>United Spirits Ltd. (MERRILL LYNCH)

UNITED SPIRITS Ltd.

Scenario analysis: assessing risks and opportunities......

Cut FY10 EPS by 16% & PO to Rs600(745); reiterate Neutral
Molasses prices continue to rise ahead of our and market expectations. We build in another 10% increase and hence cut our FY10EPS by 16% to Rs38. Secondly, we undertake a scenario analysis for three situations – no sale of treasury stock, sale at mkt price of Rs600 & sale at premium i.e. price of Rs1000. We conclude; assuming FY11 P/E of 15x, the worse & best case stock price is Rs557 & Rs740.Our PO of Rs600 is based on 15xFY11 EPS assuming sale of treasury stock at market price. Treasury stocks accounts for 16% of fully diluted share capital.

Why then a Neutral? Primarily for two reasons
Market has not yet fully factored the continuing pain from rising molasses price – our 4Q FY09 and FY10 profit is 25% and 16% below consensus. State Budget news so far is neutral but Budgets of two key States (24% of vol.) are still awaited.

Scenario #1 (base & worse case): No sale of treasury stock
We get FY10 & FY11 EPS of Rs38 and Rs37.1. In FY10: Higher molasses prices will restrict EBITDA growth to mere 6% but lower interest costs (Libor reset) leads to EPS growth of 23%. In FY11: Lower molasses prices leads to EBITDA growing 18% but higher interest cost (debt refinancing) leads to EPS decline of 2%.

Scenario #2: Treasury stock sale at Rs600
We get FY10 and FY11 EPS of Rs35.8 and Rs39.9. Total cash inflow is $204m vs. repayment of $330m, hence interest cost still rise slightly in FY11. This is 6% dilutive in FY10 but 8% accretive in FY11 versus the base case.

To see full report: United Spirits

>Bajaj Auto (MERRILL LYNCH)

BAJAJ AUTO - NEUTRAL

SOME MORE STEAM.......

Raise PO, but maintain Neutral
We are raising PO by 11% to Rs 585, as we expect valuation multiples to expand on improved earnings visibility. This follows upward revision to domestic bike sales and EPS forecasts by 3/4% over FY10/FY11. Post-revision, we estimate 7.5% EPS CAGR over our forecast period. Maintain Neutral rating on modest growth prospects.

Domestic bike sales raised
Following positive customer response to XCD 135cc motorcycle, we have greater confidence for 4 upcoming launches by Sept. We raise domestic two wheeler sales estimates to 1.36mn units in FY10 (5% growth, earlier 5% decline), and retain 5% growth on higher base in FY11.

Vulnerable to further slowdown in exports
While management maintains positive for exports next year, albeit with slower growth trajectory, we estimate 10% decline in two wheelers and 5% in three wheelers. Recent trends are worrying, with sharp contraction in sales to Latin America (~30% of exports), and there could be downside risk to our forecasts.

To see full report: Bajaj Auto

>BHEL (INDIA INFOLINE)

COMPANY REPORT
BHEL - BUY
CMP Rs1,402, Target RS1,610

Rs 1.1 trn order book provides strong visibility
Robust investments in the power sector coupled with BHEL's dominance in the power equipment space translated into a robust order book. BHEL's otder book of Rs 1.1 trn, grew by 3.5x over the past five years, is 5.3x FY08 gross revenues provide strong revenue visibility. In order to avoid delays, it is doubling capacity to 20,000 MW by FY 12. Since majority of the orders are from the Government and NTPC, BHEL insulated from lower payment risk and order cancellations. We believe BHEL's order book will continue to grow as fresh investments are announced in the power sector.

Lower commodity prices will positively impact margin
In order to overcome supply chain issues, BHEL stocks its key raw materials for a period of four-six months. For the 9M FY09 steel prices were higher by ~48% yoy. thus negatively impacting margins for the year. However with prices correcting by 51% over the past 7 months and BHEL consuming its high cost inventory in Q4 FY09, we expect its margin to improve in FY10. Also its staff cost will increase marginally as the full impact of sixth pay commission will be accounted for in FY09.

To see full report: BHEL

>Daily Market Preview (MARWADI FINANCIAL)

MARKET OUTLOOK

Reliance Ratio Key, Markets groping for trend…

* The surprise move announced by Mukesh Ambani controlled RIL to merge RPL with itself will have lot of bearing on the market and the merger ratio to be known by 10 AM, will set the course for the day. Cancellation of treasury stock would also be a crucial decider.

* World markets are in a major downtrend and are trading below key support levels and are highly oversold. We would advice against shorts even suggest hedging of shorts. Also recommend very selective buying based on deep values. Crucial level to watch would be 2660 for Nifty on the downside.

To see full report: Market Preview 2-03-2009

>Daily F&O Report (MARWADI FINANCIAL)

To see report: F&O Report 2-03-2009

>National Aluminium (INDIABULLS)

National Aluminium Company Ltd - SELL

Falling LME prices threaten profitability
National Aluminium Company Limited (NALCO) reported a weak set of numbers in Q3’09, mainly on account of lower sales due to declining demand. Net sales fell 6.6% yoy to Rs.10.4 bn because of a 14.9% yoy decline in the aluminium sales volume to ~75,000 tonnes. EBITDA plunged 39.7% yoy mainly on account of higher input costs. We do not expect aluminium prices to bounce back in the upcoming quarters, given the rising inventory levels on the LME and the falling demand. Factoring in the Company’s weak performance and the downbeat aluminium outlook, we have downgraded our rating from Hold to Sell. We expect NALCO to underperform
in the near-to-medium term due to the following reasons.

Aluminium prices to remain under pressure: We believe that aluminium prices will be in the range of USD 1,400–1,600 per tonne in FY10. LME aluminium prices have declined ~60% since July 2008, and we do not foresee any price recovery in the near term as the automobile, infrastructure, and packaging industries (which drive more than two-thirds of the global aluminium demand) are witnessing a recession. In addition, inventory levels at the LME have reached 3 million tonnes, mainly on account of lower demand. Thus, amidst the weak global demand and rising inventory levels, aluminium prices on the LME are expected to remain subdued in FY10.

Margins to contract: FY08 We expect the Company’s operating cost to decline by 18–20% in FY10, primarily due to falling power & fuel costs. However, we believe that the expected lower realisations will overshadow the benefit resulting from reduced operating costs. Thus, we expect NALCO’s EBITDA margin to be ~32% in FY09 and ~25% in FY10, compared with 43.9% in.

To see full report: NATIONAL ALUMINIUM

>IDBI (INDIABULLS)

IDBI BANK Ltd - Hold

Battling macroeconomic headwinds:
Despite a robust growth in the net interest income, IDBI Bank reported a moderate 26.6% yoy growth in Q3'09 net profit, primarily due to a decline in the non-interest income. We hold a cautious near-term outlook for the Bank on account of its heavy dependence on corporate banking, a decline in treasury profits despite falling interest rates, and a lower RoE. However, the low CASA ratio should improve as the Bank plans to enhance its network by 200 branches during the next 6–9 months. Our SOTP valuation suggests a fair value of Rs. 55, indicating a potential upside of 11% over the current stock price. Thus, we give a Hold rating to the stock.

Fee income growth to decline in the short term:
The Bank reported a 27.3% yoy decline in the non-interest income to Rs. 2.7 bn; however, fee income increased 143.4% yoy to Rs. 2 bn. Non-interest income declined primarily due to lower treasury profits; this is a matter of concern as other Banks reported a growth in treasury profits on account of falling interest rates during the same time. We expect fee income growth to fall as the Bank would generate less income through loan processing. This is because the declining growth rate of advances and falling equity markets are likely to steer investors from insurance and mutual fund products, thereby adversely affecting third-party distribution. Thus, we expect the non-interest income to decline by around 30% in FY09.

To see full report: IDBI