Jewel Hunt 2010 - guinessonline.net€¦Guiness Securities Limited . Company Name Date ... Balrampur...

Dated: 26th November 2010 Dear Customer, We take this as an opportunity to sincerely extend our gratitude for your everlasting faith and confidence maintained upon us. Our value based-investments, based on our recommendation provided in our earlier editions, have performed well as per our intensive research & study and we expect the same has been successful in delivering you brilliant returns. Our Research Team remain dedicated to deliver quality research services, improved customized solutions ensuring that our valuable clients continue to earn excellent performance amidst volatile & unpredictable market movements. It’s our pleasure to once again assist you in enhancing your stock portfolio’s performance by presenting our latest edition of ‘Jewel Hunt’ where we have selected certain fundamentally sound stocks which we still believe has potential to provide rewarding returns. The stock has been selected after analyzing overall economy trends, the industry outlook, various key investment parameters and comparison with their peers, which we fairly anticipate would outperform the market. As we move into 2011, we assure you to instill the optimism of value-based investments and trading based on sound technical ground. Improving global scenario, robust Indian economic outlook, pick up in M&A activities, increasing Capex expenditures planned by industrial organizations, favorable regulatory framework provides a positive investment scenario for the Indian markets. Though the instances of scams & frauds have been there in the news in recent times, the way the regulators have handled the situations, restore our confidence in the economy. We recommend our esteemed clients to base their investment and trading only after informed and well-researched decisions. Also considering the volatility associated at higher levels we would recommend investors to have a buy on dips strategy, as the longer term India growth story is very much intact. We, at GUINESS with our focused approach to ‘Outperform’ remains dedicated to deliver strong performance in different market conditions. I request you to have a look at the details of these companies and invest as per your preference. Wish you happy & prosperous New Year ahead! Looking forward to serve you best……. Happy Investing! BEST OF LUCK!!!!

Kamal Kumar Kothari Managing Director Guiness Securities Limited

Company Name Date Reco Price No. of shares Amount CMP

No. of shares Amount % Return

Areva T&D 1-Apr-2009 205.35 1000 205350 287.80 1000 287800 40.15 Ashapura Minech. 1-Apr-2009 25.70 1000 25700 66.75 1000 66750 159.73 Aurobindo Pharma 1-Apr-2009 184.55 1000 184550 929.30 1000 929300 403.55 Balrampur Chini 1-Apr-2009 56.10 1000 56100 91.85 1000 91850 63.73 Cipla 1-Apr-2009 218.85 1000 218850 333.10 1000 333100 52.20 Dishman Pharma 1-Apr-2009 96.30 1000 96300 220.15 1000 220150 128.61 Electrost.Cast. 1-Apr-2009 15.30 1000 15300 48.95 1000 48950 219.93 GIC Housing Fin 1-Apr-2009 36.30 1000 36300 88.05 1000 88050 142.56 Havells India 1-Apr-2009 147.70 1000 147700 601.35 1000 601350 307.14 Hindalco Inds. 1-Apr-2009 52.85 1000 52850 178.20 1000 178200 237.18 ICRA 1-Apr-2009 485.95 1000 485950 966.85 1000 966850 98.96 ITC 1-Apr-2009 184.35 1000 184350 264.85 1000 264850 43.67 Madras Cement 1-Apr-2009 70.05 1000 70050 125.75 1000 125750 79.51 Max India 1-Apr-2009 100.45 1000 100450 181.50 1000 181500 80.69 Netwrk.18 Media 1-Apr-2009 73.05 1000 73050 136.60 1000 136600 87.00 Opto Circuits 1-Apr-2009 116.30 1000 116300 217.80 1000 217800 87.27 Patel Engg. 1-Apr-2009 140.50 1000 140500 450.10 1000 450100 220.36 Pricol 1-Apr-2009 7.35 1000 7350 27.10 1000 27100 268.71 Selan Expl. Tech 1-Apr-2009 129.75 1000 129750 435.75 1000 435750 235.84 Tata Coffee 1-Apr-2009 149.35 1000 149350 392.00 1000 392000 162.47

TOTAL INVESTMENT 2496100 VALUE TILL DATE 6043800

Investment Summary

142% Net Return

Company Name Date Reco Price

No. of shares Amount CMP

No. of shares Amount % Return

Bank of Maha 31-Jul-2009 41.95 1000 41950 53.65 1000 53650 27.89 Firstobj.Tech. 31-Jul-2009 8.40 1000 8400 28.30 1000 28300 236.90 GVK Power Infra. 31-Jul-2009 43.40 1000 43400 44.45 1000 44450 2.42 Harr. Malayalam 31-Jul-2009 77.70 1000 77700 136.65 1000 136650 75.87 ITI 31-Jul-2009 37.40 1000 37400 47.95 1000 47950 28.21 J B Chem & Pharm 31-Jul-2009 43.70 1000 43700 81.00 1000 81000 85.35 Jupiter Bio. 31-Jul-2009 65.15 1000 65150 87.65 1000 87650 34.54 MSK Projects 31-Jul-2009 78.40 1000 78400 167.45 1000 167450 113.58 Man Inds. 31-Jul-2009 48.30 1000 48300 69.10 1000 69100 43.06 Munjal Auto Inds 31-Jul-2009 64.75 1000 64750 105.15 1000 105150 62.39 NELCO 31-Jul-2009 54.00 1000 54000 139.55 1000 139550 158.43 Prithvi Info. 31-Jul-2009 63.20 1000 63200 64.75 1000 64750 2.45 Sakthi Sugars 31-Jul-2009 60.85 1000 60850 57.10 1000 57100 -6.16 Sh. Digvijay Cem 31-Jul-2009 16.33 1000 16330 18.15 1000 18150 11.15 Shasun Chemicals 31-Jul-2009 21.85 1000 21850 57.70 1000 57700 164.07 Shreyans Inds. 31-Jul-2009 35.00 1000 35000 31.30 1000 31300 -10.57 Tour. Fin. Corp. 31-Jul-2009 20.50 1000 20500 29.75 1000 29750 45.12 Vikas Wsp 31-Jul-2009 20.45 1000 20450 30.45 1000 30450 48.90 Welspun India 31-Jul-2009 38.85 1000 38850 95.65 1000 95650 146.20


Investment Summary

Net Return 60%

Company Name Date Reco Price

No. of share Amount CMP

No. Of share Amount % Return

ABG Shipyard 19-Apr-2010 251.3 1000 251300 406.25 1000 406250 62% Biocon 19-Apr-2010 301.5 1000 301500 378.3 1000 378300 25% Dishman Pharma. 19-Apr-2010 220.15 1000 220150 132.8 1000 132800 -40% Escorts 19-Apr-2010 165.85 1000 165850 206.35 1000 206350 24% Mah. Seamless 19-Apr-2010 385.45 1000 385450 384.95 1000 384950 0% Pidilite Inds. 19-Apr-2010 112.9 1000 112900 142.85 1000 142850 27% Rural Elec.Corp. 19-Apr-2010 250.45 1000 250450 315.7 1000 315700 26% Rolta 19-Apr-2010 183.65 1000 183650 156.95 1000 156950 -15% Supreme Inds. 19-Apr-2010 102 1000 102000 151.65 1000 151650 49% TIL 19-Apr-2010 370.2 1000 370200 680 1000 680000 84%


Net Return 26%

Investment Summary

Company Update: BHEL is the largest engineering enterprise in India manufacturing over 180 products under 30 major product groups and caters to core sectors of the Indian Economy viz., Power Generation & Transmission, Industry, Transportation, Telecommunication, Renewable Energy, etc. In order to meet the increasing demand of power equipments, it is currently expanding its capacities to 20,000 MW, which expected to commission by Dec 2011. The Company has order backlog of ` 1.54 trn with visibility for next three and half years. 26th November 2010

Company Details : CMP (`) 2096.85

NSE Symbol BHEL

BSE Code 500103

Face Value (`): 10

Industry P/E: 24.08

Book Value (`): 325.16

Equity (` Crs): 489.52

Market Cap (` Crs): 102801.65

EV (` Crs): 93139.32

Dividend Yield (%): 1.11

52w High/Low 2694/2055

Share Holding Pattern (As on 30.09.2010)

Industry: Heavy Electrical Equipment

Valuation: At the current market price, the stock is trading at a PE multiple of 18.9x FY11 earnings and 15.5x FY12 earnings going forward. Given its strong order book, strong balance sheet and proven track record of the management, BHEL is well poised to capture the upcoming opportunities in the Power sector in the country and hence we place a target of ` 2540 on the stock within the next 6-9 months.

Investment Rationale:

ü BHEL has an order backlog of ` 1.54 trn. Its current order book is 4.4x its trailing 12 months revenues giving it a visibility of next three and half years.

ü BHEL has recently expanded its capacity from 10,000 MW to 15,000 MW which is expected to stabilize by March 2011. It is further expanding its capacities for power equipment manufacturing. It is in the process of adding additional 5,000 MW taking its total capacity to 20,000 MW. All these will significantly add to the company’s earnings going forward.

ü Share of total Super Critical Sets is expected to be 43,640 MW (59% of Coal

based sets) in 12th Plan and 64,000 MW (100% of Coal based sets) in 13th Plan. CEA’s policy paper has put forward guidelines which would encourage indigenous manufacturing in India and benefit companies like BHEL.

ü Power demand in India, measured by peak load, has grown at 5.4% CAGR in

FY04-09 to 109.8 GW driven by the robust economic growth and rapid industrial development in the country. However, power supply has lagged demand due to the structural deficits in the economy and the historic underachievement of power generation capacity addition targets. With the Central Electricity Authority (CEA) forecasting robust growth of power demand in India (15% CAGR in FY09-FY17E to 331 GW), the government has set aggressive capacity addition targets for the XIth (FY07-12) and XIIth (FY12-17) Plans of nearly 178 GW, providing attractive growth opportunities for power plant equipment suppliers in India. BHEL which enjoys nearly 54% market share will be a huge beneficiary of this investment plan.

Financial Highlights (Consolidated): `Cr

Particulars FY09 FY10 FY11 E FY12 E

Net Sales 26727 33280 41058 49733

EBITDA 4231 5790 8010 9812

Adjusted Net Profit 3138 4287 5558 6675

Adjusted EPS 64.1 87.6 113.6 138.5

PE (x) 33.5 24.5 18.9 15.5

P/BV (x) 7.3 6.5 5.1 4.1

EV/ EBITDA (x) 18.3 15.5 11.6 9.5

Target Price

Company Update: GAIL is India's largest natural-gas company, with 78% market share in transporting natural gas and 70% in marketing. Its businesses are integrated, covering natural gas processing, transmission and distribution. It has varied business interests in LPG processing and transmission, petrochemicals, CGD and exploration and production. Further, it has interests in CNG and city gas projects in Egypt and China, and E&P assets in Oman and Myanmar.

26th November 2010 Company Details : CMP (`) 487.50

NSE Symbol GAIL

BSE Code 532155

Face Value (`): 10

Industry P/E: 17.9


Equity (` Crs): 1268.48


EV (` Crs): 59140.93


52w High/Low 520/345


Industry: Gas Distribution

Valuation: At the current market price, the stock is trading at a PE multiple of 16.9x FY11 and 14.7x FY12 earnings going forward. We forecast FY11-13e earnings CAGR of 14% on the back of higher gas transmission volumes & tariff and lower subsidy burden. We value the stock at ` 560 in the next 6-9 months.


ü GAIL plans to spend over US$6bn over FY11-13, primarily to double the capacity of its gas transmission business and petrochemicals plant. The huge capex would ensure earnings CAGR of 14% in the next two to three years. The company plans to fund about half of its capex from internal accruals, resulting its debt/equity rising to a comfortable 0.67x (from current 0.08 x ). The borrowing would be from a mix of domestic and overseas sources, resulting in lower cost of debt.

ü Of the above mentioned Capex, two-thirds would be used to double the gas transmission pipeline capacity. With PNGRB regulations prohibiting competitors from setting up parallel pipelines, the expansion would only strengthen its monopolistic position. The pipeline expansion would be coupled with increased gas supply, primarily from ramp up of RIL’s KG-D6 gas and increased LNG supplies. Further, GAIL would earn higher than- regulated returns as the useful life of a pipeline is 75-80 years, significantly higher than 25 years assumed by regulators for computation of tariff.

ü GAIL has transmission pipeline of +7,000km with capacity of 150mcmd, which it plans to ramp up to 340mcmd (to 14,000km) by FY15. The pipeline expansion is on track and is expected to be the main contributor to earnings growth over the next 3-4 years. GAIL has near monopoly (78% market share) in gas transmission at present. Further, PNGRB regulations prohibit competitors from setting up parallel pipelines. Hence, the doubling of its gas pipeline capacity would only strengthen GAIL’s monopolistic position, ensuring that it would be a major beneficiary of the rising gas consumption.

ü With government asking a lower subsidy payout since the past two quarters, we expect GAIL’s subsidy share to be 6.5% of subsidy parked in the upstream companies, lower than 10-13% earlier. This would be a key trigger for the company’s earnings and thus would re-rate the stock further.

ü The company’s earnings are expected to grow at a CAGR of 14% for the next two years on the back of higher gas transmission volumes & tariff and lower subsidy burden.



Net Sales 23554 26565 30699 33857

EBITDA 4485 4621 6174 7302


Adjusted EPS 23.5 23.4 28.9 33.2

PE (x) 20.8 20.9 16.9 14.7

P/BV (x) 4.0 3.6 3.1 2.8

EV/ EBITDA (x) 14.0 13.6 10.2 8.6

Target Price

Company Update: Established as the apex Development Financial Institution (DFI) in July 1964, IDBI Bank Ltd. is among the India’ largest commercial Bank with dominant presence in infrastructure development finance space, providing array of services like project, development of identified backward areas and evolution of a deep and vibrant capital market. In October 2004, it was converted into a Banking company (as Industrial Development Bank of India Limited) to undertake the entire gamut of banking activities while continuing to play its secular DFI role. 26th November 2010


NSE Symbol IDBI

BSE Code 500116

Face Value (`): 10

Industry P/E: 10.38




EV (` Crs): 217130.0




Industry: Banking

Valuation: The stock trades at 1.1x FY11 Book Value as against 2-3x that of peer banks. We expect the benefit of clearer balance sheet, steady growth and favorable asset- liability mix to translate into higher ROE’s for the Company in FY13. We value the stock at `210 in the next 9-12 months.

Investment Rationale: ü With a new Chairman in the board armed with ambitious goals of building a

strong retail network, cleaning the book for legacy npas and higher margins, IDBI is all set to become a ‘Bank of Choice’ and ‘the most valued Financial Conglomerate.’

ü With the capital infusion expected in IDBI bank by GoI to comply with Tier I requirement, this will provide IDBI Bank considerable scope to raise fund to support future balance sheet growth.

ü Expansion of branch network, improved greater reliance on deposits in

place of borrowing to support its lending leading to decreased cost, aggressive savings account opening and enhanced focus on transaction banking is helping to boost CASA deposits. Such initiatives along with strong focus on brand building will significantly improve the cost of funds thus supporting higher margins and boosting profitability for the coming years.

ü With focus to improve profitability, we expect the NII growth to remain

robust due to lower cost of funds. The change in asset structure has equipped the bank with flexibility to reduce reliance on bulk deposits. Thus lower bulk deposits, improved asset yields will improve NIMs for the coming years.

ü IDBI Bank will continue to benefit from domain knowledge in infrastructure

through advisory revenue, guarantees, and loan syndications thus enhancing its non-interest based income. Further, growth in SME, Mid corporate and retail segment will boost up its fee revenue.

ü Higher core business growth, increasing productivity and improvement in

asset yield is well likely to translate into higher PAT growth and improvement RoA and RoE for the coming years thus providing upside potential for the stock.



Net Interest Income 1239.4 2267.4 4035.4 5184.0

Operating Profit 1377.9 2726.9 3679.6 4950.4

Adjusted Net Profit 858.5 1031.1 1421.5 2301.6

Adjusted EPS 11.8 14.2 14.4 23.4

PE (x) 14.0 11.6 11.5 7.1

P/BV (x) 1.3 1.2 1.1 1.0

EV/ EBITDA (x) NA NA NA NA

Target Price

Company Update: IL&FS Transportation Networks (India) Limited (ITNL) is a surface transport player, with an established track record of having successfully bid, developed and operating road BOT projects on a commercial basis. ITNL has a portfolio encompassing over 7,500 lane km, one of the largest in the country. The company’s experience and technical capability coupled with a project capitalization of `14,673cr gives it an edge over competition to bid for new projects.


NSE Symbol IL&FSTRANS

BSE Code 533177

Face Value (`): 10

Industry P/E: 31.2




EV (` Crs): 6948.89




Industry: Roads & Highways

Valuation: At the current market price, the stock is trading at 13.4x and 11.2x its FY11E and FY12E earnings respectively. We value the stock at `380 in the next 6-9 months.


ü ITNL has 22 road projects spread across the length and breadth of the country. Over the years, India has accelerated investments in the state highways and major district roads. The Company will be a huge beneficiary to the huge infrastructure plans to be laid out in future by the Indian government.

ü ITNL currently has a hedged road BOT asset portfolio as it is bi-furcated equally into toll and annuity projects in revenue terms, thereby reducing its dependence on traffic related revenue inflow. Going ahead as well, the company is expected to continue to have balanced revenues considering the projects in pipeline.

ü ITNL has a strong parent in Infrastructure Leasing & Financial Services (IL&FS), which has rich experience in project advisory, project development and debt syndication. ITNL on account of having strong parentage would enjoy an edge over competition as it would leverage this advantage while bidding and qualifying for new projects or approaching lenders for financing its projects.

ü There has been a sea change in the functioning of NHAI especially, after Kamal Nath took over as the Minister of Road Transport and Highways last year. A distinguishing change, apart from the implementation of the BK Chaturvedi report, has been the increase in the ticket size of orders awarded by NHAI. Moreover, there has been a constant uptick in the same, which has been benefiting the larger players especially given the recent changes in the financial criteria for larger projects.

ü ITNL has a robust order book of ` 16,000 cr, providing high revenue visibility over the next few years with an average execution period of 30 months. The company is yet to achieve financial closure (FC) for the recently bagged orders worth ` 6,000 cr. The company has seen substantial growth in its order book mainly due to the increase in project awarding by the NHAI. In 1HFY2011 particularly, the company saw a surge in its order inflow. We expect the company to continue to see a swell in its order book going ahead as well.



Net Sales 1225 2403 3480 6071

EBITDA 194 795 929 1202


Adjusted EPS 1.4 17.7 21.8 25.9

PE (x) 208.1 16.5 13.4 11.2

P/BV (x) 6.2 3.3 2.8 2.3

EV/ EBITDA (x) 40.5 11.2 12.4 14.5

Target Price

Company Update: Incorporated in 1974, Jyoti Structures Ltd. (JSL) is one of the leading player providing turnkey solutions in the field of High Voltage Power Transmission Lines (HVTL), Rural Electrifications and Substations. It undertakes turnkey projects on global scale, offering complete range of services from Design, Engineering Consulting, Tower Testing, Manufacturing, Construction and Project Management. With a domestic market share of 17% and a presence in 40 countries, JSL’s manufacturing plants are located at Nashik and Raipur with total installed capacity of 1,10,000 MTPA.


NSE Symbol JYOTISTRUC

BSE Code 513250

Face Value (`): 2

Industry P/E: 14.99




EV (` Crs): 1390.18




Industry: Power Equipment

Valuation:

At the current market price, the stock is trading at 10x and 8.4x its FY11E and FY12E earnings respectively. Currently, the stock is trading at a steep discount to its peers and also at the lower end of its 1 year forward PE multiple. Given the company’s sound track record and continuing growing order book, we value the stock at `190 in the next 6-9 months.

Investment Rationale: ü JSL has recorded high topline growth consistently over the past three years

growing at a CAGR of 36%. Furthermore, the company has maintained Order Book/ Sales ratio of approximately 2:1 historically.

ü Indian Power sector is poised to witness huge investment in the 11th and 12th Five year plan on the back of setting up of large capacity addition in the generation, transmission and distribution segment. In view of supporting the increased generation capacity, the Ministry of power has planned huge capacity expansion plans for T&D segment. The company would be a huge beneficiary of all these plans going forward. Accelerated capex into T&D sector will provide ample growth opportunity for EPC players like JSL

ü JSL increased its transmission tower capacity to 1,10,000 tons in FY09 and it

expects to remain at this level for next couple of years as current capacity is sufficient to meet JSL’s near future requirement. The company had planned capex of ` 60 crore in the current fiscal to purchase construction equipments which will enable JSL to increase its stringing capacity to 4200 kms per year from current level of 3500 kms. The company has already spent about ` 43 crore in 9M FY11 and plans to spend another ` 15- ` 18 crore in 4QFY11.



Net Sales 1786.3 2115.1 2444.1 2838

EBITDA 211.5 234.4 270.4 313.4


Adjusted EPS 10.23 12.27 13.09 15.51

PE (x) 12.8 10.7 10.0 8.4

P/BV (x) 2.4 2.0 1.7 1.5

EV/ EBITDA (x) 7.4 6.6 5.8 5.0

Target Price

Company Update:

Commenced its commercial operation from October 2001, Mundra Port and Special Economic Zone Limited (MPSEZ), is India’s largest private port and special economic zone handling a whole host of cargoes like bulk, crude oil and container and provides other value-added service. Mundra SEZ is India’s first port-based multi-product SEZ. MPSEZ has two terminals- Terminal I & II, which handles dry and liquid bulk with total capacity of 25MTPA. As a part of its strategic investment, MPSEZ has acquired 18,480 acres around the Mundra Port and is in various stages of acquiring another 14,000 acres. Further, it is setting up a solid cargo port at Dahej in JV (74:26) with Petronet LNG at a total cost of ` 1,200 crores. 26th November 2010


NSE Symbol MUNDRAPORT

BSE Code 532921

Face Value (`): 2

Industry P/E: 27.47




EV (` Crs): 30185.8


52w High/Low 185.25/96.26


Industry: Ports

Valuation: At the current market price, the stock is trading at a PE multiple of 31.1x FY11 earnings and 19.6x FY12 earnings going forward. Given Mundra Port’s dominant position in the industry and strong growth potential, we place a target of ` 190 on the stock in the next 9-12 months.

Investment Rationale: ü India’s GDP is expected to grow at a CAGR of 7%-7.5% for the next five

years. This translates into a cargo growth rate of approximately 8% at major India Ports, thus allowing Mundra Port to benefit from its locational advantage, excellent connectivity and state of the art of infrastructure. With the company planning to expand its capacity by more than double to 170 mt by the next two years, such a humongous capacity addition is expected to place Mundra port ahead of some of the major ports.

ü Construction of 50 MTPA coal terminal to cater to the 40 MT imported coal requirements of mega thermal power plants like Tata Power (4000 MW), Adani Power (4620 MW), etc, being constructed in and around Mundra Port region, will drive the cargo volume of the company. The terminal is likely to be operational by Q3FY11.

ü MPSEZ has entered into several long-term contracts thus booking steady

revenues and cash flows for the coming years. Some of the significant long term contracts include- agreement with Tata Power & Adani Power for meeting their coal requirements, MOU with Maruti for exports of cars, with IOCL for crude & with HPCL for POL/crude products. Its SEZ unit, which would house export-import oriented industries, will further drive up the cargo volume.

ü MPSEZ is well likely to be benefited from its other strategic investment

initiatives-setting up of a solid cargo port at Dahej in JV (74:26) with Petronet LNG, develop and operate Mormugao port, development of non facilities at Hazira. The company has well transformed itself into an integrated player in port solutions. Further, the SEZ unit will unlock huge potential to the company thus favoring well for the long term investment rationale.



Net Sales 1173.1 1361.8 2016.4 2897.8

EBITDA 782.7 959.9 1371.1 1995.3


Adjusted EPS 2.08 3.30 4.5 7.083

PE (x) 67.0 42.2 31.1 19.6

P/BV (x) 9.5 8.1 6.7 5.3

EV/ EBITDA (x) 39.8 32.4 22.7 15.6

Target Price

Company Update:

OnMobile Global Ltd is India’s recognized brand in the MVAS segment with presence across 28 countries. The company offers a one-stop solution for all needs through an innovative array of products in M-commerce, entertainment, media portals & interactive television programming, mobile marketing, user-generated content & social networking, mobile utility, data & 3G, and information & network products. Its clients includes major telecom operators in India like Airtel, Vodafone, Rcom, Aircel, Idea, Tata DoCoMo, Tata Indicom, MTNL, BSNL, Virgin and international players like Singtel (Singapore), Optus (Australia), Maxis (Malaysia), Dialog (Sri Lanka), (Warid Telecom & Banglalink (Bangladesh), etc.


NSE Symbol ONMOBILE

BSE Code 532944

Face Value (`): 10

Industry P/E: 21.05




EV (` Crs): 1487.76




Industry: Telecom - VAS

Valuation: At the current market price, the stock is trading at 18.8x and 13.0x its FY11E and FY12E earnings respectively. Given the company’s dominant position in the Telecom (VAS) space and the high growth associated with this space, we expect the stock to trade at ` 470 in the next 1 year.

Investment Rationale: ü The Indian Telecom Sector is among the fastest growing telecom markets in

the world with the total telephone subscriber base of 706.37 million (Aug 2010) and overall tele-density of 59.63. Though the sector is witnessing net additions of more than 15 million (wireless segment) customers per month past one year, the Average Revenue Per User (ARPU) has continued to decline in the midst of stiff competition among the telecom operators and we expect the competition to further intensify as MNP is introduced and on rollout of 3G services. As a challenge to retain customers under such circumstances, develop alternative revenue streams, and lower the churn rate, the mobile operators are mainly eyeing to MVAS for significant sources of future revenues. This bodes well for OnMobile, the leader in the Indian VAS market segment.

ü OnMobile has always been an innovation based company with a proven record to conceive and deliver competitively superior innovative products ahead of market demand and expectations. This has resulted in robust revenue growth over the years and high market penetration.

ü Over the years, OnMobile has undertaken several strategic steps- expanding

both organically and inorganically to expand its geographic presence, service offerings, technological expertise, etc. to transform itself as the leader in the Indian VAS segment.

ü The company’s recent business agreement with Telefonica, world’s third

largest operator, is in line with its growth strategy. The collaboration gives OnMobile access to over 130 million subscribers across 13 countries in Latin America. The agreement with Vodafone Global is further expected to enhance the company’s global presence.



Net Sales 405.3 472.3 570.0 738.1

EBITDA 127.8 101.0 137.0 206.9


Adjusted EPS 14.25 9.19 13.64 19.78

PE (x) 18.0 27.9 18.8 13.0

P/BV (x) 2.1 1.9 1.8 1.6

EV/ EBITDA (x) 10.1 12.8 9.5 6.3

Target Price

Company Update:

Among the fastest growing companies in the Indian energy sector, Petronet LNG Limited is engaged in the business of regasification of Liquified Natural Gas (LNG). The company’s asset portfolio includes the currently operational terminal at Dahej (nominal capacity of 10 MMPTA) and another upcoming terminal at Kochi (nominal capacity of 2.5 MMPTA). Petronet has also entered into a JV (with 26% equity stake) with Adani Petronet (Dahej) Port Private Ltd. for setting up a Solid Cargo Port in the Dahej SEZ area. The company is contemplating to set up a power plant of 1200MW capacity at Dahej, mainly exploiting its advantageous position of providing quality energy to various users in a sustained manner. 26th November 2010


NSE Symbol PETRONET

BSE Code 532522

Face Value (`): 10

Industry P/E: 17.9




EV (` Crs): 10731.8


52w High/Low 130/64


Industry: Gas Distribution

Valuation: At the current market price, the stock is trading at a PE multiple of 16.3x FY11E & 11.7x FY12E earnings and P/BV ratio of 3.5x FY11E & 3.0x FY12E earnings. The company’s back-to-back long term purchase and sale agreements coupled with limited threat to the company’s re-gasification margins offers upside potential for the stocks. We, thus, assign a fair value price of ` 150 to be reached in the next 3-4 quarters and hence maintain a BUY on the scrip.

Investment Rationale: ü The on-going demand-supply mismatch for Natural Gas is expected to widen

in the coming years as natural gas demand growth remains robust with newer applications across industries and with no other major gas field going into production in the short to medium term. This favors well for Petronet which is expected to benefit from upcoming strong demand for LNG.

ü To cater to growing demand-supply mismatch, Petronet has doubled its re-gasification capacity at Dahej plant from 5 MMPTA to 10 MMPTA in FY10. The Kochi terminal with initial capacity of 2.5 MMPTA, (expandable upto 5 MMPTA) is expected to be operational by FY13. With its further expansions plans lined up, the company is well placed to exploit the opportunities arising from increasing power deficits.

ü Setting up a Solid Cargo Port in the Dahej SEZ area in JV (with 26% equity

stake) with Adani Petronet (Dahej) Port Private Ltd. and a power plant of 1200MW capacity at Dahej, is likely to add to the earnings growth of the company. The Solid Cargo Port would facilitate the export/import of bulk products like coal, steel & fertilizer while the Power Plant is expected to reduce cost of generation.

ü Commissioning of Gail’s HVJ pipeline by end-FY11, easing pipeline

constraints and no new large new domestic gas supplies expected in near future provides strong revenue visibility for Petronet in coming years. The Company has long term sale and purchase agreement for 7.5 MTPA of LNG with Rasgas of Qatar while on the customer side, it has offtake agreement with GAIL, IOC and BPCL. This translates into a strong revenue visibility for Petronet over the long-term.



Net Sales 8428.7 10649.1 12863.6 18866.6

EBITDA 901.3 846.5 1125.4 1387.3


Adjusted EPS 6.9 5.4 7.0 9.7

PE (x) 16.5 21.1 16.3 11.7

P/BV (x) 4.6 4.1 3.5 3.0

EV/ EBITDA (x) 11.9 13.3 10.7 9.1

Target Price

Company Update: Rain Commodities Ltd (RCL), promoted by Mr Jagan Mohan Reddy, commenced operations in 1989 with a Calcined Petroleum Coke (CPC) manufacturing plant of 0.24mn tonnes capacity in Vishakhapatnam, Andhra Pradesh, along with a 49MW power plant. The company expanded its CPC capacity by commissioning another 0.24mn tonnes plant in 2006. Through its in-house expertise, it de-bottlenecked the capacity of each of its two CPC lines to 0.3mn tonnes each, effectively taking its capacity to 0.6mn tonnes in 2008. 26th November 2010


NSE Symbol RAINCOM

BSE Code 500339

Face Value (`): 10

Industry P/E: 30.43




EV (` Crs): 1483.7


52w High/Low 255.70/131.80


Industry: Cement

Valuation: At the current market price, the stock is trading at 3.2x and 3.7x its FY11E and FY12E earnings respectively. Given the improvement in balance sheet coupled with reduction of debt and improved visibility for 2HCY10E, we believe the current valuation is attractive, offering good capital appreciation. We value the stock at `210 in the next 9-12 months.

Investment Rationale: ü RCL has CPC capacities at seven plants in the US and one in India. Of these,

four plants have waste heat recovery facilities which enable the company to generate revenues of US$35-US$40 mn per year by generating and selling power. Of the four plants, two are generating power and the balance is generating steam and supplying to the adjacent refineries. RCL is planning to set up two new energy plants in two of its US CPC plants (Robinson, Illinios and Lake Charles, Louisiana) for an investment of US$100 mn. It would be adding a total of 70MW through these two new plants. It is targeting to start operations of these two units in CY12 and CY13 respectively. All these investments would significantly add to the company’s operations.

ü The Indian CPC plant of RCL has received approval from the United Nations Framework Convention on Climate Change under Clean Development Management (CDM) and is eligible for about 165,000 CER’s from Jul 12, ’07 to Jul 11, ’17. The sale of these credits would be done through IFC, World Bank Group on a guaranteed delivery basis and would further aid the company’s growth.

ü RCL had recently proposed a business restructuring plan through which it proposes to create two wholly-owned subsidiaries (under the parent company) and transfer the respective cement and CPC businesses to these subsidiaries. Also, currently the larger US CPC business is being held by the Indian CPC company. Under the restructuring plan, this anomaly is proposed to be resolved. Thus, the restructuring plan envisages separate holding companies for separate businesses, by which RCL can dilute its stake in the respective businesses at an appropriate time.

ü Once the restructuring plan, which is expected to be completed by CY10 end, is over, RCL is planning to dilute its stake in the CPC holding company, either through a private placement or an IPO in the US. We believe this would be a positive trigger for the company leading to significant reduction in its gross debt position.



Net Sales 3777 3636 4088 4347

EBITDA 902 743 849 829


Adjusted EPS 54.05 43.25 53.5 46.7

PE (x) 3.2 4.0 3.2 3.7

P/BV (x) 1.0 0.8 0.7 0.6

EV/ EBITDA (x) 4.3 5.3 4.6 4.7

Target Price

Company Update:

Ranbaxy, among the leading pharma companies in India, manufactures generic formulations and APIs. It is the third largest pharma company in terms of domestic market share with a global footprint across 49 countries, world class manufacturing facilities in ten and serving customers in over 125. In 2008, Ranbaxy entered into an alliance with one of the largest Japanese innovator company, Daiichi Sankyo, to emerge an innovator and generic pharmaceutical powerhouse. Daiichi took control of Ranbaxy by acquiring 64% equity stake in the company; the combined entity now ranks among the top 15 pharma companies in the world. 26th November 2010


NSE Symbol RANBAXY

BSE Code 500359

Face Value (`): 5

Industry P/E: 26.42




EV (` Crs): 25656.7


52w High/Low 624.90/364.20


Industry: Pharmaceuticals

Valuation:

At the current market price, the stock is trading at a PE multiple of 18.6x FY11E & 15.8x FY12E earnings. Ranbaxy’s various strategic moves for global expansion, Para IV opportunities, cost control measures, synergistic benefits arising from Daiichi Sankyo deal, etc. provides scope for upside potential. We assign a fair value price of `650 to be reached in the next 9-12 months and hence maintain a BUY on the scrip.

Investment Rationale: ü U.S. markets account for nearly 45% of the global pharma sales and nearly

the same for the Indian drug companies. With an estimated US$ 240 billion worth of drugs going off-patent within next 5 years, this provides an ample scope for Indian generic companies to gain from patent expiry during the next 5 years translating into momentum in earnings growth.

ü Resolution of ongoing DOJ-FDA issue with regards to cGMP will be the key trigger for Ranbaxy. Successful resolution would lead to the buoyant growth and margin expansion of products in the US portfolio.

ü Ranbaxy has proved its capability to monetize its highly lucrative Para IV opportunities. As of now, the company has some very large and interesting opportunities such as Lipitor, Nexium, Divon and Actos.

ü With API supply to AstraZeneca begin from Q4CY10E and formulation supply from Q1CY11E, this is likely to boost the company’s revenue.

ü Ranbaxy is well placed to reap the synergistic benefits from Daiichi in terms of business and geographic expansion, R&D activities and improved financials, thus providing scope for huge upside to revenue growth and margins.

ü Recently, Ranbaxy has received USFDA approval for exclusively selling the

generic version of Aricept, which is Japanese drug maker Eisai's biggest selling drug in the US with a market of USD 2.4 billion there and USD 3 billion market globally. With this, Ranbaxy expects to generate USD 200

million revenue and USD 110 million profit in the next six months.



Net Sales 7141.3 8651.3 9408.1 11019.6

EBITDA 516.7 1734.8 1813.3 2291.2


Adjusted EPS 4.63 28.94 29.4 34.68

PE (x) 118.3 18.9 18.6 15.8

P/BV (x) 5.0 4.0 3.5 2.8

EV/ EBITDA (x) 48.9 14.6 13.9 11.0

Target Price

Notes

Disclaimer

This Document has been prepared by the Research Team of Guiness Securities Ltd. and it is only meant for the use of the recipients only & it is strictly restricted for circulation without prior permission. While utmost care has been taken in preparing this, we advise you to act carefully upon it. We shall not be liable for any direct or indirect losses arising from the use thereof and the investors are requested to use the information contained herein at their own risk. Data Sources: Company, Bloomberg and Capitaline.

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