>TRADE WINDS (KARVY)

08 June 2009 to 14 June 2009

Sectoral merry-go-round…

Global stock markets rallied sharply during the week on optimism over the slowdown in the pace of the economic recession as well as the scope for economic recovery in the global economy. The data points in the US, such as jobless claims, productivity, pending home sales, construction spending, and vehicle sales have triggered a rally in global equity markets.

In the domestic markets, both the Sensex and Nifty gained 3.1% and 3.29%, respectively, during the week. Positive global markets and pre-budget expectations in the domestic markets have helped the Sensex to close on a positive note for the 13th straight week. Continued buying interest from FIIs and selling by domestic institutions induced heavy intra-day volatility in the markets. However, due to the dominant FII infl ows, the indices managed to close in the green.

The week witnessed sectoral rotation with the few sectors that enjoy high weightage in the Nifty underperforming, while majority of sectors constituting a lesser proportion outperforming the index. Auto, cement, construction, capital goods, FMCG, metals, software, telecom and power sectors outperformed the broader market, whereas BFSI and energy sectors underperformed the index. The sectoral rotation was due to profit booking in sectors where there was a sharp run-up in the penultimate week, while buying interest came into other sectors due to pre-budget expectations. The trend is likely to continue during the week.

The Nifty is expected to trade in a broad range of 4450-4650 levels during the week. However, a breakout or breakdown is likely to trigger a 150-200-point movement in the Nifty on either side. The F&O traders can utilize the opportunity by designing covered call, bull-call spread, collars, short straddle and short strangle strategies.

To see full report: TRADE WINDS

>STOCKS UPDATE (KARVY)

■ Patel Engineering (Rs309)
BUY - Target price: Rs395

■ Torrent Pharmaceuticals (Rs155)
BUY - Target Price: Rs210

PATEL ENGINEERING
During the quarter ending Mar 09, we expect the company would report the net sales growth of 11.5% to Rs. 8.1bn in Q4FY09 from Rs. 7.26bn in Q4FY08. We expect EBIDTA would go up by 19.5% to Rs. 1.25bn and EBIDTA margin would improve by 100bps to 15.5% on account of higher contribution from high margin order book. We expect RPAT would go up by 36.3% to Rs. 726mn.

During the quarter, the company has bagged an order worth of Rs 7.99bn from the Narmada Valley Development Authority for Bargi Diversion Project in joint venture with SEW Construction Ltd. The company's stake in the project would be around 60% which will translate the order inflow of Rs. 5bn. The project would be executed in three years and provide the EBIDTA margin of around 15%. PEL has an order book position of Rs.71bn as on 31st Dec., 2008 which works out to 3.1x of book to bill ratio at FY09 earnings which is providing strong revenue
visibility for next 3years.

Valuation: At the current market price of Rs 309, the company is trading at PER multiple of 10.2x and EV/EBIDTA multiple of 5.8x on FY10E earnings. We have valued the core business of the company using EV/EBITDA methodology at 6x. Real estate division at 75% discount to value of raw land. Looking at the easing liquidity situation and expected robust order inflow post stable government; we maintain our BUY rating with revised price target of Rs395.

TORRENT PHARMACEUTICALS
The net revenues for the quarter delivered decent growth of 24.3% y-o-y to Rs.4050mn compared to our estimates at Rs.3768mn mainly on back of strong growth witnessed from key markets like Europe, Heumann and rest of the world as well as better than expected results from contract manufacturing business.

Despite reporting strong growth rate in revenues, the company's EBITDA margins dropped to 13% compared to 15.82% in Q4FY08 due to net forex loss to the tune of 15.8mn, higher staff expenses on account of a new extra urban division, higher R & D expenses and bad debts of Rs75mn in Q4FY09. The tax expense (-Rs.22.3mn) includes MAT credit entitlement to the extent of Rs.159.6mn pertaining to first three quarters of the previous year. The exceptional item of Rs.0.1mn is one time expense towards settlement of a research contract claim for out-ofcourt settlement. The profit after tax for the quarter de-grew by 18.8% to Rs.360.9mn over Q4FY08 mainly due to lower operating profit margins and lower other income reported during the quarter.

View & Valuation: We are revising our FY10 net revenue estimates upwards by 3.3% to Rs.18943.6mn on account of better than estimated revenue growth reported for FY09 and improved revenues from Europe, Brazil, US, Russia and RoW markets. We are downgrading our EBITDA margin estimates for FY10 by 80 basis points to 16.9% mainly due to lower margins reported in FY09 (15.9% on account of forex loss of Rs412mn). We are marginally increasing
our FY10 earnings estimates by 1.94% mainly on account of improved revenue traction and better margins compared to FY09. Currently, the stock is quoting at PE of 5.9x on FY10 EPS at Rs.26.3. We continue to rate the stock as 'BUY' and upgrade our price target by 5 % to Rs.210 based on 8x on FY10 basis.

To see full report: STOCKS UPDATE

>STOCKS & SECTORS UPDATE (KARVY)

Ranbaxy (Rs220): Underperformer - Target Price: Rs156

Sun Pharma (Rs1,412) : Underperformer - Target Price: Rs1,245

Jubilant Organosys (Rs163): Outperformer - Target Price: Rs200

Divis Laboratories (Rs1,020): Outperformer - Target Price: Rs1,200

Real Estate Sector Update

Two Wheeler Sector Update.

Everest Kanto Cylinder (Rs153): Marketperformer - Target Price: Rs163

Bank of Baroda (Rs415): SELL - Target price: Rs330

Tata Chemicals (Rs203) Outperformer - Target Price: Rs236

Hindalco (Rs80) Underperformer - Target Price: Rs63

The Great Eastern Shipping (Rs270) Underperformer - Target Price: Rs245

Sical Logistics (Rs27) BUY - Target Price: Rs41

Kalpataru Power Transmission (584) Outperformer - Price Target: Rs683


To see full report: STOCKS & SECTORS UPDATE

>KARVY BAZAAR BAATEIN

Caution is key...

Global stock markets rallied signifi cantly last week, with Singapore, Hong-Kong and Thailand stock markets showing spectacular gains of around 12-16%. While emerging markets like India and China rose 4-6% during the week, developed markets like the US and Europe, too, recorded modest gains. Clearly, the Indian stock markets continue its dream run, with the BSE Sensex notching up its ninth consecutive week of gains, rallying more than 46% from its March 9 lows.

This rally initially began with positive global cues and better-than-expected economic data emanating from the US. The positive new fl ow from the US continues to overwhelm markets worldwide, raising hopes of a slowdown in the pace of economic decline and an early global recovery. In fact, as we go to press, the US data on job cuts for April has come in lower than expected, indicating the possibility of a soft landing for the economy.

Moreover, the much-awaited stress test results did not feature any negative surprises, and that proved to be a positive for global markets. The Fed Chairman Ben Bernanke pointed out that the results of the stress test should provide considerable comfort to stakeholders. Overall, we believe that global equity markets are better placed for further upside post the stress test results.

Meanwhile, with the Great Indian General Elections being played out in all its glory in the world’s largest democracy, most political analysts expect one of the most fractured verdicts in the nation’s political history. With no clear winner in sight, the high “uncertainty” would result in significant “market volatility” as we lead up to the election results and its aftermath. Not only are the potential single-largest parties—the Congress and the BJP—expected to garner seats far short of the magic figure, but even their respective alliances—the UPA and the NDA—may find it difficult to notch up the required numbers, particularly with the emergence of the Third Front. Hence, caution is highly recommended in these uncertain times. Investors can stay away from the markets until greater clarity emerges or they can partially hedge their portfolios by buying put options in the derivatives market.

To see full report: KARVY BAZAAR BAATEIN

Trade Winds (KARVY)

Markets during the stress tests…

Global stock markets rallied significantly, amid expectations of stress test results for major US banks. Markets across the globe recorded significant gains, with Singapore, Hong-Kong and Thailand stock markets gaining around 12-16% last week. Other developed markets like the US, Europe and Japan also recorded significant gains. Meanwhile, emerging markets like India and China added 4-6% during the week.

The week observed a broad-based rally in equities and commodities across the globe on expectations of a slowdown in the pace of the economic recession as well as a possible recovery in the global economy. The much-awaited stress test results did not have any negative surprises, and that proved to be a positive for global stock markets, as the review of the capital structure of major US banks provided considerable comfort to the stakeholders. Overall, global equity markets are better placed for further upside after the stress test results.

Meanwhile, the Indian stock markets are passing through another virtual stress test in the form of election results scheduled to be announced on May 16, 2009. The Nifty rallied about 4.22% during the week, with metals, energy, construction, capital goods, BFSI and sugar sectors leading the rally. However, the Index faced stiff resistance at around 3700 levels, witnessing profit -booking during the weekend session, ahead of the election results. But buying momentum emerged at every dip due to strong global cues during the week. In the backdrop of positive global cues, the outcome of the general elections will set the trend for the next big directional move for the stock markets.

Overall, the Nifty is likely to be highly volatile within the broad range of 3500-3800-4000 levels during the week. Long positions can be assumed in the stock from energy, metals, construction, capital goods and BFSI sectors from lower levels. Short positions can be assumed in telecom, software and cement sectors. However, buying options is the preferred trading strategy, and this would limit the maximum loss while providing unlimited profit potential for short-term traders in these highly volatile times that lead up to the election results and its aftermath

To see full report: TRADE WINDS

>KARVY BAZAAR BAATEIN

Swine Flu impact: A minor blip…

After seven consecutive weeks of spectacular gains, markets witnessed a marginal hiccup last week when the world woke up to the outbreak of “Swine Flu”. As the Flu spread to the rest of the world, global markets dipped sharply on Tuesday, particularly the travel, tourism and airline stocks. However, in what was a curtailed trading week, markets rallied spectacularly on Wednesday, closing the week on a fl at note. While the Nifty closed with a marginal dip of -0.20% W/W, the BSE Sensex rose 0.65%, recording its eighth consecutive week of gains.

The Flu impact was merely a blip on the bourses, and the positive bias in the markets is clearly evident from the encouraging news fl ow emanating from India and the US. In regard to the quarterly results, major heavyweights did not disappoint the markets, and the results continued to be fairly in line with expectations. In the banking space, particularly, select banking stocks declared better-than-expected results, although ICICI Bank failed to beat market expectations. However, with its NPA levels coming in lower than expectations, the stock witnessed a spectacular rally. Globally, too, US companies have been declaring better-than-expected results, raising hopes of a soft landing for the global economy, particularly in the backdrop of rising consumer confi dence data from around the world.

While the positives are increasingly seeping in, one must not forget that the major economies iN the world are still showing negative growth. The US’ Q1 GDP shrank 6.1%, which was worse than economists’ estimates. However, a global recovery can only be pronounced if the positive new fl ow continues to be sustainable.

In India, the focus has shifted from WPI and GDP growth to the ongoing Lok Sabha elections. Clearly, no elections have grabbed the nation’s attention as this one has. With the verdict expected to be the most fractured in India’s political history, markets may witness increased volatility in May. From a global perspective, the outcome of the stress test results on banking stocks in the US is likely to influence the direction of the global equity market in the coming sessions. Stocks in energy, software, BFSI and capital goods are expected to trade on a positive note during the week.

To see full report: KARVY BAZAAR BAATEIN

>Trade Winds (KARVY)

Slow rollover into the May series…

Indian stock markets rallied sharply due to heavy buying interest in energy, BFSI and software sectors. Major heavyweights did not disappoint market participants with their earnings last week. Buying momentum picked up in the markets after Reliance Industries and select banking stocks declared better-than-expected profi ts. Heavy short covering was witnessed in the Nifty and frontline stocks during the settlement of futures and options for the April series during the week. The Nifty witnessed a rollover of about 76% positions, whereas the rollover in the overall market was 68%. The rollover of positions into the May series was relatively lower than the rollover in the previous months due to uncertainty over the election results scheduled to be announced during the May series.

Global markets traded on a positive note during the week, considering better-than-expected earnings and expectations of deceleration in the global economic recession. However, the outbreak of Swine Flu in Mexico and its spread to other parts of the globe led to selling pressure in travel and tourism sectors. The outcome of the stress test results on banking stocks in the US is likely to infl uence the direction of the global equity market in the coming sessions.

Overall, data indicates that consumer confi dence has increased signifi cantly across the globe, but the major economies in the world are still recording negative growth. The GDP in the US shrank 6.1% for Q1 which is slightly better than the contraction of 6.3% in the previous quarter, but worse than estimates. This indicates that the pace of global economic recession is not as slow as economists estimated in the previous quarter.

Domestic markets are likely to be highly volatile as election results are scheduled to be announced on May 16. The earnings announcements of major heavyweights are likely to infl uence the market direction in the coming sessions. The Nifty is expected to trade on a positive note within the range of 3300-3650 levels during the week. Stocks in energy, software, BFSI and capital goods are expected to trade on a positive note, whereas auto, metals and telecom stocks are likely to trade on a negative note during the week.

To see full report: TRADE WINDS

>Neyveli Lignite (KARVY)

Not lignitng enough value

Neyveli Lignite Corporation (NLC) is engaged in power generation (capacity 2,490 MW) with back ward integration of lignite mining. Though, it is adding significant capacity of 1750 MW, existing 600 MW (TPS-I) would be shut down gradually. Further additional 1000 MW capacity (coal based plant in JV) would be margin decretive without having captive mine, unlike existing plants. While, Public Sector Unit (PSU) pay revision to pressurize EBITDA margin in FY09 and FY10, higher interest and depreciation cost would penalize net profit growth. Hence, despite 16% sales CAGR, net profit is estimated to grow only at a CAGR of 9% during FY09-14. Moreover, due to high un-deployed cash we expect ROE ~ 9% in next two years, against achievable 16%. Therefore, we rate it as Underperformer with a price target of Rs 75, based on DCF valuation.

Capacity addition will be margin decretive: Though NLC is adding significant capacity, majority of those would be margin decretive as it would not have captive mine like existing plans. NLC is adding 1,750 MW by FY13; out of which 750MW would be lignite based integrated capacity with captive mines by FY11. However, existing lignite based 600 MW (TPS-I - the oldest power plant of NLC) is planned to shut down gradually by end of FY14 which would trim net addition (integrated units) to 150 MW. It is also adding a 1,000 MW coal based non integrated plant by FY13 where fuel (coal) would be sourced from outside (Orissa, ~1400 Km from Neyveli) unlike existing integrated plants. Hence new 1000 MW, is expected to fetch lower EBITDA margin of ~ 30% compared to ~40% in existing integrated plants. So, we expect most of the new capacities would be margin decretive.

Margin pressure leads to unimpressive earnings growth: We expect EBITDA margin to touch 32% and 36% respectively in FY09 and FY10, against ~40% previously. This is primarily on account of significant hike in staff cost stemmed from PSU pay revision. However, NLC is in the process of applying for tariff revision factoring current pay hike, which should help it to regain ~ 40% of EBITDA margin in FY11 and FY12. Nevertheless, it would not be sustainable; with commencement of coal based non-integrated plant from FY13. Moreover, higher interest and depreciation cost (lead by on going capex) would hinder in net profit growth. Effectively, despite a sales growth of (CAGR FY09-14E) of 16%, net profit to record a CAGR of only 9%.

High cash accumulation in balance sheet, to hurt returns: Though huge cash (Rs 48 bn) reserves of NLC could be seen as positive for a power company, we read it as inability of NLC to leverage the current high growth environment and deploy cash efficiently. We believe it carries opportunity cost as by deploying cash in projects NLC could earn ROE of 16%, much higher than earned by cash in bank. Current trend of net cash being ~20% of capital employed to continue in future, indicating one fifth of capital idle. Effectively it will drag ROE as assured ROE is earned only on core net worth (invested in projects). Hence, against achievable ROE of 14%, NLC has achieved 8-12% in history and expected to earn below 12% in future against achievable 15.5%.

Valuation: We estimate 9% net profit CAGR (FY09-14E) and ROE of ~9-10%, while it is trading at 20x FY10 EPS. Though there are some positives in the stock, we believe those are already factored in the current price. Hence, we initiate coverage on NLC with a target price of Rs 75 (based on DCF) and rate as under performer.

To see full report: NEYVELI LIGNITE

>Trade Winds (KARVY)

Markets continue to rally......

The BSE Sensex and the broader-based Nifty closed positively for the seventh consecutive week, something which they have achieved for the fi rst time since October 2007. While in a surprise move, the RBI cut repo and reverse repo rates, the corporate results did not bring in any major surprises, either positive or negative. Moreover, with mixed cues emanating from the developed markets, the Indian markets continued to display increased intraday volatility, and this is only bound to increase from current levels as we approach the much awaited general election results on May 16, which is expected to bring about one of the most fractured verdicts in India’s history.

For the week, the Sensex and the Nifty rose 2.78% and 2.85%, respectively. Since the rally began on March 9, the Sensex jumped nearly 40%, while the Nifty rose more than 35%. The spectacular rally has come as a surprise for market participants, many of who may be disappointed for having missed the bus, but at the same time, has raised hopes for most that the worst is probably over.

Last week, the RBI cut the repo and reverse repo rates by 25 bps each, the timing and announcement of which came as a surprise for the markets. This decision by the RBI seems to be a conscious attempt to boost faltering growth in the face of the global economic slowdown. The central bank also reiterated a call to banks to pass on its rate cuts to customers. Lower interest rates, coupled with stimulus measures and lower commodity prices, could push up investment demand and lead to a positive impact in industrial production in the coming months.

Overall, the Nifty is likely to trade in a range of 3300-3520-3650 this week, with an intermediate resistance placed at 3520 levels, which will also provide a major breakout, resulting in a short squeeze. With derivatives expiry lined up this week, investors should trade cautiously and look towards buying on dips. Cement, telecom and BFSI stocks can be considered for assuming long positions whereas energy and metal stocks can be shorted from higher levels.

To see full report: TRADE WINDS

>Karvy Bazaar Baatein

27 April 2009 to 03 May 2009


Markets ride on…
Although the BSE Sensex and the broader-based Nifty closed profi tably for the seventh consecutive week, the markets displayed high intraday volatility, mirroring the mixed sentiments across the globe. The RBI’s move to cut policy rates came as a complete surprise for the markets as many expected such a move post the election results. Accordingly, the Sensex and the Nifty rose 2.78% and 2.85%, respectively. Since the rally began on March 9, the Sensex has jumped nearly 40%, while the Nifty has risen more than 35%. Given that much of the rally was triggered by global cues, the Dow Jones Index itself has risen 23% during the period. The RBI, in its annual credit policy review last week, slashed the repo and reverse repo rates by 25 bps each to 4.75% and 3.25%, respectively. This move indicates that the central bank is giving increased precedence to the economic slowdown and the highly cautious stance that commercial banks have adopted in the current economic scenario. Accordingly, RBI cut rates in an effort to push credit off-take and to send out signals that the worst is over for the Indian economy, which has been hit by a demand slowdown in terms of exports and investment.

The central bank announced that it expects the economy to grow at 6% in the current fi nancial year. Moreover, it revised GDP growth estimates downward for the previous fi nancial year—from the projected 7% levels to 6.5%-6.7%. Since October 2008, the RBI has slashed the repo, reverse repo and cash reserve ratio heavily by 4.25%, 2.75% and 4.00%, respectively. The commercial banks, on the other hand, have responded quite meekly to these aggressive moves, with most of them lowering their prime lending rate only by 1.5-2.0% considering the high cost of funds raised previously, besides expectations of higher NPA levels and the vulnerable economic scenario.

Meanwhile, the WPI, which is at near-zero levels, rose marginally to 0.26% for the week-ended April 11, as against 0.18% a week earlier. The RBI added that it expects infl ation to pick up again, rising to around 4% for the full fi scal year. With the general elections expected to bring about one of the most fractured verdicts in history, we must brace ourselves for increased volatility until the results on May 16.

To see full report: KARVY BAZAAR BAATEIN

>Results Preview (KARVY)

Bank of India (Rs258) - Results Preview
BUY - Target Price: Rs455

Andhra Bank (Rs54) - Results Preview
BUY - Target Price: Rs74

Lupin (Rs696) - Results Preview
BUY - Target Price: Rs900

To see full report: RESULTS PREVIEW

>Karvy Bazaar Baatein

20 April 2009 to 26 April 2009

Sentiment resurrected…
Both the BSE Sensex and the Nifty completed a sixth consecutive week of gains, as investor sentimentcontinued to resurrect from the depths of despair. Although the Nifty crossed its 200-day movingaverage of 3400 levels during the week, it fi nally closed at 3385 levels, a gain of 1.28% W/W. Meanwhile,investors cheered as the Sensex closed above 11000 levels, a rise of 2.03% W/W. Since this rally beganfrom the March 9 lows, the Sensex has jumped nearly 36% while the Nifty has risen by more than 32%during the same period. Sentiment is a state of mind, and a rally as spectacular as this one has clearly got retail investors talking once again about the stock markets.

So is this rally sustainable? Well, to begin with, we continue to reiterate that the news fl ow from the USis key to global recovery. While a few economic data points came in lower than expectations, some keycorporate earnings exceeded market estimates—Wells Fargo, JPMorganChase, Citicorp, and Hewlett-Packard announced better-than-expected earnings, providing a fi llip to the global markets. Moreover,reassuring noises from policymakers provided the necessary support for the markets—while the FedChairman Ben Bernanke felt the “sharp decline” in the economy was easing, President Barack Obamaexpressed confi dence on the stimulus plan leading the way to “economic progress”.

However, one should not forget that there is a key local issue that is being intensely played out today—theGreat Indian General Elections. With the world’s largest democracy going to the polls, we have seentremendous volatility in the stock markets. With no clear winner in sight, there is a pall of uncertaintyhanging over the potential policies of the new government. What’s more, this time around, there is afeeling that the fi nal verdict may be more fractured than ever, and this, in turn, would limit the powersof the coalition government to introduce reforms and make timely decisions. In such a backdrop ofuncertainty, volatility in the stock markets could rise to unprecedented levels. Therefore, a cautiousinvestment approach is recommended until the poll results are out.

To see full report: KARVY BAZAAR BAATEIN

>Trade Winds (KARVY)

20 April 2009 to 26 April 2009

Investors during the great Indian elections
With the world’s largest democracy going to the polls, there has been tremendous volatilityin the stock markets. Without a clear winner in sight, the uncertainty about the policies ofthe new government has become a cause of concern for investors in the stock markets,particularly after having witnessed the market crash on May 17, 2004, during the post-electionand pre-government formation process. This time, the election environment is quite chargedup with three camps—UPA, NDA, and the Third Front—fi ghting intensely for the hotseat. As a result, volatility in the stock markets is set to rise to unprecedented levels. At thisjuncture, investors should be very cautious while trading in the stock markets.On the other hand, investors are also looking forward to participating in the global stockmarket rally. The unprecedented stimulus packages announced by major economies acrossthe globe are working and there are signs that the pace of global economic recession in theUS, China and EU is easing. The recent corporate earnings announcements have exceededmarket estimates—Wells Fargo, JPMorgan, Citicorp, and Hewlett-Packard announcedbetter-than-expected earnings, triggering a rally in the global stock markets.Given the need to participate in the global stock market rally and the major concern ofvolatility during the election process, we believe derivatives would be the right solution insuch a scenario. Futures and options come in handy, wherein investors can participate inthe stock market rally while handling the volatility during the election process. Investorswith holdings in the cash market can use put options to partially hedge their portfoliosfor a limited period. They can remove the hedge once clarity emerges about the newgovernment and its policies. Also, investors can buy call options which give them the rightto participate in the rally, and at the same time, limit the downside risk. Moreover, futuresand options hybrid strategies, such as long straddle and long strangle, can be used untilthe new government is in place. Overall, all kinds of investors can benefi t from the use ofoptions during these volatile days.

To see full report: TRADE_WINDS

>JSW Steel (KARVY)

Surpassing Tata Steel as the largest private sector steel player in India

JSW Steel has come back on track to deliver a healthy crude steel production performance in Q4FY2009 after the complete disappointment on production and sales volume front during Q3FY2009. Volumes have been showing an uptrend but we believe there could be negative surprise of lower steel price realization as compared to consensus estimates. On account of price performance and overhang of lower price realizations, we downgrade our rating from BUY to Market performer.

Production update for Q4FY2009 and outlook for FY2010E: After commissioning of new blast furnace capacity of 2.8 mn tonnes in February 2009, JSW Steel has now become India's largest private sector steel company with total steel making capacity of 7.8 mn tonnes. Earlier it was Tata Steel with steel making capacity of 6.8 mn tonnes. The 2.8 mn tonne expansion project has been commissioned in a record 31 months.

Indian and global steel price might correct further due to lower raw material prices: We expect iron ore contracts and coking coal contracts to be negotiated at ~ 50%-60% lower than the contract rates of FY2009. Iron ore contracts might be finalized at US$50 per tonne and coking coal at US$120 per tonne for FY2010E. This is likely to put further pressure on steel prices going forward.

Despite being largely non-integrated, JSW Steel is a low cost producer: JSW Steel's cost of production is lower than that of Tata Steel (India), which is remarkable considering that its level of integration is much lower than that of Tata Steel (India). While Tata Steel (India) is 100% integrated for iron ore supplies and 70% for coking coal supplies, JSW Steel is integrated for only 25% of iron ore. However, JSW's employee and other costs per tonne are
significantly lower than those of Tata Steel.

Domestic producers gain as imports reduce: Though there was a sharp jump in imports in November 2008 due to the wide differential between Indian domestic prices and the import price from CIS countries, Indian companies could counter the flow of imports by cutting HRC prices by US$100/t in December 2008. Going forward, we believe that the preference for domestic producers over imports could continue due to the benefits like less order to delivery time, no requirement of letter of credit, lack of any exchange rate risks, etc.

Valuation: For FY09E, we expect adjusted profit to decline by 36.5% to Rs 11,787 mn. Our EPS estimate for FY2009 comes to Rs 59. Our FY2010E EPS is Rs 82 based on sales volume of 6.2 mn tonnes in FY2010E. We maintain our target price of Rs 334 at which the stock would quote at P /E of 4.1x and EV / EBIDTA of 4.6x based on FY2010E. Due to the recent surge in the stock price, we change our rating from BUY to Marketperformer.

To see full report: JSW Steel

>Torrent Pharmaceuticals (KARVY)

We recently met up with the management of Torrent Pharmaceuticals (Torrent Pharma) and despite concerns in Germany due to Aok tender and on account of changes in liquidity and de-stocking in the Russian markets, we maintain our marginal growth estimates in these regions. The business growth in Brazil, Europe and Rest of the world (RoW) is on a strong wicket.The company's major margin contributor, the domestic formulations business is back on track with 12% growth in Q3FY09. Chronic therapies such as Cardio Vascular System (CVS), Central Nervous System (CNS) and gastrointestinal accounts for nearly 60% of domestic revenues (>70% of branded formulation segment). We maintain our revenue and margin estimates and slightly downgrade our earnings estimates on account of higher interest cost in FY09 & FY10E and higher capex in FY10E. Despite reduction in EPS estimates by 4.46% in FY 10, we maintain our BUY rating on the stock.

Domestic Formulations business (44% of revenues) is back on track: Completion of inventory correction and realignment of domestic operations has aided the company's growth to double digit in last quarter. With nearly 60-65% of branded formulation revenues coming from chronic areas such as CVS, CNS and Gastro, the company's domestic operations should be growing in excess of market growth rate. We believe the company's domestic formulations space should grow by 7% in FY09 to Rs.6.28bn and by 13% in FY10E to Rs.7.11bn.

Growth prospects of Brazil, Europe & ROW gaining strength: With completion of expansion of field force in all the regions of the country, the Brazil business has stabilized. With 36% growth clocked in the last quarter adjusted for currency depreciation and 12-13 product introductions over the next couple of years, this business appears to be gaining strength. The company's business of dossier selling and contract manufacturing in Europe is gaining mass with estimated revenues of Rs.952.7mn in FY09 and Rs.1143mn in FY10E. Focus on branded promotional business, aided by strong product pipeline and contract manufacturing opportunities in ROW will enable the company to improve its profitability in this high growth market.

Heumann, Russia and CIS (RCIS) markets downside capped: Despite de-growth in German market in Euro terms, the company has grown in this market for 9mFY09 (~15% to Rs.1.93bn). Due to impending new Aok tender, we believe the company may lose certain revenues in sales from Heumann (Germany) but still remain marginally profitable. On RCIS on account of currency depreciation and de-stocking, the company may face payment delays for H2FY09 and FY10E in RCIS markets. However, we believe, the company's focus on Over-the-Counter (OTC) and other prescription based products will enable it to have reasonable revenues and keep debtors in check.

View & Valuation: We maintain our net revenues to grow at a CAGR of 16.3% from Rs.13.5bn in FY08 to Rs.18.3bn in FY10E. The revenue growth will be primarily driven by realignment of domestic branded formulations business
and strong growth from key markets like Brazil and Europe. We maintain our EBITDA margin estimates at 16.9% in FY09 and 17.7% in FY10E. We marginally downgrade our EPS estimates by 2.1% to Rs.22.5 for FY09 and by 4.46% to Rs.25.8 for FY10E mainly due to higher interest charges in FY09 and in FY10E and higher depreciation in FY10. We downgrade our price target by 5% to Rs.200 based on PE of 7.75x FY 10E EPS of Rs.25.8. We reiterate our
BUY rating.

To see full report: TORRENT PHARMA

>GLAXO SMITHKLINE PHARMA (KARVY)

We believe net revenues for the quarter will move up by 11.4 % to Rs 4660 mn. Part of the growth can be attributed to lower excise duty for this quarter. The revenue growth will mainly be driven by priority products which will be growing by double digits. Operating margins are expected to be flat at 36.2 %.while profits for the quarter are expected to be higher by 8% to Rs 1322 mn.

The company launched three products in CY 2008 which include Tykerb, Rotavirus and Olmesartan. In CY 09, the company plans to launch Mycamine, Eltrombopag (anti platlet), Synflorix a Strepto Pneumonia vaccine and Rezonic. The company has multiple engines of growth like Branded generics, Vaccines, Rural marketing and In-licensing. We believe these new initiatives should fructify from CY 2011 and company should clock higher growth in revenues. We marginally upgraded our CY 09E EPS by 0.6 % to Rs 61.9and introduce our CY 10E estimates at Rs 69.4. At the current price of Rs 1085 excluding cash of Rs 207, the stock is quoting at 14.2x CY 09E. We value the base business at 15x CY 10E and add Rs 240 cash per share. We value GSK Pharma at Rs 1280 and upgrade the stock to Outperformer.

To see full report: GLAXO SMITHKLINE

>Results Preview (KARVY)

HDFC Bank (Rs1,160) - Results Preview
Underperformer - Target Price: Rs903

Axis Bank (Rs462) - Results Preview
BUY - Target Price: Rs630

Sun Pharma (Rs1,148) - Results Preview
Marketperformer - Target Price: Rs1,245

Indoco Remedies (Rs140) - Results Preview
Outperformer - Target Price: Rs170

Container Corporation of India (Rs740) - Results Preview
Underperformer - Target Price: Rs706

To see full report: RESULTS PREVIEW

>Aventis Pharma (KARVY)

Net revenues for the quarter were up by 5.4 % To Rs 2287 mn. The main de-growth has been due to loss of Rabipur revenues. Operating margins are expected to fall from 18.7 % to 17.9 %. The main reason for the fall in margins has been due to decline in high margin Rabipur revenues. Profits for the quarter are expected to decline from Rs 345 mn to Rs 320 mn for the quarter.

The company's top 6 brands grew by 21.6 %. Amaryl, Clexane, Targocid and Allegra rank no 1 brand in their respective segments. On the domestic front the company has introduced Combiflam cream to leverage on its Combiflam brand. Aventis also has an ambitious project to target Tier 2 towns with new products and a dedicated sales force. The company has given lower export growth estimates for CY 2009E. Export of Panadeine tablets to Malaysia would commence in the current year.

If one were to remove the cash per share of Rs 265 the stock would be quoting at attractive valuations of 11.5x CY 2009E. We introduce CY 2010 estimates and roll over our price target to CY 2010 basis. We rate the core business of the company at 12x CY 2010 at Rs 828 and add Rs 315 cash per share to the company's core price and arrive at a price target of Rs 1145. We upgrade the stock to Outperformer.

To see full report: AVENTIS

>Varun Shipping (KARVY)

We recently met the management of Varun shipping and come back with conviction that the company's strategies are paying off. The timely exit from drybulk segment in FY08 where freight rates have fallen by 85% since MAY 2008 and entry into promising deepwater support services segment by acquiring high end anchor handling tugs (AHTS) are expected to help the company to grow operating profits in current turbulent time in shipping. Considering 49% discount to current net asset value (NAV) and attractive dividend yield of 12%, we reiterate BUY.

Presence across less volatile segments: The Company has significantly reduced cyclicality associated with the shipping industry with selection of low risk assets and building diversified fleet across three segments viz. the Liquefied Petroleum Gas i.e. LPG, crude and offshore. The company is also cushioned to an extent against a downside in international freight rates, as it derives ~45% of revenues from transportations of LPG where freight rates for LPG carriers are more stable as compared to crude or dry bulk carrying vessels to long term nature of contracts and organized market with 83-99% business from repeat customers. In tanker segment, company has three Aframax carriers where volatility is significantly lower than other tankers like VLCC and Suezmax.

Offshore revenue to contribute ~40% in FY10: The company has six anchor handling tugs (4 high end) operating in offshore support business. We expect the charter rates for support service to remain strong as demand is mainly driven by committed capital expenditure for exploration by oil companies. . We expect the offshore segment to report revenue growth of 64% CAGR from Rs 1.6 bn in FY08 to Rs 4.3 bn in FY11 contributing ~ 40% of total revenue on back of vessel addition.

Attractive dividend yield: Varun has declared the dividends in each of past 24 consecutive years on expanded capital. With current stock price of Rs 44 the stock is trading at attractive dividend yield of 11%. With relatively stable cash flow and support from offshore business, we expect the company to maintain attractive dividend yield going ahead.

To see full report: VARUN SHIPPING

>Trade Winds (KARVY)

06 April 2009 to 12 April 2009

Spectacular equity MARCH…
Global stock markets witnessed a spectacular rally last week and also the whole of March.
The rally was due to broad-based buying across the globe after investors were of the view
that the pace of the global slowdown might be receding. The economic data released in
various parts of the globe also indicated that stimulus packages announced by governments
were working towards providing a soft landing for the global economy. Indicators like
pending home sales and consumer confi dence levels in the US, home prices in the UK,
and manufacturing data in China boosted sentiments in global equity markets. Moreover,
equities turned attractive after a steep fall which pushed them into the oversold zone.

The G-20 summit agreed to spend US$ 1.1 trillion to revive the world economy. The G-20 also recognized fi ghting protectionism and tightening banking and fi nancial services regulations as the other top priorities to get the world economy back on track. However, fears of rising unemployment in major economies, concerns over the deteriorating European economy, and excessive regulation on the fi nancial services sector are likely to be the hurdles of the rally in equity markets.

Indian stock markets rallied sharply during the week due to heavy buying interest across the
board. The Nifty closed the week above the 3200 levels. Select auto, BFSI, construction,
metals, energy and telecom stocks recorded signifi cant gains last week. However, the
domestic stock markets are likely to be infl uenced by global markets during this week due
to lack of major triggers, given that India is going to the polls. However, the possibility
of further rate cuts cannot be ruled out as the near-zero infl ation provides greater leeway
for doing so.

Overall, the Nifty is likely to trade in a range of 3000-3400 over the week with intermediate
resistance placed at 3250 levels. Energy, metals and technology stocks can be considered for
assuming long positions whereas FMCG, banking and construction stocks can be shorted
from higher levels.

To see full report: TRADE WINDS