13 September 2013

Term Sheet - HUDCO Tax Free Bond

Housing and Urban Development Corporation Ltd. (HUDCO) is scheduled to come up with its public issue of Tax Free Secured Redeemable Non Nonconvertible Debentures on 17th of Sept 2013 & it’s a pleasure mentioning that RR has been mandated as Lead Managers to the issue.
The ROC approval has been received; we shall be sending the soft copy of the application form shortly.
Issue Highlights:
Issue Opening - 17th September 2013
Issue Closing - 14th October 2013
Rating - ‘CARE AA+’ from CARE and ‘IND AA+’ from IRRPL.
Allotment – 1st Come 1st Serve
Issue Size - Rs. 750 cr (Base Issue Size) with option to retain oversubscription upto the shelf limit (being Rs. 4809.20 cr)
Issuance - Both in Physical & Dematerialized form

Coupon Rate:
Options
Series of Bonds
For Category I, II & III
Tranche – I Series 1A
Tranche – I Series 2A
Tranche – I Series 3A
Interest rate (%) p.a.
8.14%
8.51%
8.49%
Options
For Category IV only
Tranche – I Series 1B
Tranche – I Series 2B
Tranche – I Series 3B
Interest rate (%) p.a.
8.39%
8.76%
8.74%

Fund Talk - Start with a balanced fund :: Business Line

I am 23 years old. The only investments I’ve been able to do so far are for tax-saving purposes. I am currently investing in an LIC policy with a premium payment of Rs 36,000 annually, and also some money in the PPF.
I am looking for other investment options with good returns in 5-10 years’ time. I can invest Rs 5,000 per month.
Mayank Joshi

BNP Paribas- INDIA STRATEGY When macro begins to matter

When macro begins to matter
n A prolonged slowdown – longer than we had anticipated
The continuing slowdown, in both investment and consumption, of the Indian economy has recently
been aggravated by the RBI’s liquidity tightening as it attempts to stabilize the INR. The INR,
however, remains volatile, implying that tight liquidity will continue longer than we had anticipated.
These factors, coupled with a lack of bold fiscal policies in a pre-election year led, BNPP Chief Asia
Economist Richard Iley to cut his Indian GDP growth forecast to 3.7% in FY14 and 5.2% in FY15.
Also, BNPP analysts have reduced earnings estimates across various sectors, primarily financials,
engineering and capital goods, consumer staples and discretionaries. There are potential silver
linings for the economy in the form of abundant monsoons supporting rural consumption and a
‘natural’ narrowing of the trade gap due to currency depreciation.
December 2013 Sensex target reduced to 17,000 from 21,300 previously
We held onto our earlier Sensex target of 21,300 for quite a while because we had already factored
in earnings downgrades. What we had not anticipated was the extent and pace of INR depreciation,
which has not only raised the cost of capital but also portends sharper earnings cuts than we had
foreseen. We have cut our Sensex target 21%, of which 12% is due to lower valuation multiples and
9% due to earnings downgrades. Despite INR-induced tailwinds to exporters and forex earners
(c30% of earnings), our Sensex EPS estimates of INR1,300 in FY14 and INR1,477 in FY15, based
on BNPP analyst estimates, appear at risk.
Top REDUCE ideas – Maruti, HUL, Nestle, SBI & BHEL
Even the erstwhile ‘FII darlings’ in the consumer space are suffering from earnings downgrades, and
their rich valuations are becoming increasingly unsupportable. In conjunction with our analyst views,
we note importers like Maruti, asset-quality victims like SBI and competition victims like BHEL as the
riskiest shares in the present scenario. Since late August, FIIs’ sense of fatigue about the so-called
defensives is becoming apparent. We also highlight Cummins and M&M as victims of sustained
economic slowdown, though M&M has some support from tractor sales. DLF suffers from the double
whammy of high leverage and slow growth

Financial Planning: Sept 13 :: Business Line

    













Morgan Stanley Research, India Oil & Gas Reiterate Our Preference for Upstream

India Oil & Gas
Reiterate Our Preference for
Upstream
The macro environment is getting tougher with INR
depreciation over 25% since early May and expecta-
tions of lower GDP growth. Prefer stocks with
strong balance sheets; upside risks to earnings;
and favorable dollar exposures. RIL remains our top
pick, scoring favorably on all three criteria.
Increasing our estimates for subsidy: We increase our
F2014 subsidy estimates by 15% to Rs1,525bn, which is
1.4% of GDP, to factor in the impact of a higher INR/USD.
This assumes a one-time Rs5/litre diesel price hike
without which the subsidy will be at Rs1,755bn (1.6%
GDP) – ~5% higher than F2013 levels.
RIL is our top pick: RIL stock is now at an inflection
point as post three years of earnings downgrades, when
it underperformed the Sensex by ~30%, we are finally
seeing upgrades. We are raising earnings by 5-9% to
factor in impact of INR depreciation. Higher gas prices
and volumes, a stronger USD and commissioning of its
three downstream projects should lead to doubling of
profits over F2013-17e.
ONGC’s earnings to grow, even assuming the
worst: ONGC stock has underperformed the Sensex by
~17% in the last three months, losing all of its out-
performance since the beginning of the year on investor
concerns of a higher subsidy burden. Even assuming
US$40/bbl as net-realisation lowest it has earned in
F1Q14, we estimate earnings CAGR of ~10% over
F2013-16, driven by: a) higher gas price; b) higher
production; c) dollar-linked earnings at subsidiary OVL.
Cairn India a pure play on oil prices and FX but
lacks clarity on growing cash balance: We are
raising earnings by 10-21% as we MTM our FX and oil
price assumptions. However, we remain EW as: a) lack
of clarity on a growing cash (>30% of CMP); and b)
earnings likely to have peaked in F2014 as
government’s share of profit petroleum is to increase
from the current 30% to 40% in F2015e, effectively
negating gains of higher production.

Morgan Stanley Research, The New Spain

The New Spain
The Spanish economy looks set to grow again. But
whether a subpar recovery turns into a more
sustained upswing hangs on where Spain is in the
process of deleveraging, rebalancing and
reforming. There’s more to do, but we’re more
constructive than market expectations on Spain’s
ability to set itself apart from the rest of the
periphery in the medium term.
Exiting recession: GDP should have troughed. We
expect above-consensus growth of close to 1% on
average in 2014-15. That’s good news, but it’s also only
one quarter the pre-crisis pace of growth.
Continuing to reform: The momentum remains strong,
with measures being announced and implemented in
many areas. This should lift potential GDP and, in time,
help boost job creation.
An export-led recovery: Exports are structurally
strong. They’re growing, also as a share of GDP, as
competitiveness is improving courtesy of wage
moderation – in part due to labour market reforms.
Job market stress: Domestic demand is likely to stay
weak. Our worry is not that unemployment will go much
higher. It’s that it will not come down quickly.
Housing market vs. construction investment: House
prices will likely fall further, but the bubble in (residential)
construction investment has almost fully corrected.
Thus, it should cut less into GDP growth.
Deleveraging across the board: The current account
is now in surplus, but external debt remains elevated.
The public finances are not yet stabilised. Balance-sheet
repair is more advanced for corporates than consumers.
Banks’ health: Banks have provisioned c. €250 billion
(14% of their loan books) and raised €130 billion of
capital since 2008. The increased coverage levels in
real estate, together with the 2012 stress tests, lead us
to believe the sector is now more reasonably capitalised.

How to update bank details in your folio :: Business Line

We sometimes hear an investor say, “I have changed my bank account and did not inform the Mutual Fund. I have received a dividend cheque with the old bank details printed therein.” Obviously, the investor would like the cheque to be resent with the details updated. For this, he/she must register the details of the new bank account in his/her folio.
Here is a checklist for investors to ensure correct and speedy payout of dividends and redemption proceeds.
Core-banking account number: There could be a change in bank details as an investor’s bank may have installed Core-Banking solutions. In such cases, even though there has been no change in bank account, the investor should remember to update the new account number in the folio(s).This can be done by sending a written request duly signed by the Unit Holder(s) along with a cancelled cheque leaf with the investor’s name and full account number printed therein.
IFSC Code: IFSC or Indian Financial System Code is the electronic address of the bank branch where funds would be transferred. It is an alpha-numeric code containing 11 characters, allotted by the RBI to uniquely identify bank-branches in India.
Investors who register their IFSC codes in their folios will be eligible to get electronic payouts through NEFT/RTGS. Attach a cancelled cheque leaf reflecting the code along with a signed request to get the same updated.
Mode of payout: While sending a request to update the IFSC code in the folios, investors may also request for the mode of payout of dividend/redemption proceeds in the folio to be changed to electronic. Opting for electronic mode for payout ensures faster, safer, and a definite, receipt of payout.
New bank account: If you are changing your bank account, please register the new bank details in your folio(s). To do this, investors should send a written request duly signed by the Unit Holder(s).
Along with such a request, proof of both the earlier and the new bank accounts should be attached in the form of cancelled cheque leaves with the investor name and account number appearing therein.
Registration of additional bank account(s)/deletion of bank account: Mutual Funds now offer a facility to individual investors to register up to five bank accounts in a folio.
To register additional bank accounts, investors would have to fill the registration form. Forms are available at the Mutual Fund web sites/Service Centres. Investors would have to attach a cancelled cheque leaf with their name printed therein or a copy of the bank passbook/statement of bank account containing the name and address of the account holder and account number. This copy should be certified by the bank manager with his/her full signature, name, employee code, bank seal and contact number.
Registering for this facility enables you to receive redemption proceeds into any one of the registered bank accounts of your choice without having to provide for bank details and the supporting documentation at the time of redemption. The same form, used for registering additional bank mandates, has a section for deleting a bank account and investors should ensure that accounts not in use are deleted.
Default bank account: At the time of registering multiple bank accounts, investors have to specify any one bank account as a “Default” bank account. Dividend proceeds are processed into this default bank account only. Investors may specify any of bank accounts for the credit of redemption proceeds. If no account is specified in the redemption request, redemptions will be processed into this default bank account.
(Contributed by CAMS Viveka, an Investor Education Initiative from CAMS. 

Upgrade Cadila to OUTPERFORM : Credit Suisse

● We upgrade Cadila to OUTPERFORM as risk-reward is in favour
now with concentration of profits in Joint Ventures reduced and
launch of Divalproex Sodium ER in the US could add 10% to FY15
EPS. Cadila has a strong ANDA pipeline and Divalproex should
bridge the gap before approval rate in the US pick up in FY15.
● Annual report shows JVs contribution to consol EBITDA reduced
to 24% in FY13 (FY12: 32%) and further to 18% in Jun-13 quarter.
This addresses our concern and reduces profit concentration.
● Cadila improved Biochem margins in FY13 (PBT margins up from
5% to 11% in FY13) but Nesher is still loss-making (Consent
Decree related charges). Nesher loss should reduce as
Oxycodone ramps-up and Nesher gets approval of third product.
● Cadila remained FCF negative in FY13 due to high capex
intensity. It should turn FCF positive in FY15 when US approvals
ramp-up and capex intensity reduces (manufacturing facility for
biosimilars and vaccines already completed in FY13). We cut
FY14E EPS by 10% (due to pricing policy impact and slower US
approvals) and TP by 5% to Rs760. Upgrade to OUTPERFORM

Regulator suggests sharp cut in spectrum prices - but more to go (+ve Bharti/Idea) : Credit Suisse

● TRAI released its recommendations on spectrum pricing on 9
Sep. Directionally, the recommendations are in line with
expectation, seeking a 37% cut in average reserve prices vs
recent auctions.
● However, we believe that the suggestions are not foolproof (i.e.,
risks of auction failure still exists). While top circles like
Mumbai/Delhi have seen sharp (50%+) spectrum price cuts, in
half the country the reserve price has been untouched (in spite of
the previous auction clearly failing in 10 of these markets). We
believe this is not the end of spectrum price cuts in India.
● Crucially for incumbents, Bharti/Idea, the near-term renewals are
addressed with sharp cuts in top circles and a reduction in
900MHz premium to 1.6x over 1800MHz (from 2x). The NPV hit
for Bharti/Idea come down by up to 45% (with next three-year
payouts a comfortable 4-16% of FCF).
● Next steps: TRAI's suggestions will be taken up by DoT (govt)
while framing rules for the next auction. Given the tight court
directives, it is unlikely DoT will do anything that could risk auction
failure (i.e., no increase in price likely). Retain OP on Bharti/Idea.

Morgan Stanley Research, Sesa Goa Catalysts Starting to Work; Upgrade to OW from EW

Sesa Goa
Catalysts Starting to Work;
Upgrade to OW from EW
What's Changed
Rating Equal-weight to Overweight
Price Target Rs154.00 to Rs240.00
Market seems to be appreciating the value that
Sterlite brings to Sesa post the planned merger,
though this is yet to be reflected fully. Solid zinc
assets, improving Balco and power divisions, and
possibility of minority consolidation are the key
benefits from Sterlite (we were positive) for Sesa.
The recent uptick in Sesa stock (up 55% from its Aug-13
bottom, though down 5.5% YTD) largely reflects the
gains from the merger of Sterlite, we feel.
Key themes for our positive stance on erstwhile
Sterlite that are playing out: 1) Restructuring and
possible gains – This is close to being completed and
the full benefits should be visible over six months. 2)
Increased possibility of minority consolidation (can add
Rs10/share to fair value of Sesa-Sterlite). 3) Continued
improvement in power division as coal crunch eases.
Keys that make us even more optimistic on and
prompt further upgrade of our fair value estimate of
Sterlite assets and that contribute to our upgrade on
Sesa: 1) improving conversion cost and upcoming
expansion at Balco, which is being aided by INR
depreciation; 2) higher visibility on India zinc expansion.
Why we feel Sesa assets look better than before:
Post restructuring, Sesa’s fastest-growing divisions will
be from the erstwhile Sterlite. Apart from these, Sesa is
getting a mix of good (high return/high cash flow oil and
gas division) and bad (high debt VAL, which has raw
materials issues). On Sesa, we had been EW due to nil
output of iron ore owing to mining ban. However,
Karnataka now seems set to start mining in the next two
to three months. Also, hearings for the Goa mining case
have started and government is considering a reduction
in the export tax on iron ore

Morgan Stanley Research, Coal India: Good Jump in Volumes in August

Coal India Limited
Quick Comment: Good Jump
in Volumes in August Though
Still Trailing the Target YTD
Impact on our views: We remain positive on medium
term prospects of the company even though we
acknowledge that share sale plans announced by the
government may weigh on the stock near term. Solid
volume growth, robust price hikes and meaningful
dividend payments are the key reasons for our optimism
over the medium term.
Strong YoY volume growth in August ’13: CIL
produced 31.7 mt of coal in August, implying YoY growth
of 10.8%, even though this was short of company’s
target by 3%. YTD F14, CIL has produced 167.3mt (YoY
growth of 2.8%), ~6mt short of the target. For full year
F14, we are assuming production of 477mt, i.e., about
5mt lower than the company’s target and indicative of
5.4%YoY growth. August YoY performance was aided
by base effect, as last year August and September had
seen muted output due to the monsoon effect.
Dispatches during the month were up 6.7% and YTD
F14 are up 3.7%. YTD F14 dispatches are trailing the
target by about 3.5mt. We are assuming full-year figure
of 491mt, about 1mt short of CIL’s own target and
implying YoY growth of 5.5%. Rail rake availability in
August stood at 177(up 13%YoY although sequentially a
decline of 6% due to monsoon impact). YTD F14 rail
rake availability has been 187, i.e., up 7.5%. YTD F14
the company has been able to liquidate about 21mt of
inventory and is now sitting on ~ 37mt of coal inventory.
We believe that in the remaining months of F14 the
company can achieve its target, and hence our volume
forecasts for F14 seem realistic to us.
Our assessment indicates that e-auction prices are
running slightly higher than those in 1QF14 even though
lackluster demand is curbing offtake of e-auction coal.

India Equity Strategy Field visit some positive momentum on exports: BofA Merrill Lynch

Field visit: some positive
momentum on exports
„Can sharp depreciation in INR revive exports?
Following the announcement of measures yesterday by the new RBI Governor,
Raghuram Rajan, to boost capital flows, we have seen some stability in the rupee.
While the focus of the RBI and the Government has so far been on the capital
account, they know that longer-term stability of the rupee will only be driven by a
lower Current Account Deficit (CAD). In this regard, we visited some garment and
textile exporters and have come away with a sense that exports will see a pick-up
over the next few months.
Better prospects for export industries?
Textile (including garment) exports, at $27bn, are India’s third-largest export item
and account for 9% of the country’s total exports. We visited a few textile and
garment exporters and indications were that exports were picking up. Three
factors are leading to better prospects in the industry:
1. Revival of US demand: There is a definite pick up in demand from the US,
following improved economic activity there. The US is the largest export
destination for Indian textile and garment exports, accounting for around 18%
of total exports (see Chart 8). While EU demand is still sluggish, it is no
longer deteriorating.
2. Rupee depreciation has helped competitiveness: Margins have picked up
for exporters with the sharp rupee depreciation. The exporters believe that
they will gradually see margins back to normal levels, but also should see
some volume growth, as they have become more competitive compared to
countries like China and Bangladesh that are big players in the trade. Chart 6
shows that the Indian rupee has depreciated 22.5% vs. China and 23.5% vs.
Bangladesh.
3. Accidents and more stringent safety measures in Bangladesh:
Bangladesh had a fire in a garment factory last year, followed by the collapse
of a building this year. This could lead to greater safety standards and
increase their cost of production. While this is a small point, it is helping on
the margin.
A lower CAD would help the currency
Export growth in India has fallen sharply from over 20% in 2011 to negative or low
single digits in the past year. A revival in exports accompanied by a compression
in imports (especially in gold) could help the trade deficit reduce to the $10-12 bn
per month level over the next few months. This is essential for the stabilization of
the rupee, since the capital flow environment will get tougher as US interest rates
rise and the Fed tapering reduces risk appetite.

Cyclical challenge to the bears :: JPMorgan,

 We are less bearish on EM. The fundamentals are still challenging, but
better cyclical data (PMIs) combined with universal bearish positioning
are likely to drive markets for the balance of 2013. Stabilization in
current account deficit currencies is a catalyst to cover shorts. Our
advice is to buy tech, exporters and import substituters in countries with
weak FX, financials in CAD countries where FX is stabilizing, Thailand,
and the Philippines. In China, we recommend buying beneficiaries of
policy priorities and long-term growth themes.
 Hong Kong and Singapore are the most vulnerable to the Fed’s policy
normalization. We downgrade HK to underweight; avoid utilities, banks
and property in favor of gaming and exporters. We remain neutral on
Singapore due to record-high shorts.
 August was a value month globally except for Japan. Price Momentum
underperformed as it is the natural counter trade to Value given its
defensive positioning . Our derivatives strategists believe
that 2M put options on ASX 200, KOSPI 200 and H-shares are attractive
protection strategies to hedge the tapering risks .
 Technical strategy suggests the end of underperformance of EM vs
World. North Asia is positioned to outperform while ASEAN and India
should continue to underperform. The underperformance of tech,
materials and energy is close to bottoming out, consumer discretionary
outperformance continues to build led by autos while financials and
defensives should underperform .
 Key asset allocation calls:
OW: Japan, Taiwan, Thailand, Malaysia and the Philippines
UW: Australia, Hong Kong and Indonesia
 The key risks to markets include Syria generating an oil price shock
and faster normalization of US interest rates (possible catalyst is nominee
for new Fed chairman). The key risks to our strategy include a
correction in the rupiah and the sustainability of China growth.

Tata Power, Committee takes a benign view; translation of compensation into cash flows to get delayed : Credit Suisse

● Our interaction with stakeholders suggest that the Committee
formed to suggest a ‘compensatory tariff’ for Mundra UMPP project,
based on the CERC's judgment in April, has effectively suggested
the pass-through of entire fuel cost (Rs0.59/kwh for FY14).
● This tariff needs to be adjusted for coal supplies to Mundra UMPP
from Indonesian coal mines proportionate to its 30% stake which is
likely to be marginal at Rs0.02/kWh on full operations. Other key
recommendations include sharing of potential profits from the sale
of power to third parties beyond mandated 80% plant availability,
request for loan restructuring and compensatory tariff cap.
● The committee has taken a benign view for Mundra UMPP which
is positive for Tata Power but we still do not rule out the possibility
of the this order being litigated by SEBs and consumer forums.
● Also, under-recoveries in even fixed costs mainly led by sharp INR
depreciation are a concern. In the meanwhile, Mundra UMPP’s
cash losses would eat away most of cash flows earned by its other
businesses. Tata Power has already eroded 84% of its equity
investments in Mundra UMPP. Maintain UNDERPERFORM