Category: Equity Research

Grasim Industries Ltd is drawing strength from almost all its business verticals. Q2 consolidated PAT (Rs6.2bn) grew 50% YoY, driven by Ultratech’s strong performance. Grasim’s H1 FY08 consolidated PAT was Rs12.9bn (up 52% YoY); that is, an EPS of Rs140.70. This is 48% of FY08 consensus EPS estimate of Rs293.50, implying that estimate is reasonable, as H2 is traditionally stronger than H1 for cement and VSF businesses. Q2 was characterised by strong earnings growth in all divisions -VSF (EBITDA growth +82% YoY), cement (25%) and sponge iron (+418%).

Grasim’s total capex plan is Rs61.2bn for FY08 and Rs18.2bn for FY09. In addition to 95KTPA VSF capacity expansion in Kharach (Gujarat) and Harihar (Karnataka), Grasim is planning an 88KTPA greenfield VSF plant in Vilayat (Gujarat). For cement, the company expects Shambhupura (4.4mt) and Ultratech’s Tadipatri (4.9mt) be commissioned by end-FY08 and Kotputli (4.4mt) by Q1FY09.

Macquarie and UBS have upgraded Grasim’s earnings expectations. (more…)

Lehman Brothers equity research which was the first to boldly come out and downgrade the Indian IT Outsourcing companies is overweight on the prospects of Redington India Ltd. Redington is the second-largest IT distributor in India and the largest IT distributor in the Middle East. It has a very good Supply Chain expertise.

The company is poised to exploit the strong and secular growth of IT industry in India and Middle-East. Robust systems and stable management team have led to impressive track record in operating performance. Inventory write-downs have been only 0.03-0.04% for last couple of years whereas bad debts have averaged only 0.08% of sales in last five years. PC market in India is witnessing faster growth of branded computers. High value segments like storage & networking equipments are growing faster (47% growth in FY07) than the industry average (19% growth in FY07). The services business with much higher margins (OPM of around 15%) will continue to gradually increase its share of revenues.

The company has opportunities (more…)

Kotak Mahindra Bank stunned analysts on the street with results recording a PAT growth of 147% YoY. Broking profits up 215%+ (100% yoy rise – slight market share gains), and investment banking profits up 218%; and high league table positions. Buoyant primary/secondary markets key drivers;

Asset management group now manages almost $10b in assets – across domestic MF, portfolio management – domestic and offshore, and the more recent, alternative asset class. Key growth area – fees, potential performance fees upsides, business generating synergies and value generator. (more…)

Idea Cellular released disappointing results for 2Q FY08, with key disappointments on ARPU, network operating expenses, subscriber acquisition costs and deferred tax. Due to a sharp fall in ARPU, revenue grew 5.7% QoQ and 54.7% YoY to Rs15.6bn against our estimate of Rs16.4bn (expected growth of 11.3% QoQ). EBITDA margins also disappointed and fell 202bp on QoQ basis to 32.7%. A sharp reduction in margins led to a marginal reduction in EBITDA, which fell 0.4% QoQ to Rs5.1bn. EBITDA was 11% lower than estimates. PAT fell 28.6% QoQ to Rs2.2bn.

All the brokerage houses have conflicting ideas about Idea cellular. Macquarie wireless research expects the company to report an EPS of Rs 5.20 and Rs 6.75 for FY08 and FY09 and has set a target (more…)

NIIT reported revenue of Rs2.7bn (+33% yoy). EBITDA of Rs359m (+50% yoy). Higher taxes and depreciation, and lower equity income from NIIT Tech led to a net profit of Rs212 m (vs. estimate of Rs246m).

Individual business revenue grew 31% yoy (CIR est. 41%), while EBITDA margin of 23.8% was broadly in line. NIIT said that the price hike for career segment courses in non-metros was from Aug, vs. Jun for metros. Organic corporate business had slower revenue growth, while ElementK growth was in-line. The company introduced new courses for the insurance and (more…)

Commodity price forecasts are strong on the back of continued strong global demand growth and limited supply response from the mining
industry. The headwind in the US is unlikely to precipitate a sharp slowdown in demand because of the “decoupling” of the US economy from BRICs and other economies.

Tata Steel:
Estimates on greater visibility of synergy benefits from Corus and lower than expected equity dilution from the proposed equity issuances. This results in 1.3%, 8.2% and 20.7% higher net profit estimates for FY2008/09/10E estimates respectively. Following a sharp re-rating of regional steel peers, revise SOTP based 12-month Target Price (more…)