Sensex: We said, "Evening Doji Star pattern confirming Friday's Doji as a short-term turning point ... Though pull-back to Green channel is possible ..." Index did pull-back to the channel as expected, and closed 1.4% higher on the last day of FY0809. Cap.Goods pulled back most, up 3.2%. A/D ratio turned positive to 4:1.
The action formed Harami pattern, the high-low of which maintained inside previous day's range. Its high at 9826 retraced exactly 50% of the drop from Friday's high of 10127 to Monday's low of 9520. Proceedings can be positive initially for testing Monday's falling gap at 9902-13. Watch for resistance at the gap however.
To see full report: CALLS 010409
вторник, 31 марта 2009 г.
>DAILY MARKET & TECHNICAL OUTLOOK
Key points
■ Market outlook — Open positive on positive global cues
■ Positive — Rupee expected to gain further, higher Asian cues
■ Negative – FII selling may have started again
Market outlook
■ Indian markets are likely to open firm following the strong trading session yesterday. We need to see whether the Sensex can break its recent high of 10200 odd. If it is able to sustain above these levels and trade there for a couple of sessions then we may see the up move gathering momentum. On the lower side if it breaks the range of 9200- 9400, then we may see some weakness creeping in again. For the positional traders we would advise trading in this range and look out for a decisive break of the range on either side to take aggressive trading positions. For a while we feel we would trade in this range and could witness some stock specific activity
■ The Sensex has supports at 9630 and 9550 and resistances at 9910 and 10010. The Nifty has supports at 2980 and 2920 and resistances at 3160 and 3190
■ Asian stocks were trading strong in the morning session. The Nikkei was up more than 2% and so was the Kospi. The Hang Seng and Straight Times were trading marginally in the green
■ US stocks climbed on Tuesday, driving the S&P 500 to its best month since October 2002, as investors snapped up top-performing bank and technology shares as the first quarter came to an end. The Dow gained 86.9 points, or 1.16%, to 7,608.9. The S&P 500 added 10.3 points, or 1.3%, to 797.8. The Nasdaq climbed 26.8 points, or 1.8%, to 1,528.6. Data showed business activity in the US Midwest shrank in March at the most severe rate since 1980 while house prices sank a
record 19% in January from a year earlier
■ Stocks in news: Kalpataru power, Aurobindo Pharma, Wockhardt
To see full report: OPENING BELL 010409
■ Market outlook — Open positive on positive global cues
■ Positive — Rupee expected to gain further, higher Asian cues
■ Negative – FII selling may have started again
Market outlook
■ Indian markets are likely to open firm following the strong trading session yesterday. We need to see whether the Sensex can break its recent high of 10200 odd. If it is able to sustain above these levels and trade there for a couple of sessions then we may see the up move gathering momentum. On the lower side if it breaks the range of 9200- 9400, then we may see some weakness creeping in again. For the positional traders we would advise trading in this range and look out for a decisive break of the range on either side to take aggressive trading positions. For a while we feel we would trade in this range and could witness some stock specific activity
■ The Sensex has supports at 9630 and 9550 and resistances at 9910 and 10010. The Nifty has supports at 2980 and 2920 and resistances at 3160 and 3190
■ Asian stocks were trading strong in the morning session. The Nikkei was up more than 2% and so was the Kospi. The Hang Seng and Straight Times were trading marginally in the green
■ US stocks climbed on Tuesday, driving the S&P 500 to its best month since October 2002, as investors snapped up top-performing bank and technology shares as the first quarter came to an end. The Dow gained 86.9 points, or 1.16%, to 7,608.9. The S&P 500 added 10.3 points, or 1.3%, to 797.8. The Nasdaq climbed 26.8 points, or 1.8%, to 1,528.6. Data showed business activity in the US Midwest shrank in March at the most severe rate since 1980 while house prices sank a
record 19% in January from a year earlier
■ Stocks in news: Kalpataru power, Aurobindo Pharma, Wockhardt
To see full report: OPENING BELL 010409
>Reliance Industries (MACQUARIE RESEARCH)
Countdown to first gas.....
Event■ In line with our recent Oil Yatra (tour) ‘Next Gen opportunity’ takeaways, the countdown to RIL’s first gas flows has begun. RIL has signed the Gas Sales and Purchase Agreements (GSPA) with 15 fertiliser units for supply of gas to be produced from the KG-D6 block. This will be followed by the signing of the GSPA with the existing gas-based power producers. RIL is expected to start gas production in the next few days and fuller supplies will start by mid-April.
Impact
■ Fertiliser GSPA paves way for sale of first gas. The fertiliser companies had raised certain objections to RIL’s draft GSPA regarding the take-or-pay clause, term of the contract, currency of payment etc. Almost all of these issues were resolved amicably; following which RIL signed GSPAs with 12 fertiliser companies for supply of ~15mmscmd of gas at 15 urea facilities.
■ GSPA with power plants to follow. The Empowered Group of Ministers have allocated top priority to the existing gas-based urea plants, followed by LPG plants, existing gas-based power plants and city gas for allocation of KGD6 gas. As KG-D6 gas is lean, during the ramp up of production to 40mmscmd, the power sector would get higher priority than the LPG sector.
We expect RIL to sign GSPA with the power plants as KG-D6 production is expected to increase from initial 10mmscmd to 40mmscmd by July 2009. Also RIL itself is already geared to offtake and is lobbying hard for nearly 20mmscmd at its existing refinery and petrochemical facilities.
■ Large gas deficit in medium term. During our recent Oil and Gas Yatra, the Fertiliser Association said the fertiliser sector has 40mmscmd of an additional requirement. In addition, two power majors, NTPC (NATP IN, Rs184, NR) and Reliance Power (RPWR IN, Rs101, NR), alone have the ability to offtake an additional 50mmscmd of gas, which compares with RIL’s planned production of 80mmscmd. Estimates of 10mmscmd of city gas distribution demand from 20 cities would be understated given longer-term plans for 230 cities.
■ Tip of the iceberg. During our Yatra, the Director General of Hydrocarbons (DGH) demonstrated that RIL’s KG-D6’s start-up is only the tip of the iceberg and there is a very large potential on the east coast. Currently, there are 11 seismic vessels working in the east coast and this will be followed by drilling when the blocks enter the subsequent phases. Initial data from deepwater blocks on the west coast also looks very promising. The hydrocarbon signatures on India’s east coast look similar to Qatar’s.
Earnings revision
■ No change.
Price catalyst
■ 12-month price target: Rs1,675.00 based on a Sum of Parts methodology.
■ Catalyst: New oil and gas finds and enhanced clarity on organised retail.
Action and recommendation
■ RIL has a large portfolio of highly prospective blocks and its exploratory success rate is the best amongst peers. We estimate RIL’s profits to rise 70% in FY10E, purely from volume growth, despite an assumed cyclical downturn.
To see full report: RELIANCE INDUSTRIES
>Index of Six Infrastructure Industries (INDIA CAPITAL MARKETS)
India’s ISII Growth - Sectoral - Sequential Period
• Overall Index of six Key Infrastructure Production (Electricity, Finished Steel, Crude Oil, Coal, Cement & Petroleum Refinery Products) - for India grew at 2.2% against 7.0% in Feb’08 and 1.5% in Jan’08.
• On a monthly basis, it has grown negatively at -3.5% in Feb’09. One of the major reason for this negative growth could be less number of working days in the month of February.
• The cement segment continues to post decent growth figures. The coal segment too has posted decent yearly growth on high base suggesting the continuing momentum in the sector. The steel production too has hold out this month. The crude oil and petrochemical segments are still under pressure. The electricity segment has once again grown negatively, however on a yearly basis it has posted 2.2% growth.
• The index is the barometer of the infrastructure activities and investment in the country as it includes all the key industries falling under the infrastructure.
• The IISL has a combined weight of 26.7% in the total IIP. Now a low growth in the infrastructure sector shows the possible signs of worse performance in overall IIP growth in Feb’09.
• The IISL growth for Jan ’09 was revised upwards to 1.5% compared to 1.4% provisional, owing to upward revision in Petroleum Refinery Products. The final revision for Nov ’08 IISL growth remains unchanged.
To see full report: ISII METER
• Overall Index of six Key Infrastructure Production (Electricity, Finished Steel, Crude Oil, Coal, Cement & Petroleum Refinery Products) - for India grew at 2.2% against 7.0% in Feb’08 and 1.5% in Jan’08.
• On a monthly basis, it has grown negatively at -3.5% in Feb’09. One of the major reason for this negative growth could be less number of working days in the month of February.
• The cement segment continues to post decent growth figures. The coal segment too has posted decent yearly growth on high base suggesting the continuing momentum in the sector. The steel production too has hold out this month. The crude oil and petrochemical segments are still under pressure. The electricity segment has once again grown negatively, however on a yearly basis it has posted 2.2% growth.
• The index is the barometer of the infrastructure activities and investment in the country as it includes all the key industries falling under the infrastructure.
• The IISL has a combined weight of 26.7% in the total IIP. Now a low growth in the infrastructure sector shows the possible signs of worse performance in overall IIP growth in Feb’09.
• The IISL growth for Jan ’09 was revised upwards to 1.5% compared to 1.4% provisional, owing to upward revision in Petroleum Refinery Products. The final revision for Nov ’08 IISL growth remains unchanged.
To see full report: ISII METER
>Bank of Baroda (ULJK Securities)
Bank of Baroda has posted a positive improvement in its return ratios driven by robust growth in the top line particularly non interest income. Asset quality of the bank also improved and the Gross NPA level now stands at 1.5%. Improvement in ROA will lead to an improvement in ROE, which we believe result in re rating for the stock. Looking at its sustainable growth prospect and attractive valuation, We recommend “BUY” on the stock with a target price of Rs.284 for a medium to long term horizon.
INVESTMENT RATIONALE
■ Continued focus on the asset growth. We expect the bank’s advances to grow at a CAGR of approx 22% during FY08A‐FY10E against management guidance of 25% growth. Priority sector status to the housing loan may result in a decent growth in the mortgage loan portfolio of the bank. In the FY10E, we expect much of the growth coming from the SME segment. The growth in the advances will lead to a decent growth in the NII of the bank resulting in stable net profit growth.
■ Non interest income continues to improve: We expect non interest income of the bank to grow at a CAGR of 18% during the period FY08A‐FY10E. We believe the growth would be coming from the fee income mostly trade related finance and business activities. Return Ratios continues to improve: The strong growth in the non interest income will result in improvement of return ratios of the bank. We expect the ROA of the bank to show an improvement of 9bps during the period resulting in ROE of 17% during the period FY08A‐FY10E.
■ Valuation: At CMP of Rs.220, BOB is presently trading at P/ABV 0.7x of our FY09E ABV of Rs.279 and at P/E 4x of our FY09E EPS of Rs.53.9. We recommend a “BUY” on the stock with a fair value target price of Rs.284 Discounting the FY09E ABV by 1x and FY10E ABV by 0.95x.
To see full report: BANK OF BARODA
INVESTMENT RATIONALE
■ Continued focus on the asset growth. We expect the bank’s advances to grow at a CAGR of approx 22% during FY08A‐FY10E against management guidance of 25% growth. Priority sector status to the housing loan may result in a decent growth in the mortgage loan portfolio of the bank. In the FY10E, we expect much of the growth coming from the SME segment. The growth in the advances will lead to a decent growth in the NII of the bank resulting in stable net profit growth.
■ Non interest income continues to improve: We expect non interest income of the bank to grow at a CAGR of 18% during the period FY08A‐FY10E. We believe the growth would be coming from the fee income mostly trade related finance and business activities. Return Ratios continues to improve: The strong growth in the non interest income will result in improvement of return ratios of the bank. We expect the ROA of the bank to show an improvement of 9bps during the period resulting in ROE of 17% during the period FY08A‐FY10E.
■ Valuation: At CMP of Rs.220, BOB is presently trading at P/ABV 0.7x of our FY09E ABV of Rs.279 and at P/E 4x of our FY09E EPS of Rs.53.9. We recommend a “BUY” on the stock with a fair value target price of Rs.284 Discounting the FY09E ABV by 1x and FY10E ABV by 0.95x.
To see full report: BANK OF BARODA
>Global Trading Strategy (FIRST GLOBAL)
Into the Rally of Death, rode the 600
The Short Story.....
The Short Story.....
If you have seen little babies at work, here’s how they express their dislike for something: they simply turn their heads away, rather than bawl or make a face, polite little things that they are. It’s almost as if by doing so, they’ll have made the problem go away.
That’s precisely what we have been doing last three days with The First Global Systems Family. For it’s been so joyous…we have all been buying up all the beaten-up stuff across the world, and have been making 20-40% for the mere act of pressing a button. Heck, we have even made money in Russia.
But now The First Global Systems Family has been boring its eyes into our backs, even as we have avoided looking. The First Global Systems Family is telling us bad things about the market, so why on earth should we listen? We don’t want to hear distasteful things about this cute little global casino governments collectively have given us.
But we have also learnt, through hard lessons, that we shouldn’t ignore The First Global Systems Family’s tirades against such mini-bull markets. Remember our dictum: we never mess with the mob.
What The First Global Systems Family is saying that it’s beginning to like this rally less and less. Quantitatively, this rally is worsening in quality (make what you will of that). Globally, the rally is becoming deceptive. It’s beginning to resemble one of the poorest bear market rallies we have seen for a while now, in terms of the level of deceit.
All indicators on The First Global Systems Family’s dashboard are beginning to flash Red.
But aren’t we supposed to be in a hot new bull market?
Not if you believe The Family.
In fact, The Family is calling it The Rally of Death. Corny, but gets the message across effectively.
Now, calling the end to anything bullish is always so, so scary. The world will forgive you if you uttered the Buy word too soon. But utter the Sell word too soon, and not even your Family will forgive you.
To see full report: GLOBAL TRADING STRATEGY
>India IT Services Sector (UBS)
Can vendor consolidation offset revenue declines at top-tier companies?
■ We expect IT budgets to decline in 2009
We expect IT budgets to decline 2-20% in 2009 for Indian IT service clients. This will likely result in lower prices and flat volumes for the sector in FY10. We forecast a fall in US$ revenue of 5-7% and a decline in Rs EPS of 2-5% in FY10. We remain cautious on the sector and reiterate Infosys as our preferred pick.
■ Vendor consolidation to benefit top-tier vendors
We have analysed the impact of vendor consolidation through: 1) analysis of historical data; 2) meetings with management of IT companies and industry experts; and 3) analysis of IT buyer spending patterns. We conclude that top-tier companies will be able to largely offset the decline in IT budgets via vendor consolidation.
■ We prefer top-tier vendors
We believe vendor consolidation is a multi-year theme and that top-tier IT service providers will increase market share from 31% in FY08 to 36% in FY12E. Top-tier companies will outpace industry growth and return to a revenue growth trajectory of c15% from FY12E onwards.
■ Remain cautious on the sector; Infosys is our preferred pick
Infosys is our preferred pick in the sector based on high margin visibility and its positive growth outlook. We await better opportunities for Wipro and TCS. Demand uncertainty remains a key risk, but we believe valuations provide downside support for share prices.
To see full report: IT SECTOR
>Nitin Fire Protection (KARVY)
We recently met Mr. Rahul Shah, Director of Nitin Fire Protection (NFPIL) and he indicated towards disappointing 4QFY09 and difficult FY10E for the fire protection and safety business. However the company was bullish on the domestic CNG business.
In the fire protection and security business, the demand has been negatively impacted due to slowdown in construction activity - both commercial and residential. Of the various contracts awarded to the company, Nitin Fire has not been able to execute few of them because of the client's decision to slowdown or hold that particular project. Accordingly that would lead to difficult 4QFY09 for the company.
In the CNG cylinder space, in FY10E the company is looking to focus more on domestic market. Pakistan is major market for CNG cylinder business, but the current relationship with Pakistan is expected to hamper the export activities from India. Also, the company believes that CNG
cylinder business in India would grow at a robust pace thereby providing them the opportunity to supply their products in the domestic market. Since the company's plant is situated in SEZ, domestic sales would attract full income tax rate as against income tax exemption enjoyed by the
company on export sales. We expect capacity utilization of 20% and 40% for FY09E and FY10E respectively at the company's 500,000 cylinder capacity plant at Vizag (Andhra Pradesh). In the industrial cylinder segment due to slowdown in the industrial activity, we expect the company to sell ~73000 cylinders in FY10E, which is 20% lower than our FY09E estimated sales volume of ~91000 cylinders.
Due to the above mentioned reasons, we are lowering our sales estimates from Rs2,758mn to Rs2,380mn for FY09E and from Rs3,265mn to Rs2,910mn for FY10E. For FY09E, we are lowering our EBITDA margin estimates from 19.2% to 17.7% primarily on account of MTM losses expected during 4QFY09 due to depreciating rupee. For FY10E, we are increasing our EBITDA margin estimates from 21.5% to 22.2% on account of fall in commodity prices and due to higher contribution of CNG cylinder in the overall business mix. We are lowering our net profit estimates from Rs397mn to Rs323mn for FY09E and from Rs502mn to Rs429 mn for FY10E. For FY10E, due to expected higher domestic sales from the SEZ unit, we have increased our effective tax rate from 24% to 29%.
We expect the company's earnings to grow by 32% during FY10E primarily on back of better capacity utilization of the company's Vizag plant. However due to slowdown in the construction activity and corporate capex plans; we expect the company's fire protection and industrial cylinder segment would be hampered in FY10E. On back of lowering of our EPS estimates and lowering of PE multiple to reflect the current market valuation, we are reducing our price target by 33% to Rs160 and change our recommendation from BUY to Outperformer.
To see full report: NITIN FIRE PROTECTION
In the fire protection and security business, the demand has been negatively impacted due to slowdown in construction activity - both commercial and residential. Of the various contracts awarded to the company, Nitin Fire has not been able to execute few of them because of the client's decision to slowdown or hold that particular project. Accordingly that would lead to difficult 4QFY09 for the company.
In the CNG cylinder space, in FY10E the company is looking to focus more on domestic market. Pakistan is major market for CNG cylinder business, but the current relationship with Pakistan is expected to hamper the export activities from India. Also, the company believes that CNG
cylinder business in India would grow at a robust pace thereby providing them the opportunity to supply their products in the domestic market. Since the company's plant is situated in SEZ, domestic sales would attract full income tax rate as against income tax exemption enjoyed by the
company on export sales. We expect capacity utilization of 20% and 40% for FY09E and FY10E respectively at the company's 500,000 cylinder capacity plant at Vizag (Andhra Pradesh). In the industrial cylinder segment due to slowdown in the industrial activity, we expect the company to sell ~73000 cylinders in FY10E, which is 20% lower than our FY09E estimated sales volume of ~91000 cylinders.
Due to the above mentioned reasons, we are lowering our sales estimates from Rs2,758mn to Rs2,380mn for FY09E and from Rs3,265mn to Rs2,910mn for FY10E. For FY09E, we are lowering our EBITDA margin estimates from 19.2% to 17.7% primarily on account of MTM losses expected during 4QFY09 due to depreciating rupee. For FY10E, we are increasing our EBITDA margin estimates from 21.5% to 22.2% on account of fall in commodity prices and due to higher contribution of CNG cylinder in the overall business mix. We are lowering our net profit estimates from Rs397mn to Rs323mn for FY09E and from Rs502mn to Rs429 mn for FY10E. For FY10E, due to expected higher domestic sales from the SEZ unit, we have increased our effective tax rate from 24% to 29%.
We expect the company's earnings to grow by 32% during FY10E primarily on back of better capacity utilization of the company's Vizag plant. However due to slowdown in the construction activity and corporate capex plans; we expect the company's fire protection and industrial cylinder segment would be hampered in FY10E. On back of lowering of our EPS estimates and lowering of PE multiple to reflect the current market valuation, we are reducing our price target by 33% to Rs160 and change our recommendation from BUY to Outperformer.
To see full report: NITIN FIRE PROTECTION
>Pantalooon Retail (Angel Broking)
Back in Business
Same Store Sales growth positive in January and February 2009
Pantaloon Retail (PRIL) recorded positive Same Store Sales (SSS) for the two consecutive months of January and February 2009, after having plunged and recorded negative growth in November 2008 and ruling weak in December 2008. Amidst the ongoing economic slowdown, Pantaloon’s Lifestyle Retailing Segment sprung a surprise registering higher SSS growth than Value Retailing in January 2009.
The Lifestyle Retailing Segment reported a better performance on the back of the month-long Great Indian Shopping Festival held by the Future Group in December 2008- January 2009 and increased consumer confidence compared to the last quarter of CY2008. The Segment witnessed healthy yoy SSS growth of 12% in January 2009 v/s 14% degrowth registered in December 2008. On the other hand, the Value Retailing Segment witnessed yoy SSS growth of 4% in January 2009 as against 3.6% degrowth in December 2008.
The positive trend continued in February 2009 with the Value and Lifestyle Retailing Segments recording yoy SSS growth of 5.3% and 4.4%, respectively. The sustained sales growth in February 2009 can also be attributed to aggressive pricing, continuous promotional efforts and availability of more credit for consumers following softening of Interest rates. Pertinently, on a yoy basis, SSS growth of PRIL Standalone is nearing July 2008 levels which is an indicator of revival in consumer sentiment.
To see full report: PANTALOON RETAIL
Same Store Sales growth positive in January and February 2009
Pantaloon Retail (PRIL) recorded positive Same Store Sales (SSS) for the two consecutive months of January and February 2009, after having plunged and recorded negative growth in November 2008 and ruling weak in December 2008. Amidst the ongoing economic slowdown, Pantaloon’s Lifestyle Retailing Segment sprung a surprise registering higher SSS growth than Value Retailing in January 2009.
The Lifestyle Retailing Segment reported a better performance on the back of the month-long Great Indian Shopping Festival held by the Future Group in December 2008- January 2009 and increased consumer confidence compared to the last quarter of CY2008. The Segment witnessed healthy yoy SSS growth of 12% in January 2009 v/s 14% degrowth registered in December 2008. On the other hand, the Value Retailing Segment witnessed yoy SSS growth of 4% in January 2009 as against 3.6% degrowth in December 2008.
The positive trend continued in February 2009 with the Value and Lifestyle Retailing Segments recording yoy SSS growth of 5.3% and 4.4%, respectively. The sustained sales growth in February 2009 can also be attributed to aggressive pricing, continuous promotional efforts and availability of more credit for consumers following softening of Interest rates. Pertinently, on a yoy basis, SSS growth of PRIL Standalone is nearing July 2008 levels which is an indicator of revival in consumer sentiment.
To see full report: PANTALOON RETAIL
>LIC HOUSING FINANCE LTD. (CD EQUIRESEARCH)
Company Brief
LIC Housing Finance Ltd. (LICHFL) is one of the largest housing finance companies in India. Almost 93% of the company’s loans are to retail customers and the balance 7% to project developers. The promoter, namely LIC of India, meets 8% of the total fund requirements, whereas 80% is funded by term loans from banks, bonds and debentures, and the remaining 12% in the form of refinance from NHB and others.
Highlights
■ LIC Housing is relying more on floating rate borrowing and lending, which will help the company to protect margins in a volatile interest rate scenario and ensure stable growth in profitability in the future.
■ The last quarter witnessed decline in both gross and net NPA levels. The net NPA fell from 0.9% in Q2FY09 to 0.7% in Q3FY09. NPA levels are expected to fall further because the company has now adopted stringent credit appraisal method and better recovery process.
■ LICHF has been steadily growing its loan book with loan sanctions and disbursal growing at a CAGR of 30% and 20% respectively in the last three financial years. Given the cost of
funds coming down and interest rate easing further, we expect LICHF to grow its loan book at a CAGR of 21% over a period of FY2008-10 (E)
■ We have valued the company using SOTP method based on the valuation of its core business at Rs 280 and 39.3% stake in LIC Mutual Fund at Rs 23 and arrived at a target price of Rs 303, implying a potential upside of 61% from current levels, over a 12 month period. The current market price discounts FY09E and FY10E adjusted book value by 0.69 x and 0.55 x respectively. The stock also provides an attractive dividend yield of 5%, assuming that status quo is maintained. We therefore recommend a BUY on LIC Housing Finance.
Risk & Concerns
■ Challenging real estate market: The real estate market in India is becoming a lot challenging. This could lead to marked slowdown in business and higher delinquencies.
■ Stiff competition: The Company could see loss of market share to commercial banks and pressure on spread due to interest rate cuts announced by PSU banks on home loans.
■ High exposure to project developers: The Company has made a deliberate strategy to increase exposure to project developers, which could also increase its NPA levels.
■ Increase in the average loan size: An increase in the average loan size might result in nonrepayment, increasing NPAs and hurting profitability.
To see full report: LIC HOUSING
LIC Housing Finance Ltd. (LICHFL) is one of the largest housing finance companies in India. Almost 93% of the company’s loans are to retail customers and the balance 7% to project developers. The promoter, namely LIC of India, meets 8% of the total fund requirements, whereas 80% is funded by term loans from banks, bonds and debentures, and the remaining 12% in the form of refinance from NHB and others.
Highlights
■ LIC Housing is relying more on floating rate borrowing and lending, which will help the company to protect margins in a volatile interest rate scenario and ensure stable growth in profitability in the future.
■ The last quarter witnessed decline in both gross and net NPA levels. The net NPA fell from 0.9% in Q2FY09 to 0.7% in Q3FY09. NPA levels are expected to fall further because the company has now adopted stringent credit appraisal method and better recovery process.
■ LICHF has been steadily growing its loan book with loan sanctions and disbursal growing at a CAGR of 30% and 20% respectively in the last three financial years. Given the cost of
funds coming down and interest rate easing further, we expect LICHF to grow its loan book at a CAGR of 21% over a period of FY2008-10 (E)
■ We have valued the company using SOTP method based on the valuation of its core business at Rs 280 and 39.3% stake in LIC Mutual Fund at Rs 23 and arrived at a target price of Rs 303, implying a potential upside of 61% from current levels, over a 12 month period. The current market price discounts FY09E and FY10E adjusted book value by 0.69 x and 0.55 x respectively. The stock also provides an attractive dividend yield of 5%, assuming that status quo is maintained. We therefore recommend a BUY on LIC Housing Finance.
Risk & Concerns
■ Challenging real estate market: The real estate market in India is becoming a lot challenging. This could lead to marked slowdown in business and higher delinquencies.
■ Stiff competition: The Company could see loss of market share to commercial banks and pressure on spread due to interest rate cuts announced by PSU banks on home loans.
■ High exposure to project developers: The Company has made a deliberate strategy to increase exposure to project developers, which could also increase its NPA levels.
■ Increase in the average loan size: An increase in the average loan size might result in nonrepayment, increasing NPAs and hurting profitability.
To see full report: LIC HOUSING
>US gasoline hits USD2, unlikely to soar without demand growth (COMMODITY)
New York - U.S. gasoline prices at the pump have broken out of a four-month slump, hitting $2 a gallon, but weak demand will likely keep prices from soaring this summer.
The average price of retail gasoline in the U.S. has climbed more than 11cents a gallon in the past month to $2.046 a gallon Monday, according to the Energy Information Administration, the statistical arm of the Department of Energy. Rising prices in the early spring are an expected seasonal pattern, but this year's price increase doesn't signal a return to seasonal trends usually witnessed during more stable market conditions.
Without a resurgence in demand, prices may not rise significantly during the summer driving season from Memorial Day to Labor Day. Growing unemployment, a preference for cars with better gasoline mileage and lingering economic worries may keep demand low, depressing prices.
"This has been a demand-driven market," said Dave Hackett, president of with Irvine, Calif.-based Stillwater Associates LLC. Gasoline consumption has fallen as prices last year that topped $4 a gallon prompted drivers to buy cars with better gasoline mileage.
The Obama administration's task force on Detroit's automakers has stressed the production of fuel-efficient vehicles, to conform with consumer preferences and government standards.
The administration's focus on reforming the automakers, including Chrysler LLC and General Motors Corp. (GM), could result in the creation of a vehicle fleet that complies with more stringent efficiency standards, thus further reducing gasoline demand. The Obama administration could use bankruptcy protection filings to split GM and Chrysler into "good" and "bad" components, The Wall Street Journal reported Monday, citing people familiar with the matter. In its leading plan to address the auto maker's troubles, the government would like to purge the companies of the biggest problems, including their onerous debt burden.
Falling auto sales, which have exacerbated the financial struggles of auto companies, have accompanied falling gasoline demand as unemployment has risen. About a third of gasoline consumption in the U.S. is work-related, so an increase in the number of jobless will continue to cut fuel demand, said Tancred Lidderdale, a petroleum supply analyst at the EIA.
The national unemployment rate was 8.1% for February, the most recent month for which data is available. Despite the current economic stimulus measures adopted by Congress, some economists have forecast growing unemployment through the end of the year.
As the newly unemployed quit commuting, gasoline demand may not pick up enough to offset rising production from U.S. refineries.
Flooding The Market
Ordinarily, refiners perform annual maintenance in the spring, cutting back production as they prepare their units for the summer driving season. During this downtime, they are able to liquidate winter-grade gasoline, a blend that cannot be sold in the summer due to environmental requirements.
This year, most refiners shut their units early in the year, due to low demand for gasoline. As a result, inventories fell in February, prompting a rise in pump prices to rise.
As these units return to service, they're producing gasoline that refiners will have to sell before the grade change. The additional supply may dampen the price of gasoline this spring said Ann Kohler, an analyst with Caris & Co., a New York-based investment bank.
Demand for the past four weeks has been about 0.5% below last year's levels, said Kohler, citing preliminary federal data. This demand decline may make it difficult to absorb this additional production.
"Realistically, we're prepared to see demand flat," said Jeff Lenard, a spokesman for the National Association of Convenience Stores, a trade association representing gasoline station owners.
A sudden spike in crude prices could also drive gasoline prices up. While there was a run-up in crude prices from February to last Thursday, the price of benchmark crude futures dipped below $50 a barrel Monday.
Source: COMMODITIESCONTROL
The average price of retail gasoline in the U.S. has climbed more than 11cents a gallon in the past month to $2.046 a gallon Monday, according to the Energy Information Administration, the statistical arm of the Department of Energy. Rising prices in the early spring are an expected seasonal pattern, but this year's price increase doesn't signal a return to seasonal trends usually witnessed during more stable market conditions.
Without a resurgence in demand, prices may not rise significantly during the summer driving season from Memorial Day to Labor Day. Growing unemployment, a preference for cars with better gasoline mileage and lingering economic worries may keep demand low, depressing prices.
"This has been a demand-driven market," said Dave Hackett, president of with Irvine, Calif.-based Stillwater Associates LLC. Gasoline consumption has fallen as prices last year that topped $4 a gallon prompted drivers to buy cars with better gasoline mileage.
The Obama administration's task force on Detroit's automakers has stressed the production of fuel-efficient vehicles, to conform with consumer preferences and government standards.
The administration's focus on reforming the automakers, including Chrysler LLC and General Motors Corp. (GM), could result in the creation of a vehicle fleet that complies with more stringent efficiency standards, thus further reducing gasoline demand. The Obama administration could use bankruptcy protection filings to split GM and Chrysler into "good" and "bad" components, The Wall Street Journal reported Monday, citing people familiar with the matter. In its leading plan to address the auto maker's troubles, the government would like to purge the companies of the biggest problems, including their onerous debt burden.
Falling auto sales, which have exacerbated the financial struggles of auto companies, have accompanied falling gasoline demand as unemployment has risen. About a third of gasoline consumption in the U.S. is work-related, so an increase in the number of jobless will continue to cut fuel demand, said Tancred Lidderdale, a petroleum supply analyst at the EIA.
The national unemployment rate was 8.1% for February, the most recent month for which data is available. Despite the current economic stimulus measures adopted by Congress, some economists have forecast growing unemployment through the end of the year.
As the newly unemployed quit commuting, gasoline demand may not pick up enough to offset rising production from U.S. refineries.
Flooding The Market
Ordinarily, refiners perform annual maintenance in the spring, cutting back production as they prepare their units for the summer driving season. During this downtime, they are able to liquidate winter-grade gasoline, a blend that cannot be sold in the summer due to environmental requirements.
This year, most refiners shut their units early in the year, due to low demand for gasoline. As a result, inventories fell in February, prompting a rise in pump prices to rise.
As these units return to service, they're producing gasoline that refiners will have to sell before the grade change. The additional supply may dampen the price of gasoline this spring said Ann Kohler, an analyst with Caris & Co., a New York-based investment bank.
Demand for the past four weeks has been about 0.5% below last year's levels, said Kohler, citing preliminary federal data. This demand decline may make it difficult to absorb this additional production.
"Realistically, we're prepared to see demand flat," said Jeff Lenard, a spokesman for the National Association of Convenience Stores, a trade association representing gasoline station owners.
A sudden spike in crude prices could also drive gasoline prices up. While there was a run-up in crude prices from February to last Thursday, the price of benchmark crude futures dipped below $50 a barrel Monday.
Source: COMMODITIESCONTROL
понедельник, 30 марта 2009 г.
>Daily Market & Technical Outlook (ICICI Direct)
Key points
Market outlook — Open flat to positive on mixed global cues
Positive — Rupee expected to gain
Negative – FIIs, MFs selling
Market outlook
Indian markets are likely to open flat to positive, taking cues from Asian markets. The SGX Nifty was trading 15 points up in the morning. Other Asian markets were also positive in the morning despite the US markets falling around 3% on an average. The Japanese government announced that it was prepared to unveil a new stimulus package, which bucked up the confidence in Asian markets. The rupee is expected to gain from Asian stocks gaining
■ The Sensex has supports at 9510 and 9330 and resistances at 9710 and 9820. The Nifty has supports at 2960 and 2920 and resistances at 3120 and 3160
■ Asian stocks rose as Japan prepared to unveil a new stimulus package and confidence among South Korean manufacturers rose. The Nikkei gained 72.8 points, or 0.9%, to trade at 8,308.8. The Hang Seng advanced 169.1 points, or 1.3%, to trade at 13,625.5
■ US stocks tumbled on Monday as two major US automakers took a step closer to potential bankruptcy and a spate of European bank rescues heightened concerns over the financial system's health, putting the brakes on a recent run-up. The Dow Jones lost 254.16 points, or 3.27%, to 7,522.02. The S&P 500 tumbled 28.41 points, or 3.48%, to 787.53. The Nasdaq fell 43.40 points, or 2.81%, to 1,501.80
■ Stocks in news: DLF, NMDC, Tata Power, Grasim, Kamat Hotels, Cadila Healthcare
To see full report: OPENING BELL 310309
Market outlook — Open flat to positive on mixed global cues
Positive — Rupee expected to gain
Negative – FIIs, MFs selling
Market outlook
Indian markets are likely to open flat to positive, taking cues from Asian markets. The SGX Nifty was trading 15 points up in the morning. Other Asian markets were also positive in the morning despite the US markets falling around 3% on an average. The Japanese government announced that it was prepared to unveil a new stimulus package, which bucked up the confidence in Asian markets. The rupee is expected to gain from Asian stocks gaining
■ The Sensex has supports at 9510 and 9330 and resistances at 9710 and 9820. The Nifty has supports at 2960 and 2920 and resistances at 3120 and 3160
■ Asian stocks rose as Japan prepared to unveil a new stimulus package and confidence among South Korean manufacturers rose. The Nikkei gained 72.8 points, or 0.9%, to trade at 8,308.8. The Hang Seng advanced 169.1 points, or 1.3%, to trade at 13,625.5
■ US stocks tumbled on Monday as two major US automakers took a step closer to potential bankruptcy and a spate of European bank rescues heightened concerns over the financial system's health, putting the brakes on a recent run-up. The Dow Jones lost 254.16 points, or 3.27%, to 7,522.02. The S&P 500 tumbled 28.41 points, or 3.48%, to 787.53. The Nasdaq fell 43.40 points, or 2.81%, to 1,501.80
■ Stocks in news: DLF, NMDC, Tata Power, Grasim, Kamat Hotels, Cadila Healthcare
To see full report: OPENING BELL 310309
>Daily Calls (ICICI Direct)
Sensex: We said, "Doji can be a potential turning point for the short term, if we see a strong trading below its low at 9913," Index opened gap-down below 9913, and lost nearly 5% for the day. Bankex lost more, down 8.5%. Metals and Realty also lost more than 7%. A/D ratio turned negative, at 1:2.
The action created a bearish Evening Doji Star pattern, confirming Friday's Doji as a short-term turning point as argued. It also broke both Blue and Green channels. Gap-down area at 9902-13 is now a new technical resistance. Though pull-back to Green channel is possible, break of low at 9520 would continue weakness.
To see full report: CALLS 310309
The action created a bearish Evening Doji Star pattern, confirming Friday's Doji as a short-term turning point as argued. It also broke both Blue and Green channels. Gap-down area at 9902-13 is now a new technical resistance. Though pull-back to Green channel is possible, break of low at 9520 would continue weakness.
To see full report: CALLS 310309
>Daily Derivatives (ICICI Direct)
Derivative Comments
• Nifty April futures shed 2.02 million shares in OI accompanied by a narrowing of discount to 10 pointsindicating closure of long positions in the Nifty. A similar trend was also seen in FII Index futures wherein there was a net sale of Rs 995 crore along with a drop in OI by 3.77%
• The options data suggests maximum addition of OI in the 3200 Call option, which added 14261 contracts with rise in IV from 33.35 to 34.48. The highest volume was registered by the 3100 Call followed by 3000 Put. The OI addition in 3000, 3100 and 3300 Calls was 8411, 4713 and 8488 contracts. All these Call options saw an upward shift in IV. On the other hand, unwinding of contracts was seen in Puts ranging from 3000 to 3200 wherein some short covering was seen in 3100 and 3200 while profit booking by Put buyers was seen in 3000 Put. Maximum addition in Put option was seen in 2600 adding 10673 followed by 2700 adding 7352 contracts. The drops in IVs with rise in volumes indicate Put writing in these Put options. Moreover, an addition of 4865 contracts in the 2900 Put was accompanied by a fall in IV from 39.34 to 38.97. This along with good volumes further suggests that this level could act as a decent support for the Nifty on a closing basis for a couple of sessions.
To see full report: DERIVATIVES 310309
>ICICI Bank (ANAND RATHI)
Value, with lots of negatives cooked in; Initiate at Buy
■ Buy. We initiate coverage on the ICICI Bank with a Buy and a target of Rs430. We expect on-going fundamental improvements and adequate NPA coverage to lead to stable RoEs over FY09-11. We believe the subsidiaries have value, and are not reflected in the stock price.
■ Fundamental improvements underway. The bank has been slowing asset growth and placing greater emphasis on protecting margins, improving productivity and maintaining credit quality. These measures would improvement fundamentals.
■ Subsidiaries have value, not reflected. Key subsidiaries of the bank (in life insurance, general insurance, asset management and the securities business) are leaders in their businesses. In our view, the current price does not reflect the value of the subsidiaries, which we estimate at Rs105.
■ Adequate NPA coverage. At 51%, ICICI’s NPA coverage is not the best, but should hold it in good stead when asset quality is under duress. The coverage ratio is expected to be +50% over FY09-FY11, with net NPAs at ~3.2% in FY10.
■ Valuation. Our fair value of Rs325 (standalone bank) is based on the two-stage DDM (CoE: 15%; beta: 1.3; Rf: 6.5%). We value its subsidiaries at Rs105 a share. At our target price of Rs430, ICICI would trade at 1.1x FY10e ABV. Its target multiple is at a 40% discount to HDFC Bank’s and a 5% premium to the sector.
To see full report: ICICI BANK
>Tata Chemicals Ltd. (MERRILL LYNCH)
Company meeting reinforces confidence
■ Meeting with management reinforces confidence, BuyPost our channel checks and meeting with Tata Chemicals management we believe price correction in the stock is overdone given i) stabilizing prices in soda ash, ii) strong expected free cash flow led by urea and iii) improving scenario in DAP. The stock trades at 0.6xFY10E P/BV, 5xFY10E PE and at ~22% of the replacement value. We reiterate Buy on the stock given attractive valuations.
■ To tie up for gas; De-bottlenecked capacity on stream
Post de-bottlenecking, urea capacity is up 30% and is already functional. The company is in talks with Reliance Industries for gas supply and is likely to get ~US$6/mmbtu delivered cost. Moreover, we expect DAP and IMACID operations to become profitable in Q1 FY10 given strong correction in rock phosphate prices globally.
■ Soda ash prices are stabilizing
As per the company soda ash prices are stabilizing and demand in North America is stable despite slowdown as flat glass demand gets replaced by container glass. The company has also not scaled back price hikes it got in CY08 in UK and Netherlands. Media reports suggest a likely 31% safeguard duty on cheap soda ash imports from China, which we believe will be a positive for Tata Chemicals.
■ Attractive valuations; strong free cash flow generation
Based on the replacement value of INR570 per share, the stock is trading at a discount of 78%. It is at 0.6xFY10E P/BV and 5xFY10E PE. With EBITDA/interest ratio at 6xFY10E and strong free cash flow expected ahead, debt servicing concerns are overdone in our view. We reiterate our Buy rating on the stock with a price objective of INR180.
To see full report: TATA CHEMICALS
>Larsen & Toubro (BNP PARIBAS)
Delays likely in infra projects.....
Takeaways from meeting with K Venkatesh, CEO L&T Infrastructure Development Projects Ltd (IDPL) on March 26.
Company estimates opportunity of INR750b in near-term
These opportunities exist across highways (NHAI + state), ports, railways, water, power transmission and hydropower. L&T is considering approximately 50% of this total opportunity; the company is cautious about bidding for Public Private Partnership (PPP) projects due to complex regulations. Government regulations and policies are primarily responsible for delays. Some projects have become commercially unviable due to change in policy/regulation. As a result, achieving financial closure for these projects is challenging.
Highways offer near-term opportunities, but are risky
National Highway Authority of India (NHAI) has reduced concession periods for several projects resulting in lower IRRs, so project finance is difficult to obtain. NHAI has also capped the upside from increase in traffic estimates. State government projects are preferable as there is a single-point regulatory clearance; however, annuities and projects with Viability Gap Funding (VGF) face cash flow mismatch risk. L&T is wary of servicing debt obligations with cash flows from the state governments.
Select opportunities in railways, ports, and transmission
The New Delhi Railway Station redevelopment project (INR90b), Mumbai Metro Line 2 (INR76.5b) and Bangalore high speed rail link (INR45b) are under consideration vs total opportunity of INR331b in railways. In ports, the container terminal contract at Ennore port
(INR13b) and coal import terminal project at Mormugoa port (INR6b) are the only projects that are attractive, with a total opportunity of INR86b. Power transmission offers an INR109b opportunity and the company is considering INR67b of these.
Valuation
We maintain our REDUCE rating on L&T due to lower order intake and elongation of the execution cycle of existing orders. We maintain our INR536 TP based on our SOTP valuation (INR460 from standalone based on 8.5x FY10E EBITDA + INR76 from subsidiaries).
To see full report: LARSEN & TOUBRO
>DLF (CLSA)
With no sign of a real recovery in the property market in 2009, DLF’s debt will remain high due to weak project-development cashflow. With stock down 85% from its January-2008 peak, the question is: when to buy? Factoring in lingering risks but also recognising the sizeable value of the firm’s assets, we see Rs104 as an attractive entry point, which implies 41% downside. However, on a 12-month view, we project 26% downsideas the PB multiple adjusts to reflect low ROE.
Safe entry point still 41% away
A Rs104 valuation only gives credit to DLF’s landbank and cashflow from projects under execution; it fully discounts the weak outlook for new-project launches. Using history as a guide, a sustainable upturn in property stocks appears to be another one-to-two years away. In the interim, we expect DLF to derate as the market recognises its severe ROE deterioration. We base our 12-month target price of Rs130 on a blend of NAV and PB multiples.
Residential not as lucrative
DLF’s strategy of leading price cuts in the residential segment has helped revive volumes, but we believe the initial positive response will peter out as buyers look for further price cuts. The double-whammy of narrower margins and elongated working-capital cycles will translate into an 82% fall in housing profits in 2008-10.
Steep fall in non-residential earnings
Representing about 75% of FY08 earnings, non-residential sales will fall 43% in FY09CL and a further 94% in FY10CL, given the severe slowdown in office and retail space. DLF has already stopped the sale of office assets to group company DLF Asset (DAL) given weak demand for leased space in special economic zones (SEZs). Rental income will provide support but, here too,
renegotiation risks exist. Consensus has built in a 32% earnings recovery from 3QFY09 forecasts which we believe is too optimistic.
Extended-balance-sheet stress
DLF’s balance sheet has geared up substantially due to large land payments and capital-intensive developments. Debt has risen 16x since June 2007 to Rs148bn. While the company has no major debt repayments until end-FY11 thanks to its recent refinancing, the squeeze on profit means that operating cashflow largely will be spent meeting annual interest payments of Rs18bn. Potential financial restructuring of DAL will further aggravate the cashflow issue as one of its investors needs to exit.
To see full report: DLF
Safe entry point still 41% away
A Rs104 valuation only gives credit to DLF’s landbank and cashflow from projects under execution; it fully discounts the weak outlook for new-project launches. Using history as a guide, a sustainable upturn in property stocks appears to be another one-to-two years away. In the interim, we expect DLF to derate as the market recognises its severe ROE deterioration. We base our 12-month target price of Rs130 on a blend of NAV and PB multiples.
Residential not as lucrative
DLF’s strategy of leading price cuts in the residential segment has helped revive volumes, but we believe the initial positive response will peter out as buyers look for further price cuts. The double-whammy of narrower margins and elongated working-capital cycles will translate into an 82% fall in housing profits in 2008-10.
Steep fall in non-residential earnings
Representing about 75% of FY08 earnings, non-residential sales will fall 43% in FY09CL and a further 94% in FY10CL, given the severe slowdown in office and retail space. DLF has already stopped the sale of office assets to group company DLF Asset (DAL) given weak demand for leased space in special economic zones (SEZs). Rental income will provide support but, here too,
renegotiation risks exist. Consensus has built in a 32% earnings recovery from 3QFY09 forecasts which we believe is too optimistic.
Extended-balance-sheet stress
DLF’s balance sheet has geared up substantially due to large land payments and capital-intensive developments. Debt has risen 16x since June 2007 to Rs148bn. While the company has no major debt repayments until end-FY11 thanks to its recent refinancing, the squeeze on profit means that operating cashflow largely will be spent meeting annual interest payments of Rs18bn. Potential financial restructuring of DAL will further aggravate the cashflow issue as one of its investors needs to exit.
To see full report: DLF
>India Steel Sector (UBS)
Compelling valuations and fundamentals
■ Regression analysis used to estimate fair value of companiesWe believe Tata Steel and SAIL are undervalued based on valuation multiplier through our regression analysis. According to our regression analysis, there is a linear relationship between: 1) EV/t and EBITDA/t; and 2) EV/IC and ROIC. Based on our analysis, we conclude that Tata Steel and SAIL are undervalued.
■ Indian stocks offer value
We lower our India capacity estimates to 70mt (73mt earlier) for FY10E and expect utilisation to remain at around 80% in our base estimates for steel demand to FY12E. We expect Indian consumption to be 52.5mt (up 2.9%) in FY10E. We believe Indian steel companies have been beaten down to 0.3-1x P/BV levels and valuations should correct up given our stable steel price outlook and lower material costs. Stocks have priced in worst-case earnings and consensus estimates should increase, in our view.
■ Steel sector—close to inflexion point
UBS Basic materials strategist, Peter Hickson, expects cyclical opportunity, which could see a potential re-stocking in the space. With steel prices down 12-15% over the past one month in India, we believe there is limited downside from here given further production cutbacks in surplus markets, a moderate pick-up in demand driven by the cyclicality, and infrastructure-led demand growth in India.
■ Valuation: Buy on Tata Steel, SAIL; upgrade JSW to Neutral
We upgrade Tata Steel to a Buy, maintain our Buy rating on SAIL, and upgrade JSW to a Neutral rating. We use DCF to derive our price targets for Tata (Rs275), SAIL (Rs125) and JSW (Rs225), but given weak sentiment we cross-check on EV/tn and EV/IC regression analysis.
To see full report: INDIA STEEL SECTOR
>India Mobile Sector (UBS)
India adds 13.7m subs in February 2009
■ Detailed analysis of India mobile subscriber data
In this note, we present a detailed outlook on the Indian mobile subscriber base from an operator-wise and a service area-wise perspective. We have also the analysed Bharti, RCOM and Idea subscriber base, and subscriber market share.
■ Subscriber growth momentum continues in February 2009
India added 13.7m mobile subs in February vs 15.4m in January. Bharti leads the subscriber market with a share of 25%, followed by RCOM at 19% and Vodafone at 18%. RCOM continued to gain a significant incremental market share of 25% in February (compared with 32% in January), driven by its attractive GSM prepaid plan offering. Bharti, Vodafone and Idea captured incremental market share of 20%, 19% and 11%, respectively, last month.
■ Reiterate 12-month Buy, Short-term Sell on Bharti; Buy on Idea, RCOM
India is an ultra-competitive mobile market, and we have already factored in an increase in competitive intensity following RCOM's GSM launch (ie, our estimates take into account lower revenue per minute realizations leading to lower margins and returns). We maintain a 12-month Buy rating on Bharti, RCOM and Idea. We introduced Short-term Sell ratings on Bharti, Idea and RCOM on 15 January 2009 as we expected: (1) negative newsflow on pricing moves post RCOM GSM launch; and (2) consensus earnings downgrades. The consensus FY10 net profit estimate has declined 20% for Idea and 24% for RCOM since 15 January. Therefore we dropped our Short-term Sell ratings on these two effective 13 March 2009. Since the FY10 net profit consensus earnings estimate for Bharti has declined by only 4%, we expect more downgrades and hence maintain our Short-term Sell rating.
To see full report: INDIA MOBILE SECTOR
>India Market Strategy (UBS)
Maintain bullish stance on Indian an market.....
■ Launch of UBS India model portfolio; 12-month Sensex target of 13,500
In this report, we launch the UBS India model portfolio. Our base-case scenario is for the Indian economy and corporate earnings to bottom by H2 FY10 and for a full recovery to occur in FY11. We are positive on the Indian stock market on a 12- month view and set a March 2010 Sensex target of 13,500.
■ Overweight: Autos; Banks; and Metals
Auto demand is likely to improve based on the low interest rate environment. We believe banks will benefit from an economic recovery, as the focus moves away from NPLs into growth. Globally, UBS believes Basic Materials are poised for a turnaround; hence our positive stance on Metals.
■ Underweight: Consumer Staples; IT Services; and Oil & Gas
We are Underweight the Consumer sector, as we believe sector outperformance will not continue. We also believe IT Services face strong headwinds and an imminent recovery looks unlikely. We are Underweight the Oil & Gas sector, as ONGC is unlikely to outperform in a recovery and could be affected by government intervention.
■ Top Buys: ICICI Bank; BHEL; Maruti; Reliance Infra; ITC; Tata; ABNL
ICICI Bank is a UBS Key Call; valuations are compelling as it trades at 0.5x adjusted P/BV (standalone). Bharat Heavy Electricals (BHEL) has a strong order book and hence earnings visibility. We believe Maruti is a good way to play the cyclical recovery in passenger car demand. Tata Steel, ITC, Reliance Infra, Infosys and Aditya Birla Nuvo (ABNL) are our other key Overweights.
To see full report: INDIA MARKET STRATEGY
■ Launch of UBS India model portfolio; 12-month Sensex target of 13,500
In this report, we launch the UBS India model portfolio. Our base-case scenario is for the Indian economy and corporate earnings to bottom by H2 FY10 and for a full recovery to occur in FY11. We are positive on the Indian stock market on a 12- month view and set a March 2010 Sensex target of 13,500.
■ Overweight: Autos; Banks; and Metals
Auto demand is likely to improve based on the low interest rate environment. We believe banks will benefit from an economic recovery, as the focus moves away from NPLs into growth. Globally, UBS believes Basic Materials are poised for a turnaround; hence our positive stance on Metals.
■ Underweight: Consumer Staples; IT Services; and Oil & Gas
We are Underweight the Consumer sector, as we believe sector outperformance will not continue. We also believe IT Services face strong headwinds and an imminent recovery looks unlikely. We are Underweight the Oil & Gas sector, as ONGC is unlikely to outperform in a recovery and could be affected by government intervention.
■ Top Buys: ICICI Bank; BHEL; Maruti; Reliance Infra; ITC; Tata; ABNL
ICICI Bank is a UBS Key Call; valuations are compelling as it trades at 0.5x adjusted P/BV (standalone). Bharat Heavy Electricals (BHEL) has a strong order book and hence earnings visibility. We believe Maruti is a good way to play the cyclical recovery in passenger car demand. Tata Steel, ITC, Reliance Infra, Infosys and Aditya Birla Nuvo (ABNL) are our other key Overweights.
To see full report: INDIA MARKET STRATEGY
>Weekly Derivatives (ICICI Direct)
NIFTY HIGHLIGHTS:
■ The Nifty Spot has surged by 10.72% to close at 3108 from the previous week’s close of 2807
■ The total futures OI in the market stands at Rs 28682 crores whereas all options OI stands at Rs 27755 crores
Technical Outlook
• The Nifty closed 10.74% positive posting one of the biggest weekly gains. Nifty gained in all the five trading session in last week trade
• The Nifty has formed strong bull candle after breaking out above 2800 levels
• On the upside the Nifty is now testing 3150-3170 area where profit booking is expected
• On the downside good support appears around 2,950-2900 levels
• We expect the Nifty to trade in the range of 3200 – 2900 levels for the coming week
• The resistance remains at 3150 and 3200, whereas supports exist around 3000, 2920 levels
Derivative Outlook:
• The PCR-OI has moved from 1.59 to 1.51 mark after making a high of 1.96 on the expiry day. The sharp fall in PCR-OI on Friday is because of unwinding of huge put positions of March series. In the current series, addition of put OI is more than compared to call OI. In The April series, maximum addition of OI was registered in 2900 put which added 76108 contracts followed by 72499 contracts addition in 3000 put. The 2700 and 2800 puts added 44807 and 49802 contracts respectively. On the flip side, the maximum concentration of OI was seen in call options ranging from 3000 to 3200 wherein the 3200 call added 39148 contracts followed by 33597 contracts in 3100 call and 25485 contracts in 3000 call. With rise in IVs of these call options; we conclude that decent call buying was observed in these calls in last week. The rise in put IVs also suggest significant put buying, however this could be ‘Put Hedge ‘ strategy adopted my many market participants in order to hedge their long future positions. The maximum put OI base in April stands at 2700 with 4.82 million shares whereas the largest call OI base is currently at 3000 with 2.71 million shares in OI. We feel that the 2700 level may stand as a strong support for Nifty in this series. Moreover, OTM call options have not witnessed any major call writing in last week and hence we advise participants not to go for higher OTM call writing at current levels
• The Nifty futures combined OI stands at 38.09 million shares wherein April OI stands at 37.24 million shares. Over the week, we have seen addition of 24.81 million shares in April futures OI accompanied with a 10.74% surge in Nifty price. In the expiry week, we observed significant long positions adding in April series. The rollover in the Nifty was at 69.61% wherein majority of them were long rollovers whereas Market-wide rollover stood at 77.04%. This also concludes that rollover in stocks is comparatively higher to Nifty. The April futures OI is near to the 4 crore mark, which is considered as a psychological level from where we could see some unwinding in OI. Once the Nifty crosses the 40 millions shares in OI in near month, participants are advised to book profit in their long positions. However, from the current levels we may see further upside in Nifty, possibly 3200 in near term
To see full report: DERIVATIVES 300309
■ The Nifty Spot has surged by 10.72% to close at 3108 from the previous week’s close of 2807
■ The total futures OI in the market stands at Rs 28682 crores whereas all options OI stands at Rs 27755 crores
Technical Outlook
• The Nifty closed 10.74% positive posting one of the biggest weekly gains. Nifty gained in all the five trading session in last week trade
• The Nifty has formed strong bull candle after breaking out above 2800 levels
• On the upside the Nifty is now testing 3150-3170 area where profit booking is expected
• On the downside good support appears around 2,950-2900 levels
• We expect the Nifty to trade in the range of 3200 – 2900 levels for the coming week
• The resistance remains at 3150 and 3200, whereas supports exist around 3000, 2920 levels
Derivative Outlook:
• The PCR-OI has moved from 1.59 to 1.51 mark after making a high of 1.96 on the expiry day. The sharp fall in PCR-OI on Friday is because of unwinding of huge put positions of March series. In the current series, addition of put OI is more than compared to call OI. In The April series, maximum addition of OI was registered in 2900 put which added 76108 contracts followed by 72499 contracts addition in 3000 put. The 2700 and 2800 puts added 44807 and 49802 contracts respectively. On the flip side, the maximum concentration of OI was seen in call options ranging from 3000 to 3200 wherein the 3200 call added 39148 contracts followed by 33597 contracts in 3100 call and 25485 contracts in 3000 call. With rise in IVs of these call options; we conclude that decent call buying was observed in these calls in last week. The rise in put IVs also suggest significant put buying, however this could be ‘Put Hedge ‘ strategy adopted my many market participants in order to hedge their long future positions. The maximum put OI base in April stands at 2700 with 4.82 million shares whereas the largest call OI base is currently at 3000 with 2.71 million shares in OI. We feel that the 2700 level may stand as a strong support for Nifty in this series. Moreover, OTM call options have not witnessed any major call writing in last week and hence we advise participants not to go for higher OTM call writing at current levels
• The Nifty futures combined OI stands at 38.09 million shares wherein April OI stands at 37.24 million shares. Over the week, we have seen addition of 24.81 million shares in April futures OI accompanied with a 10.74% surge in Nifty price. In the expiry week, we observed significant long positions adding in April series. The rollover in the Nifty was at 69.61% wherein majority of them were long rollovers whereas Market-wide rollover stood at 77.04%. This also concludes that rollover in stocks is comparatively higher to Nifty. The April futures OI is near to the 4 crore mark, which is considered as a psychological level from where we could see some unwinding in OI. Once the Nifty crosses the 40 millions shares in OI in near month, participants are advised to book profit in their long positions. However, from the current levels we may see further upside in Nifty, possibly 3200 in near term
To see full report: DERIVATIVES 300309
воскресенье, 29 марта 2009 г.
>Opening bell 30-3-09(ICICI Direct)
Key points
Market outlook — Open negative and trade negative
Positive — MF, FII buying, crude cooling off
Negative – Rupee weakening again, Asian markets
Market outlook
Indian markets are likely to open negative taking its cues from the
global markets. SGX Nifty was down by 65 points. We have witnessed
a brisk rally from the recent lows and we expect profit booking to
continue. The players would like to go light on positions ahead of the
important G 20 summit and hence we may witness pressure on the
market for the coming sessions as well. Our markets will closely watch
at the developments in US markets and the outcome of G 20 summit.
We advice not to take aggressive positions for the week unless we see
decisive break on either side of the band. Trading interest will be
witnessed in Reliance for the coming session or two because of the
gas production which is anticipated to start in a day or two.
To read full report Opening bell
Market outlook — Open negative and trade negative
Positive — MF, FII buying, crude cooling off
Negative – Rupee weakening again, Asian markets
Market outlook
Indian markets are likely to open negative taking its cues from the
global markets. SGX Nifty was down by 65 points. We have witnessed
a brisk rally from the recent lows and we expect profit booking to
continue. The players would like to go light on positions ahead of the
important G 20 summit and hence we may witness pressure on the
market for the coming sessions as well. Our markets will closely watch
at the developments in US markets and the outcome of G 20 summit.
We advice not to take aggressive positions for the week unless we see
decisive break on either side of the band. Trading interest will be
witnessed in Reliance for the coming session or two because of the
gas production which is anticipated to start in a day or two.
To read full report Opening bell
>KARVY BAZAAR BAATEIN
From 30 March'09 to 5 April'09
Cautious optimism in play…
The markets across the globe cheered last week as the Obama administration announced a detailed bank rescue plan to buy US$1 trillion worth of toxic assets from the country’s ailing fi nancial institutions. Moreover, a stream of better-than-expected economic indicators emanated from the US, raising hopes of an early global economic recovery. Accordingly, stock markets rallied spectacularly last week, with the BSE Sensex and the Nifty rising by about 12% and 11% respectively. In fact, this uptrend began much earlier on March 9, and since then, the Dow Jones, the BSE Sensex and the Nifty have risen more than 20%, underlining the cautious optimism that has seeped into the markets. The optimism is clearly shared by the FIIs, which have been net buyers worth Rs2,400 crore in the Indian markets during the same period. With the US bank rescue plan in place and recent indications that major banks had operated profitably in the first two months of 2009, global investors may believe the worst is over for US banks, even as economists fiercely debate over the effectiveness of the plan.
So what does the plan entail? Well, its objective is to rid banks’ balance sheets off toxic assets and illiquid loans, thereby enabling them to start lending once again. The Treasury, in conjunction with the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, announced the “Public–Private Investment Program” as part of its efforts to cleanse balance sheets across the financial system and ensure credit availability to households and businesses.
The Federal Government would use US$75-100 billion from the Troubled Asset Relief Program (TARP) and capital from private investors to generate US$500 billion in purchasing power to buy out troubled assets. The investment programme would have the potential to expand to as much as $1 trillion over a period of time, according to the US Treasury. The participation of long-term investors, such as individuals, pension plans, and insurance companies would be particularly encouraged. The “Public–Private Investment Programme” would be designed around three basic principles—maximizing the impact of each taxpayer dollar, shared risk and profits with private-sector participants, and private-sector price discovery.
Meanwhile, back home, the annual inflation was reported at 0.27% for the week-ended March 14. While, technically, we are close to deflation levels, there is little to indicate that we would undergo the pains of a typical deflationary scenario.
To see full report: KARVY BAZAAR BAATEIN
Cautious optimism in play…
The markets across the globe cheered last week as the Obama administration announced a detailed bank rescue plan to buy US$1 trillion worth of toxic assets from the country’s ailing fi nancial institutions. Moreover, a stream of better-than-expected economic indicators emanated from the US, raising hopes of an early global economic recovery. Accordingly, stock markets rallied spectacularly last week, with the BSE Sensex and the Nifty rising by about 12% and 11% respectively. In fact, this uptrend began much earlier on March 9, and since then, the Dow Jones, the BSE Sensex and the Nifty have risen more than 20%, underlining the cautious optimism that has seeped into the markets. The optimism is clearly shared by the FIIs, which have been net buyers worth Rs2,400 crore in the Indian markets during the same period. With the US bank rescue plan in place and recent indications that major banks had operated profitably in the first two months of 2009, global investors may believe the worst is over for US banks, even as economists fiercely debate over the effectiveness of the plan.
So what does the plan entail? Well, its objective is to rid banks’ balance sheets off toxic assets and illiquid loans, thereby enabling them to start lending once again. The Treasury, in conjunction with the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, announced the “Public–Private Investment Program” as part of its efforts to cleanse balance sheets across the financial system and ensure credit availability to households and businesses.
The Federal Government would use US$75-100 billion from the Troubled Asset Relief Program (TARP) and capital from private investors to generate US$500 billion in purchasing power to buy out troubled assets. The investment programme would have the potential to expand to as much as $1 trillion over a period of time, according to the US Treasury. The participation of long-term investors, such as individuals, pension plans, and insurance companies would be particularly encouraged. The “Public–Private Investment Programme” would be designed around three basic principles—maximizing the impact of each taxpayer dollar, shared risk and profits with private-sector participants, and private-sector price discovery.
Meanwhile, back home, the annual inflation was reported at 0.27% for the week-ended March 14. While, technically, we are close to deflation levels, there is little to indicate that we would undergo the pains of a typical deflationary scenario.
To see full report: KARVY BAZAAR BAATEIN
>TRADE WINDS (KARVY)
30 March 2009 to 05 April 2009
Five potential positives for our markets…
The worst financial crisis in the global economy is likely to present a wonderful opportunity for those who have the conviction and courage to participate in the markets using calculated risks. The unprecedented efforts by governments across the globe and the coordinated action by major central banks in the form of stimulus packages, tax cuts, reduction in interest rates, and infusing liquidity into the system were aimed at getting the global economy back on track. The actions are likely to pave the way for a recovery in the global economy as well as a rally in global stock markets.
The following are some of the key positive factors that could contribute to the rally in stock markets.
■ Increased government spending: The governments in major economies like the US, European Union, Japan, China and India have increased spending on infrastructure, which is likely to trigger demand in auto, cement, construction, and capital goods sectors. The measures announced by policymakers to revive the housing market are likely to bear fruit in the next few months and is likely to boost the positive sentiment in the markets.
■ Reduction in tax rates: The Indian government has taken several measures in the form of reduction in excise duty and service tax as a measure to stimulate demand in the country. The US fiscal package signed by Obama includes tax cuts for the middle-income group in an effort to boost the economy by leaving more money in the taxpayers’ hands.
■ Lower inflation and interest rates: The global economic slowdown has brought down inflation to all-time low levels. The fall in demand for crude oil, metals and other commodities has led to lower inflation across the globe. Inflation in India has come down to 0.27%, triggering concerns over the emergence of a deflation, although there is little to indicate that India will undergo the pains of a typical deflationary scenario.
■ Increased consumer confidence and spending: Consumer confidence will be boosted once the results of these stimulus packages reach the end-user. Also, credit availability at much lower interest rates to corporates will ensure timely ongoing expansion plans. The political stability in the US has brought clarity in regard to its policies. In India, too, clarity will emerge on various policies and economic issues once the new government is formed. A clear policy environment will improve and facilitate consumer confidence.
■ Growth in EPS and FII inflows: The above factors will enable companies to maintain profit margins and increase sales. This will lead to rise in net profit and EPS. The Sensex EPS growth will attract FIIs (foreign institutional investors), besides investments by DIIs (domestic institutional investors), such as mutual funds and insurance companies, which channelize the domestic savings into stock markets.
To see full report: TRADE WINDS
Five potential positives for our markets…
The worst financial crisis in the global economy is likely to present a wonderful opportunity for those who have the conviction and courage to participate in the markets using calculated risks. The unprecedented efforts by governments across the globe and the coordinated action by major central banks in the form of stimulus packages, tax cuts, reduction in interest rates, and infusing liquidity into the system were aimed at getting the global economy back on track. The actions are likely to pave the way for a recovery in the global economy as well as a rally in global stock markets.
The following are some of the key positive factors that could contribute to the rally in stock markets.
■ Increased government spending: The governments in major economies like the US, European Union, Japan, China and India have increased spending on infrastructure, which is likely to trigger demand in auto, cement, construction, and capital goods sectors. The measures announced by policymakers to revive the housing market are likely to bear fruit in the next few months and is likely to boost the positive sentiment in the markets.
■ Reduction in tax rates: The Indian government has taken several measures in the form of reduction in excise duty and service tax as a measure to stimulate demand in the country. The US fiscal package signed by Obama includes tax cuts for the middle-income group in an effort to boost the economy by leaving more money in the taxpayers’ hands.
■ Lower inflation and interest rates: The global economic slowdown has brought down inflation to all-time low levels. The fall in demand for crude oil, metals and other commodities has led to lower inflation across the globe. Inflation in India has come down to 0.27%, triggering concerns over the emergence of a deflation, although there is little to indicate that India will undergo the pains of a typical deflationary scenario.
■ Increased consumer confidence and spending: Consumer confidence will be boosted once the results of these stimulus packages reach the end-user. Also, credit availability at much lower interest rates to corporates will ensure timely ongoing expansion plans. The political stability in the US has brought clarity in regard to its policies. In India, too, clarity will emerge on various policies and economic issues once the new government is formed. A clear policy environment will improve and facilitate consumer confidence.
■ Growth in EPS and FII inflows: The above factors will enable companies to maintain profit margins and increase sales. This will lead to rise in net profit and EPS. The Sensex EPS growth will attract FIIs (foreign institutional investors), besides investments by DIIs (domestic institutional investors), such as mutual funds and insurance companies, which channelize the domestic savings into stock markets.
To see full report: TRADE WINDS
>South Indian Bank (BONANZA)
Company Background
Thrissur (Kerala) based South Indian Bank (SIB) is one of the earliest banks in South India, came into being during the Swadeshi movement in 1928. It is mainly a strong regional player in South India. The Bank has grown gradually steadly. Presently, it has a branch network of 537 branches (including 17 extension counters), all with CBS technology.
Highlights
• The bank has shown decent performance. Its profits have grown very well, from Rs.8.7 Crore in FY 2005 to Rs.153.39 Crore in FY 2008, a growth of 260% compounded. It has also shown very good improvement in Assets quality. Its Net NPA stand at 0.4% presently, down from 3.81% in FY 2005.
• SIB has been paying dividend regularly. At current price the dividend yield works out to be 6.5%, if dividend payout of Rs.3/Share is maintained.
• Bank gave 1 for 4 Bonus in Q3 FY 09.
• Bank has maintained its PLR at 16%. This should improve the net interest income for the bank.
• The bank has high capital adequacy ratio of 14.62%.
• SIB has good market share of large South India based NRIs and their families in India. It serves the niche market due to its decades old relations in specific regions. About 24% of bank’s business is from NRI market.
• SIB is a very good M&A target, due to no dominant promoter group and strong presence in South Indian market.
To see full report: SOUTH INDIAN BANK
Thrissur (Kerala) based South Indian Bank (SIB) is one of the earliest banks in South India, came into being during the Swadeshi movement in 1928. It is mainly a strong regional player in South India. The Bank has grown gradually steadly. Presently, it has a branch network of 537 branches (including 17 extension counters), all with CBS technology.
Highlights
• The bank has shown decent performance. Its profits have grown very well, from Rs.8.7 Crore in FY 2005 to Rs.153.39 Crore in FY 2008, a growth of 260% compounded. It has also shown very good improvement in Assets quality. Its Net NPA stand at 0.4% presently, down from 3.81% in FY 2005.
• SIB has been paying dividend regularly. At current price the dividend yield works out to be 6.5%, if dividend payout of Rs.3/Share is maintained.
• Bank gave 1 for 4 Bonus in Q3 FY 09.
• Bank has maintained its PLR at 16%. This should improve the net interest income for the bank.
• The bank has high capital adequacy ratio of 14.62%.
• SIB has good market share of large South India based NRIs and their families in India. It serves the niche market due to its decades old relations in specific regions. About 24% of bank’s business is from NRI market.
• SIB is a very good M&A target, due to no dominant promoter group and strong presence in South Indian market.
To see full report: SOUTH INDIAN BANK
>Macroeconomic Research (FIRST GLOBAL)
Food for Thought: Will the rate cuts help?
Benefits of earlier rate cuts yet to percolate down the system & help arrest economic slowdown…
Is the headroom from low inflation for further rate cuts merely theoretical…
The Story…
The Reserve Bank of India (RBI) has been on a rate-cutting spree, along with most other Central banks of the world. Lately, it has lowered its policy rates, the Repo rate (the rate at which RBI lends short-term funds to banks) and the Reverse Repo rate (the rate at which overnight funds are parked with it), under the Liquidity Adjustment Facility (LAF), each from 5.5% and 4% to their new levels of 5% and 3.5% respectively. Before the rate-cutting cycle started, the Repo and Reverse Repo rates were at 9% and 6% respectively. The RBI has maintained its status quo on the Cash Reserve Ratio (CRR), the amount of cash balances parked by banks with it as a percentage of the net demand and time liabilities, at 5% since the last cut by 50 bps.
The easing of RBI’s monetary policy began from October 2008 onwards and so far, it has slashed the Repo rate by 400 bps, the reverse Repo by 250 bps, and the CRR by 400 bps. The RBI’s key aim behind the cuts is to signal banks to lower their lending and deposit rates and shed their risk aversive approach by passing on the benefits of the easing of its monetary policy to the productive sectors in order to stimulate demand and increase confidence in the economy. The lowering of the reverse Repo rate lowers the incentive for banks to park their surplus funds with the RBI on its LAF window, as a result of which, banks are expected to cut their lending rates. Though banks have reluctantly reduced their PLR rates, with the benefits of these cuts have not really percolated down the system and arrested the economic slowdown, as evident from the continuous negative data coming in. In April’08-January’09, the IIP growth stood at 3%, which is almost one-third the growth of 8.7% recorded during the same period in same period in the previous year, due to the slowdown across all the key sectors. Exports have recorded a decline for four consecutive months from October 2008 to January 2009. Theoretically at least, the low wholesale price inflation provides the RBI with sufficient headroom to extend rate cuts in the absence of any fiscal measures during the code of conduct period.
■ The Inflation provided monetary policy cushion may be illusory : The WPI inflation is expected to touch 0% to a negative 1.3% by the end of March 2009 and shall remain negative till October- November 2009, mainly due to the double-digit base effect. While part of the reason for the discrepancy between the WPI and CPI is the lag effect, the differences in the basket weights are also to blame. Food inflation, for instance, remains fairly high even in the WPI basket. This means that an easy monetary policy may not be a costless proposition.
■ Bond yield movements: The RBI’s borrowings have already surpassed the targeted levels by 80% to Rs.2.61 trillion for FY09 vis-à-vis Rs 1.45 trillion in FY08. As a result, the long-term (20-year and 30-year) and medium-term (5-year and 10-year) G-secs have lost their attractiveness, based on the expectation of a deluge of G-secs entering the market in the coming months. Rate cuts and falling inflation alone cannot ensure a softening in the soaring medium and longterm G-sec yields and it is only consolation in the form of the RBI’s decision to purchase Gsecs under OMO that could provide the much-needed relief.
■ Key sectors that may benefit:
- Auto: The policy rate cuts will signal banks to provide cheaper finance to these segments in order to help stimulate consumption and help the ailing Auto sector. Hence, banks could further lower their lending rates for these segments.
- Banking: Instead of sitting on idle cash, banks can choose to lower their lending rates in the coming months and also reduce their deposit rates, primarily to improve margins. The trade-off here will depend on how the government bond rates move.
- Real Estate: Since the interest rates have already been reduced significantly, the possibility of a further cut in lending rates appears unlikely, unless banks lower their deposit rates from the current 8.5-9% level.
■ Conclusion: We maintain our view that another cut in the policy rates by the RBI is imminent, though the exact timing of these cuts cannot be predicted, as inflationary pressures will vanish in the next two months and provide more room for such rate cuts.
To see full report: MACROECONOMIC RESEARCH
>Hero Honda Motors (KARVY)
Way ahead of the competition....
Hero Honda Motors Limited (HHML) is the undisputed market leader in the domestic two wheeler industry with 48.6% share (59.4% market share in domestic motorcycle segment). We believe HHML would benefit from Bajaj Auto Ltd’s (BAL) change in strategy to focus on 125cc+ segment as the sub 125cc segment still accounts for majority of domestic sales volume. HHML has a strong presence in the rural and semi urban market which is expected to perform in the current economic slowdown. On back of margin improvement and tax benefits from the new plant the company is expected to continue its strong earnings growth for the next two years. We are optimistic about HHML's future prospect and therefore we initiate coverage on the stock with an Outperformer rating.
HHML to continue its dominance in the domestic motorcycle segment: HHML has a strong presence in the sub 125cc segment and is expected to further strengthen its position in this segment on back of BAL's shift in focus from the 100cc segment to the 125cc+ segment. HHML would take advantage of the benefits ushered to the rural economy through its strong rural distribution network and thereby survive the current difficult economic scenario. Furthermore, the company's higher dependence on cash sales (relative to its peers) would facilitate strong performance vis-à-vis its peers in the current high credit risk situation. Improvement in EBITDA margins: HHML's margin is expected to improve on account of cooling off of raw material prices and excise duty benefit. Major raw material like steel and aluminium which accounts for ~75% of the total raw material cost have been on a declining trend since the past few months. Due to lowering of excise duty by the government and excise duty exemption at Haridwar plant the effective excise duty is expected to come down significantly. We expect the company to report EBITDA margin of 13.8% and 14.0% for FY10E and FY11E respectively.
Haridwar plant to help boost bottom line: During FY09, HHML started production at its 0.5mn unit capacity plant at Haridwar (Uttaranchal). Haridwar plant offers various fiscal benefits which include 100% excise duty exemption for 10 years and 100% income tax exemption for the first 5 years and 30% for the next 5 years. Due to lower effective excise duty and lower effective tax rate, net profit is expected to grow at CAGR of 19% over FY08- FY11E as against 10.4% expected CAGR growth in revenues during the same period.
Valuations: HHML is the market leader in the Indian two wheeler space having presence in all the significant sub segments and categories. Better EBITDA margin and lower tax rate would help the net profit to grow strongly at a CAGR of 19% over FY08-FY11E. HHML is a debt free company having cash reserves of Rs27bn and the same is expected to double by FY11E. HHML enjoys strong return ratios with FY08 RoCE and RoE of 49.2% and 35.5% respectively. HHML is trading at 15.6x and 13.3x its FY10E and FY11E estimated earnings respectively. We initiate coverage on the stock with an Outperformer rating and value the stock at Rs1,250 (15.3x its FY11E EPS of Rs81.7). In our view, HHML’s high return ratios, strong balance sheet, double digit earnings growth, negative working capital cycle, positive net cash flow and huge cash reserves justifies the premium valuations assigned to the stock.
To see full report: HERO HONDA
Hero Honda Motors Limited (HHML) is the undisputed market leader in the domestic two wheeler industry with 48.6% share (59.4% market share in domestic motorcycle segment). We believe HHML would benefit from Bajaj Auto Ltd’s (BAL) change in strategy to focus on 125cc+ segment as the sub 125cc segment still accounts for majority of domestic sales volume. HHML has a strong presence in the rural and semi urban market which is expected to perform in the current economic slowdown. On back of margin improvement and tax benefits from the new plant the company is expected to continue its strong earnings growth for the next two years. We are optimistic about HHML's future prospect and therefore we initiate coverage on the stock with an Outperformer rating.
HHML to continue its dominance in the domestic motorcycle segment: HHML has a strong presence in the sub 125cc segment and is expected to further strengthen its position in this segment on back of BAL's shift in focus from the 100cc segment to the 125cc+ segment. HHML would take advantage of the benefits ushered to the rural economy through its strong rural distribution network and thereby survive the current difficult economic scenario. Furthermore, the company's higher dependence on cash sales (relative to its peers) would facilitate strong performance vis-à-vis its peers in the current high credit risk situation. Improvement in EBITDA margins: HHML's margin is expected to improve on account of cooling off of raw material prices and excise duty benefit. Major raw material like steel and aluminium which accounts for ~75% of the total raw material cost have been on a declining trend since the past few months. Due to lowering of excise duty by the government and excise duty exemption at Haridwar plant the effective excise duty is expected to come down significantly. We expect the company to report EBITDA margin of 13.8% and 14.0% for FY10E and FY11E respectively.
Haridwar plant to help boost bottom line: During FY09, HHML started production at its 0.5mn unit capacity plant at Haridwar (Uttaranchal). Haridwar plant offers various fiscal benefits which include 100% excise duty exemption for 10 years and 100% income tax exemption for the first 5 years and 30% for the next 5 years. Due to lower effective excise duty and lower effective tax rate, net profit is expected to grow at CAGR of 19% over FY08- FY11E as against 10.4% expected CAGR growth in revenues during the same period.
Valuations: HHML is the market leader in the Indian two wheeler space having presence in all the significant sub segments and categories. Better EBITDA margin and lower tax rate would help the net profit to grow strongly at a CAGR of 19% over FY08-FY11E. HHML is a debt free company having cash reserves of Rs27bn and the same is expected to double by FY11E. HHML enjoys strong return ratios with FY08 RoCE and RoE of 49.2% and 35.5% respectively. HHML is trading at 15.6x and 13.3x its FY10E and FY11E estimated earnings respectively. We initiate coverage on the stock with an Outperformer rating and value the stock at Rs1,250 (15.3x its FY11E EPS of Rs81.7). In our view, HHML’s high return ratios, strong balance sheet, double digit earnings growth, negative working capital cycle, positive net cash flow and huge cash reserves justifies the premium valuations assigned to the stock.
To see full report: HERO HONDA
>Bharti Airtel (MERRILL LYNCH)
Cutting margins; growth still strong
Earnings & PO cut by 4-10%; still offers strong growth - Buy
We have cut Bharti’s FY10E & onwards earnings by 4% & lowered our DCF-led PO to Rs715/sh (-10% vs earlier). Despite the PO and earnings cut, we believe Bharti remains one of the strongest growth stories in AsiaPac & offers ~20% YoY EPS growth potential at a PE of ~11x FY10E. This compares with local market PE valuation at ~11x FY10E for no YoY grwth expected & avg. AsiaPac-wireless PE of ~10x CY09E for ~3% YoY earnings fall. We expect Bharti to sustain ~15-20% LT earnings growth despite new competition.
Margin hit: USO deferral, lower termination, pot’l SMS cut
We have cut wireless FY10E-11E EBITDA margin by ~70bps vs earlier, to 30.1%. This reflects 1) reported deferral of USO concession by the government (assumed to be ~100bps for Bharti), 2) lower termination charges (10p cut) announced earlier (~40bps margin hit) and, 3) potential cut in roaming SMS tariffs (~30bps margin hit). These factors coupled with competitive pressures will likely offset the margin cushion (~100bps) from stable spectrum charges.
Government defers USO concession
As per media reports, today, the government has decided to defer the USO concession that was scheduled to apply from April 2009 onwards. Earlier, in Oct ’08, the government had announced 200bps concession in USO levy (part of licence fee) on achieving >95% coverage of a service area. We had assumed that Bharti would qualify for the concession in ~50-60% of its coverage area.
Revised estimates safe unless usage collapses
We think our FY10E earnings forecasts are safe as they imply virtually no usage elasticity (flat MoU/sub YoY) despite f’cast 12% decline in tariffs (rpm). Our industry feedback so far, post RCom’s GSM launch, suggests that tariffs are not seeing major pressure (-1-2% QoQ) & usage (MoU/sub) maybe down ~2-3% QoQ
To see full report: BHARTI AIRTEL
Earnings & PO cut by 4-10%; still offers strong growth - Buy
We have cut Bharti’s FY10E & onwards earnings by 4% & lowered our DCF-led PO to Rs715/sh (-10% vs earlier). Despite the PO and earnings cut, we believe Bharti remains one of the strongest growth stories in AsiaPac & offers ~20% YoY EPS growth potential at a PE of ~11x FY10E. This compares with local market PE valuation at ~11x FY10E for no YoY grwth expected & avg. AsiaPac-wireless PE of ~10x CY09E for ~3% YoY earnings fall. We expect Bharti to sustain ~15-20% LT earnings growth despite new competition.
Margin hit: USO deferral, lower termination, pot’l SMS cut
We have cut wireless FY10E-11E EBITDA margin by ~70bps vs earlier, to 30.1%. This reflects 1) reported deferral of USO concession by the government (assumed to be ~100bps for Bharti), 2) lower termination charges (10p cut) announced earlier (~40bps margin hit) and, 3) potential cut in roaming SMS tariffs (~30bps margin hit). These factors coupled with competitive pressures will likely offset the margin cushion (~100bps) from stable spectrum charges.
Government defers USO concession
As per media reports, today, the government has decided to defer the USO concession that was scheduled to apply from April 2009 onwards. Earlier, in Oct ’08, the government had announced 200bps concession in USO levy (part of licence fee) on achieving >95% coverage of a service area. We had assumed that Bharti would qualify for the concession in ~50-60% of its coverage area.
Revised estimates safe unless usage collapses
We think our FY10E earnings forecasts are safe as they imply virtually no usage elasticity (flat MoU/sub YoY) despite f’cast 12% decline in tariffs (rpm). Our industry feedback so far, post RCom’s GSM launch, suggests that tariffs are not seeing major pressure (-1-2% QoQ) & usage (MoU/sub) maybe down ~2-3% QoQ
To see full report: BHARTI AIRTEL
>Alpha Bet Strategy (KOTAK SECURITIES)
Switching it on. We initiate four new trades-(1)long RIL, short GAIL on positive catalysts for one versus none for the other, (2)long REC, short PEC on lowering of valuation differential, (3) long Ultratech cements, short ACC on market share gains, cost leverage and valuations and (4)long IBREL, short DLF on contrasting business developments.
■ Trade 1: Long RIL, Short GAIL-Relative potential triggers in the near team
We recommend a long Reliance Industries(RIL), short GAIL pair trade given relative catalysts for the stocks which will determine the performance on the near term. We see potential triggers for RIL on account of (1)availability of income tax exemption for gas production, (2)availability of gas for internal consumption and (3)disclosure of reserves. We do not see any positive triggers for GAIL in the near term, which will result in muted stock performance.
■ Trade 2: Long Ultratech, short ACC-Growth for a song
We recommend a long Ultratech Cements, short ACC pair trading offering 10% returns on the following-(1) unjustified valuation premium of ACC trading at US$87/ton on FY2010E production relative to US$77/ton for Ultratech; (2)declining market share of ACC versus gains for Ultratech and (3)cost leverage available from switch over to coal-based captive power plants will reflect in better March 2009 quarter performance versus ACC.
■ Trade 3: Long REC, short PFC-Valuation differential to narrow
We recommend a pair trade of long Rural Electrification Corporation(REC) and Short Power Finance Corporation(PFC) based on the 20% valuation gap between the two despite the two superior ROE profile of REC. REC trades at 1X FY2010E PBR versus 1.2X PBR for PFC.
■ Trade 4: Long IBREL, short DLF-Contrasting business developments
We recommend a pair trade of long India Bulls Real Estate(IBREL) and short DLF on account of (1) IBREL trading a higher discount(52%) to the NAV versus DLF(42%); our comfort on NAV of IBREL is higher, (2) leasing concerns of INREL's Mumbai commercial properties will reduce in the near term while business concerns for DLF will persist for atleast three quarters and (3) we expect weak March 2009 quarter performance from DLF.
To see full report: ALPHA BET STRATEGY
■ Trade 1: Long RIL, Short GAIL-Relative potential triggers in the near team
We recommend a long Reliance Industries(RIL), short GAIL pair trade given relative catalysts for the stocks which will determine the performance on the near term. We see potential triggers for RIL on account of (1)availability of income tax exemption for gas production, (2)availability of gas for internal consumption and (3)disclosure of reserves. We do not see any positive triggers for GAIL in the near term, which will result in muted stock performance.
■ Trade 2: Long Ultratech, short ACC-Growth for a song
We recommend a long Ultratech Cements, short ACC pair trading offering 10% returns on the following-(1) unjustified valuation premium of ACC trading at US$87/ton on FY2010E production relative to US$77/ton for Ultratech; (2)declining market share of ACC versus gains for Ultratech and (3)cost leverage available from switch over to coal-based captive power plants will reflect in better March 2009 quarter performance versus ACC.
■ Trade 3: Long REC, short PFC-Valuation differential to narrow
We recommend a pair trade of long Rural Electrification Corporation(REC) and Short Power Finance Corporation(PFC) based on the 20% valuation gap between the two despite the two superior ROE profile of REC. REC trades at 1X FY2010E PBR versus 1.2X PBR for PFC.
■ Trade 4: Long IBREL, short DLF-Contrasting business developments
We recommend a pair trade of long India Bulls Real Estate(IBREL) and short DLF on account of (1) IBREL trading a higher discount(52%) to the NAV versus DLF(42%); our comfort on NAV of IBREL is higher, (2) leasing concerns of INREL's Mumbai commercial properties will reduce in the near term while business concerns for DLF will persist for atleast three quarters and (3) we expect weak March 2009 quarter performance from DLF.
To see full report: ALPHA BET STRATEGY
>KEC International Ltd. (RELIANCE MONEY)
Encouraging domestic order inflow during Q4FY09
During the 4th quarter of FY09, KEC International Ltd (KEC) has seen addition of seven significant orders largely from domestic markets. The management earlier in post Q3FY09 results conference call had indicated the company intended to increase focus in domestic market. In Q4FY09 KEC received domestic orders to the tune of ~Rs.12.5bn as against Rs.11bn in Q3FY09 (out of which Rs.8.8bn were export order). We remain impressed with the order inflow and remain confident about earnings for FY09E and FY10E. But the major risk we foresee is possibility of lower order inflow during Loksabha election period.
Easing of input material cost and interest rates
The key input raw materials like steel, copper, aluminum etc have corrected significantly from the highs during 1st Quarter of FY09. Steel Billets prices have fallen by 24.5% from the high of Rs.40025/Tonne during April’08 to Rs.30200/ Tonne in Feb’09. Similarly RBI has cut repo and reverse repo rates for three times during last 6 months which has resulted in reduction in interest rates by most of the banks. We expect the company will able to improve its profitability with these positive developments.
Order inflow uncertainty foreseen during 1st Half of FY10E
As 15th general elections are near the corner, the first half of FY10E is expected to be muted in terms of new order inflow both from state and central utilities due to funding arrangement and other regulatory issues.
Well equipped to compete in current scenario
Domestic market is likely to witness high competition and due to which the margins are likely to come under pressure, which is expected to intensify further as bigger players like BHEL are also expected to enter the market. We believe KEC is better equipped with its planned tower capacity of 200,000 MT and established execution skills for this competitive scenario.
Business Outlook and Valuation
KEC currently has a healthy estimated outstanding order book position of ~Rs.54.5 bn. We continue to remain cautious in terms of new order inflow from international market as well as domestic market during the 1st half of FY10E. At current market price of Rs.144, the stock is currently trading at P/E of 4.2x and EV/EBITDA of 3.9x of its FY10E earnings. We maintain our HOLD recommendation on the stock with target price of Rs.147.
To see full report: KEC INTERNATIONAL
During the 4th quarter of FY09, KEC International Ltd (KEC) has seen addition of seven significant orders largely from domestic markets. The management earlier in post Q3FY09 results conference call had indicated the company intended to increase focus in domestic market. In Q4FY09 KEC received domestic orders to the tune of ~Rs.12.5bn as against Rs.11bn in Q3FY09 (out of which Rs.8.8bn were export order). We remain impressed with the order inflow and remain confident about earnings for FY09E and FY10E. But the major risk we foresee is possibility of lower order inflow during Loksabha election period.
Easing of input material cost and interest rates
The key input raw materials like steel, copper, aluminum etc have corrected significantly from the highs during 1st Quarter of FY09. Steel Billets prices have fallen by 24.5% from the high of Rs.40025/Tonne during April’08 to Rs.30200/ Tonne in Feb’09. Similarly RBI has cut repo and reverse repo rates for three times during last 6 months which has resulted in reduction in interest rates by most of the banks. We expect the company will able to improve its profitability with these positive developments.
Order inflow uncertainty foreseen during 1st Half of FY10E
As 15th general elections are near the corner, the first half of FY10E is expected to be muted in terms of new order inflow both from state and central utilities due to funding arrangement and other regulatory issues.
Well equipped to compete in current scenario
Domestic market is likely to witness high competition and due to which the margins are likely to come under pressure, which is expected to intensify further as bigger players like BHEL are also expected to enter the market. We believe KEC is better equipped with its planned tower capacity of 200,000 MT and established execution skills for this competitive scenario.
Business Outlook and Valuation
KEC currently has a healthy estimated outstanding order book position of ~Rs.54.5 bn. We continue to remain cautious in terms of new order inflow from international market as well as domestic market during the 1st half of FY10E. At current market price of Rs.144, the stock is currently trading at P/E of 4.2x and EV/EBITDA of 3.9x of its FY10E earnings. We maintain our HOLD recommendation on the stock with target price of Rs.147.
To see full report: KEC INTERNATIONAL
суббота, 28 марта 2009 г.
>Nifty changing to free float method (KR CHOKSEY)
Proposed changes in Nifty composition
The National Stock Exchange (NSE) has announced that it will switch to a free float market capitalization methodology for calculating the value of the S&P CNX Nifty against the full market capitalization weighted methodology used at present. The new formula will come into effect from June 26, 2009.
Our Key Findings
• Weightage of a stock in the Nifty will be proportional to the public shareholding (non-promoter holding – free float market capitalization method)
• Till now, the weightage was proportional to the market capitalization of the company. So, a company with low public shareholding, but high market capitalizations used to have a higher weightage. This is set to change.
To see full report: NIFTY
>INDIA ECONOMICS (Morgan Stanley)
Road Infrastructure Development – Taking Stock of Progress
Infrastructure spending – critical in the current economic environment: In the current domestic growth environment, while the private business capex is likely to suffer, we believe that the government’s effort to push infrastructure spending will be critical. Within the infrastructure segments, we believe the roads spending is the most important considering its strong multiplier
effect.
Tardy progress in development of roadways over the last few months: Of the total 33,097km planned, only 10,858km had been completed as of February 2009. About 50% of roads tenders have yet to be awarded. According to the monthly data released by NHAI, not a single project was awarded between August 2008 and January 2009 even though there was some pick up in the month of February 2009.
Three key reasons for this poor performance: (a) funding constraints for the private sector on account of deteriorating global and domestic credit markets as well equity markets; (b) change in regulations related to public-private partnership contracts, which has added some uncertainty for the private bidders; (c) typical execution hurdles including land acquisition, removal of
existing structures, and getting the environmental and forest clearances.
Bottom line: We believe that the progress on road development is likely to be tardy until the end of 2009. The new cabinet, which should be in place by June 2009, will need to spearhead this spending and, if need be, take the financial risk on its own balance sheet for such investments as the private sector could remain shy.
To see full report: INDIA ECONOMICS
Infrastructure spending – critical in the current economic environment: In the current domestic growth environment, while the private business capex is likely to suffer, we believe that the government’s effort to push infrastructure spending will be critical. Within the infrastructure segments, we believe the roads spending is the most important considering its strong multiplier
effect.
Tardy progress in development of roadways over the last few months: Of the total 33,097km planned, only 10,858km had been completed as of February 2009. About 50% of roads tenders have yet to be awarded. According to the monthly data released by NHAI, not a single project was awarded between August 2008 and January 2009 even though there was some pick up in the month of February 2009.
Three key reasons for this poor performance: (a) funding constraints for the private sector on account of deteriorating global and domestic credit markets as well equity markets; (b) change in regulations related to public-private partnership contracts, which has added some uncertainty for the private bidders; (c) typical execution hurdles including land acquisition, removal of
existing structures, and getting the environmental and forest clearances.
Bottom line: We believe that the progress on road development is likely to be tardy until the end of 2009. The new cabinet, which should be in place by June 2009, will need to spearhead this spending and, if need be, take the financial risk on its own balance sheet for such investments as the private sector could remain shy.
To see full report: INDIA ECONOMICS
>Gem Trading Note (MERRILL LYNCH)
Inflection Points & Trades
Three big inflection points for markets in past 9-12 months
- July 3rd ECB hikes rates (possibly one of great policy blunders of recent years); commodity prices peaked the very same day (Baltic Freight, Euro, inflation expectations peak same time); EM equities start to underperform as global growth expectations fall.
- Sept 15th bankruptcy of LEH; initiates de-leveraging and vicious collapse in EM equities/currencies as growth expectations/risk appetite sinks and US dollar surges.
- November 10th announcement of big Chinese fiscal stimulus; CRB troughs vs. S&P500 and EM starts outperforming again as global growth expectations find a floor. Chart 1 tells the tale...
Play a recovery in risk appetite
Last week's Merrill Lynch Fund Manager Survey showed a distinct gap between (recovering) growth expectations and (rock-bottom) risk appetite. But risk appetite turned up in the past week due to a) US/UK/Swiss/Japanese Quantitative Ease (QE) and b) US financial policy (PPIP) to reduce toxic assets. QE has caused a bounce in risk appetite. A genuine inflection point for risk (following bounce in growth expectations) would see:
1. Asset allocation by pension funds out of bonds into equities
2. Outperformance from banks, Europe & EMEA
3. Euro-yen taking out 200mda @ 138
4. 30-year US Treasury yields moving above 4%
5. Rise in US breakeven inflation rates which have strong correlation with many risk assets (e.g. Brazilian real – Chart 2)
Trades…
MSCI EM index target is 650-700 or EEM at $28. Long Russia, China, Brazil our favored ways to play the story in EM
FMS highlighted improvement in risk appetite most positive for EMEA, Korea, Poland, banks, industrials, materials in EM
The trade ends when/if growth rollover later in spring (watch BDIY, China Ashares, China PMI, G7 demand, trade, housing and so on)
To see full report: GEM TRADING