10 January 2011

Patni Computer Systems - no big deal!; event update; Hold: Edelweiss

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Patni Computer Systems (PATNI IN, INR 464, Hold)

n  iGATE acquires Patni - brief about the deal
Patni announced that iGATE Corporation has entered into share purchase agreement with its Promoter group and General Atlantic Mauritius to buy a total of 63% of Patni’s equity capital. The transaction is valued at USD 1.22bn including the mandatory open offer of 20%. USD 921mn will be paid to selling shareholders at a price of INR 503.5 per share and remaining USD 299mn will be used to buy shares in the open offer.

Macquarie : Orchid Pharmaceuticals- Visible growth

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Orchid Pharmaceuticals
Visible growth
Event
 We initiate coverage on Orchid Pharmaceuticals (OCP IN) with an Outperform
rating and a target price of Rs395, implying upside potential of 39%. We like
OCP for its earnings visibility provided by long-term bulk supply agreements at
attractive margins (eg, the one to Hospira; HSP). We believe that strengthened
front end in the US and expanding oral formulation franchise will further add value
going forward. In addition,, a significantly de-leveraged balance sheet gives us
further comfort.

India Cement 3QFY11 Earnings Preview: Sequential improvement: JPMorgan

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• Pricing recovery q/q, though skewed regionally: Cement prices recovered
q/q, however, South India saw the sharpest price recovery with estimated q/q
price increase of 29%, followed by West India showing a price increase of 5%
q/q. North as per our estimates would show a modest q/q decline, while East
would have a 5% decline q/q. National average cement prices should be up 5%
q/q. While Oct and Nov were relatively strong months for cement prices, we
estimate cement prices saw a modest correction in Dec. Given this back drop,
we expect companies with exposure to South India to show the sharpest q/q
improvement in margins and earnings (though admittedly volumes would still
be low).

Forthcoming Results: January 11, 2011

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Goa Carbon
Pasupati Acry
Pfizer
VTM
Wyeth

Utilities and Infrastructure: Year ahead 2011: JPMorgan

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Utilities and Infrastructure- Key themes for 2011
Business/Economics:
After a round of fund raising in 2009, IPPs
commissioned some new projects, announced capacity
expansion plans and signed long-term equipment supply
contracts in 2010. However, execution was weak with
significant delays in some cases. Chasing fuel security
was a theme through 2H with IPPs investing in coal
mines abroad and lining up to sign LoAs with Coal India.
It was also a year of regulatory uncertainties and heavy
capex for infrastructure plays resulting in
underperformance.

Telecom: Be selective in 2011: Year ahead 2011: JPMorgan

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Telecom: Be selective in 2011


Key themes for 2011
Price competition not done: Technology-driven
efficiency is expected to create network capacity for 3G
telecom service providers. We believe network capacity
and opex efficiencies give telcos the ability to cut pricing
while protecting margins. Also we expect MNP (mobile
number portability) to impact post-paid pricing where
ARPM is at a 44% premium to pre-paid ARPM.

Property: 2011 is all about cash flows: Year ahead 2011: JPMorgan

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Property: 2011 is all about cash flows


Key themes for 2011
Reversal in Mumbai; improving traction in office
sector
1) Office volumes /rents recovery to gain momentum on
the back of improving capex outlook by IT companies/
domestic institutions.
2) Mumbai residential real estate should reach some sort
of inflexion point in 2H as prices have started to correct
and are in general down 15-20% in new launches.
Bangalore RE market should continue to do well due to
improved hiring/salary trends in the IT sector. NCR can
see a slowdown as pricing has crossed peak levels.
3) Reduction in pace of interest rate rises as the policy
moves towards a more neutralish stance.

Oil & Gas, Chemicals: Policy holds the key: Year ahead 2011: JPMorgan

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Oil & Gas, Chemicals: Policy holds the key


Key themes for 2011
Sectoral performance in 2011 is likely to be influenced
by 1) global economic factors impacting crude prices,
refining margins and petchem spreads, 2) domestic
drivers, such as infrastructure build-out and increased gas
availability, and 3) government policy on diesel prices
and subsidies.

Metal & Mining: Steel to remain volatile: Year ahead 2011: JPMorgan

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Metal & Mining: Steel to remain volatile;
non-ferrous a function of fund flows


Key themes for 2011
For base metals the key theme, in our view, would be the
behavior of the financial investor and the US$ weakness.
For aluminum, while inventory levels continue to move
up, near-term tightness in physical availability means
LME prices are likely to remain supported at elevated
levels in the near term. The key themes for steel over the
next year are increasing raw material prices and
overcapacity in the domestic flat steel market. We
believe that the large addition in flat steel capacity (JSW,
Essar, Bhushan, Tata Steel) over the next two years will
squeeze the domestic price premium on steel and could
make cost-push-driven price rises difficult.

India IT Services: Year ahead 2011: JPMorgan

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Key sector dynamics: Undiminished revenue
momentum in FY12 is key to sustaining valuations
As FY11 marks the strong revival in technology services
spending, Indian IT Services bellwethers TCS and
Infosys are likely to end FY11 with 25%+ US$ revenue
growth. What’s more, companies’ tentative

Financials: Improved fundamentals: Year ahead 2011: JPMorgan

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Key themes for 2011

1. Margins have peaked: Most banks, especially PSU
banks, have shown significant margin improvement over
the past 3-4 quarters, and we believe margins have
peaked for the sector.
System liquidity has been tight and there is upward
pressure on the cost of deposits; we believe that will have
an impact on margins for the sector. Wholesale-funded
institutions would be more vulnerable to margin
pressures.
2. Asset quality improving: With the economic
recovery, asset quality is broadly improving for the
sector, with the significant improvement in retail asset
quality reflected in lower delinquencies across most retail
asset categories. Credit costs for private banks have come
off sharply, and we expect further improvement over the
next 2-3 quarters. In our coverage universe we expect
further asset quality and credit cost improvement for
ICICI, HDFCB and Kotak.
3. External risks: Our bullish stance on Financials is
based on a general economic recovery which is also
positive for oil prices. High oil prices would add to fiscal
pressure and impact inflation which would be negative
for banks.
RBI has been tightening with rate action, and there is a
possibility of non-rate RBI action. RBI recently did
tighten norms on high-ticket mortgage loans and teaser
loans and further non-rate action by RBI would be
negative for the sector.
How the business is expected to evolve through the
year
Loan Growth: We expect credit growth to accelerate in
2H11 and remain strong in FY12. Secured retail credit
(mortgages, car loans), infrastructure loans and working
capital loans are expected to drive strong credit growth
going forward.
NIMs – We believe margins peaked for the sector in 2Q
FY11, and we expect them to contract from current levels
given rising cost of deposits and wholesale funds.
Fees – We expect fee income growth to be in line with
balance sheet growth. Third-party fee income should
remain muted.
Costs – Employee wage inflation and branch additions
would drive costs for private banks. Pension liabilities
could be a negative surprise for PSU banks.
Asset quality – Expect asset quality recovery to continue
especially on retail assets. Credit cots would surprise
positively for private banks.
Capitalization – Most private banks have adequate
capital. SOE banks under-capitalized. Likely events: SBI
rights issue followed by capital-raising by other PSU
banks.
Sector view
Near-term performance would be impacted by increasing
oil prices, high sticky inflation, and also the tight
liquidity situation. Margins would be impacted in the
1H11 for the sector as we expect liquidity tightness to
persist over 1Q11. Over the medium term –improving
asset quality and acceleration in loan growth would drive
stock performance post Mar-11.
Stock recommendations
ICICI Bank/HDFC Bank – Top picks
ICICI Bank is our top pick in the India Financials space.
After consolidation, ICICI’s domestic lending business is
poised to grow in line with the industry. Also retail
delinquencies have come off sharply and management
expects a better trend going forward. In a rising-interestrate
environment we also like HDFC Bank as margins
should be relatively stable.
SBI – Top Avoid
(1) SBI ROAs at 1.0- 1.1% over FY10-12E do not justify
the premium valuations, in our view. We expect a likely
capital issue to prevent improvements in ROE over the
next two years. (2) System liquidity has been tight and
margins would be impacted in 1H CY11. (3) Slippages
have been high in 1H FY11 and credit costs should
remain elevated given the need for accelerated
provisioning.

Consumer: Time to be Selective: Year ahead 2011: JPMorgan

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Key themes for 2011
Consumption trends in India will continue to be
influenced by wage growth, rising aspirational levels and
wealth creation from higher land prices. In India, percapita
consumption in several categories is still quite
low, and there is scope for further penetration and
uptrading, particularly in the rural markets. Therefore we
do not expect any major cyclicality in consumption
patterns, although there could be some moderation in
growth. We expect volume growth to be resilient in the
home and personal care and processed foods sectors.
Unlike 2010, we expect price rises to play a key role in
top-line growth and margin sustenence in 2011.

Capital Goods: Year ahead 2011: JPMorgan

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Key themes for 2011
Business/Economic:
The last year of the 11th Plan may see a rush by Central
and State Govt. to meet capex and ordering targets. The
previous year was marred by order deferrals especially in
roads, T&D, railways and airports – a recovery in
infrastructure spending beyond power generation is
expected in CY11. Positive regulatory developments and
prospect of oil price inflation are expected to boost
renewable and O&G capex. We expect the revival in
industrial spending to continue in CY11, led by the
positive macro environment. Award of NTPC orders for
11x660MW boilers, and 9x800MW BTG in CY11 would
define the future competitive dynamics in the power
equipment space.

Autos – Traffic Ahead: Year ahead 2011: JPMorgan

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Key themes for 2011
Macro outlook: While GDP growth is likely to hold at
8.5%+, inflation is stronger than expected. Thus our J.P.
Morgan economist team expects monetary tightening to
resume as early as 1Q11 – which could impact demand
for automobiles.

FII DERIVATIVES STATISTICS FOR 10-Jan-2011

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FII DERIVATIVES STATISTICS FOR 10-Jan-2011 
 BUYSELLOPEN INTEREST AT THE END OF THE DAY 
 No. of contractsAmt in CroresNo. of contractsAmt in CroresNo. of contractsAmt in Crores 
INDEX FUTURES1031493005.531212763530.8640054511450.22-525.33
INDEX OPTIONS48838214144.2841229012058.70158023545346.842085.58
STOCK FUTURES733082053.29577141590.83130687233987.12462.46
STOCK OPTIONS18354562.7218568572.7716176477.54-10.05
      Total2012.65

FII & DII trading activity on NSE and BSE as on 10-Jan-2011

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FII trading activity on NSE and BSE on Capital Market Segment
The following is combined FII trading data across NSE and BSE collated on the basis of trades executed by FIIs on 10-Jan-2011.
FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
CategoryDateBuy ValueSell ValueNet Value
FII10-Jan-20112633.693772.47-1138.78
 
Domestic Institutional Investors trading activity on NSE and BSE on Capital Market Segment
The following is combined Domestic Institutional Investors trading data across NSE and BSE collated on the basis of trades executed by Banks, DFIs, Insurance, MFs and New Pension System on 10-Jan-2011.
DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
CategoryDateBuy ValueSell ValueNet Value
DII10-Jan-20111729.36710.821018.54
 

NSE, Bulk deals, 10-Jan-2011

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Symbol
Security Name
Client Name
Buy / Sell
Quantity Traded
Wght. Avg. 
Price
BALPHARMA
Bal Pharma Limited
AJAY PARAKH
BUY
68,457
39.03
BALPHARMA
Bal Pharma Limited
AJAY PARAKH
SELL
41,370
37.76
BALPHARMA
Bal Pharma Limited
CHANDER KANTA
BUY
52,427
40.01
BALPHARMA
Bal Pharma Limited
CHANDER KANTA
BUY
1,56,460
38.78
BALPHARMA
Bal Pharma Limited
CHANDER KANTA
SELL
5,567
40.16
BALPHARMA
Bal Pharma Limited
CHANDER KANTA
SELL
1,91,223
38.71
BALPHARMA
Bal Pharma Limited
RAJENDRAN DEVARAJ
BUY
77,605
38.79
BALPHARMA
Bal Pharma Limited
RAJENDRAN DEVARAJ
SELL
77,605
38.32
BALPHARMA
Bal Pharma Limited
VASANTI SHARE BROKERS LIMITED
BUY
70,147
38.46
BALPHARMA
Bal Pharma Limited
VASANTI SHARE BROKERS LIMITED
SELL
70,147
38.74
EVERONN
Everonn Education Limited
CREDIT SUISSE (SINGAPORE) LIMITED A/C CREDIT SUISSE (SINGAP
SELL
81,213
585.09

Bulk deals, BSE, 10/1/2011

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Scrip Code
Company
Client Name
Deal Type *
Quantity
Price **
532114
Alchemist Rlty
VARINDER PAL SINGH
B
635200
12.75
532114
Alchemist Rlty
AMANDEEP
S
635200
12.75
530973
Alfa Ica
JAYESH MEHTA
B
22001
15.40
530973
Alfa Ica
TIKMANI CORPORATION
B
42750
14.75