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com March 17, 2008

Index Take Five


Scrip Reco Date Reco Price CMP Target
w Grasim 30-Aug-04 1,119 2,671 3,853
w Stock Update >> Genus Power Infrastructures
w ITC 12-Aug-04 69 186 247
w Stock Update >> ICICI Bank
w L&T 18-Feb-08 3,536 2,704 4,428
w Sector Update >> Cement w Maruti 23-Dec-03 360 807 1,230
w Ranbaxy 24-Dec-03 533 438 558

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investor’s eye stock update

Genus Power Infrastructures Ugly Duckling

Stock Update

Price target revised to Rs643 Buy; CMP: Rs385

Company details Genus Power Infrastructure Ltd (GPIL) has bought a 6 mega watt (MW) power
generation plant from Genus Power Products Ltd (GPPL). Subsequently, the
Price target: Rs643 shareholders of GPPL would receive one fully paid-up share of GPIL for every 60 fully
Market cap: Rs542 cr paid-up shares of GPPL currently held by them.
52 week high/low: Rs950/217 Equity to be diluted in the range of 1.5-1.8%
NSE volume: 34,395 The entitlement ratio decided by the board of the company (1:60 shares) would add
(No of shares) about 2.5-3 lakh shares to GPIL's equity. This addition would lead to further dilution
BSE code: 530343 of equity in the range of 1.5-1.8% from the current levels.

NSE code: GENUSOVERE Addition to its current generation capacity


Sharekhan code: GENUSOVER The 6MW plant of GPPL is based on biomass technology and the power generated
can be sold as well as used for captive purposes. This will be a win-win situation
Free float: 0.9 cr
since by selling the power generated the company would boost its revenues whereas
(No of shares)
by using the same captively would save its power cost. GPIL would also enjoy tax
benefits under section 80-IA as per which the income from power generation is non-
Shareholding pattern
taxable for ten years of operations. Currently, the company has three operational
windmills with a total power generation capacity of close to 2MW.
Maintaining our FY2009 estimate
Promoters
Others 37%
The additional capacity of 6MW could add to the profits of the company. However,
45% the equity would also be diluted by 1.5-1.8%. Consequently, we are maintaining our
estimate at the moment and waiting for more clarity on the deal before making any
changes. However we are downgrading our price target for the stock to Rs643.
Institutions Foreign
16%
GPIL is a leading manufacturer of electronic energy meters. In our view the company
2%
is well poised to benefit from the government's plan to spend on the country's power
transmission and distribution sector. At the current market price the stock discounts
our FY2009E fully diluted earnings per share by 7.2x. We maintain our Buy
Price chart
recommendation on the stock with a price target of Rs643.
Key financials
1000
900 Particulars FY2005 FY2006 FY2007 FY2008E FY2009E
800
700 Net sales (Rs cr) 131.7 212.8 357.1 534.4 723.9
600
500 Net profit (Rs cr) 7.4 14.8 27.3 54.4 87.6
400
300 % y-o-y growth 141 101 84 99 61
200
Shares in issue (cr) 1.01 1.01 1.28 1.64 1.64
Jun-07

Dec-07
Mar-07

Mar-08
Sep-07

Diluted EPS (Rs) 7.3 14.7 21.2 33.2 53.5


% y-o-y growth 141 101 45 56 61
PER (x) 52.7 27.1 18.1 11.6 7.2
Price performance Book value (Rs) 23.1 39.1 58.2 178.2 230.2
P/BV (Rs) 16.7 9.9 6.6 2.2 1.7
(%) 1m 3m 6m 12m EV/EBIDTA (x) 27.6 16.7 12.5 8.1 6.1
Dividend yield (%) 0.4 0.4 0.4 0.4 0.4
Absolute -23.7 -36.3 -17.0 72.1
RoCE (%) 21.4 23.3 23.4 22.8 23.9
Relative -13.9 -19.1 -17.9 35.3 RoNW (%) 31.6 36.4 36.5 18.7 23.3
to Sensex
The author doesn’t hold any investment in any of the companies mentioned in the article.

Investor’s Eye 2 March 17, 2008 Home Next


investor’s eye stock update

ICICI Bank Apple Green

Stock Update

Clarification on difference in reported margins Buy; CMP: Rs757

Company details With a view to allay concerns over the difference in margins reported by ICICI Bank,
India and the Prudential group UK, ICICI Bank had arranged a conference call to
Price target: Rs1,528
provide clarification. Following are the key takeaways:
Market cap: Rs83,800 cr
Clarification on margin reporting
52 week high/low: Rs1,465/743
The bank acknowledged the variance in margins and clarified the reasons behind the
NSE volume: 36.3 lakh
(No of shares)
same.

BSE code: 532174 w The difference in margins reported by the joint venture (JV) partners is primarily
NSE code: ICICIBANK due to the difference in the treatment of expenses. While ICICI has amortised
branch establishment expenses over multiple years, the Prudential group has
Sharekhan code: ICICIBANK
taken one-time charge, leading to the variance in the margins. ICICI Bank
Free float: 69.7 cr management continues to maintain its new business achieved profit (NBAP) margin
(No of shares) guidance of 18-19% for the current fiscal.

Shareholding pattern w In terms of outlook, both the partners ICICI Bank and the Prudential group are
optimistic about the growth prospects. The partners have pumped in additional
Public & Rs400 crore in the venture last month.
othres
12.8% Recent capital infusion values firm at $14 billion
MF & FI Foreign ICICI Bank highlighted that both the JV partners (ICICI Bank and Prudential UK) have
16.9% 40.0% jointly infused about Rs400 crore in the life insurance JV at an agreed valuation of
$14 billion (~Rs56,000 crore) in February 2008, up from $11.7 billion in December
2007. The revised valuations are around 13.8% higher than what is factored by us in
ADR the sum-of-the-parts valuation, leaving scope for an upside to our assumption.
30.3%
Thus, the market seems to have over-reacted to the confusion related to the NBAP
Price chart margins of ICICI Bank's insurance subsidiary. We maintain our Buy call on the stock
with price target of Rs1,528.
1500 Key financials
1400
1300 Year to 31 March FY05 FY06 FY07 FY08E FY09E
1200
1100 Net profit (Rs cr) 2005.2 2539.9 3110.1 4015.7 5120.8
1000
900
800
Shares in issue (cr) 73.7 89.0 89.9 110.7 110.7
700
EPS (Rs) 27.2 28.5 34.6 36.3 46.3
Jun-07
Mar-07

Mar-08
Dec-07
Sep-07

EPS growth (%) 2.5 4.9 21.2 4.9 27.5


PE (x) 27.8 26.5 21.9 20.9 16.4
P/PPP (x) 18.9 17.3 11.6 12.0 8.0
Price performance
Book value (Rs/share) 170.3 249.6 270.3 423.9 454.3
P/BV (x) 4.4 3.0 2.8 1.8 1.7
(%) 1m 3m 6m 12m
Adj book value 149.9 237.7 247.9 388.9 416.4
Absolute -24.4 -27.2 -3.2 7.0 P/ABV (x) 5.0 3.2 3.1 1.9 1.8

Relative -14.8 -7.6 -4.3 -15.9 RoNW (%) 18.1 13.6 13.3 10.5 10.5
to Sensex
The author doesn’t hold any investment in any of the companies mentioned in the article.

Investor’s Eye 3 March 17, 2008 Home Next


investor’s eye sector update

Cement
Sector Update

Strong demand continues in North and South

In February 2008, cement industry recorded sales of 14.72 Particulars Feb Feb % YTD YTD %
million metric tonne (MMT) against 13MMT in February 2008 2007 chg 2008 2007 chg
2007, thereby registering a growth of 13.2% year on year South
(yoy). On a year-to-date (Y-T-D) basis, the industry posted Production 4.69 4.16 12.6 49.10 44.95 9.2
a growth of 7.7% and sold 150.56MMT of cement during Dispatches 4.71 4.28 10.1 49.03 44.95 9.1
2007-08. Capacity Utilisation 99% 93% 96% 91%

East
Strong demand absorbs supply
Production 2.05 1.88 9.2 20.81 19.83 4.9
To give a view of the demand scenario, we have highlighted Dispatches 2.10 1.91 10.0 20.78 19.78 5.1
the following key points: Capacity utilisation 94% 90% 88% 87%
w Capacity utilisation in North India was at 104% and Central
dispatches were more than what was produced for the Production 2.24 1.96 14 22.56 21.76 3.7
second consecutive month, implying lower stock levels Dispatches 2.25 1.91 18 22.11 21.33 3.7
with the companies. Also looking at the Y-T-D numbers Capacity utilisation 102% 92% 95% 93%
we see that the northern region has grown more, both
in terms of production and dispatches, clocking a growth Among the large-cap stocks, ACC recorded the highest year-
of over 12%. on-year (y-o-y) increase of 19% in cement dispatches, as
three of its plants were undergoing technical modification
w Capacity utilisation in West India was at 105%. However that affected the production during the corresponding period
dispatches were less than production implying some last year. As a result ACC could sell only 1.42MMT during
stock build-up with the manufactures in the region. February 2007 and sold 1.69MMT during February 2008.
w Capacity utilisation in South India was at 99% and Grasim Industries also recorded a 10% growth in dispatches
dispatches were more than production leading to lower and sold 1.39MMT cement.
stock levels. The companies operating in this region
Amongst the Sharekhan mid-cap universe, Shree Cement
achieved a Y-T-D growth of over 9% both in production
reported the highest dispatch growth of 71.1% to 0.65MMT
and dispatches.
mainly on account of a 1.5 million tonne per annum (MTPA)
w Capacity utilisation in East India was at 94%. However cement capacity going on stream and a 2MTPA grinding
more cement was sold than produced implying some unit getting operational during the current fiscal. Orient
reduction in stock levels. Lower capacity utilisation rate paper reported a growth of 17.6% to 0.2MMT, while Madras
on a Y-T-D basis implies that demand is not as robust cement reported a growth of 17% to 0.48MMT.
as is in the other parts of the country.
We expect the cement industry to sustain high volumes in
w Central region also saw a 102% capacity utlisation rate,
March, as the construction activity is at its peak during
though production was almost equal to dispatches.
the month, traditionally. As far as cement prices are
Regison-wise dispatches for February 2008 concerned, metros saw some increase in prices. Comparing
Particulars Feb Feb % YTD YTD % sequentially, we have seen that during February 2008,
2008 2007 chg 2008 2007 chg Mumbai witnessed an increase of Rs2 a bag to Rs248, and
North in Chennai the prices strengthened by Rs3 to Rs259 a bag.
Production 3.15 2.52 24.9 32.76 29.12 12.5 In Hyderabad the prices declined by Rs4 to Rs216 a bag.
Dispatches 3.17 2.45 29.3 32.73 29.03 12.7 On year-on-year basis prices were up by 22% in Chennai,
Capacity utilisation 104% 93% 102% 99% 14% in Hyderabad, 11% in Mumbai and 10% in Delhi and
West Kolkata. The movement in wholesale price index (WPI) of
Production 2.54 2.47 2.8 26.0 24.7 5.2
cement indicates that on an average cement prices in India
Dispatches 2.49 2.45 1.6 25.9 24.7 4.8
were up by 9% yoy. Apart from this, in March bulk cement
Capacity Utilisation 105% 102% 98% 93%

Investor’s Eye 4 March 17, 2008 Home Next


investor’s eye sector update

prices went up by Rs4-8 per bag, reflecting the hike in the in kiln and for firing their captive power plants. Madras
excise duty, as announced in the Union Budget 2008-09. Cement is increasing its wind power capacity to protect it
self from high fuel prices. JK Cement will also commission
Cement prices for 50 kg bag (Rs) a 13 mega watt waste heat recovery plant to keep a check
City Feb Feb % yoy Jan % mom on its fuel bills.
2008 2007 chg 2008 chg
Mumbai 248 224 11 246 1 South African coal export prices (USD/MT)
Delhi 227 207 10 227 0 120
Kolkata 230 210 10 231 0 110

Price (USD/MT)
100
Chennai 259 213 22 256 1
90
Hyderabad 216 189 14 220 -2
80
Source: CMIE 70
Cement prices in major cities 60
270 50
40
260

Jul-07
Feb-07
Mar-07

Feb-08
Jun-07

Jan-08
Nov-07
Dec-07
Sep-07
May-07

Oct-07
Aug-07
Apr-07
250
240
230
Source: Bloomberg
220
210 Baltic dry Index
200 11500
190
180 10000
Nov-07
May-07
Feb-07

Mar-07

Feb-08
Sep-07

Jan-08
Dec-07
Jun-07

Aug-07
Apr-07

Jul-07

Oct-07

8500

7000
Mumbai Delhi Kolkata Chennai Hyderabad
5500
Source: CMIE

Cement WPI (Rs) 4000

Nov-07
May-07

Feb-08
Feb-07

Sep-07
Mar-07

Jan-08
Aug-07

Dec-07
Apr-07

Jun-07

Jul-07

Oct-07
225

220
Source: Bloomberg
215

210 Going ahead, with crude hovering around USD110 a barrel


and Indian basket also close to USD105 a barrel, there is
205
an up ward bias towards the prices of pet coke and diesel.
200 Increase in domestic diesel prices will lead to an increase
195 in the freight cost, which will worsen the cost concern of
Nov-07
May-07

Feb-08
Feb-07

Sep-07
Mar-07

Jan-08
Aug-07

Dec-07
Apr-07

Jun-07
Jul-07

Oct-07

the industry.

Outlook
Source: Bloomberg
Higher budget allocation for infrastructure spending would
On the cost front, cement industry witnessed a sharp lead to strong demand for cement industry. In the Union
increase in fuel prices. The price of South African coal in budget 2008-09, allocation for Bharat Nirman has been
February 2008 was up 121% yoy to USD114 per metric tonne. increased by 27% to Rs31,280 crore, while the allocation
The landed price of International coal has also increased for National Highway Development Project (NHDP) has been
due to an increase in the freight rates. The Baltic dry Index raised by 19.3% to Rs12,966 crore. However on the flip
was up by 60% yoy in February 2008. Players such as India side, in the long run the demand from another user industry,
Cement, bulk of whose requirement is met by imported real estate, may see a slow down due to concerns relating
coal, has purchased two ships and is on the lookout for to affordability. Also, about 75-80% of demand for office
opportunities for investment in coal mines abroad. space and 40% of demand for residential space is generated
Domestic prices of coal have increased by 10-15%. The by Information Technology (IT)/IT enabled services (ITES)
prices of domestic pet coke were also up by more than 30% sector. Currently, IT firms are struggling to get a better
yoy. Cement manufacturers use pet coke and coal as fuel clarity of the IT budgets of their clients for the calendar
year 2008.

Investor’s Eye 5 March 17, 2008 Home Next


investor’s eye sector update

Unlike the past when the key driver for the earnings of Company-wise dispatches for February 2008
cement companies were prices, we believe that volumes Company Feb-08 Feb-07 % yoy
and cost saving will drive the earnings of the cement ACC 1.69 1.42 19.0
industry in FY2009. Some of the players that have added Ambuja Cement 1.46 1.36 7.4
new capacities in the recent past are Shree Cement, Orient UltraTech 1.33 1.32 0.8
Paper and Madras Cement. Whereas, companies like Grasim Grasim 1.39 1.26 10.3
and UltraTech are in the process of commissioning new Jaiprakash Associates 0.61 0.60 1.7
capacities shortly. Orient Paper 0.20 0.17 17.6
Madras Cement 0.48 0.41 17.1
India Cement 0.82 0.77 6.5
JK Cement 0.29 0.29 0.0
Shree Cement 0.65 0.38 71.1
Industry 14.72 13 13.2

The author doesn’t hold any investment in any of the companies mentioned in the article.

Investor’s Eye 6 March 17, 2008 Home Next


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