Sunday, October 17, 2010

Orbit Corporation.

Q: How have sales been ahead of the festive season? Are you seeing an uptick in sales both in Lower Parel and in Napean Sea and your other properties and what about rates as well?

A: After we came out from the downturn we saw fabulous second half of 2009. The first quarter of 2009 was nice but post that four-six months were not so exciting in terms of of-takes but since Ganpati, the festive season brought in the good luck and we are seeing good movement of real estate. We are seeing interesting products being offered by lots of developers. That’s also helped in spurring the demand—more or less these projects are in Lower Parel. The projects in suburban Mumbai have got huge demand provided of course the prices remain stable they will continue to go off the shelf.

Napean Sea Road and Malabar Hill wherever we are doing our developments prices we have not moved them up so therefore the demand is good and its moving up.

Q: If you can give some numbers in quarterly or in half yearly terms in terms of how you could move in square feet compared to the previous half year?

A: At Orbit it’s been a bit of a different story because of the fact that we saw that Lower Parel will be huge supply area so we kind of kept our prices on the lower side so we have been selling our price range of about Rs 19,000-21,000 in Lower Parel. As far as Malabar Hill is concerned, we been selling the price range of anywhere between Rs 60,000-65,000 and in some cases even Rs 70,000 if it’s a higher floor and a better flat.

Q: What about south Mumbai market project that seems to be more lucrative although the volumes maybe lower there but value there seems to be higher, what is your outlook there?

A: That’s the reason why we are in that market because the outlook is good, we get good presales, we get good down payments and the off take is phenomenal. The point over here is that a customer needs good location and real estate is all about location. It takes a lot of effort to actually produce properties in premium locations like the real south Mumbai which is south of Haji Ali and that’s what we have developed our core skills at over the last 15 years.

Q: But many experts have been contending that prices had reached heady levels in Mumbai and we were going to see a bit of a correction in the markets. Where do you think we are in that rate correction cycle right now?

A: As far as rate correction cycle is concerned, only in locations where we will see oversupply, we may see some I wont say a correction but softening, some freebies, some interesting products in terms of financial offerings so that’s where we will see, we will see rates more or less stable of around Rs 20,000-25,000 in Lower Parel Central Mumbai.

We will see rates between Rs 50,000-70,000 in premium South Mumbai locations and in suburbs we will see rates of around Rs 7,000 to 15,000 depending on the suburb and the developer and the development.

Q: So for the full year what do you think you will be able to make in terms of revenues and more importantly FY12 since you will have perhaps bulk of your sales happening in that year? What kind of revenue growth can you look at, at this point in time?

A: At Orbit we have been maintaining that over the next three-five years we should be looking at 40% year on year growth or 40% CAGR looks good because of the fact that in 2007-2008 we acquired quite a few projects and those projects are now coming to fruition and start-up so that’s very much there. The great Mandwa project which is across harbour at Alibaug that we have had a soft launch, we sold about 24-25 units, phenomenal response where we are selling at more than Rs 10,000-11,000 a square feet in Mandwa so things are moving well so 40% growth year and year looks good over the next three-four years.

Q: You have retired most of your debt. Is there anything more in terms of debt trimming that you will do and more important will you try to trim debt by raising more equity since you have bunch of projects coming?

A: We have always been saying that we would only get into raising more equity if its makes sense in terms of the price in terms of that if we had opportunity so today our cash flows are robust enough to take care of the existing so there is something very exciting, yes we may go and raise for the debt but doesn’t seem likely over the next at least quarter to two quarters as far as debt is concerned we have cut down our debt and our cost of borrowing by about 1-1.5% so we are very comfortable with that.

Q: As you predicted, we did see some kind of discount coming into Lower Parel prices. In the next six months to 12 months, how may prices fall—by 10%? Do you have a number—fall or rise?

A: It will remain where it is right now because developers do not have much in their kitty in terms of margins. So as far as the prices are concerned, we will see sideways movement. We will see good off take, so that’s the good part.


Sunday, October 3, 2010

Hindustan Zinc

CMP Rs1,084, Target Rs1,277, Upside 17.8%

Hindustan Zinc Ltd (HZL) is one of the best bets among the metal companies on account of the integrated nature of its business and the volume growth over the next two years. While zinc prices have rebounded sharply (up 27% since June ’10) on the back of improved global economic sentiments and ample liquidity situation, HZL’s stock price has gained only 10% over the same period. It has underperformed not just the Sensex but also global zinc stocks (+15%). We believe that the underperformance is unjustified and the stock should trade at par with its international peers considering the size and integrated operations of the company. Also, based on our base case, we expect acquisition of Anglo American’s zinc assets to add Rs86/share to HZL’s fair value. Cash & equivalents at the end of Q1 FY11 stood at Rs123bn, representing 27% of the company’s current market cap. Even with our metal price assumptions, which are lower than the prevailing prices, we expect HZL to witness earnings CAGR of 15.1% over FY10-12E. We recommend a BUY rating on HZL for a target price of Rs1,277.

Zinc prices to remain range bound

We estimate zinc prices to remain range-bound in H2 2010. Major commodities will remain in a surplus state with the increase in supply overtaking demand. Attractive commodity prices have led to many idle capacities being restarted during the first half of 2010. However, metal demand has not returned to the 2008 levels. We estimate average zinc prices of US$2,000/ton in FY11 and US$2,100 in FY12.

Acquisition to increase capacity by 37%

HZL recently acquired Anglo American’s zinc asset portfolio for US$1.4bn. These assets produced 343,000 tons of zinc metal and 55,000 tons of lead metal. In CY09, blended cash costs for Anglo stood at US$1,148/ton. On a base case scenario, we assume 1) no cost reduction on account of HZL’s expertise 2) production volumes to remain constant and 3) zinc realisation of US$2,000/ton in FY11 and US$2,100/ton in FY12. We expect the acquisition to add 14.4% in FY11 and 15.1% in FY12 to the company’s earnings. The acquisition will be earnings accretive from the first year itself and will also provide higher returns (RoE of 17%) compared to the company’s treasury income (RoE of 5%) on its underlying cash.

Valuation summary
Y/e 31 Mar (Rs m) FY09 FY10 FY11E FY12E

Revenues 56,803 80,170 97,371 110,011

yoy growth (%) (27.9) 41.1 21.5 13.0

Operating profit 27,342 46,702 55,881 63,843

OPM (%) 48.1 58.3 57.4 58.0

Reported PAT 27,276 40,415 47,556 53,721

yoy growth (%) (38.0) 48.2 17.7 13.0

EPS (Rs) 64.6 95.7 112.6 127.1

P/E (x) 16.6 11.2 9.5 8.4

Price/Book (x) 3.1 2.5 2.0 1.7

EV/EBITDA (x) 13.0 7.2 5.2 3.7

RoE (%) 20.8 24.9 23.4 21.5

RoCE (%) 24.8 29.9 28.1 26.1


Saturday, October 2, 2010

Mahindra Satyam - Outlook.


While the company has lost a large number of customers and employees, the positive aspect is that the worst is behind. “With the clouds of uncertainty disappearing over the financials, more RFI (request for information) would come. The company would need to gain smaller clients before class-one clients come on board,” says Arup Roy, senior research analyst, Gartner.
In short, analysts suggest the company should start witnessing a rise in revenues in the coming years. The company, which had battled a reduction in employee strength consequent to business realignment and attrition, is now looking to add over 3,000 employees in 2010-11, an indication of the management’s confidence for the future. While the cash and investments on hand worth Rs 2,807 crore (as against a debt of just Rs 42 crore) provide confidence, its balance sheet looks strong to weather any future pressures. However, liabilities in the form of class action lawsuits ($68 million) and other claims could affect profitability. Additionally, with the US economic recovery still weak, it could act as an overhang on the stock.

Profits will be doubled in next year.