Stock Views on HDFC, Bajaj Auto, Tata Steel

BNP Paribas on HDFC

BROKING house BNP Paribas Securities has reiterated its ‘buy’ rating on mortgage lender HDFC, but slashed price target to Rs 1,600 from Rs 2,250. “We expect HDFC to continue to enjoy a premium over its banking sector peers with its sticky customer base, better asset quality, a sector leading opex ratio and stable spreads,” the outfit said in a note to clients. “The company guided towards loan growth in the range of 18-20% for FY10. We are factoring for a loan growth of 16% for FY10 and we believe this growth will be more back end loaded in FY10,” the note added.

MERRILL Lynch on Bajaj Auto

MERRILL Lynch has retained its‘neutral’ rating on Bajaj Auto, but raised price target by 11% as it expects the stock’s valuation multiples to expand on improved earnings visibility. “Following positive customer response to XCD 135 cc motorcycle, we have greater confidence for four upcoming launches by September. We raise domestic two-wheeler sales estimates to 1.36 million units in FY10 (5% growth, earlier 5% decline), and retain 5% growth on higher base in FY11,” the Merrill note to clients said.

JP Morgan on Tata Steel

JP Morgan has retained its ‘neutral’ rating on Tata Steel, citing bleak outlook on the sector. “With European steel environment remaining challenging, end demand visibility low, term debt at $10 billion and FY10 (estimated) adjusted net debt equity at 2.3 times, we remain ‘neutral’ on the stock. Working capital release at Corus and the company’s intention to pre pay $450 million at Corus from asset sales at Teesside are key positives and while adjusted FY10E price/book at 0.9 times provides support, we would wait for some improvement in end demand in Europe before stepping in,” the JP Morgan note said.

Stock Views on Tata Chemicals, HPCL, GODREJ Consumer Products

GOLDMAN SACHS on TATA CHEMICALS

GOLDMAN Sachs downgrades Tata Chemicals to ‘neutral’ from ‘buy’ with a 12-month P/BV-based target price of Rs 140, implying downside potential of 12% from here. With a weakening global economy and consequent correction in agri commodity prices, Goldman Sachs now expects downside risk to Tata Chemicals earnings from its soda ash and fertiliser businesses. It forecasts soda ash prices to decline by 20-25% globally in FY10E, primarily due to:

(1) soda ash producers not having the necessary pricing power to retain the benefit of low energy prices;

(2) softening demand due to a slowdown in the global economy; and

(3) a surge in Chinese soda ash capacity of about 4 million tonnes over the next two years, which may have a material impact on Asia’s soda ash margins.

The 12-month target price of Rs 140 is based on a trough P/BV multiple of 0.8x. Key risks to the target price include:

(1) renewal of soda ash prices at prices higher than estimates;

(2) further depreciation of the rupee against the dollar; and

(3) a rebound in international urea prices.

MERRILL LYNCH on GODREJ CONSUMER PRODUCTS

GODREJ Consumer Products’ (GCPL) margins are expected to be the best ever in FY10E, driven by a sharp fall in palm oil prices and product price increases effective September ’08. Recent excise duty cuts should further reduce input costs. The management’s focus is on driving category sales growth, rather than market share gains. The latter may not be easy to achieve, given that GCPL is the market leader. The share of international sales may go up from the current 25% in the long term. No impact of the economic slowdown has been witnessed on the FMCG sector so far, and sales growth has picked up in the past two months. Merrill Lynch believes GCPL can benefit from a tightening consumer wallet as its product portfolio is skewed towards economy brands. At 13x FY10E P/E, GCPL is trading at a discount to its FMCG peer group and the historic average. Merrill Lynch expects the discount to narrow as earnings momentum picks up.

HSBC on HPCL

HSBC has cut the target price on HPCL to Rs 271 and downgraded its ratings to ‘neutral’ from ‘overweight’. HPCL incurred a loss of Rs 4,100 crore in H1 FY09, and the recent fuel price cut has limited its ability to recoup a portion of this loss. With the possibility of a second fiscal stimulus package, there is also the risk of further price cuts. While the government has initiated discussions for reforms in auto fuel pricing, HSBC remains cautious on its implementation as this can result in higher diesel prices. Based on oil price assumption of $90/bbl for FY09 and $71/bbl for FY10, HSBC estimates sector under-recoveries of Rs 138,000 crore and Rs 55,000 crore, respectively, and 50% compensation in the form of oil bonds and 33% in the form of discounts from upstream players. Based on a combination of P/E and P/BV approaches, HSBC has cut its target price after accounting for the recent derating of the market and HPCL’s refining peers. Any reform in the subsidy mechanism allowing HPCL to bear lower levels of under-recoveries will be a key catalyst for the stock.

Stock Views on Bombay Rayon Fashion, United Breweries

Merrill Lynch on Bombay Rayon Fashion

Merrill Lynch has maintained `Buy’ rating on Bombay Rayon Fashion. However, it has reduced the price targer to Rs 225 from Rs 270 to reflect both earnings cut and higher risks. It cut FY10E EPS by 5% and FY11E by 14%, primarily to factor in lower sales of its brand Guru, as management has stalled its growth plans, following the global slowdown. The stock has corrected sharply in the last few months and valuations look attractive at 3x FY10E PE. It expects EPS growth of 32% in FY10 helped by new capacities coming onstream by March 2009. These capacities would enjoy several fiscal benefits making them globally cost competitive, which should help BRFL gain market share. Management had aggressive plans for expansion of the Guru operations which have now been put in the back burner. After the sharp cut in Guru’s estimates, it now accounts for less than 5% of BRFL’s consolidated EBIDTA versus 9% earlier. We estimate BRFL’s gearing to peak at 2.1x in FY09 and fall to 1.4x by FY11. After a 70% price correction in the last six months, the stock is trading at only 3x FY10E PE. The current stock price more than factors in the macro risks and the correction is clearly overdone.

Indiabulls Securities on United Breweries

Indiabulls Securities maintains `Sell’ rating on United Breweries (UBL) with a target price of Rs. 70. UBL’s net sales in Q309 grew substantially by 24% yo-y to Rs. 370 crore. The EBITDA margin advanced 200 bps y-o-y to 9.4% in the quarter, from 7.4% for the same period in FY08, on the back of a 243 bps y-o-y fall in advertisement and sales promotion costs (as a percentage of sales). Indiabulls sees significant downside in the stock due to high financial leverage and limited expected improvement in margin performance. Moreover, Indiabulls’ valuation gives a fair value of Rs 70, suggesting a ~10% downside from the current market price. UBL has a highly leveraged capital structure with a debt-to-EBITDA ratio of around 4x, largely attributed to its expansion activities and acquisitions in the recent times. The company has raised Rs. 425 crore through a rights issue; however, this money is to largely meet the CAPEX requirements for FY09 and FY10. Subsequently, UBL’s financial leverage is to remain at least 3x for FY09E. As a result, it will continue to bear a substantial interest burden, which will drag its net margins. We expect the EBITDA margin to improve by ~80 bps in FY10 to 11.3% as raw material prices have fallen recently. Moreover, the company should benefit from economies of scale and better realisations on the back of a strong brand equity.

Stock Views on Infrastructure Development Finance Corp, Exide Industries

MERRILL LYNCH on EXIDE INDUSTRIES

Merrill Lynch maintains `Buy’ rating on Exide Industries, however, it has cut the target price to Rs 62 on a weak Q3. Exide Industries reported 30% below estimated PAT in 3QFY09 largely due to Rs 20 crore FX loss and in small part due to weaker sales. Merrill Lynch has cut EPS on slower demand, however, it maintains `Buy’ as

(1) FY10E EPS to grow 22% on falling cost and

(2) FY10E PE of 9.9x is close to trough valuation.

Exide Industries, the largest lead acid battery manufacturer of India, reported a net profit of Rs 56.1 crore, a growth of only 1.8% y-o-y in 3QFY09. This was the slowest growth in the last 15 quarters and is driven by

(1) volume growth of only 11% and

(2) foreign exchange loss of Rs 20 crore that reduced profit by 23%. Volume growth weakened considerably from the recent trend of over 15% growth due to slowdown in automobile demand. With FX loss accrued due to unhedged payables of over Rs 450 crore, Merrill Lynch still expects strong EPS growth of 220% in FY10E driven by

(1) lower cost of lead along with rupee appreciation could help expand EBITDA margin by 200 bps and

(2) demand growth of over 12% driven by market share gain in the relative secular segment of the automotive after market.

Thus far, FX loss on account of sharp depreciation of the rupee has been negating the impact of decline in lead cost.

GOLDMAN SACHS on IDFC

Goldman Sachs maintains a `Sell’ rating on Infrastructure Development Finance Corp (IDFC), despite a significant fall in price as lack of growth drivers over the medium term. Infrastructure lending should likely remain constrained by the need to maintain high capitalisation ratios; and capital market-driven revenues should likely remain depressed. A subdued contribution from capital market-related revenues will erode ROA from 3.1% in 2007 to 2.8% in 2008E and 2.4% in 2009E and 2010E, in our view. The constraint for IDFC in growing its balance sheet without additional equity capital infusion due to higher capitalisation requirement is well-known to the market. However, expectations, as implied by consensus estimates, remain high and could be driven by many factors including expectations of lower capitalisation requirement or a possible change in the structure of the company (although we note that the company has not stated any intention of a potential change in structure/form) over the medium term, in our view. Expectations of lower capitalisation requirements are unlikely to fructify until macroeconomic conditions improve.

Stock views on Larsen & Toubro, Ranbaxy, Allied Digital Services, Piramal Healthcare, Infosys, Mahindra & Mahindra

MOTILAL OSWAL on M&M
MOTILAL OSWAL maintains its 'Buy' rating on Mahindra & Mahindra. M&M had earlier mentioned in its post-2QFY09 results that it would be reviewing the Rs7,000-crore capex plan over FY09-12 for a possible reduction. After a review of the capex plans, management has now decided to go ahead with the original capex plan of Rs 7,000 crore without any cuts. Out of the Rs 7,000 crore over FY09-12, Rs 5,000 crore will be invested in the automotive business and Rs 2,000 crore in the non-auto business. In auto business, investment will be made in the Chakan plant (~Rs2,500 crore), product development (Rs 2,000 crore for Xylo, Scorpio's successor, light transport vehicles and lobal product) and further equity contribution in Mahindra Navistar JV (Rs 350 crore). In the non-auto business, it is investing Rs 500 crore in tractors business, Rs 700 crore in logistics business and defence business and Rs 750 crore for setting up world-class research facility at Chennai. Motilal Oswal has downgraded the consolidated earnings estimates by 11.7% for FY09 to Rs 58.7 and by 12.9% for FY10 to Rs 70.6, to factor in lower volumes and downgrade in subsidiary / associate earnings. Notwithstanding short-term challenges, valuations at 4.6x FY09E and 3.9x FY10E consolidated EPS are attractive.


CITIGROUP on INFOSYS

CITIGROUP EXPECTS Infosys' revenues at $1,167m, down ~4% qoq. This assumes marginal decline in volumes, stable pricing and ~4% impact of cross currency. EBIT margins are expected to fall ~150bps qoq. Citigroup forecast basic EPS of Rs 26.63 in line with guidance. Volumes continue to be under pressure with clients cutting back on discretionary projects and Q3 being also impacted due to "holiday project closures". Citigroup has lowered its FY10-11E estimates by ~6% on the back of lower volume/pricing assumptions and cross currency impact in Q3. While the stock price witnessed ~37% erosion in CY08, expected numbers are ~6% below consensus, and consensus is to be revised down further. This could put further pressure on the stock in the near term. The EPS numbers benefit from ~5% INR depreciation assumed in FY09 - in other words, Citigroup is modelling an EPS decline in constant currency terms. With a likely result disappointment and further EPS cuts, the stock could underperform in the near term.


MERRILL LYNCH on PIRAMAL HEALTHCARE


Merrill Lynch reiterates 'Neutral' rating on Piramal Healthcare (PHL). However it revises estimates to factor higher interest cost and lower target price to Rs 280 based on 12x FY10E EPS. PHL's proposed acquisition of Minrad comprises equity consideration (US$6mn), convertible debt redemption (US$30mn) and existing debt (~US2mn). Apart from this, PHL would infuse US$12mn in Minrad for working capital requirement. Post-completion of this acquisition (5th in 2008), PHL's D/E would be ~0.9x which is higher than the industry average. Minrad's acquisition bolsters the US$20mn inhalation anaesthetics business of PHL and broadens its portfolio from two products currently to five (halothane, isoflurane, enflurane, desflurane and sevoflurane). PHL-Minrad combine would be the 3rd largest player in US inhalation anaesthetics market addressing a US$1bn+ opportunity worldwide. Merrill Lynch is relatively conservative and expects the deal to be EPS neutral in FY10. The deal is expected to be closed by FY09-end. PHL's CMO business has mid-teens EBITDA margin which is the lowest among that of its peers.


INDIAINFOLINE on ALLIED DIGITAL SERVICES

Allied Digital Services (ADSL)'s pan-India presence, direct support model, established remote infrastructure and significant price competitiveness provide an edge against competition in the domestic IMS market. Its marquee clientele includes large customers won from leading Indian offshore vendors. The recent En Pointe Global Services LLC (EPGS) acquisition would significantly increase international IMS revenues apart from driving domestic revenues through offshoring. Further, the SOC services are expected to register exceptional growth driven by increasing compliance requirements globally. The company expects a hefty ~US$100-million revenue contribution from EPGS in FY10. ADSL's operating margin is likely to improve by 150-200bps in FY10 driven by lower solutions revenue share and improving profitability within IMS through offshore shift. IndiaInfoline expect revenues and net profit of ADSL to record a robust CAGR of 61% and 82% respectively over FY08-10E. Higher growth in earnings would be driven by OPM expansion. Given the strong fundamentals, current valuations of 4.7x FY10 P/E and 1.4x FY10 P/BV appear inexpensive.


JP MORGAN on RANBAXY LABORATORIES

GIVEN THE twin uncertainties of the continued US FDA import ban and potential currency exchange losses, JP Morgan remains 'Neutral' on Ranbaxy even though valuations remain attractive for longer-term investors. Ranbaxy, which has a 180-day exclusivity on generic Imitrex (Sumatriptan), has not yet been able to launch the drug in the US as the FDA approval has not yet come through. Sumatriptan First to File is approximately Rs 5/share of the target price. Brand sales of Imitrex were US$1.29 billion in 2007. Given that the generic filing is not from the manufacturing sites where the US FDA had issued warning letters, the launch approval from the US FDA for Sumatriptan is key to see if it is business as usual for Ranbaxy in the US beyond the products in the import ban. Given the large FTF (first to file) pipeline for Ranbaxy, any delay in approvals for Sumatriptan would be negative for the remaining FTF pipeline.


HSBC on LARSEN & TOUBRO

HSBC has downgraded the rating of Larsen & Toubro to 'Negative' over the Satyam stake purchase. HSBC believes this investment is a portfolio investment rather than a strategic one and views this as a negative for L&T. It thinks that the stake is not positive for L&T's subsidiary, L&T Infotech, given that it has a smaller operation versus Satyam's 53,000 employee base. The integration will be a significant issue given L&T Infotech's smaller size. Also, after allegations of misappropriation regarding Satyam's former chairman, integration could expose L&T to litigation. Moreover, there is a lot of uncertainty in terms of any liability for Satyam. HSBC reduces its FY10E PAT estimate by 8%, driven by a lower 4% change in sales and expects a 25.7% revenue CAGR over FY09-11E, driven by the existing order backlog and new orders from infrastructure, power and new verticals. HSBC is reducing its valuation of L&T subsidiaries to Rs 131 per share.

Stock Views on Hero Honda, Jet Airways, HDFC, Hindustan Zinc

Centrum Broking on HINDUSTAN ZINC

Centrum Broking has cut earnings estimates of Hindustan Zinc following disappointing quarterly results, but upgraded its rating on the stock from ‘reduce’ to ‘hold.’ The company has hefty cash on books of Rs 9310 crore and its capex requirement for next two years is only about Rs 2600 crore, which translates into Rs 220/share. “We believe a part of the cash would be given back to investors in the form of dividend as the outlook for core business looks gloomy,” the Centrum note to clients said. Centrum has cut earnings estimates for FY09 by 21.5% to Rs 66.1 (earlier Rs 84.2) and for FY10 by 24.5%. We believe the stock is cheap on valuation parameters. Besides, company has indicated that it would maintain volume growth and also cost would decline by about 5-7% going forward. This along with the imposition of 5% import duty on zinc would help improve margins going forward.

Deutsche Equities on HDFC

Deutsche Equities has retained its ‘buy’ rating on HDFC, post its third quarter earnings, but slashed price target of the stock. “The exceptionally difficult environment of Q3FY09 for both demand and cost of funds has already started improving. We have pared our earnings estimates, reflecting lower treasury profits and mark-to-market on foreign currency bonds,” the Deutsche Equities note to clients said. “The sharp sell-off post announcement of results appears excessive as we believe that in such an environment, keeping margins reasonable is more important than growth. Key risks are continued high property prices hurting mortgage demand and high capital needs of subsidiaries putting pressure on HDFC’s balance sheet,” the note added.

Prabhudas Lilladher on JET AIRWAYS

Prabhudas Lilladher has retained its accumulate rating on Jet Airways, saying the company’s earnings could be under pressure for some more time, despite the price of aviation turbine fuel coming down by half. “Benefit of this (lower ATF price) has been passed on to consumers as the company announced around 40% cut in basic fares effective January 2009. This should allow the airliner to operate closer or even above the break-even load factors for the subsequent quarters,” the Prabhudas Lilladher note to clients said. “Correction in the ATF prices has provided pricing flexibility, which in turn, should drive passenger volume growth. However, this is not enough as high interest burden and depreciation expenses will result in the company reporting losses for at least for next two years,” the note added.

Merrill Lynch on HERO HONDA

Merrill Lynch has retained its buy rating on Hero Honda citing better than expected third quarter earnings. “Margins expanded 50 basis points year-on-year and 90 basis points quarter-onquarter at 14.5%, mainly driven by lower raw material costs. We expect margins to improve further as the full benefit of softening commodity prices will be reflected hereon,” the Merrill note to clients said. “We expect the industry to end the fiscal year with low-single digit growth, constrained by lack of financing. However, we expect Hero Honda to stay ahead on the strength of its brand, and new launches. We maintain our 9% and 6% volume growth assumptions for FY09 and FY10 respectively,” the note added.

Stock views on HDFC, Bharti Airtel, Hero Honda

BANK OF AMERICA / MERRILL LYNCH on HDFC

Bank of America cuts HDFC’s target price to Rs 1,980 from Rs 2,450 owing to lower sum of parts value and factoring in moderation in growth. However, the stock can still trade at 2.5-3.0x FY10E given the comfort in asset quality; earnings growth of 16-17% through FY10-11E and ROE (return on equity) of 29% on its core business. HDFC’s 3QFY09 earnings were down 2% y-o-y and 4-5% lower than market estimates. This was primarily due to the absence of Rs 100 crore of high investment gains and extraordinary income and Rs 50 crore of exchange losses booked by HDFC in its convertible bond. Adjusting for these factors, both topline and pre-tax earnings grew by about 19% y-o-y. The other disconcerting feature was the 8% contraction in approvals - which appears to be a more conscious decision, as HDFC had been reluctant to lend in October-November ‘08 as conditions worsened. Bank of America has cut the FY09-10 reported earnings by 6-11% to capture the lower investment gains.

HSBC on BHARTI AIRTEL

HSBC reiterates `Overweight’ rating on Bharti Airtel. The 15% fall in Bharti’s share price since the launch of RCOM’s GSM service in December is an overreaction. Instead, investors should focus on Bharti’s market leadership strengths and RCOM’s longer-term structural limitations of operations in 1,800 MHz which require additional base stations. HSBC believes the combination of low revenue yields and bloated cost structure will reduce the scope for disruptive pricing and competitive intensity will become more rational. HSBC estimates FY10E traffic growth of 32% against the historical average of about 70% and cuts FY10-11E EPS by 7% and 4% respectively to factor in increasing competition and the slowing economy. The core business is valued at Rs 645 on 13.7x FY10E core earnings based on a 15% premium to HSBC’s Sensex target of 11.9x. The tower business is valued at Rs 141, which reflects a 36% discount to recent transaction multiples. Risks are early implementation of MNP (mobile number portability), rollout of flat rate plans, higher than estimated slowdown in usage, higher than estimated decline in margins on the back of rural penetration, lower termination charges and higher spectrum charges.

MORGAN STANLEY on HERO HONDA MOTORS

Hero Honda posted a decent set of 3Q09 numbers with net income 7% higher than the expected and in line with Street expectations. Despite a volume decline of 5%, an 11% y-o-y improvement in realisations helped the company to report revenue of Rs 2,880 crore (up 5% y-o-y). Margin came in at 14.5%, 50 bps above last year, primarily due to softening raw material commodity prices. This was on the back of an 11% y-o-y realisation improvement, improving product mix, and ramp up of capacity at the excise duty-exempt Haridwar facility. Net income of Rs 300 crore, improved 9% y-o-y, and came in 7% above estimate on the back of an improvement at the operating level and a lower tax rate as the company increased production in tax-free zones such as Haridwar. Hero Honda is on course to achieve 2009 growth estimate of 9% given its year to-date volume growth of 10.4%, and an improvement in market share of 5.5% to 58.5% in the fiscal year to date in the domestic motorcycle category.

Stock views on ACC, Mundra Port, Idea Cellular, Ambuja Cements, GMR Infrastructure

HSBC on GMR Infrastructure
HSBC maintains the `Underweight' rating on GMR Infrastructure with a target price of Rs 53. There has been no respite in GMR's existing business. GMR's airport business faces: a) continuing decline in air traffic b) continuing delays in real estate development at Delhi airport, impacting fund availability, and c) inability to raise tariff at the Delhi and Hyderabad airports, impacting overall profitability. However, there has been some relief in the power business due to fresh gas supply and lower naptha prices. GMR runs a refinancing risk on the loan at the end of the two-year period. HSBC expects that in order to complete the Delhi airport in time, the government will have to provide incentives to GMR. These incentives might be in the form of allowing it to charge higher user fees or a higher equity contribution to meet the fund requirement. However, given the current financial condition of the airline industry, it would be difficult for the government to increase the charges without opposition from the airline industry. The outlook for the company remains weak given: a) no signs of recovery in airport traffic growth b) the ability to increase airport charges remains dependent on the government's approval c) no improvement in real estate outlook d) potential difficulties in refinancing its acquisition.

Merrill Lynch on Ambuja Cements

Merrill Lynch maintains `Underperform' rating on Ambuja Cements due to lack of upside triggers. Ambuja's CY09 earnings decline will likely be modest versus other majors due to a tad better supply-demand outlook for west India. Ambuja sells ~30-40% of volumes in the west, which is forecast to witness fewer capacity additions versus other regions. However, exposure to the north will likely hurt. Ambuja's CY08 EBITDA stood at ~Rs 1,770 crore, down ~13% y-o-y due to cost-led margin pressures. The company indicated that high-cost coal inventories, greater use of imported coal and year-end adjustments/provisions dragged 4Q results. 4Q realisations were up 1% y-o-y and 3% q-o-q; cost increase was sharper at ~10-12%. Volumes grew 5% y-o-y and 16% q-o-q. In its 4Q press release Ambuja said the industry's demand growth in CY09 will range between 6-8%. This compares with 11-12% volume growth witnessed in November-December 2008, likely led by pre-election government spending. Reflecting the pattern of previous election years, we worry that the recent demand impetus will ease in 3-4 months as elections draw closer.

Indiabulls Securities on Idea Cellular

Indiabulls Securities has reiterated the `Hold' rating on Idea Cellular, however, it has downgraded the target price to Rs 49. Idea ended the third quarter with a handsome topline growth of 13.1% q-o-q, backed by a robust 13% share in the all-India net additions of 38 lakh and a 3.7% improved realisation of 65 paise per minute. Idea's market share (excluding Spice) is to inflate beyond 11% by March 2010 from the current 9.9%. The company's share of the market net additions is likely to peak at 14-15% in FY10, given the upcoming roll-outs in five new circles and the overwhelming response received for the roll-out in Bihar and the re-branding in Punjab. Moreover, Idea's brand, which has all-India recognition, renders it a competitive edge over the other entrants in the new circles. The operating margin will likely remain under pressure in FY10E-11E and is expected to come down to ~11% as Idea opts for higher opex rather than capex for network expansion. In addition, intensifying competition and penetration in Class C circles calls for competitive pricing, which would further bring down ARPUs to around Rs 250 and Rs 210 for FY09E and FY10E respectively. While the company's business model points towards a strong longer-term growth trajectory, the upcoming congestion in the telecom market would exert significant strain on its key operating and financial parameters, thereby limiting major upsides in the stock price.

Citigroup on Mundra Port

Citigroup initiates `Sell' rating on Mundra Port and Special Economic Zone (MPSEZ) as the stock looks expensive. MPSEZ is a private port (capacity ~55 mtpa) on India's west coast:
1) Strategically located for north-bound cargo;
2) Handles more container volumes than all major ports, except JNPT and Chennai;
3) Has one of the deepest drafts;
4) ~40% of projected volumes are under long-term contracts; and
5) SEZ over ~32,000 acres should support volume growth.

Cargo/profits growth has been impressive at 53%/132% CAGR over FY04-08. Citigroup expects cargo, revenues and profits to grow at 17%, 25% and 47% respectively over FY09-11E, and RoEs to improve to 24% by FY11E from 11% in FY08. While Citigroup forecasts healthy cargo growth at MPSEZ, they see risks in the medium term given the deteriorating global environment. Volumes at major ports grew only by 4% y-o-y in April-November 2008 and fell 28% y-o-y in December 2008 at the DP World-operated container terminal at Mundra. A pullback in investments would hit development of the SEZ, a growth driver for the port. We value: 1) the port at Rs 262/sh; 2) SEZ at Rs 22/sh; 3) investments in subs at Rs7/sh. MPSEZ trades at 24x FY10E PE, a premium of ~85% to Asian ports' average of ~13x, which we find excessive despite EPS growth of 47% over FY09-11E versus the Asian average of -1%. Upside risks include better-than-expected traffic growth and demand for land at the SEZ.

Macquarie on ACC

Macquarie lowers the rating on ACC from `Neutral' to `Underperform' in the absence of cost-reduction levers and the stock lacks any positive catalyst except for cement prices. It believes that the current rally in the stock along with an improved business outlook is a good opportunity to book profits. ACC declared its CY08 results, which were about 11% below the estimates at the operating level due mainly to lower volumes and higher costs. Macquarie reduces the target price by 2% to Rs 452 to factor in lower volumes for the next year and also reducing CY09 and CY10 estimates to account for lower volume expectations because it foresees some delays to expansion plans. ACC has already exhausted the easy ways to reduce costs because most of its production is based on domestic subsidised coal. It already has coal-based captive power plants and it is reaching saturation in blending. The only major avenue is a merger with its sister concern, Ambuja Cements. The majority of 7 mtpa of further expansion will not be completed until CY10. ACC will, at best, grow in line with the industry.

Wish you all Happy New Year 2009

Year 2008 has been an action packed one in all respects. It started off with stock market correction in mid January, later it turned out to be a bear market and eroded Billons of dollars of investor money.

By then sleeping giant was awaken, the sub prime. It had cascading effect all walks of the economy only in US nut all across the world. Then came the big investment bank failures. Fed has to Bail out leading mortgage lenders of the country Fannie Me, Freddie Mac. But, worst was yet to come, Lemon Brothers, a hundred year old investment bank went bankrupt.

It was the situation with Merrill Lynch and Morgan Stanley as well. Goldman Sachs was also taken a beating but was slightly better off. Merrill Lynch was acquired by Bank of America. Wachovia acquired by Wells Fargo, Washington Mutual (WaMu ) acquired by JP Morgan. Both Goldman and Morgan were converted to conventional banks. Meanwhile, Warren Buffet, greatest investor that the world has seen also showed confidence in Goldman.

On the other side Worlds largest insurance company AIG (American Insurance Group), has become the victim of sub prime. Stock price was as low as to $1. To life the ailing economy and overcome the sub prime problem US government came up with $700 Billon package. Later it found that it was short by couple of hundreds of Billon dollars. So second bail out package followed soon. Fed was cutting rate to give stimulus to ailing economy.

Mean while across the world there was severe liquidity problem. Credit Tsunami had hit the world and whole world was in shock. Central banks had to cut interest rate to inject liquidity. There was a fear of global recession all central Governments and banks were trying their best to hold situation under control. Central Governments of Germany, France, UK, Switzerland, were coming out with bailout/stimulus package to save the economy. Some of the biggest name like UBS, Credit Suisse, Barclays, HSBC all have become victims of sub prime and credit crunch. Meanwhile, surprisingly China was out with $560 Billion stimulus package to economy. Stock markets were falling day after day.

Metal prices was cooling off, Crude oil price was coming down on the fears of slow down in the global economy and hence the lower consumption. All these lead to lower inflation. With US interest rates going near zero, Deflation worries were looming large.

Stepping into New Year worldwide consumer confidence is multi decade low, Job less claims are at 26 years high, fear of deflation.

What lies ahead in 2009? Hope. Hope of recovery, Hope of job Security, Hope of Peace, Hope of Good life.

New Year is the time to unfold new horizons & realize new dreams, to rediscover the strength & faith within, to rejoice in simple pleasures & gear up for new challenges. Wish all our readers a very happy new year. Wishing you a truly fulfilling 2009. Let year 2009 be filled with Joy, Happiness, Prosperity, Safety & Security.

Have a great New Year ahead & happy investing. Thank you for all your Co-operation and Support.

Stock Views on ACC, Power Grid, Bank of Baroda, Steel Authority of India, Hindustan Construction, Reliance Industries

ABN Amro on ACC

ABN Amro has cut ACC’s earnings and downgraded it to ‘sell’. ACC seems financially well-placed with moderate expansion plans, but its earnings outlook has weakened, since the industry may see excess supply for at least two years, which will lower cement prices. FY09 cement demand growth YTD, at 6.6%, is below expectations, due to the stress in credit markets and delays in capex. So, demand estimates for FY10 and FY11 fell by 200 bps each to 8%, which exposes the industry much longer to surplus supply. Restructuring over the past five years has seen ACC exiting non-core businesses. The company, which had high gearing in the last business cycle (1997-03), now seems in a stronger financial position. ABN estimates it will have a debt-equity ratio of just 7% even after financing its entire planned capex of Rs 3,700 crore over the next three years. This will raise its capacity by 9.6%, slightly ahead of the expected demand growth. ACC looks cheap, trading at a cement enterprise value/mmt of $61 (vs replacement cost of $110), but ABN sees more downside to its earnings, given the overhang of excess supply.

HSBC on Hindustan Construction

HSBC Global has reiterated its ‘underweight’ rating on Hindustan Construction Company (HCC). It has factored in a dividend payment of Re 1 per share, implying a dividend yield of 2.2%. Thus, the total potential return on investment in shares over the next year is -1.8%. HSBC considers the share price to be volatile. For Indian stocks, HSBC considers the average cost of equity to be 11%. A volatile Indian stock with a potential total one-year return of 10 percentage points on either side of 11%, i.e. 1-21%, merits a ‘neutral’ rating. As the potential total one-year return on HCC is less than 1%, HSBC reiterates its ‘underweight’ rating on the stock. A key upside catalyst for the stock is sharp increase in order inflows and reduction in leverage, resulting in lower interest costs. A sharp drop in execution volumes along with demand slowdown remain key downside risks to HSBC’s valuation

CITIGROUP on Power Grid Corporation

CITIGROUP has maintained its ‘sell’ rating on Power Grid Corp (PGCIL) with a target price of Rs 69. PGCIL’s shares have outperformed the Sensex, post its IPO. Despite correcting more than 55% from its peak, it is not in the value zone yet. They are trading on par with NTPC, which appears unjustified. The key upside risks are: 1) Favourable CERC regulations for FY10-14E; 2) Faster-than-expected project execution; and 3) Higher non-core business profits. PGCIL has the potential to generate 14-17% returns on its regulatory equity base, compared with NTPC’s 14-22%. NTPC under-reports its profit/net worth. PGCIL matches depreciation under the tariff with reported depreciation, whereas NTPC’s depreciation under the Company Law is higher than under the tariff. PGCIL’s target price of Rs 69 is set at 1.8x FY10E P/BV from 2.2x earlier — a 10% discount to the target P/BV multiple for NTPC. PGCIL’s H1 FY09 reported PAT, at Rs 700 crore, was down 15% y-o-y. But this is largely due to forex fluctuations and a pass-through in tariffs.

Indiabulls Securities on Bank of Baroda

INDIABULLS Securities has reiterated its ‘hold’ rating on BoB. The bank reported an average performance in Q209, even as its asset quality improved. It expects interest income to grow by 16% in FY09, against 31% in FY08, as the growth rate of advances is likely to fall to 23% in FY09 vis-à-vis 28% in FY08. In addition, the expected fall in yield on investments will affect interest income. Advances may be under pressure due to the global financial crisis and slowdown in the domestic economy. Over 20% of the loan book is accounted for by real estate and SMEs, which are prone to default in the current domestic scenario. BoB’s net interest margin (NIM) increased by a mere 4 bps sequentially to 2.8%. NIM is likely to be under pressure in the coming quarters due to increased cost of deposits, though RBI has lowered its key policy rates. With increased risk-aversion, BoB may shift the mix of interestearning assets from high-yield, risky advances to safer, low-return investments. This is likely to reduce the average yield, further pressurising NIM.

MERRILL Lynch on Reliance Industries
MERRILL Lynch has retained it ‘buy’ rating on Reliance Industries (RIL). Its refining margin has consistently been higher than the benchmark Singapore complex refining margin. Analyses suggests RIL’s superior refining margin is due to its ability to refine heavier crude than Dubai. Compared to the last refining downturn, RIL is set to benefit more in FY10-FY11E from its ability to refine heavier crude. Reliance Petroleum’s (RPL) refinery, which is expected to start operations soon, can process even heavier crude than RIL and has a superior product slate. The average discount of Arab heavy to Dubai since FY01 is $2.4/bbl. The discount has sustained at over $5/bbl even in the past six weeks, despite the slump in oil prices. Merrill Lynch estimates RPL’s refining margin at $12.9/bbl if it were to operate in Q3 FY09, vis-à-vis Singapore margin of $7.3/bbl. It will produce more gasoline than RIL. Gasoline cracks have always been at a premium to naphtha and LPG cracks. Merrill Lynch feels that a weakening in diesel and gasoline cracks is the main risk to RPL attaining such high margins when it begins operations.

EDELWEISS on Steel Authority of India

SAIL has a saleable steel capacity of 13 mt. But with no major capacity expansion over the next two years and moderate demand scenario, incremental volume growth is seen at 0.6 mtpa in FY09E and may decline by 0.4 mtpa in FY10E on production cuts. SAIL’s average volume-based growth till FY10 will be more muted than that of Tata Steel and JSW Steel. The company is targeting completion of modernisation-cum-expansion by end-FY11, which is set to hike its saleable steel capacity to 23.1 mtpa, up 78% from FY08 levels. It will also improve the company’s productivity and refine its product mix. While the project will put SAIL in the global league, its timely completion looks daunting. Due to its scale and operational vastness, SAIL is best-positioned among its peers to gain from Indian steel consumption growth in the next two years. But in the absence of tangible volume growth, slow demand growth for steel, exposure to tight coking coal market, highest susceptibility to government norms on prices, and potential delay in expansion plan, Edelweiss expects SAIL’s margins to be under pressure in the next two years.

Stock Views on Bharti Airtel, Jet Airways, Lanco Infra, MTNL

HSBC Global Research on Bharti Airtel

HSBC Global Research has assigned an ‘overweight’ rating to the stock saying the company’s strong balance sheet and infrasharing models will allow it to consolidate its revenue market share leadership further. “We value the core business at 12.5 times FY10 (estimated) EPS (earnings per share) at Rs 660 per share and tower valuations of Rs 183 per share,” said HSBC Global Research in a note to its clients. The research firm is positive on Bharti based on a combination of expected sharp growth in the Indian wireless market, execution of a low-leverage, low-cost business model with a high return on invested capital, and a close alignment of majority and minority shareholder interests. However, it views higher regulatory charges and aggressive international expansion as key downside risks.

Citi investment research on Jet Airways

Citi investment research has changed its rating on the stock to ‘sell/high risk’ from sell/medium risk with a revised target price of Rs 167 from Rs 440. “Jet merits a high risk rating, given the competitive scenario in the domestic market, unstability in its international operations and its highly leveraged balance sheet,” said Citi in a note to its clients. Citi believes that Jet’s operating cash losses will continue into FY10 and expects the company will need to raise fresh funds to refi-nance debt repayment (around $280 million over FY09/10E). “Debt/equity ratios are rendered meaningless given the significantly affected net worth — debt-equity is forecast at seven times end FY10E (including asset revaluation reserves),” said the Citi note. According to Citi, the company will face recurring losses of over Rs 36 billion (earlier Rs 20 billion) over FY09-FY10 due to decelerating passenger traffic and escalating cost pressures (aided by depreciating rupee). It expects the yields to dip by 12% in FY10E as lower fuel prices will be passed on to the customers.

ICICI Securities on Lanco Infra

ICICI Securities has maintained its ‘buy’ rating on the stock. “We believe that the expected commissioning of Amarkantak I (300MW) by end-November 2008 would result in reducing execution risk/discount associated with Lanco’s power portfolio,” said ICICI Securities in a note to its clients. According to ICICI Securities, Lanco’s ongoing litigation with MP SEB to convert Amarkantak I from PPA (power purchase agreement) to merchant is expected to be resolved soon and even 50% conversion will provide upside of Rs 35/share. “Lanco has emerged as the sole bidder for the 1,320 MW coal-based power plant at Rajpura, Punjab. We ex-pect the tariff of the project to be lucrative, providing healthy upside along with Rs 70 billion EPC potential,” said the note. The NAV (net asset value) estimates for Lanco stand at Rs 65 billion or Rs 296 per share, the ICICI note said.

Merrill Lynch on MTNL

Merrill Lynch has maintained its ‘underperform’ rating on the stock with a lowered target price of Rs 65 from Rs 110 earlier, saying it has valued the company’s core telecom business at a 25% discount. “The discount captures the risk of potential large cash outgo towards its assured 3G licences. The stock appears cheap at a price/book of around 0.4 times FY09 and this reflects its low RoE (return on equities) of around 2-3%,” said Merrill Lynch in a note to its clients. Merrill Lynch has cut earnings by 35% for FY09E and 29% for FY10E. “This reflects around 3-5% cut in topline and 4% rise in operating costs. We now forecast MTNL’s EBITDA margin at 11-13% for FY09-10E vs 10% margin in 1H FY09,” the note said.

Stock Views on ONGC, Shree Renuka Sugars, Suzlon Energy, Tata Power, ESSEL Propack

CITIGROUP on ONGC

CITIGROUP maintains ‘buy’ rating on Oil & Natural Gas Corporation (ONGC) with a target price of Rs 850. Citigroup has adjusted its estimates for ONGC on the back of a revision in its global oil forecasts to $101/bbl ($105/bbl earlier) for ’08E, $65/bbl ($90/bbl) for ’09E, $75/bbl ($90/bbl) for ’10E, $80/bbl ($95/bbl) for ’11E, and long-term crude assumption (’12E onwards) at $85/bbl ($100/bbl). Despite significant weakening in crude prices recently, FY09E net realisations are unchanged at $52.5, given lack of clarity on subsidy-sharing for the rest of FY09 (assumed at Rs 47,000 crore, higher than the cap). However, the continued weakness in the rupee offers some cushion to FY09 estimates. The target price is based on price-to-earnings (P/E) multiple of 7x FY09E. This is at the lower end of ONGC’s historical trading band of 7-12x, which adequately captures: (i) Lack of clarity on subsidy-sharing for the rest of FY09 and FY10-11; (ii) The government’s attitude towards retail price cuts in the next three months; and (iii) Likely policy direction of the next government in FY10.

MERRILL Lynch on Shree Renuka Sugars

MERRILL Lynch has cut its target price for Shree Renuka Sugars by 56% to Rs 71 per share. The reduction is due to: (1) 20% cut in FY09E earnings per share (EPS) on account of higher interest and sugarcane costs; and (2) Cut in price objective (PO) basis to 6x FY09E EV/EBITDA, equivalent to the long-term average of the sector since 1996. The key driver for ‘buy’ rating is the likelihood of 117% growth in FY09E EPS. Merrill Lynch expects FY09 EPS to double on: (1) 54% increase in sugar sales to 0.9 million tonnes, including 0.35 million tonnes from the Haldia sugar refinery; (2) 35% increase in sale of power; (3) Doubling of ethanol sales to 120 million litres; and (4) Jump in cane crushing capacity by 49%. However, Merrill Lynch has cut FY09E EPS by 20%, driven by the likely rise in sugarcane cost to Rs 1,500/tonne in FY09E, compared to the previous assumption of Rs 1,400/tonne. Shree Renuka Sugars may go slow in setting up its proposed Rs 350-crore white sugar refinery at Mundra to avoid a cash crunch following refinancing of Rs 120 crore worth of longterm loans. This could also mean no dilution in equity in FY09E from conversion of 20 million warrants issued to promoters at Rs114 per share, contrary to Merrill Lynch’s earlier assumption.

MORGAN STANLEY on SUZLON ENERGY

WITH the massive downturn in oil prices, delay in renewal of permit to construct (PTC) in the US, and difficulty in financing wind power projects, Morgan Stanley has lowered its growth forecast for the wind energy sector to 5% for ’09E. On the back of low visibility in a slowing market, Morgan Stanley has cut its volume estimate for Suzlon Energy by 17% and 24% in FY09 and FY10, respectively, resulting in a 29% and 40% drop in EPS in that order. Suzlon has decided not to try to exercise the domination and profit transfer agreement with REpower, due to opposition from lenders who will be financing the next rounds of growth for REpower. However, with Suzlon struggling to bag any orders in the past six months, Morgan Stanley believes that the next stage of growth in Suzlon will be powered by REpower’s technology (3-mw, 5-mw and 6-mw turbines), which looks unlikely in the short term. With the cancellation of the rights issue, debt will become the primary source of funding Suzlon’s growth. Morgan Stanley believes that Suzlon is correct in trying to delay the purchase of Martifer’s stake in REpower and cutting back on capital expenditure (capex).

UBS INVESTMENT on TATA POWER

UBS Investment has downgraded Tata Power to ‘neutral’ rating with a target price of Rs 825. UBS has cut its target price by 36% as Tata Power’s stake in two Indonesian coal mines is not value-accretive at the current market price (CMP) of Bumi Resources. In the past three months, Tata Power has corrected 30% and UBS still doesn’t think the valuations are attractive enough in the absence of a clear driver for the stock. In UBS’ view, a long-term coal price of $65/tonne, which is a reasonable assumption, will imply a fair value of Rs 1,300 for Tata Power. However, UBS has arrived at a target price of Rs 825 if it uses Bumi’s CMP of Rs 1,450. The fair value for Tata Power is Rs 1,015, if it uses UBS’ target price on Bumi (Rs 3,000). Bumi’s covering analyst at UBS, Andreas Bokkenheuser, has cut his coal price estimates to $75/79/80 per tonne from $79/112/125 per tonne for CY08/09/10, respectively. After incorporating these changes in UBS’ Tata Power estimates, the company’s revenues are lower by 2-10% over FY09-11E and EPS by 19-46% to Rs 57.6/62.7/84.6 for FY09/10/11E, respectively.

GOLDMAN SACHS on ESSEL PROPACK

ESSEL Propack recorded a net loss of Rs 26.6 crore on a consolidated basis for the first three quarters of ’08, mainly due to operational inefficiencies at its plastic tube operations in Europe and the US, compounded by slower growth in its target markets. A steep increase in polymer prices in H108 had a significant impact on the company’s margins. However, polymer prices have reduced by more than 40% since their July ’08 peaks and the company is set to benefit from this in subsequent quarters. Goldman Sachs foresees the company returning to profitability only in the second half of ’09, driven by a decrease in raw material prices and improved efficiency levels at its overseas subsidiaries. Given the pressure on margins, Goldman Sachs is lowering its 12-month target price to Rs 19 (from Rs 40), which implies a potential upside of 41% from current levels. The target price is derived using a discounted cash flow (DCF) methodology with a cross-check against three shorter duration ratios. The stock currently trades at a ’09 P/E multiple of 7.5x. Goldman Sachs believes current valuations adequately reflect the business prospects of the company and maintains ‘neutral’ rating on the stock.

Stock views on ING Vysa Bank, Suzlon Energy, Balrampur Chini, Shobha Developers

ENAM Securities on ING Vysa Bank - Target RS 240

ENAM Securities has retained its “outperformer” rating on the stock with a price target of Rs 240, following robust second quarter numbers. “ING Vysya registered a 43% year-on-year growth in net interest income to Rs 1.56 billion driven by 26% growth in advance and 43-basis point improvement in NIM to 2.87%. The bank has shown a strong growth in NII over the past few quarters and the fee income growth is also impressive,” the Enam note to clients said. “While the tier-1 capital at 7% is bit of a constraint, the bank can still do well this year, even without raising any additional capital. The stock quotes at one time FY09(estimated) book value and 6.9 times FY09 earnings and is attractively valued,” the note added. While the stock has corrected significantly, given the multiple uncertainties, we believe it is best to stay away at this point, it goes on to add.

Morgan Stanley on Suzlon Energy - Target RS 52.45

Morgan Stanley has “downgraded” Suzlon Energy from overweight to equal-weight while lowering the price target to Rs 52.45 from the earlier Rs 450, citing slowdown in the global wind turbine market and the unresolved technological issues. “We expect a slowdown in the global wind turbine market in C2009, with growth moving down to only 6% from 25% in C2008,” says the report. Further, the foreign brokerage also does not expects Suzlon “to get access to REpower technology in the short term.” Morgan Stanley also feels that with the cancellation of the rights issue of the company, debt will become the primary source of funding the growth at Suzlon. “We believe that Suzlon is doing the right things... trying to delay the purchase of Martifer’s stake in REpower and cutting back on capex,” says the report. However, on our reduced numbers, we still perceive risk to Suzlon’s debt covenants. If the Martifer stake purchase cannot be pushed back, we expect Suzlon to breach its debt covenants, potentially resulting in punitive action from lenders, it adds.

ICICI Securities on Shobha Developers

ICICI Securities has maintained a “buy” on Sobha Developers after the company’s second quarter results were in line with expectations with revenues and PAT dipping 10% Y-o-Y and 13% Y-o-Y to Rs 2.9 billion and Rs 490 million, respectively. The brokerage, however, has downgraded the company’s NAV owing to sluggish sales and stretched balance sheet. According to the brokerage, the company is facing headwinds in the form of downturn in realty and strained balance sheet. “The debt level has increased three times to Rs 19 billion in one year, and new sales and project launches have slowed down. We lower FY09(estimated) NAV estimate to Rs 282/share (target price at Rs 169/share), assuming 25% drop in selling prices and increased timelines by 8-10 years (reducing development pipeline 55-65%). ICICI Securities has also lowered FY09E & FY10E earnings estimates by 51% and 71%, respectively. Sobha’s balance sheet is stretched and any respite through the proposed rights issue of Rs 3.5 billion will be temporary unless housing demand picks up, it adds.

Merrill Lynch on BALRAMPUR CHINI

Merrill Lynch has maintained an “underperform” rating on Balrampur Chini Mills while lowering the price target from Rs 56 to Rs 43. The brokerage’s revised price target is based six times FY09 (estimated) EV/EBITDA, which is equivalent to the long-term average of the sector since 1996, excluding periods of very low or negative profit. “Our price objective cut is driven by 17% cut in FY09E EPS and 6% cut in our target valuation multiple,” says the report. According to Merrill Lynch, key factors driving the earnings cuts are “4% higher sugarcane costs, 18% higher interest costs and 7% lower sugar sales volumes”. We expect the company’s earnings to remain under pressure due to fall in availability of sugarcane, the key raw material, adds the report.

Stock Views on Hindustan Zinc, Nestle, Jaiprakash Associates

CITIGROUP on Hindustan Zinc

CITIGROUP has downgraded Hindustan Zinc’s (HZL) rating to ‘sell’ by reducing the target price to Rs 430 on the back of an earnings cut of 22% for FY09 and 27% for FY10. Citigroup’s new estimates incorporate changed zinc and lead forecasts, updated trends in rupee-dollar exchange rates and small changes in volumes based on management feedback. Zinc prices are expected to fall 41% year-on-year (y-o-y) in FY09, further fall 10% y-o-y to reach a bottom in FY10, and recover thereafter in FY11. HZL enhanced its zinc capacity by 88,000 tonnes per annum (tpa) to 669,000 tpa in April ’08 (total zinc-lead capacity to 755,000 tpa). In addition, HZL has announced further capital expenditure (capex) to enhance zinc capacity by 210,000 tpa and lead capacity by 100,000 tpa — taking the total to 1.07 million tpa by ’10, together with additional mining and captive power capacities. Citigroup sees a fall in earnings and EBITDA margins despite positive factors for HZL, such as its status as one of the lowest-cost producers globally, strong zinc volume growth (20% in FY09E and 40% in FY10E), high realisations for by-products like sulphuric acid, and savings from commissioning of captive power.

EDELWEISS on Nestle

EDELWEISS initiates coverage on Nestle with an ‘accumulate’ recommendation. Nestle is expanding into tier-II and III cities by introducing stock-keeping units (SKUs) below Rs 10. Also, its turnover from innovations/renovations, positioned on the health and wellness platform (priced at a substantial premium to existing products) has increased fivefold over the past few years. The turnover is expected to remain at high levels, going forward, on the back of the company’s strong product pipeline. At the current market price, the stock is trading at P/Es of 28.9x and 23.5x to CY08E and CY09E earnings, respectively. Nestlé is trading near the upper end of its recent band of 23-27x forward earnings. Edelweiss believes these levels are sustainable, given Nestlé’s strong growth and defensive nature of its business. Amidst volatile capital market conditions, the stock looks attractive over the long term. Edelweiss has valued Nestle at 26x CY09E earnings, which results in a target price of Rs 1,830. It expects Nestlé’s earnings to witness a compounded annual growth rate (CAGR) of 25.5% over CY07-09E.

MERRILL Lynch on Jaiprakash Associates

MERRILL Lynch has maintained a ‘buy’ rating on Jaiprakash Associates (JPA), but has reduced the target price to Rs 335 from 395. This is because it has reduced the value of Yamuna Expressway due to indefinite delay in the proposed Greater Noida International Airport, higher expressway cost and lower real estate realisations till FY11E. This can impact development of realty at three (3,750 acres) of the five land parcels (6,250 acres) of JPA’s Yamuna Expressway located in and around Noida airport. Hence, Merrill Lynch has removed these parcels from the valuations till visibility emerges. It has also factored in a higher cost of the expressway at Rs 7,400 crore on higher land/construction costs and lower realisation assumptions on the Noida land bank till FY11E on continued weakness in the realty market in National Capital Region (NCR). Key triggers are: a) Improved macro situation — lower inflation/rates; b) Execution of power/infrastructure projects on time; and c) Monetisation of realty land bank.

Stock Views on Mahindra & Mahindra, Dabur, Reliance Power

Merrill Lynch on Mahindra & Mahindra

WHILE Merrill Lynch has reiterated its ‘underperform’ rating on Mahindra & Mahindra (M&M), it has revised the price target to Rs 536 from Rs 499 due to additional value of listed subsidiaries, and a 4% lower dilution on assumed non-conversion of foreign currency convertible bonds (FCCBs). Merrill Lynch has the following concerns: Unexciting overall prospects of core business, restricted by highly competitive and margineroding utility vehicles segment, as well as substantial investments, which will dilute earnings and return parameters. Over the next three years, capital outlay is estimated at Rs 9,000 crore on an existing base of Rs 7,000 crore. Around 50% of the company’s investments are expected to be related to acquisitions/joint ventures, possibly in new forays, or where the management’s capability is yet to be proven, for example two-wheelers, auto parts etc. Standalone capital expenditure (capex) surge will sharply increase fixed overheads, and therefore, drag down mediumterm profitability, as well as the return ratio.

HSBC on Dabur

HSBC has assigned an ‘overweight’ rating to Dabur India with a price target of Rs 110. The recent sluggishness in the share price can be attributed to the slowdown in growth for foods from 20%+ earlier to around 15% in the past few quarters. However, since the integration with the consumer care division (CCD) has been completed, and supply chain issues have been sorted out, the foods segment is set to return to 20%+ growth in the next quarter. This may be the trigger that the market seeks to re-rate the stock. HSBC has valued Dabur at 21x FY10E earnings per share (EPS) of Rs 5.25 to get a target price of Rs 110. Dabur has averaged a 12-month forward price-earnings (P/E) multiple of 24.6x over the past two years with minimum and maximum P/Es of 17.1x and 29.9x, respectively. The stock is currently trading at 21.1x FY09E EPS. Given its robust business model, which is well-diversified over a large number of segments, with brands targeted at each category of consumers, Dabur is currently trading below its deserved multiple.

BNP Paribas on Reliance Power

BNP Paribas has initiated coverage on Reliance Power by assigning a ‘reduce’ rating. Reliance Power is a power utility at an early stage of development with revenue expected to start only in FY10, when its first power project becomes operational. The company has an ambitious plan to become the second-largest power generator in India by adding ~31 gigawatts (gw) of capacity by FY16. However, the company faces significant headwinds as only one project has attained financial closure. Further, 66% of the land required for its projects is yet to be acquired. Its hydroelectric projects are in very early stages of development with the risk of being shelved. BNP Paribas believes that Reliance Power will find it difficult to prevent project cost escalations on rising equipment and construction costs. Rising interest rates and a global credit crunch can increase debt costs above the company’s estimates.

Stock Views on DLF, Suzlon Energy, Sesa Goa, GAIL

DEUTSCHE Global Markets view on DLF - Ratings Hold

DEUTSCHE Global Markets Research has downgraded its ratings on DLF to “hold” because of weakening demand, falling property prices and tight financial markets. The firm has reduced its revenue forecasts for the company for the next two years to 19% and 25% owing to delay in execution of the projects, lower product prices across verticals, and deterioration in product mix in favour of low-margin mid-end housing. Increase in construction costs and other expenses (staff, SG&A) due to new launches, says Deutsche Global, has lead to significant margin compression. Hence the firm has cut profit estimates of the company by approximately 24% and (approx.) 29% for the next two years. Deutsche has reduced the NAV (net asset value) per share from Rs 700 to Rs 532.

MERRILL Lynch on SUZLON ENERGY - Rating Buy

MERRILL Lynch has maintained its “buy” rating on Suzlon saying the company remains on track for material scale-up in operations across the wind turbine value chain. Suzlon, says the Merrill note, has pre-poned its purchase of Martifer’s 22.48% stake in REpower for a pre-determined price of 270 million pound sterling. “This acquisition shall consolidate Suzlon’s holding in REpower to (approx.) 90%, enough to press for a domination agreement, which is key for integrating REpower and derive synergy benefits from a unified product and market strategy,” the note said. Merrill has valued Suzlon’s wind business at 18.5 times estimated 1-year-forward earnings, at Rs 296 per share. “This is conservative given it is 20% and 25% discount to its current PER (price to earning) and peers respectively. Suzlon’s 71.3% stake in Hansen is valued at Rs 76 per share at 10% discount to the price objective of 330 pence,” the note added.

CITI Investment on SESA GOA - Rating Sell

CITI Investment Research has initiated coverage on Sesa Goa with a “sell” recommendation saying that most positive triggers for the stock are already priced in. The future iron ore price hikes, says Citi, are expected to be substantially lower relative to FY09 and risks of government intervention to contain inflation remain as downside risks for the stock. At the price target of Rs 145, the note says, Sesa Goa would trade at 3.8 times 12-month forward PE (price-to-earning). “The PE multiple is at a discount to global majors (forward PE of around 7-9 times), justified given their relative size, diversified product mix and higher market cap,” the Citi note said. Sesa Goa, says Citi, has significant growth plans and is part of an industry with strong pricing power.

ICICI Securities on GAIL - Rating Buy

ICICI Securities has maintained its “buy” rating on the stock saying the company will benefit from gas grid expansion and improved visibility on gas supply. Post-commencement of NGG (national gas grid) operations, says ICICI Securities, GAIL’s returns may settle below its recent average as the future growth will likely be skewed toward annuity earnings from transmission. “Assuming the absence of growth in the existing business beyond FY11E, GAIL’s RoCE (return on capital employed) is likely to be 16.4% in FY16E versus 14.8% in FY09E,” the note said. ICICI Securities expects GAIL’s EBITDA CAGR (compound annual growth rate) at 12.3% and net income CAGR at 8.6% over FY08-11E, driven by gas transmission business, expected to grow at 16% revenue CAGR through FY08-11E (estimated).

Stock Views on Tata Steel, Idea Cellular, Tata Chemicals, Lupin, ONGC

CLSA on Tata Steel - RATING: OUTPERFORM



CLSA maintains ‘outperform’ rating on Tata Steel, but lowers its target price to Rs 745. Steel prices have recently corrected by $30-40/tonne across regions, with parallel declines in spot iron ore and scrap prices. A correction in steel prices in H2 CY08 was imminent, as the price hike had overshot the rise in costs. Prices have also weakened due to the seasonally weak period and rise in Chinese exports. Moreover, steel prices have remained strong, despite weak global macroeconomic indicators. While CLSA expects steel prices to decline against the backdrop of a weakening global economy, prices are unlikely to fall below $900/tonne, as marginal producers are currently operating at $850-950/tonne. CLSA’s regional steel team believes that the recent spike in Chinese exports was due to exploitation of export regulation loopholes by smaller mills. CLSA remains confident that the Chinese government will soon clamp down on exports, either by hiking export taxes, or by implementing a quota system, which should support steel prices. With 70% of its sales on a spot basis, Corus’ earnings are highly geared to spot European steel prices. Though Q1 FY09 results will benefit from the lag in re-pricing of raw material contracts, Q2 EBITDA/tonne faces a risk due to weakening steel prices, higher raw material costs and appreciation of the US dollar versus the pound and euro. While CLSA sees higher predictability for standalone earnings, Corus adds volatility in the near term for consolidated earnings, which will be reflected in the multiples. Global steel majors’ multiples have corrected since their May-June peaks.



MERRILL LYNCH on Idea Cellular - RATING: BUY



IDEA launched its mobile services in Mumbai last week. At its launch event, the company underscored Idea’s market leadership in Maharashtra and emphasised its brand values. There were no major references to pricing differentiation; the company said Idea is not a discount brand. Idea’s tariffs on launch seem broadly comparable with prevailing tariffs of other operators, barring some product innovations like unlimited on-net night speak, postpaid-cum-prepaid service etc. Potential delivery of strongerthan-consensus subscriber market share in a relatively mature market like Mumbai can boost investors’ sentiment on Idea, even though profits from its Mumbai operations can take longer to filter through. Idea aims to have ~0.8 million subscribers in Mumbai over the next 12 months and expects around 20% share of net additions in the circle. The company expects the Mumbai operations to break even in about four years and the capital expenditure (capex) for Mumbai is expected to total Rs 800 crore by March ’09. Idea’s Mumbai network encompasses 1,000 cell sites and has the capacity to accommodate 1.5 million subscribers (roughly 10% of Mumbai’s current wireless subscriber base). The company said its core network is 3Gready and has scalable IP-based transport. Ericsson is Idea’s equipment vendor for Mumbai. Merrill Lynch has a ‘buy’ rating on Idea due to the company’s improving competitive position in the domestic market and it feels Idea’s strategic efforts are in the right direction.



GOLDMAN SACHS on TATA CHEMICALS - RATING: BUY



CMP: Rs 311 GOLDMAN Sachs initiates a ‘buy’ recommendation on Tata Chemicals with a target price of Rs 435, implying 29% potential upside. With its soda ash assets spread across geographies serving key consumption regions and an improving regulatory environment in the fertiliser industry, the market has not yet fully factored in Tata Chemicals’ earnings capability. Goldman Sachs expects 49% EBITDA CAGR over FY08-FY10E, on the back of earnings accretion from its US soda ash facility and improving margins in the soda ash and fertiliser segments. Tata Chemicals is trading at 4.9x FY10E EV/EBITDA, against its historical trading band of 6-8x forward EV/EBITDA. The company’s key catalysts include: 1) Q2 FY09 results, which should provide insight into Tata Chemicals’ soda ash realisations across geographies; 2) Sustained strength in global urea and di-ammonium phosphate (DAP) prices that lead to improvement in fertiliser margins; and 3) Potential greenfield expansion plans in the urea segment. Goldman Sachs’ values Tata Chemicals’ core business using EV/EBITDA methodology and the investments in its group companies at 25% holding company discount to market value. Goldman Sachs values the fertiliser/soda ash/other chemical segments at 6x/5.5x/6x FY10E EV/EBITDA, respectively. The 12-month target price of Rs 435 implies FY10E EV/EBITDA of 6x.



CITIGROUP on Lupin - RATING: BUY



LUPIN’S deal to market Forest Labs’ AeroChamber Plus line of products to US paediatricians will allow it to leverage its branded field force and strengthen its franchise in the paediatrics segment. While the upside may not be on the same scale as Suprax, this will be accretive, given the lack of incremental spend on development or at the front end. Lupin has entered into a multiyear agreement with Forest to promote the latter’s value holding chamber (VHC) product AeroChamber Plus to paediatricians. AeroChamber Plus is the most prescribed holding chamber for use with inhaled asthma medications in the US. As per IMS ’07 data, two-thirds of all prescriptions for the product are written by paediatricians. Lupin’s 50-strong sales force in the US currently promotes only Suprax and has room to add two more products, thus implying no incremental spend for this deal. Lupin will make an undisclosed marketing margin up to a certain threshold level of sales, beyond which, the upside will increase. Citigroup expects margins to be in the range of 10-15% — while this is lower than Lupin’s core business margins, the lack of incremental regulatory, development or front-end spend makes this an accretive deal. Citigroup believes this deal — besides being a small step towards offsetting the impact of a potential generic threat to Suprax — highlights the scope for multiple growth drivers within Lupin’s business model.



MOTILAL OSWAL on ONGC - RATING: BUY



THE government had indicated that subsidy-sharing in FY09 will be fixed at Rs 45,000 crore for upstream companies (ONGC shares ~86%), Rs 20,000 crore for OMCs and oil bonds issuance at Rs 94,600 crore. Motilal Oswal estimates the net shortfall in under-recovery sharing (post upstream, OMC and oil bonds sharing) for FY09 to be below average Brent price of $118/bbl (Rs 42 per dollar). If oil prices remain below $118/bbl, the announced subsidy-sharing will sufficiently cover under-recoveries and thus, reduce the risk of higher sharing by ONGC. Brent price has fallen by 23% from its peak in July and if the trend continues, ONGC (with fixed subsidy burden) will be adversely affected. Assuming the subsidy burden at Rs 38,700 crore for FY09, ONGC’s EPS can reduce by 21% to Rs 98.2 if average FY09 Brent price declines from $110/bbl to $100/bbl. However, at fixed subsidy burden, ONGC’s EPS will rise by 21% to Rs 150 at Brent price of $120/bbl. The Chaturvedi committee has recommended capping ONGC’s realisation at $75/bbl (100% special oil tax on realisation above $75/bbl). The recommendations are unlikely to be fully implemented, given other harsh measures like frequent hike in retail fuel prices. Motilal Oswal remains positive on ONGC with a long-term perspective, as the bulk of its NELP acreage is yet to be explored, and thus, has huge potential for oil & gas discoveries. But in the near term, the stock performance will reflect movement in oil prices. At current oil prices, a movement either ways will pose a risk to earnings. The stock trades at 8.6x FY09E consolidated EPS of Rs 124.

Stock Views on THERMAX, BHEL, BOMBAY RAYON

Kotak Securities on THERMAX - TARGET PRICE: RS 540

Kotak Securities has assigned an ‘accumulate’ rating to Thermax, saying that recent orders will drive the company’s revenue growth in FY10. “The company is witnessing robust order inflows from steel and sponge iron makers. Thermax has also expanded its prequalifications in refineries. The company indicated that orders have been trickling in from sugar distilleries and the polyester sector,” the Kotak note to clients said. “Thermax is currently trading at 17.9 times and 14 times FY09 and FY10 earnings, respectively," the note added, cautioning that near-term growth was likely to be subdued.

Citigroup on BHEL - TARGET PRICE: RS 2,025

Citigroup Global Markets has downgraded its rating on BHEL from ‘buy’ to ‘hold’, citing limited upsides from the current levels with re-spect to the new target price. Citi has revised the target price for BHEL to Rs 2,025 from Rs 1,642 earlier to factor in the increase in the earn-ings estimates over FY10E-12E by 8-9%. “BHEL has hiked its order inflow guidance to Rs 500 billion from Rs 40,000-50,000 crore earlier. It has bagged Rs 192 billion of orders so far in FY09E and is well on course to meet its full-year order inflow guidance,” the Citi note to clients said. It expects BHEL’s earnings per share (EPS) to grow at a com-pounded annual rate of 27% over FY08-11(estimated) with RoE (return on equity) at 28-31% levels.

Merrill Lynch on BOMBAY RAYON - TARGET PRICE: RS 450

Merrill Lynch has initiated coverage on Bombay Rayon Fashion with a ‘buy’ rating and price target of Rs 450 citing attractive valuations. “Valuations are inexpensive at 9 times FY10 (estimated) earnings, given strong growth outlook and high RoE at 24%,” the Merrill Lynch note to clients said.

Stock Views on VOLTAS, CORPORATION BANK, STERLITE INDUSTRIES, INDIA CEMENTS, IRB INFRASTRUCTURE

CITIGROUP on VOLTAS - RATING: SELL

CITIGROUP rates Voltas as ‘sell/medium risk’ with a target price of Rs 121. Voltas, a Tata group company, is the market leader in India’s heating, ventilation and air-conditioning (HVAC) segment, having 28% market share in electromechanical projects. But domestic demand is decelerating across all its divisions. Citigroup sees increased risk to the company’s earnings if the market environment worsens. It expects overall margins to be in the range of 7.5-8.3% over the next three years. Voltas’ target price is set at 15x September ’09E forward EPS and is supported by forecasts of 27% earnings CAGR for FY07-10E and 29-33% return on equity (RoE). At 15x September ’09E, Voltas will trade at a discount to power equipment stocks like Bhel and engineering & construction companies such as L&T. The 15x September 09E multiple is lower than the average one-year forward P/E of 22x over the past three years — reflecting reduced growth outlook. Key downside risks include: international projects risks, termination of principal agent relationships, increasing competition in domestic and international markets, manpower shortages and material prices. Key upside risks include: stronger-than-expected performance driven by the international business, and turnaround of the domestic operating environment.

INDIABULLS SECURITIES on CORPORATION BANK - RATING: BUY

INDIABULLS Securities reaffirms its ‘buy’ rating on Corporation Bank with a target price of Rs 335, which is 21% more than its current market price. The bank’s operating profit grew by a healthy 16.5% y-o-y in Q109. But net profit grew by merely 4.1%, primarily due to mark-to-market (MTM) losses during the quarter. While growth in net interest income (NII) was hit due to compression in net interest margin (NIM), other income, which grew at 14%, supported growth in operating profit. An increase in business productivity reduced operating expenses, further improving profitability. But pressure on NIM may ease in the next few quarters as the bank hiked its benchmark prime lending rate (BPLR) by 50 bps in August. Moreover, the CASA ratio has been improving consistently on the back of an aggressive increase in the number of branches. This should help maintain, if not increase, the bank’s NIM. There has been a sequential reduction in the bank’s net and gross NPAs. The bank is likely to maintain its asset quality, given that it is not aggressively focused on the priority sector.

MERRILL LYNCH on STERLITE INDUSTRIES - RATING: NEUTRAL

MERRILL Lynch remains ‘neutral’ on Sterlite Industries due to weak zinc outlook. The long-pending decision on the Lanjigarh bauxite mines in Orissa finally came through in Sterlite’s favour. This development is more positive for the parent company, Vedanta Resources, than for Sterlite. But it will have a positive impact on Sterlite too. The approval for the mine indicates the promoter group’s ability to execute growth projects in the country, where mining approvals are typically difficult to secure. Vedanta is setting up a 1.1-million tonne (mt) alumina refinery and 500-kt ally smelter in Orissa. Lanjigarh bauxite mines have estimated reserves of 77 mt and are located 5 km from the refinery. Sterlite will mine the bauxite and sell to Vedanta on a transfer pricing basis. The mine development is expected to take around nine months and will make Vedanta a fully integrated low-cost producer of ally. The benefit from this project is relatively small for Sterlite, since it has only a 29.5% stake in this project, and it will account for a mere 5% of Sterlite’s consolidated profit in FY10. Sterlite is trading at 11.1x FY09E. On MTM spot zinc price of $1,733/tonne, it is trading at 13x FY09E. Merrill Lynch believes the sharp year-to-date stock correction already factors in the zinc price crash. Given that zinc prices are now lower than the marginal cost of production, Merrill Lynch believes the probability of supply closures is rising. In addition, speculation on minority stake buyouts in the company’s zinc and aluminum subsidiaries is building up.

JM FINANCIAL on INDIA CEMENTS - RATING: HOLD

JM FINANCIAL recommends ‘hold’ rating on India Cements (ICL) and values the company at a target enterprise value/tonne of $100 to arrive at its June ’09 target price of Rs 168. JM Financial expects 20.3% and 13.2% yo-y growth in revenue for ICL in FY09E and FY10E, respectively. EBITDA is estimated at Rs 1,060 crore and Rs 1,070 crore in FY09E and FY10E, respectively, resulting in EBITDA margins of 29.0% and 25.7% in that order. ICL undertook corporate debt restructuring (CDR) in FY03, when the cement industry was passing through difficult times and ICL had debt:equity of 4.4x. As the cement sector’s prospects improved, ICL repaid most of its debt and its debt:equity stood at 0.5x in FY08. Subsequent to the CDR, the company has done equity issues that have led to a large capital base, thereby lowering sustainable return on capital employed (RoCE) at the corporate level to 11.8%. ICL is the key player in the South, where it enjoys higher realisations and consumption growth of 11.74%, compared to the all-India growth rate of 10% in FY08. ICL currently trades at 5.7x EV/EBITDA, P/E of 8.1x and EV/tonne of $98 for FY10.

LEHMAN BROTHERS on IRB INFRASTRUCTURE - RATING: OVERWEIGHT

LEHMAN Brothers initiates coverage on IRB Infrastructure Developers with an ‘overweight’ rating and a March ’09 price target of Rs 195. IRB is one of the largest road developers in India, and has 14 BOT road projects. The company’s key strength is its in-house construction capability that enables it to capture the entire economic value of road projects, and helps it to address execution risks. Historical projects have yielded substantially high-equity internal rate of return (IRR). IRB has strong cash flows and low leverage compared to other international road developers. Its operating cash flow is strong and will improve further after commissioning of the Bharuch-Surat and Surat-Dahisar stretches. Lehman estimates cash flows before capex at Rs 1,200 crore over FY09-11. The increase in cash flow is driven primarily by a rise in toll revenue. The net debt-to-equity ratio for IRB is only 0.9, and leverage is likely to remain comfortable at 1.3 in FY10. Lehman values IRB at: (1) Road concessions at Rs 129 per share; (2) Rs 36 per share as growth factor to account for potential new projects; (3) Construction business at Rs 26 per share based on a multiple of 10x FY10 earnings estimate of Rs 87 crore; and (4) Real estate at Rs 3 per share. The stock is currently trading at a multiple of 9.4x FY10 earnings estimate of Rs 520.5 crore and 2.1x FY10 book value of Rs 2,372 crore, and at a substantial discount to its global peers. The stock is currently trading at 1.08x concession portfolio NAV of Rs 4,293.8 crore, implying that not much value has been attributed to construction, real estate and future growth opportunities in road concessions.

Stock Views on RCOM, HPCL, OPTO CIRCUITS

RCOM

CMP: RS 442.25
TARGET PRICE: RS 501

Merrill Lynch has downgraded Reliance Communications from‘buy’ to ‘neutral’on lower than expected earnings due to weak revenues from its fixed wireless division. “The size of PCO (fixed wireless public call offices) revenues comes as a surprise to us,” says Merrill Lynch, adding that the topline and EBITDA was 8% and 11% below its expectations. The foreign brokerage has cut EBITDA forecasts by 10% for the current financial year and by 20% for FY10E “owing to unlikely pick-up in PCO revenues, continuing weak elasticity in mobile min-utes and lower global-biz EBITDA margins, post-Vanco acquisition.” In the first quarter of FY09, RCOM’s overall EBITDA fell 3% QoQ against 8% QoQ EBITDA growth for Bharti, says the report. According to ML, it would be difficult for RCOM to list its tower subsidiary (R-Infratel) and its global business (R-Globalcom) in the current volatile equity environment, owing to complex revenue forecasting and difficult valuation benchmarking. Merrill Lynch has lowered its target price from Rs 725 to Rs 501.


HPCL

ICICI Securities has maintained a ‘buy’ rating on HPCL even after the company reported a recurring loss of Rs 880 crore in the first quarter of the current financial year due to lower than expected subsidy sup-port from the government and upstream companies. The brokerage expects subsidy support to increase over the year as the government has not yet accounted for the Rs 40,000 crore unallocated burden. “Though we continue to believe that the stock may remain subdued in the short term till the government decides the final subsidy burden sharing formula, the company is trading at a significant discount to the replacement value of its asset,” says the report. The brokerage also highlights the fact that risks of further increase in interest costs along with expectations of a fall in refining margins could potentially impact earnings. Positive surprise, however, on higher subsidy sharing by upstream companies and oil bonds could be a boost to stock prices, it adds. Positive news on the E&P front and implementation of subsidy reforms recommended by the Rangarajan Committee could trigger re-rating in the stock, says the report.


OPTO CIRCUITS

CMP: RS 338.35
TARGET PRICE: RS 509

India Infoline has maintained a ‘buy’ rating on Opto Circuits after it reported better than expected results for the first quarter of the current financial year. According to the brokerage, the revenue of the company surpassed its estimate and grew 84% year-on-year. “Even better was the EBITDA margin expansion of 60bps YoY and 284bps QoQ, despite the inclusion of the significantly lower margin Criticare business,” says the report. This, it goes on to add, suggests that the management was able to realise synergies faster than expected. The brokerage has raised its FY09 earnings estimate by 10%. According to the brokerage, the international healthcare business of the company grew 97% in the first three months of the current financial year.