TECH MAHINDRA The big league beckons ::Edelweiss

The combined entity of Tech Mahindra (TECHM) and Mahindra Satyam
(MSAT) will be the fifth largest IT service provider based out of India with
revenues in excess of USD2.5bn and margins in high teens. We believe that
this entity will emerge as a strong contender in the current vendor
consolidation environment with a diversified practice across service lines, a
huge talent base and significant client relationships. The above merger will
also open up newer opportunities for the company in bids where minimum
past execution records are a must. We initiate coverage on TECHM with a
post merger revenue growth of 7%/9% for FY13/FY14 respectively and with
a target price of INR1,005, implying 12x our FY14E EPS estimate of INR83.7.

PERSISTENT SYSTEMS Value pick ::Edelweiss

Persistent Systems (Persistent) is a credible offshore services provider in
the niche and growing outsourced product development (OPD) space.
Strong domain expertise, marquee client base, sound management and
healthy balance sheet are its key strengths. The company will ride the next
growth wave on back of surge in spending in new technology areas and
growth in traditional OPD market. We initiate coverage with ‘BUY’ and a
target price of INR508, implying 30% upside.

ECLERX SERVICES Outlook improving ::Edelweiss

We recently interacted with eClerx Services’ (eClerx) management to get
a business update and outlook going forward. Our key inference was that
demand is on an uptick and the pipeline is better than it was a quarter
ago; hence, the company expects growth to pick up in the organic
business in Q2FY13, and expects H2FY13 to be better than H1FY13. The
improving outlook and robust growth from Agilyst give us the confidence
to build in 24%/22% USD revenue growth for FY13E/FY14E, respectively.
At 12x FY14E EPS we maintain ‘BUY’ with a revised TP of INR915.

PL INDIA: Automobiles - CV Goods Segment: Truck Rentals decline 3-4%

PL INDIA 

Automobiles

Sector Update - CV Goods Segment: Truck Rentals decline 3-4%

After a brief pause in truck rentals movement during July 2012, the truck rentals on the trunk routes decline 3% - 4% during August 2012 with 15%-20% drop in cargo availability across the country with a 4-5 days average waiting for return load. Despite record discounts and soft auto finance schemes, M&HCV goods segment declined by 10.0% YoY in Aug’12 as truck rentals for the fifth successive month remained soft. LCV goods segment grew at 15.8% in Aug’12, with growth during April-Aug’12 at 18.0% YoY. We maintain our view that M&HCV goods segment would de-grow by 9-10% in FY13E, given the drop in freight availability and softening of truck rentals. In our view, LCV goods segment is likely to grow in the range of 16-17% in FY13E. Key findings of the IFTRT report are mentioned below:

CMC In the right place at the right time ::Edelweiss

CMC is a leading systems engineering and integration company in India
with strong parentage in TCS. The company has significantly trimmed
exposure to low-margin business and enhanced proportion of system
integration and services business, leading to margin surge. We expect
revenue and earnings CAGR of 25% and 44%, respectively, over FY12-14E,
and prefer the company for its robust return ratios. We initiate coverage
with ‘BUY’ and target price of INR1,255, implying 30% upside.

Analyse financial statements before investing :: Business Line

Return on equity enables us to compare the overall performance of a group of companies.

Investors are the major users of financial statement analysis. But it is not easy to evaluate financial statements to arrive at a decision on whether to invest in a company.

This article tries to demystify the inferences an investor can make about the overall financial performance of a company from its financial statements.

Auto Compass - August: All efforts on inventory correction:: Edelweiss, PDF link

UVs and LCVs were the brighter spots in an otherwise lacklustre August. Two-wheeler sales declined for the first time in the last three years. The decline in car sales was further aggravated by the lockout at Maruti while the pace of decline has receded for heavy trucks. Given the slowdown, all OEMs are in inventory correction mode. Our inventory indicator hints at correction in cars and trucks whereas it is still high for two wheelers.

We are launching ‘Auto Compass’, our monthly review of the auto sector, detailing prevailing trends across segments and sub-segments in the sector.

Build sufficient corpus for early retirement :: Business Line

I am 40 years old and intend to retire at 48. We have no children. My salary is Rs 2 lakh a month. I also receive a performance bonus of Rs 10 lakh a year. My monthly expenses are Rs 1 lakh. I have no liability. I live in my own house. I also own another house that I intend to sell for Rs 40 lakh. I wish to invest the proceeds in mutual funds.

We have health cover for Rs 5 lakh each. We have no life insurance cover.

Post retirement, I expect my monthly expenses to be Rs 75,000 in present value. Based on our family health record, we may live up to 80.If I have Rs 4.5 crore at 2020, will that be sufficient?

My investments are as follows:

IT- midcap:: Specialized offering, holistic client mining reward mid-caps richly ::Edelweiss

Specialized offering, holistic client mining reward mid-caps richly
During the past couple of years, when some of the large cap players like Infosys and Wipro
underperformed due to massive restructuring, client specific issues (BT in the telecom
vertical) and the enduring global downturn, mid-cap and small cap players saw significant
growth opportunities. In fact, such an outperformance by mid-cap players was ingrained in
few internal as well as external factors; on the internal aspect, a clear approach to
specialization and holistic client mining was the key driver while externally, division of large
deals into smaller ones coupled with new business coming in from first time outsourcers
(with small ticket sizes) pepped up the growth.
Most of the mid-cap companies have positioned themselves as specialized players in a
vertical or a practice which enabled them to post a robust growth. Hexaware and NIIT Tech.
made large inroads, riding on their travel and transportation expertise while MindTree and
KPIT Cummins positioned themselves as specialised manufacturing and automobile players
respectively. Moreover, the holistic approach to have separate teams for hunting and
farming clients has reaped significant benefits post 2010 as seen by the massive revenue
growth in top 10 clients for Hexaware, Geometric, Polaris and MindTree. Sustained addition
to non-top 10 clients (under penetrated category) further creamed the scenario.
Fragmentation of large deals, first time outsourcers kindle prospects
On the external side, the primary reason was the fragmentation of large deals into smaller
ones besides a significant rise in small deals (Source: Nasscom) from existing clients and first
time outsourcers which were not suited for large vendors hence found its way to small and
mid-cap specialized service providers. Another notable external factor was the budget
constraint among small clients and first time outsourcers which forced them to outsource a
small portion, but at the most efficient price level which suited mid-cap vendors since their
pricing was cheaper than larger players.
CMC, Persistent and Tech Mahindra: Initiating coverage with ‘BUY’
We consider that mid–caps like CMC, Persistent and Tech Mahindra can provide substantial
returns due to their strategic positioning and attractive valuations. In the case of CMC, we
believe the unique solutions approach coupled with hi-tech offering and TCS parentage
places it in a sweet spot from both revenue growth and margin perspective. Significant
room for offshoring exists, which can be a key margin driver. We sense that it will gain from
the huge potential spending in the government space. We value the company at 12x our
FY14 EPS of INR104, implying a target price of INR1,255 and ‘BUY’ recommendation. For
Persistent, we believe that investments in IP-led business (to increase IP revenues to 20%)
coupled with its `sell with’ strategy with major players like salesforce.com will be a strategic
trigger going forward. We value the company at INR508, implying 10x FY14 core EPS of
INR42 and INR90 cash/share and initiate with ‘BUY’. Following its merger with Mahindra
Satyam (likely to be over in next few months), Tech Mahindra will have a huge base of
~500+ clients. This, coupled with TECHM’s client mining capability (its average of top 10
client is USD91m) will impart a high impetus to the company over and above the significant
operational leverage in terms of employee fungibility which would help enhance utilization
and margin improvement. We value Tech Mahindra at INR1,005, pegging 12X FY14E EPS at
INR84 (implying a target price of INR118 for Satyam – ratio of 1:8.5) and initiate with ‘BUY’.

Ambuja Cements -New capacity, de-bottlenecking to drive growth :Motilal Oswal

Prices holding up; limited downside risks to profitability
 The company expects cement volumes to grow 8-9% in CY12. Infrastructure and
rural economy would be the major long-term growth drivers.
 Pricing has been holding up and the management sees limited downside risks to
profitability, given the higher capex costs.
 Post the recent outperformance, the stock is trading at a premium to historical
average valuations. We expect strong earnings growth to be the key driver of stock
performance. Buy.

Sobha Developers: Hold :: Business Line

 

Shareholders of real-estate developer Sobha Developers can hold the stock. The company has shown a visible improvement in its sales and earnings growth in the last two quarters of March and June 2012, compared with their year ago numbers.

Its established market presence in Bangalore, besides reasonably successful entry into the new market of Gurgaon have aided growth. Still, at 14 times its expected consolidated per share earnings for FY-13, the valuation is demanding, given that peers trade at low-single digits.

Significant scale-up in revenue in FY-13 and higher volume from real-estate development rather than land sales will be key to improved earnings and reasonable valuations. The company’s sales at Rs 1,408 crore in FY-12 are still marginally lower than its peak sales of Rs 1,431 crore in FY-08.

Net profit at Rs 210 crore is also 9 per cent lower than in FY-08. Revenue booked in FY-13 may be a tad low as the company is moving to a changed revenue recognition policy. It will now recognise revenue on 25 per cent completion of projects from 20 per cent earlier.

ACC: Intends to attain cost leadership, maintain market share :Motilal Oswal

Significant increase in capital cost, but sector fundamentals intact
Not only did ACC participate in the Motilal Oswal 8th Annual Global Investor Conference,
CEO & MD, Mr Kuldeep Kaura also presented at the CEO Track. Key takeaways:
 Demand outlook for the cement sector remains positive, with volumes likely to
grow at a CAGR of 8-9% against ~7% GDP growth over the next 10 years.
 ACC is focusing on maintaining its 11% market share and attaining cost leadership in
a high cost (capex & opex) environment.
 Given the increase in capex cost, the industry would require higher profitability to
earn reasonable RoCE. Hence, the company sees limited downside to current pricing.
 Given its pan-India presence and strong brand equity, ACC is one of the best proxies
on the Indian Cement industry. However, we maintain Neutral, as valuations are fair

Ports - A port of entry; sector update:: Edelweiss, PDF link

The Indian ports sector is on the cusp of a renewed growth phase largely due to an intense focus on transportation economics, legacy issues at government-owned ports, and rising demand for minerals and goods. Besides, Indian GDP has a subtle linkage to global trade; hence, we expect the weakening global economy to have a muted impact on the country’s cargo growth. With capacity addition at major ports lagging due to delayed approvals/bid-outs by the government, more proficient private ports are reaping the benefits. Initiate coverage on Essar Ports with ‘BUY’, Gujarat Pipavav Port with ‘REDUCE’ and maintain our ‘BUY’ recommendation on Adani Ports.

Sizzling Stocks - HDFC MF Gold ETF; NMDC :: Business Line

 HDFC MF Gold ETF (Rs 3158.5)

International gold prices witnessed third straight weekly gain to settle at $1735.4 per ounce, the longest winning streak since this January. Mounting expectation of monetary stimulus from Europe and the US made investors increase their gold holdings, sending gold ETF prices soaring. The HDFC MF Gold ETF gained 9 per cent to register an all-time high at Rs 3270 on Saturday. However, it failed to sustain at higher levels and gave away some gains to settle at 5 per cent weekly gain. This ETF has been on a long-term uptrend, shaping higher peaks and troughs, ever since its listing in August 2010.

Medium as well as short-term trends are also up for this ETF. The daily and weekly indicators are hovering in the over brought territory implying that minor correction or sideways movement can occur in the short-term. Immediate key supports are at Rs 3,000 and Rs 2,950. A fall below the second support can pull the ETF down to Rs 2,850 in the medium-term. Next significant medium-term support is pegged at Rs 2,725 levels. On the other hand, the uptrend will encounter resistances at Rs 3,200 and then at Rs 3,270 levels. Next important medium-term resistances will be at the psychological levels at Rs 3,400 and Rs 3,500.

Sales Traders Commentary ::.September 11, 2012-EDEL

Sales Traders Commentary

On Monday, the Indian equity market closed flat after moving in a narrow range throughout the session on tracking mixed cues from global markets. Both Sensex and Nifty gained marginally by 0.10% each. Buying was seen in consumer durables, healthcare, and metal stocks while realty, financial, and power stocks faced selling pressure.  
The Sensex closed at 17766, up 18 points, while the Nifty jumped 05 points to end the day at 5363.
Major gainers were Sun Pharmaceutical Industries (2.63%), Bharti Airtel (2.32%), Coal India (1.76%), Tata Steel (1.63%), Tata Motors (1.28%), and Bajaj Auto (1.19%).
Major losers were Jindal Steel & Power (2.16%), Bharat Heavy Electricals (2.15%), State Bank Of India (1.80%), Tata Power Company (1.19%), Wipro (1.17%), and Cipla (0.96%).
The Consumer Durables index was up 0.99%. Major gainers were VIP Industries (5.81%), Titan Industries (2.4%), Videocon Industries (0.43%), and TTK Prestige (0.38%).
The Realty index slipped 0.78%. Major losers were Housing Development and Infrastructure (3.27%), Indiabulls Real Estate (1.45%), DB Realty (1.34%), DLF (1.03%), and Anant Raj Industries (0.79%).

The Bankex was down 0.77%. Major losers were Indusind Bank (1.31%), Bank Of India (1.15%), ICICI Bank (0.72%), Federal Bank (0.68%), and HDFC Bank (0.09%).
Major gainers in the mid–cap space were A I A Engineering (2.8%), CORE Education and Technologies (2.55%), Aban Offshore (1.92%), Allcargo Logistics (0.41%), and Alstom India (0.03%).

Major gainers among small caps were Action Construction Equipment (19.79%), A2Z Maintenance & Engineering Services (5.49%), Aarti Industries (4.62%), Trident (1.5%), and Aanjaneya Lifecare (0.02%).
Globally, Asia ended on a mixed note while European indices were trading in similar sentiments.