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April 27, 2015

Ultratech cement corporate presentation

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Infosys, Ultratech Cement & Petronet LNG

Infosys Ltd (Q4 FY15) – Accumulate
CMP Rs1,996, Target Rs2,125, Upside 6.5%
  • Muted volume growth at 0.9% qoq; pricing pressure continues
  • FY16 annual revenue growth guidance implies much better run-rate than FY15
  • EBIT margin contracted more than expected but remained within the long term band
  • Cut FY16/17 earnings estimates by 6-7%; lower rating to Accumulate
Click here for the detailed report on the same.

Ultratech Cement Ltd (Q4 FY15) – Accumulate
CMP Rs2,707, Target Rs2,886, Upside 6.6%
  • Top-line at Rs. 6,135cr disappoints on lower than expected dispatches.
  • Operational efficiency was higher than our estimate on account of saving arising from lower RM and other overhead.
  • Higher interest outgo (up 103% yoy) drags PBIT; marginally higher than our estimate.
  • Effective tax rate stood at 33.5% (as against 14.2% in Q4 FY14) translating into PAT de-growth of 26.6% yoy.
  • Upgrade Ultratech to Accumulate as we now factor in FY17 earnings
Click here for the detailed report on the same.

Petronet LNG (Q4 FY15) – Accumulate
CMP Rs167, Target Rs182, Upside 9.0%
  • Net sales at Rs. 716cr was sharply lower than our and street estimates; represented a fall of 31.3% yoy and 2% qoq
  • Total volumes were at 102.5 TBTUs as compared to 117.3 TBTUs in Q4 FY14 and 139.6 TBTUs in Q3 FY15; fall was mainly on account of fall in offtake of long term volumes
  • OPM at 3.1% was below our expectations
  • PAT at Rs. 301cr was higher than our estimates as one time tax reversal pertaining to 80IA of Income Tax Act, 1961 more than offsets poor operational performance
  • While Kochi ramp up continues to be a concern recent developments such as stakeholders meeting by state government, leasing out of storage tanks and trucking of gas have been positive
  • We maintain our Accumulate rating but lower our 12 month target price to Rs. 182 as clarity should emerge on Kochi terminal in medium term and current soft LNG prices should ensure robust demand for LNG
Click here for the detailed report on the same.

Warm Regards,
Amar Ambani
Head of Research, IIFL

April 20, 2015

Monish pabrai checks into Rain Industries via a block deal

20-Apr-15 RAIN Rain Industries Limited THE PABRAI INVESTMENT FUND II LP BUY 2664000 34.52

April 13, 2015

VRL Logistics Ltd: Fast mover – Subscribe By Amar Ambani

VRL Logistics Ltd: Fast mover – Subscribe
Issue opens 15-Apr-15, Issue closes 17-Apr-15, Price band (Rs) 195-205
VRL Logistics Ltd is India’s leading surface logistics and parcel delivery company with one of the largest fleet size of ~4000 goods transport vehicle. VRL operates on a pan-India level through its 624 branches of which 48 act as strategic transshipment hubs. Integrated hub and spoke model has led to improved operational efficiency as it enables VRL to transport parcels of various sizes and provides multiple points of access to its clients for booking and delivery of goods. VRL also owns and operates 455 passenger buses across central and south India. Freight logistics contributes ~76% of total revenues while ~21% comes from passenger transportation segment. Wind power generation forms a small part of the company’s overall business contributing ~2% towards total revenues.
At the upper end of Rs195-205 price range, the stock is valued at 14.7x FY16E EPS of Rs13.9. Peers like Gati and Transport Corporation of India Trade in the range of 18x-25x. We note that apart from plain vanilla surface logistics, these peers also provide niche services like express delivery, ecommerce delivery and supply chain management and therefore trade at higher multiples. Nevertheless, with the improving macroeconomic environment, contribution of freight transportation via road is poised to increase and VRL with its largest fleet size, superior track record, strong brand name, diverse client base, and vast management experience is all set to benefit from the opportunities provide by the sector. Recommend investors to Subscribe.
Click here for the detailed report on the same.

Warm Regards,
Amar Ambani
Head of Research, IIFL

April 9, 2015

Amar ambani on IIL

Insecticides (India) Ltd: Operating leverage at play, compelling valuation – BUY
CMP Rs834, Target Rs1,080, Upside 29.1%
Insecticides (India) Ltd (IIL) is one of the fastest growing agrochemical companies in the country. It has established a strong position for itself in the industry on the back of (i) strategic brand acquisitions (ii) new innovative product launches (iii) close partnership with leading global agro chemical players (iv) aggressive branding and marketing strategies (v) strong pan-India distribution network (vi) well diversified product portfolio and (vii) experienced management with proven capabilities. Consequently, share of IIL in the domestic agrochemical market has risen from 1.9% in FY09 to 5.5% in FY15. During FY09-14, the company witnessed 26.8% revenue CAGR albeit on a lower base. We expect the revenue growth momentum to continue along with more than commensurate earnings growth as operating leverage comes through. We forecast ~20%/43% revenue/EPS CAGR over FY15-17E. Initiate with BUY and 12-month target of Rs1080 based on 12x FY17E EPS. Hostile weather conditions re! main key risk.
Click here for the detailed report on the same.

Warm Regards,
Amar Ambani
Head of Research, IIFL

April 8, 2015

Shiv Kukreja on Rec ofs

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in
Indian Governments have been known for acting as late as possible in taking important economic decisions. But, contrary to their reputation, this time they are acting fast, quite fast. Soon after getting over with a week full of holidays, the Government is quick to announce its decision to sell its 5% stake in one of its Navratnas, Rural Electrification Corporation (REC).
For financial year 2015-16, the Government has set a target for itself to raise Rs. 41,000 crore by selling its minority stakes and Rs. 28,500 crore by selling its controlling stakes in Central Public Sector Enterprises (CPSEs). To meet its target of Rs. 41,000 through minority stakes, the government has scheduled yet another offer for sale (OFS) on the stock exchanges tomorrow. This time the company is REC.
The government will be selling its 5% stake in the company i.e. 4,93,72,950 shares at Rs. 315 a share as the floor price. With 5% discount for the retail investors, the government will be able to raise approximately Rs. 1,540 crore from this share sale. Currently, the government holds about 65.64% stake in the company, which will come down to 60.64% post this OFS.
Before we check out the factors affecting our decision to invest in this OFS, let us first check the basic details of this offer.
Shares on Sale - The government has decided to offload its 5% stake in REC and will place 4,93,72,950 shares in the offer for sale, out of which 20% shares i.e. 98,74,590 shares will be reserved for the retail investors investing up to Rs. 2 lakh.
Offer Price - Share price of REC closed at Rs. 321.25 on the NSE today. The government has fixed Rs. 315 as the floor price in the OFS, which is a discount of 1.95% to its closing price. As always, the floor price has been disclosed by the government after market hours today.
5% Discount for the Retail Investors - Again, the government has decided to offer a discount of 5% to the retail investors. This discount will be offered on the price at which the retail investors bid in the OFS or the cut-off price set by the government, whichever is higher.
Brokerage - Unlike IPOs, stock brokers levy brokerage charges on these OFS transactions. These charges are normally higher than the rate of brokerage investors pay on their routine transactions. So, if the allotment price is fixed at say Rs. 317, the retail investors will get it at Rs. 301.15 a share plus applicable brokerage charges and taxes thereon. So, the retail investors should consider these charges in their overall cost of acquisition.
Introduction of Cut-Off price option still elusive - Offer for sale (OFS) process is still very complicated for the retail investors. They either require proper guidance or the option to bid at the cut-off price. But, this time also, the cut-off price option is missing.
Only a Single Day OFS - REC OFS will remain open for a single day only and that too, during the trading hours of the stock exchanges i.e. between 9:15 a.m. and 3:30 p.m. You’ll get to know the status of your bids by 6 p.m. and if successful, you’ll get the shares allotted by the designated stock exchange on T+1 basis.
Once bidding starts, you can check the bidding status on the National Stock Exchange as well as on the Bombay Stock Exchange.
How does an OFS process work?
If you are investing in an OFS for the first time and want to know more about the process, here is the link to check the details about it. If you have any query regarding the process, please share it here, I’ll try to respond to it as soon as possible.
How to invest?
You need to contact your broker to know how it is facilitating the bidding process. I think most of the broking firms must be providing the investment facility through their online platforms. If you don’t have access to the online platform, you should contact the customer care department of your broker and get the bid placed through telephonic confirmation.
Should you invest in REC OFS?
Power sector is one of the key drivers for a country’s rapid economic growth and poverty alleviation. Approximately 30% of India’s population do not have access to this basic amenity called electricity. For the past many many years, India’s power sector has been paralyzed with one issue or the other.
Poor financial condition of the state electricity boards (SEBs), unreasonable poll promises made by our politicians during elections, coal shortages due to scams/litigations or high import prices, poorly drafted laws of land acquisition, policy paralysis, shortage of funds or equipments for new capacities are some of the reasons due to which India’s power sector has shown an extremely poor growth.
However, the government is committed to provide electricity to all households over the next few years. Keeping that in mind, the government has recently taken many initiatives, including transparent & competitive auctions of coal mines, implementing gas price pooling policy, encouraging Coal India to meet its production targets etc. It makes me feel that the government is doing an excellent job at the ground level and it should start reflecting in growth numbers very soon.
REC is India’s biggest infrastructure finance company (IFC) for the power sector. Amidst a challenging environment for the power sector, the company has managed to keep its gross non-performing assets (NPAs) under control at 0.8%. Due to its low cost of borrowings, the company has managed to keep its net interest margins (NIMs) at a healthy 5.1% in the nine months period ended December 31, 2014.
From a long-term investment perspective, the stock price of the company is trading at extremely attractive valuations. Assuming the government to fix its allotment price to the retail investors at Rs. 300 per share, the stock is available at approximately 5 times its estimated earnings per share (EPS) and 1 time its estimated book value (BV) for the current financial year. It has also managed to keep its return on equity (RoE) above the levels of 20%. As the company is expected to post an earnings growth of around 30% in the next 3-5 years, its valuation of 5 times earnings seems strikingly cheap to me.
With the government moving in the right direction, an efficient minister heading the power ministry and the interest rates heading downwards, I think India’s power sector should do extremely well in the next 3-5 years. The need of the hour is not to mix politics with economics. Unnecessarily giving subsidies to people who can comfortably afford power makes no sense to me. I think the state governments should focus on making their electricity boards (SEBs) and power generation & distribution companies more efficient rather than subsidizing our electricity bills.
I think this offer for sale is attractively available at Rs. 315 a share and a 5% discount to this price again leaves a reasonable margin of safety for the retail investors. With the government taking it in the right direction, I expect the stock price to move past Rs. 350 levels very soon and to touch Rs. 500 in the next 15-18 months time.



REC Ltd: Attractive Risk-Reward – BUY
OFS Floor Price Rs315, Target Rs392, Upside 24%
*Retail to get 5% discount on issue price
Rural Electrification Corporation (REC), a niche power sector financier, would be a prime beneficiary of the ongoing power sector reforms which over a period of time would enhance economic efficiency across the value chain and kick start the stalled investment cycle. While financial viability of SEBs is improving through the restructuring package under implementation, steps taken by the current government towards augmenting fuel supply is encouraging. REC’s competitive position remains strong in the power financing space supported by its nodal agency status, ability to lend for longer tenures versus banks and benefit of lower funding cost due to Government’s support.
REC having Rs170,000cr of loan assets, well distributed between generation and T&D segments, is likely to witness a pick-up in disbursements and asset growth over the coming three years. We estimate company’s loan assets to grow at 17% pa during FY14-17 driven by faster growth in the private sector generation space. Company’s NIM has significantly improved over the past few years aided by strengthened pricing power (banks have become risk averse), largely stable funding cost and material improvement in the lending yield driven by higher private sector generation share and decline in the contribution of lower yielding short term loans. Even if competition from banks were to increase in the medium term, REC’s NIMs would remain steady cushioned by softening of borrowing cost.
While uncertainty around asset quality has been the key concern for a while, REC has not witnessed worrying accretion of stressed assets so far. The reform steps are only moderating the probability of a negative shock. However, credit cost will inch-up due to adherence to stricter regulatory requirements. Still, the company would deliver RoA above 3% and RoE in excess of 20% in the longer run.
The floor price (Rs315) of the OFS implies an inexpensive valuation of <1x FY17 P/ABV which we believe is an attractive entry point for long term investors. Recommend to subscribe in the OFS with 12m target of Rs392.
Click here for the detailed report on the same.

Warm Regards,
Amar Ambani
Head of Research, IIFL

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