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Showing posts from March, 2009

Voltas Ltd

Voltas Limited offers engineering solutions for a wide spectrum of industries in areas such as heating, ventilation and air conditioning, refrigeration, electromechanical projects, textile machinery, machine tools, mining and construction equipment, materials handling, water management, building management systems, indoor air quality and chemicals. The Company's strengths lie principally in the design and manufacture of industrial equipment, management and execution of air conditioning and public works projects, sourcing.

Key Points.

Engineering services and consumer durables segments have slowed down but visibility remains strong in the major revenue segment of Central Airconditioning projects.
Inventory liquidation in consumer durables in progress likely to reduce capital employed.

Order book growth has remained fairly stable on a sequential basis. Order backlog is up 53% yoy to Rs 53 bn providing 27 months of revenue visibility for the projects segment.

Debt free and cash on hand is…

Tata Tea

Tata Tea -Forays non-carbonated drinks - launches TiON .

With tea volumes growing moderately in the domestic and international markets, Tata Tea (a strong player in the branded tea markets, both domestic and international) is seeking opportunities to expand its domestic as well as international beverage portfolio beyond tea and coffee, which could be a future revenue driver for the company.

In line with its strategy, Tata Tea has launched TiON, a tea and fruit based cold beverage in three variants—Mango Rush, Peach Punch and Apple Buzz—in a 400 ml pet bottle. The launch is an attempt to capitalise on the emerging health and convenience food and beverages trend in India.

The demand for carbonated drinks in India is softening, as more and more consumers (especially the youth) are opting for healthier beverages such as fruit juices and fruit-based drinks. Consequently, non-carbonated beverages are gaining good acceptance and the segment is growing at a healthy rate of 35-40% per year in the…

NTPC - National Thermal Power Corporation

NTPC -National Thermal Power Corporation.

NTPC likely to commission 250 MW project at Bhilai and complete the COD of unit I of 250 MW before FY09. One unit of 500 MW at Kahalgaon also likely to be commissioned in the fourth quarter.

NTPC may commission 750 MW of fresh capacity in the current quarter. This includes 250 MW under JV with SAIL and one unit of 500 MW at Kahalgaon Stage II. The company is also working on commercialization of the first unit of Bhilai Expansion project of 250 MW by the end of this quarter.

Strong likelihood of significant slippage in meeting targeted capacity given delay in upcoming projects. Equipment orders for XIth plan projects worth 1760 MW are yet to be placed.

Impact of CERC norms likely to be neutral to positive.

CERC has raised regulated return on Equity from 14% to 15.5% for the FY09-14 period. We believe new tariff regulations to be neutral to positive for NTPC. Loss of revenues on account of lower tax reimbursement and tightening of operating norms may…

HCL Technologies

HCL Technologies - Reader’s Digest’s deal part of Q3 deal win.

HCL Technologies (HCL Tech) has announced that it has signed an information technology (IT) outsourcing engagement worth over US$350 million with Reader’s Digest Associationspread over seven years. Though HCL Tech won record deals of US$1 billion in Q3FY2009, the company is likely to incur an upfront transaction cost of US$25 million for clients. Hence, there is a risk to the company’s earnings, as the upfront transition cost on some of the new deals may not be supported by increased volume from the clients in the current difficult environment.

Further, the rupee has depreciated significantly, close to 5.2%, in the last one month and is expected to remain weak in coming days. The depreciation in the rupee is likely to again expand HCL Tech’s unrecognised foreign exchange (forex) losses. In Q3FY2009, the company’s unrecognised forex losses expanded to US$207 million from US$156 million due to the depreciation in the rupee.

At …

PVR Cinemas

PVR Ltd - Stock Update.

The outlook on exhibition stocks is cautious which is underpinned by likely delays on property handover front given delays from real estate developers and a weak macro for consumption that is expected to adversely impact property footfalls and occupancies.

For PVR new investments towards retail entertainment formats and other allied ventures will likely drag earnings over FY09-10 and come in the backdrop of an adverse macro that will delay business break-evens.

The consolidated margins will struggle over the medium term, with limited available levers, as operators counter a rising cost base (new properties), slowing revenues (lower occupancies) and investments towards business lines. Also likely peaked ATP's and SPH's will be another pressure point.

Ther is no immediate catalysts as focus will remain on macro for consumption and timely handovers from real estate developers. The DCF based methodology for valuing the stock works out to a price target of Rs.86…


Marico - Company Update:

While the prices of sunflower, corn and rice bran oils have declined in the past few months, the matter that is of prime importance to Marico is the hardening of the price of its key raw materials, copra and kardi oil (safflower oil). These two commodities showed a significant decline in February 2009. Copra prices (the key raw material for the flagship brand, Parachute) have declined by 4.9% month on month (down 12.4% compared with the average prices in July 2008) whereas the price of kardi oil has fallen by 16.3%.

The company’s Saffola volumes suffered in Q3FY2009 and grew by a meagre 3% yoy. This was on account of a hefty increase in the premium (currently about 50%) enjoyed by the Saffola products over the other edible oils due to a reduction in the prices of the latter as a result of the softening of the raw material prices.

However, the management indicates that the volume growth has recovered slightly to mid single digits in Q4FY2009 till date. The softeni…

KSB Pumps

KSB Pumps - Pump division drives growth.

Result highlights:
KSB Pumps has reported a strong 31.4% improvement in its top line to Rs175.4 crore. The top line growth was primarily driven by a 46.9% rise in the pump revenues. However, the revenues of the valve division declined by 7.9% during the quarter but remained almost flat on a sequential comparison.

The operating profit margin (OPM) of the company has remained volatile over the last couple of years. On a segmental basis, the profit before interest and tax (PBIT) margin of the pump division declined by 270 basis points to 12.8% on account of a different mix of orders while that of the valve division declined by 410 basis points to 21% due to a slower top line growth. Consequently, the overall OPM of the company declined by 440 basis points year on year (yoy) to 15.8%. As a result, the operating profit for the quarter grew marginally by 2.7% to Rs27.7 crore. Slightly higher interest and depreciation costs led the company to report a 17…

Infosys Technology

The macro business environment has worsened further since the last commentary by Infosys Technologies’ (Infosys) management. In the recent interaction, the management has indicated higher than expected pricing pressure, project cancellations and considerable decline in the IT budgets of its clients. The worsening situation has been further aggravated by the banking and financial services clients, with large global players like the Bank of America, Citibank, American International Group (AIG) and the Royal Bank of Scotland (RBS) looking for further bailout packages. In addition, the possible nationalisation of banks and the anti-outsourcing rhetoric getting shriller put a question mark on the volume growth in the next fiscal.

On the positive side, the continued depreciation in the rupee has emerged as a significant tail wind for tech companies including Infosys. The rupee has depreciated by around 6.5% in the past one month alone and is likely to remain weak. Infosys, with a relatively …

Reliance Industries RIL - RPL Merger

RIL - RPL Merger - EPS accretive for RIL.

Reliance Industries Ltd’s (RIL) and Reliance PetroleumLtd’s (RPL) board of directors have approved RPL’s merger with RIL in an all share deal in the ratio of 1:16 (one RIL share for every 16 shares of RPL). RIL will extinguish the treasury shares created from the merger and issue 6.92 crore shares (4.4% dilution) to the minority shareholders of RPL.

The merger will provide RIL access to RPL’s strong free cash flows of around $1.2-1.5billion each year (expected from the next fiscal year) in the difficult macro environment. This is expected to help RIL to tide over the downturn in the petrochemical cycle and fund its capital expenditure (capex) in the exploration business.

At the operational front, RIL will benefit from crude oil sourcing and placement of the final products in the export market. Moreover, the meger will help RIL balance its overall product slate and better adjustment of capacity ultilisation in the times of downturn.

The merger will…

Indraprastha Gas IGL

Indraprastha Gas - Key highlights:

IGL granted three year exclusivity period by PNGRB.
The Petroleum and Natural Gas Regulatory Board (PNGRB) has authorizedIndraprastha Gas to do city gas distribution operations in the National Capital Territory (NCT).
IGL is now authorized to retail CNG (compressed natural gas) to automobiles and piped gas to households in NCT. IGL has also got a three-year exclusivity period do business in the NCT, and no other company would be allowed to operate in the city in the duration. This is positive for IGL as finally PNGRB has softened its stance against IGL.
Awaiting authorization for Noida & Greater Noida.

Growing CNG and PNG markets.

Some of the triggers for the growing CNG markets are large scale conversion of petrol driven private vehicles, introduction of Radio Taxis and high capacity buses on CNG. Also there is increase of CNG variant models by car manufactures and introduction of 2-3 wheelers on CNG.
Piped Natural Gas (PNG) has become a preferred kitc…

Mphasis BFL Ltd

Mphasis BFL Results Update: 1QFY09 (November - October fiscal) results were better, on higher revenues and margins. Volume growth of about 6% QoQ in IT services is encouraging in this macro scenario. Third consecutive quarter of 6 - 7% volume growth; HP support is a differentiator.

According to the management, the overall volume growth was 4% with IT services reporting a 6 - 7% rise, and ITO reporting a 10 - 12%. BPO business continued with a volume de-growth. This is the third consecutive quarter of 6 - 7% volume growth for IT services which is impressive.

Mphasis saw a faster growth in European geography, which contributed about 22% to overall revenues.On-site revenues continued to help overall growth rates. On-site revenues contributed to 28% of overall revenues as against 26% in the preceding quarter.The initiation of several projects in recent quarters has led to more on-site jobs before they are transitioned off-shore.

BPO business - muted growth continues.
BPO revenues de-grew by a…

Indian Stock Markets - Strategy March 2009

Market Strategy :
The benchmark indices remained range bound during the past month. Weak global markets and absence of fiscal stimulus measures weighed on the markets. The Vote-on-account, which was presented during the month,failed to cheer the markets as the Finance Minister did not offer any specific measures to further stimulate the economy. At the same time, the vote-on-account highlighted the elevated level of fiscal deficit.

On the US front, investors treated the new Financial Stability Plan with skepticism over lack of details. Markets in the US tumbled to multi-year lows. Economic activity shrunk appreciably across major regions. Fresh concerns on deteriorating prospects of emerging European economies resulted in weak eurozone markets.

The quarterly results have not provided any additional visibility on prospects in FY10. The excise duty cut has largely failed to have any meaningful impact on the respective sectors stocks.

With no more macro triggers expected in the current quart…

Indian Economy Update Q3FY09

Indian Economy Update March 2009.

India’s GDP grew 5.3% during Q3FY09.

• GDP growth estimated by the CSO at 5.3% during Q3FY09 as against 8.9% in Q3FY08 came below street expectations.
• The 'agriculture, forestry & fishing' and 'manufacturing' segments witnessed decline of 2.2% and 0.2%, respectively. However, the economic activities in mining, construction and services provided some vibrancy to Q3FY09 numbers.
• With 9MFY09 GDP growth coming at 6.9%, our 4QFY09 growth would need to come at 7.6% to achieve the 7.1% advance estimate by the CSO for FY09. This is less likely in current uncertain macro-economic environment.
• However, our savings as well as Investments as a percentage of GDP are one of the highest in the world. This is likely to insulate us (albeit partly) from deteriorating world economic environment.