BHEL, Central Bank, Cipla, Dr Reddys, Glenmark, Grasim, HCC, Kotak, LT, Marico, Union Bank of India, Voltas

BHEL, Central Bank, Cipla, Dr Reddys, Glenmark, Grasim, HCC, Kotak, LT, Marico, Union Bank of India, Voltas

Alston Power, Dabur India, Saamya Biotech, Wipro, Kotak Mahindra, Reliance Communications, Circuit Systems, Maytas Infra, Ambuja Cements

Alston Power, Dabur India, Saamya Biotech, Wipro, Kotak Mahindra, Reliance Communications, Circuit Systems, Maytas Infra, Ambuja Cements

Kotak - Sun Pharma

Sun Pharma plans to raise Rs35 bn (US$850 mn) by issue of equity/convertible bonds. This will imply a 16.5% dilution, assuming an issuance at market price. With a cash-chest of US$850 mn, Sun will likely continue its prowl for under-utilized assets. Thus far, the acquisition strategy seems to have been value accretive.
Clearly with two events (closure of Taro acquisition and fund raising) outstanding, the
stock is un-likely to move up in the short-term. However, the long-term growth strategy seems to be getting stronger.
Sun recently announced its intent of acquiring Taro Pharma at an EV of Rs22.5 bn (not factored into our estimates). Only the deal price of US$454 mn will reduce our FY2008 net profit estimate by 8% (loss of interest income). In CY2005, Taro had sales of US$298 mn sales and net profit of US$6 mn (65% gross margin and 14% operating margin). However numbers have significantly deteriorated in CY2006, with sales of US$180-200 mn and net loss of US$95-120 mn. This will likely be skewed towards non-recurring charges in our opinion. This deal will be negative to EPS for FY2008, and as per the management be accretive in FY2009.

We have fine-tuned our model. For FY2008, we estimate revenue growth of 23% and EPS growth of 16% to Rs43.4. Despite assuming 280bps margin expansion, our EPS growth is constrained by sharp drop in other income. Our EPS will likely drop by another 8%, if we were to assume the fund outflow for the Taro acquisition. For FY2009, we have modeled 21% revenue growth and 25% EPS growth to Rs54.2

Kotak - HT Media, Murudeshwar, PSL, ICICI Bank

Kotak - HT Media, Murudeshwar, PSL, ICICI Bank

Kotak - Infosys Technologies

Kotak - Infosys Technologies

Kotak - IPCA Labs

Kotak - IPCA Labs

Kotak - Weekly Update

Kotak - Weekly Update

Kotak - EKC, ONGC

Kotak - EKC, ONGC

Kotak - Construction Sector, Megasoft

Kotak - Construction Sector, Megasoft

Kotak - Subex Azure, Vishal Retail, IIP Performance

Kotak - Subex Azure, Vishal Retail, IIP Performance

Kotak - Riddhi Siddhi Gluco Biols

Kotak - Riddhi Siddhi Gluco Biols

India Economy, Reliance Industries

India Economy, Reliance Industries

Kotak - Weekly Update

Kotak - Weekly Update

Reliance Industries, ONGC, Infosys Technologies, Automobiles, Telecom, India Equity Strategy, India Economy

Reliance Industries

ONGC

Infosys Technologies

Automobiles

Telecom

India Equity Strategy

India Economy

Kotak - Crompton Greaves

Kotak - Crompton Greaves

Derivatives Info - June 8 2007

Derivatives Info - June 8 2007

AIA Engineering, GSPL

AIA Engineering, GSPL

GSPL, Indian Banks, AIA Engineering

Kotak on AIA Engineering

AIA reported numbers marginally better than expectations with adjusted consolidated netincome increasing by 84% to Rs965 mn in FY2007 from Rs524 mn in FY2006. Adjusted EBITDA margins of 24.9% for FY2007 were in-line with expected 25%. Reported EBITDA margin was lower on account of extraordinary marketing expense and Rs200 mn trading revenue booked under its subsidiary. On a y-o-y basis, FY2007 volumes and average realisations were higher by 12% and 10%, respectively. Allowing for marginal delays in power availability, we reduce our volume assumptions by 5% and 0.5%, respectively for FY2008 and FY2009. However, we increase our average realisation assumptions for FY2008 and FY2009 by 3.7% and 6.2%, respectively (see exhibit 1). Accordingly, we revise our consolidated FY2008 and FY2009 eps estimate to Rs70.4 and Rs98.8, respectively from Rs71.9 and Rs93.5, respectively, previously. We roll over our target price and increase it to Rs1,750 from Rs1,615 earlier and maintain OP rating on the stock

Kotak on GSPL


GSPL reported 4QFY07 net income at Rs193 mn (-32.2% qoq, +78.5% yoy) against our estimate of Rs159 mn. 4QFY07 EBITDA at Rs711 mn was lower versus our expected Rs764 mn due to lower-than-expected volumes. However, lower depreciation due to lower capex for two pipelines commissioned in 4QFY07 compensated for the weaker operating performance. GSPL's FY2007 reported net income is Rs894 mn (Rs1.6 EPS). We have fine tuned our EPS estimates for FY2008, FY2009 and FY2010 to Rs2.0, Rs4.1 and Rs5.2, respectively from Rs1.8, Rs4 and Rs5.5, respectively, previously. We have raised our rating in the stock to IL from U previously with a revised 12-month DCF-based target price of Rs57. The upward revision primarily reflects roll-forward and lower capex. Key risks stem from lower-than-expected gas transportation volumes and tariffs. We would also watch for
the nature of regulation on gas transportation business.

Kotak on Indian Banks

We are revising our earnings estimates post publication of their annual financial
statements. We are now assuming those banks will make the AS-15 pension gap
provisions through their net-worth, our new book value estimates thus reflect this. Our earnings estimates assume: (1) healthy but lower credit growth of around 20% to 23% compared to 24-40% in FY2007, (2) decline in margins of around 10 bps to 35 bps in FY2008 to reflect the lag impact of higher deposit cost and lower CASA ratio, (3) higher NPL provisions as recoveries slowdown and (4) lower investment depreciation/
amortization. While we are assuming moderating top line growth, PAT growth will likely be moderate to high given lower investment depreciation. Despite moderation in growth and higher pension gap we find PSU banks attractive given low valuations and significant valuation gap between PSU and private banks. Our top picks are: PNB, IOB, Andhra Bank, SBI and Canara Bank. While we believe that Indian Bank fundamentals remain strong, we are downgrading it to IL from OP, given that the stock trades at a premium to most other PSU banks at 1.5X PBR FY2008 and current market price is close to our fair value estimate.

Kotak - Vardhaman Textiles, Ashok Leyland

Kotak on Vardhaman Textiles

Vardhman Textiles (VTEX) announced 4QFY07 stand-alone net income of Rs369 mn versus our estimate of Rs409 mn. Despite significantly lower-than-expected EBITDA margins (14.2% versus expected 19.5%), earnings did not decline much as depreciation and interest costs were considerably lower-than-expected. Consolidated adjusted revenues and income for FY2007 were in-line with our estimates at Rs21.6 bn and Rs1.86 bn. However, EBITDA margins were lower than expectations (17.4% versus expected 18.4%) due to low volumes and very low margins in the processed fabric business (EBIT margin of 5.4% as against 10% last year). We expect increasing business pressures from— (a) strong rupee, (2) lower yarn prices and (3) marginally higher cotton cost—will restrict any margin improvement in FY2008. Higher interest and depreciation costs will further depress earnings as company capitalizes a large part of its capex in FY2008. We revise our FY2008 and FY2009 consolidated eps estimate to Rs22.7 and Rs31.6 versus Rs32.7 and Rs44.3, respectively, previously. We reduce our12-month DCF-based target price to Rs220 from Rs325, previously and change our rating to in-line from OP.

Kotak on Ashok Leyland

Ashok Leyland has reported a 3% yoy growth in total sales for the month of May.
However, this growth has been largely driven by the bus segment. The bus segment grew
by 123% yoy and 28% mom in May. Goods M&HCV sales declined 17% yoy and 10% mom in May. CV volumes have declined due to the high interest rates. The decline in volumes is in line with the other major player in the CV industry - Tata Motors, which also reported a 17% decline in M&HCV volumes. Besides, there have been media reports that both the CV manufacturers have indicated a slowdown and have reduced their orders for CV tyres for the months of June and July. This, in our opinion, is a negative for the industry and the company. If the trend continues, the CV industry could witness a slowdown in growth and pose significant downside risks to our estimates. We currently estimate a 2.5% volume growth in FY2008 for Ashok Leyland.

Kotak - MTNL, India Economy

Kotak - MTNL, India Economy