SAI PARSDAM
01/03/2013
Buy Balmer Lawrie & Co Ltd For Target Rs.677.00
Balmer Lawrie & Co Ltd is the largest producer of metal containers in the country with a 23.95 per cent market share.
* Balmer Lawrie & Co Ltd is a market leader in Steel Barrels, Industrial Greases and Specialty Lubricants, Corporate Travel and Logistics Services.
* Board of Directors meeting of Balmer Lawrie & Company Ltd will be held on March 26, 2013, for consideration of 'Declaration of Bonus Shares', in the proportion of 4:3 new shares of Rs. 10 each.
* The company’s net profit Surged to Rs. 324.10 million against Rs. 283.80 million in the corresponding quarter ending of previous year, an increase of 14.20%.
* The company EBIDA is Rs. 526.60 millions as against Rs. 473.70 mn. in the corresponding period of the previous year.
* Net Sales and PAT of the company are expected to grow at a CAGR of 12% and 11% over 2011 to 2014E respectively.
* Balmer Lawrie & Company Ltd is certified to ISO 9001:2000, 14001:2004 standards & OHSAS 18001 Certification.
Investment Highlights
Results updates- Q3 FY13,
Balmer Lawrie & Co Ltd is a market leader in Steel Barrels, Industrial Greases and Specialty Lubricants, Corporate Travel and Logistics Services reported its financial results for the quarter ended 31st December, 2012. The Third quarter witnesses a healthy increase in overall sales as well as profitability on account, an enhanced Dealers network and robust infrastructural Support system.
The company’s net profit Surged to Rs. 324.10 million against Rs. 283.80 million in the corresponding quarter ending of previous year, an increase of 14.20%. Revenue for the quarter rose 15.35% to Rs. 6459.20million from Rs. 5599.70 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs. 19.90 a share during the quarter, registering 14.20 % increase over previous year period. Profit before interest, depreciation and tax is Rs. 526.60 millions as against Rs. 473.70 millions in the corresponding
period of the previous year.
Outlook and Conclusion
* At the current market price of Rs.599.00, the stock P/E ratio is at 6.52 x FY13E and 5.92 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.91.90 and Rs.101.24 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 12% and 11% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 2.74 x for FY13E and 2.48 x for FY14E.
* Price to Book Value of the stock is expected to be at 1.27 x and 1.05 x respectively for FY13E and FY14E.
The Third quarter witnesses a healthy increase in overall sales as well as profitability on account of well diversified business and powerful combination of exciting products, an enhanced store network and robust infrastructural Support system. We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.677.00 for Medium to Long term investment.
Buy Greaves Cotton Ltd (GCL) For Target Rs.92
We take stock of the 3W Light Commercial Vehicle (LCV) volumes in the month of Jan-Feb 2013. After notching a healthy growth in January 2013, 3W volumes were weak in Feb 2013. However, volumes of Magic Iris (0.5 ton 4W LCV) have remained strong.
We note that even in a scenario of weak industry outlook, the company is able to generate high ROE of 20% plus and strong free cash flow. Given these credentials and recent price fall, we maintain BUY with an revised DCF based price target of Rs 92 (Rs 96 earlier).
Risks and Concerns: Sustained slowdown in economic growth
Valuation
GCL is currently trading at attractive valuations of 9.8x and 8.9x FY13 and FY14 earnings respectively. While industry outlook remains subdued, we believe valuations are reasonable at this price. Hence maintain BUY with an revised DCF based price target of Rs 92 (Rs 96 earlier).
Buy Idea Cellular Ltd For Target Rs.140
Wireless traffic momentum to sustain
RPM, margin outlook positive; Offers 18% EBITDA CAGR, 6.5% FCF yield We met Idea Cellular's management for an update on business trends and outlook, and following are the key highlights:
* We expect wireless traffic momentum to sustain given 1) seasonal strength, 2) specific circle-wise exits of certain operators and 3) limited demand elasticity.
* RPM outlook positive; maintain est. of ~1% QoQ growth in 4QFY13E and ~2% CAGR over FY13E-15E.
* EBITDA margin improvement to accelerate from 50bp YoY in FY13E to 140bp in FY14E on operating leverage, yield improvement and lower subscriber acquisition costs.
* Easing competitive intensity can drive upside risks to RPM/margin estimates. Every 1p RPM hike drives 9% increase in Idea's fair value, assuming 8x EV/EBITDA and no elasticity.
* Expect 18% EBITDA CAGR and 59% PAT CAGR over FY13-15E led by 11% minutes CAGR, 2% RPM CAGR and ~230bp cumulative EBITDA margin expansion. Valuation attractive, with FY14E FCF yield of 6.5% and EV/EBITDA of 6.6x. Buy with a target price of INR140.
Traffic momentum to sustain
Voice minutes growth is expected to maintain a steady momentum despite lower discounting and thus highlighting limited demand elasticity. We expect Idea's 4QFY13E QoQ traffic growth to better 3QFY13 growth of 3%. We believe exit of certain operators from specific circles (Uninor, MTS) would have positively contributed to the volume growth for incumbents like Idea.
RPM outlook positive
RPM outlook is positive and we maintain our expectation of ~1% QoQ RPM growth in 4QFY13E and ~2% YoY growth in FY14E. We expect blended RPM to improve from 41.3p in FY13E to 43.2p in FY15E.
Margin improvement to accelerate
FY13E is set to be the second consecutive year of EBITDA margin expansion, with an estimated 50bp YoY accretion in FY13E on top of 160bp expansion in FY12. We assume a further 140bp margin improvement in FY14E for Idea as we expect operating leverage, yield improvement and lower sales & distribution costs to more than offset the increase in network/fuel costs.
Receding competitive intensity can drive upside to RPM and margins
Receding competitive intensity can provide upside risks to our RPM estimates. Every 1p hike in RPM drives a 9% increase in Idea's valuation, assuming 8x EV/ EBITDA and no elasticity.
18% EBITDA CAGR; 6.5% FCF yield; Buy
We expect 18% EBITDA CAGR and 59% PAT CAGR over FY13-15E, driven by 11% traffic CAGR, 2% RPM CAGR and ~230bp cumulative EBITDA margin expansion. We expect FY14E FCF of ~INR23b, implying an FCF yield of 6.5%. Buy with a target price of INR140 based on 8x FY15E EV/EBITDA, ex-Indus, INR5m/tower for stake in Indus Towers, and INR129b (INR39/share) for potential spectrum liability.
Buy INOX Leisure Ltd For Target Rs.95.00
INOX Leisure Ltd is the diversification venture of INOX Group into entertainment and is a subsidiary of Gujarat Flurochemicals Ltd.
* During the Second quarter, the robust growth of Net Profit is increased by 4.51% to Rs. 95.10 million.
* INOX started new commercial operation of the new multiplex cinema theatre situated at Amanora park town, Pune with having 8 screens and 1865 seats.
* INOX Leisure of new Multiplex Cinema Theatre situated at Glomax Mall, Kharghar, Navi Mumbai, having 4 screens and 1190 seats commenced from Dec12, 2012 at present in 27 cities with 42 multiplexes, 163 screens and 45,171 seats.
* INOX Leisure Ltd the Commercial Operation of new Multiplex Cinema Theatre situated at MaheshwariI Parameshwari Mall, Kachiguda, Hyderabad, having 5 screens and 1021 seats commenced from October 14, 2012.
* Net Sales and PAT of the company are expected to grow at a CAGR of 18% and 36% over 2011 to 2014E respectively.
Outlook and Conclusion
* At the current market price of Rs.84.00, the stock P/E ratio is at 36.34 x FY13E and 29.34 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.2.31 and Rs.2.86 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 18% and 36% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 12.55 x for FY13E and 11.26 x for FY14E.
* Price to Book Value of the stock is expected to be at 1.51 x and 1.44 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.95.00 for Medium to Long term investment.
Hold State Bank of India (SBI) For Target Rs..2360
Performance in-line with expectations, continued disappointment on asset quality…Maintain HOLD with price target of Rs 2360…
* Loan growth was up 16.1% y-o-y aided by healthy growth seen across large corporate, SME and International loan book. Deposits grew 15.6% y-o-y, CASA ratio falls to 45.5%.
* Net Interest Income (NII) registered negative growth of 3.2% to Rs 111.5 bn (vs. Rs 115.1 bn in Q3FY12). NIMs declined by 44 bps y-o-y and 5 bps sequentially to 3.40%.
* Asset quality continues to remain a major concern for the bank as GNPA increased by 15 bps sequentially & 69 bps y-o-y, respectively. Fresh slippages were Rs 81.7 bn vs. 71.0 bn in Q2FY13, lower cash recoveries were seen at Rs 9.5 bn vs. Rs 14.2 bn in Q2FY13.
Result Highlights:
Loan growth aided by increased lending to Large Corporates, SME and International customers:
Loan book growth was in-line with our expectations, as they grew 16.1% y-o-y to Rs 10,091 bn, mainly driven by increased lending to International and Large Corporate segments. International segment loan book grew 28.4% y-o-y to Rs 1,721.5 bn (17.1% of Q3FY13 loan book). Also, Large Corporate & SME segment witnessed 25.8% & 17.8% y-o-y increase in loan book to Rs 1,566.8 bn & Rs 1,586.0
bn, respectively. Notably, Mid-Corporate segment (17.3% of Q3FY13 loan book) witnessed just 6.8% (one of the slow-growth segments) growth to Rs 1,750.3 bn.
Valuation
SBI’s performance has been broadly in-line with expectations on the operating front. However, on the asset quality front, mainly higher restructuring surprised us. Though fresh slippages were in-line with expectations, recoveries and up-gradations were higher than what was anticipated. Also, lower loan loss provisioning worries us a bit as there exists a possibility for it to go up in Q4FY13, too. NIMs were broadly
stable at 3.4% levels, but we expect it to improve going forward on a/c of some more liquidity to be deployed in Q4FY13E.
At CMP of Rs 2,233, based on street estimates, the stock is trading at consolidated FY13E and FY14E, P/ABV of 1.33x & 1.15x, respectively.
We maintain HOLD rating on the stock with price target of Rs 2,360, implying 1.22x FY14E P/ABV multiple (on consolidated basis).
Buy Cairn India For Target Rs.370
Expect reserve upsides; Valuations attractive; Upgrading to Buy
* Post the policy clarity on exploration in producing E&P blocks, Cairn India has recommenced exploration at its Rajasthan block after a 4-year gap. Given the proven prospectivity of the block and aggressive drilling program (100 wells in 3 years) and similar to earlier exploration period, we expect further addition to its reserve potential.
* On the production front, while near-term ramp-up needs to be watched, given the slow ramp-up at Bhagyam and earlier than expected decline in Mangala, the management guidance to achieve FY14 exit production of 200-215kbpd is positive.
* Cairn's large cash balances (USD4.7b by end-FY15; 48% of current market cap) are at higher than optimum levels. Given that the company has no definite large acquisition plans, the management should (a) increase dividend or announce a special dividend, and/or (b) buy back shares to reward shareholders.
* The stock has corrected 19% in last 3 months led by ramp-up concerns and we estimate that the current price discounts long-term Brent price of USD75/88/bbl with/without exploration upsides. We believe that ramp-up concerns will be short-term and with likely reserve accretion, the risk-reward is favorable and upgrade our rating from Neutral to Buy. Our SOTP-based target price is INR370 implies an upside of 33%.
FY14 exit production guidance of 200-215kbpd at Rajasthan, a positive
Despite earlier (4QFY14) than expected natural declines in Mangala field, production is likely to ramp-up from current ~171kbpd (Mangala: 150kbpd; Bhagyam: 20-25kbpd) to 200-215kbpd (management guidance) by the end of March 2014, led by production start at (a) Aishwariya in March 2013, and (b) Barmer fields in 2HFY14. We cut our FY14/FY15 average production estimates by 4%/16% to 182/ 185kbpd, led by assumed decline at Mangala. While near-term production issues have created some ramp-up uncertainty, we do not expect any change in the overall recoverable reserves and maintain our gross recovery estimate at 1.2bboe.
With exploration back on track, expect further reserve addition
Over the years, Cairn has increased the gross in-place resource estimate for its Rajasthan block by ~4x to 7.3bboe and recoverable reserve estimate by 2.2x to 1.2bboe. Now, with 100 exploratory wells planned in three years, we expect further increase in recoverable reserves to 1.7bboe through conversion of 0.5bboe of prospective resources into reserves. We currently model recoverable reserves of 1.2bboe in our valuation and do not assign any value to the likely addition of 0.5bboe.
Valuations attractive; upgrade to Buy, with a price target of INR370 We believe that the current market price of INR278 factors in long-term Brent price of USD75/88/bbl with/without exploration upsides. The stock is trading at 5.6x FY15E EPS of INR49.8 and the implied dividend yield is ~4%. We revise our rating from Neutral to Buy. Our target price of INR370 implies an upside of 33%.
Markets Weekahead
Market Eye - Broader sentiment is expected to be weak in Indian stocks after data showed the current account deficit widened to a record high 6.7 percent of GDP in the October-December quarter.
However, the data, coming out after market hours on Thursday, also showed the balance of payments turned positive.
Still, traders say macro-economic indicators may have bottomed out and point to signs of recovery ahead.
Analysts also feel the recent correction in shares have made valuations more compelling.
Drug makers could be in focus as the Supreme Court is due to decide on April 1 whether Novartis AG's cancer treatment Glivec deserves a patent in the country.
KEY EVENTS/FACTORS TO WATCH:
Mon: March HSBC manufacturing PMI, Feb infrastructure output
- Supreme Court ruling on Novartis' Glivec
- Debt/FX markets closed for banking holiday
US holds key for market sentiment in second quarter
TOKYO - Whether the world's largest economy can sustain momentum will be a primary focus for investors for the next three months after a general recovery trend in the United States helped risk sentiment for broad markets in the first quarter of 2013.
Asian shares edged higher and the euro steadied on Friday after banks in Cyprus reopened to relative calm. Overall trade was subdued, with many Asian markets, including Australia, Singapore and Hong Kong, closed on Friday for Easter holidays.
European and U.S. markets will also shut for Easter Friday.
The MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.2 percent for a quarterly 1.5 pct gain, the worst performance in three quarters. The pan-Asian index touched a 1-1/2-year high in February.
The first quarter was marked by growing optimism about global growth, particularly with data pointing to a recovery in the U.S. economy that fed speculation the U.S. Federal Reserve might scale back its aggressive stimulus earlier than planned.
Such views spurred strong rallies in U.S. equities while underpinning the dollar, breaking the usual negative correlation between U.S. equities and the dollar.
The U.S. economy shows a seasonal tendency to weaken in the second quarter and effects of fiscal tightening may compound the bearish trend, with property regulations clouding China's growth prospects also providing potential risk.
The euro zone's financial crisis re-emerging in one form or another from time to time remains another downside risk. Worries over Chinese growth and the euro zone were not as severe as in past years, due to the brightening global growth outlook and safety nets being placed in Europe, along with the extremely accommodative monetary policy stance of major central banks.
"The basic scenario for the second quarter will be for the U.S. to maintain its economic recovery trend, which is key to sustaining hopes for improvement in global growth," said Junya Tanase, chief FX strategist at JPMorgan Chase Bank in Tokyo.
The Standard & Poor's 500 Index ended on Thursday at a record high 1,569.19, finishing the first quarter up 10 percent, slightly below a 12 percent rise at the end of the first quarter a year ago.
The fairly orderly reopening for banks in Cyprus on Thursday after the island nation received a controversial 10 billion euro bailout reduced safe-haven demand for U.S. Treasuries and gold and weighed broadly on the dollar.
The dollar measured against a basket of key currencies fell 0.4 percent to 82.921 in Asia on Friday, moving away from Wednesday's 7-1/2 month peak of 83.302. The dollar index was set for a quarterly gain of nearly 4 percent, its best quarter since end-September 2011.
Demand for the dollar, backed by hopes on rising yields, might wane because the U.S. recovery is not yet strong enough to prompt the Fed to end its aggressive easing stance.
"The dollar remains firm basically, but its outperformance is likely to wane from the very strong showing in the first quarter," Tanase said.
JAPAN IN FOCUS
The Nikkei stock average was up 0.6 percent, set for a quarterly increase of 19 percent, after touching a 4-1/2-year peak of 12,650.26 last week.
Daiwa Securities senior strategist Eiji Kinouchi said in a research note that, given the past pattern of cyclically sensitive industrial names lagging interest rate-sensitive names in New York Dow components, funds may be allocated to stocks that are sensitive to economic fundamentals. That should also be positive for Japanese stocks, he said.
Japanese equities have largely benefited from the yen's steady decline on expectations the Bank of Japan would take bold reflationary steps under its new leaders, who will hold their first policy meeting next week.
The dollar steadied around 94.06 yen, having risen about 8.4 percent for the quarter after touching a 3-1/2-year peak of 96.71 earlier in March.
The latest available data from EPFR Global released on March 22 showed Japan Equity Funds had extended their recent run to mid-March and were on track for the biggest quarterly inflow since the fourth quarter of 2005.
In contrast, China Equity Funds posted outflows for the fourth week in a row, reflecting concerns about China's property tightening and uncertainty over the economy.
Stocks in the Philippines and Indonesia hit a record high, while Thai stocks this month scaled their highest point in 19 years.
The Thomson Reuters South East Asia Index, an indicator of stocks listed in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, was set for a 5.7 percent gain for the first quarter, down from a 14.8 percent jump a year earlier.
"Southeast Asia is in overbought territory and may be vulnerable temporarily to the downside in cases of receding risk appetite, but money is expected to continue flowing into Asia over the longer term," said Hirokazu Yuihama, a senior strategist at Daiwa Securities in Tokyo.
The euro was at $1.2822, hovering near a four-month low of $1.2750 touched on Wednesday, and was set for a quarterly loss of 2.8 percent.
Crude futures markets will be shut on Friday.
Brent's slide of near 1 percent in the quarter and U.S. crude's robust 5.9 percent rise reflected the difference in sentiment between a gloomy outlook for Europe and a U.S. economy showing signs of improving growth.
Spot gold was down 0.1 percent to $1,595.19 an ounce, set to end the first quarter down nearly 5 percent.
01/03/2013
Buy Balmer Lawrie & Co Ltd For Target Rs.677.00Balmer Lawrie & Co Ltd is the largest producer of metal containers in the country with a 23.95 per cent market share.
* Balmer Lawrie & Co Ltd is a market leader in Steel Barrels, Industrial Greases and Specialty Lubricants, Corporate Travel and Logistics Services.
* Board of Directors meeting of Balmer Lawrie & Company Ltd will be held on March 26, 2013, for consideration of 'Declaration of Bonus Shares', in the proportion of 4:3 new shares of Rs. 10 each.
* The company’s net profit Surged to Rs. 324.10 million against Rs. 283.80 million in the corresponding quarter ending of previous year, an increase of 14.20%.
* The company EBIDA is Rs. 526.60 millions as against Rs. 473.70 mn. in the corresponding period of the previous year.
* Net Sales and PAT of the company are expected to grow at a CAGR of 12% and 11% over 2011 to 2014E respectively.
* Balmer Lawrie & Company Ltd is certified to ISO 9001:2000, 14001:2004 standards & OHSAS 18001 Certification.
Investment Highlights
Results updates- Q3 FY13,
Balmer Lawrie & Co Ltd is a market leader in Steel Barrels, Industrial Greases and Specialty Lubricants, Corporate Travel and Logistics Services reported its financial results for the quarter ended 31st December, 2012. The Third quarter witnesses a healthy increase in overall sales as well as profitability on account, an enhanced Dealers network and robust infrastructural Support system.
The company’s net profit Surged to Rs. 324.10 million against Rs. 283.80 million in the corresponding quarter ending of previous year, an increase of 14.20%. Revenue for the quarter rose 15.35% to Rs. 6459.20million from Rs. 5599.70 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs. 19.90 a share during the quarter, registering 14.20 % increase over previous year period. Profit before interest, depreciation and tax is Rs. 526.60 millions as against Rs. 473.70 millions in the corresponding
period of the previous year.
Outlook and Conclusion
* At the current market price of Rs.599.00, the stock P/E ratio is at 6.52 x FY13E and 5.92 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.91.90 and Rs.101.24 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 12% and 11% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 2.74 x for FY13E and 2.48 x for FY14E.
* Price to Book Value of the stock is expected to be at 1.27 x and 1.05 x respectively for FY13E and FY14E.
The Third quarter witnesses a healthy increase in overall sales as well as profitability on account of well diversified business and powerful combination of exciting products, an enhanced store network and robust infrastructural Support system. We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.677.00 for Medium to Long term investment.
Buy Greaves Cotton Ltd (GCL) For Target Rs.92We take stock of the 3W Light Commercial Vehicle (LCV) volumes in the month of Jan-Feb 2013. After notching a healthy growth in January 2013, 3W volumes were weak in Feb 2013. However, volumes of Magic Iris (0.5 ton 4W LCV) have remained strong.
We note that even in a scenario of weak industry outlook, the company is able to generate high ROE of 20% plus and strong free cash flow. Given these credentials and recent price fall, we maintain BUY with an revised DCF based price target of Rs 92 (Rs 96 earlier).
Risks and Concerns: Sustained slowdown in economic growth
Valuation
GCL is currently trading at attractive valuations of 9.8x and 8.9x FY13 and FY14 earnings respectively. While industry outlook remains subdued, we believe valuations are reasonable at this price. Hence maintain BUY with an revised DCF based price target of Rs 92 (Rs 96 earlier).
Buy Idea Cellular Ltd For Target Rs.140Wireless traffic momentum to sustain
RPM, margin outlook positive; Offers 18% EBITDA CAGR, 6.5% FCF yield We met Idea Cellular's management for an update on business trends and outlook, and following are the key highlights:
* We expect wireless traffic momentum to sustain given 1) seasonal strength, 2) specific circle-wise exits of certain operators and 3) limited demand elasticity.
* RPM outlook positive; maintain est. of ~1% QoQ growth in 4QFY13E and ~2% CAGR over FY13E-15E.
* EBITDA margin improvement to accelerate from 50bp YoY in FY13E to 140bp in FY14E on operating leverage, yield improvement and lower subscriber acquisition costs.
* Easing competitive intensity can drive upside risks to RPM/margin estimates. Every 1p RPM hike drives 9% increase in Idea's fair value, assuming 8x EV/EBITDA and no elasticity.
* Expect 18% EBITDA CAGR and 59% PAT CAGR over FY13-15E led by 11% minutes CAGR, 2% RPM CAGR and ~230bp cumulative EBITDA margin expansion. Valuation attractive, with FY14E FCF yield of 6.5% and EV/EBITDA of 6.6x. Buy with a target price of INR140.
Traffic momentum to sustain
Voice minutes growth is expected to maintain a steady momentum despite lower discounting and thus highlighting limited demand elasticity. We expect Idea's 4QFY13E QoQ traffic growth to better 3QFY13 growth of 3%. We believe exit of certain operators from specific circles (Uninor, MTS) would have positively contributed to the volume growth for incumbents like Idea.
RPM outlook positive
RPM outlook is positive and we maintain our expectation of ~1% QoQ RPM growth in 4QFY13E and ~2% YoY growth in FY14E. We expect blended RPM to improve from 41.3p in FY13E to 43.2p in FY15E.
Margin improvement to accelerate
FY13E is set to be the second consecutive year of EBITDA margin expansion, with an estimated 50bp YoY accretion in FY13E on top of 160bp expansion in FY12. We assume a further 140bp margin improvement in FY14E for Idea as we expect operating leverage, yield improvement and lower sales & distribution costs to more than offset the increase in network/fuel costs.
Receding competitive intensity can drive upside to RPM and margins
Receding competitive intensity can provide upside risks to our RPM estimates. Every 1p hike in RPM drives a 9% increase in Idea's valuation, assuming 8x EV/ EBITDA and no elasticity.
18% EBITDA CAGR; 6.5% FCF yield; Buy
We expect 18% EBITDA CAGR and 59% PAT CAGR over FY13-15E, driven by 11% traffic CAGR, 2% RPM CAGR and ~230bp cumulative EBITDA margin expansion. We expect FY14E FCF of ~INR23b, implying an FCF yield of 6.5%. Buy with a target price of INR140 based on 8x FY15E EV/EBITDA, ex-Indus, INR5m/tower for stake in Indus Towers, and INR129b (INR39/share) for potential spectrum liability.
Buy INOX Leisure Ltd For Target Rs.95.00INOX Leisure Ltd is the diversification venture of INOX Group into entertainment and is a subsidiary of Gujarat Flurochemicals Ltd.
* During the Second quarter, the robust growth of Net Profit is increased by 4.51% to Rs. 95.10 million.
* INOX started new commercial operation of the new multiplex cinema theatre situated at Amanora park town, Pune with having 8 screens and 1865 seats.
* INOX Leisure of new Multiplex Cinema Theatre situated at Glomax Mall, Kharghar, Navi Mumbai, having 4 screens and 1190 seats commenced from Dec12, 2012 at present in 27 cities with 42 multiplexes, 163 screens and 45,171 seats.
* INOX Leisure Ltd the Commercial Operation of new Multiplex Cinema Theatre situated at MaheshwariI Parameshwari Mall, Kachiguda, Hyderabad, having 5 screens and 1021 seats commenced from October 14, 2012.
* Net Sales and PAT of the company are expected to grow at a CAGR of 18% and 36% over 2011 to 2014E respectively.
Outlook and Conclusion
* At the current market price of Rs.84.00, the stock P/E ratio is at 36.34 x FY13E and 29.34 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.2.31 and Rs.2.86 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 18% and 36% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 12.55 x for FY13E and 11.26 x for FY14E.
* Price to Book Value of the stock is expected to be at 1.51 x and 1.44 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.95.00 for Medium to Long term investment.
Hold State Bank of India (SBI) For Target Rs..2360 Performance in-line with expectations, continued disappointment on asset quality…Maintain HOLD with price target of Rs 2360…
* Loan growth was up 16.1% y-o-y aided by healthy growth seen across large corporate, SME and International loan book. Deposits grew 15.6% y-o-y, CASA ratio falls to 45.5%.
* Net Interest Income (NII) registered negative growth of 3.2% to Rs 111.5 bn (vs. Rs 115.1 bn in Q3FY12). NIMs declined by 44 bps y-o-y and 5 bps sequentially to 3.40%.
* Asset quality continues to remain a major concern for the bank as GNPA increased by 15 bps sequentially & 69 bps y-o-y, respectively. Fresh slippages were Rs 81.7 bn vs. 71.0 bn in Q2FY13, lower cash recoveries were seen at Rs 9.5 bn vs. Rs 14.2 bn in Q2FY13.
Result Highlights:
Loan growth aided by increased lending to Large Corporates, SME and International customers:
Loan book growth was in-line with our expectations, as they grew 16.1% y-o-y to Rs 10,091 bn, mainly driven by increased lending to International and Large Corporate segments. International segment loan book grew 28.4% y-o-y to Rs 1,721.5 bn (17.1% of Q3FY13 loan book). Also, Large Corporate & SME segment witnessed 25.8% & 17.8% y-o-y increase in loan book to Rs 1,566.8 bn & Rs 1,586.0
bn, respectively. Notably, Mid-Corporate segment (17.3% of Q3FY13 loan book) witnessed just 6.8% (one of the slow-growth segments) growth to Rs 1,750.3 bn.
Valuation
SBI’s performance has been broadly in-line with expectations on the operating front. However, on the asset quality front, mainly higher restructuring surprised us. Though fresh slippages were in-line with expectations, recoveries and up-gradations were higher than what was anticipated. Also, lower loan loss provisioning worries us a bit as there exists a possibility for it to go up in Q4FY13, too. NIMs were broadly
stable at 3.4% levels, but we expect it to improve going forward on a/c of some more liquidity to be deployed in Q4FY13E.
At CMP of Rs 2,233, based on street estimates, the stock is trading at consolidated FY13E and FY14E, P/ABV of 1.33x & 1.15x, respectively.
We maintain HOLD rating on the stock with price target of Rs 2,360, implying 1.22x FY14E P/ABV multiple (on consolidated basis).
Buy Cairn India For Target Rs.370Expect reserve upsides; Valuations attractive; Upgrading to Buy
* Post the policy clarity on exploration in producing E&P blocks, Cairn India has recommenced exploration at its Rajasthan block after a 4-year gap. Given the proven prospectivity of the block and aggressive drilling program (100 wells in 3 years) and similar to earlier exploration period, we expect further addition to its reserve potential.
* On the production front, while near-term ramp-up needs to be watched, given the slow ramp-up at Bhagyam and earlier than expected decline in Mangala, the management guidance to achieve FY14 exit production of 200-215kbpd is positive.
* Cairn's large cash balances (USD4.7b by end-FY15; 48% of current market cap) are at higher than optimum levels. Given that the company has no definite large acquisition plans, the management should (a) increase dividend or announce a special dividend, and/or (b) buy back shares to reward shareholders.
* The stock has corrected 19% in last 3 months led by ramp-up concerns and we estimate that the current price discounts long-term Brent price of USD75/88/bbl with/without exploration upsides. We believe that ramp-up concerns will be short-term and with likely reserve accretion, the risk-reward is favorable and upgrade our rating from Neutral to Buy. Our SOTP-based target price is INR370 implies an upside of 33%.
FY14 exit production guidance of 200-215kbpd at Rajasthan, a positive
Despite earlier (4QFY14) than expected natural declines in Mangala field, production is likely to ramp-up from current ~171kbpd (Mangala: 150kbpd; Bhagyam: 20-25kbpd) to 200-215kbpd (management guidance) by the end of March 2014, led by production start at (a) Aishwariya in March 2013, and (b) Barmer fields in 2HFY14. We cut our FY14/FY15 average production estimates by 4%/16% to 182/ 185kbpd, led by assumed decline at Mangala. While near-term production issues have created some ramp-up uncertainty, we do not expect any change in the overall recoverable reserves and maintain our gross recovery estimate at 1.2bboe.
With exploration back on track, expect further reserve addition
Over the years, Cairn has increased the gross in-place resource estimate for its Rajasthan block by ~4x to 7.3bboe and recoverable reserve estimate by 2.2x to 1.2bboe. Now, with 100 exploratory wells planned in three years, we expect further increase in recoverable reserves to 1.7bboe through conversion of 0.5bboe of prospective resources into reserves. We currently model recoverable reserves of 1.2bboe in our valuation and do not assign any value to the likely addition of 0.5bboe.
Valuations attractive; upgrade to Buy, with a price target of INR370 We believe that the current market price of INR278 factors in long-term Brent price of USD75/88/bbl with/without exploration upsides. The stock is trading at 5.6x FY15E EPS of INR49.8 and the implied dividend yield is ~4%. We revise our rating from Neutral to Buy. Our target price of INR370 implies an upside of 33%.
Markets WeekaheadMarket Eye - Broader sentiment is expected to be weak in Indian stocks after data showed the current account deficit widened to a record high 6.7 percent of GDP in the October-December quarter.
However, the data, coming out after market hours on Thursday, also showed the balance of payments turned positive.
Still, traders say macro-economic indicators may have bottomed out and point to signs of recovery ahead.
Analysts also feel the recent correction in shares have made valuations more compelling.
Drug makers could be in focus as the Supreme Court is due to decide on April 1 whether Novartis AG's cancer treatment Glivec deserves a patent in the country.
KEY EVENTS/FACTORS TO WATCH:
Mon: March HSBC manufacturing PMI, Feb infrastructure output
- Supreme Court ruling on Novartis' Glivec
- Debt/FX markets closed for banking holiday
US holds key for market sentiment in second quarterTOKYO - Whether the world's largest economy can sustain momentum will be a primary focus for investors for the next three months after a general recovery trend in the United States helped risk sentiment for broad markets in the first quarter of 2013.
Asian shares edged higher and the euro steadied on Friday after banks in Cyprus reopened to relative calm. Overall trade was subdued, with many Asian markets, including Australia, Singapore and Hong Kong, closed on Friday for Easter holidays.
European and U.S. markets will also shut for Easter Friday.
The MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.2 percent for a quarterly 1.5 pct gain, the worst performance in three quarters. The pan-Asian index touched a 1-1/2-year high in February.
The first quarter was marked by growing optimism about global growth, particularly with data pointing to a recovery in the U.S. economy that fed speculation the U.S. Federal Reserve might scale back its aggressive stimulus earlier than planned.
Such views spurred strong rallies in U.S. equities while underpinning the dollar, breaking the usual negative correlation between U.S. equities and the dollar.
The U.S. economy shows a seasonal tendency to weaken in the second quarter and effects of fiscal tightening may compound the bearish trend, with property regulations clouding China's growth prospects also providing potential risk.
The euro zone's financial crisis re-emerging in one form or another from time to time remains another downside risk. Worries over Chinese growth and the euro zone were not as severe as in past years, due to the brightening global growth outlook and safety nets being placed in Europe, along with the extremely accommodative monetary policy stance of major central banks.
"The basic scenario for the second quarter will be for the U.S. to maintain its economic recovery trend, which is key to sustaining hopes for improvement in global growth," said Junya Tanase, chief FX strategist at JPMorgan Chase Bank in Tokyo.
The Standard & Poor's 500 Index ended on Thursday at a record high 1,569.19, finishing the first quarter up 10 percent, slightly below a 12 percent rise at the end of the first quarter a year ago.
The fairly orderly reopening for banks in Cyprus on Thursday after the island nation received a controversial 10 billion euro bailout reduced safe-haven demand for U.S. Treasuries and gold and weighed broadly on the dollar.
The dollar measured against a basket of key currencies fell 0.4 percent to 82.921 in Asia on Friday, moving away from Wednesday's 7-1/2 month peak of 83.302. The dollar index was set for a quarterly gain of nearly 4 percent, its best quarter since end-September 2011.
Demand for the dollar, backed by hopes on rising yields, might wane because the U.S. recovery is not yet strong enough to prompt the Fed to end its aggressive easing stance.
"The dollar remains firm basically, but its outperformance is likely to wane from the very strong showing in the first quarter," Tanase said.
JAPAN IN FOCUS
The Nikkei stock average was up 0.6 percent, set for a quarterly increase of 19 percent, after touching a 4-1/2-year peak of 12,650.26 last week.
Daiwa Securities senior strategist Eiji Kinouchi said in a research note that, given the past pattern of cyclically sensitive industrial names lagging interest rate-sensitive names in New York Dow components, funds may be allocated to stocks that are sensitive to economic fundamentals. That should also be positive for Japanese stocks, he said.
Japanese equities have largely benefited from the yen's steady decline on expectations the Bank of Japan would take bold reflationary steps under its new leaders, who will hold their first policy meeting next week.
The dollar steadied around 94.06 yen, having risen about 8.4 percent for the quarter after touching a 3-1/2-year peak of 96.71 earlier in March.
The latest available data from EPFR Global released on March 22 showed Japan Equity Funds had extended their recent run to mid-March and were on track for the biggest quarterly inflow since the fourth quarter of 2005.
In contrast, China Equity Funds posted outflows for the fourth week in a row, reflecting concerns about China's property tightening and uncertainty over the economy.
Stocks in the Philippines and Indonesia hit a record high, while Thai stocks this month scaled their highest point in 19 years.
The Thomson Reuters South East Asia Index, an indicator of stocks listed in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, was set for a 5.7 percent gain for the first quarter, down from a 14.8 percent jump a year earlier.
"Southeast Asia is in overbought territory and may be vulnerable temporarily to the downside in cases of receding risk appetite, but money is expected to continue flowing into Asia over the longer term," said Hirokazu Yuihama, a senior strategist at Daiwa Securities in Tokyo.
The euro was at $1.2822, hovering near a four-month low of $1.2750 touched on Wednesday, and was set for a quarterly loss of 2.8 percent.
Crude futures markets will be shut on Friday.
Brent's slide of near 1 percent in the quarter and U.S. crude's robust 5.9 percent rise reflected the difference in sentiment between a gloomy outlook for Europe and a U.S. economy showing signs of improving growth.
Spot gold was down 0.1 percent to $1,595.19 an ounce, set to end the first quarter down nearly 5 percent.
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