IVRCL has announced restructuring of its BOT assets portfolio wherein it will transfer its holding companies to IVR Prime Urban (62.4% subsidiary). The effective date for the transfer will be April 1, 2009. The merger will be through share issue of 59.5m shares in IVR Prime Urban to IVRCL. Thus the stake of IVRCL in IVR Prime Urban will increase to 80.5% post the restructuring. Further details (e.g. incremental net worth of IVR Prime Urban post acquisition) will be available after Court approval for the transaction (expected by 1QFY11).

-      IVRCL’s BOT assets plus future opportunity valued at Rs9b: IVRCL has invested equity of ~Rs4.5b in the BOT assets. At the CMP of Rs152/sh for IVR Prime Urban, the transaction is being valued at Rs9b (P/BV of 2x).

-      Rationale for the transaction: Boost to IVR Prime Urban – increased net worth (up~85%), debt raising possibilities (~Rs5b), possible equity dilution: The restructuring will lead to increased focus on BOT projects, and also provide a higher net worth to bid for large projects. We estimate that at possible transaction value of Rs13.5b (at say 3x P/BV), the net worth of IVR Prime Urban as at March 2010 including capital reserves (~Rs8.5b) and minority interest (~Rs1.7b) will increase to ~Rs20b+. This compares with net worth of Rs10.9b as at March 2009 (including minority interest of Rs1.5b).

-      Valuation and view: We currently value the BOT portfolio of IVRCL at 1.5x P/BV, and thus the proposed transaction at 2x P/BV (based on CMP of IVR Prime Urban) will add marginally (~2.6%) to SOTP value of IVRCL. The transaction could lead to increased focus on BOT projects without necessitating further equity dilutions in IVRCL. We maintain Buy with price target of Rs382/sh for IVRCL.

IPCA Labs – Excellent quarter, robust results
Tata Motors – Overdone JLR concerns render valuations attractive
Bharti Airtel – Inline with expectations; outlook remains buoyant
 

IPCA Labs

Current Price – Rs 386
Target Price – Rs 803
Ipca Labs’ Q2FY09 results were well above our estimates. Revenues grew at a robust 21.4% YoY to Rs3.48bn, inline with our estimate of Rs3.53bn, driven by strong performance in both the domestic and exports business. EBITDA margin improved 410bp YoY to 23.9%, significantly higher than our estimate of 20.9%, mainly on lower raw material cost. The company reported foreign exchange translation loss of Rs236mn during the quarter on account of US dollar appreciation for foreign currency debt against a gain of Rs158mn inQ2FY08. Reported PAT declined due to the forex loss. However, adjusted net profit (adjusting translation loss and gain as these are unrealised) increased 68.3% YoY to Rs562mn, well above our estimate of Rs469mn.

Tata Motors
Current Price – Rs 170
Tata Motors (TML) standalone Q2FY09 results disappointed with a loss of Rs118mn. Its Rs3.58bn profit from sale of Tata Steel shares helped cover the loss. Net sales at Rs70.79bn (our estimate: Rs67.59bn) rose 6.1% YoY despite a 1.2% decline in volumes to 133,952 vehicles. EBITDA margin, now expressed excluding the forex losses plunged 378bp YoY to 8.1%. TML hardly provided for

any taxes, thereby reporting a PAT of Rs3.47bn, down 34.1% YoY. We have revised our estimates and upgraded the stock to Hold (from Sell), as we believe its current low valuations on JLR concerns is overdone and bereft of positives in its current Indian shore operations.

Bharti Airtel
Current Price – Rs 654
Bharti Airtel’s Q2FY09 results were inline with expectations. Revenue grew 6.3% QoQ and 42.3% YoY to Rs90.2bn. The growth was driven by robust operational performance of the company’s mobile services segment which registered a 5.3% QoQ and 44.0% YoY growth in revenue to Rs72.8bn. Mobile subs base grew 11.7% QoQ and 58.5% YoY to 77.5mn. Revenue growth in mobile services was contained due to the decline in ARPU by 5.3% QoQ and 9.5% YoY to Rs331. The quarter also witnessed a slight 1.6% QoQ decline in MoU to 526, which is primarily due to seasonality factor and we expect that MoU would recover in coming quarters.