Institutional Research ULJK Securities Pvt Ltd Jamnadas Khushaldas Shares & Stock Broker Pvt Ltd INVESTMENT IDEAS FOR 2010 January 18, 2010 BEML Financial

INVESTMENT IDEAS FOR 2010 January 18, 2010

BEML

Financial Technologies India Ltd

Glenmark Pharmaceuticals

IRB Infrastructure

IVRCL

Infotech Enterprises

Lupin

Mphasis

Sunil Hightech Engineers Ltd

Ultratech Cement

BEML BUY January 18, 2010

CMP : 1207 Target: 1400

Stock Code NSE IRBBSE 532947Bloomberg IRB@INReuters IRBI.BOMarket DataMarket Cap. (Rs Mn)Outstanding Shares (Mn) 332.3652 Week High/Low (Rs) 262/64ShareholdingPromoter 74.40DII 4.07FII 12.95Other 8.58

Company Background: BEML is a mini ratna category 1 public sector undertaking under the control of Ministry of Defense dealing with three product segments comprising of Mining and construction equipments, railway rolling stocks, and metro rail coaches and defense equipment and aggregates. The company has 3 interdependent manufacturing plants located at Kolar Gold Fields, Bangalore and Mysore.

Mining and Construction equipment sector to grow ~36.8% till 2015: The Indian Infrastructure and construction equipment sector is worth ~Rs 147 billion. Based on CII’s projection the domestic construction equipment industry will be worth Rs 157 billion to Rs 189 billion (USD 3.5 billion - USD 4.2 billion) by 2010 and Rs 500 billion in 2015 growing at a CAGR of 22.5%.

To gain strength: The construction equipment accounts for as high as 24% for power projects, 23% for dams, and 23% for road projects. India has proposed investment up to Rs 3,539 billion, Rs 4,180 billion, and Rs 5,851 billion in the roads, railways and the power generation sectors respectively. The recent announcement of fiscal stimulus and additional budgetary spending on infrastructure projects to root prospects of good economic growth and job creation in short/medium term would churn out good for the infrastructure sector and allied industries.

Order Book position: BEML’s total order book position stands at Rs 59.30 billion comprising mining & construction, defence, rail & metro business groups. The company has set a target of achieving total turnover Rs 40.00 billion for the current year.

Advantage on manufacturing metro coaches: BEML is the first to introduce the manufacture of metro coaches in India. India has planned metro in all cities having population above 3 million. BEML is compatible to produce indigenized metro coach designs in its Bangalore facility. The supply of metro coaches to Delhi Metro Rail Corporation (DMRC) from state-of-the-art facility and the first mover advantage in metro coach manufacturing will promote BEML’s name while executing metro projects in other cities of India.



The Defense expenditure is seen rising at a CAGR of 14.4% for the next five years (2007-08 to 2012-13). The total spending on defense is estimated to be around Rs 188,000 by 2013. We also assume that the recent terrorist attacks will demand better surveillance equipments and some of the planned investment could be proponed. We believe that this segment has potential to grow at annual rate of 14.4% for the next few years.

Outlook: The company has set a target of achieving total turnover Rs 40 billion for the current year. We recommend to buy with a target price of Rs 1,400. At this price the stock will discount FY 2011E earnings by 14 times.

Financials Rs million

Financials

Particulars 2009A 2010A 2011E

Net Sales 27,972 40,000 46,400 EBIDTA 4,564 6,000 6,960 EBIDTA margin 16% 15% 15%Net Earnings 2,701 3,600 4,176 Net margin 10% 9% 9%EPS 64.84 86.46 100.29 P/E 18.6 13.9 12.0



Source : ULJK Research, Bloomberg, Company

Financial Technologies BUY January 18, 2010

CMP : Rs.1620 Target : Rs.1940 Upside : 20%

Stock Code NSE FINANTECHBSE 526881Bloomberg FTECH INReuters FITE.BOMarket Data Market Cap. (Rs Mn) 74718Outstanding Shares (Mn) 45.8852 Week High/Low (Rs) 1656/382Shareholding % Promoter 45.53Institutions 31.81Public 22.66

Excellent Business Model-Back to back integration in services: We believe that the business model of Financial Technologies India Ltd. (FTIL) is very efficient and robust. FTIL on the back of its lion share of the market (85%) in the brokerage solution, will continue to grow at the same pace with guaranteed annuity flow into the business. The upcoming exchanges promoted by FTIL and the new asset classes will definitely improve the scope for the company’s product business and the ecosystem business that is supporting the services.

Exchange Business-A big wave: MCX in the domestic commodity markets is a BIG success story and we believe that the company will put all efforts to make new exchanges (four exchanges) successful. We expect the main growth drivers for the company in the coming years will be from the Exchange Business which contributes nearly 40% of our target value on the company. The success of MCX-SX exchange in the domestic market is the key thing to watch .Divestment-An ongoing process: Our interaction with the management reveal that the company’s strategy of divestment in its subsidiaries will be an ongoing process which makes its cash kitty to swell. We understand the company’s move is to support its expansion plans in different businesses enhancing its business value chain. Presently company is having cash position of Rs. 13,429 Mn as on Sep’09.

EntityMethodology

FY' 11(E) PAT FT Stake

Subsidiary Value Multiple Resultant ValueTarget Price

FT PE 2663.08 100.00% 2,663.08 12.8 34,087.42 742.92MCX PE 2836.66 31.18% 884.47 17.0 15,036.01 327.70

MCX-SXStrategic Value 41.50% 19,552.87 1.0 19,552.87 426.15

NBHC PE 174.14 80.79% 140.69 15.0 2,110.29 45.99Invested Capital Multiple 4239.23 100% 4,239.23 1.0 4,239.23 92.39Cash and Bank Balance Multiple 14026.4 100% 14026.4 1 14026.4 305.70

Target Price 1940.85

Valuation Summary



Valuation: We have valued the company at Rs.1,940 per share with BUY recommendation for FY’11 by SOTP methodology, assuming that the main growth driver would be the exchange business. Our analysis and valuation shows that the company would be mainly benefited from the exchange business by contributing nearly 41% of its total entity value for FY’11.

Particulars 2007 2008 2009 2010(E) 2011(E) 2012(E)

Operating Revenues 1022.90 1431.50 3395.40 4796.37 3928.98 3880.40EBITDA 433.60 449.00 1003.20 2913.87 2225.57 2194.32

Margins(%) 42.39% 31.37% 29.55% 60.75% 56.64% 56.55%PAT 1006.10 9612.50 3686.00 5778.37 2663.08 2667.40

Margins(%) 98% 671% 109% 120% 68% 69%EPS 21.00 200.65 76.94 120.62 55.59 55.68P/E 77.52 8.11 21.16 13.50 29.29 29.24

Rs. in MnFinancials



Valuation Summary

Recommendation: BUYCMP : 284 Target: 320

BSE : 532296 NSE : GLENMARK Bloomberg : GNP INReuters : GLEN.BOKey Data 52 week H/L 290/119 O/S Shares (mn) : 270M Cap (Rs mn.) : 76825

Share Holding Pattern (%)Promoters : 52.12Institutions : 3.50FIIs/NRI’s : 30.67 Non Pro. Corp. Hold.: 1.41Public & Others : 12.30

Company background: Glenmark Pharmaceutical is one of the most successful research focused pharma companies, with a business model spanning drug discovery research, APIs and formulations in the domestic and international markets. The Company is present in over 95 countries across the globe. Glenmark Pharma is a play on innovative R&D, strong core business and potential value unlocking by re organizing the generic business and listing it separately.‐

Formulation business to drive the revenue: Glenmark with a strong pipeline of drugs is likely to grow at a modest 8-10% over the next 3 years. We believe, going forward, a significant revenue contribution from Glenmark’s generic business is likely. In our view the specialty and Indian formulation business to continue with the growth trend of the company.

Outlook and valuation: Glenmark’s lowered R&D cost likely to reduce the pressure on the margins in the next two quarters, which in turn will help increased margins. At the CMP of Rs 284, Glenmark is trading at 22x FY11E EPS of Rs 13 and 20x FY12E EPS of Rs 14. We have valued Glenmark at 23x FY12E P/E multiple on account of robust drug pipeline, deriving a valuation of Rs. 320/share and recommend BUY on the stock.

Rs mn .2008 2009 2010E 2011E 2012E

Sales 19757 20930 24216 27121 30376

Net Profit 6321 3104 2921 3323 3606

P/E (x) 25.3 12.4 11.5 13 13.9

P/BV (x) 2.4 1.7 1.3 1 0.8

GLENMARK BUY January 18, 2010


Rich drugs portfolio: Glenmark has a portfolio of 49 generic products authorized for distribution in the US market. The Company currently has over 45 ANDAs in various stages of the approval process with the US FDA. Glenmark’s in-licensed molecule Crofelemer continues to progress well in Phase 3 clinical testing and the company expects to initiate the launch of this product in FY2010-11 in RoW markets, Melogliptin (GRC 8200) (DPPIV inhibitor)completed Phase-IIb studies and will enter Phase III trials. The Company is in discussions with several potential partners to out license the molecule.

Rs. Mn FY09 FY10E FY11E FY12E

Net Sales 20930 24216 27121 30376

EXPENDITURE :

Raw Materials 8709 10015 11016 12118

Power & Fuel Cost 234 252 273 294

Employee Cost 2169 2430 2721 3048

Other Manufacturing Expenses 1022 1226 1410 1622 Selling and Administration Expenses 4268 5036 5791 6660

Miscellaneous Expenses -21 -25 -30 -36

Total Expenditure 16380 18934 21181 23706

EBITDA 4550 5282 5940 6671

EBITDA Margin (%) 22% 22% 22% 22%

Interest 1405 557 590 563 Depreciation 1027 1432 1616 2056

PBT 3859 3293 3734 4052

Tax 754 372 411 446

PAT 3104 2921 3323 3606

DUPOINT FY09 FY10E FY11E FY12E

ROE 12.4 11.7 13.3 14.4

EBIDTA/Sales (%) 22% 22% 22% 22%

Sales/Op. Assets (x) 0.9 0.8 0.7 0.6

EBIDTA/Op. Assets (%) 20% 17% 14% 13%

Op Assets/ Net Assets (x) 1.5 1.6 1.6 1.7


IRB INFRASTRUCTURE ACCUMULATE January 18, 2010

CMP : 267 Recommendation: Accumulate

Stock Code NSE IRBBSE 532947Bloomberg IRB@INReuters IRBI.BOMarket DataMarket Cap. (Rs Mn)Outstanding Shares (Mn) 332.3652 Week High/Low (Rs) 262/64ShareholdingPromoter 74.40DII 4.07FII 12.95Other 8.58

Company Background: The Company undertakes development of various infrastructure projects in the road sector through several Special Purpose Vehicles. The company, along with its subsidiaries has constructed or, operated and maintained around 1,200 kms of road length so far and a leading toll operator in the country.

Rising infrastructure thrust: IRB infrastructure is a beneficiary of increased infrastructure spending commitment from the government of India. Investment in road infrastructure is seen at Rs 3,539 billion during the 11th Five year plan and Rs 8,831 billion during the 12th Five year plan. Presently the company claims ~7.6% market share in the Golden Quadrilateral project and is one of the largest BOT operator in the country.

In-House capabilities: The EPC activities and BOT toll projects of the company executed by the company in-house. This enables the company to reduce dependence on third party subcontractors and exercises better control over the quality and timely completion of the project. The Company also owns sophisticated construction equipment and is efficiently managing the construction assets which enable them to move the required machinery/equipments at desired sites. The company also owns quarries for key raw materials. This reduces the subcontracting work and ultimately enables maintaining high margins.

A default beneficiary of road infrastructure thrust-~8,000 km of projects equivalent to Rs 650 billion will be open for bidding in the next 2 quarters and 13,500 km of road projects equivalent to Rs 1,000 billion will be open for bidding in 2010. Government is also looking at mega road projects worth USD 1 billion each. The order book of company stands at Rs 60 billion.


Improved economic conditions leading to increased commercial and passenger traffic: Improved economic activity will recover the commercial vehicles and passenger car traffic resulting in higher traffic flow in IRB’s key road projects. We estimate the company to be benefited from the improved economic situation. This will enable enriched valuation premium to the company.

The newly commissioned Surat – Dahisar BOT project to contribute 29.8% of toll revenue for FY2010E (after considering 38% to NHAI): Contribution from new BOT project – Surat - Dahisar BOT project - will contribute ~29.8% of the total toll collections in FY2010E. It will record toll collections worth Rs 2,149.85 million in FY 2010E and Rs 2,271.03 million in FY 2011E.

Real Estate assets: The company has proposed an integrated township development of 1,400 acres in Pune. After complete acquisition the company will own development rights on 30.6 million square feet area developable over 8-9 years with an investment of Rs 110 billion.

Outlook: The company has refinanced the debt for Mumbai – Pune expressway at 10.6%. The company has taken shareholder approval to raise Rs 1.2 billion. This will enable the company to bid for fresh projects worth Rs 45-50 billion. We recommend to accumulate the stock. The company is a pure play on increased government focus on road sector infrastructure. The company justify premium over its peers from the opportunity observed in the sector and company’s ability to win projects.

Outlook: We believe that given the thrust on road infrastructure development and a pipeline of 15,731 km of projects yet to be awarded under the NHDP by NHAI the stage is set for prominent road developers like IRB. The company has recently received LOA from the NHAI for the Design, Build, Finance, Operate and Transfer of Jaipur to Dehli section of NH12 from Km 18.700 to Km 165.000 in the State of Rajasthan under NHDP Phase III on DBFOT Basis. The company is L1 in 3 others projects, viz, Goa / Karnataka to Panji Goa, Amritsar to Panthankot and Talegaon to Amravati BOT projects. We believe there will be substantial value in these 4 BOT projects. We recommend to accumulate IRB Infrastructure Developers Ltd.

Financials: Rs million


Particulars FY2009E FY 2010E FY 2011E

Net Sales 9,918.80 20,766.15 26,325.96

EBIDTA 4,670.00 9,229.44 11,643.84

Net Earnings 1,771.80 3,057.75 4,071.87

EPS 5.29 9.20 12.25

BV/share 54.05 63.25 75.51

P/E 48.39 27.83 20.90

Source: Company, ULJK Research


IVRCL INFRASTRUCTURE BUY January 18, 2010

CMP : 386 Target : 434

Stock Code NSE IVRCLINFRABSE 530773Bloomberg IVRC@INReuters IVRC.BOMarket DataMarket Cap. (Rs Mn) 55,705Outstanding Shares (Mn) 13552 Week High/Low (Rs) 424/57ShareholdingPromoter 9.73DII 19.14FII 48.43Other 22.7

Company Background: IVRCL is well-established with proven domain knowledge, experience and credentials. It operates infrastructure sectors includes Water & Environment, Transportation, Buildings and Power. The company has developed a niche in water segment where it executes projects in infrastructure related sectors like irrigation, desalination projects and sewage systems (Urban Infrastructure). Hindustan Dorr Oliver Ltd (53%) and IVR Prime Urban Developers Ltd (79.99%) are the company's key listed subsidiaries.

Huge opportunity in Infrastructure: During the Eleventh plan period, the infrastructure spending to GDP ratio will increase from 4.63% in 2006-07 to 6.75% in 2009-10, and 8.75% during 2011-12. This evaluates total investment in infrastructure of ~Rs 20,200 billion during the 11th plan period. During the 12th plan (2012-2017), investment in infrastructure is estimated to be higher by ~1.4 times to US$ 1,022 billion (Rs 49,060 billion).

Irrigation projects on an anvil in Andhra Pradesh: Andhra Pradesh Governments spending on irrigation has increased from Rs 122.4 billion in 2007-08 to Rs 132.5 billion in 2008-09 (RE). The government has proposed irrigation sector investment of Rs 178 billion during2009-10. This indicates a 20.6% annual growth rate since 2007-08. IVRCL Infrastructure is leading company in irrigation project execution.

Robust Order Book reflects revenue visibility: The present order book of the company stands at ~Rs 220 billion and is L1 in orders worth ~Rs 44 billion. The company is prequalified in projects worth Rs 250 billion. Order book comprises projects from Water (22%), Power (9%), Transportation (5%), Buildings (20%), and Irrigation (44%).


The order translates into ~2.8 times FY 2009A sales revenues. The company planning to bid for irrigation projects in UP, Gujarat and Tamil Nadu in the next three months. This will also boost the company order inflows in the second half.

80 IA Impact: The Company has not claimed deduction u/s 80IA in the first quarter of the financial year 2009-10 after proposed retrospective change in Section 80 IA in the finance bill (No2), 2009. In respect to the deductions claimed in earlier years (~Rs 1.41 billion) the company has set aside an equal amount to Special Reserve account. In our forecasts we have assumed tax rate of 33%.

Valuations: We have measured the value of company on SOTP based valuations technique. The BOT projects and Chennai Desalination Project of the company are measured conservatively using 1.5x the book value. Core construction business is measured by assigning price earnings multiple of 11 times FY 2011 E earnings. Hindustan Dorr-Oliver and IVRCL Prime are listed subsidiaries of the company. We have measured them by assigning 20% discount to their present market capitalization.


Outlook: We are optimistic on IVRCL Infrastructure amidst conductive environment for infrastructure sector development under the lights of new government. The company‘s toll based projects are expected to commission on during the second half of FY2010. We believe that the company’s BOT road projects will generate higher toll revenues on account of improving commercial and passenger traffic. Sion - Panvel Expressway will also add potential upside to the company valuations (not factored in our valuation as IVRCL have not yet received LOA from NHAI).

Financials Rs Million

Particulars FY2009E FY2010E FY2011E

Net Sales 48,818.86 61,658.22 77,146.77

EBIDTA 4,516.93 5,732.30 7,495.41

Net Earnings 2,259.67 2,390.39 3,305.87

EPS 16.74 17.71 24.49

BV/share 134.13 139.81 162.59

P/E 24.37 23.04 16.66 Source: Company, ULJK Research



Infotech Enterprises BUY January 18, 2010


Stock Code NSE INFOTECENTBSE 532175Bloomberg INFTC INReuters INFE.BOMarket Data Market Cap. (Rs Mn) 16545.8Outstanding Shares (Mn) 57.2052 Week High/Low (Rs) 327/68Shareholding % Promoter 16.50DII 18.69FII 32.54Other 32.37

Investment Rationale:

New project in the EMI and TTM verticals: The winding off the projects in the UTG vertical has happened in the previous quarter and the people are shifted to the Swiss com project of the British Telecom. Company is going to sign one of its two BIG deals that was in the pipeline in the last quarter, in next three weeks. The nature of work in this order is in the aerospace vertical for the electronic designing. The semiconductor business has improved the order book with a USD 1.5 Mn in the last 3 weeks and expected to do a business of USD 5-6 Mn in the FY’11.

Utilisation to improve in EMI vertical: EMI vertical is targeted to improve its utilisation rates to the levels of 65-72% in this year. The UTG vertical will be at the present levels of 82%-84% in this year.

FY08 FY09 FY10(E) FY11(E)Revenues 6741.41 8897.50 9509.75 10834.41

YoY(%) 24.26% 31.98% 6.88% 13.93%EBITDA 1217.14 1785.04 1996.08 2355.43

Margins 18.05% 20.06% 20.99% 21.74%PAT 783.78 844.54 1457.74 1677.56

Margins 11.63% 9.49% 15.33% 15.48%EPS 14.19 15.29 26.41 30.39PE (x) 21.14 19.62 11.36 9.87

Financials Rs. in Mn

Company Background:Infotech Enterprises Ltd. (IEL) is a mid cap IT company with revenues of Rs. 8897 Mn for the year ‐ending March (FY09). The company has its vast experience in specialized services in EMI and UTG segments, which contribute in the ratio 60: 40 of its revenues.



Increase in the Head count: In the present quarter, the company may add 100 people in the UTG and 100 more in the next quarter for the EMI vertical. Company is planning to give the wage hikes across the employees by 9-10%.

Pricing Improvement in the Dec’09: In the month of December 2009 there could be probability that clients to increase onshore billing rates by nearly 3-4% at an average.

Upgrade in the Guidance of EPS by Rs.2: No upgrade in the margins for the next few quarters and would end upwith 20% and upgrading the EPS to the levels of Rs.24 (According to management).

Valuation: We recommend “BUY” on the stock for a forward PE of 12.0(x) on a forward EPS of Rs.30.39 for FY’11(E). The stock is presently trading at 11.20(x) and 9.74(x) for a forward EPS of Rs.26.41 and Rs. 30.39 for FY’10(E) and FY’11(E).


LUPIN BUY January 18, 2010 Company Background: Lupin, a fully-integrated Indian pharma company, has created a unique, best-in-class, rapidly-growing US business comprising of Branded and Generics coupled with presence in high growth in key markets such as Japan, European Union (EU) and India as well as strong intellectual property rights (IPR) capability gives Lupin an edge over its peers.

Balanced business model: Lupin adds premium to its peers by virtue of its successful & rapidly growing US branded business likely to reach revenues of ~US$ 125mn by FY10E and ~US$ 250 mn by 2012 through scaling-up the US branded business. Strong US business (32% of total revenues), profitable & rapidly growing (~2x industry rate) domestic branded business (30%), Japanese business (12%), and a globally-competitive API business (20%; RoCE of 33%) are other key pillars of Lupin’s well-diversified revenue base. Strong IPR capability (cumulative income of ~US$80mn) along with revamped new chemical entity (NCE) model provides broader dimensions to Lupin’s business model.

Outlook and Valuation: We expect Lupin to step up the ladder on the back of commercialization of a rich ANDA & branded-products pipeline in the US as well as exploitation of synergies from the acquired businesses. The stock trades at an attractive FY12E P/E of 12.4x. Positive news flow and earnings upgrade potential would give additional boost. We recommend BUY on the stock with a target price of Rs 1550, valuing Lupin at 14x FY12 earnings.


BSE : 500257 NSE : LUPIN Bloomberg : LPC INReuters : LUPN.BOKey Data 52 week H/L 1564/537 O/S Shares (mn) : 87M Cap (Rs mn.) : 122466

Share Holding Pattern (%)Promoters : 47.2Institutions : 24.2FIIs/NRI’s : 17.4 Non Pro. Corp. Hold.: 1.7Public & Others : 9.5

Rs. Mn. FY09 FY10E FY11E FY12ESales 37758 46318 55057 62617Net Profit 5015 6505 7426 8470EPS 60.22 74.43 86.4 109.85P/E 23.6 19.1 16.4 12.9BV/Share 172 254 330 416RoE 37.09 35.21 39.65 28.17

Valuation Summary

LUPIN BUY January 18, 2010

Impressive revenue growth: The past five years have seen Lupin achieve revenue growth of CAGR ~25% to an impressive US$ 830mn in FY09. Management remains confident of maintaining revenue growth for the next five years on the back of strong performance in the US, Japan, India and RoW markets. Potentially, acquisitions would help attain the FY14E goal of US$3bn of revenue, implying 29% CAGR.

Rs. Mn. FY09 FY10E FY11E FY12E

Sales 37758 46318 55057 62617

EBITDA 7392 9084 10583 13416

EBIT 6513 8045 9165 12155

Net Profit 5015 6505 7426 8470

EPS 60.22 74.43 86.4 109.85

P/E 23.6 19.1 16.4 12.9

BV/Share 172 254 330 416

RoE 37.09 35.21 39.65 28.17*Reuters estimate

LUPIN BUY January 18, 2010


MphasiS ACCUMULATE January 18, 2010


Stock Code NSE MPHASISBSE 526299Bloomberg MPHL INReuters MBFL.BOMarket Data Market Cap. (Rs Mn) 152983Outstanding Shares (Mn) 20952 Week High/Low (Rs) 796/141Shareholding % Promoter 60.83DII 08.05FII 13.16Other 17.96

Financials (Rs Mn.) FY08 FY09E FY10E FY11E

Sales 19605 41023 46078 56305EBITDA 5789 9025 9907 11824Net Profit 2954 8451 9340 10980EPS 14.14 40.40 44.65 52.48P/E (x) 44.62 15.61 14.13 12.02

Investment Rationale:

Cautious on client budgets and stable pricing environment: company is seeing budgets at the same level as the last year. In comparison to the last year even if the budgets are stable, the actual spending would definitely increase. We don’t expect any pricing pressures from the offshore clients but pressure from the domestic customers.

Investment on new centers in Sri Lanka: Company is investing nearly $7 Mn in the Sri Lanka subsidiary. The centre is developing to accommodate 500 people by CY-2010 and then expected to facilitate around 2000-3000 people in the coming years. According to company estimates this could save its cost by 20% in comparison to its Tier-1 city operations. The nature of work that to be improved at this centre is Application and BPO (Non-Voice).

Margins improvement on facility consolidation: Company is planning consolidation of facilities in each quarter. This move by the company is to decrease its real estate cost less than 1% of its revenues.



Holiday period of HP would impact the volumes: In the present quarter, the volumes of the company would definitely get impacted because of holiday period across the HP centers world wide. The company has 12% contribution to its revenues from the HP internal work.

Expect the utilization levels to drop to the levels of 70%-75% in the coming quarters: We expect the utilisation levels not to sustain at the present levels of 75%, 76% and 63% for Apps., ITO, BPO respectively and to record the levels of 70-75% in the coming quarters. The BPO segment has been the only segment with low utilization rates due to high attrition which is a general industry trend.

Increasing head count: We understand from the interaction with the management that company has plans to increase its head count by nearly 1200, 600 and 1900 in the Apps., ITO and BPO businesses respectively in next few quarters.

Valuation: We recommend “ACCUMULATE” on the stock for a forward PE of 19.0(x) on a forward EPS of Rs.44.65 for FY’10(E). The stock is presently trading at 16.14(x) for FY’10(E) EPS. The weakening of the outsource work from HP and the currency movement are the key risks for the stocks.



CMP : Rs. 237Target: Rs. 292

Stock Code NSE SUNILHITEC

BSE 532711Bloomberg SUHE INReuters SUHT.BOMarket Data Market Cap. (Rs Mn) 2963.8Outstanding Shares (Mn) 12.2752 Week High/Low (Rs) 254/49.25Shareholding % Promoter 53.21FII 12.92DII 7.81Other 26.06

Sunil Hitech Engineers Ltd BUY January 18, 2010

Financials (Rs Mn.) FY08 FY09 FY10E FY11E

Sales 3,063 5,982 7969 9713EBITDA 480 687 838 1005Net Profit 218 103 319 371EPS 13.09 9.4 24.5 30.02P/E (x) 18.1 10.56 9.69 7.86

Sunil Hitech Engineers Limited (SHEL) is a niche player in thermal power sector. It was incorporated in 1998 with primary focus on Fabrication, Erection, Testing and Commissioning in the Power sector. Over the last two decades. Maharashtra based SHEL has diversified itself into Power Transmission and Distribution, Hydropower and Steel plant related work for both Private and Public sector companies. SHEL is now moving up in value chain by targeting growth bigger opportunities in Balance of Plants (BOP) and EPC contracts in power sector.

Substantial Power capacity expansion in public and private sector to throw up immense opportunities:

The planning commission has targeted 78700 MW of capacity addition by 2012 out of which around 60000MW will be Thermal power which is the key area of operations of Sunil Hitech. BOP package accounts for 40% of the cost of power plant, the proposed power capacity expansion will open around Rs 1,000 bn market for BOP segment. IN FY2008 the BOP industry was close to Rs. 341 bn.

Source: Bloomberg estimates


Strengthening on Order Book an AdvantageSunil hitech has been awarded a contract of Balance of Plant (BOP) on January 6, 2010 for Mahagenco’s Parli TPS Project. The contract is worth Rs. 487.82 crore. The contract has strengthend SHEL’s order book to Rs 19.07 billion translating into 3.09x FY09 revenues. SHEL Order book is up by 35% to Rs.19.1 billion till January 2010 compared to September 2009 quarter. Strong order book position provides revenue visibility for next two years. SHEL has carried out low ticket size orders in past but with recent order flows and prequalified capabilities, chances of grabbing bigger orders are bright for the company. Bigger orders are expected result in better margins for company.

Good Track Record of Execution:SHEL has over 20 years of experience in the niche segment of Fabrication, Erection & Testing and Commissioning of Bunkers, ESPs, Boilers, TG sets, Ash Handling, Coal Handling in the power plants, both in private & public sector. The current project includes power projects of 17369 MW which is spread across 35 projects and 11 states. In December 2009, SHEL has successfully commissioned its first 30 MW full EPC job at Gangakhed dist. Parbhani in Maharashtra in 11 months.

Rich Clientele base will Help in Diversification:SHEL has worked with NTPC, BHEL, MSPGCL (MSEB), TNEB, MPPGCL, RRVUNL and other state boards and private players like Reliance Energy, Jindal Power, JSW, RINL and HSCL. SHEL has also worked with foreign EPC players like SEPCO China and Skoda Exports. SHEL bagged three contracts from an American company (Dodson Lindblom) for hydro power plant. This is the one step towards diversification into construction of hydro power plants. Currently 90% of order book consist of work for Thermal power plat and 64% of revenue comes from it.

Source: company research


Fig 2: Area of Operation as a % SalesArea % Sales

Power Generation 64

Transmission & Distribution 16

Steel 12Overhauling & maintenance 4Manufacturing 3

Hydro Power 1

Valuation and Recommendation: SHEL incurred Rs 13 cr of exceptional losses in FY09 on account of their investment in equity linked mutual funds impacting the bottomline. In FY10 there would not be any losses on account of investments as market has improved and we are expecting there would be reversal of some more losses as company in September 2009 quarter already noted Rs. 5 cr gain. This will boost their EPS on y-o-y basis by 200 percent.

On a forward PE basis, Sunil Hi Tech has traded in a PE range of 3.6 x to 18x in past. Currently it’s trading at 9.69x forward P/E. Looking at prospective growth opportunity in the power sector and robust order book, stock at the current price of Rs. 237 has room for appreciation. Based on PE valuation comparing SHEL with the peers like BGR Enerery , Shriram EPC, Techno Electic and Engineers India which are trading between the PE multiple of 9 to 14. We expect the forward P/E of SHEL to be 12 in near term implying potential upside of 22.5% ( Target– 294 )

Source: company research

Sunil Hitech Engineers Ltd January 18, 2010

ULTRATECH BUY January 18, 2010

Valuation Summary


BSE : 532538 NSE : ULTRACEMCO Bloomberg : UTCEM INReuters : ULTC.BOKey Data 52 week H/L 1059/415 O/s Shares (mn) : 124M Cap (Rs mn.) : 124486 Share Holding Pattern (%)Promoters : 54.38Institutions : 8.7FIIs/NRI’s : 6.64 Non Pro. Corp. Hold.: 15.5Public & Others : 14.79

Company Background: UltraMerger: UltraTech cement Ltd., the second largest cement company with a total cement capacity of 23mtpa, coupled with Samruddhi cement (Grasim’s cement division) it is to be the biggest producer of cement in India with an annual capacity of ~50 mtpa with a significant pan-India presence

No power worries: UltraTech is 80% self sufficient in terms of its power requirements, benefits of which is expect to flow in FY2010. New CPPs likely to decrease the dependability of outside source of power thus helping reduce cost pressure thus helping improve margins.

Capex cycle near completion: Most of Ultratech’s capex program has been completed or is near to completion addition of 5 mt capacity and ~180MW of captive power. The company plans to invest Rs 20 bn over the next three years in expansion and modernization, to be funded through internal resources.Valuation and outlook: On a full merger basis, Ultratech is trading at 8x FY11E earnings and looks attractive among its peers. We expect the cement prices to remain stable for the full year FY11 on the back of add capacity additiom delay (industry is working on 33% capacity utilization rate for the incremental capacity)and strong demand growth. Ultratech with its pan India presence and low power cost to benefit the most. We recommend BUY on Ultratech cement with a target price of Rs. 1138, a potential upside of 14% from its CMP.

Rs. Mn FY08 FY09 FY10E FY11E Sales 56266 65661 77418 195368 Net Profit 10115 9796 13483 46786 EPS 41 39 54 188 P/E (x) 24.6 25.4 18.5 5.3 EV/T (US$) 296 245 245 223 EV/EBIDTA (x) 14.7 14.8 11.1 8.9

P & L CONSOLIDATED (Rs Mn.) FY08 FY09 FY10E FY11E

Net Sales 56266 65661 77418 195368

Other Income 1007 1007 1224 3819

Stock Adjustments 233 951 0 0

Total Income 57505 67618 78642 199186

EXPENDITURE :

Raw Materials 6230 8553 9766 24112

Power & Fuel Cost 12560 17163 17833 39896

Employee Cost 1705 2209 2350 6150

Other Manufacturing Expenses 5798 7087 8048 21495

S & A Expenses 12528 13764 15893 36303

Miscellaneous Expenses 325 664 500 500

Total Expenditure 39147 49440 54390 128456

Operating Profit 18359 18178 24252 70730

OPM (%) 33% 28% 31% 36%

Interest 823 1256 1320 1509

Depreciation 2383 3244 4462 5132

Profit Before Tax 15153 13678 18469 64090

Tax 5133 2003 4987 17304

Net Profit 10115 9796 13483 46786

Minority Interest (after tax) 15 15.6 17 17

Adj Net Profit 10101 9781 13466 46769

Key Ratios FY08 FY09 FY10E FY11E

EPS 41 39 54 188

P/E (x) 24.6 25.4 18.5 5.3

EV/T (US$) 296 245 245 223

EV/EBIDTA (x) 14.7 14.8 11.1 8.9

Earnings Yield 4% 4% 5% 19%

BV/share 101 187 228 269

Dupont FY08 FY09 FY10E FY11E

EBIDTA/Sales (%) 33% 28% 31% 33%

Sales/Net Assets (x) 223% 141% 136% 137%

Net Earnings/ EBIDTA (%) 55% 54% 56% 57%

Net Assets/ Net Worth (x) 0.9 1.3 1.3 1.3

ROE (%) 37% 27% 31% 34%



Documents

Institutional Research ULJK Securities Pvt Ltd Jamnadas Khushaldas Shares & Stock Broker Pvt Ltd INVESTMENT IDEAS FOR 2010 January 18, 2010 BEML Financial