Buy Diamond Power Infra; target Rs 175: Sunidhi Securities

Sunidhi Securities is bullish on Diamond Power Infrastructure (DPIL) and has recommended buy rating on the stock with a target price of Rs 175 in its February 23, 2012 research report.

"Diamond Power Infrastructure (DPIL) introduced the Aerial Bunched Cables (ABC), a combination of Aluminum Conductors, Polyethylene Insulated Conductors and Alloy Conductors. DPIL is engaged in five business verticals-cables (low, high and extra high voltage), conductors, transformers, towers and various EPC projects-where it undertakes planning, designing and commissioning of turnkey transmission and distribution projects. With more than 100 distributors across 16 Indian states, DPIL selling its products under 'Dicabs' brand is one of the fastest growing EPC companies in the country. DPIL had invested Rs 12.5 crore in Apex Electricals (power transformer manufacturer with a capacity of more than 12,500 MV, manufacturing up to 220 KV class) as part of the rehabilitation scheme. Its induction as Apex Electricals' promoters makes DPIL as one of the largest transformer companies in India. DPIL has an installed capacity to manufacture 34,300 km of low voltage cables annually that can transmit power of up to 1.1KV. Similarly, it also has manufacturing capacity of 5,800 km of high voltage cables with a carrying capacity of up to 132KV and extra high voltage cable of 2,000 km which can transmit over 220KV."

"During Q3FY12, standalone net profit surged by 5.3% to Rs 30.8 crore (Rs 29.2 crore) on 42.4% higher sales of Rs 539 crore (Rs 379 crore). OP and NP margin stood at 11.4% and 5.7% as against 13.6% and 7.7% respectively in Q3FY11. (YoY) During 9MFY12, standalone net profit advanced by 6.5% to Rs 93.9 crore on 23% higher sales of Rs 1365.0 crore. OP and NP margin stood at 12.8% and 6.9% Vs 14.1% and 7.9% respectively in 9MFY11. DPIL has acquired 6.3MW Windmills near Kandla, Gujarat from Suzlon Energy. It took this decision as after commencement of the wind power capacity company's power bills will get setoff and will result in large tax break. This is company's green initiative, which is focusing on alternate sources of energy to meet its energy demand."

"DPIL today has emerged from a conductor company to a full circle integrated EPC company, having presence in cables, conductors, transformers and transmission towers. Headquartered in Vadodara, DPIL has manufacturing presence across 9 units, all located in Vadodara. DPIL focused on higher value EPC projects and even forged joint ventures with three highly respected companies in the industry, which will enable it to bid for higher KV EPC contracts. In terms of segmental revenues, Cables division accounts for nearly 31% of the total revenues, followed by EPC division with 28% cent of the share. Owing to the sustained demand for HT and LT cables, the cables division nearly tripled its net revenues in FY11 over FY10. The growth was largely driven by increased demand for HT cables, which also translated into higher margins. With the capacities online, the focus would be to ensure efficient running of operations, across the segments. DPIL's value-added products, coupled with larger capacities and improved realisations will enable it transcend the next level of sustained growth. On the industry front, DPIL expects robust demand for all its products on account of better economic sentiment and government's ongoing thrust on the power sector. DPIL will steadily consolidate its presence in EPC space to cater to higher KV contracts; thereby improving further on the company's order book which also reflects optimism. At the CMP of Rs 127, the share is trading at a P/E of 3.6x on FY12E. We maintain BUY with a target of Rs 175 in the medium term," says Sunidhi Securities research report.

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Just a word of caution.

Greek's fine capability to simply splurge money endangering Eurozone in quick sand, US's snail speeded economic recovery, China's secretive game plan, national political war, Iran's stubborn play leading the crude prices to space, ballooning fiscal deficit, enormous expectations from the budget. In short enormous UNCERTAINTY. Worst is not yet over.

Since the PIIGS issue became an intergral part of our global survival, I have pondered over the thought that, how big an economic catastrophic event can a small sovereign nation like Greece subject the world to. The answer always seemed foggy, since the Eurozone issue has transformed into something like a three dimensional chess. Seems very complex and mindblowingly complicated.

Another question that pops up in my mind is that when a common man who is in deep debt

(his entire monthly income also falls short to pay up his monthly interest payments), asks for more debt, how many banks are willing to provide him with more capital, with more debt? The answer would be none. Why? Because the banks have their risk management policies in place and they adhere to it while giving out loans. Do they follow the same policies while lending out to a sovereign nation? The answer is a painful no. Painful not just for the banks but for many throughout the globe. Why? Because the simple lending and relending fuels a small wave to become a massive tsunami which is quite disasterous to everyone around.

Now lets get back to how a small nation like Greece's debt issue is proving time and again to be so economically sensitive. The problem is that no one knows what will be the possible repurcussions on Greece and the domino effect on the other Eurozone nations as well as the global economy in case of default or for that matter even a bailout.

If it is bailed out by agreeing to the terms and conditions of trioka, Greece's debt to GDP ratio will come down from 160% to 120% by 2020. Still, is 120% of debt to GDP ratio sustainable? With severe austerity measures, will it be able to honor its future debt repayments? Its a big question mark, because chains of habit are too hard to be broken. The same habits that has got Greece to such a harsh fate. In order to bail out Greece, the private creditors have agreed to a 70% haircut for the Greek bonds. Can ECB do away with a 70% haircut? The answer is again a no because if will prompt other debtor nations to ask for a bailout too. And there are indeed other Eurozone nations standing in line for a possible bailout. Its quite messy and extremely frustrating.

Next comes US. Just a thought, how many of us actually remember US's debt woes amidst Eurozone's debt woes. I would say very few. Can ignorance at this level be a bliss? I say, ignorance in this case can be brutally fatal. US's debt has reached a level of 15.3 trillion, a level equal to its GDP and the economic recovery is frustratingly slow and the debt is expected to grow at a much faster rate than the GDP. The 2008 crisis led by Lehman was of mere $600 billion dollars and its repurcussions pushed US in such huge debt. Imagine a multifold severe crisis in US, even before people have come out of the 2008 crisis. My mind gives up because the severity will be exponentially dangerous.

Looking at China, I absolutely have no views, because of its secretive nature. The great wall of China was indeed built with a clear intention, not let the outsider know what is going on inside. I being an investor, would never put a single money in such a country, but unfortunately all don't think the same. Some of the greatest investors have their huge bets on China. But I believe in one thing, something that goes up rapidly have to face the strong forces of gravity. Now will it be a hard landing or a soft one for China, time will tell.

Coming back to us, India, like any globalized economy, is not immune to the global woes. In addition to it, there are many internal back drags. To begin with, we have an embarrassing political war going on, which puts India in a very bad shape in front of the world. This is a total dampener especially when we operate in a global economy and have to put our best foot forward to derive the maximum utility off this global reach. Our fiscal deficit for the first 9 months of the current financial year have already far exceeded the budgeted 4.6%, owing to the skyrocketing crude prices (owing to Libya unrest and now Iran's stubborn act), fuel subsidy, fertilizer subsidy and many more dampeners. The expectations from the forthcoming budget are at a peak, fulfilling all those peaked out expectations will indeed be a very difficult task.

In midst of all the gloom, I still bet high on India. But be cautious, place your bets carefully. Srategize by keeping the worst case scenario in your mind. Because, we unlike China are not dependent on exports, we have a huge internal demand to cater to. We need to harness that strength to derive the maximum growth. We can write our own fate and not let our fate be in someone else's hands. Play safe. Play well.

Source: http://purvismultibaggerstockideas.blogspot.in/

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Investor's Eye: Special - Q3FY2012 FMCG earnings review; Update - Retail

 

Investor's Eye [February 21, 2012]  Summary of Contents SHAREKHAN SPECIAL Q3FY2012 FMCG earnings review  Key points Volume growth momentum sustained: Q3FY2012 was yet another quarter of strong top line growth for the fast moving consumer goods (FMCG) companies, with the volume growth momentum sustaining during the quarter. Despite a gloomy macro-economic environment almost all the FMCG companies under our coverage (except for Zydus Wellness and Tata Global Beverages Ltd [TGBL]) posted a steady volume growth during the quarter (Hindustan Unilever Ltd [HUL]-about 9% year on year [YoY]; Marico-about 16% YoY; GSK Consumer Healthcare [GSK Consumers]-about 11% YoY; Bajaj Corp-about 20% YoY) sustained during the quarter. The improvement in rural penetration, innovations and renovations in portfolios along with adequate media spends were some of the key drivers of growth for the FMCG companies. The growth in rural India was ahead of that in urban India for most of the FMCG companies under our coverage.  Gross margins improved sequentially: The quarter saw the FMCG companies witnessing a sequential improvement in their gross profit margin (GPM), as the prices of the key inputs declined from their highs in the recent past. HUL continues to curtail its advertisement spends to show a better picture at the operating level while companies like Marico and GSK Consumers continued to support their brands and new launches with brand building and promotional activities. With a strong top line growth, the higher other income aided the FMCG companies under our coverage (ITC, GSK Consumers, Bajaj Corp) to post a robust bottom line growth during the quarter. HUL, Marico and GCPL beat Street's expectation: It was yet another quarter when HUL beat our as well as the Street's expectations by posting a robust operating performance. HUL's top line grew by 16.4% YoY with a volume growth of 9.0% YoY during the quarter. The operating profit margin (OPM) improved substantially due to the trimming of advertisement spends, which aided the operating profit and the adjusted profit after tax (PAT) to grow by 41.9% YoY and 30.3% YoY respectively during the quarter. Marico maintained its above 20% organic revenue growth in Q3FY2012. This was driven by mid-teen volume growth on the back of a strong volume growth in the domestic consumer business. The consolidated top line of Marico grew by 29.4% YoY. However, higher depreciation charges and tax outgo led to a 13% year-on-year (Y-o-Y) bottom line growth (ahead of our expectation). Godrej Consumer Products Ltd (GCPL) results are ahead of our expectation mainly on account of an exponential top line growth an OPM of around 20% (which is better than expected). Outlook and valuation We expect the top line growth of the FMCG companies to sustain in strong double digits, driven by a mix of sales volume and price increases in the coming quarters. The prices of commodities (the key raw materials for FMCG companies) have remained volatile in the past few months. If these correct from the current levels, we can see a substantial improvement in the margins in the coming quarters. Also, going ahead any significant correction in the commodity prices might cause the FMCG companies to shift their focus back on improving the sales volume growth.  We retain our view of remaining selective in the FMCG space with preference for the companies having a strong balance sheet, better earnings visibility and decent valuations from the current levels. Hence we maintain our penchant for ITC and GSK Consumers among the large-caps, and for GCPL and Bajaj Corp in the mid-cap space. We also like Marico largely on account of its sustained strong performance in the domestic market and a three-pronged strategy of driving growth by entering into categories through new product launches, acquisitions in the domestic as well as international markets, and enhancing the reach of the existing portfolio. SECTOR UPDATE Retail      India on the cusp of a consumer revolution-collaboration the way forward We attended the Confederation of Indian Industry (CII)'s "National Retail Summit 2012" recently. The summit was represented by leading veterans from the fast moving consumer goods (FMCG) and retail industries as well as consultants and investment stalwarts. The following are the key takeaways from the summit: All the speakers from the FMCG as well as retail segment unanimously agreed that India is on the cusp of a consumption revolution that is yet to make inroads (approximately Rs3.6-trillion consumption opportunity by 2020). Many categories in food as well as fashion either do not exist in India today or have very low penetration, thus paving the way for increasing categories and robust category growth (a case in point mentioned was of chocolate where India's one-year consumption equals Brazil's one-day consumption). As players discussed the opportunity that exists, they also spoke of the challenges to be faced, like inadequate supply chains, logistic issues, and the ever discerning and ever changing consumer and the more complex shopper. The discussion ended with the participants agreeing for a collaborative effort between FMCG and retail stakeholders that would aid India to unleash the consumption wave. Speakers across verticals spoke on various topics, we present below some of the thoughts that flowed during the summit.  We remain bullish on India's consumption space: The FMCG and retail players are both in a sweet spot to cash in on this great opportunity through a collaborative effort, creating newer categories and newer products for consumption. Food, education, leisure and healthcare are the segments to see a revolution (growing 3-4x from the current levels). Thus, we maintain our bullish view on the consumption space. Click here to read report: Investor's Eye   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.

Regards, The Sharekhan Research Team myaccount@sharekhan.com Manage your newsletter subscriptions

 

--
Regards
Tushar N Surekha
KPMG

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Balaji Amines plans Rs 70cr capacity expansion

Balaji Amines rallied as the company planned to invest Rs 70 crore in its Solapur unit expansion. The company has been planning to implement a hotel project worth Rs 40 crore in Solapur currently.

The company looks to expand the capacity of Methyl Amines from existing 22,000 tonne per annum capacity to 55,000 tonne per annum (adding more than 33,000 tonne per annum Methyl Amines capacity).

State Bank of Hyderabad will fund around Rs 48 crore for the expansion and rest will be from internal accruals, said D Ram Reddy, director commercial of Balaji Amines.

The production of Methyl Amines is scheduled to streamline by January 2012. Another product Di-Methyl Amine Hydrochloride would come into production by April 2012. The third product Dimethyl Formamide will come into stream by July 2012, he told CNBC-TV18 in an interview.

Reddy further indicated that the first plant of Methyl Amines, which will start by January, will contribute to the last quarter with a three-month revenue for the current year.

As the amount of Rs 48 crore would be via debt, the total debt on the books will be around Rs 79 crore from loans.

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Diamond Power to spend Rs 753 cr to expand production setup

Moneycontrol Bureau

Diamond Power Infrastructure plans to spend Rs 753 crore to expand its current manufacturing plant to produce conductors and medium voltage cables at Vadodra.

The expansion is to be completed over 30 months in three phases beginning April 2013.

Diamond Power said it will fund the investment via mix of rupee term loan, external commercial borrowings and supplier credit aggregating to Rs 440 crore and the rest will be via internal accruals.

Of the planned Rs 753 crore investments, Diamond Power said it is already investing Rs 50 crore in a 6.3 mw windmill project, which is expected to go on stream in March this year.

The company plans to expand its conductors manufacturing capacity to 150,500 mtpa from 50,500 mtpa at present. It will increase its rod manufacturing capacity to 122,000 mtpa from 32,000 mtpa currently.

Additionally, it aims to put up additional three lines, each with an installed capacity of 2,500 kms, in medium voltage cables. This will increase its capacity to 12,700 kms, Diamond Power said on Tuesday.

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Investor's Eye: Update - Bharti Airtel, Mahindra & Mahindra, Cadila Healthcare, IL&FS Transportation Networks, Bajaj Corp, Opto Circuits India, Zydus Wellness

---------- Forwarded message ----------
From: Sharekhan Fundamental Research <newsletter@mailer.sharekhan.com>
Date: Thu, Feb 9, 2012 at 12:50 AM
Subject: Investor's Eye: Update - Bharti Airtel, Mahindra & Mahindra, Cadila Healthcare, IL&FS Transportation Networks, Bajaj Corp, Opto Circuits India, Zydus Wellness
To: tushar.surekha@gmail.com

 

Investor's Eye [February 08, 2012]  Summary of Contents STOCK UPDATE Bharti Airtel  Cluster: Apple Green Recommendation: Buy Price target: Rs450 Current market price: Rs354 Price target revised to Rs450 Result highlights Results below expectation: Bharti Airtel (Bharti)'s Q3FY2012 earnings fell short of our as well as the Street's expectations. The adjusted net profit for the quarter stood at Rs1,003 crore (-15.7% quarter on quarter [QoQ]) and the same was 23% lower than our expectation. The biggest negative surprise for the quarter came in the form of a 140bps QoQ contraction in the operating margins. The consolidated operating margin for the quarter came in at 32.2% vs our expectation of 34.4%. Non mobile business the biggest culprit for the underperformance: The core business (India mobile business + Africa business) that forms approximately 90% of the company's total business, performed decently on the revenue as well as the margin front. The non mobile business saw a deterioration in the performance for the quarter - telemedia, digital TV and enterprises, all witnessing margin pressure, bringing down the overall consolidated margins by 140bps for the quarter. Some negative elasticity seen in India operations; Africa continued with the growth: On the mobile business front, Bharti undertook a price correction in all the 22 circles. As a result we saw negative elasticity in the system whereby despite Q3 being a seasonally strong quarter, the volume did not witness a pick-up (traffic growth remained flat at +0.8% QoQ). The management re-iterated that the business environment remains very competitive and if need be felt Bharti may change its strategy to regain lost market share. On the Africa business front, revenue as well as profitability continues to chug well, but at a slower pace than expected. Incorporating results; adjust earnings for FY2012 & FY2013: Incorporating a weak Q3FY2012 performance and building for lower than earlier expected margin expansion in the African venture, we have likewise adjusted our FY2012 and FY2013 earnings downwards by 19.2% and 13% respectively. Further any clarity on pending regulatory issues is likely to drive stock performance in the near term. Intact core business performance and likely improvement in competitive environment keeps us bullish: The core business continued to deliver well. There were signs of improving competitive intensity in the market place (read Supreme Court verdict on cancellation of 122 competitors' licenses). Further the potential in the Africa business keep us bullish on Bharti. We maintain our Buy rating on the stock with a revised price target at Rs450 (8.1x FY2013 EV/EBITDA). Mahindra & Mahindra  Cluster: Apple Green Recommendation: Hold Price target: Rs740 Current market price: Rs687 Price target revised to Rs740 Q3FY2012 PAT in line, adjusted for one-time exchange reversal Our profit after tax (PAT) estimate for Mahindra & Mahindra (M&M) at Rs625 crore was the lowest among such estimates. The company reported a stand-alone profit after tax (PAT) of Rs662 crore. This includes a one-time gain of Rs39.86 crore related to the reversal of an exchange difference charge. Adjusting for this extraordinary gain, the company reported a PAT of Rs635 crore, which is marginally higher than our estimate. Highlights of Q3FY2012 A 30-basis-point sequential improvement in the earnings before interest and tax (EBIT) margin for the tractor business has surprised us. Our concerns of deteriorating profitability of the tractor division due to higher raw material prices were unfounded. A favourable operating leverage was witnessed in the staff cost which moderated to 5.4% of sales, the lowest in the last six quarters. The other expenses after adjusting for the Rs39.86 crore of exchange reversal were the lowest ever for any quarter at 8.6% of the sales. The Q3FY2012 automotive EBIT disappointed us and was the lowest in two years at 8.2%, ie lower by 170 basis points quarter on quarter (QoQ), in spite of a 10% sequential jump in the automotive realisations.  The operating profit margin (OPM) adjusting for exchange reversal was the lowest in two years at 11.7% on account of a sharp increase in the raw material cost. Outlook and valuation We value M&M stand-alone company at Rs550 a share, discounting the FY2013E earnings by 13x. We have given a lower discount to the stock as we expect the parent company's margin to drop to lower double digits in FY2013 as the proportion of the traded products manufactured by Mahindra Vehicle Manufacturers Ltd (MVML) increases. We have valued MVML separately at Rs55 a share. The total value of the subsidiaries including MVML is estimated at Rs190 a share. We arrive at a price target of Rs740 a share for the company and recommend Hold on the stock.   Cadila Healthcare  Cluster: Emerging Star Recommendation: Hold Price target: Rs734 Current market price: Rs661 Disappointment on many fronts Result highlights Q3FY2012 results broadly in line; forex loss of Rs34 crore hurts net profit: Cadila Healthcare (Cadila) reported an 18.5% year-on-year (Y-o-Y) rise in its net sales to Rs1,383 crore for Q2FY2012. The same is better than our estimate of Rs1,323 crore. However, a 317-basis-point Y-o-Y decline in the operating profit margin (OPM), higher fixed costs and a foreign exchange (forex) loss of Rs34.17 crore affected the net profit, which declined by 7.9% to Rs149.2 crore. However, ignoring the forex loss, the net profit would grow by 10% year on year (YoY) to Rs183 crore.  Disappointment in most segments: In this quarter the company recorded a 12% Y-o-Y decline in the revenues from the consumer business (Zydus Wellness), virtually flat revenues in Europe and a meagre 2.8% Y-o-Y growth from the emerging markets. However, a higher offtake in the revenues from the joint ventures and the contribution from the newly acquired entities supported the growth.  We fine-tune our estimates: Taking our cues from the M9FY2012 results and management interactions, we fine-tune our revenue and profit estimates. Accordingly, we have reduced our earnings estimates by 3.6% and 5.3% for FY2012 and FY2013 respectively, mainly to factor the revenue decline in certain segments as well as the higher fixed costs.  We downgrade the stock to Hold with a reduced price target: We reduce our price target by 24% to Rs734 mainly to factor the weaker performance of the consumer business, the slower ramp-up in the US market and the pressure on the balance sheet due to multiple acquisitions. The stock is currently trading at 14x FY2013E. Our new price target is 16x FY2013E earnings per share (EPS). IL&FS Transportation Networks  Cluster: Emerging Star Recommendation: Buy Price target: Rs330 Current market price: Rs208 Strong performance continues Result highlights Strong revenue growth at 74% (in line with estimates): IL&FS Transportation Networks Ltd (ITNL)'s consolidated revenues for Q3FY2012 grew by a robust 74% year on year (YoY) to Rs1,268 crore led by a strong execution across a few projects, especially the Jharkhand project which gained momentum during the quarter. The Jharkhand project is expected to get completed in Q4FY2012 before its scheduled date. The construction revenue grew by 124% YoY to Rs905 crore. On the other hand, toll collections were steady across projects and grew by 32% YoY to Rs112 crore. Almost all the projects clocked a double digit Y-o-Y growth. There are a few regulatory and land clearance related issues in certain projects, which the company feels, would be sorted soon, thereby pushing up execution. Elsamex on the other hand continued to disappoint with its performance registering a de-growth of 23% YoY and 14% quarter on quarter (QoQ) on the revenue front mainly due to non renewal of completed contracts that the company had in hand. However, going ahead, with new projects coming in, traction is expected on this front as well.  Margins contract higher than expectation: The operating profit margin (OPM) contracted to 25.3% as compared to 29.8% in Q3FY2011 and 28.4% in Q2FY2012. During the quarter there were a couple of one time items namely 1) fees paid towards consultancy charges for exploring a few shortlisted international projects and 2) provisioning of some non recoverable debt on account of Elsamex. Both of these aggregate to an amount of Rs50 crore which led to margin contraction. Subsequently the EBITDA has declined on a Q-o-Q basis by 10% (though it is up 47% on a Y-o-Y basis).  PAT growth at 42% in line with estimates: The net profit came in line with our expectation at Rs101.2 crore registering a growth of 42%. The profit after tax (PAT) growth was limited vis a vis revenue growth due to shrinking of the EBITDA margin and with interest charges surging by 61% YoY and 10% QoQ. The interest charges are expected to remain high in case of annuity projects under construction. This is because as the execution progresses, additional debt is drawn, thereby increasing the debt component.  New project wins- after a long time: The company finally bagged a new project after a haul of 18 months, which is of four-laning of the Kiratpur to Ner-Chowk section of the NH-21 in the state of Himachal Pradesh. The project is on toll basis with a concession period of 28 years including the construction period of three years and is worth Rs1,900 crore. The company had quoted a grant of Rs134.57 crore for the project. Furthermore, Elsamex, a subsidiary of ITNL also bagged a project worth Rs265.3 crore from the Ministry of Civil Works, Transports & Communications, Government of Haiti, for rehabilitation works on the National Route 3 between Hinche and Saint Raphael to be completed in 30 months. The contract value is of Euro40.72 million (approx. Rs2,65.3 crore). The company also acquired a 49% stake in an operational Chinese project, Yu He Expressway Company - Chongqing Expressway Group, for $160 million during the quarter.  Chonquing to start consolidation in Q4: ITNL had acquired the Chonquing highway project in November 2011. This is an operational project. Thus the consolidation of the books beginning from December 2011 would result in incremental revenue growth as well as better margins for the company (since operational projects have better margins compared to under construction projects).  Estimates revised upward for FY2013 We have revised our revenue estimates downwards for FY2012 by 3% mainly to factor in a poor performance of Elsamex and regulatory hurdles faced in a couple of projects. However for FY2013, we have upgraded our top line estimates by 3% led by consolidation of the Chonquing project. Further the consolidation would reflect in a healthy PAT growth of nearly 9% in our estimates on account of top line growth as well as expansion in margins. Maintain Buy The recent project wins and a Chinese acquisition are very positive as the company had not won any big road build operate transfer (BOT) project over the last 12-18 months. Thus, the absence of any new win was the key concern and an overhang on the stock. ITNL had not been bidding aggressively unlike the other players to bag projects which we believe was a prudent step. Now these project wins have allayed the concerns and provide revenue visibility. Further the continuous strong execution across projects provides impetus to growth. Meanwhile, given its strong balance sheet, it is also looking at inorganic growth, like the recent acquisition of a Chinese project. We believe that given its strong parentage and scale of operations, the company stands to gain from the expected consolidation in the sector. We maintain our Buy rating on the stock with a price target of Rs330. However we have not considered the recent project win in Himachal Pradesh in our estimates which would be incorporated post the financial closure, thereby resulting in a further upside in our estimates. At the current market price the stock is trading at 8.7x and 7.1x its FY2012E and FY2013E earnings respectively. Bajaj Corp  Cluster: Ugly Duckling Recommendation: Buy Price target: Rs142 Current market price: Rs114 Growth momentum continues Result highlights Results largely in-line, strong revenue growth sustained: Bajaj Corp's Q3FY2012 results were largely in line with our expectation mainly on account of sustenance of strength in the top line growth and higher than expected other income during the quarter. Q3FY2012 is the third consecutive quarter of around 30% year on year (YoY) revenue growth, which was largely driven by strong volume growth. The only disappointment during the quarter was the decline in operating margins, which dropped by 434bps YoY to 25.5% (which is broadly in line with our expectation). Net sales grew by 30% YoY: Bajaj Corp's revenues grew by 30% YoY in Q3FY2012, largely driven by a strong volume of 20.5% YoY. The price-led growth stood at ~10.0% during the quarter. Bajaj Almond Drops, the flagship brand of Bajaj Corp, registered a strong volume growth of more than 20.4% YoY. Q3FY2012 is the fourth consecutive quarter where the company witnessed an above 20% YoY volume growth in a quarter. The strong volume growth can be attributed to consumers upgrading to light hair oil, improvement in rural penetration and share gains from value-added hair oil brand.  Margins are down Y-o-Y: The prices of key raw material such as LLP, glass bottle and vegetable oil were up by 29.3% YoY, 7% YoY and 19.3% YoY respectively during the quarter. The company has not implemented any price hikes in the past few quarters. Hence the gross margins were down 162bps to 54.2%. However the same improved sequentially by 53bps. The decline in the gross margins along with increase in ad-spends as a percentage of sales resulted in a 434bps drop in the operating margins to 25.5%. Hence the operating profit grew by 11.8% YoY to Rs28.6 crore. PAT grew by 18.2% YoY: Though the operating profit grew by 11.8% YoY, the reported profit after tax (PAT) grew by 18.2% YoY to Rs28.9 crore mainly on account of higher than expected other income during the quarter. The other income grew by 52.0% YoY to Rs7.9 crore, largely on account of higher yields on investment done by the company. Outlook and valuation We have fine-tuned our FY2012 and FY2013 earning estimates to factor higher than expected volume growth in Bajaj Almond Drops and slightly higher than expected other income. We expect the mid to high teens volume growth to sustain in the coming quarters as the company is focusing on enhancing its rural penetration and tapping the consumers upgrading to light hair oil category. Having said that, increasing competition in the light hair oil category remains a key risk to our volume growth assumption. Any new product launch or acquisition in the domestic or international markets would act as a key trigger for the stock. We maintain our Buy recommendation with a price target of Rs142. At the current market price the stock trades at 14.2x its FY2012E earnings per share (EPS) of Rs8.0 and 11.7x its FY2013E EPS of Rs9.7. Opto Circuits India  Cluster: Emerging Star Recommendation: Buy Price target: Rs355 Current market price: Rs268 Q3 performance better than expected Result highlights Performance better than expected: Buoyed by the contribution from Cardiac Science, which contributed only one month's revenue in Q3FY2011, the net sales of Opto Circuits India (Opto) jumped by 46.4% year on year (YoY) to Rs611.3 crore in Q3FY2012. On a quarter-on-quarter (Q-o-Q) basis, the net sales jumped by 8.8%. However, the operating profit margin (OPM) declined during the quarter by 143 basis points to 28% of net sales mainly due to a ramp-up in the Malaysian facility which increased the administration costs. The net profit during the quarter jumped by 30.7% YoY to Rs125 crore, which is better than our estimate of Rs110 crore.  Bonus shares to expand equity by 30%: The company has announced a plan to issue three bonus shares for every ten equity shares held in the company. Accordingly, equity would be expanded by 30% (5.6 crore shares to be issued on the current number of shares of 18.6 crore).  We revise our earnings estimates: Taking our cues from the M9FY2012 results and management interactions, we have revised our revenue earnings estimates for FY2012 and FY2013. Our revised earnings estimates are higher by 10% and 7.9% for FY2012 and FY2013 respectively.  Valuation and view: The stock is currently trading at 9.1x FY2013E. We maintain our price target at Rs355 (implies 12x FY2013E EPS) and Buy rating on the stock Zydus Wellness  Cluster: Emerging Star Recommendation: Reduce Price target: Rs323 Current market price: Rs389 Maintain Reduce with revised price target of Rs323 Result highlights Disappointment continues: It is the third consecutive quarter where Zydus Wellness has posted a disappointing performance at the operating level. The intensified competition in the face wash and scrub category and slowdown in premium categories such as Sugarfree has resulted in a sharp decline in the revenue during the quarter. The operating margin, affected by higher input costs and high year-on-year (Y-o-Y) ad-spends, witnessed a decline of 266bps.  Everyuth feeling the heat of competition: This is the first time since its inception that, Zydus Wellness has registered a double-digit decline in its net sales, which are down 17.1% YoY (in Q3FY2012) to Rs75.3 crore (lower than our expectation of Rs98.7 crore). The Everyuth brand is feeling the heat of intensified competition from multinationals such as HUL and Johnson & Johnson in the face wash and scrub categories in the domestic market. Hence the Everyuth brand has registered a double digit decline (likely to be more than 20%) in revenues during the quarter. On the other hand Nutralite and Sugarfree registered a single digit revenue growth during the quarter. Margins decline YoY: The gross margins declined by 100bps YoY and 609bps QoQ to 61.9%. This is largely because of the change in the revenue mix, as the Everyuth brand registered a sharp Y-o-Y decline during the quarter. Also the contribution of Nutralite to overall sales picks up in Q3 every fiscal. Nutralite's margins are lower in comparison to other brands such as Everyuth and Sugarfree. The decline in gross margins along with higher ad-spends (as a percentage of sales) on a Y-o-Y basis resulted in a 272bps Y-o-Y decline in the operating profit margin (OPM) to 28.3% (slightly better than our expectation of 27.6%). Hence the operating profit was down 24.0% YoY to Rs21.3 crore during the quarter. PAT declined by 3.4% YoY: The company is reaping tax benefits from the Sikkim facility, which resulted in a drop in the tax rate from 33.2% in Q3FY2011 to 15.9% in Q3FY2012. Hence the tax expense declined sharply by 63.3% YoY to Rs3.6 crore during the quarter. This has helped in arresting a sharp drop in the reported profit after tax (PAT) during the quarter. The PAT declined by 3.4% YoY to Rs18.9 crore (lower than our expectation of Rs23.0 crore) in Q3FY2012. Enhancing focus on improving sales The company is planning to rework on it strategies to get back to the double-digit revenue growth trajectory. It is planning to support Everyuth with higher media and promotional spends in the current intensified competitive environment. The company is promoting the small pack (sachet priced at Rs14) of Peel Off in the domestic market. The company is also planning to launch new variants in Nutralite to push sales at modern retail levels. Actilife (nutritional milk additive) is being sold at all-India level and is performing in line with the company's expectations. The company expects its contribution to sales to improve significantly by FY2015.   Downward revision in estimates We have significantly revised downwards our earning estimates for FY2012 and FY2013 by 13.8% and 18.8% respectively to factor in the sharp decline in revenues during the quarter. However any significant improvement in the performance of any of the key branches would act as an upside risk to our earnings estimates.   Outlook and Valuation It is the third consecutive quarter of dismal performance by Zydus Wellness. Though the company is focusing on regaining its double digit growth trajectory, we think it will take some time for it to happen considering the increasing competition in the face wash and scrub categories and the prevalence of an uncertain macro environment (which has affected the sales growth of premium categories). In view of near term uncertainties on growth prospects of the company, we have reduced our target multiple on the stock to 18x (which is at a 15% discount to its mean price earning multiple of 21.0x). Hence our revised price target stands at Rs323 (based on 18x its FY2013E earning per share [EPS] of Rs17.9). We maintain our Reduce rating on the stock. At the current market price the stock trades at 25.1x its FY2012E EPS of Rs15.5 and 21.7x its FY2013E EPS of Rs17.9.   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Investor's Eye

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Tushar N Surekha
KPMG

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Diamond Power Infrastructure Ltd. – Growth Growth Growth

Overview:

Diamond Power Infrastructure Ltd. is India’s largest integrated manufacturer of Power Transmission equipment and turnkey services provider (EPC). DPIL was founded in 1970 and formally known as Diamond Cables Ltd. In India, transmission and distribution (T&D) space has huge scope vertically and DPIL has wide range of products to fulfill the growing demand in this space. DPIL is engaged in mainly five business, namely Cables (LT,HT and EHV), Conductors, Transformers, TL (Transmission lines) and various EPC projects. Company started its first manufacturing facility in Vadodara and today it has 4 manufacturing locations at Vadodara and Silvassa. Diamond Power Infrastructure ltd. Is one of the most diversified and well managed Power (T&D) transmission and Distribution Company in India

INVESTMENT THESIS

Backward Integrated: Diamond Power Infrastructure Ltd. which is only integrated EPC company has its own manufacturing unit of Cables (LT,HT & EHV), Transformers towers, Conductors and Transformers. 80% of the project cost is completed in its own manufacturing units. This gives big advantage to DPIL. Most of the other EPC Companies like KEC Int., KEI Ind., etc. outsource 60%-80% of the work. Hence, DPIL has a huge and unique competitive advantage (Lower cost of transportation, higher margins and stable supply) with other EPC companies.

Healthy Order Book: Current Order book of the company stands at Rs. 1600 Crore, which provides revenue visibility for next 15-18 months. DPIL has strong order intake in the conductor segment. In Q3FY11, Company received two orders from Power grid and SMO-SPIC in conductor segment. In Cable segment, Order books are more like In-Out way. Company only maintains order intake for next few months. Due to conservative bidding, EPC segment order book was decreased. If Raw material prices remain stable then DPIL which is only integrated EPC Company with strong order book can post good set of numbers in FY12.

Expansion and Joint Ventures: Company is continuously looking for further expansion. Company expanding its business in some high margin segment like Power transformers, EHV and HT Cables. Company has recently entered in transmission lines for power transmission which will enable to increase revenue in next few years. In Addition, DPIL has Joint venture (JV) with Skoda (India) Pvt. Ltd and Schaltech Automation Pvt. Ltd. Earlier, company was only qualified to bid up to 220 KV but with the help of these two JV, company can bid for 440 KV space and going forward it will open and expand revenue for the company in coming quarters.

Robust Growth: With the help of 150 Crore through QIP and warrants, Company has increased the cash level to bid for high volume projects and will also help more in working capital. In Conductor segment, DPIL is expected to grow multifold in FY12 due to increase in capacity and two new order intakes. Recent JV and expansion will help good growth in top line and will further diversify its business. DPIL is expected to start production of EHV cable from Q1FY12 which could translate more than 10% revenue in FY13. Apex Transformers which is DPIL subsidiary is expected to give further advantage to its existing business.

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