25/02/2013

Buy Hindustan Zinc Ltd For Target Rs.150


Hindustan zinc (HZ) underperformed Nifty ~12% YTD on account of street’s negative reaction to Government’s inclination to sell the stake through OFSs. However, we believe that steep fall in stock price have dissuaded the Govt from moving ahead aggressively on the proposed sale through OFSs. This has pushed the Govt to look out for other options including negotiation with Vedanta in
order to realise higher price. Given the strong likelihood of stake sale at a much higher price and beaten down valuations (EV/EBITDA:3.4x FY14E); we upgrade the stock to “BUY” with TP of Rs150, EV/EBITDA of 4.5x FY15E.
* Govt in no perseverance to sell‐out the stake at current levels: Our channel checks suggest that concerned ministry of mines and finance are well cognizant of the steep fall in stock price and resultant contraction in targeted receipt from sale. Given the cumbersome formality of parliamentary approval involved for sale, the Government is in no hurry for the sale and also looking at negotiations with Vedanta for complete stake sell-out to garner higher price.
* Strong outlook for Zn and Pb: Both Zn and Pb hit 15-month highs on the back of structural disruption in production and rising consumption. Zn is expected to remain in deficit for couple of years, primarily on account of growth in consumption outpacing the rise in production. Pb is expected to be in marginal surplus in 2013; however the trend is expected to reverse on the back of lower growth in production. We built in LME-Zn and LME-Pb at US$2030 and US$2200 in FY14E, conservative to current price levels of US$2140 and US$2400.
*Valuation and outlook: Stock fell to near-1-year low, contrary to trend in LME, primarily on the concerns associated with OFSs. Slide has been so severe that stock corrected below its lowest range of EV/EBITDA band at 4x 1-year forward earnings. Backed by firm outlook on Zn and Pb, attractive valuations and strong asset quality; we upgrade the stock to “BUY” with TP of Rs150.
  Buy Jindal Steel & Power Ltd


Outlook
The company’s present capex plans for FY13 (JSPL: Rs 4,000 crore and JPL: Rs 6000 crore) along with upcoming expansions is a big positive for the stock. Strong performance during the quarter was was led by strong volumes and lower costs in the steel business and QoQ increase in Jindal Power’s (JPL) power tariffs. However, steel realisations and JPL’s generation disappointed. We believe that all the negatives (such as termination of Bolivia project, Angul project delay and regulatory risks) have been priced in and expect limited downside from current levels. Further, streamlined expansion plans along with the much awaited commencement of international operations remains a key positive going forward. At a CMP of Rs 355, the stock trades at a PE multiple of 8.1x and 7.4x FY14E and FY15E consensus earnings estimates and below the mean band of its historical valuations. We recommend a BUY on the stock.
Key Takeaways
• JSPL’s standalone business delivered EBITDA of Rs 1280 crore, marginally above the street expectation. Steel and pellet volumes at ~734kt and ~623kt, respectively, were strongly up 24% YoY and 34% YoY. While effective steel realisations declined ~10% QoQ, operating cost/t also declined ~9% QoQ. Standalone power sales volume at 603MU rose 10% QoQ.
• Further, except pig iron, production of all other products was higher on a yoy basis. The inventory buildup during the quarter was quite low compared to the previous quarter. Pellet sales too jumped sharply in the quarter by 34.2% yoy and 43% qoq to 0.62mn tons, which was quite higher than our estimate. Production of pellet was marginally lower on a qoq basis at 0.97mn tons. Blended realizations for the company declined by 2.2% qoq due to subdued domestic demand.
• Performance of the steel business was strong in Q3FY13, recording steel volumes at 17% growth on YoY basis and external pellet sales also increased at 34% YoY. However, PBIT/tonne declined 13% YoY due to higher consumption of imported HBI (which typically lowers yield). The management stated that its overseas businesses mining operations in Africa and steel business in Oman also performed well and reported 25% YoY growth in profit. Outlook on steel volumes and pricing was also upbeat. Share of steel business in overall PBIT was 62%, vs. 57% a year ago.
• During Q3FY13 JPL’s 1000 MW operated at 81% PLF against 102% LY. JPL reported 30% YoY drop in revenue at Rs 560 crore primarily due to weak realisation and lower volumes. Realisations dropped to Rs 3.2/kwh against Rs 4.1 and Rs 3.3 in Q3FY12 and Q2FY13 respectively. Dispatches were impacted by evacuation constraints whereas realizations were impacted due to higher sales of power in the spot market. JPL reported PAT of Rs 260 crore , down 47% on a YoY basis.
• The company has maintained the commissioning schedule for projects in Angul (Orissa). The 1.6m MT SMS facility and 2m MT DRI plant are also expected to commercialise by April-13 and Sept-13 respectively. The process for signing the mining lease for the Utkal-B1 coal block (linked to Angul projects) is underway and theproduction from the mine is expected to be synchronised with the commissioning of the DRI plant. The two captive power units (270MW) to commission by end March 2013. Buy Gujarat Pipavav Port Ltd.70 For Target Rs


 Q4CY12 Result Highlights

Sequential improvement and Lowered debt are the key attractions for the quarter In Q4CY12, GPPL reported 3% Y-o-Y growth in total revenues to `1,076 mn as compared to `1,042 mn in Q4CY11. However, the interesting event to watch was sequential growth, after reckoning Q3CY12 as the worst quarter things turned the opposite for the company.  On sequential basis the company reported 24% growth in Q4CY12 and the reason was 24% growth in container volumeand almost 4% growth in realization. Container volumes for the Q4CY12 dropped by 8% Y-o-Y to 156,547 TEUs as compared to 170,380 TEUs in  Q4CY11, however, on sequential basis the company gained ground and witnessed a massive increase of 24%. Dry-bulk Volumes witnessed 16% slide Y-o-Y and stood at 0.76 mn tonnes as compared to 0.75 mn tonnes in Q3CY12.

The main attraction of the quarter was pre-payment of long term (INR denominated) debt from the money received from QIP, which led to significant decline in interest cost on both Y-o-Y and q-o-q basis. Interest outgo of `98 mn was down by 53% Y-o-Y and by 45% q-o-q. Long term deb at the end of December 2012 stands at around  `3,200 mn as compared to  `6,708 mn. This significant decline in interest cost led to massive jump in Net profits by 33% Y-o-Y to `360 mn, which was around 340% up on sequential basis.

On cost front the company witnessed 8% Y-o-Y growth in total operating expenses to `620 mn in Q4CY12. Operating cost which comprised of 58% of total cost, witnessed 22% increase on Y-o-Y basis on account of increase in equipment hire charges and high power and fuel cost. The end result was lower EBITDA margins at 47.8% vs 50.5% in Q4CY11.

Two new shipping lines added in Q4CY12

GPPL has managed to add two new shipping lines to call on its port namely, APL and Hyundai. At present one vessel from APL and two vessels from Hyundai have started calling on GPPL. The important notification to make here is that  these shipping lines are calling on Nhava Sheva International Container Terminals (NSICT) and  now extended their reach till Pipavav Port. We strongly believe that congestion in JNPT will benefit nearby minor ports and in addition to that continuous delay in expansion of JNPT will further benefit nearby minor ports. The two new shipping lines were added in October and December 2012 helped the company to recover from the worst in witnessed in Q3CY11. They are expected to add around 55-60,000 TEUs for CY13.

New Long Term Contracts signed

GPPL has managed to sign a long term contract with two of its clients (name undisclosed) for 5 years. The management is expecting volumes of around 35% of the total expanded capacity to come from these long term clients. We believe that this strategy of the  management will bear fruits and since the port business is of high fixed costs, such kind of long term contracts will help the company to recover majority of its fixed costs in the downturn.

 Buy Development Credit Bank (DCB)For Target Rs.59





Earnings Growth Momentum Strong  
Business strategy of shifting focus from un-secured high risk retail loan portfolio to secured retail / SME / MSME high yielding advances lead DCB into profits in FY11. Since then the bank has been reporting strong earnings growth both on sequential and YOY basis. 3QFY13 Net interest income at Rs 72 crores was up 22% YoY on back of strong growth in advances, up by 39% YoY. NIM’s were better at 3.38% in Q3FY13 from 3.37% YoY.
Improving Asset Quality
Asset quality demonstrated sequential improvement, 3QFY13 NPA Coverage Ratio improving to healthy 88%. Net
NPA have been declining sequentially, for the 3QFY13 standing at 0.73% vs 1% a year ago and 3.11% in FY10. Gross NPAs were 3.8%.
Small but interesting positioning
Most of the 89+ branches have come up in the recent years, main area of operations in the major cities of Maharashtra Gujarat and Andra Pradesh. Mumbai is its most important center with 28 of its branches located in an around the city. Gujarat is 2 nd  with 16 branches.
Attractive Valuation
While in terms of size, the bank is small even compared to its mid-sized bank peer group, it is more attractively positioned in terms of area of operations and growth. The current price discounts 11.3xFY13E EPS of Rs.3.8 and 9xFY14E EPS of Rs.4.8.  DCB is attractively valued with FY13E Price / Book Value (P/B) at Rs.1.3. We recommend investment with a  one-year target price of Rs.59, 35% YoY higher.
Key Risks:  
(1) Cyclicality in CV Business (2) execution risk (3) any substantial deterioration in economic environment may
hamper the growth strategies (4) Increasing focus on CFD may lead higher NPAs.

The investment ideas of Warren Buffett is most basic and simple to implement. The beauty of his investment ideas is that they are so easy and logical that at times people overlook the same ideas even though it must have crossed their mind. These investment ideas of Warren Buffett has not only help the maestro to make billions but also stands as a guiding principles for every other investor of this world.

Warren Buffett’s investment ideas asks us to buy stocks of only those companies whose “fundamentals” are very strong and its stock is available at “undervalued price”. When we say strong fundamentals we mean a healthy financial report, unique product line which is run by exceptional managers

 

 

TATA GLOBAL

( BSE TICKER--500800 @ Rs.141/-)

MUST FOR EACH &EVERY PORTFOLIO

 

TARGET

Rs.175/- Rs.500/-

Forget Short Term Movment

Buy DLF India Ltd.

 

 

  Outlook
DLF's overall prospects improved significantly led by pick-up in execution, reduction in debt level and expected improvement in operating cash flows. However, Q3FY13 was a disappointing quarter for DLF Ltd backed by the lower revenue recognition (due to new accounting policy) and cost adjustment of Rs 560 crore. For FY13, DLF expects deliveries between 10-12 msf spread across Gurgaon, Kolkata,Chennai, and Kochi. However, the tight liquidity conditions, discouraging capital markets and higher borrowing costs remain a risk to the company’s guidance. Further, leasing volumes continue to remain under pressure due to global uncertainties.
Currently, the stock is trading at 25.8x and 18.2x its FY14E and FY15E consensus earnings estimates and we recommend a SELL on the stock.
Key Takeaways
• During Q3FY13, DLF net sales declined by 35.6% (YoY) and 35.8% (QoQ) to Rs1310 crore in Q3FY13. Net profit increased by 10.2%  (YoY) and 105.6% (QoQ) to Rs 280 crore. Cost adjustment of Rs 560 crore was partly offset by PBT of Rs 840 crore on account of sale of NTC mill. PBT of Rs 200 crore was also lower due to new accounting policy and will be recognized in the next few quarters. Area sold declined on YoY basis from 3.3msf in Q3FY12 to 2.3msf in Q3FY13 but improved on QoQ basis from 1.6msf in Q2FY13. In 9MFY13, net sales and profit declined by 20.9% and 27.6% on YoY basis to Rs 5550 crore and Rs 720 crore, respectively. Area sold fell by 23.7% on a YoY basis to 5.2msf.
• Net debt level declined by Rs 1870 crore during Q3FY13 to Rs 21350 crore in December 2012. The company expects its net debt level to decline further to Rs 19000 crore, primarily on account of sale of Aman Resorts and Wind Mill by the end of FY13. DLF expects to bring down its net debt level to Rs 10000 crore in the next 2-3 years with improved operating cash flows and equity infusion. DLF expects to raise Rs 5500 crore through capital action and other divestment with Rs 3000 crore free cash flow from operations after capex on rentco and land outflow. In the longer term, DLF expects to keep its debt level at 6x its rental income while keeping its development business debt free.
• High-value projects like Wazriabad and Chanakyapuri's monetisation is at least two-three years away because of an ongo ing litigation
• Further, DLF is adding significant value in the ecosystem of its rental assets to boost rentals by providing enhanced connectivity, safety & security initiatives and sustainability effort, thereby halving the debt over the next three years with the help of two equity issuances and operational cash flow.

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