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29-1-2010

11:55:32 PM

Essar Oil's Q3FY10 results

Highlights of Q3FY10 results
•    Revenues increased 18% yoy to Rs99bn, higher than our estimates of Rs90bn, due to higher crude prices and hence higher gross realizations.
•    Total volumes sold during the quarter were 3.51mt, as against estimates of 3.6mt.
•    Capacity utilization remained on an upward trajectory, with Essar Oil (EOL) achieving 134% capacity utilization in Q2FY10, compared to 129% in Q1FY10 and 138% for Q2FY10.
Tej Kohli    GRMs for Q2FY10 were at US$2.21/bbl, compared to US$2.26/bbl for Q3FY09, reflecting the weak refining environment and the tight heavy-light crude spreads, which depressed the premium over Asian benchmarks (Singapore GRMs at ~US$1.9/bbl). We had estimated US$3.8/bbl. We expect substantial improvement in Q4FY10 GRMs driven by strong reversal in product spreads over January 2010 and improvement in Heavy-light spreads, driven by better availability of heavier crude in the market.
•    Resultantly, EBITDA margins contracted sharply to 2.2% (-140bps qoq) during the quarter, primarily due to the steep GRM drop.
•    The steep margin drop and higher depreciation due to Phase I Capex and interest cost combined to result in a net loss of Rs2.2bn for the quarter, against estimates of Rs0.2bn loss.
Valuations & View
Essar’s prospects over the long term remain robust, and the emerging E&P business will add another leg of growth to the company over the period FY10-14E. EOL continues to make good progress on Phase I of the refinery expansion (10.5 to 18m tpa, commissioning Mar 2011) and is also confident of financial closure of Phase II (16 to 34m tpa, commissioning Mar 2013) by June 2010. We see the timing of commissioning of these assets coinciding nicely with the expected revival in the global economy, providing a boost to valuations over the long term. The start up of production from Raniganj CBM block from April 2010 is expected to further support earnings from FY11 onwards. However, the prolonged slump in refining margins worldwide due to the economic slump has been a surprise, and will adversely affect GRMs for Essar in the near term. Resultantly, we downgrade our GRM assumptions downwards to US$4.6/bbl (US$5.5/bbl) for FY10E and US$6/bbl (US$8/bbl) for FY11E. This implies EPS for FY10E reduces to Rs0.6 per share (Rs3.1) and for FY11E to Rs4.3 per share (Rs6.6). We remain confident of the ability of the company to meet its refinery expansion timelines, and see valuation upsides from E&P over the medium term. Maintain Outperformer.
Tej Kohli
0 Share Market Updates / Financial Reviews

16-1-2010

12:26:37 AM

Techno-Fundamental Stock Pick

Nectar Life sciences - Results Q3FY10

Nectar life reported encouraging Q3FY10 results:

Based on TTM and current equity, the EPS comes to Rs.5.22 and the P/E of 7.4 based on the CMP at Rs.38.65.
Excerpts from its notes to its latest quarterly results…

“The Company has entered the regulated market of API by adding a major MNC in western Europe as its customer. The Company
expects to add more clients in the regulated market in the near future”.Tej Kohli
Excerpts from its FY09 annual report:
1. Major reason of level pegging topline in 2008-09 Vs financial year 2007-08 was due to menthol which was on account of shift
in our strategic focus like emphasis on value-added products and discontinuance of China as our focus market. We
presume result of this strategic shift will accrue in 2009-10 bottom-line immensely.
2. Neclife's team, with its excellent R & D and project skills, completely de-bottlenecked all its operations to reach global
capacity and thus took leadership position in key molecules like Cefixime Trihydrate, Cefuroxime Axetil and Cefpodoxime
Proxetil in orals and Ceftriaxone Sodium and Cefotaxim Sodium among sterile APIs. The Company is also taking
various steps to enter into the regulated market without diluting its share in the semi-regulated market.
3. Nectar Lifesciences Limited attained global leadership position in Menthol with one of the largest capacities in the world and
a very significant market share of the world market for Menthol. Nectar is among the few producers of Menthol in the
world which strictly follows pharma cGMP concept and has Drug Master File for Natural Menthol along with all the other
key certifications from ISO, Halal and Kosher as well. This distinction immediately makes Nectar the most preferred
Menthol supplier in the world. Nectar's state-of-the-art dedicated Menthol facilities are located at Derabassi and Jammu in
India. The Company has wide range of product offering like Menthol Menthol bold crystals (BP/USP/IP/JP), Menthol
Flake/powder, Peppermint Oil, dementholized peppermint oil, terpenes and Menthones & CIS 3 Hexanol, among others.Tej Kohli
4. Neclife commissioned manufacturing facilities as per US-FDA and GMP guidelines; approvals for its key facilities are
expected in 2009-10. The Company filed DMFs which will facilitate its entry into the quality conscious US markets. Its robust
DMF and ANDA pipeline is expected to strengthen regulated market footprint in the next two years.
5. NLL bagged a major manufacturing contract from an Indian pharma major for its branded Cephalosporin formulation range.
NLL will act as an exclusive manufacturing partner with the pharma major and will file products for registration across the
globe. This opportunity will benefit both the pharma major and the Company owing to NLL's highly integrated
manufacturing operations and the pharma major's extensive global marketing presence. NLL is at an advanced stage of
finalising agreement with another Indian pharma major for global supply of finished cephalosporin formulation. Synergies
due to this tie up would be huge as NLL has integrated pharma operations.
6. Neclife's domestic API business unit exhibited tremendous growth during FY 2008-09, ending 31st March 2009. Neclife is
increasingly emphasising on new business sections for the API market. Neclife intends to move into the higher spectrum of
servicing Indian MNC's for their regulated/ROW formulation business.Tej Kohli

Retail Research
Caveats:
1. Tax provision has not been made in this quarter and will be made in the last quarter, this could impact full year EPS. In Fy09, it
provided income tax @ 17%.
2. Consolidated numbers for the quarter are not available. However in FY09, the difference between Standalone and
Consolidated numbers was not large. The Company's wholly-owned subsidiary, M/s Chempharma Private Limited, was
incorporated in Sri Lanka. The operations of said subsidiary remained suspended throughout the year and winding up process
is going on.Tej Kohli
3. The Company’s equity share capital will further increase by 56,708,436 equity shares to 208,969,406 equity shares if the
balance FCCBs of US$33 mn are converted at an adjusted price of Rs. 25.996, at a predetermined exchange rate of US$1
= Rs. 44.6725. The conversion price was adjusted on various occasions and currently it is Rs. 25.996. Post the conversion,
the EPS could get diluted by 27.1%.
4. The D/E ratio of the company (excluding the FCCBs) is high at 2.3:1
5. Nectar Lifesciences’ Board of Directors of the Company at its meeting held on January 12, 2010, inter alia, has approved the
following:Tej Kohli
Issuance of upto 26,000,000 equity shares of the Company on a preferential basis to NSR Direct PE Mauritius, LLC and/or its
affiliates.
Issuance of GDRs / ADRs/ FCCBs / QIP / fully or partially Convertible Debentures / any other instrument or any other
international offering of upto Rs. 250 Crores.
Even after factoring in dilution due to FCCB conversion, the stock is available at reasonable valuations if the momentum showed in the
December quarter is maintained. The proposed entry of a PE player will bring in some more discipline and credibility to the company.

Technical View:
Nectar Lifesciences took 10 trading sessions to fall from Rs.32.95 to Rs.28.05 and this entire move was retraced completely in half the
time i.e. just 5 days. It made a high of Rs.33.50 on December 30, 2009. This is a bullish signal.
The stock has been making higher highs and higher lows for the 6 months since July 2009 (as evident from the chart above). This is a
strong Dow signal and indicates a possible further upmove for the stock in the days to come.
The upward sloping trendline joining the significant bottoms since July 2009 is acting as a crucial support for the stock (as can be seen
in the chart above). The stock broke out of the upchannel when it crossed Rs.35.70 on January 08, 2010.

September 200 by making a new high of Rs.39.45 in January 2010. The stock is now in all time high territory.Tej Kohli
On the weekly chart, Nectar Lifesciences has formed a “Shaven Bottom” pattern so far which means that the open and the low of the
week so far has been the same. This is another positive indication for the stock.
All the oscillators on the daily chart are trading above their respective moving averages as seen in the table below and this is a positive
signal for the stock.

However all the stochastics are currently in the overbought zone and thus the stock see a moderate correction before resuming itsPlay Bingo
upward journey. Thus, we feel that the stock could be a good buy in the Rs.38.00-39.50 band for sequential targets of Rs. 43.4 and
45.9 in 4-6 weeks. Stop Loss = Rs.36.50 on closing basis.


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