10 October 2010

10th Oct, 2010: Gray Market Premium Prices for India IPO

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Company Name
Offer Price
Premium
(Rs.)
(Rs.)
Gallantt Ispat
50
(Fixed Price)
1 to 2
VA Tech Wabag
1310
(Upper Band)
385 to 405
Cantabil Retail
135
(Upper Band)
DISCOUNT
Tecpro Systems
355
(Upper Band)
40 to 45
Ashok Buildcon
324
(Upper Band)
13 to 16
Sea TV Network
100
(Upper Band)
5 to 10
Bedmutha Ind 
95 to 102
8 to 9
Commercial Engg
125 to 127
DISCOUNT
Oberoi Realty
253 to 260
8 to 10
B S Trans
247 to 257
DISCOUNT
Prestige Estates
172 to183
DISCOUNT
Gyscoal Alloys
65 to 71
4 to 5
Coal India
250 to 270
(rumored)
1 to 2

Financial Express: Equity funds see record outflow: 4th month in a row

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Equity funds witnessed their highest redemptions in a single month with September seeing an outflows from equity schemes of over Rs 7,000 crore. Redemptions were also seen in income, money market and ELSS schemes as mutual fund industry witnessed total redemption of Rs 71,800 crore in September, according to Association of Mutual Funds in India (Amfi) data.
Arindam Ghosh, CEO of Mirae Asset MF, said, “Surge in equity markets have led equity investors to book profits and invest in other asset classes.” Fund managers are sitting on cash waiting for the right opportunity to enter the market, he added. In September, Indian equity markets rose by over 11%.
This is the fourth straight month of redemption for equity schemes. Since the market regulator banned entry loads in August last year, equity schemes has seen net redemption of over Rs 21,400 crore. There has been net equity inflows only in the three months since August 2009. In September, outflows in income schemes stood at Rs 28,637 crore, money market schemes (Rs 36,100 crore), ELSS equity funds (Rs 270 crore), and balanced schemes (Rs 414 crore).
A senior official said, “Apart from booking profits, some investors are exiting schemes which are underperforming. With several gold ETF being launched, many investors are also looking to diversify their portfolio and investing in gold ETF.”
Source: http://www.financialexpress.com/news/equity-funds-see-record-outflow-of-over-rs-7-000-crore-in-sep/693649/

BNP Paribas: Top sells in India

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But there are a few on which BNP analysts are fundamentally bearish, and near term
negative catalysts - in terms of inferior quarterly results - are clearly visible.
1 DLF: BNP property analyst Sandeep Mathew feels the stock is over valued at P/BV
of 2.3x on our FY11 estimate. Besides high gearing levels and lack of visibility of
cash flows exposes the stock to potential equity dilution, in our opinion.
2 Grasim Industries: Oversupply in cement will possibly take 2-3 quarters to narrow
down, and September quarter results for the sector may disappoint even compared
to the market's already beaten down expectation.
3 Onmobile: The concerns regarding order flows from international business still
persist.
4 UltraTech Cement: Pure-play cement company, hence even more exposed (than
Grasim) to potential cement price fluctuations (due to continuing over-supply).

BNP Paribas: downgrading HDFC Bank to HOLD

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We are downgrading HDFC Bank to HOLD (from BUY) as it has achieved our TP and looks richly valued from a FY12 perspective. Our FY11 & FY12 outlook is detailed below.


Outlook for FY11 & FY12 – Our
FY11 loan-growth estimate is 26% and
24% for FY12. We expect an average
NIM of 4.5% for FY11 and 4.4% for FY12,
compared to 4.3% for FY10. We are
factoring in loan loss provisions of 120bps
in FY11 and 110bps in FY12, compared
with 170bps in FY10.
Downgrade on rich valuations – We had turned positive on
HDFC Bank on October 12, 2009 with a TP 28% higher than consensus.
From its price of INR1675, the stock has moved up by 44% compared to
a 20% increase in Sensex and a 43% increase in Bankex. Our positive
stance was driven by our expectations that the integration of CBOP was
finally coming through and credit costs and opex will begin to decline.
Our thesis has played out over the last one year and now we recommend
investors to book profits as we see no significant re-rating catalysts to
propel the stock from the current levels. More importantly the stock is
currently trading close to 4x FY12 ABV. We recommend investors to
book profits.
Valuation – Our revised TP of INR 2400 is based on a 3- stage
residual income model, which assumes 8% risk-free rate, 6% equity-risk
premium, beta of 0.97, 4% terminal growth rate and 10% terminal CoE.
At our revised TP, the stock would trade at 3.9x BV for adjusted ROE of
18% on our adjusted FY12 estimates. Risks to TP: Continued inflow of
liquidity into the stock, better than expected loan growth, lower than
expected credit costs are the key upside risks to our thesis.

Citi: Indraprastha Gas (IGAS.BO)Sell: Valuation Prices in the Positives

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Indraprastha Gas (IGAS.BO)Sell: Valuation Prices in the Positives
 Maintain Sell with TP of Rs309 — We maintain our Sell rating on IGL as we
believe that, while the business outlook remains sound, the strong run-up in the
stock after the CNG price hike factors in most of the positives. In addition,
despite good pricing power, margins could see a structural decline from 36-
42% earlier to 29-30% going forward as gas prices trend higher. Further, the
end of exclusivity in Delhi in FY12 could lead to competitive pressures. We base
our revised Mar-11E DCF-based TP of Rs309 on a 13% 3-yr volume CAGR. We
prefer GSPL, GAIL, and Petronet LNG, in that order, amongst the gas names.
 Raising earnings to factor higher prices — We raise our FY11/12E EPS
estimates by 63/14% and introduce FY13E factoring in the higher gas prices
post the APM price revision. As evidenced by the steep CNG price hikes after
the APM price increase, we believe that risks on the pricing front are behind us.
On sourcing of gas, we expect supplies from APM, KG, and LNG to be adequate
to help drive gas volumes for IGL to 2.5/2.8/3.0 mmscmd over FY11/12/13E.
 Limited growth opportunities a concern — The court case pertaining to the city
gas license for Ghaziabad is pending with the Supreme Court, with a decision
likely by 8 Nov. While we already factor in contribution from Ghaziabad, a
favorable ruling could be a slight +ve. However, apart from NCR, we see limited
growth opportunities given emergence of GAIL as an aggressive bidder. Further,
value accretion from new cities is likely to be long gestation and not a near-term
stock driver (we ascribe no value to the new cities GAIL has won licenses for).
 Things could get tougher once exclusivity ends — IGL’s exclusivity in Delhi ends
in Jan 12, after which it could face competitive pressures, particularly in the
more lucrative CNG and commercial/industrial sectors. Also, IGL might have to
incur additional capex for the 25% excess capacity to be given out to thirdparty
shippers, further increasing cost pressures.

BNP Paribas: downgrading Union bank to HOLD

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We are downgrading UNBK to HOLD
(from BUY) as it has reached our TP and
looks richly valued from a FY12
perspective. Our FY11 & FY12 outlook is
detailed below.
Outlook – Our loan-growth estimates are
23% for FY11 and 21% for FY12. We
expect an average NIM of 3% for FY11
and 3% for FY12, compared to 2.6% in
FY10. We are factoring in loan loss
provision of 59bps in FY11 and 55bps in
FY12, flat with respect to FY10 levels.
Why downgrade – We do not see any
significant re-rating catalysts for UNBK from the current valuation levels.
We neither expect loan growth to exceed our expected 23% for FY11,
nor any meaningful margin expansion beyond our estimate of 3%. UNBK
needs to raise capital (beyond the recent infusion of preference capital
from the Government) as its tier-1 ratio will range around 8.2% by FY12.
With no significant re-rating triggers and given a YTD return of 51%
versus 17% for the Sensex and 43% for the Bankex, we believe it is time
to book profits in UNBK.
Recall our thesis on UNBK – We have been very positive on
UNBK since our initiation on October 22, 2009 (read our note ‘A floating
opportunity’) with a TP of INR325 (which at that time was 30% above
consensus). We liked the story on the back of an expanding loan book
supported by NIM expansion. We subsequently increased our TP to
INR350 arguing for a multiple expansion up to 1.5x BV. The stock is now
trading close to these valuation levels and we recommend investors to
book profits.
Valuation
At our revised TP of INR380 (from INR350), the stock could trade at 1.5x
our FY12E adjusted BV for an ROE of 24.8%.Our target price is based
on a three-stage residual income model, which assumes a risk-free rate
of 8%, equity risk premium of 6%, beta of 1.1, terminal growth of 4% and
terminal COE of 10%. Risks to TP: lower-than-expected slippages, higher
credit growth, and continued inflow of global liquidity into the stock.

Karvy:The Week Ahead: Technical Analysis – Silver and Gold

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Fundamental View
 The dollar could potentially trade a bit higher next week
 Dollar’s expected reversal and redemption in ETF’s gold holdings last week may disturb gold’s bulls
 Gold’s bulls are less likely to move beyond previous week’s high i.e. $1366/oz


The Week Ahead
December gold closed higher despite profit-takers hit the metal hard during the later part of the week. The greenback was also under pressure during most of the week. However, the US dollar could now trade a bit higher next week. The build in the short positions in the Dollar Index may potentially cause a bounce next week, should they come out of their positions. Economic data next week in the form of rising retail sales,

Sanjay Sinha, CEO, L&T Mutual Fund "Long-term growth potential justifies high valuations" (Financial Express)

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With over two decades of experience in the asset management, Sanjay Sinha, chief executive officer, L&T Mutual Fund, says when it comes to intangible products like mutual funds, people prefer to buy it offline through someone who can guide and provide service. In an interview with FE's Saikat Neogi, he says that in the medium to long term, more people will move to online purchases of mutual funds. Excerpts:

What explains the relatively high valuations of Indian equities? Does it signal an impending correction?
India’s long-term sustainable growth is likely to further increase the growth differential across markets. Global liquidity and the shift towards emerging markets have led to strong FII investments, leading to greater valuations of Indian equities. However, valuations are reasonable given the long-term growth expectations.

BNP Paribas: downgrade PNB to HOLD (from BUY)

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We downgrade PNB to HOLD (from BUY)
as it has reached our TP and looks fully
valued from a FY12 perspective. We
revise our TP to INR1,300 (from
INR1,200) implying 1.8x FY12 ABV. Our
FY11 & FY12 outlook is detailed below.
Outlook: Our loan-growth estimate is
23% for FY11 and 19% for FY12. The
loan growth assumption is comprised of
17% growth in retail loans and 22%
growth in corporate loans. We expect an
average NIM of 3.5% for FY11 and FY12,
which would be flat with respect to FY10.
We are factoring in loan loss provisions of
88bps in FY11 and 65bps in FY12, compared with 65bps in FY10.
Our thesis has played out: We had upgraded Punjab National
Bank to a BUY from HOLD with an increased TP of INR1300 in July 2010
(refer our note ‘Negatives priced in’ dated July 2, 2010). We had argued
for the stock being undervalued at INR 1020 despite factoring in
conservative loan loss provisions. PNB has returned 22% in the last 3
months compared to the broader market return of 17%. We now believe
the stock is richly valued and do not see any significant re-rating catalysts
coming up in terms of earnings trajectory. With over INR100bn in
restructured loans, we cannot rule out further slippages. It is time to take
some money off the table. Also with the stock trading close to the FII limit
of 20%, further expansion for the valuation multiple appears limited.
Valuation
Our TP of INR1,300 is based on a three-stage residual income model,
which includes the following assumptions: risk-free rate of 8% equity risk
premium of 6%, beta of 1.1, terminal growth of 4% and terminal COE of
10%. At our TP, the stock would trade at 1.8x adjusted BV for adjusted
FY12E ROE of 26%. Downside risks to TP: aggressive rate tightening by
the RBI and worse than-expected NPLs. Upside risks: lower-thanexpected
NPL slippage, higher-than-expected loan-book growth and
continued surge of liquidity into the counter.

Morgan Stanley: Despite recent run-up, stocks still not reflecting fundamental positives

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Despite recent run-up, stocks still not reflecting fundamental positives, in our view. We
cite growth opportunities, sustainable transformation of costs and quality, and the growing
probability of improvement in these companies’ balance sheets. We believe Tata Steel
(TISC.OB, Rs669), JSW Steel (JSTL.BO, Rs1,376), and SAIL (SAIL.BO, Rs224) all rated
Overweight (in descending order of attractiveness) offer good entry points on a one-year
perspective, in our view.
Valuations have upside, especially for Tata and JSW. Investors fear deep and sustained
losses from Corus and poor profitability at JSW due to its low self-sufficiency in raw materials. We
expect these fears to subside, however, with healthy results in the next three to four quarters.

We adjust price targets, earnings forecasts: Our new forecasts reflect increases to our steel
price assumptions, pushing up our EBITDA/ton projections. For SAIL, we curtail our production
assumptions, lowering our F2011–13 EBITDA forecasts. We also increase JSW’s and SAIL’s
share count.

BNP Paribas: downgrading Bank of India to REDUCE

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We are downgrading Bank of India to
REDUCE (from BUY) as it has achieved
our TP and looks richly valued to us from
a FY12 perspective. Our FY11 & FY12
outlook is detailed below.
Outlook – Our loan-growth estimate is
22% for FY11 and 24% for FY12. We
expect an average NIM of 2.5% for FY11
and 2.6% for FY12, flat with respect to
FY10. We are factoring in loan loss
provisions of 67bps in FY11 and 80bps in
FY12, compared with 113bps in FY10.
Downgrade as our thesis has
played out
We turned positive on BOI on 2 July 2010 (read our note ‘Phoenix Rising’
dated 2 July 2010) largely on the back of a sharp improvement in its
credit-cost profile. Since that time stock price of BOI has moved up by
55% compared to 17% for Sensex and 34% for Bankex. We expected the
bank to benefit from strong NPL recovery efforts. After a fantastic
1QFY11, we met Chairman Mr. Alok Mishra and came away confident
about the bank’s ability to contain GNPL growth. We accordingly factored
in a significant decline in loan loss provisions for FY11 and FY12 – our
LLPs decline from 113bps in FY10 to 67bps in FY11 and 80bps in FY12.
Despite factoring in these benefits, we believe the run up in the stock
price has been excessive and we recommend investors to book profits.
Valuation
At our revised TP of INR500.00 (from INR480.00), the stock would trade
at 1.6x our FY12E adjusted BV for an ROE of 22.3%. Our target price is
based on a three-stage residual income model, which assumes risk-free
rate of 8%, equity risk premium of 6%, beta of 1.5, terminal growth of 4%
and terminal COE of 10%. Risks to TP: lower-than-expected slippages,
higher credit growth, and continued inflow of global liquidity into the
stock.

BNP Paribas: downgrading Bank of India to REDUCE

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We are downgrading Bank of India to
REDUCE (from BUY) as it has achieved
our TP and looks richly valued to us from
a FY12 perspective. Our FY11 & FY12
outlook is detailed below.
Outlook – Our loan-growth estimate is
22% for FY11 and 24% for FY12. We
expect an average NIM of 2.5% for FY11
and 2.6% for FY12, flat with respect to
FY10. We are factoring in loan loss
provisions of 67bps in FY11 and 80bps in
FY12, compared with 113bps in FY10.
Downgrade as our thesis has
played out
We turned positive on BOI on 2 July 2010 (read our note ‘Phoenix Rising’
dated 2 July 2010) largely on the back of a sharp improvement in its
credit-cost profile. Since that time stock price of BOI has moved up by
55% compared to 17% for Sensex and 34% for Bankex. We expected the
bank to benefit from strong NPL recovery efforts. After a fantastic
1QFY11, we met Chairman Mr. Alok Mishra and came away confident
about the bank’s ability to contain GNPL growth. We accordingly factored
in a significant decline in loan loss provisions for FY11 and FY12 – our
LLPs decline from 113bps in FY10 to 67bps in FY11 and 80bps in FY12.
Despite factoring in these benefits, we believe the run up in the stock
price has been excessive and we recommend investors to book profits.
Valuation
At our revised TP of INR500.00 (from INR480.00), the stock would trade
at 1.6x our FY12E adjusted BV for an ROE of 22.3%. Our target price is
based on a three-stage residual income model, which assumes risk-free
rate of 8%, equity risk premium of 6%, beta of 1.5, terminal growth of 4%
and terminal COE of 10%. Risks to TP: lower-than-expected slippages,
higher credit growth, and continued inflow of global liquidity into the
stock.

BNP Paribas: downgrade Bank of Baroda to HOLD

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We downgrade Bank of Baroda to HOLD
(from BUY) as it has surpassed our
previous TP and we believe it looks fully
valued from a FY12 perspective. Our
FY11 & FY12 outlook is detailed below.
Outlook – Our loan-growth estimate is
23% for FY11 and 20% for FY12. We
believe loan growth will be driven by 26%
growth in retail loans and 27% growth in
corporate loans. We expect an average
NIM of 2.8% for FY11 and FY12 on a
blended basis, compared with the 2.6%
reported in FY10. We are factoring in loan
loss provisions of 50bps in FY11 and
40bps for FY12. Our GNPL estimate is 1.6% for FY11 and 1.7% for
FY12.
Our thesis has played out: We have been positive on Bank of
Baroda since our initiation in October 2009. Our recent TP upgrade has
been to INR850 from INR775 on July 2, 2010. The stock has returned
78% YTD compared to 43% from the Bankex and 17% for the broader
market. In the last 3 months, BOB has returned 27% compared to 17%
for the broader market. We believe there are no further significant rerating
catalysts for the stock in the near term and recommend investors
to book profits.
Valuation: Our TP of INR950 is based on a three-stage residual income
model, which includes the following assumptions: risk-free rate of 8%
equity risk premium of 6%, beta of 1.1, terminal growth of 4% and
terminal COE of 10%. At our TP, the stock is valued at 1.8x FY12E
adjusted BV for FY12E adjusted ROE of 23%. Downside risks to TP:
aggressive rate tightening by the RBI and worse than-expected NPLs.
Upside risks: lower-than-expected NPL slippage, higher-than-expected
loan-book growth and continued surge of liquidity into the counter.

BNP Paribas on Banks: Time to book profit

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Time to book profit

Time to book profit: We recommend investors to book profits in Indian
banks as the price run across the sector fully discounts the expected outlook in
terms of loan growth, margin expansion and declining credit costs. Many stocks
in our coverage universe are trading at extremely rich valuations, at or over +1
standard deviations from their historical mean valuations. The sector has
outperformed the broader market very handsomely (by over 17%) since our
upgrade of the sector on July 2, 2010. We believe it is time to book profits.
Key changes in our recommendations:
ô€‚ƒ BOI to Sell from BUY – credit cost turnaround largely priced in
ô€‚ƒ PNB, BOB and UNBK to HOLD from BUY – rich valuations, hence book
profits
􀂃 HDFC Bank to HOLD from BUY - rich valuations, hence take some money off
the table
Current valuations pricing in blue sky and key risk to the thesis:
The price run in the sector appears excessive and looks to ignore some potential
threats in the form of lower than expected credit growth, margin expansion lower
than expectations due to deposit competition and for PSU banks further slippages
from their restructured loans. There is simply not much margin of safety left now.
The continued surge of foreign portfolio investment into the banking sector is the
key risk to our thesis. Our valuation gap analysis (highlighted in exhibits 3 & 4)
indicates that private sector banks are better leveraged to liquidity driven multiple
expansion than PSU banks. The valuation gap between the private sector banks
and the PSU banks expands during bouts of liquidity inflow. While the PSU banks
have improved their act significantly over the last few years, the current multiples
already price that in and any further re-rating will have to wait for its time. So we
will be more biased towards the private sector banks.
Where to hide in the banking sector: We reiterate a BUY on ICICI
Bank and Axis Bank with revised TPs of INR1270 and INR1750. We do not see
any significant negative catalysts for these banks and we see further scope for
multiple expansion from the current levels.
Valuation
At our revised TPs, Axis would trade at 3.4x and ICICI at 2.0x FY12E ABV.

Target Price of Rs143 for Surya Roshni - Buy says Angel broking

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Surya Roshni - Buy
Surya Roshni is a diversified company manufacturing steel pipes
and branded lighting products. During FY2010-12E, we expect
the company's top line and bottom line to register CAGRs of
23.8% and 39.0%, respectively. At the current price of Rs113,
the stock is trading at 5.7x its FY2012E standalone EPS.
Strong capacity expansion to lead to high sales growth: Surya
Roshni has completed its capacity expansion across products
in the lighting and steel divisions (including capacity increase
of 358% in CFL and 29% in steel pipes). Post the substantial
capacity expansion, sales contribution from the high-RoIC
lighting division is expected to increase, thereby increasing the
company's RoE from 19.7% to 20.4% over FY2010-12E, despite
an improvement in net debt-to-equity from 2.5x to 1.3x over
the same period. As an indication of its strong prospects, the
company has already delivered strong yoy growth of 24.6% in
its top line and 99.5% in net profit in 1QFY2011.
Strong brand in the lighting industry: Surya Roshni has been a
household name in the lighting space for over two decades.
The company’s CFL market share surged from 2.4% in FY2007
to 10.7% in FY2010, reflecting its increased dominance in the
space. The company has presence across more than 100,000
retail outlets. The company has maintained its brand identity
through substantial advertisement spend and a strong retail
network. In FY2010, the company spent more than Rs11cr on
advertisements, which is 2.0% of its lighting division's sales.
Promoters hiking their stake: The company's promoters have
subscribed to two rounds of warrant allocations. The first was
at a price of Rs59/share and the second at Rs83/share. The
first tranche was partially converted into equity in FY2010,
thereby increasing the promoters' stake to 29.1% from 25.3%
at the end of FY2009. We expect the remaining warrants to be
converted by FY2012, which will increase the promoters' share
to 55.0% from 29.1% currently. Overall, the promoters would
invest Rs133cr through these two rounds of warrant conversion.
Financial outlook: Surya Roshni is poised for strong growth
over the next few years, led by higher production from its
expanded capacities across products. The company's top line
is expected to grow to Rs2,751cr in FY2012E from Rs1,794cr
in FY2010, registering a 23.8% CAGR over FY2010-12E.
Quick Take
Research Analyst - Jai Sharda
Price - Rs113
Target Price - Rs143
Going ahead, since the contribution of the high-margin lighting
division to the top line is expected to increase, the company's
overall margins are also expected to expand to 7.5% in FY2012E
from 7.2% in FY2010. Surya Roshni's Kashipur unit is exempt
from income tax, as it is located in Uttaranchal, where it gets
tax benefits due to local regulations. We expect the tax rate to
remain at the current levels of ~16.0% in FY2011E, before
increasing marginally to 18.0% in FY2012E.
Valuation: Currently, Surya Roshni is trading at 5.7x and 1.0x
its FY2012E EPS and book value, respectively. Historically, it
has traded in the range of 3.4x to 9.5x its one-year forward
EPS, with the average of 6.6x one-year forward EPS. We have
valued the company on an SOTP basis, valuing the standalone
business at the five-year average P/E of 6.6x FY2012E EPS of
Rs19.9 and valuing the investment in subsidiary at 1.0x. We
assign a Buy rating to the stock with a Target Price of Rs143.Surya Roshni - Buy

Surya Roshni is a diversified company manufacturing steel pipes
and branded lighting products. During FY2010-12E, we expect
the company's top line and bottom line to register CAGRs of
23.8% and 39.0%, respectively. At the current price of Rs113,
the stock is trading at 5.7x its FY2012E standalone EPS.
Strong capacity expansion to lead to high sales growth: Surya
Roshni has completed its capacity expansion across products
in the lighting and steel divisions (including capacity increase
of 358% in CFL and 29% in steel pipes). Post the substantial
capacity expansion, sales contribution from the high-RoIC
lighting division is expected to increase, thereby increasing the
company's RoE from 19.7% to 20.4% over FY2010-12E, despite
an improvement in net debt-to-equity from 2.5x to 1.3x over
the same period. As an indication of its strong prospects, the
company has already delivered strong yoy growth of 24.6% in
its top line and 99.5% in net profit in 1QFY2011.

Strong brand in the lighting industry: Surya Roshni has been a
household name in the lighting space for over two decades.
The company’s CFL market share surged from 2.4% in FY2007
to 10.7% in FY2010, reflecting its increased dominance in the
space. The company has presence across more than 100,000
retail outlets. The company has maintained its brand identity
through substantial advertisement spend and a strong retail
network. In FY2010, the company spent more than Rs11cr on
advertisements, which is 2.0% of its lighting division's sales.

Promoters hiking their stake: The company's promoters have
subscribed to two rounds of warrant allocations. The first was
at a price of Rs59/share and the second at Rs83/share. The
first tranche was partially converted into equity in FY2010,
thereby increasing the promoters' stake to 29.1% from 25.3%
at the end of FY2009. We expect the remaining warrants to be
converted by FY2012, which will increase the promoters' share
to 55.0% from 29.1% currently. Overall, the promoters would
invest Rs133cr through these two rounds of warrant conversion.
Financial outlook: Surya Roshni is poised for strong growth
over the next few years, led by higher production from its
expanded capacities across products. The company's top line
is expected to grow to Rs2,751cr in FY2012E from Rs1,794cr
in FY2010, registering a 23.8% CAGR over FY2010-12E.

Going ahead, since the contribution of the high-margin lighting
division to the top line is expected to increase, the company's
overall margins are also expected to expand to 7.5% in FY2012E
from 7.2% in FY2010. Surya Roshni's Kashipur unit is exempt
from income tax, as it is located in Uttaranchal, where it gets
tax benefits due to local regulations. We expect the tax rate to
remain at the current levels of ~16.0% in FY2011E, before
increasing marginally to 18.0% in FY2012E.

Valuation: Currently, Surya Roshni is trading at 5.7x and 1.0x
its FY2012E EPS and book value, respectively. Historically, it
has traded in the range of 3.4x to 9.5x its one-year forward
EPS, with the average of 6.6x one-year forward EPS. We have
valued the company on an SOTP basis, valuing the standalone
business at the five-year average P/E of 6.6x FY2012E EPS of
Rs19.9 and valuing the investment in subsidiary at 1.0x. We
assign a Buy rating to the stock with a Target Price of Rs143.

MphasiS downgraded by HSBC Research,

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Top-line volume growth not a worry: We believe MphasiS has so far only captured 5% of
the addressable share of the HP services division and there is still further scope to increase
wallet share. MphasiS’s revenue growth from the HP channel is likely to be driven by its share
of the HP’s incremental revenues and wallet share gains in the un-addressable divisions (so
far), such as technology services (which offers maintenance/preventive support services,
warranty support and bespoke solutions). Appointment of HP veterans to the MphasiS board is
likely to accelerate MphasiS’s share of the pie.
Margin concerns have increased. While revenue growth is likely to be robust, we expect
earnings growth will remain muted due to margin dilution expected in FY11. The reasons
for our expectations are: 1) decline in hedging gains, which cushioned FY10 margins by
c240bps, 2) likely investments in sales and marketing to grow the direct business channel
and 3) employee costs will grow faster than revenues as current pricing, even if assumed
stable in FY11, will be 4.5% below the FY11 realisation on a blended basis. Furthermore,
earnings growth will be impacted by an increase in the tax rate in FY11 and FY12 to 18%
and 25% respectively, from c10% in FY10.
Valuation and forecasts – We cut our FY12 EPS estimates by c5% to factor in the margin
concerns outlined in this note and our target PE multiple to 13x on FY12 EPS from 14.5x on
FY11 EPS (similar to what HCLT is trading currently and c38% discount to Infosys). We
believe the discount is justified due to MphasiS’ high client concentration risk. The stock is
currently trading at c12x FY11e EPS and we believe is unlikely to significantly re-rate from
these levels in the light of our expectations for flat earnings growth in the next two years. We
therefore, cut our TP to INR700 (from INR770) earlier, based on 13x FY12e EPS. With
7.4%potential return indicated, we downgrade from Overweight (V) to Neutral (V).

BNP paribas: Top Buys in India

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We highlight 8 stocks that we believe have tactical upside possibilities.
1 Shiv Vani Oil: Monopoly player in onshore drilling, one of the cheapest stocks in
the Indian universe.
2 Sesa Goa: Beneficiary of strong volume growth (34% CAGR over next 3 years)
3 Reliance Infrastructure: Trading at close to its worst case price target of
INR1088, as Vishal Sharma pointed out recently in the note titled “Good entry
point”, Dated: 23rd September 2010).
4 Mahindra Satyam: Historical numbers are known. We believe the worst is behind
us.
5 Rolta India: Feedback from the company during our New York Corporate day
clearly indicated the company’s bullishness about new orders.
6 IVRCL Infrastructure: Strong order wins in July-September quarter makes us
positive. Strong presence in roads and irrigation and water resources - still remains
valid.
7 IRB Infra: Only pure play road BOT. Only problem in the sector is the recent lack
of progress in order award, but we believe that's temporary.
8 Nagarjuna Construction: Strong order backlog, execution related problems
relatively lower compared to other construction companies.

India Earnings Calendar -October (9th to 30th)

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Company Name
Meeting Date
Purpose
CELEBRITY FASHIONS LIMITED
9-Oct-10
Record Date
STATE BANK OF MYSORE
9-Oct-10
Rights Issue
VIVIMED LABS LIMITED
9-Oct-10
Capital Issue
CMC LIMITED
11-Oct-10
Un-audited Financial Results
EASUN REYROLLE LIMITED
11-Oct-10
Issue of Securities

Anand Rathi recommends buy Vijaya Bank

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Vijaya Bank
Focus on profitability; initiate with Buy
We initiate coverage on Vijaya Bank with Buy and price target of
`107/share. We expect prudent business growth and improving
liability mix to support the expanding core income. The Bank is
likely to register 23.4% earnings CAGR over FY10-13e, driven by
higher NIM and improved productivity.
 Prudent business growth; higher NIM. We expect Vijaya Bank
to grow its business in a prudent manner (19.8% CAGR over
FY10-13e) with greater emphasis on higher-yielding loans. NIM
expansion to 2.8% in FY13e from 2.3% in FY10 will be led by
altered liability mix – higher CASA share and lower wholesale
deposits.
 Improving productivity. Focus on enhancing employee skills
and technology would help boost productivity. We expect cost-toincome
to improve to 48% by FY13e from 49.8% in FY10,
despite branch expansion and additional provisions (which were
on account of higher gratuity and pension).
 Asset quality concerns allaying. GNPAs have steadily declined
over the past three quarters, from 2.94% in 1QFY10 to 2.32% in
1QFY11. We expect current capital infusion of `7bn (CAR:
14.7%; tier-1 capital: 10.1%) to support future growth and
adequately capitalise the Bank for additional loan defaults.
 Valuation and risks. At our target price of `107, Vijaya Bank
would trade at 1.5x FY12e and 1.2x FY13e ABV. Our target is
based on the two-stage DDM (CoE: 16.2%; beta: 1.3; Rf: 7.5%).
Risks are higher-than-expected credit cost and change in
management.

IIFL says Tata Communications is Market perform

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Tata Communications has been mired in an enervating price
battle in its core wholesale voice business, corroborated by
the fact that FY10 wholesale EBIT share fell to a 5-yr low.
Over FY10-12, price decline would continue albeit at a slower
pace coupled with 17%/5% cagr in ILD/NLD volumes.
Inadequate operating CFs and US$950mn ex-Neotel capex
over FY10-12 would further stretch balance sheet with D/E
likely to worsen to 2.6x. Neotel, South Africa’s second fixed
line operator, is also likely to be a drag on consolidated PAT in
the near term. While non-business related positives like land
holdings and Tata Tele stake support the stock, core business
valuation of Rs71/share does not inspire confidence. Assign
MP.
Wholesale price decline to moderate; ILD traffic at 17% cagr
Tcom has endured a consistent decline in wholesale voice pricing with
net retention/min hovering at ~0.4p/min in FY10, down 18% from
FY07 levels. While the direction of ILD/NLD tariff is unlikely to reverse
anytime soon, we expect pace of decline in net ret/min to moderate
to ~5% over FY10-12. ILD traffic grew at a healthy ~22% cagr over
the past 2 years and we expect FY10-12 volume cagr at 17%.
Neotel remains a drag on consolidated picture
Tata Communications booked Rs1.1/3.7bn as its share of operating
loss/pre-tax loss from Neotel holding in FY10. Being a challenger to
incumbent operator Telkom in South Africa’s national and enterprise
market, we believe Neotel has an uphill task to profitability. While it
may turn EBIDTA breakeven by end of current fiscal, it could still act
as a drag at consolidated PAT level.
Core outlook remains tepid; Assign MP
Current stock price adequately reflects the upsides from TTL stake
(10%, Rs95/share) and land holding (741 acres, Rs120/share). But
core business value of Rs71 does not inspire confidence given the
commoditized nature of wholesale voice and consolidated losses over
the next two years. Assign MP with a SOTP target of Rs287.
Visibility/news flow on potential monetization of land holdings
presents upside risk to our rating.

HDFC sec recommneds BUY ICICI bank

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ICICI Bank, having largely completed the restructuring exercise, is well positioned to
capitalize on the uptick in the economy. Margins, which are likely to remain subdued in
the near term, are expected to move up given the bank’s improving deposit mix,
comfortable capital adequacy and control on fresh slippages over FY12-13E. Benefits of
merger with Bank of Rajasthan will be realized only in FY12-13E as branch and employee
efficiency improves. We estimate the bank will realize a CAGR of 25% in net profit over
FY10-13E. Moderating fresh slippages will result in credit costs of cf.1% by FY13E from
2.2% in FY10. We estimate the ROE will improve to 13.4% in FY12E and 16.6% in FY13E.
Initiate coverage on ICICI Bank with a BUY rating and a target price of Rs1,350/share
based on sum of the parts valuation.
Multiple drivers to ensure profitable growth, but in the long term
Having completed the restructuring exercise, ICICI Bank has renewed its focus on credit
growth. We estimate the loan book will grow 23% CAGR over FY10-13E driven by corporate
and retail loans (home and auto loans). Margins are likely to remain under pressure in the
short term due to competitive pressures and rising cost of deposit. But we expect the
margins to improve in FY12 and FY13 driven by a) rising proportion of domestic book (from
74% to 84%), b) improvement in margins on international book and c) rising proportion of
loan book funding from low cost deposits (average of cf.44% from CASA deposits).
Earnings to grow 25% CAGR over FY10-13E; ROE to improve to cf.17%
Driven by a healthy topline growth of 16%, core fee income growth of 21% and moderating
credit cost from 2.2% to cf.1% in FY13E, earnings are likely to grow 25% CAGR over FY10-
13E. However, the operating efficiency of the bank is likely to deteriorate in the near term
due to higher wages and expansion of distribution network. But we expect the cost/income
(ex-treasury) to improve by 420bps to 40% over FY11-13E as branch and employee efficiency
improves. The ROE which has been one of the main concerns of investors is likely to
improve from 10.6% to 16.6% on account of improving profitability and increasing leverage.
Re-rating hinges on growth & profitability; BUY with target price of
Rs1,350/share
ICICI Bank has addressed one of the main concerns of investors on asset quality by arresting
fresh slippages. While this has resulted in a re-rating of the stock (up 76% since Lehman
collapse), we believe for further re-rating the bank will need to effectively manage growth
with profitability. In our view, the bank is well positioned to capitalize on the economic
uptick. Initiate coverage with a BUY and a target price of Rs1,350/share.

Gray Market Premium Prices for India IPO: 10th Oct, 2010

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Company Name
Offer Price
Premium
(Rs.)
(Rs.)
Gallantt Ispat
50
(Fixed Price)
1 to 2
VA TechWabag
1310
(Upper Band)
385 to 405
Cantabil Retail
135
(Upper Band)
DISCOUNT
Tecpro Systems
355
(Upper Band)
40 to 45
Ashok Buildcon
324
(Upper Band)
13 to 16
Sea TV Network
100
(Upper Band)
5 to 10
Bedmutha Ind 
95 to 102
8 to 9
Commercial Engg
125 to 127
DISCOUNT
Oberoi Realty
253 to 260
8 to 10
B S Trans
247 to 257
DISCOUNT
Coal India
250 to 270
(rumored)
1 to 2