D:VelsDaily Morning Brief 1FebMorning Insight 1 Feb...

FEBRUARY 1, 2011

Economy News4 Even as Vedanta was facing acute bauxite shortage for its 1 million tonne

per annum (MTPA) refinery after the Centre rejected mining plan atNiyamgiri, a joint venture firm today urged Orissa government toexpedite its Rs 200 Bn proposals in aluminium and power sectors. (BS)

4 The government approved a Rs 80 Bn subsidy to the three public sectoroil marketing companies to compensate half the revenues they lost onselling diesel, domestic LPG and kerosene below cost for the quarterending December 31. (BS)

4 According to data released today, the six core industries grew by 6.6 percent in December, from just 3 per cent in the previous month, signifyingthat industrial growth was likely to pick up in the last month of 2010,against an 18-month low of 2.7 per cent in the previous month. (BS)

4 Oil topped $100 per barrel on Monday for the first time since 2008, astraders fretted over violent unrest in Egypt that could disrupt the flow ofoil through the Suez Canal on its way to the West. (ET)

Corporate News4 The Comptroller and Auditor General of India is finalizing a report that

questions the government’s move to allow Reliance Industries toincrease its expenditure in developing the D-6 field in the Krishna-Godavari basin by over $6 billion, significantly reducing the state’s shareof revenue from the country’s biggest gas field. (ET)

4 Aditya Birla Group has finally agreed to buy out the US firm ColumbianChemicals Company (CCC) for $875 million from One Equity Partners, themerchant banking arm of JPMorgan Chase. This has catapulted the groupto become the world leader in carbon black with a combined two milliontonne annual production. (BS)

4 Essar has abandoned plans to inject part of its 33 per cent stake in theVodafone Essar venture into a listed shell company, after objections by itspartner, Vodafone, according to two people familiar with the situation.(BS)

4 RPG Group company Phillips Carbon Black (PCBL) has indicated thatthe company is in the race for the $1.2-billion carbon black division ofGermany’s Evonik Industries. PCBL is among the half-a-dozen shortlistedbidders to go through to the second round of the bidding process forEvonik’s carbon black unit. (BS)

4 Three independent directors and two key executives of financiallytroubled retailer Koutons have resigned from the company, as itstruggles to raise funds from markets. (BS)

4 Germany-based engineering and technology major Siemens AG isplanning to increase its stake in the Indian subsidiary, Siemens Ltd, fromthe present 55.18 per cent to 75 per cent with an offer of $1.4 billion.(BS)

4 The income-tax department has sought Rs 11.8 Bn more tax from DLF,the country’s largest real estate developer, and its 22 subsidiaries for theassessment year 2009-10.

Equity% Chg

31 Jan 11 1 Day 1 Mth 3 Mths

Indian IndicesSENSEX Index 18,328 (0.4) (10.6) (8.5)NIFTY Index 5,506 (0.1) (10.2) (8.5)BANKEX Index 12,064 0.6 (9.8) (13.9)BSET Index 6,371 (1.5) (6.6) 6.3BSETCG INDEX 13,526 3.3 (12.3) (14.5)BSEOIL INDEX 9,482 1.2 (10.6) (13.4)CNXMcap Index 7,923 0.5 (10.6) (15.4)BSESMCAP INDEX 8,478 (0.8) (12.3) (20.0)

World IndicesDow Jones 11,892 0.6 2.7 7.0Nasdaq 2,700 0.5 1.8 7.7FTSE 5,863 (0.3) (0.6) 3.3Nikkei 10,238 (1.2) 0.4 12.2Hangseng 23,447 (0.7) 1.7 (0.9)

Value traded (Rs cr)31 Jan 11 % Chg - Day

Cash BSE 3,359 (8.6)Cash NSE 14,223 (5.5)Derivatives 120,060 (3.4)

Net inflows (Rs cr)28 Jan 11 % Chg MTD YTD

FII (592) (57.6) (5,430) (5,430)Mutual Fund (409) 32.8 182 182

FII open interest (Rs cr)28 Jan 11 % Chg

FII Index Futures 11,324 0.9FII Index Options 45,124 6.2FII Stock Futures 28,163 1.5FII Stock Options 407 40.0

Advances / Declines (BSE)31 Jan 11 A B S Total % total

Advances 100 723 159 982 43Declines 103 1,046 249 1,149 51Unchanged 1 104 27 132 6

Commodity % Chg

31 Jan 11 1 Day 1 Mth 3 Mths

Crude (NYMEX) (US$/BBL) 91.9 (0.4) 0.5 10.7Gold (US$/OZ) 1,337.1 (0.5) (5.9) (1.3)Silver (US$/OZ) 28.4 1.4 (9.0) 14.1

Debt / forex market31 Jan 11 1 Day 1 Mth 3 Mths

10 yr G-Sec yield % 8.14 8.13 7.91 8.11Re/US$ 45.92 45.76 44.71 44.48

Sensex

Source: ET = Economic Times, BS = Business Standard, FE = Financial Express,BL = Business Line, ToI: Times of India, BSE = Bombay Stock Exchange

15,100

16,600

18,100

19,600

21,100

Jan-10 Apr-10 Jul-10 Oct-10 Jan-11

Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 2

MORNING INSIGHT February 1, 2011

SUN TV NETWORK

PRICE: RS.486 RECOMMENDATION: BUYTARGET PRICE: RS.666 FY12E P/E: 20.7X

q Sun TV has reported strong financials for 3QFY11. Reported financials, Rs5979 mn in revenues and Rs 2255 mn PAT, compare favourably with ourestimates - with the exception of movies, where Sun TV has not bookedRs 150mn in satellite rights revenues from Enthiran.

q Advertising revenues have grown 16% (y/y), commendable, given thestrong base of last year (44% y/y growth in 3QFY10). While subscriptionrevenues continue to be strong on a y/y basis, DTH and analogue sub-scription revenues have declined on a q/q basis (0%, and -2% respec-tively). The company has registered 43% y/y (25% q/q) growth in interna-tional revenues. The management has assured that deals with DTH opera-tors come up for renewal in this quarter, and the company expectsstrong growth in DTH revenues (upwards of 10% q/q) in the comingquarter (4QFY11).

q While outlook for the advertising revenues remains robust, the companyhas said it would like to assess the environment before making a deci-sion on the advertising rate increases (likely post the cricket season). SunTV believes that it has sufficient inventory to manage growth withhigher inventory utilization.

q Expenses for the company have grown in line with expectations, withmovie expenses accounting for Rs 1070mn.

q The company's radio operations have performed strongly FYTD. Manage-ment has said that its Kal Radio subsidiary has already turned PAT posi-tive, while its SAFM subsidiary has turned EBITDA positive. Sun TV hasindicated that it would continue to look at radio as a growth area for thecompany.

q We remain comfortable with our projections on Sun TV Network, andretain a BUY rating with a price target of Rs 666/ share (unchanged sincelast update). We continue to expect FY11E/ FY12E EPS to come in at Rs19/ Rs 23.5. We rate Sun TV BUY.

3QFY11 Results Summary

SA, Rs mn 3QFY11 3QFY10 YoY (%) 2QFY11 QoQ (%)

Revenues 5979.9 3950.8 51 4247.8 41 - Advertising 2610 2250 16 2300 13 - Slot Sales 420 350 20 400 5 - Analogue Subscription 530 390 36 540 -2 - DTH 700 440 59 700 0 -International Revenues 200 140 43 160 25 - Movies 1510 340 344 140 979 -Other 10 41 -76 8 27Cost of Revenues 226 251 -10 250 -10Employee Expenses 481 364 32 407 18Other Expenses 255 211 21 268 -5Depreciation and Amortization 1740 885 97 908 92EBIT 3278 2240 46 2415 36EBIT Margin 54.8% 56.7% -1.88 ppt 56.9% -2.04 pptInterest Expenses 1 2 -19 3 -57Other Income 91 84 9 93 -2PBT 3367 2322 45 2505 34Provision for Tax 1112 803 39 830 34PAT 2255 1519 48 1674 35Equity Capital 1970 1970 0 1970 0Shares O/S 394 394 0 394 0EPS (Rs) 5.72 3.86 48 4.25 35

Source: Company

Summary table

(Rs mn) FY10 FY11E FY12E

Sales 14,528 20,384 22,834Growth (%) 39.8 40.3 12.0EBITDA 10,909 15,771 17,517EBITDA margin (%) 75.1 77.4 76.7PBT 8,008 11,099 13,918Net profit 5,199 7,471 9,252EPS (Rs) 13.2 19.0 23.5Growth (%) 41.2 43.7 23.8CEPS (Rs) 21.3 31.7 34.4BV (Rs/share) 47.9 60.5 75.8Dividend/share (Rs) 4.0 5.7 7.1ROE (%) 28.6 35.0 34.5ROCE (%) 25.1 31.1 32.4Net cash (debt) 3,285 5,775 11,790NW Capital (Days) 104.0 80.4 77.3P/E (x) 36.8 25.6 20.7P/BV (x) 10.1 8.0 6.4EV/Sales (x) 13.0 9.1 7.7EV/EBITDA (x) 17.3 11.8 10.0

Source: Company, Kotak Securities - PrivateClient Research

RESULT UPDATE

Ritwik [email protected]+91 22 6621 6310



We note that: 1/ advertising revenues growth of 16% comes on the base of 44% y/y growth in 3QFY10, and is therefore respectable, 2/ slot sales growth is on accountof higher day parts in certain states as well as screening of certain large events, 3/DTH growth has been soft q/q, and the company is yet to revise deals with certainDTH operators. The management expects the numbers (ARPU as well as revenues)to rise substantially in 4QFY11, 4/ international revenues have continued to growrobustly in the quarter as the company makes attempts to reach newer geographiesand monetize its content, 5/ The company has booked Rs 1510mn from realizationson account of Enthiran this quarter. This follows recognition of Rs 130mn in 2QFY11.The company is yet to book revenues of Rs 150mn from satellite rights sale ofEndhiran. 6/ Higher amortization expenses are on account of Enthiran as well as ris-ing content expenses. The company has indicated that the content expenses shallcontinue to rise in subsequent quarters (factored into our model), 7/ Margins of thecompany have decline y/y and q/q, on accunt of lower margins on the movie busi-ness.

In addition, the company has stated that: 1/ radio segments (largely not included instandalone results above) have performed strongly, and that Kal Radio has brokeneven at PAT level, while SA FM has broken even at EBITDA level, 2/ the companycontinues to see radio as a growth area and expects to benefit from reforms in radioFM policy, as are being discussed in view of the third phase of licensing, 3/ the com-pany also continues to look at new genres in existing markets and expects to launchchannels addressing 2-3 new genres in various states in FY12, 4/ while the companycontinues to consider other television (regional) markets, it has not been able to fi-nalize on either a new market, or the form that a new market entry should take(whether the company should go it alone or as a JV), 5/ the company continues toexpect strong advertising revenue growth. However, Sun TV is conscious of the factthat given the cricket season and the situation in the FMCG space (~65% of SunTV's revenues), the company may be better off taking the decision of an ad-rateincrease later. Sun TV believes its inventory utilization levels are such that they cancontinue to be a useful second lever in developing higher advertising revenues. In-vestment View

We maintain our investment view on Sun TV following 3QFY11 results.

n Sun TV is among the best positioned broadcasters in India, in so far as translationof industry growth into shareholder value is concerned. This is on account of : a/strength of regional markets in advertising as compared with national (HindiGEC/ entertainment) in the broadcasting space, b/ better economics (lower ex-penses) of regional space as compared with Hindi entertainment space, c/ lowcost to advertiser on CPRP basis, d/ low monetization (subscription revenues) ofSun TV relative to Hindi entertainment genres, both in domestic and interna-tional markets, e/ strong bargaining power of Sun TV on account of its leadingpositions in most markets that it operates in, as well as higher concentration inSun TV Network's markets.

n Based on growth in advertising and subscription revenues resulting from theabove, we think Sun TV's revenues are set to grow 23%, while PAT is estimatedto grow 32% FY10-FY13E. We value Sun TV using a DCF approach and assessthe value of the stock at Rs 666/ share (FY -12end). We see a large upside forSun TV.

n Key risks to our investment thesis relate to: a/ political risks resulting frompromoter's interests in politics, b/ competitive risks, and c/ macroeconomic risks.

We recommend BUY on Sun TVNetwork with a price target of

Rs.666



JAGRAN PRAKASHAN

PRICE: RS.122 RECOMMENDATION: ACCUMULATETARGET PRICE: RS.156 FY11E P/E: 14.4X

q Jagran Prakashan has reported strong 3QFY11 results, slightly above ourestimates. The company reported revenues of Rs 2860mn, and PAT Rs 527mn.

q Revenue growth was led by advertising revenues, which grew 32% y/yto Rs.570 mn. Circulation revenues too registered growth (7%, y/y), onaccount of higher circulation of Dainik Jagran (~10%, y/y). Other verticalsof the company have also seen traction, with event and outdoor rev-enues witnessing a growth of 20%.

q The management has indicated that advertising environment continuesto be strong, and expects strong growth in advertising revenues in4QFY11. The company expects advertising environment to remain strongin FY12, and management has tentatively pointed to ~20% growth inadvertising revenues for FY12E.

q Legal formalities for the acquisition of operations of Mid-DayMultimedia's publishing divisions are now complete. Jagran Prakashanshall now actively attempt to recast operations of the company in orderto seek synergies, as well as attempt to develop new markets, and con-solidate existing markets. As of now, we do not expect meaningfulchanges in Jagran Prakashan's EPS on account of the merger.

q We raise our estimates for Jagran Prakashan following the results, to in-corporate improved advertising and circulation revenues, and lower fi-nancial incomes. We raise our revenue estimates by 1.7%/1.5% forFY11E/ FY12E, and our PAT estimates by 3.6%/ 2.7% for FY11E/FY12E.Our DCF based valuation for Jagran Prakashan is higher by Rs 3/ share toRs 156/ share.

q We believe Jagran Prakashan continues to be well-exposed to highgrowth in regional markets, and results indicate that the company con-tinues to be strong relative to the competition, in so far as relevance ofthe readership to the advertiser is concerned. We maintain a positivestance on Jagran Prakashan and retain our ACCUMULATE rating on thestock.

q Key risks to our estimates/ rating/ price target relate to: 1/ high competi-tive intensity in Jagran Prakashan's markets, 2/ macroeconomic risksleading to lower adex in Indian markets, 3/ raw materials price risks.

Highlights and Earnings Outlookn The company has reported strong growth in advertising revenues (32% y/y). Ad-

vertising growth came in on account of rise in both volumes and yields - man-agement has pointed to ~15-16% growth in yields in 3QFY11 (y/y). Advertisingrevenues have been almost stagnant on a q/q basis. The company believes this ison account of declining dependence on the third quarter, as certain categorieshave continued to perform through the four quarters of the year. As with othercompanies in the print media space, Jagran Prakashan has said that thus far, aslowdown in advertising expenditures is not visible. The company guided for con-tinued strength in advertising revenues in 4QFY11 and FY12. We note that printmedia companies are less likely to be affected by the upcoming cricket season.

Summary table


Sales 9,419 10,975 12,620Growth (%) 14.4 16.5 15.0EBITDA 2,823 3,427 3,992EBITDA margin (%) 30.0 31.2 31.6PBT 2,593 3,116 3,823Net profit 1,760 2,100 2,549EPS (Rs) 5.8 7.0 8.5Growth (%) 23.3 19.3 21.4CEPS (Rs) 7.5 8.7 10.2BV (Rs/share) 20.3 22.5 25.1Dividend/share (Rs) 3.5 4.2 5.1ROE (%) 30.0 32.6 35.5ROCE (%) 23.5 25.7 28.2Net cash (debt) (362) 548 1,402NW Capital (Days) 15.5 11.9 11.5P/E (x) 20.9 17.5 14.4P/BV (x) 6.0 5.4 4.9EV/Sales (x) 3.9 3.3 2.8EV/EBITDA (x) 13.1 10.6 8.9


RESULT UPDATE

Ritwik [email protected]+91 22 6621 6310



3QFY11 Results Table

(Rs mn) 3QFY11 3QFY10 YoY (%) 2QFY11 QoQ (%)

Revenues 2,860 2,269 26 2,769 3

- Advertising Revenues 1,950 1,482 32 1,935 1

- Circulation Revenues 570 532 7 548 4

- Other 340 255 33 286 19

Expenses: 1,962 1,616 21 1,860 5

Raw Material Expenses 863 674 28 801 8

Personnel Expenses 363 304 19 354 3

Other Expenses 736 639 15 705 4

EBITDA 898 653 38 909 -1

Margin (%) 31.4 28.8 2.63ppt 32.8 -1.42ppt

Depreciation 146 119 23 133 10

Interest Expenses 21 13 56 14 50

Other Income 55 70 -21 64 -14

PBT 786 590 33 826 -5

Provision for Tax 259 193 34 271 -4

PAT 527 397 33 555 -5

EPS (Rs) 1.75 1.32 33 1.84 -5

Source: Company

n Circulation revenues growth of the company was on account of higher circula-tion, which has offset decline in realization per copy for the company. Circulationgrowth has happened across editions. As per management, the company shallnow raise circulation more aggressively across states - and intends to especiallyraise circulation in Bihar (~30%) on account of impending entry of DB Corp inthe state. Dainik Jagran shall also raise its circulation in Uttar Pradesh, Punjab,and Haryana on account of higher competitive intensity in the states.

n Following the completion of merger of Mid-Day Multimedia's print operationswith the company, Jagran is set to take steps to strengthen Mid-Day's synergieswith Jagran. As of now, while cost synergies have come in, revenues synergieshave not come in in a big way. Jagran intends to strengthen Mid-Day and Mid-Day Gujarati in the Mumbai market. The company also intends to utilize certainstrengths of Mid-Day's operations to its own benefit. We expect that Jagran shallbuild on the content strengths of Mid-Day to strengthen its tabloid offering I-Next. City Plus, the un-monetized experiment of Jagran Prakashan, could alsobenefit from the Mid-Day content and editorial team.

n We make changes to our estimates for Jagran Prakashan following 3QFY11 re-sults. The changes relate with: a/ higher advertising and circulation revenues, b/lower net financial income. Our FY11/FY12 estimates, compared with prior esti-mates, are provided below:

Earnings estimates

Revised Estimates Prior Estimates Change (%)(Rs mn) FY11E FY12E FY11E FY12E FY11E FY12E

Revenues 10,975 12,620 10,795 12,432 1.7% 1.5%

EBITDA 3,427 3,992 3,274 3,852 4.7% 3.6%

PAT 2,100 2,549 2,027 2,482 3.6% 2.7%

Source: Company

Accordingly, we raise our (fair value estimated using a DCF approach) price tar-get marginally upward by Rs 3/ share to Rs 156/ share (FY12 - end).



n Our estimates do not include the financials of Mid-Day multimedia's print opera-tions. We note that, following current growth paths, we do not expect significantchanges to Jagran's EPS following the merger. Pro-forma estimates (assuming in-tegration of Mid-Day financials in FY-11 beginning) for the consolidatedfinancials are provided below:

Financials - pre & post merger (Mid-day publishing division)

(Rs mn) FY11E FY12E

-Revenues, Mid-Day Print 1,119 1,261

-Expenses, Mid-Day Print 894 1,014

-EBITDA, Mid-Day Print 225 247

- EBITDA Margin, Mid-Day Print 20.1% 19.6%

EBITDA - Jagran Prakashan (Post Merger) 3,651 4,239

Depreciation and Amortization 550 536

Interest Expenses 85 70

Other Income 278 390

PBT 3,294 4,023

Provision for Tax 1,087 1,328

PAT, JPL Operations (pre-merger) 2,100 2,549

PAT, JPL operations (post-merger) 2,207 2,695

Equity (Pre-Merger) 301.2 301.2

Equity (Post-Merger) 316.1 316.1

EPS (pre-merger) 7.0 8.5

EPS (post merger) 7.0 8.5

Source: Kotak Securities - Private Client Research

We continue to maintain a positive stance on Jagran, on account of the following:

n Long-standing strengths in Uttar Pradesh provides flexibility in managingearnings: Uttar Pradesh, India's largest Hindi print advertising market, continuesto be dominated by Jagran Prakashan, although the company has seen competi-tion intensifying in the recent past. We think the company's dominance in thestate shall continue to provide Jagran certain luxuries in the near future, includ-ing: a/ that of enjoying high rates in other states (example: Punjab) without nec-essarily being the No. 1 player - that is Jagran is able to monetize its circulationbetter because of the company's dominance in Uttar Pradesh, b/ ability to man-age competition in other competition by managing cover prices in the state. Thisis evident from recent quarters where Jagran has been able to manage its circu-lation revenues even as there have been cover price wars on in certain areas ofJharkhand and Uttar Pradesh (where Hindustan has recently launched).

n Strong cash flow generation provide opportunity to fight competition, aswell as grow in new markets: Jagran would be generating operating cashflows of over Rs 8Bn in the next three years. The cash flow, in addition to thestrong cash position of the company (Rs 1.6Bn net cash, as of 3QFY11) place thecompany in a strong position to fight competition. The company is also in a po-sition to develop new markets in Uttar Pradesh, particularly in Urdu. As per man-agement, Jagran has completed the research and exploratory operations forlaunch of Urdu daily Inquilaab in Uttar Pradesh, and would look to launch thenewspaper soon in these markets.

n Longer-term margins to expand as competitive situatins ease, marketsexpand: Many of the copmany's editions in Punjab and (now) Jharkhand runinto losses on account of stiff competition in these markets. As markets in theseterritories expand (Jharkhand is currently a small advertising market, but is likelyto witness high growth), and as competitive situation eases (leading to betterrealizations), the company's margins are set to improve as long as Jagran is ableto maintain competitive position in these territories.



n Valuations are reasonable, Maintain ACCUMULATE: At CMP, Jagran tradesat 17.5x FY11 PER, and trades at a significant discount to our DCF - based valu-ation of Rs 156/ share (FY12- end). We believe (see next page) that integrationof Mid-Day financials shall have minor impact of Jagran's EPS for FY12/ FY13,excluding new operations (Urdu, or a bigger launch of City Plus) that the com-pany may enter. As such, we see reason to be positive on Jagran Prakashan, andwe find the risk - reward offered by the CMP favourable. We retain ACCUMU-LATE on Jagran Prakashan.

n Risks: a/ Competitive Risks: Jagran Prakashan faces significant risks across geog-raphies. The lead newspaper has recently lost some ground in readership in cer-tain states, including Punjab. Moreover, share in Jharkhand/ Bihar readershipshall likely reduce following DB Corp's entry in the state. Most importantly, wesee HMVL's continued aggression in Uttar Pradesh as a significant risk to JagranPrakashan. b/ Macroeconomic risks, that relate with lower than expected adexgrowth, c/ risks related with spikes in newsprint prices.

We retain ACCUMULATEratiing on Jagran Prakashan

with a price target of Rs.156



JAMMU & KASHMIR BANK

PRICE: RS.736 RECOMMENDATION: BUYTARGET PRICE: RS.1100 FY12E P/E: 4.7X; P/ABV: 0.9X

Q3FY11: Core earnings came better than our expectations; assetquality improved sequentially. Currently, it trades at 0.9x FY12EABV and hence we reiterate BUY.q Core earnings grew at healthy pace - NII grew 32.7% (YoY) mainly aided

by sharp improvement in NIM (42 bps YoY) along with healthy growth inloan book (22.0% YoY). Net profit rose 19.9% YoY on back of strong coreearnings and flat provisions & contingencies despite of subdued non-in-terest income.

q Liability franchise remained healthy with CASA mix at ~40%, still one ofthe highest in the industry. It is aiding the bank in maintaining margin, away ahead of industry average.

q Its gross NPA declined to 1.95% in Q3FY11 as against 2.17% each duringQ3FY10 and Q2FY11. The net NPA is even lower at 0.04% at the end ofQ3FY11, one of the lowest in the banking space. Its provision coverageratio is also one of the best with 97.9% at the end of Q3FY11.

q We have slightly revised our earning estimates upward for FY11E &FY12E and maintain BUY rating on the stock with unchanged price targetof Rs.1100 based on 1.3x of its FY12E adjusted book value.

Result Performance

(Rs mn) Q3FY11 Q3FY10 YOY (%)

Int. on advances 6498.5 5831.5 11.4

Int. on investments 2802.3 1766.2 58.7

Int. on RBI/Other balances 45.8 17.8 157.3

Total interest earned 9346.6 7615.5 22.7

Interest expenses 5451.3 4680.8 16.5

Net interest income 3895.3 2934.7 32.7

Other income 775.6 958.1 -19.0

Net Revenue (NII + Other Income) 4670.9 3892.8 20.0

Operating Expenses 1862.6 1447.1 28.7

Employee cost 1276.3 930.1 37.2

Other operating exp 586.3 517.0 13.4

Operating profit 2808.3 2445.7 14.8

Provisions 306.3 307.3 -0.3

Taxes 823.2 738.5 11.5

Net profit 1678.8 1399.9 19.9

EPS (Rs.) 34.63 28.88 19.9

Source: Company

Earning growth better than our expectationsJ&K bank's core earnings grew at healthy pace - NII grew 32.7% (YoY) to Rs.3.90bn in Q3FY11 from Rs.2.93 bn in Q3FY10 mainly aided by sharp improvement inNIM (42 bps YoY) along with healthy growth in loan book (22.0% YoY).

Net profit rose 19.9% YoY to Rs.1.68 bn in Q3FY11 from Rs.1.40 bn in Q3FY10 onback of strong core earnings and flat provisions & contingencies (Rs.306 mn) despiteof subdued non-interest income (decline of 19.0%).

RESULT UPDATE

Saday [email protected]+91 22 6621 6312



Muted non-interest income due to lower treasury gainsNon-interest income declined 19.0% YoY to Rs.0.78 bn during Q3FY11 as comparedto Rs.0.96 bn during Q3FY10 on back of lower trading profit which contracted toRs.178.7 mn in Q3FY11 as against Rs.408.4 mn in Q3FY10 (decline of 56.2% YoY).

During the same period, C/E/B income witnessed a modest growth of 3.5% (YoY).In line with the industry trend, Insurance income was subdued and declined 17.7%YoY to Rs.61.2 mn.

Trend in non-interest income

(Rs mn) 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 YoY (%)

Other Income 1,156.8 1,011.9 958.1 1,016.9 936.9 744.8 775.6 -19.0%

Commission/ Exchange 238.0 299.0 331.5 314.4 353.9 330.4 343.0 3.5%

Trading Income (Net of Amortization) 667.6 506.8 408.4 135.7 336.3 181.6 178.7 -56.2%

Insurance Income 44.3 57.3 74.4 127.5 64.4 54.5 61.2 -17.7%

Misc. Income 206.9 148.8 143.8 439.3 182.3 178.3 192.7 34.0%

Source: Company

Healthy business growth; loan book grew 22.0% YoY & 9.4% QoQBank after focusing on the effective balance sheet management, is growing its bal-ance sheet. Total business of the bank rose at healthy pace of 21.7% to Rs.662.4 bnat the end of Q3FY11 from Rs.544.5 bn in Q3FY10.

n Total deposits of the bank rose 21.4% to Rs.408.8 bn at the end of Q3FY11 fromRs.336.6 bn at the end of Q3FY10. CASA mix remained stable at ~40% at theend of Q3FY11 on back of robust growth in saving deposits (29.2% YoY) al-though demand deposits came down by 6.9% YoY.

n During the same period, advances grew at 22.0 % (YoY) to Rs.253.6 bn at theend of Q3FY11 from Rs.207.8 bn at the end of Q3FY10. This has led to slight im-provement in C/D ratio from 61.7% at the end of Q3FY10 to 62.0% at the endof Q3FY11. J&K bank is comfortably placed in terms of C/D ratio as compared toits peers and this implies it can easily grow its loan book without mobilizingmuch of high interest rate bearing bulk deposits.

NIM improved both YoY & QoQ, led by sharp fall in cost of depos-itsNet interest margin (NIM) improved to 3.70% in Q3FY11 as compared to 3.28% inQ3FY10 and 3.66% in Q2FY11 due to healthy improvement in liability franchise andre-pricing of deposits at lower rates.

Improvement in NIM was also aided by the improvement in yield on Investmentswhich rose from 5.07% in Q3FY10 to 6.53% in Q3FY11. Although yield on advancesdeclined 43 bps (YoY) while cost of deposits fell by only 31 bps, NIM improved dueto 146 bps (YoY) improvements in YOI.

Improvement in asset quality is positive; coverage ratio at97.9%, one of the best in the industryIts gross NPA declined to 1.95% in Q3FY11 as against 2.17% each during Q3FY10and Q2FY11. The net NPA is even lower at 0.04% at the end of Q3FY11, one of thelowest in the banking space. Its provision coverage ratio is also one of the best with97.9% at the end of Q3FY11.



Trend in asset quality

1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11

Gross-NPAs (cr) 5.11 4.78 4.60 4.62 4.50 5.13 5.04

Gross-NPAs (%) 2.44 2.23 2.17 1.97 1.92 2.17 1.95

Net-NPAs (cr) 1.60 1.17 0.79 0.64 0.08 0.31 0.11

Net-NPAs (%) 0.77 0.55 0.38 0.28 0.03 0.13 0.04

PCR (%) 68.79 75.55 82.87 86.09 98.21 93.97 97.89

Source: Company

Valuation & recommendationAt the current market price of Rs.736, the stock is trading at 4.7x its FY12E earningsand 0.9x its FY12E ABV. We are modestly raising our earning estimates for FY11E &FY12E and now expect net profit for FY11E and FY12E to be 6.35 bn and Rs.7.57bn.

This would result into an EPS of Rs.131.0 and Rs.156.2 for FY11E and FY12E, respec-tively. Adjusted book value for FY11E and FY12E is estimated to be Rs.715.7 andRs.843.7, respectively

Rolling 1-year forward P/ABV band

Source: Company, Kotak Securities - Private Client Research

Rolling 1-year forward P/E band


We maintain BUY rating on the stock with unchanged price target of Rs.1100 basedon 1.3x of its FY12E adjusted book value.

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We recommend BUY onJammu & Kashmir Bank with

a price target of Rs.1100



Key Financials:

(Rs. bn) FY09 FY10 FY11E FY12E

Interest income 29.88 30.57 36.68 42.99

Interest expense 19.88 19.37 21.58 25.31

Net interest income 10.00 11.20 15.10 17.68

Growth (%) 23.4 11.9 34.9 17.0

Other income 2.61 4.02 3.46 4.04

Gross profit 7.91 9.44 11.41 13.56

Net profit 4.26 4.98 6.35 7.57

Growth (%) 12.7 16.9 27.5 19.3

Gross NPA (%) 2.6 2.0 1.9 1.8

Net NPA (%) 1.4 0.3 0.2 0.2

Net int. margin (%) 3.2 3.0 3.6 3.7

CAR (%) 14.5 15.9 14.3 14.0

RoE (%) 17.4 17.7 19.5 19.8

RoA (%) 1.2 1.2 1.4 1.4

Dividend per share (Rs) 16.9 22.0 23.0 25.0

EPS (Rs) 87.9 102.7 131.0 156.2

Adjusted BVPS (Rs) 481.6 607.6 715.7 843.7

P/E (x) 8.4 7.2 5.6 4.7

P/ABV (x) 1.5 1.2 1.0 0.9




ANDHRA BANK

PRICE: RS.140 RECOMMENDATION: BUYTARGET PRICE: RS.175 FY12E P/E: 4.1X; P/ABV: 1.1X

Q3FY11: Core earnings came slightly better than our expecta-tions; however, asset quality continued to deteriorate. We haveslightly tweaked earning estimates to factor in higher creditcosts. Maintain BUY as stock is trading cheap at 1.1x FY12E ABV.q NII grew 44.2% (YoY) mainly aided by strong growth in loan book

(27.7% YoY) along with sharp improvement in NIM (56 bps YoY). Netprofit rose 20.2% YoY on back of strong core earnings despite of sub-dued non-interest income.

q CASA mix declined slightly to 28.5% at the end of Q3FY11 from 30.4% atthe end of Q2FY11 and 30.1% at the end of Q3FY10. Its NIM has im-proved YoY from 3.35% in Q3FY10 to 3.91% in Q3FY11 (QoQ it is stable).

q Although gross & net NPAs (gross NPA: 1.33%; net NPA: 0.47%) are atcomfortable levels in percentage terms, they have jumped sharply in lastcouple of quarters, which is negative in our view. However, its provisioncoverage ratio is comfortable at 80.4% at the end of Q3FY11, way above70% regulatory requirement.

q We have slightly tweaked our earning estimates upward for FY11E &FY12E to factor in higher credit costs. However, maintain BUY on thestock (trading cheap at 1.1x FY12E ABV) with price target of Rs.175(Rs.200 earlier) based on 1.4x of its FY12E adjusted book value.

Result Performance

(Rs mn) Q3FY11 Q3FY10 YoY (%)

Interest on advances 17,121.7 13,009.7 31.6

Interest on Investment 4,006.6 3,003.6 33.4

Interest on RBI/ banks' balances 87.5 12.4 608.2

Other interest - - NM

Total Interest earned 21,215.8 16,025.6 32.4

Interest expenses 12,816.5 10,200.3 25.6

Net interest income (NII) 8399.3 5825.3 44.2

Other income 1,986.2 2,242.5 -11.4

Net Revenue (NII + Other income) 10,385.5 8,067.8 28.7

Operating Expenses 4119.4 3249.7 26.8

Payments to / Provisions for employees 2,595.0 1,973.0 31.5

Other operating expenses 1,524.4 1,276.7 19.4

Operating profit 6,266.1 4,818.1 30.1

Provisions & contingencies 1,717.0 964.2 78.1

Provision for taxes 1,240.0 1,100.0 12.7

Total Provisions 2,957.0 2,064.2 43.3

Net profit 3,309.1 2,753.9 20.2

EPS (Rs) 6.82 5.68 20.1

Source: Company

RESULT UPDATE

Saday [email protected]+91 22 6621 6312



Earning growth better than our expectations; margins rise YoYbut stable QoQAndhra bank's core earnings came better than our expectations. Its NII grew 44.2%(YoY) to Rs.8.40 bn in Q3FY11 from Rs.5.83 bn in Q3FY10 mainly aided by stronggrowth in loan book (27.7% YoY) along with sharp improvement in NIM (56 bpsYoY).

Net interest margin (NIM) improved to 3.91% in Q3FY11 as compared to 3.35% inQ3FY10; however it is stable QoQ.

Net profit rose 20.2% YoY to Rs.3.31 bn in Q3FY11 from Rs.2.75 bn in Q3FY10 onback of strong core earnings despite of subdued non-interest income (decline of11.3% YoY). Non-interest income declined 11.4% YoY to Rs.1.99 bn during Q3FY11as compared to Rs.2.24 bn during Q3FY10 on back of lower trading profit whichcontracted to Rs.100 mn in Q3FY11 as against Rs.482 mn in Q3FY10 (decline of79.3% YoY).

Healthy business growth; loan book grew 27.7% YoY & 7.5% QoQTotal business of the bank rose at healthy pace of 25.3% to Rs.1476.8 bn at the endof Q3FY11 from Rs.1179.0bn in Q3FY10.

n Total deposits of the bank rose 23.4% to Rs.820.9 bn at the end of Q3FY11 fromRs.665.5 bn at the end of Q3FY10. CASA mix declined slightly to 28.5% at theend of Q3FY11 from 30.4% at the end of Q2FY11 and 30.1% at the end ofQ3FY10.

n During the same period, advances grew at 27.7 % (YoY) to Rs.655.9 bn at theend of Q3FY11 from Rs.513.5 bn at the end of Q3FY10. This has led to slight im-provement in C/D ratio from 77.2% at the end of Q3FY10 to 79.9% at the endof Q3FY11.

Asset quality at the comfortable level despite sharp deteriora-tion during last couple of quarters; its provision coverage ratio isalso at comfortable levelIn absolute terms, asset quality saw sharp deterioration in last couple of quarters.Gross NPA rose 95.2% YoY and 13.3% QoQ. Similarly, net NPA also rose 250.5%YoY and 28.7% QoQ. However, it is still at comfortable level, if seen in terms ofpercentage of advances. At the end of Q3FY11, gross NPA and net NPA stand at1.33% and 0.47%, respectively, still one of the best in the industry.

Its coverage ratio at 80.4% is far above the regulatory requirement of 70%.

Trend in NPAs

(Rs bn) 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4QFY10 1QFY11 2QFY11 3QFY11

Gross NPA 3.93 3.74 3.73 3.68 3.59 3.98 4.47 4.88 5.79 7.70 8.72

Gross (%) 1.15 1.03 0.89 0.83 0.80 0.83 0.87 0.86 1.01 1.26 1.33

Net NPA 0.35 0.87 0.86 0.79 1.00 0.75 0.88 0.96 1.70 2.39 3.08

Net (%) 0.10 0.24 0.21 0.18 0.22 0.16 0.17 0.17 0.30 0.49 0.47

Source: Company

Valuation & recommendationAt the current market price of Rs.140, the stock is trading at 4.1x its FY12E earningsand 1.1x its FY12E ABV. We have slightly tweaked our earning estimates upward forFY11E & FY12E to factor in higher credit costs and now expect net profit for FY11Eand FY12E to be 12.88 bn and Rs.16.40 bn.

This would result into an EPS of Rs.26.6 and Rs.33.8 for FY11E and FY12E, respec-tively. Adjusted book value for FY11E and FY12E is estimated to be Rs.101.2 andRs.122.9, respectively



Rolling 1-year forward P/ABV band


Rolling 1-year forward P/E band


We maintain BUY on the stock (trading cheap at 1.1x FY12E ABV) with price targetof Rs.175 (Rs.200 earlier) based on 1.4x of its FY12E adjusted book value.

Key Financials

(Rs.bn) 2009 2010 2011E 2012E

Interest income 53.75 63.73 80.97 99.11

Interest expense 37.48 41.78 49.32 61.03

Net interest income 16.27 21.95 31.65 38.08

Growth (%) 21.4 34.9 44.2 20.3

Other income 7.65 9.65 8.07 10.13

Gross profit 12.88 18.10 22.95 28.23

Net profit 6.53 10.46 12.88 16.40

Growth (%) 13.5 60.1 23.2 27.2

Gross NPA (%) 0.8 0.9 1.3 1.3

Net NPA (%) 0.2 0.2 0.4 0.5

Net int. margin (%) 3.0 3.2 3.7 3.7

CAR (%) 13.2 13.9 13.4 13.0

RoE (%) 18.9 26.0 26.8 28.3

RoA (%) 1.0 1.3 1.3 1.4

Dividend per share (Rs) 4.5 5.0 5.0 5.0

EPS (Rs) 13.5 21.6 26.6 33.8

Adjusted BVPS (Rs) 73.6 88.9 101.2 122.9

P/E (x) 10.4 6.5 5.3 4.1

P/ABV (x) 1.9 1.6 1.4 1.1


We recommend BUY onAndhra Bank with a price

target of Rs.175

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SHREE CEMENTS

PRICE: RS.1685 RECOMMENDATION: ACCUMULATETARGET PRICE: RS.1948 FY12E P/CEPS: 5.9X

q Shree Cement's revenues declined by 10% YoY due to fall in cementrealisations. This was in line with our estimates. Cement volumes are upby nearly 2% YoY and realizations down by 11% YoY. Company's dis-patches are impacted by lower than expected demand growth, extremewinter as well as Gujjar agitation. Along with this, power segment rev-enues have also suffered due to low merchant power rates.

q Operating margins were also in line with our estimates and declined onyearly basis due to higher raw material, power and fuel and freight costper tonne. Margins stood at 20.3% for Q3FY11 vis-à-vis 38.7% in Q3FY10.

q Net profits have declined by 84% YoY due to sharp decline in realiza-tions and operating margins. It was also boosted by tax credit.

q We tweak our estimates to take into account lower dispatches going for-ward due to lower than expected demand recovery in the northern re-gion. Along with this, we also reduce our power segment revenue esti-mates to factor in low demand as well as rates.

q At current market price of Rs 1685, stock is trading at 7.6x and 5.9x P/CEPS and 7.4x and 5.2x EV/EBITDA for FY11 and FY12 respectively. Wevalue the company based on the average of 6.5x P/CEPS and 5.5x EV/EBITDA and arrive at a revised price target of Rs 1948 (Rs 2268 earlier) onFY12 estimates.

q Though cement volumes and power segment revenues have been im-pacted adversely in FY11, we expect cement volumes to improve goingahead. Along with this, we also expect demand for merchant power toimprove in FY12 and we thus expect improvement in sale of power forthe company. We thus continue to maintain ACCUMULATE on the stockand would advise investors to use declines to buy the stock.

Revenue growth impacted by fall in merchant power rates anddecline in dispatchesn Shree Cement's revenues declined by 10% YoY due to fall in cement

realisations. This was in line with our estimates. Cement volumes are up bynearly 2% YoY and realizations down by 11% YoY. Company's dispatches areimpacted by lower than expected demand growth, extreme winter as well asGujjar agitation. Along with this, power segment revenues have also suffereddue to low merchant power rates.

n Cement dispatches (including clinker) stood at 2.617 MT for Q3FY11 while ce-ment realizations witnessed a decline of 11% and stood at Rs 2850 per tonne.On a sequential basis also, cement prices have declined due to fall seen duringmonths of Nov and Dec, 2010.

n Power segment revenues declined by 22% YoY due to lower merchant powerrates and company sold only 73.7 mn units of power in Q3FY11. This was muchlower than our estimates. Power sales in 9MFY11 stood at 267 mn units on ac-count of lower demand and rates for merchant power during this fiscal till date.We reduce our power sales estimates going forward and expect company to sellnearly 370 mn units of power during this fiscal.

n We expect demand to improve from the levels seen in FY11 due to higher infra-structure activity going forward. We expect merchant power rates to improvegoing forward while cement realizations are expected to improve marginally dur-ing FY12.

Summary table


Revenues 36,321 35,202 43,147% change YoY 33.8 (3.1) 22.6EBITDA 15,025 8,230 10,975% change YoY 58.0 (45.2) 33.4Other Income 758 850 850Depreciation 5,704 5,031 5,908EBIT 10,079 4,049 5,918% change YoY 21.7 (59.8) 46.1Net interest 766 814 897Pre-operative exp 634Profit before tax 8,679 3,235 5,021% change YoY 20.1 (62.7) 55.2Tax 1,918 582 904as % of PBT 22.1 18.0 18.0Net income 6,761 2,652 4,117% change YoY 17.0 (60.8) 55.2Shares os (m) 34.8 34.8 34.8EPS (reported) (Rs) 194.1 76.1 118.2CEPS (Rs) 357.8 220.5 287.7P/E (x) 8.7 22.1 14.3P/CEPS 4.7 7.6 5.9EV/EBITDA (x) 3.8 7.4 5.2RoE (%) 43.8 13.4 18.0RoCE (%) 35.0 11.7 15.1


RESULT UPDATE

Teena [email protected]+91 22 6621 6302



n We tweak our estimates for FY11 and FY12 to factor in lower cement volumesas well as lower merchant power sales. We expect cement volumes to be 10MTand 11.5MT in FY11 and FY12 respectively and power segment revenues to Rs2.44 bn and Rs 3.85 bn for FY11 and FY12 respectively.

Financial highlights


Net Sales 7,804 8,660 -10

Expenditure 6,221 5,307

Inc/Dec in trade -49 65

RM 930 893

As a % of net sales 11.9 10.3

Staff cost 479 373


Power and fuel 2,068 1,566


Transportation & Handling 2,016 1,732


Other expenditure 777 678


Operating Profit 1,583 3,353 -53

Operating Profit Margin 20.3 38.7

Depreciation 1,314 947

EBIT 270 2,406 -89

Interest 204 115

EBT (exc other income) 66 2,290

Other Income 11 160

Exceptional items 59 14

EBT 18 2,436 -99

Tax -257 762

Tax Rate (%) -1427.8 31.3

PAT 275 1,674 -84

Extraordinary Items 0 0

Net Profit 275 1,674 -84

NPM (%) 3.5 19.3

Equity Capital 348.4 348.4

EPS (Rs) 7.9 48.1

Cash EPS (Rs) 46 75

Source: Company



Operating margins inline with our estimatesn Operating margins were also in line with our estimates and declined on yearly

basis due to higher raw material, power and fuel and freight cost per tonne.Margins stood at 20.3% for Q3FY11 vis-à-vis 38.7% in Q3FY10.

n Power and fuel costs were higher due to high pet coke prices while freight ex-penses remained high due to hike in fuel prices.

Per tonne analysis

Q3FY11 Q3FY10

Despatches (mn tonne) 2.617 2.562

Blended Cem Realisation/tonne 2851 3213

YoY (%) -11.3

Cost per tonne

Inc/Dec in trade -19 26

Raw material 355 348

Staff cost 183 146

Power and fuel 790 611

Transporation & Handling 770 676

Other expenditure 297 265

Source: Company

n Post revising our estimates, we expect operating margins to be 23.4% and25.4% for FY11 and FY12 respectively.

Net profit declined due to fall in cement prices and lower mar-ginsn Net profits have declined by 84% YoY due to sharp decline in realizations and

operating margins. It was also boosted by tax credit.

n We now expect net profits to be Rs 2.65bn and Rs 4bn for FY11 and FY12 re-spectively.

Valuation and recommendationn At current market price of Rs 1685, stock is trading at 7.6x and 5.9x P/CEPS and

7.4x and 5.2x EV/EBITDA for FY11 and FY12 respectively. We value the com-pany based on the average of 6.5x P/CEPS and 5.5x EV/EBITDA and arrive at arevised price target of Rs 1948 (Rs 2268 earlier) on FY12 estimates.

n Though cement volumes and power segment revenues have been impacted ad-versely in FY11, we expect cement volumes to improve going ahead. Along withthis, we also expect demand for merchant power to improve in FY12 and wethus expect improvement in sale of power for the company.

n We thus continue to maintain ACCUMULATE on the stock and would advise in-vestors to use declines to buy the stock.

We recommendACCUMULATE on Shree

Cements with a pricetarget of Rs.1948



MADHUCON PROJECTS LTD (MPL)PRICE: RS.87 RECOMMENDATION: BUYTARGET PRICE: RS.140 FY12E P/E: 9.7X

q Madhucon Projects Ltd reported 26% YoY growth in revenues forQ3FY11 which was lower than our estimates.

q Operating margins stood at 12.73% for Q3FY11, better than our esti-mates. This was due to higher proportion of power segment revenues inthe current quarter.

q Net profits grew by 6% YoY and are impacted by lower revenue growthand higher interest outgo in comparison with last year.

q At current price of Rs 87, stock is trading at 10.2x and 9.7x P/E for FY11and FY12 respectively. We take into account lower than expected orderinflows and thereby reduce our target P/E multiple for core business to8x one year forward earnings. Due to delays seen in Trichy and Tuticorinroad BOT projects, we reduce our valuations from these projects. Alongwith this, with delay seen in the fund raising plans of the company, wealso don't include coal mining valuations in our target valuations.

q We thus arrive at a revised price target of Rs 140 (Rs 191 earlier) on FY12estimates. Due to decent upside from the current levels, we continue tomaintain BUY on the stock.

Financial highlights


Net Sales 3521 2803 26%

Expenditure -3073 -2455

EBITDA 448 347 29%

EBITDA margin 12.7 12.4

Depreciation (119) (115)

EBIT 329 233 41%

Interest (154) (68)

EBT(exc other income) 175 164

Other Income 9 13

EBT 185 177 4%

Tax (69) (69)

Tax (%) 37.7 38.6

Net profit 115 109 6%

NPM (%) 3.27 3.88

Equity Capital 73.7 74.0

EPS (Rs) 1.6 1.5

Source: Company

Revenue growth lower than our estimatesn Madhucon Projects Ltd reported 26% YoY growth in revenues for Q3FY11 which

was lower than our estimates.

n Current order book of company stands at nearly Rs 43 bn diversified across roadsegment 27%, irrigation projects 20%, power projects 42%, and remaining frombuilding and mining segment.

n MPL has achieved financial closure of Chhapra-Hazipur Section of NH-19 in thestate of Bihar and construction work is expected to start by end of Feb, 2011.

n Phase 1 of power project by Simhapuri Energy Pvt Ltd is likely to get completedby June, 2011 as against March, 2011 expected earlier. This was due to delaysseen in the delivery of shipment as well as extended monsoon seen in this fiscal.For phase II, construction work has begun and targeted completion date is Sep,2012.

Summary table


Sales 13,076 16,800 20,160Growth (%) 33 28 20EBITDA 1,342 1,848 2,218EBITDA margin (%) 10.3 11.0 11.0PBT 682 997 1,051Net profit 432 663 699EPS (Rs) 5.6 8.5 9.0Growth (%) -54 53 5CEPS (Rs) 11.3 15.2 17.2Book value (Rs/share) 74.3 82.4 91.0Dividend per share (Rs) 0.4 0.4 0.4ROE (%) 7.8 10.9 10.4ROCE (%) 11.3 14.3 14.1Net cash (debt) (263) (392) (434)P/E (x) 15.6 10.2 9.7P/BV (x) 1.2 1.1 1.0EV/Sales (x) 0.4 0.4 0.4EV/EBITDA (x) 4.4 3.9 3.4


RESULT UPDATE

Teena [email protected]+91 22 6621 6302



n Toll collections in Madhucon Agra-Jaipur expressway and TN Expressway haveimproved sequentially and these projects collected toll of Rs 10.5 lakh/day and Rs7.7-8.2lakh/day respectively during Q3FY11. Tuticorin and Trichy projects are stillawaiting final notification for toll collections.

n Company is also L1 in Rs 11 bn worth of annuity road project and also expectsanother Rs 15bn worth of road BOT project in the coming months. Along withthis, post commissioning of all BOT road projects, company expects to securitizethe receivables and invest them in the upcoming as well as existing roadprojects.

n Based on strong order book, we continue to maintain our revenue estimates forthe company going forward and expect revenues to grow at a CAGR of 24%between FY10-FY12.

Operating margins better than our estimatesn Operating margins stood at 12.73% for Q3FY11, better than our estimates. This

was due to higher proportion of power segment revenues in the current quarter.

n We maintain our estimates and expect margins to be 11% going forward.

Net profit growth impacted by lower revenue growthn Net profits grew by 6% YoY and are impacted by lower revenue growth and

higher interest outgo in comparison with last year.

n Interest outgo was higher due to higher working capital borrowings and increasein interest rates.

n We revise our borrowing and interest cost assumptions upwards and expect netprofits to grow at a CAGR of 27% between FY10-12.

Valuation and recommendationn At current price of Rs 87, stock is trading at 10.2x and 9.7x P/E for FY11 and

FY12 respectively.

n We take into account lower than expected order inflows and thereby reduce ourtarget P/E multiple for core business to 8x one year forward earnings.

n Due to delays seen in Trichy and Tuticorin road BOT projects, we reduce ourvaluations from these projects. Along with this, with delay seen in the fund rais-ing plans of the company, we also don't include coal mining valuations in ourtarget valuations.

n We thus arrive at a revised price target of Rs 140 (Rs 191 earlier) on FY12 esti-mates.

n Due to decent upside from the current levels, we continue to maintain BUY onthe stock.

Sum of the parts valuation (FY12)

Rs per share

Core business 72 8 times FY12 earnings

Road projects

Rajasthan BOT 7 Expected Equity IRR of 16%

Tamil Nadu BOT 8 Expected Equity IRR of 16%

Tuticorin BOT 13 Expected Equity IRR of 13%

Trichi BOT 10 Expected Equity IRR of 13%

Power project 24 P/BV of 0.75x for equity investment of

Rs 2.5bn invested till date

Land value 5 9.2acres bought at Rs 45mn per acre

Total 140


We recommend BUY onMadhucon Projects with a price

target of Rs.140



ESCORTS LTD

PRICE: RS.131 RECOMMENDATION: BUYTARGET PRICE: RS.204 FY12E P/E: 7.7X

q Escorts reported disappointed set of 1QFY11 results with profits belowour and street expectations.

q Rising commodity prices, higher traded sales (supply of bought outs atcost for the Tanzanian order) and poor order off-take from Indian rail-ways led to below expected EBITDA margins and ultimately leading topoor performance at the net profit level.

q Management has indicated towards improvement in EBITDA marginsfrom 1QFY11 levels through price hikes, value engineering and other costsaving and restructuring efforts.

q We are cutting down our FY11E and FY12E forecast to factor in changingmacro environment that includes 1. Increase in raw material prices 2. Ris-ing financing cost/tight liquidity 3. Poor order flow from the railwaysand 4. Expected slowdown in construction related activities.

q Our revised EPS for the company now stands at Rs13.9 (earlier Rs. 19.4)for FY11E and Rs. 17.1 (earlier Rs.23.1) for FY12E.

q Stock has already corrected significantly in the past one month in viewof the changing macro factors. Currently the stock is trading at attractivevaluations of 9.4x FY11 and 7.7x FY12 estimated earnings. We continueto retain our BUY rating on the stock with DCF based revised price targetof Rs.204 (earlier Rs.256).

Quarterly Data - Standalone entity

(Rs mn) 1QFY11 1QFY10 YoY(%) 4QFY10 QoQ (%)

Revenues 8,278 6,002 37.9 6,676 24.0

Total expenditure 7,939 5,520 43.8 6,395 24.1

RM consumed 6,042 4,071 48.4 4,550 32.8

Employee cost 801 696 15.0 629 27.4

Other expenses 1,097 752 45.8 1,216 (9.8)

EBITDA 339 482 (29.8) 281 20.4

EBITDA margin 4.1 8.0 4.2

Depreciation 100 119 (16.4) 96 3.4

Interest cost 37 68 (45.5) 61

Other operating income 100 59 68.6 45 120.8

Other Income - - - 1 -

EO income/(loss) 6 - - 155 (96.2)

PBT 308 355 (13.2) 325 (5.3)

PBT margins 3.7 5.9 4.9

Tax 53 121 (56.2) 56 (6.5)

Tax rate 17.2 34.0 17.4

PAT 255 234 8.9 268 (5.0)

PAT margins 3.1 3.9 4.0

No. of equity shares 106 94 12.0 102 3.3

EPS (Rs) 2.4 2.5 (2.7) 2.6 (8.0)

Source: Company

Summary table


Sales 33,242 37,331 41,182Growth (%) 28.0 12.3 10.3EBITDA 1,909 2,284 2,742EBITDA margin (%) 5.7 6.1 6.7PBT 1,813 1,911 2,358Net Profit 1,320 1,325 1,634EPS (Rs) 13.8 13.9 17.1Growth (%) 289.0 0.3 23.4CEPS (Rs) 19.4 19.9 23.3Book Value (Rs/share) 176 196 212Dividend per share (Rs) 2 1 1ROE (%) 8.3 7.4 8.4ROCE (%) 9.7 9.5 11.0Net cash / (debt) (1,936) (990) (57)NW Capital (Days) 45 46 45P/E (x) 9.5 9.4 7.7P/BV (x) 0.7 0.7 0.6EV/Sales (x) 0.5 0.4 0.3 EV/EBITDA (x) 8.3 6.5 5.1


RESULT UPDATE

Arun [email protected]

+91 22 6621 6143



Result highlightsn Revenues for the quarter grew by 38% YoY and 24% QoQ to Rs8,278mn. Rev-

enues during the quarter received boost from supply of bought outs (at cost) inorder to fulfill its Tanzanian order and that led to higher than anticipated rev-enues.

n Revenues from the agri-machinery division (AMG) jumped 44% YoY to Rs.7,730mn on account of increase in tractor sales and higher trading sales.

Segment Revenues - Standalone entity

(Rs mn) 1QFY11 1QFY10 YoY(%) 4QFY10 QoQ (%)

Agri Machinery 7,730 5,364 44.1 5,940 30.1

Auto Ancillary 250 236 5.6 276 (9.7)

Railway Equipments 423 493 (14.1) 551 (23.2)

Unallocable 11 13 (15.0) 3 301.0

Source: Company

n Company sold 16,333 tractors during the quarter a 21% jump over 1QFY10 trac-tor volumes. Company will launch a new tractor series in Feb2011 and the sameshould aid volumes going forward.

n Realizations have improved significantly YoY on account of improved product mixand price hike. Company will be taking a total price hike of ~3-4% during2QFY11 of which a part has already been taking Jan 2011 and the remaining willtake effect from starting of March 2011.

n Revenues from the auto ancillary business at Rs250mn was 5.6% higher YoY.However sequentially it was down by 9.7%.

n Revenues from the railway equipment division (RED) were a major disappoint-ment. Poor order flow from the Indian railways and delay in implementation ofnew technology led to 14% YoY and 23% QoQ decline in RED revenues toRs423mn. Current order book for the RED division stands at Rs500mn domesticand Rs60mn on the export side.

n Sales from the construction equipment division were ~Rs1660mn.

n Escorts reported EBITDA of Rs339mn as against EBITDA of Rs482mn reportedduring 1QFY10

n EBITDA margins during the same period were down from 8% to 4.1%. 1QFY11margins were impacted due to increasing raw material cost and poor perfor-mance from the high margin RED division. Furthermore, during the quarter thecompany executed a part of the Tanzanian order that primarily was selling ofbought-outs at cost or at very low margins.

Segmental margins - Standalone entity

(Rs mn) 1QFY11 1QFY10 4QFY10

Agri Machinery 6.2 8.2 6.9

Auto Ancillary (21.9) (12.5) (16.2)

Railway Equipments 7.0 17.4 11.5

Source: Company

n Going ahead margins are expected to improve over 1QFY11 margins on accountof 1. 3-4% increase in tractor selling prices in 2QFY11 2. Value engineering andplanned reduction in cost conversion cost (like power cost) 3. Taking concretemeasures for turning around the loss making auto ancillary business and 4. Ex-pected absence of one-off's as witnessed during 1QFY11 (related to Tanzanianorder).



n Other operating income witnessed a decent increase from Rs.59 mn in 1QFY10to Rs100mn in 1QFY11. Interest cost on the other hand was down from Rs.68 mnin 1QFY10 to Rs.37 mn for the quarter under review.

n On account lower tax rate provision, net profit for the quarter was up by8.9%YoY at Rs.255 mn.

Conference call highlightsn Management has indicated towards robust tractor demand in FY11. Company

will be launching a new tractor series in Feb 2011.

n On the auto ancillary division the company is in the process of revamping aftermarket structure and taking other measures like widening portfolio and brandstrengthening in order to attain quick financial turnaround.

n RED division continues to be marred by lower order off-take and delay in tech-nology up-gradation from the Indian railways.

n On the capex plan, the company would be spending close to Rs1,450mn on itsAMG business for R&D, debottlenecking and modernization program. The saidamount would be spent over a period of 3 years and the company has alreadytied-up for the requisite funding.

Valuation and viewn Good monsoons are expected to be positive for the tractor sales in FY11E. How-

ever at the same time tight liquidity conditions and rising interest rates can playa spoil sport and limit the growth. We have therefore lowered our tractor salesvolume figures by 4.8% to 67,296 units in FY11 and 74,026 units in FY12E.

n On account of rising input cost scenario, we are lowering our EBITDA marginestimates to 6.1% (earlier 7.9%) for FY11E and to 6.7% (earlier 8.3%) forFY12E. We believe the margins to improve from 1QFY11 levels on slew of rea-sons mentioned earlier in the report.

n Our revised EPS for the company now stands at Rs13.9 (earlier Rs.19.4) forFY11E and Rs.17.1 (earlier Rs.23.1) for FY12E.

Consolidated Financials

FY11E FY12E Old Revised Old Revised

Revenues 38,450 37,331 42,997 41,182

EBITDA margin 7.9 6.1 8.3 6.7

EPS 19.4 13.9 23.1 17.1


n Stock has already corrected significantly in the past one month in view of thechanging macro factors. Currently the stock is trading at attractive valuations of9.4x FY11 and 7.7x FY12 estimated earnings.

n We continue to retain our BUY rating on the stock with DCF based revised pricetarget of Rs.204 (earlier Rs.256).

We recommend BUY on Escortswith a revised price target of

Rs.204



Trade details of bulk deals

Date Scrip name Name of client Buy/ Quantity Avg.Sell of shares price

(Rs)

31-Jan Alchemist Rlty Varinder Pal Singh Huf B 500,000 12.4

31-Jan Alchemist Rlty Amandeep S 500,000 12.4

31-Jan Asia Hr Tech Telesys Software Ltd S 50,000 6.2

31-Jan Bgil Films Enaam Securities S 50,000 6.0

31-Jan Chandni Tex Amrapali Capital And Finance B 200,000 142.0

31-Jan Chandni Tex Nabh Tradelink Pvt.Ltd B 100,000 142.0

31-Jan Chandni Tex Avance Technologies Limited B 100,000 142.7

31-Jan Chandni Tex Vijaykumar Ramanlal Sanghavi B 150,000 142.7

31-Jan Chandni Tex Niruben Vitthalbhai Patel S 285,586 142.5

31-Jan Comfort Intech Blc Trading Agencies Private Limited S 1,600,000 3.4

31-Jan Devika Prot Mrunal Agency & Financials B 249,560 9.3

31-Jan Devika Prot Viren Rashmikanth Mehta S 100,000 9.3

31-Jan Devika Prot Priti Viren Mehta S 100,000 9.3

31-Jan Exelon Infra Salma Sharafat Khan B 100,700 47.5

31-Jan Exelon Infra Srinivas Yadav Sher S 100,000 47.5

31-Jan Greycells Edu Igft Private Limited B 60,000 39.8

31-Jan Greycells Edu Padmakshi Financial Services Limited S 60,000 39.8

31-Jan Jmd Telefilms Ajit Kumar Jain S 485,000 16.0

31-Jan Marvel Capital Mahan Trading Private Limited B 30,000 26.1

31-Jan Marvel Capital Sulochana Ganwani S 40,100 26.1

31-Jan Mazda J N J Holding S Pvt Ltd S 25,000 90.1

31-Jan Natura Hue Ch Daffodil Tradex Private Limited B 80,463 14.6

31-Jan Parichay Invest Hasmukhlal Vyas Jitendra B 7,000 222.5

31-Jan Parichay Invest Gagabhai Desai Amul B 13,000 223.0

31-Jan Parichay Invest Desai Mahesh B 24,300 223.0

31-Jan Parichay Invest Subhadra Chinubhai Patel B 6,800 219.5

31-Jan Parichay Invest Chinubhai Khodabhai Patel S 6,300 223.2

31-Jan Polypro Fibrils Sushma Jain B 30,000 21.2

31-Jan Polypro Fibrils Kastur Savji Satra S 34,375 21.2

31-Jan Polypro Fibrils Meenal Prashant Mamaniya S 35,928 21.2

31-Jan Punjab Wool Kiran Bhaskarrao Sanap B 107,625 13.1

31-Jan Punjab Wool Rakesh Kumar Jain (Huf) S 98,500 13.1

31-Jan Ranklin Sol Rani Kodali S 27,913 17.0

31-Jan Ravinay Trad Raj Realestate & Finvest P Ltd B 46,000 219.3

31-Jan Ravinay Trad Gaurav Gupta S 19,000 219.1

31-Jan Regency Trust Disha Bharat Takwani B 56,900 66.6

31-Jan Rubra Med Akshata Ankush Ambokar B 220,500 5.2

31-Jan Rubra Med Bharatbhai Tapubhai Sanchala S 104,700 5.2

31-Jan Rubra Med Bimal Pravinchandra Kamdar S 105,200 5.2

31-Jan Shekhawati Poly Nimishaben Dharmeshkumar Patel B 240,564 25.1

31-Jan Shekhawati Poly Heena Vipul Vora S 185,500 25.1

31-Jan Shree Ashtavina Amax Network P.Ltd B 5,000,000 7.9

31-Jan Shree Ashtavina Madhukar Chimanlal Sheth S 6,838,202 7.9

31-Jan Subhkam Cap Kejriwal Finvest Pvt. Ltd. S 25,000 225.4

31-Jan Vax Housing Banwarilal Hanumanaram Saharan B 33,500 48.7

31-Jan Vax Housing Aakruti Textiles B 165,000 48.7

31-Jan Vax Housing Patel Virendrakumar J S 25,000 48.7

31-Jan Vax Housing Mehul Pranlal Mehta S 33,232 48.7

31-Jan Vax Housing Dewang Brahmbhatt S 52,995 49.0

31-Jan Volant Textile Praveen Kumar Arora B 69,600 56.1

Source: BSE

Bulk deals



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Gainers & Losers Nifty Gainers & LosersPrice (Rs) chg (%) Index points Volume (mn)

Gainers

Siemens India 854 17.3 6.4 5.8

L&T 1,641 2.1 6.0 1.4

ONGC 1,178 4.0 5.1 2.9

Losers

ITC 163 (3.3) (9.8) 11.3

Infosys Tech 3,118 (1.6) (8.2) 1.0

HDFC 628 (2.6) (7.4) 4.2

Source: Bloomberg

Research TeamDipen ShahIT, [email protected]+91 22 6621 6301

Sanjeev ZarbadeCapital Goods, [email protected]+91 22 6621 6305

Teena VirmaniConstruction, Cement, Mid [email protected]+91 22 6621 6302

Saurabh AgrawalMetals, [email protected]+91 22 6621 6309

Saday SinhaBanking, NBFC, [email protected]+91 22 6621 6312

Arun [email protected]+91 22 6621 6143

Ruchir KhareCapital Goods, [email protected]+91 22 6621 6448

Jayesh [email protected]+91 22 6652 9172

Ritwik RaiFMCG, [email protected]+91 22 6621 6310

Sumit PokharnaOil and [email protected]+91 22 6621 6313

Shrikant ChouhanTechnical [email protected]+91 22 6621 6360

K. [email protected]+91 22 6621 6311

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