Reliance Industries - Refining performance dismal
Friday, October 30, 2009
Reliance Industries Ltd reported F2Q10 earnings in line with expectations. EBITDA was up 13% QoQ, 12% YoY; EBIT was up 9% QoQ however down 10% YoY due to higher depreciation which was up 30% QoQ and 92% YoY. Net profit grew 5% QoQ however declined7% YoY.
Gross refining margins (GRMs) stood at US$6/bbl implying a spread of just under US$3/bbl, despite full commissioning of its new refinery. EBIT stagnated QoQ, and was down 51% YoY. Key reasons for the lackluster performance has been the reduction in light heavy spreads, higher supply world over and lower middle distillate demand.
A US$ 1/bbl reduction in GRMs would lead to about an 8% reduction in our earnings estimates, which in our eyes would be negated by higher petrochemical margins. However, a 5 mmscmd increase in gas volumes would lead to about a 4% increase in earnings assumptions and vice versa.
With D6 requiring less, company aims at 15-17 wells in 2HFY10 (5 appraisal, 10-12 exploration) from the available 24-25 drill months. Apart from D6 and D9, drilling is due in KG-D3, KG-D4 and Cauvery, where RIL has had discoveries in the past.
Citi expects RIL to report an EPS of Rs 115 and Rs 153 for FY10 and FY11 respectively and a target price of Rs 2200
Quick Gun Morgan expects RIL to report an EPS of Rs 110 and Rs 171 for FY10 and FY11 respectively with a target of Rs 2309.
JP Murugan expects RIL to report an EPS of Rs 113 and Rs 175 for FY10 and FY11 respectively.
All price target are CUM-Bonus [1:1]. We wouldrecommend Long Term Investors to ADD RIL on Decline and HOLD.
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Published by Webmaster @ 9:39 AM IST.
Canara Bank - Treasury Gains - Stronger Core
Thursday, October 29, 2009
Q2FY10 net profit of Canara Bank surprised on the upside, at INR9.1bn, up 72% y-o-y. Net interest income growth was healthy at 14% y-o-y. Credit growth has been exceeding the deposit growth for many quarters now (unlike at some of the other PSU peers where the trend is the reverse) and is the primary reason for its strong operational performance.Net interest margin (NIM) was protected at 2.66% for the quarter. A manifold surge in trading gains, up 500% y-o-y, was the show stealer this quarter. While this helped prop up the non-interest income to much higher than our estimates, what we believe is very well-timed is the derisking of the investment portfolio.
Demand from Infrastructure, Power, Roads, Pharma, Steel and Cement sector is likely to drive the loan book growth which the management targets at 20-22% in FY10.
BOF-Merrill expects Canara Bank to report an EPs of Rs 57 and Rs 68 for fy10 and fy 11 respectively with a good dividend pay-out of 80%
HSBC is bullish on the prospects of Canara and expects it to report an EPS of Rs 68 and Rs 87 for fy10 and fy11 respectively.
ENAM expects it to report an EPS of Rs 67 and Rs77 for fy10 and fy11 respectively.
Target Prices of Rs 425. HOLD. ADD on Decline. BUY on market corrections for long term as it is quoting at miserably low P/E of just 5 with 15% conservative CAGR.
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Published by Webmaster @ 5:52 PM IST.
RBI Policy Impact on Banking Sector
Wednesday, October 28, 2009
In its quarterly review today, the RBI left key policy rates unchanged. However, in a move that marks the first phase of exit from monetary accommodation, it raised the Statutory Liquidity Ratio (SLR) by 100bps to 25% effective Nov 7th. Most major impact on the banking sector comes from RBI's new regulation - real estate loan provisioning from 0.4% to 1% and imposing total provisioning against NPAs at 70%.In particular, we highlight the potentially meaningful pretax profit and BVPS impact for several banks of the RBI's 70% minimum loan loss reserve coverage on NPLs.
ICICI Bank requires an increased provisioning of Rs 3,500 cr while SBI requires around Rs 5,000 Cr. It is negligible for HDFC and Axis Bank.
Static analysis of incremental provisioning needed (based on the most recent NPL/reserves metrics) suggests limited (<1%)>
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Published by Webmaster @ 10:10 AM IST.
Sesa Goa - Weak Results - Low Volumes
Wednesday, October 21, 2009
Sesa Goa reported standalone PAT of Rs1.4bn, 55% lower YoY on a sharp decline in realizations. While operating profit margin fell sharply to 23% in 2QFY10 from 45% in 2QFY09, higher other income at Rs891m (+86% YoY, 2x our estimate) helped raise the EBITDA margin to 43% vs 50% last year.2Q iron ore sales rose 17% YoY to 1.6m tonnes, much lower than 4.7m tonnes in 1Q (Goa sales fall during the monsoon). In FY10, we assume a 45% volume growth (including Dempo). Spot sales dominate with 1H contract sales only ~7%, but management hopes to exit FY10 with a 50:50 spot/contract ratio.
While spot iron ore prices have risen by 8% from recent lows (in Sept), it is
still 20% below peak levels in August 2009. Although the company did not provide incremental information on inorganic plans, we think, with the recent fund raising, the company may be looking at some potential inorganic growth opportunities.
Sesa Goa EPS and Ratings
Goldman Sachs expects its EPS to be 23 and 36 for FY10 and FY11 respectively.
However, analysts at Citigroup have a different view - EPS to be 21 and 23 for FY10 and FY11 respectively.
Edelweiss expects its EPS to be 24 and 35 for FY10 and FY11 respectively.
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Published by Webmaster @ 11:12 AM IST.
Muhurat Trading Picks - HSBC
Saturday, October 17, 2009
HSBC Investments has released the pics for this Muhurat Trading. Most of the stocks picked by HSBC are quoting at P/Es of 10 for FY2011 earnings. The 10 stocks that made it to the list of this FII are as follows.BEML Ltd - P/E of 11.1x on FY2011 expected earnings
Brigade Enterprises - P/E of 17.5x on FY2011 expected earnings [We are not comfortable with this stock]
Crompton Greaves - P/E of 15.1x on FY2011 expected earnings
Dishman Pharma - P/E of 7.91x on FY2011 expected earnings
Edelweiss Capital - P/E of 12.9x on FY2011 expected earnings
ICICI Bank
Reliance Industries - P/E of 13.1x on FY2011 expected earnings. Cum-Bonus.
Sarda Energy & Minerals - P/E of 5.1x on FY2011 expected earnings. Detailed research will be posted in Equity Research Section.
Swaraj Engines - P/E of 8.1x on FY2011 expected earnings
Welspun Gujarat - P/E of 11.7x on FY2011 expected earnings
Wishing our readers a very Happy Diwali and a colorful year ahead.
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Published by Webmaster @ 6:03 PM IST.
Sensex Earnings Revised Upwards, Again - Morgan Stanley
Friday, October 16, 2009
We have breaking news for you that Asian and Indian Market mover, Morgan Stanley research has revised the BSE SENSEX earnings and target yet again on the back of current strong earnings reported by corporates.You MUST first read our exclusive coverage about the changing estimates of BSE SENSEX earnings and target by various FIIs in India. In today's report, Morgan Stanley analyst says that Revenue growth seems to have bottomed out and industrial growth is likely to recover sharply in the coming months.
The strength of the recovery could bear upside depending on execution of policy reforms. The corporate sector seems to have cut costs and thus margins have
improved sharply. The macro environment (i.e., higher consumer price inflation vs. wholesale price inflation after adjusting for food prices) favors a robust rebound in margins in the coming four quarters.
Quick Gun Morgan says - BSE Sensex top-down earnings growth forecast from +10% and +20% in F2010 and F2011, respectively, to 15% and 23%.
Morgan SENSEX Earnings:
Bull Case:
March-10 - Morgan=1035
March-11 - Morgan=1320
Base Case:
March-10 - Morgan=1013
March-11 - Morgan=1247
Quick Gun Morgan has revised the SENSEX target for DEC-2010 to 19,400. While Bull Case estimate is an all time high of 23,647.
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Published by Webmaster @ 11:24 AM IST.
Mid caps still offer value - Edelweiss
Thursday, October 15, 2009
India will continue to remain one of the preferred long-term investment destinations. While the broad market indices and most large caps are trading already in the 'fair to expensive' zone, investors will keep spotting value in some of the relatively less-known pockets. Growth phases typically reflect strong preference for mid-cap stocks. At the moment, however, large - cap stocks are at a significant premium compared with mid-caps, which should reduce with more definite signs of recovery over the next six months. Thus, a pro-active bottom-up stock selection can provide significant upside over the medium term.
Currently, the BSE 100 1-year forward P/E is at ~16x, while the BSE midcap 1-year forward P/E is at ~12x. Expect the premium of ~4 to reduce over the next two quarters.
Edelweiss is overweight on BFSI, metals and materials, real estate, healthcare, and industrials, and underweight on IT, cement, consumer staples and discretionary.
Mid-Cap Picks by Edelweiss for Medium Term - Escorts, Welspun-Gujarat, Shiv-Vani Oil & Gas, Everonn and Mahindrta Holidays.
Mid-Cap Picks by Edelweiss for Long Term - Usha Martin, Anant Raj, Madhucon Proj, Sadbhav Eng. and Koutons.
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Published by Webmaster @ 11:15 AM IST.
NHPC - Carbon Credit Story begins to Unfold
Monday, October 12, 2009
NHPC the Green Energy producing company is on the eyes of stock analysts now. Analysts at BNP Paribas have started covering the company's Carbon Credit Story which we had told during the time of its IPO.Unlike Dirty Energy companies like - Reliance Power, Adani / IndiaBulls Power, NHPC projects are allowed to sell Carbon Emission Rights under the Clean Development Mechanism.
Currently, climate change legislation in India is absent, hence thermal power plants in India do not have to purchase rights to emit greenhouse gases. However, in the next 3 years, India will come under increasing international pressure and will have to bow down; this is when Reliance / Adani and IndiaBulls will be affected.
NHPC has currently received approvals for the sale of 0.35m CERs annually from its Chutak (44MW) and Nimoo Bazgo (45MW) projects. NHPC is including carbon credits in the DPRs. There would be upside to our earnings in case NHPC manages to get CDM approval for its projects under construction.
A hydro plant can sell its CER credits to developed countries that have to meet their greenhouse gas emission reduction targets under the terms of the Kyoto Protocol.
HOLD NHPC or ADD on Decline If third rate dirty companies like Reliance / Adani and IndiaBulls can quote high, their will be definite re-rating of NHPC and the stock should give good returns in long run.
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Published by Webmaster @ 12:42 PM IST.
What if RNRL Wins Court Case against RIL - Analysis - Part -2
Thursday, October 08, 2009
This is the second part of two post series. In the first part we have already covered what happens if RNRL Loses the Court Case against RIL. In this post we shall cover what will happen to RNRL stock price on the company winning the case.
Scenario II - RNRL wins the court case
There can be four scenarios on this front.
Scenario A: (No opportunity loss on gas availability and Marketing Margins in line with GAIL- US $0.135/mmbtu)
RNRL would not be allowed to market the gas to a third party other than ADAG affiliates. If the government disallows RNRL from charging exorbitant Marketing Margins (ie. US $4.2/mmbtu minus US $ 2.34/mmbtu) and allows it to charge Marketing Margins in line with GAIL's Marketing Margins, Fair Value works out to Rs32/share (including Rs12/share from the gas business and the balance Rs20/share from its other businesses and assets). Thus, there would be a significant downside of 62% in the stock price from current levels under this scenario.
Scenario B: (No opportunity loss on gas availability and Marketing Margins at
US $1.86/mmbtu).
Assuming that there will be no opportunity loss on account of the delay in building the power plant for RNRL and it is allowed to charge Marketing Margins of US $1.86/mmbtu (ie. US $4.2/mmbtu minus US $2.34/mmbtu). The Fair Value under this scenario would be Rs187/share (including Rs167/share for its gas business and the balance Rs20/share for its other assets and businesses). Thus, there would be a substantial upside of 121% in the stock price from current levels under this scenario.
Scenario C: (Opportunity loss on gas availability and Marketing Margins at
US $0.135/mmbtu)
In this scenario, assuming RNRL wins the case, but no compensation for loss in terms of time value of money. Assuming that Reliance Power would take four years to erect the power plant. Thus, gas supplies would commence only from the fifth year and continue till the 21st year, ie. for a period of 17 years. Thus, there will be decay in the value due to time value of money. Assuming Marketing Margins are in line with GAIL, RNRL's gas business would fetch a Fair Value of Rs7/share, in turn leading to total value of Rs27/share. Thus, there would be a significant downside of 69%
Scenario D: (Opportunity loss on gas availability and Marketing Margins at US $1.86/mmbtu)
In this scenario where RNRL wins the court case, but there is no compensation for the delay in the erection of the power plant and RNRL is allowed to earn Marketing Margins of US $1.86/mmbtu, Fair Value of the gas business would be Rs91/share, leading to a total value of Rs111/share.
With the government likely to keep a check over the flow of gas towards Priority Sectors, we believe government's stance on the matter would have a major bearing on the final verdict.
On the bourses, at the current price of Rs85/share, the stock is already factoring in higher probability of around 71% (in case no compensation for time value of money is meted out) of winning the court case. Thus, the risk-reward ratio is highly unfavourable.
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Published by Webmaster @ 12:45 PM IST.
RNRL Stock Price - Risky Proposition - Part-1
Angel Broking has carried out an excellent analysis on RNRL's Business Model.
This is the First Part of a Two Post Series.
RNRL's main business is likely to be sourcing gas from RIL and supplying the same to the group's gas-based power generation projects. That apart, the RNRL-led Consortium has also won 4 blocks under CBM-III and is the second largest player in terms of CBM acreage in India. Currently, RNRL is engaged in coal supply for which it has entered into freight contracts for transportation of coal from Korba to the Dahanu Thermal power station.
Pending the outcome, Angel Broking has carried out a scenario analysis to gauge the likely impact of the outcome of the legal tussle on RNRL's stock price.
Scenario I - RNRL loses the court case
In the event of an unfavourable ruling, we believe the stock will correct and touch lows of Rs20/share, a steep correction of around 76% from current levels. At these levels, the stock will trade at a slight discount to its book value as RNRL derives Profits from Other Income and has no other concrete asset apart from the GSMA. Hence, if the court ruling fails to favour RNRL, the stock is likely to slip below its book value.
In the next post we shall see what happens if RNRL Wins the Court Case against RIL.
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Published by Webmaster @ 11:48 AM IST.
Reliance Bonus - technical trigger; focus on improving fundamentals
Goldman Sachs believes RIL's Bonus announcement of 1:1 has come as a surprise to the Street, bonus share issuance is more of a positive technical trigger for the RIL stock, based on higher stock liquidity at lower ex-bonus share price and possibly some tax benefits from booking notional capital loss on ex-bonus price.
Kindly note that in the recent past, announcement of bonus share issuance has led to spikes in some stocks like Jindal Steel & Power and Indian Oil. Goldman Sachs Target for RIL Cum-Bonus is Rs 2,620.
Reliance Petroleum Shareholders will also get Bonus Shares.
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Published by Webmaster @ 11:01 AM IST.
Sell SENSEX on Better Earnings - BofA Merrill
Tuesday, October 06, 2009
BOFA- Merrill Lynch says that the earnings season for quarter ended Sept 30, 2009 will be good despite headline Sensex net profit showing a drop of 18%. Firstly, the metals companies distort growth. Ex-metals, the EBIDTA growth is near 20% and net profit growth 9.4%.
Earnings will surprise estimates and will see some upgrades. However, current stock prices seem to factor in lot of the positive surprises with valuations at 18x 1-year forward. Don' be surprised if stocks sell on good news.
After five quarters of margin contraction, aggregate Sensex EBITDA margins are expected to expand marginally by 25bp led by Cement and Autos.
Banks (SBI, HDFC Bank, ICICI Bank) and Autos (Maruti, Hero Honda) are the expected pockets of growth. Global commodities (Metals & Energy) are expected to report a drop in profits. Telecom should also report with weak results. Expect software to disappoint as high expectations seem to be built into share prices.
Potential Result Outperformers - Bajaj Auto, M&M, SBI, UBI, Asian Paints, Nestle Colgate, Godrej, Biocon, Dr. Reddy's, Patni, Educomp, Mphasis
Potential Result Underperformers - Canara Bank, Bank of Baroda, Hindustan Unilever, Titan, United Spirits, Suzlon, Glenmark, Sesa Goa, Infosys Technologies, HCL Tech, Idea Cellular.
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Published by Webmaster @ 9:22 PM IST.
Analysis - Grasim Samruddhi Cement Restructuring
Monday, October 05, 2009
Grasim Industries announced a 3-step process for consolidating its cement business with its 55% owned cement subsidiary Ultratech, which will create India's largest cement company with capacity of 49 mtpa (FY10E). As part of this consolidation, Grasim will:
1) transfer its cement division to Samruddhi Cement, a wholly owned subsidiary.
2) Issue shares of Samruddhi Cement to the shareholders of Grasim in the ratio of 1:1. This would reduce Grasim’s stake in Samruddhi from 100% to 65%, with the balance owned by Grasim shareholders. Management expects Samruddhi to be listed by 4QFY10.
3) Consolidate Samruddhi with Ultratech Cement, terms of which are not disclosed yet.
The cement company would potentially need investment of $3bn and capacity addition of 25mnT over next 3-5 years just to maintain its capacity share.
The final impact of the entire restructuring process on both Grasim and Ultratech will depend upon terms of the merger, which are yet to be announced.
Citigroup in a research note said,
While there is room for some upside assuming a re-rating for a larger size pure-play cement business, we maintain Sell on both Grasim and UltraTech, as we expect the impending oversupply to bring down cement
company valuations. From a market perspective, the consolidation level remains the same, as both companies were marketing cement together largely under the UltraTech brand name.
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Published by Webmaster @ 10:21 AM IST.
