n Research Update included

HEG Ltd 4QFY09 Result Update ; Better performance, bright outlook ; BUY ; Target : Rs161

HEG reported 4QFY09 results and FY09 results, ahead of our estimates. For 4QFY09, net sales stood at Rs2,537mn (yoy up 7.2%, qoq up 4.5%), EBITDA stood at Rs925mn (yoy up 25.6%, qoq up 4.1%) and adjusted PAT stood at Rs431mn (yoy down 12%, qoq up 59.5%). HEG reported EPS of Rs10.12. For FY09, net sales stood at Rs10.3bn (yoy up 8.8%), EBITDA stood at Rs3.76bn (yoy up 31.1%) and adjusted PAT stood at Rs1.85bn (yoy up 26.8%). HEG reported EPS of Rs43.48. During the quarter, the company reported forex loss of Rs287mn. The company has increased production cut from 12% to 35% during the quarter. HEG witnessed improvement in realization due to better product mix and increased focus towards UHP grade graphite electrodes. The expansion project of additional 20,000tpa graphite electrodes capacity has been put on hold and now the capacities will be increased only to 66,000tpa through debottlenecking, expected to be operational by mid CY09. HEG is also increasing its captive power generation capacity by 33MW, which is expected to be operational by May '09. This will enable HEG to sell surplus power in the market. HEG is currently selling around 10MW of surplus power at a net profit of around Rs6/unit. HEG has total debt of Rs8.8bn and cash balance of Rs0.5bn. At the CMP of Rs123, the stock is trading at 2.3x FY10E EPS of Rs53.1 and at 1.6x FY11E EPS of Rs76.2. On EV/EBITDA basis, the stock is trading at 2.2x FY10E EV/EBITDA and at 1.2x FY11E EV/EBITDA; while on P/B basis the stock is trading at 0.5x FY10E book value and at 0.4x FY10E book value. We are valuing the company on P/B basis assigning target P/B multiple of 0.5x FY11E book value. We upgrade the stock from HOLD to BUY with revised target price of Rs161 (previous target price – Rs115).

Jubilant Organosys Q4FY09 Result Update ; Strong operating performance; positive outlook ; BUY ; Target : Rs187

Despite temporary slowdown in CRAMS, Jubilant Organosys strong operating performance demonstrates the underlying strength in its business model. Bottom-line is largely being impacted because of MTM losses due to adverse currency movement (Realized loss of Rs1043mn, unrealized loss of Rs1013mn), RPAT was down by 5% to Rs2832mn. Adjusting to exceptional loss of Rs479mn, APAT was up by 5% to Rs3239mn, in-line with our expectations. Company has also capitalized Rs3890mn MTM loss in the balance sheet, out of which Rs2750mn has been transferred to Foreign currency translation monetary account (FCTMA) and has to be amortized in next two years.

On operating front, revenue grew by 22% and 41% in Q4 and FY09, driven by a) 64% growth in DDDS, and b) 25% growth in CRAMS business. As anticipated, speciality chemical businesses were adversely impacted because of higher input cost, lower end product prices and weak demand; however the recovery in the same businesses is earlier than expected. Operating margins (ex forex losses) were up by 230bps to 20% due to higher contribution of services business despite 440 bps increases in employee cost (CRAMS business is labour intensive). Though the margins in I&PP business were adversely impacted because of higher input cost (5.5% in Q409 vs. 11% in Q408), management is confident that they will be at similar level in FY10E (~11%) because of lower input cost and 10-20% increase in end product prices. However EBIDTA margins after forex loss declined by 695bps and 240 bps to 11% and 16.3% during Q4FY09 and FY09 respectively.

We are revising our FY10E revenues and earnings estimates downward because of lower end product prices for proprietary products and speciality chemical businesses but expect operating margins to improve by 40bps to 19.6% because of lower input cost. Our 17% downward revision in earnings is because of factoring an impact of Rs1375mn each in FY10E and FY11E towards amortizing the Rs2750mn transferred to FCTMA a/c. We are also introducing our FY11E numbers and expect an EPS of Rs27.7. With continues robust growth in P&LS business, sign of recovery in speciality chemical business and improvement in solvency ratios (expect DE ratio to come down from 2.5x to 1.3x in FY11E), we believe the worst is behind us. Reiterate Buy with a target price of Rs187.

TVS Motor management meet update ; Worst is behind, upgrade rating to HOLD ; HOLD ; Target : Rs 35

We came back positive from our meeting with the management of TVS Motor on (1) profitability of domestic business due to easing metal prices (2) strong management confidence (3) rational growth targets. However, a lot depends on the success of the new launches (upgrade of Flame, a new motorcycle in price range of 40000 to 45000 and a new ungeared scooter).

Having said that, we continue to have concerns with respect to Indonesian venture. We are concerned with the cash burn as well as limited availability of information with respect to the Indonesian venture. The management indicated of a loss of Rs 500 mn (Rs 1.5 per share) in FY09 as well as FY10. Also, TVS has taken a debt of USD 30 mn in the Indonesian venture (30% of FY10 standalone debt).

We believe that worst is over for TVS in the domestic business on volumes as well as profitability front. Infact, we believe that in FY10, the company would report the maximum EBIDTA growth, largely due to low base. We have upgraded our FY10 earnings estimates by 12% to Rs 2.9 per share and introduce our FY11 estimates. We upgrade our target price to Rs 35. At Rs 35, the stock would trade at a PER of 12.2x and 9.1x, EV/EBIDTA of 7x and 5.7x and P/B of 1.0x and 0.9x our FY10 and FY11 estimates respectively. We upgrade our rating on the stock from SELL to HOLD.

Canara Bank Q4FY09 Result Update ; Good earnings; provision cover remains concern ; REDUCE ; Target: Rs180

Canara Bank (CNBK) reported a net profit of Rs7.2bn for Q4FY09 ahead of our expectations. The robust performance was driven by better than expected NII and higher treasury income The NII has grown by 41.5% yoy to Rs13.1bn driven by 22.0% yoy growth in the assets and 36bps yoy expansion in NIM's. The other income has grown by 18.5% yoy to Rs8.7bn.

The asset quality showed improvement during the quarter as the gross and net NPAs declined by 13.8% and 8.9% sequentially. The restructured assets also remained under control at 1.5% of advances (not including pending applications).

The stock is currently valued at 3.1x FY11E EPS and 0.8x FY11E ABV. Although optically the valuations look attractive looking at likely RoE of 22% over next two years, we believe that the reported RoEs would be misleading in light over low provision cover. If the bank were to raise the provision cover to industry standard of 60-70%, the RoEs would drop to 14%. We maintain our REDUCE rating on the stock with price target of Rs180 (0.7x FY11E ABV).

Allahabad Bank Q4FY09 Result Update ; Strong operating performance ; HOLD ; Target : Rs65

Allahabad Bank reported a net profit of Rs2.6bn for Q4FY09, ahead of our expectation, driven by better than expected NII and other income. The NII grew by 42.6%yoy to Rs5.9bn driven by 53bps expansion in NIM's. The bank's performance was further supported by strong treasury gains of Rs2.5bn and fee income of Rs1.9bn.

The bank asset quality improved during the quarter as the gross and net NPA declined to 1.8% and 0.7% from 2.0% and 0.8% in Q4FY08 last year. The provision coverage ration also improved by 337bps sequentially to 61.1%. However banks total assets under restructuring (including pending applications) stood at Rs32.6bn, aggregating 5.6% of the overall advances, which is a slight cause for concern.

At the current valuations, the stock is quoting at 0.5x FY10E ABV and 0.4x FY11E ABV. We maintain our HOLD recommendation with price target of Rs65 on back of lower RoA, higher slippages and high proportion of restructured assets.

Titan Q4FY09 Result Update ; Tough TIMES Ahead ; SELL ; Target : Rs671

Titan Industries Ltd (Titan) reported dismal performance in Q409 with 7.2% growth in revenues to Rs8.8 bn. The growth momentum was impacted by dismal performance of Watches (decline by 22.3% yoy) and Jewellery (growth of only 14.2% yoy). The reported net profit declined 57.0% yoy to Rs278 mn, owing to Rs290 mn worth write-off of USA operations i.e. 2 non-performing 'Tanishq' stores. However, adjusted net profit declined 12.1% yoy to Rs569 mn – marginally above our estimate. FY09 results sprung negative surprise with (1) Watch business growth at mere 3.6% to Rs9.0 bn (2) Jewellery business hit by lower volume growth, resulting in mere 36.3% growth in revenue to Rs27.4 bn and (3) losses in Others doubling to Rs241.1 mn. We believe that, FY09 performance has clearly highlighted the rising headwinds to Titan's growth momentum. We maintain our earnings estimates for FY10E and FY11E at Rs39.2/Share and Rs45.8 /Share. We believe that, Titan is likely to face challenging TIMES ahead on account of weakening macro indicators affecting watch business, rising gold prices impacting the jewellery business and new business initiatives straining cashflows. Titan is trading at 20X FY10 earnings, higher than long term average multiple of 18X. We maintain our 'SELL' rating with the target price of Rs671.

GCPL Q4FY09_Result Update ; Operational Gains ; ACCUMULATE ; Target : Rs 141

Godrej Consumer Products Ltd (GCPL) reported strong performance in Q409 marked with strong revenue growth and operational gains, ahead of our estimates. Revenue grew by 27.9% yoy to Rs3.4 bn, largely-led by strong growth in domestic business. The performance of key subsidiaries having operations in international markets was disappointing- reporting 4.8% yoy decline on like-to-like basis (adjusting for Godrej Mauritius). GCPL recorded operational gains in Q409 with 520 bps qoq gain in operating margin to 19.3%– attributed to gains from material costs and lower advertising spends (due to no product launches). Led by strong operational performance and higher other income, adjusted net profit grew by 45.4% yoy to Rs0.6 bn – ahead of estimates.

With higher-than expected operational gains in Q409, we have upgraded our FY10E estimates by 10% to Rs8.1/Share. We have revised upwards our assumptions on gross margins and operating margins and factored for lower growth in international operations. At CMP of Rs144/Share, GCPL is trading at 17.9X FY10E almost equal to the short-term and long-term multiple. GCPL has achieved our Blue-Sky target of Rs144/Share (in 'Drawing Parallel) - purely on cost gain argument. We believe that, near term triggers are factored in the current valuations with no room for rating upgrade. We maintain our 'ACCUMULATE' rating with revised target price of Rs141/Share versus Rs127/Share earlier.

Great Offshore Q4FY09 Result Update ; Sailing Ahead ; BUY ; Target : Rs435

GOL Q4FY09 standalone net profit for the quarter at Rs714mn up 168% yoy was higher than our estimates, primarily on account of higher topline growth and better than expected EBIDTA margin. Revenues for the quarter increased by 39% yoy to Rs2.57bn on account of vessel addition and higher marine construction revenues. With flat staff cost and 9% decline in other expenditure, GOL's topline growth flowed down to operating level. Consequently EBITDA quarter witnessed a huge jump of 64% yoy to Rs1.19bn (our estimate of Rs1.05bn). For FY09 on a consolidated basis, GOL has reported impressive net profit growth of 48%yoy to Rs2.75bn (our estimate Rs2.29bn). We have revised our FY10E cons net profit upwards by 5.4% to Rs3.18bn while FY10E cons EPS is revised upwards by 11.8% on account of repayment of Rs1.50bn 10% optionally convertible preference capital. The upgrade has come even after two assets scheduled to joined GOL's fleet in FY10 have been delayed. A 350 feet Jackup rig has been delayed by around 6 months till Q3FY10 while the MSV has been delayed till FY11. At the CMP of Rs295, the stock is trading at 3.5x its FY10E cons earnings. We maintain our BUY rating on the stock with a price target of Rs435.

Bharati Shipyard Q4FY09 Result Update ; Downgrade to SELL ; SELL ; Target : Rs45

Bharati Shipyard (BSL) Q4FY09 results were above estimates – (1) revenue up 54% yoy to Rs2.8 bn (2) operating margins decline 130 bps yoy to 17.3% and (3) adjusted net profit fell by 7% yoy to Rs303 mn. The management provided no clarity on GE Offshore funding deal; therefore ambiguity continues on repayment schedule, interest levy, impact on existing orders, etc – a key overhang on valuations. We continue to maintain our negative outlook on the shipbuilding industry and expect cancellations in existing orders going forward. In absence of key momentum driver, investor interest is unlikely to revive thereby restricting the re-rating of the sector. We maintain our earnings for FY10E (Rs55.7) and FY11E (Rs38.7) (not factored dilution). The sharp run-up in the price in last 2 months is unjustified. We downgrade our rating from REDUCE to SELL with target price of Rs45.

n Dealer Comments

Following a solid 730 points rally the markets opened the session with 30 odd points upward gap tracking extremely mixed cues from the global markets ignoring strong closing by the US markets and tracking weak trading by the Asian markets. Soon the markets slipped in the red owing to profit taking at higher levels. Thereafter markets gyrated between the zones for most part of the day and volatility was the highlight of the day's trading. It was quite a lacklustre trading session but surprisingly volumes in the cash markets were once again extremely good indicating participation by investors more in cash based action. The day's rally was supported by good buying in realty, banking, capital goods, metal and private power companies stocks. The day's limelight was hogged by aggressive buying and short covering in Sugar stocks across the board on the back of news that government has decided to slow the imports of sugar after prices soaring to highest levels in three years with most of the sugar stocks rising almost 5-20%. Even realty space saw good renewed buying interest throughout the day. The overall traded volumes were higher compared to earlier day by almost 15% and were at Rs 770 bn. While delivery based volume was at 33.2% of the total turnover. Among the fund activities, FII's were net buyers to the tune of Rs 14.91 bn while Domestic Funds were net buyers to the tune of Rs 3.79 bn respectively on 4th May 2009. While on 5th May 2009, FII's bought shares worth Rs. 5.09 bn in cash segment (provisional) while in the F&O segment they were net sellers to the tune of Rs 1.47 bn whereas Domestic Funds sold shares worth Rs. 1.30 bn (provisional).

n Technical Comments

Yesterday Nifty opened on a positive note and was trading very range bound through out the day. It made a high of 3682 and finally closed at 3661 with a marginal gain of 0.22%. On the sectoral indices front, BSE Realty index (+8.63%) followed by BSE Metal index (+3.50%) and BSE Bankex index (+2.36%) was the top-gainers, while BSE IT index (-2.11%) and BSE FMCG index (-2.15%) was the top-loosers. The Advance Decline ratio was almost 2:1. Continuing its northbound journey, yesterday Nifty opened on a positive note and broke Mondays high of 3664 and further made high of 3682. Finally Nifty closed at 3661 with a marginal gain of 0.22%. On the daily chart nifty had formed "Doji", pattern but we will see correction only if Nifty starts trading below 3618.However as Nifty is continuously making "Higher tops and Higher bottoms", it is still looking strong and thus we maintain our immediate term target of 3734.However the short term trend is still bullish and we maintain our upside short term target of 4273. For Intra-day, Nifty has resistance at 3683 and it has support at 3618.