Market Updates 16th Jun11

 

Market Outlook

 

The daily candle chart of the Nifty shows a bullish inverted hammer with a long upper shadow, indicating a resistance  on advances during the session. The bulls must overcome the  intraday highs forcefully to dominate the session. The downward sloping trendline remains the nemesis of the bulls and as long as rallies occur below this trendline, they are corrective pullbacks alone. The Nifty (spot) must stay above the 5510 levels sustainably with volumes and open interest expansion to rally intraday. On the flip side, sustaining below the 5490 levels may trigger a fresh bout of declines.

 

Technical Calls

 

Buy ATUL Ltd. 189.20 target  195

Buy Power Grid 103.00 target 110

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Momentum Calls

 

Buy Mannapuram 56.00 target 60

Buy Rel. Capital 548.00 target 555

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Investment

Motilal Oswal has recommended `Buy` on Idea Cellularwith a price target of Rs 85 as against the current market price(CMP) of Rs 73 in its report dated June 14, 2011. The broking house gave the following investment rationale:

Adjusted revenue and EBITDA up 6% QoQ: Idea Cellular`s 4QFY11 results were marginally above estimates although reported numbers were higher due to year-end adjustments. Adjusted revenue and EBITDA grew 6% QoQ vs our estimate of 4%. Adjusted EBITDA margin remained flat QoQ at 24% (in line). 4QFY11 results included Rs 340 million non-recurring revenue (part of other operating income) and Rs380m network cost write-backs. Reported PAT of Rs 2.7 billion (3% YoY and 13% QoQ) was boosted by favorable adjustments at EBITDA level (reported QoQ EBITDA growth of 13.4% to Rs 10.75 billion) but off-set by higher D&A (partial 3G licence fee amortization likely) and tax rate (17.5% for the quarter v/s 7% in past two quarters). Idea expects to incur a capex of Rs40b in FY12 vs Rs 32 billion in FY11 (excluding 3G spectrum fee).

Operating metrics strong but churn remains high; 3G subscriber base at 1.55m: Adjusted revenue grew 6.2% QoQ driven by 9% QoQ traffic growth (vs 6 / 8% for Bharti / Vodafone) and 3% QoQ RPM decline (2.4% / 2.8% forBharti/Vodafone). Idea reported 4QFY11 ARPU of Rs161 (in line), down 4.2% QoQ (vs QoQ decline of 2.5-2.8% for Bharti/ Vodafone). MoU per subscriber declined 1% QoQ to 397. Monthly churn increased to 10.7% from 10% in 3QFY11. The company launched 3G services in 9/11 circles during March/April 2011; 1.55m subs (1.7% of total) have already upgraded to 3G.

EBITDA estimates largely unchanged; 22% EBITDA CAGR over FY11-13; Buy: We expect business momentum to remain strong driven by flattening tariff declines, continuedstrong traffic growth and increased data usage post 3G rollouts currently underway. We expect 22% EBITDA CAGR for Idea over FY11-13E. Our EBITDA estimates are largely unchanged but earnings are downgraded 20-40% to reflect higher depreciation and finance costs led by higher capex and increase in interest rates. Idea trades at an EV/EBITDA of 7.8x FY12E and 6.2x FY13E. Maintain Buy with a price targetof Rs 85.

 

 

Investment

 

Kotak Securities has recommended `Buy` on Unity Infraprojects with a price target of Rs 109 as against the current market price (CMP) of Rs 71 in its report dated June 15, 2011. The broking house gave the following rationale:

Strong performance during Q4FY11
Company`s revenue growth during Q4FY11 and full year FY11 was better than our estimates and was led by strong orderbook of nearly Rs 36 bn. Company`s order book was diversified across water and irrigation (35%), civil (52%) and roads (13%). Since significant proportion of order book came from high margin segments such as water and irrigation (having operating margins of nearly 14-14.5%) and civil (having operating margins of nearly 12.5-13%), margins for the full year for the company stood at 13.4% for FY11 vis-à-vis 13% in FY10. Borrowings of the company have witnessed an increase which has resulted in increasing the interest outgo. Along with this, during fiscal 2011, interest rates have moved up by 350 bps which also resulted in increasing the interest outgo for the company. Company expects to reduce overall borrowings by end of FY12 either by selling stake in Nagpur real estate project or by raising funds through ECB or foreign loans. For Goa project, status quo is maintained due to pending clearances from the government and for Pune project, company has received one tranche of payment of Rs.150 mn and remaining two tranches are expected in Feb 2012 and Feb 2013 respectively.

Order inflow scenario
Though order inflow for the company during FY11 remainedbelow our estimates at Rs 12.28 billion but it expects order inflow to ramp up significantly from the current levels during FY12. Company has guided for an order book growth of 30-35% during FY12.  It has a current order book of Rs 36 billion and is L1 in orders worth Rs 8.5 billion with Rs 6.5 billion worth of orders spread across building, Rs 1 billion in water and remaining in transportation. It has already received orders worth Rs 5.3 billion in the current fiscal till date and expects the L1 orders to get materialized in next one month`s time.

Financial outlook
> Based on the improvement expected in order inflows during FY12, we also introduce FY13 estimates and expect revenues to grow at a CAGR of 12% between FY11-FY13. We believe that our estimates are much conservative than the guidance given by the management for 25% growth in revenues during FY12.

> We continue to maintain our estimates for operating margins to be around 12.5% going forward to factor in increased competition as well as higher commodity prices.

> We expect net profits to grow at a CAGR of 10% between FY11-FY13.

Valuation and recommendation
> At current price of Rs 71, stock is trading very attractivevaluations of at 5.3x and 4.6x P/E and 4.4x and 4.2x EV/EBITDA multiples for FY12 and FY13 respectively.

> We thus maintain our price target of Rs 109 on FY12 estimates and maintain BUY on the stock.

 

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Disclaimer : This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. And not soliciting any action based upon it. The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon such. We or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report

 

 

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