>GUJARAT NRE COKE (MACQUARIE RESERACH)

Coke back in favour

Event
■ Coking coal outlook brightens: Our global team has raised its coking coal price forecast by 17% for FY11, buoyed by China turning a net importer of coking coal and a possible restart of steel capacity globally. For Gujarat NRE Coke (GNC) We have upgraded earnings and increased our target price to Rs87 from earlier Rs58. We maintain an Outperform rating.

Impact
■ Upgrading coking coal forecasts: The recent settlement of coking coal at US$129/t was surprisingly strong, as the expectation was for around US$100–110. More so, the reminder of coking coal quantities left from last year’s contract at US$300 has not be waived off. Given this backdrop, our team has raised its FY11 forecast to US$129 from US$110.

■ China – the big swing factor: Some of the Chinese coking coal mines have faced closure on account of safety concerns post fatal accidents. This, coupled with Chinese steel production back to an all-time high, has turned China into a net importer. In fact, the Chinese government has always discouraged the export of coke, imposing a 40% export tax. Because China used to contribute 14Mnt out of 19Mnt of the global sea-borne trade, any rebound in global steel production would likely bode well for coke prices.

■ GNC – on track to increase production sevenfold in next three years: GNC owns two coking coal mines in Australia, with 580Mnt reserves and a current mine coal production run of 1Mnt. The company is well on course to raise production to 7Mnt by FY13E. We estimate production to be 1.8Mnt in FY10, 2.5Mnt in FY11 and 3.5 in FY12, a bit lower than earlier estimates, as the company slows capex.

■ Capacity increase just in time: GNC has augmented its coke capacity by 25% to 1.25Mnt. We are increasing our coke production estimates by 25% and 4% for FY10 and FY11 to 940kt and 980kt, respectively.

Earnings and target price revision
■ We are increasing our FY10 and FY11 EPS estimates by 50% and 204%, respectively, and are increasing our sum-of-parts target price to Rs87 from Rs58.

Price catalyst

• 12-month price target: Rs87.00 based on a Sum of Parts methodology.
• Catalyst: Increased visibility on its capex and production schedule.

Action and recommendation

■ Maintain Outperform: We believe GNC remains the best stock in which to invest to take advantage of the upturn in the coking coal cycle. GNC has good quality reserves, an excellent location and is well on its way to becoming one of the world’s top-ten producers of prime hard coking coal in next three years. The stock is trading at attractive valuations of around 9x PER and around book value.

To see full report: GUJARAT NRE COKE

>DABUR (MACQUARIE RESEARCH)

Strong growth but a pretty penny

Event
■ We met with the management of Dabur. Management reconfirmed our core thesis. While longer-term prospects remain strong, we believe that after the recent rally, valuations fully reflect potential earnings upgrades.

Impact
■ Hair care remains strong: Renewed focus has driven exciting growth (~30%) in shampoos in FY09. Continued focus and launches of new variants leads management to believe that 25–30% growth in FY10E can be achieved.

■ Emerging focus on skin care: We expect Dabur to position its recently acquired brand ‘Fem’ at the mid-market and continue with ‘Gulabari’ at the mass end. We also expect skin care launches with an herbal positioning at the higher end from Dabur’s stable. Management believes this category is scalable, with potential to drive overall margins higher.

■ Volumes to drive growth: Given cost deflation in some inputs and packaging material linked to crude, management expects muted price growth of 2–3% for FY10E. The bulk of the top-line growth is expected from volumes. Continued buoyancy in rural markets will aid 12–15% overall volume growth, in our view.

■ Retail business update: Management has adjusted the strategy of its retail venture from ‘aggressive expansion’ to a healthier store addition rate of 10–12 stores per annum. Average store size is likely to come down to 1,000 sqf. Management believes that this is a viable business in the medium term. It expects losses to remain limited to around Rs100–120m for FY10E.

Earnings and target price revision
■ Minor changes to earnings estimates: We are raising our estimates from FY10E onward by 1–2% to account for slightly higher than expected top-line growth in oral care and hair care. We also are raising our target price to Rs105 from Rs100 to account for the change in earnings estimates and aminor change in our WACC assumption.

Price catalyst
■ 12-month price target: Rs105.00 based on a DCF methodology.

■ Catalyst: Quarterly results; trends in sales volumes and pricing.

Action and recommendation
■ Maintain Neutral: We remain bullish on Dabur’s longer-term prospects given its consistent track record of delivering 16–18% earnings growth with margin expansion in the last six years. We believe that multiple growth drivers will help Dabur remain one of the fastest-growing FMCG players in India. However, the recent rally and the lack of near-term triggers lead us to believe that the stock is expensive. Balance sheet (net cash) remains strong.

■ For investors who wish to remain defensive after the recent rally in the broader market, we prefer ITC (ITC IN, Rs195, OP, TP: Rs220, upside: 12.8%) and Marico (MRCO IN, Rs74, OP, TP: Rs93, upside: 25.7%) amongst consumer staples.

To see full report: DABUR

>India Essentials (MACQUARIE RESEARCH)

India Essentials

Dabur (Downgrade to Neutral)
Nice... but not at this price

We revisit our thesis on Dabur. While longer-term prospects remain strong, we believe the stock is expensive post the recent rally. We downgrade Dabur to Neutral from Outperform while maintaining our target price of Rs100. Strong results highlight core business potential: Dabur has posted strong 4Q09 results with 20% topline (13–14% volume) and 31% bottom-line growth. Growth rates likely to decline: While the 31% growth in earnings was above our as well as street expectation, we believe Dabur will have to contend with a tough base post 2Q FY3/10.

Macquarie Commodities
Base metals stock changes; some more bullish trends emerging

The latest trends in reported stock changes are more bullish in copper, nickel and zinc (declining stocks) and less bearish in aluminium (stocks still increasing, but at a slowing trend rate). Latest news Base metals traded sharply higher on Wednesday, as April private employment figures in the US finished above expectations. Copper recovered from Tuesday's losses to close 4.7% higher, despite a 1.8% stock increase, as workers went on strike at Xstrata's Lomas Bayas mine (65ktpa). China's iron ore imports in April rose to a record 53.5mt, according to preliminary reports from the Ministry of Transport.

India Market performance

This section includes detailed information on :

• Market Performance
• Fixed Income, currencies, commodities
• ADR/GDR (US$)
• Daily net flows (US$m)

To see full report: INDIA ESSENTIALS

>Asia Strategy Quarterly (MACQUARIE RESEARCH)

Green shoots or red herrings?

The global cycle is getting less worse
Accompanied by a turn in the second derivative of global economic activity and tentative signs of stabilisation in important leading indicators, Asia ex Japan has risen 28% from its recent trough on 2 March and is now up 39% from the late October low.

Valuations are still well below long-run averages
At 1.5x P/BV, 11.0x trailing earnings, 6.8x P/CF, Asia ex Japan is still well below long-run average levels on three of the four standard valuation metrics. On a forward PER basis, Asia ex Japan is currently trading on 14.4x, around half a standard deviation above its long-run average level of 13.1x. However, the uncertainty surrounding the ‘E, makes this measure only marginally better than useless at the current point in the cycle.

The 12-month risk/reward trade-off is attractive
With valuations still well below long-run average levels and key indicators of the cycle – such as the OECD leading indicator and our earnings revisions indicator for Asia ex Japan – moving higher, the 12-month risk/reward trade-off for Asian equities is undeniably attractive. If history is a guide, the odds of losing money are a mere 12%, while the odds of a greater than 10% return are 70%.

Upgrading Korea and Taiwan, tech and banks
Accordingly, it is time to selectively add beta to our model portfolio. Tech and banks stand out at the current juncture. These two sectors have underperformed in the rally so far; in the past they have been big outperformers when the OECD leading indicator is rising; and with valuations now only a touch above all-time lows, they command an overweight position, in our view.

We have also upgraded Korea, Taiwan and Singapore. With earnings expectations extremely low, Chinese institutional investor money on its way, and trading on a P/BV of 1.4x, Taiwan looks particularly attractive. Valuations are not as attractive in Korea, and its net-debtor status concerns us. But you are taking on history by being underweight Korea when the OECD leading indicator is rising and that is something we try to avoid doing. At 1.2x P/BV, Singapore is deep value and it looks like 1Q09 was the weakest point for growth.

Underweight China and Hong Kong
China has had a monopoly on good news flow in recent months and as a result is by far the most over-owned and over-loved market in the region. Moreover, from a bottom-up perspective, we are now struggling to find value. In addition to being cyclically challenged, Hong Kong is now plain and simply too expensive.

To see full report: ASIA STRATEGY

>India Essentials (MACQUARIE RESEARCH)

ICICI Bank (Downgrade to Underperform)

Too much too soon

We downgrade ICICI Bank to Underperform from Outperform following the recent rally in the stock price. We cut our target price to Rs436 from Rs465. Limited leverage to economic growth. We believe ICICI's ability to leverage on economic growth is constrained by the need to restructure the deposit base first – and we estimate this will take at least 4–6 quarters. Thus the upside, in case of a sooner-than-expected recovery, could be limited to fees.

Rocks on Stocks
Cashburn in 2009

Margins across Asia remain will remain low for several years as Asia digests a decade of over-investment. Asia's financial position deteriorated during 2008, as leverage ratios rose for the first time in a decade. This represents a major inflection point. An even greater increase will occur in 2009; even if restocking leads to a production rise in Asia over the rest of the year, many Asian companies will continue to burn significant amounts of cash.

Rocks on Stocks
Watching margins

We examine analysts' EBITDA margin forecasts for 2009. Profit margins across Asia fell to their lowest levels in a decade during 2008. The good news is that analysts are assuming that margins remain subdued in 2009. In aggregate, margins are assumed to be about the same in 2009 as 2008. However, there are some sectors where a large amount of good news is already factored into margin forecasts, while in others, margin forecasts are too pessimistic.

Macquarie Commodities Comment
Promising PMIs Isaac

PMIs ticked up again in April, with promising new orders data, but ex-China remain substantially below 50, the threshold between growth and contraction. Latest news Base metals prices were mixed on Tuesday, with copper closing down by 1.6%, while the other metals made small gains on Friday's close. US construction spending rose by 0.3% in March, the first increase in six months. In other US construction news, pending home sales jumped by 3.2% MoM as buyers were encouraged by favourable prices and mortgage rates.

To see full report: INDIA ESSENTIALS

>Reliance Industries (MACQUARIE RESEARCH)

All cylinders have just been fired up

Event
■ RIL not only beat 4Q FY3/09 PAT forecasts by 9%, but is poised to double earnings within three years as it is has just fired up two new sizeable operations. Maintain Outperform with a TP of Rs2,035.

Impact
■ Hedged operations. A 17% rise in petchem profits, a 6% rise in upstream profits and a sharp 25% INR/US$ YoY depreciation offset a 36% YoY fall in GRM to US$9.9/bbl, demonstrating the benefits of being highly integrated.

■ New SEZ refinery kicks off. RIL commissioned one of its two CDUs achieving 100% utilisation straightaway. It earned a small profit of Rs840m within the first quarter of start-up. Full start-up is scheduled for 1Q FY3/10, including the start-up of FCCU converting bottom-of-the-barrel distillates into high-value propylene and PP, triggering a profit surge. New refinery operating cost is lower than the existing refinery’s US$1.75/bbl (industry at US$5/bbl). Euro V diesel production has also just started, kicking off its first high-margin product.

■ Innovative tax planning. RIL guided that its tax shall remains near MAT of 9-10% for at least the next two years. First, RIL commissioned its new SEZ refinery prior to March 2009 year-end to avail itself of tax-free status for another six years (seven including FY3/09) for even the portion of products sold domestically (only refineries started by March 2009 have this option available). This is in addition to tax-free exports. Second, we believe RIL’s KGD6 capex of US$12.7bn (US$7.2bn spent already and US$5.5bn proposed for nine satellite developments), not only allows a 7-year tax holiday on KGD6 profits, but additional tax depreciation on these assets can also be used to lower tax on other businesses.

■ Stage set for FY3/10E take-off… RIL’s low-tax massive refinery triggering growth is the smaller part of the kicker in FY3/10E. RIL’s KGD6 gas has already reached 9.5mmscmd of production. Management is confident it will achieve peak production of 550,000boe, which will double India’s gas production add to 0.4% of global oil equivalent of production.

■…with even more. Yet, this is the tip of the iceberg. RIL expects regulatory approval within three months for plans to raise KGD6 production by 50% and NEC-25 development. Also as RIL moves its three deepwater rigs after shortly completing KGD6 development , it plans to drill 17 exploratory wells in FY3/10 compared with only two in FY3/09. Another deepwater rig is expected to arrive in July 2009, with two more to follow in 2H CY10. Three prolific basins of KG, Cauvery and Mahanadi are key exploratory targets. Moreover, RIL plans to increase 3D seismic studies twenty-fold during FY3/10E. During our recent Oil Yatra (Tour) Forensics, the upstream regulator (DGH) demonstrated India’s potential to surpass the Gulf of Mexico or even Brazil’s upstream capabilities.

Earnings revision
■ No change.

Price catalyst
■ 12-month price target: Rs2,035.00 based on a Sum of Parts methodology.
■ Catalyst: New oil and gas finds and enhanced clarity on organised retail.

Action and recommendation
■ Reiterate Outperform. RIL is our top pick in the India oil & gas sector.

To see full report: RIL

>Asia Strategy (MACQUARIE RESEARCH)

Where do we go from here?

Event
■ We provide an update on the latest valuations and risk/reward trade-off for Asian equities.

Outlook
■ Asia ex Japan has rallied strongly over the last seven weeks, rising 27.5% from its local trough on 2 March. The rally has, however, been supported by improving fundamentals – stresses in the (global) financial sector have eased; there is growing evidence that the global economic cycle may be forming a floor; investors’ appetite for risk (particularly for emerging markets) has risen; and, importantly, our earnings revisions indicator for Asia ex Japan has
continued to move higher.

■ Moreover, with Asia ex Japan now trading on 13.9x forward earnings, 10.8x trailing earnings, 1.5x BV and 6.7x cash flow, valuations – particularly on those metrics that are the most reliable signals of value – remain well below long-run average levels. The only exception to this is forward PER, which, impacted by both a rising market and falling earnings, is now above its longrun average of 13.0x.

■ Low valuations and improving earnings revisions mean the 12-month risk/reward trade-off for Asian equities is extremely favourable. If history is any guide, the odds of losing money on a 12-month view are currently a mere 12%, while the odds of a better than 10% return are 70%. History suggests that Korea is likely to give the most beta over this time horizon, while along the sector dimension tech, banks and consumer discretionary sectors are the sectors most likely to outperform.

■ The three-month outlook is, however, considerably more uncertain. Markets have run hard, investor sentiment towards – and appetite for – emerging markets is certainly very elevated at present (relative to other risky asset classes, that is) and we are very mindful of the potential for this to pull back in the coming weeks and months.

■ On the other hand, backtesting of fundamentals does suggest a palatable 3-month risk/reward trade-off, earnings revisions suggest the near-term balance of risks could be to the upside and the overwhelming investor sentiment is to buy on any decent pullback (which suggests that any pullback is likely to be limited in terms of duration and magnitude).

To see full report: ASIA STRATEGY

>>Indian Banking Sector (MACQUARIE RESEARCH)

Bond yields, NPLs in focus

EVENT
We preview the 4Q FY3/09E results for Indian banks.

IMPACT
Decelerating NII: Net interest incomes will decelerate this quarter as a result of slowing loan growth and lower margins, in our view. Systemic loan growth has slowed from the October peak primarily because of disinflation; company revenues (and thus, working capital needs) have shrunk. Cancelled capital projects have emphasised the slowdown. NIMs have also been under pressure, due to aggressive benchmark rate cuts from the banks – the benefits from lower deposit rates will take a couple of quarters to offset this.

Bond profits will disappear: Bond profits are expected to reverse this quarter, as bonds collapsed over this quarter. Bond yields are up by almost 200bp over the quarter, reversing a 300bp fall in the previous quarter. Almost all banks benefited strongly from bond profits in 3Q FY3/09E, and that trend
should significantly reverse over this quarter.

NPLs pushed into FY3/10E: Despite the dramatic slowdown in the economy from October/November, we think it is too early for NPLs to show up in most P&L accounts. The worst period for NPLs is likely to be FY3/10E and FY3/11E, with probably an even spread of provisions. One of the key reasons
for the postponement is the window that the RBI has allowed banks to restructure assets: It allows banks to absorb the losses over a long period.

Revising forecasts: We are revising our forecasts for some of the banks under our coverage, partly due to the strong loan growth and margins that came up in 3Q FY3/09, and our view that the provisions will be postponed to later years.

OUTLOOK
We remain cautiously optimistic on Indian banks, and believe that:
* The valuations, in many cases, factor in an asset quality slippage situation that is too pessimistic.

*The deep interest rate cuts actioned by the RBI since October 2008 will
have a medium-term beneficial impact on the banks.

* We upgrade Bank of Baroda to Outperform from Underperform, given the belief that its core profitability is improving while NPLs will be cushioned by its high provision coverage. Our top picks in the sector remain HDFC (HDFC IN, Rs1,577, OP, TP: Rs1,738) and HDFC Bank (HDFCB IN, Rs1,037, OP, TP: Rs1,106).

To see full report: BANKING SECTOR

>Rocks on Stocks (MACQUARIE RESEARCH)

Cash burn accelerates.....

Event

· We assess the rate at which cash positions of companies will deteriorate.

Impact
· The cash positions of Asian corporates are deteriorating quickly. Net debt/equity increased from 17% to 24% in 2008, reversing a near decade long trend of falling debt levels and cash accumulation.

· 2009 will be much worse. Even though revenue across Asia only came off slightly in 2008 (it eased from 24% to 22%), cashflows fell 7%. There is a leveraged impact on the bottom line.

· What will happen to cashflow in 2009 when revenue contracts 9% (as analysts now assume), a shocking step down from 2008? Analysts are only assuming another 10% contraction in cashflow but it could be a lot worse. There is clearly a lot of confidence in the ability of companies to rescue their cash position by cuts to costs and working capital. There are 30 companies in Asia that are assumed to save at least US$1bn from such initiatives.

· Analysts have already been under-estimating cash burn. In the current reporting season, the shocks have been in cashflow. For example, forecasts for China’s 2009 revenue have been revised down 6% since the start of the year, but cashflow forecasts have been cut by 23%. The equivalent numbers are 3% and 35% in Hong Kong, and 10% and 22% in Korea.

· Based on these current optimistic assumptions, the cash shortfall in Asia is set to be US$160bn (ie, the amount that capex and dividend plans exceed operating cashflows). However, a figure closer to US3$00bn would not be a surprise. This has three implications:

· The amount of extra capital required will be enormous. In 2008, US$131bn in debt and US$31bn in equity were raised. Much more will be required this year.

· Capex plans will have to be scaled back, and for some companies this will place their competitive position at risk. It is also very negative for companies that supply capital goods.

. Dividends will need to be cut.

Outlook
· All our stock screens highlight the usual suspects of Korea and Taiwan at the country level, and autos, transport, tech, capital goods and materials at the sector level. We would not be chasing stocks in these categories until there are more tangible signs of economic stabilisation.

· Figures 7 and 12 contain stocks at risk, either because hopes from cost and working capital cuts are high, or because cash shortfalls are enormous.

Analysis
· Asia’s financial position deteriorated during 2008. Debt levels rose with net debt-to-equity
increasing from 17% to 24%. This reversed a near decade long trend of falling debt levels and
cash accumulation.

· The increase in debt was greatest in India and Korea, although in Korea’s case, it was a doubling from a low base. Net debt rose in every country except Singapore.


To see full report : ROCKS ON STOCKS

>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

>India Property (MACQUARIE RESEARCH)

How deep does this rabbit hole go?

We foresee a turnaround in the second half of 2009
Covering the property sector makes us feel like Alice tumbling down the rabbit hole, not really sure when, where and how it will end. More importantly, is there really a ‘wonderland’ of multi-baggers at the bottom and is it time to start chipping away? We think so. We believe the Indian real estate stocks will bottom out in 6–9 months’ time. The key reasons for the sell-off in the property names were the unprecedented tightness in liquidity and demand destruction. We expect to see some capital flow back (selectively). We foresee physical market prices staging a recovery in late 2010 but do not expect stocks to wait that long.

Capital scenario likely to get better – at the margin
The four primary sources of capital for developers have dried up. Debt is very expensive (if available at all), while the equity markets have no appetite for new paper. Residential volumes are down by over 25% YoY. Availability of capital has remained completely frozen since it reached its worst point in 4Q 2008 (even while the situation in most of Asia is slowly improving). Having said that, we believe all trend reversals start with anecdotal evidence. We spent a few days in February
visiting property companies, brokers, banks and private equity players. Our conversations suggest that there is likely to be some relief for individual developers and projects in the next six months as lenders take on more risk. This should partially be driven by policy initiatives. We are already seeing some asset sales and instances of banks willing to refinance obligations.

Stocks won’t wait for physical market to bottom
Analysing past cycles in India is very tough, as most developers have been listed for less than three years. We try and draw parallels from past cycles in Hong Kong. While the physical market dynamics in the two locations are clearly very different, we can derive some striking and relevant conclusions. In every one of the past four cycles, stocks recovered 6–9 months before GDP growth. This (in turn) preceded a recovery in rents by another 6–9 months. A late-2009 recovery in property stocks should therefore not surprise us. News flow should improve due to the low base effect in volume and price growth, but we do not foresee a smart recovery. We continue to expect that prices and rents in India will bottom in late 2010, 6–9 months after Macquarie’s forecast of a recovery in GDP growth.

Lesson from the tech bust – stock picking is essential
The last three years saw property stocks form a bubble very similar to that seen by internet stocks early in this decade. The bubble burst was as stark. Having said that, we point to an important lesson. While some internet companies (such as Excite @ Home) went under, companies that we believe to have a ‘real’ business model and balance sheet became multi-baggers. For eg, Yahoo delivered 11x returns in the next four years (but was still down 63% from its peak). Similarly, we do not expect cap rates of 13–14% and cost of capital of 16% to persist in a mid-cycle scenario in
India.

To see full report: INDIA PROPERTY

>India Essentials (MACQUARIE RESEARCH)

India cable and satellite TV
Pain for Z IN, positive for ZEEN IN

We analyse the trends in weekly gross rating points (GRP) for Hindi general entertainment channels (GEC), Hindi news channels and regional GECs for the week ending 28 February 2009.

Sterlite Industries (Outperform)
Asarco - not the best but cheap

Revised bid for Asarco's assets: Sterlite's revised offer for US-based mining firm Asarco's (not listed) copper assets, ring fenced from all other liabilities, has been accepted by the lenders and is now placed before the bankruptcy court for approval.

MacQTel AsiaPac Portfolio
Winners and losers Tim Smart

The MacQTel AsiaPac Portfolio is down 3.2% for the week (27 Feb–5 Mar), underperforming the benchmark MSCI AP telco index, which was down 2.5%, and the broader market (MSCI AP), down 2.7% (all performance in US$).

Macquarie China Commodities Weekly
Chinese steel demand in 2009: focusing on the fundamentals and stimulus plan

This week we look at Chinese steel demand in 2009 and focus on the stimulus package and other drivers of demand. First, we predict that crude steel production in 2009 is likely to fall to 460–500mt.

Macquarie Commodities
Iron ore spot prices sink again . . . for now

We review the reasons and implications for recent spot iron ore price falls. Latest news Copper resumed its upward march as stocks declined again, with the majority of materials believed destined for China.

To see full report: INDIA ESSENTIALS

>Asian Tech Strategy (MACQUARIE RESEARCH)

● Asian brands gain shares – from strength to strength. The market share gains of LGE and Samsung are not new news, but the significant weakening of Won further powers up their advantage (Figure 1). Michael and Dohoon estimate that LGE and Samsung are likely to beat their 1Q09 handset shipment guidance by 5–10%. They believe that both are likely to see double-digit QoQ shipment growth in 2Q, with multiple new models. LGE is introducing four to five new models, while Samsung is gunning for 30 models. Importantly, our checks indicate that, with US telecom operators’ handset inventory depleted to as low as one week, it is likely that they will rebuild some inventory. They may have reduced inventory to six weeks in mid-2008 and to just one week in late 2008. LGE and Samsung have strong relationships with operators.

For the smartphone, Chialin estimates that HTC is shipping five new models in 2Q and expanding its Google phones to six operators from two in 1Q. At the lowcost side, the strength from Mediatek is well documented (Figure 3). Importantly, the Chinese government’s subsidy program on electronic goods is critical. Of the 250–300 hand models qualified by this program, 75% is powered by Mediatek’s solution, we estimate. Both smartphone and low-cost handsets are the areas of expected positive unit growth in 2009.

● The semi and electronic components are benefiting. Our channels across Asia show that component suppliers are seeing a material pickup in order patterns to support new models to be launched in 2Q09 and inventory restock. Utilisation at semiconductors is picking up materially in March on the back of higher orders from 2G/3G basebands, application processors, CMOS sensors and RF. The former two are expected to lead to an increase of 300mm fab utilisation to 70–80% in April in TSMC and Chartered, while the latter could lead to improvement in the 200mm fab run rate (50%; Figure 5). Samsung’s System LSI fab is experiencing a similar trend. Japanese electronics suppliers such as Hirose and Murate are experiencing sequential improvement in their monthly order patterns (Figures 7 and 8), and George expects double-digit QoQ growth for the June quarter. Murata controls 30% of global MLCC handset market, while Hirose has significant exposure to Tier 1 and low-cost handset vendors.

To see full report: ASIAN TECH STRATEGY

>India cable & satellite TV (Macquarie Research)

● Colors considered joint No.1 in Hindi GECs; one ad break a big help: Viacom 18’s (unlisted) Hindi GEC Colors has garnered 304 GRPs for the latest week, just one short of the 305 for genre leader, Star Plus. We highlight the fact that the surge in GRPs was driven by Colors’ strategy for all programmes, except for its most popular family soap, Balika Vadhu, to run with only one commercial break per half-hour show. In addition, the channel has adopted the strategy of telecasting blockbuster Hindi movies over the weekend. As a result, the channel has had a remarkable and sustained increase in weekly GRPs over the last 12 weeks.

● Colors’ addition to One Alliance to strengthen its reach: From 1 April, Colors will be distributed as part of the One Alliance bouquet (Viacom 18’s MTV, Nickelodeon and Vh1 are already part of it, as are the Sony channels). This is a positive driver for Colors, as it means wider distribution and reach.

● Competitive intensity in Hindi GECs increasing: In a bid to protect its No.1 position in the genre, Star Plus has run no advertisements between 8am and 9pm over the past few Saturdays and lined up back-to-back Hindi movies, following Colors’ successful strategy. This trend of Star Plus and Colors of cutting commercial air time to increase stickiness and thereby channelling GRPs is likely to hurt shares in TV ad revenue, as it reduces ad inventory.

● Zee TV’s ad revenue share to feel pressure: We expect Colors’ strong position in the genre to work a continuing shift in advertising revenue away from No.3 player Zee TV towards joint No.1 player Colors. We note that ad revenue growth for Zee Entertainment slumped to 1.7% YoY in 3Q FY3/09. Zee Entertainment’s management asserted in the 3Q earnings call that the slump in ad revenue was entirely due to the economic slowdown. Given the tough macroeconomic outlook and with Colors now considered joint No.1, we do not see upside risk to our FY3/10E ad revenue growth forecast of 5% YoY.

● General Election to benefit news channels: The upcoming elections to the Indian Parliament, slated for 16 April to 13 May 2009, will be a big driver of ad revenues on news channels and on Zee News in the June 2009 quarter.

● Weekly GRP trends for Regional channels have not shown any change. We believe regional channels are better placed vs Hindi GECs to ride the slowdown. Zee News Limited (ZEEN IN) continues to have a solid leadership in its key regional GEC markets of Maharashtra and Bengal, with a solid lead over the competition (see Figures 6 and 7 on Page 3).

To see full report: INDIA CABLE

>Indian Pharmaceuticals (MACQUARIE RESEARCH)

● According to IMS, in the next four years US$109bn worth of branded drugs face the threat of generic competition, Although this provides a strong market opportunity for generic players to capitalise on in the medium term, the number of new molecules launched by the innovator companies is on the decline, and that could put pressure on their long-term growth potentials. Generics are forecast to have a CAGR of ~9% for the next five years Vs low single-digit growth for innovative products.

● Because of dominant positions of Indian players in the global generic space, they could be ideal partners or possible acquisition targets, in our view. Key competitive advantages include an established generic business, low-cost manufacturing, access to fast growing emerging markets and strong and low-cost R&D capabilities.

● As more innovative players evolve this hybrid model, we believe the competition may intensify further. While many promoters could be reluctant to cash out completely at this stage, alliances work out to be alternative arrangements in the medium term. However we believe that given the competitive intensify in the industry, being vertically integrated provides an edge.

● Although the European (GSK, Sanofi, Novartis) and US (Pfizer) large caps are already active in building generic capabilities in one way or another, we believe Japanese firms may also be active players in pursuing a generic strategy.

To see full report: INDIAN PHARMACEUTICALS

>Reliance Industries (Macquarie Research)

Gas delay hurts more than crude cut

Event

We have revised our earnings forecasts to take account of actual prices in

2008 and changes to our oil price forecast for 2009 onwards. We have also

factored in the delay in the KG-D6 gas production and now expect commercial

sales of gas to start in April 2009 (previous expectation January 2009).



Impact

Cut in estimates. The delay in gas production and the cut to oil price forecast

result in an 8% and 6% cut to our FY09 and FY10 earnings forecasts,

respectively. RIL’s proposed gas price of US$4.2/mmbtu translates to an oil

equivalent price of US$25/boe. As this is significantly below the current oil

price and our forecast oil price, we do not envisage a cut in RIL’s gas prices.

Our cashflow estimates are reduced by 8% and 4% for FY09E and FY10E,

respectively. RIL should achieve a net cash position by FY12E.

We are also cutting our PAT estimates for 3Q FY09E to Rs36bn (-8% YoY), as

we believe that refining production has been lower than our earlier estimates.



To see full report : RIL

>Hindalco Industries(Macquarie Research)

􀂃 Aluminium outlook weakens: Our commodity team believes that aluminium
inventory build-up is happening due to a lack of demand in spite of production
cuts; this will limit any increase in aluminium prices from current levels. We
are reducing our target price by 34% to Rs73 to factor in changes to our
commodities price forecast.

To read full report Hindalco Industries(Macquarie Research)