Bhushan Steel

Larsen & Toubro

Crompton Greaves

Grasim Industries

POWER GRID CORPORATION OF INDIA

Research firm Motilal Oswal Securities has recommended buy rating on Cairn India with target price of Rs 163. Research firm values Cairn's Rajasthan block (including EOR) and its currently producing blocks (Ravva and Cambay) on DCF basis and Cairn’s stake in the KG block based on announced 2P reserves of 2.09TCF.

Pipeline concern getting resolved:

Resolution of the pipeline issue will enable monetisation of Cairn's largest and most promising asset, Rajasthan block by 2HCY09. Though, there still remain several uncertainties on cess, pricing and crude offtake, we believe these will not hamper the initial oil delivery schedules. Successful development of Rajasthan block, which will catapult Cairn into bigger league, will be the key driver to its performance, in our view.

Rajasthan block; already a world-class oil asset; holds promise
for more:

The Rajasthan block RJ-ON-90/1, is Cairn's main asset accounting for 80% of its total reserves. Of the total current gross inplace resources of 3.6 b boe, 2.2 b boe are currently in development phase. There remains upside from area already being developed and more development area is being added.

Large exploration acreage provides upside; two producing
assets provide the cash:

Cairn also has large exploration acreage of about 94,800sq km in 12 other blocks, including 5 as operator. The most promising of these is ONGC operated (Cairn 10%) deep water block KG-DWN-98/2. Cairn has successfully extended plateaus for both its operating assets at Ravva and Cambay, by successful infill development and further exploration and development drilling.

Valuation and recommendation

We value Cairn's Rajasthan block (including EOR) and its currently producing blocks (Ravva and Cambay) on DCF basis. We also value Cairn’s stake in the KG block based on announced 2P reserves of 2.09TCF. Upside potential to valuation comes from these blocks as well as other blocks in its stable. We value Cairn on Sum of Parts basis at Rs 163 per share. We initiate coverage with a Buy.

The Rajasthan block, which is set to commence production in 2009, provides 87% of value of our current value. With the block still in early stage of exploration and development, we believe it continues to have significant upside potential. We value Cairn's currently producing assets (Ravva and Cambay) at Rs 16 per share. We assign a value of Rs 5 per share, to Cairn's 10% interest in the KG-DWN-98/2. We do not attribute any value to Cairn's other exploration acreage in 9 blocks, as all these blocks are still in early stages of exploration.

Key risks

Oil prices:

We believe high oil prices are here to stay, and assume the long-term average Brent oil price at USD 55/bbl. We also assume that Cairn's Rajasthan crude will be sold at 10% discount to Brent. A lower oil price environment and/or higher actual discounts for Rajasthan crude pose downside risk to our estimate.

Cess:

We assume Cairn will be required to pay cess (levy) of Rs 927/MT v/s the current cess rate of Rs 2,675/MT (including education tax and NCCD cess). Cairn believes it is not liable to pay any cess and is currently contesting cess payment with the GoI on the issue, and indicates that in case of an adverse decision, Cairn will opt for arbitration. Higher cess payment than our estimate will be negative for Cairn by Rs 18 per share; similarly if Cairn is required not to pay any cess, it will be positive by Rs 12 per share.

Pipeline:

We assume that GoI will approve Cairn and ONGC's jointly planned pipeline to evacuate Rajasthan crude. We also assume that the pipeline will be included in FDP for the Rajasthan block. Based on these assumptions, we assume Cairn to begin production from the Rajasthan block in October 2009. However, any significant delays in final approval of the pipeline and/or non-inclusion of pipeline cost in FDP will be negative for our estimates.

EOR:

The company has indicated that it plans to utilize EOR techniques to enhance production rates and plateau periods. In our estimates we assume recovery of 196mmboe (Cairn share 138mmboe) through EOR. Currently the company is testing EOR techniques at laboratory levels. Non-implementation of EOR, or lower recovery of oil through EOR, will result in downside to our estimates. We currently value EOR recoveries at Rs 19 per share.

We believe Reliance Industries (RIL) is the 'banyan tree'. Just when it begins to appear that growth would falter, a new offshoot props it up. RIL has successfully followed a strategy of backward integration and adding new businesses to maintain growth.

E&P - the new growth engine:

In RIL's successful strategy of backward integration in its core businesses, exploration and production (E&P) is the next frontier. As its KG-D6 gas comes online in FY09, E&P will soon become the key growth driver, in our view.

Refining - great times here to stay:

RIL's refining margins have lately been scaling record highs. We expect refining margins to remain high, as the global demand for refined products remains robust and not enough capacity is coming online.

Petrochemicals - mixed margin trend:

While margins in RIL's petrochemicals business have declined from the peak in 2QFY07, polymers continue to enjoy higher than historical average prices and margins. In polyesters, the trend of margin contraction was reversed in 1QFY08. However, high naphtha prices would continue to put pressure on overall petrochemical margins.

Retailing - potential value driver:

We believe that organized retailing in India offers huge growth opportunity and RIL would be able to make the most of this opportunity. Its deep pockets would help sustain a relatively long gestation involved in building a pan-India retailing giant. Our base-case SOTP valuation of Rs 2,206 indicates an upside of about 26%. We upgrade our recommendation to Buy.

1Q disappoints, Modern continues to report losses; high other income, lower taxes push up profits:

Geometric reported consolidated dollar revenue of 27.9m, down 1.4% QoQ. Rupee revenue was down 9.1% QoQ. EBITDA margin for 1QFY08 was down 640bp to 7% due to decline in dollar revenue, salary hikes, rupee appreciation and losses in Modern Engineering (net loss of US$0.321m). High forex gains and low tax rate pushed net profit up 15.5% QoQ to Rs117m v/s expected decline of 20.3%.

Y08 guidance of 50% dollar revenue and 30% rupee profit growth to be back-ended in FY08:

The management has revised its earlier guidance of 50% revenue growth in rupee terms down to 50% growth in dollar terms. The net profit guidance, however, remains intact at 30% rupee growth. The management is confident of achieving its guidance with stronger ramp ups in 2HFY08.

Losses in Modern Engineering to depress margins in FY08:

Losses in Modern are expected to be continued over the next two quarters. Given that Geometric’s scale of operations renders it sharply vulnerable to project delays, slower than expected project ramp ups could derail margin recovery in FY08.

Outlook and view:

While the demand environment for Geometric continues to be robust, we believe slower revenue ramp ups over the next few quarters and slower turnaround in Modern Engineering would dampen both revenue and margins over the next few quarters. Our downgraded estimates for FY08E and FY09E (diluted) reflect our expectations of slower revenue off take as well as higher rupee appreciation. At CMP, the stock trades at 15.6x FY08E and 11.5x FY09 EPS (diluted) estimates. We expect muted revenue and margin expectations to result in the stock underperforming the sector over the near–medium term. Downgrade to Neutral.

Motilal Oswal -Hindustan Const Comp,
Religare - GreenPly, Riddi Siddhi,
SK - Investor-'s+Eye-Jun14

Download Here

Indiabulls - Daily Market Update, Motilal Oswal - Market Action

Motilal Oswal - Corporate News, Daily Margin, Market Diary, Market Action


Download Here

Download Here

MotilalOswalPharmaceuticals

Motilal Oswal - RBI’s Monetary Policy, Market Diary, Derivatives Daily



Download Here

Motilal Oswal F&O 23 Apr

Download Here

Motilal Oswal TCS Q4 FY07 Result Update 16 April

Download Here

Motilal Oswal Aventis Q1 CY07 Result Update 17 Apr


Download Here

Motilal Oswal Market Diary 19 April


Download Here

Motilal Oswal -MOSt Market Action, Market Diary, Daily Margin & Derivatives Daily


Download Here

Motilal Oswal Securities - Daily Margin, Market Diary (16 apr)


Download Here

MOSt Derivatives Daily 16 Apr

OUTLOOK

Q4FY07 Preview Motilal Oswal (264 page report)

Download Here

Market Diary Motilal Oswal (for 11 Apr)

Download Here

Derivative Daily Motilal Oswal

Download Here

Market diary Motilal Oswal

Download Here