Economy News. Corporate News MAY 31, 2013

Transcription

1 MAY 31, 2013 Economy News The Reserve Bank of India has said that from April 2015 banks will no longer have the leeway to relax repayment norms for troubled companies without classifying their loans as non-performing assets, which would lead to a surge in bad loans. RBI has also asked banks to increase provisions on loans restructured from June 2013 to 5% from the present requirement of 2.75%. (TOI) Petrol prices may be hiked by up to Re 1 a litre this week as the rupee hit a 10-month low making oil imports costlier. As per the practice of revising rates every fortnight, petrol price revision is due tomorrow and if oil ministry approves the increased prices will come into effect from June 1, sources privy to the development said. (IE) The Planning Commission has approved a Rs 530 bn annual plan for Andhra Pradesh for The State proposals received the Commission's nod during a meeting on Wednesday at New Delhi between Andhra Pradesh Chief Minister N Kiran Kumar Reddy and Montek Singh Ahluwalia, Deputy Chairman of Planning Commission. (BL) With few days left to lower promoter holding to 75 per cent in listed private sector firms, the Securities and Exchange Board of India (SEBI) today allowed them to make an announcement for such sale of shares through OFS route just one day in advance. (BL) Corporate News Bharti Airtel, India's largest mobile phone company by subscriber numbers and revenues, plans to sell minority stakes in its landline and enterprise businesses as part of an exercise to cut debt, two executives with direct knowledge of the development said. (ET) EIH Ltd posted standalone net profit of Rs 509 mn for the financial year , down nearly 58 per cent compared to its Rs 1.2 bn profit in the previous fiscal. The company said two more hotels - Trident Hyderabad and the Oberoi Dubai - are scheduled to open in June. EIH will manage both the hotels. The company also said that the flight kitchen at Indira Gandhi International Airport, New Delhi, opened in July last year, was well received by the airline industry and reported a thirty percent increase in overall business. (BL) Jet Airways chairman Naresh Goyal today picked up nearly 37 percent stake in the company from another promoter entity for about Rs 1,670 crore and took his direct stake in the private carrier to about 66 per cent. (ET) Coal India board has approved signing of FSA with power producers even in the absence of long-term purchase pacts between generation companies and distribution firms, but fuel supply will start only after inking of buying agreements. (ET) Lenders have restructured the Rs 145 bn loan to Reliance Power's Sasan project. The repayment schedule has been extended to March 2015 and the interest rate has been raised from 14.5% to 14.70%, officials said. The commissioning of 4,000 MW Sasan ultra mega power project (UMPP) is delayed by 15 months. (ET) State-run refiner Indian Oil Corporation(IOC) aims to raise its high sulphur crude processing to 67 percent of its total refining capacity in twoto-three years from 53.3 percent in 2012/13. (ET) IVRCL will revise the agreement entered into with TATAs to sell 74% in ongoing road project after objections from NHAI. (ET) The Power Finance Corporation wants to buy a "substantial" stake in a public sector bank and plans to set up a private equity fund jointly with Tata Capital.(Mint) Allcargo Logistics has initiated a move for an acquisition in the US market. (L) Source: ET = Economic Times, BS = Business Standard, FE = Financial Express, BL = Business Line, ToI: Times of India, BSE = Bombay Stock Exchange Equity % Chg 30 May 13 1 Day 1 Mth 3 Mths Indian Indices SENSEX Index 20, NIFTY Index 6, BANKEX Index 14,621 (0.4) BSET Index 6,013 (0.2) 5.3 (11.0) BSETCG INDEX 9,573 (0.6) (1.5) 4.2 BSEOIL INDEX 8,896 (0.7) CNXMcap Index 7,902 (0.1) BSESMCAP INDEX 6,037 (0.4) 0.3 (2.7) World Indices Dow Jones 15, Nasdaq 3, FTSE 6, NIKKEI 13,589 (5.1) (0.2) 19.7 HANGSENG 22,484 (0.3) (1.4) (2.6) Value traded (Rs cr) 30 May 13 % Chg - Day Cash BSE 3, Cash NSE 13, Net inflows (Rs cr) 29 May 13 % Chg MTD YTD FII 971 (0.7) 17,730 78,889 Mutual Fund (204) 19.1 (3,093) (11,684) FII open interest (Rs cr) 29 May 13 % Chg FII Index Futures 20, FII Index Options 55,795 (5.7) FII Stock Futures 36, FII Stock Options 3,126 (30.6) Advances / Declines (BSE) 30 May 13 A B T Total % total Advances Declines , Unchanged Commodity % Chg 30 May 13 1 Day 1 Mth 3 Mths Crude (NYMEX) (US$/BBL) 93.6 (0.1) Gold (US$/OZ) 1, (3.5) (10.2) Silver (US$/OZ) (5.4) (19.9) Debt / forex market 30 May 13 1 Day 1 Mth 3 Mths 10 yr G-Sec yield % Re/US$ Sensex 21,000 19,500 18,000 16,500 15,000 May-12 Aug-12 Nov-12 Feb-13 May-13

2 RESULT UPDATE Saurabh Agrawal Summary table (Rs mn) FY12 FY13E FY14E SSales (Rs. mn) 463, , ,640 Growth (%) 7.0% -3.8% 10.2% EBITDA (Rs. mn) 60,346 46,869 69,963 EBITDA Margins (%)13.0% 10.5% 14.2% PBT (Rs. mn) Net Profit (Rs. mn) EPS (Rs.) Growth (%) -27.8% -38.7% 45.4% CEPS (Rs.) BV (Rs/share) Dividend per share (Rs) ROE (%) 9.2% 5.4% 7.5% ROCE (%) 7.8% 5.5% 7.7% Net debt (cash) NWC(Days) EV/Sales (x) Adjusted EV/ EBITDA (x) P/E (x) P/B (x) , Kotak Securities - Private Client Research SAIL PRICE: RS.59 RECOMMENDATION: BUY TARGET PRICE: RS.72 FY14E P/E: 7.7X; EV/EBITDA: 5.8X Depressing Q4 results on unusual quantum increase in costs. Estimates and TP cut but retain BUY Operating expense jump erode margins - Q4 steel volumes and realizations were more or less in line with expectations but what has badly hurt is unusual quantum increase in operating costs which has led to operating margins shrinking to decade low. As of now, it is uncertain what portion of this operating costs increase is temporary in nature as it might include startup costs/inefficiencies for new coking ovens and iron ore costs hike due to problems in supply from Bolani and Gua mines which now stands corrected. China is a big concern - Global steel industry macro is turning concerning over last few weeks driven by Chinese steel mills intent to ramp up exports which would hurt global steel prices big-time. Yesterday, China HRC exports prices have broken physiologically important $500/t levels to reach 3.5 year low. We, in turn anticipate that domestic steel prices are likely to come under pressure in coming months. Financials changes - We have maintained our saleable steel volume estimates of 12mt but cut average sales realizations estimates for FY14 by 1% and made increases in our operating expenses. Our EPS estimate for FY14 is cut by 11.1% to Rs7.6. Valuation changes - We continue to value SAIL on 1Yr FWD EV/EBITDA multiple adjusted for CWIP. We maintain our valuation multiple at 6.5x and assigning of 40% value to FY14 end CWIP. We maintain BUY on SAIL with a revised TP of Rs72/share vs. Rs79/share earlier. Q4 results highlights - Operational Performance - Q4 steel sales volumes increased 15.9% Q/Q but were flat Y/Y at 3.2mt. Q4 average realizations fell by 0.3% Q/Q but massive 9.9% Y/Y to Rs38553/t. This is reflective of the fact that domestic demand growth was so weak that seasonal price hikes couldn't be affected this time. Financials - Q4 Net Sales were up 15.6% Q/Q but down 9.9% Y/Y to Rs123.3bn. Q4 EBITDA fell by 18.8% Q/Q and massive 50.6% Y/Y to Rs9.23bn. EBITDA margins contracted 320bps Q/Q and 620bps Y/Y to decade low levels of 7.49%. EBITDA/t fell by 50.8%Q/Q and 50.6%Y/Y to decade low levels of Rs2887/t or mere $53/t. Reported PAT fell 7.8% Q/Q and massive 71.7% Y/Y to Rs4.46bn. Q4 EPS stood at Rs1.08 and Rs5.25 for FY13. Operational expenditure growth a shocker - Raw material consumption % has increased 290bps Q/Q vs. expected decrease as benefit of sharp fall in coking coal price was supposed to flow in P&L in Q4. Further, power and fuel costs are up 9.4% Q/Q and employee costs are up 18.8% Q/Q and massive 35.9% Y/Y to Rs24.73bn (Rs86.37bn for FY13). Adding the pain, other expenditure is up 17.5% Q/Q to Rs20.6bn. Q4 depreciation is down 52.2% Q/Q to Rs1.93bn and tax rate is up 1100bps Q/ Q to 40.7%, both of these are quite surprising and need to be understood from management. Q4 extra-ordinary gains stood at Rs.164.9mn vs. loss of Rs307.1mn in Q3. Last year Q4 extra-ordinary gains stood at Rs7.25bn. Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 2

3 Gross debt has decreased to Rs215.97bn as on 31 Mar 2013 from Rs228.3bn as on 31 Dec 2012 but increased from Rs163.2bn as on 31 Mar Cash and cash equivalents have decreased to Rs3.4bn as on 31 Mar 2013 from Rs5.4bn as on 31 Dec 2012 and Rs5.4bn as on 31 Mar Debt/Equity has increased to 0.53x vs. 0.41x last year but decrease from 0.56x levels at Q3 end. Increase in capital employed for the quarter is very marginal and we would seek clarity from the management on progress of capex program and commissioning timeline Quarterly Performance (in Rs. mn) Q4FY13 Q3FY13 % Q/Q Q3FY12 %Y/Y Gross Sales % % Excise % % Net Sales % % Total expenditure 114,066 95, % 118, % Stock moves % % Consumption of RM % % Staff cost % % Power % % Stores and Spares Other expenditure % % EBITDA 9,239 11, % 18, % EBITDA Margin 7.49% 10.67% (320bps) 13.7% (620bps) EBITDA/t (in Rs.) 2,887 5, % 5, % Other Income % % Depreciation % % Interest % % PBT 7, , % 15, % Tax % % PAT 4, , % 8, % Net margins 3.5% 4.8% (130bps) 6.2% (270bps) Tax rate 40.7% 29.7% 1100bps 46.0% (530bps) Extra ordinaries % % Reported PAT 4, , % 15, % EPS % % Cost as a % of sales Consumption of RM 45.9% 43.0% 290bps 50.1% (430bps) Staff cost 20.1% 19.5% 60bps 13.3% 680bps Power 9.9% 10.4% (60bps) 8.4% 140bps Other expenditure 16.7% 16.4% 30bps 14.5% 230bps Sales realisations in Rs./ton % % Sales volume (in mt) % % Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 3

4 We recommend BUY on SAIL with a price target of Rs.72 Segmental Performance of ISPs Plant-wise Sales (in Rs. mn) Bhilai % % Bokaro % % Rourkela % % Durgapur % % IISCO % % Plant-wise EBIT (in Rs. Mn) Bhilai % % Bokaro % % Rourkela % % Durgapur % % IISCO % % Plant-wise EBIT margin Bhilai 9.9% 14.1% (410bps) 18.1% (820bps) Bokaro 3.6% 4.2% (50bps) 10.9% (730bps) Rourkela 4.9% 7.6% (270bps) 10.0% (510bps) Durgapur 7.5% 7.5% NIL 9.3% (180bps) IISCO 2.2% -8.1% 1040bps -18.7% 2100bps Capital Employed (in Rs. mn) Bhilai % % Bokaro % % Rourkela % % Durgapur % % Alloysteel % % Visvesvaraya % % Salem % % IISCO % % Others % % Total % % Valuation Target Price based on FY14e earnings EBITDA Multiple Valuation Value (Rs. mn) (x) (Rs. mn) (Rs./Share) Enterprise Value Less: Net Debt (at end of FY14e) Add: Adjusted CWIP (40% of FY14e end) Target Market Capitalization Target Price 72 Source: Kotak Securities-Private Client Research Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 4

5 RESULT UPDATE Sumit Pokharna Summary table (Rs mn) FY12 FY13E FY14E Sales 11,233 11,603 11,939 Growth (%) EBIDTA 10,336 10,720 11,015 EBIDTA margin (%) PBT 7,661 8,257 8,596 Net profit 5,192 5,374 5,768 EPS (Rs) Growth (%) CEPS (Rs) BV (Rs/Share) DPS (Rs) ROE (%) 23.3% 19.0% 17.4% ROCE (%) 19.3% 16.2% 15.3% Net Cash (debt) (5,698) (4,644) (3,609) NWC (Days) (12) 7 (10) EV/Sales (x) EV/EBIDTA (x) P/E (x) P/BV (x) P/CEPS (X) , Kotak Securities - Private Client Research GUJARAT STATE PETRONET LTD (GSPL) PRICE: RS.58 RECOMMENDATION: BUY TARGET PRICE: RS.70 FY14E P/E: 5.7X Volumes under pressure GSPL's Q4FY13 result is better than our estimates, despite lower gas volumes and lower other income, mainly on account of higher implied tariffs. GSPL has reported a PAT of Rs.1.62 Bn, higher by 24.9% YoY and by 35.7% QoQ. Gas transmission volume is lower by 20.6% QoQ due to decline in RIL's KG gas production but revenue from gas transmission segment has increased by 34.79% QoQ mainly due to higher implied tariff 1). On account of 'take-or-pay' clause and 2). Longer duration gas transmission. The average implied tariff is at Rs per TCM in Q4FY13, recording rise of 69.5% QoQ and of 84.9% YoY basis. This is primarily due to 1). Increased long distance transportation of gas which typically earns higher gas transmission charges thereby pulling the averages up and 2). Take-or-pay clause. Also, in Q4FY13, GSPL has implemented the PNGRB tariff order. We expect GSPL to report an EPS of Rs and cash EPS of Rs.13.9 for FY14E. The recent correction in the stock price discounts most of the negatives and hence we believe there is decent upside in the stock. We recommend BUY rating on GSPL with a target price of Rs. 70/Share. Key highlights For FY13, the Company has proposed a dividend of Rs.1/share, resulting in a post-tax dividend yield of ~1.7%. In May'13, GSPL has received the crucial environmental nod from the government for three natural gas pipeline projects it is developing. The pipeline projects having total length of close to 4,000-km, will crisscross through several states, and will have capacity to carry ~ 95 MMSCMD of gas. We believe it will take at least three years for completion. On a conservative note, we have not considered the same in our valuations. In FY13, GSPL has invested Rs.800 Mn in GSPL India Gasnet Ltd. and Rs.100 Mn in GSPL India Transco Ltd. In H1FY13, GSPL JV (India Transco Ltd) has tied-up Rs 50.8 bn (14 year loan) to fund the construction of Mallavaram-Bhopal-Bhilwara- Vijaipur cross-country natural gas trunk pipelines and allied facilities. The loan is split into a term loan A of Rs bn and sub debt of Rs 3.63 bn. It pays a fixed 11.25% interest rate. Key risk remains in terms of capping of margins by PNGRB at 18% pretax ROCE. Based on Q4FY13 rates GSPL is earning around 31.5% pre-tax ROCE. Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 5

6 Quarterly Table GSPL (Rs.mn) Mar-13 Mar-12 YoY (%) QoQ (%) Gas Transported: Volume Gas Transported (MMSCMD) (29.5) (20.5) Gas Transported in each Quarter (29.5) (20.5) Implied Tariff Rs per 1000 SCM 1, Gross Revenue Less: Discount, etc (33.1) (70.8) Discount (%) (0.5) (1.8) Net Sales/Income from ops Total Expenditure EBIDTA 3,268 2, Depreciation EBIT 2,788 2, Other income (4.2) (31.5) Interest-net (0.3) 0.3 PBT 2,630 1, Tax 1, PAT 1,615 1, Basic EPS (Rs) Cash EPS (Rs.) Margins (%) GSPL (Rs.mn) Mar-13 Mar-12 YoY (%) QoQ (%) Gas Transported: Volume EBITDA Margin (%) (0.2) 1.3 EBIT Margin (%) Adj PAT Margin (%) (1.8) (0.7) Other Income/PBT (%) (2.7) (7.0) Tax/PBT (%) Expenses (Rs. Mn) Mar-13 Mar-12 YoY (%) QoQ (%) Staff costs (39.4) other Expenses Operation & maintenance Charges (16.2) (23.5) Total Expenses Ratio (%) Mar-13 Mar-12 YoY (%) QoQ (%) Staff cost to Sales (%) (0.06) (1.96) Selling and Adm to Sales (%) Operation and Man To Sales (%) (1.37) (1.99) Opertaion & Maintenance (1.75) Charges (Rs. per 1000 SCM) Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 6

7 Performance Analysis Revenues for Q4FY13 were at Rs.3.6 bn, higher by 29.9% YoY and by 37.8% on sequential basis mainly due to higher implied tariff. Revenue is higher despite lower gas volume. The average implied tariff is at Rs per TCM in Q4FY13, recording rise of 69.5% QoQ and of 84.9% YoY basis. This is primarily due to 1). Increased long distance transportation of gas which typically earns higher gas transmission charges thereby pulling the averages up and 2). Take-or-pay clause. In Q4FY13, the Company transported MMSCMD (27.3 MMSCMD in Q2FY13) of gas resulting in volume de-growth of 29.5% YoY and of 20.5% QoQ. The gas volumes have fallen mainly due to lower domestic natural gas supply and lower demand of costlier imported RLNG. The Company recorded operating margin at 91.0% in Q4FY13, lower by 20 bps YoY but higher by 130 bps QoQ basis. On a sequential basis, GSPL's margin has increased mainly on account of 1). Lower employee cost, 2). Lower operation & maintenance expenses and 3). Higher implied tariffs. The benefit of lower opex is mitigated by higher other expenses. In Q4FY13, operational profit registered growth of 39.7% QoQ and 29.7% YoY to Rs bn on account of higher tariff and lower expenses. Depreciation: From 1st April'10, the Company had changed the depreciation rate on gas transmission pipeline from 8.33% SLM to 3.17% SLM. Also, GSPL had changed its accounting policy for treatment of 'ROU land compensation' & 'RoW payments' from plant & machinery to non-depreciable assets. Depreciation cost has increased by 0.4% QoQ and 3.0% YoY to Rs. 480 Mn. Other Income has fallen by 31.5% QoQ and by 4.2% YoY to Rs. 158 Mn. Interest cost has been flat both on YoY and on sequential basis to Rs.315 Mn. This is due to repayment of higher cost debt. As on 31st March'13, the Company has a debt of Rs.13.4 Bn as against Rs Bn as on 31st March'12. PBT for Q4FY13 is at Rs.2.6 bn up by 38.3% YoY and 48.1% on sequential basis on account of reasons mentioned above. In Q4FY13, it has paid tax at the rate of 38.6% as against 33.0% in Q3FY13. PAT for Q4FY13 was at Rs.1.62 Bn up by 24.9% YoY and by 35.7% on QoQ basis thereby translating into quarterly EPS of Rs.2.87 and CEPS of Rs Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 7

8 We recommend BUY on GUJARAT STATE PETRONET LTD with a price target of Rs.70 Other key developments Three cross-country gas pipelines In May'13, GSPL has received the crucial environmental nod from the government for three natural gas pipeline projects. GSPL, with its partners, is planning to invest ~Rs.125 Bn in FY13-FY15 to lay three cross-country gas transmission pipelines (~3995 Kms i.e Rs.38.2 Mn / Kms). These pipelines will travel through Andhra Pradesh, Maharashtra, Madhya Pradesh, Gujarat, Rajasthan, Haryana, the National Capital Region, Punjab and Jammu and Kashmir. Petroleum and Natural Gas Regulatory Board (PNGRB) has granted authorization for setting up the pipeline, which will be laid from Mallavaram in Andhra Pradesh to Bhilwara in Rajasthan (1,611 km), Mehsana in Gujarat to Bhatinda in Punjab (1,688 km) and Bhatinda to Jammu (512 km). It will have capacity to carry ~ 95 MMSCMD of gas. The laying of three major gas pipelines will facilitate the development of networks leading to National Gas Grid. Initially, the Gujarat-to-Jammu & Kashmir pipeline is expected to carry 20 mmscmd of gas which would be gradually increased to 40 mmscmd. On 7th July'11, PNGRB had awarded the Letter of Authorisation (LOA) to develop the three pipeline projects. The consortium comprises of GSPL (52%), IOCL (26%), BPCL and HPCL (11% each). Key risk remains - margins to be capped at 12%post tax ROCE PNGRB has already stated its intent to cap the cross country natural gas pipeline returns at 12% post tax ROCE or 18.18% pretax ROCE. However due to lack of clarity from PNGRB, GSPL continues to charge such high tariffs for transportation of natural gas through its pipelines. Going forward the major growth in GSPL is expected to come from interstate pipelines across Gujarat, Rajasthan, Maharashtra and Andhra Pradesh. Thus its returns are expected to be capped in the near term. Earnings estimates We expect GSPL to transport ~29.22 MMSCMD of natural gas in FY14E and MMSCMD in FY15E. We expect GSPL to report an EPS of Rs and cash EPS of Rs.13.9 for FY14E. The recent correction in the stock price discounts most of the negatives and hence we believe there is decent upside in the stock. Key triggers for stocks: 1). Clarity about tariff 2). Commissioning of the gas transmission pipeline and 3). Ramp-up in gas supply Valuation & Recommendation On the basis of our estimates, the stock at current market price of Rs.58 is cheaply valued at 3.3x EV/EBIDTA, 5.7x P/E and 4.2x P/cash earnings on the basis of FY14E. We recommend BUY rating on GSPL with a DCF based target price of Rs. 70/Share. FIIs holding has increased in the last three quarters Source: BSE Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 8

9 RESULT UPDATE Sanjeev Zarbade TIME TECHNOPLAST (TTL) PRICE: RS.38 TARGET PRICE: RS.52 RECOMMENDATION: BUY CONS. FY14E P/E:6.5X Summary table (Rs mn) FY12 FY13E FY14E Sales 15,282 17,974 20,502 Growth (%) EBITDA 2,431 2,917 3,288 EBITDA margin (%) PBT 1, , ,672.3 Net profit 898 1,034 1,239 EPS (Rs) Growth (%) (16.6) CEPS (Rs) BV (Rs/share) Dividend per share (Rs) ROE (%) ROCE (%) Net (debt) cash (7,021) (7,835) (8,046) NWC (Days) EV/Sales (x) EV/EBITDA (x) P/E (x) P/CEPS (x) P/BV (x) , Kotak Securities - Private Client Research TTL has reported lower than expected profit numbers for Q4 FY13. Earnings has been led by volume growth from overseas plants. The company is targeting to penetrate the Asian markets for packaging products. With capex expected to slow down in FY13-14, we expect higher free cash generation. A key concern among investors regarding the TTL is its low asset turnover. We expect this concern to get partly addressed as the company ramps-up its capacities going forward. Key Risks: Delay in capacity expansion & commercialization of new products. Currency fluctuation & pricing of key raw material i.e. HDPE Rs mn Q4 FY13 Q4 FY12 YoY (%) Gross Sales Excise Duty Net Sales Material costs Staff costs Other expenditure Total Expenditure PBIDT Depreciation Other Income EBIT Interest PBT Tax Deferred Tax Reported Profit After Tax Minority Interest After NP Net Profit after Minority Interest EPS (Rs) Excise duty (%) 8.7% 6.7% EBITDA (%) 14.2% 13.8% Material costs to sales (%) 67.3% 67.3% Other expenditure (%) 13.8% 13.6% Tax rate (%) 28.5% 30.0% NPM (%) 4.6% 4.3% Rs mn Q4 FY13 Q4 FY12 YoY (%) Segment Revenues Polymer products % Composite products % Segment Margins % Q4 FY13 Q4 FY12 Polymer products 10.8% 10.7% Composite products 7.5% 6.8% Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 9

10 Standalone numbers Rs mn Q4 FY13 Q4 FY12 Revenue EBITDA PBT PAT NPM % 6.8% 7.0% EBITDA % 14.0% 18.7% Lower EBITDA margins leads to profit miss Actual vs Estimated numbers (Rs mn) Q4FY13 Q4FY13E % Variance Net Sales % EBITDA % 14.24% 16.50% 220 bps PAT % Highlights For Q4FY13, the company reported consolidated net revenues of Rs 5.2 bn, up 21.6% YoY. Standalone revenues grew 11% yoy to Rs 2.9 bn, accounting for 56% (vs 61% in Q4 FY12) of the consolidated revenues. For the fiscal, the company reported net sales of Rs 17.5 bn missing its guidance of Rs 20 bn in FY13. We expect the share of overseas revenues to increase as new manufacturing facilities are coming onstream across Asia and Middle East. The operating margin came lower than expected during Q4FY13 at 14.2% up 40 bps YoY. The margin expansion was due to modest expansion in employee costs. However, on a sequential basis, Cons EBITDA margins contracted 330 bps on the back of higher material costs. For the quarter, other expenditure is up 23% yoy, due to commissioning of 2-3 new plants in foreign locations. Interest costs have risen 7% yoy as the borrowings have remained stable over the past four quarters. At the end of Q4FY13, the company had net debt of Rs 8.1 bn implying a debt/equity ratio of 1.0x based on FY13 net worth. Tax rate during the quarter has decreased to 28% vs 30% in Q4FY12. With the significant capacity additions in the past few years, the company is now well-positioned to benefit as these capacities get ramped up. Thus, the capex commitments are also expected to decline in the future, which should aid cash generation. Overall capacity utilization is healthy at 60-65% but its overseas facilities have a much lower capacity utilization of 35-40%. Thus, there is adequate upside to capacity utilization without further augmentation of capacity. The company believes that it can do a turnover of Rs bn based on the current capacity. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 10

11 We recommend BUY on Time Technoplast with a price target of Rs.52 During the quarter, Time Technoplast has received a major breakthrough. Its Composite Cylinder has finally been awarded approval by Petroleum Explosives & Safety Organization (PESO), Nagpur for manufacturing and sale of its 'LiteSafe' Composite Cylinders. Thus, Time Technoplast has become the first and the only local manufacturer of Composite cylinders to have received this coveted approval which is a pre-requisite for use of Composite Cylinders for LPG distribution in the country. In composite cylinders, the company has total capacity of 7 lac divided between domestic capacity of 3.0 lac and Bahrain Capacity of 4.0 lac. Depending upon when the approval from PESO comes (expected in month's time), the company expects Rs mn revenue in FY14 from cylinders. The company has also commissioned an industrial packaging unit at Hosur in India and another one in Vietnam. The company's infrastructure division has won Rs 1.2 bn order from MP Government for supply of Pre-fabricated shelters for E-Panchayat Bhavans. The company expects Rs 600 mn revenue from this venture to accrue in FY14. The battery business generated Rs 1.8 bn in revenues accounting for 10% of revenue but continued to witness lean profitability. The company is open to disposing of this venture if the offer is attractive. Moderating capex The company had undertaken a capex/acquisitions of Rs 2.5 bn and Rs 2.4 bn in FY11 and FY12 towards new factories and expansion plans. Following the massive expansion spree in the previous two years, the company has now moderated its capex to around Rs 1.7 bn in FY13. The company plans to spend Rs 1.0 in capex in FY14. The company has now reached the end of its current capex cycle and expects to maintain debt levels at previous fiscal's level. Consistently high capex has been a concern with investors as this has constrained free cash flow and increased debt burden. Maintain Earnings and Target Price At CMP, TTL is trading at P/E of 6.5x FY14 earnings. Valuations appear reasonable at these levels (ROE to improve to 14% in FY14E). Maintain BUY with an unchanged DCF based target price of Rs 52 (Rs 55 earlier). Annnexure TTL's products are based on the polymer platform and has access to major plastic moulding technologies including blow moulding and injection moulding. The key product categories for the company are Industrial packaging products, lifestyle products (door mats, chairs, syringes), technical products (automotive components), infrastructure products (pipes and monolithic construction) and new products (composite cylinders). The largest segment is the industrial packaging accounting for 59% of revenues. The company enjoys dominant market share in the industrial packaging business in India. The company's multi-locational advantage enables it to respond to customer needs in an efficient basis. Also the company keeps coming out with innovations in its product offerings. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 11

12 User breakup for packaging products No. User Segment share of business (%) 1 Speciality Chemicals 31 2 FMCG 29 3 Paints & Inks 12 4 Pharmaceuticals 5 5 construction chemicals and Adhesives 13 6 Lube oils & Addictives 5 7 Food 3 8 Others 2 Total 100 Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 12

13 RESULT UPDATE Sanjeev Zarbade TATA POWER PRICE: RS.90 RECOMMENDATION: ACCUMULATE TARGET PRICE: RS.102 FY14 P/E 20.9X Tata Power consolidated PAT is lower than estimates Profitability at its coal mining investment has dipped in the quarter due to lower realizations and higher cost of mining. Mundra UMPP fully commercialized but profitability depend on quantum of compensatory tariff to be allowed to the company for the project. Quarterly Financials Summary table (Rs mn) FY12 FY13E FY14E Sales Growth % EBITDA EBITDA margin % PBT Reported net profit Adjusted EPS (Rs) Growth % CEPS Book value (Rs/share) DPS (Rs) ROE % ROCE % Net cash (debt) NWC(Days) EV/EBITDA (x) P/E (x) P/Cash Earnings P/BV (x) , Kotak Securities - Private Client Research Rs mn Q4 FY13 Q4 FY12 YoY (%) Net Sales Prior period adjustment other op income Fuel (coal+fuel+change in stock) cost of power purchased Staff cost Coal processing charges Royalty Raw material consumed Purchase of goods Cost of components Impairment 0 0 Def stripping cost Other expenditure Total Expenditure PBIDT Other Income Depreciation EBIT Interest Gain/(loss) on exc rate PBT Tax Share of associate profit after tax Minority Interest Adj Profit After Tax Extra-ordinary Items Reported PAT Tax rate % 66% 57% EBITDA % 21.9% 22.3% Fuel costs to sales % 29.7% 29.3% Purchased power to sales % 25.7% 26.4% Staff costs to sales % 4.0% 4.5% Other exp to sales % 12.2% 10.9% Coal processing charges to sales 7.3% 5.8% Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 13

14 Reported Vs Estimated numbers Rs mn Q4 FY13 Q4 FY12 Revenue 84,416 90,117 Reported PAT 1,814 2,684 Segment Revenues Q4FY13 Q4FY12 Power Business 65,002 46,060 Coal 22,191 23,378 Others 3,920 3,239 Total 91,112 72,678 Power Business 13,466 5,887 Coal 1,707 5,065 Others Total 15,029 10,648 Standalone Performance (Mumbai License Area) Gross generation was lower at 3366 mu vs 3559 mu mainly due to planned outtage of unit 8 coupled with lower demand from customers. Revenue was lower due to decline in generation and lower fuel costs being translated into lower tariffs at Rs 4.92 per unit vs Rs 5.23 in Q4FY12. TPWR's coal business reported volumes of 19 mn tons (up 19% yoy) and realization of USD 72.3/ton (-21% yoy). Cash cost increased marginally to USD 44/ton from USD 47.3/ton in Q4FY13. Coal production during the quarter was at 19.6 mn ton. Coal: Realizations down on account of soft trend in global coal prices Coal processing cost has gone up by 65% due to higher quantity of coal mined and increase in depreciation. Update on Maithon 1050 MW: The company reported a loss of Rs 863 mn despite having both its units under operation was mainly due to lower offtake from consumers. The company currently has tied up 900 MW of capacity and is in the process of firming the balance capacity. Update on Mundra 4000 MW: The average realization at Mundra was Rs Due to change in coal export by Indonesia and rise in coal prices since 2007, the company is reporting under-recovery in coal costs. The company is now going for increased blending with cheaper coal. EBIT loss at Mundra decreased to Rs 1.47 bn from a loss of Rs 2.2 bn due to higher generation and strategic purchasing of coal from North America. CERC hearing: During the quarter, the CERC has heard Tata Power's plea for a upward revision in power tariffs for its Mundra Power Project. Although the CERC ruled out giving benefit of Force Majuere clause and change in Law clause to Tata Power, the CERC concluded that a compensation must be given to Tata Power. CERC also ordered the setting up a panel - comprising representatives of the five states, Tata Power and bankers - to work out the quantum of the compensation over the current tariff for the imported coal-based project. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 14

15 Other Highlights TPDDL (erstwhile NDPL) reported PAT of Rs 1178 mn vs 739 mn in Q4FY12 Gross borrowings stand at Rs 330 bn, almost 3x debt to equity. The company expects to extract coal from Mandakini Mines by Q1CY14. Earnings Revision FY14 Rs mn Earlier Revised Revenue EBITDA % EPS Source: Kotak Private Client Research Valuation Criteria We recommend BUY on Tata Power with a price target of Rs.102 Stake parameter Per share Regulated returns business in DCF 38 Tata Power (Standalone) Maithon 74% DCF 11 Mundra 100% DCF -10 IEL 74% DCF 2 NDPL 51% P/BV 6 Bumi Resources stake 30% EV/EBITDA 35 Powerlinks 74% P/BV 4 Investments + cash 18 Total 102 Source: Kotak Private Client Research Maintain Accumulate rating with a revised target price of Rs 102 share We continue to like TPL's core distribution business (both Mumbai and Delhi) which earns a stable return and is insulated from risks of deteriorating financial health of SEBs. Further, potential blending of low-grade coal could bring down losses at Mundra. A favourable resolution of compensatory tariff hike on Mundra remains the main trigger for the company. Maintain Accumulate with revised target price of Rs 102 (Rs 106 earlier). Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 15

16 RESULT UPDATE Sanjeev Zarbade BHARAT ELECTRONICS PRICE: RS.1271 RECOMMENDATION: ACCUMULATE TARGET PRICE: RS.1450 FY14 P/E 11.1X Finally, BEL delivers with a strong quarter. Raise estimates to build in better than expected EBITDA margins in Q4FY13. We maintain Accumulate; thereby advising investors to buy on declines. Risk: Recent amendments to DPP could increase competition for BEL from private sector Actual vs Estimated numbers Rs mn Q4 FY13 Q4 FY12 YoY (%) Net Sales Other operating income revenue distribution % 41% 100% -59 Summary table (Rs mn) FY12 FY13E FY14E Sales Growth (%) EBITDA EBITDA margin (%) PBT 10, , ,070.7 Net profit EPS (Rs) Growth (%) CEPS (Rs) BV(Rs/share) Dividend ps (Rs) ROE (%) ROCE (%) Net cash (debt) NWC(Days) EV/Sales (x) EV/EBITDA (x) P/E (x) P/Cash Earnings P/BV (x) , Kotak Securities - Private Client Research Operating Expenditure Raw Material costs Staff costs Other expenditure Traded items Operating profit Depreciation Other income EBIT Interest PBT Tax Adjusted PAT OPM (%) Raw Matl costs to sales (%) Trading items to sales (%) Staff costs to sales (%) Other exp to sales (%) 9 10 Tax rate (%) EPS Rs Actual vs Estimated numbers - Significant profit beat (Rs mn) Q4FY13 Q4FY13E Revenue EBITDA % PAT Key Result Highlights BEL's revenue higher than estimates for the quarter. We expect deliveries may have picked up in the quarter as the management had been highlighting slow clearance by defence ministry for large projects to be one of the key reasons for weak revenues during 9MFY13. Also, issues over replacement of Tatra vehicles (which is used for Akash Missile systems) also impacted deliveries by BEL. Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 16

17 Orders like Akash Missile Systems are jointly produced by various defence manufacturing units like Bharat Dynamics, Bharat Electronics among others. A delays in supplies by one of the vendors impacts revenue booking of other suppliers as well. The company posted EBITDA of Rs 5.9 bn, implying a EBITDA margin of 22%. For the quarter, EBITDA margins expanded 800 bps yoy. Other income at Rs 1.7 bn vs Rs 1.5 bn helped the company report a profit of Rs 5.9 bn up 78% yoy. The company ended the second quarter with a cash of Rs 53 bn (vs Rs 68 bn in Q4FY12), which is translating into robust treasury income. The company continues to remain debt free. Cash has declined due to higher receivables and translation of client advances into revenues. Tax rate for the quarter declined to 19% vs 24% in Q4FY12, most likely due to higher R&D spend during the fiscal. The company has continued to emphasize on the immense opportunities from Defence offsets. It expects that many foreign companies will source directly from Indian companies or set up JVs to address the offset requirements. It is to be noted that for MMRCA (Medium multi-role combat aircraft) projects, the offset is at 50% of the contract value whereas it is at 30% for all contracts above Rs 3.0. Apart from this, another tender for 1400 systems of Akash Systems is in the offing, which could aid order intake in FY14. Recent Developments Recent amendments to DPP-2011 announced by the defence ministry last month give a glimmer of hope to the private sector. The new policy initiatives expressly mandates that the military will buy foreign weapons only if every other option for developing the system in India has been explored and found non-feasible. This shifts the onus for pursuing indigenisation onto the military. The recent amendments to DPP will provide the private sector with a level-playing field against the government-owned companies. For instance, now maintenance transfer of technology from foreign vendors will not go to an ordnance factory nominated by the defence ministry; instead, the foreign vendor can choose the Indian partner that it believes will best discharge the maintenance responsibility that the contract specifies. So far maintenance, repairs and overhaul contracts have largely been the preserve of ordnance factories and defence public sector undertaking (DPSUs). This is a matter of concern for BEL as it would increase competition from private sector. Earnings Outlook FY14 Rs mn Earlier Revised Revenue EBITDA % EPS % change 14.6% We recommend Accumulate on Bharat Electronics with a price target of Rs.1450 Valuation: At the current price, BEL is trading at 11.1x FY14 earnings. On a forward EV/ EBITDA basis, the company trades at 7x. In view of the moderate upside of 11% to our target price, we recommend Accumulate thereby recommending buying at lower levels. Target price of Rs 1450 (Rs 1333 earlier) Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 17

18 RESULT UPDATE Ritwik Rai Summary table (Rs mn) FY12 FY13E FY14E Sales 13,557 15,255 16,840 Growth (%) EBITDA 3,169 2,953 3,397 EBITDA margin (%) Adj. PBT 2,556 2,256 2,817 Adj. PAT 1,783 1,388 1,859 Adj. EPS Growth (%) (17.3) (22.2) 33.9 CEPS (Rs) BV(Rs/share) Dividend ps(rs) ROE (%) ROCE (%) Net cash (debt) (2,117) (1,382) 724 NWC(Days) P/E (x) P/BV (x) EV/Sales (x) EV/EBITDA (x) , Kotak Securities - Private Client Research JAGRAN PRAKASHAN PRICE: RS.84 RECOMMENDATION: ACCUMULATE TARGET PRICE: RS.94 FY14E P/E: 14.3X Jagran Prakashan's 4QFY13 and FY13 consolidated results have come in significantly lower than expectations, on account of weaker financials from acquired operations (Mid-Day, Nai Dunai), and losses in the event management business (one-off). On the back of these, as also weakening readership trends in Nai Dunia, we cut our EPS estimate 9% for FY14. On account of weakened earnings visibility, the stock is likely to continue trading at a discount to peer DB Corp (fair value multiple 20x PER FY14E). We cut our price target to Rs 94 (16x PER FY14E), and retain ACCUMULATE, as we await clarity in the company's earnings path. Result Summary Jagran Prakashan's 4QFY13 results are not fully comparable with prior quarters on account of inclusion of Nai Dunia financials with the company's standalone results in the quarter. The company reported revenues Rs 3.4Bn, which includes Rs 2.3Bn in advertising revenues, and Rs 761mn in circulation revenues. EBITDA came in at Rs 539mn, while PAT came in at Rs 394 mn. Reported EBITDA/ PAT were well below our estimates. Quarterly Financials Rs mn, FY Ends Mar 4QFY13 4QFY12 % Grw. y/y 3QFY13 % Grw, q/q Revenues % % - Advertising Revenues % % - Circulation Revenues % % - Other % % Expenses: % % Raw Material Expenses % % Gross Profit % % Gross Margin 64% 65% -1.3ppt 66% -2.4ppt Personnel Expenses % % Other Expenses % % EBITDA % % Margin 15.7% 21.2% -5.5ppt 26.1% -10.4ppt Depreciation % % Interest Expenses % % Other Income % % PBT % % Provision for Tax % 0 NM PAT % % EPS % % Advertising revenues, excluding Nai Dunia advertising revenues, were flat on a y/y basis. We note that the company benefited from elections in Uttar Pradesh in 4QFY12. Excluding the benefits from UP elections, the company registered growth of 5% y/y in advertising revenues. Strong growth in circulation revenues is also on account of inclusion of Nai Dunia financials in the results. Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 18

19 Cost heads have also been affected by the inclusion of Nai Dunia as discussed earlier. Over and above the impact of Nai Dunia the other expenses line includes Rs 140 mn provision relating with certain events that the company had undertaken for the government in FY12 (the same debtors have been outstanding for the company for over 12 months). Nai Dunia EBITDA losses for the quarter amounted to Rs 40mn. Reported PAT, Rs 394 mn, declined 8% despite zero taxes, as the company's other income/ financial expenses lines registered adverse movements, on account of higher debt (relating with Nai Dunia acquisition). Consolidated financials for the year include several one-off entries: 1/ impairment charge of Rs 500mn on goodwill of Suvi, 2/ other income includes Rs 984mn, the excess of face value of OFCDs and carrying value in the book of JPL. Excluding these, and assuming full tax rate (versus the reported tax of zero) in FY13, the (adjusted) net income for FY13 has come in at Rs 1388mn, well below our expectations. The company has proposed a final dividend of Rs 2/ share, down from Rs 3.5 last year. The management said that the company would be considering a buy back/ higher dividend in the near future. The management has expressed confidence about the coming year's advertising revenues. Management believes 10-12% growth in advertising revenues shall be achievable. This is on the back of improvement in advertising environment as well as high expectations from Mid-Day and Nai Dunia newspapers. During the past year, Nai Dunia advertising revenues registered advertising growth of 12%. As per management, both Nai Dunia and Mid Day shall continue to see benefits from network strengths of Jagran Prakashan. The management re-stated its intent to elevate Nai Dunia to #2 newspaper in MP/ Chhattisgarh. During the year, advertising revenue growth was primarily led by increase in volumes, while yields declined. Going forward, the company expects that yields shall improve - Jagran has raised advertising rates in the past few months and expects that the benefits of the same shall begin to flow in in the coming quarters. Jagran shall raise circulation of Nai Dunia significantly, and will also raise circulation of Mid-Day Gujarati, and Inquilaab - the company's Urdu newspaper. Circulation of Dainik Jagran is expected to rise 4% in the coming year. The company does not expect significant rise in the newsprint prices, although a slight increase may be seen on account of weakening rupee - although Jagran uses largely domestic newsprint, the company indicated that domestic newsprint prices may also see an uptick. Outlook and Investment View Financial performance of the company has been weaker than our expectations, on provisions (one-offs), and higher than expected losses from Nai Dunia. While the provisions are in the nature of one-offs, there is significant possiblity that Nai Dunia losses may persist (and even expand) going forward. We note that while Jagran has raised circulation of the newspaper by about 20%, the newspaper's readership continues to be on the decline over the past few surveys. Dainik Jagran operations are unlikely to look up meaningfully in the near future. With significant gains having already been made In circulation revenues in the past year, Jagran shall be increasingly dependent on advertising revenues in the coming year. Although advertising environment has begun to look up, we think it remains unlikely that Jagran's advertising revenue growth shall exceed 12% - factored into our estimates. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 19