Oil & Gas Sector: Upstream Best Investment for Fuel Price Hike

• Vidyadhar estimates that the FY12 subsidy would be $31bn with the Brent crude price at $105/bbl if the domestic price of subsidized products is not raised. However, he believes that some fuel price hike appears imminent soon after the State elections which end on May 10th. A cut in import duty on auto fuels is also not ruled out. These steps would reduce the FY12 subsidy by $4.1-10.3bn. The upstream companies are the best investment for fuel price hikes as they bear 33% of the subsidy and will get a benefit of 33% of the subsidy cut. Even Refining and Marketing companies ('R&M') company share price should react positively to the fuel price hike. Vidyadhar believes that Oil India is the best investment for the fuel price hike. http://research1.ml.com/C?q=C2e-j!tHGE7CHXwy9d75Qg__&s=kamdch

NTPC (NTPC IN): Lost Captive Coal Mines; Maintain Underperform and Cut PO to Rs192/share (200)

• The Ministry of Coal ('MOC') has decided to take back 15 mines including 5 mines of NTPC/JVs with geological reserves of 3.1BT due to delay in the development of captive coal mines. NTPC and its JV are set to lose 5 of its 8 captive coal blocks allocated in 2006-07 as the MOC has decided to de-allocate 14 coal blocks and 1 lignite block of nine companies for delay in development. This amounts to a big loss of strategic option value to NTPC as the lost mines could have powered 6-7GW of capacity without depending on the inefficiences of Coal India/Railways. Consequently, NTPC will have to queue up with other IPPs for coal linkages. Bharat cuts the EPS by 2% from FY15 onwards.
• Bharat maintains Underperform with an NPV based PO of Rs192/share. http://research1.ml.com/C?q=bYlMMkDPBpX6J5DaO7gY4A__&s=kapoar

Mundra Port (MSEZ IN): Abbot Point Coal Terminal Acquisition; Weak Q4 #s; Maintain Neutral with a PO of Rs159/share

• The company has won a 99 years lease for 80MTPA Abbot Point Coal Terminal ('APCT') in Queensland, Australia for AUD$1.8bn. APCT is an operating profit making coal terminal with 20MT of volumes expandable to 50MT by June11 and 80MT by FY17. The terminal has an FY11 revenue of AUD$110mn and EBITDA of AUD$59mn. Bharat believes that profits will pick up from FY16 post the expiry of the operation and maintenance contract with Xstrata and 30MTPA expansion for Adani Enterprises for evacuation of the Galilee coal block. Mundra is scaling up its port business beyond Gujarat and bagged ports at Goa, Hazira and close to signing a deal for a port in East India. It has secured the right to develop a 30-60MTPA coal terminal at Dudgeon Point, Queensland and may set up a 35-50MTPA port to evacuate coal from Tanjung Enim mines for Adani Enterprises.
• Bharat maintains a Neutral with an SOTP based PO of Rs159/share valuing the Mundra port business at Rs128/share, SEZ at Rs17/share and Others at Rs14/share due to the initial lower return on acquisitions and slow recovery in private capex at the SEZ. http://research1.ml.com/C?q=fnwofdPcdcSa!3H539q2dA__&s=kapoar
• Headline #s came in weaker than expected given lower cargo. Cargo volumes came in at 14.65mn ton, +40% yoy. Revs stood at Rs5.24bn, +24.7% yoy. EBITDA at Rs3.56bn, +30.5% yoy. Rec PAT stood at Rs2.64bn, +32% yoy. Rep PAT was at Rs3.35bn, +74% yoy (led by one-offs).

Hindustan Unilever (HUVR IN): Strong Q4 #s – First Cut

• HUL's Q4FY11 revenue was up 13% yoy, 4% above BAMLe. EBITDA margin was down 230bps yoy led by cost pressure from raw material. PAT was up 15%yoy but was 6% below estimates. We have an Underperform rating here with a PO of Rs240/share. Await further details.

Glaxo Pharma (GLXO IN): Inline Q1; Maintain Underperform but Raise PO to Rs2,120/share (2,030)

• Adjusted net profits came in at Rs1.9bn (up 16% YoY) led by higher other income and lower tax rate. The sales growth at 11.3% YoY vs industry average of 15% remains a concern with EBITDA margins down 185 bps at 33.3% on increased selling expenses. The high concentration of products in the acute therapy segment with 26% of the total portfolio falling under price control could be an impediment for the company. The margin decline reflects the higher cost of promotion and marketing associated with new branded generic launches. Arvind expects margins to be under pressure in the near term as the new fieldforce productivity will start improving only gradually.
• Arvind maintains Underperform and raises PO to Rs2,120/share (2,030) at 24X CY12 EPS. http://research1.ml.com/C?q=BjEM9rqFKbxEDBY6L!lnbg__&s=kapoar

Cadila Healthcare (CDH IN): Strong Q4; Maintain Buy and Raise PO to Rs975/share (880)

• Net profit came in at Rs1.79bn (up 51% YoY and 15% ahead of BAMLe) on stronger sales at Rs11.8bn (up 43% YoY and 22% ahead of BAMLe). Both the domestic business and US generics business were strong with revenues up 23/51% YoY respectively. The Hospira JV saw a 5X jump in sales due to Taxotere supplies in the US and Arvind expects a 35% growth going forward. EBITDA margins expanded 60 bps to 23% reflecting consistent profitability improvement.
• Arvind maintains a Buy and raises PO to Rs 975/share (880) at 20X Sept FY12 EPS. http://research1.ml.com/C?q=0FttM7ohzvlWc6RIbYDMYw__&s=kamdch

Canara Bank (CBK IN): Weak Q4; Downgrade to Underperform and Cut PO to Rs570/share (760)

• Net profit came in at Rs9bn (up 79% YoY) while topline stood at Rs19.7bn (up 24% YoY but 11% below BAMLe). However, the quality of earnings was weak and slippages came in higher at Rs18.5bn (50% higher than BAMLe). Margins stood at 2.9% (down 40 bps QoQ) while CASA was at 28% (down 75 bps QoQ). The management is guiding for strong recoveries but Rajeev believes that slippages will sustain at elevated levels for FY12 at Rs40bn. He cuts earning estimates by 15/14% for FY12/13 building in higher credit costs and estimates margins to stabilize at 2.8% (vs 3.1% in FY11) due to a weak liability franchise. 
• Rajeev downgrades to an Underperform and cuts PO to Rs570/share (760) at 1.3X FY12 Price to book. http://research1.ml.com/C?q=GLANsZcScR2OgMfI7qILkw__&s=kamdch

Union Bank (UNBK IN): Weak Q4; Maintain Neutral but Cut PO to Rs350/share (375)

• Net profit came in at Rs6 bn (flat YoY but 7% below BAMLe) while topline stood at Rs17.2 bn (up 23% YoY) due to a pension provision of Rs7.4bn. Margins were flat at 3.4% while slippages saw a sharp decline to Rs4bn after disappointing in the last few quarters. The management guided for slippages at less than 1.3% which Rajeev believes appears low and building in slippages of 1.6% for FY12.
• Rajeev maintains Neutral but cuts PO to Rs350/share (375) at 1.5X FY12 Price to book. http://research1.ml.com/C?q=ne!nR7N0MmtZ8018tEhvzw__&s=kamdch

GVK Power (GVKP IN): Marginally Weak Q4; Maintain Buy but Cut PO to Rs42/share (50)

• Net profit came in at Rs368mn (up 11% YoY but 4% below BAMLe) while revenues stood at Rs4.6bn (down 5% YoY) on weaker power profits. Both the operating power plants (901 MW capacity) reported a fall in sales volume by 21%/17% YoY for Jegurupadu and Gautami plants on lower gas availability. Power revenue fell for the second consecutive quarter to Rs4bn (down 7% YoY). The airports business was strong with a 14-23% YoY rise in passenger traffic and 7-17% rise in cargo volumes in both the Mumbai and Bangalore airports. The airport EBITDA stood at Rs1.4bn (up 1200% YoY) while net profit came in at Rs634mn (up 156% YoY). Deepak cuts FY12/13 EPS by 18/15% on lower PLF (cut to 70-75% from 80%) and lower realty monetization of 0.5/1 mn sq ft in FY12/13 (vs 1/1.25 mn sq ft earlier).
• Deepak maintains Buy and cuts SOTP based PO to Rs42/share (50) valuing Airports at Rs23/share, Power at Rs18/share, Roads at Rs6/share and Others at Rs6/share (deducting 20% holding company discount). http://research1.ml.com/C?q=LPg0DuP3o68Xw2GZE!ezoA__&s=paresa

Jaypee Infratech (JPIN IN): Weak Q4; Maintain Buy but Cut PO to Rs75/share (86)

• Net profit came in at Rs2.5bn (10% below BAMLe) due to lower EBITDA margins (46% vs 50%) and lower tax rate. The management has increased the projected expenditure on the expressway to Rs115bn (vs Rs 97 bn earlier) due to higher expenditure on land and interest cost. The management is confident of completing the construction by Q2FY12 while Gagan expects the toll revenue collections to start from Q4FY12. Real estate sales continue to be strong in the Noida project at 2.5 mn sq ft with 15% higher realization. The company is looking to focus more on launching high end luxury offerings in its Noida project along the golf course. It has launched its second parcel being developed along with the Sports City in Q1FY12 with plotted commercial development. 
• Gagan maintains a Buy and cuts the NAV based PO of Rs75/share (86) to factor in Rs8bn of higher debt and higher capex for the Expressway project. http://research1.ml.com/C?q=RNpTXzKmDKGar6tMIxp2ew__&s=kamdch

Eicher Motors (EIM IN): Strong Q1; Maintain Buy and Raise PO to Rs 1,725/share (1,500)

• Net profit came in at Rs733mn (significantly ahead of BAMLe) while net sales stood at Rs13.9bn (up 34% YoY and inline with BAMLe). The surprise was due to EBITDA margins which stood at 11.9% (vs 9.1%) due to - (1) better mix in favour of Eicher models instead of Volvo trucks (2) improved profitability of two wheelers with standalone margins up 480 bps QoQ and (3) benefit of cost cutting. Arun raises EPS forecasts by 17-22% over CY11/12 to reflect the unexpected beat and factoring in moderation in demand trends.
• Arun maintains Buy and raises SOTP based PO to Rs1,725/share (1,500) valuing the core and engine business at 10.5X FY13 EPS and cash at Rs 401/share.  http://research1.ml.com/C/?q=wgB0sX6LaC2fAA8NMmt7FQ__&e=mlresearchreports%40in.ml.com&h=QgKGPA

Adani Power (ADANI IN): Inline Q4 #s – First Cut

• Adani's Q4 #s were inline. Gross Generation grew 345% yoy to 2.96bn kWh on capacity rising three times to 1.98GW vs 660MW. Net Generation/Volume was at 2.73bn kWh, +343% yoy. Sales came in at Rs8.6bn, +325% yoy and 3% ahead of BAMLe led by higher volumes (including merchant volume +247% yoy) and Rs428mn of revenue recognized for custom duty on sale from SEZ to DTA. EBITDA stood at Rs5.12bn, +337% yoy and 19% ahead of BAMLe led by lower fuel cost at Rs0.95/kWh (-17% yoy/ -9% qoq). Rec PAT stood at Rs1.74bn, +77% yoy, led by higher depreciation, interest and tax. We have a Buy rating here with a PO of Rs140/share. Await further details.