Smart Investor

JSW Steel - Sell

noreply@blogger.com (Raghav R) — Sun, 29 Jan 2012 12:44:00 +0000

JSW Steel came out with its Q3 numbers on Friday and they show a decent performance in terms of volumes that rose by 20 per cent YoY. In the September quarter of 2011 the volumes were up by 19 per cent on a YoY basis. However, the volume scenario compared to the previous quarter remains the same as it grew only by 1 per cent whereas in the previous quarter the QoQ growth was by 10 per cent to 1.88 tonnes.

The net sales of the company stood at Rs 7,859.62 crore, higher by 35 per cent as compared to the previous year’s same quarter due to higher sales volume and flat realisation levels. The steel prices during the quarter remained flat as compared to Q2FY12. However, the operating performance of the company was a little disappointing. Its EBITDA on a QoQ basis declined by 3.36 per cent and grew by 25.2 per cent on a YoY basis to Rs 1,252 crore.

Meanwhile, the EBITDA margin continued to decline by 130 bps to 15.9 per cent due to higher coking coal cost and raw material cost which was by up by 46 per cent and 47 per cent respectively. Coking coal’s Australian FOB prices came down from USD 300 per tonne in September 2011 to USD 235 in December 2011. The gains, though, were negated by the higher rupee depreciation against the dollar.

About the present scenario the company has stated that the demand in India has remained modest in the last six months due to weak global demand coupled with higher interest rate and high inflation which led to delay in consumption and new capex plans. The world steel production fell significantly from a peak of 130 million tonnes in May 2011 to 115 million tonnes in November 2011. And in India the demand for steel grew by a mere 1.8 per cent from April to October. The company has further stated that the month of December has witnessed a rebound in demand.

Our Recommendation :

The scrip was hovering around Rs.560 levels on 9th January 2012 and has since jumped to Rs. 680 levels giving a decent return to existing shareholders. Investors should exit at the current price and re-enter on steep declines to Rs.500 levels.

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Stides Arcolab - Buy on declines

noreply@blogger.com (Raghav R) — Sun, 29 Jan 2012 12:22:00 +0000

Strides Arcolab, a Bangalore-headquartered pharma company has sold its subsidiary Ascent Pharmahealth at an enterprise value of AU$ 375 million (about Rs 1,968 crore) to Watson Pharmaceuticals. The company is currently going through a restructuring phase.

Strides had acquired a majority stake (50.1 per cent) in Australia-based Ascent Pharmahealth in August 2008. According to the news agency Reuters, this acquisition was valued at the price of AU$ 65 million (about Rs 260 crore). The company later had increased its shareholding up to 60.3 per cent.

Ascent is one of the leading generics company in Australia. This company also has nine subsidiaries in countries like New Zealand, Singapore, Hong Kong, Malaysia and Brunei. Ascent brought about 33 per cent of the revenues of Strides in CY2010. Ascent has grown by a healthy five-year compounded annual growth rate (CAGR) of 30 per cent in the topline. For the year 2010 the company reported sales of AU$ 132.3 million (about Rs 550 crore) while its net profit remained AU$ 12 million (about Rs 50 crore).

Its EBITDA margins remained at about 13 per cent, lower than the EBITDA margins of Strides (22 per cent) in the same year. For the year 2010 the company showed a growth rate of 26 per cent in topline and 30 per cent in the bottomline. This high growth has mainly arisen due to the high growth rates in the Australian pharma market.

The Australian government has proposed a cut of 23 per cent in the pharma product prices from April 2012. Though the company is leading player in the Australian generics market, we believe that this would impact the margins of Ascent.

Looking at the value that Strides has got for selling Ascent, we believe it will have a good impact on its balance-sheet. Its total debt as of June 2011 half-yearly result was Rs 2,419.51 crore. The company paid Rs 90 crore as half-yearly interest expense which works out to be Rs 180 crore of annual interest payment in 2011. Its interest cover ratio as per the same statement works out to be 2.15 which has decreased from 2.97 in the same period last year. Its debt to equity ratio stood at 0.74 in June 2011. In our opinion company will use the amount received from the Ascent deal to pay the debt and bring these ratios down.

The company recently has also said that it will mainly focus on the injectable and specialties segment in which it has recently received many USFDA approvals. As we see it, the company is in a very good shape to take the benefit of these approvals in the coming years. Strides’ specialties division, Agila, is also doing well. In 2010 its revenues rose by 84 per cent and contributed about 39 per cent to the topline and 32 per cent in the EBITDA.

Our Recommendation :
With the good price received for Ascent and many new products in the pipeline we believe that this stock will be an attractive bet going ahead. Investors could start looking to accumulate the stock during the dips.

Investors should buy the scrip on all declines to Rs.400 levels and target for a Rs.600 with a holding period of 12-15 months.

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BSE / NSE Weekly Review 20 Jan 2012

noreply@blogger.com (Raghav R) — Thu, 26 Jan 2012 08:19:00 +0000

High volatility is expected in a truncated week ahead as traders roll over positions in futures & options segment as the January F&O contracts expire on 25th January 2012. The stock markets will remain closed on 26th January 2012, on account of Republic Day.

The RBI is widely expected to keep its key lending rate viz. the repo rate steady at the Third Quarter Review of Monetary Policy, scheduled on 24th January 2012, as headline inflation remains high. Investors’ focus is on Q3 results as well. The Q3FY12 results are likely to be weak due to lower volume growth in a slowing economy, higher raw material costs and higher interest charges. The focus will be on guidance from the company managements on outlook for the remaining part of the year and for the next year.

Some of the companies declaring their results in the next week include L&T, Maruti Suzuki India, Sterlite Industries, Idea Cellular, GAIL and Kotak Mahindra Bank on 23rd January. Lupin, Cairn India, Grasim and Biocon on 24th January. Bank of Baroda, Sesa Goa, Union Bank of India, Rural Electrification orporation, Indian Hotels and Tata Communications on 25th January. Blue Star, NHPC, BHEL, NTPC, Bank of India and Canara Bank on 27th January

Indian Markets
Strong results from HDFC Bank, ITC, Bajaj Auto, Wipro, TCS, HCL Technologies and Hero MotoCorp, and sustained buying by foreign funds pushed key benchmark indices to their highest level in more than six weeks. The S&P CNX Nifty moved past the psychological 5,000 level. Firm global stocks underpinned sentiment. The market gained in four out of the five trading sessions during the week ended 20th January 2012. Foreign institutional investors (FIIs) bought shares worth Rs 4441.37 crore in eight trading sessions from 10 to 19 January 2012, as per provisional data from the stock exchanges.

The BSE Sensex rose 584.39 points or 3.62% to 16,739.01, its highest closing level since 7 December 2011. The S&P CNX Nifty gained 182.60 points or 3.75% to 5,048.60, its highest closing level since 7 December 2011. The BSE Mid-Cap index rose 1.75%

Strong results from HDFC Bank, ITC, Bajaj Auto, Wipro, TCS, HCL Technologies and Hero MotoCorp, and sustained buying by foreign funds pushed key benchmark indices to their highest level in more than six weeks. The 50-unit S&P CNX Nifty moved past the psychological 5,000 levels. Firm global stocks underpinned sentiment. The market gained in four out of the five trading sessions during the week ended Friday, 20th January 2012.

Gains in world stocks triggered by stronger-than-expected GDP growth in China, the world's second biggest economy, in the fourth quarter of 2011, strong Q2 December 2011 results from IT major HCL Technologies and data showing buying of Indian stocks by foreign funds over the past few days, triggered a rally on the domestic bourses.

Trading for the week began on a positive note. Key benchmark indices registered small gains to reach 5-1/2-week closing highs on Monday, 16 January 2012 as the headline inflation hit 2-year low. This reinforced expectations that the central bank could start cutting interest rates in the coming months to revive slowing economic growth. The BSE Sensex rose 3.62% to 16,739.01and The S&P CNX Nifty gained 3.75% to 5,048.60, its highest closing level since 7 December 2011. The BSE Mid-Cap index rose 1.75% and the BSE Small-Cap index gained 1.71%. Both these indices under performed the Sensex.

Realty:
The BSE Realty index rose 7.97% to close at 1708 levels. Among the heavyweights, Unitech, DLF, Oberoi Realty and HDIL gained 11.9%, 8.8% 8.7% and 8.3% respectively. India's largest realty firm by net profit DLF rose 8.8%. The company is reportedly planning to sell a convention centre project in Delhi and its wind power business for about Rs 1800 crore early next fiscal to reduce debt.

Metals:
The BSE Metals index rose 4.10% to close at 11198 levels. All the industry majors were gainers. Hindaclo, Jindal Steel, Tata Steel and Coal India rose 7.7%, 6.4%, 5.0%, and 0.1% respectively.Metal stocks rose as data showing China's manufacturing gauge remaining in contraction mode in January 2012, boosted case for monetary policy easing in the world's second largest economy. Tata Steel rose 5.0%. The company secured a major contract from Siemens Wind Power to supply 25,000 tonnes of high-quality profiled steel plate for wind towers.

Oil & Gas:
The BSE Oil & Gas index rose 6.4% to close at 8325 levels. Among the heavyweights, Reliance, ONGC and Cairn India gained 8.4%, 5.9%, and 2.8% respectively. Reliance Industries jumped 8.4%. The stock surged after company said its board will consider a proposal for buyback of equity shares along with Q3 December 2011 earnings on Friday, 20th January 2012. The last buyback program by RIL was done in the year 2004. Then, the company could only deploy around 5% of its planned purchase as the stock price had zoomed quite high.

Capital Goods:
The BSE Capital Goods index rose 5.49% to close at 9807 levels. Among the heavyweights, L&T, Siemens, and Bhel gained 8.6%, 4.1% and 2.6% respectively. Capital goods stocks rose on bargain hunting after a steep decline last month. India's largest power equipment maker by sales BHEL gained 2.6%. The company unveils its Q3 results on 27th January 2012. Larsen and Toubro is likely to register a 10% growth in sales from its automation business in the next financial year

Bankex:
The BSE Bankex index rose 5.9% in the week to close at 10912 levels. All the large players, namely SBI, Axis Bank, ICICI Bank, and HDFC Bank were gainers, gaining 8.7%, 7.3%, 6.7% and 4.1% respectively. Interest rate sensitive banking stocks rose on expectations that the Reserve Bank of India will start cutting interest rates in the coming months to prop up slowing economy. HDFC reported 31.4% growth in net profit to Rs 1429.70 crore on 35.6% increase in total income to Rs 8622.64 crore in Q3 December 2011 over Q3 December 2010. Bank said its asset quality remains healthy. The bank's capital adequacy ratio (CAR) remained strong at 16.3% as on 31 December 2011, against he regulatory minimum of 9%

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VIP Industries - Buy

noreply@blogger.com (Raghav R) — Fri, 20 Jan 2012 00:53:00 +0000

We recommend a buy in the stock of VIP Industries from a short-term perspective. It is evident from the charts of the stock that following a steep decline from its life-time high of Rs 204 marked in September 2011, the stock found support around Rs 74 in December 2011. But, it subsequently changed its direction triggered by positive divergence in daily relative strength index and its weekly indicators reaching oversold territory.

Since December trough of Rs 74, the stock has been on a short-term uptrend. While trending higher, it breached its 21-day moving average. On January 12, the stock jumped nine per cent penetrating its immediate resistance at Rs 88. Further, it has advanced 4.6 per cent, strengthening its uptrend on Wednesday. The stock's short-term uptrend is backed with good volume during advance sessions.

The daily RSI is on the brink of entering into the bullish zone from the neutral region and weekly RSI is about to enter into the neutral region from the bearish zone. The daily moving average convergence divergence indicator is moving in line with the stock price, supporting the uptrend. Also, daily price rate of change indicator is hovering in the positive terrain implying buying interest.

We are bullish on the stock from a short-term perspective. We anticipate the stock to trend higher and reach our price target of Rs 101.5 or Rs 104 in the ensuing trading sessions. Traders with short-term perspective can consider buying the stock with stop-loss at Rs 95.

Our Recommendation :

The stock has spiked recently from levels of Rs.85 to 110 in a short span and might even look to cross Rs.120. Existing traders should exit the stock above Rs.120 and buy on steep declines to 95 levels.

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10 Stocks for 2012

noreply@blogger.com (Raghav R) — Sat, 31 Dec 2011 03:12:00 +0000

Unicon Investment has come out with its top 10 stock picks for new year 2012.

Company Name	CMP	Target Price
State Bank of India	1627	1949
Yes Bank	239	345
Coal India	299	350
Jindal Steel & Power Ltd	465	550
Bharat Heavy Electricals	237	290
Larsen and Toubro	1001	1250
Opto Circuits India	203	330
Mundra Port	123	136
Eros International Media	200	300
United Phosphorous	126	192

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Losers 2011 - Avoid for 2012

noreply@blogger.com (Raghav R) — Sun, 25 Dec 2011 02:32:00 +0000

India's largest microfinance company, a leading private sector power producer and the world's leading exporter of cut roses share a common trait. These were some of the companies that saw their stock prices pummelled by 80-85 per cent in 2011.

The top losers of 2011 show that it wasn't sector or market cap preferences that swayed stocks. Instead, instances such as SKS Microfinance, Lanco Infratech and Karuturi Global showcase how unforgiving markets have been with companies with high debt, regulatory hurdles or even a whiff of ‘governance issues'. The 10 biggest losers in the CNX 500 index lost a whopping 79-92 per cent in value while the index shed 24 per cent.

De rated

A dispute within its top management and tighter regulation flagged off the de-rating of SKS Microfinance that saw its price-earnings multiple fall from 20 times to barely 7 times over a year.

A lawsuit impacting its Australian acquisition, interrupted gas supply for a project and debt worries proved to be the undoing of Lanco Infratech, now trading below its book value.

In the case of Karuturi Global, ambitious plans to diversify into Ethiopia ran into rough weather. Stocks of DB Realty and Unitech shed 70-75 per cent, as promoter group companies faced investigations related to the 2G scam.

As interest rates climbed steadily upward, companies with high debt on their books such as GTL and GTL Infra, 3i Infotech and Patel Engineering lost 75-92 per cent.

No Hope

With stock prices of these companies taking such a big tumble, should investors average their positions at these prices? They shouldn't, say market participants. In fact, they hold the view that some of the worst performers this year may have suffered a permanent de-rating.

Retail investors, feels Mr Chokkalingam, Group CIO, Centrum Wealth Management, usually do not have required courage to book losses. But he advises shifting to stocks of companies which are cash-rich, offering good dividend yields and earnings record.

Mr Rikesh Parikh, Vice-President – Equities at Motilal Oswal Securities, says that even if broader markets do recover and move to higher levels, these stocks may not get back to their highs.

Our Recommendation :

Avoid these stocks for 2012 as the out look for many of these scrips is pretty negative. Any decent spike in these should be utilized as a shorting oppurtinity with strict Stop Loss.

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Winners of 2011 - Stay Invested

noreply@blogger.com (Raghav R) — Fri, 23 Dec 2011 02:01:00 +0000

Even though most frontline stocks are still struggling to recover lost ground, 24 stocks in the BS 200 list have given positive returns at a time the Bombay Stock Exchange benchmark, Sensex, has tumbled 24.5 per cent, or over 5,000 points, to 15,491 till December 16.

For example, Bajaj Auto is up eight per cent even though all the other automobile stocks in BS 200 reported a decline ranging 3-34 per cent. Similar is the story across other sectors such as telecom, pharma, FMCG, banking and so on.

Kitchen appliances maker TTK Prestige has gained the most so far in 2011. The company has reported a healthy 56 per cent year-on-year growth in net profit of Rs 59.05 crore for the six months ended September, a trend also seen in the past. TTK has reported a compounded annual growth rate of 20 per cent in revenues and 50 per cent in profit after tax in the past decade. Crisil Research has assigned it a fundamental grade of ‘5/5’, indicating excellent fundamentals.

Among other big gainers, Gujarat Flurochemicals appreciated 61 per cent during this period. The company, engaged in the industrial gases business, had reported an almost fourfold jump in net profit at Rs 348 crore for the six months ended September on the back of higher income from operations, which got a boost from certified emission reductions (carbon credits). It had reported a net profit of Rs 264 crore in the entire previous year ended March 2010.

Consumption plays shine
If you had bet on consumption-related or so-called defensive stocks such as Bata India, Gitanjali Gems, TTK Prestige and Petronet LNG, given the weakening market conditions in 2011, it would have yielded a return in the range of 28-62 per cent.

However, according to market analysts, the valuations for consumer staples are not cheap any more, post the recent outperformance. They say part of the rush for these “safe haven” companies is driven by volatility in the markets.

Foreign institutional investors have also shown interest in consumption and defensive stocks during the year, data show.

The fast-moving consumer goods (FMCG) sector, considered a defensive bet in volatile times, has outperformed the market by giving an average nine per cent return, while pharma and information technology (IT) have restricted losses to sub-16 per cent each.

Hindustan Lever, Colgate-Palmolive and ITC in the FMCG space appreciated between 12 and 26 per cent each and figure among the top 15 gainers. The question is what is the outlook for such stocks? The verdict is not unilateral.

“FMCG and pharmaceutical companies have done well in the past despite macroeconomic headwinds. I believe the consumption story has not been overdone and stocks from these sectors will continue to do well,” said Saurabh Mukherjea, head of equities, Ambit Capital.

However, other analysts expect some cooling off in the consumption theme, given the rupee-dollar equation and inflation levels. Says T P Raman, Managing Director, Sundaram Mutual, “I believe consumption may cool off a bit going ahead, though not in the immediate near term.”

Cementing gains
UltraTech Cement, ACC and Ambuja Cements each gained about five per cent during the period, and figure among the top 25 gainers. The stocks outperformed as cement prices remained north-bound during the year. The average retail prices of cement increased about three per cent in November 2011 month-on-month to Rs 289 a bag and almost 17 per cent year-on-year.

“Cement demand will continue to gain traction during the remainder of 2011-12. However, in the light of the steep rise in prices over the past nine months, the tempo of price increase is likely to slow,” said Ajay D’Souza, head, Crisil Research.

Some experts, though, are cautious on the sector. Points out Ambareesh Baliga, Chief Operating Officer, Way2-Wealth, “With the demand for cement likely to remain under pressure going ahead, the stocks are also expected to remain subdued.”

On the whole, given that uncertainties and concerns still continue, it will be some time before things start looking up. Baliga says, “Overall, we advise investors to stay away from the equity markets in the current market conditions.”

Our Recommendation -

Stay invested in above shares and keep adding them to your portfolio as we feel that they are likely to out perform in 2012 too.

Wishing All our Readers a Very Happy & Bullish New Year !!! May be your dream of building Wealth come true.

Momentum Stocks - What Next ??

noreply@blogger.com (Raghav R) — Sat, 17 Dec 2011 03:31:00 +0000

Billionaire investor Rakesh Jhunjhunwala, whose long-term bets have earned him popular titles such as 'the big bull', now faces a lot of red in his portfolio.

Since December 1, as the market benchmark declined 6%, stocks that Jhunjhunwala owns have lost up to 30%. VIP Industries, a big chunk of the billionaire's portfolio, led the list with the maximum notional loss of 30.5%.

Other losers include Provogue India, Subex andReliance Broadcast Network, Aptech and Delta Corp, all of which are down 16-25%. Broadly, Jhunjhunwala's entire portfolio is in the red, with 25 out of 28 stocks analysed by ET recording a decline in December.

The other three counters include Sterling Holiday Resorts, which is up 3%, and Autoline Industries, up 22%. However, among those caught in the red are stocks that analysts believe have good fundamentals, and have been facing undue pressure due to the 'Rakesh phenomenon'.

Reportedly, the investor has been selling his positions recently to cover for losses from loss-making silver trades. In a nervous market, any news of such a sell-off triggers a much broader sell-off from the investor's many followers.

In a response to ET last month, Jhunjhunwala rubbished the claims and said, "People can say anything they want, I have no comments. I never talk about my trading bets."

One stock caught in the crossfire of rumours is Lupin, in which the billionaire holds around 2%. Since December 1, the pharmaceutical company's shares have lost 7.6% and are trading around Rs 430.

"Here is a huge sentimental overhang on the stock. However, weakness in the stock should be seen as a buying opportunity," Sarabjit Kaur Nangra, vice president of research at Angel Broking said.

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Sell - Dhanlakshmi Bank

noreply@blogger.com (Raghav R) — Tue, 29 Nov 2011 01:48:00 +0000

Rating agency Fitch Ratings has revised Dhanlaxmi Bank’s outlook to ‘stable’ from ‘positive’. The outlook revision reflects expectations that structural challenges faced by the bank from aggressive expansion in recent years are unlikely to improve its overall credit profile in the short to medium-term. Since FY09 (end-March 2009), the bank’s operating performance has been impacted by substantial loan growth, which is being increasingly funded through wholesale deposits and from large investments in infrastructure and other resources.

The bank has increased its branch network by 40% and headcount by three times since FY08. Amid low net interest margins and a significantly high operating cost base, profitability remains weak.
Dhanlaxmi Bank’s asset quality has remained stable so far, with a gross non-performing asset ratio of 0.55% and a net NPA ratio of 0.17% as on end-September 2011. However, the moderating economic growth and high interest rate environment may impact its loan portfolio, a large part of which is not seasoned.

The bank expects to grow at a slower rate in the current financial year after the aggressive 81% loan growth in FY11. However, its capitalization is weakening (Tier I ratio: 8.73% in H1 2011-12, against 9.41% in 2010-11) from low internal capital generation, while raising fresh common equity is difficult in the current equity market environment.

The bank’s net profit for the quarter jumped by 168.51% at Rs 4.35 crore as compared to Rs 1.62 crore for the quarter ended September 30, 2010. Total income has increased by 79.11% to Rs. 410.53 crore for the quarter under review from Rs 229.20 crore for the similar quarter of the previous year.
The bank’s gross non-performing asset ratio improved 71 basis points to 0.55% aided by strong recovery in bad loans. The absolute amount of net non-performing assets also narrowed to Rs 17.5 crore as of September-end from Rs 50.4 crore a year ago.

Our Recommendation :

The scrip has been under cloud for some time. Inspite of a big rally witnessed in the banking sector stocks on 28th Nov, this scrip has been a laggard jumping by a measly 3.5%

Traders can short the scrip today with a strict stop loss of Rs.58 for a target of 53 for the day.

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Gainers & Losers BSE , NSE Week ending 25 Nov 2011

noreply@blogger.com (Raghav R) — Sun, 27 Nov 2011 13:52:00 +0000

Sensex top gainers:

The top gainers in the Sensex were L&T (up 1.7%), Maruti Suzuki (up 1%), Tata Motors Ltd (up 0.9%) and Cipla (up 0.6%)

Sensex Top losers:

The top losers in the Sensex were Reliance Capital (down 9.9%), Hindalco Inds (down 8.2%), Hero Moto Corp (down 7.2%), ICICI Bank (down 6.7%) and Reliance Inds (down 6.7%),

BSE IT Index (down 1.7%):

The largest losers in IT sector were TCS (down 2.6%), Infosys (down 2.5%), Sasken Comm (down 2.4%), HCL Tech (down 1.7%) and Mphasis (down 1.1%),

BSE Healthcare Index (up 0.6%):

The biggest gainers in Pharma were Morepen Labs (up 3.2%), Dishman Pharma (up 3.2%), Ranbaxy Labs (up 2.7%), Ipca Labs (up 2.6%) and Orchid Chem (up 2.5%), The top losers in Pharma were Natco Pharma (down 4.8%), Strides Arcolab (down 2.6%), Dr Reddy's Labs (down 2.5%), Sun Pharma (down 2%) and Astrazeneca Pharma (down 1.6%),

BSE Banking Index (down 4.1%):

The notable gainers in the banking space were Union Bank of India (up 5.6%), Karnataka Bank (up 2.7%), Yes Bank (up 1.4%), Bank of Baroda (up 1.3%) and PNB (up 0.4%). The top losers in the banking space were ICICI Bank (down 6.7%), Federal Bank (down 6.6%), Hdfc Bank (down 6%), Kotak Mahindra Bank (down 5.9%) and Andhra Bank (down 4.9%).

The BSE Auto Index (down 0.8%):

The top gainers in the auto space were Maruti Suzuki (up 1%) and Tata Motors Ltd (up 0.9%). The top losers in the auto space were Hero MotoCorp (down 7.2%), Swaraj Mazda (down 5.5%), M&M (down 4.3%), Bajaj Auto (down 3.1%) and Hindustan Motors (down 2.4%),

The BSE Oil & Gas Index (down 3.2%):

The top losers in the oil & gas space were Hindustan Oil Exp (down 11.7%), GSPL (down 8%), Great Offshore (down 7.3%), Gujarat NRE Coke (down 7.3%) and Chennai Petro (down 7%). The largest gainers were MRPL (up 4%), BPCL (up 3.1%), IOC (up 1.3%), Essar Oil (up 0.9%) and HPCL (up 0.3%).

The BSE Capital Goods Index (down 10%):

The top gainers in the Capital Goods space were Greaves Cotton (up 3.8%), Dredging Corp (up 2.8%), L&T (up 1.7%), Astra Microwave (up 1.3%) and Thermax (up 0.2%). The top losers in the Capital Goods were LMW (down 8.2%), Gammon India (down 6.8%), Jyoti Structures (down 6.7%), SKF India (down 6.4%) and Alstom Projects (down 6.2%).

The Cement Sector:

The top gainers in the cement sector were Shree Cement (up 1.9%).

The Telecom Sector:

The top gainers in the telecom space were Gemini Comm (up 10.8%), Shyam Telecom (up 3.4%) and Tata Communications (up 0.1%). The top losers in the telecom were Tata Teleservices (down 6.7%), Bharti Airtel (down 5.6%), RCOM (down 4.9%) and Idea Cellular (down 3.2%).

The Realty Sector (down 3%):

The top gainers in the real estate space were Peninsula Land (up 2.3%), Unitech (up 1.1%) and Sobha Developers (up 0.1%). The top losers were Parsvnath Developers (down 41%), HDIL (down 10.9%), Ansal Properties (down 10.4%), Mahindra Lifespace (down 3.7%) and Anant Raj (down 2.4%).

The Metals sector (down 3.8%):

The top losers in the metals sector were SAIL (down 12.9%), Jindal Steel (down 9.2%), JSW Steel (down 9%), Lloyds Metals (down 7.6%) and Sunflag Iron (down 6%).

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FIIs - Reduced exposure on BSE Sensex in July - Sept 2011

noreply@blogger.com (Raghav R) — Sun, 27 Nov 2011 12:54:00 +0000

Overseas investors have scaled down their exposure in 19 Sensex companies, including RIL, Tata Motors and SBI, during the second quarter amid rising concerns of economic slowdown and weakening of the rupee.

Out of the 30-Sensex firms, 19 companies have witnessed a decline in their respective Foreign Institutional Investors (FIIs) holding, while in the remaining 11 stocks, foreign fund house have consolidated their stakes during the July-September quarter of current fiscal compared to preceding (April—June) quarter, according to data available with the BSE.

However, FIIs have increased their stakes marginally in 16 Sensex firms during the June quarter this fiscal and reduced exposure in the remaining 14 companies.

Market analysts attributed the decline in FII holding to challenging macro economic conditions and weakening rupee. “FIIs are shying away from the Indian firms on concerns of macro economic conditions and depreciating rupee,” said Mr Kishor Ostwal, CMD, CNI Research.

Metal companies such as Hindalco Industries, Tata Steel and Jindal Steel & Power Ltd (JSPL), country’s largest lender State Bank of India (SBI) and drug firm Cipla have witnessed maximum reduction in their FII holdings.

In contrast, FIIs increased their holding in auto stocks such as Mahindra & Mahindra, Maruti Suzuki, Hero MotorCorp and Bajaj Auto. However, Tata Motors was an exception to this category.

The FII holding in Hindalco Industries fell from 30.83 per cent to 28.24 per cent at the end of the July-September quarter and during the same period, FII shareholding in Tata Steel declined from 17.06 per cent to 14.61 per cent.

In addition, foreign fund houses stake in JSPL fell from 23.03 per cent to 21.88 per cent. Besides, SBI has seen a plunge of overseas investors stake by 2.23 percentage points to 8.65 per cent during the second quarter of financial year 2010—11.

Pharma major Cipla saw a fall of 1.16 percentage points to 13.57 per cent and FII stake in Tata Motors dropped by 1.1 percentage points to 21.88 per cent.

On the other hand, overseas investors have consolidated their stake in Mahindra & Mahindra by 2.8 percentage points Hero MotoCorp by 1.13 percentage points, Maruti Suzuki by 0.54 percentage points and Bajaj Auto by 0.13 percentage points.

FIIs shed its holding in country’s most valued firm Reliance Industries by marginally 0.05 percentage points to 17.32 per cent in the second quarter of current fiscal.

Mirroring the volatility in the global economy, FIIs were not very consistent while investing in the Indian market. In July, they invested a hefty sum of Rs 8,030.10 crore in the equity market and again infused Rs 485.40 crore in August. In September, they pulled out Rs 158.30 crore, according to the data of the stock market regulator Sebi.

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Pledged Companies - Avoid

noreply@blogger.com (Raghav R) — Fri, 25 Nov 2011 03:11:00 +0000

MUMBAI: Pledged shares continue to hang like a sword over the stock market. According to the latest data, promoters of about 376 companies, out of the listed 1,214, with market capitalisation in excess of Rs 100 crore, have pledged their shares to raise funds.

Total promoter pledge positions in terms of value touches Rs 1.1 lakh crore as on mid-November, said a Crisil Research note.

In as many as 14 companies, promoters have pledged 90% plus of their holding, thereby exposing the companies to the risk of losing promoter control and also higher share-price volatility if the prices fall from its current levels.

Over 100 companies have pledged 50% of their owners' equity as lien, while promoters of 183 companies have placed 25% or more of their shareholding as lien. Companies in power, IT & ITeS, infrastructure and pharma sectors have seen higher levels of pledging, the Crisil note said.

"Markets have been volatile due to concerns of high domestic inflation, rising interest rates and tepid global economic environment. These concerns have triggered a fall in the stock prices, creating pressure on promoters who have pledged shares to make good the loss in the value of the collateral," said Mukesh Agarwal, senior director, Crisil Research.

According to brokers, investment in companies with higher promoter pledge exposes investors to severe price volatility. About half of the 300-odd mid-cap companies on BSE have fallen in the range of 20-85% over the past one year.

The trend is even worse in the small-cap segment where over 375 of the 500-odd actively-traded stocks have declined in the range of 20-95% in a year's time. With funding costs remaining high, promoters who have pledged their holdings will not be in a position to cough up money or more shares to prevent lenders from dumping the shares. This will lead to a further fall in prices.

As per reports put out by leading brokerages, promoters of companies like Ganesh Benzoplast, Spentex Industries, XL Energy, Gujarat Pipavav Port and Tata Coffee have pledged their entire shareholding to raise funds.

SpiceJet, Gujarat NRE Coke, United Spirits, Gati, Gayatri Projects, Raj Oil Mills, Birla Power Solutions, GTL, Koutons Retail, Western India Shipyard and Edserve Softsystems, among others, are companies where its promoter groups have pledged 85-99% of their equity. Almost all these stocks have fallen 5-45% since the beginning of November.

"Promoters of large corporates may be able to withstand margin pressures associated with pledged shares. Mid- and small-cap companies may find it extremely difficult in the scenario of a collapse of share prices and eventual trigger of margin calls," said Jagannadham Thunuguntla, strategist & head of research, SMC Global Securities.

According to Krishnakumar Karwa, managing director of Emkay Global Securities, financiers have started selling shares that are being held as collateral. "Volumes in mid-cap counters have come off sharply over the past few months. Every sell order at lower prices is causing stocks to correct deep. The sell-off has been aggravated because of margin calls," Karwa said.

Our Recommendation :

As the market has decisively turned negative investors should avoid these shares which are more vulnerable to wild fluctuations. The lenders will look at best price to exit in case of deep cuts.

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IT Stocks - beneficiary of $ appreciation

noreply@blogger.com (Raghav R) — Wed, 23 Nov 2011 02:34:00 +0000

Information technology (IT) stocks, which had underperformed the broader markets until mid-September, are now back in favour. Since 12 September, the CNX IT index of the National Stock Exchange has outperformed the benchmark Nifty by nearly 20%, more than making up for its underperformance earlier in the year.

Needless to say, this is because of the sharp depreciation of the rupee since August. It closed at 52.73 against the dollar on Tuesday, nearly 20% higher compared with levels of around 44 in early August.

According to an analyst with a foreign brokerage firm, every Rs. 1 increase in the rupee to dollar rate leads to an increase of around 3.5% in earnings for Infosys Ltd. The increase in earnings will be lower for firms such as Tata Consultancy Services Ltd, since they have hedged to a much higher extent. Even if one were to assume that the rupee to dollar rate in the medium term will average 50, this will lead to an over 20% increase in earnings estimates for Infosys compared with August.

Besides, the sharp rise in the rupee will provide a large margin buffer for IT companies, which will not only offset the pressure of wage inflation, but also companies’ leeway to spend more on sales and marketing to generate demand.

This is a welcome relief for companies in the sector as well as investors. In fact, a number of importer firms as well as companies with unhedged foreign currency borrowings are reeling under the pressure of a falling rupee. Given the widening trade deficit and the drop in portfolio and capital flows into the country, the fall in the rupee is expected to continue. In this backdrop, IT stocks may continue to outperform the broader markets.

Of course, the rise will be limited, given the weakening global macroeconomic situation. Infosys’ chief financial officer said on Monday that the company may miss the upper-end of its sales target for the December quarter and the fiscal year because of a deterioration in the global economic environment.

Even so, IT firms seem much better placed compared with firms catering to the domestic economy, which are grappling with high inflation, high interest rates as well as the impact of a declining rupee on their imports and borrowings.

Our Advise

Large Caps - Build your portfolio - hold long term

Infosys - Monthly High Rs.2875 and Low of Rs.2487 - Buy around 2500 on dips
HCL Tech - Monthly High Rs.380 and Low of Rs.450 - Buy around 400 on dips
Wipro - Monthly High Rs.387 and Low of Rs.327 - Buy around 350 on dips
TCS - Monthly High Rs.1040 and Low of Rs.1132 - Buy around 1060 on dips
Tech Mahindra - Monthly High Rs.640 and Low of Rs.543 - Buy around 550 on dips

Small Caps - Purely Trading bets - hold short term

Onmobile Monthly High Rs.640 and Low of Rs.543 - Buy around 550 on dips
Educomp Monthly High Rs.280 and Low of Rs.175 - Buy around 170 on dips
Mahindra Satyam Monthly High Rs.76 and Low of Rs.64 - Buy around 65 on dips
Mindtree Monthly High Rs.380 and Low of Rs.420 - Buy around 400 on dips
Patni Monthly High Rs.444 and Low of Rs.343 - Buy around 380 on dips

Source Livemint.com

BSE / NSE Weekly Review 18 Nov 2011

noreply@blogger.com (Raghav R) — Mon, 21 Nov 2011 00:38:00 +0000

Bear Attack
The week gone by saw the markets witnessing heavy selling pressure. All the five trading sessions saw the Sensex/Nifty ending in the red. An intra day recovery on Friday from the lows of the day helped to curb the losses. W-o-W, while the Sensex lost 4.64%, the Nifty lost 5.09% over the same period.

Reflecting the weak sentiments seen during the week, market breadth was negative in all the five trading sessions of the week.

Key Events
Global Markets
Initial jobless claims in the USA came in lower than expected at 388,000 for the week ending Nov. 12. The latest week's numbers eased from 390,000 from the week prior and were the lowest since April.

The number of housing building permits in USA jumped to a seasonally adjusted annual rate of 653,000 in October, up 10.9% from the revised rate of 589,000 in September, the Commerce Department said Thursday. That was much higher than expected, with economists surveyed by Briefing.com looking for a 603,000 annual rate.

In the United States, retail sales rose 0.5% in October, boosted by strength in electronics and home improvement, the government said on Tuesday. The increase beat expectations of a 0.4% rise, but was lower than the 1.1% gain in the previous month.

Meanwhile, the Empire State manufacturing index returned to positive territory after five months in the red, indicating that manufacturing activity has been expanding in November in New York. The index edged up to 0.6, from negative 8.5 last month.

Over the weekend, embattled Italian Prime Minister Silvio Berlusconi stepped down, after the government passed a package of austerity measures. Former European Union commissioner Mario Monti was nominated to lead Italy.

Investors kept a close eye on Italian bond yields, after a ?3 billion auction of 5-year bonds generated decent demand. Yields on both the 5-year and 10-year bonds still remain above 6.5%. Last week, the 10-year Italian yield spiked to a record high above 7% - a level that eventually led to bailouts for Greece, Portugal and Ireland.

That government is expected to pass the controversial bailout package European leaders agreed to late last month, which had been a condition former Prime Minister George Papandreou set as part of his resignation.

Meanwhile, Italy's senate passed a series of austerity measures demanded by Europe, paving the way for Prime Minister Silvio Berlusconi to resign over the weekend.

A better-than-expected reading on consumer sentiment also boosted stocks. The University of Michigan consumer sentiment index for November to 64.2, up from 60.9 in October and above a consensus forecast for 61.3. The reading was the highest in five months.

Indian Markets

The infrastructure development in the country is being hit hard by a slow pace of reforms and limited long-term funding options and this trend can deter the economic growth, rating agency Standard and Poor's has warned. India's inadequate infrastructure is a major roadblock to the country's target of achieving a 9-9.5% annual growth in 2012-2017.

Amid ban on iron ore mining in Karnataka, exports of the mineral have dipped by over 25% to 35.38 million tonne in April-October period of this financial year.

Non-food credit offtake from banks grew by 18.5% to over Rs 43.11 lakh crore in the 12 months to November 4, in spite of high interest rate regime in the economy.

The cabinet has approved foreign direct investment of up to 26% in the pension sector, moving forward on a key reform initiative in the financial sector after years of dithering.

Exports from special economic zones (SEZs) grew 26.2% year-on-year to Rs 1.76 lakh crore during April-September this fiscal, according to the Export Promotion Council for EOUs and SEZs (EPCES).

Indian consumers' spending on FMCG items at modern retail stores is set to nearly triple to $5 billion by 2015 from $1.8 billion at present.

Growth in domestic steel demand dipped to 2.8% in the first half this fiscal from 8.8% in the first four years of the 11th Five-Year Plan.

Continuing its dismal performance, industrial growth fell further to 1.9% in September, mainly due to poor output from the manufacturing sector. Growth in factory output, as measured in terms of the Index of Industrial Production (IIP), stood at 6.1% in September last year.

During the April-September period this fiscal, IIP growth stood at 5%, as against 8.2% in the same period last year. Meanwhile, the IIP growth figure for August this year has been revised downward to 3.59% from the provisional estimate of 4.1%.

Key Sectoral Movement
All the sectoral indices ended in the negative. The top losers were Oil & Gas, IT, Metals and Auto, which fell by 4.8%, 4.5%, 2.9% and 2% respectively.

Outlook
While the underlying trend remains down, we remain open to pullback rallies early next week driven by short covering. These upsides could find resistance at 5037. In terms of strategy, we recommend a go slow approach on fresh longs till we see signs of sustainable strength.

Source - HDFC Securities

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Top 10 from ShareKhan

noreply@blogger.com (Raghav R) — Thu, 10 Nov 2011 00:34:00 +0000

10 top value picks from the broking firmSharekhan:
Bharti Airtel
CMP: Rs 398
Target Price: 468
Upside %: 18

Remarks:

> Bharti continues to lead the domestic telecom market in terms of both the subscriber base (21% market share) and the revenue market share (32.3%).

> In the last two quarters the subscriber addition for the industry has moderated with the return of rationality and players shifting focus to revenue earning customers. Thus despite a fall in the subscriber net additions, the overall revenue of the industry grew by 6% sequentially in the June 2011 quarter with Bharti gaining market share by 50-basis-point.

> On the back of its improving market share, Bharti has hiked its on-net tariff by 20%, reflecting the return of pricing power. This was followed by tariff hikes by the other GSM players. We view this development as a positive one for the industry specially for the incumbent players like Bharti. The benefits of the same are likely to be reflected in the company`s financials by the end of FY2012 and starting FY2013.

> An improving domestic 2G environment, a favorable regulatory regime, (New Draft Telecom policy, TRAI`s new set of recommendations on relaxation of M&A norms coupled with share spectrum sharing) are developments in favour of Bharti. Also, visible volume and margin progress on the acquired African operations, and a strong data opportunity in the form of 3G adoption awaiting in the wings coupled with the stock`s attractive valuation keep us bullish.

> The stock trades at a trailing EV/EBITDA of 10.0x, which appears attractive in view of the 21.7% EBITDA CAGR over FY2011-13E. The implied EV/EBITDA-to-growth is 0.52x which compares favourably with the average of 0.64x for the leading emerging market telecom companies (including China Mobile, Telecom, Indosat, Idea Cellular and Bharti). Thus we maintain a Buy on Bharti valuing it at an EV/EBITDA of 8x. This leads to a price target of Rs 468.

Divi`s Laboratories
CMP: Rs 771
Target Price: 1,047
Upside %: 36

Remarks:

> Coupled with an IPR-respecting and ``non-compete with customer`` policy, Divi`s has an unstinted focus on the contract manufacturing (CM) space, thereby edging over its Indian peers.

> Its India-centric business model develops and produces all APIs/intermediates with a substantial cost advantage. Divi`s enjoys an EBITDA margin of about 40%, possibly the highest amongst its peers globally.

> After a full year of inventory downsizing, the outstanding results in H2FY2012 have re-affirmed our confidence in the company`s growth potential. The new facility at Vishakhapatnam started production from one of its blocks in June 2011. The remaining blocks are likely to get operational in a phased manner over FY2012-13, which will provide further thrust. The nutraceutical business could become a big opportunity with limited competition.

> A near debt-free balance sheet and a strong cash flow (free cash flow [FCF] likely to reach Rs 2.3 billion by FY2013E) are likely to help build a war chest for pursuing strategic investments (biosimilars).

> The appreciation of the rupee and a slowdown in the research and development (R&D) allocation at the MNC clientele remain the key challenges for the company.

> With the order inflow picking up from H2FY2011 and its new plant getting perational, Divi`s has a strong revenue growth visibility and the operating leverage in the business will boost its margins. Consequently, we estimate the company`s revenue and earnings to grow at a compounded annual growth rate (CAGR) of 23% and 21% respectively over FY2011-13. At the current market price the stock trades at a price earning (PE) multiple of 20.2x and 16.2x discounting its FY2012E and FY2013E earnings respectively. We maintain our Buy recommendation.

GAIL
CMP: Rs 424
Target Price: 541
Upside %: 27

Remarks:

> GAIL (India), a leading gas transmission company, is aggressively expanding its pipeline network and plans to invest more than Rs 300 billion over FY2010-14 in a phased manner to double its gas pipeline network to over 14,000km and its transmission capacity to around 300mmscmd. This provides strong revenue visibility in its core gas utilities business.

> We also see value accretion from doubling of the petrochemical capacity by FY2014, and from the exploration and production (E&P) and city gas distribution (CGD) businesses going forward.

> A higher than expected fuel subsidy burden and regulatory risk in its core transmission business are the key risks for the company.

> Despite the subsidy burden, the strong growth visibility in its core gas transmission business would drive its earnings.

> At the current market price, the stock trades at a PE of 13.3x and enterprise value (EV)/EBITDA of 9.0x based on our FY2013 estimates. We have a Buy recommendation on the stock with a price target of Rs 541.

Godrej Consumer Products
CMP: Rs 424
Target Price: 516
Upside %: 22

Remarks:
> Godrej Consumer Products (GCPL) is a major player in the Indian FMCG market with a strong presence in the personal care, hair care and home care segments in India. The recent acquisitions (in line with the 3x3 strategy) have immensely improved the long-term growth prospects of the company.

> On the back of strong distribution and advertising & promotional support, we expect GCPL to sustain the market share in its core categories of soap and hair colour in the domestic market. On the other hand, continuing its strong growth momentum the household insecticide business is expected to grow by 19% YoY.

> In the international markets, the Indonesian and Argentine businesses are expected to achieve a CAGR of around 25% and 15% respectively over FY2011-13. This along with the recently acquired Darling group would lead GCPL to post a top line CAGR growth of 25% over FY2011-13.

> Due to the recent domestic and international acquisitions, the company`s business has transformed from a commoditiessoap business into the business of value-added personal care and home care products. Hence, we expect its OPM to be in the range of 16-18% in the coming years. Overall, we expect GCPL`s bottom line to grow at a CAGR of about 23% over FY2011-13.

> We believe increased competitive activity in the personal care and hair care segments and the impact of high food inflation on the demand for its products are the key risks to the company`s profitability.

> At the current market price the stock trades at 24.4x its FY2012E EPS of Rs 17.4 and at 18.9x its FY2013E EPS of Rs 22.4. We have a Buy recommendation on the stock.

Grasim Industries
CMP: Rs 2,525
Target Price: 2,630
Upside %: 4

Remarks:

> Grasim Industries is well placed to capture the growing opportunity in its core business of VSF in terms of both volume and healthy realisation. In addition, the performance of its cement business (ie its key subsidiary UltraTech Cement) has shown signs of improvement with an increase in the average cement price.

> Due to the improved demand environment, the performance of the VSF division continues to shine. The VSF realisation has increased by 7.1% YoY to Rs125 per kg in Q2FY2012 on account of a pick-up in the global demand with volumes up 17% YoY.

> The cement capacity of the company at the consolidated level is the highest among the other domestic players at 52.75MTPA. Hence the company will be the key beneficiary of a likely pick-up in the demand through government infrastructure projects in the coming couple of months.

> On the other hand, the company is planning to expand its VSF capacity by another 120,000 ton by FY2013 and its cement capacity by 9.2MTPA by FY2014. We believe the capacity addition will provide volume growth in the longer run.

> We believe the company will benefit due to its strong balance sheet as most of its capex will be met through internal accruals.

> However, in light of the upcoming capacity and stabilisation of the newly-added capacity, the cement prices are expected to come under pressure. Moreover, cost pressure in terms of coal prices and higher freight cost remains a key concern.

> At the current market price the stock trades at a PE of 9.1x and 8.2x its FY2012 and FY2013 earnings estimates on a consolidated basis.

IL&FS Transportation Networks
CMP: Rs 205
Target Price: 330
Upside %: 61

Remarks:

> IL&FS Transportation Networks (ITNL) is India`s largest player in the build-operate-transfer (BOT) road segment with 10,269 lane kms in various stages of development, construction or operation. It has a pan-India presence and a diverse project portfolio consisting of 23 road projects, bus transportation and a metro rail project.

> It is well equipped to capitalise on the huge and growing opportunity in the road infrastructure sector due to its established track record in operating BOT road projects, its execution capabilities and the strong support from IL&FS.

> It has a fair mix of annuity and toll projects in its portfolio which provides revenue comfort. Further, it is present across the value chain except the civil construction services which it out sources to the local contractors. This helps the company to handle a large number of projects at a time and diversify geographically, reducing the risk of concentration.

> Thus, we expect the sales and the earnings to grow at a CAGR of 26% and 9% respectively over FY2011-13.

> At the current market price, the stock is currently trading at 8.7x its FY2012E earnings and at a price to book value (P/BV) of 1.2x. We maintain our Buy recommendation with a price target of Rs 330.

ITC
CMP: Rs 210
Target Price: 227
Upside %: 8

Remarks:

> ITC`s cigarette business, which contributes around 60%, continues to be a cash cow for the company. The company endeavours to make a mark in the Indian FMCG market and with successful brands such as Bingo, Sunfeast and Aashirwaad, ITC is already in the reckoning among the best in the industry. With the new portfolio of personal care products gaining market share, its FMCG business promises to compete with the likes of Hindustan Unilever and Procter & Gamble.

> After a sharp increase of 16% in Union Budget FY2010-11, the government has spared cigarettes from an excise duty hike in the FY2012 budget. Also key states including Kerala, Karnataka, Andhra Pradesh and Maharashtra have kept VAT on cigarette unchanged in their respective state budgets. We expect ITC`s cigarette sales volume to grow at mid single digits in FY2012.

> ITC`s other businesses, such as hotel, agri, non-cigarette FMCG business and paper, paperboard and packaging, is showing a strong up-move and will provide a cushion to the overall profit in FY2012.

> An increase in taxation and the government`s intention to curb the consumption of tobacco products remain the key risks to ITC`s cigarette business over the longer term.

> We expect ITC`s bottom line to grow at a CAGR of about 21.2% over FY2011-13. At the current market price, the stock trades at 26.6x its FY2012E earnings and 22.4x its FY2013E earnings. We maintain our Buy recommendation on the stock.

Mahindra & Mahindra
CMP: Rs 835
Target Price: 865
Upside %: 4

Remarks:

> M&M is a strong rural India story benefited by rising agriculture incomes. The farm equipment sector is estimated to grow by 11-13% in FY2012 due to an expectation of better monsoon and greater need for farm mechanisation following labour shortages.

> The automotive sector is expected to grow by 12-15% in FY2012. The new sports utility vehicle (SUV) XUV 500 as well as the existing utility vehicles (UVs) + pick-ups portfolio are expected to deliver a good volume growth for the year.

> The company is expecting partial roll-back of the Maharashtra VAT reversal decision shortly. While negatives have been factored in, any decision on the roll-back by the government will be positive for the company.

> Launches expected in FY2012: new SUV, Reva electric NXR, M&M-Navistar trucks and SsangYong SUVs in India.

> Our SOTP based price target for M&M is Rs 865 a share as we value the core business at Rs 708 a share and the subsidiaries at Rs 157 a share. We recommend Buy on the stock.

PTC India
CMP: Rs 73
Target Price: 98
Upside %: 35

Remarks:

> PTC India is the leading power trading company in India with a market share of around 33% in CY2010. Trading volume growth is secured by entering into long-term power purchase agreements (PPA) with power developers.

> Driven by an exponential growth in its traded volumes and an uptick in the trading margins, we expect earnings to grow at a CAGR of 17% over the next two years.

> In the last few years, the company has also made a substantial investment in various areas like power project financing via PFS or taking direct equity stake, coal trading and power tolling which have great growth potential in the future.

> Given its niche positioning and strong growth outlook with improving core return on equity (RoE), the valuations are quite attractive on a sum-of-the-parts basis.

TCS
CMP: Rs 1,099
Target Price: 1,250
Upside %: 14

Remarks:

> TCS pioneered the IT services outsourcing business from India and is the largest IT service firm in the country. It is a leader in most service offerings and is in the process of further consolidating its leadership position through the organic and inorganic route as well by winning large deals.

> TCS has consistently increased its market share amongst the top 5 Indian outsourcers with market share in terms of revenues increasing from 29.2% in the March 2009 quarter to 30.3% in the September 2011 quarter.

> We continue to like TCS amongst the offshore IT vendors on account of its mammoth scale of operations and resilient cost model that allows it to withstand headwinds in the sector. On the other hand, at the current juncture TCS is well placed to garner incremental deals in the sector with the organisational structure in place, unlike Wipro and Infosys that are going through a phase of organisational restructuring.

> At the current market price the stock trades at 20.4x and 17.6x its FY2012E and FY2013E earnings respectively. We have a Buy recommendation on the stock with a price target of Rs 1,250.

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9 Diwali Stocks from Kotak

noreply@blogger.com (Raghav R) — Tue, 25 Oct 2011 03:18:00 +0000

The last Samvad year has been challenging for the markets with both, global and domestic concerns weighing on the indices. The new Samvad year brings hope of some solution to the global economic crises and speedy action from the Government in India.

In this background, broking firm Kotak Securities has selected some stocks which look attractive from an investment perspective. It opines these stocks may have a relatively lower downside in case of a sharp fall in markets. The same are as follows:

TCS:

CMP - Rs.1,049

Current TP - Rs.1,240

> We opine that, recent management commentary reflects greater optimism, likely on the back of strong pipeline and better deal flow.

> Management has seen continued revival in discretionary spends as well as in cost efficiency initiatives, which is encouraging.

> Stock is available at about 16.9x FY13 estimates.

ICICI Bank:

CMP - Rs 871

Current TP- Rs 1,364

> ICICI bank is better placed vis-Ã -vis its peers with robust liability franchise (CASA mix at ~42% at the end of Q1FY12), improving asset quality, healthy margin (NIM at 2.6% in Q1FY12).

> After achieving substantial success on 5Cs (Credit growth, CASA, Cost optimiza-tion, Credit quality and Customers), ICICI Bank is likely to continue its focus on profitable growth.

> After stripping the value of subsidiaries (Rs.236), stock is trading reasonable at 1.25x its FY12 ABV.

JP Associates:

CMP- Rs 70

Current TP- Rs 90

> Cement volumes are likely to jump going forward due to incremental capex while construction division revenues would start picking up by FY13.

> Along with this, post completion of cement capex, company is expected to utilize free cash flows for debt reduction.

> Thus, debt reduction and decline in interest rates would be positive for the company.

> Stock is available at about 9.2x EV / EBIDTA on FY12 estimates.

BEL:

CMP- Rs 1,522

Current TP - Rs.1,913

> The company enjoys a dominant status in the defence sector and has a steady growth profile, a key positive in the current economic environment.

> Order backlog is strong at Rs 230 billion, providing revenue visibility of 43 months, one of the highest in capital goods sector. We thus see revenue growth rates to move up in the future.

> The business is high-end with rich profitability and strong cash generator.

> BEL would remain a preferred vendor to the Indian defence sector.

> Stock is available at about 11.2x FY13 estimates.

Cummins India:

CMP - Rs 393

Current TP - Rs 507

>Company is well poised to benefit from recovery in the infrastructure spending in India.

> Commencement of mega production site at Phaltan is likely to ease out capacity constraints and would add to cash flow generation from Q3FY12E.

> Company has committed a Capex of USD 300 million funded mainly through internal accruals.

> Stock is available at 10.3x FY13 estimates.

IRB infra:

CMP - Rs 160

Current TP - Rs.246

>Company has a strong order book for its EPC division and is also ideally positioned to benefit from toll rate hikes in line with inflation in most of its toll projects.

>It also has sufficient funds to meet equity requirements of existing and new projects and is best positioned to capture upcoming opportunities in the road segment.

>Stock is available at 8.6x FY13 estimates.

Indraprastha Gas:

CMP - Rs 400

Current TP - Rs 450

>Looking at the growth potential in the City Gas Distribution, rich experience, huge demand of natural gas and strong promoter background, we are bullish on IGL.

>We believe that the strong trends in CNG and PNG segment will continue and IGL is best placed to benefit from rising gas consumption in India.

>Based on our estimates, the stock at current market price of Rs.400 is trading at 8.3x EV/EBIDTA and 14.5x P/E on FY13E earnings.

HT Media:

CMP - Rs.138

Current TP - Rs.200

> Investments in three large markets (HT-Mumbai, Hindustan-UP, and Mint-business newspapers) over the past five years shall provide industry-beating growth in the coming years as readership reaches threshold levels in market share in key markets.

> Two of the company`s properties (HT-Mumbai, Mint) are set to achieve breakeven towards FY12-end.

> Valuations are reasonable at 11.8x PER FY13E.

NIIT Tech:

CMP - Rs.230

Current TP - Rs.300

>The company reported eight successive quarters of high volume growth.

>Non-linear revenues continue to grow at the company average and form about 27% of revenues.

> The order bookings in 2QFY12 were high at USD 200 (USD 86 million), indicating a conducive macro scene.

> The company may have net cash of about Rs.65 a share by FY13 end, as per our estimates.

> Stock is available at 6.3x FY13 estimates.

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5 Diwali mahurat picks from ICICIdirect

noreply@blogger.com (Raghav R) — Tue, 25 Oct 2011 03:08:00 +0000

The global economy is once again passing through turbulent weather in terms of the growth trajectory. Soft economic data points coming out of western economies (weak PMI readings breaching the critical level of 50 globally, discouraging consumer confidence retesting the 2008 lows and stressed housing sector) coupled with the perplexing sovereign debt crisis in the peripheral Euro zone has once again raised the odds of a double dip recession in the troubled western economies. Hence, the downgrade of US debt (July 2011) by the rating agencies was merely a catalyst for the ruthless sell off that risky asset prices have witnessed post the downgrade, further adding to the odds of a double dip. The impact MSCI Developed Markets were down by 15% from July-September 2011 coupled with huge volatility.

``We expect more of a time based correction and expect the markets to oscillate in a broad trading range till the time reasonable clarity emerges from the various local and global macro headwinds. In case of a negative outlier event, the markets may fall further in the wake of panic selling. However, we do not expect the markets to sustain at such levels. In such an environment, timing the markets would become extremely difficult. We believe any sharp cuts should be bought into from a three to five years perspective. Buying is recommended in large caps and selective quality midcaps. Hence, for Mahurat 2011, we would stick to high quality large caps and midcaps such as Bharti Airtel, Biocon, HPCL, HDFC Bank and ITC,`` said the broking firm ICICIdirect.

Following is the investment rationale on 5 Diwali Mahurat picks from ICICIdirect:

Bharti Airtel:

> The industry scenario has improved over the past few quarters with the ongoing CBI enquiry into the 2G scam. The recent price hike by incumbents signifies reducing competitive intensity and returning pricing power. Airtel is expected to post an improvement in ARPMs in the coming quarters on the back of the recent price hike and traction in 3G services. With the withdrawal of unsustainable customer acquisition offers from the market and reducing dual SIM phenomena, margins in the domestic market are expected to improve, going ahead

> Africa operations have shown continual improvement in key metrics. EBITDA margins have expanded by 276 bps in the past three quarters. With outsourcing agreement in place, the benefit in terms of further margin expansion is expected to kick in from FY13 onwards.

> DoT expects NTP 2011 to come into effect by Dec. 31, 2011. Most of the negatives related to one-time spectrum fees seem to be already priced in. Spectrum trading, pooling and sharing would help larger players like Bharti Airtel. At the CMP of Rs 385, the stock is trading at 16.1x FY13EPS against its long-term average of 19.3x. Also, with most of the capex already incurred, return ratios would also improve, going ahead

Biocon:

> The out-licensing deal with Pfizer to launch four human insulin products in emerging and advanced markets post patent expiry augurs well for Biocon. It has started supplying Fidaxomicin (antiinfective) API to US based Optimer`s patented product Dificid for which the company is a sole supplier. The recent launch of reusable pen in the domestic market is a promising move for the company. Divestment in Axicorp is expected to boost EBITDA margins.

> The R&D services business is witnessing a consistent improvement both in terms of revenues and profitability over the last three quarters. The key trigger will be the unlocking of R&D business through IPO.

> We expect sales and profits (after adjusting Axicorp numbers in FY11) to grow by 22% and 20%, respectively, between FY11 and FY13E. Biocon is currently trading at 18x FY12E EPS of Rs 19.3 and 15x FY13E EPS of Rs 24.

HDFC Bank

> We expect healthy business growth of 20% CAGR over FY11-13E with a well diversified loan book (50:50 between retail and wholesale) and strong liability franchise (CASA ratio of 48%)

> Margins will be protected at over 4% (one of the best across industry). Healthy asset quality will lead to lower credit costs The bank commands a premium multiple of 3.8x FY13E ABV because of consistent track record of 30% YoY growth in PAT, higher margins and healthy asset quality. We expect PAT growth of 30% CAGR over FY11-13E and RoA of 1.9% and RoE of 21% by FY13E.

HPCL:

> Hindustan Petroleum Corporation (HPCL), a Fortune 500 company, is engaged in refining and marketing of petroleum products in India. It operates two refineries with 16.3 mmtpa capacity in FY11 and has 18% share in marketing of petroleum products. HPCL, in a joint venture with Mittal Energy, is setting up a 9 mmtpa refinery at Bhatinda, which would be operational in FY12E

> We believe capacity expansion, increase in retail sales volume and higher refining margins would create value for investors, going forward. Also, government policy and reforms in the pricing of sensitive petroleum products could reduce net underrecoveries of the company. We have assumed Brent crude oil prices of USD 100 per barrel and net under-recoveries of 8.8% for OMCs in FY13E.

> HPCL is trading at 7.5x FY12E and 6.3x FY13E EPS of Rs 46.1 and Rs 55.2. HPCL`s book value of Rs 439 in FY13E also offers good risk reward ratio to long-term investors. Sustained higher crude oil prices and adverse government policy remain risks to our recommendation.

ITC:

> With a leading position in its various businesses, we expect ITC to sustain its gross revenue growth at 12.6% (CAGR from FY11-14E), driven by healthy growth in FMCG (18.6%), agri business (16.3%) and paperboards (13.7%) with a moderate growth in cigarette (10.1%) and hotel (8.8%) revenues.

> ITC is the market leader in the Indian cigarettes industry and enjoys 75% volume share (FY11). Its cigarette revenues (gross) have grown by 1.5x, from Rs 1,28,337 million in FY07 to Rs 1,98,276 million in FY11, largely driven by price growth of 11.3% with volume growth remaining flat. Being a dominant player, passing on the impact of higher taxes through price increases has not been tough for ITC. Therefore, we expect revenues from cigarettes to continue growing at a CAGR of 10.1% (FY11-14E) driven by 5.3% price growth and a lower volume growth of 4.5%

> Comparing with global peers like British American tobacco (BAT), Philip Morris and Japan Tobacco, ITC should trade at a premium given the opportunity size of the Indian market and expected higher earning growth. Simultaneously, a substantial reduction in FMCG losses and visibility of break-even would result in the FMCG segment commanding a higher valuation than the historic average. We remain positive on the stock from a 9 to 12 months perspective.

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Union Bank - Poor Results Avoid

noreply@blogger.com (Raghav R) — Tue, 25 Oct 2011 00:28:00 +0000

Union Bank of India touched a 52-week low of Rs 211.65. At 14:41 hrs the share was quoting at Rs 212.65, down Rs 27.30, or 11.38%.

Union Bank disappointed the street by its numbers, falling over 9%. Net profit for the second quarter of FY12 stood at Rs 353 crore as against expectations of Rs 519 crore and net interest income reported at Rs 1,661 crore while CNBC-TV18 poll saw it at Rs 1,626 crore.
It was trading with volumes of 774,856 shares. In the previous trading session, the share closed down 4.10% or Rs 10.25 at Rs 239.95.

Performance :
The scrip has grossly under performed and has been losing on all paramters and is now headed for steeper fall going forward.

Share Price Movement During The Last 12 Months
Period	Price	Latest Price	Gain/Loss (Rs.)	% Gain/Loss
3-Days	249.35	212.65	-36.70	-14.72
5-Days	250.45	212.65	-37.80	-15.09
7-Days	253.10	212.65	-40.45	-15.98
15-Days	229.90	212.65	-17.25	-7.50
1-Month	241.60	212.65	-28.95	-11.98
3-Month	294.10	212.65	-81.45	-27.69
6-Month	333.10	212.65	-120.45	-36.16
9-Month	326.85	212.65	-114.20	-34.94
1-Year	403.00	212.65	-190.35	-47.23

Our Recommendation :

The stock is poised to test 150 levels and should be avoided due to poor performance during the last 12 months. HOwever long term investors with a holding time frame of 12-18 months should avail the steep correction to add to their portfolio and buy around 150 levels

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BSE / NSE Weekly Analysis for the week ending 21 Oct 2011

noreply@blogger.com (Raghav R) — Mon, 24 Oct 2011 02:12:00 +0000

BSE / NSE Weekly Analysis for the week ending 21 Oct 2011

The market declined for the week ended 21 st October 2011 due to trailing weakness in global shares caused by disappointment over the pace of European rescue plan. Investors feared building fresh positions as data showing acceleration of food inflation early this month raised prospects of more rate hikes from the central bank to tame inflation, which remains uncomfortably high. Stock specific action was witnessed as most index heavyweights announced their results for the quarter ending September 2011.

Foreign institutional investors (FIIs) outflow in October 2011 totaled Rs 675.20 crore (19th October 2011). FII outflow in calendar 2011 totaled Rs 966.80 crore (19th October 2011).

Indices Review

The BSE Sensex fell 297.05 points or 1.74% to settle at 16,785.64 in the week ended Friday, 21 October 2011. The 50 shares S&P CNX Nifty fell 82.35 points or 1.60% to 5,049.95

The market declined this week, trailing weakness in global shares caused by disappointment over speed of European rescue plan. Investors feared building fresh positions as data showing acceleration of food inflation early this month raised prospects of more rate hikes from the central bank to tame inflation, which remains uncomfortably high. Stock specific action was witnessed as most index heavyweights announced their June-September 2011 quarter results.

Foreign institutional investors (FIIs) outflow in October 2011 totaled Rs 675.20 crore (till 19 October 2011). FII outflow in calendar 2011 totaled Rs 966.80 crore (till 19 October 2011).

Inflation, as measured by the wholesale price index (WPI), rose 9.72% in September 2011, compared with a 9.78% rise in August 2011, data released by the government on 14 October 2011, showed. WPI inflation for July 2011 was revised upwards to 9.36% from the provisional reading of 9.22%.

Trading for the week began on a weak note. The BSE Sensex

fell 1.74% to settle at 16,785.64 in the week ended Friday, 21 October 2011. The 50 shares S&P CNX Nifty fell 1.60% to 5,049.95. The BSE Mid-Cap index fell 1.26% and the BSE Small-Cap index fell 1.20%. Both these indices outperformed the Sensex.

Sectoral Review

Capital Goods:

The BSE Capital Goods index fell 4.38% to close at 10,558. Among the heavyweights in the industry Crompton Greaves, L&T, BHEL & Siemens fell 14.0%, 5.1%, 4.1% & 2.6% respectively. Disappointing L&T Q2 numbers dragged the gauges in the negative zone. L&T tumbled 5.1% to Rs 1336 after the company cut its order growth guidance for the current fiscal year to 5%, from 15% earlier. Order flow is being hampered by investment slowdown, project deferrals and higher competition

IT:

The BSE IT index fell 3.04% in the week to close at 5,526 levels. TCS, HCL Tech, Wipro, and Infosys fell 7.6%, 6.4% 2.6% and 0.8% espectively. TCS was the top loser this week. The stock declined 7.60% to Rs 1048.25 after disappointing Q2 results, which the company announced after market hours on Monday, 17 October 2011. TCS chief financial officer and executive director S Mahalingam on Tuesday, 18 October 2011, said that TCS would cut costs and focus on high-margin services to maintain its profitability in the traditionally weak October-December quarter. TCS' consolidated net profit fell 4.7% to Rs 2301 crore on 7.7% growth in revenue to Rs 11633 crore in Q2 September 2011 over Q1 June 2011.

Realty:

The BSE Realty index fell 2.96% to close at 1,773 levels. HDIL, Indiabuls Real Estate, DLF, Unitech and fell 8.1%, 7.3%, 3.1% and 2.4% respectively. DLF declined 3.1% to Rs 225.05 after the Securities and Exchange Board of India (Sebi) said on Thursday, 20 October 2011, that it would investigate allegations against the real estate developer that it failed to disclose a police complaint against an associate firm in its share sale document in 2007. The allegations were from a complainant who alleged that Sudipti Estates, which he said was an associate of DLF, had duped him of about Rs 34 crore.

Power:

The BSE Power index fell 2.78% to close at 2,108 levels in the week ended 21st October 2011. Crompton Greaves, BHEL, Tata Power, NTPC fell 14.0, 4.1%, 2.7% and 2.2% respectively. Crompton Greaves has announced its financial results for the quarter and half year ended September 2011. During 2QFY12, the company has reported 13% YoY rise in sales and 45% YoY decline in net profits. The rise has come on the back of around 12% YoY growth in power systems business and about 29% YoY rise in industrial systems business.

However, growth in the consumer products segment was muted at about 4% YoY. Operating profits declined by 32% YoY during 2QFY12 as operating costs grew by 20% YoY. Further, significant increase in interest cost and depreciation charges during the quarter caused the bottomline to decline by about 45% YoY. During 1HFY12, the company's sales increase by 9% YoY, while net profits decline by 52% YoY

Oil & Gas:

The BSE Oil & Gas index fell 2.37% to close at 8,650 levels in the week ended 21st October 2011. Reliance Industries and ONGC fell 3.6% and 0.5% respectively. Reliance Industries (RIL) fell extending recent losses triggered by weak Q2 operating performance. The core operating profit margin (OPM) declined sharply to 12.5% in Q2 September 2011 from 16.3% in Q2 September 2010. Media reports had suggested recently that RIL may suspend oil and gas drilling operations for an unspecified time until an internal valuation of its exploration and production strategy.

Outlook

High volatility is expected on the bourses in a truncated trading week. There are many variables for investors to grapple with, including corporate earnings, a policy review from the Reserve Bank of India, expiry of the near-month October 2011 futures & options contracts and a European Union summit to finalize a package of comprehensive measures to tackle the eurozone debt crisis.

The near-month October 2011 derivatives contracts expire on, 25th October 2011. Furthermore with the rupee hitting a near 30-month low below the 50/$ level against the dollar, shares of exporters including IT firms may edge higher while those of the importers may witness an adverse impact.

With inflation remaining at uncomfortably high level, the Reserve Bank of India (RBI) is seen delivering another rate hike of 25 bps at its half-yearly review of the monetary policy on Tuesday, 25th October 2011.

A special muhurat trading session is scheduled on the bourses from 16:45 to 18:00 on Wednesday, 26th October 2011on account of Diwali. There is no regular trading session on that day. The market also remains closed on Thursday, 27 October 2011, on account of Diwali, the festival of lights.

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Tata Metaliks – Buy on declines

noreply@blogger.com (Raghav R) — Mon, 24 Oct 2011 00:42:00 +0000

We recommend a buy in the stock of Tata Metaliks from a short-term perspective. It is apparent from the charts of the stock that after encountering key resistance around Rs 160 in October 2010, it has been on an intermediate-term downtrend. Medium-term trend is also down from this April peak of Rs 130.

However, the stock found support at its long-term base zone between Rs 67 and Rs 70 in late August and bounced up. The stock's reversal was also triggered by positive divergence in its daily relative strength index. Following a pennant pattern formation, the stock broke through this pattern by gaining more than 12 per cent on Tuesday.

The volume accompanying this surge was extraordinary. The daily RSI is on the brink of entering in to the bullish zone and weekly RSI entered into the neutral region from bearish zone. Daily moving average convergence divergence is moving higher in line with the stock price signalling upward momentum.

Daily price rate of change indicator is featuring in the positive territory implying buying interest. Our short-term outlook on the stock is bullish. We expect its up move to continue until it hits our price target of Rs 87.5 or Rs 90 in the ensuing trading sessions. Traders with short-term perspective can buy the stock with stop-loss at Rs 82.5.

Stock Performance :

Time Span Price Change %Change

Today 76.90 3.10 4.20

Week 77.45 -3.65 -4.71

Month 82.45 -8.65 -10.49

Three Months 100.35 -26.55 -26.45

Six Months 122.15 -48.35 -39.58

One Year 139.05 -65.25 -46.92

Two Years 104.50 -30.70 -30.70

Three Years 95.95 -22.15 -23.08

Five Years 133.35 -59.55 -44.65

Our Recommendation :

We recommend short term investors to avoid as it is likely to go down in line with the BSE Metal Index and its peers. Long term investors should buy the scrip around Rs.65-70 levels to hold for the uptick for a price target of Rs.105 holding period of 12-15 months.

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DCB - Buy on declines

noreply@blogger.com (Raghav R) — Sun, 16 Oct 2011 02:37:00 +0000

Nirmal Bang is bullish on Development Credit Bank (DCB) and has recommended buy rating on the stock with a target of Rs 65 in its October 14, 2011 research report.

“Development Credit Bank (DCB)’s performance for Q2FY12 was broadly in line with our estimates. DCB reported a net profit of Rs.13.2 crs in Q2FY12 resulting in a growth of 177.6% on a YoY basis and a QoQ increase of 51.0%. The bank’s asset quality has improved and the bank reported overall decline in its gross and net NPAs. The bank's CASA deposits stood at 33.2% in Q2FY12, down from 33.3% in Q1FY12 and 34.6% in Q2FY11.”

“Net Interest Income increased by 27.4% on a YoY basis and 13.9% on a sequential basis in Q2FY12 to Rs 59 crs resulting from the increase in base rate. Net Interest Margin (NIM) of the bank improved sequentially to 3.41% in Q2FY12 from 3.1% in Q1FY12. Non Interest Income of the bank declined 14.0% YoY and 1.3% on QoQ basis.

The main reason was decline in forex income and flattish commission income. The share of non interest income as % of total income stood at 28.1% in Q2FY12. As the bank continued to invest in new frontline staff the bank’s employee expenses increased 26.1% YoY and 3.7% QoQ in line with expectation.

Despite that the cost to income ratio declined from 78.1% in Q1FY12 to 74.6% in Q2FY12. DCB’s loan book grew by 12.4% YoY and 1.9% QoQ in Q2FY12 at Rs 4,315 crs. On deposit front deposits grew at 13.9% on YoY and 4.7% on QoQ basis. Credit to deposit ratio stood at 69%. Management is targeting a credit growth of 16- 17% for FY12E.”

“At the current price of Rs. 43, DCB is trading at a PE of 16.29x of FY12E EPS & 11.05x of FY13E EPS and at P/ABV of 1.32x and 1.2x of FY12E & FY13E respectively. We recommend BUY on the stock with a target price of Rs 65,” says Nirmal Bang research report.

Our recommendation

Below 40 mark the stock could sink to 32 levels by end december. Long term investors can enter the stock post around 32 levels and hold for a target price of 65 which is 100% gain on the initial investment

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Maruti - Avoid

noreply@blogger.com (Raghav R) — Sun, 16 Oct 2011 02:01:00 +0000

Shares of Maruti Suzuki Ltd slipped to their 52-week low of Rs 1022.10 on Friday as investors are concerned of ongoing strikes at various plants which may weigh on production targets and profitability.

Maruti Suzuki has suspended production at its factory in Gurgoan for two days from Friday in view of the strike at its component supplying plant in Manesar.

Workers at Maruti Suzuki's Manesar plant went on strike demanding reinstatement of 44 suspended co-workers who were not taken back after an earlier 33-day impasse with the management ended Oct 1.

Goldman Sachs in a recent report has cut production estimates for Maruti Suzuki Ltd and maintained a 'Neutral' rating with a 12-month price target of Rs 1071, a cut from Rs 1173 target earlier. The brokerage report says, "Owing to persistent labour strikes at Maruti Suzuki's Manesar plant and supplier Suzuki Power Train, we cut our volume estimates for Maruti Suzuki to 1.2mn units for FY12E (from 1.35mn) with further potential downside should the current impasse continues."

Also, the company might not be in a position to take advantage of new capacity at the Manesar plant in the face of demand uptick driven by seasonally strong festive demand, launch of new Swift model in Aug'11.

According to a report, continued labour unrest at Maruti Suzuki Ltd has alarmed auto companies, as both the carmaker giant and vendors have reported a combined loss of around Rs 3,000 crore since the start of the standoff earlier in June this year. The government has suffered an excise revenue loss to the tune of Rs 350 cr, while the company has already taken a hit of over Rs 1500 crores.

According to estimates, since the first round of strike in June this year to over 30 days-long standoff from August 29-October 1, and the fresh strike at the Manesar plant from October 7, Maruti Suzuki has suffered a total production loss of over 51,000 units.

Any worsening in labour disputes could potentially drive structural downside risk to Maruti Suzuki's margins from higher staff costs in the long run. Maruti Suzuki's current staff cost as a percentage of revenue is one of the lowest among peers in India and Asia.

The strike could not come at a more crucial time for the car manufacturer as it is the festive season, which typically generates huge demand -- something the automobile giant is in need of given the sluggish sales witnessed in recent months.

According to recent data, domestic passenger car sales declined for the third consecutive month in September with a fall of 1.8%, mainly due to the severe impact of labour issues on Maruti Suzuki India's production.

According to figures released by the Society of Indian Automobile Manufacturers (SIAM) today, domestic passenger car sales stood 1,65,925 units in September against 1,68,959 units in the same month last year.

Maruti Suzuki Ltd might not be able to take advantage of the festive season, which typically generates huge demand for automakers, on the back of ongoing strike at Maruti's plant which has halted production.

In September, the company's sales declined by 17.76% to 66,667 units from 81,060 units in the same month last year, while rival Tata Motors reported a 2.19% jump in sales to 21,011 units in September this year from 20,560 units in the same period last year.

Car sales in India are expected to rise just 2 to 4 percent this fiscal year to next March, down from an earlier forecast of 10 to 12 percent, industry body Society of Indian Automobile Manufacturers (SIAM) said earlier in the week.

Analyst Call:

Shares of Maruti Suzuki closed 2.65% lower at Rs 1028.45. The stock has touched its 52-week low of Rs 1022.10 earlier in trade today.

"Today the stock has made a new 52 week low, and is inching towards breaking the 1,000 mark on the downside," said Kunal Bothra, Senior Technical Analyst, Manager Advisory, LKP Securities.

The stock has plunged over 15% since June 2011 and over 27% so far this year.

"Technically, the stock has broken down out of a one month consolidation, and if it sustains below Rs 1050 on closing basis today, we should see more selling pressure in this stock," added Kunal.

"If we look at the weekly chart of Maruti Suzuki Ltd, it is clear that the stock is in a consolidation mode since Sep 2009 peak. However if it manages to hold its key retracement levels (61.8%) of Rs 896, on a longer term (2 or more years) basis, the uptrend would still remain intact," said Kunal.

CLSA also maintains "underperform' rating on Maruti Suzuki Ltd with a target price of Rs 1075, a cut from Rs 1210.

Our Recommendation

We expect the share to slide further 25% in the upcoming months due toe the following

- loss of market share
- sedate car market Oct-Dec will be worst
- Continuing labour unrest
- launch of new models by rivals

Below 1000 mark the stock could sink to 800 levels by end december. Long term investors can enter the stock post Jan 2012 and hold for a period 2-3 years for a 100% gain by way of capital appreciation.

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Metal Stocks - Best buys !!

noreply@blogger.com (Raghav R) — Sun, 09 Oct 2011 18:07:00 +0000

The metals sector has been facing a tough time, partly due to the correction in global commodities prices and also because of certain domestic developments like the ongoing CBI probe into the mining industry in Karnataka.

Many frontline metal stocks like JSW Steel, Tata Steel, Sesa Goa, Hindalco and Sterlite, to name just a few, have seen a severe contraction in prices. What has further compounded the problem is the ongoing crisis in the Euro Zone and the fear that China's metal demand may slow.

It is tough to say which metals segment — copper, steel or aluminium — would take a greater hit than the others or whether the producers catering to domestic demand would be spared from demand recession compared to companies like Tata Steel which has a significant presence in European markets.

But for long term investors, it would be tempting to know whether the current meltdown in metal stocks make them hot investments, even in the likelihood of further price correction in these shares. All the five metal stocks mentioned earlier have suffered serious erosion in value and three of them have seen their Price to Earnings (PE) ratio come down to single digits.

The extent of carnage the sector has suffered could be judged by taking a look at today's NSE closing prices compared to their year's high (given in brackets):

Sesa Goa - Rs 204.25 (Rs 383.65); Jindal Steel and Power – Rs 480 ( Rs 755.50); Tata Steel - Rs 420.70 ( Rs 737); Hindalco - Rs 126.10 (Rs 252.85) and Sterlite - Rs 113.35 (Rs 195.95).

But what is intriguing is that while the stocks of metal companies has seen a correction, it is not as if all metal prices have corrected. For instance, the steel prices have not gone down so much compared to the share price of steel stocks. Given the problem in mining in India, it is possible that domestic steel prices may remain firm, benefiting steel producers.

In an interview to Business Line, Mr Bhavesh Chauhan (Senior Research Analyst — Metals & Mining), Angel Broking, Mumbai, shares his views on the metal sector's performance and what it holds for them in future. Excerpts:

Metal stocks have taken a hammering. Do you consider them worthy of investment at current prices or is some more pain due?

The last 6-8 months have been bad for metal companies due to escalating debt crisis in Europe and stocks have been battered. As long as the situation in Europe remains grim, metal demand would remain weak and sentiment will keep metal prices lower. Monetary tightening in China has also played its part, although there hasn't been any huge decline in China's appetite for resources so far.

Different metal stocks (Sterlite (copper), Hindalco (aluminium), JSW Steel, Tata Steel and Sesa Goa) have suffered. Do you see any particular company recovering in the short term? Are all metal stocks in the same league?

Metal being a global commodity, all the stocks would be in the same league, although broadly we classify the companies as ferrous and non-ferrous and then we could have the classification in terms of steel makers and miners as well. Again, recovery of any stock would depend on how Europe shapes out. Also, there are concerns on US going into double dip too. So that factor has to be seen closely.

The reasons for the downslide in shares — controversy in the Karnataka mining sector and slowdown in Europe — are different. Do you think it would take some time for these negative factors to disappear?

For Karnataka mining, it is more of a regional thing and it affects companies operating in Karnataka. I believe the Karnataka issue could be sorted out in 6-9 months. European slowdown is a big concern actually and how long it will take for these factors to disappear is a challenging question.

The economic slowdown has led to demand contraction resulting in fall in metal prices. But any economic recovery would see demand for metals picking up. So, do you feel the fall in prices is temporary or will it continue for a while?

Any recovery in Europe should see base metal prices recovering, although the way the scenario is today, it is difficult to give a time frame. At least in the near-term I do not expect any recovery in base metal prices.

Which are the sectors that would benefit due to metal prices falling — autos, housing, electrical goods, capital goods. Do they have any upside potential because of this?

Companies in capital goods and infrastructure will benefit if prices fall. However, steel prices have not fallen so far. Steel is the commodity which is used mainly as a raw material in machinery and construction. We do not expect any significant fall in steel prices anyway as prices of raw material remain high and are expected to remain firm due to supply concerns.

Though metal prices have fallen, the woes in Europe and US may not lead to pick-up in demand for products. How will Indian companies benefit?

Base metal prices have fallen. So, a little benefit will flow to some companies. However, steel remains the most widely used commodity.

How will the rise in dollar value and fall in rupee value affect the Indian metal cos? Hasn't the fall in rupee value neutralised any benefit of fall in commodity prices?

With the rupee depreciating, it helps companies selling metals as imports become expensive and hence domestic producers can raise prices. As far as importers of commodities are concerned, so far the falling rupee has offset falling commodity prices as you rightly say.

Have the frontline metal stocks become investment worthy after price correction? What are your picks and why?

We do feel that front-line metal stocks are now worth investing as we believe markets are discounting on the near term global macro issues (primarily Euro zone crisis). The current price levels do not discount the expansion plans by companies over the next 2-3 years. We like companies with captive resources and big expansion plans. With captive resources, these companies would generate higher return on capital employed at even current metal prices. Though we like Hindustan Zinc, SAIL, Sterlite amongst others, Tata Steel and Hindalco are our top picks –Tata Steel with a target price Rs 614 and Hindalco with a target price of Rs 196.

We like Tata Steel for its buoyant business outlook, driven by higher sales volume on completion of its 2.9 mt brown field expansion in Jamshedpur. The company's raw material projects are expected to be commissioned by 4Q FY2012 with lower off take initially; the full benefit is expected to accrue in FY2013E. Additionally, restructuring initiatives at Tata Steel Europe are likely to benefit the company going forward. We believe Hindalco is well placed to benefit from its aluminium expansion plans (capacity increasing by nearly two-three folds in the next two-four years). Most of its new capacities will be backed by captive mines leading to robust margins. Further, we expect steady EBITDA of $1 billion annually from Novelis.

Steel prices have not fallen much but steel stocks have suffered. Because of the mining issue, steel prices may remain firm. Does that make steel stocks attractive for investment?

Steel prices have not fallen because prices of iron ore and coking coal across the globe are still firm. The mining problem is only India-specific and does not have any impact on the steel prices, which are globally determined. We believe steel stocks are attractive given that their margins have shrunk drastically over the last 9 months or so. We like steel stocks as coking coal prices are expected to fall, interest rates in India should fall sooner than later, capex cycle should pick up in the next six months. The stock prices have discounted all the negatives, leaving some of the stocks highly undervalued.

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Indian IT Sector to post muted growth

noreply@blogger.com (Raghav R) — Sun, 09 Oct 2011 15:46:00 +0000

Nomura Financial Advisory and Securities has assigned `Buy` and `Neutral` rating on the following 5 IT stocks. The rationale for the rating is as follows:

HCL Technologies - Buy
CMP: Rs 409
Target Price: Rs 530
Upside 29.5%

Revenue growth of 5.4%, margin decline of 140 bps in 1QFY12 expected:

We expect HCL Tech to deliver US dollar revenue growth of 5.4% q-q in 1Q FY12F along with a 140bp decline in EBITDA margin from wage hikes and fresher recruitment, cushioned by rupee depreciation. Management commentary on the deal pipeline and win-rates will be keenly watched.

Top pick in IT for highest absolute return potential:

HCL Tech`s market share gain focus and lower margin expectations should aid in competing better in a growth slowdown scenario, in our view. We derive comfort from revenue surety on strong deal wins/pipeline exhibited by: 1) USD 2.7 billion worth of TCV signed in BFSI/manufacturing in FY11; 2) about USD 2 billion worth of deals in BFSI in the pipeline; and 3) anticipated strong deal decision making in the December 2011 quarter with a record-high pipeline. Valuations seem to be building in a worst-case scenario of severe pricing cuts, which we believe is unlikely. In our view, its valuations and best-in-class earnings growth provide comfort for implied upside of 30% from current levels. HCL Tech remains our top pick in IT.

Catalyst: Decision making on deals in line with expectations in the December 2011 quarter and an absence of pricing cuts.

Reiterate `Buy` and target price of Rs 530 based on 15x FY13F:

We expect a USD revenue CAGR of 19% and EPS CAGR of 24% over FY11-13F. Our estimates are marginally revised upwards for rupee depreciation. We retain our target price of Rs 530, based on 15x FY13F earnings.

Infosys - Buy
CMP: Rs 2,533
Target Price: Rs 2,900
Upside 15%

Possible negative reaction to guidance cut; accumulate on declines:

We expect 2QFY12 results to be in line with guidance on USD revenues (4.9% q-q), to surprise positively on EBITDA margins (est +110 bps q-q) and come in ahead of guidance on EPS (est Rs 35.7 vs guidance of INR 30.2) driven by rupee depreciation. We see disappointments on a cut in FY12F revenue guidance, which we think is highly probable given: 1) project delays/deferrals and discretionary spending curtailments; and 2) adverse cross-currency movements. Infosys has significant operational scope to tide over demand moderation and we find comfort in valuations which are already factoring in a possibility of guidance downgrade and growth moderation to the low-teen levels in FY13F. Reiterate `Buy`.

Expect FY12F revenue guidance cut and EPS guidance raise:

We expect a cut in USD revenue growth guidance from 18-20% to 16-18% on: 1) growth moderation; and 2) cross-currency impacts. We think EPS guidance is likely to be raised to around Rs 135 from Rs 128-130 earlier on: 1) rupee depreciation; and 2) cost curtailments in a growth moderation environment. Expect 3QFY12F revenue growth to be guided at 3-4% q-q.

Catalyst: Keeping revenue growth guidance unchanged would be a positive trigger.

Raise target price to Rs 2,900, reiterate `Buy`:

We raise our target price to Rs 2,900 (vs Rs 2,800 earlier) based on 18x FY13F earnings on a marginal improvement in earnings on rupee depreciation. Maintain `Buy` on better operational scope and comfort on valuations.

Patni Computer Systems - Neutral
CMP: Rs 289
Target Price: Rs 300
Upside 3.8%

Weak revenue outlook in the price; upgrade to `Neutral`:

Patni has corrected by 39% (vs 19% correction for the Nifty) YTD and is now trading at 10x FY12F EPS. Post this correction, we see limited downside given: 1) likely sequential margin and EPS improvement for the next few quarters primarily on the back of G&A savings; 2) a cash balance of Rs 130 a share (45% of market cap); and 3) Igate`s expressed preference for a delisting, which could result in shares being acquired at a premium to current prices. Upgrade Patni to Neutral.

Not a `Buy` yet, as revenue and governance concerns remain:

Patni`s revenue growth will be sluggish, in our view, (we model 6.6% CAGR over FY10-12F) as margin improvement seems to be the primary focus of management. Also, we still have concerns on allocation of costs and revenues to Patni under a common Igate-Patni front-end.

Catalyst: Change in delisting plans, improvement in revenue growth

An Igate decision to cut its stake instead of delisting could lead to valuation multiple de-rating. Any sign of Patni breaking out from the sub-4% sequential revenue growth pattern could lead to a re-rating in the stock.

Raise target price to Rs 300 based on 10x 1-yr forward earnings:

Our diluted EPS estimates are higher by 6%/3% to Rs 25.4/28.3 in FY11/12F on 1) rupee depreciation; and 2) higher G&A savings, despite cut in FY13F revenue estimates.

Tata Consultancy Services - Neutral
CMP: Rs 1,037
Target Price: Rs 1,070
Upside 3.18%

2QFY12F - 5%+ revenue growth; forex losses to weigh on earnings:

We expect TCS to report USD revenue growth of 5.4% q-q in 2Q FY12F. EBTIDA margins are likely to improve by 80bps q-q on better rupee realisation and SG&A leverage. Forex losses could depress the positive impact of rupee depreciation on earnings. Management commentary on demand and pipeline will be key things to watch for, as we sense some moderation in management optimism over the past few quarters.

High BFSI/Europe exposure a risk; remain `Neutral`:

We see the key risk at TCS being its high banking, financial services and insurance (BFSI) and Europe exposure. These were the first segments to be hit in the previous downturn, and we expect a repeat of the same scenario. Valuations still appear to build in higher-than-peer-group optimism on future growth given strong management commentary and superior results of late, which could be at risk in a growth moderation scenario. We maintain our Neutral rating, despite continuation of growth momentum in the near term. Amongst Tier-1 stocks, we prefer Infosys and HCL Tech.

Catalysts: Economic uncertainty shifting to individual clients and management commentary turning less upbeat on demand.

Raising target price to Rs 1,070; remain `Neutral`:

We have raised our EPS estimates marginally on rupee depreciation. This leads to our TP being raised to Rs 1,070 (from Rs 1,050), based on 18x FY13F earnings. We remain cautious on TCS on its high BFSI/Europe and client concentration, coupled with lesser comfort on valuations.

Wipro - Neutral
CMP: Rs 341
Target Price: Rs 340
Downside 0.3%

2QFY12 - 3% revenue growth, 200 bp margin decline expected:

We expect Wipro`s IT Services business to post USD revenue growth of 3.4% q-q (1.3% organic growth), which would be near the higher end of its guidance (2-4%). EBIT margins in IT services are likely to dip by 200 bps q-q on the partial impact of wage hikes and the SAIC acquisition. We think there could be disappointment if Wipro guides for less than 3% q-q growth in 3Q.

Downturn a setback to revival efforts; maintain `Neutral`:

We believe the economic uncertainty and impending growth moderation have come at the wrong time for Wipro, which is trying to restructure and close the growth gap with its peers. We see economic uncertainty setting back Wipro`s revival efforts, adding to the high risks to growth in FY13F on account of: 1) weak near-term deal flow; and 2) slow decision-making reducing the possibility of a near-term revival. Wipro remains our least preferred tier-1 Indian IT stock, as we believe it has the slowest earnings and revenue growth outlook among peers and lacks immediate triggers.

Catalysts: Continued underperformance on growth and pricing cuts.

Raise TP to Rs 340 based on 14x FY13F EPS:

We expect Wipro to deliver a CAGR of 11% in revenue growth and 6% in EPS over FY11-13F. The 14x multiple is a 20% discount to our target multiple for Infosys and TCS, justified given the lag in revenue revival and below par earnings growth.
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BSE / NSE Sectoral Analysis for Q2 results 2012

noreply@blogger.com (Raghav R) — Sun, 09 Oct 2011 15:25:00 +0000

Angel Broking, in its latest research report, gave the following outlook on key sectors:

Automobile

Considering the near-term macroeconomic challenges, it expects the auto industry to register moderate volume growth of 12-13% for FY2012. However, it believe low penetration levels coupled with a healthy and sustainable economic environment and favourable demographics supported by increasing per capita income levels will drive long-term growth of the Indian auto industry. As such, it prefers stocks that have strong fundamentals, ability to deliver strong top-line performance and are available at attractive valuations. It continues to prefer companies in the auto sector with a strong pricing power and high exposure to rural and exports markets. Among auto heavyweights, it maintains our positive outlook on Maruti and M&M.

Banking

To overcome liquidity concerns and high inflation, the RBI has increased the key policy rates by 350bp over the past 15 months, which in turn has resulted in bankers raising their deposit rates by 250bp over the same period. As most of these deposit rate hikes were undertaken by banks during 2HFY2011 (215bp), upward deposit repricing is likely to be nearly over for most banks. Hence, it expects relatively lesser contraction in NIMs going forward (average NIM contraction of 21bp in 1QFY2012).

Also, with deposit mobilisation gaining traction over the past six months, liquidity conditions have improved immensely. Hence, unlike six months ago, when tight liquidity conditions were a major factor in pushing up lending rates, at present it see the upward bias to lending rates arising only from the monetary policy front, which too it believe is close to peak levels. However, it believes the key parameter monitorable over the next few quarters would be the asset quality. While the leftover pain of switchover to system-based NPA recognition for PSU banks is expected to be over in 2QFY2012 (unless there is an extension by the RBI for some accounts), it remain wary of the incremental asset-quality pressures that could arise due to the increase in lending rate hikes over the past one year. Hence, it prefers banks with a more conservative asset-quality profile, especially amongst mid caps (i.e., relatively lower yield on advances and switchover to system-based recognition system nearly complete) - this includes banks such as Syndicate Bank, Bank of Maharashtra and United Bank of India. Also, from a medium-term perspective, it continues to prefer large private banks with a strong structural investment case (within which it prefer Axis Bank and ICICI Bank from a valuation perspective).

Capital Goods

All companies in our CG universe have corrected sharply, justified by concerns brewing in the power sector. On the back of this backdrop, it prefers companies with strong growth visibility and diversified revenue streams. It follows a stock-specific approach, with Jyoti Structures and KEC being among our preferred picks. In the BTG space, it continues to maintain our negative stance, owing to concerns of heightened competition and slowdown in order inflows.

Cement

It expects cement demand to witness a considerable momentum going ahead and expect 2HFY2012 dispatch growth to be higher than 3.3% growth in 5MFY2012. However, excess capacity and other macro issues such as rising interest rates and policy inaction remain causes of concern. Most cement stocks under our coverage are fairly valued and, hence, it remains Neutral on them. However, it maintains our Buy recommendation on JK Lakshmi, which is available at attractive valuations of USD 32 on EV/tonne basis, based on FY2013 estimates.

FMCG

FMCG stocks have been volatile and have showed a mix performance during 2QFY2012. It highlight that FMCG companies have outperformed the Sensex and there is still a wide gap in the premium valuations. Though valuations show a breather from their peak levels.

While the long-term consumption story for the FMCG industry remains intact, any further re-rating from current valuations seems less likely given near-term concerns over 1) high inflationary scenario, 2) possible rise in inflation post the fuel price hike and 3) spike in input costs. Hence, it maintains our Underweight stance on the FMCG sector, as it does not expect any near-term positive triggers for the companies. Amongst heavyweights, it remains Neutral on ITC, HUL and Asian Paints. In mid caps, it has a Neutral stance on GSKCH and Marico. It maintains our Reduce rating on Nestle and Colgate due to their stretched valuations and waits for better entry opportunities. It maintains Accumulate on Britannia, Dabur and GCPL.

Infrastructure

Dry spell of project awarding, across sectors, to continue...: Since the last few quarters, there has been a significant slowdown in award activity across sectors. This is a major concern for the sector, given its direct correlation to revenue visibility. Against this backdrop, given the current policy paralysis and gloomy macro environment, which is expected to stay for the next few quarters, it is expecting subdued performance for our coverage universe in the near-to-medium term on the order inflow front.

...with the road sector being the only exception: NHAI has
invited bids of 4,600km up to August 2011, which includes 1,400km already awarded, 1,800km in the awarding process and bids for the balance 1,400km yet to be opened. However, the fact that the activity has only been witnessed at NHAI`s end has led to enhanced competition, which is evident from the huge difference in bidding prices amongst players. This is affecting project IRR and is leading to delays in achieving financial closure. However, NHAI is emerging as the winner in this highly competitive environment, with bidders offering a premium much higher than the expectations of NHAI.

Metals

Although base metal prices are likely to remain under pressure in the near term due to concerns on growth, high cost of production should lend support to prices. While the copper market is struggling with supply constraints, downside for aluminium prices is capped due to high energy cost. Zinc and lead prices are unlikely to see any major upside as the market remains in surplus.

It expects non-ferrous companies to register positive top-line growth of 4-61% yoy, owing to a surge in LME prices. However, while Hindalco and Sterlite are expected to report margin expansion of 145bp and 340bp yoy, respectively, Nalco and HZL are expected to witness a margin contraction by 122bp and 200bp yoy, respectively, on account of higher raw-material prices. It remains positive on Sterlite, HZL and Hindalco.

Pharmaceutical

With the expected earnings CAGR of 21% over FY2011-13E for our universe of stocks, it remains overweight on the sector, maintaining a positive future outlook and earnings growth. In the generic segment, it prefers Cipla, Lupin, Cadila Healthcare, Aurobindo Pharma and Indoco Remedies. In CRAMS, though the segment is currently witnessing some pressure, there have been indications of a gradual recovery and ramp up from most CRAMS players. Thus, with valuations rendering attractive, it recommend Dishman Pharma in this segment.

Power

With the power sector currently facing many headwinds such as fuel shortage, increasing fuel prices, falling merchant tariffs and poor SEB financial position, it believe players with cost-plus return models and assured fuel are better placed than others. It maintains our Buy view on NTPC, GIPCL and CESC.

Real Estate

The BSE Realty Index (down 12.7% yoy) is currently ruling near its life-time low seen in 2008. Short-term prospects for the sector look bleak due to project delays, low cash flow generation, high debt and rising interest costs. Further, refinancing of loans from banks has become difficult with rising interest cost and the banks having a cautious view on the sector. Having said that, it believes absorption and not price appreciation will drive residential growth over the next six quarters. Given the scenario, new launches have been launched at 10-15% discount to prevailing market rates, which would help developers to achieve higher booking, thereby generating higher cash flows. Further, high inventory is still hampering commercial recovery, though there has been an uptick in absorption levels. It expects rentals to remain firm at current levels with an uptick likely over the next 12-15 months. It believes stock performances are related to macro factors interspersed with company-specific issues such as the CCI penalty on DLF. It is positive on the long-term outlook of the realty sector, taking into account growing disposable income, shortage of 25mn houses in India and reasonable affordability. Given the current scenario, it expect modest correction in residential prices with the exception of certain micro markets, where prices are not overheated, and expect an uptick in the commercial segment over the next 12-15 months.

It prefers companies with visibility in cash flow, low leverage and strong project pipeline with attractive valuations. Our top picks are HDIL and ARIL, which are trading at 50% and 54% discount to their NAVs, respectively. It maintain our Neutral view on DLF, owing to concerns of weak operating cash flow, increasing gearing and just 12% discount to our one-year forward NAV.

Software

For CY2011, clients allocated 2-3% higher budgets for IT spending. Also, S&P 500 profits are expected to grow by 16% yoy for CY2011. Moreover, as per TPI`s recent report, deal pipelines of IT companies are expected to be higher in 2HCY2011, as indicated by the managements of selective companies such as HCL Tech and Infosys. This is also in tandem with the licence sales data from enterprise leader Oracle as well as higher number of deals expected to begin to resurface for vendor churn.

However, the global macro data is pointing towards a bleak outlook for future global corporate profits. Further, there is a huge amount of disconnect in terms of macro landscape and client behaviour. Thus, it expect tier-I IT companies (except Wipro) to replicate growth of 20% plus in FY2012. Further, it expects moderation in volumes to sub 15% only in FY2013. Moderate volumes and stable pricing (assumed) have resulted into FY2013 EBITDA margins moving down marginally by 0-65bp yoy for tier-I IT companies. However, EPS cuts have been of 5-9% for tier-I companies and 4-12% for tier-II companies (excluding Hexaware and MindTree) for FY2013. Thus, it has downgraded our one-year forward PE (x) targets of IT phoenixes by 10% to 20x (22x earlier) and 18x (20x earlier) for TCS and Infosys, respectively. It has now turned cautious from cautiously optimistic (during results of 1QFY2012) and prefers diversified players such as Infosys, TCS and HCL Tech (top pick) in tier-I IT companies. In case of tier-II IT companies, it likes Mahindra Satyam and Hexaware Technologies.

Telecom

For 2QFY2012, it expects revenue growth to be muted due to moderating growth in subscriber base, flat voice ARPM and declining MOU. Amongst the top three operators, it expects Bharti and Idea to post revenue growth of 0.6% and 0.3% qoq, respectively. RCom is expected to post a revenue decline of 0.6% qoq. On the EBITDA margin front, it expects margins to remain weak for Bharti, Idea as well as RCom, with margins declining by 88bp, 62bp and 21bp qoq to 32.7%, 26.0% and 32.2%, respectively. Players in the sector (especially RCom and Etisalat) continue to be haunted by issues related to the 2G scam. It believe industry dynamics point towards a possible consolidation in the long run and expect only select few operators, including Bharti, Vodafone, RCom, Idea, BSNL, Aircel and Uninor, to be the survivors out of the current 15 operators. Bharti continues to be our preferred pick amongst telcos due to its low-cost integrated model (owned tower infrastructure), potential opportunity to scale up in Africa, established leadership in revenue and subscriber market share, and relatively better KPIs. However, overall it remains Neutral on the sector.

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Time Span	Price	Change	%Change
Today	76.90	3.10	4.20
Week	77.45	-3.65	-4.71
Month	82.45	-8.65	-10.49
Three Months	100.35	-26.55	-26.45
Six Months	122.15	-48.35	-39.58
One Year	139.05	-65.25	-46.92
Two Years	104.50	-30.70	-30.70
Three Years	95.95	-22.15	-23.08
Five Years	133.35	-59.55	-44.65