Elecon Engineering net profit rises 56.71% in the June 2010

Elecon Engineering net profit rises 56.71% in the June 2010 

Net profit of Elecon Engineering Company rose 56.71% to Rs 13.32 crore in the quarter ended June 2010 as against Rs 8.50 crore during the previous quarter ended June 2009. Sales rose 15.90% to Rs 246.05 crore in the quarter ended June 2010 as against Rs 212.29 crore during the previous quarter ended June 2009.

Particulars	Quarter Ended
	Jun. 2010	Jun. 2009	% Var.
Sales	246.05	212.29	16
OPM %	15.41	16.38	-6
PBDT	28.07	20.36	38
PBT	19.15	12.87	49
NP	13.32	8.50	57

Alok Industries net profit rose 45.30%

Alok Industries net profit rose 45.30% to Rs 46.51 crore in the quarter ended June 2010 as against Rs 32.01 crore during the previous quarter ended June 2009. Sales rose 39.77% to Rs 1098.97 crore in the quarter ended June 2010 as against Rs 786.28 crore during the previous quarter ended June 2009.

Particulars	Quarter Ended
	Jun. 2010	Jun. 2009	% Var.
Sales	1098.97	786.28	40
OPM %	29.74	27.35	9
PBDT	169.77	126.71	34
PBT	70.45	48.32	46
NP	46.51	32.01	45

HCL Tech Q1FY11 Result

Net profit of HCL Technologies rose  23.26% to Rs 237.82 crore in the quarter ended June 2010 as against Rs 192.94 crore during the previous quarter ended June 2009. Sales rose 16.16% to Rs 1330.61 crore in the quarter ended June 2010 as against Rs 1145.54 crore during the previous quarter ended June 2009.

For the audited full year, net profit rose 5.94% to Rs 1056.58 crore in the year ended June 2010 as against Rs 997.31 crore during the previous year ended June 2009. Sales rose 8.63% to Rs 5078.76 crore in the year ended June 2010 as against Rs 4675.09 crore during the previous year ended June 2009.

Particulars	Quarter Ended			Year Ended
	Jun. 2010	Jun. 2009	% Var.	Jun. 2010	Jun. 2009	% Var.
Sales	1330.61	1145.54	16	5078.76	4675.09	9
OPM %	23.52	25.96	-9	26.88	25.79	4
PBDT	323.13	323.19	0	1426.85	1443.59	-1
PBT	249.70	256.77	-3	1152.82	1191.70	-3
NP	237.82	192.94	23	1056.58	997.31	6

Larsen & Toubro Q1FY11 Result Review

Larsen and Toubro (L&T)'s Q1FY2011 earnings were below market expectations mainly hit by slower execution in the company's engineering and construction (E&C) business. However, the company has indicated that execution is expected to pick up in H2FY2011.

L&T has reported a subdued 6.4 % year-on-year (y-o-y) increase in its stand-alone revenue to Rs7,835.1 crore led primarily by slower execution in E&C division. The E&C division reported a mere1.1% y-o-y growth in revenue, which is sharply lower than  expectation. This dismal growth was due to longer execution cycles arising from increasingly complex long cycle jobs. The management has indicated that due to lagging effect of large orders booked in H2FY2010, the execution is expected to pick pace from H2FY2011 only, which implies that execution will continue to remain sluggish even in Q2FY2011. The electricals & electronics (E&E) division?s revenue was up by 29.4% yoy, driven by favourable domestic industrial climate. The Machinery & Industrial Products (MIP) division reported a 25.5% y-o-y growth in revenue, led by a favourable base effect and industrial recovery particularly in construction and mining business.

The operating profit margin (OPM) improved by 150 basis points to 12.2%, driven by operating leverage and lower input cost for E&C division. Other segments are however facing cost pressure on account of rising metal prices. The employee cost was up by 20% yoy in line with increase in manpower. 

The other income was marginally up to Rs277 crore with the interest cost rising by 29.9% yoy to Rs142.3 crore. The net profit (net of extraordinaries) came in at Rs666.2 crore, implying a y-o-y growth of 15.2%. 

The overall order inflow picked up during the quarter, up 63% yoy, at impressive Rs15,626 crore with the order inflow for E&C division up by 65% during the year. The orders mainly stemmed form power and infrastructure space. A noticeable order could be Rs5,200-crore order bagged by L&T Power Development Project in association with the state electricity board (SEB) in Rajpura. L&T's current order backlog stands at Rs1,07,816 crore, out of which Rs1,05,554 crore orders are for the company's E&C segment. This provides strong visibility to the company's earnings. The investments are expected to remain robust in fertiliser and road space, and hydrocarbon space in the Middle East

L&T's management has maintained 20% revenue growth guidance for FY2011. However, due to lagging effects of the large orders taken in HFY2010, where pick-up in execution is expected only from H2FY2011, The revenue will continue to be sluggish in Q2FY2011 also. However, on margins front, the company has indicated towards slight stress in FY2011 in view of rising cost of metal and other inputs, though the margins of the E&C segment is expected to be maintained at FY2010 level (at 12.7%). Further, value unlocking for its finance services business is expected in FY2011 either via private placement or initial public offer. 

At the current market price, the stock is trading at 24.9x FY2011E and 20.7x FY2012E consolidated earnings. 

Hindustan Uniliver - Q1FY11 Result Review

Hindustan Unilever Ltd (HUL)'s Q1FY2011 results are below our expectations on account of a sharp decline in the operating profit margin (OPM), which was affected by higher year-on-year (y-o-y) advertisement cost and other expenses coupled with a price reduction undertaken in the key categories to improve the sales volume and maintain the market share. As expected, the volume growth picked up by a good 11% year on year (yoy) in the domestic consumer business.

Despite the double-digit volume growth, the net sales grew by just 7.1% yoy to Rs4,793.9 crore in Q1FY2011 due to aggressive pricing reductions implemented in the key categories (especially in the soap and detergent categories) to improve the sales volumes and maintain the market share in a competitive scenario. The net sales were below our expectation of Rs4,475.7 crore during the quarter.

As anticipated, the soap and detergent segment delivered a muted performance with the revenues of the segment growing by just 2.4% yoy to Rs2,264.5 crore. The muted performance was on account of a lower sales realisation due to the price reductions in the soap and detergent category. The company?s pricing action helped it to recover the sales volume with the detergent volume growing in double digits. On the other hand, the personal care segment grew by 11.4% yoy to Rs1,365.5 crore, entirely a volume driven growth. Overall, the home and personal care (HPC) business? revenues grew by 5.6% yoy to Rs3,630 crore (a volume-led growth).

The food business (including beverages, processed foods and ice creams) grew by 12.0% yoy during the quarter. The processed food segment grew by 22.7% yoy to Rs211.1 crore with most of the brands achieving a robust volume growth. The ice cream segment registered a strong growth of 18.0% yoy during the quarter. However, the beverages (contributing around 60% to the food business) grew by 7.7% yoy to Rs537.8 crore.

Despite a lower raw material cost as a percentage of sales, the OPM declined by 289 basis points yoy to 12.5% on account of higher advertisement cost and other expenses on a y-o-y basis. 

HUL's advertisement cost as percentage to sales increased by 313 basis points to 15.7% on account of large spends for building brands, sustaining the market share and creating new categories. Thus, the operating profit declined by 13.0% yoy to Rs598.6 crore, which was lower than our expectation of Rs665.4 crore for the quarter.

The adjusted net profit stood at Rs517.2 crore, which was lower than our expectation of Rs553.3 crore of net profit for the quarter. 

Though the company's sales volume growth is expected to remain robust, the higher advertisement spend to maintain market share and the muted top line growth (on account of the price reductions in the key categories) would keep its profitability under pressure in the coming quarters (especially when the prices of its key raw materials are showing an upward trend). 

At the current market price the stock trades at 25.0x its FY2011E earnings per share (EPS) of Rs10.4 and 21.5x ts FY2012E EPS of Rs12.1. 

RILnet jumps 32% to Rs 4,851 cr

Reliance Industries (RIL) today reported the best-ever quarterly profit and revenue numbers with a 32.3 per cent rise in profit and massive 85 per cent jump in revenues in the quarter to June, helped by robust performance of its refining and petrochemicals businesses.

While the company saw its net profit touching Rs 4,851 crore, which is a 32.32 rise over the year-ago period, its net turnover zoomed nearly 85 per cent to Rs 58,950 crore in the reporting quarter.

The Mukesh Ambani-led corporate giant saw robust gains in its earnings from oil and gas production and exploration business, helping it achieve its highest-ever quarterly net profit and revenue figures. The company has a net profit of Rs 3,666 crore in the June 2009 quarter, RIL said in a statement.

The total income rose by a whopping 85 per cent to Rs 58,950 crore for reporting quarter from Rs 31,896 crore in the same quarter year-ago period. Excluding duties and taxes, turnover rose by 88.1 per cent to Rs 61,007 crore, from Rs 32,441 crore in year-ago period.

Commenting on the results, Reliance Chairman and Managing Director Mukesh Ambani said: "we had yet another record quarter due to high operating rates and improving margins across all our businesses."

Talking about "two major initiatives to create incremental value" undertaken during the quarter, Ambani said, "we entered into joint ventures in shale gas to globalise and diversify our upstream portfolio. Reliance has also committed itself to participate in the high growth and exciting area of broadband wireless. Both these initiatives are in line with the strategy to identify and invest in new, value creating businesses."

RIL said its strong financial growth was supported by rise in volumes as well as prices, while its exports more than doubled to Rs 32,849 crore, from Rs 16,145 crore.

The company's total expenditure also nearly doubled in the quarter to Rs 52,371 crore, from Rs 26,681 crore. Staff cost rose to Rs 617 crore from Rs 557 crore.

RIL said its outstanding debt as on June 30 was Rs 73,422 crore ($15.8 billion), up from Rs 62,495 crore as on March 31, 2010. It had cash and cash equivalents of Rs 26,407 crore ($5.7 billion), which are in fixed deposits, certificate of deposits with banks, mutual funds and government securities/bonds. The net capex towards projects for the quarter was Rs 3,628 crore ($781 million).

Its oil and gas (exploration and production) business revenue grew 150 per cent, which was entirely on account of KG-D6 production. At the same time, refining and marketing revenue more than doubled to Rs 50,531 crore, while petrochemicals business revenue rose by nearly 19 per cent to Rs 13,903 crore.

YES Bank net profit rises 56% on healthy credit growth

YES Bank's net profit increased 56 per cent to Rs 156 crore for the quarter ended June 30, 2010, from Rs 100 crore in the same quarter last year on robust credit growth.

Mr Rana Kapoor, Managing Director and CEO of the Mumbai-based private sector bank, said that the strong credit growth was due to loans to the telecom sector. Over 20 per cent of the total loans were to telecom companies.

The bank has headroom to raise Rs 2,000 crore Tier-II capital, most of which would be done this year. It may raise Rs 500 crore in the next quarter, through upper Tier-II and lower Tier-II bonds.

Other income was down 5 per cent to due to negligible trading gains compared to the same quarter last year. Provisions were considerably lower at Rs 12 crore (Rs 45 crore). Cost of funds was 6.3 per cent, down from 8.1 per cent last year. Total advances increased 107 per cent and total deposits increased 97 per cent.

The bank is in the next phase of growth and is therefore focusing on retail and SME initiatives, Mr Kapoor said.

Of the total advances, retail and SME advances account for 4.5 per cent. The target is to increase this to 9-10 per cent by the end of the fiscal.

The bank is targeting to increase the share of low-cost current and savings account from 10 per cent to 15 per cent by 2012 and 30 per cent by 2015.

“If we get to 30 per cent CASA, our NIM should be 4 per cent,” Mr Kapoor said.

The bank plans to open 100 branches across India. It has received 91 new branch licences. It is also looking to open an overseas branch in Bahrain and a rep office in the UAE in the next one year, Mr Kapoor said.

Indian Bank Q1 net profit up by 11%

State sector lender Indian Bank today reported a growth of 11 per cent at Rs 368.15 crore in net profit for the first quarter, ended June 30.

It had a net profit of Rs 331.66 crore during the corresponding quarter of the last fiscal, Indian bank said in a filing to the Bombay Stock Exchange.

The bank also reported a 11.07 per cent increase in its total income for the first quarter at Rs 2,477.25 crore, as against Rs 2,230.39 crore, it added.

Indian Bank's revenue from the corporate banking segment went up by 19.67 per cent to Rs 1,041.37 crore during the quarter ended June 30, from Rs 870.20 crore in the year-ago period.

Its retail banking revenue reached Rs 827.58 crore, up 5.74 per cent from Rs 782.62 crore in the first quarter of 2009-10, the filing added. During the quarter, the bank had raised Rs 500 crore as lower Tier II bonds.

Axis Bank Q1FY11 Result Review

For Q1Y2011 Axis Bank has reported a net profit of Rs741.9 crore, an increase of 32% year on year (yoy). The reported profit was in line with our estimate of Rs728 crore. The top line too was in line with our estimate and was driven largely by a surge in the balance sheet?s growth rate.

The net interest income (NII) grew by a strong 44.8% yoy to Rs1,513.8 crore. The growth was on account of a strong 39.1% year-on-year (y-o-y) growth in the advances (well above expectations) which overshadowed the sequential contraction in the calculated net interest margin (NIM). Though the blended yields were largely stable at 7.2% on a sequential basis, the cost of funds rose by 26 basis points to 4.5% leading to a contraction in the NIM (down 26 basis points quarter on quarter [qoq] to 3.27%).

The non-interest income during the quarter grew by a moderate 4.4% yoy to Rs1,000.8 crore on account of a 40% y-o-y drop in the treasury gains. Meanwhile, the core fee income growth was healthy at 18.5% yoy. The operating expenses grew by 28.6% yoy and by 5.4% qoq, and translated into a cost-income ratio of 42.3% (stable qoq).

The provisioning expenses were largely stable at Rs333 crore (up 6% yoy but higher sharply on a sequential basis as the bank continued to make higher provisions on loan loss that came in at Rs304 crore. Also, there was provision for investment depreciation as against the write-back in Q1FY2010 which increased the overall provisions for the bank. The provision coverage ratio, including the technical write-off, currently stands at 76.62%.

The asset quality of the bank was stable on a sequential basis as the gross non-performing assets (NPAs) increased by just 1.7% qoq to Rs1,341 crore during Q1FY2011. In relative terms too, the percentage of gross NPAs was stable at 1.13%. The resulting provisioning coverage improved by about 100 basis points qoq to 69.2% (76.6% including the prudential write-offs). 

During the quarter the bank restructured assets worth Rs30 crore, though the cumulative restructured assets stood reduced to Rs2,151 crore, constituting 1.81% of the gross customer assets. Of these, a total of Rs460 crore or approximately 22% of restructured assets have slipped into the NPA category.

The business growth picked up during the quarter, as the advances grew by 39.1% yoy to Rs108,609 crore, while the deposits grew by 33.8% yoy to Rs147,479 crore. The loan book growth was supported by all the segments with the ?large & mid corporate? segment and agri-advances growth strong at 54.7% and 28.8% yoy respectively. Going ahead, the advances growth is likely to moderate. The demand deposits continued their upward trend showing a growth of 34% yoy with the current account and savings account (CASA) ratio now forming 40.2% of the total deposits.

The capital adequacy ratio (CAR) of the bank stood at 14.54% (vs 15.8% in Q4FY2010) with the tier-I capital adequacy ratio at 10.32%. 

At the current market price of Rs1,359, the stock trades at 13.3x 2012E earnings per share (EPS), 7.3x 2012E pre-provisioning profit (PPP) and 2.6x 2012E book value (BV). 

Colgate Palmolive Q1FY11 Result Update

Earnings review

Colgate India's earnings performance for 1QFY11 are mixed. Net sales for the quarter are about 2% below our expectation whereas net earnings are about 2% above expectations largely on account of tax provisions. Topline growth for the quarter was 13% marginally below our expectations of 15%. Net sales for the quarter were Rs 5.3bn, a growth of 13% y/y (pq 13% y/y and p4q 16% y/y). EBITDA remained strong led by savings on raw material. EBITDA for the quarter was Rs1,598mn, a growth of 30% y/y (pq 42% y/y and p4q 35% y/y). Net profit for the quarter was Rs1,219mln, a growth of 19% y/y (pq 32% y/y and p4Q 38% y/y)

Key positive and negative takeaways from earnings

Led by raw material savings ebidta margin trends have remained encouraging. For the quarter under review ebidta margin saw improvement by 400 bps y/y and 230 bps q/q . On the negative side topline growth trends have been below expectations .

Outlook

Although monsoon trends are normal, inflation still remains very high therefore we do not envisage any major change in volume and mix trends. Moderation in volume growth also implies that pricing increase will be marginal. 

Valuation

Stock is currently trading at P/E multiple of 25x and EV/EBIDTA multiple of 18x on our above consensus FY11 estimates. We believe these valuations adequately refer the strong operating growth momentum of 20% for FY10-12e. Steady earnings, marketshare performance and attractive dividend yield (~4%) are some of the key reasons to assign a hold rating on the stock.

TCS net up 24% to Rs 1,906 cr in Q1FY11

The country's top software exporter Tata Consultancy Services today reported a 24.25 per cent jump in its June quarter profit at Rs 1,906.07 crore over the year-ago period. The IT major had reported a net profit of Rs 1,533.94 crore in the first quarter of last fiscal.

Income from operations rose to Rs 8,217.28 crore in the first quarter of this year from Rs 7,206.99 crore in the year-ago period, TCS said in a filing to the Bombay Stock Exchange this evening. The company has declared an interim dividend of Rs 2 per equity share of Re 1 each.

Operating profit was at Rs 2245 crore, a growth of 24.6 per cent YoY and 3.7 per cent QoQ. The company added 36 clients in Q1.

Sintex Industries: Q1FY11 Result

Sintex Industries (Sintex)' Q1FY2011 performance topped analysts' projections on both revenue and earnings front. The consolidated bottom line came in at Rs78.9 crore (up 30.1% year on year [yoy]) as against expectation of Rs72.3 crore. The results include one-off expense of Rs20.5 crore in interest relating to foreign exchange (forex) loss on foreign currency convertible bonds (FCCBs; worth Rs17 crore) and legal charges (of Rs3.5 crore). Adjusting for the same, the net profit stood at strong Rs99 crore in the quarter.

The consolidated revenue from operations stood at Rs910.6 crore, a robust 37.5% up yoy, on account of stellar performance of the building product division (up 43% yoy) and the custom molding division (up 38.9% yoy; primarily due to Bright Autoplast), and a revival in the textile division (up 30% yoy). 

The operating profit increased by strong 57% yoy led by revenue growth and a strong 190-basis-point expansion in the operating profit margin (OPM) to 15.1%.

As far as subsidiaries are concerned, Bright Brothers and Nief Plastics reported strong performance during the quarter. The revenue from Bright Brothers improved by 47% yoy and that from Nief Plast was up by 16% yoy. Zeppelin Mobiles continued to be a drag, posting a 15% year-on-year (y-o-y) decline in the quarterly revenue.

The underlying demand in the monolithic construction business continues to be strong, with the company having a total order book of Rs2,300 crore to be executed over the next 20-22 month period. Further, the company is all set to expand its customer base in this segment, adding various government institutions (currently it is in talks with the Government of Karnataka). In the last 18 months, it has added couple of housing board orders; this will enhance its order repetitiveness from same geographies, leading to better utilisation of local contractors and material sourcing. We expect these initiatives to provide further impetus to the building material segment. Thus we expect the strong demand in the plastic segment (prefabs, monolithic and custom building businesses) to continue to drive the company?s growth in the near to medium term. Further, the revenue per site on rise will lead to optimal use of plastic form work resulting in improved margins. The scenario in the luxury textile business has started improving and we expect that the pain is behind, and going forward, we see incremental positives coming from this business.

We maintain our bullish stance on the company on the back of strong revenue visibility and margin expansion in wake of strong growth in the building material (monolithic as well as prefabs) and the custom moulding divisions coupled with stable performance of the textile business. We expect the company to post an earnings compounded annual growth rate (CAGR) of 22% over FY2010-12E. We maintain our Buy recommendation on the stock with a revised price target of Rs396 (11x FY2012E). At the current market price the stock is trading at 12x and 9.3x its FY2011E and FY2012E earnings respectively.

Infosys Technology: Q1FY11 Result Update

Infosys Technologies (Infosys)' Q1FY2011 results were below  the Street's expectations with a 5.2% quarter-on-quarter (q-o-q) decline in the net income to Rs1,488 crore due to a lower than expected operating profit margin (OPM). Moreover, the upward revision in the guidance also failed to meet the Street?s expectations with the management taking a cautious stance due to global uncertainties.

In Q1FY2011 the consolidated revenues of Infosys grew by 4.3% sequentially to Rs6,198 crore, which was in line with  estimate of Rs6,213 crore. The US Dollar (USD)-term revenues grew strongly by 4.8% quarter on quarter (qoq) to USD1,358 million, ahead of the company's guidance of USD1,330-1,340 million. In constant currency, the revenues grew by 6% sequentially driven by the volume growth (up 7.6%), which was much ahead the Street's expectations. The realisation (in constant currency) declined by 0.6% sequentially. 

The OPM declined by 236 basis points sequentially to 31.7% mainly on account of wage hike, negative cross currency impact, marginal rupee appreciation and a decline in the blended realisations. However, the negative impact of the same was partially offset by a higher utilisation level. Consequently, the operating profit also declined by 3% qoq to Rs1,962 crore.

In terms of the guidance for Q2FY2011, the dollar-term revenues are guided to be in the range of USD1,413-1,427 million (a 4.1% to 5.1% sequential growth). The earnings per share (EPS) are expected to increase by 5.4-7.4% sequentially to Rs27.42 to 27.95 per share.

For the full year FY2011, the revenue growth guidance (in dollar terms) has been revised to 19-21%, up from16-18% earlier. The earnings guidance has also been revised upward to 5.2-9.6% from 4.3-8.6% in dollar terms. In rupee terms, the EPS guidance has also been revised upward to Rs112.21-116.73 from the earlier guidance of Rs108-111.3. The upward revision in the revenue guidance hints towards a strong demand environment and also eases the concern regarding Europe but the revision in the earnings guidance was below the Street?s expectations. In terms of verticals, the company expects a strong demand growth from the banking, financial service and insurance (BFSI), energy and retail verticals. 

At the current market price, the stock is trading at 22.8x its FY2011 and 19.5x its FY2012 earnings estimates. 

Geojit BNP Paribas adds 15105 clients in Jun qtr

 Consolidated Revenues of Geojit BNP Paribas stood at Rs 64.45 crore as compared to Rs 76.69 crore for the same quarter of the previous fiscal (a decline of 16%) while Net Profit stood at Rs 6.19 crore as against Rs 13.25 crore (a decline of 53%).On standalone basis the revenue decreased by 25% to Rs. 59.88 crores and the Net profit declined by 56 % to Rs.12.83 as against Rs.28.92 crores. However, It should be noted that in the last year same quarter a dividend income of Rs 10 crores received from one of the subsidiary was included.


Brief of Management Discussion

1. The volumes in the retail segment of NSE cash market were down by 36 % during the period under review whereas Geojit’s retail volume was down by 24 % only. The management took note of the growth in the NSE retail market share from 3.10 % in Q1 of last year to 3.61% for the current quarter. The first quarter of last financial year was the best for the country’s stock market during that year when the Bombay Stock exchange’s Sensex  moved up from 9500 points to 15500 points thereby pushing the market volumes. For the quarter under review the market was generally flat and saw some net outflows of FII investments resulting in lesser market activity. The board also noted that over the period of last 12 months the number of retail outlets has grown from 486 to 520 many which are yet to start making profits.

2. For the end of quarter ended June 2010, the company added 15105 clients and the Asset under management was Rs 11084 crores which included the depository asset and the AUM with various Mutual Fund under the group.

3. The board was also pleased to note that the percentage of income from Internet trading has increased substantially over the corresponding period of last year as a result of the launch of the new internet trading platform called FLIP. The margins from trades through net are higher compared to margins from offline and telephone trades.

4. The income from the distribution of Insurance and Mutual Fund saw a decline of 20% YOY, which was primarily attributed to the decline in commission rates due to regulatory changes which has happened in both, insurance as well as Mutual Fund industry. The management discussed the possibility of increasing the number of staff employed for MF sales activities to give a dedicated push for advice based selling as well as pushing the NSE trading system for Mutual Fund distribution. The outlets will have to concentrate on converting MF holdings into demat form since this facility is now provided by NSDL. While there has been a decline in commission rates the board has taken note of the fact that such reduction in charges will help the investors to get higher returns and will eventually help attracting large number of new investors into the market.

5. The board also noted the impressive performance of the PMS division of the company; it has given a return of 257 % compared to 137% of theNifty for the last five year period. The management also gave a presentation as how they intend to increase the corpus from the present Rs 70 crores to Rs 1000 crores in 3 years time. It was also decided to employ specialized people across the country to mobilize funds for PMS. The company will try to reduce the entry level of PMS to five lacs from the current level of 10 lacs.

6.It was noted that the JV in Saudi Arabia has shown a loss of Rs.85 Lacs (Geojit’s share). The board has noted the fact that the Licenses required to service NRI’s in Saudi Arabia for Indian capital market would be received by this month end and post which a turnaround in the company is expected. Aloula Geojit has also received the license for portfolio management and fund management in the Kingdom. Aloula Geojit being the only Indian brokerage in KSA the NRI business should give a thrust in the days to come.

7. The 50:50  JV with BNP Paribas which does institutional business based out Bombay declared a loss of Rs. 2.87 Crores (Geojit’ s share) for the  quarter. The performance of this JV was satisfactory in the area of customer acquisition and research. Around 160 Institutions have been empanelled so far and the JV has recently completed the appointment of most of the senior sales people required to capitalize on these empanelments. BNP Paribas’s global network is actively engaged in customer acquisition and service.

8. The Joint Venture in UAE Barjeel Geojit Securities LLC, did comparably well, as it has changed its focus from the traditional Indian MF routes to selling International Funds

9. The Management also stated that there will be a cautious approach for opening outlets for this Financial Year. The target was to open 75 more outlets with major emphasis on branches in south India.

10. Geojit Technologies Ltd. a subsidiary of the company, in which BNP Paribas holds 35% stake has received orders from BNP Paribas group companies for various software needs and the same is expected to be recurring for the full year.

Reliance Power Merger

On Sunday, 4 July, the Boards of RPWR and Reliance Natural Resources Limited (RNRL, NR) approved a scheme of amalgamation of the companies in a 4 (RNRL) for 1 (RPWR) share swap. Our initial thought is that this transaction is done out of necessity rather than value creation. 

Impact
■ Look like a defensive move, rather than value creation: The recent RNRLRIL Supreme Court decision highlighted that the Government has ultimate control of how gas supply in India is allocated. RNRL itself has no power projects of its own – it’s essentially trading the gas – against the Government’s desire to allocate gas to end users and not traders. Therefore in our view, the absence of any gas assets in RNRL meant that this transaction was done as a necessary step to ensure gas allocation, rather than for value creation.

■ Pro forma accounts – RPWR still expensive: We provide a snapshot of pro-forma accounts of the transaction. The Price/Book Value (P/BV) after adjusting for the potential goodwill created from the transaction, sees the metric worsen to around 3.2x P/BV. Stripping out cash + investments implies a P/BV of 11.8x highlighting the early stage of the execution cycle for the combined RPWR-RNRL entity.

■ Other RNRL assets more speculative: The only real fundamental value that RNRL could bring to RPWR shareholders, in our view, is the undeveloped gas assets. Again, it seems that RPWR has paid an enterprise value of ~US$1.4bn for this more speculative upside. We need to do more valuation work around these assets.

IPO Note: Hindustan Media Venture

■ Hindustan - 3rd largest read Hindi daily with readership of 9.9mn
HMVL prints and publishes ‘Hindustan’ – the 3rd largest read newspaper in India with
readership of 9.9mn (source: IRS Q1 2010). Hindustan has strong presence in 6 out of the
14 Hindi newspaper markets, with leadership in Bihar & Jharkhand markets. Hindustan has
seen consistent and highest growth in readership over the last 5 years taking itself from 8th
largest to 3rd largest in terms of readership. We believe that the launch of new editions would further grow the readership which would result in healthy ad-revenue growth, going forward.

■ Ad-market revival and strong GDP growth provide healthy opportunity
Economic revival and expectations of strong GDP growth provides very healthy environment for growth in advertisement revenues. While the industry advertisement revenues are expected to grow by 12% CAGR over FY10-12E, we believe that the vernacular print medium would outperform the industry growth. Recent ad-rate increase of over 10% together with volume growth recovery would result in strong ad-revenue growth for the company.

■ EBIDTA and PAT to grow by 45% and 48% CAGR over FY10-12E
We expect HMVL to register 11% revenue CAGR despite 16.4% ad-revenue CAGR due to
the impact of cover price cut on the circulation revenues. With steady newsprint prices and
high operating leverage in the business, we expect EBIDTA and PAT CAGR at 44.5% and
48% over FY10-12E. The high growth of HMVL over its peers can also result in valuation
premium to peers, in our view.

■ Valuation at reasonable discount to peers - SUBSCRIBE
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Telecom operators may see dip in Q1 net profit

Telecommunication operators may report a dip in net profit for the first quarter ended June 30 largely due to lower operational profitability and higher interest costs incurred on debt taken to acquire spectrum for third generation and broadband wireless access services.

However, these companies will be able to maintain revenues through increased minutes carried on their cellular networks, especially in a quarter which did not see a new round of tariff wars, analysts say,

According to estimates put out by four brokerage firms on the listed telecom firms, average sequential net profit for Bharti Airtel, Reliance Communications and Idea Cellular is likely to fall by 20 per cent for the quarter ended June. On a year on year basis, net profit decline is expected to be comparatively steeper at 34 per cent.

Revenues for the quarter are expected to be flat or only marginally higher. Mr Harit Shah, analyst with Karvy Stock Broking expects the wireless majors to report a 1.2 per cent revenue decline in Q1 on a year-on-year basis.

Edelweiss analysts Mr Ganesh Duvvuri, Ms Devyani Javeri and Mr Rohit Patni said in a research report: "We understand that the interest cost on debt that arose from the 3G and BWA licence payments will be capitalised until commercial operations are launched. For Bharti, interest costs will rise due to debt raised for the acquisition of Zain."

News reports have indicated that Bharti has secured debt of up to $8.5 billion from a clutch of lenders to fund the Zain deal. Again, Idea Cellular has been seeking to raise around $528 million by raising debt - domestic or overseas - to fund its 3G network deployment.

During the quarter gone by, RCom de-merged its tower business in a bid to bring down its overall debt to Rs 15,000 crore.

From a tariff standpoint, the environment has been relatively stable with no big ticket announcements on further price cuts. But some of the new entrants such as Videocon and Uninor continued to eat into the market share of the incumbents on the basis of their aggressive tariff plans launched earlier this year.

However, falling tariffs have ensured an increase in the minutes of telephony usage. "We believe increased minutes of usage will support and subsidise the impact of falling ARPUs in the coming quarters, resulting in flat growth in the mobile telephony space," Mr Vaibhav Agarwal and Ms Vibha Salvi, analysts with Angel Securities said in a report.

Another report authored by Mr Amit Ahire of Ambit Capital said the total number of minutes on a carrier's network is expected to increase by between three per cent and eight per cent for the three top wireless operators.

Company wise, RCom is expected to take the maximum hit on quarter-on-quarter profitability, with an average estimated dip of 40 per cent. "Pre-minority interest net profit is expected to decline by 82 per cent year on year and 72 per cent quarter on quarter, led mainly by assumptions of no treasury gains," Mr Shobhit Khare, analyst of Motilal Oswal Securities said.

Bharti Airtel's net profit is expected to be down by around five per cent. Analysts expect continued decline in revenue per minute, though, slower than in the earlier quarter, as circle-level lower tariff schemes continue. "Demand elasticity is expected to play-out, as reflected in higher minutes of usage," the Edelweiss report said. Idea Cellular may take a 16 per cent quarter on quarter hit on its bottom line.

The quarter gone by was one of the more eventful ones in the Indian telecom sector especially after TRAI released recommendations pertaining to charges on excess spectrum - re-farming of the 900Mhz band frequency, changes in the spectrum usage charges and licence fees paid by the operators. Moreover, the much-delayed 3G and BWA auctions finally took place, following which Reliance Industries announced its re-entry into the Indian telecom space by acquiring pan-India BWA winner Infotel.