India Daily, January 23, 2012

Transcription

INDIA DAILY
January 23, 2012
India
19-Jan 1-day1-mo 3-mo
Sensex
16,644
1.2
8.2
(2.6)
5,018
1.3
8.8
(2.3)
Nifty
Contents
Daily Alerts
Results
Global/Regional indices
12,624
0.4
7.3
9.7
Nasdaq Composite
Dow Jones
2,788
0.7
10.5
7.1
FTSE
5,741
0.7
7.0
5.3
Reliance Industries: Buy-back program details a pleasant surprise, results not
so
Nikkie
8,755
1.3
5.0
0.8
0.3 10.6
11.2
ITC: All well, almost
KOSPI
Wipro: Good quarter and outlook
Hindustan Zinc: In-line quarter, no 'silver lining' in production target
Axis Bank: Few concerns addressed; capital constraints may pose an overhang
Hang Seng
20,005
1,935
1.1
7.9
7.2
78
27
Value traded – India
Cash (NSE+BSE)
141
Derivatives (NSE)
1,142
1,366 1,377
Deri. open interest
1,321
1,314 1,335
UltraTech Cement: Cost-pressures likely to outweigh pricing, downgrade to
REDUCE
Asian Paints: Good performance in tough operating conditions
Forex/money market
Change, basis points
JSW Steel: Decent quarter, unsupportive valuations
19-Jan 1-day
Godrej Consumer Products: Good quarter, one more acquisition and a
preferential allotment
Zee Entertainment Enterprises: Improvement in sports business drives
3QFY12 financials
Exide Industries: Pick-up in inverter sales leads sequential improvement
Rs/US$
10yr govt bond, %
1-mo
3-mo
50.3
(5)
(272)
45
8.3
-
(1)
(47)
Net investment (US$mn)
18-Jan
MTD CYTD
FIIs
190
1,044
1,044
MFs
(31)
(143)
(282)
Oberoi Realty: A mixed quarter though investment thesis remains robust
United Spirits: One-offs spoil the picture
JSW Energy: Cost-pressure, under-recoveries continue
Mahindra & Mahindra Financial: Keeping faith, yet again
HT Media: Need for consistent performance
Sobha Developers: Healthy sales with in-line EBITDA and PAT
Jet Airways: Below estimates
Polaris Software Lab: Revenue misses estimate, license revenue booking aids
margins
Hindustan Media Ventures: Earnings follow valuations
Company
Sadbhav Engineering: Strong BOT execution, toll revenues make up for weak
construction momentum
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES.
REFER TO THE END OF THIS MATERIAL.
Top movers -3mo basis
Change, %
Best performers
19-Jan 1-day
1-mo
3-mo
MMTC
IN Equity
866.2
(0.2)
95.8
33.6
RCOM
IN Equity
91.6
3.3
47.4
22.2
TCOM
RELI
TTMT
IN Equity
IN Equity
IN Equity
221.1
2.0
4.7
20.8
485.6
9.7
40.1
19.8
218.5
2.2
24.9
19.3
Worst performers
SUEL
IN Equity
22.7
2.5
28.2
(37.5)
ESOIL
IN Equity
52.1
1.8
11.6
(35.0)
175.4
0.5
28.1
(28.3)
NMDC
IN Equity
UNSP
IN Equity
636.5
(1.8)
5.1
(26.9)
UNBK
IN Equity
188.1
1.2
12.8
(24.8)
BUY
Reliance Industries (RIL)
Energy
JANUARY 20, 2012
RESULT
Coverage view: Attractive
Buy-back program details a pleasant surprise, results not so. RIL reported lower
3QFY12 net income at `44.4 bn (-22.1% qoq and -13.6% yoy) versus our estimate of
`47 bn. The weak results reflect (1) sharp decline in refining margins, (2) lower
production from KG D-6 block and (3) weak performance of the chemical segment.
RIL’s Board has approved a buy-back program of up to 120 mn shares at a price of up
to `870/share. We retain our BUY rating and 12-month SOTP-based target price of
`925/share for RIL.
Company data and valuation summary
Reliance Industries
Stock data
1,066-687
52-week range (Rs) (high,low)
Market Cap. (Rs bn)
2,362.9
Shareholding pattern (%)
Promoters
41.0
FIIs
20.8
MFs
2.8
Price performance (%)
1M
3M
12M
Absolute
11.1
(5.5) (18.3)
Rel. to BSE-30
0.7
(4.4)
(7.0)
Forecasts/Valuations
EPS (Rs)
EPS growth (%)
P/E (X)
Sales (Rs bn)
Net profits (Rs bn)
EBITDA (Rs bn)
EV/EBITDA (X)
ROE (%)
Div. Yield (%)
2011
2012E 2013E
62.0
63.9
67.9
24.8
3.1
6.3
12.8
12.4
11.7
2,481.7 3,710.5 3,702.0
202.9
209.2 222.3
384.8
355.0 348.1
6.9
6.2
5.6
13.0
12.2
11.6
0.9
1.0
1.1
22.1% qoq decline in net income, 26% qoq decline in EBITDA
RIL reported sharply lower net income at `44 bn versus `57 bn in 2QFY12; our estimate was `47
bn. RIL’s 3QFY12 EBITDA declined 26% qoq and 23.7% yoy to `72.9 bn led by (1) lower refining
margins at US$6.8/bbl (–US$3.3/bbl qoq and –US$2.2/bbl yoy), (2) lower production from KG D-6
block and (3) weaker performance of the chemical segment. We note that the operational results
were helped to some extent by a weaker Rupee at `51/US$ versus `45.8/US$ in 2QFY12. A sharp
increase in other income (+56% qoq, +132% yoy) offset weak operating performance.
Price (Rs): 793
Target price (Rs): 925
BSE-30: 16,739
QUICK NUMBERS
• Buy-back program
of 120 mn shares at
a price of up to
`870/share
• US$9/bbl of refining
margins in 9MFY12;
US$6.8/bbl in
3QFY12
• 17% potential
upside from current
levels
Qoq decline in EBIT across all segments
3QFY12 chemical segment EBIT declined 10.9% qoq to `21.6 bn reflecting (1) lower margins and
(2) likely lower polyester sales volumes. RIL‘s refining segment EBIT declined by 45.2% qoq to
`16.9 bn led by sharply lower refining margins at US$6.8/bbl (–US$3.3/bbl qoq). Crude
throughput increased to 17.3 mn tons (+0.2 mn tons qoq). E&P segment EBIT declined 15.5% qoq
to `12.9 bn led by (1) lower production from KG-D6 block and (2) lower share of production post
the completion of RIL-BP transaction. KG D-6 gas production (gross basis) was lower at 40.9
mcm/d in 3QFY12 versus 45.3 mcm/d in 2QFY12 and 54.5 mcm/d in 3QFY11.
Sizable buy-back program will likely provide support to stock price
RIL’s Board approved a buy-back program of up to 120 mn shares at a price of up to `870/share
resulting in a maximum consideration of `104.4 bn. We view this is as a positive step, in that it
shows the management’s intention to return cash to shareholders. The buy-back program will also
provide a floor of `800-825, in our view. The ADVT for RIL stock is 5.2 mn shares.
Retain BUY and TP; cut earnings for FY2012-14E
We retain our BUY rating and 12-month SOTP-based TP of `925. We have cut our FY2012-14E
EPS to `64, `68 and `69 from `70, `76 and `77 previously to reflect (1) 3QFY12 results, (2) lower
margins for refining and petchem segments, (3) lower KG D-6 production and (4) other minor
changes. We note that higher cash balance (lower capex) and use of modestly higher multiples
(lower/mid-cycle margins assumed now) offset the impact of lower EBITDA in our SOTP-based
valuation model.
For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Reliance Industries
Energy
Key highlights of 3QFY12 results
Exhibit 1 compares RIL’s 3QFY12 results with 2QFY12 and 3QFY11 results. We discuss key
highlights of RIL’s 3QFY12 results below; all figures pertain to standalone RIL.
Interim results of Reliance Industries , March fiscal year-ends (` mn)
Net sales
Total expenditure
Inc/(Dec) in stock
Raw materials
Staff cost
Other expenditure
EBITDA
Other income
Interest
Depreciation
Pretax profits
Extraordinaries/sales tax benefit
Tax
Deferred taxation
Net income
Adjusted profits
EPS (Rs)
Income tax rate (%)
Chemicals production
Polymer volumes ('000 tons)
Polyester volumes ('000 tons)
Fiber intermediates ('000 tons)
Refining
Crude throughput (mn tons)
Refining margin (US$/bbl)
Average exchange rate
Upstream production
KG D-6 gas (mcm/d)
MA-1 oil (b/d)
3QFY12
851,350
(778,500)
14,890
(743,020)
(6,720)
(43,650)
72,850
17,170
(6,940)
(25,700)
57,380
—
(11,480)
(1,500)
44,400
44,400
13.6
22.6
3QFY12E
939,468
(858,007)
—
(819,423)
(7,873)
(30,712)
81,461
11,742
(6,372)
(26,250)
60,581
—
(12,131)
(1,500)
46,950
46,950
14.3
22.5
1,145
375
1,200
3QFY11
597,890
(502,440)
5,770
(460,180)
(6,610)
(41,420)
95,450
7,410
(5,490)
(33,590)
63,780
—
(10,420)
(2,000)
51,360
51,360
15.7
19.5
2QFY12
785,690
(687,250)
16,070
(651,750)
(7,150)
(44,420)
98,440
11,020
(6,600)
(29,690)
73,170
—
(14,640)
(1,500)
57,030
57,030
17.4
22.1
1,122
449
1,200
(% chg.)
3QFY12E 3QFY11 2QFY12
(9.4)
42.4
8.4
(9.3)
54.9
13.3
9MFY12
9MFY11 (% chg.)
2,447,210 1,754,960
39.4
(2,176,660) (1,472,130)
47.9
21,980
25,170
(2,044,930) (1,361,980)
50.1
(22,650)
(19,380)
16.9
(131,060)
(115,940)
13.0
270,550
282,830
(4.3)
38,970
21,350
82.5
(18,990)
(16,320)
16.4
(87,340)
(102,210)
(14.5)
203,190
185,650
9.4
—
—
(40,650)
(30,550)
33.1
(4,500)
(6,000)
(25.0)
158,040
149,100
6.0
158,040
149,100
6.0
48.3
45.5
22.2
19.7
(9.3)
(14.6)
42.1
(10.6)
46.2
8.9
(2.1)
(5.3)
61.5
1.7
5.4
(23.7)
131.7
26.4
(23.5)
(10.0)
14.0
(6.0)
(1.7)
(26.0)
55.8
5.2
(13.4)
(21.6)
(5.4)
10.2
(25.0)
(13.6)
(13.6)
(21.6)
—
(22.1)
(22.1)
1,134
414
1,188
2.0
(16.5)
—
1.0
(9.4)
1.0
3,370
1,200
3,600
3,125
1,300
3,400
7.8
(7.7)
5.9
(5.4)
(5.4)
17.3
6.8
51.0
17.0
7.0
51.0
16.1
9.0
44.9
17.1
10.1
45.8
7.5
(24.4)
13.6
1.2
(32.7)
11.4
51.4
9.0
47.2
49.9
8.1
45.7
3.0
11.1
3.2
40.9
14,674
40.5
14,750
54.5
19,400
45.3
16,087
(24.9)
(24.4)
(9.7)
(8.8)
44.9
16,182
57.2
25,644
(21.5)
(36.9)
197,810
767,380
28,320
2,080
995,590
120,790
23,450
851,350
159,620
525,240
41,780
1,800
728,440
104,450
26,100
597,890
210,660
680,960
35,630
5,100
932,350
124,450
22,210
785,690
23.9
46.1
(32.2)
15.6
36.7
15.6
(10.2)
42.4
(6.1)
12.7
(20.5)
(59.2)
6.8
(2.9)
5.6
8.4
592,130
2,185,230
102,890
9,520
2,889,770
370,190
72,370
2,447,210
449,610
1,527,270
131,460
4,420
2,112,760
279,080
78,720
1,754,960
31.7
43.1
(21.7)
115.4
36.8
32.6
(8.1)
39.4
176,240
750,530
15,380
1,990
944,140
135,330
500,880
26,740
1,710
664,660
186,440
650,210
20,320
5,000
861,970
30.2
49.8
(42.5)
16.4
42.0
(5.5)
15.4
(24.3)
(60.2)
9.5
524,200
2,105,650
59,900
9,240
2,698,990
382,820
1,460,640
80,150
4,180
1,927,790
36.9
44.2
(25.3)
121.1
40.0
21,570
16,850
12,940
90
51,450
(6,940)
13,230
(360)
57,380
(11,480)
(1,500)
44,400
24,290
24,360
15,040
90
63,780
(5,490)
6,660
(1,170)
63,780
(10,420)
(2,000)
51,360
24,220
30,750
15,310
100
70,380
(6,600)
9,920
(530)
73,170
(14,640)
(1,500)
57,030
(11.2)
(30.8)
(14.0)
—
(19.3)
26.4
98.6
(69.2)
(10.0)
10.2
(25.0)
(13.6)
(10.9)
(45.2)
(15.5)
(10.0)
(26.9)
5.2
33.4
(32.1)
(21.6)
(21.6)
—
(22.1)
67,930
79,580
42,990
280
190,780
(18,990)
31,260
140
203,190
(40,650)
(4,500)
158,040
66,790
66,630
51,310
240
184,970
(16,320)
18,460
(1,460)
185,650
(30,550)
(6,000)
149,100
1.7
19.4
(16.2)
16.7
3.1
16.4
69.3
(109.6)
9.4
33.1
(25.0)
6.0
FY2012E
3,710,486
(3,359,019)
—
(3,175,748)
(30,178)
(153,093)
351,467
56,914
(26,155)
(112,694)
269,532
—
(56,743)
(3,561)
209,229
209,229
63.9
22.4
67.6
8.8
48.7
Segment results of Reliance Industries
Revenues
Petrochemicals
Refining & marketing
Oil & gas
Others (retail, SEZ, textiles)
Gross turnover
Inter segment
Excise duty
Net sales
Operating costs
Petrochemicals
Oil & gas
Total
EBIT
Petrochemicals
Oil & gas
Total
Interest expense
Interest income
Other unallocable (net)
PBT
Current tax
Deferred tax
PAT
Source: Company, Kotak Institutional Equities estimates
KOTAK INSTITUTIONAL EQUITIES RESEARCH
3
Energy
Reliance Industries
` Financial highlights
EBITDA and net income. RIL’s 3QFY12 EBITDA declined 26% qoq and 23.7% yoy
to `72.9 bn led by (1) lower refining margins, (2) lower production from KG D-6
block and (3) weaker performance of the chemical segment. 3QFY12 net income
declined 22.1% qoq and 13.6% yoy to `44.4 bn.
Other income. Other income increased 55.8% qoq to `17.2 bn reflecting higher
cash balance in 3QFY12. RIL had cash and cash equivalents of `754 bn at endDecember 2011 versus `615 bn at end-September 2011.
Interest expense. 3QFY12 interest expense increased to `6.9 bn compared to `6.6
bn in 2QFY12; gross interest expense including interest capitalized of `1.1 bn was
`8.1 bn. RIL’s implied interest rate was 4.3% in 9MFY12 and 4.3% in FY2011.
Exhibit 2 shows our computation of RIL’s implied borrowing cost over the past few
quarters.
Average borrowing cost of RIL has remained low in recent quarters
Implied average borrowing cost, March fiscal year-ends, 2009-12YTD (` bn)
Interest expense charged to P&L
Interest capitalized
Total interest incurred
Beginning debt
Closing debt
Average debt
Implied average borrowing cost (%)
9MFY12 3QFY12 2QFY12 1QFY12 FY2011 4QFY11 3QFY11 2QFY11 1QFY11 FY2010
19.0
6.9
6.6
5.5
23.3
7.0
5.5
5.4
5.4
20.0
3.9
1.1
1.4
1.4
4.7
1.2
1.3
1.3
1.0
9.8
22.9
8.1
8.0
6.8
28.0
8.2
6.8
6.7
6.4
29.8
674
714
670
674
625
702
682
734
625
739
745
745
714
670
674
674
702
682
734
625
710
730
692
672
649
688
692
708
680
682
4.3
4.4
4.6
4.0
4.3
4.7
3.9
3.8
3.8
4.4
FY2009
17.5
34.0
51.4
493
739
616
8.3
Source: Company, Kotak Institutional Equities
DD&A charges. 3QFY12 DD&A declined 13.4% qoq and 23.5% yoy to `25.7 bn
reflecting (1) the first full-quarter impact on depreciation from reduction in gross
block by the amount received from BP and (2) lower depletion due to lower
production from KG D-6 block. RIL has not provided breakdown of depreciation and
depletion separately.
Taxation. RIL’s 3QFY12 effective tax rate was 22.6% compared to 22.1% in
2QFY12 and 19.5% in 3QFY11. We note that RIL continues to provide for tax at the
MAT rate of 20% for gas produced from its KG D-6 block.
Net debt. RIL’s end-3QFY12 net debt stood at –`0.4 bn against `99 bn at end2QFY12 reflecting `72 bn of gross cash flow generation (net profit + DDA +
deferred taxation) and receipt of `147 bn of cash received from BP in October 2011.
Net capex (adjusted for foreign currency gains or losses on foreign currency loans)
was `58 bn in the quarter. We note that net capex includes (1) actual cash capex
(not disclosed for 3QFY12) and (2) increase in gross block due to capitalization of
increase in foreign currency loans due to depreciation in the value of the Indian
Rupee against the US Dollar. The company has disclosed cash capex of `48.4 bn for
9MFY12, significantly lower than reported net capex of `124.6 bn. However, we
would note that the net debt figure would capture the movement in foreign
currency loans also due to movement in currencies of foreign currency loans relative
to the reporting currency. Exhibit 3 gives details of movement in net debt over the
past few quarters and years.
4
Reliance Industries
Energy
Movement in net debt position of Reliance Industries is difficult to reconcile due to limited information
Computed net debt, March fiscal year-ends, 2009-12YTD (` bn)
Beginning net debt as disclosed by the company (A)
Cash infusion from issue of share capital / warrants
Cash profit for the given period as reported by the company
Capex during the given period
Cash received from BP
Cash flow for the given period (B)
Computed ending net debt (A) - (B)
Ending net debt as disclosed by the company
Difference in net debt
3QFY12 2QFY12 1QFY12 FY2011 4QFY11 3QFY11 2QFY11 1QFY11 FY2010 FY2009
99
213
250
406
384
388
470
406
517
450
—
—
—
—
—
—
—
—
—
152
72
88
90
345
88
87
85
85
279
224
(58)
(55)
(12)
(61)
(20)
(8)
3
(36)
(93)
(247)
147
85
—
90
90
—
—
—
—
—
161
118
78
375
158
79
88
49
186
128
(62)
94
172
32
225
310
382
357
331
322
(0)
99
213
250
250
384
388
470
406
517
61
5
41
218
25
74
7
113
75
195
Notes:
(a) Definition of capex is net of forex-related movement and payment of cash to creditors.
(b) We attribute the difference in net debt to working capital movements.
` Chemical segment highlights. 3QFY12 EBIT declined 10.9% qoq and 11.2% yoy to
`21.6 bn. The qoq decline in performance reflects (1) lower petrochemical margins and (2)
likely lower polyester sales (production volumes declined to 375,000 tons versus 414,000
tons in 2QFY12). The performance of the chemical segment was boosted to some extent
by a weaker Rupee at `51/US$ versus `45.8/US$ in 2QFY12. Exhibit 4 gives historical
quarterly prices and margins since FY2011. RIL’s 3QFY12 polymer production volumes
increased 1% qoq and 2% yoy to 1.1 mn tons. Polyester volumes declined 9.4% qoq and
16.5% yoy to 375,000 tons. As per the company, domestic polymer demand increased
4% in 9MFY12 but polyester demand declined 2% yoy.
Domestic petchem prices and margins were helped by weaker Rupee qoq
Asia and domestic petchem margins and prices, March fiscal year-ends, 2011-12YTD
1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12
Global margins (US$/ton)
HDPE – naphtha
LLDPE – naphtha
PP – naphtha
PVC – naphtha
PSF – naphtha
PFY – naphtha
PX – naphtha
Domestic margins (Rs/ton)
HDPE – naphtha
LLDPE – naphtha
PP – naphtha
PVC – naphtha
PSF – naphtha
PFY – naphtha
Global prices (US$/ton)
HDPE
LLDPE
PP
PVC
PSF
PFY
PX
Domestic prices (Rs/ton)
HDPE
LLDPE
PP
PVC
PSF
PFY
yoy
(% chg)
qoq
(% chg)
507
564
573
281
777
1,063
261
441
469
552
269
769
1,090
248
439
530
583
206
992
1,344
451
403
485
634
144
1,256
1,432
708
370
345
610
213
1,134
1,215
534
422
365
572
138
832
1,127
617
386
298
485
17
806
1,114
568
(12.1)
(43.7)
(16.8)
(91.9)
(18.7)
(17.1)
26.1
(8.6)
(18.2)
(15.2)
(87.9)
(3.1)
(1.1)
(7.9)
36,363
36,363
35,037
15,603
33,853
36,003
34,510
34,510
36,850
16,417
33,333
34,163
33,737
33,737
36,443
13,643
41,060
40,063
28,320
28,320
35,927
7,560
57,810
51,157
26,172
26,172
37,445
10,245
53,995
44,702
27,813
27,813
33,487
8,887
44,970
40,860
30,112
30,112
33,818
3,285
46,868
40,935
(10.7)
(10.7)
(7.2)
(75.9)
14.1
2.2
8.3
8.3
1.0
(63.0)
4.2
0.2
1,213
1,271
1,280
988
1,483
1,770
968
1,107
1,135
1,219
935
1,435
1,757
914
1,242
1,333
1,386
1,009
1,795
2,147
1,254
1,321
1,403
1,551
1,062
2,173
2,350
1,626
1,356
1,331
1,596
1,199
2,120
2,202
1,520
1,372
1,315
1,522
1,088
1,782
2,077
1,567
1,273
1,186
1,372
904
1,693
2,002
1,456
2.5
(11.0)
(1.0)
(10.4)
(5.7)
(6.8)
16.1
(7.2)
(9.8)
(9.9)
(16.9)
(5.0)
(3.6)
(7.1)
74,093
74,093
72,767
53,333
71,583
73,733
70,093
70,093
72,433
52,000
68,917
69,747
73,427 74,260 76,593
73,427 74,260 76,593
76,133 81,867 87,867
53,333 53,500 60,667
80,750 103,750 104,417
79,753 97,097 95,123
76,260
76,260
81,933
57,333
93,417
89,307
80,327
80,327
84,033
53,500
97,083
91,150
9.4
9.4
10.4
0.3
20.2
14.3
5.3
5.3
2.6
(6.7)
3.9
2.1
5
Energy
Reliance Industries
` Refining segment highlights. 3QFY12 refining segment EBIT declined 45.2% qoq to
`16.9 bn due to sharply lower refining margins at US$6.8/bbl (–US$3.3/bbl qoq). Crude
throughput increased to 17.3 mn tons in 3QFY12 versus 17.1 mn tons in 2QFY12 and
16.1 mn tons in 3QFY11. We highlight that RIL’s refining margins were at a discount of
US$1.1/bbl to Singapore benchmark margins versus a premium of US$1/bbl in the
previous quarter. Exhibit 5 compares refining margin over the past several quarters with
global benchmarks.
Premium of RIL's refining margins over Singapore benchmark margins has declined in the recent quarters
Global refining margins, March fiscal year-ends, 2009-12YTD (US$/bbl)
1Q
Singapore (Dubai)
8.1
US Gulf Coast (WTI)
7.2
Rotterdam (Dated Brent)
9.5
Reliance Industries
15.7
Premium over Singapore (Dubai)
7.6
Premium over US Gulf Coast (WTI)
8.5
Premium over Rotterdam (Dated Brent) 6.2
2009
2Q
3Q
5.8
3.6
10.5
2.7
10.4
9.0
13.4 10.0
7.6
6.4
2.9
7.3
3.0
1.0
4Q
4.5
6.0
4.0
9.9
5.4
3.9
5.9
1Q
4.1
4.9
3.2
7.5
3.4
2.6
4.3
2010
2Q
3Q
3.1
1.9
3.6
1.3
3.1
2.7
6.0
5.9
2.9
4.0
2.4
4.6
2.9
3.2
4Q
4.9
3.0
3.4
7.5
2.6
4.5
4.1
1Q
3.7
5.5
3.7
7.3
3.6
1.8
3.6
2011
2Q
3Q
4.2
5.5
3.6
4.4
2.8
1.2
7.9
9.0
3.7
3.5
4.3
4.6
5.1
7.8
4Q
7.4
12.1
2.4
9.2
1.8
(2.9)
6.8
2012
1Q
2Q
8.6
9.1
17.1
26.3
3.4
3.5
10.3
10.1
1.7
1.0
(6.8) (16.2)
6.9
6.6
3Q
7.9
16.3
3.7
6.8
(1.1)
(9.5)
3.1
` E&P segment highlights. 3QFY12 E&P segment EBIT declined 15.5% qoq to `12.9 bn
led by (1) lower oil and gas production from KG-D6 block and (2) lower share of
production post the closure of RIL-BP transaction on August 30, 2011. MA-1 oil and
condensate production (gross basis) declined 8.8% qoq and 24.4% yoy to 14,674 b/d in
3QFY12. KG D-6 gas production (gross basis) was 40.9 mcm/d in 3QFY12 versus 45.3
mcm/d in 2QFY12 and 54.5 mcm/d in 3QFY11.
Earnings revisions and key assumptions behind earnings model
We have cut our FY2012-14E EPS to `64, `68 and `69 from `70, `76 and `77 previously to
reflect (1) 3QFY12 results, (2) lower margins for refining and petchem segments, (3) lower
KG D-6 production and (4) other minor changes. We discuss our key assumptions and
revisions to our earnings model below.
` Refining margins. We model RIL’s FY2012E, FY2013E and FY2014E refining margins at
US$8.8/bbl, US$9.2/bbl and US$9.7/bbl versus US$9/bbl in 9MFY12 and US$8.4/bbl in
FY2011. We expect underlying refining margins to improve modestly over the next two
years despite likely weakness in global oil demand given lower net refining capacity
additions over CY2012-13E. We see lower net refining capacity additions in CY2012-13E
led by permanent shutdown of 1.75 mn b/d of refining capacity announced over the past
four months (see Exhibit 6). We note that 1.1 mn b/d of net additions to refining capacity
(see Exhibit 7) and 0.9 mn b/d of additional NGL supply (see Exhibit 8) in CY2012-13E will
fall short of 2.3 mn b/d of incremental global oil demand; also, NGLs cannot directly
substitute transportation fuels. We believe potential slowdown in global oil demand will
be offset by closure of more inefficient refineries. Exhibit 9 gives our key assumptions for
RIL’s refining division.
6
Reliance Industries
Energy
Large refining capacity shutdown due to weak operating environment
Refining capacity shutdown announced since September 2011 (b/d)
Company
Hovensa
Sunoco
ConocoPhillips
Sunoco
Petroplus
Royal Dutch Shell
LyondellBasell Industries
Royal Dutch Shell
Petroplus
Petroplus
Paramo
Total capacity closure
Location
St Croix
Philadelphia
Trainer
Marcus Hook
Petit Couronne
Hamburg
Berre L'Etang
Clyde
Cressier
Antwerp
Pardubice
Country
US Virgin Islands
United States
United States
United States
France
Germany
France
Australia
Switzerland
Belgium
Czech Republic
Capacity
(b/d)
500,000
335,000
185,000
175,000
154,000
107,000
105,000
85,000
68,000
21,000
20,000
1,755,000
Shutdown
from
Feb-2012
Jul-2012
Sep-2011
Dec-2011
Jan-2012
2QCY12
Jan-2012
Mid-2013
Jan-2012
Jan-2012
Dec-2011
Source: Industry Journals, Kotak Institutional Equities
We see lower ‘net’ capacity additions in CY2012E due to recent shutdowns
World refinery capacity additions (net), calendar year-ends, 2007-13E ('000 b/d)
OECD North America
OECD Europe
OECD Pacific
FSU
Non-OECD Europe
China
Other Asia
Latin America
Middle East
Africa
Total World
2007
240
—
—
—
—
—
315
—
77
—
632
2008
—
30
—
84
—
206
65
—
226
6
616
2009
(124)
(270)
(57)
—
—
446
790
(235)
179
6
735
2010
(211)
(121)
(17)
140
(70)
560
229
50
70
—
630
2011
164
(89)
—
—
—
266
140
85
95
60
721
2012E
(142)
(335)
(20)
203
—
310
440
(350)
70
30
206
2013E
—
—
(85)
39
—
440
40
393
—
20
847
Source: OGJ, Downstream, Kotak Institutional Equities estimates
7
Energy
Reliance Industries
We see risks to global oil demand growth given uncertain macro-environment
Estimated global crude demand, supply and prices, calendar year-ends, 2005-15E
Demand (mn b/d)
Total demand
Yoy growth
Supply (mn b/d)
Non-OPEC
Yoy growth
OPEC
Crude
NGLs
Total OPEC
Total supply
Total stock change
OPEC crude capacity
Implied OPEC spare capacity
Demand growth (yoy, %)
Supply growth (yoy, %)
Non-OPEC
OPEC
Total
Dated Brent (US$/bbl)
World GDP growth (%)
2005
2006
2007
2008
2009
2010
2011 2012E 2013E 2014E 2015E
84.6
2.1
85.6
1.0
87.1
1.5
86.5
(0.6)
85.6
(0.9)
88.3
2.7
89.0
0.7
90.0
1.0
91.2
1.2
92.5
1.2
93.6
1.1
50.0
1.2
50.4
0.4
50.7
0.4
50.6
(0.1)
51.6
1.0
52.6
1.1
52.7
0.0
53.7
1.0
54.0
0.3
54.4
0.4
55.6
1.1
30.6
4.2
34.8
84.8
0.2
30.9
4.3
35.2
85.6
(0.0)
30.7
4.3
35.0
85.8
(1.3)
34.4
2.4
31.6
4.5
36.2
86.8
0.2
34.2
2.7
29.2
4.9
34.1
85.6
0.1
34.9
5.8
29.5
5.4
34.8
87.5
(0.8)
35.7
5.5
30.5
5.8
36.3
89.0
30.0
6.4
36.3
90.0
30.6
6.7
37.3
91.2
31.2
6.9
38.0
92.5
30.8
7.2
38.1
93.6
34.7
4.2
35.5
5.5
36.4
5.8
37.0
5.9
37.8
7.0
2.5
1.2
1.8
(0.7)
(1.0)
3.2
0.8
1.2
1.4
1.3
1.2
2.4
3.3
1.7
0.8
1.0
0.9
0.7
(0.5)
0.2
(0.3)
3.3
1.2
1.9
(5.8)
(1.3)
2.1
2.2
2.1
0.1
4.2
1.7
1.9
0.1
1.2
0.6
2.6
1.4
0.8
2.1
1.3
2.1
0.0
1.2
54.4
4.6
65.8
5.2
79.7 111.1 107.0 101.3
5.0
3.9
3.9
4.4
92.5
4.6
90.0
4.7
72.7 102.0
5.3
2.8
62.1
(0.7)
Source: IEA, Kotak Institutional Equities estimates
Major assumptions of refinery division, March fiscal year-ends, 2007-14E (US$/bbl)
RIL refinery
Rupee-dollar exchange rate
Import tariff on crude (%)
Refinery yield (per bbl of crude throughput)
Cost of inputs (per bbl of crude throughput)
Net refining margin
Fuel and loss-own fuel used (%)
Fuel & loss equivalent-gas used (%)
SEZ refinery
Import tariff on crude (%)
Refinery yield (per bbl of crude throughput)
Cost of inputs (per bbl of crude throughput)
Net refining margin
Fuel and loss-own fuel used (%)
Fuel & loss equivalent-gas used (%)
Blended refining margin (US$/bbl)
Total crude throughput (mn tons)
2007
2008
2009
2010
2011 2012E 2013E 2014E
45.3
5.1
75.2
63.5
11.7
31.8
8.0
40.3
2.4
98.1
83.1
15.0
31.8
8.0
45.8
1.3
104.8
92.6
12.2
32.0
8.0
47.4
1.1
83.1
76.3
6.8
32.0
6.0
2.0
45.6
5.4
96.5
88.6
7.8
33.3
6.0
2.0
48.7
1.7
128.7
120.8
7.8
34.3
6.0
2.0
52.5
0.5
118.4
110.2
8.2
34.0
6.0
2.0
51.0
0.5
113.1
104.5
8.6
34.0
6.0
2.0
—
70.5
64.2
6.3
28.9
6.5
2.0
6.6
60.9
0.6
91.5
82.6
9.0
33.3
6.5
2.0
8.4
66.6
0.7
127.7
117.9
9.8
33.3
6.5
2.0
8.8
67.6
0.5
118.5
108.2
10.2
34.0
6.5
2.0
9.2
68.0
0.5
113.3
102.5
10.8
34.0
6.5
2.0
9.7
68.0
`
`
`
8
Reliance Industries
Energy
` Chemical margins. Exhibit 10 shows our major assumptions for RIL’s chemical segment.
Exhibit 11 shows that global capacity utilization for major polymers will likely increase
over the next few years with incremental supply moderating after a period of frenetic
capacity additions (CY2008-11).
Key chemical prices and margins assumptions, March fiscal year-ends, 2007-14E
Chemical prices
LDPE
LLDPE
HDPE
Polypropylene
PVC
PFY
PSF
Paraxylene
Chemical margins
LLDPE—naphtha
HDPE—naphtha
PP—naphtha
PVC—1.025 x (0.235 x ethylene + 0.864 x EDC)
POY—naphtha
PSF—naphtha
PX—naphtha
POY—0.85 x PTA—0.34 x MEG
PSF—0.85 x PTA—0.34 x MEG
PTA—0.67 x PX
2007
2008
2009
2010
2011
2012E
2013E
2014E
1,360
1,350
1,340
1,350
890
1,400
1,360
1,225
1,600
1,575
1,500
1,470
1,100
1,550
1,475
1,200
1,400
1,330
1,275
1,300
925
1,485
1,320
1,085
1,500
1,400
1,375
1,360
1,000
1,380
1,310
1,050
1,555
1,455
1,415
1,525
1,075
1,640
1,660
1,125
1,650
1,475
1,525
1,625
1,100
1,775
1,910
1,550
1,450
1,325
1,375
1,475
1,025
1,750
1,780
1,440
1,460
1,335
1,385
1,460
1,010
1,735
1,765
1,350
820
810
820
247
870
830
695
329
289
89
850
775
745
396
825
750
475
364
289
121
655
600
625
401
810
645
410
496
331
133
770
745
730
389
750
680
420
341
271
217
725
685
795
367
910
930
395
437
457
281
540
590
690
383
840
975
615
334
469
187
460
510
610
343
885
915
575
424
454
155
510
560
635
355
910
940
525
427
457
201
Global operating rates for key chemical products remain well below their historical levels
World demand and capacity (mn tons), operating rate (%), 1996-2014E
Polyethylene
Ethylene
(mn tons)
180
Demand [LHS]
Capacity [LHS]
(%)
95
Operating rate [RHS]
150
92
(mn tons)
120
Demand [LHS]
Capacity [LHS]
(%)
90
100
88
80
120
86
89
60
90
86
84
60
40
83
PVC
(mn tons)
60
Demand [LHS]
2014E
2013E
2011
2012E
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
80
2014E
2013E
2011
2012E
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1996
80
-
82
20
1997
30
Polypropylene
Capacity [LHS]
(%)
95
50
90
40
85
30
80
(mn tons)
80
Demand [LHS]
Capacity [LHS]
(%)
95
70
60
20
75
10
70
90
50
40
85
30
20
2014E
2013E
2012E
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
75
1997
2014E
2013E
2012E
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
65
1996
-
80
10
Source: CMAI, Kotak Institutional Equities estimates
9
Energy
Reliance Industries
` E&P volume assumptions. We model FY2012E, FY2013E and FY2014E gas production
from KG D-6 block at 43 mcm/d, 38 mcm/d and 38 mcm/d. We do not rule out downside
risks to our gas volumes estimates for FY2013E and FY2014E given the recent decline in
gas production to ~38 mcm/d. We estimate oil production from RIL’s MA-1 fields at
15,600 b/d in FY2012E, 14,000 b/d in FY2013E and 14,000 b/d in FY2014E versus
16,182 b/d in 9MFY12.
` Other income. We model RIL’s other income to likely grow strongly over the next few
years driven by its increasing cash pile. We expect RIL to generate `787 bn of gross cash
flow and `867 bn of free cash flow in FY2012-14E. The quantum of other income will
depend on (1) RIL’s dividend policy; RIL has followed a conservative dividend pay-out
policy historically, (2) amount returned to the shareholders in the proposed buy-back
program, (3) acquisitions and (4) capex, which would depend on new E&P discoveries and
kick-start of new petrochemical projects.
` Taxation. We assume effective tax rate at 22.4%, 22.8% and 23.1% for FY2012E,
FY2013E and FY2014E versus 22.2% in 9MFY12 and 19.6% in FY2011. We assume that
RIL will continue to avail of income tax exemption on gas production from KG D-6 block
and prepare our forecasts accordingly. However, in case the income tax exemption is not
available, we compute RIL’s FY2012E and FY2013E EPS to drop by 4.4% and 3.2% to
`61 and `66.
` Exchange rate. We assume Rupee-Dollar exchange rate for FY2012E, FY2013E and
FY2014E at `48.7/US$, `52.5/US$ and `51/US$.
Exhibit 12 gives sensitivity of RIL’s earnings to various key variables.
Reliance's earnings have high leverage to refining margins
Sensitivity of RIL's earnings to key variables
Fiscal 2012E
Downside Base case
Net profits (Rs mn)
EPS (Rs)
% upside/(downside)
47.7
201,979
61.7
(3.5)
Chemical prices
Change in prices (%)
Net profits (Rs mn)
EPS (Rs)
% upside/(downside)
(5.0)
203,220
62.1
(2.9)
209,229
63.9
Blended refining margins (US$/bbl)
Margins (US$/bbl)
7.8
Net profits (Rs mn)
189,181
EPS (Rs)
57.8
% upside/(downside)
(9.6)
8.8
209,229
63.9
48.7
209,229
63.9
Upside
Fiscal 2013E
Downside Base case
49.7
216,478
66.1
3.5
51.5
216,177
66.0
(2.8)
5.0
215,237
65.8
2.9
(5.0)
216,568
66.2
(2.6)
9.8
229,233
70.0
9.6
8.2
200,705
61.3
(9.7)
52.5
222,337
67.9
222,337
67.9
9.2
222,337
67.9
Upside
Fiscal 2014E
Downside Base case
53.5
228,503
69.8
2.8
50.0
220,141
67.3
(3.2)
5.0
228,106
69.7
2.6
(5.0)
221,140
67.6
(2.8)
10.2
243,956
74.5
9.7
8.7
206,371
63.0
(9.3)
51.0
227,445
69.5
227,445
69.5
9.7
227,445
69.5
Upside
52.0
234,764
71.7
3.2
5.0
233,749
71.4
2.8
10.7
248,493
75.9
9.3
Source: Kotak Institutional Equities estimates
10
Reliance Industries
Energy
Valuation—12-month target price at `925
Exhibit 13 presents our SOTP-based fair valuation based on FY2013E estimates. We discuss
the valuation for each segment in detail below.
SOTP valuation of Reliance is `925 per share on FY2013E estimates
Sum-of-the-parts valuation of Reliance Industries, FY2013E basis (`)
Chemicals
Refining & Marketing
Oil and gas—producing (PMT and Yemen)
Gas—producing and developing (DCF-based) (a)
KG D-6
NEC-25
Oil—KG-DWN-98/3 (b)
Investments other than valued separately
Retailing
Capital WIP (book value)
Total enterprise value
Net debt
Implied equity value
Valuation base (Rs bn)
Other
EBITDA
99
168
29
392
346
46
28
289
52
68
Multiple (X)
Multiple
EV/EBITDA
6.0
5.5
4.0
80%
100%
EV
(Rs bn)
593
924
114
392
346
46
28
289
42
68
2,449
(308)
2,757
Valuation
(Rs/share)
199
310
38
131
116
15
9
97
14
23
821
(103)
925
Notes:
(a) We value KG D-6 and NEC-25 blocks on DCF.
(b) 90 mn bbls of recoverable reserves based on gross OOIP of 0.35 bn bbls.
(c) Capital WIP includes capex on new petrochemical units.
(d) We use 2.981 bn shares (excluding treasury shares) for per share computations.
` Refining segment. We value RIL’s refining segment at `310/share based on 5.5X
FY2013E EBITDA (previously 5X EBITDA). The higher multiple reflects our downward
revision to refining margin assumptions. We typically use 6-6.5X EV/EBITDA for mid-cycle
margins. We estimate refining segment EBITDA of `168 bn in FY2013E based on refining
margins of US$9.2/bbl. We expect refining margins to improve from 3QFY12 levels given
improvement in global benchmark refining margins led by capacity shutdowns of 1.75
mn b/d over the past four months; more will likely follow.
` Petrochemical segment. We value RIL’s petrochemical segment at `199/share based on
6X FY2013E EBITDA (previously 5X EBITDA). We have cut chemical margins significantly
and our margin assumptions are well below mid-cycle levels. We estimate petrochemical
segment EBITDA of `99 bn in FY2013E (`110 bn in FY2012E and `108 bn in FY2011)
based on lower petchem margins versus FY2012E levels.
` Upstream segment. We value RIL’s upstream segment at `179/share based on DCF for
the key blocks. We note that KG D-6 block contributes `116/share based on 11.8 tcf of
gross recoverable reserves and NEC-25 block contributes `15/share based on 1.9 tcf of
gross recoverable reserves. We do not ascribe any value to other discovered blocks such
as GS-01, KG D-3 and KG D-9.
` Investments, loans and advances and other businesses. We value retail business at
`14/share based on 0.8X book value. Other investments and capital WIP contribute
`120/share at 1X book value. We do not ascribe any value to loans and advances (unlike
previously) noting the nebulous nature of such loans and advances and weak disclosures
on the same.
11
Energy
Reliance Industries
RIL: Profit model, balance sheet, cash model, March fiscal year-ends, 2007-14E (` mn)
2007
2008
2009
2010
2011
2012E
2013E
2014E
Profit model (Rs mn)
Net sales
EBITDA
Other income
Interest
Depreciation & depletion
Pretax profits
Extraordinary items
Tax
Deferred taxation
Net profits
Adjusted net profits
Earnings per share (Rs)
1,114,927 1,334,430 1,418,475 1,924,610 2,481,700 3,710,486 3,701,956 3,467,478
198,462
233,056
233,139
305,807
381,257
351,467
344,483
350,704
4,783
8,953
20,599
24,605
30,517
56,914
75,493
65,225
(11,889)
(10,774)
(17,452)
(19,972)
(23,276)
(26,155)
(29,925)
(13,786)
(48,152)
(48,471)
(51,953) (104,965) (136,076) (112,694) (102,193) (106,396)
143,205
182,764
184,332
205,474
252,422
269,532
287,857
295,747
2,000
47,335
—
—
—
—
—
—
(16,574)
(26,520)
(12,634)
(31,118)
(43,204)
(56,743)
(59,167)
(62,315)
(9,196)
(8,999)
(18,605)
(12,000)
(6,355)
(3,561)
(6,353)
(5,987)
119,434
194,580
153,093
162,357
202,863
209,229
222,337
227,445
117,789
152,605
153,093
162,357
202,863
209,229
222,337
227,445
40.5
52.5
50.6
49.6
62.0
63.9
67.9
69.5
Balance sheet (Rs mn)
Total equity
Deferred taxation liability
Minority interest
Total borrowings
Currrent liabilities
Total liabilities and equity
Cash
Current assets
Total fixed assets
Investments
Deferred expenditure
Total assets
673,037
847,853 1,263,730 1,371,706 1,515,403 1,693,447 1,881,133 2,070,463
69,820
78,725
97,263
109,263
115,618
119,179
125,532
131,519
33,622
33,622
—
—
—
—
—
—
332,927
493,072
739,045
624,947
673,967
736,507
505,741
116,675
192,305
251,427
357,019
404,148
542,206
607,621
610,959
571,570
1,301,712 1,704,700 2,457,057 2,510,064 2,847,194 3,156,753 3,123,365 2,890,226
18,449
42,823
221,765
134,627
271,349
812,718
813,743
641,648
286,566
402,720
325,357
489,165
644,070
705,455
704,487
667,718
899,403 1,081,638 1,693,869 1,653,987 1,555,260 1,262,065 1,228,619 1,204,344
97,294
177,519
216,065
232,286
376,515
376,515
376,515
376,515
—
—
—
—
—
—
—
—
1,301,712 1,704,700 2,457,057 2,510,064 2,847,194 3,156,753 3,123,365 2,890,226
Free cash flow (Rs mn)
Operating cash flow, excl. working capital
Working capital
Capital expenditure
Investments
Other income
Free cash flow
Ratios (%)
Debt/equity
Net debt/equity
RoAE
RoACE
Adjusted ROACE
164,285
(13,075)
(247,274)
(105,760)
4,143
(197,681)
180,718
(31,071)
(239,691)
(78,953)
6,132
(162,865)
174,508
(37,983)
(247,128)
(10,392)
16,195
(104,800)
222,605
(53,015)
(219,427)
14,206
22,043
(13,587)
304,310
695
(123,661)
(195,439)
23,316
9,220
263,475
94,070
(60,025)
—
56,914
354,434
252,413
4,306
(70,391)
—
75,493
261,821
271,585
(2,620)
(83,646)
—
65,225
250,544
44.8
42.3
20.3
13.9
18.8
53.2
48.6
18.9
12.7
21.7
54.3
38.0
13.6
10.0
17.3
42.2
33.1
11.8
8.6
12.3
41.3
24.7
13.1
10.1
12.5
40.6
(4.2)
12.1
9.4
13.6
25.2
(15.3)
11.6
9.7
16.3
5.3
(23.8)
10.8
9.8
16.8
12
ADD
ITC (ITC)
Consumer products
JANUARY 20, 2012
RESULT
All well, almost. 3QFY12—while cigarette volume growth at ~5% was marginally
below estimates of 7%, all other parameters surprised positively (highest ever cigarettes
margin at 31.7%, better-than-expected FMCG losses). Cigarette margin expansion is an
outcome of phased price increases—prior to central budget—it is possibly creating
‘buffers’, in our view. Retain ADD; event risk of penal taxation in budget remains.
ITC
Stock data
216-148
Market Cap. (Rs bn)
1,606.8
Promoters
0.0
FIIs
15.6
MFs
3.0
1M
3M
12M
Absolute
4.9
2.0
22.9
Rel. to BSE-30
(3.1)
4.7
40.2
EPS (Rs)
EPS growth (%)
P/E (X)
Sales (Rs bn)
Net profits (Rs bn)
EBITDA (Rs bn)
EV/EBITDA (X)
ROE (%)
Div. Yield (%)
2012
7.9
22.5
26.6
249.4
60.3
90.7
17.1
34.9
1.8
2013E
9.0
14.1
23.4
288.1
68.8
104.3
14.8
34.3
2.2
Price (Rs): 209
BSE-30: 16,644
2014E
10.5
17.6
19.8
330.3
80.9
121.4
12.4
33.6
1.5
3QFY12 – cigarette volume growth disappointed, better-than-expected cigarette margins and
other FMCG loss
ITC reported net sales of Rs62 bn (+14%, KIE Rs63.4 bn), EBITDA of Rs23.3 bn (+18%, KIE Rs23.6
bn) and PAT of Rs17 bn (+22%, KIE Rs17 bn).
` Cigarette sales growth of 11% (KIE est 14%) was driven by volume growth of ~5% (Exhibit 1).
While volume growth was below expectations, it is on the back of ~9% volume growth in
2QFY12 and a high base (3QFY11 was the best quarter in FY2011). The industry (including ITC)
likely had higher primary sales in 2QFY12 due to implementation of new pictoral warnings in
December 2011 (the pictures are relatively more impactful) in our view.
` Other FMCG sales grew by 25% yoy driven by packaged food, personal care and stationary.
Hotels business witnessed muted sales growth of 3% due to the overall slowdown in the macro
economic environment. Agri sales increased by 10% driven by higher tobacco leaf and wheat
sales and paperboard sales increased by 12%.
` Cigarette margins improved 247 bps to 31.7% likely on account of mix improvement and
benefit of price hikes taken, so far. In our view, the company has taken price hike of ~10% in
Classic, ~15% in Wills and ~15% in Gold Flake Kings (GFK) in anticipation of an excise hike in
the Budget. The benefit of the price hikes in terms of higher margins will likely remain in
4QFY12E as well. Other FMCG loss was significantly lower than expectations at Rs466 mn - mix
improvement in favor of value added products in the food segment and phasing benefit of
certain costs (likely launch expense of skin care, men’s grooming, talcum powder) would have
likely aided this.
` Other income increased +40% likely on account of higher yields.
Consumer products
ITC
Retain ADD
We retain earnings estimates (EPS of Rs8.0 and Rs9.1 for FY2012E and FY2013E,
respectively); maintain ADD rating and TP of Rs230. Our underlying themes on ITC are intact,
(1) strong EPS CAGR of ~18% over FY2011-13E, (2) likely improvement in RoCE and (3)
potential for higher dividend payout. Key risks are (1) unexpected higher losses in other
FMCG, (2) any unprecedented increase in overall taxation impact.
What to look out for?
` It is that time of the year. With less than two months to the central budget, there is
strong apprehension regarding significant excise hike in cigarettes. While we share the
same concern, we are not overtly worried on its impact on ITC as it has already started
taking calibrated price hikes across brands. In our view, with the price increases taken in
Classic, Wills, GFK and in regular size filter segment (RSFT), ITC has likely created buffers
for a potential ~10% excise increase. Considering the addictive nature of cigarettes and
the associated consumer behavior, predictability in taxation (and hence calibrated price
increases) is the key for industry volumes. In our view, the unpredictability with respect to
excise rate regime in case of ITC is similar to the raw material price fluctuation concern in
case of other consumer companies.
` Impact of pictoral warnings. We await the impact of the new pictoral warnings issued
in December 2011. These are relatively more meaningful than the older ones – this is
directionally negative for ITC as it shows intent of the government to make the warnings
more impactful. However the warnings continue to be subtle than the ones present
internationally.
` Trend in other FMCG losses. The company is targeting to achieve breakeven in the
other FMCG business by end of FY2013E. In that context, trend in losses over the next
few quarters will be key.
` New brand launches in cigarettes. Over the last quarter, the company has launched
three new brands - Players, Classic Citric Twist and Hero. Players has been launched at
Rs50 for a pack of 10 likely to plug the gap between Wills (Rs44 for a pack of 10) and
GFK (Rs55 for a pack of 10). In our view, there have not been any major brand launches
in cigarettes in the past and this brand is likely a ‘make-shift arrangement’ to plug in price
gaps as the company has taken price hikes in its existing brands. Classic Citric Twist is a
KSFT brand launched on the lines of Menthol Rush. It was introduced for a short period
and then withdrawn. While the initial traction was muted, demand surged after the
brand was withdrawn. The brand is likely to be re-launched soon, in our view.
Volume and mix growth of 5%
Cigarette segment performance
Gross sales (Rs mn)
Excise (Rs mn)
Net sales (Rs mn)
Segment expenses (Rs mn)
Segment PBIT (Rs mn)
PBIT margin (%)
On gross sales
On net sales
3QFY12
58,097
25,769
32,328
13,886
18,442
3QFY11
52,363
24,637
27,726
12,397
15,330
31.7
57.0
29.3
55.3
% yoy change
11
5
17
12
20
Source: Company
14
ITC
Consumer products
Interim results of ITC Limited, March fiscal year-ends (Rs mn)
Net sales
Total expenditure
Material cost
Staff cost
Other expenditure
EBITDA
OPM (%)
Other income
Interest
Depreciation
Pretax profits
Tax
Net income
Income tax rate (%)
Cost as a % of Sales
Material cost
Staff cost
Other expenditure
3QFY12
61,954
(38,667)
(21,725)
(2,981)
(13,962)
23,287
37.6
3,375
(157)
(1,739)
24,767
(7,757)
17,010
31.3
3QFY12E
63,351
(39,772)
(23,833)
(2,841)
(13,098)
23,578
37.2
3,065
(157)
(1,721)
24,765
(7,727)
17,038
31.2
3QFY11
54,243
(34,550)
(20,134)
(2,773)
(11,642)
19,693
36.3
2,412
(111)
(1,681)
20,313
(6,422)
13,891
31.6
2QFY12
59,742
(38,662)
(23,191)
(2,650)
(12,821)
21,080
35.3
2,918
(142)
(1,701)
22,155
(7,012)
15,143
31.6
35.1
4.8
22.5
37.6
4.5
20.7
37.1
5.1
21.5
38.8
4.4
21.5
58,097
13,752
3,111
11,394
10,302
96,656
(8,245)
88,411
59,787
13,939
3,308
12,158
10,434
99,626
(10,008)
89,618
52,363
11,042
3,033
10,375
9,167
85,979
(6,618)
79,360
18,442
(466)
1,017
1,417
2,243
22,653
17,933
(608)
851
1,325
2,355
21,857
31.7
(3.4)
32.7
12.4
21.8
30.0
(4.4)
25.7
10.9
22.6
3QFY12E
(2)
(1)
(% chg)
3QFY11
14
12
8
7
20
18
2QFY12
4
0
(6)
12
9
10
40
41
3
22
21
22
16
11
2
12
11
12
54,860
13,453
2,343
14,345
10,554
95,555
(10,059)
85,495
11
25
3
10
12
12
25
11
6
2
33
(21)
(2)
(1)
(18)
3
15,330
(736)
886
1,292
1,914
18,686
17,289
(559)
434
2,388
2,897
22,449
20
(37)
15
10
17
21
7
(17)
134
(41)
(23)
1
29.3
(6.7)
29.2
12.5
20.9
31.5
(4.2)
18.5
16.6
27.5
8
(49)
12
(0)
4
1
(18)
76
(25)
(21)
33,942
17,192
26,004
14,795
37,340
129,272
38,990
19,242
29,893
14,874
40,059
143,057
23
8
18
5
9
14
7
(4)
2
5
2
3
0
(0)
Segment results
Revenue
Cigarettes
Other FMCG
Hotel
Agri business
Paperboards, paper & packaging
Total
Less: Intersegment revenue
Gross sales
EBIT
Cigarettes
Other FMCG
Hotel
Agri business
Total
EBIT margins (%)
Cigarettes
Other FMCG
Hotel
Agri business
Capital employed
Cigarettes
Other FMCG
Hotel
Agri business
Total
41,757
18,525
30,608
15,592
40,823
147,305
15
Consumer products
ITC
Quarterly cigarette volume growth (%)
12
10
8
10
9
8
8
8
5
6
4
4
2
2
1
0
-2
Mar-10
Dec-11
Dec-10
Dec-09
Mar-11
(2)
(3)
Dec-08
Sep-11
Sep-10
Sep-09
Sep-08
Jun-10
Jun-09
-6
Jun-08
(2)
(4)
Mar-09
(2)
(3)
Jun-11
-4
Note: Cigarette volume growth based on KIE estimates
ITC's quarterly cigarette margins (%)
35
30
25
20
15
10
5
Mar-11
Mar-10
Mar-09
Mar-08
Mar-07
Dec-11
Dec-10
Dec-09
Dec-08
Dec-07
Dec-06
Sep-11
Sep-10
Sep-09
Sep-08
Sep-07
Sep-06
Jun-11
Jun-10
Jun-09
Jun-08
Jun-07
Jun-06
-
16
ITC
Consumer products
The new pictorial warnings are probably more impactful
Old and new pictorial warnings on cigarette packs
Old
New
Source: Kotak Institutional Equities
Premiumisation is key for sustained improvement in cigarette margins
Cigarette margins, March fiscal year-ends, 2008-2013E (%)
32.0
31.0
30.0
29.0
28.0
27.0
26.0
25.0
2013E
2012E
2011
2010
2009
2008
24.0
17
Consumer products
ITC
Steady growth in FMCG sales
FMCG sales, March fiscal year-ends, 2007-2013E (Rs bn)
70
60
50
40
30
20
10
0
2008
2009
2010
2011
2012E
2013E
We expect FMCG business to break even by 4QFY13E
FMCG losses, March fiscal year-ends, 2007-2013E (Rs bn)
2008
2009
2010
2011
2012E
2013E
0
(1)
(2)
(3)
(4)
(5)
(6)
Higher investments were required during
the initial ramp up stage in the FMCG
segment
FY2009 likely had inventory/supply chain
related losses in Bingo and had launch
expenses of personalcare
18
ITC
Consumer products
Dividend payout could potentially increase
Dividend payout ratio, March fiscal year-ends, 2000-2013E (%)
100
110
81
31
2002
2003
49
50
2009
29
51
2008
28
2001
30
40
51
2007
51
60
2006
80
Special
dividend in
FY2011
(Centenary
AGM)
55
58
2013E
Special dividend in
FY2010 (Centenary year)
2012E
120
35
20
2011
2010
2005
2004
2000
0
Seven states have increased VAT in the state budget
Contribution to
ITC cigarette sales
State/region
Andhra Pradesh
Bihar
Chattisgarh
Gujarat
Haryana
Himachal Pradesh
Karnataka
Kerala
Madhya Pradesh
Maharashtra
Rajasthan
Tamilnadu
Uttar Pradesh
West Bengal
(Value, %)
13
3
3
3
4
2
9
12
3
9
3
11
4
8
Current VAT on
cigarettes
20.0
13.5
12.5
25.0
20.0
16.0
15.0
12.5
12.5
20.0
40.0
14.5
13.5
20.0
Whether budget presented or not
Yes / No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Any recent change in VAT
Yes, increased from 12.5%
No
Yes, increased from 20%
No
No
No
No
No
Yes, increased from 20%
No
19
Consumer products
ITC
Relative P/E of ITC versus BSE 30 Index (X)
2.5
2.0
1.5
1.0
0.5
Apr-11
Apr-10
Apr-09
Apr-08
Apr-07
Apr-06
Apr-05
Apr-04
Apr-03
Apr-02
Apr-01
Apr-00
0.0
Source: Bloomberg, Kotak Institutional Equities
20
ITC
Consumer products
ITC: Profit model, balance sheet, cash flow model 2008-2014E, March fiscal year-ends (Rs mn)
2008
2009
2010
2011
2012E
2013E
2014E
Net sales
140,012
156,119
181,532
211,676
249,387
288,052
330,332
EBITDA
44,703
48,686
60,823
71,636
85,602
98,212
114,994
6,109
5,349
6,147
8,188
9,909
11,260
12,793
(173)
(284)
(730)
(583)
(581)
(579)
(576)
(4,385)
(5,494)
(6,087)
(6,560)
(7,170)
(7,967)
(8,844)
Other income
Interest
Depreciation
Pretax profits
46,255
48,258
60,153
72,682
87,760
100,926
118,367
Tax
(14,517)
(15,622)
(19,543)
(22,806)
(27,440)
(32,120)
(37,419)
Net profits
31,738
32,636
40,610
49,876
60,320
68,806
80,948
4.2
4.3
5.4
6.5
7.9
9.0
10.5
Total equity
120,577
137,351
140,644
159,533
186,155
214,524
267,930
5,451
8,672
7,850
8,019
8,019
8,019
8,019
Total borrowings
2,144
1,776
1,077
992
992
992
992
Cash
44,323
47,036
80,491
85,628
74,763
80,476
79,864
172,495
194,835
230,062
254,171
269,929
304,011
356,804
5,703
10,310
11,263
22,432
19,511
32,944
65,258
Current assets
64,490
71,287
70,016
79,407
90,267
103,893
115,226
Total fixed assets
72,956
84,860
91,514
96,785
104,604
111,627
120,773
Investments
29,346
28,378
57,269
55,547
55,547
55,547
55,547
172,495
194,834
230,062
254,171
269,929
304,011
356,804
Operating cash flow
37,112
41,493
49,853
55,859
68,636
77,930
91,099
Working capital
(6,634)
(4,991)
6,541
249
(8,998)
(6,002)
(4,192)
(21,239)
(17,407)
(12,751)
(11,841)
(15,000)
(15,000)
(18,000)
9,238
19,095
43,643
44,267
44,637
56,928
68,908
Sales growth
13.2
11.5
16.3
16.6
17.8
15.5
14.7
EBITDA margin
31.9
31.2
33.5
33.8
34.3
34.1
34.8
EPS growth
17.1
2.8
23.8
21.1
20.9
14.1
17.6
Total assets
Capital expenditure
Free cash flow
Key ratios (%)
21
ADD
Wipro (WPRO)
Technology
JANUARY 20, 2012
RESULT
Good quarter and outlook. Wipro reported a strong 3QFY12; the company exceeded
upper end of constant currency guidance, tightened execution and reduced working
capital cycle. 4QFY12 revenue growth guidance is also encouraging. Benefits of
reorganization are finally showing up in numbers. Growth has converged with peers in
a seasonally weak quarter; Wipro has laid the right platform to converge/exceed growth
compared to peers in seasonally strong quarters. Valuations, however, already build in
the turnaround. ADD with end-FY2013E target price of Rs460/share (Rs450 earlier).
Wipro
Stock data
490-310
Market Cap. (Rs bn)
1,015.3
Promoters
79.2
FIIs
6.8
MFs
1.3
1M
3M
12M
Absolute
4.4
16.7
(13.4)
Rel. to BSE-30
(5.3)
18.1
(1.4)
EPS (Rs)
EPS growth (%)
P/E (X)
Sales (Rs bn)
Net profits (Rs bn)
EBITDA (Rs bn)
EV/EBITDA (X)
ROE (%)
Div. Yield (%)
2012
23.2
7.4
17.9
381.7
56.9
77.7
12.1
21.7
1.2
2013E
28.2
21.7
14.7
451.5
69.2
94.3
9.6
22.2
1.5
Price (Rs): 414
BSE-30: 16,739
2014E
31.9
12.9
13.0
500.1
78.2
105.0
8.3
21.1
1.8
Strong FPP execution drives gain in realization
The IT services business of Wipro reported revenues of US$1,506 mn (+ 2.2% qoq, 12% yoy), in
line with our estimates. Constant currency revenue growth of 4.5% was higher than the company
guidance of 4% at the upper end. Performance was boosted by recovery of slippages in fixed price
projects. This drove 2.9% onsite and 2.3% offshore pricing increase qoq in reported currency and
4.3% and 3.6% qoq in constant currency. Volume growth was a modest 1.8%. Revenue growth
was broad-based. Net income of Rs14.6 bn was 3% ahead of our estimates led by a mix of
EBITDA beat and below EBITDA line positive surprise.
IT services EBIT margin improves 80 bps qoq, 280 bps on comparable basis with peers
Reported OPM of Wipro increased 80 bps qoq to 20.8%. Wipro includes gains/ losses of
designated hedging in the revenue line; adjusted for this number, OPM increased 280 bps qoq to
22.1%. Operating margin was aided by (1) improvement in FPP execution and claw-back of
slippages in the earlier quarters and (2) depreciation of Rupee against US$. These gains were offset
by (1) a 90 bps qoq increase in SG&A spending and (2) a sharp decline in utilization.
Encouraging revenue growth guidance of 1-3% for 4QFY12
Wipro has guided for global IT services revenues of US$1.52–1.55 bn for 4QFY12, implying 1-3%
revenue growth qoq, encouraging in our view and reassuring from a sector standpoint, especially
after mixed commentary from TCS and weak 4QFY12 revenue growth guidance from Infosys.
Reorganization delivering results though built into valuations
Wipro trades at a premium on EV/EBITDA to Infosys and marginal discount to TCS. Taking into
consideration relatively weaker FCF/EBITDA conversion, Wipro ends up trading at premium on
normalized EV/FCF and on par to Infosys on P/E. Premium valuations require leadership and
sustainability of growth; Wipro has made a good beginning. Our ADD rating within the positive
view on tier-1 IT, implies discomfort on assigning premium valuations even as absolute upside is
enough to justify a positive view on Wipro. ADD with a target price of Rs460/ share.
Wipro
Technology
Balance sheet quality improves after sharp deterioration in past two quarters
Receivables collection cycle at 104 days is an improvement from 107 days for consolidated
business at end-September. This is a good beginning in our view though further efforts
would be required to bring it in line with the rest of the industry. Net working capital cycle
still remains high at 72 days and requires considerable improvement, in our view.
Aggressive hedging continues
Wipro has hedges of US$1.7 bn equivalent to two quarters of net cash inflows. These
hedges exclude balance sheet-related hedges. Wipro has not disclosed the average rate of
hedges though it would have moved closer to the spot rate. The company has OCI loss on
Rs5.45 bn on the balance sheet (MTM at spot Re/US$ rate of 53+ forward premium).
Good improvement in key client metrics
Wipro has made good and sustained strides in client mining for the past few quarters, a key
area of weakness relative to peers in the past. This has, in our view, played an important role
in the company’s improved relative sequential growth versus peers in the past couple of
quarters. Wipro now has six US$100 mn+ accounts versus one in the Dec 2010 quarter.
Similar positive traction appears in other client buckets as well.
Other details and highlights from the earnings call
` Consolidated revenues of Rs100 bn came in 2% ahead of our estimate driven by revenue
beat in the non-IT segments. Reported consolidated EBIT of Rs17.2 bn (+15.9% qoq,
+20.1% yoy) and net income of Rs14.6 bn (+12% qoq, +10.5% yoy) beat estimates as
well.
` The Wipro management indicated flat overall IT budgets for CY2012E with variation
across sectors. It identified pharma/ healthcare, energy and utilities, TSP/media, and retail
as strong, retail banking and manufacturing as modest, and investment banking/ TEMs as
weak spots heading into CY2012E.
` Even as the Wipro management concurred with peer group commentary on some
slowdown in discretionary spends, it emphasized that delays in discretionary project starts
are limited to small programs. It has not seen slowdown in large strategic programs.
` The Wipro management characterized pricing environment as stable and pipeline as
healthy even as pipeline conversion has slowed down marginally in recent months.
` Wipro ended Dec 2011 with net P&L hedges of US$1.7 bn, largely flat versus end-Sep
2011.
` Wipro hired a net 5,004 employees in its IT services business during the quarter taking the
end-Dec 2011 total headcount to 136,734. We note that Sep 2011 and Dec 2011
together form the strongest two consecutive quarters of hiring (defined as % addition
over two-quarter-prior base) for Wipro since June 2010. Even as it reflects improved
relative growth momentum at Wipro, we also see it as a healthy indicator of industry
demand in the context of subdued expectations on the Street.
Exhibit 1 depicts the key changes to our forward estimates. We note that our revenue
estimates are broadly unchanged. EPS estimates for FY2013/14E revised upwards by 1-2%.
23
Technology
Wipro
Exhibit 1: Wipro: Key changes in FY2012-14E estimates
FY2012
5,936
5,417
520
13.7
Revised
FY2013
6,706
6,141
565
13.0
FY2014
7,649
7,004
645
14.1
FY2012
5,950
5,414
535
14.0
Earlier
FY2013
6,688
6,099
589
12.4
FY2014
7,654
6,976
677
14.4
FY2012
(0.2)
0.1
(2.9)
Change (%)
FY2013
0.3
0.7
(4.0)
FY2014
(0.1)
0.4
(4.7)
Rupee/ US$ rate
48.7
52.0
50.7
48.7
52.0
50.7
(0.0)
(0.0)
(0.0)
EBITDA margin (%)
EBIT margin (%) (ex forex gains)
24.1
21.1
24.5
21.7
24.6
21.8
24.3
21.3
24.2
21.4
24.2
21.4
77,749
20.4
94,252
20.9
104,991
21.0
77,740
20.5
92,403
20.7
103,143
20.8
0.0
2.0
1.8
23.2
23.2
28.2
28.2
31.9
31.9
23.2
23.2
27.9
27.9
31.4
31.4
(0.2)
(0.2)
1.2
1.2
1.5
1.5
Rs mn
IT Services revenues (US$ mn)
- Wipro Technologies
- Wipro BPO
Revenue growth (%)
Total EBITDA (Rs mn)
Total EBITDA margin (%)
EPS (Rs/share)
EPS/share (ex intangible amortization)
Exhibit 2: Wipro 3QFY12 results (IFRS)
Rs mn
IT services revenues (US$ mn)
- IT Services
- IT Products
- Consumer Care and Lighting
- Others
Total revenues
Operating Income
- IT Services
- IT Products
- Consumer Care and Lighting
- Others
3QFY11
1,344
59,486
8,792
6,950
3,065
78,293
14,355
13,211
408
855
(119)
2QFY12
1,473
68,294
10,008
8,002
4,641
90,945
14,878
13,640
451
882
(95)
3QFY12
1,506
76,076
9,000
8,787
6,109
99,972
17,239
15,828
475
1,045
(109)
Other income/ (expense)
Pre-tax profits (pre-extraordinary)
Income taxes
Net income
Equity in earnings of affiliates
Minority interest
Income from continuing operations
EPS- Continuing Operations
1,324
15,679
(2,582)
13,097
160
(71)
13,186
5.4
863
15,741
(2,841)
12,900
99
10
13,009
5.3
1,132
18,371
(3,810)
14,561
117
(114)
14,564
6.0
22.2
4.6
12.3
(3.9)
16.8
16.5
20.0
4.5
11.0
(2.0)
14.3
18.0
20.8
5.3
11.9
(1.8)
14.6
20.7
MARGINS
Operating margin
IT Services
IT Products
Consumer care & Lighting
Others
Net Income Margin
Tax rates (%)
% chg.
qoq
2.2
11.4
(10.1)
9.8
31.6
9.9
15.9
16.0
5.3
18.5
14.7
yoy
12.0
27.9
2.4
26.4
99.3
27.7
20.1
19.8
16.4
22.2
(8.4)
31.2
16.7
34.1
12.9
18.2
(14.5)
17.2
47.6
11.2
(26.9)
12.0
12.0
10.5
10.5
Kotak
estimates
1,507
75,494
9,671
8,201
4,751
98,117
16,735
15,633
436
904
(238)
744
17,479
(3,471)
14,008
99
11
14,118
5.8
% deviation
(0.1)
0.8
(6.9)
7.1
28.6
1.9
3.0
1.2
9.0
15.6
(54.1)
52.2
5.1
9.8
3.9
18.2
3.2
3.2
20.7
4.5
11.0
(5.0)
14.4
19.9
Notes
Wipro has guided for US$1,52-US$1,55 mn of IT services revenues for 4QFY12, up 1-3% qoq.
24
Wipro
Technology
Exhibit 3: Revenue growth across verticals, geographies and service lines
Revenues (US$ mn)
Service line split of revenues (%)
Technology Infrastructure practices
Analytics and Information management
Business Application Services
BPO
Product engineering and mobility
ADM
R&D
Consulting
Vertical split of revenues (%)
Global Media and Telecom
Finance Solutions
Manufacturing and hi-tech
Healthcare, life sciences and services
Retail & trasnportation
Energy & Utilities
Geographical split of revenues (%)
US
Europe
Japan
India and Middle east business
Other emerging markets
Customer concentration (%)
Top customer
Top 5 customers
Top 10 customers
Dec-11
1,505
Growth
(qoq)
2.2
Growth
(yoy)
12.0
327
99
464
128
126
361
190
45
0.4
2.2
3.2
(1.3)
2.2
3.9
3.0
(4.2)
13.6
25.3
15.8
2.4
10.7
7.1
4.5
8.4
232
411
286
151
224
202
0.3
3.0
2.2
4.3
3.6
(0.0)
1.5
12.0
6.4
7.7
8.4
51.6
790
424
20
137
134
3.8
0.1
2.2
0.0
2.2
8.5
11.6
(2.9)
14.5
40.4
59
178
299
7.7
4.0
1.7
45.6
23.5
16.1
Exhibit 4: Quarterly annualized attrition remains high despite sharp correction in 2Q and 3Q
30.0
25.0
20.0
15.0
Dec-11
Jun-11
Sep-11
Dec-10
Mar-11
Jun-10
Sep-10
Mar-10
Sep-09
Dec-09
Jun-09
Mar-09
Sep-08
Dec-08
Jun-08
Mar-08
Sep-07
Dec-07
Jun-07
Dec-06
Mar-07
Jun-06
Sep-06
Mar-06
10.0
25
Technology
Wipro
Exhibit 5: Wipro - receivables + unbilled revenues as days of sales
110
107
100
95
90
86
91
84
86
80
104
102
93
93
87
81
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
70
Exhibit 6: Key assumptions driving Wipro earnings model, March fiscal year-ends, 2011-14E
Key assumptions
Revenue growth (US$ terms) (%)
Volume growth yoy (%)
Pricing change yoy (%)
Onsite
Offshore
Blended
Total employees (#)
Employee additions
Utilization rate (%)
SG&A expense as % of revenues
Re/US$ rate
2011
2012E
2013E
2014E
18.9
16.8
13.7
12.5
13.0
16.1
14.1
15.3
(2.7)
0.7
1.5
116,904
16,401
77.0
11.6
45.0
2.0
0.1
2.6
138,985
22,081
75.1
11.3
48.7
(0.5)
(1.7)
(1.7)
158,334
19,349
76.2
11.8
52.0
(0.2)
(0.2)
(1.1)
180,932
22,598
77.4
11.6
50.7
26
Wipro
Technology
Exhibit 7: Wipro - operating metrics pertaining to IT services segment
IT services revenues (US$ mn)
Service line split of revenues (%) - new
Technology Infrastructure practices
Analytics and Information management
Business Application Services
BPO
Product engineering and mobility
ADM
Total
R&D
Consulting
Vertical split of revenues (%) - new
Global Media and Telecom
Finance Solutions
Manufacturing and hi-tech
Healthcare, life sciences and services
Retail & trasnportation
Energy & Utilities
Geographical split of revenues (%)
US
Europe
Japan
India and Middle east business
Other emerging markets
Client metrics
Customer size distribution (TTM)
Million dollar clients of which
> US$50 mn
US$20 mn - US$50 mn
US$10 mn - US$20 mn
US$5 mn - US$10 mn
US$3 mn - US$5 mn
US$1 mn - US$3 mn
Repeat business (%)
New client additions
Total active customers
Customer concentration (%)
Top customer
Top 5 customers
Top 10 customers
Employees (IT services)
Utilization (%)
Global IT Services excl IFOX-Gross (a) (b)
Global IT Services excl IFOX-Net
Attrition (%)
Global IT Services - Voluntary - Qtrly annualized
Global IT Services - Involuntary Qtrly annualized
Revenues by project type (%)
Fixed price
Time and material
Onsite-offshore revenue split (%)
Onsite
Offshore
Price realization
- Onsite
- Offshore
Person manmonths billed
Onsite
Offshore
Total
Mar-10
1,166
Jun-10
1,204
Sep-10
1,273
Dec-10
1,344
Mar-11
1,400
Jun-11
1,408
Sep-11
1,473
Dec-11
1,506
21.0
5.6
30.4
10.1
8.6
24.3
100.0
15.0
2.6
21.1
5.8
30.3
9.8
8.7
24.3
100.0
14.3
2.9
21.4
5.9
29.8
9.3
8.5
25.1
100.0
13.5
3.1
21.6
6.0
29.7
9.8
8.2
24.7
100.0
13.0
3.1
21.7
6.4
30.4
9.3
8.3
23.9
100.0
12.5
3.1
22.1
6.6
30.5
8.8
8.4
23.6
100.0
12.5
3.2
21.7
6.6
30.8
8.5
8.4
24.0
100.0
12.6
3.0
17.1
26.9
21.5
10.7
14.9
8.9
16.9
26.9
20.9
10.9
15.5
8.9
17.0
27.3
20.0
10.4
15.4
9.9
17.2
26.7
19.7
10.5
15.7
10.2
16.8
26.7
19.7
10.2
15.0
11.6
15.7
27.1
19.0
9.8
14.7
13.7
15.4
27.3
19.0
10.0
14.9
13.4
56.7
26.3
1.5
8.8
6.7
57.3
25.4
1.5
9.0
6.8
55.9
26.5
1.5
8.9
7.2
54.2
28.3
1.5
8.9
7.1
53.9
28.0
1.5
9.1
7.5
53.0
28.6
1.1
9.0
8.3
51.7
28.8
1.3
9.3
8.9
52.5
28.2
1.3
9.1
8.9
406
16
40
40
70
60
180
96.5
27
845
434
17
41
42
65
73
196
99.6
22
858
425
20
43
43
58
80
181
99.0
29
890
433
21
43
49
63
78
179
97.6
36
880
429
22
46
49
63
75
174
96.9
68
904
438
24
45
49
77
63
180
99.3
49
937
462
24
46
50
72
75
195
98.6
44
930
462
25
48
48
76
87
178
97.9
39
953
2.5
10.5
19.3
108,701
2.9
10.9
19.8
112,925
2.9
10.7
19.2
115,900
3.0
10.7
19.2
119,491
3.1
11.4
19.7
122,385
3.3
10.9
19.4
126,490
3.7
11.6
20.0
131,730
3.9
11.8
19.9
136,734
72.1
79.3
71.3
78.4
70.9
78.0
68.6
75.6
68.9
76.1
69.7
76.9
69.3
76.1
67.1
73.5
17.1
2.1
23.0
1.4
23.5
1.4
21.7
2.2
20.9
2.5
23.2
2.0
18.5
1.3
14.2
1.6
44.3
55.7
44.6
55.4
44.0
56.0
46.3
53.7
47.8
52.2
47.0
53.0
45.2
54.8
45.5
54.5
49.4
50.6
52.2
47.8
51.7
48.3
51.8
48.2
51.2
48.8
52.4
47.6
54.3
45.7
54.4
45.6
12,254
4,352
11,654
4,291
11,774
4,296
11,845
4,455
12,074
4,510
11,960
4,492
11,914
4,308
12,256
4,403
34,396
99,067
133,463
40,011
99,698
139,709
41,786
107,082
148,868
43,474
107,642
151,116
43,315
110,639
153,954
45,820
110,858
156,678
49,942
116,059
166,001
50,670
118,337
169,007
Notes:
(a) Global IT Services consists of Services provided world-wide except India & Middle East Business
(b) CITOS is included for Utilization computation for Global IT Services from Q1 FY10
27
Technology
Wipro
Exhibit 8: Profit model, balance sheet, cash model of Wipro, March fiscal year-ends, 2010-14E (Rs mn)
2010
2011
2012E
2013E
2014E
271,242
(186,299)
84,943
(33,430)
51,513
—
51,513
3,369
54,882
(9,293)
45,589
530
46,119
18.9
310,986
(212,850)
98,136
(40,469)
57,667
—
57,667
4,718
62,385
(9,714)
52,671
648
53,319
21.6
381,675
(267,342)
114,334
(48,356)
65,977
—
65,977
4,595
70,572
(13,856)
56,715
443
57,158
23.2
451,546
(312,136)
139,410
(58,261)
81,149
—
81,149
5,507
86,656
(17,605)
69,051
465
69,516
28.2
500,085
(345,658)
154,427
(64,065)
90,362
—
90,362
7,850
98,212
(20,199)
78,013
488
78,501
31.9
196,112
26,009
437
222,558
53,458
95,298
2,846
70,956
222,558
239,680
30,454
691
270,825
55,094
110,423
21,273
84,035
270,825
284,164
13,126
969
298,260
61,445
71,699
68,879
96,237
298,260
339,399
15,529
1,276
356,204
68,634
105,995
79,825
101,749
356,204
399,750
17,198
1,613
418,560
76,850
148,024
87,944
105,743
418,560
Operating profit before working capital changes
59,056
67,434
77,749
94,252
104,991
Tax paid
(9,293)
(9,714)
(13,856)
(17,605)
(20,199)
Change in working capital/other adjustments
(9,709)
(14,948)
(18,409)
(13,590)
(9,955)
Capital expenditure
(12,979)
(12,211)
(18,123)
(20,293)
(22,844)
Free cash flow
21,362
30,639
21,961
42,764
51,993
Profit model
Revenues
Cost of revenues (incl. deprn)
Revenues
SG&A expenses (incl. deprn)
EBITA
Amortization of intangibles
EBIT
Other income
Pre-tax profits
Provision for tax
PAT
Equity in earnings of affiliates
Reported PAT
EPS (Rs)
Balance Sheet
Shareholders funds
Borrowings
Minority interest
Total liabilities
Net fixed assets
Cash and bank balances
Net current assets excluding cash
Other assets
Total assets
Cashflow statement
28
ADD
Hindustan Zinc (HZ)
Metals & Mining
JANUARY 20, 2012
RESULT
Coverage view: Cautious
In-line quarter, no ‘silver lining’ in production target. Hindustan Zinc (HZ) reported
EBITDA of Rs14 bn (-7% yoy), in line with estimates, and net income of Rs12.7 bn,
marginally below our estimates. COP of zinc increased further to Rs40,300/tonne. Silver
content of 115 ppm in SK ore is disappointing and cannot support silver production
target. Our EBITDA estimates increase after building revised Re/US$ rate. Maintain ADD
rating with a target price of Rs150; stock trades at inexpensive 4.2X FY2013E EBITDA.
Hindustan Zinc
Stock data
155-106
Market Cap. (Rs bn)
535.7
Promoters
64.9
FIIs
1.3
MFs
1.0
1M
3M
12M
Absolute
8.0
5.2
(5.2)
Rel. to BSE-30
(2.1)
6.5
7.9
EPS (Rs)
EPS growth (%)
P/E (X)
Sales (Rs bn)
Net profits (Rs bn)
EBITDA (Rs bn)
EV/EBITDA (X)
ROE (%)
Div. Yield (%)
2012
12.7
8.8
10.0
111.1
53.6
58.7
6.0
21.8
2.0
2013E
14.7
16.0
8.6
133.5
62.1
73.2
4.2
21.4
2.0
Price (Rs): 127
BSE-30: 16,739
2014E
16.7
13.2
7.6
147.1
70.4
82.2
3.0
20.4
2.0
In-line quarter, cost of production increases further, lower ore grade hurts production
Net income of Rs12.7 bn (-5.3% qoq, -1.2% yoy) was broadly in line with our estimates. Refined
zinc-lead production grew 9.6% qoq to 220 kt. (Note that HZ took the annual plant shutdown in
2QFY12). COP of zinc increased 13% yoy and 3.9% qoq to Rs40,300/tonne; this was led by
increase in power costs and lower ore grade at Rampura Agucha mine. Ore grade of Rampura
Agucha mine dipped below 13% in the quarter as compared to average grade of 14.3%. This hurt
mined metal production which dipped to 209 kt, down 6% yoy.
Rampura Agucha mine to move underground starting FY2013E
The Rampura Agucha mine may move underground starting FY2013E in a phased manner over a
period of four years. Production mix will steadily tilt from open cast currently to underground
mining. The management does not expect production from this mine to be impacted and expects
open case and underground operations to be run simultaneously. Cost of mining may increase to
US$350/tonne from US$280/tonne during this phase, per management.
Commissions new silver refinery but may remain underutilized till silver grade in ore improves
HZ commissioned its 350 tpa silver refinery in Jan 2012. Production ramp-up may take 3-6
months. This comes on the back of commissioning of the 100 ktpa Dariba Lead smelter in 2QFY12
and ramp-up of Sindesar Khurd (SK) ore mining capacity to 2 mtpa (1.5 mtpa run-rate currently)
by end-FY2012E. However, weak silver grade of 115 ppm from the ore currently mined at Sindesar
Khurd continues to be well below expectations. At this grade, maximum refined silver production
would be 341 tonnes. The HZ management expects higher silver grade ore on further drilling and
move to the indicated grade of 180 ppm (will support 419 tonnes of overall silver production) by
FY2013E. We model silver production of 363 tonnes in FY2013E and 402 tonnes in FY2014E.
Maintain ADD with TP of Rs150
Trading at 4.2X FY2013E EBITDA and 8.6X FY2013E P/E, we find HZ valuations attractive. Maintain
ADD rating with a revised target price of Rs150. We value HZ at 5.5X FY2013E EBITDA. Our
valuation multiple captures risks of imposition of mining tax in FY2013E.
Metals & Mining
Hindustan Zinc
Key changes to our estimates
We retain our FY2012-14E zinc price assumption of US$2,050/2,025/2,300/tonne
respectively. Our FY2013-14E EBITDA estimates change by 1-4%. Key changes to our
estimates are led by (1) revision in our economist’s FY2012-14E Re/US$ rate assumption to
Rs48.7, Rs52.5 and Rs50, down from Rs47.3, Rs49.8 and Rs48.5 earlier and (2) increase in
cost of production estimate by 1-3%.
Exhibit 1: Hindustan Zinc, change in estimates, March fiscal year-ends, FY2012E-14E
Revised estimate
Previous estimate
Change (%)
2012E
2013E
2014E
2012E
2013E
2014E
2012E
2013E
2014E
Zinc
2,050
2,025
2,300
2,050
2,025
2,300
—
—
—
Lead
2,150
2,100
2,350
2,150
2,100
2,350
—
—
—
Zinc ingots
760,335
804,285
835,050
769,125
804,285
835,050
(1.1)
—
—
Lead ingots
88,800
125,800
125,800
83,250
125,800
125,800
6.7
—
—
205
351
396
200
351
396
2.4
—
—
1.5
Price (US$/tonne)
Volumes (tonnes)
Refined silver
Earnings estimates (Rs mn)
Revenues
111,141
133,537
147,121
109,988
129,088
144,992
1.0
3.4
EBITDA
58,741
73,161
82,157
59,814
70,754
81,833
(1.8)
3.4
0.4
PAT
53,288
62,140
70,372
53,587
59,979
70,489
(0.6)
3.6
(0.2)
48.7
52.5
50.0
47.3
49.8
48.5
3.0
5.5
3.1
Re/US$ rate
Zinc prices to be range-bound in the near term
Our estimates are based on a FY2012-14E zinc price forecast of US$2,050/tonne,
US$2,025/tonne and US$2,300/tonne respectively. We expect zinc prices to remain rangebound in the short term, but believe it has the potential to spike sharply towards 2HFY13E
and beyond. Near-term prices may be weighed by sharp production ramp-up leading to
spike in inventory. LME zinc inventory has increased 10% in the last month to around 839K
tonnes (refer Exhibit 2). However, prices may increase starting 2HFY13E led by a likely
decline in production and exhaustion of few large mines.
Exhibit 2: LME zinc inventory has increased 10% over the last month
5,000
LME Zinc ('000 tonnes) (RHS)
1,000
LME Spot (LHS)
4,000
800
3,000
600
2,000
400
1,000
200
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
-
Source: Bloomberg, Kotak Institutional Equities estimates
30
Hindustan Zinc
Metals & Mining
Updates on expansion projects
` The company commissioned the 100 ktpa lead smelter at Dariba in 2QFY12, taking the
total lead capacity to 185 ktpa and total zinc-lead capacity to 1.064 mtpa. This smelter is
in the process of ramping up and is currently operating at 70% capacity utilization which
the company expects to improve to 80% by end-FY2012E. However, the concentrate
feed from HZ mines will likely be lower than expanded lead smelting capacity. HZ would
have to import lead concentrate to make full use of expanded capacity until it has the
capabilities and clearances to mine additional lead concentrate.
` The ramp-up of the Sindesar Khurd mine, critical to HZ’s silver production target, is on
track and the company expects an FY2012E exit capacity of 2 mtpa. SK mine is currently
operating at a run-rate of around 1.5 mn tonnes.
` The company has also commenced mining-related work at the Kayar mine, an
underground mine (with average zinc grade of around 10-11%) with reserves and
resources estimates at 11mn tonnes. The company currently has environmental clearance
approval of 0.35 mn tonnes and expects to commence commercial ore production in
FY2014E.
` The company commissioned 135 MW out of the planned 150 MW wind power
generation expansion, the company expects to commission the balance capacity in early
4QFY12E.
Highlights from 3QFY12 earnings conference call
` Having recently commissioned 350 tpa at Pantnagar in Uttrakhand, the company is
confident of achieving silver production ramp-up of around 400-450 tonnes in FY2013E
from 180 tonnes in FY2011.
` HZ’s 3QFY12 net zinc metal cost of production (excluding royalty) increased 13% yoy to
Rs40,300/tonne (US$785/tonne). However, the management expects this cost to trend
down over the next couple of quarters through operational efficiencies and tighter
control.
` The company is currently operating only one out of the four mines in Zawar which is not
located in any forest areas and is currently awaiting Supreme Court nod for operating the
other three mines which are located in forest areas.
` The company expects FY2013E capex to be in excess of Rs10 bn.
` The cash and cash equivalents as of December 31, 2011 stood at Rs163 bn. Cash
generation was weak since the company did not resort to discounting of debtors in this
quarter.
31
Metals & Mining
Hindustan Zinc
Exhibit 3: Interim results of Hindustan Zinc , March fiscal year-ends (Rs mn)
Net sales
Total expenditure
Inc/(Dec) in stock
Raw materials
Staff cost
Other expenditure
EBITDA
OPM (%)
Other income
Interest
Depreciation
Pretax profits
Extraordinaries
Tax
Net income
Adjusted profits
Ratios
ETR (%)
EPS (Rs)
Product details
Sales volumes
Zinc (tonnes)
Lead (tonnes)
Silver (kgs)
3QFY12
27,868
(13,845)
(131)
(9,726)
(1,337)
(2,651)
14,023
50.3
3,819
(87)
(1,591)
16,164
(64)
(3,363)
12,736
12,736
3QFY12E
26,875
(13,086)
—
(8,757)
(1,355)
(2,974)
13,789
51.3
4,061
(120)
(1,528)
16,202
—
(3,240)
12,962
12,962
3QFY11
26,302
(11,229)
468
(7,458)
(1,130)
(3,109)
15,073
57.3
2,071
(1)
(1,195)
15,947
(3,051)
12,896
12,896
2QFY12
26,368
(11,720)
452
(7,924)
(1,290)
(2,958)
14,648
55.6
3,868
(120)
(1,455)
16,940
(239)
(3,255)
13,447
13,447
20.9
3.0
20.0
3.1
19.1
3.1
19.5
3.2
190,000
27,000
57,595
189,880
20,720
43,764
178,357
12,338
32,777
184,161
14,686
41,454
3QFY12E
3.7
5.8
—
11.1
(1.3)
(10.8)
1.7
(% chg.)
3QFY11
6.0
23.3
(128.1)
30.4
18.3
(14.7)
(7.0)
2QFY12
5.7
18.1
(129.0)
22.7
3.6
(10.4)
(4.3)
(6.0)
(27.6)
4.1
(0.2)
—
3.8
(1.7)
(1.7)
84.4
NM
33.1
1.4
—
10.2
(1.2)
(1.2)
(1.3)
(27.6)
9.3
(4.6)
—
3.3
(5.3)
(5.3)
0.1
30.3
31.6
6.5
118.8
75.7
3.2
83.9
38.9
Exhibit 4: Hindustan Zinc, valuation details, FY2013E basis
FY2013E EBITDA
EBITDA
Multiple
(Rs bn)
(X)
73
Enterprise Value
(Rs bn)
5.50
402
Less: Net debt
(227)
Arrived market capitalization
629
Target price (Rs/share)
(Rs/ share)
95
(54)
149
150
32
Hindustan Zinc
Metals & Mining
Exhibit 5: Silver production details, March fiscal year-ends, FY2007-14E
Silver production (tonnes)
490
420
350
280
210
140
70
2014E
2013E
2012E
2011
2010
2009
2008
2007
-
Exhibit 6: Stress test for Hindustan Zinc's earnings and target price at various commodity price levels
Base case
2,025
2,100
73,161
4.2
14.7
8.6
149
Zinc prices (US$/ tonne)
Lead prices (US$/ tonne)
EBITDA (Rs mn)
EV/EBITDA (X) (at CMP)
EPS (Rs/ share)
P/E (X)
Target price
FY2013E
Spot
Base (-) 5% Base (-) 15%
2,011
1,924
1,721
2,131
1,995
1,785
72,761
68,148
58,124
4.2
4.5
5.4
14.6
13.8
12.0
8.6
9.1
10.5
148
142
127
Note:
1. Spot prices are as on 19th Jan, 2012
Exhibit 7: Hindustan Zinc, key assumptions, March fiscal-year ends, 2009-14E (Rs mn)
Volumes (tonnes)
Zinc
Lead
Silver
Average realizations (Rs/tonne)
Zinc
Lead
Silver (US$/oz)
LME-assumptions (US$/tonne)
Zinc
Lead
Cost per tonne before by-product credits (US$)
2009
2010
2011
2012E
2013E
2014E
552,330
60,564
103
577,685
64,391
139
712,603
57,229
224
760,335
88,800
230
804,285
125,800
363
835,050
125,800
402
70,353
86,385
14
99,421
105,922
16
106,469
114,877
25
107,365
115,346
29
114,433
120,549
26
123,571
128,424
28
1,563
1,655
1,936
1,990
2,186
2,244
2,050
2,150
2,025
2,100
2,300
2,350
1,039
1,090
1,250
1,267
1,236
1,352
33
Metals & Mining
Hindustan Zinc
Exhibit 8: Hindustan Zinc, Profit model, balance sheet and cash flow model, March fiscal year-ends, 2009-14E (Rs mn)
Net sales
EBITDA
Other income
Interest
Depreciaiton
Profit before tax
Current tax
Deferred tax
Net profit
Equity
Deferred tax liability
Total Borrowings
Current liabilities
Total liabilities
Net fixed assets
Investments
Cash
Other current assets
Miscellaneous expenditure
Total assets
Operating cash flow excl. working capital
Working capital changes
Capital expenditure
Free cash flow
Ratios
Debt/equity (X)
Net debt/equity (X)
RoAE (%)
RoACE (%)
2009
2010
2011
2012E
2013E
2014E
56,803
27,342
9,312
(219)
(2,853)
33,582
(5,209)
(1,097)
27,276
6.5
80,170
46,701
7,222
(439)
(3,343)
50,141
(8,309)
(1,418)
40,414
9.6
99,121
54,956
9,792
(194)
(4,747)
59,596
(8,255)
(2,336)
49,005
11.6
111,141
58,741
14,405
(194)
(6,059)
66,610
(10,519)
(2,803)
53,288
12.6
133,537
73,161
16,819
(97)
(7,029)
82,853
(17,350)
(3,363)
62,140
14.7
147,121
82,157
19,446
(49)
(7,724)
93,829
(19,422)
(4,036)
70,372
16.7
143,576
5,589
87
10,010
159,261
52,133
69,289
27,192
10,648
—
159,261
181,240
7,112
605
13,258
202,215
72,771
109,492
9,275
10,677
—
202,215
225,332
9,447
4
15,747
250,530
81,294
93,346
56,329
19,560
—
250,530
266,317
12,250
4
14,043
292,614
90,235
123,346
58,366
20,667
—
292,614
316,098
15,613
4
14,291
346,006
98,207
153,346
73,517
20,937
—
346,006
374,111
19,648
4
15,029
408,793
102,482
183,346
102,606
20,359
—
408,793
23,460
3,667
(13,743)
13,383
45,555
767
(22,492)
23,831
44,835
(2,116)
(14,457)
28,262
62,206
(2,810)
(15,000)
44,396
72,532
(22)
(15,000)
57,510
82,132
1,316
(12,000)
71,448
0.0
(0.6)
20.8
21.0
0.0
(0.6)
24.9
25.1
0.0
(0.6)
24.1
24.3
0.0
(0.7)
21.7
21.8
0.0
(0.7)
21.3
21.4
0.0
(0.7)
20.4
20.4
34
BUY
Axis Bank (AXSB)
Banks/Financial Institutions
JANUARY 20, 2012
RESULT
Few concerns addressed; capital constraints may pose an overhang. Axis Bank’s
earnings growth of 24% yoy was supported by healthy revenue growth of 24% and
lower-than-expected provisions. Concerns on asset quality performance seem to be
addressed for now with slippages stable at 1.5% and flat outstanding restructured
assets at 1.5% of assets. Tier-1 ratio is comfortable at 9.5% levels but strong growth in
4Q would result in faster capital consumption – a key overhang. Despite the strong
performance, we revise estimates downwards to factor higher revenue pressure and rise
in credit costs in FY2013-14E. We maintain BUY with TP of `1,350 (from `1,500).
Axis Bank
Stock data
1,461-784
Market Cap. (Rs bn)
428.2
Promoters
37.2
FIIs
42.6
MFs
5.2
1M
3M
12M
Absolute
23.0
(10.8) (21.5)
Rel. to BSE-30
11.5
(9.7) (10.7)
Price (Rs): 1,009
Target price (Rs): 1,350
BSE-30: 16,739
QUICK NUMBERS
EPS (Rs)
EPS growth (%)
P/E (X)
NII (Rs bn)
Net profits (Rs bn)
BVPS
P/B (X)
ROE (%)
Div. Yield (%)
2012
95.5
15.7
10.6
80.9
40.5
524.6
1.9
19.6
1.6
2013E
102.8
7.6
9.8
93.8
43.6
607.0
1.7
18.2
1.7
2014E
111.1
8.0
9.1
111.1
47.1
696.0
1.4
17.0
1.9
Balance sheet strength critical for the next stage of growth; retain BUY
• NII and net profits
grew 24% yoy
• Slippages stable at
1.5% qoq; gross NPL
ratio flat qoq
• Maintain BUY with
TP of `1,350 (from
`1,500 earlier)
Axis Bank delivered a healthy quarter with a strong revenue growth and stable performance on
asset quality. We expect Axis Bank to deliver 8% earnings CAGR for FY2012-14E and RoEs in the
range of 17-18% levels. Valuations are not demanding at 10X EPS and 1.7X FY2013E book; we
maintain our BUY rating. We, however, revise our TP to `1,350 to factor 10-14% revision in
earnings for FY2013-14E due to (1) expected slowdown in fee income, mainly on the corporate
segment and (2) higher provisions in light of the current economic environment. Loan-loss
provisions are currently at about 70 bps, one of the lowest in the past five years.
We believe that Axis Bank needs to raise capital to strengthen its balance sheet against any sharp
deterioration in asset quality and support business growth during FY2012-14E. We expect Axis
Bank’s tier-1 ratio at closer to 8.5-8.7% levels by March 2012E. Notably, tier-1 ratio (including
retained earnings) was 9.6% in December 2012; however, strong balance sheet growth in
4QFY12E and dividend payout of 17% will pull down its CAR. Inability to raise adequate capital
over the next few quarters is likely to pose risks to expected balance sheet growth and
underwriting of non-fund-based business (which generates fees) as well.
Margins performance healthy; but expect compression as loan composition shifts in 4Q
NIM for the quarter was stable at 3.8% on the back of better asset yields which offset the rise in
cost of deposits. NII grew by 24% yoy. Yield on advances (KS calc) improved 20 bps while yield on
investments (KS calc) improved by 40 bps. Cost of funds increased by 15 bps qoq. However, we
believe that NIMs have peaked and is likely to decline (expect to decline by 20-25 bps over the
next two quarters) as the composition of assets shifts towards low-yielding priority sector loans in
4Q/1QFY13E. On the positive side, overall CD ratio is fairly comfortable at 71% levels which
should cushion any sharp impact on NIMs. As compared to previous years, the bank’s ability to
raise priority sector loans would remain a challenge as select avenues have dried up with the new
regulation and base rate creates a floor to buyout loans.
.
Axis Bank
Asset quality trends broadly stable; coverage ratio (including write-offs) stable
qoq
Axis Bank reported a better-than-expected performance on asset quality with gross NPLs flat
qoq aided partly by higher write-offs for the quarters. Slippages were broadly similar to
2QFY12 at 1.5% levels while the outstanding restructured assets were flat qoq at 1.5%.
The management highlighted that restructured loan proposals have not increased sharply in
recent months which comes as a positive surprise given the loan proposals at the CDR
forum. Upgradation and recoveries were higher at `1.2 bn (against `1.6 bn in September
2011) but the bank wrote-off lower loans of about `2.4 bn, resulting in stable gross
NPLs qoq.
Provision coverage (calculated) has declined to 64% from 69% in 2QFY12 but reported
coverage ratio (including write-offs) has remained stable at 75% (77% in 2QFY12). Higher
write-offs made during the quarter have resulted in the divergence in reported numbers.
Gross NPLs were at `19.1 bn (1.1% of loans) while net NPLs were at `6.8 bn (0.4% of
loans) compared to `17.4 bn and `5.5 bn respectively in the previous quarter. Loan-loss
provisions for the quarter were at 1% (annualized) as the bank wrote off higher loans of
0.7% (annualized) in the current quarter. We would continue to remain cautious and expect
higher slippages/restructured loans over the next few quarters. We are building loan-loss
provisions to increase to 1.3% and slippages at 2-2.2% levels for FY2013-14E.
Loan growth muted at 5%; expect strong growth in 4Q as the bank builds
priority sector portfolio
Axis Bank reported a loan growth of 20% yoy though YTD growth remains fairly muted at
5%. The bank has accelerated lending on the retail portfolio (32% yoy) primarily driven by
secured loans – housing (48% yoy, 75% of retail loans) and auto (56% yoy, 13% of retail
loans). Corporate loans grew by 19% yoy and SME loans by 21% while agriculture loan
growth was flat. We do note that the bank is increasingly looking at diversifying its exposure
in the corporate segment. The exposure of the top 10 sectors (funded) has declined to 44%
levels from 63% in 3QFY11.
Overall we expect loan growth to be above-industry average for FY2012E as the bank
focuses on building a priority sector portfolio in 4Q. Deposits increased by 33% yoy (7%
qoq). CASA ratio declined by 60 bps qoq to 41% compared to 42% in September 2011.
36
Axis Bank
Axis Bank has significant exposure to infrastructure-related assets
Break-up of top exposure (funded), March fiscal year-ends, 3QFY07-3QFY12 (%)
Chemicals
Financial companies
Textiles
Real Estate
Retail trade
Gems & jewellery
Food processing
Metals and metal products
Power generation and distributio
Infrastructure
Telecom
Shipping and logistics
Engineering and electronics
Petrochemicals and petroleum p
Total of 10 top sectors
3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12
3.4
3.4
—
—
—
—
3.1
2.9
—
—
3.2
1.9
1.6
10.6
10.3
9.6
9.5
10.1
11.0
9.5
12.6
13.3
14.3
12.2
10.7
8.0
6.0
5.5
5.8
5.8
5.4
4.5
—
—
—
—
—
—
—
8.2
7.7
8.0
7.3
4.0
5.4
—
5.4
5.7
—
—
3.7
3.8
5.7
5.4
5.3
5.7
5.8
6.5
4.5
4.4
4.4
4.5
4.4
3.8
3.5
3.0
2.5
2.4
—
—
—
—
—
—
—
—
—
—
—
—
—
4.5
5.3
6.4
4.8
—
4.1
4.4
6.1
4.2
4.3
7.6
6.6
6.8
6.2
5.7
6.0
6.0
6.6
7.5
7.4
7.2
5.8
5.2
—
—
—
3.4
5.3
5.1
6.0
5.2
5.4
5.7
5.5
5.1
5.2
8.3
7.9
9.0
8.8
8.3
8.2
9.1
9.4
9.5
8.2
8.6
7.1
7.2
3.2
3.6
2.7
3.4
—
—
10.1
9.7
6.7
5.0
3.3
—
—
—
—
—
4.3
3.7
—
—
3.8
—
2.9
—
—
2.7
—
—
—
—
—
2.9
2.5
2.7
3.1
3.7
4.2
3.3
3.3
—
—
—
—
—
2.7
2.4
—
3.1
3.3
1.9
1.5
—
56.0
52.9
49.6
58.9
53.6
58.7
57.9
62.7
62.7
59.3
56.7
46.9
44.7
Strong fee income despite corporate activity slowing down
Axis Bank reported a strong fee income growth of 30% yoy on the back of healthy
contribution from the corporate business. Growth in fees from corporate-related business
grew by 34% yoy (35% of the overall fee income) while retail fee income (25% of the
overall fees) grew by 15% yoy. Treasury and debt capital market-related fee income grew by
43% yoy. Treasury gains for the quarter were fairly strong at `1.2 bn primarily from
proprietary trading positions in foreign exchange markets. We are currently building fee
income to grow marginally lower than balance sheet growth.
Other highlights for the quarter
` Cost-income ratio was at 42%. The bank opened 47 branches and 730 ATMs in 3QFY11.
` Overall capital adequacy is at 11.8% (13.1% including profits) with tier-1 at 8.3% (9.6%
including profits). Given the strong growth in balance sheet expected in 4Q and the dividend
payout of about 17% levels, we expect tier-1 ratio at closer to 8.5% levels.
37
Axis Bank
Axis Bank quarterly results—key parameters
March fiscal year-ends, 3QFY11-3QFY12
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12 YoY growth 3QFY12E Actual
(%)
Vs KS
57,770
50.5
56,345
3
39,636
52.4
39,431
1
17,752
52.1
16,519
7
155
(67.9)
112
38
36,367
72.7
35,279
3
21,403
23.5
21,066
2
14,298
24.6
13,287
8
1,180
(12.6)
1,000
18
13,118
29.5
12,287
7
Interest income
Advances
Investments
Balance with RBI
Interest expenses
Net interest income
Non-interest income
Treasury income
Income excl treasury
38,383
26,006
11,668
482
21,052
17,331
11,477
1,350
10,127
43,667
30,626
12,131
636
26,657
17,010
14,504
580
13,924
48,814
34,701
13,328
479
31,573
17,241
11,679
702
10,976
52,760
36,878
15,486
112
32,687
20,073
12,349
280
12,069
Total income
Operating expenses
Employee cost
Other operating cost
Pre-prov profit
Provisions
Loan loss
Investment depreciation
Profit before tax
Tax
Profit after tax
Tax rate (%)
PBT- treasury gains
PBT- treasury gains+provisions
28,808
12,224
3,962
8,262
16,585
3,139
2,330
(101)
13,446
4,532
8,914
33.7
12,096
15,235
31,514
13,306
3,960
9,346
18,208
2,544
1,760
784
15,664
5,463
10,201
34.9
15,084
17,628
28,920
13,335
5,100
8,235
15,585
1,758
1,530
388
13,826
4,403
9,424
31.8
13,124
14,883
32,422
14,665
4,986
9,679
17,756
4,056
2,470
(14)
13,701
4,497
9,203
32.8
13,421
17,476
35,701
15,109
5,420
9,689
20,592
4,223
3,360
(137)
16,369
5,346
11,023
32.7
15,189
19,412
23.9
23.6
36.8
17.3
24.2
34.6
44.2
21.7
18.0
23.7
1,558
659
391
268
899
42.3
1,235
252
1,892
778
409
369
1,115
41.1
1,424
278
1,836
744
429
315
1,092
40.5
1,319
270
1,945
821
468
354
1,123
42.2
1,401
293
2,087
868
473
395
1,219
41.6
1,487
333
33.9
31.6
20.9
47.2
35.7
Housing
Non-retail loans
SME loans
Agricultural loans
Corproate loans
Investments
Yield management measures (%)
NIM
Cost of funds
Yield on advances (KS calc)
Yield on investments (KS calc)
Asset quality
169
983
171
108
705
596
189
1,146
214
173
759
720
203
1,049
198
147
703
753
223
1,108
208
106
794
850
249
1,155
207
107
841
903
47.7
17.4
21.3
(0.7)
19.2
51.4
3.8
4.8
8.9
7.7
3.4
5.6
9.2
7.4
3.3
6.1
10.1
7.2
3.8
6.2
10.8
7.7
3.8
6.3
11.0
8.1
Gross NPL (Rs bn)
Net NPL (Rs bn)
Gross NPL (%)
Net NPL (%)
Slippages (Rs bn)
Slippages (%)
Write-off (%)
Provision coverage (calc, %)
14.8
3.9
1.1
0.3
3.3
1.2
0.3
74.0
16.0
4.1
1.0
0.3
2.5
0.8
0.0
74.3
15.7
4.6
1.1
0.3
3.0
0.8
0.6
70.6
17.4
5.5
1.1
0.3
5.0
1.5
0.5
68.5
19.1
6.8
1.1
0.4
5.4
1.5
0.7
64.3
34,352
14,860
5,110
9,749
19,493
5,252
3,952
100
14,241
4,675
9,566
4
2
6
(1)
6
(20)
(15)
15
14
15
25.6
27.4
Key balance sheet items (Rs bn)
Deposits
Demand deposits
Savings
Current
Term deposits
CASA ratio (%)
Loans
Retail loans
20.4
32.0
29.1
77.1
60.2
38
Axis Bank
Balance sheet snapshot
March fiscal year-ends, 2QFY11-3QFY12 (%)
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4
173
1,569
190
62
1,998
208
619
1,106
19
46
1,998
4
182
1,558
256
67
2,067
168
596
1,235
20
48
2,067
4
186
1,892
263
82
2,427
214
720
1,424
23
46
2,427
4
196
1,836
223
72
2,331
188
753
1,319
23
48
2,331
4
206
1,945
268
84
2,506
176
850
1,401
23
57
2,506
4
217
2,087
308
77
2,693
196
903
1,487
23
85
2,693
Balance sheet
Capital
Reserves
Deposits
Borrowings
Other Liab & prov
Total liabilities
Cash
Investments
Loans
Fixed Assets
Other Assets
Total assets
Axis Bank—estimate changes
March fiscal year-ends, 2012-14E (` mn)
Net interest income
NIM (%)
Customer assets
Loan loss provisions
Other income
Fee income
Treasury income
Operating expenses
Employee expenses
PBT
Tax
Net profit
2012E
80,881
3.1
1,844,110
13,122
53,467
39,282
3,500
58,886
21,080
60,341
19,810
40,531
New estimates
2013E
2014E
93,823
111,095
3.0
3.0
2,161,577 2,550,936
20,044
28,282
61,328
70,258
43,996
50,155
5,500
7,000
69,171
81,914
23,683
27,596
64,936
70,157
21,319
23,032
43,618
47,124
2012E
78,674
3.0
1,860,912
12,417
54,707
39,953
4,000
58,410
20,604
60,695
19,926
40,769
Old estimates
2013E
2014E
97,114
114,268
3.1
3.1
2,181,586 2,574,878
19,326
26,370
64,255
74,367
47,145
55,159
4,500
4,500
69,443
81,695
23,955
27,377
70,600
79,070
23,178
25,959
47,422
53,111
% change
FY2012E FY2013E
FY2014E
2.8
(3.4)
(2.8)
(0.9)
5.7
(2.3)
(1.7)
(12.5)
0.8
2.3
(0.6)
(0.6)
(0.6)
(0.9)
3.7
(4.6)
(6.7)
22.2
(0.4)
(1.1)
(8.0)
(8.0)
(8.0)
(0.9)
7.2
(5.5)
(9.1)
55.6
0.3
0.8
(11.3)
(11.3)
(11.3)
39
Axis Bank
Rolling PER and PBR for Axis Bank
March fiscal year-ends, January 2000-January 2012 (X)
Rolling PER (X) (LHS)
Rolling PBR (X) (RHS)
Jul-11
Jan-12
Jul-10
Jan-11
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jul-06
Jan-07
Jul-05
Jan-06
0.0
Jul-04
0
Jan-05
1.0
Jul-03
5
Jan-04
2.0
Jan-03
10
Jul-02
3.0
Jan-02
15
Jul-01
4.0
Jul-00
20
Jan-01
5.0
Jan-00
25
40
Axis Bank
Axis Bank, growth rates, key ratios and Du Pont analysis
March fiscal year-ends, 2009-14E (%)
Growth rates (%)
Net loan
Total Asset
Deposits
Current
Savings
Fixed
Net interest income
Total other income
Net fee income
Net capital gains
Net exchange gains
Operating expenses
Employee expenses
Key ratios (%)
Yield on average earning assets
Yield on average loans
Yield on average investments
Average cost of funds
Interest on deposits
Difference
Net interest income/earning assets
New provisions/average net loans
Interest income/total income
Fee income/total income
Operating expenses/total income
Tax rate
Dividend payout ratio
Share of deposits
Current
Fixed
Savings
Loans-to-deposit ratio
Equity/assets (EoY)
Dupont analysis (%)
Net interest income
Net other income
Operating expenses
Invt. depreciation
(1- tax rate)
ROA
Average assets/average equity
ROE
2009
2010
2011
2012E
2013E
2014E
36.7
34.8
33.9
23.8
29.2
40.2
42.6
81.6
60.0
64.6
31.0
73.3
32.6
48.8
27.9
22.3
20.4
29.6
31.1
12.8
35.8
56.4
36.2
18.0
147.6
30.2
29.8
25.9
36.5
34.4
33.9
14.8
20.6
48.1
31.1
(19.6)
17.4
30.9
(48.7)
20.4
28.8
28.5
16.8
20.1
21.5
18.4
22.4
22.2
23.2
15.5
15.4
17.0
(4.5)
20.0
23.2
30.6
19.1
19.1
20.2
23.4
21.3
18.8
16.0
52.7
14.7
12.0
57.1
10.0
17.5
12.3
19.7
18.6
19.7
16.6
18.2
21.2
18.4
41.1
14.6
14.0
27.3
10.0
18.4
16.5
8.7
10.6
7.7
6.1
6.1
2.6
3.0
1.3
56.0
33.0
43.4
34.8
19.8
7.3
8.6
6.8
4.5
4.4
2.9
3.1
1.5
55.9
28.7
41.4
34.7
19.3
7.4
8.4
7.0
4.5
4.5
2.9
3.2
0.9
58.6
30.0
42.7
34.0
17.0
8.5
10.0
7.8
5.8
5.7
2.7
3.1
0.9
60.2
29.2
43.8
32.8
17.0
8.1
9.4
7.6
5.5
5.4
2.6
3.0
1.1
60.5
28.4
44.6
32.8
17.0
8.1
9.3
7.4
5.4
5.4
2.6
3.0
1.3
61.3
27.7
45.2
32.8
17.0
21.1
56.9
22.0
69.5
6.9
22.8
53.3
24.0
73.8
8.9
19.5
58.9
21.6
75.3
7.8
19.0
59.2
21.8
72.3
7.6
19.5
58.6
21.9
71.6
7.4
19.0
59.3
2.9
0.7
2.3
2.2
—
65.2
1.4
13.6
19.1
3.0
0.9
2.4
2.3
(—)
65.3
1.5
12.5
19.2
3.1
0.5
2.2
2.3
—
66.0
1.6
12.1
19.3
3.0
0.5
2.0
2.2
—
67.2
1.5
12.9
19.6
2.9
0.6
1.9
2.2
—
67.2
1.4
13.3
18.2
2.9
0.7
1.9
2.2
—
67.2
1.2
13.7
17.0
21.7
71.6
7.2
41
Axis Bank
Axis Bank, income statement and balance sheet
March fiscal year-ends, 2009-14E (` mn)
2009
2010
2011
2012E
2013E
2014E
108,355
74,659
30,515
71,493
62,089
36,862
9,032
27,830
28,969
21,733
2,884
3,595
28,582
9,977
1,078
(716)
27,855
9,701
18,154
69.5
34,364
75.1
116,380
79,866
34,283
66,335
57,145
50,045
14,126
35,919
39,458
25,652
7,140
4,681
37,097
12,558
(222)
(15)
38,517
13,372
25,145
38.5
45,265
25.7
151,548
104,031
44,387
85,918
74,985
65,630
11,363
54,266
46,321
33,574
3,663
5,636
47,794
16,139
993
437
51,364
17,479
33,885
34.8
60,494
52.0
220,587
154,117
64,487
139,706
120,361
80,881
13,122
67,759
53,467
39,282
3,500
6,763
58,886
21,080
1,000
1,000
60,341
19,810
40,531
19.6
71,963
19.2
253,184
171,674
79,344
159,361
137,670
93,823
20,044
73,780
61,328
43,996
5,500
7,440
69,171
23,683
500
500
64,936
21,319
43,618
7.6
80,480
4.6
299,314
202,775
94,101
188,220
164,359
111,095
28,282
82,813
70,258
50,155
7,000
8,184
81,914
27,596
500
500
70,157
23,032
47,124
8.0
92,439
6.3
Cash and bank balance
Cash
Balance with RBI
Balance with banks
Net value of investments
Govt. and other securities
Shares
Debentures and bonds
Net loans and advances
Fixed assets
Net owned assets
Other assets
Total assets
150,169
15,415
78,777
5,406
463,304
284,182
4,201
133,797
815,568
10,729
10,729
37,451
1,477,220
152,064
19,007
75,732
7,916
559,748
341,959
5,296
138,233
1,043,431
12,224
12,224
39,011
1,806,478
214,087
22,083
116,779
4,408
719,916
441,550
6,929
180,705
1,424,078
22,731
22,731
46,321
2,427,134
226,701
24,291
127,185
4,408
954,271
674,579
6,929
180,705
1,663,405
22,234
22,234
48,249
2,914,861
254,661
26,720
152,716
4,408
1,160,925
879,576
6,929
180,705
1,980,872
23,505
23,505
50,256
3,470,220
287,147
29,392
182,530
4,408
1,381,385
1,097,964
6,929
180,705
2,370,231
24,582
24,582
52,347
4,115,692
Deposits
Borrowings and bills payable
Other liabilities
Total liabilities
Paid-up capital
Reserves & surplus
Total shareholders' equity
1,173,741
174,566
26,765
1,375,072
3,590
98,558
102,148
1,413,002
200,800
32,230
1,646,032
4,052
156,394
160,446
1,892,378
298,522
46,245
2,237,145
4,105
185,883
189,988
2,299,716
346,286
46,245
2,692,247
4,243
218,371
222,614
2,764,707
401,691
46,245
3,212,644
4,243
253,333
257,576
3,308,136
465,962
46,245
3,820,343
4,243
291,106
295,349
Income statement (Rs mn)
Total interest income
Loans
Investments
Total interest expense
Deposits from customers
Net interest income
Net interest income (after prov.)
Other income
Net fee income
Net capital gains
Net exchange gains
Operating expenses
Employee expenses
Depreciation on investments
Other provisions
Pretax income
Tax provisions
Net Profit
% growth
PBT+provisions-treasury
% growth
42
REDUCE
UltraTech Cement (UTCEM)
Cement
JANUARY 23, 2012
RESULT
Coverage view: Neutral
Cost-pressures likely to outweigh pricing, downgrade to REDUCE. We downgrade
Ultratech (UTCEM) to REDUCE (ADD previously), as in our view the current trading
multiples (US$172/ton) continue to bank on a sustained pricing discipline while ignoring
(1) rising cost pressure, (2) a weak demand environment and (3) a prolonged capacity
overhang. We maintain our target price of Rs1,220—implying a trading multiple of
7.5X on FY2013E earnings.
UltraTech Cement
Stock data
1,235-883
Market Cap. (Rs bn)
332.6
Promoters
63.3
FIIs
17.0
MFs
1.3
1M
3M
12M
Absolute
8.2
8.3
18.5
Rel. to BSE-30
1.7
8.6
34.6
EPS (Rs)
EPS growth (%)
P/E (X)
Sales (Rs bn)
Net profits (Rs bn)
EBITDA (Rs bn)
EV/EBITDA (X)
ROE (%)
Div. Yield (%)
2011
44.9
(49.2)
27.1
132.1
12.3
28.3
11.9
16.7
0.4
2012E
79.7
77.7
15.2
177.9
21.8
42.6
7.8
18.7
0.5
Price (Rs): 1,214
BSE-30: 16,739
2013E
89.4
12.2
13.6
201.2
24.5
48.3
6.8
17.7
0.7
Operating performance in line, net income beats estimate driven by higher other income
UTCEM reported revenue of Rs45.7 bn (23% yoy, 17% qoq), operating profits of Rs9.6 bn (36%
yoy, 66% qoq) and net income of Rs6.2 bn (93% yoy, 121% qoq) against our estimate of Rs45.1
bn, Rs9.6 bn and Rs5.3 bn respectively. Volumes, realization and profitability were in line with our
estimates while net income beat estimate by 17%, driven by (1) higher-than-estimated other
income due to Rs666 mn of prior-period subsidies and (2) lower-than-estimated interest cost due
to a Rs384 mn subsidy from State Investment Promotion Scheme. We discuss the operational
performance in detail in a subsequent section.
Seasonal improvement in profitability, though headwinds exist
UTCEM registered a strong 53% sequential jump in profitability driven by (1) 8% (Rs17/bag)
increase in realizations and (2) stable operating costs. Cement prices, on average, increased by
Rs16-17/bag sequentially (with some moderation in December) after weakness during the
monsoon months. Prices in South India (~25% of UTCEM sales) were stable at Rs280-285/bag
through the quarter despite monsoon months in the south. Volume growth of 2% yoy and 8%
qoq was lower than the industry average of 11% and 9% respectively.
We remain watchful of the potential increase in power and fuel costs due to a revision in the
pricing structure as announced by Coal India. We factor an increase in power and fuel costs by
~Rs100/ton in FY2013.
Downgrade to REDUCE noting limited upside, cost pressure
We downgrade UTCEM to REDUCE (from ADD) noting limited potential upside to our target price
of Rs1,220. In our view, risks to earnings from (1) lower-than-estimated demand, (2) continued
demand-supply imbalance and (3) continued cost pressure outweigh the benefits of a potentially
continued pricing discipline. UTCEM trades at EV/ton of US$172/ton and EV/EBTDA of 7.5X on
FY2013E capacity and earnings respectively. We have revised our FY2012/13E EPS estimates by
5% and -2.4% to account for improved realizations and inflation in fuel costs respectively.
Cement
UltraTech Cement
Volume spurt in 3QFY12 due to low base, environment remains challenging
Industry volumes grew by an impressive 20% and 14% yoy in November and December
(11% in 3QFY11) respectively. We however note that this was likely due to the impact of
post-monsoon pent-up demand, magnified by lower bases.
We therefore remain watchful of the demand environment and do not construe this as a
structural shift in the demand pattern. Further, overall operating environment remains
challenging with (1) utilization rates unlikely to revive even in FY2013 and (2) potential cost
inflation driven by an impending diesel price hike and shift in pricing structure by Coal India.
Exhibit 1: Operating performance meets estimates, net income beats estimates, driven by higher other income
Quarterly results for UltraTech Cement, March fiscal year-ends (Rs mn)
Net sales
Raw materials
Employee costs
Power costs
Freight costs
Purchase of finished goods
Other costs
EBITDA
EBITDA (%)
Other income
Interest
Depreciation
PBT
Tax
Deferred tax
PAT
Extraordinaries
Reported PAT
Sales (mn tons)
Realization (Rs/ton)
Cost (Rs/ton)
Raw materials
Employee costs
Power & fuel costs
Freight costs
Purchase of finished goods
Other costs
Profitability (Rs/ton)
Tax rate (%)
3QFY12
45,719
(5,865)
(2,226)
(11,186)
(8,403)
(448)
(7,942)
9,649
21.1
1,554
(295)
(2,236)
8,672
(2,503)
6,169
6,169
10.0
4,563
3,600
585
222
1,116
839
45
793
963
28.9
45,090
37,152
39,098
(6,009)
(4,864)
(6,218)
(2,112)
(1,876)
(2,058)
(11,017)
(8,959)
(9,549)
(8,313)
(7,285)
(7,480)
(401)
(279)
(451)
(7,649)
(6,813)
(7,525)
9,591
7,078
5,816
21.3
19.1
14.9
923
606
1,034
(702)
(818)
(672)
(2,269)
(2,191)
(2,228)
4,675
3,951
7,543
(2,263)
(1,486)
(1,162)
—
—
5,280
3,190
2,789
—
5,280
3,190
2,789
10.0
4,502
3,545
600
211
1,100
830
40
764
958
30.0
9.8
3,791
3,069
496
191
914
743
28
695
722
31.8
9.3
4,222
3,594
671
222
1,031
808
49
813
628
29.4
Change (%)
1
23
17
1
36
66
17
93
121
0
1
2
20
8
8
1
33
53
2011
132,099
(17,435)
(6,665)
(31,226)
(28,849)
(1,222)
(21,279)
25,424
19.2
2,867
(2,771)
(7,657)
17,862
(5,107)
32
12,787
1,255
14,042
2012E
177,904
(23,006)
(8,602)
(44,072)
(32,622)
(1,500)
(29,838)
38,263
21.5
4,331
(2,468)
(9,032)
31,094
(8,311)
(940)
21,843
—
21,843
(% chg)
34.7
34.8
3,798
3,067
501
192
898
829
35
612
731
28.4
39.7
4,477
3,514
579
216
1,109
821
38
751
963
29.8
14.2
17.9
50.5
74.1
70.8
31.7
Detailed analysis of quarterly results
We discuss below some key highlights of 3QFY12 results.
` Volumes: Total volumes increased to 10 mn tons (2% yoy, 8% qoq) comprising 9.7 mn
tons of domestic sales and 0.3 mn tons of clinker and cement exports.
` Realization: Blended realizations increased to Rs4,563/ton in 3QFY12 (20% yoy, 8%
qoq). Sequential increase in blended realization was due to a sharp seasonal rebound in
prices after the weakness during monsoon months.
` Power and fuel cost: UTCEM’s power and fuel cost increased to Rs1,116/ton in
3QFY12 (22% yoy, 8% qoq) as moderation in imported coal price was offset by currency
depreciation. We expect further inflation in fuel costs in coming quarters due to a change
in pricing structure by Coal India in January 2012.
44
UltraTech Cement
Cement
` Freight cost: Freight cost increased to Rs839/ton in 3QFY12 (13% yoy, 4% qoq). We
note that despite a hike in diesel prices in June 2011, truck freight rates have remained
fairly stable due to an increased supply of trucks, leading to increased competition, as
reflected in moderate sequential inflation in freight cost.
` Raw material costs: Raw material costs declined sequentially to Rs585/ton (18% yoy,
-13% qoq).
Exhibit 2: Prices trend upwards after monsoon weakness
Cement prices, North, West and All India average (Rs/bag)
North
West
Exhibit 3: Prices in South continue to be robust
Cement prices, South, Central and East India (Rs/bag)
Central
All India average
East
South
270
285
265
245
245
220
225
195
205
185
170
165
145
145
Dec-11
Apr-11
Aug-11
Dec-10
Apr-10
Aug-10
Dec-09
Apr-09
Aug-09
Dec-08
Apr-08
Aug-08
Dec-07
Apr-07
Aug-07
Dec-06
Apr-06
Aug-06
Dec-11
Apr-11
Aug-11
Dec-10
Apr-10
Aug-10
Dec-09
Apr-09
Aug-09
Dec-08
Apr-08
Aug-08
Dec-07
Apr-07
Aug-07
Dec-06
Apr-06
Aug-06
Dec-05
Dec-05
120
125
Source: CMA, Kotak Institutional Equities estimates
Source: CMA, Kotak Institutional Equities estimates
45
Cement
UltraTech Cement
Exhibit 4: Profit model, balance sheet and cash model of UTCEM, March fiscal year-ends, 2009-14E
(Rs mn)
2009
Net sales
EBITDA
Other income
Interest
Depreciation
Pretax profits
Tax
Net profits
Extraordinary items
Total equity
Total borrowings
Cash
Current assets
Total fixed assets
Investments
Total assets
Working capital
Capital expenditure
Investments
Free cash flow
2010
2011
2012E
2013E
2014E
63,831 70,497
15,861 18,776
1,036
1,227
(1,255) (1,175)
(3,230) (3,881)
12,411 14,947
(3,844) (4,949)
8,567
9,998
—
—
78.8
88.2
132,099
25,424
2,867
(2,771)
(7,657)
17,862
(5,075)
12,787
1,255
44.9
177,904
38,263
4,331
(2,468)
(9,032)
31,094
(9,251)
21,843
—
79.7
201,191
44,052
4,295
(2,949)
(10,076)
35,322
(10,823)
24,499
—
89.4
224,060
49,881
4,366
(2,728)
(11,215)
40,305
(12,939)
27,366
—
99.9
43,250
21,416
12,427
77,094
1,045
12,571
53,130
10,348
77,094
54,394
16,045
12,991
83,430
837
13,887
52,011
16,696
83,430
123,961
41,446
34,539
199,946
1,448
36,139
125,056
37,303
199,946
145,140
35,646
45,100
225,887
845
48,231
139,024
37,303
225,402
168,768
36,796
50,809
256,372
2,037
54,385
162,164
37,303
255,888
196,916
30,146
56,489
283,551
12,388
60,428
172,948
37,303
283,067
12,518 12,681
193
541
(8,226) (2,592)
(8,639) (6,348)
(4,154) 4,283
22,391
(704)
(12,419)
—
9,268
33,623
(1,531)
(23,000)
—
9,093
38,107
(445)
(33,216)
—
4,446
43,665
(363)
(22,000)
—
21,302
46
SELL
Asian Paints (APNT)
Consumer products
JANUARY 20, 2012
RESULT
Good performance in tough operating conditions. While APNT’s volumes continue
to decelerate (likely ~5% growth ) in 3QFY12, its EBITDA margins (flat yoy) surprised
positively—the full impact of Rupee depreciation and higher TiO2 prices will be seen in
1HCY12E while volumes will likely decelerate further. Retain SELL due to (1) expensive
valuations and (2) potential for downgrades (our FY2013E earnings estimates are ~10%
lower than Street).
Asian Paints
Stock data
3,387-2,364
Market Cap. (Rs bn)
262.1
Promoters
52.8
FIIs
17.6
MFs
1.5
1M
3M
12M
Absolute
3.1
(13.4)
2.2
Rel. to BSE-30
(4.7) (11.1)
16.5
EPS (Rs)
EPS growth (%)
P/E (X)
Sales (Rs bn)
Net profits (Rs bn)
EBITDA (Rs bn)
EV/EBITDA (X)
ROE (%)
Div. Yield (%)
2012
94.4
16.8
29.0
78.4
9.1
14.2
18.2
39.9
1.0
2013E
106.9
13.3
25.6
90.3
10.3
17.2
14.8
35.6
1.3
Price (Rs): 2,732
BSE-30: 16,644
2014E
132.3
23.8
20.7
106.5
12.7
20.7
12.0
34.9
1.3
Decelerating volume growth trend continues
APNT reported standalone (domestic business) net sales of Rs21.1 bn (+20% yoy, KIE Rs21 bn),
EBITDA of Rs3.6 bn (+20% yoy, KIE Rs3.3 bn) and PAT of Rs2.5 bn (+21% yoy, KIE Rs2.3 bn).
` 20% sales growth is likely driven by volume growth of ~5% and pricing/mix growth of ~15%.
Lower sales growth this quarter (trailing four quarters had >24% sales growth) is likely on
account of high base as well as slowdown in overall macro-economic environment and steep
price increases taken by the company.
` EBITDA margin at 17.2% was commendable – gross margin was flat yoy and qoq at 41% - this
is surprising given that titanium dioxide remained inflationary during the quarter and
depreciation of INR would have also likely impacted material cost. Marginal savings in staff cost
was offset by higher other expenditure – likely higher adspends and freight costs. We expect
moderation in EBITDA margins in 1HCY12E—full impact of Rupee depreciation and higher TiO2
prices will be seen in 1HCY12E while volumes will likely decelerate further.
` At a consolidated level, sales growth increased by 22% to Rs25.6 bn and EBITDA increased by
15% to Rs4 bn.
Key monitorables
` Sales volume trajectory – In CY2011, volume growth trajectory dipped to 12% in 1QCY11,
11% in 2QCY11, 8% in 3QCY11 and 5% in 4QCY11. As highlighted by us in our earlier note
‘It’s still not late to SELL’, APNT’s volumes have grown at an average 2X GDP growth rate over
the last ten years, but during times of GDP deceleration, the impact on rate of growth is
potentially higher.
Consumer products
Asian Paints
` Margin trend – key inputs like Titanium dioxide, mineral turpentine oil continue to remain
inflationary on yoy basis. Industry experts suggest that major producers of TiO2 have hiked
prices by ~5-7% effective January 1, 2012 (due to higher prices of feedstock ilmenite ore
and titanium slag). If the company is unable to pass on the impact through price hikes (it
has already taken 24% price hike in past 18 months), there may be downside risks to our
estimates. We model EBITDA margin of 17.8% (expansion of 100 bps) and 18.1% for
FY2013E and FY2014E.
` Mix improvement – over the past few years, the company’s sales and margin profile has
benefitted from mix improvement in favor of emulsions. Emulsions now accounts for
~45% of its sales, hence maintaining historical growth trend in uptrading appears
challenging.
` Market share gains - during FY2006-11, APNT’s value market shares (amongst top-4
players) have increased to 53% from 44% and it has gained volume market shares to
52% from 49% (it has likely witnessed higher-than-industry uptrading, in our view). Its
average annual volume growth during the period was ~16%. In our view, the share gains
were mainly due to benign competitive activity. However competition is getting
increasingly active and we would look out for its ability to maintain such share gains.
Retain SELL
We retain SELL on Asian Paints with a target price of Rs2,500. Our worries about APNT are
intact, (1) uncertainty in international operations, particularly Middle East and Egypt
operations, (2) scope to take further price hikes is limited and (3) likely moderation in
decoratives paint demand, auto and industry may not provide buffer. We remain bullish on
the medium-term (2-3 years) prospects of the paint industry. However, we believe expensive
valuations and near-term earnings risk could provide better entry points. Key upside risks
include higher-than-expected demand conditions and significant correction in input costs
providing opportunity for APNT to improve margins.
48
Asian Paints
Consumer products
Interim standalone results of Asian Paints, March fiscal year-ends (Rs mn)
Net sales
Total expenditure
Material cost
Staff cost
Other expenditure
EBITDA
OPM (%)
Other income
Interest
Depreciation
Pretax profits
Tax
Net income
Income tax rate (%)
3QFY12
21,095
(17,468)
(12,533)
(832)
(4,102)
3,628
17.2
255
(62)
(249)
3,572
(1,067)
2,505
29.9
3QFY12E
21,006
(17,703)
(12,661)
(899)
(4,142)
3,304
15.7
306
(41)
(275)
3,294
(1,031)
2,263
31.3
3QFY11
17,542
(14,526)
(10,446)
(738)
(3,343)
3,016
17.2
207
(36)
(238)
2,949
(883)
2,066
29.9
2QFY12
18,436
(15,610)
(10,912)
(850)
(3,848)
2,826
15.3
493
(66)
(250)
3,003
(874)
2,129
29.1
59.4
3.9
19.4
60.3
4.3
19.7
59.5
4.2
19.1
59.2
4.6
20.9
20,885
641
17,446
429
3,864
32
15,196
640
9,996
Cost as a % of sales
Material cost
Staff cost
Other expenditure
Segment results of Asian Paints
Revenue
Paints
Others
PBIT
Paints
Others
Capital employed
Paints
Others
Unallocated
(% chg)
0
20
14
20
12
20
15
13
(2)
23
7
10
20
28
23
70
5
21
21
21
(48)
(6)
(0)
19
22
18
18,298
614
20
49
14
4
3,013
26
3,033
43
28
27
27
(25)
11,762
503
8,393
15,451
641
7,236
29
27
19
(2)
(0)
38
8
11
Interim consolidated results of Asian Paints Ltd., March fiscal year-ends (Rs mn)
49
Consumer products
Asian Paints
Net sales
Total expenditure
Material cost
Staff cost
Other expenditure
EBITDA
OPM (%)
Other income
Interest
Depreciation
Pretax profits
Tax
Net income
Income tax rate (%)
3QFY12
25,605
(21,632)
(15,514)
(1,318)
(4,800)
3,974
15.5
225
(90)
(307)
3,802
(1,138)
2,664
29.9
3QFY11
20,996
(17,547)
(12,535)
(1,115)
(3,897)
3,449
16.4
194
(59)
(286)
3,298
(974)
2,324
29.5
2QFY12
22,508
(19,279)
(13,507)
(1,287)
(4,485)
3,229
14.3
292
(88)
(300)
3,133
(955)
2,179
30.5
60.6
5.1
18.7
59.7
5.3
18.6
60.0
5.7
19.9
Cost as a % of Sales
Material cost
Staff cost
Other expenditure
(% chg)
3QFY11 2QFY12
22
14
23
12
24
15
18
2
23
7
15
23
16
54
7
15
17
15
(23)
2
2
21
19
22
Titanium dioxide prices continue to be inflationary
Trend in titanium dioxide price (indexed to base)
220
200
180
160
140
120
Nov-11
Jul-11
Sep-11
May-11
Jan-11
Mar-11
Sep-10
Nov-10
Jul-10
Mar-10
May-10
Jan-10
Nov-09
Jul-09
Sep-09
May-09
Jan-09
Mar-09
Sep-08
Nov-08
Jul-08
May-08
100
50
Asian Paints
Consumer products
Price increase season continues
Price index of APNT's products (X)
140
130
120
110
100
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
90
Input cost inflation hurting margins
Quarterly gross margins (%)
50
40
30
20
10
Mar-11
Mar-10
Mar-09
Mar-08
Dec-11
Dec-10
Dec-09
Dec-08
Sep-11
Sep-10
Sep-09
Sep-08
Jun-11
Jun-10
Jun-09
'Jun-08
0
51
Consumer products
Asian Paints
EBITDA margins likely to remain well below the peak of FY2010
EBITDA margins, March fiscal year-ends, 2006-13E (%)
20
18
16
14
12
2013E
2012E
2011
2010
2009
2008
2007
2006
10
Deceleration in volume growth in FY2012E and FY2013E
Asian Paints domestic volume growth, March fiscal year-ends, 1994-2013E
900
Paints volumes, tons (LHS)
23
22
Growth, % (RHS)
25
19
750
18
600
12
13
12
450
13
10
300
17
14
16
20
17
13
13
11
12
9
15
10
5
2013E
2012E
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
0
1997
0
1996
5
1995
150
52
Asian Paints
Consumer products
Yoy sales growth in domestic car sales has weakened
Monthly domestic car sales and sales growth
Car sales - LHS
250,000
Yoy sales growth (%) - RHS
48
36
200,000
24
150,000
12
100,000
0
(12)
50,000
(24)
Oct-11
Nov-11
Sep-11
Aug-11
Jul-11
Jun-11
May-11
Apr-11
Mar-11
Feb-11
Jan-11
Dec-10
Nov-10
Oct-10
Sep-10
Jul-10
Aug-10
Jun-10
May-10
(36)
Apr-10
0
Relative P/E of Asian Paints versus Sensex (X)
2.8
2.4
2.0
1.6
1.2
0.8
0.4
Apr-11
Apr-10
Apr-09
Apr-08
Apr-07
Apr-06
Apr-05
Apr-04
Apr-03
Apr-02
Apr-01
Apr-00
Apr-99
Apr-98
Apr-97
Apr-96
Apr-95
Apr-94
Apr-93
0.0
53
Consumer products
Asian Paints
Asian Paints: Profit model, balance sheet, cash model 2008-2014E, March fiscal year-ends (Rs mn)
2008
2009
2010
2011
2012E
2013E
2014E
Net sales
EBITDA
Other income
Interest
Depreciation
Pretax profits
Tax
Net profits
34,191
5,564
602
(83)
(438)
5,645
(1,880)
3,766
39.3
42,701
5,613
601
(104)
(572)
5,538
(1,836)
3,702
38.6
51,251
10,153
808
(191)
(607)
10,163
(3,302)
6,861
71.5
63,222
11,445
882
(154)
(945)
11,228
(3,477)
7,752
80.8
78,411
13,174
1,087
(172)
(1,093)
12,996
(3,942)
9,054
94.4
90,280
16,060
1,362
(303)
(1,898)
15,221
(4,967)
10,254
106.9
106,543
19,267
1,917
(327)
(2,143)
18,715
(6,020)
12,694
132.3
Total equity
Total borrowings
Cash
Current assets
Total fixed assets
Investments
Total assets
9,285
947
9,516
315
20,063
414
10,029
5,392
4,229
20,063
10,945
745
9,577
479
21,747
1,283
10,999
7,118
2,348
21,747
15,572
686
14,604
479
31,342
286
13,137
10,882
7,037
31,342
19,753
649
17,460
755
38,617
205
17,096
10,969
10,348
38,617
25,665
1,649
22,130
1,013
50,456
146
21,087
18,876
10,348
50,457
31,991
1,649
25,159
724
59,523
4,401
23,796
20,978
10,348
59,523
40,758
1,649
28,727
278
71,412
11,260
27,969
21,835
10,348
71,412
4,240
27
(2,365)
1,903
4,082
(965)
(2,297)
820
8,102
2,054
(4,372)
5,785
8,347
(1,654)
(1,032)
5,662
9,962
1,111
(9,000)
2,074
11,382
(230)
(4,000)
7,153
13,905
(688)
(3,000)
10,216
21.3
16.3
40.4
24.9
13.1
(1.7)
20.0
19.8
85.3
23.4
18.1
13.0
24.0
16.8
16.8
15.1
17.8
13.3
18.0
18.1
23.8
Working capital
Capital expenditure
Free cash flow
Key assumptions (%)
Revenue growth
EBITDA margin
EPS growth
54
REDUCE
JSW Steel (JSTL)
Metals & Mining
JANUARY 20, 2012
RESULT
Decent quarter, unsupportive valuations. JSW Steel reported EBITDA of Rs12.5 bn,
30.3% ahead of our estimates. However, after accounting for forex losses on raw
material acceptances above EBITDA line, performance was broadly in line with our
estimates. JSW has shown admirable resilience in keeping up production and increasing
capacity utilization against the backdrop of continued challenges in sourcing iron ore.
However, relatively expensive valuations and permanent increase in sourcing cost hurt
profitability, return ratios and valuations. REDUCE with a revised TP of Rs610/share.
JSW Steel
Stock data
1,055-462
Market Cap. (Rs bn)
146.2
Promoters
37.7
FIIs
22.9
MFs
0.2
1M
3M
12M
Absolute
37.9
11.1
(38.0)
Rel. to BSE-30
25.0
12.4
(29.4)
EPS (Rs)
EPS growth (%)
P/E (X)
Sales (Rs bn)
Net profits (Rs bn)
EBITDA (Rs bn)
EV/EBITDA (X)
ROE (%)
Div. Yield (%)
2012
63.3
(19.4)
10.2
334.4
24.2
56.0
5.7
14.1
1.5
2013E
74.9
18.2
8.6
401.5
16.9
59.3
6.1
9.2
1.5
Price (Rs): 647
BSE-30: 16,739
2014E
90.6
21.1
7.1
411.1
20.5
64.8
5.8
10.3
1.5
Standalone performance in line with our estimates
JSW reported standalone EBITDA of Rs12.5 bn (-3.4% qoq, +25.2% yoy), 30.3% ahead of our
estimate of Rs9.6 bn on account of (1) better-than-expected realization of Rs41,193/tonne
(US$808/tonne) as against our estimate of Rs40,435/tonne (US$793/tonne) and (2) lower-thanexpected raw material costs at US$531/tonne as against our estimate of US$547/tonne. Raw
material costs do not the capture the full impact of Rupee depreciation. Forex losses of Rs5 bn
arising from acceptances of coking coal and other raw material is shown in extraordinary items.
EBITDA would have been in line with our estimates if Fx loss was reported above EBITDA line.
Net income declined 56% yoy to Rs1.7 bn owing to higher depreciation and interest outgo on
commissioning of the 3.2 mtpa Vijayanagar expansion, partly neutralized by tax credit of Rs1.4 bn
pertaining to provisions for VAT written back.
Steel deliveries guidance can be met with assured iron ore supply
JSW Steel maintained crude steel production guidance of 7.5 mn tonnes for FY2012E. The
company is running the Vijayanagar plant at a capacity utilization of 84%. Production can be
maintained with continued supply of iron ore; removal of ban on iron ore mining in Karnataka is
critical in our view. Note that infrastructural and procedural bottlenecks have led to delay in receipt
of iron ore despite JSW purchasing 7 mn tonnes through the e-auction route (the company has
received only 52% of iron ore successfully bid for). The company reiterated that regular sourcing
of iron ore would enable it to produce around 9.5-10 mn tonnes in FY2013E.
Maintain EBITDA but cut EPS estimates; REDUCE rating stays with TP of Rs610
We cut EPS estimates due to below-EBITDA adjustments, viz. increase in borrowing costs. Potential
trigger for the stock arises out of possible lifting to some extent of the iron ore mining ban in
Karnataka by the Supreme Court—decision on the same may be taken on Jan 27, 2012. However,
in the interim domestic overcapacity, continued iron ore sourcing issues and possible pricing
pressures will continue to plague the company’s performance and profitability. We maintain our
REDUCE rating and revise our TP to Rs610 (Rs545 earlier) based on end-2013E financials.
Metals & Mining
JSW Steel
Leverage hurts—debt unlikely to decline for the next few years
JSW’s overall debt is unlikely to decline over the next two years. Expansion plans, greenfield
projects and acquisitions will keep debt at elevated levels. The company highlighted that it
has a total of Rs150 bn to be spent as capex over FY2012-14E which will be directed
towards (1) JSW Bengal project, (2) for new cold rolling mill, and (3) on the expansion in
capacity at Vijayanagar. Out of the total planned capex, around Rs80 bn would be financed
through internal accruals and the balance through debt. Around Rs30 bn has already been
spent to date and the company expects to incur a further Rs10 bn in 4QFY12E and the
balance would be spent over the next couple of years. We expect net debt/ EBITDA of 3.6X
and 3.4X for FY2013E and FY2014E respectively (refer exhibit below).
Exhibit 1: JSW Steel consolidated leverage details, March fiscal year-ends, FY2012-14E (X)
EBITDA (Rs mn)
Shareholders funds
Net debt
Net debt/ EBITDA (X)
Net debt/ Equity (X)
2012E
56,040
176,635
169,391
3.0
1.0
2013E
59,309
190,585
210,991
3.6
1.1
2014E
64,844
208,099
223,252
3.4
1.1
Key result highlights
` The weighted average cost of iron ore decreased sequentially to around Rs3,2503,300/tonne as against Rs3,420/tonne in the previous quarter. Going forward, the
company expects iron ore costs to trend downwards in sync with the fall in international
iron ore prices.
` The weighted average coal cost for the quarter (excluding thermal coal) was around
US$255/tonne and is expected to trend downwards over the next couple of quarters in
sync with the fall in coking coal prices.
` The company is awaiting environmental clearances before proceeding in full swing
towards setting up an integrated steel plant in West Bengal. It plans to incur a total capex
of around Rs200 bn. As of today, it has spent around Rs2.5 bn towards this project
including amount spent towards land acquisition.
` Out of the total steel deliveries of 1,908 kt in 3QFY12, around 195 kt were sourced from
Ispat Industries. Around 18% of the total deliveries were exported.
` The company does not see much downsides to steel prices over the next few months and
given the fall in input costs across the board, expects some visible improvement in
margins in 4QFY12E.
` The US plate mill improved its utilization levels to 42% of installed capacity in November
from 37% in 2QFY12. However, it undertook a 25-day maintenance shutdown in
December, investing around US$8-10 mn in improving the existing facilities to cater to
high-end pipe and plate products. As a result, capacity utilization for 3QFY12 was lower
at 28% of installed capacity.
` Shipments at Chile iron ore mines came to a standstill in November due to off-season and
one would have to wait till mid-February for shipments to resume.
56
JSW Steel
Metals & Mining
Exhibit 2: JSW Steel, Change in estimates, March fiscal year-ends, 2012E-14E (Rs mn)
Net sales
EBITDA
PAT
EPS
Saleable steel volumes ('000 tonnes)
HRC price (US$/tonne)
Iron ore cost (US$/tonne)
EBITDA/tonne (US$/tonne)
Revised estimates
2012E
2013E
2014E
334,378
401,515
411,060
56,040
59,309
64,844
14,313
16,920
20,485
63.3
74.9
90.6
7,732
744
70
153
9,454
690
63
118
10,128
695
61
127
2012E
322,006
49,027
10,950
48.5
Old estimates
2013E
393,909
59,100
17,534
77.6
7,571
728
69
136
9,293
690
63
120
2014E
408,723
65,072
22,701
100.4
2012E
3.8
14.3
30.7
30.7
% change
2013E
1.9
0.4
(3.5)
(3.5)
2014E
0.6
(0.4)
(9.8)
(9.8)
10,128
695
61
128
2.1
2.2
0.7
12.7
1.7
—
0.6
(1.5)
—
—
—
(0.4)
Exhibit 3: Interim results of JSW Steel (standalone), March fiscal year-ends (Rs mn)
Net sales
Other operating income
Total expenditure
Inc/(Dec) in stock
Raw materials
Power & Fuel
Staff cost
Other expenditure
EBITDA
Other income
Interest
Depreciation
Profit before tax
Extraordinaries
Tax
Net income
Ratios
ETR (%)
EPS (Rs)
Per ton analyis (US$/tonne)
Realization
Raw material consumption
Power & Fuel
Staff cost
Other expenditure
EBITDA
Steel deliveries ('000 tonnes)
3QFY12
78,596
169
(66,239)
1,434
(53,100)
(4,392)
(1,502)
(8,678)
12,526
8
(2,818)
(4,444)
5,271
5,001
1,412
1,682
3QFY12E
77,346
115
(67,845)
—
(53,358)
(4,626)
(1,572)
(8,290)
9,616
461
(2,461)
(4,443)
3,172
2,100
(300)
772
3QFY11
57,714
361
(48,074)
(1,313)
(35,979)
(3,009)
(1,277)
(6,496)
10,002
79
(1,320)
(3,464)
5,297
—
(1,474)
3,823
2QFY12
76,251
71
(63,360)
1,433
(50,836)
(4,351)
(1,463)
(8,144)
12,961
368
(2,344)
(4,039)
6,947
5,130
(546)
1,271
NM
7.5
28.0
3.1
27.8
17.1
30.0
5.7
808
2
531
45
15
89
129
1,908
793
1
547
47
16
85
99
1,913
806
5
521
42
18
91
140
1,593
884
1
573
50
17
94
150
1,882
3QFY12E
1.6
—
(2.4)
—
(0.5)
(5.1)
(4.4)
4.7
30.3
(98.3)
14.5
0.0
66.2
138.1
NM
117.9
(% chg.)
3QFY11
36.2
(53.3)
37.8
(209.2)
47.6
46.0
17.7
33.6
25.2
(90.4)
113.5
28.3
(0.5)
—
NM
(56.0)
2QFY12
3.1
138.5
4.5
0.1
4.5
0.9
2.7
6.6
(3.4)
(97.9)
20.2
10.0
(24.1)
(2.5)
NM
32.3
1.9
47.0
(2.9)
(4.8)
(4.2)
4.9
30.6
(0.3)
0.2
(65.7)
1.9
7.4
(13.4)
(1.7)
(7.9)
19.8
(8.6)
111.4
(7.3)
(10.5)
(9.0)
(5.5)
(14.3)
1.4
Exhibit 4: JSW Steel, Valuation details, March fiscal year-ends, 2013E basis (Rs mn)
Consolidated EBITDA
EBITDA
Multiple
(Rs mn)
(X)
58,231
6.0
Value
(Rs mn)
349,386
(Rs/share)
1,546
Net debt
210,991
934
Arrived market capitalization
138,396
612
Target price (Rs)
610
57
Metals & Mining
JSW Steel
Exhibit 5: JSW Steel, Key assumptions, March fiscal year-ends, 2009-14E (Rs mn)
2009
4,800
3,421
831
892
181
45.8
Crude steel capacity ('000 tonnes)
Saleable steel volumes ('000 tonnes)
HRC price (US$/tonne)
Average realizations, net (US$/ tonne)
EBITDA (US$/tonne)
Re/US$ rate
2010
7,800
5,705
647
695
163
45.9
2011
7,800
6,099
744
833
165
45.6
2012E
11,000
7,732
744
838
153
48.7
2013E
11,000
9,454
690
757
118
52.5
2014E
11,000
10,128
695
761
127
50.0
Exhibit 6: JSW Steel (standalone), Profit model, balance sheet and cash flow model, March fiscal year-ends, 2009-14E (Rs mn)
Net sales
EBITDA
Other income
Interest
Depreciaiton
Profit before tax
Current tax
Deferred tax
Net profit
Equity
Total Borrowings
Current liabilities
Total liabilities
Net fixed assets
Investments
Cash
Total assets
Operating cash flow excl. working
Capital expenditure
Free cash flow
Ratios
Debt/equity (X)
Net debt/equity (X)
RoAE (%)
RoACE (%)
2009
2010
2011
2012E
2013E
2014E
139,744
28,331
2,596
(7,973)
(8,277)
6,776
40
(2,231)
4,585
50.0
182,025
42,729
5,328
(8,627)
(11,234)
28,197
(2,277)
(5,692)
20,228
101.8
231,632
45,735
2,826
(6,952)
(13,787)
27,823
(3,839)
(3,877)
20,107
90.1
315,518
52,797
637
(9,466)
(16,585)
17,533
(2,944)
(1,163)
13,426
59.4
375,935
54,443
737
(11,773)
(19,270)
24,138
(6,311)
(930)
16,896
74.8
385,289
60,042
842
(13,541)
(21,197)
26,146
(7,100)
(744)
18,302
81.0
79,593
14,212
112,726
75,572
282,103
223,285
12,501
4,200
42,117
—
282,103
97,063
19,650
115,851
76,219
308,783
235,504
17,684
2,871
52,724
—
308,783
172,253
23,170
119,513
100,647
415,584
272,712
40,988
18,869
83,015
—
415,584
182,261
24,333
173,211
92,445
472,251
299,601
41,609
30,135
100,906
—
472,251
196,187
25,264
208,173
77,321
506,944
324,605
41,609
26,383
114,347
—
506,944
211,519
26,008
222,699
63,161
523,386
343,368
41,609
21,980
116,428
—
523,386
19,856
20,706
(55,537)
(14,976)
40,331
(7,353)
(26,702)
6,276
41,230
(20,800)
(49,089)
(28,660)
41,668
(25,563)
(43,474)
(27,370)
50,617
(28,565)
(44,274)
(22,222)
55,492
(16,241)
(39,960)
(709)
1.4
1.4
9.7
9.4
1.2
1.1
12.7
12.4
0.7
0.6
11.2
9.9
1.0
0.8
12.5
10.0
1.1
0.9
9.2
7.4
1.1
0.9
8.8
7.5
58
JSW Steel
Metals & Mining
Exhibit 7: JSW Steel (consolidated), Profit model, balance sheet and cash flow model, March fiscal year-ends, 2009-14E (Rs mn)
Net sales
EBITDA
Other income
Interest
Depreciaiton
Profit before tax
Extra-ordinary items
Current tax
Deferred tax
Net profit
Minority interest
Share of earnings from associates
PAT
Adjusted PAT
Equity
Total Borrowings
Current liabilities
Minority interest
Total liabilities
Net fixed assets
Goodwill on consolidation
Investments
Cash
Total assets
Capital expenditure
Free cash flow
Ratios
Debt/equity (X)
Net debt/equity (X)
RoAE (%)
RoACE (%)
2010
2011
2012E
2013E
2014E
190,738
41,873
4,194
(11,080)
(12,987)
22,000
—
(2,286)
(4,182)
15,533
332
111
15,976
15,976
80.4
239,002
46,627
2,840
(9,454)
(15,597)
24,417
—
(3,855)
(3,968)
16,594
239
707
17,540
17,540
78.6
334,378
56,040
650
(11,462)
(18,500)
26,728
(9,849)
(1,663)
250
15,465
(223)
(930)
14,313
23,192
63.3
401,515
59,309
751
(13,944)
(21,373)
24,743
—
(5,958)
(194)
18,591
(478)
(1,192)
16,920
16,920
74.9
411,060
64,844
855
(15,605)
(23,224)
26,870
—
(6,823)
(43)
20,004
(418)
899
20,485
20,485
90.6
92,572
16,848
161,730
80,727
2,187
354,063
284,090
8,992
6,282
3,030
51,669
354,063
165,293
20,494
164,744
106,014
2,358
458,903
323,183
10,932
29,138
20,480
75,169
458,903
176,635
20,244
220,554
123,088
2,581
543,103
348,363
10,932
28,209
51,163
104,436
543,103
190,585
20,439
249,328
108,718
3,060
572,130
371,539
10,932
27,016
38,338
124,305
572,130
208,099
20,482
253,038
91,998
3,478
577,095
388,557
10,932
27,916
29,786
119,904
577,095
38,323
(4,710)
(27,245)
6,368
41,439
(13,137)
(52,994)
(24,691)
33,716
(12,192)
(43,680)
(22,157)
40,158
(34,238)
(44,549)
(38,629)
43,271
(12,320)
(40,242)
(9,291)
1.7
1.7
18.7
10.9
1.0
0.9
13.6
9.5
1.2
1.0
8.4
9.6
1.3
1.1
9.2
7.7
1.2
1.1
10.3
7.8
59
ADD
Godrej Consumer Products (GCPL)
Consumer products
JANUARY 20, 2012
RESULT
Good quarter, one more acquisition and a preferential allotment. GCPL’s 3QFY12
performance was excellent—good sales growth in key markets (India 20%, Indonesia
35%, LatAm 29%) and mix-improvement led margin expansion. Its international
expansion continues—acquires 60% in Cosmetica, Chile—a value-for-money hair color
player for ~Rs3.3 bn (2X CY2011 sales and 9X EBITDA). GCPL is issuing 16 mn shares
(~5% dilution) at Rs410/share to Temasek; this could potentially reduce the debt/equity
to ~0.8 from 1.1. Our positive view on the stock remains—the key reason being our
strong positive view on its prospects in insecticides business. Retain ADD and TP Rs460.
Godrej Consumer Products
Stock data
470-325
Market Cap. (Rs bn)
129.4
Promoters
67.3
FIIs
19.7
MFs
2.1
1M
3M
12M
Absolute
2.5
(2.4)
(3.3)
Rel. to BSE-30
(5.3)
0.2
10.3
EPS (Rs)
EPS growth (%)
P/E (X)
Sales (Rs bn)
Net profits (Rs bn)
EBITDA (Rs bn)
EV/EBITDA (X)
ROE (%)
Div. Yield (%)
2012
16.8
13.1
23.8
46.8
5.5
8.9
16.5
27.6
0.8
2013E
21.8
29.8
18.3
59.5
7.4
11.4
12.3
28.9
0.8
Price (Rs): 403
BSE-30: 16,644
2014E
25.6
17.3
15.6
67.8
8.7
12.9
10.4
30.9
1.0
Good all-round performance
Standalone: GCPL reported sales of Rs7,655 mn (+20% yoy), EBITDA of Rs1,457 mn (+21% yoy)
and PAT of Rs1,253 mn (+21% yoy).
` Sales growth of 20% was driven by 30% growth in household insecticides, 31% growth in
soaps and 9% growth in hair color. The quarter benefitted from price hikes taken in soaps,
distribution led growth and market share gains in household insecticides (benefit of GCPL and
GHPL merger).
` EBITDA margin improved marginally by 22 bps to 19% on the back of 50 bps savings in staff
cost and 159 bps savings in adspends. On a yoy basis material cost is up 67 bps but on qoq
basis it is down 356 bps – palm oil has price has started correcting and the company is set to
benefit from the same if the trend continues. Other expenditure is higher by 120 bps yoy likely
due to higher freight cost (due to higher tonnage shipped as well).
` We reckon that it has gained market shares in soaps, insecticides and lost in hair color. GCPL
has discontinued providing market shares in domestic categories in the investor communication.
Consolidated: GCPL reported sales of Rs13,441 mn (+36% yoy, KIE est Rs12,398 mn), EBITDA of
Rs2,653 mn (+60%, KIE est Rs2,160 mn) and PAT of Rs1,888 mn (+57%, KIE est Rs1,544 mn).
` Megasari, Indonesia sales (~45% of international sales) increased by 35% yoy to Rs2.5 bn. The
company has been actively launching new products in this market – pursuant to the launch of
‘Magic Paper’, a household insecticide in paper format; the company has now launched an
electric repellent in 3QFY12. In our view, launch of the ‘Magic paper’ product in India is
underway.
Consumer products
` Africa sales constitute 33% of international sales – this quarter included Rapidol, Tura,
Kinky and Darling financials. The company has completed the acquisition of 51% stake of
Darling group operations in South Africa, Nigeria and Mozambique. According to
management, the full impact of synergy benefits between Kinky and Darling group is
expected from 4QFY12 onwards.
` LatAm sales increased by 29% yoy. Post 2% EBITDA margin in 1QFY12 due to increased
adspends towards the launch of the ammonia free hair colour under the Issue brand,
margins have been improving subsequently – 7% in 2QFY12 and 9% in 3QFY12.
Performance of these new products is important given the high brand investments made
towards these.
` UK sales grew by 43% but margins were weak at 6%
` The company has acquired 60% stake in a Chile based hair colour and colour cosmetics
company – Cosmetica Nacional—a value-for-money hair color player for ~Rs3.3 bn (2X
CY2011 sales and 9X EBITDA). GCPL will acquire 100% stake in 3-5 years through a
combination of put and call options. Key brands of the company are Pamela Grant, Illict,
and U2. Illict has leadership position in hair colour market and Pamela Grant is the no 2
player in the colour cosmetics market. Cosmetica Nacional clocked sales of USD 36 mn in
2011 and has EBITDA margin of ~20%. Domestic sales constitutes 90% of overall sales
mix and the balance is exports – it is present across 7 Latam countries. Segment wise, hair
color constitutes 62% of sales mix, color cosmetics 24%, facial treatment 4% and hair
care products 3%.
` The company announced that it has accepted a binding offer from Baytree Investments
(subsidiary of Temasek), to subscribe to 1,67,07,317 equity shares at a premium of Rs409
per equity share, for an aggregate issue size of Rs6,850 mn on preferential allotment.
While this results in a 5% dilution, it could potentially reduce debt/equity to ~0.8 from
1.1.
Transaction with Baytree
Shares outstanding (mn)
324
Shares issued to Baytree (mn)
17
Total shares outstanding (mn)
340
410
Price at which shares were issued (Rs)
Aggregate amount (Rs mn)
6,850
% stake to Baytree
4.9%
Implied valuation of GCPL (Rs mn)
139,522
Key monitorables
` Performance of acquisitions in FY2013E - GHPL, Megasari, Tura, Argencos, Issue Group
would have completed about two years under the GCPL fold and Cosmtica Nacional
would have completed a year.
` Movement of INR versus foreign currency basket and movement of LIBOR rates - the
company had net debt of Rs20 bn as on September 30, 2011 with D/E ratio being 1:1.
The Rupee debt is Rs2.5 bn and the rest is in USD. Effective interest cost is ~4% (without
taking currency hedging cost). The foreign currency debt is unhedged. Acquisition of
Cosmetica Nacional is also through dollar denominated debt
` Synergy benefits, accruing from the acquisitions made – (1) Megasari and GHPL, (2) GCPL
and GHPL, (3) Darling Group and Kinky, (4) Argencos and the Indian hair colour business.
61
Consumer products
Retain ADD; TP Rs460
We retain ADD rating on GCPL with target price of Rs460. We continue to value GCPL on
SOTP basis as the company operates in multiple categories with varying growth
characteristics and multiple geographies (India, Indonesia, Africa, UK and Latin America). The
key risks are (1) integration of the recent acquisitions, (2) increasing business, political and
currency risks due to operations in multiple geographies and (3) any unexpected increase in
competitive activity in domestic insecticides business.
Interim standalone results of Godrej Consumer Products, March fiscal year-ends (Rs mn)
3QFY12 3QFY11 2QFY12
Net sales
7,655
6,380
7,581
Total expenditure
(6,199)
(5,180)
(6,244)
Material cost
(3,635)
(2,986)
(3,869)
Staff cost
(447)
(405)
(305)
Advertising & promotion
(588)
(592)
(564)
Other expenditure
(1,528)
(1,198)
(1,506)
EBITDA
1,457
1,200
1,337
OPM (%)
19.0
18.8
17.6
Other income
237
171
232
Interest
(60)
(22)
(40)
Depreciation
(63)
(58)
(67)
Pretax profits
1,570
1,291
1,462
Tax
(317)
(259)
(242)
PAT
1,253
1,032
1,220
Extraordinary item
(75)
5
978
Reported PAT
1,178
1,036
2,198
Income tax rate (%)
20.2
20.1
16.6
Costs as a % of net sales
Material cost
Staff cost
Other expenditure
47.5
5.8
7.7
20.0
46.8
6.3
9.3
18.8
(% chg)
3QFY11 2QFY12
20
1
20
(1)
22
(6)
11
46
(1)
4
28
2
21
9
39
173
9
22
22
21
2
51
(6)
7
31
3
51.0
4.0
7.4
19.9
Segment revenue of Godrej Consumer Products
Personal wash
2,450
2,653
Home care
3,445
3,487
Hair care
766
834
Others
766
379
Exports
306
303
(8)
(1)
(8)
102
1
62
Consumer products
Interim consolidated results of Godrej Consumer Products, March fiscal year-ends (Rs mn)
3QFY12 3QFY12E 3QFY11 2QFY12
Net sales
13,441
12,398
9,888
11,860
Total expenditure
(10,788) (10,238)
(8,231)
(9,772)
Material cost
(6,244)
(5,827)
(4,613)
(5,678)
Staff cost
(1,108)
(868)
(831)
(819)
Advertising & promotion (1,121)
(1,116)
(1,106)
(1,110)
Other expenditure
(2,315)
(2,427)
(1,681)
(2,166)
EBITDA
2,653
2,160
1,657
2,088
OPM (%)
19.7
17.4
16.8
17.6
Other income
248
240
87
220
Interest
(287)
(245)
(133)
(241)
Depreciation
(171)
(150)
(121)
(159)
Pretax profits
2,443
2,005
1,490
1,908
Tax
(555)
(461)
(285)
(315)
PAT
1,888
1,544
1,205
1,593
Extraordinary item
(55)
(17)
800
Reported PAT
1,833
1,544 1,188.2
2,393
Income tax rate (%)
22.7
23.0
19.1
16.5
Costs as a % of net sales
Material cost
Staff cost
Other expenditure
46.5
8.2
8.3
17.2
47.0
7.0
9.0
19.6
46.7
8.4
11.2
17.0
47.9
6.9
9.4
18.3
Segment revenue of Godrej Consumer Products
Personal wash
2,688
2,043
Home care
5,914
4,298
Hair care
3,360
1,765
Others
1,478
1,281
Exports
417
2,846
5,930
2,135
1,067
-
(% chg)
8
36
13
31
10
35
10
33
35
1
1
38
7
23
60
27
22
187
116
41
64
95
57
19
54
22
13
19
7
28
76
19
(6)
(0)
57
39
63
Consumer products
Performance of GCPL's international subsidiaries
Region
Indonesia
Africa
Latin America
United Kingdom
Sales (Rs mn)
Business segment
2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12
Megasari
1,820
1,850
1,950
1,940
2,300
2,500
440
530
450
430
650
1,860
Tura, Rapidol, Kinky, Darlin
Issue Group, Argencos
590
630
640
560
660
820
Keyline
480
300
390
620
530
430
2QFY11
300
60
40
50
3QFY11
270
50
60
10
EBITDA (Rs mn)
4QFY11 1QFY12 2QFY12 3QFY12
330
280
400
515
50
40
169
577
90
10
49
74
40
90
58
26
2QFY11
16
14
7
10
3QFY11
15
9
10
3
Margin (%)
17
14
17
11
9
26
14
2
7
10
15
11
3QFY12
21
31
9
6
Note:
(a) Megasari margin for 3QFY12 is before payment of technical fees and hence not comparable with earlier quarters
High margin household insecticides business forms almost half of the sales mix
Break up of GCPL’s sales, March fiscal year-ends, 2009, 2013E (%)
Rapidol
4%
Keyline
4%
Kinky
4%
Issue Group
4%
Others
11%
Soaps
19%
Argencos
1%
Tura
1%
Megasari
17%
Soaps
58%
Hair colour
19%
Darling group
7%
Others
Hair colour
10%
Rapidol
2%
Keyline
4%
Kinky
2%
GHPL
31%
64
Consumer products
Contribution of household insecticides business is the highest
Break-up of GCPL’s EBITDA, March fiscal year-ends, 2009, 2013E (%)
Issue Group
Argencos
1%
Rapidol
Keyline
12%
Darling group
Soaps
13%
Tura
1%
Soaps
35%
Kinky
5%
Megasari
19%
Hair color
17%
Rapidol
3%
Keyline
2%
Kinky
3%
Hair color
44%
GHPL
33%
Palm oil price has corrected in 2HCY2011
Trend in palm oil price (indexed to base)
140
110
80
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
Oct-07
50
Source: Bloomberg
65
Consumer products
GCPL: Profit model, balance sheet, March fiscal year-ends, 2008-2014E (Rs mn)
Net sales
EBITDA
Other income
Interest
Depreciation
Pretax profits
Tax
Net profits
Total equity
Total borrowings
Cash
Current assets
Total fixed assets
Investments
Other non current assets
Total assets
Key assumptions
Revenue Growth (%)
EBITDA Margin(%)
EPS Growth (%)
2008
2009
2010
2011
2012E
2013E
2014E
11,026
2,148
60
(148)
(182)
1,878
(283)
1,595
7.1
13,930
2,037
436
(189)
(192)
2,092
(366)
1,726
6.7
20,412
4,073
473
(111)
(236)
4,199
(803)
3,396
11.3
36,430
6,407
729
(519)
(499)
6,118
(1,302)
4,816
14.9
46,787
8,024
918
(884)
(612)
7,446
(1,899)
5,547
16.8
59,549
10,285
1,144
(737)
(744)
9,949
(2,537)
7,412
21.8
67,783
11,940
977
(504)
(774)
11,638
(2,968)
8,671
25.6
1,687
1,871
3,227
89
6,874
426
3,093
2,399
0
956
6,874
5,668
2,776
3,299
42
11,785
3,783
3,544
2,297
75
2,086
11,785
9,547
369
5,528
66
15,510
3,052
6,044
2,626
670
3,119
15,510
17,252
20,054
8,673
14
45,993
2,269
12,793
15,527
0
15,404
45,993
22,898
21,053
8,847
85
52,883
3,279
12,568
16,100
812
20,124
52,883
28,324
12,551
10,227
85
51,187
1,638
12,613
16,000
812
20,124
51,187
33,007
6,549
14,858
85
54,500
1,629
15,953
15,981
812
20,124
54,500
15.9
19.5
18.9
26.3
14.6
(5.3)
46.5
20.0
69.5
78.5
17.6
31.3
28.4
17.2
13.1
27.3
17.3
29.8
13.8
17.6
17.3
66
BUY
Zee Entertainment Enterprises (Z)
Media
JANUARY 23, 2012
RESULT
Improvement in sports business drives 3QFY12 financials. Zee reported 3QFY12
EBITDA of Rs2.16 bn (+40% yoy), marginally below our expectations but ahead of
Street expectations, led by (1) sports business EBIT losses down to Rs100 mn (-90% yoy)
but (2) Zee TV ratings-led entertainment business EBIT of Rs2.18 bn (-12% yoy). Strong
12% qoq subscription growth supported 3QFY12 financials. Zee TV ratings upswing
(room for improvement exists, in our view) supports the structural drivers: (1) likely
recovery in C&S TV advertising (FMCG) in FY2013E, (2) robust DTH growth, (3) potential
benefits of digitization, (4) robust balance sheet, (5) robust performance of regional
channels and (6) industry consolidation (versus fragmentation). Retain BUY with FY2013
FV of Rs160 (unchanged) pending 3QFY12 conference call.
Zee Entertainment Enterprises
Stock data
146-106
Market Cap. (Rs bn)
115.0
Promoters
43.3
FIIs
35.0
MFs
7.2
1M
3M
12M
Absolute
(0.0)
4.9
2.9
Rel. to BSE-30
(6.0)
5.2
16.8
EPS (Rs)
EPS growth (%)
P/E (X)
Sales (Rs bn)
Net profits (Rs bn)
EBITDA (Rs bn)
EV/EBITDA (X)
ROE (%)
Div. Yield (%)
2011
5.8
10.0
20.1
29.5
5.7
7.6
13.4
14.2
1.1
2012E
6.2
6.4
18.9
29.4
6.1
8.2
12.3
14.3
1.1
Price (Rs): 118
BSE-30: 16,739
2013E
7.7
23.3
15.3
34.4
7.5
10.3
9.8
16.9
1.3
Sports business drives 3QFY12 financials; entertainment business weak
` Zee reported consolidated 3QFY12 EBITDA of Rs2.16 bn (+40% yoy) led by (1) sports business
EBIT losses down sharply to Rs100 mn (-90% yoy) but partially negated by (2) entertainment
business EBIT declining to Rs2.18 bn (-12% yoy). Zee seems to have a better handle on its
sports franchise now, also driven by improved subscription revenues.
` The negative variance in entertainment business was due to weak advertising revenues (-10%
yoy, in our estimate) given challenging advertising environment but more important, weak
ratings performance of the flag channel (Zee TV). We have previously cautioned investors not to
underestimate Zee TV market share; continued weak ratings performance had the potential for
downgrades in the stock. However, Zee TV’s content revamp has worked with ratings back to
2QFY12 levels though room for improvement exists, in our view.
Reiterate BUY with FY2013E FV of Rs160 (unchanged) given structural drivers
We have highlighted the key structural drivers benefitted Zee (and C&S broadcasters in general)
above but elaborate further: (1) we believe C&S TV advertising is poised for a recovery in FY2013E
led by FMCG (Exhibit 4; the only question is a modest or robust recovery). (2) We do not believe
the street has given much benefit to C&S broadcasters from digitization (Exhibit 5; likely on
subscription revenues as well as placement fees). (3) Zee regional channel ratings performance has
been stable, supporting financials; Zee lost market share in Marathi but likely made it up through
strong market share gains in Bengali and Kannada. Finally, Zee’s strong balance sheet and rising
payouts provide support in challenging environment.
We reiterate our BUY rating with FY2013E FV of Rs160 as well as earnings estimates unchanged,
pending clarity on few points we have discussed in the note in the 3QFY12 conference call. The
view is contingent on a robust Tier-I Hindi GEC channel (Zee TV flirted with lower GRPs in 3QFY12,
before the recovery in 4QFY12), supporting the network.
Media
3QFY12 results analysis (contd.)
Interim results of Zee Entertainment (ZEEL), March fiscal year-ends (Rs mn)
Total revenues
Advertising revenues
Subscription revenues
--Domestic subscription
--International subscription
Others (incl. syndication)
Total expenditure
Cost of revenues
Employee costs
SG&A expenses
EBITDA
OPM (%)
Other income
Interest expense
D&A expenses
Pretax profits
Extraordinaries
Tax provision
Minority interest
Reported PAT
Adjusted PAT
Tax rate (%)
EPS (Rs/share)
Additional data
Zee consolidated
Total revenues
Operating income
Sports business
Total revenues
Operating income
Entertainment business
Total revenues
Operating income
Entertainment margin (%)
3QFY12
7,548
3,955
3,262
2,223
1,038
332
(5,389)
(3,422)
(731)
(1,236)
2,160
28.6
340
(182)
(74)
2,243
(867)
17
1,393
1,393
38.6
1.4
7,400
7,549
7,184
4,100
4,398
3,949
3,150
2,818
2,910
2,100
1,807
1,951
1,050
1,011
959
150
333
324
(5,150) (6,008) (5,108)
(3,100)
(4,152)
(3,224)
(750)
(687)
(688)
(1,300)
(1,169)
(1,197)
2,250
1,541
2,076
30.4
20.4
28.9
275
232
279
(25)
(24)
(56)
(100)
(78)
(78)
2,400
1,672
2,221
700
(800)
(818)
(621)
45
(40)
1,600
1,600
1,560
1,600
1,141
1,560
33.3
34.5
28.0
1.6
1.2
1.6
(% chg)
2
(0)
5
(4)
(10)
0
4
16
12
6
23
14
(1)
3
8
121
(0)
2
5
(10)
5
10
(18)
6
(3)
6
6
(5)
6
3
(4)
40
4
24
629
(26)
(7)
46
669
(5)
34
22
227
(5)
1
8
(13)
(13)
6
(62)
(13)
22
40
(143)
(11)
(11)
(11)
24
(10)
9MFY12 9MFY11
21,715
21,436
11,692
12,288
9,223
8,171
2,223
1,807
1,038
1,011
801
977
(15,920) (16,138)
(10,069) (10,660)
(2,166)
(1,927)
(3,685)
(3,551)
5,795
5,299
26.7
24.7
874
598
(268)
(79)
(241)
(196)
6,160
5,622
991
(1,882)
(2,292)
13
83
4,290
4,403
4,290
3,756
30.6
34.7
4.4
3.8
(% chg)
1
(5)
13
23
3
(18)
(1)
(6)
12
4
9
46
239
23
10
(18)
(85)
(3)
14
15
7,548
2,085
7,549
1,464
7,184
1,997
(0)
42
5
4
21,715
5,554
21,436
5,103
1
9
901
(100)
965
(1,030)
881
(226)
(7)
(90)
2
(56)
2,655
(892)
2,987
(1,926)
(11)
(54)
6,647
2,185
33
6,584
2,494
38
6,303
2,223
35
1
(12)
5
(2)
19,060
6,446
34
18,449
7,029
38
3
(8)
Source: Company data, Kotak Institutional Equities estimates
` We highlight that 3QFY12 financials are strictly not comparable to prior quarters given
the change in accounting treatment of domestic subscription revenues, which are now
being reported net of expenses, due to the formation of Media Pro (Zee-Star JV). We
highlight potential changes to financials, wherever possible.
` Zee reported sports business revenues of Rs901 mn (-7% yoy), ahead of our expectations.
There were no India matches on Ten sports network in 3QFY12, resulting in decline in
advertising revenues; Zee highlighted (1) strong growth in sports subscription revenues
and (2) syndication revenues (other operating revenues at Rs332 mn were flat yoy, ahead
of expectations) from non-India cricket as the key drivers. Sports EBIT losses of Rs100 mn
(-90% yoy) imply Zee has a better handle on its sports franchise now.
` Entertainment business reported revenues of Rs6.65 bn (flat yoy), below our expectations,
led by advertising environment and Zee TV ratings. However, one also needs to take
cognizance of the base effect; Zee reported EBIT margins of 38% in 3QFY11 as well as
FY2011; we did not believe such high margins to be sustainable then and we do expect it
now. However, 3QFY12 margin of 32% will likely sustain given (1) stable market share
and (2) recovery in advertising market in FY2013E. Entertainment business operating cost
increased 9% yoy, reflecting more content and marketing.
68
Media
ZEEL's quarterly revenues and Core (excl. Sports) operating margins
`
(Rs bn)
(mn
Zee core revenues (LHS, Rs bn)
(%)
Zee core margins (RHS, %)
50
10.0
35
8.0
34
38
36
40
38
36
30
6.0
22
33
35
32
40
30
22
20
4.0
10
2.0
4.3
4.4
3.9
4.3
4.7
5.9
5.9
5.9
6.6
6.6
6.1
6.4
6.8
-
3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12
(a)
(a)
(a)
(a)
(a)
(a)
(a) (b)
(a) (b)
Note:
(a) 4QFY10-2QFY12 include ZEEN regional channels and thus, revenues are not comparable with previous quarters.
(b) Subscription revenues grossed up by 5% to adjust for change in accounting treatment because of Media Pro.
Source: Company data, Kotak Institutional Equities
` Zee reported strong subscription revenues of Rs3.26 bn (+16% yoy, +12% qoq).
International subscription revenues were higher due to Rupee depreciation; however,
constant currency revenues likely declined (in line with past trends). However, domestic
subscription revenue growth of 23% yoy and 14% qoq surprised positively; Zee noted
strong DTH growth, impact of Media Pro as well as traction in sports subscription as key
drivers; however, any one-offs need to be clarified.
` 3QFY12 cost of revenues (content costs) were higher versus our expectation largely on
account of sports business (both revenues as well as costs were higher versus our
expectation). 3QFY12 employee costs as well as overhead costs (+6% yoy) were largely in
line with expectations. The formation of Media Pro also resulted in underreporting of
employee and overhead costs (~Rs100 mn, in our estimate).
` There were a few surprises below the EBITDA line, which need to be clarified. Gross other
income increased to Rs340 mn versus Rs279 mn in 2QFY12 given robust EBITDA/free cash
flows in 3QFY12, despite Zee’s ongoing buyback. However, interest expenses increased to
Rs182 mn from Rs56 mn; Zee highlighted impact of Rupee depreciation on forex payables
and costs (partly due to sports business).
` The forex losses below the EBITDA line also raise the question on sports business
performance. Assuming part of Rs126 mn qoq variance in interest expenses was on
accounts of forex costs of sports business (payments for telecast rights to various cricket
boards, usually denominated in US$), the operating loss would be higher than the
reported Rs100 mn (though still significantly below Rs1.03 bn reported in 3QFY11). Zee’s
expectation of EBITDA breakeven in sports business by FY2014E may be missed (cost of
SA cricket rights in FY2014E would increase given Rupee depreciation).
` Zee reported 3QFY12 PAT of Rs1.4 bn (+22% yoy; below 40% yoy growth in EBITDA) led
by ~39% tax rate (~31% tax rate for 9MFY12). Zee noted Rs55 mn of prior-period tax
incidence; effective recurring tax rate of ~36% was due to entire 3QFY12 income coming
from standalone operations (full-tax). However, the sharp decline in profitability of Zee
‘rest’ operations from 2QFY12 needs to be clarified; yoy comparisons are not meaningful
since Ten Cricket channel was launched just at the fag end of 3QFY11 and sports losses
continued to be reported in Zee ‘rest’ (Zee standalone now).
69
Media
Key financials of ZEEL, consolidated and standalone (Rs mn)
Revenues
Op. expenses
EBITDA
EBITDA margin (%)
Pre-tax profits
Tax provision
Adjusted net income
Tax rate (%)
ZEEL consolidated
7,548
7,184
7,549
5,389
5,108
6,008
2,160
2,076
1,541
28.6
28.9
20.4
2,243
2,221
1,672
(867)
(621)
(576)
1,376
1,600
1,096
38.6
28.0
34.5
ZEEL standalone
5,817
5,211
5,951
3,604
3,681
3,676
2,213
1,530
2,275
38.0
29.4
38.2
2,447
1,763
2,401
(808)
(577)
(717)
1,639
1,186
1,683
33.0
32.7
29.9
ZEEL "rest"
1,731
1,973
1,598
1,785
1,428
2,332
(54)
545
(734)
(3.1)
27.6
(45.9)
(204)
458
(728)
(59)
(44)
141
(263)
414
(587)
(28.8)
9.6
19.4
Notes:
(a) ZEEL "rest" primarily comprises of sports and overseas operations.
Investment view (contd.)
Advertising spends of listed FMCG companies (Rs bn)
1QFY11
Advertising expenditure
HUL
7,512
Dabur India
1,117
Glaxo India
749
Colgate India
694
Marico India
584
GCPL
482
Total
11,138
growth (%)
Overhead expenditure
Nestle India
3,420
Asian Paints
2,652
TGB
1,194
Total
7,266
growth (%)
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
6,465
947
1,077
789
547
511
10,336
7,433
1,090
898
1,206
592
312
11,531
17
6,233
748
1,026
804
413
400
9,624
(1)
6,330
929
1,000
988
727
656
10,630
(5)
6,514
725
1,196
1,143
627
564
10,769
4
4,079
2,961
1,254
8,294
4,277
3,343
1,310
8,930
22
4,201
3,348
1,287
8,836
21
4,092
3,277
1,194
8,563
18
4,650
3,848
1,276
9,774
18
Breakdown of Zee's subscription revenues, FY2011-15E (Rs bn)
2011
Analog cable
Subscription revenues (Rs bn)
3.8
Subscriber base (mn)
40
Revenue per sub (Rs)
8
Addressable digital - cable or DTH
Subscription revenues (Rs bn)
3.4
Subscriber base (mn)
14
Revenue per sub (Rs)
21
Domestic subscription revenues
Domestic subscription (Rs bn)
7.2
Digital/analog (X)
Potential upside (%)
2.7
Base
2015E
Potential
5.2
45
10
NA
7.0
30
20
17.6
75
20
12.2
17.6
2.0
2.0
44
Notes:
(a) Assuming 50% of subscribers take Zee bouquet of channels.
70
Media
Market share of key Hindi GE channels, CY2006-11 (%)
Colors
Imagine TV
SAB
Sony TV
Star Plus
Zee TV
Others
HH-Index
2006
4
13
48
21
14
3,030
2007
5
12
39
27
17
2,528
2008
8
7
3
9
30
22
21
1,691
2009
24
8
5
10
23
20
11
1,681
2010
22
7
8
13
26
18
7
1,738
24-hour GRPs of key Hindi GE channels (%)
2011
20
6
11
16
25
16
7
1,686
Source: TAM Media Research, Kotak Institutional Equities
2006
7
32
22
32
7
2,568
2007
8
34
21
1
30
7
2,529
2008
7
30
20
3
5
29
6
2,234
2009
5
29
19
3
7
30
7
2,190
2010
5
26
21
7
8
25
8
1,908
2011
4
25
26
5
7
25
8
2,027
Market share of key Bengali GE channels, CY2006-11 (%)
2007
14
41
0
38
6
3,408
2008
9
35
6
5
39
5
2,951
2009
8
22
2
4
35
27
3
2,497
2010
5
16
7
6
40
23
4
2,505
FILMY
SET MAX (a)
Star Gold
UTV Action
UTV Movies
Zee Cinema
Total
Share (%)
4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 chg (%)
25
24
21
18
21
(18)
129
130
139
123
113
(12)
111
127
147
152
141
28
32
29
26
26
27
(18)
37
41
33
31
30
(18)
124
126
140
119
117
(5)
458
476
505
468
449
(2)
27
26
28
25
26
2006
16
58
21
6
4,040
24-hour GRPs of key Hindi movie channels (%)
Notes:
(a) SET MAX ratings are adjusted for IPL.
Notes:
(a) SET MAX ratings are adjusted for IPL.
Akash Bangla
ETV Bangla
Rupashi Bangla
Sony Aath
Star Jalsha
Zee Bangla
Others
HH-Index
257
240
245
233
210
(18)
80
71
77
71
61
(24)
36
36
37
45
99
173
140
136
125
119
127
(9)
160
151
218
249
231
44
322
299
305
316
299
(7)
220
198
193
158
182
(17)
1,217
1,130
1,200
1,191
1,210
(1)
18
18
16
13
15
Market share of key Hindi movie channels, CY2006-11 (%)
FILMY
SET MAX (a)
Star Gold
UTV Action
UTV Movies
Zee Cinema
Others
HH-Index
Colors
Imagine TV
LifeOK
SAB
Sony TV
Star Plus
Zee TV
Total
Share (%)
24-hour GRPs of key Bengali GE channels (%)
2011
3
13
5
5
38
31
6
2,615
Akash Bangla
ETV Bangla
Rupashi Bangla
Sony Aath
Star Jalsha
Zee Bangla
Total
Share (%)
41
35
35
30
29
(28)
173
143
158
136
150
(14)
60
57
55
47
49
(18)
55
48
63
57
56
1
452
427
430
480
523
16
372
314
374
427
518
39
1,153
1,025
1,115
1,177
1,324
15
32
31
34
36
39
71
Media
Market share of key Marathi GE channels, CY2006-11 (%)
DD Marathi
ETV Marathi
Mi Marathi
Star Pravah
Zee Marathi
Zee Talkies
Others
HH-Index
2006
12
44
43
3,985
2007
11
33
6
45
4
3,331
2008
8
25
6
1
48
11
1
3,160
2009
6
24
3
14
39
12
2
2,497
2010
5
22
6
18
36
10
2
2,325
2011
3
27
5
25
27
10
2
2,243
24-hour GRPs of key Marathi GE channels (%)
DD Marathi
ETV Marathi
Mi Marathi
Star Pravah
Zee Marathi
Zee Talkies
Total
Share (%)
25
21
27
22
26
7
167
179
210
211
219
31
40
32
46
24
20
(50)
129
160
216
193
207
60
221
192
185
168
164
(26)
77
76
74
57
71
(8)
659
659
759
675
707
7
45
41
34
33
33
Market share of key Telugu GE channels, CY2006-11 (%)
24-hour GRPs of key Telugu GE channels (%)
Eenadu TV
Gemini Movies
Gemini TV
Maa Movies
Maa Telugu
Siti Telugu
Zee Telugu
Others
HH-Index
2006
19
22
38
10
5
4
2
2,454
2007
18
19
36
13
3
7
2
2,274
2008
17
18
32
16
3
13
2
2,057
2009
16
16
31
17
2
16
1
2,057
2010
16
17
35
16
15
1
2,246
2011
16
12
33
5
17
15
1
2,047
Eenadu TV
Gemini Movies
Gemini TV
Maa Movies
Maa Telugu
Zee Telugu
Total
Share (%)
366
357
381
343
373
2
329
298
271
204
292
(11)
794
758
743
640
858
8
70
124
126
112
135
95
301
387
426
401
412
37
344
326
339
311
325
(6)
2,204
2,250
2,287
2,011
2,394
9
16
14
15
15
14
Market share of key Kannada GE channels, CY2006-11 (%)
ETV Kannada
Kasturi
Suvarna
Udaya Movies
Udaya TV
Zee Kannada
Others
HH-Index
2006
29
19
44
3
5
3,189
2007
22
2
3
20
46
5
3
3,041
2008
16
8
6
18
37
12
2
2,197
2009
15
6
13
19
33
12
2
2,034
2010
14
7
17
16
34
11
2
2,042
72
2011
13
6
18
13
35
15
1
2,124
24-hour GRPs of key Kannada GE channels (%)
ETV Kannada
Kasturi
Suvarna
Udaya Movies
Udaya TV
Zee Kannada
Total
Share (%)
209
212
214
199
206
(2)
100
91
99
87
80
(20)
266
250
311
327
292
10
230
215
201
185
164
(29)
537
582
609
576
574
7
222
221
258
273
262
18
1,564
1,571
1,691
1,648
1,578
1
14
14
15
17
17
Media
Summary financials and valuations of Zee and Sun TV, March fiscal year-ends
2010
Zee consolidated
Revenues
EBITDA
EPS (Rs/share)
Sports business
Revenues
EBITDA
R-GECs business
Revenues
EBITDA
Hindi-rest business
Revenues
EBITDA
Zee core business
Revenues
EBITDA
EPS (Rs/share)
Sun TV consolidated
Revenues
EBIT
EPS (Rs/share)
Sun TV stress-case
Revenues
EBIT
EPS (Rs/share)
22.0
6.1
5.9
Financials (Rs bn)
2011
2012E
29.5
7.6
5.8
2013E
29.4
8.2
6.2
2010
34.4
10.3
7.7
Valuations (X)
2011
2012E
2013E
16.7
20.1
13.5
20.3
12.5
18.9
9.9
15.3
3.2
(0.6)
4.4
(2.1)
2.6
(1.1)
3.2
(0.8)
1.1
0.3
5.3
1.8
5.8
1.8
6.8
2.3
17.8
6.4
19.8
7.9
21.0
7.5
24.3
8.8
18.8
6.7
6.4
25.1
9.7
7.4
26.8
9.3
7.1
31.2
11.1
8.2
15.3
18.3
10.6
15.9
11.0
16.6
9.3
14.3
14.5
7.7
13.2
20.1
11.0
19.5
20.6
11.2
20.0
24.1
13.2
23.8
13.4
21.2
9.4
14.3
9.2
14.0
7.8
11.7
14.5
7.7
13.2
20.1
11.0
19.5
20.8
10.5
18.8
21.5
10.0
18.0
13.5
21.2
9.4
14.3
9.9
14.9
10.4
15.5
Notes:
(a) Zee's FY2010 financials include only one quarter (4QFY10) of R-GEC financials.
Estimated consolidated financials of ZEEL + ZEEN R-GECs, March fiscal year-ends, 2009-20E (Rs mn)
2009
ZEEL + ZEEN R-GECs
Total revenues
--Advertising revenues
--Subscription revenues
Operating income
Margin (%)
--Other income
--Interest expense
--Depreciation
Profit before tax
--Tax expense
--Minority interest
--Extraordinary items
Net income
Adj. net income
Adj. EPS (Rs)
Actuals
2010
21,773
10,593
9,038
5,480
25.2
1,572
(889)
(310)
5,853
(1,633)
(98)
949
5,072
4,351
5.0
21,998
10,670
9,869
6,135
27.9
1,220
(331)
(285)
6,738
(2,210)
195
1,637
6,361
5,249
5.9
KIE estimates
2016E
2017E
2011
2012E
2013E
2014E
2015E
29,510
17,081
11,361
7,604
25.8
836
(102)
(264)
8,074
(2,825)
116
1,004
6,369
5,677
5.8
29,416
15,959
12,737
8,203
27.9
1,092
(47)
(284)
8,964
(2,878)
(3)
—
6,083
6,083
6.2
34,405
19,007
14,530
10,342
30.1
1,129
(47)
(324)
11,100
(3,569)
(28)
—
7,503
7,503
7.7
39,660
22,337
16,392
12,956
32.7
1,077
(47)
(333)
13,653
(4,393)
(53)
—
9,207
9,207
9.4
44,664
25,609
18,058
14,828
33.2
1,119
(47)
(351)
15,549
(5,007)
(70)
—
10,471
10,471
10.7
49,481
29,005
19,428
16,661
33.7
1,183
(47)
(347)
17,450
(5,606)
(72)
—
11,772
11,772
12.0
54,896
32,900
20,895
19,003
34.6
1,218
(47)
(341)
19,832
(6,365)
(87)
—
13,381
13,381
13.7
2018E
2019E
2020E
60,364
37,253
21,956
21,196
35.1
1,186
(47)
(328)
22,006
(7,042)
(85)
—
14,880
14,880
15.2
66,405
42,190
23,003
23,666
35.6
1,089
(47)
(357)
24,350
(7,802)
(92)
—
16,456
16,456
16.8
73,102
47,794
24,036
26,150
35.8
921
(47)
(387)
26,638
(8,531)
(87)
—
18,020
18,020
18.4
73
SELL
Exide Industries (EXID)
Automobiles
JANUARY 20, 2012
RESULT
Pick-up in inverter sales leads sequential improvement. Exide’s 3QFY12 profit of
Rs1,043 mn (-16% yoy, 104% qoq) was significantly better than our estimates due to
higher inverter sales. Industrial battery segment volumes increased by 13% yoy while
automotive segment volume growth remained subdued. We would await details on
replacement/OEM volume mix and automotive/industrial EBITDA margins to understand
future margin trajectory.
Exide Industries
Stock data
188-99
Market Cap. (Rs bn)
106.8
Promoters
46.0
FIIs
17.1
MFs
4.7
1M
3M
12M
Absolute
18.8
3.5
(8.6)
Rel. to BSE-30
7.7
4.8
4.1
EPS (Rs)
EPS growth (%)
P/E (X)
Sales (Rs bn)
Net profits (Rs bn)
EBITDA (Rs bn)
EV/EBITDA (X)
ROE (%)
Div. Yield (%)
2012
4.5
(39.5)
27.8
47.0
3.8
5.7
18.6
13.4
1.0
2013E
6.1
35.6
20.5
53.8
5.2
7.5
14.1
16.3
1.0
Price (Rs): 126
BSE-30: 16,739
2014E
7.6
23.7
16.6
61.8
6.4
9.1
11.7
17.6
1.0
Automotive volumes remain subdued but industrial volumes pick up
The company indicated in its press release that industrial segment volumes grew by 13% yoy due
to improvement in inverter and UPS segment battery volumes while automotive battery volumes
remained subdued. Two-wheeler battery volumes grew by 20% yoy during the quarter.
Net sales of Rs12.5 bn (+19% yoy, +6% qoq) were 6% above our estimates due to better-thanexpected industrial battery sales. We were expecting a flat growth in industrial battery revenues
versus 13% yoy growth reported by the company. Gross margins improved by 485 bps qoq driven
by a decline in lead prices and liquidation of high-cost inventory. EBITDA margins improved by 556
bps qoq due to gross margin expansion and lower other expenses. Other income also increased to
Rs100 mn versus Rs79 mn in 2QFY12, which indicates improvement in smelter profitability.
However, interest expenses also rose sharply which could indicate higher working capital
requirements and needs clarification from the management.
Key issues on which we await clarity from the management include: (1) replacement
demand growth in the four-wheeler segment and market share improvement in the replacement
market, (2) automotive and industrial EBITDA margins in 3QFY12, (3) benefit of lead prices in this
quarter as lead prices have started to rise again and we do not expect the company to raise prices
given weak growth in replacement battery market, and (4) sharp jump in interest expenses and
low income from smelters.
We will review our estimates post concall on Monday
We will review our earnings estimates post concall on Monday and would like to understand
whether margins could improve from current levels on a sustainable basis which will be the key to
stock performance, in our view.
Exide Industries
Automobiles
Exide significantly beat our estimates in 3QFY12
Exide 3QFY12 result summary, March fiscal year-ends (Rs mn)
Gross sales
Less: excise duty and sales tax
Net sales
Raw materials
Staff costs
Other expenses
Total expenses
EBITDA
Other income
Interest expense
Depreciation
Profit before tax
Tax expense
Exceptional income
Profit after tax
Recurring PAT
No of shares
EPS
Excise duty, sales tax to gross sales (%)
Raw material to net sales (%)
Staff costs to net sales (%)
Other expenses to net sales (%)
EBITDA margin (%)
Tax rate (%)
3QFY12
15,319
2,823
7
12,502
8,428
762
1,657
10,847
1,655
100
44
250
1,461
418
—
1,043
1,043
850
1.2
18.4
67.4
6.1
13.3
13.2
28.6
3QFY12E
14,353
2,600
9
11,762
8,350
630
1,715
10,695
1,067
90
14
250
893
259
—
634
634
850
0.7
18.1
71.0
5.4
14.6
9.1
29.0
3QFY11
12,804
2,313
10
10,502
6,831
636
1,434
8,900
1,601
331
19
212
1,702
458
—
1,244
1,244
850
1.5
18.1
65.0
6.1
13.7
15.2
26.9
2QFY12
14,326
2,574
8
11,761
8,499
644
1,715
10,858
903
79
16
247
719
208
—
512
512
850
0.6
18.0
72.3
5.5
14.6
7.7
28.9
kotak est
6.7
8.6
(27.8)
6.3
0.9
21.0
(3.4)
1.4
55.1
10.6
212.9
0.2
63.5
61.2
64.5
64.5
change (%)
yoy
19.6
22.1
(37.5)
19.0
23.4
19.9
15.6
21.9
3.4
(70.0)
133.0
18.1
(14.2)
(8.7)
(16.2)
(16.2)
qoq
6.9
9.7
(20.7)
6.3
(0.8)
18.4
(3.4)
(0.1)
83.3
26.1
172.0
1.5
103.1
101.2
103.9
103.9
Exide's sum-of-the-parts valuation methodology
Standalone FY2013 EPS
ING Vysya (50% stake value)
SOTP based value
SOTP based value
EPS
(Rs)
6.1
PE
(X)
14
Per share value
86
12
98
100
75
Automobiles
Exide Industries
We expect a 10% yoy decline in earnings CAGR over FY2011-13E
Exide profit and loss, balance sheet and cash flow summary, March fiscal year-ends (Rs mn)
Net sales
EBITDA
Other income
Interest
Depreciation
Profit before tax
Tax expense
Adjusted net profit
Adjusted earnings per share (Rs)
Equity
Total Borrowings
Deferred Tax Liability
Current liabilities
Total liabilities
Net fixed assets
Investments
Cash
Total assets
Operating cash flow
Capital expenditure
Change in investments
Free cash flow
Ratios
EBITDA margin (%)
PAT margin (%)
Net debt/equity (X)
Book Value (Rs/share)
RoAE (%)
RoACE (%)
2009
2010
2011
2012E
2013E
2014E
33,930
5,448
65
(479)
(679)
4,354
(1,510)
2,844
3.6
37,940
8,894
121
(103)
(807)
8,106
(2,735)
5,371
6.3
45,536
8,788
1,038
(57)
(835)
8,934
(2,740)
6,335
7.5
47,032
5,708
694
(31)
(969)
5,402
(1,567)
3,835
4.5
53,843
7,528
964
(34)
(1,131)
7,327
(2,125)
5,202
6.1
61,767
9,101
1,202
(9)
(1,232)
9,062
(2,628)
6,434
7.6
12,504
3,172
412
4,866
20,954
6,853
6,682
337
7,082
20,954
22,198
900
590
5,929
29,616
7,144
13,354
29
9,089
29,616
27,425
22
675
7,964
36,086
9,018
13,780
148
13,140
36,086
29,985
300
675
7,450
38,410
11,749
11,440
711
14,510
38,410
33,912
50
675
8,252
42,889
13,118
14,640
295
14,835
42,889
39,071
50
675
9,186
48,981
13,886
17,840
383
16,872
48,981
3,456
488
(1,515)
(1,499)
1,804
6,355
(637)
(1,098)
(6,672)
3,683
7,115
(2,015)
(2,708)
(426)
1,209
4,805
(1,885)
(3,700)
2,340
(1,980)
6,333
477
(2,500)
(3,200)
3,110
7,666
(1,103)
(2,000)
(3,200)
3,362
16.1
8.4
0.2
15.6
25.0
34.3
23.4
14.2
0.0
26.1
31.0
38.1
19.3
13.9
(0.0)
32.3
25.5
34.9
12.1
8.2
(0.0)
35.3
13.4
20.7
14.0
9.7
(0.0)
39.9
16.3
24.5
14.7
10.4
(0.0)
46.0
17.6
25.9
76
BUY
Oberoi Realty (OBER)
Property
JANUARY 20, 2012
RESULT
A mixed quarter though investment thesis remains robust. OBER’s EBITDA came in
line with our estimates and realized prices moved up 7-11% qoq while revenue
declined 16% qoq due to slower execution and sales volume trended down (0.12 mn
sq. ft versus 0.19 mn sq. ft in 2QFY12). We cut our FY2012/13/14E revenues and
earnings by 16%/4%/6% and 13%/4%/8% as we now expect Esquire to cross revenue
recognition threshold in FY2013E (versus 4QFY12E earlier). We maintain our BUY rating
at a revised target price of Rs300/share (Rs310/earlier) at par with our March-2013E
Oberoi Realty
Stock data
273-202
Market Cap. (Rs bn)
82.4
Promoters
78.5
FIIs
9.6
MFs
1.4
1M
3M
12M
Absolute
20.5
9.4
(6.7)
Rel. to BSE-30
13.3
9.7
4.7
EPS (Rs)
EPS growth (%)
P/E (X)
Sales (Rs bn)
Net profits (Rs bn)
EBITDA (Rs bn)
EV/EBITDA (X)
ROE (%)
Div. Yield (%)
2012
14.9
(5.0)
16.8
9.4
4.9
5.9
12.1
13.9
0.6
2013E
26.4
77.3
9.5
20.1
8.7
12.4
5.8
21.1
1.0
2014E
42.6
61.3
5.9
30.6
14.1
19.3
3.5
27.2
1.2
EBITDA in line though revenue is lower than expected
Oberoi reported revenues of Rs1.9 bn (-53% yoy, -16% qoq and 13% below expectation) and
EBITDA of Rs1.1 bn (-54% yoy, -2% qoq and 2% above expectation). While Splendor achieved
100% project completion in 2QFY12, slower-than-expected revenue recognition in ongoing
projects led to the revenue disappointment – (1) Exquisite achieved 43% completion versus 39%
at end-2QFY12, (2) Splendor Grande in now 51% complete versus 45% at end-2QFY12 and (3)
Esquire is yet to cross the revenue recognition threshold. EBITDA margin jumped to 60.5% versus
51.9% in 2QFY12 likely due to price rises in revenue-contributing projects. As per the company
presentation, prices in Exquisite and Splendor Grande rose by 11% qoq while Esquire prices rose
by 7% and Splendor remained flat qoq.
Price (Rs): 248
BSE-30: 16,644
QUICK NUMBERS
• Revenues of Rs1.9
bn (-53% yoy, -16%
qoq)
• EBITDA of Rs1.1 bn
(-54% yoy, -2%
qoq)
• Sales of 0.12 mn sq.
ft versus 0.19 mn sq.
ft in 2QFY12
Sales volumes decline though realizations in ongoing projects rise
Oberoi sold 0.12 mn sq. ft in 3QFY12 versus 0.19 mn sq. ft in 2QFY12 with Esquire contributing
55% (68% in 2QFY12) to total sales – a trend we expect to continue even in 4QFY12E as average
prices there have escalated by only 7% qoq while Exquisite and Splendor Grande have seen 11%
price rise. Average sales realization from ongoing projects increased by 16% qoq to Rs14,355/sq
with all projects seeing price hikes with the exception of Splendor where prices remained steady.
Retain BUY; focus to shift to visibility of project launches at Worli and Mulund over FY2013E
We find Oberoi relatively better-placed in this environment as (1) Oberoi is net cash and could
actually take advantage of declining land prices by adding to its land bank, (2) NAV realization is
relatively more front-loaded than peers, and (3) RoE in the mid-20s is again higher than peers. Key
risks are (1) risk of further delays in the Mulund project as it awaits environmental approval, (2) risk
of lower FSI and hence potential developable area due to adverse car-park and FSI loading
regulations and (3) delay in leasing at Commerz II as Commerz I has an occupancy rate of 76%.
Launch or visibility of launch at Worli and Mulund over FY2013E are key milestones to monitor
over FY2013E.
Property
Oberoi Realty
Revenue impacted by lower-than-expected execution
Oberoi Realty, interim consolidated results, March fiscal year-ends (Rs mn)
Total Revenues
Total Expenditure
Cost of construction/development/land/dev rights and op. expenses
Employee expenses
Other expenses
EBITDA
Other Income
Depreciation
Interest and financing charges
Pretax Profits
Tax expenses
Net Income
Minority Interest and share of profit in associates
Adjusted PAT
Extraordinaries and prior period
Reported PAT
Key ratios
EBITDA margin (%)
PAT margin (%)
Effective tax rate (%)
1,113
442
(66)
1,490
(372)
1,117
2QFY12
2,226
(1,071)
(951)
(85)
(35)
1,156
343
(66)
(0)
1,432
(317)
1,114
3QFY11
3,986
(1,520)
(1,396)
(70)
(54)
2,466
218
(61)
(1)
2,623
(570)
2,052
(% chg)
3QFY12E
qoq
(13)
(16)
(28)
(31)
(35)
(11)
27
2
(2)
(30)
(10)
3
2
75
(8)
(4)
(5)
12
(9)
(8)
yoy
(53)
(51)
(56)
8
(17)
(54)
42
11
17
(48)
(38)
(50)
9HFY12
5,708
(2,516)
(2,157)
(244)
(114)
3,193
1,194
(199)
(2)
4,186
(987)
3,198
1,021
1,117
1,114
2,052
(9)
(8)
(50)
3,805
(16)
1,021
1,117
1,114
2,052
(9)
(8)
(50)
3,198
(5)
3,193
3,805
(16)
55.9
55.9
23.6
59.3
52.2
15.4
3QFY12
1,873
(739)
(620)
(76)
(44)
1,134
310
(68)
(1)
1,375
(354)
1,021
3QFY12E
2,144
(1,031)
60.5
54.5
25.8
51.9
52.1
25.0
51.9
50.1
22.2
61.9
51.5
21.7
9HFY11
7,292
(2,971)
(2,657)
(189)
(125)
4,321
341
(163)
(2)
4,498
(692)
3,805
(% chg)
(22)
(15)
(19)
29
(8)
(26)
250
22
27
(7)
43
(16)
Segmental results – income from real estate falls 57% yoy and 19% qoq
Oberoi Realty, segmental results, March fiscal year-ends (Rs mn)
3QFY12
2QFY12
3QFY11
(% chg)
yoy
qoq
9MFY12
9MFY11
(% chg)
5,064
649
5,713
5,713
6,861
431
7,292
7,292
(26)
51
(22)
(1)
75
(14)
(4)
2,995
30
3,025
(2)
1,157
4,180
4,240
(68)
4,172
(2)
327
4,498
(27)
27
254
(7)
6
10
6
(3)
2
13,484
3,741
17,226
16,250
33,476
9,053
3,284
12,337
6,302
18,639
49
14
40
158
80
Segmental revenue
Real estate
Hospitality
Total
Less: Inter segment revenue
Net income from operations
1,637
248
1,885
2,030
192
2,222
3,766
220
3,986
(57)
13
(53)
(19)
29
(15)
1,885
2,222
3,986
(53)
(15)
Segment results
Profit before tax, interets and unallocable overheads
Real estate
Hospitality
Total
Add/(Less): interest and finance charges
Add/(Less): unallocable income net of unallocable expenditure
Profit before tax, interets and unallocable overheads
1,064
23
1,087
(1)
289
1,375
1,100
(5)
1,095
(0)
337
1,432
2,392
13
2,405
(1)
218
2,623
(56)
73
(55)
17
32
(48)
(3)
18,660
3,707
22,368
14,301
36,669
17,675
3,369
21,044
14,774
35,818
12,772
3,412
16,183
16,301
32,485
46
9
38
(12)
13
Capital employed (segment assets less segment liabilities)
Real estate
Hospitality
Total capital employed in segments
Add: unallocated corporate assets less liabilities
Total capital employed in company
(22)
(29)
78
Oberoi Realty
Property
Revenue recognition impacted by execution, decline in contribution from
Splendor
Oberoi Exquisite contributed to the majority of revenue recognition while overall recognition
slowed down qoq due to – (1) lowest contribution by Splendor in past four quarters since it
has a small inventory left to sell and achieved completion in 2QFY12 and (2) lower execution
qoq in Exquisite.
Projects contributing to revenue recognition
Oberoi Realty, March fiscal year-ends (Rs mn)
Revenue recognised (Rs mn)
Project
3QFY12
2QFY12
1QFY12
4QFY11
FY2011
297
581
342
1,240
4,282
Development properties
Oberoi Splendor
Oberoi Splendor Grande
324
310
215
293
293
Oberoi Exquisite 1
505
664
456
468
2,595
Oberoi Esquire
-
-
-
-
Inventory sales/others
Subtotal
-
95
80
2
16
698
1,222
1,636
1,015
2,017
7,868
Investment properties
Oberoi Mall
197
198
191
180
668
Commerz 1
107
109
109
117
458
Westin Mumbai Garden City
250
191
208
267
699
Subtotal
554
497
509
564
1,824
1,776
2,133
1,524
2,580
9,692
Total
Investment properties: revenue from hotel buoyant; offices steady
` Mall occupancy, revenues and average rentals remained steady qoq at 94%, Rs197mn
and Rs126/sq. ft/month respectively. Effective rentals for 9MFY12 came in at Rs125/sq.
ft/months versus Rs108/sq. ft/month in 9MFY11.
` Qoq performance at Commerz 1 remained steady with occupancy at 76% and effective
rentals at Rs130/sq. ft/month (Rs132/sq. ft/month in 2QFY12). Commerz II completion is
about a 6-12 months away and we would need to see further evidence of leasing interest
to factor in revenues from FY2013E onwards.
` Westin Hotel did much better than 2QFY12 (since 3QFY12 is seasonally stronger) and
revenue rose by 31% qoq to Rs250 mn led by improvements in occupancy (64% versus
57% in 2QFY12) and RevPAR (Rs5,516 versus Rs4,233 in 2QFY12).
79
Property
Oberoi Realty
Revenue from investment properties increases by 11% qoq due to improved occupancy in Westin
Oberoi Realty, segmental results, March fiscal year-ends (Rs mn)
Area leased in
3QFY12
Area leased in
2QFY12
Name
Revenue/sq ft/month
in 3QFY12
Revenue in
3QFY12
Revenue in
2QFY12
Revenue in
9MFY12
Revenue in
9MFY11
(mn sq. ft)
(mn sq. ft)
(Rs)
(Rs mn)
(Rs mn)
(Rs mn)
(Rs mn)
Oberoi Mall
0.52
0.52
126
197
198
586
485
Commerz 1
0.28
0.28
130
107
109
325
Subtotal
0.80
0.80
Occupancy in
3QFY12
127
307
Revenue in
2QFY12
911
Revenue in
9MFY12
826
Revenue in
9MFY11
(Rs mn)
The Westin Mumbai Garden City
341
Occupancy in 2QFY12
304
Revenue in
3QFY12
(%)
(%)
(Rs mn)
(Rs mn)
(Rs mn)
64%
57%
250
191
649
431
1,560
1,256
Total
554
497
Sales volume drops qoq while Esquire continues to lead fresh sales
Oberoi sold 0.12 mn sq. ft in 3QFY12 versus 0.19 mn sq. ft in 1QFY12. As in last quarter,
Esquire, at an average sale price of Rs 12,466/sq. ft in 3QFY12, continues to cannibalize
sales from Exquisite which sold at Rs 15,714/sq. ft in 3QFY12 and is closer to completion
compared to Esquire by over a year. Average realizations in ongoing projects improved by
16% qoq to Rs14,355/sq. ft as average prices increased by 11% in Exquisite and Splendor
Grande, increased by 7% in Esquire and declined by 1% in Splendor.
Average realizations increase to Rs14,355/sq. ft in versus Rs12,414/sq. ft in 2QFY12
Ongoing projects
Estimated
total area
Area sold in Area sold in
3QFY12
2QFY12
Area sold till
date
Sales value in
3QFY12
Sales value
in 2QFY12
Average sales
rate in 3QFY12
Average sales
rate in 2QFY12
(Rs mn)
(mn sq. ft)
('000 sq. ft)
('000 sq. ft)
('000 sq. ft)
(Rs mn)
(Rs mn)
(Rs mn)
Oberoi Exquisite 1
1.51
15
20
807
229
276
15,714
14,169
Oberoi Splendor Grande
0.28
27
31
167
403
413
14,745
13,335
Oberoi Splendor
1.28
14
3
1,209
297
65
21,497
21,817
Oberoi Esquire
1.97
68
127
635
852
1,486
12,466
11,701
124
180
2,818
1,780
2,239
14,355
12,414
Total
80
Oberoi Realty
Property
Balance sheet remains healthy while cash and cash equivalents decline for two
quarters in a row
Cash and cash equivalents declined marginally by 2% to Rs13.2 bn after declining by 14%
qoq in 2QFY12 as the company bought 50% stake in the JV that owns 4.1 acres of the
erstwhile Glaxo Smith Kline land at Worli. Sundry debtors have declined by Rs0.2 bn qoq to
Rs0.4 bn while loans and advances have increased by Rs1.4 bn qoq to Rs9.8 bn. Though the
company has not explicitly mentioned in their ppt/results, it seems to have repaid the Rs170
mn loan taken from shareholder in 2QFY12.
Quarterly balance sheet
3QFY12
2QFY12
1QFY12
4QFY11
3QFY11
2QFY11
1QFY11
4QFY10
3QFY10
Sources of funds
Shareholders funds
Share capital
Reserves and Surplus
3,283
3,283
3,282
3,641
3,641
3,246
3,246
3,246
3,352
33,386
32,366
31,251
29,834
28,843
17,137
16,184
15,393
14,432
Loans from shareholders (unsecured)
Deferred tax liabilities (net)
Total sources of funds
170
53
18
1
36,722
35,836
34,534
33,467
(9)
(54)
32,430
31
14
20,413
19,444
18,634
(4)
17,780
(4)
Application of funds
10,097
9,678
9,532
9,691
9,277
8,892
8,309
8,171
7,824
Investments
Fixed assets (including CWIP)
2,013
1,566
5,418
650
3,442
1,194
1,153
790
652
2,654
2,654
9,983
9,462
8,116
7,742
6,697
6,582
6,827
6,225
6,012
431
635
1,227
468
266
585
239
404
532
11,196
11,903
10,228
13,993
11,309
3,875
3,672
3,631
3,329
Current assets, loans and advances
Inventories
Sundry debtors
126
104
122
173
5
5
17
17
17
Loans and advances
9,824
8,453
7,527
7,163
7,277
6,724
6,338
6,240
5,365
9,581
8,571
7,598
6,002
5,828
7,421
7,091
6,746
5,910
21
48
39
410
15
23
22
97
42
Net current assets
21,958
21,938
19,584
23,126
19,712
10,327
9,981
9,674
9,304
Total applicarion of funds
36,722
35,836
34,534
33,467
32,430
20,413
19,444
18,634
17,780
Less: current liabilities and provisions
Current liabilities
Provisions
Changes to estimates
We revise our revenues and earnings expectation for FY2012E/13E/14E by -16%/-4%/-6%
and -13%/-4%/-8% by tweaking our sales and execution expectations as described below ` Esquire has not crossed revenue threshold yet and we expect it to start contributing to
revenues from FY2013E onwards from FY2012E earlier. We now expect Esquire to
contribute Rs0bn/6.1bn/4bn in FY2012E/13E/14E versus Rs1.4bn/4.2bn/4bn earlier since
recognition moves to FY2013E now.
` Tweak execution estimates in Splendor Grande to account for 9MFY12 numbers and we
expect the project to now contribute Rs0.9 bn/1.2 bn in FY2012E/13E versus Rs1.1 bn/1.7
bn earlier.
` We tweak RevPAR estimates for Westin hotel (taking 3QFY12E numbers and growing the
RevPAR assumption by 5% for FY2013E onwards) and now expect the project to
contribute Rs0.9 bn/0.9 bn/10 bn in FY2012E/13E/14E versus Rs0.9 bn/Rs1.2 bn/1.2 bn
earlier.
` Oberoi Commerz has been 77% occupied in 9MFY12 based on which we reduce our
occupancy estimates to 80% in FY2013E and 90% in FY2014E. We expect Commerz to
contribute Rs0.5 bn/0.5 bn/0.6 bn in FY2012E/13E/14E versus Rs0.6 bn/0.6 bn/0.7 bn
earlier.
81
Property
Oberoi Realty
Reduce estimates
Oberoi, March fiscal year-ends (Rs mn)
Revenue
EBITDA
Net income
(Rs mn)
(Rs mn)
(Rs mn)
New
9,377
5,944
4,915
FY2012E
Old
11,212
7,099
5,677
% change
(16.4)
(16.3)
(13.4)
New
20,149
12,374
8,715
FY2013E
Old
20,992
12,872
9,044
% change
(4.0)
(3.9)
(3.6)
FY2014E
New
Old % change
30,599
32,587
(6.1)
19,317
21,095
(8.4)
14,058
15,232
(7.7)
Our estimated NAV is Rs297/share
NAV-based valuation, Oberoi, March fiscal year-ends (Rs bn)
Gross real estate valuation (Rs bn)
Residential projects
Retail/commercial projects
Social projects
Hospitality project
Add: Net cash
Add: Value of stake in I-Ven Realty
Add: Centaur advance
Add: Stake sale in JV
NAV (Rs bn)
Total no. of shares (mn)
NAV/share (Rs)
Target price/share (Rs)
March '13 based NAV
Growth rate in selling prices per annum
0%
3%
5%
70
77
80
34
39
41
33
34
35
3
4
4
4
4
4
10
10
10
3
3
3
0
0
0
0
0
0
88
95
98
10%
96
54
38
4
4
10
3
0
0
113
330
297
300
82
Oberoi Realty
Property
Revenue model
2009
2010
2011E
2012E
2013E
2014E
0.4
3,517
9,590
0.5
7,003
12,857
0.7
7,868
11,409
0.5
6,810
13,084
1.2
14,641
12,612
1.4
18,585
13,003
—
—
—
—
—
—
—
—
—
—
—
—
0.1
2,461
18,054
0.5
7,239
14,612
0.6
737
103
0.6
834
108
0.8
1,121
122
0.8
1,691
178
1.0
2,128
179
1.8
3,810
172
Revenues
Rate/sq. ft
Revenues from real estate
—
—
—
4,254
—
—
—
7,836
—
671
—
9,660
—
876
—
9,377
—
920
—
20,149
—
966
—
30,599
Revenues
% growth
4,254
-
7,836
84
9,660
23
9,377
(3)
20,149
115
30,599
52
82.7
17.3
100
89.4
10.6
100
81.4
11.6
7.0
100
72.6
18.0
9.3
100
72.7
12.2
10.6
4.6
100
60.7
23.7
12.5
3.2
100
Apartments
Apartment volumes (mn sq. ft)
Revenues
Rate/sq. ft
Commercial sales
Volumes (mn sq. ft)
Revenues
Rate/sq. ft
Total rentals (commerical + retail)
Rental volumes (mn sq. ft)
Revenues
Rate/sq. ft
Hotels
Revenue mix (%)
Housing
Retail sales
Rentals
Others
Total
83
Property
Oberoi Realty
Profit model
Total revenues
Operating cost
Employee costs
SG&A costs
EBITDA
Other income
Interest
Depreciation
Pretax profits
Extraordinary items
Current tax
Deferred tax
Net income
Adjusted net income
EPS (Rs)
Primary
Fully diluted
Year end
Primary
Fully diluted
Cash flow per share (Rs)
Primary
Fully diluted
Growth (%)
Net income (adjusted)
EPS (adjusted)
DCF/share
Cash tax rate (%)
DPS
Dividend pay-out (%)
2,009
4,254
(1,596)
(87)
(97)
2,474
295
(4)
(73)
2,692
—
(177)
—
2,515
2,521
2,010
7,836
(3,026)
(70)
(68)
4,672
218
(0)
(91)
4,800
—
(226)
—
4,574
4,582
2,011
9,960
(3,766)
(270)
(153)
5,770
627
(2)
(237)
6,159
—
(868)
(115)
5,176
5,172
2012E
9,377
(2,797)
(406)
(230)
5,944
772
—
(579)
6,137
—
(1,102)
(120)
4,915
4,915
2013E
20,149
(6,822)
(608)
(345)
12,374
870
—
(709)
12,535
—
(3,576)
(244)
8,715
8,715
2014E
30,599
(9,852)
(913)
(518)
19,317
1,485
—
(664)
20,138
—
(5,857)
(223)
14,058
14,058
7.5
7.4
13.7
13.7
15.8
15.7
15.0
14.9
26.6
26.4
42.8
42.6
289
289
289
289
289
289
328
308
330
328
328
330
328
328
330
328
328
330
7.4
7.4
13.5
13.5
14.1
13.2
14.8
14.7
26.8
26.7
41.0
40.8
(15)
(17)
(15)
7
7
2.0
26.93
82
84
82
5
5
0.2
1.46
13
15
5
14
16
1.0
6.37
(5)
(5)
4
18
20
1.5
10.06
77
77
82
29
30
2.5
9.46
61
61
53
29
30
3.0
7.04
84
Oberoi Realty
Property
Balance model
Equity
Share capital
Preference capital
Reserves/surplus
Total equity
Deferred tax liability/(asset)
Liabilities
Secured loans
Unsecured loans
Total borrowings
Currrent liabilities & Provisions
Minority Interest
Total capital
Assets
Cash
Current assets
Gross block
Less: accumulated depreciation
Net fixed assets
Capital work-in-progress
Total fixed assets
Intangible assets
Investments
Misc. expenses
Total assets
Key ratios (%)
Debt/equity
Debt/capitalization
Net debt/equity
Net debt/capitalization
RoAE
RoACE
2009
2010
2011
2012E
2013E
2014E
26
571
13,839
14,436
(7)
2,887
359
15,392
18,637
(2)
3,282
359
29,834
33,476
(9)
3,282
—
34,174
37,456
112
3,282
—
41,928
45,211
355
3,282
—
54,835
58,117
578
0
107
107
3,993
18,529
—
—
—
6,843
25,478
—
—
—
6,412
39,879
—
—
—
3,815
41,382
—
—
—
6,102
51,668
—
—
—
8,120
66,815
1,669
10,124
2,837
101
2,736
3,851
6,586
—
150
—
18,529
3,631
12,887
3,258
190
3,068
5,103
8,171
—
790
—
25,478
13,993
15,545
7,996
415
7,581
2,110
9,691
—
650
—
39,879
10,216
15,776
11,659
995
10,664
1,423
12,087
2,654
650
—
41,382
10,464
22,082
17,521
1,704
15,817
—
15,817
2,654
650
—
51,668
13,807
34,186
17,886
2,368
15,519
—
15,519
2,654
650
—
66,815
0.7
0.7
(10.8)
(12.1)
18.9
17.9
—
—
(19.5)
(24.2)
27.7
27.6
—
—
(41.8)
(71.9)
19.9
20.3
—
—
(27.2)
(37.3)
13.8
14.2
—
—
(23.0)
(29.8)
21.0
21.6
—
—
(23.5)
(30.8)
27.0
27.4
85
Property
Oberoi Realty
Cash model
2009
2010
2011
2012E
2013E
2,699
73
(177)
(295)
4
(1,168)
1,135
2,303
(2,294)
—
3,692
295
1,693
4,800
91
(836)
(144)
2
1,316
5,228
3,912
(1,672)
—
(1,317)
141
(2,848)
6,159
238
(1,399)
(627)
—
(2,367)
2,003
4,370
(1,763)
3
(170)
466
(1,463)
6,137
579
(1,102)
(772)
—
(2,828)
2,014
4,843
(2,975)
—
(2,654—)
772
(4,857)
12,535
709
(3,576)
(870)
—
(4,019)
4,778
8,797
(4,440)
—
—
870
(3,569)
(212)
(1,328)
(79)
(1,620)
(249)
(109)
(85)
(443)
9,917
(—)
(71)
9,846
(359)
—
(576)
(935)
—
—
(960)
(960)
Net increase in cash and cash equivalents
Beginning cash
Ending cash
1,208
461
1,669
1,938
1,669
3,607
10,386
3,607
13,993
(3,777)
13,993
10,216
249
10,216
10,464
Gross cash flow (b)
Free cash flow (b) + (a) + (c)
Excess cash flow (b) +(a) + (c) + (d)
2,303
2,828
2,748
3,912
2,381
2,296
4,370
540
469
4,843
(2,842)
(3,418)
8,797
1,209
249
Operating
Pre-tax profits before extraordinary items
Depreciation
Taxes paid
Other income
Interest expenses
Working capital changes (a)
Total operating
Operating, excl. working capital (b)
Investing
Capital expenditure
(Purchase)/Sale of assets
(Purchase)/Sale of investments
Interest/dividend received
Total investing (c)
Financing
Proceeds from issue of share capital/redemption of preference shares
Proceeds from borrowings
Dividends paid (d)
Total financing
2014E
20,138
664
(5,857)
(1,485)
—
(10,086)
3,375
13,460
(365)
—
—
1,485
1,120
—
—
(1,152)
(1,152)
3,342
10,464
13,807
13,460
4,494
3,342
86
BUY
United Spirits (UNSP)
Consumer products
JANUARY 20, 2012
RESULT
One-offs spoil the picture. UNSP’s 3QFY12 had few one-offs (1) market disruptions in
Tamil Nadu and excise hike in West Bengal led to deceleration in volume growth to 1%;
adjusted growth of 6%, (2) inflation in raw material cost and one-off advertising
expense resulted in one of the lowest EBITDA margins at 9.6%. Net debt of Rs77 bn is
higher by Rs21 bn yoy primarily due to higher working capital. Retain BUY.
United Spirits
Stock data
1,318-450
Market Cap. (Rs bn)
79.9
Promoters
28.0
FIIs
53.6
MFs
2.4
1M
3M
12M
Absolute
5.1
(26.9) (50.1)
Rel. to BSE-30
(2.9) (25.0) (43.1)
EPS (Rs)
EPS growth (%)
P/E (X)
Sales (Rs bn)
Net profits (Rs bn)
EBITDA (Rs bn)
EV/EBITDA (X)
ROE (%)
Div. Yield (%)
2012
36.6
3.5
17.4
85.3
4.6
14.2
10.4
10.5
0.4
2013E
42.7
16.9
14.9
93.9
5.4
16.0
9.6
11.1
0.5
Price (Rs): 623
BSE-30: 16,644
2014E
45.9
7.5
13.9
105.0
5.8
17.8
8.9
10.8
0.6
Few one-offs spoil the picture
UNSP reported net sales of Rs19.5 bn (-0.3%, KIE Rs23.2 bn), EBITDA of Rs1.9 bn (-32%, KIE
Rs3.2 bn) and PAT of Rs0.3 bn (-68%, KIE Rs1.3 bn).
` The above reported results are not comparable on yoy basis due to the impact of Balaji
Distilleries. On a like to like basis yoy sales growth is 13%. Sales during the quarter were likely
disrupted (to the extent of 1.5 mn cases) in Tamil Nadu due to a campaign to promote local
brands in the state. Further increase in excise and sales tax in West Bengal led to increase in
retail price by 45% and decline in industry volume by 48%. Overall sales volume during the
quarter increased by 1% yoy and adjusted for the disruptions in Tamil Nadu, increased by 6%
yoy. Segment wise, volume growth was driven by 7% growth in premium category while
regular category declined by 3%. Adjusted for the impact in Tamil Nadu and West Bengal,
premium category grew by 16% and regular category by 6%.
` Material cost during the quarter was at 60.9% (highest in past 10 quarters) due to higher spirits
cost +15%, and glass cost. Adspends at Rs2167 mn includes one time cost of Rs260 mn
relating to launch expense of new brands. Accordingly EBITDA margin at 9.6% was one of the
lowest reported by the company.
` Debt as on December 31, 2011 is Rs77 bn versus Rs56 bn as on December 31, 2010.
Accordingly interest cost is higher at Rs1392 mn in 3QFY12 versus Rs1038 mn in 3QFY11. Debt
as on September 30, 2011 was Rs71 bn.
` Whyte and Mackay financials are not comparable on yoy basis as the base includes bulk sales.
For 9MFY12, W&M clocked sales of GBP 128.5 mn, EBITDA of GBP 28 mn and PBT of GBP13.5
mn.
` The company has announced steps to issue FCCB of US$175 mn with green shoe option of US$
50 mn to reduce debt levels and finance capex plans – increase distillation capacity and to set
up a glass plant.
Consumer products
United Spirits
Key monitorables
` Recoveries in sales volumes post the disruptions in key states – Tamil Nadu and West
Bengal. This issue once again highlight the inherent difficulties faced by this highly
controlled (by the Government directly and indirectly) business.
` Improvement in margin profile – according to the company, spirits cost has started
correcting (~6% down in January 2012). Further adspends will also likely reduce as
expenses related to launch of new brands was accounted for in 3QFY12
` The increasing debt position (Rs77 bn as of 3QFY12, an increase of Rs21 bn yoy) and
interest cost of the company. Company has planned capex of Rs11 bn over next couple of
years which in addition to setting up primary distillation capacity also includes glass
manufacturing facility – while we do not generally have a view on capex plans of a
company as it is a function of business requirement, a company operating in consumer
business investing in backward integration is surprising (which is not a normal industry
practice).
` Any developments in the Kingfisher airlines crisis – this has likely had an overhang on the
stock price of UNSP. Total promoter holding in UNSP is 28% of which ~90% is pledged
most of which is probably as collateral for Kingfisher’s debt. As on September 30, 2011,
Kingfisher has debt of Rs75 bn (according to our Aviation analyst Jasdeep Walia, the real
debt/liabilities of KFA is probably close to Rs100bn). In the event of default by KFA, there
is a likelihood of these shares potentially getting liquidated.
` Loans and advances in UNSP’s consolidated balance sheet have been increasing over the
years; it has seen an increase of Rs8 bn to Rs16 bn in FY2011. We are unable to comment
about the requirement of such high loans and advances for UNSP’s core business.
Moreover, the interest income received by UNSP is surprisingly low (Rs590 mn in FY2011,
Rs118 mn in FY2010).
Retain BUY
We retain BUY rating with a target price of Rs900. We continue to value the domestic
business at 11X FY2013E EV/EBITDA and W&M business at 9X FY2013E EV/EBITDA. In our
view, the recent debt crisis of Kingfisher Airlines may potentially have bearing on the UNSP
stock price till the matter is resolved; however it is difficult to build in any such eventuality at
this stage. Key risks to our rating are (1) higher-than-expected input costs (2) potential
impact of higher interest rates, (3) higher net debt position as of 2QFY12.
88
United Spirits
Consumer products
Interim results of United Spirits, March fiscal year-ends (Rs mn)
Net sales
Total expenditure
Material cost
Staff cost
Advertising and promotion
Other expenditure
EBITDA
OPM (%)
Other income
Interest
Depreciation
Pretax profits
Tax
Net income
Extraordinary
Reported net income
Income tax rate (%)
3QFY12
19,539
(17,671)
(11,894)
(1,192)
(2,167)
(2,418)
1,869
9.6
170
(1,392)
(155)
492
(158)
335
136
471
32.0
3QFY12E
23,215
(20,009)
(13,806)
(1,221)
(2,141)
(2,841)
3,207
13.8
142
(1,315)
(169)
1,865
(606)
1,259
1,259
32.5
3QFY11
19,601
(16,840)
(11,571)
(1,074)
(1,940)
(2,255)
2,761
14.1
114
(1,038)
(126)
1,711
(650)
1,061
238
1,300
38.0
2QFY12
17,906
(15,346)
(10,442)
(1,046)
(1,686)
(2,172)
2,560
14.3
100
(1,241)
(152)
1,267
(405)
861
619
1,480
32.0
Cost as a % of sales
Material cost
Staff cost
Advertising and promotion
Other expenditure
60.9
6.1
11.1
12.4
59.5
5.3
9.2
12.2
59.0
5.5
9.9
11.5
58.3
5.8
9.4
12.1
3QFY12E
(16)
(% chg)
3QFY11
(0.3)
2QFY12
9
(42)
(32)
(27)
(74)
(71)
(61)
(73)
(68)
(61)
(68)
One-offs impact volume growth
Quarterly volume growth (%)
Destocking in Andhra Pradesh
due to fresh tendering process
for retail licenses
25
20
15
10
5
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
0
89
Consumer products
United Spirits
Debt profile of UNSP (Rs mn)
Break up of debt
Capex loan
Term loan
Working capital
Term loans of SDL, PDL and others
Total secured loan
Unsecured loan
W&M acqusition loan w/o recourse
USL Holdings (UK) Ltd - With recourse (GBP 370 mn)
Total debt
Less cash
Total net debt
Dec-11
5,950
13,830
18,770
2,350
40,900
12,740
Sep-11
5,640
15,910
14,390
Jun-11
5,885
15,335
13,628
Mar-11
5,259
15,455
9,148
Dec-10
5,319
15,892
10,716
Mar-10
1,070
17,900
7,850
35,940
13,260
34,849
12,479
20,538
29,862
10948
23,001
31,927
7,971
22,427
26,820
6,360
21,890
30,410
84,050
6,910
77,140
28,340
77,540
6,480
71,060
67,865
2,950
64,915
63,811
6,370
57,441
62,325
5,693
56,632
55,070
7,690
47,380
Source: Company
ENA cost per case (Rs)
170
150
130
110
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
Oct-07
Jul-07
Apr-07
90
90
United Spirits
Consumer products
Profit model, balance sheet, cash model of United Spirits, March fiscal year-ends, 2008-2014E
2008
2009
Profit model
Net revenues
2013E
2014E
46,275
54,681
63,623
73,762
EBITDA
Other income
9,642
1,496
9,853
1,240
11,123
967
10,647
3,041
85,251
93,948
105,011
13,276
1,315
14,953
1,415
17,128
834
Interest expense
(5,881)
(7,377)
(6,187)
(5,575)
(741)
(926)
(950)
(1,023)
(6,270)
(6,836)
(7,649)
(1,143)
(1,272)
Pretax profits
Tax
4,516
(2,661)
2,790
(916)
4,952
(1,932)
(1,438)
7,090
(2,652)
7,178
(2,584)
8,260
(2,891)
8,876
(3,107)
Net income
1,855
21.5
1,875
18.2
3,021
27.3
4,437
35.3
4,594
36.6
5,369
42.7
5,769
45.9
Balance sheet
Total shareholder's equity
19,806
Total borrowings
66,041
23,123
37,287
41,339
45,583
50,481
55,677
78,036
58,504
67,759
72,990
76,040
81,565
18
(918)
(715)
(652)
(647)
(632)
(628)
1,992
63
85
175
212
221
232
Net fixed assets
87,858
11,163
100,304
16,558
95,162
18,194
108,620
20,690
118,138
22,774
126,110
24,728
136,845
28,321
Goodwill
44,320
Depreciation
Minority interest
2010
2011
2012E
53,260
44,738
42,444
44,320
44,320
44,320
Investments
2,119
9,501
1,265
1,544
1,544
1,544
1,544
Cash
5,438
4,490
7,686
6,370
4,512
2,662
2,657
Net current assets
15,878
25,016
25,572
41,741
44,988
52,856
60,003
Total assets
87,858
100,304
95,162
114,665
118,138
126,110
136,845
Free cash flow
2,596
1,864
4,175
5,850
5,416
6,656
7,211
(9,990)
(3,540)
(4,741)
(11,211)
(9,618)
(7,868)
(7,147)
Capital expenditure
Free cash flow
(6,713)
(6,321)
(2,586)
(3,519)
(3,227)
(3,227)
(5,030)
(14,108)
(7,997)
(3,153)
(8,881)
(7,429)
(4,438)
(4,967)
Ratios
Revenue Growth (%)
58.2
18.2
16.4
15.9
15.6
10.2
11.8
EBITDA Margin(%)
20.8
18.0
17.5
14.4
15.6
15.9
16.3
EPS Growth (%)
(39.9)
(15.5)
49.9
29.5
3.5
16.9
7.5
91
REDUCE
JSW Energy (JSW)
Utilities
JANUARY 23, 2012
RESULT
Cost-pressure, under-recoveries continue. The recent spike in merchant tariffs has
only partially arrested continued earnings weakness due to (1) rising prices of imported
coal and (2) under-recoveries from the cost-plus project at Barmer. Concerns about
recovery of fixed costs (Rs2.45/kwh) at the Barmer project and dependence on spot
markets for the purchase of coal and the sale of power for the remaining capacities
prompt our negative stance. Maintain REDUCE rating with a target price of Rs43.
JSW Energy
Stock data
Market Cap. (Rs bn)
Promoters
FIIs
MFs
1M
3M
Absolute
10.2
(11.5)
Rel. to BSE-30
3.6
(11.3)
91-36
71.1
76.7
4.2
0.0
12M
(50.5)
(43.8)
EPS (Rs)
EPS growth (%)
P/E (X)
Sales (Rs bn)
Net profits (Rs bn)
EBITDA (Rs bn)
EV/EBITDA (X)
ROE (%)
Div. Yield (%)
2011
5.1
12.9
8.4
41.9
8.4
14.6
10.5
16.1
(2.3)
2012E
1.6
(69.5)
27.7
56.8
2.6
10.5
15.8
4.5
0.0
Price (Rs): 43
BSE-30: 16,739
2013E
2.3
44.8
19.1
72.2
3.7
22.2
7.3
6.3
0.0
Operations improve though weaker Rupee continues to dent profitability
JSW Energy reported consolidated revenue of Rs17.5 bn (65% yoy, 81% qoq), operating profit of
Rs3.3 bn (-2% yoy, 319% qoq) and net profit of Rs549 mn against our estimates of Rs15 bn,
Rs1.9 bn and Rs273 mn respectively. EBITDA beat estimates, driven mainly by higher power sales
(3,978 MU against estimated 3,509 MU) on account of (1) higher-than-estimated generation
(4,337 MU against estimated 4,201 MU) and (2) sale of 270 MU of previously banked energy not
factored in our estimates. However, net income was dented by higher-than-estimated depreciation
and interest cost. Reported loss of Rs827 mn includes Rs1.4 bn of forex losses booked in the
quarter. We discuss the result and operational performance in detail in a subsequent section.
Softening in global coal prices offset by depreciating currency
Global coal prices have corrected by ~20% from their peak of US$130/ton (see Exhibit 5), though
benefits of falling coal prices have been offset by an18% depreciation in the currency during the
same period.
Some respite from upward trending merchant rates, though sustainability remains questionable
JSW Energy’s estimated merchant realization improved to Rs4.29/kwh (11% qoq) driven by
upward trending merchant prices (see Exhibit 6). Improvement in merchant rates could be
attributed to increased purchasing power of state distribution utilities following tariff hikes, postmonsoon seasonal revival and pending state assembly elections. We saw a similar spike in
merchant tariffs in the run-up to elections though note that the firm price trend failed to continue
after the elections.
Maintain REDUCE with a target price of Rs43
We maintain our REDUCE rating and target price of Rs40/share. Our target price comprises value
for 3,140 MW of operational and under-construction projects. In our view, excessive dependence
on spot purchase of imported coal and high proportion of merchant sales make earnings
susceptible to (1) rising prices of coal and (2) moderating short-term tariffs.
JSW Energy
Utilities
We do not ascribe any value to the development portfolio but we highlight that visible
traction on these projects could be a key upside risk to our earnings and valuation estimates.
We have revised our EPS estimates for FY2012 to Rs1.6 (previously Rs2.3) and for FY2013 to
Rs2.3 (previously Rs2.5) as we adjust for under-recovery of fixed costs at Barmer.
Commissioning of two more units in Barmer, provisional tariff allows only 70%
of fixed-cost recovery
During the quarter, JSW Energy started commercial generation from two more units at its
Barmer project (8X 135 MW) taking the total number of operational units to four. We
however note that the provisional tariff order by the Rajasthan regulator has fixed the tariff
for the first two units at Rs3.1/kwh, allowing just 70% of fixed cost recovery. A further
variable charge is based on a transfer price of Rs1,108/ton for lignite (Rs991/ton of transfer
price + Rs65/ton of royalty + Rs53/ton of VAT) and transfer price allowed by RERC is (for the
interim) 60% of the transfer price (before VAT and royalty) claimed by JSW Energy, which is
60% of Rs1,651/ton, which works out to Rs990.6/ton
The management indicated that the Barmer project faced significant cost overruns due to
delays in commissioning and revised project costs at Rs68.6 bn (Rs64 mn/MW) implying fixed
cost recovery of Rs2.45/kwh. Going by the precedence of the first two units and Rajasthan
being the largest loss making state, we remain skeptical about RERC approving the entire
cost of Rs68.6 bn.
First phase of capacity addition nears completion, limited visibility beyond
We note that beyond the current portfolio of projects under construction, aggregating to
3,140 MW (of which 2,600 MW has already been commissioned), there is limited visibility of
the development portfolio of 8.2 GW. We further highlight that JSW Energy has deployed
just 1% (as of September 2011) of total project cost of Rs404 bn for its development
portfolio (see Exhibit 4) signaling limited visibility beyond FY2012. Excessive leverage to spot
markets, both for fuel procurement and power sales, and limited growth visibility of the
portfolio drive our cautious stance on JSW Energy.
93
Utilities
JSW Energy
Exhibit 1: Operations improve though weaker Rupee dents profitability
Interim results for JSW Energy, March fiscal year-ends, (Rs mn)
Net sales
Operating costs
Cost of fuel
Purchase of power
O&M
(Decrease)/increase in banking energy
EBITDA
EBITDA margin (%)
Other income
Interest & finance charges
Depreciation
PBT
Provision for tax (net)
Net profit before minority interest
Minority interest/share in profit of associates
Net profit
Extraordinary
EBITDA margin (%)
Tax rate (%)
Key operating parameters
Net generation (mn units)
Average realization (Rs/kwh)
Fuel cost (Rs/kwh)
O&M (Rs/kwh)
3QFY12
17,514
3QFY12E
14,964
3QFY11
10,612
2QFY12
9,656
(10,649)
(759)
(1,775)
(1,008)
3,322
19
462
(1,995)
(1,379)
410
148
558
(9)
549
(1,375)
(11,003)
0
(2,070)
(6,378)
(140)
(710)
1,891
13
1,200
(1,600)
(1,150)
341
(68)
273
0
273
—
3,385
32
489
(1,417)
(745)
1,713
(150)
1,563
(35)
1,528
—
(7,616)
(865)
(1,596)
1,213
793
8
1,018
(1,510)
(1,098)
(798)
481
(317)
16
(301)
(788)
19
(36)
13
20
32
9
8
60
3,965
3.95
2.61
0.25
3,709
4.02
2.75
0.35
2,396
4.43
2.45
0.27
2,593
3.74
3.00
0.35
3QFY12E
17
(% Chg.)
3QFY11
65
2QFY12
81
76
(2)
319
20
(76)
(151)
105
(64)
(276)
101
(64)
(282)
65
(11)
7
(7)
53
6
(13)
(27)
FY2011
41,936
FY2012E
56,830
(% Chg.)
36
(23,721)
(37,038)
56
(3,581)
(9,296)
160
14,634
35
2,339
(4,325)
(2,668)
9,980
(1,563)
8,418
1
8,418
—
10,497
18
3,885
(6,881)
(4,854)
2,646
(159)
2,488
78
2,566
(2,163)
(28)
35
16
18
6
9,017
4.5
2.4
0.3
13,218
4.1
2.8
0.5
(73)
(70)
Exhibit 2: Our target price comprises value for 3,140 MW of capacity
SOTP-based valuation of JSW Energy
Project
JSWEL-SBU I
JSWEL-SBU II
Barmer I
Ratnagiri I
Jaigadh Power Transco
Total
Cash
Post money value
No. of shares
Value per share
Type
Thermal
Thermal
Thermal
Thermal
Transmission
Capacity
(MW)
260
600
1,080
1,200
3,140
Cost
(Rs bn) (Rs mn / MW)
11
42
19
31
69
64
57
47
6
161
51
Ownership
(%)
100
100
100
100
74
Value
(Rs bn)
2
8
22
15
0
49
19
68
2
41
94
JSW Energy
Utilities
Exhibit 3: Dependence on spot purchase of imported coal to rise to 4.5 mn tons by FY2014E
Fuel supply mix of JSW Energy, March fiscal year-ends, 2012-15E (mn tons)
Total coal requirement (mn tons)
Source
Lignite (mn tons)
Domestic coal from Tapering linkage (mn tons)
SACMH (SA) (mn tons)
Spot purchase of imported coal (mn tons)
2012E
5.77
2013E
9.95
2014E
12.13
2015E
12.13
1.33
4.44
4.95
0.50
4.50
7.13
0.50
4.50
7.13
0.50
4.50
Notes:
(1) The coal requirement is for 3,140 MW of capacity and does not include development portfolio.
Operational highlights of 3QFY12
` Net generation for 3QFY12 increased sequentially to 3,965 MU (65% yoy, 53% qoq)
mainly due to the commissioning of the fourth unit in Ratnagiri and the start of
generation from Barmer. PLFs at both Vijaynagar and Ratnagiri increased to 85% and
83% respectively (72% and 74% in 2QFY12) while Barmer clocked impressive PLF of
74%.
` We note out of net generation of 3,965 MU, 257 MU was converted power (JSW Energy
had entered into an agreement with JSW Steel to convert the excess gas into electricity at
a conversion fee of Rs1.3/kwh) and an additional 270 MU of banked energy (243 MU of
previously banked energy and 27 MU received as banking arrangement) was sold in the
short-term market, taking aggregate sale of power to 3,978 MU. For details on banking
arrangement, refer our note titled “Wager gone awry” dated November 11, 2011.
` Estimated average realization for 3QFY12 was Rs3.95/kwh (-11% yoy, 6% qoq).
Sequential increase in average realization was primarily on account of improvement in
merchant rates during the quarter (estimated merchant realization increased from
Rs3.86/kwh in 2QFY12 to Rs4.3/kwh in 3QFY11) though realizations were partly pulled
down by the sale of 558 MU at Barmer at an approved tariff of Rs3.1/kwh.
` Fuel cost and O&M – Estimated fuel cost and O&M for 3QFY12 was Rs2.61/kwh (7% yoy,
-13% qoq) and 25p/kwh (-7% yoy, -27% qoq) respectively. A sequential decline in
average fuel cost is likely due to commencement of generation at Barmer, operating on
lignite, and a decline in O&M is reflective of stabilizing operations.
` Capacity addition – JSW Energy commissioned the fourth unit of its Ratnagiri (300 MW)
project in October 2011 and the third and fourth unit of the Barmer project in November
and December 2011, taking its total installed capacity to 2,600 MW.
95
Utilities
JSW Energy
Exhibit 4: JSW Energy has deployed just 1% of total project cost of Rs404 bn
Execution status of JSW Energy’s development portfolio as of September 2011
Capacity
(MW)
Project
Deployed
(Rs bn)
(%) Type
Cost
(Rs bn)
DPR
Land
Environmental
clearance
X
Fuel
arrangement
X
Financial
closure
X
NA
9
X
WIP
9
NA
X
Thermal
NA
WIP
Thermal
NA
X
9
9
X
1.0
9
9
0.9
1.4
Thermal
NA
WIP
X
WIP
X
0.0
0.0
Thermal
NA
X
X
X
X
Barmer II
270
13.5
0.6
4.5
Thermal
Kutehr
240
19.2
1.2
6.5
Hydro
Ratnagiri II
3,200
150.0
0.6
0.4
West Bengal
1,600
76.8
0.8
Chhattisgarh
1,320
65.0
Jharkhand
1,620
79.4
Total
8,250
404
4.2
X
1.0
Exhibit 5: Moderation in imported coal prices offset by currency depreciation
Coal prices at Richard Bay (US$/ton)
INR (Rs/US$)
Richard Bay (US$/ton)
200
55
180
160
50
140
120
100
45
80
60
40
40
20
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
35
Dec-07
0
Exhibit 6: Average price of exchange traded power has gone up from levels in December 2010
Average price of power traded in IEX (Rs/kwh)
18
16
14
12
10
8
6
4
2
Dec-11
Oct-11
Aug-11
Jun-11
Apr-11
Feb-11
Dec-10
Oct-10
Aug-10
Jun-10
Apr-10
Feb-10
Dec-09
Oct-09
Aug-09
Jun-09
Apr-09
Feb-09
Dec-08
-
Source: IEX, Kotak Institutional Equities
96
JSW Energy
Utilities
Exhibit 7: Profit model, balance sheet, cash model of JSW Energy, March fiscal year-ends, 2009-15E (Rs mn)
Profit model
Net revenues
EBITDA
Other income
Interest (expense)/income
Depreciation
Pretax profits
Tax
Deferred taxation
Minority interest
Net income
Extraordinary items
Reported profit
Balance sheet
Paid-up common stock
Total shareholders' equity
Minority interest
Total borrowings
Net fixed assets
Capital work-in progress
Investments
Goodwill
Cash
Net current assets (excl. cash)
Net current assets (incl. cash)
Total assets
Free cash flow
Capital expenditure
Free cash flow
Ratios
Net debt/equity (%)
Return on equity (%)
Book value per share (Rs)
ROCE (%)
2009
2010
2011
2012E
2013E
2014E
2015E
18,172
5,140
350
(1,209)
(602)
3,678
(782)
(130)
—
2,767
—
2,767
10
23,364
12,002
929
(2,837)
(1,415)
8,679
(877)
(347)
—
7,455
—
7,455
5
41,936
14,634
2,339
(4,325)
(2,668)
9,980
(1,839)
276
1
8,418
—
8,418
5
56,830
10,497
3,885
(6,881)
(4,854)
2,646
164
(323)
78
2,566
(2,163)
402
2
72,248
22,169
3,554
(11,924)
(5,841)
7,958
(1,931)
(2,314)
2
3,715
—
3,715
2
75,491
22,899
2,853
(12,150)
(5,969)
7,634
(2,173)
(1,685)
(3)
3,772
—
3,772
2
75,296
23,820
3,602
(11,310)
(5,969)
10,142
(2,518)
(1,577)
(13)
6,035
—
6,035
4
5,466
14,797
815
152
59,272
75,035
6,170
79,251
1,705
172
1,751
(14,013)
(12,262)
75,035
16,401
47,802
1,161
152
78,701
127,817
29,954
86,026
14,344
171
6,048
(8,727)
(2,678)
127,817
16,401
56,765
1,562
724
96,376
155,427
64,214
77,080
4,842
171
9,779
(659)
9,120
155,427
16,401
57,167
1,885
67
118,740
177,858
120,185
24,852
4,842
171
18,782
9,026
27,808
177,858
16,401
60,882
4,199
65
120,948
186,094
114,344
29,744
4,842
171
25,842
11,151
36,994
186,094
16,401
64,655
5,883
68
115,505
186,111
108,376
29,744
4,842
171
31,278
11,701
42,979
186,111
16,401
70,690
7,460
81
105,771
184,001
102,407
29,744
4,842
171
35,297
11,541
46,838
184,001
(562)
14,013
(86,710)
(73,258)
3,327
(5,287)
(26,034)
(27,994)
7,488
(8,068)
(25,047)
(25,626)
4,879
(9,685)
(5,812)
(10,618)
11,462
(2,125)
(4,485)
4,852
11,429
(550)
—
10,879
13,593
160
—
13,753
384.8
37.4
28.6
9.5
151.5
23.8
29.9
8.2
150.6
16.1
35.6
7.2
174.6
4.5
36.0
1.4
156.0
6.3
39.7
3.1
130.1
6.0
43.0
3.2
99.6
8.9
47.7
4.6
97
BUY
Mahindra & Mahindra Financial (MMFS)
JANUARY 21, 2012
RESULTRESULT
Keeping faith, yet again. Mahindra Finance (MMFSL) reported yet another quarter of
strong performance. Loan book was up 50% yoy on the back of 39% growth in
disbursements, thereby driving 34% growth in earnings. Asset quality performance was
healthy. We believe that strong earnings buoyancy in rural India, auto manufacturers’
focus on rural markets and new product lines at MMFSL will likely help continue the
earnings traction in FY2013E as well. We tweak estimates; retain BUY with a target
price of Rs825.
Mahindra & Mahindra Financial
Stock data
840-590
Market Cap. (Rs bn)
67.3
Promoters
57.4
FIIs
34.3
MFs
4.5
1M
3M
12M
Absolute
7.9
4.3
(8.4)
Rel. to BSE-30
(2.2)
5.5
4.2
EPS (Rs)
EPS growth (%)
P/E (X)
NII (Rs bn)
Net profits (Rs bn)
BVPS
P/B (X)
ROE (%)
Div. Yield (%)
2012
55.6
23.0
11.8
16.2
5.7
272.4
2.4
21.1
1.9
2013E
71.9
29.3
9.1
21.1
7.4
322.4
2.0
23.1
2.4
2014E
84.8
17.8
7.8
25.2
8.7
381.7
1.7
23.0
2.8
Price (Rs): 666
BSE-30: 16,739
QUICK NUMBERS
• PAT up 34% yoy,
5% above estimates
• Loan book up 50%
yoy
Earnings traction to remain strong, reiterate positive stance
We expect MMFSL to deliver 23% RoE in the medium term and 29% growth in earnings in
FY2013E as compared to 23% PAT growth in FY2012E. Our bullishness stems from positive loan
growth traction (explained below) and deferred income on loans sold to banks (as per the recently
revised accounting policy) that will largely drive growth. We find upside to our estimates from (1)
likely improvement in NIM on the back of declining rates in the system and (2) lower-thanexpected growth in loan-loss provisions. We model 70% yoy growth in provisioning expenses visà-vis 32% average loan growth in FY2013E to build in any likely deterioration in collections.
We continue to believe that MMFSL will deliver strong business traction over the medium term.
We expect MMFSL’s loan growth to moderate to 23% between March 2012 and March 2013
(implying 32% yoy growth in average loans in FY2013E) on the back of 47% loan growth CAGR
between March 2010 and March 2012E. We believe that the earnings buoyancy in rural India over
the past three years will continue to drive business traction in FY2013E as well; increase in business
lines will further boost growth at MMFSL. Severe vagaries in monsoon and higher-than-expected
regulatory impact pose a risk to our call.
Robust performance in 3QFY12
MMFSL reported PAT of Rs1.54 bn, up 34% yoy and 5% above estimates. Somewhat lower
provisions resulted in better-than-expected earnings; core growth was in line.
` Strong loan growth. Mahindra Finance reported loan growth of 9% qoq and 47% yoy.
Disbursements were up 39% yoy. The company sold down loans of Rs6.6 bn in 3QFY12; loans
under management increased by 45% yoy. Notably, the income on loans sold to banks will
now be deferred over the tenure of the loans unlike the earlier policy of upfront recognition.
` New product lines drive superior growth. MMFSL’s growth has been strong across
product lines. MMFSL has reported 25%, 34% and 46% growth in disbursements for
UVs, cars and tractors respectively - significantly higher than industry levels. The product
mix was broadly stable qoq: tractors at 20% of total and UVs at 27% of total. The
company continued to finance about 10,000 Maruti cars in 3QFY12; MMFSL has tied up
with Tata and Hyundai though Maruti continues to drive about 80% of its car finance
volumes. The management highlighted that MMFSL has recently increased its market
share in ‘Swaraj’ tractors, the business acquired from Punjab tractors; as such, MMFSL’s
growth in tractors appears to be higher than its parent (M&M reported 4% decline in
tractors in November 2011). The share of CVs increased to 11% of disbursements from
6% last year likely on the back of Mahindra Navistar.
` Tweaking growth estimates. We retain loan growth estimate of 44% for FY2012E
while tweaking down our growth estimate for FY2013E to 23% from 25% to factor
higher loan sell-down. Notably, MMFSL has resumed loan sell-down in 3QFY12 after a
pause of two quarters; while the regulator stance on priority sector recognition of such
loans is not yet clear, the transaction has resumed in the market. We note that our
assumption of 23% growth is significantly higher than 10-12% industry growth estimate;
higher traction in rural India and expansion/ diversification of new product lines at MMFSL
will driver superior growth, in our view.
Margins decline yoy – in line with expectations
MMFSL reported NIM (as per KS calculations) of 10.1 % (our estimate was 10.1%) down
from 10.5% in 2QFY12 and 12.1% in 3QFY11. MMFSL has raised its lending rates for new
loans in June 2011: this boosted interest yield for the past two quarters. However, sharper
rise in borrowings costs pulled down NIM in 3QFY12. We expect NIM to improve in FY2013E
as interest rates in the system decline; we are, however, not yet modeling this in our
estimates.
Operating expenses – in line
MMFSL’s operating expenses increased by 26% yoy to Rs1.5 bn - stable qoq; operating
expenses ratio was down to 3.8% from 4.1% in 3QFY11 but above 3.5% in 2QFY12. We
believe that MMFSL will resume focus on cost control if demand moderates. Notably, in the
past two years, the company has focused on high growth - MMFSL opened 88 branches in
FY2011 and 50 in FY2012E (47 branches till December 2011).
NPLs increase marginally qoq; seasonal trends on track
MMFSL’s credit cost was down 9% yoy to Rs494 mn. Gross NPL ratio was 4.1%, up from
4% in 2QFY12; net NPL ratio was up to 1.1% from 1%. We are modeling credit cost
(including standard asset provisions) of 1.7% of average assets in FY2013E on the back of
1.4% for FY2012E. We are not yet modeling the impact of likely change in regulations: RBI
has proposed to change the NPL recognition norms for NBFCs to 90 days past due from 180
days earlier. MMFSL current recognizes NPLs on loan delinquent up to 150 days. Its NPL
provision policy is more conservative (as shown in the exhibit). A relaxation in MMFSL’s loan
provisioning policy, if the proposal is implemented, can provide a cushion.
Regulatory clarity awaited, lower dependence on securitization is positive
RBI has set up a committee of bankers to review the priority sector framework for the
banking system. The report of this committee and the final reports on the revised draft
securitization guidelines are awaited by NBFCs. We believe that MMFS is well-placed to
manage the transition due to its lower dependence on loan securitization/sell-down;
securitization income and provision write-back was 13% of PBT in FY2011. From FY2012,
the company has revised its accounting policy to defer income on loan sell-down over the
tenure of the assets and unlike upfront recognition earlier. We are not modeling higher
spread on such transactions.
99
Loan sell-down (bilateral transactions with banks akin a bank loan) will likely be replaced by
securitization (involves issuance of a debt instrument). The draft proposes a ‘pari passu’
sharing of losses in bilateral deals. We believe that it’s hence challenging to expect ‘AAA’
rating for the transaction. The structure for loan securitization (that involves senior and subordinate tranches) can merit a high credit rating for the senior tranche due to the credit
support provided by the subordinate.
MMFSL follows a more stringent NPL provisioning policy
NPL provisioning policy at banks, NBFCs and MMFSL
Banks
Period
Months
3-15 months
15-27 months
27-39 months
Over 39 months
Provision
(%)
15
25
40
100
NBFCs (curreny policy)
Period
Provision
Months
(%)
5-18 months
10
18-30 months
20
30-54 months
30
Over 54 months
50
Mahindra Finance
Period
Provision
Months
(%)
5-11 months
10
11-24 months
50
Over 24 months
100
Source: RBI, Company
Mahindra Finance, Quarterly results (Rs mn)
Net interest income
Provisions and write/off
Net interest income (after prov.)
Other income
Income from securitization
Others
Total income pre provisions
Operating expenses
Employee expenses
Depreciation
Other expenses
Pretax income
Tax provisions
Net Profit
Tax rate (%)
PBT bef. secu.,provisions and other in
PBT bef sec income post prov
1Q11
3,817
1,315
2,502
543
1,959
197
107
90
2,699
1,046
365
28
652
1,111
366
744
33
1,547
1,004
2Q11
4,547
1,518
3,029
335
2,694
242
149
93
3,271
1,194
369
34
791
1,742
577
1,165
33
1,928
1,593
3Q11
5,097
1,813
3,285
545
2,740
202
106
96
3,487
1,209
310
39
860
1,733
574
1,159
33
2,172
1,627
4Q11
5,762
1,956
3,806
144
3,661
261
154
107
4,067
1,482
470
56
957
2,440
874
1,566
36
2,430
2,286
1Q12
5,477
2,160
3,317
561
2,756
163
163
3,480
1,406
519
44
842
1,513
491
1,022
32
2,074
1,513
2Q12
6,492
2,589
3,903
523
3,380
158
158
4,061
1,520
510
49
961
2,017
660
1,357
33
2,540
2,017
3Q12
7,328
3,150
4,178
494
3,684
138
138
4,316
1,520
469
54
997
2,303
756
1,547
33
2,797
2,303
YoY (%)
27
(9)
34
(32)
44
24
26
51
39
16
33
32
34
(1)
29
42
3Q12E
4,150
600
3,550
150
150
4,300
1,510
510
50
950
2,190
723
1,467
33
2,790
2,190
Actual vs KS
(%)
1
(18)
4
(8)
(8)
0
1
(8)
9
5
5
5
5
(1)
0
5
100
Mahindra Finance, Quarterly operational details (%)
3Q12E
Actual vs KS
(%)
50
172
1
(16.3)
10.1
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
YoY (%)
29
97
91
34
111
103
42
122
115
40
138
125
38
45
59
39
139
159
172
NIMs - KS calculations (%)
Cost to income (%)
Exp/ ave assets (%)
11.4
38.7
4.3
12.5
36.5
4.4
12.1
34.7
4.1
12.7
36.5
4.4
10.1
40.4
4.0
10.5
37.4
3.5
10.1
35.2
3.8
Total income/ average assets (%)
Interest / average assets (%)
Difference (%)
16.6
5.5
11.1
17.0
5.5
11.5
17.4
5.7
11.7
17.9
5.8
12.1
16.2
6.2
10.0
16.5
6.3
10.2
16.9
6.7
10.2
7,105
6.9
1,247
1.3
6,744
5.8
1,182
1.1
7,104
5.6
1,306
1.1
5,488
4.0
744
0.6
6,776
4.6
1,373
1.0
6,688
4.0
1,654
1.0
7,382
4.1
1,888
1.1
17.4
15.4
16.5
14.7
17.4
13.9
20.3
17.0
18.7
15.8
17.3
14.7
17.5
14.6
34
22
29
7
8
30
21
33
7
9
30
22
33
6
9
29
22
33
7
9
27
22
32
10
9
27
20
32
11
10
27
20
32
11
10
33
23
30
8
6
34
22
30
8
6
30
23
33
8
6
31
23
31
9
6
30
23
31
10
6
32
20
31
11
6
30
20
31
12
7
69,130
36,990
6,730
14,970
10,440
82,220
48,370
6,730
15,690
11,430
90,519
49,730
6,480
19,290
15,019
96,750
66,317
11,660
10,190
8,583
103,154
70,057
12,110
11,774
9,213
124,226
76,127
11,988
25,224
10,887
135,298
78,035
12,234
31,789
13,240
54
10
22
15
59
8
19
14
55
7
21
17
69
12
11
9
68
12
11
9
61
10
20
9
58
9
23
10
Other operational details
Value of asset financed (Rs bn)
Outstanding assets (Rs bn)
Outstanding loans (Rs bn)
Gross NPLs (Rs mn)
Gross NPL ratio (%)
NPAs (Rs mn)
Net NPL ratio (%)
CAR (%)
Tier I (%)
Segmentwise mix
Disbursements
Auto/ utility vehicles
Tractors
Cars
Commercial vehcles
Refinance and others
4
45
-
AUMs
Auto/ utility vehicles
Tractors
Cars
Commercial vehcles
Refinance and others
Funding Mix (excludes assignments)
(Rs mn)
Banks
Insurance
Mutual funds
Others
%age of total
Banks
Insurance
Mutual funds
Others
49
57
89
65
(12)
Source: Company
101
Mahindra Finance
Quarterly balance sheet (Rs mn)
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
YoY (%)
Sharecapital
Reserves
ESOP
Total Borrowings
Current Liabilities
960
17,060
11
69,131
10,240
961
18,230
10
82,215
9,571
961
19,404
90,519
11,225
1,025
23,876
96,750
15,890
1,025
24,920
103,154
17,944
1,025
26,294
124,218
15,547
1,025
27,862
135,298
15,923
7
44
49
42
Total liabilities and shareholders
funds
97,402
110,987
122,109
137,541
147,042
167,084
180,108
47
Loans & Avd
Investments
Deferred tax
Current Assets
Fixed assets
Total assets
91,488
831
2,130
2,449
504
97,402
102,965
2,400
2,192
2,819
611
110,987
114,817
1,201
2,329
3,029
733
122,109
124,649
6,745
2,167
3,161
818
137,541
139,308
2,338
2,183
2,350
863
147,042
158,587
2,576
2,237
2,745
947
167,084
172,460
1,899
2,282
2,496
971
180,108
50
58
(2)
(18)
32
47
Source: Company
Mahindra Finance
Old and new estimates, March fiscal year-ends, 2012-13E (Rs mn)
Net interest income
Loan book (Rs bn)
Loan growth (%)
NIM (%)
NPL provisions
Other income
Securitization
Operating expenses
Employee
Others
PBT
Tax
PAT
PBT-securitisation income
PBT-secu income+ provisions
EPS(Rs)
Old estimates
2012E
2013E
16,455
21,766
180
224
44
25
10.0
10.1
2,281
3,633
600
700
—
—
6,293
8,066
1,813
2,215
4,480
5,851
8,480
10,766
2,775
3,525
5,705
7,242
8,480
10,766
10,762
14,400
56
71
New estimates
2012E
2012E
16,185
21,073
180
221
44
23
9.8
9.9
2,131
3,603
650
1,050
—
350
6,234
7,565
2,014
2,382
4,220
5,183
8,471
10,956
2,772
3,586
5,699
7,370
8,471
10,606
10,601
14,208
56
72
% change
2011E
2012E
(2)
(3)
—
(2)
—
(7)
8
—
(1)
11
(6)
(0)
(0)
(0)
(0)
(1)
(0)
—
(1)
50
—
(6)
8
(11)
2
2
2
(1)
(1)
2
102
Mahindra Finance, Key assumptions and ratios, March fiscal year-ends, 2008-14E
Growth in key parameters (%)
Net interest income
Total income
Operating expenses
Employee expenses
Net loans
Total assets
Total Borrowings
Shareholders fund
Asset management measures (%)
Yield on average earning assets
Average cost of funds
Difference
Net interest income/earning assets
Spreads on lending business
Net interest income/EA (after prov)
Tax rate
Dividend payout ratio
Profitability measures (%)
Interest income/total income
Other income / total income
Operating expenses/total income
Payout ratio
Equity/assets (EoY)
ROA decomposition - % of avg. assets
Net interest income
Net other income
Gains on securitization
Operating expenses
(1- tax rate)
ROA
Average assets/average equity
ROE
2008
2009
2010
2011
2012E
2013E
2014E
42
41
44
101
48
29
49
13
12
3
69
15
12
17
15
13
6
22
3
6
3
12
13
(2)
22
(22)
22
22
9
22
22
24
18
34
32
35
(29)
27
52
18
49
51
50
44
49
89
28
36
24
26
33
44
40
53
17
31
33
30
69
31
21
18
23
22
24
19
22
25
19
22
19
21
11
21
20
22
19
17.8
9.1
8.7
9.9
8.7
7
35
25
19.0
9.9
9.1
10.6
9.1
7
34
25
18.9
8.6
10.3
11.4
10.3
9
34
21
18.5
8.2
10.3
11.1
10.3
10
34
22
18.8
10.2
8.6
9.8
8.6
9
33
22
18.8
10.0
8.8
9.9
8.8
8
33
22
18.9
10.2
8.7
9.8
8.7
8
33
22
85
15
33
25
19
87
13
30
25
20
88
12
30
21
19
93
7
36
22
18
96
4
37
22
15
95
5
34
22
15
95
5
35
22
15
9.9
3.7
1.7
1.6
3.8
65.1
2.7
6.4
16.9
10.6
3.9
1.5
1.4
3.7
65.9
3.0
5.2
15.4
11.3
2.7
1.6
1.3
3.9
66.1
4.2
5.2
21.5
11.0
1.4
0.8
0.5
4.3
65.9
4.1
5.4
22.0
9.8
1.3
0.4
0.0
3.8
67.3
3.4
6.1
21.1
9.9
1.7
0.5
0.2
3.5
67.3
3.4
6.7
23.1
9.7
1.7
0.5
0.2
3.5
67.3
3.4
6.8
23.0
103
Mahindra Finance, Income statement & balance sheet, March fiscal year-ends, 2008-14E (Rs mn)
Income statement
Net interest income
Provisions and write/off
Other income
Gains on securitisation of loans
Operating expenses
Pretax income
Tax provisions
Net Profit
PBT - securitization income + provisioning exp
EPS (Rs)
BPS (Rs)
ABVPS (Rs)
Balance sheet
Net loans
Total Investments
Cash & deposits
Loans and advances and other assets
Deferred tax assets
Net fixed assets
Capital work in progress
Total assets
Liabilities
Total loans and bonds
Total Borrowings
Current liabilities
Total liabilities
Share capital
Reserves
Shareholders fund
2008
2009
2010
2011
2012E
2013E
2014E
11,120
4,560
6,560
2,463
1,148
1,074
2,525
2,720
950
1,770
4,109
21
138
131
12,748
5,099
7,649
2,824
1,098
977
2,667
3,256
1,111
2,145
5,103
22
154
147
14,366
5,017
9,349
2,215
1,321
1,110
3,250
5,205
1,762
3,443
6,310
36
180
177
19,223
6,602
12,621
1,566
902
516
4,932
7,026
2,393
4,633
8,076
45
243
241
28,681
12,496
16,185
2,131
650
6,234
8,471
2,772
5,699
10,601
56
284
272
37,706
16,633
21,073
3,603
1,050
350
7,565
10,956
3,586
7,370
14,208
72
338
322
46,042
20,873
25,169
4,389
1,250
550
9,118
12,912
4,227
8,685
16,751
85
401
382
66,090
31
2,153
383
1,254
305
3
70,218
68,233
1,097
2,763
186
1,787
371
3—
74,440
83,510
2,159
2,420
335
2,069
408
68
90,969
124,649
6,746
2,976
183
2,167
718
100
137,539
179,732
7,083
3,303
183
2,276
418
102
193,097
220,588
7,437
3,667
183
2,389
272
104
234,641
267,101
7,809
4,070
183
2,509
264
106
282,042
50,682
50,682
6,394
57,075
953
12,190
13,143
51,406
52,130
7,617
59,747
957
13,735
14,692
59,784
64,577
9,087
73,664
960
16,326
17,286
88,412
96,749
15,889
112,638
1,025
23,875
24,900
139,738
148,075
15,889
163,964
1,025
28,108
29,133
176,641
184,145
15,889
200,034
1,025
33,583
34,607
218,341
225,094
15,889
240,983
1,025
40,034
41,058
104
ADD
HT Media (HTML)
Media
JANUARY 23, 2012
RESULT
Need for consistent performance. HTML posted weak 3QFY12 EBITDA of Rs727 mn
(-16% qoq) despite 10% yoy growth in advertising revenue. The negative variance was
due to (1) weaker-than-expected Hindustan EBITDA of Rs191 mn (+3% yoy; adjusted)
and (2) Rs75 mn of ad-for-equity provisions (adjusted EBITDA of Rs802 mn). Forex
losses of Rs100 mn are considered part of RM costs (buyer credit to pay for imported
newsprint). HT Delhi led HTML’s performance with 9% yoy advertising growth; Fever
FM, HT-Burda and Hindustan disappointed (we have yet to see consistent benefits from
HTML’s diversification). Retain ADD with FY2013E FV of Rs160 (unchanged); HT needs
to deliver (earnings, dividends) to justify its premium valuations.
HT Media
Stock data
182-105
Market Cap. (Rs bn)
29.4
Promoters
68.8
FIIs
11.8
MFs
12.8
1M
3M
12M
Absolute
8.2
(10.6) (16.0)
Rel. to BSE-30
1.7
(10.3)
(4.6)
EPS (Rs)
EPS growth (%)
P/E (X)
Sales (Rs bn)
Net profits (Rs bn)
EBITDA (Rs bn)
EV/EBITDA (X)
ROE (%)
Div. Yield (%)
2011
7.7
31.0
16.3
17.7
1.8
3.2
7.5
14.9
0.3
2012E
7.5
(3.1)
16.8
20.1
1.8
2.9
8.2
11.8
1.6
Price (Rs): 125
BSE-30: 16,739
2013E
9.2
23.3
13.6
24.2
2.2
3.7
6.0
13.4
3.2
3QFY12 performance largely in line, but inconsistent
` HTML reported standalone 3QFY12 EBITDA, that was largely in line, at Rs681 mn (-16% yoy;
Exhibit 1) and adjusted EBITDA of Rs731 mn (Rs50 mn of ad-for-equity provisions) led by
recovery in HT Delhi advertising (+9% yoy) supported by HT Mumbai/Mint (~20% yoy). We
highlight that below EBITDA line 3QFY12 financials are not comparable given (1) the IPO of
subsidiary HMVL in 3QFY11 and (2) negative tax in 3QFY11 (reversed in 4QFY11).
` HTML reported weak consolidated 3QFY12 EBITDA of Rs727 mn (-16% yoy; Exhibit 2) and
adjusted EBITDA of Rs802 mn (Rs75 mn of ad-for-equity provisions) led by weaker-thanexpected financial performance of Hindustan (Rs191 mn adjusted EBITDA, +3% qoq), Fever FM
and HT-Burda (EBITDA losses again). The Internet business continued to post losses though they
were in line with the company’s guidance.
Retain ADD rating with FY13E FV of Rs160 (unchanged)
Taking a consistent view of the HTML stock is about as difficult as being a Liverpool fan. It is a
good collection of individual businesses/players but lacks the solid formation of a team and will
take time to perform meaningfully. The potential exists but current premium valuations do not
justify the inconsistent performance (Andy Carrol). Just when one player (Luiz Suarez) starts to
shine, it promptly gets itself banned for a few matches (Hindustan 3QFY12). The title was never
the hope but even a top-four finish becomes an uphill task as the team struggles to score winners.
The balance sheet remains robust (Steven Gerrard) but it can only go so far.
We reiterate our ADD rating with FY13E FV of Rs160 (unchanged; increase in value of HT Delhi
given better-than-expected advertising growth is negated by a decline in the value of Hindustan).
HTML has not derived much benefit from its diversification strategy. Although valuations remain
low on a historic basis, relative premium to peers needs to be better justified by financial
performance (earnings, dividends). The operational performance remains strong (readership,
market share) but monetization has been an area of inconsistency.
Media
HT Media
3QFY12 standalone financials (contd.)
` HTML reported standalone English print advertising of Rs3.05 bn (+11% yoy), ahead of
our estimate of Rs2.8 bn. The growth was led by HT Mumbai/Mint (~20% yoy) and HT
Delhi, which contributed meaningfully (9% yoy). HTML expressed confidence that the HT
Delhi advertising market is stable and performance can be sustained; real estate
advertising has stabilized in the NCR (NCR editions contributed positively). HT Mumbai
and Mint continue to benefit from market share gains.
` HTML posted flat yoy (-5% qoq) standalone circulation revenue. HT Delhi cover prices
increased somewhat in 2QFY12 but were likely negated by lower circulation. Mumbai
remains a competitive market with the presence of DNA still precluding a meaningful
price increase (negative realization currently). HT Mumbai continues to defend its position,
rightly so in our view, but with a lack of associated financial flexibility.
` HTML reported RM costs of Rs1.06 bn (10% yoy). However, Rs100 mn of forex losses
reported in overheads was due to buyer credit (to pay for imported newsprint). Adjusted
RM costs of Rs1.16 bn negated the positive variance in advertising revenue. English print
is expected to continue to face currency headwinds in FY2013 as well but HTML noted
softening of imported newsprint prices (in US dollar terms).
` Employee expenses increased 26% yoy due to provisions for year-end bonuses (given the
improvement in English print performance, the dominant business).
` Fever FM continued to disappoint with revenue of Rs173 mn (-4% qoq, +10% yoy),
which was below expectations, and EBITDA breakeven against Rs39 mn EBITDA
contribution in 3QFY11. HTML right-sized the operation with a cut in marketing expenses
but Fever FM is still expected to post losses in FY2012, given weak revenue trends.
Interim standalone results of HT Media, March fiscal year-ends (Rs mn)
Total revenues
Advertisement revenues
Circulation revenues
Other operating revenues
Total expenditure
Raw material costs
Employee expenses
SG&A and other expenses
EBITDA
OPM (%)
Depreciation
Other income
Interest expense
Pretax profits
Extraordinaries
Tax provision
Minority interest
Reported net income
Adjusted net income
Tax rate (%)
Key data
English print segment
Total revenues
Operating profit
Radio segment
Total revenues
Operating profit
3QFY12
3,595
3,049
165
381
(2,914)
(1,063)
(655)
(1,197)
681
18.9
(141)
184
(63)
660
—
(162)
—
497
497
24.6
3QFY12E
3,400
2,800
200
400
(2,700)
(1,050)
(600)
(1,050)
700
20.6
(175)
175
(50)
650
—
(200)
—
450
450
30.8
3QFY11
3,241
2,744
165
332
(2,425)
(965)
(521)
(940)
815
25.2
(142)
75
(40)
708
—
154
—
862
862
(21.7)
2QFY12
3,112
2,572
174
366
(2,628)
(1,006)
(591)
(1,032)
484
15.6
(158)
200
(57)
469
—
(113)
—
356
356
24.1
3,397
644
3,036
683
173
(9)
180
30
chg (%)
6
11
16
9
11
19
(18)
(5)
(5)
15
4
8
20
11
1
10
6
9
26
11
14
27
16
(3)
(16)
41
9MFY12 9MFY11
9,993
8,815
8,357
7,450
493
440
1,143
925
(8,087)
(6,847)
(3,027)
(2,599)
(1,864)
(1,569)
(3,196)
(2,680)
1,906
1,968
19.1
22.3
(439)
(422)
573
349
(164)
(123)
1,876
1,771
—
—
(495)
(140)
—
—
1,382
1,631
1,382
1,631
26.4
7.9
(% chg)
13
12
12
24
18
16
19
19
(3)
(19)
5
27
1
(0)
145
57
(7)
(11)
(8)
12
41
4
64
33
6
(19)
(205)
44
11
11
(42)
(42)
40
40
2,936
475
12
(6)
16
36
9,393
1,775
8,317
1,698
13
5
157
(45)
(4)
(131)
10
(79)
543
(29)
444
25
22
(219)
254
(15)
(15)
106
HT Media
Media
3QFY12 consolidated financials (contd.)
` HTML reported consolidated print advertising of Rs4.07 bn (+10% yoy), ahead of our
estimates, led by HT Delhi but dragged down by weak trends in Hindi Hindustan
advertising. Hindi Hindustan, being an emerging business, reported advertising growth of
only 9% yoy, equivalent to the mature HT Delhi.
` We discussed the financials of HMVL (Hindi Hindustan) in our note “Earnings follow
valuations, in 3QFY12”, dated January 20, 2012. In summary, HMVL reported weak
3QFY12 EBITDA of Rs191 mn as advertising disappointed given (1) a weak environment,
(2) competition (Jagran) and (3) weak government advertising in Bihar.
` HT-Burda revenues fell sharply (Rs226 mn versus Rs315 mn in 2QFY12) and EBITDA (loss
of Rs17 mn versus profit of Rs5 mn in 2QFY12). The switch to domestic paper from
imported paper stemmed HT-Burda’s losses but operating performance was below
expectations.
` The Internet business continued to bleed, posting operating losses of Rs93 mn (-11% yoy)
though this was in line with the company’s guidance. HT Media considers Internet a
strategic investment. We have less of an issue with Internet investments per se than with
the direction and execution of the strategy in this regard.
` HT Media reported 3QFY12 PAT of Rs482 mn, in line with expectations, despite missing
on reported EBITDA. Net other income increased meaningfully to Rs134 mn from
Rs33 mn in 3QFY11 (also due to the Hindustan IPO). However, net cash levels were static
in 9MFY12 despite significant standalone EBITDA of Rs1.9 bn (HMVL is still investing in
new editions) and may not provide much support in future.
Interim consolidated results of HT Media, March fiscal year-ends (Rs mn)
Total revenues
Total expenditure
Raw material costs
Employee expenses
EBITDA
OPM (%)
Depreciation
Other income
Interest expense
Pretax profits
Extraordinaries
Tax provision
Minority interest
Reported net income
Adjusted net income
Tax rate (%)
Key data
Print segment
Total revenues
Operating profit
Radio segment
Total revenues
Operating profit
Internet segment
Total revenues
Operating profit
3QFY12
5,216
4,073
503
640
(4,489)
(1,874)
(936)
(1,680)
727
13.9
(220)
218
(83)
642
—
(161)
1
482
482
25.1
3QFY12E
5,225
3,950
525
750
(4,400)
(1,950)
(900)
(1,550)
825
15.8
(250)
225
(75)
725
—
(225)
(25)
475
475
31.0
(% chg)
(0)
13
7
3
10
10
(4)
7
(1)
(15)
38
(5)
2
20
6
(4)
14
1
4
23
10
8
25
11
(12)
(16)
8
3QFY11
4,622
3,686
471
465
(3,753)
(1,648)
(760)
(1,346)
868
18.8
(217)
79
(46)
684
—
(184)
(22)
478
478
26.8
2QFY12
4,889
3,705
507
677
(4,218)
(1,861)
(849)
(1,508)
671
13.7
(233)
246
(75)
609
—
(140)
(31)
438
438
23.0
4,952
748
4,399
775
4,678
728
13
(3)
6
3
14,292
2,370
12,387
2,137
15
11
174
(9)
180
30
157
(45)
(3)
(131)
11
(79)
545
(29)
444
21
23
(239)
117
(93)
83
(106)
100
(106)
41
(11)
17
(12)
302
(319)
208
(303)
45
5
(12)
(3)
11
(12)
1
175
80
(6)
(6)
(11)
11
5
(28)
(12)
15
1
1
1
1
10
10
9MFY12 9MFY11
15,049
12,960
11,622
10,266
1,495
1,357
1,932
1,337
(12,774) (10,661)
(5,459)
(4,600)
(2,665)
(2,243)
(4,650)
(3,818)
2,276
2,299
15.1
17.7
(666)
(622)
635
357
(211)
(165)
2,033
1,869
—
—
(544)
(547)
(55)
(43)
1,435
1,280
1,435
1,280
26.7
29.2
(% chg)
16
13
10
45
20
19
19
22
(1)
7
78
28
9
(1)
12
12
107
Media
HT Media
Trends in advertising revenue growth of HT Media (%)
30
20
10
3QFY09
1QFY10
3QFY10
1QFY11
3QFY11
1QFY12
3QFY12
(10)
Notes:
(a) Standalone financials till 2QFY10, and consolidated financials thereafter.
Trends in consolidated cash balance of HT Media (Rs bn)
6
4.4
4
4.1
3.8
3.8
2QFY12
3QFY12
3.0
2.5
2
(0)
4QFY10
1QFY11
(1)
2QFY11
3QFY11
4QFY11
1QFY12
(2)
Notes:
(a) Hindustan IPO in 3QFY11 contributed Rs2.56 bn of cash infusion.
SOTP valuation of HT Media, March fiscal year-end, 2013E
Business
HT Delhi-NCR
Hindustan
HT Others
HT Mint
Fever FM
HT-Burda JV
HT Mumbai
Internet
Enterprise value
Net cash/(debt)
Equity value
Financials (Rs bn)
Sales
EBITDA
9.2
2.8
6.7
1.2
2.1
0.3
1.1
0.1
0.8
0.1
1.8
0.2
1.7
0.3
Multiple (X)
Sales
EBITDA
2.0
6.7
1.9
10.6
1.1
9.0
1.3
9.7
1.5
8.1
0.7
8.0
1.5
—
Valuation
(Rs bn) (Rs/share)
18.7
79
8.2
35
2.3
10
1.4
6
1.2
5
0.6
3
2.6
11
—
—
35.0
149
2.7
11
37.7
160
Comments/Assumptions
Based on DCF valuation with 2% terminal growth
Based on 16.5% holding discount to DCF valuation
Based on DCF valuation
Based on DCF valuation
Based on DCF valuation limited up to FY2018E
Based on 8.0X FY2013E EV/EBITDA
Based on 1.5X FY2013E EV/Sales
Based on end-FY2012E standalone financials
108
HT Media
Media
Readership of HT Media and its competition across markets (mn)
Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 chg (%)
Delhi English
Hindusan Times
Times of India
Mail Today
Mumbai English
Times of India
Hindusan Times
Daily News and Analysis
Hindi
Dainik Jagran
Dainik Bhaskar
Hindi Hindustan
Amar Ujala
Rajasthan /Patrika
Business
Economic Times
HT Mint
Business Standard
1.9
1.9
0.2
1.9
1.9
0.2
2.0
1.9
0.2
1.9
1.9
0.2
1.9
1.9
0.3
1
2
29
1.6
0.6
0.6
1.6
0.6
0.6
1.6
0.7
0.6
1.6
0.7
0.7
1.5
0.8
0.7
(2)
27
18
16.0
13.5
10.8
8.6
8.2
16.1
14.0
11.5
8.6
8.2
15.9
14.0
11.8
8.7
8.1
16.4
14.2
12.0
8.9
8.2
16.5
14.9
12.0
8.8
8.3
3
10
11
3
2
0.8
0.2
0.2
0.8
0.2
0.1
0.8
0.2
0.2
0.8
0.2
0.2
0.8
0.3
0.2
2
41
1
Source: Indian Readership Survey, Kotak Institutional Equities
Valuations of Indian print media companies, March fiscal year-ends, 2010-13E
JAGP
JAGP (adjusted)
DBCL
DBCL (adjusted)
HMVL
HTML
HTML (adjusted)
EV
(Rs bn)
31
29
34
34
7
28
28
2010
2.8
2.8
3.4
3.4
0.8
2.5
2.5
EBITDA (Rs bn)
2011
2012E
3.6
3.6
3.6
3.6
4.0
3.6
4.2
4.3
0.9
0.9
3.2
2.9
3.1
2.7
2013E
4.2
4.2
4.3
5.2
1.2
3.7
3.5
2010
10.9
10.4
10.0
10.0
8.8
11.0
11.0
EV/EBITDA (X)
2011
2012E
8.6
8.5
8.3
8.2
8.5
9.6
8.1
8.0
8.3
8.0
8.7
9.6
9.0
10.3
2013E
7.3
7.0
8.0
6.6
6.2
7.4
7.9
JAGP
JAGP (adjusted)
DBCL
DBCL (adjusted)
HMVL
HTML
Price
(Rs)
99
99
185
185
125
125
2010
5.8
5.9
10.6
10.6
7.9
5.8
EPS (Rs/share)
2011
2012E
6.7
6.4
6.9
6.6
14.1
11.4
14.8
13.7
8.2
9.0
7.7
7.5
2013E
7.9
8.2
14.0
16.9
10.6
9.0
2010
16.9
16.7
17.4
17.4
15.8
21.4
P/E (X)
2011
2012E
14.6
15.4
14.2
14.8
13.1
16.3
12.5
13.5
15.2
13.9
16.3
16.8
2013E
12.5
12.1
13.2
10.9
11.8
13.9
JAGP
DBCL
HMVL
Discount (%)
Readership (mn)
Q4 2010 Q1 2011 Q2 2011 Q3 2011
16.8
16.6
17.1
17.1
17.7
17.8
18.0
18.8
11.5
11.8
12.0
12.0
EV/Reader (X)
Q4 2010 Q1 2011 Q2 2011 Q3 2011
1,834
1,854
1,798
1,796
1,928
1,919
1,902
1,823
644
624
615
613
66
67
67
66
Notes:
(a) Adjusted for higher dividend payout versus peers DBCL and HTML.
(b) Adjusted for near-term startup losses in Jharkhand and Maharashtra.
(c) Adjusted for 22% minority interest in subsidiary HMVL post IPO in October-2010.
109
Media
HT Media
Financial summary of HT Media, March fiscal year-ends, 2008-14E (Rs mn)
2008
2009
2010
2011E
2012E
2013E
2014E
Profit model
Net sales
EBITDA
Other income
Interest
Depreciation
Pretax profits
Extraordinary items
Tax
Deferred taxation
Net income
Minority interest
Adjusted net income
12,033
1,699
439
(178)
(570)
1,390
—
(520)
143
1,013
—
1,013
4.3
13,466
879
330
(323)
(688)
198
(189)
(40)
(85)
(116)
(125)
79
0.3
14,129
2,499
409
(295)
(707)
1,906
(21)
(562)
25
1,348
(11)
1,374
5.8
17,674
3,171
478
(236)
(842)
2,571
—
(932)
219
1,858
49
1,809
7.7
20,120
2,870
778
(281)
(870)
2,498
—
(686)
25
1,837
84
1,753
7.5
24,163
3,743
760
(281)
(966)
3,256
—
(986)
56
2,326
164
2,162
9.2
28,466
5,241
808
(281)
(1,057)
4,711
—
(1,507)
83
3,286
262
3,024
12.9
Balance sheet
Total equity
Minority interest
Total borrowings
Current liabilities
Cash
Total fixed assets
Intangible assets
Investments
Total assets
8,529
1
122
2,231
2,804
13,685
774
4,425
4,752
1,078
2,656
13,685
8,485
(69)
207
3,706
5,399
17,728
705
6,270
6,718
998
3,035
17,728
9,711
218
178
4,021
5,765
19,893
1,087
5,623
7,573
834
4,755
19,893
13,022
1,299
(86)
3,123
6,037
23,395
1,152
6,404
7,559
685
7,595
23,395
14,227
1,383
(111)
3,123
6,550
25,171
2,546
7,826
7,519
685
6,595
25,171
15,293
1,547
(167)
3,123
7,421
27,216
3,442
9,069
7,424
685
6,595
27,216
16,673
1,809
(250)
3,123
8,213
29,567
4,760
10,245
7,282
685
6,595
29,567
1,242
(131)
(1,196)
(325)
298
(112)
586
1,313
(2,597)
(1,126)
206
(1,618)
2,308
1,695
(1,575)
(1,778)
146
795
2,820
(328)
(773)
(3,098)
291
(1,088)
2,184
(910)
(830)
1,000
778
2,223
2,757
(372)
(872)
—
760
2,274
3,734
(384)
(915)
—
808
3,243
25.8
16.8
12.2
9.6
42.6
34.5
0.9
3.6
40.7
29.7
14.8
11.8
24.1
15.2
15.9
11.9
22.1
4.1
13.0
12.1
20.6
(2.1)
14.8
13.9
19.0
(10.0)
19.2
18.0
Free cash flow
Capital expenditure
Investments
Other income
Free cash flow
Ratios (%)
Debt/equity
Net debt/equity
ROAE (%)
ROACE (%)
110
BUY
Sobha Developers (SOBHA)
Property
JANUARY 20, 2012
RESULT
Healthy sales with in-line EBITDA and PAT. Sobha declared EBITDA and PAT in line
with our expectation while sales remained robust at 0.8 mn sq. ft. We maintain our
BUY recommendation on Sobha with a revised target price of Rs340/share (Rs350/share
earlier). At current market price, we find minimal value being ascribed to either (1)
development more than ongoing projects, (2) brand and (3) Sobha operating as a going
concern.
Sobha Developers
Stock data
327-180
Market Cap. (Rs bn)
24.1
Promoters
60.5
FIIs
33.2
MFs
1.1
1M
3M
12M
Absolute
18.1
7.4
(11.1)
Rel. to BSE-30
11.0
7.7
0.9
EPS (Rs)
EPS growth (%)
P/E (X)
Sales (Rs bn)
Net profits (Rs bn)
EBITDA (Rs bn)
EV/EBITDA (X)
ROE (%)
Div. Yield (%)
2012
15.6
(17.2)
15.8
13.5
1.5
3.0
12.4
7.9
1.4
2013E
25.7
65.3
9.6
19.8
2.5
4.4
7.8
12.0
1.6
2014E
32.8
27.6
7.5
25.6
3.2
5.0
6.2
13.8
1.8
Price (Rs): 246
BSE-30: 16,644
QUICK NUMBERS
• Revenues of Rs3.1
bn in 3QFY12 (-5%
qoq, -13% yoy).
• EBITDA of Rs753 mn
( in line% qoq, -8%
yoy)
Strong sales trend continues
Sobha sold 0.8 mn sq. ft which is the second best sales performance after 2QFY12 when the
company sold 0.9 mn sq. ft though the company did not launch any projects in the quarter. The
new locations of Mysore and Gurgaon continued to do well and contributed 0.12 mn sq. ft to
sales (steady qoq). Average realization has gone up to Rs5,475/sq. ft from Rs5,196/sq. ft in
2QFY12 possibly due to changes in sales mix and as per the company presentation, 37% of sales
in 9MFY12 have taken place in the Rs10 mn+ category. Though Sobha has not launched any
projects in 3QFY12, it has drawn ambitious plans to launch 9 mn sq. ft in the coming quarters
with at least 4 project launches in 4QFY12E covering 1.8 mn sq. ft.
• Sales volume of 0.8
mn sq. ft in 3QFY12
versus 0.9 mn sq. ft
in 2QFY12
EBITDA and PAT are in line though revenues are marginally lower than expected
Sobha reported revenues of Rs3.1 bn (-5% qoq, -13% yoy, 9% below expectation) and EBITDA of
Rs753 mn (in line qoq, -8% yoy, 2% above expectation) as EBITDA margin climbed to 24% versus
22.9% in 2QFY12 possibly due to revenue contribution from high value projects. PAT came in at
Rs401 mn (in line qoq, -18% yoy) and as per our expectation.
Bangalore market remains healthy
Absorption in the Bengaluru residential market (Sobha’s primary market) remains stable with
monthly absorption (based on 3-month rolling averages) of 4 – 5 mn sq. ft since October 2010.
Inventory is in line with trend (16-18 months) and prices have also remained stable though we see
marginal probability of an increase. We expect Bengaluru demand to continue to remain robust
given (1) positive outlook on IT services demand and hence hiring trend remaining robust, (2) no
evidence of any significant speculative element built into either volumes or prices.
Current stock price continues to assume minimal value beyond ongoing projects and book value
Almost all of Sobha’s current EV is accounted for by (1) PV of cash flows from current projects + (2)
book value of land + (3) value of the contracting business. We are cutting FY2012E revenue and
net profit estimates by 14% and 18% respectively due to lower execution assumptions due to an
ambitious launch pipeline. Key risks include (1) delay in project launches beyond 2QFY12 and (2) a
slowdown in demand for IT services which could impact residential demand in Bangalore.
Property
Sobha Developers
Steady quarter
Interim standalone results, Sobha Developers, March fiscal year-ends (Rs mn)
Net sales
Operating costs
(Increase)/Decrease in stock in trade and WIP
Land cost expenses
Construction expenses & raw materials
Staff cost
Other administrative expenses
EBITDA
Other income
Interest costs
Depreciation
PBT
Taxes
PAT
Key ratios
EBITDA margin (%)
PAT margin (%)
3QFY12
3,137
3QFY12E
3,456
2QFY12
3,294
3QFY11
3,597
3QFY12E
(9)
% change
qoq
(5)
(2,384)
210
(79)
(1,788)
(303)
(424)
753
23
(93)
(106)
577
(176)
401
(2,721)
(2,777)
(220)
(406)
(1,525)
(244)
(382)
820
17
(97)
(73)
667
(177)
490
(12)
(6)
735
10.0
(80.0)
(92.0)
573
(180)
393
(2,539)
4,058
(2,250)
(3,519)
(316)
(512)
755
9
(81)
(91)
592
(183)
409
2
130
16
15
1
(2)
2
(96)
(49)
(4)
(17)
(0)
156
15
16
(3)
(4)
(2)
24.0
12.8
30.5
21.3
11.4
31.4
22.9
12.4
30.9
22.8
13.6
26.5
yoy
(13)
9MFY12
9,610
9MFY11 % change
10,992
(13)
(14)
(195)
(81)
17
24
11
(8)
35
(4)
45
(13)
(1)
(18)
(7,479)
4,266
(2,727)
(6,726)
(925)
(1,367)
2,131
37
(275)
(271)
1,622
(503)
1,119
(8,604)
(328)
(1,528)
(4,757)
(767)
(1,224)
2,388
32
(311)
(209)
1,900
(478)
1,422
22.2
11.6
31.0
21.7
12.9
25.2
(13)
(1401)
78
41
21
12
(11)
16
(12)
30
(15)
5
(21)
EBITDA and PAT as per expectation while revenues disappoint
Sobha reported revenues of Rs3.1 bn (-5% qoq, -13% yoy) at 9% below expectation while
EBITDA of Rs753 mn (in line qoq, -8% yoy) and PAT of Rs401mn (-2% qoq, -18% yoy) were
both in line with our expectation.
Gross debt declined qoq by Rs0.7 bn to Rs13.4 bn and net-D/E declined to 0.65X versus
0.71X at end-2QFY12.
Other highlights
` Completed and handed over four residential project of 1.19 mn sq. ft (6 projects, 1.54
mn sq. ft in 9MFY12) versus 11 projects with area of 4.1 mn sq. ft in FY2011. Sobha is
targeting to complete three real estate projects aggregating to 0.46 mn sq. ft in 4QFY12E.
` Completed and delivered four (11 in 9MFY12) contractual projects aggregating to 0.28
mn sq. ft (0.59 mn sq. ft in 9MFY12) and the company is targeting to complete 10
projects of 1.7 mn sq. ft in 4QFY12E.
Aggressive launch pipeline
Though Sobha has not launched any projects in 3QFY12 it has laid out aggressive plans to
launch 9 mn sq. ft (up from 7.8 mn sq. ft in 2QFY12) in the coming quarters. Of this, at least
4 projects covering 1.8 mn sq. ft are slated for a 4QFY12 launch and includes a 0.7 mn sq. ft
project in Chennai which is a new location for the company.
112
Sobha Developers
Property
Sobha has ambitious plans to launch 9 mn sq. ft in the coming quarters
Planned future launches, Sobha Developers (mn sq. ft)
S No.
Saleable area
(mn sq. ft)
Sobha's share
(mn sq. ft)
Luxury apartments
Luxury + Super Luxury apartments
Super Luxury apartments
Residential + Commercial
Residential + Commercial
Commercial
0.6
1.7
0.5
1.1
0.5
1.5
0.2
6.0
0.6
1.4
0.5
0.7
0.2
0.8
0.1
4.3
Luxury apartments
0.2
0.7
0.9
0.2
0.7
0.9
Dreams apartments
0.3
0.1
0.4
0.3
0.1
0.4
Office + Hotel Space
0.5
0.2
0.7
0.5
0.2
0.7
Luxury apartments
0.8
0.8
0.5
0.5
Plotted development
0.1
0.1
9.0
0.1
0.1
7.0
Location
Project name
Type
Whitefield
Mysore Rd
Kanakapura Rd
Kanakapura Rd
Bannerghatta Rd
Gopalapura
St. Marks Road
Sobha Habitech
Hosakerahalli Property
Sobha Tranquility
Sobha Gladiola
Dairy Circle Property
City Property
St. Marks Road Property
Sobha Serene
Sobha Meritta
Bengaluru
1
2
3
4
5
6
7
Total
Chennai
8
9
10
11
12
13
14
15
Porur
Pudhupakkam
Total
Coimbatore
Thondamuthur Rd
Sobha Hillview
Thondamuthur Rd Harishree Garden - Ph 5,6,9
Total
Thrissur
Thrissur
Jade
Thrissur Sobha City - Commercial 2
Total
Pune
Thergaon
Thergaon Property
Total
Mysore
Nadanahalli
Nadanahalli Property
Total
Grand total
Fairly healthy demand in 3QFY12E for Bengaluru developers
Sobha has sold 2.4 mn sq. ft in 9MFY12 (1.6 mn sq. ft in 1HFY12) and the company now
seems to be on track to meet its sales guidance of 3-3.5 mn sq. ft in FY2012E with a sales
value of Rs15 bn+. New areas in Gurgaon and Mysore continue to do well with sales of 0.12
mn sq. ft in 3Q/2QFY12 and the company will likely enter Chennai (new location) in 4QFY12
which will boost sales. Average realization has gone up to Rs5,475/sq. ft from Rs5,196/sq. ft
in 2QFY12 possibly due to changes in sales mix and as per the company presentation, 37%
of sales in 9MFY12 have taken place in the Rs10 mn+ category and 35% was from Rs7.5-10
mn category.
113
Property
Sobha Developers
Sobha has sold 2.4 mn sq. ft in 9MFY12
Quarterly sales performance, Sobha Developers, 1QFY10-2QFY12
Location
Bengaluru
Thrissur
Coimbatore
Pune
Mysore
NCR
Total
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11
0.10
0.24
0.61
0.41
0.48
0.52
0.01
0.07
0.08
0.10
0.10
0.17
0.11
0.07
0.09
0.07
0.03
0.04
0.02
0.01
0.02
0.05
0.06
0.01
0.25
0.39
0.80
0.64
0.67
3QFY11
0.56
0.06
0.03
0.06
0.74
0.71
0.54
0.48
0.64
0.06
0.06
0.10
0.04
0.04
0.02
0.01
0.03
0.05
0.06
0.02
0.11
0.66
0.67
0.94
3QFY12
0.57
0.08
0.02
0.02
0.02
0.11
0.82
Even overall absorption in the Bengaluru residential market (Sobha’s primary market)
remains stable with monthly absorption (based on 3-month rolling averages) of 4 – 5.1 mn
sq. ft since October 2010. Inventory is in line with trend (16-18 months) and prices have also
remained stable though we see marginal probability of an increase. We expect Bengaluru
demand to continue to remain robust given (1) positive outlook on IT services demand and
hence hiring trend remaining robust, (2) no evidence of any significant speculative element
built into either volumes or prices.
Bengaluru market remains resilient
New launches, absorption and inventory in months, Bengaluru, October 2010-October 2011
10
9
3m-rolling launches (mn sq. ft, LHS)
3m-rolling absorption (mn sq. ft, LHS)
Inventory months (months, RHS)
Max. absorption (since Sept. 2007, LHS)
20
19
Min. absorption (since Sept. 2007, LHS)
8
19
Oct-11
Sep-11
Aug-11
Jun-11
Jul-11
15
May-11
15
0
Apr-11
16
1
Mar-11
16
2
Feb-11
17
3
Jan-11
17
4
Dec-10
18
5
Nov-10
18
6
Oct-10
7
Source: Propequity, Kotak Institutional Equities
Retain BUY with target price of Rs340/share (Rs350 earlier)
We make the following changes to our earnings and valuation model
` Change revenues estimates for FY12/13/14E by -14%/-2%/-13% as we tweak sales
assumption and delay execution in projects due to an ambitious launch pipeline.
` Reduce net income by 18%/6%/25% for FY2012E/13E/14E.
114
Sobha Developers
Property
Reduce estimates on slower execution assumption due to ambitious launch pipeline
Revenue, EBITDA and net income, Sobha Developers, March fiscal year-ends (Rs bn)
Revenue
EBITDA
Net income
(Rs mn)
(Rs mn)
(Rs mn)
New estimates
2012E
2013E
13,495
19,825
2,966
4,403
1,527
2,524
2014E
25,650
4,994
3,220
2012E
15,709
3,452
1,855
Old estimates
2013E
20,203
4,646
2,688
2014E
29,403
6,602
4,306
2012E
(14)
(14)
(18)
% change
2013E
(2)
(5)
(6)
2014E
(13)
(24)
(25)
We have a target price of Rs 340/share
NAV-based valuation, Sobha Developers, March fiscal year-ends (Rs bn)
Gross valuation (Rs bn)
Less: Land cost to be paid
Less: Net debt
Add: Contractual business
NAV
Total no. of shares (mn)
NAV/share
Target price @0% discount to NAV
March '13 based NAV
Growth rate in selling prices
0%
3%
5%
13.1
15.8
28.1
(1)
(1)
(1)
(10)
(10)
(10)
5.3
5.3
5.3
18
22
33
10%
22.9
(1)
(8)
5.3
30
98
341
340
115
Property
Sobha Developers
Sobha’s stock price assumes 0.2 mn sq. ft of development till perpetuity beyond ongoing projects
SOTP valuation of Sobha Developers (Rs mn)
Current market price (Rs)
Outstanding shares (mn)
Total market cap (Rs mn)
Debt (Rs mn)
Enterprise value (Rs mn) [A]
Value (Rs mn)
246
98
24,138
12,966
37,104
Comments
Net debt at end-1QFY12
Valuation (Rs mn)
(1) Ongoing projects
8,623
Based on 1QFY12 data, assuming 16%
cost of capital, inflow over three years
starting one year later
(2) Contractual business
4,507
At 10xFY2012E earnings assuming 10%
net margin
(3) Land valued at acquistion cost
Total value (Rs mn) [B]
22,591
35,721
Residual value for ongoing development business [A-B]
Based on 1QFY12 company presentation
1,384
Note:
(a) 1QFY12 numbers have been used and Gurgaon project which was launched in 2QFY12 has been taken at land value
Value of executing 0.2 m sq. ft assuming third party land
Area (mn sq. ft)
Average rate (Rs)
Revenue (Rs mn)
0.2
EBIT @ 20% margin
215
Profit after tax (Rs mn)
145
Present value (Rs mn)
Assumed average selling price in
Bengaluru
4,500
1,073
1,384
Assumed developer EBIT margin @ 20%
based on JDA
Assuming marginal rate of tax at 32.4%
Assuming 5% constant inflation and
16% cost of capital
Source: Company, Bloomberg, Kotak Institutional Equities estimates
Sobha has Rs 35 bn cash flow available from ongoing and completed projects
Cash flow from ongoing and completed projects, as of Dec 31, 2011 (Rs mn)
Description
Total super built-up area
Sobha's share of saleable area
Total area sold till Dec 31, 2011
Unsold area
Construction cost to be spent
Receivables outstanding + balance to be billed and collected on sold units
Sales value of unsold stock
Cash flow available
Total cash flow available from real estate projects
Unit
mn sq. ft
mn sq. ft
mn sq. ft
mn sq. ft
Rs mn
Rs mn
Rs mn
Rs mn
Rs mn
Ongoing
projects
14.98
12.79
4.07
8.72
35,946
11,222
59,028
34,304
35,476
Completed
projects
6.01
5.75
5.6
0.15
464
886
749
1,172
116
Sobha Developers
Property
Sobha has 222 mn sq. ft of developable area in its land bank
Land bank details and key qoq changes, Sobha Developers, March fiscal year-ends (acres, mn sq. ft)
Location
Gurgaon
Bengaluru
Pune
Mysore
Thrissur
Hosur
Chennai
Coimbatore
Cochin
Total
Total area
(acres)
20
As on end-2QFY12
Developable area
Sobha's share
(mn sq. ft)
(mn sq. ft)
1.8
1.8
Total area
(acres)
As on end-3QFY12
Developable area Sobha's share
(mn sq. ft)
(mn sq. ft)
868
139
84.8
6.7
81.6
6.5
866
139
84.7
6.7
81.5
6.5
32
17
485
517
113
435
2,625
3.1
1.8
34.8
37.5
7.4
47.4
225.4
3.1
1.8
34.8
37.4
7.4
47.4
221.9
32
17
485
517
113
435
2,604
2.6
1.8
34.8
37.5
7.4
47.4
223.0
2.6
1.8
34.8
37.5
7.4
47.4
219.5
117
Property
Sobha Developers
Profit model of Sobha Developers
March fiscal year-ends, 2009-2014E (Rs mn)
Total revenues
Land and construction cost
Employee costs
SG&A costs
EBITDA
Other income
Interest
Depreciation
Pretax profits
Current tax
Deferred tax
Net income
Adjusted net income
EPS (Rs)
Primary
Fully diluted
2009
9,740
(4,398)
(1,009)
(1,546)
2,788
148
(1,074)
(360)
1,501
(422)
20
1,099
1,099
2010
11,299
(6,537)
(768)
(1,530)
2,463
39
(521)
(323)
1,658
(296)
21
1,383
1,383
2011E
14,739
(8,632)
(1,035)
(1,911)
3,161
75
(444)
(278)
2,514
(691)
22
1,846
1,846
2012E
13,495
(7,524)
(1,056)
(1,949)
2,966
53
(485)
(273)
2,261
(747)
14
1,527
1,527
2013E
19,825
(12,357)
(1,077)
(1,988)
4,403
140
(527)
(280)
3,736
(1219)
7
2,524
2,524
2014E
25,650
(17,530)
(1,098)
(2,027)
4,994
262
(381)
(107)
4,767
(1521)
(25)
3,220
3,220
15.1
15.1
14.1
14.1
18.8
18.8
15.6
15.6
25.7
25.7
32.8
32.8
Year end
Primary
Fully diluted
73
73
73
98
98
98
98
98
98
98
98
98
98
98
98
98
98
98
Cash flow per share (Rs)
Primary
Fully diluted
35.0
35.0
24.9
24.9
28.4
28.4
6.1
6.1
14.5
14.5
22.5
22.5
Growth (%)
Net income (adjusted)
EPS (adjusted)
DCF/share
(53)
(53)
26
26
(6)
(29)
33
33
14
(17)
(17)
(78)
65
65
137
28
28
54
Cash tax rate (%)
28
27
18
17
27
27
33
32
33
32
32
32
118
Sobha Developers
Property
Balance model of Sobha Developers
Equity
Share capital
Reserves/surplus
Total Equity
Deferred tax liability/(asset)
Liabilities
Secured Loans
Unsecured Loans
Total Borrowings
Current Liabilities
Total Capital
Assets
Cash
Current assets
Gross block
Less: Accumulated depreciation
Net fixed assets
Capital work-in-progress
Total fixed assets
Intangible assets
Investments
Misc. expenses
Total assets
Key ratios (%)
Debt/equity
Debt/capitalization
Net debt/equity
Net debt/capitalization
RoAE
RoACE
2009
2010
2011E
2012E
2013E
2014E
729
10,394
11,123
(31)
981
16,348
17,329
(52)
981
17,851
18,832
(74)
981
18,987
19,968
(87)
981
21,064
22,044
(95)
981
23,781
24,762
(69)
18,783
538
19,322
6,117
36,531
14,466
275
14,740
6,529
38,547
12,335
83
12,418
7,709
38,885
13,485
13,485
8,015
41,381
12,485
12,485
9,639
44,074
9,985
9,985
11,756
46,433
214
34,042
2,930
1,198
1,732
516
2,248
—
28
—
36,531
826
35,634
2,942
1,513
1,429
632
2,061
—
27
—
38,547
288
36,519
3,148
1,775
1,373
668
2,041
—
37
—
38,885
737
38,494
3,493
2,048
1,445
668
2,113
—
37
—
41,381
2,310
39,480
3,907
2,327
1,580
668
2,248
—
37
—
44,074
3,048
41,208
3,907
2,435
1,472
668
2,140
—
37
—
46,433
174.2
63.5
172.3
63.3
10.4
6.3
85.3
46.0
80.5
44.6
9.8
5.7
66.2
39.8
64.7
39.3
10.2
6.8
67.8
40.4
64.1
39.1
7.9
5.7
56.9
36.3
46.4
31.7
12.1
8.5
40.4
28.8
28.1
21.9
13.8
10.1
119
Property
Sobha Developers
Cash Model of Sobha Developers
Operating
Pre-tax profits before extraordinary items
Depreciation
Taxes paid
Other income
Interest expenses
Interest paid
Extraordinary items
Working capital changes (a)
Total operating
Operating, excl. working capital (b)
Investing
Capital expenditure
(Purchase)/Sale of assets/businesses
(Purchase)/Sale of investments
Interest/dividend received
Total investing (c)
Financing
Proceeds from issue of share capital
Proceeds from borrowings
Dividends paid (d)
Total financing
Net increase in cash and cash equivalents
Beginning cash
Ending cash
Gross cash flow (b)
Free cash flow (b) + (a) + (c)
Excess cash flow (b) +(a) + (c) + (d)
2009
2010
2011
2012E
2013E
2014E
1,501
360
(296)
(13)
1,003
(727)
1,828
2,555
1,658
323
(162)
(8)
633
(4)
881
3,321
2,440
2,514
278
(356)
(19)
365
1,253
4,035
2,782
2,261
273
(747)
(53)
485
(1,617)
(536)
66
602
3,736
280
(1,219)
(140)
527
(1,758)
1,869
3,295
1,426
4,767
107
(1,521)
(262)
381
(1,270)
1,278
3,480
2,202
(412)
2
1
13
(396)
(139)
7
8
(124)
(230)
5
(10)
16
(219)
(345)
53
(293)
(414)
140
(274)
262
262
475
(1505)
(474)
(1,504)
4619
(7112)
(93)
(2,586)
0
(4067)
(287)
(4,354)
0
1067
(391)
675
0
(1000)
(447)
(1,447)
0
(2500)
(503)
(3,003)
(72)
287
214
611
214
826
(537)
826
289
448
289
737
1,573
737
2,310
738
2,310
3,048
2,555
1,432
958
2,440
3,197
3,104
2,782
3,816
3,529
602
(227)
(618)
1,426
3,020
2,573
2,202
3,741
3,238
120
BUY
Jet Airways (JETIN)
Others
JANUARY 23, 2012
RESULT
Coverage view:
Below estimates. Jet Airways’ 3QFY12 results were lower than our estimates as a
sequentially strong domestic quarter was offset by weak performance in international
business. Yield (rev per RPKM) increased by 16% and 26% qoq in the domestic
business (SA) and Jet Lite, respectively. Jet has lost close to Rs10 bn of cash (EBITDAinterest) in the past four quarters which is worrying. Cash loss of Rs3 bn in 3QFY12 was
offset by payments of Rs3.67 bn and Rs760 mn on sale of land and sales and leaseback transaction, respectively. We have reduced our estimates. Retain BUY with a target
price of Rs320 (Rs500 earlier) at 8.5X (8 earlier) FY2013E EBITDAR.
Jet Airways
Stock data
642-167
Market Cap. (Rs bn)
20.0
Promoters
80.0
FIIs
4.7
MFs
4.6
1M
3M
12M
Absolute
32.3
(0.5) (60.7)
Rel. to BSE-30
24.4
(0.2) (55.4)
EPS (Rs)
EPS growth (%)
P/E (X)
Sales (Rs bn)
Net profits (Rs bn)
EBITDA (Rs bn)
EV/EBITDA (X)
ROE (%)
Div. Yield (%)
2012
(233.8)
2,225.0
(1.0)
174.5
(20.2)
(1.0)
(156.5)
0.0
0.0
2013E
(24.3)
(89.6)
(9.5)
200.7
(2.1)
16.0
9.4
0.0
0.0
Price (Rs): 231
BSE-30: 16,739
2014E
(18.4)
(24.3)
(12.6)
214.0
(1.6)
16.2
8.8
0.0
0.0
Below estimates – domestic gains offset by a weak quarter for overseas business
Jet Airways reported 3QFY12 consolidated revenue at Rs44.7 bn (+13% yoy; +21% qoq), 8%
higher than our estimates. Reported EBITDA loss at Rs667 mn was much lower than our estimates
of profit of Rs1.27 bn. Exceptional gains due to: (1) sale and lease-back transactions (Rs760 mn),
(2) write-back of expenses on transfer of BKC land (Rs1 bn), and (3) forex gains of Rs1.85 bn, led
to lower loss at the PAT level of Rs1.22 bn versus our estimates at Rs2.96 bn. Other highlights:
` Yield (Rs per RPKM) in the standalone domestic business increased 16% qoq leading to Rs1.2
bn improvement in the 3QFY12 EBITDA at (loss) Rs1 bn (versus EBITDA loss of Rs2.2 bn in
2QFY12). Jet Lite also reported sequential improvement as losses at the EBITDA level reduced by
Rs800 mn qoq in 3QFY12 (loss of Rs302 mn versus loss of Rs1.12 bn in 2QFY12) as yield per
RPKM increased by 26% qoq (from Rs3.29 in 2QFY12 to Rs4.16 in 3QFY12). At the operating
level, domestic business performed in line with our expectations.
` International business underperformed versus our expectations. Main reason: Yield (revenue per
RPKM) increased by 5% qoq (versus our estimates at 9%). EBITDA declined qoq (Rs644 mn
versus Rs1.84 bn in 2QFY12). In the last 3 years international business used to report a stronger
3Q versus 2Q which was not the case in 3QFY12 indicating a weak business environment.
Cash flow position worrying
As per our assumptions, the airline has lost close to Rs10 bn of operating cash (EBITDA-interest) in
the past four quarters without including any incremental working capital requirements or capex.
Given the high debt in the balance sheet, cash loss situation needs to improve. We are increasingly
getting worried on that front and would need to take a relook at our rating if the cash loss
situation persists. In 3QFY12 also, the company made Rs3 bn of cash loss even as it was offset on
account of Rs3.6 bn of advance for the BKC land deal and Rs760 mn of profit on sale and lease
back transactions.
Others
Jet Airways
Below estimates – improvement in the domestic business offset by a weaker international business
Interim results of Jet Airways, consolidated, March fiscal year-ends (Rs mn)
Change (%)
KIE est.
yoy
Change (%)
3QFY12E
3QFY11
2QFY12
Operating revenues
44,695
41,539
39,580
36,845
8
13
21
121,244
108,836
11
Total expenditure
(45,362)
(40,266)
(32,895)
(38,325)
13
38
18
(123,028)
(93,686)
31
(4,658)
(4,402)
(3,769)
(4,488)
—
24
4
(13,186)
(10,894)
—
(20,452)
(18,836)
(12,937)
(17,604)
—
58
16
(56,463)
(36,438)
—
(3,914)
(4,025)
(3,633)
(3,563)
—
8
10
(11,170)
(10,103)
—
(13,104)
(10,177)
(9,649)
(9,881)
—
36
33
(33,429)
(27,504)
—
2,567
4,099
9,592
1,310
(37)
(73)
96
6,998
23,897
(71)
—
Employee Remuneration
Aircraft Fuel Expenses
Selling and Distribution Expenses
Other Operating expenses
EBITDAR
EBITDAR (%)
Aircraft Lease Rentals
EBITDA
EBIDTA %
Non-operating revenues
qoq
9 months
FY2012
FY2011
3QFY12
6
10
24
4
—
—
—
6
22
(3,234)
(2,826)
(2,907)
(2,790)
14
11
16
(8,781)
(8,747)
(667)
1,273
6,685
(1,479)
(152)
(110)
(55)
(1,783)
15,150
(1)
0
17
(4)
—
—
—
(1)
14
—
505
405
438
413
—
—
—
1,359
1,403
—
(112)
Depreciation
(2,405)
(2,370)
(2,326)
(2,293)
—
3
5
(6,951)
(6,972)
—
Interest
(2,438)
(2,271)
(2,610)
(2,219)
—
(7)
10
(6,876)
(8,176)
—
PBT
NM
(5,005)
(2,962)
2,187
(5,578)
NM
NM
NM
(14,251)
1,405
Exceptional items
3,777
0
250
(2,572)
—
—
—
3,254
616
—
Reported PBT
(1,228)
(2,962)
2,437
(8,150)
NM
NM
NM
(10,998)
2,021
NM
Provision for tax
PAT
0
0
(997)
6
—
—
—
6
(997)
—
(1,228)
(2,962)
1,441
(8,145)
NM
NM
NM
(11,004)
1,024
NM
Other operating expenses increased significantly qoq
Other operating expenses increased significantly for the company qoq, from Rs9.88 bn in
2QFY12 to Rs13 bn in 3QFY12. We would try to understand reasons behind the same in the
conference call scheduled for Jan 23, 2012.
122
Jet Airways
Others
Segmental operating results
Jet Airways: Standalone domestic segment
Domestic business (including Jet Lite) performed in line
Interim results of the domestic business, standalone, March fiscal year-ends (Rs mn)
Operating revenues
Total expenditure
Selling and Distribution Expense
EBITDAR
EBITDAR (%)
EBITDA
EBIDTA %
Depreciation
Interest
PBT
Exceptional items
Reported PBT
1QFY11
12,941
(11,511)
(1,682)
(4,016)
(1,250)
(3,544)
2,449
19
(1,019)
1,430
11
355
(614)
(1,438)
(267)
489
222
2QFY11
12,378
(11,373)
(1,763)
(3,939)
(1,497)
(3,179)
2,000
16
(995)
1,005
8
340
(620)
(1,152)
(427)
(53)
(480)
3QFY11
15,407
(12,874)
(1,890)
(4,566)
(1,622)
(3,769)
3,560
23
(1,027)
2,533
16
384
(632)
(1,251)
1,034
125
1,159
4QFY11
13,363
(14,124)
(2,357)
(5,014)
(1,560)
(4,094)
338
3
(1,099)
(761)
(6)
366
(572)
(1,067)
(2,034)
903
(1,131)
1QFY12
15,083
(15,148)
(2,059)
(6,320)
(1,409)
(4,283)
1,012
7
(1,077)
(65)
(0)
379
(598)
(940)
(1,224)
594
(631)
2QFY12
12,093
(14,291)
(2,485)
(5,774)
(1,362)
(3,585)
(1,113)
(9)
(1,085)
(2,198)
(18)
363
(609)
(935)
(3,379)
(1,374)
(4,753)
3QFY12
17,370
(18,380)
(2,626)
(7,136)
(1,673)
(5,611)
324
2
(1,334)
(1,011)
(6)
441
(599)
(1,060)
(2,229)
1,824
(405)
Yield (rev per RPKM) increased by 16% qoq
Operating parameters for the domestic business of Jet Airways, standalone, March fiscal year-ends (Rs mn)
Number of flights
ASKMs (mn)
RPKMs (mn)
Load factor (%)
Block hours (hrs)
Revenue Pax (mn)
Gross yield (Rs/pax)
Rev. per RPKM (Rs)
Cost per ASKM (Rs)
Cost per ASKM excl. fuel (Rs)
Fuel cost per ASKM (Rs)
1QFY11
26,812
2,772
2,194
79.1
45,638
2.5
4,683
5.05
4.15
2.70
1.45
2QFY11
27,182
2,849
2,035
71.4
46,158
2.3
4,495
4.84
3.99
2.61
1.38
3QFY11
29,507
3,101
2,384
76.9
49,548
2.7
5,210
5.69
4.15
2.68
1.47
4QFY11
29,059
2,914
2,128
73.0
48,402
2.5
4,695
5.25
4.85
3.13
1.72
1QFY12
32,746
3,216
2,399
74.6
54,874
2.8
5,004
5.56
4.71
2.75
1.97
2QFY12
32,136
3,047
2,198
72.1
53,309
2.6
4,330
4.89
4.69
2.80
1.89
3QFY12
36,361
3,538
2,660
75.2
58,392
3.2
4,960
5.66
5.20
3.18
2.02
123
Others
Jet Airways
Jet Airways: International business
International business reported sequential deterioration which is not as per seasonal trends in
profitability in the last three years
Interim results of International business, standalone, March fiscal year-ends (Rs mn)
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
Operating revenues
16,709
18,672
19,340
19,120
20,333
20,842
22,022
Total expenditure
(14,117)
(14,970)
(15,538)
(17,014)
(19,054)
(18,996)
(21,378)
Employee remuneration
(1,384)
(1,446)
(1,461)
(1,440)
(1,555)
(1,586)
(1,598)
Aircraft fuel expenses
(5,943)
(6,003)
(6,402)
(7,784)
(9,316)
(9,138)
(10,398)
Selling and distribution expenses
(1,447)
(1,689)
(1,715)
(1,838)
(1,985)
(1,917)
(1,893)
Other operating expenses
(4,342)
(4,669)
(4,811)
(4,962)
(5,202)
(5,359)
(6,358)
EBITDAR
3,593
4,865
4,951
3,096
2,275
2,842
1,775
22
26
26
16
11
14
8
Aircraft lease rentals
(1,001)
(1,163)
(1,149)
(990)
(996)
(996)
(1,131)
EBITDA
2,592
3,702
3,802
2,106
1,279
1,846
644
16
20
20
11
6
9
3
227
16
22
33
29
23
37
EBITDAR (%)
EBIDTA %
3QFY12
Depreciation
(1,650)
(1,720)
(1,673)
(1,626)
(1,637)
(1,671)
(1,797)
Interest
(1,307)
(1,341)
(1,255)
(1,473)
(1,202)
(1,205)
(1,314)
(138)
657
896
(960)
(1,531)
(1,007)
(2,430)
(50)
(52)
125
220
594
(1,374)
1,822
(188)
605
1,021
(740)
(938)
(2,381)
(608)
PBT
Exceptional items
Reported PBT
Operating parameters for the International business of Jet Airways
1QFY11
2QFY11
3QFY11
4QFY11
Number of flights
8,264
8,446
8,714
8,892
ASKMs (mn)
5,397
5,631
5,765
5,894
RPKMs (mn)
4,320
4,527
4,647
4,737
Load factor (%)
80.1
80.4
80.6
80.4
Block hours (hrs)
38,386
39,618
40,676
41,736
Revenue Pax
1.1
1.1
1.2
1.2
12,071
12,821
12,652
12,333
Rev. per RPKM (Rs)
2.76
2.90
3.01
2.83
Cost per ASKM (Rs)
2.62
2.66
2.70
2.89
1.51
1.59
1.58
1.57
1.10
1.07
1.11
1.32
1QFY12
9,404
6,103
4,912
80.5
43,255
1.3
12,286
2.92
3.12
1.60
1.53
2QFY12
9,442
6,167
4,967
80.5
43,230
1.3
12,930
3.07
3.08
1.60
1.48
3QFY12
9,708
6,443
5,104
80.5
44,588
1.4
13,092
3.23
3.12
1.51
1.61
124
Jet Airways
Others
Jet Lite
In-line results
Interim results of Jet Lite, March fiscal year-ends (Rs mn)
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
Operating revenues
4,741
3,815
4,833
4,126
4,288
3,910
5,303
Total expenditure
(4,557)
(4,263)
(4,483)
(5,005)
(5,139)
(5,037)
(5,605)
3QFY12
(398)
(452)
(418)
(416)
(426)
(416)
(434)
(1,889)
(1,711)
(1,969)
(2,437)
(2,770)
(2,692)
(2,919)
(285)
(302)
(296)
(214)
(299)
(284)
(349)
(1,178)
(943)
(1,069)
(1,324)
(959)
(937)
(1,134)
991
407
1,081
(265)
(166)
(419)
467
21
11
22
(6)
(4)
(11)
9
(807)
(855)
(731)
(614)
(685)
(708)
(769)
EBITDA
184
(448)
350
(879)
(851)
(1,127)
(302)
4
(12)
7
(21)
(20)
(29)
(6)
18
9
32
288
33
28
27
EBITDAR
EBITDAR (%)
EBIDTA %
Depreciation
Interest
PBT
Exceptional items
Reported PBT
(21)
(21)
(21)
(18)
(18)
(13)
(9)
(131)
(197)
(104)
(143)
(77)
(79)
(64)
50
(657)
257
(752)
(913)
(1,191)
(348)
0
32
0
0
861
177
132
50
(625)
257
(752)
(52)
(1,014)
(216)
Operating parameters for Jet Lite, March fiscal year-ends (Rs mn)
Number of flights
ASKMs
RPKMs
Load factor (%)
Block hours (hrs)
Revenue Pax
Rev. per RPKM (Rs)
Cost per ASKM (Rs)
1QFY11
10,353
1,346
1,111
83
17,934
1.1
3,937
3.84
3.39
1.98
1.40
2QFY11
9,536
1,263
937
74
16,354
1.0
3,737
3.67
3.38
2.02
1.35
3QFY11
9,404
1,384
1,143
83
16,664
1.1
4,150
3.96
3.24
1.82
1.42
4QFY11
9,710
1,489
1,148
77
17,409
1.2
3,405
3.32
3.36
1.72
1.64
1QFY12
10,063
1,447
1,159
80
17,265
1.2
3,451
3.44
3.55
1.64
1.91
2QFY12
10,518
1,472
1,100
75
17,702
1.2
3,160
3.29
3.42
1.59
1.83
3QFY12
10,532
1,465
1,151
79
17,629
1.2
3,961
4.16
3.83
1.83
1.99
125
Others
Jet Airways
Interim balance sheet of Jet Airways, standalone, March fiscal year-ends (Rs mn)
Shareholder equity
Loan funds
Net fixed assets
Investments
Current assets
Less: Current liabilities and provisions
Net current assets
Advance money received on land deal
Forex monetary translation diff. a/c
Profit and loss account
Total application of funds
March'11
33,237
134,804
337
168,378
139,647
17,251
49,976
45,690
4,286
Sept'11
33,001
141,231
Dec'11
32,882
139,426
174,232
144,176
16,450
52,832
54,788
(1,956)
7,194
168,378
15,562
174,232
172,308
147,032
16,551
54,489
61,471
(6,982)
(3,651)
2,784
16,574
172,308
Company continues to lose cash – would need to relook our rating if the
business doesn’t reach cash break-even levels soon
Jet Airways has lost close to Rs10 bn of cash (EBITDA-interest) in last four quarters. Given
the already stretched balance sheet, cash flow position is worrying. Cash outflow needs to
stop and the company needs to achieve cash break even levels soon. In case that doesn’t
happen we may have to take a relook at our rating. In the current quarter cash outflow on
account of operational losses has been taken care of on account of cash inflow on account
of advance payments (Rs3.65 bn) for the land deal and profits on sale and lease back
transactions (Rs760mn). As of now there is some more cushions available in terms of MTM
profits on the owned aircrafts (US$ 150mn before the current sale and lease back deals).
Cash flow situation is worrying – company has lost close to Rs10 bn of cash in the last four quarters
Quarterly trend in operating cash flow (excluding capex and working capital) for Jet Airways, consolidated, March fiscal year-ends (Rs mn)
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
Operating revenues
26,258
33,020
32,456
34,391
34,865
39,580
36,390
39,704
36,845
44,695
Total expenditure
26,995
27,921
27,353
30,185
30,606
32,895
35,848
39,341
38,325
45,362
3,392
3,273
3,440
3,464
3,661
3,769
4,211
4,040
4,488
4,658
9,420
10,494
9,926
11,848
11,653
12,937
15,235
18,407
17,604
20,452
2,801
3,218
2,461
2,982
3,488
3,633
3,611
3,693
3,563
3,914
8,538
8,112
8,561
9,064
8,791
9,649
10,085
10,444
9,881
13,104
EBITDAR
2,109
7,923
8,068
7,033
7,272
9,592
3,247
3,120
1,310
2,567
8
24
25
20
21
24
9
8
4
6
2,845
2,824
2,965
2,827
3,013
2,907
2,705
2,758
2,790
3,234
(736)
5,099
5,103
4,206
4,259
6,685
542
363
(1,479)
(667)
(3)
15
16
12
12
17
1
1
(4)
(1)
596
663
935
600
365
438
641
441
413
505
EBITDAR (%)
EBITDA
EBIDTA %
Depreciation
2,380
2,459
2,380
2,285
2,361
2,326
2,214
2,253
2,293
2,405
Interest
2,464
2,589
2,838
2,876
2,690
2,610
2,682
2,219
2,219
2,438
(4,984)
714
820
(355)
(427)
2,187
(3,713)
(3,668)
(5,578)
(5,005)
(344)
382
1,531
439
(73)
250
1,208
2,049
(2,572)
3,777
(5,328)
1,096
2,351
84
(500)
2,437
(2,505)
(1,620)
(8,150)
(1,228)
PBT
Exceptional items
Reported PBT
Provision for tax
(8)
7
(102)
(0)
(0)
(997)
622
(337)
6
0
PAT
(5,337)
1,103
2,249
84
(500)
1,441
(1,883)
(1,284)
(8,145)
(1,228)
Cash generation (PBT+Depreciation)
(2,604)
3,173
3,200
1,930
1,934
4,513
(2,140)
(1,857)
(3,698)
(3,105)
126
Jet Airways
Others
Air India continues to depress pricing in the market
Air India continues to depress pricing in the market. On most of the routes that we track, Air
India continues to price its tickets almost at par with the low cost carriers. The current
pricing stance of the national carrier has caused tremendous damage to the private carriers
financials without doing anything to improve its own plight.
Air India continues to depress pricing in the market
Trend in average (over 8 routes) one week forward prices for the three carriers (Rs)
Air India
Jet Airways
Spice
10,000
9,000
8,000
7,000
6,000
5,000
Dec-11
Nov-11
Oct-11
Sep-11
Aug-11
Jul-11
Jun-11
M ay-11
Apr-11
M ar-11
Feb-11
Jan-11
Dec-10
Nov-10
4,000
Change in estimates
We have reduced our earning estimates for Jet Airways
Change in estimates for Jet Airways, consolidated, March fiscal year-ends (Rs mn)
Revenue
EBITDAR
EBITDA
2012E
173,406
22,428
9,634
Old estimates
2013E
194,955
31,971
18,106
2014E
207,947
33,113
18,484
2012E
173,874
13,181
(1,019)
New estimates
2013E
200,151
30,622
15,997
2014E
213,492
31,601
16,168
Change (%)
2012E
2013E
0.3
2.7
(41.2)
(4.2)
(11.7)
2014E
2.7
(4.6)
(12.5)
Valuation
We value Jet Airways at Rs per share
Valuation table for Jet Airways, FY2013E basis, March fiscal year-ends (Rs mn)
EBITDAR
EV/EBITDAR multiple (X)
EV
Aircraft lease rentals capitalised at 7X
Net Debt
Value of the equity
Value per share
30,622
8.5
260,290
(102,381)
(130,964)
26,945
312
Maintain BUY with a target price of Rs320
We are maintaining our BUY rating on the stock with a price target of Rs320 (Rs500 earlier)
at 8.5X (8 earlier) FY2013E EBITDAR.
127
Others
Jet Airways
Summary financials: Jet Airways
Profit model, balance sheet and cash flow statement for Jet Airways, consolidated, March fiscal year-ends (Rs mn)
Profit model
Income
EBITDAR
Aircraft lease rentals
EBITDA
Depreciation
Interest and finance charges
Non-operating revenue
PBT before exceptional items
Exceptional items
Reported PBT
Taxes
PAT
EPS
Diluted
Margins %
EBITDAR
EBITDA
PBT
Balance sheet
Equity
Reserves and surplus
P&L balance
Net worth
Secured loans
Unsecured loans
Loan funds
Deferred payment liability
Current liabilties and provisions
Assets
Gross block
Less: depreciation
Net block
Capital work in progress
Fixed assets
Investments
Inventories
Sundry debtors
Loans and advances
Current assets
Total uses of funds
Free cash flow
Capital expenditure
Investment changes
Changes in deferrred payment liability
Other income
Free cash flow
2008
2009
2010
2011
2012E
2013E
2014E
102,456
6,586
(8,216)
130,779
1,842
(10,429)
118,764
22,214
(11,591)
145,226
27,144
(11,452)
173,874
13,181
(14,200)
200,151
30,622
(14,626)
213,492
31,601
(15,432)
(1,630)
(8,018)
(5,225)
7,452
(7,421)
(695)
(8,115)
1,577
(6,539)
(8,587)
(9,021)
(8,023)
3,710
(21,921)
11,651
(10,270)
656
(9,614)
10,623
(9,691)
(10,474)
3,617
(5,924)
1,826
(4,098)
(104)
(4,202)
15,692
(9,186)
(10,858)
2,044
(2,308)
1,824
(484)
(374)
(858)
(1,019)
(9,114)
(11,059)
671
(20,521)
3,500
(17,021)
340
(16,681)
15,997
(9,122)
(10,054)
557
(2,622)
16,168
(9,130)
(9,503)
479
(1,985)
(2,622)
524
(2,098)
(1,985)
397
(1,588)
(76)
(111)
(49)
(10)
(193)
(24)
(18)
6
(2)
(7.2)
1
(7)
(16.8)
19
9
(5.0)
19
11
(1.6)
8
(1)
(11.8)
15
8
(1.3)
15
8
(0.9)
863
41,697
(1,052)
41,508
17,530
104,523
122,053
4,125
1,602
45,230
214,519
863
33,321
(12,213)
21,971
50,364
115,976
166,340
2,750
—
41,125
232,186
863
32,847
(16,415)
17,296
43,066
99,738
142,804
1,375
—
45,199
206,674
863
32,374
(17,273)
15,964
46,605
90,199
136,804
—
336
50,843
203,947
863
32,374
(37,454)
(4,217)
46,605
93,299
139,904
—
336
60,117
196,140
863
32,374
(39,552)
(6,314)
46,605
87,299
133,904
—
336
68,900
196,826
863
32,374
(41,139)
(7,902)
46,605
77,299
123,904
—
336
73,359
189,697
166,687
25,560
141,127
13,026
154,153
18,724
104
6,044
13,990
9,584
11,921
41,538
214,519
188,450
25,502
162,948
6,571
169,519
18,724
1,000
6,963
8,075
14,662
13,243
42,943
232,186
180,110
35,558
144,552
3,335
147,887
18,724
1,000
6,975
8,765
8,264
15,059
39,063
206,674
180,048
43,676
136,372
3,828
140,200
18,724
801
8,252
10,254
6,772
18,944
44,223
203,947
180,648
52,789
127,859
3,828
131,686
18,724
1,000
10,004
12,862
428
21,437
44,730
196,140
181,248
61,911
119,337
3,828
123,165
18,724
1,000
11,516
14,806
2,940
24,676
53,937
196,826
181,848
71,040
110,807
3,828
114,635
18,724
1,000
12,283
15,793
942
26,321
55,338
189,697
(6,846)
4,919
(58,114)
1,704
(5,525)
388
(63,474)
(14,803)
1,728
354
(8,844)
(1,375)
272
(22,668)
1,865
4,638
(615)
3,662
(1,375)
505
8,681
5,465
(55)
(1,253)
7,179
(1,375)
548
10,510
(11,067)
2,422
(600)
0
0
671
(8,574)
7,024
2,088
(600)
0
0
557
9,068
7,542
1,060
(600)
0
0
479
8,481
128
REDUCE
Polaris Software Lab (POL)
Technology
JANUARY 21, 2012
RESULT
Revenue misses estimate, license revenue booking aids margins. Polaris reported
EBITDA of Rs1.06 bn, which beat our estimate by 27%, due to product license revenue
booked during the quarter. US dollar revenue growth (+1% qoq) was below our
estimate. We see revenue growth challenges and cut US dollar revenue estimates by
1-3%, but raise FY12 and FY13 EPS estimates to Rs21.7 and Rs24.0 respectively due to
revised currency assumptions. Retain REDUCE with end-FY13E target price of Rs145.
Polaris Software Lab
Stock data
214-112
Market Cap. (Rs bn)
13.5
Promoters
29.1
FIIs
23.6
MFs
10.8
1M
3M
12M
Absolute
15.4
(1.2) (26.4)
Rel. to BSE-30
4.6
(0.0) (16.2)
EPS (Rs)
EPS growth (%)
P/E (X)
Sales (Rs bn)
Net profits (Rs bn)
EBITDA (Rs bn)
EV/EBITDA (X)
ROE (%)
Div. Yield (%)
2012
21.7
12.5
6.2
21.4
2.2
3.3
2.4
19.2
2.9
2013E
24.0
10.4
5.6
25.1
2.4
3.8
1.7
18.2
3.0
Price (Rs): 135
BSE-30: 16,739
2014E
24.0
0.2
5.6
27.1
2.4
3.8
1.4
15.9
3.2
3QFY12 results – revenue misses estimate, margins aided by Rupee and products business
Polaris reported revenues of Rs5.7 bn (+12.3 qoq, +43.2 yoy) missing our estimate by 1%. US
dollar revenues were US$112.5 mn (versus our estimate of US$113.8 mn), a 1% growth qoq.
Reported EBITDA of Rs1.06 bn was 26.7% ahead of our estimate, with margins expanding 620bps
over 2QFY12. Most of the OPM expansion was driven by license revenue booked for a large
product deal in APAC, and a weak Rupee helped, as well. Net income was Rs611 mn (+13.2%
qoq, +21.8% yoy). Weak management commentary on revenue traction and challenges to
sustainability of EBITDA margins (ex-currency) keep us cautious.
Margin improvement key to stock performance
Polaris revised its US dollar revenue guidance upward in 2QFY12, but now sees challenges in
meeting the lower end of the US$440-450 mn guidance due to delays in decision making. While
strong revenue momentum was often the counter argument to margin underperformance, we see
difficulties on both fronts now. Sustained margin performance looks difficult given the macro
issues and lumpy nature of the margin-aiding products business. The management attributed the
rise in services margins entirely to currency gains. We believe margin underperformance is a
structural issue with few levers to improve (ex-currency) margins, utilization still running high at
81% and limited headroom on SG&A and offshore leverage.
Cut revenue growth estimates, retain REDUCE
Inherent volatility in the products business and macro concerns, leading to delays in client
spending, especially in the BFSI space, are likely to hurt Polaris’ revenue growth. We cut our FY12
and FY13 US dollar revenue estimates by 1-2.6%. We, however, raise FY12 and FY13 EPS
estimates to Rs21.7 and Rs24.0 respectively, up 3.5-4.3% due to revised FY12 and FY13 currency
assumptions of 48.6/52.5 (versus 47.4/49.7 earlier). We value the stock at 6X FY13E earnings due
to the twin challenges of sustaining revenue growth and improving margins. Retain REDUCE with
an unchanged target price of Rs145.
Technology
Other results and earnings call highlights
` The consolidated headcount was 12,504, with net addition of 604 in 3QFY12.
` The outstanding hedge book was about $200 mn, spread over the next eight quarters.
` Identrust reported revenue of US$4.2 mn versus US$3.1 mn in the previous quarter.
Exhibit 1: Polaris interim results - 3QFY12 (Rs mn)
Revenues (US$ mn)
Total Revenues
Cost of Revenues
Gross Profit
SG&A Expenses
EBITDA
Other income
Interest expense
EBDT
Depreciation
Minority interest
Pretax profits
Provision for Tax
Net Profit
Extraordinaries
Net Profit reported
EPS - recurring (Rs)
Margins (%)
Gross margin
SG&A expenses
EBITDA margin
EBIT margin
Net profit margin
Tax rate
3QFY11
89.1
3,999
(2,722)
1,277
(753)
524
169
(3)
690
(87)
602
(101)
502
502
2QFY12
111.3
5,097
(3,605)
1,493
(871)
622
183
(6)
799
(112)
1
688
(188)
499
40
539
qoq
% chg.
1.0
12.3
4.5
31.2
3.8
69.8
(167.9)
yoy
% chg.
26.2
43.2
38.4
53.4
20.0
101.4
(173.5)
15.6
16.7
(24.3)
15.3
(3.1)
22.3
33.8
49.4
31.7
81.2
21.8
611
13.2
21.8
734
(183)
551
100
651
22.3
21.8
5.5
3QFY12
112.5
5,725
(3,766)
1,959
(904)
1,055
(124)
(8)
923
(131)
1
793
(183)
611
5.0
5.0
6.1
31.9
18.8
13.1
10.9
12.5
20.1
29.3
17.1
12.2
10.0
10.6
27.4
34.2
15.8
18.4
16.2
10.7
23.0
KIE
113.8
5,781
(3,964)
1,817
(984)
833
20
(6)
847
(113)
% Deviation
(1.1)
(1.0)
(5.0)
7.8
(8.2)
26.7
(713.3)
8.9
15.2
8.1
(0.1)
10.8
(6.2)
31.4
17.0
14.4
12.4
11.3
24.9
130
Technology
Exhibit 2: Key changes to estimates, FY2012 and FY2013
Revenues (US$ mn)
Revenues (Rs mn)
Revenue growth, US$ (%)
Revised
FY2012E
FY2013E
440
479
21,376
25,113
26.3
8.8
EBITDA (Rs mn)
EBIT (Rs mn)
Net profit (Rs mn)
EPS (Rs)
Earlier
FY2012E
FY2013E
444
491
21,040
24,428
27.6
10.6
3,274
2,801
2,166
21.7
3,809
3,264
2,391
24.0
2,832
2,396
2,076
20.8
3,374
2,872
2,310
23.2
EBITDA margin (%)
EBIT margin (%)
15.3
13.1
15.2
13.0
13.5
11.4
13.8
11.8
Re/US$ rate
48.6
52.5
47.4
49.7
Change (%)
FY2012E
FY2013E
(1.0)
(2.6)
1.6
2.8
15.6
16.9
4.3
4.3
12.9
13.6
3.5
3.5
2.6
5.6
Exhibit 3: Condensed consolidated financials for Polaris, 2010-2013E, March fiscal year-ends (Rs mn)
Profit & Loss Model
Revenues
EBITDA
Depreciation
EBIT
Other Income
PBT
Tax
Net Profit
Balance Sheet (Rs mn)
Total Equity
Borrowings
Total capital
Net fixed Assets
Investments
Goodwill
Working Capital
- Cash
- Current Assets
- Current Liabilities
Total assets
Free Cash Flow (Rs mn)
Cash generated from operations
Working Capital Changes
Capital expenditure
Tax
Free Cash Flow
FY2010
FY2011
FY2012E
FY2013E
13,538
2,220
(350)
1,870
(73)
1,788
(255)
1,533
15,863
2,139
(337)
1,802
494
2,285
(359)
1,926
21,376
3,274
(473)
2,801
151
2,926
(760)
2,166
25,113
3,809
(545)
3,264
4
3,235
(844)
2,391
8,725
25
8,749
2,271
3,897
506
2,041
1,237
3,830
3,026
8,749
10,325
83
10,408
2,937
3,843
644
2,891
1,423
5,274
3,805
10,408
12,197
83
12,280
3,298
3,843
644
4,402
2,089
7,399
5,087
12,280
14,110
83
14,193
3,528
3,843
644
6,084
3,285
8,727
5,928
14,193
2,163
871
(429)
(290)
2,315
2,085
(914)
(941)
(359)
(129)
2,220
(844)
(834)
(760)
(218)
2,139
(487)
(775)
(844)
33
131
BUY
Hindustan Media Ventures (HMVL)
Media
JANUARY 20, 2012
RESULT
Earnings follow valuations. In a twist to typical fundamental drivers (valuations
following earnings), HMVL’s earnings followed depressed valuations with 3QFY12
EBITDA of Rs166 mn (-10% yoy) led by (1) weaker-than-expected advertising (+9% yoy;
near-zero yield growth yoy) and (2) Rs25 mn of provision for diminution in value of adfor-equity assets (adjusted EBITDA of Rs191 mn; +3% yoy). Nonetheless, downside is
limited given valuations (11X FY13E EPS post 10% cut), monetization improvement
(contingent on improved execution) and low margins (15-20% versus peers’ 25-30%).
Retain BUY with revised FY13E FV of Rs190 (Rs210 previously); reduce WACC (13.5%
from 14%) given conservative estimates.
Hindustan Media Ventures
Stock data
174-102
Market Cap. (Rs bn)
9.2
Promoters
77.7
FIIs
0.9
MFs
13.7
1M
3M
12M
Absolute
(0.2)
(6.0) (24.0)
Rel. to BSE-30
(7.8)
(3.5) (13.3)
EPS (Rs)
EPS growth (%)
P/E (X)
Sales (Rs bn)
Net profits (Rs bn)
EBITDA (Rs bn)
EV/EBITDA (X)
ROE (%)
Div. Yield (%)
2012
9.0
23.3
13.9
6.0
0.7
0.9
7.7
16.1
0.8
2013E
10.6
17.8
11.8
7.0
0.8
1.2
5.8
16.5
1.6
Price (Rs): 125
BSE-30: 16,644
2014E
12.7
19.5
9.9
8.2
0.9
1.5
4.6
17.5
3.2
Weaker-than-expected 3QFY12 led by deceleration in advertising growth
` HMVL reported weak 3QFY12 EBITDA of Rs166 mn (-10% qoq), versus our expectation of
Rs250 mn, led by weak advertising growth (+9% yoy) despite continued strong reported
operating metrics. Adjusted EBITDA at Rs191 was up 3% qoq; HMVL provided Rs25 mn for
diminution in value of its sole ad-for-equity asset (GTL Infra).
` HMVL reported weak 3QFY12 advertising revenue of Rs1.02 bn (+9% yoy; -10% qoq) in a
seasonally strong quarter. HMVL highlights a weak advertising environment after the festive
season in October, and pressure on yields, notably in UP (JAGP intensified its focus on regaining
lost advertising share). However, HMVL also has not derived much benefit from Bihar
(leadership brand, structural economic growth, low advertising base).
` HMVL needs to sharpen focus on improving monetization in the key markets of Bihar and UP.
We highlight that the large valuation gap between HMVL and its peers (JAGP, DBCL) is a
derivative of low advertising/reader, which translates into low margins (cost structure largely inline with peers despite smaller scale of operations). Notably, HMVL has a long way to just catch
up with regional brands in terms of color advertising in Bihar (20-30% advertising rate benefit);
JAGP has been more active here (we expected a positive rub-off on HMVL).
Retain BUY with a revised FV of Rs190 (Rs230 previously)
We reiterate our BUY rating with a revised FY13E FV of Rs190 (Rs230 previously) due to reduced
advertising growth estimates (15% in FY12E versus 18% previously; 16% in 9MFY12). The
challenging environment may hurt HMVL in UP where the brand is growing but is not yet
established. However, growth is likely to make a strong recovery as discretionary advertising is
expected to resume and HMVL complete its expansion in 4QFY12. (Moradabad is the only edition
left). However, Bihar would be crucial for HMVL (~50% advertising share, structural economic
growth from and growth in commercial advertising, both from a low base). HMVL needs to drive
advertisers and advertising growth in Bihar to narrow the gap with its peers.
Media
3QFY12 results review (contd.)
Interim results of Hindustan Media (HMVL), March fiscal year-ends (Rs mn)
Total revenues
Total expenditure
Raw material costs
Employee expenses
EBITDA
Depreciation
Other income
Interest expense
Tax provision
Net income
OPM (%)
Tax rate (%)
EPS
3QFY12
1,420
1,024
338
58
(1,254)
(655)
(183)
(416)
166
(49)
43
(6)
(45)
108
12
29
1.5
1,550
1,307
1,514
1,150
942
1,133
325
315
333
75
50
48
(1,300) (1,122) (1,228)
(650)
(580)
(635)
(200)
(163)
(179)
(450)
(379)
(414)
250
185
286
(50)
(42)
(47)
50
16
69
(4)
(6)
(75)
(38)
(80)
175
117
222
16
14
19
30
24
26
2.4
2.0
3.0
chg (%)
(8)
9
(6)
(11)
9
(10)
4
7
2
(23)
16
20
(4)
12
2
1
13
3
(8)
12
2
(8)
10
0
(34)
(10)
(42)
(2)
16
5
(14)
176
(38)
72
3
(40)
19
(44)
(38)
(7)
(51)
(38)
(28)
(51)
1HFY12 1HFY11
2,995
2,566
2,241
1,877
664
611
90
78
(2,449) (2,077)
(1,239)
(1,083)
(358)
(310)
(852)
(683)
546
489
(92)
(75)
123
45
(11)
(34)
(159)
(134)
408
290
18
19
28
32
5.6
5.1
chg (%)
17
19
9
16
18
12
` HMVL’s strong leadership position in Bihar and rising prominence in UP is necessary but
not sufficient to narrow the large advertising gap with its peers. We continue to expect
more focused investment (circulation/readership) and an advertising push after the
separation from the parent HT Media. Progress is being made (16% yoy advertising
growth in 9MFY12 in a challenging environment) but can be accelerated.
` 3QFY12 operating costs of Rs1.25 bn were largely in line with expectations. Domestic
newsprint prices have stabilized though the downside may be limited (given that the
effective imported newsprint price has gone up due to the Rupee depreciation).
` HMVL reported Rs25 mn provision due to diminution in value of sole ad-for-equity asset
with the company (GTL Infra). HMVL also had Rs10 mn of start-up expenses due to the
launch of the Aligarh edition in UP, but that will translate into recurring operating costs
from 4QFY12 and thus, is not considered to be a one-off expense.
` The disappointing 3QFY12 must also be seen in the perspective of the positive surprises
(versus conservative expectations) in 1QFY12 and 2QFY12. Expectations increased even as
the challenging environment impacted with a lag.
Investment view
We would also highlight the company’s strong balance sheet and lack of significant negative
triggers, which may impact peers. The company has Rs1.9 bn of cash on the balance sheet,
which provides support and investment options in a high interest rate environment. The
company does not have significant forex liabilities either due to forex loans (JAGP/DBCL) or
imported newsprint (HTML) and thus, remains largely insulated from Rupee depreciation
(~10% from the start of FY2012 assuming current INR/USD levels sustain); HMVL uses
imported newsprint for its Delhi edition (a modest ~15% contribution to circulation) but
otherwise looks at tactical purchases (in the unlikely event that imported newsprint prices
are below domestic newsprint prices).
133
Media
Valuation of Indian print media companies, March fiscal year-ends, 2010-13E
JAGP
JAGP (adjusted)
DBCL
DBCL (adjusted)
HMVL
HTML
HTML (adjusted)
EV
(Rs bn)
30
29
34
34
7
29
29
2010
2.8
2.8
3.4
3.4
0.8
2.5
2.5
EBITDA (Rs bn)
2011
2012E
3.6
3.7
3.6
3.7
4.0
3.6
4.2
4.3
0.9
0.9
3.2
3.0
3.1
2.8
2013E
4.2
4.2
4.3
5.2
1.2
3.9
3.7
2010
10.8
10.3
10.0
10.0
8.4
11.6
11.6
EV/EBITDA (X)
2011
2012E
8.5
8.3
8.2
8.0
8.5
9.6
8.1
8.0
7.9
7.6
9.2
9.6
9.5
10.3
2013E
7.3
7.0
8.0
6.6
5.9
7.4
7.9
JAGP
JAGP (adjusted)
DBCL
DBCL (adjusted)
HMVL
HTML
Price
(Rs)
98
98
185
185
120
132
2010
5.8
5.9
10.6
10.6
7.9
5.8
EPS (Rs/share)
2011
2012E
6.7
6.4
6.9
6.6
14.1
11.4
14.8
13.7
8.2
9.0
7.7
7.1
2013E
7.9
8.2
14.0
16.9
10.6
9.0
2010
16.7
16.5
17.4
17.4
15.2
22.5
P/E (X)
2011
2012E
14.5
15.3
14.1
14.7
16.3
13.1
12.5
13.5
14.6
13.3
17.1
18.6
2013E
12.3
12.0
13.2
10.9
11.3
14.6
JAGP
DBCL
HMVL
Discount (%)
Readership (mn)
Q4 2010 Q1 2011 Q2 2011 Q3 2011
16.8
16.6
17.1
17.1
17.7
17.8
18.0
18.8
11.5
11.8
12.0
12.0
EV/Reader (X)
Q4 2010 Q1 2011 Q2 2011 Q3 2011
1,816
1,836
1,780
1,778
1,928
1,919
1,903
1,824
612
593
585
582
67
68
68
68
Notes:
(a) Adjusted for higher dividend payout versus peers DBCL and HTML.
(b) Adjusted for near-term startup losses in Jharkhand and Maharashtra.
(c) Adjusted for 22% minority interest in subsidiary HMVL post IPO in October-2010.
Readership of HMVL across core, legacy markets (mn)
Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 chg (%)
BJH
Hindi Hindustan
Dainik Jagran
Prabhat Khabar
D-NCR
Navbharat Times
Hindi Hindustan
Dainik Jagran
Punjab Kesari
UPU
Dainik Jagran
Amar Ujala
Hindi Hindustan
6.1
3.4
1.3
6.4
3.4
1.6
6.6
3.5
1.7
6.6
3.7
1.8
6.6
3.8
1.9
8
14
45
1.9
1.3
1.1
0.8
2.0
1.3
1.1
0.8
2.0
1.3
1.1
0.8
2.0
1.3
1.1
0.8
2.0
1.3
1.0
0.8
4
(2)
(6)
-
9.5
7.6
3.4
9.5
7.6
3.8
9.4
7.8
4.0
9.6
7.9
4.1
9.6
7.9
4.2
1
5
22
Source: Indian Readership Survey, Kotak Institutional Equities
134
Media
JAGP advertiser initiative to promote Bihar
Trends in advertising growth of HMVL and peers (Rs mn)
50
HMVL
JAGP
DBCL
40
30
20
10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
135
Media
Financial summary of Hindustan/HMVL, March fiscal year-ends, 2008-14E (Rs mn)
Hindustan
2008
2009
Profit model
Net sales
EBITDA
Other income
Interest
Depreciation
Pretax profits
Extraordinary items
Tax provision
Minority interest
Reported net income
Adjusted net income
2010 (b)
2011
HMVL
2012E
2013E
2014E
2,650
110
9
(17)
(87)
16
—
(16)
—
(1)
(1)
3,527
134
10
(51)
(122)
(30)
—
(11)
—
(40)
(40)
4,411
835
33
(65)
(147)
656
(14)
(204)
—
438
452
7.9
5,197
886
83
(43)
(164)
762
—
(226)
—
536
536
8.2
5,950
920
171
—
(204)
887
—
(226)
—
661
661
9.0
7,007
1,190
159
—
(246)
1,103
—
(324)
—
779
779
10.6
8,187
1,490
142
—
(280)
1,351
—
(420)
—
930
930
12.7
Balance sheet
Total equity
Total borrowings
Current liabilities
Total capital
Cash and equivalents
Total fixed assets
Investments
Total assets
639
—
—
302
941
8
577
356
—
—
941
1,269
—
—
600
1,869
11
760
1,098
—
—
1,869
754
28
1,350
1,167
3,298
271
1,134
1,559
312
22
3,298
3,790
36
205
1,299
5,329
361
1,392
1,686
1,890
5,329
4,365
43
—
1,441
5,849
217
1,639
2,102
1,890
5,849
4,974
47
—
1,547
6,568
339
1,831
2,507
1,890
6,568
5,564
52
—
1,743
7,358
483
2,074
2,910
1,890
7,358
Free cash flow
Capital expenditure
Free cash flow
117
(59)
(146)
(89)
142
115
(822)
(565)
804
205
(499)
510
705
(134)
(293)
277
701
(105)
(620)
(25)
870
(86)
(651)
133
1,074
(47)
(684)
343
Notes:
(a) Hindustan was part of HT Media till November 2009 and transferred to HMVL thereafter.
(b) Sum total of 8MFY10 Hindustan financials and FY2010 HMVL financials.
136
BUY
Sadbhav Engineering (SADE)
Construction
JANUARY 23, 2012
UPDATE
Strong BOT execution, toll revenues make up for weak construction momentum.
Strong execution track record of road BOT assets drive value through (1) bonus
revenues of early completion (Rs0.85-1 bn) and (2) potential project cost savings (Rs4.5
bn). We also note strong growth in toll revenues on back of better traffic growth and
inflation-linked toll rate revision. However, slow order inflow traction in construction
business likely to constrain standalone construction business growth. Reiterate BUY.
Sadbhav Engineering
Stock data
155-82
Market Cap. (Rs bn)
17.8
Promoters
47.6
FIIs
23.0
MFs
17.3
1M
3M
12M
Absolute
18.9
(7.3)
14.1
Rel. to BSE-30
11.8
(7.0)
29.6
EPS (Rs)
EPS growth (%)
P/E (X)
Sales (Rs bn)
Net profits (Rs bn)
EBITDA (Rs bn)
EV/EBITDA (X)
ROE (%)
Div. Yield (%)
2011
7.8
51.0
15.3
22.1
1.2
2.3
9.2
18.1
0.5
2012E
10.0
28.5
11.9
25.9
1.5
2.7
7.4
19.2
0.5
Price (Rs): 119
BSE-30: 16,739
2013E
10.0
0.5
11.8
25.3
1.5
2.6
7.1
16.3
0.5
BOT: Speedy execution accrues cost saving, bonus income; toll collection growth also strong
Sadbhav is likely to complete several BOTs ahead of schedule (e.g. Dhule got partial CoD four-five
months in advance). This is likely to benefit the company on (1) cost savings on projects (expecting
about Rs4.5 bn across four projects) and (2) Bonus income (proportion of toll collections) from
early completion (potentially about Rs0.85-1 bn). Strong traffic growth and inflation linked toll rate
revision have also boosted value. High margin EPC portion (IT related work for RFID system
implementation) in Mumbai Check post has also helped capture margins and reduce equity.
Construction: Lower inflows coupled with strong recent execution may contain growth
Order inflows have been only about Rs5.5 bn (including Rs3.3 bn L1 order from Bharat Coking
Coal) in FY2012E so far. We estimate inflows worth Rs14 bn in FY2012E, a decline of 42% over
FY2011. Lower inflows and strong execution implies flattish FY2013E construction revenues.
Strong balance sheet to support next leg of growth; substantial deleveraging possible by FY2013E
Debt levels may reduce further led by (1) lower receivables from Dhule’s (majority of receivables of
Rs5.5 bn at end-1HFY12 are attributed to this project) and (2) lower funding requirement in SIPL
on speedy execution (on release of contingency reserve by lenders and lower debt levels
corresponding to lower project cost). We expect Sadbhav’s debt position to improve from about
0.6X Debt:Equity at end-FY2011 to 0.4X by end-FY2012E and 0.2X by end-FY2013E.
BUY (TP: Rs180): Revised SOTP composition with increased value of BOT and lower construction
We revise standalone estimates to Rs10 and Rs10 from Rs10.8 and Rs11.9 for FY2012E and
FY2013E on lower construction momentum. Reiterate BUY and retain TP of Rs180. Key changes in
our assumptions include (1) lower standalone working capital on completion of Dhule-Palasner,
(2) slower growth momentum in construction business and (3) increased BOT value on earlier
completion, stronger traffic growth and higher inflation. Toll collection on Dhule and Bijapur
projects would be key data points to watch for and may increase visible upside as confidence
grows on toll collection at projects under development currently.
Construction
Sadbhav Engineering
BOT: Speedy execution accrues cost saving, bonus income; toll collection growth
also strong
Sadbhav has demonstrated strong execution of its BOT assets being ahead of schedule
across most of its projects. This is likely to benefit the company on (1) cost savings on
projects which reduces total initial capital investment requirement thereby potentially
increasing returns from the project and (2) bonus income (proportion of toll collections) from
early completion of projects. The company has also witnessed a strong growth in toll
revenues on back of better traffic growth and inflation linked toll rate revision in its
operational projects.
Bonus revenues (of Rs850 mn - Rs1 bn) from early completion of Dhule-Palasner and
Bijapur-Hungud projects
` Dhule-Palasner. Sadbhav recently achieved provisional CoD for 75% completion of its
Dhule-Palasner project and expects to receive 100% CoD by end-March, 2012. This is
versus scheduled completion date of June, 2012. The company can now start tolling and
would from hereon receive 75% of the toll revenues for the period ending June-12 as a
bonus to its original concession period. The management cited that this could potentially
result in bonus revenues to the tune of Rs350-400 mn).
` Bijapur-Hungud. Sadbhav also expects 75% provisional CoD for its Bijapur – Hungund
project to come soon and 100% CoD by end-Feb, 2012. This is versus scheduled
completion date of Mar-2013. The management expects to receive about Rs1.05 bn of
bonus revenues from this project of which about Rs450-480 mn would be given to the
third-party EPC contractor (KNR Construction, for the outsourced portion of construction).
Ahead of schedule in several under construction projects
Details of BOT projects of Sadbhav Engineering
Ahmedabad Ring Road
Aurangabad-Jalna
Mumbai Nasik
Nagpur-Seoni (Annuity)
Mah Border- Dhule
Mah border check post
Rohtak-Panipat
Hyderabad-Yadgiri
Bijapur - Hungund
Total
Sadbhav Stake
80% (PBA - 20%)
51% (PBA - 49%)
20% (Gammon -80%)
51% (SREI - 49%)
20% (HCC Laing - 80%)
90% (SREI - 10%)
100%
60% (GKC - 40%)
77% (MCL - 23%)
Cost
(Rs mn)
4,571
2,770
7,020
4,890
14,200
14,300
13,500
4,800
12,250
78,301
Length
(km)
76
69
100
56
97
NA
80
35
100
613
Concession
(years)
Dec-26
Oct-31
Oct-26
Nov-27
Sep-27
Mar-33
Mar-35
Mar-33
Mar-30
App.
date
CoD
Operational
Operational
Operational
Dec-09 Mar-12
Apr-11 Oct-13
Jul-10 May-12
Sep-10 Feb-12
Propotional toll revenues (Rs mn)
FY2012E
FY2013E
FY2014E
619
702
781
274
334
354
185
213
239
460
—
655
—
—
—
2,192
460
487
917
—
249
827
4,188
460
542
1,356
1,289
373
920
6,314
Strong execution in several projects may lead to Rs4.5 bn of project cost savings
Strong execution of BOT projects is also likely to lead to savings in project costs thereby
increasing potential returns of the projects. The management expects to have a project cost
savings to the tune of about Rs4.5 bn on the back of fast execution of Bijapur-Hungud,
Rohtak-Panipat, Hyderabad-Yadgiri and Mumbai border checkpost projects. Key
developments in these projects include:
` Rohtak-Panipat. Sadbhav is running about 8 months ahead of schedule in the RohtakPanipat project and is aiming for a Jan-13 completion (planned CoD of Oct -13).
` Mumbai border checkpost. The management cited strong progress in the Mumbai
border checkpost project and expects one checkpost to be opened very shortly, another
three by end-Feb 2012, one in Mar-12 and another four by end-June. Hence the
company would have eight (of the total 22) check posts open by end-June 2012.
138
Sadbhav Engineering
Construction
Sadbhav would also benefit from savings on lower debt as the company gets back
contingency reserve built in the projects.
Strong toll collections expected on better traffic growth and higher inflation
The company highlighted strong traffic growth seen at Aurangabad-Jalna, Ahmedabad ring
road and Mumbai-Nasik projects. Toll revenues would be further boosted in the near term
on significant annual toll hikes on the back of high inflation in FY2012E (toll hikes calculated
on the basis of inflation over the last financial year).
Construction: Lower inflows coupled with strong recent execution may contain
growth
Sadbhav has reported inflows of about Rs5.5 bn (including L1 order from Bharat Coking
Coal). We expect another Rs8-9 bn of incremental inflows in FY2012E from the contracts
bid by the company for roads and mining projects. Our revised estimates build in inflows of
about Rs14 bn in FY2012E, a sharp decline of about 42% over FY2011 inflows of Rs24 bn.
We believe that reduced order inflows coupled with strong execution of existing projects
would constrain growth in construction revenues going forward. We expect construction
revenues for the company to grow at 17% in FY2012E and then decline 2.3% in FY2013E.
Segmental numbers for Sadbhav Engg (standalone), March fiscal year-ends, 2009-13E (Rs mn)
Total standalone
Order inflows
Yoy growth (%)
Revenues
Yoy growth (%)
Order backlog
Roads (BOT)
Order inflows
Revenues
Yoy growth (%)
Order backlog
Roads (others)
Order inflows
Yoy growth (%)
Revenues
Yoy growth (%)
Order backlog
Irrigation
Order inflows
Yoy growth (%)
Revenues
Yoy growth (%)
Order backlog
Mining
Order inflows
Yoy growth (%)
Revenues
Yoy growth (%)
Order backlog
2009
2010
2011
2012E
2013E
29,349
145.6
10,625
21.8
46,407
39,266
33.8
12,569
18.3
67,686
24,046
(38.8)
22,092
75.8
69,640
13,877
(42.3)
25,888
17.2
57,630
33,298
139.9
25,280
(2.3)
65,649
23,671
5,934
100.5
24,737
30,650
6,475
9.1
43,502
1,930
12,282
89.7
33,150
1,500
11,526
(6.2)
23,124
17,500
10,837
(6.0)
29,787
2,624
(9.9)
1,716
(44.3)
7,161
4,700
79.1
3,329
93.9
8,532
15,318
225.9
5,780
73.6
18,070
4,595
(70.0)
8,554
48.0
14,111
5,974
30.0
7,694
(10.1)
12,391
4,397
3,750
50.0
2,814
3.8
10,316
6,075
15.0
3,935
27.0
13,155
1,462
53.3
7,388
752
(48.5)
6,447
1,254
66.7
9,590
2,500
2,710
116.1
9,380
3,291
12.7
1,475
454.4
7,121
4,105
24.7
2,021
37.0
9,205
2,401
25.0
2,776
37.4
8,830
5,282
120.0
3,097
11.6
11,015
139
Construction
Sadbhav Engineering
Strong balance sheet to help capture incremental opportunities
` Lower receivables on Dhule’s provisional CoD. Majority of the company’s present
receivables (Rs5.5 bn as of end-Sep-11) are attributed to the Dhule-Palasner project. We
expect these receivables to get paid down with the company now having received
provisional CoD thereby leading to lower debt levels.
` Lower debt requirement in SIPL on speedy execution. The Company would also
benefit from lowered debt levels from SIPL as the lenders release the contingency reserve
as its projects achieve earlier-than-expected completion (provisional CoD received for
Dhule and expected for Bijapur – Hungund). Furthermore, lower project costs on speedy
execution would also result in lower funding requirements for the BOT assets.
We expect Sadbhav’s debt position to improve from about 0.6X Debt:Equity at end-FY2011
to 0.4X by end-FY2012E and 0.2X by end-FY2013E.
Sadbhav reducing its leverage post sharp increase in FY2010
Trends in leverage for Sadbhav Engineering, March fiscal year-ends
Equity
Debt
D/E
(X)
(Rs mn)
10,000
1.5
1.3
8,000
1.1
1.0
6,000
0.8
0.6
0.6
4,000
0.5
0.4
2,000
2013E
2012E
2011
2010
2009
0
0.2
0.3
0.0
Minimal pending equity requirement and money at hand help build base for next
round of growth
All of Sadbhav’s BOT projects put together required SIPL to put in about Rs8.6 bn of equity.
The company has (1) already put in Rs2.6 bn of equity, and (2) raised Rs4 bn from private
equity investment in SIPL. The management expects about Rs1.4 bn of internal accruals in
SIPL (excluding toll revenues) and Rs400-420 mn of net cash balance in Ahmedabad ring
road SPV to help fund part of the remaining Rs2 bn
Securitization of key assets (such as Ahemdabad ring road) would open more funding
options apart from savings from early completion and sanctioned debt limits (Rs1.8 bn of
funding from ICICI with 6.5% coupon for first 5 years of 7 year term loan) at SIPL level.
Signs of build up of organization strength
Sadbhav is investing in expanding its opportunity set as it aims to moves up the value chain
into design and building of elevated structures (including Metro). The company also reported
a sharp increase in its employee cost to Rs184 mn in 1HFY12 from Rs118 mn in 1HFY11
(56% yoy jump). Sadbhav has also recently opened its Mumbai office where it has
purchased some commercial area already. It has set up teams for contract and tendering
business with finance and accounts functions to follow.
140
Sadbhav Engineering
Construction
Weak sector commentary lack of financial closures impend construction activity
The company cited funding concerns for the projects awarded by NHAI in the last two years.
It believes that about of the projects in value terms may not have achieved financial closure
as banks have started scrutinizing proposals and adding relevant covenants. The company
also believes that minimal amount of equity has been invested in these projects further
reflecting reduced activity in the sector. Key factor leading to such slowdown in activity
aggressive bids by players believing cash flows from projects nearing completion to fund
equity for recent project wins.
Revised estimates to factor in stronger BOT business and weaker construction
We revise our estimates to Rs10 and Rs10 from Rs10.8 and Rs11.9 for FY2012E and
FY2013E respectively. Key changes in our assumptions are explained below
` Lower receivables on completion of Dhule-Palasner project. Dhule-Palasner project
ahs achieved provisional COD which would lead to the company getting paid on its claims.
The Dhule projects accounts presently accounts for about 60% of the company’s
receivables. The company receivables are therefore expected to reduce to about Rs3.9 bn
versus our earlier assumption of Rs6.3 bn. The company reported Rs5.5 bn of receivables
at-end-Sep-11. This would help lower its debt by about Rs2.1 bn and also lead to lower
interest expenses.
` BOT revenues up on improved traffic trends and higher inflation. We also revise
our toll revenues based on improved traffic growth in (1) Aurangabad Jalna and
(2) Mumbai Nasik. We also improve are inflation estimate to 9% from 5% earlier
for FY2011E and FY2012E. This improves the value of the BOT business to about
Rs136 per share from Rs120 earlier.
` Lower inflows constraining construction growth. We have cut our order inflow
assumption for FY2012E to Rs13.9 bn (42% yoy decline) from our earlier estimate of
Rs34.9 bn. We also revise our FY2013E inflows to Rs33 bn from Rs40.7 bn earlier.
Reduced inflows result in about 17% growth in standalone revenues in FY2012E and
flattish FY2013E revenues.
Our SOTP valuation for Sadbhav is Rs180/share
FY2013E-based SOTP valuation of Sadbhav Engineering
Business
Construction business (a)
Sadbhav Infrastructure Projects
Ahmedabad Ring Road
Mumbai Nasik
Aurangabad-Jalna
Nagpur-Seoni
Dhule
MBCPNL
Rohtak-Panipat
Hyderabad-Yadgiri
Bijapur-Hungund
Total (a) + (b)
Target price
Value
(Rs mn)
10,060
26,403
4,908
895
1,200
376
2,286
5,805
5,426
1,827
3,680
36,463
Stake
(%)
100
78
Per share
(Rs)
67
137
Comments
5X FY2013E EBITDA for construction business
FY2013E FCFE based valuation of projects
SIPL has 80% stake
SIPL has 20% stake
SIPL has 100% stake
SIPL has 100% stake
SIPL has 27% stake
SIPL has 90% stake
SIPL has 100% stake
SIPL has 60% stake
SIPL has 77% stake
204
180
141
Construction
Sadbhav Engineering
3QFY12E: Strong revenue growth to continue; modest decline in margin
We expect strong revenue growth, led by execution of existing large BOT projects in the
backlog. Margins may decline on higher raw material costs and increased contribution of the
roads segment to total revenues
Sadbhav, 3QFY12E results (standalone), March fiscal year-ends, (Rs mn)
Income
Total expenditure
EBITDA
Other income
Depreciation
Net Interest
PBT
Taxes
Adjusted PAT
Key ratios (%)
EBITDA margin
PBT margin
Effective tax rate
PAT margin
EPS
6,601
4,762
4,304
(5,892)
(4,233)
(3,851)
710
529
453
42
14
52
(84)
(68)
(70)
(70)
(68)
(154)
598
406
281
(198)
(142)
(100)
399
264
181
10.8
9.1
33.2
6.0
2.7
11.1
8.5
35.0
5.5
1.8
10.5
6.5
35.5
4.2
1.2 #
% change
yoy
qoq
38.6
53.4
39.2
53.0
34.2
56.7
23.3
2.1
47.2
20.0
(54.7)
112.7
51.4
120.2
FY2012E FY2011 % chg.
25,888 22,092
17.2
(23,208) (19,834)
17.0
2,679
2,258
18.7
195
52
308
(269) (214.9)
367
(284) (229.2)
2,199
1,758
25.1
704
(562)
1,495
1,196
25.1
#
10.4
8.5
(32.0)
5.8
10.0
10.2
8.0
32.0
5.4
8.0
142
Sadbhav Engineering
Construction
Financials of Sadbhav Engg (standalone), March fiscal year-ends, 2006-13E (Rs mn)
2007
2008
2009
2010
2011
2012E
2013E
Profit model
Total income
Expenses
EBITDA
Depreciation
Other income
Pretax profits
Tax
Adjusted net income
EPS (Rs)
4,886
(4,307)
579
(54)
(149)
6
381
(129)
263
2.4
8,721
(7,749)
972
(157)
(139)
30
706
(221)
489
4.1
10,625
(9,530)
1,095
(214)
(157)
108
832
(179)
639
5.1
12,569
(11,198)
1,371
(331)
(233)
158
966
(297)
642
5.1
22,092
(19,832)
2,260
(427)
(269)
195
1,760
(576)
1,163
7.8
25,888
(23,208)
2,679
(367)
(308)
195
2,199
(704)
1,495
10.0
25,280
(22,645)
2,635
(275)
(364)
215
2,211
(707)
1,503
10.0
Balance sheet
Total equity
Total borrowings
Net fixed assets
Investments
Cash
Total assets
1,466
93
730
2,290
1,119
461
433
251
2,290
2,861
97
1,503
4,461
1,430
1,205
1,706
103
4,461
3,435
110
2,111
5,656
1,545
1,246
2,756
100
5,656
3,915
141
4,242
8,298
2,101
1,441
4,308
448
8,298
6,257
161
3,961
10,379
2,298
3,264
3,971
846
10,379
7,648
161
2,750
10,558
2,639
4,764
2,478
677
10,559
9,046
161
2,250
11,457
3,075
4,764
2,387
1,230
11,457
Free cash flow
Cash flow from operations
Pre-tax income
Depreciation & amortization
Taxes paid
Interest expense
Cash flow from investing
Capital investment
Investment changes
Free cash flow
278
381
149
(62)
54
(260)
(588)
(232)
(356)
(310)
(283)
706
139
(221)
121
(1,095)
(1,397)
(451)
(946)
(1,680)
430
832
157
(235)
128
(464)
(854)
(278)
(576)
(424)
830
966
233
(393)
238
(218)
(2,316)
(770)
(1,546)
(1,486)
31
1,760
269
(518)
284
(1,774)
(271)
(479)
208
(240)
3,468
2,199
308
(704)
369
1,493
(2,150)
(650)
(1,500)
1,318
2,019
2,211
364
(707)
275
92
(800)
(800)
1,219
11.8
5.4
46.8
30.7
16.8
(349.7)
11.1
5.6
50.8
47.4
16.5
36.2
10.3
6.0
59.6
56.7
18.0
17.7
10.9
5.1
104.6
93.5
15.8
14.2
10.2
5.3
61.7
48.5
18.1
46.2
10.4
5.8
35.2
26.6
19.2
70.4
10.4
5.9
24.4
11.1
16.3
41.0
Ratios
EBITDA margin (%)
PAT margin (%)
Debt/equity (X)
Net debt/equity (X)
RoAE (%)
RoACE (%)
143
Construction
Sadbhav Engineering
Proportional financial of SIPL based on stake in various projects, March fiscal year-ends, 2010-18E (Rs mn)
Income statement
Total income
Expenses
EBITDA
Depreciation
Other income
Pretax profits
Tax
Net income
Balance sheet
Share capital
Reserves and surplus
Total debt
Grant
Net fixed assets
Investments
Cash
Total assets
2010
2011
2012E
2013E
2014E
2015E
2016E
2017E
2018E
607
(74)
533
(648)
(276)
(483)
(21)
(483)
1,184
(169)
1,015
(1,049)
(466)
(592)
(592)
2,172
(382)
1,791
(1,565)
(1,181)
(1,051)
(1,051)
3,988
(729)
3,260
(3,056)
(1,635)
35
(1,493)
(1,493)
5,469
(1,077)
4,392
(4,191)
(1,801)
39
(1,656)
(1,656)
6,370
(1,275)
5,095
(4,097)
(1,870)
8
(960)
(22)
(986)
7,057
(1,625)
5,432
(3,978)
(2,006)
(13)
(660)
(29)
(770)
7,725
(1,436)
6,289
(3,844)
(2,151)
(20)
178
(48)
98
9,031
(1,714)
7,318
(3,694)
(2,517)
(19)
992
(184)
742
2,031
(469)
12,239
102
13,903
13,478
403
(277)
298
13,903
2,434
(549)
19,567
410
21,864
21,911
2
(585)
536
21,864
8,751
(1,600)
35,676
2,267
45,094
43,757
2
(380)
1,715
45,094
9,952
(3,092)
39,703
2,267
48,830
47,558
2
(380)
1,651
48,830
9,952
(4,749)
39,060
2,327
46,590
45,760
2
(380)
1,209
46,590
9,952
(5,734)
38,274
2,327
44,818
44,142
2
(380)
1,055
44,818
9,952
(6,505)
37,147
2,367
42,961
42,305
2
(380)
1,035
42,961
9,952
(6,406)
36,461
2,367
42,373
40,759
2
(380)
1,992
42,373
9,952
(5,664)
34,927
2,367
41,581
39,807
2
(380)
2,153
41,581
144
December 2011: Results calendar
145
Mon
16-Jan
Dewan Housing Finance
ING Vysya
T ue
17-Jan
Chambal Fertilisers
HCL Technologies
Wed
18-Jan
Bajaj Finance
Bajaj Finserv
T hu
19-Jan
Bajaj Auto
Bajaj Holding & Investment
Fri
20-Jan
Aptech
Axis Bank
Sat
21-Jan
Asian Paints
Magma Fincorp
Motilal Oswal
South Indian Bank
TCS
Zee News
Jindal Steel & Power
Mindtree
NIIT Technologies
Balaji Telefilms
Dish TV
Godrej Properties
Bank of Maharashtra
Exide Industries
HCC
JSW Energy
Karnataka Bank
MMFSL
HDFC Bank
Hero Motocorp
HMVL
Hindustan Zinc
HT Media
ITC
Oberoi Realty
Patel Engineering
SJVN
IFCI
Mastek
Peninsula Land
Jet Airways
JSW Steel
Polaris Financial Technology
Sobha Developers
Torrent Power
Ultratech Cement
SKS Microfinance
Praj Industries
Rallis India
Reliance Industries
Syndicate Bank
United Spirits
Wipro
Wire & Wireless
23-Jan
Ashoka Buildcon
Colgate Palmolive
24-Jan
Biocon
Cairn India
25-Jan
Bank of Baroda
Deepak Feritilsers
Coromondal International
DB Corp
Federal Bank
Ceat
Edelweiss Capital
Grasim Industries
GAIL
Idea
Jyothy Laboratories
Kotak Mahindra Bank
KPIT Cummins Infosystems
L&T
27-Jan
Bank of India
Bharat Electronics
28-Jan
Divi's Laboratories
J&K Bank
Future Captial Holding
IRB Infrastructure Developers
L&T Finance Holding
BHEL
Canara Bank
Karur Vysya Bank
KSK Energy Ventures
Indiabulls Power
Indiabulls Real Estate
Lupin
Oracle Financial Services
Patni Computer Systems
PTC India Financial Services
NHPC
NTPC
Petronet LNG
Yes Bank
Zensar Technologies
REC
Rural Electrification Corp.
Sesa Goa
Pfizer
Redginton India
Sundaram Finance
Maruti Suzuki
Phoenix Mills
Shree Cements
Sterlite Industries
26-Jan
Tata Communications
Tata Global Beverages
Union Bank of India
Vijaya Bank
Torrent Pharma
31-Jan
Aban Offshore
1-Feb
Welspun Corp
2-Feb
Chennai Petroleum
3-Feb
Container Corp
4-Feb
Carborundum Universal
Balrampur Chini Mills
Corporation Bank
Glenmark Pharmaceuticals
Berger Paints
Blue Dart Express
Central Bank of India
Ashok Leyland
Prestige Estaes
Satyam Computers
Hexaware Technologies
Marico
ONGC
Dr. Reddy's Laboratories
Godrej Industries
Hindustan Petroleum
GVKPIL
Havells India
IL& FS Investment
Indiabulls Financial Services
City Union Bank
Dabur India
Financial Technologies
UCO Bank
Thermax
Power Finance Corp
Indian Bank
Kansai Nerolac
LIC Housing Finance
Firstsource Solution
ICICI Bank
IPCA Laboratories
Mahindra Life Space Developers
NMDC
Oriental Bank of Commerce
KEC International
Mahindra Holidays & Resorts
Paper Products
Sadbhav Engineering
United Phosphorus
PTC India
Punjab National Bank
Shoppers Stop
Siemens
8-Feb
9-Feb
Apollo Tyres
Dishman Pharmaceuticals
10-Feb
Apollo Hospital Enterprises
BPCL
Hindalco Industries
VA Tech Wabag
MTNL
Tata Chemicals
Tata Power
Titan Industries
TVS Motor
United Bank of India
6-Feb
Adani Port & SEZ
Adani Power
7-Feb
Cadila Healthcare
JM Financial
Glaxosmithkline Consumers
MOIL
Mahindra & Mahindra
13-Feb
14-Feb
Shipping Corp of India
TV Today Network
Source: BSE, NSE, Kotak Institutional Equities
15-Feb
11-Feb
India Daily Summary - January 23, 2012
30-Jan
Bajaj Corp
Kotak Institutional Equities: Valuation summary of KIE Universe stocks
Price (Rs)
O/S
shares
Mkt cap.
Rating
(Rs mn)
(US$ mn)
(mn)
EPS (Rs)
2011
2012E
EPS growth (%)
2013E
2011
2012E
PER (X)
2013E
2011
2012E
EV/EBITDA (X)
2013E
2011
2012E
Price/BV (X)
2013E
2011
2012E
RoE (%)
Dividend yield (%)
2013E
2011
2012E
2013E
2011
2012E
2013E
Target
price
Upside
(Rs)
(%)
ADVT-3mo
(US$ mn)
Automobiles
Apollo Tyres
65
BUY
647
504
9.2
(26.1)
(22.0)
5.5
4.2
1.1
0.9
80
24.0
27
ADD
70,907
1,411
2,661
2.4
1.9
2.3
68.1
(19.7)
22.5
11.2
14.0
11.4
7.7
8.5
7.4
1.6
1.5
1.4
3.8
3.8
3.8
21.8
15.9
18.2
26
(2.4)
2.5
1,561
ADD
451,855
8,994
289
90.4
106.8
122.3
43.9
18.1
14.6
17.3
14.6
12.8
13.2
11.0
9.8
9.1
6.6
5.0
2.6
2.6
2.6
84.9
52.5
44.7
1,715
9.8
20.0
283
ADD
67,203
1,338
237
12.5
16.7
19.8
1,402.1
32.8
18.7
22.6
17.0
14.3
10.6
8.5
7.4
3.0
2.6
2.2
1.2
—
—
8.2
14.3
15.2
315
11.2
1.8
Exide Industries
126
SELL
106,760
2,125
850
7.5
4.5
6.1
18.0
(39.5)
35.6
16.9
27.8
20.5
12.1
18.6
14.1
3.9
3.6
3.1
1.2
1.0
1.0
25.5
13.4
16.3
100
(20.4)
4.6
Hero Motocorp
1,947
SELL
388,736
7,738
200
99.3
118.0
129.5
(11.1)
18.8
9.7
19.6
16.5
15.0
12.9
11.8
10.2
8.3
7.2
6.1
5.4
3.6
3.6
56.5
66.1
58.8
1,815
(6.8)
24.7
657
BUY
403,398
8,030
614
41.7
43.9
49.0
22.7
5.3
11.6
15.7
15.0
13.4
12.2
11.4
9.9
3.8
3.2
2.7
1.8
1.4
1.4
27.3
23.1
21.7
840
27.9
32.2
1,104
BUY
318,801
6,346
289
79.2
53.4
89.1
(8.4)
(32.6)
66.9
13.9
20.7
12.4
8.5
12.8
6.9
2.3
2.1
1.8
0.7
0.7
0.7
17.6
10.5
15.6
1,225
11.0
16.5
728,508
14,501
3,325
27.2
25.0
27.4
737.9
(8.1)
9.7
8.1
8.8
8.0
5.6
5.5
5.0
3.8
2.7
2.1
1.7
1.3
1.3
66.1
36.5
30.0
195
(11.0)
65.3
2,568,682
51,131
82.8
(4.3)
16.7
12.5
13.1
11.2
8.3
8.1
7.0
3.9
3.2
2.6
2.3
1.8
1.8
31.1
24.5
23.5
Ashok Leyland
Bajaj Auto
Bharat Forge
Mahindra & Mahindra
Maruti Suzuki
Tata Motors
219
Automobiles
ADD
Cautious
32,514
8.7
6.8
34.6
7.4
9.5
7.0
5.7
1.2
0.8
0.6
0.8
20.1
13.4
15.7
2.9
Andhra Bank
100
BUY
56,070
1,116
560
22.6
23.4
22.3
5.0
3.2
(4.7)
4.4
4.3
4.5
—
—
—
0.9
0.8
0.7
5.5
5.7
5.4
23.2
18.8
15.8
170
69.7
1.2
1,009
BUY
428,169
8,523
424
82.5
96.1
111.8
33.0
16.4
16.3
12.2
10.5
9.0
—
—
—
2.3
1.9
1.6
1.3
1.6
1.9
19.3
19.8
19.6
1,500
48.7
52.4
Bajaj Finserv
454
ADD
65,620
1,306
145
78.2
63.2
62.9
102.3
(19.2)
(0.4)
5.8
7.2
7.2
—
—
—
1.9
1.4
1.1
2.8
2.8
2.8
37.2
21.9
16.8
650
43.3
1.0
Bank of Baroda
780
BUY
306,350
6,098
393
108.0
107.7
122.3
29.1
(0.3)
13.6
7.2
7.2
6.4
—
—
—
1.6
1.3
1.2
2.5
2.5
2.8
25.9
20.1
19.5
1,100
41.0
8.0
Bank of India
319
BUY
174,618
3,476
547
45.5
45.2
63.3
37.4
(0.7)
40.2
7.0
7.1
5.0
—
—
—
1.1
1.0
0.8
2.5
2.5
3.5
17.3
14.6
18.0
450
41.0
4.3
Canara Bank
430
BUY
190,579
3,794
443
90.9
80.9
101.5
23.3
(10.9)
25.4
4.7
5.3
4.2
—
—
—
1.1
0.9
0.8
2.6
2.8
2.8
23.2
16.7
18.1
550
27.8
7.0
Corporation Bank
388
BUY
57,460
1,144
148
95.4
86.2
89.5
16.3
(9.7)
3.9
4.1
4.5
4.3
—
—
—
0.8
0.7
0.6
5.2
4.7
4.8
21.9
16.8
15.4
600
54.7
0.6
Federal Bank
382
BUY
65,357
1,301
171
34.3
42.5
51.3
26.3
23.7
20.9
11.1
9.0
7.4
—
—
—
1.3
1.2
1.1
2.2
2.8
3.3
12.0
13.5
14.8
500
30.9
3.4
HDFC
692
REDUCE
1,015,241
20,209
1,467
24.1
27.7
31.8
22.4
14.9
14.7
28.7
25.0
21.8
—
—
—
5.9
5.2
4.0
1.3
1.5
1.8
21.7
22.0
21.4
725
4.8
29.4
Axis Bank
HDFC Bank
491
ADD
1,141,082
22,714
2,326
16.9
22.1
28.1
31.0
30.9
27.2
29.1
22.2
17.4
—
—
—
4.5
3.9
3.3
0.7
0.9
1.1
16.7
18.8
20.5
560
14.2
32.5
ICICI Bank
842
BUY
970,351
19,315
1,152
44.7
52.0
53.7
23.9
16.3
3.3
18.8
16.2
15.7
—
—
—
1.8
1.6
1.5
1.7
1.9
1.9
9.7
10.5
10.1
1,100
30.6
95.9
IDFC
18.8
121
ADD
181,871
3,620
1,509
8.8
10.3
12.1
4.6
17.1
18.2
13.7
11.7
9.9
—
—
—
1.7
1.5
1.3
1.8
1.7
2.0
14.7
13.6
13.9
150
24.4
India Infoline
54
SELL
17,669
352
327
7.4
3.5
5.0
(9.3)
(52.3)
41.1
7.3
15.4
10.9
—
—
—
1.1
0.9
0.9
5.7
1.3
2.0
12.9
6.4
8.1
70
29.5
0.5
Indian Bank
210
BUY
90,058
1,793
430
38.8
40.9
48.3
10.5
5.5
18.1
5.4
5.1
4.3
—
—
—
1.1
1.0
0.8
3.6
3.7
4.3
22.3
19.9
20.1
300
43.2
1.3
Indian Overseas Bank
87
BUY
53,677
1,068
619
17.3
20.1
29.1
33.6
15.8
45.1
5.0
4.3
3.0
—
—
—
0.7
0.6
0.5
5.7
4.9
5.4
12.7
12.7
16.3
160
84.4
1.0
IndusInd Bank
281
BUY
130,750
2,603
466
12.4
16.8
17.7
45.2
35.2
5.4
22.6
16.7
15.9
—
—
—
3.6
3.1
2.7
0.7
1.0
1.0
20.8
19.3
17.2
325
15.8
3.5
J&K Bank
814
ADD
39,473
786
48
126.9
149.9
160.5
20.1
18.1
7.1
6.4
5.4
5.1
—
—
—
1.1
1.0
0.9
3.2
3.8
4.0
19.0
19.4
18.0
950
16.7
0.3
LIC Housing Finance
239
ADD
113,727
2,264
475
20.5
22.7
27.1
47.2
10.8
19.2
11.7
10.5
8.8
—
—
—
2.9
2.4
2.0
1.8
2.0
2.4
25.8
23.6
23.6
260
8.6
12.9
1.7
666
BUY
68,202
1,358
102
45.2
55.7
70.7
26.1
23.2
26.9
14.7
12.0
9.4
—
—
—
2.8
2.4
2.1
1.5
1.8
2.3
22.0
21.1
22.8
825
23.9
Muthoot Finance
163
BUY
60,615
1,207
371
15.7
21.6
26.7
108.4
37.1
23.7
10.4
7.6
6.1
—
—
—
4.5
2.0
1.5
—
—
—
51.5
36.7
28.1
230
40.9
—
Oriental Bank of Commerce
229
BUY
66,930
1,332
292
51.5
48.0
59.5
13.7
(6.9)
23.9
4.5
4.8
3.9
—
—
—
0.7
0.6
0.5
4.5
4.2
5.2
15.5
12.1
13.6
430
87.4
3.0
13.3
PFC
162
BUY
214,033
4,260
1,320
22.8
17.0
27.9
11.1
(25.3)
63.8
7.1
9.5
5.8
—
—
—
1.4
1.1
1.0
2.4
2.1
3.4
18.4
12.7
17.0
210
29.5
Punjab National Bank
949
BUY
300,512
5,982
317
140.0
157.0
181.8
13.0
12.2
15.8
6.8
6.0
5.2
—
—
—
1.5
1.3
1.1
2.3
3.4
3.9
24.4
22.7
22.1
1,350
42.3
8.3
Reliance Capital
323
ADD
79,608
1,585
246
9.3
12.6
24.2
(25.3)
35.8
91.7
34.8
25.6
13.3
—
—
—
1.1
1.1
1.1
1.2
1.6
3.0
3.3
4.4
8.1
470
45.3
20.9
Rural Electrification Corp.
186
BUY
183,753
3,658
987
26.0
27.7
31.9
28.1
6.6
15.0
7.2
6.7
5.8
—
—
—
1.4
1.3
1.1
4.0
4.3
4.9
21.5
20.0
20.1
220
18.2
10.0
88
RS
6,485
129
74
15.7
(89.1)
(27.5)
(41.8)
(667.7)
(69.1)
5.6
(1.0)
(3.2)
—
—
—
0.4
0.6
0.7
—
—
—
8.3
(44.7)
(19.3)
—
—
1.5
(9.9)
32.6
25.4
14.9
11.2
8.9
—
—
—
1.9
1.7
1.5
1.8
1.9
2.0
12.6
15.9
17.5
2,300
19.0
132.5
SKS Microfinance
State Bank of India
BUY
1,227,358
24,431
635
130.2
172.6
216.5
Union Bank
196
BUY
102,507
2,040
524
39.5
43.0
56.1
(3.9)
9.0
30.3
5.0
4.5
3.5
—
—
—
0.9
0.8
0.7
4.1
4.4
5.8
20.9
19.0
21.2
340
73.9
3.8
Yes Bank
298
BUY
103,415
2,059
347
20.9
25.3
29.5
39.6
20.9
16.5
14.2
11.8
10.1
—
—
—
2.7
2.3
1.9
0.8
1.0
1.2
21.1
21.1
20.5
375
25.9
16.2
7,637,290
152,024
20.0
11.0
22.1
12.5
11.2
9.2
—
—
—
2.0
1.7
1.5
1.8
1.9
2.2
16.0
15.5
16.5
(33.2)
8.9
3.2
2.9
2.6
3.1
2.0
2.0
17.5
16.5
17.4
Attractive
Cement
ACC
1,150
SELL
216,071
4,301
188
Ambuja Cements
158
SELL
240,992
4,797
1,522
7.9
7.9
9.8
Grasim Industries
2,489
BUY
228,309
4,545
92
232.0
254.4
271.5
ADD
23,269
463
307
1.9
9.9
10.1
REDUCE
75,783
1,508
35
57.2
76.4
116.8
332,616
6,621
274
44.9
75.7
89.7
1,117,041
22,235
India Cements
76
Shree Cement
2,175
UltraTech Cement
1,214
Cement
ADD
Neutral
55.6
57.3
69.0
146
India Daily Summary - January 2
1,933
3.1
20.4
20.7
20.1
16.7
12.8
11.5
980
(14.8)
(1.5)
(0.2)
24.8
20.1
20.1
16.1
12.3
11.3
8.8
3.1
2.8
2.5
1.3
1.4
1.5
16.6
14.8
16.8
135
(14.7)
6.7
(22.9)
9.7
6.7
10.7
9.8
9.2
6.5
5.1
4.4
1.6
1.4
1.2
0.8
1.4
1.4
15.7
15.0
14.1
2,900
16.5
3.3
(81.2)
424.3
1.8
40.1
7.6
7.5
14.5
5.0
4.5
0.5
0.5
0.5
2.1
4.2
4.2
1.4
7.3
7.0
90
18.8
1.2
(72.5)
33.7
52.9
38.1
28.5
18.6
9.0
7.3
6.3
4.0
3.6
3.3
0.6
0.7
0.9
10.7
13.2
18.3
1,850
(15.0)
0.4
1,220
0.5
3.7
(49.2)
68.7
18.5
27.1
16.0
13.5
13.2
8.6
7.1
2.7
2.3
2.0
0.4
0.5
0.5
16.7
17.8
17.9
(23.7)
23.8
16.6
19.1
15.4
13.2
10.1
7.7
6.4
2.3
2.1
1.8
1.2
1.3
1.3
12.2
13.5
14.0
6.8
20-Jan-12
Company
147
Company
20-Jan-12
Price (Rs)
Rating
Mkt cap.
(Rs mn)
(US$ mn)
O/S
shares
(mn)
2011
EPS (Rs)
2012E
2013E
EPS growth (%)
2011
2012E
2013E
2011
PER (X)
2012E
2013E
EV/EBITDA (X)
2011
2012E 2013E
Price/BV (X)
2011 2012E 2013E
Dividend yield (%)
2011 2012E 2013E
2011
RoE (%)
2012E
2013E
Target
price
(Rs)
Upside
(%)
ADVT-3mo
(US$ mn)
Consumer products
Asian Paints
Colgate-Palmolive (India)
Dabur India
2,732
SELL
262,096
5,217
96
80.8
94.4
106.9
13.3
33.8
12.8
9.8
8.0
1.2
1.3
43.9
39.9
35.6
2,500
(8.5)
960
SELL
130,601
2,600
136
29.6
32.5
39.1
(4.9)
9.9
20.3
32.4
29.5
24.5
28.2
25.3
20.4
34.0
34.6
27.6
2.3
2.9
2.9
113.4
116.1
124.9
900
(6.3)
1.7
96
REDUCE
166,641
3,317
1,740
3.3
3.6
4.4
12.8
13.0
11.3
16.8
19.9
29.3
26.3
28.9
22.0
25.6
23.7
22.5
19.9
19.6
16.7
15.8
12.7
9.9
7.8
1.2
1.3
1.6
51.2
42.9
40.3
105
9.7
2.1
4.1
11.2
ADD
104,489
42
71.3
85.0
104.1
28.8
19.2
22.5
34.8
29.2
23.9
25.1
22.7
18.5
8.0
2.0
1.5
1.9
32.2
34.2
35.4
2,900
16.7
403
ADD
130,342
2,595
324
14.9
16.8
21.8
31.3
13.1
29.8
27.1
23.9
18.4
23.1
18.5
13.7
7.5
5.7
4.6
1.3
0.8
0.8
35.9
27.6
28.9
460
14.2
1.4
Hindustan Unilever
391
REDUCE
844,664
16,813
2,159
9.9
11.8
14.2
4.8
19.7
19.7
39.6
33.1
27.6
33.9
27.2
21.6
32.1
27.6
23.7
1.9
2.5
3.0
66.3
89.8
92.4
420
7.4
24.1
7,681
GlaxoSmithkline Consumer (a)
ITC
2,485
ADD
22.5
20.8
2.2
1.9
2.2
34.3
1.2
1,546,120
30,776
6.4
7.9
9.0
20.7
22.5
14.1
31.4
25.6
17.4
15.1
9.2
8.0
6.9
33.2
34.9
230
14.3
28.7
Jubilant Foodworks
834
SELL
54,724
1,089
66
11.2
16.1
23.6
99.6
43.8
46.5
74.5
51.8
35.3
45.6
28.5
19.7
28.5
18.4
12.1
—
—
—
46.6
43.2
41.3
750
(10.1)
20.9
Jyothy Laboratories
169
ADD
13,108
261
78
10.3
8.4
10.8
(6.2)
(18.8)
28.0
16.3
20.1
15.7
12.8
30.8
23.0
1.9
1.9
1.8
3.6
2.8
3.5
12.3
9.7
11.7
190
12.5
0.2
Marico
151
BUY
93,110
1,853
615
3.9
5.0
6.5
(12.8)
28.1
30.2
39.0
30.5
23.4
24.0
21.4
16.5
9.9
7.8
6.1
0.4
0.5
0.6
30.3
29.2
29.7
175
15.7
0.9
4,143
SELL
399,479
7,952
96
86.8
106.6
22.8
17.3
47.7
38.9
33.1
31.8
25.7
21.5
46.7
33.1
24.7
1.2
1.4
1.7
116.5
99.7
85.4
Nestle India (a)
201
2,080
9.5
1.0
125.0
16.7
3,600
(13.1)
93
BUY
57,295
1,140
618
4.0
5.6
6.6
(34.6)
42.7
16.7
23.4
16.4
14.0
9.1
10.0
7.4
1.1
1.1
1.1
2.2
3.1
3.6
6.5
8.9
10.0
110
18.7
2.0
Titan Industries
192
BUY
170,366
3,391
888
4.8
6.5
7.9
69.1
34.5
20.9
39.6
29.5
24.4
28.9
21.4
17.0
15.7
11.8
9.2
0.7
1.2
1.6
47.1
45.7
42.5
210
9.4
17.6
United Spirits
623
78,283
1,558
126
35.3
36.6
42.7
900
44.4
12.8
4,051,316
80,643
Tata Global Beverages
Consumer products
BUY
Attractive
29.5
3.5
16.9
17.6
17.0
14.6
13.0
11.0
10.1
1.9
1.7
1.5
0.4
0.4
0.5
11.2
10.5
11.1
16.3
19.6
17.7
33.7
28.2
23.9
23.7
19.8
16.5
10.5
9.0
7.7
1.7
1.8
2.1
31.0
31.8
32.3
2.7
Constructions
IVRCL
44
BUY
11,682
233
267
5.9
4.2
7.4
10.4
6.1
7.2
1.4
0.9
8.2
5.5
Nagarjuna Construction Co.
49
BUY
12,521
249
257
6.4
4.1
5.5
(29.7)
(35.5)
32.7
7.7
11.9
9.0
7.4
7.7
6.9
0.5
0.5
0.5
2.1
4.1
4.1
7.1
4.4
5.7
85
74.2
0.8
Punj Lloyd
49
REDUCE
16,657
332
340
(1.5)
3.4
6.5
(56.6)
(328.7)
90.7
(33.0)
14.4
7.6
12.1
6.7
5.7
0.6
0.5
0.5
(0.1)
0.6
1.2
(1.7)
3.8
6.9
60
22.3
3.8
150
7.8
10.8
11.9
51.0
38.9
10.6
15.3
11.0
10.0
9.2
7.5
6.8
2.8
2.2
1.9
0.5
0.5
0.5
18.1
20.4
18.6
180
51.6
0.3
(1.1)
27.8
35.7
15.1
11.8
8.7
8.4
7.1
6.3
0.7
0.7
0.7
0.9
1.4
1.5
4.8
5.9
7.5
Sadbhav Engineering
119
Construction
BUY
17,790
354
Attractive
58,650
1,167
5.0
(25.2)
(28.5)
18.5
8.7
6.3
0.6
0.6
0.5
0.9
6.2
59
34.9
4.4
Energy
Aban Offshore
441
BUY
19,198
382
44
134.2
96.5
115.8
25.9
(28.1)
19.9
3.3
4.6
3.8
6.6
7.2
6.5
0.9
1.0
0.8
0.8
0.9
1.0
33.3
24.4
22.7
635
44.0
7.5
Bharat Petroleum
560
RS
202,426
4,029
362
38.9
30.6
45.8
(32.5)
(21.3)
49.5
14.4
18.3
12.2
9.7
9.5
8.4
1.3
1.3
1.2
2.5
1.8
2.7
9.2
6.8
9.6
—
—
6.4
Cairn india
659,054
13,119
1,903
58.3
501.1
40.1
24.9
1.0
14.9
REDUCE
5.9
7.6
5.6
4.0
1.6
1.4
1.2
—
4.3
16.9
432
REDUCE
106,825
2,126
247
19.8
19.7
21.6
28.5
(0.6)
9.9
21.8
21.9
20.0
13.9
14.9
13.3
20.7
19.3
17.9
3.5
3.6
3.9
100.2
91.0
93.0
410
(5.1)
0.7
372
BUY
472,319
9,402
1,268
28.2
31.8
33.8
13.8
12.8
6.5
13.2
11.7
11.0
8.3
8.5
7.6
2.3
2.0
1.7
2.0
2.3
2.6
17.5
17.1
15.8
535
43.7
9.6
1.7
GSPL
10.4
7.4
1.3
20.3
22.2
81
REDUCE
563
8.9
9.1
8.6
21.7
2.1
(5.2)
9.1
8.9
9.4
6.0
5.5
5.6
2.0
1.7
1.5
1.2
2.2
3.2
25.2
20.4
16.6
93
14.7
268
RS
91,007
1,812
339
40.8
14.4
23.7
(20.8)
(64.8)
64.9
6.6
18.7
11.3
3.0
4.2
3.9
0.6
0.6
0.5
5.2
1.7
2.7
9.0
2.9
4.6
—
—
4.5
Indian Oil Corporation
275
RS
666,836
13,274
2,428
32.4
14.5
32.3
(34.0)
(55.2)
122.2
8.5
18.9
8.5
8.3
9.5
6.3
1.1
1.1
1.0
3.5
1.8
3.6
13.3
5.6
11.7
—
—
2.8
19.3
1,720
1,154
908
46.7
Hindustan Petroleum
Oil India
45,597
33.3
350
346
Castrol India (a)
GAIL (India)
BUY
277,419
5,522
240
120.0
154.5
186.9
4.2
28.8
21.0
9.6
4.5
2.6
49.1
1.9
Oil & Natural Gas Corporation
276
BUY
2,360,895
46,995
8,556
24.7
33.7
38.2
7.4
36.8
13.3
11.2
8.2
7.2
4.2
3.5
2.7
1.6
1.4
1.2
3.2
4.0
4.5
14.3
17.3
17.3
355
28.6
13.6
Petronet LNG
158
SELL
118,163
2,352
750
8.1
13.3
12.8
50.3
64.1
(3.5)
19.4
11.8
12.3
11.3
8.1
8.5
3.9
3.1
2.5
1.3
1.9
1.9
20.9
28.1
21.9
135
(14.3)
5.6
Reliance Industries
793
2,981
62.0
70.4
76.5
925
16.7
79.4
BUY
2,362,890
47,034
Attractive
7,382,629
146,955
6.2
2.0
1.6
1.4
1.3
3.3
4.1
4.9
16.2
18.4
24.8
13.6
8.7
12.8
11.3
10.4
7.0
5.8
5.2
1.4
1.3
1.1
1.0
1.1
1.3
13.0
13.3
12.9
11.6
13.2
19.0
11.0
9.7
8.2
6.1
5.3
4.3
1.5
1.4
1.2
2.1
2.4
3.1
13.8
14.0
14.9
246.7
32.4
179.1
41.8
Industrials
ABB
BGR Energy Systems
Bharat Electronics
736
SELL
(82.2)
291.5
94.5
21.1
6.4
6.0
5.2
0.3
0.4
0.4
2.6
9.9
17.3
515
(30.1)
1.4
229
REDUCE
16,540
329
72
44.8
32.5
20.3
60.0
(27.3)
(37.6)
5.1
7.0
11.3
3.6
4.6
4.4
1.7
1.5
1.3
4.4
2.8
1.8
39.0
22.5
12.3
200
(12.7)
3.5
ADD
117,404
2,337
80
107.3
127.2
134.5
11.6
18.6
5.7
13.7
11.5
10.9
5.8
5.3
4.0
2.3
2.0
1.7
1.5
1.7
1.7
18.2
18.3
16.9
1,625
10.7
0.8
1.4
13.2
22.7
1,468
156,018
3,106
212
3.0
11.7
22.7
63.0
Bharat Heavy Electricals
274
REDUCE
670,031
13,337
2,448
24.6
25.0
25.4
39.7
1.9
11.1
10.9
10.8
22.9
310
Crompton Greaves
134
ADD
85,961
1,711
642
14.3
9.2
10.3
11.5
(36.0)
12.3
9.4
14.6
13.0
6.0
8.6
7.3
2.6
2.3
2.0
1.8
1.1
1.1
31.7
16.7
16.3
155
15.7
52
BUY
13,317
265
257
8.0
6.4
7.9
4.1
(19.8)
22.4
6.5
8.1
6.6
5.6
6.1
5.3
1.3
1.2
1.0
2.3
1.9
2.3
22.5
15.5
16.6
65
25.5
0.3
REDUCE
775,918
15,445
609
67.7
77.5
84.5
18.1
14.5
8.9
18.8
16.4
15.1
13.9
10.9
10.2
2.9
2.4
2.1
1.1
1.1
1.1
17.0
16.2
15.0
1,175
(7.8)
69.7
KEC International
Larsen & Toubro
1,274
Maharashtra Seamless
330
Siemens
7.2
6.9
3.3
2.3
2.0
27.3
4.8
BUY
23,271
463
71
48.2
42.1
46.8
24.8
11.0
6.8
7.8
7.1
4.3
4.2
3.5
0.8
2.5
13.8
11.1
11.5
460
39.4
SELL
256,497
5,106
340
25.5
27.2
30.5
13.6
6.6
12.1
29.6
27.7
24.7
20.4
17.4
15.6
6.5
5.5
4.7
0.7
0.7
0.8
24.2
21.7
20.7
640
(15.1)
2.9
43,723
870
1,777
(6.0)
2.0
3.5
(4.6)
(133.6)
72.0
(4.1)
12.2
7.1
17.0
6.4
5.4
0.6
0.5
0.5
—
0.8
0.8
(15.8)
4.8
7.5
40
62.6
12.4
Tecpro Systems
174
8,767
175
50
27.0
28.8
24.8
6.9
(14.1)
6.4
6.0
7.0
4.5
4.9
5.0
15.2
200
15.1
Thermax
490
REDUCE
58,366
1,162
119
31.6
32.8
31.4
44.3
3.7
(4.3)
15.5
14.9
15.6
10.3
9.9
10.0
4.4
3.7
3.2
1.8
1.9
1.8
31.5
27.0
21.9
440
(10.2)
0.9
92
REDUCE
30,461
606
331
9.8
6.4
7.6
(14.3)
(34.4)
17.6
9.4
14.4
12.2
5.3
9.4
7.3
2.2
2.0
1.9
2.2
2.2
2.5
26.1
14.8
15.9
90
(2.3)
2.6
Cautious
2,256,275
44,912
23.9
14.3
8.0
16.7
14.6
13.5
10.9
9.5
8.7
3.0
2.5
2.2
1.5
1.4
1.4
17.7
17.1
16.0
1.8
1.8
1.9
2.1
1,150
33.3
Industrials
1.1
1.0
—
—
2.8
33.3
REDUCE
1.3
2.6
2.0
25
24.2
0.8
2.3
754
BUY
0.9
2.7
Suzlon Energy
Voltas
(12.6)
7.2
—
26.8
20.2
0.4
0.1
Infrastructure
ADD
112,134
2,232
130
67.6
71.7
77.9
11.7
12.8
12.0
11.1
18.9
17.5
GMR Infrastructure
27
RS
106,263
2,115
3,892
(0.3)
(0.8)
(0.2)
(178.0)
131.2
(77.8)
(81.1)
(35.1)
(157.8)
18.3
13.2
10.9
1.1
0.9
0.9
—
—
—
(1.8)
(4.0)
(0.9)
—
—
2.7
Gujarat Pipavav Port
Container Corporation
863
60
ADD
25,392
505
424
(1.2)
1.2
2.3
(65.8)
(195.8)
6.1
100.8
8.7
(49.9)
52.1
25.9
26.1
17.3
13.3
3.5
3.2
2.9
—
—
—
(9.1)
8.9
12.1
63
5.1
0.3
6.7
2.3
2.0
434
(73.4)
14.1
17.1
15.7
2.2
2.5
1,579
1.0
1.0
0.3
(0.6)
1.6
18.6
0.6
0.6
0.6
—
1.2
—
—
3.5
BUY
53,627
1,067
332
13.6
11.9
15.2
30.4
(12.9)
27.9
11.9
13.6
10.6
8.0
8.4
7.1
2.1
1.6
1.3
0.9
—
—
19.3
13.1
13.0
185
14.7
3.8
155
BUY
313,512
6,241
2,017
4.6
5.6
8.5
36.3
22.0
53.2
34.1
28.0
18.3
27.4
20.9
15.1
7.3
5.9
4.6
0.6
—
—
23.4
23.2
28.3
155
(0.3)
4.1
Cautious
632,720
12,595
10.5
5.7
40.7
28.5
26.9
19.1
16.8
13.8
11.2
2.5
2.1
1.9
0.7
0.4
0.5
8.7
7.8
9.9
Infrastructure
21,793
4.6
1.0
161
RS
4.7
16.8
IRB Infrastructure
14
52.0
7.7
Mundra Port and SEZ
GVK Power & Infrastructure
13.8
8.9
Energy
7.5
20-Jan-12
Price (Rs)
Rating
Mkt cap.
(Rs mn)
(US$ mn)
O/S
shares
(mn)
2011
EPS (Rs)
2012E
2013E
EPS growth (%)
2011
2012E
2013E
2011
PER (X)
2012E
2013E
EV/EBITDA (X)
2011
2012E 2013E
Price/BV (X)
2011 2012E 2013E
Dividend yield (%)
2011 2012E 2013E
2011
RoE (%)
2012E
2013E
Target
price
(Rs)
Upside
(%)
ADVT-3mo
(US$ mn)
Media
DB Corp
DishTV
Eros International
HT Media
185
BUY
33,888
675
183
14.0
32.7
(19.4)
22.9
13.1
16.3
13.2
8.5
9.5
7.7
4.1
3.6
3.2
2.2
2.7
3.2
35.0
23.7
25.7
300
62.2
0.1
60
BUY
63,621
1,266
1,063
(1.8)
(0.7)
0.6
(27.7)
(62.1)
(192.8)
(33.5)
(88.5)
95.4
29.8
13.9
10.3
101.4
(697.4)
110.5
—
—
—
(81.9)
(268.1)
275.3
80
33.7
5.3
203
BUY
19,684
392
97
11.8
15.6
19.6
19.0
32.7
25.6
17.2
13.0
10.3
11.9
9.1
6.6
2.9
2.4
1.9
—
—
—
24.9
20.1
20.4
270
33.0
1.4
125
BUY
9,170
183
73
7.3
9.0
10.6
198.0
23.3
17.8
17.1
13.9
11.8
8.0
7.7
5.8
2.4
2.1
1.8
0.8
0.8
1.6
23.3
16.1
16.5
190
52.1
0.1
586
235
27.2
125
ADD
9.0
31.0
(8.0)
16.3
17.7
13.9
7.5
7.8
5.9
2.1
1.9
1.8
0.3
1.6
3.2
14.9
11.2
13.2
160
27.8
0.1
Jagran Prakashan
99
BUY
31,182
621
316
6.8
6.6
7.9
16.7
(3.1)
20.0
14.5
14.9
12.4
8.6
8.3
7.1
4.4
4.0
3.5
3.5
3.5
4.1
32.8
28.1
30.1
150
52.1
0.1
279
BUY
110,106
2,192
394
19.5
20.0
23.8
48.1
2.5
18.9
14.3
14.0
11.7
8.6
8.2
6.9
4.6
4.0
3.6
3.1
3.6
5.0
36.5
32.1
33.8
400
43.2
4.7
118
978
5.8
6.2
7.7
160
36.1
3.0
380
BUY
115,007
2,289
Neutral
412,093
8,203
43,352
7.7
11.4
Sun TV Network
Media
29,435
14.1
7.1
10.0
6.4
23.3
20.1
18.9
15.3
13.4
12.3
9.8
2.7
2.6
2.5
1.1
1.1
1.3
14.2
14.3
16.9
51.6
7.7
28.9
20.9
19.4
15.0
11.1
9.9
8.0
3.8
3.5
3.2
1.6
1.9
2.5
18.4
18.2
21.3
6.2
4.9
4.0
1.1
2.0
2.4
35.1
36.5
34.9
Metals & Mining
Coal India
345
ADD
2,177,882
6,316
17.3
22.9
27.4
13.6
32.1
20.0
19.9
15.1
12.6
11.7
8.9
7.5
10.2
26.2
Hindalco Industries
144
ADD
274,980
5,474
1,915
12.8
15.4
16.0
(36.0)
20.6
4.1
11.2
9.3
9.0
6.1
7.0
6.5
0.9
0.9
0.8
1.0
1.0
1.0
9.7
9.7
9.3
150
4.5
26.3
Hindustan Zinc
127
ADD
535,730
10,664
4,225
11.6
12.7
14.7
21.8
8.8
16.0
10.9
10.0
8.6
7.0
6.0
4.2
2.4
2.0
1.7
0.8
2.0
2.0
24.3
21.8
21.4
150
18.3
1.6
Jindal Steel and Power
534
REDUCE
499,196
9,937
934
40.2
40.9
46.1
5.1
1.7
12.7
13.3
13.1
11.6
9.9
9.6
8.8
3.5
2.8
2.3
0.3
0.3
0.3
30.9
24.1
21.8
530
(0.8)
20.7
JSW Steel
647
78.6
63.3
REDUCE
146,245
2,911
226
74.9
(2.2)
(19.4)
18.2
8.2
10.2
8.6
55
SELL
142,135
2,829
2,577
4.2
3.5
3.9
36.4
(16.7)
13.1
13.3
15.9
14.1
5.7
6.8
5.6
1.3
1.2
1.2
2.7
2.7
2.7
9.9
7.8
8.5
55
(0.3)
0.3
Sesa Goa
190
REDUCE
169,545
3,375
895
47.0
37.5
47.2
59.8
(20.2)
26.1
4.0
5.1
4.0
3.3
4.8
4.5
1.3
1.1
0.8
2.1
2.1
2.2
36.8
20.0
24.6
175
(7.7)
11.2
Sterlite Industries
114
Tata Steel
437
National Aluminium Co.
Metals & Mining
BUY
BUY
Cautious
7,631
3,361
15.2
13.2
15.2
26.2
(12.9)
424,069
8,441
971
75.3
42.4
56.2
(2,258.1)
4,753,127
383,345
94,613
15.2
7.5
8.6
7.5
6.3
4.7
5.7
4.0
6.1
3.2
0.9
0.9
0.8
0.8
0.8
0.8
1.9
1.0
1.5
1.1
1.5
1.1
13.6
13.0
14.1
10.2
9.2
610
(5.7)
36.2
10.7
155
35.9
14.8
(43.7)
32.6
5.8
10.3
7.8
5.7
7.2
5.8
1.2
1.0
0.9
2.7
2.7
2.7
24.7
9.2
12.7
490
12.2
52.0
39.1
1.0
15.7
11.5
11.4
9.8
7.2
7.1
6.1
2.2
1.9
1.6
1.2
1.8
1.9
19.0
16.6
16.7
Pharmaceutical
Apollo Hospitals
601
BUY
83,442
1,661
139
13.2
17.1
21.2
21.0
29.3
24.0
45.4
35.1
28.3
20.6
15.4
13.2
4.3
3.3
2.9
—
—
—
9.8
10.3
10.5
650
8.2
5.6
Biocon
271
BUY
54,140
1,078
200
18.4
17.5
23.0
23.9
(4.6)
31.4
14.7
15.4
11.8
8.3
8.6
6.8
2.6
2.4
2.1
—
—
—
19.4
16.3
18.9
390
44.1
2.5
Cipla
338
SELL
271,267
5,400
803
12.3
15.6
18.4
(10.0)
26.2
18.0
27.4
21.7
18.4
23.7
16.3
13.0
4.1
3.6
3.1
0.8
0.9
1.0
15.4
17.2
18.0
330
(2.3)
Cadila Healthcare
649
REDUCE
132,974
2,647
205
34.7
32.5
45.4
40.6
(6.5)
39.8
18.7
20.0
14.3
16.4
14.3
11.1
6.1
5.0
3.9
1.0
1.0
1.4
37.5
27.4
30.7
765
17.8
1.3
46
REDUCE
3,778
75
81
9.8
(0.9)
11.0
(31.8)
(109.1)
(1,325.4)
4.7
(52.0)
4.2
7.4
10.5
6.1
0.4
0.4
0.4
—
—
—
9.6
(0.8)
9.9
40
(13.9)
0.1
Dishman Pharma & chemicals
Divi's Laboratories
777
ADD
2,053
133
38.8
49.8
25.7
—
—
—
26.2
28.2
915
17.7
2.2
Dr Reddy's Laboratories
1,645
ADD
279,618
5,566
170
64.9
82.3
108.3
932.5
26.7
31.5
25.3
20.0
15.2
17.8
13.3
10.3
6.1
4.8
3.8
0.7
0.8
0.8
24.8
27.0
28.0
1,800
9.4
11.3
GlaxoSmithkline Pharmaceuticals (a)
1,963
SELL
166,251
3,309
85
68.3
75.5
83.3
15.5
10.6
10.3
28.8
26.0
23.6
18.9
18.1
15.7
8.5
8.7
8.1
2.0
2.5
2.9
30.9
33.2
35.7
1,930
(1.7)
0.9
318
BUY
86,006
1,712
270
17.0
22.3
27.6
33.6
31.4
23.7
18.8
14.3
11.5
20.8
17.3
10.6
4.2
3.3
2.6
—
—
—
20.6
26.0
25.2
375
17.9
3.4
Glenmark Pharmaceuticals
103,136
5.1
10.4
5.7
1.3
4.9
1.2
4.0
25.9
28,324
564
6.6
5.9
1.0
1.1
1.1
1.7
12.3
19.8
18.8
180
1.2
0.5
ADD
197,586
3,933
448
19.2
20.5
27.4
25.6
6.7
33.6
22.9
21.5
16.1
19.2
17.7
12.3
5.9
4.8
3.9
0.7
0.8
1.0
29.5
25.2
27.2
545
23.6
7.7
198,164
3,945
423
40.6
20.4
42.9
474.9
(49.7)
109.8
11.5
22.9
10.9
14.2
14.7
8.8
3.5
3.3
2.5
—
—
—
34.5
14.9
26.1
450
(3.9)
9.8
Sun Pharmaceuticals
528
1,036
17.5
21.7
28.3
34.4
23.5
30.5
30.1
24.4
18.7
25.8
18.1
14.0
5.3
4.4
3.6
0.7
0.8
0.9
21.0
21.6
23.4
625
18.3
9.0
43.1
8.0
35.1
22.5
20.9
15.4
18.2
14.3
10.7
3.6
3.1
2.6
0.7
0.8
1.0
16.0
14.9
16.9
7,304
15.4
11.3
REDUCE
366,918
12.3
15.2
REDUCE
10,887
201.6
19.9
178
42,829
(19.8)
15.6
468
546,952
(45.6)
20.1
441
2,151,637
34.9
24.0
Jubilant Life Sciences
ADD
11.6
28.4
Lupin
Neutral
14.4
19.8
Ranbaxy Laboratories
Pharmaceuticals
159
32.4
9.2
Property
214
ADD
1,715
9.1
11.9
31.3
31.8
23.6
18.0
13.6
15.8
12.5
9.5
1.4
1.3
1.2
0.9
1.2
1.4
5.4
7.5
9.2
270
26.2
34.1
Housing Development & Infrastructure
79
BUY
34,663
690
441
19.8
24.8
32.7
24.2
25.0
32.1
4.0
3.2
2.4
4.6
5.8
3.8
0.4
0.3
0.3
—
1.3
1.9
10.0
10.7
12.4
150
90.8
16.3
Indiabulls Real Estate
DLF
64
RS
25,784
513
402
4.0
8.5
15.4
(1,095.5)
114.1
81.5
16.1
7.5
4.2
12.0
9.6
4.1
0.2
0.2
0.2
0.5
0.8
1.1
1.4
2.9
5.0
—
—
8.6
Mahindra Life Space Developer
256
BUY
10,443
208
41
24.9
30.8
37.5
30.2
23.7
21.6
10.3
8.3
6.8
7.7
5.5
4.0
1.0
0.9
0.8
2.0
1.8
2.0
10.4
11.6
12.7
450
75.8
0.1
Oberoi Realty
250
BUY
82,370
1,640
330
15.7
17.2
27.4
14.8
9.7
59.3
15.9
14.5
9.1
11.8
10.2
5.5
2.5
2.2
1.8
0.4
0.6
1.0
19.9
15.8
21.4
310
24.1
Phoenix Mills
196
BUY
28,368
565
145
6.3
7.4
10.7
53.0
17.2
44.1
31.0
26.4
18.3
22.9
19.1
14.3
1.8
1.7
1.6
0.9
1.0
1.0
5.8
6.6
8.9
300
53.2
0.1
63
REDUCE
13,467
268
213
5.5
9.0
10.9
(18.9)
62.8
21.5
11.4
7.0
5.8
16.6
9.1
7.7
0.9
0.8
0.7
1.6
2.4
3.2
8.0
12.0
13.1
80
26.8
0.0
246
BUY
24,138
480
98
18.8
18.9
27.4
33.8
0.5
44.9
13.1
13.0
9.0
11.5
10.6
7.3
1.3
1.2
1.1
1.2
1.4
1.6
10.2
9.5
12.6
350
42.2
0.7
71,425
1,422
2,616
2.3
2.3
2.3
(23.4)
11.8
11.7
12.1
13.6
11.6
9.7
0.6
0.6
0.5
0.4
0.7
1.1
5.4
5.0
4.4
—
—
10.0
689,662
13,728
16.1
11.9
8.9
13.0
10.3
7.4
1.0
0.9
0.8
0.8
1.1
1.4
6.1
7.6
9.3
Puravankara Projects
Sobha Developers
Unitech
Property
27
RS
Cautious
(14.5)
5.3
148
India Daily Summary - January 2
15.7
0.2
35.7
(3.0)
33.9
0.2
Company
149
Company
Mkt cap.
(Rs mn)
(US$ mn)
O/S
shares
(mn)
REDUCE
39.9
30.4
47.9
10.5
11.1
7.2
6.2
21.0
22.8
460
10.1
80
ADD
23,188
462
290
3.0
8.6
9.5
(36.8)
191.2
10.8
27.0
9.3
8.4
20.2
7.4
5.0
2.4
2.1
1.8
1.9
3.8
4.1
9.3
24.0
23.1
100
25.2
2.1
BUY
1,485,971
29,579
574
119.7
147.5
178.1
10.5
23.2
20.8
21.6
17.6
14.5
14.7
11.5
9.1
5.7
4.7
3.9
2.3
1.8
2.2
28.0
29.6
29.6
3,100
19.7
73.8
REDUCE
83,320
1,659
1,176
4.2
7.5
8.1
68.9
79.5
7.0
16.9
9.4
8.8
12.3
5.5
4.0
4.8
3.2
2.3
—
—
—
27.6
41.0
30.8
80
12.9
5.3
2011
2013E
EV/EBITDA (X)
2011
2012E 2013E
Price/BV (X)
2011 2012E 2013E
2011
RoE (%)
2012E
ADVT-3mo
(US$ mn)
418
2013E
PER (X)
2012E
Upside
(%)
2,589
2013E
EPS growth (%)
2011
2012E
Target
price
(Rs)
Rating
2011
EPS (Rs)
2012E
Dividend yield (%)
2011 2012E 2013E
20-Jan-12
Price (Rs)
2013E
Technology
HCL Technologies
Hexaware Technologies
Infosys
Mahindra Satyam
71
294,443
5,861
705
22.9
33.8
18.0
18.3
12.4
3.5
2.6
2.1
1.8
1.9
1.9
22.3
10.5
Mindtree
445
ADD
18,316
365
41
24.7
50.5
53.9
(52.7)
104.5
6.8
18.0
8.8
8.3
10.1
5.9
4.5
2.4
1.9
1.7
0.6
1.1
3.6
14.4
23.9
21.5
540
21.3
0.4
Mphasis
346
SELL
72,815
1,449
211
51.8
39.0
34.6
18.8
(24.6)
(11.4)
6.7
8.9
10.0
5.7
7.4
6.6
2.2
1.9
1.6
1.2
1.3
1.4
38.6
22.8
17.3
310
(10.3)
1.8
135
REDUCE
13,499
269
100
19.3
20.8
23.2
25.7
7.8
11.3
7.0
6.5
5.8
3.9
2.7
2.0
1.3
1.1
1.0
2.7
2.9
3.0
20.2
18.4
17.6
145
7.1
1.3
2,112,797
42,056
1,957
44.5
55.2
67.5
26.8
24.1
22.1
24.2
19.5
16.0
18.3
13.7
11.2
8.4
6.8
5.6
1.7
2.0
2.5
37.8
38.5
38.3
1,250
15.8
35.5
(26.3)
TCS
1,080
Tech Mahindra
602
Wipro
414
BUY
1,511
126
48.0
75.2
80.0
ADD
1,015,343
20,211
2,454
21.6
23.2
28.2
Attractive
5,258,214
104,667
342
ADD
1,300,108
25,879
3,798
15.9
14.4
25.2
(32.6)
84
ADD
278,468
5,543
3,303
2.7
2.1
4.6
(0.5)
Technology
SELL
75,890
25.3
600
(0.4)
2.0
14.5
7.4
21.7
19.2
17.9
14.7
14.2
12.1
9.6
4.2
3.6
3.0
1.0
1.2
1.5
24.3
21.7
22.2
460
11.2
14.6
17.0
21.2
56.5
19.2
6.5
20.5
12.5
16.9
8.0
14.2
7.5
14.7
8.5
11.6
9.2
9.3
7.5
5.4
2.3
4.4
1.9
3.7
1.7
1.8
0.7
1.7
0.7
2.1
1.7
26.2
20.2
26.1
27.2
25.8
(9.4)
75.0
21.5
23.7
13.6
9.6
8.0
6.0
2.7
2.8
2.3
—
—
—
13.3
11.5
18.8
405
18.3
45.2
(24.2)
125.0
31.0
40.9
18.2
10.2
8.0
6.1
2.3
2.2
2.0
—
—
—
7.6
5.5
11.7
95
12.7
12.5
Telecom
Bharti Airtel
IDEA
MTNL
Reliance Communications
Tata Communications
RS
17,073
340
630
(8.4)
(33.7)
(11.9)
(8.1)
(2.6)
(3.0)
(3.2)
1.3
1.7
2.1
—
—
0.4
91
SELL
186,998
3,722
2,064
6.5
3.5
2.6
(71.1)
(46.9)
(24.9)
13.9
26.2
34.9
6.2
8.2
6.9
0.5
0.5
0.4
—
—
—
3.2
1.7
1.3
60
(33.8)
15.1
220
27
REDUCE
62,558
1,245
285
(24.9)
(27.0)
(26.6)
(13.0)
8.4
(1.4)
(8.8)
(8.1)
(8.2)
11.4
8.5
7.7
1.7
2.5
4.0
—
—
—
(17.5)
(25.1)
(37.0)
215
(2.1)
0.8
Cautious
1,845,205
36,730
(45.8)
(20.1)
87.5
26.7
33.4
17.8
9.0
8.1
6.3
1.6
1.6
1.5
—
—
—
6.0
4.9
8.5
2.0
Telecom
(10.4)
(9.1)
0.2
0.2
0.2
—
—
—
(6.1)
(5.7)
(5.5)
Utilities
Adani Power
CESC
JSW Energy
Lanco Infratech
88
REDUCE
209,644
4,173
2,393
2.4
5.3
10.1
200.7
126.4
90.2
37.2
16.4
8.6
36.7
15.8
6.5
3.3
2.6
2.0
—
—
—
8.5
17.7
26.0
74
(15.5)
240
BUY
29,985
597
125
39.1
37.8
41.4
13.1
(3.4)
9.5
6.1
6.4
5.8
4.3
5.7
5.9
0.6
0.6
0.5
1.7
2.0
2.0
10.8
9.6
9.6
400
66.7
1.4
43
REDUCE
71,094
1,415
1,640
5.1
2.3
2.5
12.9
(55.4)
9.1
8.4
19.0
17.4
10.5
11.5
7.3
1.3
1.2
1.1
(2.3)
—
—
16.1
6.4
6.6
43
(0.8)
0.8
36.9
15
BUY
662
2,223
2.6
(22.6)
14.7
39
160.9
3.7
250,320
4,983
12,301
1.3
2.1
2.2
(27.2)
52.4
5.4
15.1
9.9
9.4
11.2
8.4
7.4
0.9
0.9
0.8
2.9
2.8
2.9
6.4
9.2
9.1
29
42.5
2.5
1,438,834
28,641
8,245
10.9
11.5
12.5
4.2
5.2
8.5
16.0
15.2
14.0
12.1
12.5
11.1
2.1
1.9
1.8
2.3
2.0
2.1
13.6
13.2
13.1
175
0.3
8.8
BUY
127,385
2,536
265
58.0
57.2
75.6
(6.5)
(1.4)
32.2
8.3
8.4
6.4
11.2
7.3
6.9
0.5
0.5
0.5
1.5
2.1
2.4
6.8
10.3
9.0
890
85.3
15.8
SELL
256,950
5,115
2,805
2.7
2.7
2.9
(0.2)
(2.0)
7.7
33.8
34.5
32.0
135.8
47.7
22.2
1.5
1.5
1.4
—
—
—
4.9
4.3
4.5
76
(17.0)
7.6
259,176
5,159
2,468
7.6
7.1
8.2
21.5
(6.5)
14.1
13.7
14.7
12.9
10.8
8.6
8.9
1.8
1.6
1.5
1.3
1.4
1.6
13.8
11.6
12.1
125
19.0
6.9
2,676,621
53,279
4.3
8.8
16.8
15.7
14.4
12.3
13.3
11.5
9.3
1.6
1.4
1.3
1.7
1.6
1.7
9.9
10.0
10.7
0.1
NHPC
20
BUY
NTPC
175
REDUCE
Reliance Infrastructure
480
92
105
BUY
Reliance Power
Tata Power
Utilities
Cautious
33,234
1.6
1.9
9.1
7.9
5.8
10.2
10.4
7.3
0.7
0.6
0.6
—
—
—
9.2
8.4
10.3
Others
141
REDUCE
26,321
524
187
9.1
11.6
12.5
67.7
26.6
7.8
15.4
12.2
11.3
9.6
7.1
6.5
3.1
2.5
2.1
1.4
1.7
1.9
25.2
25.9
23.4
155
10.1
425
ADD
52,973
1,054
125
24.5
27.5
30.5
334.1
12.0
10.8
17.3
15.4
13.9
11.2
9.9
8.6
7.5
5.4
4.0
0.6
0.6
0.7
53.9
40.4
32.8
450
6.0
2.9
67
BUY
142,685
2,840
2,126
6.0
6.4
6.9
230.2
5.9
7.6
11.1
10.5
9.8
11.6
8.6
7.6
1.3
1.2
1.1
—
—
—
13.3
12.0
11.7
105
56.5
22.5
231
BUY
19,977
398
86
(10.1)
(105.5)
4.4
(91.0)
949
(104.2)
(23.0)
(2.2)
52.4
9.6
15.4
7.6
1.3
2.9
2.8
—
—
—
(5.0)
—
—
500
116.1
9.6
192
441
(317.9)
(154.4)
8.8
(4.0)
7.4
12.8
(9.2)
9.7
3.0
6.6
3.5
—
(961)
(102.5)
50
Jaiprakash Associates
Jet Airways
SpiceJet
22
BUY
3.0
(1.8)
128.8
1.2
Tata Chemicals
324
REDUCE
82,541
1,643
255
26.2
32.9
38.8
(0.7)
25.4
17.9
12.3
9.8
8.4
7.5
5.3
4.5
1.5
1.3
1.2
3.1
3.7
4.6
16.9
18.6
19.5
365
12.7
2.0
United Phosphorus
142
BUY
65,784
1,309
462
12.3
14.6
23.5
3.9
17.9
61.6
11.5
9.8
6.1
7.0
4.7
3.8
1.8
1.6
1.3
1.4
2.1
2.5
18.0
16.9
23.3
170
19.3
3.0
399,925
7,961
233.8
(19.8)
89.6
14.1
17.6
9.3
10.0
8.4
6.7
1.7
1.6
1.4
1.0
1.3
1.6
12.1
9.0
15.0
11.3
8.5
7.1
2.3
2.0
1.8
1.6
1.7
2.0
15.4
15.0
16.0
Others
9,644
2.5
(5.4)
—
61.4
KS universe (b)
43,914,317
874,134
18.4
9.4
21.2
15.0
13.7
KS universe (b) ex-Energy
36,531,688
727,180
20.6
8.2
21.9
16.2
14.9
12.2
11.3
10.0
8.2
2.6
2.3
2.0
1.5
1.6
1.8
16.0
15.3
16.3
KS universe (d) ex-Energy & ex-Commodities
30,661,520
610,331
19.2
9.4
23.4
17.1
15.7
12.7
12.7
10.9
8.9
2.7
2.4
2.1
1.6
1.5
1.8
15.6
15.1
16.3
Notes:
(a) For banks we have used adjusted book values.
(b) 2010 means calendar year 2009, similarly for 2011 and 2012 for these particular companies.
(c) EV/Sales & EV/EBITDA for KS universe excludes Banking Sector.
50.24
(d) Rupee-US Dollar exchange rate (Rs/US$)=
9.7
—
Carborundum Universal
Havells India
Disclosures
Kotak Institutional Equities Research coverage universe
Distribution of ratings/investment banking relationships
Percentage of companies covered by Kotak Institutional Equities,
within the specified category.
70%
60%
Percentage of companies within each category for which Kotak
Institutional Equities and or its affiliates has provided investment
banking services within the previous 12 months.
50%
42.5%
40%
30%
26.9%
17.4%
20%
13.2%
10%
6.6%
4.2%
2.4%
3.0%
REDUCE
SELL
0%
BUY
ADD
* The above categories are defined as follows: Buy = We expect
this stock to deliver more than 17.5% returns over the next 12
months; Add = We expect this stock to deliver 7.5-17.5% returns
over the next 12 months; Reduce = We expect this stock to
deliver 0-7.5% returns over the next 12 months; Sell = We expect
this stock to deliver less than 0% returns over the next 12
months. Our target prices are also on a 12-month horizon basis.
These ratings are used illustratively to comply with applicable
regulations. As of 31/12/2011 Kotak Institutional Equities
Investment Research had investment ratings on 167 equity
securities.
As of December 31, 2011
Ratings and other definitions/identifiers
Definitions of ratings
BUY. We expect this stock to deliver more than 17.5% returns over the next 12 months.
ADD. We expect this stock to deliver 7.5-17.5% returns over the next 12 months.
REDUCE. We expect this stock to deliver 0-7.5% returns over the next 12 months.
SELL. We expect this stock to deliver less than 0% returns over the next 12 months.
Our target prices are also on a 12-month horizon basis.
Other definitions
Coverage view. The coverage view represents each analyst’s overall fundamental outlook on the Sector. The coverage view will consist of one of the following
designations: Attractive, Neutral, Cautious.
Other ratings/identifiers
NR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable
regulation(s) and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic
transaction involving this company and in certain other circumstances.
CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.
NC = Not Covered. Kotak Securities does not cover this company.
RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient
fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock
and should not be relied upon.
NA = Not Available or Not Applicable. The information is not available for display or is not applicable.
NM = Not Meaningful. The information is not meaningful and is therefore excluded.
151
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Copyright 2012 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved.
1.
Note that the research analysts contributing to this report may not be registered/qualified as research analysts with FINRA; and
2.
Such research analysts may not be associated persons of Kotak Mahindra Inc and therefore, may not be subject to NASD Rule 2711 restrictions on
communications with a subject company, public appearances and trading securities held by a research analyst account.
Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with
our affiliates are leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking
and other business relationships with a significant percentage of the companies covered by our Investment Research Department. Our research professionals
provide important input into our investment banking and other business selection processes. Investors should assume that Kotak Securities Limited and/or its
affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research
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the analysts cover. Additionally, Kotak Securities Limited generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or
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the company or companies that are the subject of this material is provided herein.
This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would
be illegal. We are not soliciting any action based on this material. It is for the general information of clients of Kotak Securities Limited. It does not constitute a
personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice
or recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The
price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any
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Certain transactions -including those involving futures, options, and other derivatives as well as non-investment-grade securities - give rise to substantial risk and are
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and buy or sell the securities or derivatives thereof of companies mentioned herein. For the purpose of calculating whether Kotak Securities Limited and its affiliates
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does not include accounts managed by Kotak Mahindra Mutual Fund. Kotak Securities Limited and its non US affiliates may, to the extent permissible under
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This report has not been prepared by Kotak Mahindra Inc. (KMInc). However KMInc has reviewed the report and, in so far as it includes current or historical
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deemed to mean and include Kotak Mahindra Inc.

India Daily, January 23, 2012

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