Fw: ValueGuide: Darkest before dawn

 

 

Sharekhan ValueGuide [October 04, 2011]  Sharekhan www.sharekhan.com

EQUITY FUNDAMENTALS FROM SHAREKHAN'S DESK Darkest before dawn The headwinds from the West grew stronger last month as the crisis in Greece escalated threatening to engulf the entire euro region. The economic data coming from the USA also pointed to more weakness and the dim outlook for growth globally led to risk aversion-driven sell-off in equities and commodities whereas the flight-to-safety-driven rally pushed up the US Dollar and bonds.   SHAREKHAN TOP PICKS Sharekhan top picks  STOCK UPDATE Bajaj Corp: Price target revised to Rs142 Bharat Electronics: Annual report review Bharat Heavy Electricals: Competition pressure intensifies, PT revised to Rs2,077 CESC: Annual report review Eros International Media: Annual report review Grasim Industries: Annual report review Hindustan Unilever: Annual report review IDBI Bank: Asset quality woes continue IRB Infrastructure Developers: Annual report review; price target revised to Rs228 ITC: Price hike in cigarettes Mahindra & Mahindra: Price target revised to Rs865 Marico: Price target revised to Rs153 Maruti Suzuki India: Annual report review Orient Paper and Industries: Annual report review Reliance Industries: Price target revised to Rs1,040 Selan Exploration Technology: Gearing up for a strong production ramp-up Tata Chemicals: Annual report review Thermax: Price target revised to Rs550 THE STOCK IDEAS REPORT CARD SECTOR REPORT Information technology: Sky is not falling...hope persists SECTOR UPDATE Banking: Asset quality concerns intensify Fertilisers: Urea makers have the advantage VIEWPOINT Liberty Phosphate: Key beneficiary of NBS scheme EARNINGS GUIDE MUTUAL GAINS Sharekhan's top mutual fund picks (equity)  EQUITY TECHNICALS  Sensex: Breakdown  EQUITY DERIVATIVES  Derivative view: Bears resurge  COMMODITY FUNDAMENTALS  Macro-economy Crude oil: Further decline possible Precious metals: Dip buying noted Base metals: Buy copper on dips Major economic events in October 2011   COMMODITY TECHNICALS  Gold (London): Monthly outside bar Silver: Bears cut loose Light sweet crude oil: Monthly 20-SMA important in the medium term Zinc: At MOB Lead: Last leg pending Pepper NCDEX: Rs31,096 critical for bulls  CURRENCY FUNDAMENTALS  USD-INR EUR-INR GBP-INR JPY-INR  CURRENCY TECHNICALS  USD-INR: Time for a breather GBP-INR: Moving higher EUR-INR: Channelised rise  JPY-INR: Correction unfolding  PMS DESK Sharekhan PMS funds: Fund manager's view and product performance ProPrime-Top Equity ProPrime-Diversified Equity ProTech-Nifty Thrifty ProTech-Diversified ProTech-Trailing Stops  ADVISORY DESK  Monthly performance of Advisory products Smart Trades Derivative Trades MID Trades Click here to read report: Sharekhan ValueGuide

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Fw: Investor's Eye: Update - Bajaj Corp , Viewpoint - Rupa & Co

 

 

Investor's Eye [September 30, 2011]  Sharekhan www.sharekhan.com

Summary of Content STOCK UPDATE Bajaj Corp Cluster: Ugly Duckling Recommendation: Buy Price target: Rs142 Current market price: Rs104 Price target revised to Rs142 Bajaj Corp Ltd (BCL) has acquired Uptown Properties and Leasing Pvt Ltd (Uptown) for Rs75 crore (including liabilities of Rs49.5 crore). Uptown owns a building in Worli (Mumbai) with a built-up area of 33,600 square feet. The sole reason behind the acquisition is to develop a corporate office on the acquired plot to bring in all the scattered divisions at various locations under one roof to improve the operational efficiencies.  Outlook and valuation: To factor in the deal, we have downgraded our earnings by 1.6% and 2.4% for FY2012 and FY2013 respectively. The BCL stock has already reacted negatively to the announcement of the property deal and factors in the negative implication of the same at the current market price. Going forward, any initiative on the company's part to expand its portfolio or strengthen its core business would be the key upside trigger for the stock.  At the current market price the stock trades at 13.4x its FY2012E EPS of Rs7.8 and 11.1x its FY2013E EPS of Rs9.5. We maintain our Buy recommendation on the stock with the price target of Rs142 (15x FY2013E earnings as against 16x earlier due to the not so judicious use of free cash on the books). VIEWPOINT Rupa & Co Good brands + strong distribution reach < Valuation   Rupa is the largest men's innerwear player by volume (in FY2011, it sold 168 million pieces). It has presence across the value chain with products in categories ranging from basic to mid premium, premium and super premium (entered into the last category recently). Its flagship brands Rupa, Frontline, Jon and Air are in the basic and mid premium categories while brands like Euro, Macro Man and Macro Man M Series target the premium and super premium categories. Click here to read report: Investor's Eye

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Fw: Kotak FMP Series 59 - Invest Now !!

 



INVESTMENT OBJECTIVE     The investment objective of the Scheme is to generate returns through investments in debt and money market instruments with a view to significantly reduce the interest rate risk. The scheme will invest in debt and money market securities, maturing on or before maturity of the scheme. There is no assurance that the investment objective of the Scheme will be achieved.       SCHEME TYPE   Close ended debt scheme       MINIMUM INVESTMENT DURING NFO   Rs. 5,000/- and in multiples of Rs 10 for purchase and switch-ins.       OPTIONS     Growth and Dividend Payout.           LISTING     The units of the scheme will be listed on BSE on allotment and maybe on other stock exchanges also.         BENCHMARK     CRISIL Short Term Bond Index.           LIQUIDITY     Units of this scheme will be listed on Bombay Stock Exchange. Investors may sell their units in the stock exchange(s) on which these units are listed on all the trading days of the stock exchange. The units cannot be redeemed with KMMF until the maturity of the scheme.         MATURITY     160 days after the date of allotment of units.           COLLECTION CENTRE     Purchases /Switches: At KMAMC Authorized collection centers, CAMS investor service centers & CAMS transaction points as indicated on the back cover of the SID.         For any investor related queries, please call on our toll free number - 1800 222 626 / 66384400. For any distributor queries, please contact your relationship manager or write to us at advisorhelp@kotak.com.   Existing investors CLICK HERE to invest online.     Risk Factors: Kotak FMP Series 59 (A close ended debt scheme). Investment Objective: - To generate returns through investments in debt and money market instruments with a view to significantly reduce the interest rate risk. The scheme will invest in debt and money market securities, maturing on or before maturity of the scheme Asset Allocation: Debt and Money Market instruments and government securities – 100% Load Structure: Exit Load: Nil Liquidity: Units of this scheme will be listed on Bombay Stock Exchange. Investors may sell their units in the stock exchange(s) on which these units are listed on all the trading days of the stock exchange. The units cannot be redeemed with KMMF until the maturity of the scheme. NAV of the scheme shall be calculated daily. Scheme Specific Risk Factors: The Scheme will invest entirely in Debt/ Money Market Instruments and Government securitie s. Liquidity in these investments may be affected by trading volumes, settlement periods and transfer procedures. These factors may also affect the Scheme's ability to make intended purchases/sales, cause potential losses to the Scheme and result in the Scheme missing certain investment opportunities. BSE Disclaimer: - It is to be distinctly understood that the permission given by BSE should not in any way be deemed or construed that the Scheme Information Document has been cleared or approved by BSE nor does it certify the correctness or completeness of any of the contents of the Draft Scheme Information Document. The investors are advised to refer to the Scheme Information Document for the full text of the Disclaimer Clause of Bombay Stock Exchange Limited. Risk Factors: Mutual Fund and securities investments are subject to market risks and there is no assurance or guarantee that the objective of the Scheme would be achieved. As with any securities investment, the NAV of the Units issued under the Scheme can go up and down depending on the factors and forces affecting the securities markets. Past performance of the Sponsor/AMC/Fund or that of existing schemes of the Fund does not indicate the future performance of the Scheme. Kotak FMP Series 59 is only the name of the scheme and does not in any manner indicate either the quality of the scheme, its future prospects and returns. Statutory Details: Kotak Mahindra Mutual Fund is a Trust (Indian Trust Act, 1882). Investment Manager: Kotak Mahindra Asset Management Company Ltd. Sponsor: Kotak Mahindra Bank Ltd. (liability Rs. Nil). Kotak Mahindra Bank Limited is not liable or responsible for any loss or shortfall resulting from the operations of the Scheme Trustee: Kotak Mahindra Trustee Company Ltd. Please read the Scheme Information Document (SID) and Statement of Additional Information (SAI) of the sche me carefully before investing. SID & SAI available on mutualfund.kotak.com

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Fw: Investor's Eye: Update - ITC, Grasim Industries

 

 

Investor's Eye [September 23, 2011]  Sharekhan www.sharekhan.com

Summary of Content STOCK UPDATE ITC      Cluster: Apple Green Recommendation: Buy Price target: Rs227 Current market price: Rs192 Price hike in cigarettes Key points WNC prices increased by 10%: ITC has increased the prices of the Wills Navy Cut (WNC) brand of cigarettes by 10%. The price of a pack of ten cigarettes has been increased to Rs44 from Rs40 earlier. WNC contributes around 5% of ITC's total cigarettes sales volumes. This is the second price hike the company has effected in its cigarette portfolio after the announcement of the Union Budget for FY2012. ITC recently hiked the prices of the Classic brand (5% of cigarette sales volume) of cigarettes by 10% to Rs110 for a pack of 20 cigarettes. Year-to-date price increase in the cigarette portfolio currently stands at 5.1%.  Price hikes to lessen the impact of VAT increase in key states: The recent price hikes in the cigarette portfolio have been undertaken largely to mitigate the impact of the recent hike in the value-added tax (VAT) in the key states of Tamil Nadu, West Bengal and Andhra Pradesh (which together contribute close to 32% to the cigarette revenues).  Outlook and valuations: Since our last update (dated on September 02, 2011) the stock has corrected by ~5%. This provides an opportunity for the investors to invest in the stock with the expectation of a decent upside of 19% from the current levels. Hence, in view of the decent upside and the better earnings visibility over the next two years, we maintain our Buy recommendation on the stock with the price target of Rs227. At the current market price the stock trades at 24.5x its FY2012E earnings per share (EPS) of Rs7.8 and 20.5x its FY2013E EPS of Rs9.4.    Grasim Industries      Cluster: Apple Green Recommendation: Buy Price target: Rs2,630 Current market price: Rs2,350 Annual report review Key points FY2011 performance marred by cement division: The VSF & chemical division propelled FY2011's revenue growth. However on account of a muted cement volume and a drop in the average cement realisation, the overall revenue growth of the company was limited to 6.7%. A higher cost inflation led to margin contraction by over 700 basis points (bps), eroding the net profit by 21.6% year on year (YoY) to Rs2,163.9 crore. Segmental performance: The cement division is the major contributor to Grasim's revenues. It formed 75% of the total revenues in FY2011 whereas the VSF and chemical divisions contributed 23% and 3% respectively. As demand revived for VSF and prices surged for competing fibers like cotton, the revenue from the VSF division grew by 22.6%. The chemical division also posted a double digit revenue growth. However, the performance of the cement division was affected due to a decline in the average cement realisation. Hence the consolidated revenue could grow by just 3.2%. In terms of profitability, the VSF division has maintained its healthy margin (profit before interest, depreciation and tax [PBIDT]%) at 33.7%. However, the profit before interest and tax [PBIT]% of the cement as well as the chemical division contracted due to cost inflation and pressure on cement realisation during FY2011.  Key developments during the year: The demerger of the company's cement business into a separate subsidiary, Samruddhi Cement Ltd (SCL), and the subsequent merger of SCL with UltraTech Cement (UltraTech) were completed during the year. UltraTech completed the acquisition of ETA Star Cement Company with its assets comprising of 2.3 million TPA clinker facility and grinding units spread across UAE, Bahrain and Bangladesh. Consequent to this acquisition, the cement capacity stands augmented at 52MTPA. Further, on the VSF front, the company has acquired a 33% stake in Aditya Holding AB, Sweden, which acquired Domsjo Fabriker AB (Domsjo), Sweden, at an enterprise value of approximately Rs1,570 crore. Domsjo is a pulp mill company and hence Grasim has secured its captive pulp requirement for VSF production.  Maintain Buy with a target price of Rs2,630: We continue to prefer Grasim as our top pick among the other large players due to its strong balance sheet, comfortable debt - equity ratio (0.4x FY2011), attractive valuation and diversified business. We estimate the consolidated earnings of the company to grow at a compounded annual growth rate (CAGR) of over 17% during FY2011-2013. We use the sum of the parts (SOTP) valuation methodology to arrive at a target price to Rs2,630 for the stock. At the current market price the stock discounts its FY2013 estimated earning per share (EPS) by 7.3x. We maintain our Buy recommendation on the stock. Outlook and valuation: We continue to prefer Grasim as our top pick among the large players due to its strong balance sheet, comfortable debt-equity ratio (0.4x FY2011), attractive valuation and diversified business of the company. We estimate consolidated earnings of the company to grow at a CAGR of over 17% during FY2011-2013. We arrive at a target price to Rs2,630 using the SOTP valuation methodology. At the current market price the stock discounts FY2013 estimated EPS by 7.3x. We maintain our Buy recommendation on the stock. Click here to read report: Investor's Eye

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Fw: Investor's Eye: Update - Maruti Suzuki, Fertilisers

 

 

Investor's Eye [September 20, 2011]  Sharekhan www.sharekhan.com

Summary of Content STOCK UPDATE Maruti Suzuki India     Cluster: Apple Green Recommendation: Buy Price target: Rs1,316 Current market price: Rs1,155 Annual report review Key points Indian passenger car market on a non-linear structural uptrend: During FY2011, the Indian passenger car industry surprised with a 29% growth against an expectation of a growth of 10-12% initially. Maruti Suzuki (Maruti)'s chairman highlighted that the demand for cars is expected to double in the next five years as the real cost of buying a car has declined considerably. However the year-on-year (Y-o-Y) growth will be non-linear due to different cycles of economic environment.  The pace of FY2011 growth surprised; however future outlook cautious: The confluence of negative macro cycles such as interest rates, fuel prices and inflationary pressures is expected to hurt passenger car demand in FY2012. The earlier growth expectation of 10-15% has been downgraded to single digit growth. Unlike as in FY2011 which had an element of a positive surprise, the future is laden with uncertainties. Almost entire growth to be driven by non-petrol cars: A significant stress is being witnessed in the petrol segment due to a dramatic shift in demand for alternative fuels. Also, heightened competitive activity has resulted in aggressive discounts on several petrol models around the year. The company indicated that discount levels would be higher going forward as compared to FY2011.  Asset heavy strategy to add beta to earnings: The company has expanded its gross block at a compounded annual growth rate (CAGR) of 19% in the last five years. The Manesar II line will be commissioned from September 2011 at a cost of Rs1,800 crore while the Manesar III line is expected to be commissioned from September 2013 at a similar cost.  Unofficial figures are pegging the new greenfield plant at a cost of Rs6,000 crore. Investments of this magnitude would absorb the next two years' annual cash flows. Even as the company has approximately Rs7,400 crore of cash in its books as on FY2011, the future balance sheet would look asset heavy. This would add significant beta to the profit and loss account based on capacity utilisation and margins. Hence, volumes and margins would become key influencers for the company's stock price performance. A sharp correction in the company's stock price has priced in the negatives partially. We see a dramatic improvement in realisation and contribution margins from Q4FY2012 onwards as the full effect of the Manesar II line would be felt by then. Q4FY2012 may also see a revival in growth as the interest rates peak and inflationary pressures stabilise. Our estimates for FY2012 and FY2013 remain unchanged at Rs93.5 and Rs109.7 respectively. We are valuing the company at Rs1,316, discounting FY2013E earnings by 12x. We retain our Buy rating on the stock. However a key risk remains the tiff with the workers at Manesar which has now aggravated and is taking longer to be resolved. SECTOR UPDATE Fertilisers     Urea makers have the advantage  The volume sales data of the leading 13 fertiliser companies in India shows a decline in the offtake of the complex (non-urea) fertiliser products due to a considerable increase in the average selling price of non-urea fertiliser under the Nutrient-Based Subsidy (NBS) regime. Among the non-urea fertilisers there is a growing preference for complex fertilisers with low nutrient content as compared to DAP/MOP that has high single nutrient content. Higher prices of non-urea fertilisers are resulting in a shift towards higher usage of urea especially by marginal farmers who show an extremely price sensitive behaviour. Thus, the volume growth for urea manufacturers like Chambal Fertilisers and Chemicals (Chambal), Zuari Industries (Zuari) and Nagarjuna Fertilisers and Chemicals (Nagarjuna) is likely to remain healthy at least till the new urea policy becomes effective. Click here to read report: Investor's Eye

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Fw: Investor's Eye: Update - BHEL, HUL

 

Investor's Eye [September 19, 2011]  Sharekhan www.sharekhan.com

Summary of Content STOCK UPDATE Bharat Heavy Electricals     Cluster: Apple Green Recommendation: Buy Price target: Rs2,077 Current market price: Rs1,657 Competition pressure intensifies, PT revised to Rs2,077 Korean power equipment supplier Doosan and BGR Energy Systems (BGR) have emerged as the lowest bidder (L1) for the supply of supercritical boilers and turbine-generators (TG) respectively for the 7,200MW (9x 800MW) National Thermal Power Corporation (NTPC) power projects. Both the companies are likely to get five units of order in the respective categories. Here, Bharat Heavy Electricals Ltd (BHEL) is likely to get Rs6,520 crore worth of orders due to favourable NTPC tendering specifications, provided it matches the L1 quotations.  Larsen and Toubro (L&T), which emerged as the second lowest bidder (L2) in the TG bid is likely to get two units of order. However, there was unconfirmed news today that L&T has again been disqualified due to non-fulfillment of technical qualifications. This could be positive for BHEL as it might bag these orders. Though the competition in the supercritical power equipment space is likely to intensify with more players entering the sector, but BHEL's robust order book (3.6x in Q1FY2012) minimises the need for any aggressive bidding. We also remain positive about its recent initiatives like the ones in the power transmission & distribution sector and the overseas power equipment market, which would help the company in diversifying its business profile and geographies. Nonetheless, the concerns over the competition and the slow industrial capital expenditure cycle along with the hangover of the follow-on public offer have deepened over the last few months. These concerns are reflected in the stock's underperformance with respect to the broad market indices. BHEL'S one-year forward price/earnings (P/E) multiple has fallen from over 20x (enjoyed till FY2010) to 11.2x now. We are revising our target multiple to 14x on FY2013 earnings estimate. Hence, our revised price target stands at Rs2,077. In view of the 25% upside potential, we maintain our Buy call on the stock.   Hindustan Unilever     Cluster: Apple Green Recommendation: Hold Price target: Under review Current market price: Rs338 Annual report review Key points FY2011 profitability affected by higher raw material cost: During FY2011 Hindustan Unilever Ltd (HUL)'s adjusted (consolidated) bottom line remained almost flat at Rs2,134.4 crore despite a double-digit top line growth of about 11% year on year (YoY) during the year. The bottom line was flat mainly on account of a 243-basis-point year-on-year (Y-o-Y) decline in the operating profit margin (OPM) on account of higher raw material prices. However, the highlight of the fiscal was a 13% sales volume growth in the domestic consumer business achieved on the back of a strong volume growth in the detergent and personal care products segments, which grew by about 20% YoY and 15% YoY respectively during the year. The soap segment's volume grew by 8.5% YoY as against a volume decline of 2.0% YoY seen in FY2010. Operating cash flows declined YoY: The net cash generated from the operating activities stood at Rs1,910.2 crore in FY2011 as against Rs3,479.6 crore in FY2010. The decline in the cash generated from operations can largely be attributed to the increase in the commodity prices during the year. Hence, the free cash flows reduced to Rs1,795.8 crore in FY2011 from Rs3,077.6 crore in FY2010. With the expected reduction in the prices of the raw materials and better working capital management, we expect the free cash flows of the company to improve in the coming years.  Return ratios remained strong: The return ratios remained strong with the return on equity (RoE) and return on capital employed (RoCE) standing at 79.4% and 101.1% respectively in FY2011 as against 87.7% and 103.5% respectively in FY2010.  Dividend pay-out maintained above 75%: Despite a flat growth in the adjusted profit after tax (PAT) and a single-digit growth in the reported PAT, the company maintained the strong dividend pay-out. Its dividend pay-out ratio stood at 76.9% in FY2011 as against 78.7% in FY2010. Outlook and valuation: We expect the volume growth in the personal care business to sustain in high single digits, driven largely by a strong growth in the personal care segment in the coming quarters. Though the gross profit margin is expected to remain under pressure in Q2FY2012, the declining trend of the prices of the key inputs (such as palm oil and other crude derivatives) would help in releasing the pressure on the margins. Thus, we might see a better profitability picture in the second half of FY2012. Overall, we expect the company's net sales and adjusted PAT to grow by 12.5% and 14.5% YoY respectively in FY2012. We shall review our estimates for HUL after the declaration of its Q2FY2012 results. We maintain our Hold recommendation on the stock but due to the stock's rich valuations we keep our price target under review. At the current market price the stock trades at 29.9x its FY2012E earnings per share (EPS) of Rs11.3 and 26.0x its FY2013E EPS of Rs13.0.    Click here to read report: Investor's Eye

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