17 December 2011

Bull run in gold is now finished: Deepak Mohoni in Economic Times,

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In an interview with ET Now, Deepak Mohoni, Director, trendwatchindia.com, gives his views on the market scenario. Excerpts:

ET Now: How does one trade this market come Monday morning with a breach of 4700 on Friday and a close at 4650, it was quite painful to see what was happening on the ticker?

Deepak Mohoni: Last two hours of trading really changed the picture because the situation was looking very promising at 1:30 p.m. The Nifty only needed to go 30 more points above 4850 and it was to be an intermediate uptrend but that has completely changed. We have straight gone down to a 52-week low. So, given the situation what we have is still 4850 as the target to be or the level to be crossed for an intermediate uptrend. Now that is pretty far away and we have now a fairly well established intermediate downtrend. So, for traders generally speaking till this reverses trades on the short side are going to be more profitable. For investors, we have got new lows happening every now and then now for so many months, but after getting below the previous low, the index does not tend to fall very much more. So, this little zone as we go below a previous low usually 50 to 100 Nifty points later there is a bottom. So, this is a good zone to accumulate stocks for long term investors. So for long term investors, good time to accumulate stocks, not the ones that are making new lows but the ones which are holding out, are reasonably stable, have good fundamentals and for traders, it is short term trades on the short side.

ET Now: Your thoughts on Reliance Communications as well as Essar Oil.

Deepak Mohoni: Reliance Communications had actually been making some good moves say about a week or so ago. It was looking more stable. In fact at that time Idea and Bharti were not doing well but this has changed again. The stock has slipped below its previous bottom like so many other stocks in the indices. So, this is now back into pretty much a downtrend but I would not say the move is necessarily anymore alarming than many other stocks in the market. But that is not what I would say of Essar Oil. This move is alarming. This has really cracked during the week and it was already at a new low at the start of the week and it has got much worse today, scratch worse, a very heavy one. So, Essar Oil looks like where investors are really trying to get out on extremely high volume.

ET Now: What is it that you see on the charts for IVRCL and Pantaloon now and would you be a little brave to go in and buy at these levels?

Deepak Mohoni: No, neither of these 2 stocks because though as I mentioned it is a good time for investment, the caveat was avoid those stocks which are making new lows and Pantaloon unfortunately after all that promise of FDI retail has gone below the prices from where the lows it had reached before this move. Given that the stock is in an outright downtrend, there is no interest in the stock. IVRCL is a little bit stable, it is Rs 30 as a low has been holding out since mid-August but there is on uptrend here yet and the infrastructure stocks have done this quite often. They have based themselves for couple of months, looks a little promising but the breakout comes down and not up. So given that history, I would not yet fish into infrastructure stocks. You want to see them at 3-month highs, 4-month highs before getting into infrastructure at this time.

ET Now: What about sugar, stay away from names like Balrampur as well as Shree Renuka?

Deepak Mohoni: Yes, at the moment nothing really working out well for sugar. Market conditions themselves being so adverse, best not to get into sugar at all and they are in freefall once more. So mix up for a little bit of getting on the short side, sugar does not have much to offer yet.

ET Now: Any trading recommendations for Monday morning, short or long?

Deepak Mohoni: Bit of both, TTK Prestige, this stock was not affected by that huge sell off Friday afternoon, so comes out as a promising stock for next week, particularly if the markets bounce back in the morning. So you have got TTK Prestige as a buy and it may be good for 4-5% over the week. Wipro, though technology also was affected by that fall not so much and technology stocks in general could offer good trades on the long side next week and Wipro is as good as any of them. Short side, you have got 2 or 3 stocks which have really been falling, lot of momentum on the downside. In fact one of them is Pantaloon which we discussed sometime back. 2 other stocks that could be good for short sales whenever the market is weak are Delta Corp and CESC. That has been losing a lot of percentage points for the last month or so.

ET Now: A quick call on VIP as well as Titan.

Deepak Mohoni: VIP is facing quite a huge sell off. In fact of all those 5-6 stocks you mentioned that has been the weakest and has practically been in freefall for the last 2 months. Titan has been slowly slipping and losing its position. It has gone below previous intermediate bottom. The long term trend in the stock has turned down and if you do not look at the rupee gold chart but the dollar gold chart, gold topped out back in September at 1900 and it has got nowhere back there and now it is below the 200-day moving average. So it looks like that bull run in gold is now truly finished. You are starting to get bear market signals in gold. So that would not look very good for Titan either going ahead.

ENAM - >> Update: Dabur India

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We recently met with the senior management of Dabur India Ltd. to get an update on the future prospects of the co. Key takeaways from our interaction are furnished below:
q       Growth to step up in H2FY12: Distribution realignment and competitive pricing pressure impacted the growth of consumer care business excluding foods (54% of revenue) in Q2. However, a combination of price hikes and increase in brand investments is expected to improve revenue growth to 16% in H2FY12.
q       Competitive intensity in shampoo remains elevated with premium brands entering the popular price point (Dove being launched at Re 1 price point). Mgmt also commented that price hike in toothpaste category has been less than adequate given the cost inflation. The fruit juice category has been witnessing influx of new players (including MNCs), which could queer the pitch in this category as well. Together the three categories constitute ~30% of Dabur’s domestic revenues.
q       Brand investment to rise: ASP spends are expected to rise owing to heightened competitive intensity and new product introduction. We are factoring in higher ASP spends at 12.3% of net sales in H2 as against 11.3% in H1.
q       Operating margin likely to remain under pressure: We are factoring in a 110 bps YoY decline in the EBITDA margin in H2.

Considering the above factors, we have marginally lowered our earnings estimates by 2% each for FY12 (to Rs 3.7) and FY13 (to Rs 4.5). However, we believe Dabur continues to maintain its competitive position for over 3/4th of its portfolio and temporary shortfalls should be perceived as a BUY opportunity.

Dabur has underperformed the Sensex by 13% over the last three months and trades at 1-yr fw P/E of 22.5x, below its 5-yr historical median of 25x. Maintain BUY with a revised TP of Rs 109 (vs. Rs 112 earlier) based on 24xFY13E earnings. At CMP of Rs 95, the stock trades at 26xFY12E and 21xFY13E EPS. Our TP implies an upside of 15% from CMP.


ENAM - >> Dec 2011 | Oil & Gas

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Burgeoning under-recoveries coupled with government & OMCs’ inability to take significant hits would result in higher subsidy burden on upstream companies. We expect FY12 upstream subsidy burden at 54% versus historical and H1FY12 levels of 33%.

Upstream stocks under threat: We expect 17-44% YoY dip in FY12 EPS for ONGC & OIL due to higher subsidy burden. ONGC would receive partial reprieve due to higher profits from OVL and Rajasthan Block. Huge cash levels of ONGC & OIL would increase the risk of government pushing for cross-holding of PSU shares to adhere to its own divestment plans.

GAIL offers a good defensive bet as threat of higher subsidy burden on GAIL is negated by very low profitability of its LPG production business. Its recent stock price correction offers good entry opportunity for investors looking at safe havens.

OMCs’ valuations are attractive (especially BPCL) but fundamental concerns over cash crunch would remain in the interim. OMCs are trading near their lows of CY08.

Key Assumptions: Crude at USD 112/ bbl for FY12 & USD 105/ bbl FY13; USD/INR at 47.6 and 46.5 for FY12 & FY13.



SCI, Shipping Corp of India Hold Target Price: Rs60:: Centrum,

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Shipping Corp of India

Hold
Target Price: Rs60
CMP: Rs62             
Downside: 3%

Slower capex on dismal macro outlook
Shipping Corporation of India (SCI) is slowing down its expansion and diversification plans on the back of expectations of continued dismal macro outlook. The company expects supply pressures in the global markets to continue to keep freight rates under pressure. It wants to slow down on its expansion plans as well as its diversification into allied activities like shipbuilding due to the challenging business environment. SCI has 26 vessels on order, while it plans to scrap at least 15 ageing ships during FY12. The adverse market scenario has impacted SCI with net losses of Rs1,465mn during H1FY12 vs. a net profit of Rs4,421mn in H1FY11. We believe SCI would remain impacted by lower freight rates and higher operating costs. We continue to have a cautious outlook on SCI with a Hold rating and a target price of Rs60.
m  Macro headwinds impact profitability: SCI has reported net loss for the last three consecutive quarters impacted by the slowdown in the sector and lower freight rates. Its net loss increased to Rs1406mn in Q2FY12 from Rs59mn in Q1 and Rs62mn in Q4FY11. It reported losses of Rs235mn at the EBIT level in Q3FY12 vs. a profit of Rs2.4bn last year.
m  Slower capex to conserve cash: SCI had set up an aggressive capex plan of Rs131bn to add 60 vessels under the 11th Five-Year Plan (2007-12). The company was able to place orders for 32 new ships, though at the peak of the shipping cycle of FY08-09 worth Rs81bn. However, it has put on hold its earlier plan to place the second round of orders for the remaining capacity during FY11-12 as it believes that the macro environment is not conducive to increase capacity as the global shipping industry is already reeling due to over capacity. SCI added 6 vessels during H1FY12 and has another 26 under construction from orders already placed.
m  Sale of older vessels to help improve profitability: SCI plans to scrap at least 15 older and ageing vessels during FY12 to help improve profits. It earned Rs324mn from the sale of two ships during H1FY12. SCI has already scrapped seven of them till date during this fiscal and of this 5 in the last two months i.e. during Q3FY12. These vessels are reaching their asset life of 25 years and are not viable to operate. While operating costs are high including higher repairs & maintenance, they have lower demand leading to lower freight rates.
m  Outlook cautious, maintain Hold: We believe SCI would remain impacted by lower freight rates and higher operating costs, which would result in operational losses. We expect SCI to report a net loss of Rs1.5bn in FY12 (aided by profit from sale of ships) and a marginal profit of Rs562mn in FY13. We continue to have a cautious outlook on SCI with a Hold rating. We have valued the stock at 0.4x FY13 P/B and set our target price of Rs60. However, we believe that there is limited downside as the stock is trading at its historical low valuations.

Auto Sales Update - Urban weakness continues ::Edelweiss

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Demand stayed subdued for cars while tractor sales were affected by the festival related seasonality. Growth of MHCV sales decelerated despite the low base advantage. The silverlining, however, was the steady demand for two wheelers and LCVs which are benefitting from rural demand and good intra-city goods movement respectively. The trend is in-line with our thesis that economic slowdown is likely to affect truck and car demand while the strong farm income should support demand for two wheelers and tractors. Prefer Bajaj Auto and Mahindra & Mahindra over Maruti Suzuki and Ashok Leyland.

Cars: Weakness prevails
Car makers continued to reel under adverse macro outlook and poor demand scenario. Maruti’s sales at 92k were down 19% YoY. Even after adjusting for the production loss and festivity, trailing three months sales are down 11% YoY.

Two wheelers: Buoyancy continues
The performance across companies was generally strong and positive. Hero MotoCorp (HMCL) reported sales of 537k units (up 27% YoY, 5% MoM) whereas TVS reported sales of 173k, up 12% YoY. Moped sales bounced back with 21% YoY growth.  Amongst others, HMSI sales at 199k were up 54% YoY while Yamaha sales at 50k were up 32% YoY. This reaffirms our positive outlook on the two wheeler segment.

Commercial vehicles: LCVs firmly on track, MHCVs decelerate
Tata Motors (TTMT) LCV sales at 28,673 units (up 41% YoY and 31% MoM) have been above expectations due to the cannibilzation from three wheelers and a strong demand for intra-city goods movement . TTMT MHCV sales growth decelerated to 9% YoY at 16,064 units from 23% in Oct despite the favorable base. We expect MHCV sales growth to taper off to low single digit from Dec onwards.

Tractors: Takes a breather
M&M registered sales of 17,527 units, down 3% YoY and 45% MoM. Historically, whenever Diwali falls in October, November experiences more than 40% MoM decline in sales.  Three key festivals including Diwali were bunched up in October which accentuated the fall in November sales. This we believe is an aberration and not trend.

BSE, Bulk deals, 16/12/2011

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Deal DateScrip CodeCompanyClient NameDeal Type *QuantityPrice **
16/12/2011531568Ashutosh PaperSHANKAR COMPUTERS FORMS PRIVATE LIMITEDB50000170.10
16/12/2011531568Ashutosh PaperMAVERICK SWEETS & FOODS LIMITEDB50000170.04
16/12/2011531568Ashutosh PaperRAMRAJYA PROJECTSB50000170.03
16/12/2011532694BartronicsRELIGARE FINVEST LTDS30000022.74
16/12/2011533469Birla Pacific MedspaBNP BANIJYA PVT. LTD.B5700006.78
16/12/2011533469Birla Pacific MedspaORBIT FINANCIAL CONSULTANTS PRIVATE LIMITEDS7806006.78
16/12/2011533469Birla Pacific MedspaJALAN CEMENT WORKS LIMITEDS10700006.78
16/12/2011511672Clarus FinanceSHREE THIRUMALAI MARKETING & INVESTMENTS LTDB10000059.64
16/12/2011524388Crazy InfotechANANT PRAKASH KABRAB5000000.31
16/12/2011533218Emami InfrastructureAMAZING VINIMAY PRIVATE LIMITEDB12500019.44
16/12/2011533218Emami InfrastructureSHOPARNA BROTHERS PRIVATE LIMITEDS17500019.49
16/12/2011531470EMPORISPALLASANNA KRISHNA SUBRAMANIANB10000020.40
16/12/2011531055GFLFINSONAL INTERNATIONAL LTDB3000014.80
16/12/2011531055GFLFINRUPESH KUMAR SINGHB3450014.30
16/12/2011531055GFLFINRAJESH HUFB3000014.40
16/12/2011531055GFLFINMSR SECURITIESSB3000014.70
16/12/2011531055GFLFINMURLIMANOHAR M.DUBEY (HUF)B4700014.78
16/12/2011531055GFLFINAISHWARYA DUBEYB3400014.80
16/12/2011531055GFLFINANAND DUBEYB4700014.78
16/12/2011531055GFLFINANAND DUBEYB3450014.80
16/12/2011531055GFLFINKALPTARU INVESTMENTS PRIVATE LTDS36210014.66
16/12/2011533150GODREJ PROPGODREJ N BOYCE MFG CO LTDB580000656.25
16/12/2011533150GODREJ PROPGODREJ INDUSTRIES LTDS580000656.25
16/12/2011513723Himalaya Gran-$MANJU BHALOTIAB3510016.81
16/12/2011513723Himalaya Gran-$AMIT JAINS3510016.81
16/12/2011530165Kanchan IntlMAHAN TRADING PRIVATE LIMITEDB1800068.26
16/12/2011530165Kanchan IntlGANESH ANANT GHADGEB2501068.33
16/12/2011530547KEN Fin ServNEHA NANDKISHORE BHANDARIB1500099.00
16/12/2011530547KEN Fin ServNANDKISHORE MOBICHAND BHANDHARIB1500099.00
16/12/2011530547KEN Fin ServASHISH CHAUDHARYS3000099.00
16/12/2011531401Khodiyar IndsSHAMSHER SINGHS389934.06
16/12/2011531515Mahan IndsTHINK BULL PRIVATE LIMITEDB19466770.21
16/12/2011531515Mahan IndsJHAVERI TRADING AND INVESTMENT PVT LTDS24530000.21
16/12/2011531287National Plast TecGREAT INDIAN SECURITIES CMPANY LTDB8850016.26
16/12/2011533399Paramount PrintMULTIPLIER SHARE & STOCK ADVISORS PRIVATE LIMITEDB4279984.77
16/12/2011533399Paramount PrintMULTIPLIER SHARE & STOCK ADVISORS PRIVATE LIMITEDS4279934.79
16/12/2011533399Paramount PrintVIJIT ASSET MANAGEMENT PRIVATE LIMITEDS2000004.71
16/12/2011533399Paramount PrintSUPREME STOCKS PRIVATE LIMITEDS1800004.71
16/12/2011512481Polytex IndiaJINAL APURVA RAWALB91292126.52
16/12/2011512481Polytex IndiaJATIN SHANTILAL SHAHB138500126.67
16/12/2011512481Polytex IndiaJINAL APURVA RAWALS79301126.61
16/12/2011511652Ram KaashyapLINCOLN PHARMACEUTICALS LIMITE DB5000025.15
16/12/2011531295Sunlake ResortsSANDESH VASANT GAVASB5000043.76
16/12/2011531295Sunlake ResortsALPESHKUMAR GOKALBHAI KOTADIAS5000043.72
16/12/2011531295Sunlake ResortsSANJAYKUMAR PARSHOTTAMBHAI MOVALIYAS6000041.86
16/12/2011517534SV ElectricalsDEEPA SUNIL JURIANIB3000008.42
16/12/2011517534SV ElectricalsDIPESH ASHOK BADHEB1050008.42
16/12/2011533339Zen TechRAVI KAMEPALLIB179900102.50
16/12/2011533339Zen TechHEMANG RAICHAND DHARAMSHIS76000102.50
16/12/2011533339Zen TechRAICHAND H. DHARAMSHI HUFS51000102.50
16/12/2011533339Zen TechRAICHAND HANSRAJ DHARAMSHIS73000102.50
* B - Buy, S - Sell
** = Weighted Average Trade Price / Trade Price

GSFC: Price target revised upwards to `653, Maintain ‘Buy’:: Sunidhi.

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We highlight several structural advantages that GSFC has and upgrade estimates to reflect the same.

We visited GSFC plant at Vadodara. It has several structural advantages in its operations due to integrated plant with backward/forward integration. It uses captive ammonia for producing fertilisers and various chemicals at Vadodara plant and transfers to Sikka (Jamnagar) unit for producing DAP. GSFC is also taking up Anone plant modernization with capex of `900 million which will reduce Benzene consumption in Caprolactam production process. We upgrade estimates to factor in these advantages and move forex assumption to `48 (from `46 earlier).

Ammonium Sulphate (AS) – by product of Caprolactam
GSFC sells AS to farmers as fertiliser and gets subsidy under NBS policy since April’10. GSFC has 148000 tpa capacity of AS, while 196000 of AS is available as by product of Caprolactam plants. Old Caprolactam plant has higher by-product ratios (over 4.5 tonne of AS for 1 tonne of Caprolactam), while new plant has better conversion efficiencies and produces significantly lower by-product (~2.3 tonne of AS for 1 tonne of Caprolactam).  Profitability on AS has significantly improved post NBS. Subsidy of `5979 per tonne is paid on AS currently.

Backward integration with Phosphoric acid manufacturing for NPK/DAP
GSFC manufactures Ammonium Phosphate Sulphate (20:20:0:13) at its Vadodara plant where it has captive phosphoric acid and sulphuric acid plants which results in higher profitability. TIFERT in Tunisia will bring another 0.18 million tonne availability for producing DAP at Sikka plant by Q1FY13 end apart from 0.42 million tonne of volume tie-ups that GSFC has from global suppliers.

Captive Ammonia - A major competitive advantage
GSFC had invested `11.2 billion for Ammonia expansion with capacity of 0.45 million tonne that was commissioned in April 2000. GSFC uses ammonia in manufacturing of several products such as Urea, Ammonium Sulphate, complex fertiliser, DAP (by transporting Ammonia from Vadodara to Sikka), Caprolactam etc. Rise in ammonia price is advantageous for GSFC in decontrolled fertilisers vis-à-vis its peers who rely entirely on imported ammonia and helps in generating sustainable higher margins. 

Price target revised upwards to `653, Maintain ‘Buy’
We believe that due to significant structural advantages such as captive ammonia and Ammonium Sulphate as by-product in fertiliser segment will have sustainable competitive advantage over its peers. We switch valuation method from P/E to EV/EBIDTA as dynamics of Fertiliser and Chemical businesses are different and accordingly, value fertiliser business at 4.5x on EV/EBIDTA (average of our coverage universe), while chemical business is valued at EV/EBIDTA of 3x given the high volatility and commodity nature of business. We revise price target to `653 (`563 earlier based on P/E of 8x for FY13E). The revision in price target is predominantly driven by upgrade in our estimates. At our target price, GSFC will trade at 7.4x and 7.8x on its FY12E and FY13E EPS. Maintain ‘Buy’

Debt Market Update - IIFL

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Please note that the yield on the 10 year benchmark bond fell  from 8.80% to  8.50% in a span of two weeks primarily on account of –
·         FII limit auction  for gilts and corporate bonds now totaling to  USD 10 billion.
·         RBI undertaking  larger bond purchase auction under open market operation (OMO). Yields dropped further from 8.69% when RBI Deputy Governor commented that that the central bank would continue to conduct open market operations (OMO)/ bond purchases  to tide over the ongoing liquidity crisis in the banking industry.

View - With growth ( 6.9 percent in Q3 of 2011) & inflation (Primary Articles Inflation at 7.74% vs 9.08% (WoW) & Food Inflation at 8% vs 9.01% (WoW)) showing a down trend, the markets are expecting an easing of monetary policy in the near future (1st half of 2012) which will be positive for bonds. However, fiscal deficit & the government's borrowing program are weighing on the fixed income markets. Fixed income markets are looking attractive in medium term as RBI is expected to relax its monetary stance in near future.

Find below CP/CD yields -
                                                                                                                                              
Issuer
Instrument
Rating
3 months
6 months
12 months
PSU Bank CD's
CD
P1+
9.25%-9.30%
9.45% - 9.50%
9.60%-9.65%
Private Bank CD's
CD
P1+
9.35%-9.40%
9.55% - 9.60%
9.65%-9.70%
NBFC
CP
P1+
9.50%-9.55%
9.80%-9.85%
9.85%-9.90%
NBFC  - High yielding
CP
P1+
10.30% - 12.25%
10.90%-12.30%
11.30%-12.40%

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