26 March 2011

Indian Banking – Banking Laws (Amendment) Bill, 2011, presented in Parliament:: RBS

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Event
The Finance Minister has tabled legislation in Parliament to amend the Banking Regulation Act.
Objective of the Amendment Bill
The Banking Laws (Amendment) Bill, 2011, seeks to amend banking acts to make the Reserve
Bank of India’s (RBI) regulatory powers more effective and increase the access of nationalised
banks to the capital market to raise capital required for expansion of banking business and to
make certain of other consequential amendments in certain other enactments.
Key proposals of the Amendment Bill
􀀟 Provide nationalised banks the right to issue two additional instruments (“bonus shares” and
“rights issue”) to access the capital market to raise required capital for expansion of banking
business
􀀟 Raise the ceiling on voting rights of shareholders of nationalised banks from 1% to 10%
􀀟 Remove the existing restriction on voting rights limited to 10% of the total voting rights of all
shareholders of the banking company
􀀟 Enable banking companies to issue preference shares, subject to RBI’s regulatory guidelines
􀀟 Make provisions to ensure that control of banking companies is in the hands of fit and proper
persons; it should be mandatory for the persons who propose to acquire 5% or more of the
share capital of a banking company to obtain prior approval from RBI
􀀟 Confer power on RBI to impose such conditions as it deems necessary while granting such
approval for acquisition of 5% or more share capital of a banking company (including
specifying acquisition of a minimum percentage of shares in a banking company) if
considered necessary
􀀟 Insert a new section in the Banking Regulation Act so as to exempt mergers of the banking
companies from the applicability of the provisions of Competition Act 2002. The Bill states that
this will allow RBI to approve mergers of the banking companies in public or depositors'
interest, interest of the banking system in India and to secure the proper management of the
bank in a timely manner without waiting for approval from the Competition Commission of
India
Note, at this stage, this is an amendment Bill which is presented to Parliament for its approval. In
our view, the proposed amendments will likely not have any immediate impact but are structurally
positive over the long term.

Infosys Technologies :FY12 guidance likely a non-event :: JP Morgan

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Infosys Technologies Neutral
INFY.BO, INFO IN
FY12 guidance likely a non-event; Expect FY12 US$
revenue growth guidance of 18-20%; interest income
likely to significantly contribute to Rs EPS guidance


We expect the Infosys management to guide for 18%-20% US$ revenue
growth and Rs EPS of 140-142 for FY12 at the time of its 4QFY11 results.
The upper end of the revenue growth guidance band is unlikely to exceed 20% (in
USD), which in our view is likely to restrain EPS upgrades in the street.
• On EPS, we expect Infosys to guide for Rs 140-142, helped by a much stronger
contribution from interest income (a function of yield and cash). Notably,
interest income (pre-tax) as % of PBT is likely to peak in FY12 at just over
15% as yield (interest rate) firms up and Infosys’ cash level continues to
build. Interest income is thus likely to be a significant, contributory factor in
Infosys’ Rs EPS guidance, more than it has been in the past.
• Infosys does not provide quantitative guidance on operating (EBIT) margins but
we expect the company to qualitatively guide down on margins by at least ~100
bps Y/Y (relative to FY11). Such commentary on margins does not surprise us
and should not disappoint the market as Infosys assumes pricing in its guidance
to hold at current levels (Q4FY11) which seems a tad conservative in the face
of an improving pricing environment. Consensus expects operating margins to
remain flat Y/Y, which we believe is possible with better pricing through FY12.
• Revenue (USD) growth guidance of 18-20% implies a CQGR of 4% at the
upper end, broadly similar to that implied in the previous year’s (FY11) initial
guidance of 16-18%. This is also the same as the implied CQGR for Cognizant's
initial CY11 revenue guidance of at least 26% growth.
• All of this will translate into a likely EPS guidance of Rs. 140-142. Consensus is
currently at Rs.151, and we believe Infosys would have to beat its initial
guidance by about 7%-8%, which should be achievable, but a meaningful upside
from current consensus EPS is unlikely. Notably, over the last six years
(including FY11) the company has beaten initial consensus EPS by at least
10% only once and at least by 5% twice (since 2006)
• Separately, Nasscom forecasts 16-18% growth for FY12 revenue for the Indian
IT industry. Historically, large caps have grown significantly ahead of the
industry. We believe that Infosys should indicate through its guidance that it
expects to grow faster than the industry, a stance that it has taken. Hence, our
18-20% FY12 growth guidance estimate is logical in this context as well.
• We maintain our Neutral rating on the Infosys stock

India Two Wheelers: HMSI spells out growth plans : JP Morgan

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• HMSI spells out growth plans – to launch 100cc bike, focus on rural
areas: Two wheeler OEM Honda Motorcycle & Scooter India (HMSI)
said it will focus on the rural areas and plans to introduce its first
100-cc bike next year (Economic Times). “For the first time, we will
introduce a mass segment motorcycle in the 100-cc category. It is
currently under development. For a while, we will concentrate on
introducing mass models in the Indian market,” Mr. Shinji Aoyama,
president of HMSI, highlighted. "Our target in the next decade is to be
No. 1 in India.”
• Company targets 2.1m units in FY12 (+27% yoy): The company is
expecting to sell 1.65 m units (+30% yoy) in FY11, and Mr. Aoyama
said the company is targeting for 2.1m units in FY12, which would
represent growth of c.27% yoy
Figure 1: HMSI Volumes and Growth Rates

HCL Infosystems – SI execution woes : RBS

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We recently spoke to HCLI management to get a business update ahead of the quarter
close. Management highlighted delays in getting sign-off for milestones in government SI
projects. If this situations continues, we see a 2-5% risk to our FY11F EPS.

Havells:Management meeting: Sylvania Turnaround on Track:; JP Morgan

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Havells India Ltd Overweight
HVEL.NS, HAVL IN
Management meeting: Sylvania Turnaround on Track,
Sustained Margin Expansion to Drive Re-rating


We recently met Mr. Rajiv Goel, Sr. Vice President at Sylvania, who guided at
Sylvania’s exit EBITDA margins of 7%- 8% for 2011E. Margin expansion is
being aided by price hikes and rising contribution from emerging markets. We
believe sustained margin improvement in Sylvania will drive stock re-rating.
Valuations at 11.5xFY12E P/E are attractive given 2 year EPS CAGR of 50% and
FY12E ROE of 49.4%. Maintain OW and PT of Rs480.

India Gold Survey: Gold – Losing Its Luster? Morgan Stanley

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Why Should You Read this Report? This survey gives insights into probably one of the least-understood macro variables in India –- one that affects growth, bank deposits, liquidity and the current account.

Investment Conclusion: AlphaWise evidence suggests that India’s gold demand is likely to fall in 2011. Using AlphaWise evidence, we expect gold demand (in tons) to fall between 5% and 26% in 2011. Using Morgan Stanley’s average gold price forecast for 2011 (which is up 18% on the average price at which Indians purchased gold in 2010), this translates into a +11% to –13% change in value of gold consumption.

Implications: In our view, a fall in gold demand will have positive impact on liquidity and deposit growth and thus for banking sector earnings. In addition, the current account deficit can surprise on the downside with positive implications on growth

Goldman Sachs: Telcos conf takeaways; regulations to improve; reiterate BRTI CL-Buy

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India: Telecom Services
Equity Research
Telcos conf takeaways; regulations to improve; reiterate BRTI CL-Buy
Return more optimistic on Bharti/Idea after GS Telcos Conference
Following our inaugural GS India Telcos Conference, we return more positive
on: (1) potential for the regulatory environment to improve; and (2) further
stabilization such improvement would bring on the competitive front. In next
couple of months we expect more clarity on regulatory issues (like excess
spectrum payments, license renewal and M&A policy) and believe any
potential impact from MNP would be behind us. We reiterate Buy on Bharti
(CL-Buy) and Idea. In this report, we highlight key takeaways from meetings
with industry participants at the conference. We also discuss: (1) insights from
panel discussions on MNP, 3G, LTE; (2) conclusions for Bharti Africa after
hosting an Africa industry participant; and (3) potential for a tablet market
which LTE rollout could create in the next 12 months.
Regulatory environment at a margin turning positive...
Based on commentary by Telcos Minister/DoT/TRAI we believe: (1) there could
be downside risk to one-off excess spectrum amount as DoT may not accept
TRAI’s recommendations in their current form; (2) There is room for M&A
norms relaxation in April 2011 when DoT is expected to announce the New
Telecom Policy (NTP) 2011; and (3) We see potential for reduction in spectrum
fee from a varying 6%-10% to a flat 6% in next 12-18 months.
MNP’s one-off impact behind us by 4Q end; competition stabilizing
No operator has introduced any aggressive tariffs in last 5-6 months and
competition has stabilized as per the operators. On MNP front, while the
incumbents are net gainers, our channel checks suggest that they have
renegotiated down their postpaid tariffs on a case by case basis to prevent
these subs from migrating to peers. We now model 3.8%/6.0% qoq decline
in RPM for Bharti/Idea in 4Q (vs. 1.0%/3.6% prior) but consider this as a
one-off impact as most of the renegotiations are largely behind us.
Bharti best positioned to benefit; Reiterate CL-Buy (32% upside)
We adjust our FY11E-FY13E EPS for BRTI/Idea/RCOM by an average 2%/5%/
19% due to higher than estimated MNP impact. For Idea, FY11E EPS
increases 19% as we defer 3G amortization and interest expenses to the
following quarter along with service launch. For RCOM, our EPS cuts reflect
disappointing 3Q results, higher financial leverage and a lower base effect.
We cut our 12-month SOTP based target prices for BRTI/Idea/RCOM by
2%/8%25% to Rs420/Rs77/ Rs115 on revised estimates.

Gujarat Gas Company - high LNG prices to impact growth volumes; visit note; Edelweiss

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Gujarat Gas Company (GGAS IN, INR 377, Not Rated)

We recently attended the analyst meet of Gujarat Gas Company (GGas), and present below key takeaways from the meet:

n  CY11 volumes to grow at 8-10%; gas usage unattractive for DF segment
Of GGas’ CY10 sales volume of 3.3 mmscmd (+17% Y-o-Y), ~83% (81% in CY09) is to industrial customers, of which, ~65% (of 83%) is to SMEs. The company has guided to 8-10% growth in volumes for CY11. However, it runs the risk of de-growth in its direct firing (DF) segment (that uses coal/lignite as alternatives), if gas prices  remain higher or inch up further. The DF segment currently constitutes 21% of GGas’ sales volumes. Going forward, the company is likely to primarily focus on  increasing volumes in the high-value customer segment of DF (with customers willing to pay higher prices).

Hathway :: Play on imminent digitalisation; a new Buy: BofA ML,

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Hathway Cable & Datacom Ltd
Play on imminent digitalisation; a new Buy
􀂄 Buy for 40% upside potential
We initiate coverage of Hathway Cable & Datacom (Hathway) with a Buy rating
and PO of Rs130. Hathway is the largest digital cable television service provider
in India. We expect it to benefit from (1) increasing adoption of digital cable
services, (2) implementation of regulation to digitalise the cable network in India,
and (3) cross-selling of broadband services to its cable TV consumers.

The short and long term impact from Japan's earthquake : JP Morgan

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• Long term impact- Thermal coal stands out: JPM Global coal analyst
John bridges highlights that the long term implications of the Japan
earthquake could likely involve a lower build out of nuclear power and
this would be positive for thermal coal. To highlight the potential
tightness, JPM UK mining analyst David Butler gives the example that
Japan’s current nuclear energy capacity is 40GW and replacing this with
coal would mean an additional 135MT of coal. Structurally this is
negative for India as domestic coal production/evacuation infrastructure
continue to lag domestic demand. Longer term, rebuilding would create
strong demand for various commodities.
• Short term- Steel, iron ore and coking coal: Steel production is likely to
be impacted in the near term. In his latest update, JPM Japan steel analyst
Akiro Kishimoto expects output in March to fall sharply (as much as 0.7-
0.8MT, Jan-11 steel prod stood at 9.65MT). Akiro expects EAFs to
operate below capacity as power availability is likely constrained. In the
near term this could impact coking coal and iron ore (Japan accounts for
13% of global iron ore and 21% of coking coal. For more commodity
details, please refer to JPM UK Mining analyst report – ‘Impact on Metals
and Mining from Japanese Earthquake’. In terms of steel prices, given that
a relatively large part of Japanese steel exports were to Korea, it could
likely push up spot HRC prices as exports become constrained. For Indian
mills though HRC pricing has been weak as Chinese export prices remain
under pressure. We believe Indian steel mills had to give out discounts
recently as pressure from Chinese exports has increased recently.
• Base metals- Copper Tc-Rc/s could move up: JPM UK mining analyst
David Butler highlights that among base metals Japan is not a significant
consumer of most metals except nickel (11% of world demand). However,
Japan accounts for 10% of the world’s copper smelting output and David
expects the earthquake could likely impact copper Tc-Rc.
• Spot steel market remains tough: Post the Chinese Lunar Year, domestic
Chinese prices have weakened and so have export prices, though last week
saw some stabilization in prices. Spot iron ore prices have pulled back
nearly 15% from their recent peak given the weakening of Chinese steel
prices. As a result domestic Indian steel prices remain weak.
• Monthly coking coal contracts arrive? JPM coal analyst John Bridges
highlights that BHP has possibly signed monthly contracts with Indian
companies at $300/MT. We have not been able to confirm this from the
India steel mills yet. While the $300/MT price is lower than the recently
talked about $330/MT price, we view the monthly contracts as negative for
Indian mills as it could likely mean continued higher coking coal costs.

Capital goods: : pick-up in orders but heightened competition :: Daiwa

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Summary
􀂃 We expect a pick-up in road-ordering activity
Following the appointment of a new head at the Ministry for Surface Transport, ordering
activity has picked up, and we believe that it is likely to accelerate over the next few months.
The National Highways Authority of India (NHAI) has spent the past nine months (during
which few orders were awarded) acquiring land and preparing for projects. Companies expect
orders for 9,000-11,000km of roads to be given out in FY12, with Rs450-500bn worth of orders
over the next 4-5 months. The NHAI’s funds are also likely to get a boost in FY12, with
Rs100bn of tax-free bonds and Rs90-100bn of fuel cess (a tax levied on all gasoline/diesel
sales).
􀂃 Efforts to accelerate the bidding process …
The NHAI is trying to simplify the bidding process. Requests for qualification (RFQ) will now be
valid for a full calendar year, so companies will not have to apply for an RFQ for every project.
􀂃 … but initial bidding is likely to be very aggressive
Companies are seeing very aggressive bidding for projects so far in 2011. This could be due
to: i) efforts to ensure better utilisation of equipment that has been idle for many months now,
and ii) some companies being at the fundraising stage, so they need to shore up their order
books. We believe bidding is likely to improve over the next 2-3 months as visibility over order
pipelines improves.
􀂃 Most investor queries focused on the macro/sector environment
Investors were concerned primarily about any changes in the macro environment, such as for
order inflows, funding costs and the project-execution environment. Most investors felt valuations
are cheap, but that the macro environment needs to be more supportive for stocks to perform.
􀂃 We continue to prefer well-funded companies
We maintain our positive longer-term view, and prefer companies with strong revenue- and
earnings-growth visibility and solid balance sheets. Based on those factors, our top picks are
Sadbhav Engineering (SEL) (SADE IN, Rs107, 1) and IRB Infrastructure (IRB) (IRB IN, Rs182, 1).


RBS: Jindal Steel & Power – On solid ground

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We believe strong drivers are in place for JSP given its robust expansion plans in both steel
and power. Continued high raw material integration should help it maintain margins at
elevated levels. We forecast an earnings CAGR of 17% for FY11-13 and initiate coverage at
Buy with a target price of Rs820

MF Global: PGCIL order flow—pick up in the last three months

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» PGCIL orders have seen a sharp pick-up in the last few months (Dec-Feb
2011 orders account for 58% of ordering YTD) and we expect the traction in
orders to continue into March; competitive intensity remains high across all
segments, especially in transmission lines and towers.
» Orders at Rs 82.7bn were down 4% in the period Apr-Feb 2011; transformer
orders see the sharpest fall with orders down 72% YoY and substation
orders dropping 29% YoY. Transmission line orders saw a jump of 53% and
conductor orders are up by 43%.
» Crompton Greaves and BHEL remain our top picks in the sector; we
maintain our SELL rating on ABB India.
Orders gain traction over the last few months
There have been concerns on the street with regard to a slowdown in ordering
from PGCIL over the past year. However, there has been a sharp pick-up in
ordering over the last 3 months (Dec-Feb 2011 orders account for 58% of
ordering); orders placed by PGCIL between April-Feb 2011 now stand at Rs
82.7bn (down 4% YoY). Transformer orders have seen the sharpest fall with
orders being hit on change in pre-qualification norms, in our view. We expect
PGCIL orders to pick up further in March, which historically sees the highest
amount of ordering. For FY11, we would expect orders to be flat to marginally
positive compared to last year’s order flow of INR119bn.
Competitive intensity remains high
There is no let up in competition across segments. Within transformers, the
Chinese (TBEA Shenyang and Baoding) have not been able to win any orders
in FY11; however, Hyosung increased its share to 27% at the expense of
Crompton Greaves. Within substations, the Indian MNCs (ABB, Areva and
Siemens) have managed to recapture 50% share (38% share in FY10), which
could indicate the first signs of consolidation in this segment. Within
transmission lines, KEC International along with Tata Projects, SPIC and EMC
garnered 70% of the orders; Jyoti Structures and L&T have not received any
orders from PGCIL in FY11.
Valuation and picks
The sector has seen a sharp de-rating over the last few months on a slowdown
in ordering along with macro concerns on rising commodity prices and interest
rates. Resumption in ordering from PGCIL may be the first signs of a reversal
in this trend. Our top picks in the sector remain Crompton Greaves and BHEL,
while we maintain a SELL rating on ABB India.


Real Estate – Turning attractive but catalysts awaited:: RBS

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While sector fundamentals remain weak, we see limited downside as Property stocks now
trade at 50-60% discount to NAV and at low P/B of 0.4-0.7x (DLF at 1.3x) compared to
historical high of 4-6x. While positive newsflow (wage hikes, hiring, etc) have started, we
await more such triggers to upgrade the sector

UBS:: Dish TV India- Rajasthan govt waives entertainment tax

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UBS Investment Research
Dish TV India
Rajasthan govt waives entertainment tax
􀂄 Entertainment tax waived in Rajasthan with immediate effect
The state government of Rajasthan has waived DTH operators from paying
entertainment tax in a notification dated 9 March 2011. Previously, an
entertainment tax of 10% of revenues was levied on DTH operators. As per the
Telecom Regulatory Authority of India (TRAI), Rajasthan has less than 2m cable
homes, which constitutes c3% of all Indian cable homes.

Indian Life insurance – sector data update (April- Feb 2011) :: RBS

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During April-February 2011, the retail-weighted new business premium (RWNBP) for the industry
as a whole declined 3% yoy to Rs417bn.
During the same period, Life Insurance Corporation of India (LIC) saw 10% yoy RWNBP growth
to Rs217bn while private players posted about 15% yoy RWNBP decline to Rs200bn.
During the same period, among the stocks under our coverage, HDFC Standard Life registered
18% yoy RWNBP growth while ICICI Prudential Life and SBI Life saw 18-20% decline.

Coal India- Better way to play India’s booming energy demand :: Religare

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Coal India Ltd
Better way to play India’s booming energy demand
We consider Coal India (CIL) to be the best play on the rising coal deficit in the
country. Over the next three years, we expect CIL to register an 18% CAGR in
EPS driven by a substantial expansion in EBIT margins from 19% in FY10 to 29%
in FY13. Margin expansion will likely be led by improved realisations (5%),
labour efficiency (3%), a focus on beneficiated coal (1%) and technology
upgrades (1%). We value CIL at 10x FY13E EV/EBITDA, given its unique position
in the country (with ~82% market share), led by a defensive business model and a
strong balance sheet. Further, given its utility-type earnings profile and lower
correlation with international coal prices, we believe it deserves a higher
valuation multiple than a commodity stock. We initiate coverage on the company
with a BUY rating and a price target of Rs 400.

UBS: Mundra Port and SEZ- Wins another port terminal project

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UBS Investment Research
Mundra Port and SEZ
Wins another port terminal project
􀂄 To develop 6.5mt coal terminal at Vishakhapatnam port
This Rs3bn project has been won through a competitive bidding process and will
be constructed in 24months. Though this is a small project given MPSEZ’s size
and would have regulated returns (terminal is in a major port and tariffs would be
determined by the Tariff Authority for Major Ports), it is a positive development as
MPSEZ establishes presence on the eastern coast.

UBS :: Ranbaxy -Mylan sues US FDA on Lipitor

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UBS Investment Research
Ranbaxy
Mylan sues US FDA on Lipitor
􀂄 Mylan sues US FDA on Rbxy’s Lipitor ANDA
Mylan has filed a case against US FDA alleging that: 1) That FDA has not made
public its stand on Rbxy’s Lipitor ANDA and whether it is covered by the AIP at
Paonta, leading to potential delays in launch of generic for Lipitor 2) Rbxy is
ineligible for marketing exclusivity due to unreliable data and info. contained in
the ANDA filing. 3) Thus, Mylan and other generic players launch of generic
Lipitor therefore should not be blocked by Rbxy’s exclusivity.
􀂄 Mylan case seems similar to the Apotex case on Aricept
We see parallels of this case with the Apotex case on Aricept with Eisai where it
made similar allegations regarding Rbxy’s Aricept filing. The court dismissed
Apotex’s request for declaratory judgement as 1) the co. failed to show that Aricept
generic will be indefinitely delayed due to regulatory issues at Rbxy. 2) Since the
180-day exclusivity is intended by law there is no case for allowing ‘prompt
launch’ of other generics, prior to expiration of the 180 day exclusivity.
􀂄 Trading at bear case value; Risk- Reward favourable
Our bear case of Rs 430 per share assumes Rbxy will forgo its exclusivity for
Lipitor, Caduet, and Actos and long term profitability will remain depressed.
(Please refer to Ranbaxy “Compelling risk/reward; close to bear case” dated Mar 7,
2011). We expect timely approval and launch of Lipitor generic for Rbxy.
􀂄 Valuation: Maintain Buy, PT Rs 630
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume an 11% WACC.

UBS: BHEL --Meeting with management—key takeaways

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UBS Investment Research
Bharat Heavy Electricals Limited
Meeting with management—key takeaways
􀂄 We met with BHEL management yesterday in Delhi
We met with Bharat Heavy Electrical Limited (BHEL) management to get an
update on the company. This was our first meeting with the company post Q3
FY11 results. We also discussed the outlook for the power generation equipment
manufacturing sector. We remain positive on the company after our meeting.

Goldman Sachs: Oberoi Realty : Buy on favorable risk-reward profile from high visibility

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Oberoi Realty (OEBO.BO)
Buy Equity Research
Reiterate Buy on favorable risk-reward profile from high visibility
What's changed
We met with management recently and re-assessed the key risks to our
assumptions. Takeaways include: 1) Oberoi Exquisite II launch. Launched at
Rs10,000/sqft vs. ongoing Phase-I pricing of Rs11,500/sqft. We believe lower
pricing will help accelerate sales. 2) Commerz-II. Construction has reached 26th
floor of about 30 floors, with completion due around April 2012. We assume
rentals to start in 4QFY13E. 3) Splendor Commercial. Management indicated
that they are looking for large anchor clients for this building. 4) New launches.
Two key launches in Worli and Mulund scheduled for 1HFY12. We forecast
these projects to contribute meaningfully only in FY13E. 5) Land acquisition.
Management stated they will be selective given the regulatory and interest rate
environment and will look to deploy cash balances over the next 12 months.
Implications
Given the rising interest rate environment, we analyze risks to our PAT/RNAV
estimates. We split the projects into three categories: (I) Ongoing and sold real
estate, leased properties and cash balances, (II) Unsold/non-leased portion of
ongoing projects, and (III) other properties. Our analysis suggests category I to
be 36% of our FY12E RNAV or Rs118 vs. the stock’s last closing price of Rs228.
Category I projects account for 63% of our FY12E PAT. Given the high visibility
to our RNAV/PAT estimates, we believe the stock’s risk-reward is favorable.
Valuation
We keep our FY11-13 EPS estimates largely unchanged at Rs17.11,
Rs22.54, and Rs30.44. We think Oberoi Realty’s current valuations are
attractive given the company’s sector-leading ROEs: (1) Currently trading
at 30% discount to our FY12E RNAV of Rs327, (2) 1.9X FY2012E BV vs. ROE
of 19%, and (3) FY2012E P/E of 10.1X vs. sector average of 10.7X. Our 12-m
target price of Rs327 is unchanged (set at par to FY12E RNAV).
Key risks
Lower than expected volumes, delayed project launches, policy changes in
Mumbai.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Attractive

Deutsche bank,:: Cairn: Production ramp-up in 2HCY11; Buy

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Cairn India: Awaiting approvals; production ramp-up in 2HCY11 [Harshad Katkar]
Cairn Energy Plc announced its full year results for 2010 today. Cairn Energy has now guided for exit-CY11 oil production at Rajasthan of 165k bpd. This is lower than the 175k bpd guided by Cairn India management in their Q3FY11 (December 2010 quarter) conference call. The cut in guidance is likely on account of delay in getting approval for increasing Mangala peak production to 150k bpd from 125k bpd currently. The company, however, has reiterated its belief that the total resource base at Rajasthan supports a combined potential oil production of 240k bpd, subject to further investment and Government of India (GoI) and JV partner approvals.
Industry update: Indian auto sector: Takeaways from plant visits of five players [Srinivas Rao]
We covered around 65% of India’s car manufacturing capacity in our recent visits to the facilities of Hyundai, Ford, General Motors, Volkswagen and Maruti. Our key takeaways: 1) sector leaders Maruti and Hyundai face capacity constraints in the medium term and have to trade domestic market share for exports; 2) indigenization is a key priority for other players to close the profitability gap with sector leaders; 3) supply constraints at vendors have eased over last 6 months; 4) except for Maruti’s Gurgaon plant, all others are capable of three-shift operations.
India Economics Weekly: Monetary policy and inflation [Taimur Baig]
RBI committee report on operating procedure of monetary policy. The RBI formed a committee last year to review the framework of monetary policy operation. The recommendations of the committee, published earlier this week, include: Repo rate should be the single policy rate to signal monetary policy stance. The optimal width of the policy rate corridor should be 150bps.
India Equity Strategy: Indian market reaching an inflection point? [Abhay Laijawala]
Barring oil prices and any systemic risk arising from the fallout of the nuclear accident in Japan, we believe that the sharp underperformance of the Indian equity market (YTD Sensex has underperformed MSCI Asia by 700bps) may be bottoming. We see the markets reaching an inflection point in April-May and a directional shift upwards setting in, during 2H2011. Apr-May are likely to be important for the Indian equity markets on account of (1) release of Indian monsoon forecast by Meteorological Department.
US Daily Economic Notes: Weakening dollar is fueling goods inflation [Joseph LaVorgna]
The Fed is showing considerably less inclination to exit its current monetary policy stance compared to many of our key trading partners. As a result, the broad trade-weighted dollar continues to depreciate in large part due to expectations of a widening interest rate differential. As of the middle of March, the nominal trade-weighted dollar was at a cyclical low-down roughly 5% from year-ago levels. The inflation-adjusted trade-weighted dollar is at a multi-decade low. We are concerned about the strength of the dollar, because it directly impacts import prices and eventually can translate into higher consumer prices-as the following chart illustrates. The correlation between the trade-weighted dollar and import prices is particularly robust (84%) after adjusting for a three month lead on the former.

Shilpi Cable , PTC India Financial Services ; IPO Grey market Premium: March 26, 2011

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Company Name
Offer Price
Premium

(Rs.)
(Rs.)
PTC India Financial Services
26 to 28
Discount
Shilpi Cable 
65 to 69
 4 to 5



  

Reliance Industries Ltd (Overweight) Gas output to decline: JP Morgan

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• RIL indicates potential reduction in supply: RIL has reportedly
(CNBC) responded to the Directorate General of Hydrocarbons (DGH)
on the issue of gas output from the KG-D6 field, saying that unless
changes are implemented in the block, output is likely to decline further.
We estimate a ~11.5% cut in EPS with lower output, all else remaining
equal.
• Output could drop to ~47mmscmd: In the absence of further
development inputs, output from the D1-D3 areas of the block could
drop to ~38mmscmd (from ~44 currently). Output from the MA area is
~9mmscmd.
• Additional inputs may help: RIL said the above estimates do not factor
in potential success from ongoing workover and additional physical
inputs to existing wells – which could help boost output from these
wells.
• Negative for sentiment and near term earnings…: Newsflow on the
E&P business will continue to influence stock performance. With a drop
in output (as opposed to a rise we factor), FY12 EPS could be ~11.5%
lower.
• …but should not impact value for the E&P business: BP’s entry into
the block (among others) provides a floor valuation to this business, in
our view. With large experience, and greater access to details of the
block, BP is well placed to judge the potential of KG-D6 – and would
seek to generate value for its stakeholders for the price it paid for the
assets.
• Buying opportunity: The refining business remains strong, and PX
spreads have spiked due to the supply disruption and FM from major
Japanese producers. We estimate that a sustained rise in PX spreads (up
$220/MT w/w and likely to sustain at higher levels) could significantly
mitigate the loss of earnings from lower gas output. We re-iterate our
Overweight rating on the stock.

The ICC Criket World Cup Prediction: England Wins!! Says Bull Guru

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Games Remaining 5:

Quartefinal:
SL VS Eng: --- ENGLAND wins


Semifinal:
NZ vs Eng --- ENGLAND wins

Ind vs Pak -- Pakistan wins

Final

Pakitan vs Eng --- ENGLAND wins


Is Bull Guru right? We'll see in a week...

Hope Not ..as we WANT INDIA TO WIN!!!

PTC India Financial Services IPO price set at Rs 28

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PTC India Financial Services IPO price set at Rs 28

at Upper band of Range Rs 26 to Rs 28

Unitech - What's the land value? At least Rs 62/share: Upgrade to Overweight:: JPMorgan,

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Unitech Ltd
▲ Overweight
Previous: Neutral
UNTE.BO, UT IN
What's the land value? At least Rs 62/share, in our  view.


What's your land worth?- The discrepancy between UT’s stock price and
inherent land valuation is wide at the moment. Vs. Sep-10 even as the
stock has declined 60%, physical prices in two of its key markets Gurgaon
/ Noida have been heading northwards. Marking only two prime land
holdings on the company’s book to market (conservatively), we estimate
land value at Rs192B or a 1.7x multiple on its land cost. This is over a 4-5
year holding period implying a 12% CAGR inflation. Net of liabilities this
translates into a value of Rs 62/Share. The stock then is trading at a 40%
discount to its land value, which we believe is CHEAP. Upgrade to OW.
• In calculating the land value, we have re-valued just two large
parcels in the company’ portfolio, viz. 1) 900 acres of high value land
parcels along the company’s traditional stronghold of Sohna Road,
Gurgaon region. (Land transactions at Rs 35-100MM/Acre vs. Book
value Rs 15MM/Acre) and 2) Noida land holdings especially on its 350
acre parcel in Noida (Grande). This is a prime piece of land, 20 minutes
away from South Delhi, but where monetization has remained slow.
Transaction rates around this parcel have ranged from Rs130-
200MM/Acre (Book value Rs 49MM/Acre).
• Liquidity is not really a issue with the company having pre-sold
approx. Rs 95B of property over the last two years (FY10/11). We
estimate UT has yet to receive Rs 30B cash flows from these (net of
construction/taxes). This coupled with its annuities of Rs2B should cover
large part of its repayments, implying no stress in the business.
• Earnings ramp up will be the key trigger- UT’s bookings run rate over
the last two years has been at Rs10-12B per Q. However, revenue
recognition from RE continues to lag at Rs5.5B per Q. As FY11/12
projects contribute to revenues progressively over FY12E, we forecast
earnings ramp up can be meaningfully high (JPM FY12E +90% Y/Y).
• Upgrade to OW, Mar-12 TP Rs 60/share, based on 10x FCFE and in
line with current land value estimate. The upgrade is primarily due to the
removal of discount on FV given issues on telco (25% previously).
While there is still no clarity on it, newsflow on the same has started to
subside.


What’s driving returns? A Du pont analysis of land bank
A simple returns (ROCE) and Du pont analysis of UTs returns shows that
1. Gurgaon region is the current cash cow in the company, driving over 70%
of the EBITDA.
2. Noida’s Grande parcel (large MTM value but low monetization) could be a
future earnings driver, but near term faces competition from Jaypee, in our
view. While UT has created value here just by sitting on land, better
monetization may help the market better understand the potential of this
asset.
3. In the rest of India, parcels (Hyd/ Chennai etc) is where the main problem
lies. While the company has approx Rs 55B land cost on these, EBITDA
contribution of the same is sub 10%. The returns here could be scaled up
using Unihomes model. However as of now the scale up is not as high as we
would like it to see. Even assuming a 14% ROCE as base case, we estimate
the company needs to generate Rs 7B as EBITDA. Assuming an average
ASP of Rs2,200 psf and margins of 20%, we forecast under Unihomes the
company needs to sell close to 16 msf just to achieve that. Against this the
company's current sales run rate is around 3-4 msf only.


INDIAN FINANCIALS: Fuelled to fly; top picks SBI, ICICI Bank, PNB, IndusInd Bank, Yes Bank :: Motilal Oswal

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INDIAN FINANCIALS: Fuelled to fly; top picks SBI, ICICI Bank, PNB, IndusInd Bank, Yes Bank
Loan growth of ~20%, operating leverage and fall in credit cost will drive banking sector's profitability over FY12 and FY13. Margins, even with some moderation from their peaks in 3QFY11, would be above/near the average level of FY04-09. Higher recoveries could provide positive surprise to earning estimates (write-offs were aggressive over FY09 and FY10 to keep reported GNPAs lower). We expect banks to report 20%+ earnings growth on an aggregate basis and return ratios to be healthy with RoA of 1.1%+ and RoE of ~18%. Valuations at P/E of 8x and P/BV of 1.3x for PSU banks and P/E of 16x and P/BV of 2.3x for private banks are at the five-year average multiples, despite strong core operating performance expected. Our top bets are SBI, ICICI Bank and PNB. In the mid-cap space we like Indusind Bank and Yes Bank.