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BHARTI AIRTEL
RESEARCH: MACQUARIE
RATING: OUTPERFORM
CMP: RS 668
Macquarie reiterates its view that challengers or new entrants dropping prices/tariffs do not pose a threat in themselves to Bharti’s ARPU (average revenue per user) and profits. There have been sharp downgrades in consensus revenue, EBITDA and EPS numbers for FY3/10E and FY3/11E, based on competition, cuts in termination and interconnect charges and the recent flip-flop in regulations, namely spectrum charges, 3G auctions and revenue share licence fee decisions. The stock is pricing in a pessimistic consensus earnings expectations, a low-single-digit EPS growth outlook and a perennially challenging regulatory outlook. Bharti’s pricing and profits will be threatened if Bharti decides of its own accord to respond to competitors’ actions, which management has steadfastly maintained it will not do. Bharti and possibly Vodafone Essar are the only two operators focussing on revenue productivity and revenue market share by refusing to drop the ARPU thresholds at which they are willing to do business. This is a significantly different view from the consensus opinion that the profitability is an outcome heaped on operators by the market and the competition.
GRASIM
RESEARCH: CLSA
RATING: OUTPERFORM
CMP: RS 1593
CLSA recommends `Outperform’ rating on Grasim Industries with a target price of Rs 1,600. Grasim’s aggressive capacity additions of ~9mt commissioning over the next 3-6 months should allow it to deliver superior volume growth. Further, the 8% demand growth in FY09 has surprised positively; and Grasim’s expansion will allow it to capitalise on this trend if it continues into FY10. With cost-saving initiatives to help against pricing weakness, Grasim benefits from lower power and fuel costs after the declines in international coal and crude prices. While freight costs should fall due to cuts in domestic diesel prices, the company will benefit from a 12% reduction in lead distances and captive power projects (100MW) will lower power costs. These savings along with volume growth will allow Grasim to mitigate the weakness in its cement realisation and sustain overall cement EBITDA at Rs 1,700 crore (flat y-o-y). The VSF segment is also under pressure but drop in input prices will help. With most of the contraction in the VSF segment out of the way in FY09, we expect a marginal recovery in FY10 (EBITDA to improve 13%) on the back of lower input prices. CLSA expects industry leader Grasim to be one of the prime beneficiaries of India’s secular cement demand growth.
TATA POWER
RESEARCH: BNP PARIBAS
RATING: BUY
CMP: RS 884
BNP Paribas upgrades the rating of Tata Power to `Buy’ and raises the target price to Rs 933. Earlier, there was a concerns that Tata Power’s power business will find it difficult to service debt in FY11 and FY12. However, BNP Paribas don’t foresee any problems in servicing project debt if interest rates are low and still retains the assumption of equal annual principal repayments. BNP was concerned that Tata Power will find it difficult to service coal mine debt if coal price realisation falls below $55/tonne for CY09 (assuming a 2% tax rate). BNP had assumed that loan principal has to be repaid in equal annual installments. Based on the estimates, Tata Power would have had to repay about $212m by April 2009. However, management in a conference call with investors indicated that they have repaid $175m of the loans and indicated that it was a prepayment.
NTPC
RESEARCH:HSBC
RATING: UNDERWEIGHT
CMP: RS 194
HSBC reiterates `Underweight’ rating on NTPC and maintains the estimates and target price of Rs 142. NTPC’s revenue was up 14%, to Rs 42100 crore, on 3% generation growth while PAT was up 6%, to Rs 7800 crore, below HSBC’s and consensus estimates. This was primarily due to additional wage provisions as well as gratuity-related expenses. Generation continues to disappoint, with only 3% growth in generation units, to 20,700 crore. Generation has been muted due to lower plant load factor (PLF) of 91.14% and lower capacity addition. NTPC has commissioned only 1,000 MW in FY09 and expects to add 19.7 GW of capacity over the next three years. Given that it has missed timelines in the past, it will only add 9.2 GW of capacity. The company has yet to place an order for 1.8 GW. NTPC has spent Rs 15,200 crore in FY09 towards capacity addition and is expected to spend Rs 24,500 crore in FY10. NTPC has received 130.7 million tonnes of coal (including 6.4 million tonnes of imported coal) and 10.81 mmscmd gas for its power plant. Management expects coal imports to double next year, to 12.5 million tonnes, and also expects 15 million tonnes of coal from its captive mines by FY12.
MARUTI SUZUKI
RESEARCH: BANK OF AMERICA
RATING: BUY
CMP: RS 807
Despite the 50% YTD (year to date) stock rally, Bank of America is upgrading Maruti to `Buy’ from `Underperform’, with a target price of Rs 900. This follows the sharp revision in EBITDA forecasts by 23.5% in FY10E and 20.2% in FY11E, on: (1) increased domestic sales growth estimates of 15% (earlier 5%) and 12% (from 10%) respectively, and (2) higher margin assumptions. Bank of America expects the stock to re-rate on much better growth visibility, and likely consensus upgrades. Maruti’s Q4 sales momentum (up 12% yo-y) will sustain over the next year, driven by: (1) demand from government employees benefiting from pay hikes, and (2) phased new launches, mainly in mass market compact hatchback segment. Maruti is to beat industry trends (15% vs 10% in FY10E), as competition grapples with relatively weaker franchise, and limited launches. Bank of America’s margin assumptions are raised by ~10% annually on: (1) leverage of stronger sales, (2) higher average segment prices (ASPs) on select models, and (3) localisation benefits. Valuations are inexpensive, given the expectations of strong earnings trajectory, similar to historic highs. At the new target price of Rs 900, the shares would trade at 7.0x our FY10E EV/EBITDA, in line with past average.
BHEL
RESEARCH: EMKAY
RATING: HOLD
CMP: RS 1497
Emkay has downgraded the rating of Bhel from `Buy’ to `Hold’ with a target price of Rs 1,450. Bhel’s FY2009 and implied Q4FY2009 results were below estimates primarily because of significantly higher provision (Rs 1,900 crore against expectation of Rs 1,313 crore) for wage arrears and gratuity. Neutralising the impact of provisioning, FY09 net would have grown at 25% y-o-y. The company, however, has gathered significant momentum in execution with Q409 revenues of Rs 10,550 crore registering a y-o-y growth of 32.5%. Deriving confidence from record order backlog of Rs1,17,500 crore (4.3X FY2009 sales) and capacity expansion to 15,000 MW, management has guided for a growth of 20-25% in topline and 30% bottomline growth in FY2010. On account of lower than expected topline growth and higher provisioning we downgrade FY2010 earnings estimates for Bhel by 3.6% to Rs 80.5 per share. On account of the strong likelihood of Bhel winning a bulk supercritical order from NTPC, which in turn would maintain momentum in its order inflow, Bhel is trading at a significant premium valuation of 19X its expected FY2010 earnings. However, most of these positives are already factored in in the price.

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