A closer look at the Brazilian cane harvest : Macquarie

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A closer look at the Brazilian cane
harvest
Feature article
 Sugar prices have been defying the bearish tone afflicting the softs complex
since May to rally up 10c/lb to 3-month highs of 29c/lb. Ignoring the risk of
macro fears or indeed the looming global sugar surplus expected for 2011/12,
prices have been supported by Brazil’s lower than expected cane crop. We
take a more detailed look at just how poor Brazil’s crop will likely be, and if the
recent rally is justified.
Latest market update
 Sugar continued to ascend on the back of speculator buying and short
covering. At a time of general withdrawal of risk-averse speculators from
commodities, sugar futures saw the managed money net long position rise
over 60% from mid May to late June. We continue to think that prices will
ease off, in view of our 8mt global sugar surplus projected for 2011/12 (this,
despite our downward revision of Brazil’s supply highlighted in this report).
After the July expiry, we would expect the build-up in net length to be
vulnerable to a sell-off – particularly as we move closer to the Northern
hemisphere harvest times. While pockets of bullish news still pop up (eg,
China still has pent-up import buying, while the US has raised its import quota
to 1.68m short tons for Oct/Sep, and could increase it again in the new
season due to delayed US beet plantings and very dry conditions in Mexico),
we see more bearish risks ahead. Ramadan related buying is over, early
indications for the FSU beet crops are very good, and ahead of a looming
domestic surplus, India has allowed 500,000t of additional OGL exports, with
more under discussion.
 Coffee futures rallied this week to 265c/lb on news of frost emerging in parts
of Parana, Brazil. We do not think any damage will occur, but at a time when
most speculators are net short the NY market, any supply-side risk at a time
of still-tight inventories could trigger a sharp reversal in prices which had fallen
steadily lower to 240c/lb last week from the May peaks. Extreme tightness for
Asian origin Robustas continue to support high physical premiums over
London futures. According to the USDA, Vietnam will grow a record 20.6m
bags in 2011/12, up 1.9m bags from 2010/11, but Indonesia is forecast to
produce 7.9m bags, down 1.4m bags from the previous crop.
 Cotton futures suffered alongside grains and other commodities with macro
risk aversion. However, week US export sales data and the USDA’s bearish
acreage report released today pushed Dec 11 cotton even lower to $1.17c/lb.
All cotton planted area for 2011 is now estimated at 13.7m acres, compared
to the March estimate of 12.57m, and some 25% above last year. However,
considering that the increase in planted acreage falls predominately in Texas,
a state that remains victim of a severe drought, we suspect that hardly any of
this “added” acreage will materialise into additional production. With more
than a quarter of the US cotton crop in bad condition, we are expecting a high
rate of abandonment, with many Texans having already torn out their plants
this month in order to collect insurance money.

Global Horizon -Fed cooks up second half sizzle \:: Macquarie

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Global Horizon
Fed cooks up second half sizzle    
Event
ƒ We update our equity risk premiums models for the US, Europe and emerging
markets. The risk premium is equal to the estimated Internal Rates of Return
(IRR) for each market calculated using Macquarie’s Composite Discount
Model, less the relevant 10-year government bond.
Impact
ƒ The risk premium for emerging markets is 7.7% relative to US bonds, which
is more than 1 standard deviation above the mean. Historically (1995 to 2011)
the average 12-month forward return in similar periods is 31%, although the
volatility of returns is also higher at almost 50%.
ƒ There are two important points to note in regard to the EM risk premium. 1)
Forward 12 month returns in EM are positively related to the level of the risk
premium (see chart on left), which is a contrast to the US, where the volatility
of returns increases with the premium. 2) There is a strong negative
correlation (minus 84%) between the EM risk premium and US bond yields,
which suggests emerging markets will perform better when US interest rates
rise, and money flows from bonds into US and global equities.
ƒ After rising over the start of the month as equity markets declined, the United
States equity risk premium ended the month back where it started at 5% as a
result of a month end rally in equities and a rise in bond yields. At 5%, US
equities are on the cheap side of fair value.
ƒ The equity risk premium for Europe relative to German bonds was 7% at the
end of June, up ~30 basis points over the month. While more than 1 standard
deviation above the mean, it’s critical to note the series shows little mean
reversion, and currently, the risk premium is trending higher.
Outlook
ƒ We continue to expect improved growth and sentiment to drive a second half
rebound. That said, we see ongoing market volatility in coming months and,
while nearing the end of the move, we still suggest a defensive strategy with
some key picks being: Telefonica (TEF SM), RWE (RWE GR), Sainsbury
(SBRY LN), Verizon (VZ US) and Sanofi (SAN FP).
ƒ The results of our research into the equity risk premium confirm the
conclusion of our global strategists that emerging markets are likely to be the
strongest performers in the anticipated second half rebound in equity markets.
We expect the countries with the most upside will be externally focused
economies such as Korea and Taiwan.
ƒ Given the link with US bond yields and EM returns the direction of US yields is
a key catalyst for upward momentum, and the next signal on rates is likely to
come at the Fed’s Jackson Hole meeting in August. Talk that higher rates are
needed would be positive for global equities, as changes in Fed policy are
generally a good leading indicator, and our research suggests emerging
market equities have the most leverage to a rebound.

UBS:: India Power Utilities -- 11 coal blocks de-allocated in one month

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UBS Investment Research
India Power Utilities
11 coal blocks de-allocated in one month

„ Event: coal ministry has de-allocated 11 blocks for power companies
According to a release from the coal ministry, the government has de-allocated 11
coal blocks, which were allotted for power generation. The companies that have
been affected by the de-allocation are: NTPC (five blocks), APGENCO (three),
Jharkhand SEB, Damodar Valley Corporation and Baidyanath (one each). Overall,
government companies (10 out of 11 blocks) have been impacted the most.
„ Impact: scrutiny on non-development of coal blocks likely to increase
We believe that the government is becoming more serious on the issue of nondevelopment/slow progress on the  blocks that were allocated to the companies.
Although there are concerns that the process of de-allocation has not been
consistent, there is little doubt that the development of captive blocks has not been
fast. This cancelation of blocks would be a positive for the sector because we
believe the companies may become more proactive on timely development of
captive blocks.
„ Action: we prefer companies with low fuel supply risk
We believe the impact on NTPC would be limited as the company operates on fuel
cost pass-through basis, which is not at risk. Overall, in the scenario of negative
developments on domestic coal availability for utilities, investors may look for
companies that have fuel cost pass-through (NTPC, Reliance Infra) or utilities with
access to domestic captive fuel (Reliance Power).
„ Our top pick: Power Grid, rated Buy
We prefer Power Grid and Lanco. We also have Buy ratings on NTPC, Tata Power
and Reliance Infra.

UBS:: India Power Utilities -- 11 coal blocks de-allocated in one month

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UBS Investment Research
India Power Utilities
11 coal blocks de-allocated in one month
 
„ Event: coal ministry has de-allocated 11 blocks for power companies
According to a release from the coal ministry, the government has de-allocated 11
coal blocks, which were allotted for power generation. The companies that have
been affected by the de-allocation are: NTPC (five blocks), APGENCO (three),
Jharkhand SEB, Damodar Valley Corporation and Baidyanath (one each). Overall,
government companies (10 out of 11 blocks) have been impacted the most.
„ Impact: scrutiny on non-development of coal blocks likely to increase
We believe that the government is becoming more serious on the issue of nondevelopment/slow progress on the  blocks that were allocated to the companies.
Although there are concerns that the process of de-allocation has not been
consistent, there is little doubt that the development of captive blocks has not been
fast. This cancelation of blocks would be a positive for the sector because we
believe the companies may become more proactive on timely development of
captive blocks.
„ Action: we prefer companies with low fuel supply risk  
We believe the impact on NTPC would be limited as the company operates on fuel
cost pass-through basis, which is not at risk. Overall, in the scenario of negative
developments on domestic coal availability for utilities, investors may look for
companies that have fuel cost pass-through (NTPC, Reliance Infra) or utilities with
access to domestic captive fuel (Reliance Power).
„ Our top pick: Power Grid, rated Buy
We prefer Power Grid and Lanco. We also have Buy ratings on NTPC, Tata Power
and Reliance Infra.

India Utilities - Environmental Clearance for a Few Coal Blocks :: Morgan Stanley Research,

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India Utilities
Environmental Clearance for
a Few Coal Blocks
We believe the stance of the Ministry of
Environment and Forests is easing to an extent:
Over the last two weeks the MoEF has given Stage I
approval and/or reclassified “no-go” areas into “go”
areas for eight coal blocks. It has set the ball rolling on
pushing through some of the key approvals that have
been holding back development activities on various
power projects.
With this, some blocks will be eligible to apply for Stage I
clearance (once a mining plan is submitted, which can
take 10-18 months to prepare). Others with Stage I
clearance can apply for final clearance (Stage II) which
will succeed a public hearing, assuming all conditions
the MoEF specified are met. Hence, the timeline for final
clearance would still depend on the merits of each case.
On June 23, the MoEF granted Stage I approval to Tara,
Parsa East and Kante Basan coal blocks in Chhattisgarh,
overruling the decision taken by the Forest Advisory
Committee. Today the Ministry re-categorized five coal
blocks as “go” areas (Exhibit 1). The common reasons
for granting these approvals are:
1. There has been a substantial change in the mining
plan, thus reducing the requirement of very dense
and medium dense forest land.
2. The Ministry of Power and respective state
governments have been persistently following up
with the MoEF on these approvals.
3. The ultimate power projects are based on
supercritical technology, which is low on carbon
emissions.
4. All approvals come with the usual conditions on
monetary compensation, afforestation and wildlife
management.    

Buy Bharti Airtel: Management visit note: Competitive environment continues to improve::Credit Suisse,

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Bharti Airtel Ltd.-------------------------------------------------------------- Maintain OUTPERFORM
Management visit note: Competitive environment continues to improve


● We recently met Bharti Airtel management to get an update on the
business. Management reiterated its belief that pricing power
should return to the sector and RPMs could start increasing.
Recent tariff action by Tata Docomo supports this belief, in our
view. Overall, competitors have been withdrawing promotional
offers from the market, explained management.
● With increasing industry focus on revenue earning customers
(versus SIM card sales), the overall industry net adds could
become muted in the near term. However, this may not affect the
reported revenue growth for the industry.
● While recent quarters saw a number of margin depressants for the
company that prevented margin expansion from scale, these are
now largely behind us.
● Response to 3G continues to remain strong, and we remain
comfortable with our estimate of 9 mn 3G subs with Rs120 ARPU
for FY3/12. We reiterate our OUTPERFORM rating on Bharti.
We recently met Mr Harjeet Kohli, Group Treasurer and IR Head at
Bharti Airtel.
Expect industry net adds to slow, no impact on revenue
growth
Management indicated that the industry has been changing focus
from sales of SIM cards to revenue earning customers (RECs),
especially after TRAI started regularly reporting VLR subscribers. As a
result, the industry could start showing muted net adds now (due to
lower gross adds). Management stated that Bharti has already been
focussing on RECs for long. Since the reduction is focused on nonRECs, the impact on revenue growth for the industry could be
negligible.
We note here that this is already evident in Bharti’s net adds, which
have declined to an average of 2.4 mn per month for April and May,
compared to 3.2 mn in the preceding six months. We believe the rest
of the industry could follow suit (rest of GSM industry showed a slowdown in net-adds to 7 mn in May versus earlier run-rate of 12 mn+).
Explaining the drop in the TRAI reported market share numbers for
Bharti in the March 2011 quarter (120 bp QoQ decline, see our note
dated 19 June 2011), management indicated that the reported
numbers have many distortions due  to (1) intra-circle roaming
revenues for some operators and/or (2) AGR related reporting
between operators. Bharti management focuses on internally
calculated core revenue market share, which remains robust.
Reiterated positive outlook on pricing
Management reiterated its earlier view (please see our note  Bharti
Airtel Notes from the AIC: pricing power to return soon dated 28
March 2011) that pricing power should return to the industry leading to
RPM increase. We highlight recent pricing improvement by a key
competitor – Tata Docomo – in this context (please see our note
Indian telecom Sector: Nationwide tariff increase by Tata Docomo
could signal end to competition dated 19 June 2011). Overall,
management hinted at slow but steady removal of promotional tariffs
by competition in the market.
Even without building RPM increase, management explained the pace
of RPM decline has declined to a manageable level where scale
benefits should drive margin improvement. The recent quarters have
not seen margin improvement due to factors such as surge in network
rollout (after government cleared equipment imports), rebranding and
higher churn. These impacts are largely behind us and hence margin
pressure should abate, explained management.
Response to 3G continues to be promising
Bharti’s 3G network is currently present in 50+ cities, with a target of
reaching 400 cities by September 2011. We note here that the
company seems to be exceeding its earlier schedule, as management
had given a target of 400 cities only by March 2012 during our AIC
(see the 28 March report mentioned above).
While these are still early days on 3G uptake, Bharti’s 3G subscriber
base has crossed 3 mn. The incremental ARPU’s remain high as
earlier indicated (management had indicated US$3-4 incremental
ARPU during our AIC). Bharti also has a good proportion of prepaid
customers in the 3G subscriber base.
While management acknowledged that backhaul investments need to
be made to meet 3G data demands, this is already built into the
guidance of US$1.9bn for India (+South Asia) for the year.
Repayments on acquisition debt to continue
Management is confident of continuing to pay down the acquisition
debt since the consolidated business is generating free cash flow. The
repayments on the acquisition debt are due between two-to-four years
from now, with the bulk of prepayment taking place in later years.

JSW Steel - FY11 annual report: Acceptances increased; sharp increase in beneficiation::Credit Suisse,

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JSW Steel ------------------------------------------------------------------- Maintain UNDERPERFORM
FY11 annual report: Acceptances increased; sharp increase in beneficiation


● We present key takeaways from the FY11 annual report.
● Acceptances are classified as current liabilities, and not included
in debt when looking at EV/EBITDA. At about Rs68 bn (US$1.5
bn, Rs300/share) in FY11, they increased by Rs18 bn YoY, but
have been US$1 bn+ since FY09. With the Vijaynagar expansion
now getting commissioned, they should impact net debt.
● With the beneficiation plant starting, use of high grade ore fell
from 80% in FY10 to 30% in FY11. Utilisation of lower grade ore
meant rise in consumption/tonne of steel by 13% YoY to 2.02 from
1.79. Thus, the average cost of procurement of Rs2,800/t
(~US$60-65/t) for JSW needs to be raised ~20% while comparing.
● Efficiency of crude production was better, but that of HR flats fell:
net net, total power consumed fell despite 7% rise in volumes (Fig
3). Despite higher internal power generation and gas recovery
(minor), cost/kwh increased and power cost per tonne of steel
sold increased US$5/t (INR appreciation also played a role).
● Our UNDERPERFORM rating is based on rising debt levels for
projects that will add to future EBITDA, and profit pressures.
JSW Steel released its FY11 annual report recently. Key takeaways:
● Should acceptances be considered as debt? Classified as
current liabilities, these are not included in debt numbers when
looking at EV/EBITDA. At about Rs68 bn (US$1.5 bn) in FY11,
they increased by Rs18 bn YoY, but have been US$1 bn+ since
FY09. With Vijaynagar expansion now getting commissioned, they
should drop and impact net debt. As they include payables linked
to capex, potential impact valuation is significant.
● Iron ore: With the beneficiation plant starting off, use of high
grade ore fell from 80% in FY10 to 30% in FY11. Utilisation of
lower grade ore meant rise in consumption/ tonne of steel by 13%
YoY to 2.02 from 1.79. Thus, the average cost of procurement of
Rs2,800/t (~US$60-65/t) for JSW needs to be raised by ~20%
when making comparisons, as the ‘normal’ ore/steel ratio is 1.7.
● Sales mix: FY11 sales mix saw more HRC (49% of volumes
versus 31% in FY10) and less slabs (Figure 1). Other value-added
products remained largely the same (Figure 1). The overall
premium to HRC price was higher than FY10 (by ~US$35) due to
higher premium realised on value-added products

Cairn-Vedanta Deal -- Gets Conditional Approval ::Morgan Stanley

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Cairn-Vedanta Deal Gets 
Conditional Approval  
Quick Comment:  Cabinet Committee of Economic
Affairs (CCEA) today gave conditional approval for the
Cairn-Vedanta deal, which was announced in August
2010. The two most important conditions are: 1) Royalty
to be made cost recoverable on its Rajasthan fields; and
2) The ongoing arbitration case related to cess must be
withdrawn. Additionally, the Oil Minister commented that
it has to be accepted that there will be no litigation
related to the above conditions.
Our view: Although the deal is approved conditionally,
Cairn India’s board is yet to decide on whether to accept
these conditions. While Cairn Energy and Vedanta
control ~80% of voting rights, we believe that Board of
directors and minority shareholders may not accept
these conditions. In its recent earning releases, the
company has explicitly communicated that its board
would not accept any pre-conditions related that would
affect the value of the business negatively.
Potential impact on Cairn India: Assuming royalty to
be cost recoverable, our price target would be lower by
13% or Rs58 to Rs371 still implying upside of 20%. We
see earnings downside of ~18% for F2012 and ~19% for
F2013. Withdrawal of cess arbitration will not have any
impact as we already assume Cairn to pay cess
Stock already discounting the outcome; we remain
positive: At current levels, the stock is discounting oil
price of US$80/bbl (with royalty). Even assuming royalty,
valuations for F2012e would still be attractive at a P/E of
7x, EV/EBITDA of 4.1, and FCF yield of 13.9%, still
among the cheapest globally.
Impact on Sesa Goa: Assuming the deal goes through,
we would view this overall as negative for the stock. Our
price target would be lowered by ~7% and earnings
could go down by ~4.5% for F2012 and 5% for F2013.
However, the sentimental relief is that its investment of
18.5% in Cairn India would not end up being just a
strategic one and instead the Vedanta Group would take
control of Cairn once its stake is increased to 58% post
the deal completion

BHARTI AIRTEL - Tone deaf:: With no upside to our target price we downgrade to Underperform. :: CLSA

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Bharti Airtel has outperformed the market by 42% on expectations of
improving fundamentals for India’s 2G business and ramp-up in Africa
operations. At 18x FY12CL earnings, we believe the stock is factoring in
these positives but not adequately recognising risks of US$3.5bn of
regulatory payments for spectrum,  licence renewals and US$2-3bn for
compulsions to complete spectrum footprint. Bharti’s ROIC has dropped
19ppt to 10% and turns only in FY13CL. With no upside to our target price
we downgrade the stock from Outperform to Underperform.

News This Week ::BofA Merrill Lynch, June 27 – Jul 1, 2011.

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News This Week
Economics
„ The centre hiked the price of diesel by Rs3 a litre, kerosene Rs2 a litre and
cooking gas by a steep Rs50 a cylinder. – Media
„ Cumulative rainfall was excess/normal in 26 and deficient/ scanty in 10 out of
36 meteorological sub-divisions, with overall rainfall in country above 11% of
the Long Period Average -- Media
„ Merchandise exports from India in May grew by an enormous 56.9%, at $25.9
billion, while imports too surged, to $40.9 billion, up 54.1% yoy. --Media
Corporate
„ Alstom bagged a contract worth Rs18.4bn in consortium with HCC from Tehri
Hydro Corp to construct a 1,000 MW hydro power plant in Uttarakhand.
„ ABG Shipyard has received a Rs9.7bn order from the Indian Navy for
construction of two cadet training ships. – Media
„ Punj Lloyd has won a Rs8.3bn contract from GSPC for a submarine pipeline
project in an exploration block on the country's East Coast. –Media
„ Wipro is now eligible to apply for becoming a vendor for World Bank, as the
four-year ban imposed on the software major ended this month. -Media
„ Hero Honda is expected to announce the location and investment details for
its proposed fourth plant within the next few weeks. - Media
„ Wockhardt has received tentative approval from the USFDA to market
Olopatadine hydrochloride eye drops in the American market. -Media
„ Maruti Suzuki India reported an 8.8% decline in total sales, to 80,298 units in
June from 88,091 units in the same month last year. – Media
„ Pfizer Inc has sued Mumbai-based Aurobindo Pharma over the generic
version of Lipitor. – Media
„ The CCEA has granted conditional approval to Vedanta Resources to buy
Cairn India. – Media
„ ACC shipments in June rose 7 percent from a year earlier, to 1.91 million
tonnes.  – Media
„ NTPC would invest around Rs66bn for setting up a coal-based power project
at Kanpur, on which the work is expected to start in January 2012. The
proposed 1,320 Mw project is likely to come up at Bilhaur, near Kanpur in
Uttar Pradesh. – Media
„ To kick-start power capex and support SEB financials by offering low-cost
captive coal-based power, Ministry of Environment and Forest (MoEF) has
cleared nine captive mining projects of ~2.5bn T geological reserve in the last
week, of which eight blocks were in the 'no go' zone. – Media
Source: Collated from Bloomberg and following news papers - Economic Times, Live Mint,
Business Standard & Financial Express dated June 27 – Jul 1, 2011.

Lupin – FY11 annual report - key takeaways:: RBS

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Lupin FY11 annual report dwells more on its strong FY11 show and throws limited light on its
future growth strategy. We are positive on the stock due to its favourable business mix, strong
core earnings prospects and ANDA pipeline. At the CMP, upside appears limited and we would
recommend buying only on dips.

US, India and Japan to be the key growth drivers
Focus on expanding branded US formulation business: Formulations sales in the US market
were Rs 20.8bn (+21% yoy) during FY11. Generics represented 70% of overall US sales, with
the US Branded Business making up the balance. In FY11, the US brand business reported
revenues of US$133m. During FY11, Lupin ramped up its US sales force to over 170 given
the focus on growing Antara. Lupin's specialty sales forces would address both Pediatricians
and Primary Care Physicians and provide the company significant headroom to increase
branded sales in the US. Lupin further aims to strengthen its branded portfolio with valueadded line extensions and will continue to invest in developing new products built on its
proprietary advanced drug delivery technologies. The company is also on the look out for
acquiring brands to fast track its formidable branded presence.
Japan business on strong wicket: Kyowa, Lupin's subsidiary in Japan, posted robust net sales
of Rs6.2bn (+16% yoy) and accounted for 11% of Lupin's FY11 revenues. The company
continues to ramp up its operations in Japan having launched 6 new products and filing
applications for another 8 during the year.
In the emerging markets, India remains the main growth driver and a critical focus market.
India contributed 27% of gross sales at Rs15.7bn (+16.5% yoy) during FY11. This growth was
driven by strong performance and increasing market share in the CVS, Diabetes, CNS,
Asthma and Gastro therapeutic segments. As per ORG IMS Mar-2011 data, Lupin is currently
the 7th largest Indian domestic formulations company having registered growth of 13.8%
during FY11 and has an overall market share of 2.7% of the Indian Pharma Industry.
Lupin's subsidiaries in South Africa and Philippines doing well too: Pharma Dynamics, Lupin's
subsidiary in South Africa remains the fastest growing top 10 generic company in the market,
recording growth of 38% in revenues to Rs1.8bn. Pharma Dynamics is now ranked 6th
amongst the generic pharmaceutical companies in South Africa with a clear leadership in the
cardiovascular segment. Lupin's Philippines subsidiary, Multicare Pharmaceuticals, grew by
28% during FY11. As a premium branded generics company, Multicare as built a strong
position in the women's health and the paediatric primary segment


Balance sheet position strengthens
Lupin has strengthened its balance sheet position further, by driving efficiencies in working
capital position and reducing leverage. The holding period for net working capital turnover has
reduced from 90 days (end-FY10) to 83 days (end-FY11) and for Debtors from 86 days to 80
days. Despite capex of Rs4.8bn, gearing has declined from 0.37x (end-FY10) to 0.22x (end-
FY11).
Strong ANDA pipeline
During FY11, Lupin filed 21 ANDAs with the US FDA and believes to maintain its position as
one of the top 10 ANDA filers for the US market. The cumulative number of ANDA filings now
stands at 148, with 48 approvals received till date. Lupin has 77 Para IV filings with 20 of
them being first-to-file (FTFs) opportunities.
Focus on building and partnering IP based technology platforms: Lupin extended its
arrangement with Salix Pharmaceuticals by granting worldwide rights (excluding India and
select geographies) to Salix for its proprietary bioadhesive technology for Rifaximin.
Buy only on dips as we expect limited upside from current levels
Favourable business mix: US, India and Japan account for 35%, 27% and 11% of FY11
revenues, respectively. We remain optimistic on robust US business due to: (a) rich product
portfolio in US, (b) second-largest ANDA pipeline among peers (100); (c) deepening presence
in niche segments (OCs, opthalmics, oncology). We expect domestic formulation to do well
too with its incremental focus towards chronic and lifestyle product portfolio. Kyowa could also
benefit from increased generic penetration post the recent calamities in Japan
Challenges remain but we believe opportunities outweigh them: We witnessed initial signs of
weakness in its US branded business during 3QFY11 but management attributed it to nonoperating factors. Also, launch delays took place in AllerNaze (earlier Sept 10 to now Sept 11)
and Oral Contraceptives (OCs) from 1HFY12 to 2HFY12. However, Lupin remains confident
of its US growth as seen by its move to expand its US field force. It expects Suprax upside to
continue in near term which coupled with AllerNaze launch in 2Q-3QFY12 should drive US
business
We expect strong core earnings growth (19% over FY11-13F) and RoEs (25%+): Due to
weakness in US brand business (Lupin's key differentiator), we value Lupin at a 5% discount
to peers. Lupin core business (Rs458/sh) valued at 20.4x FY12F EPS (5% discount to
sector). Para IV pipeline valued at Rs7/sh (post 20% execution risk discount) which yields our
TP of Rs465

Coal India – Sweet spot coming to an end:: RBS

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Coal India is to make provisions for wages increase of up to 24%, although these are subject to
negotiation. However, 1QFY12 earnings should be robust (possibly hitting a peak) on the back of
price hikes in February for non-power customers. Timing of future rises is uncertain


Volumes remain subdued, but we expect earnings to peak
After an initial pick-up in sales volumes in the early part of the quarter, rake availability has
dropped sharply from a high of 190 in April to 162 currently. We expect 1QFY12F production to
have lagged targets and come in at 92-95mt (2-5% yoy growth) and dispatches to be at 100-
105mt (4-7% yoy growth). Heavy rainfall in the early June could hit volumes. However, earnings
should remain robust on the back of price rises in February 2011, the full effect of which should
be felt in 1Q. We expect 1Q EBITDA of Rs53.1bn, up 50% yoy.
Pricing issues need to be addressed
Coal India’s opaque pricing mechanism results in lumpy earnings and there has been a definite
departure from the past practice of raising prices once every two years. The price rise in February
was done selectively and based on a new principle of ‘market prices for customers selling goods
at market prices’. As a result, the bulk of power customers, representing about 80% of volumes,
have been virtually untouched. Rather we are hearing noises from the Power Ministry asking Coal
India to give away its cash cow, the e-auction business’ which covers 10-11% of volumes, but
close to 25% of the profitability.
Staff costs matter, expect a 24% pay hike. Sell, TP of Rs315
The wages of more than 350k workers at Coal India are due for revision from 1 July 2011. But the
talks can take several months to conclude. Over the last five years staff costs have risen at a
CAGR of 13.2%, while the top line and net income risen by CAGRs of 11.8% and 12.2%. We
expect staff costs to increase 24%, but due to past price hikes, the impact on earnings should be
limited, in our view. The stock trades at substantial premium to international peers. Sell.

1 July 2011: News headlines :: The Royal Bank of Scotland ::RBS

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News headlines 

Oil & Gas   

Cairn-Vedanta deal gets government nod; ONGC to have the last laugh (Economic Times) 

Petrol rates to go up by 27p, diesel by 15p (Economic Times) 

GAIL proposal after a few more meetings: Partha Chatterjee (Economic Times) 

Ad hoc subsidy sharing hurts profitability, cash flows: ONGC (Economic Times) 

Petronet LNG eyes US suppliers for liquefied natural gas: CEO (Economic Times) 

Petronet LNG looking to set up liquefied natural gas terminal on east coast (Economic Times) 

GAIL proposes naphtha cracker plant in PCPIR (Business Standard) 

Banks  

IOB raises base rate to 10.25% (Economic Times) 

Pharma 

Fortis to open 25 low cost hospitals under new brand in 3 years (Economic Times) 

Pfizer sues Aurobindo Pharma over Lipitor (Business Standard) 

Cipla's pet product infringes patent: US court (Business Standard) 

Commodity 

India Cements' MD Srinivasan increases stake in company (Economic Times) 

Coal committee to submit report in 15 days (Business Standard) 

Birla Corp plans capacity expansion (Business Line) 

Tata Sons pledges 10m shares of Tata Steel (Business Line) 

Consumer 

FMCG companies rule out price cut despite fall in raw material costs (Economic Times) 

Retail/ Real Estate 

DLF to focus on plot and villa launches (Live Mint) 

DLF plans to sell stakes in Pune, Noida IT parks for Rs13bn (Economic Times) 

IT & Telecom 

After Infosys & Wipro, TCS on I-T radar for claiming sops on onshore work (Economic Times) 

Switzerland firm to deploy TCS banking IT suite (Economic Times) 

Will Hewlett Packard break up due to pressure from investors? (Economic Times) 

Wipro to provide IT solution to UK-based OnStream (Economic Times) 

Wipro eligible to apply for vendor status: World Bank (Business Standard) 

Gartner sees 7.1% rise in global technology spend this year (Business Line) 

Power, engineering & infrastructure 

NTPC buys 5m tonnes coal from SCCL at extra price (Economic Times) 

Alstom, HCC win Rs1.8bn hydro power contract (Economic Times) 

NTPC to invest Rs66bn in coal-based power project (Economic Times) 

GMR speeds up work on Rs260bn Kakinada SEZ (Business Standard) 

Automobiles   

Suzuki Motorcycle sales up 42% in June (Economic Times) 

French tyre maker Michelin to hike tyre prices from tomorrow (Economic Times) 

TVS Motor plans to revive assembly unit in Bengal (Business Line) 

Bajaj Auto to launch more Pulsar models in Indonesia (Business Line)

India IT Services Jun-11 Quarter Preview :: Morgan Stanley Research,

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India IT Services
Jun-11 Quarter Preview
Maintain In-Line industry view with Infosys and
HCLT as the key Overweight-rated stocks going into
Jun-11 quarter results.
Quick Comment: We believe Infosys’ qoq improvement
in the Jun-11 quarter will ease skepticism about its
revenue and margin outlook. With low forecasts, Street
expectations for Infosys’ full year should start to inch up
from F1Q, in our view. For Wipro, in the event of an in-
line F1Q and muted F2Q outlook, we believe consensus
EPS estimates for could move down. We expect TCS to
deliver another strong quarter, but full-year estimates
have little room for upside, thereby limiting any further
re-rating for TCS, in our view. Of the other stocks, we
prefer HCLT and remain cautious on Mphasis and Patni
due to company-specific margin concerns.
Will Infosys revisit its F2012 guidance? We believe
Infosys’ cautious view of the macro-economic outlook in
its key markets could overshadow underlying business
trends, leading to a muted guidance revision. We expect
Infosys to guide for 20-22% yoy USD revenue growth
margin guidance to -200bp yoy (from -300bp yoy earlier)
and EPS of Rs131-133 for F2012.
Overall for the coverage universe, we expect F1Q
USD revenue growth of 25% yoy, margin decline of
90bp yoy, and net income growth of 16% yoy due one-
time steep increase in effective tax rates from the Jun-11
quarter. Compared to the last quarter, we expect larger
vendors to deliver strong revenue growth of 5-6% qoq.
Cross currency to benefit revenues; wage hikes and
rupee would drag margins: Cross currency (depreciat-
ion of USD vs. GBP of 1%, EUR/AUD vs. USD of 4%),
would help revenues by 0.5-0.7% qoq. However, rupee
appreciation of -1% qoq vs. USD would affect margins
by 30-50bp. Further, wage hikes could drag margins
further in F1Q for Infosys and TCS. Wipro will have one
month of wage hikes in F1Q, leading to a lower margin
hit. We expect lower margins and higher tax rates
(effective from Jun-11 quarter onward) to lead to lower
net income qoq in F1Q for our companies.


Infosys: We believe Infosys could surprise positively on
revenues in the Jun-11 quarter. Consensus expects Infosys to
meet its USD revenue guidance for F1Q excluding cross-
currency benefits. We forecast USD revenue growth of 5.2%
qoq for Infosys, and would not be surprised if it delivers growth
higher than our expectations. Infosys’ guidance assumes F4Q
pricing. Higher-than-expected price realizations could surprise
positively, helping its outlook.
TCS could deliver yet another strong quarter, and is well
placed to achieve ~25%+ revenue growth in F2012, in our view.
We forecast TCS to deliver revenue growth of 5.6 % qoq with
margins declining by 160bp qoq due to wage hikes.  So far,
TCS has delivered on high margin expectations. Consensus
estimates for F1Q of 27.3% (-70bp qoq) and F2012 margins of
27.8% (flat yoy) appear stretched to us and could come down
in the coming quarters.  The effective tax rates could increase
for TCS from the current quarter onward, leading to net income
declining by 4% qoq.
HCLT: We expect HCLT to grow Jun-11 quarter revenue by
5.5% qoq and end F2011 with revenue growth of 31% yoy.
Management indicated that it would improve margins in the
June quarter by ~100bp qoq. We forecast EBIT margin of
14.8% (+90bp qoq). HCLT will likely be the only company
within our IT services coverage to report net income growth
qoq. We expect all the other companies to show a decline in
net profit qoq due to lower margins owing to wage hikes and an
increase in effective tax rates.
Wipro: Wipro is likely to deliver organic revenues in line with its
guidance (US$1,394-1,420mn), in our view. The SAIC
acquisition would add another US$8-10m for two weeks in 1Q.
The full impact of the acquisition should come in 2Q (additional
US$48-50mn in SAIC revenues), as Wipro could guide for
revenue growth of 5-6% qoq. The organic revenue growth
guidance would be ~2-3% qoq below that of Infosys, in our
view. We expect Wipro’s IT services margins to decline by
60bs qoq in the Jun-11 quarter due to rupee appreciation
against USD of 1% and the impact of wage hikes effective from
June 1 for one month.

Hindalco Industries (HALC.BO) Buy: “Mahaan 1 ” Or Not:: Citi

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 Maintain Buy — We reiterate our Buy as: 1) The stock’s 30% fall YTD more than
accounts for plant delays and higher cost coal/petro derivatives; 2) The steady margin
profile of Novelis should sustain & is an attractive proposition; 3) Aluminium is our
preferred metal with downside cost support; 4) Copper TC/RCs likely to maintain firm
trends seen in the last few weeks (helps FY13 EPS); 5) We see high likelihood of the
uncertainty of Mahan captive coal lifting soon. This is our preferred Indian metal play.
 Revising TP — Our cons FY12-13E EPS is cut 25/13% and we reduce TP to Rs234
(from Rs268) taking into account: 1) Delays in plant completion for Mahan/Utkal; 2)
Higher capex and higher debt levels for Utkal/Novelis (higher plant costs/planned
capex); 3) Higher interest costs. We continue to value Hindalco standalone at 8.5x PE
(Rs108) but roll forward to Sep12 (from Jun12) & other businesses at 7x EV/EBITDA
(Rs107). Our TP now includes an explicit value for the Mahan project (Rs18) where we
assume captive coal by FY14. If captive coal is unavailable, the TP falls to Rs213. At
our TP of Rs234, Hindalco would trade at 7.5x Sep12 EV/EBITDA and 13.5x PE.
 Update on expansions — Hindalco is among the lowest-cost aluminium smelters
globally (capacity 500ktpa), with captive power, bauxite and 30% of its own coal.
Hindalco’s 359kt Mahan (M.P.) smelter is likely to be commissioned in end-CY11.
Capacity will rise to 917ktpa by FY13 (includes 48kt at Hirakud) and to 1.28mt in FY14
(adding on 359kt at Orissa). Its 1.5m tpa Utkal alumina project in Orissa is likely to be
commissioned by 2H2012. We assume delays beyond management announcements.
 Novelis' strategy — 1) Enhancing volumes – plans to raise capacity from 3mt to 4mt
by FY16, with near-term growth of 3-4% pa; 2) Lowering costs – closing inefficient
operations and transfer of assets; 3) Product focus – on cans (58% of sales volumes)
where demand is fairly inelastic and on auto and industrial electronics. All of this should
enable steady margins, as a good complement to the parent’s commodity business.
 Risks — Lower margins/volumes; Delays in captive coal; Rupee appreciation.

BUY Larsen & Toubro (LT) OW: Near-term concerns receding ::HSBC Research,

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Larsen & Toubro (LT)
OW: Near-term concerns receding
Announced new orders during Q1 FY12 despite a strong Q4
have surprised us positively
We expect weak commodity prices during April-June 2011 to
help margin pressure concerns recede
Retain OW and TP of INR2,187. We believe news of new
orders will continue to catalyse the share price

Infosys:: Of change and transition ƒ Restructuring on track; BNP Paribas,

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Of change and transition
ƒ Restructuring on track; was needed to achieve long-term goals
ƒ Transformational goal realistic, increased emphasis on IP sales
ƒ BUY, bear case is for stock to stay flat over next 12-months
ƒ But catalyst only in 2Q, hence prefer TCS, HCLT near term

BUY DLF - Moving in the right direction ::RBS

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DLF Ltd
Moving in the right direction
DLF's de-leveraging strategy has kicked off well with successful plot sales in new
Gurgaon and positive newsflow on monetisation of its IT parks. We believe the
interest rate cycle and DLF's debt are peaking out and expect further newsflow
(on asset sales, sales volume) to be largely positive. Upgrade to Buy

QE Jun-11 Earnings Preview: Watch Earnings Dispersion and Pricing Power:: Morgan Stanley

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QE Jun-11 Earnings Preview:
Watch Earnings Dispersion
and Pricing Power
Quick Comment – MS analysts forecast 24% YoY
growth for 114 companies: This compares with growth
of 11% YoY in QE Mar-11. Excluding government-
owned oil companies, earnings are likely to see
deceleration in growth at 14% YoY versus 17% growth
in QE Mar-11. MS analysts expect BSE Sensex
earnings to rise 14% YoY vs. 4% growth in QE Mar-11.
Margin compression in eight out of 10 sectors: MS
analysts expect aggregate (ex-government-owned oil
companies) revenues to grow 25% YoY with a
contraction of 168bp YoY in EBITDA margins. Energy is
likely to see the most margin expansion, while Materials
is likely to see the most contraction in margins. Our
analysts expect strongest earnings growth for Energy (at
156%) YoY followed by Consumer Staples (at 17% YoY),
whereas Utilities and Telecoms are likely to a see fall in
earnings.  
Key observations about our analysts’ forecasts: 1)
Depreciation expenses to rise 17% YoY; 2) net financial
expenses are likely to turn to net financial income (up
from –Rs217mn to Rs2.4bn). About one-third of our
coverage universe is likely to report a drop in net profit
YoY. About 30% of our sample will likely report profit
growth in excess of 25%.
Our view: Earnings dispersion underpins our view that
this is a good stock-picking setting.  The pace of
downward revisions could slow given corporate
fundamentals. Watch out for how companies exercise
pricing power – 38% of our sample is likely to see YoY
margin expansion this quarter. Our proprietary earnings
growth leading indicator signals a mild acceleration in
broad market growth in F2012. For the Sensex, we see
18% growth in earnings in F2012 and F2013. Broad
market earnings could edge higher to 16-17% in the
coming quarters. '

India government oil companies - Sector outlook better now ::HSBC Research

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India government oil companies
Sector outlook better now
Government increases fuel prices by 8-15% and lowers duty
to rein in losses of oil marketing companies (OMC)
We expect net crude realization of OIL to go up by a third,
while net losses of OMCs will be lower
Upgrade OIL to Overweight,  BPCL and HPCL to Neutral and
retain Neutral on IOCL

Cairn India -Sharp fall due to royalty overhang, crude decline :: Macquarie Research

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Cairn India
Sharp fall due to royalty overhang,
crude decline
Event
 Upgrade to Neutral due to sharp fall, despite import duty cut being a
negative: Cairn India is one of the key companies that should be negatively
affected by the EGoM’s attempt to reduce under-recovery without raising
prices substantially. We estimate that the 5% crude import duty cut will hurt
Cairn India’s earnings by 9% for the full year. We nevertheless are upgrading
our recommendation to Neutral from Underperform given a sharp 13% MoM
fall in the stock price.
Impact
 Decline in crude prices has pulled away bullishness in the stock: Brent
crude prices have fallen to ~US$105/bbl from the US$127/bbl levels two
months ago. A major contributor to the fall was the recent IEA pledge to
release 60mm barrels of oil, or 2 million barrels per day, from its strategic
petroleum reserves (SPR). The US alone will provide 30mm barrels, while
20mm will come from Europe and the remainder from Asia. (The global SPR
total surpasses 1.6B barrels). The agency cited lost Libyan supplies as the
primary driver behind the action – just the third time the SPRs have been
tapped in more than 30 years.
 Royalty overhang a concern, as Vedanta deal continues to be in limbo:
Vedanta has already taken an 18.5% stake in Cairn India, of which 8.4% is
through the open offer at Rs355/share and a 10.1% stake sale by Petronas at
Rs331/share, and hence is significantly committed to acquire Cairn. The
Group of Ministers (GoM) appointed by the government's Cabinet Committee
of Economic Affairs (CCEA) recently recommended that royalty should be
cost recoverable. Effectively, Cairn India would have to bear the hit. According
to press reports it would be difficult for the CCEA to ignore the
recommendation of GoM, which it appointed.
Earnings and target price revision
 We are cutting our earnings forecasts by 4–5% for FY12/13 and target price
by 1.4% to Rs300/share.
Price catalyst
 12-month price target: Rs300.00 based on a DCF methodology.
 Catalyst: Clarity on royalty issue.
Action and recommendation
 Even after having declined sharply, the stock is quoting at >US$45/bbl on an
EV/1P reserve basis, due to low 1P reserve on account of limitations of
permissions/leaseholds. With no clarity on the Vedanta deal having emerged
as yet and the CAG (Comptroller and Auditor General, India’s central auditor)
accusing the petroleum ministry of having favoured Cairn India through not
enforcing relinquishment of land as per the production sharing contract, we
anticipate that the stock could remain stuck in ‘no man’s land’ for a while. We
recommend a switch to downstream companies Hindustan Petroleum (HPCL
IN, Rs415.25, Outperform, TP: Rs507.00) and Bharat Petroleum (BPCL IN,
Rs663.70, Outperform, TP: Rs794.00)

Rainfall Trend above Normal, But... ::Morgan Stanley Research,

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India Economics
Quick Comment: Rainfall
Trend above Normal, But...
Rainfall trend in India remained above normal
during the week ended June 29: On a weekly basis,
the total country-wide rainfall weighted by cropped area
was 10% above normal for the week ended June 29
compared to 23% above normal for the week ended
June 22. According to IMD, on an all-India
area-weighted basis, cumulative rainfall was 11% above
normal up to June 29, the same as the previous week.
However, spatial distribution remains uneven: On
an unweighted basis, rainfall for the week ended
June 29 was below normal in the southern (-26%),
western (-6%), and eastern (-5%) regions, and above
normal in northern (+74%) region. The states affected
by below-normal rainfall include Gujarat, Maharashtra,
and Andhra Pradesh, amongst others. Considering that
many of the states have less-developed irrigation
facilities, it will be crucial to monitor the progress of
monsoons over the coming weeks and the crop-sowing
pattern.
Cropped area affected by below-normal rainfall at
22.1%: The most important measure of cropped area
affected by below-normal rainfall stood at 22.1% as of
the week ended June 29 compared to 21.1% as of the
week ended June 22.
Some concern on crop outlook emerging: While
rainfall trend so far is above normal, the uneven spatial
distribution has raised some concerns about the
summer (Kharif) crop outlook. We think that we will have
a better picture of the monsoon trend by around mid-July,
as the bulk of the sowing is done in this month. Hence,
we believe that the first clear assessment of likely
agricultural growth for the year can be made only after
mid-July.

India January-March balance of payments: Current account deficit lower than expected, but capital account worsens :: Goldman Sachs

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The current account deficit declined to 1.1% of GDP in the January-March quarter, well below the 2.1% of
GDP in the previous quarter. The deficit number fell sharply to US$5.4 billion from an upwardly revised US$10.0
billion in the last quarter. The deficit was lower than Bloomberg consensus expectation of US$6.0 billion, and our
expectation of US$10.2 billion. For FY11, the current account deficit came in significantly lower than expected at
2.6% of GDP, from 2.8% of GDP in the previous fiscal year.
A lower trade deficit caused the improvement. The merchandise trade deficit fell to US$29.9 billion from a
US$31.5 billion in the October-December quarter, driven by higher exports, and was the main reason for the
significant improvement in the current account. The invisible surplus also rose by US$3 billion, mainly due to robust
growth from software and transport services. Net exports of non-software services improved but continued to
remain in deficit at US$2.2 billion. This is being driven by business and financial services imports. Remittances
were largely flat (see Exhibit 1).
A significant slowdown in capital inflows. Portfolio investment s fell meaningfully to a US$0.2 billion compared
to US$6.3 billion in the last quarter. Net FDI also remained subdued at US$0.6 billion, same as the previous
quarter. Net external commercial borrowing moderated to US$2.4 billion from a US$3.8 billion in the OctoberDecember quarter. Overall, capital inflows fell to US$8.2 billion as compared to US$13.4 billion in the previous
quarter, lead to a small increase of US$2 billion in reserves.
External ratios remained high. Total external debt increased to US$305.9 billion in end-March from US$261
billion in end-March 2010, an increase of 17.2% in 12 months. Of the total, short-term debt of less than 1-year
maturity has risen by some 20% in the last year, and short-term debt to gross reserves has increased to 21.3%.
Gross reserves, in months of imports have remained at 7 from a peak of well over 10 months in June 2009.
We think the sharp and unexpected improvement in the current account deficit, provides comfort on a key
macro risk. From a high of 4% of GDP in 2QFY11, the quarterly deficit has come down to under 2% of GDP. That
said, we think the ‘underlying’ deficit is more in the region of 3% of GDP, as the last two quarters did not reflect
higher oil prices due to deferred payments. Indeed, the trade deficit has widened significantly in recent months from
a monthly average of US$7 billion in 4QFY11 to US$9 billion in April and US$15 billion in March. Our forecast for
the current account deficit in FY12 is at 3.4% of GDP.
The composition of capital flows and the rise in external indebtedness remain a bit of a concern. FDI fell
sharply by 62% in FY11 compared to FY10, while total external debt increased by 17%, driven by external
commercial borrowings. We would like to see a much more liberalized regime for FDI, and especially movement on
allowing FDI in multi-brand retail to improve the composition of inflows. Although the external debt ratios are still
not very high, we would continue to watch their evolution carefully for signs of latent vulnerability.
The smaller overall balance of payments surplus despite the decline in the current account deficit,
suggests that there are no clear directional pulls for the INR. We have been surprised by the resilience of the
INR against the USD in 2011 despite sharply higher oil prices. However, it has underperformed the region, and has
fallen on a trade-weighted basis. Currently, we think the movement of the INR may remain range-bound as the
overall balance of payments situation remains roughly balanced, with neither a high deficit nor a surplus.

Cairn India - Still no end to uncertainty ::RBS

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Cairn India
Still no end to uncertainty
Cairn-Vedanta deal has been approved subject to royalty cost recoverability. We
maintain Hold and lower our TP to Rs310 to reflect the royalty claim. Using the
current Brent futures curve provides a higher valuation (Rs354), but growth
prospects remain vulnerable to the timing of government approvals.

TVS Motor June 2011 volume: Scooters / mopeds drive growth: Standard Chartered Research,

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 Overall volume up 14% yoy to 182,455.
 Total 2W volume up 14% yoy to 178,633, driven by 21%
yoy growth in scooters and mopeds each; motorcycles
grew at a much slower 7% yoy.
 3W volume up 27% yoy to 3,822 units led by strong
export sales.  
 1Q FY12 volume up 16% yoy to 0.5m units.
 TVS Motor appears the most vulnerable to lose market
share in a rising competitive environment.
 Fully valued at 10.1x FY12E earnings and at 5x
EV/EBITDA. Maintain IN-LINE

TD-LTE: gearing up to cover 2.7bn people in Asia by 2013 ::Goldman Sachs

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TD-LTE: gearing up to cover 2.7bn people in Asia by 2013
TD-LTE adoption is gaining momentum among global carriers
In our view, TD-LTE is becoming the global solution for unpaired spectrum
due to its 3G interoperability, large data capacity, and leverage of the FDDLTE ecosystem. Verizon’s successful launch of FDD-LTE in the US should
further accelerate the conversion of WiMAX to TD-LTE. In June, two more
carriers have joined the TD-LTE camp, which now totals 12 carriers. China
Mobile, Bharti, and Softbank, three major carriers covering 39% of the
global population, look on track to roll out some TD-LTE services in late
2012 or early 2013, and the significant potential of these markets should
attract increasing R&D investment into TD-TLE technology, in our view.
Qualcomm and STE lead in multi-mode LTE/3G semiconductors
Unlike TD-SCDMA, TD-LTE has broad support from various leading global
technology companies and should enjoy a smoother ride, in our view.
Qualcomm’s newly launched MSM8960 is the first mobile processor with
an integrated modem supporting TD-LTE/FDD-LTE/EVDO/WCDMA, and
should significantly simplify the multi-mode LTE/3G handset design. STEricsson’s M7400 is a multi-mode modem that supports TD-LTE/FDDLTE/HDPA+/TD-SCDMA. Our channel checks indicate MSM8960 and M7400
supporting TD-LTE should become commercially available in early or mid-
2012. Also, we note more than 10 other semiconductor firms have invested
in TD-LTE, a much strong line-up than for TD-SCDMA. We expect ZTE and
Huawei to launch multi-mode TD-LTE smartphones by the end of 2012.
Potential winners/losers from a smooth TD-LTE transition by 2013
We view TD-LTE as a disruptive technology similar to FDD-LTE, and that if
it gained sufficient critical mass with successful commercial launch on a
quality smartphone, we think China Mobile could recover its market share
of high-ARPU users at the expense of China Unicom and China Telecom
from 2013. This scenario would be especially negative to China Unicom’s
long-term story of strong operating leverage after reaching 100mn 3G sub
in 2014-2015. In India, Bharti Airtel would likely be the main beneficiary of
TD-LTE due to its strong existing subs base. In Japan, Softbank is the only
carrier adopting TD-LTE. We estimate TD-LTE capex to reach US$15-$20bn
and 40mn terminals over 2012-2014 — with Qualcomm and ST-Ericsson
benefitting as leading multi-mode LTE/3G semiconductor suppliers today.
ZTE should enjoy higher market share in TD-LTE than in 3G, in our view

JPMorgan: Ishaan Real Estate -FY11 results: Portfolio gaining in completed assets; now needs visibility on exits

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Ishaan Real Estate Plc
Neutral
ISH.L, ISH LN
FY11 results: Portfolio gaining in completed assets;
now needs visibility on exits


 FY11  results: Ishaan  reported  adjusted  FY11  NAV/share  of  95.4p  down
2% from  Sep-10 NAV of 97p primarily on adverse FX. Portfolio valuation
(cap  rate  11-11.5%,  WACC  of  16%)  after  adjusting  for  the  construction
expenditure has remained largely unchanged since Sep-10. Ishaan’s stake in
the portfolio as per C&W is valued at £251M vs. its investment of £160M.
 Visbility on exits as yet low: Ishaan now has close to 6 msf of completed
area  and  will  reach  close  10  msf  over  the  next  two  years  (completion  of
under-construction assets). However, visibility on exits of rental generating
assets  remains  low  given  that  demand  for  such  space  in  India  has  not
matured. Vivarea (Mumbai residential project) is scheduled for completion
next  year, and  potential  flow-through  of that to shareholders is the earliest
possible fundamental catalyst for the stock price.
 Lease momentum is  overall  healthy  with  0.75msf  of  space being leased
over the last 6 months. This takes overall leasing to 6.9msf  or 66% of the
ongoing  projects  (11msf).  In  addition to this,  Ishaan has LoIs in  place  for
1.5msf  of space. While incremental leasing moderated in 2H FY11 vs. 1H
(0.7msf in 2H vs. ~2.3msf in 1H); overall FY11 was the best year for Ishaan
(~3msf  leased)  since  the  launch  of  these  projects  in  Mar-07.  Avg  rentals
remained stable  at  30-35psf.  Execution  too  progressed  well  with  rentyielding area doubling to 4.4msf in FY11 (from 2.1msf at FY10 end) and an
additional  1msf  to  be  operational  by  Mar-12.  Assuming  avg  rental  of
Rs35psf, this should generate annualized rental income of Rs2.3B (~£32M).
 Funding  position  is  comfortable with  debt  facilities in  place to  fund  the
construction  of the  entire  under-construction  portfolio. Most  of the  debt is
rent discounting debt so there is limited cash flow stress on projects. Further
net cash of ₤13.6M places it in a comfortable position to start work on future
projects.  Debt  to  portfolio  value  was  reasonable  at  0.4x.  Interest  costs,
however, increased by 200-300bp to 12-13%.
Maintain Neutral: We revise our PT marginally to 76p (vs. 72p earlier) as
we roll forward our timeframe to Mar-13 and factor in revised development
timelines. Our PT is based  on a 25% discount to  our SOTP estimate  given
the lack of trading liquidity on the AIM Market. The pace of office leasing
recovery is a key upside/downside risk to our PT and rating