IGL, IOC, Suzlon Energy, Unitech, Mahindra & Mahindra, Nagarjuna Constructions, IVRCL

SSKI on IGL

IGL's Q4FY07 result (EBIDTA growth of 22.5%yoy at Rs 712m) was in line with our estimates of Rs 728m. Robust growth across CNG and PNG (volume growth of 11.6%yoy and 44.4%yoy) led to earnings growth of 34.6%yoy to Rs 401m. Driven by widening cost comparison between CNG and competing fuels, the customer base continues to expand. An established regulated consumption base provides IGL the ideal launch pad to pursue growth in piped gas and private vehicles as also for geographic expansion. We expect a steep jump in CNG volumes as ~1,000 new buses and taxis are deployed in NCR ahead of the Commonwealth Games 2010. The resultant volume growth would drive 14.2% earnings CAGR over FY07-09E as high pricing power (stemming from favorable economics) would enbale IGL to pass on any price hike. Reiterate Outperformer.

SSKI on IOC

Indian Oil Corporation's (IOC) Q4FY07 results – net profit of Rs 29bn –were ahead of our estimates even though numbers are strictly not comparable because of inclusion of IBP numbers. During the quarter, IOC received Rs 30.7bn in the form of oil bonds and Rs 42.4bn as upstream share that more than compensated for the negative impact of total under recoveries of ~46.7bn. We upgrade the stock to Outperformer to factor in an expected improvement in fuel marketing margins driven by lower crude prices. Reiterate outperformer


Macquarie on Unitech

Unitech announced a strong set of FY3/07 results, with top-line revenue rising 255% to Rs33.9bn from the FY3/06 level, and net profit up 15x at Rs13.05bn; implying an EPS of Rs16.09 for the full FY3/07.

We strongly reiterate our Outperform rating. We believe Unitech is a very good proxy for the Indian property sector as it is the most diversified property company both geographically and in terms of business segments.

We also see Unitech getting re-rated with DLF soon looking to hit the capital markets. Our best-case scenario (which includes option value of future projects like the 38,000-acre Kolkata project) suggests a potential price of Rs750–800.

Macquarie on Suzlon Energy

The announcement by Areva, Suzlon’s competitor in its bid for REpower, that it has signed a cooperation agreement with Suzlon agreeing to vote with it means the bidding war is over and that Suzlon has emerged as the winner.

We expect Suzlon to achieve around 76% control of REpower – some of the remaining 39% independent holders of REpower shares may tender their acceptances before the Friday deadline.

We expect this ‘three step’ acquisition to add Rs105 to Suzlon’s valuation and as a result we have upgraded our target for Suzlon to Rs1,125.

Although the transaction brings Rs105 value to Suzlon, we retain our Underperform on the stock due to our continuing concerns for Suzlon’s margins in its core business and risk of investors’ exuberance being overdone. The REpower acquisition accelerates Suzlon’s globalisation which also increases execution risks, at least in the near term.

Macquarie on Nagarjuna Constructions

NJCC reported 4Q FY3/07 numbers which were below both our and consensus estimates. Management has reconfirmed plans to raise US$180m to fund investments in core business, BOT projects and real estate forays.

We have increased FY08 earnings by 5% to account for lower tax rate at 30.5% due to residual tax benefits under Sec 80IB. FY09 estimates are unchanged.

12-month price target: Rs174.00 based on a Sum of Parts methodology

A large impending dilution would impact earnings growth in the core business. Upside from investments in recently awarded BOT and real estate projects is uncertain given the lack of clarity on demand and pricing. We maintain a Neutral rating.

Merrill Lynch on IVRCL

IVRCL, our top pick in the mid-cap E&C space, reported solid 4QFY07 on all fronts. Sales were up Rs10bn +67%YoY; EBITDA margin expanded by 140bpsYoY & PAT of Rs732mn, +67%YoY. PAT was ahead of MLe due to better margins & non-prov of full tax (25% v/s MLe 32%) pending appeal in tribunal. Order backlog remains robust at ~3x FY07 sales. Value creation through the listing of IVR Prime, and 42% earnings CAGR in core business are potential triggers ahead. Buy, PO Rs450.


Our PO of Rs450 is based on an SOTP approach. We have valued IVRCL's core construction business at PER 14x FY09E - a 30% discount to E&C majors despite its faster growth. Risk: Unrelated acquisitions (oil & gas), project execution.


Merrill Lynch on Mahindra & Mahindra

Q4 net profit grew 20.9% to Rs 2.3bn (MLe Rs 2.53bn), as margins declined more sharply than expected, by ~50bps to 11.4%. For the fiscal, standalone net profit grew 35.1%, and margins held up at 12%, mainly due to strong front-ended performance in the preceding quarters.

Our sum of parts value, which is based on FY09E financials, is at Rs791. Key subsidiaries account for 50% of imputed value, and the muted prospects of the tractor and auto business limits core value to the balance Rs 397.