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India Equity Strategy: Cyclical rebound in tax revenues continues [Abhay
Laijawala]
Latest tax data (Nov’10) indicate that tax collections continue to exhibit strong
cyclical rebound, in line with strong GDP growth (which has surprised even the
optimistic estimates, by coming in at 8.9% for 1HFY11). Growth rate in tax
revenue continues to run ahead of FY11 budgeted estimates, 28.7% yoy (AprNov’10) vs. FY11 estimate of 17.4%yoy. With imports rising sharply - on the back
of a strong demand environment - custom duties have remained the biggest driver
of growth in tax collections, rising 67% yoy (Apr-Nov vs. FY11 est of 36%). Service
tax growth has improved over 1HFY11, rising 18.2% yoy vs. 14.8% posted in
1HFY11.
Oil & Gas: Petrol price hiked, diesel hike expected soon; Buy ONGC [Harshad
Katkar]
BPCL from today has raised petrol price by INR2.95/lit (5%) to bring domestic
petrol prices to market parity. According to media reports (Business Standard), the
other Indian state-run oil marketing companies (OMCs) IOCL and HPCL will also
increase petrol prices by a similar magnitude in the next few days. The retail prices
for petrol have been increased by INR4/lit (7.4%) in the last 3 months. There is no
impact of this increase on our earnings and valuations as we already assume nil
under-recovery for petrol for Q2FY11 and beyond in line with the Government’s
decision to deregulate petrol. However, the magnitude of the increase helps
address investor’s concerns about the sustainability of petrol price deregulation
and fuel price reforms in the face of rising oil prices.
Lanco Infratech: Coal assets get even dearer [Manish Saxena]
Lanco has emerged as the highest bidder of Western Australian Collie coal mines
of Ric Stowe’s failed company-which produced ~ 4mntpa of steaming coal.
According to management, the deal would give them rights to mine 1.1bn of
resources as per JORC standard. Key takeaways - (1) Lanco's coal requirements
for ~ 3500MW of thermal based power plants are met, (2) Lanco Infratech may
require equity dilution, (3) Thirdly, with cost of power generation largely settled,
the management to go for greater amount of Case-1 bids rather than selling in
merchant.
Asia Economics Monthly: December [Michael Spencer]
We expect slower growth in 2011 and broadly stable inflation, although. there are
risks from fuel and food prices. Asia’s “growth alpha” is declining but it’s “growth
beta” seems as high as ever. Korea still seems relatively more vulnerable to a
reversal of capital flows. But higher interest rates will likely depress demand there
and in HK, Malaysia, and Taiwan due to high debt burdens. INDIA: Growth
accelerated close to 9% in 1HFY10/11; we upgrade our fiscal year forecast to
8½%, expecting slightly slower growth in H2.
Asia Economics Special: India: WPI inflation eases to 7.5%; RBI to pause
temporarily [Taimur Baig]
India's WPI inflation eased to 7.5% in November (from 8.6% in October). The
September figure was revised up to 8.9% from 8.6%. At a first glance, the
developments look promising: food (9.4%yoy vs. 14.1%yoy) and primary articles
(13.0% vs. 16.7%) inflation eased considerably, and fuel price inflation declined as
well (10.3% vs. 11.0%). Manufactured goods inflation rose by 0.3%mom
(4.6%yoy). Once the data is adjusted for seasonality and base effect, however, the
trend looks worrisome.
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