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Arshiya International Limited- AIL going strong with its FTWZ business- Margins and Profitability expected to improve. Arshiya International (AIL) has pioneered the development and operations of a Unified Supply Chain Infrastructure and Solutions - comprising Free Trade & Warehousing Zones (FTWZ), Industrial and Distribution Hubs, Rail & Rail Infrastructure, Transport & Handling, Forwarding and Supply Chain Technology & Management. AIL has started its Khurja FTWZ with 2 warehouses and  it can be estimated that the company to ramp it up to 4 by end of FY13E. The company is already operating 4 warehouses at Panvel FTWZ and we estimate the company to ramp it up to 8 warehouses by end of FY13E. In the rail segment the company operates 20 rakes currently which they would ramp up to 30 by end of FY13E. The company continues to grow steadily in its core third party logistics (3PL) businesses. The company is expected to deliver revenue CAGR of 24% over FY12 to FY14E to ~ Rs...

The third quarter FY12 numbers of the infrastructure companies were mixed bag with some of the companies disappointed on execution, margins and net profit front. Execution was likely to increase significantly from Q3FY12/Q4FY12 onwards, however it continued to remain below expectations due to adverse macro-economic scenario of high interest rates and delays in project approvals.Profitability was impacted by poor execution and continued high borrowings and working capital requirements. Companies like IVRCL,NCC,BGR Energy and J Kumar Infra were impacted by these issues. However, IRB Infra, JP Associates, Unity infra and Pratibha industries outperformed market expectations. Current order books remained healthy but execution growth was impacted due to very high interest rates or lack of funding to achieve financial closure or environmental clearance related issues. Companies like IRB Infra, JP Associates, Unity Infra and Pratibha industries reported excellent growth which was better th...

Post the acquisition of Areva T&D by a consortium of Alstom and Schenider Electric, the operations of Areva T&D india have been bifurcated into transmission business (to be retained by Alstom group) and distribution business (to be transferred to Schneider Electric). As part of the demerger scheme, the shareholder of Areva T&D will receive one share of the demerged company (to be named Smartgrid Automation Distribution and Switchgear Ltd) for every share held in Areva T&D. Smartgrid Automation Distribution and Switchgear Ltd would be listed by the end of January 2012. The stock became ex-date on Dec 14, 2011, following which the price corrected 24% to reflect the valuation of the transmission entity only. Based on DCF calculations, the target price works out to Rs 158 per share, thus valuing at 22x CY12 earnings. The growth outlook for the T&D equipment sector continues to be weak given overall reduction in power and industrial sector investments pipeline in H1...

Result Update: Punj Lloyd. Revenues of Punj Lloyd for Q1FY12 reported a growth of 40% on consolidated basis as against same period last year. This was better than market expectation and led by improved execution. Operating margins witness an improvement on sequential and yearly basis and stayed at 7.4%.Company's profitability was impacted by increase in interest outgo which resulted in net loss for Q1FY12. At current price of Rs 56, stock is trading at 8.5x P/E and 7.0x EV/EBITDA for FY12 respectively. For FY12,higher interest rates may continue to impact overall performance of the company. Due to high working capital requirements of the company coupled with high interest rates, the stock is expected to under-perform from these levels.

Bharat Electronics Ltd (BEL) Results update: BEL posted strong set of numbers for the fourth quarter as the company managed to post its targeted revenue numbers for the year. For the quarter, margin expansion was aided by higher revenue booking (42% of full year revenue vs 36% in Q4FY10), change in product mix and absence of provisions for pay revisions. Tax rate is lower possibly due to higher R&D expenditure. Even as the Capital Goods sector has struggled to book orders during the fiscal, BEL has won major orders. Resultantly, its order backlog has doubled in FY11, thus it is strongly positioned for driving revenue growth in FY13 and beyond. The company should also be a beneficiary from the offsets that are likely to accrue from the US$10 bn aircraft order that the Indian government is all set to place with Rafale or Eurofighter. The company enjoys a dominant status in the defence sector and has a steady growth profile. At 16.2x, near-term valuations are close to the highe...

Result Update: Infosys Technologies: Infosys' 3QFY11 results : Volume growth at 3.1% QoQ was below expectations. However, a 1.6% rise in average realizations were surprising. Margins came in line with market expectations.The guidance for a marginal growth in USD revenues in 4Q is predicated on the short term concerns about the global macro scene. Infosys management has likely taken a conservative view of the short term challenges. On the other hand, management did indicate that CY11 may be a normal year for the industry with growth in mid - high teens. One can expect Infosys to grow at above-industry rates in FY12E. Infosys has raised the revenue and EPS growth guidance for FY11, marginally. FY12E EPS stands at Rs.149 (INR - USD exchange rate at 45) and accordingly the price target works out to Rs.3620. Infosys is benefiting from the positive change in client sentiments and the presence of various margin levers. Infosys' long term strategy is geared towards providing ser...

PNB has corrected sharply since its Q2FY11 results due to spike in slippage and due to loan scam along with rise in concerns over microfinance & 2G/3G lending by the banks (especially PSU banks). It is better placed than its peers in rising interest rate environment with its strong liability franchise (CASA mix at ~41%) along with lower dependence on wholesale deposits. Reported NIM for H1FY11 is ~4.0%, again on the higher side vis-à-vis its peers. This has come on the back of sequential improvement in yield on advances (31bps QoQ; driven by increase in PLR and base rate during Q2FY11) and containment of cost of deposits (due to better liability management). the correction in stock price seems to be overdone and hence long term investors can buy this stock with a price target of Rs.1400.

Result Update: Axis Bank. Axis bank reported strong growth in its net interest income (40.5%) buoyed by strong growth in its loan book (36.5% YoY; however, muted growth of 1.8% QoQ) along with 16 bps YoY improvement in margins. Its net profit grew 38.3% on back of robust growth in its core business and moderate growth in provisions & contingencies. Non-interest income declined marginally to Rs.10.33 bn during Q2FY11 (decline of 3.0% YoY) on back of lower trading profit (decline of 51.6%). During the same period, fee income grew moderately at 18.0% YoY; however, it lagged overall business growth.It continued to display superior liability franchise which is visible in terms of its CASA mix (41.5% at the end of Q2FY11). Its NIM improved (16 bps YoY) on back of lower cost of funds (decline of 66 bps YoY) which is underpinned by strong CASA mobilization. Long term investors can accumulate on declines only, with a target price of Rs.1825 based on P/ABV of 3.4x its FY12E adjusted bo...

Gati - results update: GATI reported its FY10 results which are below market estimates on the profitability front due to pressure on its shipping business and losses from cold chain business and international operations. Some of the key factors include: • Strong growth in express distribution and supply chain management business. • Looking to demerge coast-to-coast shipping business. • Set up Redsun Supply Chain Solutions business.

Result Update: Grasim Industries. • Revenues of the company for Q1FY11 remained flattish on YoY basis, inline with market estimates. This was impacted by decline in cement realizations but compensated to some extent by improvement in VSF realizations as well as volume expansion in cement division on YoY basis. • Operating margins stood at 25.8% for Q1FY11 and Net profit declined by 47% for Q1FY11 led by decline in operating margins, higher depreciation charges as well as no extraordinary income as against Rs 3.5 bn in Q1FY10 on sale of sponge iron division. • At current market price of Rs 1856, stock is trading at 6.7x P/E and 3.4x EV/EBITDA for FY11.Hence medium to long term investors can accumulate on declines, with a price target of Rs 2150.

Result Update: Simplex Infrastructures. • Simplex Infra reported 10% and 5% de-growth for Q4FY10 and full year FY10 revenues respectively as against same period last year. This was lower than market estimates as well as management's guidance of achieving a flat growth in FY10. • Operating margins were better than our estimates and stood at 10.2% and 9.8% for Q4FY10 and FY10 respectively, led by selective bidding by the company. • Net profits registered 82% growth for Q4FY10 but declined by 3% for the full year FY10. This was impacted by flattish revenue growth as well as higher tax outgo. • At current price of Rs 479, stock is trading at 14.2x and 11.7x P/E and 6.5x and 5.8x EV/EBITDA multiples for FY11 and FY12 estimates respectively. With expected increase in overall order inflows and increased traction from international order inflows, investors can accumulate the stock with a price target of Rs 474 on FY11 estimates.

Infosys Technologies - Results Update. Excellent quarter : revenue growth highest in the past nine quarters. Infosys’ 3QFY10 performance was significantly better than street expectations. Revenues grew 6.7% qoq to US$1,232 mn, highest in the past nine quarters. Consistent with market expectations, BFSI vertical revenue led revenue growth and up 10.3% qoq. Operating margin increased 90 bps qoq to 35.5%, led partly by write-back of provisions. Net income of Rs15.82 bn was ahead of expectations by 5.7% and led by better-than-expected revenue and OPM performance. 4QFY10E revenue guidance muted and extremely conservative. Infosys has guided for 1.5% US$ growth for 4QFY10 (1% at the upper-end excluding McCamish acquisition). The guidance is excessively conservative , even after accounting for the adverse impact of seasonality. 4QFY10 EPS guidance of Rs25.83 (-8.3% qoq) assumes 150 bps decline in margin. Infosys has raised FY2010E EPS guidance to Rs107, versus Rs100 earlier. Infosys has manag...

Colgate-Palmolive (India) - Consumer Products. Competitive position can potentially deteriorate. Colgate’s cost competitiveness is likely under threat starting FY2011E as the company will see a reversal of trends in the past four years (FY2005-09) in lower excise rates—down 650 bps to 3.6% and lower income tax rates. 50% of Colgate’s output is in excise-exempt zones, this is 80% for HUL, providing HUL an option to channelize the benefits to gain market share. Headwinds facing Colgate are (1) renewed aggression from HUL, (2) limited pricing power and (4) higher tax rates. Favorable factors are (1) strong momentum in market share gains, (2) penetration-led growth in Cibaca and (3) opportunity to moderately cut adspends in the near term. Investors can reduce the stock on rallies due to : (1) premium valuations for sub-par earnings growth in FY2011E, (2) HUL is now a threat as it has become more aggressive compared to its previous position of being satisfied with improving sales , (3) lim...

Result Update: Infotech Enterprises • Infotech’s results for 2QFY10 were inline with expectations on the revenue line and operational front. Revenues grew 2.1% QoQ; EBITDA de-grew marginally QoQ as margins expectedly moderated 80bps QoQ. Business volumes were flattish QoQ; cross currency benefits impacted revenues positively by 2.1%, and contributed to all of the growth seen in the quarter. • Reported PAT at Rs.353.3mn was above the estimated Rs.325mn, only on account of higher other income. Net other income for the Q (Rs.44.6mn) included Rs.72.5mn towards reversal of provision for MTM losses on forward contracts and Rs.84mn towards loss on forward contracts. • Modify earnings to factor in Q2FY10 numbers; expect an FY10E EPS of Rs.26.1 (Rs.24 earlier). In FY11E, we expect revenues to grow 13% YoY; margins are likely to taper from FY10E levels given our assumptions on the INR, likely peak utilizations, wage inflation and increasing S&M investments, given an improving demand environm...

Simplex Infra -stock update. Strong growth in FY09: Simplex Infra witnessed a strong 68.6% YoY rise in its revenues to Rs47.4bn in FY09. Operating expenses increased by 69.1% YoY to Rs43bn driven mainly by consumption of materials (45.4% of net sales) & employee cost (31.6% of net sales). While operating profits surged 64.2% YoY led by the buoyant topline growth, OPM declined marginally by ~25bps to 9.3%. Net profits for the year were at Rs1.2bn (+37% YoY) translating into an EPS of Rs24.9. Strong Order book at ~Rs101bn: Fresh order inflows for the quarter stood at Rs1.1bn, taking the full year inflows to Rs56.6bn (+15.5% YoY). Around 30% of the backlog consists of overseas projects; 36% accrue from the Government sector & 34% from various private sector parties. ~95% of the present backlog remains completely hedged against commodity price fluctuations, barring piling jobs. Valuations. At the CMP of Rs392, SIL trades at a P/E of 12x & EV/EBIDTA of 6.2x its FY10E earnings....

EKC Everest Canto Cylinders -Q4 results . EKC has come out with good set of Q4 results.The demand for CNG cylinders in India is picking up due to increasing focus on reducing the environmental pollution and also due to the fact that even after reduction in global oil prices, CNG is still ~55% cheaper then petrol. The Supreme Court has also mandated the public transport system of the 28 cities to be converted to CNG to reduce emissions over next few years. Also with the recent gas finds of Reliance and GSPC we expect good amount of gas to be available for the automobiles. Revenues of Q4FY09 were impacted due to lower domestic sales on account of slowdown in off take of CNG cylinders by OEMs. However the drop in CNG sales in India was partly compensated by robust growth in sale of industrial cylinders. In Q4FY09 the company recorded lower EBIDTA margin on account of higher sale of industrial cylinders which typically have lower operating margins then CNG cylinders. in India, Dubai ...

NIIT Ltd - Results Update. NIIT Revenues rise by about 10% YoY . Revenues rose by 10% YoY and came in marginally below street stimates. The individual learning business (ILS) and corporate learning business (CLS) led the overall growth with 15% and 11% gains, respectively. However, on a QoQ basis, CLS revenues remained almost flat, despite the rupee depreciation. Schools business also grew by 17% YoY. New businesses like IFB, Imperia, Uniqua, etc disappointed. Future prospects The individual learning business is expected to witness a slowdown in growth rates in FY10 to about 16%. New initiatives are expected to gather steam over the quarters with higher acceptance of the courses. However, incremental growth is expected to be muted. Corporate learning businessis expected to grow at 8%. This may prove to be optimistic in the back drop of further deterioration in the US economy and scale up issues faced by the company. Margins to improve (YoY basis) on the back of better capacity utiliz...

IVRCL Infrastructure - Result highlights. Revenues of IVRCL Infrastructure for Q4FY09 and full year FY09 grew by 23% and 33% respectively as compared to same period last year. Operating margins for the current quarter and full year stood at 8.7% and 8.6%, lower than street estimates. Net profit growth for Q4FY09 and full year FY09 stood at 9% and 7%. Performance of subsidiaries. IVRCL's progress on its BOT projects is impacted by delays with two road BOT projects witnessing a delay of almost 6 months as against estimated completion by March, 2009. Kumarapalyam tollways is likely to get operational from June, 2009 while Jalandhar Amritsar Tollway is expected to get completed by Sep, 2009, Salem tollways by October, 2009 and Chennai Water Desalination project is expected to take another 2-3 months. Valuation. At current price of Rs 332, stock is trading at 16.5x and 14.8x its P/E multiples on FY10 and FY11 estimates respectively. IVRCL Infrastructures is set to benefit from economic ...

Economy Update: India's GDP grew 5.8% during Q4FY09. The GDP growth estimated by the CSO at 5.8% during Q4FY09 as against 8.6% in Q4FY08 and 5.8% in Q3FY09 came above street expectations. The 'agriculture, forestry & fishing' segment picked up to 2.7% in Q4FY09 from 0.8% decline in Q3FY09 on back of good winter crops. However, manufacturing sector declined 1.4% in Q4FY09 on expected line as reflected by the falling IIP numbers in recent times. The GDP growth was 6.7% for FY09 despite the world economy facing one of deepest economic crisis on back of 13.1% expansion in community services, 9.0% in transport and communications sectors and 7.8% in financial and other services sector. Our savings as well as Investments as a percentage of GDP are one of the highest in the world, which is likely to insulate us (albeit partly) from deteriorating world economic environment. We expect economic activities to pick up in the H2FY10. The recent indicators like PMI data, cement dispat...

Sector Update: Print Media Newsprint prices have seen a meaningful decline, an appreciating INR is an added positive for publishing companies- JPL, HT Media and DCHL. As per most of the publishers, NP prices have corrected by 20-25% and international prices are expected to stabilize around US$650-700/MT, over the medium term. Immediate financial benefits though may be limited given higher cost inventory being carried; expect full impact H2FY10E onwards. Cautious optimism in industry regarding a revival in advertising revenue trends on the back of anticipated policy action leading to a recovery in economic growth and corporate earnings. Macro-environment is nevertheless materially better than 2Q ago. The traditional media (print, TV broadcasting) will be the early beneficiaries of a pick-up.