03/06/2013

Buy Gujarat State Petronet Ltd For Target Rs.70


Volumes under pressure
* GSPL's Q4FY13 result is better than our estimates, despite lower gas volumes and lower other income, mainly on account of higher  implied tariffs. GSPL has reported a PAT of Rs.1.62 Bn, higher by 24.9% YoY and by 35.7% QoQ.
* Gas transmission volume is lower by 20.6% QoQ due to decline in RIL's KG gas production but revenue from gas transmission segment has increased by 34.79% QoQ mainly due to higher implied tariff  1). On account of 'take-or-pay' clause and  2). Longer duration gas transmission.
*  The average implied tariff is at Rs. 1768 per TCM in Q4FY13, recording rise of 69.5% QoQ and of 84.9% YoY basis. This is primarily due to 1). Increased long distance transportation of gas which typically earns higher gas transmission charges thereby pulling the averages up and  2). Take-or-pay clause. Also, in Q4FY13, GSPL has implemented the PNGRB tariff order.
* We expect GSPL to report an EPS of Rs.10.25 and cash EPS of Rs.13.9 for FY14E. The recent correction in the stock price discounts most of the negatives and hence we believe there is decent upside in the stock. We recommend BUY rating on GSPL with a target price of Rs. 70/Share.

Valuation & Recommendation
* On the basis of our estimates, the stock at current market price of Rs.58 is cheaply valued at 3.3x EV/EBIDTA, 5.7x P/E and 4.2x P/cash  earnings on the basis of FY14E. We recommend BUY rating on GSPL with a DCF based target price of Rs. 70/Share .
 Buy SAIL For Target Rs.72

Depressing Q4 results on unusual quantum increase in costs. Estimates and TP cut but retain BUY
Operating expense jump erode margins -
Q4 steel volumes and realizations were more or less in line with expectations but what has badly hurt is unusual quantum increase in  operating costs which has led to operating margins shrinking to decade low. As of now, it is uncertain what portion of this operating costs increase is temporary in nature as it might include startup costs/inefficiencies for new coking ovens and iron ore costs hike due to problems in supply from Bolani and Gua mines which now stands corrected.
China is a big concern -
Global steel industry macro is turning concerning over last few weeks driven by Chinese steel mills intent to ramp up exports which would hurt global steel prices big-time. Yesterday, China HRC exports prices have broken physiologically important $500/t levels to reach 3.5 year low. We, in turn anticipate that domestic steel prices are likely to come under pressure in coming months.
Financials changes -
We have maintained our saleable steel volume estimates of 12mt but cut average sales realizations estimates for FY14 by 1% and made increases in our operating expenses. Our EPS estimate for FY14 is cut by 11.1% to Rs7.6.
Valuation changes -
We continue to value SAIL on 1Yr FWD EV/EBITDA multiple adjusted for CWIP. We maintain our valuation multiple at 6.5x and assigning of 40% value to FY14 end CWIP. We maintain BUY on SAIL with a revised TP of Rs72/share vs. Rs79/share earlier.

 Buy NTPC Limited

Outlook
On the back of preference NTPC gets in domestic coal supply and ability to pass through hike in fuel costs, we believe the company is well placed in terms of fuel security as compared to peers. Further, the incumbent capacity addition augurs well for future growth. At the CMP of Rs 161, NTPC trades at a PE multiple of 11.9x and 11.0x FY14E & FY15E consensus earnings estimates. We recommend a BUY on the stock amidst alleviating concerns on coal supplies leading to lower PAF. If company can get higher fuel supplies from Coal India and imported coal, PAF and PLFs can improve leading to higher generation. Higher than expected capacity addition coupled with high PAF and PLF can result in re-rating of the stock.
Key Takeaways
• NTPC’s revenue increased by 3% YoY (declined by 2.1% Q-o-Q) to Rs. 15774.9 crore. The company has produced 60.19 bn units (up 6.5% YoY and 14% QoQ) in Q3FY13. Despite higher production, lower than expected revenue may be attributed to lower off-take. EBITDA margins improved by 657 bps YoY to 25.5% primarily due to lower fuel and staff cost. During the quarter, one unit of 550 MW at Rihand project has been declared commercial w.e.f. 19th Nov. 2012.
• NTPC’s reported PAT grew by 22% YoY to Rs 2596 crore in Q3FY13. Adjusted PAT (After excluding Rs 29.9 crore of prior period sales and Rs 0.018 crore of prior period tax recovered net of expensed) was up by 21% YoY to Rs 2566 crore. Other income decreased by 16% YoY and 12% QoQ to Rs 720 crore. The depreciation was higher by 10% YoY (5% QoQ) to Rs 820 crore led by new capacity addition.
• During the quarter, the gross generation increased by 6.6% YoY to 60.1bn units, backed by 2,820 MW of capacities being declared commercial on a YoY basis.
• Coal and Gas PLFs for Q3FY13 stood at 84.1% and 59% respectively. While PAF of Coal and Gas for Q2FY13 stood at 88.6% and 93.8% respectively. Average realization in Q2FY13 stood at Rs 2.8/kwhr while fuel cost was Rs 1.8/kwhr.
• Regardless of concerns, NTPC has not been facing any significant shortfall in supply from Coal India. In 3QFY13, it received 38.3mnt of domestic coal. The percentage of blending stood at 8.4% during FY12.
 

 Buy Oberoi Realty Ltd For Target Rs.330


Quarterly numbers better than expected: 4QFY13 revenue grew 19% YoY and 6% QoQ to INR3b (v/s our estimate of INR2.6b). EBITDA grew 8% YoY and 4% QoQ to INR1.8b (v/s our estimate of INR1.6b); EBITDA margin declined 1.5pp QoQ to 58.5% (v/s our estimate of 60%). PAT grew 1% YoY to INR1.4b (v/s our estimate of INR1.3b). Sequential uptick in revenue is due to higher share of completed project, Splendor in the pre-sales mix, as it recognizes 100% revenue on booking.
* Modest growth in rental income: Rental income from Commerz, Oberoi Mall and Hotel Westin was ~INR583m (flat QoQ, up 3% YoY). For the full year, rental income grew just 4.4% to INR2.2b, as there was no new completion.
* Better mix, price increases push up realizations: Sales momentum was stable QoQ, but lower than the FY12 run rate. OBER posted pre-sales of 0.12msf (INR2.2b) in 4QFY13 v/s 0.18msf (INR2.8b) in 4QFY12. For the full year, presales were 0.5msf, down 29% (INR8.7b, down 9%). Average realization was up 8% QoQ and 18% YoY at INR18,813/sf, led by multiple price increases and
better sales / floor mix.
* Overall collection run-rate up sequentially: Collections from old pre-sales in near-completion projects remain slow (due to maturing cash collection curve) and have declined in case of Esquire (due to no construction progress). However, higher incremental pre-sales in Exquisite and Splendor in 3Q/4QFY13 accounted for a sharp sequential increase in overall collection run rate to INR2.3b in 4Q (v/s INR1.6b-1.7b in 2Q/3Q).
* Full-year collections down 15%: Annual collections for FY13 declined 15% on the back of (1) 6% decline in construction  spending, and (2) 9% decline in pre-sales value, though annuity business posted 6% growth. Core OCF declined 56%, while FCFE stood at negative INR2.2b, resulting in lower cash balance of INR10.7b as at March 2013.
* Maintain Buy: The stock trades at 8.6x FY15E EPS, 1.5x FY15E BV, and at ~26% discount to our FY15E NAV of INR350. Maintain Buy with a TP of INR330.