Research Update

Monsoon Update 100609 ; Dismal start

The Southwest monsoon set in around its normal course but failed to advance to the eastern and central parts of the country. Kerala, Karnataka, Konkan & Goa received widespread rains accompanied with very heavy falls during 5th to 7th June. However it failed to advance to other parts of the country. Overall the start of the southwest monsoon has been dismal with 27 divisions witnessing scanty/deficient rainfall during the week ended 10 June 2009. The advance of monsoon over east, north peninsular and adjoining central India is likely to be delayed. The key takeaways of our analysis upto 10th June are as under:

The weighted average rainfall across the country was at 44.1% below normal for week ended June 10, 2009. In the rain dependent areas the weighted average rainfall was at 48% below normal during the week. Number of divisions with deficient or scanty rainfall was 27 as against only 6 in the corresponding week last year.  Number of divisions with excess and normal rainfall was only 9 as against 30 divisions in the corresponding week last year.  The overall rainfall was only 2.1% of the full season rainfall as against 5.9% in the corresponding week last year.

Ratnamani Metals and Tubes Ltd ; Q4FY09 Result Update ; Challenging year ahead

Ratnamani Metals and Tubes Ltd (RMTL) have announced its Q4FY09 & full year ending March 09 results which were below expectations.

Orient paper Q4FY09 Result Update ; Above expectations ; BUY ; Target : Rs66

Orient paper & Industries Ltd (OPIL) Q4FY09 pre exceptional net profit of Rs629mn is above our estimates (Rs500mn) driven by better than expected cement realizations. Net revenues grew by 23.3% yoy to Rs4.67bn driven by 20.9% revenue growth for cement division while the same for Paper division grew by 51.4% yoy. Overall EBIDTA increased by 31.9% yoy to Rs1.07bn (higher than our estimate of Rs936mn) while EBITA margin increased by 150bps to 23%. Impressive operating performance of Cement division, which delivered EBIT of Rs1.01bn (up 30% yoy) was dragged down poor show of paper division which reported adjusted EBIT loss of Rs2mn (we have treated Rs84mn water tax for earlier years as extraordinary).  Income of Rs80 mn from sale of CERs also boosted net profit for the quarter.  We expect OPIL cost structure to witness significant transition with company expected to commission 50 MW of thermal captive power plant. Volume boost from cement capacity expansion to 5 mtpa by Q2FY2010 shall further fuel operating performance and improve cost structure with operating leverage coming in to play. We are upgrading our earnings estimate for FY10E by 12.4% to Rs13.5 and are introducing our FY11E earnings at Rs14.4. At the CMP of Rs55, the stock is trading at undemanding 4.1x FY10E earnings. We continue to remain bullish on OPIL transition to mid size efficient cement player. Value of non cement business (Rs6/share) and investments (Rs2.2/share) provide significant margin of safety. Maintain our BUY rating on the stock with a revised price target of Rs66.