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Coal India :GCV-based pricing switch turns EPS accretive: Nomura research

2012-01-09T10:33:00.001-08:00

What’s new: CIL hikes notified coal prices
In its switch to a GCV-based grading and pricing mechanism for non-coking coal from
January 1, 2012, Coal India (CIL) has pushed through a hike in notified (regulated) price
of coal; the new pricing mechanism would be evaluated in the current quarter (1QCY12)
and may be tweaked thereafter. Prima facie, it appears that blended notified price could
effectively rise by 15-20% – CIL’s product mix in context of the GCV-based 17-grade
classification and realization via e-auctions (wherein the basis of setting the reserve price
has been tweaked) would determine the quantum of revenue accretion.
Analysis / implications for CIL – clearly a positive development
1) Although CIL’s transition to the new pricing mechanism from January 2012 was widely
expected, policymakers and management maintained that the switch would largely be
revenue neutral; in this context, the effective price hike as per our first-cut calculations does
appear surprising. 2) ‘Grade slippage’ may be the bogey in realizing sharply higher
revenues; broadly, a margin of safety of two coal grades is built-into the new pricing
structure 3) The base price for the lowest-grade coal (2200GCV) is 10-20% higher than the
lowest price point in the previous pricing regime; further, CIL will now start charging for
providing <3200GCV coal. 4) Ceteris paribus, a 1% increase in blended ASP can increase
CIL’s EPS by ~3%. We maintain our Buy recommendation; on our earnings forecasts for
CIL (under review), the stock trades at 11.5x FY13F P/E and 6.5x FY13F EV/EBITDA.
Negative for consumers, more so for the non-core sectors
1) Overall, notified price for erstwhile Grade C,D coal (~18% of output) has been hiked
sharply, and the price for erstwhile Grade E,F coal (~2/3rd of output) appears to
effectively been raised by at least 4-5%: by our calculations, a 1% hike in notified coal
prices would typically result in 0.25-0.4% rise in power tariff. 2) Price revisions for noncore
sectors are sharply higher for lower GCV coal; the premium over pricing for the core
sector is now 50-60%. 3) The source and GCV of the coal secured from CIL becomes
increasingly important to assess the impact on profitability; IPPs with a revenue model
wherein fuel cost is a pass-through are relatively better placed.
Grade slippage – What is the margin of safety?
While the transition from a pricing mechanism based on seven broad coal grades (from
3200GCV to >6401GCV) to 17 coal grades (from 2200GCV to >7000GCV in slabs of
300GCV) enables a better price discovery, the risk of realizing a lower price on account
of ‘grade slippage,’ i.e. lower-than expected GCV of coal, is also accentuated. A broad
glance over the new pricing structure suggests that CIL has built-in a typical margin of
safety of two coal grades
E-auction reserve price – base premium over notified price lowered
Besides the hike in notified price of non-coking coal, we understand that CIL has lowered
the ‘reserve price’ for sale of coal via the e-auction mechanism. Until 2011, the reserve
price for a particular grade of coal was based on a 30% premium over its notified price.
Going forward, the reserve price for coal grades up to 5500GCV would be based on a
20% premium over its notified price; the reserve price for >5500GCV coal would be the
notified price itself.

Pricing premium for non-core sectors sharply up for low-GCV coal
While the price for >5800GCV coal remains similar for all consumers, pricing premium
for non-core sectors (all excl. power, fertilizer & defence) for lower-GCV coal (erstwhile
Grades E-G) now ranges between 50% and 60%, compared to ~30% previously. Pricing
premium for mid-GCV coal (erstwhile Grades C,D) is marginally higher at ~33% vis-a-vis
~30% previously.

Coal India: New year, new beginnings :: Kotak Securities

2012-01-09T10:30:00.000-08:00

Coal India (COAL)
Metals & Mining
New year, new beginnings. Coal India has transitioned to the international grosscalorific
value (GCV) based pricing mechanism—adopting a uniform pricing structure
across all subsidiaries for 17 categories of steam coal (seven previously). The revised
pricing is likely to help to improve realizations, specifically for low realization subsidiaries
such as MCL and SECL, which are expected to contribute ~52% of incremental volume
targets. Maintain ADD with a target price of Rs380.
CIL to move to GCV-based pricing, precise benefit difficult to assess though looks encouraging
The CIL board has approved the internationally accepted GCV-based pricing for coal, moving away
from the decades-old UHV pricing mechanism—furthering its aspirations to market-oriented
pricing. The range of notified prices has increased meaningfully (10% to 30%) across various
categories of coal—though a precise computation of the benefit is difficult in the absence of
company-wise product sales output.
The shift to GCV-based pricing has led to classifying non-coking coal into 17 slabs of 300 kcal
bandwidth compared with seven UHV-based categories previously. Exhibit 2 highlights the
mapping of the old (UHV-based grading) and the new system and Exhibit 4 highlights CIL’s sales
mix across different grades.
Low price, high growth entities such as SECL and MCL likely to benefit from uniform pricing
CIL has also adopted uniform pricing across subsidiaries, from which low-price but high
incremental volume subsidiaries, such as MCL and SECL, are likely to will benefit. We note that
SECL and MCL contribute about half the overall sales volumes and ~52% of incremental targets,
though prices for Grade E and Grade F for these subsidiaries were 44% and 24% respectively
below the revised prices (average across mapped GCV band). CIL also imposed an additional 6%
levy on sales from Eastern Coalfields Ltd (ECL). We note that ECL contributes 12% of total revenue.
Maintain ADD with a target price of Rs380
We maintain our ADD rating with a target price of Rs380. Our target price is based on 11X
FY2013E EPS adjusted for overburden removal and interest income and implies an EV/EBITDA of
7.5X on FY2013E EBITDA (adjusted for overburden removal).The CIL stock has corrected 23% over
the past three months, weighed down by investor concern about (1) the potential impact of the
mining tax, (2) impact of wage revisions due in FY2012, (3) CIL potentially missing on volume
guidance, (4) diversion of e-auction sales and (5) proposal of cross holdings among PSUs. These
concerns are valid and could weigh on sentiment in the near-term but the potential earnings
impact could be muted (in cases such as mining tax and wage revision) or events less likely to pan
out (diversion of e-auction sales).

Query Corner :BL

2012-01-08T12:20:00.001-08:00

January 7, 2012:

I am in possession of Satyam Computer bought at Rs 71 . What is the outlook for this stock? Should I continue to hold this?

T.V.K. Sankaran

Satyam Computer (Rs 67.5): When we consider the long-term chart of Satyam, it is appropriate to ignore the March 2008 peak of Rs 544, and instead restrict our analysis to the period after January 2009, when the scam was revealed.

The stock has key medium-term support at 54 and it is attempting to hold above it since November 2010. Investors can hold the stock as long as this support holds. Breach of this level can see the stock heading lower to Rs 34 or even the January 2009 low of Rs 11.

Medium-term resistance will be at Rs 101 and Rs 128. Long-term view will turn positive only on a close above Rs 128.

Subsequent target is Rs 189.

Please give me your views on Gitanjali Gems and Praj Industries.

Chandrashekhar R

Gitanjali Gems (Rs 308.6): Gitanjali Gems is struggling with the resistance zone between Rs 390 and Rs 400. It recorded a sharp reversal from here in November 2010 and again recently in October 2011.

This level needs to be surpassed before the stock moves to its all-time high of Rs 480. The medium-term downtrend that is in place since the October peak has supports at Rs 300 and Rs 245.

If the stock stabilises above the first support, it can move on to Rs 442 or Rs 531 over the long-term. Stop-loss for investors can be at Rs 246. Next long-term support is between Rs 150 and Rs 170.

Praj Industries (Rs 77.8): Praj Industries suffered a deep loss of over 80 per cent in the 2008 decline, and the recovery in 2009 could not help the stock retrace even one third of this decline.

The stock is moving sideways with a downward bias since the June 2009 peak of Rs 122. It spent the entire 2011 moving between Rs 62 and Rs 96.

Investors can hold the stock with stop at Rs 60. Slide below this level can result in the stock re-testing the March 2009 trough at Rs 45. Resistances for the medium-term will be at Rs 100 and Rs 125.

The zone between Rs 125 and Rs 130 is a key long-term resistance and investors can divest their holdings if the stock fails to cross this hurdle.

Long-term targets if the stock moves above Rs 130 are Rs 160 and Rs 186.

Please explain how put call ratio is calculated and why it should be less than unity in a bullish market.

A.K. Nawabjan

Put-call ratio: Put call ratio is calculated by dividing the volume of put options by the volume of call options. It is a sentiment indicator. In periods of panic, many traders turn bearish and hence buy put options.

The reverse is true in bullish phases. It is generally seen that investors are more optimistic in bull markets and number of call options is greater than the put options. This makes the put call ratio less than unity in bullish phases.

This ratio is also used as a contrarian indicator wherein the interpretation is contrarian to the reading. For instance, a high put call ratio is a bullish indicator since more traders turn bearish near market troughs.

Similarly a low put call ratio is bearish, since a greater number of traders turn bullish at market peaks.

The chief concern with this indicator is that it does not recognise that put and call options require writers of these options who have a contrary opinion to the buyers of these options.

I would like to know the short- and medium-term outlook for Hindalco and Suzlon.

Nilesh Dave

Hindalco (Rs 117.9): Hindalco is moving lower since the peak at Rs 252 recorded in July 2011. This downtrend has not reversed yet and both the short- as well as the medium-term trend in the stock are currently down.

That said, the stock is halting at key medium-term support zone between Rs 100 and Rs 120. Investors can continue to hold the stock with stop at Rs 100. Next long-term support is Rs 68.

Rebound from this level will take the stock higher to Rs 165 or Rs 200 in the upcoming months. Investors with short- to medium-term horizon can exit the stock on reversal from either of these hurdles.

Medium-term view will turn positive only on a close above Rs 200. Next target is Rs 250.

Suzlon Energy (Rs 18.4): There appears to be no end to the downward spiral in Suzlon Energy. The stock is incessantly trudging lower recording lower peaks and troughs. It is currently trading near its life-time low.

Previous long-term support at Rs 33, that is, the trough recorded in March 2009, will now turn into a resistance. Risk-averse investors can divest their holdings at this level and re-enter on a strong weekly close above Rs 33.

Subsequent targets for the months ahead would be Rs 58 and Rs 66. Medium-term view will stay negative as long as the stock trades below Rs 66. Key long-term resistance zone is between Rs 150 and Rs 190.

Please let me know your view on Ador Fontech.

Manoj

Ador Fontech (Rs 89.2): The structural uptrend that commenced in 2009 continues to be in force in Ador Fontech. The correction from its June 2011 peak has retraced only half the gains made in the previous rally.

The stock has supports at Rs 82 and Rs 65 and the second support can act as the stop-loss for investors.

Resistance for the months ahead would be at Rs 110 and Rs 125. Failure to move above the second resistance will imply that the stock can oscillate in the band between Rs 80 and Rs 125 for rest of the year. Area around Rs 150 will continue to be a long-term obstacle.

I would like to buy Shalimar Paints. Please discuss the stock's medium- and long term technicals.

Rajesh Reddy

Shalimar Paints (Rs 315): The medium- as well as long-term trend in the stock is currently down. It is attempting to hold above the support at Rs 300 since last week, but the recovery lacks conviction.

The stock has long-term support in the band between Rs 270 and Rs 330. Investors can buy the stock in this band with stop-loss at Rs 270. Next long-term support is at Rs 220. Resistances for the medium-term are at Rs 490 and Rs 600. Long-term view will turn positive only if the stock goes on to close above Rs 600.

I bought Century Textiles from a long-term perspective. Please let me know if I can continue to hold on to this stock.

Prabhakar

Century Textiles (Rs 222.7): This stock has long-term resistance in the zone between Rs 550 and Rs 600. It formed a double-top in this band and then reversed lower in September 2010. The stock has also penetrated its medium-term trend deciding level at Rs 300. Next long-term support is at Rs 146 and Rs 113.

Investors with low risk appetite can exit the stock at this point and re-enter once it closes above Rs 350. Subsequent targets are Rs 450 and Rs 600. It is hard to envisage a move above Rs 600 just yet.

How to invest in PPF? : BL

2012-01-08T12:19:00.001-08:00

Any financial advisor would definitely recommend an investment in PPF (Public Provident Fund) as one of the means to build long-term wealth. You can make investments in this scheme every year (in a maximum of twelve instalments) right from Rs 500 upto Rs 1 lakh. You can make investments either in your name or on behalf of a minor. While the tenure of the PPF account is fixed at 15 years, you can extend it for a further block of five years too. From 2012, interest on the PPF account will be notified by the government at the beginning of every year (April 1). PPF investments are eligible for deduction under Section 80C of the Income-Tax Act. Here's the lowdown on how you can open a PPF account.

Post-offices and banks

Along with instruments such as the MIS and NSC, PPF is part of the small savings scheme run by the post office. Hence, one of the options is to maintain your PPF account in the nearest post-office. Opening the account involves filling up a simple two-page application form and the tendering of cash/cheque for the initial subscription. Your passport size photograph, PAN and address proof are the basic requirements.

In case the PAN is not available, an attested copy of the ration card, voter identity card or passport can be submitted. If you are opening an account on behalf of your minor son or daughter, a copy of his/her birth certificate may also be needed. When you open the account, you will be given a passbook. The passbook needs to be updated for every investment you make and for the interest you receive. You will also get a receipt for every deposit you make which can be shown as a proof of tax-saving investment at your office. This will help reduce the TDS outgo from your salary. Besides post-offices, most public sector banks also help you open PPF accounts with them. The account opening and documentation requirements here are largely the same.

Online investments

With almost every investment option, be it stocks, mutual funds, fixed deposits or bonds, available at the click of the mouse, can PPF investments be made online too? Well, you cannot if you have an account with the post-office.

But some banks permit online transfers. For example, if you have your PPF account with SBI and your salary/savings account with ICICI Bank, you can log into net banking and add the SBI PPF account as a payee/beneficiary for transfer from your ICICI account. Similarly, money from your Citibank savings account can be transferred to your State Bank of Mysore PPF account.

Moreover, if you have a savings account and the PPF account with the same bank, these two can be linked. In this case, you need not add the PPF account as a third-party beneficiary. You can directly transfer money. Also, you can view the credits to the PPF account online just like how you see your bank statements.

So, if you have savings/PPF account with other private/public sector banks, do a quick check with your banker. In case the bank does not allow online transfers, you can transfer your account to a bank that does. A post-office PPF account too can be transferred to a bank.

THE A TO Z OF 2011 in terms of investment: Ruma Dubey

2012-01-02T20:13:00.001-08:00

By RumaDubey

A –A year that began with a bang for automobile companies,only fizzled out in the end with car sales posting the steepest fall in nearly 11 years; a year marred by strikes – 2011 will be one that the Indian automobile industry would like to forget in a hurry.

And the one word which has become the mantra of the year is undoubtedly, Anna. His fight and fast against corruption, taking on the entire might of the Govt, took the nation by storm. He continues to remain the man of the year even as 2011 draws to a close.

B –Ban on iron ores exports has crippled the entire mining industry. The Govt ban on shipments of the key steelmaking raw material from Karnataka and subdued output in Goa remains strongly in place, debilitating the entire sector with tremors being felt by the steel sector too.

C –Undoubtedly, Cyrus Mistry, the 43 year-old son of PallonjiMistry, whose company ShapoorjiPallonji is the largest shareholder in Tata Sons and now, is the successor to Ratan Tata. It cannot get bigger than this!

Cable TV digitization Bill was passed and it is to be implemented in phases, to be completed by December 2014. This is certainly a moment of triumph for broadcasters who had been lobbying with the government to allow the cable industry to convert from analog to digital.

D – Divestment target of Rs.40,000crore is nowhere close to being met. Till date, only 3% of this target or a measly Rs.1200 crore has been collected. Most of the PSUs share sale have been deferred. Yet the Govt kept on stating that it will meet the target and removed the bunny from the hat – sale of SUUTI assets and it might just manage to meet the target!

E –Europe debt crisis kept the world markets on leash. The news of the crisis first crept up in the first part of the year and since then has held the world markets at the edge of its sword. It continues to remain a big Damocles sword.

F –FDI in retail was a huge buzz word during the year. Huge expectation built up over 51% FDI in mutli brand and 100% in single brand. But it all fizzled like air out of the balloon.

G –Gold pricedazzled everyone with its price climbing right into the sky. Gold rose more than 30 percent since the start of the year, to a record $1,923.70 an ounce in September. The driver was speculation that Europe's debt crisis would worsen as governments in the region and the U.S. tried to shore up growth through monetary easing.

H –Housing sector has never been so bad. The rising interest rate sapped out whatever little demand was there. And the outlook continues to look bleak. Maybe lowering rates will help spur demand in the new year.

I –Inflation, especially food inflation remained worrisome through the year. The highest was recorded during the year for the week ended 3rd Feb at 17.05% and it ended the year, at 0.41% for the week ended 17th Dec.

IIP along with price rise in a big concern.October IIP at -5.1% was a true shocker. The consistent low IIP shows that incessant rate hikes by RBI has started hampering growth. Estimates for closer to 7% GDP growth for 2011-12 have already been announced by rating agencies.

J –Japanese earthquake on Mar. 11, which measured 9 on the Richter scale caused a devastating chain of events few people predicted. The quake triggered a tsunami that claimed more than 15,000 lives. Thirty-foot-high waves flooded the cooling systems at Tepco's Fukushima Daiichi nuclear power plant, leading to the world's worst nuclear disaster since the Chernobyl meltdown 25 years ago

K – Kingfisher Airlines is struggling to pay its daily fuel bills, has lost many pilots and has cut down on the number of flights, this was definitely one of the worst years for Mallya.

L –Undoubtedly the Lokpal Bill. This is one Bill which is being perceived as the magic pill which will drive away the deep rooted weed of corruption from India.

M –Maruti made the maximum headlines this year, thanks to persistent labour problems at its Manesar plant. Striking employees led to a slump in production as well as car sales, intensifying the pain already being felt because of cooling demand.

N –End of an era when co-founder Narayana Murthy stepped down in late August. Murthy co-founded Infosys with six engineers in 1981 by borrowing Rs 10,000 from wife Sudha.

O –Occupy Wall Street. A quiet movement but it took a larger shape with similar agitations all over the world. The movement was about fight against greed and capitalism on Wall Street, about growing inequalities, the marker driven capitalist policies and unemployment.

P –Primary markets have literally dried up. There has not been a single IPO in three consecutive months – Oct, November and Dec there was one issue on the 30th. And the issues which did raise money were probably some of the worst crop that we have seen in recent times.

Q –Q2FY12 numbers have not been good but a common thread running through many companies is MTM or better recognised as forex loss. Tata Motors, Mahindra & Mahindra, Bharti, Exide, SterliteInds, Dish TV, Essar Oil, Arvind, Jet, Sesa Goa, Subex, JSW Steel, Shree Renuka, PFC, JSW Energy; around 70 major companies reported forex losses.

R –On Dec 15th, rupee was at 54.2000/2050 per dollar, after hitting an all-time low of 54.30 in early trade after which RBI imposed curbs on banks' trading limits to help rein in speculation on the currency. The partially convertible currency closed down 15.8% compared with a fall of 19.1 percent during the global financial crisis in 2008.

S –Moody’s downgrade of State Bank of India’s financial strength rating to D+ from C- in October caused quite a commotion in equity markets, and even prompted Finance Minister Pranab Mukherjee to lash out ratings agencies for trying to “destabilise the banking system”.

Savings account deregulation was a huge thing and it is changing the way banks work now. Kudos to RBI for this!

T –Treasure worth Rs.1 lakh crore was unearthed at the Padmanabhaswamy Temple at Kerala and it took the whole country and world by storm. The treasure, an accumulation of religious offerings to the Hindu deity Lord Vishnu, includes a four-foot high gold idol studded with emeralds, gold and silver ornaments and sacks of diamonds.

U –UKSinha, Chairman of SEBI fired a powerful salvo just before the otherwise disappointing year from SEBI. By bringing to book the promoters, directors and merchant bankers of seven manipulative companies which had recently raised money via IPO, it ended the year with a sweet taste.

V –VikramAkula of SKS Micro came in for harsh criticism and he stepped down from the micro finance company, which has come in for harsh criticism for its flawed business model, changing from a NGO into a commercial institution that chased investor returns and rapid growth instead of providing financial services to the poor.

W –The victory at World Cup. The sheer exhilaration felt when India won the cup remains unmatched. The entire country and Indians across the world celebrated the victory as one and that is one beautiful moment we Indians will not forget in a hurry.

X – Xenophobia means fear of the unknown, especially foreigners and strangers. And in the aftermath of the terror attacks, countries world over are tightening their visa rules. India too has done it and drawn flak too. Call it whatever, but this was much needed.

Y –Youngistan is what India is all about which is what the Census 2011 indicated. Currently the 15-64 age group is around 65% of the population—India's baby boom generation.

Z –Zero debt company? Now that is the flavour of the season. With interest rates high and debt becoming a bad word, any sound company with no debt became a ‘hot cake’.

Analyst's Corner

2012-01-01T09:37:00.001-08:00

INDIA CEMENTS
Reco price: Rs 70,
Target price: Rs 83
The management has indicated no immediate plan of capacity expansion from its current capacity of 14.1million tonnes,besides a capacity of 1.8 million tonnes at Trinetra Cement, Rajasthan. The company has gradually shifted focus to Tamil Nadu and Kerala, with 50 per cent of sales coming from these markets as compared to 44 per cent at the end of FY11. The management has indicated the infrastructure division will not be a key contributor in the short/medium-term. We maintain our earnings estimates at Rs 7.6 crore and Rs 9.9 crore for FY12 and FY13, respectively. We have valued the company at an EV/tonne of $78 (35 per cent discount to the replacement cost). The stock trades at a P/E of 9.2x FY12 and 7.1x FY13 estimated earnings. We have revised our target price to Rs 83 per share from Rs 87 earlier. Maintain ADD.

SBICAP Securities

SINTEX
Reco price: Rs 70.25,
Target price: Rs 130
The stock’s recent underperformance (down 28 per cent against Sensex’s decline of 7.3 per cent over the last month) can primarily be attributed to the company’s $225 million FCCB dues in a depreciating rupee environment, exposure to the EU through its foreign custom-moulding subsidiaries and concerns about foray into the power EPC business, with the promoter group’s to set up a 300-Mw power plant. Sintex trades at a P/E of 3.6x and a price to book value of 0.6x on a one-year forward basis, compared to a five-year median P/E of 11 times and P/BV of 2 times. These are attractive valuations, given the normalised EPS growth over FY13E-FY14E and a high return on equity of 17 per cent. We lower our target price to Rs 130 from the earlier Rs 200 due to moderating growth and flattening returns over FY12. Buy

Goldman Sachs India

Query Corner: BL

2011-12-31T11:34:00.001-08:00

December 31, 2011:

Please discuss the prospects of DLF.

Jyoti Majhi

DLF (Rs 180): DLF could not really recover from the bludgeoning received in the previous market crash when it fell from Rs 1,225 to Rs 124.

The recovery that followed retraced about one-third of the decline only. This structural decline resumed from the peak of Rs 520 recorded in October 2009.

Year 2011 was also pretty difficult with the stock losing 36 per cent this year. It has closed below the critical medium-term support at Rs 275. Next long-term support for the stock is at Rs 140 and Rs 124.

Investors need to divest their holding in this stock if it declines below Rs 170.

Resistances in the months ahead would be at Rs 310 and Rs 392. But long-term outlook will turn positive only on close above Rs 545.

Subsequent targets are Rs 673 and Rs 807. The stock could remain in the zone between Rs 125 and Rs 550 over the next two years.

I would like to buy Bank Nifty. At what price should I buy it?

Ramanuj Marda

Benchmark Bank BEES (Rs 802.1): Exchange traded fund (ETF) on bank stocks is the best way for investors to take an exposure to this sector.

Benchmark Bank BEES is moving down since last October when it recorded the peak of Rs 1,484. This decline has pulled the ETF close to its critical medium-term support at Rs 780.

There are a couple of supports just below at Rs 700 and Rs 650.

Investors can buy the fund in declines as long as it trades above Rs 650.

If this level is penetrated, the slide can accelerate to pull the ETF to March 2009 trough at Rs 335.

There can be a rally to Rs 1,050 or Rs 1,220 in the months ahead. Investors with short to medium-term perspective can divest their holding at either of these hurdles.

Long-term view will turn positive once the ETF moves above the second resistance.

I would like to buy shares of Larsen & Toubro. Please advise on the price range to buy it?

Vishwanath Hadli

Larsen & Toubro (Rs 995.1): Larsen & Toubro was devastated in the September quarter with the stock losing 36 per cent in this period.

The stock is trading well below the key medium-term support at Rs 1,200.

It has also closed the gap that was formed in May 2009.

That said, the stock has psychological support at Rs 1,000.

This is also the floor of the gap formed after the 2009 elections.

Investors with a greater penchant for risk can buy the stock at current levels or in declines with stop at Rs 870.

Breach of this level can drag the stock to the 2009 low at Rs 556.

The short- as well as medium-term trends in the stock are currently down and it is not displaying any inclination to reverse higher.

Should there be an upward reversal from these levels, short-term resistances will be at Rs 1,266 and then Rs 1,450.

Investors with short- to medium-term perspective can divest their holding if the stock reverses lower from either of these levels.

Medium-term view will turn positive only on close above Rs 1,450.

Subsequent resistances are Rs 1,600 and Rs 1,745.

I am holding shares of Phillips Carbon Black purchased at Rs 140 and 3i Infotech at Rs 45. Please advise on future course of action.

Siva Prasad

Phillips Carbon Black (Rs 86.4): This stock is dropping like a stone since mid-November. This decline has pulled the stock well below the medium-term trend deciding level at Rs 109.

Next support on the charts is at Rs 56 and this can now act as stop-loss for investors who are still holding the stock. Next long-term support is way off at Rs 24.

Investors with lower risk appetite can sell the stock at this juncture and consider re-entry once it closes above Rs 107.

Key medium-term hurdle is however at Rs 160. Next targets are Rs 180 and Rs 250.

3i Infotech (Rs 11.7): 3i Infotech also took it on the chin in 2011, collapsing from Rs 60 to Rs 12, loss of 80 per cent. The stock has also declined below its long-term trough at Rs 25.

It is difficult to tell where this downward spiral will halt. Any rally from hereon will face strong hurdle at Rs 25. Investors can switch out of this stock and consider buying it again only on a firm weekly close above Rs 25.

Medium-term view will turn positive only on a close above Rs 52.

I would like to know the prospects of Ramky Infrastructure.

Chandrasekkar

Ramky Infrastructure (Rs 205.9): This stock does not have sufficient history to enable us to come to a conclusion on its long-term prospects. But it is currently trading close to its life-time low.

That the stock is unable to break the sequence of lower troughs and peaks since its listing also implies that the stock is in a long-term down trend.

There is no semblance of reversal in either short- or medium-term time-frames. Investors with lower risk appetite can switch out of this stock and consider re-investment on a weekly close above Rs 250.

Next hurdles for the stock are at Rs 330 and Rs 360.

Please discuss the medium- and long-term out look of PTC and Selan Exploration.

A Parameswaran

PTC India (Rs 38.8): The long-term trading band for PTC is between Rs 40 and Rs 200. The stock is vacillating in this band since 2004. The stock is currently near the floor of this long-term trading zone.

Its life-time low of Rs 31 recorded in April 2004 should serve as the next long-term support and the stop-loss for investors.

Investors can continue to hold on to the stock since a reversal from here has the potential to take the stock all the way back to Rs 150 or even Rs 200. Medium-term targets on an upward reversal are Rs 80 and Rs 108.

The ceiling between Rs 150 and Rs 200 will continue to act as an obstacle for long-term uptrends.

Selan Exploration Technology (Rs 229): Selan Exploration is also southward bound since the beginning of this year. The stock is currently ruling at its 52-week low. That said, the long-term trend in the stock continues to be up.

It is still trading above its long-term trend deciding level of Rs 216. Investors can continue to hold the stock as long as it trades above this level.

Breach of this level will drag the stock to Rs 140, Rs 118 or Rs 90. Medium-term resistances will be at Rs 300 and Rs 350. Key long-term resistance is at Rs 425.

What does the technical chart say about CESC? Can I enter at current level of 204?

Shankar Mayuram

CESC (Rs 203.4): The long-term uptrend that began from January 2008 peak continues to be in force in CESC.

The stock is currently nearing its long-term base at Rs 165 recorded in October 2008. Investors can continue to hold the stock as long as it holds above this level.

Resistances for the medium-term will be at Rs 276 and Rs 375. Long-term trend will however turn positive only on close above Rs 500.

Reliance Industries: The second coming RIL: Secures pan-India spectrum for LTE ::Deutsche bank

2011-12-31T11:33:00.000-08:00

Reliance Industries: The
second coming
RIL: Secures pan-India spectrum for LTE
In June 2010, RIL secured 2x20Mhz unpaired spectrum in the 2.3Ghz band at Rs120bn.
It has announced its intention to rollout LTE (FDD version). At this juncture, RIL has not
made any announcements about its key equipment vendors or its strategy to source
towers for the network rollout. We expect a service launch over the next 18 months.
Our assumptions for RIL’s telecom foray:
�� RIL would also need to provide voice services to build a viable business.
�� LTE is both a boon (for data) and bane (for voice) – standards for provisioning
voice over LTE have not crystallised.
�� Headroom for disruptive pricing, especially on voice, is limited. However, we
believe RIL would be impacted by data tariffs. RIL would be better placed than
the incumbents to offer higher data speeds, which it is likely to leverage to
drive down data pricing.
�� RIL could acquire/merge with another player to gain access to GSM spectrum.
The proposed M&A guidelines are favourable for such an outcome
We expect RIL to target and enter both voice and data markets
We believe it would be difficult to build a viable business only focussed on the data
market. Assuming the Indian data market scales up to 20% of the total telecom
revenues by FY16E, an optimistic estimate of the market size would be around Rs350-
400bn. Assuming RIL corners a 20% marketshare (an optimistic estimate), its top line
would be around Rs75-80bn. As a comparison, Idea’s current top line is around
Rs200bn. Given that RIL plans to invest around $5bn in telecom, a $1.6bn top line is
likely to fall short of its ambitions.
RIL’s ability to disrupt pricing, especially voice, would be limited
Our discussions with clients indicate that there is an expectation that RIL will focus on
data and offer cheap (or free) voice calls on VoIP technology as a loss leader strategy to
build a subscriber base. In addition, this would significantly impact the voice revenues
of the incumbents.
While RIL can offer on-net calls at any rate, off-net calls will need to be priced at a
minimum of the termination charge. As for VoIP calls, we note that they are not
'costless’. Hence we would surprised if RIL elects to provide free voice calls and use it
as a loss leader strategy for an extended period.
Incumbents’ strategies and tactics have evolved since RIL’s last foray
During its first foray into telecom (as RCOM in 2003), RIL entered the market with
disruptive voice pricing, which quickly helped build operating scale and volume of
minutes. Ironically, incumbents such as Bharti recognised the value of this 'minutes
factory' approach rather than their ARPU-based business model and re-jigged their
operating strategy and business processes.
We believe RIL's ability to succeed with a similar approach this time is limited due to
two factors: a) the headroom to cut prices is low as incumbents have significant scale
and low-cost structure and b) incumbents have demonstrated a willingness to sacrifice
margins to remain competitive on tariffs. In summary, we believe that RIL's entry could
trigger a round of competitive tariff cuts, but these are unlikely to be sustained in the
long run.
LTE – challenges abound
Deutsche Bank analyst Brian Modoff highlighted in a recent note (Signals to Noise –
LTE challenges, 2 October 2011) the key challenges confronting carriers building out a
LTE network. This includes: a) support for voice and legacy services and b) band
support in handset radios.
�� He notes that carriers are still struggling to find a way to support basis services
such as voice and SMS. Voice Over LTE (VoLTE) has emerged as a preferred
solution, but there are no clear-cut standards for designing VoLTE systems.
�� Band support: The proliferation of bands proposed for LTE is a major challenge.
Brian believes that there are around 44 different bands for LTE around the
world, which is too broad a range to be addressed in a single chip. He sees
radios in cell phones as major technical challenge for LTE. Put simply, RIL is
likely to be hamstrung with a poor device ecosystem, and it would be a
challenge to build a low-cost LTE ‘phone’.
Nevertheless, on a long-term basis RIL is well placed on its technology choice
Unlike the last time around when RIL was on a CDMA platform that had a truncated
upgrade path, its current choice of LTE is the next upgrade for WCDMA (i.e. 3G)
technologies being used by its key competitors. As the telecom market in India evolves
to an increasing share of data, RIL would be better placed than competitors on the
technology front.

Reliance Communications: Cashflows are crucial and growth is the only option:: Deutsche Bank

2011-12-31T11:26:00.000-08:00

Stabilising operations but debt burden constrains valuations
RCOM’s key challenge is to build momentum in its wireless business and
generate sufficient cashflows to reduce its debt burden (current net debt to
EBITDA 4.7x). Over the last six quarters, revenue/min has been stable, but
mobile EBITDA has stagnated. Weak cashflows have forced RCOM to
constrain capex to generate sufficient cash to repay around $1.2bn in FCCBs
maturing in March 2012. We are reducing our FY13E EPS and target price by
c.50% to reflect RCOM’s operating and financial challenges. Maintaining Hold
(target price Rs80).
Wireless business – growth is critical, but could be harder to achieve
Over the last ten quarters, RCOM’s wireless revenue-share fell from 12% to
8%. We believe it could be challenging for RCOM to maintain market share;
we forecast FY13/14 revenue growth of 13%/11% (below sector growth of
15% p.a.). Margins should improve by 200bps to 29% by FY14 as RCOM has
also raised tariffs following hikes by incumbents. Unlike in the past, we believe
RCOM’s ability to precipitate a tariff war is limited due to its leveraged balance
sheet.
Debt burden a key concern, economic cost of debt difficult to estimate
At end-2QFY12, RCOM’s net debt stood at Rs319bn, which includes a recent
drawdown of $1.3bn out of a $1.93bn loan facility extended by a consortium
of Chinese banks. Cash flows in 1HFY12 have also been weak, likely on
account of payments to capex creditors. While we forecast cumulative FCF
(FY12-14) of Rs88bn, our FY14 net debt to EBITDA remains at an elevated level
of 3x. RCOM’s interest costs are hard to fathom from its quarterly disclosures.
However, we note that its convertible, due in March 2012, is trading at YTM of
around 27%.
High leverage relative to peers results in a valuation discount
Our DCF-based target price for RCOM is Rs80/share, implying 6.3x FY13E
EV/EBITDA (20% discount to Bharti’s implied valuation). Our DCF
assumptions: RFR of 6%, risk premium of 8.5%, CoE of 17%, Kd of 10.5%,
WACC of 13.1% and terminal growth rate of 2%. A reversal in market share
losses would be a key upside risk. A resumption of the tariff war would be a
downside risk.

High dividend yield stock should look in 2012: ET

2011-12-30T12:29:00.000-08:00

The BSE Sensex has slipped over 20% so far in 2011 mimicking the fall in global markets. However, the burgeoning fiscal deficit situation, high inflation rate scenario and slowdown in corporate earnings growth have stalled India's growth story to some extent in 2011.

Since the onset of the European debt crisis, global markets have been plagued with uncertainty and slowdown in growth.

Brokerage firm CLSA has also lowered its 12-month target for the benchmark index, BSE Sensex, to 17,000 from 18,200, citing earnings cuts for FY12 and FY13.

The research house has reduced its earnings estimates for the Sensex by 1-3 percent over the last month and now forecasts 14 percent earnings growth in FY12 and 10 percent earnings growth in FY13.

The economy grew at its slowest in more than two years in the July-September quarter as the impact of rising interest rates, surging inflation, policy delays and a weak global economy hurt expansion plans, dragging growth to sub 7% levels.

For investors spooked by the slide in equities during better part of the year, it may not be a bad idea to consider high dividend yielding stocks. Here's our pick of stocks which have consistently given a dividend yield of 4% or more over the past three years.

Top fund managers pick for 2012 : ET

2011-12-30T12:22:00.000-08:00

NIRMAL JAIN, CMD, IIFL

CIPLA: Cipla has largely completed a strong investment cycle and its meaningful impact will flow in the next 2-3 years. The stock underperformed over the past two years largely due to its lower-than-market growth and margin pressure. We believe with the operating leverage looming in and improvement in margin and return ratio, Cipla would trade at its high multiple. We expect a revenue CAGR of 14% over FY11-FY13E as against 8% over FY09-FY11. In a volatile market, we expect Cipla to offer a defensive play with a lower risk and high rewards.

ICICI BANK: Over FY08-11, ICICI Bank underwent a landmark transformation elevating its profitability matrix significantly. Over the past two years, its NIM has been steady in the range of 2.5-2.7% aided by structural improvement in CASA. Asset quality has held up well so far and the bank recently upgraded its credit cost guidance for the year implying a sanguine outlook. Negligible restructured assets and robust capitalization provide a lot of comfort. Current valuation is extremely attractive in the light of potential 1.3% RoA delivery.

MOTILAL OSWAL, CMD, Motilal Oswal Fin. Services

STATE BANK OF INDIA: SBI has a strong liability franchise of over 18,500 branches at the group level, leading to a robust growth in CASA, fee income and core PPP growth. Led by repricing of assets and control over cost of funds, NIMs have improved sharply to 3.8% ( one of the best in the industry), and we expect it to remain superior at over 3.5%, a key driver for profitability. Higher focus on asset quality versus growth and proactive recognition of stressed assets will lead to lower slippages and higher recoveries going forward.

INFOSYS: Infosys has positioned itself as a high value player in ITeS. We expect it to consolidate its positioning across Europe and emerging markets. Its strategy of moving up the value chain while aggressively targetting new markets will help hold margins in a narrow band. Infosys is also better placed to drive productivity post the restructuring undertaken earlier this year. The company also has a prudent hedging policy, better than its peers in our view-a key positive in the current environment. We expect earnings to grow by 15% in FY13.

D KANNAN, MD, Kotak Securities

INFOSYS: The company's management has reiterated its long-term commitment to increase the proportion of non-linear revenues. We concur with the management's view that this is necessary to ensure profitable growth, while providing more value to customers. We remain positive on the medium-to- long term strategy of the company.

HDFC BANK: HDFC Bank is best positioned vis-a-vis its peers in the prevailing uncertain macro-economic environment with better loan profile in the form of higher exposure to retail and working capital loans, strong liability franchise aiding superior net interest margins and high coverage ratio, in our view. We are modeling earnings to grow at 27.9% CAGR during FY11-13E.

GAGAN RANDEV, CEO, Religare Securities

ACC: The demand in rural areas is set to improve as a good monsoon will lead to better earnings for farmers. Awarding of road projects and construction activity of metros will further boost cement demand. A sharp rise in cement prices was attributed to demand from large dealers who were stocking up in anticipation of a pickup in demand during the festive season.

GODREJ INDUSTRIES: The diversified business provides it a hedge against adverse developments in any industry. It is planning a major expansion in its agri and chemical businesses at an investment of around `300 crore. The group owns about 5,000 acres in Vikhroli; a part of which has been used for residential and commercial purposes. The company holds 69.51% stake in Godrej Properties

SIVASUBRAMANIAN KN, Chief Investment Officer, Franklin Templeton Investments

There is likely to be increased volatility over the shortterm, but investors should focus on the long-term return potential, as it is difficult to time the market. One of the key triggers could be substantial progress on key reforms that are required to address structural issues in India, reduce inflation levels and lay the ground for future growth.

Sectors: From a medium- to long-term perspective, sectors benefiting from structural growth drivers, that is, consumption and infrastructure development are likely to fare well in our view. However, in volatile market conditions such as those seen in recent times, historical data suggests that, typically, defensive sectors such as FMCG and healthcare relatively outperform markets, while cyclical stocks are rather severely hit during periods of high volatility.

SANKARAN NAREN,Chief Investment Officer, ICICI Prudential Asset Management

The market will remain volatile in 2012 unless the government is able to handle the rising fiscal deficit, which is keeping interest rates high.

Sectors: We are bullish on exporters in 2012, as the rupee has weakened by almost 20% against competitor China's yuan. This is a real opportunity for exports to pick up. Among exporting sectors, we are optimistic about textiles, dyes and chemicals, and engineering goods. We like the technology space too, but the sector is not showing any significant improvement in volumes.

SUNIL SINGHANIA,Head - Equity Investments, Reliance Capital Asset Management

Year 2012 starts with a lot of uncertainty and challenges. Right from action on reforms and policies by the Indian government to the inflation, interest rates and currency scenario, and also global concerns; there is uncertainty on every front. Thus the outlook as we start the year is one of confusion. We expect 2012 to throw a challenge in the first half and a possible big surprise in the second half.

Sectors: Companies having dollar assets and revenues should do well. In case interest rates fall towards the second half, there is a possibility of capital expenditure reviving the ailing engineering and capital goods sector.

ANUP MAHESHWARI, EVP & Head - Equities, DSP BlackRock Investment Managers

Global markets will remain volatile and continue to negatively impact market sentiment and growth. During volatile market conditions, investors will benefit more from large cap companies.The performance of large- cap companies may potentially provide for a 15% CAGR over the long-term although these returns may not be linear.

Sectors: Interest rate sensitive sectors will appear attractive as there may be a pause in interest rate hikes. There are opportunities in pharma, IT, auto & auto-ancillaries. Infrastructure will remain under pressure.

Top 20 large cap & mid cap stocks to buy in 2012 :ET

2011-12-30T12:12:00.001-08:00

The year begins on a rather gloomy note with the overhang of the European debt crisis, and closer home, a slowing economy, an earnings downgrade, and a government failing to get going. Though these factors are bound to impact the economy and growth, there are a handful of companies that hold out promise. The ET Intelligence Group has shortlisted 10 stocks each from the large cap as well as mid cap categories for 2012. It also tells you why your bets may not be fully misplaced.

Band of Big Boys You can Place Your Bets On...

1. ADANI PORT & SPECIAL ECONOMIC ZONE

While the major ports of the country are operating at near capacity, Mundra Port & Special Economic Zone will be able to handle incremental trade, given its large capacity.

The proximity of MPSEZ to north western states makes it attractive for handling volumes for these states. MPSEZ continued to outperform all major ports in cargo volume with 27% volume growth in total cargo handled compared to 3% growth in total volumes at the major ports in the first half of this financial year.

MPSEZ has acquired 50mtpa bulk-handling capacity from Abbot Point port in Australia. The stock trades at a trailing P/E of 23.3 which is justified, given its growth potential.

2. APOLLO HOSPITAL ENTERPRISES

(AHEL)

Healthcare is one of the sectors to get least affected from the economic slowdown. AHEL is the best contender in this segment having presence in hospitals, pharmacies and insurance. The company owns a chain of 52 hospitals having a total of 8513 beds.

Over the past four fiscals, the company has logged a steady rise in in-patient admissions and average revenue per occupied bed.

Its occupancy rates have remained high above 70% with gradual reduction in the patient's average length of stay in its hospitals. It also has a network of 1,257 pharmacies across India and also runs a health BPO and health insurance service.

4. IDEA CELLULAR

A pan-India reach, higher concentration of active users, and a strong brand recall augur well for Idea Cellular during the year which is likely to see a full-fledged roll-out of data based 3G services.

Though the company's near-term financials will be under pressure due to higher interest costs and losses in new telecom circles, it looks well poised over the long-run to take advantage of data-driven growth in the Indian telecom sector.

Idea is fuelling the growth of smartphones by introducing low-cost handsets. The operator enjoys a higher active user base coupled with a firm trend in user additions. This should help the company reap benefits from new services.

5. LUPIN

Lupin is the fifth largest generics company in the US. It has a growing and promising presence in Japan and emerging markets like South Africa.

A pipeline of limited competition drugs and the recent foray into oral contraceptives is likely to be the growth driver for the company' s business in the US. Through its recent acquisition of I'rom Pharma in Japan, the company has forayed into the hospital generics segment.

Lupin has been among the few outperformers in the Indian domestic market with enhanced market shares across therapies. Average growth of over 20% in sales and profits, strong cashflows from operations and low debt make it a classic defensive stock.

6. POWER GRID

It has an extremely low-risk business model. With almost a monopoly in the central power transmission business, the company will benefit from the huge demand for transmission lines from the upcoming capacity addition.

It has a strong balance sheet to support its capex plan and a strong execution record. It has a fixed return on equity of 15.5%.

The company has hardly any variable cost post the capex, except maintenance cost. It has an operating margin at a high 90%. All this gives a strong future earnings visibility and hence the stock has outperformed the broader market in the last one year and the outlook continues to remain positive.

7. PNB

Punjab National Bank is one of the fastest growing public sector banks. Second only to State Bank of India, it has a competitive funding cost structure, a huge network in North India and strong capitalisation levels.

It has shown a sharp improvement in asset quality and has invested heavily in technology upgradation giving it an advantage over its peers in the public sector.

Despite a relatively high increase in restructured loans, this is helping it to decrease its exposure to the troubled power sector. Given all these factors, the bank is expected to maintain NIMs higher than its peers.

8. SHRIRAM TRANSPORT FINANCE

Shriram Transport Finance is the largest commercial vehicle financer in the country with a network of 488 branches. It has a presence in financing pre-owned trucks where it garners one fourth of the market.

Despite the concerns in the lending business, Shriram Transport Finance still lends to small truck owners which are less leveraged as compared with companies. This lessens the chances of borrower defaults compared with other NBFCs.

The company's recent performance has been under pressure on account of higher provision for nonperforming assets. But this is not expected to persist over the longer-term.

9. SUN TV NETWORK

Sun TV Network would continue its growth momentum in revenues in 2012, thanks to its robust business model. The company's domination in the southern broadcast industry helps it secure over 71% of operating profit margin consistently. Sun TV Network enjoys discretionary powers over its content, giving it a distinct edge over other media companies.

Recently, the company launched highdefinition version of its four channels. With these channels the company has 25 channels.

These channels would be offered at a price higher than plain vanilla on its DTH services. Company's alleged involvement in the 2G scam may not have an impact on its earnings.

10. TITAN INDUSTRIES

Titan operates in the jewellery segment through its retail brand Tanishq which contributes almost three-fourths to its total net sales.

Despite an unfavourable macro environment, it has aggressive expansion plans. And this will not require much capital expenditure as the company mainly operates on an asset-light franchisee model.

Despite degrowth in the jewellery market, the company's volume has increased in the last few quarters. It has a 5% market share in the jewellery market which will continue to grow with the space addition and with a strong brand equity allowing the company to grow at a rapid pace.

...And a Middle Order that Promises to Deliver

11. ALLCARGO

Over the next year, the high-margin container freight stations (CFS) business would be the main driver for AllCargo Global Logistics' (Allcargo) earnings. It is doubling its CFS capacity at JNPT by March 2012.

AllCargo books space for container volumes in shipping firms for its multimodal transport operations (MTO). During a downturn there is usually a tendency to shift to less-thancontainer-load to reduce cost.

This augurs well for the company as Europe is now facing a slowdown. On a trailing 12-month basis, AllCargo's stock is trading at a price-to-earnings (P/E) valuation of 8 which is one of the lowest among its peers.

12. COX & KINGS

In 2012, Cox & Kings India will begin to reap the benefits of its acquisition of UK's Holidaybreak, which offers travel facilities to local students. The acquisition provides revenues round the year as vacation for students in the UK does not coincide with school breaks in India, thereby supporting the topline.

The company can tap into the large base of students in India, Japan, Australia, New Zealand and China for their educational travels to various destinations in Europe.

Holidaybreak is present in over 150 destinations where Cox & Kings India operates. It gives an opportunity for both companies to cross-sell services. This should boost sales for Cox & Kings India.

13. CRISIL

The pioneer in credit ratings in India, CRISIL still controls the largest market share in the country with the largest number of rated entities and products.

Global ratings agency Standard and Poor's holds a majority stake in the company. After buying back shares in January 2011, the promoters recently made another offer to buy back shares.

This is a reflection of the confidence that they have in the company. The slowdown in the economy and a marked fall in debt-raising by local firms is a concern as revenues are bound to be hit but the stock may continue to do well because its core business of ratings will flourish despite a slowdown.

14. ENGINEERS INDIA

Despite the current slump, the company is better placed than most others in the capital goods sector. EIL has a strong balance sheet - zero debt, cash surplus, improving debtor's turnover ratio and an impressive RoCE. It also has a healthy order backlog giving it revenue visibility for the next two years.

However, while this ensures top line growth, operating margins may continue to be under pressure, at least for another year, due to pricing pressures in the turnkey project business.

But, EIL's stock has already lost 40% of its value over the past one year. EIL's strong fundamentals and current valuations make it a preferred buy

15. GUJARAT STATE PETRONET

The performance of Gujarat State Petronet was hardly a stand-out one in 2011 due to stagnating gas volumes and uncertainty relating to its tariffs.

However, it enjoys a strong cash-generating business model that will earn greater currency once availability of natural gas improves in the country. The strong profit growth in 2011 was mainly owing to the changes in depreciation policy.

This apart from the correction in its stock price has reduced its price-to-earnings valuation to 8.3 - the lowest among its peers. In 2012, the company is expected to report some growth in its gas volumes, thereby boosting investor sentiment.

16. HAVELLS INDIA

Havells India has performed quite well in the first half of the current fiscal. This is expected to continue in the coming quarters as well.

Its major products - switch gears, cables and wires, lightings and fixtures - are growing at the rate of over 20%, and will likely show decent growth in the coming quarters.

Its European subsidiary, Sylvannia which accounts for nearly half of the company's revenues, is profitable now. Sylvania's revenues will remain stable in the coming quarters, but profitability will be on the upswing as more of its manufacturing will be outsourced.

17. KEMROCK INDUSTRIES

The increasing demand for Kemrock's fibrereinforced plastics (FRP) and its successful foray into carbon fibre will prove to be the key growth drivers in 2012.

In FY12, it plans to double its current carbon fibre capacity to 800 tonnes. It also acquired 80% in the Italy-based Top Glass, which manufactures composite profiles.

It also tied up with the Netherlands-based DSM Composite Resins AG for production of specialty composite resins in India. All these initiatives will support the company's growth going ahead. The company's stock price has been steady during the recent market volatility, which reflects its strength.

18. MAHINDRA HOLIDAYS & RESORTS

The company enjoys a wide reach and a growing base of subscribers with 36 retail outlets, 126 franchisees and 19 branch offices. In the past five years, its vacation ownerships have risen more than three times to over one lakh.

The company's strategy to explore the unknown but scenic destinations has worked well. Recently, the company added Osian, Navalgarh and Swamimalai (in Rajasthan and Tamil Nadu, respectively) to its portfolio of 49 locations in 14 states.

The holiday resort firm has an occupancy level of over 80% which is higher than most budget hotels. This business model will continue to drive its revenues even in 2012.

19. PAGE INDUSTRIES

Page Industries manufactures and sells inner wear under the brand Jockey. In 2011, the company got a licence extension to manufacture and distribute the Jockey brand till 2030.

Brand Jockey commands premium pricing among inner wear brands for men. This extension of licence for close to 20 years indicates strong revenue visibility for the company.

Page Industries has a market share of 24% in the men's category and 12% in the women's inner wear market. A formidable presence in the premium category, where the average market price for each item is anything between Rs 100 and Rs 150, will be an advantage for Page Industries

20. V-GUARD INDS

The company has a strong presence in the south for its pumps, voltage stabilisers and wires. Now, it is diversifying into water heaters, electric fans and inverters.

It is looking to expand geographically. It is aggressively marketing its products in nonsouthern markets and has increased its ad spend in the past few quarters, the impact of which will be reflected in the coming quarters.

The company has a very strong balance sheet, a wide range of products and a strong hold over its existing market, giving it an edge over its rivals. With the recent correction in its stock price, V-Guard looks attractive as a long-term investment.

Reliance Industries - Cut to Neutral on worsening refining margins outlook BofA Merrill Lynch,

2011-12-30T12:08:00.001-08:00

Reliance Industries Ltd.
Cut to Neutral on worsening
refining margins outlook
�� Cut FY12-14 EPS by 4-9% and PO by 9% to Rs860
Global oil demand growth was weak in 2Q (lowest in 7 quarters) and 3Q 2011.
We had concerns that refining margin (GRM) would weaken if demand weakness
coincides with large refining capacity addition in 2012 (Reliance Industries Ltd., 22
August 2011). In November 2011, Reuters’ Singapore GRM has collapsed. We
have cut Asian GRM (Oil Industry, 01 December 2011) and FY12-14 GRM of
Reliance Industries (RIL) by 6-11% to US$8-9/bbl. This has led to cut of 4-9% in
FY12-14 EPS and 9% in PO to Rs860. We now expect flat EPS in FY13. Revised
PO implies 8% potential upside. We therefore cut RIL to Neutral from Buy.
Singapore GRM weakens in November 2011; lowest in 2011
Reuters' Singapore GRM, which has been strong at US$8.7/bbl to date in FY12,
has slumped to US$6.6/bbl in November 2011 (lowest monthly GRM in 2011).
Singapore GRM for week ending 25 Nov is down to US$5.2/bbl (US$4.5/bbl in the
current week). We expect Singapore GRM to be US$4.2-4.3/bbl in 2012-13.
Neutral due to inexpensive P/E and strong balance sheet
RIL is not expensive. Its P/E on FY13 EPS is 11.4x, which is much lower than its
5-year average forward P/E of 16.8x. RIL will turn net cash in FY12, which will
boost its other income (main factor preventing FY13 earnings decline).
What would make us bullish or bearish on RIL?
We would turn more bearish on RIL if its FY13 GRM is lower (if oil demand
weaker) than assumed by us and/or rupee is stronger (Rs50 assumed). We would
turn bullish if GRM are higher (higher than expected refinery closure), RIL makes
significant oil or gas discovery and/or a value accretive acquisition.

Reliance Equity Opportunities: Invest :: Business Line

2011-12-30T12:07:00.001-08:00

The current market condition offers a good investment universe for ‘go anywhere' multi-cap funds such as Reliance Equity Opportunities.

Investors with some risk appetite can consider phased exposure in the fund through systematic investment plans.

Investors who opted for three-year SIPs during the peak of 2008 and continued to stay invested in the fund will have earned an absolute return of 33 per cent against minus 1 per cent clocked by lump sum investors. The SIP return vis-à-vis the lumpsum performance is an indicator that the fund is subject to high volatility.

Despite a decline of 18 per cent in its NAV over a one-year period, the fund's asset under management grew by 12 per cent, implying that the fund has witnessed higher inflows. Markets such as the present one may provide ample opportunities for fund manager to deploy such funds in stocks at attractive valuations.

SUITABILITY

Although Reliance Equity Opportunities is benchmarked against the BSE 100, it takes substantial exposure to mid and small-cap stocks.

The fund is suitable for investors who can assume risks that come with the above market-cap segment. An active profit-booking strategy will help cash in on extraordinary rallies.

PERFORMANCE

The fund's high SIP returns indicate that its NAV is subject to massive swings. For instance, between January 2008 and March 2009, the fund's NAV swung between Rs 31 and Rs 11.8.

But that also means higher opportunities to average rupee costs and make superior returns during a market pullback. The fund proved its mettle in the 2008-09 pullback and amply rewarded it investors.

The fund, over three- and five-year periods, clocked compounded annualised returns of 30 per cent and 7.6 per cent, respectively, against 16.2 per cent and 3.1 per cent returns by its benchmark BSE 100.

Its performance over a three-year period placed it at the top of multi-cap peers. Higher exposure to interest-rate sensitive sectors such as banks and auto, however, resulted in a sharp correction in the last six months.

The fund's top ten stocks accounted for 40 per cent of its assets. Its preferred sectors such as software, pharma, banks, auto and auto ancillaries accounted for 53 per cent of the portfolio.

The fund appeared to be contrarian in its outlook on FMCG. It has held less than a per cent of its assets in the FMCG sector for more than a year now.

Chat Transcript Anil Rego On Investment plan for childern

2011-12-29T07:21:00.001-08:00

Chat Transcript :

ssocratess: i am having 6 year old girl child. I want to save for her education and marriage.I will save upto 3500/- per month for my child. Kindly advise me.
Anil Rego: Hi, I would recommend you to go for SIP into Gold Fund or into Balance funds on monthly basis. And you can look upon child gift funds which are good in terms of child education planning.
udayjadhav: Hi anil Iam 29 years old. I have one nephew who is 5 yrs old. what is the best child education plan for him
Anil Rego: You could use a combination of avenues to take care of this particular need. If you have some lump sum money, then you could use bonds. Deep Discount Bonds are a good option to use especially if you find one that matures closer to your needs. You could then use mutual fund SIPs as suggested above. Specifically you could use funds like HDFC Prudence and Templeton Dynamic PE fund considering that this is a conservative need. Insurance can also be an option to use, especially if you are supporting the child`s education need.
kumarrajesh21: due to recent fall & uncertainty in markets I have stop investing in shares but my SIPs in mutual funds are continuing. Do u think this is right strategy or I should stop SIPS also for the time being till the market settles.
Anil Rego: SIPs are the best strategy to use. It is impossible to time the exact bottom and hence SIPs are a good strategy to use. Considering that markets have fallen, they are likely to be profitable. In fact, one of the main reasons for using a sip is to take advantage of such market falls. So don`t stop the SIP.
sachingurav: I am investing 40,000/- each month in Various mutual funds through SIP route since 1 year and plan to invest for another 16 yrs till i reach 60yrs which will be kept for post retirement. I am also investing 70,000/- per month in F.D, P.Off.RD,LIC etc which i plan to use it for childrens education, marriage etc. My daughter is 14ys and son is 8yrs. Is that ok?
Anil Rego: You are using a good diversified approach to your investments. Since you are coming closer to your requirements especially for your first son, one needs to be a little cautious. You cannot afford the markets to be at a low in the year that you need money for your children`s education. You can also use a SIP into one of the gold savings funds from companies like Reliance and HDFC. Bonds are one option to use, especially the deep discount bonds. For this need, you can switch some of your SIPs into balanced funds as mentioned above.
sachingurav: Evening sir, I have never ever invested in any form of investing, but would like to start investing for my kids. Can you suggest me how much should I invest monthly and in what form?
Anil Rego: It is not clear whether you are looking to invest in lump sum or in monthly installments. Also, I don`t have a perspective on the ages of your children. Since you are starting you can use a combination of recurring deposits (avoid if you are in the highest tax slab; you can use PPF as an alternative in that case), balanced funds, MIPs, bonds and insurance. Ensure that you have a sufficient life cover.
sachingurav: From past 1 year, I have taken 2 LIC policy for both I pay premium of Rs 1600 (800 800), but due to some reason I have stopped it from past 6 months. so can you tell me how should I get it start? thax in advance.
Anil Rego: You would be in a position to revive your policy. Get in touch with the insurance company to find out the interest they would charge. Since you have crossed 6 months you may need to go in for a medical check if required.
sachingurav: Whats your view on HDFC Top 200 fund (G)?
Anil Rego: HDFC Top 200 fund is a good fund with a long term track record. There could be times when it is not performing at its best, but good funds normally catch up in the long term.
sachingurav: Sir pls suggest 2 best MF schemes for SIP and one time investment.. which can give good returns in 2-5 years..
Anil Rego: You should always use a combination of large cap(e.g. Franklin India Bluechip) and midcap funds (eg. Sundaram Select Midcap). For lump sum investment, considering current market condition, I would suggest you use a fund like Templeton Dynamic PE fund that gets into debt when market are high and gets into equities as markets fall. Income funds are also an option for a 1 year perspective. If you like to play safe completely then you could use Fixed Maturity Plans of durations that suit you.

PFC TAX FREE BONDS

2011-12-28T07:39:00.001-08:00

PFC is coming up with an issue of Tax Free Secured Non-convertible Bonds aggregating Rs 1,000 Crores.

Below are the details of the Issue:

PFC BOND
ISSUE OPENS	30-Dec-11
ISSUE CLOSES	16-Jan-12
PRICE BAND	Rs. 1000/-
MINIMUM APPLICATION	10 Units [Rs. 10, 000] and in multiples of 5 Bond (Rs. 5000) each thereafter.
INTEREST RATE	8.20% for 10 Years and 8.30% for 15 Years.
RATING	“AAA/Stable” by CRISIL & “ICRA AAA” by ICRA

Analysts' corner

2011-12-28T07:38:00.001-08:00

ZEE ENTERTAINMENT
Reco price: Rs 117 ;
Target price: Rs 110
Zee Entertainment (ZEE) has been losing viewership share among Hindi and Marathi general entertainment channels (GECs) and Hindi movies. However, it has seen its market share increase in the Bengali and Kannada GEC markets. After declining five per cent in FY12, analysts expect ad revenue (including sports) to grow 10 per cent in the coming financial year.They also model acceleration in domestic subscription growth at 18 per cent in FY13, from 12 per cent in FY12. Ebitda loss in the sports business is likely to be below Rs 100 crore in FY12 and decline further in FY13. Analysts expect an earnings per share (EPS) growth of four per cent in FY12 and 10 per cent in FY13. The stock trades at 19 times FY12 estimated EPS and 17 times FY13 estimated EPS. Maintain buy.

MOSL Research

INFO EDGE
Reco price: Rs 580;
Target price: Rs 508
Centrum has downgraded Info Edge to ‘sell’, as it believes with GDP growth pegged at 6.9 per cent, recruitment business would face significant challenges in growing at over 10 per cent in the coming financial year. Coupled with losses from non-recruitment verticals and increasing investment in new companies, analysts believe the valuations are stretched. Info Edge has fallen only 10 per cent against the Nifty’s 25 per cent fall and CNX Midcap index’s 32 per cent decline in 2011. The stock continues to trade at 31 times and 27.6 times the FY12 and FY13 estimated standalone earnings per share (EPS). Analysts believe valuations are expensive compared to its international peers and the markets are not factoring in the slowdown in earnings. Sell.

Chat Transcript:Deven Choksey: 27 Dec

2011-12-28T07:24:00.001-08:00

Chat Transcript :

Deven Choksey: Good Afternoon All...
cnu2609: Sir,Please suggest is it good to buy Kingfisher Air stocks now?
Deven Choksey: They have very high debt and dont even have money to run their business on a day to day basis, there is no sign of revial or any strategy except statements made by Mr Mallya. I would suggest to be away from this company.
aganpat: sir, i have spicejet@48 and ub holding@220 Rs. can i average them at CMP? pls advise!
Deven Choksey: Spice jet one can average as the company has one of the best business model in the airline industry. UB holding the problem is that UB group itself is into problem so one never knows what type of adjustments will be made by the promoter. So be away.
kumarrajesh21: How much time do you think market will take to reach 18000
Deven Choksey: May be next 6 months to an year
chinmayi_d: I have 100 Maruti @ 1000. I have belly for another one year. Pl suggest strategy.
Deven Choksey: MAruti looks interesting at these levels and with the interest rate peaking out, I think it is a good buy at current levels for an year perspective. Also the union thing has been sorted out so it should do well.
krish.deokar: Dear sir, your view on ICICI at CMP for next 1 year?
Deven Choksey: Expect a 20-25% upside in a year. Also in the banking space we like Axis Bank and Indusind bank from the private sector space.
pavitra_gupta: sir i have purchased 300 shares of bank of india in 425,pls suggest in the current market as i have to hold or leave pls suggest
Deven Choksey: In the banking space we prefer private sector banks like Axis, icici and indusind and in public we like sbi and pnb. so would advise shifting to this companies rather than boi.
zuzu1979: heidelberg cement fundamentals ??
Deven Choksey: Looks good, a debt free company with good amount of cash on the books. Plus with stable cement prices should help improve profitability
ksandipan: I bought bartronics at Rs 270/-. now it is trading at Rs. 25/-. What to do? Should I try to average?
Deven Choksey: Dont average.
devarsh007: i bought larsen and turbo at 1000 what should i do ?
Deven Choksey: If a long term investor than please hold. Very good company bought at reasonable price so should make money.
krish.deokar: dear sir, you view on MOIL. have 50 shares at IPO price.? should i buy more and average or just hold on. i have 2 years time horizon.
Deven Choksey: I think in case of Moil u can average as there is limited downside and company is a debt free company and has Rs 1800 cr cash on a market cap of Rs 3800 crore so a limited downside and more upside.
kumarrajesh21: What is your view on Akzo Nobel? i hv purchased shares at900 rs on your reco but it is falling down regularly?
Deven Choksey: The result for Akzo nobel were not as per expectation and i would like to see the next quarter result before taking a fresh call. If u have the shares u can hold but dont average.
snsdhar: Which sectors / stocks would you bet on for the new year 2012 ??
Deven Choksey: Auto, capital goods and Banking are the sectors that i would bet for the year 2012.
Deven Choksey: Thank you all and wish you all a Happy New & a Prosperous New Year in advance.

Redington India: Buy :: Business Line

2011-12-25T10:58:00.000-08:00

Even as the developed markets grapple with a slowdown, India and many countries in West Asia are witnessing robust demand for IT products. The offtake of other peripherals, as also digital devices such as smartphones and tablets, have risen.

In this light, investors can buy the shares of Redington India, one of the largest distributors of IT and digital lifestyle products in these regions. An expanding product line to include fast moving consumer goods such as mobile phones and entrenched partnership with top brands across product lines have ensured that the company has been able to ride the demand cycle well.

At Rs 70, the stock trades at eight times its likely FY13 per share earnings, which is much lower than its historic valuations. This presents an attractive entry point, especially in the light of its growth rates and prospects.

In the first half of FY-12, Redington's revenues rose by 43.4 per cent over the previous fiscal to Rs 10,638 crore, while net profits grew by 26.5 percent to Rs 123 crore.

STRENGTH IN KEY MARKETS

Redington derives nearly equal proportion of revenues from India and the MEA (Middle-east and Africa) region.

The demand for IT products such as computers, servers and networking devices continues to be quite robust in these regions. The IT products division accounts for around 79 per cent of the company's overall revenues.

In India, the growth has been led by the government, as it strives for efficiency in areas such as e-governance, financial services, power reforms, and in projects such as the delivery of unique identity (UID).

Many companies such as Wipro Infotech, CMC and HCL Infosystems are seeing robust demand for IT enabling of state and central departments towards smoother delivery of services.

This, in turn, means that distributors of IT products, and a leading one at that such as Redington, have seen significant traction.

In West Asia and African operations, there has been limited or insignificant disruption of business as a result of political tensions. This is due to the fact that Redington's major operations are in the UAE, Saudi Arabia and Qatar, among other countries, where there have been no protests or tensions.

Many software companies such as Mahindra Satyam, Wipro and TCS are seeing significant traction in these countries, suggesting that the technology spending there is quite strong. Apart from corporates, Redington also has significant relationships with large retailers both in India and the MEA region. According to a recent report from Gartner, IT spending in India is projected to total $79.8 billion in 2012, a 9.1 per cent increase, and within this, hardware is set to grow at a much faster pace.

WORKING WITH TOP BRANDS

For IT products distribution, though it has tied up with several global players, Redington's top partnership is with HP, which continues to see strong demand in India and in the Asian region. For both server shipments and personal computers, HP has seen strong growth in shipments according to industry reports.

Personal computer shipments, especially of high-margin laptops, continue to be robust for many of Redington's clients such as Lenovo, Toshiba, Samsung and Acer, apart from a couple of Indian names.

For non-IT products, though the troubled Nokia is a key client of Redington, there has been limited slippage in demand for medium to low-end phones from emerging markets such as India. According to a recent report by IDC, the mobile phone and the smartphone markets in India are led by Nokia.

Redington has also tied up with players such as Samsung, Apple and RIM (Blackberry). Blackberry, thanks to packaged deals from operators, has seen robust sales. For Redington, the sales of this phone have grown by 70 percent in the recent quarter.

Also, the company's Apple business (tablets etc.) has grown in excess of 200 per cent. This suggests that diversification is working to the company's advantage. While the going has been good for Redington, pricing pressure due to competition from large players such as Ingram Micro, Tech Data and Synnex could affect margins.

Buy Amara Raja Batteries; Target : Rs 234 :: ICICI Securities,

2011-12-25T10:55:00.002-08:00

The time for the challenger has come…
Amara Raja Batteries (ARBL) is the second largest battery maker in India
with strong credentials to challenge Exide industries’ dominance in the
lucrative auto-ancillary segment. ARBL commands a market share of
(~25%) in the OEM auto space and ~16% in the replacement segment.
In the industrial segments, it commands an overall market share of
~35% led by telecom and commercial UPS segment. We are firm
believers of the long term automotive story, which is expected to fuel a
CAGR sales growth of ~16% over FY11-14E. Even industrial demand is
expected to grow in the commercial power supply segment. On the
softer points, strong brand franchise and efficient two-tiered dealer
network provides a strong edge in terms of barriers to entry. We find
the battery business at the most attractive on a longer term among
other auto-ancillary businesses. Margins for ARBL are expected to
improve with higher aftermarket sales and operating leverage coupled
with stable lead prices. We estimate revenues and PAT will grow at
~22% CAGR over FY11-13E to ~| 2638 and ~| 222 crore, respectively.
We are initiating coverage on ARBL with a BUY rating.
Auto-replacement to be game changer
The domestic auto sector has entered a structural bull run on the back of
low penetration and growing income levels. We estimate the OEM
demand will reach ~26 million units in FY14E with a CAGR of ~13.5%.
Another key point is the shift of the total industry towards electric start
(two-wheelers the last entrant) variants leading to higher usage and lower
average battery life. Both these factors combined would help in ushering
in a new wave of the replacement cycle, which we estimate will grow at
~18.7% CAGR FY11-14E to ~37 million units.
Aggressive entry into OEMs along with unique distribution to bear fruit
ARBL has expanded capacities to set up dedicated channels for OEMs like
HMSI, Honda and Bajaj Auto, thereby providing strong dedicated lines of
revenue. This, coupled with the unique two-tiered franchised distribution
model will help in deeper penetration and improved after market service
coupled with more replacement sales opportunities for ARBL.
Valuation
At the CMP of | 203, Amara Raja is trading at 9.6x FY12E EPS of | 20.1
and 7.8x FY13E EPS of | 26.0. We have valued the company at 9x its
FY13 EPS of | 26.0 (~35% discount to Exide Industries’ core business
multiple) to arrive at a target price of | 234 with an upside potential of
15%. We are initiating coverage on the stock with a BUY rating.

Buy DLF: Non-core Assets Sale gaining momentum :Pinc

2011-12-25T10:55:00.000-08:00

Non-core Assets Sale gaining momentum
DLF is all set to reduce debt through sale of non -core assets and faster
cash generation through sale of plotted development. As per the media
reports, It is planning to sell its 100% hotel subsidiary (DLF Hotels and
Hospitality) to Kolkata based Square Four Housing & Infrastructure for
Rs5.5bn. We believe the deal has been strike out at the 1x of its book
value.
The sale of few non-core assets are in final stages and we expect the same
to conclude including the above one in between Q4FY12 and H1FY13 .This
is likely to help reduce the debt by Rs35-40bn(15-18%) from present net
debt level of Rs 225bn ( D/E at 0.87). We maintain 'BUY' with a target price
of Rs315 and believe that debt reduction will act positively for the stock.
Sale of 100% stake in DLF Hotel and Hospitality business : As per the media
reports, DLF is selling its hotel subsidiary to Kolkata based Square Four Housing
& Infrastructure for Rs5.5bn. Earlier, DLF had acquired the 26% stake held by
Hilton International's for Rs1.2 bn and presently owns100% (74% in FY11)stake in
DLF Hotels and Hospitality .It has signed a non-disclosure agreement with Square
Four and expects to conclude the deal by third week of Jan'12.The net worth of
DLF Hotel and Hospitality is Rs5.7bn (FY11) and we believe the deal works out at
0.9-1x of net worth.This deal is in line with the company’strategy to reduce debt.
Non-core assets sale is the key for debt reduction: The company is actively
looking for sale of its non core assets including Aman Resorts and have already
finalised deal with IDFC for Noida IT park. We believe all the deals (please see
Table-2) including the DLF Hotel & Hospitality will fetch DLF an amount of Rs35-
42bn and this will help the company to reduce its debt. (Presently D/E is -0.87x).
Moreover, plotted sale will help generate faster cash and plays an important role in
tackling the slowdown.
VALUATIONS AND RECOMMENDATION
We retain 'BUY' rating with a target price of Rs315. We believe that DLF is likely
to reduce debt and accelerate cash flows through plot sale and non- core assets
sale that will act positively for the stock.

Lasrsen and Toubro :: JP Morgan India

2011-12-25T10:53:00.000-08:00

Lasrsen and Toubro
We visited the Heavy Engineering and Electrical Business plants at L&T's
flagship Powai facility.
A view from the shopfloor: At the shopfloor level we could see several overseas
orders under execution and in terms of sector exposure mostly fertilizer orders were
underway. The plant managers informed us that both the electrical and heavy
engineering units were running at >100% utilization level. An influx of new orders
would be executed at their Vadodara and Coimbatore plants where they have some
headroom. Hence we could infer that the sector would probably be running at 80-
85% utilization levels and corporates have not undertaken large capacity additions
given the high interest rates.
The shopfloor of the electrical unit was buzzing with activity which is a good
indicator of short lead demand. Also the plant manager told us that the level of
outsourcing has increased off late with the increase in demand, but pricing remains
an issue due to competitive intensity. The positive signal on demand is a good
indicator for Siemens India as well (JPM Rating OW).
According to management, over the next 5-7 years majority of the workforce at the
Powai plant will reach superannuation and work will be diverted to Hazira and
Coimbatore. Also the Powai plant being located in the congested city of Mumbai has
logistical bottlenecks as well. L&T now owns the land at the entire site.
Focus on order flow targets: We also met with management and the key areas of
concern focused on the ordering activity both at a macro level and for L&T.
According to L&T, $40B of ordering activity is expected in the 2HFY12 of which
L&T is targeting $10B to meet its guidance of a 5% yoy growth in FY12.
Road sector ordering is back, with less competition: Competitive intensity
although still very much prevalent has come off in the last couple of months and
numbers of bidders per project has been down to 19 odd vs 30+ earlier. Also about
47 road concessions are up for sale in the market, given traffic numbers have turned
out to be well below possibly over optimistic expectations. L&T continues to be
cautious in its selection, winning probably one out of every 10 projects.
Some positive comments were made on the $17B Dedicated Freight Corridor
project: Land acquisition is underway and financing milestones have been
completed. Japanese banks are funding the project at 20bps interest rate with a 20
years moratorium and 30 year repayment period. Also the World Bank is providing
some funding. According to management 3 consortiums have been shortlisted so far
(of 31 Indian and 6 Japanese bidders) including L&T. However the Govt could be
inviting more RFQs to stimulate more competition.
Metros to contribute, power to be weak: Also metros could see some decent
ordering, while challenges in power continue to remain. For the Hyderabad Metro
(~5% of OB), 45% of land acquisition is pending, meanwhile L&T will execute the
design portion of the order. While L&T lost out on the NTPC bulk tender, if BHEL
chooses not to match L1 then L&T would be in the fray for 4X800MW boilers and
3/2X800MW TG sets.

Working capital stress: Like 2Q where we saw some stress on working capital, the
issue could be prolonged for sometime since L&T is now paying its vendors earlier
which cannot bear the increased financing costs

Coal India: Buy :: Business Line

2011-12-25T10:49:00.000-08:00

Fresh investments with a three-year horizon can be considered in the Coal India stock, the world's largest coal mining company in terms of coal reserves. The stock has lost close to 29 per cent in the last seven months and valuations are 46 per cent below the peak.

Under-performance of the stock can be attributed mainly to the company missing production targets due to inclement weather, concerns of higher wage bill and laws proposing profit-sharing with the locals. News of the government eyeing Coal India's cash for meeting its disinvestment targets also took its toll on the stock.

These concerns seem to be priced in limiting the downside for the stock and providing good potential for gains. Being a near-monopoly in the Indian coal mining sector, the company can take advantage of chronic shortage of coal.

The company's lower selling price for a chunk of its coal output also gives it the pricing power to pass on rise in costs, and shields it from earnings volatility. Also, high cash balances with strong operating cash flows augurs well for its medium-to-long term investment needs. Cash and cash balances (Rs 55,000 crore in the consolidated book, as on September 2011), amount to Rs 87 per share in Coal India.

PREMIUM VALUATIONS WARRANTED

At the current price of Rs 300, the stock is trading at an EV/ EBITDA (earnings before interest, depreciation and taxes) of 8.6 times as against 5.5-8 times of global peers such as Peabody Energy, China Coal Energy, Bumi Resources and Yanzhou Coal. A higher valuation, though, seems warranted.

Apart from being a near-monopoly in the sector, strong profitability, low cost of mining production and high reliance on open-cast mines are the key positives.

The average selling price of Coal India is at more than 50 per cent discount to the global prices of similar grade coal. Going forward, the company is looking at improving quality of its coal output which would aid realisations.

LONG-TERM ADVANTAGES REMAIN

The extractable reserves of Coal India would last at least for the next 50 years at current production rate. Environmental clearances, which have been the biggest hindrances, are expected to be expedited as Ministry of Coal and Ministry of Power realise the importance of widening demand-supply gap for coal and would want to keep it in check.

The demand of coal in the 12th Plan is estimated to rise at 8 per cent annually and is expected to outpace estimated supply growth of 6.2 per cent.

Coal India is expected to ramp up its production from 440 million tonnes in 2012 to 615 million tonnes by 2017. For meeting its production target, Coal India is expected to incur Rs 25,400 crore of capital outlay during the 12th plan. This is less than half the current cash balances of Coal India.

The company, which missed its production target in the September quarter, has liquidated a portion of its inventory to maintain supply target for this fiscal.

With the production stagnating at 430-440 million tonnes over the past three years, a 6.9 per cent rate of compounded annual growth in the next five years may seem like a tall order.

However, delayed commissioning of ongoing projects and improved regulatory environment with quicker clearances and building of logistics, may help achieve output targets.

As the company is scouting for mines abroad to augment its production capacity and is in discussion for long-term coal linkages with international players at lower than market rates, it may be able to meet its coal supply targets.

Coal India's production fell by 5 per cent year-on-year in the first half of the year due to heavy rains in the eastern part of India.

Yet, Coal India managed to supply more than 90 per cent of the coal target to its long-term customers up to October 2011, and may have avoided penalty.

Going forward, Coal India may manage to achieve the year's off-take target (454 million tonnes), subject to train rake availability.

Also, on a positive note, there were few takers for the Ministry of Coal's plans to divert e-auction coal to power projects, due to lack of infrastructure.

The company already sells more than 10 per cent of its coal through e-auction which fetches double the price of long-term contracts. Over the long-term, e-auctioning of coal sales may go up to 20 per cent of the total.

CONCERNS

Wage bill negotiations and profit-sharing are the other major concerns. While Coal India is provisioning for Rs 3,000 crore per year or a 17 per cent hike to meet the wage bill of non-executives, the Bill may go over the budgeted amount.

During the last wage negotiations, a 24 per cent hike in wages was given to its employees. At this level, the company may have to shell out close to Rs 4500 crore per year.

This coupled with sharing of 26 per cent of net profit with the locals proposed in the Mining Bill may reduce margins, if cost hikes are not passed on.

In the worst case scenario, Coal India may have to hike its coal prices by around 10 to 12 per cent across-the-board to compensate for the rise in costs.

In any case, the steep discount in its sales price, relative to import prices, for the chunk of its produce gives it enough room to pass on costs of wages and profit-sharing.

The last concern is demands from the government for a share of Coal India's cash balances to meet its deficit target. In this context, measures such as special dividend or buybacks that comply with SEBI norms, will benefit all shareholders equally, given that the company has far higher cash balances than it requires for its capital expenditure.

However, proposals for acquisition of cross-holdings in other PSUs may not be viewed positively by the market.

Orissa Minerals Development Corp

2011-12-25T10:41:00.000-08:00

most expensive stock in indian market currently at around 27000 rupee Stay away from ticking bomb stocks like this

Query Corner :Business Line

2011-12-24T11:55:00.001-08:00

December 24, 2011:

I would like to buy shares of Shree Renuka Sugars. At what price should I buy them?

Abdul Nadaf

Shree Renuka Sugars (Rs 26.1): In our review of Shree Renuka Sugars in July this year, we had written that the stock was attempting to hold above the critical band between Rs 51 and Rs 60, and investors should exit on a breach of this band. Target on a break-down below this band was given at Rs 45 or Rs 31.

The stock penetrated the aforementioned band in November and has dropped like a stone since then to the recent low at Rs 22. Long-term support in the vicinity is the October 2008 trough at Rs 20, and this should serve as the stop loss for investors still holding on to the stock.

Investors with a greater risk taking ability can buy the stock in the band between Rs 20 and Rs 25 with stop at Rs 19. Next long-term support is the 2007 low at Rs 13.6.Short-term resistance will be at Rs 35 and Rs 45.

The medium-term view will, however, turn positive only on a close above Rs 60. Subsequent resistances will be at Rs 74 and Rs 86.

Please discuss the medium- and long-term outlook of Siemens.

Anil

Siemens (Rs 657.5): Siemens rose at a fast clip up to July when it recorded the peak of Rs 951. In our previous review, we had expected the stock to continue its stellar rise following some sideways movement in the range between Rs 1,000 and Rs 1,125. But it is moving lower since July in a medium-term correction.

The stock is, however, halting at its first medium-term support at Rs 650. If it continues to hold above this level, it will be a positive from long-term perspective.

The stock can then spend some time in the band between Rs 650 and Rs 950 before moving higher to Rs 1,125 or Rs 1,414.

Supports on decline below Rs 650 are at Rs 570 and Rs 480. Long-term investors can hold the stock as long as it trades above Rs 480.

Canara Bank has been hammered to unbelievable lows. How much more downside remains? Please advise.

Krishnamurthy

Canara Bank (Rs 363): Key long-term support for Canara Bank that occurs at 61.8 per cent retracement of the rally from March 2009 low, occurs at Rs 400. The stock declined below this level recently.

It is, however, not right to panic yet, since the stock could form a long-term low in the vicinity of this support — in the zone between Rs 350 and Rs 400. Investors with short- to medium-term perspective can hold the stock with a stop slightly below at Rs 320.It would be best to exit the stock once this level is breached since the next stop can be at Rs 250.

Resistances for the months ahead would be at Rs 540 and Rs 660. Failure to move above the first resistance would be an indication of weakness. Long-term view will turn positive only on a strong move above Rs 660.

Please specify the nature of trend and support levels for Blue Dart Express and Kaveri Seed Company.

Altaf hussain

Blue Dart Express (Rs 1,488): The structural trend in Blue Dart reversed higher in the first quarter of 2009 and this trend continues to be firm. The stock is, however, in a medium-term correction that can pull it down up to Rs 1,250 in the months ahead.

This can be the stop-loss for investors. Sideways move between Rs 1,250 and Rs 1,850 for few months will also be construed as positive for the long-term outlook of the stock since it will indicate a propensity to move up to Rs 2,200 over the long-term.

Long-term view will, however, be marred on a dip below Rs 1,250. It will mean that fall to Rs 1,112 or Rs 950 can happen before the stock stabilises. Investors who are in the stock for the long haul can stay put as long as it trades above Rs 950.

Kaveri Seed Company (Rs 459): Kaveri Seed Company is moving within a well structured trend channel since February 2009. Needless to add that the long-term trend in this stock is up. It, however, faced stiff resistance around Rs 500, and it could not move above this level despite multiple attempts between July and December this year.

Investors wishing to buy this stock can, therefore, wait for a close above Rs 500 before doing so. Subsequent target would be at Rs 625.

The lower boundary of the aforementioned trend channel at Rs 400 would act as a short-term support for the stock. Breach of this level will drag it lower to Rs 350 or Rs 310. Investors can buy the stock in declines with stop at Rs 350. The positive long-term view will be roiled only on a close below this level.

I am holding Sesa Goa purchased at Rs 369 and Shiv-Vani Oil at Rs 433. Should I hold these stocks or exit?

P.M. Rao

Sesa Goa (Rs 161.6): Sesa Goa is a very volatile stock given to sharp swings in both directions. The uptrend that made it surge strongly from the bear market lows ended at Rs 495 in April 2010 and the stock is plunging lower once again.

It has crashed below its key long-term support at Rs 226 in October. That makes the re-test of its November 2008 low at Rs 60 likely. Investors with a lower risk appetite can switch out of the stock at this juncture and consider re-investing on a move above Rs 226.

Medium-term resistances will be at Rs 230 and Rs 280. Medium-term view will turn positive only on a close above Rs 280. Subsequent resistances are at Rs 321 and Rs 363.

Shiv-Vani Oil & Gas Exploration Services (Rs 186.4): Long-term trend in Shiv-Vani Oil & Gas has also turned lower since it is currently trading below its long-term support at Rs 240.

The stock is attempting to stabilise in the support band between Rs 150 and Rs 160.

If this band is breached, the stock can decline to Rs 88. Investors with lower penchant for risk can switch out of this stock at this point. Others can hold as long as the stock trades above Rs 150. Key resistances for the months ahead would be at Rs 290 and Rs 360. Those holding the stock can divest their holding at either of these levels.

Can you advise medium-term potential of Axis Bank?

Sridhar

Axis Bank (Rs 878.5): Axis Bank is in doldrums since the October 2010 peak at Rs 1608.

There has hardly been any respite for investors as the stock kept registering lower troughs and peaks. But the long-term trend in the stock continues to be up since the long-term trend decider at Rs 800 is still intact. Next support band for the stock lies between Rs 600 and Rs 800.

Investors can hold the stock as long as the abovementioned support band holds. But once the support at Rs 600 breaks, it can be a disaster, since the next support is way below at Rs 278. Medium-term resistances are at Rs 1,100 and Rs 1,300.