}

Wednesday, 30 September 2015

F N A September 30, 2015

Sharekhan's Fundamental News and Analysis

>>10: 59 AM

Natural Gas price has been cut by Government from $4.66/mmbtu to $3.82/mmbtu based on gross calorific value; down by ~17%. As per net calorific value the cut could be to $ 4.24/mmbtu. The price will be again revised by March 2016. This would be negative for ONGC, OIL and RIL, however it could be positive for select gas distribution companies like Gujarat Gas.  

>>10: 22 AM

CMC ltd: Suspension of trading of share in bourses upon amalgamation with TCS effective today
Event: Shares of CMC will turn ex-date today for the proposed merger with Tata Consultancy Services. Seventy nine shares of Rs 1 each of TCS will be issued and allotted as fully paid-up equity shares for every 100 shares of Rs10 each held by the public shareholders of CMC, whose names appear in CMC’s records as of October 1. Both companies have received all regulatory approvals, including from the high courts, for their merger.
Our call: Given the amalgamation of CMC with TCS effective from today, we hereby close our call on CMC Ltd, as CMC’s existing shareholders will get shares of TCS ltd as per the scheme of arrangements.

>>08: 41 AM

TOP NEWS

S&P downgrades outlook on Tata motors from Positive to Stable; negative for the stock
Rating agency S&P has downgraded the outlook for Tata motors from positive to stable. The slowdown in China and continued capital expenditure for its subsidiary Jaguar Land Rover (JLR) has been cited as the reason for the downgrade. However the rating agency reaffirmed its ‘BB” long term corporate rating for Tata Motors.

As per media reports Larsen and Toubro has emerged as the finalist for a $750-million (about Rs 5,000 crore) contract to supply 100 self-propelled artillery guns to the Indian Army. – Positive for L&T
Aditya Birla Nuvo get nods from FIPB for its FDI proposal – Positive; on the other hand, FIPB rejected Cipla’s proposal – Sentimentally negative for Cipla

Hindalco: two workers died in an accident at its copper smelter plant – Negative

Strides Arcolabs gets tentative approval from the US FDA for its generic of Janssen Pharma’s HIV drug Edurant - Positive

Dish TV: Apollo Private Equity to sell up to  3.6% stake via block deal , the deal size seen up to $60 mn; price band  for deal set at Rs 103.13-106.44/share. Price band implies 3.5% to 6.5% discount to market price

Reserve Bank allowed foreign investors to invest up to 49 per cent stake in Eveready Industries India Ltd under the Portfolio Investment Scheme 

INVESTMENT CALLS

Viewpoint – Emami: Fair & Handsome (View –positive; potential upside -20%)
·         Niche player with strong portfolio of brands: Emami is one of the largest players in the domestic FMCG market with a strong presence in the healthcare and personal care segments. The company is a market leader with above 60% market share in under penetrated categories, such as cooling oil, antiseptic cream, balms and men’s fairness cream segments. Zandu is a renowned brand in the (ayurvedic) healthcare space and is growing at a CAGR of 26% over the last five years. The expansion of its distribution reach (touched 4 million outlets in FY2015) and product portfolio through new launches and acquisitions (recently acquired: Kesh King; hair oil and She; feminine hygiene bands) remain the key growth pillars of the company.  
·         Kesh King acquisition–a strategic fit: Kesh King is a strong brand in the ayurvedic hair care space with 32% value market share. The brand has clocked revenues of Rs300 crore (grew at a CAGR of 60% over the last three years) and has gross profit margins of more than Emami’s consolidated gross margins. The brand will complement Emami’s existing portfolio of hair oils–Navratna hair oil (cooling oil) and 7-in-one oil (light hair oil) catering to varied customer base. Though the acquisition was partially done through debt, yet the brand is expected to be earning accretive by FY2017.  
·         Well poised to achieve 20% revenue growth; margin expansion on cards: Emami is well poised to achieve a revenue growth of about 20% over the next two to three years riding on a strong portfolio of brands and enhancing distribution reach. The company’s low cost of inventory of menthol, while inputs, such as LLP and HDPE have remained benign. This along with higher gross profit margins (GPMs) of Kesh King will help it to achieve GPMs of 66-67% in the next two years. The OPM of the company is expected to remain at around 26-27% in the coming years.
·         Positive stance on stock with 20% upside: The desire to enter into new markets with a strong and expanding portfolio of brands makes Emami one of the strongest FMCG players in India. Its earnings visibility of above 20% and stable balance sheet makes it one of the better plays in the mid-cap FMCG space. The stock is currently trading at 35.8x its FY2017E and 28.3x its FY2018E adjusted earnings. We have a positive view on the stock and expect 20% returns in the next 6 to 12 months.
Key risk: Any increase in competition in some of the niche categories, such as cooling oil and antiseptic creams would act as key risk to the revenue growth. Emami’s margins are susceptible to volatility in the input prices.


Viewpoint - Akzo Nobel India - close call due to unfavourable demand environment
·         Margin expansion as anticipated but volume growth lags expectations: We had recommended with a positive view on the stock of Akzo Nobel India, primarily on hopes of better recovery in demand coupled with potential improvement in margins (supported by softening raw material prices) which would drive healthy growth in earnings. Though the soft raw material prices have boosted gross profit margins, yet the volume growth has fallen short of our expectations in the past couple of quarters.
·         Erratic monsoon-led weak rural demand to put stress on volume growth: The below-normal monsoon further adds pressure on the demand outlook, as we don’t see any material improvement in the demand of decorative paints especially since the rural demand would weaken due to poor agriculture production this year. Also, the industrial activity remains weak due to weak global demand environment. Thus, we don’t see any meaningful trigger to push volume off-take in the near term.
·         Close call with no gain and no loss: Akzo Nobel India is a quality stock in the domestic paint segment with a strong balance sheet. But the near-term headwinds of subdued environment would take some time to reflect in enhancing the operating performance. Thus, in view of the near-term concerns, we close our call on the stock.


OTHER NEWS

SBI cuts base rate by 40 BPS to 9.3%
In response to the RBI’s 50 BPS cut in repo rate, the SBI has cut its base rate by 40 BPS to 9.3%, effective October 5th . The Bank also would cut its deposit rates on certain maturities by 25 BPS. The management has suggested that overall impact on the margins would be around 10-11 BPS on account of base rate cut. While the reduction in lending rate will hurt NIMs in near term, the likely pick in volumes, re-pricing of deposits will catch up with some lag. We have buy rating on SBI.

JP Associates plans to sell 49 MW of wind power plants.

Steel producers likely to hike prices by up to Rs 1,500 per tonne
As per media news, domestic steel producers are expected to take advantage of the hike in Safeguard Duty and increase prices by up to Rs 1,500 per tonne.Earlier this month, the government imposed a provisional Safeguard Duty of 20% on import of certain hot rolled flat steel products with a view to protect domestic producers from the recent surge in inward shipments from countries like China.It will be applicable for 200 days, during which the inquiry on whether to continue the duty, will be completed by the Directorate General of Safeguards

NMDC’s AGM highlights
·         Planned capex stands at Rs. 3,600 crore in FY2016 and Rs. 4,000 crore in FY2017.
·         Recently, the government moves to bring about certain restrictions on import of steel items has had a positive impact on domestic companies.
·         NMDC has also begun discussions with some buyers in Japan to enter into long-term export contracts.
·         The existing arrangement for supply of ore expired in March 2015, where about 10 per cent of the produce was exported.
·         The company’s Vision 2025 focuses on increasing iron ore mining capacity to 75 MT per annum by 2019 and 100 MTPA by FY 2022, which need investment outlay of about Rs. 40,000 crore.
·         It is proposed to strategically diversify into other commodities based on growth potential, it is looking at diversifying into mining of certain minerals required for defence and space applications.
Crompton Greaves has won order worth Euro 24 million (approx. Rs 178 crore) from Spanish utility firm Iberdrola to supply ZIV smart meter. – Positive for Crompton Greaves (News came during market hours)

Idea Cellular to launch 4G services in 10 cities from Jan 2016
Looking at the improving ecosystem for 4G, in terms of devices along with the competitive dynamics Idea Cellular has decided to take a plunge with its 4G offering s. Thus the company would be launching 4G services starting Jan 2016 in 10 cities.

Sadbhav Infrastructure project, listed arm of Sadbhav Engineering, is looking to refinance four of its operational road projects as per media reports. The interest rates currently ranging from 11.25%-11.50% will come down to 10.10%-10.30%, after refinancing, resulting in an annual saving of close to Rs50 crore. The development if implemented is positive for both Sadbhav Infrastructure and Sadbhav Engineering.

Jaiprakash Associates Board meeting will be held on September 30, 2015 to consider sale of Wind Power Plants of the Company having aggregate capacity of 49 MW.

Government is looking at an investment of around $50 billion (around Rs 3.3 lakh crore) in the transmission sector in the next five years -Positive for Kalpataru Power, KEC International 
NTPC has appointed a joint venture of Thriveni Earthmovers and Sainik Mining to develop a key Jharkhand coal deposit into a 15 million tonne per annum mine and run it. – Positive read thru for NTPC
Blue Star Infotech: Sells IT business to Infogain for Rs181 crore
Blue Star Infotech Limited (BSIL) has announced that its IT business is to be acquired by Infogain Inc., a ChrysCapital portfolio company. The aggregate  consideration for the IT business of BSIL and its subsidiaries in USA, UK and Singapore under the  transaction will be Rs 180.80 crore, payable upon completion of the sale. In addition, BSIL would retain a real estate undertaking, a certain amount of cash and tax receivables. The fair value of these net
assets to be retained by BSIL is expected to be around Rs 96.7 crore. Following the completion of BSIL’s IT business sale, it is proposed to merge BSIL with Blue Star with effect from April 1, 2015 under the provisions of section 391-394 of the Companies Act 1956 through. The current market cap of Blue Star Infotech  is around Rs312 crore, with deal value of IT business sale at Rs180 crore and company valuing real-estate business at Rs97 crore, the combined value is at Rs277 crore, lower than current market cap. In the last three months stock has seen a sharp run up from Rs200 to high of Rs300 odd.

MTDC plans tie-up with Oyo Rooms, Mahindra holidays – positive read through for Mahindra Holidays
The Maharashtra Tourism Development Corporation is planning to partner vacation ownership companies and budget aggregators to sell unsold rooms in its resorts. The state tourism agency is already in talks with Mahindra Group-owned Mahindra Holidays & Resorts and OYO Rooms. The plan is to offer around 20% of unsold rooms at MTDC resorts through these firms under a revenue-share agreement. MTDC has also received interest from Mahindra Holidays to invest in additional land owned by the tourism body near its existing resorts.
View: Tie-up (if happened) will be positive for Mahindra Holidays as it will help in selling out rooms in the lean period (helping occupancy to improve in off season). Also having a tie-up with government body would help the company to acquire land in the best locations and even getting permissions to them faster.

Tuesday, 29 September 2015

F N A September 29, 2015

Sharekhan's Fundamental News and Analysis

>>02: 05 PM

Hero MotoCorp launches the Hero Maestro Edge while unveiling the new metal body scooter Duet
Hero MotoCorp launched its new scooter Maestro Edge priced at Rs50,700 (ex-showroom Delhi). The scooter is powered by an all new 110cc engine and develops 8.3bhp power. The scooter also gets telescopic front shock absorbers, external fuel refilling, digital console, combined braking system and alloy wheels. The deliveries for the vehicle will start in October with the festive season. The company also unveiled its first metal body scooter i.e Hero Duet which is also powered by the same 110cc engine. The Duet will compete with Honda Activa and TVS Jupiter. The Duet is expected to be launched in the next couple of weeks. The launch is positive Hero as it improves its offerings in the fast growing scooter segment.

>>01: 48 PM

TCS: To Provide Neural Automation System To UK-based Nationwide Building, partnership in Digital space - positive read-thru
Tata Consultancy services had new partnership with nationwide building society (exiting client) in the UK for the provision of the ignio neural automation system which will be use for batch performance and capacity management. Nationwide delivers a wide range of products to its customers and recognizes the importance of deployed new services rapidly and increasing the resilience of its digital solutions.

>>11: 09 AM

RBI reduces repo rate by 50 bps – positive for Banks ( mainly PSBs, NBFC like LIC housing, HDFC)
-           RBI reduces repo rate by 50 bps to 6.75%, the extent reduction was positive surprise as it was higher than market expectations of 25 bps cut
-          Inflation forecast trimmed to 5.8% for Jan 2016, 4.8% for  Jan 2017, the RBI statement is quite dovish compared to past monetary policy releases
-          GDP forecast reduced to 7.4% (for FY16) from 7.8% earlier.
-          Lowered the risk weightage for affordable housing segment ( positive for Canfin homes, Dewan housing)

>>09: 02 AM

Media flash: Sun Pharma  gets US FDA nod for Dexmethylphenidate hydrochloride (is used to treat hyperactivity disorder)
Wagon makers reject Railways dual pricing formula-continued logjam sentimentally negative for wagon makers like Texamaco and Titagarh

>>08: 47 AM

TOP NEWS

RBI will release its bimonthly monetary review today (29 Sept) and  market participants (as per Bloomberg survey) expects 25 bps cut in the repo rate.

Alert: Indian Sugar output is likely to fall by 5% to 27 million tons in the upcoming sugar season due to lower monsoon (especially in Maharashtra); the sugar prices are likely to surge up due to lower production in India and Brazil  - positive for sugar companies (especially UP based sugar companies Balrampur Chini and Dhampur Sugar)

Alert: Shree Cement is also named by real estate lobby as part of cartel along with Ultratech and Lafarge – Negative for Shree Cement

ITC: Bigger pictorial warnings (85% of the package area) on tobacco products will be implemented from April 2016; the implementation of law was delayed by almost 8-10 months waiting for the decision of parliamentary committee – sentimentally negative for ITC as delay has provided enough time for companies to gear up for implementation of law

Larsen & Toubro Infotech, a subsidiary of L&T has filed draft red herring prospectus with the SEBI for IPO yesterday. The issue comprises of an offer for sale of up to 1.75 crore equity shares of the face value Re 1 each by Larsen & Toubro. – Positive for L&T due to potential value unlocking

Aurobindo Pharma receives approval for Caffeine citrate – Media Flash
According to media report, Aurobindo has received approval from the US Food and Drug Administration (USFDA) for Caffeine citrate. Caffeine citrate is used in treatment of apnea of prematurity (lack of breathing in premature infants). If confirmed by the company, it can be positive for the company.

Hero MotoCorp to launch two new scooter on September 29; positive for the company
India’s largest two wheeler manufacturer ie Hero MotoCorp will be launching two new scooters on September 29. The new scooters are likely to be the Maestro Edge and the Hero Dash. The new scooters will help the company gain marketshare in the fast growing scooter segment and is positive for it.

Corporation Bank to issue shares to government on preferential basis at Rs 54.72 per share ( 24% premium to CMP) – positive
As a part of capital infusion in PSU Banks, the Corporation Bank will issue 2.81 crore share to government at Rs 54.72 per share. Since the issue prices is ~24% premium to CMP, it is sentimentally positive for the stock.

FUND RAISING

Strides Arcolab to raise Rs 1,500 crore
The board of directors of Strides Arcolab has approved the proposal to raise long-term funds by way of issue of GDRs/ADRs /FCCBs/QIP or such other equity linked instruments for an amount up to Rs 1,500 crore including a green shoe option

INVESTMENT CALLS

Relaxo Footwear stock update- – Strong execution; maintain Buy with a revised price target of Rs 635
We attended the annual investor meet of Relaxo Footwear (Relaxo) , presided by the promoter and managing director, Ramesh Dua, along with the entire key management team of Relaxo. The meeting re-instated our confidence in the management and business model of the company, which is poised for a strong earnings growth ahead despite short term growth challenges led by soft environment. We continue with our Buy rating on the stock with a  revised price target of Rs 635, and also introduce our FY18 estimates in this note. The following are the highlights of the meeting.
·         Consumer centric premiumization to drive performance - The company would continue to remain focused on the consumer with the introduction of value-added and premium products under each of its brands. Thus, product premiumisation and steady volume growth would drive the revenues and margins ahead. We expect Relaxo to post a 21.3% revenue growth over FY2015-18.
·         Proactive approach makes it future ready for growth- Relaxo has a proactive approach towards both brand building as well as creating capacities. To built its brand and create pull, like the FMCG player it continues to rope bollywood celebrity that creates an aspirational quotient  for the brands. On one hand, the company is creating strong consumer centric aspiration for the consumers, on the other hand it is keeping its eye on the quality and thus does not believes in outsourcing and is in the process of building capacity for future.  Despite the current capacity (180 million pieces per annuam),that would take care of next three years growth, the company has bought a 15 acres land at Bhiwadi to built additional capacity to serve the future requirements.
·         Marketing focus on newly introduced “Bahamas” to get sharper- As a part of its premiumization drive, the company has introduced a new brand- Bahamas which is a flip flop colourful slipper targeted towards young generation, with higher price point (ranges at Rs 200-300). The company is in negotiation with few bollywood stars including Salman khan for endorsement. We believe that company’s effort towards branding would yield results in the form of enhanced revenue and increased brand visibility ahead.  
·         Strong brands, focused management – maintain Buy : Relaxo’s strong presence in the lucrative mid priced footwear segment (through its top-of-the-mind recall brands like Hawaii, Flite and Sparx) along with its integrated manufacturing set-up, lean working capital requirement and vigilant management puts it in a sweet spot to cash in on the strong growth opportunity unfolding in the footwear category due to a shift from unbranded to branded products. Thus, we remain positive on the business. We introduce our FY2018 estimates in this note, expecting the revenues and earnings to grow at a CAGR of 21.3% and 30.9% respectively over FY2015-18. We also roll over our multiple from FY2017 estimate to FY2018 (valuing the stock at 33x FY2018E), at a price target of Rs 635. We thus maintain our Buy rating on the stock.

OTHER NEWS

Wockhardt clarification news – Could be dampener.
As per the media reports, Wockhardt’s Waluz manufacturing plant has received USFDA clearance. However the company has clarified that it has not received any such communication from the FDA.

IL&FS transportation has fixed rights entitlement ratio of 1:3 (announced during market hours) with an issue price of Rs90 per equity share, the record date for the proposed rights issue is 8 October, 2015 – Equity raising should ease stress on balance sheet which is key drag on valuations

Govt may consider cutting stake in PSU Banks to 52%
Finance minister has said that, government may consider reducing its stake in state-run lenders to 52% and also consider other issues including problems tied to distressed state power providers. FM also suggested that government was getting ready to unveil a draft for a bankruptcy code at the end of this month or in early October. Any step towards the resolution of SEBs or announcement of bankruptcy code will be positive for banking sector though reduction in government stake is immaterial unless its holding goes below 49%.
Crompton Greaves wins Euro 17 million (Rs125crore) order to supply ZIV single and three phase smart meters to Spanish firm Gas Natural Fenosa

Larsen & Toubro has bagged orders worth Rs 1,509 crore for the project which includes construction of water treatment plant, 2,835 km of pipeline network, 25 major water storage reservoirs and other associated works at Adilabad district in Telangana. - Positive for L&T

Neyveli Lignite Corporaration (NLC) is planning to establish 4000MW of solar power projects in southern states, in line with the National Solar Mission announced by the Centre. Currently, NLC is operating with 4240MW of thermal capacity – positive read thru

Bajaj Auto starts Pulsar exports to Russia; positive for the company
Bajaj Auto has entered the Russian market and started export of its Pulsar range in the country. The company has tied up with a local partner and is in the process of establishing a countrywide distribution network. Bajaj Auto is the largest exporter of two wheelers in India.

Maruti Suzuki to hike wages for temporary workers too; should end agitation of temporary workers
Maruti Suzuki is expected to offer a wage hike to its temporary workers also. The company recently hiked wages for permanent workers and the temporary workers have been demanding a similar increase.  

Monday, 28 September 2015

F N A September 28, 2015

Sharekhan's Fundamental News and Analysis

>>10: 25 AM

Dr Reddy Launches Esomeprazole Magnesium Delayed-Release Capsules in US – Positive for company
Dr Reddy has announced that it has launched Esomeprazole Magnesium Delayed-Release Capsules, 20mg and 40mg, a therapeutic equivalent generic version of Nexium, in the US market on 25 September 2015, following the approval by USFDA. It’s a big positive for the company as it can add ~ Rs 250-300 crore of sales for full year and increase earnings by Rs 3-4 for full year. It’s a 3-4 player market currently so the profitability of the product is expected to be better.

>>08: 56 AM

TOP NEWS

Alert: FDA cancels Sun Pharma Advance Research Company Ltd’s (SPARC) Seizure drug over compliance issues – Negative for Sun Pharma and SPARC
The U.S. Food and Drug Administration (USFDA) has revoked an approval issued in March to India's Sun Pharma Advanced Research Company Ltd (SPARC) to launch a drug for seizures, citing manufacturing quality problems at its production site. The move comes as a setback to SPARC, the research arm of India's largest drugmaker, Sun Pharmaceutical Industries Ltd . The drug, Elepsia XR, was its first to receive an FDA approval. The company was aggressively looking for partners to launch the drug by second half of FY2016 and could generate sales of Rs 330-350 crores annually. SPARC had said it would produce the drug at Sun Pharma's Halol plant where the group has been working on fixing the issues the FDA. It’s a negative news for both SPARC and Sun Pharma as the delay in clarity from USFDA for Halol plant continues to impact company’s performance.

Alert: Maruti Suzuki signs wage settlement with permanent workers; but temporary workers agitate demanding a raise which resulted in a violent incident – Negative (possibility of some provisions in Q2 results from retro hike in salary; watch for any further escalation in agitation from temp wokers)
Maruti Suzuki management entered into a wage settlement with permanent workers at its Gurgaon and Manesar plants. The agreement is for three years till March 31, 2018 and will be applicable retrospectively. The workers have been given a cumulative wage hike of Rs16,800 for three years of which 50% hike would come into effect in the first year and the rest in two equal installments. The temporary workers at the company’s Manesar facility started agitations demanding a similar wage increase. View: The wage hike is similar in quantum to the one done three years ago and should not have big impact on profitability. However, given the payment of arrears the margins for Q2FY2016 could be impacted to that extend. Also, the agitation by temporary workers is a matter of concern and an early resolution would be needed.

Alert: Ultratech - Real estate body CREDAI NCR on Saturday announced that it has banned two cement companies UltraTech and Lafarge, accusing them of artificially hiking cement prices. The development is negative for Ultratech

Thomas Cook: Kuoni’s management is confident of turning business profitable in 2015 – positive read through for Thomas Cook India
Mr. Rajeev Wagle MD, Kuoni India indicated that Kouni Travel Group will turn profitable in the current year. The company’s revenues are growing by 20% growth in the MICE and leisure segment, which will results in increase in gross profits and with better cost management, the overall operating margins of Kuoni is expected to improve. Thomas Cook India acquired Kuoni’s travel business in India and Hong Kong in August 2015 and the better operating performance by Kuoni India will enhance the operating performance Thomas Cook India consolidated business.

Dr Reddy's Laboratories to buy IP rights of fondaparinux for Rs ~116 crores – Positive for company.
Australian drug discovery and development company Alchemia Ltd today has entered into an agreement for sale of exclusive intellectual property rights of fondaparinux sodium to Dr Reddy's Laboratories (DRL), for USD 17.5 million (about Rs 115.6 crore). Fondaparinux is a generic version of the anticoagulant drug Arixtra which is indicated for the treatment of deep vein thrombosis (DVT) and pulmonary embolism (PE). It is also indicated for prevention of DVT after major surgery, such as knee and hip replacement worldwide.  Under the binding terms of the sale, Alchemia will receive USD 17.5 million in cash from Dr Reddy's upon the closing of the transaction. In 2007, Alchemia granted Dr Reddy's non-exclusive rights to manufacture fondaparinux sodium in API (Active Pharmaceutical Ingredient) form, and exclusive rights to market fondaparinux in the North America.  Dr Reddy's is responsible for finishing of the product, all regulatory filings and market launch. It’s a positive news for company as it is trying to consolidate its sales in key markets for future.

INVESTMENT CALLS

Viewpoint: Granules India Limited – View positive
·         Shift from low-margin to high-margin business: Granules India Limited (GIL) has successfully shifted its business from low-margin APIs to medium-margin PFIs and high-margin formulations. It is now completely integrated vertically which has helped in building a long-term relationship with customers. The company started selling formulations in FY2009 which today contributes 32% of revenues followed by 24% from PFIs and 44% from APIs. The EBITDA margins of consolidated business have correspondingly increased by 410BPS over the last five years to 16.1% in FY2015.
·         Acquisition of Auctus Pharma a strategic fit: GIL acquired Auctus Pharma Ltd (APL) in February 2014 for consideration of Rs1.2 billion. APL reported sales of Rs1.1 billion with a loss of Rs64 million at the time of acquisition. APL provides GIL with a ready platform for high-value APIs to expand its base as APL has a USFDA-approved unit at Vizag which will reduce time-to-market by around three to four years in comparison with a Greenfield project. With the acquisition of the API business of APL,GIL has added 12 APIs to its product basket, which offer higher margins than GIL’s existing APIs. GIL plans to forward integrate (to formulations) the current basket of APL’s APIs; the benefits of which would improve margins significantly. GIL shall also file 10 ANDA applications over the next couple of years, the benefits of which would be visible after two to three years. The margins could improve further post-approval of ANDAs in the long run.
·         OmniChem JV (CRAMs Business) gives long-term visibility: Under the joint venture ([JV]; 50:50) with Ajinomoto (OmniChem), a facility is being set up at Vizag SEZ to manufacture high-value APIs for existing customers of OmniChem. OmniChem currently makes APIs, which are still under patent protection, for global pharma companies. Going forward, as these products go off patent, they will be shifted to the JV, to retain OmniChem customers’ market share by shifting to a low-cost destination like India. This will provide a steady revenue stream with healthy margins and we believe from FY2018 onwards the JV will contribute rapidly after getting site approvals.
·         Low regulatory risks: Most of GIL’s plants have recently been inspected by the USFDA without any observations thereby reducing the regulatory risk. Also, since GIL’s is a B2B business, the customers regularly audit the facilities on monthly basis.
·         Positive view on the stock with better upside: With a defined strategy of transforming itself into a high-margin formulation player and good earnings visibility of 23% CAGR (despite dilution due to warrant issue to promoter) over the next three years, though the company is in an investment mode, yet its balance sheet is in a comfortable position. Its debt-to-equity stands at 1.1x. With good earnings prospect and better cash flows, the debt on books will further reduce and strengthen the balance sheet. Hence, we have a positive view on stock with a potential upside of 20% returns from the current level over the next six months.
·         Risk: Any delay in product approvals by the USFDA can affect future earnings prospects.


OTHER NEWS

Ballarpur Industries sells stake in Malaysian arm for $500 million (Rs3300); funds will be utilized to reduce debt on books – positive read through for the stock
Ballarpur Industries Limited (Bilt), the flagship company of Awantha Group announced the sale of its indirectly owned subsidiary in Malaysia --Sabah Forest Industries Sdn. Bhd, for an enterprise value of $500 million to Pandawta Sakti. Ballarpur Industries will used the proceeds from the proposed transaction to reduce its overall debt of about Rs 7,000 crore. The company will continue to focus on its core business of manufacturing of paper and paper products. The transaction is likely to complete in three months.

RBI revises norms for change in Ownership of Borrowing Entities outside SDR
RBI has  decided to allow banks to upgrade the credit facilities extended to borrowing entities whose ownership has been changed outside SDR ( strategic debt restructuring), to ‘Standard’ category upon such change in ownership, subject to certain conditions ( eg the change in ownership is by way of sale by lenders to new promoters, the new promoters must have 51% stake and should not have any relation with exiting company etc). Such a facility was available for SDR cases but has been the extended to non-SDR cases as well which will strengthen the NPA recovery efforts of banks and hence positive readthru  for PSU Banks.

Renault launches entry level hatchback Kwid priced between Rs2.6-3.5 lakh; to compete with Maruti Alto
Renault has launched its entry level hatchback ie Kwid in the Indian market. The Kwid is the cheapest offering from Renault and has been designed for India. The vehicle is priced between Rs2.53 Lakh and Rs3.5 Lakh ex-showroom Delhi. The Kwid is powered by a 3-cylinder 800cc engine and generates 53hp power. The vehicle has a length of 3.68mtr and has a high ground clearance to give it an SUV kind of look. View: The Kwid will directly compete against Maruti’s Alto and WagonR as well as Hyundai Eon. The vehicle has a large boot space of 300ltr and its SUV stance wold be a strong selling point. The vehicle has been priced aggressively by Renault and will increase the competitive intensity in the entry car segment. A strong sales, distribution and service network continues to give Maruti the edge however the competition would rise with entry of the Kwid.

Larsen & Toubro (L&T) is planning to monetise its 67-acre land parcel in one of the plush areas of Bengaluru by developing a residential township. The plot used to house L&T and Komatsu joint venture's manufacturing unit for heavy machines which is been shifted. – Positive read thru

Bajaj Auto to launch quadricycle ‘Qute’ in 16 countries; positive for the company
Bajaj Auto on the back of receiving approval under European regulations plans to launch its quadricycle branded as ‘Qute’ in 16 countries. The company will start with launch in turkey where it is expected to be priced about USD2000. The launch of the quadricylce in the domestic market continues to remain in a limbo as the matter is still in the court.

Accenture Q4FY15 earnings, beats estimates but guidance was lackluster, Digital services grew by 35% yoy for FY15: Neutral read-thru for Indian IT sector
Accenture reported its Q4 FY 2015 results on September 24th  ( fiscal year’s end with August). Due to the strong dollar, the company posted 1% year-over-year growth in revenues to $7.89 billion, though revenues were up 12% in constant currencies. This was above the company’s guided range of $7.45 billion to $7.7 billion. Consulting revenues posted just 4% year-over-year growth in revenues to $4.2 billion, though it was up 14% in constant currencies. Outsourcing revenues decreased by 1% to $3.7 billion, though it was up 9% in constant currency. Additionally, during the quarter, the company reported new orders of $8.8 billion. The slower growth rate in new signings indicates the underlying softness in demand for IT services and will surely impact Accenture ‘s revenues in future quarters. The company guidance for 2016 reflected this trend.
Guidance For FY16 and Q1
Accenture expects net revenue growth in local currency to be in the range of 5% to 8%. It expects diluted EPS to be in the range of $5.09 to $5.24. Accenture expects net revenues for the first quarter of fiscal 2016 to be in the range of $7.70 billion to $7.95 billion, a growth rate of 6 percent to 9 percent in local currency. This range assumes a foreign-exchange impact of negative 8.5% compared with the first quarter of fiscal 2015.
Order book Signings:
Accenture reported new signings worth $8.8 billion during Q4, which bought the total to $34.36 billion for FY15. This was 4% lower than the new signings in FY14. Even after adjusting for dollar appreciation against the local currencies (approximately 10%), the new order signings are tepid compared to those of 2014 and grew by 2.8%. While Accenture will meet its guidance for 2016, largely due to the 11 companies it acquired in Q4, its revenue growth in the coming years might lag the vigor posted in 2015 as the company books revenues against its outstanding order book.

Demand for Indian tea rises in Russia; traders want joint ventures with India tea companies – positive for tea processing companies
Tea traders in Russia, one of the largest tea importers in the world, have shown interest in forming joint ventures with Indian companies to sell packet tea in their country. Russia's import duty on packet tea can go up to as high as 18 per cent, making it difficult for foreign brands to compete with local ones. However, bulk import of tea does not attract any tax. 
View: Russia is one of the largest importers of tea in the world and imports its tea from Kenya and India. The JVs with Indian tea companies would result in sustainable exports of tea from Indian markets to Russia, which is positive for tea companies (as export business margins are higher than the domestic margins).

ITC aims Rs 18,000-crore revenue from Agri business by FY-21 – positive read through for the stock
ITC is expecting nearly three-fold jump in turnover of its agri division to touch Rs 18,000 crore in the next five years, driven mostly by procurement and retail initiatives in rural markets. A majority of its agri business is generated from its 'e-Choupals', a web-enabled supply chain network in villages and rural hypermarts 'Chaupal Sagars'. Also the company expects internal consumption by group companies to increase to almost half of its agri segment business in the next five years. The business has margins in the range of 9-11% and is consistently achieving double digit revenue growth.

Swelect Energy Systems is expanding its PV module production capacity from 40 MW to 100 MW – positive read thru
As per media reports, Swelect Energy Systems, is more than doubling its PV module production capacity. The expanded capacity will be 100 MW a year compared with 40 MW previously, which will go on stream in mid-October at its subsidiary unit HHV Solar Technologies in Bengaluru.  It has invested about Rs15 crore in the expansion to make polycrystalline and mono-crystalline modules. This will help it tap the growing domestic market for roof-top and utility scale projects and tap the markets in the US and Europe.

Government’s holding in IDBI Bank to be reduced to 49% -- sentimentally positive for IDBI bank
As per media reports, the government has firmed up plans to bring down its holding in IDBI Bank 49%, marking a big bang start to its commitment to reform state-run banks. The department of financial services in the finance ministry is working on the details of the proposal that could be considered shortly. While the reduction in government stake and turnaround  of bank will take long time; the stock may  appreciate in near term on related news flows.
Demand for Indian tea rises in Russia; traders want joint ventures with India tea companies – positive for tea processing companies
Tea traders in Russia, one of the largest tea importers in the world, have shown interest in forming joint ventures with Indian companies to sell packet tea in their country. Russia's import duty on packet tea can go up to as high as 18 per cent, making it difficult for foreign brands to compete with local ones. However, bulk import of tea does not attract any tax. 
View: Russia is one of the largest importers of tea in the world and imports its tea from Kenya and India. The JVs with Indian tea companies would result in sustainable exports of tea from Indian markets to Russia, which is positive for tea companies (as export business margins are higher than the domestic margins).

ITC aims Rs 18,000-crore revenue from Agri business by FY-21 – positive read through for the stock
ITC is expecting nearly three-fold jump in turnover of its agri division to touch Rs 18,000 crore in the next five years, driven mostly by procurement and retail initiatives in rural markets. A majority of its agri business is generated from its 'e-Choupals', a web-enabled supply chain network in villages and rural hypermarts 'Chaupal Sagars'. Also the company expects internal consumption by group companies to increase to almost half of its agri segment business in the next five years. The business has margins in the range of 9-11% and is consistently achieving double digit revenue growth.

>>08: 43 AM

Stock Idea: Inox Leisure Ltd (INOX)
Target price: 307
Recommendation – Buy
CMP – 219

Title: Well poised to script a blockbuster …   
Making of a ‘Mega’ Show:  Inox Leisure Ltd (INOX), the India’s second largest multiplex operators with 101 properties and 393 screens across 55 cities accounting for about 20% of the multiplex screens in India, is scripting a blockbuster growth story through mix of inorganic (acquisition of Satyam Cinemas that provides it a foothold in lucrative northern market) coupled with aggressive organic expansion to scale up total screen count to 565-570 over the next 24-30 months. In addition to its aggressive push in northern region (challenging the dominance of PVR), INOX is leveraging on its strong brand and balance sheet to increase its presence in tier II/III towns where the multiplex phenomenon is gradually catching the mindshare in line with India’s inclusive growth story.

Top class casting and script in place: INOX mega show is supported by improving quality of content in Indian mainstream and regional cinema with movies regularly hitting the Rs100 crore or Rs200 crore box office collections on a regular basis. The acceptance of Hollywood movies has also provided another source of quality saleable content for multiplexes not only in metros but across cities in the country. The economic conditions are also turning favorable to support robust uptick in urban discretionary spending   given the sharp moderation in inflation and steady job market. The urban leisure consumption would also get a boost from the expected 25-30% hike in salaries of central and state government employees with implementation of seventh pay commission recommendation.

Recommend Buy with TP of Rs307:  INOX is expected to report revenues and net income to grow at a CAGR of 19% and 35.5% over FY16-18E led by strong box office revenues (19% CAGR), higher F&B revenues (23% CAGR) and advertising revenues (20% CAGR) over FY16-18E. Further, with healthy balance sheet with 0.3 Debt: Equity ratio and treasury shares of 4.3 crore shares provides strength to drive inorganic growth activities in the coming years. At the CMP of Rs 219, stock trades at EV/EBITDA of 11x/9x/7.4x FY16/17/18E earnings estimates. We believe, INOX with its strong brand and extended reach is well poised to leverage opportunity in India’s under penetrated multiplex sector. We initiate coverage on INOX with a price target of Rs307, based on 9x FY2018 EV/EBITDA.

Risk: 1) Delay in execution of expansion plan, INOX has accelerated expansion plans over next 2-3 years 2) Content quality, failure of flows of quality movie content will impact the earnings of INOX.

Valuation
Rs Cr
FY15*
FY16 (P)
FY17 (P)
FY18 (P)
Total Revenue
1016.8
1374.3
1665.2
1947.3
EBITDA  margin %
12.1%
14.7%
15.1%
15.4%
Net Profit
20.0
73.7
104.5
135.4
EPS (Rs)
2.2
8.0
11.4
14.8
PER (x)
100.3
27.3
19.2
14.8
P/BV
3.0
2.7
2.4
2.0
EV/EBITDA
18.7
11.3
9.0
7.4
ROE %
3.0%
9.8%
12.2%
13.7%
ROCE %
6.9%
13.3%
15.7%
17.6%
 *FY15 includes consolidation of Satyam Cinema, which impact the overall profitability