Fw: Investor's Eye: Update - Transmission and distribution (Headwinds to keep valuations depressed); FMCG (Notified stipulation on pack size-a disappointer)

 

 

Investor's Eye [December 08, 2011]  Sharekhan www.sharekhan.com

Summary of Contents SECTOR UPDATE Transmission and distribution       Headwinds to keep valuations depressed  Key points The order awarding activity of Power Grid Corporation of India (PGCIL) has intensified since August 2011 (after a dry spell of four months). In October this year, the momentum further picked up as PGCIL awarded projects worth Rs4,074 crore.  Nonetheless, the transmission and distribution (T&D) market is getting fragmented with more domestic players entering newer segments. For example, in the 765kv sub-station category, after the removal of the circuit breaker in the scope of contract in early FY2012, there have been many new entrants like Larsen and Toubro (L&T), EMC, Jyoti Structures and Techno Electric (Techno). These new entrants have posed a tough competition to the traditional T&D majors like ABB, Areva and Siemens (which together commanded 100% market share in the previous year) and have already captured 66% market share in FY2012.  Valuation wise, most companies are trading at a 25-30% discount to their average five-year multiple; however the uncertainty with regard to the order inflow amid intense competition and margin pressure would maintain the bearish sentiments in the T&D stocks. The problem of intensifying competition looks structural now and is unlikely to go away in the near future. Hence, we recommend investors to stay away from the sector till clarity emerges on the competitive landscape.  FMCG       Notified stipulation on pack size-a disappointer  Notification to restrict change in pack size and weight of FMCG products The consumer affairs ministry has notified that 20 consumer products be retailed only in stipulated pack sizes as part of an amendment to the Legal Metrology Act.  This policy move is specifically targeted at those FMCG companies that decrease the grammage to non-standard sizes. In a scenario of higher raw material prices, most of the fast moving consumer goods (FMCG) companies follow the practice of reducing the pack sizes of certain stock keeping units (SKUs) of their products (that is an indirect way of increasing the prices) while keeping the prices unchanged to ease the pressure on their margins.  The new Legal Metrology Act is likely to come into effect from July 1, 2012. View: If the new rule comes into force, it will likely have an impact on the profitability of the FMCG companies. Their inability to sell recruiters pack or low-priced SKUs and make promotional offerings on certain SKUs might affect the growth of their top line. Also, in a scenario of firm raw material prices, an increase in the packaging cost would put more pressure on the profitability of these companies. However, since the rule is likely to be implemented in July 2012, it will not pressurise the margins in FY2012 but it will definitely affect the profitability in FY2013. Having said that, the FMCG companies and the associations of various industries (including soaps and biscuits) are lobbying against the implementation of the rule. Prima facie, we believe FMCG companies like Hindustan Unilever (HUL), Procter and Gamble, Britannia Industries, Marico and Tata Global Beverages will be affected the most by implementation of this act.   "Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article."   Click here to read report: Investor's Eye

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Fw: Investor's Eye: Update - Cement (Low-base effect boosts volumes in November), Media (FDI limit to hike in cable industry....)

 

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

Summary of Contents SECTOR UPDATE Cement       Low-base effect boosts volumes in November Cumulative volume for pan-India players grew by 16.3% on low base effect: The volume growth of the top three domestic cement players, namely ACC, Ambuja Cements and UltraTech Cement (UltraTech), for November 2011 was impressive on a year-on-year (Y-o-Y) basis. This was largely on account of the low base of November 2010. Among the companies Ambuja Cements registered a robust 29.3% growth in its dispatches due to the low base effect (in November 2010 the company's dispatches had dropped by 9% year on year [YoY]) and an improvement in the cement offtake. Further, UltraTech has also posted an impressive dispatch growth of 16.3% YoY for the month. On the other hand, ACC has posted a 5.2% growth in its dispatches. Hence, cumulatively the pan-India players have registered a 16.2% volume growth. On a month-on-month (M-o-M) basis the cumulative dispatches declined by 2.7%.  Cement offtake remains sluggish, western region witnessed improvement: In terms of demand, dealers have confirmed that the cement offtake in most parts of the country remained sluggish primarily due to the slowdown in the real estate segment and slower than expected execution of government infrastructure projects. Further, the political hurdle in Andhra Pradesh also remained a key drag on the volume growth of Andhra Pradesh, which is a major state of the southern region. However, the issue of unavailability of river sand in the western region was resolved during November and hence the cement offtake in the region was relatively better. The southern and eastern regions continued to face a sluggish demand environment.  Cement price hike in most parts of the country, southern region remains stable: During the month cement prices in most parts of the country increased by Rs5-15 per bag of 50kg. The western and eastern regions witnessed the highest price hike month on month (MoM) whereas cement prices in the southern region remained largely unchanged on an M-o-M basis. The price hike was largely on account of the supply discipline mechanism followed by the manufacturers. However, dealers are of the view that the current price hike is likely to sustain (except in the eastern region) in the near term as cement offtake is expected to improve going ahead.  Outlook: remain bullish on Grasim and Orient Paper: We believe the sector could underperform in the near term as there is a possibility that the cement manufacturers may fail to adhere to supply discipline due to a likely pick-up in the cement offtake. However, we believe any correction in the sector will provide the investment opportunity for select companies. We prefer Grasim Industries (Grasim) in the large-cap space and Orient Paper and Industries (Orient Paper) in the mid-cap space.   Media       FDI limit to hike in cable industry.... Hike in FDI limit in cable: favourable regulatory framework fuels growth prospects After making digitisation of cable TV across the country compulsory by December 31, 2014, the government is set to increase the foreign direct investment (FDI) limit in the sector from 49% to 74%. The Telecom Regulatory Authority of India (TRAI)'s recommendation to increase the FDI limit from 49% to 74% for direct-to-home (DTH) TV, Internet Protocol TV (IPTV) and teleport has been validated by the information & broadcasting (I&B) ministry.  Currently FDI is allowed up to 74% in mobile TV, HITS and IPTV whereas the permissible foreign investment cap for cable distribution companies is 49%. The move will make the distribution of FDI uniform across platforms including DTH, IPTV, mobile TV, HITS and cable companies. However, the FDI ceiling for local cable operators will remain 49 % (it has been so since 1995) as the recommendation to reduce it to 26% by TRAI has been rejected by the I&B ministry. According to industry estimates, the total fund requirement for the DTH and cable industry will be close to Rs250-300 billion for the successful implementation of digitisation. Thus, an increase in the FDI limits will make the funding easier for the companies in an environment of high interest cost coupled. Besides, most companies already have high debts on their books.  View: We view this development as a welcome breather for the Indian cable distribution sector, which is reeling under high debts and negative cash flows. As the cable industry is gearing up for the compulsory digitisation mandate, it has become important for the companies to equip themselves with funds to create the necessary infrastructure. The possible increase in the FDI limit to 74% will help the companies to garner funds without creating further pressure on the balance sheets. We remain positive on the DTH space from a longer-term perspective. However, we remain selectively biased toward Dish TV.   "Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article."   Click here to read report: Investor's Eye

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Fw: Sharekhan Top Picks

 

 

Top Picks [December 03, 2011]  Sharekhan www.sharekhan.com

Summary of Contents SHAREKHAN TOP PICKS The roller-coaster ride continued for the market. After the surge in October, the sell-off in November 2011 took the Sensex all the way down to 4700 level and threatened to break the multi-month range of the benchmark index due to the deepening of the euro zone crisis and the rising macro concerns domestically. However, the global markets have rebounded sharply in response to the concerted effort to infuse liquidity by the leading central banks of the world. The Indian government's initiative to push forward some key reforms has improved sentiments. Consequently, the Sensex gained more than 1,100 points (or over 7%) in the last one week alone. Despite the last week's upsurge, the Sensex and Nifty ended with losses of 3.8% and 4.4% respectively since our last monthly revision in the Top Picks basket on November 5, 2011. The broader market lagged the benchmark indices and the CNX Mid-Cap Index depreciated by 7.3% during the same period. Given the multiple market capital mix of our portfolio and the unexpected slump in the power stocks like PTC India, the Top Picks basket also lost 6.2% during the month. However, the Top Picks basket continues to outperform all the key indices over all the time frames. In this month, we are removing only one stock, Godrej Consumer Products (which has been part of the portfolio for a long time and given handsome returns). Though we continue to like the company but its vulnerability to foreign exchange fluctuations is making us cautious in the near term. However, we are adding two new stocks, Bank of Baroda (BoB) and Bharat Electronics Ltd (BEL). With the monetary tightening cycle at its peak, and expectations of both a cut in the cash reserve ratio and moderation in inflation going ahead, we are adding BoB, which is our preferred pick among the public sector banks under our coverage. BEL is being added purely due to its compelling valuations. Moreover, BEL tends to show a robust pick-up in execution in the second half of a fiscal.   "Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article."   Click here to read report: Sharekhan Top Picks

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Fw: ValueGuide: Chain reaction spikes volatility

 

 

Sharekhan ValueGuide [December 03, 2011]  Sharekhan www.sharekhan.com

Summary of Contents EQUITY FUNDAMENTALS THE STOCK IDEAS REPORT CARD FROM SHAREKHAN'S DESK Chain reaction spikes volatility The euphoria generated in October over the approval of the Greece bail-out plan was short-lived. In November the euro zone crisis escalated spreading to more euro countries. The resulting strength in the dollar was the rupee's undoing. The local currency depreciated by nearly 8% and the macro environment deteriorated further. As concerns crowded in, the market went into a freefall plummeting by over 1,500 points during the month. Volatility has risen as stray positive news, such as that of opening of the retail sector to foreign direct investment (FDI) and concerted efforts from central banks of major countries to ease liquidity, are vying with the emerging concerns for the market's attention. Wild swings in the market sentiments are confusing investors.   SHAREKHAN TOP PICKS Sharekhan top picks  STOCK IDEA Raymond: Premium brand at a discount STOCK UPDATE Aditya Birla Nuvo: Strong performance; insurance business drives earnings Bharat Heavy Electricals: Price target revised to Rs400 Bharti Airtel: Heightened seasonality hurt operational performance CESC: Swing in other expenses changed bottom line picture Divi's Laboratories: Growth momentum continues Eros International Media: Price target upgraded to Rs298 Gayatri Projects: Price target revised to Rs310 Hindustan Unilever: A quarter of impressive performance IL&FS Transportation Networks: Strong execution drives earnings Ipca Laboratories: Super operating performance IRB Infrastructure Developers: Strong execution led to robust performance Jaiprakash Associates: Price target revised to Rs105  Lupin: Milestone payments boost results Madras Cements: Price target revised to Rs122 Mahindra & Mahindra: Toned down exhilaration Marico: Price target revised to Rs156 Max India: Strong growth continues Orient Paper and Industries: Cement division drives Q2 performance Ratnamani Metals and Tubes: Price target revised to Rs132 Selan Exploration Technology: Higher realisation boosts performance State Bank of India: Asset quality concerns persist, maintain Hold Tata Chemicals: Surprises positively on the back of strong margins SHAREKHAN SPECIAL Q2FY2012 earnings review FDI in retail SECTOR UPDATE Fertilisers: Consumption outlook for complex fertiliser looks positive  VIEWPOINT Coal India: Concerns priced in currently  EQUITY TECHNICALS  Sensex: Downward slope  EQUITY DERIVATIVES  Derivative view: Bulls back with a bang  COMMODITY FUNDAMENTALS  Macro-economy Crude oil: Sell on rallies Precious metals: Gold trading as a risk asset now Base metals: Energised by liquidity move Major economic events in December 2011   COMMODITY TECHNICALS  Gold (London): @ Make or break Silver: Monthly 20 moving average @ $29.8  Light sweet crude oil: Bullish momentum intact Zinc: Channeled Up Lead: Nearing resistance Pepper NCDEX: Bulls start a new journey  CURRENCY FUNDAMENTALS  Currency market: Asian currencies slide in Novembers INR-USD CMP: Rs51.71 INR-EUR CMP: Rs69.66 INR-GBP CMP: Rs81.15 INR-JPY CMP: Rs66.57  CURRENCY TECHNICALS  USD-INR: Upside restricted GBP-INR: Channelised move EUR-INR: Back into the channel  JPY-INR: Correction on the cards  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 "Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article."   Click here to read report: Sharekhan ValueGuide

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Fw: Investor's Eye: Pulse - GDP growth moderates to 6.9% in Q2FY2012; Update - Infosys

 

 

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

Summary of Contents PULSE TRACK GDP growth moderates to 6.9% in Q2FY2012 STOCK UPDATE Infosys       Cluster: Evergreen Recommendation: Hold Price target: Rs2,772 Current market price: Rs2,607 Infosys warns of a guidance miss Infosys warns of a guidance miss. Is it extra conservatism or further macro deterioration?  Infosys' recent management commentary saying it could possibly missing the upper end of the revenue guidance for Q3FY2012 and FY2012 has again raised concerns about the sector. K Balakrishnan, CFO, Infosys has said that "in an uncertain environment like this, it is very difficult to say if we will meet our third quarter guidance of revenue growth of 3.2 - 5.4% and in turn the FY2012 revenue guidance of 17.1-19.1%." Valuation: In the last two weeks Infosys' stock has corrected close to 7% owing to subdued market conditions and growing apprehension on the sector's fundamentals. Going forward, news flows will dictate the stock performance in the near term and the Street will keenly wait for Q3FY2012 earnings next month to get more clarity on the future roadmap. We continue to remain cautiously optimistic on the sector and maintain our Hold rating on Infosys with a price target of Rs2,772.   "Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article."   Click here to read report: Investor's Eye

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Fw: Investor's Eye: Update - Insurance; Special - Q2FY2012 Agri inputs earnings review

 

 

Investor's Eye [November 28, 2011]  Sharekhan www.sharekhan.com

Summary of Contents SECTOR UPDATE Insurance APE declines sequentially by 17.6% The annual premium equivalent (APE) of the life insurance industry grew by 8.7% year on year (YoY) while it declined by 17.6% month on month (MoM). The year-on-year (Y-o-Y) growth in APE was mainly contributed by Life Insurance Corporation of India (LIC), which reported a growth of 18.5% YoY, while the private players witnessed a decline of 5% YoY in their APEs. Moreover, the growth on Y-o-Y basis was mainly due to the phasing out of the higher base of the previous year as new regulations were introduced. However, on a year-till-date (YTD) basis (ie April-October 2011), the APE of the industry continued to contract with the private players showing a higher decline (33.2% YTD) compared to an 11.6% decline shown by LIC. Outlook: On an M-o-M basis the premium collections showed a decline in October 2011, though the same showed a recovery on a Y-o-Y basis. That's because  of the phasing out of the higher base effect as new regulations were introduced from September 2010 onwards. On a YTD basis, the premium collection continues to decline while LIC has performed better due to its presence in traditional policies. The insurers are in the process of launching new products and revamping their distribution structure (bank assurance tie-ups, realignment of agent force etc) to curtail their expenses. While the Y-o-Y growth is expected to remain flattish, the growth in H2FY2012 is likely to be better due to seasonality and the lower base of the previous year. SHAREKHAN SPECIAL Q2FY2012 Agri inputs earnings review Q2 results ahead of expectations: Our universe of agriculture stocks reported a surprisingly strong performance in Q2FY2012 with aggregate revenue growth of 27.4% driven by both higher realisations and a smart uptick in the volume offtake. The adjusted profit after tax (PAT) grew by 77.9% during the same period. The outperformance was driven by a strong upsurge in the margins of Tata Chemicals. Margin improvement is one-off: The overall increase in the operating profit margin (OPM) was mainly due to the higher margin of Tata Chemicals during Q2FY2012 on the back of a price rise taken in the inorganic chemical segment (soda ash) and the last quarter's fertiliser subsidy that was included in Q2FY2012. The management of Tata Chemicals believes that going ahead there will be pressure on the margin due to a strong demand for raw materials and that the company would not be able to pass on the increase in the cost beyond a certain limit. This could hurt the margin. The margin of Deepak Fertilisers and Petrochemicals Corporation (Deepak Fertilisers) and United Phosphorus declined due to input cost pressures. The sales of complex fertilisers were affected due to the lower availability of MOP which adversely affected the sales mix and the margins.  Government to hike subsidy pay-out for fertiliser companies in current fiscal: The Government of India has made an additional provision of Rs13,779 crore for fertiliser subsidy during FY2012. So the total outlay for the fertiliser subsidy has increased from Rs53,837 crore to Rs67,616 crore. Out of the total incremental outlay of Rs13,779 crore, the bulk, ie Rs5,200 crore, has been allocated for indigenous complex fertiliser followed by Rs3,000 crore for imported complex fertiliser. The allocation to fertiliser subsidy was increased mainly due to a higher input cost and deprecation of the rupee against the dollar. Deepak Fertilisers and United Phosphorous remain our top picks: Deepak Fertilisers and United Phosphorus remain our top picks post-Q2FY2012 results because currently both the stocks are available at much attractive valuations. After the Q2FY2012 results, we remain positive on Deepak Fertilisers on account of the higher utilisation ratio of its newly commissioned ammonium nitrate plant and the higher trading margin in the specialty fertiliser business. United Phosphorus will grow at 20 to 25% for the next two years on the back of a higher inorganic growth from its recent acquisition of AVG Agro Brazil and is likely to maintain its OPM in a tight range.   "Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article."   Click here to read report: Investor's Eye

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