CRISIL LTD : A VALUE PICK !!!

Scrip Code: 500092 / CRISIL

CMP:  Rs. 917.45; Buy at current levels.
Short term Target – Rs. 1000; Medium to Long term Target - Rs.1250; STOP LOSS – Rs. 844.00; Market Cap: Rs. 6,437.59 Cr; 52 Week High/Low: Rs. 1,150.30 / Rs. 731.75

Total Shares: 7,01,68,390 shares; Promoters : 3,72,09,480 shares –53.03 %; Total Public holding : 3,29,58,910 shares – 46.97 %; Book Value: Rs. 52.05; Face Value: Rs. 1.00; EPS: Rs. 28.30; Div: 1100 % ; P/E: 32.41 times; Ind P/E: 26.67; EV/EBITDA: 24.04.

Total Debt: ZERO ; Enterprise Value: Rs. 6,205.73 Cr.

CRISIL LTD: The Company was founded in 1987 and is headquartered in Mumbai, India. CRISIL Limited operates as a subsidiary of Standard & Poor's LLC. It was formerly known as The Credit Rating Information Services of India Limited and changed its name to CRISIL Limited in December 2003. CRISIL Limited, together with its subsidiaries, provides ratings, research, and risk and policy advisory services primarily in India, the United Kingdom, and the United States. It offers services for a range of debt instruments, in the areas of credit ratings; research on India's economy, industries, and companies; financial research and analytics outsourcing; fund services; risk management; and infrastructure advisory services. The company provides research and analytics services to commercial and investment banks, insurance companies, corporations, consulting firms, private equity players, and asset management firms. It offers ratings for long-term instruments, such as debentures/bonds and preference shares, fixed deposits, and loans, as well as pass through certificates and structured finance instruments; and short-term instruments comprising commercial papers, certificates of deposits, and short-term debts. The company also provides equity and corporate research, industry reports, customized research assignments, subscription to data services, and initial public offer grading services. In addition, it offers fund research, rankings, and ratings to mutual funds industry; infrastructure advisory services in the renewable energy, transportation and logistics, oil and gas, and minerals sectors; and risk management services to banks, financial institutions, and corporations. The company has a joint venture with the National Stock Exchange of India Limited to provide various indices and index-related services and products to the capital markets. CRISIL is compared with Nice Information Services Co. Ltd, Korea Ratings Corporation and Koryo Credit Information all of these are from South Korea.

Investment Rationale:

CRISIL’s rating businesses like outsourcing from S&P and SME rating have done well during the quarter and helped it to post 7 % growth in the overall rating business. However, with margins in those businesses are at fairly lower level than the bond/bank loan rating business, the growth in revenues in these businesses hasn’t helped the margins with rating business margins declining by 3.30 % YoY. While the debt market activity has been lackluster for quite some time, it slowed down considerably in the last quarter with fresh debt issuances falling to Rs. 48,320 Cr as against Rs. 1.1 trillion in Q4FY12. Rating revenues grew by just 7.2 % YoY (-3.2 % QoQ) to Rs. 90.7 Cr, lowest in more than five years. With no new projects coming up & with given poor investment climate, the debt issuance as well as credit demand are likely to remain low over the next couple of quarters, thereby keeping the ratings revenue under pressure. CRISIL Q2CY12 results were significantly below expectation with operating revenue growing by just 6.5 % YoY (-2.6 % QoQ) to Rs. 220 Cr. The sluggish growth was led by slowdown in all the three segments like Rating, Research and advisory with major disappointment coming from research business which grew by just 10.2 % YoY, lowest since Q3CY09. The other segments rating and advisory also reported dismal numbers with rating growing by just 7.2 % YoY and advisory revenue declining by 21.6 % YoY. The management has attributed the lower growth in research to slowdown in domestic piece which has reported negative growth. Domestic piece which is mainly CRISINFAC broadly constitute 18-20 % of the total research revenues

Outlook and Valuation:

CRISIL House - the 2,11,610 sq.ft
 Corporate Head Office
Powai, Mumbai 

CRISIL has assigned ratings to 31,000 SMEs over last six years which it believes will gradually migrate over next few years as Crisil’s bank loan rating and bond rating customers. Within Crisil’s research business, despite having weak financial conditions globally, IREVNA and Pipal have added significant number of customers over last 6-9 months. Over and above that, merger of CDL will result in further inorganic client additions into the kitty. It is believed that significant addition of clients in research (organically and inorganically through acquisition of coalition) will reflect in research revenues in H1CY13. The pace of growth for CRISIL in research has cooled off from high of 44 % in CY11 to 24 % in Q1CY12 and further to 10 % YoY in Q2CY12. The management has attributed lower growth in research due to the slowdown in domestic price. Moreover with a significant number of new clients addition in Coalition Development Ltd, which was acquired last quarter, will further give traction to the research revenues. CRISIL’s staff costs have gone up by 11% for H1CY12 while other operating expenses have remained flat. While operating expenses remained flat reflecting CRISIL’s ability to keep the costs under check, it is believed that the rise in staff costs reflects further strong additions to employee base. CRISIL has hedged almost 55 % of its revenues as against 40 % in CY10. Of the USD revenues, approximately 70 % of the revenues are hedged against 51 % in the previous year. The hedging of the revenues has capped the revenue as well as EBIDTA expansion despite INR depreciating significantly vis-à-vis USD as well as GBP.  It is expected that Crisil could have earnings cut by 16 % to 17 % for CY12/13E taking into the account the disappointing Q2CY12 numbers. However, CRISIL has gradually put building blocks for strong growth in revenues and profitability in its key businesses. CRISIL could be bought at a target price of Rs. 1000 and should be accumulated at every dip. In my view CRISIL could report FY13E EPS of Rs. 41.30/sh. The stock could be bought for the target price of Rs. 1250 and recommend Accumulate on the stock. 

KEY FINANCIALS	FY10	FY11	FY12	FY13E
SALES (Rs. Crs)	628.40	807.00	1018.30	1,273.30
NET PROFIT (Rs. Crs)	164.50	187.70	226.10	289.00
EPS (Rs.)	23.20	26.80	32.30	41.30
PE (x)	37.10	32.10	26.70	20.90
P/BV (x)	19.60	18.20	13.00	9.60
EV/EBITDA (x)	27.40	22.30	18.30	13.50
ROE (%)	48.60	58.40	57.00	52.90
ROCE (%)	64.70	81.40	82.50	76.60

I would buy CRISIL LTD with a price target of Rs. 1000 for the short term and Rs. 1250 for the 6 month target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 844.00 on every purchase.

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

QE3 ANNOUNCED BY FED TO PRINT $480 BILLION!!!

Fed to Print $480 BILLION AGAIN!!!

Yesterday, Fed chief Ben Bernanke proved that what many have suspected all along is indeed true: The U.S. Federal Reserve will not patently stop printing money!

Mr. Ben Bernanke announced that the Fed is going to do the same old thing, it’s going to hold interest rates near zero as far as the eye can see... And it’s going to print a whopping $40 Billion (Rs.2,21,680 Cr $/Rs.55.42) new dollars per month in an attempt to stimulate the economy — a whopping $480 billion (Rs.26,60,160 Cr $/Rs.55.42) per year! In short, it’s doing the same things it has done since 2008, but expecting better results, In any way you look at this, that’s The Very Definition Of INSANITY!! The Fed has Already held interest rates near zero percent for four long years, now. Plus, it has already created $1.8 trillion out of thin air through QE I and QE II... And it has already bought hundreds of billions of dollars more worth of long-term Treasuries as part of Operation Twist 1 and 2. 

So what’s the result?

NO IMPACT WHATSOEVER ON THE REAL ECONOMY!

Sure — all that free, easy money will temporarily excite the stock markets around the world but despite everything the Fed has done ... the

** Unemployment has stayed over 8 % for 42 straight months ...

** The average family home is Still falling in value ...

** Profits of many major corporations in US are Still sinking ...

** The U.S. economic growth is Still grinding to a near standstill ...

** And now, as America approaches the precipice of its great fiscal cliff, the stock market looks for the entire world as if it’s a massive bubble about to burst!

** Worse is that, the middle class — the very backbone of the U.S. economy — is getting eaten alive:

HOUSEHOLD INCOME IS PLUNGING: The U.S. Census Bureau just reported that real median household income has now fallen for the fourth straight year. Income has fallen so low, in fact, that when you adjust for inflation, the median family has the same income today as it did in 1967 , now that was the 45 long years ago!

THE INCOME GAP IS WIDENING ALARMINGLY: The Census Bureau is also reporting that the movement of income away from the middle class has just hit a record high. That’s terrible as typically this kind of increasing disparity in income occurs just before economic calamities — and today, it’s more extreme even than before the 1929 stock-market crash and the Great Depression!

U.S. POVERTY IS AT ALL-TIME RECORD HIGH LEVELS: Finally, as if to add insult to injury, the Census Bureau also reports that a staggering 46.2 million Americans now live in poverty! And not only isn’t the Fed Helping ... its failed efforts to revive the economy is creating a second crisis: Thanks to the Fed’s past money-printing gambits, the Producer Price Index just jumped 1.7% in August — hands-down the biggest surge in producer price inflation going back to June of 2009!

**********************************

Make no mistake:

The U.S. economy is broken.

Nothing the Fed can do will fix it.

**********************************

To the contrary: The Fed’s easy money policies Created this crisis by inflating the housing bubble. Now, they’re only making matters worse — doing absolutely Nothing for the job market, while driving inflation higher! And as America’s great Fiscal Cliff approaches — the catastrophe that JPMorgan says will push America “head-first into the fiscal meat grinder” — the storm clouds are darker than ever.

The Gold has raised 111.58 % from QE1 to QE3 : Gold jumped after this QE3 by FED the third round of monetary stimulus called Quantitative Easing. QE has been a massive boon for gold, when FED flooded markets with nearly Zero money or free money, gold’s allure as a store of wealth & an inflation hedge is burnished. Loose monetary policy weakens the dollar boosting the GOLD. Fed’s nearly ZERO interest rate policy and bond purchasing under QE1 kicked off on 16^th December 20008 and Gold was $837.50 an ounce, & today Gold is at $1772 an ounce this means Gold raised to 111.58 % on back of QE1 & QE2 which followed in Nov 2010. So QE & Gold has always been supporting each other..SO ALWAYS BUY GOLD

Impact of QE3 on India: As for India, off course in near term the pattern of QE has always been strong for emerging market like India and for their currencies and even stronger for commodities. The QE programme is good for India for a day or two as it will help the rupee a little bit and at a same time QE surges commodity prices, which is bad for India as it imports most of the commodities to meet its growing needs of the economy, Brent crude is at $115 and any raise in its prices will make inflation to climb again making life difficult for RBI, remember QE2 which was announced on Nov 04 2010 in which Indian Market made a high of 6338 on NOV 05 2010 and had a one way decline post that & so QE2 turned out to be disastrous for India as it stoked inflation. India is not a obvious QE play now, as Indian markets has its own set of problems like high inflation, policy paralysis and of course the scams and political unrest. The diesel price hike of Rs.5/liter is the positive step and so the FDI policy in aviation but these have a short term sentiments..

In short, US FED with the announcement of QE3 gives the clear message to the market that rates will remain this low till 2015 with a hope that this low rates will revive economic growth, but on India one should remain cautiously Bullish, one must look at classic defensive's like pharma, consumer stocks with a risk of breakdown between the investment cycle & the consumer cycle weighs heavily on them.  

CLICK HERE FOR PREVIOUS POSTS ON QE 

COAL INDIA : A ‘Maharatna’ company, a gem for your Portfolio !!!

Scrip Code: 533278 / COALINDIA

CMP:  Rs. 376.65; Buy at Rs. 360 to 375 levels & Accumulate at Every Dips.
Medium to Long term Target – Rs. 395; STOP LOSS – Rs. 345.00; Market Cap: Rs. 2,37,905.86 Cr; 52 Week High/Low: Rs. 387.45 / Rs. 293.60

Total Shares: 631,63,64,400 shares; Promoters : 568,47,27,960 shares –90.00 %; Total Public holding : 63,16,36,440 shares – 10.00 %; Book Value: Rs. 30.97; Face Value: Rs. 10.00; EPS: Rs. 12.82; Div: 100 % ; P/E: 29.37 times; Ind P/E: 18.76; EV/EBITDA: 13.50.

Total Debt: Rs. 1173.54 Cr; Enterprise Value: Rs. 2,54,612.64 Cr.

COAL INDIA LIMITED: CIL was incorporated in 1973 in Kolkata, India. It was formerly known as Coal Mines Authority Limited. CIL is a leading public sector undertaking engaged in coal mining & selling coal fines in India and is working on establishing its footprint globally through acquisitions. The company provides Washed and Beneficiated coal for use in manufacturing of hard coke for steel making and power generation. Company operates 471 mines in 21 coalfields across 8 states in India, which includes 163 open cast mines, 273 underground mines & 35 mixed mines – open & underground mines. CIL operates through its 9 wholly owned subsidiaries, of which 1 subsidiary is engaged in exploration and feasibility study analysis. Its subsidiaries include Eastern Coalfields Ltd, Bharat Coking Coal India Ltd, Central Coalfields Ltd, Northern Coalfields Ltd, Western Coalfields Ltd and South Eastern Coalfields Ltd. CIL has total reserves of 64.3 billion tons and proved reserves of 52.4 billion tons, of which extractable reserves stands at 21.7 billion tons. The company offers coking coal primarily for use in steel making & metallurgical industries, and for hard coke manufacturing, semi coking coal for use as blend able coal steel making, merchant coke manufacturing, it also provides middlings used by fuel plants, brick manufacturing units, cement plants, industrial plants, as well as for power generation. CIL coal fines/coke fines are used in industrial furnaces, as well as for domestic purposes. It serves primarily power, steel, cement, and fertilizer industries. Coal India is compared with PT Sumber Energi Andalan Tbk of Indonesia, Siberian Mining Group Company Ltd & Mongolia Energy Corporation Ltd of Hong Kong.

Investment Rationale:

Coal India, a ‘Maharatna’ company & is the largest coal producing company in the world, based on its raw coal production (436 million tonne in FY2012). The company is also the largest coal reserve holder in the world, based on its reserve base. The company caters to large thermal power generation companies, steel and cement producers and other industrial companies in the public and private sector. CIL has access to 64.3 billion tons of reserves, the largest in the world. From this 52.4 billion tons are based on Indian Standard Procedure (ISP) guidelines, representing 6 % share of the global proven reserves. CIL is well positioned to capitalize the widening gap of demand & supply as it controls 80 % of the coal supply in India. CIL was been facing problems for its planned expansion, due to delays in requisite environment and forest clearances and land acquisition issues. During FY2012, CIL’s production has been affected by imposition of stringent environmental & pricing laws by regulatory authorities. However, looking ahead, given the rising demand-supply gap for coal in India, it is expected to see some ease from the government on the environmental side which will drive CIL’s production and sales growth. Gross Caloric Value -based pricing will offset high staff costs. CIL’s realizations were higher by 6.8 % YOY during 1QFY2013 on the back of change in pricing mechanism to GCV. Going forward, it is expected that the blended realizations to increase by 7.1 % in FY2013, which is expected to offset the increase in staff costs. Coal India plans to spend nearly Rs. 40,000 Cr over 5 years to 2017, plan includes development of more than 100 coal mine projects, setting up coal washeries & acquisition of coal blocks overseas. Currently, Coal India has lined up a capex of Rs. 25,400 Cr for the next 5 year period that ends on 31st March 2017, company also plans to spend additional Rs. 2,500 Cr to set up a 300  km railway infrastructure in Chhattisgarh, this line will  help to evacuate 120 million tonnes of additional coal. COAL INDIA is in talks with Railways & state to lay three new railway lines in Chhattisgarh, Jharkhand and Orissa to overcome evacuation problems. The company reported Cash and Bank Balances of Rs. 58,202 Cr as on 31st March 2012 from which COAL INDIA's massive capex will be easily met along with the Buy Back if it happens.    

Outlook and Valuation:

Coal India (CIL) reported lower Q1FY13 earnings on account of lower than expected realisations from the E-auction. Also, with the expansion in Fuel Supply Agreement realisations where further boosted by increase in the WCL prices and the low employee costs in the quarter reinforcing the positive outlook for earnings in coming quarters. The CIL's Board has cleared the cost plus model for Fuel Supply Agreement ( FSA - As per new Coal Distribution Policy, Coal supplies are governed by Legally enforced agreement between the coal companies & the consumer under specific terms & conditions) with the power companies but asked the coal major's management to come up with a business model for price pooling mechanism. The cost plus model provides imported coal at its actual cost & Price pooling is mechanism to implement FSA, suppose there is no price pooling, FSA will be like 65 % domestic coal & 15 % imported coal provided the power producers are willing to take it, suppose if pooling prices is approved, then the 15 % would be at pooled price and not at the cost price - this new business model would deal with the impact of taxation on coal imports, price of coal and legal implications of pooling mechanism. As per the presidential directive, CIL has to meet 80 % trigger level and CIL had agreed to pay penalty of 1.5 % to 40 % on failing to supply the committed quantity of coal to the power utilities, following protests from major companies over its decision to go for worthless penalty of o.01 %. Coal India if gets timely clearances and additional capex is spent then the company would surpass 2012-17 production target of 615 million tonnes. Coal India has achieved 98 % of its production target and 97 % of offtake target during the 5 months (April- August) of the current financial year. The monsoon effected the mining operations which prevented the company from achieving its target. The company mined 162.86 million tonnes during first 5 year v/s 152.49 million the same month in the previous year. Company's offtake has seen a rise of 5.4 % at 181.85 mt during April-August 2012 against 172.48 mt last year. However CIL met 91 % of the underground output target at 15.69 million tonnes during April-august, which is 0.3 % down from 15.74 million tonnes in same period previous year. Now, on Results - CIL’s Revenue grew by 14 % YoY at Rs. 16,500 Cr on the back of 6.4 % growth in volumes at 113m tonnes and 7 % rise in realisations at Rs. 1,465/tonne. The variance was primarily on account of lower-than-expected realisations in E-auction at Rs. 2,561/tonne, partially off-sated by better realisations in FSA at Rs. 1,267. CIL reported EBITDA at Rs. 4,810 Cr YoY. Coal India’s EBITDA/tonne for the quarter fell 6 % to Rs. 427. Profit after Tax grew by 8.3 % to Rs. 4,480 Cr on the back of 32 % rise in other income and 100bps fall in tax rate at 29.4 %. CIL’s 1QFY2013 results surprised positively due to lower-than-expected staff and other costs. Further, it remains well-poised to meet its FY2013 off take target with 6.5 % YOY increase reported in 1QFY2013. Moreover, an increase in blended realization due to shifting to GCV-based pricing is expected to offset the rise in staff costs in FY2013. In my view CIL could report FY13E EPS of Rs. 25.30/sh and for FY 14E of Rs. 29.10/sh. Valuing the stock at 8.0x FY2014 EV/EBITDA, the stock could be bought for the target price of Rs. 415 and recommend Accumulate on the stock. I maintain a positive view on the stock & believe that any further correction due to COAL GATE scam would be a good buying opportunity for long term holders, as for short term, stock could be bought with a price target of Rs. 395.

KEY FINANCIALS	FY11	FY12	FY13E	FY14E
SALES (Rs. Crs)	50,229.30	62,415.40	67,378.60	73,021.90
NET PROFIT (Rs. Crs)	13,477.60	15,638.70	17,448.50	19,649.10
EPS (Rs.)	17.30	23.30	25.30	29.10
PE (x)	20.20	14.90	13.70	11.90
P/BV (x)	6.60	5.40	4.30	3.40
EV/EBITDA (x)	13.00	10.80	9.00	7.30
ROE (%)	36.90	39.90	34.70	31.70
ROCE (%)	33.30	36.70	32.20	29.70

I would buy COAL INDIA LTD with a price target of Rs. 395 for the short term and Rs. 435 for the 6 month target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 345.00 on your purchase.

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

RELIANCE INFRASTRUCTURE : Accumulate at every Dip !!!

Scrip Code: 500390 / RELINFRA

CMP:  Rs. 444.10; Buy at Rs. 435 - Rs. 440 levels.
Short term Target: Rs. 500; Medium to Longer term Target: Rs. 600; STOP LOSS – Rs. 404.00; Market Cap: Rs. 11,679.38 Cr; 52 Week High/Low: Rs. 679.75 / Rs. 328.30

Total Shares: 26,29,90,000 shares; Promoters : 12,76,26,990 shares –48.53 %; Total Public holding : 13,53,63,100 shares – 51.47 %; Book Value: Rs. 705.00; Face Value: Rs. 10.00; EPS: Rs. 72.12; Div: 73.00 % ; P/E: 6.23 times; Ind. P/E: 14.00; EV/EBITDA: 9.37

Total Debt: 9,147.73; Enterprise Value: Rs. 17,024.13 Cr.

RELIANCE INFRASTRUCTURE LTD: The Company was incorporated in 1929 and is based in Mumbai, India. The Company was formerly known as BSES which later was renamed as Reliance Energy Limited and changed its name to Reliance Infrastructure Limited in April 2008. Reliance Infrastructure is an Anil Dhirubhai Ambani Group (ADAG) company. Reliance Infrastructure Limited engages in the generation, transmission, distribution, and trading of power in India. The company also focuses on other key infrastructural areas, such as highways, roads, bridges, metro rail (Delhi and Mumbai), and other mass rapid transit systems, special economic zones, and real estate. The company distributes approximately 36 billion units of electricity to approximately 30 million consumers across an area that spans approximately 1,24,300 square kilometers and includes India's two primary cities, Mumbai and Delhi. It generates approximately 940 MW of electricity through its power stations located in Maharashtra, Andhra Pradesh, Kerala, Karnataka, and Goa. The Company operates in two business segments, Electrical Energy; and Engineering, Procurement, and Construction (EPC) and Contracts. In Electrical Energy, the company operates a 500 MW Thermal Power Station at Dahanu; a 220 MW combined cycle power plant at Samalkot; a 48 MW combined cycle power plant at Mormugao; and a 7.59 MW Wind farm at Chitradurga. It also purchases power from third parties and supplies the power through its own distribution grid. The company supplies power to residential, industrial, commercial, and other consumers. In the EPC and Contracts Segment it renders value-added services in construction, erection, and commissioning. It undertakes contracts of projects in various fields like power generation, transmission, and distribution. This division mainly focuses on the power sector projects. The company holds 38% in Reliance Power that plans to have a portfolio of 32 GW of generating asset. The company is compared with Torrent Power Ltd, TATA POWER, PTC INDIA, POWER GRID and CESC Limited.

Investment Rationale:

RELIANCE INFRASTRUCTURE LIMITED is developing various road and metro projects besides bidding for various infrastructure projects. The infrastructure space too, like power, is expanding in a big way with a potential market size of $49,400 Cr. The company, being a part of ADAG, plans to be a major player in the infrastructure segment by owning assets on a Built- Operate and Transfer (BOT) basis and leveraging its financial and technical strengths. The company’s Two road projects – Gurgaon ‐ Faridabad and Salem ‐ Ulundurpet has completed recently. With this, 7 out of 11 road projects are revenue operational. Of the balance, Rel Infra expects three more roads to be revenue operational in FY13 and the last one in FY14. From the Rs. 15,600 Cr EPC order book, half comes from Reliance Power’s projects (Sasan, Butibori and Samalkot) and the balance from external/BOT projects. The company has made considerable progress on its cement projects in Maharashtra & Madhya Pradesh, the grinding & blending unit at Butibori in Maharashtra is nearly completed. The company expects to start production very soon may be within a month, RELINFRA have already started trial runs & produced a sample bag of Cement. RELINFRA’s Delhi Airport metro operations have been suspended due to problems in the civil structures which were 92% of the bearings and 7% of pillars which were recognized as defective and lots of girders were impacted. Since the Special Purpose Vehicle (SPV) which owns the project is expected to incur losses on the project, the management has decided to park its stake in one of its associates and reverse the same once the issue is resolved. The company expects the Mumbai Metro to be completed by FY13 end. Reliance Infrastructure (RELI) reported a standalone PAT of Rs. 380 Cr, due to weakness in the EPC division numbers. The management expects the low EPC order book (Rs. 15,600 Cr order book is 1.3x TTM revenues) to improve over the next 12‐ 18 months through both internal and external projects; hence FY13 revenues are expected to be around Rs. 9,000‐10,000 Cr. Tariff revision in Delhi discom is a positive, and the completion of all infrastructure projects by FY14 should boost future cash flows. RELINFRA’s Other income is higher due to better yields on FMP maturity on cash surplus of Rs. 10,500 Cr. Considering that most of the equity infusion in the infrastructure business has already been done, the management expects other income to be better than previous year going forward. The company’s EPC division posted revenues of Rs. 1,770 Cr with margins of 10.3% (flat sequentially). The company hiked the power tariff in Mumbai by 16.48% from 1^st August 2012 while in Delhi; tariffs were hiked by 21% from July 1, 2012 which should improve the cost recovery and profitability. In Delhi, regulatory assets worth Rs. 5,500 Cr have been approved. Of the balance, RELI expects Rs. 4000 Cr to be approved by the year end. Regulatory assets worth another Rs. 4000 Cr, already approved by the appellate tribunal, have been challenged by the regulator. 

Outlook and Valuation:

Reliance Infrastructure Ltd is believed to be emerged as a major power EPC player in the next few years, benefiting from the large addressable market to be created by the addition of 100,000 MW in the 12th Plan. Further, it holds a stake of 38% in Reliance Power and thus has the opportunity to invest in the entire power space, ranging from generating asset development to building transmission assets and power EPC. There have been changes in margins from the EPC business in the past one year due to the volatility in commodity prices and high interest rates. While it is understand that RELINFRA has entered into back‐to‐back contracts to minimize the margin erosion, the scale and timing of projects could expose the company to execution risks. The road traffic growth has been dented due to the depressed industrial growth and weak macro environment. This, in addition to any delay in execution of infrastructure projects, could impact valuations.  The company has parked a sizeable part of its investments in group entities and yield bearing instruments. Since other income contributes significantly to the total earnings of the company, any diminution in the value of the same could impact valuations. The Resolution of regulatory issues is a positive since it would improve earnings and cash flows. The declining competition for infra projects (due to funding issues) will benefit financially sound companies like RELINFRA. However, limited revenue visibility and clearance issues related to R Power’s projects are a dampener. The Maharashtra Electricity Regulatory Commission (MERC) has now ordered that any residential category consumer wishing to switch over from RELINFRA to TATA POWER should have minimum consumption of 300 units. Its a great relief for REL INFRA as its consumer base was reducing due to its consumer being switching over to TATA POWER for cheaper power. It is to be noted here that REL INFRA buys power from TATA POWER and supplies to its consumers around Mumbai. This order of a cap of 300 units will benefit REL INFRA. At the current market price of Rs. 444.10 the stock is trading at 9.11 x FY13E for which Earning Per Share (EPS) is seen at Rs. 48.70 and for FY14E it trades at 9.00 x FY14E for which EPS is seen at Rs. 49.30. One can buy REL INFRA with a short term target price of Rs. 500 for the Medium to Long term players it should be Rs. 600 with ultimate target of Rs. 936. 

Business FY13E	Value Per Share (in Rs.)
Reliance Power	304.00
Infrastructure Projects	344.00
Regulated Power Business	162.00
Net Cash	126.00
TOTAL	936.00

KEY FINANCIALS	FY11	FY12	FY13E	FY14E
SALES (Rs. Crs)	9,560.00	17,906.70	15,672.40	15,747.20
NET PROFIT (Rs. Crs)	1,125.40	1,546.20	1,280.30	1,296.80
EPS (Rs.)	42.10	58.80	48.70	49.30
PE (x)	12.50	9.00	10.80	10.70
P/BV (x)	0.80	0.70	0.70	0.70
EV/EBITDA (x)	4.90	3.70	3.10	3.00
ROE (%)	6.60	11.00	6.70	6.40
ROCE (%)	7.90	19.20	12.00	11.90

I would buy RELIANCE INFRASTRUCTURE LTD with a price target of Rs. 500 for the short term and Rs. 600 for the 6 month target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 404.00 on every purchase. 

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

BERGER PAINTS : ACCUMULATE AT EVERY DIP!!!

Scrip Code: 509480 / BERGEPAINT

CMP:  Rs. 136.00; Buy at Rs. 130 - Rs. 135 levels.
Medium to Long Term Target: Rs. 152; STOP LOSS – Rs. 120.00; Market Cap: Rs. 4,707.83 cr; 52 Week High/Low: Rs. 153.35 / Rs. 78.25.

Total Shares: 34,61,64,514 shares; Promoters : 26,15,89,683 shares –75.59 %; Total Public holding : 8,45,74,831 shares –24.41. %; Book Value: Rs. 24.40; Face Value: Rs. 2.00; EPS: Rs. 5.33; Div: 70 % ; P/E: 25.51 times; Ind P/E: 31.28; EV/EBITDA: 18.88.

Total Debt: Rs. 169.80 cr; Enterprise Value: Rs. 4877.63 cr.

BERGER PAINTS INDIA LTD: The Company was founded in 1760 but started its business in Kolkata, India in the year 1923. The company has undergone many change of hands – In the year 1947, it was acquired by British Paints (Holdings) UK, which renamed the company as British Paints (India). This UK Company was then acquired by Celanese Corporation, which later sold the Indian company to Berger, Jenson Nicholson Ltd in 1969. In 1983, the company was renamed as Berger Paints India and it started using the trade name of Berger. Berger Paints engages in the manufacture and sale of various decorative and industrial paints in India and internationally. The company’s products include interior emulsions, designer finishes, distempers, exterior emulsion, primer, texture finishes, enamals, cement mix, crack fill paste. The company also offers general industrial and automotive coatings, such as pretreatment chemicals, water base primers, polyester topcoats, polyestermetallic/pearl basecoats, thermosetting acrylic basecoats, thermosetting acrylic clear coats, alkyd-amino topcoats, poly-urethane paints, quick drying paints, polyester surfacers, epoxy surfacers, alkyd amino HLPS, and heat resisting paints and powder and protective coatings. It serves home owners, professionals, and industrial users through a network of dealers. It has a wide variety of product portfolio including interior and exterior wall coatings as well as metal and wood paints. It has strong and well established brands like Berger Silk, Berger Rangoli, Berger Illusions, Berger Weather Coat, Jadoo Enamel, etc. It also provides color consultancy services. Berger Paints has six subsidiaries and two JVs located across geographies including Cyprus, Russia, Poland and Nepal. The company is compared with Kansai Nerolac Paints Limited, Akzo Nobel India Limited and Noroo Holdings Company Limited.

Investment Rationale:

Berger Paints India Ltd. (BPIL) is one of the India’s foremost paint companies, currently ranked as 2nd largest on the basis of consolidated sales turnover in Indian paint industry. It enjoys about 19 % share of the over Rs. 21,000 crore of the Indian paint industry wherein the organized sector accounts for 70 % while the remaining is with the unorganized sector comprising of around 2,000 small scale paint units. The Indian Paints Industry is estimated at US$ 380 Cr and is growing at 1.8-2x GDP growth since the last few years. This industry is dominated by top 4 players commanding more than 90 % share of the organized market. The per capita consumption of paints in India remains very low at 1.5 kgs as against 15-20 kgs in developed countries. This industry is categorized in two segments – decorative paints, which contributes 70 % and the balance 30 % belongs to industrial paints - comprising automotive and industrial, protective, powder, coil and marine coatings. A decorative paint constitutes 80 % of BERGER PAINTS sales and enjoys strong brand equity in the eastern regions. CMIE a leading business & economic database research company expects the production in paint industry to grow by 13.3 % in 2012-13. The production is further expected to increase by 15 % in 2013-14 to around 19.6 lakh tonnes. The sales volumes are expected to grow by 14-15 % per annum during 2012-14 periods and are likely to cross 20 lakh tonnes by March 2014. Taking into account the rising consumer demand and diversified needs, the paint companies are coming out with new variants of paints and taking BERGER PAINTS market share of about 19 % surely the company will be benefited from the rising demand.

The paint companies are now emphasizing more on brand endorsement and so are looking to rope in top celebrities for their brand endorsements. Berger Paints is also looking to rope in Top Bollywood actresses for the endorsement of its Silk range of emulsion and plans to spend Rs. 35 Cr on an advertisement campaign, the company prefers Bollywood actress Kareena Kapoor or Katrina Kaif for the endorsement of their products probably any one of them could be the new Brand Ambassador for the Berger Brands. These initiatives are expected to increase the demand from refurbishment. Berger Paints have been focusing on raising the share of water-based paints in its total product portfolio and has also filled the product gap that existed with Asian Paints, through the introduction of premium products in the water-based paints. This segment will drive higher revenue growth and will also expand operating margins in the future. The shift towards water-based paint will bring high growth & also it’s a higher margin product segment compared to solvent-based paints.

Outlook & Valuation:

Berger Paints is looking for acquisition both within and outside country, in the overseas market the company is looking for acquisition of technology however in the domestic market any acquisition move should be driven by the possibility of increasing the market share which is currently at 19 %.  Berger has entered Poland through an acquisition which boosted its energy efficient & protective external insulation finishing system, Berger is already present in Russia and Nepal through its subsidiaries. Berger has outgrown its peers in Q1FY13 on the back of expanding distribution reach and higher growth in premium segment. Berger's India standalone business registered sales growth of 17 % to Rs. 751.6 Cr in Q1FY13 on the back of estimated 7-8 % volume growth. The volume growth was impressive considering almost flattish volume growth in peers thereby indicating market share gaining in this quarter. This was achieved on the back of expansion in distribution reach and selling through new trade channels. Going ahead, it is expected that the company will maintain its current growth momentum, but poor monsoon could act as a spoilsport. However with the price hike to the tune of 5 % in the decorative paint business in last quarter and with lower inventory supported EBIDTA expansion with consolidated EBIDTA margins at 9.50 % up by 60bps YoY. Company has taken some price hikes in industrial paints segment and would take further hikes to maintain the margins. Company also witnessed significant fall in import price of TiO2 and expects to see its benefit in coming quarters. Other crude derivatives, however, continue to rise owing to INR depreciation. It is expected that the EBIDTA margin will improve going forward on the back of softening in Raw Material cost and stabilization in exchange rate. Combined subsidiaries sales grew by 4 % in Q1FY13, much slower than the avg. growth of 25 % in last four quarters due to the poor performance in Nepal subsidiary because of the political upheaval. Bolix which is the largest subsidiary (5 % of consolidated sales) reported flattish growth due to uncertain economic condition in Europe. Apart from 80,000 MT/annum decorative paints capacity at Hindupur during 1st phase of expansion, company is also building its 40,000MT capacity for textured coatings developed by its subsidiary Bolix which it plans to introduce in the current year. Company expects sales of Rs. 15 – 20 Cr from its construction chemical business in FY13 and expects it to register a CAGR of 40 % over FY13-15. At the current market price of Rs. 136, the stock is trading at 21.25 x FY13E EPS of Rs 6.40/share and 18.37 x FY14E EPS of Rs 7.40/share & at 16.0 x FY13E EPS, it is trading at 38 % discount to the market leader, Asian Paints. Historically, the company has traded at an average discount of 40 % to Asian Paints’ one-year forward mean P/E ratio. It is believed that going forward this discount should narrow due to the Gaining considerable size with a revenue CAGR and with the Product mix shifting towards higher growth & Increasing presence across India with rising penetration in the south makes this stock attractive to ACCUMULATE with a target price of Rs 152/share.

KEY FINANCIALS	FY11	FY12	FY13E	FY14E
SALES (Rs. Crs)	2,328.10	2,936.10	3,476.00	3,980.50
NET PROFIT (Rs. Crs)	150.10	180.10	221.90	255.60
EPS (Rs.)	4.30	5.20	6.40	7.40
PE (x)	33.10	27.60	22.40	19.40
P/BV (x)	7.20	6.10	5.10	4.30
EV/EBITDA (x)	21.50	17.40	14.40	12.10
ROE (%)	23.40	24.00	24.90	24.20
ROCE (%)	25.20	26.10	27.30	27.50

I would buy BERGER PAINTS (I) LTD with a price target of Rs. 152 for Medium to Long term target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 120.00 on every purchase.

*As the author of this blog I disclose that I do hold BERGER PAINTS in my investment portfolio.

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