Fw: ValueGuide: Pressure of policy and politics

  

Sharekhan ValueGuide [April 04, 2012]  Sharekhan www.sharekhan.com

Summary of Contents EQUITY FUNDAMENTALS THE STOCK IDEAS REPORT CARD FROM SHAREKHAN'S DESK Pressure of policy and politics  After the smart gains initially this year, the equity market has hit the roadblocks of policy inaction and political logjam. Given the pressure from the 2Ps, policy (or lack of it) and politics, the sentiments have taken a hit and the market is unable to sustain its momentum. The domestic support was limited and the rally was driven by foreign inflows. However, the recent developments have spooked foreign investors and foreign fund flows have dwindled lately. SHAREKHAN TOP PICKS Sharekhan top picks  STOCK IDEA Kalpataru Power Transmission: Concerns priced in, growth ahead SHAREKHAN BUDGET SPECIAL  Union Budget 2012-13: Right on intent, low on action The Union Budget 2013 reflects another instance of the government's indecisiveness on critical policy issues. In his speech, the finance minister acknowledged that there is a need to achieve fiscal consolidation, curtail subsidy burden and revive private investments but he did little in terms of policy action to address the same. The budget proposes steps to boost revenues by rolling back fiscal stimulus (a 2% hike in both the excise duty and the service tax rate) and expresses intent to limit the subsidy bill to 2% of the gross domestic product (GDP; against 2.5% in FY2012). But there is no clear roadmap of the action needed to achieve the same. One senses that the government's focus has been on the safe passage of the finance bill and that the measures to cut down subsidy burden and to achieve the targeted fiscal consolidation will follow suit post budget. On the whole, the finance minister in this budget has set more realistic targets than he had in the previous year but he has missed out perhaps the last opportunity before the general election to take bold policy decisions.  RAILWAY BUDGET SPECIAL  Rail Budget 2012-13: Populism avoided, positive cue for Union Budget Contrary to expectations, the Railway Budget 2012-13 avoided populism and hiked passenger fares after a gap of ten years. The passenger fare hike has come on the back of a substantial increase in the freight rates effected just prior to the budget. The railway minister also detailed an extensive plan to invest a huge sum in expansion and modernisation of the railway network over the next five years and sought additional budgetary support for the same. He has set an ambitious five-year target to improve the operational ratio to 74% from the 95% revised estimate for FY2011-12. On an overall basis, the railway budget suggests that the apprehension of a hugely populist Union Budget after the Congress Party's debacle in the Uttar Pradesh assembly election has been allayed for now. However, there is strong opposition to the passenger fare rate hike from the railway minister's party and leaders.   STOCK UPDATE Aditya Birla Nuvo: Bullishness continues Bharti Airtel: Read through MTN results for Bharti CESC: Another tariff hike to set the outlook positive GlaxoSmithKline Consumer Healthcare: Annual report review Godrej Consumer Products: Price target revised to Rs547 ITC: Price target revised to Rs250 Jaiprakash Associates: New orders in bag, execution a key challenge  Mahindra & Mahindra: Tractor production cut in March 2012 Orbit Corporation: Timely clearances of projects hold the key Provogue India: Price target revised to Rs35 PTC India: Tariff hike and policy reforms the key to future growth  Reliance Industries: Price target revised to Rs890 Tata Consultancy Services: Short term hiccups, business fundamentals remain strong United Phosphorus: Price target revised to Rs167 SHAREKHAN SPECIAL Monthly economy review SWITCH IDEA Shift from Alok Industries to Raymond SECTOR UPDATE Banking: RBI caps LTV for gold loans - Negative for Mannapuram and Muthoot Pharmaceuticals: Budget 2013 is net negative for pharma players Power equipment: NTPC order - BGR shines, BHEL gets fair share, L&T misses yet again VIEWPOINT Anil: Well placed to cash in on the potential opportunity Bharat Forge: Robust business; wait for better entry point Liberty Phosphate: Subsidy reduction not to hurt volume growth  Rama Phosphates: In for good times Tech Mahindra: Tech Mahindra and Mahindra Satyam merger finalised  EQUITY TECHNICALS  Sensex: Consolidation to continue  EQUITY DERIVATIVES  Derivative view: The rollover game  COMMODITY FUNDAMENTALS  Macro-economy Crude oil: Likely to fall further on easing Iran tensions Precious metals: Weighed down by slowdown, uncertainty regarding quantitative easing Base metals: Can fall further Major economic events in April 2012   COMMODITY TECHNICALS  Gold: Down trend intact Silver: Targeting the low Light sweet crude oil: Bears take control Copper: Probability in favour of bears NG: Leaks through the channel Nickel: Near the neckline  CURRENCY FUNDAMENTALS  Currency market: Asian currencies mostly lower INR-USD CMP: Rs51.22 INR-GBP CMP: Rs81.96 INR-EUR CMP: Rs68.27 INR-JPY CMP: Rs62.36  CURRENCY TECHNICALS  USD-INR: Bears warmed up GBP-INR: Near key resistances EUR-INR: Pressure building up JPY-INR: Pattern suggests downside  PMS DESK Sharekhan PMS funds: Fund manager's view and product performance ProPrime-Top Equity ProPrime-Diversified Equity ProTech-Diversified ProTech-Nifty Thrifty ProTech-Trailing Stops  ADVISORY DESK  Monthly performance of Advisory products Smart Trades Derivative Trades MID Trades  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.

Fw: Investor's Eye: Update - Bharat Heavy Electricals (Provisionally bottom line beats expectations), Cement (Cement-a mixed bag)

 

 

Investor's Eye [April 03, 2012]  Sharekhan www.sharekhan.com

Summary of Contents STOCK UPDATE Bharat Heavy Electricals Cluster: Apple Green Recommendation: Hold Price target: Rs328 Current market price: Rs264 Provisionally bottom line beats expectations Bharat Heavy Electricals Ltd (BHEL)'s FY2012 provisional results were a mixed bag where the revenue was marginally lower than our expectation but the net profit was significantly higher than our as well as the Streets' expectations. The order inflow remained subdued in view of the tough investment environment in the power sector.  Q4 top line up 8% YoY: In Q4FY2012, the gross sales came at Rs20,032 crore (derived from the full year's numbers). The yearly growth in the revenue tapered down to 8% during the quarter (from the past average of 20-25%). This was lower than our expectation of a 16% growth. We feel that low execution of projects along with subdued order inflow in recent times could have led to this underperformance. For the full year, the company has reported a 13.8% year-on-year (Y-o-Y) growth in its turnover to Rs49,301 crore. BHEL is targeting gross sales of over Rs50,000 crore for FY2012. PAT boosted by 15%: Its profit before tax (PBT) increased by 11% year on year (YoY) to Rs4,762 crore in Q4FY2012. The PBT margin on the gross sales improved to 24% on a yearly basis while in M9FY2012 the same contracted by 110 basis points to 17.9%. The company attributed the margin expansion to cost control measures and price hikes. This margin expansion along with a lower tax rate led to a 15% growth in the profit after tax (PAT). The PAT for the year grew by 14.3% to Rs6,868 crore against our expectation of Rs6,222 crore.  Subdued order inflow, concern on slowdown compounds: For FY2012 the company has reported a total order inflow of Rs22,096 crore, which is way below the FY2011 level of Rs60,507 crore. The order inflow for the fourth quarter stands at about Rs6,823 crore, down 72% on a yearly basis. The order book stands at Rs135,000 crore, down 18% on a yearly basis. The company has so far not factored in the orders from the NTPC bulk tender. The current book-to-bill ratio of 2.8x is the lowest in at least 20 quarters, aggravating the concerns on the future growth path. Maintain estimates and Hold call: We would revisit our estimates once the audited numbers are released and more clarity emerges on the company's future order booking situation. For now, we are maintaining our estimates. However, the low order booking in FY2012 has lowered the future revenue visibility of the company. The continued impasse on the issue of import duty on power equipment has also aggravated the concern with regard to competition. However, the flowing of the NTPC bulk tender orders where BHEL's share is estimated at over Rs13,000 crore is a near-term positive trigger for the stock. Also, the government's decision to hold its follow-on public offer plan has given some sentimental boost to the stock. At the current market price the stock trades at 9.4x FY2014E earnings per share. We maintain our price target of Rs328 and Hold recommendation for the stock. SECTOR UPDATE Cement Cement-a mixed bag   Key points Click here to read report: Investor's Eye Cumulative volume for pan-India players grew by 8.1%: The volume growth of the top three domestic cement players, ACC, Ambuja Cement and UltraTech, in March 2012 was impressive on a year-on-year (Y-o-Y) basis on account of a pick-up in the cement offtake in the northern, western and central regions due to a pick-up in the execution of infrastructure projects. Among the large players, Ambuja Cement has posted an impressive dispatch growth of 12.4% YoY. On the other hand, ACC and UltraTech have posted a growth of 7.3% and 6.3% respectively in their dispatches. Hence, cumulatively the pan-India players have registered an 8.1% volume growth. On a sequential basis (compared with February 2012) the cumulative dispatches of the pan-India players have increased by over 11%.  Cement offtake picks up in northern, western and central regions; partially recovers in southern region: In terms of demand, dealers have confirmed that the cement offtake in most parts of the country has improved in the past couple of months due to the post-monsoon pick-up in the infrastructure activity. Further, the demand in the southern region has partially recovered starting from February 2012. Going ahead, dealers expect the momentum in the demand to continue in the coming couple of months.  Cement price increased in most parts of the country: Cement prices during March increased by Rs15-17 per 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. Cement prices in the southern region witnessed an increase of around Rs10 per bag compared with the average hike of Rs15 per bag. The price hike was on the back of an increase in the railway freight cost and higher excise duty. However, the price hike undertaken by the players is higher than the cost push due to the higher freight cost and excise duty. Hence, we believe it will improve the EBITDA per tonne of cement in the coming quarters. Further, dealers are of the view that the cement prices may further increase in the near term as cement offtake is expected to be strong going ahead.  Outlook: remain bullish on Grasim and Orient Paper: The cement sector has outperformed the broader market in recent times due to positive factors such as a recovery in the cement offtake and strong realisation. However, a failure to adhere to supply discipline could be the key risk to the cement prices. Another key concern remains the cost pressure in terms of (a) higher coal prices and (b) higher freight cost due to an increase in fuel price and lead distance. Hence, we maintain our neutral stand on the sector. However, we are selectively positive and prefer Grasim Industries in the large-cap space and Orient Paper and Industries (Orient Paper) in the mid-cap space. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.

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Fw: Restriction on funds movement between various market segments

Dear Customer, Greetings of the day and thank you for your continued support and patronage of our trading services! We write to update you of the recent regulatory changes, wherein fund movement /transfers between all Commodity and Equity segments will be discontinued effective April 01, 2012. Thus going forward, funds available in either market segment(s) of your Sharekhan trading account(s) can be moved /transferred only to your bank account and then in turn will have to be re-deposited /transferred to your trading account in order to complete margin obligations /take fresh positions. We will soon be enabling all our online partner banks available in the Equity segment for fund transfers in the commodities segment to minimize hindrances to your trading activity. Banks not available for online transfers will have to temporarily use alternative means of transfers such as NEFT and RTGS till such time we partner with them. However we request you to note that Intersegment transfers between the below mentioned segments would still continue as before. Securities Segment BSE- Equity and Futures & Options NSE- Equity, Futures & Options and Currency Segment MCX SX-Currency Segment IPO and Mutual Fund Commodities Segment MCX NCDEX National Spot Exchange     Request you to maintain adequate margins individually in each of these market segments you wish to trade in. Feel free to call our customer service desk at 1800-22-7500 /39707500 or write us at myaccount@sharekhan.com in case of any queries. Alternatively you could also get in touch with your nearest Sharekhan shoppe. We look forward to a long and pleasant association. Warm regards, Team Sharekhan

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Fw: Clubbing of Settlement on April 04, 2012

 

Dear Customer, This is to inform you that on account of settlement holiday due to Annual Closing of Banks on April 2, 2012 multiple settlements have been scheduled on April 4, 2012. Shares bought on Mar 30, 2012 cannot be sold on April 02, 2012 as trade done on both these days will be settled together on April 04, 2012.  Client are requested to take note of Pay in schedule:-

Settlement Type & Number Trade Date Settlement Date Timings to submit Pay-in instructions to Depositories / banks NN/NZ-2012062 30-Mar-12 4-Apr-12 9.30 a.m. BW/BC-1213002 30-Mar-12 4-Apr-12 9.30 a.m. NN/NZ-2012063 2-Apr-12 4-Apr-12 1.30 p.m. BW/BC-1213003 2-Apr-12 4-Apr-12 1.30 p.m.

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Fw: Investor's Eye: Update - IL&FS Transportation Networks (Meets order inflow target; thus allaying concern), Fertilisers (Sector dynamics weak; prefer SSP and urea players)

 

 

Investor's Eye [March 29, 2012]  Sharekhan www.sharekhan.com

Summary of Contents STOCK UPDATE IL&FS Transportation Networks Cluster: Emerging Star Recommendation: Buy Price target: Rs330 Current market price: Rs185 Meets order inflow target; thus allaying concern Key points Recent order wins help ITNL meet its annual order inflow target: For FY2012 so far, IL&FS Transportation Networks (India) Ltd (ITNL) has bagged projects worth Rs4,815 crore of which 86% orders came during Q4FY2012. Throughout the year the management guided for an order inflow target of about Rs5,000 crore which until Q4FY2012 seemed like a herculean task as the company had managed to pocket only Rs674 crore worth of projects by then. This goes to show the well-chalked-out strategy of the management to wait and not aggressively bid for projects at the cost of lower margins. Concerns over EPC revenue visibility fade out: During Q4FY2012 the company bagged build-operate-transfer (BOT) projects worth Rs4,140 crore that will be constructed over a period of 24-30 months. The recent projects will add about 50% to the company's existing order book of Rs8,160 crore as at the end of Q3FY2012. Thus, the bagging of the orders allays the concerns with regards the revenue visibility of the engineering, procurement and construction (EPC) segment in FY2013 and beyond. It will also provide a fillip to the project management fee income over FY2013 and FY2014.  Kiratpur Ner-Chowk project to achieve a financial closure soon: The company had won the Kiratpur-Ner-Chowk project in January 2012 and as per its management, the financial closure is expected by the first week of April this year. This reiterates the excellent management capabilities and strong parentage enjoyed by the company. Further, prudent bidding also helps in achieving a financial closure fast. The Kiratpur-Ner-Chowk project is located in Himachal Pradesh and is to be executed on a toll basis with a concession period of 28 years including the construction period of three years; it is worth Rs1,900 crore. The company had quoted a grant of Rs134.57 crore for the project.  NHAI set to meet its FY2012 target; chalks another ambitious target for FY2013: For year till FY2012 the National Highways Authority of India (NHAI) has awarded 5,457km of projects as against a target of 7,300km. The remaining 1,500-2,000km of projects are set to be awarded in a couple of days by the end of March 2012. Bids for the same have already been called for. Further, in the Budget for FY2012-13 the government has set an ambitious target for NHAI to award 8,800km of road projects, the highest ever in history. Given the intent of the government and the commitment shown by the NHAI in the current year to meet its target, the road sector is on the brink of a huge opportunity to be witnessed in FY2013.  Competitive intensity fading: An analysis of the projects awarded over the past three months reveals that the number of bidders for a particular project has come down. Earlier the figure would touch nearly 20 but now it's down to maximum nine to ten. However, the difference between the top two bids as well as the lowest and the highest bidder remains high. Maintain Buy: The recent project wins are very positive as the company had not won any big road BOT project since May 2010. Thus, the absence of any new win was the key concern and an overhang on the stock. ITNL had not been bidding aggressively unlike the other players to bag projects. This, we believe, was a prudent step. Now these project wins have allayed the concerns and provided revenue visibility. However, we are not factoring these project wins in our estimates currently and would do so as and when these projects achieve the financial closure. Further, given its strong balance sheet, the company is also looking at inorganic growth, like the recent acquisition of a Chinese project. We believe that given its strong parentage and scale of operations, the company stands to gain from the expected consolidation in the sector. We maintain our Buy rating on the stock with a price target of Rs330. At the current market price the stock is trading at 7.8x and 6.3x its FY2012E and FY2013E earnings respectively. SECTOR UPDATE Fertilisers     Sector dynamics weak; prefer SSP and urea players   Weak volume offtake of complex fertilisers; urea gains from price differential: After a robust growth of 16% in the first 11 months of FY2011, the growth in the volume offtake was sluggish at 2.7% in the first 11 months of FY2012. The volume offtake in the complex fertiliser segment has fallen by 7.7% against the strong growth of 26% seen in the same period of the last year. The complex fertiliser manufacturers have suffered due to the rising prices of complex fertilisers globally, the widening price differential with urea (urea prices controlled in India) and the lower imports due to the logjam between the Indian importers and the global manufacturers of MOP. However lower availability and high price of DAP and phosphoric acid in the international market resulted in lower indigenious production and import of DAP. Among the complex fertilisers, the demand for DAP and MOP have seen a decline of 12% and 33% respectively year on year (YoY). The prices of DAP and MOP have seen a steep increase of 87% and 101% respectively which has affected the demand for these fertilisers. Subsidy cut to put more pressure on volume sales of complex fertilisers; cautious on complex fertiliser companies like Coromandel, Rashtriya Chemicals and Fertilizers (RCF) but positive on SSP manufacturers (Rama Phosphates and Liberty Phosphate): The government has reduced the subsidy pay-out to non-urea fertilisers discounting the decline in the prices of the raw materials in the international market. The reduction in the subsidy was in the range of 10% to 33% for potash and phosphorous respectively. If the raw material prices do not stabilise at lower levels, the complex fertiliser manufacturers would have to increase the effective selling prices which would further weaken the already subdued demand environment for complex fertilisers. Partial decontrol of urea is positive for urea players: An increase in the consumption of urea will force the government to increase the price of urea and consider the partial decontrol of the urea to bring its price in line with that of the other non-urea fertilisers. An increase in the price of urea will help the government to reduce the subsidy on domestic and imported urea. We view this as a positive move and the announcement of the same would provide a trading opportunity in urea stocks like Chambal Fertilisers and Chemicals, Zuari Industries, Nagarjuna Fertilisers and Chemicals, and National Fertilisers. Thus, we maintain a cautious view on complex fertiliser companies like Coromandel, RCF and Tata Chemicals to some extent. 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.

Fw: Sharekhan's top SIP fund picks

 

 

Mutual Gains [For March 28, 2012]  Sharekhan www.sharekhan.com

Summary of Contents MUTUAL GAINS Sharekhan's top SIP fund picks Large-cap funds Multi-cap funds Principal Large Cap Fund ICICI Prudential Discovery Fund - IP Birla Sun Life Frontline Equity Fund - Plan A Birla Sun Life Dividend Yield Plus Tata Pure Equity Fund Tata Dividend Yield Fund Birla Sun Life Top 100 Fund UTI Opportunities Fund Reliance Top 200 Fund - Retail Quantum Long-Term Equity Fund BSE Sensex BSE 500 Mid-cap funds Tax saving funds SBI Magnum Sector Funds Umbrella - Emerg Buss Fund HDFC Taxsaver DSP BlackRock Small and Midcap Fund Fidelity Tax Advantage Fund Sundaram Select Midcap Franklin India Taxshield IDFC Premier Equity Fund - Plan A Religare Tax Plan Sundaram SMILE Fund ICICI Prudential Taxplan BSE Midcap S&P Nifty Fund focus Principal Large Cap Fund Click here to read report: SIP fund picks   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