18/02/2013
Buy ING Vysya Bank For Target Rs.670


ING VYSYA Bank's 3QFY13 PAT grew 36% YoY to INR1.6b (12% above est. of INR1.45b). Strong margin performance (+16bp QoQ to 3.6%) and  decline in NPAs (GNPA at 1.8% and NNPA at 0.05%) led to highest ever quarterly RoA of ~1.3%.

Key highlights:
* NII came in at INR4b (+9% QoQ and 25% YoY), 7% above estimate led by 16bp QoQ (3.61%) improvement in NIM - a positive surprise. While yield on loans declined 10bp QoQ cost of deposits declined 21bp QoQ to 7.1% and led to margin expansion.
* Non-interest income was 8% below estimate at INR1.9b. This was led by muted fee income (ex-forex) performance (declined 6% YoY).
* Slippages for 3QFY13 were contained (annualized slippage ratio of 0.25%) and GNPA in absolute terms declined marginally QoQ. NNPA is now at just 0.05% as bank increased its PCR to 97% v/s 93% in 2QFY13.
* Other highlight: (1) Reported loan growth stood at 5% QoQ and 20% YoY, (2) SA deposit declined 1.6% QoQ and was up just 4% YoY and (3)  Core CASA ratio declined ~110bp QoQ to 31.7%.

Valuation and view:
Continuous positive surprise on asset quality and margin is leading to earnings upgrade. In 9MFY13 while PPP estimates have remained largely unchanged, lower credit cost has led to earnings upgrade of 16% for FY13 and 9% for FY14. VYSB's RoAs improved from -0.3% in FY05 to 0.9%  n FY11 and expected to improve further to 1.2% in FY13. Continued higher than industry growth, impeccable asset quality performance,  demonstration of operating leverage and improvement in fee income will drive valuations. Maintain Buy.
 

 Buy PI Industries Ltd. For Target Rs.605


Results below expectations; Agri Inputs surprises!

PI Industries (PIIL) reported Revenues of Rs 298.4 cr for the quarter, a growth of 21.7% yoy led by strong 28% yoy growth in the domestic Agri Inputs business (mainly on volume growth) as sales picked up with late showers in August- September. Custom Synthesis Manufacturing (CSM) growth slowed to 12% yoy on high base effect.

While the Management believes its revenue guidance of 30% for FY13 is achievable on the back of better performance of CSM business in H2FY13, we believe this sort of a growth would be achievable only if the rabi season turns out to be favorable. PIIL revenues have grown 19% yoy in H1FY13. Low base of Agri Inputs business in last year can help achieve the targeted growth. Hence, a good rabi season holds the key to the guidance.

Key Highlights

*  EBITDA grew 16.1% yoy on account of lower other expenses but declined 11.5% qoq on higher raw materials cost and high employee costs. EBITDA margin for the quarter was lower at 14.6% as compared to 15.3% in Q2FY12 and 20.6% in Q1FY13 on account of change in product mix (higher domestic sales). EBITDA margin should improve with higher share of CSM going forward

*  Forex gain of Rs 2.13 cr during the quarter (loss of Rs 1.27 cr in Q2FY12) aided 33.1% yoy PAT growth

*  Jambusar SEZ plant commissioning has been delayed to Q3FY13. The plant is expected to contribute about Rs 35-40 cr for the remaining fiscal year

*  The CSM order book stands at ~$305 mn. Management expects 40% yoy growth in CSM revenues in FY13. We expect H2FY13  performance to be better with some big contracts currently being under discussion

*  The outlook for the domestic business is also positive based on expectations of good rabi on higher acreages due to good rains

Valuation & Recommendation

We believe that with factors like being a recognized player in the CSM segment, sustained order book and low per-capita pesticides consumption make PI Industries a good long term bet while a positive outlook for rabi will drive nearterm growth. At CMP, the stock trades at attractive valuations of 11.1x FY13E and 7.9x FY14E. Based on FY13E EPS of Rs 46.6, we have a target price of Rs 605, a potential upside of 17.2% from current levels. We continue to maintain our BUY rating on the stock.
  Buy Shree Cement For Target Rs.6,227


Shree Cement's 2QFY13 operating performance met estimates, with EBITDA of INR3.7b (v/s est INR3.7b).
* 2QFY13 revenues grew by 19.4% YoY (+7.9% QoQ) to INR14.3b (v/s est INR14.7b). EBITDA grew by 12% YoY (down 5.4% QoQ) to INR3.7b, translating into EBITDA margins of 26% (v/s est 25.4%) - a decline of 3.7pp QoQ (-1.8pp YoY). Moderated depreciation, lower tax resulted in adj. PAT of INR2.3b (v/s est IN2b).
* Cement volumes grew 5.2% YoY to 3mt, while blended realizations deteriorated INR9/bag QoQ (+INR146/ton YoY) to INR3,724/ton (v/s est INR3,731/ton). Cement EBITDA/ton was at INR1,017/ton (v/s est INR1,010/ ton) and lower by INR168/ton QoQ (-INR98/ton YoY).
* Though the decline in realizations was marginally moderated by lower energy cost caused by a decline in pet coke prices by ~11% QoQ, the benefit was diluted by higher other expenses (on account of maintenance shutdown).
* Merchant power volumes in 2QFY13 was at ~786m units, against ~307m units in 1QFY13 (v/s 586m unit in 3QFY12), with revenues of INR3.1b (v/s INR1.4b in 1QFY13 and INR1.8b in 3QFY12) and EBITDA of ~INR670m. Merchant power realizations were INR3.97/unit (v/s INR4.44 in 1QFY13), with in line EBITDA/ unit at INR0.85/unit (v/s INR1.1 in 1QFY13) respectively.
* We raise normalized EPS estimates (for accelerated depreciation) by ~7%/ 3%/2% for FY13E/FY14E/FY15E to INR327/INR386/INR469 respectively, led by lower tax rate. Management has reduced its depreciation guidance for FY13 to ~INR4b (v/s INR5.4b earlier).
* The stock trades at 11.7x/9.6x FY14E/FY15E EPS, 6.2x/4.7x EV/EBITDA and USD114/ton FY15E (adjusting for merchant power assets of ~400MW). Maintain Buy with a revised target price of INR6,227 (SOTP-based).
  Buy ING Vysya Bank Ltd For Target Rs.636.00



ING Vysya Bank Ltd is a premier private sector bank with retail, private and wholesale banking platforms that serve over 2 million customers.
* Bank’s Capital Adequacy Ratio registered at 12.47% as on 31.12.12 as per Basel-II.
* Current and Savings (CASA) deposits grew by 16% to Rs. 119340 mn from Rs. 103150 mn as at end of December 2012.
* Net Profit was Rs.1623.30 mn as against Rs. 1195.20 mn in the corresponding quarter of the previous year, up by 35.82%.
* The Credit Deposit Ratio stood at 83.8% as at Q3FY12 as against 83.10% as at Q3FY13.
* The Bank has a total of 532 branches and extension counters, 28 satellite offices and 453 ATMs as of 31/December/2012.
* “Businessworld Best Banks Awards 2012 has ranked ING Vysya Bank as the second best small bank in the “Fastest Growing” category.
* ING Group has agreed to sell its 26% interest in ING Vysya Life Insurance Company Ltd. to its joint venture partner Exide Industries Ltd.
* NII for the quarter increased by 24.50% to Rs. 4029.00 mn from Rs. 3236.00 mn in the corresponding quarter of the previous year.
* Net Income and PAT of the company are expected to grow at a CAGR of 30% and 28% over 2011 to 2014E respectively.
Investment Highlights
Results updates- Q3 FY13,
The company’s net profit jumps to Rs. 1623.30 million as against Rs. 1195.20 million in the corresponding quarter ending of previous year, an increase of 35.82%. Net Income for the quarter rose 24.95% to Rs. 12388.70 million from Rs. 9915.10 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs. 10.59 a share during the quarter, registering 32.92% an increase over previous year period. Net Interest Income is Rs. 5895.30 millions as against Rs. 4935.20 millions in the corresponding period of the previous year.
Outlook and Conclusion
* At the current market price of Rs.573.40, the stock P/E ratio is at 14.35 x FY13E and 12.84 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs. 39.95 and Rs.44.65 respectively.
*  Net Income and PAT of the company are expected to grow at a CAGR of 30% and 28% over 2011 to 2014E respectively.
*  On the basis of Debt-Equity Ratio, the stock trades at 10.29 x for FY13E and 10.09 x for FY14E.
* Price to Book Value of the stock is expected to be at 1.96 x and 1.70 x for FY13E and FY14E respectively.
We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs. 636.00 for Medium to Long term investment.
 

Buy Redington India Ltd. For Target Rs.98


Results were in line with expectations. H2FY13 expected to be better.
Revenues grew 7.8% YoY to Rs.5860 crore on the back of good traction in the overseas revenues which grew by 21% YoY. India revenues were down 4% YoY but up 5.6% QoQ EBIDTA margins were flat YoY. PAT after minority grew 19% YoY on the back of lower tax rate.
India Operations – High Valued Products aided the growth
India business in the H1FY13 was quite subdued due to lower government spending. In the current quarter, India business de-grew 4% YoY mainly on the back of significant drop in the Blackberry sales which were down by 40% YoY.  However, Blackberry sales have picked up in the current quarter and the management expects the non-IT segment of the India business to do well in the H2FY13 on the back of launch of iPhone-5 in India. Consequently, the IT business in India is also picking up with the company bagging a large UIDAI project during the quarter.
Company has reiterated a growth of 14-16% in the India business in FY13E.
Overseas Operations – Arena improving; African operations growing
Overseas sales saw good growth of 21% YoY on the back of good sales in Lenova, Acer and Toshiba. Company had discontinued contract with Nokia due to want of exclusivity and added Samsung in the African markets. Though Samsung’s share is slowly growing in the African market, management cites 6-8 quarters before reaching sales equal to earlier Nokia sales. In addition, Arena EBIDTA and PAT have grown well in the quarter on the back of stable Turkish currency.
Guidance
Company has given a guidance of 14-15% growth both for India as well as the Overseas business.
Valuation & Recommendation
Management has given a positive commentary for the business in H2FY13. Mismatch in the loss of Nokia revenues and gain of Samsung market share would be very well bridged by taking in more contracts in the African markets (with no exclusivity clause in Samsung contract). Moreover, India business is also growing well against the subdued growth in the past few quarters. We are rolling over our target price to Rs.98 based on the FY14E projections which is 20% return from the current levels. At CMP, the stock is trading at a P/E of 10.4x and 8.9x of its FY13E and FY14E earnings respectively. We are positive about the outlook of the company and recommend BUY at current levels.

 Buy Jubilant Life Sciences Ltd For Target Rs. 278/286/295




 




 Buy Exide Industries Ltd For Target Rs. 168.00


Exide Industries Ltd manufactures the widest range of storage batteries in the world from 2.5 Ah to 20,400 Ah capacities, covering the  broadest spectrum of applications.
* During the Second quarter ended the robust growth in the Net Profit of the company and it is rose by 135.01% to Rs. 1202.10 million.
* Exide entry into new synergistic business of manufacturing and marketing it own range of home UPS system has received by the national  market.
* ESPEX Batteries Limited is a 100% subsidiary of the Company.
* The Company is presently operating in 204 locations and has plans to increase presence in more than 250 cities within next 18 months as per Annual Report 2011-2012.
* Exide enter into technical collaboration & assistance agreements with East Penn Manufacturing Company Inc., USA a leading US  manufacturer of high quality lead-acid battery and accessory products.
Outlook and Conclusion
* At the current market price of Rs.149.00, the stock P/E ratio is at 24.67 x FY13E and 22.64 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.6.04 and Rs.6.58 respectively.
* On the basis of EV/EBITDA, the stock trades at 15.00 x for FY13E and 13.73 x for FY14E.
*  Price to Book Value of the stock is expected to be at 3.68 x and 3.29 x respectively for FY13E and FY14E.
We expect that the company surplus scenario is likely to continue for the next years, will keep its growth story in the coming quarters also.  We recommend ‘BUY’ in this particular scrip with a target price of Rs.168.00 for Medium to Long term investment .
 

Buy United Phosphorous Ltd for upper target of Rs.170- 175+


 

Company Profile: United
Phosphorus Limited manufactures and sells agrochemicals, industrial chemicals, chemical intermediates, and specialty chemicals in India and internationally. Its products include fungicides, insecticides, herbicides, rodenticides, fumigants, and plant growth regulators; and industrial and specialty chemicals, caustic chlorine, and white phosphorus. The company also provides sorghum, oil seeds, rice, cotton, and vegetables; hybrid rice seeds; and dairy forage, sheep/goat forage, horse/stud forage, wild life forage, and silage seeds primarily under the Advanta and Nutrifeed brands. In addition, it offers fruits and vegetables decay control products, such as detergents, fungicides/disinfectants, anti-scalds, coatings, sprout inhibitors, and equipment. United Phosphorus Limited was founded in 1969 and is headquartered in Mumbai, India.
Equity & Share Holding Pattern: It has an equity base of Rs.92.36 cr. that is supported by reserves of around Rs.4080.75 cr., which is 44.18 times its equity. It has a share book value of Rs.77.02. The promoter holding in UPL is 28.08%, FII hold 35.67%, DII hold 16.18% while investing public holds 20.07% stake in the company.
Share Profile: Its shares with a face value of Rs.2 are listed on the BSE under the A group. Its share price touched a 52 week high/low of
Rs.168.65/105. At its current market price of Rs.139, the company has a market capitalization of Rs.6309crore.
Financial Performance: Net profit of UPL zoomed 165% to Rs.137.69crore in the quarter ended September 2012 as against Rs.51.90crore
during the previous quarter ended September 2011. Total turnover rose 4.52% to Rs.1856.02crore in the quarter ended September 2012 as against Rs.1775.70crore during the previous quarter ended September 2011.
In the H1FY13, the company has reported net profit of Rs.304.91crore against Rs.238.53crore in previous corresponding year. Total sales reported to Rs.4078.17crore in the H1FY13 as against Rs.3637.84crore during the H1FY12. The company reported EPS of Rs.3.03 for Q2FY13 while for H1FY13 it has reported EPS of Rs.6.70.
Dividends: The Company has been paying dividend as follows: FY09: 75%, FY10: 100%, FY11: 100% and for FY12 it has paid 125% dividend on a face value of Rs.2 per share.


Future outlook & Conclusion: At its current market
price of Rs.139, the share price discounts less than 10 times its FY2013 EPS (E) of Rs.14.6. in the light of its highly encouraging performance in last FIVE year, bright prospects going ahead, the shares of UPL is likely to provide steady growth to the portfolio. Therefore we recommend a buy in the stock of UPL from a short to medium term perspective with stop loss of 125 levels for the target of Rs.170---175+…
  Buy NMDC Ltd For Target Rs.225.00


We recommend NMDC a “STRONG BUY”. NMDC is India's largest iron ore producer and exporter, presently producing about 27MT of iron  ore from its 3 fully mechanized mines viz., Bailadila Deposit‐ 14/11C, Bailadila Deposit‐5, 10/11A (Chhattisgarh State) and Donimalai Iron  Ore Mines in Karnataka. With ~40% market share in the iron ore producing industry, substantial high quality iron ore reserves, addition and  expansion of mines leading to higher volume growth, superior margins backed by low cost of production, foray into value added projects  and improved realization in future, NMDC IS likely to grow at a CAGR of 13.48% in terms of revenue and 12.67% in terms of PAT over  FY12‐16.
Investment Highlights
Substantial high quality Iron ore reserves; Mining Capacity to grow at a CAGR of 9.77% to 51MT over FY12‐16E:
NMDC is India's single largest iron ore producer, with an annual production capacity of 32
million tonnes per annum (MTPA) and total reserves of 1354.64 million tonnes (MT). The production
capacity is expected to reach 51MTPA by FY16e with opening of two new mines in Chattisgarh and
Karnataka with mining capacity of 7MTPA each and expansion in existing mines of 2MTPA. In addition, it
possesses the world’s best quality iron ore with FE content of greater than 64%. Hence, capacity addition
would lead to higher volumes, thus, adding growth significantly to the topline and the bottomline as well.
Value addition projects and huge capex to foster growth in revenue over FY14‐16e:
Besides its mining activities in Iron ore, NMDC has forayed into pelletization and steel manufacturing by setting up one steel plant in  Chattisgarh and 2 in Karnataka. It has also planned to start producing coal from its 2 captive mines in Madhya Pradesh to feed these steel  plants. It has spent a total capex of INR 35410.67 crores for setting up 3 steel plants and INR1513.42 crores for the pellet plants. We expect  these projects to add value FY15e onwards.
High margins backed by Low Cost of Production:
NMDC is one of the low cost producers of Iron Ore in the World, with an average cost of production of US$17/tonne (INR857 crore) in FY12.  In FY11, the average cost of production stood at INR24/tonne (INR1083 crore), which has dropped ~20% in FY12. NMDC’s low cost  production is due to its highly mechanized mines i.e. open cast mines, low mining cost on account of its high grade iron ore reserves with  Fe content of more than 64% and economical/inexpensive labour. In addition to this, NMDC’s mines which are located in Chattisgarh and  Karnataka, allows it to take the benefit from scale of operations and has the access to efficient logistics, which in return saves the company’s cost. Currently, he EBITDA Margin of NMDC is ~79% as compared to the average EBITDA Margin of ~47% of its international  players and ~42% of its only domestic iron ore player ‐ Sesa Goa.
Realizations to grow by 23% over FY12‐16E to INR5018/tonne:
NMDC’s realizations are expected to improve due to its shift to import parity price mechanism from net back pricing mechanism to match the international benchmarked iron ore prices. So far, NMDC’s domestic iron ore prices were at more than 100% discount to the international  benchmark prices. The difference in both the prices has come down to ~50% at US$80/tonne.