MorningInsight05122011 by icestar

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									                                                                                                DECEMBER 5, 2011




Economy News                                                                     Equity
                                                                                                                                    % Chg
4 FDI inflows into the power sector - at a robust $1.3 bn during the first six
  months of the current fiscal - were just marginally short of what came in                               2 Dec 11        1 Day 1 Mth 3 Mths
  during the entire 12 months of each of the previous two financial years.       Indian Indices
  (BL)                                                                           SENSEX Index                 16,847         2.2       (4.1)       0.8

4 Indian authorities will this week discuss imposing restrictions on overseas    NIFTY Index                   5,050         2.3       (4.4)        0.7
                                                                                 BANKEX Index                 10,550         3.3       (6.7)      (4.0)
  investments by local companies and curbing pre-payments of foreign loans
                                                                                 BSET Index                    5,727         2.3       (0.6)      16.3
  to conserve dollars if the recent trend of rupee weakening continues. (ET)
                                                                                 BSETCG INDEX                  9,933         1.8       (9.7)     (17.7)
4 The trade deficit with China continues to grow at a rapid pace growing         BSEOIL INDEX                  8,411         1.5       (6.8)        0.3
  from $19 bn in 2009-10 rose to $23.87 bn in the last financial year. This is   CNXMcap Index                 6,819         1.7       (6.8)      (7.6)
  despite India aggressively increasing and strategising the reach of its        BSESMCAP INDEX                6,190         1.1      (11.0)     (13.4)
  products into the Chinese markets. (BS)                                        World Indices
                                                                                 Dow Jones                    12,019        (0.0)       0.3        6.9
4 The Finance Ministry will decide on the date of the follow-on offer of Oil     Nasdaq                        2,627         0.0       (2.2)        5.9
  and Natural Gas Corp (ONGC) after the government appoints                      FTSE                          5,552         1.1         0.5        8.8
  independent directors for the state-owned company. (BL)                        NIKKEI                        8,644         0.5       (1.4)      (1.2)
                                                                                 HANGSENG                     19,040         0.2       (3.6)      (2.5)
Corporate News                                                                   Value traded (Rs cr)
4 DLF has signed an agreement to divest its entire stake for Rs 4.5 bn in                                           2 Dec 11           % Chg - Day
  Galaxy Mercantile Ltd, a joint venture company between DLF Home                Cash BSE                                  2,252                  16.5
  Developers Ltd and IDFC. (BL)                                                  Cash NSE                               10,241                    (0.7)
                                                                                 Derivatives                           113,537                      0.2
4 SRF Ltd is planning on a major restructuring of all portfolios, by
  significantly reducing dependence on tyre cord production, their core          Net inflows (Rs cr)
  business, as the company aims to become a $1-billion conglomerate by                               1 Dec 11       % Chg            MTD          YTD
  2013-2014. (BS)
                                                                                 FII                        905          547.2      (3,635)     (2,695)
4 GMR Infrastructure may be working towards expanding its pact with              Mutual Fund              (243)          (20.8)         567       5,163
  Petronas, the Malaysian oil & gas major, for its power division. (BS)
                                                                                 FII open interest (Rs cr)
4 Hindustan Petroleum Corporation Ltd (HPCL) has not yet been able to                                               1 Dec 11                   % Chg
  find suitable land in Maharashtra to build a new refinery because of
  bureaucratic delays almost for 2 years. (BS)                                   FII Index Futures                       13,134                   (1.9)
                                                                                 FII Index Options                       44,966                     6.8
4 The oil ministry has turned the heat on Reliance Industries with a stern       FII Stock Futures                       25,997                     3.6
  directive that tightens controls on pricing and marketing of a new source      FII Stock Options                          663                   (0.0)
  of gas, which the company says is a financially damaging contractual
  violation. (ET)                                                                Advances / Declines (BSE)
                                                                                 2 Dec 11             A         B            S       Total % total
4 Emami Group has spent more than Rs 2 bn to buy more than 850 crores
                                                                                 Advances          186     1,388          182        1,756          60
  of land in Hyderabad, Chennai, Coimbatore, Jhansi and Kolkata for
                                                                                 Declines           18       856          155        1,029          35
  developing up-market large scale residential and commercial complexes.
                                                                                 Unchanged            0        96          26          122           4
  (ET)
                                                                                 Commodity                                          % Chg
4 NTPC is considering closing NTPC Hydro Ltd (NHL) and leaving NTPC-
  Alstom Power Services Pvt. Ltd, as suggested in a draft report submitted                                2 Dec 11 1 Day 1 Mth 3 Mths
  by Deloitte. (Mint)                                                            Crude (NYMEX) (US$/BBL) 101.4               0.4        7.5       17.2

4 Tilaknagar Industries Ltd is in talks with a large European liquor             Gold (US$/OZ)                1,745.5         0.5      (0.5)      (8.0)
                                                                                 Silver (US$/OZ)                 32.7       (0.3)      (4.2)     (23.6)
  company to form an Indian joint venture (JV) to become a diversified
  branded spirit company in the local market. (Mint)                             Debt / forex market
                                                                                                          2 Dec 11 1 Day 1 Mth 3 Mths

                                                                                 10 yr G-Sec yield (%)            8.68      8.73       9.00       8.45
                                                                                 Re/US$                           51.2      51.5       49.2       45.8

                                                                                 Sensex
                                                                                 21,500

                                                                                 20,000

                                                                                 18,500

                                                                                 17,000

                                                                                 15,500
Source: ET = Economic Times, BS = Business Standard, FE = Financial Express,
                                                                                      Dec-10         Mar-11       Jun-11          Sep-11       Dec-11
BL = Business Line, ToI: Times of India, BSE = Bombay Stock Exchange
               MORNING INSIGHT                                                                                     December 5, 2011



COMPANY UPDATE                                 PRATIBHA INDUSTRIES LTD
Teena Virmani
teena.virmani@kotak.com
+91 22 6621 6302                               PRICE : RS.35                                          RECOMMENDATION: BUY
                                               TARGET PRICE : RS.62                                       FY13E P/E: 3.7X
                                               q Stock has corrected in recent past and is currently trading at attractive
                                                 valuations
                                               q Order inflow remained strong for the company and current order book
                                                 provides healthy visibility
                                               q Execution remains on track and operating margins continue to stay
                                                 strong
                                               q Though working capital may remain high in near term due to execution
                                                 of large sized projects, but we expect company to benefit from decline in
                                                 interest rates from next year onwards.
                                               q We remain positive on the company and continue to maintain BUY on
                                                 the stock.

Summary table                                  Key investment argument
(Rs mn)              FY11    FY12E    FY13E
                                               Order inflow scenario for the sector is showing initial signs of
Sales               12,681   15,426   18,511   improvement
Growth (%)            26%      22%    20.0%
EBITDA               1,720    2,160    2,406   Order inflow for the sector had remained lacklustre during FY11 and was expected
EBITDA margin (%) 13.6%      14.0%    13.0%    to improve during FY12. Though it has not improved largely for the entire sector, but
PBT                  968      1,192    1,267   segments such as building, water supply, irrigation and roads have witnessed an
Net profit           714        870      925
                                               improvement. Competition remained high in the road sector till Q1FY12 but has now
EPS (Rs)              7.2      8.8       9.3
Growth (%)            6%      22%      6.3%
                                               started easing in which is visible in the recent bids. Building segment continues to
CEPS(Rs)              8.9     10.7      12.1   see increased traction from government as well as private sector. For water supply,
Book value(Rs/share) 47.1      55.4     64.2   irrigation and road related projects, new opportunities have opened up from regions
DPS (Rs)              0.4       0.4      0.4   like Gujarat, Bihar, MP and NCR where companies like Pratibha industries, Unity
ROE (%)              19.2      17.1     15.6
                                               infra, Madhucon Projects have emerged as key bidders. Order inflow for Pratibha
ROCE (%)              19.9     19.8     18.2
Net debt             3,107    5,047    6,012
                                               industries in FY12 till date remained strong and company management expects it to
NW capital (days)    123.2    135.0    135.0   increase further and expects to close the year with an order book of Rs 60 bn.
P/E (x)                4.8      3.9      3.7
P/BV (x)               0.7      0.6      0.5
                                               For Pratibha industries, most of the new orders came from NCR, Maharashtra and
EV/Sales (x)           0.5      0.5      0.5   Gujarat region. Company current order book stands at nearly Rs 58 bn diversified
EV/EBITDA (x)          3.8      3.9      3.9   across infrastructure (63%) and buildings (37%). Government contracts contribute
Source: Company, Kotak Securities - Private
                                               nearly 80% of the order book while remaining is from private sector. Going ahead,
Client Research                                company expects new order inflow to come from urban infra especially metro
                                               projects like Delhi Metro phase III, water supply especially from NCR- Yamuna River
                                               Action Plan, Gujarat and Rajasthan while it is also bidding for road projects. New
                                               order inflow mix is expected from infrastructure segment and building segment in
                                               the ratio of 70:30.

                                               Execution remains on track
                                               Execution for the company remains on track and company has posted a growth of
                                               19% YoY in revenues for H1FY12 and expects full year revenues to grow by 25%.
                                               Revenue growth going forward is likely to be led by ramp up in execution from Delhi
                                               Metro project, Delhi Jal board project and building projects bagged recently. Based
                                               on strong order book and recent large ticket order wins by the company, we revise
                                               our FY13 revenue growth estimates upwards. We now expect revenues to grow at a
                                               CAGR of 21% between FY11-FY13.




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            MORNING INSIGHT                                                                                        December 5, 2011



                                             Working capital at higher levels
                                             Though execution for the company remains on track, but working capital has in-
                                             creased in comparison with last year. This is primarily on account of increase in loans
                                             and advances and inventories. Company attributed the increase in working capital
                                             to the execution of Delhi Jal Board project and Delhi Metro project. Thus in the near
                                             term, working capital cycle may remain stretched but is likely to improve going for-
                                             ward as execution further improves from these projects.
                                             We thus expect borrowings to remain high in near future to meet increased working
                                             capital requirements as well as higher capex. However, we expect company to ben-
                                             efit from decline in the interest rates from next year onwards.

                                             Financial outlook
                                             n Based on strong order book and expected order inflows going forward, we mar-
                                               ginally tweak our revenue estimates upwards. With a strong order book of nearly
                                               Rs 58 bn, we expect revenues to grow at a CAGR of 21% in FY11-FY13.
                                             n Company expects to maintain margins between 13-14% going forward due to
                                               focus towards higher margin projects. We thus continue to maintain our operat-
                                               ing margin estimates and expect margins to be 14% and 13% for FY12 and
                                               FY13 respectively.
                                             n We revise our borrowing estimates upwards and marginally tweak our net profit
                                               growth estimates. Due to higher capex expected during FY12, depreciation
                                               charges are also likely to increase going forward. We expect net profits to grow
                                               at a CAGR of 13.8% between FY11-FY13.

                                             Valuation and recommendation
                                             n At current price of Rs 35, stock is trading at attractive valuations of 3.9x and 3.7x
                                               P/E and 3.9x and 3.9x EV/EBITDA on FY12 and FY13 estimates respectively.
            We recommend BUY on              n Stock has come down in recent past due to concerns in infrastructure sector re-
          Pratibha Industries with a           lated to order inflow, higher working capital as well as higher interest rates. This
                price target of Rs.62          has resulted in de-rating of the valuation multiples across the sector. However,
                                               we believe that order inflow for Pratibha industries remained strong in H1FY12
                                               and execution also remained in line with our estimates which places it ahead of
                                               larger peers. We expect company to benefit from order inflows or decline in
                                               overall working capital cycle or interest rates.
                                             n After tweaking our estimates, our price target is slightly changed to Rs 62 from
                                               Rs 70 earlier. We value core business at 6x FY13 estimated earnings and add
                                               valuation of its BOT investments at book value.
                                             n We continue to remain positive on the company and maintain BUY recommen-
                                               dation on the stock.




Kotak Securities - Private Client Research           Please see the disclaimer on the last page       For Private Circulation     3
            MORNING INSIGHT                                                                                                December 5, 2011



            Bulk deals                       Trade details of bulk deals
                                             Date    Scrip name             Name of client                       Buy/     Quantity       Avg.
                                                                                                                 Sell     of shares      price
                                                                                                                                          (Rs)

                                             2-Dec   Ashiana Hous-$         Idbi Fortis Life Insurance Co             S       142,500    150.0
                                             2-Dec   Ashutosh Paper         Lavitra Technologies Pvt Ltd             B         49,500    172.1
                                             2-Dec   BGIL Films             Inder Pal                                B         61,275      5.4
                                             2-Dec   BGIL Films             Enaam Securities                          S        62,975      5.4
                                             2-Dec   Chandni Te             Satyaprabhu Infrastructure Pvt Ltd       B      8,129,326      1.9
                                             2-Dec   Chandni Te             Arpit Lakhmendra Khurana                  S     4,500,000      1.9
                                             2-Dec   Chandni Te             Lakhmendra Chamanlal Khurana              S     2,902,040      1.9
                                             2-Dec   Choice Intl            Sunil Shyam Sunder Churiwala              S        40,000     50.0
                                             2-Dec   Clarus Finance         Shree Thirumalai Mktg & Investments B             221,157     40.4
                                             2-Dec   Gflfin                 Jayshree Shankar Bhosle                  B         30,000     16.3
                                             2-Dec   Gflfin                 Chirag Dineshkumar Shah                  B         30,000     16.3
                                             2-Dec   Gflfin                 Kirti Kantilal Mehta                     B         50,000     16.3
                                             2-Dec   Gflfin                 Sonal International Ltd                  B         44,000     16.3
                                             2-Dec   Gflfin                 Tirupati Fincon Pvt Ltd.                  S        60,952     16.3
                                             2-Dec   Gflfin                 Falcon Complex Pvt Ltd                    S        34,000     16.3
                                             2-Dec   Gflfin                 Suryalata Trexim Pvt Ltd                  S        40,000     16.3
                                             2-Dec   Hitech Gears           Medici Holdings Ltd                       S       161,834    120.0
                                             2-Dec   Kanchan Intl           Ganesh Anant Ghadge                      B         24,000     73.6
                                             2-Dec   Krishna Deep           Rupak Trading Pvt Ltd                     S        27,000    154.7
                                             2-Dec   Parichay Invest        Saurav                                    S          6,000    30.0
                                             2-Dec   Pasupati Fin           Vipul Mohan Joshi                        B         30,000     19.8
                                             2-Dec   Poly Medicure          Pentagon Builders Pvt Ltd                B        103,373    270.0
                                             2-Dec   Poly Medicure          Manmohini Kaur                            S       103,373    270.0
                                             2-Dec   Rockon Fin             Ascron Consultant Pvt Ltd                B        900,000      5.9
                                             2-Dec   Rockon Fin             Axiom Capital Advisors Pvt Ltd            S       900,000      5.9
                                             2-Dec   Rockon Fin             Giriraj Kishor Agrawal                    S     2,296,550      5.8
                                             2-Dec   Scope Ind              Pratiksha Moralkumar Jani                B         43,133     24.7
                                             2-Dec   Scope Ind              Amit Suryakantbhai Soni                  B         60,000     24.7
                                             2-Dec   Scope Ind              Pravin Subhash Honap                      S        40,550     24.7
                                             2-Dec   Scope Ind              Umadevi Alluri                            S        50,000     24.7
                                             2-Dec   Scope Ind              Sreenivas Reddy Kallem                    S        78,400     24.6
                                             2-Dec   Stocknet Intl          S S Dhanasekaran                          S        40,255      1.8
                                             2-Dec   SV Electricals         Ford Dealcomm Pvt Ltd                     S       170,000      9.0
                                             2-Dec   SV Electricals         Bholebaba Suppliers Pvt Ltd               S       110,000      9.0
                                             2-Dec   Temptation Fd          Vedika Securities P Lim Ited             B        370,930      7.0
                                             2-Dec   Temptation Fd          Divya Drishti Merchants Pvt.Ltd           S       300,000      7.0
                                             2-Dec   VMS Inds               Jvs Securities Pvt Ltd                   B         86,284     27.7
                                             2-Dec   VMS Inds               Jacintha Gaspar Serrao                    S        90,000     27.7

                                             Source: BSE




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             MORNING INSIGHT                                                                                                             December 5, 2011



       Gainers & Losers                          Nifty Gainers & Losers
                                                                                     Price (Rs)           chg (%)          Index points         Volume (mn)

                                                 Gainers
                                                 ICICI Bank                                   788                3.4                    9.7                   7.0
                                                 HDFC Bank                                    466                2.8                    7.4                   2.8
                                                 Reliance Ind                                 812                1.6                    7.2                   4.5
                                                 Losers
                                                 Hero MotoCorp                              2,081               (0.4)                  (0.2)                  0.7
                                                 Ranbaxy Labs                                 442               (0.2)                  (0.0)                  2.5
                                                 Sesa Goa                                     190                0.5                    0.1                   3.1

                                                 Source: Bloomberg




Fundamental Research Team
Dipen Shah                               Saurabh Agrawal                           Ruchir Khare                              Amit Agarwal
IT, Media                                Metals, Mining                            Capital Goods, Engineering                Logistics, Transportation
dipen.shah@kotak.com                     agrawal.saurabh@kotak.com                 ruchir.khare@kotak.com                    agarwal.amit@kotak.com
+91 22 6621 6301                         +91 22 6621 6309                          +91 22 6621 6448                          +91 22 6621 6222
Sanjeev Zarbade                          Saday Sinha                               Ritwik Rai                                Jayesh Kumar
Capital Goods, Engineering               Banking, NBFC, Economy                    FMCG, Media                               Economy
sanjeev.zarbade@kotak.com                saday.sinha@kotak.com                     ritwik.rai@kotak.com                      kumar.jayesh@kotak.com
+91 22 6621 6305                         +91 22 6621 6312                          +91 22 6621 6310                          +91 22 6652 9172
Teena Virmani                            Arun Agarwal                              Sumit Pokharna                            K. Kathirvelu
Construction, Cement, Mid Cap            Automobiles                               Oil and Gas                               Production
teena.virmani@kotak.com                  arun.agarwal@kotak.com                    sumit.pokharna@kotak.com                  k.kathirvelu@kotak.com
+91 22 6621 6302                         +91 22 6621 6143                          +91 22 6621 6313                          +91 22 6621 6311


Technical Research Team
Shrikant Chouhan                         Amol Athawale                             Premshankar Ladha
shrikant.chouhan@kotak.com               amol.athawale@kotak.com                   premshankar.ladha@kotak.com
+91 22 6621 6360                         +91 20 6620 3350                          +91 22 6621 6261


Derivatives Research Team
Sahaj Agrawal                            Rahul Sharma                              Malay Gandhi                              Prashanth Lalu
sahaj.agrawal@kotak.com                  sharma.rahul@kotak.com                    malay.gandhi@kotak.com                    prashanth.lalu@kotak.com
+91 22 6621 6343                         +91 22 6621 6198                          +91 22 6621 6350                          +91 22 6621 6110


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