}

Thursday, 31 December 2015

F N A December 31, 2015

Sharekhan's Fundamental News and Analysis


December 31, 2015

Cadila has received a Warning Letter issued by the US FDA relating to its Moraiya formulation facility and Ahmedabad API facility (Zyfine) – Negative; do not bottomfish at lower levels; will review the TP and reco post more clarity on contents of warning letter and the impact on its financials


TOP NEWS

Godrej Consumer Products, Torrent Phrama, Concor and Jet Airways are included in F&O segment with effect from January, 1st 2016 – positive for respective stocks

BSE group re-balancing – companies shifted from B group to A group are Pfizer Kansai Nerolac, Blue Dart, Repco Home and Chola Investments & Finance  

USFDA  grants Aurobindo tentative approval for Angiomax injectable, an anticoagulant drug – Positive fof Aurobindo Pharma

USFDA gives tentative approval to Dr Reddy’s for Fesoterodine Fumarate, used to treat overactive bladder syndrome.

Madhya Pradesh bans more than 15 year old commercial vehicles; other states expected to follow suit – positive for CV manufacturers like Tata Motors and Ashok Leyland
As per media reports, the Madhya Pradesh (MP) government has banned more than 15 year old commercial vehicles from plying on the state roads. The decision has been taken to counter the increase in pollution. There will be no new permits or fitness certificates for  the old vehicles. View: Madhya Pradesh is the second region after NCR to put a restriction on plying of old commercial vehicles. We expect other states to follow suit considering the renewed focus on controlling pollution. The move will increase demand for replacement from fleet operators and is positive for CV manufacturers such as Tata Motors and Ashok Leyland.

Bharat Electronics set to get a boost from Defence systems upgrade plan
Bharat Electronics Ltd (BEL), one of the largest Defence electronics equipment manufacturer, is all set to be a key beneficiary of the Centre’s increasing thrust on the replacement and modernisation of military hardware in the country. Currently, the company has a 60% share in the Defence electronics segment. But over the last few years, the business model of BEL has witnessed a shift from being a pure product supplier to a system integrator. New orders have been placed with the company for entire systems rather than separate products, as was being done earlier, said sources, adding that the Akash air Defence missile system, a medium range, surface-to-air missile, was one such example, as was the company's Battlefield Surveillance Radar, and Advanced Gun Fire Control Systems. BEL has not only maintained a consistent policy of R&D investments but also has launched collaborative R&D with private small and medium-size firms in the country. On an average, 80 per cent of BEL’s sales turnover is from indigenous R&D every year.

Solar power - CCEA approved higher budget for grid connected solar rooftop system (during market hours) - positive read thru for solar power players i.e. Swelect Energy and Ujaas Energy 
The Cabinet Committee on Economic Affairs has approved an increase in the budget for implementation of grid connected solar rooftop systems under National Solar Mission from Rs 600 crore to Rs 5,000 crore by 2019-20. This will support Installation of 4,200 megawatt peak (MWp) solar rooftop systems in the country in the next five years. A capital subsidy of 30% will be provided for general category states and union territories, and 70% for special category states. However, there will be no subsidy for private commercial and industrial establishments since these entities are eligible for other benefits such as accelerated depreciation, customs duty concessions, excise duty exemptions and tax holiday, etc. 

INVESTMENT CALLS

View Point - Rossell India - Risk-reward ratio unfavoruable after recent appreciation; Book profit
·         Handsome gains; stock appreciated by 25%: Since our Viewpoint on April 13, 2015, the stock of Rossell India has posted handsome returns of 25% in the last nine months. In the volatile market environment, the stock has outperformed the major indices.
·         Declining tea supply from Kenya positive for Indian tea producers: The drought in Kenya (largest tea exporter globally) has affected the tea production in the country, which led to an increase in the Kenyan tea prices. The increase in Kenyan tea prices should fetch better realisation for Indian tea producers in the upcoming tea season (starting from March-April 2016), as domestic tea prices are expected to move up in line with international tea prices. Also, the exports from India are expected to increase due to the short supply from the Kenyan market. Rossell India (tea contributes 85% of consolidated revenues) will be one of the key beneficiaries of rising tea prices in the domestic and international markets, as it will help to improve profitability of the tea business on the backdrop of stable tea production in FY2017. However, in the event of significant y-o-y decline in the tea production in India, the likely benefits of higher tea prices would get moderated. 
·         Defence and QSR businesses still in nascent stage: Though we continue to remain positive on the value creation in its defence and quick-service restaurant (QSR) businesses, it would takefew years before they start contributing meaningfully to the consolidated earnings. Moreover, these businesses could require infusion of funds to scale up to a viable scale in the near term. 
·         Near-term positive priced in; Book profit: The expected improvements in the performance of the tea business (in FY2017) and positives from emerging footprints of defence and hospitality space have been factored in the recent run-up in Rossell India’s stock price. Thus, we see limited upside and advise investors to Book profit at the current level.

View point -Welspun Corp (CMP Rs 116): Strong growth in pipeline
·         Global leadership in pipes, de-risks from domestic slowdown: Welspun Corp Ltd (WCL) is a leading global manufacturer of the large diameter steel pipes with around 10% market share. It has the largest capacity of 2.4 million metric tonne (MT) per annum, strategically located across the USA, Saudi Arabia and India. It is also a preferred vendor to over 50 major oil and gas companies like Shell, Saudi Aramco, TOTAL, Chevron, Exxon Mobile and TransCanada, as very few players qualify for the large global tenders. The company was able to survive the low domestic investment regime in the oil and gas pipeline over the past few years as it expanded successfully into overseas market while some players like PSL Ltd had to trim or shut down their operations over the same period.
·         Robust revenue visibility from overseas: After the recent order win, its order book now stands at Rs6,400 crore/1,040 KMT (0.76x its FY2015 pipe revenue) to be executable over the next eight to nine months. Robust bids, which are in pipeline of 3,600KMT are likely to provide further boost to the order book in coming quarters. By FY2017, global bidding opportunities for about 12,000KMT pipeline are likely to float mainly in the USA, Mexico, Europe and Saudi Arabia (where WCL is one of the strong contenders). Overall, global pipeline investment is likely to generate $422-billion opportunity over the next four to five years as the fall in prices of crude oil and metals lead to preference for steel pipeline over railways as the preferred mode of transport.
·         Deleveraging balance sheet to lead healthier ratios: After the demerger of the non-pipe business in Welspun Enterprises in FY2013, WCL has become a pure and quality play on the global pipes sector. The company has been generating robust cash flows from which it has systematically repaid debt worth Rs2,555 crore over FY2013-15 and further it is expected to annually repay debt of at least Rs200 crore for the next few years. Accordingly, its debt-equity ratio is likely to come down to 0.7x in FY2018 from 1.3x in FY2014. The operating profit margin is also expected to be stable at 10-11% as; (1) its future revenue traction is heavily tilted towards North America (54% of the current order book versus 16% in FY2014) which enjoys better margin; (2) increasing contribution of its capex-heavy plates facility to revenue would help in better utilisation of capital employed. Further, return ratios will also improve led by improved profitability and lower interest cost.
·         Turnaround story at reasonable valuation: Given its diversified clientele portfolio, strong manufacturing capabilities and robust bids in pipeline, WCL is our preferred pick among the Indian pipes manufacturers. Backed by high-margin, North American revenue visibility and lower interest cost, we are expecting it to report a growth rate of 15% CAGR in revenues and 80% CAGR in earnings (on a low base of FY2015 earnings) in the three-year period of FY2015-2018. The company has reported very robust numbers in H1FY2016 with a PAT of Rs117 crore versus a loss of Rs92crore in H1FY2015. Based on valuation, the company is trading attractively at 10.9x its FY2017 earnings per share which is 20-25% lower than its post-demerger average price earnings (PE) multiple. Hence, we see a potential upside of 20-25% in the stock price from the current level.
·         Key risks: (1) Slowdown in capex cycle of pipeline network both in domestic and overseas markets; (2) Unfavourable movement in foreign currency exchange rates, metal and crude oil.

OTHER NEWS

Gulf Oil Lubricants launched entry level synthetic engine oil for the passenger car segment to gain market share in the segment – positive read thru for Gulf Oil Lubricants
Gulf Oil Lubricants launched entry level synthetic engine oil for the passenger car segment yesterday under the name Gulf Ultrasynth X. This is inline with the company’s strategy to expand the market share on existing products while introduce new products. The company aims to increase its market share in the passenger car segment with its launch, as currently it has a very small market share in the passenger car segment. The management expects to gain some market share over the next two-three years. To support this efforts, it aims to increase its distribution footprint as well, by increasing the distribution reach year-on-year by 15 per cent.

Hero MotoCorp working on three performance motorcycles; positive for the company
As per media reports, Hero MotoCorp is working on three new motorcycle models which are expected to be launched in CY2016. Of the three two motorcycles are in the 150-160cc range while one motorcycle is in the 200-250cc range and would replace the company’s flagship model ie Karizma. The company is also expected to inaugurate its state-of-the-art R&D centre in Jaipur.

Kaveri Seeds has confirmed investment of Rs298 crore as on 28 December 2015 in liquid funds of different fund house.

Media report: Cipla, Pfizer, Sun take hit on NLEM price cut – Short term negative
As per the media reports, the revision of the National List of Essential Medicines (NLEM) will have an impact on companies like Cipla, Pfizer and Sun pharma. Cipla will lose Rs 84 crore because of the price cuts followed by Pfizer which will see an erosion of Rs 56 crore and Sun Pharma that will have an impact of Rs 42 crore. Its negative for short term for the mentioned companies but in long run volume gain from products under NLEM negates the losses incurred.

As per media reports, due to low bidding interest, increased coal availability and falling global prices, the Coal Ministry cancelled the fourth round of coal block auctions, which was scheduled to start on January 18. Coal Secretary also confirmed that sufficient bids had not been received.

Amtek Auto has pledged its entire stake in JMT Auto (18.1 crore shares – 71.73% stake) with IL&FS Trust Company. Negative for company.

CDR failures continue to mount pressure on NPAs of Banks
As per media reports total failures  from CDR cell for first eight months of the fiscal are to the tune  of Rs 22303 crore and Rs 3000 crore in Q3FY16.  When  an account fails CDR ( corporate debt restructuring ) it is likely to be classified as NPA. This suggests that NPAs of banks are not likely to decline significantly in near term also because RBI has asked banks for early NPA recognition to get rid of prolonged stress.

Kajaria Ceramics – Management Interview key takeaways
·         As per Kajaria management industry has been suffering due to China’s aggressive dumping of vitrified tiles in India since 2014 which is impacting the sales of domestic companies
·         Company expects anti-dumping duty decision to come by January-end. Antidumping during is likely to around $3-4 per square meter.Imports constitute around 7-8% of the overall market (total market size is 850 million square meter).
·         On demand side government have started infrastructure spending over last 2-3 month which is positive sign of revival in spending by government.
·         Government of India is likely to construct about 60 million houses in the next 6 years under EWS and LIC and smart cities will take shape from around January 26 (around 20 cities to started in phase -1).

·         We don’t have coverage on the stock.


Morning view - 31 December 2015


Wednesday, 30 December 2015

F N A December 30, 2015

Sharekhan's Fundamental News and Analysis


December 30, 2015

Dr. Reddy's Laboratories (DRL)announces the relaunch of Esomeprazole Magnesium Delayed-Release Capsules – Positive
Dr Reddys Laboratories Ltd has announced the relaunch of Esomeprazole Magnesium Delayed-Release Capsules, the generic version of Nexium in the US market. The re-launch is due to change in the capsule color. Though the news comes as respite to DRL, gNexium is already a diluted opportunity as there are already 4-5 players in the market. DRL has recently filed its response with the USFDA for the warning letter, which shall be key trigger to watch for.

Alkem Labs gets USFDA nod for Gabapentin (used to treat postherpetic neuralgia or shingles) – Positive

Torrent Pharma  gets USFDA nod for pain killer Celecoxib – Positive


Jubilant Life  ’s arm Jubilant Generics gets nod for Citalopram hydrobromide (an antidepressant drug)
TOP NEWS

According to a median forecast of 27 economists in a Reuters poll, The official manufacturing Purchasing Managers' Index (PMI) is forecast to inch up to 49.7 from November's 49.6, however the activity fell to a three-year low. The report suggests that chronic overcapacity, sluggish demand at home and abroad and deflationary pressures are expected to continue to weigh on the sector next year. – Negative for Metals companies

HDFC Life gets nod to up foreign partner stake, may list in FY17 – positive for HDFC
The foreign investment promotion board (FIPB),  cleared Standard Life’s proposal to raise its stake in its insurance joint venture (JV) with HDFC  to 35%. The British insurer will acquire additional 9% stake from HDFC for Rs 1,700 crore and the deal will precede realization of the company’s long-term aim of listing on the Dalal Street.

IDBI Bank gets Rs 2,229 cr capital infusion from the Govt at Rs 75.28 per share
The government has infused Rs. 2,229 crore into IDBI bank by way of preferential allotment of shares at a price of Rs 75.28 per share. While capital infusion will help to tide over the capitalization concerns, its is done at significant discount to book value resulting in higher dilution in equity. Also the government stake post capital infusion (incl LIC stake) will go ~90% levels which will delay the proposal to reduce stake below 50% envisaged by finance ministry. We have reduce rating on the stock.

INVESTMENT CALLS

Max India – Stock Update: Demerger driven value unlocking playing out; maintain Buy
·         Demerger proposal to result in listing of life insurance business–Only listed pure play on insurance: Max India has finally received the nod of high court to take forward the proposed restructuring of Max India into three listed entities through a three-way demerger proposal. As per the scheme, the life insurance business would be housed under Max Financial Services (MFS; where existing shareholders of Max India will get one share of MFS against one share held in Max India). The specialty films business would be hived off into Max Ventures (shareholders will get one share for every five shares held of Max India). Lastly, the healthcare business (Max Hospitals, Max Bupa Insurance) and other investments will be held under Max India. The proposal has resulted in value unlocking for Max India shareholders and the stock has appreciated by ~30% over the last 12 months (comprehensively beating the benchmark indices). That’s because the demerger would create a listed entity holding life insurance business (only pure play listed company in the life insurance space) that would command premium. More so, Max Life Insurance is among the top five private sector life insurance companies with superior operating metrics (conservation ratio, expense ratio, return on embedded value etc).
·         Growth outlook remains strong for insurance, healthcare businesses: Max Life Insurance is among the leading non-bank insurance companies having balanced product portfolio and among the best operating performance. Going ahead, the macro drivers like low insurance penetration, rising savings rate, improvement in capital market will drive growth. On the other hand, the company has consolidated its presence in the healthcare space (around 2,400 operation beds) and performance may improve further as the newer hospitals mature.
·         Retain Buy; fair value works out to Rs648: Given the inadequate disclosures across the sector and lack of listed player in the insurance space, the valuation of the recent deals in insurance space has been a challenge. However, the reported transactions have been in the range of 2.2x-2.5x its embedded value (EV; media sources). We have valued Max Life Insurance at a premium to its peers (around Rs17,500 crore or 3.3x its EV) due to sound business model and premium attached to being first listed entity in the insurance space. Therefore, we estimate the fair value for proposed Max Financial Services to be Rs474. Also, we value the healthcare businesses under restructured Max India (Max Healthcare + Max Bupa + Antara) at Rs134 per share and Max Ventures at Rs40. Thus, we have retained our Buy rating on the stock with an unchanged price target of Rs648.
·         Key risk: Change in IRDA regulations, especially relating to cap on expenses  (as suggested in the draft) could impact embedded value in life insurance

View Point - SJVN: Deleveraged efficient utility available at a bargain , CMP Rs 30.
·         Most efficient hydro assets available at a bargain: SJVN is having a total operational power capacity of around 1,960MW, which is running successfully with more than 100% plant availability factor. We believe, at the current market price, the assets are available at a bargain as the current enterprise value (EV) of SJVN stands at around Rs12,000 crore (derived ~Rs6 crore/MW), which is lower than the replacement cost considering the efficient hydro assets. Moreover, the company is one of the rare utility company with net cash positive position (cash Rs4,000 crore and debt of Rs3,400 crore) and given the lower capex requirement in near term, it has a potential to generate healthy free cash flow, especially with the new plant which got operational from FY2015. With commencement of 412-MW plant, we expect its annual cash flow from operations to improve from around Rs1,300-1,400 crore to around Rs1,700 crore, which is 15% of the current EV of the company.
·         Energising through renewable growth path; 50% jump in capacity in three years: SJVN is having two operational hydro-based power plants. The first is in Nathpa Jhakri (1,500MW) and the second in Rampur (412MW). It also has one windmill of 47.6MW in Ahmednagar district of Maharashtra, taking the total generation capacity to 1,960MW. Going forward, SJVN is planning to add around 1,000MW (50% more than the existing capacity) from solar and wind-based power generation capacities in the next three years. As these capacities are solar and wind based, we believe they have substantially lower execution risk and substantially short gestation period. Given the deleveraged balance sheet and strong cash flow generation visibility, SJVN is quite comfortable to fund the incremental 1,000MW capacities, apart from funding other projects lined up. In the long run, SJVN is having ambitious plan to take its power generation capacity to 10,000MW by 2022.
·         View: Healthy returns generating cash-rich balance sheet at bargain: Given the utility nature of the business, the company is generating a respectable RoE of around 15% at the project level (excluding additional incentives of around 2-3%) and 12-13% RoE at the company level. The stock is currently available at 1.1x its FY2016 BV and 1x its FY2017 BV as per our rough estimates. Apart from sustainable RoE, SJVN is one of the rare utility companies with net cash positive position and healthy cash flow generation visibility. Moreover, expected 50% incremental capacity (solar and wind based with short gestation period) would start throwing cash soon and continue to bolster the balance sheet. Currently, the stock also offers a dividend yield of more than 3.5% which could potentially inch up, considering lower capex requirement in the near term and substantially higher cash in the balance sheet. On this backdrop, we expect 15-20% appreciation in SJVN stock price in the next six to nine months.  

Ashok Leyland management media interaction key takeaways:
·         The management expects the MHCV industry to grow by 15-20% in FY2016. It expects total industry sales of about 280,000 units in FY2016. The industry would take 2 years to scale the previous high of 350,000 units. The recent ban on plying of old trucks in NCR is a welcome step and would boost replacement.
·         There is no capex expected on capacity expansion for atleast 1-2 years. In case there is a sudden pick up in the LCV segment then a capacity expansion may be warranted.
·         The management expects volumes to be buoyant in FY2017 due to the pre-buying ahead of the BSIV implementation across the country.
·         The management stated that it will maintain margins in the double digit range and would not resort to big discounting to gain marketshare.
We continue to remain positive on Ashok Leyland and reiterate our Buy with a price target of Rs105.

OTHER NEWS

BHEL’s order from Yadadri plant faces MoEF hurdles (during market hours) –Negative for stock
As per media reports, Expert Appraisal Committee (EAC) under the MoEF has deferred Terms of Reference (ToR) for the Yadadri Thermal Power Project, citing ecological concerns. BHEL had won the order for 5 x 800 MW super critical Yadadri Thermal Power Project earlier this year. The order was the biggest single order received by BHEL and was worth around Rs 16000 crore, a substantial part of its current order book (more than 10%). We believe the project is crucial for the newly formed state, Telengana; hence we expect alternative solution from the state government soon. Nevertheless, it could have negative knee jerk reaction on the stock price.

SRS acquires Group Company at par to make it a wholly owned subsidiary – Positive
SRS  Ltd has acquired the entire paid up capital of the group company – “ SRS Entertainment ltd” , comprising 1.33 crore shares of Rs 10 each at par making it a wholly owned subsidiary of SRS Ltd. – SRS Entertainment Ltd has 6 screens. We believe that with this acquisition, there would be no conflict of interest with any group company, and thus serves as a positive development for the listed arm- SRS Ltd.

Infrastructure sector – The government has set up Rs40000 crore National Investment and Infrastructure Fund (NIIF) and its chief executive will be finalized by January end. Several sovereign funds and pension funds from Russia, Singapore, UK and UAE are willing to participate in the fund and cooperate with it at various levels. NIIF Governing Council will meet again in March to review the progress in the participation of the funds that are willing to invest. The NIIF would invest in greenfield, brownfield and stalled projects. The development is positive for Infrastructure sector as a whole over the medium to long term.

INOX Leisure starts commercial operations of a new Multiplex at Goa – Positive for the company
INOX Leisure Ltd commenced the commercial operations of a Multiplex Cinema Theatre in Goa, taken on Lease basis on December 29, 2015. This Multiplex has 2 screens and 335 seats.

HDFC Bank reduces base rate by 5 bps ( effective from January 2016) – neutral
HDFC Bank has reduced its base rate by 5 bps to 9.3% which is among the lowest in the system. Given HDFC Banks bulk of the loan book is based on fixed rate, the base rate cut will have negligible impact on margins.

MEP Infra plans to raise Rs 1000 crore via Infrastructure Investment Trust to cut on debt and use the revenue to bid for toll-operate-transfer and operate-maintain-transfer projects as per media reports. The company plans to file the trust with SEBI in January 2016. The development is positive for MEP Infrastructure.

Monsanto to challenge center decision in Delhi High Court: Favorable decision is positive for the company
Monsanto to challenge center decision to regulate the price of cotton seeds including trait value in Delhi High Court. Any encouraging development in favor of Monsanto will be positive for the company. However seeds companies are backing government decision to regulate the cotton seeds price which will end all the pending queries and cases. Capping of the cotton seeds along with trait value is positive for the seeds company as big chunck of the profit is taken of by the Monsanto in terms of royalty payment for leasing of cotton seeds technology.

Zuari Agro Chemicals board has approved merger of its three wholly-owned subsidiaries
Zuari Agro Chemicals board has approved merger of its three wholly-owned subsidiaries into the company in order to simplify the group structure and achieve synergies in operations. The three companies which are going to get merged in Zuari Agro Chemicals are Zuari Fertilisers and Chemicals Ltd (ZFCL), Zuari Rotem Speciality Fertilisers Ltd (ZRSFL) and Zuari Agri Sciences Ltd (ZASL).

Bosch Ltd has suspended production at its Bengaluru and Bidadi plants for 2 days in order to adjust production to market demand. These plant manufacture diesel and petrol injection systems and other electrical components. The company has already suspended operations at Jaipur for 8 days. Sentimentally negative for the stock.

The government is expected to come out with notification for implementation of BS V and BS VI norms across the country. As per the draft notification the BS V norms were proposed to be implemented from April 2019 and BS VI from April 2021.

As per media reports, L&T Infotech (subsidiary of L&T) is planning to raise over Rs 2,000 crore through IPO in the fourth quarter of FY2016 to fund its expansions  – positive read thru for L&T

The Tata Power Company’s subsidiary Coastal Gujarat Power has refinanced its term loan of Rs 3,864 crore, which will reduce the interest burden by Rs77 crore a year for the company. The refinancing scheme will help in extending the tenure of the rupee facility and assist in reducing the cost – positive read thru for Tata power.


Sterlite technology has emerged as a lowest bidder for the Rs 2700 crore Odisha based power transmission projects. – Positive for Sterlite technologies

Morning view - 30 December 2015

MORNING VIEW

Market View

Nifty likely to open on positive note back on global clues and recovery in crude price, The index continues to form higher tops and higher bottoms which indicate that the shortterm trend is up, key Support at 7835

Nifty Spot Levels

Support
7900 – 7860 – 7835
Resistance
7950 - 7980 - 8000

Stocks for the Day & Action

Torrent Pharma
Torrent Pharma Gets US FDA Nod For Pain Killer Celecoxib
Action to be taken
Initiation Range
Stop Loss
Target
Long
1465 – 1467
1456
1500

HDFC
Standard Life gets FIPB nod to raise stake in HDFC Life to 35%, it will pay Rs 1,705 cr for the additional 9% stake, valuing the company at Rs 18,951 cr ,may list in FY17
Action to be taken
Initiation Range
Stop Loss
Target
long
1234 – 1236
1220
1275

* Stocks mentioned above are in Sharekhan Research Coverage.

Derivatives Data Update

NIFTY PCR:
0.86
India  VIX:
14.4
MARKET WIDE OPEN INTEREST:
Rs. 255502 cr and Rs. 7825 cr were Shaded in OI
NIFTY CALL:
Added 4.31 lakh shares
NIFTY PUT:
Added 29.16 lakh shares
MAJOR OI GAINERS
Bharti Airtel (17%), Bosch Ltd (16%), Idea (14%), M&M Finance (13%) and L&T Finance (13%)
MAJOR OI LOSERS
Ceat Liimited (-10%), Apollo Hospital (-9%), KSCL (-8%), PTC (-6%) and JSW Steel (-6%)

Stock in News

Ø  United Spirits seeks shareholders' nod to report sick to BIFR
Ø  HDFC Bank Ltd on Tuesday reduced its base rate, or minimum lending rate, by five basis points (bps) to 9.3 per cent, making it on a par with that of State Bank of India.
Ø  BNP Paribas acquires 5% in Srei Infra
Ø  Airtel adds 4G spectrum in MP; acquires 74% stake in Augere
Ø  Jet Airways has joined price war and has dropped one way fares on select routes to Rs 716.
Ø  Maruti to drive Baleno into EU to rev up exports
Ø  SpiceJet to raise funds worth up to Rs 5000 crore
Ø  Alkem Labs Gets US FDA Nod For Gabapentin. Gabapentin Is Used To Treat Postherpetic Neuralgia Or Shingles

Global Market & International Data Update
·         Wall Street rose sharply on Tuesday, elevating the S&P 500 to a modest gain for the year as Amazon and Apple led tech stocks higher. 
·         The online retailer recorded more than 3 million new Prime memberships in the third week of December, indicating strong holiday demand. 
·         Data on Tuesday indicated consumer sentiment was improving, with the Conference Board's index of consumer confidence for December up at 96.5, beating the 93.8 expected.
·         The Dow Jones industrial average ended 1.1 percent higher at 17,720.98 points.

Cur.
Event
Forecast
Previous
  USD
Pending Home Sales(MoM) (Nov)
0.50%
0.20%
  USD
Crude Oil Inventories
-2.480M
-5.877M

Stock Update v-Investor Eye
Max India

Demerger driven value unlocking playing out; maintain Buy CMP:Rs509

Key points
Demerger proposal to result in listing of life insurance business–Only listed pure play on insurance: Max India has finally received the nod of high court to take forward the proposed restructuring of Max India into three listed entities through a three-way demerger proposal. As per the scheme, the life insurance business would be housed under Max Financial Services (MFS; where existing shareholders of Max India will get one share of MFS against one share held in Max India). The specialty films business would be hived off into Max Ventures (shareholders will get one share for every five shares held of Max India). Lastly, the healthcare business (Max Hospitals, Max Bupa Insurance) and other investments will be held under Max India. The proposal has resulted in value unlocking for Max India shareholders and the stock has appreciated by ~30% over the last 12 months (comprehensively beating the benchmark indices). That’s because the demerger would create a listed entity holding life insurance business (only pure play listed company in the life insurance space) that would command premium. More so, Max Life Insurance is among the top five private sector life insurance companies with
superior operating metrics (conservation ratio, expense ratio, return on embedded value etc).
Growth outlook remains strong for insurance, healthcare businesses: Max Life Insurance is among the leading non-bank insurance companies having balanced product portfolio and among the best operating performance. Going ahead, the macro drivers like low insurance penetration, rising savings rate, improvement in capital market will drive growth. On the other hand, the company has consolidated its presence in the healthcare space (around 2,400 operation beds) and performance may improve further as the newer hospitals mature.
Retain Buy; fair value works out to Rs648: Given the inadequate disclosures across the sector and lack of listed player in the insurance space, the valuation of the recent deals in insurance space has been a challenge. However, the reported transactions have been in the range of 2.2-2.5x its embedded value (EV; media sources). We have valued Max Life Insurance at a premium to its peers (around Rs17,500 crore or 3.3x its EV) due to sound business model and premium attached to being first listed entity in the insurance space. Therefore, we estimate the fair value for proposed Max Financial Services to be Rs474. Also, we value the healthcare businesses under restructured Max India (Max Healthcare + Max Bupa + Antara) at Rs134 per share and Max Ventures at Rs40. Thus, we have retained our Buy rating on the stock with an unchanged price target of Rs648.
Key risk: Change in IRDA regulations, especially relating to cap on expenses (as suggested in the draft) could affect embedded value in life insurance.

Viewpoint

SJVN View: Positive

Deleveraged efficient utility available at a bargain CMP: Rs30

Key points
Most efficient hydro assets available at a bargain: SJVN is having a total operational power capacity of around 1,960MW, which is running successfully with more than 100% plant availability factor. We believe, at the current market price, the assets are available at a bargain as the current enterprise value (EV) of SJVN stands at around Rs12,000 crore (derived ~Rs6 crore/MW), which is lower than the replacement cost considering the efficient hydro assets. Moreover, the company is one of the rare utility companies with net cash positive position (cash Rs4,000 crore and debt of Rs3,400 crore) and given the lower capex requirement in near term, it has a potential to generate healthy free cash flow, especially with the new plant which got operational from FY2015. With commencement of 412-MW plant, we expect its annual cash flow from operations to improve from around Rs1,300-
1,400 crore to around Rs1,700 crore, which is 15% of the current EV of the company.
Energising through renewable growth path; 50% jump in capacity in three years: SJVN is having two operational hydro-based power plants. The first is in Nathpa Jhakri (1,500MW) and the second in Rampur (412MW). It also has one windmill of 47.6MW in Ahmednagar district of Maharashtra, taking the total generation capacity to 1,960MW. Going forward, SJVN is planning to add around 1,000MW (50% more than the existing capacity) from solar and wind-based power generation capacities in the next three years. As these capacities are solar and wind based, we believe they have substantially lower execution risk and substantially short gestation period. Given the deleveraged balance sheet and strong cash flow generation visibility, SJVN is quite comfortable to fund the incremental 1,000MW capacities, apart from funding other projects lined up. In the long run, SJVN is having ambitious plan to take its power generation capacity to 10,000MW by 2022.

View: Healthy returns generating cash-rich balance sheet at bargain: Given the utility nature of the business, the company is generating a respectable RoE of around 15% at the project level (excluding additional incentives of around 2-3%) and 12-13% RoE at the company level. The stock is currently available at 1.1x its FY2016 BV and 1x its FY2017 BV as per our rough estimates. Apart from sustainable RoE, SJVN is one of the rare utility companies with net cash positive position and healthy cash flow generation visibility. Moreover, expected 50% incremental capacity (solar and wind based with short gestation period) would start throwing cash soon and continue to bolster the balance sheet. Currently, the stock also offers a dividend yield of more than 3.5% which could potentially inch up, considering lower capex requirement in the near term and substantially higher cash in the balance sheet. On this backdrop, we expect 15-20% appreciation in SJVN’s stock price in the next six to nine months.