INDRAPRASTHA GAS: Accumulate on every dip.Better positioned,Good stock.

Scrip Code: 532514 / IGL

CMP:  Rs. 337.45; Buy at Rs. 310-325.
Short term Target: Rs. 350, LT – Rs. 450. 

Market Cap: Rs. 4,724.30 cr. 52 Week High/Low: Rs. 374.00 / Rs. 256.70. Total Shares: 14,00,00,160 shares; Promoters : 6,30,00,080 shares –45.00 %; Total Public holding : 77,00,00,080 shares –55.00 %; Book Value: Rs. 58.96; Face Value: Rs. 10; EPS: Rs. 17.29; Div: 45 %. P/E: 19.49 times; Ind P/E: 20.88; EV/EBITDA: 11.59.

Total Debt: Rs. 55.16 cr; Enterprise Value: Rs. 4,694.06 cr

Indraprastha Gas Ltd was incorporated in 1998, provides natural gas for automobile, domestic & commercial use in Delhi, India. The company is a joint venture of GAIL (India) Limited, Bharat Petroleum Corporation Limited & the Government of the National Capital Territory of Delhi. The company is the supplier of Compressed Natural Gas (CNG) to the automotive sector in the National Capital Territory of Delhi (NCT of Delhi). As on March 31, 2010, the company operated 241 CNG stations, provided PNG to 1,82,000 domestic & 355 commercial customers.  The company also markets and distributes Piped natural Gas (PNG) for domestic and commercial users in NCT of Delhi. As on March 31, 2010, the Company is supplying Re-LNG to 21 industrial consumers in Delhi. PNG was supplied to the domestic and commercial sectors in the areas of Kaka Nagar, Bapa Nagar, Pandara Road, Pandara Park, Sunder Nagar and Sujan Singh Park. BPCL holds 3,15,00,080 shares (22.5 %) & GAIL holds 3,15,00,000 shares (22.5 %) in Indraprastha Gas Limited.

Investment Rationale

Demand still robust in NCT of Delhi and NCR for CNG: Compressed Natural Gas (CNG) volumes (90% of total volumes) grew at a CAGR of 15% between FY07-10 led by private car conversions due to favorable pricing of CNG. Considering the beneficial pricing scenario (CNG being 67% cheaper than petrol and 36% than diesel) as well as robust CNG demand in the operational areas, it is expected that CNG volumes to grow at 18% Y-o-Y from FY10 to FY13. With a view to cater to the increasing demand, IGL plans to add 40 CNG stations by FY11 (241 stations in FY10) and 30 CNG stations in FY12 and FY13 each.

PNG segment set to become the next growth driver: The Piped Natural Gas (PNG) segment which includes the relatively under penetrated domestic households and industrial/commercial customers is expected to be the key catalyst for growth going forward. On the back of strong volume growth from the relatively high margin industrial segment, it is expected that PNG volumes to grow from 87 MMSCM in FY10 to 398 MMSCM by FY13 (CAGR of 66%).

End of Marketing Exclusivity should not pose a hurdle in Delhi: The biggest entry barrier for any new player in CGD business in Delhi is the non-availability of cheap gas (APM gas or KG-D6) gas. The government has allotted 2 MMSCMD of gas to IGL for their Delhi operation which is currently utilized fully. In the event of the government increasing the allocation of APM or KG-D6 gas in Delhi, IGL would get first preference over any new player with its already established network in Delhi.

Ability to pass on high input costs: Historically, IGL has consistently been able to pass on cost increases by way of price hikes of CNG which helped in sustaining its margins. With blended cost of gas expected to be Rs 13.16 per SCM in FY13 as compared to Rs 5.96 per SCM in FY10, gradual price increases (recently hiked prices by Rs. 1.25 per SCM with effect from Jan 1, 2011) would be a key to sustain its margins. With petrol and diesel prices expected to increase going forward, it is believed that IGL should not find it difficult to pass on cost increases by way of price hikes.

Outlook & Valuation: The correct measure to evaluate operating performance for the Consumer Gas Distribution business is at EBITDA level. Drived by robust demand in the CNG segment and increasing revenues from PNG segment led by industrial volumes, IGL’s revenues to grow at an AGR of 45% over FY10-13E. The aggressive expansion plans for establishing the CNG and PNG infrastructure in the operational areas of IGL will reap rich dividends going forward. At current market price of Rs. 300 the stock trades at a P/E of 14.3x and 11.6x for FY12E and FY13E respectively. It will be a good BUY on IGL with a price target of Rs. 350/share.

KEY FINANCIALS	FY09	FY10	FY11E	FY12E	FY13E
SALES (Rs. crs)	852.80	1,078.10	1,723.00	2,414.70	3,304.20
NET PROFIT (Rs. crs)	172.50	215.50	254.30	293.40	363.50
EPS (Rs.)	12.30	15.40	18.20	21.00	26.00
PE (x)	24.40	19.50	16.50	14.30	11.60
P/BV (x)	6.10	5.10	4.20	3.40	2.80
EV/EBITDA (x)	13.60	10.90	8.90	7.40	6.00
ROE (%)	25.20	26.10	25.30	23.90	24.00
ROCE (%)	40.30	43.30	34.80	33.00	35.10

I maintain my accumulation status on IGL with the price target of Rs. 350 in short term. For long term my target is of Rs. 450. As I always say do respect the market and keep a strict stop loss of 8 % on your every purchase.

Tata Steel Ltd : ACCUMULATE on every dip.

Scrip Code: 500470 / TATASTEEL

CMP:  Rs. 614; Buy at Rs.590 - 610.00;
Short term Target: Rs. 680.00, LT – Rs. 750;Market Cap: Rs. 58,895.76 Cr;52 Week High/Low: Rs. 737.00 / Rs. 449.10;Total Shares: 95,92,14,450 shares; Promoters : 29,34,92,790 shares –30.60 %; Total Public holding : 66,57,21,660 shares –69.40 %;Book Value: Rs. 388.24; Face Value: Rs. 10; EPS: Rs. 76.32; Div: 80 %;P/E: 8.05 times; Ind P/E: 11.44; EV/EBITDA: 8.29.

Total Debt: Rs. 27,287.73 Cr; Enterprise Value: Rs. 90,962.30 Cr.

Tata Steel Limited was established by Mr. Jamsetji Nusserwanji Tata in 1907. It was formerly known as The Tata Iron and Steel Company Limited and changed its name to Tata Steel Limited in 2005. Tata Steel Limited is a diversified steel producer. It has a global presence in 50 markets and manufacturing operations in 26 countries. The Company provides steel for different industries, which include construction, automotive, aerospace, consumer goods, materials handling, energy and power, rail, engineering, shipbuilding, packaging, and security and defense. Tata Steel manufactures and processes steel, which includes hot-rolled coil through to high-gloss, pre-painted perforated blanks, wire rod and wire, sections, plate, bearings and tubes.  Its major branded products are Tata Steelium, Tata Shaktee, Tata Tiscon, Tata Pipes, Tata Bearing and Tata Agrico. On 20 October 2009, TATA STEEL won bid to acquire Anglo – Dutch steelmaker CORUS at $7.6 billion. On January 30, 2007, Tata Steel purchased a 100% stake in the Corus Group at 608 pence per share in an all cash deal, totally valued at USD 12.04 Billion. The deal is the largest Indian takeover of a foreign company and made Tata Steel the world's fifth-largest steel group.

Domestic operation to remain out performer

Tata Steel India has been showing robust performance and the management is very confident that it would continue to out performer with lower cost of production due to good backward integration and strong growth in domestic demand. The company should see a volume of 1.68 million tonnes during Q4FY11. For FY12 it expects a volume of 6.8 mt from the domestic operation, which suggests the 2.9 mtpa brown field expansion in Jamshedpur to add primarily to FY13 volume. The expansion project is on track and the blast furnace is likely to be commissioned by August 2011 itself. Orissa project also has been kicked off with basic civil works etc. Tata Steel has been focusing to increase its market share in value added categories. JV with Nippon Steel and Bluescope steel, setting up of CR mill in Tinplate Company etc are steps in that direction.

Overseas operations likely to stabilize going forward

Concerns still remain on the overseas operations especially in the South East Asian markets. Low difference between scrap and rebar prices has been a concern for Nat Steel, while lack of major spending by the government, political stability along with higher raw material costs have been putting pressure on Thailand operations. The management however feels things to be stabilized in the coming quarters. TSE on the other hand should not see much improvement in EBITDA/ tonne during Q4FY11, however, the incremental impact of the price hike should help it to post much better numbers during Q1FY12. For FY12 TSE is likely to post a volume of 15 mt.

Riversdale mining has been a strategic investment for Tata Steel. The company currently has 27.1% stake in Riversdale which is valued at Rs.4796 Cr (Rs.50/sh) and is not in the process of selling any stake. New Millennium DSO project is likely to start operation in Q2FY12. In FY13 the company is likely to get 2 mt iron ore. Consolidated debt position remains above US$11bn and the management does not expect that amount to go up significantly. Further money rising of Rs 2000- 2500 Cr can be done through (click) perpetuity bonds.

Outlook and Valuations

At the CMP of Rs. 614, the stock is trading at 8x its FY12E EPS and 5x FY12E EV/ EBITDA. It is believed that the domestic operation would continue to perform well due to better demand and stronger backward integration. On the overseas subsidiaries, the value of domestic operation comes at 6.5x FY12 EV/ EBITDA and overseas subsidiaries at 4x FY12 EV/ EBITDA to reach a fair value of Rs 695/ share. Domestic operations to be the backbone for the company due to better backward integration and strong demand growth expected in India. Price hike during January to March period across different product categories in various stages should improve the EBITDA/ tonne for Q4FY11. Concerns remain on overseas operations due to higher costs. Volume is likely to be higher from Tata Steel Europe (TSE), however, not for the South Asian operations. Factoring in the concerns the FY11 and FY12 EPS comes to Rs 58.7 and Rs 62.0 respectively. Target price to Rs 695/ share; A ACCUMULATE on the stock.

KEY FINANCIALS	FY09	FY10	FY11E	FY12E
SALES (Rs. crs)	1,47,329.3	1,02,393.1	1,13,064.8	1,20,086.7
NET PROFIT (Rs. crs)	9,045.4	(643)	6,068	6,405
EPS (Rs.)	104.1	(6.8)	58.7	62.0
PE (x)	4.4	--	10.8	10.3
P/BV (x)	1.6	2.4	1.8	1.4
ROE (%)	26.4	--	18.8	16.0
ROCE (%)	13.7	--	9.7	9.9

I have accumulation status on TATASTEEL with the price target of Rs. 680 in short term. For long term my target is of Rs.750. As I always say do respect the market and keep a strict stop loss of 8 % on your every purchase.

Is it Time to worry about the Dollar??

The Fed’s so-called “QE2″ (Quantitative Easing/second round) which is purchasing of U.S. Treasury bonds by printing more and more currency notes to fulfill its purchases are supposed to come to an end on June 30, 2011, which would make July a crucial month – for the US economy, for the performance of the dollar and most of all for the Emerging Markets like INDIA.

For the last two years, the U.S. economy has been supported by the twin catalysts of fiscal and monetary stimuli. Fiscal stimulus seems to continue for some time as US have year’s $1.6 trillion deficit. But monetary stimulus is another matter. 

Since QE2 began in November 2010, the Fed has been buying about two-thirds of the Treasury bonds issued – or about $600 billion ($60,000 Cr) of the $900 billion ($90,000 Cr) in total bonds to be issued between November and June. Simply extending QE2 won’t solve this problem. The Fed would then be buying both too much of debt and not enough of debt at a same time.

Treasury bond purchases of $75 billion ($7,500 Cr) a month would be enough to push inflation sharply upwards. This is, after all, the very same policy that gave the German Weimar Republic its trillion-percent inflation. On the other hand, even if the Fed buys $75 billion ($7,500 Cr) of Treasuries a month, this will bring with them the need to place an additional $75 billion ($7,500 Cr) worth of bonds every month. And with inflation rapidly accelerating, the chances of a bond market and dollar crisis would still be great, which will affect the flows of foreign money (FII’s money) to the emerging markets like India. This is a concern!!!!

The one way to avoid the Death of the Dollar

With the U.S. market struggling under the burden of rising inflation and some ill-advised monetary and fiscal moves, the death of the dollar is looming as a worst-case – but still possible – scenario.

The Fed has one chance to avoid this outcome. Just to have a chance of staying level with inflation. U.S. central bank policymakers must boost short-term interest rates at least to the 3% level. That would burst the global commodities bubble like one in Sliver, and reduce inflationary pressures. With that, the Fed could then –continue with a “modified QE3.” For instance, it could buy $50 billion ($5,000 Cr) of bonds in the third quarter and $25 billion ($2,500 Cr) in the fourth quarter, thus breaking the Treasury bond market. With inflationary pressure reduced by the interest-rate increase, the chances of a Treasury-bond-market meltdown would thus be reduced to almost zero. Interest rates would rise and bond prices would decline, but it will be in an orderly manner. And inflation, if it continued, would do so at a more-moderate pace.

In fact, even inflation – should it remain stronger-than-desired – could be moderated, simply by raising rates a bit more, perhaps in several increments. And the U.S. dollar would be saved. There’s only one problem with this scenario and that won’t happen unless Bernanke won’t boost rates.

Visit my previous post on click here-  US PRINTING NOTES

TATA MOTOR DVR : Buy for Dividend yields.

Scrip Code: 570001 / TATAMTRDVR

CMP:  Rs. 696.20; Buy at Rs.670 – Rs.685
Price Target: Short term Rs.725;Long term Rs. 920.
Market Cap: Rs. 6,707.30 Cr.
52 Week High/Low: Rs.940 / Rs. 407.35

Total Shares: 9,63,41,706  shares(15.2% of Sh Capital); Promoters : 1,84,01,430 shares – 19.10 %; Total Public holding : 7,79,40,276 shares – 80.89 %;

Book Value: Rs. 237.37*; Face Value: Rs. 10.00; EPS: Rs.28.99*; Div:150* %.

P/E: 23.80* times; Ind P/E: 32.39*; EV/EBITDA: 18.68*
Total Debt: Rs. 3,163.18* Cr; Enterprise Value: Rs. 1857.52* Cr

*Being DVR a class of equity capital, Tata motors financials are used.

Tata Motors, founded in 1945, was formerly known as Tata Engineering And Locomotive Company Limited changed its name to Tata Motors Limited in 2003. The company is leading manufacturer of commercial & passenger vehicles in India is among the top 3 passenger car manufacturers in India, the world's 4^th largest truck manufacturer, and world's 2^nd largest bus manufacturer. Tata Motors has operations in UK, South Korea, Thailand & Spain. The company has many subsidiaries but the most prominent among these is Jaguar-Land Rover (JLR) (a British car manufacturing company) which it acquired in 2008 at $230 Cr and turned it from a loss making company to a profit making company. JLR contributes 54% to the company’s revenues. The company’s product portfolio ranges from the ultra low cost car Nano to the luxurious cars from JLR, from its ground breaking invention of the light commercial vehicle (LCV) the Ace to the international Prima Truck range.

Experienced and Efficient Management: Tata Motors is a part of the Tata group which is headed by Mr. Ratan Tata, chairman of Tata Motors Ltd. Also the management includes Carl Peter Foster who has a vast experience. He headed the BMW Group for 20 years.

Strong Consolidated Growth: Tata motors had acquired Jaguar and Land Rover from Ford Motor Co. During acquisition the unit was a loss making one. But the management at Tata motors was capable enough to achieve a turn around and not just TTM stopped losses but converted it to a profitable venture. Today around 54% of Tata Motors Revenues comes from JLR.

Good Product Mix: Tata motors had begun as a commercial vehicle manufacturer. A decade ago, Tata Motors had begun to manufacturer passenger vehicles. Today Tata Motors is one of the leading automobile makers in the world. It is India’s largest Automobile manufacturer. Its passenger cars range from the worlds cheapest car, the Nano, to its newest cross over the Aria to the luxurious cars from JLR. The company has a vast portfolio of commercial vehicles ranging from its super successful LCV, the Ace, to the its sturdy tractor trailers, haulage vehicles, buses, hybrid buses, etc to the Prima trucks built for sale in international markets.

My view on Valuations: The performance of the company increased considerably during the Q2FY11 and Q3FY11 and the outlook for Tata Motors continues to be positive, given the robust growth in the economy, increase in sales and profitability of JLR, improvement in industrial and mining sector, completion of ramp-up at its Sanand plant for Nano. The only concern is the supply constraint it faces from Ford for engines and from other suppliers for raw material. At the CMP of Rs. 696.20, Tata Motors DVR is trading at 5x its FY11E EPS of Rs.138.4 and at 4.37x its FY12E EPS of Rs.159.2.

Globally DVRS trade between 10% - 15% discount to its Equity shares, TTM DVR currently trades at 44 % discount to its Equity shares. One should buy TTM DVR at 40% - 45% discount to its EQ SH & Sell when DVR is 10% - 15% discount to its EQ SH. TTM DVR can be a good “BUY” with a target price of Rs.900, with an upside of 30% in the long term.

Expect discount to the Equity Shares reduce (to at least 30%) over the next one year given the attractive valuations and increasing free float. For the shorter term it can be a good BUY, with a price target of Rs.725.00

KEY FINANCIALS	2010	2011E	2012E
SALES (Rs. crs)	92,519.3	1,15,576.8	1,30,024
NET PROFIT (Rs. crs)	1,526	8,680.4	9,986.6
EPS (Rs.)	44.1	138.4	159.2
PE (x)	28.9	5.0	4.4
P/BV (x)	9.1	2.3	1.6
EV/EBITDA	10.1	3.9	3.5

I maintain my BUY status on TATA MOTOR DVR with the price target of Rs. 725 in short term. For long term my target is of Rs.920. As I always say do respect the market and keep a strict stop loss of 8 % on your every purchase.
TO KNOW MORE ON DVR's CLICK HERE

ILandFS TRANSPORT : Accumulate on every dip

Scrip Code: 533177 / ILFSTRANS

CMP:  Rs. 244.95; Buy at Rs.235 - 240.
Price Target: Rs. 300.00.
Market Cap: Rs. 4,745.96 Cr.
52 Week High/Low: Rs. 367.80 / Rs. 172.00

Total Shares: 19,42,67,732 shares; Promoters : 14,58,67,769 shares – 75.09 %; Total Public holding : 4,83,99,963 shares – 24.91 %;

Book Value: Rs. 81.11; Face Value: Rs. 10.00; EPS: Rs. 16.4; Div: 30 %.

P/E: 14.93 times; Ind P/E: 14.57; EV/EBITDA: 9.69
Total Debt: Rs. 1,525.00 Cr; Enterprise Value: Rs. 6,270.96 Cr

Fair Value: Rs.300.

IL&FS Transportation Networks Limited engages in the development, implementation, operation, and maintenance of surface transport infrastructure projects in India & internationally. Company constructs and operates national and state highways, roads, flyovers, and bridges under the Build, Operate, and Transfer (BOT) basis. It also provides maintenance services primarily for highways and roads in Spain, Portugal, and Latin America; advisory and project management for BOT road projects; trades in materials used in the maintenance of roads; and undertakes construction contracts. ITNL was formerly known as Consolidated Transportation Networks Limited and changed its name to IL&FS Transportation Networks Limited in September 2005. The company was incorporated in 2000 and is based in Mumbai, India. IL&FS Transportation Networks Limited is a subsidiary of Infrastructure Leasing & Financial Services Limited.

Projects

ILFSTRANS has Rs 13,460 Cr worth of project capital works remaining to be executed in over the period of 3-4 years. ILFSTRANS receives 10% of total project cost (TPC) as upfront charges and further 5%-8% as consulting charges from its subsidiaries. Further, the team of 120 engineers in the company designs supervises and out sources construction work to local subcontractors. This model allows it to focus on the core activities which optimizes leverage and maximizes the returns on assets and return on net worth.
ILFSTRANS collects Rs. 52 lakhs average toll per day from 5 operational road projects which is expected to increase by 9.8x up to Rs 5.12 crore per day by FY14E primarily led by functioning of 10 new road projects. The increase in toll revenue by 9.8x will leave enough free cash flow in the system.

National Highway Authority of India (NHAI) has planned to award 100 road projects of 7000 km to be awarded in current financial year. ILFSTRANS maintained 9% market share in FY10 and it is believed that it will be a natural beneficiary to grab these opportunities.

Valuation

Valuation of ILFSTRANS on a SOTP method comes to Rs. 326. The value on   standalone basis, in which the company derives its revenues from advisory fees and EPC work comes at Rs. 98 based on the 5x its FY11E EPS of Rs 19.6. It is assumed that the cost of equity of 13% for toll & 12.5% for annuity projects which brings the valuation of existing BOT projects of ILFSTRANS at Rs 183.4, investment at Rs 19, Elsamex at Rs 19/share and ILFSTRANS’s stake in Noida Toll Bridge at Rs 6.7/ share.

KEY FINANCIALS	2010	2011E	2012E	2013E
SALES (Rs. crs)	2,403	3,741	6,277	7,906
NET PROFIT (Rs. crs)	335	442	546	655
EPS (Rs.)	14.6	19.3	23.8	28.6
PE (x)	20.0	15.2	12.3	10.3
P/BV (x)	3.9	3.1	2.7	2.2
RoE (%)	19.7	20.4	21.9	21.7
RoCE (%)	14.4	13.3	12.9	12.6

I maintain my accumulation status on ILFSTRANS with the price target of Rs. 255 in short term. As I always say do respect the market and keep a strict stop loss of 8 % on your every purchase.

Cairn India : The only beneficiary of raising Oil Prices !!

Scrip Code: 532792 / CAIRN

CMP:  Rs. 354.35; Buy at current levels
Target: Rs. 370.00
Market Cap: Rs. 67,352.59 Cr.
52 Week High/Low: Rs. 368.05 / Rs. 253.40

Total Shares: 190,07,36,406 shares; Promoters : 118,32,43,791 shares – 62.25 %; Total Public holding : 71,74,92,615 shares – 37.75 %

Book Value: Rs. 167.80; Face Value: Rs. 10.00;
Total Debt: Rs. 3,503.00 Cr; Enterprise Value: Rs. 68,732.59 Cr

Cairn India is an Exploration and Production company, a leading player in the Indian oil and gas industry. Cairn India has its interests in 15 blocks. The firm has made more than 30 oil and gas discoveries in India during the last 13 years, was listed in January 2007 through an IPO after it spun off from its parent Cairn Energy Plc (current stake: 65%). Cairn has working interest in 14 E&P blocks. Ravva and Cambay blocks produce 51.4k boepd (Cairn WI 14k bpd).

Vedanta along with its subsidiary SESAGOA has made an offer of $8.5 - $8.6 billion to acquire controlling stake (51-60%) in Cairn India at Rs405/share with Rs50/share as non-compete fee. The deal will be 20 % from SESAGOA at $3 bln & 31 % from Vedanta. The open offer will be at Rs.355/share. However, the roadblock in the deal due to government and ONGC stand would keep stock price under pressure. Cairn has commissioned three trains at MPT and pipeline section from MPT to Salaya, through which it is delivering crude to refiners.

Latest developments on Cairn-Vedanta deal

The Oil Ministry has imposed 11 pre-conditions on Cairn India and its prospective buyer Vedanta Resources, for approving the deal. ONGC and Vedanta have shown willingness to accept most of the conditions except the change in royalty obligations and surrender of their rights to take legal resource on disputes with the government or its technical advisor DGH.

Currently, Cairn India does not pay any royalty on the crude and has even contested the payment of Rs 2,500 per ton cess on its 70% share in Rajasthan block.

Some of the key pre-conditions are as follows:

Royalty costs recoverable. It means royalty costs should be recovered from the sale of crude oil from the field before profit is shared between the companies and the government. ONGC's royalty obligation is in excess to US$3 Bn (Rs.14500 Cr) for the approved crude oil production for the life-time of the field.

Withdraw arbitration proceedings for Cess: ONGC also wants Cairn to withdraw arbitration proceedings challenging its liability to pay cess for oil produced from the Rajasthan block. The Company is currently paying under protest its share of cess at Rs.2500/Ton.

Guarantees to be provided: Vedanta will have to give financial and performance guarantee same as given by Cairn Energy.

Retain Technical capabilities: Vedanta has to retain the Cairn India's existing technical capability.

Adhere to the approved field development plans: Vedanta has to adhere to the approved field development plans and work programmes of the oil and gas fields as per contracts.

If Cairn India accepts the first two conditions (though looks very unlikely) then the valuations will be very expensive for Vedanta and will not make commercial sense for it to acquire stake in it. ONGC's contention is that its returns from its investment in the field should at least be higher than the cost of capital which is about 13-14%. As per Sebi regulation, an open offer requires 55-60 days to complete. The shareholders approval taken by Cairn and Vedanta is valid up to 15th April'11.

Valuation Details - 

I have tried to value CAIRN India on DCF method of valuation with 12.04% WACC. With the rise in the international crude oil price, the realization for the Company is also expected to improve. However, the stock price has under-performed in spite of improving fundamentals mainly due to uncertainty over the Cairn-Vedanta deal and also on the royalty and cess payment. It is expected that in the next twelve days i.e by 15th April 201, final outcome of the deal should be declared. Based on the current valuations the stock is available very cheap and is recommended to BUY with a target of Rs.378/share.

Based on the Rajasthan exploratory portfolio upsides and advancing production from the MBA block the Fair Value for the stock comes at Rs.378/share. In the DCF model, it is assumed a long-term static average crude oil price of US$86/bbls; Cairn crude oil realization @ 10% discount; Cess at Rs.2575/MT; plateau production at 240kbopd.

Rajasthan production details

In Q3FY11, the average gross production from Rajasthan block was 124.9 Kbopd as compared to 15.43 kbopd in Q3 FY10 and 116 Kbopd in Q2FY11 registering a growth of 709% YoY and 7.6% QoQ basis.

Cash (Net debt) as on 31st Dec'10 was Rs. 870 Cr. The Company replaced its rupee facility of Rs.4,000 Cr with a lower financing of Rs. 2,250 Cr. My estimates is of FY11E EPS of Rs.33.9 and FY12E EPS of Rs.49.9.  Stock is cheaply valued at 4.89x EV/EBIDTA and 6.3x P/E based on FY12 earnings estimates . The Brent crude oil price is trading around USD$107/bbls which is the benchmark for Cairn's crude oil. With the rise in the international crude oil price, the realization for the Company is also expected to improve. However, the stock price had under-performed in spite of improving fundamentals mainly due to the uncertainty over the Cairn-Vedanta deal (royalty and cess payment). It is expected that in the next 3 months, final outcome of the deal should be declared so based on the current valuations the stock is available very cheap and recommended to BUY Cairn India with a price target of Rs.378/Share.
NOW only concern on price movement is  that Petronas, a Malaysian oil major holds 14.91 % of Cairn a 28,34,31,438 shares, the BUZZ is that it may sell its stake in open market in order to save Capital Gain Tax, at current price of Rs.354.35 , Petronas's stake in Cairn is worth Rs.10,043.39 Cr. For which Petronas has shelled out just above Rs.5,000 Cr to buy 28.34 Cr Shares. If sale happens it will cause the prices to fall but the question will be that Why would Petronas Sell? lets hope ....till then some key financials -

KEY FINANCIALS	2010	2011E	2012E
SALES (Rs. crs)	1,623	11,590.6	15,695.1
NET PROFIT (Rs. crs)	1,036	6,433.3	9,457.6
EPS (Rs.)	5.5	33.9	49.9
PE (x)	57.5	9.3	6.3
PRICE/BOOK (x)	1.76	1.49	1.23
EV/EBITDA (x)	58.68	7.05	4.89
RoNW (%)	3.1	17.3	20.9
RoCE (%)	2.2	17.8	24.4

I maintain my BUY status on CAIRN INDIA with the price target of Rs. 370 in short term. As I always say do respect the market and keep a strict stop loss of 8 % on your every purchase.

SESA GOA : Accumulate, Great business at great price !

Scrip Code: 500295 / SESAGOA

CMP:  Rs. 263.80; Buy at current levels ;Short term Target: Rs. 280.00 , LT – Rs. 350 ;

Market Cap: Rs. 22,678.95 Cr ;

52 Week High/Low: Rs. 495.00 / Rs. 254.75 ; Total Shares: 85,97,02,559 shares; Promoters : 47,91,13,619 shares – 55.73 %; Total Public holding : 9,95,10,958 shares – 11.58 %; Book Value: Rs. 86.75; Face Value: Rs. 1.00; EPS: Rs. 37.07; Div: 325 % ; P/E: 7.91 times; Ind P/E: 34.99; EV/EBITDA: 8.94 ; Total Debt: Rs. 1,992.80 Cr; Enterprise Value: Rs. 25,622.57 Cr.

Sesa Goa incorporated in 1954, is India's largest producer & exporter of iron ore in the private sector and it currently accounts for 1.5 % of world trade in iron ore & is amongst lowest cost iron ore mining company. Its mines are located in the Goa, Karnataka & Orissa. It exported approx. 5 mn tons of iron ore, fines and lumps to Japan, China, Europe.  In fiscal 2010, Sesa Goa produced 21.4 million tonnes and sold 20.5 million tonnes of iron ore. In April 2007, Anil Agarwal – Vedanta Resources acquired a controlling stake of 51 % in Sesa Goa from Mitsui & Co, Japan, for US$ 981 million.   As of 31 March 2010, SESAGOA own or have the rights to reserves & resources consisting of 275 million tonnes of iron ore.

Budget 2011-12 - Impact Analysis

Budget proposes higher export duty on iron ore: The Union Budget 2011-12 has proposed raising the export duty on iron ore to ad volerm 20% on lumps and fines. Currently, lumps are taxed at 15%, while fines are taxed at 5% on ad volerm basis. Higher export duty to impact Sesa Goa's profitability: Sesa Goa generates 90% of its net sales from iron ore exports. Hence, the Budget proposal would result in an increase in the company's export duty expenses. In line with this, I have estimated the export duty expenses for Sesa Goa to be Rs.1,903 Cr for FY2012. EBITDA estimate for FY2012 stands by 26.1% to Rs. 4,008 Cr.

Outlook and valuation:

 I expect Sesa Goa's iron ore sales volume growth to remain muted in FY2012. Nevertheless, the spot iron ore prices have risen steeply during the past three months on the back of improved demand from China. Hence, going forward, it is believed that rising expenses will be more than offset by the rising iron ore prices. However, lumpiness in iron ore demand, huge swings in the iron ore prices, logistical issues in Goa and stricter regulations imposed by the government are the key concerns for Sesa Goa in the near-to medium term. At current levels, the Sesa stock trades at 3.0x FY2011E and 2.7x FY2012E EV/EBITDA. On P/BV basis, the stock is available at 1.8x FY2011 and 1.5x FY2012 estimates. I continue to value Sesa Goa at 3.5x FY2012 EV/EBITDA, but at target price of Rs. 280. I recommend Accumulate on the stock.

Assumptions

Particulars	FY11E	FY12E
Iron Ore
Sales volume (mn tonnes)	20.3	30.4
Average realisation (US$/tonne)	80.0	90.0
Coke
Sales volume (tonnes)	2,60,000	3,65,000
Average realisation (US$/tonne)	400	507
Pig Iron
Sales volume (tonnes)	2,37,500	4,06,250
Average realisation (US$/tonne)	475	578
US $ / Re	45.6	45.0

KEY FINANCIALS	2010	2011E	2012E
SALES (Rs. crs)	5,798	7,985	9,513
NET PROFIT (Rs. crs)	2,629	3,793	3055
EPS (Rs.)	29.6	42.6	34.3
PE (x)	8.9	6.2	7.6
PRICE/BOOK (x)	2.8	1.8	1.5
EV/EBITDA (x)	5.5	3.0	2.7
RoNW (%)	41.6	36.0	21.1
RoCE (%)	41.7	35.8	26.7

UPDATE - SESA GOA announced on 22nd March  2011, that it has acquired the assets of upcoming Steel Plant Unit of BELLARY STEEL & ALLOYS LTD (BSAL) for an all Cash deal at Rs. 220 Crore.

BSAL was in process of setting up a 0.5 mtpa Steel plant at Bellary. The properties of the under construction plant has free hold land of 700 acres, buliding & structures, plant & machinery and other assets of steel plant. The asset is transfered on As is where is basis as of 22 March 2011.

Sesa Goa is currently assessing the best way for commissioning the steel plant at the earliest. The plant is located at Karnataka having close proximity of national high way, railway & source of water.

I maintain my accumulation status on SESAGOA with the price target of Rs. 280 in short term. For long term my target is of Rs.350. As I always say do respect the market and keep a strict stop loss of 8 % on your every purchase.

Renewable energy much better than Nuclear disaster

Japan's nuclear reactor blasts fearing melt down

JAPAN met with an unforeseen disaster making its nuclear reactors blast due to earth quakes, this has raised the question about dependency of countries like India on Nuclear power plants for the need of power supply's. Many environmentalist world wide are questioning on the safety of reactors/radiation and its effects on human life's. Even our D-street have concerns and there is a school of thought about India would never be able to complete its nuclear projects in next 15 - 20 years due to many political pressures and hence will not able to satisfy the power demands. 

  I gave a thought on it and here are some of the facts which somewhat we already know & some in my opinion I want to draw your attention to –

1    Maharashtra power demand is 16,000 Mw currently.

2    State owned Mahagenco provides 13,500 Mw, which includes 1,500 Mw purchased from outside.

3    Demand in maharashtra is expected to grow to 23,800 Mw.

4    Mahagenco to provide additional 5,000 Mw.

Now to meet these demands Jaitapur Nuclear Power Project was proposed & similar other nuclear power projects were proposed. As Japan met with a nuclear disaster, Indian govt. have started facing the political pressure to drop these nuclear projects concerning public safety. And the only option to meet the ever growing power demands is Renewable Energy which are cost effective & more environments friendly.

Let’s compare the Capital costs of these projects –

1    Jaitapur Nuclear Power Project is of 9,900 Mw in 938 hectares of total land, which will have 6 reactors of 1,650 Mw capacities each, to be built in collaboration of Nuclear Power Corporation of India Ltd and AREVA a French company. These European Pressurised Reactors (EPR’s) will cost Rs. 20 Cr/Mw or Rs. 8.00 – Rs.9.00 / Unit.

2    Pressurized heavy water reactor with indigenous technology costs Rs. 8 Cr/Mw. Needs about 1 to 4 Square Kilometers of land.

3    Jawaharlal Nehru National Solar Mission to generate 1,000 Mw by 2013 & 20 Gw by 2022 cost to be Rs. 15 Cr/Mw and needs 6.4 Acres of land. (1Gw = 1,000Mw)

4    Indian Wind Energy has installed capacity of 11,807 Mw.  As per Indian Wind Energy Association the potential of electricity generated by wind in India is about 65,000 Mw. Currently wind energy cost Rs. 5 Cr – Rs. 5.6 Cr/Mw and needs about 0.25 Acres of land for 1Mw.

5    Hydro projects cost Rs. 5.4 Cr – Rs. 6 Cr/Mw, Coal Projects cost Rs. 5 Cr/Mw, Bio mass Gas project cost Rs. 5.5 Cr – Rs. 6 Cr/Mw.

So its makes sense to go towards Renewable Energy, India produces 1.67 lakhs Mw against the demand of 3.70 lakhs Mw by 2017 - 18. The per capita power consumption in our country is at 700 units which is much lower than 11,000 in US & 2,800 units in China.

The Power Mix in India (2010) is - Thermal: 65 %; Hydro: 25 %; Nuclear: 3%; Renewable: 7 %.

The Installed capacity as on 30th November 2010 - Coal is at 89,778.38 Mw; Hydro is at 37,367.40 Mw; Gas is at 17,624.85 Mw; Diesel is at 1,199.75 Mw; Nuclear is at 4,560 Mw; Wind & Solar energy is at 16,786.98 Mw.

This shows that even if the nuclear power projects which contributes 4,560 Mw are not allowed due any reasons we still can manage to mop up our power demands. We can utilise this money by giving subsidies & financing to renewable energies. Looking at the current scenario I think that govt. will have no option rather than to promote alternative energy resources and companies like SUZLON ENERGY will gain from it. NUCLEAR PLANT OR NO NUCLEAR PLANT INDIA WILL SHINE AS IT WAS & AS IT IS……..

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