Noida Toll Bridge Company Limited----Results better then expectation;

Noida Toll Bridge Company Limited (NTBCL) declared its Q4FY09 results; which
were better than the market expectations. Led by higher traffic, NTBCL reported
strong 15.4% YoY growth in net sales to Rs 205 mn. EBIDTA growth however
was higher at 21.6% YoY to Rs 145.3 mn. The company has changed its
depreciation policy to units of usage method against straight line method leading
to write back of deprecation thereby resulting in net profit of Rs 105.7 mn as
against Rs 66.5 mn during the corresponding previous period.
Increasing traffic and revised toll rates augur well for the growth prospects of
the company going forward.

Net sales driven by higher traffic
NTBCL winessed 15.4% YoY rise in net sales to Rs 205 mn primarily led by
higher traffic which has increased to nearly 1,00,180 vehicles per day against
91,570 during the corresponding previous quarter.Mayur Vihar Link which became operation in January last year has seen
improvement in traffic to 13,632 against 12,350 vehicles per day last year.
Increased development of NOIDA along with congestion at adjoining bridges has
resulted in company reporting 17.2% CAGR in traffic during the last four years.
With more new dwelling planned in Noida, the traffic is expected to grow further.
We expect traffic to grow over 7% CAGR over the next three years.

Cost control measures resulted in better EBIDTA margins
Led by cost controls initiatives, NTBCL resulted in 21.6% YoY increase in
EBIDTA, though O & M charges have increased owing to addition of Mayur Vihar
Link, other administrative charges have seen a decline resulting in 360 bps
improvement in EBIDTA margins to 73.3%.
Higher Net profit owing to revised depreciation policy
NTBCL has changed its depreciation policy w.r.t. DND flyway to units of usage
method under which company will amortise its toll asset based on number of
vehicles using the project facility based on the traffic study done by M/s Halcrow
Consulting India Pvt. Ltd (Independent consultant).
Based on the independent professional expert’s advice, the estimated useful life
of the Bridge has been revised to 100 years against 62 years earlier. Consequent
to the change in the estimated useful life, the charge for depreciation/
amortization has been reduced by Rs 49.70 million for the year resulting in
increased profit during the current financial year. This has resulted in write back
of depreciation to the tune of Rs 22.9 mn during the quarter. Led by higher
EBIDTA and lower depreciation, net profit during the quarter witnessed 59% YoY
increase to Rs 105.7 mn against Rs 66.5 mn during last year.---- L.kannan

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Gas Authority of India Ltd. (CMP:Rs.260, FY10E - PE : 11x)

Huge expansion ahead, pipeline network to nearly double in next

3-4 years

During the management meet, GAIL has indicated that the company is very bullish on

the growth of natural gas market in India, and to capture the full benefit, GAIL is

continuing the huge capex plan planned earlier. The company is in the process of

expanding the gas pipeline network from 7000 km currently to 12500 km in next 3-4

years at a capex of around Rs 200 bn. As far as financing is concerned, the company

has already tied up for Rs 120 bn and we don’t expect any difficulty in financing the rest

considering comfortable debt/equity ration and huge investments in ONGC and other

listed companies.

Three of the major pipelines are being completed in phase 1, which will be ending in

2010. In addition, GAIL has planned 3 more pipelines in phase 2, which will be completed by

2012.

Post the expansion total transmission capacity will increase from 150 mmscmd to 300

mmscmd, which will be sufficient to transport all the available gas which includes RIL

gas as well as gas expected from new LNG capacities. Combined with revenue from

petrochemicals, the company has ambitious plan to increase the topline to Rs 50,000-

Rs 60,000 crore by the end of 11th five year plan from current levels of around Rs

23,000 crore.

Sufficient spare capacity available, expect at least 2/3rd of RIL gas

to flow through GAIL network

Management also clarified the market’s doubts regarding lack of spare capacity in HBJ

pipeline, and clarified that sufficient spare capacity is available and the company expects

at least 2/3rd of KG D6 gas to flow through its network. In addition, the company is also

mapping the progress of laying pipelines with incremental gas supply coming in to

ensure that whenever incremental gas supply comes in, the company is ready with the

gas transmission infrastructure to transport it to end customers. GAIL also indicated

that there is sufficient spare capacity for the first 40 mmscmd coming out from RIL , and stated that HBJ and DVPL pipelines together have 15 mmscmd spare capacity,

which will be enhanced by another 10 mmscmd by end of FY10. With 8 mmscmd

expected to flow through GAIL’s AP pipelines and another 8 mmscmd through DUPL

pipeline in Maharashtra, GAIL aims to transmit at least 30 mmscmd of KG gas once

production ramps up to 40 mmscmd.

Tariff charges for existing pipelines expected to remain at current

levels

GAIL management is confident on the issue of regulatory risk to pipeline tariffs, and

stated that they see no reduction in tariffs of the core HBJ/DVPL network following

introduction of regulation on the ground that these were decided in the past by the

government itself. This is in-line with our estimate of flat transmission tariffs gong forward.

Company focusing on increasing petrochemical capacity

In addition to gas transmission, another segment on which the company is betting big

is petrochemical segment, which contributes nearly 50% to the bottom line. Currently

GAIL has a total petrochemical capacity of 440000 MT in Pata, which will increase to

500000 MT with the commissioning of 6th furnace. The company is looking to double

the

Capacity of Pata plant in next 4-5 years. Also, the company ahs plans to set up one

petrochemical plant outside India, which according to our view will take a long time to

materialize.

CGD and E&P the next growth driver

Going forward, Gail is also focusing on city gas distribution front. The company already

operates CGD networks in several key cities via nine JVs, and plans to

expand this further to more cities. E&P is another area where GAIL is seeking

diversification and is actively bidding for NELP blocks. Currently the company has stake

in 30 blocks, and in future if there is any success in exploration efforts, we expect

significant re-rating of the stock.

No plans to list Gail gas

GAIL has spun off gas marketing business into a new company, which was on the

expected lines as the company was already keeping separate books for both the

businesses. GAIL will focus only on transmission and petrochemical business, and the

new company GAIL Gas (GGL) will run the marketing and city gas distribution

businesses from the next fiscal year. GGL will take over GAIL India’s marketing activities

like the city gas projects. The new entity will also distribute and market CNG for vehicles,

piped natural gas for domestic or industrial use and and auto LPG both in India as well

as abroad. It also plans to set up retail CNG and LNG outlets across the country

We do not see any impact on financials of the company as it is simply an accounting

exercise, and moreover the company has denied any plans to list the company on the

bourses. We see this move as purely a move to meet the policy guidelines as according

to the policy guidelines issued by the Petroleum and Natural Gas Regulatory Board,

GAIL had to split its gas transportation business from the marketing and the trading

business. The policy was drawn to prevent unfair competition that resulted from the

ability of integrated companies like GAIL to cross-subsidise its activities.

Valuations

After the recent run up, the stock is trading at 12.5x and 11x FY09E and FY10E earnings

respectively. Although we are bullish over the long term prospects of the company keeping

in view the huge upside in transmission volumes, over the near term in next 1-2 years,

we expect growth to remain muted mainly on account of poor performance of

petrochemical and LPG business. Petrochemical and LPG business, which currently

contributes around 50% to its profits are still in the downturn, and expected to remain

under pressure till global situation improves. Going forward, from FY08-FY11, we expect

earnings of the company to grow at a muted CAGR of 6.6% in spite of assuming 15.4%

CAGR in gas transmission volumes from 85 mmscmd in FY08 to 130 mmscmd in FY11.

In view of muted growth expected in next 2 years, s. Keeping in mind the decent gains posted by the stock

in the recent market rally. ------L.KANNAN

Dishman Pharmaceuticals & Chemicals Ltd (CMP:Rs.97, FY10E - PE : 4x, )

New drug unit to improve CRAMS operations

Dishman Pharmaceuticals & Chemicals Ltd (Dishman), is setting up a Rs.350mn US

FDA and MHRA approvable drug formulation unit at the Bavla plant in Gujarat. In fact,

this facility will be designed to provide complete package of CRAM services, right from

Contract research to Dosage forms, satisfying the entire drug life cycle. The company

plans to finance this investment through internal cash accruals.

Following this arrangement, Dishman is in the process of finalizing a deal with a client

for orders which will account for 30% of the unit’s capacity from its inception. This unit

will however make drugs on a contract basis for its clients. The company has no plans

to enter the generic formulations market.

Multiple expansions to power earnings

Dishman, during FY09 commissioned 4 new plants at its Bavla facility, of which one

has been exclusively apportioned to manufacture Eprosartan API for Solvay that has

increased the Eprosartan capacity from 60tpa to 200tpa. On the similar lines, the

company has assigned one of its other plants to meet the requirements of AstraZeneca’s

14 API supply agreement. Another, two plants have been visited by large MNC pharma

companies like GSK, Pfizer, Novartis and have expressed their interest in entering into

manufacturing contracts going forward.

Alongside, the new Bavla Hi-Potency facility (which is under construction and will

manufacture cancer products for Carbogen-Amcis) is expected to start its operations

from June 2009 ensuring robust earning visibility. Further, additional traction is expected

out of the China facility which is likely to be commissioned from July 2009.

On top of the recent facility expansions (which is the prime indicator growth in CRAMS

business model), the new set up of Rs.350mn drug formulation unit at Bavla indicates

huge potential awaiting in the CRAMs segment for the company. Likewise the recent

agreement with Europe based - Polpharma for co-operative & joint API development

ensures additional contract research & manufacturing business flow for Dishmans’

new facilities.--- L.KANNAN

Kirloskar Oil Engines Ltd

(Rs.56, FY10E - P/E 9x)

Demerger of engines and auto component business from the

Company

Kirloskar Oil Engines Ltd (KOEL) has announced the demerger of Engine and Auto

Component business of the Company into Kirloskar Engines India Ltd (KEIL). After

the demerger KOEL would continue to hold investments in its books while KEIL would

represent core engines and auto component business. KOEL after Q3FY09 results

informed that it’s Board of Directors had constituted a Committee of Independent

Directors to examine merits of reorganizing the various businesses and investments

of the company, including by way of restructuring and /or demerger of the Company.

The effective date of demerger has been decided as 1st April 2009.

Existing shareholders to get 3 shares of KEIL for 4 shares in KOEL

KOEL has fixed demerger ratio at 3:4 which means existing shareholders of KOEL to

get 3 shares of KEIL for every 4 shares held in KOEL. The company has not disclosed

the method of valuation for demerger. But we believe it to be mainly based on book

value and potential value of unlisted investments. We believe the valuation has given

due consideration to potential of unlisted companies (Toyota Kirloskar, Toyota Kirloskar

Auto Parts, T G Kirloskar Automotive etc) which is reflected in demerger ratio.

KEIL ‘s equity capital after the demerger would be ~146mn equity shares of Rs.2 each

(~Rs.291mn). KOEL as on 31st March 2008 held book value investments of ~Rs.4.76bn

which includes strategic investments and investments in mutual funds. The current

market value of these investments is ~Rs.1.9bn and including the book value

investments of non-quoted investments and mutual fund investments, the investment

on the books are at Rs.4.93bn.

KOEL’s valuation has not been reflecting the value of investments it holds in the balance

sheet and because of which we believe the company has taken the decision to demerge

core business into separate company, KEIL.

KOEL has emerged as the flagship holding company for all the auto related businesses

of the Kirloskar group. KOEL also holds strategic investment in Kirloskar Brothers,

Kirloskar Ferrous, Swaraj Engines, Toyota Kirloskar Motors and Toyota Kirloskar Auto

Parts. Apart from strategic investments KOEL has invested in certain unquoted group

companies and mutual funds. KOEL’s listed companies and book value of unlisted

valued at Rs.4.93bn.

Further companies like Kirloskar Brothers, Toyota Kirloskar Motors and Toyota Kirloskar

Auto Parts have been registering impressive growth and would command higher

valuation in long term and would be beneficial to KOEL. We believe after the demerger

of engines and auto component business into KEIL, KOEL would reflect true value of

its investments.

Company Background

KOEL incorporated in 1946 is a part of the Pune based Kirloskar group and is headed

by Mr. Atul Kirloskar. KOEL is one of the leaders in manufacturing of Diesel Engines,

Engine Bearings, Engine Valves & Diesel Generating Sets. These engines find

application in agriculture, material handling, mining machinery, construction equipments

and marine and defence applications. KOEL has manufacturing facilities at six locations

- Pune, Ahmednagar, Nasik, Solapur, Kagal and Hospet( with a proposed facility at

Silvassa coming up). During FY08 KOEL earned 93% of its total revenues from engines

(5HP-11000HP), 5% from auto components (Bearings and Valves) and 2% from other

strategic business unit (Fuel Oil Trading). KOEL also exports its engines and auto

components.----L.Kannan