09 August 2011

Strategy: Be greedy when others are fearful:: Ambit Research

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Events over the past week suggest that we have entered another financial crisis of a scale comparable to September 2008. Whilst the precise contours of the global reaction to the US downgrade will differ to what followed in the weeks following Lehman’s demise, the common theme is and will remain a big reduction in investors’ risk appetite. 

However, a critical difference, and one that bodes well for Indian equities, is that going into this crisis Western policymakers simply do not have as much ammunition as they did in September 2008. Put simply, much of the West’s fiscal firepower has already been expended and QE2 has shown limitations of using relentless monetary easing once investors have lost faith in the fundamentals of an economy. This weakness in the West’s armoury suggests that the US and the EU have now entered a multi-year economic slowdown.


So what does that mean for India? We think it means that relatively soon global investors will wake up to the attractions of high quality Indian stocks. Whilst it is too early to think about a broad based rally in the Indian market (especially given the dismal outlook for economic reform in India and given structural inflation challenges facing the country), it is possible to see a robust BUY case for top quality Indian names such as: 

· 
Bharti Airtel (BHARTI IN, mcap US$35bn, NOT RATED)
· 
Dabur (DABUR IN, mcap US$4.1bn, BUY),
· 
ONGC (ONGC IN, mcap US$54.1bn, NOT RATED)
· 
Titan (TTAN IN, mcap US$4.4bn, BUY) and 
· 
Exide (EXID IN, mcap US$3.2mn, BUY)
all of which feature in Ambit’s Good & Clean portfolio 


In fact, going a step further, as the Sensex moves towards 16K, for investors with greater risk appetite (i.e. a willingness to take some downside risk on top quality cyclical stocks), this looks like a good time to consider the best names in cylical sectors such Banks, NBFCs, Auto, IT, Realty, Power, etc. In this context, we once again highlight some names that we had mentioned in our morning mail yesterday: Kotak Mahindra Bank, Mannapuram, HCL Tech, Oberoi Realty, Voltas, Shoppers Stop and Adani Power (refer to the section below for details).



What to buy when the Sensex hits 16K?

For a number of clients the points we are making above (around switching out of cyclicals and into defensives and structuring an investment portfolio accordingly) are self evident. These investors manage patient, long term capital which is willing to use these uncertain times to BUY companies which are fundamentally attractive from a multi-year perspective although they might underperform in the coming quarters. So please find below our strongest multi-year BUYs with the caveat that a number of these (eg. Voltas, Adani Power, Kotak Mahindra Bank) have obvious near term downside risk.


Telecom: 
Bharti Airtel (BHARTI IN, mcap US$34.7bn, NOT RATED)
1. Strongest Balance Sheet in the sector. Hence can deal with the impending changes arising from policy shifts and changes to the competitive landscape.
2. Best placed to capitalise on improving pricing environment.
3. Other than its modest exposure to Africa, this is a completely domestic play.


Infrastructure: 
Voltas (VOLT IN, mcap US$985mn, NOT RATED)
1. Whilst Voltas’ high RoEs and RoICs have come recently under pressure (to mid-20% from 40-45%), we expect the same to rebound due to: (a) its superior project management experience for winning/ executing electromechanical projects in India/ abroad, and (b) Its cooling product market leadership;
2. Revenue mix from project and product segments complement each other in differing legs of the investment and consumption cycles for opposed capital requirements; and
3. At Rs110, the stock will be trading at 10.5X and ~9X FY12 and FY13 earnings, respectively which are 30-40% discount to its last 5 year average multiples. Any working capital or capacity expansion requirements in project or product businesses, respectively can be easily met through its cash holdings of Rs5bn (debt:equity of negative 0.26X).


Consumer: 
Shoppers Stop (SHOP IN, mcap US$715mn, NOT RATED) 
1. Uniquely positioned amongst mid and premium segment of consumers, should gain from stability in consumer confidence
2. Operational and balance sheet indicators are in good shape this should support expansion plans
3. On valuations adjusted for core growth (EV/EBIDTA / Growth) is amongst the cheapest stock in the sector


Realty: 
Oberoi Realty (OBER IN, mcap US$1.7bn, NOT RATED)
1. Strong pipeline of cash flows: Oberoi currently holds over Rs15bn of net cash on the balance sheet at a time when some of its peers are likely to struggle to meet their near term debt obligation. In Q1 FY11, the group generated operating cash flows of Rs549m which includes Rs334m of recurring cash flows from its retail, commercial and hospitality businesses. Sales of ongoing residential projects remains strong with an ongoing run rate of one flat per day of sales on its luxury residential project, Oberoi Esquire. Only 40% of its residential customer base finances its purchase through home loans.
2. Cash utilisation opportunities: Management expects land prices to soften in the ongoing difficult economic environment, thereby providing opportunities to utilise its existing pile of surplus cash at a time when some of its peers are seeking to sell their existing 'non-core' land parcels to meet their funding requirements. 


Power: 
Adani Power (ADANI IN, mcap $4.5bn, BUY)
1. Execution Track record: Adani Power has one of the best execution track record amidst its peers. Whilst other IPPs like Lanco, KSK Energy, JSW Energy, India bulls Power are struggling to add capacity on account of challenges in coal linkages or land acquisitions, Adani Power's execution track record has been exceptional
2. Minimal exposure to merchant Power: Adani Power's exposure to merchant power is ~18% compared to ~ 30% for peers. Given the falling prices of merchant power coupled with deteriorating financial health of SEBs we prefer investing in players which have minimal exposure to merchant power
3. High visibility on fuel: Whilst Adani has 100% fuel linkage for power plants getting commissioned until FY13, it has one of the lowest fuel cost. This is one of its biggest advantages as fuel availability at an affordable price seems to be a structural challenge at this point in time. 


IT : 
HCL Tech (HCLT IN, mcap $6.4bn, BUY)
1. HCL Tech has the best positioned long term strategy with a well developed consulting led Enterprise Application Services business that is likely to drive long term growth and the strongest presence in Remote Infrastructure Management, the least penetrated IT services service line.
2. Remote Infrastructure Management deals tend to accelerate over the course of a downturn as it helps CIOs and CTOs cut costs visibly and quickly. HCLT benefitted from a surge of such deals during the 2008 downturn.
3. HCL Tech is likely to be the most inexpensive Tier 1 player with the strongest strategy at the bottom of the cycle.


Banks: 
Kotak Mahindra Bank (KMB IN, mcap $7.2bn, NOT RATED)
1. Full-fledged conglomerate with presence across the financial services value chain; leadership in multiple businesses
2. Comfortably capitalized - could benefit from temporary dislocation by deploying capital opportunistically
3. Strong management pedigree and execution track record


NBFCs: 
Manappuram General Finanace & Leasing (MGFL IN, mcap US$1.0bn, BUY)
1. Loan growth momentum to continue: Despite the weak macro environment we expect the growth momentum of Manappuram to continue given the small ticket size of its loans.
2. Marginal decline in ROAs: Whilst cost of funds will go up meaningfully by ~300-400bps for Manappuram in FY12, we expect impact on NIMs to be limited to ~200bps in FY12 as our latest field survey shows that the company has been able to pass on a part a part of its increased cost of funds to its borrowers by raising lending rates by ~150bps. Moreover, we expect operating efficiency to continue improving (100bps improvement in FY12) which will to some extent offset impact of decline in NIMs leading to ROAs to remain healthy at 4.5% in FY12 (from 5% in FY11).
3. Strong capital adequacy: The company is well capitalised at ~25% CAR ratio which we believe is enough to support growth for the next 12 to 18 months and should give added confidence to bankers while giving loans to the company.

BSE, Bulk deals, 09/8/2011

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Deal DateScrip CodeCompanyClient NameDeal Type *QuantityPrice **
9/8/2011590006Amrutanjan Health-$CROSSEAS CAPITAL SERVICES PRIVATE LIMITEDB24386827.93
9/8/2011590006Amrutanjan Health-$A K G SECURITIES AND CONSULTANCY LTDB19033829.20
9/8/2011590006Amrutanjan Health-$A K G SECURITIES AND CONSULTANCY LTDS19033829.40
9/8/2011590006Amrutanjan Health-$CROSSEAS CAPITAL SERVICES PRIVATE LIMITEDS24386828.02
9/8/2011531160Arcadia MercAKASHKUMAR BACHUBHAI PATAVAS500008.49
9/8/2011531937Beckons IndsSRICHAND MADHWANIS4400001.34
9/8/2011524606Beryl DrugsPRAKASH DAVEB7036932.21
9/8/2011533469Birla Pacific MedspaAMITABH HARIVANSH RAI BACHCHANB100000018.50
9/8/2011533469Birla Pacific MedspaV P PATELB119000018.32
9/8/2011526443Datasoft ApplMAHAVIRSINGH N CHAUHANS639247.18
9/8/2011533333Fineotex ChemAARKEN ADVISORS PVT LTDB75000275.99
9/8/2011533333Fineotex ChemV P PATELS74589276.00
9/8/2011531055GFLFINAJANTA FIBERS PRIVATE LIMITEDB3600095.88
9/8/2011531055GFLFINKANCHAN PREMJI SHAHS3048896.02
9/8/2011533506INVENTURENITIN BABAJI PALANDEB249186221.61
9/8/2011533506INVENTURER M SHARES TRADING PRIVATE LIMITEDB276861217.37
9/8/2011533506INVENTURECHANDARANA INTERMEDIARIES BROKERS PRIVATE LIMITEDB319867216.90
9/8/2011533506INVENTUREGKN SECURITIESB106356217.24
9/8/2011533506INVENTUREA K G SECURITIES AND CONSULTANCY LTDB409558217.17
9/8/2011533506INVENTUREALFA FISCAL SERVICES PVT LTDB404961219.15
9/8/2011533506INVENTURECROSSEAS CAPITAL SERVICES PRIVATE LIMITEDB493081215.84
9/8/2011533506INVENTURETOUCHSTONE FINVEST SERVICES PRIVATE LIMITEDB190200218.46
9/8/2011533506INVENTURECROSSEAS CAPITAL SERVICES PRIVATE LIMITEDS493081215.57
9/8/2011533506INVENTURETOUCHSTONE FINVEST SERVICES PRIVATE LIMITEDS190200219.51
9/8/2011533506INVENTURENITIN BABAJI PALANDES193236219.17
9/8/2011533506INVENTUREALFA FISCAL SERVICES PVT LTDS404961219.09
9/8/2011533506INVENTUREA K G SECURITIES AND CONSULTANCY LTDS409558217.14
9/8/2011533506INVENTURER M SHARES TRADING PRIVATE LIMITEDS276861217.03
9/8/2011533506INVENTUREGKN SECURITIESS106356216.55
9/8/2011533506INVENTURECHANDARANA INTERMEDIARIES BROKERS PRIVATE LIMITEDS319867217.06
9/8/2011530165Kanchan IntlRUPESH D BHATTB2292160.17
9/8/2011530165Kanchan IntlDHARMENDRA HARILAL BHOJAKB2050059.04
9/8/2011530165Kanchan IntlDHARMENDRA HARILAL BHOJAKS2041459.75
9/8/2011530165Kanchan IntlIL&FS SECURITIES SERVICES LTDS4000057.78
9/8/2011530165Kanchan IntlBALAJI INVESTMENTS2067557.52
9/8/2011530165Kanchan IntlRUPESH D BHATTS1654559.25
9/8/2011500346Punjab Comm-$FALCON INDIA FOCUS FUNDB10000077.97
9/8/2011533470Rushil DecorCROSSEAS CAPITAL SERVICES PRIVATE LIMITEDB89376114.62
9/8/2011533470Rushil DecorAMBER ENCLAVE PRIVATE LIMITEDS104533109.73
9/8/2011533470Rushil DecorCROSSEAS CAPITAL SERVICES PRIVATE LIMITEDS89376115.02
9/8/2011511754Shalibhadra FinMINAXIBEN KANJI BHANUSHALIB2626651.95
9/8/2011531574VAS InfraV.K.NANAVATY SHARE & STCOK BRB13000083.47
9/8/2011524661Welcure DrugsMAHAVIRSINGH N CHAUHANS1035004.08
* B - Buy, S - Sell
** = Weighted Average Trade Price / Trade Price

NSE, Bulk deals, 09-Aug-2011

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DateSymbolSecurity NameClient NameBuy / SellQuantity TradedTrade Price /
Wght. Avg.
Price
Remarks
09-Aug-2011AMRUTANJANAmrutajan Health LtdCROSSEAS CAPITAL SERVICES PVT. LTD.BUY24,386828.04-
09-Aug-2011AMRUTANJANAmrutajan Health LtdCROSSEAS CAPITAL SERVICES PVT. LTD.SELL24,386828.46-
09-Aug-2011BHARTISHIPBharati Shipyard LimitedBIRLA SUNLIFE INSURANCE COMPANY LIMITEDSELL1,59,500100.95-
09-Aug-2011BILBhartiya Intl LimitedSAL REAL ESTATES (P) LTDSELL67,41045.41-
09-Aug-2011CREWBOSCrew B.O.S. Products LimiMULTIPLIER S AND S ADV PVT LTDBUY90,03839.00-
09-Aug-2011CREWBOSCrew B.O.S. Products LimiMULTIPLIER S AND S ADV PVT LTDSELL90,03840.08-
09-Aug-2011CREWBOSCrew B.O.S. Products LimiPINKHEM INVESTMENT CO.(P) LTD.SELL1,50,00039.01-
09-Aug-2011ESSELPACKEssel Propack Ltd.GANJAM TRADING CO PVT LTDBUY25,00,00038.43-
09-Aug-2011ESSELPACKEssel Propack Ltd.LAZARUS INVESTMENTS LTDSELL25,00,00038.43-
09-Aug-2011IFBAGROIFB Agro Industries LtdINDIA EQUITY GROWTH FUND LIMITEDBUY70,995142.97-
09-Aug-2011INVENTUREInventure Gro & Sec LtdALFA FISCAL SERVICES PVT LTDBUY2,49,986215.24-
09-Aug-2011INVENTUREInventure Gro & Sec LtdALFA FISCAL SERVICES PVT LTDSELL2,43,244216.01-
09-Aug-2011INVENTUREInventure Gro & Sec LtdCHANDARANA INTERMEDIARIES BROKERS P. LTDBUY3,20,832216.95-
09-Aug-2011INVENTUREInventure Gro & Sec LtdCHANDARANA INTERMEDIARIES BROKERS P. LTDSELL3,20,832217.11-
09-Aug-2011INVENTUREInventure Gro & Sec LtdCROSSEAS CAPITAL SERVICES PVT. LTD.BUY4,92,929215.45-
09-Aug-2011INVENTUREInventure Gro & Sec LtdCROSSEAS CAPITAL SERVICES PVT. LTD.SELL4,92,929215.92-
09-Aug-2011INVENTUREInventure Gro & Sec LtdGKN SECURITIESBUY1,06,529216.34-
09-Aug-2011INVENTUREInventure Gro & Sec LtdGKN SECURITIESSELL1,06,529217.38-
09-Aug-2011INVENTUREInventure Gro & Sec LtdMARWADI SHARES AND FINANCE LIMITEDBUY1,07,921218.89-
09-Aug-2011INVENTUREInventure Gro & Sec LtdMARWADI SHARES AND FINANCE LIMITEDSELL1,07,921219.04-
09-Aug-2011INVENTUREInventure Gro & Sec LtdNITIN BABAJI PALANDEBUY62,701221.50-
09-Aug-2011INVENTUREInventure Gro & Sec LtdNITIN BABAJI PALANDESELL1,20,701221.02-
09-Aug-2011INVENTUREInventure Gro & Sec LtdR.M. SHARE TRADING PVT LTDBUY2,77,083216.89-
09-Aug-2011INVENTUREInventure Gro & Sec LtdR.M. SHARE TRADING PVT LTDSELL2,77,083217.43-
09-Aug-2011INVENTUREInventure Gro & Sec LtdRADHIKA AGARWALBUY1,38,479215.26-
09-Aug-2011INVENTUREInventure Gro & Sec LtdRADHIKA AGARWALSELL1,38,479215.17-
09-Aug-2011INVENTUREInventure Gro & Sec LtdTOUCHSTONE FINVEST SERVICES PRIVATE LIMITEDBUY1,94,160216.18-
09-Aug-2011INVENTUREInventure Gro & Sec LtdTOUCHSTONE FINVEST SERVICES PRIVATE LIMITEDSELL1,94,160217.90-
09-Aug-2011MANALIPETCManali Petrochemical LtdSIDD LIFE SCIENCES PRIVATE LIMITEDBUY114,46,05311.75-
09-Aug-2011MANALIPETCManali Petrochemical LtdSOUTHERN PETROCHEMICAL INDUSTRIES CORPORATION LTDSELL114,51,05311.75-
09-Aug-2011NEXTMEDIANext Mediaworks LimitedCROSSEAS COMTRADE PRIVATE LIMITEDBUY3,00,0005.53-
09-Aug-2011NEXTMEDIANext Mediaworks LimitedRAJESH H BAHETI HUFSELL3,00,0005.53-
09-Aug-2011RUSHILRushil Decor LimitedCROSSEAS CAPITAL SERVICES PVT. LTD.BUY89,382114.94-
09-Aug-2011RUSHILRushil Decor LimitedCROSSEAS CAPITAL SERVICES PVT. LTD.SELL89,382114.68-
09-Aug-2011WEBELSOLARWebsol Energy Systems LtdNOVEL APARTMENTS PRIVATE LIMITEDBUY2,00,94654.90-
09-Aug-2011WEBELSOLARWebsol Energy Systems LtdPALAK TRADELINK PRIVATE LIMITEDSELL2,00,94654.90-

9/8/11:: Categories Turnover (Rs. crore) Clients NRI Proprietary Trade Data

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Categories Turnover
(Rs. crore)
ClientsNRIProprietary
Trade DateBuySalesNetBuySalesNetBuySalesNet
9/8/112,081.202,031.9349.271.530.411.12781.84768.9312.92
8/8/111,966.761,994.55-27.793.471.312.15665.55666.21-0.66
5/8/112,146.402,000.30146.103.461.631.83676.08696.79-20.70
Aug , 1113,223.0413,008.76214.2836.016.8629.154,244.304,243.880.42
Since 1/1/11323,880.26328,893.80-5,013.53210.06165.4044.6693,332.7292,718.61614.11