ISEC - Bharti Airtel

ICICI Securities report on Bharti Airtel:

Bharti Airtel (BAL) continued to outperform the Indian wireless industry, adding 1.9 million wireless subscribers in May ’07 and taking the total subscriber base to 40.7 million and market share to 23% (up from 20.4% in May ’06). Further, BAL’s revenue market share is notably higher across most circles due to the company registering the best ARPU in the industry on account of early-mover advantage. The surge in net-adds in the month was led by expanding geographical footprint and launch of new attractive schemes. While the pressure on the ARPU and ARPM would continue, we believe that BAL would be able to maintain its leadership position despite increasing competition due to expansive network, high usage customers and better quality services. With valuations remaining attractive at FY09E P/E of 21x and EV/EBITDA of 11x, we reiterate BUY on the stock.

Strengthening subscribers’ market share:

BAL has been one of the leading wireless players since its inception. The company has managed to differentiate itself from the competition and leap ahead by pro-actively investing in the business since the onset of the wireless rally at end-CY04. BAL has pulled up its market share from 19% in Q3FY05 to 23% as on date, adding 24% of total net-adds in the period. We believe that the company’s track record of unbeaten performance is here to stay, with BAL maintaining forefront position, riding on its existing lead and further investments in the business.

But revenue share even higher:

BAL was the first operator to attain pan-India presence and is amongst the first three entrants for 16 of total 23 circles, providing access to higher usage customers. This is reflected in the company recording the highest ARPU in the industry and taking the revenue share to 28% as against its subscriber market share of 21% in Q3FY07. In the prevalent cut-throat competition, service quality would be the differentiating factor as against pricing. We expect that BAL’s ‘Airtel’ brand pull, better quality of service and customised offerings would ascertain its leadership going forward.

Robust financial performance and attractive valuations:

Although BAL’s Infotel business (broadband & telephone, long distance and enterprise services) has performed better than the industry, it has underperformed the wireless business, resulting in a decrease in contribution from this segment from 42% in FY04 to 35% in Q4FY07. Despite the slower growth in the Infotel segment, BAL is expected to report 34% revenue CAGR and 33% earnings CAGR through FY07-09E. The stock is currently trading at FY09E P/E of 21x and EV/EBITDA of 11x, close to most large-cap companies with similar growth profile. We reiterate BUY on the stock, with target price of Rs 956.

ISEC - Deccan Chronicle

ICICI Securities report on Deccan Chronicle Holdings:

We recently appraised Odyssey, the retail business of Deccan Chronicle Holdings (DCHL), via store visits. Based on DCHL’s expansion plans and ‘Agreed upon procedures’ with KPMG, we are optimistic on Odyssey going forward. We value Odyssey at Rs 1.9 billion (Rs 7.50 per DCHL share) based on peer valuation. DCHL is the cheapest stock in print space and our top pick in the print sector. The stock is currently trading at FY09E P/E of 19.2x and EV/EBITDA of 10.6x.

Odyssey

DCHL acquired a 100% stake in Odyssey in September ’05 for Rs 612 million. The company is planning on expansion through an initial public offering (IPO) for Odyssey for raising Rs 770 million, post which, DCHL plans to de-merge the entity (Odyssey) from the print business. Odyssey’s business encompasses retailing of books, music, cards, stationery, gifts, toys, multimedia and magazines. Odyssey started in 1995 and has 17 national stores as of date, spanning 10 cities – Chennai, Hyderabad, Bangalore, Nagpur, Coimbatore, Trichy, Salem, Varanasi, Noida and Mumbai. The entity posted FY06 revenues of Rs 256 million. Books contribute to 40% of revenues whereas share of non-book items (gifts, toys, stationery and greeting cards) is 50% on an average.

Aggressive expansion plan by Odyssey through increasing number of stores to 44 and built-up area under operation to 527,296sqft by FY09.

Pan India presence.

Odyssey is targeting pan India presence to leverage on the consumption boom. At present, a large chunk of revenues are contributed by Chennai (six stores). Odyssey plans to capture A-class cities, extending operations to Delhi, Bangalore, Mumbai, etc.

Financials on the upswing.

The management expects Odyssey to register FY09E revenues at Rs 3.2 billion, up 12.5x from FY06 revenues at Rs 255 million on the back of an increase in number of stores to 44 from 17 at present.

Valuation

We value Odyssey at Rs 1.9 billion or Rs 7.50 per DCHL share based on the current store outlay and projected financials for FY07.

Odyssey

DCHL recently laid down its expansion plans for Odyssey, with a KPMG study of the ‘Agreed upon procedures’ for the expansion. Odyssey has outlined an aggressive pan India expansion plan, to increase its presence to 44 stores from 17 stores in 10 cities at present. DCHL acquired 100% stake in Odyssey in September ’05 for Rs 612 million. The company is planning on expansion through an IPO for Odyssey for raising Rs 770 million, post which, DCHL plans to de-merge Odyssey from the print business. However, the company has been planning the IPO for the past 15 months.

Takeaways from the KPMG study of ‘Agreed upon procedures’

Odyssey - The present state

Odyssey is in the business of retailing books, music, cards, stationery, gifts, toys, multimedia and magazines. It is the first branded leisure store in India, growing from one store in 1995 to 17 stores as on date, spanning 10 cities – Chennai, Hyderabad, Bangalore, Nagpur, Coimbatore, Trichy, Salem, Varanasi, Noida and Mumbai. Odyssey registered FY06 revenues of Rs256mn. Books contribute to 40% of revenues whereas share of non-book items (gifts, toys, stationery and greeting cards) is 50% on an average; other items including music & multimedia contribute 10%. Employee strength is 379, including store staff of 226.

Aggressive expansion plans

Odyssey plans aggressive expansion through increasing number of stores to 44 and built-up area under operation to 527,296sqft by FY09. Odyssey’s store model is similar to Landmark’s, stocking books, music CDs, gift items as well as lifestyle products such as perfumes and leather products.

Financials – To witness an upswing

Odyssey has given FY09E guidance of revenue and profitability. However, we estimate that there is a risk to performance on account of slower-than-estimated expansion owing to delay caused by mall developers. Further, the schedule is short of three stores, owing to delay in transfer of properties.

Key assumptions for projections, by the management

• Revenues from existing stores to increase 35%
• Gross margins are based on current average margins
• Employee costs are based on expected employee strength and a 10% yearly increment rate
• Lease rentals include selling, general and administration expenses, based on signed letters of intent
• Depreciation is calculated using the straight line method.

Valuing Odyssey

In our detailed report dated May 29, ’07 (India Media Sector: Triumph writ large), our FY09 valuations for Odyssey were Rs 612 million. We have revisited our valuations, post the built up of Odyssey’s new stores and peer multiples, attributing Rs 1.9 billion or Rs 7.5 per DCHL share. However, we believe that the DCHL management is planning to raise money at IPO valuations of Rs 4-5 billion for Odyssey.

Deccan Chronicle - Still the cheapest

DCHL is our top pick in the print sector and the cheapest stock in print space. The stock is currently trading at FY09E P/E of 19.2x and EV/EBITDA of 10.6x, even after moving up 20% in the past three weeks. We have not factored in any upside from the Odyssey’s stock dividend.

ISEC - Glaxo

ICICI Securities report on Glaxo Smithkline Consumer Healthcare:

Key takeaways from our recent interaction with the management of Glaxo SmithKline Consumer Healthcare (GSKCH) are: i) acceleration in sales growth in the current year, ii) 4% hike in product prices from June ’07 would offset input cost inflation and loss of excise exemption for the Assam unit, iii) foray into a new category by end-CY07, while actively scouting for acquisitions, iv) buyback of shares an alternative, if acquisitions do not materialise. We believe that GSKCH, the CY07E valuations at 14.3x P/E and 7.6x EV/E of which are at a significant discount to peers, is set to witness re-rating on the back of sales growth acceleration as well as launch of a new category. We reiterate GSKCH as one of our top picks in the sector.

Acceleration in sales growth.

GSKCH is witnessing a sharp acceleration in sales growth, primarily driven by improvement in the economic environment. Given the robust sales growth, the management has indicated that the company can easily achieve a mid-teen growth rate in CY07E as against an even lower double-digit growth in the past couple of years.

New category launch by end-CY07.

GSKCH is planning to launch a new category by end-CY07. The launch, which is likely to be in the health food segment, would be in a different format and could develop into a big category going forward. Further, GSKCH is expected to introduce some of its global portfolio brands in India; energy drink Lucozade would be a relevant introduction in the Indian market.

Profit margins likely to sustain.

Apart from increase in input prices, GSKCH was adversely impacted by the excise exemption loss at its Guwahati unit recently, amounting to Rs130 million on an annualised basis. However, a 4% increase in product prices from June ’07 and reduction in VAT rates to 12.5% from 20% in Kerala from April ’07 would help offset the cost increase. The management remains confident of maintaining profit margins.

Focus on long-term growth acceleration.

After Mr Zubair Ahmed’s (erstwhile Managing Director-Gillette India) coming on board as GSKCH’s managing director, the company has witnessed increased focus on long-term growth acceleration. Besides the launch of a new category by end-CY07, the company is actively scouting for acquisitions. The company aims to acquire nutritional and over-the-counter medicinal brands, technologies and businesses.

Reiterate BUY.

The next-best alternative to the acquisitions not materialising is buyback of shares. The company’s surplus cash is likely to increase to Rs 3.5 billion by end-CY07. We believe that GSKCH, the CY07E valuations at 14.3x P/E and 7.6x EV/E of which are at a significant discount to peers, is set to witness re-rating on the back of sales growth acceleration as well as launch of a new category. We reiterate GSKCH as one of our top picks in the sector.

ISEC - Glenmark

ISEC - Glenmark

ISEC - HPCL, Britannia, Tata Tea

ISEC on HPCL

HPCL’s Q4FY07 recurring net income at Rs5.5bn against Rs2.2bn in Q4FY06 was slightly above our expectations (Rs5.4bn). This was despite higher-than-expected subsidy sharing by upstream companies and the Government. This is primarily due to 82% QoQ increase in other expenditure and lower-than-expected Q4FY07 refining margins. HPCL’s reported net income fell 72.7% YoY to Rs5.5bn as FY06 oil bonds were issued and accounted in Q4FY06 results. The stock fell 10.7% YoY and underperformed the Sensex 45.2% YoY. We remain positive on the stock on the back of a robust margin outlook, favourable Government under-recovery sharing and proposed reforms on CST/octroi.

HPCL seems attractive on current valuations, given the robust outlook on refining margins and a benign Government policy on under-recovery sharing. Proposed reforms on CST, octroi and a possible fuel price increase post the
Uttar Pradesh elections would provide further impetus. The stock is currently trading at FY08E P/E of 7.1x and EV/EBITDA of 3.7x and has underperformed the Sensex by
45.2% YoY. Potential news on LPG/SKO, subsidy reforms and new E&P finds could
add further upside. We reiterate BUY on HPCL with a 12-month fair value of Rs424-
451/share.

ISEC on Britannia

Britannia’s Q4FY07 performance was ahead of our expectations; sales growth accelerated to a new high of 32% YoY despite a high base. Operating margins before ad spends expanded 419bps QoQ to 13.9%, notwithstanding the sustained inflationary pressure from input prices. With the enhanced excise exemptions up to Rs100/kg by the Budget, excise exemption benefit for 75-80% of Britannia’s portfolio would be reflected Q1FY08 onwards. We believe the worst is over for Britannia and expect 40% earnings CAGR through FY07-09E. Despite the recent run up, maintain BUY.

Maintain BUY. With the entire benefit of price hikes and excise exemption reflected Q1FY08 onwards, we expect Britannia’s profitability to boost significantly. We believe the worst is over for Britannia and expect 40% earnings CAGR through FY07-09E. The company has emerged stronger post past two years of intense cost & competitive pressures and is well positioned to capture growth in the fast-growing processed foods business. Despite the recent run up, we maintain BUY on the stock, which is trading at FY08E P/E of 23x.

ISEC on Tata Tea

With the entire adverse impact of the Glaceau acquisition being reflected in H2FY07 and the stock having significantly underperformed, this would be an opportune time to BUY from a long-term perspective.

Nestle, Indraprastha Gas, IOC, CBoP, Gokaldas

ENAM recommends OUTPERFORMER on Nestle

We believe Nestlé India has a significant intrinsic value (~Rs 2056 per share) and value unlocking will unfold in stages on successful introduction of brands / products from its parent¿s global portfolio and an improvement in its existing portfolio¿s reach and affordability in the rural markets. At CMP (Rs.1143) Nestlé India is currently trading at P/E of 24x CY08E and EV/EBITDA of 14x CY08E, close to its long-term one-year forward valuations. Given the growth momentum and EBITDA margin (pre provisions) expansion in Q1CY07, we believe the company has the potential to positively surprise consensus growth expectations in the interim term. We maintain sector Outperformer rating on the stock.


ISEC recommends BUY on Indraprastha Gas

IGL reported impressive 35% YoY growth in Q4FY07 recurring net income to Rs401mn, the best ever quarterly performance. Recurring net income was 11% higher than our estimates on the back of higherthan- expected volumes and margins. The company's growth prospects are bright based on accelerated conversion of private vehicles to CNG and incremental demand of 1,000 CNG buses due to Commonwealth Games in '10. Valuations are attractive as the stock has fallen 14.1% YoY and has underperformed the BSE-200 45% in the past one year. Maintain BUY.

ISEC on Indian Oil Corporation

Indian Oil (IOC) reported recurring net income of Rs29bn in Q4FY07 as against Rs8bn in Q4FY06. The impressive 262.5% YoY growth was post pro-rata adjustment of oil bonds worth Rs65.7bn issued to IOC in Q4FY06 for full FY06. However, reported net income at Rs16.1bn was down 60.1% YoY. Overall, fall in crude prices reduced gross underrecoveries, which, along with the surprise increase in subsidy relief through upstream sharing and oil boosted IOC¿s performance. Further, the healthy outlook on refining margins and expected reforms on cooking fuel subsidies is a key positive for IOC. Added drivers include the impact of the company¿s petrochemicals business (paraxylene, PTA) and the upside from oil & gas finds from IOC¿s E&P assets. The stock rose 13.2% QoQ, outperforming the Sensex 7.7% QoQ based on the benign subsidy sharing scheme implemented by the Government. The stock is currently trading at FY07 P/E of 8.3x.

ENAM on Centurion Bank of Punjab

Our FY08 numbers take into account the LKB merger, Bank of Muscat preferential allotment and a part of warrants conversion by Sabre Capital. This will keep the reported ROE low, but the ROA will likely be maintained at 0.8%. Given that valuations at 3.6x FY09E are rich, the stock may underperform in the short term. However, along with the strong growth prospects and high execution capability, the bank is also a strong takeover candidate post 2009. Hence, valuations are
likely to remain high in the coming years. Maintaining our sector Outperformer rating on the stock.

ENAM on Indraprastha Gas

In our view, market is largely ignoring IGL¿s business franchise, itsability to manage the costs and seems to be concerned on the impactregulations. However, at current valuations (9.8x FY08E EPS), theconcerns seem to be overdone, making it one of the mostinexpensive stock in oil & gas universe. We maintain our sectorOutperformer rating on the stock.

Merrill Lynch on Gokaldas Exports

Valuations at 10x FY08E PER, look undemanding, being at the lowest end of thehistoric PE band (12-15x). However, with expectations of an earnings slowdown inFY08, these multiples may just about be right, for now. We note that impendinglabor reforms and the big domestic opportunity remain as key long term growthdrivers for Gokaldas. However, in the absence of any near term triggers and theoverhanging concern on Re appreciation, we maintain our Neutral rating

House Chitter Chatter

ISEC recommends BUY on BPCL at 371 with a 12 month target of 540-566.BPCL seems attractive on current valuations given the robust outlook on refining margins and benign Government policy on under-recovery sharing. Proposed reforms on CST, octroi and a possible fuel price increase post the Uttar Pradesh elections would provide further impetus.

ISEC recommends BUY on Mahindra & Mahindra at Rs.735.EBITDA margin expansion is likely to drive net profit growth of 28.8% YoY.

ISEC recommends BUY on Indraprastha Gas at Rs.110. Net income expected to surge 20.7% YoY to Rs360mn. CNG, PNG volumes and depreciation are the key factors to watch for

KR Choksey says Patel Engineering is the cheapest stock amongs its peers
and can deliver good returns.

CLSA recommends RCOM with a price target of 514

Prabhudas Lilladher recommends Dabur at CMP of Rs 98 which is trading at
25.2x FY08 earnings and at 21.5x FY09 earnings. They continue to remain positive on the company and believe that Dabur would be able to sustain its premium valuations in view of its strong growth appetite. Therefore maintain an Outperformer on the stock at the current levels.

Man Financial upgrades NIIT Tech to BUY with a target of 660 which is
12x FY09E earnings.

SSKI recomends OUTPERFORMER on BPCL with a price target of 431

SSKI recommends Centurion Bank of Punjab with a OUTPERFORMER

ISEC - Alembic, Aviation Sector, Tata Tea,

Alembic

Aviation Sector

Tata Tea

ISEC - Indian Real Estate Sector - Opportunities Unleashed

ISEC - Indian Real Estate Sector - Opportunities Unleashed

ISEC - Tata Motors, Dr Reddy's Labs, Sun Pharma

Tata Motors

Dr Reddy's Labs

Sun Pharma

ISEC - Bajaj Auto

ISEC - Bajaj Auto

ISEC - Bajaj Auto, Tata Motors, Dr. Reddy's Labs

ISEC - Bajaj Auto, Tata Motors, Dr. Reddy's Labs

ISEC - Netback Margin (May ’07) – Refining stocks to fly

ISEC - Netback Margin (May ’07) – Refining stocks to fly

ISEC - Inflation, Bajaj Auto

ISEC - Inflation, Bajaj Auto

ISEC - Hero Honda, Chennai Petroleum

ISEC - Hero Honda, Chennai Petroleum

ISEC - Asian Paints, Sun Pharma

ISEC - Asian Paints, Sun Pharma

ISEC - Sesa Goa

ISEC - Sesa Goa

ISEC - GAIL, Hero Honda

ISEC - GAIL, Hero Honda

ISEC - Britannia & Asian Paints

ISEC - Britannia & Asian Paints

ISEC - Proctor & Gamble, HT Media, GAIL

Proctor & Gamble

HT Media

GAIL