Fw: ValueGuide: Perils of timing the market

 

 

Sharekhan ValueGuide [March 05, 2012]  Summary of Contents EQUITY FUNDAMENTALS THE STOCK IDEAS REPORT CARD FROM SHAREKHAN'S DESK Perils of timing the market The equity markets continued to build on the gains of January 2012 in February also. Many common investors missed out on the rally because they were waiting on the sidelines either in a bid to time the market or because they were simply petrified by a slew of negative news flow globally.   MARKET OUTLOOK Policy push needed for the next leg up March cluttered with events-poll results, budget, RBI policy: This March has several key events like election results (March 6, 2012), the Reserve Bank of India (RBI)'s policy review (March 15, 2012) and Union Budget (March 16, 2012) in addition to the usual liquidity pressure driven by the advance tax payment. The high turnout in the Uttar Pradesh elections and media surveys suggest a possible gain in vote share by Samajwadi Party (SP) and Congress Party at the expense of the ruling Bhahujan Samaj Party (BSP), which could lead to an alliance of the Congress Party and SP at the state level and a possible extension of the same at the Centre. This would reduce the ruling United Progressive Alliance (UPA)'s dependence on Mamata Banerjee's Trinamool Congress (TMC) and enable the government to push forward reforms. Though no fireworks are expected from the budget, the key triggers to watch out for are: a credible roadmap for fiscal consolidation and some definitive steps to boost the investment cycle. Inflation and economic growth moderate sharply but firm crude prices cast a shadow on the trajectory of monetary easing by RBI: The sharp run-up of 17% to $125 per barrel in the crude oil prices since January this year, fuelled by the rising geopolitical tensions and easy liquidity conditions globally, has brought back the fears of its damaging impact on inflation and economic growth globally. India's dependence on imports for its crude oil needs and lack of reforms in its oil sector make it more vulnerable in such a scenario and could result in the reallocation of funds by foreign investors away from India to resource-rich countries (like Brazil, Russia, Indonesia) within the emerging markets. Moreover, the RBI could delay the much-awaited policy rate cuts in view of the inflationary pressure emanating from the rising crude oil prices. Q3 earnings growth below expectations but pace of earnings downgrades slowing down: While the Q3FY2012 earnings growth was in low single digits, the revenue growth momentum remains strong driven by a healthy growth in volumes, better price realisation and a favourable currency. Since April 2011 the Sensex' earnings estimates have been downgraded by 7.5% and 14.8% for FY2012 and FY2013 respectively. But the pace of the earnings downgrades has slowed down considerably with a marked improvement in the earnings upgrades/downgrades ratio in the third quarter of FY2012. However, the revival in the corporate earnings upgrade cycle is possibly still a couple of quarters away and would depend on the RBI and the government's policies.  Short covering blip behind us; fundamentals would come to fore again: The BSE small-cap index appreciated by 25% compared to the 14% upmove in the benchmark indices. The short covering in view of the surge in the market has resulted in more than 50% rise in many debt-laden high beta stocks. This has provided an opportunity to churn portfolios in favour of quality stocks, not necessarily from the defensive sectors. With the technical blip behind us, we expect the fundamentals to come to the fore again.  Need policy push for further re-rating of multiples: After the recent run-up, the Sensex' valuations have expanded from around 12x to close to 14x FY2013 earnings estimate which is close to its long-term average multiple. The global scenario is much more conducive now with the injection of huge liquidity through the Long-Term Refinancing Operation (LTRO) in Europe and improving economic data points in the USA. However, for the liquidity-driven rally to sustain, there is a need for domestic triggers in the form of adequate support from the government policies (in power, infrastructure, subsidy, foreign direct investment [FDI] etc) accompanied by monetary easing from the RBI. Our base case assumption is a likely consolidation phase around the current level before another leg of the rally unfolds. SHAREKHAN TOP PICKS Sharekhan top picks  STOCK IDEA Gateway Distriparks: Ahead of the pack STOCK UPDATE Andhra Bank: Price target revised to Rs140 Bharti Airtel: Price target revised to Rs450 CESC: Price target revised to Rs405 Eros International Media: Stellar performance in a seasonally strong quarter GlaxoSmithKline Consumer Healthcare: PAT largely in line with expectations India Cements: Price target revised to Rs105 Ipca Laboratories: Strong traction in international business ISMT: Price target revised to Rs36 Madras Cements: Price target revised to Rs138 Mahindra & Mahindra: Price target revised to Rs740 Marico: Price target revised to Rs186 Orbit Corporation: Price target revised to Rs70 Pratibha Industries: Large order win translates into strong revenue Provogue India: Deep value-maintain Buy; price target revised to Rs62 PTC India: No respite on SEBs' woes, price target revised to Rs71 Ratnamani Metals and Tubes: Strong revenue performance State Bank of India: Price target revised to Rs2,400 Sun Pharmaceutical Industries: Taro jacks up growth; price target set at Rs692 Tata Chemicals: Downgraded to Hold Unity Infraprojects: Price target revised to Rs107 SHAREKHAN SPECIAL Monthly economy review Q3FY2012 earnings review THEMATIC REPORT Switch from HDFC Bank to HDFC SECTOR UPDATE Fertilisers: Consumption shift toward cheap fertilisers VIEWPOINT Tata Motors: Firing on all cylinders  EQUITY TECHNICALS  Sensex: Out of the Channel  EQUITY DERIVATIVES  Derivative view: Gains magnified  COMMODITY FUNDAMENTALS  Macro-economy Crude oil: 15-20% supply risk premium in prices Precious metals: Silver outperforms gold on catch-up play Base metals: Limited upside Major economic events in March 2012   COMMODITY TECHNICALS  Gold: Bears attack Silver: About turn Light sweet crude oil: Heat is on Copper: Fibonacci is the key Natural Gas: Bearish triangle Nickel: Next leg down  CURRENCY FUNDAMENTALS  Currency market: Asian currencies mostly lower INR-USD CMP: Rs49.50 INR-EUR CMP: Rs66.01 INR-GBP CMP: Rs78.92 INR-JPY CMP: Rs61.15  CURRENCY TECHNICALS  USD-INR: Tumbling down GBP-INR: Bears warmed up EUR-INR: Bearish potential JPY-INR: Sell on rise  MUTUAL FUNDS DESK  MF PICKS Sharekhan's top mutual fund picks (equity) Sharekhan's top SIP fund picks EARNINGS GUIDE Click here to read report: Sharekhan ValueGuide Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Regards, The Sharekhan Research Team myaccount@sharekhan.com Manage your newsletter subscriptions

Fw: Market Outlook: Policy push needed for the next leg up

 

 

Market Outlook [March 03, 2012]  Summary of Contents MARKET OUTLOOK Policy push needed for the next leg up Indian equity market would need domestic triggers to sustain the liquidity-driven rally March cluttered with events-poll results, budget, RBI policy: This March has several key events like election results (March 6, 2012), the Reserve Bank of India (RBI)'s policy review (March 15, 2012) and Union Budget (March 16, 2012) in addition to the usual liquidity pressure driven by the advance tax payment. The high turnout in the Uttar Pradesh elections and media surveys suggest a possible gain in vote share by Samajwadi Party (SP) and Congress Party at the expense of the ruling Bhahujan Samaj Party (BSP), which could lead to an alliance of the Congress Party and SP at the state level and a possible extension of the same at the Centre. This would reduce the ruling United Progressive Alliance (UPA)'s dependence on Mamata Banerjee's Trinamool Congress (TMC) and enable the government to push forward reforms. Though no fireworks are expected from the budget, the key triggers to watch out for are: a credible roadmap for fiscal consolidation and some definitive steps to boost the investment cycle. Inflation and economic growth moderate sharply but firm crude prices cast a shadow on the trajectory of monetary easing by RBI: The sharp run-up of 17% to $125 per barrel in the crude oil prices since January this year, fuelled by the rising geopolitical tensions and easy liquidity conditions globally, has brought back the fears of its damaging impact on inflation and economic growth globally. India's dependence on imports for its crude oil needs and lack of reforms in its oil sector make it more vulnerable in such a scenario and could result in the reallocation of funds by foreign investors away from India to resource-rich countries (like Brazil, Russia, Indonesia) within the emerging markets. Moreover, the RBI could delay the much-awaited policy rate cuts in view of the inflationary pressure emanating from the rising crude oil prices. Q3 earnings growth below expectations but pace of earnings downgrades slowing down: While the Q3FY2012 earnings growth was in low single digits, the revenue growth momentum remains strong driven by a healthy growth in volumes, better price realisation and a favourable currency. Since April 2011 the Sensex' earnings estimates have been downgraded by 7.5% and 14.8% for FY2012 and FY2013 respectively. But the pace of the earnings downgrades has slowed down considerably with a marked improvement in the earnings upgrades/downgrades ratio in the third quarter of FY2012. However, the revival in the corporate earnings upgrade cycle is possibly still a couple of quarters away and would depend on the RBI and the government's policies.  Short covering blip behind us; fundamentals would come to fore again: The BSE small-cap index appreciated by 25% compared to the 14% upmove in the benchmark indices. The short covering in view of the surge in the market has resulted in more than 50% rise in many debt-laden high beta stocks. This has provided an opportunity to churn portfolios in favour of quality stocks, not necessarily from the defensive sectors. With the technical blip behind us, we expect the fundamentals to come to the fore again.  Need policy push for further re-rating of multiples: After the recent run-up, the Sensex' valuations have expanded from around 12x to close to 14x FY2013 earnings estimate which is close to its long-term average multiple. The global scenario is much more conducive now with the injection of huge liquidity through the Long-Term Refinancing Operation (LTRO) in Europe and improving economic data points in the USA. However, for the liquidity-driven rally to sustain, there is a need for domestic triggers in the form of adequate support from the government policies (in power, infrastructure, subsidy, foreign direct investment [FDI] etc) accompanied by monetary easing from the RBI. Our base case assumption is a likely consolidation phase around the current level before another leg of the rally unfolds. Click here to read report:  Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.   Regards, The Sharekhan Research Team myaccount@sharekhan.com Manage your newsletter subscriptions

Fw: Sharekhan Top Picks

 

 

Top Picks [March 03, 2012]  Summary of Contents SHAREKHAN TOP PICKS After building on the gains of January this year, the equity market faltered in the later part of February delivering flattish returns since our previous issue of the ValueGuide released on February 3, 3012. Our basket of Top Picks also performed in line with the market and ended with a marginal loss of 0.6% during the same period. The performance was marred by a rather unexpected decline of 15% in Eros International Media despite its robust Q3FY2012 performance. Consequently, we are replacing Eros International Media with Orient Paper and Industries, which is our preferred mid-cap stock in the cement sector. In this month, we are increasing the beta of the Top Picks basket by replacing GlaxoSmithKline Consumer Healthcare with ICICI Bank. The second change in the Top Picks basket is to hedge against the rising crude oil prices by bringing in Selan Exploration Technology (which benefits in terms of higher average realisation) in place of GAIL (where the subsidy burden could increase due to higher under-recoveries resulting from firm crude oil prices).   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Regards, The Sharekhan Research Team myaccount@sharekhan.com Manage your newsletter subscriptions

Fw: Investor's Eye: Update - United Phosphorus, Cement

 

 

 

Investor's Eye [March 02, 2012]  Summary of Contents STOCK UPDATE United Phosphorus  Cluster: Ugly Duckling Recommendation: Buy Price target: Rs167 Current market price: Rs136 Price target revised to Rs167 Revenue growth guidance revised downward for FY2012 to 25-30%: United Phosphorus Ltd (UPL) has reduced its revenue growth guidance for FY2012 due to the extended winter weather in some of its major markets. The company expects a revenue growth of 25-30% for the year 2011-12 which is much lower than the 35-40% growth guidance given earlier. During M9FY2012 UPL has seen a robust growth of 40.8% on the back of good volume and inorganic growth. But in Q4FY2012 volume offtake will undergo a de-growth due to prolonged winter in the western countries, which has delayed the sowing season to Q1FY2013.  Revised guidance implies muted performance in Q4FY2012: The downgrade in revenue guidance to 25-30% in FY2012 and margin guidance in the range of 18-20% implies a muted performance in Q4FY2012. Going by the guidance, we expect a flattish growth in revenue in Q4FY2012 as compared to 40.8% growth in M9FY2012 and that there would be a single digit growth in earnings.  Outlook and valuation: Given the expectation of a low volume offtake in Q4FY2012 due to unfavourable weather conditions in the USA and Europe, we have revised downward our earnings estimate for FY2012 by 21.5% to Rs13.9 and by 15.5% for FY2013 to Rs16.7. Consequently we have also reduced our target price from Rs197 to Rs167 per share. At the current market price the stock is trading at 9.6x and 8x its FY2012 and FY2013 earnings estimates respectively. Though the valuation has turned attractive after the steep correction in the past two days, we believe the stock could continue to underperform in the near term in anticipation of lackluster results. However, the stock offers value for long term investors. Hence, we maintain our Buy recommendation on the stock.     SECTOR UPDATE Cement      Seasonal pickup in demand Key points Cumulative volume for pan India players grew by 10.1%: The volume growth of the top two domestic cement players - ACC and Ambuja Cements for the month of February 2012 was impressive on a year-on-year (Y-o-Y) basis on account of a pick-up in cement offtake in the north, west and central regions of the country due to a pick-up in execution of infrastructure projects. Among the large players Ambuja Cements has posted an impressive dispatches growth of 13% YoY. On the other hand ACC has posted a 7.5% growth in its dispatches. Hence, the pan India players have cumulatively registered a 10.1% volume growth. On a sequential basis (compared to January 2012) the cumulative dispatches of pan India players have increased marginally by 0.2%.  Cement offtake picks up in north, west & central India; partially recovers in the south: In terms of demand, dealers have confirmed that the cement offtake in most parts of the country has shown sign of recovery in the past couple of months due to post monsoon pick up in the infrastructure activity. Further, demand in the southern region has partially recovered in February 2012. Going ahead dealers expect the momentum in demand to continue in the coming couple of months.  Cement price increased in most parts of the country: Cement prices during the month of February have increased in the range of Rs5-12/bag of 50kg in most parts of the country. The eastern region witnessed the highest price hike on a month-on-month (M-o-M) basis whereas cement prices in the southern region remained largely unchanged sequentially. The price hike has largely been driven by a revival in the cement offtake and supply discipline. Further, dealers are of the view that cement prices may further increase in the near term as cement offtake is expected to be strong going ahead.  Outlook-Maintain bullish stance on Grasim & Orient Paper: The cement sector has outperformed the broader market in recent times due to positives such as a recovery in cement offtake and strong realisation. However with the pick-up in cement offtake, supply discipline may break, which could lead to pressure on cement prices going ahead. Hence we maintain our neutral stand on the sector. But we are selectively positive on certain stocks in the sector and prefer Grasim Industries (Grasim) in the large size space and Orient Paper & Industries (Orient Paper) in the mid size space. Click here to read report: Investor's Eye   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Regards, The Sharekhan Research Team myaccount@sharekhan.com Manage your newsletter subscriptions

Fw: Muthoot Finance Ltd NCD Issue - Opens on 2 March 2012

 

Issue of Muthoot Finance Secured Non-Convertible Debentures (NCDs) Options Particulars Issuer Muthoot Finance Ltd Issue Base issue size of Rs. 250 Crores with an option to retain over-subscription upto additional Rs. 250 Crores Issue Opens 2nd March 2012 Issue Closes 17th March 2012 Basis of allocation First come first serve basis Issuance and Trading Compulsorily in dematerialised form Trading Lot 1 (one) NCD Rating AA-/Stable by CRISIL & ICRA Interest payable Interest on application & Interest on refund money - 13% p.a. Deemed Date of Allotment Shall be the date as decided by the duly authorized committee of the board constituted by resolution of the board. Issue details Options | || ||| |V Frequency of Interest Payment Annual Annual Annual NA Minimum Application Rs. 5,000 (5 NCDs)(for Options I, II, III and IV either taken individually or collectively) In Multiples of (in Rs) 1,000 (1 NCD) 1,000 (1 NCD) 1,000 (1 NCD) 1,000 (1 NCD) Face Value of NCDs (in Rs) 1,000 1,000 1,000 1,000 Issue Price (Per NCD - in Rs) 1,000 1,000 1,000 1,000 Coupon Rate (%) for NCD 13.00 13.25 13.25 NA Effective Yield (% per annum) 13.00 13.25 13.25 13.43 Tenor (in Months) 24 36 60 66 Redemption date (in Months from the Deemed date of Allotment) 24 36 60 66 Redemption amount (per NCD) Repayment of the Face Value plus any interest that may have accrued at the Redemption Date. Rs. 2000 Who can apply * Category I Public financial institutions, statutory corporations, commercial banks, co-operative banks and regional rural banks; Provident funds, pension funds, superannuation funds and gratuity fund; Venture Capital funds; Insurance Companies; National Investment Fund; Mutual Funds (Issue allocation 15%) Category II Companies; bodies corporate, societies; trusts; research organizations, Partnership and Limited liability partnerships; Resident Indian individuals; and HUF (applying for NCDs aggregating to a value exceeding Rs. 500,000, across all series of NCDs (Issue allocation 20%) Category III Resident Indian individuals; and HUF (applying for NCDs aggregating to a value not more than Rs. 500,000, across all series of NCDs (Issue allocation 50%) Category IV NRIs on a non-repatriation basis only * (Separate Form is to be filled in by NRIs) (Issue allocation 15%) Click here for more details * For the purpose of information only, invest only after referring to the final prospectus

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Fw: Investor's Eye: Update - Automobiles, Power equipment, Insurance

 

 

Investor's Eye [March 01, 2012]  Summary of Contents SECTOR UPDATE Automobiles      On a bumpy road Maruti Suzuki - The show-stopper in Feb 2012  Maruti Suzuki (Maruti) surprised positively with domestic sales breaching the 1 lakh unit mark yet again in February 2012. The Swift and the recently launched compact Dzire evoked a good response from the market leading to healthy sales. An improvement was also witnessed in the multi purpose vehicle (MPV) segment which had been under pressure a couple of months ago. Hard landing in tractors; worst performance in a seasonally high month A slowdown was witnessed in the tractors segment with Mahindra & Mahindra (M&M) reporting a drop in volumes by 21% year on year (YoY) in February 2012. The growth in the tractor industry for April 2011-January 2012 has slipped to 15.5% YoY from a growth of 19.8% YoY witnessed in the April 2011-October 2011 period. Going by the market leader M&M's tractor numbers in February 2012, the year till date (YTD) growth (April 2011-February 2012) is estimated to further slip to 12-13%.  Higher interest rates and an increase in input costs for farmers are the key reasons attributable to a slow down in the growth of tractor sales. Overall, the industry is estimated to grow by about 10% in FY2012, which is about half the growth rate witnessed in H1FY2012. LCVs shine; continue to outperform other auto segments The light commercial vehicle (LCV) segment has been the star performer showing no signs of a slowdown. The hub and spoke model adopted in the logistics industry has fuelled demand for LCVs towards last mile connectivity. LCVs continue to grow in excess of 25% YoY, growing 26.3% YTD in the domestic market. Moderation seen in two-wheelers Going by TVS Motors' and Hero MotoCorp's February 2012 volumes; two-wheelers are also witnessing a moderation in growth. Reports indicate higher dealer inventory with no waiting period. While the super bike segment is expected to grow well on a small base, the entry and executive segments are likely to grow in single digits. For Bajaj Auto, we expect an 8.5% YoY growth in February 2012 volumes. No pre-budget buying seen; consensus building for rollback of excise concessions  Given a general perception of a higher duty on automobiles in union budgets, we did not see any major advancement in buying. There is an impending risk that overall sentiments may deteriorate further if there is a rollback of excise from 10% to 12% and if there's an additional duty levied on diesel vehicles.   Power equipment      NTPC order - BGR shines, BHEL gets fair share, L&T misses yet again Event: Bids open for NTPC's bulk order; BGR emerges as lowest bidder  BGR Energy Systems (BGR) has emerged as the lowest bidder (L1) for the supply of supercritical boilers and turbine-generators (TG) respectively for the 7260MW (11x 660MW) National Thermal Power Corporation (NTPC) power projects. It is likely to get 7 units of boiler orders worth Rs6,500 crore at a realisation of Rs1.4 crore/MW. Here, Bharat Heavy Electricals Ltd (BHEL) is likely to get Rs3,700 crore worth of orders due to favourable NTPC tendering specifications, provided it matches the L1 quotations.  BHEL (CMP Rs299, Hold) - to get fair share of order  Power sector reforms and possible levy of import duty to improve competitive environment could result in re-rating of multiples. The recent few developments/reforms in the power sector seem to be working in favour of BHEL after a spate of bad news in CY2011. Price target revised to Rs328: The above positive developments and resulting containment in overseas competition would augur well for the company. Hence we are slightly increasing the target multiple to 12x (from the earlier 10x). Our revised price target stands at Rs328 (roll-over of the target multiple on average of FY2013 and FY2014 earnings estimate). We maintain our Hold rating on the stock. L&T (CMP Rs1,278, Buy) yet to open its account with NTPC L&T appears to have lost out to BGR and BHEL in its price bid in the super-critical bulk tender order from NTPC.  We feel that this was in accordance with the company's focus on the sustenance of healthy margins. The company has been earlier disqualified in the first round of 11x660MW equipment bid on technical ground. In the 9x800MW segment the company emerged as L2; the order was given to the joint venture of JSW Energy with Toshiba.  L&T currently has a well-diversified order book of Rs145,768 crore in M9FY2012, of which only 29% is contributed by the power sector. Hence, the shortfall in this sector could partly be compensated by contributions from other sectors. At the current market price the stock is trading at 11.9x its FY2014 consolidated earnings estimate. We maintain our Buy rating on the stock on its diversified business exposure and attractive valuations. Insurance      APE jumps 37.6% YoY in January 2012 Key points  The annual premium equivalent (APE) of the life insurance industry showed a jump of 37.6% year on year (YoY) and 10.4% month on month (MoM). The year-on-year (Y-o-Y) growth in the APE was mainly contributed by the Life Insurance Corporation of India (LIC), which reported a robust growth of 41.3% YoY. The private players also witnessed a rise of 31.5% YoY in their APE. The life insurance sector has started reporting growth on a Y-o-Y basis mainly due to the subsiding of the high base of the previous year (as new regulations were introduced from September 2010 onwards). However, on a year-till-date (YTD) basis (ie April 2011-January 2012), the APE of the industry continued to contract with the private players showing a higher decline (down 22.3% YTD) compared to a 3.9% growth shown by LIC. The market share of the private players declined to 33% levels in January 2012 while that of LIC expanded to 67%. Among the private players, SBI Life's market share decreased to 10.9% from 13.7% in January 2011 while that of Reliance Life declined to 6.1% from 8.4% in January 2011.The market share of HDFC Standard Life Insurance grew to 13.7% from 12.5% in January 2011 whereas that of ICICI Prudential Life Insurance remained stable at 18%. The share of Max New York Life Insurance also grew to 7% as against 6.7% in  January 2011. In terms of APE growth for January 2012, 14 out of 20 private players posted a decline Y-o-Y with Tata AIG Life Insurance Company showing the highest contraction of 32.8%. ICICI Prudential Life Insurance showed a growth of 53.5% YoY. On a YTD basis, the life insurance industry continued to report a decline in APE as the new unit-linked insurance policy (ULIP) guidelines set in and insurers awaited the clearance from the Insurance Regulatory and Development Authority (IRDA) for launching new products. Though premium collections will remain healthy in the next two month of the current fiscal (due to seasonality), the overall growth for FY2012 is likely to remain lower than in FY2011. Click here to read report: Investor's Eye Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Regards, The Sharekhan Research Team myaccount@sharekhan.com Manage your newsletter subscriptions