INVESTORS PLEASE LISTEN !: October 2009

Saturday, October 31, 2009

[Investors Please Listen] News: Indians have topped the Nielsen Company's Global Confidence Index in October 2009.

Indians have topped the Nielsen Company's Global Confidence Index in October 2009. Consumer confidence is rising faster in BRIC countries compared to other markets due to an increase in job prospects.

Banks get tougher! If your relative is a defaulter in his credit (loan) repayment, then there are possibilities of you being denied a loan.

The core sectors growth slips to 4% in September. The six core sectors include cement, coal, steel, electricity, crude oil and petroleum refinery products.

Investors in the recent bull market are falling prey to shady web-sites offering stock tips. The recommendations on these web-sites are seldom backed by any research. Such web-sites have seen an increase of 75% in their subscriber base.

RBI in its monetary policy proposed to set a provision for Non Performing Assets (NPAs) at 70%. This brought the BSE Banking Index down by 4% and contributed to the fall of 2.31% in the BSE Sensex on Tuesday - October 27, 2009. Banks will have to set aside a bigger slice of their earnings for non-performing loans, even if the borrower may not eventually default.

The proposed launch of Floating rate bonds by RBI will eliminate the interest rate risk for investors. The risk of reinvesting interest payments will also be eliminated by the introduction of STRIPS (Separate Trading of Registered Interest and Principal Securities).

The corporate issuance of Non Convertible Debentures (NCD) with a maturity of less than 1 year, are currently unregulated. To cover this regulatory gap, RBI will draft guidelines on the same which will be on its web-site by November end.

The exchange traded currency derivatives which were recently launched, have caught the imagination of investors, given the rupee-dollar volatility.

After SEBI banning the entry load on mutual funds, Asset Management Companies (AMCs) have seen a drop in the mobilization of the Assets Under Management (AUM). This has now resulted in AMCs redrawing their business plans around PMS.

The US economy expanded for the first time since mid -2008, growing at 3.5% in the three months ended in September 2009. Early days, but the impact can be seen in India.

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Friday, October 30, 2009

[Investors Please Listen] Corporation Bank Q2FY10 Result Update ; Stable performance; NIMs still remain low ; ACCUMULATE ; Target: Rs 430

Corporation Bank

Stable performance; NIMs still remain low

ACCUMULATE

CMP: Rs 420 Target Price: Rs 430

Corporation Bank (Corp Bank) reported a net profit of Rs2.9bn in line with our estimates led by strong growth in NII and other income. NII grew by 23.8% to Rs5.0bn led by 20.7% yoy growth in advances. Operating profit grew by a higher 52.4% yoy to Rs5.4bn supported by treasury gains and fee income.

The asset quality remained stable as the gross NPAs stood flat at Rs6.2bn (Rs6.1bn in Q1FY10) and the provision cover at 75.4%

While the operating performance was encouraging for the quarter, what worries us in significantly low CASA, which will keep pressure on the NIMs. We believe that NIMs will under more pressure in H2FY10 as bank widens its retail liability franchise. At the current valuations, the stock is quoting at 1.3x FY10E ABV and 1.1x FY11E ABV. We believe that the RoEs will be more volatile in coming quarters driven by pressure on NIMs. We maintain our ACCUMULATE rating on the stock with a price target of Rs430.

Thursday, October 29, 2009

[Investors Please Listen] GNFC Q2FY10 Result Update ; Results in line with expectations ; BUY ; Target: Rs 111

GNFC

Results in line with expectations

BUY

CMP: Rs 93 Target Price: Rs 111

Gujarat Narmada Fertiliser and Chemicals' (GNFC) Q2FY10 results were broadly in line with estimates. Net revenues of Rs 7.7 bn, -12% YoY were ahead of our est (Rs 6.7 bn). Company surprised positively with 140bps YoY / 1050bps QoQ improvement in chemical segment EBIT margins to 36.1% however fertiliser segment profitability remained muted. EBITDA margins also improved by 30bps YoY / 350bps QoQ to 17.5%. Company reported PAT of Rs 607 mn, -23.3% YoY, which was marginally short of our expectation of Rs 653 mn mainly due to higher tax provisioning. EPS for the quarter was Rs 3.9 as against Rs 5.1 in the previous year. We maintain our BUY recommendation on the stock with price target of Rs 111.

[Investors Please Listen] Ambuja Cements Q3CY2009 Result Update ; High clinker purchase affects Q3CY2009 profitability ; ACCUMULATE ; TargetL: Rs 105

Ambuja Cement

High clinker purchase affects Q3CY2009 profitability

ACCUMULATE

CMP: Rs 89 Target Price: Rs 105

Ambuja Cement Limited (ACL's) Q3CY2009 pre exceptional net profit of Rs2.72bn (+8.9% yoy) is lower than our estimates (Rs2.91), primarily because of significant amount of clinker purchase from the market, which resulted in lower value addition. Revenues at Rs16.1bn grew by 16.2% yoy driven by increase in cement realisation by 10.5% yoy to Rs3929/tonne (ahead of our estimates of Rs3793/ton) and 5.1% yoy increase in volumes to 4.1 mn tons (below our estimates of 4.23mnt). However on account of higher clinker purchases from the market which resulted in lower value additions ACL's EBIDTA for the quarter grew by a mere 11.4% yoy. However this phenomenon is expected to reverse as ACL is expected to commission its Rauri (HP) and Bhatapara (Chhattisgarh) clinkerisation units by end of Q4CY2009. These units together will add 4.4 mtpa to ACL's clinker capacity. Pre exceptional net profit for Q3CY2009 stood at Rs2.72bn (+8.9% yoy) is lower than our estimates (Rs2.91) while, reported profit after exceptional items grew at 27.3% to Rs3.18bn. We maintain our earnings estimates for CY2009 and CY2010 as well as our Accumulate ratings on the stock with the price target of Rs105, valuing it at USD 110 for its CY2010 capacity.

Wednesday, October 28, 2009

[Investors Please Listen] India Cement Q2FY10 Result Update ; Results below expectations- Earnings downgrade ; HOLD ; Target: Rs 129

India Cements

Results below expectations- Earnings downgrade

HOLD

CMP: Rs 113 Target Price: Rs 129

India Cement Q2FY10 pre exceptional net profit Rs1.38bn (-22.4% yoy) was below expectations (Rs1.49bn) mainly on account of higher tax rate. However, the reported profit for the quarter have seen increase by 2% due to the exceptional losses on forex and dry docking expenditure that company incurred in Q2FY2009. Cement revenues grew by 7.2% yoy to Rs9.6bn driven by volume (2.79 mt) growth of 15%, where as blended realizations (including clinker realisation) declined by 6% yoy to Rs3439/ton. Pure cement realisation though have declined 3.2% (Rs120/ton) yoy and 3.9% (Rs146/ton) qoq, showing the significant reduction in cement prices in key markets. However with clinker sales resulting in lower value additions and 44% increase in staff cost (on account of Rs85 mn employee bonus, which usually is included in H2) ICL's EBIDTA for the quarter declined by 2.2% yoy to Rs2.98bn (though in line with estimates). Resultant, EBITDA margin have declined by 210bps to 30.1% while blended EBIDTA/tonne has declined by 12.9% y-o-y to Rs1006/tonne (lower value addition on clinker sales).

Owing to softening cement prices in ICL key markets of AP (20% of sales) and Tamil Nadu (40% of sales) we ICL's expect realizations to fall further over coming quarters. On account of this and lower than expected earnings for the quarter, we are downgrading our earnings by 9% and 8.4% for FY10E (EPS of Rs18.2) and FY11E (EPS of Rs20.3) respectively. At current levels, the stock is trading at 5.6x FY11E earnings and USD79.3 FY11E capacity. We maintain our HOLD rating on the stock, while we lower our target to Rs129 to factor in earnings downgrade.

[Investors Please Listen] Orient Paper Q2FY10 Result Update ; Numbers in line with expectation.. ; BUY; Target: Rs 59

Orient Paper & Industries Ltd

Numbers in line with expectation….

BUY

CMP: Rs 49 Target Price: Rs 59

Orient Paper Industries Limited (OPIL) Q2FY10 net profit at Rs405mn is in line with our expectation (Rs415mn).Revenues for the quarter stood at Rs3532mn.The revenues were ahead of our expectation mainly on account of better than expected revenues from Electrical's division. Reported revenues for the electrical division grew at a whooping rate of 50.8% to Rs1005mn, while Paper division accumulated revenues of Rs602mn seeing decline on 24.5% y-o-y basis. Cement division revenues declined by 6.7% y-o-y basis to Rs1925mn on account of, volumes decline of 10.1% y-o-y to 0.62mn tonnes while realisations have improved by 3.8% y-o-y to Rs3119/tonne. Company has continued incurring losses in paper division as they have reported the loss of Rs76mn due to continuing problems in pulp mill. Reported EBIT of cement division was Rs606 mn with EBIT margins of 31.5% as against 35.8% as volumes declined 10% yoy. Electrical s division reported EBIT of Rs119mn registering the whooping growth of 307.5% y-o-y basis. EBIT margins improved by 750 bps y-o-y basis to 11.8% for the quarter.

Though the numbers are in line, we will be downgrading our FY2010 earnings estimates by 10-12% on account of mainly on account of lower volumes estimates in cement divisions. Moreover, the 50 MW captive power plant which was expected to be operational in Q2FY10 has only commissioned for 25MW and remainder is expected to be commissioned in the Q4FY2010. This will impact the estimated savings in power and fuel cost of the company. Also due to continuing problem in the pulp mill the paper division is expected to continue doing losses FY2010E. At current market price the stock is trading at 12.3x of FY2011 earnings. Hence, we maintain our BUY rating on the stock with a reduced price target of Rs59.

Tuesday, October 27, 2009

[Investors Please Listen] Punj Lloyd Q2FY10 Result Update ; Cost overruns resurface, Maintain REDUCE ; Target: Rs 192

Punj Lloyd

Cost overruns resurface, Maintain REDUCE

REDUCE

CMP: Rs 203 Target Price: Rs 192

Punj Lloyd (PLL) Q2FY10 performance posted negative surprise with yet another instance of cost overrun in an overseas project. Consequently, PLL reported a 63.3% yoy decline in adjusted net profit of Rs528 mn versus expectation of 4.2% decline to Rs1381 mn. Q2FY10 performance was disappointing with (1) revenue decline of 2.8% yoy to Rs28.7 bn, led by lower traction in key orders (2) cost overruns of Rs1040 mn booked on project undertaken by WOS Simon Carves (3) 37.2% yoy decline in operating profits to Rs2120 mn (4) 63.3% yoy decline in net profits to Rs528 mn. We were not surprised by low revenue booking in the quarter, owing to expectation of slow ramp-up in key orders and high revenue booking in precedent quarter. But, recurrence of cost overruns despite clarification by management in earlier interaction is negative surprise.

Q2FY10 result has resurfaced the cost overruns dilemma, yet again. PLL has already undertaken 26% correction in last 4-5 trading sessions. Since, being lower-end of consensus earnings estimates, we believe that above event is already factored in our earnings estimates and therefore maintain our FY10E and FY11E earnings estimates. We had negative bias on the company, but recent price correction has taken the sheen of the high expectations and valuations from overtly-optimistic levels to attractive levels. But, successful and profitable order book execution remains key risk to earnings, considering the track record of cost overruns. Since, PLL has not stabilized its operations, we retain our REDUCE rating and also increase the discount to L&T's valuations at 45% versus 30% earlier with revised price target of Rs192/Share against Rs242/Share earlier.

[Investors Please Listen] Lupin Q2FY10 Result Update ; In line with expectations; maintain buy ; BUY; Target: Rs 1550

Lupin Pharma Ltd

In line with expectations; maintain buy

BUY

CMP: Rs 1239 Target Price: Rs 1550

Lupin's Q2FY10 APAT was in line and 15% ahead of market expectations with a) 23% YoY growth in revenue (est. of 24% growth), b) 20% YoY growth in operating profit (margins contracted by 40 bps) and c) 15% YoY growth in APAT. On the operating front company achieved a operating margins of 19.3% mainly because of higher other operating income. Adjusting to other operating income, operating margins contracted by 210 bps to 14.7% because of a) 580bps expansion in raw material cost, b) 1.2% ppt increase in R&D cost and c) higher SG&A cost because of increased manpower and promotional expenditures. We believe some of the expenditures are lumpy in nature and company should attain a long term sustainable margins of 20-21% on the back of a) higher revenue from formulation business, b) expansion in the margins in Kyowa operations and c) higher contribution of branded business in the US. Moreover, apart from building sustainable franchises in key geographies such as US, Japan and India, Lupin is also looking to enter Lat Am and Middle East markets (through organic and in-organic initiatives) which offers high growth potential. We maintain our earning estimates of Rs73.9 and Rs95.1 for FY10E/FY11E respectively and reiterate buy rating with a target price of Rs1550. At CMP of Rs1239, the stock is trading at 16.8x FY10E and 13.0x FY11E (around 30% discount to comparable peers). We expect company to continue to outperform its comparable peers and expect it to command similar valuation if not premium to its comparable peers. Lupin is our preferred bet in the large cap Pharma space.

[Investors Please Listen] Tata Motors 2QFY10 Result Update ; In line, maintain SELL rating ; SELL ; Target: Rs 398

Tata Motors Ltd.

In line, maintain SELL rating

SELL

CMP: Rs 539 Target Price: Rs 398

Tata Motors' (TML) 2QFY10 standalone results were in line with estimates at operating level. Adj net profit at Rs 3.7 bn was lower than our expectation of Rs 4.8 bn largely due to signficant increase in tax expenses. Against our expectation of tax expenses of Rs 840 mn, company reported tax expense of Rs 1.8 bn.

We have fined tuned our estimates to factor in higher volumes from Uttaranchal plant (Tata Ace and Nano) and recent fund raising activity. We have upgraded our FY10 and FY11 estimates by 7% and 8% to Rs 23.9 and Rs 28.3 per share respectively. We maintain our SELL rating with a target price of Rs 398. We have valued TML standalone at target EV/EBIDTA multiple of the standalone business to 7x (20% discount to M&M). We have valued JLR at 5x EV/EBIDTA and other subsidiaries (ex TMFSL) at 20% discount to TML. We maintain our SELL rating on the stock with a target price of Rs 398.

Monday, October 26, 2009

[Investors Please Listen] RBI Policy Review - maintain accommodative policy rates; nurture incipient growth

Policy rates likely to remain untouched

The Reserve Bank of India (RBI), on October 27, 2009, will go in for a half-yearly review of the Annual Monetary Policy announced in April.

The October policy review is not expected to result in any change in key policy rates and reserve requirements—repo rate (4.75%), reverse repo rate (3.25%), and cash reserve ratio (CRR, 5%). Of keen interest will be any indication on the timing and manner of a likely 'exit' from the expansionary measures pursued by the central bank. We believe RBI will have to undertake some tightening measures in Q4FY10.

Economy shows resilience; growth sets in………….

For the bulk of H1FY09, monetary policies across emerging economies, including India, were fighting inflation and managing excess liquidity. H2FY09, on the other hand, shifted focus to reviving growth. Accordingly, accommodative policies and stimulus injections shielded economies from further upheavals and facilitated growth stabilisation. All along, the Indian economy showed much more robustness than most peers, with Q1FY10 clearly reflecting a return to the growth trajectory, strongly led by recovery in the industrial sector. Around this time, policy actions that yielded reasonably low interest rates extended the much required impetus to growth. The last quarter also witnessed concerted efforts by RBI and the government in moral suasion of banks to reduce interest rates and attend to the credit needs of industry, without compromising on quality. Sentiments were pumped when RBI, in its previous review, assigned an 'upward bias' to its 6% GDP growth projection for FY10.

………..but, inflation fuels concerns

While growth has bounced back, domestic conditions have gradually begun to warrant a need to revisit some of the expansionary policies adopted by the central bank during the past one year. Inflation expectation is one such concern that is gaining centre stage. With the headline inflation number being largely misleading at the moment, all eyes are fixed on other pressures that could further fuel inflation. RBI's inclination of keeping a check over such expectations was clearly evident when it raised its March-end inflation projections for 2010, on the back of mounting pressures from food articles' prices, in addition to tweaking its policy stance which is as follows:

Managing liquidity actively so that government's credit demand is met while also ensuring flow of credit to the private sector at viable rates.

Keeping a vigil on the trends and signals of inflation and being prepared to respond quickly and effectively through policy adjustments.

Maintaining a monetary and interest rate regime consistent with price stability and financial stability supportive of returning the economy to the high growth path.

Sunday, October 25, 2009

Results announced between Oct 23, 2009 to Oct 25, 2009

Results announced between Oct 23, 2009 to Oct 25, 2009 (details released/will be released separately)

BHEL results were significantly higher than our expectations due to lower raw material & employee costs. We will be revising our estimates upwards for FY10 & FY11.

Punj Llyod results were below expectations due to huge cost over runs in subsidiaries. Punj has been surprising negatively quite a few times in the past. We believe today the stock should react negatively to the reported numbers. We have a reduce rating.

Dr Reddy reported numbers which were in line with our & ahead of consensus estimates. We maintain Buy on the stock.

Maruti reported number which were lower than our expectation but significantly better than previous corresponding period.

Greaves Cotton reported numbers ahead of expectation. Revenue at Rs.2.9bn, decline of 3%. Engines segment revenue increased by 8% while infrastructure reported 53% decline. EBITDA of Rs.443.9mn, growth of 10.5%. EBITDA margins expanded by 190bps to 14.9%. Expansion in margins driven by lower raw material cost and other expense (other expenses % of sales decline by 110 bps). Net profit of Rs.239mn, growth of 17.9%. EPS of Rs.4.9 in Q1FY10 as compared to Rs.4.2 in Q1FY09.

NTPC results were below expectations. We maintain our view that NTPC's valuations are expensive at 2.6xFY11E Book Value with ROE in the range of 14-15%. Assuming NTPC to be a risk free business, it should trade at 2.2x 1yr Fwd Book Value (10-yr Treasury bond yield of 7.4% currently). Maintain REDUCE rating.

TVS Motor's (TVS) operating performance was below expectation. While net sales at Rs 10.6 bn were in line with expectation, EBIDTA at Rs 619 mn was below our expectation by 16%. Net profit at Rs 245 mn (against expectation of Rs 260 mn) is due to higher other income and tax credit. We have upgraded our FY10 and FY11 EPS estimates by 12% and 7% to Rs 4.1 and Rs 4.5 per share respectively on account of better outlook on volumes and lower tax rate. At CMP of Rs 62, the stock trades at PER of 14.8x and 13.5x and EV/EBIDTA of 8x and 7x our FY10 and FY11 standalone estimates respectively. The valuations on the standalone basis appear to be reasonable. However, at consolidated level the valuations appear expensive, considering the loss in FY09, DE of 2.1x, P/BV of 2.7x (Book value Rs 23) based on FY09 consolidated numbers. While the business outlook is improving in Indonesia, we expect the same to continue to put pressure on overall performance in FY10. We maintain our REDUCE rating on the stock with a target price of Rs 54.

Important results today

Tata Motors, Idea Cellular, Ranbaxy Laboratories, Dabur India, Canara Bank, IDBI Bank, Lupin, Aban Offshore, Union Bank

Saturday, October 24, 2009

[Investors Please Listen] Home Sweet Home: Spouse + home loans = tax savings

Buying a home is the dream of every individual and a once in a life-time experience. It is also an expensive dream to fulfill. Today, with attractive home loan offers, rising incomes, and more working couples than some years ago, the dream becomes a " family" effort.

So, if you are thinking of buying your dream house by availing a home loan facility, then it' s time to get smart from the tax planning perspective. A joint (husband and wife) application for a home loan has the following advantages:

1. Entitles the couple to a bigger home loan (assuming both are working)
2. Each applicant is entitled to tax benefits - Rs 1 lac for principal repayment u/s. 80C and Rs 1.5 lacs for the interest payment u/s. 24 of the Income Tax Act. This leads to enormous tax savings

The following table illustrates the tax savings of the household:

	Single Home Loan (Rs)	Joint Home Loan (Rs)
Salary Mr. A	650,000	650,000
Salary Mrs. A	650,000	650,000
Loan Amount	5,000,000	5,000,000
Tenure (yrs)	20	20
Rate of Interest p.a.	9.50%	9.50%
Annual Principal Paid	88,047	88,047
Annual Interest Paid	471,232	471,232
Interest availed for tax benefit	150,000	300,000
Principal availed for tax benefit	88,047	88,047
Tax Paid by Mr. A	36,391	45,195
Tax Paid by Mrs. A	96,000	42,195
Total Tax	132,391	87,390
Household Savings		45,000

(Note: Assumption made that Home Loan and the EMI paid by husband and wife is in the ratio 50:50)

In the light of the benefits offered, availing a home loan through a joint husband and wife application is definitely worth it if you are buying your first house, as it saves your hard earned money from being additionally taxed. But if the proposed Direct Tax Code (DTC) goes through, then this benefit would no longer be available.

Further, as per the present Income Tax Act, if you are seeking a home loan to buy your second house from the tax planning perspective, it's not worth it as the second house will be treated as " deemed to be let out property" and would be taxed as per the prevailing market value of rentals. And if the house has been actually let out, the rental income will be brought to tax.

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Thanks & Regards

Aditya Kachru

Partner

RR Investors Capital Services (P) Ltd.
Mobile: 0-9818269396
Delhi Office: 011-23273456
Gzb Office : 0120-4158904
Email : adityakachru_609@rrfcl.com

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Website: www.rrfinance.com

Visit: For Fixed Deposit Updates | For Mutual Fund Updates | For Life Insurance Updates

Wednesday, October 21, 2009

[Investors Please Listen] Apollo Tyres Q2FY10 Result Update ; Positive surprises to continue, Not rated

Apollo Tyres Ltd

Positive surprises to continue, Not rated

NOT RATED

CMP: Rs 55 Target Price: NA

Apollo (APL) 2QFY10 results were significantly ahead of our expectations at standalone as well as consolidated level. APL reported a standalone profit of Rs 1 bn against our expectation of Rs 776 mn driven by strong volume growth and operational performance. EBIDTA margins stood at 16.4% (flat QoQ) despite a higher QoQ raw material cost. At consolidated level, APL reported a profit of Rs 1.3 bn (against our expectation of Rs 776 mn).

Going forward, we have factored in pressure on EBIDTA margins in 2HFY10 due to rising raw material cost. We expect standalone EBIDTA margins at 13.5% and 12.5% in 3QFY10 and 4QFY10 respectively. Our sensitivity analysis indicates 7% change in EPS for every 1% change in realizations.

We are upgrading our standalone FY10 EPS estimates by 21% to Rs 7 per share. We were expecting subsidiaries to break even in FY10 and contribute to earnings in FY11. However, post the strong 2QFY10 subsidiary performance, we expect subsdiaries to contribute Rs 0.5 to FY10 EPS (net profit of Rs 250 mn). At Rs 55, the stock trades at attractive valuations of PER of 7.8x and 7.3x our FY10 standalone and consolidated earning estimates respectively. We maintain our positive view on the stock. Currently, we do not have rating on the stock.