>INDIA EQUITY STRATEGY (JP MORGAN)

MONSOON WOES

• Monsoon – off to a weak start: YTD seasonal rainfall is 45% below normal. The Met department has indicated that the weakness could continue over the next week. It is early days yet, as June typically accounts for only 20% of the total south west monsoon. But a recovery over the next month is critical, in our view.

• Economic significance has decreased, but is still meaningful: Structurally the importance of agriculture as a percentage of GDP has decreased over the past few decades, from nearly 50% in the early 1970s to about 17% now. But the monsoon is still important for the farm sector, as nearly 60% of India’s agriculture is rainfall-dependent.

• Adverse impact on sentiment: Nearly 60% of India’s population lives in rural areas. Although they do not derive their entire livelihood from agriculture, the sentiment impact of the monsoon on private sector consumption cannot be underestimated. Also, in the recent past, rural India has been driving consumption growth on the back of various government stimuli. This segment is vulnerable to a pull back.

• Consumption underperforms: An analysis of weak monsoons over the past indicates that the earnings impact has been mixed due to various offsetting factors. But consumption-related sectors, i.e. staples, discretionary and telecom, typically underperform both over the July-Sept quarter and the fiscal year in which the monsoon has been weak. We have been cautious on the telecom sector since the beginning of the year and have had an underweight stance on the staples sector over the
last two months. Our overweight stance on the discretionary sector would, however, be vulnerable if the monsoon weakness persists.

To see full report: INDIA EQUITY STRATEGY

>INDIAN INFRASTRUCTURE (JP MORGAN)

Time to put money to work

• Stocks have run up - what next? An infrastructure-focused stable government and return of funding appetite have caused a 15%-72% rally in infra names over the last one-month. Our top picks at this time are: 1) stocks where there is more to look forward to, despite the run-up (eg: RELI, remains OW with new PT of Rs1,500), 2) laggards where potential catalysts are not priced in (eg: TPWR, upgraded to OW with new PT of Rs1,270), and 3) Mid-caps with substantial valuation arbitrage (e.g.: Crompton Greaves, upgraded to OW with new PT of Rs300). L&T, our preferred capital goods pick, appears fairly valued from an absolute perspective but we believe it will continue to outperform BHEL.

• Valuations in line with historical averages While valuation multiples for this sector have recovered from the Jan-09 abyss, they are far from the scary zone of Sep-Dec-07, and more in-line with historical averages. An unprecedented phase of investment-friendly stable government, coupled with the fact that projects which were quite nascent 2 years back have made silent progress, should provide valuation support to infra names, in our view. Amongst infra subsectors, we believe power and infra conglomerates will likely outperform their cap goods counterparts, as dormant projects turn value-accretive.

• 12 catalysts and 12 ministers: Our ‘catalyst scorecard’ in this report tabulates 12 major expected events over the next 12 months and impact on our stocks’ earnings / valuations. Our politics scorecard describes 12 key ministers who would influence infra spending, and the changes they would bring. The government would continue its relentless focus on power, in our view, and we see catalysts in the form of new project announcements, funding tie-ups, faster clearances for dormant projects, bulk tendering of supercritical equipment, nuclear ordering and pick-up in T&D investments. With the Left now out of the government, the UPA may want to improve its track record in stake divestures, private infra projects and non-power infra areas: thus we see road BOTs and airport privatizations picking up pace.

To see full report: INDIAN INFRASTRUCTURE

>GMR INFRASTRUCTURE LIMITED (JP MORGAN)

Forex loss re-classification leads to better than expected results, maintain Neutral

• GMRI reported FY2009 PAT of Rs2.8B (up 33%) vs. our estimate of Rs1.7 B. Results were better than expected due to 1) exchange loss of Rs1.8B for FY09 now directly added to the cost of assets, vs. earlier policy of charging through P/L and 2) sharp improvement in revenue and EBIT from construction activities, as GMRI has begun to recognize profits on its construction JV with Limak, for building the Sabiha airport. Profits of airport and power segment trailed estimates: power EBITDA was lower than estimated mainly due to lower-than-expected utilization of Vemagiri plant.

• The key constituents of our Mar-10 SOP-based PT of Rs150 are a) airports – Rs56, b) real estate – Rs28, c) power, incl Intergen – Rs51 and d) roads, net cash and coal mines: Rs15. While a stable government and return of funding appetite provide a stronger basis to view infra names
favorably, superior execution track record of the GMR group provides reason to view its development pipeline with less skepticism. In case of GMRI, a conducive policy and funding environment could add Rs17.7 to our SOP from 2.4GW power projects in the works. Improved real estate sentiment and concrete development plans could add a further Rs63, as our current valuation is conservative.

• The stock appreciation of GMRI seems to have already captured some of these positive tailwinds. GMRI trades at 19.4x FY11 EV/EBITDA, which already builds in 43% EBITDA CAGR through FY11. Thus, we maintain Neutral. Sharp improvement in real estate sentiment, coupled with faster-than-expected progress on the project development pipeline, constitute the key upside risks to our PT. As our growth estimates factor in further user charge increases at Delhi airport, regulatory disapproval is the key downside risk to our FY11 earnings and our PT as well.

To see full report: GMR INFRASTRUCTURE

>TATA POWER (JP MORGAN)

CONSOLIDATED RESULTS IMPACTED BY GOODWILL WRITE-OFF - ALERT

• Tata Power reported consol. PAT of Rs12.6B, lower than our estimate of Rs16.8B – the variance arose from: (1) goodwill impairment charge of Rs2.8B that the company decided to take on its overseas coal mining subs, and (2) prior period tax liabilities of coal mining subs – Rs1.91B. Management stated in its conference call that this additional tax liability pertains to the period before TPWR took a stake in the coal mines: thus, Bumi would reimburse the amount as agreed (Rs2.15B totally incl other adjustments).



• Electrical business EBIT at Rs13.9B (up 16%) was in-line with estimate, and the growth largely came from 100% consolidation of Delhi distribution (treated as JV in FY08). Even though NDPL PAT declined 40% as a result of a one-time depreciation reimbursement of Rs2.25B in FY08, NDPL managed to earn Rs790M incentives by surpassing its loss reduction targets.



• Coal segment EBIT registered a sharp 272% increase, due to strong contracted coal prices, coupled with the 12-month consolidation vis–a-vis 9- months in FY08. The reported EBIT of Rs14.6B corresponds to our estimated EBIT of Rs17.5B (based on Bumi IJ’s reported nos) less goodwill impairment charge. The write-off came as a surprise to us, because we believe the coal mines are worth more than what the company has paid for, reflected in its book value.



To see full report: TATA POWER

>RELIANCE INDUSTRIES LIMITED (JP MORGAN)

KG D3, D9 - Hardy Update - ALERT

• Technical Evaluation report from GCA: Hardy Oil (10% stake holder in KG D3 and D9) released a technical evaluation report by Gaffney, Cline & Associates (GCA) on resource estimates for KG D3 and D9 blocks. Risked resource data on both blocks indicate increase in resource estimates and higher Geological Chance of Success (GCoS) indicating higher probability of a prospect's drilling leading to a discovery.

• KG D3: GCA’s resource estimation based on identified prospects and leads for KG D3 block is 5.5TCF (unrisked) and 2.5 TCF (risked) with a 45% GCoS (chance of success), higher than 15-25% GCoS indicated earlier (GCA estimate May 2007). Additionally, GCA conducted a playbased exploration methodology estimate for resources to address both the current prospect inventory and the “yet to find” resource potential, the study indicates 9.5TCF of risked prospects.

• KG D9: Risked resource estimate for KG D9 is 10.8TCF, with unrisked resource estimate of 54TCF, up from 45TCF declared earlier (GCA estimate May07), leading to a 22% increase in unrisked prospects. Also, the GCoS (chance of success) has increased to 20% from 15% earlier.

• Drilling in 2HCY09 and CY10: For KG D3 (where two gas discoveries have been made), 2D data acquisition would be done till 1H09 with 4 exploration wells planned to be drilled in CY10, and for KG D9, exploratory drilling is planned in 1H09.

• Positive data point: The GCA ratification of high prospectivity in other blocks is positive for sustainability of RIL’s E&P business and valuation.

To see full report: RIL

>SIEMENS INDIA (JP MORGAN)

Areva's T&D in play - Siemens in the fray - ALERT

• Siemens AG has joined the fray to acquire Areva’s T&D unit, which is reported be in play, over the last month (Source: Bloomberg). Joe Kaesar, CFO of Siemens, said yesterday that it would look at Areva’s PT&D unit if approached by the latter. Schneider and Alstom are the other companies reported to be keen on Areva T&D. See J.P. Morgan European Capital goods analyst, Andreas Willis’ report dated May 13, 2009, analysing the potential acquisition.

• Areva T&D India – large, fast-growing and profitable: 1) Areva T&D reported sales of Rs26.5B and PAT of Rs2.3B in CY08. Over the past 3 years, the company has clocked a tremendous pace of growth, with 45% CAGR in revenues and 84% CAGR in PAT, much faster than its peers. 2) Areva has a transformer capacity in excess of 20,000MVA, making it one of the largest players by installed capacity in India. Areva has been growing its manufacturing capacities and investments in India. 3) Areva clocked an EBITDA margin of 15.4%, making it the most profitable T&D player. 4) Areva has a strong OB at Rs40B and it has been particularly successful amongst private IPPs.

• Implications for Siemens India in the event of a successful acquisition: 1) Larger capacity and market share: While Siemens is a long-established player in India vis-à-vis Areva, we believe an addition of Areva’s portfolio would make it a dominant player far ahead of ABB and Crompton Greaves. It would also provide newer manufacturing plants to Siemens and improve profitability. 2) Potential cost savings and synergies due to common customers and manufacturing facilities. 3) Price paid by Siemens Ltd for the local purchase would be a key point of evaluation. Andreas estimates the potential deal value at €4B for the whole unit. 4) Siemens Ltd has a strong balance sheet and is comfortably placed to fund the acquisition out of cash and additional leverage, in our view. Siemens has never done a domestic equity issuance in India. 5) Concerns will remain whether the local sub will get a fair deal.

To see full report: SIEMENS INDIA

>EQUITY STRATEGY (JP MORGAN)

Trigger to reduce risk is missing; earnings momentum and quality to re-emerge as drivers of stock selection

On the heels of one of the sharpest market rebounds ever, the widely expected correction could even be seen as healthy. However, we believe the following points still hold:

• Asset Allocation: One should remain OW stocks and be buying the dips. Provided that the macro dataflow does not begin to disappoint again, we believe that the technical headwinds and the profit-taking will be transitory. The more “fundamental” trigger to take some risk off the table, in our view, would be when data confirms economic stabilisation. For example, when or if we get the first few ISM prints above 50, the “2nd derivative” story will be over, as per the table on the right.

• Still underweight bonds and cash: Even though the potential inflation end game is probably overly discounted for now, government bond yields could continue to grind higher, reflecting better data flow momentum, and this should be taken positively by stocks. In addition, just through income generation alone, equities are beating both cash and bonds.

• Sectorwise, Cyclicals have lost a chunk of their performance in the past few days, but this is on the back of a dramatic recent run. We believe there will be one more leg of cyclicals performance and think it would be a mistake to start wholesale rotation into Defensives now.

• At stock level, low-quality names did very well during the rally (broadly defined as the most leveraged, the biggest underperformers, lower ROE and “value” stocks). The fundamental factors, such as earnings momentum, did badly, actually showing an inverse correlation with stocks’ relative performance.

• As volatility edges lower, we believe this will start to change, and we expect investors to become more selective, looking for “higher quality” stocks. In addition, we see earnings momentum becoming an important positive driver of relative stock performance again with the stocks of companies showing upgrades to earnings starting to outperform.

• In the report, we screen for the stocks that have underperformed in the latest rally but have seen outright EPS upgrades or have higher ROE than their peer group.

To see full report: EQUITY STRATEGY

>STRATOSCOPE (JP MORGAN)

Election 2009 - All's well, that ends well

• Decisive mandate to UPA. Results to the National elections, declared yesterday, represent the best possible outcome for the equity markets. The ruling UPA coalition has got a decisive mandate and the Indian National Congress is placed in a dominant position within the coalition. This consolidation of power, in favor of a mainstream political party, should pave the way for decisive policy reforms across different segments of the economy, unhindered by coalition considerations.

• Economy will be the key priority. The new Government has its task cut out. Minimizing the impact of the global shock to the economy, kick starting the investment cycle and sustaining social spending will be key focus areas. These initiatives will require balancing short-term fiscal
support with medium-term consolidation. A relatively light state level election calendar over the immediate term should enable to take tough decisions early in the tenure.

• Market outlook – euphoria, followed by consolidation. Equity markets are likely to gap up 7-10% on Monday morning and the tailwind from improved sentiment will likely sustain over the immediate term. Subsequently the markets could go into consolidation mode as investors
await the Government’s initiatives. A rush of equity issuances in the short term to benefit from the improved sentiment is to be expected. But we expect the markets to structurally re-rate over the medium term, given the policy freedom available to the Government to pursue reforms.

• Portfolio stance – tank up on local growth. With a stable Government in place, we believe business confidence will look up and the prospects of fiscal consolidation will improve. We are going Overweight the investment cycle and adding to our positive stance on Financials. We are
also upgrading Telecom from Underweight to Neutral and are retaining an Overweight stance on Consumer Discretionary. We are funding the above by reducing Consumer Staples and Healthcare from Neutral to Underweight and reducing IT services from Overweight to Neutral.

To see full report: STRATOSCOPE

>Info Edge Ltd. (MORGAN STANLEY)

Mar09 Results In-line; Outlook Remains Muted for 1HFY10; Maintain UW

Quick Comment – Impact on our views: Management expects Q1-Q2FY10 to be difficult and expects recovery in the second half of the year. Till then, management hopes to continue working on reducing costs and tightening the operational expenses. Management indicated that its job index might remain close to the bottom seen in Dec08 and may not move meaningfully
higher or lower over the coming months. We believe, if the current pace of revenue decline continues, revenues could disappoint in FY10e. However, management’s ability to cut advertising expenses and employee costs could help cushion the downside to earnings.

Mar09 results: Info Edge reported revenues of Rs577m (-2.1% qoq, -11.2% yoy) significantly below our estimates. EBIT margins were better than expected due to aggressive cost cutting efforts: staff costs down -14% qoq, -2%yoy and ad expenses down -7% qoq, -45% yoy. Lower sales incentive and fewer employees led to lower employee cost in Q409. For FY09 advertising expenses were down -10% yoy. Net income at Rs138m (-20%qoq, -11%yoy) was below our estimates.

Conference call highlights: 1) Hiring in IT accounts for ~26% of revenues. It continues to remain a challenging segment as IT companies have been slow in hiring; 2) Pricing remains a challenge for high value products and the company has not raised prices; 3) Clients are not certain of the future but are hopeful of improvement from October onwards; 4) Management expects its Naukri business to be a lead indicator to the overall economic recovery; and 5) Real estate business all check deals was hived off into a separate subsidiary.

Valuation: Info Edge stock currently trades at 26x FY09 EPS for declining earnings in FY10e. We maintain our UW rating on the stock and in the absence of any near term triggers, we would expect the stock tounderperform over the coming quarters.

To see full report: INFO EDGE

>HDFC {Housing Development Finance Corporation} JP MORGAN

4Q09: Positive surprises - ALERT

• HDFC surprises positively on 4Q numbers with the bottom line at Rs7334mn, 11% above our and Street estimates, reporting 16% growth at the pretax, pre-extraordinary level.

• Hence the stock was up a significant 13.8%% today and has outperformed the Sensex by 22.6% since its recent lows in March.

• 4Q09: Retail and wholesale disbursement growth was healthier than expected at 17% firm spreads at 2.2%. Cost-income ratio continues to improve and so does asset quality.

• Demand dynamics: Consumer and wholesale demand expected to grow 18-20% in FY10E with average loan size at Rs1.5 million. Boost expected in 2H10E as real estate prices and interest rates bottom out.

• Valuations: Stock trades at 3.6x FY10E book. Momentum appears to be swinging back in favour of retail asset-led and wholesale liability-led financial intermediaries. Reiterate Overweight.

To see full report: HDFC

>India Equity Strategy (JP MORGAN)

Color of Money - Tracking Institutional Ownership

• Bulls retain momentum. Most indicators of investor sentiment and activity remained positive over the last month. These include trading values and volumes, institutional activity and outstanding positions in the F&O segment. FIIs bought equities aggregating US$1.3 bn. Selling by insurance companies (US$157 mn), after 17 consecutive months as buyers, was a weak data point though. Also, inflows into both local mutual funds and insurance schemes remain weak.

• Insider activity. Insider activity picked up over the month, skewed towards the buy side.

Net buys: Jaiprakash Associates, Jindal Steel, GMR and M&M
Net sell: Kotak Mahindra Bank

• New Pension Scheme launched. The much awaited New Pension Scheme (NPS) was launched in early May by the government. The key objective of the scheme is to provide low cost, long-term savings options, for the large number of unorganized sector employees (90% of the workforce). The NPS should over a period of time help enhance the flow of domestic savings into the equity markets.

• Rates market – liquidity surge sustains. Liquidity in the overnight inter-bank market remains near all-time highs. Subsequent to the RBI cutting benchmark interest rates by 25 bps, the yield curve has shifted meaningfully south and steepened over the month. Improvement in liquidity and sentiment is also reflected in the sustained easing in commercial paper rates and the spread between corporate and government bonds.

• Special focus – Quarterly changes in Institutional ownership: Latest data released for the March 2009 quarter indicates that FIIs and insurance companies have been adopting a more aggressive portfolio stance and cutting back on defensive sectors. Local mutual funds, on the other hand, have been increasing their exposure to defensive sectors. We have been overweight Autos, Cement, Financials and IT services over the last two quarters and underweight telecoms and global cyclicals.

To see full report: EQUITY STRATEGY

>Cognizant (JP MORGAN)

1Q First Look- Strong 1Q, 2Q Guidance Should Ease Concerns on 10+% FY09 Growth Guidance - ALERT

CTSH reported better than expected revenue in 1Q09, and reiterated its FY09 revenue growth guidance of 10%+. More importantly 2Q09 guidance of $760M+ was also ahead of our above consensus expectations, and implies an achievable ~3% sequential growth in the back half of 2009. We think overall results and guidance should ease concerns over achievability of CTSH’s FY10 growth rate. Expected stock reaction: mild positive, despite the recent stock run (up 38% YTD vs. S&P 500 up 0.4%). We continue to prefer it relative to peers given its premium growth. Call at 10:00 AM Eastern, 800-374-0467.

• 1Q09 revenue beat. Actual $746M; JPM Est.: $739M, Consensus: $734M; Guidance: “at least $735M”. Revenue grew at a very solid 16% rate y/y and (1%) q/q, despite a ~1% q/q currency related drag on 1Q growth (JPMe) and continued macro deterioration during the quarter. As a comparison, offshore peers posted revenue declines of (7%)-(4%) q/q on organic basis during 1Q.

• In-line EPS. Actual $0.38; JPM Est.: $0.38; Cons.: $0.37; Guidance: $0.37-$0.38. Relative to our model, $0.02 in operating beat was offset by below-the-line FX loss in other income ($0.01) and lower interest income ($0.01).

• FY09 and 2Q09 growth guidance. CTSH maintained its FY09 revenue guidance of $3.1b+, representing a 10% revenue growth rate. CTSH also issued 2Q09 revenue guidance of $760M+ (vs. JPMe $755M, cons. $749M), representing q/q growth rate of 2%- above offshore peers (INFY (5.4%)-(3.7%), WIT (2%)-(4%)). Reported 1Q09 results and 2Q09 guidance requires an achievable 3% q/q growth through rest of the year to achieve FY guidance. As of now, we expect a slight increase in consensus FY revenue estimates after the call.

• FY09 EPS guidance modestly lowered. CTSH modestly lowered its FY EPS guidance from $1.54+ to $1.53+, which the company attributed to the quarterly non operating FX loss during the quarter. We think modest guidance revision will likely be discounted as it may be attributed to potentially lower interest income and non operating FX loss. Importantly, revision in EPS guidance also indicates that the company is probably not going to cut its reinvestments to manage near term earnings.

• Operating margin upside. 1Q non-GAAP OPM (excl. stock-based comp.) of 20.2% compared with our estimate of 19.8%, and the company's targeted 19%-20% range. We think margins benefited from 1% appreciation in the USD Indian rupee vs. the Indian rupee (~25bps in operating margins) and potential increase in utilization, which was partially offset by the company’s continued reinvestments and pricing.

• We maintain our Overweight rating.

To see full report: COGNIZANT

>Reliance Industries Ltd (JP Morgan)

Embracing a 2H recovery; Raising PT to 2300

• Recovery’s Child… RIL earnings, valuations are leveraged to the global economic recovery. JPM global economics team believes that global data points are tracking a 2H recovery scenario. We raise our FY11 refining margin estimates and align our March-10 PT to reflect higher earnings, risk appetite. Maintain OW.

• …with unique growth visibility: RIL is one few companies in the Asia Energy, Chemicals space with earnings growth visibility. Ramp up in refining) new volumes can compensate US$5/bbl drop in GRMs) and gas volumes will drive 35% earnings CAGR over FY09-11E.

• Is there steam in this rally? Yes, in our view We are raising our Mar-10 PT to Rs2,300, based on raised earnings. We also raise our PE multiple to 11x (from 10x earlier) as earnings visibility, risk appetite will improve further, if recovery pans out in 2H09.

• Green shoots abound… Our global economic team has raised US and Japanese growth forecasts on back of positive datapoints. Demand growth in India is robust, particularly for polymers, and the margin environment is healthy with local petchem premium to import parity. Ramp up in E&P, new refinery revenues are further positives for RIL.

• …but we would look out for the weeds: Apart from global economic risk factors, India elections results in mid-May could bring a fresh round of volatility. If the materials’ restocking is not followed through with end-demand, cyclical stocks could face a further leg down. RIL also faces legal and regulatory risks in gas and petroleum marketing business which could impact earnings and stock.

T0 see full report: RIL

>Reliance Industries (JP MORGAN)

4QFY09: Better than expected

• 4Q FY09 better than expected: RIL reported pre-exceptional 4Q FY09 net profit of Rs39B (flat y/y), higher than our and consensus estimates (Rs36.5B). Better-than-expected petchem margin and forex gains were key drivers for the higher earnings. Refining margins were marginally higher than expected at US$9.9/bbl.

• Projects up and running, ramp-up to drive earnings over FY10-11: RPL commenced commercial production in Mar-09 and >90% utilization is expected by Sep-09. KGD6 gas production commenced in Apr-09 with current production of ~10mmsmcd, to ramp up to 40mmsmcd by Sep-08, and 80mmsmcd by Mar-10. Refining volumes and gas revenues should drive a 30% earnings CAGR over FY09-11E.

• Petchem surprises; RIL expects pain to come in FY11: Restocking, demand, and supply discipline led to a rebound in petrochem margins in 4Q. RIL believes a petrochem downturn could be pushed to FY11 as 1) stock levels are still 30-40% below normal (further restocking possible), and 2) the full impact of new capacity will be felt only in 2010.

• Refining – waiting for supply discipline: RIL assesses around 10mbpd of private refining capacity were at loss/break-even levels. It believes that a significant number of these refineries will shut down, which would help balance the global refining industry. Low opex (c. US$2/bbl v/s US$5/bbl for peers) will help RIL weather the downturn, in the company’s view.

• Prudent strategy: Slowing on capex: RIL plans capex of US$4-4.5B on E&P development, exploration, and RPL completion. Capex on new projects will be deferred and RIL will hold cash through the downturn. Management likened this to a year of consolidation for RIL.

To see full report: RELIANCE INDUSTRIES

>First Solutions Ltd. (JP Morgan)

Large shareholder Metavante acquired by FINS - ALERT

Fidelity National Information Services (FIS) today announced acquisition of Metavante Technologies (MT) – MT holds 20% stake in Firstsource (FSOL). The acquisition will create the world's largest provider of integrated payment and financial processing services. FSOL had entered into a strategic partnership with Metavante where Metavante would market FSOL’s offshore BPO services as part of their overall service offerings and FSOL would be Metavante’s exclusive offshore and preferred onshore BPO service partner.

Implications: We believe that FSOL failed to see any significant traction in the partnership with Metavante, especially due to the severe downturn in the US Banking space. While the acquisition creates a much bigger entity giving FSOL access to a large pool of a relatively underpenetrated segment of US-based mid-size banks, we are unaware of FIS’ commitment to the deal signed by Metavante. We believe there is a chance that offshoring BPO work is not the priority for FIS near term given weak financial markets. Further, any decision to sell stake in FSOL could be a technical negative for FSOL stock – we will speak to the company over next few days to get more color on the same.

FCCB buyback: Firstsource has bought back FCCB of face value worth US$49.7mn at discount of ~50%. FSOL has raised ECB of ~$25mn (interest cost below 10%) to fund the buyback. While the FCCB buyback should be a sentiment positive for the stock, the quantum is too small (US$257 million of outstanding FCCB before the buyback) to have any material impact on our FY10/11 EPS estimates, especially because FSOL has taken debt to fund this buyback.

Investment view: We continue to believe that FSOL will see a difficult end-market environment both in financial services and healthcare for FY10, and we remain fundamentally cautious.

To see full report: FIRST SOLUTIONS

>BHEL(JP Morgan)

• BHEL’s provisional results for FY2009 showed strong execution and
signs of easing material cost pressures. 4Q PAT was however 16.5%
lower than estimates (FY2009: Rs30.4B, 4Q: Rs12.5B) due to a sudden
gratuity provision of Rs6B. We are disappointed that management
had not anticipated or guided for this liability earlier.

• We lower our estimates for FY2010 by 7%. We now have sales and
PAT growth of 21.4% and 29.6% and EBITDA margin improvement of
290bps. Non-recurrence of gratuity provisions and end of wage hike
provisions account for the margin expansion.

• During the meltdown, BHEL’s outperformance and premium
multiples arose from predictability of growth (at least the topline) in
a difficult environment. An OB of ~Rs1180B guarantees visibility
through 2012. This OB remains relatively immune to cancellations due
to the predominance of gov’t utility power projects with guaranteed
returns. The company’s ability to allay market fears of execution
bottlenecks was also an important contributor to outperformance.

• However, the return of risk appetite will likely see markets placing a
lower premium to this predictability. In our view, L&T (OW) might
outperform BHEL in a rising market, as it has done in past rising
markets. We revisit our 'everything goes right' DCF model originally
published 15 months back and believe our new Mar-2010 PT of Rs1,300
(down from Rs1400 earlier, terminal growth rate (g):6%, WACC: 11.5%,
terminal year: FY17), implying 16.2-x FY2010 earnings, is fair for the
stock. We downgrade the stock to Neutral. Key upside risk to our PT is
stronger than expected margin improvement and a rise in investor
preference for safe growth stocks.

To read full report BHEL(JP Morgan)

>Crompton Greaves Limited (JP MORGAN)

Using the cash cow for group needs?

• Bad news outweighs good: Crompton Greaves made two announcements yesterday: (1) A buyback of Rs.2.24B up to a price of Rs.170/share - EPS accretive to the tune of ~3.6%, (2) Acquisition of 41% stake in a promoter group company Avantha Power at Rs.2.27B, valuing the latter at Rs.5.5B. Avantha Power has 95MW of captive operating capacity, 60MW in expansion stage and 1200MW of projects in pipeline.

• Prima-facie, acquisition appears expensive. We value 1) 95MW of existing captive capacity at Rs25MM/MW (2.5x book) and 2) 60MW in expansion stage at Rs10MM/MW (1x book). Based on this, it is difficult to attribute more than ~Rs.2.5-3B fair value to Avantha Power. We do not value 1200MW in the pipeline, as we await clarity of progress in settling land acquisition issues, securing clearances and achieving financial closure. Based on financials of another group company (BILT) which owns 26% stake in Avantha, we deduce Avantha Power's annual profit to be ~Rs51MM.

• CG may have to raise debt to fund acquisition: As of Dec-08 CG had ~Rs3.5B gross cash on its books, but may need to borrow ~1.5B to fund the acquisition + buyback. The Thapar group harboured grand ambitions for Avantha, but CG management had consistently denied any intention to play a role in funding this. The sudden move to partner Avantha is negative in our view, as: a) it exposes a low capex, low net DER (0.33x) business to funding and project execution risks accompanied with prospects of back ended cashflows, and b) The acquisition in generation is broadly unrelated to Crompton’s T&D product profile, in our view.

• We retain Neutral and Mar-10 DCF-based PT of Rs150 (WACC: 15.8%, g: 5%, Terminal year: FY18): YTD CRG has consistently shown strong execution and margin stability; however market fears regarding acquisition related uncertainties could be a near-term overhang on the stock (already down 10% today). We expect to seek clarity from management on debt levels in Avantha and timelines for capex and commissioning of 1200MW capacity. Key risk to our PT stems from weak order flows in overseas power segment and potential funding/ project execution risks.

To see full report: CROMPTON GREAVES

>Bharti Airtel Limited (JP MORGAN)

Cutting our estimates and PT due to increasing competition and MTC cut; Remain cautious

• We reduce our estimates and PT on Bharti given continued competition challenges, cut in Mobile Termination Charge (MTC) and more headwinds on regulatory side (3G, MNP): While Bharti continues to be a top tier player with strong management and our relative top pick in Indian Telecom sector, we believe that increasing competition and MTC cut would depress ARPMs and margins over the next 12-18 months. As a result, we expect a sharp fall in EBITDA/EPS CAGR to 7%/13% in FY09-11 (35%/31% growth in FY09) that we believe could keep valuation multiples depressed.

• We cut our FY10E/11E revenue/EBITDA/EPS by 4%/6%/8% and 3%/5%/7%: This is largely driven by reduction in our mobile ARPM/ARPU estimates by 3%/4% and 2%/4% for FY10E and FY11E respectively. As a result, we expect wireless EBITDA margins of 27%/25% in FY10/FY11, down from 28%/26% in FY08/FY09E. We now estimate ARPU decline of 12%/8% Y/Y in FY10/FY11. Our new FY10E/FY11E EPS of Rs49/Rs58 is below consensus by 5%/1%.

• Why the cut in ARPUs?: We believe the MTC cut from Rs0.30/min to Rs0.20/min would eventually force operators to cut tariffs. This is already been evinced in comments from operators like Tata Teleservices, which have expressed willingness to cut tariffs due to the MTC cut. We are also seeing more evidence of aggressive pricing strategies from the expansion of incumbent operators like RCOM and Idea. In fact, RCOM and Idea tariff plans offer call rates 40% below base tariff levels in Mumbai and few other circles as per our checks. We expect this competition pressure to increase pushing down ARPUs.

To see full report: BHARTI AIRTEL

>India Infrastructure (JP MORGAN)

Actual spend lagging target

# Capex in key infrastructure sectors seems to be lagging 11th Plan targetsonly~
25% has been allocated till FY09: From the budget documents of FY08
and 09, we compiled capex for key central government infrastructure projects.
So far, actual spends have been ~10-20% lower than budgeted, with the
underachievement more pronounced in FY09. The government plans step up
spends by ~33% in FY10, but execution and funding would be key.

# Power sector: 20% slippage in 11th Plan target of 78GW likely, in our
view: From a separate document released by the power ministry, we believe it is
realistic to expect 63GW power capacity addition during the 11th Plan. The
document points to potential slippage of 2GW for NTPC (OW) and 1.3GW for
Reliance Power (UW). The document gives a relatively clean chit to BHEL,
which is responsible only for 13% of the slippage, whereas delayed ordering
of balance of plants accounts for 54% of the slippage in thermal capacity
additions.

To see full report: India Infrastructure

>Union Bank of India (JP MORGAN)

Union Bank reported strong 3Q09 numbers with net profit growing 84%
yoy almost 30% higher than street estimates. The stock reacted up 3%,
closed the day down 2% yet outperforming the banks Nifty index.
While deposits growth picked up to 31% loan growth remained stable at
25% leading to 50% increase in net interest income. Margins continued
to expand to 2.97% year to date and the bank looks to further enhance its
full year margins to at least 3%; However, in the near term given recent
PLR cuts, that appears difficult, in our view.

To see full report: Union Bank of India