9 52.3 -12.5
12.6% QoQ due to higher depreciation and tax rate. Margin (%) 13.9 8 6.6 15.5 8.1
IDEA trades at 24.1x FY10E EPS and 7.2x FY10E EV/
Mobile ARPU (Rs/month) 287 266 248 295.4 261.1
EBITDA. While EV/EBITDA based valuation is QoQ Growth (%) 2.9 1.9 -6.8
undemanding, we maintain Neutral based on (1)
continued pressure on margins from new launches, Mobile MOU/sub/month 411 410 402 378 407
QoQ Growth (%) 9.0 -1.7 -2.0
(2) low return ratios, and (3) high earnings sensitivity
to potential margin erosion in the sector. No. of Equity Shares (m) : 3,100.1
108
SECTOR: TELECOM
Reliance Communication Reliance Communication
3/08A 190,679 55,095 26.7 6.9 22.7 12.0 Gross Revenue 53,114 58,502 60,023 190,679 228,195
3/09E 228,195 62,044 30.1 6.1 20.9 9.4 YoY Growth (%) 34.9 20.0 13.0 31.8 19.7
3/10E 293,568 49,906 24.2 7.6 14.9 8.1 QoQ Growth (%) 9.0 3.6 2.6
3/11E 363,947 63,956 31.0 5.9 16.5 9.9
Total Operating Expenses 29,950 34,977 36,354 108,692 135,483
• We expect revenue to grow 13% YoY and 2.6% QoQ to Rs60b.
EBITDA 23,164 23,525 23,669 81,987 92,712
While subscriber momentum remains strong (wireless
QoQ Growth (%) 10.0 2.2 0.6
subscriber base estimated to increase 18% QoQ), we lower Margin (%) 43.6 40.2 39.4 43.0 40.6
our ARPU assumptions by 5-10% on lower quality of
incremental subscribers and free promotional minutes in GSM. Net Finance Costs -81 -1,496 -1,875 -3,998 -8,064
We expect wireless ARPU to decline by 9.8% QoQ to Rs227 Depreciation & Amortization 7,856 10,069 11,307 28,054 39,194
on 6% RPM decline and 4% MOU decline. Profit before Tax 15,389 14,952 14,237 57,931 61,582
• EBITDA margin is expected to decline by 80bp QoQ and 420bp Income Tax Expense / (Income) -272 153 146 2,836 -462
YoY to 39.4%. Aggressive network expansion is likely to keep
Adjusted Net Profit / (Loss) 15,661 14,799 14,091 55,095 62,044
EBITDA margin under pressure.
QoQ Growth (%) 12.2 -11.7 -4.8
• Pre-minority interest net profit is expected to decline by 10% Margin (%) 29.5 25.3 23.5 28.9 27.2
YoY and 5% QoQ. Despite the net debt, we factor in net
finance income of Rs1.9b, in line with recent trends. Extraordinary Exp/Minority Interest 629 697 697 1082 4116
• We find the valuations attractive for RCOM given a significant Reported Net Profit / (Loss) 15,032 14,102 13,394 54,013 57,928
discount v/s Bharti. At 7.6x FY10E P/E and 5.8x FY10E EV/ Wireless ARPU (Rs/month) 317 251 227 341 245
EBITDA, it trades at 15-40% discount to Bharti. Maintain Buy QoQ Growth (%) -6.4 -7.4 -9.8
on likely operational turnaround post recent GSM launch and
sharp reduction in capex intensity. Wireless MOU/sub/month 430 410 394 461 395
QoQ Growth (%) -4.2 -3.1 -4
E: MOSt Estimates; No. of Equity Shares (m) : 2,063.0
109
SECTOR: TEXTILES
Alok Industries Alok Industries
3/08A 21,593 1,674 8.4 3.9 15.2 5.7 Sales 7,248 8,164 7,954 21,593 28,534
3/09E 28,534 1,536 7.4 4.4 10.0 6.2 Change (%) 26.3 48.2 9.7 18.1 32.1
3/10E 35,220 1,043 5.0 6.6 6.5 5.9
3/11E 39,447 1,466 7.0 4.7 8.5 6.8
EBITDA 1,804 2,144 1,875 5,253 7,070
*Fully Diluted EPS
Change (%) 36.6 59.1 4.0 26.0 34.6
• In 4QFY09, we expect Alok to post revenue of Rs7.9b, up As % of Sales 24.9 26.3 23.6 24.3 24.8
9.7% YoY, aided by higher capacities across all textile segments.
Depreciation 457 704 744 1,613 2,467
• EBITDA margin is likely to decline 131bp to 23.6% v/s 24.9% Interest 365 702 736 1,213 2,365
in 4QFY08. Other Income -109 5 36 185 55
• In FY09, Alok announced several new initiatives, which include Extra-ordinary 0 -25 0 1 -56
foray into real estate business and increased focus on the
PBT 873 743 431 2,944 2,293
retail business.
Tax 336 245 144 939 757
• The management has drawn up restructuring plans, which Effective Tax Rate (%) 38.5 33.0 33.4 31.9 33.0
include creating dedicated verticals for the textile and retail
businesses. It has ambitious expansion plans for its domestic Repoted PAT 537 473 287 2,005 1,480
retail business, which entails introducing international brands Change (%) -31.7 -3.0 -46.6 41.3 -26.2
in India and opening ~500 H&A retail outlets over the next Adj. PAT 646 498 287 1,674 1,536
three years. Post restructuring, we expect Alok to emerge as Change (%) 42.8 2.1 -55.6 18.0 -8.2
a large retail play.
• Alok trades at inexpensive valuations of 4.4x FY09E EPS of E: MOSt Estimates No. of Equity Shares (m) : 208.9
Rs7.4 and 6.6x FY10E EPS of Rs5. We maintain Buy.
110
SECTOR: TEXTILES
Arvind Mills Arvind Mills
3/08A 22,713 274 1.3 10.5 1.5 4.4 Sales 6,584 5,995 6,229 22,713 23,487
3/09E 23,487 -541 -2.5 -5.6 -2.7 5.3 Change (%) 36.3 17.7 -5.4 23.1 3.4
3/10E 27,410 -394 -1.8 -7.7 -2.0 5.0
3/11E 28,780 131 0.6 23.0 0.7 6.0
• In 4QFY09, we expect Arvind to record revenue decline of EBITDA 708 817 852 2,875 2,683
5.4% YoY to Rs6.2b, primarily driven by higher garment sales. Change (%) 5.3 122.7 20.4 -5.8 -6.7
As % of Sales 10.8 13.6 13.7 12.7 11.4
• EBITDA margin is likely to increase by 293bp YoY to 13.7% v/
s 10.8% in 4QFY08. Depreciation 309 308 312 1,366 1,208
• We estimate Arvind to report net loss of Rs273m in 4QFY09 Interest 353 772 808 1,314 2,565
v/s reported profit of Rs54m in 4QFY08. Other Income 67 -40 11 165 578
• Arvind has covered its entire FY09 rupee exposure at Non Recurring Expense -55 -24 0 63 -6
~Rs43.75. As per the Accounting Standard 30 issued by ICAI, PBT 58 -327 -257 296 -518
Arvind had unrealized losses of Rs831m till 1QFY09 on account
Tax 5 5 15 23 29
of instruments qualifying for hedge accounting. This could
Effective Tax Rate (%) 8.2 -1.6 -6 7.6 -5.6
be recognized in the P&L depending on when the underlying
transactions transpire in 4QFY09. Reported PAT 54 -332 -273 274 -547
• We do not expect domestic demand-supply equilibrium in Adj. PAT 109 -308 -273 337 -541
the denim sector to emerge in the near to-medium term. Change (%) 174.7 -574.4 -351.2 91.4 -260.7
Hence, we expect pressure on denim margins.
• Arvind is currently working on restructuring plans, which could
include relocating a part of its commodity grade denim * Restated Quarterly Numbers
capacity to other countries and increasing its focus on branded
apparel and garment manufacturing.
• The stock trades at P/B of 0.2x FY09E Book Value of Rs88.3.
We maintain Neutral.
111
SECTOR: TEXTILES
Raymond Raymond
27 March 2009 Neutral - Rs78 QUARTERLY PERFORMANCE (Rs Million)
3/08A 22,830 649 10.6 7.3 4.5 8.0 Net Sales 4,358 3,589 3,767 13,225 14,049
3/09E 24,813 -1,573 -25.6 -3.0 -12.2 -0.7 Change (%) na 8.1 -13.6 3.0 6.2
3/10E 28,037 -1,566 -25.5 -3.0 -14.2 -2.3
3/11E 29,795 151 2.5 31.5 1.2 5.7
* Consolidated
EBITDA 415 268 269 837 649
Change (%) na 39.0 -35.1 -50.9 -22.4
• We expect Raymond to report standalone revenue of As % of Sales 9.5 7.5 7.1 6.3 4.6
Rs3.7b in 4QY09 v/s standalone revenue of Rs4.3b in
Depreciation 211 217 225 811 851
4QFY08.
Interest -1 191 192 255 639
• EBITDA for 4QFY09 is likely to be around Rs239m v/s Other Income 92 26 53 1,049 491
EBITDA of Rs415m in 4QFY08. EBITDA margin is expected Extra-ordinary Income -8 11 0 -39 17
at 7.1% v/s 9.5% in 4QFY08. PBT 297 -125 -96 820 -373
• Raymond’s denim JV is facing cost pressures at its Tax 27 17 10 93 47
international plants in the US and Romania, which are Effective Tax Rate (%) 9.1 -13.6 -9.9 11.3 25.5
operating at low utilization rates of 70%. Reported PAT 270 -153 -94 727 -420
• Raymond expects to aggressively roll out 40-50 flagship Adj. PAT after MI 277 -142 -117 767 -437
stores in FY08. We feel these stores are unlikely to Change (%) na -243.9 -142.2 -42.6 -157
breakeven in the medium term due to high rentals. E: MOSt Estimates No. of Equity Shares (m) : 61.4
Management has given guidance for its branded apparel
business to register per annum growth rates of 20-25%
over the next two to three years.
• The stock trades at P/BV of 0.6x its FY10 book value of
Rs167. Maintain Neutral.
112
SECTOR: TEXTILES
Vardhman Textiles Vardhman Textiles
3/08A 22,947 1,225 21.2 2.2 10.6 6.0 Sales 5,795 6,451 6,845 22,947 25,464
3/09E 27,386 691 12.0 4.0 5.6 4.6 Change (%) 7.3 4.7 18.1 9.9 19.3
3/10E 31,816 464 8.0 5.9 3.6 3.9
3/11E 35,500 1,441 24.9 1.9 10.7 6.6
Vardhman Textiles has issued a bonus of 1:2 EBITDA 770 933 943 3,546 3,845
Change (%) 0.2 -0.9 22.5 1.6 13.4
• For 4QFY09, Vardhman is likely to report revenue growth As % of Sales 13.3 14.5 13.8 15.5 15.1
of 18.1% YoY to Rs6.8b. We expect EBITDA margin to
Depreciation 470 546 589 1,546 2,163
decline 50bp to 13.8% v/s 13.3% in 4QFY08. Interest 218 248 283 639 1,130
• Adjusted PAT is likely to register 74.3% YoY decline to Other Income 156 111 13 329 260
Extra-ordinary Income 0 -74 0 0 1,035
Rs36m v/s Rs140m in 4QFY08, negatively impacted by
increased cotton prices, higher depreciation and rising PBT 237 175 84 1,690 671
interest cost. Tax 97 83 48 464 296
• Vardhman’s Rs26b capex plans are likely to be completed
by March 2009. Till 2QFY08, the company commissioned Reported PAT 140 92 36 1,225 1,419
Adj. PAT 140 166 36 1,225 645
a significant part of its Rs25b capex at Satlapur, Madhya
Change (%) -62 -58.6 -74.3 -28.6 -43.6
Pradesh, with 1,23,552 spindles, 310 looms and 40m
meters of processing capacity over FY08- 10E. E: MOSt Estimates No. of Equity Shares (m) : 57.8
• The stock trades at 4x FY09E EPS of Rs12 and 5.9x FY10E

EPS of Rs8. We maintain Buy.
113
SECTOR: UTILITIES
CESC CESC
03/08A 27,749 3,297 26.4 7.6 13.0 11.8 Sales 6,380 7,520 6,509 27,749 29,409
03/09E 29,409 3,664 29.3 6.8 12.8 11.6 Change (%) 16.6 11.2 2.0 11.5 6.0
03/10E 32,479 3,262 26.1 7.7 10.3 9.1
EBITDA 1,260 1,510 1,493 5,528 6,093
03/11E 35,899 3,720 29.8 6.7 10.7 8.8
Change (%) 7.7 -2.6 18.5 6.7 10.2
* fully diluted; excluding Spencer
As of % Sales 19.7 20.1 22.9 19.9 20.7
• For 4QFY09, we expect CESC to post revenue of Rs6.5b (up 2.0%
YoY) and net profit of Rs919m, up 6.9% YoY. Depreciation 400 430 466 1,685 1,746
• CESC expects 250 MW Budge-Budge Expansion to be Interest 310 360 349 1,364 1,379
commissioned by September 2009. For 600MW Haldia project, Other Income 420 390 364 1,554 1,654
land acquisition has been completed to the extent of ~75% and PBT 970 1,110 1,042 4,033 4,622
coal linkage has been obtained (from Mahanadi fields). The
Tax 110 130 123 476 543
management expects financial closure by 1QFY10 (delay of 4-5
months) due to issues in terms of credit availability. Effective Tax Rate (%) 11.3 11.7 11.8 11.8 11.8
• CESC now plans to commission Haldia (600MW) project through Reported PAT 860 980 919 3,557 4,079
a subsidiary company and not through books of the company. Adjusted PAT 860 980 919 3,297 3,664
Of the total size, 300MW is now intended to be on merchant Change (%) 41.0 5.4 6.9 48.2 14.7
basis and 300MW will cater to the distribution business of CESC
with regulated returns. E: MOSt Estimates No. of Equity Shares (m) : 124.9
• We expect CESC to further invest Rs3.5b (v/s Rs2.5 in FY08) as Standalone Numbers (excl Spencers Retail)
advance against share subscription in Spencer Retail in FY09,
largely to fund cash losses (Rs200m/month currently), increased
working capital requirement and capex plans. Management has
re-worked its strategy for retail venture and plans to reduce the
cash losses in FY10 by 50%.
• We expect CESC to report standalone net profit of Rs3.2b in FY09
(up 11.1% YoY), Rs2.9b in FY10 (down 11.1% YoY) and Rs3.3b in
FY11 (up 14% YoY), excluding Spencer. Neutral.
114
SECTOR: UTILITIES
NTPC NTPC
03/08A 370,910 75,688 9.0 20.2 15.0 20.8 Sales 107,436 112,771 122,368 386,350 427,148
03/09E 427,148 80,276 9.7 18.7 14.6 20.5 Change (%) 21.3 20.9 13.9 18.4 10.6
03/10E 461,240 83,106 10.1 18.1 13.9 20.9
EBITDA 28,222 32,086 31,600 114,131 113,379
03/11E 518,048 92,813 11.3 16.2 14.4 21.2
Change (%) 20.6 8.1 12.0 13.1 -0.7
* Pre Exceptional Earnings
As of % Sales 26.3 28.5 25.8 29.5 26.5
• We expect NTPC to report revenue of Rs122.4b (up 13.9% YoY)
and net profit of Rs22.7b (up 4.1% YoY) in 4QFY09. Depreciation 6,071 5,590 6,301 22,060 22,681
• During January-February 2009, NTPC’s generation stood at 37BUs Interest 8,074 5,076 5,159 18,581 19,717
at an average PLF of 96.8%, while net generation increased by Other Income 7,439 8,513 9,822 30,020 32,955
3% YoY at 165.8BU during April 2008 to February 2009. During
4QFY09, the company has guided for net generation of 57BUs at PBT 21,516 29,933 29,963 103,510 103,936
a PLF of 97% leading to a residual generation of 20BUs in March Tax 8,121 7,424 7,308 28,811 20,402
2009, its highest ever generation since January 2007.
• Of the target capacity addition of 22,430MW in 11th plan,
2,490MW is commissioned while 18,180MW is under construction. Reported PAT 13,395 22,509 22,654 74,699 83,533
The projects pending award stands at 1,760MW. Expected ramp-
up in capacity addition is planned at 2,800 MW in FY10, 5,410 Adj. PAT (Pre Exceptional) 21,766 20,378 22,654 75,688 80,276
MW in FY11 and 10,980 MW in FY12 (~49% 11th plan capacity Change (%) 17.4 2.4 4.1 15.2 6.1
addition target), increasing risk of further slippage.
• For Pakri Barwadih mine, initial land acquisition has started and E: MOSt Estimates No. of Equity Shares (m) : 8,245.5
bids for appointment of Mine Developer and Operator (MDO)
has already been called. Also, the mining plan has been approved
for Kerandari (6m tons per annum) mine, and public hearing is
also completed. The land acquisition notification has been issued
for Chatti-Bariatu (7m tons per annum) mine.
• We estimate NTPC to report earnings CAGR of 7% over FY08-11E
due to slower pace of capacity addition, tightening incentive
norms in FY10 and reduced interest income, given conversion of
cash into CWIP/lower interest rates. We estimate FY09 profit at
Rs80.3b (up 6.1% YoY), Rs83.1b in FY10 (up 3.5% YoY) and Rs92.8b
in FY11 (up 11.7% YoY). Neutral.
115
SECTOR: UTILITIES
PTC India PTC India
03/08A 38,515 489 2.3 24.7 5.6 6.5 Power Traded (MUs) 1,223 2,468 2,820 9,889 13,134
03/09E 68,828 1,051 4.6 12.3 6.7 7.4
03/10E 93,286 937 4.1 13.8 6.0 7.6 Sales 5,466 21,168 15,317 39,062 68,828
Change (%) -9.3 188.5 180.2 3.7 76.2
03/11E 113,835 961 4.2 13.5 6.0 7.3
* Pre-exceptional
EBITDA 28 27 33 205 260
Change (%) -47.3 67.0 20.5 -35.5 26.7
• For 4QFY09, we expect PTC to report revenue of Rs15.3b, up
As of % Sales 0.5 0.1 0.2 0.5 0.4
180.2% YoY, EBIDTA of Rs33m and net profit of Rs249m, up
29.3% YoY. Depreciation 7 16 19 29 65
• PTC has incorporated a 100% subsidiary PTC Energy Ltd, which Interest 1 7 11 17 35
will act as project developer and invest equity stake in power Other Income 194 312 253 429 1,021
projects. The company will not have conflict of business interest Extraordinary Income/(Expense) -3 0 0 -3 0
with PTC Financial Services, as it would work as an independent
NBFC. PBT 215 316 256 591 1,180
• PTC expects to add 525MW (225MW Baglihar Hydro project Tax 23 79 7 102 168
and 300MW small size thermal projects) in 4QFY09 and Effective Tax Rate (%) 10.6 25.1 2.9 17.3 14.2
~800MW of capacity in FY10 to its long term trading portfolio. Reported PAT 193 237 249 488 1,013
The management expects the total trading volume in FY09 to Adjusted PAT 193 275 249 488 1,051
be 13BUs+. Change (%) 230.2 344.5 29.3 38.7 115.1
• Of the total 10,500MW of projects under PPA, 30-35% of the
projects have achieved financial closure. The company has E: MOSt Estimates No. of Equity Shares (m) : 227.4
informed that the portfolio of projects under PPA/MoU have
80% of the capacity tied up under long term supply agreement
while 20% is on merchant basis.
• We expect PTC to report net profit of Rs1b in FY09E (up 99.9%
YoY), Rs937m in FY10E (down 10.8% YoY) and Rs961m in FY11E
(up 2.6% YoY). Buy.
116
SECTOR: UTILITIES
Reliance Infrastructure Reliance Infrastructure
3/08A 63,642 6,831 30.1 18.8 11.0 9.7 Sales 17,154 27,176 25,657 64,484 100,468
3/09E 100,468 10,451 46.1 12.3 10.3 10.4 Change (%) 6.3 77.5 49.6 60.4 55.8
3/10E 97,950 9,889 43.6 13.0 8.5 9.2
EBITDA 2,023 3,120 3,494 6,828 12,244
3/11E 116,411 10,074 44.4 12.8 8.1 8.5
Change (%) 238.2 211.6 72.7 -6.979.3 As of
* Consolidated , fully diluted % Sales 11.8 11.5 13.6 10.6 12.2
• For 4QFY09, we expect Reliance Energy to report revenue of
Rs26b (up 49.6% YoY) and net profit of Rs2.8b, down 24.9%YoY. Depreciation 526 589 608 2,229 2,430
• RELI plans to achieve financial closure of Delhi metro project Interest 686 865 897 3,088 3,190
(cost Rs25b), WRSS transmission project (Rs14b) and Other Income 2,326 1,436 2,150 10,006 6,705
Transmission lines attached to Parabati/Koldam HEP (cost of
Rs7.5b) in 1QFY10. PBT 3,137 3,101 4,138 11,517 13,329
• It has recently bagged Gurgaon-Faridabad road project at a Tax (incl contingencies) -83 589 602 671 1,866
cost of Rs7.8b, while it has emerged as the sole/L1 bidder for Effective Tax Rate (%) -2.6 19.0 14.5 5.8 14.0
three road projects. These includes 1) Eastern peripheral
expressway (cost of Rs31b), 2) Krishna Walajpet project (cost Reported PAT 3,220 2,512 3,536 10,846 11,463
of Rs10.4b) and 3) western Freeway Sealink project (cost of PAT (Pre Exceptionals) 3,657 3,080 2,747 6,831 10,451
Rs53b), totalling to Rs94.4b. Change (%) 81.7 118.6 -24.9 16.2 53.0
• For RELI, total equity commitment towards existing projects
stands at Rs26.3b, of which Rs21.8b is outstanding (equity E: MOSt Estimates No. of Equity Shares (m) : 226.8
commitment in FY10 stands at Rs10b), which can be easily met
given net cash of Rs25b plus investment in preference shares Quarterly nos. are on standalone basis; RELE has restated FY08 nos. and thus quarterly
of Rs22b. Management expects that most of the outstanding nos. do not add to full year
ICDs of Rs27b (as of December 2008) will mature by end FY10.
• Current order book of EPC division stands at Rs215b, comprising
Rs61b of third party projects. Hisar (Rs38b) and DVC Purulia
(Rs34b) projects should cross the margin recognition threshold
by 1QFY10.
• We expect RELI to report net profit of Rs10.5b in FY09E (up
53% YoY), Rs9.9b in FY10E (down 5.4% YoY) and Rs10.1b in
FY11E (up 1.9% YoY). Buy.
117
SECTOR: UTILITIES
Tata Power Tata Power
03/08A 59,159 6,942 32.7 23.9 7.7 6.2 Total Operating Income 16,345 17,415 17,398 59,159 74,663
03/09E 75,618 13,793 59.2 13.2 7.1 7.2 Change (%) 39.5 22.7 6.4 19.8 26.2
03/10E 81,285 16,694 71.7 10.9 8.4 9.2
EBITDA 1,426 2,206 3,116 9,624 11,407
03/10E 83,411 15,204 65.3 12.0 8.9 6.0 Change (%) -37.7 -17.7 118.5 1.6 18.5
* Consolidated including share of profit from Bumi Resources, Pre As of % Sales 8.7 12.7 17.9 16.3 15.3
Exceptionals, Fully Diluted
• For 4QFY09, we expect Tata Power to report revenue of Depreciation 777 809 1,067 2,905 3,370
Rs17.4b (up 6.4% YoY), EBIDTA of Rs3.1b (up 118.5% YoY) Interest 282 952 961 1,676 3,115
and net profit of Rs1.5b. Other Income 2,202 814 689 4,658 3,870
• Tata Power (TPWR) has achieved financial closure for 5,660MW PBT 2,568 1,260 1,778 9,701 8,792
projects under development, and equity commitment stands
at ~Rs51b. Of this, it has already invested Rs13b. Tax 318 109 269 1,002 1,608
• TPWR has already commissioned 340MW of capacity during
April 2008-February 2009 comprising 250MW Trombay and Reported PAT 2,250 1,151 1,509 8,699 7,184
90MW Haldia. It expects to further commission 30MW of Adjusted PAT -23 1,151 1,509 4,940 6,006
Haldia by end of FY09. Thus, it will have 200MW capacity on
merchant basis from 1QFY10 viz. 100MW Trombay and Change (%) -103.6 -23.1 N.A. 6.1 21.6
100MW at Haldia. It has already received export license from E: MOSt Estimates No. of Equity Shares (m) : 232.8
WBSEB.
• The company plans to fund equity commitment towards
existing projects through mix of internal accruals (Rs24-25b)
and balance through stake sale in SPVs, Tata Teleservices (as
part of NTT DoCoMo deal) and through fund raising through
fresh preferential allotment to Tata Sons.
• We expect Tata Power to report consolidated (including share
of profit from Bumi Resources) net profit of Rs13.8b for FY09,
Rs16.7b in FY10E (up 21% YoY) and Rs15.2b in FY10 (down
8.9% YoY). Maintain Neutral.
118
SECTOR: AIR-CONDITIONERS
Blue Star Blue Star
03/08A 22,330 1,468 16.3 9 73.1 58.5 Operating Income 7,081 5,667 7,166 22,330 25,608
03/09E 25,608 1,594 17.7 8.3 51.5 55.1 Change (%) 30.4 10.1 1.2 39.5 14.7
03/10E 28,169 1,658 18.4 8.0 41.1 44.7 Total Expenses 6,357 5,146 6,420 19,985 23,080
03/11E 32,307 1,987 22.1 6.7 39.0 46.3
EBITDA 725 522 746 2,345 2,528
Change (%) 63.0 -6.4 3.0 100.6 7.8
• Blue Star’s total order book at the beginning of 4QFY09 was EBITDA Margin (%) 10.2 9.2 10.4 10.5 9.9
Rs16.3b, up 52% YoY.
• Though order book is strong, we have factored in flat YoY Interest 22 53 37 76 153
sales growth for 4QFY09, as the company is executing only Other Income 7 1 1 17 30
those projects where it does not foresee payment problems. Extraordinary Inc/ (Exp) 353 0 0 353 0
• We have lowered our 4QFY09 margin estimate to 10.4% PBT 1,001 400 619 2,420 2,125
(10.8% earlier) to factor in the weak rupee. As a result, our Tax 297 78 160 679 531
revised 4QFY09 profit estimate is Rs459m (Rs471m earlier). Tax/PBT (%) 29.7 19.6 25.9 28.1 25
This has resulted in a 1% downgrade to our FY09E EPS.
Reported PAT 704 322 459 1,741 1,594
• For FY10, we have lowered our sales growth estimate from Adjusted PAT 430 322 459 1,468 1,594
15% to 10%, resulting in a 5% downgrade to our EPS estimate. Change (%) 26.7 -9.2 6.5 106.2 8.6
PAT Margin (%) 6.1 5.7 6.4 6.6 6.2
• The stock trades at a P/E of 8.3x FY09E and 8x FY10E. We
maintain Buy with a target of Rs202 (11x FY10E). E: MOSt Estimates No. of Equity Shares (m) : 89.9
119
SECTOR: TEXTILES
Bombay Rayon Bombay Rayon
03/08A 10,891 1,201 19.1 7.6 22.7 16.8 Net Sales 2,542 3,449 4,171 9,317 14,263
03/09E 14,263 1,710 19.6 7.3 18.9 13.3 Change (%) 46.7 41.5 64.1 90.4 53.1
03/10E 21,884 2,779 31.9 4.5 20.8 14.2
Total Expenses 1,917 2,606 3,205 7,146 10,919
03/11E 29,395 4,179 48.0 3.0 25.4 19.2
EBITDA 625 843 966 2,171 3,344
• Bombay Rayon continues to witness healthy order flows from Change (%) 113.8 45.6 54.5 136 54.1
customers, and its capacities are booked till May 2009. This is
EBITDA Margin (%) 24.6 24.4 23.2 23.3 23.4
mainly due to a significant shift in garments sourcing from
China to India, caused by currency and labor cost differentials. Depreciation 112 110 131 319 456
• Bombay Rayon’s 4QFY09 figures will reflect higher capacity Interest 61 165 196 258 628
utilization at its two new garmenting units at Ichalkaranji Other Income 50 10 13 96 50
and Osmanabad (both part of its Maharashtra project), which Extraordinary inc/ (exp) 0 0 0 26 0
were commissioned in 2QFY09.
• We expect Bombay Rayon (standalone Indian operations) to PBT 503 578 652 1,716 2,310
report 4QFY09 net sales of Rs4.2b, up 64% YoY and PAT of Tax 165 162 176 505 601
Rs475m, up 41% YoY. GURU operations have been affected Tax/PBT (%) 32.7 27.9 27 29.4 26.0
by the current global slowdown. The company expects to
break even in FY09. PAT 338 417 475 1,211 1,710
• On 24 March 2009, Bombay Rayon issued 18m shares (20.67% Adjusted PAT 338 417 475 1,185 1,710
of enhanced equity) @ Rs185 to its client group (Bestseller, Change (%) 57.1 20.6 40.5 117.8 44.3
Denmark), raising Rs3.33b. Bestseller group plans to acquire PAT Margin (%) 13.3 12.1 11.4 12.7 12.0
additional 20% stake by an open offer. Pending gainful
deployment of the proceeds, our FY10 and FY11 estimates E: MOSt Estimates No. of Equity Shares (m) : 87.1
are downgraded 15-17%. Still, FY08-11 EPS CAGR is a healthy Note: The company has included Leela Lace numbers from 3QFY09. However, the Leela
36%, and RoE over 20%. merger is with retrospective effect from 1QFY09. So, quarterly numbers do not add up to
• The stock trades at an attractive P/E of 4.5x FY10E. We value the full year numbers.
Bombay Rayon standalone at 10x FY10E to arrive at a target
of Rs319 (we have not assigned any value to GURU). We
maintain Buy.
120
SECTOR: OIL & GAS
Everest Kanto Cylinders Everest Kanto Cylinders
03/08A 5,287 1,064 10.5 10.9 27.2 24.1 Net Income 1,642 2,503 3,131 5,287 9,735
03/09E 9,735 1,696 16.0 7.2 27.4 24.4 Change (%) 22.9 99.4 90.7 24.4 84.1
03/10E 12,537 2,302 21.7 5.3 26.9 25.2
Total Expenses 1,275 1,701 2,446 3,761 6,786
03/11E 16,903 3,379 31.8 3.6 30.7 31.1
• Everest Kanto’s expansion plans are broadly on EBITDA 366 811 684 1,550 2,949
schedule - Gandhidham unit (billet-pierced cylinders Change (%) 6.9 76.5 86.9 35.4 90.3
and jumbo cylinders) by end-FY09, and Kandla SEZ EBITDA Margin (%) 22.3 32.4 21.9 29.3 30.3
(plate-based cylinders) in September 2009. Depreciation 39 212 172 215 660
• Everest Kanto is in advanced stage of negotiations to Interest 4 71 94 71 312
acquire a company which has gas distribution rights Other Income 12 8 8 42 50
in east India. It will procure gas from Jharia field of Extraordinary Items (net) * -36 -86 0 -21 -201
ONGC, and provide the same to industrial users and
to fuel dispensing stations. As full details of this new PBT 299 451 426 1,285 1,826
business are not yet available, we have not factored Tax 57 69 95 243 331
the same in our estimates. Tax/PBT (%) 19.1 15.3 22.2 18.9 18.1
• The current slowdown in Indian auto sector is expected PAT 242 382 332 1,043 1,495
to affect auto CNG cylinder sales in India. However, Adjusted PAT 278 468 332 1,064 1,696
we expect this to be offset by higher sale in other
Change (%) 5.8 60.4 19.2 48.3 59.4
countries, viz, China, Iran, Pakistan, Argentina, etc.
PAT Margin (%) 16.9 18.7 10.6 20.1 17.4
• For 4QFY09, we expect consolidated sales of Rs3.1b,
up 91% YoY, EBITDA margin of 22%, and PAT of E: MOSt Estimates No. of Equity Shares (m) : 101.2
Rs332m, up 19% YoY.
• The stock is trading at an attractive P/E of 7.2x FY09E
and 5.3x FY10E consolidated earnings. We believe
Everest Kanto’s high earnings growth with healthy RoE
will lead to premium valuation. We maintain Buy with
a target of Rs325 (15x FY10E).
121
SECTOR: DIVERSIFIED
Sintex Industries Sintex Industries
03/08A 22,978 2,170 16.0 5.8 21.5 14.7 Total Operating Income 9,439 8,202 9,286 22,978 32,114
03/09E 32,114 3,020 22.3 4.4 18.5 11.5 YoY Growth (%) 145.8 33.3 -1.6 96.4 39.8
03/10E 37,137 3,448 25.4 3.9 17.8 14.7 EBITDA 1,599 1,273 1,605 4,063 5,142
03/11E 43,145 4,282 31.6 3.1 18.6 15.2 EBITDA Margin (%) 16.9 15.5 17.3 17.7 16.0
YoY Growth (%) 101.1 22.3 0.4 78.8 26.6
• Sintex offers a unique play on: (1) new construction
Depreciation 291 315 364 765 1,298
technologies (pre-fabs and monolithic) and (2)
Interest 152 255 187 643 804
increasing replacement of metal by plastic composites Other Income 26 252 143 231 858
in several areas such as autos, electricals, electronics, Extraordinary Items 134 0 0 134 0
medical equipment, aerospace, defence, etc.
Profit before Tax 1,316 954 1,197 3,019 3,898
• Pre-fabs and monolithic businesses continue to grow Tax Provisions 371 237 279 698 858
well. However, the general slowdown has affected Tax / PBT 28.2 24.8 23.3 23.1 22
growth in the plastic composites business. PAT before MI 946 717 918 2,322 3,040
• We expect 4QFY09 operating income of Rs9.3b, down Minority Interest 0 9 8 19 20
1.6% YoY and PAT of Rs909m, up 12% YoY. Consolidated PAT 946 708 909 2,303 3,020
• We have downgraded PAT and EPS estimates for FY09E Adj. Consolidated PAT 812 708 909 2,170 3,020
by 5.5% and for FY10E by 12% to factor in persistent YoY Growth (%) 55.3 21.1 12 65.5 39.2
slowdown and its impact on margins. E: MOSt Estimates No. of Equity Shares (m) : 135.5
• The stock trades at an attractive P/E of 4.4x FY09E and
3.9x FY10E. We value Sintex Industries at 10x FY10E to
arrive at a target of Rs254 (Rs288 earlier). We
maintain Buy.
122
SECTOR: AGROCHEMICALS
United Phosphorus United Phosphorus
03/08A 37,617 3,954 7.7 12.7 21.2 15.8 Gross Revenues 12,206 10,944 15,071 37,617 51,124
03/09E 51,124 5,357 10.5 9.4 21.7 19.6 YoY Change (%) 23.3 35.2 23.5 52.2 35.9
03/10E 51,919 7,025 13.7 7.1 23.6 19.3
03/11E 57,672 8,270 16.1 6.1 23.0 20.3
Excluding Advanta & Cerexagri EBITDA 2,461 1,954 3,294 7,367 10,466
• United Phosphorus (UPL) is expected to report 23% YoY growth in Margins (%) 20.2 17.9 21.9 19.6 20.5
consolidated revenue to Rs15b, driven primarily by 15% growth in
Depreciation 28 457 480 1,522 1,769
domestic business and 24% growth in international business. We
estimate moderation in volumes and pricing if the benefits of lower
Interest 743 810 810 1,688 2,854
input costs are passed on. PBT before EO Expense 1,689 687 2,004 4,156 5,843
• EBITDA margin is expected to improve by 170bp to 21.9%, benefiting Extra-Ord Expense 1,144 0 0 1,144 0
from lower raw material cost. However, higher interest cost (due to
forex loss of Rs300m) and higher depreciation (due to write-off in PBT after EO Expense 546 687 2,004 3,013 5,843
4QFY08) coupled with higher tax provisioning would result in PAT Tax -10 54 373 161 584
degrowth of 8% YoY to Rs1.7b. Deferred Tax -18 23 27 263 175
• With decline in agri-commodity prices globally, we expect volumes Rate (%) -5.2 11.1 20.0 14.1 13.0
to moderate from the high levels witnessed in 1HFY09. This coupled
with pass through of the input cost benefit would result in lower Reported PAT 574 611 1,604 2,589 5,084
revenue growth. Income from Associate Co 131 36 102 222 273
• The improvement in financial performance driven by synergies of
integration with Cereagri and deployment of funds in business (as Adjusted PAT 1,849 646 1,706 3,954 5,357
it would impact EPS and return ratios in the interim) would act as YoY Change (%) 38.4 33.1 -7.7 37.1 35.5
catalyst for stock performance. Valuations at 17.5x FY09E EPS (fully Margins (%) 15.1 5.9 11.3 10.5 10.5
diluted) and 7.5x EV/EBITDA do not reflect growth potential (both
organic and inorganic). Maintain Buy. E: MOSt Estimates No. of Equity Shares (m) : 439.3
123
MOSt MUTUAL FUNDS MOSt COMMODITIES
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bonus . . .
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Commodity Futures.
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Precious Metals: Gold, Silver
Agro Products:
Soya Bean, Refined Soya Oil, Mustard Seed,
Expeller Mustard Oil, RBD Palmolein, Crude Palm Oil,
Medium Staple Cotton, Long Staple Cotton, Pepper,
Rubber, Jute, Chana, Guar Seeds, Wheat
Contact : Contact :
Rupesh Nagda : +91 (022) 39825508 Kuljeet Kataria: +91 (022) 30896814
MOTILAL OSWAL
Email : mutual@motilaloswal.com MOTILAL Email
OSWAL: commodities@motilaloswal.com
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Quarter ended March 2009

The reports will be available after a week on our

Institutional: Navin Agarwal • Retail: Manish Shah

Page No. Page 1

MOTILAL OSWAL MOTILAL OSWAL

MOTILAL OSWAL 27 March 2009 6 MOTILAL OSWAL 27 March 2009 7

E : MOSt Estimates No. of Equity Shares (m) : 485.0

MOTILAL OSWAL 27 March 2009 14 MOTILAL OSWAL 27 March 2009 15

E : MOSt Estimates No. of Equity Shares (m) : 357.7

* Adjusted for reclassifcation of mortization on HTM investments as part of other income

MOTILAL OSWAL 27 March 2009 16 MOTILAL OSWAL 27 March 2009 17

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MOTILAL OSWAL 27 March 2009 34 MOTILAL OSWAL 27 March 2009 35

MOTILAL OSWAL 27 March 2009 36 MOTILAL OSWAL 27 March 2009 37

E : MOSt Estimates No. of Equity Shares (m) : 48.5

All quarters have been adjusted for reclassification of amortization on HTM

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YEAR NET SALES PAT EPS P/E ROE ROCE

MOTILAL OSWAL 27 March 2009 64 MOTILAL OSWAL 27 March 2009 65

• We expect Thermax to report consolidated net profit

MOTILAL OSWAL 27 March 2009 78 MOTILAL OSWAL 27 March 2009 79

MOTILAL OSWAL 27 March 2009 82 3MOTILAL OSWAL 27 March 2009 83

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• We estimate 16.8% increase in advertising revenue in the Extraoridnary Item 207

• The company has forayed into the movie business; it also

• The stock trades at 4x FY09E EPS of Rs12 and 5.9x FY10E

Ask him about the fund manager,

Investors looking for a fast-paced dynamic market

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