9am with Emkay 28 March, 2011

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9am with Emkay

28 March, 2011

Contents

n        Research Views

Marico- Event update

Event:

Marico has divested its Sweekar brand (sunflower oil) to Cargill India for an undisclosed amount.

Our View:

n    Sweekar is a non-focus brand and contributes approximately 3% to consolidated revenues.

n    According to us, potential transaction value could range between 1.5-2x of Sweekar sales, i.e. Rs 1.5-2 bn (No financial details disclosed).

n    Hence, potential earnings upgrade could range between 2-3% for FY11E.

n    However, currently we maintain our FY11E earnings estimates of Rs 4.7 per share.

Valuation:

Trading at 21.7x FY12E EPS of Rs6.0. Maintain Accumulate. Target price of Rs 142.

Govt borrowing programme suprises positively at Rs1.9tn

The government borrowing programme announced for H1FY12 at Rs1.9tn (net) was lower than ours as well as consensus expectations of Rs2.1-2.3tn (net). The gross government borrowings are kept at Rs2.5tn. The lower than expected borrowing programme is positive for the bond yields in the short term. We expect the short end of the yield curve to come down a bit as the liquidity pressure eases in the first half due to seasonality. However, in medium term the yields are more likely to be in tandem with inflation which may keep the yields higher.

n        Research Update Included

Elecon Engineering Management Meet Update; Sustained momentum; Retain BUY; Target: Rs 89

n    We retain our positive bias on EEL post meeting management – Reiterate that tide has turned and EEL is poised to witness sharp recovery in earnings in FY10-12E period

n    MHE division – expected to grow at 15-20% in FY12E with sustained order inflow momentum. Current order book of Rs13.5 bn lends full revenue visibility for FY12E

n    TE division to witness sustained growth momentum – expect to grow at 17-18% in FY12E. Progress on recently acquired David Brown Gear Systems on track

n    Retain FY11E earnings estimates of Rs6.9 and fine tune FY12E estimates by -5% to Rs8.9. Maintain our Buy rating with revised price target of Rs89

Gujarat Gas Company Analyst Meet Update; Re-charged for growth; Buy; Target: Rs 481

n    Shifting focus from Bulk to Industrial retail and CNG segment

n    Management guided volume growth of 8-10% for CY11

n    Due to higher cost of RLNG, another round of price revision expected within short span, mainly in CNG segment 

n    Given its monopoly in cities of Gujarat, expected volume growth plus Zero debt and robust business model with no commodity risk, We maintain BUY rating with TP of Rs.481

n        Technical Comments

Nifty

Nifty started the day with a bullish gap and continued its winning streak for the fourth consecutive session. Moreover, with the weekly close above 5600 mark, Nifty has successfully broken the upper band of the falling channel. Also it has started forming rising troughs on daily chart, which is a clear sign of trend reversal according to the Dow Theory system. Now the next key pivot to watch out for is the resistance of 200-DSMA, which is currently placed at 5688. However, after witnessing such a strong move in today’s session, we feel that Nifty will easily break the barrier of 200-DSMA and will rise upto 5800 level, which is our revised target going forward.