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Wednesday, May 25, 2011

Elara Capital calls a ‘Buy’ on IRB Infra
CMP: Rs 153   Target: Rs 183

IRB registered a dull Q4FY11 clocking a revenue growth of 52.9% YoY at INR 7.7bn, driven mainly by execution across projects under the construction arm MRMPL (INR 5.8bn). Though OPMs declined by 502bps YoY owing to the changing revenue mix in favour of lower margin construction jobs, operating profits for the period rose by 36.2% YoY to INR3.1bn. Marred by a huge leap in interest charges to INR 1.4bn (71% QoQ), including INR 540mn MTM loss post offsetting effect of the interest rate and currency swaps, net profits post minority declined by 27.5% YoY to INR 1bn.

For FY11, IRB registered 43% YoY revenue growth to INR 24.4bn. While operating profits for the year rose by 36.9% YoY to INR 10.9bn, net profits stood at INR 4.5bn, translating into an EPS of INR 13.6.

Incorporating Ahmedabad Vadodara BOT project in SOTP: We incorporate IRB’s recent mandate pertaining to the six laning of the Ahmedabad Vadodara section on NH8 and improvement of the existing Ahmedabad Vadodara Expressway in our SOTP. The same shaves off ~INR19/share from our earlier TP of INR 290 owing to IRB’s aggressive bid (expect ~7% Equity IRR). Further, we also discontinue our earlier assigned 20% asset portfolio growth potential till Mar’12, in line with the management’s indication that the company is now not looking aggressively to add further projects in FY12. This trims an additional ~INR28/share from our earlier TP.

Revise target price to INR 183, downgrade to ‘Accumulate’: In light of the current execution and financing challenges faced by construction companies we tone down our consol FY12 earnings by ~6%. Our SOTP valuation pegs IRB’s fair value/share at INR 183. We remain positive on the company on the back of presence across key national and state highways offering revenue predictability. However, we downgrade the stock to ‘Accumulate’ given the limited upside.

Sharekhan calls a ‘Buy’ on BHEL
CMP: Rs 1953   Target: Rs 2596

Q4FY2011 result in line with provisional results; robust earnings growth aided by one-time items resulting from change in accounting policy: Bharat Heavy Electricals Ltd (BHEL)’s Q4FY2011 audited results were largely in line with the provisional numbers. The changes in the accounting policy related to provision for warranty, employee benefits and depreciation on certain items boosted its profit before tax (PBT) by Rs 983 crore.

Q4FY2011 revenue growth robust led by power business: The net sales of the company grew by 32.2% led by a strong 35.8% increase in the revenues of the power division. The industry division’s revenues grew by 17.8% year on year (YoY) to Rs 3,709.1 crore.

Margin expansion by 305 basis points: The operating profit margin expanded to 18.4%, mainly on account of a lower material cost as a percentage of net sales. The other expenses increased sharply by 182% to Rs 3,666.9 crore led by an increase in the warranty provision. The employee cost fell by 16.3% YoY due to a favorable base effect as in FY2010. BHEL had charged Rs 2,087.5 crore to the profit & loss (P&L) account towards wage arrears from 1.1.2007 to 31.03.2009 and withdrawn the provision of Rs 1,749.34 crore created towards the wage revision as per the sixth pay commission recommendations.
Net profits rose by 46.5%: The interest cost increased to Rs 30.5 crore for the quarter (but still remained negligible), while the depreciation charge rose to Rs 138.4 crore. Consequently, the net profits of the company increased by 46.5% YoY to Rs 2,798 crore.

FY2011 results also robust: For FY2011, the turnover of the company grew by 27% led by a 29.5% growth in the power segment. The operating margins also improved to 19.4% from 16.9% in FY2010 backed by a lower raw material cost as a percentage of sales and favourable changes in the accounting policy.

The net profit of the company grew by 39.4% in line with the provisional net profit of Rs 6,021 crore. Price target revised to Rs 2,596: While BHEL has one of the best business models amongst our coverage universe, given its strong revenue visibility and a robust balance sheet, we feel that there could be execution challenges from the client side. We also feel that while the competition is intensifying in the private sector, the order inflows from the State Electricity Boards (SEBs) would be the key to the achievement of the Rs 60,000 crore plus guidance for FY2012. We are also cutting down BHEL’s target multiple to 10% premium to Crompton Greaves target (16x) multiple from earlier 20% premium in view of hangover of likely FPO, margin pressure and slowdown in its growth momentum. Accordingly, our revised fair value works out to Rs 2,596 (17.6x FY2013E earnings). At the current market price, the stock trades at 13.1x FY2012E earnings, which is quite attractive and at a significant discount to its average historic multiple of 20-21x. Hence, we maintain our Buy recommendation on the stock.

Workplace Provider Regus To Expand Operations
Regus, the world's largest provider of physical workplaces and offices has announced the opening of a new 24-hour-business centre in Fort and plans to expand its presence all over India.

"We plan to expand and consolidate our presence in Tier-II cities like Thane, Nagpur, Indore, Cochin, Chandigarh,Noida and Jaipur. We are in the process of identifying properties, though we haven't yet zeroed in on any. We cater to clients who need offices which are less than 5000 square feet, where we provide them with everything from workstations,office facilities, as well as video conferencing facilities,"Regus' Regional said Vice President Madhusudan Thakur.     "We have options even for individuals who can rent out a computer workstation for as low as Rs 4,000 on daily usage basis. We have video-conferencing options ranging from Rs 20,000 to Rs 60,000 per month, depending on usage," he said.

PGCIL Profit Climbs 32 % To Rs 2,696 Cr
Power Grid Corporation of India Ltd (PGCIL) on Tuesday said its profit after tax surged 32 per cent to Rs 2,696.89 crore in the year ended March 31, 2011. PGCIL had recorded a profit of Rs 2,040.94 crore in the same period a year ago, it said in a regulatory filing. The state-run entity, which is mainly into transmission of power, raked in revenues of Rs 8,388.70 crore in 2010-11, compared to Rs 7,127.45 crore in the year-ago period. On a consolidated basis, PGCIL posted a profit after tax of Rs 2,671.91 crore on revenues of Rs 8,611.76 crore in 2010-11. The company has recommended a final dividend of Rs 1.25 per share.

India May Export 70,000 Tonnes Of Mangoes
India's mango exports are expected to rise marginally to 70,000 tonnes this year on expectation of better availability of the export-quality fruit, according to the agri-export promotion body APEDA.

The country is estimated to have exported 65,000 tonnes of mangoes in the 2010 season (March-July), the provisional official data showed. "The mango export season has just begun. We expect the total outbound shipments to touch 70,000 tonnes this year," a senior official of the Agricultural and Processed Food Products Export Development Authority (APEDA) told PTI.

IRDA Seeks Insurance Council’s Views On IPO Guidelines

The   Insurance regulator IRDA has sought the Life Insurance Council's views on a revised draft of the proposed new guidelines for IPOs by insurers.

Sources said the Insurance Regulatory and Development Authority (IRDA) has sent a revised copy of the draft IPO guidelines to the council, seeking its comments prior to finalisation of the IPO guidelines for life insurance companies. Deliberations on allowing insurance companies to list on the bourses have been going on between capital markets regulator SEBI and IRDA for nearly three years now. SEBI had in October last year given the go-ahead to insurance companies for coming out with IPOs. Under the current SEBI law, companies which have a track record of three successive years profit and have been in business for 10 years are allowed to list on the bourses.

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