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Currency Update
RBI likely to have intervened; INR to gain further
RBI perhaps intervened in the currency markets today by buying dollars for the
first time this year, on the back of a strong appreciation in INR vs. USD to the
tune of 1% in a single day. With Coal India and other IPOs in the pipeline, and
QE2 almost certain in the US prompting global investors to chase growth in
EMs, flows into India is likely to remain strong. Our INR-USD target for FY11-
end remains 42.
RBI likely to have intervened: As per media reports and currency dealers, the
RBI is said to have intervened today in the currency markets, as Rupee
appreciated by 1% in a single day today, breaching 44.10 levels. The Indian
rupee hit 44.09 – the highest since Sept. 1, 2008. Pressure on rupee is likely to
continue, with the Coal India mega IPO (more than $3.5bn) opening on
Monday, 18th Oct. attracting heavy FII flows. This may be the first RBI
intervention in currency market this year, even as other central banks in
emerging market (EM) economies have been intervening. FIIs have pumped in
$22.5bn in equity alone in 2010 year-till-date, with more than $9.8bn coming
in since September alone. The INR has appreciated by 6.6% since the beginning
of September.
Flows to remain strong: With global economic recovery likely to remain
subdued and India being among the fastest growing major economies, and more
IPO/FPO (Power Grid, SAIL, Shipping Corporation etc.) coming in the pipeline,
foreign fund flows are likely to remain strong. The RBI’s often stated policy in
the last two years has been to intervene only to avoid extreme volatility and not
target any band or level for the INR.
INR to appreciate further: We expect the INR to appreciate further, breaching
the 44 mark and hitting 43.50, unless RBI intervenes very aggressively. A
stronger rupee actually helps RBI fight inflation by making imports cheaper and
thus also relieving some concerns over current account deficit, which is
dangerously inching closer to 4% of GDP. Our FY11-end target remains at 42.
17 October 2010
Religare: RBI likely to have intervened; INR to gain further
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religare research
PINC POWER PICKS: USHA MARTIN: BUY, TP-Rs120 (33% upside)
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What’s the theme?
We expect Usha Martin to benefit from 38% volume CAGR over FY10-FY12E and an improved cost
structure, with completion of capacity expansion of metallics by 0.4mtpa and steel by 0.6mtpa and full
integration from mineral resources to value-added products. We estimate 30% EBITDA CAGR and 31%
EPS CAGR over FY10-FY12.
What will move the stock?
1) Volume growth on higher metallics and billet output from the recently-commissioned 0.4mntpa blast
furnace and 0.6mntpa SMS respectively; 2) Liquidation of inventory build-up in Q1FY11; 3) Stabilization of
output from the Kathuria coal mine; and 4) Improved profitability following recent increase in steel prices
and lower input cost (Q3FY11 contract prices of iron ore and coking coal declined ~7-14% QoQ).
Where are we stacked versus consensus?
Our operating profit estimates are slightly lower than consensus owing to our cautious outlook on steel
profitability and conservative volume estimates for Usha Martin (FY12E sales volume at 0.72mnt vs. guidance
of 0.8mnt).
What will challenge our target price?
1) Delay in stabilization of recently-commissioned capacity impacting volumes; 2) Weak recovery in Europe,
which contributes >10% to consolidated revenue; 3) Impact on mining operation either due to regulatory
changes or naxalite activities; and 4) Severe decline in steel profitability.
What’s the theme?
We expect Usha Martin to benefit from 38% volume CAGR over FY10-FY12E and an improved cost
structure, with completion of capacity expansion of metallics by 0.4mtpa and steel by 0.6mtpa and full
integration from mineral resources to value-added products. We estimate 30% EBITDA CAGR and 31%
EPS CAGR over FY10-FY12.
What will move the stock?
1) Volume growth on higher metallics and billet output from the recently-commissioned 0.4mntpa blast
furnace and 0.6mntpa SMS respectively; 2) Liquidation of inventory build-up in Q1FY11; 3) Stabilization of
output from the Kathuria coal mine; and 4) Improved profitability following recent increase in steel prices
and lower input cost (Q3FY11 contract prices of iron ore and coking coal declined ~7-14% QoQ).
Where are we stacked versus consensus?
Our operating profit estimates are slightly lower than consensus owing to our cautious outlook on steel
profitability and conservative volume estimates for Usha Martin (FY12E sales volume at 0.72mnt vs. guidance
of 0.8mnt).
What will challenge our target price?
1) Delay in stabilization of recently-commissioned capacity impacting volumes; 2) Weak recovery in Europe,
which contributes >10% to consolidated revenue; 3) Impact on mining operation either due to regulatory
changes or naxalite activities; and 4) Severe decline in steel profitability.
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PINC,
Usha Martin
17th Oct, 2010: Grey Market Premium Prices for India IPO
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Company Name | Offer Price | Premium |
(Rs.) | (Rs.) | |
Commercial Engg | 127 (Upper Band) | DISCOUNT |
Oberoi Realty | 260 (Upper Band) | 8 to 10 |
B S Trans | 247 to 257 | DISCOUNT |
Prestige Estates | 172 to183 | DISCOUNT |
Gyscoal Alloys | 65 to 71 | 12 to 14 |
Coal India | 225 to 245 | 11 to 12 |
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gray market,
Grey market premium,
IPO
Pre open session- All you need to know- brochures in English/ Hindi/ Marathi/ Gujarati/ Tamil and Malayalam
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Pre open session- All you need to know- brochures in English/ Hindi/ Marathi/ Gujarati/ Tamil and Malayalam
Stock markets in India will open at 9:15 am instead of 9 am from October 18th (Monday)
Learn all you need to know about the Pre open session from 9:00 am to 9:15 am
Pre open session- All you need to know- brochures in English/ Hindi/ Marathi/ Gujarati/ Tamil and Malayalam
Stock markets in India will open at 9:15 am instead of 9 am from October 18th (Monday)
Learn all you need to know about the Pre open session from 9:00 am to 9:15 am
- English Brochure
- Hindi Brochure
- Marathi Brochure
- Gujarati Brochure
- Tamil Brochure
- Malayalam Brochure
Source: BSE India
Nifty has supports at 6030/5980 spot levels. Trade long from these levels.- ICICI Sec
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Weekly Analysis
· The Nifty kicked off on a fragile note while facing pressure for the first two trading
sessions. Wednesday’s trade caught traders off-guard while Nifty futures climbed
by 147 points to 6281 levels. The extreme volatility continued in the latter half of
the week while Nifty futures made a high of 6317 in Thursday’s trade. However,
sharp profit booking ensured the Nifty futures closed below 6200 levels. Friday’s
trade continued to spook long traders and the Nifty showed extreme pressure
closing the week at 6063 (down 0.7%)
· With India Inc entering into the result season, the Nifty is likely to trade in the
range of 6000-6300. Any positive surprises in the results could enable the Nifty to
test new highs as FIIs continue to pour in money. Also, the aggressive writing in
ATM and OTM Calls could see covering in these Calls. If 6000 is breached, on the
back of negative flows, then the indices may see another bout of sell-off
Index Outlook
· Nifty: The Nifty has supports at 6030/5980 spot levels. Trade long from these
levels. However, short positions can be initiated from 6200 with stop loss at 6225
· Bank Nifty: Bank Nifty is likely to trade in the range of 12300-12780 spot levels
Sector/Stock Analysis
· PFC, India Infoline and LIC Housing witnessed build up. Closure was seen in most
of the sectors. Technology midcaps like Patni, Rolta and HCL Tech may witness
fresh buying if the Nifty holds 6030 spot levels
Weekly Analysis
· The Nifty kicked off on a fragile note while facing pressure for the first two trading
sessions. Wednesday’s trade caught traders off-guard while Nifty futures climbed
by 147 points to 6281 levels. The extreme volatility continued in the latter half of
the week while Nifty futures made a high of 6317 in Thursday’s trade. However,
sharp profit booking ensured the Nifty futures closed below 6200 levels. Friday’s
trade continued to spook long traders and the Nifty showed extreme pressure
closing the week at 6063 (down 0.7%)
· With India Inc entering into the result season, the Nifty is likely to trade in the
range of 6000-6300. Any positive surprises in the results could enable the Nifty to
test new highs as FIIs continue to pour in money. Also, the aggressive writing in
ATM and OTM Calls could see covering in these Calls. If 6000 is breached, on the
back of negative flows, then the indices may see another bout of sell-off
Index Outlook
· Nifty: The Nifty has supports at 6030/5980 spot levels. Trade long from these
levels. However, short positions can be initiated from 6200 with stop loss at 6225
· Bank Nifty: Bank Nifty is likely to trade in the range of 12300-12780 spot levels
Sector/Stock Analysis
· PFC, India Infoline and LIC Housing witnessed build up. Closure was seen in most
of the sectors. Technology midcaps like Patni, Rolta and HCL Tech may witness
fresh buying if the Nifty holds 6030 spot levels
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ICICI Securities,
nifty
What is Pre-Open and why is it being done? Presentation by NSE
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What is Pre-Open and why is it being done? CLICK here for Presentation by NSE
Happy trading
Remember Market opens from 9:15 am from Monday October 18th
What is Pre-Open and why is it being done? CLICK here for Presentation by NSE
Happy trading
Remember Market opens from 9:15 am from Monday October 18th
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NSE
FAQs on the Call Auction Pre-Open Session from BSE website
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1. Q. What is Call Auction?
A.
In a call auction, orders are entered into the system continuously filling the auction order book but remain unexecuted till the end of the order entry period when the orders get matched into trades at a single price. Call auctions represent an alternative trading strategy, where the order flow over a certain time period is collected, and the market opening price and quantity traded are derived based on aggregated supply and demand for the underlying.
It follows the concept of multi-lateral order matching as compared to constant bilateral (buy/ sell) matching of orders that happens in the continuous trading session to determine trades.
**
2. Q. What are the applications of Call Auction?
A.
The potential areas where Call Auction can be applied to determine market price are –
At open
At close
Resume after trading halt
New and re-listings
Illiquid scrips
**
LIST OF ELIGIBLE STOCKS FOR THE PRE‐OPEN SESSION
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LIST OF ELIGIBLE STOCKS FOR THE PRE‐OPEN SESSION* | |
1 ACC | 26 LARSEN & TOUBRO |
2 AMBUJA CEMENTS | 27 MAHINDRA & MAHINDRA |
3 AXIS BANK | 28 MARUTI SUZUKI INDIA |
4 BAJAJ AUTO | 29 NTPC |
5 BHARTI AIRTEL | 30 OIL AND NATURAL GAS CORP. |
6 BHEL | 31 PUNJAB NATIONAL BANK |
7 BHARAT PETROLEUM CORP | 32 POWER GRID CORP. |
8 CAIRN INDIA | 33 RANBAXY LABS |
9 CIPLA | 34 RELIANCE COMMUNICATIONS |
10 DLF | 35 RELIANCE CAPITAL |
11 Dr REDDY’S LABORATORIES | 36 RELIANCE INDUSTRIES |
12 GAIL (INDIA) | 37 RELIANCE INFRASTRUCTURE |
13 HCL TECHNOLOGIES | 38 RELIANCE POWER |
14 HDFC | 39 SESA GOA |
15 HDFC BANK | 40 STEEL AUTHORITY OF INDIA |
16 HERO HONDA MOTORS | 41 STATE BANK OF INDIA |
17 HINDALCO INDUSTRIES | 42 SIEMENS |
18 HINDUSTAN UNILEVER | . 43 STERLITE INDS (IND) |
19 ICICI BANK | . 44 SUN PHARMACEUTICALS IND. |
20 INFRA. DEV. FIN. CO. | 45 SUZLON ENERGY |
21 INFOSYS TECHNOLOGIES | 46 TATA MOTORS |
22 ITC | 47 TATA POWER CO |
23 JINDAL STEEL & POWER | 48 TATA STEEL |
24 JAIPRAKASH ASSOCIATES | 49 TATA CONSULTANCY SERV |
25 KOTAK MAHINDRA BANK | 50 WIPRO |
* ‐ As of October 1, 2010 |
Important Economic Indicators October 17th- 22nd by Karvy
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Important Economic Indicators
Oct 18th (18:45) US – Industrial Production M/M (Sep) Survey: 0.20%, Prior: 0.20%
Oct 18th (18:45) US – Capacity Utilization M/M (Sep) Survey: 74.80%, Prior: 74.70%
This indicator will show the volume of production in the U.S. Rising industrial production may generate positive sentiments in the market but may also be regarded as inflationary and thus may anticipate interest rates to rise. Along with rising industrial production, capacity utilization also increases. Capacity utilization is the percentage of the US production capacity which is actually used over the short-time period. It is indicative of overall growth and demand in the U.S. economy. High capacity utilization stimulates inflationary pressures. Overall, we see these data to be positive for the USD.
Oct 19th (18:00) US – Housing Starts (Sep) Survey: 580K, Prior: 598K
Oct 19th (18:00) US – Building Permits (Sep) Survey: 575K, Prior: 571K
Housing starts track how many new single-family homes were constructed while building permits show the number of permits given for new construction projects. Data expectations show a decline in housing starts while an increase in building permits. Building permits data provide future movements in housing sector and hence, may impact the USD more than the housing starts data.
Oct 21st (18:00) US – Philadelphia Fed Index (Oct) Survey: 1.8, Prior: -0.7
The Philadelphia Fed survey is a spread index of manufacturing conditions in Philadelphia region. This survey, served as an indicator of manufacturing sector trends, is interrelated with the ISM manufacturing index and the index of industrial production. It is also used as a forecast of The ISM Index. Generally, an above-the-expectations reading is seen as positive for the USD.
Important Economic Indicators
Oct 18th (18:45) US – Industrial Production M/M (Sep) Survey: 0.20%, Prior: 0.20%
Oct 18th (18:45) US – Capacity Utilization M/M (Sep) Survey: 74.80%, Prior: 74.70%
This indicator will show the volume of production in the U.S. Rising industrial production may generate positive sentiments in the market but may also be regarded as inflationary and thus may anticipate interest rates to rise. Along with rising industrial production, capacity utilization also increases. Capacity utilization is the percentage of the US production capacity which is actually used over the short-time period. It is indicative of overall growth and demand in the U.S. economy. High capacity utilization stimulates inflationary pressures. Overall, we see these data to be positive for the USD.
Oct 19th (18:00) US – Housing Starts (Sep) Survey: 580K, Prior: 598K
Oct 19th (18:00) US – Building Permits (Sep) Survey: 575K, Prior: 571K
Housing starts track how many new single-family homes were constructed while building permits show the number of permits given for new construction projects. Data expectations show a decline in housing starts while an increase in building permits. Building permits data provide future movements in housing sector and hence, may impact the USD more than the housing starts data.
Oct 21st (18:00) US – Philadelphia Fed Index (Oct) Survey: 1.8, Prior: -0.7
The Philadelphia Fed survey is a spread index of manufacturing conditions in Philadelphia region. This survey, served as an indicator of manufacturing sector trends, is interrelated with the ISM manufacturing index and the index of industrial production. It is also used as a forecast of The ISM Index. Generally, an above-the-expectations reading is seen as positive for the USD.
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karvy
Stock Baba: tip for the week: Oct 17th
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NEW SPECIAL SECTION
Renowned astrologer and stock investment guru, will offer one stock every week for short term trading opportunity.
Tip for week fo october 17th by Stock Baba is:
Buy: Quintegra Solutions Limited
CMP: Rs 14.85 on NSE
CMP: Rs 14.70 on BSE
NEW SPECIAL SECTION
Renowned astrologer and stock investment guru, will offer one stock every week for short term trading opportunity.
Tip for week fo october 17th by Stock Baba is:
Buy: Quintegra Solutions Limited
CMP: Rs 14.85 on NSE
CMP: Rs 14.70 on BSE
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Quintegra,
Stock Baba
PINC POWERPICKS : M&M: BUY, TP-Rs831 (16% upside)
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What’s the theme?
M&M, with a major rural presence, is expected to benefit from strong monsoons this year. The automobile
segment is expected to record volume growth of 20.8% in FY11, after an impressive 30% growth in FY10.
The tractor segment is expected to grow 10.3% in FY11, due to increased demand from the construction
and infrastructure sectors.
What will move the stock?
1) Ssangyong, Korea, has selected M&M as a preferred bidder. The acquisition would provide M&M a
2-3 year leap in terms of product development. Financial details on the transaction are awaited. 2) Production
for the JV with Navistar has begun at the Chakan plant. 3) M&M has received EPA approval for launch in
the US. 3) There is strong demand for small commercial vehicles (SCVs), the fastest-growing CV segment,
which M&M recently entered into with the launch of Maximmo and Gio. 4) The company is expected to roll
out expansion plans to ramp up capacity given current growth in the tractor segment.
Where are we stacked versus consensus?
We expect EPS of Rs39.6 and Rs43.7 in FY11 and FY12 respectively. Our FY11 earnings estimate is
3.3% lower than consensus estimate of Rs40.9. We value M&M using SOTP at Rs831, discounting the
standalone business at 14x FY12E earnings.
What will challenge our target price?
1) Steep raw material price increases and M&M's inability to pass on the same to customers; 2) Increased
competition in the UV segment on new launches affecting market share; and 3) Litigation with Global
Vehicles Distributor, USA.
What’s the theme?
M&M, with a major rural presence, is expected to benefit from strong monsoons this year. The automobile
segment is expected to record volume growth of 20.8% in FY11, after an impressive 30% growth in FY10.
The tractor segment is expected to grow 10.3% in FY11, due to increased demand from the construction
and infrastructure sectors.
What will move the stock?
1) Ssangyong, Korea, has selected M&M as a preferred bidder. The acquisition would provide M&M a
2-3 year leap in terms of product development. Financial details on the transaction are awaited. 2) Production
for the JV with Navistar has begun at the Chakan plant. 3) M&M has received EPA approval for launch in
the US. 3) There is strong demand for small commercial vehicles (SCVs), the fastest-growing CV segment,
which M&M recently entered into with the launch of Maximmo and Gio. 4) The company is expected to roll
out expansion plans to ramp up capacity given current growth in the tractor segment.
Where are we stacked versus consensus?
We expect EPS of Rs39.6 and Rs43.7 in FY11 and FY12 respectively. Our FY11 earnings estimate is
3.3% lower than consensus estimate of Rs40.9. We value M&M using SOTP at Rs831, discounting the
standalone business at 14x FY12E earnings.
What will challenge our target price?
1) Steep raw material price increases and M&M's inability to pass on the same to customers; 2) Increased
competition in the UV segment on new launches affecting market share; and 3) Litigation with Global
Vehicles Distributor, USA.
PINC POWER PICKS: GLENMARK: BUY, TP-Rs353 (14% upside)
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What’s the theme?
Glenmark has underperformed the BSE Healthcare Index on a disappointing NCE R&D pipeline and slowing
growth in the generic business. Thus, the stock is now available at cheaper valuations. We believe that as
growth comes back, Glenmark offers potential for a re-rating.
What will move the stock?
1) Growth in the US on approvals for niche products (dermatology, controlled substances, modified
releases, hormones); 2) Improved profitability in RoW markets, strong volume growth, and stable currencies;
3) News flow on the innovative research programme; and 4) Balance sheet improvement with reducing
leverage and working capital requirements.
Where are we stacked versus consensus?
Our estimates are among the highest on the Street because we are more sanguine about Glenmark's
return to high growth in the US (more niche product launches vs. an existing plain vanilla generic product
portfolio) and RoW markets (volume growth and stabilizing currencies). Given near-term uncertainty over
the NCE R&D pipeline and related milestones, we believe cost basis is more appropriate for valuing the
NCE R&D effort. We value the base business at 18x Sept'11E earnings after adding back NCE R&D (net
of tax shield). We also add Rs15/share as NPV for 'at risk' launch of Tarka in the US. This yields a TP of
Rs353. Maintain 'BUY'.
What will challenge our target price?
1) Inability to launch differentiated products in the US generic market, due to delays in securing approvals
from the US FDA; and 2) Inability to sustain growth in RoW markets.
What’s the theme?
Glenmark has underperformed the BSE Healthcare Index on a disappointing NCE R&D pipeline and slowing
growth in the generic business. Thus, the stock is now available at cheaper valuations. We believe that as
growth comes back, Glenmark offers potential for a re-rating.
What will move the stock?
1) Growth in the US on approvals for niche products (dermatology, controlled substances, modified
releases, hormones); 2) Improved profitability in RoW markets, strong volume growth, and stable currencies;
3) News flow on the innovative research programme; and 4) Balance sheet improvement with reducing
leverage and working capital requirements.
Where are we stacked versus consensus?
Our estimates are among the highest on the Street because we are more sanguine about Glenmark's
return to high growth in the US (more niche product launches vs. an existing plain vanilla generic product
portfolio) and RoW markets (volume growth and stabilizing currencies). Given near-term uncertainty over
the NCE R&D pipeline and related milestones, we believe cost basis is more appropriate for valuing the
NCE R&D effort. We value the base business at 18x Sept'11E earnings after adding back NCE R&D (net
of tax shield). We also add Rs15/share as NPV for 'at risk' launch of Tarka in the US. This yields a TP of
Rs353. Maintain 'BUY'.
What will challenge our target price?
1) Inability to launch differentiated products in the US generic market, due to delays in securing approvals
from the US FDA; and 2) Inability to sustain growth in RoW markets.
Nomura: downgrade Godrej Properties to NEUTRAL
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Action
We downgrade Godrej Properties to NEUTRAL with a revised price target of
INR733 per share. The stock has run up 54.9% since its IPO in December 2009,
against a 20.4% rise in the BSE Sensex on land accretion expectations in Mumbai.
We believe upside is now over and the focus will be on execution, even if further
projects are added in future.
Catalysts
A faster-than-expected pace of sales and execution could lead to upside, while
failure to clinch the land deal in BKC, Mumbai, could be a risk.
Anchor themes
CY10-12F will be a crucial period for developers, as they need to sell higher
volumes, not only to deleverage themselves, but also to justify the large landbanks
they hold. If volumes are not substantially higher from here by CY12F, then
developers may not be able to get full value for their large land holdings.
Land accretion upside over
Sharp run-up in stock price leads to fair valuation
Godrej Properties’ stock is up 54.9% since its IPO in December 2009,
outperforming the BSE Sensex by 34.5%. This is on expectation of
land reserve accretion, especially from a parcel of land in Bandra-
Kurla Complex (BKC), Mumbai, currently owned by Jet Airways. The
stock now trades at a 45% premium to our revised NAV of INR524 per
share and while this can be justified given the valuable nature of
expected land accretion in Mumbai, anything more than this would
need to follow execution. We increase the premium to our NAV from
20% to 40% to account for the expected land deal in BKC.
Will premiums increase if there is further land accretion?
While Godrej will continue to enter into fresh joint development
agreements (JDA), the company will need to deliver on sales and
execution before valuations can move up in response to new JDAs.
To generate value from new land, this would need to be monetised
and this is where execution and demand limitations come to the fore.
Godrej is working on 93mn sqft of projects to be delivered in the next
10 years, on our estimate. This is against a delivery of 9mn sqft of
projects in its entire history. A considerable jump in execution
capabilities is required to achieve this target and addition of further
projects could result in existing projects being pushed back. We
believe further land accretion will not result in increasing valuations.
Target price raised 25%, resulting in 4% downside
We have tweaked our estimates a bit while rolling over NAV to
September 2011 from March 2011, which results in NAV moving up
by 7%. We have also increased the premium to NAV to 40% from
20%, resulting in our PT moving up by 25%. At this point, we would
prefer stocks that have a better risk-reward ratio and are trading
below NAV, such as HDIL and Puravankara.
Action
We downgrade Godrej Properties to NEUTRAL with a revised price target of
INR733 per share. The stock has run up 54.9% since its IPO in December 2009,
against a 20.4% rise in the BSE Sensex on land accretion expectations in Mumbai.
We believe upside is now over and the focus will be on execution, even if further
projects are added in future.
Catalysts
A faster-than-expected pace of sales and execution could lead to upside, while
failure to clinch the land deal in BKC, Mumbai, could be a risk.
Anchor themes
CY10-12F will be a crucial period for developers, as they need to sell higher
volumes, not only to deleverage themselves, but also to justify the large landbanks
they hold. If volumes are not substantially higher from here by CY12F, then
developers may not be able to get full value for their large land holdings.
Land accretion upside over
Sharp run-up in stock price leads to fair valuation
Godrej Properties’ stock is up 54.9% since its IPO in December 2009,
outperforming the BSE Sensex by 34.5%. This is on expectation of
land reserve accretion, especially from a parcel of land in Bandra-
Kurla Complex (BKC), Mumbai, currently owned by Jet Airways. The
stock now trades at a 45% premium to our revised NAV of INR524 per
share and while this can be justified given the valuable nature of
expected land accretion in Mumbai, anything more than this would
need to follow execution. We increase the premium to our NAV from
20% to 40% to account for the expected land deal in BKC.
Will premiums increase if there is further land accretion?
While Godrej will continue to enter into fresh joint development
agreements (JDA), the company will need to deliver on sales and
execution before valuations can move up in response to new JDAs.
To generate value from new land, this would need to be monetised
and this is where execution and demand limitations come to the fore.
Godrej is working on 93mn sqft of projects to be delivered in the next
10 years, on our estimate. This is against a delivery of 9mn sqft of
projects in its entire history. A considerable jump in execution
capabilities is required to achieve this target and addition of further
projects could result in existing projects being pushed back. We
believe further land accretion will not result in increasing valuations.
Target price raised 25%, resulting in 4% downside
We have tweaked our estimates a bit while rolling over NAV to
September 2011 from March 2011, which results in NAV moving up
by 7%. We have also increased the premium to NAV to 40% from
20%, resulting in our PT moving up by 25%. At this point, we would
prefer stocks that have a better risk-reward ratio and are trading
below NAV, such as HDIL and Puravankara.
CLICK links to Read MORE reports on:
Godrej Properties,
Nomura research
PINC POWER PICKS :GODAWARI POWER: BUY, TP-Rs288 (32% upside)
Visit http://indiaer.blogspot.com/ for complete details
What’s the theme?
GPIL is one of our top picks in the steel space, as we expect margin expansion and earnings CAGR of
54% over FY10-FY13, driven by backward integration. We expect the recently-commissioned 0.6mt pellet
plant to boost GPIL's earnings further.
What will move the stock?
1) Timely commencement of the Boria Tibu mine in Q3 FY11 will boost margins. 2) The 20 MW biomassbased
power plant, expected to be operational in H2 FY11, would ensure further power availability and
become revenue accretive. 3) Strong upstream integration would boost top line and bottom line. 4)
Production from the 0.6mtpa pellet plant in Orissa may provide further upside of Rs43/share (not included
in our estimates).
Where are we stacked versus consensus?
Our FY12 earnings estimate is in line with consensus.
What will challenge our target price?
1) Lower-than-expected steel prices and volumes; 2) Delay in ramp-up of the Boria Tibu mine; and 3)
Sharper increase in costs.
What’s the theme?
GPIL is one of our top picks in the steel space, as we expect margin expansion and earnings CAGR of
54% over FY10-FY13, driven by backward integration. We expect the recently-commissioned 0.6mt pellet
plant to boost GPIL's earnings further.
What will move the stock?
1) Timely commencement of the Boria Tibu mine in Q3 FY11 will boost margins. 2) The 20 MW biomassbased
power plant, expected to be operational in H2 FY11, would ensure further power availability and
become revenue accretive. 3) Strong upstream integration would boost top line and bottom line. 4)
Production from the 0.6mtpa pellet plant in Orissa may provide further upside of Rs43/share (not included
in our estimates).
Where are we stacked versus consensus?
Our FY12 earnings estimate is in line with consensus.
What will challenge our target price?
1) Lower-than-expected steel prices and volumes; 2) Delay in ramp-up of the Boria Tibu mine; and 3)
Sharper increase in costs.
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PINC
PINC POWERPICKS: NIIT TECH: BUY, TP-Rs252 (13% UPSIDE)
Visit http://indiaer.blogspot.com/ for complete details
What’s the theme?
NIIT Tech has large exposure to high-growth niche verticals such as insurance and travel. New service
lines will boost the non-linear growth and lead to improvement in realisations. NIIT Tech has no exposure
to the PIIGS zone and has been able to achieve volume growth in Europe despite economic headwinds.
What will move the stock?
1) Recent wins in the Indian market: five-year BSF contract worth Rs2,280mn; 2) Good performance from
the Insurance and Travel and transport verticals that contribute ~72% to revenue; 3) Large untapped
opportunity in the APAC markets that are expected to be the highest IT spenders in CY10; 4) Strong order
book and high growth in the top 10 clients; and 5) Stable EBITDA margins in the IT services business.
Where are we stacked versus consensus?
Our top-line estimates vary from consensus estimates by ~4.6% underpinned by stronger volumes and a
modest uptick in the pricing for FY12. Our EBITDA margin estimates for FY12 are lower than consensus
by ~70bps as we expect higher salary increases and promotions. Our FY12EPS estimate is in line with
consensus.
What will challenge our target price?
1) Slower recovery in the European economy; 2) Sharp currency volatility; 3) Higher attrition and wage
increments; and 4) Project delays and cancellations in government contracts.
What’s the theme?
NIIT Tech has large exposure to high-growth niche verticals such as insurance and travel. New service
lines will boost the non-linear growth and lead to improvement in realisations. NIIT Tech has no exposure
to the PIIGS zone and has been able to achieve volume growth in Europe despite economic headwinds.
What will move the stock?
1) Recent wins in the Indian market: five-year BSF contract worth Rs2,280mn; 2) Good performance from
the Insurance and Travel and transport verticals that contribute ~72% to revenue; 3) Large untapped
opportunity in the APAC markets that are expected to be the highest IT spenders in CY10; 4) Strong order
book and high growth in the top 10 clients; and 5) Stable EBITDA margins in the IT services business.
Where are we stacked versus consensus?
Our top-line estimates vary from consensus estimates by ~4.6% underpinned by stronger volumes and a
modest uptick in the pricing for FY12. Our EBITDA margin estimates for FY12 are lower than consensus
by ~70bps as we expect higher salary increases and promotions. Our FY12EPS estimate is in line with
consensus.
What will challenge our target price?
1) Slower recovery in the European economy; 2) Sharp currency volatility; 3) Higher attrition and wage
increments; and 4) Project delays and cancellations in government contracts.
PINC POWER PICKS: APOLLO TYRES: BUY, TP-Rs110 (31% upside)
Visit http://indiaer.blogspot.com/ for complete details
What’s the theme?
The 70-day lockout at Apollo Tyres' Cochin plant was lifted in the last week of August'10. The lockout was
a significant overhang on the stock as the facility accounts for a third of the company's domestic production
capacity. This, along with recent correction in prices of natural rubber, the key raw material, augurs well
for the domestic business. However, we do not expect volume growth in FY11 in the domestic business
due to lockout at the Cochin facility. Although the company has undertaken price increases, margins are
expected to take a 440bps knock at 11.3%. VBBV reported a net profit margin of 6.5% in Q1FY11. We
expect subsidiaries to contribute Rs1.9bn in profit in FY11.
What will move the stock?
1) Re-rating of the sector on the back of radialisation in the truck-bus radial (TBR) segment; 2) Ramp-up
at the Chennai facility and commencement of production for TBR tyres; 3) Correction in natural rubber
prices due to production growth or reduction in import duty on natural rubber as demanded by the tyre
industry; and 4) Continued strong performance of VBBV, which specializes in winter tyres.
Where are we stacked versus consensus?
Our FY11 and FY12 consolidated earnings estimates are Rs8.7 and Rs11.0 respectively. With the end of
the lockout at the Cochin facility, we have increased our target earnings multiple to 10x (from 7.5x). We
reiterate our 'BUY' recommendation on the stock with a revised price target of Rs110. Our consolidated
earnings estimate for FY11 is 2.0% higher than consensus estimate of Rs8.5.
What will challenge our target price?
1) Further increase in natural rubber prices, a key raw material; and 2) Payment of penalty due to
involvement in a price fixing cartel alleged by Competition Commission of South Africa.
What’s the theme?
The 70-day lockout at Apollo Tyres' Cochin plant was lifted in the last week of August'10. The lockout was
a significant overhang on the stock as the facility accounts for a third of the company's domestic production
capacity. This, along with recent correction in prices of natural rubber, the key raw material, augurs well
for the domestic business. However, we do not expect volume growth in FY11 in the domestic business
due to lockout at the Cochin facility. Although the company has undertaken price increases, margins are
expected to take a 440bps knock at 11.3%. VBBV reported a net profit margin of 6.5% in Q1FY11. We
expect subsidiaries to contribute Rs1.9bn in profit in FY11.
What will move the stock?
1) Re-rating of the sector on the back of radialisation in the truck-bus radial (TBR) segment; 2) Ramp-up
at the Chennai facility and commencement of production for TBR tyres; 3) Correction in natural rubber
prices due to production growth or reduction in import duty on natural rubber as demanded by the tyre
industry; and 4) Continued strong performance of VBBV, which specializes in winter tyres.
Where are we stacked versus consensus?
Our FY11 and FY12 consolidated earnings estimates are Rs8.7 and Rs11.0 respectively. With the end of
the lockout at the Cochin facility, we have increased our target earnings multiple to 10x (from 7.5x). We
reiterate our 'BUY' recommendation on the stock with a revised price target of Rs110. Our consolidated
earnings estimate for FY11 is 2.0% higher than consensus estimate of Rs8.5.
What will challenge our target price?
1) Further increase in natural rubber prices, a key raw material; and 2) Payment of penalty due to
involvement in a price fixing cartel alleged by Competition Commission of South Africa.
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Apollo Tyres,
PINC
Indiabulls research: Jubilant Life Sciences F2Q 2011 (Sept qtr) preview
Visit http://indiaer.blogspot.com/ for complete details
Jubilant Life Sciences (CMP: `322, TP: `415, Outperform)
• We expect revenues to have grown marginally by 1.2% YoY to `7.01bn largely on account of rebound in revenue from the contract manufacturing business.
• EBITDA is likely to show a marginal 4% decline YoY due to a 109bps contraction in margin.
• Net profit will likely show a 36% expansion on account of lower base in 2QFY10 due to forex loss on exports and FCCBs.
Jubilant Life Sciences (CMP: `322, TP: `415, Outperform)
• We expect revenues to have grown marginally by 1.2% YoY to `7.01bn largely on account of rebound in revenue from the contract manufacturing business.
• EBITDA is likely to show a marginal 4% decline YoY due to a 109bps contraction in margin.
• Net profit will likely show a 36% expansion on account of lower base in 2QFY10 due to forex loss on exports and FCCBs.
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Engineers India an Outperformer says IDFC research,
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Engineers India (EIL) has over the past four decades emerged as the leading engineering consultancy
company in the hydrocarbon space. EIL’s strong technical skills, ability to offer integrated services in a
timely and cost effective manner, geographical diversification and the resultant secure client base give it an
unmatched competitive edge. Accordingly, EIL is likely to be a key beneficiary of the continued capex in
the hydrocarbon space over the next 10 years. EIL has received inflows of Rs18bn in FY11 till date (47% yoy
growth), resulting in its current order backlog of Rs70bn (+12% yoy). The strong backlog provides revenue
visibility over the next two years, driving 32% revenue CAGR and 15% earnings CAGR over FY10-12. EIL’s
current valuation of 20.6x FY12E earnings is attractive in view of EIL’s strong order backlog and earnings
visibility, superior and improving return ratios and Rs52/share cash on the books. Outperformer.
A leader in the hydrocarbon space: Over the past four decades, EIL has developed the technical skills and
capability to offer integrated services from concept to commissioning for the entire hydrocarbon industry value
chain. Further, EIL’s strong execution team ensures project delivery on schedule and at low costs that have
enabled EIL to develop strong client relationships.
Robust order inflows: EIL’s order backlog is growing rapidly, driven by capacity expansions in the
hydrocarbon space and new areas of growth like infrastructure, mining and metallurgy. Order backlog has
increased from Rs62bn as of end-FY10 to Rs70bn as of June 2010 on inflows of Rs18bn. We expect inflows to
remain strong led by an estimated 100MT in refining capacity addition in the hydrocarbon industry over the
next 10 years.
Strong earnings growth in FY10-12E; Outperformer: The growing order backlog provides visibility for strong
revenue growth (32% CAGR) over the next two years. However, a higher proportion of lumpsum (LSTK)
contracts, vs consultancy projects (PMC), is likely to compress margins by 430bps over FY10-12E, thereby
driving earnings at 15% CAGR over FY10-12. We believe the strong revenue growth is likely to offset the sharp
fall in margins and drive an improvement in return ratios over the next two years. At 20.6x FY12E earnings, we
believe the stock is attractive in view of its superior return ratios, Rs52/share cash on the books and visibility of
strong earnings growth. Initiate with an Outperformer rating and a 12-month price target of Rs405/share.
Engineers India (EIL) has over the past four decades emerged as the leading engineering consultancy
company in the hydrocarbon space. EIL’s strong technical skills, ability to offer integrated services in a
timely and cost effective manner, geographical diversification and the resultant secure client base give it an
unmatched competitive edge. Accordingly, EIL is likely to be a key beneficiary of the continued capex in
the hydrocarbon space over the next 10 years. EIL has received inflows of Rs18bn in FY11 till date (47% yoy
growth), resulting in its current order backlog of Rs70bn (+12% yoy). The strong backlog provides revenue
visibility over the next two years, driving 32% revenue CAGR and 15% earnings CAGR over FY10-12. EIL’s
current valuation of 20.6x FY12E earnings is attractive in view of EIL’s strong order backlog and earnings
visibility, superior and improving return ratios and Rs52/share cash on the books. Outperformer.
A leader in the hydrocarbon space: Over the past four decades, EIL has developed the technical skills and
capability to offer integrated services from concept to commissioning for the entire hydrocarbon industry value
chain. Further, EIL’s strong execution team ensures project delivery on schedule and at low costs that have
enabled EIL to develop strong client relationships.
Robust order inflows: EIL’s order backlog is growing rapidly, driven by capacity expansions in the
hydrocarbon space and new areas of growth like infrastructure, mining and metallurgy. Order backlog has
increased from Rs62bn as of end-FY10 to Rs70bn as of June 2010 on inflows of Rs18bn. We expect inflows to
remain strong led by an estimated 100MT in refining capacity addition in the hydrocarbon industry over the
next 10 years.
Strong earnings growth in FY10-12E; Outperformer: The growing order backlog provides visibility for strong
revenue growth (32% CAGR) over the next two years. However, a higher proportion of lumpsum (LSTK)
contracts, vs consultancy projects (PMC), is likely to compress margins by 430bps over FY10-12E, thereby
driving earnings at 15% CAGR over FY10-12. We believe the strong revenue growth is likely to offset the sharp
fall in margins and drive an improvement in return ratios over the next two years. At 20.6x FY12E earnings, we
believe the stock is attractive in view of its superior return ratios, Rs52/share cash on the books and visibility of
strong earnings growth. Initiate with an Outperformer rating and a 12-month price target of Rs405/share.
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Engineers India,
IDFC research
Buy Voltas -Visibility improves for textile machinery, UCP segments; says Religare
Visit http://indiaer.blogspot.com/ for complete details
Voltas Ltd
Visibility improves for textile machinery, UCP segments
We see improved visibility for Voltas’ (VOLT) textile machinery business, driven
by a pick up in announcements for new textile projects (up 48.3% YoY) in
H1FY11. Further, we believe that the company’s unitary cooling business could
spring a positive surprise in FY11E/FY12E on volume growth in the air
conditioning segment. We roll forward our target P/E of ~19x to Sep ’11, giving
us a revised target price of Rs 300 (from Rs 275 earlier). Maintain BUY.
Revival in textile machinery: In addition to the strong pick up in announcements
for new textile projects, the likely increase in allocation for Textile Upgradation
Fund Scheme (TUFS) would boost capacity expansion in the textile sector.
Textile machinery contributed 7.9% of VOLT’s engineering product revenues in
FY10 (engineering products segment was 10.3% of total sales in FY10). The
contribution of the textile machinery segment to the company’s profits, however,
is likely to be higher as this is an agency business.
Volume growth in air conditioners: In our opinion, VOLT’s air conditioning
business is likely to surprise on the upside, driven by the increased reach of its air
conditioning products. Over the years, VOLT has focused on expanding its
channel network to improve product reach and thereby gain market share.
Currently, the company enjoys a 17% market share in the domestic air
conditioning market (ranked second after LG).
Upside provided by a widening geographic presence: VOLT’s order inflows
peaked in FY08 at Rs 37.4bn, driven by successful diversification in the Middle
East. Following the slowdown in Dubai in FY09, the company has strengthened
its presence in other markets such as Saudi Arabia, Oman, Singapore and Hong
Kong. This geographic expansion could drive order inflows for the company in
FY11 and FY12.
Attractive long-term play; BUY: VOLT looks attractive from a long-term
perspective, with a strong balance sheet and impressive return ratios. Further, at
FY10-end, the company had a cash and investment balance of Rs 7bn that is
likely to be used for acquisitions in the water segment. A successful acquisition
would lead to an upgrade in estimates and improvement in return ratios, as
excess capital is absorbed. Historically, the stock has traded in a one-year
forward P/E band of 18x–30x. Our Sep ’11 target price for the stock stands at
Rs 300, implying a 22% upside from current levels. Maintain BUY.
Voltas Ltd
Visibility improves for textile machinery, UCP segments
We see improved visibility for Voltas’ (VOLT) textile machinery business, driven
by a pick up in announcements for new textile projects (up 48.3% YoY) in
H1FY11. Further, we believe that the company’s unitary cooling business could
spring a positive surprise in FY11E/FY12E on volume growth in the air
conditioning segment. We roll forward our target P/E of ~19x to Sep ’11, giving
us a revised target price of Rs 300 (from Rs 275 earlier). Maintain BUY.
Revival in textile machinery: In addition to the strong pick up in announcements
for new textile projects, the likely increase in allocation for Textile Upgradation
Fund Scheme (TUFS) would boost capacity expansion in the textile sector.
Textile machinery contributed 7.9% of VOLT’s engineering product revenues in
FY10 (engineering products segment was 10.3% of total sales in FY10). The
contribution of the textile machinery segment to the company’s profits, however,
is likely to be higher as this is an agency business.
Volume growth in air conditioners: In our opinion, VOLT’s air conditioning
business is likely to surprise on the upside, driven by the increased reach of its air
conditioning products. Over the years, VOLT has focused on expanding its
channel network to improve product reach and thereby gain market share.
Currently, the company enjoys a 17% market share in the domestic air
conditioning market (ranked second after LG).
Upside provided by a widening geographic presence: VOLT’s order inflows
peaked in FY08 at Rs 37.4bn, driven by successful diversification in the Middle
East. Following the slowdown in Dubai in FY09, the company has strengthened
its presence in other markets such as Saudi Arabia, Oman, Singapore and Hong
Kong. This geographic expansion could drive order inflows for the company in
FY11 and FY12.
Attractive long-term play; BUY: VOLT looks attractive from a long-term
perspective, with a strong balance sheet and impressive return ratios. Further, at
FY10-end, the company had a cash and investment balance of Rs 7bn that is
likely to be used for acquisitions in the water segment. A successful acquisition
would lead to an upgrade in estimates and improvement in return ratios, as
excess capital is absorbed. Historically, the stock has traded in a one-year
forward P/E band of 18x–30x. Our Sep ’11 target price for the stock stands at
Rs 300, implying a 22% upside from current levels. Maintain BUY.
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religare research,
voltas
2QFY11 preview for Glenmark Pharma by Indiabulls research
Visit http://indiaer.blogspot.com/ for complete details
Glenmark Pharma (CMP: `310, TP: `340, Outperform)
• Glenmark launched the generic version of Tarka in 2QFY11 at-risk, which we believe has contributed ~US$6mn to the top-line during 2QFY11. We expect the top-line to show >20% growth YoY and >4% sequentially.
• In the 1QFY11, the company generated US$20mn via out-licensing of its lead compound for the pain segment, GRC15300, to Sanofi Aventis.
• EBITDA has likely grown ~18% on YoY basis and declined on sequential basis due to higher base on account of the out-licensing income received in the previous quarter.
• For the same reason as in the above point, net profit is likely to have grown 25% YoY but declined 35% sequentially.
Glenmark Pharma (CMP: `310, TP: `340, Outperform)
• Glenmark launched the generic version of Tarka in 2QFY11 at-risk, which we believe has contributed ~US$6mn to the top-line during 2QFY11. We expect the top-line to show >20% growth YoY and >4% sequentially.
• In the 1QFY11, the company generated US$20mn via out-licensing of its lead compound for the pain segment, GRC15300, to Sanofi Aventis.
• EBITDA has likely grown ~18% on YoY basis and declined on sequential basis due to higher base on account of the out-licensing income received in the previous quarter.
• For the same reason as in the above point, net profit is likely to have grown 25% YoY but declined 35% sequentially.
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Dishman Pharma F2Q (Sept) preview by Indiabulls research,
Visit http://indiaer.blogspot.com/ for complete details
Dishman Pharma (CMP: `180, TP: `245, Outperform)
• On account of slow recovery in its Indian operations as well as in its Swiss arm Carbogen Amcis, Dishman Pharma is likely to report a flat top-line growth in 2QFY11.
• EBITDA too is likely to show a nominal growth of ~0.6% YoY due to flat margin.
• Net profit will likely show a marginal 0.7% decline
Dishman Pharma (CMP: `180, TP: `245, Outperform)
• On account of slow recovery in its Indian operations as well as in its Swiss arm Carbogen Amcis, Dishman Pharma is likely to report a flat top-line growth in 2QFY11.
• EBITDA too is likely to show a nominal growth of ~0.6% YoY due to flat margin.
• Net profit will likely show a marginal 0.7% decline
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Dishman Pharma,
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