Stock Strategy: Consider shorting Reliance Industries and NMDC:: Business Line

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Traders can consider going short on Reliance Industries keeping the stop loss Rs 848 for an initial target of Rs 694. Shift the stop loss to Rs 786 if it closes below that level.

Reliance Industries: The outlook for Reliance Industries seemed to be negative as it ended below the crucial support level last week.

The stock now finds immediate resistance at Rs 1,047 and only a conclusive close above Rs 1,141 would change the outlook to positive for stock.

The next support level appears at Rs 694, and it seems the stock is heading towards the support level.

A close below Rs 694 could weaken the stock to Rs 549.

F&O pointers: Reliance Industries futures added fresh short positions in August series.

The futures closed at a marginal premium with respect to the spot close. Reliance futures witnessed a rollover of about 84 per cent to the August series, which is quite normal.

Option trading indicates a slightly negative view for Reliance as calls added more open interest than puts.

Strategy: Traders can consider going short on Reliance Industries keeping the stop loss Rs 848 for an initial target of Rs 694. Shift the stop loss to Rs 786 if it closes below that level.

Traders can also consider writing 840 call that closed around Rs 20.5 on Friday.

While the maximum profit in this strategy is the premium collected, loss could be unlimited if Reliance moves up violently.

So this strategy is advisable only for traders who can afford to take risk. Those who have Reliance underlying stock can also consider this strategy, known as covered call strategy, to hedge their positions.

Market lot for Reliance is 250 shares and writing calls requires margin commitments.

NMDC: The outlook for NMDC is also negative. The stock now finds support at Rs 205 and the next one at Rs 167. The immediate resistance appears at Rs 254. Only a close above Rs 303 would change the outlook to positive.

F&O pointers: The NMDC futures added fresh short positions andsaw a rollover of 83 per cent, which is slightly above normal. Options were not active.

Strategy: Consider shorting NMDC for a target of Rs 167 with a stop loss at Rs 254.

If the stock closes below Rs 205, stop loss could be shifted to that level.

Follow-up: Last week, we had advised traders to consider going long on GSPL.

We remain positive on GSPL and advise traders to hold on to the position with the mentioned stop loss.

We had also advised traders to consider a long in Bank Nifty.

Those who are holding can continue to do so with a revised a stop loss at 10,750.

Cairn India - CAIL puts govt. pre-conditions to shareholders; acceptance (and valuation loss) seems very likely:: Credit Suisse

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CAIL reported 1Q12 EPS of Rs14.3, up 11% QoQ, but 4% below
our estimates. Despite higher oil prices, EBITDA was flat QoQ as
CAIL started sharing profit petroleum with the government.
Entitlement barrels are likely to have fallen c.9% QoQ.
● However, the quarter’s highlight was CAIL board’s decision to put
the government’s conditions on royalties and cess (as part of the
approval for the CNE/VED deal) to shareholders through a postal
ballot. As CNE/VED own far more than the simple majority
necessary, acceptance of the government’s conditions seems
very likely.
● We update our model for: (1) the FY11 annual report, (2)
acceptance of royalty and cess payments, (3) delays at Bhagyam
and (4) rolling forward of the DCF. Our TP falls to Rs342 (from
Rs388). FY12/FY13E EPS fall to Rs45 and Rs53, respectively.
● Beyond the near-term disappointment on loss of valuations for
minorities (we believe most of which is in the price), the market can
look positively at CAIL’s increasing production and crude price
leverage. Corporate strategy under new management (and use of
large cash) remains the key uncertainty. We maintain NEUTRAL.
CAIL’s 1QFY12 EPS at Rs14.3
Supported by strong crude prices, Cairn India reported 1Q FY12 EPS
of Rs14.3, up 11% sequentially but 4% below our estimates. While we
expected CAIL to pay profit petroleum to the government in 1Q, the
amount was higher than expected—we estimate net entitlement
barrels for CAIL fell by 9% QoQ. The Rajasthan field produced at 125
kbopd through the quarter, with crude realisations at c.US$104/bbl.
The discount to Brent was at the lower end of management’s
guidance. Cash flow from operations for the quarter was strong at
US$576 mn, and CAIL’s quarter-end net cash was at US$1.03 bn, up
US$374 mn QoQ. DD&A costs came down 25% QoQ to Rs3.5 bn
(due to one-offs in the previous quarter). Exploration costs fell 42%
QoQ to Rs187 mn (which helped reduce deferred tax liabilities).
Lower-than-expected tax rates (inclusive of MAT credit entitlements)
helped reported profits.


Rolling over on the government preconditions?
The government handed over the conditional approval letter to
CNE/CAIL on 26 July; CNE promptly asked CAIL to put the matter to
shareholders through a postal ballot. While the scheduled results
meeting lasted longer than expected (indicating some amount of
discussion), CAIL board has accepted CNE’s request to put the
government’s conditions to shareholders. As CNE and VED own far
more than the simple majority needed to pass such a resolution,
acceptance of the government’s preconditions (on royalty and cess
payments) now seems to be a matter of time. To some extent, this
ballot does away with the risk of public animosity between the
CNE/CAIL boards, but raises questions on the loss of valuations for
minorities (to facilitate a transaction between the two major
shareholders), despite CAIL management’s claims of strong legal
recourse against the government, and whether the CAIL board could
have done more to protect minority interests.
Update model
We update our model for: (1) the FY11 annual report, (2) acceptance
of royalty and cess payments, (3) delays at Bhagyam and (4) rolling
forward of the DCF. Our target price falls to Rs342 (from Rs388 ) and
would have been Rs400 if the royalties/cess were not accepted.
FY12E/FY13E EPS fall to Rs45 and Rs53, respectively.
We think CAIL’s period of uncertainty can continue for some time, as:
(1) the postal ballot process completes (with the preconditions most
likely approved), (2) the CNE/VED transaction closes and VED gains
control, and (3) regulatory approvals on output and drilling—that are
stuck now—are finally given. Beyond the near-term disappointment on
the valuation loss on royalties (which is already in the price, we
believe), the market can look positively at rapidly growing output (and
cash flow), with CAIL probably going back to tracking crude prices.
However, this may still be around two quarters away. Longer-term
corporate strategy (including use of cash) under new management will
remain a key uncertainty. We maintain NEUTRAL.

Hold HCL Technologies; Target :Rs 535 ::ICICI Securities

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C h a n g e   i n   s t r a t e g y  l e a d s   t o   d o w n g r a d e…
While persistent revenue growth through mining of existing customers
and market share gains is imperative, we believe sustainable operating
margin expansion was essential - in HCL Tech’ case - for PE multiple rerating. Noticeably, the central  theme for HCL Tech’s FY12E/FY13E
revenue growth outperformance rests on the assumption that it gains
market share from incumbent vendors. Though HCL has been successful
at this in the past, we are circumspect as this could pressurise pricing for
renewed deals; eventually impacting operation margins and jeopardises
our central theme of riding operating margin expansion at HCL Tech.
Consequently, we are downgrading HCL Technology from BUY to HOLD.
ƒ Earnings summary
The Q4FY11 numbers were generally in line with our estimate.
Revenues grew 5.5% to | 4,304 crore vs. our | 4,220 crore estimate.
Reported EBITDA of | 794.1 crore on an 18.5% EBITDA margin was
also in line with our | 780.7 crore EBITDA and 18.5% margin
estimate. Net income was at | 511 crore vs. our | 512 crore estimate
ƒ Operating metric highlights
Banking, financial services & insurance, 26% of revenue, grew at
only 2% QoQ in constant currency (CC) vs. 10.5% in Q3FY11.
Energy-utilities & manufacturing had robust growth of 18.7% and
7.6% QoQ, respectively, led  by continued demand. Telecom
continues to be weak with 8.3% QoQ decline vs. 0.3% QoQ decline
in Q3. HCL signed 20 (11 previous quarter) multi-year, multi-million
deals in Q4FY11 coupled with 9,572 gross additions. IT services
attrition declined modestly to 16.5% vs. 17.0% in Q3FY11.
V a l u a t i o n
We are shifting our valuation metric to FY13 vs. FY12 earlier and valuing
HCL Tech at 15x our FY13E EPS estimate of |36.6. The management
commentary of focusing on revenue growth vs. operating margins
jeopardises our central theme of riding operating margin expansion at
HCL Tech. Thus, we are downgrading HCL Tech from BUY to HOLD as we
believe operating margin expansion is essential for P/E multiple re-rating.

The rollover report of July-August 2011 : Angel Broking

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NIFTY futures (71.90%) have witnessed substantially more than average rollover but its open interest monthon-
month has gone down. BANKNIFTY (67.45%) has seen muted rollover. MINIFTY (73.50%) is the only
index to show above average rollover by adding open interest. CNXIT (37.94%) though not a very liquid
underlying has witnessed poor rollover with significant decline in open interest.
In recent correction from 5700+ levels due to 50 basis hike in interest rate by RBI, interestingly FIIs have not
sold in cash market segment. However they have created meaningful short positions in stock futures. We
believe globally the uncertainty level has increased and hence FIIs may not have sold in cash due to lack of
alternate opportunity. After important events unfolding in 1st week of August series, we may see them
coming back into action; buy or sell depending on the outcome of the events.
From options front one can easily interpret that range for the market has shifted down. 5400 is now new
support instead of 5500 and resistance has come down to 5700 levels as of now. The probability of this
range shifting further down within August series is quite high.



Banking and Financials
 AXISBANK (67.46%) has witnessed lowest rollover
in this space along with huge reduction in OI.
Medium term shorts formed in month of April and
May have not got rolled over. Counter may be a
outperformed in its sector.
 HDFC (79.09%) seems to have added short
positions. OI and rollovers both are strong. Any
pull back to 710-715 levels should be use to go
short.
 Many midcap banks have added significant OI in
last series with downward pressure on prices, viz.
BANKINDIA (82.01%), DCB (85.45%),
DENABANK (80.90%), UNIONBANK (79.25%),
etc.
Oil and Gas

 RELIANCE (83.92%) has added huge short

positions. Stock is in strong support zone of 820-

840. We believe this support level may be

challenged in this series. Till then covered call

writing with stop of 790 is advisable.

 Midcap gas stocks were outperformer in last series

but are depicting mixed trends in rollover viz.

PETRONET (53.01%), IGL (75.98%) and GSPL

(79.17%).

 IOC (92.88%) has added significant open interest

with fall in prices and rollover was also high. Look

for short covering bounce between the support

zone of 300-310.

Auto and Auto Ancillary

 TATAMOTORS (87.28%) witnessed mainly short

rollover in Aug series. It saw significant correction,

but could not breach its important support of 925-

935. We may see some bounceback from support

levels but formation of longs are not advisable.

 M&M (74.07%) witnessed mainly short covering.

We may see some shorting in it. Trading with

negative bias is advisable.

 HEROHONDA (63.70%) witnessed less rollover

both in terms of open interest and percentage.

Stock has strong resistance around 1860-1870

levels. We suggest move out of long positions.

Information Technology

 After disappointing result, INFY (77.04%)

accumulated significant short positions. Stock has

strong support of 2700. Avoid forming long

positions as of now.

 WIPRO (78.46%) has significant short positions

and is trading at strong support levels. We may

see a short covering up to 420-425 levels.

 In this sector, TECHM (76.24%) and PATNI

(80.49%) have seen significant unwinding over a

month.

 Mid caps like EDUCOMP (89.84%), MPHASIS

(90.36%), ROLTA (77.52%) and MOSERBAER

(86.97%) added significant open interest.

Consumer Goods and FMCG

 Uncertainty has again creped into the market so

now don’t expect meaningful fall in FMCG majors

ITC (72.80%) and HINDUNILVR (82.71%). Buy on

dips around 195 and 310 respectively.

 Despite significant run-up from 90 odd levels in

TATAGLOBAL (93.90%), we are witnessing high

rollover and formation of long positions. Stock

seems to be heading towards 123-125 levels.

 ASIANPAINT (60.16%) though not very liquid has

seen huge unwinding and very less rollover. 3050

is crucial support for the stock.

Metal & Mining
 SAIL (86.50%) and NATIONALUM (87.96%)
added significant short positions and most of them
got rollover. Stocks continued to form new low.
 TATASTEEL (88.00%) is consolidating around
current levels since quite some time. We do not
expect major change in the counter.
 The 165 level is a very strong support for
HINDALCO (86.64%). Huge short positions got
rollover in it. Buy on dips strategy can be adopted
for the target of 180-185 levels.
 In this space, HINDZINC (68.09%) witnessed very
less rollover. On the other hand, SESAGOA
(85.21%) witnessed high rollover.

Buy - BGR Energy; Target : Rs 471 :: ICICI Securities,

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D r y   s p e l l   f o r   o r d e r   i n f l o w s   c o n t i n u e s …
BGR Energy (BGR) declared an in line set of results for Q1FY12. Revenues
declined ~19% YoY, which were in  line with our estimates. The only
silver lining was better than expected EBITDA margins of 13.1% vs. our
estimate of 11.2%. Expansion in EBITDA margins was owing to higher
share of BoP revenues at 40% in the overall revenues. Also, high working
capital requirement and higher borrowing costs led to 55% rise in interest
costs. Hence, PAT for Q1FY12 stood at | 50 crore, which was better than
our estimates as expansion in margins, to some extent, cushioned the
decline in revenues. Going ahead, we believe a delay in project awards in
the power sector has put FY13E revenue profile at huge risk for BGR.
ƒ FY13E revenue visibility highly dependent on new project awards
Order backlog of | 7500 crore with a book to bill ratio of 1.6x, poses
significant  risk  to  growth  in  FY13E  revenues.  The  management  has
guided for 15% revenue growth in FY12E on the current order backlog.
However, a delay in project awards will put a question mark on growth in
FY13E. BGR has bid for projects worth ~| 20,000 crore and expects some
of them to get finalised by Q2/Q3FY12E. The company expects to execute
significant portion of BoP projects in FY12E. We estimate revenue CAGR
of 11% over FY11-13E.
ƒ EBIDTA margins to inch up on high BoP project execution
EBITDA margins at 13.2% were a key positive surprise for BGR in Q1FY12
on the back of higher share of BoP project revenues. The management
has increased the margin guidance to 12-13% in FY12 as it expects to
execute significant BoP revenues. Similarly, we have revised our margin
estimates to 12.2% in FY12E and 11.3% in FY13E.
V a l u a t i o n
The dry spell of order inflows over the last few years has led to a huge
underperformance in BGR’s stock price. We have revised our earnings
forecast in FY12 and FY13 to factor in higher interest costs and increase in
margins for FY12. We value BGR at 10x on FY13EPS (target reduced from
| 511 to | 471). However, at the same time, note that any significant order
win will lead to a violent re-rating of earnings and P/E multiples.

Canara Robeco Floating Rate fund: Invest:: Business Line

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Reserve Bank of India (RBI) has for the 11th time in 17 months hiked the repo rate by 50 basis points which has surprised market participants and investors. With inflation not expected to moderate anytime soon, RBI is trying to go hawkish in terms of interest rates. This may lead to sustenance of high interest rates for some more time.

Investors can therefore focus on ultra-short term and short-term funds. Canara Robeco Floating Rate Fund (CanRobeco Floater) is one such option which looks attractive for a one year investment horizon. Investors may have to revisit this investment beyond one year as clarity emerges on the long-term interest rates .

For a one year period, the fund delivered returns of 8.4 per cent as compared with the 7.25 per cent return from banks a year ago. . The fund also outperformed its benchmark Crisil Liquid Index .

Suitability: CanRobeco Floater focuses on investments with an average duration (measure of risk) of less than a year thereby protecting returns from high interest rate volatility. The catch, however, is the lower yields on these instruments. Therefore, these funds make for good investments options in scenarios such as the current one where interest rate at the shorter end of maturity are high. This fund is better suited than fixed deposits for investors in higher tax brackets. Investments of less than one year would lead to sub-optimal returns given the effect of short-term capital gains tax.

Portfolio and performance: The fund has been a consistent performer across market cycles. The fund delivered an annualised 7.1 per cent and 7.53 per cent return over three year and five year periods respectively.

The ultra-short term and floating rate funds as a category have delivered average returns of 6.46 per cent and 7.04 per cent respectively during the same time periods.

On rolling return basis, the fund has outperformed its benchmark 100 per cent of the time since July 2007.

However, the risk profile of the portfolio is slightly higher as the fund invests a chunk of its holdings in commercial paper. The fund also suffers from concentration risk with a portfolio of 5-7 securities.

CanRobeco Floater seems to be actively churning its portfolio given that the average portfolio for some time has been around three months. As of June 2011, the average portfolio was 2.6 months with yield-to-maturity of 9.53 per cent. This is indicative of the attractiveness of the rates in the short-term.

The fund is predominantly invested in money-market instruments (92 per cent) with close to 62 per cent in investment grade commercial papers.

The three month certificate of deposits and commercial paper rates have moderated since March 2011, as in the first half of the year, the borrowing activity is low. However, with the current policy tightening spree and higher demand for funds during the second half, the rates may once again shoot up.

The current rates on 3-month CP and CD are 9.45 per cent (annualised) and 9.04 per cent respectively

Aug 1 week -Pivotals: Reliance Industries ,SBI, Infosys, Tata Steel:: Business Line,

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Reliance Industries (Rs 827.7)

RIL failed to move above Rs 900 last week, but instead it reversed lower from its intra-week high of Rs 893. It plunged 5 per cent for the week and is currently testing the lower boundary on the short-term sideways consolidation range between Rs 835 and Rs 900 with a negative bias.

Immediate key resistance for RIL is at Rs 854 and then at Rs 880, Rs 900. Failure to move above the first resistance will be cue for initiating fresh short position with stop-loss at Rs 855. Downward targets are Rs 820 and Rs 800.

The stock resumed its medium-term downtrend that has been on place since April 2011 high of Rs 1,065 levels. Strong fall below Rs 800 can pull the stock further down to Rs 770 levels over the ensuing weeks. On the other hand, an emphatic move above Rs 965 will negate the stock's downtrend.

State Bank of India (Rs 2,342)

After testing the significant medium-term resistance level of Rs 2,500, the stock tumbled Rs 152 or 6 per cent in the previous week making the resistance more significant. The stock has breached its immediate support at Rs 2,400 and is hovering above its next support level of Rs 2,300. It appears to have resumed its medium-term downtrend. Traders with short-term perspective can consider holding their positions with stop-loss at Rs 2,400. Fall below Rs 2,300 will drag the stock down to Rs 2,250 and then to Rs 2,175 levels. Significant resistances above Rs 2,400 are at Rs 2,450 and Rs 2,500.

Medium-term trend is down for SBI from its April peak of Rs 2,959. Only a decisive up-move above Rs 2,657 will mitigate bearish trend and pave way for a rally to Rs 2,700 in the medium-term.

Tata Steel (Rs 565.1)

Testing the resistance at Rs 595 on Tuesday, Tata Steel started to decline resuming its short-term downtrend and fell 3 per cent for the week. Short-term perspective traders can initiate fresh short position with stop-loss at Rs 576. Target for the stock are Rs 559 and Rs 550. However, a move above Rs 576 will entail encountering resistance at Rs 585 and then at Rs 595 which is a key level. Resistances above this level are at Rs 605 and Rs 615.

Intermediate and medium-term trends are down for the stock. However, it has a significant intermediate-term support at around Rs 550. A strong fall below this level will reinforce the downtrend and pull the stock down to Rs 530 and then to Rs 510 in the medium-term.

Infosys (Rs 2,766.8)

The stock retreated 2 per cent in the previous week. As long as the long-term support level of Rs 2,700 holds, traders with high-risk appetite can initiate long positions with stop-loss at these levels. The stock can move upwards to Rs 3,000 in the medium-term. However, strong decline below Rs 2,700 will pave way for a decline to Rs 2,600 and then Rs 2,500 in the months ahead.

The stock is moving sideways in the short-term between Rs 2,710 and Rs 2,840 band. Traders with short-term horizon should tread with caution as long as the stock remains hovering in the aforementioned band. Resistances for the week are at Rs 2,825, Rs 2,850 and Rs 2,900.

Dr. Reddy's -What if the operating leverage upside does not play out?:: Credit Suisse,

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Dr. Reddy's --------------------------------------------------------------------- Maintain OUTPERFORM
What if the operating leverage upside does not play out?


● Dr. Reddy’s is trading at 17x FY13 consensus core EPS and the
stock has been capped in a range of Rs1,500–1,600 for the last
six months. We attribute the muted performance to (1) high SG&A
cost so far that negates consensus expectation of margin
expansion in FY13 and (2) overhang of reduced DEPB benefits.
● Margin expansion is expected (Fig 2) as strong sales growth in
FY12/13 is driven by US generics, which require lower SG&A vs.
branded generics. But operating leverage has not played out as
yet (Fig 3). FY13 guidance of 25% RoCE implies margin
expansion but may include one-offs and hence is early to factor in.
● We note that 100 bp change in EBIT margin changes EPS by
Rs5/share for FY13. At 20x FY13, CMP implies EPS of Rs77 (adj.
for pipeline value of Rs50), which is the reduced value of our
FY13 core EPS (Rs85) if no margin expansion is assumed.
● Pricing pressure in India and import alert on Mexico facility implies
margins may remain subdued for next two quarters. The stock
may be capped in this period unless (1) visibility is provided on
FY13 guidance or (2) operating leverage starts to play out.

Operating leverage expected due to high growth from US…
Strong sales growth in FY12 and FY13 (Fig 1) would be driven by high
growth in the US generics. Gross margin for US generics is lower than
branded generics and therefore overall gross margin of the generics
segment should decline but EBIT margin are expected to expand as
the SG&A required for the US generics is significantly lower than the
branded generics in India and the CIS. The same expectation is built
in CS and consensus expectation for FY13 (Fig 2).

… but DRL yet to reap rewards of operating leverage
Dr. Reddy’s single-digit sales growth on its base business in the last
two years (excluding Sumatriptan and Allegra D-24 Rx opportunities)
meant that it could not benefit from operating leverage. However,
when sales growth was strong at 18% in 1Q12, SG&A expenses
increased by 22%. Management expects high SG&A base in 1Q12 to
be the new base, delaying margin expansion opportunity in FY12.

We found high variation in consensus expectation on EBIT in FY12/13
(Fig 4), supporting different views on operating leverage for DRL. The
25% ROCE target for FY13 implies EBIT margin should reach closer
to 20% but Dr. Reddy’s guidance includes US$400 mn extra sales
over FY13 consensus estimates, which could have one-offs included.

Current price implies no operating leverage upside in FY13
At 20x FY13, the current market price adjusted for pipeline value of
Rs50/share (from Zyprexa, Geodon and Finasteride 1mg) implies EPS
expectation of Rs77/share in FY13. We note that 100 bp change in
EBIT margin leads to EPS change of Rs5/share for FY13. Therefore,
if we were to build no margin expansion in FY13 then our core EPS of
Rs85 in FY13 would decline to Rs77 in FY13. Therefore, the current
market price is not factoring in possible operating leverage in FY13.
Pricing pressure in the Indian business (two consecutive quarters of
low growth and 2Q12 is also expected to be weak) and import alert on
the Mexico facility has meant margins may remain subdued for the
next six months. Therefore, unless the management (1) provides
more visibility on FY13 sales guidance of US$2.7 bn and RoCE of
25% or (2) shows signs of significant control on SG&A expenses, the
stock may remain capped around the current levels for the next six
months.

Index Outlook: Drifting towards critical support:: Business Line,

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Sensex (18,197.2)

Sensex' promenade around 18,500 was brought to an abrupt end by the RBI's aggressive policy rate hike on Tuesday. Stocks fell pell-mell following this move yanking the Sensex 353 points lower in that session. The shenanigans of US law-makers that had financial markets in a state half-way between disbelief and exasperation ensured that stock prices remained subdued for the rest of the week.

Disappointing earnings from some of the front-line companies added to the mood of dejection in the market. The FIIs seemed undecided about the market direction, net buying in some sessions and net selling in others. Derivative volumes crossed Rs 2,30,000 crore on Tuesday and Thursday, in the sessions that witnessed a sell-off in stock prices. July derivative expiry has, however, passed off without too much volatility.

The focus next week is likely to be on the drama in US legislature as the August 2 deadline for hiking the $14.3-trillion debt ceiling draws close. There could be a relief rally if a resolution is accepted by both Houses before the deadline. Progress of monsoon and other macro numbers will be closely watched as the results season tapers to an end.

The short-term trend turned negative last week with the Sensex moving below both the 50 as well as the 21-day simple moving average. The 14-day relative strength index has withdrawn to 41, while the rate of change oscillator has dipped in to the negative zone implying short-term weakness.

The weekly oscillators also declined into negative zone last week. While this could spell trouble, we need to see if the oscillators continue in this zone for a week more before concluding that the medium-term trend will deteriorate further. Momentum in the monthly chart is also beginning to give way.

As far as the medium-term outlook is concerned, inability to move beyond both the 200-DMA as well as the medium-term down-trend line in the early part of the week is a defeat of sorts for the bulls. But the medium-term outlook will turn dire only on a close below 18,000. In that event the decline can extend to 17,588 or 17,314.

The medium-term range for the Sensex is currently between 17,300 and 19,800. It is possible that buying emerges once again near the lower boundary of this range to take the index up.

But if the situation deteriorates in the global markets causing a sell-off here, decline to 16,635 or 16,200 will be possible.

As pointed last week, the Sensex has been forming a series of lower tops since last November forming a descending triangle.

This pattern will however be confirmed only when the base-line at 17,300 is breached strongly. In e-wave terms, there are multiple counts at this juncture as is wont in sideways moving market.

For the near-term, investors need to watch the support at 18,000. The down-move will accelerate only on a sharp close below this level. Else the index can attempt to move higher to 18,380, 18,513 or 18,749 in the days ahead. Failure to move beyond 18,380 will be an indication of an impending decline.  

The Nifty (5,482) too closed 152 points lower after recording the intra-week low of 5,453. As explained last week, key support that traders ought to watch now is at 5,404. Traders still holding long positions can continue to do so as long as the index trades above this level. Reversal above this level next week can take the index higher to 5,562 or 5,630. The short-term view will, however, turn positive only when the index closes above its 200 DMA at 5,700. Failure to move above 5,562 will be a sign of weakness.

The medium-term outlook will however deteriorate on a close below 5,400 since that will mean that the down-move from 5,945 is continuing. Downward targets in this case would be 5,328, 5,277 and 5,196.

The medium-term range for the index is currently in the band between 5,200 and 5,900. Traders holding short positions should be cautious as the index approaches the lower end of this trading band. Breach of this base can take the index lower to the area around 5,000.

Global Cues

Most global markets ended in the negative last week as the continuing impasse in the US legislature and renewed concern in Europe with Moody's threatening to downgrade Spanish debt made stock prices move lower. DJ Euro STOXX 50 gave up all the gains recorded in the previous week to end near its medium-term support at 2,600. CBOE volatility index moved to four-month high of 26 on Friday as the US markets sold-off on slowing GDP growth in the second quarter of the year.

The Dow closed 538 points lower, one of its worst weekly closes in recent months. The index closed below the short-term trend decider at 12,420 but it is attempting to hang around the next support at 12,200. If it continues to trade below 12,200 next week, it can then head lower to 11,860. The medium-term trend in the index will get roiled only on a weekly close below 11,860.

Asian markets were relatively subdued though some markets such as those in Indonesia and Thailand continued to record new life-time peaks. The dollar index is attempting to hold above the support at 73.5. Decline below this level will drag it further to the May low at 72.8.

Questins ANSWERED: Reliance Capital in bear's stranglehold:; Raymond, Bajaj: Business Line,

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Please give the short- and long-term outlook on Bajaj Electricals bought at an average price of Rs 254.

Dr M. Ratnakar Shet

Bajaj Electricals (Rs 219.1): Bajaj Electricals was all fired up till October 2010 when it peaked at Rs 347. The stock is in a corrective mood over the last nine months that has retraced half the gains made by the stock in the run-up from Rs 27 to the October peak.

The stock will receive supports at Rs 187 and Rs 150 in the months ahead and investors can continue to hold the stock as long as it trades above Rs 150. Declines to this level can also be considered as an opportunity to accumulate the stock with stop at Rs 145.

The stock can however remain confined to the band between Rs 150 and Rs 350 for a few more months. Short-term investors can buy close to the lower end of the range and sell at the upper end. Long-term target on a break above Rs 350 is Rs 387 and then Rs 420.

Kindly give me the long-term prospects of Shree Renuka Sugars bought at Rs 240.

R.M. Kumarappan

Shree Renuka Sugars (Rs 70.1): Shree Renuka Sugars halted its unbridled run in January 2010 and has been trading in a broad range between Rs 50 and Rs 125 since then. The stock has significant support in the band between Rs 51 and Rs 60. It is currently attempting to hold above this zone. Investors can continue to hold the stock as long as it holds above this band.

But a close below Rs 50 can usher in a sharp decline to Rs 45 or Rs 31 in the medium-term. The stock will face resistance at Rs 80, Rs 100 or Rs 120 in the months ahead and investors with a shorter investment horizon can exit the stock at either of these levels. Long-term target on a break above Rs 124 is Rs 160.

Please advise me whether I should purchase Lanco Infratech at current level for reasonable long-term gains.

C.U. Prabhu, Shiju Remanan

Lanco Infratech (Rs 17.9): Lanco Infratech is dropping like a stone and the bottom is not yet in sight. It has also crashed past the key long-term support at Rs 35 in May. The stock has immediate supports at Rs 17 and then at Rs 10. Investors with a greater penchant for risk can catch this falling knife at the afore-mentioned supports.

Others with a lower risk appetite can stay off this stock since all technical indicators are pointing southwards at this juncture. Trends along all time-frames — long, medium and short are also down. Rallies will face resistance at Rs 45 and Rs 53 in the medium-term.

Fresh purchases are recommended on a strong weekly close above Rs 45. Once the stock gets past this hump, the stock can sail higher smoothly thereafter.

I want to know the future of Asian Electronics purchased at Rs 82 and Omaxe Ltd bought at Rs 375.

Mohan

Asian Electronics (Rs 9.5): Asian Electronics is also in a vertical decline that has retraced the entire gains made between 2003 and 2008. The stock is currently nearing its long-term trough recorded in March 2003. However, we cannot conclude that the slide can halt at this level, since the stock is not showing any semblance of reversal.

Decline to sub-Rs 10 is possible in the days ahead. It would be best to switch out of this stock at this point. Medium-term resistances would be at Rs 26, Rs 35 or Rs 51.

Fresh investments in this counter are recommended only if the stock goes on to close above the first resistance.

Omaxe (Rs 136.9): The long-term trend in Omaxe has not reversed higher following the battering received in 2008. However, the uptrend that began from March 2009 low continues to be strong.

That the stock hardly participated in the broader market correction that is taking place since last October is noteworthy. Omaxe is stuck in a very narrow band between Rs 120 and Rs 160 over the last ten months.

This kind of movement denotes strength and investors can hold the stock with stop at Rs 115.

Immediate target on a breach of Rs 155 is Rs 191.

The long-term view on the stock will, however, turn positive only on a close above Rs 260.

What is the price target of NMDC for the next 12 months?

Loganathan

NMDC (Rs 240.1): NMDC has long-term resistance in the zone between Rs 500 and Rs 570 where it formed significant peaks in the last quarter of 2007, May 2008 and January 2010. The stock moved in a downward trajectory through last year until it found support around Rs 250.

Investors can hold the stock as long as it trades above Rs 220. The zone between Rs 220 and Rs 250 is a critical long-term support for the stock. If this zone is penetrated, investors ought to exit the stock, since it can then decline to the region between Rs 120 and Rs 150.

Resistance for the next 12 months will be at Rs 360 and Rs 442. Investors with short- to medium-term horizon can book profit at either of these levels.

Kindly provide me advise on Reliance Capital.

Anil

Reliance Capital (Rs 575.4): Reliance Capital continues to be in doldrums as the stock has not really shaken off the bear's stranglehold.

It is constantly recording lower peaks and troughs since June 2009, and both the long- as well as the medium-term trends in the stock are currently down.

Immediate supports for the stock are at Rs 388 and then Rs 274. Investors can hold the stock with stop at Rs 380.

If the current short-term uptrend sustains, the stock can move higher to Rs 658 or Rs 853 in the months ahead where investors with shorter investment horizon can divest their holding.

Please share your short- and medium-term view on Raymond.

Geetika Manchanda

Raymond (379.6): The short-term trend in Raymond is up since the trough of Rs 276 recorded in February. The stock is, however, drawing close to key resistance at Rs 415. Since this level occurs at 61.8 per cent retracement of the previous down-move from April 2006 peak, investors need to tread warily as long as the stock hesitates below this level.

Some money can also be taken off the table by short-term investors if the stock continues to dither around this level. Stop-loss for short-term investors can be at Rs 345.

The medium-term trend in the stock continues to be up and it needs to close below Rs 210 to negate this trend.

Medium-term target on a close above Rs 450 is Rs 480 and then Rs 630.

52-WEEK BLOCKBUSTER: PETRONET LNG:: Business Line,

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One's loss is often another's gain. The strong performance of Petronet LNG, India's major gas importer and regasifier over the past year bears this out. Making the most of the sharp decline in production from Reliance Industries' KG-D6 fields last year, Petronet LNG stepped on the gas, quite literally.

Volumes regasified by the company increased by around 10 per cent in FY 11, and helped the company grow profits by around 53 per cent. Robust volume growth (up more than 40 per cent) continued in the latest June quarter too, resulting in the company more than doubling its profits on a year-on-year basis.

The growing demand for the commodity from various sectors including power, fertilisers, refineries, petrochemicals and city gas distributors, ensured that Petronet had a ready market for its wares, notwithstanding the relatively high cost of imported gas.

Not surprisingly, the stock has had a stellar run on the bourses outperforming its peers in the oil and gas space and also the broader market by a wide margin.

The company is bullish on the future demand for imported gas and is expanding capacities of its existing terminal at Dahej (from 10 mmtpa to 15 mmtpa) and the proposed terminal at Kochi (from 2.5 mmtpa to 5 mmtpa). Besides, it also plans to set up a new terminal on the country's East Coast.

Reliance Power - Lenders refuse to disburse loans for Krishnapatnam UMPP ::Credit Suisse

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Reliance Power Ltd------------------------------------------------------ Maintain UNDERPERFORM
Lenders refuse to disburse loans for Krishnapatnam UMPP


● As per a news report in the Economic Times, lenders for Reliance
Powerís 3.96 GW Krishnapatnam UMPP have refused to disburse
loans for the project due to concerns about project feasibility given
likely increase in coal cost because of changes in Indonesian
mining regulations.
● Reliance Power expected to source coal for Krishnapatnam
UMPP from its Indonesian coal mines at US$35/t, but with the
new regulations, coal cost is likely to rise to US$65/t, implying
losses of Rs2.33/kWh at contracted tariff. Hence, Reliance Power
has requested the Indian government to revise its tariff upwards.
● The Ministry of Power has now requested the Andhra Pradesh
government (primary project beneficiary) to intervene in the matter
and find a solution with Reliance Power. However, the way ahead
for Krishnapatnam UMPP remains unclear.
● As previously highlighted, if tariff negotiations fail, Reliance Power
could opt to surrender the project to minimise losses. This could
imply a loss of Rs4.5 bn (Rs1.6/sh) in terms of capex incurred and
bank guarantees submitted. Besides, this would most likely be
litigated by project beneficiaries. Maintain UNDERPERFORM.


Indonesian mining regulations threaten project economics
Krishnapatnam UMPP is a 3.96 GW imported coal-based project
awarded to Reliance Power through competitive bidding (Case II
bidding) process at a levelised tariff of Rs2.33/kWh. To meet the coal
requirements of this project, Reliance Power acquired three coal
mines in Indonesia. Reliance Powerís bidding was based on the
expectation of procuring coal from Indonesia at about US$35/t at its
project site (landed cost).
However, in Sep 2010, the Indonesian government introduced a new
regulation, Benchmark Price Regulation, requiring all Indonesian coal
producers to export coal at or above a benchmark price (determined
based on certain indices) for each grade of coal. Besides, this
regulation is expected to be implemented with retrospective effect,
requiring even existing coal supply contracts to be modified by Sep
2011. The new regulation implies all tax and royalty payments made
to the Indonesian government shall be based on benchmark prices (or
actual selling price, whichever is higher). This would result in landed
coal cost for Krishnapatnam project to increase to US$65/t (as per
companyís estimate).
Figure 1: Key specifications of the 3.96 GW Krishnapatnam UMPP
Capacity (MW)  3,960 (6x660)
Location  Andhra Pradesh
Project cost (Rs bn)  175.0
Debt:Equity  75:25
Debt (Rs bn)  131.3
Equity (Rs bn)  43.8
Bid tariff (Rs/kWh)  2.33 (levelised)
Fuel type  Imported coal
Fuel source  Indonesian coal mines acquired by Reliance Power
Scheduled COD  September 2013 (Unit-1)
Power offtake  Andhra Pradesh (1.6GW), Maharashtra (0.8GW), Tamil Nadu
(0.8GW), Karnataka (0.8GW)
Lead arranger  IDBI Bank
Joint lead arranger  Power Finance Corporation (PFC)
Lending consortium  REC, LIC, UCO Bank, Union Bank, Andhra Bank, Corporation
Bank, PNB, IOB, SBBJ, State Bank of Hyderabad, Vijaya
Bank, Punjab and Sind Bank, Yes Bank, Indian Bank
Source: Company data, Credit Suisse estimates
Reliance Power has requested for tariff revision
Reliance Power, through The Association of Power Producers, has
represented to the Indian Government for revising its tariff upwards for
the Krishnapatnam project to absorb the likely increase in fuel costs.
Developers, like Reliance Power, argue that these costs should be
permitted to be passed under the ëchange in law clauseí in their power
supply contracts.
Lenders back away from funding Krishnapatnam UMPP
As per a news report in the  Economic Times, given concerns about
project feasibility in view of the likely increase in coal cost because of
the change in Indonesian mining regulations, lenders have now
refused to disburse loans for the project. Recently, media reports also
highlighted that work on the Krishnapatnam project has been stalled
as per the site survey conducted by a team of officials from the CEA,
Ministry of Power and APPGCL. As per the news report, the Ministry
of Power has now requested the Andhra Pradesh government
(primary beneficiary of the project) to intervene in the matter and work
out a solution with Reliance Power.
Way ahead for Krishnapatnam UMPP remains unclear
As highlighted in our note dated 11 July 2011, titled  Surprises from
Krishnapatnam UMPP likely, if Reliance Power is disallowed to revise
Krishnapatnam UMPPís tariff upwards, then it could opt to surrender
the project to minimise its losses. This could result in litigations from
the beneficiaries of the project. Besides, the company could lose
Rs1.5 bn (mostly equity funded) already invested in the project and
Rs3 bn bank guarantee could also be confiscated. We continue to
maintain our UNDERPERFORM rating on the stock.

Goldman Sachs, :: August 1 week- India Weekly Kickstart Portfolio Strategy

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India Weekly Kickstart
Portfolio Strategy Research
Quantum of rate hike surprises markets (-3% wow), puts RBI firmly ahead of the curve
 All sectors ended in the red with Public Sector Banks & Energy losing 5.5% and 4.1% respectively wow.
 Weak foreign inflows of US$ 149mn, DIIs were also net buyers (of US$ 204mn), as of close of July 27, 2011.
 Nat. Gas (-5.1%) led Energy (-2.4%) lower wow. Guar Seed (+8.1%) gained the most again this week.
 Our GS ECS Research team believes there is a high probability that the RBI is done with rate hikes for now
Overview
Markets fell almost 2% on Tuesday after the RBI
raised the repo rate by 50bps, ahead of our and
consensus expectations of 25bps. NIFTY lost 2.7%
wow in a decline that spanned across sectors.
The GS ECS Research team is of the view that
with this move, the RBI is now firmly ahead of
expectations compared with earlier when it
needed to play catch-up with upward surprises to
inflation. Sharp downgrades to Energy stocks this
week meant that MSCI India continued to see
negative earnings sentiment (-7%) this week.
NIFTY price performance
NIFTY was down -2.7% wow & has lost 10.6% ytd
Source: NSE, DataStream, GS Global ECS Research.
Foreign and domestic flows
Foreign buying has totaled US$ 2.2bn ytd, while
DIIs have bought US$ 3.0bn as of the close of July
27, 2011.
Earnings sentiment
MSCI India Energy had the weakest EPS sentiment
(-19%) wow.
Commodities
Energy (-2.4%) underperformed while Agriculture
(+1.2%) outperformed commodities (-0.5%) wow.
Focus page
Correlation Insights: Aggressive tightening has
been followed by a decline in equity correlation.
Economic Events & Earnings Results
Exports & PMI (Aug 1); 1QFY12 results: DLF (Aug
2); Bosch & Ranbaxy (Aug 5).

Siemens India-- Margin woes hurt again:: Macquarie Research,

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Siemens India
Margin woes hurt again
Event
 Siemens India reported its 3QFY11 (Sep-ending company). Revenue at
Rs27.8bn (up 24% YoY) was line in with estimate. However, adjusted net
profits at Rs1.55bn was flat YoY and much below our and  the  street’s
estimates.  We marginally reduce our FY11-12 EPS by 1-2% to factor in  a
30bps cut in the EBITDA margin. Retain Neutral with a revised target price of
Rs831 (Rs842 earlier).
Impact
 Revenue growth inline with estimates, on track to deliver 27% growth in
FY11:  Siemens reported Rs27.8bn (up 24% YoY growth) driven primarily by
automation and power segments, which grew 30% and 22% respectively.
Growth in  the  power segment is driven by the execution of Qatar T&D and
Torrent generation orders.  Siemens is well on track to deliver our full year
estimate of 27% revenue growth.
 Margin slips in all segments except automation: Siemens margin at 8.4% was
down 190bps YoY and 350bps QoQ. The dip in margins was largely due to a loss in
the  fossil fuel segment (which had  an 18% margin in 1HFY11). Volatility in
segmental margins on a quarterly basis has been high and we expect power
margins to improve in coming quarters. Automation margins held up at 7.5% (40bps
QoQ, 390bps YoY improvement) while all other segments had sharp margin
compression. In the 9MFY11 period, the margin was 11.3% (down 200bps YoY).
Marginally reducing our margin estimates by 30bps for FY11-12E from
12.4% to 12.1%.
 Order inflow holds up: Order inflow at Rs22.8bn was up 14% YoY and led to
a 10% growth in the order book at Rs150bn. Order book coverage of 1.32x
provides revenue visibility for FY12.
Earnings and target price revision
 We have reduced our FY11-12 EPS by 2% and 1% respectively due to a
reduction in our margin forecast. Our revised target price is Rs831 (from
Rs842 earlier).
Price catalyst
 12-month price target: Rs831.00 based on a PER methodology.
 Catalyst: improvement in margins and pickup in order inflow
Action and recommendation
 Earnings growth profile much superior in Siemens; we prefer it over
ABB India: Siemens has a superior earnings quality and growth profile vis-à-
vis ABB India. Margins normalising at 12-13% coupled with revenue growth of
25% would yield earnings CAGR of  30% over FY11-13.  We recommend
switching  into Siemens  from ABB (ABB IN, Rs869, Underperform, TP:
Rs488), we believe trading at an unrealistic 43x and 39x CY11E and CY12E
EPS respectively.  Retain Neutral on Siemens with a revised target price of
Rs831 (from Rs842 earlier)

TVS Motor 1Q FY12: Improved realisation, lower other expense boost earnings::Standard Chartered Research,

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TVS Motor
1Q FY12: Improved realisation, lower other expense boost earnings


 TVS’ 1Q earnings were above our estimate, led by
better-than-expected revenue growth.
 Revenue up 25% yoy – above our estimate given
improved realisation led by a better product mix and
price hikes.
 Margin stable despite higher input costs due to lower
other expenses.
 Given heightened competition and lack of new launches,
we believe TVS is the most vulnerable 2W player.
 Maintain IN-LINE.


Revenue above estimate led by improved realisation–
Revenue rose 25% yoy to Rs17.5bn (we estimated Rs17bn)
led by 16% yoy growth in volume and 8% yoy growth in
average realisation. Average realisation was above our
estimate given price hikes and an improved product mix
(higher 3W sales).
Margin stable qoq despite rising cost pressure – Raw
material cost pressure resulted in RM /sales increasing by
190bps yoy to 74.7%. However, despite the sharp increase
in input costs, TVS was able to maintain its operating
margin on account of lower other expenses – at 12.9% of
net sales against 14.5% in 1Q FY11 and 14.8% in 4Q FY11.
As a result, EBITDA margin remained stable yoy at 7.2%.
Earnings higher than estimate led by higher revenue
growth –  Driven by strong revenue growth, EBITDA grew
21% yoy to Rs1.25bn. Interest burden increased to
Rs116m. Led by strong revenue growth and stable margins,
earnings grew 46% yoy to Rs588m.
Valuation – Amidst rising competitive intensity and lack of
new launches for the major part of FY12E, we believe TVS
appears to be the most vulnerable amongst the top three
2W players in India. While scooters and mopeds are driving
volume growth, TVS has been unable to ramp up its
motorcycle volumes. Also, although 3W exports are doing
well currently, TVS has failed to gain any meaningful
presence in the domestic market. At 9.4x FY12E earnings
and 4.7x EV/EBITDA, the stock appears fairly valued.
Maintain IN-LINE

Bank of India:: Asset quality disappoints For 1QFY12:: CLSA

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Asset quality disappoints
For 1QFY12, BOI’s net profit of Rs5.2bn (down 29% YoY) was below our
estimates. The earning miss was driven by sharp contraction in margins
and high provisions due to sharp rise in slippages. Low CASA and focus on
market share is putting pressure on NIMs, but more importantly we were
negatively surprised by the sharp rise in delinquencies. Nearly half of
slippages accrued as bank moved to system based NPL recognition and
slippages could be high in 2Q- focus is on recoveries. Infra-loans are also
facing stress that may result in asset quality pressure lasting longer. We
cut estimates by 3-5%, but see a healthy 24% Cagr over FY11-14, from
low base. Improvement in asset quality will be a key to re-rating. O-PF.
Margin pressure suppresses core earnings growth
During 1QFY12, BOI’s NII grew by just 6% YoY as a healthy loan growth of
22% was offset by 70bps YoY contraction in margins. Even on a sequential
basis margin contraction of 75bps was high. We believe that margins are
facing pressure from three areas (1) lower CASA ratio and rise in cost of term
deposits, (2) focus on market share through lower lending rates- BOI is
among the few banks that have not raised domestic lending rates in the past
one month and (3) rise in share of low-margin international loans- share of
these loans has increased from 21% last year to 25% now. While the reversal
of Rs1.8bn of interest income on NPLs negatively impacted margins, it was
offset by a similar amount of interest on income tax refund.
Slippages surprised negatively; stress in infra-loans is evident
During 1QFY12, BOI’s fresh slippages increased by 172% YoY/ 68% QoQ and
the delinquency ratio rose sharply to 3.8%. Nearly half of the fresh slippages
accrued from transition to system-based NPL recognition (largely agri-loans)
and management expects a similar amount in 2Q as well when BOI moves
the last 10% of loans (mostly small ticket agri-loans) to this system. Slippage
from restructured loans constituted another 20% of total in 1QFY12. Stress in
the infra-exposure is also evident as bank restructured some loan in power
sector and a road project loan turned NPL. Most infra-loans are lent through a
consortium and hence some other banks may also see slippages; higher
stress in infra-loans would impact earnings growth as well as valuations.
Maintain O-PF
We lower our estimates for FY12-13 by 3-5%, but still expect a healthy 24%
Cagr over FY11-14, partly due to a low base. Our revised target price of
Rs480 (earlier Rs520) is based on 1.4x FY13 adjusted PB, but improvement in
asset quality outlook is key to re-rating. Maintain O-PF.

Titan Industries- 1QF12 - 72% growth in Jewellery, 23% in Watches :: Morgan Stanley Research,

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Titan Industries Ltd
1QF12 - 72% growth in
Jewellery, 23% in Watches
1QF12 results underpin our view that Titan is the
best play on India’s income and demographic story.
Investors will continue to be surprised by the ability
of the company to deliver strong volume growth
and product mix driven margin expansion.
Quick Comment – Strong Performance: We expect
the stock to respond positively on the back of this result.
Titan reported 1QF12 results with revenues +61%,
operating profits +66% and adjusted net profit of 76%.
This compares favorably with our estimates of 31%,
34% and 34% growth, respectively. The beat was driven
by strong performance across all business segments.
1QF12 results highlights: (1) Jewellery business
revenues increased by 72% YoY. Our back of the
envelope calculations suggest that same store volume
growth for the quarter was ~25%. (2) Jewellery
operating margins expanded by 170bps to 8.9%, driven
by a combination of diamond inventory gains and better
absorption of fixed costs offset by increased excise not
passed through, we believe. (3) 23% revenue growth in
the watch segment for Titan was above our expectation
of 17% growth. (4) The only negative in the otherwise
solid results was Watch segment EBIT growth of 10%. In
our view, margins were impacted by adverse product
mix (Sonata brand grew faster than Titan and Fastrack).
(5) As expected, Others segment reported a loss this
quarter, as pace of new store openings increased.
Losses in this segment will likely continue over the next
few quarters. (6) Capital employed in jewellery
continues to be negative driven by strong traction in the
consumer credit (‘golden harvest’) scheme, which
accounts for ~12% of jewellery revenues, we believe.
Current low volatility in gold prices is supportive of
further improvement in capital efficiency, we believe,
and is a key re-rating driver.
Upward earnings revisions likely: We expect Titan, a
large beneficiary of improving consumer disposable
income, to enjoy earnings upgrades as the Street factors
in faster growth across business segments

JPMorgan:: Buy Tulip Telecom- FY12 off to a strong start; Reiterate OW

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Tulip Telecom Limited
Overweight
TULP.BO, TTSL IN
FY12 off to a strong start; Reiterate OW


 Revenue  growth  accelerated,  estimates  increased: Tulip  Telecom
delivered  ~25%  Y/Y  revenue  growth in  Q1,  beating  our  above-consensus
estimates.  We  believe  a  higher  contribution  from  fibre,  international
business  (via  the  Hutchinson  agreement)  and  quicker  execution  of  orders
helped in Q1. We expect TTSL to maintain 20%+ growth levels for the rest
of  the  year  and  have  increased  or  FY12  revenue  estimates  by  1%.  With
incremental revenue streams expected to kick in, we  forecast 23% revenue
growth (ahead of management’s 20% guidance) and 1pp margin expansion
to 29.2%.
 Data Centre  order win: The company announced its  first DC client win.
This is  for 30,000 sq ft over 5 years with a revenue potential of INR 5 bn.
We believe this indicates a rental of INR2.8K/month which is much higher
than  the  company's  prior  indication  of  INR  1.6K/month. We  view  the
announcement of a client here as a key positive for Tulip and we await the
announcement of an investor.
 Watching  debt  and  leverage:  TTSL  saw  debt  increase  by  Rs1.5B  Q/Q
while leverage (debt/EBITDA) declined very slightly to 2.6x from 2.7x. The
debt increase was driven by the core business. We would be encouraged to
see  an  indication  of  effort/steps  taken  to  bring  down  leverage  and  debt,
which will be a key focus in FY12, according to management.
 Forecast changes: Our estimates are revised  very slightly post Q1  results.
We increase our  FY12/FY13  revenue  estimates slightly  by  0.9%/0.6%  but
leave our margin estimates unchanged at 29.2%/30.5%. Our EPS estimates
are now INR 21.8/29.4 (basic EPS of INR 24.5.31.5)
 Mar-12 PT of Rs230: Our price target remains unchanged. Announcements
of  more  clients  or  an  investor  for  the  data  centre  business  should  be  key
positive  catalysts.  The  core  business  continues  to  show  improvements.
TTSL  trades  at  6.4x  1-yr  forward  P/E  a  29%  discount  to  its  three-year
average,  and  at  4.0 EV/EBITDA,  a  33%  discount.  Key  risks:  stiffer-thanexpected  price  competition  in  TTSL’s  core  business,  and  a  slower-thanexpected ramp-up of its data center business.

Goldman Sachs, :: United Phosphorus - Above expectations on higher revenue growth; guidance raised

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EARNINGS REVIEW
United Phosphorus (UNPO.BO)
Buy  Equity Research
Above expectations on higher revenue growth; guidance raised
What surprised us
United Phosphorus reported 1QFY12 PAT of Rs1.8 bn vs our estimate of
Rs1.5 bn primarily on account of higher than expected revenue growth of
27% (8%-10% inorganic; about 17% organic) driven by: 1) volume growth
(up 23% yoy) in both US and Europe markets; 2) stabilization of pricing (up
1% yoy). However, gross margins declined by 300 bp primarily on account
of higher costs which could not be fully passed through to end consumers.
The management has revised its FY12 revenue guidance upwards to 25%-
30% from 12%-14% primarily on account of: 1) acquisition of DVA group
(operating in the highly lucrative Latin American market) which increases its
distribution reach geographically in Brazil and across various crops, and
2)organic growth in India and rest of the world. However, the weather so far
has been dry in Europe; it could be a key risk if it deteriorates further. The
management maintained FY12 EBITDA guidance of 20%-21%.
What to do with the stock
We reiterate Buy on Uphos and raise our 12-m SOTP-based TP to Rs190 (from
Rs175), implying upside potential of 14%. We raise FY12E/FY13E/ FY14E EPS
by 8%/3%/3%% primarily to reflect revenue growth of about 20% for FY12E
(from 12% earlier) vs guidance of 25%-30% as we await more visibility on
organic growth. We value the stock at mid-cycle FY12E EPS. We believe UNTP
leveraging its strong balance sheet and underlying strength in agri-commodity
prices is best positioned to pursue both organic and inorganic earnings
growth. Key risks include adverse weather and regulatory changes.

Goldman Sachs, :: United Phosphorus - Above expectations on higher revenue growth; guidance raised

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


EARNINGS REVIEW
United Phosphorus (UNPO.BO)
Buy  Equity Research
Above expectations on higher revenue growth; guidance raised
What surprised us
United Phosphorus reported 1QFY12 PAT of Rs1.8 bn vs our estimate of
Rs1.5 bn primarily on account of higher than expected revenue growth of
27% (8%-10% inorganic; about 17% organic) driven by: 1) volume growth
(up 23% yoy) in both US and Europe markets; 2) stabilization of pricing (up
1% yoy). However, gross margins declined by 300 bp primarily on account
of higher costs which could not be fully passed through to end consumers.
The management has revised its FY12 revenue guidance upwards to 25%-
30% from 12%-14% primarily on account of: 1) acquisition of DVA group
(operating in the highly lucrative Latin American market) which increases its
distribution reach geographically in Brazil and across various crops, and
2)organic growth in India and rest of the world. However, the weather so far
has been dry in Europe; it could be a key risk if it deteriorates further. The
management maintained FY12 EBITDA guidance of 20%-21%.
What to do with the stock
We reiterate Buy on Uphos and raise our 12-m SOTP-based TP to Rs190 (from
Rs175), implying upside potential of 14%. We raise FY12E/FY13E/ FY14E EPS
by 8%/3%/3%% primarily to reflect revenue growth of about 20% for FY12E
(from 12% earlier) vs guidance of 25%-30% as we await more visibility on
organic growth. We value the stock at mid-cycle FY12E EPS. We believe UNTP
leveraging its strong balance sheet and underlying strength in agri-commodity
prices is best positioned to pursue both organic and inorganic earnings
growth. Key risks include adverse weather and regulatory changes.