BULL'S EYE

PANTALOON RETAIL 
RESEARCH: IIFL 
RATING: BUY 
CMP: RS 335 
IIFL initiates `Buy' rating on Pantaloon Retail (PRIL) with a price target of Rs 400. PRIL has sought approvals to unlock value in the financial services business. Though other details of the ongoing restructuring remain sketchy, IIFL maintains positive view on the restructuring. The Big Bazaar hive-off will allow efficient use of capital, transform PRIL into a pure retail play and allow investors direct exposure to pure discount retailing if and when Big Bazaar gets listed. PRIL's restructuring, wherein the existing businesses would be restructured along three verticals has begun. This would entail: 1) consolidation of PRIL as a pure retail play and transfer of the Big Bazaar and Food Bazaar formats into whollyowned subsidiaries of PRIL; 2) transfer of all non-retail businesses such as Future Knowledge Services, Future Brands and Future Learning into a separate company; and 3) value unlocking in the financial services businesses. Future Logistics will continue to be a part of the core retail entity. The management hinted at a possible tie-up with an international retailer to ramp up its discount food format, which could have an exposure as high as 65-70% (of sales) to food products. However, given FDI regulations currently governing the retail industry, such an arrangement is most likely to be for back-end support, such as the Bharti-Wal-Mart tie-up or a technological tie-up. However, PRIL has ruled out the cash-and-carry format at this stage, citing low profitability of the business. 
ICICI BANK 
RESEARCH: STANDARD CHARTERED 
RATING: OUTPERFORM 
CMP: RS 897 
Standard Chartered Bank maintains stable outlook and `Outperform' recommendation on ICICI Bank. ICICI Bank reported an 18% sequential increase in Q2FY10 net income, despite a 3.7% q-o-q decline in its loan book, on a higher net interest margin and lower operating costs. The net interest margin improved marginally due to lower deposit costs as the bank continues to shed high-cost wholesale deposits and improve its low-cost current account and savings account (CASA) deposit ratio. Asset quality seems to have stabilised somewhat - the bank reported a second consecutive quarter of declines in its absolute amount of gross NPLs, though its NPL ratio inched up slightly due to the shrinking loan book. Although the bank restructured a further Rs 850 crore of loans, the restructured assets accounted for 2.5% of its loan book as on 30 September, down from 3.1% as on 31 March. This indicates a substantial upgrade of loan quality due to satisfactory performance. Capitalisation remains strong. Tier 1 capital rose to 13.3% as on 30 September from 13.1% as on 30 June, mainly as a result of the contraction in the bank's loan book. 
HDIL 
RESEARCH: DEUTSCHE BANK 
RATING: BUY 
CMP: RS 338 
Deutsche Bank maintains `Buy' rating on HDIL. They believe that elections in Maharashtra and the significant delay in formation of government coupled with other issues has resulted in (a) commencement of shifting of slum dwellers in Phase I of the Mumbai airport rehab project from January to March '10 and (b) launch of redevelopment of Mhada colony at Goregaon (Mumbai suburb) from August '09 to January '10. HDIL is aggressively focusing on execution: (a) the Mumbai airport rehab project offers significant scale to its highly profitable and low-capital intensity redevelopment business (b) $350m QIP in July '09 and aggressive launches of ~6m sf of projects at large discount in H1 have largely addressed its cashflow woes (c) It is looking to shift from its past strategy of doing execution in-house using a multitude of small contractors. It now gives turnkey projects to large contractors, so as to focus on its core competency — getting large redevelopment projects including all approvals and marketing them to end users. However, with improved cash flows, it is now launching new projects at a lower discount as compared to launches in April-June '09. It proposes to launch another 6m sf of projects in 2H. (d) To avoid the risk of vacancy post completion, it has commenced pre-leasing of office projects in Mumbai, which will shortly commence construction (e) It proposes to venture into slum rehab projects in Delhi city. 
USHA MARTIN 
RESEARCH: EDELWEISS 
RATING: BUY 
CMP: RS 72 
Edelweiss maintains `Buy' recommendation on Usha Martin (UML). UML recently completed its blooming and section mill of 275 kt and wire rod mill expansion to 400 ktpa, as a part of its ongoing expansion plan. The steel capacity expansion to 0.7 mt, additional DRI capacity of 100 ktpa, and new blast furnace capacity are expected to come onstream in Q3FY10/Q4FY10. The steel capacity will be enhanced to 0.9 mt by March 10. Overall, the project will increase scale, improve product mix and enable the company to cater to new segments of telecom and power transmission and construction. The company will benefit from: (i) commissioning of a 30-MW captive power plant, which will result in savings of Rs 9.2 crore; (ii) reduction in cost of bought out metallics by Rs 40 crore due to increase in sponge iron capacity; and (iii) coke cost saving of Rs 130 crore on existing production. Usha Martin offers a variety of products in the wire rope segment. It is India's largest and the world's second largest manufacturer of steel wire ropes. The company is a leader in wires, wire ropes and strands. We are assuming billet production of 395 ktpa and 575 ktpa in FY10E and FY11E respectively. 
LANCO INFRATECH 
RESEARCH: UBS 
RATING: BUY 
CMP: RS 554 
UBS maintains `Buy' rating on Lanco Infra with a price target of Rs 600. According to news reports, L&T is the lowest bidder with a tariff of Rs 2.89/unit, followed by Welspun with a bid of Rs 2.94/unit. There were six bidders for the 2x660-MW super-critical project, which went for rebidding by the Punjab State Electricity Board. The other four bidders were Lanco, Adani Power, GMR and JSW Energy. Considering that this is a domestic coal-based project, the bids were not aggressive. Lanco was the third-lowest bidder and quoted a tariff bid of Rs 2.98 per unit. During the previous bidding process conducted during H1FY09, Lanco had emerged as the lone bidder for the project with a tariff of Rs 3.38 per unit. However, this bid was rejected by the state regulator as it viewed this power as expensive and also due to there being only one bidder. We do not think this is a negative development for Lanco as it already has a robust pipeline of projects with approximately 3,600 MW under construction and approximately 4,000 MW under development. UBS derives the price target using a sum-of-the-parts valuation method.