>THE MOST BEATEN DOWN STOCKS (ULJK SECURITIES)

For the past fifteen months, we all have seen the market sentiment turning from irrationally exuberant mode, during late 2007, to extremely pessimistic mode, during October 2008 and March 2009.

In March 2009 when NIFTY was trading at 2600 levels, we did a study on long term valuations trend in Indian stock markets and recommended that markets will see strong recovery (Refer to our report "NIFTY to see strong recovery" on Bloomberg. Since then NIFTY has recovered strongly, and is likely to cross 4100 level today.

We have again done a study on the same lines and are sending you a list of stocks which are likely to outperform the markets during next three months. In the present situation, we like stocks in sectors like Banking, Capital goods, Infra and education.

During initial phase of a bull market , the stock prices are mainly driven by the expansion in valuation parameters P/E, P/B and contraction in Yield and our list includes all those stocks which have seen huge contraction in P/E, P/B and expansion in Yield during last Fifteen months.

This report contains information on:

• Fifty Stocks which have seen huge contraction in P/E during last Fifteen months
• Fifty Stocks which have seen huge contraction in P/B during last Fifteen months
• Fifty Stocks which have seen huge expansion in Yield during last Fifteen months

To see full report: THE MOST BEATEN DOWN STOCKS

>INDIA POLITICS (ULJK SECURITIES)

India Votes for Stability
Singh is still the King

Indians have done it. The result of the 2009 election, which came as a positive surprise to the market, is a clear mandate for stability, growth and progress for the Indian economy. The mandate for the congress led UPA coalition is better than what most psephologists would have expected. The new UPA is now more cohesive and substantially stronger than the earlier one. Having won in nearly 200 seats, about 55 seats more than the previous Parliament, the Congress itself has moved into a position of strength within UPA and need no Left parties for support.

We expect a re‐rating of the Indian equities on the basis of improvement in the fundamentals of the economy. We, in our report “Investment Ideas for 2009” dated 19th Jan’09, clearly cited a positive outlook for the Indian economy and expected a revival post election. We expect the new government to give priority to revive the economy from the global slowdown by way of more public investment.

The prime focus of the government will be to reduce the fiscal deficit to the FRBM limit without compromising on the need of more government investment in the social and infrastructure sector. India needs more FDI in key infrastructure sectors for growth and we expect the present UPA government to relax FDI cap in aviation and other non strategic sectors.

BULLS EYE
We have hit the bull’s eye with our Investment Ideas for 2009 report. All the 13 stocks we have recommended achieved the target (though the target was full year target for FY09). On an average the stocks have moved 34% within a span of 4 months. Our model portfolio (based on investment on our recommended stocks) has outperformed the BSE 200 index by 5 percentage pts. We still remain positive over the performance of our recommended stocks and believe them to outperform the broader market.

INVESTMENT IDEAS FOR 2009 OF FOLLOWING STOCKS ALONG WITH TARGETS ARE RECOMMENDED IN THIS REPORT:

• NTPC
• L&T
• SUN PHARMA
• AXIS BANK
• RELIANCE INFRA
• SUN TV
• GLENMARK PHARMA
• EDUCOMP
• YES BANK
• WELSPUN GUJARAT
• SHREE CEMENT
• GUJARAT NRE COKE
• BRFL

Sensex target revised:
On the back of the changed socio‐economic condition, we revised our Sensex target for FY10 to 16905. We expect that the world revive from the current slowdown and demand to pick up. We expect a 15% increase in the Sensex EPS and implies a PE of 20x. We are confident of the EPS revision unless there some unforeseen event hampers this growth.

Sectors likely to get more emphasis

Banking‐ Reform in Indian banking sector. More merger or amalgamation among PSU banks likely in line of BASEL II norms and opening up of the Indian Banking sector.

Infrastructure‐ Increase public investment in infrastructure in order to churn up the economy. India needs US$ 500 bn of investment in the infrastructure sector in the next 5 years to maintain the 8% GDP growth rate. We expect government to step‐up spending on key infrastructure e.g. roads, bridges and port development.

Telecom‐ 3G and Wimax licensing and better spectrum allocation along with broad band connectivity to villages will be on the top of the new UPA governments agenda. Allocation of frequency for telecom service providers and new rules for subscribers to switch operators using the same telephone numbers are among the policy initiatives for the sector expected to be on top of the agenda for the new government. The new government is also expected to take the real first step towards listing the state‐run Bharat Sanchar Nigam Ltd (BSNL) on stock exchanges. The industry also expects some rationalization of the revenue‐sharing regime from the present 25‐ 30% of the revenues with the government.

Power‐ Thrust on UMPPs and rural electrification program. We expect the total production to grow to 180,000 MW by 2012 with more thrust on Nuclear and alternative source of power generation.

Textile‐ Tax benefit and other subsidy to revive the sector

Agro industries‐ Buzz around of a second Green Revolution.


To see full report: INDIA POLITICS

>SESA GOA (ULJK)

Q4 FY09 Result
Sesa Goa has announced its fourth quarter results and it was in line with our expectations. The company’s consolidated Q4 FY09 net sales were down 14.9% yoy at Rs 14299 mn versus Rs 16813 mn and its net profit was down 32.5% yoy at Rs 5476 mn versus Rs 8116 mn. The OPM for the quarter was at 52.7% versus 72.4%.

Volume remains flat
Iron ore volumes for Q4FY09 remained flat yoy at 5 million tones because of sudden fall in demand from China in the last five months, however for the full year company saw 22% growth in volumes despite difficult market conditions. The company also saw an improvement in the inventory situation in February‐March 2009. The company is looking at 20‐25% volume growth for FY10.

Realisation comes down
Realisations were lower in last quarter due to weak iron ore prices, iron ore prices have fallen more than 50% since October 2008 however depreciating Indian rupee partially offset the negatives. The benefit of Rs 200/ tonne from abolition of 8% export duty on iron ore fines since Dec’08 was also passed on to customers.

Increase in reserves, exploration going on
Exploration and drilling programme in Karnataka and Goa have yielded gross additions of 54 million tonnes and after considering mined output of 16 million tonnes during the year from all mines, a net addition of 38 million tonnes. Reserves and resources as on 31 March 2009 were 240 million tonnes compared with 202 million tonnes at the end of FY 2008.
Additional 500 mt of iron ore reserves would be added over next 2‐3 years.


Outlook
We believe that the demand for steel and iron ore will start improving from September onwards, however realizations for FY10 will be lower than FY09. According to us the company is likely to see 15% increase in sales volume for FY10, and the average realization for the year will remain between USD 45 to 50 per tonne, depreciation in Indian rupee against USD will compensate to some extent for the fall in realisations. As the company exports two third of its production to china, the improvement min demand for steel and iron ore in china will act as a catalyst, also any rise in iron ore prices in the second half of the year will benefit the company because the company sells 80% of its produce in the spot market. We have valued Sesa Goa on EV/EBITDA basis, giving a target EV/ EBITDA of 3 and recommend a accumulate rating for the stock with a target price of Rs 131.

To see full report: SESA GOA

>Suzlon Energy (UJLK Securities)

Suzlon Energy Limited is a vertically integrated wind turbine manufacturer with manufacturing capability along the full value chain from components to complete wind turbine systems. The company currently has a combined manufacturing base of 4,200 MW of annual capacity. It is the world’s fifth leading wind turbine manufacturer in 2008. The company is the leading manufacturer in the Indian market maintaining over 50% market share.

Investment Rationale:
Suzlon saw new orders flows from China and Australia of 100 MW each which improves the revenue visibility of the company. There is scope for margin improvement and improved profitability as most of extraordinary items have been considered in FY08‐09. The company has high level of working capital and inventory which it is trying to work down to generate cash for its acquisition. Its subsidiaries Hansen and RePower will add value to the company as they have good profitability and strong order book position especially Hansen which has higher revenue visibility. Suzlon is not a stock which is driven by domestic consumption as majority of its revenues come from international market. Going ahead only 30% of its revenues will come from India and 70% from its international market. The major concerns for the company are deteriorating macros, rising debt and high working capital and funding its Repower acquisition. In the last 2 years, almost Indian market is flat as execution is governing the size of the Indian market. But lately a lot of initiatives by the government have changed in the last 2 to 3 months, particularly in Tamil Nadu and Gujarat governments have both have changed the lot of regulatory improvements are there. The new order inflows will act as the growth drivers for the company.

Valuation:
The stock is trading at Rs 45. At the current market price the stock is trading at a P/BV of 0.7x its FY10E. Its FY10E EPS is seen at Rs 6.9 and it trades at a PE of 6.2x. We recommend an accumulate rating on the stock with a price target of Rs 56. At this price the stock will discount FY10E earnings of Rs 6.9 by 8x. The stock has priced in all the negatives and is available at cheap valuations. The stock is trading at a discount as compared to its peers on account , rising debt and high working capital, but these negatives are priced in the current market price.

To see full report: SUZLON

>Mphasis Ltd. (ULJK Securities)

MphasiS is India’s 8th largest software company with revenues of Rs.19, 065 Mn for the period October end FY08 (7 Month Period). EDS (Electronic Data Systems) has acquired 60% stake in MphasiS after which HP has acquired EDS. Thus HP has become the parent company of MphasiS. The company’s operations have been divided mainly into three segments namely Applications, BPO and ITO services across many verticals.

• The company is maintaining its business mix ratio of 2:1:1 in its Applications, BPO and ITO services respectively. In the applications segment nearly 34% is the form application maintenance and the 66% is in the form of applications development.

• In the ITO business the back office jobs are mainly done by the MphasiS and the front office job is mainly in the hands of the EDS India Ltd.

• The acquisition from the EDS has helped MphasiS to start its ITO space. After the acquisition of EDS by HP, a major chunk of the solutions based projects are bound to go for MphasiS and the projects coming from the HP might have a major competition from the EDS and HP India.

• The main drivers of consolidation in the sector are of two reasons like cost and the better solution.

• Company has expressed its view that the vendor consolidation may increase because of this bleak economic scenario and the companies are going to reap over the wallet sharing.

• The company is increasing the sales expenses as the market is still uncertain. Thus the company is going to show a marginal increase in the SGA expenses.

• The company may see the losses in the hedging because of forex forward covers that they have done in the past period.

• From the BPO business the company is still facing high attrition rates and the absentees. But the company is trying to decrease its buffer levels in the BPO.

• As of now the company is not going to have any lay‐offs and the salary cuts. The company is mainly focusing on the productivity plans and the planning cycles.

• The currency exposure for the revenues are in the order of 8%‐9% ‐ INR, 80%‐82% ‐USD and 18‐10% from the other currencies.

• Company expressed a view that the pipeline of the order book is healthy.

• Cash in hand is $60mn and planning cycle for the Capex is larger because of the decrease in the hiring. We are positive on the stock as far its operations and the clientele list is concerned, though the near term concerns remain.

To see full report: MPHASIS

>Bank of Baroda (ULJK Securities)

Bank of Baroda has posted a positive improvement in its return ratios driven by robust growth in the top line particularly non interest income. Asset quality of the bank also improved and the Gross NPA level now stands at 1.5%. Improvement in ROA will lead to an improvement in ROE, which we believe result in re rating for the stock. Looking at its sustainable growth prospect and attractive valuation, We recommend “BUY” on the stock with a target price of Rs.284 for a medium to long term horizon.

INVESTMENT RATIONALE

■ Continued focus on the asset growth. We expect the bank’s advances to grow at a CAGR of approx 22% during FY08A‐FY10E against management guidance of 25% growth. Priority sector status to the housing loan may result in a decent growth in the mortgage loan portfolio of the bank. In the FY10E, we expect much of the growth coming from the SME segment. The growth in the advances will lead to a decent growth in the NII of the bank resulting in stable net profit growth.

■ Non interest income continues to improve: We expect non interest income of the bank to grow at a CAGR of 18% during the period FY08A‐FY10E. We believe the growth would be coming from the fee income mostly trade related finance and business activities. Return Ratios continues to improve: The strong growth in the non interest income will result in improvement of return ratios of the bank. We expect the ROA of the bank to show an improvement of 9bps during the period resulting in ROE of 17% during the period FY08A‐FY10E.

■ Valuation: At CMP of Rs.220, BOB is presently trading at P/ABV 0.7x of our FY09E ABV of Rs.279 and at P/E 4x of our FY09E EPS of Rs.53.9. We recommend a “BUY” on the stock with a fair value target price of Rs.284 Discounting the FY09E ABV by 1x and FY10E ABV by 0.95x.

To see full report: BANK OF BARODA