03 September 2013

ITC: Premium over historical valuations justified :: Credit Suisse

● ITC’s share price correction has brought its P/E in-line with its
3-year average. However, valuations are above its 15-year
average P/E of ~20x, which we believe is deserved given the
significant improvement in FCF, return ratios and business mix.
● ITC’s 15-year average P/E is depressed due to the sharp fall in
valuation during 2001–05. That period saw a de-rating of tobacco
companies globally due to a series of lawsuits which led to very
large penalties on companies in the US. ITC’s diversification into
FMCG and pending excise related cases were also drags.
● ITC’s FCF conversion has sharply improved over FY07–13, going
up from sub-20% to ~80%. ROE has moved up from 26% to 36%.
The share of non-consumer businesses, which rose to a peak of
24% in FY07, is now down to 16% in FY13. Qualitative factors like
competitive risks from Marlboro have also dissipated.
● ITC is largely unaffected by the rupee depreciation, having very
minimal dollar linked costs and some exports. We expect the
company to continue to deliver 18–20% earnings growth. ITC
continues to be our top pick in the FMCG sector.

India Economic Watch Some relief, may be, but FX reserves really the key :: BofA Merrill Lynch

India Economic Watch
Some relief, may be, but FX
reserves really the key
Bottom line: Rebuilding FX reserves key to INR stability
We welcome yesterday’s initiatives to provide RBI swaps to fund oil imports and
seek swap lines against trade arrangements as short-term relief. Yet, to stabilize
INR expectations, we believe that the Reserve Bank of India (RBI) will have to
take far more pro-active steps to rebuild FX reserves to make up for not buying
FX in 2H09-1H11. It is for this reason we believe in the urgency of launching a
scheme to attract chunky FX inflows where the INR risk would be borne by the
RBI or the fisc to comfort investor confidence: NRI or sovereign bonds or reviving
FCNRA deposits. After all, India's import cover has halved to seven months - last
seen in 1998 - in the past five years, below the eight to ten months needed for
INR stability. We ourselves estimate that the RBI would be hard pressed to sell
US$25bn, and every US Dollar sold will likely only raise further questions about
the adequacy of FX reserves. Do read our last Rupee Dilemma report here.
RBI swap lines for oil cos, swap lines with trading partners
RBI to offer swaps to fund oil imports. The RBI has just introduced swaps to
meet the entire daily USD requirements of three public sector oil marketing
companies (IOC, HPCL and BPCL). Needless to say, the scope of this initiative is
limited by the increasing inadequate size of FX reserves. Under this facility, the
RBI will undertake sell/buy USD-INR forex swaps for fixed tenor with them
through a designated bank. This gets operationalized with immediate effect and
will remain in place until further notice.
Swap lines with trading partners. The government has set up a panel to
explore the possibility of using local currency for trade with major trading partners.
The purpose is limited to examining swap of national currency for trade which is
distinct from currency swap agreements of central banks.
RBI needs to raise FX to intervene credibly
We continue to emphasize our belief that the RBI will have to take far more proactive steps to rebuild FX reserves to make up for not buying FX in 2H09-1H11.
After all, India's import cover has halved to seven months - last seen in 1998 - in
the past five years, well below the eight to ten months needed for INR stability.
India’s BoP indicators are now trailing BRIC levels (Table 1). We estimate that the
RBI would be hard pressed to sell US$25bn, and even then, every US Dollar sold
will likely only raise further questions about the adequacy of FX reserves. Do read
our how-much-can-RBI-sell report here.
We agree with Delhi and the RBI that the INR collapse is likely overdone.
Although, INR expectations are racing to Rs70/USD (and now, even Rs75/USD),
our own fair value is Rs51.1/USD. It is for this reason we believe in the urgency of
launching a scheme to attract chunky FX inflows where the INR risk would be
borne by the RBI or the fisc to comfort investor confidence: NRI or sovereign

SREI INFRASTRUCTURE FINANCE BOND: High risk dims returns :: Business Line


Investment Focus: REC bonds offer good yields - INVEST :: Business Line


Five situations in which you should dump stocks , ET Bureau

In equity investing, it is advisable to take a long-term view, though one shouldn't simply buy and forget. Knowing when to sell shares is as crucial as the time at which you buy. ET lists the situations in which you should dump them...

1) Change in company's fundamentals

When you buy a company's shares, you do so because you are convinced about its growth prospects. This may be due to its competitive advantage, superior product mix, quality management, upcoming projects or new technologies, or a combination of all of these. However, if, after the purchase, you find that things have taken a turn for the worse, or that the reasons on which you based your decision are not materialising, you need to rethink.

An adverse event may be threatening to put the business in a spot; a fierce new competitor may have entered the fray, offering superior quality products at a lower price; key personnel may have left the company; or projects may have hit a roadblock. In such events, you should reassess the company's outlook, and if found wanting, you should sell the shares before the rot sets in.

Bluechips to beat the blues :: Business Line


I am positive on India: Rakesh Jhunjhunwala

Rakesh Jhunjhunwala, partner at Rare Enterprises, said the real turnaround will happen after elections with the return of confidence.



The current uncertainty that has hit almost every man on the street, has not shaken Rakesh Jhunjhunwala's faith in India. The ace investor and trader, who is also a qualified Chartered Accountant, remains as optimistic as he was during the bullish days and claims he has not lost confidence in this country's future. Jhunjhunwala, often called pin-up boy of bull run, told Udayan Mukherjee on CNBC-TV18 that the real turnaround will happen after elections with the return of confidence.
Although he reduced his stake in watches-to-jewellery maker Titan Industries early this year, Jhunjhunwala says he will sit on the remaining shares of this cherished company for the long term.
Below is an excerpt from Jhunjhunwala's exclusive interview on CNBC-TV18
Rakesh Jhunjhunwala: I still retain (my) full confidence in India. I still think that India will grow in double-digits; it may take two, it may take three but it is not going to take five years. I feel this country is gone into a process of consolidation and correction. I like the way the other organs of democracy have responded to all the mis-governance. That gives me great confidence in this country.
So, although I should be worried that market could fall in the short-term, but I am not worried. I think so be it. How is it going to affect me? Maybe the value of my portfolio may come down by some amount, but that does not affect me because I do not mark my portfolio to market everyday.