Fw: Investor's Eye: Update - Ashok Leyland, Fertiliser; Special - Q2FY2012 Oil & Gas earnings preview

 

 

Investor's Eye [October 05, 2011]  Sharekhan www.sharekhan.com

Summary of Content STOCK UPDATE Ashok Leyland Cluster: Ugly Duckling Recommendation: Buy Price target: Under review Current market price: Rs25 Are these signs of chocking? Underperformance in truck segment, a matter of concern: Ashok Leyland's medium & heavy commercial vehicle (MHCV) or truck volumes have significantly underperformed the competition in the April - August 2011 period. Industry data reveals that truck volumes grew by 9.9% year on year (YoY) between April - August 2011 whereas Ashok Leyland reported a dismal 11% decline in volumes during the same period. Consequently, the market share of the company in the truck segment dropped from 21% in June 2011 to 19.6% in August 2011. Valuation: Ashok Leyland's asset heavy strategy and southern market exposure has added high beta to its earnings. Our FY2012 estimates are based on the assumption that the company would achieve volumes of 1 lakh units for the financial year. This is 7% lower than the management's guidance. We will be reviewing our FY2012 earnings assumptions post Q2FY2012 results. However for the time being we are retaining our FY2012 estimates as well as the Buy recommendation on the stock. However, we are putting our target price under review.  SECTOR UPDATE Fertilisers Low volume offtake in the kharif season The aggregate sales volume for the 13 leading (mostly listed) fertiliser companies saw a decline during the recent kharif (July-September) season. The total sales volume declined by 16.8% as compared to last year, largely due to significantly lower imports this time around. The imports declined sharply due to extremely high prices globally and the deadlock between the Indian government and leading global complex fertiliser companies (specifically potash based fertiliser companies). In terms of locally produced fertilisers, the volume offtake of complex fertilisers dropped by 21.6% (tracking the aggregate of 13 leading companies) whereas the decline in urea's sales volume was limited to just 5% in the kharif season. The consumption of non urea fertilisers has declined mainly due to the non availability of raw materials and increase in price of non urea fertilisers. The supply of di-ammounium phosphate (DAP) and muriate of potash (MOP) was also tight internationally which has resulted in a steep increase in price, thereby affecting domestic consumption. Urea's sales volume for the kharif season (July to September) has decreased by 5% year on year (YoY). There was a decline in the sales volume of urea because its production was lower due to shortage of gas. We believe that going forward volume of urea will increase which will ultimately help pure urea manufacturers like Chambal Fertilisers and Nagarjuna Fertilisers. Any increase in the output of domestic gas will be allocated to fertiliser manufacturers as the government has listed the fertiliser sector as a priority sector and that too above power. Overall, the decline in imported non urea fertilisers during the current kharif season was of 40% YoY. The steep decline was mainly due to lower import of MOP and DAP. The import of NPK fertilisers has increased significantly as complex fertilisers are relatively easily available compared to MOP and DAP. Farmers have also started using complex fertilisers other than MOP and DAP due to growing awareness about the benefits of NPK fertilisers. We believe that there will be a healthy growth in the consumption of NPK fertilisers, which will have a positive effect on indigenous NPK manufacturers. This shift towards a higher use of NPK fertilisers will benefit manufacturers like Coromandel International. The consumption of DAP during the current kharif season has declined by 23% YoY as its imports declined. The availability of DAP was constrained in the international market, hence the decline in imports. Higher than expected demand and supply side constraints have kept the price of DAP strong. Currently the price of DAP is ruling firm at $665 per tonne. There was a sharp decline of 89% in the consumption of MOP during the current kharif season mainly due to its lower imports. Imports were lower due to a dead lock between Indian importers and global suppliers of potash over pricing. India imports 100% of its requirement of MOP (of 60 lakh tonne per annum) as it does not have the raw materials required to manufacture MOP. SHAREKHAN SPECIAL Q2FY2012 Oil & Gas earnings preview Brent crude oil price declined marginally; largely remained above $110 in Q2FY2012: During Q2FY2012, the average price of Brent crude oil hovered in the range of $105-120 per barrel. The average Brent crude price in Q2FY2012 stood at $112, which is approximately 5% lower over the last quarter. Nevertheless, it is 45% higher than in the corresponding period of last year. Hence, realisation of end products of exploration and production should replicate the trend. Sequentially a marginal decline in the realisation is expected. However, the dollar has appreciated in Q2FY2012 from Rs44.5 to Rs49, though the appreciation largely occurred in the last month of Q2FY2012 only.  Expect GRM to remain high: The Singapore gross refining margin (GRM) remained around $9 per barrel in Q2FY2012 as against $8.4 per barrel in Q1FY2012. Hence, we expect Reliance Industries Ltd (RIL) to report its GRM at around $10.7 per barrel in Q2FY2012. Macro environment signaling slow down; global oil demand may dip: Recently, the International Energy Agency (IEA) has reduced its forecast for global oil demand growth to 1.2% in CY2011 to 89.3mnbpd and 1.6% to 90.7mnbpd in CY2012. As stated in our previous report, we believe petrochem would get affected due to the apparent slow down. Even petrochemical prices declined sequentially in Q2FY2012 and are likely to remain subdued in the near future.  Outlook: Brent crude has declined mainly in the later part of the quarter; hence, the decline in the average crude price in Q2FY2011 has only been off 5% (sequentially). We observed a strong dollar appreciation and declining crude oil prices (due to weaker macro environment on account of the Europe crisis) in the tail end of the quarter. The scenario is likely to continue in Q3FY2012 as well. The full impact of the situation is likely to reflect fully in Q3FY2012. View and valuation: We retain our estimates for RIL and GAIL. We value RIL following the sum of the parts (SoTP) method at Rs1,040 and retain our Buy rating on it. We value GAIL at Rs567 based on the SOTP valuation method and retain our Buy rating on the stock. Click here to read report: Investor's Eye

Regards, The Sharekhan Research Team myaccount@sharekhan.com   www.sharekhan.com to manage your newsletter subscriptions

 

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

Regards, The Sharekhan Research Team myaccount@sharekhan.com  www.sharekhan.com to manage your newsletter subscriptions

 

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

Regards, The Sharekhan Research Team myaccount@sharekhan.com   www.sharekhan.com to manage your newsletter subscriptions

 

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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