CLSA Greed & Fear Christopher Wood

CLSA

Greed & Fear

Christopher Wood

-India's Central Bank-the RBI not only foresaw the coming global credit crisis but acted decisively to forestall it as early as 2006.

-Poorly capitalised urban cooperative banks will be allowed to convert part of the fix deposits of holders having capital in excess of Rs 1 lakh into equity. This is a far superior effort than the US, where public money is being used to bail-out failed institutions and guarantee deposits of the rich.

-Greed and Fear advises investors not to hold concenterated deposits in banks, but to spread them around.

-The fact that sensible guys live in India who understand the enormity of the ongoing banking crisis is in fact, the most bullish thing about India's stocks and its stock markets.

-Watch "Slumdog Millionaire"-while it may or may not win an Oscar this weekend, it truly reflects Modern India and this is bullish about Indian Stock markets.

As Western governments, led by the US, continue to look in vain for silver bullets to save their economies from a traumatic credit contraction,

GREED & fear was interested to hear from a contact that the Indian authorities are following the ultimate logical approach to bank recapitalisation.

GREED & fear refers to the fact that the Reserve Bank of India is encouraging

the recapitalisation of certain weak urban cooperative banks by allowing a portion of individual deposits of over Rs100,000 (US$2,000) and institutional deposits to be converted into equity or hybrid equity.

That this is happening in India is a function presumably of the relative scarcity of capital. But it also highlights another way to recapitalise banks without immediately resorting to the long suffering taxpayers. This approach will also be politically appealing if the deposit-for-equity swap is linked to deposits above a certain amount.

GREED & fear

is not predicting that this will ever be the approach followed in the West. But the point GREED & fear would make is that it is a far more equitable approach than the present one of ripping off the taxpayers by mindless guaranteeing of all deposits.

Still it is also the case that the bigger the present crisis becomes, and the loss estimates are now running plausibly into the trillions of dollars, the greater the potential risk of such an outcome. This is because wealthy depositors are not going to command much sympathy on Main Street.

GREED & fear’s advice to the wealthy is, therefore, not to hoard cash savings into concentrated deposits, be they in individual or corporate names.

Meanwhile, this episode reminds GREED & fear again that the RBI is by far most credible central bank globally. Remember that the RBI was the only central bank globally, so far as GREED & fear is aware, that understood the inherent dangers in securitisation and pre-emptively moved in early 2006 to control them in an extremely effective measure. That was simply by making Indian banks who sold securities amortise their profits from the sale of the security over the life of the loan securitised.

GREED & fear

makes this point to counter the current self-serving propaganda of the Davos crowd that no one saw the current credit crisis coming. The RBI is a case in point, which is why it also formally targeted asset growth and credit growth in recent years contrary to the dogmas of Pipsqueak Pinball and Billyboy.

Meanwhile, on the subject of India,

GREED & fear will depart from normal practice by recommending investors watch the box-office hit “Slumdog Millionaire”. While GREED & fear’s uninformed guess is that the film is not popular in India, it is in GREED & fear’s view a rather realistic depiction of modern India. Some may find the film depressing.

But in GREED & fear’s view its message is bullish for the Indian stock market.

Sebi bars Shankar Sharma from mkts for 1yr...

Its surprising that the person who had called 'Ramalinga Raju' a "Novice scamster" has been banned by the market regulator. Moreover what is worth noting is the fact that S.S was the most visible face of the current bear market.

The Securities and Exchange Board of India has barred Shankar Sharma from dealing in securities for one-year. The order pertains to a 2001 investigation and comes into force immediately after four weeks. Sharma indulged in fictitious trading, did not cooperate with Sebi, and indulged in concerted attempt to intefere with markets, it said.

Meanwhile, the market regulator has disposes off the show cause notice against Devina Mehra of First Global.

As far as I believe we will see a prolonged legal battle on the same.

Knowledge is nectar WWIL

Wire & Wireless India (WWIL), the cable arm of Essel Group, plans to foray into broadband services. The company would be largely targeting households and small and medium enterprises and initially launch its broadband services in metros.
WWIL, which recently got a nod from Information and Broadcasting ministry to launch its headend-in-the-sky (HITS) services, plans to invest around Rs 400 crore in the next 12 months for various expansion activities.
Speaking to Televisionpoint.com, Deepak Chandani, CEO, WWIL, said, "We plan to add about 1 lakh broadband subscribers within a year. Since we are in the process of ramping up our digital cable business, it makes perfect sense for us to become a broadband service provider as we can offer both through the same cable."
The company believes that broadband would contribute about 20 per cent to its overall revenues in near future. It also expects to have an average revenue of about Rs 500 per month per user.
WWIL is also in the final stages of launching HITS services. The firm has already tested its signals and is in negotiations with broadcasters for sourcing content for its HITS platform.
"We are currently present in about 43 cities and we hope that in the next two years, we would be able to scale up to about 150 cities through HITS," said Chandani. The company has installed its digital headends in about seven cities and hopes to reach smaller cities and towns.
HITS helps multi system operators (MSOs) to offer their content through satellite to the cable operators, which then reaches the consumers with the help of a cable. The new HITS policy is at present pending with the I&B ministry.
Most MSOs believe that HITS would help them scale up their operations to be able to compete with direct-to-home (DTH) service providers as it requires lower investments compared to digital cable.
WWIL, which is one of the largest cable companies in the country, has about 70 lakh analogue cable subscribers and about 2.5 lakh digital cable subscribers at the moment.

Times Group claims revenue loss in December quarter

As the valuation game made way for value creation game in the wake of
the economic slowdown, the media industry is seeing its share of
adversities. The industry leaders, too, are not spared, and despite
the various loss stories across the sphere, one example that has left
many stumped is of Bennett, Coleman and Company Ltd. BCCL's top
management has been busy last week issuing diktats on not just freezes
on any kind of costs but also a rigorous exercise of "rightsizing" or
downsizing.

Both the editorial departments and the Response divisions of the
company have seen employees being handed out pink slips with a
two-month severance pay. BCCL's dominant position in the market has
made the subject a discussion point in any industry gathering, and the
conversations range from BCCL experiencing first of its kind of loss
in revenues seen in the last century – according to some industry
sources there is a Rs 500 crore loss in revenues – to figures like a
1,000 pink slips being handed out. The veracity of either figure could
not be done since BCCL officials either did not want to be quoted on
the subject or were not available at the time of filing the report.
The speculation of a 1,000 employees being eventually asked to leave
was vehemently denied by most at BCCL that exchange4media spoke to.
Nonetheless, BCCL sources have confirmed that the company has
undertaken retrenching at an unprecedented scale.

BCCL Chief Ravi Dhariwal had sent an internal mail to all the
directors of the company last week. Sources informed that the content
of the mail was not very different from all the other memos seen and
read in the last few months, where company chiefs have articulated the
tough times faced by the industry and the need to tighten belts due to
the declining advertising market. Dhariwal was not available for
comments at the time of filing the report.

A company source explained, "Look at all the BCCL businesses at
present. These were all from the view of protecting the print business
and future preparation. They were never meant to be businesses that
were to deliver in initial stages. Hence, whether it is Times OOH, the
radio business nationally and internationally, Zoom or even Times Now
– all the businesses are at present making losses." As is known, Zoom
had secured funding from Meryll Lynch a year back, and it is believed
that this funds inflow would not be impacted in the slowdown.

Times OOH has not been so lucky, as it was impacted when Lehman
Brothers that had invested in the company went bankrupt last year.

Even though The Economic Times has fired people in good numbers, the
ET Now plans from Times Global Broadcasting appear to be on track. A
source divulged, "It is another couple of months before the channel
will be launched, but so far the plans are on track."

Times Internet and Times Business Solutions are two divisions that
have faced severe problems and many are expecting the Times Business
Solutions division to shut down or merge with Times Internet. A source
from this side of the BCCL business said, "Times Business Solution was
doing what Times Internet should have had been doing in any case. The
rationale to have the two as two different business units was creating
problems for both from the beginning. Right now, with all cash lines
choked, these businesses were the first to get hit."

It is evident that a significant portion of BCCL revenues was
dependant on the print business of the publication The Times of India,
especially in cities like Mumbai and Delhi. With the advertising
revenues of these and of all the other print businesses, including
regional publications, decreasing substantially, BCCL has felt a
strong pinch of the slowdown.

One may argue that who has not. The results of listed media companies
like HT Media, NDTV, TV Today, and IBN Network, among others, have
seen serious slump in numbers – some are down by 20 per cent and some
even by 40 per cent. But many in the industry are plain worried when
job security across rungs vanishes with a player as dominant and cash
rich as BCCL, and severe cost cutting measures see many activities
either being closed down or put on the backburner.

Source

http://www.exchange4media.com/e4m/news/fullstory.asp?section_id=5&news_id=33869&tag=28841

6 Result updates - BPCL, IDFC, Cairn India, Lupin, Shree Cement, Dena Bank

1. BPCL 3QFY09: Significantly above estimates; Over recovery drives the performance; Maintain Buy
BPCL (BPCL IN, Mkt Cap US$2.9b, CMP Rs390, Buy) reported 3QFY09 EBITDA at Rs15.2b (est of Rs7.3b); up 248% YoY. BPCL had reported EBITDA loss of Rs21.7b in 2QFY09. Higher than est EBITDA is due to over recovery of Rs20.6b (est of Rs3.6b), partly offset by higher staff cost at Rs7.5b (est of Rs3.2b).
- Adj. net profit was Rs9.2b (est of Rs1.4b) as against Rs1.9b in 3QFY08 and net loss of Rs21.5b in 2QFY09. Net profit is adj for forex loss of Rs1.5b in 3QFY09 and for Rs7.1b in 2QFY09
- Interest expenses were higher than est at Rs7.2b (est of Rs5.2b) as debt remained high in 3QFY09 and oil bonds were received only towards quarter-end. BPCL’s current debt is Rs220b (v/s Rs240b at Sept-end) and is yet to recieve its share of Rs74.6b of oil bonds.
- Other income of Rs3b includes Rs2.4b gain on the sale of oil bonds.
- Staff cost in 3QFY09 was higher at Rs7.5b (up 169% YoY and 142% QoQ) due to provisions for salary revision and employee benefits. For 9MFY09, BPCL has provided Rs2.4b for salary revision and Rs6b for other employee benefits.

Higher sharing by oil bonds and upstream leads to over recovery of Rs20.6b
- Gross under recovery stood at Rs27.8b v/s Rs50b in 3QFY08 and Rs103b in 2QFY09. Under recoveries were lower YoY and QoQ primarily due to significant fall in crude prices. Brent crude price declined 37% YoY and 52% QoQ to avg price of $56/bbl in 3QFY09.
- Upstream discounts stood at Rs12.4b as against Rs Rs16.2b in 3QFY08 and Rs34.2b in 2QFY09.Oil bonds accounted in 3QFY09 were Rs36b v/s Rs21b in 3QFY08 and Rs47.8b in 2QFY09. Higher sharing through oil bonds and upstream discounts led to a over recovery of Rs20.6b

Operating Performance
- Reported lower blended GRM of $0.5/bbl; v/s $5.3/bbl in 3QFY08 and $3.4/bbl in 2QFY09 primarily due to weaker refining margins in 3QFY09 and higher crude inventory losses.
- Product inventory losses stood at Rs14.5b in 3QFY09 as compared to loss of Rs6b in 2QFY09. Significant decline in the product prices during the quarter has led to the inventory losses. BPCL’s product inventory losses are moderated to some extent as it uses weighted average inventory valuation for finished products as compared to FIFO used by IOC and HPCL.
- Refinery throughput was at 4.8mmt; down ~9% QoQ and YoY led by planned shutdown at Kochi refinery.

We would be revising our estimates to factor the revised subsidy burden and impact of fuel price cuts on the total under recovery. Our current FY10 EPS estimate is Rs49.2. Maintain Buy.

SUBSIDY SHARING: OVER RECOVERY OF Rs20.6b in 3QFY09


OPERATIONAL HIGHLIGHTS





2. IDFC 3QFY09: Earnings decline as capital gains and other fees slump
- IDFC's (IDFC IN, Mkt Cap US$1.5b, CMP Rs56, Buy) consolidated earnings declined 15% YoY in 3QFY09 to Rs1.85b. Despite strong NII growth of 44% YoY in 3QFY09, sharp decline in capital gains and broking /IB fees led to earnings decline. RoEs remain subdued ~13% and Tier I CAR high at 19%. Loan book growth slowed down to 7% YoY as disbursals declined by 75% YoY in 3QFY09. Spreads however improved by 30bp YoY and 20bp QoQ.
- Balance sheet grew 15% to Rs300b (up 4% QoQ); driven by a 7% growth in loans to Rs213b (QoQ flat). Treasury portfolio increased by Rs15b QoQ to Rs59b.
- Gross disbursements decreased 75% YoY and 55% QoQ to Rs9b in 3QFY09. Disbursements are down 34% YoY in 9HFY09 to Rs55b. Approvals decreased by 80% YoY to Rs12b in 3QFY09 and 42% YoY to Rs87b in 9MFY08.
- Outstanding disbursements grew 8% to Rs232b (down 2% QoQ) and outstanding total exposure grew 4% to Rs331b (down 5% QoQ). Loan/investment pipeline remains strong at ~Rs100b (~50% of outstanding book).
- Mgmt maintained its conscious risk aversion attitude going forward towards asset book growth considering the higher macro risks and liquidity uncertainties.

NII growth strong
- NII on infrastructure loans grew 38% YoY in 3QFY09 to Rs2.1b, while NII from treasury portfolio increased 60% YoY to Rs510m.
- Overall NII grew by 44% YoY in 3QFY09. During 9MFY09; NII growth has been 32%.

However other income slumps
- Non interest income declined by 62% YoY to Rs740m in 3QFY09 due to 1) ~ nil capital gains during 3QFY09 and b) 80% decline in broking/IB fees.
- Capital gains were Rs10m during 3QFY09 as against Rs730m in 3QFY08. Capital gains during 9HFY09 have been Rs1.54b vs. Rs2b in 9MFY08.
- Asset management fees grew 3.7x to Rs480m in 3QFY09 – however down QoQ by Rs120m. We await clarification.
- Fees from project related advisory and structuring de-grew 74% YoY and 67% QoQ in 3QFY09 to Rs110m as disbursals declined significantly.

RoA declines
- IDFC reported ROA of 2.6% in 3QFY09 (12-m rolling), lower than Sept 08 level of 2.8% and Dec 07 level of 3.2% - attributed to lower other income. Margins have improved by 20bp QoQ to 2.9%. Provisions decreased by 55% YoY and 78% QoQ in 3QFY09 as disbursements plummeted. Loan reserve ratio remains constant at 1.2% QoQ however down from 1.4% YoY.

CAR maintained high
- IDFC's capital adequacy is strong at 22.1% and Tier I at 18.9%. Required CAR for IDFC as per RBI regulations is 12% currently and 15% from FY10 - half of which can be made by Tier II. This implies IDFC's regulatory leverage can be 7-8x on a sustainable basis. However credit rating agency has turned very cautious on leverage limits for IDFC post the global financial turmoil. This means that IDFC would be required to maintain CAR high at current levels to maintain its ratings. Management aims to preserve its AAA rating and thus plans to grow assets at moderate pace.

We would review our estimates post the conference call with management. Based on our current estimates, we expect IDFC to report an EPS of Rs6.5 in FY09E and Rs7.9 in FY10E. Book value would be Rs48 in FY09 and Rs55 in FY10. Stronger capital gains (including carry income) and improvement in capital market activities can lead to positive surprises to our earnings estimates.
- Stock trades at 1.2x FY09E BV and 8.6x FY09E EPS and 1x FY10E BV and 7.1x FY10E EPS. We expect RoA of 2.7% and RoE of 15% in FY10. While valuations are attractive, visible pressure on all core operations would keep stock price subdued.




3. CAIRN INDIA 4QCY08: PAT higher than estimate led by tax write back; Provides guidance on ramp-up; Maintain Buy
- Cairn India (CAIR IN, Mkt Cap US$6.2b, CMP Rs160, Buy) reported 4QCY08 sales of Rs2.1 (in-line), down 20% YoY and 34% QoQ due to lower realisations. EBITDA was lower than est at Rs950m (est of Rs1.4b) due to higher administration costs led by contribution towards CSR activities. However, PAT was higher than estimate at Rs2.4b (est of Rs1.3b) due to tax write back of Rs1.2b, led by changes in assumptions for some assets of Rajasthan project during tax holiday.
Planned nameplate capacity of 205kbd, capex optimized: Mgmt indicated that Rajasthan development plan includes four processing trains with a nameplate capacity of 205kbd (each train of 30, 50, 50, 75kbd). Higher capacity is being built to provide flexibility and optimize the capex. Management indicated that it has been able to optimize the capex with a additional train of 30kbd and would update on the same by next month.
- Also, indicated that the reserve potential of Aishwariya can support production of 20kbd (however maintained guidance at 10kbd). Aishwariya field is expected to commence production in mid-2010 (12 months from the Mangala production start). Higher plateau rate from Aishwariya would help in early monetization of the reserves and lead to early cash flows. This higher capacity infrastructure, continuing upsides from the current fields is a precursor to the likely higher producton rates from the block, in our view.

Guidance on production ramp-up; Production to reach 175kbd in 2011: Mgmt narrowed its guidance on production start from 2HCY09 to 3QCY09. It gave specific timelines for the production ramp-up with first production at the rate of 30kbd in 3QCY09 (Train 1), reaching 80kbd in 4QCY09 (Train 2), 130kbd in 1HCY10 (Train 3) and 175kbd in 2011 (Train 4). Initial crude production will be transported through trucks and pipeline will be commissioned in conjunction with the second train. We build first production from July-2009 in our estimates.

Commerciality for Northern Appraisal Area in Rajasthan Block approved: Government of India (GoI) approved the ‘Declaration of Commerciality’ for Cairn’s Northern Appraisal Area (NAA) in the Rajasthan Block. This increases Cairn’s area under development in Rajasthan block by 36% to 3,111sqkm. We currently do not factor in any additional value from the NAA in our estimates.

Can export Rajasthan crude if all crude is not consumed in India: Cairn can export the crude from Rajasthan block if all of its production is not consumed by domestic refiners. Management indicated that under Production Sharing Contract (PSC) terms, it is allowed to export if all of its production quantity is not consumed in India. Currently, MRPL is the official government nominee for Cairn’s crude and the government is likely to nominate additional refiners.

3QCY09 Result Highlights:
- Average realization was $47/boe; down 30% YoY and 46% QoQ.
- Gross production of 63kboepd (barrels of oil equivalent per day) v/s estimate of 64kboepd.
- Cairn's net WI (Net Working Interest) production at 16.6k boepd (in line); up 1.4% YoY and down 3% QoQ.

Key Financial Highlights
- Other income stood at Rs1.5b v/s est of Rs1.7bm. Other income includes Rs824m on account of income from investments and Rs567m on account of its forex denominated cash balances and cost of USD/INR options settlement (as at 30-Dec-08) taken for hedging currency risks.
- Cairn has changed the accounting methodology of stock options from Fair Value Method (Black Scholes) to Intrinsic Value Method. This had resulted in exceptional gains of Rs156m till Dec-2007 accounted in 1QCY08. Cairn has reported a gain of Rs63m in 4QCY08 on this account and staff cost is lower to that extent (Rs250m for CY08).
- Cairn has net cash balance of $606m and loan facility of $850m (drawn $640m till date). Of the Rajasthan development capex share of $1.8b, Cairn has spent $700m till date.

OPERATING PERFORMANCE:


Crude pricing and resolution of cess issue to be watched: Key thing to watch in near-term would be 1) Pricing formula for the Cairn’s crude. We built 10% discount to Brent price and 2) Resolution of cess issue. We assume that Cairn will be required to pay cess (levy) of Rs927/MT v/s the current cess rate of Rs2,675/MT (including education tax and NCCD cess). Cairn believes it is not liable to pay any cess and is currently contesting cess payment with the government. The company indicates that in case of an adverse decision, it will opt for arbitration. Higher cess payment than our estimate would be negative for Cairn by Rs21/share. If Cairn is not required to pay any cess, it will be positive by Rs14/share.

Valuation and View: We have revised our FY10 oil price assumption from $60/bbl to $50/bbl. Our revised SOTP-based target price for Cairn India is Rs206/share (previous Rs212/share) at long term Brent price assumption of US$65/bbl. We take 10% discount for Cairn’s waxy crude in Rajasthan. We also have an upside potential value of Rs60/share which includes contingent resources from smaller fields in Rajasthan (Rs21/sh), ONGC operated KG-DWN-98/2 block (Rs18/sh) and Cairn’s other exploration assets (Rs21/sh). Stock trades at 8.5x CY10 EPS of Rs18.8 We will be revising our numbers to factor in the change in the reporting year of Cairn from Dec-end to March-end. Maintain Buy.




4. LUPIN LABS 3QFY09: Operational perf in-line led by 48% increase in US generics; Expect 30% EPS CAGR for FY08-10; Maintain Buy
- Consolidated sales of Lupin (LPC IN, Mkt Cap US$1b, CMP Rs565, Buy) grew by 33% to Rs9.6b (vs est of Rs9.1b) while PAT grew by 10% to Rs1.16b (vs est of Rs1b). Organic topline growth (excluding acquisitions) is 21%; while acquired companies contributed Rs788m to the topline.
- Topline growth was led by 57% growth in formulation exports to regulated markets which contributed 37% (Rs3.6b) to revenues of which US contributed Rs3.4b. Kyowa (Japan) has reported higher sales (up 41%) to Rs1.32b backed by 10 new launches in the Japanese market and partly aided by depreciation of the INR vs the Yen. Formulation exports to emerging markets grew by 60% (albeit on low base) while Indian formulation revenues grew by 17% (29% of sales).
- EBITDA margins declined by 80bp to 16% (vs estimate of 18%) due to pressure on API business (down 41%), higher staff costs (up 45% due to acquisitions and Yen appreciation) and a 58% increase in R&D costs.

Expect 30% EPS CAGR for FY08-10:
- We expect Lupin's core operations (excluding one-off upsides) to record 26% sales and 30% earnings CAGR for FY08-10 led by traction in regulated markets, strong growth in domestic formulations and incremental savings from tax-exempt zones.
- The growth will be led by 27% CAGR for the regulated dosage form business and 18% CAGR for the domestic formulations business. We believe that the company is gaining critical mass in the US market while European market revenues are likely to gradually ramp-up beginning FY09E onwards. It has 45 ANDAs pending approval in the US (although US FDA is, of late, taking more time to approve ANDAs).

Valuations are attractive: Lupin is likely to witness a gradual improvement in the underlying fundamentals led by an expanding US generics pipeline, niche / Para-IV opportunities in the US, strong performance from Suprax (branded product in US) and ramp-up in formulation revenues from its European initiative. Incremental benefits are likely to be visible from the Jammu facility which enjoys fiscal benefits. Based on the better than expected 3Q performance, we have upgraded our EPS estimates for FY09E by 11% (mainly due to higher other income and lower tax rate). However, our FY10E EPS has remained unchanged as we factor-in the delays in approvals from the US FDA and moderation of growth in the domestic formulations business due to higher base. We expect the company to record EPS of Rs55.4 and Rs64.2 for FY09 and FY10 respectively. Given the strong earnings growth, valuations at 10.2x FY09E and 8.8x FY10E EPS are attractive. Reiterate BUY.




5. SHREE CEMENT 3QFY09: Above estimates; Savings in energy cost and higher power sales drive outperformance; Maintain Buy
Shree Cement’s (SRCM IN, Mkt Cap US$357m, CMP Rs499, Buy) 3QFY09 results are above estimates with EBITDA margins of 34% (vs est 28.8%) and recurring PAT of Rs1.28b (vs est Rs948b), due to savings on energy cost and higher power sales.
- Shree’s 3QFY09 revenues grew 26% YoY to Rs6.65b (vs est Rs6.4b) and recurring PAT stood at Rs1.28m. During the quarter, volumes grew by 30% to 2.10MT (vs est 2.11MT) including clinker sales of 0.17MT. However, realizations were flat QoQ (~6.9% YoY decline) to Rs3,049/ton (vs est 3,045/ton).
- EBITDA was flat YoY at Rs2.27b (vs est Rs1.84b), translating into EBITDA margins of 34.1% - an improvement of 510bp QoQ (~840bp YoY decline). Margin improvement was driven by savings in energy cost due to decline in pet coke prices (only part reflection) and higher power sales (at Rs234m vs Rs129m in 2QFY09 vs Nil in 3QFY08). Adjusting for power sales, cement business EBITDA/ton improved by ~Rs140/ton QoQ to ~Rs983/ton. Shree has excess power generation which it is selling on Merchant basis, and enjoys about 50% PBIT margins.

Full benefit of lower pet coke prices only in 1QFY10: The management expects full benefit of lower pet coke prices to come only in 1QFY10. Savings in 3QFY09 had been small at about Rs4/bag (~average pet coke price at Rs6,235/ton in 3QFY09 vs Rs7,200/ton in 2QFY09 vs Rs6,500 for 9MFY09). Total savings based on current pet coke price of Rs4,000/ton would be about Rs15-20/bag.

Other highlights of conference call:

• Lower blending at 1.32x in 3QFY09 vs 1.41x in 3QFY08, to adjust supply with demand.
• Expects EBITDA/ton to decline from peak of Rs1,300 in FY08 to Rs1,100 in FY09 and Rs850/ton (worst-case) in FY10, after factoring in cost savings.
• Depreciation in 4QFY09 might increase by ~Rs400m if it is able to capitalize Unit VII in 4QFY09, else would reflect in FY10 (our est factor it in FY10).
• Capex of Rs12b over FY09-10 for 1.1MT capacity, split grinding units and 85MW CPP (~35MW waste heat recovery and 50MW Pet coke based CPP).
• Import of cement has come to halt due to re-impose of CVD and SAD on imports in Dec-08.

- Valuation and view: We are upgrading our earnings estimate for FY09 by 9.5% to Rs142.5, but lower our FY10 estimates by 19.7% to Rs83.9. Our estimates factor in for power sales in 4Q and FY10, pet coke cost savings. However, FY10 estimates see a downgrade due to accelerated depreciation on Rs12b capex, despite 14% upgrade at EBITDA level. Valuations at 5.9x FY10E, 3x FY09E EV/EBITDA and US$43/ton are attractive. Maintain Buy.




6. DENA BANK 3QFY09: Core NII up 56% YoY backed by sharp improvement in margins, Asset quality stable QoQ; Maintain Buy
Dena Bank's (DBNK IN, Mkt Cap US$200m, CMP Rs34, Buy) PAT increased 40% YoY due to strong growth in NII. Key highlights are:

- NII increased by 72% YoY and 39% QoQ to Rs3.55b due to higher in margins. Adj for interest on IT refund (Rs320m in 3QFY09) NII grew 56% YoY. Margins improved by 109bp YoY and 88bp YoY to 3.76% in 3QFY09 due to CRR cut, strong pricing power and contained cost of funds. Yield on loans improved by 67bp QoQ and 129bp YoY to 11.5%. Cost of deposits increased by 7bps QoQ and 39bps YoY to 6.39%. Mgmt expects margins above 2.93% reported for 9MFY09.

- Deposits increased by 2% QoQ and 19% YoY to Rs366b and loans grew 5% QoQ and 21% YoY to Rs257b. Share of bulk deposits stood at 11%. CASA ratio at 39% remains stable QoQ.

- Other income grew 8% YoY to Rs1.4b due to trading profit of Rs494m v/s Rs378m in 3QFY08. Recoveries slowed during the quarter to Rs290m v/s Rs370m in 3QFY08. Core fee income grew 13% YoY. Operating exp increased 35% YoY as the bank accounted Rs300m for the likely wage increase and ~Rs70m for the shortfall of AS 15 provisions.

- Gross NPA and Net NPAs in absolute terms increased by 3% and 7% QoQ. Gross NPA ratio fell from 3.1% in 3QFY08 and 2.32% in 2QFY09 to 2.28% in 3QFY09. Net NPA ratio fell from 1.41% in 3QFY08 to 1.05% in 3QFY09 (however up 3bp QoQ). Provision coverage remains stable at ~55%. Slippage ratio (as a %age to opening loans) stood at 2.5% (annulised) in 9MFY09. We have assumed the slippage ratio of 2.7% in FY09 and 3.5% in FY10 for the bank

- Capital adequacy ratio fell to 11.8% from 12.3% in 2QFY09. Tier I is at 7.0%.

We expect Dena Bank to report EPS of Rs16 in FY09 and Rs15 in FY10. ABV would be Rs63 in FY09 and Rs73 in F10. The stock trades at 0.5x FY10E ABV and at a P/E multiple of 2.3.x FY10E. RoE is expected to be ~20% in FY10. Maintain Buy.

Warm Regards,

Sudeep Shah

Equity Advisory and Wealth Management,

Motilal Oswal Securities Ltd

Email : sudeep.shah@motilaloswal.com

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