05 July 2011

Indian IPOs and NCDs (bonds)- (grey market) Listing premium expectation

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Company Name
Offer Price (Rs)
Expected Listing Price Premium
Shriram Transport Finance  Bond
1000
3% - 4%
IFCI Bonds
10,000
2% - 3%
Birla Pacific Medspa
10
1
Rushil Decor
72
Discount
Readymade Steel
90 to 108
1
Bharatiya Global Infomedia
75 to 82
1- 1.50


Bharti Airtel:: `Downgrade to Underperform ::CLSA

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Downgrade to Underperform
Bharti Airtel has outperformed the market by 42% on expectations of
improving fundamentals for India’s 2G business and ramp-up in Africa
operations. While we do see these playing out, in the medium term we do
not see any upside to our near term earning estimates. 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.
We see 2G’s improvement and 3G subscribers in estimates.
In India’s 2G mobile segment, there have been withdrawals of freebies and
promotions, with eased competitive pressures but no tariff increase yet.
Meanwhile, we see discounts/counter offers for post-paid subscribers in the wake
of mobile number portability (MNP). Consequently, we estimate blended revenue
per minute (RPM) declines will moderate from 4% QoQ over last eight quarters to
less than 1% QoQ in FY12-13CL (flat including 3G). In the medium term, we
expect Bharti to gain share (from impending consolidation). For now Bharti has
seen 130bps YoY and a 374bp slip in revenue market share from the peak of
33.9%. India 2G penetration is at 69% and 55% even after adjusting for 20%
dual sims and therefore the focus is now on 3G. Here, despite an encouraging
start, 3G exasperation is inevitable with a mere 5MHz spectrum in 2.1GHz in only
13 of 22 circles across India. Limited spectrum is forcing voice/VAS and not 3G
data offering despite an unmatched opportunity in 1% broadband penetration.
Our estimates already factor in 19m 3G mobile subscribers for Bharti in FY13CL.
Africa’ target 12%QoQ Ebitda growth ambitious
While in Africa over a year after Bharti’s been running 16 country
operations subscribers are still at 44m subscribers (42m on acquisition), revenue
has not grown and Ebitda is down 15% YoY. Further despite competitive financing
of US$9bn acquisition debt (at ~200bps above Libor), Bharti registered US$350m
in losses. Meanwhile, management has maintained its 2013 target of 100m
subscribers, US$5bn in revenue and US$2bn in Ebitda for the region which implies
a 12% QoQ growth in Ebitda - a very high ask rate. The company has denied
access to meetings in Africa while our own visit suggested significant challenges,
such as usage pattern in the region may change only over time. Consequently, we
maintain our estimates at a 33% discount to management’s target.
Crumbling tower valuations and risks.
India tower valuations have crumbled with drought of third-party tenancies, low
3G rentals of 10-15,000 monthly and an imminent shakeout of weaker players.
Our Bharti tower valuations are 35% discount to the deals of 2008 and imply
US$87,000 EV per tower; we see no value unlocking here for now. Bharti’s ROIC
has dropped 19ppts from the peak to 10% and turns only in FY13CL. Bharti will
have US$6.6bn in free cashflows over the next three years to aid deleveraging of
US$14bn in debt but looming large is US$5-6bn risk of regulatory payments on
spectrum and NTP 2011 is now delayed to the end of year. Also should the
interest burden be just 1ppt higher, over our estimate of 4.2% (with 80% of debt
being foreign) earnings will be 6% lower. At 18x FY12CL earnings and 8.4x
EV/Ebitda (> 50% premium to peers) with no upside to our earnings estimates
and the stock at our target price, of Rs395 we downgrade our rating from
Outperform to Underperform.

July 5 -8:: Forthcoming Board Meetings

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July 5, 2011







Company
Purpose

Company
Purpose

Company
Purpose
Confidence Trad
Bonus, Dividend, Increase in Authorised Capital, Preferential Issue of shares

Galaxy Conso
Results

Suashish Diam
Results
ECE Inds-$
Buy Back of Shares

Oscar Invest
Results











July 6, 2011







Company
Purpose

Company
Purpose

Company
Purpose
Asahi Songwon
Dividend, Results

Surat Textile
Results



Shirpur Gold
Results

UB Engineering
Results











July 7, 2011







Company
Purpose

Company
Purpose

Company
Purpose
Aksharchem-$
Results

Neuland Lab
Rights

Silver Oak India
Results
Avantel
Results

Pitti Laminations-$
General

Urja Glob
Results
Gandhimathi App
Dividend, Results

ROCKON FIN
Results, Stock Split











July 8, 2011







Company
Purpose

Company
Purpose

Company
Purpose
Chowgule Steam
Results

Goa Carbon-$
Results

Mafatlal Fin
Results
Compact Disc
General

Granules India-$
General

Priyadarshini Spn
Results
CRIMSON
Preferential Issue of shares

HDFC
Results

Vintage Cards
General
GLOBAL OFFS-$
General

Indusind Bank
Results





Shriram Transport Finance::Priority Sector for Securitized Loans: Status Quo Continues; But Outlook Still Uncertain --, Morgan Stanley Research,

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Shriram Transport Finance Co. Ltd.
Priority Sector for Securitized Loans: Status Quo Continues; But Outlook Still Uncertain 
Quick Comment: The Reserve Bank of India has
released the master circular on bank lending to micro,
small and medium enterprises (MSMEs). The circular
specifies that investments by banks into securitized
assets will continue to be eligible for classification under
priority sector (direct or indirect). Hence, it could be
interpreted that the status quo of priority sector status for
STFC’s securitized loans continues. We believe that
given the nature of master circulars (see details below),
impending RBI committee recommendations (on NBFCs
and priority sector norms) – the outlook on whether there
will be further regulatory changes still remains uncertain.
What are master circulars? Every year (on July 1) –
RBI releases master circulars on various aspects related
to bank regulation. The master circulars are issued “to
enable the banks to have current instructions at one
place, a Master Circular incorporating the existing
guidelines/instructions/directives on the subject has
been prepared and is appended. This Master Circular
consolidates the instructions issued by the RBI up to
June 30, 2011, which are listed in the Appendix, to the
extent they deal with the MSME sector lending by
commercial banks.”
The language in this year’s master circular on priority
sector status eligibility for securitized loans is the same
as that published in last year’s master circular. Given
that the master circular is a one-stop summary of the
current guidelines and that RBI hasn’t issued any new
guidelines notifications/clarifications on this issue – the
language should have ideally remained unchanged.


RBI committee recommendations could provide more
clarity:  The RBI has two committees whose recommendations
could have a bearing on this issue –1) The Reserve Bank has
constituted a Working Group to examine the regulatory
framework pertaining to NBFCs in India. This committee was
expected to submit its recommendations by June 2011. 2) RBI
is appointing a committee to re-examine the existing
classification and suggest revised guidelines with regard to
priority sector lending classification (no timeline is indicated on
this).
Why is this potential regulatory change important for
STFC? STFC currently accesses about 2/3 of their total
funding from the banking system – about 22% via “on-balance
sheet” funding and the balance of 40% via securitized loans
(see Exhibit 1 for funding mix breakdown). In May 2011, RBI
has already removed the priority sector status for STFC’s
on-balance sheet funding. This has created uncertainty about
whether securitized loans would also face a similar change.
The funding via securitization (Rs. 165 bn, 40% of total)
historically has enjoyed a lower cost of 150-200 bps
(incrementally the benefit has been lower at 100-125 bps) as
they helped banks fulfill direct priority sector requirements. In
addition, securitization as a funding source has additional
benefits in the form of lower capital requirements and reduction
in duration mis-match (spreads on these loans are locked in).
Hence, if removed/curtailed it could have implications for
profitability, margin volatility and capital utilization at STFC

Forthcoming Results -July 5 to 8th

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July 5, 2011
Company
Galaxy Conso
Company
Oscar Invest
Company
Suashish Diam
Company
Company
July 6, 2011
Company
Asahi Songwon
Company
Shirpur Gold
Company
Surat Textile
Company
UB Engineering
Company
July 7, 2011
Company
Aksharchem-$
Avantel
Company
Gandhimathi App
ROCKON FIN
Company
Silver Oak India
Urja Glob
Company
Company
July 8, 2011
Company
Chowgule Steam
Goa Carbon-$
Company
HDFC
Indusind Bank
Company
Mafatlal Fin
Priyadarshini Spn
Company
Company

Director‟s Cut --Digging deep -Macquarie Research,

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Director‟s Cut
Digging deep
The issue of corporate governance is ever present but is rarely tackled head-on.
Jake Lynch reminds us that corporate governance problems have been present
since the opening of China. But after years of living with the occasional blow-up,
the market is suddenly awash with accusations and small caps with even a whiff
of corporate governance concerns are seeing sharp share price declines.
In a detailed 120-page report, Jake discusses the problem and reviews some of
the techniques he uses to address the problem. These include grilling CFOs on
their ERP systems and gauging the extent of delegation within the organisation,
as it‟s easier to shuffle accounts when one person is running the show. The
alerts go higher the more complex the accounts, and he is particularly wary of
„growth by acquisition‟ stories.
In terms of positive factors to look for, he likes simple, focused strategies, teams
that combine old-timers and new blood from multi-nationals, robust ERP
systems, long-standing quality auditors and long track records. >> Read Report
Another report looking at the ESG side of financial analysis is Aimee Kaye’s
evaluation of employee engagement within Australian companies. The note
builds a comprehensive view of staff engagement across Australian companies
and the implications for investors. One of the key findings of her research is that
Australia‟s banks stand to make significant cost savings if they can reduce their
levels of staff turnover. >> Read


Highlights
 Rebecca Hiscock-Croft says US growth is slowing and inflation rising but we
are not headed for a period of stagflation.
 Max Layton remains bullish on copper through the second half; our top
copper picks are Freeport (FXC US) and Jiangxi Copper (358 HK).
 Hayden Atkins says China‟s rising auto use is bullish for PGMs, with Impala
(IMP SJ) and Anglo Platinum (AMS SJ) the top picks.
 Michael Sohn remains positive on Hyundai Motor (005380 KS), rating it as
his top Korean auto pick and a Macquarie MarQuee Buy Idea

FII & DII trading activity on NSE and BSE as on 05-Jul-2011

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FII trading activity on NSE and BSE on Capital Market Segment
The following is combined FII trading data across NSE and BSE collated on the basis of trades executed by FIIs on 05-Jul-2011.
FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
CategoryDateBuy ValueSell ValueNet Value
FII05-Jul-20112666.561841.04825.52
Domestic Institutional Investors trading activity on NSE and BSE on Capital Market Segment
The following is combined Domestic Institutional Investors trading data across NSE and BSE collated on the basis of trades executed by Banks, DFIs, Insurance, MFs and New Pension System on 05-Jul-2011.
DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
CategoryDateBuy ValueSell ValueNet Value
DII05-Jul-2011984.371882.86-898.49
 
 


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FII DERIVATIVES STATISTICS FOR 05-Jul-2011

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FII DERIVATIVES STATISTICS FOR 05-Jul-2011 
 BUYSELLOPEN INTEREST AT THE END OF THE DAY 
 No. of contractsAmt in CroresNo. of contractsAmt in CroresNo. of contractsAmt in Crores 
INDEX FUTURES23936671.8729666829.9743883312344.77-158.10
INDEX OPTIONS1019762847.31927802605.33109213030757.16241.98
STOCK FUTURES22933662.24459301297.21106007230079.46-634.97
STOCK OPTIONS10219278.6711137301.4220944559.39-22.75
      Total-573.84


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