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Archives for May 2016

Tata Power Company – A sigh of relief in few assets

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Tata-Power

Tata Power Company (TPC) sprung a positive surprise in Q4FY16 with Mundra UMPP reporting a nominal profit and solar business also turning black. Despite ~INR1bn exceptional items, consolidated PAT at INR3.6bn was marginally lower than our ~INR3.9bn estimate. APTEL has directed CERC to compute relief to be provided due to change in Indonesian coal pricing norms by July. Meanwhile, TPC continues to eye investments in renewable space and overseas markets for growth. Owing to the delay in completion of Arutmin transaction and weak outlook on coal, we cut target price to INR82 (INR98 earlier). Maintain ‘BUY’.

A few subsidiaries turnaround-but not enough to move earnings

Good part of TPCs numbers was earnings surprise in Maithon/Mundra as well as positive contribution from solar. While Mundra UMPP reported PAT of INR90mn due to annual truing up of fixed charges, Maithon project, riding commencement of 150MW PPA with Kerala, reported INR740mn PAT, which is expected to sustain going forward. Tata Solar too turned around to report INR40mn PAT (INR40mn/INR240mn loss in Q3FY16/Q4FY15). However, TPC’s standalone profit was lower due to INR2.25bn provision towards investments in Tata Teleservices. Additionally, the exposure of standalone entity to Mundra now stands at INR35bn, which also has sub-optimal returns. EBIT of coal mine for the quarter was stable at ~INR2.6bn (QoQ), but the concern is that SPV’s debt of USD900mn has not dipped.

Growth plans largely through renewable and overseas assets

TPC does not appear to be in value unlocking mode and capital generated is likely to be deployed to commission ~500MW renewable projects in pipeline. The company may also continue to pursue programme of adding renewable assets in Africa/Georgia.

Outlook and valuations: Awaiting CERC’s decision; maintain ‘BUY’

Given that TPC has infused INR35bn worth of sub-debt in Mundra UMPP, the APTEL directive to CERC to compute the relief under change-in-law is critical for the company going ahead. We have revised down FY18E earnings 5% on revision of our coal realisations. Factoring in these and the delay in closure of Arutmin transaction and resultant increase in loans, we have revised our SOTP-based target price to INR82 (assumed Mundra past CT recovery of INR10bn). At CMP, the stock is trading at 1.2x FY17E and 1.1x FY18E P/BV. We maintain ‘BUY/SP’.

AIA Engineering – Volume beat, but realisation dips

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AIA Engineering

AIA Engineering’s (AIA) 2% decline in revenue and 9% growth in EBITDA in Q4FY16 came 7% and 19% ahead of estimates, respectively. Sales beat was driven by 5.7% YoY volume growth with 13% YoY spurt in mining volumes. However, realisation declined 6% YoY. While management remained upbeat on achieving additional volumes of 120,000MT over FY17-19E, concerns remain on margins with management withdrawing guidance owing to variables like aggressive pricing strategy and emerging market currency volatility. With earnings CAGR of mere 4.6% leading to 270bps dip in RoCE over FY16-18E, we maintain ‘HOLD’. However, we remain structurally positive in the long term with scope to raise our conservative 54% capacity utilisation estimate for FY18.

Tepid volumes owing to challenging scenario
Sales declined 2% YoY with volume growth of 5.7% YoY at 53,502MT for Q4FY16 and down 0.5% YoY in FY16 to 185788mt (mining volumes grew 12.9% YoY to 28,594MT for Q4FY16 and declined 5% YoY to 100684MT for FY16). Management maintained that overall volumes remained flat in FY16 owing to certain strategic and conscious decisions taken by the company viz. restricting sales to Ukraine, reduction in South African market volumes owing to currency uncertainties and volume reduction owing to closure of one particular iron ore mine in Brazil. Realisation declined 6% YoY in Q4FY16 and 2% YoY in FY16.

Margin guidance uncertain; capex forecast maintained
Management has withdrawn EBITDA margin guidance (earlier 22-23%) citing emerging market currency volatility and competitive pricing strategy adopted by AIA. Though gross margin dipped 180bps to 62.3%, EBITDA margin grew 290bps YoY to 28.9% on hedging gains. Management guided for capex of INR1.5bn in FY17 and INR2bn in FY18.

Outlook and valuations: Fairly valued; maintain ‘HOLD’
Management highlighted its continued focus on market share expansion and hence maintained its strong capacity addition guidance. Concerns remain on margins led by aggressive pricing. With earnings CAGR of mere 4.6% leading to 270bps dip in RoCE over FY16-18E, we maintain ‘HOLD’, valuing the stock at 18x FY18E. However, we remain structurally positive in the long term with scope to raise our conservative 54% capacity utilisation estimate for FY18. Stock currently trades at PER of 18.7xFY18E

A Free Wheeling Interview With Extremely Talented Actor Prashant Narayanan

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Prashant Narayanan, an actor par excellence, needs no special introduction. He is too down to earth to be true. Time & again Prashant has proved his versatility in varied films that too in varied negative oriented albeit dark shaded characters and garnered critical accolades beyond imagination. Indeed he is an actor to be reckoned with as he tackles each roles with an effortless ease. And he has continued in the same veins by portraying the role of a human trafficker in his latest suspense thriller namely FREDERICK.

Prasant Narayanan

Right at the outset how about enlightening us with your as usual negative role in FREDERICK which is on the verge of release this week!

Frankly speaking my role in FREDERICK has violent shades beyond imagination but it has far greater depth. You just can’t term it as the same kind of typed and usual role that I or the other actors are compelled to do time & again. My character’s reactions in FREDERICK are out of love & angst. I have enacted the role of a person who gets involved in the racket of human trafficking. I have played many roles in different cinema but Fredrick has something which is unusually different. Cine goers will not be disappointed at all.

Can you narrate briefly what is FREDERICK all about?

Actually speaking FREDERICK is an emotional love story but on the other hand it can also be termed as an intense psychological thriller full of mysterious elements. Besides it is full of family values. There is lot of love & concern for the people. It will enthral the cine goers as well as keep them hooked with its edge of the seat suspenseful moments. It has lot of reactionary actions. You see Shaheen most of the films are action oriented but FREDERICK is mostly reactionary I mean it is reaction oriented. And that is what makes FREDERICK so exciting.

How was it working with a debutant director Rajesh Butalia?

I never had any qualms about working with a debutant director in my earlier movies too. As debutant director brings about a lot of volatile energy on the sets of the film & Rajesh Butalia was no exception. In fact he was more focussed and always acted as a cool dude and it inspired all the actors to give off their best. Rajesh maybe a new director but as far as his vision for the film was concerned they were perfect. He knew what he wanted and he got what he wanted from all of us I mean all the artistes as well as the technicians. Frankly speaking what I like about debutant directors is that they don’t come with fixed notions on the sets. And as I mentioned earlier there was a volatile energy everywhere and believe me Rajesh was very clear of what he wanted. Moreover as a director he brought about a lot of freshness throughout the film. I hail from a theatre background and working with debutant directors or for that matter even actors too was always a learning experience as they come out as extremely confident & talented especially actors who sometimes deliver some memorable performances in the film. For that matter I have played many roles in varied cinema but FREDERICK has something which is unusually different.

And what would you say about your producer Manish Kalaria?

First of all I would say that my producer Manish Kalaria also popularly known as MK is a perfect gentleman and above all a perfect businessman. It was a boon to have a producer like Manish Kalaria. Hats off to him for backing a new director I mean Rajesh Butalia and that too without any interference. In fact he had full confidence in all of us and also give a free hand to director Rajesh Butalia to make the film as per his vision and I believe MK is quite happy with the end product.

It seems that the music of FREDERICK has really impressed you a lot!

You bet! The music of FREDERICK has really impressed me. For the 1st time in my career I have really got carried away with the music of FREDERICK. I am really very happy with the music of the film that has garnered a lot of appreciation. The most interesting song is “Waqt Gaya Tham” sung by KK which has ultimately turned out to be my personal favourite. And you won’t believe it Shaheen when I confess that I have literally blackmailed & pressurised my director Rajesh Butalia, who has also written the lyrics of this song and composed beautifully by music director Sunjoy Bose, to picturise this song on me. Besides the other songs also composed by Sunjoy Bose like “Tera Zikra”, “Rangeeniyan” and above all “Khuda Tune” are also very melodious & foot tapping. And for a change the music does not prove be road block for a thriller film like FREDERICK. In fact it entertains and even enlivens the proceedings of the film FREDERICK.

Faizabad Bajrang Dal chief held over holding weapons training camp

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Bajrang Dal

Faizabad: The convenor of Faizabad and Ayodhya unit of Bajrang Dal Mahesh Mishra was arrested today for allegedly hurting the religious sentiments of Muslims and spreading communal hatred, days after the right-wing Hindu outfit held a weapons training programme, police said.

The Hindu right organisation had on May 14 held a training camp where Bajrang Dal activists executed a mock drill of eliminating “rioters and terrorists” wearing scull caps and checked scarves, traditionally worn by Muslims.

After police registered a case against office bearers and activists of the saffron outfit at Kotwali police station in Ayodhya late Tuesday night, Mishra was arrested this evening, Faizabad Senior Superintendent of Police Mohit Gupta said.

Police said Mishra and others were booked for spreading communal hatred and breach of peace as they projected Muslim youths as rioters and terrorists at the training programme.

Uttar Pradesh Governor Ram Naik had yesterday defended holding of weapons training camp by the hardline organisation, which faced criticism by the state’s ruling Samajwadi Party.

“This arms training is for the purpose of self defence. There should not be any objection from any quarter. The intention behind this exercise is what counts,” Naik had told reporters.

However, Samajwadi party had slammed the training sessions and termed it as a “terrorist training”.

“Such kind of mock drills can be conducted only by government agencies. Now organisations are conducting these in their own way, like we see ISIS, Hizbul Mujahideen and naxals doing it. I see this as a terrorist training,” Syed Asim Waqar,” SP spokeperson said.

Photographs of Bajrang Dal cadres brandishing rifles, swords and even sticks in the camps had gone viral on social media and news channels.

(PTI)

SC allows Italian Marine to return home

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Salvatore Girone Massimilliano Latorre

Bengaluru: The Supreme Court today allowed Salvatore Girone’s plea seeking relaxation of bail conditions, to enable him to return to Italy. His request was supported by the Government on humanitarian grounds.

Two Italian marines, Massimiliano Latorre and Salvatore Girone are facing charges of murdering two fishermen in 2012 off the Kerala coast. Latorre was allowed to return to Italy after a stroke in 2014 while Girone is staying at the Italian embassy in New Delhi.

Italy asserts that the incident took place in international waters and, therefore, the Marines should be tried in Italy or in an international court. India, however, maintains that it can try them because it says the killings happened in coastal waters under Indian jurisdiction and the victims were Indians.

A UN arbitration tribunal had earlier ruled in favour of Girone, held in India on murder charges, by allowing him to return home pending the arbitration proceedings at the Hague.

The Supreme Court last year suspended all court proceedings against the duo in pursuance of an interim order of the International Tribunal for the Law of the Sea (ITLOS) asking India to maintain “status quo” in the case.

(Agencies)

Modi’s rule ‘most disappointing’ for country: Congress

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bjp-congress

New Delhi: Terming the performance of two- year-old Modi Government as the “most disappointing” for any dispensation since independence, Congress today said there is little to celebrate for the country,as it fielded a battery of senior leaders to counter government’s claims of development and delivery.

“Modi ji why are you celebrating. Is there prosperity all around in the nation,” party spokesperson Kapil Sibal said adding, these were “two years of hollow promises”.

Attacking the NDA government on a wide range of issues from economy and employment to foreign policy, the Congress leaders also contrasted Prime Minister Narendra Modi’s performance vis a vis his predecessor Manmohan Singh under UPA rule.

The opposition party alleged that the NDA government is “surviving just on advertisements” and challenged it for a debate.

“Singh did not talk much but his work was bespeaking. Modi ji keeps on talking but his work speaks of nothing…. I challenge Modi government, any of its minister to come and debate with us,” Sibal said.

“Modi ji why are you celebrating….Is Varanasi (Modi’s Parliamentary constituency) clean now? Have the youths got employment? Did the farmers’ suicide stop. What has happened in last two years that you are celebrating?”

The AICC also released a short film titled “pragati ki tham gai chaal, do saal, desh ka bura haal (The pace of progress is halted, the country in a bad shape in two years)”, slamming the government on 10 issues, besides making a power-point presentation which projected the government’s performance as “abysmal”.

Addressing the joint press conference, Leader of Opposition in Rajya Sabha Ghulam Nabi Azad, Leader of Congress in Lok Sabha Mallikarjun Kharge, AICC Communication Department Chairman Randeep Surjewala and Sibal alleged that the two-year tenure of the government is full of “hollow promises”.

(PTI)

AIADMK’s Seenivel passes away on oath taking day

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S M Seenivel

Chennai: For the second time in five years, the ruling AIADMK has lost one of its legislators on the day of swearing-in of newly elected MLAs to the Tamil Nadu Assembly.

S M Seenivel, who was elected to the Tamil Nadu Assembly from Tirupparankundram constituency, died of stroke today. The news of his death brought back memories of another AIADMK Minister, who passed away in 2011, when he was rushing to Chennai for the swearing-in of MLAs.

AIADMK leader from Tiruchirappally, N Mariam Pitchai, was killed in a road accident hours before the swearing-in of the members of the 14th Assembly in 2011.

He died in an accident on Chennai-Tiruchirappally highway near Perambalur.

Pitchai had been allotted the Environment portfolio by Chief Minister J Jayalalithaa.

Today, Seenivel breathed his last at a private hospital in Madurai where he had been admitted on May 18 after complaining of illness. He died of stroke.

Seenivel could not attend the AIADMK MLAs’ meeting on May 20, where Jayalalithaa was elected as the Legislature party leader.

(PTI)

No one should object Bajrang Dal for arms training camp: Governor

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Bajrang Dal

Ayodhya/Aligarh: Uttar Pradesh Governor Ram Naik today virtually defended the move of extremist Hindutva outfit Bajrang Dal which had recently organised an arms training camp for its cadres in Ayodhya.

“This arms training is for the purpose of “self defence”. There should not be any objection from any quarter. The intention behind this exercise is what counts,” Ram Naik said while replying to the queries of the media.

Naik was speaking on the sidelines of the annual function of the Saraswati Vidya Mandir school at Atrauli, about 30 kilometres from here.

Photographs of the saffron cadres brandishing rifles, swords and even lathis (sticks) in the camps in some Bajrang Dal-managed schools had gone viral on social media and news channels.

Seeking to allay apprehension on the on the issue of arms training camps, Naik said, “Those who cannot defend themselves, cannot ultimately defend the country and there is nothing wrong if some youth are getting arms training purely for self defence”.

The radical group is of the view that martial art and weapon training was needed as it could not rely on the police and politicians to protect the Hindu community from the alleged threat that they face.

The annual ‘self defence’ camp of the right-wing outfit, which was organised in Ayodhya, is now scheduled to be held in Sultanpur, Gorakhpur, Pilibhit, Noida and Fatehpur, sources in Bajrang Dal, which is the youth wing of the Vishwa Hindu Parishad (VHP), said.

Bajrang Dal has faced allegations of rioting and violence against religious minorities. The outfit has also been accused of running vigilante cow-protection programmes.

(Agencies)

Cipla – Transformation turning haywire

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Cipla

Cipla reported a muted PAT of INR809mn in Q4FY16 as it posted mere 6.7% EBITDA margin. There was deterioration in every expense line including gross margin (down 600bps YoY), employee cost (up 28% YoY) and R&D expense (jumped to 8% of sales). More worrying was management commentary which pointed to a diametric turn towards B2B strategy from its earlier stated transformation to DTM in European markets. Post Invagen consolidation, which entails 25% EBITDA margin, Cipla estimates ~16-18% EBITDA margin on mid teens revenue growth over the next 2-3 years. We see at least 20% cut in consensus estimates for FY17 and FY18. Maintain ‘HOLD’ with reduced TP of INR480 (20x FY18E EPS; INR500 earlier).

No improvement in core margin even post 3 years

While Cipla met its FY16 revenue guidance, reported EBITDA margin fell to 6.7% with every expense piece disappointing. While gross margin has worsened to lowest in past 2 years, employee expenses shot up 28% YoY. India sales (39% of sales) grew 16% YoY; South Africa (~12% of sales) declined 15% YoY in constant currency. According to the company, while Invagen was consolidated for ~40 days, its business contribution during the quarter was lower at ~20 days due to channel inventory. Cipla believes that its FY16 base margin, excluding Nexium’s limited competition benefit as well as one-off expenses during FY16, will be ~16-18%. Factors like incremental R&D spending and regulatory changes like the Bonus Act are hardly non-core, in our view.

Design for growth and profitability far from shape

Cipla seems to have taken a U-turn with the decision to return to DTM strategy from B2B and exit from certain EU markets with commensurate headcount cut. While Invagen may help the company gain a more solid base of ~USD400mn in US, we believe growth and profitability are unlikely without niche launches, which unfortunately are not yet in sight. Except India, none of the major businesses are stable growth engines; in fact, many of these are diluting value.

Outlook and valuations: Glum outlook; maintain ‘HOLD’

Long-term outlook on Cipla remains unclear versus peers. UK MDI approval does not seem exciting enough given that launched products do not seem to be doing well commercially. The company also has outstanding Form 483 for its Indore facility, which is a risk. Hence, we prune FY17/18E EPS 4%/3%. We maintain ‘HOLD/SP’.

Colgate Palmolive – Volumes on road to recovery

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Colgate Palmolive

Colgate Palmolive’s (Colgate) Q4FY16 numbers came in line with estimates—sales jumped 6.8% YoY, EBITDA fell 2.5% and PAT dipped 10.8% YoY. Recovery in volume growth at 4% YoY (highest in 4 quarters) coupled with pick up in herbal innovations indicate gradual recovery in FY17 (to be aided by soft volume growth in base). Heightened competitive intensity, especially from herbal players—Dabur clocked 6 quarters of double digit oral care growth in Q4FY16, Patanjali’s Dant Kanti crossed INR4.5bn mark in FY16—remains key overhang. We are enthused by the recent success of Palmolive handwash. Maintain ‘HOLD’.

Sales look up; brand investments to aid momentum
Key positives: (i) 4% YoY domestic volume growth (highest in 4 quarters); (ii) rise in brand investment to aid volume recovery; (iii) success in personal care (3% of India sales; 21% of global sales) can boost long-term growth; and (iv) step-up in herbal segment innovation (launched first sensitive toothpaste with clove). Key negatives: (i) 450bps jump in annual tax rate (ex INR311 prior period reversal); FY17 effective tax rate to be 32%; (ii) toothpaste market share loss to 55.7% in YTD16 (up 60bps MoM in April 2016) from 57.2% in 2015; and (iii) inventory days up to 72 days from 59 in FY15.

Q4FY16 conference call: Key highlights
Urban areas clocking marginally higher growth than rural areas. Colgate Active Salt Neem has 1.1% market share (pan-India). Barring multi-usage and low priced packs, other segments—freshness, whitening, naturals, family—posting good growth. ~300mn consumers still do not use toothpaste, this along with promoting twice a day usage (<20% brush twice daily in urban areas) present strong growth potential. Premium mix improved ~400bps to 19.4% over FY12-16. Personal care focus will be on niche products where leadership (or second position) in modern trade is likely. Outlook and valuations: To improve gradually; maintain ‘HOLD’ We estimate 7.8% EPS CAGR over FY16-18. ~20% correction in stock price in past 1 year factors in risk from herbal players. Recovery in volume growth and return of pricing growth in FY17 (FY16 pricing growth negatively impacted by phasing out of fiscal sops) are re-rating triggers. At CMP, the stock trades at 29.1x FY18E EPS. We maintain ‘HOLD/Sector Performer’ with target price of INR917.

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